M1 Annual Report 2007

M1 strives to effectively combine its human and technological resources to achieve profitability and deliver long-term sustainable growth.

total operating revenue

S$803.3 million(+3.9%)

net profit

S$171.8 million (+4.4%)

Operating Revenue

	Year Ended 31 Dec
	2007	2006	YoY
Operating Revenue	S$'m	S$'m	Change

Mobile telecommunications services	600.1	568.9	5.5%
International call services	127.1	114.0	11.5%
Others	-	0.7	-100.0%
Total service revenue	727.1	683.6	6.4%
Handset sales	76.1	89.4	-14.9%
Total	803.3	773.0	3.9%
For 2007, M1’s operating revenue grew 3.9% to S$803.3m, driven mainly by service revenue growth of 6.4%. Mobile telecommunications revenue increased 5.5% to S$600.1m, as the postpaid segment benefited from higher average revenue per user (ARPU) and a larger customer base. International call revenue increased 11.5% to S$127.1m, as retail traffic grew by 50.5% due to increased promotions for the value segments during the year. Handset sales decreased 14.9% as a result of lower selling prices.
Mobile Communications

	Year Ended 31 Dec
	2007	2006	YoY
Mobile telecommunications revenue	S$'m	S$'m	Change

Postpaid	538.5	507.0	6.2%
Prepaid	61.6	61.9	-0.5%
Total	600.1	568.9	5.5%


Average revenue per user (ARPU, S$ per month)
Postpaid* (exclude Data plan)	61.9	60.2	2.8%
Data Plan	31.7	34.7	-8.6%
Prepaid*	17.6	19.1	-7.9%
Non-voice services as contribution to service revenue (%)	21.6	19.1	-

* Re-stated to include certain revenue previously omitted.

The higher mobile telecommunications revenue was driven mainly by the postpaid segment which grew 6.2% to S$538.5m. Apart from a larger customer base, the postpaid segment saw higher subscription revenue as more customers signed up for mid and high-tier plans. Coupled with higher mobile data usage, postpaid ARPU increased 2.8% to S$61.9. Prepaid revenue remained stable as growth from enlarged base was offset by lower ARPU due to competitive offerings introduced during the year. With the wider adoption of data mass market plans across an enlarged customer base, data plan ARPU decreased 8.6% to S$31.7. Prepaid ARPU declined 7.9% to $17.6 as a result of new mass market price plans with reduced tariffs introduced in the first half of 2007. Non-voice services as a percentage of service revenue increased 2.5% points to 21.6%, compared to 19.1% for 2006 due to higher SMS and mobile data revenues.

International Call Services

	Year Ended 31 Dec
	2007	2006	YoY
International call service revenue	S$’m	S$’m	Change

Retail	111.6	104.6	6.7%
Wholesale & bilateral revenue	15.5	9.4	64.9%
Total	127.1	114.0	11.5%

Total international retail minutes (in millions)	310	206	50.5%

International call service revenue increased 11.5% to S$127.1m, as retail traffic grew 50.5% to 310 million minutes. During the year, we continued to drive sign-ups for IDD postpaid plans, as well as introduced and increased the number of free IDD countries. There were also bundled promotions for our prepaid card and 1818 International Calling Card.

Handset Sales Handset sales was 14.9% lower at S$76.1m, due mainly to lower unit selling prices.

Operating Expenses
	Year Ended 31 Dec
	2007	2006	YoY
	S$’m	S$’m	Change

Cost of sales	296.4	270.6	9.5%
Staff costs	91.7	88.1	4.1%
Advertising & promotion	19.3	17.6	9.7%
Depreciation & amortisation	116.7	112.4	3.8%
Provision for bad & doubtful debt	19.0	18.9	0.5%
Facilities expenses	38.1	34.0	12.1%
Other general and administrative expenses	21.1	17.5	20.6%
Total	602.2	559.0	7.7%

Total operating expenses increased 7.7% to S$602.2m, due mainly to higher cost of sales. As a percentage of operating revenue, it increased 2.7 percentage points to 75.0%.

