Singapore Telecommunications Ltd

SGX:Z74

Earnings Call Transcript 2019-Q3

[Chua Koong, executive]

Thank you for joining us for SingTel's results for the third quarter and 9 months ended 31st December 2018. The group's performance has been impacted by slower economic conditions and weaker business sentiment. The core business faces heightened competition and [ voice ] erosion. We continue to invest in networks spectrum and content to create competitive advantages while progressing with our additional transformation. We're also taking steps to address our cost base. ICT services returned to growth albeit at lower margins.

In Australia, Optus maintained its customer growth momentum and added 129,000 postpaid customers. In Singapore, postpaid customers rose by 36,000. In constant currency, revenue increased 4%, led by higher equipment sales and growth in ICT and digital services. EBITDA fell with core margin erosion and lower NBN migration revenues in Australia.

Airtel's performance has been impacted by intense competition in India, although its mobile revenue showed early signs of stabilization on a sequential quarter basis. The associates investments in network and spectrum to capture rising data usage has led to higher depreciation, amortization and network costs.

Underlying net profit declined 28%, reflecting challenges in the core business and lower associates' contributions. Free cash flow fell due to slower operational performance as well as timing differences in Telkomsel's dividends and ICT milestone-based receipts.

For the 9 months, underlying net profit fell, reflecting declines in Airtel and Telkomsel profits as well as voice and NBN migration revenues. Exceptional gains for the quarter are primarily due to changes in lease terms for certain sale and leaseback assets and Airtel's deconsolidation of a subsidiary, partly offset by staff restructuring costs.

For the quarter, the weaker Australian dollar and regional currencies reduced underlying net profit by SGD 15 million or 2%. Over the 9 months, the impact was SGD 73 million or 3%.

Let me share some highlights for the quarter. In Singapore, we added HBO to our entertainment content suite and secured rights for the Premier League until 2022. We also entered the electricity market offering a one-stop shop for consumers power and communication needs. Optus launched Australia's first 5G commercial service with services initially available in Sydney and Canberra, as 5G network will cover 1,200 sites by March 2020, leveraging an unparalleled 5G spectrum holdings nationally. Optus also increased its brand strength and overtook competition to become Australia's strongest telecommunications brand and the fourth strongest brand overall.

In the enterprise space, our strength in ICT services helped us clinch a major contract and data center services was up to SGD 850 million. We were recognized as the best-managed security service provider in Singapore and Southeast Asia as well as for data center leadership and infrastructure services.

In Indonesia, HOOQ inked new partnerships with Grab and OVO, allowing us to reach subscribers at scale. Dash continues to widen its capabilities and market reach. It is introducing remittance services from Singapore to Myanmar, and has expanded its usage globally through strategic partnerships with Visa and Apple Pay.

The group's financial position remains healthy. Free cash flow for the 9 months declined 10% on lower EBITDA and timing of ICT milestone-based receipts, partially offset by lower capital expenditures. 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.

Moving on to the Singapore consumer business to enhance our customer proposition. We continually review our mobile price plans and content offerings, including entertainment such as Discovery Lifestyle, HBO and Premier League. Postpaid customers rose by another 36,000 this quarter. Mobile service revenue was impacted by voice-to-data substitution, mitigated by growing data usage. Rising handset costs and subsidies also resulted in higher amortization of handset subsidies against mobile service revenues.

Equipment sales decreased with weaker demand for key handset models. In home services, broadband growth was offset by voice and TV service declines. Overall revenue decreased 6%, while EBITDA dipped as small as 3% from stringent cost management.

In Australia, Optus continues to transform its business model to drive profitable growth, while ensuring we deliver exceptional service, network and value as recently demonstrated by the launch of Australia's first 5G home wireless broadband product.

Revenue increased to 6%, with growth in postpaid mobile customers and equipment sales offsetting lower NBN migration revenues. NBN, HFC connections have resumed progressively following the lift of the suspension. Optus has recently agreed with NBN Co. for migration payments based on an agreed rollout plan.

Mobile service revenue declined 4% due to intense competition in the prepaid segment. Our postpaid customer base continued to grow strongly by 126,000, while the prepaid customer base declined by 72,000. Postpaid and prepaid ARPU were impacted by data price competition and the increasing mix of SIM-only plans.

Mass market fixed revenue was down 9% and would have been stable excluding NBN migration revenues. Excluding NBN migration revenues and a onetime income from dispute settlement last year, EBITDA would have risen 3% on strong cost management. Our regional associates continue to ride the growth in data with investments in network and spectrum. However, higher depreciation, amortization and network costs as well as intense competition in India led to a decline in regional associates profits.

In Indonesia, Telkomsel's revenue was stable year-on-year. On a sequential quarter basis, revenue rose as the SIM card registration exercise has been largely completed.

In India, the mobile market remains challenging with continued pricing pressures. On a sequential quarter basis, Airtel's ARPU rose and mobile revenue stabilized following the introduction of minimum recharge plans.

Airtel's 4G customers increased by 11 million.

Airtel Africa posted another strong quarter in revenue and profits. It also received an additional investment of USD 200 million from the Qatar Investment Authority, raising a total of USD 1.45 billion that will strengthen its balance sheet.

In Thailand, AIS recorded revenue improvement, but profits declined on higher marketing costs and network investments.

In the Philippines, Globe's earnings rose driven by strong data revenue growth in mobile and broadband as well as cost management.

Group Enterprise revenue rose 1%, led by a 9% growth in ICT services. Traditional carriage services continue to decline, reflecting price erosion and longer sales cycles amid the cautious business environment.

Cybersecurity revenue grew 10%, supported by double-digit growth in Asia Pacific. Despite stable revenue, EBITDA declined 9%, impacted by the higher mix of ICT revenue as well as margin impact from voice erosion and increased competition.

Group Digital Life revenue rose 17%, boosted by Amobee's programmatic advertising business and the acquisition of Videology. Revenue growth was, however, moderated by declines in the managed media business with customers shifting their spend from managed media to self-service programmatic platforms.

We continue to enhance our programmatic platforms and inked partnerships with Oracle Data Cloud and Place Exchange. Key customer wins during the quarter include MasterCard and Boeing.

HOOQ doubled its revenue from a year ago as it grew its paying subscriber base in ASEAN and built on new distribution partnerships in India.

Overall, EBITDA was impacted by losses from Videology and declines in the high margin managed media business.

The group has updated its outlook for the current financial year taking into account the results for the 9 months to December and updated for the acquisition of Videology.

Mobile service revenue from Australia is expected to be stable.

Group ICT revenue is expected to increase by low single digits. With the consolidation of Videology, Amobee Group is expected to grow its operating revenue by low teens and be slightly EBITDA negative. EBITDA for the group and core business are expected to decline by low single digits.

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