StarHub Ltd (CC3) Earnings Call Transcript & Summary

Hi. Good evening, everybody. Thank you for joining StarHub's FY 2022 Results Update Call. My name is Amelia, and I [indiscernible] of StarHub's Investor Relation. This evening we have with us our Chief Executive, Nikhil Eapen; our CFO, Dennis Chia; Johan Buse, our Chief of Consumer; and [ Kit Yong ], our Head of Enterprise Business Group. So we'll start off with opening remarks and an overview of our performance by Nikhil, followed by Dennis on financials, and then Johan and Kit on Q4 highlights. So we'll open the floor to Q&A thereafter. [Operator Instructions] Nikhil, over to you, please.

Yes. Hi, everyone, and thank you very much for making time for us this evening. It's that time of the year again, I was reminded by my team that every year, this usually happens on Valentine's Day. So hopefully, it's much appreciated that today is not Valentine's Day. But with that, let's start with the financial highlights. And let me just start by focusing on service revenue. Now service revenue for fiscal 2022, we achieved $1.9 billion. For the second half, we achieved $1.27 billion. And for Q4, we achieved $535 million of service revenue. So when you look at the growth trends associated with those numbers, fiscal 2022 year-on-year we grew 17%. And if one extracts the acquisitions that we made [ in here ] in fiscal 2022, namely MyRepublic and JOS, the growth rate for fiscal 2022 year-on-year is 6.6%. Now for the fourth quarter, we grew 29% with the acquisitions and 17% year-on-year for fourth quarter without the acquisitions. And then quarter-on-quarter service revenue growth, where the acquisitions don't really matter since they weren't acquired and made their first contributions in Q3, we actually grew 11% quarter-on-quarter. So that was service revenue. On service EBITDA, as you recall, when we ended 2021, we ended at about a 30% margin. And we went into [ debt last ] and we guided down to 20% and that's where we've ended. So as you recall and as we talking -- as we've been talking about, our service EBITDA number reflects 3 things. It reflects our DARE+ investment, but it also reflects the macro costs, namely utilities and other things as well as early investments that we've made on products and platforms. So overall, 2022 for service EBITDA was a trough year for us. You will see in our guidance that we anticipate recovery into 2023 and acceleration into our DARE+ outcomes. Now our net income is reflective of that EBITDA trough in fiscal 2022 for DARE+, but it is also impacted by roughly about $31 million in nonrecurring provisions as well as impairments, which Dennis will elaborate on further. And then last but not least, not on this stage, despite the DARE+ investments that we've made, which are significant, we generated for the year strong free cash flow of about $220-odd million and remain at low leverage of about 1.38x. So therefore, we intend to accelerate into DARE+ in 2023 and to continue to -- and actually accelerate the harvesting process. So perhaps we can then move on to segment revenue. So for segment revenue, we recorded growth across all segments, across all business lines. We recorded growth across postpaid Mobile, prepaid Mobile, Broadband, Entertainment, cyber, Regional ICT and Network Solutions. So we grew across all business lines for the quarter and for the year, year-on-year. Now zoning in on Mobile, we generated for fiscal 2022, $564 million; for the second half, $296 million; and for the fourth quarter, $153 million. So again, when we look at some of those growth rates for fiscal 2022 for Mobile, we were up 7.5%. And for the fourth quarter, we were up year-on-year, up 13% and sequentially, quarter-on-quarter, we were up 7%. So these growth rates -- these strong growth rates were driven by subs growth, and we have continued to be very judicious about how we take subs without diluting our ARPU. They were also driven by roaming increase, which we were able to capture while holding a stable ARPU ex-roaming. And of course, our intent is with Infinity Play to drive greater consumption, greater customer lifetime value. And with all of that, one of the things that we were happy with was based on the recent results that we've seen, we were able to extend our lead in revenue market share vis-a-vis the player below us. Now on Broadband, we saw higher revenue scale as a result of our acquisition of MyRepublic and some moderate revenue growth due to improved ARPU as we continue to do what we do, which is to drive increased penetration of 2 gigabit plans into our base. On Entertainment, Johan will elaborate, but we saw very healthy year-on-year growth of 16%, lifted by Premier League, the World Cup as well as our other content offering. And then on Enterprise, last but not least. This continues to be a key growth engine. Cyber continues to grow strongly at double-digit annual revenue growth rates with improved profitability this year. Regional ICT, with or without acquisitions, grew year-on-year. And Network Solutions, which if you recall a year ago, with something that was eroding is now stabilized and growing, driven by strategic services and our order book, particularly in new product and platform lines rising rapidly. Next page, please. So our checklist versus our guidance. Now if you recall, at the beginning of fiscal 2022, we had guided to service revenue growth of 10%. After Q3, we upgraded that service revenue guidance to 12% to 15%, and we are ending the year with service revenue growth, exceeding that revised guidance and achieving 17%. Now for service EBITDA margin, at the beginning of the year, we had guided to 20%, and we are ending the year in line with that expectation at 20%, which when you couple with the service revenue growth outperformance, therefore, implies higher EBITDA than we had anticipated in 2022. Now for CapEx commitment, this was again something that we started the year with a level of guidance which we've since revised after Q3 to 9% to 12%, including investments. And we have beaten that revised guidance, ending the year at 7.3%, including investments. And then last but not least, we had guided to our dividend policy of $0.05, and we are reiterating and reaffirming our payout of $0.05 per share. With that, I'll hand off to our esteemed CFO, Dennis Chia.

