Q1FY17 Earnings Conference Call
11 August 2016
CORPORATE PARTICIPANTS
Ms Sin Yang Fong – Vice President, IR
Ms Chua Sock Koong – Group CEO
Mr. Allen Lew – CEO, Consumer Australia
Mr. Yuen Kuan Moon – CEO, Consumer Singapore
Mr. Bill Chang – CEO, Group Enterprise
Mr. Samba Natarajan – CEO, Group Digital Life
Mr. Mark Chong – CEO, International
Ms Lim Cheng - Group CFO
Mr. Murray King – CFO, Consumer Australia
Mr. Ben White – MD, Product and Marketing Australia
CONFERENCE CALL PARTICIPANTS
Ms Wei Shi Wu – BNP Paribas
Mr. Gopakumar – Nomura Securities
Mr. Prem Jearajasingam– Macquarie Bank
Mr. Arthur Pineda - Citigroup
Mr. Srinivas Rao – Deutsche Bank
Mr. Roshan Raj – Bank of America Merrill Lynch
Mr. Abhijit Attavar - Jefferies
Mr. Choong Chen Foong - CIMB
Mr. Prem Jearajasingam– Macquarie Bank
Mr. Peter Milliken – Deutsche Bank
Mr. Jimmy Chen – Sanford Bernstein
Mr. Piyush Mubayi – Goldman Sachs
Start of Transcript
Operator
Ladies and gentlemen, welcome to Singtel's FY17 Q1 results conference call. If you have any issues
during the call, please press *0 to speak to an operator. Ms. Sin, over to you.
Ms Sin Yang Fong – Vice President, IR
Thank you Vincent. A warm welcome to all investors and analysts, you are listening in to Singtel's
conference call for its earnings for the first quarter ended 30 June 2016. My name is Sin Yang Fong
and let me introduce management on the call. We have Ms Chua Sock Koong, Group CEO, Mr. Allen
Lew, CEO Consumer Australia, Mr. Yuen Kuan Moon, CEO Consumer Singapore, Mr. Bill Chang, CEO
Group Enterprise, Mr. Samba Natarajan, CEO Group Digital Life, Mr. Mark Chong, CEO International,
Ms Lim Cheng Cheng, Group CFO, Mr. Murray King, CFO Consumer Australia. They are also assisted
by other members of the management team from Singapore and Australia. Before we start taking
questions, I would like to invite Sock Koong to share some highlights from this set of results.
Ms Chua Sock Koong – Group CEO
Thank you Yang Fong and welcome everyone for our Singtel results for the first quarter ended 30
June 2016. The group continues to strengthen its core and build skill in its digital businesses. Overall
revenue for the Group, excluding the impact of regulated reductions in Australia mobile termination
rates, declined 1% on a constant currency basis. Mobile data services remained a key growth driver
Page 1 of 16
Q1FY17 Earnings Conference Call
11 August 2016
across our operations, with differentiated content, quality networks and flexible pricing plans. Group
Enterprise continued to gain traction in ICT services, with increased demand for cyber security
services. Optus sustained its momentum in mobile, increasing branded customers and migrating
customers to higher tiered plans. However, its revenue was impacted by lower termination rates and
service credits from device repayment plans. Equipment sales fell in Singapore and Australia,
reflecting lower re-contracting volumes, pending new handset models and higher mix of SIM-only
plans. Pre-tax profit from the regional mobile associates grew 14%, driven by voice and data growth
from Telkomsel and Airtel India.
Underlying net profit rose 7%, reflecting the associates’ strong performance and the resilience of our
core. On a constant currency basis, underlying net profit rose 9%. Free cash flow rose 26% on higher
dividends from Telkomsel and improved working capital. In the quarter, the Group's results were
impacted by the weaker Australian dollar and regional Asian currencies. These reduced the Group's
net profit and underlying net profit by approximately SGD20million. So with that, let me hand over
to Yang Fong to chair the Q&A, thank you.
Ms Sin Yang Fong – Vice President, IR
I would like to advise that this call is being recorded for playback and for transcription. We will now
invite questions from participants; our operator will assist you to put through your questions.
Operator
We will now begin the question and answer session. Participants with questions to pose, please press
*1 on your telephone keypad and you will be placed in the queue. To cancel the queue, please press
the pound or hash key. Our first question today comes from the line of Wu Wei Shi from BNP Paribas;
your line is now open.
Ms Wei Shi Wu – BNP Paribas
Thank you. My first two questions relate to the Singapore Consumer business. Firstly, the mobile
revenues appeared to have peaked. If I look at the data metrics, they seem to be plateauing as well.
