Singapore Telecommunications Limited (Z74) Earnings Call Transcript & Summary

Good morning to everyone, and a warm welcome to Singtel's results briefing for the half-year ended 30th September 2023. We do apologize for the slight delay in starting this results briefing as we were sorting out some things on our end. So I'm Adrian, and I lead Investor Relations at Singtel. Before we start the briefing proper, let me introduce management who are on the call today. With us today are Mr. Yuen Kuan Moon, Group CEO; Mr. Arthur Lang, Group CFO; Ms. Kelly Bayer Rosmarin, CEO, Optus; Mr. Bill Chang, CEO, Digital InfraCo; Mr. Ng Kuo Pin, CEO, NCS; Mr. Ng Tian Chong, CEO, Singtel Singapore; and Ms. Anna Yip, who is Deputy CEO of Singtel, Singapore. Before we start taking questions, I would like to invite Moon to share some quick thoughts and highlights from this set of results. Moon, please.

Thank you, Adrian. Good morning, everyone. Thank you for joining us. Let me start with the key highlights for the half year. We faced a number of headwinds as macroeconomic uncertainty and inflationary pressures weighed on consumer and business sentiment. Despite these challenges, the group put in a resilient performance with EBIT stable on continued momentum of our mobile business and strong performance of our growth engines. This helped offset softness in the enterprise space, from structural declines in legacy fixed business in Australia and lower ICT carriage spend by enterprises in Singapore. Regional associates' PBT grew 9%, boosted by improving dynamics in their respective markets. This helped us deliver a 16% growth underlying NPAT. If we strip up the impact of strong Sing dollar, net PAT surged 83% mainly from Telkomsel dilution gains. Importantly, we continued to execute to our strategic reset. In the last few months, we further simplified our business structure by integrating the consumer and enterprise businesses in Singapore, unlocking another SGD 1.1 billion from a 20% stake sale of our data center business to global investment firm, KKR, to use as growth capital and completed the divestment of Trustwave. This put us in a strong position to drive ROIC improvement and shareholder returns. With that in mind, we have raised our interim dividend by 13% to SGD 0.52 as well as increase our payout ratio to between 70% and 90% of underlying net profit. On to key financial highlights. Our results for the half year was impacted by the strong Sing dollar, affecting revenues and underlying high net profit by SGD 338 million and SGD 42 million, respectively. Excluding currency movements, revenue and EBIT both increased 2% on continued mobile growth and strong performance from our growth engines. Our regional associates' pre-tax contribution increased 9% on improving market dynamics and strict cost control. Substantial cash from asset recycling also generated SGD 58 million of interest income, resulting in an overall 16% higher underlying net profit. A key tenet, when I launched the strategic reset 2.5 years ago, was the need to reorganize our structure to reposition the company for growth. Today, I'm pleased to say that we have realigned the business and simplified our structure to drive growth, synergies, and productivity. Consumer and enterprise businesses have been consolidated into one operating entity for both Singapore and Australia, giving them more operational autonomy and direct accountability. NCS and Digital InfraCo have also been carved out as a stand-alone businesses, better positioning them to capture new growth. We've also completed the strategic review of our digital investments, divesting both Amobee and Trustwave for SGD 500 million as well as closed HOOQ. More importantly, we have taken out EBIT drag of over SGD 200 million per year. With the simplified structure, our focus is now on taking out costs in our core operations. We will also actively support our regional associates, as they build out new growth engines, particularly in the enterprise and in the fiber broadband space. With all these initiatives, we remain on track to deliver low double-digit ROIC in the midterm. Let me elaborate on how we intend to take cost out of our core business. We've launched a cost-out program to drive a 15% or SGD 600 million reduction in indirect costs over the next 2.5 years. It hinges on 2 key pillars, eliminating operational inefficiency, harnessing the power of digitalization to drive productivity. I assure you that our cost-out program will not come at an expense of our network. We will continue to invest in network resilience and security. The group's strong balance sheet also provides a buffer against economic uncertainty. We've divested SGD 5 billion of assets in the last 2 years and expect to receive another SGD 2 billion, which has already been secured. We have another SGD 4 billion to be unlocked in the midterm. Proceeds from asset recycling has placed us on a firm financial footing, reducing gross debt by SGD 1.6 billion while boosting cash balances to SGD 3.1 billion. It has also provided necessary funding for our growth investment. With the improvement in our financials, successful asset recycling and firm financial footing were increasing our interim dividend by 13% to SGD 0.52 per share. We are confident of the future of our business and are revising our dividend payout range towards between 70% and 90% of underlying net profit, so shareholders can share in the group's improving prospects. With that, I conclude my presentation and hand over to Adrian for Q&A.

Thank you. We will now be taking questions. [Operator Instructions]. So the first question comes to us from Arthur Pineda from Citi.