Thank you, Nikhil, and good evening to everyone. Recapping on our full year results. For the second half, we reported revenues of $1.269 billion, $2.327 billion in terms of the full year total revenue, representing a year-on-year increase of 14%. Service revenue for the second half was $1.018 billion. The full year was $1.888 billion, representing a 17% growth in service revenue. We reported second half EBITDA of $187 million, excluding the provisions that we've taken, which are nonrecurring or EBITDA that we would have reported for second half would have been $215 million. Full year reported EBITDA $417 million, $445 million if you exclude the provisions which are nonrecurring. This represents a 21.6% service EBITDA margin adjusting for these nonrecurring items. The second half profit that was reported was $1 million, adjusting for nonrecurring items and impairments that we took at year-end. The second half net profit after tax attributable to shareholders would have been $57 million. For the full year, we reported net profit after tax attributable to shareholders of $62 million. Excluding these items, they would have been $119 million or [ $0.069 ] on an EPS. Our full year free cash flow that we generated was $222 million or $0.129 on the FCF per share basis. We ended the year with $573.6 million of cash and cash equivalents on our balance sheet. The short-term debt that will be maturing in the next 12 months would be $120 million. There's no debt maturing in the year 2024, which implies that we've got long-term liquidity and a very strong balance sheet to take us forward to fund our DARE+ transformation initiatives and other opportunities that come along. With the strong results that we've generated on the back of strong revenue growth and ongoing strategic cost optimization initiatives that we've taken to pave the way for the DARE+ transformation initiatives that were still in the midst of executing. The dividend, as Nikhil reiterated, we are declaring a final dividend of $0.025 making the full year dividend to be $0.05. And on that, our net debt-to-EBITDA ratio ended the year at 1.38x, well below industry average. On that note, I will hand the floor to Johan, our Chief of Consumer.

Thanks, Dennis, and good evening, everyone. I'll take you through some of the highlights in terms of Consumer. So first and foremost, ARPU, we really had a good quarter on Mobile. ARPU at $32, up from the previous quarter and $3 up year-on-year. And on top of that, we saw a healthy growth in the subscriber base, 19,000 in the quarter and year-on-year, 81,000. That has translated into revenue growth as you've heard earlier from Nikhil. Underlying components to that, the revenue growth are roaming but also the organic growth in terms of the postpaid base and value-added services. Prepaid, the ARPU is at $8. Customer base increased significantly. That has to do with the opening -- the reopening of the borders but we also have been very forthcoming and working on the local segment, the local tourist -- the local foreign worker segment. So that's on Mobile. Moving to Broadband on the next slide. Broadband also have good performance. I would dare to say, $34 ARPU, customer base at 578,000. That's really good. What is also important to highlight there is that the churn remains low. Churn is 0.6%, and on the previous slide, you saw that the postpaid churn is up 0.8%. So we're holding our ground, which is a good indicator in terms of satisfaction level of our customers with our services. Segment revenue was explained earlier on, so I will not repeat that, that you saw, organically to start have a 5.6% growth year-on-year and almost 3% for the last half year. So that is a strong performance from my point of view. Then Entertainment. Entertainment is something which has been a busy year, as you all know, pleased to inform you that the ARPU stands at $36 coming to the end of this year, which is $4 up year-on-year. A bit of tapering off the base, 492,000 to 478,000 year-on-year, still a significant growth. That has to do with some of the OTT elements. Churn is low. Actually, churn is lower than the previous year. We managed to churn further to 0.9%. And revenue growth, as explained earlier, 16% for the full year and 27% for the second half of the year, obviously driven by Premier League as well as World Cup but also the other OTT components we have which we're offering to our customers like Disney+, Netflix and so forth. So moving forward, a few words around something which is close to our heart and which may be of interest to you. Besides being commercially busy, we actually in Q4, launched first set of deliverables of what we call the Infinity Play for Consumer, DARE+, which is a new app and linked to that, part of our Mobile offerings are on a new platform. That new platform is end-to-end digital. It enables customers to transact any piece of service or a purchase fully digital without any intervention either in shops or physical customer care. Now that's important because, obviously, that delivers a significantly better customer experience and it also creates efficiency. Why do we call this Infinity? As we go forward in this quarter, we'll expand that. And during the year, we'll end up having all our products and services in a seamless fashion on this platform, which is envisioned and basically experienced by customers in the form of this app. That is important because Infinity Play basically means that on this app, you will be able to transact and subscribe to other services than the traditional services we have and you do not need to be a traditional StarHub customer to do that. So we're talking about gaming, protection, cybersecurity services and so forth as well as our health, LifeHub+, our healthcare solution. So those are well beyond traditional StarHub services and actually available for anyone in Singapore. That is important. Now initial results are very promising. We've launched this late in the quarter and we already see a 20% increase in terms of MOU because the navigation is much better and the experience is far superior compared to what we had before. We have very high App Store ratings as well, by the way. And we also saw this translated into a significant increase in terms of transactions, both in sales, a 14% increase in terms of online transactions purchased, but also importantly, care transactions. Majority of our care transactions are coming through the app handled by chatbot, and we managed to achieve 80% accuracy [ rate ], again, very important for customers in terms of satisfaction, but also important to the company in terms of efficiency. So we'll progressively release the upcoming releases throughout the next 3 quarters, and we aim to end this by end of this [ fiscal ] year so that we have revamped our business totally, and you can really call it Infinity Play for everyone. So that's from my side. And on that, I'll hand over to Kit Yong to give you an update on the Enterprise side. Thank you very much.

