Q1 FY18 Earning Conference Call 11 August 2017...Q1 FY18 Earning Conference Call 11 August 2017 Page...

Q1 FY18 Earning Conference Call

11 August 2017

of 22

CORPORATE PARTICIPANTS

Ms Sin Yang Fong – Vice President, IR

Ms Chua Sock Koong – Group CEO

Mr Allen Lew – CEO, Consumer Australia

Mr Yuen Kuan Moon – CEO, Consumer

Singapore

Ms Lim Cheng Cheng – Group CFO

Mr Bill Chang – CEO, Group Enterprise

Mr Murray King – CFO, Consumer Australia

Mr Samba Natarajan - CEO, Group Digital Life

Mr Ben White – MD, Marketing and Products,

Optus

CONFERENCE CALL PARTICIPANTS

Mr Roshan Raj – Bank of America Merrill Lynch

Mr Gopal Kumar – Nomura

Mr Eric Pan – JP Morgan

Mr Luis Hilado – Maybank

Mr Piyush Choudhary – HSBC

Mr Foong Choong Chen – CIMB

Mr Sachin Mittal – DBS

Mr Ian Martin – New Street Research

Mr Koh Miang Chuen – Goldman Sachs

Mr Varun Ahuja – Credit Suisse

Mr Raymond Tong – Evans and Partners

Ms June Supapannachart – Goldman Sachs

Start of Transcript

Operator

Ladies and gentlemen, your conference for today is due to begin shortly. Please continue to stand by and we thank you for your patience. Ladies and gentlemen, welcome to Singtel's FY18 Q1 Results

Conference Call. If you have any issues during the call, please press *0 to speak to an operator. Ms

Sin, over to you.


Thank you, a warm welcome to all analysts and investors. You are listening to Singtel's Earnings

Conference Call for the first quarter ended 30th June, 2017. My name is Sin Yang Fong and let me introduce Management on the call. We have Ms Chua Sock Koong, Group CEO, Mr Allen Lew, CEO,

Consumer Australia, Mr Bill Chang, CEO, Group Enterprise, Mr Yuen Kuan Moon, CEO, Consumer Singapore, Mr Samba Natarajan, CEO, Group Digital Life, Mr Arthur Lang, CEO, International, Ms Lim

Cheng Cheng, Group CFO, Ms Jeann Low, Group Chief Corporate Officer, Mr Murray King, CFO, Consumer Australia, Mr Ben White, MD, Marketing and Products. They are also assisted by other

members of the Management Team of Singapore and Australia. Before we start taking questions, I

would like to invite Sock Koong to share some highlights from this set of results.


Thank you, Yang Fong and thank you all for joining us for Singtel's results for the first quarter ended

30th June 2017. Let me just share with you some of the highlights for the quarter's performance. It's another also a very solid performance growing revenue and EBITDA and that's despite the ongoing

erosion in voice and carriage services. We continue to strengthen our core operations and build skill in our digital businesses. During the quarter, we enhanced our spectrum holdings in Singapore and


11 August 2017

of 22

Australia and completed the acquisition of Turn significantly boosting Amobee’s technology edge and

scale.

In Australia, our consumer business kept its momentum and added strongly to its postpaid mobile and NBN customers. Optus continues to differentiate through network investments and exclusive

content in a highly competitive environment. Revenue including first time contribution from Turn rose

8% with increases in equipment sales, mobile data, ICT and digital services. More than 9% of the Group's revenue now comes from new growth engines in digital and cyber security services.

EBITDA increased 3% driven by data monetisation efforts and disciplined cost management. Amobee

achieved EBITDA breakeven this quarter. Associates' earnings were affected by intense market competition, especially in India. The associates made significant investments in networks and

spectrum and recorded higher depreciation and amortisation costs. This is partially mitigated by strong results from Telkomsel.

Net profit fell 8% on lower associates' contributions and exceptional losses from staff restructuring in Australia. Underlying net profit declined 4% and yet excluding Airtel would have risen 3%. Free

cashflow rose 5% as strong operating cashflow and higher associates' dividends offset Optus' higher capital expenditure. During the quarter, the stronger Australian dollar as well as most regional

currencies contributed $18 million or 2% to underlying net profit.

Let me just talk through some of the Group's highlights for the quarter. In July we fulfilled our regulatory obligations with the successful listing of NetLink NBN Trust, raising proceeds of $2.3 billion.

We are currently reviewing the usage of the proceeds and will announce any capital management

initiatives during our half year results. We received a Special Recognition Award at the 2017 Singapore Corporate Awards for our efforts to champion Board diversity. We also topped the

Singapore Governance & Transparency Index for the third straight year.

We also introduced Singapore's first virtual Visa account expanding the reach of Dash our mobile payment application to over 50,000 merchants and e-commerce sites. We are also leading the

marketing with the impending launch of 800 megabytes per second LTE mobile speeds at selected high traffic locations across Singapore.

