SingTel Reports 1Q08 656402

SINGAPORE -- Singapore Telecommunications Limited (SingTel) announced a double-digit growth in net profit for its fourth quarter ended 31 March 2008.

Group

The Group delivered its fourth consecutive quarter of double-digit revenue growth driven by the Singapore business, which posted another record number of mobile net additions, and the strengthening of the Australian dollar.

Group revenue in the three months ended 31 March 2008 increased 11 per cent to S$3.76 billion from S$3.38 billion a year ago.

Underlying net profit for the quarter posted a 9.2 per cent gain to S$968 million from S$886 million, helped by a strong performance from the regional mobile associates. The Group had an exceptional gain of S$153 million arising from Bharti’s sale of minority stakes to investors in a subsidiary. With this gain, net profit in the fourth quarter rose 10.5 per cent to S$1.09 billion, compared with S$989 million a year ago.

The stronger Australian dollar lifted operating revenue and net profit by S$139 million and S$12 million respectively.

For the full year, revenue gained 11 per cent to a record S$14.84 billion from S$13.38 billion in the previous year. The group increased its net profit by 4.8 per cent to S$3.96 billion even without the amortisation of S$337 million compensation received from the Infocomm Development Authority of Singapore.

Excluding IDA compensation which ceased to be amortised from 1 April 2007, underlying net profit for the year ended 31 March 2008 rose 14 per cent to S$3.68 billion from S$3.22 billion a year ago. On a similar basis, underlying earnings per share grew faster at 17 per cent because of a capital reduction exercise in the previous year.

Ms Chua Sock Koong, SingTel Group Chief Executive Officer, said: “I am pleased to announce that we have met and in some areas exceeded our targets. We have navigated these tough markets in Singapore and Australia remarkably well as demonstrated by this set of earnings. All our businesses are performing well giving us a diversified revenue base.”

“The environment remains challenging with the outlook for the global economy looking more uncertain. The Group’s fundamentals are strong and we believe we have put in place strategies to continue to grow the business,’’ Ms Chua added.

The Board is recommending a final dividend of 6.9 cents per share and if approved at the annual general meeting, will bring total dividend for the financial year to 12.5 cents per share. This will raise the payout ratio to 54 per cent of underlying earnings.

Singapore

SingTel continued its impressive performance in Singapore with a 12 per cent revenue growth to S$1.29 billion in the fourth quarter from a year ago, boosted by strong performance in Mobile Communications, Data & Internet and IT business.

This is the fourth consecutive quarter of double-digit growth in operating revenue. Data & Internet and Mobile Communications, the two biggest contributors to the Singapore business, both posted double-digit growth in the fourth quarter.

Operating EBITDA for the three months ended 31 March 2008 was stable at S$469 million. Margins for the Singapore business fell 4.2 percentage points to 37.4 per cent in the fourth quarter from a year ago.

For the full year, revenue for SingTel also grew by double digits or 11 per cent to S$4.90 billion compared to the previous year. Operational EBITDA gained 3.4 per cent to S$1.97 billion and margins declined 2.8 percentage points to 40.1 per cent.

Mr Allen Lew, SingTel’s Singapore CEO, said: “We have exceeded all our targets in a market that is getting more competitive. We will continue to provide more value to our customers by anticipating their needs and staying ahead of the competition to maintain our leadership position as seen by the record number of mobile subscribers for yet another quarter.”

“We continued to make significant capital investments into new networks and upgrade our infrastructure, including new submarine cables and a new data centre, that will enhance our position as Asia’s leading communications company,” Mr Lew said.

During the quarter, SingTel secured exclusive media rights for the 2009 to 2012 UEFA Champions League and UEFA Cup across its mio TV, mobile and Internet platforms. mio TV, together with the suite of mio services, continued to gain momentum with the number of customers on mio plan and mio TV rising to 67,000 and 44,000 respectively as at 31 March 2008.

Revenue from Data & Internet grew 12 per cent to S$356 million in the fourth quarter driven mainly by strong corporate data and broadband growth. In the fourth quarter, SingTel added 19,000 broadband customers and retained its leadership position with 54.3 per cent market share.

SingTel’s Wireless@SG also attracted 496,000 customers since its introduction of which 203,000 do not subscribe to SingNet’s residential broadband service.

Mobile Communications posted another strong quarter with revenue increasing 15 per cent to S$339 million from a year ago. In a market with a penetration level of 129 per cent, SingTel added a record 244,000 subscribers in the fourth quarter. This brings SingTel’s total number of users to 2.57 million with a market share of 43.4 per cent.

SingTel extended its leadership position by adding 207,000 prepaid customers to 1.19 million users and 37,000 postpaid users as at 31 March 2008.Average revenue per user rose 2 per cent for postpaid customers and 16 per cent for prepaid customers from a year ago.