All right. Thank you, Johan. Right. Our Enterprise business itself, Nikhil just earlier talked about double-digit growth. Let me break it down into the 3 segments. Network Solutions, itself on second half [ 2020 ], right, the Data & Internet revenue is higher due to MyRepublic Broadband; and also managed services revenue is higher because we complete more projects. And overall, right, we are being the setbacks due to the lower voice services revenue due to lower domestic and international traffic. And when it comes to Cybersecurity services, double-digit growth itself and mainly driven by overseas markets that's contributing the growth. And also -- they're also contributing operating profit of $13.6 million. For Regional ICT services, the consolidation of JOS Singapore and Malaysia, right, is giving us higher revenue and also contributing an operating profit of $3.1 million, right. Now going to the next slide, right? As we evolve our Enterprise services from a pure mobile services, now we're moving into mobility services to address the future of work for Enterprise clients, right? And you can see that on the left, we have 6 new value propositions. On top of mobile plans, we offer green device leasing. What does that mean? We gave a client 2 years leasing and we take back the device, not recycling it, but really reuse it, right? So -- and you can see that there are other mobile device management, workflow automation, end-user computing, mobile security and business application that we do in-house to help our clients evolve to be a more digital and hybrid workforce. And pleased to share with you some of the wins that we have in end-user computing and services for enterprises where the team secured more than $8 million, and this is a one transaction of highlights of overall Enterprise business. And we also have won 2 virtual desktop infrastructure, right, for [ healthcare organization ] in Singapore. So as we progress, we are integrating our connectivity, cloud, cybersecurity platforms that we have and we partner to deliver services and solutions for Enterprise clients, right? With that, I hand over to Nikhil on outlook and guidance. Nikhil?

Yes. Thank you very much. So if you recall, when we released our -- did our Investor Day in November 2021 and outlined what we wanted to do with DARE+, it was our DARE+ reveal, as you recall, we had talked about a spend of $270 million on DARE+. Against which, we would achieve outcomes of $500 million, broken up by $280 million of expected savings and $220 million of attributable gross profit from revenue increase as a result of what we are driving as part of DARE+. Now the other thing that we had talked about, if you recall, was that as a consequence of DARE+ and at the end of the transformation period, we were targeting generating an incremental $80 million of incremental net profit on top of our 2021 run rate, which if you recall, was about $150 million. So with that, where we stand today? So number one, as we had talked about, not in our initial DARE+ investment day in '21, but in our last investment day -- Investor Day in 2022. We were increasing our DARE+ investments from $270 million to $310 million. And that was as the result of incorporating Cloud Infinity, which is our network transformation and putting our network on the cloud. And we were incorporating the impact of Premier League within our outcomes as well as our spend. Now we have started achieving some of these outcomes in 2022. We hope to achieve more outcomes in 2023; and really for a full year, start achieving material outcomes in 2024. Now when you look at our spend on DARE+ invested to-date, which is something that you've asked us about, in cash terms, simplistically speaking, we've invested about 24% of the quantum anticipated. But when you include the provisions that we've taken and the various bring forwards, that number is actually about 35%, and that's the number that's actually baked into our end of year financial results. So with that, we can perhaps move on to talk about our guidance for 2023. So for 2022, we had achieved service revenue growth of 17% versus our initial guidance of 10% and 12% to 15% revised. That was, of course, incorporating organic growth as well as the acquisitions that we've made. For 2023, which is organic growth we are guiding to service revenue growth of 8% to 10%. Now on service EBITDA margin, we had guided to 2022 of 20%. And we are extending that guidance for 2023. So therefore, coupled with the service revenue growth guidance you should anticipate a continued increase in service EBITDA year-on-year between '22 and '23. On CapEx, we had achieved for fiscal 2022, 7.3%, including investments and we are extending our guidance to 13% to 15%, including investments in fiscal 2023. And last but not least, we are reiterating our dividend guidance of $0.05 per share or 80% of net profit, whichever is higher, and we remain well positioned to do so with our earnings, our cash flow and our leverage capacity. With that, I'll hand back to Amelia.

Thanks, Nikhil. [Operator Instructions] Let's start with you, [ Sachin ].

Just 2 simple questions. Firstly, on your service EBITDA margin, guidance remains stable. Now we know that this is despite the fact of more transformation OpEx going into 2023. So I think it was $30 million last year. Could you just give us some estimate how much are we expecting in terms of transformation OpEx this year? And it seems like there's a lot of cost cutting benefits. That's why the margins can be stable despite a lot of transformation OpEx. That's question number one. Number two, on the CapEx, there's a significant increase in the CapEx. I can see this -- you're talking about cloud and DARE+, but could you give us like more color -- or more -- something more concrete to understand what are the things you're investing in? And what is the end result of all those? Are we saying these are -- you're buying new licenses, you're buying -- what kind of investments are these, which actually and how will they benefit you in a more concrete manner here?

You want to start and I'll add.

