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NetLink NBN FY25 Financial Results and Outlook · Investor Exchange

• 0:02
  Time for another Investor Exchange Podcast. Here are your hosts, Matt and Sally.
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  Welcome to the Deep Dive. This is where we grab a pile of source material,
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  could be anything, reports, filings, research, and really get into it,
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  pulling out the key insights just for you.
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  Think of us as your shortcut to getting up to speed. Today, we're zeroing in
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  on Metlink NBN Trust, specifically their financial results for the fiscal year
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  that ended March 31st, 2025. So they're FY25.
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  We've got the official results announcement, their slide deck,
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  and the news release that went with it.
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  And our mission, based only on what's in these documents, is to really unpack
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  how they perform financially in FY25, get a grip on why the numbers are what
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  they are, and see what they're signaling about the future.
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  So what does this actually mean for you? Let's find out.
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  Okay, where do we start? Right. Well, let's start with the headline figures,
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  comparing FY25 to the year before, FY24.
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  Looking at the summaries they provided, we see things dipped slightly across
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  the board. Revenue for the full year came in at $407 million.
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  That's down 1.0% from $411.3 million in FY24. Okay, small debt.
• 1:06
  Yeah. And similarly, EBITDA, that's earnings before interest,
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  taxes, depreciation, and amortization also slipped a bit, down 1.5% to $288.1 million.
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  Profit after tax, or PAT, saw a more noticeable drop, 7.6% lower,
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  landing at $95.4 million compared to over $103 million last year.
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  And the EBITDA margin tightened just a fraction from 71.1% down to 70.8%.
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  Okay, so slight decreases in revenue and operating earnings,
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  but a bit more of a pinch on the final profit line.
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  Not huge drops, but definitely down. Now, the really interesting part.
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  Why? What drove these changes? Financials always have a story behind them,
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  don't they? They really do. And the documents actually give us a pretty clear picture.
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  The main thing dragging down that overall revenue number wasn't actually their
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  core business connecting homes and businesses.
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  It was lower ancillary project revenue. Ah, the extra projects.
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  Exactly. That dropped by $6.2 million year on year.
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  They put this down to just fewer project work orders compared to FY24.
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  And they do note these kinds of opportunities can fluctuate quite a bit.
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  Okay, so less of the non-recurring stuff. What about the main connections business
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  then? Well, that connections revenue, the monthly recurring charges did dip
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  slightly, too, by about $1.5 million.
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  But, and this is key, it wasn't because they lost customers.
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  It was because the price per connection,
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  the MRC, was reduced following a review by the regulator, IMDA.
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  Right. The regulated price changed. Yes, but they explicitly state that the
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  impact of that lower price was, and I quote, largely offset by the growth in connection numbers.
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  So basically, they connected more customers, which almost entirely made up for
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  the lower price per customer.
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  The core business volume grew. Got it. So more customers helped stabilize that
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  core revenue stream despite the price pressure.
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  Precisely. And there were a few other positive bits helping out, too.
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  Co-location revenue was up more demand for rack space. Central office revenue
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  increased, which they linked to recovering more maintenance costs.
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  And installation-related revenue also grew, mostly from more residential signups
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  again, that growth, and also things like cancellation charges. Hmm.
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  Okay. So it paints a picture. The core recurring business, while facing a price
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  cut, held up due to growth and connections.
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  But the drop in the more volatile project work pulled the overall revenue figure down.
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  That distinction feels important. Now, what about the profit side,
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  EBITDA and PAT falling? How did costs factor in?
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  Right. So the EBITDA decrease was partly due to that lower revenue,
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  as we just discussed, but it was also hit by lower non-operating income, basically.
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  They had a one-off gain from selling an asset in FY24 that didn't repeat this
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  year and overall higher operating expenses.
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  OK, let's unpack those expenses a bit. Sure. A few key ones stand out.
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  Operations and maintenance costs went up by $6.7 million.
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  Now, a big chunk of that increase, $6.2 million, according to the notes,
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  is because FY24's costs were artificially lowered by a one-off reversal related
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  to settling a power charges dispute.
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  Ah, so last year had a kind of credit that didn't happen this year? Exactly.
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  So if you take that out, the underlying O&M costs were actually,
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  they say, broadly stable. It's more of a comparison effect. Right, okay. What else moved?
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  Installation costs. They increased by $4.3 million.
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  And this ties directly back to that growth in connections we talked about.
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  More residential orders mean more installation work, which costs more.
