PLDT Inc (PHI) 2015 Q4 法說會逐字稿

Thank you and welcome to the PLDT conference call. This conference call is being recorded and replay information will be provided at the end of the call.

At this time I would like to turn you over to Melissa Vergel De Dios, Head of Investor Relations for PLDT, for the introductions. Please go ahead. Thank you.

Good afternoon and thank you for joining us today to discuss the Company's financial and operating results for the full year of 2015. As you have the conference call invitation (technical difficulty) presentation posted in the website. For those who have not been able to do so, you may download the presentation from www.pldt.com, under the Investor Relations section. Also the podcast of this briefing will be posted on the website after the call.

For today's presentation, we have with us on stage members of the PLDT management team, namely, Mr. Manny Pangilinan, Chairman and CEO; Ms. Anabelle Lim-Chua, Chief Financial Officer; Mr. Ariel Fermin, Head of our Corporate Consumer Business; Mr. Eric Alberto, Head of our Enterprise Business; and Mr. Joachim Jorn, our Chief Technology and Integration Advisor.

At this point I will turn the floor over to Ms. Anabelle Chua for the presentation.

Hi. Good afternoon, everyone. Let me run through some of the highlights of our 2015 financial results. We saw our service revenues coming at PHP163b, with our growing data and broadband data businesses contributing an increase of PHP6.6b in overall service revenues. As such, the growing part of our service revenue now accounts for 30% of the overall revenues.

If you look at it between the fixed segment and the wireless segment, for the fixed segment, the growing component of our service revenues is already at 57% of the total, while for the wireless segment it's at 20% of our overall service revenues.

The increase in our data and broadband businesses however, was offset to some extent by the drop in our traditional businesses from international and long distance revenues, as well as some weakness in our voice and SMS revenues.

Moving on to the next -- if you look at the bottom line, at the EBITDA at the bottom part of the chart, the drop in service revenues obviously impacted our EBITDA for the year. We came in at PHP70b versus PHP76.8b in the previous year, or at an EBITDA margin of 43% versus 47% last year.

Turning on to the next slide, from a semester-on-semester basis, we talked about early signs of improvement when you look at the trend for half-on-half results. From an overall consolidation service revenues perspective, the increase in the second half last year was a 2% increase over the first half last year, the same year, versus 1% trend in the prior semesters.

If you look at the fixed line, our growth half on half is up to 5% from a 4% increase prior to that. On the wireless side, we were able to achieve stability in our revenue for the half-on-half basis as the revenue stayed flattish on the second half versus first half.

Turning on to the fixed-line segment, you'll see here that the growing data and broadband business was able to lift the overall fixed line revenues by 5% year on year. Our dependency on the ILD/NLD business is much less in the fixed-line segment as it now only accounts for 11% of the overall fixed-line revenues.

Turning on to the next slide, which in contrast for the wider segment, the emerging data broadband businesses, at this point, only about 20% of our overall revenues. So we still have higher dependency on the SMS and voice business in this particular segment, and as such, that impacted the overall revenue performance of the wireless business.

Looking at the core income for the Company, we were able to achieve the core income guidance for the year of PHP35b, by coming at PHP35.2b. The drop in EBITDA was cushioned by the lower taxes and the one-time gain from the sell-down of our Meralco shares, which amounted to PHP3.2b.

From a reported income perspective, we had to take some charges to the 2015 P&L, principally related to the FX translation loss around foreign currency denominated net liabilities, as well as some impairment charges on our fixed assets as we modernize and integrate our network into the overall wireless smart network, as well as a charge for the markdown of our Rocket investment, which at the yearend the Rocket share price was at EUR28.4, compared to our investment cost of EUR33, compounded by the fact that the euro also weakened against the Philippine peso.

So that in a nutshell summarizes our results for 2015. With respect to our dividend declaration, we declared today a PHP57 final dividend that allows the Company to pay out PHP122 of dividends for the year, representing a 75% payout based on core earnings.

We have previously signaled to the market that the special dividends are not forthcoming in that we are reinvesting and [re-plowing] our cash to support the higher CapEx investments that we expect even going into 2016. Our CapEx guidance for 2016 remained at PHP43b, at similar levels to what we spent in 2015. There are also adjacent fees in terms of digital businesses where we would like to also put in some investment, albeit at a lower level compared to what we did in 2015.

So let me now turn over to our Chairman, Mr. Pangilinan, to talk about the guidance going into 2016.

Thank you, Anabelle, and good afternoon to all of you. Let me proceed to the page that relates to the core income guidance, with the basis on which we have guided numbers to a significantly lower figure to -- compared to -- from PHP35.2b this year to PHP28b.

On the revenue line, the traditional strengths of the Group, you see for the past few years, namely the postpaid segment of the wireless business and the fixed line business on enterprise and home, are expected to post double-digit growth in the course of 2016 and onwards to 2017.

The issue for the past few years has always been the prepaid part of the business of the wireless side, and as well, the negative business relating to toll traffic that (background noise) in Smart which are NLD and the ILD toll traffic, the national long distance and the international long distance, which as of 2015 aggregated about PHP20b. Now, PHP4b of that relates to NLD and about PHP16b in international long distance. And we anticipate that to reduce at a clip of between PHP4b to PHP5b maybe -- well, this year and next year, but it should ameliorate I think as the volume, as the size of the business itself should plateau at some point in time.

So the main challenge was, is keeping -- holding the line in respect, and growing, in respect of the prepaid business. A significant portion of the growth of Globe last year was the loss of 5m subscribers of Smart over to Globe and their take-up or majority, if not all, of the incremental growth sub base. That alone, they added last year 9m subs, so even at the rate of, say, PHP1,000 or PHP1,300 ARPU per year translates to anywhere between PHP9b to PHP10b of revenues for them, which is two-thirds of their growth in revenues in 2015.