Yes. [ Sachin ]. Okay. On the OpEx in 2022, we had made provisions of about $30 million at the end of the year. But to put things in perspective, that's not the only investments we've actually made in respect of the DARE+ transformation during the year. That's on top of the investments that we have made as well, which is partly recorded in CapEx, partly recorded in OpEx. So if you add that $30 million to the OpEx that had gone in 2022, you're looking at about $60 million of OpEx investment in respect to DARE+ for the total year FY 2022. Then you forward the outlook to 2023, and embedded in that is a number north of $60 million. I will stop short of giving you that number for purposes of confidentiality and competitive positioning. But I will tell you -- I will guide that it is a number north of $60 million that's embedded in our guidance and taken into consideration in our guidance for FY '23. So notwithstanding the increased OpEx that we are anticipating for 2023 for the investment. We are leaving our EBITDA margin -- service EBITDA margin guidance stable at 20% and as you pointed out, that on the back of ongoing cost optimization as well as some of the DARE+ outcomes that we expect to incur in or realized in 2023. I will pause there to see if you've got any other questions on the OpEx before I move on to the CapEx.

No, that's fine. I think, Dennis, that's very helpful.

All right. On CapEx, if you look at the CapEx that we ended the year in 2023 -- 2022. And again, just to emphasize, this is CapEx commitment. So in other words, the CapEx that we are actually raising purchase orders again. Now we had anticipated that CapEx commitments to be higher than 7% in 2022, which is what we ended the year. And this is a result of some timing of execution of certain initiatives around the IT transformation initiatives as well as some of our network transformation initiatives. At the end of last year, at the start of this year, we had guided the market to some clarification of our network that we are undertaking. And this is something that we'll execute during the year. So a result of some timing incurrence of some of these capital expenditure capital -- total capital guidance, including all these transformation CapEx that we are making is relatively higher than what we anticipated. And if you then aggregate the 2 years together that average down to about 11% or 12% a year, which is very much in line with what we've always said to the market. On a steady-state basis, our CapEx would be between 5% to 7% and our transformation CapEx would be an additional 4% to 5% or thereabout. So that's how we would look at the capital investment. The outcomes would be in the form of optimization of our IT systems. So you will have legacy systems that will be decommissioned, there's a fair amount of licensing costs that we'll take from that as well as [ repay ] the maintenance costs that we typically incur to maintain those systems and there are multiple IT stacks that are a result of that. Then the network side of it, where we have legacy infrastructure that we are also sunsetting. There will be a bunch of optimization opportunities around that which translates into repair and maintenance savings and so on. So those are the outcomes that we working towards executing. Nikhil?

Yes, if I could add to that and just picking out the 1 incremental piece, [ Sachin ], it's obviously Cloud Infinity, which we updated you on in November 2021 and that's a driver of the incremental CapEx. Now what Cloud infinity does is a couple of things, right? What we essentially do is we move our packet core, our cloud control plane, our cloud [ folding ] plane to run off a combination of public and private cloud. And when we do so, we will be, I believe, the fourth telco in the world to do so across the entire environment after Rakuten, Reliance Jio, DISH. So what that allows us to do is to improve to a dramatically new level of hygiene, automation and scalability in our network which, therefore, enables us as we've anticipated to achieve efficiencies and reduce cost in the way we run our network, which will recover the capital and the OpEx incurred but not in the first year, as you can imagine. Now subsequently, it also achieves in terms of outcomes, a whole new world of revenue opportunity in furtherance of some of the things that we're already doing, right, whether it's multi-cloud networking, whether it's a future of work, whether it's cybersecurity but embedded in the network in a way that's sort of much faster, more powerful and agile. But that's not something that we can really elaborate on in a lot of detail, too, for competitive reasons but it's something that we'll talk about in future forums. So recovery from hygiene, efficiency and automation of the capital that we've incurred but not in the first year, obviously, and then beyond that revenue opportunity.

Just to follow up on that, Nikhil, and Dennis. So have we done the complete end -- because many of your legacy systems are reaching end of life probably earlier than expected? Have we done whatever provisions or impairment had to be done for those systems or no, something we can expect in this current year?

Yes. I think Dennis can add, but I think we've been -- I don't know whether it's aggressive or conservative, but we've taken sort of provisions for legacy systems that we're going to be sunsetting. Those obviously release cost on an ongoing go-forward basis. And there is also a degree of -- with things like Cloud Infinity and cloudification of our IT. So network and IT, there's avoidance of spend in the future on legacy systems, which is something we'd rather not do, but unfortunately, a lot of telcos are kind of caught in that trap. Dennis? Sorry.

So [ Sachin ], just as a recap, at the end of 2021, we did take a bunch of impairment or accelerated depreciation on a couple of IT legacy systems. You did see that translate into a lower run rate of depreciation and amortization that's reported in our numbers in FY '22 versus 2021. And then if you look at the impairments that we've taken at the end of 2022. This represents certain legacy assets that we have also identified that we'll be sunsetting. With these provisions or accelerated depreciation as well as impairments that we've taken, there are no further impairments that we are anticipating in regards to legacy systems for 2023.

Next up, we have Neel.

Nikhil, Dennis and team, I've got 3 questions. I think the revenue growth side is fairly straightforward enough consolidation of acquisitions driving most, et cetera. But I do have a couple of questions on the fourth quarter net profit and the full year net profit. Strateq Internet, this is a fairly new acquisition. So what was driving this impairment? And especially related to that, Dennis, did I hear you correctly, you said like excluding the one-offs, the profits would have been about $150 million?

