StarHub Ltd
SGX:CC3
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StarHub Ltd
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Welcome to Starhub's Fourth Quarter and Full Year 2018 Results Announcement Briefing. My name is Veronica and it is my pleasure to welcome the media and analysts who are with us here now, at our media center, at Starhub Green, as well as those who contacted us via the conference call and webcast.
Before we go into the results proper, please allow me to introduce the panelists to you. We have our CEO, Peter K; CFO, Dennis Chia; along with Chief of EBG, Dr. Chong Yoke Sin; as well as the Chief of CBG, Johan Buse.
Before we begin our presentation, I would like to remind all participants that we will conduct a question-and-answer session at the end of the presentation. [Operator Instructions]
And with that, let me hand over to Peter to share our financial highlights. Peter, please.
Thank you, Veronica, and a very good afternoon, ladies and gentlemen, and thank you again for your interest. Before I ask Dennis to go through the financial statements in detail, allow me to offer some highlights across the business operations for quarter 4 and the full year.
Our total revenues for 2018 are $2.36 billion or 2% lower than the previous year, and if we exclude the equipment sales of around $530 million, the service revenues reached $1.83 billion or 2.5% lower than 2017. These results were in line with previous market guidance we offered, which was 1% to 3% lower than previous years.
When we look across the portfolio of our products, paid TV and mobility contributed to lower revenues year-on-year by 12% and 8% respectively, whilst broadband was flat, stable, and enterprise's revenue grew by 16% year-on-year.
Without provisions and adjustments, and Dennis will refer to this topic a little bit later, the mobile revenues dropped by about 6.2%, not 8% as reported. Whilst consolidating additional cost of sales and OpEx from the acquisitions in 2018, we delivered a full year total EBITDA of $567 million, which is approximately 11.8% lower than the previous year. And our services EBITDA of $521 million was 11% lower than previous year.
As a result, our services EBITDA ratio was 28.4%, which again, is within the 27% to 29% guidance we previously offered the market. From a trading position point of view, allow me to make the following comments. We increased our postpaid customer base for mobiles by 34,000 net adds for the full year, which is a 2.5% year-on-year increase and more than half of the net growth adds came in quarter 4, driven predominantly by healthy demand for our new simplified mobile plans, and the full year ARPU is at $43.
As the entire prepaid market is shrinking -- or shrunk -- in 2018, our prepaid customer base also reduced by about 150,000 consumers year-on-year. However, the quarterly prepaid revenues have remained flat stable for at least 4 quarters now at approximately $35 million per quarter. The [indiscernible] period offers and some migration to SIM-only plans have contributed to the reduction of the prepaid customer base.
When we normalize our trading position for mobile revenues, excluding the one-off adjustments in provision, revenues declined by 2.6% between quarter 3 and quarter 4. In our paid TV business, our customer churn was slightly better than quarter 3 at 14 sales and customers churning versus 15 sales in quarter 3. And although we reported a drop in quarterly revenues of 4.5% quarter-on-quarter, the revenues were fairly stable.
ARPUs are lower year-on-year due to rebates given for various programs that we canceled, various channels. Again, alternative viewing options and piracy continue to affect our customer base in paid TV.
Our migration to fiber from HFC cable is progressing on schedule and we currently have more paid TV customers in fiber than cable. We have also gone the total number of broadband consumers by 3.2% year-on-year to 482,000 and the number of fiber broadband accounts have also grown by 11.4% year-on-year to be 425,000. ARPU for broadband services is steady at $32 per month.
Our enterprise segment is growing predominantly based on managed services, cybersecurity, cloud services, and digital security services. As anticipated, voice revenues and domestic data and internet services have declined due to price erosion predominantly in substitution with other services, such as OTT for voice. As a portfolio of services, we grew the enterprise revenues by 16% year-on-year.
Allow me to also make some comments about the transformation program. In the middle of quarter 4, we initiated a program, which is based on 3 fundamental pillars. First of all, delivering better customer experience through simplification, better value, and ease of transaction through the digital journeys. Our Hello Change was the start of that journey, which we introduced in the second week of December.
The second part of our transformation program was to drive operational efficiencies and cost optimization. We announced a $310 million cost optimization target and we have already implemented labor cost savings and some procurement savings. We have set targets for efficiencies also in our TV transformation, IT transformation, network sharing, and virtualization, and customer service and other parts of our business. These are not net cost avoidance but these are actual reductions against existing operating costs.
And thirdly, we're identifying opportunities to accelerate and growth through partnerships, acquisitions, and innovation. Ensign is one example of initiatives in cybersecurity. Another relationship, for example, with Yippy, to deliver enterprise search engines in the enterprise space, and also the first in Singapore, the invoicing on pay for all standards is another. So growth as well as customer -- cost optimization and improvements in customer experience underpin transformation plan.
Also, whilst the transformation is underway, we do expect competition will intensify with new entrants. For example, TPG, MVNOs like [ Vivo ] have another niche enterprise providers. We are focused more than ever to identify opportunities to grow and reduce operating costs. We do see growth opportunities in the IoT space and other segments in the market like data analytics, artificial intelligence, and digital security services.
