StarHub Ltd (OTCPK:SRHBF) Q4 2022 Earnings Conference Call February 7, 2023 5:30 AM ET
Company Participants
Amelia Lee – Investor Relations
Nikhil Eapen – Chief Executive
Dennis Chia – Chief Financial Officer
Johan Buse – Chief, Consumer
Kit Yong Tan – Head, Enterprise Business Group
Conference Call Participants
Sachin Mittal – DBS
Neel Sinha – CLSA
Arthur Pineda – Citi
Paul Chew – PhillipCapital
Piyush Mubayi – Goldman Sachs
Amelia Lee
Hi. Good evening, everybody. Thank you for joining StarHub’s FY 2022 Results Update Call. My name is Amelia and I take care of StarHub’s Investor Relations. This evening we have with us our Chief Executive, Nikhil Eapen; our CFO, Dennis Chia; Johan Buse, our Chief of Consumer; and Kit Yong Tan, our Head of Enterprise Business Group. We will start off with opening remarks and an overview of our performance by Nikhil, followed by Dennis on financials and then Johan and Kit on business highlights. We will the floor to Q&A thereafter.
Just before we start, a gentle reminder to please mute yourself when you are not speaking. Nikhil, over to you, please.
Nikhil Eapen
Yeah. 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 India 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 the 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 DARE+ and we guided down to 20% and that’s where we have ended. So as you recall and as we are talking — as we have 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 have made on products and platforms.
So, overall, 2022 for Service EBITDA was a tough 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 non-recurring 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 have made, which are significant, we generated for the strong free cash flow of about $220-odd million and remain at low leverage of about 1.38 times. 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 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 have seen, we were able to extend our lead in revenue market share vis-à-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 plants 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 was 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 our 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 have 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 will hand off to our esteemed CFO, Dennis Chia.
Dennis Chia
Thank you, Nikhil, and good evening to everyone. Recapping on our full year results. For the second half, we reported revenues of $1.69 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 million — billion. The full year was $1.88 billion, representing a 17% growth in service revenue.
We reported second half EBITDA of $187 million, excluding the provisions that we have taken, which are non-recurring or EBITDA that we would have reported for second half would have been $215 million. Full year reported EBITDA, $417 million or $445 million if you exclude the provisions which are non-recurring. This represents a 21.6% Service EBITDA margin adjusting for these non-recurring items.
The second half profit that was reported was $1 million, adjusting for non-recurring 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 that 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 have got long-term liquidity and a very strong balance sheet to take us forward to fund our DARE+ Transformation initiatives and other opportunities to come along.
With the strong results that we have generated on the back of strong revenue growth and ongoing strategic cost optimization initiatives that we have taken to pay the way for the DARE+ transmission initiatives that were still in the midst of executing.
The dividend, as Nikhil reiterated, we are declaring a final dividend of $0.05 — $0.025, making the full year dividend to be $0.05. And on that, our net debt-to-EBITDA ratio ended the year at 1.3 times, well below industry average.
On that note, I will turn the floor to Johan, our Chief of Consumer.
Johan Buse
Thanks, Dennis, and good evening, everyone. I will 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 was 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 have heard earlier from Nikhil. Underlying components to that 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 tourists and foreign workers segment.
So let’s move — moving to Broadband on the next slide. Broadband also have good performance. I would dare to say, $34 ARPU, customer base at 578. That’s really good. What is also important to highlight there is that the churn remains low. Churn is at 0.6%, and on the previous slide, you saw that the Postpaid churn is at 0.8%. So we are 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, but you saw organically StarHub 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 year-on-year. A bit of tapering off the base 492 to 478, but 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 cut churn further to 0.9% and revenue growth, as I 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 are offering to our customers like Disney+, Netflix and so forth.
So moving forward, a few words around something which is close to a 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 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 will expand that and during the year, we will 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 staff customers to do that. So we are talking about gaming, protection in 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 have 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 Appstore ratings as well, by the way.
And we also saw this translated into a significant increase in terms of transactions, both in sales and 14% increase in terms of online transactions purchased, but also importantly, our Care transactions. Majority of our Care transactions are coming through the app handled by chatbot and we managed to achieve 80% accuracy again and very important for customers in terms of satisfaction, but also important for the company in terms of efficiency.
