ANNUAL REPORT 2023 Where Cloud meets Digital Infinity awaits
StarHub is evolving from a traditional telecommunications provider to a dynamic digital ecosystem player. By embracing cloud computing, cybersecurity, artificial intelligence, and the Internet of Things (IoT), we are expanding our product and service offerings with innovative solutions, tapping on new technologies to enhance consumer and enterprise experiences. We want to do more than just keep up with today’s changing global economy, we want to thrive in it. Central to our transformation are strategic partnerships with tech pioneers, integrating advanced knowledge and capabilities to enrich our value proposition and competitiveness. This allows us to reshape our business operations to be more agile and data-centric, and aligned with the demands of a new generation. Welcome to the future, where cloud meets digital. Transforming Digital Experiences with the Power of Cloud
STRATEGY 6 DARE+ Growth Roadmap 8 Chairman’s Message 12 In Discussion with Senior Executives About STARHUB 20 Senior Executives 26 Board of Directors 32 Directors’ Particulars 34 StarHub’s Growing Ecosystem 36 Awards and Industry Honours 38 Value Creation FINANCIALS 186 FY2023 Financial Statements 187 Directors’ Statement 196 Independent Auditors’ Report 201 Statements of Financial Position 202 Consolidated Income Statement 203 Consolidated Statement of Comprehensive Income 204 Statements of Changes in Equity 208 Consolidated Cash Flow Statement 210 Notes to the Financial Statements ADDITIONAL INFORMATION 292 Shareholding Information 294 Interested Person Transactions and Material Contracts 295 Notice of Twenty-Sixth Annual General Meeting 300 Additional Information on Directors Seeking Re-election Proxy Form IBC Corporate Information C O N T E N T S Business Review SUSTAINABILITY & GOVERNANCE 40 Financial Highlights 42 Consumer 50 Enterprise 58 Group Financial Review 66 Sustainability Report 144 Investor Relations 146 Corporate Governance 177 Risk Management
From Telco to Digital Ecosystem Player Consumer All-In-One App Dive into a world of boundless entertainment with our growing suite of Infinity Play products, all conveniently available on a single platform, on-demand at the touch of a finger. Seamlessly navigate through a myriad of options as we redesign the customer journey, leveraging our Data Lake to offer a tailored experience that will enhance StarHub’s cross- and up-sell capabilities to drive revenue growth. Behind the scenes, our agile operating model ensures efficiency, delivering cost savings while maintaining the highest standards of service. Embrace the future of connectivity with StarHub’s consumer app – where convenience, innovation, and value creation converge in perfect harmony. Where The World Is At Your Fingertips Beyond traditional offerings, StarHub is architecting a digital ecosystem with an infinite continuum of products and services. Leveraging data and artificial intelligence (AI), StarHub aims to deliver personalised digital experiences, addressing the diverse needs of our customers in today’s digital landscape. Elevating Customer Lifetime Value 64% Customers with >1 service 1.56 Average number of services per customer 65% Customers with >5 years tenure Infinity Play Unleashing endless possibilities, StarHub’s Infinity Play strategy invites customers to explore a growing array of digital products and services, increasing the levers to enhance cross- and up-sell opportunities, sculpting a path towards elevating customer lifetime value.
Cloud + Connectivity + Cybersecurity sharpening StarHub’s Enterprise niche. Hybrid Cloud + Leading Cybersecurity Standards with infinite applications on Cloud Infinity. StarHub + Subsidiaries’ Collective Expertise, Resources & Network to pioneer smart, safe and sustainable solutions and seize regional growth opportunities. Where All Good Things Converge Powered by foundational transformation – IT and Network digitisation and cloudification – we will unlock unprecedented agility to empower new businesses and create new engagement models delivered through new platforms, propelling StarHub towards a future defined by innovation and growth. StarHub’s enterprise IT Transformation will revolutionise our approach to sell, deliver and manage our portfolio of enterprise services. Through modernisation and streamlining, our systems will be consolidated into a common architecture for seamless integration and greater flexibility. For our enterprise clients, we will enhance the digital experience with integrated touchpoints, empowering self-service capabilities for greater convenience and control. Enterprise IT Transformation Plugged into key growth platforms, our Data Lake is the heartbeat of StarHub’s DARE+ transformation to enable new customer engagement models, innovative business strategies, and data-driven decisions that shape the future. With automated data gathering and analysis, actionable insights flow effortlessly, driving operational excellence through predictive maintenance and targeted marketing, while unlocking revenue opportunities through personalised up/cross selling, as well as network monetisation and next-generation service launches through Cloud Infinity. Complete visibility into the customer journey and profile will be possible from FY2024, illuminating pathways to the era of data-driven excellence for transformative growth. Data Lake Experience unparalleled autonomy as enterprises seamlessly self-serve, provision, and manage their digital assets through our intuitive marketplace. Dive into the versatility of multi-cloud access, offering hybrid and public workloads deployable instantly at the core or on the edge. Our metropolitan infrastructure ensures ultralow latency and high bandwidth, converging 5G, 4G, and 10G-XGS-PON technologies to deliver performance. Security remains paramount, with a design that embeds security from core to edge and from cloud workloads to endpoint devices. Welcome to the future of cloud computing, where innovation, agility, and security converge to unlock infinite possibilities with Cloud Infinity. Cloud Infinity Where Connectivity, Cloud and Cybersecurity converge into a symphony of seamless enterprise solutions, with Cloud Infinity layered on to offer differentiated value, empowering businesses to transcend boundaries in their digitalisation journey. Connectivity, Cloud and Cybersecurity
