Singapore, 12 November 2008 -- Singapore Telecommunications Limited (Singtel) announced its unaudited results for the second quarter and half year ended 30 September 2008.

 

Highlights

 

 

Group

 

The Group’s operating revenue grew 5.3 per cent to S$3.89 billion in the second quarter from a year ago boosted by strong performance across Singapore and Australia where both recorded their best quarterly growth in the postpaid mobile market in recent years.

 

Underlying net profit in the quarter fell 12 per cent to S$801 million because of the iPhone 3G initiative, the weaker regional currencies, lower earnings from Telkomsel caused by price competition and the inclusion of a S$41 million post-tax loss from Warid Telecom. It would have declined 5 per cent excluding the impact of the depreciation of the Australian dollar and regional currencies.

 

Net profit declined 12 per cent to S$868 million after including the exceptional items and the currency translation gain of S$67 million in the quarter. Free cash flow was stable for the first half of the financial year at S$1.7 billion compared to a year ago.

 

Ms Chua Sock Koong, Singtel’s Group Chief Executive Officer, said: “Singapore and Australiaboth achieved impressive results, with Singapore recording double-digit revenue growth andAustralia accelerating its mobile revenue growth. We further demonstrated our leadership inSingapore as the only operator to bring in the much anticipated iPhone 3G and in Australia we captured the majority share of the iPhone 3G activations.”

 

“Our expansion in the region subjects us to the volatility of the regional currencies. A strongerSingapore dollar reduces our mobile associates’ earnings. The current global financial crisis is unprecedented and the negative impact on businesses will be inevitable. It is crucial we exercise disciplined cost management and at the same time continue to invest for the future. We have a strong balance sheet and continue to generate healthy cash flows," Ms Chua added.

 

The Board approved an interim ordinary dividend of 5.6 cents per share amounting to S$892 million in respect of the current financial year ending 31 March 2009. 

 

The Group and its associates, Bharti and Globe, registered more than 170,000 iPhone 3G activations in the September 2008 quarter. Early usage showed that iPhone 3G users inSingapore and Australia delivered an ARPU of approximately 1.5 times higher than the overall postpaid base. In line with the Group’s policy, mobile subscriber acquisition and retention costs are expensed immediately on activations.

 

For the second quarter, the incremental impact of the iPhone 3G activations reduced EBITDA by approximately S$27 million in Singapore and approximately A$44 million in Australia.

 

During the quarter, OpenNet Pte Ltd, a consortium in which Singtel has a 30 per cent equity stake, won the bid from the Singapore government as the NetCo to provide the passive fibre grid for Singapore’s Next Generation National Broadband Network.

 

 

Singapore

 

The Singapore business had another quarter of strong performance with double-digit growth in revenue driven by the Mobile and Data businesses. Sales of equipment also increased strongly by 62 per cent on the successful launch of the iPhone 3G. In this quarter, Singtel further extended its lead in the mobile market.

 

The Singapore business reported a 10 per cent increase in revenue to S$1.33 billion from S$1.21 billion a year ago. Margin for the Singapore business was 37.5 per cent compared with 43.1 per cent a year ago attributed mainly to higher mobile selling expenses and mio TV content costs. Excluding the incremental impact of the iPhone 3G initiative and the associated equipment revenue mix, margin would have been 40.1 per cent.

 

Revenue from  Data & Internet grew 12 per cent to S$383 million in the second quarter from a year ago as a result of strong demand for Singtel’s service offerings and innovative solutions in managed services and fixed broadband.

 

Singtel added 7,000 fixed broadband customers in the quarter and retained leadership position with 52.9 per cent market share.

 

Mobile Communications recorded double-digit growth in revenue that increased 11 per cent to S$356 million as the number of mobile customers grew 35 per cent from a year ago.

 

Singtel added 121,000 subscribers in the quarter bringing total mobile customer base to 2.87 million with market share gains in both postpaid and prepaid market share.

 

In prepaid mobile, 76,000 customers were added during the quarter, bringing total subscribers to 1.42 million and a market share of 46.7 per cent, an increase of 2.1 percentage points.

