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Edited Transcript of Z74.SI earnings conference call or presentation 15-May-19 12:30am GMT

Q4 2019 Singapore Telecommunications Ltd Earnings Presentation (Pre-recorded)

Comcentre May 17, 2019 (Thomson StreetEvents) -- Edited Transcript of Singapore Telecommunications Ltd earnings conference call or presentation Wednesday, May 15, 2019 at 12:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Chua Sock Koong

Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee

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Presentation

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Chua Sock Koong, Singapore Telecommunications Limited - Group CEO, Executive & Non-Independent Director and Member of Optus Advisory Committee [1]

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Thank you for joining us for Singtel's Results for the Fourth Quarter and Financial Year Ended 31st March 2019. Bharti Airtel launched a rights issue on the 3rd of May, which is expected to be completed in early June. Until then and in compliance with the regulatory restrictions, the group will not be disclosing or discussing Airtel's financial performance in detail. Further information will be released by Airtel upon completion of the rights issue.

Our results reflect the intense competition in the group's markets. The fundamentals at our core business remain strong, and we gained share in mobile across Singapore and Australia. The associates contributions have been negatively impacted by competition in India and Indonesia, although the markets are gradually stabilizing. We remain optimistic with our investments in the emerging markets as they continue to leverage the growth in data to deliver long-term profitable growth. We are executing and delivering to our strategy.

In our core business, our digitalization and automation initiatives drove productivity, cost savings and better customer engagement. We made strategic investments in technology and spectrum and leveraged content to continually drive customer engagement. Amobee and Trustwave have continued to gain scale and build capabilities. We're also building ecosystems in payment, video, gaming and eSports, emerging areas that can deliver future revenue and where we bring to bear our scale and strength.

We're recommending total dividends of $0.175 per share in line with the guidance. The group's performance for the financial year was in line with guidance. For the quarter, revenue rose 6% in constant currency terms, underpinned by strong revenue performance in consumer and digital businesses. Strong growth was recorded in equipment sales, ICT and digital services. During the quarter, postpaid customer base grew across Singapore and Australia. However, ARPU continues to be under pressure from lower voice usage and data competition. Revenue from NBN migration increased as Optus connected more NBN customers following the lifting of the rollout suspension. EBITDA was stable. Higher NBN migration revenue offset the impact of voice declines and the shift in enterprise sales mix towards lower margin ICT services.

Airtel recorded operating losses with intense competition in India. Overall, associates performance was also affected by increased depreciation, spectrum amortization and network costs. Net profit, including exceptional gains was stable, while free cash flow rose 40% mainly on higher operating receipts from ICT projects and NBN migration revenue as well as lower capital expenditure. For the financial year, underlying net profit fell 21% reflecting losses from Airtel, weaker contributions from Telkomsel and erosion of carriage services. Exceptional gains were lower due to the significant gain on NetLink Trust divestment last year. For the quarter, the depreciation of the Australian dollar reduced underlying net profit by SGD 16 million or 2%.

Overall, foreign currency impact was negative at SGD 10 million or 1% of earnings. For the financial year, the impact was negative at SGD 83 million or 2%. The group's financial position remains healthy and its free cash flow for the year was stable. Higher cash flow from Singapore and Australia offset the impact of rupiah weakness on the associates' dividends. Net debt was SGD 9.9 billion and average maturity of borrowings was 4 years. Our credit rating continues to be one of the strongest among global telcos. For FY 2019, the Board has recommended a final ordinary dividend of $0.107 per share, bringing total dividends to $0.175. This translates to payout ratios up 101% of underlying net profit and 88% of post-tax free cash flow. Barring unforeseen circumstances, we expect to maintain ordinary dividends at $0.175 per share for the financial year ending March 2020.

Let me share some highlights for the quarter. The group is fostering a vibrant 5G ecosystem. Singtel and Optus made the world's first cross-border 5G video call with augmented reality to demonstrate the potential application of 5G. In Singapore, we launched GOMO, a digital-only mobile product, giving customers greater convenience, flexibility and value, while lowering our cost to serve. We also partnered with HBO Go and Amazon Prime to bundle content with mobile and home plans and with GOJEK and AIA for lifestyle perks and rewards. Optus continues to deliver world-class entertainment experience to customers. During the quarter, it introduced an original series, Only in Oz, coproduced with National Geographic and available to customers regardless of networks.