DARE+ Growth Roadmap $500M Total Savings + Growth Executed Cost Savings Expected Cost Savings Expected Gross Profit Growth $21M Stable State Incremental NPAT Run Rate $80M p.a. From FY2027 + $220M Expected Gross Profit Growth FY2022 - FY2027 $280M Expected Savings FY2022 - FY2027 $51M $105M ON TRACK TO DELIVER SUSTAINABLE LONG-TERM VALUE PACE OF INVESTMENTS Total DARE+ Investments Reduced to Approx. $270M; 90% of which to be completed by FY2024. FY2022 FY2026 FY2027 FY2025 FY2023 FY2024 INVESTMENTS: Approx.$270M FY2022 - FY2025 $106M FY2022 Investments Mainly relating to IT Transformation, Content (Premier League), 5G and start-up cost relating to new business initiatives. $270M DARE+ Total Investments (Opex + Capex, FY2022 to FY2025) 30% 39% 31% ~$85M FY2023 Investments Mainly relating to IT Transformation & Cloud Infinity. 60% Capex 40% Opex 50% Capex 50% Opex Balance expected to be mostly incurred in FY2024 90% of total DARE+ investments expected to be made by FY2024, with balance to be incurred in FY2025. FY2024 Investments Mainly relating to Cloud Infinity & IT Transformation. 60% Capex 40% Opex ACCELERATING Value Creation REALISING Growth Without Frontiers DIGITAL In Everything We Do D R EXPERIENCES That Enrich Customers’ Lives E A 6 STARHUB LTD ANNUAL REPORT 2023
KEY PRIORITIES DRIVING SUSTAINABLE GROWTH BUSINESS MODEL REPOSITIONING Delivered in FY2022 & FY2023 RE-PLATFORMING WITH CLOUD & DIGITAL + Robust growth across Mobile, Broadband and Entertainment with expanding revenue market share position despite market erosion + Consumer: Grew Infinity Play offerings and increased cross- and up-sell momentum + Enterprise: Strong growth in Cybersecurity; progressed convergence of connectivity, cloud and cybersecurity + Optimising our business model with Capex-to-Opex shift + Transitioning legacy systems to Cloud platforms + Strong profitability and balance sheet with improving free cash flow trends + IT cloudification underway + Consumer: Launched All-in-One app + Enterprise: Initiated network cloudification (Cloud Infinity) + Defend and grow connectivity through Infinity Play and enhanced cross- and up-sell capabilities underpinned by cloud & Data Lake + Cloud Infinity: Enable true business use cases for Smart Cities and enterprises + Enterprise: Pursue regional opportunities leveraging enlarged platform + Cybersecurity: Remains core to strategy; continued growth focus + New cloud platforms to drive automation efficiencies across client engagement, operations and infrastructure + Reduce footprint and cost of legacy systems and assets + To complete IT cloudification for never-before agility for StarHub as well as client empowerment and engagement + Cloud Infinity: Commercial launch in FY2024 to bring first-in-market network observability, scalability and resilience + Data Lake: Full customer profile visibility for Consumer in FY2024, followed by network optimisation and converged data platforms for StarHub and enterprises To Deliver in FY2024 & Beyond Committed to Delivering $500M in Outcomes Our target outcomes remain unchanged albeit delays in certain initiatives and resulting outcomes. We expect to harvest benefits from FY2025 with full benefits to be reaped from FY2027. ~$51M in Outcomes Achieved in FY2023 Achieved legacy Capex avoidance from Cloud Infinity, alongside ongoing cost rationalisation efforts. We expect FY2024 benefits to include growth from new consumer verticals, streamlining of consumer offerings, Capex avoidance from Cloud Infinity and network optimisation. Total Investments Reduced to ~$270M Reduction from original $310M mainly due to cost rationalisation and continuous fine-tuning of architecture. Greater efficiencies have been achieved with no reduction in transformation scope. 90% of Investments to be made by FY2024 Due to slight delays in FY2023 investments relating to certain transformation initiatives, the investment period has been extended a year into FY2025. 90% of total investments are expected to be made by FY2024. 7 STRATEGY ABOUT US SUSTAINABILITY & GOVERNANCE BUSINESS REVIEW FINANCIALS ADDITIONAL INFORMATION
Chairman’s Message Empowered by the DARE+ roadmap, which will forge new revenue streams, optimise efficiencies and transform our business model, StarHub is poised to significantly improve long-term Total Shareholder Return. OLIVIER LIM Chairman 8 STARHUB LTD ANNUAL REPORT 2023
Fellow Shareholders, On behalf of the Board of Directors, I am pleased to present StarHub’s Annual Report for the financial year ended 31 December 2023 (“FY2023”). In FY2023 we achieved significant milestones in our transformative DARE+ roadmap. We continued to deploy new platforms that will catalyse a change in StarHub’s business models and position StarHub strongly in a dynamic and competitive environment. Ultimately, we aim to increase our addressable market, show sustainable topline growth, and improve margins to achieve sustainable and higher return on equity (“ROE”) despite our competitive industry. The Board continues to support our Chief Executive and his team in building a resilient and future-ready business. We are actively providing oversight on essential performance drivers as communicated to shareholders last year. I will furnish an update on Board Composition, Talent & Culture, Strategy, Organisational Development, and Long-term Total Shareholder Return (“TSR”). Driving Performance StarHub delivered strong performance in FY2023. Core DARE+ initiatives such as Infinity Play have allowed our consumer business to grow despite a competitive market. We are executing on our regional enterprise platform strategy to capitalise on growth opportunities across the region while delivering solutions that bring together cloud, connectivity and cybersecurity (“3C’s”), which continues to deliver double-digit annual revenue growth. Total Revenue and Service Revenue grew 2.0% and 5.5% to $2.37 billion and $1.99 billion respectively from a year ago. FY2023 Service EBITDA increased 13.8% to $432 million, representing a margin of 21.7%. Most notably, our FY2023 Net Profit After Tax attributable to shareholders (“NPAT”) grew 140.4% to $150 million – marking a return to our FY2021 baseline “breakeven” level prior to heavy DARE+ investments being made. Despite continued investments made in new platforms and growth initiatives during FY2023, our balance sheet remained strong with positive Free Cash Flow of $186 million and healthy Net Debt to EBITDA of 1.36 times as at 