PLDT Inc (PHI) 2009 Q1 法說會逐字稿

Good afternoon, everyone, and welcome to the PLDT conference call to discuss the Company's first quarter 2009 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 Ms. Melissa Vergel de Dios, Head of Investor Relations for PLDT, for the introductions. Please go ahead. Thank you.

Good afternoon. Thank you for joining us today to discuss the Company's first quarter 2009 financial and operating results. As mentioned in the conference call invitation, today's presentation is posted on our website. For those who have not yet been able to do so, you may download the presentation from www.pldt.com, under the Investor Relations section.

For today's presentation, we have with us members of the PLDT Group management team, namely, Mr. Polly Nazareno, President and Chief Executive Officer for PLDT and Smart, Mr. Christopher Young, Chief Financial Advisor of PLDT, Ms. Anabelle Lim Chua, Treasurer of PLDT and Chief Financial Officer of Smart, and Mr. Orlando Vea, Chief Wireless Advisor.

At this point, let me turn the floor over to Mr. Polly Nazareno for the presentation.

Good afternoon. I am pleased to share with you PLDT's first quarter 2009 financial and operating results.

PLDT's first quarter results are off to an encouraging start. For the first quarter of '09, service revenues for the Group grew by PHP1.3b or 4%, to PHP36.2b from PHP34.9b last year. EBITDA was stable year-on-year at PHP21.9b, with EBITDA margin at 60%. Reported net income registered a decline of PHP877m or 8%, to PHP9.6b.

Adjusting for the impact of ForEx and derivatives, core income after tax increased by 9% to PHP10.2b. This translates to an earnings per share of PHP53.97 for the quarter, reflecting a 10% growth over the PHP48.87 for the same period last year.

The peso depreciated by 16%, from PHP41.76 in March '08 to PHP48.42 at the end of the first quarter this year. The average peso/dollar exchange rate for the first quarter this year stood at PHP47.79, a 17% depreciation from the PHP40.95 in the first quarter of '08.

Page three summarizes the key highlights of our various business segments. Our Wireless business recorded 1.7m net adds for first quarter '09, 11% higher than the first quarter '08 and 62% higher than the fourth quarter '08. Service revenues of PHP23.9b were up 6% year-on-year.

Our Fixed Line business registered a 1% increase in subscribers, to reach 1.8m at the end of the first quarter. Service revenues of PHP12.7b in the first quarter '09 represented a 3% increase over the first quarter '08. Corporate data and DSL revenues grew by 17% year-on-year and now account for 41% of total Fixed Line service revenues.

Our combined Fixed and Wireless Broadband subscriber base crossed the 1m mark during the first quarter this year. Total Broadband service revenues rose to PHP3.2b, or 30% over the first quarter of '08, and now accounts for 9% of total Group service revenues.

ePLDT service revenues increased by 1% to PHP2.6b. Net of the electronic data discovery or EDD operations, which were wound down starting the fourth quarter of '08, ePLDT service revenues would have increased by 12%.

On the next slide, core net income for first quarter '09 grew by PHP877m or 9% year-on-year to PHP10.2b as a result of, number one, a 4% growth in service revenues, number two a reduction in the provision of the income tax due to the lower corporate tax rate, as well as the availment of the optional standard deduction basis for taxation by our wireless units. As a result, the effective tax rate for the first quarter of '09 stood at 26% compared to 34% in the same period last year. Higher cash OpEx and financing costs partially offset these positives.

Reported net income decreased by PHP866m or 8% to PHP9.6b in the first quarter '09. As a result of the movement in the peso/dollar exchange rate and peso and dollar interest rates, we booked PHP600m in net ForEx and derivative losses in the first quarter of '09. This is in contrast with the PHP1.1b net gain we recorded last year, which included a one-time gain of PHP455m resulting from the de-designation of the principal-only swaps and option contracts as hedges.

On page five, consolidated service revenues grew by PHP1.3b or 4% to PHP36.2b in the first quarter of this year. This is due to a 6% growth in data and ICT revenues, which now account for 54% of total service revenues. This includes a 30% growth in Broadband revenues and a 1% increase in voice revenues resulting from the increases in cellular inbound an outbound traffic, complemented by the peso depreciation.

First quarter '09 service revenues are lower than the fourth quarter '08 revenues by 3%, reflecting seasonality.

