StarHub wasn't dragged to the altar by Temasek, CEO says

Singapore

STARHUB'S security joint venture with state investor Temasek Holdings was no "forced marriage", said chief executive Peter Kaliaropoulos.

Ensign InfoSecurity, the cyber security tie-up launched late last year, was hot on the lips of retail investors during Mr Kaliaropoulos' debut at StarHub's annual general meeting on Tuesday.

Given the difference in operating culture between cyber security and infocomm companies, "it is very natural to spin off a . . . standalone company and support its growth", said Mr Kaliaropoulos, who joined the telco last July.

"I definitely wouldn't call it a forced marriage. It's a great opportunity to create critical scale and accelerate the acquisition of customers."

Calling Ensign "a people business" that must hunt for talent, he warned shareholders not to expect a quick return on investment.

"We expect it to make an impact on our business at the revenue level; but, at the same time, we expect, in the early phases, that we invest more in opex to develop, to attract the right talent and be more relevant to customers." Mr Kaliaropoulos added that "you will see that we've been very transparent" about Ensign's performance, in first-quarter results due on May 3.

StarHub owns 60 per cent of Ensign, which was formed when Accel Systems & Technologies - bought by StarHub in 2017 - was folded in with Temasek's cyber security business.

StarHub also acquired a 65 per cent stake in a separate cyber security firm, homegrown D'Crypt, last year.

"We have looked at diversifying our revenue streams away from the traditional telco revenues," said chief financial officer Dennis Chia, when pressed on reasons for moving into new and lower-margin segments. "We believe in the cyber security space as a horizontal line of business."

Board chairman Terry Clontz, senior executive vice-president of parent company Singapore Technologies Telemedia (ST Telemedia), added that "it deeply made sense" not to enter the cyber security fray from scratch. "We've been highly selective in making some of those acquisitions."

One shareholder asserted that the set-up of Ensign had originally been tipped to raise pro forma earnings per share (EPS) from 14.2 Singapore cents to 19.4 cents, had the transaction gone through on Jan 1, 2017. StarHub most recently posted EPS of 11.2 cents for the 12 months to Dec 31, 2018.

But Mr Chia later clarified that, as previously disclosed, the stated gain was not the effect of Ensign's formation, but from Temasek potentially exercising in 2023 its option to a 20 per cent stake now held by StarHub.

He also dubbed Ensign and D'Crypt StarHub's primary subsidiaries, along with fibre unit Nucleus Connect and other operating companies.

"We are not an investment holding group and we do not buy and sell companies for profits," he said, in reply to another query on possibly divesting subsidiaries to boost earnings.

StarHub's stomach for debt, especially with impending spectrum and other investments, was also brought up by investors. The Business Times had earlier reported on April 11 that the telco is among the top 10 leveraged Singapore listcos with market values above S$200 million.

"Spectrum is very vital for the future of our wireless business . . . It is the most critical ingredient," said Mr Kaliaropoulos. "The debt level of the company is still responsible at this point in time. When we have to pay for the spectrum . . . we will then fund that through external funds."

He added that there is "no need to speculate" on how much yet-to-be-released 5G spectrum will cost, but said that StarHub will lobby for prices that are low enough to enable the development of the technology's ecosystem.

Meanwhile, one investor asked if Temasek's ST Telemedia - which owns 55.8 per cent of StarHub - would make a buy-out offer along the lines of the recent privatisation of M1 by Keppel Corp and Singapore Press Holdings, which publishes BT.

"Look, to be honest with you again, ownership of the company is not a management domain . . . But to the best of my knowledge, it has not been on the table to sell the company," Mr Kaliaropoulos said.