Is it realistic to assume that there can still be meaningful growth in this segment going forward, and
where is that going to come from? Secondly, with regards the consumer broadband business, that is
up 4% year-on-year this quarter. But your growth rate has been lagging that of your competitors. So
just want to get some thoughts on why management thinks this is the case and whether this can be
addressed going forward. Finally, just a broader question, just want to get management's view on
the content business. Is this - I mean related to this, is the bundling concept still relevant today in
your view?
Ms Chua Sock Koong – Group CEO
Okay now let me just take the content question on the more general level. I mean when we talk about
content, it is a key differentiator. When you are talking about content, you know it could be delivered
on the paid platform, like our Singtel TV, or it could be on an OTT platform. We have worked with
various OTT players, as seen with that promotion with Netflix, both in Singapore and in Australia. We
also have our own HOOQ, which is an OTT player across the region. So we do see content as very
important and it is something that we want to curate - like for our pay TV business, our own OTT
platform HOOQ and more recently the Cast portal that we just launched. So it is important and clearly,
we do use the content strategy for us to gain and attract higher-value customers just like what we
Page 2 of 16
Q1FY17 Earnings Conference Call
11 August 2016
have done with EPL in Australia. It is a good example of using content to increase our sign-ups for
both mobile and for our fixed broadband.
I will ask Moon to talk about mobile revenues. I think you would have seen that we had actually
provided guidance, where we announced the results on mobile. So I think therefore maybe you want
to restate what we provided in our guidance. For the financial year ending 31 March 2017, our mobile
comms revenue in Singapore is expected to remain stable. We have provided a guidance on mobile
and you know there is no change to that guidance. Moon can give you a bit more colour and take the
consumer broadband questions.
Mr Yuen Kuan Moon – CEO, Consumer Singapore
Thank you Sock Koong. Let me just give a bit of colour on the mobile revenue for Singtel this quarter.
I think the stable mobile revenue you see is primarily due to a decline in voice roaming revenue. That
is partially mitigated by the growth in data roaming revenue. If you look at the local mobile comms
revenue on the local business, we have a similar effect. Data revenue growth in the local context is
actually growing very healthily, and we continue to see that trend growing as customers migrate to
higher tier plans when they re-contract into bigger bundle data plans and taking up our data plans on
offer. However, at the same time, we are also seeing slower usage of voice calls in the local context,
and this is actually the general substitution of voice to data. So we believe that over time, as we start
to grow the data roaming revenue, you will come to a point when we can replace the voice roaming
revenue. So we are confident that data will continue to be the main core growth driver for mobile
business for Singtel.
Over at the consumer broadband growth rate, I believe we have been very aggressive in migrating
our traditional copper broadband customers into fibre. As of end of this quarter, we have actually
migrated 89% of our total broadband customers to fibre. So this has given us the growth rate on
revenue. I think if you refer to some of our competitors' results in terms of growth rate, one of them
may have incorporated non-consumer numbers. I think the other one may be coming off previous
year of decline. So we are not sure how they are being measured but we are comfortable with our
own migration of our broadband customers from ADSL to fibre and we are still seeing growth rate
when customers trade up to fibre.
Ms Wei Shi Wu – BNP Paribas
Thank you. Just to follow up on the first question about where the mobile growth is going to come
from. The trend recently seems to be that operators will continue to offer bigger data bundles at
roughly the same price. With competition in Singapore the way it is now, is it realistic to assume that
the data revenues will continue to grow going forward and offset the declines elsewhere?
Mr Yuen Kuan Moon – CEO, Consumer Singapore
I think data revenue, as a percentage of overall revenue, will definitely continue to grow because it
is replacing the other traditional voice revenues. So we see that trend not slowing down. I think it is
a combination effect of data growing and voice declining. So the net effect at the local level I think is
still going to be positive growth.
Ms Wei Shi Wu – BNP Paribas
Okay, thank you.
Page 3 of 16
Q1FY17 Earnings Conference Call
11 August 2016
Operator
Our next question today comes from the line of GopaKumar; your line is now open.
Mr GopaKumar – Nomura
Hi, morning, this is Gopa from Nomura Singapore, thanks for the opportunity, congrats on a good set
of numbers. I have a few questions please. Firstly, on Optus, if I look at the subscriber numbers at
Optus, versus that reported by Telstra today, it seems like the subscriber addition trends were better
for Telstra. Given the fact that Telstra went through a series of network disruptions, it does not seem
to have reflected in the market share trend - market share gains for Optus. Is my understanding
correct and, if so, can management give some colour on how do you plan to address this? Especially
as Telstra has raised its CapEx guidance significantly today. That's first question. Secondly, any
update on the status of NetLink Trust divestment and any initial ideas on how you plan to use the
proceeds? Will there be any special dividends or would there be any M&A considerations? Thank you.
