PLDT Inc (PHI) 2007 Q2 法說會逐字稿

Good afternoon everyone and welcome to the PLDT conference call to discuss the company's first half 2007 financial and operating results. This conference call is being recorded. Replay information will be provided at the end of the call. At this point, I would like to turn you over to Miss Anna Bengzon for the opening remarks and a bit of introduction. Please go ahead. Thank you.

Good day everyone. Good afternoon and thank you very much for joining us today as PLDT Group discusses our first half financial and operating results for 2007. We hope you were able to get a copy of the presentation, which we have made available on several websites. For those who have not been able to download the information, it's posted on our PLDT website, www.pldtonline.com/pldt/ir. For today's presentation we have with us several members of the senior management team of PLDT Group. Of course, we have with us Mr. Manuel Pangilinan, Chairman of PLDT; Mr. Napoleon Nazareno, President and CEO; Mr. Chris Young, our Chief Financial Advisor; and from Smart we have Annabel Chua. We also have a few other members of the senior management team with us today in the briefing room. From ePLDT, of course, we have Mr. Ray Espinosa, President.

At this point, I'd like to turn over the call to Mr. Nazareno for the presentation.

Good afternoon. Thank you for joining us today. We are pleased to announce that the PLDT Group recorded a strong growth in revenues in the first six months of the year. Service revenues are up 11% to PHP67 billion on the back of an 11% increase in wireless revenues and a 165% growth in ICT revenues, which more than offset the 2% decline in the fixed line revenues.

Our results continue to be impacted by the significant appreciation of the pesos with about 38% of our revenues being dollar-linked. Had the pesos remained stable we would have recorded another 4% revenue growth or incremental revenues of PHP2.3 billion in the first half of this year. Our revenue mix continues to shift in favor of data and ICT, which in total grew by 25% to PHP32.4 billion. Approximately 48% of our consolidated revenues come from data and ICT services.

Voice revenues where steady on account of a 7% increase in cellular voice revenues, versus a 9% decline in traditional fixed line voice services. Thank you. EBITDA improved by 4% to PHP41.8 billion where the margins declined to 62%, reflecting the combined effect of the pesos appreciation, stable wireless margins, and lower margins in our fixed line and ICT businesses.

On slide three we present our net income performance. The Group's core profit grew by 13% to PHP17.2 billion. The strong appreciation of the pesos continued to have negative effects on our results. Our core net income in the first six months would have been higher by PHP1 billion if the pesos had remained stable year-on-year. Pre-tax income surged by 40% to PHP26 billion but such increase was offset by a 192% rise in our provision for taxes. Reported net income increased by 11% to PHP17 billion.

Our reported net income reflects the combined impact of the following. First, we booked additional depreciation charges of PHP1 billion relating to the fixed line assets of Piltel in the second quarter '07. This, however, is PHP2.9 billion lower than the similar charges we booked last year of PHP3.9 billion relating to the fixed line assets of PLDT. Second, we recorded ForEx gains of PHP811 million arising from the translation of our foreign currency denominated assets and liabilities. Note that the PHP811 million gain offset, in part, the PHP1 billion negative impact of the appreciation of the pesos on our core operations. Third, as previously indicated, our effective tax rate increased to 34% resulting in a PHP5.7 billion hike in our provision for taxes.

On slide four we have the Group's CapEx and free cash flow. The Group's CapEx spent in the first half reached PHP10 billion. Smart incurred CapEx of PHP4 billion while PLDT fixed line invested PHP5.7 billion in CapEx in the first six months of the year. We anticipate our CapEx for the year to increase to PHP25 billion versus our previous estimate of PHP22 billion. The increase in CapEx is mainly due to the better than expected cellular and wireless broadband subscriber take-up. Today we estimate that the incremental CapEx per cellular subscriber is down to $35 per subscriber while CapEx for the rollout of wireless broadband is gradually declining as well due to lower CPE and network equipment costs.

As of the end of June, we had over 2,600 wireless broadband capable sites covering 500 cities and municipalities. Meanwhile, we continue to build out the next generation network. As of today, we have over 370,000 installed NGN lines with our rollout plans focused on the build out in new areas in order to expand our fixed line coverage.