31 December 2023 giving us ample financial flexibility. We will continue to maintain strong capital management discipline but not shy from making investments that will help us sustainably improve topline, margins, and ROE over the longer term. Strategy & Evolving Business Model Our DARE+ achievements were made possible by the vision and execution of our Chief Executive and his team, with the support and guidance of the Board. In the near-term, management will continue to execute on DARE+, which is expected to generate over $500 million in cumulative cost savings and gross profit growth between FY2022 and FY2027. The value-accretive DARE+ programme aims to generate stable-state incremental net profit per annum1 of $80 million from FY2027 through the creation of new revenue streams and enhanced efficiencies driven by the adoption of new and advanced systems and platforms. Driving Growth During the year, we continued to deliver connectivity growth in a challenging and competitive market. The team’s tenacity and entrepreneurial spirit allowed StarHub to capture a larger share of the market and enhance its leadership across Mobile, Broadband and Entertainment. We continued to drive Infinity Play into the lives of our customers, allowing StarHub to cross-sell and up-sell through enhanced customer engagement and quality service. This has been an effective market differentiation strategy, allowing our consumer ARPU and performance to stabilise and even improve in an intensely competitive operating environment. On the Enterprise side, we continued to cocreate with our clients innovative solutions that are anchored on the 3C’s. Additionally, we are building Cloud Infinity, the World’s First Secure Autonomous Metropolitan Cloud for Smart Cities and Enterprises, securing our position as a leading provider of innovative solutions for enterprise clients. Cybersecurity remains core to our strategy to leverage the convergence of the 3C’s, and our Regional ICT Services business continued to build strong order books. Re-Platforming with Cloud & Digital FY2023 was a pivotal year as we started making significant progress with building the new platforms that will enable and accelerate the execution of DARE+. This will reposition StarHub as a leading digital ecosystem player. We are currently in the process of implementing our multi-year IT Transformation programme, which will radically “cloudify” and modernise our IT architecture. We are excited about the immense value that this will bring to our customers, and to StarHub by delivering higher quality of service at lower cost overall, and tremendous go-to-market agility. We first launched StarHub’s All-inOne app for consumers in November 2022, and the app has gone through various iterations with new products and services, as well as key features added. Without requiring customers to migrate to a new app, we have seen strong traction and improved customer engagement during FY2023, and we will continue to enhance the consumer app in FY2024. 1 Using FY2021 as the baseline year. 9 STRATEGY ABOUT US SUSTAINABILITY & GOVERNANCE BUSINESS REVIEW FINANCIALS ADDITIONAL INFORMATION
Chairman’s Message Cybersecurity remains core to our Enterprise platform strategy in the convergence of the 3C’s and our regionalisation plans. Ensign, which anchors our Cybersecurity Services segment, continues to deliver strong double-digit annual revenue growth of 16% in FY2023. As Asia’s largest pureplay Cybersecurity Services company with a comprehensive and complete offering, Ensign’s service proposition is augmented by proprietary R&D solutions, leveraging AI and Machine Learning technologies for advanced threat detection, analysis and response. This focus is aligned and synergistic with StarHub’s niche in providing converged enterprise solutions in the 3C’s, hence, we have extended our Assigned Rights until October 2025, solidifying our commitment to this crucial component of our business by retaining a 55.73% interest in Ensign. We announced on 13 December 2023 the divestment of Ensign’s subsidiary, D’Crypt, which focuses primarily on hardware development for the defence industry. This divestment sharpens Ensign’s business, allowing them to focus resources on higher growth areas. During the year, we also completed the acquisition of the remaining 40% stake in JOS Singapore and JOS Malaysia, integrating these businesses fully into StarHub Enterprise. Being wholly-owned subsidiaries, this strategic move empowers the Group to harness the collective capabilities with integrated go-to-market and delivery engagement model to pursue larger regional projects and broaden our market reach. Enhancing Total Shareholder Return To thank shareholders for their continued support, the Board has recommended a final dividend of 4.2 cents per share. Together with the interim dividend of 2.5 cents per share, the total dividend in FY2023 is 6.7 cents per share, representing a payout ratio of 80% of NPAT, adjusted for one-off items. The Board remains committed to upholding our declared dividend policy, which entails distributing at least 80% of NPAT excluding one-offs, and offers its dividend guidance of at least 6.0 cents per ordinary share for FY2024. World’s First Autonomous Metropolitian Clound Network CLOUD INFINITY EDGE UPF 5G Packet Care XGS-PON Satellite Network-X Secure-X Cloud-X Private Cloud Multi Cloud Network Cloud Area Network World’s First hybrid multi-cloud data lake and AI-Ops AR/VR Metaverse Hologram Streaming LIVE Content-X Security Service Edge XDR Security Ops Zero Trust The first of its kind in the world, Cloud Infinity will enhance network observability, scalability, and resilience for StarHub upon its full implementation. Its innovative platforms will address market gaps. Enterprises will be able to securely and effectively leverage hybrid and public multi-cloud capabilities across the entire spectrum from core to edge on a high resiliency, high observability, and ultra-low latency platform. We started socialising Cloud Infinity with key clients in FY2023, and have started co-creating several minimum viable products and proof of concepts alongside clients to ensure Cloud Infinity’s market relevance. The team is working to launch most of Cloud Infinity’s four platforms commercially by FY2024. Read more about about Cloud Infinity on page 18 Underpinning all our digital strategies is a data lake that we started building in 2023. The data lake