So we really have to address the prepaid part of the business. I think we should play within the traditional strength of PLDT which are the postpaid part of the cellular business, the home part, considering that we could own the home on the basis of the fixed line infrastructure of PLDT and the ability to sell the video part through Cignal, and of course, the ability for us to own the home with respect to our connections on the electricity side and the water side of the business. So we should drive towards owning the home moving forward.

Now, so on the whole, we should expect to see a growth in revenues that will be attenuated by the decline in the toll traffic business of PLDT and the main areas of postpaid, home and enterprise growing in double digit in the course of the year.

Now with respect of the post EBITDA line, there'll be three negative factors that causes to drive this core earnings number to PHP28b. Number one is we anticipated increased depreciation costs arising from the elevated CapEx for the past year or so, and then of course PHP43b for 2016. And the -- as a collateral, part of it is the increased financing costs, albeit that we will strive to keep the net debt to EBITDA ratio at no more than twice -- 2 times, that ratio.

Second is the increased provision for income taxes that we anticipate this year, which is about PHP3b, the first part relating to financing of depreciation costs of about PHP2b. And the third part relates to the -- I'll check my notes -- the gain of PHP3b that we'll realize this year in Meralco, which we're not assuming in 2016. So that's an impact of PHP7b post EBITDA line for the Group.

Now let me just say that, in respect of the baseline business, the reason why PLDT is particularly strong is because 57% of the revenues on the fixed line side is already data and broadband driven. So it's easy to replace, it's easier for the fixed line to replace any lost revenue because 57% of our revenues are already data-driven. It's much more difficult for Smart, the wireless side, to replace lost revenues because only 20% of its aggregate revenues of 2015 are driven by data.

Now the good news is that the data traffic on our networks actually returned quite significantly in the course of 2015. The trick has always been try to monetize the growth in data. The growth in our data traffic on our network is actually four times greater than the growth in our revenue driven by data. So we need to understand why that is so. And obviously there's an intense effort of trying to monetize the growth in our data traffic into peso terms.

And there are other issues related to network. I think [Jorn] will -- if you have any questions for Jorn in terms of his build-out from of 3G, 4G infrastructure, the ease of use of our products and services, meaning that we have to improve on our service delivery platforms and of course the overall (technical difficulty) in terms of content as well, that's going to be addressed, (technical difficulty) the enterprise group, in terms of better business solutions to enterprises, and of course the consumer and digital experience.

Part of the working assumption from 2016 and 2017 and 2018 as well is that the Group has got to enhance its market share on the enterprise and home side and at the same time at least maintain, if not enhance as well, its market share on the prepaid side of the business. Now, that will take some pain to do, a lot of effort and some pain moving forward. We're also assuming the entry of a third player at some point in time, toward the course of this year, in 2016, whether by itself or in partnership with another telco.

That's basically it, right? Did I leave any point?

So I guess this should be a two to three-year journey for us. It's going to be quite, what, painful, in terms of the transition that we'll have to make from the legacy to digital. And you've seen early signs -- early encouraging signs of our ability to hold on to the business. The second half of this year is slightly better than the first half. Last year, the January and February numbers, across the board, enterprise, postpaid, prepaid and home, are quite encouraging. So, of course, two months don't make a year, but at least there's some signs of progress, network side, platform side, and even on the revenue side of the business. So we would hope that we would report progressively better results using the PHP28b core income as a jump-off point for PLDT.

Okay? Thank you.

We are now ready to take questions. As in the past, we'll take questions first from those who joined us through the conference call facility. Operator, are there any questions in the queue?

(Operator Instructions). Pankaj Suri.

Hi. Thanks for the call. Four questions for me. First question, around the guidance, can you tell us what exactly have you assumed for the SMC-Telstra impact? And a related question is, any update on what exactly is the company up -- is SMC up to? And any update on the 700 megahertz potential reallocation?

Second question is the fourth quarter EBITDA. The number has come off a fair bit. What exactly was behind this? Any one-offs that we need to be mindful of?

My third question is on subscriber growth. So we have seen negative subscriber adds for almost four quarters now. When do you expect this to turn positive? And also if you can tell us, how's been the traction for the PHP1,000 postpaid plan that was launch at the start of the year?

My fourth question is on the fixed line trend. They've been fairly resilient. Can I ask what's working in its favor and what's the potential in the segment? Thank you.

The first question?

What did we assume about San Miguel and Telstra in the guidance? What are they up to? And what's the (technical difficulty)?

Well, we just assume they will be here, and sometime this year, we don't quite know, when we don't have clear visibility obviously on their plans. But we're picking up news that they're on a network build-out, most likely in respect of the urban areas, as a start. And they'll be price competitive, because they will have, as a start, a very empty highway. So, quite likely to be -- they'll be offering competitive pricing in respect of their services. So we just have to wait until they actually launch their services in the course of the year.

Okay. Thanks for that. Any update on the 700 megahertz reallocation?

The NTC has not acted upon the applications of both Globe and Smart and we continue to press on. I think you would have noticed in the press of late that both Smart and Globe have increasingly been pressing the NTC to come out with a decision one way or the other so that we can take the proper judicial action. But to date we have not heard at all from NTC, and this is quite frustrating actually.

Thank you.

Navin Killa.

Operator, there's two more questions.

Your line is now open.

We'll just go with the third question first, on the negative subscriber growth, before we go to Navin.

Yes, good afternoon. We have to view what's happening to PLDT and Smart in a more balanced perspective, as the Chairman mentioned. This unit of home grows by 8% year on year, all right, and that will be the fourth year of growth, and on its way to a double-digit growth this year 2016. We've got a postpaid business that is outpacing everyone in the industry, a broadband pocket WiFi business that is outpacing everyone in the industry. And therefore, we have really just ring-fenced the challenge in this category called prepaid, now, which is the point in question right now, right?