Just 3 questions, please, on my side. Can we get some color on what's driving the decline in data center profitability for this semester? When should we see that turning around? Second question is with regard to the cost savings targets of SGD 0.6 billion over 3 years. Can you please elaborate on this? And is this mainly OpEx? Or are there any CapEx elements on this as well? I'm just wondering on the impact in the margins. And last question is with regard to Optus. What are the observations on Optus subscriber based post-network outage? Has there been any indications of potential parting out activities?

Thank you, Arthur. Maybe I'll just cover briefly for the 3 questions, and I'll hand over to Bill and Arthur to talk about DC and OpEx -- the cost savings details. I'll take the Optus question. I think it's definitely rather too early to tell any impact on customer with Optus. I think our focus now is to take care of our customers. The network has been fully restored. We are looking into the root cause of the incident, and we will want to make sure that if there's any big gaps identified, we will improve on them. I think that's the current status. For data centers, of course, we are in investment mode. We are building up the new Tuas data center, the Batam data center as well as the Bankok data center. Our existing data centers are all fully filled, and I'll let Bill elaborate a bit more on that.

Thank you, Moon. Arthur, thank you for the questions. So like Moon said, we are 100% or I should say 99.5% filled in our 2 current DC assets in Singapore. And what's happening is we're building new DCs, DC Tuas, that will be coming on stream towards the end of 2025. So monetization will happen in 2026 onwards. So -- and then both in Bangkok and Batam will also come in 2026 -- late '25 and '26. So essentially, what we have is we're investing the OpEx to build the teams to ensure that we can design, build, and operate those DCs into the region with our JVs and also those in Singapore. And so, there will be OpEx sort of investments there as well as capital investments in building the 3 DCs. Yes. So this is the sort of the profile. So what is driving the growth in the DC, about 9%, it's primarily price uplifts in maxed out capacity in our current DCs, and essentially, we're just uplifting those prices according to inflationary contractual agreements and energy pass-through increasingly to ensure that customers are paying for the energy that they consume themselves. Now, it's over 80% of those contracts are all passed through, and we're increasingly doing that in -- as contracts come up for renewal. Other than that, it's just price uplifts through the contractual negotiations on those capacities has been maxed up, okay?

Arthur, just to build on what Bill said on data centers, and I'll talk about the cost-outs later. If you look at the slide that's in front of you, the EBITDA margins for the RDC business is a very healthy 57%. As we start building, right, especially the Tuas capacity, you will see basically this margin coming down because we will be incurring construction costs and just building up the team and building up effectively the regional platform, right? And then, of course, once it's constructed, is completed, you'll see a big jump in the EBITDA, and that's perhaps why KKR paid the valuation, it is really for the future build-out of the capacity. So we do see the EBITDA margins falling. We have mentioned this before to more industry standards. But I would say, with the growth in the industry, we are, of course, managing that, but we'll improve more, right? So like most data centers, they are in growth mode. You'll see the EBITDA margins coming down, but once it's completed, you'll see that jump. On the cost-outs, if I could ask that we go through that next slide, you will see it's about SGD 600 million over the next 30 months, 2.5 years across both Optus and Singtel. It's really the key drivers you see on the right. I think first and foremost, it is a result of some of the work that the 2 companies have done in merging and combining and simplifying the businesses. And I think you covered Singtel for a very long time. Last time, I remember that you probably had to look at for Singapore, the GE Group, Consumer Singapore, and then, you go to OE and Optus, and then you've got the OC, I think it was called Optus Consumer, right? Now, it's just Optus and Singtel, right? And as a result of that merger, there will definitely be, I would say, simplification synergies that you see, right, whether it's all the details there, even the consolidation of vendors, that's where we can actually generate a lot of possibilities. I think the second bit is with the advent of AI and digitalization. I think there is a significant way for us to actually leverage on that and reduce our overall cost to serve. And then, finally, Energy, right? I think it is where we will kind of, again, use the new AI and ML to really optimize our usage. There is some workforce optimization where we will upgrade jobs. Basically, with what we are doing, I think there's an ability for us, obviously. I would say it's across the board. So it's a 15% reduction in OpEx or what we call indirect costs, costs that are outside costs of sales and traffic costs. This does not include CapEx. I think you will see that we have reaffirmed our guidance for CapEx this year, and we will continue to come out with some CapEx guidance every year. We have said to the market that we are very focused on ROIC, right, which would mean that it has to be not just OpEx, but it's also CapEx efficiency. We have said this many times, 3 areas, focus on revenue; OpEx reduction; CapEx efficiency. So nothing has changed, but this 15% is really on the OpEx side.

Our next question comes from Eric Choi from Barrenjoey.

Just 3 really quick ones for me. First one, Singtel hasn't changed their ROIC guidance, which infers Optus remains committed to theirs. Is that right? Or is there some risk that may be that Optus ROIC achievement may be pushed out given recent events? The second question related to that is if we think about the 3 legs to drive that Optus ROIC improvement, it's rational mobile markets winning enterprise price share and costs. And I'm just wondering, do you think #2 and 3 could be harder now, and if that's the case, like what picks up the stack to get you there? And if I can fit the last one in, I think Kelly may have mentioned rewarding customers for their loyalty. And I'm just wondering, any early thoughts on that? Is it similar to Telstra back in 2017, they gave out some free data days? So are you thinking more along the lines of that?

