Singtel Group posts strong revenue growth and stable underlying earnings for the first quarter
Singapore, 12 August 2008 -- Singapore Telecommunications Limited (Singtel) announced its unaudited results for the first quarter ended 30 June 2008.
June 2008 (S$m)
Share of associates’ ordinary earnings
Net profit attributable to shareholders
Underlying net profit 
Underlying earnings per share (S cents)
The Group’s operating revenue increased 5.9 per cent to S$3.78 billion, driven by the double-digit growth in data and IT businesses in Singapore and Optus’ strong focus on mobile and fixed on-net businesses.
Net underlying profit for the first quarter was flat at S$865 million but would have increased 6.0 per cent if the regional currencies had remained stable from a year ago.
Net profit declined 5.3 per cent to S$878 million after including a one-off S$84 million exceptional currency translation gain recognised in the first quarter a year ago.
Ms Chua Sock Koong, Singtel Group Chief Executive Officer, said: “Our businesses are growing despite the challenging market conditions.
“In Singapore, we held our leadership position and in the mobile market we continued to gain market share, even with the implementation of full mobile number portability. Likewise inAustralia, we continued to win new customers.’’
“As we report in Singapore dollar, the financial results of our regional associates are exposed to fluctuations in foreign exchange rates. In this quarter, the impact was negative,’’ Ms Chua added.
Free cash flow was stable at S$553 million in the first quarter from a year ago.
The Singapore business registered another quarter of strong performance with double-digit growth in Data and IT businesses.
In the first quarter, the Singapore business reported an 8.1 per cent rise in revenue to S$1.25 billion from S$1.16 billion a year ago. Margin for the Singapore business decreased 2.8 percentage points to 41.7 per cent attributable mainly to higher mobile selling expenses as well as content costs for mio TV.
Revenue from Data & Internet grew 11 per cent to S$370 million in the first quarter boosted by strong demand for managed services and fixed broadband service. Managed services posted an impressive 23 per cent gain in revenue reflecting Singtel’s success in winning market share through the delivery of enhanced offerings and innovative solutions for corporate customers.
Singtel added 13,000 fixed broadband customers in the quarter and retained leadership position with a 54.1 per cent market share.
Mobile Communications had another strong quarter with revenue increasing 9.7 per cent to S$347 million as the number of mobile customers surged 41 per cent in the first quarter from a year ago.
Singtel added 182,000 subscribers in the first quarter reflecting its successful marketing efforts to win new and retain customers. This brings Singtel’s total mobile customer base to 2.75 million with a market share of 44.7 per cent.
In the prepaid segment, 151,000 customers were added in the first quarter, bringing total subscribers to 1.34 million and a market share of 44.6 per cent. Singtel added 31,000 postpaid customers and held a market share of 44.8 per cent.
Customer base for mio TV, which started a year ago, grew nearly 2,000 to more than 45,000 at the end of 30 June 2008 from a quarter ago. Customer additions in the quarter were offset partly by the termination of inactive subscribers following the expiry of the waiver periods introduced during the initial launch period.
mio TV announced on 23 July 2008 the first-of-its-kind deal with Disney-ABC International Television, Twentieth Century Fox and Warner Bros. International Television Distribution, that makes it possible for its mio TV service to screen over 50 top US series as early as 24 hours after their US premiere.
IT & Engineering revenue generated by NCS increased 20 per cent to S$181 million. Increased demand for network and infrastructure management, systems integration and facility management were the key drivers behind another quarter of strong performance.
Operating expenses in the Singapore business rose 14 percent to S$743 million largely because of a 39 per cent increase in Selling & Administration costs. This arose from higher mobile customer acquisition and retention costs, content costs associated with mio TV and advertising and promotions ahead of the 13 June 2008 implementation of full mobile number portability.
Staff costs grew 8.4 per cent reflecting the increased headcount mainly for the IT business to support the increased number of projects.
In the first quarter, Optus delivered an increase in operating revenue of 3.1 per cent to A$1.96 billion; increasing service revenue growth in a highly competitive mobile market despite a 25 per cent decline in mobile termination rates and Optus’ exit from unprofitable consumer fixed line resale market.
