StarHub Ltd (CC3) Earnings Call Transcript & Summary

All right. Good evening, everybody. My name is Amelia, and I take care of StarHub's Investor Relations. Thank you for joining us this evening for StarHub Second Half and FY 2021 Results Conference Call. We have a larger group than usual today, so we'd really appreciate it if everybody could mute yourself when you are not speaking to minimize interruption during the call. So this evening, we have with us our Chief Executive, Nikhil Eapen; Dennis Chia, our CFO; Charlie Chan, our Chief of Enterprise; and Johan Buse, Chief of Consumer. We'll start off with opening remarks and an overview of our performance from the Q, followed by Dennis on financials and then Johan and Charlie on business highlights. We will open the floor to questions thereafter. Nikhil, over to you, please.

Thank you, Amelia, and thank you, everyone, for joining us on this evening to talk about 2021 and the second half of 2021, which was a milestone year for us. So first, as I always do, I would ask you, as we go through these results, to keep in mind a few things. Number one, for accurate comparison, these numbers exclude the effect of JSS. Number two, this was not an easy year. We had escalating hyper-competition and low pricing -- lower pricing, and price competition continues. And then number three, when you compare 2020 to 2021, you would recall that in 2020 we had about 3.5 months of roaming pre-COVID. In 2021, we did not. But we hope for recovery. Now first of all, looking at revenue and service revenue, both revenue and service revenue rose year-on-year in fiscal 2021 as well as in the second half. And this was due to growth primarily in Broadband and SIM and also Strateq, offset by the roaming that I talked about within postpaid, but also some erosion in prepaid and Network Solutions, but net-net, up moderately. Now looking at service EBITDA. Service EBITDA grew quite well year-on-year for fiscal 2021, ending 2021 at close to $480 million. Now for the second half and Q4 2021, the growth rates were actually even higher as we grew margin against a stable and improving revenue base. And then turning our attention to net profit. Net profit for 2021 grew strongly over 2020, ending 2021 at almost $150 million and up 17%. The second half was also up strongly, in fact, by 27.5%. And last, whilst not on this page and Dennis will talk about, I will touch on free cash flow generation, which for 2021 was extremely strong, with strong operating cash flow, offset by higher OpEx payments. We generated free cash flow of $485 million for 2021, which was up 25%, and that consequently reduced our leverage down to almost 1x. So in closing, for this page, what I'd like to say is this positions us very well to take on the upfront transformation expense for DARE+ that we have been talking about in 2022 as well as continue our dividend obligations as well as continue our M&A program. So with that, can we move to the next page, and I'll touch a little bit on our segmented numbers, which Johan will elaborate on in a little bit more detail? So looking at Mobile, Mobile was down year-on-year due to roaming erosion and prepaid erosion. But as you can see, down only marginally for the second half as we grew postpaid revenue, as you know, continuously over the last 3 quarters with continued subscriber addition across both the StarHub brand as well as giga!, continued ARPU increase, maintaining very low churn. Now this driving of ARPU is a good leading indicator of our Infinity Play strategy, our DARE+ strategy, as we were able to drive 5G adoption, consumption of OTT and other services on mobile to drive, as we've always been talking about, not just connectivity, but connectivity experiences. Shifting to Broadband. We grew broadband strongly over 2020, up 10% year-on-year. driven by an ARPU increase that was even higher at about 13%, and again, very low churn. This ARPU was -- or increase was driven by strong adoption of Infinity Play OTT streaming, which in turn drove upgrade to 2-gig packages. One of the other points which Johan has talked about is we are done with the elimination of discounted subs and looking forward are now positioned to grow not just ARPU, but subs, but judiciously in an economic way, in an economic manner. The last point is that we expect to close the acquisition of MyRepublic broadband within quarter 1. So these numbers going forward will then be reported with the inclusion of MyRepublic broadband, and you will see that they will all be materially higher. Now again, shifting to Entertainment. Revenue was down 4% year-on-year due to erosion in linear Pay TV, offset by rising ARPU and the growing hybrid TV plus base. ARPU continued to grow year-on-year with an increasing skew towards HomeHub bundle plans, while churn continued to moderate downwards. Overall, when you look at Entertainment, subs grew despite the linear TV erosion. Hybrid TV+ doubled, OTT on mobile and broadband grew 5x. And this drove consumption and upgrade on 5-gig for Mobile and 2-gigabit plans on Broadband, which are not reflected in the Entertainment numbers, but reflected in those segments. And total Entertainment subs as a whole increased due to the factors that I've been talking about. Now Enterprise. Enterprise continued to grow, ending 2021 at $706 million, up 9% year-on-year. Cybersecurity grew 22%. And we consolidated for the full year, Strateq, which contributed $76 million of revenue and grew modestly in tough circumstances. Network Solutions was down year-on-year by about 7%, but we did see quarter-on-quarter stabilization since the second quarter. And this is a business as we've talked about that we are slowly pivoting towards the convergence of cloud, cyber and connectivity, bringing together the power of our platform. With that, I hand off to Dennis to talk about our financials in a bit more detail.