Optus is spending $1 billion over the next year to enhance capacity and expand its 4G coverage by another 500 sites in regional Australia. Optus is also committed to bringing the best entertainment,

sports and music experience to customers. It launched a world-first mobile app powered by rich content from Nat Geo.

We continue to build our pipeline of cyber security talents in collaboration with polytechnics, ITEs and

SkillsFuture Singapore. We launched Cyber Security Experience and interactive portal to engage students and professionals who are keen in cyber security careers. We were awarded the Asia Pacific

Telecom Group of the Year by Frost & Sullivan in recognition of our market leadership in ICT services

and in the digital businesses we are realising synergies and driving strong customer traction with the integration of Amobee and Turn.

With that, let me turn over to Yang Fong for your questions.


Thank you Sock Koong. Participants are advised that this call is being recorded for playback and transcript. We will now invite questions from participants. Our operator will assist you to put them

through.


11 August 2017

of 22

Operator

We will now begin the question and answer session. Participants with questions to pose, please press

*1 on your telephone keypads and you'll be placed in the queue. To cancel the queue, please press

the # key. Our first question today comes from the line of Roshan Raj from Merrill Lynch. Please ask your question.


Hi, thanks for the opportunity. Two questions. First, you made some comments about use of proceeds from the divestment. I just wanted to clarify if the announcement around use of proceeds

will be done at the half yearly results? That's one. Second, I saw some press comments about looking at M&A opportunities in cyber security and increasing stake in associates. Any sort of budget you

have in mind for these kinds of investments? That's one question. Second question was in regards to Optus - the plan to invest about $1 billion in regional Australia, what is driving this? Is it because

your network is in a really good position and key metro cities and hence expand outside in other areas? Or is there a catchup that you are looking at doing with the market leaders and hence spending

in these areas? Some color there will be very helpful. Thank you.


Okay, I think very quickly the NetLink Trust divestment proceeds we will look at using it for investing in our core, look at new business opportunities, pay down debt and we will also review other capital

management initiatives. Let us come back in more detail when we do our half year results.

M&A opportunities, I think you know what we're looking at and we don't have any specific target to talk about. You know that we would always make sure that if there's anything that's worthy of

announcement we would share with the market. There's really no specific targets to discuss currently.

I'm going to pass over to Allen to talk about world investment plans, regional network investments in

Australia.


Thank you, Sock Koong. Good morning everybody. I think our plan to go into regional Australia is

driven off two major criteria. Number one is when you look at the needs of our consumer customers as we move into the age of the mobile internet they are more and more dependent on a mobile

device. So just providing a metro customer with coverage in the metro is not adequate for the Australian metropolitan population. We are expanding our coverage into the regional areas so that

we can better meet the needs of the higher end consumer customers in metro. That gives us opportunity to push our ARPUs up. So you can see even in quarter one, we are starting to see the

benefits of this strategy because our postpaid mobile ARPU if you take out the effect of DRP has

actually increased for the quarter year-on-year.

The second reason why we are expanding our network out in the region is that it gives us an opportunity to grow our revenue in the regional areas. There are substantial regional communities

with 150,000, 200,000 population where we are under-indexing in terms of our market share and our


11 August 2017

of 22

coverage in these regional areas centered around in bigger cities allows us to increase our market

share there substantially. At the same time it gives us with the regional coverage a good opportunity to expand our enterprise and small and medium market business share as well because these

customers will want coverage not just in metro but in regional areas.

I hope that answers your question.


Yes, thank you very much Sock Koong and Allen.

Operator

Our next question today comes from the line of Gopal Kumar from Nomura. Please ask your question.


Thank you. Just on the NetLink proceeds I just want to clarify on the comments. You haven't ruled

out returning cash as special dividends to shareholders or is it still under consideration?

And a few other questions. Firstly on the Singapore business if I look at the mobile revenue that's

actually a bit weak in this quarter. I'm wondering what is driving it. Also there seems to be a fair bit of cost pressure across the business lines. Given the competitive outlook should we expect that the

incremental revenue growth would come at lower margins for the Singapore business?

And lastly Australia, the $1 billion capex that you mentioned is that incremental to your current CapEx for this year or is it part of a long term plan? If so what's the timeline of this investment? Thank

you.


Okay, I think how we are going to use the proceeds everything is under consideration. Everything is under the bucket of capital management initiatives. I'm going to ask Moon to talk about mobile

comms in Singapore.

Mr Yuen Kuan Moon – CEO, Consumer Singapore

Yes, thank you Sock Koong. Mobile comms revenue if you look at our guidance at the start of the

Financial Year we have guided the market that we are expecting a low single digit decline in mobile service revenue. We believe that this is really the impact of voice to data substitution and we continue

to see this playing out for the rest of the two, three quarters remaining in this financial year. Primarily impacting us more probably would be the roaming revenue, so we continue to see a much faster

switchover from voice to data and this trend will continue. This quarter we are seeing the roaming revenue as a contribution of total mobile comms revenue down to 16% compared to a quarter ago

which was 18%.


