StarHub Ltd
SGX:CC3
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StarHub Ltd
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Good evening, ladies and gentlemen. This is Amelia from StarHub's Investor Relations. Thank you for joining us for StarHub's 3Q and 9M 2020 Business Performance Update call.
With me this evening, we have our CFO, Dennis Chia, Chief Corporate Officer, Veronica Lai; Head of Enterprise, Charlie Chan; and Head of Consumer, Johan Buse. Dennis will start off the presentation with key financial highlights for the quarter, followed by business updates from Johan and Charlie. And Veronica will close off the presentation with some remarks before we open the floor to questions.
Dennis, over to you, please.
Thanks, Amelia, and good evening to everyone, and thank you for joining us on this earnings update call on a Friday evening.
If you refer to our slide deck on Slide #5. We reported Q3 revenues of $489.7 million, and that's a recovery quarter-on-quarter by 8%. This is largely due to the recovery in our TV and broadband lines of business as well as our cybersecurity revenues, which increased from last quarter. Service revenue-wise, we reported revenues of $388.7 million. And again, sequentially, this represents a 3.3% quarter-on-quarter growth.
Service EBITDA of $131.1 million or 33.7%. Again, these are all positive trends from last quarter. And this quarter's improvement in EBITDA is largely due to the improvement in our operating expenses despite having booked lower income for our job support team in Q3 versus Q2 and also improvements in our cybersecurity unit. Net profit attributable to shareholders was at $44.5 million, translating into $0.024 on an EPS basis representing a 19.3% Q-on-Q growth.
Free cash flow for the quarter was $75.6 million, and that's a slight decline from last year. And this represents payment for some tax catch-ups that we had deferred from earlier this year. I will leave the walk-throughs of each of our lines of business to our Chief of Consumer and our Chief Enterprise.
Just moving on to Slide #6, to do a call out on our net debt-to-EBITDA ratio, which sits at 1.45x at the end of Q3. We had $389.9 million of cash and cash equivalents at the end of Q3.
In terms of profit highlights on Slide #7, as I indicated, the improvement in EBITDA on a sequential basis is a result of better operating cost and improvement in profitability of our cybersecurity unit. The -- our service EBITDA margin has also improved as a result of that.
With that, I will hand the floor over to Johan, who will take us through each of the lines of business for the consumer business. Johan, over to you.
Thank you, Dennis, and good evening, everyone. I would like to navigate you to Slide 9 out of this deck. First, let's start with postpaids. Postpaid business, as you know, from last quarter, has been impacted by COVID, mainly roaming revenues. That's why you see a year-on-year decline. Quarter-on-quarter, however, you see that ARPU is stabilizing and that the customer base is slightly up. That's mainly due to the success of giga!. The churn rate is fairly stable. It was 1%, which is, I would say, good, considering the intensity in the market when it comes to competition.
Prepaid is also impacted by COVID. Actually, quarter-on-quarter, we did well on ARPU. It went up $2. The decline in the customer base comes totally to the expense of -- totally due to roaming and the termination of those SIM cards. That has led to a further decline in mobile revenue, service revenues, fully allocatable to roaming again, but also due to lower excess data charges. So that is on the mobile part.
If we then move to Page 10, where we go a little bit more into detail on the home side, you will see that home is more resilient during COVID. Quarter-on-quarter, we lost 3,000 Pay TV subscribers. ARPU went up $1. And as you will know, we have launched our new TV+ programs in the quarter. Churn rate is stable, 0.7%. And the revenue Q2 to Q3 was marginally up. Just keep in mind that in 2019, we were completing the cable to fiber migration, hence, the decline in those revenues.
Broadband. Broadband did well last quarter. Despite a decline of 2,000 customers, ARPU went up and the revenue went up. The main reason for that is that we are coming to the tail end of promotional benefits, which we gave during the cable to fiber migration. And also year-on-year, you will see positive trend in broadband.
