PLDT Inc (PHI) 2022 Q2 法說會逐字稿

Good afternoon, and thank you for joining us today to discuss the company's financial and operating results for the first half of 2022. A copy of today's presentation is posted on our website. For those who not (inaudible) you may download the presentation from www.pldt.com under the Investor Relations section.

Kindly note that this meeting is being recorded. Broadcast of this event will be available on our website after the call. For today's presentation, we have with us Mr. Al Panlilio, President and CEO of PLDT and Smart Communications; Anabelle Lim Chua, Chief Finance Officer and Chief Risk Officer; Mr. Orlando Vea, Founder and CEO of Voyager Innovations as well as other members of the PLDT management team.

Our Chairman, Mr. Manny Pangilinan, will join us later. Despite that, we turn the floor over to Mr. Panlilio to begin the presentation.

Thank you. Thank you, Melissa. And good afternoon to all, and thank you for joining us. Today, hopefully, after this, we can do face-to-face next time (inaudible) Again, good afternoon to all, and thank you for being here again. Happy to report our first half 2022 business performance and give you a glimpse of what is expected for the rest of 2022.

So for the first half, we closed telco core net income in the second quarter at PHP 8.8 billion, which is 14% versus the same period last year of PHP 7.7 billion. So -- but if you add up our telco core for the first half, it's PHP 17 billion, up 12% versus last year's PHP 15.2 billion.

In terms of revenues, all-time high, in terms of quarter ended the second quarter of 2022 of PHP 47.9 billion and first half service revenues of PHP 94.3 billion, also an all-time high, which is 5% higher than last year's PHP 89.9 billion. Next page, please.

Having grown by 5% in terms of expenses, we're able to manage our expenses by only increasing it by 1% to PHP 43.8 billion, due really to lower provisions. But again, just to plan we give on second half, this is something that we have to continue to take a look at as headwinds can actually come up to the business because of economic conditions that we're experiencing, not only the telco industry, but that globally, this affects all the businesses.

Happy to report also that the first half EBITDA is at PHP 50.5 billion, which is also all-time high, 8% higher than last year's PHP 46.6 billion. And if you add up the last 4 quarters, I think PLDT has reached the PHP 100 billion of EBITDA in the past 4 quarters in the second half of last year in the first half of this year. And I think this is a good milestone that the company has achieved. We are able to improve our EBITDA margin by 1%. So we ended the first half with 52% EBITDA margin.

Next page. And I just want to also highlight that we have fully transformed the business. And today, 79% of our (inaudible) driven by data. And wireless, in terms of revenue terms, the highest contributor of PHP 35.7 billion, a growth of 2% or in peso terms, growth of PHP 700 million from last year.

The fastest growing, of course, for us is Home, which is now PHP 24.6 billion, increase of 22% for PHP 4.4 billion in peso terms compared to last year. Corporate ended at PHP 11.9 billion or 11% increase and PHP 1.2 billion increase in terms of revenue terms.

And ICT has a healthy growth of 14% or PHP 300 million in peso terms. So again, focus on better revenues, and we will continue to support this in our CapEx investments. And just talking about CapEx. We are proud to say that we're still the largest syndicated telco, and we're continuing to expand our network.

We have added 1.92 million ports compared to a year ago. We have at present 6.72 million ports available for service, which is compared to last year is only 4.8 million. We continue to roll out on our 5G base stations, we added 2,500 compared to last year, ending the year -- I mean, year-to-date 7,289 compared to 4,776 of last year.

And also, we continue to expand aside from our fiber ports, our fiberoptic platform. We are now at 837,000 kilometers of fiber and now we already have 16.2 million homes passed in terms of our coverage in network.

Next page, please. And in the data center space, just to complete the picture, on local -- our ecosystem network. We've also added 612 racks in our data centers. We presently, we have 6,133 racks available for service, 74% of that is already utilized, and we will continue to expand even more racks into the system as we are making sure that we are ahead of the demand, not only from metal prices, but especially from hyperscalers and a lot of the people that we talked today. And also looking forward to really completion of the hyperscaler data center by year end.

