Singapore Telecommunications Limited (Z74) Earnings Call Transcript & Summary

Good morning, and welcome to all investors and analysts. We are very privileged to have you join us during these unprecedented times for the announcement of Singtel's results for the year ended 31st March 2021. My name is Sin Yang Fong, and let me introduce management in the meeting. Here in comm center boardroom, we have Mr. Yuen Kuan Moon, Group CEO; Mr. Arthur Lang, Group CFO. And joining us remotely, we have Ms. Kelly Bayer Rosmarin, CEO, Optus; Ms. Anna Yip, CEO, Consumer Singapore; Mr. Bill Chang, CEO, Group Enterprise; Mr. Ng Kuo Pin, CEO, NCS; and Mr. Samba Natarajan, CEO, Strategic Portfolio. Moon and Arthur will take us through a presentation, and later, we will have time for Q&A. Without further ado, let me now hand over to Moon.

Thanks, Yang Fong. Good morning, and thank you for joining us this morning. We'll start with a presentation where, first, I'll give you a brief overview of our financial year '21 results that we just released this morning. I'll then spend some time to discuss our new strategic direction, which is aimed at sharpening the group's focus to capture growth and unlock value. Arthur will then add some detail on the group's refreshed capital management framework, dividend policy and outlook. With that, let me start with an overview of our FY '21 results. The group's performance was heavily weighed down by COVID-19, adding to the ongoing structural and competition-driven challenges in our carriage business. However, it was heartening to see Optus ARPU and mobile service revenue return to growth in the second half as our efforts to drive price discipline in the market take off. ICT continues to be a bright spot for us. Revenue from NCS and data center services rose strong, helped by customers stepping up on their digitalization efforts and rising demand for hyperscaler data center operators. Airtel has also reported stronger performances in India and Africa. The Board has recommended a final ordinary dividend of $0.024 per share, bringing total dividends to $0.075 per share for the full year. I'll now expand on our key revenue drivers. The increase in ICT services reflected the broad-based growth by NCS and strong demand for data center storage services. Optus mobile service revenue picked up in the second half, buoyed by an increased penetration of Optus Choice plans, which drove a 4% increase in ARPU. However, COVID-19 had a prolonged and adverse impact on the group's roaming, prepaid, equipment sales and digital marketing services. In Australia, NBN migration revenue fell, tapering off from the previous year's high as the network rollout nears completion. We also saw declines in the fixed voice and pay TV as structural and competitive forces continue to weigh on both segments. Overall, our revenue declined by 5% for the year. EBITDA fell 16% for the year mainly due to the loss of high-margin roaming revenues and lower NBN migration revenues. Fixed line margins in Australia continue to be very challenging. Our regional associates pretax profits rose 4%. This came despite a downturn in customer spending from COVID-19. The strong contribution from Airtel offset weakness in Indonesia, where Telkomsel narrowed its pricing gap against its peers to improve its competitive positioning. Airtel staged a strong recovery and capped the year with double-digit increases in operating revenue and EBITDA on the back of tariff improvements and robust 4G additions in India and sustained momentum in Africa. The group recorded exceptional losses of $1.2 billion primarily due to the impairment charges on investments in Amobee and Trustwave, which we have announced on the 14th of May. Excluding these exceptional charges, underlying net profit fell 30% for the year. However, the impact on our free cash flow was less pronounced. Free cash flow declined 10% due to lower earnings and increased capital expenditure on 5G. I will now introduce our new strategic direction, but let me start with some observations on our stock price. Suffice to say we are not happy with where it is today. It seems that our investors are not according the appropriate value to our company as they've applied various discounts to our sum of parts. We are working hard to change their minds and this narrative. Let me now explain how we plan to achieve this. We aspire to be the leading communications and digital service provider for our customers, and this is built on 4 key pillars: a reinvigoration of our core business; new growth engines that leverage our right to play with secular growth trends; portfolio transformation to invest for growth and unlock value; and last but not least, championing people and sustainability, which will be covered in our sustainability report to be released in July. Let me start with the core. We're doubling down on innovation at the core. 5G is a massive endeavor with significant capital commitment but essential to unlock new revenue streams in the future. Digitalization is another anchor that will transform customer experience and bring a step change to our cost structure and profitability. Consumer Singapore is focused on initiatives to expand its market leadership. Consumer Australia is executing to a customer-led strategy to drive sustainable profitability and value uplift. Group enterprise will double down on 5G and next-generation products and has started to develop a significant 5G edge cloud opportunity for the group. And as we execute, these capabilities will enable us to add significant value across the group to our associates and to support many of our other growth initiatives. I'll now spend a minute talking about our 5G progress. We are fast accelerating our 5G push. And just launched a 5G stand-alone network in Singapore. We can soon offer network slicing capabilities for the dynamic distribution and optimization of network resources, enabling revolutionary applications like self-driving cars, real-time immersive entertainment and massive IoT connections. Optus continues to advance its speed leadership in Australia. It now has the fastest 5G speeds in Sydney and Melbourne and has switched on 5G connectivity at Optus stadium in Perth. We are also rapidly progressing on capabilities and strategic partnerships to expand our 5G ecosystem and are working with enterprise clients to develop low-latency 5G solutions through our multi-access edge compute infrastructures in Singapore and Australia. We are also progressing on developing a host of next-generation consumer use cases. Zero-rated gaming bundles in Singapore and Optus Living Network are examples. Let me now move on to our future growth engines, starting with the enterprise-centric opportunity. COVID has accelerated a shift to digital, which will only gain pace as the global economy starts to recover. NCS has a strong history of success in this space and has developed -- delivered 7 straight years of positive revenue growth. Building on this momentum, we seek to transform NCS into Asia's B2B digital service leader through both organic and inorganic initiatives. The setup of multiple innovation centers and integration of Trustwave technology services are the first steps to rapidly build specialization, which we'll leverage to expand beyond Singapore. This is the first step of Trustwave's strategic review that we announced 4 months ago. NCS has also identified key industries to drive growth in the enterprise segment, including in financial services sector, where we recently clinched a significant service contract. The digital IT services opportunity comes with compelling growth prospects, and the financial markets are rewarding this with attractive valuations. NCS leadership will be unveiling more detailed plans on its transformation in the coming weeks. I'll now turn to what we see as a significant consumer-focused initiative, and this is about capturing the digital ASEAN growth opportunity. We see ASEAN as an exciting place to invest over the next decade, with an explosive expansion of their digital economies. Our scale and leading positions in each of our markets provide us a right to participate in this attractive digital opportunity. Our vision here is to create multi-local digital ecosystems in each market, a bottom-up effort where we support the creation of national digitals in each market by extending the requisite skills, talent and capital. Each country will be different but we can adapt the footprint across markets and increase the probability of success. We'll look to scale aggressively and rapidly and are open to taking significant minority stakes with complementary digital-natives to achieve this. We believe this approach will allow us to scale faster and crystallize value sooner. For us, this journey has already begun. What we are outlining on this page are a few examples of how we are executing the strategy across our footprint. We are truly excited by this timely opportunity as consumers are embracing the digital lifestyle. It is imperative that we find a way to move quickly and deepen customer engagement within our digital ecosystems. Moving on. We are connoisseur of the value of our extensive infrastructure in serving the ever-growing needs of digital economies. We have a large and unique portfolio of quality infrastructure assets that are embarking on a series of initiatives that will unlock the value of this portfolio of assets. This includes telecom towers, data centers, satellites, fiber and subsea cables. We are open to partnerships and different ownership structures, and we'll find the best partners for each type of asset. We are also looking to develop sustainable infrastructure leveraging our next-generation green technologies. If we do this well, some of our assets can create powerful new growth engines for us. Further, some of our assets are valued at telco multiples today, which will have the potential to be valued at far higher multiples. We are reviewing our entire asset portfolio with the following primary motives in mind: bridge the valuation gap between individual assets and the integrated telco assets; monetize assets that do not align or may be less important to our vision. What this will help us do is to actively recycle assets and reallocate capital to meet our funding requirements and invest for growth. Our ongoing exercise to monetize Optus tower portfolio is a case in point. We have received significant interest from strategic and financial investors and expect to close the transaction before the end of this year. Finally, we have announced and discussed our strategic review to reposition Amobee and Trustwave on 14 of May, so I will not spend more time on this. Suffice to say, that the work has started, and we'll keep you informed on the material progress and developments. With that, let me now hand over to Arthur to talk about our refreshed capital management framework, dividend policy and outlook.

