Manila—(PHStocks)—Philippine Long Distance Telephone Co. (PLDT, PSE: TEL) (NYSE: PHI) has announced its audited financial and operating results for 2015 with Consolidated Core Net Income, before exceptional items, amounted to PhP35.2 billion, 6% or PhP2.2 billion lower than the PhP37.4 billion recorded last year. The decrease was due mainly to lower EBITDA reflecting the impact of expenses relating to the manpower reduction program, higher financing costs, offset by lower provisions for income tax.
Reported net income, after reflecting exceptional transactions for the period, declined 35% to PhP22.1 billion, from PhP34.1 billion in 2014, as a result of the dip in core net income, higher foreign exchange and derivative losses and a rise in impairment charges relating to both fixed assets and investments.
Excluding revenues from the international and national long distance (ILD/NLD) segments of PhP19.7 billion, consolidated service revenues grew by 2% year-on-year, from PhP140.3 billion to PhP143.2 billion at the end of 2015.
EBITDA margin for the period was at 43%. Consolidated EBITDA for 2015 was 9% lower at PhP70.2 billion compared with the same period last year due to lower service revenues from the wireless business, higher cash operating expenses, which include the costs arising from the manpower reduction program, and higher provisions.
EBITDA and profitability continue to be impacted by the ongoing structural change in revenue mix and heightened competition. Reported Net Income was significantly affected by the depreciation of the peso relative to the U.S. dollar, compounded by the impairment charges on Sun Cellular assets rendered obsolete by the ongoing network upgrade and our investment in Rocket Internet, affected by its lower share price at the end of 2015 and the depreciation of the Euro relative to the peso.
Consolidated free cash flow for year stood at PhP27.8 billion. Consolidated capital expenditures for the period amounted to PhP43.2 billion, PhP8.4 billion higher than the capital expenditures in 2014. These investments resulted in:
- Significantly upgraded 2G (9% more sites), 3G (53% more sites) and 4G (16% more sites) coverage through new rollouts, the integration of the Sun network, and optimization
- Expanded FTTH network by 160,000 lines
- Improved Internet browsing experience through capacity expansion, caching and direct interconnections
- Enhanced customer experience as verified by independent studies
- Innovative converged fixed and mobile products and services such as the shared data plans
The Group’s consolidated net debt increased to US$2.4 billion as at 31 December 2015, with net debt to EBITDA higher at 1.6x. Gross debt amounted to US$3.4 billion. The Group’s debt maturities continue to be well spread out, with over 60% due after 2018. The percentage of U.S. dollar-denominated debt to the Group’s total debt portfolio is at 42%. Taking into account our peso borrowings, our hedges and our US dollar cash holdings, only 17% of total debt remains unhedged, down from 34% in 2014. The Group’s cash and short-term securities are invested primarily in bank placements and Government securities. PLDT continues to be rated “investment grade” by the three major international ratings agencies, namely Fitch Ratings, Moody’s and Standard and Poor’s.
Earlier today, the company’s board of directors declared a final regular dividend of PhP57 per share. Together with the interim regular dividend of PhP65 per share declared in August 2015, the total dividend of PhP122 represents 75% of 2015 core earnings. Payment date will be on 1 April 2016.
“For 2015, we will pay out 75% of our earnings as regular dividends but will not pay a special dividend. Our elevated capex levels and investment plans deem it necessary that we conserve cash and maintain debt at prudent levels whilst we are transitioning,” said Manuel V. Pangilinan, PLDT Chairman and CEO.
As the leader in digital services, our offerings are premised on providing our consumers entertainment at home or on the go, urban comfort/convenience, and peace-of-mind.
Data and broadband revenues continued their strong revenue growth, growing 16% to PhP48.5 billion in 2015. Data and broadband revenues now account for about 30% of consolidated service revenues with the goal of accelerating these revenues such that they make up more than 40% of consolidated service revenues in the next three years. Mobile Internet usage grew 106% to close to about 100,000 terabytes while related revenues grew 26% to PhP10.4 billion.
Smartphone penetration is now about 40% of our cellular subscriber base and we expect the success of our Smart888 phone to raise this even further. Other efforts to enable and accelerate data adoption to drive usage include the bundling of popular apps and video platforms with various load and plan denominations. The introduction of shared data plans, whereby fixed data plan subscribers can share up to 6GB of data to registered beneficiaries, is also expected to increase usage.
