Singapore Telecommunications Limited (Z74) Earnings Call Transcript & Summary

So welcome back to shows with TMC. And today, we have a special someone in studio, right?

Yes, very special.

I feel we level up on the show. So yes, today, Anthony will be joining me as a cohost. Are you excited?

Yes, I came all the way down here just to record this.

Today we are joined by Arthur, Group CFO of Singtel. Introduce a little bit about yourself.

Sure. I'm Arthur Lang, as Reggie said, I'm the Group CFO of Singtel. I also look after the international business portfolio for Singtel. Also, I'm on the Board and really the Singtel point person for GXS, which is Singapore's first digital bank, right? And it's a joint venture between Grab and us. On the personal side, I'm pretty boring guy, not so interesting, right? I'm a father of 3 and a husband of 1. And yes, I've got 3 very funny people. And they always crack me up, enjoy really hanging out with the 3 of them and my wife as well.

Father of 3 can do so many things.

My wife is very supportive. Always.

So we have a lot of questions for you because you have strategic reset for Singtel and so many other things that you want to share with us. You want to -- Anthony you want to start?

I want to dive a bit deeper statement, right... So -- and maybe just to -- I mean everybody knows who Singtel is obviously. Even if you don't know the company, Internet and mobile, the sort of things. So that's fine. But I think -- and of course, you mentioned GXS, right? So Singtel has multiple business arms in the digital space. I think maybe to help set the stage a bit, in 2021, there was an announcement of a strategic reset in your latest earnings a week, 2 weeks ago that you said that's been completed. I think that's right. So maybe take us through that history first, right? What prompted the strategic reset? And subsequently, why do we say it's completed and has it been a success?

Okay. Well, let me start when this whole strategic reset came. It was really a time Singtel went through a bit of a transition in 2021. In a matter of a year, Singtel had a new Chairman, a new CEO and a new CFO, right? And it's you, right? But also the previous CEO, Sou Khun had retired and a few other senior members retired and the Chairman also stepped up because his term was up. So it was a bit of a new appointment within a short period of time. And it was also a time when this was Singtel going through a challenging period because like telco, right, always getting into a lot of headwinds with the trend of digitalization and the OTTs coming in to potentially eat our lunch and all that. So the industry was going through a challenging time. At the same time, we were coming out of COVID. We had major, major difficulties and challenges in India with our investment in Airtel. And just generally, it was a time when the new management team coming together had to focus and really figure out what we needed to do. Because the rules that we were playing with at that time just had to change because the game has changed. So that was really what triggered the strategic reset, hence, the name.

Its a reset?

It's a reset. So it served the previous strategy, the previous management, it served them well because the context was very different. This was pre-COVID. But with COVID and all that, there were new challenges. And we really had to not only face the challenges but capitalize on new trends, right, that we were seeing in the market.

So I think everybody is interested in the new trends that you want to capitalize. But before we go there, I just want to hear a little sense of -- I mean, you named a few things based on the strategic reset that you guys went for. So maybe you can share with us like what worked a little bit better and what maybe didn't turn so well. And all that. What do you do?