Thank you, Moon. Hi. Good morning, everyone. Thank you for joining this session. Now let me start with a snapshot of our financial position, which remains healthy. Net debt levels are stable year-on-year with net debt at about SGD 12.4 billion while gearing ratios were also very comfortable with our net debt-to-EBITDA at 2.2x and interest coverage ratio at about 14.3x. In April 21, the group issued SGD 1 billion worth of subordinated perpetual securities, which was the largest Sing dollar corporate perpetual in almost a decade. This was quickly followed by a $750 million sustainability-linked loan launched under our Olives program. It was the largest Sing dollar-denominated sustainably-linked loan in Singapore and aligns our financing strategy to our broader ESG goals. I will now talk about our capital management approach, which will be guided by 4 key pillars. First, we need to improve our return on invested capital or ROIC. To us, it is not just about delivering better profitability anymore. We have to be equally focused on our capital base and be disciplined in our capital allocation. Next, we need to look beyond operating cash flows and debt sourcing for our funding needs, especially as we enter into a very intensive 5G CapEx cycle. We will look to introduce third-party capital partners, particularly those with investment horizons and risk appetites that match our upcoming investments. Thirdly, we need to recycle our assets efficiently, and we'll look at opportunities to unlock latent value. Moon has already talked about our large and unique portfolio of infrastructure assets. Lastly, we will look to diversify our debt sources and maturities. Our recent issuance of perps and sustainable financing programs are good examples. The low interest rate environment and investor confidence also provide us an opportunity to align our maturities with long-gestation projects like 5G. Let me now move to our dividend policy. Now barring unforeseen circumstances, Singtel plans to pay dividends at between 60 and 85 -- sorry, between 60% and 80% of underlying net profit. The group is committed to a sustainable dividend policy in line with earnings and cash flow generation. This dividend policy will be reviewed regularly to reflect the progress of our transformation. Let me conclude with our outlook for fiscal year '22. The group will continue to invest for medium- to long-term growth by leveraging its core competencies while maintaining a strong balance sheet through a more active capital management program. The group expects dividends from the regional associates to be approximately $1.3 billion; and capital expenditure, including 5G networks, to be around SGD 2.4 billion, comprising AUD 1.5 billion for Optus and the remaining SGD 800 million for the rest of the group. With this, thank you, and I'll hand the meeting back to Yan Fong.

Thank you, Arthur. We will now invite questions from participants.

Please note that this Q&A session is recorded for transcription purpose. [Operator Instructions] We have a first question from Prem Jearajasingam from Macquarie.

Moon, thank you for that strategic update. I suppose I have one question for you, and that's really around the associates in your portfolio. Because as you rightfully pointed out, the market is obviously placing fairly substantial discounts on the group for its various holdings. So I -- do you think that over -- going forward, we would be more willing to look at monetizing some of our associate stakes, especially where we have too much for an associate and too little to fully consolidate? Things like Intouch, Globe are the ones which come to mind. Would we be open to actually monetizing these and reallocating that capital to our new initiatives?

Prem, thanks for the question. This is probably one of the probably most common questions I've been asked throughout the years on Singtel's holding of associate stakes. I think there are a few things for consideration. First of all, when we look at an investment into the associate market, it is definitely a strategic investment and not just a pure equity investment. I think that position has not changed. We participate in associates not just as an equity partner, but we are also supporting the associates or working with the associates to look at how it positions itself in its marketplace and also look at how it transforms itself as the whole industry is facing structural challenges and especially in the 5G investment cycle today. While we remain committed to all our associates in terms of -- as a strategic investor and stay for the long term, we are also open and looking at other options and see how we can better reflect Singtel's value in carrying some of these associates. So we will be working very closely with our associates to see how we can better reflect the underlying value of Singtel's share price that can truly reflect the value of the associates, and this is something that we will be actively pursuing and speaking with our associates to explore how we can unlock that value.

And just as a follow-up to that, are we open -- I mean, I think you've already addressed some of this. But if there was a sizable digital investment going forward, how open are we to partnering with some of the global champions in the digital space to actually carry this forward rather than doing it on our own?

