Singtel flags exceptional charges of S$839m for H2, starts strategic review of subsidiaries

MAINBOARD-LISTED Singtel has launched a strategic review of two key units, even as major impairments in these businesses have led to exceptional losses.

But, calling the impairments “the conservative thing to do” amid industry challenges and the Covid-19 pandemic, group chief financial officer Arthur Lang stressed in a briefing that these costs are separate from the strategic review.

Singtel expects to report S$839 million and S$1.21 billion in net exceptional losses for the second half and financial year ended March 31, 2021, it warned in a pre-market filing on Friday. The group is due to report its H2 and FY2021 results on May 27.

Singapore's largest telco attributed the exceptional charges for H2 mainly to impairments from its digital life unit Amobee, which focuses on advertising technology; the global cybersecurity business, which is underpinned by Trustwave Holdings; and Australian subsidiary Optus.

Singtel estimated that Amobee will record non-cash impairment charges of S$589 million to its intangible assets and goodwill for the half-year, against S$195 million in the year-ago period. The cybersecurity business will record similar charges of S$336 million, compared with none previously.

The accounting move would leave Amobee with a carrying value of S$511 million, while the cybersecurity business has a remaining carrying value of S$695 million.

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Singtel has now embarked on a strategic review to weigh its options for these digital-focused subsidiaries, which it said in its statement was "to sharpen the group's focus and ensure that these assets are positioned for growth".

Repositioning Amobee and Trustwave will allow Singtel to reshape its portfolio and focus on value creation, said the group. Options may include the restructuring of product or business segments for these subsidiaries, full or partial divestment of the businesses, or business combinations with other industry players.

The review could take up to 12 months, according to chief executive Yuen Kuan Moon, a company veteran who ascended to the top job this January.

The strategic review follows protracted unprofitability in these businesses. Amobee reported a loss before interest and taxes of US$32 million in the six months to Sept 30, 2020, against US$11 million previously while Trustwave had a comparable loss of US$55 million for the period, from US$48 million before.

When asked why Singtel is holding a review now, Mr Yuen attributed the move to how “the ability to scale has actually been extended” by the pandemic.

“We had identified the digital advertising and the cyber business back then, that these were two of the very attractive growth sectors back then. I think it has taken a bit longer than we expected in terms of getting these businesses to scale…

“We do believe that there’s unique capabilities within both Amobee and Trustwave, that we can find the right partners to help us take these businesses to new heights,” he told the press.

The management reiterated in its briefing that it has learnt lessons such as the need to co-invest with strategic partners and take “significant minority positions”. Amobee, which was acquired in 2012, and Trustwave, which was fully acquired in 2015, are wholly-owned Singtel subsidiaries.

Comparing the Amobee and Trustwave investments with previous investments such as regional telco associates, Mr Yuen also told reporters that “we said that, hey, perhaps going in on our own - versus going in with partners with complementary capabilities - would be a much better approach”.

But, when asked if Singtel was disavowing its old approach, he replied: “Businesses change all the time. We will always have to learn how to pivot according to the business environment.

“In any new businesses, there are always risks involved, and the important thing is the ability to move fast and recognise the trends and quickly take action. And that is what we are doing now.”

Singtel’s enterprise arm and its NCS subsidiary will remain key partners for Trustwave, added Samba Natarajan, chief of the strategic portfolio.

He noted that industry demand for information and communications technology and cybersecurity “will form a big part of the general strategy in Asia for our Trustwave products, so that relationship between Trustwave and our core business in Singapore and Australia will continue to exist and remain in place”.

Singtel recently reorganised its group enterprise portfolio, including a fresh focus on Australia and China for NCS’s expansion in the Asia-Pacific from January on.

Meanwhile, Singtel's 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.

It also expects an exceptional charge of A$98 million in H2. This includes staff payroll adjustments, professional fees and a write-off of software costs for legacy systems.

Still, Mr Lang added that the payroll-related charges involve an accounting provision, and no decision has yet been reached on the payroll system review.

The abovementioned exceptional losses are expected to be offset in part by an estimated S$98 million gain from a dilution in Singtel's effective shareholding in Bharti Airtel, after shares were issued by the latter as partial consideration for acquiring equity interest in Bharti Telemedia in March this year.

Saying Singtel is “resetting and regrouping”, Mr Yuen added: “What is important is that now, as the new incoming CEO, I am taking full responsibility for putting us on the right footing moving forward. And I look forward to unveiling the full strategy for the future when we announce our earnings in two weeks’ time.”

Separately, Bloomberg reported on Thursday that first-round offers for Optus' tower portfolio could come by end-May, in a deal valuing the assets at A$2 billion. Potential bidders include Brookfield Asset Management, IFM Investors and American Tower Corp, Bloomberg said.

Singtel went into the midday break at S$2.36, down by S$0.05 or 2.08 per cent