Free cash flow remains robust at PHP24.4 billion. In the first six months of the year, PLDT paid out close to $170 million of debt. Total debt of the Group stands at $1.6 billion. As at the end of June we had about PHP30 billion in cash. Our healthy cash position, coupled with the continued strong performance of the Group, has allowed us to declare a special dividend of PHP40 per share on top of our committed regular dividend payout of PHP60 per share. The special dividend of PHP40 per share represents an incremental 25% dividend payment out of our 2006 core earnings per share of PHP168 per share. The regular dividend declaration of PHP60, on the other hand, represents 70% of our core EPS in the first half of '07 of about PHP90 per share.

The record date for both dividend declarations is on August 24, while payment should be made on September 24. With approximately 188.6 million common shares outstanding today, we estimate that our total dividend payout at the end of September will reach close to PHP19 billion.

Taking into account such significant dividend payment, we anticipate our net debt to EBITDA, and net debt to free cash flow, to remain strong at 0.7 times, and 1.3 times respectively. Our strong balance sheet position allows us to have sufficient financial flexibility to commit to a sustainable dividend payout of 70%, while continuing to explore investment opportunities in new growth areas.

In summary, our consolidated revenues surged 11% year-on-year to PHP67 billion, boosted by the strong growth in our cellular, broadband and ICT revenues. EBITDA improved to PHP41.8 billion, with margins healthy at 62%. Core net income was up 13% to PHP17.2 billion, with core earnings per share improving by 9% to almost PHP90 per share. Reported net income grew by 11% to PHP17 billion.

Focusing now on the results of our wireless business. wireless service revenues grew by 11% year-on-year to PHP43 billion, driven by a 15% increase in cellular data, a 7% improvement in voice revenues, and a significant expansion of our wireless broadband business. Cellular revenues surged 6% quarter-on-quarter to PHP21.2 billion versus PHP19.9 billion in the first quarter, boosted by election-related activities, which we estimate contributed a bump up in revenues of about PHP500 million to PHP700 million in April and May.

The ForEx appreciation, on the other hand, lowered our first half '07 wireless revenues by PHP970 million, mainly because 24% of our wireless revenues emanating from ILD and roaming services are denominated in US dollars. While we continued to see healthy top line growth in July, we expect that the third quarter revenues will be lower than second quarter due to usual seasonality factors plus the non recurrence of second quarter election-related spending.

Wireless EBITDA expanded by 10% to PHP28.2 billion, with margins sustained at 66%. Smart and Talk 'N Text added 2.9 million subscribers in the first half of '07. We end the period with 27.1 million subscribers.

In the second quarter alone, we added 1.6 million subscribers, which we believe was driven by a more aggressive and focused subscriber acquisition program, increased economic activity in the country, and [amounted] in part with the elections in May. We believe that the wireless segment will continue to grow as handsets and services become more affordable, and as the economic outlook of the Philippines improves.

Blended ARPUs declined by about 9% year-on-year to approximately PHP260 in the first six months. However, prepaid subscriber acquisition costs have remained under control, with churn at -- while churn has stayed at about 3%. Even with a low marginal ARPU from incremental subscribers of about PHP150, and incremental CapEx costs of $35 per subscriber, we are able to recover our investment in less than 12 months.

Just a few weeks ago, Smart, in partnership with 360media, launched the first commercial mobile TV service in the country. myTV service enables Smart subscribers with mobile TV capable handsets, such as Nokia N92 and N77, to enjoy TV viewing any time and anywhere. myTV uses digital video broadcasting handheld, or DVB-H, to deliver real time events through a digital TV signal optimized for mobile devices, wherein programs can be simultaneously viewed by an unlimited number of subscribers.

The mobile TV package is available for subscribers for an additional charge of PHP488 per month. Subscribers will be able to view ten channels, which include CNN, National Geographic, Cartoon Network, MTV, sports channels such as Solar Sports, Basketball TV, and BBA. The service is initially available in Mega Manila, Cebu, Davao, Tagaytay, Batangas and Baguio..

We also just announced Smart's partnership with Inmarsat, a global satellite communications company, to offer a wider coverage of its satellite phone services, called SMARTLink. The collaboration with Inmarsat will allow SMARTLink prepaid wireless satellite phone service to reach India, the Indian Ocean, the Middle East, Africa, half of the Australian Continent, and parts of Russia and the Pacific Ocean. The coverage complements the existing coverage provided by the Garuda 1 base of ACeS which covers 11 million square miles of Asia from Pakistan to Japan, India and Papua New Guinea. In addition, Smart has agreed to acquire, through its wholly-owned subsidiary Smart-Connect, a 30% equity interest in Blue Ocean Wireless, an Irish company delivering GSM communication capability for the merchant maritime sector for almost US$60 million.

