StarHub : In Discussion with StarHub Management ( 527 KB)

In Discussion with StarHub's Executives

CHIEF EXECUTIVE NIKHIL EAPEN

Q

The DARE+ programme is multi-year and complex. What are the near-term catalysts/milestones/ metrics that management is using to track progress? What can shareholders look forward to in the next year?

A

StarHub is underway with our multi-year DARE+ transformation, repositioning beyond telco toward a digital ecosystem platform. The premise of DARE+ is to harness the power of cloud and digitalisation across our platform, to deliver enriching digital experiences for Singapore consumers and to enable digital transformation for Singapore enterprises. In so doing, we want to drive unprecedented value to all stakeholders - consumers, enterprises, investors and employees.

We spent 2022 building this vision. We expanded Infinity Play, our continuum of Consumer product offerings. This expands our income streams and drives consumption amongst and beyond our current customer base. We built new Enterprise capabilities with an ecosystem of partners to drive new product platforms and are uniquely positioned to converge connectivity, Cloud and Cybersecurity. We are underway with the transformation of our IT infrastructure toward cloud-based platforms, to achieve agility of our business model at pace. We have now initiated our Cloud Infinity network transformation, to converge our Fixed and Mobile infrastructure onto cloud-based platforms to take us to the next level of network scalability, service provision and edge cloud and product capabilities.

With all of these initiatives put in place in 2022, we intend to continue and accelerate our re-platforming toward cloud and digital product and platforms over 2023, enabling, amplifying and accelerating our DARE+ objectives.

Measuring the Progress & Success of DARE+

StarHub's DARE+ transformation runs on a playbook of closely interlinked re-platforming initiatives. These are mostly implemented across FY2022, FY2023 and FY2024 and expected to start delivering value from FY2024. We track our DARE+ progress closely in terms of initiatives as well as impact - from transformation execution milestones to financial and business indicators.

Over FY2022, we have continually updated stakeholders on our transformation execution milestones - expanding Infinity Play, driving new product platforms in Enterprise, cloud enabling and transforming our IT and Network, amongst many other initiatives.

We also set financial targets for FY2022 to reflect the impact of our DARE+ transformation, across Service Revenue, Service EBITDA and Capex Commitment in a guidance offered to the market in February 2022; alongside internal targets for Free Cash Flow. Service Revenue growth is a key indicator of our transformation progress, and we materially exceeded our guidance for FY2022, with secular growth across every business line. We were also able to manage within our 20% EBITDA margin target, exceeding our guidance alongside higher revenue. Notably, we were able to absorb unanticipated macro and inflationary costs while managing within or outperforming our financial targets for DARE+ in FY2022.

We keep track of key business indicators to ensure our business verticals continue to perform and reflect our DARE+ investments and progress made. With Infinity Play, we track indicators such as the take-up of not only our traditional connectivity, but also newer products such as OTT streaming, cloud gaming, consumer cyber products and many others. We also look holistically at the number of services taken up by a customer, Net Promoter Score to gauge customer satisfaction, Average Revenue Per User, subscriber churn rates, customer lifetime value and revenue market share.

For Enterprise, we look at pipeline build up, order book and contract wins, both from traditional connectivity as well as new focus areas within ICT and digital services. These business indicators offer a more sensitive and timely view on the effectiveness and results from key projects and initiatives as we move at pace.

Positioning for FY2023 and Beyond

While our FY2022 financial results have seen short-term impact from our DARE+ investments, these investments are focused on building growth, efficiency and competitiveness for the long-term. Excluding one-off impacts from these investments and macro and inflationary cost factors, we observed strong exit run rates for our business lines in FY2022 with robust operating trends and growth. We believe FY2022 was a profitability trough for DARE+. We intend to accelerate our DARE+ initiatives in FY2023 and harvest from FY2024.

Over FY2023, we intend to further deliver on transformation execution milestones with the expansion of Infinity Play product releases on our cloud-based IT and app platform, further repositioning toward growth enterprise verticals across Cloud, Cloud Connectivity and Cybersecurity and to make significant progress on our Cloud Infinity network transformation.

