Singapore , 3 August 2006 -- Singapore Telecommunications Limited (Singtel) today announced its unaudited results for  the first quarter ended 30 June 2006.

 

Highlights

 

 

Group

 

During the quarter, the Group’s operating revenue declined 1.4 per cent to S$3.17 billion. Optus, which accounts for two-thirds of the Group’s revenue, saw operating revenue fall in Singapore Dollar terms due mainly to a weaker Australian Dollar against the Singapore Dollar this quarter.   However, in Australian Dollar terms, Optus revenue grew 5.3 per cent. 

 

Operational EBITDA declined 8.0 per cent mainly due to weaker operational performance of Optus and the currency translation impact of the weaker Australian Dollar.   The better operational performance of the associates drove the Group’s share of ordinary earnings from S$376 million to S$495 million, up 32 per cent.  Bharti and Telkomsel, the two main growth drivers, continued to post strong profits on the back of rapid subscriber growth.  To align the reporting period for Globe, the Group recognised an additional quarter of Globe’s earnings to June 2006 (further details below).  The Group’s EBITDA edged up 1.3 per cent to S$1.62 billion.

 

Net profit increased 5.8 per cent to S$840 million, while earnings per share of 5.03 cents was up 5.5 per cent.

 

Underlying net profit after tax increased 10 per cent to S$837 million.   Associates contributed 43 per cent or S$359 million of the Group’s underlying net profit, predominantly due to stronggrowth contributed by Bharti, Telkomsel and Globe.        

 

Free cash flow [2] for the quarter was S$462 million, with S$309 million from Singapore’s operations, S$87 million from the associates and S$65 million from  the Australian operations.

 

Mr Lee Hsien Yang, Singtel’s Group CEO, said: “Overall this quarter’s results are a good start to the new financial year.   Across our businesses, we have been making steady progress.  Our associates, especially Bharti, Telkomsel and Globe, continue to perform strongly.

 

“Our Singapore business is tracking in line with our expectations.   In Australia, Optus is performing in line with our guidance despite the competitive pressures.”

Singtel

 

Singtel’s operating revenue for the quarter was stable at S$995 million.   Operational EBITDA margin for the quarter was resilient at 47.5 per cent.  Operating expenses were stable year on year at S$532 million. 

 

Data & Internet revenue fell 1.2 per cent to S$296 million.   Excluding C2C’s capacity sales in the first quarter of last year, data & Internet revenue grew 6.5 per cent.  Data revenue grew 5.2 per cent and Internet revenue grew 9.9 per cent.  In data, strong growth in managed services was partially offset by declines in international leased circuits (ILC) and local leased circuits. The declines in ILC reflected a larger proportion of customers moving to higher bandwidth circuits, where average prices were lower.    

 

Increasing affordability of retail broadband plans and attractive promotions continued to drive growth.   Broadband revenue grew 15 per cent to S$64 million year on year.  As at 30 June 2006, the number of broadband lines increased 20 per cent or 61,000 lines to 372,000 year on year.  Singtel’s overall market share of broadband subscribers is 54 per cent as at end May 2006.

 

Revenue from  mobile communications grew 6.8 per cent year on year and was stable compared to the preceding quarter.   As at 30 June 2006, Singtel registered a net decline of 41,000 mobile subscribers to 1.62 million from a quarter ago, with an increase of 5,000 postpaid mobile subscribers offset by a 46,000 decline in prepaid mobile subscribers. 

 

The overall prepaid mobile market shrank as telcos  commenced the termination of unregistered prepaid cards.  Singtel cancelled approximately 100,000 prepaid subscribers due to the de-registration exercise but its prepaid market share increased to 30 per cent as at 31 May 2006, up from 28 per cent in March 2006.  This was due to aggressive marketing efforts including the registration bonus promotion.

 

Singtel’s postpaid market share remained stable at 43 per cent.   Its customer churn and data usage continued to be among the best-in-class with postpaid churn of 0.8 per cent and data usage at 25 per cent of average revenue per user (ARPU).      