 

Singtel posted its best quarterly growth in the postpaid mobile segment in recent years with 45,000 new customers, reflecting the strong take-up of the iPhone 3G and continued success in targeted acquisition initiatives. As a result, Singtel strengthened its postpaid market leadership with a market share of 45.2 per cent.

 

For the quarter, mobile data services accounted for 34 per cent of ARPU, an increase from 29 per cent a year ago, boosted by increased mobile data usage. An additional 109,000 customers signed up for 3G mobile services pushing the subscriber base to 1.07 million as at 30 September 2008.

 

As at 30 September 2008, there were 87,000 customers on mio plan. The number of mio TV customers was unchanged at 46,000 in the quarter as net customer additions were offset by the expiry of the waiver periods introduced during the initial launch.

 

mio TV unveiled its pricing for its Season Pass, on 1 September 2008, allowing customers to catch on-demand the latest season of Hollywood hit TV shows as well as brand new shows from as low as S$16.05 per series. mio TV is an integral part of Singtel’s initiative to transform the residential fixed-line services.

 

IT & Engineering revenue generated mainly by NCS grew 3.2 per cent to S$197 million on growth of local projects.

 

On 25 August 2008, NCS acquired approximately 60 per cent stake in SCS, an ICT service provider, and made a mandatory general offer to acquire the remaining shares of the company. This acquisition will be completed in December 2008.

 

Mr Allen Lew, Singtel’s Singapore CEO, said: “Our performance has given us a solid foundation on which to transform ourselves into a world-class multimedia company. The acquisition of SCS is part of that transformation in the business segment and combined with NCS will enable the Group to expand its scale and services footprint.”

 

Operating expenses in the Singapore business rose 18 percent to S$834 million as a result of a 38 per cent increase in Selling & Administration expenses driven by subscriber volume growth and the iPhone 3G launch. Mobile subscriber acquisition and retention costs rose on higher gross connections and handset subsidies.

 

Marketing and promotion expenses were also higher with increased marketing activities as well as Formula One ^TM costs. mio TV content costs also increased as Singtel continued to acquire contents to expand its content offerings.

 

Optus

 

In the second quarter, Optus delivered an increase in operating revenue of 6.8 per cent to A$2.06 billion and maintained its market position with a growing mobile customer base delivering strong service revenue growth.

 

This strong revenue growth was achieved despite Optus’ decision to exit the unprofitable Consumer Fixed resale market. Excluding the impact of the resale exit, and adjusting for the migration to on-net, operating revenue grew 9.4 per cent.

 

Margin declined from 24.7 per cent to 23.2 per cent. Excluding the incremental impact of the iPhone 3G initiative and associated equipment revenue mix, underlying EBITDA margin would be 26.2 per cent, up 1.5 percentage points from a year ago. 

 

Free cash flow amounted to A$265 million, down 5.1 per cent with higher working capital offset by lower capital expenditure. Net profit for the quarter grew 1.8 per cent to A$125 million.

 

Mr Paul O’Sullivan, Optus Chief Executive, said: “These are positive results from Optus and our accelerating top-line growth in mobile reflects our focus on driving mobile performance. Compelling and market-changing offers like the iPhone 3G and ‘yes’ Timeless plans contributed to growth in our subscriber base.”

 

“Optus is tracking in line with guidance despite competitive pressures in mobile and wireless broadband and the impact of iPhone 3G subsidies. We continue to invest for on-net growth; improve and strengthen our networks; and deliver innovation and choice to customers around the country. Approximately 90 per cent of the population is now covered by Optus 3G, which strengthens our mobile-led attack on the market.”

 

Optus Mobile operating revenue grew strongly at 14 per cent to A$1.23 billion and outgoing service revenue increased by 8.7 per cent with strong postpaid growth of 9.2 per cent and prepaid growth of 7.6 per cent. Revenue improvements were driven by strong customer growth with increased data and content usage.

 

In the September quarter, 182,000 new subscribers were added, including a record 128,000 postpaid additions, bringing the total number of mobile customers to 7.4 million. Adjusting for the one-off churn of 31,000 customers this quarter by a wholesale partner, total underlying net additions would be at 213,000 and postpaid net additions at 159,000. The number of 3G subscribers increased to 2.16 million including 286,000 wireless broadband subscribers.