Thanks, Nikhil, and good evening, everyone. Thank you for joining us. Moving on to Slide #7 on a few key highlights. On the back of the walk-through of the segmental revenues, I just want to highlight that, in these numbers for 2021, we've registered improvements in margins on the Broadband line of business in terms of the transmission of the operating model for the broadband line. Notwithstanding the decline in the TV revenues, our TV line of business registered improved margins as a result of the rationalization of the content cost as well. In terms of all the other lines of business, we continue to negotiate hard in terms of the inter-operator tariffs and registered savings in terms of traffic costs as well. Along with that, the ongoing disciplined cost management that we've undertaken as part of that 1.0, which we completed the 3-year journey in October of 2021, we did register savings in almost all discretionary lines of operating expenditure, and these are reflected in these numbers. The net profit for the half year, second half therefore was $81 million, representing a 27% increase on a year-on-year basis. For the full year, it was $1.8 million, representing about a 17.5% increase on a year-on-year basis. These numbers are compared to the 2020 numbers without Job Support Scheme grants. $1.8 million of net profit attributable to shareholders represents $0.081 on an EPS basis. Our full year cash -- free cash flow was $485 million or $0.279 per share of free cash flow. Moving on to the next slide. As a result of the strong cash generation from operating activities and the balance sheet, cash and cash equivalents of $832 million of cash and cash equivalents on our balance sheet, our net debt-to-EBITDA is 1.04x. The cash from operating activities generated from -- in 2021 versus 2020 was -- represented 13.6% in terms of year-on-year increase. And if you look at our free cash flow, which includes the capital payments, it was an increase of 25%. Now this is also as a result of some timing differences in terms of payments and capital expenditure commits, which will be reflected in 2022, and we will take that through when we go through the guidance. With that, I pass the floor back to Nikhil.

Thank you, Dennis. So looking at our performance versus our guidance, we exceeded our guidance on all fronts. And in fact, even our revised guidance. So on revenue, in February 2021, we had guided to stable revenue, but we grew slightly, beating that by 1.4%. On EBITDA margins, if you recall, in February, we guided initially to 24% to 26%. Now we raised this after our Q3 earnings to at least 26% and are now ending the year at almost 30%. So as Dennis talked about, this reflects the operating efficiencies, cost discipline as well as some of the delay in anticipated DARE+ costs, which we will be incurring in 2022. Now on CapEx, in February, we initially guided to 9% to 11% of revenue. We upgraded this to 7% to 9% of revenue after Q2, and we have now ended the year under 4%. So with this and the net profit and the cash flow that we generated, we are declaring a 2021 dividend of $0.064, in line with our stated policy to pay the higher of $0.05 or 80% of net profit. So we are quite pleased with this comprehensive set of results across revenue, EBITDA, free cash flow, bringing down our leverage to 1.0x as we enter 2022, and an investment space for DARE+. So handing off to Johan to talk about consumer in a bit more detail.

Yes, and good evening, everyone. I'll go and take you through Mobile first, then Home Broadband and then I'm going through Entertainment. So Mobile, you can see that we have been traveling quite nicely north in terms of ARPU. ARPU has been benefiting a little bit from higher roaming as well as a higher uptake of Entertainment Pass and we did see on the other side a minor impact of lower plan subscription. Those are mainly due to SIM-only. We still see a very good traction on 5G, which helps us quite a fair bit. We've added 26,000 customers to the base, quite a fair of those come through the giga! customer base. But also on the StarHub brand, we have been doing quite well. We believe we are in a very good shape in terms of 5G. We crossed over 300,000 customers on our 5G plans and network, end of '21. Churn rate year-on-year, lower, 0.8%, which in light of the hypercompetitive market is a great achievement and is lower than last year. Prepaid is a more challenging market segment remains, I would say, 2 reasons for that. Number one is obviously the quite intense competition on postpaid SIM-only and the second is the lack of tourists and workers coming into the country. ARPU, nevertheless, remained stable. And as you can see, we actually added 10,000 customers to the prepaid base in Q4. So that shows that in Q4 we had a 3.1% uplift in terms of revenue, and the data usage on the back of that continues to grow. We actually ended up on 12.7 gig per sub on average in Q4. Moving on to home broadband, next page. Home broadband had a real strong performance in '21, as Nikhil already alluded to. We increased ARPU. There is an accounting adjustment for Q3, Q4. If you would take that into account, as you can see here, the ARPU would have been flat Q-on-Q, so around 33% and then a decimal, which is a solid performance. It's also noteworthy to see that the decline rate following the adjustment of, I would say, freebies and that sort of thing in terms of subs has subsided, and we only lost 1,000 customers. And we've come to the end of that journey, and we expect to go into growth of the customer base going forward. And the churn rate remains very low at 0.7%. If you keep in mind the accounting adjustments for ARPU and, obviously, for revenue, this is the same story. Adjusted, that would be actually flat quarter-on-quarter, around $49 million, and that basically represents a 10.4% growth compared to the year before, which is a good performance. Entertainment. Entertainment, also there, you can see that we are growing ARPU. The reason for that is that we see more customers taking on higher bundles, 2-gig bundles and more content. And that's, I would say, a testimony to our strategy, where we believe in hybrid, which is linear and OTT jointly together. So that's benefiting our ARPU. The subscriber base on linear TV continued to decline, although the decline is getting lesser and lesser, and that's also something you can see being represented in the term percentage which is coming down. And on the other side, you can see there is a very strong growth on the OTT subs. We ended the quarter on 444,000 OTT subs. So despite that, I think you can see that we had a real solid set of numbers for TV and Entertainment. $44.5 million revenue, which is around 1% lower compared to the previous quarter, and that is mainly due to lower commercial revenues and advertising revenues. So that's from my side in terms of the consumer. And I'll hand you over to Charlie for state of enterprise. Thank you.

Thanks, Johan. As Nikhil shared, the Enterprise business ended 2021 with year-on-year growth of 9.4%, led by Ensign and Strateq with its first full year of consolidated results in StarHub. The Network Solutions segment maintained 2 consecutive quarters of growth, driven by our voice and data services. On a year-on-year basis, it declined given a large one-off Data & Internet transaction in 4Q last year and overall for FY 2021 from managed services and voice services. Now Cybersecurity came in lower quarter-on-quarter given a major project delivery in 3Q 2021, while our year-on-year grew strongly as we saw good traction in our overseas markets, for example, in Malaysia's financial services sector. Finally, our regional ICT services unit was lower quarter-on-quarter given one-off data relocation work done in 3Q of 2021. In its first full year with StarHub, Strateq clocked almost 20% of quarterly growth year-on-year from our increasing focus in data analytics, engineering and solutions. And that wraps up the picture for the Enterprise business. I'll now hand you over to Dennis for the next segment.