11 August 2017

of 22

Of course we are also seeing a bit more positive trend that now a lot of our mobile customers -

roaming customers have taken up data roaming packs. This actually bodes well that once we get over the hump when the switch from voice to data is completed we will then be back on track on

growth.

So apart from roaming if you look at the core local business we have seen the turnaround and the

local data business is growing and able to compensate the decline in the local voice piece. We are just now washing out the roaming portion, which we will see happening in the next two or three

quarters.


Allen, do you want to talk about the CapEx or should I get Murray to do that…


No, I think I can handle that one from here. I think basically to answer your question it is no incremental for the guidance on CapEx that we've given. What we did was we announced in July that

we will be spending $1 billion over a 12 month period between 2017 July to 2018 July so the $1 billion does span across 4 months into the next financial year.


Thank you and now to the question of cost. You are seeing a fair bit of cost especially across the business lines. How should we expect this to trend going forward?


Gopal, do you mind repeating your question on that?


I see that if you look at the EBITDA trends there's a fair bit of cost pressure in the business lines

especially Singapore and to some extent in Australia. How should we look at this going forward should the incremental revenue come in at lower margins for Singtel?


Cheng will take the question.



11 August 2017

of 22

Let me take the question, thank you for the question. I think if you have seen our announcements

which are consistent over the last two or three quarters we have always talked about cost management so it's definitely a constant feature throughout all our businesses.

So just with reference to some of the cost strategies that we talk about actually if you look at things

like selling and admin for Singapore Consumer you'll see that even though we have actually now

higher equipment and higher reconnections, actually the number there is pretty flat and that's really a demonstration of the strong cost management.


Okay, thank you.

Operator

Our next question today comes from the line of Eric Pan from JPMorgan. Please ask your question.

Mr Eric Pan – JPMorgan

Good morning guys. Thanks for taking my questions. A couple if I could. First - sorry, this will be on the Australian business. First on postpaid churn it seemed to have picked up in the quarter both

year-over-year and quarter-over-quarter. What caused the uptick there? Are you seeing subscribers that sign up specifically for the EPL moving off after the season ended?

And then on the regional investments, do you intend to add new cell sites and should we expect

expansion of population and geographical coverage?


Eric, this is Allen here. I think the uptick in postpaid churn is just a function of the fact that the

market is starting to connect more and more customers onto BYO plans primarily because customers

are shifting in this market to just SIM only plans. The churn on the SIM only plan is higher than on a postpaid contract handset plan. It's just a reflection of the shift in our base towards BYO.

And in regional we absolutely will be putting in new base stations and as we've announced as part of

our $1 billion investment we'll be putting close to 500 new base stations and these will be giving us additional coverage in areas where we don't have coverage today in the Optus mobile network.


So on the higher churn is that sort of the new normal going forward then?



11 August 2017

of 22

I think it reflects an uptick in the BYO percentage on market and obviously we will be focusing on

these BYO customers to better understand why the churn rate is higher. We are putting measures in place to try and bring that down as well. I wouldn't read that one way or the other as a trend. It is

something that has popped up and we will be working on it.


Got it and one more if I could. On the enterprise side revenue was stable year-over-year despite

continued decline in legacy revenue. Can you give us some color on what segments of the business are doing well there and what the competitive environment currently looks like? Is the price

competition steady or has it gotten more aggressive?


We manage our enterprise business on a regional basis so I'm going to let my colleague Bill Chang answer this question.


Yes, thank you, Allen. Good morning everyone. The enterprise business if you look at that essentially it's driven by the ICT services, which account for 44% of the overall mix. That's largely driven by a

lot of services beyond telecom carriage. Specifically in Singapore, it's driven by Smart Nation initiatives, public sector infrastructure projects. In Australia we've got a number of these enterprises

that we provide these ICT services, as well as managed services. That's the one that's driving the growth whilst the erosions and the compression in the carriage business happens to telcos globally

so we manage that ensuring that the market share positions in Asia Pacific and where we are in those core markets, Singapore and Australia, we maintain our market share positions. Thank you.


Got it. Thank you.

Operator

Our next question today comes from the line of Luis Hilado from Maybank. Please ask your question.


Hi. Good morning. Thanks for hosting the call and congrats on the results. My two questions were for - the first one is for both Singapore and Australia. I saw that data and internet revenues were

down Q-on-Q despite broadband subscribers in both countries being up. I just wanted to get some

color on what factors are driving that and whether it's likely a one-off event or if it will be a trend going forward.


11 August 2017

of 22

Second is regarding enterprise in Singapore. Your competitors and yourselves make no secret that

enterprise is the way forward for growth and Smart Nation is a good potential supply for those contracts. Is there enough pipeline out there for the industry to see positive growth and yourselves

positive revenue growth or are the returns going to be competed away?


Allen, you want to do the first question first?


Yes, I think Murray will answer it but I think we need to explain that our data and internet more than just mass market. Murray, can you answer that question?