But monetization remains a challenge and we need to understand the realities of a saturated market in Singapore. Within this context, we're offering guidance for 2019, which Dennis will elaborate in the next few minutes. The guidance is that group service revenues will be stable to a decline of 2% year-on-year. Group service EBITDA margins between 26% to 28% before IFRS 16 adoption and Dennis will explain the difference after IFRS adoption. And CapEx commitments that revenue will be in the range of 11% to 12%.
Also, consistent with industry practice and taking into account the dynamic market conditions, as of this financial year 2019, the Starhub Group intends to adopt a new variable dividend policy and pay out at least 80% of net profit attributable to shareholders adjusted for one of nonrecurring items as dividends.
As part of the transition to the new dividend policy, Starhub intends to pay a dividend of at least $0.09 per share for 2019 at a rate of [ $0.0225 ] per quarter. Any payment above $0.09 in line with a new dividend policy will occur in the last quarter of 2019. And as previously we communicated, the final dividend for 2018 of $0.04 will be paid in April this year.
Having said all of this, I will hand over to Dennis to go through some more details of our results. Thank you.
Thanks, Peter. I'll move to the slide deck, which is Slide 11, which is the EBITDA and we reported an EBITDA of $111 million for the quarter versus $142 million a year ago. The underlying EBITDA, which is also indicated in the deck, was $137 million. This is prior to the adjustments of $26 million that we took in the quarter that resulted in the reported EBITDA of $111 million.
These adjustments related to a couple of items relating to loyalty programs, in relation to rewards that we expect our customers to be redeeming. We also pulled forward a provision for an owner's contract. And this is explained in the MD&A as well. And we've actually adjusted the retail prices of our handsets that we actually sold during the year as well. So these 3 adjustments collectively had resulted in the net reduction of our EBITDA of $26 million.
The underlying EBITDA for a year ago as compared to the $137 million that we reported in the quarter would have been $153 million on a comparative basis. On the full year, we reported EBITDA of $567 million versus a year ago of $643 million. The underlying EBITDA, taking into account the same basis for the full year of 2018 would have been $582 million versus $639 million a year ago.
Moving onto service EBITDA, and service EBITDA for the quarter was reported at $106 million versus $122 million and that would have been a margin of 23.1% on a reported basis versus 24.9% a year ago. If you back off the adjustments that I referred to that impact service EBITDA, the service EBITDA for the quarter would have been $118 million, or translating into a service EBITDA margin of 25.4% versus $133 million a year ago on a comparative basis or margin of 27.7%.
The service EBITDA for the full year would have been $521 million on a reported basis versus $582 million. The net adjustments and service EBITDA for the full year are fairly minimal, which means that in fact the underlying service EBITDA margin for the full year of 28.4% on a reported basis would have also been the representative of the underlying service EBITDA margin for the full year of 28.4% versus 31.2% a year ago.
Looking at the cost of sales on Slide 13, you're looking at cost of sales for the quarter at $304 million versus $329 million a year ago. The movements in the cost of sales really are a function of 3 buckets. There's cost of equipment. This is actually lower year-on-year in relation to the lower handset revenues and equipment sales revenue that we recorded in Q4 of 2018 versus a year ago.
The traffic costs are actually quite higher as a result of the volume of traffic that we put through of the mobile system. And the cost services, which are a combination of 3 buckets, which is the content cost has actually come down and the cost of services in relation to the enterprise business and the services that are rendered through our acquisitions have gone up, as well as the fiber cost/migration cost that are captured in this bucket.
The net reduction for the quarter year-on-year is a net reduction in cost of services and that’s largely from content cost reduction recorded in our TV business. For the full year, our cost of sales is 1.075 versus 1.041. Explanations in the movements in each of these markets are consistent with what has been articulated for Q4.
For other operating expenses, we reported other operating expenses for $286 million for the quarter versus a year ago of $287 million. For the full year, it's also fairly on parity at 1,015 versus 1,012.
The movements in this bucket would be as follows. Marketing and promotion costs are slightly higher year-on-year and this is very consistent with the branding changes that we've actually rolled out during the year, as well as in relation to the migration to fiber from our cable systems for both TV and broadband.
Our depreciation costs have gone up. This is also consistent with the acceleration of the depreciation in relation to our cable network, which we intend to cease in the coming months, as well as the amortization of intangibles in relation to the acquisitions that we made during the course of 2018.
In the general and administrative bucket, the movements are as follows. We've got reductions in operating leases as a result of the rollout of our own fiber during -- in the last few years, a reduction of allowance for doubtful debts due to the improvements in the AR management and collection statistics that we recorded during 2018.
We've got higher staff costs as a result of the acquisitions that we incurred. Otherwise, at the staff level, we've got staff cost management, which is very much in check. We've got slight increases in repair and maintenance costs because of the broader networks that we've got and the IT systems, and as well as the depreciation we talked about.
