StarHub Ltd
SGX:CC3
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StarHub Ltd
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[Audio Gap][Operator Instructions] Now with that, let's welcome Peter to share this quarter's highlights from this set of results. Peter, please.
Thank you, Veronica, and a very good evening ladies and gentlemen, and thank you for your interest in our results for this quarter. Allow me to make a few comments before I hand over to our CFO to go through some of the details and the numbers in the presentation pack.
Allow me to say that in quarter 4 2018, we commenced a transformation program aimed at improving our customers' experience. We started revitalizing our brand image through the Hello Change campaign, simplifying Mobile and TV offers. We provided clarity with all fee structures, no hidden charges, and enhanced our customer's ability to transact and interact with us based on My StarHub mobile applications and online improvements in service. We also started to migrate tens of thousands of cable customers every month to Fiber TV. Furthermore, we also invested and contributed to the creation of Ensign, the cyber securities services company, for growth and diversification to complement the quad play strategy we've been pursuing for years. We also commenced in Q4 our cost optimization program to eliminate over $210 million in costs over the -- in the next 3 years.
Today, we are announcing what we believe is a solid set of results for quarter 1.
With total revenue growth of 6% to $597 million year-on-year, and profit attributable to the StarHub shareholders of $54 million, a 14% reduction year-on-year. These outcomes were driven by growth in our Enterprise network solutions business, 9% year-on-year, and our cybersecurity business 41.4% year-on-year. Also our customer growth was led by postpaid customers, growing by 74,000 to 1.44 million, and our residential broadband customers grew by 27,000 to 495,000 customers.
These are the highest customer acquisition numbers for the last 5 quarters for StarHub. Our Pay TV business continues to face several structural changes, from OTT, from direct-to-consumer providers and piracy. And revenues continued to decline by 12% year-on-year to just under $71 million at the end of quarter 1.
Despite migration of cable customers to fiber, the net churn for the quarter remained at the same level as for the last 2 quarters, that is, 15,000 customers. And the total customer base is now 394,000 customers at the end of March.
Whilst we're pursuing a fair share of market share initiatives, we're also addressing our operating cost structure for our core Mobile and data connectivity business. Overall, our service EBITDA margins increased to 33.7% post IFRS year-on-year. However, as the cybersecurity operations require considerable resources to deliver growth, the higher operational expenses from inside coupled with declines in revenues from mobile and Pay TV services and higher depreciation rates resulted in an impact of $49 million for the quarter. If we exclude the impact of cybersecurity services, our impact would have been SGD 61 million for the first quarter. Before I hand over to Dennis, allow me to also restate our quarter 1 outlook remains the same as when we briefed you last in February. We're maintaining guidance on service revenues to be stable to a 2% decline year-on-year. We're also maintaining our EBITDA margin guidance between 30% to 32%, post SFRS 16 adoption. And we're committed to CapEx of 11% to 12%. In terms of dividends, we also announced a dividend payment of $0.09 for the full year. And also, we introduced a new dividend policy with a payout of at least 80% of net profit, with the exception of any one-offs.
Having said this, I'll hand over to our CFO Dennis to go through some of the numbers in detail. Thank you.
Thanks, Peter. I'm now on Slide 11 on EBITDA. We -- as you note, we've adopted the new accounting standards, using full financial reporting standards SFRI 16 starting from 1st of January 2019. Accordingly, we've reported -- we're reporting EBITDA of $162 million for the quarter versus $154 million last year in the same period. As a note, the EBITDA reported for the prior years are not restated for the accounting standard change. Our service EBITDA on Slide 12 is $150 million or 33.7% versus last year's $142 million or 31.7%.
Without the restatement of the SFRI 16, our EBITDA margins would have been 30.5% for the quarter, bearing in mind that we guided the market 26% to 28% for the full year. I'm now on Slide 13. In terms of the cost of sales components, we reported the cost of sales of $283 million for the quarter versus $247 million a year ago.
We've recorded higher cost of equipment in line with the higher revenues we've recorded for handset sales primarily in the quarter. In terms of cost of services, there are higher cost of services in respect of Enterprise Business, as well as the fiber migration, although we have seen savings in our content costs. CapEx costs are in line with the volumes of traffic that will go through our network. And we have got cost of sales that we've broken up separately in respect of our cybersecurity business as well on Slide 13. In terms of operating expenses, the savings in the general and administrative market are largely in staff costs and some operating leases as well as favorable foreign exchange that we have recorded in the quarter. The higher depreciation of $84 million versus $70 million in the corresponding period represents the reclassification of depreciation and amortization expenses in line with the new accounting standards.
M&P, marketing and promotion expenses are lower for the quarter compared to a year ago of $21 million, and we recorded $24 million of operating expenses in respect of our cybersecurity business, which we started consolidating from October of last year. Net profit after tax for the quarter is $49 million or 2.8% on a EPS basis. Our profit after tax and minority interest of $54 million for the quarter represents an EPS of $0.031. This is comparing to $64 million a year ago. Finally, on the free cash flow, we've generated $21 million of cash for the quarter or $0.012 on a fully diluted per share basis, compared to $10 million a year ago.
