SingTel – BT

Dividend letdown stokes SingTel acquisition talk

Q4 gain at $1.1b; group wants ‘financial flexibility’

Singapore Telecommunications yesterday posted better-than-expected net profit of $1.1 billion, up 10.5 per cent for its fourth quarter ended March 31, 2008. Yet it disappointed with no special dividend, bolstering talk that it is poised to team up with associate Bharti to try and land South Africa’s MTN Group in a takeover valued at US$19 billion.

Earnings per share was 6.87 cents, up 10.3 per cent. The telco raised final dividend to 6.9 cents and together with the interim 5.6 cents, it was a full-year payout of 12.5 cents versus 11 cents a year ago. But there was no special dividend compared with 9.5 cents a year ago.

SingTel said that the 12.5 cents raised the payout ratio to 54 per cent of underlying earnings and it is revising its dividend payout ratio to a 45-60 per cent range, up from 40-50 per cent.

On the latest dividends, SingTel chief executive Chua Sock Koong said: ‘We are balancing our desire for an efficient balance sheet with financial flexibility to make further investments.’

But Ms Chua refused to be drawn into SingTel’s intentions should Bharti make a bid for MTN as she said talks were ‘at an extremely preliminary, exploratory stage’.

‘But suffice to say that our role as a strategic investor in any of our investments, and that’s not limited to Bharti, is that we take an active role in the assessment of the investment decisions that are being made at the associates,’ she added.

Before it paid $1.17 billion last year for a 30 per cent stake in Pakistan’s Warid, SingTel had not made a significant acquisition since 2001 when it bought Australia’s Optus for A$14 billion.

SingTel chief financial officer Francis Heng said the group between 2004 and 2007 returned extra cash to shareholders via capital reduction and special dividends when it did not make any significant investments.

For the full year, Southeast Asia’s largest telco said net profit was up 4.8 per cent to $3.96 billion.

For the quarter under review, Ms Chua (who has completed her first full year as SingTel chief) said group operating revenue, which was up 11 per cent to $3.76 billion, was driven by the Singapore business and a stronger Australian dollar.

Singapore business revenue rose 12 per cent to $1.29 billion – ‘the strongest revenue growth in the past five years’, as the operator outpaced rivals in adding a record 244,000 mobile phone subscribers in the quarter. SingTel Singapore now has 2.56 million users – a lion’s share of 43.4 per cent of the market.

But grabbing market share came at the expense of margins, which fell 4.2 points to 37.4 per cent in the quarter from a year ago.

The Australian dollar lifted operating revenue and net profit by $139 million and $12 million respectively.

Optus, SingTel’s Australian unit, reported a 4.5 per cent increase to A$1.94 billion (S$2.51 billion) in revenue for the quarter.

Contributions from SingTel’s regional associates grew a slower 18 per cent on a pre-tax basis in the quarter to $630 million, propelled by its 30.4 per cent-owned Indian associate Bharti Airtel. In the previous quarter, associates’ pre-tax grew 27 per cent. Dividends from associates for the full year amounted to $1 billion, up from $606 million a year ago.

The group continued to generate strong free cash flow. It was up 0.9 per cent to $929 million for the quarter and 27.9 per cent higher to $3.6 billion for the full year.

The Singapore business is the largest contributor of free cash flow to the group, at $1.4 billion for the full year. It also said earnings from regional associates are expected to grow at double-digit levels, though at a slower pace than in the past two years.

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