In terms of net profit after tax, this is on Slide 15, we have a reported net profit after tax of $15 million for the quarter. The underlying net profit for the quarter would have been $42 million versus $63 million, and this is before the adjustments that were referred to earlier. For the full year, reported net profit after tax of $200 million or this would have been translated into $0.115 per share on an EPS basis versus [ $0.274 ]. The underlying net profit would have been $215 million or $0.123 versus a year ago of [ $0.269. ]
In terms of cash CapEx payments, we have a full year cash CapEx payments of $273 million or 11.5%. This is very much along with guidance. If you back off the payment for the building that we purchased during the course of 2018, the payout ratio would have been 10.2%.
In terms of free cash flow, we have a slightly less negative cash flow generated in Q4 '18 versus a year ago and this is due to positive working capital changes that we recorded during the quarter. For the full year, we generated free cash flow of $174 million or $0.10 per share. Our net debt to EBITDA ratio ended at 1.52x at the end of 2018.
And so we move onto Slide 19, which is the guidance statement, which Peter has already articulated. The only point I would make is the guidance to the service EBITDA margin on a post-SFRS(I) 16 basis, which is 30% to 32% versus the pre-IFRS 16 numbers, which is 26% to 28%. As a note, we will be reporting numbers from this year onwards, from Q1, on a post-SFRS(I) 16 basis in compliance with accounting standards.
And the reason for this is because the operating leases, which were previously recorded in our books, and in the profit and loss statements, have now been capitalized as part of the accounting standards. And accordingly, the depreciation expense would be increased. The reduction of operating leases translates into an improvement or increase in EBITDA and the corresponding increases in depreciation would be recorded during the year as well.
The net impact is a negligible impact on our net profit number at the bottom line and there are no cash flow impacts from the adoption of these new accounting standards.
With this, this summarizes the results of Q4 and the full year. I will hand the floor back to Veronica.
Thank you. We are going to open the questions to the floor now.
Maybe a couple questions [indiscernible]. So in terms of the cost cuts that were articulated previously, can you talk about how that is manifested in the margin guidance just given this year? And also, how should we think about those one-offs that were recorded in fourth quarter? Was the risk in recurrent this year as well? Those are the 2 questions.
The cost optimization program, as I mentioned, it's impacting all aspects of the business. And when we did announce the program, our intention at the time was that some would translate to real savings. Others would go back and fund growth and basically digitization as a business.
If you look at the business right now, call center activities, everything is done more old-fashioned way. We have to make investments in our IT predominantly to enable digital transaction with customers and fix a lot of processes.
So some will translate into real savings and some funding will go towards funding growth opportunities and transforming other processes. In the guidance we're giving you that has been captured. So again, I want to be very clear, the $210 million over 3 years is not going to drop directly into the bottom line. In terms of some of the changes, Dennis?
In terms of the one-off adjustments that we made in quarter 4 of 2018,I had explained that there were 3 broad buckets of adjustments. One, the first is in relation to the adjustment in retail prices for handsets. That will no longer recur because we actually adopted the new accounting standards, which is SFRS 15 at the start of 2018. As a result of that adoption and adjusting the basis of new accounting standards, that adjustment was done in Q4 to true up the retail prices for the full year.
So going forward, you will see a consistent basis adopted in 2019 and therefore, there's no one-off adjustment in that respect. The second is in relation to the owner's contract that was referred to. This owner's contract is at its tail end and will be terminated in the next 15 months or so. And therefore, we do not expect anything to be recorded for that owner's contract. As well as the accelerated depreciation has not been taken effect into our books, which translated into the higher depreciation cost that we've been recording. So you won't see a one-time impairment as well.
The third being the loyalty programs or the [ ROC ] programs that we would expect our customers to actually redeem over a period of time. And this is also a truing up of the total number based on the promotions that we expect to rollout in 2019 and beyond. So in this regard, again, this is a truing up of this number to the maximum number. So we do not expect to incur additional amounts as well in 2019.
So in terms of the service revenue guidance as well, is it possible to give a bit more clarity. You're talking about stable to decline of 2%. So how should we think about that relative to, let's say, mobile and other sort of divisions?
We're running a portfolio business and the portfolio has both consumer and enterprise. Traditionally, the consumer voice, for example, in paid TV and mobility has always been shrinking over the years for a number of reasons. There's migration predominantly to data, fixed and mobile.
So in the portfolio, predominantly we still expect declines of revenues for mobility and paid TV. We still expect stability in terms of broadband revenues. And interesting enough, if you analyze paid TV, reduction of customers, but on the other hand, increasing broadband connections to the home, it proves the point that customers still enjoy content. But it's alternative content versus paid TV. And that means they need a broadband connection. So the revenue mix for 2019 will be, again, challenges in mobility as well as paid TV, stability in broadband, fixed broadband, and growth in enterprise.
[Indiscernible].
A combination of that. And also, if you take into the growth area, which predominantly is the enterprise, many services in the new innovative services, they come at a much slower margin compared to telco connectivity services. We used to enjoy very high, 30%, 40%, 50% margins in connectivity. Right now, when you looked at the managed solutions, IT solutions, they're more sort of double-digit low -- double-digit margins.
So it's a margin mix. There's revenue growth but the margin -- so when you blend the margins of traditional products in the new [indiscernible] solutions, you're seeing a reduction in service EBITDA margins. Costs basically, again, we're trying to keep the costs as stable as possible and reduce them. And the reduction in cost is funding, as I mentioned, transformation in IT, transformation in customer service, and growth opportunities.