Yes, in respect of consumer Australia you can see in the MD&A on page 25 our actual mass market fixed revenues are up year-on-year so we see a decline in our on-net fixed revenues as customers

are migrating to NBN but that's more than compensated by the growth in our off-net revenues. In

respect of our wholesale revenues you did see a decline there predominantly as a result of some of the price competition you see in the marketplace similar to what is being experienced in our enterprise

division.


On the Smart Nation, on your question number two - I will take on question number two. On the

Smart Nation yes there is - the government's announced its budget for the Smart Nation. I think it's in the press. More than $2 billion of contracts allocated and obviously there are many players vying

for that.

We believe with our unique value proposition that one in terms of our capabilities in connectivity and

also being a very strong IT services and applications provider; positions us.

Two, I think the area around the NB-IoT rollout that we announced will continue to enhance our proposition in that to support some of the Smart Nation sensor network platforms.

Three I think in the area around cybersecurity it's more of this rolls out, you know it's going to be an

area of focus to bring that complete portfolio. Our play, it's not just in Smart Nation in Singapore. A lot of the capability building that we do over here, a number of these are also applied into core

markets of Australia, where enterprises may be looking at transformation and also, to some extent,

Hong Kong. So it is a regional play in a few of the core markets that our System Integrator arm operates in. Thank you.



11 August 2017

of 22

Thanks Bill and Allen. On Singapore, just wondering if similar factors for data and internet down 4%

q-on-q.

Ms Sin Yang Fong– Vice President, IR

Your question is data and internet for the Singapore consumer business now?


Correct, it seems to be down 4% q-on-q despite the positive subscriber growth.


Yes, sorry, I think we just want to clarify the question. When you talk about data and internet, actually

what we announced in our MD&A is actually in the enterprise segment. So we are wondering which slide you are actually referring to?


Okay, yes, that's the data and internet line, $396 million for this quarter from $411 million.


Maybe we can take this offline with you. The way we classify the Singapore P&L versus the Australia

- the consumer versus enterprise classification.

Luis Hilado – Maybank

That'd be great, yes.


Actually, under the enterprise segment, data and internet have been relative stable.


Thanks for that.


11 August 2017

of 22


Thanks.

Operator

Our next question today comes from the line of Piyush Choudhary from HSBC, please ask your question.


Yes hi, thanks a lot for the opportunity and congrats for the good set of results. Two questions for

me. Firstly, we saw that NCS order book is up 21% to $3 billion. So could you share what is leading

to the strong performance? Is it driven by the Smart Nation tenders? If you could comment on the

margin profile of these incremental tenders, is it similar to the existing enterprise margins? Secondly,

on cyber security, we have seen some softness in revenue which is down 9% q-on-q. Is it driven by

seasonality or are you witnessing any structural headwinds to grow this business? Thank you.


Okay, this is Bill, good morning everyone, I will take the two questions. On the order books for NCS

at $2.9 billion, it is a mix of Smart Nation related projects and also public infrastructure, IT services contracts that we've secured, a mixture of both. For the public services infrastructure, there is the

traditional type IT outsourcing, management of the infrastructure. The Smart Nation are the new ones that we've been rolling out as well, those are new capability deployments. So it's a mixture of both.

Obviously the Smart Nation ones are the ones that we're also sort of eyeing for because of that

opportunity that the government has shared about building this Smart Nation vision. The second question just…


Cyber security.


…cyber security. Cyber security, if we look at the seasonality factor, Q4 was the end of the financial

year also corresponds to the financial year end of the government sector. So we do supply that to a number of seasonality factor, so Q4 to Q1 we will see a bump up in Q4. For Q1 it's flat year-on-year

for comparisons because of some big one-off deals that we've done last year. That really it's a one-off, non-repeatable deal so that's why it's flat for this year.



11 August 2017

of 22

I think I should also add that we affirmed the guidance that we had provided on our cyber security

revenue and we have guided $550 million to $650 million for the full year.


Sure, really clear. If I can just on the NCS orders which you are winning incrementally, is the margin

profile similar to what it used to be?


Margin profile in the current order books is roughly, yes, similar, yes. Obviously we are in a constant

state of cost transformation to make sure that we keep those margins profile similar.


Great, thanks a lot.

Operator

Our next question today comes from the line of Foong Choong Chen from CIMB, please ask your question.


Hi, thanks for the call. Four questions from me. Firstly, on the enterprise mobile revenue that was

down year-on-year, is that due to more competition or is that just lower roaming and voice usage? Related to that is the high re-contracting activities that we saw, was that part of the normal cycle of

contract renewals or was that also driven by competition? My second question on the Australian mobile business, the service revenue growth was pretty strong, excluding the DRP effects. How should

we think about the trend going forward, has competition stabilised in the market? Some update there will be quite good.

Then, thirdly, on Turn, did Turn contribute possibly to Amobee’s EBITDA in the quarter and should we

expect it to support Amobee’s trend of improving EBITDA going forward? Or is there a risk of short-

term earnings drag from Turn? Then, lastly, for the Singapore enterprise, why did the business solutions revenue drop so steeply year-on-year and q-on-q? The EBITDA for the business was down,

as mentioned, due to higher costs to enhance the cybersecurity and ICT capabilities, should we expect more of that in the near term or have most of the costs now been incurred? Thank you.