Now when you look at prepaid, really what are we trying to achieve with what we've done? We started the year by launching an $18, PHP888 smartphone. It starts with the ambition of putting -- of leading this country in embracing what's called The Digital Life or Smart Life, and you see what you see in the communications. The first step is for everyone to have a smartphone. I'm sure you know the numbers. Only less than half of our guys, of our subscribers, have smartphones. And that's why we've launched this piece. Now that is just the first step.

Now with that smartphone -- which happens to be -- it's quite a [bomb] because we're running out of [stock to raise]. With that is an encouragement for the subscribers to use data. With what? Now you know that we have content, a whole lot of content, and iFlix was one of them. Late last year we launched a, iFlix, particularly for the base of pyramid prepaid market, where you have it sacheted, where you have it friction-less, meaning you could just access it without any sign-ons, and you have a download now, watch offline feature. Those are the functionalities that we have right now in those smartphone PHP888, and that's why the Chairman mentioned you see growth in data, that, which is so enormous.

Now the key for us, just to be very granular about it, it's actually good that we have usage [there]. That's actually very good. And the key for us is to monetize this. And it's something that obviously needs an intense review from our end. So when you talk about subscriber base, it starts with -- it starts with the efforts of putting smartphones in the hands of our consumers and having them use data, and not only use but be in a position to monetize it.

What was the question?

Why the fixed line is so resilient.

I think there's another question on the fixed line. I'd like to touch on the enterprise side. I'd like to dispel the fact that it's only in the fixed line that we have opportunities out in the enterprise. It's actually a converged play of fixed and wireless, leveraging on the digital and ICT solutions platform for enterprises that runs through, and some of you have heard of it (inaudible) leveraging on social media, mobility, analytics, big data, cloud and security. And there is a growing need from enterprises, whether large or small, to really offload their IT elements to a trusted expert partner.

This is a model that is really playing up to -- really going outside of essentially owning and spending CapEx to an OpEx model and trusting these elements to a trusted expert partner that has scale to do it, each of these enterprise scales, and do a better job at running their core business and becoming competitive at it. And this run along the lines of hosting and collocation services, disaster recovery, machine-to-machine, Internet of Things on wireless solutions, IaaS, SaaS and PaaS on the cloud, big data and analytics, allowing enterprises to have a more intimate relationship with their own customers, and security solutions, among others.

It goes without say that we're building capability and capacity in terms of infrastructure in datacenters, cloud platform, as well as in our network, coordinating with Jorn, as well as our people resources, to be able to make and exploit and optimize these opportunities.

Eric touched on a very important point there which I want to build on, convergence. All right. Convergence. You won't have any bigger company who could possibly do convergence the way we do. Over the past quarters or so, what PLDT and Smart have done, just to be very, very specific about it, is that, first, in the country, this is the only brand that was able to share data amongst a fixed base to a postpaid mobile base, and now to a prepaid mobile base. Before, years ago, the innovation of Smart was Pasa Load. Now we've got another first in the country, it's called Pasa Data. So, imagine that.

Now all of a sudden, all of a sudden, we have an access, we have, seamless access between fixed and mobile subscribers in this case. That's a whole lot of promise and a whole lot potential for the Group in terms of increasing subscriber base.

Pankaj, are you okay with that?

Okay. Thanks for that. Yes.

Excuse me, Pankaj, do you have any further questions?

Yes, if I may just request for the reply to my second question. What exactly happened on the EBITDA line? It appears to have come off a fair bit. For the fourth quarter I mean. Yes.

So with respect to our outlook on the EBITDA, as we have been discussing, the growth driver in our business is the data side of the business, which -- and, well, and it's displacing our legacy ILD, NLD and some of our voice, SMS revenues. So there's a shift in terms of the EBITDA as that happens because the -- unfortunately, the revenue items that are declining are of higher margin than the data business, which is more complex, much more engagement to deliver.

At the same time, we are -- that there would be more competitive environment going forward, and hence, that also will affect some of our expenses going forward.

Sure. My question was with respect to the fourth quarter EBITDA number. Are there any one-offs in there?

The fourth quarter EBITDA, there were, in any fourth quarter, we take a look at some of the expense accruals that we need to book with respect to things like local regulatory taxes and things like that. And then there's also obviously some heightened activity during this fourth quarter from a seasonal perspective.

Okay, great. Thank you so much.

Navin.

Hi. Thank you for the opportunity. I had three questions actually. First, I just wanted to understand your guidance of net profit. So you're essentially guiding for EBITDA to be flat. You're guiding for depreciation to be up PHP2b. So I'm just trying to understand, maybe you tried to explain this earlier, where is that remaining PHP5b gap coming from. So if you could help us understand that.

Secondly, the point about improving trends and stabilization of business, If I look at your wireless revenues, even quarter on quarter it was down 1%, in a seasonally strong quarter. So I was just trying to understand, when you talk about stability, are you referring to stability excluding the declining segments? Is it just a focus on the data part overall? Because it would appear that your market share continues to decline.

And then the third question I had, again with regards to the point you were making about lower margins in the growing segments, how should we look at a steady state EBITDA and EBIT margin for the business two to three years out, once you are through with some of these revenue mix adjustments? Thank you.

In respect of the guidance number for 2016, [as we said], that certain parts of the business, principally postpaid, home and enterprise will show double-digit growth. Low double-digit growth, not saying it will be high double-digit growth but low double-digit growth at least double-digit growth. Prepaid is another matter.

So I think on the -- while there will be growth in the business, it will be ameliorated by the decline, anticipated decline, in the toll traffic revenues, NLD/ILD. So that's in the range of PHP4b to PHP5b. That is a given for 2016. And hopefully that will -- the rate of decline will attenuate starting 2017, 2018 when we're down to the PHP12b to PHP15b level for both domestic and local, international.