With that, I hand the floor back to Veronica.
Thank you, Dennis. We shall now open for Q&A.[Operator Instructions] And now with that, let's welcome Luis Hilado from Maybank Kim Eng. Luis?
Congrats on the results. I had 3 questions. The first one is for Peter. In terms of all of the big picture things you wanted to do, are you mostly done with that, and therefore, it's just a matter of execution? Second question is in terms of subscribers today, what percent are on tiered plans versus the no contract SIMs? Or if you can give us a trend of both? And last question is what percentage of the subscribers are still on cable Broadband as of first quarter and Cable TV? And are you on track for switching over to fiber in June?
Luis, thank you, 3 questions. Big picture, certainly not. We -- the overall transformation strategy, we -- as I mentioned, I've just summarized it earlier, but I don't believe it's only a case of execution. It is certainly this, but it is also certainly, we need to find additional growth through potential other initiatives in the marketplace, other new products or new acquisitions. We still need to tackle the corporate overheads of the company with a little bit more passion than we did before. But yes, I think probably 70% is implementation and execution, but there is room for 30% for enhancing our strategy. In terms of subs versus SIMs Only and contracted plans, we don't split the numbers, as we've said before on this. But what we're seeing is, we're seeing an increasing trend of SIM Only plans, but -- sorry, consistent with our expectations in the marketplace. And that is being offset by lower subsidies required for contracted plans.
As we said before also, we think customers, when it comes to acquiring a new handset, they do understand the benefits of buying a contract over 2 years because of the subsidy, instead of paying for their handset directly. So we will see customers coming in and out of contracts over the next few years, but overall, we're seeing a small increase of the SIM Only. It is double-digit, but right now as I say, we're not splitting the numbers between SIM Only and contracted.
Percentage of customers migrating. We're migrating tens of thousands of customers every month. We are increasing the migration over the next 2 months, May and June. We believe that the great majority of our cable customers would have migrated. There are some customers that we have to work very closely with in LTE to provide new ducts through on landed properties, and that might delay the migration of very few thousand customers. But predominantly, we're still aiming for 30th of June. We do not disclose the specific numbers, except to say that today, the great majority of TV customers are already on fiber. We've crossed over that point and only a few months ago, we had more cable customers than fiber, so we are well beyond the crossover point. And the teams are working very, very diligently and we have backup teams and a lot of activity to install many, many customers. They are expressing an interest in the new packages. They're expressing an interest in the combined offers of TV and Broadband. So the take-up rate is good. It's just a matter of how quickly we can connect. And also, with those more difficult properties if we can get new ducts to some of the landed properties. So we do expect a small residual group of customers, for good reasons, not to be able to migrate. And certainly, we will work with them, rather than of course switching them off 30th of June.
Just one follow-up on the second question. In terms of the SIM Only growth, the double-digit growth, is it coming from external sources or from internal migration, primarily?
Both. We're seeing a very healthy increase outside the company. Again, we don't reveal the sort of 4 teams announced between us and the different operators. But what we're seeing is some of our customers that are coming out of contract, some are going to SIM Only, waiting for the next release of iPhone, or the next release of Samsung or Huawei handsets. So we're seeing that, but we're also seeing customers -- first to start up customers, if I can use that expression. If you see the growth in our postpaid numbers this quarter, there are certainly new customers that are joining us for the first time.
Next on the line for the question and answer would be[ Pangh Vits ] from Goldman.
Just a few questions for me. Maybe firstly on the Mobile. Can we -- can I have like more color on what happened in the quarter, especially on the competitive landscape? We see that your postpaid sub additions look higher than the previous quarters. And at the same time, prepaid subs look flat quarter-on-quarter. And in the past it clearly continued to come down, so just want to see what happened in the quarter. Secondly, on Broadband customer, you mentioned that you've seen a higher acquisition in the last 5 quarters. Any color on what you've done would be helpful. And lastly on sales of equipment, why did it grow significantly year-on-year?
Okay, thank you,[ Pangh ], for your questions. First of all, definitely, the mobile market is characterized by more intense competition quarter after quarter. And that also is fueling the growth of total customers in the market, but we're seeing 2 trends: one, new customers for postpaid only plans and we're seeing customers migrating from prepaid to potentially SIM Only. Why the market grew for us? We have some great offers in the marketplace. We have a branding campaign reminding customers of the value of the simplification. And you've probably seen some of the ads associated with Hello Change. So we restructured our offering for mobility. And we believe as a result of that, plus the overall awareness in the marketplace of all the other offers, certainly customers have responded positively, and we welcome that. In terms of prepaid, prepaid, if you follow the prepaid for the last 5 quarters, we've been losing customers quarter after quarter after quarter. So this is the first -- if you look quarter-on-quarter, this is the first time our net customers grew by 1,000. So again, we're revamping our proposition for prepaid, we're revamping our distribution structure, we're revamping our offers and we're making them more relevant to the customers. So that is really contributing to more competition and more choices for customers.