So in terms of our outlook, on Page 12, we're proud to be the first to launch 5G in Singapore. We have a coverage of over 70% population end of September, and we are very pleased with that. StarHub TV+, the new hybrid platform, we launched in September, integrating OTT and IPTV, plug-and-play. And you have seen probably that we started onboarding quite a few of the OTT applications on our box. And then broadband, we have done very prudent cost management. And then we also have worked very hard on further enhancing the ARPU.
So that is the conclusion on the consumer side. And on that note, I hand over to Charlie for business.
Thank you, Johan. Good evening, everyone. I'll refer to Page 14. 3Q 2020 has come in [ better than ] [indiscernible]. This comes primarily from continued growth in our cybersecurity business as well as the consolidation for the first time of the Strateq business, which was fully completed transaction-wise at the end of July.
I'd like to point you to the network solutions business. As you can see, that business continues to, as expected during this COVID period, go through decline. We see challenges in terms of the renewals of domestic leased circuits at lower rates and managed services continuing to experience delay and fewer project completion during the same period. Voice services, as expected, were lower as less people were in the office using our fixed line service during this period.
Going back to our growth in cybersecurity, we continue to invest in that business, and we continue to see the talent and the volume of projects that we are expecting.
If I may then just take you into the next page. In terms of our outlook, 3 key areas: network solutions. We continue to expect a gradual increase in activity. Even then, the businesses have been cautious and will continue to manage the implementation of these projects according to priority and according to their business objectives. As said in cybersecurity, our investment continues as we strengthen our capabilities and pursue growth opportunities in Asia Pacific. At the same time, under cybersecurity, we see D’Crypt deploying their solutions as part of the Intelligent Transport Systems as well as for contract tracing in the IoT space.
Finally, with the regional ICT now being consolidated into our results, you will see us pursue growth in the various areas identified.
That's due for the enterprise business. I'll now hand it back to Dennis.
Thanks, Charlie. And I'll take you to Slide #17 on recent developments. In the last announcement in August, we had advised the market on our IT and digital business transformation initiatives. We're now pleased to say that we've commenced this initiative in third quarter of 2020, which involves the outsourcing of our IT operations as well as the transformation of our IT and digital platforms. We're looking as part of this journey to define a better customer experience in the digital front, simplification and rationalization of our products, applying data and artificial intelligence and creating agile operating environment. We're pleased to report that year-on-year, we've registered a 43% growth in our digital sales transaction and a 12% growth in the monthly active users in our My StarHub app.
Moving on to Slide #18. On the 5G progress, as Johan mentioned, we are very proud to be the first to launch the 5G NSA, the non-stand-alone network, in Singapore. We're now at 70% coverage, and we've now launched our Mobile+ plan. We've now commenced the 3.5 gigahertz and stand-alone rollout and plan to start in the fourth quarter of this year, which we've now commenced, now that we are in the last quarter of the year. And we will be implementing the stand-alone Core network and planning for that transmission in the new year.
I will pass it back to Johan to talk quickly about 5G handsets, and then Charlie will just mention briefly on 5G for enterprise. Johan.
Yes. Thank you, Dennis. So on 5G handsets, obviously, we're very happy to have been working together with all the major handset manufacturers to be able to launch a very good 5G experience. We see very good feedback from customers, good pickup rates. Later, I'm sure you'll have some questions around it. We also anchored it on purpose around iPhone 12, which just recently went into the market. So we're very pleased with that collaboration and with the coverage we have achieved in a very short period of time.
Charlie, you may want to elaborate a little bit on the enterprise side on 5G?
Sure. For 5G, it's about solutions as well as the connectivity. So on the back of the 5G launch, we continue to see interest from our clients. You can see that, the various areas that we are targeting in terms of developing use cases. More to come as clients look at how they can exploit 5G solutions for differentiation.
That's the view for 5G enterprise and for our 5G progress. I would now like to hand this time back to Veronica, our Chief Corporate Officer.
