Singtel sinks to S$1.3 billion H2 loss on Optus-led impairments; stronger sustained dividends expected

SINGTEL sank into the red with a net loss of S$1.3 billion for its second half ended Mar 31, 2024, compared with a net profit of S$1.1 billion in the same period a year earlier.

This was mainly due to a marked increase in exceptional losses, which included S$3.1 billion in non-cash impairment charges, it said on Thursday (May 23). In the same period last year, the group recorded a net exceptional gain.

The results translate to loss per share of S$0.0813, against earnings per share of S$0.0639.

Singtel said in a bourse filing that the S$2.5 billion net exceptional loss for the six-month period was mainly due to non-cash impairment charges on the goodwill of its Asia-Pacific cybersecurity business, Optus and NCS Australia.

The exceptional loss also included goodwill on Optus Enterprise’s network assets, and a share of “significant fair value losses” at Airtel Africa from the revaluation of US dollar liabilities and derivatives due mainly to devaluation of the Nigerian naira.

Optus, its wholly owned Australian subsidiary, recorded non-cash impairment charges of A$551 million (S$483 million) on its enterprise fixed access network assets. Its enterprise business reported steep declines in fixed carriage revenue due to churn and price erosion, which has led to lower recovery value.

At the company’s earnings briefing, group chief executive officer Yuen Kuan Moon clarified that the impairment charges do not include any provisions for costs associated with the cyberattack that Optus suffered in September 2022.

On Wednesday, Australia’s media regulator took Optus to court over the cyberattack, which exposed personal information of the telco’s customers.

“It’s really too early at this stage for auditors to determine the quantums of penalties, if any, that could arise,” he said.

The losses were partly mitigated by a gain on the disposal of Singtel’s 0.8 per cent direct stake in Bharti Airtel.

Operating revenue for the second half was down 3.6 per cent to S$7.1 billion, from S$7.4 billion in the same period a year earlier. The group attributed the drop to the absence of contributions from Trustwave, along with a 3 per cent depreciation in the Australian dollar.

Recycle capital to grow dividends

Singtel’s board has proposed a final dividend of S$0.098 per share, comprising a core dividend of S$0.06 per share and a new value realisation dividend of S$0.038 per share. This is the third increase in dividends since the group’s strategic reset three years ago, Singtel said.

On the same day, the company announced that it would be embarking on Singtel28, a growth plan that will result in capital being recycled towards the company’s growth areas, as well as raising dividends.

The company noted that it has recycled S$8 billion in capital since 2021, with a further S$6 billion to be recycled in the medium term.

Group chief financial officer Arthur Lang said that the funds generated would be ploughed back into the company’s growth areas, such as its Digital InfraCo unit and IT services arm NCS, and distributed back to shareholders.

He said that the company is currently sitting on S$2 billion in excess capital, S$600 million of which is being distributed as the value realisation dividend to shareholders.

He added that shareholders can further expect to receive S$0.03 to S$0.06 per share in value realisation dividend annually, on top of the company’s existing core dividend policy of distributing between 70 and 90 per cent of underlying net profit after tax (NPAT). Notably, underlying NPAT for FY2024 rose 10 per cent to S$2.3 billion.

He emphasised that the company was not just monetising its assets, but also bringing in partners that would commit to growing with Singtel, citing recent moves involving KKR and Lendlease to develop its data centre portfolio and Comcentre, respectively.

“That’s why we brought (KKR) in, because they are patient capital, they will invest with us...

“In a few years’ time, when all the data centres come into completion, you will see a very nice uplift in our profits and our Ebitda (earnings before interest, taxes, depreciation and amortisation), and then from there we can use that to pay more dividends,” he said.

He added that the company and Bharti Enterprises have both said that they aim to equalise their stake in Bharti Airtel, the company’s Indian associate, over the long term. He said that there was about a 4.5 per cent stake in Airtel left to equalise, and that the company was earlier able to sell a 0.8 per cent stake in the company for S$950 million in March this year.

In a research note on Thursday, DBS analysts said that the guidance on dividends was a “good surprise”.

“Final core H2 FY24 dividend of S$0.06 per share (87 per cent payout ratio) is in line with our expectations, but Singtel surprised the market with a value realisation dividend of 3.8 cents per share to be paid in two tranches in August 2024 and December 2024,” they noted.

Cost optimisations

Meanwhile, the company faced headwinds in its Singapore segment, which was formed through the merging of the company’s consumer and enterprise local businesses in April last year.

Revenue for the second half-year ended Mar 31, 2024, declined 1.6 per cent to S$2 billion, while earnings before interest and taxes fell a further 6.4 per cent to S$400 million.

Yuen acknowledged that the segment faces headwinds from structural declines in its legacy carriage business even as new revenue drivers, such as Internet-of-Things devices, continue to grow.

“It will take time, you have to find a new business to replace your old business, and you have to work on the cost to improve the margins,” he said.

Singtel Singapore CEO Ng Tian Chong said that the segment would soon see the fruits of the consolidation between its consumer and enterprise businesses.

For instance, the consumer and small and medium business teams were recently consolidated, to more efficiently go to market and ensure that the company reduces duplicate structures.

Singtel deputy CEO Anna Yip added that the company was exploring the use of artificial intelligence (AI) to improve productivity at its call centres.

She said that in simple contexts, for instance, call reminders for customers to check their e-mails may now be done using AI.

The company is also exploring running more campaigns that are customised to customers’ needs with the use of AI, while reducing its reliance on external marketing agencies.

“(Generating campaigns) used to be something we need to contract outside agencies to do every campaign, but now, our campaign frequency can actually go up, but it doesn’t mean we need to contract more people devising campaigns,” she said.

Singtel and its subsidiaries shed 4.6 per cent of their workforce to 16,387 in the full-year ended Mar 31, 2024.

Singtel shares closed up 0.4 per cent or S$0.01 at S$2.41 on Thursday.