These two new initiatives will expand our presence and will allow us to serve the growing global maritime industry. We estimate that there are 1.2 million seafarers working in about 46,000 vessels, of which 40% are Philipino overseas workers.

Slide 11 shows the highlights of our fixed line business. Fixed line revenues decreased by 2% to PHP23.6 billion in the first half of '07, but the increasing broadband and corporate data services was more than offset by declines in our traditional fixed line voice services. Approximately 47% of fixed line revenues are either denominated, or linked to the US dollar. If the peso had remained stable for the past year, fixed line revenues would have been higher by about PHP960 million, or 2% better than our fixed line revenues last year.

EBITDA, which was also affected by ForEx, was lower by PHP13 billion, with margins down to 55%, similar to the first quarter '07 margins. Our key objective of revitalizing the fixed line business requires a significant amount of time, effort and resources.

While the initial results of our hard work behind the scenes are not yet as apparent, we are focused on the proper implementation of our plans. We continue to roll out NGN, particularly in new areas, while gradually migrating from PSPN to NGN in existing areas. We are facing the challenges head-on and are prepared to make the necessary adjustments with a view to creating a more responsive and agile organization in the years ahead.

Moving on to broadband on slide 12, as of end of June '07, we had over 422,000 combined DSL and wireless broadband subscribers, representing net additions of close to 160,000 subscribers during the first six months. Smart Bro sustained its momentum in the second quarter, adding another 46,000 subscribers from April to June, to end the period with 210,000 subscribers.

PLDT DSL ramped up its subscriber take up from 20,000 in the first quarter to over 46,000 in the second quarter and now has 200,000 subscribers as of the end of June '07. broadband revenues surged by 40% to PHP3.3 billion representing 5% of consolidated service revenues. We are confident that broadband growth in the country will accelerate even further as PC prices continue drop and as customer's familiarity in using the Internet to email, browse, chat, upload and download, etc, will increase.

Slide 13 focuses on ePLDT. ePLDT reported a 165% increase in revenue to PHP4.8 billion, mainly due to the continuous growth of Ventus and the consolidation of SPI. The strengthening of the peso also dampened the revenue growth of ePLDT. About 83% of ePLDT's revenues, principally from Ventus and SPI, are US dollar denominated. Excluding impact of the peso appreciation, ePLDT would have reported an additional 21% growth in revenues

EBITDA grew by 77% to PHP536 million. EBITDA margins, however, dropped to 11% in the first half of '07, mainly due to ForEx and higher compensation and benefits costs associated with the implementation of incentive schemes to improve retention of CSRs and higher salaries being provided to medical transcriptionists in the US.

On a combined basis, Ventus and SPI had a revenue base of about PHP4.1 billion in the first six months. Ventus and SPI have close to 13,000 employees and about 10,500 (inaudible). Ventus continues to grow its business organically, with revenues increasing by 24% year-on-year to PHP1.5 billion in the first half. In US dollar terms, Ventus recorded a 36% growth in revenues year-on-year.

SPI had revenues of PHP2.6 billion during the period, of which 46% came from its publishing business, 27% from the legal business and 28% from the healthcare business. In order to capture a bigger share of the expected growth in the outsourcing business, ePLDT is now in the process of managing the functional integration of its SPI and Ventus business units to achieve efficiencies and synergy gains in certain common areas, such as facilities, IT and telecommunication networks, HR, finance and accounting.

A harmonized cross unit sales and marketing program will also be implemented to cover a larger and broader base of potential customers, particularly in North America. The process will take time, but the benefits we expect to reap from the exercise will strengthen our position in the increasingly competitive outsourcing business.

That ends my presentation. I now turn you over to our chairman, Mr. Manny Pangilinan for the outlook the rest of '07.

Thank you Napoleon. Good afternoon to everybody. Let me just go straight to the chart. It's quite a simple chart so revising again our guidance numbers for core income for the year 2007 to a number that is certainly north of PHP33 billion. The guidance that we gave I think when we announced in our first quarter results for 2007 and better than the original guidance we gave of PHP31.5 billion, which was the core income for the year 2006.

So there's a good chance that we could achieve in fact a core income of PHP34 billion on the back of the very strong performance of the wireless operations, and if we could maintain or "hold steady" our operations and performance on the fixed line side, we anticipate that the second half would see a better performance on our call centers and our BPO SPI technologies operations.