Ms Chua Sock Koong – Group CEO
Okay, maybe let me just quickly take the question on NetLink Trust, you know the divestment timeline
is April 2018. Clearly, it is too early for us to talk about the use of divestment proceeds we are focused
on getting things ready so that we can work on the divestment plan, to meet the divestment timeline.
We would advise the market once we have a bit more clarity on how the divestment will take place.
Allen, do you want to take the questions on market share in Australia?
Mr Allen Lew – CEO, Consumer Australia
, I think when we look at mobile, and particularly the higher-end branded handset customers, we look
at what we reported for the equivalent period over six months. Our reported net adds are significantly
higher than Telstra's. Our postpaid products were affected by a wholesale customer who moved some
of their customers off our platform to our competitor's platform.
So if you look at our own disclosures in MD&A for the quarter, you will see that our postpaid handsets
for the quarter were up 51,000 and if you take out the wholesale deactivations, they impacted it and
brought it up by only 13,000. So I think from a branded perspective we are certainly performing
better than our largest competitor.
Also, if you look at the mobile service revenue growth that we have had compared to Telstra over the
six-month period January to June, our mobile service revenue growth had been positive. If you take
out the impacts of the MTAS, which is a regulatory requirement, and if you take out the impact of the
device repayment plans, we were going in the positive, in terms of mobile service revenue compared
to Telstra again. So I think from those two metrics’ perspective, we are gaining customers at the
expense of our largest competitor, and a lot of that is due to our aggressive market offers that we
have out there and the improvement in coverage that we have, and quality of our mobile network.
Mr Gopa Kumar – Nomura
Thank you. Thanks for the clarification, and I just have a follow-up question. Given that Telstra has
materially increased its CapEx guidance; what is the implication for Optus in terms of the CapEx
outlook for the medium term?
Page 4 of 16
Q1FY17 Earnings Conference Call
11 August 2016
Mr Allen Lew – CEO, Consumer Australia
Our CapEx outlook remains the same as what we have guided around this time of the year. I think
we believe that the CapEx is required, bearing in mind our ambition to expand our mobile network
into the regional areas and densify in the capital cities to meet the changing needs that we are seeing
in the way consumers are using their mobile devices.
And our mobile capital investment has stepped up from an average of about S$1 billion a year over
the last 10 years to what it is now today, which is a significant increase over the last two years.
Mr Gopa Kumar – Nomura
Thank you so much.
Operator
Our next question today comes from the line of Prem Jearajasingam from Macquarie. Your line is now
open.
Mr. Prem Jearajasingam – Macquarie Bank
Good morning and thank you for the opportunity. Two questions from me. First of all, for Allen, the
EPL service launch in Australia, could you give us an update on how the take-up of the service is
going versus plans and do you see this actually converting into the kind of outcomes that you were
hoping for at Optus? That is one.
And secondly, with regards Amobee, it is encouraging to see those EBITDA losses narrowing down to
single-digit millions in the quarter. Is there any reason why we should not expect Amobee to turn
EBITDA positive in the not-too-distant future and when that happens, are there any plans to monetise
this as well? If you could give us an update on that, that would be great. Thank you.
Mr Allen Lew – CEO, Consumer Australia
Sock Koong, I will take the first question.
Ms Chua Sock Koong – Group CEO
Yes, please.
Mr Allen Lew – CEO, Consumer Australia
With regard to the question on EPL, you will see the impact of EPL in our quarter 2 results. I cannot
comment on EPL right now because we have just started marketing it aggressively in late June, early
July. So really, any impact you will see is basically on Q2.
I think just a quick note on EPL. As Sock Koong mentioned, content is a way for telcos to differentiate
themselves. It is no different for us here in Optus. It is something that we use in the market that is
Page 5 of 16
Q1FY17 Earnings Conference Call
11 August 2016
very competitive from a price and a data allowance perspective, and allows us to have a property that
none of our competitors have for the next three years. So absolutely, we will be using EPL to gain
customers and reduce churn in that space.
Mr Samba Natarajan – CEO, Group Digital Life
Hi. On Amobee, I think you are right. We are encouraged to see increasing growth. We have had a
very good quarter in terms of revenue growth this last quarter, and we project that EBITDA Losses
will also continue to narrow. We continue to guide GDL for a range of S$150 million to S$180 million
in EBITDA losses for this fiscal year.
As for when we will monetize it, I think we are constantly evaluating that, and we will continue to
build more scale and at the point we are ready we will come back with a plan on that topic.
Mr. Prem Jearajasingam – Macquarie Bank
All right. Thank you very much.
