The SingTel Group reports net profit growing 10 per cent to S$747 million

February 4, 2005

9 Min Read

SINGAPORE and SYDNEY -- Singapore Telecommunications Limited (SingTel) today announced its unaudited results for the third quarter and nine months ended 31 December 2004.

Group

The SingTel Group delivered yet another set of positive results for the quarter ended 31 December 2004. Revenue for the Group increased by 6.9 per cent to S$3.23 billion. Operational EBITDA also grew by 7 per cent to S$1.19 billion, with Optus contributing 58 per cent.

Net profit after tax was down 11 per cent to S$760 million, due mainly to S$223 million one-off exchange gains relating to intercompany loans and exceptional gains of S$186 million in 2003.

Underlying net profit was up 10 per cent to S$747 million while earnings per share increased by a higher 18 per cent to 4.5 cents on the back of the capital reduction exercise in the previous quarter. The Group generated strong free cash flow of S$812 million.

The Group’s operational EBITDA margin was 36.7 per cent, with the Singapore and Australian operations enjoying margins of 50.4 per cent and 30.6 per cent respectively.

Group EBITDA grew 17 per cent to S$1.59 billion due to increased contributions from regional mobile associates. Earnings from associates were up 28 per cent to S$320 million after adjusting for Belgacom and exceptionals.

Overseas operations contributed 66 per cent of the Group’s proportionate EBITDA while 75 per cent of the enlarged revenue was from outside Singapore.

Mr Lee Hsien Yang, SingTel President & CEO, said: “These strong third quarter numbers continue the positive momentum established in the first half of the year.

“We are on track to deliver double digit earnings growth for the whole year. The Group remains committed to create shareholder value as a blue chip growth stock.”

SingTel

In Singapore, SingTel’s top line showed an improvement for the first time in three years. Revenue increased by 1.6 per cent to S$989 million due largely to strong growth in data and IT services. Free cash flow grew strongly by 9.5 per cent to S$389 million.

Operational EBITDA margin was 50.4 per cent, an expansion from the preceding quarter of 49.4 per cent, and in line with SingTel’s full year guidance. The margin for the Singapore telecommunications business was 56 per cent, in line with the 56 to 57 per cent range recorded in the preceding two years.

Data and Internet revenue for this quarter was S$304 million, an increase of 8.8 per cent due mainly to the increase in demand for data and broadband services. In broadband, SingTel leads with a market share of 57 per cent and continues to enhance its leadership position by offering a comprehensive range of products and services.

In mobile communications, 3G services were soft launched in December 2004, after the completion of successful and extensive trials. Feedback from the early adopters of 3G has been positive. The mobile customer base increased by more than 23,000 from a quarter ago, reflecting more aggressive marketing initiatives. In postpaid, 14,000 new customers were acquired in the quarter, helping to stabilise market share at 43 per cent. Year on year, monthly postpaid churn remained at 1.1 per cent and data services increased to 20 per cent of ARPU, both at best-in-class levels. Overall, mobile revenue fell slightly by 1 per cent to S$205 million.

International telephone revenue declined 11 per cent to S$161 million attributable mainly to a 8.9 per cent drop in average collection rates due to changes in traffic mix as well as lower prices. International telephone outgoing minutes declined by 4.6 per cent. Decline in inpayments was mitigated by reduction in outpayments.

Revenue from IT and engineering services grew 18 per cent during the quarter to S$133 million on the back of stronger demand in major operating businesses and key overseas markets.

National telephone revenue fell 8.9 per cent during the quarter, reflecting a decline in the fixed line traffic as more people use mobile and broadband, coupled with a 2 per cent drop in the number of DEL lines. SingTel’s market share remained above 99 per cent.

SingTel continued to manage its costs very carefully. Operating expenses increased by 5 per cent or S$23 million due partly to the rapid growth in IT services. In the more stable telecommunications business, costs grew 3 per cent. Staff cost grew by 5.6 per cent reflecting higher redundancy costs and increased performance shares cost. As at 31 December 2004, SingTel and its subsidiaries (excluding Optus) had 10,121 employees, a decrease of 2 per cent or 203 employees compared to a year ago.

Selling and administrative expenses increased by 7.6 per cent mainly attributable to higher mobile and broadband subscriber acquisition and retention costs, which were partially offset by a write back of provision for doubtful debts as the provision was no longer required.

Traffic expenses fell by 10 per cent mainly due to lower outpayment rates.

