Strong earnings growth for the Group Net profit after tax up 13 per cent

Singapore, 8 February 2007 -- Singapore Telecommunications Limited (Singtel) today announced its unaudited results for the third quarter and nine months ended 31 December 2006.
 
Highlights

Group

During the quarter, the Group delivered strong earnings growth.  Net profit after tax increased 13 per cent to S$994 million.  

The increase in profit was driven primarily by the overseas associates2 which contributed S$368 million in post-tax profit, representing 43 per cent of the Group’s underlying net profit, up from 41 per cent a year ago.

The Group’s operating revenue was stable at S$3.38 billion.  Revenue from the Group’s Australian operations in Australian Dollar terms grew 3.1 per cent but was stable in Singapore Dollar terms due to the weaker Australian currency.  Singtel’s operating revenue was up 4.3 per cent to S$1.06 billion driven by strong growth in the telco business.

Operational EBITDA fell 5.5 per cent to S$1.06 billion as operating expenses rose 3.0 per cent on the back of more aggressive customer acquisition and retention initiatives by the Singapore mobile business.  However, the Group’s EBITDA was stable at S$1.65 billion as increased contribution from the associates offset the decline.

Free cash flow3 was S$476 million, with S$334 million from Singapore’s operations, S$8 million from the associates’ dividends and S$134 million from the Australian operations.

Mr Lee Hsien Yang, Singtel’s Group CEO, said: “The Group has delivered strong earnings growth.  In Singapore, we recorded strong revenue growth in the telco business while extending leadership in the data and Internet market.  Optus continues to show its resilience in a competitive Australian market and is delivering in line with guidance.”

He added: “We see strong potential for growth in our associates.  Bharti and Telkomsel continue to perform strongly.”

Singtel

During the quarter, Singtel’s operating revenue grew 4.3 per cent to S$1.06 billion as a result of higher Mobile and Data & Internet revenues.  On a sequential basis, operating revenue grew 1.5 per cent, in spite of lower business activities in the festive quarter. 

Operating expenses rose 7.4 per cent to S$613 million, largely driven by significant acquisition and retention costs incurred in the mobile consumer market.  Consequently, operational EBITDA margin for the quarter fell to 42.7 per cent compared to 45.4 per cent a year ago, and 48.7 per cent in the preceding quarter ended 30 September 2006.

Singtel continues to extend its leadership in the Data & Internet market.  Revenue for this market during the quarter was S$326 million, an increase of 6.9 per cent from a year ago and 4.1 per cent from the preceding quarter.  On a comparable basis, excluding C2C’s capacity sales, revenue grew at a higher 14 per cent from a year ago. 

Data revenue grew 8.5 per cent to S$223 million compared to a year ago and was flat against the preceding quarter.  Internet revenue for the quarter grew 29 per cent to S$103 million compared to the previous corresponding quarter and increased 12 per cent against the preceding quarter.  Managed Services grew 13 per cent driven mainly by higher sales of global corporate IP services.  Revenue from local leased circuits was stable year on year while international leased circuit revenue grew 4.4 per cent.  While demand for bandwidth continued to be robust, with sales volumes increasing by nearly 40 per cent from a year ago, bandwidth growth was offset by average prices that continued to fall.

Broadband revenue in the quarter rose 35 per cent to S$78 million year on year and increased 14 per cent against the preceding quarter.  Excluding the one-off revenue adjustment of S$5 million, Broadband revenue grew by 26 per cent from a year ago and 7.0 per cent from a quarter ago.  As at 31 December 2006, the number of broadband lines increased 4 per cent or 14,000 lines to 405,000 lines from 391,000 lines a quarter ago.  Despite intense market competition, Singtel retained its leadership in the Singapore broadband market with 53.2 per cent market share as at 31 December 2006.  Within a month of rolling out of Wireless @SG service on 1 December 2006, Singtel attracted 106,000 customers of which 28,000 do not subscribe to SingNet broadband services.  