EBITDA remained stable year-on-year, at PHP21.9b. And EBITDA margin declined to 60%, from 63% in the first quarter '08 and 61% for full year '08. Wireless margins stood at 63%, Fixed Line margins at 52% and ICT margins at 8%.

Cash OpEx increased by 10% in the first quarter, primarily on account of higher compensation costs due to higher incentive accrue --- plan accruals and higher pension costs, as well as higher maintenance expenses.

Approximately 35% of consolidated service revenues are directly and/or indirectly linked to the US dollar.

Moving on to page six, CapEx for 2009 is estimated at PHP27b or approximately 18% of service revenues. PHP15.8b is earmarked for Wireless, PHP10.2b for the Fixed Line and the balance for ICT. At the end of the first quarter, we had spent PHP3.9b for CapEx. PHP 2.3b was for the Fixed, PHP1.5b for Wireless and PHP100m for ePLDT.

We generated PHP18.9b in free cash flow during the quarter, compared to PHP17.3b last year. Net debt proceeds of PHP3.7b provided additional cash, while PHP1.7b was used for share buybacks. PHP8.4b cash flow was booked as an advance to the PLDT Beneficial Trust Fund, or BTF, to cover its acquisition of Meralco shares.

On capital management, we paid approximately PHP24.4b for our final '08 common dividends in April 2009, which included a 30% special dividend for '08, thereby representing a 100% dividend payout. We remain committed to our dividend policy of paying out 70% of our core earnings per share as regular dividends.

At the end of the year, we will undertake a look-back approach to assess whether special dividends can be declared after having considered the Group's performance for the year, our investment activities, as well as the credit markets.

On an opportunistic basis, we will continue buying back shares from the market. As of March '09, of the 5m shares approved for buyback, we have bought back 2.7m shares at an average price of PHP2,388, for a total of PHP6.4b.

Page seven provides a snapshot of our debt profile. As of end March 2009, total PLDT Group debt stood at $1.7b, compared to $1.6b in the first quarter of '08. 72% of the debt is in US dollars, and of this 50% is hedged. If we take into account our US dollar cash holdings, the un-hedged portion of our total Group debt is effectively only 24%. 71% of the total Group debt are fixed rate loans, while 29% are floating rate loans.

Debt maturities remain fairly spread out, with the bulk due in 2013 and beyond. Last April 15, we fully paid our 2009 notes due April '09, which had a remaining outstanding balance of $114m.

Net debt stood at $1.1b at the end of the first quarter, after netting out the cash for dividend payments due in April. Net debt to EBITDA is at 0.6 times.

To support our planned investments, including the planned acquisition of a 20% interest in Meralco, we expect to raise additional debt mainly taking advantage of funds being made available by local banks. We see this as an opportunity to balance our peso and dollar debt mix, as well as move to optimize our balance sheet. Notwithstanding the availment of additional debt, we expect to keep our net debt to EBITDA below 1 times.

Moving now to page eight, our Wireless business started the year strongly, with our combined Smart and TNT subscriber base growing to 36.9m, or a 17% growth year-on-year. We had 1.7m net additions in the first quarter of '09, of which 1.3m are Talk 'N Text subscribers. The 1.7m net adds for first quarter '09 are 11% higher than the 1.5m net adds for first quarter '08 and 62% higher than the 1m net adds for the fourth quarter '08.

We estimate that cellular penetration for the country is approximately 75% on a nominal basis, inclusive of multiples in ownership.

Net blended ARPU declined by 10% year-on-year to PHP199, but margins remained at 63%. The ARPU decline is a consequence of subscriber growth being in the lower end of the market, given market penetration levels, as well as the shift to bucket priced plans. Prepaid subscriber acquisition costs, or S.A.C. or SAC, continue to decline and now represent about 22% of blended ARPU of PHP186.

As earlier announced, Piltel will be selling its brand, subscriber base and remaining GSM assets to Smart. This is for the approval of the Piltel AGM on June 30. As a result, the Talk 'N Text and Smart brands will be consolidated within Smart. Piltel will be transformed into the holding company of the 20% Meralco investment.