Well, very good question, Prem. I think one of the learnings that we took away from some of our digital investment is really about going in with partners and not doing it all by ourselves. And this is important because going with partners, for example, in the digital investments or digital growth area, you are -- look, we are definitely looking at partnering with a scaled digital-native company. And when we go in together with this, combining the -- what I call the strength of the Singtel group or the individual associate's market position in each of the respective market, we believe this approach is a more pragmatic approach and allow us to scale faster and to capture the market faster and in turn, crystallize value sooner than going in on our own. So firstly, the digital investment in each of our associate markets, we are approaching a hyper-local or multi-local approach. That means focusing on what is needed in each of the markets so that we can move fast; going in with partners, as I've explained in the earlier slide, not just by ourselves or not building it organically, but partnering with digital-natives, scaled players as well; and then finally, capturing the market position a lot faster and therefore, in turn, we can crystallize those values. And we will -- we have started the work in looking at some of those investments, whether it is in the wallet space or in the financial services space or even in the lifestyle space, building up a digital ecosystems for all our associates' markets.

Next on the line, we have Arthur Pineda, Citi.

Three questions, please. Firstly, on the financial side, why the conservative outlook on the dividend per share? You're generating more than double this on free cash flow, and you're potentially monetizing a fair bit of your asset base with asset sales coming up into the next year. Just wondering what the thought process is behind this. Second question is with regard to the plans on the use of capital. So you've mentioned monetizing the assets. What will you do with the capital that you raise from these assets? Will this be redeployed for reinvestments? Or will you look to return some to shareholders? And third question is do we have any time lines and benchmarks for the monetization of these various assets beyond just the Optus towers? Are there any benchmarks we could judge to see whether the strategy is actually working? Any dollar or capital return targets that the company can share?

Okay. Thank you, Arthur, for the questions. I will cover a bit of an overview of this, and I'll hand over to Arthur to comment a bit more on our capital management and time line on some of the monetization of the assets, right? Firstly, I think if you look at our outlook and the way we look at our dividend policy, it's really looking at balancing between investing for the growth and also ensuring that we provide a dividend policy that is sustainable, right? So in the short term, we are going through a major 5G investment cycle, both in Singapore and Australia. Secondly, we are also still trying to work ourselves out of this pandemic, which has impacted on some of our core carriage business like roaming, like equipment sales, as far as in Singapore in particular, the restriction of movement of people coming in, especially in the foreign worker segment. So this has actually impacted on some of our core carriage business. And in Australia, the structural challenges of NBN migration, which actually changed the margin. So these are some of the short-term impact that we have to cater for. At the same time, we are also looking at some of the cash requirement for investment into the future beyond just 5G. It's also about the growth engines in our IT business in NCS. As I mentioned earlier on, we are also looking at organically growing and building capabilities but also not ruling out inorganic initiatives as we look towards Greater China and Australia expansion into the enterprise space. So by having a balanced approach, we want to make sure that we are positioning ourselves for the future. Some of the asset monetization is not just purely about divesting, it is also about growing it. And if you look at some of the assets, the suite of quality assets that we've built up over the years in terms of the data centers, satellite, fiber, subsea cables, these are all very important assets that is in high demand, especially in the time of digitalization and enterprise moving to cloud and consumer going into online. So this will be actually very important assets that we continue to want to invest in and to partner to grow, and we are looking at all the various options. So it's not just pure monetization and selling of the assets. So maybe Arthur, you can come in with...

Okay. Thank you, Moon. Arthur, thanks for your questions. To build on what Moon has said, I think with regards to the financials, I think you did rightly point out that if you look at our percentage of payout based on free cash flow, it is about half of it, if you look at our cash flows that are available for distributions after committed spectrum payments and license fees and payments to -- interest payments. The reason we've done that is -- maybe I'll take a step back. If you look at our dividend policy as well as the decision on our final dividend for fiscal year '21, it's really set on a few principles. The first one is really setting the dividend at the right level given the current CapEx cycle that we are in and given the cash needs that we have in the coming few years, particularly relating to 5G investments but also some of our plans to grow in the various growth businesses that Moon has talked about. The second point is we want to make sure we grow this dividend sustainably, meaning that as -- if earnings and cash flow continue to generate and grow, then we will want to also ensure that we do the right thing for our stakeholders by growing it in a sustainable way, right? So sustainable meaning we will grow it in line with cash flow and earnings. It is not growing for the sake of growing and using debt to fund the dividend, for example, right? So I think that's the second principle. And the third principle is we want to actually shift the focus and the narrative a bit away from just a pure dividend story but a total return story, where we ensure that there is some growth in the business as well, right? And we're at this stage in time where we are clearly investing for growth, whether it's 5G investments, whether it's putting it into NCS, our digital strategy across the region as well as our infrastructure play, right? If you look at our infrastructure assets as a whole, right, as Moon rightly said, it's not just about monetization. If you look at the whole portfolio, right, there are -- of course, one is where there's a big, I would say, latent value gap that we see, right, and we believe we can unlock some value to realize that value in the market so that the latent value is realized. I think the second category of assets, which, if they do not align with our vision and strategy, we will sell them fully, right? And I think that's something we will also do in a very -- to an earlier point that I made about disciplined capital allocation. And then the third category is really investing on growth, right, for growth -- to really grow the business going forward. And then to answer your question on time line and targets, I mean, you've been covering this sector for a long time. And you know -- actually, in most sectors, nothing comes overnight in terms of returns. So we have internally set ourselves some targets to ensure certain of these projects and value-unlocking projects will happen over the next few months and quarters. And as we meet certain milestones, we will share with the market. And in terms of targets, we have not come up with specific targets, but one guide that we can give is if you look at our returns on invested capital. Before these recent secular headwinds that we are facing, COVID, NBN migration, carriage erosion, CapEx intensity, things like -- before all this, our group actually had ROICs of between low to mid-teens. Today, we're about mid-single digits. And I would say, with all these growth initiatives and ensuring that our capital structure continue to be set at a stage where we can optimize it for all our stakeholders, we believe that in the medium to long term, we can take this ROIC back to the low to mid-teens again.

Next on the line, we have Sachin Mittal from DBS.

