Resilient performance despite adverse economic conditions

Singapore, 8 November 2001 - Singapore Telecommunications Limited (SingTel) today announced its results for the first half of FY 2001/02.

For the six months under review, operating revenue grew 2.6 per cent to S$2.50 billion. EBITDA (including IDA compensation and contributions from associates and joint ventures) increased 1.5 per cent to S$1.68 billion.

Profit after tax (but before goodwill and exceptional items) rose 5.9 per cent to S$1.18 billion. Including goodwill (mostly from the Optus acquisition) and exceptional items, profit after tax declined 8.7 per cent to S$1.16 billion.

Lee Hsien Yang, SingTel's President & CEO, said: "These results reflect a very strong operating performance in the face of adverse economic conditions and increasing liberalisation and competition in the telecommunications industry. For the six months, operating profit (an indicator of our Singapore business) improved 2.7 per cent year-on-year, even as Singapore's GDP during that period declined by more than 3 per cent.

"The results of our associated companies, Advanced Info Service and Globe Telecom, have also been outstanding. Both companies' revenue and mobile subscriber number increased significantly, resulting in improved contributions to SingTel's share of profits."

Operating results

Growth in operating revenue was driven by a 23.6 per cent year-on-year increase in revenue from data services to S$622 million. Revenue from the second quarter was up 5.7 per cent compared to the first quarter. Data services have overtaken international telephone services as the Group's largest revenue contributor, accounting for 24.9 per cent.

The SingTel-led C2C submarine cable network is on track to be ready for services by the end of the year. The network will strengthen SingTel's ability to meet future demand for data services. The US$2.1 billion network is now fully funded with roughly equal portions of pre-sales, shareholder funds and bank debt.

International telephone traffic during the six months continued to increase, by 9.4 per cent. Revenue declined by 6.8 per cent to S$582 million as a result of lower average collection rates, which fell 17.6 per cent over the same period. Prices have however held steady at about 60 cents per minute over the past two quarters. SingTel continues to maintain a market share of about 87 per cent of the total international telephone services market.

Mobile communications (including paging and maritime services) revenue decreased slightly, by 2.3 per cent to S$440 million during the half year. Revenue purely from mobile phone services increased by 1.9 per cent. SingTel Mobile will continue to focus its strategy on customer retention, through loyalty programmes, and increasing average revenue per user, through traffic stimulation and usage of value-added services (which now account for 13 per cent of mobile phone revenue).

Operating expenses (before depreciation and amortisation) increased slightly by 2.5 per cent to S$1.17 billion, as selling and administrative expenses decreased. Staff costs, the largest expense item, increased 7.6 per cent mainly as a result of increased Central Provident Fund contributions from January 2001.

The Group's successful efforts to manage its costs have enabled it to maintain its healthy margins. The operational EBITDA margin for the half year was 53.8 per cent.

Regional investments

For the six months to 30 September 2001, contributions from associates and joint ventures accounted for 11.7 per cent of the Group's profit before tax, compared to 10.8 per cent in the same period last year. The total share of results fell 5.1 per cent to S$173 million due to lower contributions from Belgacom and losses from start-up ventures such as Lycos Asia, SESAMi Inc. and Virgin Mobile Asia.

Through acquisitions and strong organic growth, SingTel has, in the last 12 months, increased its aggregate mobile subscriber base in the Asia Pacific by 164 per cent. Including Telkomsel, SingTel and its associates today serve about 17 million customers in the region.

A recent analyst report estimates that the six mobile markets SingTel is represented in: Singapore, Australia, Indonesia, Thailand, the Philippines and India will see a 30 per cent CAGR in mobile subscribers to 115 million by 2005.

SingTel has tapped on the size and scale of its regional mobile operations to realise cost savings in the areas of network and handset procurement. It is working with its associates to exploit revenue-based synergies as well.

Optus

In the six months to 30 September 2001, Optus recorded an 8.0 per cent increase in operating revenue compared to the corresponding period last year, despite adverse market conditions and the collapse of One.Tel. Retail sales growth reached double-digit at 10 per cent.