Okay. Not to praise ourselves, but I think we did a pretty good job in the last 2 years. But not perfect, okay? So what we did well, I think one of the key strategic pillars of the reset was to really carve out and what we call scale up on our growth engines. And the growth engines we identified were our data center business or broadly digital infrastructure. And then the second one is IT services, which is NCS. And actually a little known fact before this reorg was that we were one of the largest owners of data centers in Singapore. And we were the -- Southeast Asia's largest IT services provider. But it was all kept under our enterprise business, and it was mixed with mobile, fixed broadband. People didn't quite realize the potential of that. So what we did was we restructured the business. We carved it out as a stand-alone. So today, our data center business is called Nxera and then the other one, IT services is NCS, as you all know, right? So I would say that's one major move. And it made people realize that we actually are more than just telco. And at the same time, Nxera, we last year brought in a very big investor, KKR, to take a 20% stake in our data center business. And not only did the industry kind of wake up to the valuation was quite an attractive one for us, but it was a big win-win between KKR and us as well. KKR needed a data center platform. And we also needed a good partner to grow quite exponentially in this part of the world. So it was a good partnership. And now we are very much locked in together, and we are looking at opportunities to scale up. And then the other one is NCS, IT services up, right, which today is Southeast Asia's largest. And it's really capitalizing on the digitalization trend that we're seeing companies, big, small mom-and-pop shops. Everyone needs to digitalize, right, especially post-COVID. And we saw this trend, and we like this trend. So this is not just digitalization individually trying to get onto an app to do payments, digital payments. That's more retail focus on consumer. This is enterprise, where companies, small and big needed to really digitalize their systems. So that's where NCS comes in. And then we do serve one of our largest customers is Singapore government/various ministries and agencies. But we also have financial institutions, airports, transportation arms as customers as well. And we have a decent size in Australia as well. Now the other thing about our strategic reset is before the strategic reset, we were -- as mentioned, we faced a lot of challenges, right? And especially this thing called 5G, right? We had to spend billions of dollars in both Singapore and Australia to roll out 5G. At that time, we could only take the cash that came from our operating cash flows. And as a result, it was very clear, especially during COVID period that we could not sustain it. And as a result, you might see, and this is public, we cut dividend twice during the COVID period. And that, of course, made our stock price really drop. But we had to because the 5G build was so much, so much cash, we needed to reallocate that capital. So since then, we learned from that experience. And we said, you know what, we cannot just rely on our operating cash flows because our shareholders will want a certain level of dividend. So what we needed to do was we say, okay, we introduced this capital recycling program where we said, okay, there are pools of capital. There are assets that we have today that we could potentially monetize, but yet not monetize too much because we want to still control the assets, but because the valuations are at much higher levels if we sell it versus how it's carried on our books. And we decided, okay, maybe we can do that. The third element was we relied on private capital like KKR to co-invest with us and fund our business. And it's smart money, right? So it's good to really co-invest. So we're doing this strategic reset, we basically opened up 2 additional sources of capital. And as a result, that's why we were confident enough to be very clear that we will grow our dividends in a sustainable way. Because it's not like just relying on cash flows, operating cash flows anymore. There are 2 new sources of capital.

Okay. Then maybe just to clarify a bit on the asset recycling, right? So it's not really a case of we have slightly underperforming assets or some assets without the required IRR and we are cutting them and putting them to higher returning assets in the sense. Correct me if I'm wrong, it's more a sense that we want to monetize our assets a bit better, whether it's through growing up or core investments.

Correct. I would say it also involves selling loss-making businesses, which was another thing I think we did okay, quite okay during the strategic reset was we really took a very hard-nose approach looking at our businesses. And there were some businesses which were loss-making despite years of trying to turn it around. And we decided, you know what, and many of these businesses were really actually based out of North America. We asked ourselves, hey, we are a Southeast Asian player. We know how to operate in this neighborhood. What makes us think we can be successful in another playground. And we decided to take it on the chin and we sold those businesses. And I would say we sold it at a loss. We booked losses, but we decided we just had to take the bit of medicine and sell. So yes, you're right. But we sold them, we got some cash back and these were unprofitable businesses, which means after selling them, profits went up, right?

In this business you slim down, you focus on comarkers 5G.

And so it's this recycling, I would say, it's a very nice name, which covers many different things, right? So it's selling loss-making businesses, right? You get cash back. is selling some of our assets. That's what we are doing. And then, of course, the third bid is to bring in co-investment. So this is really what we call in a very nice term, asset recycling or capital recycling. You just now asked where did we not do well. And I am first to admit that while all this, I would say, I'll give ourselves a B+ or A- grade. I think where we did not perform, maybe we get a B- is where our stock price has been. For the last few years, our stock price has been stubbornly not moving. And this is what I call the holdco discount because if you look at the individual businesses that we have, when we valued the data center business at -- or rather KKR came in at a valuation of $5.5 billion. If you look at historical EBITDA and applying 5.5, it's a 32x EBITDA multiple. I think it's an industry record in this region.

A few other bankers have said why no price.

Exactly right. So I would say that our assets are very valuable. We sold towers in Australia at 30-plus multiple. We sold a 49% stake in our center HQ, also at a pretty decent valuation. So I would say all this, we have done well. We've illuminated value in our portfolio, but our stock price remains low.

In a sense, maybe you kind of see why, right? Because it's like with IAC or any of those where you match together multiple businesses. Some of the parts always looks great. But at the end of the day, because people have of synergies because don't understand whatever, there's always that bit of a discount. It's just a matter of how big the discount is and whether we can close.