Yes. A couple of questions. Firstly, if I look at your full year result, there is a mismatch between your revenues and cost to a big extent because 6% decline in the group revenue excluding NBN lead to 14% decline in EBITDA and 40% decline in EBIT, operating profit. The question is are we on track -- because you're talking about doubling down on digitization, are we on track to remove this misalignment whereby the cost and revenue can either grow or remain in tandem with each other? That's question #1 based on your digitization efforts. And what are the key factors in terms of how confident do you feel -- or what factors do you think will dictate whether you enter a positive revenue territory for the core business or not in this financial year? And last question. You have for the first time mentioned satellite, subsea cable and data center business for value unlocking. Could you give us some idea or whatever metrics you have on the size of these assets just to figure out how sizable are these here?

Thank you, Sachin. I think if you look at -- there are 3 questions. Maybe I'll ask Arthur to come back and talk about the third category, the assets and the size and the value of it. The first area on the full year results, yes, you are right, when you look at the revenue decline, it's 5%. And correspondingly, if you look at it, EBITDA declined about 16%, and then the underlying net profit is 30%. First of all, telco is a scale business so you do need to have -- maintain certain scale in terms of the size of the business, and a lot of the costs are actually fixed costs. So you have to make sure that you cover that, so for example, in the COVID-impacted areas of roaming. Roaming is a service that we are very strong at in the past because Singapore is a hub where we have got a lot of inbound and outbound traveling. But that business on the whole disappeared for the last 12, 15 months. And do you have to maintain a mobile network to ensure that this is ready when traveling starts to open up? Obviously, you do. So there's a lot of -- there's not a lot of other costs you can take out when you look at loss of revenue for roaming. Similarly, with the restriction on people movement, we are also not able to grow our prepaid business in this area, where we have got a shortage of foreign workers coming into the sector on the construction area because of COVID. So again, the network is there. We have been very -- I would say, capturing a lion's share of the market in this area. So these are all what we call COVID-related impacted business. And similarly, I also highlighted the digital advertising business in the U.S. Last year, we were also impacted because of COVID when it was at its peak last year in the U.S. But in the second half, we are seeing a bit of a turnaround in Amobee. So some of these are COVID-related. Others are more structural, structural in the form of voice to data migration. In Australia, the NBN migration revenue is tailing off as well. And as well as not just the migration revenues but also the underlying fixed line business margins are also very challenged in Australia because of NBN. So from ourselves providing full end-to-end service, now we are going into a resale model with NBN, which is actually a lot lower margin than -- compared to before. So these are some structural changes. And of course, we are investing in network ahead of time. Last year, we started 5G. And some of this advanced CapEx investment that we put in place last year are coming through as depreciation. That will directly impact on our profitability. So I must say it's a combination of both structural changes in the industry that affects the whole industry as well as COVID-related impact. But having said all this, there are still bright spots. We have seen some positive strong growth in NCS and data center business, which, on a year-on-year, basis have grown 14%. So we are riding on some of this tailwind due to COVID as companies and businesses push towards digitalization and riding on that. So we have to manage the downtrend and structural challenges and then, at the same time, ride on some of the positive momentum. And I think in Australia, Kelly is extremely focused. I'm going to invite her to explain a little bit. The focus is really to grow profitability and come back strongly into the marketplace, and this is part of our reinvigoration of the core. So maybe Kelly can come in to explain a bit more about our plan to look at the Australia business. And then Arthur can come in to talk about the assets that we hold. Kelly, over to you.

Thanks, Moon. We're very focused in Australia in driving sustainable profitable growth through our franchise, and that starts with really building momentum in our mobile business. We've done that by releasing plans that appeal to our customers, provide really strong value relative to the competition, and those are our choice plans. And as we get more penetration in the market, we're seeing our ARPUs lift as a result. Pleasingly, even in the last quarter, our year-on-year quarterly performance is an absolute lift even not taking into account the impact on the loss of roaming on that. Also, because of the introduction of our family plans, we're seeing more services per household as we continue to focus on mobile and then rolling out very unique propositions with our living network to drive differentiation. So pleasingly, all the leading indicators are going in the right direction, strong mobile ARPU growth, more multi services and some mix growth in customers. We're also seeing improvements in our customer satisfaction, reductions in the number of complaints that we get and lifts in employee satisfaction. So every leading indicator is heading in the right direction, and we feel we're building strong momentum in the business. Part of that also is having strong cost discipline in the business and making sure that we're trending our challenging fixed business towards greater profitability. The reason it's challenged is because we're moving from our proprietary network to resale of NBN. That is economically challenging for the whole industry. And as we have more of our customer base on those lower-margin products, the implications are felt more and more. Once we're completed with our migration, which we're hoping to do some time this year, we can start decommissioning some of our proprietary networks and taking costs out of the business. So it will be an ongoing story for a few years. But as I say, all leading indicators are heading in the right direction.

Okay. Thank you. Sachin, to answer your question, we -- because we are going through this plan now to explore our infrastructure assets' monetization and value realization, we can't give too much details at this point for a whole variety of reasons. But I can point you -- if you look at the relevant asset sites, right, in terms of what -- the relevant infrastructure that we talked about, that Moon shared, whether it's towers or data centers or subsea cables or fiber and all that, if you lump all that in, I would say, it's in the range of mid-single-digit billion, mid-single digits. So kind of -- if you look at billion single digits, it can be anywhere from 1 to 9, somewhere in the middle of that, right? So I would say that's the relevant number. And the point to highlight as well is many of these assets are booked at historical carrying value. So it has not reflected the mark to market, if you will, of the current infrastructure assets. Having said that, these are legacy assets as well. And I would say they are -- for certain segments of the business, they are generating EBITDAs that are quite comparable to the -- to some of the peers that we are seeing in this part of the world. So that's to kind of point you in the right direction. And to be clear, again, this whole infrastructure exercise that we are working on is not just about divestments, okay? It's leveraging on our know-how. It is not just simple passive assets and just kind of selling the whole thing lock, stock and barrel, right? It is the ability to also create value off these assets, creating value through the data analytics that we have, through the operating expertise, through building next-generation green technologies and building towards sustainable infrastructure that Moon talks about. So actually, there is quite a lot of upside that we can focus on. But again, we're not doing this alone. We are open to working with capital partners.

Arthur, when you say mid-single-digit billion dollar, does it include digital businesses as well or no, this is excluding digital business?