Thank you, Charlie. Just as a recap on DARE+, this is something that we unveiled during our Investor Day in late November of 2021, having completed our DARE 1.0 in October of 2021. At that time, we shared that we were going to be looking at upfront investments to generate $500 million of margins and cost transformation outcomes over the 5-year period. This constitutes $220 million of margin uplifts coming from increased revenues and growth initiatives as well as $280 million of further cost-transformation initiatives coming primarily from our digital transformation journey. The 3-year investment, which will be front-loaded primarily in 2022 and 2023, would be approximately $270 million, and this was something we guided at that point in time. And we then expect to generate $80 million of after-tax margins, which will go to our bottom line on a steady-state basis starting from FY '26. Moving on to the next slide. In recognition of the significant investments that we're making for this digital transformation journey and our ongoing cost initiatives -- growth initiatives as part of DARE+ and then also in consideration of the higher utilities cost that is surrounding our current operating environment and our ongoing 5G rollout, we are guiding to a 10% or at least 20% EBITDA service margins for FY 2022 on the back of an at least 10% growth in our top line, which is the revenue -- service revenue. This takes into account the fact that we would be consolidating for the full year, JOS, which we completed on 3 January '22, and the MyRepublic transaction, which we also expect to complete sometime in Q1. We also continue to expect growth in our Cybersecurity business and in some of the other lines of business with a modest recovery in roaming revenues assumed in this set of numbers. For 2023, we expect that the outcomes from DARE+ to start coming through in 2023. This would be the start of the outcomes that we expect to generate and achieve. And the result of that would be an uplift in margins by 3%. As such, we are providing an outlook of at least a 23% service EBITDA margin, which represents an improvement from 2022. What we endeavor and target to achieve would be an absolute EBITDA generation, dollar generation 2023 which is approximating the level that we generated in 2021. As a recap, the EBITDA that we generated in 2021 on a total basis was approximately $500 million, and we endeavor to achieve that $500 million or better in 2023. If you look at capital expenditure, we are looking at -- on a business-as-usual basis on our base business, to maintain the levels of capital expenditure of between 7% to 9% on an ongoing basis, bearing in mind that we ended 2021 on a relatively lower number of 4% due to some timing differences in terms of capital expenditure commitments. We expect to incur approximately another 4% of IT transformation or digital transformation investments and in terms of our digital platforms that we intend to roll out. This, therefore, brings our CapEx guidance for 2022 and for 2023 to be approximately between 12% to 15%. In terms of our dividend policy, we will maintain our higher of $0.05 or 80% of the net profit that we are generating in each of the years of '22 and '23. We, therefore, believe that taking into consideration the plans and the achievements and the targets that we expect to get from the DARE+ that this dividend will be sustainable and, in fact, perhaps even better in the coming years. So as a result, for the next -- for the next 2 years, we are providing assurance that we'll pay at least $0.05 or higher or the 80% of the net profit number. With that, I'll pass the call back to Nikhil to articulate the priorities that we have as management for 2022. Nikhil?

Yes. Thank you, Dennis. So our agenda setting for 2022. Number one, Infinity Play is something we've talked about a lot, and this journey is already well underway with 10 OTT streaming platforms, cloud gaming. And last week, we launched our Consumer Cyber Play. So you should expect more OTT, more gaming, more products, more verticals and all of this pretty imminently over Q1, Q2 and much more to come over the year. Number two, we have talked about super app and full self-serve digital engagement. Now we have a world-class digital platform already, giga!, which we are focused on growing even more. But we also are, as we spoke about, launching a super app on our cloud IT stack with a data lake to enable real self-serve across the entirety of Infinity Play and drive up-sell with both new product as well as existing product and keep adding product on a rapid cycle. Number three, we've talked about enterprise converged capabilities. Now we are the only player in Singapore or the region in telco or outside telco to have leadership businesses in each of cyber, cloud and connectivity, the 3 Cs, as we like to call it. So we are building digital platforms that bring together all 3, which we intend to scale both in Singapore and across the region. Now of course, 5G is key to all of the above. We are focused on our network platform, a superfast network, a superior network to give our customers access to the richest digital experiences, not just connectivity, but -- and also transformational digital services anytime, anywhere, in the home, in the workplace or out of the home. And then, of course, everything that we wanted to do is with efficiency. And we do this because everything that we're doing from product to engagement to IT to systems is focused on digital and cloud. So we will realize natural efficiencies and cost savings alongside and together with the growth to get to that $80 million of incremental after-tax profit that Dennis talked about. And then last, but not least, we have done M&A well, and we will continue to do M&A as a cornerstone of our growth focus. Now this is for consolidation in key segments to grow footprint and scale, to grow capabilities, to drive digital product and platforms across our base and, of course, to harvest efficiencies and synergies and realize value for our shareholders. So with that, in closing, I'd like to finish and hand it back to Amelia to open up for questions. And I see Sachin has raised his hand already, maybe half an hour ago.

Thanks, Nikhil. We'll now open the floor to questions. [Operator Instructions] So Sachin, please get the ball rolling.

