News Releases

The Singtel Group’s results for the third quarter and nine months ended 31 December 2005

  • Operating revenue up 4.2% to S$3.36 billion
  • Net profit grew 16% to S$885 million
Singapore, 8 February 2006 - Singapore Telecommunications Limited (Singtel) today announced its unaudited results for the third quarter and nine months ended 31 December 2005.
 
Highlights

 

 
Quarter
YOY
Nine months
YOY
Dec 2005
(S$m)
Dec 2004
(S$m)
Change
Dec 2005
(S$m)
Dec 2004
(S$m)
Change
Operating revenue
3,363
3,229
4.2%
9,879
9,370
5.4%
Operational EBITDA
1,121
1,185
-5.4%
3,381
3,464
-2.4%
Share of associates’ ordinary earnings
 
432
 
320
 
35.0%
 
1,179
 
936
 
26.0%
EBITDA
1,637
1,589
3.0%
4,813
4,653
3.5%
Net profit attributable
to shareholders
 
885
 
760
 
16.4%
 
2,490
 
2,226
 
11.9%
Underlying net profit [1]
778
747
4.1%
2,295
2,179
5.3%
EPS (cents)
5.30
4.57
16.0%
14.94
12.81
16.6%
Group 
 
For the quarter ended 31 December 2005, Group revenue increased by 4.2 per cent to S$3.36 billion.  Operational EBITDA declined 5.4 per cent to S$1.12 billion, reflecting increased contributions from lower margin businesses and the continuing pricing pressures and strong competition in Australia. 
 
The Group’s share of pre-tax profits from associates increased 35 per cent to S$432 million, driven mainly by contributions from Bharti and Telkomsel.  Associates contributed 40 per cent or S$314 million of the Group’s underlying net profit.
 
Net profit after tax grew 16 per cent to S$885 million while underlying net profit after tax increased 4.1 per cent to S$778 million.  EPS grew 16 per cent to 5.30 cents. 
 
Free cash flow[2] for the quarter was S$514 million, with S$347 million from Singtel and the associates, and S$166 million from Optus.
Mr Lee Hsien Yang, Singtel Group CEO, said: “Singtel is uniquely positioned in the region.  Our earnings base is diversified with almost 70 per cent of EBITDA coming from our international business.  We are tracking in line with full year guidance.”
 
He added: “In Singapore, we continue to generate healthy cash flow.  Optus is investing for growth in an extremely competitive Australian market.  Regional mobile associates continue to be the mainstay of earnings growth.”
 
Singtel 
In Singapore, operating revenue increased by 3.1 per cent to S$1.02 billion.  This is driven mainly by Equipment Sales which increased strongly by 117 per cent to S$60 million in line with the new handset distribution implemented since the first quarter of this year.
 
Operational EBITDA margin was 45.4 per cent.  Compared to the same quarter last year, operational EBITDA margin fell 5.0 percentage points, reflecting higher marketing costs as well as increased revenue contribution from lower margin Equipment Sales.
 
Data & Internet revenue was stable at S$305 million.  The increases in managed services and broadband were offset by a decline in international leased circuits and capacity sales revenues. This decline in international leased circuits revenue was attributable to significantly lower average bandwidth prices as competitive pressures intensified.
 
Broadband revenue grew 10 per cent to S$58 million.  The number of broadband lines increased 17 per cent or 49,000 to 336,000 as at 31 December 2005.  Compared to a quarter ago, the increase was 13,000, slightly higher than the average quarter because of year end promotions. Growth in Broadband was attributed mainly to the affordability of retail broadband plans and attractive promotions. 
 
Mobile communications revenue growth accelerated 5.7 per cent to S$216 million.  In spite of challenging market conditions, Singtel added 20,000 mobile subscribers with about equal increases in the number of prepaid and postpaid mobile subscribers.  As at 31 December 2005, the number of mobile subscribers was 1.62 million of which approximately 55,000 were 3G subscribers.
 
In prepaid, Singtel stepped up its competitive offering by introducing new prepaid plans and retained its market share at 29 per cent.  In postpaid, Singtel retained its 43 per cent market share.  Singtel’s customer churn at 0.9 per cent and data usage of 23 per cent of ARPU continue to be among the best in class.     
 
International telephone revenue fell 9.1 per cent to S$147 million as the average collection rates declined, partially offset by a 3.9 per cent increase in traffic.
 
Revenue from IT & Engineering grew 5.9 per cent to S$141 million on the back of strong demand across the major operating businesses and key markets in Singapore and Australia.
 
National telephone revenue fell 5.8 per cent to S$120 million during the quarter.  DEL rental revenue continued to fall. It fell by 1.9 per cent, reflecting a decline in the number of DEL lines of 1.7 per cent and lower Internet dial-up traffic with increasing broadband penetration.  Voice traffic was largely flat.
 