Operational EBITDA grew 2.7 per cent or A$13 million year-on-year, and margin was stable at 25.3 per cent. Free cash flow amounted to A$117 million, up 15 per cent.
Net profit for the quarter was flat at A$122 million after including depreciation charges from capital investments made in Networks, Satellites and the new Sydney office premises. Optus invests more than A$1 billion each year in capital programmes in Australia.
Mr Paul O’Sullivan, Optus Chief Executive, said: “Optus is tracking positively with good momentum in a highly competitive market. We are consistently acquiring mobile, wireless and broadband customers and keeping overall margin stable. Our mobile-led attack on the market continues.’’
“This strong start to the financial year is evidence that our unwavering focus on delivering challenger products and creative price offerings whilst maintaining discipline with our costs is beginning to reap rewards.’’
“With the trends continuing for the fourth consecutive quarter, Optus Mobile delivered increased postpaid mobile acquisitions and accelerating outgoing service revenue growth in the current quarter. In the fixed market, Optus Business is taking profitable market share and growing ahead of the industry. And in the Consumer fixed business, on-net broadband customer acquisitions delivered profitability and margin improvement,” Mr O’Sullivan said.
Optus Mobile continued to build scale and underlying revenue growth with strong demand for wireless broadband products, competitive postpaid offerings, innovative devices and content.
Operating revenue for Optus Mobile grew 6.0 per cent to A$1.11 billion. Outgoing service revenue grew 9.7 per cent. Optus also continues with its clear lead in the prepaid segment with outgoing service revenue growth of 13 per cent.
In the quarter, 101,000 new subscribers were added, including 87,000 postpaid additions, taking the total number of mobile customers to 7.24 million. 3G subscribers increased 33 per cent on a sequential quarter basis to 1.87 million.
Mobile EBITDA margin was 30 per cent, down 4 percentage points year-on-year reflecting higher acquisition and service costs associated with customer growth, especially in wireless broadband. The margin was also impacted by an additional bad debt charge of A$20 million to increase the loss provisions specifically relating to Bill Express, a prepaid channel vendor, to A$30 million.
The Optus Business and Wholesale Fixed division once again delivered market share gains with strong revenue growth and double-digit EBITDA growth.
Total revenue for this division grew 6.7 per cent driven by 8.0 per cent growth in Optus Business fixed revenue. Optus Business continued its focus on growing IP-VPN and Ethernet services, expanding its ICT and managed services business and managing legacy telecommunications products, with improved cash flow and capital efficiency in the Business.
This quarter, Optus Consumer and SMB Fixed lifted margins by 8 percentage points to 17 per cent with on-net growth.
Unbundled Local Loop (ULL) customers grew by 51,000 during the quarter to 368,000 and as at 30 June 2008, there were 360 ULL exchanges completed which covered 2.9 million premises.
Year on year, on-net broadband customers increased 268,000 to 753,000 while off-net broadband customers declined as Optus executed its strategy to exit unprofitable fixed line resale business. Total broadband customers (including business grade customers) amounted to 918,000, an increase of 10 per cent from a year ago.
Consumer on-net revenue increased by 30 per cent partly mitigating the decline in off-net revenues. The proportion of on-net revenue in Consumer Fixed is now at 78 per cent, up from 55 per cent a year ago.
EBITDA grew A$25 million from the last corresponding quarter. The increase was driven by higher on-net revenue focus and yield management initiatives. It included the benefit of a A$14 million adjustment related to the ACCC Final determination on call diversion charges.
Regional Mobile Associates
Pre-tax profit contributions from mobile associates in the first quarter fell 11 per cent to S$582 million because of the negative currency impact, lower earnings from Telkomsel and Globe, and the inclusion of losses from Warid Telecom.
If the regional currencies had remained stable from a year ago, pre-tax profit contribution of the associates would have been flat.
The Group’s combined mobile customer base grew 45 per cent, or 61 million, to 198 million.