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  Makes sense. A cost of growth, essentially. Yes.
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  Then there's depreciation and amortization, up $4.6 million.
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  That's pretty standard stuff when a company is investing heavily in its network assets.
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  As they build more fiber, those new assets get added and you start depreciating them.
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  Standard infrastructure investment consequence. Correct.
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  Finance costs also ticked up slightly by $0.8 million.
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  Interestingly, their average interest rate was actually a tiny bit lower,
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  2.72% versus 2.75%, but they took on quite a bit of new debt during the year,
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  drawing down $91 million in bank loans.
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  Ah, so more borrowing overall meant higher interest payments,
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  even with a slightly better rate. That seems to be the main driver, yes.
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  Now, some costs did go down. Ancillary project direct costs fell by $6.8 million,
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  which you'd expect given the lower ancillary revenue.
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  Less work, less direct costs associated with it. Staff costs also decreased by $1.9 million.
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  This was mainly because they capitalized more of their labor costs,
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  meaning more of the cost of staff working on building or upgrading the network
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  was treated as an investment added to the asset value on the balance sheet rather
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  than hitting the profit and loss as an operating expense immediately.
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  Even if gross salaries went up, this accounting treatment lowered the reported staff expense.
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  Okay, shifting costs from OPEX to CAPEX, effectively. In accounting terms, yes.
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  And finally, other operating expenses dropped by $4.2 million,
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  mostly because they wrote off fewer old decommissioned network assets this year
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  compared to last year. Wow.
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  Okay. So that 7.6% drop in the bottom line, the profit after tax,
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  it really boils down to that slightly lower EBITDA combined with the higher
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  depreciation from building out the network and those increased finance costs from the new loans.
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  The slightly higher tax credit helped a bit, but not enough to offset the rest.
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  That's the picture painted by the numbers, yes.
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  It's a mix of operational factors, investment impacts, and financing changes.
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  It really highlights how many levers are moving simultaneously.
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  It's not just revenue down, profit down. It's much more nuanced.
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  Absolutely. And you see these flows reflected in the cash movements,
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  too, though we don't need to go super deep there.
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  Cash from operations was down a bit, partly higher taxes.
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  Cash used in investing was up significantly. That's the network build out and
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  a new central office they mentioned.
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  They flagged future capital commitments to about 78 million dollars for physical
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  assets and 18 million dollars for intangibles like software tied to network
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  expansion and smart nation projects.
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  So definitely still investing heavily. Yes.
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  And cash used in financing actually decreased because the new loan drawdown
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  was larger than the increase in distributions paid out.
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  Balance sheet-wise, assets dipped slightly due to depreciation and some financial
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  instrument value changes, while liabilities rose mainly because of those new loans.
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  Unit holders' funds decreased mostly due to distributions paid.
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  Okay, now you mentioned distributions.
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  For many people looking at net length, that's a critical piece.
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  How did all this financial performance translate into what they actually paid out to unit holders?
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  Because profit and distributable cash aren't always the same thing, especially for trusts.
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  That's a crucial distinction. And here, despite the dip in accounting profit,
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  the story is different. Their policy is clear.
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  Distribute 100% of cash available for distribution, or CFBS,
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  twice a year. And for FY25?
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  For FY25, the total amount they attributed for distribution actually rose slightly.
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  It was $208.9 million, which is up 1.2% from the $206.5 million in FY24.
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  Ah, so distributions went up. Yes, slightly. And this meant the distribution
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  per unit, the DPU, also increased by 1.1%, coming in at 5.36 Singapore cents
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  for the year, up from 5.30 cents in FY24.
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  That's really interesting. Profit down, but distribution per unit up.
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  Exactly. And they make a point of highlighting this steady DPU growth every
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  year since their IPO back in 2017.
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  They also mentioned they've returned $1.5 billion to uniholders since then.
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  The final payout for FY25, the second half distribution, is 2.68 cents per unit,
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  payable on June 11th. Okay, that's a key takeaway then.
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  The underlying cash generation, which is what really funds distributions for
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  a structure like this, remains strong enough to support a small increase in
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  the payout, despite the headline profit dip.
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  That stability and slight growth in DPU is probably very important for many listeners.
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  Right. So that's the look back at FY25. What about looking forward?
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  What does the outlook section tell us? Well, they start by acknowledging the
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  choppy waters, the volatile global political and economic scene.
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  Trade tensions, geopolitical risks.
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  Closer home in Singapore, they see signs of interest rates and inflation easing,
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  but they still flag risks to economic growth.
