Quarter		YOY	12 months		YOY
	Mar 2006 (S$m)	Mar 2005 (S$m)	Change	Mar 2006 (S$m)	Mar 2005 (S$m)	Change
Operating revenue	3,260	3,247	0.4%	13,138	12,617	4.1%
Operational EBITDA	1,097	1,198	-8.4%	4,467	4,662	-4.2%
Share of associates’ ordinary earnings	469	317	48.2%	1,648	1,252	31.6%
EBITDA	1,651	1,606	2.8%	6,453	6,259	3.1%
Net profit attributable to shareholders	1,682	1,043	61.3%	4,163	3,268	27.4%
Underlying net profit  [1]	1,008	881	14.4%	3,295	3,060	7.7%
Underlying EPS (cents)	6.04	5.30	14.0%	19.77	17.80	11.1%

 

Group results for the year ended 31 March 2006

 

The Singtel Group has continued its profitable growth and its net profit has surpassed S$4 billion.   Full-year operating revenue rose 4.1 per cent to a record S$13.14 billion.  Underlying net profit grew 7.7 per cent to S$3.30 billion.

 

Operational EBITDA was S$4.47 billion, a 4.2 per cent decline, reflecting increased contributions from lower margin businesses and the continuing competitive and pricing pressures in Australia.  

 

The Group’s share of pre-tax ordinary profits from associates increased 32 per cent to S$1.65 billion, driven mainly by Bharti and Telkomsel.   Associates contributed a substantial 37 per cent or S$1.21 billion of the Group’s underlying net profit.  The associates’ strong performance and higher exceptional gain helped to lift net profit after tax by 27 per cent to S$4.16 billion.

 

Underlying earnings per share grew 11 per cent to 19.77 cents, contributed by better performance and partly due to a smaller capital base following  the completion of the capital reduction exercise in September 2004.

 

Mr Lee Hsien Yang, Group CEO, said: “Singtel Group has delivered a good operational performance in a challenging environment.   Our results show strong earnings and healthy cash flow.  The Board has recommended S$1.7 billion in final gross dividend of 10 cents per share, 25 per cent higher than in the previous year.  We are also proposing a S$2.3 billion capital reduction[2] to optimise our capital structure while maintaining financial flexibility.  In total, we are returning S$4 billion to our shareholders.

 

“Driving the Group’s growth engine is our regional mobile associates, especially Bharti and Telkomsel.   They are performing strongly and are driving growth in the overall contribution from our associates.”

 

He added: “In the competitive and saturated Singapore market, our business is performing in line with expectations and continues to generate strong cash flow.   In Australia, Optus’ performance is stabilising and is investing for growth even as competitive and pricing pressures persist.”

 

Group results for the quarter ended 31 March 2006

The Group’s revenue for the quarter was stable at S$3.26 billion.   The impact of lower margin businesses and competitive market conditions in Australia resulted in a lower S$1.10 billion operational EBITDA and margin of 33.7 per cent. 

 

The Group’s share of pre-tax ordinary profits of associates increased by  48 per cent to S$469 million. 

 

The Group’s underlying net profit was S$1.01 billion, an increase of 14 per cent.   Underlying earnings per share increased by 14 per cent to 6.04 cents.

 

In the quarter, the Group ceased consolidation of C2C’s financial statements on a line-by-line basis following the loss of control of C2C.   The deconsolidation resulted in an exceptional gain of S$618 million.  The Group also recognised S$152 million in deferred tax asset brought forward from 31 March 2005 relating to interest expenses on a long term loan between the investment holding company of Optus and Singtel.  The loan was made in June 2002 for a term of almost 10 years.

 

Singtel 

The Singapore business met or exceeded its objectives for the year.

 

Operating revenue for the year ended 31 March 2006 increased by 2.3 per cent to S$4.14 billion from a year ago.   This was driven mainly by Equipment Sales which almost doubled to S$223 million as Singtel sold more handsets under the new handset distribution strategy.  Free cash flow for the year benefited from higher dividends from associates, and was up 15 per cent to $1.76 billion.

