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3 Things Investors Should Know About M1 Ltd’s Latest Earnings Announcement

M1 Ltd  (SGX: B2F)  is the smallest of the three current operational telcos in Singapore’s telco scene.

It recently reported its 2016 full year earnings. Here are three useful pieces of information from the results announcement:

1. Overall financial results

In 2016, M1’s revenue fell by 8.3% to S$1.06 billion. But the company’s profit after tax suffered a much steeper decline of 16.1% to S$149.7 million partly as a result of a mere 6.3% fall in operating expenses.

M1 has four business segments, namely, Mobile services, International call services, Fixed services, and Handset sales. All the segments, with the exception of Fixed services, reported weaker revenue for 2016 as compared to 2015.

2. Lower average revenue per user (ARPU) across the board

As a telco, M1 has significant fixed costs that will change only a little regardless of the level of revenue. As such, a small increase or decrease in the company’s revenue will have a huge impact on its bottom-line.

M1’s revenue depends mainly on two components: The revenue per user and the number of users there are. M1’s weak financial performance in 2016 was driven by declines in its ARPU across its different services.

M1 ARPUs
Source: M1 2016 fourth quarter earnings release

The table above shows how M1’s ARPUs for its different services – mobile and fibre – have seen declines in 2016 ranging from 3.4% to 17.0%. Competition has clearly had a significant impact on M1’s pricing power.

3. Growth in some areas

Though the two points I’ve shared above are mostly negative in nature, there are some bright spots found in M1’s results for 2016.

Firstly, M1 had seen growth in its market share and the number of customers it has. Here’s a table for a quick illustration:

M1 customer and marketshare numbers
Source: M1 2016 fourth quarter earnings release

Secondly, M1’s free cash flow for 2016 came in at S$193.5 million, some 22.6% higher than in 2015. This happened despite a S$7 million increase in capital expenditure in 2016. With more free cash flow, M1 has more resources to fund its dividends and investments for future growth.

In sum, M1 had a challenging time in 2016 due to an increase in competition within its industry. But, its business still displayed some positive signs, such as higher customer numbers and an increase in its overall market share.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.