 

The demand for 3G services continued to be strong, reaching 191,000 subscribers at end June 2006.   To date, Singtel has invested approximately S$151 million on its 3G network rollout and S$98 million on the licence fee.

 

International telephone revenue fell 3.7  per cent to S$147 million in this quarter.  The 2.4 per cent decline in international call revenue was attributable to lower revenue from traffic toMalaysia and other countries.  The lower average collection rates for international call revenue (excluding Malaysia) were partially offset by a 19 per cent increase in international telephone outgoing minutes.  Margins increased from 67 per cent to 69 per cent year on year.

 

Revenue from  IT & engineering declined 6.1 per cent to S$136 million due mainly to the closure of an IT subsidiary in December 2005. 

 

For the current quarter, revenue from  national telephone declined 7.5 per cent to S$115 million in the quarter, reflecting a decline of 2.1 per cent or 39,000 in the number of DEL lines and lower fixed-line and payphone traffic, due mainly to increasing broadband usage and mobile substitution.

 

Operating expenses were stable year on year but fell 13 per cent when compared to the preceding quarter. 

 

As at 30 June 2006, Singtel’s telecom staff numbers  (excluding NCS) fell by 11 per cent or 745 to 6,350 from a year ago.  The decline was attributable mainly to outsourcing and staff retrenchment.  Excluding staff retrenchment costs, staff costs would have declined 3.0 per cent.  

 

Traffic expenses decreased 3.1 per cent due to a decline in outpayment expense of 9.5 per cent.    

 

Cash capital expenditure for the quarter was S$48 million, 39 per cent lower than the same quarter last year. 

 

Singtel Optus

Optus’ first quarter results showed the company stabilising its competitive position, attacking its cost base and investing for growth.

 

For the quarter to 30 June 2006, revenue grew by 5.3 per cent to A$1.83 billion while operational EBITDA decreased 6.9 per cent to A$478 million.

 

Net profit after tax increased 160 per cent to A$385 million (including net exceptional gain on intra-group divestments) and EBITDA margin decreased 3.4 percentage points to 26.1 per cent.

Cash capital expenditure in the quarter was higher by 17 per cent which contributed to a lower free cash flow of A$54 million for the quarter.

 

Paul O’Sullivan, Optus CEO, said: “In this challenging environment, as the mobile market reaches saturation, fixed to mobile substitution is gaining greater momentum and customers are demanding cheaper and faster data access. 

 

“Optus has demonstrated success in delivering its strategy of stabilising mobile market share, attacking costs and investing for growth.

 

“We had strong growth in prepaid mobile and good growth in mobile overall.   Both mobile and broadband net adds were strong and Optus Business continues to outgrow its competitors.

 

“The Q1 results were impacted by the cost of strategic initiatives as well as by price competition.   We continued to invest in the mobile 3G network and the Unbundled Local Loop (ULL) network; we made progress payments for the D1 satellite; and increased spend on our new Sydney office fitout.

 

“To mitigate the margin pressure, we continued our cost management and productivity initiatives.   These include outsourcing and offshoring projects, reduction in mobile channel commission rates and simplifying customer care and billing systems.”

 

All key  Optus Mobile revenue lines showed increases in the first quarter with the growth primarily driven by higher outgoing service revenue.   This was driven by strong prepaid revenues as well as the inclusion of Virgin Mobile in the Optus results. 

 

Revenue, including Virgin Mobile, grew by 5.1 per cent in the first quarter to A$1.01 billion. Excluding Virgin Mobile, revenue grew by 3.5 per cent.   ARPU was stable compared to the preceding quarter.

 

Optus, along with the rest of the mobile industry, continued to be impacted by capped plans which grew to 21 per cent of the Optus postpaid base.   Capped plans, consequent increases in traffic and the impact of Virgin Mobile, resulted in an EBITDA margin decline from 39 per cent to 35 per cent. 