On page nine, we report that the Wireless service revenues are up by PHP1.4b or 6% year-on-year to PHP23.9b. This was the result of a 3% increase in cellular data revenues, a 6% growth in cellular voice revenues and a 40% rise in Wireless Broadband revenues.

Data services accounted for 55% of cellular service revenues in both first quarter '08 and first quarter 09. The shift to bucket plans continued as these now comprise 60% of total data revenues, from 57% in the same quarter last year.

First quarter '09 service revenues are lower by 4% compared to fourth quarter '08, reflecting seasonality. EBITDA improved by 4% year-on-year to PHP15b, although margin slightly declined to 63% as compared to 65% in the first quarter '08 and for full year 2008.

Our Wireless business registered core net income of PHP8.5b in first quarter '09, an increase of 26% from the PHP6.7b in first quarter '08.

The next page shows highlights of our Fixed Line business, which continues to show resilience. Fixed Line service revenues registered a 3% growth year-on-year to PHP12.7b. This was largely on account of the 17% increase in corporate data and DSL revenues, led by the growth recorded in the SME market as well as resiliency enjoyed today by the offshoring and outsourcing, the banking, the retail and the tourism industries.

NLD revenues remained flat, while LEC and ILD registered declines in the first quarter. ILD revenues were impacted by decreases in call volumes and a lower average settlement rate for inbound calls.

Data service revenues continued to contribute to the growth of the Fixed Line business, as it now contributes 41% of total Fixed Line revenues as compared to only 35% in the same quarter last year.

EBITDA declined by 7% to PHP6.6b in first quarter '09 due to the increases in revenues being offset by higher cash OpEx. We saw increases in compensation expenses on account of higher accruals for the incentive plan and pension expenses, as well as higher rental expenses for international bandwidth capacity and poles and towers. Once the AAG Consortium goes live in the latter part of this year, we expect rental expenses to reduce.

EBITDA margin stood at 52% in the first quarter of '09, in line with the full year '08, although a decline from 57% in the same quarter last year. With Broadband and Data margins not as high as ILD margins, the decline in EBITDA margin is to be expected as Broadband and Data continue to account for a larger portion of our revenues.

First quarter revenues are up 1% quarter-on-quarter and EBITDA 23% higher compared to fourth quarter '08. Fixed Line subscribers grew a modest 1% to 1.8m at the end of the first quarter.

The Fixed Line organization remains focused on continuing product innovation and development of a menu of business solutions to enable our corporate and SME markets. In addition, the organization is also working on the improvement of our quality of service.

Moving on to page 11, we see that our Broadband business continues to break new ground, with our combined subscriber base having crossed the 1m mark. At the end of the first quarter, PLDT Group registered a total of 1.1m broadband subscribers, composed of 596,000 wireless Broadband subscribers and 471,000 DSL subscribers. Our subscriber base grew 9% from the end of '08 and a dramatic 64% from the first quarter of '08.

Broadband service revenues grew by 30% to PHP3.2b in the first quarter this year, now representing 9% of the total PLDT Group service revenues.

We continue to promote broadband usage with the commercial availability of HSPA running on 850 spectrum. Together with this, we introduced SmartBro-ready netbooks in affordable packages. To encourage more users, we also made available a wireless router under our SmartBro Share-it promo. We are planning to pilot fiber-to-the-home, or FTTH, by the middle of the year. FTTH is the ultimate in wired access as it allows much higher speeds than what is achievable using copper.

Internet traffic in the Philippines has grown dramatically in recent years, with Smart's Internet traffic having grown at least 80% year-on-year since 2006. This is made possible by the increasing availability and affordability of Internet enabled devices, the skyrocketing popularity of social network sites, as well as Internet access becoming an indispensable everyday communication tool.

Page 12 is a discussion on ePLDT, which reported service revenues of PHP2.6b for the first quarter of '09. This represents a 1% increase year-on-year. Call center and data center revenues were up 5% and 48% respectively, while BPO revenues registered a 7% decline. First quarter '08 revenues included PHP251m from the electronic data discovery operations, which have since been closed. Yet (sic) of these, ePLDT revenues would have shown a 12% increase.

