Strong earnings growth with full year underlying net profit increasedby 7.9 per cent to S$3.56 billion; underlying EPS up 11 per cent

For the quarter, Group’s EBITDA up 4.3 per cent; Singapore telco business and Australia delivered strong results; regional associates continued robust expansion

Singapore, 9 May 2007 -- Singapore Telecommunications Limited (Singtel) today announced its audited results for the fourth quarter and year ended 31 March 2007.

Highlights

Group results for the year ended 31 March 2007

The Singtel Group achieved strong earnings growth with underlying net profit rising 7.9 per cent, compared with the previous year, to S$3.56 billion.  During the same period, with the capital reduction exercise completed in September 2006, underlying earnings per share increased at a higher 11 per cent to 21.88 cents.

Full-year operating revenue for the Group was stable at S$13.15 billion.  Free cash flow was comparable to last year at S$2.80 billion.

Operational EBITDA was S$4.28 billion, a 4.1 per cent decline with operating expenses up 2.3 per cent.

With lower exceptional gain and higher tax expense, net profit after tax (NPAT) fell 9.2 per cent to S$3.78 billion.

For the year, pre-tax profit from associates rose 26 per cent to S$2.07 billion and contributed 43 per cent of the Group’s underlying net profit, up from 37 per cent a year ago.

Ms Chua Sock Koong, Group CEO, said: “Singtel Group has achieved strong earnings in a challenging environment.  I am pleased that we have met our guidance for the financial year.  The regional mobile associates are the key drivers of the Group’s growth.  Our Singapore business showed good revenue growth and continued to generate strong cash flow.  Optus delivered a robust performance despite aggressive competition.

“As a result of the strong earnings and healthy cash flow, the Board has recommended a total distribution of S$3.3 billion to shareholders, or 20.5 cents per share.  This is based on final dividend of 6.5 cents per share and special dividend of 9.5 cents per share totalling S$2.6 billion, as well as the interim dividend of S$0.7 billion paid out in January this year.”

She added: “We are balancing our objective for an efficient balance sheet with financial flexibility to make further investments.”

Group results for the quarter ended 31 March 2007

The Group’s operating trends were strong for the quarter.  Operating revenue grew 2.1 per cent to S$3.33 billion, compared with the corresponding quarter in 2006.

EBITDA grew 4.3 per cent to S$1.72 billion while operational EBITDA was stable at S$1.10 billion.

Earnings trends, however, were affected by exceptional items in the previous corresponding quarter.  As a result, the Group’s NPAT during the quarter declined 41 per cent year-on-year to S$989 million but was stable from the preceding quarter.  The decline in NPAT on a year-on-year basis was attributed to material one-off gains recorded in the corresponding quarter last year, including S$618 million from the deconsolidation of C2C.

NPAT was also affected by higher tax expenses, despite the reduction in Singapore’s corporate tax rate from 20 to 18 per cent.  Tax expense for the quarter was S$173 million, compared to the low S$73 million in the corresponding quarter last year.  In March 2006 quarter, a one-off catch-up in deferred tax asset of S$152 million was recorded in respect of interest expenses for an inter-company loan.

Excluding one-off items and the catch-up in deferred tax asset, the Group’s NPAT was 13 per cent higher from a year ago.

The overseas associates, particularly Bharti and Telkomsel, continued to report strong growth in profit on the back of rapid growth in subscriber base.  The Group’s share of pre-tax profit from associates increased 16 per cent to S$543 million.  The associates accounted for 43 per cent of the Group’s underlying net profit in the quarter, up from 35 per cent a year ago.

Singtel

The Singapore business met its targets for the year in a highly competitive market.

Underlying net profit for the year ended 31 March 2007 rose 15 per cent to S$2.93 billion.

Operating revenue was up 1.5 per cent to S$4.21 billion from a year ago, meeting the Group’s target.  Excluding C2C revenue, operating revenue was up 3.1 per cent, boosted by strong growth in Data & Internet and Mobile Communications revenues.

