Singtel to unlock value of infrastructure assets, posts 93% lower H2 net profit

Singtel has proposed a final dividend per share of 2.4 cents.
Singtel has proposed a final dividend per share of 2.4 cents.ST PHOTO: ALPHONSUS CHERN

SINGAPORE (THE BUSINESS TIMES) - Singtel on Thursday (May 27) announced a strategic reset that includes unlocking the value of its infrastructure asset portfolio which consists of towers, satellites, subsea cables and data centres following a strategic review of its two key business units.

In a media call on Thursday morning following its results release, Singtel group chief executive Yuen Kuan Moon said that the review of the telco's entire asset portfolio is done with the primary motives in mind: to bridge the valuation gap between individual assets and the integrated telco assets, as well as to monetise assets that are not aligned with, or may be less important to, the group's vision.

The telco has already begun a partial sale via auction of Optus' towers in Australia to maximise proceeds from the sale, said Singtel in its filing, and said the group seeks to "more actively recycle" its assets.

But Mr Yuen noted in the call that "it's not just about selling" Optus' towers, but also about growing them.

He added: "While we are looking at divesting the towers, we are also looking at what is core and important to the operating company.

"Mobile operators always look at balancing both the divestment as well as protecting strategic assets and ensuring that we continue to have access to (these strategic assets), and ensuring that our needs for growth in coverage are not going to be compromised with the divestment of such assets. So the two are not mutually exclusive."

Other aspects of the group's new strategic direction include plans to leverage its 5G leadership to reinvigorate its core consumer and enterprise businesses, and develop new growth engines in ICT (information and communications technology) and digital services.

In what Mr Yuen touts as significant consumer-focused initiatives, Singtel hopes to capture the "digital Asean growth opportunity", and aims to "create multi-local digital ecosystems in each market".

For instance, Singtel had entered into a joint venture with Grab for the digital full bank licence awarded by the Monetary Authority of Singapore last year, and has a presence in various digital payment systems across the region, among other things.

"We will look to scale aggressively and rapidly, and are open to taking significant minority stakes with complementary digital natives to achieve this," said Mr Yuen.

He noted that individually, while "each application and service may not be profitable today, but collectively combined into the ecosystem, it could be a much more compelling value proposition for our customers".

News of the strategic reset came on the same day Singtel reported a 92.7 per cent decline in second-half (H2) net profit of $91 million from $1.2 billion in H2 FY2020.

Earnings before interest, tax, depreciation and amortisation (Ebitda) for the half year fell 12 per cent to $1.93 billion from $2.2 billion the previous year.

Group revenue for the half year ended March 31, 2021, was down 1 per cent year on year at $8.22 billion, from $8.28 billion previously.

The bottom-line drag came mainly from exceptional items of $809 million post-tax, which included non-cash impairment charges for the group's investments in Amobee and Trustwave, for which Singtel says a strategic review is under way.

Rapid shifts in the fast-moving digital marketing and cyber-security industries and economic shocks resulting from Covid-19 had curtailed both businesses' ability to scale, said the group in its results filing.

The exceptional charges for H2 were lower than the $839 million Singtel said it was expecting in its profit warning issued earlier this month on May 14.

Singtel's Singapore consumer business recorded an 8.3 per cent decline year on year in operating revenue for the half year, mainly due to reduced roaming, pre-paid mobile and voice revenues. The group said that roaming and pre-paid services continued to be impacted by the drop in the number of tourists and foreign workers due to ongoing travel restrictions. Similarly, in the same period, its digital life's operating revenue fell 9.7 per cent year on year due to a reduction in Amobee's revenue and the deconsolidation of Hooq from March 1, 2020.

Meanwhile, the operating revenue for its group enterprise segment in H2 remained stable year on year, amid the continued growth momentum from the information and communications technology sector. This was driven by higher systems integration and applications development projects from NCS, as well as increased data centre revenue boosted by demand for storage services. The increase had partly mitigated the decline in legacy voice and roaming revenues.

For the full year, net profit fell 49 per cent year on year to $560 million from $1 billion previously. Ebitda fell 16 per cent to $3.83 billion from $4.54 billion for FY2020.

Group revenue declined 5 per cent year on year to $15.64 billion from $16.54 billion for FY2020.

As at March 31, the group's net debt to Ebitda stood at 2.2 times, up from 1.99 times in the previous year.

Mr Arthur Lang, Singtel's group chief financial officer, said that while the group has internal explicit targets that it wants to limit itself to with regard to its debt ratios, "the fundamental approach that we take is to always target an optimal capital structure that minimises overall cost of capital".

One way that the group focuses on in optimising its capital structure, he added, is to maintain its strong investment grade rating.

Singtel has proposed a final dividend per share of 2.4 cents - bringing its total dividend per share at to 7.5 cents, amounting to about $1.23 billion.

This represents a payout ratio of 71 per cent of the group's underlying net profit for the year, which decreased 30 per cent to $1.73 billion from $2.46 billion for FY2020.