The call center business registered a 57% increase in revenues from their domestic call center businesses, reflecting a faster growth than the international business during the quarter. EBITDA margins for the content and medical billing businesses are holding up at around the 20% level. The medical transcriptions business meanwhile continues to pursue operational improvements program for '09.

ePLDT's consolidated EBITDA margin declined to 8% from 15% in the first quarter of '08. This was on account of the 9% increase in cash operating costs, including the wind down costs from the EDD operations. In addition, higher compensation costs were recorded due to an increase in compensation expenses to cover incentives for CSR retention.

Page 13 provides a recap of -- and a few updates of our recent investment in Meralco. On March 13 we announced that Meralco, through Piltel, would make a PHP20b investment --- sorry. On March 13 we announced that PLDT, through Piltel, would make a PHP20b investment, representing about 20% of Meralco. This would be acquired from the Lopez Group, who owns about 34% of the distribution utility. We further reported that we signed a cooperation agreement with the Lopez Group, which includes agreements covering Board and management representation as well as rights of first refusal over the PLDT and Lopez shares.

The investment is strategic for PLDT to allow it synergistic access to certain of Meralco's assets, which include a digital fiber optic network, 4.5m postpaid customers, power poles, among others. PLDT committed to cap its investment in Meralco at 20%.

A recent positive development is the Energy Regulatory Commission or ERC's approval of the implementation of the performance-based regulation, or PBR, for Meralco. Under the PBR, Meralco has been authorized to increase its tariff from PHP0.97 per kilowatt hour to PHP1.2227 per kilowatt hour, effective May 1, 2009. This is the first rate increase granted to Meralco in six years. To cushion the impact of this rate increase, the ERC directed Meralco to accelerate the CERA refund to consumers, amounting to PHP0.1461 per kilowatt hour until fully returned.

PLDT expects to elect three nominees to the 11-man Meralco Board at the upcoming May 26 annual stockholders meeting. The approval of the transaction by Piltel shareholders is scheduled for June 30. The backstop closing date for the entire transaction is the end of August 2009.

Lastly, on page 14, we recap our guidance for 2009 as follows. Service revenues are forecast to grow 5% to PHP150b. EBITDA expected to range from PHP90b to PHP92b, for an increase of 3% to 5%, with margin at between 60% to 61%. Core income projected at PHP40b, or a 5% growth over last year.

We remain committed to our dividend payout of 70% of core EPS. In addition, we will undertake a look-back approach at the end of the year to assess whether special dividends can be declared, after taking into account the Company's performance during the year, investment activities and the availability of credit.

As part of capital management, we will continue to buy back our shares from the market when we feel that the share price does not reflect the inherent value of the shares.

Our CapEx guidance for 2009 remains at PHP27b, or 18% of projected service revenues.

As I said earlier, we are off to an encouraging start for 2009 which we hope to sustain, if not better, as the year progresses. As overall uncertainty still remains, we will continue to monitor the market situation to enable us to act and react nimbly, as appropriate.

That concludes my report. We are now ready to take your questions. Thank you.

Thank you. (Operator Instructions). We have a question coming from the line of Mr. Luis Hilado of JP Morgan. Please go ahead.

Hi. Good afternoon and thanks for the call. Congratulations on the results. I have three questions. Just on the Wireless revenues, just wondering if you have a feel for whether you've gained revenue market share in this quarter or it's really industry uplift and defensiveness that's being seen in the quarter.

Second question regards ePLDT. Sorry if I didn't catch it, but if the wind down costs of the EDD division didn't happen, what would the EBITDA margin have been for the quarter?

And last question is sort of on the regulatory side and is related to bucket pricing. Is this proposed additional fee on SMS affecting in any way your strategy regarding bucket pricing and SMS overall?

Well, on the Wireless revenues, we are obviously seeing a good trend for the first quarter, Luis. And it's too early for us to say whether we gained market share or not. I would suspect, though, that we would have at least maintained our market share, both on the basis of subscriber base and on revenues.

When it comes to the ePLDT costs for winding down, I think that was around PHP150m or something. And the EBITDA margin, well, we -- if you remove the revenues of the EDD that was closed down from '08, the revenue increase would have been 12% for ePLDT.

When it comes to margins, I think that would have improved if you remove the costs that are associated with the winding down, which runs up to --- I think up to the --- actually, beginning of the third quarter this year there are still costs that will be incurred when it comes to the wind down.

The drag, according to Anabelle, is PHP135m for the winding down costs.

Is it fair to expect the PHP135m for the next two quarters (technical difficulty)?