Operational EBITDA was largely flat at S$1.90 billion, in line with guidance.  Excluding gain on disposal of land and buildings, the margin would be comparable to last year.  Operational EBITDA margin was 45.2 per cent, down 1.0 percentage point from 46.2 per cent.

Cash capital expenditure of S$375 million or 8.9 per cent of revenue was in line with guidance.

Free cash flow for the year, which benefited from higher dividends from associates, was up 8.1 per cent to S$1.90 billion, an increase of S$143 million.

For the quarter, operating revenue was up 2.8 per cent year-on-year to S$1.10 billion, with the Singapore telco revenue increasing by 4.2 per cent.

Overall, Data & Internet revenue for the quarter grew 7.9 per cent year-on-year to S$320 million.

The growth was driven mainly by broadband, which increased by 21 per cent year-on-year to S$73 million in the quarter.  Compared to the preceding quarter, where Broadband benefited from a one-off S$5 million revenue uplift, Data & Internet fell by 2.0 per cent.

The number of broadband lines increased 4 per cent or 16,000 lines to 421,000 lines from 405,000 a quarter ago.  Compared to a year ago, the increase was 69,000 or 19 per cent.Singtel’s Wireless@SG service attracted 217,000 customers, of which 63,000, or 29 per cent, were not subscribers of SingNet’s residential broadband service.

Despite intense market competition, Singtel retained its market leadership in broadband in Singapore.  As at 31 March 2007, Singtel’s market share in the broadband Internet market was 53.4 per cent, compared to 53.2 per cent a quarter ago.

Mobile communications revenue grew 8.7 per cent to S$238 million on a year-on-year basis, driven by postpaid market share gains.  In the quarter, Singtel added 56,000 mobile subscribers to 1.82 million.  Prepaid subscriber base was up 34,000 while the number of postpaid subscribers rose 22,000.

Among the total mobile subscribers, 466,000 were 3G subscribers, representing a strong increase of more than three times from a year ago and 27 per cent from the preceding quarter.  The strong take up of 3G services was due to the availability of more attractive 3G handsets at affordable prices.

Singtel’s postpaid customer churn remained at a historic low of 0.8 per cent in the quarter and data usage of 30 per cent of Average Revenue Per User (ARPU) continues to be among the best in class.

Postpaid ARPU remained stable at S$71 from a year ago while prepaid ARPU rose 14 per cent to S$14.

Revenue from IT & Engineering fell 3.5 per cent to S$188 million in the quarter primarily due to structural changes in the Singapore IT sector where projects have become higher in value and revenue becoming increasingly more uneven and ‘lumpy’.  On a sequential basis, revenue rose 25 per cent due to seasonal demand.

International telephone revenue was up 2.4 per cent to S$150 million.  This was due to higher international call revenue from a robust 30 per cent increase in traffic partially offset by a 21 per cent fall in call collection rates.

National telephone revenue fell 6.2 per cent to S$111 million during the quarter.  This reflected a decline of 1.9 per cent in the number of fixed lines as well as lower voice and payphone traffic due to increasing broadband usage, mobile substitution and competition.

To protect its leadership position in local telephony, Singtel has revitalised its service offerings through the launch of strategic initiatives such as Generation mio.  Unveiled to the Singapore market in January 2007, Generation mio is an integrated mobile, fixed-line voice and broadband service plan that was well received by the market.  As at 31 March 2007, 14,000 customers had signed up for Generation mio.

Operating expenses increased 6.1 per cent or S$37 million year-on-year to S$649 million in the current quarter.  This was due mainly to higher marketing costs as well as higher traffic charges arising from the earthquake off the south coast of Taiwan in December 2006.

Year-on-year, selling and administrative expenses increased 16 per cent to S$169 million in the quarter.  This was due to higher subscriber and retention costs for broadband, marketing and promotion of Generation mio, start-up cost for Interactive TV and increased consultancy expenses.