So we will progressively release the upcoming releases throughout the next three quarters and we aim to end this by end of this year so that we have revamped our business totally and you can barely really call it Infinity Play for everyone.
So that’s from my side. And on that, I will hand over to Kit Yong to give you an update on the Enterprise side. Thank you very much.
Kit Yong Tan
All right. Thank you, Johan. All right. Okay. Enterprise business itself. Nikhil, just earlier talked about double-digit growth. Let me break it down into the three 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 have been the setback is due to the lower Voice Services revenue due to lower domestic and international traffic.
When it comes to Cybersecurity Services, double-digit growth itself and mainly driven by overseas markets that’s contributing the growth. And also, they are also contributing operating profit of $13.6 million.
For Regional ICT services, the consolidation 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 are moving into Mobility Services to address the future of work for Enterprise clients, right? And you can see that on the left, we have six new value propositions. Under Mobile plans, we offer green device leasing. What does that mean? We give our client two 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.
I am pleased 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 of attraction of highlights of overall Enterprise business.
And we also have won two virtual desktop infrastructure, right, for health organization here 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. Thank you.
Nikhil Eapen
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 do we stand today? So number one, as we had talked about, not in our initial DARE+ Investment Day in 2021, 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+ investment today, which is something that you have asked us about, in cash terms, simplistically speaking, we have invested about 24% of the quantum anticipated. But when you include the provisions that we have taken and the various bring forward, 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 have 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 will hand back to Amelia.
Question-and-Answer Session
A – Amelia Lee
Thank you. We will now open the floor to Q&A. To join the question queue please click the raise hand button and let me call your name and then you can unmute yourself so you can post the question. We will start with Sachin?
Sachin Mittal
Hi. Good evening, management.
Nikhil Eapen
Hi, Sachin.
Sachin Mittal
Hi. Just two 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. Just — 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. And number two, on the CapEx, there’s a significant increase in the CapEx. I can see this — you are 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 are investing in and what is the end result of all those? Are we saying these are — you are buying new licenses, you are buying, what kind of investments are these, which actually and how will they benefit you in a more concrete manner here? Thank you.
Amelia Lee
Okay.
Nikhil Eapen
Do you want to start and I will add.
Dennis Chia
Yeah. Okay. Hi, 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 have actually made in respect of the data transmission 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 $3 million to the OpEx that had gone in 2022, you are looking at about $60 million of OpEx investment in respect to that but for the total year FY 2022.
Then you forward the outlook to 2023 and embedded in and 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 2023. 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 have got any other questions on the OpEx before I move on to the CapEx.
Sachin Mittal
No. That’s fine. I think, Dennis. That’s very helpful. Yeah.
Dennis Chia
Okay. All right. On CapEx, if you look at the CapEx that we ended the year in 2023 and 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 transmission initiatives, as well as some of our network transformation initiatives.
At the end of last year and 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 will execute during the year. So a result of some timing influence 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 two years together, that average down to about 11% or 12% a year, which is very much in line with what we have always said to the market. On a steady state basis, our CapEx would be between 5% to 7% and our transmission CapEx would be an additional 5 — 4% to 5% thereabout. So that’s how we would look at the capital investment.
The outcomes would be in the bulk 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 will take from that, as well as repair and maintenance costs that we typically incur to maintain those systems and there are multiple IT stacks that are a result of that.
Then there’s 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 also. That — those are the outcomes that we are working towards executing. Nikhil?
Nikhil Eapen
Yeah. If I could add to that and just picking it — picking out the one 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 as we move our packet call our cloud control plane, our cloud forwarding plane to run off a combination of public and private cloud. And when we do so, we will be, I believe, the core telco in the world to do so across the entire environment after Rakuten and IGS or DISH [ph].
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 have 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 are already doing, right, whether it’s multi-cloud networking, whether it’s a future of work, whether it’s a Cybersecurity, but done, 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 to for competitive reasons, but it’s something that we will talk about in future forums. So recovery from hygiene efficiency and automation of the capital that we have incurred, but not in the first year, obviously, and then beyond that revenue opportunity.
Sachin Mittal
Just follow-up on that, Nikhil and Dennis. So have we done the complete end of — because many of our legacy systems are reaching end of life, probably, earlier than expected. Have we done whatever provisions or impairment to be done for those systems or no, something we can expect in this current year?