Revenue from mobile communications grew 8.8 per cent year on year and was up 2.3 per cent from a quarter ago.  The number of mobile subscribers continued to increase, growing by 66,000 to 1.77 million in the quarter.  Prepaid accounted for 43,000 of the additions while postpaid contributed 23,000 to the subscriber base.  For S$28, prepaid customers enjoy Singtel’s improved Hot$100 promotion which offers S$100 worth of calls.  Free IDD calls to two new destinations – India and Bangladesh – were added.  A record number of mobile subscribers was also re-contracted during the quarter.

Singtel’s combined prepaid and postpaid market share remained stable at 38 per cent.  Its customer churn and data usage continued to be among the best-in-class with postpaid churn at 0.8 per cent and data usage at 27 per cent of average revenue per user (ARPU).     

The demand for 3G services continued to be strong, reaching 367,000 subscribers at end-December 2006, representing an increase of more than six times from a year ago and 42 per cent from a quarter ago.

Revenue from IT & engineering for the quarter grew 7.0 per cent to S$150 million year on year.  Compared to the preceding quarter, revenue rose marginally by 1.8 per cent.  The structure in the Singapore IT services sector continues to evolve with contracts awarded becoming higher value and more ‘lumpy’.

International telephone revenue rose slightly by 1.8 per cent to S$149 million year on year as increase in call volumes mitigated the fall in collection rates.

In the quarter, revenue from national telephone declined 6.0 per cent to S$113 million as broadband usage increased and mobile substitution continued.  Although the number of fixed lines in Singapore decreased by 2.0 per cent, Singtel continues to retain a 96 per cent market share.

Singtel aims to protect its leadership position in the home market by rejuvenating its service offerings and maximising the value of its telephone infrastructure.  The recent launch of Generation mio, an integrated voice and data plan, harnesses Singtel’s inherent strengths.  By leveraging on its market reach and fixed-line network, Singtel is able to reduce churn and increase revenues by cross selling its services.  Generation mio lays the platform for other new services such as pay TV which Singtel expects to launch commercially later this year.  Singtel was awarded a nationwide licence from the Media Development Authority in January 2007.

Operating expenses increased 7.4 per cent or S$43 million year on year, attributable mainly to higher selling and administrative expenses which grew 14 per cent.

Staff costs remained stable.  Compared to a year ago, headcount declined by 326 or 3.3 per cent with the lower headcount in the telco business partially offset by higher headcount in the IT business due to expansion overseas.

Singtel continued to generate strong cash flows.  Free cash flow, excluding dividends from associates, was up 34 per cent to S$334 million.   

Singtel Optus 

In the third quarter ended 31 December 2006, Optus delivered growth and a resilient EBITDA margin of 26 per cent for the third consecutive quarter despite challenging market conditions.  This was achieved with disciplined marketing strategies and careful cost control.

For the quarter, Optus’ operating revenue was up 3.1 per cent, operational EBITDA was down 3.9 per cent and Optus’ net profit of A$135 million was down 15 per cent.  Excluding acquisitions, Optus’ operating revenue grew 1.1 per cent.

In the quarter, operating cash flow was at A$465 million, comparable to the preceding quarter and A$23 million higher than the same quarter last year with favourable working capital movements.

Cash capital expenditure this quarter increased to A$353 million as Optus rolled out new mobile and fixed-line networks, purchased additional Southern Cross cable capacity, made payments for the D-series satellites and continued the fit out of the new Sydney headquarters.

With the higher cash capital expenditure, free cash flow for the quarter was down 17 per cent to A$112 million.

Mr Paul O’Sullivan, Optus Chief Executive, said Optus’ growth was achieved notwithstanding increased mobile cap penetration, declines in fixed telephony and the negative impact of mobile termination rates.

“Despite negative impacts on revenue growth from reduced mobile termination rates, Optus remains committed to maintaining market share, managing costs and investing for growth.

“During the third quarter, we continued to expand our 3G network, we grew our mobile and broadband customer bases, we increased data speeds and delivered better content and applications to our customers,” he said.

Optus Mobile continued to be the largest contributing division to Optus’ earnings as it successfully delivered on its strategies and defended its position in a competitive market. 

Revenue growth for Mobile was 3.0 per cent to A$1.10 billion in the third quarter.  Virgin Mobile added A$17 million to Optus Mobile revenue in the quarter.  Excluding this, revenue grew 1.5 per cent, driven primarily by higher outgoing service revenue. 

