News Releases

The Singtel Group’s results for the second quarter and half year ended 30 September 2006

  • Strong earnings growth for the Group
  • Net profit after tax up 19 per cent
  • Interim dividend payout of S$731 million
Singapore, 8 November 2006 -- Singapore Telecommunications Limited (Singtel) today announced its unaudited results for the second quarter and half year ended 30 September 2006. 
 
Highlights
 
 
Quarter
YOY
Half Year
YOY
Sep 2006 (S$m)
Sep 2005
(S$m)
Change
Sep 2006 (S$m)
Sep 2005
(S$m)
Change
Operating revenue
3,277
3,301
-0.7%
6,448
6,516
-1.0%
Operational EBITDA
1,090
1,122
-2.8%
2,130
2,252
-5.4%
Share of associates’ ordinary earnings
510
371
37.4%
1,005
747
34.6%
EBITDA
1,703
1,570
8.5%
3,323
3,168
4.9%
Net profit attributable
to shareholders
956
806
18.6%
1,796
1,600
12.3%
Underlying net profit [1]
899
752
19.6%
1,736
1,511
14.9%
Earnings per share (cents)
5.77
4.84
19.2%
10.80
9.61
12.4%
 
Group
 
During the quarter, the Group registered strong earnings growth.  Net profit after tax increased 19 per cent to S$956 million, or earnings per share of 5.77 cents.  
 
The increase in profit was driven mainly by the continued robust growth from associates[2]which contributed 44 per cent or S$395 million of the Group’s underlying net profit.
 
The Group’s operating revenue was stable at S$3.28 billion.  Revenue from the Group’s Australian operations in Australian Dollar terms grew 5.8 per cent but was stable in Singapore Dollar terms due to the weaker Australian currency.  Singapore’s operating revenue was stable.
 
Operational EBITDA fell 2.8 per cent to S$1.09 billion.  The operational EBITDA margin declined 0.7 percentage points to 33.3 per cent as the margin in Australia was affected by the tough operating conditions which more than offset the improved margin in Singapore.
 
The Group’s EBITDA was up 8.5 per cent to S$1.70 billion mainly due to the strong operational performance of Bharti, Telkomsel and Globe.  
 
In the quarter, free cash flow[3] was S$938 million, with S$285 million from Singapore’s operations, S$442 million from the associates and S$211 million from the Australian operations. 

 
Dividend
 
Singtel is pleased to announce that its Board of Directors has approved an interim ordinary dividend of 4.6 cents per share less tax at 20 per cent amounting to S$585 million in respect of the financial year ending 31 March 2007. 
 
Going forward, Singtel will adopt a semi-annual payment schedule.
 
Mr Lee Hsien Yang, Singtel’s Group CEO, said: “The Group has delivered strong earnings growth.  In Singapore, we are winning share in growth segments while protecting our market leadership.  Optus is resilient in a difficult Australian market.  Its performance is in line with guidance.” 
 
He added: “Our associates, especially Bharti and Telkomsel, continue to perform strongly.  We see strong potential for further growth in our associates.” 
 

Singtel
 
Singtel’s operating revenue for the quarter was stable at S$1.05 billion.  On a sequential basis, operating revenue grew 5.3 per cent, largely from the growth in the Singapore telco business. The Singapore business also benefited from improved margins.  Compared to a year ago, the telecom business margin increased by 2.3 percentage points to 54.8 per cent.  Operational EBITDA margin improved by 3 percentage points to 48.7 per cent, reflecting strong cost control.
 
During the quarter, the telco business notched up further market share increases in mobile and broadband, both key growth drivers of the Singapore business.  Singtel also successfully protected its leadership position in corporate data, postpaid mobile and local loop.
 
Data & Internet revenue for the quarter was S$313 million, an increase of 2.1 per cent from a year ago and 5.7 per cent from a quarter ago.  On a comparable basis, excluding C2C’s capacity sales in the first quarter of last year, revenue grew at a higher 9.6 per cent.  In the quarter, data revenue grew 6.7 per cent and Internet revenue grew 17 per cent.  The fastest data revenue growth segment, Managed Services, grew 27 per cent, attributed mainly to higher sales of global corporate IP services.  Revenues from local leased circuits and international leased circuits were largely stable.
 
In broadband, Singtel’s no-frills price plans and other promotions were well received by the market, capturing 19,000 new customers or 71 per cent of the net additions in the quarter. Despite intense market competition, Singtel firmly established its lead in the broadband Internet market with 391,000 lines or 54.7 per cent market share as at 30 September 2006.
 
