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Singapore Telecommunications Limited’s Latest Earnings: What Investors Should Know

Yesterday, Singapore Telecommunications Limited (SGX: Z74) reported its earnings for the quarter and year ended 31 March 2016 (FY2016).

The company, which is more popularly known as Singtel, is one of the largest telecommunications companies in Asia and it has operations mainly in Singapore and Australia.

Singtel’s business can be divided into three major divisions. The Group Consumer division is made up of its mobile, mio TV, fibre broadband, ADSL, and fixed voice services. This division also has contributions from Singtel’s regional mobile associates such as Telkomsel, Airtel, Globe and more.

The Group Enterprise Division is the second in line and it mainly covers Singtel’s infocomm technology (ICT) solutions for corporate clients. The final and smallest division, is Group Digital Life, which focuses on new growth opportunities and revenue platforms in a mobile-led internet world.

You can read more about Singtel in here and here or catch up with the results from its previous quarter here.

Financial highlights

The following’s a quick rundown on some of the latest financial figures for Singtel:

  1. Singtel’s revenue was down 6% year-on-year for the fiscal fourth-quarter, coming in at S$4.1 billion. For FY2016, Singtel’s revenue was down by 1.5% to S$17.0 billion.
  2. But, net profit attributable to shareholders for the quarter was up by 0.8% to S$946 million. For the fiscal year, Singtel’s net profit came in at S$3.87 billion, up 2.4% from the previous year.
  3. Consequently, Singtel’s earnings per share (EPS) for the reporting quarter was also up by 0.8% year-on-year to 5.94 Singapore cents. Singtel ended the fiscal year with 24.29 Singapore cents in EPS.
  4. For the reporting quarter, cash flow from operations came in at S$1.21 billion with capital expenditures clocking in at S$527 million. The combination resulted in Singtel generating S$681 million in free cash flow for the quarter, down from the S$964 million seen in the previous year (S$1.52 billion in cash flow from operations and S$561 million in capex). For FY2016, Singtel generated $2.72 billion in free cash flow (S$4.65 billion in cash flow from operations and S$1.93 billion in capex), a decline from the $3.55 billion recorded a year ago (S$5.79 billion in cash flow from operations and S$2.24 billion in capex).
  5. As of 31 March 2016, the telecommunications outfit had S$462 million in cash and equivalents and S$9.6 billion in debt. This is down from the $563 million in cash and equivalents and S$8.5 billion in debt recorded on the same date last year.

In all, it’s fair to say that Singtel’s revenue and profit for the reporting fiscal year were largely unchanged from a year ago. The telco continues to generate positive free cash flow, though the figure was lower compared to the year before. It’s important for Singtel to keep its free cash flow going due to the increased level of debt on its balance sheet.

A final dividend of 10.7 Singapore cents per share was proposed. Together with the interim dividend of 6.8 Singapore cents per share, the total dividend payout for the year would be 17.5 Singapore cents per share; this is unchanged from FY2015.

Operational highlights

The Group Consumer division’s revenue fell by 13% year-on-year for the reporting quarter. The division ended the fourth-quarter with S$2.3 billion in sales.

Singtel’s Australian Optus arm recorded a 10% decline in sales to A$1.7 billion, even in constant currency terms.  Mobile termination rates had a negative impact of A$183 million on Optus’s revenue for the fourth-quarter of FY2016.

To round off the Group Consumer division, Singtel’s share of pre-tax earnings from its regional mobile associates for the reporting quarter was up 12% year on year, coming in at S$699 million. Profit before tax (PBT) contributed by Telkomsel was up 32% year-on-year, but was held back by weaker profit from AIS.

On the Group Enterprise side, revenue rose 5% compared to the same quarter last year. Much of the growth was contributed by the Trustwave acquisition, which contributed S$73 million for the fourth-quarter. Overall Group Enterprise revenue came in at S$1.68 billion for the fourth-quarter.

Last but not least, the Group Digital Life division’s revenue was up 12% to S$135 million, boosted by strong revenue growth at Amobee and Dataspark. The division, though, posted EBITDA (earnings before interest, taxes, depreciation, and amortisation) losses of S$39 million for the reporting quarter. To be sure, that’s an improvement from the negative EBITDA of S$62 million seen a year ago. Combined revenue from HOOQ, (Singtel’s online video streaming service) and Dataspark was S$5 million for the reporting quarter.

Chua Sock Koong, Singtel’s chief executive, had shared a few words in the earnings release on the quarter:

“Mobile data was the bright spot. Our regional markets are now making their respective transitions from mobile telephony to mobile internet and harnessing the benefits of extensive investments in 3G and 4G networks and services. We worked with our regional associates to navigate this shift from voice to data.

In Singapore and Australia, our businesses were the first to launch innovative data add-on plans and zero-rated music services to meet customers’ increasing demands for OTT [over-the-top] content services and data allowances, driving further data monetisation.

Our ICT business [Cloud and Cybersecurity] is delivering strong results in spite of the slowing global economy. Government agencies and businesses are increasingly turning to cloud computing and data analytics to drive productivity and manage large amounts of complex data. We have been able to strengthen the business with our investments in talent and capability building.”

Singtel expects to grow its revenue and EBITDA by low single digits for the coming fiscal year.

At its closing price yesterday of S$3.89, Singtel traded at 16 times trailing earnings and offers a trailing dividend yield of 4.6%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.