Q4 & FY 2006 Singapore Telecommunications Earnings Presentation - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

GAVIN HURLE, GROUP DIRECTOR IR, SINGAPORE TELECOMMUNICATIONS: Welcome to this conference call for SingTel's results for the year ended March 2006. My name Gavin Hurle, I'm the Group Director of Investor Relations for SingTel. And with me here in Singapore are our Group CEO, Mr. Lee Hsien Yang, our Group CFO, Miss Chua Sock Koong, Singapore CEO Mr. Allan Lew, Optus CFO Miss Jeann Low. And joining us on the line from Sydney is Optus CEO, Mr. Paul O'Sullivan.

In a moment I'll be asking our Group CEO to outline the highlights of the results. And then we'll go into Q&A. I should just mention a few number issues for you at Q4 to help your understanding of the results, they are flagged in these mornings Investor e-mail and explained in the MD&A in full. They relate to the deconsolidation of C2C with effect from January 1 this year. The recognition of some Australian tax assets, we had an announcement on that last week. And some minor reclassifications by Optus, where we've restated the historic to assist comparability.

So now I'd like to hand over to Hsien Yang to give us some highlights of the results, including the cash distributions and guidance for fiscal '07.

LEE HSIEN YANG, GROUP CEO, SINGAPORE TELECOMMUNICATIONS: Okay. We had an excellent set of results, our net profit after tax was up 27% to SGD4.2b. This includes the exceptional gain from deconsolidation of C2C. Stripping that out the underlying net profit after tax still increased by 8% to SGD3.3b.

Underlying earnings per share growth was higher, 11%, because of the 2004 capital reduction exercise that we conducted. In Singapore we saw 2% growth in operating revenue. Margin declined slightly but free cash flow including associate dividends increased 15% to SGD1.8b.

Optus is investing to deliver medium term improvements in revenue growth and margin, while restructuring to defend profitability. Their revenues increased by 4%, including the impact of recent acquisitions, and Optus EBITDA margin was 28.3% in line with our September guidance.

And here Regional Mobile associates had an exceptional quarter, customers grew 34%. 32% growth in earnings. And we're seeing growth in dividends from associates.

As a result of the strong balance sheet of the Company, the Board is recommending a total distribution to shareholders of approximately SGD4b. SGD1.7b of that is dividend of SGD0.10 gross per share. And then SGD2.3b of it would be paid out in capital reduction exercise canceling 1 in 20 shares at a price of basically SGD2.74 a share, is the five-day average share price over the last few days. Cumulatively the dividend payout distribution is actually SGD23.7 per share or equivalent to 9% yield based on a share price of SGD2.74.

Even after the payout and distribution SingTel retains a strong balance sheet. We have strong investment ratings from S&P and Moody's, and the financial flexibilities to do the CapEx in Australia and Singapore. And retain enough flexibility to make new investments. We're confident of the outlook for next year and we feel this is very strong set of results.

Let me stop there and take any questions.

OPERATOR: Thank you sir.

GAVIN HURLE: If you could just explain how to put -- people to put questions please.

OPERATOR: ladies and gentlemen, we will now begin the telephone question and answer session. [OPERATOR INSTRUCTIONS]. The first question is from Mr. Luis Hilado from JP Morgan, Singapore.

LUIS HILADO, ANALYST, JP MORGAN: Hi, good morning and congratulations on the results. Just had a couple of questions and clarifications. Just wondering in terms of the capital reduction that you're planning. Do you intend to use free cash flow purely to finance it, or whether you intend to roll over some debt as part of the financing of the payment some time in September?

Second question is just getting an update in terms of prepaid registration milestones that you've met, and what your outlook is now the deadline's coming?

And just a bit of housekeeping, in terms of margin for sale of equipment. Is it essentially breakeven or are you expecting a certain positive margin from that?

GAVIN HURLE: Capital -- that was capital reductions, where we're going to get cash from. Prepaid registration, I think you might just need to re-clarify the last question but perhaps we'll deal with the first two first of all. Sock Koong?