No. Excluding the one-offs, the full year net profit would have been $119 million.

Sorry, yes, $119 million versus $150 million in an environment, which if you're stripping out the one-offs in an environment, which is in the fourth quarter, definitely a big improvement in business sentiment, et cetera. Yes, there were higher interest costs weighing down on economies, et cetera. I'm kind of struggling to see how that is a good outcome, though. I mean with the one-offs I can understand, but when you strip that out, if those are the numbers that you're saying, how is that? The second question is CapEx commitment. I remember the third quarter, Nikhil, Dennis, both of you mentioned that there was some sort of deferral of CapEx, and that's there in your slides, too. How much has moved to the right from your plans on a timeline, so to speak, right, whether it's 2023 and 2024, just a rough idea? I think we can sort of work out from your annual guidance, but it would be interesting to know how much has moved to the right and why so? Is it like supplier constraints? Is it any other reason? And the third is just overall to do with profitability. This is like a long-term type question, negative jaws, right? DARE+ was announced well more than a year ago. How should we think -- and we were all aware, I think, about some level of cost front-loading to achieve that. But how should we think about the organic EBITDA growth and reversion to positive jaws? Is it another 2 quarters down the road, 4 quarters, 2 years? I mean this is just, I suppose, a ballpark estimate, there are so many market variables involved, but it would be interesting to get your thoughts on that. Thank you.

Dennis, would you like to start and then Nikhil can add on?

Yes. Okay. Your first question on Strateq, right? So Strateq has 6 separate lines of businesses and it operates in different regions, mainly in the region like Malaysia, Thailand, Hong Kong, for example. But it also has, at that point in time, a business in the U.S. that was part of the group that we took over. Now we -- this acquisition back in July of 2020 so it's now been 2.5 years. And over that 2.5-year period, we've been working with management to really identify lines of businesses that have line on sight in terms of delivering outcomes and the market positioning that Strateq has as also in consideration of the skill set that it brings to the table. At that point in time, we looked at the U.S. business and the challenges we're operating in the U.S. market and the dynamics of it. Of course, the last 2 years with the COVID situation was not terribly helpful. But all things in perspective without hiding behind that, the reality is that, that line of business we felt was going to be challenging to execute on. And therefore, the spirit of rationalizing lines of businesses that we will continue to invest in and grow which will yield us the meaningful results of investment, we then decided to discontinue that one single line of business in the U.S. and focus on the rest of the lines of businesses that Strateq still has, which are all very healthy and continues to deliver growth. So this is part of any business and a portfolio of business that we would as management have run, and this is just part of the exercise that we did.

I'll just follow up on that one, Dennis. So the U.S. business of Strateq, no more impairments? It's out of the way?

It's out of the way, absolutely, yes.

And it's not a big revenue contributor. It's quite small.

You're worried about cost, Nikhil?

Yes. [indiscernible]

The reality of this is that if we decided to continue on that business, it would have resulted in an ongoing cash burn, so yes, in the foreseeable future in the short to medium term. So again, we would never say that we will never invest in business -- businesses that yield returns in the medium term. We do take that and will take educated and calculated risk. But this was one where we looked at it and this was not a risk that we wanted to take on, on an ongoing basis. So there are other means of deploying capital and other things that we're doing, which we do see better returns in the short to medium term. So this is a rebalancing of our portfolio in other words. Your second point on the net profit, right? So if you look at the net profit for the full year of 2022 against '21, for the full year, we -- excluding these nonrecurring items and impairment [ in ] $119 million. Now if we then look at it on a year-on-year basis, yes, it was a decline. But look at it from the perspective that we were delaying macro factors that primarily utilities costs when we started the year. And that was something that came the path as we went through the year, and we're grappling to manage the volatility that came along with this, right? So along with that, there are -- there were wage increases. It was a function of how the market was transpiring. And of course, the tech layoffs towards the end of the year was an event towards the end of the year. But throughout the most part of 2022, there were labor inflationary increases that we were dealing with, along with the macro utilities increases. So if you then put this back into consideration, we actually delivered profitability, which is almost on par with 2021 level. And on the back of an ongoing competitive market position in the industry, which is something that all of us are aware of, we continue to execute well on the acquisitions that we've made. Some of them delivered good growth, and we look at how to drive profitability in all of them and more, more importantly to drive synergies, both on the top line as we work together to drive that outcome as well as cost synergies. Some of it trickled into 2022. I use the word trickle because it's very little, but it sets the pace for 2023 and onwards. So that was what we're working on. So as we look at it, I think from management's perspective, we [ back off ] the macro factors, which I guess it's something we still are accountable for and responsible for, but we couldn't really control. It was a great year in terms of profitability, all things considered.

Particularly given its an investment year, yes.

Any other points on that, Neel, that you want to clarify? Neel?

Neel, are you there? Otherwise, maybe we can move on to the next question, then we'll come back. We've got a question from [ Lee Lee ], a quick one. For FY 2023 outlook, the 20% service margin, would it be roughly equal, i.e., first half and second half roughly about 20% or more? Or would it be unequal like this year in 2022 where the first half is much higher and the second half is much lower?