I'll tell you, I don't know whether we have time, but I'll segue a bit. I was telling some of my senior leadership, the sum of the parts to put it in very layman's terms, right? It's like you go to the market. You can buy the whole chicken, which is at a certain price or you buy chicken wing, chicken breast, chicken thigh, some chicken leg or chicken feet, right? And you summit all the different parts. It's actually worth more than the whole chicken itself, right? Because certain people like chicken wing or some healthier people like chicken breast, right? So they may actually look at it. Now I'm not saying that our businesses are like chicken parts, but that's, I would say, the simplest analogy of some of the parts. And of course, the challenge for us now looking forward is to see what we can do to narrow the holdco discount. But the hard work has been done. The business part has been fixed. And we've also simplified businesses. Actually, that's a very key thing, right? We have kind of like in Singapore and Australia. Last time we got a whole business unit focused on enterprise customers, a whole business unit focused on consumers like you and me, right? The question is why both are serving -- are selling data and mobile services and data plans. But why do you differentiate by customer? It should all be one because if you -- like you're a small business owner, do you see when you use Singtel, you differentiate in your mind, oh, I'm actually dealing with Singtel as an individual versus a business owner, right? You don't, right? So why do we need to differentiate like that? So we did it. And we did the same thing in Australia. And as a result, there were synergies. Now we can move a lot faster because it's one boss, one team.

Sometimes when too many departments.

Too complicated.

I think you've laid the ground on some of these things that you've done. So going forward, you were talking a little bit about the terrain it's different and all that, right? So what is this terrain that you are observing? Because your optics is important. How you look at this thing will determine your strategy and your team, right? So yes, how are you looking at the world going forward?

I think the first point is maybe if you look at the industry landscape, right? Competition. I would say in certain countries, the industry landscape is more conducive for growth. And this is really like India, for example. I mentioned earlier, many years ago, we were going through a very difficult time in India. Why? Because we had 12 competitors, 12 players in the market. Now because of a lot of industry consolidation and all that went down to 3 main players, actually 2 main players and the third smaller one. And you will see that as a result, the industry is a little bit more sane. There's not excessive price competition. And I think everyone is willing to, number one, you see the industry is growing in a very sustainable way. But more importantly, people are reinvesting back into the network, which is good for the country. Thailand, we're seeing it as well, 3 players becoming 2. Indonesia, I think we had 5 becoming 4, and now there's rumor there could be 3. As a customer, it's good, data are very good, right? But in the longer term, it may not be that good. Because in the longer term, as we have seen in COVID, right, if players are involved and there's excessive price competition, then as a result, you got -- the players may not want to reinvest back into building out 4G, 5G network. And in the longer term, it may not serve the longer-term sustainability of the industry, but we'll see. So that's one trend, industry. I think the other bit is geopolitical. For us in Singapore, I think we -- actually a little known fact about Singtel is that we are not just Singapore, we're just not telco. In fact, 70-plus percent of our profits come from outside Singapore. Almost 80% of our profits come from outside Singapore. And if you look at outside Singapore, I would say this is where I think a lot of our forefathers, right? Our past generations of leaders, right? They had the foresight to actually make investments into India, Indonesia, Thailand, Philippines, Australia, right? I can tell you, 20, 30 years ago, who would have thought which Singapore company would have there to go into a lot of these emerging markets. Today, they are all booming. In fact, these markets today are way larger than us in Singapore. So that's the growth that we are seeing, and we're pretty excited about it. So I think the other thing that we need to watch is, of course, at the end of the day, we always need to make sure that we have excellent relationships with our partners because there's no way we can succeed alone. We always need very good local partners. And actually, all these markets, we have a very strong local partner where we've known them for decades, 20, 30 years. And we trust them, they trust us and we work together. And we have to also realize that at the end of the day, we have to give back to those countries and societies, right? So that's something we need to watch as well, especially in this day and age where geopolitically, I think people are a lot more aware and conscious of geopolitics.

So in a sense, it's a bit of riding that developing market story, right, where you made an investment 20, 30 years ago, you have learned a lot of lessons, suffered a bit of pain over the past. But now those economies are booming, right? And they are growing in this post-COVID period. And Singtel, therefore, is placed to capitalize on that. We will have questions around, well, great additions in India, but what's the revenue per user, right? Because how that leads to your top line and bottom line. I think those are actual issues. But I think for the story itself, I think it's quite clear that maybe you can think about Singtel as the developing markets and the regional story, and it's not just the price of 4G or 5G in Singapore that drives Singtel [indiscernible]?