Another question from [ Green ] from the floor.
The floor has priority. Thank you.
In that case, we will move onto the teleconference. [Operator Instructions] We will start off with Luis from Maybank.
I have 3 questions. The first was regarding the SIM-only, no contract promotions. You’ve extended it a few times. If we could get some color on how successful it's been and whether the take up has been -- you’ve been getting ports from competitors or it's more of internal port.
Second question is you mentioned you're on track with the cable decommissioning. Does that mean that June 2019, we should see all of the cable subs switch over to fiber broadband?
And last question is in terms of fiber paid TV, what's the conversion rate now? What percentage are on fiber rather than cable paid TV?
Allow me to give you an overview and then I'll invite also Johan, who runs our consumer business to elaborate. First of all, SIM-only is a reality in the market and it's a double-digit percentage of our total sales. Slightly grew with the initiative of Hello Change but again, I want to stress that the majority of post-paid sales are still with device.
So SIM-only, it's a fact of life and again, in terms of cost, it has a lower cost structure because we don't subsidize for devices. And I'm sure in a few minutes, Johan will add a bit more color. Also, cable is on track. At the end of December, was on track. We met the migration target. We certainly have a target by June 2019 to migrate every cable customer, enterprise, as well as consumer.
We've slowed down a little bit over the last few weeks with the celebrations for Chinese New Year. But again, at this point in time we expect to be on track to deliver every customer to migrate them across. We're not in a position to make any additional offers and offer more incentives. We've offered existing incentives and we're working through customer by customer to migrate them. So there is a high degree of confidence will we achieve that migration.
Your last question in terms of fiber versus cable paid TV. We've crossed that point, at this point, not at the end of December but as of today, we have more customers on fiber than cable. I think with these comments, Johan, I'm not sure if you wish to add anything else.
Thank you. We'll take the next question now, which is from Arthur Pineda from Citibank.
Two questions please. Again, on the paid TV issue, majority are in the fiber. But for the un-migrated segments, do these subscribers have a Starhub broadband subscription as well, which runs in parallel to the HFC network? I'm just wondering what happens if you can migrate them by July.
Second question I had was with regard to the dividend. Can you share the philosophy on the dividend? Are you looking at it on a target year-end ratio for instance, or is this mostly match on free cash flow trends? And related to that, what would your thoughts be in further acquisitions?
Are you happy with what you have now or are you looking to build that out on the enterprise side even further? Thank you.
Okay. Johan, would you like to take the question on the fiber migration?
Sure. On the fiber question, the fair share of the customers who are having cable TV obviously also have cable broadband. As we announced end of quarter 3 October, all the customers who have cable are what we call price protected and they are offered accordingly. And as Peter said earlier on, we see an uptick, which is in line with our expectations and on plan.
So hopefully that's answering your question and obviously, we'll work our way through to the end of June, which is the estimated closure date for cable. And as we go along, we'll monitor and see if any additional action is needed.
The second point in terms of dividends. We believe that dividend policy is what I call mature and responsible within the current market environment. Certainly, paying a percentage of [ NPATH ] with the exception of any one of nonrecurring layers provides the cash flow to actually fund that. So I think that's as much as I'm willing to say. I'm not sure, Dennis, if you want to add anything more.
We believe that it is a responsible policy. It's within our means to pay the dividend year after year. And in terms of one-off nonrecurring events, the only one is the payment of the Spectrum, which is about $282 million, from memory. That's a one-off event. At this stage, we're not -- we don't believe it will be incurred in 2019. There is a 6-month notice period to be given to us, but again, if you exclude that, the cash flow is sufficient to meet the dividend within the new policy.
In terms of acquisitions, certainly, we remain active to identify business with accretive impact to our P&L, and to our cash flow, and to revenues. I have to say, in the last few months, there were not many opportunities, and again, we're being a bit selective. So we do seek new opportunities, especially in areas like data analytics, artificial intelligence, and managed services. We still see that part of the market segment enterprise is growing, especially with IoT growing dramatically over time. There's a lot of requirement for systems integration and artificial intelligence.
Again, I'm not sure, Yoke Sin, if you want to add anything more to it. I hope we've answered your questions.
Yes, sorry, in terms of the acquisitions, the reason I asked that was I was wondering if there are any acquisitions, does that actually impact the sustainability of the dividend payout ratio? Are you still keeping 80%, let's say you do find an acquisition down the road.
Correct. Yes, we're keeping the 80%, because, again, an acquisition, unless we are serially acquiring companies every month, we treat that more as a sort of one-off nonrecurring event. And hopefully, the acquisitions will find that they're not ones that will drop considerable cash. So yes, even if we do acquire companies, the 80% minimum payments for dividend still applies.
Thank you. So we will take our next question from Ranjan Sharma from JPMorgan.
A couple of questions. Firstly, on the service revenues guidance. If you're guiding for it to be stable, in the most optimistic scenario, how does this factor in the impact of the new players on the mobile side? If you can share more color.
And the next question would be on the EBITDA margin. How do you see handset subsidies evolving in the market considering the proliferation of SIM-only plans, plus also longer replacement cycles for smartphones? So how does that factor into your EBITDA margin guidance?