Okay. I will take that. So typically, if you look at our numbers that we report, the first half profitability is relatively higher compared to the second half. And this is quite typical because as we start the year, we look at various things that we need to depend on. And of course, we don't need to spend on it in terms of activities that we carry out, whether it is maintenance of our networks or marketing and promotion expenses, for example, those are things that we look at managing at least at the start of the year. So there's no reason for us to incur those if we don't see any need to do so. And as we go into the second half of the year, we typically look at it and look at the competitive positioning and the market dynamic and then we invest in activities to allow us to exit the year on a stronger note. So there typically would be higher activity than our expenses in relation to the activities that are carried out in the second half. I would say that based on what we anticipate, it would not be as skewed as was for 2022, but there will be relatively higher margins in the first half versus the second half.

[ Lee Lee ], I hope we answered your question. Neel, are you back? Okay. Maybe let's move on to Arthur.

Yes, 2 questions, please. First, on the guidance, revenue growth, you mentioned 8% to 10%. Are you able to strip this out across business lines for 2023? And the second question I had is with regard to the investment, which you put out on Slide 17, you mentioned around $310 million related to DARE+ and Infinity. Am I correct to believe that based on the 24% guidance that you spent last year, so it's around $75 million? And it seems like you're going to spend another $200 million this year based on the incremental 8% CapEx to sales on Slide 18. So that means by 2024, we should see a significant reduction in CapEx. Is that how we should look at this?

Dennis?

Arthur, so on your first question on the guidance of 8% to 10% on the top line on service revenue, we will not provide the breakdown for each line of business, as you probably will understand why. Otherwise, it's naturally revealed to the marketplace exactly what we are planning to execute in each line business. However, I would say that the growth that we're anticipating is across all our lines of businesses including all the recent acquisitions that we now have under our portfolio. So I will leave it at that for now.

Yes, let me just emphasize one or 2 things. So Arthur, so first, as Dennis said, we grew not just through acquisitions but actually organically on all business lines. And our intent is to continue to grow on all business lines. We're a bit careful of talking about how our growth splits up because in certain segments, obviously, like Mobile, we're operating in segments that are highly competitive with traditional competitors. In other segments like ICT or cybersecurity, there are a different range of competitors and perhaps not as competitive and other things in between like Broadband and Entertainment, which aren't as competitive as Mobile, but more than some of the others where we have market leadership. So we're a little bit loathe to break that up if you don't mind.

Arthur, on your second point on the investments on the DARE+ investment. Just as a recap, when we disclosed or unveiled our DARE+ plan in 2021 during our Investor Day. And at that point in time, it was $270 million of investments. As a recap, those $270 million refer to both, OpEx and CapEx investments, not just CapEx. And that investment includes investments in building staff strength or bench strength and [indiscernible] within our ranks, investment in key infrastructure, which is CapEx; but also investment in the IT license platform, which are treated as OpEx. So there are a bunch of OpEx items and a bunch of CapEx items. Now for 2022, we've incurred 24% or, as you rightly pointed out, $75 million. We also made provisions at the end of 2022 of -- totaling about $21 million. So if we actually aggregate the 2, it will be about $106 million or about 35% of the total of $310 million that we would be envisaging to incur. The rest of the $200 million of both OpEx and CapEx is -- will be incurred in 2023 and in some -- in the early part of 2024. So not all of the remaining $200 million will be incurred this year. But a good part of it will be incurred this year.

So maybe if I could add to that and maybe take off one of Neel's questions as well, so he doesn't have to reask it. I think Neel just tying the spend and the harvesting to where we see DARE+ growing, not just kind of on an aggregated level, perhaps year-on-year. So as Dennis talks about 35% of the spend for DARE+ incurred in 2022, the bulk of the rest in 2023 and some left over in early 2024. So we had, as you recall, given sort of a soft outlook when we launched DARE+ that we were looking to get back to the 2021 level of EBITDA, which was about $500 million by 2023. So that would have implied a very, very compressed and rapid transformation period to sort of call it that kind of breakeven EBITDA level, in fact, one that was [ 2 years ]. Now clearly, the environment has shifted and macro costs have gone up but it is still the intent to get back to that $500 million as soon as possible. 2024 is certainly a full year harvest year for us. And we hope and are closely monitoring and driving our quarterly EBITDA run rate. So our intent is to get back to that $500 million a few quarters later than anticipated.

Arthur, did we answer your question?

Sorry, I'm just a little confused with regard to the CapEx. When I look at the next slide, right, on Slide 18, you break down the CapEx on BAU as 5% to 7% and including investments of around 13% to 15%. And the 8% differential versus sales would refer to DARE+ and IT transformation. So if I just take that 8% CapEx to sales against your, whatever, $2.5 billion target revenue, that implies additional CapEx of around $200 million related to investments. And I mean, putting it together with the $100-plus million that you spend, it seems like you're pretty much done with DARE+ by this year. Is that how I should look at it?

Yes. So if you look at the difference of 8% [indiscernible], we were anticipating to end the year about 11%, 12% or thereabout in 2022. We ended the year about 7.3%. So we're not -- some deferment of the capital expenditure into 2023. Yes, you're absolutely right that we are guiding to 13% to 15%. And if you then look at the upper range of that 15%, it does imply that remaining $200 million or thereabouts would be incurred in 2023, but that's the upper end of the range. So we are anticipating some of it to go into 2024.

Next up, we have [indiscernible].