Broadband, again, interesting enough, although Pay TV customers are coming down quarter after quarter, the Broadband customers are increasing for us quarter after quarter. There is some correlation there because we don't believe that people go home and without Pay TV and they watch nothing. They're using Broadband connectivity to get access to content apart from the content we're offering. That is also fueling the demand for Broadband services. And again, we're doing -- I like to think we're doing the basics right, rather than doing something extraordinary. We're reminding customers of the brand, reminding customers of the offer. We're reminding -- we're doing roadshows and so on, and so we're doing a range of things to be more relevant to customers. We're investing a little bit more in marketing and promotions, no question about that.
We also -- you saw the high number of equipment sales. And again, we're fueling the growth, there are some subsidies of course involved for postpaid customers. So we're growing the customer base and the equipment sales are contributing to them. I'm not sure, Yoke, if you want to add anything else to that.
No, it was very complete.
Okay, so thank you,[ Pangh. ] Next on the line, we have Piyush from HSBC. Piyush, the floor is yours.
A few questions. Firstly, in Mobile. Could you help us understand what percentage of your revenue comes from IDD, voice and excess data charges, which are coming down? And what would be your big picture outlook on the postpaid and prepaid ARPU? Secondly, one of your peers have launched digital brand with SIM Only proposition recently. So have you seen any incremental impact from this product in recent months? And thirdly, could you share progress on changes in the content cost to variable hybrid during 2019?
Thank you, Piyush. Good questions. First of all, the IDD split, we don't break down our postpaid and prepaid revenues, with or without IDD. But it's fair to say the IDD revenues are embedded in the ARPU. I ...
It's quite minimal.
Quite minimum, the CFO says. It's included and quite minimum because we know what is happening. Again, customers are using OTT apps, VoLTE and so on. So the trends for IDD revenues and voice generally in the residential market are declining. So -- and it's predominantly a data ARPU. And I think you've seen from the numbers we've published, currently the average customer, if there's such a thing, is using about 6.3 gigabytes of mobile data every month. And I think probably about 6 months ago, that was just over 3 gigabytes. So again, customers are using mobile data rather than voice and domestic and IDD. Second question about trends on pre and postpaid ARPUs. As the market gets competitive, more competitive, as we're acquiring more customers, it is always natural the customers you're acquiring, their ARPUs typically are lower than the customers who have been with you for a very long time. So we expect the trends to slightly decline as a result of competitive activity, but hopefully, through more bundles and more offers in the marketplace, we expect some stability of ARPUs towards the end of quarter 4. Also, by restructuring our packages, if you see a postpaid for example, we used to charge customers variable excess data charges. Customers were describing that to us as being toxic, and they don't value that, and highly frustrated, and contributing to churn. We changed that, we're now -- for $20 for example a month, a customer can buy another 50 gigabytes of data and don't worry about excess data charges. So ARPUs, we expect a small decline in the next few quarters and probably stability towards the end of the year. The digital operator, no, we haven't seen any impact and in fact, you've seen the growth in our numbers. So, so far we have not seen any impact at all. But it's interesting to note that more and more digital operators are coming into the market, rather than so that market segment may be dominated by 1 or 2 companies. And again, that trend will probably continue to the future. Your last question was about content costs.
We don't reveal negotiations party by party, but we are committed to change all our fixed content cost to a variable content cost, like a licensing fee per consumer. We're still negotiating with some partners as the contracts are coming up for renewal. But we believe in the long term, this is the right model for the Pay TV part of our business to bring variability, and of course to bring lower cost. It is not just a variable cost, we also want to introduce lower costs. We think the timing is right because a lot of the content providers are also entering the market directly. And for them to be able to do that, we also need to be freed from some of the minimum guarantees we've given. So it's work in progress, but I can assure you we feel very strongly about variable costs and lower cost for content.
Great, Peter. If I can follow up, is it possible to just know within your Mobile revenue or ARPU, what percentage of revenue comes from excess data charges still in first quarter, which could probably keep declining?
Piyush, again, we don't reveal these details. But I think your previous models, if I remember some of the stuff I've read, you're not too far off. I can't be more specific.
Next on the line is actually Arthur Pineda from Citi. Arthur?
Several questions please. Firstly, on the Mobile side. Can we get some color on the postpaid subs growth? Are these mainly on the MVNO side or are they on the StarHub side? Just wondering what's dropping the ARPUs. Is it because people are migrating to SIM Only plans, or is it because they're picking up more of these MVNO plans? Second question I had is with regard to the cost base. There seems to be a significant decline in the G&A expenses. Is this mainly accounting-driven? If so, what would the number be on a like for like basis? Third question I had is with regard to the cable migration into fiber. If you can't move these subs by the June end deadline, would you need to disconnect these subs? Or is there any room for extension? And related to this, for the cable subs who have not migrated, what is holding them back from actually migrating? Is it that they're waiting for more generous offers? Or is there any other reason for the inertia?