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  Standard cautious view of the macro environment, pretty much.
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  But then they pivot to their own situation. They really emphasize the resilience
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  they get from their business model, specifically the regulated price certainty
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  under the revised ICO framework.
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  They stress this gives them predictability for the next four years.
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  Four years of price certainty, that's significant.
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  It is. They present it as the bedrock for stable revenue and cash flow,
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  helping them ride out those external uncertainties.
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  They also talk up their strong balance sheet and disciplined capital management,
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  saying they're well-placed to fund their operations and ongoing investments.
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  And managing risks like interest rates. Yes, they specifically mention hedging.
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  As of March 31st, they'd hedge just over 70% of their outstanding bank loans
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  with interest rate swaps.
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  This locks in the interest costs for a large portion of their debt,
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  giving them more stability against future rate hikes.
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  They even mention entering another $90 million fixed rate swap after the year
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  end and securing more short-term funding facilities.
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  Shows they're actively managing that financial risk. So, focusing on stability
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  through regulation and hedging.
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  What about growth or investment? Definitely investing. They talk about prudent
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  investment to expand and enhance the fiber network, driven by demand across
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  all segments, residential, business, etc.
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  The key link they make here is that this investment grows their regulated asset base, the RAB.
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  Right, the pool of assets the regulator lets them earn a return on. Exactly.
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  So growing the ROB is presented as fundamental to supporting long-term returns
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  under their regulated model.
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  They connect this investment directly to supporting Singapore's national digital
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  goals, like the Smart Nation 2.0 initiative, and the government's plan for 10 GBP speeds by 2026.
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  They mention working with government and industry partners on this.
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  Positioning themselves as critical infrastructure for Singapore's future.
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  That's clearly the message. Beyond the core network build-out,
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  they also say they continue to explore other potential investment opportunities
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  in related telecom or infrastructure businesses, provided they align with their
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  strategy and risk appetite.
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  So sticking to the knitting, but keeping an eye out for adjacent opportunities.
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  Seems like it, the overall messages. Despite the challenging external environment,
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  they're focused on operational excellence, supporting Singapore's digital ambitions,
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  and crucially for unit holders maintaining sustainable distributions.
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  Oh, and one other point, just for completeness, from the auditor's report section.
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  They looked closely at goodwill impairment, basically checking if the value
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  of past acquisitions on the books is still justified. The auditors confirmed
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  management's assessment process, and assumptions were reasonable.
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  It's another layer of financial validation. And just to circle back on that
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  financial strength point that gives some credit metrics, net gearing at 28.3%,
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  net debt to EBITDA at 2.4 times, and EBITDA covering interest payments 13.2 times over.
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  These numbers suggest a pretty comfortable debt position.
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  Right, so let's try and pull this all together. For FY25, the headline numbers
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  dip slightly, mostly because of less vulnerable project work,
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  while the core regulated connections business showed underlying strength growth
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  in customer numbers, offsetting a regulated price cut.
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  Costs were a mixed bag, influenced by things like comparison effects from last
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  year, investment in growth, and new financing.
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  But, crucially, the cash flow allowed them to edge up the distribution per unit,
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  keeping that growth streak alive.
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  That sums it up well. And looking ahead, they're really leaning into the stability
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  offered by the regulated model,
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  locking in pricing for four years, hedging interest rates, while continuing
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  to invest significantly in expanding the network to support national digital
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  plans and grow that all-important regulated asset base.
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  They seem confident this positions them well, even with external uncertainties,
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  while also looking for potential new growth avenues. Yeah, what's really interesting
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  is that dynamic, isn't it?
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  You've got this highly regulated, predictable core, but at the same time,
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  technology doesn't stand still.
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  So they have to constantly invest, manage capital carefully,
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  and decide how to balance generating today's stable returns with building for
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  tomorrow's demands. Absolutely.
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  It's that classic infrastructure challenge being a reliable utility today,
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  also being the foundation for future innovation. It really makes you think.
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  So here's a thought to leave you with. Given that Netlink benefits from regulatory
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  certainty, but also faces the constant pressure to upgrade for things like 10
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  GBP speeds and smart nation goals,
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  how do companies like this manage the potential conflict between maximizing
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  returns under the current rules and making the potentially massive forward-looking
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  investments needed for a radically different digital future.
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  Where does that balance lie? Something to ponder.
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  That brings us to the end of this deep dive into Netlink NPN Trust's FY25.
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  Thanks so much for joining us.