This strong revenue growth is double the growth of the telecoms sector and quadruple the Australian economy as a whole.

EBITDA grew 6.5 per cent in the half year compared to a year ago. Net operating cash flow before interest and tax improved year-on-year by 56 per cent to A$354 million.

Optus Chief Executive, Chris Anderson, said the Optus result was commendable in light of the tough times faced by the industry and the economy as a whole. "Not only have we outperformed the sector and taken market share, but our revenue growth is in the high single-digit numbers previously indicated to the market."

"While the recent consolidation of the Australian market has reduced wholesale demand and hurt our figures in the short term, we believe there is a 'flight to quality' in the industry, and in the medium term, improving margins will help the performance of our business," Mr Anderson said.

"The benefits of our cost re-alignment programme, 'Operation Win Through' announced in August, are not evident in these results. They will flow through in 2002/2003, to help Optus capitalise on profitable growth as the economic climate improves."

A snapshot of Optus' divisional performance includes:

• Optus Mobile grew revenue by 13 per cent and its subscriber base grew 26 per cent compared to the corresponding period last year. Optus Mobile now has 3.9 million mobile customers.
• Optus Business showed strong performance growing revenue by 9 per cent to A$935 million. This includes a 35 per cent growth in revenue from data and IP services which now accounts for 49 per cent of the division's revenue.
• Consumer & Multimedia's broadband bundled product customers increased by 56 per cent and now make up 43 per cent of its customer base. About 80 per cent of new customers now take bundled products.

Please refer to the respective Management Discussion and Analysis documents for more details on the results of SingTel and Optus.

SingTel-Optus integration

On the integration of SingTel and Optus, Mr Lee said that the integration process was progressing well. "I am pleased to report that four out of five senior management of Optus are continuing in their current roles at Optus. This adds to the management bench strength of the Group."

"The integration committee has been working on identifying synergies. We estimate that cash savings of S$300 million can be achieved over the next 18 months, with most of it in the next financial year."

The bulk of the savings (about 80 per cent) will come from a reduction in capital expenditure mainly through the optimisation of the Group's international cable networks and better prices from equipment vendors. Synergies are also expected from reduced operating expenses, such as lower international traffic costs, and gains in revenue from increased sales to corporate customers in Australia. The recent two-notch credit rating upgrades for Optus will also increase its funding flexibility and reduce its funding cost.

The review of integration synergies is continuing and the Group expects to announce more savings in due course.

Financial position

The credit ratings assigned to SingTel by Standard & Poor's and Moody's, announced earlier this week, rank SingTel among the highest rated communications companies in Asia.

SingTel's balance sheet as at 30 September 2001 includes the financial position of Optus. The Group's net assets increased to S$13.6 billion, with net debt (gross debt less cash and cash equivalents) amounting to S$7.6 billion. The net gearing ratio was 35.1 per cent.

Outlook

Management is encouraged by the second quarter performance. The guidance set forth below should however be read in the context of uncertain macro economic conditions.

SingTel (excluding Optus)

The Group's operating revenue (excluding Optus) is expected to be flat for the full financial year. Margins are expected to be maintained as a result of the implementation of stringent cost control measures. The consolidation of C2C's start-up losses and lower contributions from associated companies in the second half of the financial year will cause some modest dilution in earnings.

Goodwill amortisation, primarily from the acquistion of Optus, has full impact for the second half year. Net interest expense in the second half are expected to offset the net interest income in the first half year.

Net earnings, after borrowing costs but before goodwill, for SingTel (excluding Optus) are expected to be maintained compared to the last financial year.

Optus

The results of Optus for the second half will be consolidated with the Group's full year results. Under Singapore GAAP, Optus expects operating revenue and EBITDA in the second half to grow faster than the first half of the financial year. There will however be higher depreciation expense from the effect of increased investments in networks in recent years. Operating results for the second half are expected to be broadly consistent with the first half year. The overall second half results for Optus post exceptional items are therefore expected to improve from the first half year.

