IN DISCUSSION
WITH SENIOR
EXECUTIVES

Executive Image
Dennis Chia
Finance
Chief Executive message

We are committed to
optimising operations
through digitalisation and
process simplification,
while rationalising capex
investments in our core
business.

question

StarHub has articulated the possibility of exceeding the identified $210 million cost savings in its three-year programme. Where are the additional savings coming from and what reinvestments have you identified?

answer

The three-year $210 million cost programme is ongoing, and as we relook and refine our business processes and procedures, we continue to find new areas where we can further enhance or streamline that will allow us to exceed our target.

In terms of cost savings, we have made good headway in reducing our three largest cost items – staff costs, content costs and handset subsidies. We have optimised our workforce and are continuously reviewing handset subsidies offered in this competitive market. On content costs, we have moved most of our Pay TV content arrangements from a fixed cost to a variable structure, as we continue active talks with remaining content partners to do the same. Apart from tighter controls on expenditure across the company, we are also renegotiating new or expiring contracts with various partners and vendors to yield further cost savings.

Value creation from our core businesses and assets is just one of four key pillars of the DARE transformation programme. While we’ve seen some of these cost savings reflected in a year-on-year reduction in operating expenses, most of these savings are reinvested into initiatives that will allow StarHub to drive long-term sustainable growth and capture emerging opportunities. As at 31 December 2019, we expect to reinvest 17% of the identified cost savings into digitalisation and transformation business initiatives.

We will also be redirecting some cost savings into acquisitions of complementary businesses with innovative capabilities. This is in line with our intention to identify and invest in adjacent growth areas to stabilise and enhance our overall margins.

We believe by such strategic, well-placed investment of resources, we can remain ahead of the curve in the long-run amidst a challenging operating environment.

FY2020 Guidance

As at 20 February 2020

up 1% – 3%

YoY

Service
Revenue

27% – 29%

Margin

Service
EBITDA

6% – 7%

Of Total Revenue

CAPEX
Commitment

9.0 cents

Full year distribution

Dividend /
Share

question

What is the capex guidance for FY2020, and how much of this is going towards 5G? What are the capex requirements for the 5G roll out should the StarHub-M1 joint bid be awarded the licence?

answer

Our capex guidance for FY2020 is expected to be between 6% and 7% of total revenue, excluding 5G capex and spectrum fees. We have on 17 February 2020 submitted a joint bid with another MNO for a nationwide licence, and the regulator is expected to award the licences by mid-2020. After which, should we secure one of the two licences, we will be able to communicate our views, strategies and capital expenditure guidance to the investment community.

We believe in the merits of sharing network infrastructure that will lower costs and enable more innovative solutions. In consideration of the regulator’s rollout schedule, 5G capex will likely be progressive, spanning five years.

question

How do you plan to fund the higher capex requirements and acquisitions for inorganic growth? Do you expect gearing to increase significantly in FY2020? Can dividends be sustained at the current level at least for the next few years?

answer

As at 31 December 2019, we have a healthy net debt to EBITDA ratio of 1.51 times, while FY2019 free cash flow has improved 50.5% year-on-year to $218.6 million. With sufficient headroom and a healthy balance sheet, we are well-equipped to pursue growth opportunities as they arise.

While we are committed to our dividend policy – to pay out at least 80% of net profit attributable to shareholders (adjusted for one-off, non-recurring items) payable on a semi-annual basis – we have guided to a dividend of 9.0 cents for FY2020. Apart from demonstrating our commitment to enhance shareholder value, this dividend guidance takes into consideration short-to- mid term cashflow requirements, as well as results reaped from the ongoing business transformation initiatives. We continue to employ a prudent and disciplined approach to capital management, maintaining a long-term view on business growth and value creation.