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The SingTel Group's results for the half year ended 30 September 2002
07 Nov 2002

Signs of clear and sustainable turnaround at SingTel Optus
Significant increase in contributions from overseas investments

Singapore, 7 November 2002 - Singapore Telecommunications Limited (SingTel) today announced its unaudited results for the six months ended 30 September 2002.

A strong feature of the half year results is the better performance of the Group's operations in Australia. SingTel Optus delivered faster growth, expanded margins and improved cash flows, amidst signs of a clear and sustainable turnaround.

The Group is also reaping the benefits of its overseas investment strategy, implemented in the late 1980s. There was a significant increase in contributions from associated and joint venture companies. The share of pre-tax earnings from these companies accounted for more than half of the Group's pre-tax profit during the half year.

Highlights

  Quarter   Half Year  
  Sep 2002 (million) Jun 2002 (million) Change Sep 2002 (million) Sep 2001 (million) Change
Operating revenue S$2,462 S$2,461 0.1% S$4,924 S$2,495 97.3%
Operational EBITDA S$924 S$926 -0.2% S$1,850 S$1,342 37.9%
EBITDA1 S$1,396 S$1,172 19.1% S$2,568 S$1,683 52.6%
Net profit after tax (pre-goodwill) S$577 S$534 8.0% S$1,111 S$1,209 -8.1%
Net profit after tax S$415 S$377 10.1% S$792 S$1,159 -31.7%


For the half year to September 2002, there were significant increases in operating revenue and EBITDA compared to the same period last year, as the acquisition of Optus was not completed until October 2001. The Group recorded a net profit after tax (pre-goodwill) of S$1.11 billion.

For the quarter ended September 2002, the Group's operating revenue and operational EBITDA were stable compared to the preceding quarter. The Group's operational EBITDA margin was maintained at 38 per cent. This was despite a slow economic recovery in Singapore, where weak business sentiments has failed to lift demand for telecommunications services. There was also a 3 per cent decline in the Australian dollar exchange rate during the second quarter.

The Group's EBITDA in the second quarter was S$1.40 billion, an increase of 19 per cent compared to the preceding quarter. This was due to pre-tax contributions from associated and joint venture companies more than doubling to S$388 million.

The Group recorded a one-off tax credit of S$123 million in the first quarter, following the downward revision of the Singapore corporate tax rate by 2.5 percentage points. This credit is not repeated in the second quarter and as a result, the Group's tax charge increased by S$124 million. Despite this, the Group's net profit after tax in the second quarter still rose 10 per cent to S$415 million.

SingTel President and CEO, Mr Lee Hsien Yang, said: "At the beginning of this financial year, we made a commitment to our investors to focus on execution and improve returns on our existing businesses. Our operational results are in line with market expectations and show we are broadly on track to meet our targets and create value for our shareholders. We are particularly encouraged by the performance of Optus."

Mr Lee added: "Our international investments have transformed SingTel's financial profile and we now derive more than 60 per cent of our proportionate revenues from outside Singapore. As a result, we remain well positioned for above average growth despite the slower than expected recovery in the Singapore economy.

"We continue to derive the majority of our revenue (54 per cent) from mobile and data services making this one of the highest proportions of any major telco. This is consistent with our aim to deliver double digit medium term earnings growth."

Operating results in Singapore (SingTel, ex-Optus)

Singapore's sluggish economic growth and price competition in the international data market impacted SingTel's top-line performance. Operating revenue for the half year ended September 2002 was S$2.38 billion, a 4.7 per cent decline year on year. Compared to the preceding quarter, revenue was lower by 1.2 per cent in the second quarter.

A tight rein was kept on operating expenses, enabling SingTel to maintain an operational EBITDA margin of 53 per cent, one of the highest among comparable telcos.

During the half year, revenue from data and Internet services dipped 2.5 per cent year on year to S$604 million. While demand for high bandwidth circuits remained strong, growing by more than 60 per cent, this was not sufficient to offset the effects of increased bandwidth supply and lower unit prices. For the full financial year, bandwidth growth is expected to remain strong although this will be in an environment of price volatility and a softer economy.

SingTel's broadband services continued to make inroads in the market. The number of broadband subscribers surged 133 per cent to 105,000 as at September 2002 compared to a year ago. Similarly, revenue from broadband services more than doubled.

Revenue from mobile communications2 services rose 8.5 per cent to S$477 million for the six months compared to the same period a year ago. Revenue from cellular services increased 14 per cent, following a 9.0 per cent jump in SingTel's postpaid customer base to 1.1 million, as well as the cessation of a rebate scheme.

SingTel Mobile's strategy to focus on profitability and cash flow has paid off. The average subscriber acquisition cost fell 4.6 per cent while the monthly postpaid churn fell to a record low of 1.3 per cent in September 2002.

International telephone revenue declined 17 per cent to S$481 million during the half year. Once the largest revenue earner for SingTel, this segment is now ranked third. A combination of factors, including weak demand and lower inpayment rates contributed to the revenue decrease although the average collection rate stabilized over the two quarters.

Notwithstanding its decreasing dependence on revenue from international telephony, SingTel has maintained its strong position in the market and continues to have one of the highest share of international telephone traffic in any liberalised market in the region.

The Group's wholly-owned subsidiary, SingPost, is the main provider of postal services in Singapore. It also provides logistics and retail services. For the six months ended September 2002, Group revenue from postal services (after inter-company eliminations) was stable year on year at S$172 million. Mail traffic increased 3.6 per cent to 412 million items.

SingTel's operating expenses (excluding depreciation and amortisation) fell 3.5 per cent year on year to S$1.13 billion. This helped SingTel maintain operating margins. Compared to the first half of last year, traffic expenses and staff costs decreased by 13 per cent and 4.6 per cent respectively. Excluding SingPost and National Computer Systems, staff numbers fell by 4.1 per cent.