Now the margins on the incremental revenue, as Anabelle noted, we anticipate to be lower than the margins being realized on the legacy business. That's why the contribution to EBITDA will decline. I would anticipate that the EBITDA margin would decline a bit in the course of 2016 simply because of that swap from legacy to digital being at lower margins. Now the EBITDA is -- below the EBITDA line we will get affected by the increased depreciation, increased financing, the Meralco gain of PHP3b in 2015, which we assume will not be realized in 2016, and the PHP2b increased provision for income taxes. So that explains the reduction in the guidance number.

That's basically it. The second question?

Improving trend, whether you (technical difficulty).

Well, we're assuming that at some point it will not entirely disappear, that it will plateau, as it is in the case of the domestic long distance. The rate of decline on domestic long distance has been -- the delta has been decreasing as well. And so we're seeing a slower rate of decline and a slower peso value decline in the NLD. And we should anticipate that to happen in the ILD as well. Quite weren't aware when that happens. I think it will happen sometime in 2017 and 2018 as well. So it will acquire a steady-state equilibrium at some point in time. That's our assumption.

So the rest of the business will grow on a digital basis, and as Ariel alluded to, the rate of traffic growth on the network, we're seeing a quite significant increase in activity. So we're just behind the curve in terms of monetizing the traffic to peso revenues. And that's a big drive in trying to do that, starting 2016.

Navin, are you okay with that?

Yes. I guess the last question, on steady-state margins? I know it's a difficult question, but.

I guess I could point to two data points if you kind of look at it, from our fixed line segment, which is in a sense a bit more ahead because data is already a majority of the revenues. You've seen our EBITDA margin of 40% in our fixed-line business last year. It's a little better because of we had (background noise) charge to speak of.

The other data point is of course what competition is doing. Competition is at 40% EBITDA margin. So it's more or less there, in that sort of area.

Got it. Thank you.

[Tiendo].

Hi. Thank you for the opportunity to ask a couple of questions. First question is just on the provision for the Rocket Internet stake. The share prices continue to come down post the yearend. Was there any temptation to make a bigger provision and just classify that as a post-balance sheet event? I think the share price is down to about EUR20 now.

Second question is just on the PHP2b write-off on the fixed line. What specifically was that about, either the new network plans and the programs which made you write off that amount? And what do you think for 2016 is a further write-off of the fixed line base likely given that you are (background noise) upgrade the network? And that's my two questions, thank you.

Tiendo, you're right, we would have to take another review of the position, the investment value of Rocket come the next reporting day, reckoning what the yearend share price of EUR28, and last Friday I think it closed at about EUR20. So it does point to an incremental impairment charge assuming share price just stays where it is.

On the second item, the fixed asset impairment charge that we took relates to the Sun network. We are completing the integration of the Sun network into Smart for Metro Manila and Cebu in -- scheduled for the first half of 2016. So with respect to remaining assets that will be affected by the remaining integration efforts, that's the PHP5.8b fixed asset impairment charge that we took as well in 2015.

Okay. Great. Thank you, Anabelle.

Thank you. Do you have any further questions, Tiendo?

No, that's fine. Thank you.

[Hussein].

Hi. Thanks for the call. Just a couple of questions from me. First is on the CapEx guidance for FY16. So is it possible for you to break down the CapEx in terms of wireless and fixed line? And the related question is that, have you made any allocation for digital services? That's question number one.

The second question is related to wireless broadband. I believe you expect a strong growth in FY16. But given that there is a risk of a third operator, which will also operate in that space, so, won't you expect some growth challenges in that segment?

And final question is related to other income. How should we look at other income in FY16, if there won't be any asset sales related gains over there? Thank you.

On the CapEx breakdown, it's approximately 60% to 65% goes to mobile. Then we have another 15% to 20% goes to fixed networks. And the rest is in enterprise and other ventures, including investments in digital services.

Well, the third player comes, then they do come. At this point we're still going to be centered on what the consumer needs. We'd like to believe that we know what the consumer needs are, and we're designing our products or services that fit those needs. We'd make sure that the network and the platforms that we have would be able to deliver the service at the time that they need it. So, whether it comes or not, then, it doesn't really change the game [or us.

The other income, as indicated earlier, for 2015, included the benefit of a sell-down of effectively our interests in Meralco to a 17.5% effective interest. So there was a PHP3.2b other income that was realized in 2015. And as indicated by Mr. Pangilinan earlier, we are not assuming any similar gains for 2016.

Okay. Thanks a lot.

Thank you. Do you have any further questions, Hussein?

No. Thanks a lot.

[Angela].

Hi. Thanks for this opportunity. A few questions from me. One, could we have a sense of the competition and pricing dynamics in the mobile market now?

Two, any update on the search for a new Chairman?

And number three, your net debt is currently at $2.4b. Is there any risk of a cash call? Many thanks?

Did you mean cash call by way of equity call or something else? In the second question.

No, maybe any chance that any of the debt would be called this year? Yes.

Yes, in terms of our net debt position, your number is correct, and it was at 1.6 times. There will be some incremental financing as we continue to expand and invest in the network side. But we would like to keep our net debt to EBITDA ratio below 2 times.

In terms of big maturity, there will be a maturity in early 2017 for our 2017 bond. That's our last public bond, US dollar public bond, that's outstanding, and we would expect to pay that off at maturity date. And we would be essentially replacing that more with domestic funding sources.

-- your first question on competition. Angela?

Competition and pricing dynamics in the mobile market.

All right. Well, the core of the business right now is data. I think that works both for us and the rest of the industry. And the key challenge for the Group is to grow data faster than the industry, faster than the competitors. As the Chairman mentioned earlier, for mobile, contribution of data was about a fifth of revenue. We want to aggressively pursue this direction that data contributes at least half of our revenue in the next two to three years.

