We are living in a new digital era today.

In the last few years, the availability and consumption of digital content have surged significantly, driven by new technologies, platforms and players. Many sectors such as government, healthcare, transport, education and entertainment are exploring new digital applications and services to improve productivity and drive progress. From taking an order on a tablet in a restaurant to real-time news notification on your mobile phone, we are evolving into a smart and connected world where nearly every electronic device will soon be, if not already, connected to the Internet.

M1 has been setting the pace in empowering our customers in the digital world. We launched Southeast Asia's first nationwide 4G service in September 2012. Coupled with the launch of attractive 4G devices, we signed up 43,000 4G customers within a month of launch. With 4G service, customers enjoy ultra-fast mobile broadband speeds and access to rich multimedia applications on-the-go.

M1's 4G service, the latest of our many industry "firsts" over the years including nationwide 3G commercial service, mobile broadband service and Next Generation Nationwide Broadband Network (NGNBN) fibre service, came about not by chance, but because of our commitment to seek innovation and continual investment in our networks. Through our concerted efforts, we enable our customers to be better connected and to accomplish more, at work and at play.

Financial results

Financial year 2012 ended on a positive note.

While full year net profit after tax of S$146.5 million for 2012 was 10.7% lower year on year due to increased competition, our fourth quarter net profit after tax grew 14.4% quarter on quarter to S$37.9 million, reversing the declines seen in the previous quarters.

FY2012 service revenue grew 2.8% to S$771.6 million, driven by growth in mobile customer base and higher contributions from fixed services. Fixed services revenue increased 25.7% to S$48.1 million, as we continued to champion fibre services and drive take-up in both the residential and corporate segments.

With higher smartphone and tablet penetration, non-voice services as a percentage of service revenue grew 2.0 percentage points to 37.6% of service revenue. As at end-2012, smartphone customers accounted for 75% of total postpaid customer base, compared to 67% a year ago.

Free cash flow for FY2012 remained healthy at S$152.3 million. As at end-2012, net debt decreased S$31.1 million to S$260.4 million and we maintained a strong balance sheet with net debt-to-EBITDA ratio at 0.9x.

Performance highlights

Despite increased competition, we continued to grow our core mobile customer base, adding 94,000 customers over the course of the year. As at end-2012, M1 had 1.1 million postpaid customers and 1.0 million prepaid customers. We signed up 146,000 customers on our new nationwide 4G network, which was launched in September, and this strong take-up was driven by an improved mobile experience, attractive 4G devices and competitively priced service plans.

New mobile service plans with tiered data bundles were also introduced in September. With customers paying for what they use, the experience of the majority of our customers will not be affected by the minority of heavy data users and this will improve the overall mobile data usage experience.

In the fixed segment, we continued to champion fibre broadband services and added 30,000 fibre customers during the year. Leveraging on our existing assets, including a well-established M1 brand, superior customer service and strong retail presence, we were able to build our fibre market share on the NGNBN to around 20% in two years.

Over the year, M1 continued to receive a number of accolades and awards. Our new brand campaign "The World's Different with A Friendly Telco" won the coveted Gold award for Excellence in Integrated Marketing (Consumer) at the Marketing Excellence Awards. We also led in the Customer Satisfaction Index¹ (CSISG) for the mobile telecom sector, for the third consecutive year. On the retail front, our Changi Airport Terminal 3 M1 Shop outlet was honoured with the airport's Outstanding Outlet Award, for going the extra mile for our customers.

Outlook

With Singapore's mobile penetration rate at 151.8%² and residential broadband penetration rate at 107.3%² as at end-December 2012, competition in the marketplace is likely to remain keen in 2013.

Nevertheless, M1 is well-positioned to grow.

Over the years, M1 has made significant investments in service excellence initiatives and in our networks, and we will continue to enhance these areas to improve our customers' experiences.

In our core mobile business, data usage will continue to grow, driven by increasing digitisation of our daily work and personal lives. We are poised to capitalise on the increasing adoption of smart devices and data services, with our nationwide 4G network and tiered data service plans.

Fixed services remain a growth segment for M1.

With nationwide coverage of the NGNBN, increased awareness and as customers complete their existing contract commitments progressively, the adoption of fibre services is likely to accelerate in 2013. M1 will build on the momentum to further entrench our position in the fixed space. Revenue and margin for fixed services will likely improve as we continue to grow our customer base.

As part of our commitment to continually invest in our network infrastructure, we are in the process of expanding and upgrading our 3G and 2G mobile networks. This includes the implementation of a 3G network layer utilising the 900MHz spectrum band and a femtocell solution, to further enhance our network coverage. We are also expanding and upgrading our microwave backhaul transmission network to add capacity to support future data traffic growth. Last but not least, we will be deploying the latest network solutions to further enhance the resiliency of our core and radio networks.

To support our needs as a dynamic full-service operator, we commenced a major upgrade to our Billing & Customer Care system in 2012. The first phase of this upgrade, to be completed this year, will enable us to be more responsive to customer needs. The entire project, when completed by 2014, will further streamline our business operations and enhance interaction with customers.

¹ The CSISG, first launched in 2008, is a comprehensive, independent qualitative multi-sector study on customer service developed by the Singapore Workforce Development Agency and the Singapore Management University's Institute of Service Excellence

² Based on Infocomm Development Authority's published statistics available at the time of submission

Corporate social responsibility

As we progress to achieve our business objectives, we remain committed to playing a positive role in the well-being of our staff, the community and towards environmental sustainability.

In 2012, we continued to invest in people development, promote work-life balance and ensure workplace health and safety.

Our community engagement programmes remained in the areas of the arts, sports and charities supporting children causes. As always, M1's employees complemented the Group's efforts by investing their personal time and passion in activities, ranging from helping out at fund-raising events for adopted charities to organising fun-filled activities such as cake-baking and ice skating sessions, for the underprivileged children.

Through our annual M1 Charity Golf and M1 Charity Carnival fund-raising events, we raised more than S$300,000 for our adopted charities in 2012.

M1 was presented with the Distinguished Patron of the Arts Award 2012 from the National Arts Council, for the 12^th consecutive year, in recognition of our support for the arts including the annual M1 Fringe Festival and two leading contemporary dance companies – T.H.E Dance Company and Frontier Danceland.

Environmental sustainability is a continuous journey and we are committed to doing our part in reducing the environmental impact of our business operations. One such initiative was the installation of solar panels at our offshore base station at Raffles Lighthouse in 2012, which reduced the station's diesel consumption by 53% a year. We will continue to explore initiatives for the use of renewable energy where feasible.

Distribution to shareholders

The Board of Directors has proposed a final dividend of 6.3 cents and a special dividend of 1.7 cents, representing a payout of 90% of our full year net profit after tax. The full year dividend payout for FY2012 is comparable to the previous year.

In 2012, the increase in M1's share price, together with dividends paid out, resulted in a total shareholders' return of 14.2%, compared to 14.0% for 2011.

Going forward, M1 will continue to pursue a long-term sustainable capital distribution policy.

A note of appreciation

In closing, we would like to thank M1's customers, shareholders and business partners for their continued support, our Board of Directors for their invaluable and unstinting guidance, as well as our staff for their commitment and hard work.

There are exciting times ahead and we have every confidence in our people to drive our business forward together and deliver long-term value for all stakeholders.

Teo Soon Hoe Chairman

Karen Kooi Lee Wah Chief Executive Officer