And lastly on the paid TV, I think previously, we had discussed, like, strategic options, but no further color was given. Maybe you can share something more this time. Thank you.
Okay. Thank you for your questions. Three questions, if I can try and answer them. The first one relates to impact of competition on service revenues and the guidance we've given you. First of all, in terms of guidance, we've been giving you guidance for 2018, I think from the first quarter of 2018, and we've been -- our results are very consistent with guidance we've given you for the last 12 months.
That implies that we've done a little bit of analysis and we feel fully confident that the services revenue guidance for 2019 will also be highly accurate. Having said that, yes, there will be volatility in the marketplace because of new entrants. We've been living with MVNOs and new entrants for the last 2 years. TPG has come in, and again, preliminary and will make an impact in the marketplace. But if we also take into account that in the last few months, we have re-energized the entertainment business, and basically, we're chasing both pre and postpaid customers with a lot more passion than we ever did.
So we've taken that into account. We do expect some reduction in ARPU going forward. But again, if you look at the portfolio of the consumer products, which are made up of both consumer mobility, as well as fixed broadband and paid TV, we believe a 0% to 2% overall guidance and revenue is what we expect, despite the competitive intensity.
We do believe customers will try other options. However, I think, again, our strength in terms of branding, distribution, quality of network, I think these are very fundamental factors that customers do take into account, assuming that price -- there's not a huge gap between what competitors are offering and what we're offering.
So we're fully confident about the 0% to 2% service guidance on revenues. In terms of handset subsidies and EBITDA, again, Dennis, maybe I'll refer to you, but again, let me make a comment. The market is not 100% devices plans and 0% SIM only. It's a healthy mix, although it's predominantly devices. But we have taken into account that our price of devices will partially drop and in terms of us being very aggressive in subsidizing that aggressiveness, will probably be less go-forward because there will be more competition with SIM-only plans and you don’t have a high subsidy from that point of view.
I'm not sure, Dennis, if you want to make any more comments no that.
Just comment to add to that, Peter, is that on the new accounting standards, the revenue for contracts that was adopted in 2018, subsidies are backed off the service revenues that are recognized and reported as well.
So those have already been factored. We've also taken into account the mix of device contracts versus SIM only contracts. Of course, we don't disclose that but we factor that mix and what the expected mix is going to be going into 2019 and what the impact on the service EBITDA is going to be in absolute terms as well, and therefore, the margin. So those have been taken into account.
The last question was about strategic opportunities with paid TV. And just to be very, very clear, as far as we're concerned, the paid TV and the whole content delivery market is being redefined across different platforms and different business models. We see more and more now content providers not distributing content through us but going directly to the market and a number of very global, respected brands have entered the market to go direct.
At the same time, we're trying to and we have renegotiated quite a few of the content contracts as they're coming up for renewal with different business models, not necessarily fixed price irrespective of viewers. Those initiatives will continue and our approach with content is that how do we package content and make it relevant to customers, not just in the living room. Customers want to enjoy content in a small device, medium device, laptop, tablet, as well as at home.
So again, some of the initiatives we're working on is to make sure customers can enjoy content across any device, any platform. And also, to do that, by providing content relevant to them through various programs. But also, at a fee per user, not at a fixed cost to us. So we've still working on these initiatives. I'm not sure, Johan, if you want to add anything more to it.
Okay. We'll circle back to Luis Hilado from Maybank.
One follow-up question from me. Could you give us some color in terms of particularly for the subscribers on the handset subsidy. What is the trend in terms of that exceeding their data caps or is it increasing, decreasing? Some color would be great.
Okay, thank you for the question. If I understood the question correctly, yes, what we're seeing is, right, we had a lot of customers in the past that exceeded their data caps and we're getting extra revenues from the customer. Having said that, the biggest irritation and the factor -- the biggest factor in customer complaints and churn was because of that. And what we're seeing right now with the Hello Change plans we've introduced since December, no longer is the customer exposed to this uncertainty in additional revenues.
So we're seeing that the revenue, the extra use is coming down. But we're also seeing more customers taking on the plans we've offered. And the net-net effect right now for us, at least for quarter 4, was positive.
Okay. The next question is from Varun Ahuja from Credit Suisse.
Just want to go back to this adjustment again because the results were released pretty late so didn’t have time to go through the MD&A in detail. Why would you make a -- if these are one-time adjustments, why are you making -- showing a competitive number for the last year quarter 4? Until there is some accounting change then you will do it.
I don’t know. I didn’t get it. Why would you make a competitive figure and why -- and show it's an underlying number for both the quarters. So I just want to revisit those adjustments that you're talking about and why you're talking about fourth quarter 2017 adjustments also. Any details would be helpful.
Number 2, given you're going to switch off your cable TV network, if we remember, there is a potential agreement with SingTel. What about the cost savings from that? Have you factored in that or is it -- you still cannot terminate it? Is it in 2021 that you will have to do. So color on that would be helpful.
Lastly, if you can -- long-term vision for the company looks like that mobile is going to be a challenging business and you're more focused towards an enterprise driven company. So the next 5 years down the line, do you think your business mix, obviously is going to change. You'll be more focused with an enterprise organization, less focused on mobile.
