Singtel's Q3 net profit dips to S$954m on forex woes, investments

Singapore

ADVERSE currency fluctuations and investments, both in spectrum and core capabilities, resulted in Singapore Telecommunications' (Singtel) third-quarter net profit falling 1.7 per cent to S$954 million from a year ago.

Operating revenue for the three months ended Dec 31, 2015, was up 1.1 per cent at S$4.47 billion, from S$4.43 billion a year ago. If exchange rate fluctuations were taken out, the third-quarter net profit was up one per cent while revenue was up 6 per cent. Earnings per share (EPS) for the period was down 1.6 per cent at 5.98 Singapore cents, from 6.08 cents previously.

Net profit for the period would have been up 3.3 per cent if not for a one-off tax credit in the prior year and impact, in the quarter, from the acquisition of Trustwave, a managed security services provider, in September 2015.

The third quarter saw the first full-quarter contribution from Trustwave - S$75 million in operating revenue, S$3 million in earnings before interest, taxes, depreciation and amortisation (Ebitda), and a net loss of S$8 million. The tax credit refers to S$39 million arising from the property, plant and equipment transferred to NetLink Trust in the corresponding third quarter one year ago.

For the nine months ended Dec 31, the telco's net profit was up 2.9 per cent at S$2.93 billion, from S$2.84 billion previously, while operating revenue was down marginally at S$12.87 billion from S$12.88 billion. EPS was up 2.9 per cent at 18.35 cents for the period from 17.84 cents.

The company's Ebitda for the third quarter, impacted by a 8.4 per cent decline in the Australian dollar, was down nearly a percentage point to S$1.22 billion from S$1.23 billion previously. The Ebitda margin stood at 27.3 per cent during the quarter.

Speaking at the results briefing on Friday, Chua Sock Koong, Singtel's CEO, said that innovations and investments in the company's core consumer and enterprise businesses continued to deliver. "We focused on giving customers the best mobile data and entertainment experience by offering a mix of flexible data plans and differentiated content. This has seen more mobile customers in Singapore and Australia trade up to higher-tier plans."

Increased data consumption from high usage in mobile Internet and video was supported by sustained network and spectrum investments across Singapore and Australia. Ms Chua said that these investments position the company to capture exponential data growth in a mobile-first digital world "but will impact free cashflow in the near term".

Singtel's 4G network has the widest coverage at 99.8 per cent in Singapore while Optus is poised to further expand its 4G coverage in regional Australia after securing the 1800 MHz spectrum. Optus's 4G coverage now reaches 92 per cent of the Australian population, she added.

"In the emerging markets, mobile data remained the key growth driver. Singtel's regional mobile associates continued to reap the benefits of aggressive investments in 3G and 4G networks and services."

Despite higher depreciation and amortisation charges, the regional associates' post-tax earnings grew by 3 per cent this quarter. Telkomsel delivered strong revenue growth with higher smartphone adoption and data consumption. AIS also launched 4G services on its recently-acquired 1800MHz spectrum and will further invest in both 3G and 4G networks.

In the enterprise space, Singtel registered steady performance due to strong growth in its infocomm technology (ICT) business. Group enterprise revenue was up 7.57 per cent at S$1.68 billion from S$1.56 billion a year ago. This includes the first full-quarter contribution from Trustwave. Minus the Trustwave contribution, enterprise revenue was up 2.76 per cent at S$1.6 billion. Singapore enterprise revenue was up 10.18 per cent at S$1.25 billion from S$1.14 billion, and up 3.69 per cent minus the Trustwave contribution of S$75 million. At Singtel's Australia operations, through Optus, enterprise revenue rose 10 per cent to S$416 million from S$379 million a year ago.

Softer handset sales and a decline in roaming and IDD services earnings in the Singapore market resulted in a 3.36 per cent drop in group consumer revenue, to S$2.68 billion, from S$2.78 billion previously.

Singapore consumer revenue was down 3.64 per cent at S$635 million, from S$659 million. Australian consumer revenue rose a healthy 5.66 per cent to S$2.02 billion from S$1.91 billion.

Within the consumer segment in Singapore, mobile communications revenue was stable, at S$330 million in comparison to S$328 million a year ago, due to strong prepaid mobile data growth and a higher postpaid plan mix.

However, sales of handsets at S$107 million, down from S$122 million a year ago, and lower international call revenues, at S$65 million compared with S$76 million previously, contributed to the decline in Singapore. Revenue from fixed services, comprising Internet, national telephone, payphone and Singtel TV, was stable at S$133 million.

As at Dec 31, 2015, Singtel had 2.21 million 4G mobile phone customers, up 122,000 quarter-on-quarter. Out of this, 65 per cent were postpaid customers on tiered plans (excluding data-only SIMs, 79 per cent were on tiered plans). Postpaid Arpu (average revenue per user) was down 3 per cent at S$73. The number of prepaid customers fell by 17,000 quarter-on-quarter due to strong sales of tourist SIM plans with shorter validity periods.

Singtel TV Arpu was up one per cent at S$39, with revenue at S$57 million up 3.63 per cent from S$55 million a year ago. Customer churn was stable, up slightly by 1.3 per cent.

Singtel's smallest and newest business group, Digital Life, showed a 22.3 per cent improvement in revenue to S$135 million, from S$110 million previously. The business group recorded a negative Ebitda of S$33 million, down 18.1 per cent from the S$40 million a year ago. The Ebitda improvement came on lower Amobee losses and savings from discontinued businesses.

The profit before tax contribution from Singtel's regional associates - Telkomsel, Airtel, AIS and Globe - was stable at S$647 million compared with S$646 million a year ago.

Singtel shares closed up four cents, or 1.13 per cent, at S$3.58 on the Singapore Exchange on Friday.