SingTel – BT

Bharti’s African safari hits SingTel earnings

Q2 profit down 6.7% but SingTel still ups dividend payout ratio

Singapore Telecommunications’ bottom line has been hit by its indirect expedition to Africa but the operator still raised its dividend payout ratio even as the pain lingers on in the coming quarters.

South-east Asia’s largest telco yesterday reported an unexpected 6.7 per cent dip in second-quarter net profit to $892 million, from $956 million a year earlier.

The result falls short of the average forecast from seven analysts polled by Dow Jones, which pegged the firm’s Q2 earnings at $969 million.

Consequently, underlying earnings per share for the three months ended Sep 30 fell to 5.59 cents, from 5.98 cents even though sales climbed 8.1 per cent to $4.4 billion, from $4.1 billion in 2009.

But despite the earnings blip, the company has raised its dividend payout ratio for this year to between 55 per cent to 70 per cent of underlying net profit, from 45 per cent to 60 per cent previously.

SingTel saw its pre-tax profits from its six regional associates fall 6.2 per cent to $536 million in its second-quarter.

The company, which derives 76 per cent of its ebitda (earnings before interest, tax, depreciation and amortisation) from overseas, was heavily weighed down by the cost of Bharti Airtel’s expansion into South Africa. In addition, a weaker performance from its Indonesian associate Telkomsel and higher operating costs in Singapore also contributed to the Q2 decline.

In June, SingTel’s largest regional associate Bharti, in which it has a 32 per cent stake, successfully acquired the 15 South African mobile assets belonging to Kuwaiti conglomerate Zain.

Beyond chipping in its share of the financing costs for this deal, SingTel’s earnings were dented by the inclusion of the first full quarter of losses from Bharti’s newly-acquired cellular companies in Africa. If these were excluded, SingTel said its net profit would have dipped by only 3 per cent in the second quarter.

According to its CEO Chua Sock Koong, Bharti has stated that it needs around six months to restructure the company and profitability should begin to improve by April next year.

‘We have to be patient. It will take a bit of time to integrate the operations (of Bharti and Zain),’ SingTel’s chief financial officer Jeann Low told reporters at a briefing yesterday.

Meanwhile, Bharti’s pre-tax contributions fell 11.5 per cent to $209 million in Q2. Contributions from Indonesian associate Telkomsel fell 8.8 per cent to $230 million due to a triple-whammy of heightened price wars, network upgrading costs and depreciation charges.

Globe Telecom’s share of SingTel’s pre-tax profit fell 7.8 per cent in the second quarter to $49 million as a result of intensified competition in the Philippines. Pacific Bangladesh Telecom and Pakistani associate Warid Telecom, on the other hand, continue to be in the red with pre-tax losses of $4 million and $14 million respectively.

The lone exception among SingTel’s regional investments was again Thai associate Advanced Info Service, which saw its pre-tax contributions jump 26 per cent to $67 million due to explosive mobile data take-up.

Australian subsidiary Optus also helped cushion the fall. The operator, which accounts for 31 per cent of SingTel’s ebitda, enjoyed another bull run in the second-quarter as its net profit climbed 17.5 per cent to $216 million.

Net income from SingTel’s Singapore operations fell 11.9 per cent in the second-quarter to $295 million due to higher mobile customer acquisition and retention costs, as well as continued investments in pay-TV content.

The firm attracted 39,000 new local postpaid mobile subscribers in the July to September period but it had to suffer the bane of higher handset subsidies as most of them are smart phone users.

The addition of 25,000 new pay-television customers in Q2 took SingTel’s mio TV customer base to 245,000. Revenue from pay-TV now stands at $22 million.

For the first six months of its new financial year, SingTel’s net profit fell 3.5 per cent to $1.8 billion, while revenue rose 9.7 per cent to $8.7 billion.

The firm has declared an interim dividend of 6.8 cents for its H1 performance, up from 6.2 cents last year.

In spite of the higher payout to shareholders, Ms Chua maintains that SingTel still has the ‘financial flexibility’ to pursue new investments and further acquisitions.

Looking ahead to the full-year, SingTel expects pre-tax profits from Singapore and Australia to grow by a ‘mid single digit’.

Bharti’s earnings will continue to be diluted by the acquisition financing costs for Zain as well as investments into third-generation cellular networks, while Telkomsel’s ebitda margin is set to ‘decline slightly’, it said.

SingTel shares closed six cents higher at $3.31 yesterday.

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