Cost of Sales

	Year Ended 31 Dec
	2007	2006	YoY
	S$'m	S$'m	Change

Handset cost	133.2	137.2	-2.9%
Traffic expense	46.6	31.0	50.3%
Leased circuit costs	41.5	30.1	37.9%
Other cost	75.1	72.3	3.9%
Total	296.4	270.6	9.5%

Cost of sales increased 9.5% to S$296.4m. The increase was mainly due to higher traffic expenses and leased circuit costs. Higher traffic expenses were driven by growth in IDD traffic volume, while higher leased circuit costs were to support the growth in data traffic. In addition, 2006 leased circuit costs benefited from a non-recurring adjustment. Staff Costs Staff costs increased 4.1% to S$91.7m, in line with annual increment. Advertising & Promotion Expenses Advertising and promotion expenses increased 9.7% to $19.3m due to higher media spend. M1 also celebrated its 10th anniversary in 2007, with several events and customer promotions. Depreciation & Amortisation Depreciation and amortisation expenses increased 3.8% to S$116.7m due to higher asset base. Provision for Bad & Doubtful Debt Provision for bad and doubtful debt remained relatively stable at S$19.0m for 2007. Facilities Expenses Facilities expenses increased 12.1%, due to higher technical support and maintenance expenses. Other General & Administrative Expenses Other general & administrative expenses increased 20.6% to S$21.1m, mainly due to expenses incurred for new initiatives to support future revenue growth. Finance Costs Finance costs decreased 7.8% to $9.5m, due to lower interest rate. Taxation Provision for taxation fell 48.9% to S$22.7m, mainly due to the tax adjustments for the reduction in corporate tax rate and overprovisions for prior years.

Net Profit

	Year Ended 31 Dec
	2007	2006	YoY
	S$’m	S$’m	Change

Net profit	171.8	164.6	4.4%
Net profit margin (on service revenue) (%)	23.6	24.1	-

Net Profit at S$171.8m, was 4.4% higher compared to 2006 and this was mainly attributed to tax adjustments for the reduction in corporate tax rate.

EBITDA

	Year Ended 31 Dec
	2007	2006	YoY
	S$’m	S$’m	Change

EBITDA	320.7	331.7	-3.3%
EBITDA margin (on service revenue) (%)	44.1	48.6	-

EBITDA decreased 3.3% to S$320.7m mainly due to higher operating expenses. Correspondingly, EBITDA margin, as a percentage of service revenue, decreased to 44.1% for the year, compared to 48.6% for 2006. Capital Expenditure and Commitments Capital expenditure incurred for 2007 was S$56.3m, slightly higher compared to $54.6m for 2006, due mainly to mobile broadband devices. Capital commitment as at 31 December 2007 was S$16.3m.

Liquidity and Capital Resources

	Year Ended 31 Dec
	2007	2006	YoY
	S$'m	S$’m	Change

Profit before tax	194.5	209.0	-6.9%
Net change in working capital	3.8	(25.9)	-114.7%
Other adjustments for non-cash items & interest paid / received & tax payment	30.8	114.2	-73.0%
Net cash provided by operating activities	229.0	297.3	-23.0 %
Net cash used in investing activities (current year capex)	(56.3)	(54.4)	3.5%
Net cash used in financing activities	(318.2)	(249.7)	27.4%
Net change in cash and cash equivalents	(145.5)	(6.8)	^@
Cash and cash equivalents at beginning of financial period	168.6	175.4	-3.9%
Cash and cash equivalents at end of financial period	23.1	168.6	-86.3%
Free cash flow ²	172.7	242.7	-28.8%

^@ denotes more than -/+300% ² Free cash flow refers to net cash flow from operating activities less current year capital expenditure Operating cash flow decreased 23.0% to S$229.0m, due mainly to tax payments as M1 paid taxes for two years in 2007. Consequently, free cash flow decreased 28.8% to S$172.7m. Financial Leverage As at end of December 2007, net-debt-to-equity ratio was 129.7%, compared to 21.3% a year ago. The increase was mainly due to the 10% capital reduction effected in May 2007 to return cash to shareholders. Interest coverage ratio (EBITDA/Interest) remained stable at 33.9x for 2007 compared to 32.3x for 2006.