Laying the foundation for the next phase
This year marked the third year of our strategic reset, which has delivered steadily increasing profits and returns to shareholders against a backdrop of macroeconomic uncertainty. Beyond transforming the business, our proactive approach to managing capital has helped us achieve better capital efficiency and a more optimal capital structure. We unlocked S$8 billion of proceeds from our capital management efforts.
This capital has been put to good use as we deployed it to grow our data centre and ICT businesses. We also returned S$0.8 billion in special dividends to shareholders. This is on top of the S$5.6 billion in dividends declared, as we have increased payouts every year since the start of the strategic reset. Our balance sheet has also been strengthened with net debt down by S$4.6 billion [1]. This has seen a 15% reduction in net interest expense in spite of a rising interest rate environment. We are now in an even stronger position to execute our disciplined capital approach of balancing investing for greater growth and delivering strong, sustainable returns for our shareholders.
Funding returns and growth through smart capital management
With the launch of our new growth plan Singtel28, we will build on our proven capital recycling programme which has unlocked value from assets such as our stakes in Indara (formerly known as Australia Tower Network) and Airtel. Asset monetisation gives us funding flexibility for growth initiatives and we have already identified a further asset pipeline of around S$6 billion.
Besides capital recycling, we also intend to seek private capital partners as we scale our capital-intensive growth businesses. We believe attracting the right investors will bring a critical external lens to our businesses, valuable strategic expertise and help illuminate their true value. KKR’s commitment of up to S$1.1 billion for a 20% stake in Nxera last September crystalised the value of our overall regional data centre business at S$5.5 billion, and KKR has the option to increase its stake to 25% by 2027. Through this collaboration, Nxera can access capital to accelerate the expansion of its regional data centre business across Asia Pacific and also benefit from KKR’s strong track record in digital infrastructure investments to scale up the platform to become a meaningful growth engine for Singtel.
The value of our holdings in Airtel was similarly illuminated through the recent sale of a 0.8% direct stake in Airtel to GQG Partners which unlocked close to S$1.0 billion. While Airtel remains a long-term strategic investment, we have been working with our partner Bharti Enterprises to gradually equalise our effective stake in Airtel over time.
Given the strategic transition of our business, we have changed our dividend policy. Excess proceeds from our recycling efforts will be used to support a new value realisation dividend of 3 to 6 cents per share per annum, allowing shareholders to benefit directly from our successful capital management initiatives. This is in addition to a core dividend which had its payout range increased to between 70% and 90% of underlying net profit last November. Together, they will allow us to return capital to shareholders in a sustained manner and progressively grow dividends, reflective of what we want to achieve in Singtel28.
Growth engines and digital banking venture powering on
We have positioned the Group to capitalise on the region’s rapidly growing digital economies through Nxera and NCS, leveraging our expertise in digital services and infrastructure.
Nxera is scaling rapidly with its capital expenditure in the near term fully funded by KKR’s investment and our green loan. NCS has continued its expansion from the public to the private sector and the region, and boosted margins by stepping up and optimising their global delivery resources.
We have also made significant progress in the digital banking space. KakaoBank joined forces with Singtel, Grab and Emtek Group to invest in our Indonesian digital bank Superbank, by acquiring a 10% stake. GXBank – our digital bank venture with Grab and consortium partners – made history as the inaugural digital bank launched in Malaysia.
Regional associates capturing opportunities in fixed mobile convergence
Our regional associates, which started out as pure mobile companies, are focusing on the opportunities in fixed mobile convergence. This is an area we can add value to given Singtel Singapore’s experience in the fixed broadband business. Telkomsel, through the successful integration of IndiHome, has solidified its leading presence in Indonesia's connectivity market. Meanwhile, AIS emerged as Thailand's leading fixed broadband provider following regulatory approval of its merger with 3BB, extending connectivity benefits to more customers, particularly in rural areas. These developments will enhance the growth prospects of AIS and Telkomsel while also being value accretive for us as a long-term investor.
Striving for a sustainable world
Sustainability is a resolute commitment for us and we have brought forward our net-zero goal from 2050 to 2045 even while we accelerate business growth. During the year, we started to operationalise and embed an internal carbon fee in purchases and business cases, and introduced our own environmental weighted average cost of carbon – the first in Singapore. With more granular emissions-related data from vendors, we have been able to make more informed decisions and further reduce our reported carbon emissions. This internal carbon pricing (ICP) initiative expands on earlier efforts to align our financing strategy to broader sustainability goals through Olives, our sustainable financing programme. Olives has grown to S$3.5 billion to date and includes our first green loan for our data centres. We have also been collaborating with our regional associates to amplify the impact of our contributions as one Group, sharing our experience on ICP and other best practices.
Delivering value realisation
The key goal of Singtel28 is to drive meaningful growth in our business performance and deliver sustained value realisation for shareholders. To achieve this objective, we will continue to optimise the core businesses and scale growth engines to deliver stronger EBIT growth and support our mid-term goal of a low double-digit return on invested capital. Shareholders can also expect better returns, as we execute to our smart capital management policy.
