M1 – BT

M1 posts 4.8% fall in Q4 net profit to $37.9m

Full-year 2007 net profit up 4.4% to $171.8m; final dividend of 8.3 cents

MOBILEONE yesterday reported a 4.8 per cent fall in net profit to $37.9 million for the fourth quarter of 2007 as it spent more on keeping its customers and on higher staff costs.

The smallest of three telcos here said that full 2007 net profit was up 4.4 per cent to $171.8 million.

The fourth-quarter net profit missed the $41.3 million median estimate of six analysts surveyed by Bloomberg.

Q4 revenues rose 2.9 per cent to $206.9 million.

M1 announced a final dividend of 8.3 cents, bringing the total payout (including a capital distribution) to 15.4 cents for the year, representing an 8 per cent yield based on the $1.92 closing price yesterday.

Chief executive Neil Montefiore said that it had been a tough quarter, and 2008 would be even more challenging.

Although its customer base rose 14.8 per cent to 1.54 million, market share fell to 27.4 per cent at the end of November from 28.3 per cent in August and 28.5 per cent in November 2006.

Singapore’s mobile phone penetration rate stood at 116.1 per cent at end-November according to official data – meaning more than one phone per person.

Operating expenses rose 7.8 per cent to $160.7 million during the quarter while the average acquisition cost for each customer jumped 39 per cent to $209. Retention cost rose 4.3 per cent to $147.

In order to retain customers, M1 cut its handset prices. Money from handset sales was 25.9 per cent lower year-on-year at $19.7 million, though it was 22.4 per cent higher than in the third quarter of the year.

Staff costs increased 5.6 per cent to $22.6 million.

Mr Montefiore said that full mobile number portability – where customers can keep the same number when they change operators – due to be introduced in May, would be a challenge for all telcos, although he expects the impact to be neutral on M1. Much bigger rival Singapore Telecommunications, which has the largest customer base, is expected to feel the most impact when number portability is introduced.

M1 will continue to work at reducing costs this year. Initiatives include building its own circuit network, which so far is leased from SingTel. It has already moved its call centre to Kuala Lumpur and expects staff savings of 30-40 per cent.

M1 said that capital expenditure for 2008 will be between $100 million and $120 million. It expects operations to remain stable.

Free cash flow fell 28.8 per cent to $172.7 million at end-2007.

M1 will continue to look at returning excess cash to shareholders every quarter. It also will retain some flexibility for investment opportunities, Mr Montefiore said.

As for the impact of an economic slowdown, Mr Montefiore said that in his experience, telcos are a ‘recession proof’ business.

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