The last 10 years, I would say the growth was in mobile in many of these emerging markets. The next big growth trend is fixed broadband, which is WiFi. Because as many of these emerging markets as they roll out as households, the rising middle class, people are then more of -- like they start owing homes. They will want WiFi. And that's the next big trend. I'll give you a sense. I mean, today in Singapore, probably almost 100% of our households and offices are wired up. In Indonesia, for example, the penetrations are below 20%, India is probably 30%. So where we were in mobile 10 years ago, we are probably where we are in fixed broadband. So the growth is still there. The other area is really our NCS business, our IT services, our data centers. Many of them are starting to build data centers, established IT service. Many of the companies, the governments are needing IT services. So that's where these partnerships are going beyond mobile. We're going to fixed. We're going to data centers, we're going to IT services and all. So that's where the growth is. So that's why we're pretty excited. But all the painful work, I would say, has been largely done in the last 3 years. It's cutting fail, right, and building muscle, right, so that we can run faster going forward.

Yes. Actually, I want to ask a little bit more about the 5G situation, right? So as we all know, this is a kind of industry level up across the board. So there's a lot of CapEx that goes into building this whole thing up. We rightfully pointed out that at the top, the business front is quite challenging because there are a lot of competition in this front, right? So if you have 5G, the other party also have 5G. Everybody got 5G. Everybody put in troubles of money to move up that technology ladder. But how does it allow you to then capture that business or expand that margin, right, while putting in the CapEx already?

Yes, all our competitors, all are rolling out or have rolled out 5G already. I think where we are is really how we design the network, what do we spend on smartly to create the best coverage and the best kind of network across the country. I think the other point that's very important is network security, not just resilience, right, especially in this day and age where there's a lot of cyber attacks is an area that we also need to be very, very mindful about. And we have certain services that we provide to protect the person using the network. I think the other area is just really being smart about how we use 5G. 5G has the ability. And in Singapore, I would say the regulators are very forward-looking. They have actually wanted their 5G to be what we call stand-alone 5G, meaning pure 5G and where you can use the 5G to slice it up. That means you can have certain slices of 5G to have certain speeds, others to meet different customer needs in the enterprise space in factories, right? Like we are actually providing the 5G network to Hyundai, where we are producing their autonomous vehicle in Singapore, the Ionic, right? Make sure you mentioned the 5G network for Singtel. So that is the type of use cases that we can really make it quite differentiated. So it's -- the factory floor is automated. Of course, got some factory workers and all that, but it's already powered by 5G because you need the high speeds, right, and the low latency for all these autonomous manufacturers.

So it's become a bit of an industrial use case and I guess, the promise of the Internet of Things and things like that. That's where the 5G build-out actually comes to the fore and not mobile.

That will be the differentiator in the enterprise space.

So just to be clear, in other words, all your investment in 5G, you're really looking at monetizing the upside more in the industry side of things.

More in the industry for now. Although for the consumer, you do see some faster speeds in 5G, but that has been a bit slower.

Yes, it's whether you can translate into the marginal benefit from a rev standpoint. So this is inconclusive.

It's inconclusive. But who knows next year, there might be some new cutting-edge app.

Exactly.

Okay. So I think you laid out quite a full picture of where you're looking at, where were you when you guys took over, what are you looking at? What do you plan to do in the future and all that good stuff, right? How would you measure that success? Like from an investor standpoint, when I look at your story, how should I measure your success 3-year, 5-year down the road.

I think probably the easiest is look at us from 2 or 3 lens, right? I think the first lens is whether we are measuring up in terms of dividend payments, whether it's dividend payouts or dividend yield relative to the other large caps in Singapore. The second is earnings growth. I do think, yes, as a telco, we are in a difficult industry. But at the same time, I think you can see the -- you have to measure us on our earnings growth year-on-year and whether it's consistent. What we don't want is 1 year big growth, second year down, third year go up again. We want a consistent sustainable growth in earnings. I think that's the second measure. I think the third measure is really just see the impact that we create in some of our core business, which is our connectivity business, but also our new businesses. Data centers is something I personally am very excited about. Because I do think there is a lot of new things that are coming down the pipe that as a data center owner and player, I think there's a very meaningful role we can play, particularly in the advancement of AI. Last week, I think NVIDIA announced their own earnings call, and they actually mentioned Singtel as their partner in this part of the world where we are partnered together where Singtel will be providing what we call GPU as a service. We are piloting it. So we're putting aside some capital and investing and piloting this later this year to see whether it works. If it works, I think we will have a very solid grounding in it because we have the right partners.

Just to be clear on that, essentially, you're betting on the idea that enterprises will move away from the SaaS layer to the platform layer, they will build their own stuff and they will engage your GPU in that sense.

Okay. That's why we need GPU as a service.

Yes, yes. So that's your theory.