Operator
Our next question today comes from the line of Arthur Pineda from Citigroup. Your line is now open.
Mr Arthur Pineda - Citigroup
Hi, thanks for the opportunity. Three questions from me, please. Are you able to provide guidance on
what percentage of your Singapore mobile revenues are still exposed to roaming and what trajectory
are you seeing in terms of the shrinkage on this side? I am just trying to figure out when this actually
bottoms out.
Second question, and it is again on Singapore. Could you please refresh us on when your copper
network is supposed to be deactivated and how the shutdown could impact your cost base?
Last question I had is on Australia, is it possible to get an indication of the service revenue trends in
Australia ex-MTR cuts. I am trying to get a better picture of performance trends outside of MTR
effects. I do note that your EBITDA growth has been progressively slowing and I am wondering where
that trend is going forward. Thank you.
Ms Chua Sock Koong – Group CEO
Moon, do you want to take the first couple of questions?
Mr Yuen Kuan Moon – CEO, Consumer Singapore
Sure. For this quarter, our mobile roaming revenue as a total of mobile revenue is about 21%,
comparing to last year it is 22% and I think we will continue to see this percentage being reduced
going into the future because we expect people to switch from voice roaming to data roaming.
Page 6 of 16
Q1FY17 Earnings Conference Call
11 August 2016
On the copper shutdown, ADSL - primarily it is not our voice. We are still going to carry voice to
copper. The shutdown is really more for the ADSL broadband service. We are now at 89% migrated
to fibre. The remaining 11% we expect to be able to migrate them by the end of this financial year.
So we expect to see a fully-fibrised broadband network by next year.
In terms of the potential savings, it is really more in the operational expense, because we have not
been investing in the ADSL network since the last one or two years because the numbers have been
trending down. So it is pretty much more on the operating expenses.
Mr Allen Lew – CEO, Consumer Australia
Arthur, in terms of your question regarding the guidance for our revenue growth, like the MTAS, we
have not given that guidance. I still stick to the original outlook that we gave last quarter, which was
that Australian mobile service revenue, including MTAS and DRP would decline by low teens, so we
will stick to that. At this stage, I cannot give you any guidance beyond that.
Mr Arthur Pineda - Citigroup
Understood, thank you. Sorry, if can just revert to the first question I had, to Moon, on the roaming
revenues you have mentioned 21%. What would this be on a net basis? Because I assume a large
portion of your expenses are also linked to roaming.
Mr Yuen Kuan Moon – CEO, Consumer Singapore
Now, this is on the revenue. We actually have separate - on the cost side, corresponding to the
revenue of roaming. We do not disclose whether it is net amount.
Mr Arthur Pineda - Citigroup
Understood, thank you.
Operator
Our next question today comes from the line of Srini Rao from Deutsche Bank. Your line is now open.
Mr. Srinivas Rao – Deutsche Bank
Hi. Thank you very much. My first question goes back to the Australian mobile business. When we
look at the numbers that are disclosed, especially for the outgoing mobile revenues net of MTAS, the
growth rate has been tapering over the last couple of quarters and the impact of DRPs is actually
increasing. So I just wanted to understand where is this going; we have gone from a level of around
7% to 2.6% this quarter. So any outlook for the environment in Australia with respect to how the
consumption environment would be helpful? That is my first question.
Second is on the Singapore enterprise business. There is fairly robust growth of the year-on-year
basis but that includes Trustwave. Could you comment ex-Trustwave what has been organic growth?
It does seem it was 0% to 1%. And in that context, the Singapore enterprise margins have been
Page 7 of 16
Q1FY17 Earnings Conference Call
11 August 2016
really robust, so any feedback on how Trustwave had been integrated would also be helpful. Thank
you.
Mr Allen Lew – CEO, Consumer Australia
Srini, this is Allen here. With respect to your question on the tapering of growth in mobile, I think the
branded postpaid business is still growing very strongly. What we are facing is a little bit of moderation
of that growth from our wholesale mobile business, when one of our wholesale providers, TPG, moved
a significant number of customers across from our platform to our competitor's platform. I think we
will continue to see a little bit of that affecting our growth rate, at least for another two to three
quarters, because they are shifting their customers across. But I think what is most important is that
our highest value mobile business is our postpaid base and that continues to grow very robustly,
especially when you compare that to the performances of equivalent postpaid bases that were
announced by our competitors recently.
Mr. Srinivas Rao – Deutsche Bank
Understood. Just for clarification, I understand the top line impact. On the cost side, what happens
when these customers move away? Assuming the traffic costs go down, or what get impacted with
this transition?
