Singtel Financial Return Shows Potential Value of a Portfolio

Singtel’s latest quarterly results illustrate one connectivity provider  growth strategy: a portfolio of assets without majority ownership or control. 

To be sure, the core connectivity business continues to produce most of the revenue and free cash flow. But growth largely is driven by businesses in adjacencies: business services, data centers, advertising and minority stakes in other connectivity providers, where  revenue grew 21 percent.  

The point is that organic growth in the core connectivity business is tough. Connectivity business operating revenue was up about 0.4 percent on an annual basis, the company reported in November 2021. Mobile operating revenue in Singapore declined 1.3 percent on an annual basis. 

Enterprise revenues were flat while voice revenue fell 16 percent. 

Growth is faster in adjacencies. Data center and security services revenue rose 9.6 percent while technology services related to cloud and digital climbed 9.3 percent. 

Also key: profits from ownership stakes in other entities grew 18 percent, especially from its minority interests in Africa and India and the share of profits from those investments. 

In fact, the minority interests drove higher cash flow than did the fully-owned operations. Where cash flow from Singtel’s fully-owned assets produced S$572 million in cash flow, the minority interests produced S$954 million in cash flow, though representing about 13 percent the volume of revenues produced by the fully-owned asserts. 

source: Singtel 

The point is that a portfolio of minority-owned assets can produce significant revenue, cash flow and profit, providing most of the actual revenue growth at the margin. Picking the right assets, in the right markets, matters. 

But the traditional, monolithic “branded” approach to assets is not the only way to attain growth. In fact, that approach is yielding slow to negative growth. 

Telcos long have believed they had to own and control, brand and manage, all their assets. That is not the only model. Looking at growth as including a portfolio of complementary assets not fully consolidated, controlled and managed, can work. 

The trick is to make the right acquisitions, while avoiding the temptation to own and control 100 percent of every asset. It sometimes is not needed, and not helpful.