Maybe I'll handle the ROIC questions, and Arthur can elaborate and Kelly can come in and talk about how we kind of take care of our customers. So first of all, I think if you look at the ROIC guidance or position that we have taken, we have always said that we will continue to improve our ROIC in each of our businesses. And in the group-wise, when you roll it up, I think we started 2.5 years ago, probably around 6% ROIC, and now, we are at 8.3%. And we say that the midterm target is to go into low double-digit ROIC respect, right? And actually, if you look at what Arthur and I have mentioned earlier on, we have actually removed some of the drags on our EBIT. Basically, we have divested the negative EBIT business of Amobee and Trustwave that has a drag of about SGD 200 million of EBIT every year. So that is removed now. And if we continue to work on OpEx reduction and CapEx efficiency, we believe the group's ROIC will improve. And, obviously, as I said, the restructuring of Singtel into very distinct individual autonomous unit, every business unit is very clear on what they need to achieve, not just -- not only in Optus, but including Singtel Singapore, NCS, and regional data centers. So they are all very clear on the targets, immediate in-year target and further out how they could improve ROIC. So we will be very disciplined to look on carefully deploying CapEx in a very efficient manner and continue to look at synergies in optimizing our OpEx. So I think maybe in terms of every market that we operate in, in -- mobile is actually a very big part of our business. We are seeing positive momentum on market pricing more rationally in our associates' market as well. Some of the industry structure has improved. In Thailand, with the consolidation, we have seen a lot more discipline in pricing. In Indonesia, we are also seeing the player pricing up as well. And I think in India, especially, we've also seen a strong price up from the market. So across the board, including if you look at the half-year results, the Singapore mobile business has grown 2% and Optus has also grown the mobile revenue. So I think if there's enough market discipline by all the players, you'll see that the business will continue to improve organically, and we layer on the productivity improvement that we put in, then the overall business bottom line will improve. Maybe Kelly will talk about the cost and maybe also about some of the things that we are doing to support our customers.

Yes, great. Thanks for the question, Eric. Just on making sure that we can keep improving the ROIC in Optus, we are absolutely committed to do so. And you'll see we have the topline revenue growth. We're also focused on turning around our enterprise business, winning customers in the areas where we have strength, making sure that we turn our accounts more profitable where we've been loss leading in previous instances and strengthening the team so we can try and build differentiation for our enterprise customers. We've also been focused on costs, and we'll continue to do so. I think Arthur articulated very well that a lot of the costs there comes from simplification of the business, investment in automation and AI, all things that really are win-win because they add to the resilience and robustness of the company. They add to the simplicity value proposition and improve outcomes for customers, and they allow us to remove costs. So we're really all about looking for those win-win scenarios, and we do have a pathway that we've identified to achieve significant cost-out with that focus on really removing work -- reengineering work and being very clear what it is we do and what it is we automate. And then finally with regard to the outage yesterday, I mean, firstly, it goes without saying that we are hugely apologetic, we let our customers down, and we hate that. Our focus yesterday was on the storage services to customers. That was our singular focus and all of our services are back up and running. In terms of rewarding our customers for their loyalty and thanking them for their patience, we are looking at options, and that's something we're working on today now that services are restored. We understand that the number one thing customers want is for their services working all the time. And so that is our top priority. In addition to that, we do want to give a gesture of goodwill to our customers. And I just want to say that we're not talking about direct compensation because if you took an average customer on a $49 plan, and they didn't have service for a day that would equate to about $1.60. And we don't think that's what customers want is a credit for $1.60. So we're looking at what we can do to make our customers feel like they've been heard, that they know that we care, that we understand that we let them down and to try and give them something more valuable. So it may not be exactly the same as the gesture that Telstra gave a few years ago or some other competitors do, but we're looking at what we can do that would be meaningful and valuable to our customers.

Our next question comes from Piyush Choudhary from HSBC.

2 questions. In 1H, your company has divested Trustwave, secured growth capital in DC and also recently sold a partial stake in Airtel Africa, you have a very strong balance sheet. So in this backdrop what were the considerations to not have any special dividend or a share buyback? That is the first question. In Singapore, can you update us on the progress of integration of the consumer enterprise business? And on your cost-out program, where you have -- where you expect synergies or cost-out of SGD 200 million in fiscal '24 is some cost-out already realized in 1H or this is entirely for the second half to operate?

I think there are a few questions, Arthur can take the question on dividend. I think Tian Chong can pick the question on cost-out. I think, suffice to say, we are always looking at in what way or how we can return value back to our shareholders. Obviously, first, we have to create and unlock it first, that's our focus. And obviously, we do have different time to consider different options on whether there's a special or whether it is a share buyback, and these are all in our consideration. At this point in time, we decided to increase our dividend to SGD 0.52 or 13% up, and obviously, also increased the range to 70% to 90% of a growing underlying profit. So this will in itself give you the double kick in terms of the absolute dividend paydown. Obviously, in the full year, we can review, again, what are the other options that we have to return more value to our shareholders. Arthur?