Arthur, thank you. Good questions. First of all, our Mobile postpaid growth has come from both our own branded postpaid customers as well as the MVNOs. Again, we don't split the numbers, and I think that's the common practice in the industry in terms of MVNO contribution as well as our own contribution. Certainly, the lower ARPUs are a result of 2 factors: One is generally lower excess data charges because now our customers are seeking the protection of paying a fixed fee for extra data charges. We also have the lower ARPUs that are coming from, we provide our customers more gigabytes per package, so again, they're paying a little bit less maybe than what they were paying before for usage. And of course, yes, you do have the SIM Only that overall are lower. So it's a blended -- the ARPUs are blended from our own customers, MVNO customers, lower excess data charges, and of course, lower IDB charges and voice charges generally. So those trends will continue, but we don't split the numbers again in terms of how many postpaid customers came from us versus the MVNOs. In terms of G&A, all I can say to you is that part of the G&A, we also have a labor cost. And if you recall back in quarter 4, we introduced a rightsizing exercise. So a lot of that labor cost we are taking out of the equation going forward, so there is a drop there. But I think like for like, I'm not sure, Dennis, if you want to add anything more to it.
Sure. Just want to add, Peter, that like for like, we reported G&A costs of $114 million for the quarter. On a like for like basis it would have been $130 million. It's still a decline versus $135 million from a year ago. So the main declines are coming from staff costs, repairs and maintenance as well as favorable foreign exchange differences.
Okay. Next question related to migrating customers to -- from cable to fiber by 30th of June and whether we're going to disconnect them. Definitely, we're not in the business of throwing customers away. We need to work with our customers to migrate them as quickly as possible. Of course, it's not a decision we can unilaterally take to switch off customers.
We have to also work with the regulator to make sure that, that is possible. We're trying to make that group of customers to be a low number as possible. And to your last question about why that some of them may not be migrating, and by the way, they're migrating as quickly as we can process. Unfortunately, if you go into some of our retail stores right now, we're experiencing longer queues and longer waiting times. And that is a result of again, some of the great Mobile offers we have, but also because of the migration of customers. So they're migrating as quickly as logistically possible, keeping in mind that when we started this exercise, we had hundreds of thousands of customers that needed to be migrated. Some very minor issues.
First of all, there's always a general apathy. We're certainly not offering more incentive to customers because we know that this is a dangerous approach to take because then customers will all wait till the very last minute to take a bigger offer. So we're going to be on the path of educating, we're going to be on the path of reminding customers the consequences and working with them to migrate. But you -- we have to take into account that our customer base on Pay TV has been very loyal for 23 years. And we're coming across a lot of customers who are very comfortable with cable TV, they're very familiar with their remote control device, they don't necessarily want some more or different wiring in their rooms. So we're coming across those issues. And we're working together with those customers to make them understand why they will be better off migrating to a digital environment, and being part of the digital revolution that it's -- that's impacting our lives. As I said, at the end of the day, our aim is to have very few thousands of customers potentially may be still waiting, and the wait there will be because the installation process. If we have to dig up someone's front yard and put new ducts because ducts didn't exist from 23 years ago, that might be -- might take a little bit longer. And of course, for those customers, we're never going to switch them off, we'll wait and work with them. And within LTE to provide access to their houses. So I hope, Arthur, I'm giving you some feedback.
Thank you, Arthur. Next on the line, we have Rama Maruvada from Daiwa. Rama?
Couple of questions for me, please. Firstly, with regards to the fiber security division. Could you comment about what was the impact on the net profit line as well as what is the EBITDA contributed by this division this year? The second one is, could you also comment on the working capital as well as the bad debt in terms of what division or segment has contributed to the slink for this particular quarter. And finally, with regards to the personal expenses, so $54 million versus last year of $63 million, I would like to know if these numbers are directly comparable from the perspective of prior-year base including personnel cost from D'Crypt and other cybersecurity assets. Are they directly comparable? Or do we have to make some adjustments?
Okay. I'll try to answer couple of the questions and I'll ask CFO Dennis for a bit of help. In terms of the cybersecurity impact on our NPAT as we've included in the information pack, it was $11 million impact. We would have had NPAT of $61 million instead of the $49 million, and it's a bit of rounding off errors. In terms of comparing profit attributable to Starhub shareholders year-on-year, it was $54 million versus $63 million. And at the NPAT level, there is the IFRS adoptions 15 and 16 is all washed through. The working capital question, Dennis, I'll leave that one to you.
Okay. Rama, in terms of the actual negative working capital contributions for the quarter, it quantified as about $27 million, contributed by higher trade receivables as well as higher contract assets. And contract assets actually represent the assets in respect of the Mobile plan, which is -- which are also reflective of the additional Mobile plans and the subscriber growth that we had in the quarter and we reported in the quarter. The allowance for doubtful debts has also gone up slightly in the quarter year-on-year. And this is in respect of and recognition of the fact that our mix of ARs are now sitting with the growth in Enterprise business that we've got. So with the mix of the accounts receivables coming from corporate customers, these collection days and DSOs in respect of ARs typically are higher, are greater compared to our consumer base, which is averaging 14 days. Your other questions around the staff cost, we've broken up in terms of the other operating expenses, the cybersecurity staff costs, separately in 1 bucket. So all of it is captured in that bucket. On the base business side, we had certain accruals in Q4 -- Q1 of last year in respect to staff cost. And this year we've got reductions in staff costs as part of our program in terms of rightsizing the organization.
