KUALA LUMPUR, Nov 25 — Singapore Telecommunications Ltd has reiterated its performance guidance from Q4FY14, saying that consolidated revenue and EBITDA - excluding acquisitions- should remain stable.

But currency volatility and capital expenditures will continue to define the coming quarters.

Only the Australian mobile service business is expected to decline.

Still, S$1.4 billion (RM3.6 billion) has been allocated for enhancements to mobile network customer care and management systems there.

Another S$900 million will be spent on enhancing operations in Singapore.

This makes a total of S$2.3 billion in planned capital expenditure.

Spectrum for Optus for 4G in the 700Mhz range is expected to cost S$900 million.

This will mean higher amortisation costs in the future.

Kontera Technologies, Inc and Adconion Media, Inc were acquired during the second quarter and are now part of Amobee in line with plans to grow scale and capabilities in digital marketing.

But they are earnings dilutive in the 2015 fiscal year because of business growth costs, amortisation cost of acquired intangibles and staff retention expenses.

By 2016, such losses should be mitigated by the benefits from integration and synergies.

The Group is planning new digital offerings that are expected to enhance business and create new revenue streams.

By this, revenue from Digital Life for 2015 is expected to exceed S$300 million, of which 75 per cent will be from digital marketing services.

Digital Life EBITDA is expected to increase to S$200-250 million with strategic acquisitions and new businesses.

In the second quarter, the company’s core business did well with the Group Consumer segment climbing 2.2 per cent to S$2.63 billion and the Group Enterprise segment climbing 3.3 per cent to S$1.6 billion in revenue.

EBITDA for Group Enterprise excelled the most with a 7.6 per cent increase to S$553 million.

Associates contributed S$434 million in post-tax profit.

A write back of S$31 million relating to fibre rollout costs also figured in the accounts.

The company recently announced earnings for Q2FY15:

Revenue: +3.5 per cent to S$4.31 billion

Profit: +19.3 per cent to S$1.04 billion

One-off gains/losses: S$62.2 million vs (S$4.8 million)

Cash flow from operations: S$1.35 billion vs S$1.33 billion

Dividend: 6.8 cents per share vs 6.8 cents per share

Optus’ Q2FY15 earnings:

Revenue: +1.7 per cent to A$2.2 billion

EBITDA: +1.2 per cent to A$652 million

Profit: +5.4 per cent to A$230 million

Free Cash Flow: A$138 million vs A$239 million

Group revenue increased by 3.5 per cent includes first-time contributions from digital acquisitions of Adconion and Kontera, without which this increase would have been 2.5 per cent.

Breaking down group revenue, Group Consumer business contributed the most with 61 per cent, followed by Group Enterprise business with 37 per cent.

For Group Digital Life, revenue shot up to S$85 million from S$43 million.

Without revenue from acquisitions Adconion and Kontera, Group Digital Life revenue would be S$44 million versus S$43 million.

Group revenue by products and services show mobile communications the biggest contributor with S$1.84 billion, followed by Data and Internet with S$783 million and Infocomm Technology (ICT) with S$603 million.

One-off gains/losses of S$62.2 million was from the dilution of interests in SingPost, other associates and joint ventures, and sale of Available-For-Sale Investments.

Investor Central. We keep your investments honest.

1. How did claims of tax evasion arise?

The Straits Times reported on September 30, 2014 that Australia will act against companies avoiding taxes and in the article, where two organisations, United Voice and Tax Justice Network, listed the top companies singled out for tax evasion, one of which is Singapore Telecommunications for A$713 million.

Singapore Telecommunications has since refuted the allegations with this response on the SGX.

In it, SingTel says the calculation was wrongly derived by “applying the Australian 30 per cent corporate tax rate to the accumulated total of SingTel Group profits”.

But the issues of taxes are not just happening in Australia.

Singapore Telecommunications is also facing possible penalties in the Philippines and Indonesia.

According to pages 27 to 30 of the Q2FY15 earnings results stating contingent liabilities, Optus, Bharti Airtel, Globe Telecom and PT Telekomunikasi Selular are facing questions on taxes.

Also, joint venture companies facing revenue share disputes such as AIS could eventually face tax assessment revisions if courts award the claimants.

Verdicts have yet to be issued.

So back to our question if Singapore Telecommunications is really dodging taxes. Or perhaps more politely, how are its accountants helping SingTel cut their tax bills to the lowest legally allowed?

At least the company has mentioned all these potential contingencies in its earnings results.

Then it would be fair to ask the next question:

2. What are the challenges in tax compliance across the various operating environments the Group is in?

Singapore Telecommunications is operating indirectly in foreign markets through associates and joint ventures in Australia, Africa, India, Indonesia and the Philippines.

3. What will bring about a decline in its Australian mobile service business?

In its outlook SingTel acknowledged the possible decline in performance of its mobile service business in Australia.

But its Management Discussion Analysis of the second quarter performance says the consumer operating performance in Australia saw growth in mobile service revenue of 1.3 per cent, plus 60,000 new mobile customers (not those for mobile broadband).

Apart from the fluctuations in the Australian currency, what else could be affecting its performance?

Optus upgraded 2,245 4G sites and grew its 4G customer base to 2.75 million from 2.43 million during the second quarter.

It says it is on schedule to turn on new 4G spectrum in all state capital cities and over 100 regional towns throughout January 2015.

It also reported a 47 per cent decline of complaints to the Telecommunications Industry Ombudsman (TIO).

Are all these achievements in Australia still not enough to prevent the forecast decline?

4. What can it do about the still declining telephony services businesses?

National Telephone revenue dropped 7.6 per cent.

International Telephone revenue dropped 6.3 per cent.

Could the company recapture interest in these conventional telephony services as consumers today increasingly lean to mobile and Internet services for calls local and international?

5. What calculations have gone into deciding the commercial sense of this transaction?

Reuters reported on September 8, 2014 that Bharti Airtel sold over 3,500 mobile phone masts in Africa to Eaton Towers in a bid to manage costs.

Bharti Airtel will lease back the towers under a 10-year contract.

Earlier in July, Bharti Airtel also agreed to sell 3,100 masts in four African countries to Helios Towers Africa.

This sale of towers is part of Bharti’s plans to divest more than 15,000 towers in Africa.

On September 10, 2014, Nigerian newspaper Leadership reported Airtel earned US$1 billion from the sale of towers to America Tower Company.

What calculations have gone into deciding the commercial sense of this transaction?

We have invited the company to an on-camera interview, and/or to reply to our questions in writing.

At the time of publication we have not received a reply (which is why you are seeing this message).

We will update this report if we do. — Investor Central

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