powers StarHub’s aforementioned platforms, seamlessly leveraging artificial intelligence (“AI”) to unify rich cloud-based data accumulated across the organisation to enable innovative customer engagement models, give rise to new monetisation opportunities and drive greater internal efficiencies through data-driven strategic business decisions. In the Consumer segment, we aim to enhance customer lifetime value and provide a personalised experience. We expect to be able to gain full visibility on customer journey and profiles from FY2024. We will expand this capability to enterprises, as well as create an AI-enabled data centric and empowered culture within StarHub to optimise operational efficiencies. Read more about our consumer business strategies on pages 42 to 49. Having established these platforms, we will implement our enterprise regional strategy using a dual-pronged approach. Firstly, we will harness the capabilities, customer base and regional presence of our subsidiaries to effectively introduce and monetise new platforms and technologies throughout the region, including new regional opportunities enabled by Cloud Infinity. Secondly, our subsidiaries will capitalise on StarHub’s customer base, robust partnership network, demonstrated track record, and client endorsements to actively pursue significant cross-border projects in the region. Read more about our enterprise business strategies on pages 50 to 57. M&A’s Role In StarHub’s Strategy Our transformation is primarily organic in nature. Judicious acquisitions and divestments have an important supporting role to play in this. We regularly continue to assess high-quality synergistic acquisitions that align with and enhance our strategy. 10 STARHUB LTD ANNUAL REPORT 2023
Empowered by the DARE+ roadmap, which will forge new revenue streams, optimise efficiencies and transform our business model, StarHub is poised to significantly improve long-term TSR. DARE+ has also resulted in a shift in our business model as we continue to drive Capex-to-Opex substitution across our businesses in the light of our asset-light and capitalisation strategy. This is expected to improve net margin efficiencies and Free Cash Flow trends moving forward. Our ROE for 2023 increased to 20.7% compared with 10.2% the previous year. To demonstrate our resolve to enhance long-term TSR, we established a $50 million Share Buyback programme in June 2023 to repurchase up to 3% of StarHub’s issued share capital, or 51.9 million shares. As at 31 December 2023, we repurchased 16.7 million shares, at an aggregate cost of $17.6 million, thereby reducing our issued share capital (excluding treasury shares) compared to a year ago. Sustainability & Organisational Development At StarHub, sustainability remains at the heart of our strategy and operations, influencing decisions that we make. From environmental initiatives to community outreach efforts and business practices, we have been taking proactive steps to build a greener future together with our stakeholders. We remain committed to aligning our sustainability practices to accepted ESG frameworks infused with the context of our industry and society. As a testament to our progress in Sustainability, StarHub earned the prestigious titles of “World’s Most Sustainable Wireless Telecommunication Provider” and “80th Most Sustainable Corporation” by Corporate Knights in its Global 100 2024 rankings. The Global 100 is widely accepted as the gold standard in sustainability rankings. This year, we achieved an important milestone in our decarbonisation roadmap, having had our goals and targets for lowering the Group’s Scope 1, 2 and 3 emissions officially verified by the Science Based Targets initiative (“SBTi”) in November 2023. Our goals are aligned with a 1.5-degree climate scenario and we aim to reach net-zero greenhouse gas emissions across our value chain by FY2050. Please refer to page 87 for our SBT adoption. Presently, we are proactively addressing various aspects to reduce carbon emissions in our operations. Specifically, in the fiscal year 2023, 12% of our energy consumption originated from renewable electricity sources. Moving forward, we are committed to increasing this percentage, aiming to satisfy 30% of our electricity requirements through renewable energy by the year 2030. Additionally, we’ve undertaken the modernisation of our legacy data centres and initiated the integration of electric vehicles (EVs) into our corporate fleet. Our dedication to support the global push for net zero emissions will lead us to intensify our efforts. Our commitment to sustainability goes beyond environmental causes to include the community that we operate in. As a team, StarHub continues to support less privileged children and youths, and foster a digitally inclusive community, having invested close to $600,000 and over 1,215 employee volunteering hours in FY2023. As a forward-thinking organisation, StarHub is actively re-aligning our structure to meet the requirements of our DARE+ roadmap that has seen a shift in our longterm ambitions and way of work. This involves the re-shaping of our physical workplace to encourage employees to connect, collaborate, and co-create within a dynamic work environment, thereby fostering a culture that epitomises ‘The StarHub Way’. Our dedication to continuous learning and development, coupled with strategic talent acquisition, is more crucial than ever. These initiatives are key to bolstering our organisation for future growth, ensuring that our workforce is adept and equipped to keep pace with StarHub’s transformation. Acknowledgements At the conclusion of the upcoming AGM on 25 April 2024, Mr Naoki Wakai will be stepping down from the Board of Directors after almost seven years of service since his appointment in August 2017. With almost three decades of experience in international telecommunications and IT business under his belt, Wakai-san offered valuable perspectives and contributed his rich experience to the Board and Management. We would like to take this opportunity to extend our appreciation to Wakai-san. I would also like to extend the Board’s appreciation to our Chief Executive, Nikhil, management and employees for their dedication and invaluable contributions in executing to our DARE+ roadmap. To our customers, business partners, suppliers and shareholders, thank you for your continued support, trust and loyalty. Olivier Lim Chairman Reduce absolute scope 1, 2, and 3 GHG emissions by 90% by 2050 Reduce absolute scope 1 and 2 GHG emissions by 50% by 2030 Net-Zero Greenhouse gas emissions by 2050 11 STRATEGY ABOUT US SUSTAINABILITY & GOVERNANCE BUSINESS REVIEW FINANCIALS ADDITIONAL INFORMATION