 

Incoming service revenue returned to growth this quarter at 6.0 per cent with subscriber growth, increased voice and SMS terminating traffic.

 

Subscriber acquisition costs increased with higher subsidies offered on the iPhone 3G and ‘yes’ Timeless plans. SMS and other data revenue was 32 per cent of ARPU, up from 28 per cent a year ago with increased penetration of wireless data products.

 

Mobile EBITDA margin declined to 26 per cent due to higher acquisition and retention costs from iPhone 3G volumes and higher mix of equipment sales which have lower margins. Excluding the incremental impact of iPhone 3G and associated equipment revenue mix, underlying mobile EBITDA margin for the quarter would be 32 per cent. 

 

EBITDA for  Business and Wholesale Fixed grew 7.4 per cent to A$112 million, reflecting continued on-net data and IP focus, and margin was stable at 23 per cent. Total Business and Wholesale fixed revenue grew 4.2 per cent, driven primarily by 8.3 per cent growth in Optus Wholesale fixed revenue from increased voice traffic and demand for Internet bandwidth and access.

 

Optus continued to win and renew major corporate and government deals including Flight Centre, Boral and Insurance Australia Group.

 

For  Consumer and SMB Fixed, EBITDA grew A$16 million to A$44 million with margin expansion of 6 percentage points to 13 per cent. The increases were driven by both higher on-net revenue mix and yield management initiatives.

 

While Consumer on-net revenues increased by 24 per cent, this was offset by a 58 per cent decline in off-net revenues due to the continued exit from fixed resale services. The proportion of on-net revenue in Consumer Fixed was 81 per cent in the quarter, up from 60 per cent a year ago. This quarter saw continued ULL growth with 400,000 subscribers now provisioned with services as the Optus ULL network build of 366 exchanges nears completion.

Optus on-net broadband (ULL and HFC) subscribers increased 37 per cent to 789,000 and accounted for 85 per cent of the broadband base. Total broadband customers including business grade customers totalled 926,000, an increase of 3.5 per cent from a year ago.

 

 

Associates

 

Pre-tax profit contributions from associates in the second quarter fell 26 per cent to S$461 million impacted by the volatility in regional currencies, weaker performance by Telkomsel and Globe as well as the inclusion of losses from Warid.

 

If the regional currencies had remained stable from a year ago, the pre-tax profit contributions of the associates would have declined 16 per cent.

 

The Group’s combined mobile customer base grew 37 per cent from a year ago, or 59 million, to 217 million.

 

Bharti, India’s number one mobile phone operator, added a record 28.6 million mobile customers, an increase of 59 per cent from a year ago, as it expanded coverage to rural areas. As at 30 September 2008, it had 77.5 million mobile users and a total of 80 million customers including fixed-line users, making it the third largest in-country mobile operator in the world.

In the second quarter, Bharti’s pre-tax operating profit in Indian rupee terms surged 42 per cent from a year ago driven by record subscriber acquisitions. In Singapore dollar terms, the Group’s share increased 21 per cent to S$244 million as the rupee weakened a significant 17 per cent against the Singapore dollar from a year ago.

 

Bharti recorded additional tax credit arising from tax payments made in the past during the tax holiday period. Including the tax credit, the Group’s share of Bharti’s post-tax profit rose 8.1 per cent to S$199 million, making up 25 per cent of the Group’s underlying net profit.

During the quarter, Bharti debuted its digital television “Direct to Home’’ service, allowing viewers to receive broadcast signals into their homes via satellite.

 

Telkomsel, the largest cellular operator in Indonesia, added 36 per cent more or 16 million customers from a year ago, bringing total subscriber base to 60.5 million as at 30 September 2008 and stabilised its market position with a 1 percentage point gain to 46 per cent.

 

Reduced tariffs helped to achieve the record additions and boosted usage with total minutes of use increasing strongly by four times from a year ago. ARPU fell by a quarter and operating revenue fell 7 per cent. Operating expenses and depreciation increased driven by higher traffic volume and network related expenses.

 

In Singapore dollar terms, the Group’s share of pre-tax profit declined 38 per cent to S$173 million from a year ago with the lower earnings and the Indonesian rupiah’s 8 per cent depreciation.