Operating expenses increased 16 per cent or S$77 million in the current quarter.  This was mainly due to higher Cost of Sales in line with increased Equipment Sales.  Excluding Cost of Sales, operating expenses increased at a lower rate of 9.5 per cent or S$38 million, attributable to higher selling and promotion expenses.
 
Staff costs increased by 3.9 per cent to S$155 million but overall Singapore staff strength declined 3.3 per cent to 9,782, with a 5.3 per cent decline in telecoms employees.  
 
Selling and administrative expenses increased 21 per cent to S$151 million.  This was due to higher marketing costs to acquire and re-contract mobile and broadband customers, rental paid on properties sold and leased back in the March 2005 quarter, and a write back of provision for doubtful debts no longer required in the December 2004 quarter.
 
Traffic expenses rose 4.6 per cent to S$112 million due to higher charges for overseas leases and increase in outpayments.
The Singapore business continues to generate healthy cash flows.  Free cash flow, including dividends from associates worth S$108 million, fell 11 per cent to S$347 million.  This was mainly due to higher tax payments in the quarter, partially offset by the lower cash capital expenditure, which fell 16 per cent to S$87 million. 
 
Singtel Optus
In the third quarter, Optus’ revenue, operational EBITDA and net profit all recorded improvements over the second quarter.  Free cash flow was lower due to higher cash capital expenditure as Optus invests for future growth opportunities.
 
Year on year, revenue increased 4.6 per cent to A$1.87 billion while operational EBITDA was down 4.1 per cent to A$524 million.  EBITDA margin declined to 28.1 per cent.  Net profit after tax fell 4.8 per cent to A$160 million but was 6.8 per cent higher than the preceding quarter.
 
Cash capital expenditure grew as Optus continued to roll out new mobile and fixed line networks and carried on construction of its D-series satellites.  Cash capital expenditure for the quarter was A$307 million and free cash flow declined 60 per cent to A$135 million.
 
Mr Paul O’Sullivan, Optus CEO, said Optus was responding to a highly competitive environment by investing for future growth markets in its 3G network, Unbundled Local Loop (ULL) network and new satellites.
 
“Our mobile customer numbers showed strong growth, despite the market getting closer to saturation and experiencing strong price competition with capped plans; customers continued signing up to broadband; and Optus Business and Wholesale combined is growing as it continues to win customers to increase overall market share,” Mr O’Sullivan said.
 
“However, strong price pressures and accounting for the ACCC’s recommended reduction in mobile termination rates reduced margins and profitability.
 
“While new growth for the year is expected to moderate we aim to exceed overall market growth.”
 
For Optus Mobile, revenue grew by 3.3 per cent to A$1.05 billion and operational EBITDA fell 1.9 per cent to A$384 million reflecting the continued impact of mobile caps and lower termination rates – offset by higher usage. 
 
Incoming revenue grew 17 per cent as a result of higher traffic volumes, partly offset by lower mobile termination rates.  Overall service revenue was up 2.6 per cent to A$899 million.
 
Optus Mobile continues to focus on three growth strategies: growing market share in the business mobile market; stimulating data revenues, which increased to 18 per cent of ARPU; and defending its scale position in the consumer market.
 
Optus Mobile postpaid churn rates declined to 1.2 per cent in the third quarter – the lowest for several years.  Subscriber acquisition costs per subscriber decreased to A$120 from A$127 in the same quarter last year, reflecting the lower subsidies paid on prepaid and capped plans as compared to traditional postpaid plans.  Blended ARPU for the quarter increased compared to the preceding quarter. 
 
“Capped plans accounted for 29 per cent of gross adds and recontracts in the December quarter.  They now make up 14 per cent of our total postpaid mobile base,” Mr O’Sullivan said.
 
Optus Business & Wholesale (excluding Alphawest) saw underlying operating revenue increase by 3.2 per cent despite fierce price-based competition.  Business revenue increased by 5.1 per cent while Wholesale revenue declined by 1.1 per cent.  
 
Optus Business has increased its voice revenue by 7 per cent – representing an improvement in its market share.
 
Data and IP revenue increased by 1.8 per cent with IP growth offset by declines in traditional data.  Uecomm revenue grew by 6.0 per cent and satellite revenue increased by 9.0 per cent compared to a year ago.
 
Revenue for managed and professional services more than doubled as a result of the acquisition of Alphawest.  Excluding Alphawest, it was stable compared to the same quarter last year.
 
“We are finalising the integration of Alphawest into Optus which will see Alphawest be our specialised ICT services arm.  Already we have had a number of wins and are reaping the rewards of having Alphawest as part of our group,” Mr O’Sullivan said.
 
Optus Business continued to win and re-sign major contracts throughout the quarter, including Flight Centre Australia, ANZ Bank and the Queensland Health Department.  Uecomm won Regional Internet Australia and together with Optus Business, won Bob Jane T-Mart.
 
Optus Consumer & Multimedia (CMM) revenue increased 0.7 per cent for the third quarter with broadband revenue growth of 46 per cent.
 