Capped plans offered to Optus’ retail customers continued to negatively impact revenue growth, with approximately 25 per cent of Optus’ total postpaid mobile base choosing a capped plan – up from 14 per cent a year ago. 

Outgoing service revenue grew by 7.9 per cent with continued strong prepaid growth, solid SMS traffic and the inclusion of Virgin Mobile’s results.

Incoming revenue fell as average termination rates declined 21 per cent, following rate reductions mandated by the ACCC. 

Despite the adverse effects of capped plans and termination rates, Mobile operational EBITDA was stable year on year and EBITDA margin improved to 36.5 per cent compared to the preceding quarter.

“We continue to grow our mobile subscriber base with an increase of 76,000 subscribers this quarter and the EBITDA performance is pleasing, given the headwinds the business has faced this quarter,” Mr O’Sullivan said.

“We are achieving good take up of our 3G service, with 276,000 subscribers provisioned with Optus 3G services at the end of December.  We expect to see this number increase significantly when a greater choice of 3G devices are available and once Optus expands its third generation mobile communications network across a wide national footprint.”

In the third quarter, Optus Mobile had strong prepaid revenue growth as well as an increase in postpaid customers.  Data revenue rose to 24 per cent of ARPU and business mobile subscribers grew by 11 per cent.

“We will continue to defend our share of the market by protecting our scale position in the consumer market, stimulating SMS and other data revenue and growing our share of the business mobile market,” Mr O’Sullivan said.

Optus Business & Wholesale Fixed revenue grew 8.1 per cent, or 3.2 per cent excluding Alphawest, with Optus Business fixed revenue increasing 12 per cent and Optus Wholesale fixed revenue increasing 1.3 per cent.

Combined operational EBITDA grew to A$81 million.  EBITDA margin was stable at 19 per cent.

Optus Business continued to deliver strong fixed voice revenue which grew 11 per cent with higher voice traffic, reflecting increased market share in a declining voice revenue environment.

Business Data and IP revenue increased by 10 per cent to A$108 million, with IP growth continuing to offset declines in traditional data.  Uecomm delivered a 12 per cent revenue increase in the quarter.

Revenue from Information and Communication Technology (ICT) and Managed Services grew to A$71 million for the quarter – up 17 per cent.  Satellite revenues were stable and the new D1 satellite was launched into orbit in October 2006, further entrenching Optus’ leadership in the satellite industry.

Total Wholesale Fixed revenue increased 1.3 per cent, with strong Data and IP revenues offsetting the decline in voice.  Growth in Wholesale Data and IP revenue of 35 per cent was largely driven by increasing Internet bandwidth sales and higher transmission capacity. 

“Optus Business, combined with Alphawest and Uecomm, has built a track record of steady growth over a number of quarters, as it has grown share in IP and ICT; and this will be a continuing focus for the division,” Mr O’Sullivan said.

Optus Business, Alphawest and Uecomm continued to win major contracts throughout the quarter including: Federal Attorney General’s Department, Network Ten and Suncorp Metway.

Optus Consumer and Small & Medium Business (SMB) Fixed revenue was impacted by fixed to mobile substitution, with a decline of 2.9 per cent compared to the same quarter last year.  A decline in traditional voice products offset growth in broadband revenue.

Optus SMB continued to focus on growing market share.  Adjusting for customer re-segmentation, SMB underlying fixed revenue grew 1.4 per cent and total SMB revenues increased by 2.2 per cent to A$257 million.

Broadband revenue grew 40 per cent and Optus added 52,000 subscribers to its broadband base, which totalled 728,000 subscribers as at 31 December 2006.  This is a 42 per cent increase from a year ago. 

Optus continues to show steady growth in its ULL customer base.  As at 31 December 2006, Optus had 204 exchanges and approximately 62,000 subscribers provisioned with services on its ULL network. 

Once this network is completed and combined with Optus’ HFC network, it will cover approximately 3.9 million Australian homes.

“We are pleased at the developments concerning the pricing of ULL services.  We anticipate further positive outcomes on both pricing and non-pricing aspects of ULL regulation over the coming months,” Mr O’Sullivan said.

