Group second quarter FY 2005 underlying earnings rose to S$735 million

Double-digit profit growth led by SingTel Optus and regional mobile associates; revenue in Singapore stabilising

About three-quarters of the Group's proportionate revenue came from overseas operations

Singapore & Sydney, 4 November 2004 - Singapore Telecommunications Limited (SingTel) today announced its unaudited results for the second quarter and half year ended 30 September 2004.

Highlights

(1.) Excluding Belgacom's contribution and exceptionals
(2.) Underlying net profit is defined as net profit before goodwill, exceptionals, Belgacom's net contribution and exchange difference on loan to Optus, net of hedging

Group

For the quarter ended 30 September 2004, the SingTel Group's results continued to register strong double-digit growth in underlying earnings. Group revenue increased by 9.5 per cent to S$3.12 billion. Operational EBITDA rose 11 per cent to S$1.15 billion. The Group's underlying net profit after tax increased 21 per cent to S$735 million while net profit attributable to shareholders increased 62 per cent to S$766 million. Year-on-year, net profit attributable to shareholders was down 12 per cent mainly due to exceptional gains of S$681 million largely from divestment of SingPost and Yellow Pages directory business last year.

SingTel Optus sustained its strong operational momentum and the regional mobile associates^(3.) continued to perform very well. SingTel's share of the associates' underlying results increased 38 per cent to S$320 million. Overseas operations contributed 74 per cent of the Group's enlarged revenue and 66 per cent of the Group's proportionate EBITDA.

The Group returned S$3.01 billion to its shareholders through a capital reduction exercise that cancelled approximately 7 per cent of SingTel's total issued shares to about 16.6 billion shares. The capital reduction optimised the level of cash and debt, and paved the way for a more efficient capital structure. It also enhanced the Group's earnings per share and improved its return on equity.

Mr Lee Hsien Yang, SingTel President & CEO, said: "As the Singapore market matures and remains very competitive, the Group's overseas businesses will continue to be the engines of growth. The continued strong performance of our businesses reflects our ability to drive double-digit growth in underlying earnings from our international businesses as well as to generate robust cash flow from the Singapore business.

"We are on track to deliver double-digit earnings for the whole year. The Group remains committed to create shareholder value as a blue chip growth stock."

(3.) Advanced Info Service (AIS), Bharti Group, Globe Telecom and Telkomsel

SingTel

Even though market conditions remained very competitive, the Singapore business continued to maintain an operational EBITDA margin at 49.4 per cent. Although revenue fell slightly by 0.8 per cent to S$994 million year-on-year, it was better than the underlying decline of 2.7 per cent and 4.8 per cent in the June and March 2004 quarters respectively.

Data and Internet revenue for this quarter rebounded by 5.1 per cent to S$294 million, helping to stabilise revenues. This increase is led by recovery in demand for corporate data services and the robust demand for broadband. Leased circuit revenues from local and international businesses increased by 8.9 per cent and 12 per cent respectively. However, due to more competitive pressure and higher penetration, the broadband growth rate slowed down to 30 per cent in this quarter.

In Mobile Communications services, the competitive price plans that were launched in this quarter drove up postpaid subscriber base by 19,000. Postpaid churn remained low at 1.2 per cent.

Overall mobile revenue was S$205 million for the quarter, a 0.8 per cent decline year-onyear. However, there was a growing trend in data and non-SMS usage. Data increased to 19 per cent of ARPU and non-SMS data accounted for 3 per cent of ARPU as GPRS and MMS traffic more than doubled.

In the International Telephone market, outgoing international telephone traffic minutes remained stable. However, lower collection and in-payment rates led to a decline of 14 per cent in revenues to S$167 million.

Revenue from IT and Engineering services grew by 12 per cent to S$139 million as revenue from NCS's overseas operations improved.

Revenue from National Telephone declined by 5.5 per cent to S$133 million, a reflection of the decline in voice and dial-up traffic as mobile and broadband usage increased.

Careful management of costs enabled SingTel to maintain its operational EBITDA margin at 49.4 per cent. SingTel's operating expenses for the quarter increased slightly by 1.2 per cent to S$509 million compared with the last corresponding quarter. Staff cost fell by 2.9 per cent as staff strength declined by 2.5 per cent.

Traffic expenses fell 15 per cent due mainly to lower outpayment rates while cost of sales increased by 16 per cent as IT and sale of equipment revenues grew.

