Singapore Telecommunications Ltd

SGX:Z74

Earnings Call Transcript 2020-Q2

[Chua Koong, executive]

Thank you for joining us for Singtel's results for the second quarter and half year ended September 30, 2019. These results include an exceptional item from Airtel, reflecting the provision for regulatory demands following an adverse Indian Supreme Court ruling. Airtel, together with other operators in India, continue to make representations to the Indian government for relief and to seek further clarification. In the interim, Airtel has made a provision for the demands in its results. Singtel's share of this provision was SGD 1.9 billion pretax. In its operations, Airtel maintained its momentum, gaining market share and growing mobile service revenue for a third straight quarter.

We are digitalizing our core operations to enhance our competitiveness and drive performance in our growth engines. In the quarter, we invested SGD 177 million to enhance our mobile network. In Australia, some 300 5G fixed wireless sites now serve customers for their home broadband needs. We are leveraging 5G technology to create innovative solutions for our customers.

In our ICT business, digital services now account for 41% of revenues. NCS had a record order book of SGD 3.3 billion with new orders from a diverse range of customers. Amobee, our digital marketing arm, improved its business mix with programmatic business now making up 57% of revenue. Our e-wallet Singtel Dash tripled its active users with more services and merchants on board.

We remain focused on growing penetration and usage of our app. Across Singapore and Australia, more than 4.2 million customers actively use our apps, and about 2/3 of customers now interact with us via online channels. Through such digital initiatives and cost measures, the group achieved cost savings of SGD 263 million for the half year.

Our consumer operations remained resilient and grew both revenue and EBITDA despite intense data competition and accelerated declines in voice services. The enterprise business was impacted by a downturn in the global economy, which dampened business sentiments and corporate demand. In Australia, declines in legacy products and reforms in the finance sector added further pressure.

In constant currency terms, group revenue was stable, and EBITDA rose 7% with higher NBN migration revenue and strong cost management. Underpinned by robust data growth, improved performances were recorded across the associates markets, including India and Africa.

Airtel delivered operational improvements and narrowed its pretax losses. On a post-tax basis, its contribution fell due to a reduced equity stake in Airtel Africa following the IPO and lower deferred tax credits. Exceptional losses from Airtel amounted to SGD 1.4 billion, which drove a net loss for the group.

Underlying net profit excluding exceptionals rose 3%. Free cash flow rose 14% from higher operating cash flow. The stronger regional currencies offset weakness in the Australian dollar. For the quarter, favorable currency movements lifted underlying net profit by SGD 14 million or 2%. The impact for the half year was SGD 13 million or 1%.

Moving on to recent highlights. We continue to enhance our international connectivity and invested in the extension of the Southern Cross cable network. We also partnered with the IMDA and Razer to launch Singapore's first 5G cloud gaming trial, a first 5G consumer use case trial. For the first time, Optus clocked the fastest NBN peak evening download speeds in independent tests by the Australian Competition and Consumer Commission. We continue to introduce exciting content on our TV and OTT platforms, including Hong Kong TVB channels and the Rugby World Cup 2019.

In the gaming space, our PVP Corporate and Campus Leagues attracted close to 2,000 players and 900,000 views. We welcomed OCBC's Pay Anyone app, further strengthening its cross-border payment proposition.

We were awarded Asia Pacific Telecom Group of the Year for the fourth straight year as well as the inaugural IoT Service Provider of the Year. Our Singapore flagship store was awarded Most Innovative Retail Concept in the Asia Pacific. Amobee was recognized by Forrester as a Leader in Cross-Channel Video Advertising, a validation of our strength in advanced TV and digital video solutions.

The group's financial position remains healthy. Our credit ratings place us among the highest-rated telcos globally. Net debt increased to SGD 13.1 billion from a year ago, reflecting our investments in Airtel and recognition of SGD 2.4 billion worth of lease liabilities under new accounting standards. For the half year, free cash flow declined 7%, mainly on lower associates dividends. We declared an interim dividend of $0.068 per share and barring unforeseen circumstances, expect to maintain total ordinary dividends at $0.175 for this financial year.

Moving on to the Singapore consumer business. We continued to deliver strong results despite intense competition and pricing pressures. Mobile revenue increased with strong postpaid customer growth and higher equipment sales offsetting voice declines and amortization of handset subsidies. Excluding revenue from the World Cup 2018 broadcast in the prior period, fixed revenue would have declined 1% and TV revenue stable.

We added 1,100 customers and continued to win share in the TV market. Broadband revenue increased 5% as our customer base rose 3,000 this quarter. Overall EBITDA grew 5% on income from infrastructure cost sharing and strong cost management including content cost rationalization.

Consumer Australia revenue increased 5% from higher NBN migration revenue in line with the increased NBN rollout. Optus introduced new mobile plans. As the market adjusted to the new plans, customer additions and equipment sales had moderated. Postpaid handset customer base rose by 29,000, with branded postpaid handset customers up 30,000 in the quarter.

Mobile service revenue declined 4% due to lower ARPU from a higher mix of SIM-only customers and data price competition. ARPU stabilized against the June quarter. EBITDA grew 19%, mainly from higher NBN migration revenue and continued cost management.

Moving on to group enterprise. The quarter's performance was impacted by cautious business sentiment, weaker demand from the Australian finance sector and continued carriage erosion. Excluding Australia, group enterprise revenue would have risen 1%.

NCS achieved a record SGD 3.3 billion in order books and delivered strong revenue growth on the back of systems integration and applications projects for the government. Trustwave posted strong growth in managed services in Asia, offsetting declines in the payment compliance business and lower contributions from Australia. Excluding Australia, ICT services grew a strong 6%. EBITDA declined 12%.

Group Digital Life revenue declined 8% with more cautious spending by Amobee's clients and declines in media, social and e-mail businesses. Amobee continues to improve its business mix, driving growth in programmatic advertising to mitigate the impact of structural declines in its legacy businesses. Amobee's EBITDA rose on cost management.

HOOQ delivered revenue growth as revenue-generating subscribers increased. In the quarter, HOOQ Media Exchange was launched, further strengthening our advertising value proposition to brands and advertisers.

Pretax contributions from the regional associates rose 36% with strong growth in Thailand and the Philippines as well as stability in Indonesia. Telkomsel continued to operate in a competitive but rational environment. It was focused on managing the transition from voice to data services. Airtel recorded a third consecutive quarter of mobile service revenue growth in India, gaining quality customers and driving upgrades through its loyalty program. Its African operations delivered broad-based revenue and margin growth across voice, data and mobile money. Pretax losses from Airtel narrowed by 37%. In Thailand, AIS grew revenue and profits due to an increased postpaid customer base and network cost savings from a settlement with TOT. Globe maintained its revenue momentum with robust data growth in mobile and broadband.

The group has updated its outlook for the current financial year, taking into account the results for the half year. Revenue and EBITDA are expected to be stable. We are guiding capital expenditure of approximately SGD 2.1 billion. Cybersecurity revenue is expected to grow by mid-single digits. Excluding payment compliance, it is expected to grow in the low teens. Amobee's revenue is expected to decline by mid-single digits with improvements in EBITDA. The outlook for the other items remains unchanged.

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

[Statements in English on this transcript were spoken by an interpreter present on the live call.]