11 August 2017

of 22

Okay. I'm going to ask Bill to take all the Enterprise related issues, mobile and Singapore, the business

solutions. Then maybe Samba can talk about Turn and Allen can talk about the revenue trends, DRP et cetera for Australia.


Thank you, Sock Koong. Okay, on the enterprise mobile, the competition, it's really two factors, one due to the more intense competition that we'll see on contract renewals on the market. Market players

are all competing heavily.

The other factor is really the roaming reductions, and for the SMEs it's also a little bit of the usage-

related factors as well, given a more cautious SME sector. So I think a combination of the three would be the compression in terms of the mobile revenues.

The other one on business solutions, for business solutions what we see is really a seasonality factor.

Q4 was the year-end government so obviously there is a big contract closure with the government customers. We've managed to secure quite a fair bit of those and in Q1 it’s the start of the new year.

Mr Samba Natarajan – CEO, Group Digital Life

On the question on Turn, I'd say that in terms of improving EBITDA I think both companies Amobee and Turn have complemented each other's capabilities to lead to improved performance. Specifically,

with Turn’s programmatic DSP platform, Amobee and the combined Company are able to perform

programmatic buying without relying on third parties. That has resulted in improvement to gross margin, as well as the scale across the combined Company has given us ability to manage OpEx much

better, which is why we got better results this quarter. We are affirming our guidance of targeting EBITDA breakeven for the year.


Allen?


Thanks, Sock Koong. I'm going to let Ben talk a little bit about the kind of competition that we are

seeing here in the Australian mobile market, and then I'll come back and share a bit more of the strategy and then I'll try and answer your question more directly about where we see our revenue

trends and DRP going.

Ben, can you share a little bit about what you're seeing in competitive mobile situation in Australia?

Mr Ben White – Managing Director, Marketing and Product, Optus

Yes. I think the comment on the mobile market in Australia would be that there is certainly still quite

heightened levels of competition in certain sectors of the market, probably most notably in the BYO

market and particularly probably increasingly from what we would sometimes refer to as the tier 2


11 August 2017

of 22

carriers or the MVNOs carriers in the marketplace. There has been a lot of additional activity from

many of the MVNO players particularly over the last six to 12 months where we've seen both some price discounting happen and some quite aggressive price discounting happen, as well as we're also

seeing obviously just increasing data inclusions as another level of competition.

Amongst the major carriers, the pricing environment is probably slightly more stable, particularly on

handsets. Again, there's quite a lot of activity around BYO as obviously all the carriers respond to just where the overall shift of the market, which is increasingly towards BYO plans. But there the level of

competition really has been less around price discounting and more around data inclusion.


Thanks, Ben. I think if you just take a step back, what Ben is telling you is that from a price perspective

this market is really quite competitive, but we believe that for Optus to be successful it's not only about price, because a lot of customers in this market are driven by the quality and the coverage of

the mobile network as well. So I think that is where our investment in the regional as well as in the metro areas in terms of extending our coverage and deepening our coverage will give us the ability

to provide a premium mobile network that has got not just a competitive price but a quality service as well.

If you look at our ability to integrate fixed and mobile to provide a bundle proposition, we then feel that we are in a strong position to compete today. So what does that mean to our overall revenue

trend? I think you have seen us even, including DRP, now showing positive mobile service revenue growth. It means two things: number one, the impact of DRP which we started approximately two

years ago, is washed through the base, primarily.

We are also getting the higher value customers in consumer and we're starting to make some inroads into SMB as well. I think all this means is that our value proposition of a competitive price, a network

that basically starts to cover more and more of Australia, bundled together with, in the case of

consumer, premium entertainment product, and in the case of SMB, a cloud-based communications product is starting to get some traction in the market. I hope that answers your question.


Yes, it does. Thank you so much, everyone.

Operator

Our next question today comes from the line of Sachin Mittal from DBS. Please ask your question.


Thank you. Congratulations on achieving breakeven for the Amobee business unit. I was wondering,

we have been seeing very low margins for some of the biggest players in mobile advertising, like Google, so wondering is that a concern in the industry that merchants in the mobile side, mobile

advertising, are under pressure and should that mean that EBITDA breakeven may not translate into EBITDA positive? Just some color on that will be quite useful. I know you’re in a different part of value

chain, so that will be quite appreciated.


11 August 2017

of 22

Secondly, just on your HOOQ business. Again, I'm trying to understand, you're doing your original productions now, which seems quite early on the whole - given that it's not such a big business. So

that actually, should it mean more pressure on your margins? Given all these kind of productions are expensive in this part of the lifecycle of the business?

What is the kind of ARPU you're getting from each subscriber, because there are a lot of peer players in each of these be it iFlix, Viu in the low end and probably players like Netflix in the high end. Some

color on the strategy for HOOQ would be quite useful given increasing competition.

