News Column

PLDT net income up 2% at P20B in H1

August 6, 2014

By Rosalie C. Periabras, The Manila Times, Philippines

Aug. 06--Eyes potential European partner for Internet venture

PHILIPPINE Long Distance Telephone Co. (PLDT) announced Tuesday its unaudited consolidated core net income before exceptional items for the first six months of 2014 rose to P19.8 billion from P19.4 billion a year earlier, reflecting an increase of 2 percent or P400 million.

"We recognize the present state of flux of our businesses and thus proceed to optimize efforts in pushing the growing segments, managing the stable ones, while long-tailing our legacy businesses. It is clear our future lies in the broadband/data and Internet space, evidenced in our numbers this year, and in recent past years," PLDT Chairman Manuel Pangilinan said.

The company said the increase in earnings was due mainly to higher service revenues and equity share in earnings of subsidiaries, and lower financing costs.

PLDT's reported net income, after reflecting exceptional transactions for the period, grew 2 percent to P20 billion, from P19.7 billion in the same period in 2013, as a result of the rise in core net income, the increase in foreign exchange and derivative gains, and the retroactive effect of the adoption of revised Philippine Accounting Standard 19.

EBITDA (Earnings before interest, taxes, depreciation, and amortization) margin for the period was at 46 percent, higher than 45 percent in the second half of 2013.

Consolidated EBITDA for the first half of 2014 was 4 percent lower at P38.2 billion compared with the same period last year as the increase in service revenues was offset by higher cash operating expenses and subsidies.

Consolidated service revenues for the first six months of 2014 grew 2 percent to P82.5 billion, as revenues from the data and broadband business more than offset the declines from international and national long distance streams.

Earlier today, the company's Board of Directors approved the amendment of its dividend policy increasing the regular dividend payout from 70 percent to 75 percent of core earnings. Reflecting this change in policy, PLDT declared an interim dividend of P69 per share equivalent to 75 percent of first half this year core income.

"For the past seven years, we have maintained an unprecedented dividend payout of 100 percent of our core earnings, based on a payout rate of 70 percent for regular dividends, and an additional 30 percent in special dividends," Pangilinan said.

"The decision to increase our minimum dividend payout ratio to 75 percent attests to our confidence in the company's ability to sustain strong free cash flows without affecting our ability to continue making the necessary investments to maintain and indeed grow PLDT's businesses," he added.

Consolidated free cash flow for the first six months of the year remained robust at P18.1 billion.

Consolidated capital expenditures (capex) for the period amounted to P8.1 billion, P3.3 billion higher than the capex for the same period in 2013.

Ongoing network initiatives include the continued expansion of 3G and LTE coverage as well as the increase in fiber footprint. The network infrastructure is also being reconfigured and reinforced to better withstand severe weather disturbances.

Capital expenditures for 2014 are projected to be in the range of P31 billion to P32 billion, or 18 percent to 20 percent of service revenues.

Future expansion

The company said that it is currently in talks with some international companies that have a global footprint for a possible strategic partnership in the Internet space.

"Poly [Napoleon Nazareno] has suggested that if we have to choose two specific companies now, the one which is more imminent is a European company," Pangilinan said, and declined to give further details.

"We are reviewing a number of exciting opportunities in this space and would anticipate making an announcement soon," he said.

PLDT was the first Philippine company to be rated "investment grade" by all three major international ratings agencies.

"The ongoing structural shift in our revenue mix continues to impact our performance. Our 'growing' revenues, or those from our data businesses, are now larger than those from our legacy businesses," Pangilinan said.

In addition, SMS revenues continue to be pressured by the growth of OTT messaging services.

"We are also seeing the ascent of the postpaid business, which bodes well for data adoption, but generates lower margins vis-...-vis prepaid. These forces, expected to persist for the near-term, will likely moderate consolidated revenue growth and soften EBITDA margins," Napoleon Nazareno, President and Chief Executive Officer of PLDT and Smart Cellular said.