IT & Engineering repeated its strong performance in the quarter with revenue rising 16 per cent to S$217 million from a year ago. Increased systems integration projects and seasonally higher contracts from the Singapore government sector contributed to another good set of earnings.

Operating expenses rose 18 percent to S$835 million in the fourth quarter pushed up by a 40 per cent increase in Selling & Administration costs, attributed to higher mobile customer acquisition cost as SingTel posted another quarter of record new mobile users, and higher retention costs from increased recontracts.

Content costs associated with mio TV and advertising and promotions also added to the increase in operating expense. Staff costs grew 12 per cent in the quarter to S$187 million, reflecting the increased number of hires mainly in the IT business to support the company’s growth and the tighter labour market.

SingTel also commenced the amortisation of costs related to its Formula OneTMtitle sponsorship in the fourth quarter.

Optus

In the fourth quarter, Optus achieved a 4.5 per cent increase in revenue to A$1.94 billion despite the ACCC’s mandated reduction in mobile termination rates by 25 per cent to 9 cents per minute from 1 July 2007 and Optus’ decision to exit the unprofitable consumer fixed-line resale market.

Excluding the impact of Broadband Connect costs, EBITDA grew 4.2 per cent or A$22 million in the fourth quarter from a year ago, amidst a highly competitive mobile market and a 25 per cent decrease in mandated mobile termination rates.Margin was stable at 28.2 per cent.

For the year, Optus recorded a 3.8 per cent increase in operating revenue to A$7.76 billion.Excluding the write-off of A$13 million Broadband Connect costs attributable to the Australian government’s cancellation of the OPEL contract, EBITDA grew 1.4 per cent to A$2.02 billion.Margin across the company was 26 per cent.

Mr Paul O’Sullivan, Optus Chief Executive, said: “Competition in Australia was again intense throughout the year.In line with our objective of pursuing sustained revenue and profit growth, Optus delivered to its guidance and turned in a strong overall performance.’’

“For the year, Optus increased its underlying net profit and delivered stronger free cash flows despite lower mandated mobile termination rates.In the fourth quarter, Optus significantly increased earnings from its fixed-line business and continued with its aggressive and targeted customer acquisitions in the mobile market,” he said.

Optus Mobile achieved another consecutive quarter of strong acquisitions with increased take-up of wireless broadband products and mobile capped plans.

Operating revenue for the Mobile Division grew 6.5 per cent to A$1.09 billion with 135,000 new subscribers added in the quarter, including 87,000 postpaid additions, taking the total number of mobile customers to 7.14 million.3G customer numbers increased 21 per cent from a quarter ago to 1.4 million.

Mobile EBITDA margin was 35 per cent, declining 4 percentage points from a year ago reflecting acquisition and retention costs to grow the postpaid segment.

SMS and other data revenue were at 29 per cent of ARPU, up from 26 per cent a year ago with stimulation of SMS and increased take-up of data services.The proportion of non-SMS data revenue grew to 6.0 per cent of ARPU in the current quarter compared to 4.2 per cent a year ago.

On 7 May 2008, Optus announced it would embark on a further investment program to expand its nationwide mobile network beyond 96 per cent population coverage to reach 98 per cent by December 2009. With this significant investment, Optus will be the only carrier capable of challenging the Australian incumbent’s telecommunications network on both coverage and speed.

The 3G network provided coverage to 68 per cent of the population as at 31 March 2008.

A total of 400,000 new mobile customers joined Optus during the year with a 7.8 per cent increase in the postpaid subscriber base.

Total Optus Business and Wholesale Fixed revenue grew 10 per cent driven by the robust 12 per cent growth in Optus Business fixed revenue.

Optus continued to win major corporate and government deals including the renewal of St George Bank, The Department of Immigration and Citizenship, and the Australian Bureau of Statistics.

This quarter, Optus Consumer and SMB Fixed saw continued Unbundled Local Loop (ULL) growth, with 317,000 customers provisioned with telephony and/or broadband services.As at 31 March 2008, Optus had installed equipment in 357 ULL exchanges.The ULL build will comprise a total of 366 exchanges with a coverage footprint of 2.9 million premises.

Broadband revenue increased strongly by 14 per cent.On-net broadband customers grew 62 per cent during the year to 705,000. Total Optus broadband customers including business grade customers increased 16 per cent from a year ago to 907,000 moderated by the exit from unprofitable resale services.

Consumer fixed on-net revenue grew 30 per cent in the quarter. Consistent with its strategy of focusing on on‑net subscriber growth, Optus continued to exit the unprofitable resale services.The proportion of on-net revenue in consumer fixed is now at 73 per cent up from 52 per cent a year ago.