Sure. I think Moon covered most of the points. I would add, Piyush, is that I think this is -- it's a fiscal year plan, right? I mean -- so we're only halfway into the financial year. You are right, Moon has actually said it, we -- if you look at what we laid out in terms of what we want to achieve in terms of the strategic reset, whether it's ROIC, whether it is the sale of our strategic reviews of all the digital non-core assets, whether it's simplifying the business, whether it's capital recycling, I would say, we've delivered on all that, right? And the balance sheet today in an interest rate environment where interest rates actually triple, we cut interest expense by 10%. We paid down debt. We've got an SGD 3 billion cash balance, right? So you're right. I mean, investors or you asking, do we have done more special dividend on that? I would say is we haven't finished the year, right? So let's see where things go, and then, we will see. But I think it is very clear, while we create value for the company, we want to make sure that shareholders also realize some of the debt.

All right. On the Singapore side, I think I have got 2 questions. One was about giving a quick flavor of consumer and enterprise and the other one was the cost-out, I believe I heard that. So just a quick soundbite on -- in terms of the business overall, we essentially from a Singapore perspective, on the consumer side, the mobile price plans obviously remain very competitive. But what we have done is focused on what we can do. Recently, we revamped our equipment plans in Singapore. We simplified it and provided it with more value add to our customers through security as well as our roaming data, et cetera. And the good news is as we revamped the plans, we see a higher take-up rate since 2 months ago when we launched on the higher tier plans. So we feel pretty positive. And we do see as traveling has picked up out of Singapore, travelers are -- overall outbound travelers have rebounded to about 92%. On the back of that, we have seen our roaming performance recover year-on-year. That's contributed, as Moon said earlier to the mobile services revenue, so that's good news. And we'll continue to work on that. And we recently also launched for inbound travelers a prepaid tourist e-sim option as well, so we offer the convenience and all that. And overall, even from a broadband perspective of consumer, we see a strong pickup in our 2 Gbps offer. So it's good news, customers are -- one thing, better connectivity, et cetera, for hybrid work, entertainment, we see that. So we're offering good deals, and we see a good take-up. And on the enterprise side, while big enterprise customers are slowing down their network ICT spend, network connectivity type spend, but they are spending on other areas that we are focusing on, like cybersecurity as well as other areas around working with us on using telco data through an API. So recently, we launched a silent authentication called SingVerify using our telco data through an API approach. And that's actually got pretty good traction in the FSI environment, and we're looking to grow to other verticals. So there are areas that we're working on that we feel are good, and we'll continue to focus on this plus the overall Internet of Things connectivity. Overall, from a cost-out, I don't think I have much to add beyond what Moon and Arthur had said. We're really looking to simplify our product, simplify our organization, create a more agile, and as a result of that, all the savings that you see mentioned in the key drivers will go through in the next 2 years to come. We just announced our Singtel Singapore organization in October. So it's early days for us. We are off the starting block, but we have a good line of sight to all the things that has been said.

All right. Just to clarify, the cost-out for SGD 200 million, which you have for fiscal '24. I wanted to check if you have realized some benefits already in the first half or the entire SGD 200 million savings will come in the second half across Singapore and Australia. This is for the group.

I'm happy to answer for Australia. So yes, if you have a look at our track record over the last 3 years, we've kept our cost growth -- our indirect cost growth to 1.8%, which is well below inflation. And this year is no different. It's a range of cost-out activities that occurred in the first half. Of course, we also had huge inflationary pressures, foreign exchange, linked contracts going through at the same time. So the net-net was a higher cost growth in the first half, and there's been further actions taken that will show up in the second half. But it's always a balancing act between the total cost out and the inflationary and foreign exchange-related pressure. So to give you an idea, electricity costs in Australia in the first half were up 46%. So we're always managing the counterbalance of both of those. But yes, some of that, almost SGD 200 million in the first year on this chart has been realized in the first half with more to come in the second.

I think from a Singapore's perspective, obviously, we are a much smaller slice since we just started off October, but Anna and I have been working with the Singapore team. We've got a very clear plan and line of sight to what to do. We started our early actions to contribute our portion for the year. But quite clearly, we are ready to deliver in FY '25 and '26 as well.

Our next question comes from Darren Leung, who's from Macquarie.

I just had 2, please, both mainly for Kelly. Just thinking about the marketing spend. So do you think the marketing strategy for Optus would change post the outage yesterday from a -- one that was sort of ARPU and price-led to more of a market share strategy? And while I'm here, I might as well ask my second question as well. Just any comments you can provide in terms of the initial conversations with enterprise customers as well please, particularly given some of the commentary that's come out in relation to the government customers, please?