I would like to ask a few questions. Maybe I'll just ask one. I'd like to ask about the Temasek's buyback of the 20% stake in Ensign. That's going to be by October this year, am I right?

Yes. So the assignment of rights and is exercisable in October of this year. Did you have a follow-up question?

Yes. And my question is basically, would it -- does management expect that you would have a positive material impact on our P&L and our balance sheet?

Yes. So let me just answer that in 2 ways. So number one, we are focused on the cybersecurity business. It is called [indiscernible]. We do cybersecurity within and outside of Ensign. We have good alignment with our core shareholder, Temasek on the direction of the business and what we want to do with it. And we would intend for that alignment to continue irrespective of what happens with the 20%. Now as far as the 20%, if they were to exercise their option to take 20% out of the 60%, leaving us with 40%, that would generate substantial gain vis-a-vis the investment cost that we had allocable to us.

Yes. And with this in view, Nikhil, why isn't management more confident about its guidance about -- its guidance for earnings and dividend payout for FY 2023?

Well, I think we had anticipated a DARE+ investment period. The bulk of that investment period is 2 years. Those 2 years are 2022 and 2023. And as I mentioned, we had targeted getting back to that $500 million of breakeven EBITDA, which is a 2021 number. In that 2 years, with the macro factor that's been delayed a little bit, our target is to get back to that breakeven EBITDA a few quarters later, looking at run rate EBITDA, but we are in an investment period. The other thing I would say that vis-a-vis Ensign, again, this is something that we have ongoing discussions with our core shareholders on. Frankly, whether we continue as a consolidating shareholder or not, both have good outcomes, both are good outcomes.

And more specifically, Nikhil, this buying back is not factored in your guidance, in your EBITDA guidance as well as the dividend guidance. Do you factor this development, this potential development into the guidance?

But it certainly wouldn't factor into our EBITDA guidance because it would be -- if the 20% was sold, it would be a one-off gain for cash proceeds. And as far as our dividend guidance, we'll take that as it comes, I think.

All right. I'm conscious about time. Since there are no...

Yes. And also would the management be open to a special dividend with regards to this one-off?

I don't think that's something we can comment on at this point in time, [indiscernible]. We have to, I think, weigh this matter alongside with various other matters together with our operating performance and see where we get to.

Yes, I understand. And regarding the slides, Nikhil, there's just not about the nonoperating income due to Strateq, right? I noticed that there's a nonoperating income as well as a nonoperating expense. Do you think -- maybe Dennis would be able to explain this line. There's one nonoperating income for $30.9 million. And at the same time, there's a nonoperating expense for $60.1 million here. How does that come about?

[indiscernible], this can get quite technical. Maybe I can take this offline with you?

Yes, okay, sure. Perhaps just one more for me. I mean in terms of the lumpiness, Dennis, what's shocking about the fourth quarter result is we took basically a Q4, we returned on a loss for Q4. My question is, is there going to be more lumpiness for FY '23? I mean you stated it as a nonrecurring but is this lumpiness is going to -- is it going to happen one or 2 more times, that's going to impact the quarterly results like in Q4?

Okay. [indiscernible], we commented on a response to an earlier question with regards to our FY '23 guidance and whether or not this would be evenly spread on 20% throughout 2023. At that point in time, I had commented that we do expect in line with our usual operating trends that the first half of the year, the operating margins are typically higher than the second half, and that's in tandem with the way we manage expenses and what we need to incur and spend on. And then as we go into the second half of the year, they're typically relatively higher activities that we engage in to try and exit the year on a strong note. So there will be unevenness in the margins, but not to the extent that you see this in 2022. To your other question in regards to the nonrecurring items that we took at the end of 2022, reason behind that we looked at all our rebalancing of our portfolio. Again, this was a response to an earlier question, impairment that we took in relation to that and as well as discontinuation of certain lines of businesses and [indiscernible] focus our attention on. So we did take impairment on certain assets that we believe will not generate income going forward, and to discontinue a certain line of business and therefore an impairment in relation to that. Just to finish off on that, the nonoperating income is in relation to what we call forward liabilities. So there are different consideration elements as part of the acquisitions that we've made. And as businesses performed better or worse, then there's an income or expense that's recorded accordingly. So as Amelia said, we'll take this offline with you. I'm happy to explain this in greater detail offline with yourselves.

Next up, Paul?

I was actually hoping for the 14th February to save some money on dinner, but it's okay. Let's keep it within ourselves. Just 2 questions. Sorry to take this on. Just to go back on the DARE+ spending. So you spent -- I suppose we [indiscernible]. So far, if you assume [ $35 million to $100 million ] is spent, there's $200 million left. So the CapEx could pick up maybe $150 million, $160 million. So the balance is $40 million. So my -- so [ above ] it in conclusion will be spent on FY '23. So my question is when we go to FY '24 and we look at your DARE+ slide on Slide 17, so is that the kind of savings that you should expect? I know that FY '24 is a bit far, but I'm just wondering, is that what we should assume that $108 million roughly of savings that -- or maybe a [indiscernible] down in costs when we look at your Slide 17? I just wanted to understand that part.

