PLDT posts P40.2-B net profit in 2010

MANILA, Philippines -  Telecommunications leader Philippine Long Distance Telephone Co. (PLDT) posted modest growths in both its reported and core net income last year even as the company is spending P67 billion until next year to ready itself for the changing market dynamics.

PLDT generated a reported net income of P40.2 billion for 2010, one percent more than the P39.8 billion recorded last year while core net income, which is net of exceptional items, rose two percent to P42 billion from P41.1 billion the previous year, mainly due to higher earnings contributions from the Manila Electric Co. (Meralco), ePLDT/SPi, and lower tax charges.

PLDT chairman Manuel V. Pangilinan said the company’s performance last year has underscored their view that 2010-2012 would be a critical period in the PLDT Group’s transformation, as it was being undertaken at a time when the operating environment is becoming increasingly price-competitive and market-share sensitive.

“In order to survive and prosper, we must be prepared to make changes now. We aim for nothing less than undisputed market leadership. Not only in terms of subscribers, but in profitability, service quality and innovation. To achieve this lofty goal, we will need to invest heavily in the next two years,” he said.

About P34 billion will be spent for capital expenditure this year and another P33 billion in 2012. The level will settle down starting 2013 to the amount previous to 2011, or about 18 to 20 percent of service revenues.

Of the total capex for this year, about P15 billion will be for technical initiatives while P14 billion will be for the commercial aspect. In 2010, capex was at P28.8 billion, of which P17 billion was spent for wireless and P11.1 billion for the fixed line business.

Pangilinan said the incremental investments (about P8-P12 billion) will be funded by debt and/or internally-generated funds. In terms of total borrowings, PLDT has debt maturities this year of $318 million which will be financed from loans, while another $400 -$600 million will be borrowed this year by PLDT and subsidiary Smart Communications.

He also revealed that they expect service revenues and earnings before interests, taxes, depreciation and amortization (EBITDA) to remain flat in 2011 compared to 2012.

Core net income this year and next year will be around P40.5 billion for each year due to incremental depreciation and interest expense. “This reflects a modest reduction in core net income for each of these two years of approximately four percent from our 2010 core results. We project to return to our growth path in profitability, starting 2013 onwards,” Pangilinan explained.

He stressed that since 2010 was an extremely good year, it would be difficult to replicate the growth this year. “There will still be growth this year, but not in the same level as the previous year,” he said.

With the cellular penetration rate now at over 90 percent of the population, Pangilinan said that leaves about 11 million left to sell cellular SIMs to “which we may exhaust in one to two years.”

But he added that in other countries such as Thailand, penetration rate exceeded 100 percent due to multiple SIM and handset ownership. “There will still be room for growth. But in terms of extracting the juice or of how far we can pull the string, it will be difficult. It might be of a different complexion. It’s not just a matter of building networks and subsidizing handsets,” PLDT’s top executive said.

He likewise said that despite this anticipated decline in profits, PLDT will maintain its current dividend policy of a committed 70 percent payout of core earnings per share (EPS) with the normal “look back approach” in terms of additional dividends.

Pangilinan explained that a number of factors, both macro and industry-related, will impact on the company’s performance moving forward.

He pointed out that competition is expected to intensify further, given the continued popularity of bucket plans/unlimited offerings. On the one hand, while traffic volumes are growing, yields are declining for both text messaging (SMS) and cellular voice.

He added that the anticipated explosion in demand for data/broadband will impact on traditional revenue sources such as SMS and international calls, and lead to a shift to data/broadband even as revenues from traditional voice and SMS continue to be the most sizeable source of value in the medium terms. It will also involve more network resources, and will alsorequire a superior integrated fixed/wireless network to give the company a significant competitive edge.

PLDT president Napoleon Nazareno said a closer look at the underlying revenue mix will show the ongoing transition of revenue streams, with the lower traditional sources being replaced by the growth of new revenue streams.