But firstly, in terms of marketing spend, I think the team has been very effective and efficient with the marketing spend over the last year. If you put your mind back to where we were, our brand value had contracted significantly. And there was a huge fallout from the cyberattack. And the team spent their time apologizing to customers, putting in place marketing messages that we knew were tried and tested and resonated and building back trust. And as a result, we did see an improvement in our brand sentiment and an increase in our brand value over the last year. So I think we've been using all layers of the brand funnel from general branding right down to demand generation in a very effective and efficient manner. Having said that, obviously, yesterday's outage is very fresh. So clearly, there is no major change in strategy that we have come up with now. I think what you are actually asking is are you expecting us to abandon reason and start discounting heavily? And I would say that if that's what you were trying to get at, we remain very committed as we have been always to profitable, sustainable growth and delivering great value for our customers. And great value is not just about giving an excellent price, but it's also about providing a very good service and unique differentiators. That is our strategy. And as horrible as yesterday was and as much as we let our customers down and we'll do everything we can to make up for it, at this stage, I don't see us completely abandoning a strategy that we've been committed to and have been successfully executing. On the enterprise side, of course, we hate letting those customers down, and we worked very closely with our enterprise and government customers yesterday to give them all the assistance that we possibly could, and actually, it's disappointing, and we'll be working with those customers to make sure they have confidence in our operations moving forward, that learnings that we have garnered are shared with them, and that everybody is in good stead moving forward and that we've taken care of our customers and done what they've expected of us.

Our next question comes from Sachin Mittal from DBS.

Two questions. Firstly, again, sorry to harp on the cost cutting. The question is we have always seen revenue growing slower and then inflation impact. And then, we also see that many telcos claim cost savings, but actually nothing close to the bottom line. So the question here now is how confident we are that could we see -- because SGD 200 million is a big number, 8% or 9% of the group earnings, how confident we are a portion of this, I don't know, 30%, 40% would flow to the bottom line? That's the question. And because if we have seen savings in the first half already, actually, we can't really see in the bottom line. That makes it tricky. Is it because inflation was particularly high in the first half and inflation will be lower in the second half? Or is it because savings were lower in the first half and savings will be higher in the second half? Just to understand how we can see the actual impact on the bottom line flowing from the cost savings. That's question number one. And question number two, on the enterprise side, every telco talks about getting enterprise business. So -- and we also know there's a bit of macro softness. So are we seeing a loss of market share coupled with -- or probably lower margin in the enterprise side because every telco is literally gunning for this market share? So is it ICT guys losing market share to telco? What is the overall trend in the enterprise side? It looks like everyone sees enterprise as an avenue of growth, which actually is not coming through.

Sachin, I think it's a very good question. And I think it will probably take a bit of explanation on the enterprise business. Maybe I will just focus on the quick cost cutting first and then elaborate a bit more on the enterprise space in different markets, which are quite different. The cost cutting, if you look at the first half, right, the mobile business of both Singapore and Australia has actually improved and grew 2% and 3% in revenue. And unfortunately, because of the strength of the Sing dollar, you come back and you translate it into a revenue decline of 3% on -- if you roll up the 2, Australia and Singapore business. So that's the first thing. The EBIT pressure actually comes from both Australia and Singapore is on the enterprise space, and it is -- so it's usually related. So what we are doing in the cost-cutting side is actually have some improvement on some of our core business, but the particular weakness on the EBIT you're seeing here is directly related to some projects that have rolled off compared to a year ago, and Tian Chong can elaborate a bit more. And this is really due to the sort of infrastructure ICT program that has rolled off, so it's project-based. In terms of the -- then, in terms of the enterprise growth and people started talking about it, and a lot of this are actually coming from a different type of enterprise business. And you will see this from the results of NCS. NCS is growing ICT rapidly. Compared to last year, the growth is 10.8% in terms of profitability. And that is on the back of a strong 9% revenue growth. And this is really because companies are actually investing in digitalization, investing in automation, investing in Gen AI. And so this actually helps to drive this part of the business. So some of the telcos when they talked about it, they are also looking at capturing this type of growth, right? So -- whereas on the telco type of enterprise that Tian Chong talked about is really more about the traditional -- average business that is facing a bit of inflationary pressure and companies are reducing their cost in connectivity, and this is where they are switching out. So I think it's both our enterprises, but it's actually different types of enterprise business. And obviously, we have not shown this specific cost-out program in the past, and precisely, it's actually very hard to look at how much is being flowed down because there's so many moving parts. And on top of that, is also a very -- we are operating in a very high inflationary environment, right? The inflationary environment in Australia, as Kelly said earlier on, just the electricity prices have gone up by 46% in the first half of the year. So this will be putting a pressure on the overall cost structure of our business, right? So on the other hand in Singapore, there's also other inflationary prices, transportation costs have gone up, delivery costs have gone up. So whenever you operate in a high inflationary environment, you have to continuously take up costs. And in this time, while we are able to cover and show this specific cost-out, it's really because of the structural change that we have got. But in Singapore, we have consolidated the enterprise and consumer business. And if you look at the description that we talked about, it's really about operational -- reducing operational complexity, using technology to do more digitalization and automation and decommissioning legacy system, simplifying our business. So all this will drive cost savings. And we have identified that. Tian Chong can maybe elaborate more.