Associated companies

Earnings from Singtel’s associated companies continue to increase.  In the quarter ended 31 December 2006, the pre-tax contribution from associates was up 17 per cent to S$506 million and on a post-tax basis, earnings from associates grew 17 per cent to S$368 million.

The Group’s share of Telkomsel pre-tax profit increased by 8.6 per cent to S$250 million in the quarter ended 31 December 2006.  This was due to strong operational performance underpinned by continued strong growth in subscriber base.  Telkomsel added 3.1 million net new mobile subscribers in the quarter, bringing its total subscriber base to 35.6 million, an increase of 11.3 million or 47 per cent from a year ago.

In the quarter, Singtel’s share of pre-tax operating profit from Bharti increased 68 per cent to S$128 million.  Including the share of fair value gain on financial liabilities and derivatives of S$23 million, Bharti’s pre-tax contribution for the quarter more than doubled to S$151 million from a year ago.  Bharti added another record 4.9 million net mobile subscribers in the quarter and as at 31 December 2006, its total subscriber base was 32 million, representing a strong increase of 96 per cent from a year ago.

Pre-tax contribution from Globe was S$52 million, down 15 per cent year on year and 30 per cent lower than a quarter ago.  However, excluding the forex and mark-to-market gain, the share of Globe’s pre-tax operating profit was up 6.6 per cent year on year to S$43 million, primarily due to lower marketing and subsidy costs with the termination of the ‘SIM-swap’ programme in the market.  Globe registered a net addition of 1.2 million mobile subscribers in the quarter, bringing its total base to 15.7 million, 26 per cent higher than a year ago.

AIS’ pre-tax profit in the quarter ended 30 September 20064 declined 9.2 per cent year on year.  The decline in operating performance arose mainly from lower service revenue caused by lower usage following the cessation of aggressive price promotions in July 2006.  Against the June 2006 quarter, pre-tax profit contribution fell 8.4 per cent due to seasonal low in the July to September quarter.  AIS continued to be the market leader with a market share of 51 per cent or a total of 19.5 million mobile subscribers.

Pacific Bangladesh Telecom Limited (PBTL), the fourth largest mobile communications service provider in Bangladesh, added a record 329,000 mobile subscribers in the quarter, compared to an average of 128,000 subscribers per quarter in the first half year.  This record addition was a result of a successful marketing campaign following the completion of the network rollout.  The accelerated acquisition of subscribers led to higher subscriber acquisition costs, resulting in Singtel’s share of pre-tax loss increasing to S$21 million, up from S$4 million in the preceding quarter, and S$9 million in the corresponding quarter last year.  As at 31 December 2006, the total mobile subscriber base was 1.1 million, a strong 44 per cent increase from a quarter ago and more than doubled from a year ago.

The Group’s combined mobile subscriber base rose 11 per cent or 12 million to 112 million as at 31 December 2006, the largest in Asia outside China.  This is another record quarterly increase.  Year on year, it was up 44 per cent or 34 million.  Excluding Singtel and Optus, the five regional associates’ combined mobile subscriber base grew 49 per cent from a year ago to almost 104 million.  Bharti and Telkomsel continued to be the two largest regional mobile associates in terms of mobile subscriber number.

Cash flow and balance sheet

Operating cash flow for the third quarter fell 2.9 per cent to S$958 million, due mainly to lower cash dividends from associates.  Cash flow from core businesses, however, increased due to improved working capital.

Free cash flow, excluding the dividend received from associates, rose 13 per cent or S$52 million to S$467 million.  The cash capital expenditure to operating revenue ratio of 14 per cent for the quarter was stable compared to a year ago and was up one percentage point from a quarter ago.

Singtel has improved its capital structure and continues to retain significant flexibility for further investments.  Net debt decreased by S$824 million to S$6.29 billion from a quarter ago.  Net debt was 0.95 times of EBITDA and the EBITDA interest cover was 21.7 times, well within the leverage commitments.

⁴AIS financial year end is December and Singtel equity accounted for its share of results based on the financials for the nine-month period ended 30 September 2006.