In terms of our reported net income, that will be driven to a large extent by the behaviour in the foreign exchange rate, principally the US dollar to the peso exchange rate. A word of caution here is because last year we did realize a significant ForEx gain of about PHP3.5 billion, which accounts for the difference between the core income last year of PHP31.5 billion and reported income of PHP35 billion.

So that reported income has been determined largely by how the exchange rate behaves for the balance of the year. If indeed we are able to reflect a core income of PHP34 billion, so the gap between core income reported would drop to around PHP1 billion.

Today, the board has approved the sale of one property where we expect to realize an exceptional gain of PHP300 million. It's a non-strategic asset to PLDT, and there are one or two more properties, which we are attempting to divest in the course of the next few months, which should realize additional exceptional gains on disposal of those properties.

Of course nothing is final yet until those properties are eventually sold. But I guess the point is that the core income and the reported income have started to converge. Our focus has always, however, been on how the underlying fundamentals, or the core income, has always behaved.

I would like to note as well that the earnings before tax for the first half has been rather significant. It has grown by 40%, and of course the growth in our EBT has been attenuated to a significant degree by the significant provision for income taxes, I think, (inaudible) treated such that the effective tax rate of 34% (technical difficulty) tax rate of 35%, and that picture will continue for the second half of this year where EBT will grow significantly on the back of the rising revenues and a significant decline in depreciation and financial expenses, offset however to a large degree by the increase in taxes in the course of the year.

CapEx we are forecasting to rise by another PHP4 billion or PHP5 billion because of the significant increase in the broadband subscriber take up. We are now at about 422,000 and [straining] towards more than 530,000, may be in fact up to 600,000 subscribers, both wireless and wireless broadband, by the end of the year. There's also been a higher than expected cellular subscribers take up. As we speak, we have more than 27 million subs. We had budgeted originally the CapEx at only about 26 million subscribers. So we do have to expand the capacity to realize (inaudible) the duration of the services of Smart and Piltel.

In terms of cash, again Napoleon's presentation signified the strong EBITDA, the strong free cash flows [as are] we able to declare a special dividend of an additional PHP40 per share in the interim. We are still committed to a regular dividend payout of 70% of our core EPS, so that's about PHP175, of which PHP60 have been declared today payable in September. So there's another PHP65. We have adopted a look-back strategy by the end of the year with respect to dividend payout. If there are no significant investments that will be made for the balance of the year, then we are prepared to re-examine the position and see how we could give back some more cash to shareholders by the year end.

The various indices of credit strength out there, principally, for the first time, I would like to say that the net debt position on a consolidated basis of the Group is now down to below $1 billion, down to $940 million, which I think is a historic first for PLDT, at least based on my recollection. So the various indices of credit soundness, net debt to EBITDA, net debt to equity and so forth are there. And I think the general consensus is that the Group is basically under leveraged as we speak.

So that ends my portion of the presentation and I guess we are open to Q&A.

The floor is now open for your questions. (OPERATOR INSTRUCTIONS). The first question is coming from the line of Karen Ang in Singapore. Please go ahead.

Hi, good afternoon. I have three questions. First is on the wireless performance. You attributed to - partly the strength to election activities in the first and the second quarters. So far, in the third quarter, i.e. in July, have you seen a significant slow down to wireless revenue growth relative to the first half of the year?

The second question relates to the ICT business and your expectation for full year ICT EBITDA margin for '07 and if we should expect further acquisitions in this space this year or next year.

The last question has to do with maintenance expense in the second quarter. I noticed a decline on a sequential and yearly basis, if I'm not mistaken. Is this seasonality or is it the NGN impact, can you please explain the trend here? Thank you.

Let me take your first question on the wireless and perhaps Mr Ray Espinosa, the President of ePLDT, can take up the second question on the EBITDA margins. And the third will be answered by Chris Young on maintenance expenses.

On the wireless revenues, the first quarter was about PHP19.9 billion and the second quarter went up to about PHP22.2 billion. So there was an increase in revenues. The increase in revenues were caused -- were due to three reasons. The first is the general improvement in the economy. The second was our aggressive and more focused push on increasing subscriber take-up, which resulted in a 1.3 million subscriber net adds for the first quarter and 1.6 million net adds for the second quarter.

