Singapore Telecommunications Ltd

SGX:Z74

Earnings Call Transcript 2019-Q2

[Chua Koong, executive]

Thank you for joining us for Singtel's results for the second quarter and half year ended the 30th September 2018.

The group continues to focus on driving performance. The co-carriage business remains resilient despite headwinds. ICT revenue is expected to grow in the second half of the year backed by a strong order book. In Singapore, we also expect an upturn as the government lifted the polls on new Smart Nation projects after a review of its cyber security measures. The group is well positioned to capture opportunities as businesses and governments look to harness the benefits of digital solutions and strengthen their cybersecurity.

During the half year, Optus recorded strong postpaid customer growth of 124,000 underpinned by its improved mobile network in content proposition. In Singapore, the postpaid customer base rose by 57,000. ICT revenue fell due to the lumpy nature of major infrastructure projects, which contributed strong lease of sales last year. And the commoditization of the legacy payment card industry compliance or PCI business.

Group revenue rose 3% in constant currency, lifted by higher equipment sales in Singapore and Australia. EBITDA declined 3% in constant currency due to lower NBN migration revenues in Australia and investments to grow the digital businesses. These results were also impacted by the strengthening of the Singapore dollar against the regional currencies and the Australian dollar.

The share of regional associates profits fell with lower contributions from India and Indonesia, mitigated by strong performances from Airtel Africa and Globe. Competition in India remains intense. In Indonesia, price recovery has driven sequential quarter earnings growth. Excluding the prior year's gain on the divestment of NetLink Trust and other exceptional items, underlying net profit declined 21%. Free cash flow rose 7% reflecting higher dividends from associates and lower capital expenditure.

For the quarter underlying net profit fell 22% on lower associates contributions and adverse currency effects. For the quarter, the weaker Australian dollar and regional currencies reduced underlying net profit by SGD 34 million or 4%. Over the half year, the impact was SGD 59 million or 3%.

Let me share some highlights for the quarter. The Board has approved an interim dividend of $0.068 per share, representing a payout ratio of 77% of underlying net profit for the half year. In Singapore, we launched -- a new Chinese entertainment and lifestyle channel catering to younger viewers without especially curated content. Our revamped flagship store was recognized as the best retail concept of the year at the Singapore Retailers Association Retail Awards 2018 for innovative use of technology.

In Australia, Optus successfully completed live 5G network trials in Sydney paving the way for the commercial launch of fixed wireless access services in Canberra and Brisbane in January 2019, and other capital cities by March 2019.

Up to sports, now broadcasts, the -- and Champions League, which together with the Premier League cement Optus as the home of elite football in Australia. We continue to strengthen our Suite of Cyber Security Services, the acquisition of Hivint, augment, our security consulting business, while the opening of Trustwave SpiderLabs fusion center lives out threat identification capabilities. We were awarded the Asia Pacific Best Telecom Group and Managed Service Provider of the Year by Frost & Sullivan. HOOQ struck a new partnership with Hotstar further strengthening its distribution reach in India.

We are building ecosystems with our associates and partners to grow mobile payments and gaming services in the region. We launched Viu Asia's first cross-border mobile payment Alliance. Customers can now make mobile payments through their local e-wallet when they travel, initially between Singapore and Thailand. In all Globe PVP eSports championship play to a sold out cloud in Singapore and sizable online audiences in China and Southeast Asia. We will leverage the group's strength to deliver the best gaming and eSports experience to customers. In Singapore, we introduced a high-speed fiber broadband bundle, especially designed for online gamers.

The group's financial position remains healthy. Free cash flow for the half year increased 7% on higher dividends from associates and lower capital expenditure. Net debt was SGD 9.8 billion, and the average maturity of borrowings was approximately 4 years. Our credit rating continues to be one of the strongest among global telcos.

Let us move on to the Singapore Consumer business. Mobile revenue rose 7% on strong equipment sales as we leveraged premium handsets to drive customer acquisition and retention. Postpaid mobile customer growth of 41,000 was the strongest in 6 quarters, while churn improved.

Growth in data revenues and digital lifestyle services mitigated lower voice usage. Home revenue increased 4% boosted by the 2018 FIFA World Cup. Overall revenue rose 5%. EBITDA was down 7%, reflecting lower voice usage and the suspicion of the Premier League sublicensing revenues last year.

In Australia, revenue increased 8% with growth in mobile customers and equipment sales offsetting lower NBN migration revenues from the temporary suspension of NBN HFC connections. NBN Co. is progressively lifting the suspension. Mobile service revenue declined 2% due to an increased mix of SIM-only plans and data price competition. Strong postpaid customer growth of 87,000 was driven by competitive offerings across both handset and SIM-only plans. Our prepared customer base declined by 120,000, impacted by seasonality and intense competition.

Mass Market Fixed revenue was down 7% and would have risen 2%, excluding NBN migration revenues. Excluding NBN migration revenues, EBITDA would have been up a solid 4% on strong cost management. Our regional associates continue to write the growth in data of leading operators and their respective markets. Lower contributions from Airtel and Telkomsel, that to a decline in regional associates profits. In Indonesia, Telkomsel implemented price increases in select regions after the sim card registration exercise, driving a 22% growth in sequential quarter earnings.

In India, intense competition and mobile termination rate cuts led to lower revenues year-on-year. Revenues have stabilized on a sequential quarter basis. Airtel Africa raised USD 1.25 billion, a new equity, demonstrating the confidence of leading Global investors in Airtel Africa's ongoing robust growth and profitability.

In Thailand, AIS's profits declined due to higher network investments. In the Philippines, Globe's earnings rose 50%, driven by strong data revenue growth and cost management.

Group Enterprise revenue declined by 4% in constant currency terms. The decline was 2%. This reflects the erosion in carrier services and the lumpy nature of ICT deals.

Cyber security was stable in constant currency, backed by strong growth in managed security and technology services in Asia Pacific, which offset the decline of the PCI business in the U.S. The PCI business has stabilized on a sequential quarter basis.

EBITDA fell on lower revenue, while margin was stable due to cost optimization initiatives. Revenue for Group Digital Life rose 10% driven by Amobee's problematic platform and e-mail businesses. Amobee's results include first time contributions from videology from the end of August. HOOQ doubled revenues from a year ago, leveraging new distribution partnerships in India and Indonesia.

Overall, EBITDA was impacted by continued investments to build scale as well as stock option expenses.

During the quarter, Amobee continues to be recognized ricks -- in its marketing campaigns and technology. It also completed the acquisition of videology.

HOOQ strengthened its content Suite with release of its first original Indonesian series.

The group affirms its guidance for the group and its core business that continues to invest in building capabilities and scale the digital marketing at Cyber Security businesses. The Group has a strong order book and growing sales pipeline. In Singapore, government spending on smart nation and cybersecurity is projected to increase.

Taking into account, the result of half year ended 30 September 2018, Amobee is expected to grow its operating revenue by high single digits and be EBITDA positive, and cybersecurity revenues is expected to increase by high single digits for the financial year ending 31 of March 2019.

And this concludes my presentation for the quarter. Thank you.