That's the Well, the theory is that I think the first belief you need to have is whether companies, governments, enterprises will want to move into AI. Our Singapore government is very forward-looking. I think they do believe AI is something that they want to spend time and invest in. The larger companies, I think many of them have realized that AI actually is a game changer. The medium-sized companies, the smaller companies, I think because they're still trying out or they're still testing it. And that's where what we potentially can provide is where we come in because we're saying, look, we don't have to invest millions of dollars into AI because you know what, you may not realize you may not need it, right? I mean, really, the companies, yes, AI is a very sexy thing, but it really depends on the company whether how they're going to use it to improve their business. So they can rely on what the service we can provide. And you can buy bite-size capacity. You don't need to like sign up for like some crazy amount of capacity at one go, but you buy do bite size. So think of it as like the hotel business where you book a room for 1 night or 6 nights or a whole month, right? Like a bit like service apartment, you can decide, right? This is where I think the flexibility, I think, is important as companies decide whether they want to migrate, right, to the platform layer to test our AI.

Because it's quite interesting, right? There was a whole decade of SaaS companies just growing...

I kind of think about it the other way, right? Like this is really just and analog to people moving from on-prem to the cloud, right? Instead of having your own server racks and maintaining that, you have an external third-party service provider who can do everything, maybe provide a few more services and pay them money subscription.

But that's not a fresh business.

I mean the shift to the cloud, if Amazon is like we are 20%, -- but this is analog, right, where you sell the service instead of having to buy the NVIDIA GPU or having to do your own data center, you go have somebody who can provide me the service, I pay them either by utilization or how your business model wants to work. And then I get the benefit of that service. And maybe I can try it out first, if it works, then steadily grow. If I try it out and AI doesn't really know, then that's right, right? You look at your loss.

The key differentiator here is that the provider needs to have, number one, data center capacity, which is in significant shortage here in Singapore. So even... If someone wants to even want to start a data center business. There's no supply.

[indiscernible]

So that's one. Two is also customers. You need customers that trust the provider. There are a lot of security concerns here, right, as you all can imagine. So I think that's where we are quite differentiated. We have the customer base, given our very large enterprise business. We have capacity. We have, in fact, set of side capacity. And not only just capacity, but we need to focus on green capacity, especially Singapore has a 2045 goal, right? To go net zero and data center is a big power guzzler, right? So any data center provider here, I think it's a distinct advantage if we can position ourselves as a green data center powered by green power or in a very sustainable way, even water or what you call it district -- district water cooling technology and all that. And then I think the third point is, of course, the partnership with NVIDIA. Because you need the chips and that perhaps is why NVIDIA also decided to go with us because of some of the differentiators that we provide. But I agree with you, over time, we need to also evolve our business model to make sure that it's sustainable, right? Because customers over time may decide, AI, I don't want to use AI or I want to double down on AI myself.

So 2 metrics you're going to measure on, right? Dividend and earnings.

Dividend earnings growth. And I would say third is the innovation that you will see coming out of Singtel, whether it's in this new business or even in the product offering we provide in our core business.

I think in the last earnings, you've mentioned this Singtel 28.

Yes.

Is that to 2028 or...

Yes, I think we do think that by 2028, right, we need to convince the market that this Singtel 28 is a success. It's like a bit like a strategic reset. When we first established it, after 3 years, we thought, okay, we're done with that. So it's really what I call, if you look at people's lives, right, this is a company's journey. That 3-year strategic reset was really a period of, I would say, transformation. The next 3, maybe 5 years is part of this ST28 is really about growth, right? I talked about dividends, I hope I can grow dividends. And I also hope we can grow earnings, right? So it's really about growth. And '28 is kind of within the 3- to 5-year mark. So that's why we picked '28.

Then is there any -- I don't know if you can say this actually, but are you able to give any guidance as to what you expect the growth to be in terms of profit.

So we gave guidance for the immediate year, this financial year. With the guidance we gave was EBIT, earnings before interest and tax to grow at high single digits or low double digit. That means call it, anywhere between 8% and 13% or something like that. So we do feel kind of confident that we can do that. And just to give you a perspective, the last 3 years, we were at kind of mid-to-low single-digit type EBIT growth. I think it was like between 3% and 6%. So now that, as I mentioned earlier, all the difficult things have been done, we're quite confident going forward will be high single digits or low double digits. And I'm actually quite excited because if you look at today, our dividend, it's, call it, around 6%, right, at today's dividend yield, today's price. And then if we can exhibit an earnings growth of, let's say, 10%, just pick a number, right, somewhere in between that range. It's actually pretty good if you compare ourselves to the different large cap companies in Singapore. I think what's also very good to pointing out in an interest rate environment where it probably in the next few years, today, this year is still very high, but it will come down. I think people are saying this is probably the max, the peak. In an interest rate environment where it's actually decreasing, I think, would have a better story than, let's say, a bank, right? Because banks actually benefit from a high interest rate environment.