In Discussion with StarHub’s Executives NIKHIL EAPEN Chief Executive Find out more on page 14 Q A JOHAN BUSE Consumer The ongoing price dilution in Mobile has not abated, while competition is getting more intense in Broadband and Entertainment. How does the Consumer business intend to navigate this tough environment in FY2024? Find out more on page 16 Q A Find out more on page 15 A StarHub has been alluding to a Capex-toOpex shift. Could you explain what are the key drivers of this shift, and how will this impact StarHub’s performance in FY2024? Q DENNIS CHIA Chief Financial Officer FY2024 marks the third year of DARE+ execution, and StarHub has reached the net profit target that was set when DARE+ was launched in end-2021. Are we at the inflexion point now for further profitability growth? What are the key catalysts investors can look forward to in FY2024? 12 STARHUB LTD ANNUAL REPORT 2023
TAN KIT YONG Enterprise Find out more on page 17 What are your key priorities in FY2024 that may move the needle and improve performance of the Enterprise business? Q A VERONICA LAI Corporate Services and Sustainability How is StarHub’s sustainability strategy embedded in its DARE+ growth and transformation ambitions? Find out more on page 19 Q A Find out more on page 18 A You have started co-creating solutions with clients and plan to launch all four Cloud Infinity platforms commercially in FY2024. Where do you see the greatest demand for Cloud Infinity, and when do you think Cloud Infinity will start contributing meaningfully to StarHub? Q AYUSH SHARMA Network 13 STRATEGY ABOUT US SUSTAINABILITY & GOVERNANCE BUSINESS REVIEW FINANCIALS ADDITIONAL INFORMATION
In Discussion with StarHub’s Executives A We always maintained that reaching Net Profit After Tax attributable to shareholders (“NPAT”) of $150 million by FY2023 was a key two-year milestone for DARE+. We have been making substantial ongoing investments in our growth and transformation initiatives despite new unanticipated challenges – sustained market erosion, macroeconomic uncertainties, inflationary pressures exacerbated by geopolitical events, and prevailing high-interest rates. Notwithstanding, we are pleased to have achieved this FY2023 milestone. However, our DARE+ journey in FY2023 wasn’t just about financial milestones. Over FY2023, we fortified market leadership across all segments, advanced our digital engagement, continued cloudifying our infrastructure and built growth platforms. We progressed on the transition of our IT infrastructure across both our consumer and enterprise businesses to cloud and Software-as-aService platforms (“SaaS”). In tandem with IT re-platforming, we advanced the shift of our customer engagement to digital platforms with embedded data analytics and Artificial Intelligence (“AI”) – in particular, our StarHub All-in-One app that will be targeted and interactive across a rich spectrum of digital product. We are also well underway with Cloud Infinity, migrating our network to hybrid multi-cloud, also with embedded AI for autonomous operations. Last but not least, we continued to strengthen the operational resilience of our critical infrastructure with a focus on cybersecurity, for ourselves as well as for our client platforms and solutions. All of these DARE+ initiatives represent a fundamental shift in business model, resulting in legacy Capex being replaced by future-proof Opex. This transformation takes our business from an asset-heavy Capex model to an asset-light Opex model by moving our infrastructure to the Cloud. This was already reflected in our FY2023 performance where NPAT growth outpaced Service EBITDA growth. Moving forward, we expect to continue to move from Capex to Opex models, resulting in further growth in NPAT, as well as for our Free Cash Flow (“FCF”). FY2024 will be another milestone year – we will complete almost all of our DARE+ investments, with further spend on DARE+ largely tailing off by the end of the year. During Investor Day last November, we guided to our expectations to incur 90% of the $270 million in DARE+ investments by FY2024, which translates to approximately $80 million in Capex and Opex in FY2024. The remaining investments, which are largely related to network transformation, will be incurred in FY2025. Over FY2024, we will also continue building growth platforms around hybrid multi-cloud, security and digital. We target to commercially launch all four Cloud Infinity platforms: Network-X, Context-X, Secure-X and Cloud-X, by end of the year. We are focused on the completion of our IT cloudification across both Consumer and Enterprise by end FY2024 and expect to complete the onboarding of all of our Infinity Play product suite onto our Consumer All-in-One app by 3Q2024. Together with embedded data analytics, AI and personalised marketing automation leveraging our data lake, we will then have full visibility of customer profiles to elevate cross- and up-sell capabilities. NIKHIL EAPEN In FY2025, we will commence sunsetting of legacy IT and other infrastructure and systems. Upon completion, we will cease incurring duplicated costs associated with simultaneously operating multiple stacks for risk management purposes during our transition. Having considered all of the above, we anticipate continued profitability growth into FY2024, escalating in FY2025, with DARE+ investment spend tailing off alongside new platforms to be established, with growth and efficiencies to be achieved over FY2024. Hence, with strong dividend yield plus sustainable profitability growth, our top priority is driving quality and sustainable Total Shareholder Return (“TSR”). We will continue to enhance TSR by improving our net margin efficiency, backed by our ongoing Capex-to-Opex shift and DARE+ benefits to be harnessed. Furthermore, our strong FCF generation will continue to support dividend growth as exemplified by the total dividend of 6.7 cents declared in FY2023, bringing our dividend yield to 6%1; and our FY2024 dividend guidance of “at least 6 cents”. We will also continue to optimise our capital structure to provide us with strong headroom for growth – our current leverage remains low at 1.36 times compared with 2.8 times for our regional peers. We invite our shareholders and stakeholders to join us on this transformative journey. With DARE+ as our compass, we reiterate our DARE+ target financial outcomes – namely, the stable-state incremental net profit of $80 million by FY20272 – shaping a future defined by innovation, resilience, and unparalleled growth. 1 Based on closing share price as at 31 December 2023. 2 Stable-state incremental NPAT of $80 million per annum from FY2027, using FY2021 as the baseline year. FY2024 marks the third year of DARE+ execution, and StarHub has reached the net profit target that was set when DARE+ was launched in end-2021. Are we at the inflexion point now for further profitability growth? What are the key catalysts investors can look forward to in FY2024? Q 14 STARHUB LTD ANNUAL REPORT 2023