So everything is on track in terms of that project. And again, the first 1,150 racks hopefully available by third quarter next year.

Next page. On top of the effect to the local backbone that I just talked about, expansion of the local backbone. We did announce last Friday the launch of Jupiter cable system, which has tripled the international capacity of PLDT. So from 20 terabits now to 60 terabits.

And from the total market share from all the telcos to until we have 65% market share in terms of international capacity (inaudible) the country. And we will continue to invest. We've 2 others submarine cable system that we're investing in (inaudible) and APRICOT and should be a service in the next year or so. And again, expanding our capacity from international point of view.

Next page, please. And happy to report also that we're jump starting our journey towards a greener fleet. What you see in the picture is the first EV that we'll be using on service. We've ordered actually 10 of this. And today, we're looking to 5,400 vehicles and it's an aspiration short term for us (inaudible) 10% or 8% of our fleet that is EV. This is in partnership with (inaudible).

Lastly, next page, please. I just wanted to report that we continue to transform the company. Three major driving force of this transformation are, Number one, clear solid plan in terms of -- solid plan behind 2022 and -- 2022 especially we plan to control uncontrollable factors that are hitting the business.

And also, I believe the business is not only the industry in the parts of the country. And we also want to set up ourselves for a stronger 2023 and '24 going forward. So we've also -- it is an ongoing journey, enhancing the ways of working for PLDT. Continue to break down silos, enabling (inaudible) and strengthening our execution (inaudible) to ensure that we're able to be more productive and more efficient in the way we work. And lastly, our discipline that we want to make sure that we get stronger and is really a deliberate relentless in execution and identifying the gaps needed to address the nature that we able to drive and fulfill our commitments not only to our stakeholders, but also to the market. So at this point, I'd like to pass it on to Anabelle for more detailed financials for the first half. Anabelle, over to you.

Thank you. Thank you. So let me show you our first half results today. As we have said in our announcement earlier today, despite very tough market conditions out there, PLDT is quite pleased that we are able to a record high in terms of our service revenues of PHP 94.3 billion for the first 6 months of this year, up 5% versus a year ago.

Home continues to lead the charge in the PHP 28.1 billion revenue achievement in the first half, growing 24% year-on-year. And within the Home business, the Fiber revenues now account for PHP 23.2 billion of the Home revenues, and that is growing at a clip of 62% year-on-year.

Enterprise also has performed very well and has also achieved an all-time high of PHP 23.2 billion for the first semester, having garnered a 9% increase year-on-year.

Individual, which remains to be our largest business, faced certain challenges in about 6% year-on-year, but I'll show you in more detail later how it is also tracking better.

The International and Carrier, which understandably continues to be under decline because of the lack of roaming and other internal termination voice business. So that's down 17% year-on-year.

Moving on to the next chart. I show here the breakdown between the first quarter and the second quarter revenues. And you see here that in the first quarter, we grew our revenues by 3%. In the second quarter, we doubled that to a 6% increase. In peso amount that was PHP 1.5 billion increment in the first quarter, and it's almost double at PHP 2.9 billion, a year-on-year increase for the second quarter.

Breaking it down again by the major business segments, Home increased PHP 14.5 billion in the second quarter compared to PHP 13.6 billion in the first quarter, so that's almost PHP 1 billion higher in 2Q, and it's up by PHP 2.7 billion in each of the quarters relative to last year.

Enterprise has increased the growth momentum from 7% in the first quarter to 11% in the second quarter. And in the case of the Individual Mobile business, you'll see here that the second quarter results are better by about PHP 0.5 billion over the first quarter, PHP 20.4 billion to PHP 20.9 billion. And in terms of its comparison versus prior year, the decline less than 4% compared to 8% that was happening in the first quarter.

So moving on to the next chart. We just showed here the same numbers over a longer trajectory of 10 quarters, and you see the PHP 47.9 billion record high after 5 quarters of sequential events.

Next chart. This next chart breaks the same numbers into data versus non-data revenues. And as indicated earlier, 79% of our revenues in the first half are from data and in fact, already 80% in the second quarter coming from about 70% at the start of 2020 and data having grown at 10% higher year-on-year higher compared to over 5%.