The IDA has accepted Singtel’s proposal to be one of the three service providers to turnSingapore into a giant wireless hotspot.  From May 2007, Singtel’s new wireless network will provide over 2,400 access points to those located in the North region, including Bishan, Novena,Orchard Road and Woodlands.
 
Revenue from mobile communications grew 8.1 per cent year on year and was up 4.3 per cent from a quarter ago.  As at 30 September 2006, the number of mobile subscribers increased by 81,000 – a record quarterly addition – to 1.70 million.  Prepaid accounted for 66,000 of the additions.  This increase followed the completion of the compulsory deregistration exercise in June 2006 and was boosted by the good response to Singtel’s Hot$100 promotion whereby subscribers pay S$28 to get S$100 worth of call value.  Prepaid market share increased to 29.5 per cent as at 30 September 2006, up nearly 1 percentage point from 30 June 2006.
 
Singtel’s postpaid market share remained stable at 43.7 per cent.  Its customer churn and data usage continued to be among the best-in-class with postpaid churn of 0.9 per cent and data usage at 26 per cent of average revenue per user (ARPU).     
 
The demand for 3G services continued to be strong, reaching 259,000 subscribers at end-September 2006.  To date, Singtel has invested approximately S$157 million on its 3G network rollout and S$98 million on the licence fee.
 
Revenue from IT & engineering for the quarter grew 8.5 per cent over the preceding quarter, although it fell 12 per cent year on year to S$148 million, attributed mainly to a decline in network integration revenue in the Singapore market. 
 
International telephone revenue fell 3.3 per cent to S$147 million in this quarter largely due to lower inpayments and net transit revenue.  International call revenue was stable year on year and against the preceding quarter.  The impact on revenue from the 23 per cent increase of international telephone outgoing traffic was offset by the continued fall in call collection rates caused mainly by change in sales mix.
 
For the current quarter, revenue from national telephone declined 7.1 per cent to S$115 million, reflecting a decline of 2.1 per cent or 37,000 in the number of fixed lines and lower fixed-line and payphone traffic.  The decline was largely due to increase in broadband usage, mobile substitution and competition.  Despite the decline, Singtel continues to retain a 97.0 per cent share of fixed lines in Singapore.
 
Operating expenses fell 5.1 per cent or S$30 million year on year. 
 
Staff costs decreased 4.9 per cent, reflecting the reduced headcount.  Compared to a year ago, headcount declined by 575 or 5.8 per cent.
 
Selling and administrative expenses increased 7.0 per cent due to higher expenses incurred in winning customers and growing share in the market.
 
Cost of sales fell 19 per cent, faster than the decline in IT and Sale of Equipment revenues, due to change in sales mix.
 
Singtel continued to generate strong cash flows.  Free cash flow, excluding dividends from associates, was up 22 per cent to S$285 million.   
 
Singtel Optus
 
Optus’ second quarter results showed the company is stabilising its competitive position, attacking costs and investing for growth.
 
Operating revenue for the Company grew 5.8 per cent, including Alphawest and Virgin Mobile, and 2.3 per cent excluding acquisitions.
 
Operational EBITDA increased by 1.4 per cent from the first quarter of this financial year but declined year on year by 3.2 per cent mainly due to lower consumer fixed line earnings. Operational EBITDA margin was at 26.0 per cent from 28.4 per cent a year ago as a result of higher uptake of mobile caps, decline in fixed line margins and the impact of acquisitions.
 
In the quarter, Optus successfully defended its subscriber market share in Mobile which increased to 33.3 per cent.  Optus Mobile’s EBITDA margin was up 1 percentage point compared to the June quarter, reflecting slowing revenue erosion from capped plans.
 
Net profit after tax for the second quarter declined 12 per cent to A$130 million.  Free cash flow was down 27 per cent to A$176 million, primarily due to higher cash capital expenditure related to Optus’ 3G mobile and ULL network rollouts, D-series satellites and its new Sydneyheadquarters fitout.
 
Mr Paul O’Sullivan, Optus Chief Executive, said the company’s results reflected Optus’ position of taking decisive action in a highly aggressive and competitive market.
 
“We remain committed to our strategy of maintaining market share, managing costs and investing for growth.  We are showing our resilience in an intensely competitive market.
 
“For the first six months of our financial year, we have seen a 5.6 per cent increase in operating revenue to A$3.70 billion and recorded an underlying net profit of A$239 million,” Mr O’Sullivan said.
 
“Growth in operating revenue was achieved despite increased mobile cap penetration, decline in fixed telephony and the negative impact of lower mobile termination rates.
 