Nikhil Eapen
Yeah. I think Dennis can add. But I think we have been — I don’t know whether it’s aggressive or conservative, but we have taken sort of provisions for legacy systems where we are 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 would rather not do. But unfortunately, a lot of telcos are kind of caught in that trap. Dennis, sorry.
Dennis Chia
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 2022 versus 2021.
And then if you look at the impairments that we have taken at the end of 2022, this represents certain legacy assets that we have also identified that we will be transacting. With these provisions or accelerated depreciation, as well as impairments that we have taken, there are no further impairments that we are anticipating in regards to the equity systems for 2023.
Sachin Mittal
Excellent. Thank you. Thank you. Thank you, guys.
Amelia Lee
Thank you, Sachin. Next up we have Neel.
Nikhil Eapen
Hi, Neel.
Neel Sinha
Hi, Nikhil, Dennis and team. I have got three questions. I think the revenue growth side is fairly straightforward enough, consolidation of acquisitions driving most of it, et cetera. But I do have a couple of questions on the fourth quarter net profit and the full year net profit. Strateq impairment, 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?
Dennis Chia
No. Excluding the one-offs, the full year net profit would have been $119 million.
Neel Sinha
Oh! Sorry, yeah, $119 million versus $150 million in an environment, which, if you are 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 am 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 are 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 time line, 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 frontloading to achieve that. But how should we think about the organic EBITDA growth and reversion to positive jaws, is it another two quarters down the road, four quarters, two 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.
Amelia Lee
Dennis, would you like to start and then…
Dennis Chia
Yeah.
Amelia Lee
… you can add on.
Dennis Chia
Yeah. Okay. Hi, Neel. Good evening. Your first question on Strateq, right? So Strateq has six separate lines of businesses and it operates in different regions, mainly in the regions 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 two and a half years.
Neel Sinha
Yeah.
Dennis Chia
And over that two and a half year period, we have been working with management to really identify lines of businesses that have line of site in terms of delivering outcomes and the market positioning that Strateq had and 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 are operating in the U.S. market and the dynamics of it. Of course, the last two 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 thought was going to be challenging to execute on.
And therefore, at 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 run and this is just part of the exercise that we did.
Nikhil Eapen
I will just update.
Neel Sinha
Just follow up on that one, Dennis.
Dennis Chia
Yeah.
Neel Sinha
So the U.S. business has shut, no more impairments. It’s out of the way.
Dennis Chia
It is out the way. Absolutely. Yes.
Neel Sinha
Okay.
Dennis Chia
Yeah.
Neel Sinha
Thank you.
Nikhil Eapen
And it’s not a big revenue contributor…
Dennis Chia
Yeah. Correct.
Nikhil Eapen
It’s quite small.
Dennis Chia
Right.
Neel Sinha
So worried about costs, Nikhil.
Nikhil Eapen
Yeah.
Dennis Chia
Yeah. It cost some costs.
Nikhil Eapen
The reality of this is that, if we decided to continue on that business, it would have resulted in an ongoing cash burn. So, yeah, 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 bets and we will take educated and calculated risks. But this was one where we looked at it and said 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 are doing, which we do see better returns in the short- to medium-term. So this is a rebalancing of our portfolio in other words, yeah.
Neel Sinha
Thank you.
Nikhil Eapen
Your second point on the net profit, right? So if you look at the net profit for the full year of 2022 against 2021, for the full year is, excluding these non-recurring items and impairment have been $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 gave the path as we went through the year and we are 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 are dealing with, along with the macro utilities increases. So if you then put these back…
Neel Sinha
Right.
Dennis Chia
… 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 have made. Some of them delivered good growth and we looked at how to drive profitability in all of them, and more importantly to drive synergies, both on the topline 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 are working on.
So as we look at it, I think, from management’s perspective, we back off the macro factors, which I guess is 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.
Nikhil Eapen
Particularly given its investment, yeah.
Dennis Chia
Yeah.
Nikhil Eapen
Yeah.
Dennis Chia
Okay.
Nikhil Eapen
Dennis Chia
Any other points on that, Neel, that you want to clarify. Neel?
Amelia Lee
Maybe muted.
Nikhil Eapen
Yes. He is streaming still, oh. Let’s give a second.
Amelia Lee
Neel are you there? Otherwise, maybe we can move on to the next question, then we will come back.
Nikhil Eapen
Okay.