Now with data -- now data, focusing on data is one. The other point that we're really, really just putting our efforts on would be the delivery of data in a way that's so seamless and so organic and so [imperative] to the consumers. And that's where the third point comes in. And that's why we have content that I think is unparalleled actually in the industry, so that the consumers enjoy data in this case.

Now when you look at data, home, data used for home, I don't think there was going to be anyone close to what we have in PLDT home. It's really mobile internet that really there's a challenge. Because what we're seeing is that, aside from less of our consumers have smartphones, less of our consumers actually use data and paid using their smartphones. So that clearly is a challenge for the Group.

Do you mind repeating your second question please?

My second question is to do with -- you mentioned at the end of last year that there's a search is ongoing for a Chairperson of PLDT. Any updates on that? Thank you.

That was a question asked by media as well. So well, I just did two months on the job and I think I need a bit more time to really understand this business. This is a very different business from when we invested in 1988 or when, indeed when Smart started in 1993, when it was all voice. It was all voice up to 1998, so it was a single product company for both Smart and PLDT, so it was fairly simple.

And when texting came around in 1999, 2000 it was still a fairly simple business with extremely high margins and the pressure on ILD wasn't that great. It was declining, but not that great.

Now it's an infinitely fast, more complex and very dynamic kind of landscape. So from a personal perspective, I need to understand a little bit about it, so that to gain some insight as to what kind of person the next CEO should be. Because if I don't do that, then we don't have -- I don't have a -- by myself and certainly the Board itself, should have a better basis for choosing the next CEO. I'm not here -- I don't intend to stay here forever right.

So I believe that that person should have a significant digital background, certainly younger than I am and has to be Filipino because by regulation the presidency should be a Filipino.

So that's really -- I totally [get that] at the earliest we should start the search process sometime in the second half of 2016. It will take us a few months to locate this person and hopefully by I think 2017 should have a new CEO on the saddle. My job is to hopefully lay the foundation on which this new person could build up on and improve and take a longer term view of the business.

I'd just like to reinforce the no capital call on -- especially if the questioner is referring to any new fund raising, equity fund raising. The answer is no. I think if we're able to maintain EBITDA at the PHP70b range, I think we have sufficient cash resources to be able fund the CapEx.

Remember the CapEx of PHP43b is nameplate. The actual cash could be somewhat smaller than that. Then there'll be dividends, at 75% will be around PHP21b, PHP22b alone. So we -- and of course the rest would be financial expenses.

I think we have sufficient cash inflows to be able to defray those cash calls on the Company, so there's no intention and there's no plan at all to raise new equity or even to significantly increase the debt level of PLDT. We've been through that in the year 2000, or 2001 or whatever the year was many moons ago.

Okay. Many thanks for the insight. Appreciate it. No further questions.

[Charles Wong].

Yes, hi. Good afternoon. Thank you for taking my questions. I would like to start first with a comment, before I actually do the question. Just for disclosure's sake, I am a subscriber to Smart. I am also a -- just recently using landline, PLDT landline and PLDT home fiber. Actually my question is regarding to customer service, or actually the lack of it.

Last February 2, I had an outage. In my area there about as far as I know five houses. Starting February 2 there's no landline and no Internet connection. I've been trying to call your customer service almost two or three times a day and it actually took them 18 days to fix the problem.

My issue is that we use our home landline and our Internet for my wife to actually work and we've lost a lot of working hours. And of course our problem with the customer service who don't really care about getting the problem fixed. All they keep saying is that we are sorry, service has been interrupted, we have forwarded to the technical people and we are working on it.

So it's been going on back and forth for 18 straight days. Nobody seems to be able to give us a straight answer and none of your supervisors have actually returned my call. In the few times that I was able to talk to one, it took me 30 minutes just to talk to one, two at the most.

And the worst part is that the service was actually prepaid. I don't know for some weird reason, your policy asks us to prepay the service first before you actually provide it. And it actually angers me that none of you cared that I already paid, I'm in good credit standing and you're actually technically in breach of your contract. I signed a 24-month contract and of course I reached out to your customer service and to your business center here in Makati and in the different malls and still nobody is able to give me an answer.

And so my challenge and my question to you is can you improve on your own customer service and I'd like to know how you'd do that because this is not how you do things. I believe that if in one week you can't get anything fixed then you're not supposed to be offering the service at all.

And I actually had to tell your customer service, if you don't send somebody by today, which is on the 18th day, I'm unilaterally cancelling the contract and moving to your competitor, which I was actually told by your customer service that there's nothing much we can do and you're free to move to our competitor, that's okay.

So as a customer, I'm angry. As a shareholder, I'm very worried that none of you actually care. So the question is again can you do better and what are your plans to improve on customer service. That's my question.

Thank you, Mr. Charles, for that comment. The first order of the day is for us to get your number please. Seriously, for us to -- for us to attend to your need to better understand what happened in your situation because this is a -- it sounds cliche, but when a consumer gives us feedback like this, we learn from these things. Because it's is an opportunity for us to make systemic positive, hopefully helpful changes in the way we do things. So yes, I definitely want to get your number and we could have a dialogue on your specific case, point one.

Number two is that now, for the larger population, the interest of PLDT and Smart is to always deliver great, great customer experience. That is paramount in everything that we do. I must say that none of the services, the innovation or the performance of the speed upgrade would be anything without great customer service. At the end of the day, it's the experience of the consumer that matters and it's the front line, the front liner who will deliver that message to them. So I guess we have to do a better job there.

Rest assured that customer service is really -- it's not a strategy, it's really an ambition that we have in PLDT and Smart because when you look at the things that have happened in this Company right now, we would have avoided some amount of churn, or some amount of switching if we did a better job here.