On the third quarter, in July, we are not seeing a substantial drop in the growth of subscribers and revenues. So, while the third quarter is traditionally a low quarter because this is school opening and the expenses are more directed towards education rather than other things, we are still seeing an improvement compared to last year and not a major decline in our growths compared to the third -- or the first half of the year.

On ICT EBITDA margins, our latest estimate for our consolidated EBITDA margins is around [16%] which is slightly lower than our budget. The lower EBITDA is accounted for largely by the lower EBITDA of our BPO business where, we still have to see and feel the effects of the integration of the healthcare unit that has been acquired.

Insofar as additional acquisitions are concerned, we have one or two more smaller acquisitions in the BPO space that we want to complete within the year and this will be funded largely by SPI's own funds. These are really bolt-on acquisitions mainly driven by the need to acquire new technologies to complete the service offerings of two of our verticals.

Lastly on the maintenance, the lower figure is principally as a result of lower maintenance expense on the Fixed line. To date there's nothing structural there. I think if you're projecting for the balance of the year, what you could do is average the first and second quarter. I think that would give you a reasonable basis to project for the balance of the year.

Thank you.

Thank you for your questions. Next question is coming from the line of Navin Killa in Hong Kong. Please go ahead.

Hi. Thank you for the conference call. A couple of questions from my side. First I just wanted to understand the increase in your CapEx guidance especially given the fact that the peso has strengthened. So I guess, from a dollar perspective, your CapEx is even more significant. I just want to understand if there is a timing issue here, does this potentially mean that your 2008 CapEx could be below your original targets of PHP20 billion to PHP22 billion per annum, if you could throw some light on that?

And second just a follow up on the ICT business. Clearly the strong peso is impacting your revenues and margins there. If I look at it, second quarter margins themselves were probably down to 5% or thereabouts. Given that the peso has continued to strengthen in the third quarter as well, could you throw some light on the very near-term outlook of the business? I understand your 16% margin guidance probably is kind of a medium-term number, but more from a second half of this year perspective, how do you see the peso impacting the business? Thanks.

Let me answer the first question, which is the new, the increased CapEx guidance of PHP25 million (should be PHP 25 billion) versus the original, which was at the PHP20 billion to PHP 22 billion. The increase in CapEx is mainly due to the better than expected subscriber take-up in the Cellular business. We were estimating at the start to end up to a subscriber base of about 26.5 million by the end of the year, and already today we are at more than 27 million as of end of June and there has been some addition also in July. So, already we are seeing that we needed to expand capacity of 2G and 3G, both in the core network and in the base station. So that's essentially the reason.

The other is of course our better than expected take-up on the wireless broadband and in general the whole broadband business that we are in. And our subscriber base right now, for the entire broadband business, is at 422,000. Our original target was 530,000 at the end of the year and now in the middle of the year we are already at 422,000. So there is really a need for incremental CapEx in order to meet the additional demand.

And the other question, could we have again the other question? I sort of missed out.

(technical difficulty)

The CapEx projection for '08, it clearly depends on how the subscriber base will pan out within the next six months, but most likely we will exceed the original estimate again for next year.

Let me point out though that the PHP25 billion CapEx is within the level, or slightly higher than our depreciation level.

Right.

Also, that the -- I was just reminded by Annabelle here that the CapEx for our wireless business is now incremental CapEx, I'm saying now, is about $35 per sub. So with that kind of level, it's now quite low compared to previous CapEx per sub figures that we were using before. It is, therefore, easier for us to get the return of our investment in due time, even if the ARPUs are slightly going down.

Yes. And, sorry, the second question was on ICT near-term outlook given the pace you continue to strengthen.

Well, the total outlook for -- our full-year outlook really take into account the strengthening of the pesos being [it's] about PHP1 billion short of our budgeted revenues. We would try to make up for this in our profit line by further reducing our cost across all service units but the pesos has just affected our ICT revenues by roughly --.

So your margin target is still 16% for the full year?

Around 15% to 16% for a full year. Yes.

Okay.

Does that conclude your question now Mr. Killa?

Yes. Thank you.

Thank you. Next question is coming from the line of Luis Hilado in Singapore. Please go ahead.

Hi. Good afternoon and congratulations on the results. I just had three questions just to follow up on the CapEx questions and actually in relation to the depreciation charge about the PHP1 billion in the second quarter with regards to Piltel. Does your CapEx include an upgrade of Piltel's fixed line network to NGN and, if so, just wondering why do it at the Piltel level and not at the PLDT level?