We also intend to continue driving key business indicators forward in FY2023 and beyond, around new- and multi-product take up, customer satisfaction and customer lifetime value in Consumer and Enterprise pipeline build-up, order book and contract wins with a sharper focus on our growth areas.

Last on financial indicators, we reiterate our DARE+ long term target to achieve $500 million of growth and efficiency outcomes from FY2022 to FY2026, absorbing increased investments for Cloud Infinity as well as increased macro and inflationary costs. We also reiterate our short-term targets for FY2023, to achieve continued revenue growth against investments that will be reflected in our EBITDA margins and Capex. An important interim goal is to achieve our "breakeven" target of achieving a run rate of $500 million in EBITDA within FY2024 and to harvest incremental returns from DARE+ thereafter.

We are applying a disciplined approach to harvesting our DARE+ investments. As we onboard new cloud-enabled and digital platforms, we are executing on a number of strategic cost management initiatives to migrate or decommission legacy systems and processes. We are focused on this critical re-platforming of our business to drive cost efficiencies, quarterly run-rate EBITDA and profitability steadily toward achieving the full potential of DARE+.

We believe that our focused delivery of DARE+ will bring value to stakeholders - consumers, enterprises, employees, investors and Singapore society as a whole. With DARE+, we intend to deliver measurable and meaningful total shareholder returns - through capital gains and dividend growth supported by sustainable business growth.

In Discussion with StarHub's Executives

CHIEF FINANCIAL OFFICER DENNIS CHIA

Q

In FY2022, StarHub achieved $16 million in revenue and cost synergies from integration efforts of its subsidiaries. What can we expect in FY2023? Are there plans for more acquisitions this year?

A

Encouraged by the early outcomes of our integration efforts in FY2022, we will focus on accelerating synergies across the StarHub Group in FY2023 and beyond.

First, we seek to accelerate the development of our Regional ICT Services to provide us with critical scale that could potentially unlock and increase shareholders' value in the future. On this front, we will continue to develop scalable and vertical-focused solutions to differentiate our ICT offerings and pursue opportunities beyond Singapore and Malaysia. For Strateq, we will seek to expand its hospital information system offering and EdTech platform, allowing us to strengthen its pipeline and onboard a greater number of clinics in Malaysia.

We will also focus on building and scaling our near-shore delivery capabilities, which can be deployed across a larger customer base and broader footprint to enhance our competitiveness. We will combine our talent pool and expertise in Singapore and Malaysia to hire the right talents, ensuring that we are able to deliver quality and value to customers in a tight labour market. We expect to realise cost savings of up to 50% with cost advantages in training and talent acquisition.

Lastly, we will streamline and standardise operational functions across the Group to optimise operational efficiencies. These initiatives include establishing a common back-end platform to support our regional growth, and the consolidation of our procurement functions to realise greater cost savings and leverage economies of scale. Furthermore, we will continue to explore opportunities to better optimise our infrastructure and share costs via our Antina joint venture.

We are uniquely positioned in the market and continue to maintain a long-term view on our business. Towards this end, we will continue to explore synergistic and accretive M&As to augment our capabilities and market position, as well as to increase our scale.

Q

Taking the higher bound of your FY2023 Capex Commitment guidance, this implies about $200 million in investments to be committed in FY2023. Coupled with the investments already made in FY2022, does it mean the bulk of the $310 million in DARE+ investments will be made in FY2023? Can we expect a better performance in FY2024?

A

When we first launched DARE+ in November 2021, we envisaged $270 million in investments to realise DARE+. This was based on the business initiatives and operating environment at the time of the programme's launch, and the timing and scope of our planned deliverables. The $270 million investment quantum includes both Operating Expenses ("Opex") and Capital Expenditure ("Capex"), such as costs relating to the build-out of a skilled and experienced team to ensure the successful delivery of our DARE+ objectives and programmes, as well as the acquisition of tool sets and licenced IT platforms to enhance and complement our internal capabilities,amongst others.

A year on, in December 2022, we announced an upward revision of our DARE+ investments from $270 million to $310 million. The incremental $40 million is primarily earmarked for the development of our Cloud Infinity network transformation and several other business initiatives. When completed, these initiatives will elevate and accelerate our DARE+ ambitions.