No, it's actually tapering down towards the second and up to the --- somewhere in July, August of the third.

Okay.

The third question was -- well, we are closely monitoring the development of that. It is not at all affecting our strategy. It is more -- the trend on the shift into bucket pricing is more the consumers wanting to have more value for the money that they are spending at this point in time.

All right. One follow-up. Is there any indication whether that fee applies to bucket price promotion, or it will actually be exempt?

It is not yet clear because we have not really seen the draft or the final, whatever, proposal in Congress yet.

Okay, great. Thanks a lot.

Thank you. Next question is coming from the line of Sachin Salgaonkar of Morgan Stanley. Please go ahead.

Hi. Thanks for the call. I have three questions. First, on your EBITDA guidance modification, I was wondering what has changed that you're expecting now a guidance of PHP90b to PHP92b versus initial PHP92b? Is there any particular segment which you're expecting, perhaps, a softer EBITDA when compared to your initial estimates?

Secondly, could you give us a little bit of update on the service uptake in the months of April and May, particularly Wireless?

And third, a housekeeping question. I notice your tax rate was 26% in Q1. Was there any one-off or should we expect the same tax rate going forward? Thanks.

What was the second question again, please?

April uptake for (inaudible).

Well, let me take on that one since I have been now informed already of what it is. The April trend for the -- at least on the subscriber take-up, appears to be following the same trend as in the first quarter. So we are quite positive for -- in terms of subscriber take-up for this year. We are also seeing that the churn rates are held to about between 3.7% to 4%. So the churn rates or the churn is quite stable at this point. So we're looking at the gross adds to sort of sustain our growth in subscriber base for the next two, three quarters.

On the EBITDA guidance --

I think there are some one-off type things there. I think that it was already referred to in the first call. I guess on the ePLDT side it's going to take us longer to -- a little bit longer than we anticipated to see the savings on the EDD side.

There's some other items in there as well where we have anticipated that we would be able to bring down the costs a little quicker, or maybe not see it up -- go up so quickly. So, for example, on things like the rental line, I think we've discussed before that that includes our rental of international cable capacity. And to some extent, that will be influenced by when the AAG, the Asian American Gateway, comes on stream, because at the moment, given the fast take up of our Broadband numbers, we've had to rent a bit of additional capacity there which we hadn't fully anticipated when we went out with that PHP92b projection. So it's more items of that nature, rather than any particular general -- sorry, any general cost increase which we had not anticipated.

I think, on the tax rate, Anabelle, do you want to comment?

On the tax rate, Sachin, basically we have the benefit first of all of the reduction in the corporate income tax rate, from 35% to 30%. In addition to that, certain of our units were able to avail of the 40% optional standard deduction method in view of the (inaudible) deduction method, which resulted in some further benefits.

I guess, if you look at it from a guidance standpoint, we probably would estimate that our effective tax rate for this year would be somewhere at approximately 28%.

Got it. Thanks.

Thank you. Next question is coming from the line of Tien Doe of GIC. Please go ahead.

Hi, good afternoon. Thanks very much for the call. Just on the international capacity, you said when the AAG comes on stream, what sort of savings would you hope for once that does come on stream in the third quarter?

The second question, as of now what proportion of your SmartBro net additions are actually taking that Asus EEE bundle?

And thirdly, the subsidies involved with that netbook, (technical difficulty).

Maybe the AAG saving will run at approximately PHP250m per quarter.

Okay.

And then, the SmartBro question. How much of the subscriber take up is the -- how many are taking up in the bundle of the netbooks.

Well, it's too early to say because we just started offering the bundle. So I think it's too early to give a number on that.

But that should be positive because these netbooks are bringing down the barrier to entry quite dramatically.

Considering the PC penetration in the Philippines, it's really the terminals which are more of a constraint rather than our -- the availability of access. So that's the thinking behind the introduction of this bundle.

And the subsidies involved in offering that bundle, are those significant?

No. There are no subsidies. I think there's -- I stand corrected. I think there's a subsidy for the postpaid offering, but on prepaid there is none.

And you would say that's similar to a normal postpaid handset subsidy?

Yes. That's right, about similar.

Okay, all right. Thank you.

Thank you. Next question is coming from the line of Brian Wee of Goldman Sachs. Please go ahead.