Thank you very much, Charlie, and good evening to everybody. I'd like to give an update briefly on our leadership transition. As you know, Peter K. stepped down as our CEO on the 31st of October. The senior leadership team and I are now working together to helm down the company during this period of transition. Our Board ExCo is in place since July with Stephen Miller as our Lead Director of the ExCo. We are also pleased to let you know that Peter is co-opted onto the Board ExCo, and we continue to be able to benefit from his input and guidance. This lends continuity and stability for us in this period of stewardship. Our strategy is clear. Our transformation initiatives are in flight. And the SLT is actually a group of experienced professionals. We are confident that we would be able to steer the company safely in this leadership transit.
In terms of our CEO search, that has been kick started some time from July onwards, this was actually done by the Board and met by our Nominating and Governance Committee. It is well underway with a global search across Europe, U.S., Asia and, of course, in Singapore. We have actually moved from a long list to a medium list and now a short list of candidates. And within this short list itself are both Singaporeans as well as foreigners. We continue to refine this process and hope to appoint a new CEO to be in place sometime early next year.
COVID-19 has, of course, dealt a little bit of disruption here in terms of the travel restrictions and so on. But well, we're in the business of connectivity, so we are going to surmount that. And hopefully, we will have a new leadership in place early next year.
So I'll hand it back over to Dennis, please.
Thanks, Veron. And -- yes. And we will now take questions and answers, and Amelia will facilitate this. Amelia?
Thanks, Dennis. [Operator Instructions] Let's take the first question from Arthur.
Two questions, please. Can we just clarify the bookings on the JV entity? Are all of the 5G investments, including the Core to be included in the JV now? And also for the non-stand-alone 5G network, are these undertaken by StarHub directly or the JV? Second question I have is on the ICT side. Are you able to provide any color on the Strateq performance? How has COVID actually impacted the profitability of this entity?
Arthur, this is Dennis. I'll take your question. When we announced our half year results last August, we actually advised the components of the network that will be booked in the joint venture versus the components of the network that will be booked in the -- at the StarHub level. As a joint venture, which is rolling out the base station, this is going to be shared with the other operator which we have the joint venture with. This joint venture is going to be accounted for on an equity basis. So we will not be consolidating the results of the joint venture. And therefore, any expenditures in respect of the base station rollout at the joint venture level will not appear on StarHub's books. We will, however, be accounting for the profits or losses of the joint venture as a line item in our P&L as our share of profits or losses from associates in our StarHub Group's numbers. The Core and the transmission which are sitting at the StarHub level will then be recorded as capital expenditures at the StarHub level, okay? So that -- I hope that answers your question on the joint venture accounting and what elements will be recorded.
You had a question on the NSA. The non-stand-alone rollout was by StarHub on our own initiative. And so, therefore, those -- that expenditure sits on StarHub's books.
Your second question on ICT. We completed the Strateq acquisition, as we announced in the market, on July 30. We have, therefore, started consolidating the results of Strateq for 2 months in the quarter -- the third quarter of this year starting from August. Their business has largely been resilient despite the COVID. That said, there is some level of impact similar to the impact that we've experienced on our enterprise business in Singapore, where we did experience some customers delaying the implementation and rollout for some of the projects, which led to some level of delays of recognition of revenue. However, the impacts are not significant, and we do expect that, that will start recovering as the COVID situation stabilizes, hopefully, in the near future.
Thanks, Arthur. Next up, we have an Annabeth.
Great. Annabeth here from Business Times. So I just have a few follow-up questions. Thanks, Veronica, on the update on the CEO search. I just wanted to clarify, you mentioned you are on the short list, which is a mix of Singaporeans and international candidates. So I wanted to check how many people are on the short list? And when, when you say early next year, do you expect to have the decision by?
Then I'd also like to ask Johan. You mentioned the 5G handsets outlook. If you could give some more color on that as well as the kind of pricing premium you expect with the plans, the mobile service revenue outlook with 5G coming on board?
And lastly, I just wanted to clarify what you are referring to by the IT transformation that was in the financial statements. How does this relate to the 2018 strategic transformation. And actually, what's the progress on the 2018 transformation towards the deliverables that the management had in mind at the time? So those are my 3 questions.
