Singtel flags $1.2 billion charge in full-year results, starts strategic review of two US units

SINGAPORE - Singapore Telecommunications said on Friday (May 14) 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.

"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," said group chief executive Yuen Kuan Moon in a statement on Friday.

"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," he added.

For the second half year, 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.

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 Amobee and Trustwave are facing from the pandemic and ongoing challenges in the digital marketing and cyber security industries.

These have impacted both businesses' ability to scale and both units 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 which means that these sectors will take longer to pick up. So we are disproportionately impacted on our business at Amobee," Mr Natarajan 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 tech and moved advertising dollars away, he added.

"On the positive side, the shift of eyeballs to connected TV, out of linear television, has very positive impact on our business and created strong differentiation for us. It will only take time (for our capabilities) to ramp up."

Meanwhile, Trustwave's business in North America has been hit by a delay or reduction in spend from government contracts due to factors like last year's US elections, said Mr Natarajan.

Trustwave is moving out of some of its legacy businesses like compliance and pivoting its business model towards cloud platforms, he added.

"Given all of these things, our Trustwave business (will also have) a longer business cycle. We think it's prudent to shift out the business plan by between eight to 10 quarters overall to get back to the same level of the business that it was pre-Covid."

Singtel acquired Amobee for US$321 million (S$428 million) in 2012 and completed the acquisition of Trustwave at a reduced price of US$770 million in 2016.

Singtel said on Friday that the recoverable values of Amobee and its 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 and US$250 million to the intangible assets and goodwill of Amobee and global cyber-security business respectively in the second half of the year. The impairment charges are based on Singtel's best estimates.

The remaining carrying values of Amobee and its 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 year.

The programme includes staff payroll adjustments, professional fees and remediation of Optus' systems and processes.

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 this year.

Singtel shares were trading at $2.32, down 3.73 per cent or nine cents, at 4.15pm on Friday, after the announcement.

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.