Hi. Thanks for the conference call. I have three questions, the first on your Fixed line. Could you provide some color on the EBITDA margin from your Fixed and Wireless Broadband services separately? Or otherwise, could you provide us the EBITDA contribution of these services to your Fixed and Wireless services?

Secondly, on the PHP8.4b advance to the beneficiary trust, could you tell us what is the nature and terms of this? And do you think that there will be more such funding in the near term?

My third question relates to the acquisition opportunity. What are your thoughts about the new near-term acquisition opportunities, with valuations going up? Do you think that the likelihood of an impending acquisition over the next six months is now more imminent, and whether this will be done at the beneficiary trust or the Company level? Could you also tell us what kind of investments you are considering at the moment?

Perhaps I can deal with the third question first. When it comes to acquisition possibilities within next month -- within the next six months, we're not in discussion at this point in time for any particular one, or are there any plans that would occur within the next six months.

In terms of your second question on the advances to the Beneficial Trust Fund, that is part of the -- the nature of that relates to the investment by the BTF in the Meralco shares. So it's a one-off in that sense, so there are no further advances that are of this nature.

Yes, I understand that this relates to Meralco, but I would like to understand what are the terms of these advances. For instance, is there interest and what would be the repayments?

Okay. I think we will do an [acquirer] valuation in the course of the year, where basically part of that advances would be classified as catch up contributions to deal with the pension funding situation.

And then in the -- I think, in terms of the plan with respect to the Meralco shares that the BTF holds, that will eventually be swapped into Metro Pacific or MPIC shares. And if there may be an opportunity to liquefy that in the future, then there will be some repayment of the advances.

I think, on the EBITDA margins, we're -- I guess what we're seeing is similar to what we've guided before, that the margins there, both on the Fixed and Wireless, are a little bit lower than we're seeing in the traditional businesses, so that over a period of time we would expect that to take a percentage or so maybe every couple of years of the traditional margins, because we were expecting effectively the Broadband to grow faster than the underlying businesses. But that's what we've seen over the last couple of years and I guess we expect that trend to continue.

Okay. Thank you.

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

Good afternoon, everyone. I have one question which is to do with the compensation costs. They seem to have crept up a little bit this quarter. If you could provide a little bit of color on how you want us to think about this as a percentage of service revenue for the full year. Worldwide, we are seeing these costs actually coming down for most companies, but there seems to be a reversal of trend here. So if you could provide some thoughts on how you're seeing -- how you think this will track going down for the rest of the year.

I think there are some issues in the first quarter that need explained, I think in particular in respect of two items within the compensation expense. Firstly is in respect of the accrual of the long-term incentive plan. If you look at the first quarter last year, actually, there wasn't an accrual. It was actually a negative because of the movement in the share price. Whereas this quarter, as we get closer to the end of the plan, then the plan would be driven more by the underlying profit of the business rather than the share price. The accrual, it's a positive accrual in the quarter rather than a negative in the first quarter of last year. So I think that's one factor.

The second factor is that, on the pension benefit side, I guess like a lot of companies, when we did our actuarial valuation at the end of the year, with the fall of the underlying assets, there was a need to include a higher pension accrual during the year. So I think our compensation benefits will settle at a higher number. But I think what we would say is that it's not as sharp as you would see in the first quarter, because of that significant adjustment on the investment plan side.

As you went through the year last year, there was effectively a catch up on the incentive plan accrual, such that we had actually quite a large accrual in the fourth quarter of last year. So, overall, for the year, I think because in particular of that additional pension benefit accrual, it will be higher, but not to the same extent that you've seen in the first quarter of 2009.

Okay. So if you want us to think about it on a year-on-year base -- on a full year basis, you would expect that to track maybe in line with the revenue growth or slightly less than that? Is that [the difference] that we can expect or is it going be flattish?

I think we might have to say it's slightly higher, because I think with that pension benefit accrual that -- when the actuarial valuation was done, then it will reflect the revaluation of the assets at the end of the year, which obviously the fund assets at that stage were probably at a low point. And the accrual that you then make over the average life of the retirees affects that very low value. So that will stay there effectively for the balance of the year, unless we do a revaluation at some stage during the year. So at the moment it'll probably run a bit ahead of the increase in the revenue line.