Lastly, on the digital side, again enterprise business unit, Trustwave. It's a half-a-billion-dollar business and of course, it's still not EBITDA positive. So what is the challenge here? If sales and

marketing costs, is it most of the time you see that that's the kind of issue for the cybersecurity business, right? So are you working on cost management, on the sales and marketing side, and at

what scale does it become profitable? That's the third question.

The last one is on the NetLink. Are you planning to - whatever $2 billion kind of gain you have pointed

out, will this be amortised over a number of years, any indication of how many years? Thank you.


Sorry, Sachin, do you mind repeating your last question, something about the amortisation?


Yes. There are some potential gains on the divestment of NetLink trust. You have indicated $2 billion. So will that be amortised or recognised? How will that be and over how much timeframe? Thank you.


Well, the gain has been realised, but because we were announcing for the 30 June quarter, it has not been recognised in the June quarter numbers. It will be recognised in the next quarter, September

quarter numbers.


Fully recognised, okay.


It is a real-life transaction. The shares are sold so you will fully recognise your earnings. Samba, do you want to take the Digital Life question? Then maybe Bill, you can talk about Trustwave.



11 August 2017

of 22

Sure. Yes, on Amobee and digital marketing your question was around are we seeing lower margins

in mobile advertising, in particular because of what we're seeing in Google. Our belief is that at the moment we don't see a significant pressure on margins but this is likely to come. Our belief is that as

we keep innovating on both technology and our offers to our customers, beyond just programmatic

placement in the media and enter into analytics, deeper conversations with CMOs around how to support them. We will be able to continuously protect and add value to customers in a way that

protects our margins and keeps them at sustainable levels.

As customers move to more and more the programmatic self-serve platform, the gross margin, that can go down but the EBITDA margin is actually protected because you don't perform all the labour

intensive work that self-serve platform enables a customer directly to do. So the short answer is that we believe that we continue to extract margins as long as we continue to innovate and add value to

CMOs and CTOs in different companies. So that's on mobile advertising.

On HOOQ, you know, original productions is just the start. It's a very small start, because customers

obviously in our emerging markets want to see more local content, but doing it on a very, very low budget basis co-produced with our channel partners and using local studios in those markets. So this

is not a big outlay of content costs in the overall scheme of things, and we're very pleased with the kind of small steps we're taking into the arena at the moment.

As far as ARPU and subscribers and such numbers are concerned we’ll come back at the right point

of time. We still believe we’re in the startup stage and not in a position to disclose these numbers.

Thank you.


On the Trustwave and cybersecurity, let me take that. On the cost, if you look at the business we're

in it's really a cybersecurity services provider and managed security services and technology implementation services. So it's really a - the OpEx is driven by a lot of the investment on our staff

and staff headcount across the world in terms of where Trustwave operates in, and not just the sales and the engineering people but also the product development people to keep its product - because

they do own products as well.

The second part of this also on the expansion of its SOC infrastructure. We've announced over the last few months expansions into Philippines and Japan, so working with Optus in Australia having its

SOC also. They have been expanding the SOC and with those SOC with operations and delivery people

as well. So again, headcount in providing those services. Essentially, those are the main cost drivers where the Trustwave business is concerned.

As far as cost optimisation initiatives as far as Trustwave, really it's one; they do have centers where

their low cost base, having those onshore where it's possible and contractual arrangements allows, we do centralise them into Manila and into Warsaw. Those are the two offshore centers that they

have. Two, the increasing use of automation in the SOCs so that we will reduce reliance on headcount as more customer load comes in and automation to augment the services folks, professional services

and delivery folks.

The third front is on the area around third-party procurement. Trustwave together with Singtel cyber

units do offer third-party solutions in addition to their current IP which we own, and these third-party volume purchase contracts we do go through the cost and leverage through buying in greater scale

versus buying individually. So I think those are the three main areas that we're working on. Thank you.


11 August 2017

of 22


Great. Thank you very much.

Operator

Our next question today comes from the line of Ian Martin from New Street Research. Please ask your question.


Thanks. Two questions, if you don't mind. First, NBN payments have lifted reasonably sharply in the

quarter, $41 million. Is that leveraged to the NBN's focus now in metro areas and HFC rollout, and so can we expect that will continue to lift sharply through the year, those NBN payments?

Secondly, Allen, I wonder if you could perhaps talk about your expectations for 3.5 gigahertz spectrum

services. You're getting some good subscriber additions in consumer and as you say, SME; not so many in business enterprise services. Mobile revenue is flat there. I just wondered whether you've

got an opportunity to perhaps life that with some of those higher value business services, enterprise services at that frequency level in the year ahead and particularly to what extent can you showcase

some business services at the Gold Coast Commonwealth Games in April next year?


Yes. Okay. I'll let Murray handle the NBN payment question and then I'll come back and talk about

3.5 gig. Murray, over to you.


Yes. Thanks, Allen. As you rightly say, you've seen the NBN migration payments increase by $41

million year-on-year. This is a consequence of NBN rolling out in the HFC areas and we do get

compensated as we migrate customers, so it's a function of the consequence of, as I said, the NBN footprint increasing into the HFC areas and us migrating our HFC customers to NBN Co.