Fair, fair, fair. I mean it even goes to the level of like how some of these credit cards are no longer giving us as much rewards as because that's only right. Interest rates are high. You can make good money from them, right? But I think like you pointed out, right, the environment going forward will be slightly.

Correct. Yes. The macro has changed, right? Investors will look at different.

And I guess from your perspective as well, if there's lowering interest rates, CapEx cost actually decreased a bit, your debt will decrease a bit. So it's actually a good thing for [indiscernible]

Yes, correct.

So I think in a sense, it's still firing on all cylinders. You have kind of narrowed down the business focuses to those few areas. And now it's just executing and growing those business?

I think it's really hard know approach to just really fold up your sleeves and hunker down and deliver.

Yes. And I think that brings right, because maybe we have been spoiled by the U.S. market. most famously Amazon. We don't really care about profit. Whatever spare cash we have, free cash flow, operating cash flow, we just chuck it back into our business. Price move up. We grew our stock price. We do some share buybacks to offset dilution by costs and things like that. But even though you are trying for growth, that doesn't seem to be the model you are operating on and you are still looking at having a very consistent dividend payout and I think quite a high dividend payout ratio as well.

Yes, yes. Well, okay, if you look at, let's say, on your point about growth, right, I'm not going to kid ourselves where if you look at the Magnificent 7, right, in the U.S., their earnings growth is like in the double digits, 20%, 30% plus.

30% is low.

We're a telco right? And I think even if we can deliver low to mid-teens earnings growth, that is actually across the telco industry, actually is very good, very good. But the other important point is if you look at our shareholder base, actually, first, Singapore stocks in general, the investors do look for dividend, whether it's a REIT, whether it's a bank, whether it's one of the big Tomasiclink companies or anything like in Singtel, right? We are a very cash-generative business. So people do look at dividends. So that's the other point, right? I think it matters to our shareholders. And I think the other point is we are also very widely helped by Singaporeans in general, and they do look at dividend. But it does not mean that we plow back everything we earn into dividend and that we don't grow. The reason why we can still grow 10% plus or at least EBIT, we're saying up to low double digit is we've got 2 buckets right? We returned 70% to -- or our policy is 70% to 90% of underlying profit. If our underlying profit grows 10%, which actually what happened in our recent earnings result, even if I stick to a 1 payout level, the fact that your underlying net profit moves up by 10% means your absolute dividend goes up by 10%. And a 10% dividend growth is pretty good. Very respectable. So -- but only that's just one bucket of your dividend. The other thing which we added in, okay, and we were trying to come up with some nice term is called value realization dividend. Actually I forgot one more word programmatic, okay? In very simple terms, right? It's we talk a lot about this asset recycling and all that. And the feedback that we have heard from investors during the strategic reset period, the 3 years, we recycled about $2 billion, $3 billion to fund growth. Three years have passed we've raised $8 billion. And the model seems to have proven itself and it has been very successful. This $8 billion was used to fund growth in our NCS, in our data center business because part of the $8 billion came from KKR. It also used to pay down debt. And you can see the benefits of that because in these 3 years, interest rates probably tripled while interest expense actually dropped by 16%, and we paid down quite a bit of debt. Okay. And then the other thing was we returned $800 million as a special dividend, but that's $8 billion. So investors say, hello, you recycle $8 billion, you're only returning me, Mr. shareholder, 10% of it. So we take the investor feedback. And we said, okay, going forward, we commit -- that's why we say programmatic. This means it's not one-off, not a special dividend. It is embedded into our dividend policy that we will look to return $0.03 to $0.06 per share of value realization dividend every year, which means that if you believe in our capital recycling model and you believe that we will return it, we will get additional $0.03 to $0.06 on top of your core dividend at 70% to 90%.

And I know we call this asset recycling, but I mean, in reality, it's divestment of stakes and reductions of stakes.