So I guess, from our perspective, if we are looking to maintain or maybe just see a small reduction in the EBITDA for the full year, then we need to look at things like the rental expenses that I mentioned earlier and maybe ePLDT to bring in some cost savings to do some offsetting there.

Okay. Thank you very much.

Thank you. Next question is coming from the line of Mohit Jain of Citigroup. Please go ahead.

Hi. I have two questions. First is regarding depreciation expense, which moved up in this quarter. And so any guidance what should be the depreciation expense for the rest of the year?

And my second question is with respect to ePLDT. What would be the EBITDA margin guidance for the full year? Thank you.

I think we're -- our guidance for the full year on the depreciation, it will vary a little bit quarter to quarter because some assets come to end of life and then other assets come in. But we would guide for something for the full year between 26 and 27.

On ePLDT, I think we could see it getting to maybe a double-digit margin for the year, but probably very low double digits, maybe 10%, 11% for the full year. But obviously that would mean a higher margin as we get towards the end of the year, when the full impact of the EDD wind down is taken into account.

Thank you. Does that conclude your question now, Mr. Jain?

Yes, thank you.

Right, thank you. Next question is coming from the line of [Moy Esguerra] of Sun Life. Please go ahead.

Yes, thanks for the call. I just have three questions. The first one, would you have any exposure limits on the Beneficial Trust Fund for any single asset?

Secondly, how much have you invested in the ePLDT business side of the Company?

And thirdly, do you have any comments or any product that would match, say, the newest offering of Globe, which incorporates unlimited landline-to-landline calls on a basic cellular phone? That's it. Thank you.

On your first question, the exposure limit, I guess the BTF is governed by a Board of Trustees who would evaluate the investments in accordance with various parameters. Of course, there are limits that are in (inaudible) place, but the Meralco investment could be viewed as an exception to them.

On ePLDT, the actual investment is about PHP16b -- between PHP16b and PHP17b.

I think the last one is on the Duo.

Yes, sir, the last one is on the Duo. Do you have any products that can -- that actually --?

The Duo, we are -- yes, yes. We are -- as you know, we have also a product called Landline Plus, and that is our version for wireless landline with already unlimited calling within the area code of that -- of the landline. But it's not really unlimited because it is capped by a monthly service fee. Over and above, I think it's 600 minutes, you are charged on a per-minute basis already. But at this point, we are still observing what the Duo is -- how it's performing. And if we are seeing that it's going to make a dent in the market, then we will respond accordingly.

But do you think it will affect the -- specifically the wireline revenues, since you're basically taking away the need for a separate landline for residential use?

Right now, we're not seeing that negative impact yet. In fact, our wireline service revenues have gone up in the first quarter, which is by 3%. And in fact, our subscriber base on the landline has also gone up by 1%. So we're not seeing that effect yet.

Yes. I don't think that that really is the comparison you need to make. The fixed line has been subject to competition now for a long period of time from a mobile phone, so people who want mobility and the ability to communicate have had that for a long period of time and it's a very efficient and cheap service.

What -- our take on the fixed line is exactly that. People, for a personal communication device, be it either in a corporate environment, large corporate, SME or residential, will use a cell phone. If they want a fixed line phone, that is a location-based device, be that in the home, the SME or large corporate. So the fact that you can have a fixed line tariff and walk around with it, based on the -- what we have seen, is a relatively limited market. We still strongly feel that there is a demand there for a location-based device.

So offering it in the Duo package, it may compete a little bit with the Landline Plus product, but it doesn't compete directly with the mainstream business of our fixed. And in fact, if anything, we've seen a slight increase in subscriber numbers during the first part of the year.

Thank you very much, sir.

Thank you. We have a follow-up question coming from the line of Luis Hilado, JP Morgan. Please go ahead.

Hi, good afternoon. Just one follow-up question to Rama's question about the LTIP. I see in the notes to the financials that the outstanding obligation is about PHP3.2b. Is it fair to assume that -- just broadly, that if the financial targets are met that is the amount we should forecast for the year?

Just a minute, Luis, we're checking.

Yes, Luis, I did actually put a small bet that you might ask a second question. I think, Luis, maybe just to clarify your second question or series of questions, the -- I think you're referring to page 82.

That's right, yes.