Mr Allen Lew – CEO, Consumer Australia
Yes, obviously when our revenue declines as a result of wholesale base moving, we look at our overall
cost structure. And if you look at our MD&A, overall our cost has declined more than our revenue,
even if you include MTAS. Because if you look at page 26 of our MD&A our cost has gone back 19.6%.
Of course, a lot of that is traffic expenses as a result of reduction of MTAS rate. But even if we take
the MTAS rate out from 2015 and 2016, our cost has still gone down about 10%. So we will continue
to look at our costs very aggressively and make sure it is trending in line with our revenue.
Mr. Srinivas Rao – Deutsche Bank
Thanks, Allen. This is helpful, thank you.
Mr. Bill Chang – CEO, Group Enterprise
Hi, Srinivas. This is Bill, for the enterprise question. We do not separate the cybersecurity excluding
Trustwave because there is a lot of value that Trustwave drives. The organic engines that we have,
also leverages Trustwave’s value proposition into our base here along with third party technology
providers. So our overall ICT services we guided to grow in the low teens, we are at 19% growth. As
for the other guidance that we gave, its S$450 million to S$550 million for cybersecurity as a whole
we are at S$109 million for Q1.
Mr. Srinivas Rao – Deutsche Bank
Understood. This is helpful, thank you.
Page 8 of 16
Q1FY17 Earnings Conference Call
11 August 2016
Mr. Bill Chang – CEO, Group Enterprise
Thank you.
Operator
Our next question today comes from the line of Suresh Mahadevan from UBS. Your line is now open.
Mr. Suresh Mahadevan – UBS
Yes thanks for the opportunity. I think two quick questions. One is I see the nice uplift in free cash
flow and clearly your gearing is in a very, very good level. Obviously, we spoke about the NetLink
Trust IPO earlier. I know it is a little early but clearly, your associates will give you more dividends
as time goes because they are faster growth markets. So how should we think about this in terms of
balance sheet and capital management? Is the idea to give progressively more dividends or is the
idea to probably scale up some of the businesses like Group Digital Life or increase your stake in some
of the associates? So that is question number one.
The second question is relating to Group Digital Life where clearly I think Amobee seems to be doing
well but overall as a business I think when you look at it obviously the scale is improved but the
EBITDA is probably still in the negative region. So how should we think about Group Digital Life as
an entity in terms of key milestones especially like things like EBITDA breakeven? Or you think it is
something, which needs to be scaled significantly with acquisitions and more investment so just
wanted to hear your thoughts on this? Thank you.
Ms Chua Sock Koong – Group CEO
Cheng, you want to take the capital structure question?
Ms Lim Cheng Cheng – Group CFO
If you think about our cash flow, we did improve our cash flow by some roughly 26% and as Sock
Koong addressed in her speech, it is really based on improved working capital management. You
also recall that in Q4 last year when we told the market that there was some timing payments in
terms of vendor payments. There was the absence of the S$280m fibre rollout payments from
OpenNet. Those caused a big impact on the last quarter numbers.
So with regard to our dividends whether you will see a steady stream, I think you would know that
we have not changed our dividend guidance. We are in the zone of 60 to 75% of underlying net
profit and we have not changed anything relating to that. With regard to M&A activities, like what
to do with the proceeds from NetLink Trust, it has is really too early to talk about what we do to
with the proceeds. You will know that we do not give guidance on M&A. With regard to JVs, our
associates, you would know that over the course of years as and when there are opportunities,
when it makes sense, we do upstake in our associates. I will pass to Samba to talk about Group
Digital Life
Mr Samba Natarajan – CEO, Group Digital Life
Page 9 of 16
Q1FY17 Earnings Conference Call
11 August 2016
Yes, thank you. On Digital Life as you, said Amobee continues to scale and we expect it to narrow
out losses over time. The guidance for this year remains at SGD150 million to SGD180 million also
driven by the fact that HOOQ will have startup losses during the course of this year. So as a
portfolio while Amobee will scale, the start-up losses relating to HOOQ are leading to the overall
losses for the guidance for Group Digital Life. As far as further acquisitions and so on, we are
continuously evaluating different technologies over a period of time and making build vs buy
decisions.
Mr. Suresh Mahadevan – UBS
Thank you.
Operator
Our next question today comes from the line of Roshan Raj from Bank of America. Your line is now
open.
Mr Roshan Raj – Bank of America Merrill Lynch
Hi thanks for the opportunity. Three questions - first on Singapore consumer, looking back almost
like four quarters the revenue growth has not been that great and what has really helped the EBITDA
is cost control. So just, wanted to understand over the medium term, when you look at the consumer
business here, what is the thinking? Do you still see that there are opportunities to grow revenue or
it is going to be a cost control exercise overall going forward?
