The Singtel Group’s results for the quarter ended 30 June 2007
Group reported earnings rose strongly by 10%, underlying profits up 15%
Singapore business achieved double-digit revenue growth
Optus continued sustainable growth and profits
Regional mobile associates delivered spectacular profit growth
Singapore, 14 August 2007 -- Singapore Telecommunications Limited (Singtel) today announced its unaudited results for the first quarter ended 30 June 2007.
Share of associates’ pre-tax earnings
Underlying net profit
(Excluding IDA compensation)
Underlying earnings per share (cents)
(Excluding IDA compensation)
The Singtel Group began its new financial year on an excellent footing as all three main components of its business – Singapore, Australia and regional associates – performed strongly.
The Group’s operating revenue for the quarter amounted to S$3.57 billion, an impressive 11 per cent increase compared with the corresponding period last year. This was achieved on the back of 10 per cent revenue growth from the Singapore operations – the highest recorded in recent years. The Group’s revenue was also boosted by a stronger Australian dollar.
Optus continued its track record of sustainable growth and profits against a highly competitive market. Operating revenue grew 3.5 per cent while EBITDA remained stable.
Pre-tax contributions from associates rose an impressive 51 per cent, excluding Globe’s extra quarter contribution in the comparative period last year. This extra quarter was incorporated in the June quarter last year to align Globe’s accounting period for the purpose of consolidation. Bharti, Globe and Telkomsel contributed largely to the excellent pre-tax profit earnings.
Net profit grew a strong 10 per cent to S$927 million despite the cessation of amortisation of the compensation income from IDA.
Underlying net profit, excluding IDA compensation, was up a hefty 15 per cent or S$115 million to S$868 million.
Ms Chua Sock Koong, Singtel’s Group CEO, said: “We have made an excellent start to the new financial year with all our key businesses delivering strong earnings growth. I am extremely pleased to note that the growth is broad-based and involves almost every aspect of our business.
“In particular, I am delighted that our Singapore business delivered double-digit increase in revenue, which is unprecedented in recent years. Optus also performed well by maintaining growth and profitability in a highly-competitive environment while our regional mobile associates sustained their stellar growth.”
Growth momentum in the preceding quarters and a stronger domestic economy have helped propel operating revenue for the Singapore business to S$1.16 billion, up 10 per cent from a year ago. Revenues for both the Singapore telecoms and IT businesses were up.
Operational EBITDA was up 7.3 per cent to S$507 million, and margin on operating revenue at 43.7 per cent, is in line with guidance.
Data and Internet revenue grew 13 per cent to S$335 million, driven by higher corporate data spending and increased Internet revenues.
Corporate data services, such as International Leased Circuits, Local Leased Circuits and Managed Services, enjoyed robust demand, reflecting the increased level of business activities.
Internet revenue for the quarter grew 14 per cent to S$99 million as broadband subscription continued to increase. As at 30 June 2007, there were 438,000 broadband lines, an increase of 4.0 per cent or 17,000 lines from a quarter ago. Compared to a year ago, the increase was 66,000 lines or 18 per cent.
Despite intense market competition, Singtel retained its market leadership for broadband in Singapore with a strong 16 per cent growth in revenue year-on-year. Market share in the broadband Internet market as at 30 June 2007 was 53.7 per cent, up slightly from 53.4 per cent a quarter ago.
Singtel’s Wireless@SG service also attracted a sizable 284,000 customers, of which 141,000 do not currently subscribe to SingNet’s residential broadband service. To date, Singtel has expanded its wireless coverage to some 1,500 hotspots.
In spite of the highly saturated mobile market in Singapore and intense competitive pressures, Mobile Communications revenue for the quarter amounted to S$317 million, up a strong 14 per cent year-on-year.
Prepaid mobile share as at 30 June 2007 grew 2.8 percentage points to 31.7 per cent – a significant increase in a highly competitive market. The prepaid subscription base chalked up a record increase of 108,000, a result of Singtel’s efforts to strengthen its distribution presence and enhance its value proposition, particularly for the foreign worker segment. Together with the net addition of 16,000 postpaid subscribers, total mobile subscribers rose 124,000 to 1.95 million as at 30 June 2007, the highest in recent years.