Amelia Lee
Yeah.
Nikhil Eapen
Sure.
Amelia Lee
We have got a question from Willy [ph] quick one. For FY 2023 outlook, the 20% Service, sorry, Service margin.
Nikhil Eapen
Service margin.
Amelia Lee
Would it be roughly equal, i.e., the first half and second half roughly about 20% or more or would it be an equal like this year in 2022 where first half is much higher and the second half is much lower?
Dennis Chia
Okay. I will take that. So, typically, if you look at our numbers that we report, the first half profitability is very 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’s just maintenance of our network 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 activities than our expenses in relation to the equities 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.
Amelia Lee
Okay. Thanks, Dennis. Willy, I hope we answered your question. Neel, are you back?
Nikhil Eapen
He has still problem with net.
Amelia Lee
Okay. Maybe let’s move on to Arthur.
Nikhil Eapen
Hi, Arthur.
Arthur Pineda
Thanks for the — hi. Good evening. Thanks for the question.
Neel Sinha
Sorry, my video streaming now back. So sorry.
Nikhil Eapen
Okay.
Amelia Lee
Sorry, Neel. We will come back to you. Arthur, please go ahead.
Neel Sinha
Thanks.
Arthur Pineda
Yes. Two questions, please. Firstly, on the guidance revenue growth, you mentioned 8% to 10%. Are you able to spilt this out across business lines through 2023? And the second question I had is with regard to the investment, which you put out on slide 17, you mentioned around $210 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 are 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?
Amelia Lee
Dennis?
Dennis Chia
Hi, Arthur. So on your first question on the guidance of 10% on the topline on Service revenue goal. We will not provide the breakdown for each line of business, as you probably will understand why, right, otherwise it naturally revealed to the marketplace exactly what we are planning to experience each line of business. However, I would say that, the growth that we are 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.
Nikhil Eapen
Yeah. Let me just emphasize one or two 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 are a bit careful of talking about how our growth splits up, because in certain segments, obviously, like Mobile, we are operating in segments that are highly competitive with traditional competitors. In other segments like ICT and Cybersecurity, there are a different range of competitors, and perhaps, not as competitive.
And the 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 are a little bit lower to break that up if you don’t mind.
Arthur Pineda
Understood.
Dennis Chia
Arthur, your second point on the investments, on the DARE+ investment. Just as a recap, when we disclosed or unveil our DARE+ plan in 2021 during our Investor Day, at that point in time 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, band strength and closets within our ranks, investment in key infrastructure, which is CapEx, but also investments in the IT license platform, which are treated as OpEx. So there are a bunch of OpEx items and a bunch of CapEx item.
Now for 2022, we have incurred 24% or as you rightly pointed out, $75 million. We also made provisions at the end of 2022 of totaling about $31 million. So we actually aggregate the two, 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 incur 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 incur this year.
Nikhil Eapen
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 re-ask it. I think Neel just tying the spend and the harvesting to where we see DARE+ going, not just kind of on an aggregated level, but 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 two 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.
Neel Sinha
Thank you, Nikhil.
Amelia Lee
Arthur, did we answer your question?
Arthur Pineda
Sorry, I am 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 they are pretty much done with DARE+ by this year. Is that how I should look at it?
Dennis Chia
Yeah. So if you look at the difference of 8% on the spread, we were anticipating to end the year about 11% to 12% or thereabout in 2022. We ended the year about 7.3%. So we are not — there were some deferment of the capital expenditure into 2023.
Yes, you are 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.
Arthur Pineda
Understood. Okay. Thank you very much.
Amelia Lee
Thanks, Arthur. Next up we have Sonu [ph]. Please unmute yourself.
Unidentified Analyst
Hi. Can you hear me? Anyway, yeah, I would like to answer a few questions. Maybe I just ask one by one. I’d like to ask about Temasek buyback of the 20% stake in Ensign. That’s going to be by October this year, am I right?
Nikhil Eapen
Yes. So the assignment of rights and is exercisable in October of this year. Did you have a follow-up question?
Unidentified Analyst
Yes. And my question is basically, would it — does management expect that you would have a positive material impact on our P&L and balance sheet.
Nikhil Eapen
Yeah. So let me just answer that in two ways. So number one, we are focused on the Cybersecurity business. It is call Protect [ph]. 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-à-vis the investment cost that we had allocable to us.