The second question is with regard to Optus I understand you have increased your investment but in
light of what Telstra has shared in terms of stepped up CapEx going forward I just wanted to reconfirm
that without actually stepping up on CapEx you could still hope to close the network quality gap with
Telstra over the medium term. The third bit on associates, a lot of growth has actually been driven
by Telkomsel and we understand they have been driving growth on the back of mobile price increases.
In your view, how sustainable is this trend and what has been your key message to Telkomsel? Thank
you.
Ms Chua Sock Koong – Group CEO
Moon?
Mr Yuen Kuan Moon– CEO, Consumer Singapore
Okay thank you for your question. I think with regards consumer business in the last few quarters,
the slowdown in the revenue growth primarily this is driven by the lower handset sales. That is a bit
more cyclical because of the cycle of new handsets being introduced and customers coming back to
recontract at a lower volume in the last two quarters. This has had a major effect on the overall
revenue trend for the consumer business. Beyond the equipment revenue, you also have to look at
other traditional revenues, which is declining, firstly the IDD revenue, which is declining in the last
two quarters, and this will continue to decline because we expect the voice to data substitution to
carry on and beyond this, there is also roaming.
Page 10 of 16
Q1FY17 Earnings Conference Call
11 August 2016
On the other hand, if you look at the growth factor, which is the mobile data, we continue to see
healthy growth in that area. We are also seeing growth in the broadband revenue on fibre, as well
as our TV revenue. So you are seeing a combination in effect when you look at the consumer business
in Singapore there are some ups and downs. The downs are the traditional revenues, the voice, and
IDD revenue. The ups will be the new revenues streams like mobile data, broadband and TV revenue.
So that is why you see the blended number is pretty stable overall and that is what we see going
forward as well.
Ms Chua Sock Koong – Group CEO
On the Telkomsel question, Telkomsel has been making significant investments in network and
investments in data analytics] that allowed them to do very targeted segment pricing. With the
increased penetration of smart phones, what we have seen is actually growth in mobile data and that
has contributed very nicely to the profit growth in Telkomsel. I think, as you are aware, Telkomsel is
a key part of Telkom, I do not think it is appropriate for us to go any further in trying to provide any
guidance on Telkomsel since Telkom itself is a separate listed company.
Mr Allen Lew – CEO, Consumer Australia
Roshan, with regard to your question on Optus and our CapEx and are we sure whether we can close
the network gap with Telstra, I think the important thing for us is that we have increased our CapEx
significantly over the last three years and we have guided with only AUD1.8 billion in CapEx this year.
I think we believe our CapEx will allow us to achieve our business growth in the financial year as well
as in the medium term.
So obviously when our major competitor makes an announcement like it did this morning, we will
have to dissect the announcement to see what we can find out. You know we will make sure that our
CapEx still allows us to achieve our goals and I think for this financial year I am very confident of it.
Mr Roshan Raj – Bank of America Merrill Lynch
Thank you very much. Very clear.
Operator
Our next question today comes from the line of Ian Martin from New Street Research. Your line is
now open.
Ian Martin – New Street Research
Thanks. I had a question on Optus CapEx but you have answered that so I will pass for now, thanks.
Operator
Our next question today comes from the line of Sachin Mittal from DBS. Your line is now open.
Page 11 of 16
Q1FY17 Earnings Conference Call
11 August 2016
Sachin Mittal – DBS Vickers Securities
Hi, thank you. I have three questions. Firstly, on the content side, which you see as a big
differentiator, can we envisage that at some point Singtel will be entering the content production
business and possibly acquiring production studios? Is that a possibility whether in the near or the
medium term future? That's question number one. Question number two can you compare and tell
us some of the key trends in the smart phones? What are you seeing in terms of handset subsidies
in Singapore and Australia in terms of trends - is it coming down in Singapore? Is it the same trend
in Australia or you are seeing a different trend in Australia than Singapore? Essentially, where is the
competition focused on - is it more on the tariff reduction, the data pricing, or the handset subsidies,
especially in the context of Australia?
Lastly, I think this is a related question on the Australia side - clearly, you seem to be telling us that
things are going fine in Australia but we can see there's almost a 20%drop in profit in Australia right.
So this is not all attributable to your wholesale business right? So can you comment on things - you
know what is going right? What is not going right in Australia at this point in time? Thank you.
Ms Chua Sock Koong – Group CEO
Allen, why do not you take the question including the first content question.