Compared to the preceding quarter, staff costs increased 7.7 per cent to S$167 million due mainly to additional provision for bonus.  Year-on-year, staff cost was stable.  As at 31 March 2007, Singtel’s staff numbers fell 3.1 per cent to 9,535 from a year ago.

In the quarter, traffic expenses rose 7.8 per cent to S$122 million due to increase in lease circuit expenses incurred in re-routing traffic disrupted by the Taiwan earthquake.

Singtel Optus

For the financial year ended 31 March 2007, Optus delivered strong results in a challenging market and successfully defended its scale position in mobile.

Mr Paul O’Sullivan, Optus Chief Executive, said Optus’ results showed the company was maintaining market share and margin while managing its cost base and investing for growth.

“This year has had major challenges, but we delivered solid results and, unlike our competitors, we successfully avoided value destruction in our major business, Optus Mobile,” Mr O’Sullivan said.

For the financial year, Optus met the targets set out in its guidance, achieving an operational EBITDA margin of 26.6 per cent.

The company recorded a 3.9 per cent increase in annual operating revenue to A$7.48 billion with operational EBITDA at A$1.99 billion.  Net profit for the full year increased 36 per cent to A$804 million (including the gain on intra-group divestments) and free cash flow was A$742 million.

In the fourth quarter, Optus’ operating revenue increased by 1.7 per cent to A$1.85 billion and operational EBITDA grew 4.3 per cent to A$524 million – the highest quarterly EBITDA in two years.  All businesses showed an encouraging improvement in operational EBITDA and margins compared to the preceding quarter.  Net profit increased 11 per cent to A$155 million while free cash flow amounted to A$400 million, up 36 per cent.

“These results are testament to our determination to focus on sustainable growth following the successful implementation of our market strategy. Our focus has been to deliver great deals and better products and services to our customers,” Mr O’Sullivan said.

“This focus has paid off – we achieved growth despite the increased penetration of capped mobile pricing plans, a continuing decline in fixed telephony usage across the market and the ACCC mandated reduction in mobile termination rates.

“We have also spent much of the year investing in state-of-the-art infrastructure including our 3G network which is now being upgraded with high-speed enabling software, our Unbundled Local Loop (ULL) network, our D-series satellites and our IP Core.  In addition, we continued to focus on upgrading our customer care systems to enhance our customers’ experience.”

Optus Mobile continued to lead in the prepaid mobile market in the fourth quarter and, while having lower net additions in postpaid, Optus protected the value of its mobile business and improved its EBITDA margins.

Mobile contributed 55 per cent to total revenue and Optus successfully defended its market position by adding 60,000 new mobile subscribers in the quarter.  Mobile service revenue in the quarter increased 4.2 per cent and total mobile revenue was up 1.2 per cent to A$1.02 billion.

Despite lower termination rates as mandated by the ACCC in early 2007, operational EBITDA for the fourth quarter increased by 4.4 per cent to A$396 million.  EBITDA margin grew to 39 per cent with the positive trends of higher usage, increased prepaid revenues and slowing margin erosion from mobile caps in postpaid.

Notwithstanding the negative impact of caps, outgoing service revenue grew by 7.0 per cent in the quarter as a result of the continuing prepaid growth and solid SMS traffic.

Overall, Mobile ARPU remained consistent with the same quarter last year.  Data revenue, as a percentage of service revenue, was 26 per cent – up two percentage points on the preceding quarter.

Optus continued to achieve good take up of its 3G service, with 445,000 subscribers provisioned with Optus 3G at the end of March 2007.  Optus customers enjoy better content and innovative applications through Optus myZOO as the company continues to partner with leading brands such as Google, Ninemsn, Disney and Fairfax Digital.

Optus Mobile continues to deliver on three key strategies to drive growth.  These included: leveraging scale in the consumer segment – mobile subscribers up 3.9 per cent compared to a year ago; continuing to stimulate SMS and other data – with non-SMS data revenue now accounting for 3.6 per cent of service revenue; and growing market share in the business market – business mobile subscribers up by 10 per cent compared to a year ago.