Okay. So Paul, I just want to again reiterate, right, if you look at the DARE+ investments both in OpEx and CapEx. Yes, based on the guidance that we've given, the implied CapEx investments for DARE+ would be north of $100 million in FY '23. A lot of this is OpEx investments in the form of license costs and the investment in people and building our bench strength. Reality is that when these investments -- when these transformation initiatives have been fully executed, the people that we brought in to bring on the skill sets and things will not disappear on that day, right? So there will be ongoing staff costs in relation to the people that we bring on to -- into our organization. Naturally, we continue to look at opportunities to see how we can reorganize ourselves, particularly in terms of driving business outcomes, right? So having the headcount deploy outcomes that yield the business [ returns ] as opposed to keeping the business growing. So it's driving growth, right? So it's about optimizing the people that we bring on stream. And some of these costs will continue because the reality is that we bring them on to deliver these outcomes. And there's an ongoing obligation and objective to deliver these key results. Now on the IT licenses, again, when we bring them on and their new platform, the license obligations continue as well. So there will be ongoing costs in relation to these things, which will then become what we then classify as business-as-usual run rate expenses because at that point in time, these are part of our business operations at the point in time once we fully transform. What does discontinue are the legacy expenses in relation to IT infrastructure in relation to legacy network that we will sunset at that point in time. And in the case of the Strateq U.S. business, it's no longer an ongoing running costs in respect of that. So there will be things that we will sunset and discontinue, and this spend represents savings that we'll be offsetting against this, and this is part of the DARE+ outcome.

Just one last one for me. For the guidance for 2023, what is the -- I wouldn't say assumption, but what's the thinking behind roaming? Is it like there's still a lot -- just some thoughts on roaming as you put in this guidance?

We have a question for Johan.

Yes. Thank you for that question. No. In terms of roaming, it won't be a surprise to you that the year closed quite strong on roaming. And we basically extrapolate that when there is [ for us ] enough foundation to be able to expect a similar trend as we exited in '22 going into '23. It would be nice if China opens up as well, that's mainly for the inbound roaming beneficial. But roaming has been well. So we expect that trend to continue. Hopefully, that's answering your question.

Just Paul, I just want to add, right, in the guidance, we've assumed roaming, as Johan pointed out, to continue to be robust. However, we've not assumed a huge uplift in roaming year-on-year against 2022. So if that transpires, and as Johan pointed out, is when China reopened and roaming recovered at a more accelerated rate, these are upsides to our actual numbers than what we've guided the market.

So this could be like 30%, 40% below pre-pandemic? I'm not sure how much you can [ detail given ], but I'm just wondering, is that the kind of level?

Yes, we will not -- we'll stop short of giving you the percentage against pre-pandemic, it is below pandemic level at this point in time. And of course, the thesis and the verdict is out there to whether or not it will ever revert to pre-pandemic levels because the way people travel and roam has also changed the pattern that change. So we're looking at it in totality.

But I think in broad [ teams ], China remains to open, we have not felt that impact yet. That's on the Consumer side. On the Enterprise side, I think we are well below pandemic level. But that, as Dennis said, is partially baked in, but create some upside.

We take our last set of questions from Piyush.

Thanks a lot, Dennis, Nikhil and Amelia for organizing this. A couple of questions. Firstly, can you give us some update on the network deployment by Antina, what is the plan going forward? Any operational challenges which you have faced? Any learnings which you can share from running that JV? And what changes you have made to address those bottlenecks? And what should we expect more, right, from there? Secondly is just housekeeping, what percentage of your subscribers have 5G handsets today? And how much of your data is actually going through the 5G network?

Nikhil, would you like to take the first question and then Johan can answer the second.

Yes, let me start on the first question, Dennis can add. I think Antina has worked out well for us. It's generated CapEx savings and cost savings. There is, of course, some element of CapEx to OpEx substitution, which shows up as wholesale cost. But overall, I think it's been a good experience for us that has been value accretive. The rollout continues. We're in line with the commitments of coverage that we've made with IMDA, in fact, [ backed ] ahead. And I don't think we've really come across any major operational challenges. There's much we want to do with Antina. So please, stay tuned. I think it's the only thing I'd say. Anything to add, Dennis?

Yes. No, it's like 3 years in the making, right? And of course, like anything else at the starting phase, there were learnings in terms of how we would work with our joint venture partner and also how we can identify opportunities to get the best outcomes of Antina. In 3 years into it, I think we've learned a lot in terms of how to optimize and to put together our strength in terms of negotiating our bandwidth as well. So there are very positive outcomes as a result of the collaboration. And we've set -- that sets the stage for future collaboration -- an expanded collaboration that we can identify, and we anticipate that we will do through Antina.

Yes. And on the question 2 and 3 related to the number of subs on [ fire ] or number of subs of 5G-enabled phones flagship data usage. And I have to be a bit cautious in terms of giving you exact numbers. But what I can tell you is that more than half of our subscriber base is actually enabled with a 5G phone at this point in time. And that's continued [ investing ] to grow, obviously. If you talk about traffic, that's obviously significantly less good at this point, simply because of the fact that 5G indoor penetration is still, I would say, growing. That's something which is important because quite a lot of use is triggered from indoor. But it's all healthy trending, I hope so. Hopefully, that gives you a bit of color.

We've come to the end of our call this evening. Thank you so much for your time. And if we didn't get to your questions, please feel free to reach me at [email protected].

Thanks, everyone.

Thank you.

Thank you.

Wishing you a happy Valentine's Day one week from now.

Thank you. Bye.