Next chart, please. Yes. In terms of our subscriber base, we serve 77.3 million customers across our fixed mobile and broadband categories with the focus on the broadband number. There are over 4 million broadband customers across our fixed and fixed wireless platforms. fiber, it will be the highest growth segment amongst all of this is at 2.8 million customers, having under 400,000 during the first 6 months of the year.

In the next chart, I do show a more granular breakdown of how the 400,000 increase in fiber customers happened. We were able to connect over 90,000 in the first -- each of the first 2 quarters in terms of new connections every month, which is trending better than what we were doing at the early part of last year, although not as high as the levels we achieved in the third and fourth quarters.

We did have the benefit of the additional migrations from sale to fiber in the second quarter of the year. So although we added 550,000 new connects in the first half and another 117,000 of migrations, but there was a bit of a higher churn, particularly in the second quarter as we run through the effect of the Typhoon Odette which hit us in December 2021.

We did restore service in some areas March-April, and then after that, when services were normalized, we did see higher churn from some of these customers who had to opt out of our service already.

Next chart, please. In terms of our P&L to P&L, as indicated earlier, we were able to manage our increase in OpEx to 1%, helped by lower provisions. EBITDA increased by 8% to PHP 50.5 billion or 52% EBITDA margin. It's also an all-time high for us in terms of our EBITDA. EBIT of PHP 26.1 billion, a 27% margin, that's up 15% year-on-year. And telco core PHP 17 billion which is 12% from PHP 1.8 billion better than the same period last year.

Breaking this down further into the next charts. So the EBITDA improvement was on the back of higher revenues and lower provisions and then offset by higher cash OpEx. Of note is that within the higher cash OpEx is the impact of having to spend about PHP 1.1 billion more because of the requirements to restore service impacted the area.

So had that not happened, our EBITDA would actually have been higher by 11% year-on-year to be about PHP 51.5 billion. Telco core income was supported by the higher EBITDA, offset by higher depreciation and a financing cost on the back of the increased investments we've made in our fixed net assets network.

Next chart, please. Yes. So this shows the EBITDA over, again, a longer period. And as I mentioned earlier, we now surpassed PHP 100 billion mark in terms of our EBITDA for the last 4 quarters. So if you remember that was our guidance for this year is that we will be able to cross the PHP 100 billion EBITDA this year, and we've already achieved that as of the end of June. Next chart.

Telco core income, PHP 8.2 billion in the first quarter, followed by PHP 8.8 billion in the second quarter. So when you look at the average, we've achieved PHP 8.5 billion. That's the highest quarter average since 2014, and we are tracking well vis-a-vis our PHP 33 billion guidance for 2022 telco core income.

Next chart, please. So today, the Board did approve the declaration of interim cash dividends total PHP 75 per share. There are 2 parts to this: the regular 60% payout based on the telco core EPS in the first half, PHP 79 translates to a dividend of PHP 47 per share in terms of our regular payout, and that we did also declare a special dividend equivalent to PHP 28 per share that represents a part of the proceeds from the tower sale.

The -- as you may remember, we had said that when we do the tower sale, PHP 9 billion of the funds will be earmarked for a special dividend. And the back of having closed about 2/3 of the tower sales, we've declared a dividend equivalent to PHP 6 billion based on the -- together with the interim payout. And then the balance of PHP 3 billion would be paid a final closing together with the final regular dividend or (inaudible)

Next chart, please. So in terms of our other items that affect our P&L, we did pick up our share in the Voyager losses equivalent to about PHP 1.6 billion, offset by some gains amortization of PHP 0.5 billion. And then the other items, one-offs that we have in the first half included: one, the gain from the sale and leaseback of our towers, PHP 16.5 billion; the income from the prescription of the preferred share redemption liability of 7.8 which we already reported in the first quarter; and then against that, we have accelerated depreciation of PHP 16.5 billion, MRP cost of about PHP 4.8 billion for the manpower early retirement program we have and in some ForEx loss as a result of the depreciation of the peso to PHP 54.97 by the end of June.