Boosted by the increased availability of attractive 3G handsets at affordable prices, the number of 3G subscribers shot up by 78,000 or 17 per cent from a quarter ago to 544,000. This represented 42 per cent of Singtel’s postpaid mobile base as at 30 June 2007 as compared to 37 per cent a quarter ago.
Prepaid usage increased by more than 80 per cent as a result of traffic stimulation from international call promotions. The increase in traffic volume was offset by the reduction in local call tariffs and dilution from new customers, resulting in a decline of 3.7 per cent in prepaid average revenue per user (ARPU). Postpaid ARPU was up 6.2 per cent due to increased usage of roaming, data and content services.
Data services reached 28 per cent of ARPU, up from 23 per cent a year ago – as the successful migration of customers to 3G and promotion of non-voice services kicked in.
Postpaid churn continued to remain at historic low of 0.8 per cent in the quarter.
International Telephone revenue was up 6.8 per cent this quarter due to higher international call revenue and inpayments/transit. Driven by higher international telephone calls to ‘free IDD’ destinations like Bangladesh and India, international telephone outgoing traffic (excluding-Malaysia) increased by a significant 40 per cent from a year ago. The higher volume of ‘free IDD’ calls offered as part of the prepaid promotion resulted in the average collection rate declining 26 per cent year-on-year.
Revenue from National Telephone declined 6.3 per cent to S$108 million as the number of fixed lines edged down 2.0 per cent from a year ago. Voice, particularly from payphones, and data traffic both declined due to increasing broadband usage, mobile substitution and competition.
Generation mio, which was launched in January 2007, is targeted to reduce the rate of decline in fixed-line revenue and rejuvenate this segment. As at 30 June 2007, Singtel had 30,000 Generation mio subscribers, more than double the 14,000 recorded a quarter ago.
In IT & Engineering, revenue grew 12 per cent on the back of higher contribution from systems integration and product resale as NCS benefited from the buoyant regional economies.
During the quarter, NCS clinched a number of significant contracts in China, Hong Kong and Qatar. In Singapore, NCS continues to lead in the government sector, with major wins in a number of ministries and government agencies.
Operating Expenses increased 12 per cent due to higher traffic, cost of sales, as well as selling and administrative expenses in tandem with new marketing initiatives.
Traffic Expenses rose 18 per cent as a result of higher outpayments due to increased international telephone outgoing and mobile roaming traffic, as well as higher lease expenses.
Selling and Administrative Expenses increased by 12 per cent compared to the same quarter last year. The increase was partly due to higher subscriber acquisition and retention costs for broadband, in line with the higher number of gross additions and re-contract customers. In addition, higher marketing and promotion expenses were incurred to support the new growth segments as well as prepaid mobile. Against the preceding quarter, Selling and Administrative Expenses declined 12 per cent.
Free cash flow was S$432 million, up 9.0 per cent from the same quarter last year as operating cash flow rose faster than capital expenditure.
In the quarter ended 30 June 2007, Optus delivered an increase in operating revenue of 3.5 per cent to A$1.9 billion and maintained both its market position and operational EBITDA.
“Despite a highly competitive market, these financial results show Optus maintaining both market momentum and profitability,” Mr Paul O’Sullivan, Optus Chief Executive said.
“The results reflect the disciplined execution of Optus strategic priorities, including a creative marketing campaign to drive renewed acquisition of postpaid mobile customers; a decision to cease acquiring new resale customers as Optus refocuses on profitable on-net business; and a strong focus on growing market share in data and IP services in the business and wholesale markets.
“In this quarter, revenue growth was achieved despite a 20 per cent decrease in mobile termination rates and a decline in off-net fixed telephony revenues.
“We remain committed to the strategy of maintaining scale, managing costs and investing for growth. We continue to launch innovative subscription offerings in fixed and mobile to grow our customer base.
“Highlights for the quarter include the success of the Black and White campaign and the introduction of $19 Caps which signalled Optus Mobile changing gears in the consumer market with the ramp up of our subscriber acquisition strategy. This strategy is starting to show results, with strong postpaid net adds in the quarter.”
For the first quarter, operational EBITDA was stable year-on-year at A$481 million. Margin was 25.4 per cent, down 0.7 percentage points from the same quarter last year mainly from lower mobile margins that reflected the higher costs associated with the targeted acquisition and recontracting activity of postpaid customers in mobile.
Underlying net profit for the quarter increased 12 per cent to A$122 million.
