Singapore-based telco giant Singtel has seen its net profit for the year ending 31 March 2021 plunge by 93 per cent, year-on-year to S$88 million, with the company breaking out a new strategic ‘reset’ aimed at capturing “untapped digital growth”.
In its latest annual financials, published on 27 May, the company revealed that its underlying net profit was down 30 per cent year-on-year to S$1.73 billion due to continued industry and COVID-19 headwinds. Operating revenue, meanwhile, was down five per cent year-on-year to S$15.64 billion.
Moreover, Singtel’s operating revenue for the full year was down five per cent to S$15.64 billion, reflecting headwinds faced by its Australian subsidiary Optus, which saw migration revenue from services for the country’s National Broadband Network (NBN) taper off for Optus’ fixed business as migrations neared completion.
Optus was also hit by ongoing impact from COVID-19 and continued carriage erosion. In Australia, operating revenue in the second half of the year declined six per cent year-on-year.
In Singapore, the company’s operating revenue declined eight per cent in the second half, mainly due to reduced roaming, prepaid mobile and voice revenues.
Indeed, roaming and prepaid services continued to be impacted by the drop in the number of tourists and foreign workers as a result of ongoing travel restrictions.
“This year’s results are disappointing given unprecedented headwinds from COVID-19 and ongoing structural challenges," said Yuen Kuan Moon, Singtel group CEO. "The one-time exceptional charge also weighed on our bottom-line number. That said, NCS and our data centre services proved to be bright spots, showing strong growth as enterprises rushed to digitalise and transform their businesses.
"We will be capitalising on this mass digitalisation with plans for a strategic reset to drive recovery and growth," he added.
However, Singtel has also flagged a few bright spots. In Singapore, for example, equipment sales increased due to customers upgrading to 5G devices and the timing of certain premium handset launches.
As a result, earnings before interest, tax, depreciation and amortisation (EBITDA) fell 21 per cent along with lower wage credits received compared to the same period last year.
In Australia, equipment sales revenue was also higher due to increased activations from a higher volume of premium handsets sales. Additionally, Optus’ mobile business recovered in the second half of the year and Singtel IT service provider subsidiary NCS, which launched in Australia in late 2020, delivered ‘robust’ growth in IT services as enterprises accelerated their digitalisation efforts in the country.
Overall, the Singtel group continues to build on its 5G network leadership in Singapore with the launch of the country’s first 5G standalone network. On 25 May, the company said it had officially launched its 5G Standalone (SA) network in Singapore.
“We are thrilled to introduce supercharged connectivity on Singapore’s most powerful 5G network,” Singtel Singapore consumer CEO Anna Yip said at the time. “Our customers will be among the first in the world to enjoy the benefits that 5G SA can deliver.”
Singtel said it was also progressively expanding its 5G in-building coverage to more indoor sites. In Australia, Optus has increased its 5G coverage with more than 1,100 sites across the country.
Singtel said it expected challenges to continue well into the new financial year, with pandemic disruptions continuing to impact its business in various ways.
Plans for a strategic reset
However, the publicly listed company told shareholders it would embark on a “strategic reset” and continue to invest for medium to long-term growth by leveraging its core competencies. It also plans to maintain a strong balance sheet through a more active capital management program.
The so-called strategic reset centres around three key tenets: leveraging 5G leadership to reinvigorate its core consumer and enterprise businesses; developing new growth engines in ICT and digital services; and unlocking the value of its quality infrastructure assets.
The move comes as digital economies experience a global growth spurt, the company said, amplified in part by COVID-19, creating a new and urgent dependency on telecommunications as a platform.
“This strategic reset is the most significant move in recent years to refocus the business and capitalise on technology proliferation and large-scale digitalisation,” Yuen said. “With the mass migration online over the last 18 months, the pandemic has also accelerated trends that were already redefining the basis for success for our industry.
“We intend to use this unique opportunity to make profound changes, restructure and reposition to emerge stronger,” he added.
With investment in leading 5G networks, the group plans to realign its core business to drive 5G market share in Singapore and Australia.
On the consumer front, this means innovating products and services to deliver customer experience and growing digital businesses in adjacent lifestyle sectors.
On the enterprise side, the focus will be on growing 5G enterprise and cloud solutions in Singapore, Australia and the group’s regional associates. It will also double down on the digitalisation of its operations to drive productivity, make cost improvements and get even more digital.
Building out IT services across Asia Pacific
To capitalise on the large-scale digitalisation underway in the market – and the digital transformations that underpin it – Singtel will develop a number of new growth engines, key among these being NCS.
After seven straight years of positive revenue growth, mostly on the back of the public sector in Singapore, the Singtel IT services subsidiary will be repositioned for growth, with the goal of becoming a business-to-business (B2B) digital services ‘champion’ in Asia Pacific.
In this goal, the NCS subsidiary will set up two strategic business units to focus on the key sectors of government and telecoms, as digitalisation of processes and services continue to accelerate.
The business is also setting its sights on expediting growth in the enterprise sector, particularly healthcare and transport, communications, technology and media and financial services, in the markets of Singapore, Australia and greater China.
In a group-wide reorganisation at the start of the year, NCS was carved out as an independent business unit, as a first step towards realising this new remit and ambition. Cyber security remains a key growth driver for NCS and the group will be reorganising part of Trustwave’s technology services into NCS.
“With its public-sector focus, NCS has been a consistent revenue growth engine for the group over the years,” Yuen said. “It makes a lot of sense to develop this growth engine by casting its net further afield into the enterprise sector and markets outside Singapore where we have presence and synergies.
“There will be no letting up in the e-government side of the business, but this is a major turning point for NCS – we are growing our capabilities and repositioning ourselves to capture new business from the private sector which should provide a growth uplift from the ongoing digital race," he said.
Singtel also plans to step up the building out of a digital ecosystem with its regional associates, leveraging its scale and reach to capture growth in digital services and grow capital.
This will mean adopting a multi-local strategy, when working with associates to create and port where viable, lifestyle products, services, business segments or even companies across its regional footprint, the company said.
With accelerated digitalisation fuelling connectivity and demand for critical infrastructure, Singtel is also exploring options to leverage its infrastructure assets to unlock latent value and drive growth. The group’s strategic reset also includes renewed commitments to advance the sustainability agenda while pursuing business growth.
“With digitalisation sweeping across ASEAN, we want to make the most out of this growing appetite for digital services by exploiting the digital ecosystem we’ve built with our associates,” Yuen said. “We will be pursuing a hyper-local strategy where we will create, partner, support, and facilitate the propagation of products and services, even companies among the Group, where relevant and monetisable.”