Unidentified Analyst
Yeah. 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?
Nikhil Eapen
Well, I think, we had anticipated DARE+ investment period. The bulk of that investment period is two years and those two years are 2022 and 2023. And as I mentioned, we had targeted getting back to that $500 million of breakeven EBITDA, which was a 2021 number in that two years, with the macro factors that’s been delayed a little bit. Our target is to get back to that breakeven a few quarters later, looking at run rate EBITDA, but we are in an investment period.
The other thing I would say that vis-à-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.
Unidentified Analyst
Yeah. And more specifically, Nikhil, this buying back is not factored in your guidance, in your EBITDA guidance, as well as dividend guidance, do you factor this development — this potential development into the guidance?
Nikhil Eapen
But it certainly wouldn’t factor into our EBITDA guidance, because it would be — if the 20% were sold, it would be a one-off gain for cash proceeds. And as far as our dividend guidance, we will take that as it comes, I think.
Amelia Lee
All right. I am conscious about time. So can you…
Unidentified Analyst
Yeah. I will speed up.
Amelia Lee
Yeah.
Unidentified Analyst
Yeah. And also would — management be open to a special dividend with regards to this one-offs?
Nikhil Eapen
I don’t think that’s something we can comment on at this point in time, Sonu. We have to, I think, weigh this matter alongside with various other matters together with our operating performance and see where we get to.
Unidentified Analyst
Yeah. I understand. And regarding the slides, Nikhil, there’s just non — about the non-operating income due to Strateq? I noticed that there’s a non-operating income, as well as non-operating expense. Do you think, maybe Dennis would be able to expand this line. There’s one non-operating income for $30.9 million, and at the same time, there’s a non-operating expense for $60.1 million. Yeah, how does that come about?
Amelia Lee
So this can get quite technical. Maybe I can take this offline with you.
Unidentified Analyst
Yeah. Okay. Sure. Perhaps just one more for me, I mean, in terms of the lumpiness, Dennis, is — what is 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 2023? Is — I mean, is Strateq as a non-recurring, but is this lumpiness going to — is it going to happen one or two more times that’s going to impact the quarterly results like in Q4?
Dennis Chia
Okay. Hi, Sonu. We commented on a response to an earlier question in regards to our FY 2023 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, 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 are typically relatively higher activities that we engage in to try and exit the year on a strong burner. 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 non-recurring items that we took at the end of 2022. The reason behind that, we looked at all our rebalancing of our portfolio. Again, this was a response to an earlier question in tandem that we took in relation to that, and as well as discontinuation of certain lines of businesses and really focus our attention on. So we did take impairment on certain assets that we believe will not generate income going forward and to this and continue certain line of business and therefore an impairment in relation to that.
Just to finish off on that, the non-operating income is in relation to what we call forward liabilities. So there are deferred consideration elements as part of the acquisitions that we have made and as businesses perform better or worse, then there’s an income or expense that’s recorded accordingly. So, as Amelia said, we will take this offline review. I am happy to explain this in greater detail offline with yourselves.
Amelia Lee
Thank you.
Unidentified Analyst
Yeah. No problem. Thank you, Dennis. That’s it for me.
Amelia Lee
Thank you. Next up, Paul.
Paul Chew
Yeah. Yeah. Thanks. I was actually hoping for the 14th February to save some money on dinner, but it’s okay.
Nikhil Eapen
[Inaudible]
Paul Chew
So let’s keep it within ourselves. Yeah. Let’s keep it within ourselves. Yeah. Just two questions here. Sorry to take this on.
Nikhil Eapen
Yeah.
Paul Chew
Just to go back on the DARE+ spending. So you spend — this — I suppose $310 million. So far, if you assume $35 million to $100 million is being spent, so there’s $200 million left. So the CapEx could tick up maybe $150 million, $160 million, so the balance is $40 million. So my — so about a bit in conclusion will be spent on FY 2023. So my question is when we go to FY 2024 and we look at your DARE+ on slide 17. So is that the kind of savings that we should expect? I know the FY 2024 is a bit far, but I am just wondering, is that what we should assume that $108 million roughly of savings that or maybe a dip down in costs, when we look at your slide 17, I just wanted to understand that? Thanks.