 

Despite the sharp reduction in mobile termination rates, incoming service revenue increased by 6.4 per cent, compared to a year ago, as a result of strong SMS terminating traffic and higher inbound roaming revenue.

 

“As previously outlined to the market, Optus Mobile continues to drive three key growth strategies,” Mr O’Sullivan said. 

 

“Firstly, grow share in the business mobile market, which has seen an 11 per cent increase in customer numbers; secondly stimulate data revenue, which increased to 21 per cent of ARPU; and thirdly to defend our scale position in the consumer segment with Optus’ competitive position stabilising in the June quarter.”

Acquisition costs of A$146 per subscriber were lower than a year ago but higher than the preceding quarter due to higher handset subsidies.

 

Optus Business & Wholesale fixed revenue increased by 9.7 per cent this quarter.   Excluding Alphawest, Business Fixed revenue grew 1.0 per cent while Wholesale Fixed revenue declined by 11 per cent.

 

Optus Business voice minutes saw an increase of 12 per cent with revenue up 11 per cent. Business Data and IP revenue was up 4.9 per cent to A$101 million, driven by strong IP growth and a 25 per cent increase in Uecomm revenues.

 

ICT and Managed Services revenue, including Alphawest, doubled to A$80 million in the quarter. 

 

“Optus Satellite revenues grew 8.7 per cent in the quarter. We are also getting ready to launch our D1 satellite in September this year,” Mr O’Sullivan said.

 

Optus Business, Uecomm and Alphawest continued to win new customers and recontract existing customers in the corporate and government space in the quarter.   These included: Australian Broadcasting Corporation, Medicare Australia, Commonwealth Bank of Australia, American Express International, Holden and CPA Australia.

 

Overall fixed revenue from  Optus Consumer and Optus Small & Medium Business (SMB)grew by 0.7 per cent with broadband growth offsetting declines in fixed voice and dial up.

 

Optus is focused on building a strong position in the rapidly growing broadband market where retail net adds were higher than the March quarter.   Consumer broadband revenue grew 37 per cent to A$70 million.  Optus had 618,000 broadband customers after adding 54,000 retail broadband customers - including Optus Business and SMB customers - during the quarter.

 

SMB continues to gain share in the fixed market with revenues up 7.3 per cent, reflecting Optus’ focus on growing the small and medium business market.

 

Offnet Local Call Resale customers (including those on the ULL network) grew by 7.6 per cent, however usage and price declines led to an overall decrease of 5.3 per cent in fixed voice revenue.

 

EBITDA for the quarter was down by A$13 million on the same quarter last year.   Margin declined to 9 per cent with the revenue mix changes caused by lower voice revenues offset by increased broadband revenues.  Optus is building its base of resale telephony and DSL customers prior to transitioning them to the much higher margin ULL service.

 

So far, Optus has commissioned 148 exchanges with 30,000 customers provisioned with Optus Direct services on the ULL network.

 

“We would like to accelerate our migration rate to bring customers onto the network more quickly.   However the incumbent operator has set an arbitrary limit of two exchanges per day per state where migrations can occur.  We have notified a dispute with the ACCC so we can increase this limit,” Mr O’Sullivan said.

 

Associated companies

Singtel’s associated companies continued to contribute healthy earnings.   In the current quarter, the pre-tax profit from associates was up 29 per cent to S$495 million and on a post-tax basis, earnings from associates grew 31 per cent to S$359 million.  Strong profit contributions came from Telkomsel, Bharti and Globe.

 

The Group’s share of  Telkomsel pre-tax profit increased by 30 per cent to S$225 million in the quarter ended 30 June 2006.   This was due to strong operational performance on the back of strong subscriber growth.  Telkomsel added 2.3 million net mobile subscribers in the quarter. With its superior coverage, strong brand and wide distribution, Telkomsel maintained its market leadership position with a 55 per cent market share.  Its total subscriber base of 29.3 million, comprising 27.7 million prepaid and 1.6 million postpaid, increased by 7.7 million from a year ago.