“To mitigate margin pressure, we continue to implement cost management and productivity initiatives across the company including lower commission rates, reduced headcount and call centre offshoring.  The positive impact of these initiatives on EBITDA margins is now crystallising,” Mr O’Sullivan said.
 
Optus Mobile continued to contribute the largest proportion of Optus’ earnings, growing revenue by 4.8 per cent to A$1.04 billion, driven mainly by higher outgoing service revenue.
 
Outgoing service revenue grew by 7.4 per cent in the quarter despite greater mobile cap penetration.  This increase reflected the continuing growth in prepaid, solid SMS traffic and the inclusion of Virgin Mobile.  ARPU increased compared to the preceding quarter.
 
Incoming service revenue decreased by 2.1 per cent to A$216 million as a result of lower termination rates mandated by the ACCC.  Average inbound mobile termination rates fell 22 per cent from a year ago reflecting the reduction in the ACCC’s mandated rate to 15 cents and higher commercially negotiated rates last year which have expired.  Equipment revenue increased by 3.2 per cent to A$130 million.
 
“We continue to grow our mobile subscriber base with an increase of 46,000 subscribers this quarter and, despite lower termination rates, Mobile EBITDA increased by 1.4 per cent.  This was a pleasing result, reflecting higher usage, with rising data volumes playing a significant part.  We have 184,000 subscribers provisioned with 3G services,” Mr O’Sullivan said.
 
“We recently expanded the Turbocharge products to offer a broader range of prepaid capped plans and greater value to our prepaid customers.  Strong take-up of on-net offers including ‘My Time’ continued, rewarding customers with lower call costs.”
 
Capped plans are offered by Optus to its retail customers in the small business and consumer segments.  In this quarter, around 32 per cent of new and recontracted customers chose capped plans, similar to recent quarters.  Approximately 24 per cent of the total Optus postpaid mobile base are now under capped plans, up from 10 per cent a year ago.
 
Business mobile subscribers have increased by 11 per cent; SMS and other data revenue increased to 23 per cent of ARPU from 21 percent in the preceding quarter; and Optus stabilised its market position with strong prepaid revenue growth as well as an increase in postpaid customers.
 
Optus Business & Wholesale fixed revenue grew 14 per cent, or 1.6 per cent excluding Alphawest, with Optus Business fixed revenue increasing by 2.0 per cent and Optus Wholesale returning to positive growth this quarter.
 
Combined operational EBITDA decreased slightly to A$78 million.  Excluding Alphawest, EBITDA margins were stable at 21 per cent.
 
Optus Business experienced higher voice traffic which drove fixed voice revenue growth of 6.8 per cent - reflecting increased market share in a declining voice revenue environment. 
 
Business Data and IP revenue increased 2.7 per cent to A$96 million, with IP growth offsetting decline in traditional data.  Uecomm delivered a strong 19 per cent revenue increase in the quarter.
 
Growth in Wholesale data and IP revenue of 28 per cent was largely driven by increasing internet bandwidth sales and higher transmission capacity.
 
Revenue from Information and Communication Technology (ICT) and Managed Services more than doubled to A$78 million for the quarter due to the inclusion of Alphawest.  Satellite revenue grew 4.1 per cent in the quarter with higher Very Small Aperture Terminal (VSAT) sales.
 
“We launched the first satellite in our D-series satellite program in October to provide fixed communication and direct television broadcast services to Australia and New Zealand,” Mr O’Sullivan said.
 
Optus Business, Alphawest and Uecomm continued to win major contracts throughout the quarter including: Insurance Australia Group, National Foods, and Medibank Private.
 
Optus Consumer and Small & Medium Business (SMB) revenue was stable compared to the same quarter of the previous year, as growth in broadband revenue offset declines in traditional products. 
 
EBITDA for the quarter was down by A$20 million on the same quarter last year largely due to declining revenues in both HFC and off network voice.  The lower operational EBITDA margin reflected revenue mix changes as the proportion of revenue from higher margin voice products declined. 
 
Optus SMB continued to focus on growing market share, resulting in a 3.6 per cent increase in fixed revenue, while total SMB revenues grew 4.5 per cent to A$255 million, compared to the same quarter last year.
 
Broadband revenue grew by 36 per cent and Optus added another 58,000 subscribers to its broadband base in the quarter.  Optus had 676,000 broadband subscribers as at 30 September 2006 which represented an increase of 43 per cent from a year ago.
 
As at 30 September 2006, Optus had 175 exchanges and approximately 44,000 subscribers provisioned with services on its ULL network.  Once this network is complete and combined with Optus’ HFC network, it will cover approximately 3.9 million Australian homes.
 
