Singapore Telecommunications, once Singapore Exchange S68 's largest company by market capitalisation and earnings, but long since overtaken by DBS Group Holdings, announced that it expects to recognise a $3.1 billion non-cash impairment in FY2024 ended March 31. SingTel paid the equivalent of $11 billion for Optus in 2001.
Optus performed a strategic review of its enterprise business, in conjunction with its annual budget process, implementing a strategy focused on restoring long term growth. This review included an assessment of its enterprise fixed assets. In line with the overall decline that was witnessed in the Australian enterprise market, Optus Enterprise has been reporting steep declines in fixed carriage revenue due to churn and price erosion, which has led to lower recovery value. As a result, Optus expects to record non-cash impairment provisions of approximately A$540 million ($470 million) on its enterprise fixed access network assets.
As part of the Singtel Group’s review of its investments, the recovery value of Optus group was assessed to be below its carrying value as at March 31, This reflected a range of factors including weaker prospects in the enterprise market, increased cost of capital and the softer macroeconomic outlook in Australia partly offset by the benefit from the regional Multi-Operator Core Network (MOCN) agreement which Optus has entered into with TPG Telecom, SingTel says in an announcement on April 29.
Consequently, the group expects to record a non-cash impairment provision of approximately $2 billion on the goodwill of Optus. The group also expects to record a non-cash impairment provision for goodwill of approximately $340 million for the Asia Pacific cyber security business mainly from general business weakness on lower corporate spending. In addition, an estimated $280 million of non-cash impairment provision is expected for NCS Australia due mainly to higher cost of capital. The figures are subject to finalisation as the statutory audits of the Singtel Group are ongoing, SIingTel says.
SingTel will announce its year-end financials on May 23 and the group is expected to report a net loss for the second half of FY2024, and a lower net property in FY2024.
Goodwill is the amount that a company pays above the book value in an acquisition. As such, the impairment is non-cash and will not have a negative impact on operating cash flow. However, it will affect net profit. Additionally, SingTel says the impairment will not affect its dividends. However, it will impact net asset value as write-offs affect total shareholders' funds due to its effect on retained earnings.
See also: Optus and NCS bring better 1HFY2025 for Singtel; raises ebit guidance and interim dividend
Shares in Singtel closed at $2.41 on April 26.