Service Revenue +1% to 3% YoY Excluding impact from D’Crypt divestment1 Service EBITDA Margin Approx. 22% Expect realisation of some DARE+ benefits and continued cost optimisation efforts in FY2024 A Our DARE+ Transformation has been evolving our business, on a relative basis, from an asset-heavy Capex model to an asset-light Opex model by moving our IT infrastructure and elements of our Network infrastructure to the cloud for Consumer and Enterprise. As part of our IT Transformation, we are moving components from on-premise infrastructure to on-cloud solutions to enable a large number of digital strategies that support DARE+. This transition will allow us to accelerate our time-to-market and improve our ability to scale resourcing or capacity levels according to our needs, while delivering superior customer experience. Under our new IT operating model, we have outsourced the management of the non-core IT systems to trusted and reliable third-party partners, allowing us to focus on strategic core functions in-house. This shift emphasises Opex over Capex, and notably, we will not be replacing our fullydepreciated assets which are still fullyfunctional. In the 5G network infrastructure, all the Capex relating to the passive infrastructure is shared 50-50 between StarHub and its partner MNO via our joint venture company, Antina, resulting in a much more cost-efficient rollout. Under this arrangement, we do not log the Capex on our financial statements, lowering our Depreciation and Amortisation (“D&A”) expenses. Instead, Antina charges a wholesale cost, which is Opex, to both StarHub and its partner, for the use of the DENNIS CHIA FY2024 GUIDANCE passive 5G infrastructure held under the joint venture company. Consequently, a significant portion of our legacy Capex has shifted to Opex. Looking ahead, our business-as-usual D&A are expected to decline with the fundamental shift in our IT and Network operating models. Whilst we will start incurring D&A for new investments made under DARE+, we expect to generate meaningful returns from our DARE+ initiatives to offset our D&A increases. This transition from Capex to Opex signifies a fundamental shift in our business model, which will yield meaningful benefits when we achieve stable-state performance after the full execution of DARE+. That said, we have seen early benefits in FY2023 where net profit growth outpaced both EBITDA and revenue growth. Looking ahead to FY2024, we have guided to slight improvements in Service EBITDA margin alongside ongoing cost optimisation efforts as part of DARE+. The capex-to-opex shift is expected to enhance net margin efficiency and result in a higher proportion of net profit relative to EBITDA. Our raised FY2024 dividend guidance of “At least 6 cents,” reflects our confidence in the trajectory of our net profit since the dividend guidance is rooted in our dividend policy to distribute at least 80% of NPAT, excluding one-off, non-recurring items. This anticipated improvement in net margin efficiency will support our ability to maintain and potentially increase dividends to enhance TSR. Capex Commitment (As % of Total Revenue) BAU Capex2 4% - 6% Including Investments3 11% - 13% Dividend/Share At Least 6.0 Cents or Dividend Policy4 1 Excluding D’Crypt, FY2023 Service Revenue would have been $1,945.4 million. 2 Excluding 5G Capex and spectrum right, as well as investments relating to DARE+, IT and Network Transformation. 3 Excluding spectrum right, but including 5G Capex and investments relating to DARE+, IT and Network Transformation. 4 Dividend Policy: At least 80% of NPAT, adjusted for one-off, non-recurring items. StarHub has been alluding to a Capex-to-Opex shift. Could you explain what are the key drivers of this shift, and how will this impact StarHub’s performance in FY2024? Q 15 STRATEGY ABOUT US SUSTAINABILITY & GOVERNANCE BUSINESS REVIEW FINANCIALS ADDITIONAL INFORMATION
In Discussion with StarHub’s Executives A JOHAN BUSE StarHub’s customer-centric strategy, anchored by Infinity Play, is undeniably effective. In a hyper-competitive environment, we outperformed the market to close FY2023 with the highest service revenue market share in both Broadband and Entertainment, and the second largest market share in Mobile. On the back of this achievement, we emerged as the sole telco to record the highest year-on-year mobile service revenue growth of 8%. Our unwavering focus remains on execution, placing the customer at the core. Leveraging our advanced 5G and UltraSpeed 10G-XGS-PON network, we are able to deliver a distinct and superior end-to-end user experience, enhanced by a vast array of premium entertainment content. Being the first to break the fibre speed barrier in Singapore with our 10G-XGS-PON technology since February 2023, we are at the forefront of executing Singapore’s national AI strategy through increasing mass market broadband speeds by 10 times to 10Gbps. We have established strong association being the #1 awarded network in Singapore with fastest speeds and unmatched entertainment options especially with the UltraSpeed HomeHub bundle. On a related note, in-demand sports programming, particularly Premier League, continues to generate substantial momentum for our Entertainment business. Over FY2023, the Entertainment segment has recorded a 5% YoY growth in revenue, driven by higher ARPU that was lifted by Premier League and despite the absence of World Cup revenue. We plan to leverage on this momentum by collaborating with our OTT partners to introduce innovative and unique bundled packages, elevating customer lifetime value