Okay. If I could just follow up on the cybersecurity division. Could you comment on what EBITDA for the first quarter is? Because I see it's a bit operating low.
Yes. Okay, cybersecurity division, which is a combination of Ensign and D'Crypt, which are 2 entities we classify as cybersecurity. The negative EBITDA for the quarter is negative $5 million.
Okay, next on the line is Alvin Chia from Phillip Securities. Alvin?
I have 2 questions. Firstly, are you able to quantify the cost billing for the Pay TV content so far. Second, could you shed some light on[indiscernible] this business and the[indiscernible] achieved so far, yes.
Okay. If I understand your first question first, we don't comment on the reduction of content by different content provider. We've been -- every contract that has come up for renewal in the last 12 months, as I mentioned earlier, we are sitting down with the content providers, we're sharing with them the viewership details, how many people are actually watching their content in the different packages we have. And we're working with them to realize that a better model for all parties involved, keeping in mind that we have a customer that wants to keep paying for Pay TV, rather than just go off and just enjoy only OTT. So with the customer in mind, we've been able to negotiate with the great majority of content providers, a lower cost and a variable cost. We've had 1 occasion as we mentioned before that particular content provider decided that business model was not in their favor, and we took unfortunately the tough decision of not continuing. That reflects our resolve to make sure we have the right cost model, so we can have a sustainable Pay TV business and we can deliver services to customers that they can enjoy but at a variable cost. Long answer, but we don't disclose the specific negotiations, but you will see that our cost structure, although our customer base is being reduced on Pay TV, we're committed to drive the cost for the content, which is a huge part of our operating cost for TV, we're committed to drive that down and make it variable as quickly as we can. In terms of cybersecurity, again, you've seen the growth rates we've reported for cybersecurity. Certainly, the operating environments globally, regionally and locally is very much pro-cybersecurity opportunities. A lot of companies have to comply with a number of regulations in Singapore, but put that aside, it is smart business to have your business protected in the right way to prevent hacking of customers' data and making your operations potentially vulnerable to hackers. So we see significant growth. The cybersecurity team, which is being formed 6 months ago under Ensign through a combination of an investment we had in Accel, an investment that existed via domestic in ...
Quann.
Quann, as well as our own in-house center of excellence. The combination of those, plus we're recruiting more people because it is a talent, it's a people-based business. We're recruiting more people because we do believe the opportunities in the market are great. And they're delivering double-digit growth, at least from a year ago when we got involved. And we see that trend continue into the near future. The challenge always with cybersecurity compared to connectivity business or a lot of systems integration type and solutions business, that margins are lower compared to the connectivity, where you have healthy double-digit EBITDA margins, typically solutions business and services, you have single or high -- you have lower margins, hopefully double-digit lower margins, but you have no CapEx. It's really OpEx-driven business. So I hope, Alvin, I answered your questions.
We're circling back to Luis from Maybank Kim Eng. Luis, additional questions from you?
Three questions for me. Sorry to belabor the issue again on content cost. But let's say, are you halfway through the process by now? 2 other questions are just housekeeping. I notice the effective tax rate for the quarter is 22%. Any particular factor behind that? And for the full year, should we look at 18%? Last question is the $282 million frequency payment that you've mentioned in the outlook. Has there been any indications from IMDA or any regulatory body whether that will indeed come due this year? Or if there's any indication whether other countries have already done the migration for the frequency?
Okay. Thank you, Luis, let me take your last question first. There is no indication yet to pay that amount and the process is that IMDA the regulator needs to give us, I think, 6 months' notice in advance. We're in May. And hopefully if June comes the end of June and we haven't received that, then it's not due this year. We think at this point in time, that payment will not be due this year. Because for the frequency to become available, there's some other complications in neighboring countries to release the frequency because there's interference, there are some complex technical issues. But a short answer is that at this point in time, and we will be 100% certain by 30 of June, we don't believe we have to make this payment this year, the $282 million. Going back to your first question, before Dennis takes the question on tax rates, content cost, are we halfway through. To me, there's only 1 major contract left that we're renegotiating. So a lot of the other content providers we have renegotiated, but again, we started that process 12 months ago as contracts are coming up for renewal. So answering your question, yes, we're in the second half of the 50%, rather than the first half of the 50%. And Dennis now will provide you some answers on the effective tax rate.
Okay. The effective tax rate for the quarter, as you pointed out, Luis, is 22%. This is the result of certain general provisions that we took in the quarter in respect of the question that was posed on the higher allowance for doubtful debts that we had in the quarter. These allowances are not tax-deductible and therefore added back for purposes of computing the effective tax rate. For the year, you should be still using an effective tax rate of 17%.