Yes. I mean, the timing topic, why we didn't see first half, like I said, for Singtel Singapore, which is a very profitable portfolio, part of Singtel Group, we only announced the new organization in October. So we just started, like I said earlier, and you will see that translate going forward. Now, in terms of the enterprise business, we -- obviously, along the lines of what Moon said, we are seeing enterprise customers moving from traditional connectivity to new ways to communicate. And we do have a very rich portfolio around unified communication, SD-WAN, all of which we've got a full portfolio, we're building towards that. The margins are different, but that is precisely why we are simplifying our structure, getting ourselves ready while we manage that mix and profile while we continue to do well in the traditional businesses. We also have equally rich offerings in the new connectivity, and we are pursuing that with equal vigor. And we've got all those things in place while we work with Moon and other organizations like GSMA to build out the APIs to our core telco data where we can monetize that as well. So there's actually lots of potential. The main thing is to get our structure in check and understand these secular changes that are going on. And we are very confident that what we have, both Australia and Singapore, we're working along these lines as.

Kelly, maybe you'd like to elaborate a bit more about the simplification of our Optus enterprise business. I think it goes through a lot of simplification as well, and some of these savings are actually a result of both of them.

Yes, absolutely. So in terms of the Optus enterprise business, we've actually taken it and consolidated into segment-focused teams for the first time. So we have a segment focused on enterprise and government customers, a segment focused around mid-market, which we've never really tackled before with its own leader and with a complete line of sight into what the value proposition is there and then small business segment. We've also been able to take all the teams that support the business customers and consolidate them not only within the business and enterprise team, but within the whole of this team. So if you think about having multiple legal teams, procurement teams, marketing teams, we've been able to bring all of those together, keeping them with a flavor on targeting different individual segments, but leveraging a core capability that can be shared. That's enabled us to remove a lot of cost and complexity. We've also been focused on developing a clearer product catalog so that we have a rationalized number of products and services that we are offering our customers moving forward. We've implemented new pricing disciplines around that, and we continue to look at ways to simplify that catalog even further. We're also looking at how many different partners we have, which services we on-sell to customers, and we're looking to consolidate around a smaller number of more powerful partnerships that are more relevant to each of the segments. So these are all programs that are underway that give a lot more clarity, focus, simplification to our teams. We've removed a lot of duplication, and we've been able to take out a significant number of people as a result. We've also been able to work on our non-staff costs as well. And that program will continue.

I think maybe I'll also invite Anna to speak a bit more about the simplification of the mobile business in Singapore because now that we have consolidated enterprise and consumer to one group, the SMB segment has been consolidated as well. I think Anna can talk through some of the things that she's doing in simplification, and therefore, improving efficiency.

Thank you, Moon. I hope you can hear me well. I think this is a very exciting new journey for us because we combined combination of consumer and SMBs as a new concept in Singtel. It was combined, I think, some years ago, but in recent years, it was really run separately. And we don't see a lot of potential upside by putting them together from cost and efficiency all the way to revenue capture. Because, just to give you one example, when we look at analytics on the rewards side, there is a lot of potential to leverage the big machinery on the consumer side that are already serving millions of customers in terms of our plan and in terms of our reward system and opening up to our SMB customers. That's one example. Another thing that we have been -- actually just introduced in the market and to very good reviews, is our bundle plans. Traditionally, bundle plans are bundling handset as well as mobile plans or mobile data or voice data. But we have now -- we check the plans so that the latest plans that we have launched in the market actually have more benefits combined, including the incentives for consumers, for the midsize customer to renew the plans and to also get a new handset from us for the next cycle and also to an extent some roaming benefits were also included. So it is really like an all-in-one plan for consumers. Based on the initial results in the first 2 months, I think it is very encouraging, and we will keep pushing in terms of giving more benefits to customers and also dividing more efficiency from our operations.

Our next question comes from Corey Okinaka from Capital.

Just a question for Kelly. I know that the MVNOs, specifically those on Telstra's network are starting to raise prices. So Aldi, I've seen has raised prices kind of within the last month. You had mentioned that the capital markets day that, that was an important aspect of driving growth in ARPU and for Optus and for Australia in general. Given kind of the network outage, I know it's just yesterday, but do you see that as helping? Do you see that -- do you think you'll be able to take advantage of that change? Or will there be delays in kind of lower-end ARPU improvement?

Kelly.