This is the infrastructure asset base.

Our next question comes from Piyush Choudhary from HSBC.

A couple of questions. Firstly, on balance sheet, would you -- what would be the comfortable kind of leverage levels if there are suitable inorganic growth opportunities which you may find in ICT, digital side, et cetera? So that is first question. Secondly, one of your key pillars is developing this new growth engine in ICT and digital services. So can you talk about like what kind of opportunities you are looking at ICT and how much capital you would be willing to allocate over there? And thirdly, if I may, on the Singtel-Grab digital bank, would you be open to expand this initiative regionally in partnership with Grab? And could there be more collaboration between Grab and your regional associates?

Okay. Piyush, thank you for your question. I think Arthur will talk a bit about our balance sheet and how we look at it in terms of investment and debt capacity. In the new growth engine of NCS, I'll give a bit of overview, and then I'll ask KP to chime in to see how he sees the growth opportunity in that sector. And the digital bank, maybe a quick answer on that. Yes, we are focused in expanding the digital bank collaboration with Grab. Firstly, of course, we have to make sure that we do well in Singapore first. That is a license that just been offered, and we need to make sure that we execute and bring all our strength and capabilities together. This is one of the new pragmatic approach that I talked about in terms of investing digitally and looking at scaled digital-native partners to go in. We are bringing capabilities of 2 strong companies together to scale faster and crystallize value sooner. So it is definitely our intent to work with Grab to look at the region and to see where other opportunities lies. In the second question on NCS, I think NCS is -- had actually secured 7 years of continuous revenue growth within the group, and this is on the back of supporting the public sector in Singapore. Primary focus previously was always in the government sector in Singapore. And if you take a look at this new potential, the region or globally, IT services or digital IT services is actually growing at double-digit growth in the next 3, 4, 5 years. So we want to capture and ride on this growth and go firstly beyond the public sector into the private sector and secondly, beyond Singapore into the region, which primarily focus on Australia as well as Greater China. So KP can maybe add a bit more color to the growth and how we intend to capture the growth momentum. Over to you, KP.

Yes. I think -- Moon, thanks. On the NCS front, maybe I'll take a couple of steps back to explain what we are trying to do here so that we understand why and the approach that we're taking to investment, right? So firstly, I think if you think about our strategy, there are 3 major steps to this. One is we are very focused on the key target sectors like government, which is really our strong core base, as well as getting into the enterprise sector especially around the telco-related industries as well as other sectors like financial services and health care and transport, which, over the last 1 year, has shown very good promise to us. Moon mentioned earlier we just signed a very significant deal with a major financial services institution. So I think that has also given us quite a bit of confidence that as we rotate out of the government sector, we can be successful in the major and big enterprise sector. So this is number one. The second is around the focus in terms of kind of what we do for our clients. Many people will see NCS as a very stable, very strong in the core traditional ICT area. We are and over the last 12 to 18 months, have been moving and getting very big into the digitalization space. We set up a separate entity called NCS NEXT, which is really focusing on digital, cloud and platform services. And in this coming financial year, we will narrow down into 3 major expertise that we've built's up around cloud, around AI and around 5G applications. So that will be the major focus. And we've also seen very good growth in that area. If you look at our report -- and we measure this thing called digital index. NCS has -- the prior financial year, we had 37% of revenue categorized as digital services. In the last FY, that number has grown up to 41%. So net-net, year-over-year, we've actually grown 17% in the digital services space. So we're very optimistic about that. Now the third part of our strategy is around the pan-APAC expansion, and here, we are very focused on 2 markets: Australia and Greater China. Greater China meaning Mainland China and Hong Kong. And again, this is where we will be looking at major investments in terms of maybe inorganic acquisitions and also, at the same time, going through organic approach. We think this is very important to get market access. And we also want this space to be where NCS can then take our very strong end-to-end capabilities, whether it's core ICT or the digital capabilities into these different areas. So I hope I gave you a sense of what we're trying to do as well as the investment areas that we are trying to build upon.

Okay. On the first question, let me maybe talk a bit about this capital allocation we are talking about. And it is not just capital allocation fueled by leverage, okay? If you look at capital allocation, you've heard a lot of time being -- or a lot of focus on the growth engines. This is the NCS, B2B, IT services, our infrastructure platform, our digital services, right? These are potential growth areas where we will be committing capital to, particularly on the NCS business and the infrastructure business to grow them and generate the returns and hopefully take us up to the low to mid-teens ROIC. But capital allocation is not just about spending, right, and not just spending our own capital, right, which brings us to the second category of capital allocation and capital management. This is how do we -- how can we improve returns on the ROIC, right? And returns can be focusing on the -- in the past year, the ones that have been generating lower returns on capital. You've seen and heard the challenges that we have in the connectivity business, whether it's in Singapore and Australia. That's something we need to improve upon and generate the required rates of return, right? It also means focusing on the capital base, the denominator of ROIC. Can we use -- can we bring in other capital partners who have the expertise and the capital to help us take the business to another level? We have announced a strategic review of Amobee and Trustwave 2 weeks back. We are open to working with partners to see what we can do in the digital advertising space and the cybersecurity space, which we admit, in North America, it's an area where we are not familiar with. So we are open to partnering them. And the third category is a complete exit if it makes sense. And this is not -- this is across our business portfolio and [ are transformative ]. So exiting the business allows us to unlock capital and rechannel it to the growth engines that we talked about earlier. So of course, it's not just about leverage and levering up to reach and invest, right? I think the second area in terms of our approach to leverage, right, of course, we will optimize our capital structure. And one of the ways of optimization is allowing -- using leverage to fund particularly long-dated debt with our long-gestation projects like 5G, for example, which will take years. And it makes a lot more sense to lengthen the debt maturities to match the asset return and the asset profile, the long-gestation period of the asset profile. But at all times, we always need to focus on ensuring that we are continuing to be a strong investment-grade company. Today, we are rated A1/A. If you look at our debt spreads in the markets and the receptivity that we've had in all the various debt financings and bond financing we've had, we've always got a very strong reception from the markets, and we will want to continue to do that, right? And finally, it's not just about the debt amounts and the quantum. It is about cash flow, right? It's about ensuring that we've got a healthy cash flow incoming so that we can channel them to our growth engines, right? And incoming includes, of course, our operating cash flows, which we are focused on delivering, an active asset recycling program. And this is how we will hopefully reach our optimal capital structure. So that's the approach that we are taking in terms of capital allocation.