Next on the line is Annabeth Leow from SPH. Annabeth?
Yes. So I have a few questions. Not to belabor the point, but the impact of the cybersecurity businesses. I wanted to make sure that I understood you correctly, when you said that it would have been $63 million otherwise in terms of[ PATMI ], is that imply that there would have been a flat performance year-on-year, rather than the 14.2% drop?
Okay. On that question, the answer is, it would have been $61 million if we didn't include the losses from the cybersecurity. NPAT would have been $61 million versus $49 million that we reported.
Sure. And excluding the minority interest?
Yes, So Annabeth, this is Dennis. So the PATMI which it's only minority interest which is in respect to the cybersecurity business. So our NPAT or PATMI, which is the same, would have been $61 million. And this is against $59 million on an equivalent basis without cybersecurity business same period last year.
And so it would have been a mild decrease year-on-year?
So it would have been on a base business without cybersecurity, it would have been an improvement of NPAT year-on-year.
From $59 million to $61 million.
That's right.
If you strip out the cybersecurity business from both quarters, in first quarter of 2018 and first quarter of 2019, $59 million to $61 million are the right numbers.
Okay. So I saw that the operating expenses for cybersecurity had more than doubled. And I was wondering if you could give us a time frame on when we would expect to see the positive EBITDA. Or whether you anticipate the expenses to continue growing. And if so, what that is going to look like?
Annabeth, if you recall from the AGM presentation, we -- I did mention that we're investing for growth. First of all, this quarter's result consolidates the Quann numbers for quarter 1, which last year we didn't have Quann. So the cost of sale and the OpEx would have gone, it's higher because we're comparing a quarter last year without Quann and a quarter with Quann. The objective, of course, is to not only grow the business, but to grow it in an accretive way to make a positive EBITDA contribution.
As I mentioned and I will reiterate, it is a people business and you have to recruit the right talent upfront to help you develop the right intellectual property because really cybersecurity at the end of the day, we're offering more advanced intellectual property than some of our competitors.
So that early recruitment and development of talent and training is impacting.
Our ambition, of course, is to every opportunity in the marketplace. We are bidding on the positive contribution, we're not discounting for the sake of winning business. So it's a very responsible business model. And our intention -- we've given guidance for the rest of this year. And the result of Ensign are incorporated in the guidance. So that will try and answer the question in terms of what we think the impact is going to be. But it's a more mid to long-term investment for us. You invest for growth so you go through the normal J curve of potentially realizing longer-term shareholder value. In the short term, you're still investing in the capability of the company. And being people-only, we're seeing it in OpEx. If it was infrastructure, you'd be seeing it in CapEx, and then you will be enjoying higher margins. I hope I can answer your question in this way.
I see. The other question that I have is related to your earlier comment on how you think Broadband can benefit from Pay TV alternatives. I was wondering whether you could elaborate on what you're doing about that. And what the effect will be?
Look, I'll ask in a minute, Johan, who runs the consumer business, to comment specifically on residential Broadband. But the comment I made earlier is that we don't believe the people in Singapore going away from content. Otherwise, we would have seen both a reduction of Pay TV business and a reduction of Broadband connectivity. We believe customers are choosing alternatives for Pay TV, but they still need a Broadband connection. So that's why I believe with declining numbers of Pay TV, but the numbers for Broadband are now up to 495,000 residential connections. And again, we're being responsible in terms of various promotions and packaging. But I'm going to let Johan go through some of the details on the promotion of residential Broadband.
Annabeth, Johan here. Just to clarify a little bit on the home Broadband, if you look at the last few quarters actually, as probably not a step, we have seen a increased number of home Broadband signups over the last few quarters in a row. The reasons for that, to be fully transparent, as Peter said earlier on, it's not something we do fantastically extraordinary out of a ballpark. We basically have changed the offer in the mid of last year, and we're executing accordingly and we've put much more focus on the online sales of home Broadband. And that has actually sort of delivered, I would say, quite interesting results, and that's what you see being reflected in the number. So the offer has been made more simple. The execution have been -- has been shifted to online mainly. And that's appreciated by customers.
And I think it probably makes a small difference, but again, we're offering exclusively the Google Mesh product for home and that takes -- it's receiving a lot of positive customer accolades.
Correct, and the other thing which you may have seen is that we actually expanded recently our offer also with the 1 plus 1 gig speed. So all these things actually attribute to the pickup rate.
It's more execution Annabeth, in this case.
Thank you, Annabeth. Next on the line is Ranjan Sharma from JPMorgan. Ranjan?
Two questions from my side. And I apologize if I missed something but I had to step away from my phone. On the Pay TV side, I know you have a lot of initiatives in terms of restructuring the way the content costs you. But if Pay TV customers continue to decline, with the wide variety of OTT platforms available, can this business realistically become profitable again? Or would you need to get a strategic partner to do Pay TV differently compared to what you have done before? Secondly, I mean we all know the challenges in the mobile space. You have a new operator coming in, there are 3 to 5 MVNOs in the market. Will the regulator be okay with consolidation? Is that something that you have evaluated?