In FY2022, we incurred 24% of the $310 million, or approximately $75 million in Opex and Capex investments. Together with approximately $31 million in provisions made at the end of FY2022, the aggregate amount of approximately $106 million represents 35% of the $310 million investment amount. We endeavour to accelerate execution and expect to deploy most of the remaining $200 million in Opex and Capex investments in FY2023, and a smaller proportion in early FY2024.

With most of our DARE+ investments expected to be completed by mid-FY2024, we target to start harvesting DARE+ savings and benefits by 4Q2023. Accordingly, we aim to return a relatively better performance in FY2024.

• 1 Excluding 5G Capex and spectrum right, as well as investments relating to DARE+ and IT Transformation.

  FY2023 GUIDANCE

  Service Revenue

  8% - 10%

  At Least 5.0 Cents

  or Dividend Policy3

  YoY At Least

  Service EBITDA Margin

  Approx.

  20%

  Capex Commitment

  (As % of Total Revenue)

  BAU Capex1

  5% - 7%

  Including Investments2

  13% - 15%

  Dividend/Share

• 2 Excluding 5G Capex and spectrum right, but including investments relating to DARE+ and IT Transformation.

• 3 To distribute at least 80% of net profit attributable to shareholders (adjusted for one-off, non-recurring items), payable on a semi-annual basis.

In Discussion with StarHub's Executives

CONSUMER JOHAN BUSE

Q

What exactly is Infinity Play, what is the progress of this, and your vision for the Consumer business at the end of the DARE+ programme in FY2026?

A

Ever since we launched our service more than 20 years ago, our challenger spirit and focus on delivering a superior differentiated product experience have been embedded in StarHub's DNA. This is evident in Infinity Play, the cornerstone of the Consumer Business Group's strategy to deliver the best possible customer experience.

Centred around an unparalleled digital experience, Infinity Play combines world-class connectivity with new unique services beyond StarHub's traditional portfolio. Through Infinity Play, we have introduced new verticals such as GameHub+ (gaming), ProtectHub+ (cyber protection and insurance) and LifeHub+ (digital healthcare monitoring).

We are progressing well with Infinity Play, both in terms of capability building and commercial delivery. We expect to complete the transformation of our entire technical system at the end of FY2023, sunsetting all legacy systems and implementing an end-to-end digital customer experience to drive online sales and service transactions. Early results have demonstrated that Infinity Play has provided us with distinct differentiation, contributing to stable and improving ARPUs across all lines of business.

Our DARE+ transformation expands the Consumer Business Group product portfolio in two dimensions. Firstly, by offering new adjacent products and services in in-demand areas such as gaming, protection and healthcare monitoring. Commercial progress in these areas has been strong. A case in point is GameHub+, which has recorded steady growth since its launch in 3Q2021. We have plans to take the "one-stop" shop for gaming beyond NVIDIA and into the region.

Secondly, we will offer more OTT products and services powered by our brand-new All-In-One app ("AI1"). This will enable StarHub to sell directly to any customer without the need or prerequisite for the customer to have connectivity services with StarHub. StarHub customers will naturally enjoy preferred pricing when subscribing to services on our AI1 app.

The completeness of our offering presents opportunities for bundling, cross-selling and up-selling. As testament to this, Mobile ARPU continues to grow as a result of more roaming, while Broadband is benefiting from a higher speed plan mix and will be supported with the introduction of higher bandwidth plans, such as the 10 Gbps plans that were introduced in February 2023. Entertainment ARPU continues to be stable as a result of pricing initiatives and bundling of new OTT services, while Gaming has shown encouraging ARPU growth last few quarters.

Our DARE+ platform will offer both efficiency gains and create new and incremental revenue streams. We expect our new GameHub+, ProtectHub+ and LifeHub+ verticals to contribute to total Consumer service revenue over the mid-term, and for the Group to begin harvesting efficiency benefits from FY2024.

We would like to invite you to learn more about the achievements and progress made by the Consumer Business Group on page 34 of this annual report.