The next question comes from Ian Martin, New Street Research.

Just a couple of questions for Kelly, if you don't mind, on the Optus numbers, which look quite good and very promising. And Kelly, I take your point around the plans you've put in the market. They look quite positive, particularly for ARPU trends. But I wonder what you're seeing in terms of the open channel market, the kind of discounts being offered by retailers. Do they have the potential to be disruptive, particularly going to the second half of the year? Secondly, just in terms of the underlying numbers, mobile subscribers in the postpaid and mobile broadband ARPU trends, is there any impact in there from fixed wireless? I know the numbers are small, but the average revenue is quite high, I think. And data usage, you reported 17 gigabyte per month in the December quarter, but that seems to be corrected down to 11 in the half year, which I assume is taking out that fixed wireless impact. And that kind of raises the question about how you're managing the impact of fixed wireless traffic and a very high data usage compared to the mobile network. If you could give us some indication about how you manage that capacity utilization.

Thanks, Ian. Do you want me to go, Moon?

Yes. Go ahead, Kelly.

Great. So I think you will see a very strong commitment from the Optus team towards price discipline and creating value and differentiation in our customer service, our digital solution and our living network. And we think that through adding that value, we have underpinned a very sustainable price point in the markets, and we continue to be disciplined there. As you've pointed about, not all of the other operators are acting with similar levels of discipline. And we do see, particularly through certain retailers, very large subsidies being logged into the market. We think it's ironic that some of those players talk about price discipline but are leading those sorts of offers that are out there. And we also see some of the competitors with huge discounts. For example, one of them had an 80% off sale for a couple of weeks in this last quarter. What we have noticed is that because we've underpinned our new plans with all this value, we still seem to be resonating strongly with customers. And so we believe in the sustainability of our pricing approach and our holistic approach to providing better value, better service, superior digital experience and unique differentiation through our content offering and through our living network. So we will keep working through that and try and sustain our pricing uplift. On our mobile numbers, is there an impact of FWA? Yes, there is. We sell solutions on both 4G and 5G. We've been the only ones in the market with a significant 5G, FWA presence, those plans that are popular with customers. They have a high NPS. They achieve really good speeds and generally are products that our customers enjoy using. We do have a big debate about whether we should be reporting our FWA numbers in our home or in our mobile portfolios. I'd be open to anybody's views. And I think as you say, the reason we changed the usage was that we felt it should reflect mobile subscribers and that, that uplift in usage was more home-like usage. And so that debate is ongoing, so feel free to weigh in as to where you'd like to see FWA numbers reported. But we are managing our FWA in line with our capacity across the network. And having invested significantly in our 4G capacity to achieve 98.5% coverage across Australia, we do have capacity in a large part of our network to offer FWA traffic. And we have introduced a qualifying mechanism into all of our teams that actually let customers put in their address, and then we tell them what services are available for that address. And we can manage the capacity and performance of the network tailored down to an individual customer level, whether they call into our call centers, walk into a store or try and catch us online. So we're using that qualification tool to make sure that all our customers get a great experience on FWA, and we only sell it in areas where we are confident we can deliver that great experience.

Our next question comes from Ranjan Sharma, JPMorgan.

Two questions from my side, firstly on this bid for Intouch by Gulf Energy. In terms of new strategic direction, where does Intouch advance? If there's anything that you can share in that regard. Secondly, with your growth or the emphasis on growing digital revenues and digital businesses, can you share your thoughts, how you feel about the organization structure and the management teams, if you think that you need to change something to enable that growth?

Yes. Thank you, Ranjan. I think with the Intouch development now, we are still evaluating and assessing all our options. To be very specific, the former offer is still not up yet, so we will not want to comment too early. We are working through all our strategic options on this. But more importantly, as I've said before, AIS, Intouch is really a strategic asset that Singtel has been invested in for many years, and it will continue to be the case. And we will want to make sure that whatever we do is always supporting the local operations and ensuring that they are in a strong position to compete in the marketplace. On the digital investment, on initiatives in the region, I think it is really something that we see a lot of potential in because of the whole adoption of digitalization and consumer moving towards a more digitalized style. And I've shared earlier on that growth in this area in ASEAN, in particular, has started to be very high, up to 300 billion in the next few years. And when you look at this, what's the role we play? Firstly, as a telco in each of these markets, you do have a lot of assets or capabilities that you can bring to the table to develop a digital ecosystem. Firstly is the access to customer base, the analytics of it, know your customer. Secondly, it's also the trust of the local brand that you have built up over the years. So I think these are all very strong qualities and I would say, capabilities that we are bringing onboard. And the approach is really to look at how we can partner with digital-natives in each of these respective markets. So it is to go fast, it is to go deep, go local. And it is to make sure that we are able to scale very quickly and to crystallize value from this digital ecosystem by improving on customer engagement. So if you look at the organization structure, which I've already made changes to it since early this year, we now have consolidated and removed the CEO international position in the past -- which we used to have to engage all our associates. Now this function is actually merged into the CFO function for the financial management of the associates. And for all the new capabilities and new businesses, these are all bring -- brought back to the local operations. For example, in the Singapore business, you see now some of the digital businesses is now together with Anna or Dash is now folded into Consumer Singapore business. We see that happening all over our associates as well. As you see, Telkomsel grow, they are -- all building digital capabilities, digital investments, they are all handled at the local level. So that's why our approach is a lot more pragmatic now. And we are looking at a multi-local approach in investing locally. And only where it is what we call portable on the digital asset, we will then quickly bring this into different markets. The biggest example, I would say -- the most current example, I would say, is our digital brand GOMO, which we launched 2 years ago in Singapore. The idea is conceived in Singapore, but the brand has now extended into all our different associate markets, including Australia. But what's the difference? The difference is while the brand is common, if you look at the pricing, the market positioning, the go-to-market, they are all very localized. So we want to have that sort of arrangement in our digital investment as well. So we may have an idea that is portable, but the execution and the delivery of that is all local. So we see ourselves moving with this direction going forward, and we want to continue to ride on that local momentum and to partner with local digital-native players and to scale the business strategy.