Capped plans were chosen by approximately 32 per cent of total new and recontracted retail customers in the quarter – higher than 29 per cent in the December quarter, but broadly in-line with the preceding quarters.  Approximately 26 per cent of Optus’ total postpaid mobile base were on capped plans – up from 19 per cent a year ago.

Optus Business & Wholesale Fixed revenue grew 4.1 per cent in the quarter, with Optus Wholesale revenue growing by 14 per cent while Optus Business fixed revenue declined slightly by 0.6 per cent.  Alphawest added A$63 million in revenue for the quarter.  Uecomm delivered a 9 per cent increase in external sales for the quarter, offset by declines in revenue due to the move by corporate customers from legacy data products to lower priced IP-based products.

Operational EBITDA increased by 24 per cent to A$96 million.  EBITDA margin was higher by three percentage points at 22 per cent, driven by improved profitability with a shift towards more on-net traffic and a one-off satellite income of A$7 million.

Optus Business’ fixed voice revenue grew 3.3 per cent with higher voice traffic.

Information and Communications Technology (ICT) and Managed Services revenue, including the internal services Alphawest provides Optus, grew 28 per cent in the quarter.

Optus Business continued to take market share from its competitors during the quarter and, along with Uecomm and Alphawest, won and recontracted customers including: Qantas Airways Limited, GM Holden Ltd and Centrelink.

Wholesale Fixed revenue returned to growth and increased by 14 per cent, with strong Data and IP revenues and satellite contributions offsetting the decline in voice.  Growth in Wholesale Data and IP revenue of 35 per cent was largely driven by increased sales of Internet bandwidth and transmission capacity.

Optus continued to strengthen its leadership position in the satellite market with revenues increasing by 16 per cent compared to the same quarter last year.  Optus currently provides satellite broadcasting services to the majority of television broadcasters in Australia and New Zealand.  Optus announced the investment in its third D-series satellite, due for completion in 2009, which will increase the company’s fleet capacity by more than 30 per cent.

Optus Consumer and SMB Fixed continued to be impacted by fixed to mobile substitution trends.  Revenue declined 0.7 per cent year-on-year with the decline from traditional voice products offsetting growth in broadband revenue.

Optus SMB showed a 5.3 per cent increase in revenue driven by strong customer growth.  SMB service revenue (fixed and mobile) grew by 3.7 per cent, with total revenue amounting to A$240 million.

Optus experienced strong broadband growth during the quarter with revenue up 34 per cent.  As at 31 March 2007, Optus had 781,000 broadband customers (including business-grade customers), up 217,000 subscribers or 38 per cent from a year ago.

Total local call customers (including ULL) grew by 5.7 per cent.

As at 31 March 2007, Optus had 270 exchanges and 93,000 subscribers provisioned with services on its ULL network.  Optus announced in March it would focus its sales efforts to customers in areas within its network footprint for profitable growth.  This decision will lead to improvements in the economics of Optus’ fixed-line telephony and broadband business.

“The essence of Optus is competition – and we hold true to the principles which are at the core of that approach.  We will continue to challenge and push for sustainable growth through competing aggressively, moving quickly and meeting customer needs better than our competitors.

“We have thrived and will continue to thrive where a level playing field for competition is created,” Mr O’Sullivan said.

Associated Companies

Singtel’s associated companies continued to contribute healthy earnings and dividends.  The Group received S$673 million of dividends, an increase of 9.2 per cent for the year.

For the quarter, associated companies contributed 43 per cent to the Group’s underlying net profit, up from 35 per cent compared with the same quarter last year.

In the current quarter, the Group’s share of the associates’ pre-tax profit rose by 16 per cent or S$73 million to S$543 million.  On a post-tax basis, profits from associates grew 18 per cent to S$415 million.  While Telkomsel, Bharti and Globe recorded strong improvements in revenue and profitability, the intensifying market competition and political uncertainties in Thailand had dampened AIS’ operating performance.