Yes, we definitely see the beginning of price movement in the MVNO segment, and we're really encouraging that. So there was an announcement that Aldi was moving its prices up. And you might have seen that the next day amaysim also moved its price up. So that market repair is starting. There is still a very large gap between the Tier 1 and the Tier 2 pricing. So we're on the path to recovering that, but that gap does need to close further over time. And so we're very, very encouraged by those signs in the market. And again, I don't think there's any big strategic shifts that are going to come out of what we experienced yesterday. It was a very unfortunate outage. Our focus has been and always will be on providing a resilient and robust network. And so that aspect is not going to change. And hopefully, most of our customers know how -- even though we let them down yesterday, how resilient we've been every other day, and we're going to hope to prove that to them ongoing into the future.

And if I could add just a quick follow-up to that. You mentioned that kind of giving rebates to customers based on the lost time probably doesn't make sense because it's so small. But I did see some news flow that the government was encouraging business owners to keep receipts and that there could potentially be damages assessed or something like that. Do you have any view on whether or not that would be something that you might have to incur, like damages for revenues lost, for example, which might not be directly related to the amount of data consumed?

Yes. Look, we know how much people rely on connectivity, and that's why we strive to give people a great connectivity experience every day, so they can build their businesses off of and profit every day of the week. So obviously, it's devastating for some businesses that they weren't able to do what they normally did. Many businesses have contingency plans in place that kicked into action, and they were still able to move forward, some weren't. That's a very case-by-case scenario. So our plan is to make sure that when we think about offering our customers a gesture of goodwill that we include in that our business customers. And then, for those who've had particularly unique impact, as always, they can speak with us, and we're very good at tailoring responses and working with our customers to provide them the right level of support.

So our next question comes from Ranjan Sharma from JPM.

2 questions from my side. Firstly, coming back to your cost measures, and you talked about vendor consolidation, streamlining IT, does that change your relationship with NCS in any way? Any changes in the way you award RFPs as you pursue lower cost for the business? The second question is on the data center side. Is it fair to say like your current data centers you're seeing an improving earnings, the earnings impact that you've seen in the current quarter is because of the new growth initiative? So if you split our current versus growth initiatives, at least existing businesses are seeing improving earnings, if you can confirm that.

Yes. Ranjan, simple answer to your second question is yes. The current business is improving. We are investing in the new business.

So we're investing, and until the new DCs come up, and then, we'll see that uptick in 2026 onwards, when the new capacities come on stream. Yes, until then, we have to invest to build those DCs and have the teams to build those DCs.

Yes. In terms of your first question, Ranjan, I think in the cost-out, obviously, Singtel has always been very prudent in this procurement and process, and we always want to make sure that we are buying in a cheap and reasonable manner when we call out a big tender. NCS is just one of many, many vendors that we've got. We have always been operating with NCS very clearly that while they are part of the group, they have to be very efficient in delivering the service to us. So I don't think that's a big issue, Ranjan, on that. In fact, on the contrary, if you look at NCS growth, it's been quite significant in the last year, and they've grown 9% year-on-year in revenue, and EBIT has actually rebounded very strongly, and the margin expansion have shown that we are now back to 10.8% on EBITDA margin. So maybe perhaps I can ask Kuo Pin to highlight a bit more about how enterprises are buying and where are we seeing the growth in NCS. And that will give you a bit of color on how enterprises are investing.

Thanks, Moon. Okay. So I think maybe 3 points for NCS. First, I think we had a very strong topline growth over the last half a year. And this is despite the uncertain market condition in general, there's an 8.8% overall growth. And the reason I'd like to believe is because we've been very selective in terms of the markets and the services that we offer, right? So if you look at our 3-axis strategy, we are very focused on outside Singapore markets like Australia, Greater China, Southeast Asia. We also spend a lot of effort, which is now reaping returns, to grow our enterprise business and also our Telco+ business. Actually, the major growth is actually in the enterprise side. I know the earlier question around Singtel, but that's -- for Singtel, we obviously treat Singtel as both a parent as well as a client, it's really not a big part of NCS business. So I think the growth is really very well balanced across different industries. And also, I should emphasize that a lot to that growth is because of the new innovation and technology waves that we're seeing such as Generative AI, AI in general, digital trust, the broader cloud and digitalization, which is really fueling a lot of the growth that we're seeing. So I think the first point is really around this very strong topline growth that we're seeing. And I'd like to think if we compare NCS with NCS peers, which is really guiding downwards to the low single digit, we are probably in a pretty good state. My second point is around the steady margin improvement that we have been escalating to. I think if you look back for 4 consecutive quarters, we've been seeing consistent improvement. And I think this is something which we are very pleased with. Moon mentioned that if you look at our EBITDA as a percentage of revenue today, excluding the reselling business, we're looking at 10.8%. And I think that is really something that we are pleased with. And this didn't clearly come about by accident. I think there were a lot of initiatives around improving our cost to serve, our optimization around that as well as the revenue growth certainly helped tremendously to lift our margin. Finally, in terms of market positioning, we are very clear we need to differentiate in a market that's fairly crowded. There are very big players in Asia Pac. There's also the smaller boys and local SIs that you see. Where I think we differentiate is that very clear focus around the 3 strategic business groups that we have around government, around enterprise, around telcos and also a very clear value proposition, which is really a very trusted party that can deliver huge complex, multiyear IT systems, which is not that common, plus the recent injection of the innovation elements that is setting us apart from our competition. And also the scale of where we are now, which is really sizable, SGD 1.4 billion of revenue in half a year is not small. I think we're the largest player in Southeast Asia today and continue to grow. And we're leveraging on all the resources we have across Asia Pacific to continue to be successful. So I think those are just my thoughts to summarize.