Mr Allen Lew – CEO, Consumer Australia
Alright let me talk about what's happening in Australia and also Murray is in Singapore so he can
answer the question about the [20%] drop in profit which I didn't see in any of our MD&A so I'm
trying to figure out where you got that number from. In terms of the Australian market, I think it is
as I mentioned earlier it is a very competitive one. Again, on \where we compete is over a whole
gamut of assets including the mobile network coverage, your pricing, your data allowances, your
handset subsidy and the like.
At the end of the day for us, we have an objective that it is a market share gain objective and a
financial objective that we have guided the market on so we will adjust our pricing in all these
attributes according to that. The most important thing when you look at the Australian mobile market
for our customer when they are most by far the most important attribute that they look for is actually
mobile network coverage and quality. That is where we are investing significant sums of capital to
make sure that our mobile network is fit for purpose. For us it is not just in the capital cities it is
including the regional areas. So I think - I hope that answers that part of your question. Murray do
you want to make any comment on the net profit question and then I will come back and talk about
content.
Mr. Murray King - CFO, Consumer Australia
Yes, in relation to the net profit if you are referring to Optus net profit the decline of around 12%
year-on-year essentially it is due to workforce restructuring costs. So as you will recall we went
through a workforce restructuring exercise during the quarter and therefore the charges associated
with that are booked in the quarter. If you look at the EBITDA results this quarter, it grew for Optus
just under 1%, for Consumer Australia just on 2%. So overall we still are driving profits at the
business levels, it's more the one off restructuring charges that affected the reported Optus net profit
result.
Page 12 of 16
Q1FY17 Earnings Conference Call
11 August 2016
Sachin Mittal – DBS Vickers Securities
Sorry so just to clarify, without those restructuring charges you are saying that Optus' net profit is
actually growing?
Mr. Murray King - CFO, Consumer Australia
EBITDA grew 0.7%.
Sachin Mittal – DBS Vickers Securities
Okay but depreciation is not rising here, it’s just kind of stable here. Okay that is helpful.
Mr Allen Lew – CEO, Consumer Australia
Okay with regard to your content question. Obviously content is very important for us as the
differentiator as well as to engage our customers a little bit more. I think you need to look deeper
beyond just the generic content to see which content actually moves customers for a telco and which
content customers and consumer customers are willing to pay for. So from our perspective I think
we are beginning to see in Australia and we have seen in Singapore that sports and live sports are
really something that customer’s value and that will help move customers from one service provider
to the other. Beyond that as a way of moving customers, I think it is still to be determined. So from
our perspective beyond live sports, it remains to be seen that we will get involved in. So I would not
make any assumptions about Singtel getting involved in content production at this stage.
Sachin Mittal – DBS Vickers Securities
Okay. The last question on the smart phone trends. Can you please comment on that?
Ms Chua Sock Koong – Group CEO
Moon, you want to talk about smart phone trends in Singapore?
Mr Yuen Kuan Moon – CEO, Consumer Singapore
Yes, I think smart phone trends are generally cyclical and it really depends on the manufacturers
what sort of new features they are introducing. There are two aspects, firstly of course that smart
phones have organic features that have nothing to do with the network. But what we are seeing, the
smart phone trends that have got some underlying effect on the mobile operations is actually the
speed of the phones. So as the LTE network becomes faster and faster, the smart phones that are
introduced are also catching up and offering higher speed, bandwidth, downloads and uploads.
Actually, this complements our network very well. By providing faster speed on the processors and
on the radios, we are able to then deliver higher quality and higher capacity of our data networks to
our customers who are using the phones. So therefore, we continue to encourage our customers to
trade up to newer phones so that they can experience complementing our network improvements.
So we see that trend continuing.
Page 13 of 16
Q1FY17 Earnings Conference Call
11 August 2016
From a consumer perspective when they look at buying a service from a service provider like Singtel,
they look at it from many aspects. Firstly, Allen has mentioned the network quality is actually very
important. In Singapore, network coverage in particular is even more important because we expect
coverage to be everywhere including basements and including in-building coverage. So we continue
to invest in that to make sure that we cover that point to let our customers know that Singtel is the
best quality network in Singapore.
Beyond network obviously they also look at options in pricing plans what are the options available,
and more recently we’ve introduced the SIM only plans where customers can then bring their own
phones, where they buy their phones in the open market and have the flexibility of not tying up into
a contract and also with higher data bundles, options and mobile data sharing.
We have also introduced a lot of other content bundles including video packages that are OTT. We
recently launched a service called Cast videos. We have got four different video packs including Korean
dramas in the pack where our consumers can now buy content and consume it on the mobile platform
as opposed to the traditional pay TV platform, to differentiate our mobile service as well.