Thank you, Annabeth, for your questions. I'll take the first one, which relates to the CEO search. The short list currently is less than 10. And obviously, it's difficult for us to share with you the actual number. As to when we think that we would be able to appoint, we are hoping that it will be Q1, but it might be Q2, depending on various factors, including the chosen candidate, when the chosen candidate can actually leave his or her employment and also regulatory approvals and various variables.
And I'll take question number two on the 5G handsets. As you probably have seen in Q3, the handset revenue to CP revenue was quite a fair bit up compared to the previous quarter, which was obviously very much impacted by the circuit breaker. But then again, keep in mind that iPhone didn't lock September as it normally does, and that actually had an impact on that quarter in a detrimental way. So that shifts to this quarter.
What I can share with you is that the uptake on the 5G handsets is very encouraging. We've seen actually good uptake on that. And what I see happening is that the market is probably moving either in a 5G or a SIM-only variant. So it's actually diverging a little bit. There is obviously an associated ARPU uplift with that, but it's too early to really give you any flavor of how big or how instrumental that will be because we are actually 6, 7 weeks down the road. So that's a bit early. But the first signs are encouraging, and also the customer experience is encouraging. So I hope that suffices for now.
Do you have any -- yes, sorry. I just wanted to check. Do you have any insight on when 5G stand-alone launches, what the pricing will look like? And how that could -- even if you have SIM-only, what that's going to look like?
Okay. Pricing is too early to share with you on stand-alone. And stand-alone network rollout is planned probably between Q2, Q3 next year, mid-next year, I would say, to be on the safe side -- late.
Dennis, maybe over to you for IT transformation.
Yes. So Annabeth, I'll address your third question. The IT and digital transformation, when we announced our 3-year cost transformation journey of $210 million -- or at least $210 million, that was started in October of 2018. So we're now in the third leg of and the final year of our 3-year $210 million initiative. And we're happy to advise that, and when we did announce our last results, we did say that we're well on the way to deliver and perhaps even -- and possibly even exceed that number that we had initially set as a target.
The IT and digital transformation that we advised and was outlined in Slide #17, it's intended to take the next chapter of our cost transformation initiative because the benefits of the transformation initiatives will start materializing, starting from -- largely from 2022. So that will be our next chapter and the next phase of our cost transformation initiatives.
Right. It will start from 2022. How long is it expected to last? Because we know the 2018 one is a 3-year plan, for example?
Yes. It will largely -- will last for about 3 to 4 years, and we expect most of the savings to start kicking in, in the outer years because they -- it will involve the implementation and some level of rearchitecture of our IT platform and, as we know, these initiatives are fairly complex, and it will take some time to gain fruition.
I see. So what's the expected cost of this transformation? And what is the target for savings?
Okay. The cost that we are anticipating for this transformation, as I indicated, there are a couple of components with this IT initiative that we are undertaking. There's a whole outsourcing piece, it was undertaken. And that will translate into immediate savings in staff costs as well as decommissioning of certain IT platforms. The savings from these decommissioning and staff costs through a more efficient work force will then be reinvested in the transformation initiatives.
So technically speaking, there will not be incremental investment, if you compare that to a business-as-usual model, operating model, if we had continued with the current model before we embarked on this initiative. So it will be cost neutral, if you take the total value of the contract or the initiative over a 5-year period. However, there will be benefits that we'll realize from this. And these benefits will be realized and will show up in our P&L. As to the amount of the exact benefits, we are not in a position to advise at this moment because we typically only provide guidance and specific guidance to the current financial year. And so for the outer years, we will advise accordingly when we announce the subsequent years' results.
Let's take the next question from Jie Ying. Maybe let's move on to the next question from Ranjan, and we'll come back to Jie Ying after.
Two questions from my side. Firstly, on 5G, do you think it's feasible to price 5G at a premium to 4G in Singapore? Do you think there's an inclination from the operators to price at a premium and if the competitive environment allows you to do that? That's the first question. Second is more on the third quarter. Is there -- has there been a decline in the subsidy simply because of the delay in the iPhone launch. Does that explain some of your OpEx savings in the third quarter?