The Group’s combined broadband subscriber base reached about 5.2 million at the end of 2015, over 3.9 million of whom use wireless broadband. Another 1.3 million users subscribe to PLDT’s fixed broadband service, a 14% increase from YE2014.
Meanwhile, PLDT continues to strengthen its leadership with more digital services via a “Connected Home.” This value proposition is facilitated via devices such the Telpad, TVolution stick, and the FamCam while usage is driven by various video platforms (iflix, Fox and Cignal over Fibr and Disney Kids Channel) and the aforementioned data-sharing plans. Fixed Broadband revenues grew by 15%, or PhP2.1 billion, to PhP16.1 billion, following the 14% jump in subscriber base. The fixed line subscriber base rose to 2.3 million at the end of 2015, 55% of whom have fixed broadband subscriptions.
Postpaid revenues now account for 24% of total cellular revenues, having improved by 9% to PhP23.7 billion for 2015. The Group’s combined postpaid cellular subscriber base grew by over 192,000 from the end of 2014, rising to 3.0 million at the end of the period, while the combined prepaid base stood at 62.0 million.
The PLDT Group’s total wireless subscriber base at the end of the period stood at 68.9 million, consisting of over 3.9 million wireless broadband subscribers, and about 65.0 million cellular subscribers broken down as follows: Smart had 24.1 million subscribers under its mainstream Smart brands; value brand TNT ended with 28.1 million subscribers; and there were 12.8 million Sun Cellular subscribers.
“The goal for our Consumer group is to be the preferred digital services provider – to achieve this, we need to establish data leadership by improving not only data usage but monetization as well. Note that higher data usage by mobile subscribers drove the 26% in mobile Internet revenues. Data traffic grew 4x more than revenues, providing us with much scope for monetization. We will also ramp up our converged offers, leveraging on the combined strengths of our businesses,” stated Ariel P Fermin, Head of Consumer Group, Wireless and Home.
The PLDT Group is also uniquely positioned to serve the Enterprise sectors with six data centers that offer co-location, server hosting/outsourcing, disaster recovery, connectivity and data scrubbing. These centers are telco-grade, carrier-neutral and vendor-agnostic with an aggregate rack capacity that is the largest in the country. We are also actively enabling the digital capability of our customers by expanding our mobile and data-driven solutions portfolio, introducing innovative e-commerce platforms and fostering ICT leadership and expertise.
PLDT Enterprise’s corporate data/other network services and data centers generated revenues of PhP11.1 billion, growing 14% from 2014. Corporate data and other network services were higher by 12% at PhP9.2 billion while data center revenues jumped by 26% to PhP1.9 billion.
“While our Enterprise business remains in front, we need to assert this leadership by moving further up the value chain. We will therefore be offering more business solutions and enhancing our access/connectivity offerings anchored on our robust network,” said Eric R Alberto, Head of Enterprise Group.
“Data remains the key growth engine for the PLDT Group. Our Consumer and Enterprise Groups therefore need to focus their efforts on providing an excellent customer experience in this area. To achieve this, we need network dominance and reliability, ease of use and a superior portfolio of content, applications and solutions,” said Pangilinan. “The entire organization, both structure and people, are being oriented to turn on this digital pivot. We expect it to be a long and difficult process with many critical adjustments to be made along the way. We certainly don’t expect results overnight; in fact, we estimate it will take three years before we make a complete turn. PLDT’s profitability will therefore have to be “reset” to a lower baseline in 2016 – P28.0 billion in Core Earnings, arising from the following factors:
– Single-digit revenue growth due to the transition to data;
– Continued decline in EBITDA margin due to structural change in revenue mix where higher- margin legacy businesses such ILD/NLD and SMS are replaced;
– PLDT’s efforts to maintain a fair share of the market will hurt in the short-term;
– Competition will remain intense; our working assumptions anticipate the entry of a third player; and,
– Capex levels will remain elevated resulting in higher depreciation and financing costs with no special dividends.
All that said, I can say that we are off to a good start – with encouraging signs from sequential revenue trends and test results of network quality that are showing sustained improvements.
We have a number of promising initiatives in digital platforms and mobile financial services as well as significant strategic partnerships in the making. Yet much needs to be done and much can be achieved with hard work, perseverance, and focus. The digital world is vast, dynamic, and complex but we’ve done it before and we can do it again.”