Consolidated service revenues declined two percent to P142.2 billion, due to a 16 percent increase in combined fixed and wireless broadband and Internet revenues; a nine percent growth in cellular voice revenues which includes a 19 percent increase in domestic voice revenues offset by a five percent decline in international voice revenues; a 16 percent rise in revenues from fixed data and other network services to third parties; a 12 percent reduction in cellular text revenues; a 25 percent decline in national long distance revenues; a 17 percent decrease in fixed line international long distance revenues; the strengthening of the peso; and the sale of their Mabuhay satellite business which reduced revenues by P900 million.

Consolidated EBITDA was lower at P83.7 billion while EBITDA margin was at 59 percent, the same level as 2009.

PLDT’s board of directors declared a final dividend of P78 per share,fulfilling the company’s commitment to pay out a minimum ratio of 70 percent of core earnings. In addition, the board, consistent with its yearend “look back” approach, approved a special dividend of P66 per share.

Added to the interim dividend of P78 per share paid in September 2010, total dividends for the year will amount to P222 per share, representing a payout of

100 percent of 2010 core earnings, similar to the payout ratio of the last three years. Total dividend payments for 2010 will total P41.4 billion.

“We are immensely pleased to have been able to fulfill our regular dividend commitment but more so, to have been able to declare a special dividend despite higher capex and the tough competition. This is the fourth consecutive year that we have paid out 100 percent of core EPS, an achievement made even more impressive when taken in the backdrop of the maturing market and aggressive pricing environment,” Pangilinan emphasized.

Meanwhile, wireless service revenues dipped two percent to P93.8 billion for 2010, from P95.8 billion last year. Wireless EBITDA for 2010 declined one percent to P58.9 billion while EBITDA margin improved to 63 percent from 62 percent in 2009.

For the fourth quarter of 2010, reported net income declined 16 percent to P8.2 billion from P9.76 billion but core net income grew four percent to P10.6 billion from P10.19 billion. Service revenues during the period declined five percent to P35.5 billion.

The PLDT Group’s total cellular subscriber base for 2010 grew to 45.6 million subscribers. Smart Buddy recorded net additions of 1.5 million subscribers to end

2010 with 25.3 million subscribers while Talk ‘N Text added 1.9 million subscribers to end with 19 million subscribers. Red Mobile, the brand owned by Smart subsidiary, CURE, had about 954,000 subscribers at the end of 2010.

Nazareno said the cellular subscriber base will still grow, but lower than the 10 percent growth (net adds of four million) experienced last year.

For his part, Pangilinan stressed that while Smart may have lost some of its subscribers with its share of the market now at 52 percent, its share of the wallet has grown to 58 percent.

Cellular voice revenues improved nine percent to P42.3 billion and now constitute 49 percent of total cellular service revenues from 44 percent last year. On the other hand, cellular data/text revenues fell 12 percent to P41.5 billion, despite a 19 percent increase in text volumes, as they remain under pressure from the proliferation of lower yield offerings, multiple-SIM ownership and regulator-mandated load validity extensions.

SmartBro, Smart’s wireless broadband service, increased its subscriber base to over 1.35 million at the end of 2010. Wireless broadband revenues went up 17 percent to P6.3 billion while mobile Internet browsing usage grew its revenues by 37 percent and now account for seven percent of wireless service revenues.

PLDT also reported that its fixed line service revenues decreased five percent to P48.6 billion in 2010 from P51.1 billion in 2009 as the strong peso impacted the business unfavorably.

Data service revenues contributed 45 percent of the fixed line’s service revenues as compared with 42 percent in the same period last year, but this increased contribution was not enough to offset the decline in national and international call and revenues.

Fixed line broadband subscribers grew to over 640,000 at the end of 2010.

“Our fixed line business reflects what is being experienced by other operators around the world, where both revenues and margins are being squeezed by the ubiquity of alternative data networks and platforms such that we can still extract value,” Nazareno said.

Also yesterday, the group reported that its information and communications technology (ICT) business suffered a two percent decline in service revenues, especially with 70 percent of their revenues being dollar-denominated.

Nazareno said prospects for their reorganized business process outsourcing business under SPi Global Holdings continue to improve given that SPi’s customer relation management is well-poised for further growth with the launch of three US-based clients in the first quarter of 2011, the price increase agreed with its largest client, and expansion of existing accounts; and given that high-margin verticals, health care and content solutions expected to grow by at least 15 percent in 2011 given the growth from existing and new clients.