PLDT core income down 7% to P39 B in 2011

MANILA, Philippines - Philippine Long Distance Telephone Co. (PLDT), the most profitable firm in the country, said its core net income fell seven percent to P39 billion last year from P42 billion in 2010 due to lower service revenues and higher operating expenses.

In a statement released yesterday, PLDT said its reported net income likewise dropped, shedding 21 percent to P31.7 billion from P40.2 billion, impacted by the decline in core net income, a one-time asset impairment charge due to its ongoing network modernization program, and lower net foreign exchange gains.

“These results reflect the consolidation of the operating performance of Digital Telecommunications Philippines, Inc. (Digitel) from its acquisition which closed on Oct. 26, 2011,” PLDT said.

Core income strips out gains or losses from the company’s non-core businesses, including derivatives and foreign exchange transactions.

“The assimilation of Digitel/Sun Cellular into the PLDT Group, and the benefits that will arise from such integration, will take some time to complete because of the group’s size and complexity. We had earlier foreseen this. But we are encouraged by the opportunities for both synergy and growth as we gain more visibility of these opportunities post-closing. We do recognize that there will be a need for quick wins which could help efficiencies and productivity in the short-term. That said, the more significant benefits, especially to our bottom line, will take time to realize,” PLDT chairman Manuel V. Pangilinan said.

He explained that Digitel’s Sun Cellular mobile phone business will remain even after the integration, although its fixed line business will be combined with that of PLDT.

Pangilinan revealed that they expect 2012 to be a year of alignment where PLDT will implement a number of requisite changes - the positive effects of which are expected to be medium term in nature simply because these will be permanent and long lasting.

“Accordingly, we are guiding our core profit for 2012 lower at P37 billion, and returning to the 2010 level of P42 billion by 2014. I am persuaded though that this figure is the bottom of this unavoidable period of integration and alignment, and we will find ourselves back on an upward growth curve starting 2013,” Pangilinan added.

He explained that the 2012 projections reflect the pressures from the change in business mix of the group away from its legacy business of texting and voice to new businesses like broadband.

Pangilinan, however, noted that the margins of the new businesses are lower than the old ventures. “We expect competition to remain tight and as a consequence, there will be higher subsidies implemented in the course of 2012 in our attempt to seed the market with Internet and broadband capable devices,” he said.

He also explained that 2012 will see the alignment of operations of Digitel and PLDT, and due to this integration, certain expenses will be incurred in terms of facilities, equipment, base stations, cellsites. “But this expenses will be balanced by the improved outlook for broadband and BPO company SPi Global,” he said.

He added that their capital expenditures (capex) for 2012 amounts to P38 billion, higher than last year and will represent the completion of the modernization program for the group as a whole.

PLDT officials also explained that there will be some peso corporate notes facilities and dollar commercial bank loans and export credit agency financing that will be tapped to finance both capex requirements and refinancing of existing loans.

They said the next peso note that will be issued is subsidiary Smart Communication’s P5.5-billion peso financing that the company is about to start

this month or next, mostly for debt refinancing.

Overall consolidated service revenues decreased one percent to P154 billion, including the P3.8 billion revenue contribution from Digitel and reflecting the combined effect of a two percent decline in wireless revenues, one percent decrease in fixed line revenues, and a six percent rise in BPO revenues.

For the fifth consecutive year, PLDT will pay out dividends equivalent to 100 percent of its core earnings. The company’s board of directors has declared a final dividend of P63 per share, fulfilling PLDT’s commitment to pay out a minimum ratio of 70 percent of core earnings.

In addition, the board, consistent with its year-end “look back” approach, approved a special dividend of P48 per share thus making for a total of P111 per share to be paid on April 20, 2012 . Added to the interim dividend of P78 per share paid in August 2011, total dividends for the year will amount to P189 per share, representing a payout of 100 percent of 2011 core earnings.

Consolidated capital expenditures for the year amounted to P31.2 billion for 2011, eight percent higher year-on-year. 2011 marked the first year of the group’s P67- billion modernization program, which is expected to be completed by the end of 2012.

 “This is the fifth year in a row that we have paid out 100 percent of core EPS, a significant achievement when taken in the context of our increased investment levels and heightened competition,” Pangilinan said.

The PLDT Group’s total cellular subscriber base as of Dec. 31, 2011 stood at 63.7 million subscribers. Wireless subsidiary Smart had 27.1 million subscribers under its mainstream Smart brands, reflecting net additions of 1.4 million for 2011, while value brand Talk ‘N Text ended with 20.5 million subscribers as a result of 1.5 million net additions for the year. Smart subsidiary CURE’s Red Mobile brand had 1.4 million subscribers, while newly acquired Digitel had 14.7 million Sun Cellular subscribers.

The group’s combined postpaid cellular subscriber base now leads the market with 1.9 million at the end of 2011, 1.4 million of whom were with Sun Cellular. As of the end of February, cellular subscriber base exceeded 65 million.

On the other hand, the group’s combined broadband subscriber base increased 45 percent from the end of 2010 to just over 2.9 million, representing net additions of 356,000 for the PLDT Group’s various broadband services.

Wireless service revenues decreased two percent to P102.1 billion for 2011, compared with the P104 billion the prior year. Without Digitel’s revenue contribution of P3.1 billion, wireless revenues would have fallen five percent to P99 billion as cellular voice revenues dropped seven percent while cellular data/text revenues likewise fell four percent to P44.4 billion. Smart continues to lead the industry in terms of both revenues and subscribers.

“The acquisition of Digitel has allowed us to expand and enhance our product offerings and thereby fortify the platform that should allow our revenues to grow. We expect neither a quick nor easy transition but we will continue to refine and redefine our products and services, in both our legacy and new businesses. In the meantime, we are pleased that our network modernization program has already raised our network performance, with our subscribers enjoying a significantly enhanced customer experience,” PLDT president and CEO Napoleon Nazareno emphasized.

Fixed line service revenues decreased by P0.3 billion or one percent to P58.8 billion in 2011 from P59.1 billion in 2010 following a two percent dip in ILD, NLD and LEC revenues. Digitel’s fixed line revenues contributed P700 million.

“The home business of the group continues its aggressive growth performance with broadband leading the way and voice services maintaining its leading position in the market. With combined strengths in products and network, we are in the best position to serve the current and the emerging needs of our residential market. The inclusion of Digitel in our product portfolio will enable us to expand our subscriber base in the regional mainstream market,” Nazareno added.

Total broadband and Internet revenues totaled P18.8 billion, an 18 percent growth year-on-year, including a P0.5 billion contribution from Digitel. Broadband and Internet account for 12 percent of consolidated service revenues.

Wireless broadband revenues, inclusive of mobile Internet revenues, increased 13 percent to P8.1 billion, compared with the P7.2 billion recorded in 2010.

“As smartphones become more pervasive and more affordable, more Filipinos are able to access the Internet and social media. Clearly, we have built the most advanced network in the country. This translates to an enhanced experience and mobile lifestyle for our subscribers, most especially so for mobile Internet users,” Smart chief wireless adviser Orlando Vea noted.