over the long term. Differentiation in today’s intensely competitive market hinges on the ability to deliver a seamless and quality customer experience consistently. We are focused on delivering the same at every engagement and this is exemplified by our digital fighter brand, giga!, which continues to lead the industry on Net Promoter Scores. This platform delivers personalised campaigns driven by data and facilitates real-time experiences through the integration of social media technologies and AI-powered chatbots, and we plan to replicate this successful model on our All-in-One app. Our new Infinity Play verticals, featuring GameHub+, LifeHub+, and Safety Suite, are gaining significant traction, boasting over 20% YoY subscriber growth and an 18% increase in revenue. Following the launch of NVIDIA GeForce NOW, GameHub+ subscriptions surged by over 10%, successfully attracting hardcore gamers from the mobile cloud gaming segment in both Singapore and the Southeast Asia region. While these outcomes signify a promising initial success, we are poised to further enhance our performance. Through strategic partnerships and heightened user engagement, we are implementing a clear plan to elevate ARPU and drive sustained growth. Read more about the achievements and progress made by the Consumer Business Group from page 42 of this annual report. The ongoing price dilution in Mobile has not abated, while competition is getting more intense in Broadband and Entertainment. How does the Consumer business intend to navigate this tough environment in FY2024? Q We outperformed the market to emerge as the sole telco to record the highest year-onyear mobile service revenue growth of 8%. 16 STARHUB LTD ANNUAL REPORT 2023
A TAN KIT YONG Over the past year, StarHub’s Enterprise business made significant strides following a reorganisation of our teams into an agile principled organisation, putting subject matter experts from various verticals together with a common objective to drive differentiated advanced digital solutions. By fostering collaboration and expertise-sharing, we aim to transcend traditional boundaries, delivering unparalleled service experiences and cementing ourselves as our clients’ trusted advisors. We have seen good results from this, having recorded an 18% increase in contributions from Managed Services, slowing a structural erosion in traditional telco services. This has fortified our mission to deliver unparalleled value to our clients, solidifying our market-leading positions to secure our long-term growth. Leveraging the footprint and combined reach of our regional enterprise platform, we are determined to elevate our approach to target account selling for large deals, not merely as a strategy but as a testament to our ability to understand and anticipate the evolving needs of our clients in this digital age. Our aspiration to develop a regional enterprise platform underscores our dedication to catalysing growth across borders. By crafting scalable and repeatable offerings in collaboration with our esteemed partners, we will unleash a wave of transformative opportunities, both for our clients and ourselves, as we scale-up and build strong order books for future earnings visibility. In FY2024, we also look forward to the commercial launch of our Cloud Infinity platforms, which will add to our value proposition alongside the sharpening of our niche to deliver converged solutions in Connectivity, Cloud and Cybersecurity. Cloud Infinity is based on hybrid multi-cloud architecture enabled with automation and artificial intelligence operations that will secure our position as a leading provider of innovative solutions by expanding existing minimum viable products (MVP) to enterprise and public sector clients in Singapore and the region. Finally, our commitment to creating communities of similar competencies is a testament to our belief in the power of collaboration and collective growth. This will be critical in our enterprise business’ transformation and growth journey. By nurturing an agile culture of innovation, learning, and empowerment, we will attract and retain the brightest talents, inspiring them to realise their fullest potential and drive extraordinary results for our clients and our organisation. Internally, we are also encouraging cross-division collaboration to pick the minds of subject matter experts in the Enterprise business group, IT and Network business units, to enhance our service delivery experience and capabilities with a truly integrated digital infrastructure comprising of mobile, optical and software-defined network for smart city. We strive to accelerate growth in our enterprise business, contributing to our digital world of tomorrow as a Regional Smart City Service Provider with our digital infrastructure. Read more about the achievements and progress of the Enterprise Business Group from page 50 of this annual report. Q What are your key priorities in FY2024 that may move the needle and improve performance of the Enterprise business? We aim to transcend traditional boundaries, delivering unparalleled service experiences and cementing ourselves as our clients’ trusted advisors. 17 STRATEGY ABOUT US SUSTAINABILITY & GOVERNANCE BUSINESS REVIEW FINANCIALS ADDITIONAL INFORMATION
In Discussion with StarHub’s Executives A AYUSH SHARMA I am delighted to introduce the transformative capabilities of Cloud Infinity, a testament to our unwavering dedication to innovation and clientcentric solutions. Cloud Infinity represents a pivotal shift towards a digital platform that harnesses the power of two massive platforms of innovation. The Internet and the Cloud in a unique architecture that allows neutral options (e.g. hybrid multi-cloud, access-agnostic), while safeguarding customer data and privacy and delivering an infinite combination of services aligning seamlessly with evolving value paradigms. At the core of our proposition lies the concept of a ‘digital fabric,’ harmonising all four Cloud Infinity platforms and propelling us beyond rigid, siloed, hardware-bound services towards a dynamic, hybrid, and cloud-native infrastructure. This evolution empowers autonomous services, orchestrates fluid workflows, and supplants traditional break-and-fix models with selfhealing functionalities. As an example, Cybersecurity-as-a-Service will be embedded in the design for any device that’s eSIM capable (cameras, phones, TVs, robots, etc). Content (streaming, gaming, collaboration, and spatial) will be available anywhere, anytime on demand with untethered connectivity and computing. The advantages of this first-in-market technology extend to our clients, diverting new experiences, and values and streamlining operational frameworks with agile, on-demand networks for citizens, enterprises, and governments with intentdriven, assured latency and SLAs. These capabilities augment StarHub Enterprise’s expertise in converging Cloud, Cybersecurity and Connectivity, bolstering our delivery prowess and competitive edge. Consumers can witness a variety of new experiences with content and connectivity bundles anywhere within the region with a flawless experience. Our platforms empower organisations to elevate customer experiences and enhance operational efficiency. Leveraging the Cloud Infinity platforms as our toolkit, these platforms and services can be dynamically tailored to meet customer requirements in real-time, seamlessly woven together by our digital fabric. We have initiated collaborative efforts with early-adopter clients in sectors such as finance and education, focusing on open-RAN, network slicing, AI-Ops2, and local area breakout, capitalising on our ultra-low latency and access agnostic technology to deliver cutting-edge solutions. As a first step, StarHub plans to leverage Cloud Infinity internally, demonstrating its efficacy and building credibility to drive wider customer adoption. This includes onboarding IT workloads onto our private cloud, adopting hybrid multi-cloud for our business units, securing Cloud Infinity through our cyber defence centre, launching new Infinity Play services on the Content-X platform, and utilising network APIs1 to unlock business value from our infrastructure, with potential for external monetisation. Cloud Infinity will also enable StarHub to transcend geographical limitations, facilitating regional expansion through asset-light strategies. Collaborations with strategic partners will expand our network footprint to over 200 locations, offering low-latency networks and VPN services. We eagerly anticipate the launch of our platforms in FY2024, poised to capitalise on substantial market potential across Singapore and the region. 1 API refers to Application Programming Interface. 2 AI-Ops refers to Artificial Intelligence for IT Operations. You have started co-creating solutions with clients and plan to launch all four Cloud Infinity platforms commercially in FY2024. Where do you see the greatest demand for Cloud Infinity, and when do you think Cloud Infinity will start contributing meaningfully to StarHub? Q 18 STARHUB LTD ANNUAL REPORT 2023
A VERONICA LAI The rapid acceleration of the digital economy, driven by the digitalisation of the ICT sector, poses both ESG risks and opportunities for StarHub. Leveraging our DARE+ strategy, we are poised to be a global sustainability leader. Our credible and ambitious targets serve as our guiding “North Star” in navigating our journey towards ESG objectives. In place, are interim and long-term GHG reduction targets, aligned to the Paris Agreement, and validated by Science Based Targets initiative (SBTi) in 2023. Our near-term target is to reduce absolute Scope 1 and 2 emissions by 50% by 2030 from a 2021 base year, and to increase renewable energy use to 30% by 2030. On a longer lens, we aim to achieve net zero across the value chain by 2050. At StarHub, we uphold accountability by aligning actions with principles. Pursuant to this commitment, we published our inaugural StarHub Climate Transition Plan in July 2023, and outlined our progress in our Sustainability Report 2023. Key 2023 initiatives include the adoption of Green Tech to optimise our use of energy and water use, the integration of electric vehicles into our fleet, and use of lower Global Warming Potential (GWP) refrigerant. By early 2024, we would have successfully secured green biomass energy of 12,000MWh annually for the next four years, allowing us to meet our renewable energy target more cost-effectively. Further out, we aim to achieve BCA Green Mark certifications for all our owned data centres by 2026. With AI and cloud-based platforms becoming mainstream and embedded in our DARE+ Transformation, we will collaborate with our partners to invest and trial innovative and smart solutions to optimise energy use and reduce GHG emissions. Continued proactive engagements with our suppliers and value chain will streamline workflows, reap efficiencies and foster greener practices to mitigate Scope 3 emissions. Our DARE+ strategy supports our vision of a connected world for our customers and community, and presents us with the unique opportunity to close the digital divide. Infinity Play, which strives to meet consumers’ every need in the digital age, strengthens StarHub’s offerings to safeguard our customers’ data privacy and security, regardless of their age – with offerings such as JuniorProtect Basic, CyberProtect and CyberCover. Other notable initiatives include low-cost mobile service plans specially designed for seniors and visually- or hearing-impaired persons; launch of the Block Overseas Calls free service in January 2024 that protects customers from the rising threat of overseas scam calls; awareness programmes for customers on phishing SMSes and push notifications on online threats. We donated refurbished laptops to beneficiaries of the SHINE Children and Youth Services to close the circularity loop; and sponsored broadband service to Unlocking ADHD that empowers people with ADHD to live their lives to the fullest. We are in a decade of action, to make a difference in charting towards the Paris Agreement goal, to limit the temperature increase to 1.5 degrees celsius above pre-industrial levels. Every effort counts, and StarHub is proud to be part of this important ecosystem. Read more about our sustainability achievements and progress, which are detailed in our Sustainability Report 2023 from page 66 of this annual report. Q How is StarHub’s sustainability strategy embedded in its DARE+ growth and transformation ambitions? Our DARE+ strategy supports our vision of a connected world for our customers and community, and presents us with the unique opportunity to close the digital divide. 19 STRATEGY ABOUT US SUSTAINABILITY & GOVERNANCE BUSINESS REVIEW FINANCIALS ADDITIONAL INFORMATION
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