But if you look at even for SingTel, their enterprise business is still having some challenges because the mix is changing. The margin pressure is lower. So how should we think start of the next 5 years, more enterprise focus, hence the margins will be pretty lower because the margin mix is pretty low in enterprise. Any color. That would be helpful. Thank you.
Dennis, I think you'll take the first 2 and I'll take the third question.
Okay. Hi, Varun. This is Dennis. On the adjustments that we made in Q4, we had made some adjustments of a different nature in Q4 2017. So if you kind of go back to reported numbers, we reported EBITDA in Q4 of $111 million and we reported EBITDA of $142 million in 2017.
So we've actually shown the comparative numbers without the adjustments as $137 million versus $153 million just to provide the comparatives on the same basis without these adjustments. So I've explained earlier what the adjustments made in 2018 were, in Q4, the 3 buckets.
In 2017, we made an adjustment for restructuring costs, which we carried out the actions during the course of 2018. That was a big adjustment that remained in 2017. To your second --
Sorry, just to be clear. So the adjustment that you're doing in 2017 are different from 2018. So there's no [indiscernible]. There are some adjustment in 2017 and there's some adjustment in 2018. So both the adjustments are different one-time. Am I right?
That's correct. They are of a different nature. So the 3 adjustments that -- the 3 big adjustments that we made in Q4' 18, which was explained that they're of a different nature to the one that was made in 2017, which was in relation to staff cost restructuring.
The costs in relation to the savings in relation to the migration from eventual migration from cable to fiber, bear in mind that as mentioned earlier, the leasing arrangement that we have to pay in relation to the cable network, when we eventually cease that, we no longer have those leasing payments that we are liable for.
Then eventually, the depreciation that we're recording for the assets, the HFC, the coaxial assets that we have, have been accelerated. So when we stop operating on cable, that depreciation will stop and you will not see that anymore. However, you do have the fiber variable costs that we will have to pay for, and as part of migration, and the ongoing migration costs, and installation, and so forth that we have to incur.
So those have been factors. So you will not see a complete falloff of the costs on a net basis. We have factored in the savings but we've also factored in the additional variable costs that we have to incur in relation to fiber.
In terms of your third question, in terms of our long-term vision, let me offer the following guidance on the implications for enterprise market. First of all, right now, 60% of the business is consumer. Definitely it's a game of 2 halves, if I can say that. Defense is the game in consumer. The retention of high value customers, higher spending customers, and then management of costs and operational efficiencies to produce the right margins.
We're not turning our back to the consumer market and again, let's take into account that the home environment currently, if we think of consumers differently than just subscribers for mobile, or for broadband, or for paid TV, if we think that a household generates a certain level of revenue, when we look at some of the analysis, a household generates more revenue per month than a small business for us.
So the consumer market, very, very important. If you look into the future, the smart home, the IoT opportunity around the home is just emerging and there's a lot of opportunities. So we're not turning our back to the consumer market at all but we need to manage for better yield through cost optimization and retention of high-value customers.
However, currently, again, if we look at where the opportunities are for Starhub, definitely we've been a consumer company, I would say, probably for the last 15, 16 years of our existence. The focus has been predominantly on consumer. Mobility, broadband, paid TV, no question about that. In the last few years, our growth opportunities are in the small business and large accounts simply because, again, we [ left that ]. It was harder to become relevant to business customers unless you have a portfolio of services for the enterprise, unless you have capabilities and knowhow for the enterprise.
We've been doing that in the last few years organically and inorganically through acquisitions like cybersecurity. So that's where the opportunities for growth currently existing for Starhub. Winning more business customers. Increasing the share of wallet with some of the bigger accounts, and participating in those growth initiatives, like data analytics, artificial intelligence, enterprise solutions that are driven by corporate customers.
So defense and margin improvement in consumer and then taking a big share of -- or a bigger share of enterprise customers as naturally, we're developing more capabilities through direct capability and also through companies like Ensign, companies like D'Crypt where we're becoming more relevant to the enterprise space, especially in a cybersecurity and systems integration.
I'm not sure if, Yoke Sin, you want to add anything more.
no, I think that’s well articulated, Peter. All I need to add I think this is a very natural extension to actually address the enterprise space, because I think, as Peter mentioned, this is a relatively newer area for us and we see the opportunities.
In fact, the capabilities are quite relevant for us as we even offer the same capabilities even to the consumer space.
And I'm not avoiding the point about margins. You're absolutely right and it's a reality globally, not just regionally, or locally in Singapore that the enterprise market has higher revenues. But because a lot of the solutions are a little bit bespoke, they're not repeatable. I mean when you talk about systems integration you can't put it in a box and sell it, maybe, like a postpaid or prepaid.
So that customization of solutions and the lack of massive scale in the size of the market of Singapore means margins from enterprise solutions naturally are lower compared to connectivity. And of course, the whole approach we're taking is we're blending in terms of our solutions to the customer. Not only we offer systems integration and new capabilities, but of course, we want to pull through connectivity. So combining both connectivity as well as systems integration, managed solutions, cloud services. The combined margins will be a blended lower revenue than just selling connectivity.
