Singtel CFO on 1H25 Earnings

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00:00First off, we know how Optus contributes about 50% of Singtel's revenue and EBIT.

00:07How have the September outages affected earnings?

00:12Morning, Averyl and Sherry. Nice to be here. I think to answer your question, Optus does

00:19contribute a large portion, almost 50% of our group revenues. But when it comes down to underlying

00:24profits, I would say it's slightly less than 10%. So having said that, the incident that

00:31happened a few weeks ago is something that we are extremely regretful. And I think it's created

00:38a lot of unhappiness with our customers in Australia. And this is something we're taking

00:43very seriously. There's been an independent inquiry panel that has been established. We're

00:49letting Dr. Kerry Scott actually do her independent review and then come up with the findings

00:56hopefully by the end of this year. And we need to accelerate our transformation initiatives

01:01on risk management, process governance and resilience. So this is something we are very

01:06focused on. But if you look at the first half results, I would say it's given, I think we've

01:14done pretty okay as a group. It's underlying profits are up about 14% year on year. And

01:21it's really driven by the portfolio effect. I mean, in addition to Australia, we have Antel

01:26in India, AIS in Thailand, which have done extremely well. And also our NCS, which is our IT services

01:32business. I think you've seen a very nice improvement on EBIT. So despite the uncertainties

01:38in Australia, I think we are confident. We definitely have to do something and we're doing

01:43a lot more and really supporting the Opters management and the board in Australia. But as

01:49a region and across the portfolio of our businesses, I think we have done, I would say reasonably well,

01:5614% up in underlying profits.

01:57I guess the drivers of growth are undeniable. But on those uncertainties related to Opters,

02:07have you learned anything further about the potential financial penalties that might be

02:12imposed either on Singtel or on Opters? And what sort of provisions might you be making for that?

02:18Well, we, of course, will work very closely with the authorities and the government on that. I think

02:25it's too early to discuss and figure out what the actual number is, because there is

02:30inquiries that are happening right now. The independent panel is also doing its work. So

02:35it's a bit too premature to talk about it. Nevertheless, based on what we have done in the

02:40past, not just for Opters, but across our businesses, if ever we think that we, you know, there is some

02:46certainty to the penalties and to other types of expenses that are related to the incident, we would

02:53definitely take provisions, and we have been fairly conservative on that front. So we have taken what

02:59we can and what we need to do at this point in time.

03:04And Arthur, you're trying to position also for data center and the artificial intelligence

03:08boom that we're seeing right now. Tell us a little bit about how the STT purchase is going,

03:15and what's your competitive edge in an increasingly crowded market?

03:21Sherry, thank you for that question. You're right. Data centers is something that is very pivotal

03:26to our transformation strategy. We are in discussions with STT, as you have seen in the press. We're part

03:33of a consortium. And it's really in line with what we had said in the past that we're going to pivot

03:41from a communication services heavy business, which is really, you know, mobile data and fixed broadband

03:48into digital infrastructure and digital services. So digital infrastructure clearly is one of the

03:55biggest contributors to digital infrastructure is our data center business. We have a pretty sizable

04:00portfolio and business already. So any acquisitions that we want to look at, or we are considering,

04:07will be very additive to this platform. But we do believe in the demand supply dynamics here in Asia.

04:16Yes, we are going in with our eyes wide open. You are absolutely right. There, you know, there's

04:21actually talk about, you know, whether there is a potential, you know, over demand or over exuberance

04:28in this sector. But I think in the markets that we are operating in, there is still real demand

04:32for the various services. And our right to play is really, you know, predicated and on the foundation

04:38of one, because of our communication services business, because we own in some countries,

04:44the terrestrial fiber, there is a bit of an end to end in terms of providing digital infrastructure

04:50services to our customers. We have very strong partnerships across the region. So that positions

04:56us quite well. Given, of course, the concerns that you mentioned about this crowded field,

05:02taking on more debt in order to carry out the purchase, it could mean more risks, right?

05:08Tell us a little bit about the structure of this deal, because we're hearing about this $5 billion

05:12loan that you're in the works with KKR. Is that correct?

05:17Well, again, we cannot comment. It's way too early, Sherry. But, you know, you read in the press.

05:25But I would say if you look at Singtel's balance sheet, I think it remains quite rock solid.

05:30So taking on a bit of debt for an acquisition, to optimize our capital structure, I think it's

05:36something that we will do. But nevertheless, we have time and again said that we will always

05:41maintain a very strong investment grade rating as a group. Furthermore, I think you have seen

05:47our partnership with KKR as a very reliable and strong capital partner. We've done this for our

05:53current data center business, where we have brought KKR in to invest 20% in our data center business.

06:00If we do look at other opportunities inorganically, we would definitely rely on capital partners

06:07like a KKR because it is a very capital intensive business. You are absolutely right. So this is one

06:12of our ways where we can manage our capital more actively. And at the same time,

06:17making sure that our funding sources remain liquid and our balance sheet is strong.

06:23Yeah, as part of the capital management process, there's also been that selling in

06:29Airtel, right? I wanted also to get your thoughts. Are you looking at perhaps further selling of assets?

06:37And on that note, would you consider offloading your Australia unit or exiting the Australia

06:43business or Optus, given its long history of troubles?

06:49Okay. Yes, we have an active capital management program. We have actually identified a pipeline of

06:56$9 billion that we will look to recycle by, let's say, in the middle term, so call it 2030.

07:04Out of that $9 billion, we've already achieved $5.6 billion. We have sold, you're right,

07:08a small stake in Airtel in line with what we had said before, that we will look to equalize our stake

07:15with our Indian partner. So currently, we own 27 and a half, having done a small placement just last

07:23week. But if you look at this financial year alone, I think if you look at Airtel, while we have placed

07:28it out twice, we've only, to put things in perspective, about 2% of Airtel. We still own

07:34about 27 and a half percent in Airtel, so a very sizable stake. Now, will we sell Optus and all that?

07:40Look, all I can say is we always actively manage our portfolio, not just Optus. We look at Airtel,

07:47we look at AIS, we look at Singtel, we look at Globe, we look at across our portfolio what makes

07:53sense in terms of managing our capital effectively to ensure that we have sufficient firepower for

07:59growth. If we do look at data centers, that we, number two, our balance sheet remains rock solid,

08:04and number three, we maintain a very healthy return to our shareholders. And by the way,

08:09I forgot to mention, this interim dividend, we have increased the dividend further to 8.2 cents.

08:15And if I recall, I think it's the highest interim dividend that we have declared ever

08:20in Singtel's history. So we are very focused in striking this balance, right? Balance sheet strength,

08:26growth opportunities that we still have funding for growth, and at the same time,

08:30making sure that our stakeholders and our shareholders get the adequate return on our business.

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