So I appreciate, we appreciate what you just said, the story you just told us. I do want to learn more about your case. And I'd say that we do care. We do care. We do care for our consumer, we do care for this Company and we understand that for this Company to move forward, it is a function of how well we care about our consumers.

So on behalf of PLDT and Smart we apologize the misfortune, the unfortunate incident that you have been subjected to and we will do better. That's a commitment from me. Thank you so much for your feedback.

Thank you, sir.

Thank you.

Do you have any further questions, Mr. Wong?

I think that's about it. Thank you very much.

Rama Maruvada.

Hi, good afternoon. Three questions from me please. Firstly, with regards to your other investments, could you comment on the status of and if you -- if there are any further capital requirements for your media ventures or the status of your pension fund for 2016.

Second is with regards to your taxes. You seem to have got tax credits for the fourth quarter. Could you comment on what was driving this and what you expect the blended tax rate to be for 2016?

Finally, with regards to your mobile Internet revenues, I see that they are up 29% year on year, down a little bit on a sequential quarter basis. My questions is, is this the rate that we should expect going forward, or are there any specific factors that are weighing down the growth rate of the mobile Internet business. Thank you.

Rama, we are -- in terms of our media assets I think there are three main pockets to this. Cignal TV, which we have now garnered over 1.2m subscribers is doing quite well and on a positive and up trend. Our print businesses, we own shares in the leading print newspapers in this country, so they are also doing fairly well and are actually paving dividends.

And I think it's fair to say that the more challenge area will really in the free-to-air assets which we are engaging a US based -- with a US-based firm to review the business and there will be a checkpoint at the mid year to see what we can do together with respect to improving the prospects for the free to air.

On your second question, with respect to the taxes, there are two drivers for the lower tax provisions in the fourth quarter. First is with respect to Smart. We have moved from what's called an optional standard deduction method to an itemized deduction method and as such there are some potential future deductible items that we will be able to book. And based on the deeper tax accounting, we do recognize the benefit of that upfront.

And then second would be with respect to our DMPI, or Digitel Mobile and Sun business, there are some also tax losses and credits that are sitting in Sun. And it depends on how the outlook for that business from a learning standpoint and with that review there were some incremental deferred tax assets again that we were able to book through in the fourth quarter.

On the point of mobile Internet, growing by 29% for us was certainly below our expectations. We definitely want to grow mobile Internet easily 50% year on year. And there's good reason for saying that because if remember what we mentioned earlier, when you look at the data traffic to revenue, the data growth, traffic growth to revenue growth ratio, the ratio that we're looking at is 4X, 4 times. That means a lot of people are using data. Of course we're happy about that.

It also tells us there's a huge upside for us to translate that usage into some commercial value. And imagine if that 29% were doubled, then the ratio effectively just to be linear about it, becomes 2X -- not 4X, 2X. And in our view, 2X is more like an industry norm, in terms of traffic growth over revenue growth (inaudible).

So if your question was what's the expectation moving forward, it is for me and for the rest of the management team no less than [15%] growth quarter on quarter [to continue].

Okay. Thank you very much.

Wei Shi Wu.

Thank you. I have just one question. I just wanted to check whether you had any targets, whether in terms of timelines or target headcount, etc. from your manpower rightsizing program.

Actually that's -- the manpower headcount is part of an overall review process in respect of an effort at reducing OpEx, cash OpEx of the Group as a whole. So that will have to take into account not only headcount, but also other cash expenses that involve the operations of the Group moving forward, including the replacement of, if you may, legacy persons within the organization with digital persons.

So that -- it's an overall look that is going to be undertaken, so at the moment. So we -- in anticipation of lower margins and of course the expenses that relate to financing, depreciation, etc., we do have to look seriously at reducing the cash OpEx, starting this year onward including as I said the replacement process of legacy skills with digital skills moving forward. So I think in due course we'll make an announcement in respect of any OpEx effort.

Can I just clarify that this has started in 2015 -- was it second quarter 2015 or first quarter 2015?

Could you please repeat the question please?

Did the manpower rightsizing program start in the first quarter of 2015?

Could you speak a little louder? The audio is not too clear, sorry.

I'm just wondering whether the manpower rightsizing program started in the first quarter of 2015. If I look at your headcount numbers, it's not really moved that much. So we just (inaudible). Do you have any target for 2016 in terms of you're actually going to be reducing meaningful employees and can we actually expect the reduction in 2016 staff expenses?

If I got the question correctly, the significant manpower reduction charge, it happened through the course of last year, but the biggest dip was in the second quarter of last year. And the bulk of it was incurred by the fixed-line business, although there's also some in the wireless business. In the fixed line, I think about 500 employees are -- for the manpower rightsizing that we did. In the wireless it's less than that because there's also more attrition, natural attrition in the wireless. Therefore the rightsizing amount per se is less.

And then I guess if you look at the overall headcount, there are areas in our business where we are increasing headcount. So for example, our Voyager digital arm, we have increased headcount there. We have created a big data company called [Palette], we are hiring there. So there are other areas in the business where we do have some net increases in headcount that may offset that number.

Can we expect any meaningful reduction in staff expenses in 2016 or is this merely a replacement of [certain costs] by other staff expenses?

I think you have to -- all I can say at this stage is that we -- it's part of the process of reviewing our OpEx, our cash OpEx lines with a view to reducing that, those expenses moving forward. So I think there were priorities that we set out first, in respect obviously of revenues because that was a major driver of cash and profitability, moving forward.

And there are areas that need to be fixed, the network, the service delivery platforms, our distribution channel and of course the digital link to link the two, both the content applications, transactions and even the devices. I think those are the priorities that are now being addressed. And we will move to the next stage of the cash OpEx review. So you have to give us a bit more time to do that. But that's part of the overall portfolio of things to do. So please bear with us while we do that.