Sure. Yes. All right. My question again is, I think, it's an often asked question on dividend policy. When you say at least 80% of the net profit, excluding nonrecurring and adjusted one-off, could you explain, would that exclude some of the extra CapEx, depreciation, extra OpEx? And hence, some of these issues which are here, how to define the recurring profit, which is used for dividend calculations? That's number one. Number two question is, when I look at your CapEx and the OpEx for digital transformation, there's a 29% margin, you are guiding for 20%. That's about 9 percentage impact. Plus, you're talking of a 4 to 5 percentage point rise in CapEx. So that's almost about -- we're talking about 14% of your net revenue -- of your revenue and which is around $2.2 billion kind of range. That's quite higher than your $270 million. You got $270 million is the digital transformation cost over multiyears. Are we saying that everything will be done in just 1 year and nothing left? But again, I see CapEx being higher FY '22. So could you just update us on the change in plan in terms of digital transformation costs? It seems pretty high in FY '22 and even in FY '23, actually, based on your outlook, and doesn't really go over the $270 million as the additional cost.

Okay. So maybe I'll start forward -- start, Sachin, and maybe give you a simple answer on the dividends, and then Dennis can take the more complicated pieces with respect to some of the adjustments that you are talking about and also carry on into the transformation expenses. So on the dividends, I think the way we see it is pretty clear and simple. We are entering into an investment phase, but we intend to maintain our dividend commitment and keep the same formula. And the formula is, as you know, the higher of $0.05 or 80% of net profit, whichever is higher. So for the last year, for 2021, we are declaring, as we talked about, $0.064. We made $485 million of cash flow, as Dennis talked about. That's about $0.275 per share. So without -- and this is, of course, combined with 1x leverage, which is where we ended the year. So we are maintaining our dividend commitment to pay no lower than $0.05. We will maintain that over the next 2 years. We are highly confident of being able to fulfill that commitment given the strong cash flows over the year. And the difference between the $0.275 and what we're paying, the $0.065, is more than enough to fund the dividend over the next 2 years, in addition to the cash balances that we have. So that's a simple answer. But with that, so the dividend remains sacrosanct with the commitment strong. And with that, I'll hand off to Dennis to perhaps delve into your question on accruals and nonrecurring items as well as investment costs.

So Sachin, in terms of nonrecurring costs and income, I'll just give you some examples. So for example, in 2018, when we undertook a restructuring of our organization, there would be restructuring provisions that will be required in tandem with the activity, and that's considered onetime. If we have certain legal cases and the settlement expenses related to that, that would be considered onetime. Similarly, in terms of income, if we have grants for certain activities that we undertake, sometimes from government organizations, so far, those will be considered onetime. And of course, the Job Support Scheme that we received in 2020 primarily would be then considered onetime as well. So those will be examples of onetime items that would be not considered as recurring and therefore will be backed off. Depending on whether it's an income or expense item, it will be added or deducted from net profit to derive the net profit, not including the nonrecurring items. I hope that answers your question. Okay. Now in terms of the -- specifically to the debt, to the investments for IT transmission. Now the margins are -- the 9% or 10% difference between the margins for 2021 and 2020, it's not all coming from the upfront investments. There's approximately a 3% decline in margin coming through from increase in utilities costs based on current utilities rate versus the average rates that we had seen -- saw in 2021. So that's a function of the current operating environment and the inflation that we're seeing, and that's been baked into our numbers. There is a portion that's attributable to the digital transformation journey that we're undertaking. And there is a part of the investments coming through from 5G wholesale costs. Bearing in mind that the JV that we have with another operator is on a nonconsolidated basis, so whatever wholesale cost that we pay for the radio rollout for 5G is considered as an operating expense. And therefore, that's been baked into our numbers. So that in combination accounts for the margin re-rating. The other part of it is obviously the mix in revenues. So you do see that mix of revenues and the fact that we are consolidating JOS for the first time this year in 2022 as well as the ongoing increase in Ensign's cybersecurity performance as well as the managed services and ICT that we have as part of the -- Charlie's Enterprise business, plus Strateq's ongoing growth in Malaysia as well as the region is the mix of revenues that we are seeing in our top line, and that's also accounting for a re-rating of the margins. So that is in relation to the margins. And to your question regarding the $270 million of investments of CapEx and OpEx, it is front-loaded primarily in the first part of 2022 and some part of 2023 -- tapers down in 2023. A lot of it is going to be baked in this year.

Yes. And then just a follow-up on your first question, first reply. So according to what you have told me in the past, it doesn't seem like any of the extraordinary CapEx or OpEx due to digital transformation is eligible as onetime cost, right? Because this is definitely not 1 year. It's at least 2 years kind of cost.

Yes. So in the dividend policy that we have for 2022 and on an ongoing basis, we have said that we will pay $0.05, higher than $0.05 or 80%. So some of these upfront investments for transformation will be considered onetime. Some of these will be onetime. There will be ongoing costs in relation to software licenses and so forth. Those are actually ongoing requirements, and so those will not be considered as nonrecurring.

Nothing goes to FY '24? Everything kind of done in FY...

A little bit will trickle into FY '24, but most of it will be in these next couple of financial years.

Sachin, I think the intent is to take these expenses and spending upfront, while maintaining our commitment to dividends at $0.05 and then as we harvest to hopefully exceed the $0.05 over time.

Thanks, Sachin. We'll now take the next question from Neel.

A good set of numbers. I have a few questions. The first is on service revenues, right? So the second half up 2.9%, full year 1.4%. If I had to strip out Strateq and Ensign, what would those numbers be? That would be helpful. And sort of a similar kind of comparison for the EBITDA growth numbers if you stripped out the acquisitions. The second question I had was, on your slides, you said like 5G mobile subscribers, 300,000-plus. But I remember in the third quarter, that was the number as well. And yet Johan mentioned there's about 25,000, 26,000 additions. So I am a bit confused, is it now 325,000, 326,000 or -- which is a decent 8%, 9% uptick quarter? What is that number? The third, Dennis, you mentioned there was an accounting adjustment, which kind of explains why ARPUs were up 10% year-on-year, but subs down just 3% and yet revenue down 1.6%. Is all of that related to the accounting adjustment? My fourth question on CapEx, Sachin has already asked. The fifth question I had was, Dennis, you've got about $220 million view during the course of this year. Should I think of this largely as a refi? Or will you land up like retiring the debt? And the last question I had was for you Nikhil, $80 million in OpEx to be added with all of these initiatives. Is this from the existing portfolio? Or should I think there is an embedded component of future acquisitions involved in this contribution?