So, Murray, is that going to lift, that rate through the year, ahead? Is that a fair expectation?



11 August 2017

of 22

Well, you can see that we have 430,000 odd HFC customers which ultimately have to be transitioned

to NBN. The timing of that will be dependent upon NBNs timing of rollout in the particular HFC areas, so it will obviously be taken - it will be lumpy depending on, as I said, the phasing of NBN rollout.


Okay. Thanks.


Ian, with regards to the 3.5 gig, right now, there are no devices that use this particularly frequency

band, so this frequency band is something that's a strategic frequency for us. As you know, it sits – as one of the frequency bands on 5G. So we will be using the 3.5 gig in different parts of Australia

to test and get ourselves familiar with 5G type of technology, so that when the standards are finalised,

we will be in a position to see what it takes to implement this new generation of mobile network. With regard to what we'll doing with that, possibly even in the Gold Coast, I think we will leave that

to another day when we announce what Optus will be doing as one of the sponsors of that event, the Commonwealth Games, and I'll keep that for a different day to talk about.


Okay. Thanks, Allen.

Operator

Our next question today comes from the line of Miang Chuen from Goldman Sachs. Please ask your

question.

Mr Miang Chuen - Goldman Sachs

Hello. A few questions. Firstly, is on the Singapore roaming business. I think Moon mentioned that

we may see a bottom for the roaming revenues in the next two to three quarters. Just wanted to - wondering what trends have you seen so far that gives you that confidence? Second of all is the

Optus staff restructuring cost. Just wondering how much longer this program will continue and is there any scope to replicate the same restructuring kind of program in Singapore? Then thirdly, if

we look at Amobee and if you could - if you would remove Turn, I'm just wondering what is the ex-

Turn Amobee EBITDA this quarter and given guidance that we will be EBITDA breakeven this year, just wondering if the future quarters are going to see a similar kind of - like, breakeven EBITDA trends

or would it be actually increasing positive EBITDA number as you go ahead? Thank you.


Okay. Let me just quickly take the first question on roaming revenues in Singapore as Moon has just

stepped out for another appointment. Roaming revenues still form about 16% of our mobile comms


11 August 2017

of 22

revenue. While we have seen very good and strong uptake of our data roaming packages, it's still

not enough to offset the declines that we are seeing in voice roaming and we see the trend continuing in the short term. Let me pass over to Samba to talk about Amobee and the other digital question.


Yes. Your question was on Amobee providing guidance on breakeven EBITDA and you were asking whether will get into…


Miang Chuen, can you clarify your question on the guidance for Amobee?


Sure. If you remove Turn what is the Amobee EBITDA this quarter? Then if you look at guidance,

right, which is that we will see breakeven EBITDA for the full year. That's - and we've already seen that basically this quarter. Does it mean the future quarters EBITDA will still be kind of flattish or

rather breakeven levels or would it actually grow and then be a bigger positive?


Yes. On the first question, Amobee and Turn are fully integrated into one company, so we don't monitor them separately in financials. As they both complement each other’s capabilities, so this has

now become one company. The tracking is as one company, not ex-Amobee or ex-Turn so I just wanted to clarify that. In terms of company’s future quarters, we have again reaffirmed our guidance

of targeting breakeven EBITDA for this year. I think as we monitor and get into the future years and after the end of this year we’d provide further guidance, but we'll surely expect better financials. But

we will be in the position to provide guidance only after we have achieved what we want from this year.


Okay. I guess how about the Optus question on the staff restructuring cost. Yes.


So I think I'll answer that question. I think if you look at the Australian telecommunications

environment, where you see in mobile, as Ben has mentioned, it's very aggressive price competition. If you look at what's happening to the fixed business, where the entire fixed business is being

restructured for all of us, from one where it is - we make capital investment and you own a network

end to end to where with NBN, we are essentially a wholesaler, I think cost containment and restructuring is going to be a major part of what Optus will have to do to make sure that we maintain

our margins and create value for our shareholders. So I think when you look at cost containment in


11 August 2017

of 22

the Optus context, I think there are a lot of things that we do, of which staff restructuring is but only

one element of it and it's something that we pull as a lever as a last resort.

So you can see over the years, it's something we are doing in Optus to reduce our cost structure is in things like automation and process efficiency. That's where the multimillion dollar investment, that

we're making in a new customer care and billing systems will allow us to do that. We're also talking

about simplicity of our rate plans, so that it's easy to go out to market, easier to handle some of this with less calls to us and you've seen us do that with particularly our fixed network. Then, of course,

interacting with our customers online and through a mobile app is yet another way that we've reduced customer care costs. So I think you have to look at everything in totality and basically at the end of

the day it's a way of life for us to make sure that we run our costs in line with where the market is going in terms of pricing.


Right. Thank you for that. I'm just wondering on that point, for Singapore as well, do we see kind

of similar programs already in place, where we pick up costs or that we've been trying to contain costs as well or are we still early in that phase?