If we just focus on connectivity, we'll have good margins but the business is not going to grow. So we need both.
Before we take another question from the teleconference, can I check whether there are any questions from the floor?
A couple questions here. Considering what, Peter, you had mentioned just now about consumers still facing of cost competition and all that, and if we assume that this intensified competition persists, however, because the enterprise and all that stuff continues to grow, do you see revenue growing at some point in the next 2 to 3 years? Or it will even take longer than that, you think?
And on the back of that as well, you know, when should we realistically think about cost savings for these 3 years? That $210 million, I know a lot is reinvested and all that. Would that ever manifest in earnings growth or would that largely be sort of used to drive further revenues? So that's the first question.
And then I think the second question I'd like to ask is the rebranding exercise I think we've seen in December. Obviously, a lot of specialty commercials and all that. Can you talk about what has so far been achieved either in terms of consumer perception or in terms of momentum. You could sort of give us a sense of the output of all those investments.
I'll definitely give the opportunity Johan, to talk a little bit about the rebranding experience. But I can tell you if you looked at the company stats that were reported over the last 12 months, if not longer, the Hello Change that we introduced has been a turning point, a positive turning point. And again, we want to be very -- we want to manage expectations.
It's a journey. We started from simplifying mobility plans. The intention is not to stop that -- to take that approach across the business. But Johan, you're the architect and the driving force behind that. You may wish to make some comments and I'll come back to your other 2 questions.
Okay. Without giving too much information at this point in time, because it's early days since we started, let me maybe reiterate a key objective of Hello Change in the start. We truly believe that the industry is complex for many customers with a lot of hidden fees and contractual obligations, which increasingly, customers challenge, if I may use that word.
So on that basis, we did a thorough research and wanted to address customer pain points. And it's I think fair to say that customers have responded very positively but I also, based on what Peter just said, would like to highlight it's a startup here. We still have a long way to go. We have a lot of work to do but the first feedback and results I would say are very encouraging. And it will help us to drive the business further going into 2019.
And just maybe one final comment before I move to your 2 other questions. When you have a decent brand or decent distribution, potentially, the Hello Change should have probably happened a couple of years ago. As the market shifted, I think if we sort of be a little bit critical of our capabilities, customers do value a brand that’s been delivering before. And if you are relevant to the customer and simplify the transaction, don’t expose a customer to go and wait in a retail store, wait for a long time, ask for a discount, react maybe too late on competition.
If you rethink the competitive formula and try and stay ahead of the competition or be relevant to the competition, that will potentially limit the growth of new entrants. Most companies today take a more aggressive approach towards new entrants rather than sit back, and be passive, and see if they're going to win or not. And certainly, from our point of view, we're studying as much as we can the customer perceptions and the customer expectations.
And especially here in Singapore, value for money drives a lot of discussions. So our products and our packages have to be relevant at every point in time, not every 6 months, or every 12 months. So we addressed that in terms of value to the customer. Simplicity, I mean we have far too many plans, both in mobility. You look into the paid TV, we have 39 options where a customer could choose TV programs.
I think customers today are a lot smarter -- have always been smarter than us as suppliers. They want more choices but easier to understand. So Hello Change is a simplification journey that we'll take across. But again, from what you are considering what we're seeing in the stats, customers are responding.
And in fact, they expect that approach to the rest of the lines of products like paid TV and so on as quickly as possible. And a challenge we have realigning our processes to be able to deliver. But we increased demand quite a bit.
Going back to your 2 other questions, in terms of growth in consumer. Consumer markets, we have 150% penetration. There is more competition through new entrants and customers want to have the latest technology, the latest products, and services, and pain the same ARPU per month, if not a lot less. Unless the population increases dramatically and unless we come up with new applications that we haven't thought through to date, the growth opportunity in consumer revenues in the context of Singapore market, I'm afraid to say, although we're optimistic by nature, we don't see consumer revenues growing dramatically if at all in the consumer space.
Now, it doesn’t mean we're not going to win back customers from competitors. It doesn’t mean that IoT may not create massive opportunities in the home, in a smart home. But again, what we've seen in the past, some of the new opportunities, hard to monetize. You can offer customers a lot more capability at home. They don’t have -- they're not predisposed to pay for it -- to pay for a lot.
So yes, we will remain challenged on the revenue and how that makes sense is the guidance we give you every year does take into account the fact that we may not grow as much in one part of the portfolio versus the other. In terms of the cost savings, I also mentioned earlier that part of the new approach we've taken going forward, which maybe Starhub had not passionately raised in the past, cost optimization as a way of life for telcos. Especially when the growth opportunities are not there in double-digit numbers, we cannot shy away from having to manage costs, having to be ruthless about cost management, and having to fund anything that grows and anything that doesn’t. Well, how do we change the business model and stop funding?
And I think this is a phenomenon not just for Starhub, but for every telco or any company that is involved in a low growth or no growth environment. So we will drive costs down in as many operations. Part of it will go towards earnings and part of it will go towards funding. IT, for example, and again, we -- as part of our transformation over the next few years, we're funding IT an accelerated level of funding compared to the last few years.