Can I take the last question first?

Yes, sure.

So the $80 million of after-tax profit that we've talked about as a result of DARE+ is really with the existing portfolio. As Dennis said, it doesn't include material roaming recovery, and it also doesn't include synergies from the existing portfolio. So it's just the existing portfolio. No synergies, minimal roaming recovery, okay?

Okay. And Dennis, could you please take the question on service revenue, EBITDA contribution, Ensign and Strateq, as well as the question on the...

Yes. So Neel, if you look at MD&A and what we've reported, for Ensign, the revenue for 2021 was approximately $270 million. For Strateq, the annual revenue for 2021 was about $76 million. So if we add the 2 components together, it's approximately $345 million, and that's the number you strip up from the $1.6 billion number that we reported for the full year of 2021. So it does represent, on a base business, it does represent a decline in our organic and base business. And this is really a function of the ongoing competitive environment that we all have seen. And that's also the reason why we've also diversified our revenue base and undertaken the M&A strategy over the last few years. In terms of the EBITDA contributions from Ensign and from Strateq, these are fairly modest. So they are very low contributions from each of these. In total, of the $500 million of EBITDA that we reported for 2021, the total contribution from both of these is approximately $40 million. So no more than 10% of the EBITDA comes from Ensign and Strateq. Now you will probably ask as to why then we would undertake these other additions to our portfolio. We believe that with scale, but primarily and predominantly in the ICT business as well as the cybersecurity business, it will lead to a nonlinear improvement in our margins. And that's what we're building towards as part of the growth. And this is also baked into the $80 million of ongoing after-tax profits that we expect to generate on a steady-state basis thereafter. I hope that answers your question in terms of the -- of Strateq and Ensign in terms of your first question, Neel.

Yes, it does. Apologies. I'm flying blind. I don't have the slides in front of me because I'm working from home.

And I think Neel ,what you'll be able to see is, when you do get the slides, on 14, there's a page on Enterprise, which looks at the Enterprise -- 3 segments of the Enterprise business. So the answer to your question would be, you can look at Ensign, Cybersecurity, Strateq, regional ICT. We're going to be adding JOS to that. But then you'll be able to take a look at Network Solutions separated from the other 2.

To your second question on accounting adjustments, Neel, yes, the answer to the question is yes. It is, without these accounting adjustments, the ARPUs are flat. These adjustments are primarily what we affectionately call the IFRS 15 adjustments. These were the new accounting standards in terms of how we are required to split the revenues between our lines of business and these accounting adjustments that happen from time to time when we get better clarity in terms of how to allocate this as we do roll out new bundled plans and as Johan and his team very affectionately and enthusiastically rolls out new plans, my team has the pleasure of figuring out how to allocate this. So these adjustments happen from time to time because of that. Your third question on the refinancing of the $220 million. If you might recall, we did the final transaction in the DCM market in 2020, literally on 31st December 2020, where we did lock in a fairly competitive coupon of 2.48% with a debt issuance of $200 million at that point in time. We did raise that money in recognition of the tranche that would be maturing in September of this year. So as a result of that, we would expect to retire this tranche with the cash that we have on our balance sheet.

Neel, does that answer the question before we go to Johan?

Yes. There's just a little bit about the 5G sales.

Yes. So in terms of dynamics, there's obviously quite a few dynamics on [indiscernible], Neel, with movements in the base. So where we see an uptick in terms of 5G customers and as we've mentioned, we've crossed the 300,000 mark, we also see more and more customers opting for on the other side on a more affordable 4G SIM-only plan. And then of course, in this mix is also interwoven giga!. So that composite drives these numbers.

Neel, I would also like to clarify this...

On a quarter-on-quarter, have you seen...

Say again. Sorry.

On a quarter-on-quarter, have you seen an increase in the 5G subs, Johan?

Absolutely. Yes. We -- if you remember well, I think I heard the previous quarter, Q3, we closed around 250. So we added 50,000 thereabout.

So I think, to clarify, I think, Neel, what you mentioned was the actual number we disclosed in the DARE+ presentation, which was in November.

Yes. Sorry.

Yes. So it was in September 30 -- so we did say 300,000 and now we're saying over 300,000. But as Johan said, we have grown, but we're not disclosing the specific number yet.

Actually, during Investor Day in November, we crossed over 250,000. So quite a considerable growth.

Over 250,000 to over 300,000.

And to clarify, Neel, that's a quite, I would say, logical thing to happen in Q4 on the back of the new handset launches, which are mainly 5G.

All right. We will have [indiscernible]

A few questions from me. First, Nikhil, I missed your earlier comments. Is it possible to give a bit of a split on organic growth for 2022? So of the 10% -- minimum 10% growth you are seeing, what is organic bit and what is the inorganic bit? That's question number one. Second question is on mobile competition. So how do you see mobile competition evolving? And are we seeing a similar level of aggregation from MVNOs? Or should we see better growth going into 2022, just from the competition point of view? Then some housekeeping questions. First is on spectrum rights. So when we should expect the 700 megahertz -- sorry, 700 megahertz payment? And finally, on the -- on Dennis' comments that around 3 percentage points decline in margins because of higher utility costs, that totals to around $50 million. So should you -- are we expecting that kind of increase in just utility costs in 2022?