 

Telkomsel continued to invest and roll out its network deploying, 2,000 radio base stations in the quarter to maintain its leadership in coverage and quality. As at 30 September 2008, its 3G service extended to 133 cities across the country, an increase of 18 cities from a quarter ago.

 

Globe added 4.5 million mobile customers, or 24 per cent more from a year ago bringing its total subscriber base to 23.7 million as at 30 September 2008.

 

Globe’s pre-tax ordinary profit contribution in Singapore dollar terms declined 15 per cent to S$60 million with an 8 per cent depreciation of the Philippine peso against the Singapore dollar. Revenue was stable while expenses increased with higher handset subsidies. The results also included the share of fair value losses of S$4 million compared to a gain of S$3 million a year ago.

 

AIS’ mobile customer base grew 15 per cent, or 3.6 million from a year ago, to 26.8 million as at 30 September 2008. AIS continued to be the market leader with about 46 per cent market share.

AIS’ pre-tax ordinary profit contribution in Thai baht rose 25 per cent in the quarter ended 30 June 2008 driven by robust growth across all service revenue segments particularly from the prepaid mobile market, non-voice and international calls. In Singapore dollar terms, AIS’ pre-tax ordinary profit gained 7.1 per cent to S$63 million impacted by the baht’s 17 per cent depreciation against the Singapore dollar.

 

PBTL, the only CDMA mobile phone operator in Bangladesh, had a customer base of 1.7 million as at 30 September 2008, an increase of 32 per cent or 425,000 from a year ago.

 

The Group’s share of PBTL’s losses in the second quarter was S$8 million, 33 per cent higher attributable to higher selling expenses and subscriber acquisition costs.

 

Warid’s total mobile subscriber base rose to 16.2 million as at 30 September 2008. The increase was 4.3 per cent or 668,000 subscribers compared to a quarter ago.

 

The Group’s share of pre-tax operating losses for Warid, the fourth largest mobile operator inPakistan,  was S$24 million in the second quarter, higher by 40 per cent from the previous quarter. Operating revenue declined as consumers reduced spending amidst high inflation and increase in consumer sales tax.

 

Expenses rose as a result of increased maintenance and utility expenses from network expansion as well as higher borrowing costs.

 

Warid’s results also included a higher foreign exchange loss on its US dollar-denominated liabilities as the Pakistan rupee declined 15 per cent against the US dollar in this quarter.

 

 

Outlook

 

Amidst the global financial crisis, the Singapore economy is estimated to have contracted by 0.5 per cent in the September 2008 quarter compared to 7.7 per cent growth in 2007. The official growth forecast for the  calendar year has been revised to 3 per cent, from an earlier forecast of 4 to 6 per cent. The official 2008 GDP growth for Australia is also lower at 1.5 per cent, down from 2.8 per cent. In countries where the regional mobile associates operate, 2008 GDP growth rates are expected to be at mid single-digit levels. The current global financial crisis is unprecedented. A slowdown of the growth of the Group's businesses is expected.

 

A high proportion of the Group’s earnings contributions is from outside Singapore and the financial performance is sensitive to currency movements in the countries that the Group operates in. A relatively stronger Singapore dollar will reduce the earnings contributions from the overseas operations.

 

During the quarter ended 30 September 2008, the Singapore dollar continued to strengthen against the Australian dollar and the regional currencies.

 

Based on its current trading momentum, the Group expects operating revenue and operational EBITDA in each of the Singapore and Australia businesses for the financial year to grow. However, the consolidated revenue and operational EBITDA of the Group will be negatively impacted by the depreciation in the Australian dollar.

 

Taking into account the actual results for half year ended 30 September 2008, whilst some of the regional mobile associates continued to perform well, the Group expects the overall pre-tax earnings contributions of the regional mobile associates for the year ending 31 March 2009 to be lower compared to the previous year.

 

The Group has a strong balance sheet and has significant financial flexibility to pursue growth initiatives and strategic investment opportunities and will exercise careful cost management.

 

The award of the Singapore’s Next Generation National Broadband Network to OpenNet on 26 September 2008 does not impact the results for this financial year ending 31 March 2009.

 

 

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