It involves 2 things. One is, yes, maybe selling off minority stake and doing that. The other bit is bringing in capital partners to fund our business. But I want to clarify something. This asset recycling, right, is not just to fund the value realization. And to back track, just now I mentioned $8 billion, right? We still have $2 billion left that's excess. Out of that $2 billion, we have taken $650 million that we have returned already. We still have $1.4 billion left of excess capital that we can fund for the future. We have also said to the market, we have identified $6 billion of pipeline. This $6 billion pipeline is not everything returned to shareholder. The fundamental thing is we are recycling for growth to invest into all the things we talked about earlier. And if there's any excess, which we believe we have out of that $6 billion, we will also return it as a VRD, which is part of that $0.03 to $0.06. So $0.03, to be clear again, it's about $500 million, I think, so $500 million to $1 billion or actually, to be very exact, $450 million to $900 million a year. We already have $1.4 billion for the next few years because we're paying out about $600 million already. So I think we can fund this. And then if people believe that this $6 billion is real, right, we have recycled $8 billion, then this is something that can be sustained.

At least for the next 3...

It's part of this journey of 2028, but the other thing about ST 28 in addition to the capital management, which is not just about the VRD, right? It's also to bring in capital partners to fund our growth. Actually, if I have time, I should maybe talk a bit more about it. The reason why we bring in capital partners like KKR is because today, data center, as an example, is a very capital-intensive business.

I mean all your business are capital intensive.

Correct. CapEx. How can we say, Mr. shareholder, 3 years, next 3 years, I don't pay you dividend. I take this money and invest in data center. We will get hammered by the market. But then we also cannot say, oh, we don't want to invest, right? To your point, right, we cannot just return pay out dividend and don't invest. So we rely on private capital because they see or they are rather patient capital. They don't need dividends in year 1, but they want a good return in year 7, year 8. So they come along with us on that journey. They invest in data centers. They go through the cash burn period for the first few years. And then year 5, year 6, when it's time to -- for them to exit, that business is really cash generative. In the meantime, we protect our core dividend, right? We don't use that because, again, like 5G, as you rightly said, we've got only one source of capital. That's why we have to cut dividend. So that's why the capital management policy is about bringing in private capital, and it's also about returning some of the excess capital to our shareholders. So that's capital ratio. But you're right, this party can't last forever. But at least we're confident it can go up to 5 years. Then what we also -- the other leg of Singtel 28 is now that we -- the hard part is over, not that the future is going to be very easy. But the next big hard part is really what we call lifting the core performance. All the difficult things we combine, we cut costs, we sell loss-making businesses. Now whatever is left behind, better deliver. And they have to generate the profits that double digit or the low double-digit earnings growth that we are guiding. So this has to grow, right? And if this grows, based on the 70% to 90%, we can easily pay more dividends over the years, right? And if we can maintain our 10%, hopefully, it can grow every year. So over time, you will see that the core dividend will move up. The VRD will stay within the $0.03 to $0.06. Maybe next year, if the core does very well, we could pay a bit less than 48 and slowly shift down, and that's how we kind of mix it up. But what's important is the overall total dividend. Hopefully, we can grow on a sustainable basis.

I think this is really -- just to go back -- circle back on 2 things, right? One, on the KKR private capital thing, I think that really makes sense because if you look at all sorts of infrastructure, it's always that heavy CapEx build out at the front end and then that medium, long-term recurring cash flow, 10, 15-year payback period. So what you're doing is essentially getting somebody in to help fund that period. So you don't have as much cash outlay, you can return a bit to shareholders and then that's essentially leverage for you and then subsequently, you hopefully get a bit of the boom towards the end. I think that makes sense. And secondly, it sounds a bit like with all the initiatives, there's a bit of growth investing terms this flywheel coming up, right? You have your data centers, as you said. You have GPU as a service, you have your NCS implementation. So you can, in a sense, become that one-stop shop.

One-stop shop and we've got the 5G network.

Any the 5G network that actually underpins all of this.

And if I must say, right, and I have to say we have the #1 5G network in Singapore. Yes. But that's the flywheel precisely. That's how we're looking at it. But the other point also to mention for the kind of bringing in KKR for that patient capital. It is also not selling our stakes at bargain basement prices. We, of course, work very well with KKR and with private capital, but it has to come with a punchy valuation that we are happy with, right? So I must caveuation.

That's 35x, right?

Other PE funds you have spoken to.

Actually, I want to add one more question in, right? So you're talking about flywheel, always talking about flywheel trying to be a bit lighter in terms of asset. Just wondering data center is such a heavy CapEx thing. And then it's such a thing these days to push out a REIT on the side to capital cycle. Just operated right. But are you going to do something? Is it part of your discussion?