We have the next question from Choong Chen Foong, CGS-CIMB.

I have just one question with regards to the plans to expand NCS, which I think makes really good sense because you can leverage on your existing MNC relationships. My question is how do you see the speed of scaling up this plan, especially going across pan-Asia? And what are some of the potential challenges here perhaps with regards to competition outside of the Singapore public sector? What sort of investments do you think you will have to make in resources to achieve this? And it was also mentioned earlier on that you could potentially take an inorganic approach as you expand pan-Asia. Should we expect smallish or large acquisitions? And would these have mid- or even longer-term gestation periods before they breakeven?

Yes. Foong, thank you for your question. Maybe I can cover this question a bit, and then I'll hand over to KP to elaborate a bit more about some of NCS unique capabilities. First of all, I think if you look at it, it is not just about the IT services or applications, services, infrastructure, which KP will talk about. But it is also about our capability of building up 5G and building up 5G in the enterprise space. I will invite Bill to explain a bit more later about how we intend to build up mobile edge Cloud on 5G. And these capabilities leverage not just on the telco side, which is what Bill is pursuing, but also can be combined with NCS to create a unique position for itself when we go to the market to position ourselves differently as compared to the market. So in the inorganic space, I think it is a bit premature now, but suffice to say we will take a very pragmatic approach. KP, we have discussed internally, and one of the -- what we call the immediate priority is to expand our NCS business outside of the public sector. And this is where we will then rely on the Singapore market and say how do we build these new capabilities to serve enterprise customers in the financial service sector, in the telco and media sector as well as transport logistics area that we will be focusing on. But beyond that then, the geographical expansion, the focus is actually in 2 areas, right, Greater China as well as Australia, where these are the markets that we have got a bit more familiarity with and also closer to home. So before I hand over to KP to talk about some of these capabilities, I just round off by saying it is premature to look at any inorganic targets now. We will definitely come to share more once we have anything material to share with the market. But maybe perhaps, Bill, you can add a bit more color on the 5G mobile edge cloud capabilities that we are building that is very relevant for enterprise. And then, KP, you can take over from there. Bill?

Yes. Thank you. So let me just talk about the 5G. As you know, 5G, there are the sort of connectivity services that the consumers, enterprises would buy just like 4G today, bundled with handsets, price plans and all. But the segment that Moon is talking about, it's really about the enterprise 5G solutions kind of offerings, which is different from just the pure connectivity business, and this is a completely new sort of opportunity for us. And it's an important segment because, one, when you think about Singapore being a smart nation, Singapore being a hub for a lot of -- sort of in the areas around the building up technology, building up innovations, the ecosystem. It's also a key hub that the industry development arm of IMDA is seeking to do -- with the industry, to bring a lot more ecosystem players here. So this is an important sort of confluence of several big factors. And we think about where enterprises are in terms of this whole smart city vision, whether it's building smart estates, whether it's smart ports, whether it's public services, public safety or whether it's -- and when we think about this, a number of them will be looking at transforming in the area around using low-latency, high-throughput services solutions and where only 5G can deliver, not the 4G and any other technologies, because of its characteristics. And beyond the connectivity, low latency and high throughput, there is obviously the important thing that we're executing on and already tying this up with a number of enterprises here. It's what's called a multi-access edge compute platform or MEC, 5G MEC. And both of that goes together, and that's one of our key differentiation versus just offering high-speed connectivity to enterprises. What does this 5G MEC do? It basically does the 5G low-latency connectivity and all the high-throughput characteristics. It does the computational capabilities, the data storage, the data analytics and AI and all at the edge. And to be able to deliver this under a 5 millisecond SLA for enterprises with network slicing, now this unlocks a lot of interesting use cases that's not possible today, high throughput, low latency like things that are robotics in factories; things that are like autonomous guided vehicles in ports; smart AI-driven cameras; analytics; public infrastructure; public safety; and XR, AR, VR, augmented reality, virtual reality and mixed reality glasses that you can use in many, many use cases; drones -- autonomous drones. And so a lot of these new use cases can be opened up that requires not just connectivity but computational. And if you think about this, the platform, it's not just really one of -- that we deploy in Singapore. We are looking at, once we get these use cases and ecosystems built up here, definitely exporting this into Optus for enterprise use cases and at the same time, exporting it with our regional associates to help them as they execute their 5G strategy with this MEC platform as well so that they can really benefit from what we are -- the learnings and the use cases and the successes that we have over here. Earlier in the slide that Moon talks about, we are co-creating a number of this with enterprises, leading the charge in 5G enterprise in this space. So the other thing about not just expanding across the region. Obviously, there is a lot of this platform that goes to help customers with their use cases, and that's where NCS can leverage all this with the applications to be deployed on this cloud infrastructure at the edge so that they can then offer the customers the help with the digitalization on the customer and as Singtel and our associates and Optus deal with it from the infrastructure side. So both from the customer and helping them onboard these new use cases, onboard these applications and drive the success stories around the customer end, there is the whole platform that's evolving very rapidly to meet that. So that -- imagine how services will be built on this compute and connectivity platform with a very low latency, 5 millisecond possibility and all the functionalities. So this is what we are doing over here in Singapore, quite a fair bit of development. And we're now looking at how do we scale this across the region with the group of companies in Singtel group. Over to KP.

