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Singtel Q2 profit plunges 77% to S$667m on absence of year-ago exceptional gain

Singtel's second quarter net profit plunged 77 per cent to S$667 million from the previous year.

SINGTEL's second-quarter net profit plunged 77 per cent on the previous year to S$667 million, its lowest quarterly earnings in 15 years, according to results on Thursday morning.

The telco said that its performance was "adversely impacted" by negative currency movements and headwinds such as lower national broadband network migration revenues in Australia and lower associates' contributions from Airtel and Telkomsel, on intense competition in India and Indonesia.

Singtel also chalked an exceptional loss of S$48 million for the three months to Sept 30, mainly on staff restructuring costs, compared with a one-off gain of S$1.94 billion in the year-ago period fuelled by the sale of units in NetLink Trust.

Shorn of exceptional items, underlying net profit fell 22 per cent to S$715 million.

Revenue for the quarter was flat at S$4.27 billion, but would have grown by 3.9 per cent in constant currency terms, the telco said.

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Ebitda (earnings before interest, tax, depreciation and amortisation) fell year on year in both the group consumer and enterprise segments, which make up Singtel's core business, while the group digital life and corporate segments posted wider losses.

The digital life segment lost S$34 million before interest, tax, depreciation and amortisation, up from S$14 million previously. Singtel lowered its guidance for digital marketing business Amobee to single-digit growth, down from the mid-teens projected in May.

Samba Natarajan, chief executive of group digital life, said at a results briefing: "Our programmatic business, going forward, is going quite well and we're quite pleased with it.

"But, on the other hand, the managed media business - which was growing three or four years back - is now beginning to decline in the market as customers transition from managed media to programmatic. And a couple of our large programmatic customers, as I mentioned last quarter, had deferred their spend - as a result of which our growth rate for the year has now been adjusted from the mid-teens to high single-digits.

"Amobee was ebitda-positive last year as well, so this is not the first time it’s ebitda-positive. Amobee will continue to be ebitda-positive."

He added that the digital life segment was in the red overall because of investments across the business, particularly in video-on-demand streaming service Hooq. "That will still keep the overall digital life in investment mode."

In the Singapore consumer segment, which reduced churn for the quarter, operating revenue was up 4.8 per cent to S$555 million, led by a strong increase in equipment sales on premium handset launches. Ebitda declined by 7.4 per cent to S$180 million, with lower contributions from higher-margin legacy carriage services and absence of Singtel TV sub-licence revenue for the Premier League.

Ahead of the expected entry of Austalia's TPG Telecom in the Singapore market, Yuen Kuan Moon, group chief digital officer and chief executive officer for the Singapore consumer business, said at the briefing: "We hold our position that three operators actually is sufficient for the market size of Singapore... But we have to face a fourth operator - that's a decision that was already taken two years ago - and we have been preparing since then.

"Obviously, based on the regulatory requirements, we expect them to launch by the end of this calendar year. Our focus will always be on the customers - what they are looking for, what they are asking for... and it continues to be even more important in the face of the competition."

Mr Yuen noted that mobile virtual network operators (MVNOs) have introduced "a lot more variation of pricing packages" into the market and "we do expect to see some new MVNOs coming, probably next year" as "there are many interested parties still knocking on the doors" of mobile network operators such as Singtel.

"We've seen this phenomenon of MVNOs starting only about two years ago, so I would say that the four MVNOs in Singapore are all still contributing a very small percentage of the entire market in terms of size," he added.

Singtel's group enterprise segment posted a 4.1 per cent drop in operating revenue to S$1.6 billion on lower info-communications technology (ICT) sales due to what it called the "lumpy nature" of ICT deals which saw some major project completions last year, as well as continued declines in traditional legacy services, especially voice. Accordingly, ebitda fell by 4.8 per cent to S$440 million.

Still, group chief executive Chua Sock Koong noted in her presentation that ICT revenue is expected to grow for the second half.