Bharti’s pre-tax ordinary profit increased 26 per cent in Indian rupee terms driven by another record quarter of net customer additions. In Singapore dollar terms, the Group’s share gained 11 per cent to S$235 million as the rupee depreciated a significant 13 per cent against theSingapore dollar from a year ago.
In the quarter, the Group recognised a second exceptional gain of S$8 million arising from Bharti’s sale of minority stakes in Bharti Infratel. Including this gain, the Group’s share of pre-tax profit of Bharti amounted to S$243 million, up 15 per cent from a year ago.
Total customer base surged 62 per cent to 69.4 million as at 30 June 2008 from a year ago, giving Bharti, the number one mobile phone operator in India, a market share of 24 per cent in the total wireless market. Bharti added another record 7.4 million mobile customers in the quarter ended 30 June 2008.
Bharti reduced roaming charges and national long-distance tariffs by more than 40 per cent as it continued with its strategy of making mobile services more affordable and available. Bharti recorded more than 100 billion minutes on its mobile network for the quarter.
In the first quarter, Telkomsel’s pre-tax ordinary profit declined 11 per cent in Indonesian rupiah terms as operating costs and depreciation from network enhancements increased faster than its revenue growth.
In Singapore dollar terms, the Group’s share of pre-tax ordinary profit fell 23 per cent to S$221 million as a result of the rupiah’s steep 15 per cent depreciation.
Telkomsel added 22 per cent more customers from a year ago, bringing total subscriber base to 52.4 million as at 30 June 2008 and remained the market leader in Indonesia.
Telkomsel continued to roll out its network deploying close to 1,300 radio base stations in the quarter to maintain its leadership in coverage and quality. As at 30 June 2008, its 3G service extended to 115 cities across the country, an increase of 17 cities from a quarter ago.
Globe’s pre-tax profit contribution in Singapore dollar terms declined 26 per cent to S$62 million in the first quarter. Service revenue declined as the high fuel and food prices in thePhilippines had adversely affected discretionary spending.
Globe, the second-largest mobile operator in the Philippines, added 25 per cent more mobile customers or 4.6 million in the first quarter from a year ago. Total subscriber base reached 22.7 million as at 30 June 2008.
AIS’ ordinary pre-tax contribution in Thai baht rose 18 per cent in the first quarter partly driven by strong revenue growth in prepaid services, non-voice traffic and international calls while operating expenses fell on lower marketing costs and bad debts.
In Singapore dollar terms, AIS’ pre-tax ordinary profit gained 6.9 per cent to S$66 million because of the baht’s 10 per cent depreciation against the Singapore dollar.
In the first quarter, AIS’s mobile customer base grew 14 per cent to 26 million from a year ago and AIS continued to lead the market with about 46 per cent market share.
PBTL, the only CDMA mobile phone operator in Bangladesh, had a customer base of 1.7 million as at 30 June 2008, an increase of 34 per cent from a year ago. The Group’s share of PBTL’s losses in the first quarter was S$6 million down from a loss of $8 million a year ago.
The Group’s share of pre-tax losses for Warid, the fourth largest mobile operator in Pakistan,was S$22 million in the first quarter impacted by higher marketing and advertising costs, network utility and rental expenses as it expanded its network reach and subscriber base.
The Group acquired a 30 per cent stake in Warid in September 2007 and started equity accounting of its results from the December 2007 quarter. Warid’s total mobile subscriber base surged 73 per cent to 15.5 million as at 30 June 2008 from a year ago.
As a high proportion of the Group’s earnings are from outside of Singapore, the financial performance is sensitive to currency movements in the countries the Group operates in. A stronger Singapore dollar will reduce earnings contributions from the overseas operations.
Taking into account the actual performance in the first quarter, the pre-tax earnings contributions from the regional mobile associates are expected to grow at low double-digit level and at a pace slower than the past two years. The earnings contributions may be further impacted by currency fluctuations.
The guidance issued earlier for the Singapore and Australian businesses is affirmed.
 Defined as net profit before exceptional items and exchange differences on inter-company loans to Optus, capital reductions of certain overseas subsidiaries, net of hedging, as well as significant exceptional items of associates