Singtel forecasts S$3.1 billion in impairments, anticipates net loss for second half of FY 2024

Singapore Telecommunications Limited (Singtel) today announced it expects to recognize substantial non-cash impairment provisions totalling approximately S$3.1 billion for the second half of the financial year ended 31 March 2024.

This significant financial development is poised to result in a net loss for the period, according to an announcement issued by the company in the Singapore Exchange (SGX).

The major impairments are primarily attributed to a S$2 billion goodwill impairment in its Australian subsidiary, Optus.

This decision follows a strategic review and the cessation of potential divestment talks, indicating challenging conditions and a reduced recovery value of its assets.

Additionally, Optus will record a non-cash impairment provision of S$470 million on its enterprise fixed access network assets, reflecting the declining fixed carriage revenue in the Australian market.

Further impairments include an S$340 million provision for the Asia-Pacific cyber security business and an S$280 million provision for NCS Australia, an information technology service provider, both of which are grappling with increased costs of capital and general business weakness.

Despite these setbacks, Singtel reassures investors that the dividend payments will remain unaffected.

"Singtel is on track to pay at the upper end of its dividend policy for the financial year ended 31 March 2024," stated the company.

The company’s dividend policy aims to distribute between 70% and 90% of its underlying net profit.

Singtel shares experienced a downturn following the announcement, with a decrease of 2.49%, dropping seven cents to $2.34 as of 11 AM on the day of the announcement.

The audited financial statements and detailed results for the financial year will be unveiled on 23 May 2024, providing further insights into the company's fiscal health and strategic direction amidst these challenging financial conditions.

New Network Sharing Agreement Between Optus and TPG Telecom

On the same day that Singtel revealed its forecast for significant impairments, Singtel disclosed a new partnership agreement between its subsidiary, Optus, and TPG Telecom aimed at enhancing mobile network capabilities across regional Australia.

Announced concurrently with a significant impairment forecast, this collaboration is part of a strategic initiative to extend mobile coverage and capabilities in less urbanized areas.

Under the terms of the Multi-Operator Core Network (MOCN) agreement, Optus will grant TPG Telecom access to its regional radio access network and share spectrum.

This arrangement is expected to increase TPG Telecom's national 4G coverage area from about 400,000 square kilometers to nearly 1,000,000 square kilometers, aiming to reach 98.4 percent of the population.

In exchange, Optus — Australia's second-largest wireless internet provider — will license some of TPG’s spectrum to enhance its regional network's capacity and service quality. The agreement also includes a plan to accelerate the rollout of 5G technology in these areas, with a target of updating 1,500 sites by 2028 and completing all 2,444 sites by 2030.

Optus Interim CEO Michael Venter and TPG Telecom CEO Iñaki Berroeta have both acknowledged the operational benefits and cost efficiencies expected from this partnership.

However, they noted that the ultimate success of this agreement will depend on a variety of factors, including regulatory approval. The initial term of the MOCN agreement is set for 11 years, with an option for TPG Telecom to extend for an additional five years.

The implementation of the MOCN is anticipated to begin in early 2025, pending the necessary regulatory approvals.

It is important to note that the Australian Competition Tribunal upheld a decision in June 2023 to block a similar asset transfer deal between TPG and Australia’s largest telco, Telstra Group.

However, an expert quoted by the media, Tim Waterer, chief market analyst at KCM Trade, commented that the agreement between Optus and TPG seems more palatable to Australian regulators than the one that was blocked.