SingTel and Optus combined

Statutory consolidated results for the full year for the Group will show substantial increases in operating revenue and EBITDA. Profit after tax and exceptional items but before goodwill charges are expected to be maintained from last year.

Conclusion

Mr Lee said: "SingTel has undergone a significant transformation over the last few years. Following our landmark acquisitions this year, SingTel has achieved its goal to become Asia's leading communications company, with presence in multiple markets across the region.

"With Optus, more than half our revenues now come from outside Singapore. The Group's revenue mix is also very different from three years ago. Including Optus, mobile and data services will contribute 49 per cent of the Group's revenue compared to 27 per cent in 1998.

"SingTel has been in acquisition mode for some time. Moving ahead, the pace of our acquisitions will slow as we focus on execution, on maximising the potential of our existing businesses and investments, and on deploying surplus cashflow to reduce debt.

"We will continue to review opportunities to strengthen our footprint on a selective basis, but only if these are consistent with maintaining our credit ratings.

"While the slowdown in the regional markets will present SingTel with short term challenges, we see positive signs in the medium term. Industry consolidation will continue, and this, we believe, will provide for a better competitive environment when the storm is over."

For more information:

Ivan Tan
Phone: +65-838 2007 or +65-9635 9765
E-mail: ivantan@singtel.com

Stephen Woodhill
Phone: +61-2-9342 7850 or +61-2-413 318 455
E-mail: stephen.woodhill@optus.com.au

Backgrounder

Optus outperforms sector in tightening market

Optus today reported a strong eight per cent increase in revenue for the Half-year to September 30 - despite the One.Tel write-off and adverse market conditions.

The revenue increase is double the growth of the telecoms sector, and quadruple the Australian economy as a whole.

Revenue grew to $2.53 billion in the Half, and EBITDA was up 6.5 per cent to $702 million, compared with the corresponding period last year.

Operating cash before interest and tax improved 56 per cent.

However, as previously flagged to the market, the One.Tel bad debt write-off, the cost of the Optus sale process to SingTel - and the tightening trading conditions - cut net profit from $153 million last year to $62 million for the Half.

Highlights of the results included:

• Operating cash before interest and tax up 56 per cent to $354 million.
• Earnings before interest, tax, depreciation and amortisation (EBITDA) grew 6.5 per cent to $702 million.
• Profit before unusuals and tax grew 3.6 per cent to $129 million (from $125 million last year).
• Growth in cost of sales held to six per cent.
• Net profit down 59 per cent to $62 million after One.Tel write-offs and other one-offs.

Optus Chief Executive, Chris Anderson, said the result was commendable in light of the tough times being faced by the industry and the economy as a whole.

"Not only have we outperformed the sector and taken significant market share, but our revenue growth is in the high single-digit numbers as indicated to the market.

"The cash picture is also a great source of comfort.

"While the recent consolidation of the market has reduced wholesale demand and hurt our bottom line, we believe there is a customer 'flight to quality' which will enhance the performance of our business and improve margins in the medium term," he said.

Mr Anderson said that the benefits of 'Operation Win Through' cost - cutting announced in August were not felt in the first-Half numbers. They will flow through in 2002/2003 to help position Optus to capitalise on profitable growth as the economic climate improves.

A summary of Optus's divisional performance includes:

• Optus Mobile grew revenue by 13 per cent and its subscriber base grew 26 per cent compared to the corresponding period last year. Optus Mobile now has 3.9 million mobile customers and is increasing market share.
• Optus Business showed strong performance growing revenue by nine per cent to $935 million. This includes a 35 per cent growth in revenue from data and IP services, which now accounts for 49 per cent of the division's revenue.
• Consumer & Multimedia's broadband bundled product customers increased by 56 per cent now making up 43 per cent of the group customer base. About 80 per cent of new customers now take more than one product. EBITDA was up 34 per cent.

"The Optus 'challenger' strategy continues to drive market share gains, particularly in business and mobile markets, and the medium-term competitive outlook is improving," Mr Anderson said.

For more information contact:

Stephen Woodhill
Optus Public Affairs
Tel: (02) 9342 7850