The Group’s share of Telkomsel pre-tax profit increased by 5.2 per cent to S$258 million in the quarter.  The operating performance of Telkomsel in the quarter was impacted by the heavy floods in Jakarta in February 2007 and the 4 per cent depreciation of the Rupiah against the Singapore Dollar from a year ago.  Compared to the preceding quarter, Telkomsel’s pre-tax profit contribution grew 3.0 per cent.

Telkomsel, the leading operator of cellular telecommunications services in Indonesia with over 17,000 radio base stations providing nationwide coverage, added 3.3 million in net new subscribers in the quarter.  This brought its total subscriber base to 38.9 million, an increase of nearly 12 million or 44 per cent from a year ago.  The number of 3G mobile subscribers also grew a significant 40 per cent from a quarter ago to 2.1 million.

During the quarter, Telkomsel was the first operator in Indonesia to launch m-ATM, a hybrid service of prepaid/postpaid and High Speed Wireless Broadband of up to 3.2Mbps via High Speed Downlink Packet Access (HSDPA).

In the quarter, the Group’s share of Bharti’s operating profit from its core business was up 92 per cent year-on-year.  Bharti, India’s leading private sector provider of telecommunication services, is the only private telecom operator with an ‘all India’ presence offering mobile services in all 23 licensed circles.  It is also India’s market leader with 30.6 per cent of the GSM market and 22.9 per cent of the total wireless market.

Bharti’s mobile subscriber base continued to establish new records and is growing at double digit on a sequential quarter basis.  In the quarter, 5.2 million subscribers were added, bringing its total base to 37.1 million, almost double from a year ago.

Globe,one ofthe largest mobile communication services providers in the Philippines, achieved an improved performance in the quarter ended 31 March 2007 as usage picked up and marketing expenses were reduced.  Contribution from Globe was S$73 million, up 23 per cent year-on-year, and higher by 40 per cent from the preceding quarter.  Globe registered a net addition of 1.3 million mobile subscribers this quarter, bringing its total base to 16.9 million as at 31 March 2007, up 28 per cent from a year ago.

AIS’ profit in its fourth quarter ended December 2006 declined 24 per cent year-on-year despite the Baht strengthening by 8 per cent in the quarter.  Against the preceding quarter, the pre-tax profit contribution fell 6.7 per cent.  However, AIS continued to be the market leader with 21.1 million mobile subscribers or about 49 per cent market share.

Pacific Bangladesh Telecom Limited (PBTL), the fourth largest mobile communications service provider in Bangladesh, added 95,000 subscribers compared to 329,000 in the preceding quarter.  The slow down in acquisition had substantially lowered the subscriber acquisition costs.  This resulted in Singtel’s share of its pre-tax loss decreasing to S$5 million from S$21 million in the preceding quarter.  As at 31 March 2007, PBTL’s total mobile subscriber base was 1.2 million, up 137 per cent or 680,000 from a year ago.

Year-on-year, the Group’scombined mobile subscriber base, including Singtel and Optus, grew 46 per cent or 39 million to 124 million subscribers, the largest in Asia outside China.  As at 31 March 2007, excluding Singtel and Optus, the five regional mobile associates’ combined mobile subscriber base grew 50 per cent from last year to more than 115 million.  During the current quarter, more than 11 million subscribers were added, mainly from Bharti and Telkomsel.

Cash flow and balance sheet

The Group’s return on invested capital (ROIC) improved steadily to 18.3 per cent in this financial year.  This reflects good earnings growth and careful capital management.

Excluding the compensation from IDA which ceased to be recognised from 1 April 2007, ROIC was 17.0 per cent.

The Group continues to retain significant financial flexibility for further investments with free cash flow of S$2.80 billion.

With partial repayment of debt in the quarter, net debt decreased by S$397 million to S$5.90 billion from a quarter ago.  Net debt was 0.88 times of EBITDA and the EBITDA interest cover was 21.3 times.