So let's take it from the top. So on the 10% increase in revenue for 2022, that comes from, number one, the consolidation of MyRepublic and JOS and it also comes from growth as anticipated and continuing in Ensign and Strateq. What we have not assumed, as we've talked about, is further organic growth from some of the things that we're doing. What we also haven't assumed is more than a modest roaming recovery. And also, what we haven't assumed is synergies from the acquisitions that we have made. So hopefully, that clarifies your question. On mobile competition, what we would say is this, look, I mean, the last couple of years have been extremely competitive. And we can't really plan for whether -- and we don't want to necessarily plan for whether mobile competition recedes or increases. In fact, we plan for it increasing, we don't necessarily plan for it to recede. What we are focused on doing is driving the best connectivity, driving Infinity Play with the best connectivity to our base, driving 5G adoption and strong upgrade in broadband through the Infinity play strategy and therefore kind of taking up consumption and our ARPUs upwards. So that's our strategy. Johan can add to it.

Yes. I think in terms of competition to be expected, I mean, the market is very competitive at this point of time, we expect it to remain probably rather competitive. It's hard to put any outlook on that. We are sticking to our strategies very much around differentiation and adding value. We're very keen on driving the 5G agenda, which we believe is beneficial for customers, both on the enterprise as well as on the consumer side. And when all things are equal that will stand [ this side ]. So that's what we do, and that's our strategy, which we pursue. And we, by the way, did see some MVNOs exiting the market over the last 12 months as well.

On 700 megahertz spectrum, I guess, it's hard to crystal ball around this. I think we hope that by the end of 2022 that we will have visibility on getting the 700 spectrum. But again, it's hard to crystal ball, but sort of that's the sort of time frame that we're thinking about, a year plus.

Dennis, would you like to address the question?

Yes. So the final question regarding the utilities. Unfortunately, that's the reality that we're facing. Based on the crude oil prices, which is north of $90 today per barrel, you're looking at approximately a 2.5x increase in unit pricing per kilowatt in terms of the utilities and the electricity tariffs that we're facing based on current rates, and they're not looking as if they're tapering at any point in time. So assume the current rates versus the average rates that we have recorded in 2021 for purposes of this guidance.

Thanks, I hope we've answered all your questions.

Maybe just if I can ask just one follow-up, again, a housekeeping question, which is on the working capital side. So there was a big gain on working capital side. What percentage or what proportion of it going forward could be -- will be reversed and what can be -- is a permanent kind of gain?

The working capital improvements that we recorded in 2021, I believe, are largely sustainable. Improvements in DSOs and DPOs are things that we put mechanisms in place to ensure that sustain. So it will be a steady state, so you won't see a significant year-on-year improvement, nor a reversal of that trend in 2022.

Okay. This is very clear.

Thanks,. Next up, we have [ Fu ].

Congrats on the good set of numbers. A couple questions from me. Firstly, on the Q-on-Q increase in postpaid ARPU, how much of that was due to the recovery in roaming? And I think Johan also mentioned that the increase in ARPU was also due to tick-up of Entertainment VAS. Can you provide a bit more color as to what that includes? That's question number one. Second question, it was also mentioned that the ARPU -- postpaid ARPU was somewhat offset by lower plan subscriptions due to SIM-only. And that's despite the higher 5G take-up. Can you tell me what percentage of the sub space is now SIM-only? Or what percentage of your gross adds is SIM-only? And related to this question, right, as you see the continued shift of subscribers from postpaid contracts to giga! and SIM-only plans, I'm wondering what is the net impact on StarHub's revenue and earnings, all else equal. Because what I see is that what you're showing me in the third quarter is that the service revenue impact is actually negative. And I would imagine you would have also lesser device sales, right, moving from postpaid contracts to SIM-only. So does that mean the earnings are also negatively impacted? And my third question, as you guided previously, the DARE+ benefits only come in the second half of 2023., So I'm wondering, where do you see the service EBITDA margin once the full net benefit from DARE+ is realized? Those are my 3 questions.

Okay. Johan, would you like to start.

Okay. I'll take the first 2 questions. Thank you very much for your first question. So first, on the postpaid ARPU. Postpaid ARPU is a composite of quite a few things. It's a blend of SIM-only 5G plans. And then, of course, in this mix is also giga!. And then below that, you have basically subscription revenue, out of bundle revenue and roaming and cost, okay? So to your question directly answering, the plus is definitely somewhat on the roaming side. The plus on the Entertainment side, obviously, you can guess, is mainly coming from what we bundle with our 5G plans, which is Disney. And that's offset to a certain degree with what we call out-of-bundle variable charges, which are decreasing as data bundles have become bigger over time. So that's the level of information I can give you around ARPU. In terms of the split between SIM-only and devices, that's typically not a level of information which we disclose. We compete in both areas -- what I don't mind disclosing is that, interestingly enough, the churn rates are almost identical in both. So that's, I think, a good indicator. And although maybe the top line revenue on SIM-only may be a bit different compared to handset bundles, as we call them, with the 5G uptick and pricing strategy we have pursued from 5G in the mix. That's fairly simple -- fairly stable, sorry. So that's probably, I would say, the flavor I can give you when it comes to these parameters. Hopefully, that gives you a bit of a direction before I hand over to the last question.

So does that answer your question?

Yes. If I can just throw in a follow-up to what Johan said. So essentially, does it mean that what we are aiming for here is we're aiming for 5G take-up to help us increase the ARPU to offset the -- any sort of erosion in ARPUs from the SIM-only side?

Yes, that's a very good, I would say, summary. In a way, if I may just build on that, the market in a way is still diverging. So in the good old days, it would be mainstream. It was one flavor. It was a device tariff plan in the new world. They're obviously device plans, 5G mainly. And on the other side, there are CMOs on the other spectrum side. So it's diverging and the composite of [ that ].

