Q2 net profit down 12%; group looking to redeployment to cut operating costs
By WINSTON CHAI
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(SINGAPORE) Singapore Telecommunications' quarterly profit may have skidded to a three-year low, but it will look to redeployment instead of retrenchment to cut operating costs.
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| Waiting for profits: SingTel's net income from Singapore operations fell as a result of higher marketing costs and subsidies associated with the Apple iPhone 3G |
'Certainly, job cuts will be something that we see as a last resort,' said SingTel CEO Chua Sock Koong.
The group yesterday reported a 12.1 per cent fall in net profit to $868 million for its second quarter ended Sept 30, from $988 million a year earlier. Basic earnings per share slipped 12.2 per cent to 5.45 cents, while revenue eased 5.3 per cent to $3.89 billion.
With its second-quarter earnings having been dented by plunging regional currencies and higher handset subsidies, SingTel has already frozen hiring and is also cutting down on discretionary spending such as advertising expenditure in Singapore and Australia. But instead of cutting manpower, it could use reassignments to glean more savings.
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'As a business, we continue to review the operating efficiencies of each of our businesses to ensure we deliver a high quality of service to our customers. As part of this efficiency drive, there could be redeployment of headcount across the different businesses,' Ms Chua told reporters at the group's Q2 results briefing yesterday.
Her assurance of job security should provide some welcome relief for SingTel's pool of 11,130 employees here following its recent profit warnings and the announcement of 900 jobs cut by another local corporate titan, DBS Group Holdings, last week.
Reiterating its guidance last week, SingTel said its profitability took a hit in Q2 as the Sing dollar's sustained appreciation against major regional currencies crimped contributions from all its foreign units.
The company derives nearly 60 per cent of its earnings from overseas through wholly-owned Australian operator Optus, as well as regional associates in India, Bangladesh, Indonesia, Pakistan, the Philippines and Thailand.
Contribution from Optus shrank with the Australian dollar dropping against the Singapore dollar this year. Other currencies such as the Indian rupee, Thai baht and Philippine peso also fell, lowering earnings from associated companies such as India's Bharti, AIS in Thailand, and Globe in the Philippines.
During the quarter, profitability was further dampened by losses from Warid Telecom. SingTel's Pakistani investment suffered a wider-than-expected pre- tax loss of $41 million, with the group's share of pre-tax operating losses at $24 million, but this was mitigated by a one-time foreign exchange gain of $67 million following a capital reduction in SingTel's Australian unit.
'We're still in the phase of rolling out networks (in Pakistan). There has also been a reduction in consumer spending (there) as a result of the financial crisis,' Ms Chua explained.
As a result, pre-tax profit contributions from the firm's six regional associates plunged 26 per cent during the quarter.
Profits from Optus remained flat in Q2 while net income from Singapore operations fell 4.8 per cent as a result of higher marketing costs and subsidies associated with the iPhone 3G.
The Republic's largest operator was given first dibs at selling Apple's second-generation touchscreen handset in Singapore on Aug 22. Optus launched it a month earlier as part of a non-exclusive arrangement. Hefty subsidies for the iPhone 3G slashed Ebitda (earnings before interest, tax, depreciation and amortisation) in both countries by nearly $71 million, according to SingTel.
'We are confident that iPhone customers will deliver growth and value,' Ms Chua reiterated, adding that the Arpu (average revenue per user) from iPhone owners is 1.5 times higher than other post-paid mobile customers.
SingTel has collectively sold more than 170,000 units of iPhone 3G to date in Singapore, Australia, India and the Philippines.
In Singapore, the much- hyped device lifted SingTel's post-paid subscriber base by 45,000 from July to September - twice as many as rivals StarHub and MobileOne. Revenue also grew across all its local business lines, with its cellular and Internet units both chalking up double-digit gains.
'Overall, Singapore and Optus delivered good numbers. Associates' contribution was weak mainly due to currencies, and the extent of losses at Pakistan investment Warid took us by surprise,' Macquarie Research said in a research note.
For the first half of its financial year, SingTel's net profit dropped 8.8 per cent to $1.74 billion while operating revenue rose 5.6 per cent to $7.67 billion. Stable free cash flow for the group - defined as operating cash including associate dividends less cash capex - stayed at about $1.7 billion for H1 FY09. Net debt gearing ratio increased 1.6 percentage points to 25.8 per cent on the back of additional bank borrowings.
SingTel has declared an interim dividend of 5.6 cents for the six months ended Sept 30, unchanged from 2007.
Looking ahead to the full year, SingTel still expects its operating revenue and Ebitda in its two core markets - Singapore and Australia - to grow but pre-tax earnings from its regional associates are set to be lower compared to last year.
'The weaker Australian dollar will have an adverse impact on the earnings for the group. What will hit it further is the lacklustre performance of its regional associates. Telekomsel, in particular, saw pre-tax profit slump 40 per cent to S$113 million (in Q2),' noted Terence Wong, co-head of research at DMG & Partners.
SingTel shares closed 1.3 per cent higher at $2.38 yesterday.
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