M1 | Operating and Financial Review

	Year Ended 31 Dec
Operating Revenue	2009 (S$m)	2008 (S$m)	YoY Change
Mobile telecommunications services	565.7	601.2	-5.9%
International call services	128.4	137.1	-6.3%
Fixed network service	6.6	0.2	@
Total service revenue	700.7	738.5	-5.1%
Handset sales	80.9	62.1	30.2%
Total	781.6	800.6	-2.4%

* denotes more than -/+ 300%

For 2009, M1’s operating revenue at S$781.6m fell 2.4% due to lower service revenue. The following are more details from each segment:

MOBILE COMMUNICATION

	Year Ended 31 Dec
Mobile telecommunications revenue	2009 (S$m)	2008 (S$m)	YoY Change
Postpaid	494.0	529.6	-6.7%
Prepaid	71.7	71.6	0.2%
Total	565.7	601.2	-5.9%

Average revenue per user (ARPU, US$ per month)

Postpaid (exclude Data plan)	S$60.4	S$63.9	-5.5%
Data plan	S$22.2	S$28.4	-21.8%
Prepaid	S$15.2	S$17.3	-12.1%
Non-voice services as % of service revenue	26.0%	23.4%

Mobile telecommunications revenue fell 5.9% to S$565.7m. Postpaid revenue decreased 6.7% mainly due to lower voice usage and roaming revenue. Pre-paid revenue remained stable at S$71.7m.

Non-voice services as a percentage of service revenue increased 2.6% points to 26.0%, compared to 23.4% due to higher mobile data revenue.

INTERNATIONAL CALL SERVICES

	Year Ended 31 Dec
International call service revenue	2009 (S$m)	2008 (S$m)	YoY Change
Retail	114.6	124.0	-7.5%
Wholesale & bilateral revenue	13.8	13.1	5.0%
Total	128.1	137.1	-6.3%
Total international retail minutes (in millions)	727	526	38.2%

International revenue decreased 6.3% to S$128.4m due to decline in roaming traffic. However, international retail minutes rose 38.2% to 727m minutes due to increased traffic to local
rated destinations.

HANDSET SALES
Handset sales increased 30.2% to S$80.9m for the year mainly due to higher sales volume.

OPERATING EXPENSES

	Year Ended 31 Dec
	2009 (S$m)	2008 (S$m)	YoY Change
Cost of sales	326.7	300.7	8.7%
Staff costs	76.2	86.6	-12.0%
Advertising & promotion	20.9	20.2	3.6%
Depreciation & amortisation	128.1	123.9	3.4%
Provision for bad & doubtful debt	4.3	16.9	-74.3%
Facilities expenses	28.6	38.7	-26.1%
Other general & administrative expenses	16.9	21.9	-22.8%
Total	601.9	608.9	-1.2%

Operating expenses decreased 1.2% to S$601.9m mainly due to lower facilities expenses, provision for doubtful debt and staff cost.

COST OF SALES

	Year Ended 31 Dec
	2009 (S$m)	2008 (S$m)	YoY Change
Handset costs	137.3	127.7	7.5%
Traffic expenses	56.2	52.4	7.2%
Leased circuit costs	53.5	39.5	35.7%
Other costs	79.7	81.1	-1.8%
Total	326.7	300.7	8.7%

Operating expenses decreased 1.2% to S$601.9m mainly due to lower facilities expenses, provision for doubtful debt and staff cost.

COST OF SALES

	Year Ended 31 Dec
	2009 (S$m)	2008 (S$m)	YoY Change
Handset costs	137.3	127.7	7.5%
Traffic expenses	56.2	52.4	7.2%
Leased circuit costs	53.5	39.5	35.7%
Other costs	79.7	81.1	-1.8%
Total	326.7	300.7	8.7%

Cost of sales was 8.7% higher at S$326.7m mainly due to higher handset cost and leased circuit costs. Handset cost increased 7.5% to $137.3m due to higher sales volume. Leased circuit cost was higher at $53.5m due to increased data traffic and 2008 benefited from a credit adjustment.

STAFF COSTS
Staff costs fell 12.0% to S$76.2m mainly due to lower headcount.

ADVERTISING & PROMOTION EXPENSES
Compared to the corresponding period last year, advertising and promotion expenses increased 3.6% to $20.9m as a result of higher media spend.

DEPRECIATION & AMORTISATION
Depreciation and amortisation expenses increased 3.4% to S$128.1m due to higher asset base.

PROVISION FOR BAD & DOUBTFUL DEBT
Doubtful debt expense decreased 74.3% to S$4.3m mainly due to write-back of over provision.

FACILITIES EXPENSES
Facilities expenses decreased 26.1% to S$28.6m mainly due to lower technical support costs.

OTHER GENERAL AND ADMINISTRATIVE EXPENSES
Other general and administrative expenses decreased 22.8% to S$16.9m, mainly due to lower ad hoc project costs.

FINANCE COSTS
Finance costs decreased 14.7% to S$6.5m due to lower interest rates.

TAXATION
Provision for taxation decreased 29.0% to S$24.8m mainly due to adjustment in corporate tax rate in respect of opening deferred tax liability in the first quarter of 2009 and lower corporate tax rate.

NET PROFIT

	Year Ended 31 Dec
	2009 (S$m)	2008 (S$m)	YoY Change
Net profit	150.3	150.1	0.1%
Net profit margin (on service revenue)	21.4%	20.3%

Net profit was stable at S$150.3m. Net profit margin was 21.4% for the year.

EBITDA

	Year Ended 31 Dec
	2009 (S$m)	2008 (S$m)	YoY Change
EBITDA	309.7	316.5	-2.1%
EBITDA margin (on service revenue) (%)	44.2%	42.9%

EBITDA decreased 2.1% to $309.7m mainly due to lower service revenue.

EBITDA margin, as a percentage of service revenue, increased 1.3% points to 44.2%.

CAPITAL EXPENDITURE AND COMMITMENTS
Capital expenditure incurred in 2009 was S$119.0m, compared to S$94.1m for 2008, mainly due to the rollout of the cellular backhaul transmission network.

Capital commitment as at 31 December 2009 was S$9.7m.

LIQUIDITY AND CAPITAL RESOURCES

	Year Ended 31 Dec
	2009 (S$m)	2008 (S$m)	YoY Change
Profit before tax	175.1	185.0	-5.4%
Non-cash item and net interest expense adjustments	87.9	77.9	12.8%
Net change in working capital	(41.0)	(8.4)	@
Net cash provided by operating activities	222.0	254.5	-12.8%
Net cash used in investing activities	(131.7)	(96.8)	36.0%
Net cash used in financing activities	(100.7)	(163.0)	-38.2%
Net change in cash and cash equivalents	(10.4)	(5.3)	95.6%
Cash and cash equivalents at beginning of financial period	17.8	23.1	-23.0%
Cash and cash equivalents at end of financial period	7.4	17.8	-58.2%
Free cash flow¹	103.0	157.6	-34.7%

@ denotes more than +/- 300%
¹ Free cash flow refers to net cash flow from operating activities less current year capital expenditure

Operating cash flow decreased 12.8% to S$222.0m due to lower profit before tax and changes in working capital.

Free cash flow decreased 34.7% to S$103.0m for the year mainly due to higher capital expenditure.

FINANCIAL LEVERAGE
As at end of December 2009, gearing ratio was 102.1% compared to 104.0% as at end December 2008.
Interest coverage ratio (EBITDA/Interest) was 47.9x for 2009, up from 41.8x for 2008.