Free cash flow amounted to A$102 million, up 89 per cent due primarily to positive working capital management and lower capital expenditure.
In this quarter,total Optus Mobile revenue grew 3.0 per cent to A$1.04 billion.
Mobile subscriber net adds were 65,000 in the quarter, with 27,000 from postpaid – the strongest quarterly increase in postpaid net adds in six quarters. Total Optus Mobile subscriber base reached 6.80 million as at 30 June 2007, an increase of 3.8 per cent from a year ago with estimated market share at 33 per cent.
Outgoing service revenue increased by 5.5 percent with growth in prepaid and postpaid market segments.
Incoming service revenue decreased by 6.2 per cent due to the 20 per cent decline in ACCC mandated termination rates from 15 to 12 cents. Strong growth in voice minutes and SMS mitigated the sharp decline in mobile termination rates.
Postpaid Mobile ARPU was generally stable this quarter notwithstanding the increased penetration of capped plans. Prepaid Mobile ARPU was up by 10 per cent.
Operational EBITDA decreased slightly by 1.5 per cent. EBITDA margin was 34 per cent, down 1 percentage point from a year ago. The decline was mainly due to higher handset subsidies as a result of targeted customer acquisition and recontracting activities
In the quarter, Optus Mobile delivered on its three key strategies to drive growth.
Firstly, Optus maintained its scale in the consumer segment.
Secondly, Optus continued to stimulate SMS and other data revenue, which increased to 27 per cent of ARPU with non-SMS data revenue at 4.3 per cent of ARPU, up from 2.5 per cent a year ago. As at 30 June 2007, 682,000 subscribers were provisioned with 3G services, an increase of 237,000 from the preceding quarter.
Thirdly, Optus grew its market share in the business mobile market, with business mobile subscribers increasing by 9 per cent compared to a year ago.
Optus has completed the first stage of the upgrade of its existing 3G mobile network sites with High-Speed Downlink Packet Access (HSDPA) technology, which increased the coverage of high-speed wireless broadband services to 55 per cent of the population. From June 2007, Optus began extending this coverage as part of its regional network build program, and the network will reach 96 per cent of the population within three years.
In the quarter, total Business and Wholesale fixed revenue grew 6.6 per cent, with Optus Business fixed revenue up 6.5 per cent and Optus Wholesale fixed revenue showing a 6.9 per cent increase. Growth was driven by Data and IP products.
Business Data and IP revenue increased by 10 per cent in the first quarter with a strong 39 per cent growth in Uecomm revenues.
Optus continued to win major corporate deals including News Limited and Boral Limited.
Operational EBITDA for the combined division grew strongly by 11 per cent to A$96 million with EBITDA margin at 21 per cent up from 20 per cent last year.
In the Consumer and Small and Medium Business (SMB) fixed segments, Optus continued its ULL network rollout which, when combined with the existing HFC network, will cover approximately 3.9 million Australian homes.
The ULL addition rate increased this quarter, with a further 38,000 subscribers provisioned with services on ULL. As at 30 June 2007, there were 131,000 ULL telephony subscribers and 280 ULL exchanges.
Consumer fixed on-net revenue grew strongly by 13 per cent reflecting the migration to on-net. Off-net revenue declined by 12 per cent due to the action taken to cease unprofitable resale business.
SMB fixed segment showed a 3.1 per cent increase in the quarter, with total SMB revenues (fixed and mobile) growing by 3.7 per cent to A$254 million. In June 2007, Optus launched VoIP products and services to SMB customers – Optus ipPhone Premier and Optus ipPhone Express.
Broadband revenue grew strongly by 26 per cent to A$88 million. As at 30 June 2007, Optus had 834,000 broadband customers (including business grade customers), an increase of 53,000 customers in the quarter.
In June 2007 the Australian Government announced that OPEL Networks Pty Limited (“OPEL”), the 50:50 joint venture between Optus and Elders, had been awarded A$958 million in funding to further extend high-speed affordable broadband services to rural and regional Australia.
This project will create a competitive wholesale market to provide affordable backhaul capacity to local Internet service providers and drive significant benefits for rural and regional customers. The OPEL network will cover 638,000 square kilometres and will deploy 1,361 broadband wireless sites, with 312 exchanges to be activated with ADSL2+ by OPEL.
Optus will enter into contracts with OPEL for the provision of network capacity and other vendor supply arrangements. The government targets the network to be built by 30 June 2009.