SingTel’s free cash flow of S$1.1 billion for the nine months ended 31 December 2004 is on track to meet its guidance of S$1.4 billion for the full year.

SingTel Optus

Optus delivered another set of solid results for third quarter ended 31 December 2004.

“Despite intensifying competition, Optus was yet again able to grow more quickly than the market as a whole,” Paul O’Sullivan, Optus Chief Executive said.

“Our mobile customer numbers are still increasing, despite the market getting closer to saturation. Customers are signing up to broadband at a rapid rate. And Optus Business and Wholesale are continuing to win customers to increase overall market share.

“While we anticipate moderating growth, we have plans in place to manage this change of pace and to continue to outperform the overall Australian telecoms market.” Net profit after tax for the third quarter ended 31 December 2004 was A$168 million, up 34 per cent compared to the same quarter last year.

Operating revenue in the quarter increased 7.7 per cent to A$1.79 billion. Operational EBITDA grew 12 per cent to A$547 million and EBITDA margin expanded by 1.2 percentage points to 30.6 per cent.

Free cash flow of A$335 million represented an increase of 59 per cent compared to the same quarter last year, as a result of higher profits and lower cash capital expenditure.

Capital expenditure was A$186 million in the quarter or A$555 million on a year to date basis. For the year as a whole, Optus capex is now expected to be in the range of A$800 million to A$850 million.

Optus remains on track to achieve its guidance for the full year to 31 March 2005 including growing revenues at around twice the market as a whole, achieving double-digit EBITDA growth and delivering free cash flow of more than A$1 billion.

Mobile contributed 78 per cent of the revenue growth and 89 per cent of the EBITDA growth. Both Mobile and Optus Business & Wholesale divisions improved or maintained margins, but Consumer & Multimedia’s margins fell slightly as Optus continued to invest in broadband growth.

Optus Mobile has delivered a high quality performance with improvements at all levels. Operating revenue grew by 11 per cent to A$1.01 billion while operational EBITDA increased to A$391 million, an increase of 16 per cent compared to the same quarter last year, and the EBITDA margin improved to 39 per cent.

Optus Mobile is leveraging its traditional strength in the consumer segment. Its overall customer base grew by 16 per cent to 6.20 million including the addition of 283,000 customers in the current quarter.

Optus is growing its share of the business mobile market. Business mobile revenues grew by 11 per cent – which represents an increase in market share. This quarter, data revenues grew to 16 per cent of service revenues. Optus is planning to introduce its first commercial 3G service in Canberra in April this year.

Our extensive base station roll out program – designed to significantly improve coverage in targeted regional areas – continued during the quarter, with the number of base stations increasing to nearly 4,000.

Optus Business & Wholesale saw combined revenues growing to A$400 million, up 7.6 per cent compared to the same quarter last year. Combined operational EBITDA for both divisions increased by 8.3 per cent to A$105 million and the EBITDA margin was stable at 26 per cent.

Optus Business revenue increased by 13 per cent, assisted by Uecomm revenues for the current quarter of A$20 million. Excluding Uecomm revenue grew by 4.8 per cent. The division continues to win new customers – including the NSW Health Department and Integral Energy – and to increase its overall market share.

Wholesale revenue fell by 3.4 per cent as some one-off, low margin, domestic transit business terminated in the current quarter.

Optus Business and Wholesale have achieved these results despite intense price competition and price declines in the market.

Consumer & Multimedia (CMM) is building a strong position in the broadband market. Overall broadband revenues (cable modem and DSL) increased by 56 per cent and the division added 56,000 broadband customers in the quarter, taking the customer base to 292,000 at the end of December.

The rapid growth in broadband was offset by weakness in traditional products resulting in flat overall revenue.

Optus has been very successful in maintaining Internet relationships as its current customers migrate from dial up to broadband. As anticipated, the migration has impacted telephony revenues with a drop in local call use and termination of second lines. The share of customers taking a bundle of Optus services continue to grow, with the on network bundling rates reaching 67 per cent and off the network bundling rate growing to 46 per cent.

Operational EBITDA fell 3.4 per cent to A$51 million compared to the same quarter last year and the EBITDA margin reduced marginally to 13 per cent, reflecting the division’s continuing investment in growing its broadband base. As it gains scale, CMM expects to improve margins by using unbundled local loop services to carry voice and Internet traffic on its own network.

CMM’s free cash flow for the nine months to December 2004 increased by 21 per cent to A$86 million compared to the corresponding period last year.

Singapore Telecommunications Ltd. (SingTel)

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