This is in addition to the previously launched music service we have put in place to offer a
comprehensive music offering to our customers. More recently in July we have launched our
Newsstand with provides news service with our Mobile service. So on the whole, I think consumers
look at upgrading a phone and look at values and differentiationbeyond just one aspect. So it is a
combination of many aspects. We are addressing these different aspects to make sure that we cover
all the different needs of our customers.
Sachin Mittal – DBS Vickers Securities
Just a little bit comment - what are you seeing in terms of the handsets subsidies with these, with
more SIM only plans and the lower retail price of the phones. Are you seeing handset subsidies rise
or decline right now?
Mr Yuen Kuan Moon – CEO, Consumer Singapore
If you look at our exposure on one of our slides on page 17, you will see that SAC has been on the
decline year on year. This has the combination effect of the mix of phones, the types of phones that
consumers are buying, choosing. Secondly, it is also a combination of the dilution effect when
customers sign up for SIM only plans.
Sachin Mittal – DBS Vickers Securities
Okay, is it the same comment in Australia or different trend in Australia now?
Mr Allen Lew – CEO, Consumer Australia
I have Ben who is my managing director of product and marketing. So I will let him talk about that.
Mr Ben White – MD, Product and Marketing Australia
I think very similar trends in the Australian marketplace to what Moon has described in Singapore.
So certainly still much appeal for premium handsets albeit on a cyclical basis depending on the nature
Page 14 of 16
Q1FY17 Earnings Conference Call
11 August 2016
of releases through the major product manufacturers. I think perhaps one additional factor in the
Australian market has been the impact of currency, which has certainly seen the average price of
premium handsets in Australia rise. I think though as a general comment. There's certainly been a
lot of that price rise generally speaking that is being passed on to end consumers which you see
reflected also in the ARPU of the operators here in the market.
Sachin Mittal – DBS Vickers Securities
Okay I understand. Very helpful.
Operator –
Our next question today comes from the line of Piyush Mubayi from Goldman Sachs. Your line is now
open.
Mr. Piyush Mubayi – Goldman Sachs
Thank you for taking my question. Could you give us a sense of the growth rates managed services
business could deliver in both the near term and the medium term as well as the margin this distinct
segment earns. That is the first. Second, what exactly is G-Cloud platform and its scope? Third, the
digitalized business growth rates seem to be a little bit more sluggish in the last two quarters versus
history. Should we expect that to pick up into a more robust number in the near term? Thanks.
Mr. Bill Chang – CEO, Group Enterprise
Hi. This is Bill here. I am answering the enterprise related questions. So on the managed services this
includes a whole host of infrastructure, IT outsourcing services, cyber-security etc. It includes services
with regards applications - development applications, outsourcing etc. that our IT arm does as well.
So we guided that to be low teens growth for this year. Like I said in Q1, we had 19% growth. So this
is an important part of our overall mix as we diversify the business from pure carriage into managed
services to increase stickiness and also to drive further penetration in our existing customer base.
The second question on G-Cloud. This is really the platform that we built for the government Singapore's government - where they host a lot of applications, government related e-services, with
different levels of sensitivity. All hosted on a platform that we provided for them as a service- compute
and storage. This is a contract that is running for the last few years and it is scaling up. This is just
one portfolio of our overall cloud service offerings. Thank you.
Mr. Samba Natarajan – CEO, Group Digital Life
On Digital Life, Amobee actually had a strong quarter with revenue growth year on year of 34%. I am
actually quite pleased to see the growth rate and momentum in Amobee so far.
Mr. Piyush Mubayi – Goldman Sachs
If I could just ask, what sort of growth rates do you expect this business to deliver in the medium
term because 34% for a smaller company at this stage with the immense potential that it has, how
do you quantify - how do you benchmark that number?
Page 15 of 16
Q1FY17 Earnings Conference Call
11 August 2016
Mr. Samba Natarajan – CEO, Group Digital Life
The digital advertising industry growth is growing between 10% and 15%. That is the growth rate
currently in the market. So a company of our size should be growing at slightly ahead of that overall
on. So that is why I think that the growth rates that we see here are actually slightly ahead of our
expectations at this point.
Mr. Piyush Mubayi – Goldman Sachs
Okay, thank you.
Operator –
Hi. There are no further questions on the line at this time.
Ms Sin Yang Fong – Vice President, IR
Thank you Vincent. We will stop the call here. So callers who may have questions after you think
about it, you know you have our contact numbers. So please let us know. A transcript of today's call
will be posted onto our website by end of tomorrow. We thank you for your interest in our results.
On behalf of everyone at Singtel, goodbye.
Operator
Ladies and gentlemen, that concludes the conference for today. We thank you all for your
participation. You may now disconnect.
End of Transcript
Page 16 of 16