 

Operational EBITDA margin fell by 3 percentage points to 46.2 per cent in line with guidance. The decline was attributable mainly to increased contributions from lower margin businesses, higher rental expenses following the sale and leaseback of certain properties and increased staff retrenchment costs.   Last year, the operational EBITDA margin also benefited from one-off adjustments for performance share expense and write-backs of provision for doubtful debts no longer required.  Telecom business [3] margin of 52.8 per cent for the year was 3 percentage points lower than last year but maintained above 50 per cent. 

 

Cash capital expenditure was $347 million or 8 per cent of revenue.   The low capital expenditure to revenue ratio reflects the benefits that the Group is reaping from its earlier investment in its network.

 

Data & Internet revenue for the quarter declined marginally by 1.0 per cent to S$296 million attributable mainly to the cessation of capacity sales revenue in the quarter following the deconsolidation of C2C.

 

Broadband revenue grew 14 per cent to S$61 million in the quarter.   The number of broadband lines increased 18 per cent or 53,000 to 352,000 as at 31 March 2006.  Compared to a quarter ago, the increase was 16,000, significantly higher than the quarterly average of 12,000 in the first nine months of the year.  The increase was mainly due to good response to SingNet Broadband’s more affordable price plans launched in February 2006.

 

Mobile communications revenue grew 6.4 per cent to S$219 million.   In the quarter, Singtel added 40,000 mobile subscribers, twice the 20,000 added in the preceding festive quarter.  The number of prepaid subscribers increased 11,000 while the number of postpaid subscribers rose 29,000, a quarterly record in the last two years.  The new prepaid price plans helped to maintain the 29 per cent market share[4].  In postpaid, Singtel continued to retain its 43 per cent market share4.

 

As at 31 March 2006, the number of mobile subscribers was 1.66 million and about 130,000 were 3G subscribers.   The strong take up of 3G services is due to the revised 3G price plans and heavily subsidised 3G handsets.  Singtel’s postpaid customer churn at 0.9 per cent and data usage of 24 per cent of ARPU continue to be among the best in class.

 

International telephone revenue fell 7.1 per cent to S$147 million as the average collection rates declined, partially offset by a 15 per cent increase in traffic. 

 

Revenue from  IT & Engineering  fell 7.9 per cent to S$195 million in the quarter primarily due to the cessation of business of a partly owned NCS subsidiary in China following a strategic review.  NCS’ regionalisation strategy is gaining momentum and NCS remains committed to the China market.  Its overseas revenue grew 30 per cent in the quarter with stronger performance in Australia, Hong Kong and the Middle East.  Major local contract wins in the quarter were in the government, financial services and transport sectors.

 

National telephone revenue fell 4.9 per cent to S$119 million during the quarter reflecting a decline of 1.9 per cent in the number of DEL lines and lower Internet dial-up traffic with increasing broadband usage.   With lower usage and coupled with the lowest tariffs in the world (US$9 per month), there has been limited competition in the fixed line business.  Singtel continues to have 98 per cent market share. 

 

Operating expenses increased 5.2 per cent or S$30 million to S$612 million in the current quarter due mainly to higher staff retrenchment costs.    Against the preceding quarter, operating expenses increased by 7.3 per cent or S$42 million due mainly to higher Cost of Sales. Excluding Cost of Sales, operating expenses rose at a lower 1.8 per cent.

 

Staff costs in the quarter were largely flat year on year, excluding retrenchment costs.   As at 31 March 2006, Singtel’s staff numbers fell 2.5 per cent to 9,838 from a year ago.

 

Selling and administrative expenses increased 7.3 per cent to S$146 million in the quarter. This was partly due to higher mobile subscriber acquisition and re-contract costs and increased rental expenses.

 

In the quarter,  traffic expenses rose 4.7 per cent to S$113 million due to increase in outpayments. 

 

Singtel Optus

For Optus the financial year ended 31 March 2006 was a year of above market growth, but in a declining profit environment.   The fourth quarter results showed Optus reasserting its competitive position, and gaining market share while attacking its cost base and investing for growth.

The year saw two new acquisitions for the company with Alphawest and Virgin Mobile – which added A$45 million to Optus’ operating revenues in the fourth quarter.