Pre-tax profit contributions from regional associates fell broadly, except for Globe in the Philippines as well as Airtel's positive operating results in Africa.

The Airtel Africa unit is planning an initial public offering (IPO), with Singtel recently investing US$250 million in a round that also included national investment firm Temasek Holdings, American private equity firm Warburg Pincus and Softbank Group International.

Arthur Lang, chief executive of Singtel's international business, told the briefing: "Africa is hard to look at in one fell swoop because we're actually in 14 countries, but I would say that, generally, for most of these 14 markets, Airtel is at least in the two top market positions...

"As a whole, ebitda has been growing quarter on quarter consecutively for the last 11 quarters, so there is very strong momentum in that market.

"And, thirdly, emerging markets are actually a plus for the telco/technology industry because, one, the fundamental data demand is growing, and of course, voice demand is growing as well. And phone penetration and all that are going in one direction and growing in a very healthy way."

Mr Lang added: "The other thing that's actually worth highlighting is mobile financial services. Airtel Money in Africa actually continues to do very well. We can't quite disclose the numbers yet, but I think when it's time to go ahead with the IPO, you will see that the numbers there are very encouraging.

"But the demographics, the dynamics, the fundamentals are all there for a very positive momentum for the telco industry as well as the mobile financial services industry."

Singtel launched a cross-border mobile payment service in October through a partnership between its Dash wallet and regional associate AIS's AIS Global Pay as well as Rabbit Line Pay.

It has said that it wants to roll the service out in the region with associates such as Airtel in India, Globe and Telkomsel, and other partners.

"The regulatory issues at this point in time are not showstoppers and we continue to roll them out," said Mr Lang. "We hope, knock on wood" - he suited the action to his words - "in the next six months we’ll be rolling out in a few more countries."

He added: "Many of our telcos actually have had mobile wallets for quite a while and this is something that we are working on. We’re not starting from ground zero - we're actually building on what we already have and leveraging it - and we are bringing in more use cases.

"Now, will we go into mobile banking? Look, this is something that we currently have no plans (on), but we're also not saying no to it. I would say broadly it is mobile financial services - to look at it just as mobile banking, I think, is a bit too narrow and we should look at what we can provide (to) our customers using the mobile platform."

Mr Lang said that the group was "not quite ready" to share the size of the contributions from the e-wallet business, which he called "very, very modest in its form at this point - and it's not just us".

"If you look at the mobile financial services space, it is still a nascent industry," he said.

"But it is extremely high-growth because the potential is tremendous and you will see (that) every country across the region is very focused on mobile financial services."

Earnings per share fell to 4.09 Singapore cents from 17.49 Singapore cents in the year-ago period, missing the consensus estimate of 5.1 Singapore cents.

OCBC Investment Research analyst Joseph Ng wrote in a morning flash note: "We deem this set of results to be broadly under our expectations." Nomura stuck to a "neutral" rating on Singtel, citing earnings challenges.

The board approved an interim dividend of 6.8 Singapore cents per share for the half-year ended Sept 30, 2018, unchanged from a year ago. Shareholders also previously received a special dividend of three Singapore cents a share last year, on gains from the NetLink Trust divestment.

Net profit for the half-year was 60 per cent lower on the previous year, at S$1.5 billion, with a stable revenue of S$8.4 billion.

Rival Singapore telcos have both unveiled a change of CEOs in 2018 - M1's Karen Kooi will pass the baton to Manjot Singh Mann on Dec 6, while Peter Kaliaropoulos replaced Tan Tong Hai at StarHub in July.

Ms Chua said, in response to media queries: "As (with) any well-run company, we’ve got succession plans in place, and it’s across all levels.

"So all the CEOs, all the business leaders, are very conscious of the need to continue to have a pipeline of leaders in the organisation that can step up to bigger roles.

"Clearly, the succession plans for the senior leadership team is something that the board and its HR (human resources) committee will look at very closely."

When asked whether she has any time line for her own exit, she said: "I don't think it's a very appropriate question for you to ask me. Maybe something that you should address to the board."

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