Singtel Reported Impairment of S$1.2 Billion- Horrible Results Expected for Full Year of FY2021 and "Strategic Review"

On 14th May 2021, Singtel announced a shocking S$1.2 billion in impairment charges for its investments in digital marketing firm Amobee (-S$589Mil), cybersecurity business Trustwave (-S$336Mil) and also Optus (-S$204Mil). Singtel used to be extremely defensive about its Amobee and Trustwave businesses and argued that the thrust towards digital investments in new business and North America market is good for Singtel in the long term. However, Singtel appears to be singing a different tune this time round with a power-point deck on "lessons learnt" from these digital investments that are now being partially written off. It should have focused on digital opportunities in Asia to leverage on its current customer base instead of focusing too much on the North American markets for its Trustwave and work with strategic partners by taking up minority stakes instead of a majority. 

S$1.2 Billion Impairment Charges

Strategic Review Commencement

Group Digital Life still facing huge losses during past 9mths till Q3 FY2021

It is quite disappointing that S$1.2 billion is wasted and thrown into the drain just like that. Apparently, Singtel had taken a bite more than it could chew. It does not have enough internal talents to pull off its digital businesses by itself.  On top of the impairment, Singtel has been throwing more good money after the bad in terms of running the business as it has always been in the red. But at least the new CEO of Singtel seems to be making a right decision to embark on a course of corrective action to try to stem the losses at the underperforming business segment. 

Any bright spots?

I think it would be hard to market an IPO off the loss making digital business in the near term. Singtel is more likely to be looking for a strategic partner to sell off a majority stake in them. 

The bright spark may lies in Singtel’s information and communications technology (ICT) arm NCS which, since 1st January 2021, operates as an autonomous business unit, reporting directly to the Group CEO to accelerate its expansion into Asia Pacific, with special focus on Australia and China. It is highly likely that Singtel will decide to spin off its former Enterprise Group NCS through an IPO to unlock intrinsic value in Singtel Group. The good thing about NCS is that it has many Singapore government IT contracts as its operations executives have good networking and understanding of the local requirements of government agencies.  

Parting thoughts

I think that the upcoming full year results for year ending 31 March 2021 is going to be super ugly for Singtel. With the departure of the former CEO and a new CEO on board, this is now a good time to clean off legacy issues and move towards "supercharging the future".