So all told, our reported income is at PHP 16.7 billion, it's a good 30% up versus the PHP 12.9 billion in the prior year.

Next chart, please. So just to recap on the tower sale and leaseback transaction, I think most of you are aware that we did sign an agreement to sell 5,907 towers for PHP 77 billion. We managed already 2 closings, the first closing on the 1 June and then the second closing just 1 day, 1 August. So PHP 39.2 billion for the first closing for 3,012 towers was received and then PHP 13.2 billion for the second batch of 1,013 towers. So we would hope to close out the remaining towers of a little less than 2,000 remaining over the next few months and finish that before the end of the year.

So in terms of the proceeds that we have received PHP 7.1 billion is used to prepay debt (inaudible) prepay another PHP 9 billion debt. And then substantial portion is going towards the funding of our cash CapEx and other requirements, so that effectively represents an avoidance of additional borrowings for this year equivalent of about PHP 14.5 billion already, but we need about PHP 27.2 billion.

And the special dividend, as I indicated earlier, earmarked PHP 9 billion of which PHP 6 billion already declared to date. In terms of the gains we had on the tower sales, the next chart, we show you that we effectively have sold the assets at a significant premium over the book values and therefore, a nominal gain of PHP 26.6 billion, of which a substantial portion equivalent to PHP 9.6 billion is being deferred as part of the leaseback arrangements under IFRS 16.

So the net gain on sale and leaseback is about PHP 16.5 billion pretax and then PHP 12.6 billion net of tax. Then next chart, one of the things we did also as of the half year was to take stock of some of the assets we have in our books, and we've identified 3 sets of assets for early accelerated depreciation.

So these ones are, one, 3G assets that we have which we have already shortened the life of 2024, but given that the remaining usage of 3G is down to 3% to 4% of the market, we took the opportunity to just accelerate the whole 3G asset base of PHP 8.7 billion. And in terms of the plan is that we will recover the shutdown and optimize the use of the spectrum from 3G to LTE and eventually 5G.

We also, as you know, have been migrating our DSL copper customers to fiber and that's practically finished. So now we are able to embark on the next round of offerings from the VVDSL network to fiber. So again about PHP 5.9 billion of accelerated depreciation as a result of this decision to migrate earlier the VVDSL customers, there will be some additional add-on depreciation in the second half of this year, about PHP 1 billion and another PHP 1.3 billion next year to finish the full migration of the VVDSL asset reach.

And then in terms of the third item, that's really relating to our plans to move out from Makati headquarters. So the assets and network equipment that were impacted by this decision, we've taken a PHP 1.8 billion accelerated depreciation. So all of this is part of the reported income with respect to the one-offs that we had in the first half year.

Moving on. Yes. From a balance sheet standpoint, pleased to note that with the proceeds that we have received from first proceed, we were able to bring down our net debt to below USD 4 billion now to about USD 3.9 billion and a net debt-to-EBITDA ratio of 2.16x.

Our maturities are pretty well spread out and in fact when you look at the chart with respect to the 2022 and 2023 debt amortizations most of that will be covered with the proceeds of our tower sale transaction.

Overall, we still have remaining life of about 7 years for our debt. Average interest cost of 4%. Some of our debts are U.S. dollar-denominated 16%, but unhedged (inaudible)

Next chart, please. So CapEx, we spent about PHP 46 billion in terms of our CapEx in the first half of the year. PHP 36 billion of that went towards our technology spend and our assets to support values of our business requirements which I'll explain later.

And then PHP 6.3 billion are business CapEx relating to the last mile installed cost (inaudible) with respect to the new connects in our Home broadband business. So CapEx, as you know, is going towards supporting all our businesses for the growth of Home broadband with the addition of more ports, 1.7 million new fiber ports to be built out this year, of which we've already build 950,000 as of the end of June to support also the growth in mobile traffic which is increasing as well and then the data center requirements.