Optus added 38,000 broadband customers for the quarter – taking its total to 496,000 as at
31 December 2005.
 
Local call resale customers grew by 4.5 per cent, but after usage declines, fixed voice revenue remained flat.
 
Optus has commenced the rollout of its broadband ULL network, which, together with the existing HFC network, will cover 60 per cent of Australian homes.  This has the potential to improve offnet margins after an initial phase of start up costs.
 
“We are confident we will capture larger market share with the increased footprint,”
Mr O’Sullivan said.
 
“We are increasing competition in the broadband market, which will give Australian homes and businesses more choice, better services and faster speeds.  Optus is well positioned to lead the market with simple and differentiated offers.”
 
For the third quarter, CMM’s EBITDA declined by 7.9 per cent to A$46 million reflecting Optus’ continued acquisition of offnet broadband customers which contribute lower margins.
 
Associated companies
Singtel’s associated companies continued to contribute healthy earnings and dividends.
 
In the current quarter, the pre-tax ordinary profit from associates was up 35 per cent to S$432 million.  On a post-tax basis, profits from associates grew 34 per cent to S$314 million in the current quarter.  Bharti and Telkomsel continued to be the main growth drivers.
 
The Group received S$523 million of dividends in the nine months of this financial year.  In the quarter, Singtel received S$89 million from Telkomsel as its share of the interim dividend for the 2005 financial year.  Both Globe and SingPost have declared dividends which will be paid in the fourth quarter of the current financial year.   
 
The Group’s share of Telkomsel pre-tax profit increased by 51 per cent to S$230 million despite a 8 per cent depreciation in the Rupiah.  Telkomsel added 788,000 new subscribers in the quarter.  With its superior coverage, strong brand and wide distribution, Telkomsel continues to be the market leader with 53 per cent market share.  Its total subscriber base of 24.3 million, comprising 22.8 million prepaid and 1.5 million postpaid subscribers, increased 49 per cent from 16.3 million a year ago.
 
Singtel’s share of pre-tax ordinary profit from Bharti amounted to S$72 million, up 53 per cent driven by improved operational performance.  Through its innovative “lifetime validity” tariff plans, where users can receive calls free during the validity period and low cost handsets, Bharti registered a record quarterly addition of 2.3 million new mobile subscribers, bringing its total base to 16.3 million. 
 
AIS’ profits fell in its third quarter ended September 2005 as revenue and subscriber growth remained weak because of an industry price war on call rates.  AIS’ pre-tax contribution fell 18 per cent to S$58 million.  In the December quarter, AIS signed up 316,000 subscribers, bringing its subscriber base to 16.4 million.  AIS continued to lead the market with about 56 per cent market share.
 
Contribution from Globe improved by 81 per cent to S$61 million.  Excluding translation gains on its USD denominated debt and one-off bond redemption costs incurred in the prior corresponding quarter, Globe’s operating results would have been flat.  In the quarter, Globe’s net disconnections was 5,000, significantly lower than the 1.2 million recorded in the preceding quarter.  The declines were attributable mainly to the termination of subscribers who did not reload on a regular basis from the SIM-swap programme.
 
Pacific Bangladesh Telecom Limited (PBTL), Singtel’s most recent acquisition, is aggressively rolling out its network to cater for strong demand in the Bangladesh mobile market.  In the quarter, it added 147,000 subscribers compared to net disconnections of 2,000 subscribers in the preceding quarter.  In line with PBTL’s rapid growth, subscriber acquisition costs increased and affected its bottomline.
 
Year on year, the Group’s regional mobile subscriber base, including Singtel and Optus, grew 26 per cent to 78 million subscribers, the largest in Asia outside China.  As at 31 December 2005, excluding Singtel and Optus, the five regional associates’ combined mobile subscriber base grew 30 per cent year on year to almost 70 million.  During the current quarter, about 3.7 million subscribers were added, mainly from Bharti and Telkomsel.
 
Cash flow and balance sheet
The Group continues to retain significant financial flexibility for further investments.  The Group’s free cash flow decreased 37 per cent to S$514 million due to weaker operating cash flow and higher capital expenditure.
 
With higher cash balance and lower gross debt, net debt decreased by S$751 million to S$7.36 billion from a quarter ago.  The cash balance was partly boosted from the receipt of S$105 million from the partial disposal of equity shares in SingPost.  The gross debt decreased mainly due to translation and fair value valuation adjustment of bonds and related derivative instruments under FRS 39.  Net debt was 1.1 times of EBITDA and the EBITDA interest cover was 15 times.  These ratios are comfortably within the leverage commitments made by Singtel to its bond investors. 
 
Outlook
Singtel reaffirms its guidance earlier issued with the results for the half year ended 30 September 2005.
Please refer to the Group’s Management Discussion and Analysis document for a full commentary on the Group’s results.

[1] Underlying net profit is defined as net profit before exceptionals and exchange differences on loan to Optus, net of hedging.
[2] Free cash flow refers to cash flow from operating activities less cash capex.