Second question relates again to Piltel. I notice that Talk N Text's ARPUs for the second quarter are improving. At the Smart level it's quite flat. What promotions are driving that or is it just usage essentially for PNT?

And last question is on capital management, should we expect that special dividends are the way forward in any exercise or you're still open to other measures there?

The Piltel depreciation relates to the fixed asset base of Piltel and I guess in light of newer technologies NGN upgrades as a possibility but you are right. The focus of the fixed line business resides in the PLDT parent. So if you look at Piltel's standalone it's really a very small fixed line business with about 40,000 subscribers so I guess eventually it really makes more sense for that business to really reside in PLDT, like you pointed out.

Our PLDT ARPU, basically, I guess if you look at it in the second quarter that's effectively there's the boost from the election that runs through the ARPU numbers overall. We, I guess in terms of how the increased penetration is obviously at the lower end of the market and, therefore, you do see much higher sort of percentage growth in terms of sub numbers and general performance at the Piltel level relative to the Smart Buddy levels.

In addition to that, actually the Talk N Text ARPU has a different profile compared to the Smart ARPU. The Smart Buddy subscribers do not text as much as the Talk N Text subscribers and SMS is growing quite substantially for the wireless business and that's one of the reasons. The other reason is that when we take on a new subscriber, especially in the Talk N Text segment, they start with a lower ARPU in the first month and subsequently, in the second month, it becomes a higher ARPU and that's the reason why there is kind of an increase in ARPUs on the subscriber take-up of Talk N Text.

Okay. Thanks. That's very clear. And the special dividends?

Could you hold on Luis. I'll let our Chairman answer that.

Luis, you asked about the capital management situation by year-end, right?

Yes. If we should look at special dividends as the way forward or if you're still open to other types of capital management.

Well, I think we have adopted the look back strategy so it's really quite -- it's really more prudent to make the decision towards the year-end. All I can say is that we're open to a similar situation as what we did in the interval special dividend if, obviously, the performance continues to be strong, if there are no new investment opportunities that might open up in a significant way for the Group as a whole. No. Then if there's excess cash over and above what we have committed to the shareholders of 70% dividend payout then certainly we have to give back the excess cash to shareholders by way of special dividend or whatever, share buyback or a similar instrument. No. So I think we'll get a better sense in November as to where we stand, particularly, in light of the third quarter results but, Luis, we're open to if the company has no use for the excess cash over and above the 70% regular dividend payout then we should give it back.

Thanks.

Thank you. Does that conclude your question, Mr. Hilado?

Yes. It does. Thanks.

Thank you. Next question is coming from the line of Rama Maruvada in Singapore. Please go ahead.

Hi. Good afternoon everyone. I have three questions. Firstly, with regards to the accelerated depreciation charge, do you foresee any more charges being incurred for the rest of the year? If you -- some color there would be helpful.

Secondly, with regards, I think, on the call you mentioned about divestment of property or other stuff, I'm just wondering what kind of an impact do you see in terms of the P&L for this year and how significant is this going to be?

And finally, with regards to your -- trying to decouple the election impact, when I look at your full SMS account the volume really hasn't increased year-on-year when I take the six month numbers, so I'm just wondering whether you're actually extracting more pricing power as the messaging moves on from standard to bucket price plans.

Just on the first item on the depreciation, obviously, it's something we need to continue to review quite closely, particularly at the moment as the NGN build out proceeds. However, the additional charge in the first half was specific to the fixed line network of Piltel, which, as indicated by Annabelle, was impacted by the ongoing NGN upgrade. We don't anticipate any additional or further additional depreciation charges for the balance of this year, though it's not something which we can completely set aside as we look at '08 and '09. So I think that answers that question.

In respect of the properties, as indicated, there will be some exceptional gains coming through in the second half. We have one property transaction which we are almost completed, as indicated earlier. There's a couple of other transactions which we're working on, which could give us gains of maybe a similar amount for the balance of the year.

And the election impact, I'll pass that across to Mr. Nazareno.

To a certain extent you are right. Now the volumes on SMS have remained quite stable but what I would like to point out is that the yield on [upper] SMS has gone up and this is made possible because we have tried to veer away the consumer from unlimited packages to more or less the limited one and there has been a favorable reaction to that based on a bundle basis, we are bundling both voice and [data mass] and that has increased the revenue of SMS. In fact, SMS is the fastest growing sector. We had a growth of about 15% on SMS or data revenues, which is only a 7% growth in voice.