So we have the expansion of our Vitro Makati fourth floor and fifth floor as well as the start of the construction of our 11 data center in Santa Rosa, Laguna. And then as Al indicated, we also launched the Jupiter cable systems last week. So part of the CapEx went towards that as well as other cable systems like Apricot.

And in fact, we're proud to note that the PLDT accounts for about 65% of the international cable capacity in this country. For the tower sale, I think two-prong effects. One is there are some accelerated CapEx spend to finish all the in-flight projects we have with respect to upgrading the tower and other support facilities and the towers we sold. So we hasten the pace of that so that we can turn over those towers immediately tower companies before the inflight projects accomplished. So that adds a bit of CapEx to this year, which would have been next year. But the offsetting impact of the tower transactions, of course, with respect to new towers, we will be able to take advantage of the build-to-suit commitments with the new tower companies that we have, both EdgePoint and edotco have undertook to build us new towers as well as we launched (inaudible) to transact with all the other tower companies in the market with respect to new tower requirements.

So next, please. So some highlights in terms of our network. As I indicated earlier, we are expanding our ports to 6.7 million, after having added 950,000. We now pass 16 million homes with our broadband network. Fiber footprint continues to be increased, and we are also growing our wireless network as well to support 97% coverage of the 3G, 4G and 5G.

And then at the bottom, you see here the distribution of the devices being used, so predominantly really an LTE market at this point with 3G declining and 2G actually higher than 3G but also -- and the down trend in the 5G emerging at 3% per home.

So then lastly, next chart, would just show the growth in terms of the 5G device adoption, data traffic group and of course, proud to note that we are network for 5G is again in terms of relative to competition. So at this point, I'll turn you over to Doy for a discussion on the (inaudible).

Good afternoon. Let me start by saying that a PayMaya Philippines and Maya Bank. We are committed to delivering the most advanced financial services to Filipino consumers and enterprises. Consumers and businesses want convenience of an all-in-one money app. So last April, PayMaya rebranded to Maya, a fintech super app with seamless e-wallet, crypto, savings and credit services.

And prospectively, investment insurance, and other financial services. Just the other week we relaunched PayMaya Enterprise into Maya business. Maya Business is, of course, the largest merchant payment processor in the country in a number of transactions. And the positive traction validates our all-in-one money app strategy. As of end June, Maya had 50 million registered users across its consumer platforms.

We saw more than 650,000 customers opening a Maya save account in less than 3 months, taking Maya Bank the fastest-growing digital bank in the country. This is like fintech on steroids. We have done what others took more than 6 months or even years.

On the enterprise side, we are, as mentioned, the largest fully integrated payment processor for businesses with over 760,000 registered merchant acceptance points. We also have over 65,000 agents, including Maya centers, which were previously smart (inaudible) touch points.

Next slide, please. As we grow our trade blazing financial services ecosystem, we ensure a seamless, convenient, reliable experience for our customers. Our Maya business, we are leading the charts for QR PH Person-to-Merchant payments. We have also started offering a business deposit service for our Maya business clients. We are extending MSME credit to our Maya center agents via the (inaudible)

Soon, we will be offering other credit products to enterprise partners and their customers. On the consumer side, Maya is the top-rated local finance app in the market, both in Android and iOS. We introduced seamless crypto in-app with 15 popular coins.

On the other hand, the 6% interest rate for Maya save and personal roles is one of the highest in the market today. We're also now offering Maya credit to customers for up to PHP 15,000. So expect more exciting services as we enable Filipinos to make bolder choices through fintech. Thank you.

Okay. Chairman should to be joining us, but let me just give you the guidance for 2022. I guess from a service revenue growth, we are maintaining our mid-single-digit growth guidance. Home broadband continue to lead the growth with revenue momentum expected to even accelerate even more.

Enterprise to register a stronger performance underpinned by ICT and data center revenues. Wireless, facing a challenging environment should benefit in opening up of the economy, and we do have new programs that have been launched a couple of weeks ago that we expect to -- the trend for improvement in the second half should follow.