Wireless subsidiaries Smart Communications, Inc (Smart) and Digitel Mobile (Digitel) together continue to lead the industry in terms of both revenues and subscribers. Wireless service revenues of P57.9 billion for the first half of 2014 were slightly ahead of the P57.6 billion in the same period last year, reflecting the continued growth of non-SMS data and the growth in cellular voice revenues.

PLDT Group's postpaid revenues now account for 20 percent of total cellular revenues, having grown 14 percent to P10.4 billion at the end of June 2014.

The PLDT Group's total cellular subscriber base at the end of June 2014 was 68.9 million subscribers, broken down as follows: Smart with 25.6 million subscribers under its mainstream Smart brands; value brand Talk 'N Text ended with 28.1 million subscribers; and 15.3 million Sun Cellular subscribers.

The Group's combined postpaid cellular subscriber base grew by over 179,000, rising to about 2.6 million at the end of the period, while the combined prepaid base stood at 66.3 million.

Broadband

Total broadband, data, and Internet revenues for the first six months of 2014 totaled P15.4 billion, a 22-percent growth year-on-year; broadband and internet now account for 19 percent of total group service revenues.

Wireless broadband revenues, exclusive of mobile Internet revenues, increased by 7 percent to P4.9 billion, compared with the P4.6 billion recorded last year.

Moreover, mobile Internet usage continues to grow strongly, with mobile Internet revenues increasing by 77 percent to P3.7 billion in the first half of 2014 from P2.1 billion in 2013.

PLDT Group fixed broadband businesses generated P6.7 billion in revenues for the first half of 2014, up 13 percent from P5.9 billion in the same period in 2013.

The Group's combined broadband subscriber base was 3.6 million at the end of June 2014. Smart Broadband, Smart's wireless broadband service offered through its wholly-owned subsidiary Smart Broadband, Inc., had a wireless broadband subscriber base of over 2.1 million at the end of the period, about 1.5 million of whom were on Smart Broadband's prepaid service.

In addition, Sun Cellular had a wireless broadband subscriber base of over 540,000.

Meanwhile, PLDT's fixed broadband subscribers increased by 7 percent from the end of 2013, bringing the total fixed broadband subscriber base to just over one million for the first half of 2014, and now represents 47 percent of the fixed line subscriber base.

"The market is beginning to see the influx of lower cost smartphones which can only increase penetration and data usage. Over 20 percent of our subscriber base now own a smartphone and mobile Internet usage surged 121 percent in the first half of the year to over 15,000 Terabytes. We are now directing our efforts to stimulating data usage amongst prepaid subscribers," said Orlando Vea, Smart Chief Wireless Adviser.

Fixed Line

Fixed line service revenues for the first six months of 2014, net of interconnection costs, increased to P28.1 billion, or 6 percent from P26.5 billion in the same period last year.

PLDT data and fixed broadband revenues, representing 53 percent of total fixed line revenues, continued to grow on the back of a 14-percent increase in fixed broadband revenues, a 7percent rise in corporate data and other network services, and an 18 percent increase in data center revenues.

The fixed line subscriber base reached about 2.2 million at the end of June 2014, over 47 percent of whom have fixed broadband subscriptions.

"Our Fixed Line Business continues to be a star performer, bucking global trends, as business and revenues from our retail and corporate customers proceed to grow at a steady pace," Nazareno noted.

Airline business

Meanwhile, Pangilinan clarified that the airline business is not their core business.

"This time, investment in an airline is not on the radar scene," Pangilinan said.

When asked if he would be interested to buy an airline company like Philippine Airlines or if he made an offer earlier, Pangilinan admitted: "Yes, about two years ago. Also our offer in that time is at the different configurations."

"It's not within our line of business," he added. "I don't think we're good in running an airline."

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(c)2014 The Manila Times (Manila, Philippines)

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Source: Manila Times (Phillipines)


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