 

Excluding the impact of the acquisitions, Optus’ operating revenue grew by 3.4 per cent in the quarter.   For the full year, Optus recorded a 3.9 per cent increase in operating revenue to A$7.2 billion - excluding Alphawest and Virgin, operating revenue increased 2.8 per cent.

 

Paul O’Sullivan, Optus Chief Executive, said the company had met its targets outlined in the September 2005 guidance despite continued intense competition in the mobile and corporate segments and industry-wide declines in fixed voice revenues.

 

“We grew stronger than the industry and took market share, but mobile caps, lower mobile termination rates and changes in revenue mix continued to impact our operational EBITDA margin which was down 2.8 percentage points to 28.3 per cent for the year.   Operational EBITDA decreased 5.5 per cent to A$2.04 billion,” Mr O’Sullivan said.

 

Net profit after tax, excluding the impact of exceptional items in the 2004/05 financial year, fell 8.5 per cent to A$593 million.   Optus continued to manage costs carefully during the financial year.

 

“We are driving a tight and structured process to reduce our cost base – recognising that prices and margins in our major product areas will continue to come under pressure,” Mr O’Sullivan said.

 

“Key initiatives during FY06 included negotiating reductions in our mobile commission rates; offshoring certain customer service and back office functions; managing staff costs; and consolidating our IT and data centres.

 

“We have major investment programmes designed to capture growth, reduce costs and improve margins, including rolling out a joint 3G network and an unbundled local loop (ULL) network, as well as relocating our Sydney headquarters to campus-style accommodation delivering substantial rental savings.”

 

Free cash flow was A$294 million for the quarter, down 18 per cent due to substantially higher capital expenditure related mainly to Optus’ 3G mobile network, the ULL network rollout and D-series satellites construction.   The ratio of cash capital expenditure to operating revenue was 17 per cent compared to 15 per cent a year ago.

 

Optus Mobile revenue grew by 4.7 per cent in the fourth quarter to A$993 million, including revenue from the recently acquired Virgin Mobile.   Excluding the impact of this acquisition, Optus Mobile revenue grew 3.4 per cent – driven mainly by growth in incoming revenue and equipment sales.

 

Operational EBITDA declined to A$363 million with margins lower at 37 per cent – reflecting the increasing uptake of caps as well as lower termination rates.

 

Outgoing service revenue was stable at A$655 million – as growth in traffic was offset by lower revenue per minute.   Incoming service revenue increased by 13 per cent to A$199 million as strong SMS terminating traffic and higher inbound roaming offset the impact of a 17 per cent decline in voice termination rates.  Mobile equipment revenue increased by 21 per cent to A$139 million.

 

As stated in previous quarters, Optus Mobile has been implementing three strategies to drive growth. Each of these is seeing strong results: the business mobile market has seen an increase in customers by 10 per cent; data revenues have been stimulated with data now representing 19 per cent of service revenue; and Optus continued to defend its scale position in the consumer market, adding 189,000 subscribers in the quarter.

“We have invested over A$370 million in our 3G network – rolling out to over 1,100 base stations since April 2005 – and we now cover four of Australia’s largest cities,” Mr O’Sullivan said.

 

Postpaid churn remained stable at 1.2 per cent with subscriber acquisition costs remaining similar to the previous quarter at A$120.

Optus continued to offer capped plans in both its Consumer and Small and Medium Business units.   During the quarter, approximately 32 per cent of new and contracted postpaid customers chose capped plans – compared to 29 per cent in the preceding quarter.

 

In the quarter,  Optus Business & Wholesale continued to gain market share and win customers. 

 

Overall, revenue grew 13 per cent, including Alphawest.   Operational EBITDA decreased by 12 per cent with EBITDA margins, excluding Alphawest, at 23 per cent.  This was due mainly to pricing pressures although margins were stable compared to the preceding quarter.

Optus Business revenues grew by 24 per cent (12 per cent excluding Alphawest).   Wholesale revenues decreased by 16 per cent, impacted by lower transit and interconnect revenue in the current quarter.

 

Optus Business experienced an 18 per cent increase in voice traffic, resulting in voice revenue lifting by 16 per cent from the previous year.   This volume gain marks an improvement in Optus’ market share but also resulted in higher traffic expenses for the company.