 

In the quarter, Singtel’s share of pre-tax ordinary profit from  Bharti increased 38 per cent to S$91 million.  Bharti added a record 3.5 million net mobile subscribers in the quarter.  As at 30 June 2006, Bharti’s total subscriber base was 23.1 million.  In July 2006, Bharti became the first private telecom operator to cross the 25 million-customer mark, covering mobile, landline as well as broadband, in India.    

 

This quarter, the Group equity accounted for  Globe’s pre-tax profit for the six-month period from 1 January   2006 to 30 June 2006 to align Globe’s financial period to that of the Group’s for consolidation purpose. Consequently, an additional quarter of Globe’s pre-tax profit of S$46 million and post-tax profit of S$31 million have been included in the results of the Group for the current quarter ended 30 June 2006.

 

Excluding the additional quarter’s profits, Globe’s  pre-tax profit grew strongly by 70 per cent from a year ago to S$64 million.   On a post-tax basis, Globe recorded a smaller increase of 24 per cent in net profit with the expiration of its income tax holiday in March 2005.  It registered a net addition of 697,000 mobile subscribers this quarter, bringing its total base to 13.9 million. 

 

AIS’ performance in the quarter ended March 2006 improved against the preceding quarter.   Its mobile service revenue grew 3.3 per cent with the expiration of promotional tariff plans in December 2005, as well as lower marketing and depreciation expenses.  Year on year, however, pre-tax contribution dipped 3.8 per cent to S$73 million in the quarter despite a 4.1 per cent increase in revenue due to higher staff costs and lower handset margins.  AIS continues to be the market leader with 17.3 million mobile subscribers or about 52 per cent market share.  

 

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 189,000 subscribers. PBTL’s rapid growth has resulted in hefty subscriber acquisition costs and affected its bottom line.

 

Year on year, the Group’s regional mobile subscriber base, including Singtel and Optus, grew 30 per cent or 21 million to 92 million subscribers, the largest in Asia outside China.   As at 30 June 2006, excluding Singtel and Optus, the five regional associates’ combined mobile subscriber base grew 33 per cent from a year ago to more than 84 million.  During the current quarter, about 7.4 million subscribers were added, mainly from Bharti and Telkomsel.

 

Cash flow and balance sheet

 

The Group has a track record of steadily improving its return on invested capital (ROIC) and delivered a ROIC of 17.2 per cent in the last financial year.   In the first quarter of this financial year, it announced a new target of 17.5 per cent for the three years to March 2009.

 

In the quarter, the Group’s free cash flow fell 22 per cent to S$462 million as operating cash flows declined partly due to lower operational performance in Australia.   In addition, lower dividend was received from associates in the quarter as Telkomsel plans to pay its first dividend only in the September quarter this year compared to the payment of its first dividend in June 2005.  Cash capital expenditure remained stable.

 

Net debt was S$4.66 billion as at 30 June 2006.   This was 0.72 times of EBITDA and the EBITDA interest cover was 23.4 times, well within the leverage commitments.

 

Shareholders have approved the Capital Reduction at the Extraordinary Meeting held on 28 July 2006.   The books closure date for the Capital Reduction is expected to take place tentatively on 1 September 2006, subject to the receipt of Court Approval from the High Court of Singapore. Shareholders who are duly registered at this date will have 1 in 20 shares cancelled and later receive cash distribution of S$2.74 for each share cancelled.  Investors should take note of the timeline for the Capital Reduction if they wish to trade their shares in Singtel.

 

Outlook

 

There have been no significant changes to the guidance issued with the results for the financial year ended 31 March 2006.   Singtel will update its guidance outlook during the half year and full year results. 

Please refer to the Group’s Management Discussion and Analysis document for a full commentary on the Group’s results for the quarter.