Selling and administrative expenses increased 9.3 per cent attributable mainly to higher mobile and broadband subscriber acquisition costs.

SingTel's free cash flow^(4.) during the quarter fell by S$104 million to S$314 million as compared to the last corresponding quarter. This decline was mainly due to a one-off special dividend received from SingPost last year. Capital expenditure increased to 13 per cent of revenue, in line with guidance, and arose mainly from investment in new satellite capacity and 3G rollout.

(4.) Free cash flow is derived from operating activities less cash capex

SingTel Optus

Optus reported its eleventh successive quarter of double-digit revenue growth and continued to grow at twice the rate of the market as a whole.

"In an increasingly aggressive and competitive market, Optus has continued to grow market share across consumer and mobile products and in corporate and government we have won significant customers and contracts," Paul O'Sullivan, Optus Chief Executive said.

"We face increasing competition across our business, but there are also opportunities which give us confidence that Optus will continue to grow market share and margins in the medium term," he said.

Net profit after tax for the second quarter ended 30 September 2004 was A$163 million, up 82 per cent compared to the same quarter last year.

Operating revenue in the quarter increased 12 per cent to A$1.75 billion, excluding the C1 Satellite Defence contract. Operational EBITDA grew 18 per cent to A$544 million and ongoing cost control saw margins expand by 1.7 percentage points to 31 per cent.

September quarter revenues were 5.6 per cent higher than the June quarter. The second quarter results included the recent Uecomm acquisition for the first time.

Free cash flow of A$291 million represented a modest decline of 3.4 per cent compared to the same quarter last year, mainly due to higher cash capital expenditure and working capital changes. The purchase of Uecomm consumed A$227 million of cash in the current quarter.

Optus remains committed to its guidance for the full year including growing revenues at around twice the market as a whole and achieving double-digit EBITDA growth.

Optus Mobile delivered another high quality performance with improvements at all levels. The division contributed 59 per cent of the revenue growth and 62 per cent of the EBITDA growth for Optus during this quarter.

Although smaller players are competing more aggressively on price, Optus Mobile saw its customer base growing by 17 per cent to 5.92 million. Revenues this quarter are up 13 per cent to A$954 million and operational EBITDA increased by 16 per cent to A$375 million with margins improving to 39 per cent.

Optus Mobile is growing its share of the business mobile market with business mobile revenues growing by 7 per cent in the quarter. Data revenues grew by 25 per cent which was driven in part by the 900,000 subscribers on Optus Zoo, Australia's leading mobile market portal. Both prepaid and postpaid ARPUs remained strong for the quarter.

Next year Optus will introduce 3G services under a network sharing arrangement which will reduce roll out costs.

In the current quarter, both Optus Business and Optus Wholesale grew their top line with combined revenues of A$431 million, up 19 per cent. Excluding C1, combined EBITDA for both divisions increased by 30 per cent to A$118 million and combined margins improved to 27 per cent.

Optus Business revenue was up 20 per cent including the benefit of the Uecomm acquisition, representing an increase in market share. Voice revenues were up 2.9 per cent while data and IP revenues, excluding the Uecomm acquisition, were up 10 per cent in the quarter.

Satellite revenues were again strong, up 34 per cent. Optus Wholesale revenue grew by 16 per cent to A$132 million.

Recent new business wins include Nestle, Health Insurance Commission, Fosters and the Victorian State Government.

The success in winning major state government contracts is an important element of Optus Business' medium term growth strategy, as these contracts allow Optus to increase its network reach, in turn improving the company's cost structure in competing for corporate customers.

Consumer & Multimedia (CMM) is building a strong position in the broadband market with an increasing share of new subscribers. More than 52,000 new broadband customers were added in the current quarter, five times higher than in the December 2003 quarter before Optus launched DSL. Optus believes its share of broadband net adds has increased from the low teens a year ago to over 20 per cent in the quarter.

Operational EBITDA increased by 11 per cent to A$50 million with margins also up on the same quarter last year. Total revenue growth grew 2.3 per cent to A$384 million, however, overall broadband revenues grew by 52 per cent. Rapid broadband growth has impacted both dial-up and voice revenues as Optus has focused on encouraging high value dial-up customers to migrate to DSL.

Optus believes it is critical to the company's medium term strategy that it rapidly establishes a strong market share position in consumer broadband, even if this involves competing in the short term using resale.