For the half year, SingTel's capital expenditure (capex) - on an accrual basis - was reduced by 90 per cent to S$160 million. This reflects completion of the C2C network and a reduction in revenue-dependent capex as a result of the softer economic outlook.

Including C2C, the Group's Singapore operations generated S$577 million in free cash flow3 during the half year. SingTel expects full year capex for its Singapore business (excluding C2C) to be about S$500 million (on an accrual basis), a decline from the previous estimate of S$750 million.

Operating results in Australia (SingTel Optus)4

A year after SingTel completed its acquisition of Optus, the latter has recorded a strong turnaround performance with double-digit revenue growth and increased market share in all retail divisions. With focus on cost control and margin growth, Optus remains on track to achieve cash flow breakeven in the next financial year.

Operating revenue for the half year was up 12 per cent to A$2.6 billion on a year on year basis. Operating expenses were up 6.6 per cent. Operational EBITDA rose 38 per cent to A$601 million, while EBIT was positive at A$128 million.

Operational EBITDA margins improved by four percentage points to 23 per cent while the capex-to-revenue ratio fell dramatically to just 15 per cent compared to 29 per cent for the whole of last year.

The company recorded a A$38 million positive cash flow before borrowings compared with a negative A$983 million cash flow for the same six months last year.

Optus Chief Executive, Mr Chris Anderson, said the first half results show that Optus is delivering across the board, performing better than the sector and its competitors.

"We have followed up the A$100 million EBIT turnaround of the last quarter with strong results this quarter demonstrating that our growth momentum is clearly continuing.

"The focus on cost control over the last year has been successful and now we are seeing the rewards on the bottom line. We expect to see substantially reduced losses for the year as a whole.

"Optus has delivered double-digit growth in all retail divisions. We are continuing to add customers and take market share in a highly competitive market," Mr Anderson said.

Optus Mobile continued to deliver profitable growth, increasing its revenue 19 per cent year on year, with margins increasing to 37 per cent. Mobile subscribers grew by 12 per cent to 4.3 million, year on year.

The value of postpaid customers continued to improve with postpaid ARPU rising 6.6 per cent. Revenue from business customers increased 20 per cent compared to the previous quarter while revenue from mobile data services increased to 10 per cent of mobile revenue for the half year.

Optus Business recorded revenue growth of 13 per cent compared to last year with its increased focus on larger corporate customers starting to deliver results.

The division achieved 13 per cent growth in data and IP services and 22 per cent growth in corporate voice services year on year.

Optus Wholesale reported revenue declines. However, this is consistent with the prevailing international market conditions of reseller consolidation, capacity oversupply and downward pressure on prices.

The Consumer & Multimedia (CMM) division again showed solid improvement achieving a 21 per cent increase in revenue to A$592 million, while at the same time reducing its cash capex by 59 per cent. Cable modem customers rose to 75,000, while there was a 29 per cent increase in the number of dial-up customers to 433,000. ARPU from Optus' hybrid-fibre coaxial network went up 8.4 per cent.

"We are driving our efforts towards reducing the cash outflow from CMM. In order to make this part of our business sustainable we will continue to work with the regulatory authorities to seek approval for our pay TV content deal with Foxtel," Mr Anderson said.

"While overall market conditions for telecommunications services remain subdued, our sharper focus on costs is enabling us to be more competitive and to deliver improving performance," Mr Anderson said.

Associates and joint ventures

SingTel's overseas investments again made a strong contribution to the Group's results for the half year. There was an 85 per cent increase in its share of earnings (pre-exceptionals) from associated and joint venture companies to S$320 million. This was mainly due to the inclusion of contributions from Telkomsel, consolidated only from February 2002, and strong growth from Advanced Info Service and Globe Telecom.

The Group also recorded net exceptional gains of S$230 million, mainly attributable to Belgacom's disposal of its shareholdings in two investments - BEN Nederland and Belgacom France. Including exceptional items, the Group's share of earnings rose 218 per cent to S$549 million, or 52 per cent of pre-tax profit for the half year.

SingTel's overseas investments are paying dividends. In the first half, dividends amounting to S$100 million were received from associates including Belgacom, Telkomsel and AIS. This was a significant increase from the S$67 million received in the whole of the last financial year.

As at 30 September 2002, the SingTel Group's regional mobile subscriber base stood at 29 million, a 16 per cent increase over three months. With this size, SingTel and its associates form the largest mobile grouping outside Japan and China, enabling them to negotiate for better supplier discounts.

Financial position

During the half year, the free cash flow generated by the Group's Singapore and Australian businesses amounted to S$751 million. This was offset by dividend payments and investments - including an increased stake in Telkomsel - which totalled $1.53 billion.

Net debt increased to S$10.6 billion as at 30 September 2002. This was 2.2 times the Group's annualised EBITDA. Net debt gearing was 42 per cent while the EBITDA to net interest cover was 9.9 times.

SingTel has announced that it is conducting a strategic review of its shareholding in SingPost. Given the financial and operating strength of the subsidiary, SingTel has the flexibility to consider a number of options.

SingTel is making good progress towards the leverage commitments it made at the time of its global bond offering a year ago. With major investments completed, SingTel is focused on steadily improving cash returns across the Group. It expects to meet the credit ratio targets set by Standard & Poor's by March 2003.

Please refer to the Group's Management Discussion and Analysis document for more details on the results including a full commentary on the Group's outlook for the current financial year.

Notes:
1 Earnings before interest, tax, depreciation and amortisation (including IDA compensation and share of results from associated and joint venture companies)
2 Includes cellular, paging, aeronautical and maritime services
3 Cash flow from operating activities less cash capex
4 According to Singapore GAAP