CHUA SOCK KOONG, GROUP CFO, SINGAPORE TELECOMMUNICATIONS: Yes. I think if you look at our cash flow generation for the year it's a very strong cash flow generation. But this payout that we're making, I suppose in a way it's our attempt to get our capital structure optimized. So as we go through this year you would see our net debt increase slightly. So the pay out is going to be funded from a combination of the Company's cash flow generated in the year plus an increase in debt.

LUIS HILADO: Excellent.

LEE HSIEN YANG: With regard to the prepay registrations. As at April 30, we've got more than 60% of our base who are registered. We have seen increasing pick-up of registrations in the last week as we approached the May 1 deadline. The regulators have also made it very clear that customers who do not register will have a period up to June 30 to continue to be on the network and to retain their numbers if they come in after the May 1 deadline. So I think we will still have another two months to continue to push our customers to register. And we have got some incentives out there for the remaining customers to register their [accounts].

GAVIN HURLE: Luis, do you want to just clarify that question on margins?

LUIS HILADO: Yes. Just wondered, the sale of equipment. Essentially is that a breakeven margin business or it's a positive margin business?

And sorry just one other follow-up question on C2C. Just wondering if there's any further potential one-offs related to it or everything was put in that SGD618m?

CHUA SOCK KOONG: I think on the equipment sales, it is a narrow margin. So you know this is typical of all equipment sales, whether it's for telephone equipment, or the hardware sales that you know in connection with our IT systems. Okay.

On C2C we have completed the total deconsolidations in this financial year, so we will not see further adjustment on C2C.

LUIS HILADO: Yes, thanks Sock Koong.

OPERATOR: Next we have Tim Storey from Citigroup Australia.

TIM STOREY, ANALYST, CITIGROUP: Thank you, good morning everyone. Question for Paul. Paul, clearly a very solid result given the trading conditions in Australia at the moment. Just a couple questions on the mobile front. Firstly looking at the March quarter we had, I guess effectively, an extra five trading days during that quarter. So just keen to understand whether that had an impact?

And also looking at the month of March we actually saw a resurgence in terms of handset subsidies. So I'd be keen to understand how the margin was tracking in the month of March and what's happened in terms of subscriber acquisition costs?

And finally just in terms of Virgin Mobile integration costs. Have they -- can you give us some clarity on that?

PAUL O'SULLIVAN, OPTUS CEO, SINGAPORE TELECOMMUNICATIONS: I'll pick up on each of those. First of all on the trading days in Mobile. Always hard to say, you're right in terms of the quarter. I think that there's so much washing through the numbers in terms of caps, that it's probably the dominant driver in the quarter. And hard to really pin down anything specifically on the trading days.

In terms of the handset subsidy and the margin. We have seen an interesting dynamic in the market in the last couple of months where we have seen some resurgence in handset subsidies. And indeed right now Telstra's got, probably reflecting it's coming to year end on its own budgets, they have some very, very strong headset subsidies out there in the marketplace. Thirdly in March I think all our competitors were out there with really, really strong offerings.

I think the way you can see that in the numbers is if you have a look at our performance on acquisition cost per cell. If you look at that you'll see it's AUD120 this quarter and it held pretty constant to where it was last quarter. So we haven't actually shown in the numbers a huge impact washing through in terms of expansion but it --

TIM STOREY: Okay, January and February were pretty light and primarily prepaid but I'm trying to get a read on what the [SAC] was -- for during March.

PAUL O'SULLIVAN: Yes, okay. Well, we don't have number we disclose, which is monthly, unfortunately Tim. But I was about to say that actually the one thing that does support the point you're making is, if you look again quarter four last year, it was about a AUD111 versus AUD120 here. So you can see some impact from what you're talking about. I wouldn't overstate it.

If you look at our disclosure on caps today, which you can see that in the last quarter 32% of customers who are making a decision, either new customer of re-contract, show the caps [plans] in both postpaid. And that's from 29% in quarter three. Caps …