Allow me maybe to take question number one on the 5G premium pricing. So as you probably have seen, we've launched the Mobile+ plans, which are slightly higher priced than the equivalent 4G plans. We do include more value in those plans. So the answer to your question is, obviously, we are keen to be able to justify a small premium for a significantly better network experience and more value in the plan. So hopefully, that's answering your question.
On the subsidies, Dennis, would you like to elaborate on that?
Sure. Ranjan, on our OpEx savings, we're not looking at -- we didn't actually realize reductions in subsidies as a result of the launch -- the delay in the launch of the iPhone. So OpEx savings rather are coming through from some other line items like content costs as well as our other discretionary operating expenses. And as we indicated, there was also improvement in the operating expense levels of our cybersecurity unit.
[Operator Instructions] Let's take the next question from Paul.
Just a couple of questions. The first would be just on the direction of postpaid ARPU, at least on a quarter-on-quarter basis. Just wondering what are some of the moving parts because it seems to be stabilizing. Then as we move forward, how would be the impact on ASPs from 5G or competition? That will be my first question.
Okay. Paul, Johan here. Let me try to answer your first question on the ARPU. Your observation is correct. It's fairly stable. Obviously, the previous quarters, you -- the ARPU was mainly impacted by roaming. There are obviously moving components within the ARPU. As we just discussed, 5G as a pricing strategy, there are obviously also still marginal declines when it comes to excess data, IDD. So all in all, your conclusion for the quarter is correct. It seems to be stabilizing, and we're working hard to make sure that we can continue to work in that direction going forward.
Just related to 5G, could it be possible to share some of the new customers that are signing up to your non-stand-alone? What are some of the feedback or the attractiveness of this -- of the -- of 5G for them?
Well, there's 2 main benefits at the moment in the plans and the network experience. Obviously, the speed is significantly higher than the 4G, even on a non-stand-alone. And the latency is also significantly better. Second is that these tariff plans, the plus tariff plans which we call them, they come with 2 main benefits. Number one is more data included. And the second is, they come with a content, if I may call it that way, content subscription included. So we offer currently TV+ as part of those plans, so that people really can experience 5G high image quality on the network. Those are the main benefits.
Just the last 2 questions for me. Just on broadband ARPU. Again, another good positive has been the improvement. And I'm just wondering, is there further room to grow for broadband? Or just because of competition, we should see some stabilization or some ceiling to the ability to release broadband ARPU?
Okay. What is helping us in the broadband ARPU, as I think I mentioned before, I'm not sure, is that we're coming to the tail end of the cable to fiber migration benefits. So when we migrated customers 2 years ago during cable to fiber, we offered specific benefits to retain customers. We're coming to the tail end. And obviously, that's helping us on the ARPU side.
The market is competitive, but at the same time, the market is also all for quality home broadband. Obviously, COVID has changed quite a few things for consumers, and home broadband has become more important than it used to be. So we also see some trends in terms of what kind of packages people take in terms of home broadband as well as the combination of CPE customers take with their home broadband. So hopefully, that's giving you a bit more color.
Yes. Okay. Just last question for me, just on the enterprise business. As we -- now hopefully, in Singapore, we moved to Phase 3. I just wonder, will there be some pent-up demand or some [ customer ] projects that could actually roll over into the following quarters? That would be my last question.
Yes. Paul, this is Charlie. Thank you for your question. As we gradually see the recovery and more accessibility by businesses, we would go to Phase 2 and shortly Phase 3. We do expect a gradual recovery in demand, although I wouldn't say that it will spike. I think it will be subject to how customers look at their businesses in the coming year, as much as we would. So I would think it will be a measured approach from all quarters.
Let's have the next question from Jie Ying.