“We will continue to dispute the pricing of ULL services with Telstra.  We are pleased that the ACCC has announced its interim determination to reduce the price that Optus pays in ‘band 2’ metropolitan areas, from A$22.00 per line per month to A$17.70 per line per month,” Mr O’Sullivan said.
 
“This will improve the economics of the ULL-based services delivered by our Consumer Fixed division.  We anticipate further improvement when the ACCC makes its final determination.”
 
Associated companies
Singtel’s associated companies continued to contribute very strong earnings.  In the current quarter, the pre-tax ordinary results from associates were up 37 per cent to S$510 million and on a post-tax basis, earnings from associates grew 48 per cent to S$395 million.  In particular, Telkomsel, Bharti and Globe registered strong growths.
 
The Group’s share of Telkomsel pre-tax profit increased by 45 per cent to S$261 million in the quarter ended 30 September 2006.  This was due to strong operational performance on the back of strong subscriber growth.  Telkomsel added a record 3.2 million net mobile subscribers in the quarter.  With its superior coverage, strong brand and wide distribution, Telkomsel maintained its market leadership position with a 55 per cent market share.  Its total subscriber base of 32.5 million, comprising 30.9 million prepaid and 1.6 million postpaid, increased by 9.0 million from a year ago.
 
In the quarter, despite the weaker Rupee, Singtel’s share of pre-tax operating profit fromBharti increased 47 per cent to S$105 million.  However, after including the fair value gains on financial liabilities and derivatives, Bharti’s pre-tax contribution grew at a higher rate of 62 per cent.  Bharti added a new record 4.0 million net mobile subscribers in the quarter and as at 30 September 2006, its total subscriber base was 27.1 million.  In this quarter, Bharti signed an estimated US$1 billion network expansion contract with Ericsson to rapidly expand its mobile network footprint further.    
 
Globe’s pre-tax operating results for the quarter ended September 2006 grew strongly by 65 per cent year on year to S$56 million and was stable compared to the S$57 million recorded in the June 2006 quarter.  It benefited from a strong Peso this quarter which resulted in significant forex and mark-to-market gains of S$18 million, boosting the Group’s share of pre-tax results to S$74 million, substantially higher than the S$46 million recorded in the June 2006 quarter. Globe registered a net addition of 574,000 mobile subscribers this quarter, bringing its total base to 14.5 million. 
 
AIS’ performance in the quarter ended June 2006 declined 21 per cent against the preceding quarter, as its mobile service revenue fell 13 per cent due to seasonal factors as well as tariff declines in a competitive market.  Year on year, however, pre-tax contribution declined by 2.7 per cent to S$57 million.  AIS continued to be the market leader with a total of 17.7 million mobile subscribers or about 50 per cent market share.
 
Pacific Bangladesh Telecom Limited (PBTL), the fourth largest mobile communications service provider in Bangladesh, is aggressively rolling out its network to cater for burgeoning demand for mobile services.  In the quarter, it added 67,000 net mobile subscribers, bringing the total to 753,000 as at 30 September 2006.
 
As at 30 September 2006, the Group’s regional mobile subscriber base, including Singtel and Optus, rose 8.4 million in the quarter to 101 million, the largest in Asia outside China.  The increase was mainly driven by subscriber growth from Bharti and Telkomsel.  This is the highest quarterly increase ever.  Year on year, it was up 36 per cent or 27 million.  Excluding Singtel and Optus, the five regional associates’ combined mobile subscriber base grew 39 per cent from a year ago to more than 92 million. 
 
Cash flow and balance sheet
 
In the quarter, the Group’s free cash flow increased 24 per cent to S$938 million, boosted by higher dividend from associates, particularly Telkomsel.  Cash capital expenditure to operating revenue ratio was 13 per cent, stable compared to the preceding quarter and up 1 percentage point compared to a year ago.
 
Singtel has improved its capital structure and continues to retain significant flexibility for further investments.  Net debt was S$7.12 billion as at 30 September 2006 after paying out S$3.61 billion in dividends and capital reduction.  Net debt was 1.08 times of EBITDA and the EBITDA interest cover was 24.4 times, well within the leverage commitments.
 
Outlook
 
The guidance issued earlier with the results for the financial year ended 31 March 2006 is affirmed.
 
Please refer to the Group’s Management Discussion and Analysis document for a full commentary on the Group’s results for the quarter and half year. 
 

[1]   Underlying net profit is defined as net profit before exceptionals and  
       exchange differences on loan to Optus, net of hedging, if any.
[2    Associates refer to both associated or joint venture companies.
[3]   Free cash flow refers to cash flow from operating activities less cash capital
       expenditure.