Thank you, Ranjan. Quite rightly, first of all, you question the sustainability of the Pay TV business model in light of declining customers. First of all, we're also revamping the business model, but let me say this upfront. We don't see if you believe all the research out there in the marketplace whether it's about Singapore or other regional and global markets. Pay TV is alive and well. But people are changing their habits of how they're consuming content. They want content not just in the living room on their big screen, they want content on their laptop, on their tablets, actually less and less tablets, but more importantly, they want content on the small screen of their mobile. So our strategy long-term has to be one that complements the content we provide to a set-top box in the living room, complementing that with content across multiple devices, any device, any time, any content. So you will see currently, we have all technology platforms to deliver content, but we are also working -- I don't know if we need a strategic investor, I think it's definitely something we can do on our own -- but we're working, evolving our technological platforms to deliver that content to multiple screens and multiple customers, and you will see that evolution. We still think the majority of high-value customers will remain inside a household, wanting the convenience of the set-top box. But what we're also recognizing is that customers are moving away from the established business model, everything packaged for them. They're trying the alternatives, but a lot of the research is now showing that all of a sudden customers are also waking up and saying, well hold on, I'm paying $14 for this content, I'm paying $60 for that content, I'm paying $3 to $6 for the other content. And before you know it, they're spending more -- they're exercising their empowerment to choose different packages, but very quickly, they're also rationalizing that they will end up spending more not buying a package.
So the package right now is available through the set-top box. So long answer, but we are rediscovering the business model as we speak, and we don't believe the traditional set-top only Pay TV model is the one for the future. You will see aggregated models, you will see multiple models. And that gives us the ability to even have more flexibility of cost variability, but a lot of cost.
I don't think you're going to find too many investors coming in. Interesting enough today, there was an article in Korea where #2 and #3 Pay TV operators did consolidate which brings us to the second question. There are, I think, last count, there are 9 or 10 mobile brands in the marketplace. So competition and choice for customers is probably at the highest point it's ever been. Certainly, there's quite a few MVNOs and 4 facilities-based operators. If what is happening in other markets will prevail here, and we think eventually it will, there will be some consolidation. We're certainly keeping an eye open. We're interested in consolidation. We think customers can be served through strong competition, but not necessarily 20 different brands. You can have 3 or 4 brands that are very, very strong, and can deliver the customer benefits. So again, we're seeing entrepreneurial people entering the MVNO market segment. We're seeing other people entering the market and even some maybe big companies. Sustainability, if you don't grow customer base, if you don't get the right margins, and you've seen in the last 6 months packages from the established operators. We're all waking up to ourselves and we're not sort of offering really basic offers. And we are now going to make sure we're getting a fair share of market and customers in the market. And I think as the overall competitive activity intensifies, potentially the niche operators, operators that don't have a quad play or a triple play -- unless they have such a great affinity brand, we think long-term consolidation will happen. We don't know exactly when and how, but are we interested? Yes. Are we keeping an eye on it? Yes. And if it creates accretive value for our shareholders, of course we will participate. But of course, again, it is subject to IMDA approval. That's the ecosystem that we have to work through. Thank you, Ranjan.
Thank you, Ranjan. Next on the line is Varun Ahuja from Crédit Suisse. Varun? Varun, are you on the line?
Maybe we go to the next one.
Okay, so we'll move on to Prem Jearajasingam from Macquarie. Prem?
Two questions for me. Peter, with all these price adjustments that we're seeing in the market, and the SIM Only plans and larger and larger buckets. Do you think we as an industry have successfully shut the door in terms of opportunities for TPG to make significant noise when it eventually does go full steam on. Do you think that's happened yet? Because I also note your comments earlier that you expect ARPUs to decline over coming quarters and then firm up later in the year. So does this sort of answer that question with your comment? And secondly, with regards to, you mentioned acquisitions as part of your strategy to get that 30% growth. What components do you think StarHub needs at this point in time that you need to go out and acquire? And how significant are these likely to be from a cash flow perspective?