I think in the next 2 years probably, probably not because I think we're in that still growth scaling up stage. But we're not saying no, right? Eventually, if it makes sense for our shareholders, we will definitely consider it, right? But I do think my gut feel is in the short -- in the next year -- this year, next year, probably not because now we're in growth mode, right? And not only growth mode. We've got currently 3 data centers that we are constructing in Singapore, Bhutan and Bangkok, and we just have to focus and make sure all of them got completed so we can provide capacity to our customers.

So just for clarity. Essentially, you believe that there's a lot more asset appreciation even at that data center level over the next few years. So then when you think that there's no more, I think you try to recycle...

Actually, I think the other way around because now we can still -- we have private capital as we talked about. But there will come a time when public capital is also needed because this thing requires a lot of capital to grow. So the REIT will allow us to grow even bigger. And to your point, yes, we do believe in this space because at the end of the day, we are going to use more and more of our phones and we're kind of connecting digitally a lot more. And then AI just turbocharges the whole demand, right? So we do believe in this space. And not only we have data center capacity, we have submarine cables that we own across the region that we connect these data centers. All these are actually very valuable infrastructure. We have fiber broadband in Singapore, right? The whole fiber network as well. So I do think we have a right to play.

Okay. I think as an operator, that's probably right.

I think that's fair.

So I guess one last part that Henri touched about this briefly as well. It's really just around valuation, right? I know we have talked a bit about some of the parts and things like that. I know there's talk about that really your strategy to share price changes is really to still stick to the dividend story because that's a function of our shareholder base, right? And maybe a bit of a recharacterization as a dividend grower, right? Because dividend there's many, many different a nice category to put you in [indiscernible] would be dividend growth. I guess besides that and maybe even more broadly traditionally, how do holdco discounts get reduced?

Actually, on the dividend growth part, yes, we definitely are focused on growing dividends in a sustainable manner. But maybe it's perhaps more accurate to call ourselves total return play, right, which is dividend plus earnings or share price growth, right? Where overall it's a total return play. And today, I don't know, shareholders expect maybe 10% annual total return or more or less or thereabouts. So to your point about what can we do to narrow the holdco discount, I think it's just, number one, just deliver on the results. If people are convinced that our strategic reset, all the transformation work has been done and is successful, it will set us up for a very strong foundation to deliver growth as part of this ST 28. So we need to deliver, right? From an operational standpoint. So we need to show earnings growth. Number two, we got to make sure continuing our returning of the capital to our shareholders because then people realize, wow, I, as a shareholder, am also benefiting from all the work that Singtel is working on. And then I think we will then get rewarded with our share price. And as the share price goes up, our holdco discount will be narrowed because of returning the capital, but also equally important is we need to earnings growth. Our operational performance need to lift. I mean you've seen our underlying profits. We have actually been growing quite decently, but I think now we need a bit of a step change. And I do think we do because we sold our loss-making businesses. We've cut costs.

We quite after the reset.

We got to make sure we deliver. But I think we feel quite confident that we can grow this.

Great. I think we are good after good stuff, right? So any last things for investors on the fence.

Okay. I think we talked a lot about more technical finance, stock market stuff, right? But at the end of the day, we do believe Singtel the 800 pound gorilla here in Singapore. We also have a bigger kind of duty, right? That we need to play. We are definitely by far the largest, the most widely held stock more than any others, because we have this CPS scheme, right? Where we have, I don't know, 700,000 retail investors, right? So you can go and check, we are by far, I think OCBC is the #2, but by a mark. I mean, I think we all know that we have a certain duty to our shareholders as well. We are very cognizant that we want to deliver. As I said, we are quite confident we can. That's something I would say, at the end of the day, we need to deliver on results. We know we have a bigger purpose, bigger kind of duty that we need to perform in Singapore. And then at the end of the day, it's people we want to -- the only way we can deliver on earnings growth, do asset recycling is we need to find the best people and to be able to retain them. So the culture of the organization needs to also attract that kind of talent and people.

So you support work from home.

Actually we support flexibility. So we actually are very focused on we're saying, okay, you come to work. But if certain things, if you're a parent, your child, your brother, your sister, you need to stay at home for whatever reason or your helper take leave or whatever, right? We are actually taking a very open approach to that, right? Because I think that one is important because at the end of the day, people will give their all to the company if they know the company is taking care of them, right, on the personal side. Whether all of us are children, all of us could be parents, your husband, your spouse, your girlfriend, boyfriend, whatever, right? All of us have some role to play at home.

Nice, thank you for your time.