This is Lee Len. Actually I'm actually Chloe's line. Lee Len from UOB here. Just 3 questions from me. Firstly, can you give us an update in terms of what's happening on the giga! side. That seems to be helping a bit of -- in terms of your postpaid subscriber growth. Have you kind of hit or exceeded your own target. What is the customer profile looking like?
Second question is really on, can you just remind me what was the staff -- full year staff cost in other income in relation to COVID-19 from the budget? And my third and final question is largely on provision for doubtful debt. Can you talk a bit about what's the outlook like? Has it spiked? Is there any change, whether it's from the consumer or enterprise business?
Thank you, Jie Ying (sic) [ Lee Len ]. Johan here. I'll take your first question and probably then hand over to Dennis for 2 and 3. On the giga! side, as I hope you will understand, we can't share with you the details in terms of customer numbers. But let me try to give you a bit more color and context around giga!. So giga! is 1.5 years in the market now. It's our, as you probably know, end-to-end digital proposition in the market. There's a few things which we see, which obviously are beneficial for us. Number one is that giga! is really attracting the segment between 25 to 35. That's the prime segment in which it does very well. It's 100% online sales. The NPS is significantly higher than other operators or other brands in the market, and it's a very convenient experience.
What we have noticed over the last few quarters is that there is increasingly a very positive word of mouth. And that has accelerated the growth of giga! as a customer base. And the last thing is that we run it operationally very efficient, so all customer service inquiries are handled, the vast, vast majority, via chatbot with a little bit of intervention of human where we can't solve it. So hopefully, that gives you a bit more background. And for question 2 and 3, Dennis, I hand over to you.
Okay. Thanks, Johan. And I'll answer question 2 and 3. For the job support team that's booked under other income, we booked a number of $17 million in quarter 2, a number of $7 million in quarter 3, and we expect the full year number to be around $30 million in our P&L, okay?
Your second -- your last question on provision for doubtful debt. We did have and we did extend longer payment terms to some of our customers in quarter 2 when we went into the circuit breaker period in recognition of assisting our customers to tide through the difficult times. Happy to note that when we actually exited the circuit breaker period in June and now that we're well into Phase 2 and, hopefully, into Phase 3, we have seen actually improvement in our DSOs and collections, the result of which has resulted in a slight decrease in our provision for doubtful debt. We obviously continue to monitor this very carefully. And if you look at our free cash flow for the 9 months, we generated over $350 million of free cash flow for the 9 months, and that is also the result of much better collections than we anticipated.
Let's take the next question from [ Kareen ].
I just have one question on my end. What happens -- I just want to have some color in terms of the 5G uptake. So in this case, is the 5G uptake trend similar to that during the switch during 2G to 3G? Or is the trend kind of more similar to the period during 3G to 4G?
Well, that's a good question. We're going back in time here. Let me try to answer your question in the following way. Typically, technology migration from a consumer point of view is driven by handsets, by devices. And the fact that all major manufacturers have come out over the last 12 months with 5G devices and recently, obviously, Apple, that typically drives the uptake of new technology. And the vast majority of those customers are on a regular basis, recontracting their line. So with the right handsets in place, with a network which has the biggest coverage today in Singapore, we're in a good position to upsell and offer 5G to our existing customers and to new customers. And I would like to tie it back to a question which was earlier asked around the ability to charge premium.
Look, from a telco perspective, it's important that the market manages to sell this for the right price. Obviously, there are investments behind 5G, and it delivers a significantly different experience to customers. So that's why we have priced our Plus plans in the way we've priced it. And so far, we have received very good customer feedback. So my assumption is that the migration to 5G, we are quite optimistic about that in light of the fact that all the new devices are enabled 5G, and it's a matter of time when customers' recontracts have come new to align, they move to 5G automatically. So hopefully, that gives you a bit of a context around the speed of migration.
[Operator Instructions] If there are no further questions, thank you, everyone, for joining us this evening. As always, please feel free to reach out to us if you have further questions. Until our next update call, please stay safe and have a great weekend ahead. Thank you, everybody. Bye.
Thank you.
Thanks, everybody. Bye-bye.
Thank you.