Our next question comes from Entcho from E&P.

So I have a couple of fairly quick questions. I suspect that will be for Kelly. The first one is just wondering what percentage of the Optus back book has been repriced to date to be in line with front book pricing and whether you expect the outage yesterday will stop that repricing at least in the near term. That's the first question. And the second one, just looking at the prepaid ARPU at Optus, how do you reconcile the declines with the introduction of the new prepaid plans? I mean, are you seeing fairly aggressive spin-down from customers towards the lower-priced plans? And more generally, any comments you can make around what you're seeing in consumer behavior, that would be quite helpful.

Kelly?

Okay. Great. I'll answer the second question first, just about prepaid ARPUs. That is entirely a mix effect. So yes, we're seeing an acceleration of customers taking Tier 2 plans given all the cost of living and inflationary pressures. So I think we've been talking about that for a while. It's why we feel so passionately that the differentiation in price between Tier 1 and Tier 2 needs to narrow because we're seeing an increasing spin-down effect, and that's true of the entire market. So it's quite evident that that's accelerating. And so that trend is also evident in our mix, and that is why you see the declining ARPU. In terms of the Optus back book repricing, we actually are a large way through in terms of moving our customers onto our in-market plans. That's terrific for us because we've been able to simplify and drastically reduce the number of plans on offer for our customers, and we're in a large way through that. The last bit is -- has been happening over the last few weeks. And so we're looking forward to by the end of this financial year having the vast majority of our customers on our in-market plans.

And Kelly, maybe just a quick follow-up. Is any front book repricing contingent on that back book being done, so essentially 100% of the back book being repriced?

No, I wouldn't say that. I think, as I always say, pricing is something that we do dynamically. We are nimble. We are the customer champion. So we will look at the market conditions, the affordability, the value for money that we can offer our customers, and we will try and make the very big decision on front book pricing that we think it is right for our customer base and for the market.

We have time for just one last question, maybe from Somesh from UBS. Somesh, you may ask your question.

So my question was to Kelly. Kelly, on the outage, could you give us an insight on any discussions that you have ongoing with the government regarding it in terms of repercussions, what you need to do to avoid a situation like this in the future? And also if there are any ongoing discussions on possible penalties?

Yes, of course. We're a heavily regulated entity operating critical infrastructure. So we talk to the government all the time about how we keep that infrastructure up and running and robust. Of course, yesterday, during the outage, we spoke to government frequently, consistently all throughout the day. I spoke myself to the Minister of Communications, the Deputy PM, who's the Acting PM because our PM was traveling, and our team were in contact with numerous departments and government organizations. Also, you'll see that the government has announced that they're going to do a few reviews into what occurred yesterday, one by the ACMA to test the veracity of our emergency systems and the failover that happened when there is an outage of this nature, one by the Department of Communications, so that we can share learnings from outages that happen in the industry, and a Senate inquiry so that they can understand how Optus specifically responded. So we are fully welcoming of all those reviews. We ourselves also want to learn as much as possible and prevent it from happening in the future. And so we're very supportive and aim to cooperate with those reviews fully.

Sure. And to my second question, is there any probability of any possible penalties?

That's not something that we've seen in the market ever before. Of course, nobody has an outage like that on purpose. So I think it's just premature to even speculate in that direction.

Adrian, let me do a quick wrap up before we close. Thank you, everybody, for joining us, but I'd like to highlight some of the positive momentum that we have gotten from our strategic reset. As I presented earlier on, the group ROIC has improved from 2.5 years ago to now 8.3% as earnings of our core business and associates have grown. We have boosted our financial position with SGD 7 billion of capital recycle, which will cover our 5G and growth investments. We continue to do another SGD 4 billion of recycling in the next 2 to 3 years. Shareholders have also directly benefited from this positive development with SGD 4 billion of dividends declared in the last 2 years. And today, we have declared another increase in interim dividend to SGD 0.52, a 13% increase over last year. And in addition, we have also commenced a 2.5-year, SGD 600 million cost-out program to improve operational efficiency. So as you can see, we are way underway in delivering our strategic reset. Thank you.

Thank you, Moon, for that very succinct summary of the strategic reset. We will have to end the call now to proceed for our next engagements. For those who are unable to ask your questions, we have noted down your names, and we will reach out to you directly to get your questions. With that, we thank you for your time, and hope to see you next time. A transcript of this call will be posted on our website by Friday. So on behalf of management and the Singtel IR team, thank you, and goodbye.