Outlook for financial year ending 31 March 2008

The highlights of the guidance for the next financial year ending 31 March 2008 are listed below.  For a full commentary on the Group’s outlook, please refer to the Group’s Management Discussion and Analysis document.

Group

The Group expects revenue from the Singapore and Australian operations to grow.  Group EBITDA is also expected to increase despite the completion of amortisation of the compensation received from IDA in the current financial year.

The Group targets to deliver underlying earnings growth at a double-digit level over the medium term.  To achieve this, the Group is committed to driving further efficiencies from its existing businesses and associates, as well as developing new revenue streams.  Another key driver of growth is dependent on the Group’s ability to increase its shareholdings in the existing associates and make new acquisitions.

Following the capital reduction exercise in September 2006, the average number of shares on issue for the next financial year will be approximately 2 per cent lower than the current financial year.  This will enhance earnings per share growth.

Singapore

Singtel has embarked on a number of key growth initiatives in both the consumer and corporate businesses.  These growth initiatives are expected to incur costs in the next financial year ending 31 March 2008 before contributing to revenue and earnings in subsequent years.

Revenue for the next financial year is expected to grow at a low single-digit level.  Increases in mobile and data revenues are expected to offset declines in fixed voice revenue.  IT services are expected to return to growth.

The compensation payments received from IDA in 1997 and 2000 have been fully amortised in the current financial year ended 31 March 2007.

With the change in accounting treatment for the mobile outbound roaming arrangements (effective 1 April 2007) and the start-up costs associated with the growth initiatives, operational EBITDA margin for the telecoms business is expected to be in the mid-40 per cent level.

For Singapore as a whole, operational EBITDA margin is expected to be approximately 40 per cent.  Excluding the impact of the growth initiatives, operational EBITDA is comparable to the current financial year.

Cash capital expenditure as a percentage of revenue is expected to remain at a high single-digit level.  In line with the lower operational EBITDA, free cash flow (excluding dividends from associates) is expected to decline slightly.

Australia

Market conditions are expected to remain competitive in Australia.  Optus continues to invest to deliver sustainable revenue growth and profits.  In mobile, Optus is extending its 3G network into regional Australia and will continue to invest in expanding its customer base and defending its scale position.

In fixed, Optus expects to progress substantially in the roll-out of its ULL network from the current 270 exchanges to 366 exchanges, an increase from earlier planned 340 exchanges.  It will focus on driving profitable growth via fixed on-net services.

For the next financial year, Optus expects overall revenue growth to be comparable with market growth, which is estimated to be 2.5 to 3 per cent.  Optus expects to maintain EBITDA.

Optus targets cash capital expenditure of approximately A$1.1 billion.  This is consistent with a cash capital expenditure to revenue ratio target in the mid-teens and includes ongoing capital expenditure for the D-series satellites, the 3G network in regional Australia and upgrading of customer care and billing systems.  Free cash flow is expected to increase slightly.

Associates

The pre-tax profit contribution from the regional mobile associates is expected to grow at a double-digit level, with Telkomsel and Bharti accounting for most of the growth.  In line with the increase in profit contribution, cash dividends from the regional mobile associates are expected to rise.

Credit rating and dividend policy

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

The Group is committed to an optimal capital structure while maintaining financial flexibility and investment grade credit ratings.

Strategic Focus

The Group has achieved strong positions in its overseas businesses while continuing to lead in Singapore.

To maximise the value from its existing businesses and associates, the Group will continue to leverage its scale advantage to drive lower costs and stimulate product innovation.  The Group will also evaluate new opportunities where they provide benefits and synergies to the existing businesses.

The geographic focus of the Group’s investments will remain predominantly in Asia.  Simultaneously, with telecom developments gaining pace in other parts of the world, the Group is well-positioned to explore opportunities in new markets (such as Central Asia and the Middle East).  The Group will continue to be disciplined in its consideration of such investments.
 
 

[1] Underlying net profit is defined as net profit before exceptionals and exchange differences on loan to Optus, net of hedging.