Optus is succeeding in using innovative bundling packages to win new broadband customers, as more than ever the company changes the rules in Australian telecommunications – in ways that smaller competitors cannot do and our larger competitor is very reluctant to match.

Both the local telephony and local call resale bundling rates increased during the current quarter to 66 per cent and 47 per cent respectively.

CMM's free cash flow increased by 17 per cent to A$28 million compared to the second quarter last year.

Associated companies

SingTel's overseas investments continue to perform well. The Group's share of pre-tax profits (excluding exceptionals and Belgacom, which ceased to be equity accounted following SingTel's divestment in March 2004) from its associates rose 38 per cent to S$320 million. Regional mobile was the main driver with a 39 per cent growth.

The combined subscriber base of SingTel, Optus and the four regional associates is now 56 million, an increase of 38 per cent from about 41 million a year ago. This represents Asia's largest subscriber group outside of China. Most of the growth came from Telkomsel's and Bharti's combined subscriber base which increased by nearly nine million. SingTel Optus subscriber base is 5.9 million, an increase of almost 200,000 from a quarter ago.

Among the associates, the two largest contributors to the Group's earnings were Telkomsel and AIS.

The Group's share of Telkomsel pre-tax profit increased by 25 per cent to S$147 million despite a 11 per cent depreciation in the Rupiah. In August 2004, riding on the successful implementation of "Kartu As" (a new prepaid service launched in May 2004), Telkomsel launched another new program to extend the validity of the prepaid service. This program accelerated the growth of the subscriber base from 398,000 a quarter ago to 1.5 million by end September 2004.

Contributions from AIS rose 8.3 per cent to S$73 million. Revenue from mobile service grew 15 per cent year-on-year, boosted by strong subscriber growth. AIS's subscriber base increased 17 per cent to 14.8 million as at 30 September 2004.

Globe and Bharti also delivered strong growth. The Group's share of Globe's pre-tax profit for the current quarter was S$45 million based on an equity interest of 40.1 per cent compared to 29.1 per cent a year ago. Bharti contributed S$42 million to the pre-tax profit for the quarter, a three-fold increase over the last corresponding quarter.

In the current quarter, SingTel received S$149 million in cash dividends from the regional mobile associates, 13 per cent higher than the same quarter a year ago. SingPost paid S$135 million in dividends in the last corresponding quarter, comprising a final dividend of S$25 million and S$110 million being partial payment of the special dividend declared in the previous year.

Cash flow and balance sheet

The Group's cash flow continues to be strong. The Group's free cash flow before interest was S$667 million for the quarter.

With the recent capital reduction, the Group has a more efficient capital structure while retaining significant financial flexibility. Net debt was S$7.7 billion as at 30 September 2004, an increase of S$3.4 billion over the first quarter after the capital reduction and final dividend payout. Net debt gearing ratio is 31 per cent. Net debt is 1.3 times EBITDA while EBITDA to interest cover is 14.8 times. This leverage is comfortably within the commitments made during the Group's 2001 bond offering.

Outlook

The guidance issued with the results for the financial year ended 31 March 2004 is affirmed as there have been no significant changes. The highlights of the guidance are listed below.

The Group expects consolidated operating revenue and operational EBITDA to increase. The Group's medium term objective is to grow underlying earnings at double digits. The Group's ability to grow at these levels for the financial year ending 31 March 2005 depends on economic developments in Singapore, Australia and the region, as well as the foreign exchange rate environment. The outlook for the Group's operations outside of Singapore continues to be positive.

In Singapore, SingTel expects operating revenue for the current financial year to be comparable to the year ended 31 March 2004.

In Australia, Optus expects double-digit operational EBITDA growth with revenue growth and margin expansion. The rate of margin expansion is however not expected to be as rapid as in the past two years and margins may fluctuate from quarter to quarter due to seasonal impacts. Optus aims to generate free cash flow (before interest expense) exceeding A$1 billion.

The regional mobile associates' contribution to EBITDA is expected to grow at doubledigit levels. The overall contribution from associates is expected to be approximately the same as the year ended 31 March 2004. In line with the increase in EBITDA contribution, cash dividends from the regional mobile associates are expected to increase.

Please refer to the Management Discussion and Analysis document (available at www.singtel.com/investor) for more details of the results including a full commentary on the Group's results as well as on the outlook for the current financial year.

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