Singapore Telecommunications Limited (SGX: Z74), Singapore’s largest telecommunications company, reported its fiscal first-quarter earnings recently on 11 August 2016. Dividends, dividends, dividends Some investors might be looking at the sustainability of Singtel’s dividend payout. The telco had paid out more in dividends than the free cash flow it generated in its fiscal year ended 31 March 2016 (FY2016). This was a departure from the prior four fiscal years when the company’s dividends were lower than free cash flow. A quick summary can be seen below: Source: Singtel’s Annual General Meeting presentation From the chart above, we can see that Singtel has kept its…
Dividends, dividends, dividends
Some investors might be looking at the sustainability of Singtel’s dividend payout.
The telco had paid out more in dividends than the free cash flow it generated in its fiscal year ended 31 March 2016 (FY2016). This was a departure from the prior four fiscal years when the company’s dividends were lower than free cash flow. A quick summary can be seen below:
Source: Singtel’s Annual General Meeting presentation
From the chart above, we can see that Singtel has kept its dividend payout below 91% of its free cash flow between FY2012 and FY2015. However, FY2016 saw its dividend exceed free cash flow by 17%.
During the first-quarter of FY2017 – the quarter whose results were released on 11 August 2016 – Singtel reported a 26% increase in free cash flow. Lim Cheng Cheng, Singtel’s chief financial officer, commented on this:
“If you think about our cash flow, we did improve our cash flow by some roughly 26% and as [CEO Chua] Sock Koong addressed in her speech, it is really based on improved working capital management. You also recall that in Q4 last year when we told the market that there was some timing payments in terms of vendor payments.
There was the absence of the S$280m fibre rollout payments from OpenNet. Those caused a big impact on the last quarter numbers.”
What does the better performance in free cash flow generation mean for Singtel’s dividends? Lim said this:
“So with regard to our dividends whether you will see a steady stream, I think you would know that we have not changed our dividend guidance. We are in the zone of 60 to 75% of underlying net profit and we have not changed anything relating to that.”
Investors will have to wait till the next quarter to see what the interim dividend looks like.
Did the internet kill the TV star?
Singtel’s competitor, StarHub Ltd (SGX: CC3), has endured 27,000 subscription cancellations for its Pay TV service over the past four quarters. Singtel’s TV subscriptions have held up a little better, but some cracks have appeared too.
Singtel has lost 8,000 subscribers over the last two quarters, as shown below:
Source: Singtel’s earnings presentation
This brings up a question: Is Singtel’s bundled TV offerings still valuable enough to attract subscribers? Singtel’s chief executive Chua Sock Koong gave this reply on content:
“I mean when we talk about content, it is a key differentiator. When you are talking about content, you know it could be delivered on the paid platform, like our Singtel TV, or it could be on an OTT [over the top] platform.
We have worked with various OTT players, as seen with that promotion with Netflix, both in Singapore and in Australia. We also have our own HOOQ, which is an OTT player across the region. So we do see content as very important and it is something that we want to curate – like for our pay TV business, our own OTT platform HOOQ and more recently the Cast portal that we just launched.
So it is important and clearly, we do use the content strategy for us to gain and attract higher-value customers just like what we have done with EPL [English Premier League] in Australia. It is a good example of using content to increase our sign-ups for both mobile and for our fixed broadband.”
Chua had cited the example of Singtel working with OTT service providers in the quote above. Allan Lew, the chief executive of Singtel’s Consumer Australia division, also added his thoughts around content:
“Obviously content is very important for us as the differentiator as well as to engage our customers a little bit more. I think you need to look deeper beyond just the generic content to see which content actually moves customers for a telco and which content customers and consumer customers are willing to pay for.
So from our perspective I think we are beginning to see in Australia and we have seen in Singapore that sports and live sports are really something that customer’s value and that will help move customers from one service provider to the other.”
Singtel’s Australia market had 345,000 TV subscribers, up 30% quarter-on-quarter. From that statistic, it appears that live sports could be a differentiator.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong owns shares in Netflix.