Yes. Let me take that question. I think as I’ve earlier clarified the cost management program is not just restricted to Australia. It's actually across all our business units, so that would include Singapore.


Got it. Thank you.


Thank you.

Operator

Our next question today comes from the line of Varun Ahuja from Credit Suisse. Please ask your

question.

Mr Varun Ahuja - Credit Suisse

Yes. Thanks for the opportunity. I've just got one question and this is regarding Group Digital Life.

So if you look at - there is a lot of funds interested in - investing in digital businesses and yesterday only PCCW announced that they sold a minority stake in their Viu OTT services. What it does is it

provides funds and also gives the market an indication of the valuation benchmark. So is Singtel looking at that kind of a strategy, where you will be open to minority stake selling any of the Group


11 August 2017

of 22

Digital Life businesses, to at least get some monetisation and give the market an indication of the

valuations? Thank you.


We are keenly aware of all the activities in the market and what I would say to support is that at the

appropriate time and with the appropriate opportunity, we would also explore similar actions.

Mr Varun Ahuja - Credit Suisse

Okay. Thank you.

Operator

Our next question today comes from the line of Raymond Tong from Evans and Partners. Please ask your question.

Mr Raymond Tong - Evans and Partners

Good morning. Just had a couple of questions for maybe Allen and Ben. You saw another quarter of

solid fixed broadband subscriber growth. Just wondering what you're seeing driving this and how

you're seeing market competition at the moment, also given the migration to the NBN is really picking

up?

Mr Ben White – Managing Director, Marketing and Product, Optus

Raymond, I'll take that question. So certainly continuing to see very good opportunities for new customer acquisition in the Australian market with the rollout of the NBN. It's certainly in many

households is forcing a reconsideration of service providers, and that obviously gives us a good opportunity to acquire new customers. We've obviously moved in the market earlier this year to

rebase our plans specifically to try to chase acquisition on the NBN and we believe that's paying off.


Okay, thanks.


And I think that you can see, Raymond, that if you look at our results, what we've announced, there's

a number of new NBN customers and this quarter is the highest ever for Optus. It reflects obviously

NBN increasing their rollout, but more importantly it starts to reflect the fact that we have a good


11 August 2017

of 22

value proposition, not only on the fixed, but bundling the fixed together with the mobile and the

entertainment products.


Thanks, Allen. Just a question on mobile pricing, so you mentioned before that you're seeing a lot

more data inclusions in BYO and there continues to be a reasonable shift of the market towards BYO.

Just wondering whether this makes it harder to monetise data going forward and drive ARPU higher,

just given your comments earlier of increasing ARPU over time.

Mr Allen Lew - CEO, Consumer Australia

Yes. I think it's important to note that, yes, we are positioning ourselves and our pricing model

towards the higher end customers, so I think if you look at the pricing of the market, if you look at

the high end, the $100 plan, I think we got a very aggressive proposition - so I think for us at the

end of the day, it’s getting a good mix of handset customers who are at the higher end of the handset

plans, and then of course BYO is something that is an easy way for customers, particularly in regional

areas, in SMB, to start to come in to experience the network of Optus and then from there sign up to

a handset plan. So I think that's part of our overall strategy of making sure that over a period of

time people build up trust in our network by coming in a very low-cost manner with BYO and then

later, as they start to understand the quality of our network, they can upgrade at any time to one of

our handset plans.


Great. Thanks, Allen. Thanks, Ben.

Operator

Our next question today comes from the line of June Supa from Goldman Sachs. Please ask your

question.

Ms June Supapannachart - Goldman Sachs

Hi. Thank you for your time today. Just one question from me. I was wondering if you have any

guidance for Trustwave breakeven in terms of, on the EBITDA level. Is there any guidance in terms

of when this might happen or is this not really a focus right now? Thank you.


11 August 2017

of 22

Mr Bill Chang - CEO, Group Enterprise

Yes. Thank you. I think we continuously are looking to expand the cybersecurity business. The

overall guidance we gave is what we said, $550 million to $650 million. We do not want to just limit

and the key guidance is that $550 million to $650 million, versus just trying to look at what do we

do? Because we look at it, it's one big cybersecurity business, where there are synergies, where

there are integration possibilities and all that to drive cost synergies as I mentioned earlier on. So

the guidance will not be done at the sub-unit level, but overall at the unit level as a cyber unit.

Ms June Supapannachart - Goldman Sachs

Sure. Thank you so much.


Thank you. So due to time constraints we will be stopping the call here. For callers who still have

questions, please contact the IR team. A transcript of today's call will be loaded onto our website by

end of Monday. We thank you for your interest and we speak again next quarter. Thank you and

goodbye.

End of Transcript

Q1 FY18 Earning Conference Call 11 August 2017...Q1 FY18 Earning Conference Call 11 August 2017 Page...

Documents

Transcript of Q1 FY18 Earning Conference Call 11 August 2017...Q1 FY18 Earning Conference Call 11 August 2017 Page...