Okay. So granted the market is competitive and you have to do SIM-only like what your peers are all doing, so the net benefit from 5G take-up is pretty much neutral, you would say?

Hard to predict and hard to say at this point in time because there is also the factor of roaming. And roaming is not as significant as we discussed in earlier analyst calls. So -- and that's something we haven't baked in going forward. So that's something we need to see.

Okay. Got it. I understand.

The plan [ Fu ] is definitely to play aggressively in SIM-only, to embrace it, to drive it, to drive giga! But with the strategies that we've talked about, 5G adoption, driving OTT into the mobile base and more Infinity Play products to grow revenue. And that's kind of what I think what we've been doing over the last 3 quarters on the back of stable to rising ARPU blended.

Okay. Understood on that part.

To your final question on what the $80 million after tax margins due to our margins, so if you actually model out the guidance that we've given for 2022 which is at least 10% uplift from our 2021 service revenue of $1.611 billion, if I remember that correctly, that leads you to at least $1.76 billion or $1.77 billion number on service revenue. And you then model out another 5% to 10% that we've given as an outlook for 2023 and impute that same percentage growth over the coming years on a compounded basis, the $80 million of after-tax margins or $100 million on a pretax basis should uplift margin -- uplift service margin by about 3.5% to 4%.

3.5% to 4% from 2021's level, is it?

If you use 2021 levels, then if you use 2021 service EBITDA -- service revenues, then it would uplift by 6% because $100 million on a pretax basis on $1.6 billion translates to 6%. I'm now looking forward on a composite basis and what our revenue should look like in a few years if we had a crystal ball.

Okay. Understood. A lot of numbers to digest, but I'll come back to run through those numbers again.

Does that answer your question, Fu?

Yes, it does. Yes, very insightful.

Thank you, Paul, we take your questions next.

Just 3 questions for me. It's -- the 2 questions is regarding this line. The EC1 would be -- can you just touch a little bit what is the Ping portion the DARE+, could you maybe elaborate what kind of services that you could be -- you could be introducing in FY '23? That's my first question. The second question is the upfront investments that you mentioned, IT transformation, manpower and so forth, so I can assume these are not onetime one-off costs, these are going to stick to your fixed cost, in lack of a better word -- is it a good way to understand these upfront investments? My last question, could you just share a bit on the uplift in ARPU from these 300,000 5G customers? That range is in -- any number that you can share would be helpful...

Paul, maybe Dennis, would you like to take the first 2 questions, and then Johan the third on uplift for 5G.

Sure. So as part of the -- what Nikhil and Johan and also Charlie have articulated in terms of the growth initiatives we're undertaking as part of DARE+, in the consumer space, we are talking about Infinity -- the Infinity Play and some of the security, peace-of-mind initiatives and product lines that have been launched and will be launched going forward, the cloud gaming that we've already launched and further upticks from that. In the Enterprise space, we're looking at certain 5G use cases that we will be implementing and expecting to generate in 2023. So those are the growth initiatives that we have assumed that will start in 2023. We believe that it's a reasonable assumption coming through because it will take some time to see the outcomes of what we're working on. So those have been assumed as part of the DARE+ outcomes that we expect to generate in terms of the growth initiatives. Does that answer your question, Paul?

Yes. Sorry, just to clarify, so the incremental revenue that you're referring to is -- sorry, just to confirm, is cloud gaming enterprise 5G use cases? Just 2 examples of it...

So there are other services that we're in the process of launching or working on as part of the Infinity Play and Super App. So these are things that we will be launching. Obviously, we have visibility of that internally, but we have not shared with the public market. So we hope that will excite everybody over the -- all right. In terms of the upfront investments, there will be a bunch of investments that will not be recurring and this will surround implementation costs of the new IP stacks. Now as we know, these implementation costs or what we call the SI costs, are significant and very hefty and these will not be recurring. Some of these costs in terms of the upscaling the organization and increasing the bench strength of our organization in terms of preparing us for the future growth. Those will be recurring investments that we'll be making. However, you have to believe that we will continue rationalizing and optimizing the way we operate as a company. We'll continue to look for efficiencies across the company in terms of the way we are organized as well as when we digitally transform our business model. There will be significant improvements in transaction processing times, retail footprints and all of that. So that will all translate into actual outcomes and savings in terms of operating model. So this will go towards funding or generating the right returns on the investments we are making to transform our business model.

Okay. If that is clear. I'll take your last question, which is related to almost like anything you can give me about information around 5G ARPU uplift. We expected that question, so I don't mind sharing a little bit more information. So if you look at our retail pricing, 4G to 5G device to device, SIM-only to SIM-only, the ARPU or the MRC, the monthly reoccurring subscription, is ranging roughly between $15 to $25 more for an equivalent 5G plan. And that is also the number we see flowing through in the ARPU. Now having said that, and this is important because this is really the crux, the essence, the backbone of our platform, Infinity strategy, most, if not all, our 5G plans are bundled with additional goodies, meaning entertainment, like Disney+ are part of that. So just keep that in mind, if you talk about the ARPU uplift, there are elements of service which are differentiated between 4 and 5G. And then circling back to the first question you had, to '23, obviously, Infinity Play platform strategy, which we have in mind, is key to grow revenue. And that's well beyond the verticals which we have been discussing today. That we've been discussing, peace of mind, there's a lot of opportunities we believe around cyber, cybersecurity for end consumers, cyber protection, cyber insurance. Gaming is also a big vertical. Entertainment on its own is a big vertical, but there are other verticals, which obviously, you will understand, we cannot elaborate on today, we're pursuing. So hopefully, that's given you the context and flavor you were hoping for.

Can I just follow up, assuming roaming returns, I mean, whichever [ did ] it may be, but will a 5G subscription gives you a better uplift compared to a 4G? Or there's really not much change because it is just roaming?

