Singtel posts lowest profit in over 20 years but Airtel shines among associate companies

Singapore's leading telecommunications operator, Singtel, last week reported a 49 percent decline in annual net profit to SGD 554 million (USD 420 million), its lowest in over 20 years.

Operating revenue for the financial year which ended March 2021 weakened five percent to SGD 15.64 billion (USD 11.85 billion) and underlying net profit before exceptional items fell 30 percent to SGD 1.73 billion. The company cited "continued industry and COVID-19 headwinds" for the underwhelming performance.

The main reason for the 49 percent plunge in net profit attributed to shareholders was a non-cash impairment charge of SGD 1.18 billion it took in its investments in Amobee, a digital marketing platform and its cybersecurity firm Trustwave. In addition to the re-valuation, Singtel said it will be undertaking a strategic review of the two businesses. In its statement to investors and the media, it said the reason for the write-down was due to "rapid shifts in the fast-moving digital marketing and cyber security industries and economic shocks resulting from COVID-19 curtailed both businesses' ability to scale."

In another potential strategic move, Singtel said it was exploring options for unlocking value in its infrastructure assets that include towers, satellites, subsea cables, and data centres. Options would include investing in some assets with partners and divesting others. Singtel's group financial position is healthy with net debt stable at SGD 12.4 billion from a year ago. As of March 31, the group's net debt to EDITDA stood at 2.2 times, up from 1.99 times in the previous year. Free cash flow was SGD 3.4 billion, down 10 percent because of lower operating cash flow and higher capital expenditure.

Revenue from its consumer businesses in both Singapore and Australia were impacted due to COVID-19 shutdowns and travel restrictions. Excluding NBN (National Broadband Network) migration revenues which were lower in the current reporting year, operating revenue from Optus, Singtel's wholly owned Australian subsidiary, was flat. Customer growth, roaming and prepaid revenues were affected by COVID-19 shutdowns and travel restrictions which dramatically reduced services provided to inbound travellers and foreign students. However, this was offset by higher postpaid revenue as well as equipment sales.

In Singapore, due to travel restrictions, there was a reduction in the number of tourists as well as foreign workers which resulted in lower roaming, prepaid mobile and voice revenues. However, this was counterbalanced by an increase in equipment sales due to customers upgrading to 5G devices and the timing of certain premium handset launches. Enterprise or corporate operating revenue was stable in the second half. The technology-driven reduction in usage of legacy voice and roaming services was mitigated by a rise in demand for ICT (information, communication and technology)services with NCS, Sintel's ICT arm, seeing a rise in system integration and application development projects coupled with elevated demand for data storage services which increased data centre revenue.

Singtel's digital media division, Digital Life, experienced a 10 percent reduction in operating revenue due to a dip in digital marketing arm Amobee's revenue and the discontinuation of mobile streaming service HOOQ from March 1, 2020. Amobee's revenue was lower as a result of reduction in its legacy services and TV revenues. This was partly offset by growth in its programmatic advertising platform business. Singtel's regional associates' pre-tax profit contribution was up four percent to SGD 1.71 billion (USD 1.30 billion) mainly due to the strong performance of Bharti Airtel which Singtel has a roughly 35 percent stake in. Strong growth in India and African saw Airtel improving its operating performance by SGD 426 million (USD 323 million) compared with a year ago. Its other regional partners' - Telkomsel (Indonesia), AIS (Thailand) and Globel (Philippines)- contribution shrank year-on-year.

Singtel's CEO, Yuen Kuan Moon commented, "We're encouraged by Airtel's strong performances in India and Africa although a resurgence of the pandemic continues to cast a shadow." Optus, Singtel's Australian subsidiary, experienced a seven percent drop in annual turnover to AUD 8.32 billion (USD 6.42 billion). After exception items and tax, it suffered a net loss of AUD 208 million compared with a net profit of AUD 402 million a year ago. The company said that this was "due to the COVID-19 pandemic impacts, lower NBN migration revenues, and market headwinds which led to lower equipment sales and leasing revenues, as well as lower fixed broadband margins from higher NBN costs as customer bandwidth consumption, continued to rise."

DBS Analyst Sachin Mittal, quoted by Reuters, suggested that the write-downs are "part of the kitchen-sinking exercise to give a clean slate to the new CEO." Mr Yuen took assumed his role in January this year. He further noted that Singtel's core business is being valued similarly to other operators that do not own infrastructure assets, which typically command higher valuations due to their regular cash flow and highly visible growth.

"This year's results are disappointing given unprecedented headwinds from COVID-19 and ongoing structural challenges," said CEO Mr Yuen about the financial performance."The one-time exceptional charge also weighed on our bottom-line number. That said, NCS and our data centre services proved to be bright spots, showing strong growth as enterprises rushed to digitalise and transform their businesses. We will be capitalising on this mass digitalisation with plans for a strategic reset to drive recovery and growth."