Data and IP revenue increased by 6.0 per cent to A$110 million from the previous corresponding quarter with IP growth offsetting weakness by declines in traditional data. Uecomm had a strong quarter, growing its revenue by 45 per cent.   Data and IP revenue growth for the year was higher at 6.9 per cent partly attributable to the inclusion of only nine months of Uecomm’s results in the comparative year.

 

Managed and professional services revenue of A$71 million for the quarter included Alphawest’s revenue of A$33 million.   Excluding Alphawest, it grew 36 per cent against the corresponding quarter on the strength of Optus’ recent corporate wins.  Satellite revenues grew 4.9 per cent compared to a year ago.

 

Optus Business, Uecomm and Alphawest won and re-contracted a number of corporate and government clients in the quarter.   These included: Toll Holdings Limited, Victoria Police, QBE Insurance Group and Seiko Australia.

 

Optus Consumer & Multimedia had a stronger quarter compared to the preceding quarter with improved growth in broadband revenue – offsetting declines in traditional products.

 

Broadband revenue grew 44 per cent with 50,000 new subscribers in the quarter and 546,000 broadband customers as at 31 March 2006 – an addition of 191,000 broadband customers this financial year compared to a year ago.

 

EBITDA was down 11 per cent on the same quarter last year reflecting Optus’ continued acquisition of offnet broadband customers on lower margins as part of its ULL rollout strategy.

 

With broadband substitution, dial-up internet revenue declined by 32 per cent. 

 

Offnet local call resale customers grew by 2.2 per cent maintaining stable voice revenues.

 

As Optus’ rollout of digital services continued to gain momentum, the company saw declines in subscription TV revenue of 3.5 per cent compared to an over 10 per cent decline in the preceding quarter.   Approximately one third of the Optus Television subscriber base is now receiving the digital service - benefiting from over 100 channels, interactive services and expanded viewing options.

 

As Optus continues to rollout its ULL network it is expecting to see improved margins after the initial phase of start-up costs and achieving scale in its ULL subscriber base.   When rollout is complete, Optus will be able to reach over 50 per cent of Australian homes from either its HFC or ULL networks.  As at 31 March 2006, Optus had migrated approximately 10,000 customers to its ULL network.

 

Associated companies

Singtel’s associated companies continued to contribute healthy earnings and dividends.   The Group received S$616 million of dividends, an increase of 74 per cent for the year. 

 

In the current quarter, the pre-tax ordinary profit from associates was up 48 per cent to S$469 million and on a post-tax basis, profits from associates grew 54 per cent to S$352 million.   While Telkomsel, Bharti and Globe recorded strong improvements in revenue and profitability, AIS’ performance continued to be affected by keen competition in the Thai market. 

 

The Group’s share of  Telkomsel pre-tax profit increased by 73 per cent to S$245 million in the quarter ended 31 March 2006.   This was due to strong operational performance and stability of the Rupiah.  Telkomsel added 2.68 million new subscribers in the quarter.  With its superior coverage, strong brand and wide distribution, Telkomsel maintains its market leader position with a 53 per cent market share.  Its total subscriber base of 26.9 million, comprising 25.4 million prepaid and 1.5 million postpaid subscribers, increased 51 per cent from 17.9 million a year ago.

 

In the quarter, Singtel’s share of pre-tax ordinary profit from  Bharti increased 61 per cent to S$82 million.  Bharti recorded a strong increase of 3.3 million mobile subscribers, bringing its total base to 19.6 million.  Bharti reaffirmed its market leadership when it became the first mobile operator to cross the 2 million mobile subscriber mark in Delhi.

 

AIS’ profit in its fourth quarter ended December 2005 rebounded from the third quarter, due mainly to higher mobile phone sales and increased usage during the festive season.   Year on year, AIS’ pre-tax contribution fell 10 per cent to S$64 million due to intense price competition. AIS continues to be the market leader with 16.6 million mobile subscribers or about 52 per cent market share.

 

Globe delivered a strong fourth quarter performance as usage picked up with festive promotions.   Contribution from Globe increased strongly by 61 per cent to S$59 million in the quarter.  It also registered a net addition of 793,000 mobile subscribers, bringing its total base to 13.2 million.  This is a turnaround from the 5,000 net disconnections recorded in the December quarter following termination of the SIM swap programme. 