The outstanding liability is PHP3.2b, and that is what we have accrued to date.

Okay.

So, assuming it ended today and there was a payout today, that's what would be paid. However, what will eventually be paid is -- will be driven by how the share price moves between now and the end of the plan period, which -- and there is also a factor of what happens to the underlying consolidated profit. So what additional amount has to be accrued on top of the PHP3.22b will depend really on performance for the balance of the year and what happens with the share price.

Okay. So the PHP3.2b is [the size of the] plan, essentially?

Yes, that's what we've done. And again, if you look at what happened last year, in the first half of the year, in fact, it was a negative. It wasn't an expense. It was a write back of an amount which we had provided at the end of 2007. And then, as the year moved on, there was then additional accruals in the third quarter and then a higher accrual in the fourth quarter.

So I think there was a question earlier about the compensation expense. That is why it actually distorted the actual expense running through the P&L in 2008. This year, as you're -- the way the formulas work, as you get closer to the end of the plan period, the volatility of the provision that you make reduces because there is a shorter period to accrue over. But there will, we're all hoping, be an additional accrual on the top of the PHP3.22b.

Okay. Thanks.

Thank you. Next question is coming from the line of Arthur Pineda of RBS. Please go ahead.

Hi. Thanks for the call. I have three questions. First, could you remind us of your funding plans for 2009 for the entire Group, what's your plan to raise over the next three quarters and what you've raised so far, including the first quarter? If you can include the amount needed for Meralco as well, that would be great.

Secondly, will you book the interest charges or the foregone interest on the PHP8.4b advance to the Beneficial Trust Fund under the Trust Fund or under PLDT?

And the last question I had is would you see any circumstances in PLDT you'd actually consider taking a bigger stake in Meralco? Let's say if San Miguel decides to divest of its stake, would you be looking to pick that up?

Maybe I -- Polly on the last two and maybe Anabelle can do the first one. I think on the last point, no. I think, Arthur, we've been quite clear that from a PLDT perspective we would limit that investment to 20%. So, even if the situation occurred that you suggested, that would not cause us to go beyond the 20%.

In terms of the Beneficial Trust Fund and interest, it's somewhat moot at the end of the day. To the extent that we were to charge interest on that advance, when you then assess the performance of the BTF, that will just be an expense in the Beneficial Trust Fund, so you would then just have to put in an additional funding to cover it. So it is not our intention at this stage to go through that process of charging interest, expensing interest and then to increase the contribution.

The first one was on --

On the first question, Arthur, basically, if you take everything into consideration, our CapEx plans, our dividend payout, our investment in Meralco and any other investment [synergies], there will be a net increase in borrowings for the year, which we have given in the presentation. So, likewise -- so, on a gross basis, our expectation is that the Group would probably need to raise about PHP36b of debt, but against that there is about PHP18b of maturity. So, a net debt increase of roughly -- on a gross basis of about PHP18b.

Of that PHP36b that I referred to, we have in place either committed facilities or drawings amounting to about half of that, and then the balance we would be raising in the course of the second and third quarter. Again, we have various things in the pipeline that should be able to cover the remaining requirement.

Sorry, Anabelle, just to clarify, this PHP36b includes the money needed for Meralco or is that (multiple speakers)?

Yes, essentially yes. As you are aware, Piltel is the one that is making the investment in Meralco. But part of the transaction that is being undertaken in terms of this whole corporate, I guess, transformation of Piltel is the sale of the cellular business from Piltel to Smart, and Smart will have to pay Piltel a consideration for that. So that will be part of what Smart needs to fund or raise.

Understood. Thank you.

Thank you. (Operator Instructions). There seem to be no further questions at this time. We will conclude the question and answer portion. And before I turn the conference back over to Mr. Nazareno, I would like to give everyone the instant replay information of today's call. This conference will be available on a 24-hour instant replay starting today, daily, on through May 20. Please note the international caller number is 852-2802-5151 and the US toll-free number is 1-800-839-3014, and the pass code is 713400. Conference leader is Melissa Vergel de Dios.

I will now turn the conference back to Mr. Nazareno for any additional or closing remarks. Please go ahead, sir.

On behalf of my colleagues who are here, we wish to thank you all for joining us in this conference call and we look forward to the next conference call after we announce our results that will be on August 4. Thank you.

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