Dennis Chia
Okay. So, Paul, I just want to again reiterate, right, if you look at our DARE+ investments, both in OpEx and CapEx, yes, based on the guidance that we have given, the implied CapEx investments for DARE+ would be north of $100 million in FY 2023. A lot of this OpEx investments in both license costs and the investment in people and building our bench strength.
Reality is that when these investments — when these transmission initiatives have been fully executed, the people that we brought in to bring on the skill set tendering do not — 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 leaders 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 in their new platform, these 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 transact 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 also. There will be things that we will time check and discontinue, and this spend represents savings that we will be offsetting against this and this is part of the that broad outcome.
Paul Chew
Okay. Thanks. 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, like, is it like, there’s still a lot — just some thoughts on roaming as you put in this guidance? Thanks again.
Amelia Lee
We finally have a question for Johan.
Johan Buse
Yeah. 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 exapolate that when there is for us enough foundation to be able to expect a similar trend as we exited in 2022 going into 2023. 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.
Paul Chew
Okay. Yeah. Thanks again. Yeah. That’s it for me. Thank you.
Nikhil Eapen
Just, Paul, I just want to add, right, in the guidance, we have assumed roaming, as Johan pointed out, to continue to be robust. However, we have 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 have guided the market.
Paul Chew
So this could be like 30%, 40% below pre-pandemic or I am not sure how much you can decreasing, I am just wondering, is that the kind of level?
Dennis Chia
Yeah. We will not — we will stop short of giving you the percentage against pre-pandemic there, but it is below pandemic…
Johan Buse
Yeah.
Dennis Chia
…levels at this point in time, and of course, the thesis and the verdicts out there to whether or not it will ever revert to pre-pandemic levels because the way people travel and roam, they also changed the patterns have changed. So we are looking at it in totality.
Nikhil Eapen
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.
Dennis Chia
Yeah. Absolutely.
Nikhil Eapen
But that, as Dennis said, is partially baked in, but create some upside.
Paul Chew
Okay. Thanks, again.
Amelia Lee
Thanks, Paul. We will take our last set of questions from Piyush.
Nikhil Eapen
Hi, Piyush.
Amelia Lee
Piyush, please unmute yourself.
Piyush Mubayi
Hi. Good evening. Can you hear me?
Amelia Lee
Yes.
Nikhil Eapen
Yeah.
Piyush Mubayi
Hi. Good evening, management. Thanks a lot, Dennis, Nikhil and Amelia for organizing this.
Nikhil Eapen
Thanks.
Piyush Mubayi
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? Thank you.
Amelia Lee
Thank you. Nikhil, would you like to take the first question and then Johan will take second question.
Nikhil Eapen
Yeah. Let me start on the first question, Dennis can add. I think Antina has worked out well for us. Its generated CapEx savings and cost savings. There is, of course, some element of CapEx to OpEx substitution, which show up its wholesale cost.
But, overall, I think it’s been a good experience for us that has been value accretive. The rollout continues. We are in line with the commitments of coverage that we have made with INDA, in fact, back ahead.
And I don’t think we have 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?
Dennis Chia
Yes. No. Antina like three 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 partners and also how we can identify opportunities to get the best outcome on Antina three years into it.
I think we have learned a lot in terms of how to optimize and to put together our strength in terms of negotiating our vendors as well. So there are very positive outcomes as a result of the collaboration and we have set — that sets the stage for future collaboration and expanded collaboration that we can identify and we anticipate that we will do through Antina.
Johan Buse
Yeah. And on the question two and three related to the number of subs on 5 or a number of substitute 5G-enabled for datausage [ph]? 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 enable of 5G phone at this point in time and that’s continued — that’s continuing 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 users is triggered from I think. But it’s all healthy trending also. Hopefully, that gives you a bit of color.
Amelia Lee
Piyush, I hope we address your question?
Piyush Mubayi
Yeah. Thanks a lot everyone. Thank you.
Dennis Chia
Thanks Piyush for your question.
Amelia Lee
Okay.
Nikhil Eapen
Thanks, Piyush.
Amelia Lee
We 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 ir@starhub.com.
Nikhil Eapen
Thanks, everyone.
Dennis Chia
Thank you.
Johan Buse
Thank you.
Nikhil Eapen
Wishing you a happy Valentine Day one week from now.
Amelia Lee
Thank you
Dennis Chia
Bye everyone.
Nikhil Eapen
Thank you. Bye.
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