In the enterprise space, we signed new partnerships with Microsoft and China Mobile to strengthen our IoT offerings and enabled enterprise customers to deploy their IoT devices across networks seamlessly. We continue to be recognized for our strength in cybersecurity. Trustwave was awarded best-managed security service in the 2019 SC Awards. Amobee entered into a strategic partnership with U K.'s biggest pay TV operator, ITV, licensing its programmatic technology to help ITV manage its video inventory.

In mobile payments, VIA expanded its market reach with new partnerships and announced plans for customers to make payment through their local e-wallet when traveling to Japan and Malaysia. In gaming, we are sponsoring Singapore's eSports team to compete in the Sea Games. We also launched 2 amateur leagues in Singapore to nurture cybergaming athletes. Singtel received strong endorsement from customers winning the best mobile, fiber and pay TV provider at the 2019 HardwareZone Tech Awards. During the quarter, we drove customer acquisition and retention with innovative offers that compete beyond price. Mobile revenue rose 4% on strong equipment sales, offsetting the impact of lower voice usage, especially in the prepaid segment. Postpaid customers continued its positive momentum, rising 32,000 this quarter. Our strong customer base provides a platform to drive data and digital value-added services. Fixed services fell due to lower voice usage mitigated by growth in broadband services. EBITDA rose 5% on strong cost management with staff productivity improvements and reduced traffic expenses.

In Australia, Optus maintained its customer acquisition momentum while continuing to transform its business to drive profitable growth. Revenue rose a solid 10% with high equipment sales and increased NBN migration revenue. Mobile service revenue was stable due to data price competition. Postpaid customers increased 121,000, while prepaid customers declined 109,000 impacted by the deactivation of inactive services by a wholesale customer. Fixed mass-market revenue grew 19% with high NBN migration revenue. Cost of sales and traffic expenses increased due to a shift in revenue mix to equipment sales and NBN products. Indirect costs decreased 8% from strong cost control. EBITDA rose 10% with higher NBN migration revenue.

Our regional associates continue to ride the growth in data with investments in network and spectrum. Overall, regional associates' profits fell 20% due to competition in India. In Indonesia, market recovery drove year-on-year revenue growth for Telkomsel reversing the declining trend due to the SIM card registration exercise. To strengthen its balance sheet, Airtel is raising up to USD 4.5 billion, including USD 3.5 billion via a rights issue.

In Thailand, AIS' earnings were impacted by higher network investments and spectrum amortization. In the Philippines, Globe delivered another strong quarter driven by a robust data revenue growth in mobile and broadband. Group enterprise revenue declined 3% or 1% in constant currency terms due to the decline in carriage services in Australia amid a cautious business environment. ICT services rose 4% led by NCS. ICT now contributes 51% of group enterprise revenue, up from 48% last year.

Our cybersecurity business continued its momentum and increased revenue by 11% on strong growth in the Asia Pacific. EBITDA declined to 16% due to the shift in sales mix, voice erosion, increased competition in carriage and pricing pressures in the renewal of major public sector ICT contracts. Group Digital Life revenue rose 33% and continued growth in Amobee's programmatic platform business and the acquisition of Videology. Excluding Videology, Group Digital Life revenue increased 17%. Amobee's growth in the programmatic platform business mitigated the decline in its managed media business as the industry continues to shift towards programmatic advertising.

During the quarter, Amobee entered into a strategic collaboration with U.S.-based TV broadcaster Univision to enhance audience targeting for the broadcaster's advertisers. HOOQ revenues increased strongly with growth in revenue generating customers in ASEAN and India. Innov8 participated in the fast-growing digital health care space in Asia and invested in Halodoc and CXA Group. Amobee's EBITDA grew on higher contributions from the platform business.

Let me conclude with the group's guidance for the financial year ending March 2020. The following guidance is given on a constant currency basis. Group revenue is expected to increase by mid-single digits and EBITDA to be stable. Capital expenditure is expected to be around SGD 2.2 billion. Free cash flow, excluding spectrum payments and associates dividends, is expected to be around SGD 2.1 billion. Dividends from the regional associates are expected to be approximately SGD 1.2 billion, reflecting Telkomsel's lower earnings for its financial year ended 31st December 2018. Revenue from ICT services is expected to grow by low single digits. Cybersecurity revenue is expected to increase by the low teens. Amobee is expected to grow its operating revenue by high single digits and its EBITDA to improve.

And that concludes my presentation. Thank you.

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