Regional Mobile Associates

In the quarter, contributions from SingTel’s regional mobile associates continued their strong growth momentum propelled by Bharti. On a pre-tax basis, earnings from regional mobile associates grew 18 per cent in the fourth quarter to S$630 million from S$532 million.

The Group’s share of pre-tax profit[2] increased 24 per cent to S$2.56 billion for the full year ended 31 March 2008. The combined mobile customer base expanded 50 per cent, to 185 million as at 31 March 2008 from 124 million a year ago.

The Group’s share of Bharti’s pre-tax profit in Singapore dollars rose 41 per cent to S$222 million in the three months ended 31 March 2008 from a year ago. The higher contribution included the 2 per cent appreciation of the Indian rupee against the Singapore dollar.

During the fourth quarter, Bharti raised US$1.27 billion by selling minority stakes in its independent tower company, Bharti Infratel, to private equity investors. The stake sale by Bharti resulted in SingTel recognising an exceptional dilution gain of S$153 million.

Bharti continued to make affordability and availability the cornerstone of their strategy to drive usage and subscriber acquisition.In the fourth quarter, Bharti extended its super lifetime mobile plan nationwide and expanded its network reach further into the rural areas as well as increased the number of distribution outlets to reach customers.

Bharti, the number one mobile phone operator, added 12 per cent more, or a record 6.8 million mobile users, in the fourth quarter. Bharti expanded its total customer base to 62 million as at 31 March 2008. This represented a market share of 23.8 per cent in the total wireless market.

In the fourth quarter, the Group’s share of Telkomsel’s pre-tax profit grew 18 per cent from a year ago in rupiah terms. In Singapore dollar terms, the Group’s share of pre-tax profit contribution rose 6.4 per cent to S$274 million as a result of an 11 per cent depreciation of the rupiah against the Singapore dollar.

Revenue fell 5 per cent because of lower tariffs. New entrants into the cellular phone business intensified market competition in the country.

Telkomsel continued to deliver value to its customers through promotions such as free SMS, valued added services, free usage and handset bundling. It also expanded its network rollout, deploying close to 900 radio base stations in the fourth quarter. At the end of the quarter, 3G service had reached 98 cities, an increase of 10 cities from a quarter ago.

Telkomsel added 3.4 million customers in the fourth quarter to maintain its leadership position in the Indonesian cellular market with 51 per cent market share or 51.3 million users as at 31 March 2008.

Globe’s pre-tax profit contribution in peso terms rose 1.9 per cent in the fourth quarter after excluding a S$19 million bond redemption cost. The increase in contribution was 11 per cent to S$81 million after the Peso strengthened 9 per cent against the Singapore dollar.

Globe attracted 1 million net mobile customers in the fourth quarter, bringing its total subscriber base to 21.3 million, up 26 per cent from a year ago.

Pre-tax contribution in Singapore dollar terms from AIS surged 56 per cent to S$76 million in the quarter from a year ago as the company improved its operational performance and recognised interconnection revenue relating to prior periods.

AIS continued to aggressively acquire customers in the low penetrated areas and expanded its subscriber base by 900,000 users in the fourth quarter bringing total users to 25.1 million as at 31 March 2008. AIS remained the market leader with about 46 per cent market share.

PBTL, the only CDMA mobile phone operator in Bangladesh, attracted 149,000 new mobile customers in the quarter, bringing its total customer base to 1.6 million as of 31 March 2008. The Group’s share of PBTL’s pre-tax losses in the fourth quarter was S$5 million.

The Group’s share of pre-tax losses for Warid Telecom, the fourth largest mobile operator in Pakistan, was S$19 million because of depreciation expense and financing costs to support its network rollout.

Warid continued to benefit from strong growth in the Pakistani mobile market. Subscriber base grew by 9 per cent or 1.2 million users in the quarter to 14.4 million customers as at 31 March 2008.

Cash flow and Balance sheet

Excluding IDA compensation, the Group’s return on invested capital improved 2 percentage points to 18.9 per cent in this financial year.

The Group continued to generate strong free cash flow. For the year ended 31 March 2008, cash flow increased 28 per cent to S$3.58 billion, mainly attributable to the strong operational performance and higher dividends received from associates.

Net debt gearing ratio was stable at 25.8 per cent compared to a quarter ago.

Outlook for the next financial year ended 31 March 2009

Macro-economic environment

Uncertainties in the financial markets and inflationary pressures have contributed to a more cautious outlook for the global economy. These have moderated the growth forecasts for Singapore, Australia and the regional economies.

Singapore’s economy is forecast to grow between 4 per cent and 6 per cent this year compared with 7.7 per cent last year. The growth forecast for Australia is 2.8 per cent from 2007’s 3.9 percent. In countries where the regional mobile associates operate, growth rates are in the mid to high single-digit levels.

Singapore Telecommunications Ltd. (SingTel) (OTC: SGTJY)