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operating and financial review

FINANCIAL REVIEW

Operating Revenue

  Year Ended 31 Dec  
  2010 (S$’m) 2009 (S$’m) YoY Change

Operating Revenue
Mobile telecommunications services 579.4 565.7 2.4%
International call services 129.0 128.4 0.4%
Fixed services 24.5 6.6 271.2%
Total service revenue 732.9 700.7 4.6%
Handset sales 246.3 80.9 204.7%
Total 979.2 781.6 25.3%
       

For 2010, M1’s operating revenue grew 25.3% to S$979.2 million due to higher service revenue and handset sales.

The following are more details from each segment:-

Mobile Telecommunications

  Year Ended 31 Dec  
  2010 (S$’m) 2009 (S$’m) YoY Change

Mobile telecommunications revenue
Postpaid 502.0 494.0 1.6%
Prepaid 77.3 71.7 7.8%
Total 579.4 565.7 2.4%
 

Average revenue per user (ARPU, S$ per month)
Postpaid S$63.9 S$60.4 5.9%
Postpaid (adjusted) S$59.8 S$60.3 (0.9%)
Data plan S$21.5 S$22.2 (3.4%)
Prepaid S$14.5 S$15.2 (4.7%)
Non-voice services as a % of Service revenue 31.9% 26.0%  
       

Mobile telecommunications revenue increased 2.4% to S$579.4 million. Postpaid revenue was 1.6% higher at S$502.0 million due to higher postpaid customer base. Prepaid revenue increased 7.8% to S$77.3 million due to growth in prepaid customer base.

Postpaid ARPU benefited from increased adoption of smartphones and related applications, and grew to $63.9.

Non-voice services as a percentage of service revenue increased 5.9 percentage points to 31.9%, compared to 26.0% a year ago, due to higher mobile data revenue.

International Call Services

  Year Ended 31 Dec  
  2010 (S$’m) 2009 (S$’m) YoY Change

International call services
Retail 118.5 114.6 3.4%
Wholesale & bilateral revenue 10.5 13.8 (24.2%)
Total 129.0 128.4 0.4%
 
Total international retail minutes (in millions) 957 727 31.6%
       

International call services revenue increased 0.4% to S$129.0 million due to higher retail revenue.

Handset Sales
Handset sales increased 204.7% to S$246.3 million, mainly attributed to accrued handset revenue.

Operating Expenses

  Year Ended 31 Dec  
  2010 (S$’m) 2009 (S$’m) YoY Change
Cost of sales 492.2 326.7 50.6%
Staff costs 89.1 76.2 17.0%
Advertising & promotion 26.1 20.9 24.8%
Depreciation & amortisation 117.0 128.1 (8.7%)
Allowance for bad & doubtful debt 14.8 4.3 241.2%
Facilities expenses 30.2 28.6 5.5%
Other general & administrative expenses 15.8 16.9 (6.9%)
Total 785.2 601.9 30.5%
 

Operating expenses increased 30.5% to S$785.2 million, driven mainly by higher cost of sales, advertising and promotion expenses, as well as staff costs.

Cost of Sales

  Year Ended 31 Dec  
  2010 (S$’m) 2009 (S$’m) YoY Change
Handset costs 297.1 137.3 116.4%
Traffic expenses 59.1 54.7 8.0%
Leased circuit costs 41.4 52.2 (20.6%)
Wholesale costs of fixed services 13.2 3.3 @
Other costs 81.4 79.3 2.7%
Total 492.2 326.7 50.6%
 

@ denotes more than -/+ 300%

Cost of sales increased 50.6% to S$492.2 million mainly due to higher handset costs. Handset costs increased 116.4% to $297.1 million on the back of higher sales volume and average unit cost. Leased circuit costs were lower at $41.4 million as traffic was progressively cut over from leased lines to our backhaul transmission network. Wholesale costs of fixed services increased to S$13.2 million as a result of growth in customer base.

Staff Costs
Staff costs increased 17.0% to S$89.1 million mainly due to the full-year impact of staff costs from an acquired subsidiary, as well as lower job credit grant.

Advertising and Promotion Expenses
Advertising and promotion expenses increased 24.8% to $26.1 million due to higher promotional activities during the year.

Depreciation and Amortisation
Depreciation and amortisation expenses fell 8.7% to S$117.0 million as some elements of 2G network were fully depreciated.

Allowance for Bad and Doubtful Debt
Doubtful debt allowance increased to S$14.8 million as 2009 benefited from higher write-back of over provision.

Facilities Expenses
Facilities expenses increased 5.5% to S$30.2 million due to higher rental and utility tariff rates.

Other General and Administrative Expenses
Other general and administrative expenses decreased 6.9% to S$15.8 million.

Finance Costs
Finance costs decreased 9.5% to S$5.8 million due to lower interest rates.

Taxation
Provision for taxation was 34.7% higher at S$33.4 million as 2009 benefited from a credit adjustment arising from the reduction in corporate tax rate in respect of opening deferred tax liability.

Net Profit

  Year Ended 31 Dec  
  2010 (S$’m) 2009 (S$’m) YoY Change
Net profit 157.1 150.3 4.5%
Net profit margin (on service revenue) 21.4% 21.4%  
 

Net profit at S$157.1 million was 4.5% higher while net profit margin remained stable at 21.4% for the year.

EBITDA

  Year Ended 31 Dec  
  2010 (S$’m) 2009 (S$’m) YoY Change
EBITDA 313.3 309.7 1.2%
EBITDA margin (on service revenue) 42.8% 44.2%  
 

EBITDA increased 1.2% to S$313.3 million as higher service revenue was partially offset by higher operating expenses.

EBITDA margin, as a percentage of service revenue, was lower at 42.8%.

Capital Expenditure and Commitments
Capital expenditure incurred in 2010 was S$99.9 million as compared to S$119.0 million for 2009.

Capital commitment as at 31 December 2010 was S$2.1 million.

Liquidity and Capital Resources

  Year Ended 31 Dec  
  2010 (S$’m) 2009 (S$’m) YoY Change
Profit before tax 190.5 175.1 8.8%
Non-cash item and net interest expense adjustments 80.8 87.9 (8.1%)
Net change in working capital (83.8) (41.0) 104.2%
Net cash provided by operating activities 187.4 222.0 (15.5%)
Net cash used in investing activities (120.3) (131.7) (8.6%)
Net cash used in financing activities (65.7) (100.7) (34.7%)
Net change in cash and cash equivalents 1.4 (10.3) (113.4%)
Cash and cash equivalents at beginning of financial period 7.4 17.8 (58.2%)
Cash and cash equivalents at end of financial period 8.8 7.4 18.3%
Free cash flow 67.5 103.0 (34.5%)
 

Operating cash flow decreased 15.5% to S$187.4 million mainly due to increased working capital requirements.

During the year, we paid S$20.0 million for additional 3G spectrum rights. As a result, free cash flow at S$67.5 million was 34.5% lower than S$103.0 million for 2009.

Financial Leverage
As at end December 2010, M1’s gearing ratio was 101.4% compared to 102.1% as at end December 2009. Interest coverage ratio (EBITDA/Interest) was 53.6x for 2010, higher than 47.9x for 2009.