SingTel Optus records quarterly profit of A$22 million
Contributions from associates and joint ventures triple to S$208 million

Singapore, 7 February 2003 - Singapore Telecommunications Limited (SingTel) today announced its results for the quarter ended 31 December 2002. Unless otherwise indicated, comparisons in this news release are against the quarter ended 31 December 2001.

Group results

The Group's profit after tax and before goodwill for the quarter was S$461 million, an increase of 8.4 per cent compared to the same quarter a year ago. Post goodwill, earnings rose 2.0 per cent to S$296 million.

A key highlight of the quarter's results is the continuing trend of performance improvements at SingTel Optus. For the quarter, Optus achieved an important milestone by turning in a net profit of A$22 million and a net cash surplus of A$64 million. The Group now expects Optus to be cash flow positive in the current financial year, one year ahead of previous guidance.

The strong performance by Optus contributed to the Group's improvement in its operating revenue (+9.5 per cent) and operational EBITDA (+9.4 per cent) for the quarter to S$2.61 billion and S$941 million respectively. Margins were maintained at 36 per cent.

The Group also continued to reap the benefits of its overseas investment strategy. Pre-tax profit contributions from associated and joint venture companies tripled and helped the Group's EBITDA increase 22 per cent to S$1.23 billion. On a proportionate basis², operations outside Singapore accounted for two thirds of the Group's enlarged revenue and 54 per cent of enlarged EBITDA.

Mr Lee Hsien Yang, SingTel President and CEO, said: "At the beginning of this financial year, we set very clear targets for the Group, aiming to maximise cash flow generation in Singapore, improve margins at Optus and drive strong growth in our regional mobile business.

"I am happy to report that our results today demonstrate the success of our regional expansion strategy. They show that we are on track to meet our targets and remain well positioned for above average growth, despite a slower than expected economic recovery in Singapore. We continued to generate free cash flow and have reduced our debt.

"Our results in Australia and the strong performance of our other overseas investments mean that we have significantly reduced our dependency on our Singapore operations to maintain earnings growth.

"We are particularly encouraged by the performance of Optus which has continued its strong turnaround and is now profitable. The economic outlook for Australia - our largest geographical market in terms of revenue - also remains robust.

"SingTel's regional mobile associates have also delivered spectacular results this quarter with strong subscriber growth, increased revenues, margin expansion and, ultimately, a higher share of earnings for the Group. Importantly, our associates are also contributing to our cash flow by paying meaningful dividends."

Operating results in Singapore

In Singapore, the sluggish economy and price competition in the international voice and data markets continued to affect SingTel's top line performance. Operating revenue for the three months ended December 2002 was S$1.17 billion, a 3.3 per cent decline.

SingTel achieved an operational EBITDA³ margin of 50 per cent due to its commitment to disciplined cost management in a difficult operating environment. Excluding the impact of the IPACS acquisition by National Computer Systems, the margin would have been 51 per cent.

For the quarter, revenue from data and Internet services remained the largest revenue stream at S$288 million or 26 per cent of total SingTel revenue. However, the effect of excess bandwidth supply on prices drove overall data revenue down by 7.8 per cent.

Revenue from local leased circuits was stable at S$94 million while revenue from Internet services rose 6.0 per cent to S$76 million. SingTel doubled its number of broadband users to 129,000, increasing its market share in Singapore to 56 per cent.

During the quarter, C2C concluded new sales contracts amounting to US$27 million. The contracts were signed with mainly Asian carriers including the Communications Authority of Thailand.

Revenue from mobile communications⁴ services remained stable at S$231 million for the quarter. Cellular revenue rose 4.9 per cent as the number of subscribers jumped 11 per cent year-on-year to 1.56 million. Postpaid ARPU was S$70 while monthly postpaid churn was maintained at a healthy 1.6 per cent. Mobile data contributed 13 per cent of cellular revenue, up from 8.8 per cent, following a 55 per cent growth in SMS traffic.

International telephone revenue for the quarter was S$206 million, a 20 per cent decline. This was due to a combination of factors - economic conditions, erosion of market share and lower inpayment revenues.

IT and Engineering services overtook national telephony to become the fourth largest revenue stream for SingTel. Revenue from this segment increased 46 per cent to S$157 million as SingTel further expanded its IT service business in China through IPACS. Excluding the impact of IPACS, IT revenue growth was still a strong 22 per cent.

Cost management continued to be a key focus for SingTel. For the quarter, operating expenses, excluding IPACS, fell 1.7 per cent. Staff costs and traffic expenses were lower by 7.8 per cent and 16 per cent respectively. These were offset by increases in selling and administrative expenses, repair and maintenance costs and costs of sales.

SingTel's capital expenditure, on an accrual basis, was reduced by 56 per cent to S$309 million for the three months. Excluding C2C, capital expenditure was similar to last year. For the year as a whole, SingTel expects capital expenditure to be comfortably within the S$700 million guidance given at the first half (including the impact of C2C).

SingTel has a strong track record of free cash flow⁵ generation. For the nine months to 31 December 2002, operating cash before interest was S$1.64 billion, including S$270 million of dividends from associates. SingTel's free cash flow year-to-date amounted to S$954 million.