As Anabelle said, I think there are areas that need to be grown, like Eric here on the enterprise side is hiring a bit more headcount because he needs that in order to achieve the kind of target and the digital skill sets that he needs, in order to sell, upgrade his overall product portfolio from mainly access and connectivity to business solutions, which are more value added and more value accretive to PLDT. And to some degree, I think Ariel is doing that as well, but more in terms of acquiring digital skills rather than the traditional legacy skills.

Thank you very much.

Are there any other questions from the conference call facility? Otherwise we'll open the floor here for the questions.

We don't have any questions over the phone.

Now we'll go to the floor. Any questions from those who are present here?

(inaudible). My question relates to the earnings trajectory. Correct me if I'm wrong, but it seems that last year was the third year of earnings decline for PLDT and if you're guiding for PHP28b this year, this would be the fourth year of earnings decline. But if you are embarking on (inaudible), how should I look at this year? Should I be looking at this year as being the bottom of the earnings (inaudible) and there would be some improvement? That would be my first question.

And second, just on the prepaid segment outlook, you mentioned a loss of some subscriber, about 9m last year (inaudible) growth in terms of (inaudible). Is this the prepaid market with a market share (inaudible) or is there still growth in --)

And then thirdly, would the data growth really be able to offset the decline in NLD/ILD and also in the prepaid? Would data growth be robust enough? Thank you.

Okay, you might be right in terms of the decline in profitability of the Group as a whole because the high point of profitability was way back in 2010, when PLDT reported core earnings of PHP42b. And so 2015 it was down to PHP35b and now quite likely PHP28b. So yes. But it certainly has caught your attention right. For so many year we have had boring presentations and now we have quite a full room. We're getting a lot more questions than before, so I guess there's some merit to controversy.

I don't know, I don't have the numbers ready, but in a way the numbers for the past few years have been supported by these exceptional gains. So I think if you scrub it out actually the decline in profitability has not been that significant. It has been trending downwards.

And I think it's high time frankly that we recognize that, that we be honest with ourselves and say look, instead of trying to long tail these legacy businesses, it ain't gonna work. It really wasn't working for the past so many years. So we might as well come to grips with that reality and say look, instead of us being disrupted by somebody else, let's start disrupting ourselves.

So that's why there's a torrid pace of accelerating the transformation from legacy to digital and that's manifested for example in the 888 plan of Ariel, that is a subsidized plan. And while it might have faced some criticism from our competitor, I think they're doing it themselves quietly.

But that's imperative for PLDT to shorten the pain period. It may take us two to three years, but beyond that we -- clearly the ambition is to raise revenues and profitability. Now can we assure you of that? Well, we'll certainly try our best to increase profitability beyond the PHP28b starting 2017, but quite where the trajectory will be is anybody's guess.

I don't venture today where that will bring us. Will that bring us back to the PHP40b level? We hope so, but I think it's something that's not -- it's not -- we can't pretend that we're clear about it whether we could indeed go back to the PHP40b level. But certainly the effort of management at this level and the new team behind PLDT will be doing their darnedest.

We've been there. We've been there way back in 2000 and certainly we were not the darling of the exchange as I think starting today we won't be the darling of the exchange. But I think we've been there, we've done that. And I think that's the goal. We will regain the preeminent situation.

We're also in a very difficult situation in terms of manifesting what the details of this strategy is going to be because this is a very public forum and people are listening in. So in many respects, I do hope you appreciate that we have to describe in broad terms what the strategy is going to be.

On the matter of prepaid, there's always going to be the base of the pyramid. There is always going to be the base of the pyramid and it is our commitment to take care of these subscribers up to a point, from the body of that pyramid and (inaudible) they'll actually be at the apex. So it is very important for us to take care of the prepaid base.

Now the point that I can share right, obviously there are a lot of approaches in taking care of the prepaid base. You mentioned about market share and of course, there's [double SIM-ing] happening. How would you actually prefer my service over the others? That's clearly a function of service. And the other approach being well, on my base, in my base, only 40% of my guys are with smartphones, hence you see what you see Plan 888 and so on and so forth.

What we have right now is just a laser like focus on how to fix prepaid and to not only fix, but put it at the level where we felt it should be, where it was before. Now it's always useful to have some wins in postpaid because when we put [Digitel Life, Smart Life] in postpaid, now we have a repeatable model. And then the job to be done from our standpoint is how do you translate what happened to postpaid this time to prepaid knowing that the lifestyle of Digitel Life or manifestation of Digitel Life for a postpaid consumer is slightly different from a prepaid consumer. That is the thinking (inaudible) issue.

Let me add a few things into the discussion. Both on the consumer and the enterprise base we're seeing very encouraging signs of consumer and the enterprise had a take up for digital content, whether on digital content on the individual side or digital solutions on the enterprise side.

I think the key is will be how to monetize this and make this habit of usage, which makes relevance to the user, whether in the consumer or enterprise space.

Now this really departs from the model of really -- from a telco departing from just being a dumb pipe and coming up with ancillary services in the digital and [ITD] space that will allow us to cross and upsell new services on those pipes that we've already put under ground, not only to increase the ARPU on the investments we have in the network, but also to [further] protect our market share on those pipes.

And to your final -- replace lost revenues, I think the Chairman alluded to earlier that we had our -- more than our fair share of legacy revenues which were our success in the past which is hitting us now as well as we pared down of those legacy revenues in terms of international and national long distance revenues and talk and text which were the legacy revenues of the past. The idea is of course we hope to replace and get us to a new platform.

Good afternoon. [Noel Nego] from (inaudible) Asset Services. I think you can imagine already tomorrow what's going to be in the headlines that PLDT reported a 35% decline in its income. And I think while we can appreciate the discussion on why it happened, what happened and what you are going to do, the market I think has a good appreciation of what's happening in the telecommunications industry. The technology is not unique to PLDT and the strategy that you are discussing broadly today is the same strategy that the other competitor, the other player is also describing.