In the last few years, we put a lot of money in the network, fiber, and mobility, and really didn’t pay attention in funding applications from IT that enable a customer to give a better experience. I mean we talk about better experiences, but it is not having customers to wait online to get served.
Mobile application, we're developing a better mobile application, online capability. So we're funding -- so part of the savings will go towards funding a number of initiatives and some of it will drop into earnings, but again, not all. If we keep doing this and finding growth through the enterprise, we're thoroughly confident that the guidance we give you will be delivered in the next few years. And as I said, this is our intention.
But the market is challenged and if I grow strategically one extra dimension, if this is your question as well, there are far too many operators in a market, which is not growing in terms of new customers. So that is ah challenge and we think the business model has to be rethought. Network sharing. There's no use. Just keep building new infrastructure. I don’t believe 4 operators, for example, will build 4 new 5G networks. Nobody can afford that. The use cases are not there.
So we need to think differently about also in the future how we share assets to make sure we don’t spend too much on CapEx where customers are not willing to pay for a quicker transmission through 5G versus 4G. So we need to keep thinking about these sharing. Most likely in the next few years, you will see the operators being rationalized and consolidated. Again, we feel this is when and how, it's not if. It will definitely happen.
So these things will take -- will redefine the market. And what we're trying to do, as far as Starhub is concerned, make sure we become very relevant to the customer. We built a very, very strong brand. We clearly want to make sure consumers see the market, see us as a challenger brand, not just a sort of lethargic number 2, you sit there and sort of follow someone else.
So we've got some plans to reactivate activity and whatever savings we get, definitely our shareholders are very hungry for dividends. But also, we want to reinvest in more capability and new business models for the future.
Okay. We'll circle back to Ranjan Sharma on the call from JPMorgan.
Can you hear me?
Please go ahead.
Just on the network sharing, your competitor, M1, is going through a tender offer but once the dust settles, however that might play out, what other avenues of network sharing that you had looked with your competitor? I know it has been discussed in the past but if you can just share how deep the network sharing could be, how much costs can actually be taken out of the business. Or is this just going to be a cost avoidance by rolling out, let's say, 5G together.
Very good question. If you look at existing networks to try -- first of all, network sharing as a business strategy going forward. We've said this before and I will reinforce it today again. We will talk to any operator, competitor, or a niche operator because we think the smart business model for the future is not building alternative infrastructure. Even if some companies believe their infrastructure may have some unique value, some extra-redundancy, it very quickly gets commoditized.
There are a number of -- 4 mobile networks. There will be multiple fixed networks. So again, I think especially for new entrants, and of course, we're not here to give them any advice but spending tens and hundreds of millions to build new infrastructure on top of the existing, in a highly saturated market in terms of customer base and penetration, does question the return on that investment.
So we do believe in sharing facilities. Customers want choice through brand, through distribution, through packaging. Business the quality of network can support more than one operator. So we believe in that.
In terms of savings, direct savings, if you take existing networks and you try and rationalize them, whether it's the company you mentioned, or any other company. And by the way, we are talking to everybody or would like to talk to everybody on sharing as much as possible. If you take existing networks and try and rationalize them, the cost of rationalizing existing networks is probably on the high end and you're not going to get any benefits from, for example, taking existing 3G networks, 4G networks, and bolting them together.
We use different spectrum. There's different technologies. There's different BBUs and ROUs, and so on. So we've looked at that and that's not where the savings are on the existing networks. Now, if on 4G, a couple of companies are about to grow dramatically their coverage of 4G and build new capability, new base stations, it just makes a lot of sense to combine that so we can share the CapEx, and the OpEx, and everything else that goes with it.
I think CapEx avoidance, because what's the next big thing around the corner for most operators like us? Predominantly, on the wireless technology it's 5G. Since from the basic principle is there's no use case, and especially in an advanced economy and market like Singapore, there's fiber everywhere. And the need for 5G, unfortunately becomes less apparent.
So 5G is a good example that we should be cooperating. We should be talking with everybody in terms of infrastructure and that does not mean fierce competition at the retail level. But to build 4 5G networks, I think it's very, very challenging and certainly, we look forward to working with 1 or 2 companies, or anybody else to actually make that happen.
Fiber as well. There is quite a bit of fiber in Singapore but there's some parts of Singapore that doesn’t have fiber or sufficient level of fiber. We're quite happy, again, to talk to other operators to share as much fiber as possible, instead of all of us building 3 or 4, 5 cables into 1 building and then commoditizing that fiber access very, very quickly because price competition will become the only differentiator.
So we're encouraging smart infrastructure models, if I can use that word, and that will give better return on investment for the operators and the investors, and the customers will enjoy choice through different brands, through different SLAs, through different bundling of access with the service layer on top.
I hope that answers your question.
Thank you. Ladies and gentlemen, thank you for all your attention. We will be bringing this results briefing session to a close. A transcript of this call will be posted onto our website shortly. If you have any more questions, please feel free to contract Eric or myself anytime. On behalf of the Starhub management team here, I would like to thank all of you for joining us this evening, especially since it's Valentine's Day today.
Have a good evening everybody. Thank you.
Thank you very much for your interest. Appreciate it.