 

Pacific Bangladesh Telecom Limited (PBTL), the fourth largest mobile communications service provider in Bangladesh, is aggressively rolling out its network to cater for burgeoning demand for mobile services.   In the quarter, it added 34,000 subscribers. PBTL’s rapid growth has resulted in increased subscriber acquisition costs and affected its bottomline.

 

Year on year, the Group’s regional mobile subscriber base, including Singtel and Optus, grew 31 per cent to 85 million subscribers, the largest in Asia outside China.   As at 31 March 2006, excluding Singtel and Optus, the five regional associates’ combined mobile subscriber base grew 34 per cent from last year to more than 76 million.  During the current quarter, about 7 million subscribers were added, mainly from Bharti and Telkomsel.

 

Cash flow and balance sheet

The Group’s return on invested capital, ROIC, has improved steadily to 17.2 per cent in this financial year.   This reflects good earnings growth and careful capital management. 

 

The Group continues to retain significant financial flexibility for further investments with free cash flow of S$2.77 billion. 

 

With strong free cash flow and the deconsolidation of C2C’s debt, net debt decreased by S$2.36 billion to S$5.01 billion from a quarter ago.   Net debt was 0.78 times of EBITDA and the EBITDA interest cover was 17 times. 

 

Outl ook

The highlights of the guidance for the next financial year ending 31 March 2007 are listed below. For a full commentary on the Group’s outlook, please refer to the  Group’s Management Discussion and Analysis document.

 

Group

Based on current forward foreign exchange rates for the Australian dollar, the Group expects consolidated operating revenue and EBITDA to be stable.   

 

The Group’s aspiration is to continue to deliver underlying earnings growth at double digit levels over the medium term.   While the Group’s ability to grow at these levels in any particular year depends on the economic developments in Singapore, Australia and the region, as well as the foreign exchange rate environment, a key driver of growth is the ability to increase the shareholdings in existing associates and make new acquisitions.

 

Singapore

Singtel expects operating revenue for the next financial year ending 31 March 2007 to be comparable to the current financial year.

The operational EBITDA margin for the telecoms business in Singapore is expected to remain above 50 per cent and a higher proportion of revenue is envisaged to come from Sale of Equipment.   The overall operational EBITDA margin is expected to decrease slightly to mid 40 per cent levels with IT services, a lower margin business, constituting a higher proportion of total revenue.  Operational EBITDA however is expected to be roughly comparable to the current financial year.

 

Capital expenditure is expected to be similar to the current financial year and the cash expenditure to revenue ratio should remain at high single digit levels.

 

Singtel expects to generate free cash flow comparable to the current financial year.

 

Australia

Optus is investing to deliver medium term improvements in revenue growth and margin, while restructuring to defend profitability from heightened competition and regulatory pressures.

 

In line with its medium term objective, Optus is targeting to exceed overall market growth. Revenue growth for the year ending 31 March 2007 is expected to increase slightly while mobile revenue growth is expected to slow down with increasing penetration of capped plans and proposed reductions in mobile termination rates by the regulator.

 

Optus expects operational EBITDA margin to decline but remain above 26 per cent.   This decline will be partly due to changes in revenue mix and continuing pressure on mobile and corporate fixed line prices, offset by cost saving projects to contain operating costs.

Optus is maintaining its strategy of investing in new mobile and fixed line broadband networks to capture growth opportunities in the industry.   For the next financial year, Optus targets capital expenditure of about A$1.2 billion.

 

Free cash flow is expected to decline slightly compared to the current financial year.

 

Associates

The pre-tax contribution from the regional mobile associates is expected to grow at double digit levels, driving similar growth in the overall contribution from associates.   In line with the increase in profit contribution, cash dividends from the regional mobile associates are expected to increase.

 

Credit rating and dividend policy

Singtel’s dividend payout ratio target ranges from 40 per cent to 50 per cent of underlying profits.

With the implementation of the proposed 2006 capital reduction, net debt and leverage will increase and Singtel will have a more efficient balance sheet.

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