You asked a commercial person, of course the commercial person will say, I do hope so, and that's something we're planning for, but that's something to be tested and validated in the market. 5G roaming is a topic which most developers are working on. So I would hope to, again, in our [ COSO ] DNA to bring a differentiated value proposition soon.

Sorry, just one last housekeeping. The electricity or utility costs, just wanted to double check, which line item in the P&L is this -- is it cost of sales?

No, it's recorded under occupancy costs, under operating expenses.

Under other operating expenses.

Under the other operating expenses, under this line item called occupancy costs.

Thanks, Paul. Going back to your question on the DARE+ rate. Charlie, do you have anything else to add from an Enterprise perspective?

Yes. Sure. I think it's exciting with what we can do in the Enterprise space for DARE+, being digital and [ growing up in ] tiers. It is really about leveraging our core competency and bringing value to where the market is hitting. The priorities we observed in the marketplace is about digitalization. It's for sustainability. We believe that we're in a good position as to our DARE+ transformation efforts position start to make ourselves more and more relevant and aligned to this long-term interest. So watch this space.

Thanks, Charlie. We only have time to cover one last question in the chat that was posted by a retail investor [indiscernible]. The first question is on net profit. Dennis, this is a question for you. He's asking net profit has stabilized at about $40 million per quarter in the second half of 2021. Do we expect this level to be sustainable moving forward? I think you've given some comments about this with regard to our guidance. So perhaps you can reiterate some of those messages later? The second question is on cybersecurity. He is wondering when will it contribute more significantly to our net profit and what is the nature of the onetime inventory write-off. And the third question he is asking if we are expecting a significant decline in revenue and net profit after transferring the 20% economy interest for Ensign at 2Q and when do we expect it to happen. So Nikhil, would you like to address that question first?

Okay. So our intent is to continue remaining as the consolidating shareholder of Ensign. It's a core part of our business. We manage it closely together with the other parts of our enterprise business. And as we talked about, we're building common digital platforms. across cyber cloud and connectivity that we intend to scale. So certainly, the thought process is very much to keep going rather than to sell a stake. Now -- does that answer the third question?

No. I think the -- you had also asked whether a potential deconsolidation of Ensign leads to a significant reduction in profits. And the answer is no. because the way accounting works is, that we account for the economic proportion of whatever we have as net profit, whether it is 40% or 50% or 60%. It doesn't really impact the final net profit. And today, Ensign does not generate significant net profits. And as alluded earlier to a response to one of the questions, we have undertaken the diversification of our portfolio and revenue streams because we believe these will generate meaningful returns for us as these scale in terms of operations, whether they are consolidated or not consolidated.

Yes. I think anytime when you look at a business, where a business that's growing 20-plus percent with the tailwinds from cybersecurity, very much in the zone of technology and technological solutions around security, we make an active decision-making process around whether we want to keep growing the business fast or whether we want to harvest it for profit. And as long as the business continues growing fast, we're going to delay that delay -- sort of delayed gratification on profit. We're going to keep moving that point forward to harvest the increased revenues and then at some point tip into producing significant amounts of nonlinear, as Dennis called it, EBITDA and net income.

Dennis, would you like to address the first 2 questions?

Yes. So if you look at the average net profit for 2021, the average about $40 million a quarter, based on the guidance that we've given for 2022 and relatively lower margin's recognition of the high utilities costs and the inflationary cost that we're looking at for this year as well as the upfront investments that we're making, mathematically, it would lead to a lower quarterly impact than what we've registered in 2021. However, if you take into account what we've guided in terms of the after-tax $80 million of margins that we expect to generate on a steady-state basis, to our existing margins and whatever we generate from our base business, we do expect the quarterly net profits to be higher than the $40 million in the coming years. That's why we are taking these upfront investments to generate the growth and to change our operating model because we are managing the business for the long term and for the viability of the business and to stay very competitive in this marketplace. So this is the reality of business. We wish we would be able to generate higher outcomes without investments and report nice increases in profits all the time. But in reality, as a management team, we do have to take decisions around investing for the future and for the growth and long-term views of the business. And this is what we intend to do for 2022.

Okay. And there is one more question on cybersecurity. When do we expect to -- when do we expect cybersecurity to contribute more significantly to our net profit? And what is the nature of the onetime inventory write-off?

Yes. Okay. So if you look at the current scale of the business, a lot of it is centered around investing in capabilities to deliver the revenues. At some point, when you reach a certain scale, and I do believe we are actually quite close to it, you will not have to add as many people on a leaner basis to generate the higher revenues and capabilities that you would need. Case in point, honestly, is that when you reach a certain scale and credibility in the marketplace, you do have a significant amount of competitive advantage. And you become certainly a more attractive employer as well for people. So we are reaching an inflection point. We're not in a position to be able to guide to the specific year that, that will happen, but we will say that it's strong [ in the core ].

I would also add that we have been at Ensign, we have been investing. We have been investing in people. We have been investing in R&D and IP, and we have been investing in automation. And those are all things that at the right point when we're ready with the right scale, that we can harvest for improving profitability. But for now, the focus is growth.

And just to add, in the meantime, we're working closely as an organization and Ensign [indiscernible] bring about end-to-end capabilities, like cybersecurity [indiscernible].

Okay. And with specific regards to the inventory write-off at year-end, this was in relation to a specific initiative that the Ensign Group was delivering in terms of project. This is nonrecurring. So this is just a onetime write-off in recognition of that EBIT.

Thank you, Dennis. I think that is all the time we have today. Thank you, everybody, for spending your Friday evening with us. And as always, please feel free to reach us at [email protected] if you have further questions that we were not able to address today. Bye-bye.

Bye-bye.

Thank you. Thanks, all. Thanks.

Thanks, all.