Thanks, Bill. Foong, I think you asked, I guess, a very good and also quite a broad question. So let me try to explain in 2 halves. First, I'll talk about the speed -- I think you asked about the speed of us expanding outside Singapore. So number one, I think we are very focused on the regions we want to expand. We're not -- we aspire to be a pan-APAC leader and player. But we are very focused on 2 regions: the first is Australia, the second is Greater China. And here, Greater China, I'm referring to Mainland China and Hong Kong. There are reasons for doing this. But if you look at the span of IT, digital services in Asia Pac, these 2 regions are the top standard based on many research companies like Gartner and all that, right? And certainly, these 2 regions are also regions that NCS and the Singtel group is familiar with, right? With Optus in Australia and the play that we have in China, we are quite confident that this is the right set of regions to get into, right? And in particular, in these 2 markets, we are also looking at different types of capabilities to build and different clients to serve. Now obviously, a lot of this are informed by what is the climate in those markets. So for example, in China, we are very focused on working with the high-tech companies, the manufacturing companies, the globalizing Chinese companies that's really getting out into Southeast Asia and who need a lot of help in this space. In the case of Australia, we see a high demand in cloud services. In fact, over the last 12 months, during the COVID period, we started to build organic a cloud in the region, in Melbourne. And that team has grown quite significantly from 0 headcount to now about 80 people, all within this very short time of 9 to 12 months and all through organic means. Now if we can achieve that using organic means, we are very optimistic that if we apply inorganic methods, right, which we are now exploring in a very serious way, we can then scale this business and move at speed to capture this space that we really feel is important for NCS. So I hope that answers your question around speed. Then you asked me about challenges. I think the challenge is obviously -- not to be trivialized, we are really -- despite the fact NCS has been in China for now 20 years, we've not really been very successful until the last 12 months. I think the last FY, we've grown really well. It's actually our fastest growing region. But other than that, I wouldn't say that we are really, really good at the international markets. Having said that, we think that we are clearly differentiated in the marketplace for 2 reasons. Number one, NCS provides a very unique end-to-end set of capabilities that you do not see often in the marketplace. We actually do provide services ranging from the applications to infrastructure, to engineering and cyber and now getting into the next spaces like digital, cloud and platform. So you think about the end-to-end offering. I cannot think of any other company in the market that offers the same breadth that we can now take to market in this -- to these overseas markets. That's number one. The second is the size of NCS today, I call it the right size, right? We are not too big, right, or we are big enough. Not too big so that we can focus on these clients that we're trying to make successful but we are big enough to be able to do the things I just talked about. If we are too small, we are all very local practices, it's very difficult to do what we talked about earlier on, including investing, including building assets and including, obviously, giving our employees, people who want to join NCS the components that we want to build a pan-APAC services company with. I hope I answered your question.

Yes. If I can just throw in a quick follow-up question. Looking at the guidance for CapEx in Singapore, including 5G, there hasn't been much of an increase compared to FY '20. And Bill mentioned earlier on about the investment in MEC infrastructure, right? So I'm just wondering whether this investment in MEC is not very substantial. Or is that because it's only going to come in, in future years?

Yes. Foong, I think the CapEx guidance that we have given is actually incorporating some of the initial MEC investments. But obviously, it really depends on how fast we can turn on and work with enterprises. So if there are a lot of industries riding on this 5G development, we will expect the investment to come in. At the same time, we will also expect to also partner with the enterprises to make sure that the investment generates the type of returns that we seek.

Maybe I can add on. We have also partnerships which we have announced at the edge cloud development. And some of these partnerships actually allow us to do revenue share instead of us putting some of this MEC buying as CapEx. So I think there are different models that we are actually exploring with these hyperscalers.

Our next question comes from Paul Chew, Phillip Securities.

Just 2 follow-up questions. I might have missed the reply. Just on the review of the infrastructure assets, what value can be unlocked if you kind of assume that this is just another kind of sale and leaseback and the value depends on the so-called leaseback rate from Singtel? That's my first question. The second question is unlocking value from the resources. At the same time, you mentioned they are strategic. So does it mean the value will not be unlocked and the discount remains? Just wanted to follow on that. My third question, just a housekeeping. For NCS, how much contribution comes from the public sector? And has that changed much in the past couple of years? Those are my 3 questions.

Okay. Thank you, Chew, for the question. I will try to quickly answer the NCS questions and the associates one, given the interest of time. NCS have been growing rapidly in the last few years, and these are all in the back of the public sector. So we have not fully disclosed the percentage of contribution coming from public and private sector. We are already seeing some initial growth in the nonpublic sector as well in the last 12 months and as well as the revenue coming in from overseas as in China. KP did mention that we are seeing some momentum there in the last 12 months. But I would say, by and large, primarily, we have been growing for the last 7 years at the back of public sector growth in Singapore, right? For the assets, I think I've shown a slide earlier on it's not just about monetization, it's also about relooking at these assets, which are very high-quality assets that will be very important for the economy in many of the markets that we work in, that is going into digitalization that requires a lot of capacity in bandwidth, a lot of capacity in the cloud, a lot of capacity in purely infrastructure that will enable digital economies. So we -- if you look at the slide that I earlier on presented, some of these businesses that we have now today is not being, I would say, valued at a market comparison multiples of a pure infrastructure play. So that page that I've shown, right, some of the data centers are -- they are 24x, and the fiber and submarine are valued at high-teens multiples. Whereas, our telco integrated play is valued at probably 8%, 9% (sic) [ 8x, 9x ] sort of multiples. So if we are able to unlock these assets in not just selling them but in partnering and growing the business, which we know that has high demand, obviously, you will see a better reflection of the value that Singtel carries. Back to my first slide, which is the market has not been able to accord the correct value that we have got in Singtel. And similarly, to your second question on associates, right, we're -- we say that these assets are strategic and we will continue to stay invested to grow it. But at the same time, we are also looking at how we can work with the local partners there to allow some of this value [ visible ] to the market to better reflect on Singtel's underlying value. So unfortunately, I did not answer the straight questions, but you can take a look at what the market is saying and then you see what's the latent value that we have within the Singtel group.

Our last question, in the interest of time, Varun Ahuja from Crédit Suisse.

I'll quickly ask my question. Most of the questions have been answered. This is on NCS business. I'll mention you have been saying about opportunity in the Greater China area. But if you look at one of your telecom peers in that part, PCCW, has PCCW solutions there. And they have also been talking about Greater China, and they also invested rather into Southeast Asia for their opportunities. So just wanted to check how different are they, because they have been struggling to grow that part of the business in Greater China. And how do you want to do that?

Okay. Thanks, Varun. I think it's not for us to comment on PCCW's strategy. I think earlier on, KP had mentioned the unique capabilities that we believe NCS has. It's a really integrated end-to-end solutions provider that covers applications, infrastructure and in the new capabilities that we are looking at in digitalization, analytics, AI as well as 5G. So we do believe we have the unique capabilities and we know the markets and therefore, we will continue to pursue our strategy.

So we're about almost 1.5 hours into the call. Thank you for your interest, all your questions. Should you still have questions, please don't hesitate to direct it to the Singtel IR team. So on behalf of management here in comm center and remotely, we wish you all the best. Take care. And then we'll talk again in another 6 months' time. Thank you.

Thank you.

Thank you.