Singtel expects $1.2b charge in full-year results
Loss mainly due to asset impairment at two US-based units; strategic review under way
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Singtel has started a strategic review to consider options for subsidiaries Amobee and Trustwave Holdings. Group CEO Yuen Kuan Moon (above) said the telco is "open to all types of strategic partnerships and deals, including inviting investors who have complementary capabilities and can enhance the value of the businesses".
PHOTO: SINGTEL
Singtel said yesterday that it expects to book net exceptional losses of $1.21 billion in its full-year results, mostly due to impairment of assets at two United States-based units - digital advertising platform Amobee and cyber-security firm Trustwave Holdings.
Singtel said it has started a strategic review to consider options for the two businesses, which may include restructuring of product or business segments, a full or partial divestment, or business combinations with other industry players.
Singtel group chief executive Yuen Kuan Moon said: "We are open to all types of strategic partnerships and deals, including inviting investors who have complementary capabilities and can enhance the value of the businesses.
"Cyber security remains core to our group strategy and ICT (information and communications technology) offerings, and the review will be geared to ensure we capture the growth in Asia-Pacific."
For the second half of the financial year ended March 31, Singtel's net exceptional losses will be $839 million. The figures are subject to finalisation as the statutory audits of Singtel and its subsidiaries are ongoing, the company said.
Citi analysts Arthur Pineda and Hussaini Saifee said that while the exceptional charges could cause near-term concern, Singtel is taking a step in the right direction to reduce or eliminate the drag from these companies.
"We also see little risk to dividends owing to the non-cash nature of the charges. A move to offload or reduce stakes in these assets could also be earnings accretive over the longer run," they added.
Phillip Securities research head Paul Chew expects that Singtel will fully divest the units: "Singtel's focus will be on 5G and the potential new revenue or service opportunities when the infrastructure is fully deployed."
The telco will be announcing its second-half and full-year results on May 27 when Mr Yuen, who took over the reins in January, will provide further details on strategic direction and priorities.
The move comes amid headwinds that Amobee and Trustwave are facing from the Covid-19 pandemic and ongoing challenges in the digital marketing and cyber-security industries. These have impacted both businesses' ability to scale and they will therefore require a longer cycle to achieve their business plans, said Singtel.
Strategic portfolio CEO Samba Natarajan said Covid-19 resulted in an almost year-long contraction in advertising spend by some of Amobee's largest agencies and advertisers.
"While the economy is picking up... it is not the same across all sectors. Some of our business at Amobee is quite heavily weighted in sectors such as FMCG (fast-moving consumer goods), auto and travel... (and) these sectors will take longer to pick up," he told a briefing.
Advertisers and agencies are also looking to cut costs on vendors across the value chain, while Amazon has emerged as a key player in ad technology and moved advertising dollars away, he added.
"On the positive side, the shift of eyeballs to connected TV, out of linear television, has created strong differentiation for us. It will only take time to ramp up."
Meanwhile, Trustwave's business in North America has been hit by a delay or reduction in spending from government contracts due to factors such as last year's US election, said Mr Natarajan.
Trustwave is moving out of some of its legacy businesses - compliance, for instance - and pivoting its business model towards cloud platforms, he added.
Singtel said yesterday that the recoverable values of Amobee as well as the group's global cyber-security business, which includes Trustwave, have been assessed to be below their carrying values as at March 31.
Consequently, the group is expected to record non-cash impairment charges of US$438 million (S$584 million) and US$250 million to the intangible assets and goodwill of Amobee and the global cyber-security business, respectively, in the second half of the year. These are based on Singtel's best estimates.
The remaining carrying values of Amobee and the global cyber-security business will be US$380 million and US$517 million, respectively.
Singtel also said its Australian unit Optus expects to record non-cash impairment charges of A$197 million (S$204 million) due mainly to its legacy fixed-access networks that will no longer be used.
Optus is also undertaking a programme to review its staff compensation, similar to other major companies in Australia, and will record an exceptional charge of A$98 million in the second half of the year.
Singtel's exceptional losses are expected to be offset in part by an estimated $98 million gain from a dilution in its effective shareholding in Indian associate Bharti Airtel, after shares were issued by the latter as partial consideration for acquiring equity interest in Bharti Telemedia in March.
Singtel shares fell 3.73 per cent to $2.32 yesterday.
Correction note: A previous version of this article stated that Mr Samba Natarajan is Singtel's group digital life CEO. He is now chief executive of strategic portfolio. We are sorry for the error.