Singtel’s associate/joint venture companies, especially the regional mobile associates, delivered spectacular results for the quarter. Pre-tax earnings from associates soared 51 per cent to S$652 million, excluding the impact of an extra quarter of Globe’s results recorded in the corresponding quarter last year.
On a post-tax basis, earnings from associates increased 29 per cent to S$463 million and contributed to 53 per cent of the Group’s underlying net profit, up from 48 per cent a year ago.
Year-on-year, the Group’s combined mobile subscriber base ballooned 48 per cent to 136 million – the largest in Asia outside China. During the quarter, the mobile subscriber base increased 10 per cent, or 12.6 million, with the bulk coming from Telkomsel and Bharti.
Pre-tax contribution from Telkomsel was S$286 million, up 27 per cent year-on-year on the back of robust operational performance underpinned by strong growth in subscriber base.
Telkomsel, Indonesia’s leading operator of cellular communications services with more than 18,000 radio base stations providing nationwide coverage, added 3.9 million net subscribers during the quarter. This brings its total subscriber base to 42.8 million, a big jump of nearly 14 million or 46 per cent from a year ago.
Bharti continued its strong growth trajectory. Itsoperating revenueshot up by 53 per cent year-on-year, boosted by strong demand for telecom services in India. Consequently, pre-tax contribution from Bharti was up 133 per cent to S$211 million from a year ago.
During the quarter, Bharti added 5.6 million mobile subscribers, 7.7 per cent higher than the 5.2 million added in the preceding quarter. As at 30 June 2007, Bharti’s mobile subscriber base was 42.7 million, propelling Bharti into the exclusive list of Top 10 Global Telecom Operators with more than 40 million subscribers from a single country.
Excluding an additional quarter of profits recorded in the same quarter last year, pre-tax profit contribution from Globe grew a robust 83 per cent year-on-year to S$84 million, driven mainly by increased service revenue from its enlarged subscriber base.
Globe added 1.2 million net mobile subscribers during the quarter, bringing its total subscriber base to 18.1 million as at 30 June 2007, up 30 per cent or 4.2 million from a year ago.
AIS, the largest mobile operator in Thailand,added 1.6 million mobile subscribers during the quarter, similar to the preceding quarter. Year-on-year, its subscriber base chalked up 31 per cent growth to 22.7 million. As at 30 June 2007, AIS continued to lead the market with approximately 50 per cent market share.
Amidst intensifying market competition, AIS incurred higher selling and administrative expenses to retain its leadership – which reduced its margins and hence lowered its profits. Consequently, AIS’ pre-tax profit contribution in the quarter declined 15 per cent year-on-year to S$62 million.
During the quarter, Pacific Bangladesh Telecom Limited (PBTL), the fourth largest mobile communications service provider in Bangladesh, grew its subscriber base by 92,000 compared to 95,000 in the preceding quarter. The share of PBTL’s pre-tax losses declined 22 per cent year-on-year to S$7.5 million due to lower mobile subscriber acquisition.
Cash flow and Balance Sheet
Operating cash flow for the quarter amounted to S$1.01 billion, up 17 per cent or S$144 million from a year ago due mainly to stronger operational performance.
Free cash flow for the quarter was S$556 million, 21 per cent higher than the same quarter last year primarily due to higher operating cash flow partially offset by increased capital expenditure.
Singtel continued to maintain an efficient capital structure while retaining significant flexibility for further investments. Net debt decreased by S$178 million to S$5.72 billion from a quarter ago. Net debt was 0.8 times of EBITDA and EBITDA interest cover was 24.1 times.
The guidance issued earlier with the results for the financial year ended 31 March 2007 is affirmed with the following updates:
Following the strong growth momentum in the first quarter, the operating revenue for the Singapore business for the current financial year is expected to grow at single-digit level from improved mobile communications, data and IT revenues. To support the increased business activities, additional capital expenditure will be required and the capital expenditure to revenue ratio is expected to be in low double-digits.
Please refer to the Group’s Management Discussion and Analysis
document for a full commentary on the Group’s results for the quarter.
 Underlying net profit is defined as net profit before exceptionals and exceptional currency translation gains.
Prepaid mobile subscribers are charged based on local usage only. Revenue from prepaid mobile local usage is classified under Mobile Communications.
 Free cash flow refers to cash flow from operating activities less capital expenditure.