OK, thank you very much.

Thank you for your question. The next question is coming from the line of Kathy Chen in Hong Kong, please go ahead.

Kathy Chen, Goldman Sachs. Hi, I have four questions. Firstly can I check with you the updated core profit guidance of PHP33 billion to PHP34 billion, what has the ForEx rate that's been assumed? Last quarter I think you had been using a 49.5 ForEx rate and now it's down to 45. Secondly, can you talk more about the initiative you're doing with SMART Remit? In the press release this was mentioned as the fourth space that you would like to develop. And the third question is can you give us an update on the timing for the separate listing of ePLDT; will this be in the first half or second half of next year? And then lastly a (inaudible) item on the fixed line provisions, what was the reason for the increase in the second quarter and what is the outlook for the rest of the year and into 2008?

Kathy could you repeat the second question please?

Yes the second question was if you can elaborate the initiative you're doing related to SMART Remit. In the press release it was mentioned that this is the fourth area that you would like to develop.

By the end of this month we should be commercially launching SMART Remit and already now there are--already we are processing remittances in that area. And the second question was--?

Well it's not PLDT itself that we intend to list, but the contact center business, the outsourcing, entire outsourcing business, both with voice and in unvoice side, we shall (inaudible) Ventus, which is the call center operations which has about 6,000 seats and the BPO, SPI, which has about 3,500. So the two are being put together and the intention is to list the entire outsourcing business as a whole, sometime next year. I think it's quite difficult to be a bit more precise as to whether it will happen the first quarter, first half or second half of next year. But certainly the contemplation is to have it listed by 2008.

In respect of the outlook for the year, we are using an exchange rate of 46; we've revised it down from the first quarter projection to reflect what's happened year-to-date.

On the issue of provisions you are correct, there was a pick up in provisions on the fixed line in the second quarter, which relates to a specific provision. In terms of the general outlook for the year, we would say a trend between about 2% on the low to maybe 2.5% on the high side of revenues, fixed line revenues.

Thanks. Just a follow-up on the SMART Remit, [could you] elaborate more on what potential or financial contribution you can get from this initiative?

It's hard to say at this point because it isn't no product, but the total remittance to the Philippines right now officially stands at about $14 billion and there are about over 1.5 million overseas workers in the Middle East and currently out of the 8 million that is out of the country and therefore we're looking at a market that is quite huge, but unfortunately the portion of which we can declare revenues are apart, are only about between 1% to 2% of the remittance figures. We are targeting initially a pay revenue base of between I think PHP5 billion to PHP10 billion in two or three years, PHP5billion in three years, sorry.

OK, thank you.

Thank you for your question.

If there are no more questions on the line, is there any questions here in the room, if you could please stand up, introduce yourself, we have two microphones on each side of the floor.

There are no questions on the floor. Okay, we will just let the Operator give the replay information for the conference call.

Thank you, that concludes the question and answer session. Before I turn the conference back over to Mr Pangilinan, I would like to give everybody the instant replay information of today's call. This conference will be available on the 24-hour instant replay, starting today daily until 22 August 2007. The international caller number is 85228025151, US Toll-Free Number is 18003958845, pass code is 726880, Conference Leader is Anna Bengzon.

This time I will turn the conference back to Mr Pangilinan for any additional or closing remarks.

Well I'd like simply reiterate my thanks for all of you joining us for this first half results presentation and simply reiterate what I said about my own statement in the press announcement today, mainly that the PLDT Group, as a whole, and the management are simply on the ball in terms of really exploring, analyzing and considering and adopting, exploiting the opportunities that are available to it in the telco space. In recent weeks we've launched the mobile TV, we've launched SMART Link, we've launched Blue Ocean wireless and by the end of August SMART Remit, which are all I think very exciting businesses which will enhance the profits and the revenues of the Group as a whole, so not, no every [opportunity] that has given to us that are viable we will take a look at it and consider and so.

I think the year 2007 will be a much improved year for the Group as a whole, so I'm quite confident that the results will be to the satisfaction of shareholders in profits and cash and a much improved company.

So thank you and look forward to seeing again when we announce our third quarter results sometime in early November and an indication of how the year 2007 will look like. Thank you.

And that concludes today's conference. Thank you for your participation, you may disconnect your line in your own time.