We are wondering what do you have that would sort of help the market insofar as the continuing confidence on capability of PLDT, by way of not necessarily compromising your strategy but at least give the market a hint on what is PLDT doing uniquely that it will put it back in its old position.

Well, there are aspects -- you're right. I think every telco CEO is struggling with the transformation pains that are besetting every telco in the world. Maybe some more than others, it depends on the degree of sophistication and evolution of a particular telco market. I would assume in less developed markets like Myanmar it's not found them yet, but it will be at some point in time. So I don't think any telco CEO would really have a clear grasp of where this digital journey is going to bring them. At least I'd venture to say that.

So in many respects, you have to play on your strengths and the traditional strength of PLDT ironically is now on its fixed line business. No one in this country can match the kind infrastructure we have on fixed. That's why the home and the enterprises businesses are going to produce or have been producing significant growth.

And ironically as I said in the year 2001, 2002, it was Smart subsidizing or supporting the fixed-line business when it was struggling. When the ILD traffic tariff dropped from about PHP1.50 to sub PHP1, the impact on PLTD fixed was very, very significant. And now it's the reverse. It's now fixed that is I won't say supporting but at least underpinning the growth of the business.

Now I think for the postpaid side of wireless was paid particular attention to several years and that's why you're seeing some parity between Globe and Smart, Sun post paid. We're behind them in revenues, but ahead of them in some numbers.

The ground zero is really prepaid and that's where the battleground is going to be. But we have to fix our kitchen, our network, our service delivery platform, our distribution channels, our digital devices, our digital content. The whole panoply of all these things have to be addressed in addition to OpEx.

We have as well to deploy big resources behind the Group in order, for example, to own the home. Cignal is a home product. We have to use that advantage as well to reinforce the fixed line advantage for PLDT fixed. We will soon deploy a two-way smart box pretty soon and be able to deploy iFlix, Netflix, etc., all the flixes on the set top box and be able to give us feedback as to who the customer is, what he's watching, how many minutes he watches on the phone. It impacts on the ratings of TV5 as well where we have a better fix on what people are actually watching, minute by minute, hour by hour, day by day.

So these things are advantages of the Group that really needed to be deployed in order to reinforce the position of PLDT. The marching order for management is we will not yield an inch starting this year across all the products of the Group. That is the marching order. Enough is enough. We have to really maintain at least our market share in (inaudible) and reinforce the leadership of PLDT and Smart in the traditional markets it has been serving, whether it's wireless, fixed or whatever else might develop.

As to where that will bring us, clearly the goal is to enhance profitability but at the same time maintain the financial health of the Group. I think we got hit very hard especially in the fourth quarter because of this provisioning and there may be further provisioning.

But if taken in the round, if you look at the overall investment portfolio of PLDT and that was discussed by the Audit Committee this morning, is that other investments that PLDT has made in the other digital initiatives whether it's Voyager, particularly in financial technology and other OTTs we invested are doing reasonably well. So unfortunately what's visible to you will be the negative side which is Rocket Internet. And they themselves I think are under pressure I would guess to perform.

But the other OTT investments of PLDT are actually doing as I said reasonably well. And at some point when the time is appropriate hopefully when we announce the first quarter results, we will give you more visibility on what these OTT investments really mean in terms of value. It's not so much the traditional metrics of cash flow, revenue and so forth but what that potential actually brings.

I know this is a bit of speculative, but I think at some point when we roll these out and describe them to you, you will see how much progress we've made on the digital space.

We have time to take maybe one or two more questions. Are there any more from the floor? Any more questions?

Hi. Just a couple of questions from me. So we've seen heightened competition on SMS and voice earlier in 2014, even through 2015. Are we going to continue to see that or are you seeing that (background noise) in PLDT?

Also I understand that the dividend payout was declined to 75% which is at the policy. Maybe are we going to look to reduce it, that this dividend policy could be declined as we understand that EBITDA is declining in spite of increasing CapEx guidance [for this year]?

I do want to reiterate that the commitment of PLDT and Smart is to grow data. And as the Chairman mentioned even if that actually hurt the legacy because the now is data, the future is (inaudible) data. Honestly even if I didn't do anything in calling and texting it would have gone down anyway. So I'd better be prepared on having the new [core] to the point that it contributes more than half the revenue. So you will see more of data-driven plans from here on from the Group.

On the question on dividends, I think the -- based on the numbers as we see them, projecting them onwards, as I said, the EBITDA margins might be under pressure, but the EBITDA level at PHP70b is most likely sustainable for us. So we -- I would anticipate that we can keep the 75% regular dividend payout as a steady state moving onwards for us.

And of course I think with the hope that maybe after X years from today, that we should be able to raise it as and when financial conditions would improve from where we are today. So we don't anticipate reducing the dividend payout ratio lower than what it is currently, 75%.

Final questions? If there are no more questions, I'll turn the floor over to the operator for replay information.

I would like to give everyone the instant replay information for today's call. This conference will be available on a 24-hour instant replay starting today daily on through March 7, 2016. Replay information for the 3:30 pm call. This is the phone number. The US toll-free number is 1-866-845-9497. UK toll-free 0-800-3765673. Hong Kong toll 852-3018-4335. Singapore toll-free is 800-120-5661. Japan toll-free 00531-122224. Australia toll number would be 612-8030-3035. The pass code will be 6558. The conference leader is Melissa Vergel de Dios.

Now I will turn the conference back to PLDT for any additional or closing remarks. Thank you.

On behalf of all of us seated at the head table and the people from PLDT and Smart, thank you for your attendance today and thank you for your questions including the customer complaint feedback. Thank you. We take it seriously actually. No, we do take it seriously. So we will be announcing our first quarter results on May 3, so we look forward to seeing all of you again. Thank you.

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