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Singtel profit skids to 16-year low amid challenges in India

Company expects performance of associates to improve

A Singtel booth is pictured at the Money 20/20 Asia Fintech Trade Show in Singapore March 21, 2019. The company reported its lowest annual profit in 16 years in the year ended March.    © Reuters

SINGAPORE (Nikkei Markets) -- Singapore Telecommunications reported its lowest annual profit in 16 years, underscoring the brutal competition in key markets in Southeast Asia as well as in India that has triggered a wave of consolidation in the telecom industry.

However, the company said the worst may be over and that it expects contributions from associates to improve.

Full-year net profit for Singtel, which owns Optus in Australia and has large stakes in other companies such as India's Bharti Airtel, plunged 44% to 3.10 billion Singapore dollars ($2.26 billion) due to the absence of one-time gains and a 38% drop in contributions from associates.

Underlying net profit, which excludes exceptional items, declined by 21% to S$2.83 billion in the year ended March.

Although the results were in line with analysts' expectations, the net profit figure was the worst since 2003.

Like many telecom companies around the world, Singtel and its regional associates have seen margins contract as consumers switch from voice to cheaper data-based services. Together, Singtel's associates account for more than 50% of its earnings before interest, tax, depreciation and amortization, or EBITDA.

The company said it expects capital expenditure of around S$2.2 billion this financial year, up from S$1.7 billion in the just-ended year. Group CEO Chua Sock Koong said Optus has already begun investing in its next generation 5G mobile network. In Singapore, significant capital spending will likely take place in 2021 when authorities sell the required spectrum.

Singtel also said it would continue to drive digitalization and automation and expects savings of around S$490 million this financial year. Excluding associates, the company had a staff strength of 23,326 as of March end, down 8.4% from the previous year.

Credit ratings agencies have raised concerns about Singtel's rising capital expenditure as it gears up for the launch of 5G networks in Australia and Singapore. Earlier this year, the company said it was contributing $525 million to a rights issue by its Indian associate, drawing warnings of a ratings downgrade.

Speaking at a media briefing, Arthur Lang, Singtel's CEO for international operations, said Bharti managed to grow revenues in the March quarter after 10 straight quarters of declines although it still made a loss. The Indian company's ongoing rights issue would strengthen its balance sheet, allowing it to hold its ground amid the ruinous price war sparked by Reliance Jio Infocomm, the newest entrant to the market there.

In Indonesia, Telkomsel would benefit as competitors have increased prices, while Thailand's AIS has predicted mid-single-digit revenue growth as rivals withdraw unlimited data plans that have hurt margins, he said.

"We remain optimistic about the prospects of our regional associates as a whole, and we hope the worst is over," Lang added.

Looking ahead, Singtel said consolidated revenue is likely to grow by mid-single digits, while consolidated EBITDA is expected to be stable.

Asked about the rise in mergers and acquisitions among telecom companies, Chua said Singtel was open to such deals.

At home, Singtel's competitor M1, the smallest of the three service providers, was bought over by two of its major shareholders earlier this year.

However, Chua also warned of possible opposition from regulators.

For example, Australia's competition commission last week blocked a proposed 15 billion Australian dollars ($10.4 billion) merger between Vodafone Hutchison Australia and TPG Telecom on concerns it would reduce competition.

Outside of Australia, Norway's Telenor Group and Malaysia's Axiata Group are in discussions regarding a potential combination of their telecom and infrastructure assets in Asia.

Telenor's Asian footprint covers Thailand, Malaysia, Bangladesh, Pakistan and Myanmar, while Axiata has operations in Malaysia, Bangladesh, Cambodia, Nepal, Sri Lanka and Indonesia.

--Kevin Lim

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