Operating results in Australia⁶

Optus Chief Executive, Mr Chris Anderson, said the third quarter results showed Optus performing well across the board.

"We have strong revenue growth, margin growth and market share growth. For three quarters in a row, Optus has achieved double-digit growth," Mr Anderson said. "Optus is in the black for this quarter with an after tax profit of A$22 million - a turnaround of A$61 million compared to the same quarter last year."

Operating revenue for the quarter was up 16 per cent to A$1.45 billion while operational EBITDA rose 44 per cent to A$358 million. The strong focus on cost management resulted in EBITDA margins expanding for a third successive quarter to 25 per cent.

"Our Consumer & Multimedia division also delivered a positive quarterly EBITDA of A$14 million," Mr Anderson said.

"Now that we've settled the Optus/Foxtel content deal, the nation has a sustainable PayTV industry, we have a viable consumer business and Australians have choice and competition.

"Over the last year, we have remained focused on managing cash and costs. We are now reaping the reward for those efforts," Mr Anderson said.

For the first nine months, Optus generated a strong cash flow of A$968 million from operations, an increase of 123 per cent. Cash capital expenditure fell 51 per cent to A$645 million for the year to date. The company's cash capital expenditure-to-revenue ratio is tracking below 20 per cent. After cash capital expenditure and interest payments, Optus generated a positive cash flow for the nine months of A$102 million.

Optus Mobile continued to deliver profitable growth, increasing its revenue for the third quarter by 18 per cent, with margins at 36 per cent. Mobile subscribers grew 12 per cent to 4.5 million.

Optus increased the value of its customers with ARPU for both prepaid and postpaid customers growing - post-paid ARPU rose 6 per cent while pre-paid ARPU rose 10 per cent. Optus also saw a 58 per cent increase in SMS volumes. Mobile data services accounted for 10 per cent of overall revenue.

Optus Business recorded revenue growth of 19 per cent. It grew data and IP services by 23 per cent and its corporate voice services by 29 per cent. The division expects to launch Optus' C1 satellite in the first quarter of the next financial year. Optus will then record launch revenues for the Defence payload.

Optus Wholesale reported revenue declines in line with expectations given a tough environment. The general wholesale market continues to suffer from capacity oversupply and downward pressure on prices.

Consumer & Multimedia delivered strong and sustainable gains to post a quarterly EBITDA of A$14 million, a significant milestone. The division achieved a 25 per cent increase in revenue to A$340 million for the quarter while at the same time reducing its capital expenditure by 58 per cent for the nine months. Broadband ARPU was up 4 per cent and dial-up revenue increased by 28 per cent. Cable modem customers rose 69 per cent to 85,000, while there was a 29 per cent increase in the number of dial-up customers to 464,000.

Associates and joint ventures

SingTel's overseas investments again made a significant contribution to the Group's results for the quarter. Its share of earnings from associates and joint ventures increased by 203 per cent to S$208 million.

Telkomsel, which was equity accounted for from January 2002, contributed S$85 million. There were also pre-tax contributions of S$49 million and S$58 million from Advanced Info Service (AIS) (+64 per cent) and Belgacom (+15 per cent) respectively.

Telkomsel, Indonesia's leading cellular operator, saw its subscriber base jump 85 per cent to 6.0 million as at 31 December 2002. In Thailand, AIS maintained market leadership with a 105 per cent increase in its subscriber base to 10.7 million.

Belgacom's net profit increased due to higher margins from its data business and lower operating expenses.

The Group received cash dividends amounting to S$170 million during the quarter including S$140 million and S$28 million from Belgacom and Telkomsel respectively. This was in addition to S$100 million received in the first half.

The Group's aggregate mobile subscriber base in the Asia Pacific jumped 64 per cent year-on-year to 32.1 million as at 31 December 2002. The average EBITDA margin of AIS, Bharti, Globe Telecom and Telkomsel improved from 37 per cent a year ago to 50 per cent for the quarter.

SingTel's regional mobile associates are leaders in their respective markets and enjoy healthy margins. As a strategic investor, SingTel shares its operational expertise across the group. SingTel, with its associates, is able to leverage the size of the total subscriber base in the region (the largest outside China and Japan) in negotiations with suppliers to lower costs.

Financial position

The Group is making good progress towards the leverage commitments it made at the time of its global bond offering a year ago. Free cash flow⁷ generated during the quarter was S$521 million. After interest payments, monetisation of investments and exchange rate movements, net debt decreased by S$556 million from a quarter ago to S$10.1 billion. This gives a net debt to annualised EBITDA ratio of two times. Net gearing improved to 40 per cent.

Please refer to the Group's Management Discussion and Analysis document for more details on the results.

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¹ Earnings before interest, tax, depreciation and amortisation. Includes IDA compensation and share of results from associated and joint venture companies.
² Based on operating revenue of associated and joint venture companies multiplied by SingTel's effective ownership interest.
³ In October 2002, NCS acquired a 51 per cent stake in IPACS, an IT services provider in China.
⁴ Includes cellular, paging, aeronautical and maritime services.
⁵ Cash flow from operating activities less cash capex. Includes impact of C2C.
⁶ According to Singapore GAAP
⁷ Cash flow from operating activities less cash capex.