Great, thank you, Prem. First question first. Is the door open for TPG and growth in the industry and so on? Look, all I can say going through what I -- people like us went through when we invested in other markets and other license and other companies. You have a business plan and you make a decision to invest in a new market or to buy a company. And then, if it is a new company, to establish, it takes a few years. And I guess I'm not quite sure, but I think even in TPG cases, it would have been about couple of years from their business case to where they are today. Interesting enough, all I can comment is the last 9 months that I've been back in the market, the market has shifted dramatically within 9 months. And I think compared to 2 years, it has shifted even more. I think there's a lot more choice than ever before. The MVNOs have come and offered customers tremendous flexibility in pricing products, in brands, in niche markets. You've seen the established operators again being a lot more competitive, maybe more competitive in the last 2 years. You've seen some other competitors also coming up with digital brands to complement their existing brands. So there's tremendous activity and competitive intensity. What window that leaves open for a newcomer remains to be seen because one of the deliberations that we have to go through, what unique proposition that will bring to the market that's not available now? And if they're so unique with 9 to 10 brands in the market, why will they not be copied overnight? So I think these are real questions, not for us to answer, but for a new entrant in any market. Unless they come up with something really unique, and unless they think they can sustain that. Maybe that's how they'll fuel their business. So we're putting our business into a better shape. We're giving customers more and more choice, we're dropping our cost structure, we're diversifying through investments to try and handle the competitive intensity. So that's my short-term answer for a new entrant. I think in terms of industry growth, no, we haven't given up. There's a thing called internet of things. There is a thing called 5G and yes, it's expensive to invest in. But a whole new world will be created, where there will be a lot more connectivity, there will be a lot more information that needs to be analyzed, turned into customer insights, potentially monetized, it will be a lot more enterprise applications that will depend on IoT and so on. So I don't think the growth is out of the industry, and monetizing some of the growth has always remained a challenge. But I also like to believe more established brands like StarHub, brands that have quad play, brands that are relevant to the enterprise and to the consumer market will be able to participate more actively in the growth segments of the market going forward. New entrants, they'll have to prove their capability, prove their credentials, have a quality of service that people understand, have enough capacity. So I -- what I'm trying to say, I think it's tough. And I don't underestimate and let me say, we totally take it as a major threat, TPG entering in at the end of this year or any other time and making something big -- having a big impact in the market. We do not underestimate them and we are preparing to face them head on if we have to. So certainly no underestimation, but how are they going to find growth, what unique proposition they'll put on the table, how sustainable it is, these are all great questions that the best people to answer are themselves. We will react to that. And we're trying to I think make sure customers as early as possible see the value of our brand and the value of our offerings rather than just wait for someone else to come in and remind them that they've offered something.
Second issue about acquisitions. Again, currently, if you look at net debt to EBITDA, it's 1.5x net debt to EBITDA. We believe it's fairly respectable. And if and when we find the right accretive acquisition, of course we're not going to be irresponsible and load the company up for debt for no accretive contribution, but we do believe our balance sheet does provide limited opportunity for some other acquisitions. And sometimes it's not a direct cash, it could be share swaps, it could be a lot of different ways to acquire other companies. I think the challenge is not how do you fund an acquisition. I think the challenge is what is the right acquisition initially within Singapore and across the region. Keeping in mind that I think our investment in Ensign, and Ensign we should not forget is not just a local Singapore company, it already operates in Hong Kong and Malaysia. And has joint venture relationships with other Ensign-related companies. So it is a bit of a regional play and has a bit of growth, that we don't think we're going to stress the balance sheet too much if and when we come up with a mixture of funding for an acquisition.
Just as a follow-up on that. I was trying to get at what components do you think you need to bolt onto StarHub? What capabilities do you think you really need?
If you look at the consumer market, I think we've covered in terms of capabilities in the consumer market. The only thing we don't really have in the consumer space is maybe a pure digital operation, but I think we will cover it with our retail stores, we will cover it with our distribution, we will cover it with the quad play. So I think we've got all the toys in the pan or arsenal to compete effectively. In the Enterprise space, we have done a great job. But we've been more of a consumer company for the last 20 years, the last few years, we're growing more and more in the Enterprise space. So there may be opportunities to acquire operators with classes of capability in the Enterprise space because in the Enterprise space, we have somewhere between 12% to 15% of the overall revenue. So that's the opportunity. And even the investments we've made in Ensign and before Ensign, Accel and so on, were all aimed at the Enterprise space. That's the area that we believe we need to grow faster, with different propositions. 2 years ago we didn't have a cybersecurity proposition. 2 years ago, we didn't have a data analytics and artificial intelligence capability. We're developing those in-house. So it's more in the Enterprise space initially. And of course, to defend the consumer market as well as we can because that provides enough cash flows and decent margins today. Thank you.
Thank you, Prem. I think we have time for one last set of questions from Piyush from HSBC. Piyush?
Just to follow-up on the cybersecurity business. If you can help us understand when do we expect to reach EBITDA positive. And what are the time lines for it to become PAT positive in cybersecurity business?
Piyush, at this stage we don't break down the P&Ls of any of our business. And we have different business units. Again, the only guidance we can offer you is if you -- the CFO has included guidance for the rest of this year. And certainly, the results of Ensign will be consolidated. So we can't give you right now guidance, but we believe that Ensign will grow responsibly. Ensign will grow its customer base and invest for the future. And the overall impact of Ensign to our P&L for 2019 will be consistent with the guidance we've offered. We cannot be more precise than that.
Ladies and gentlemen, we have to bring this results briefing session to a close. A transcript of this call will be posted onto our website soon. And if you have any more questions, please feel free to contact Eric or myself. On behalf of the StarHub management team, I'd like to thank all of you for joining us. Have a good time ahead everybody. Thank you.
Good evening, and a good weekend. Thank you.