So telco core income, we maintained the guidance of PHP 33 billion, as we expect a robust increase in our EBITDA, possible reduction in our financing costs resulting from the sale of our towers, but also balancing it out to the effects of prolonged pandemic in a challenging market environment that we see today that are really affecting the consumer wallet of our consumers and increasing our operating costs and CapEx in terms of -- 45% our CapEx is actually U.S. denominated so we might see some increases in terms of CapEx.

For CapEx guidance is PHP 85 billion but as I mentioned, maybe we prepare so on the FX rate impact this amount I think numbers indicated maybe PHP 2 billion to PHP 3 billion that might weak due to the CapEx. And as we continue to aspire for delivering positive free cash flow and aiming to deleverage back to 2x really improving our position on paying special dividends. So that's the guidance that we want to share with you for today. Thank you.

We're now ready to take your questions.

(Operator Instructions)

I'll read out the first question that was sent via e-mail by (inaudible) The first one, is can you shed some light on how mobile towers fared during the second quarter, first semester and whether there are any trends you've been seeing during the early third quarter? His second question (inaudible)

We have (inaudible) here in the room, head of our wireless business (inaudible)

So (inaudible) of this year is quarter 1, we experienced (inaudible) of around 2%. But first half of the top up -- first half versus a top-up of first half of last year, we did experience a decline of around 3%. And -- but in the coming months, we expect our top-ups, especially quarterly to go higher with -- especially with (inaudible) One factor would be going back to school, of course, also our plans for the balance of the year, we increase our top-ups to continue to grow (inaudible)

The second question from Steven, it's not at the end of starting in the country, how would it affect PLDT?

(inaudible) take that. Well, basically, I think it's complementary to the services that we offer today. And every day, I think it also depends on how much the services are it's going to be compared to fiber-optic, our broadband service, our wireless service and how much the satellite service will cost.

Obviously, the areas where wireless and fixed are not there, I mean the option being only satellite, it is an option, but I guess it depends on the commerciality of offer in the market and how the market can absorb the cost of the service. So it is complementary. And I think we are also (inaudible) network, but we also talk to (inaudible) and others in terms of how they can work together. I don't know (inaudible) whether you want to add some insights.

Yes, we're talking to several of them, 3 of which we already (inaudible) and that's progressing (inaudible) but it's also (inaudible) Enterprise business. Maybe (inaudible) can shed some on it.

Sure. Good afternoon. I'd just like to quickly share that we're also talking with Starlink and similar entities on enabling them to come into the Philippines. So in a way, just adding to what (inaudible) had mentioned will be bit as complementary and we are open to -- we're open to providing services to them as well.

Hussaini from UBS.

Yes, sure. Thanks, Melissa. A couple of questions from me. First is, I just want to understand your view on mobile side. So obviously, the mobile growth has been relatively slower. Is it a factor of macroeconomy or is it because of competition?

And related question is, has the competition changed in the third quarter related to the first and second quarter? That's question number one.

Second question is again linked to macro factors, and it has been highlighted that remains a bit of a challenge. So just want to understand that which business segment is more exposed to macro challenges?

And the third question is on the churn -- fixed broadband churn levels, which has increased. So is it -- what percentage of it is linked to audit? And what percentage is linked to the general or the regular churn levels in the market?

And finally, on the data center side, the third and fourth quarter of the Makati -- VITRO Makati data center, how much capacity or percentage increase in capacity, it will add to PLDT's data center?

Yes. I guess before that, our Chairman just joined us. (inaudible) questions for the Chairman (inaudible)

Let me try answer the first 2 questions, and I leave number 3 just churn to Jeremiah and the data center to (inaudible) But I guess on the towers and many more (inaudible) it is really a matter of nomination. If we do (inaudible) where we should put up towers and locations that we need to include coverage.

It is a nomination and that's, of course, accessing also competition is making sure that we're able to address the market and continue to serve our market. So it is a lot not get the discussions within business and network (inaudible) and a lot of analytics behind that.

Across the businesses, was this cost effective? As a general answer to that, I think everybody is affected in terms of the share of wallet as you know macroeconomic issues and the inflation will always play a big role in the wallets of our consumers.

We are seeing some -- still some growth still at broadband. There's still a lot of demand coming in from broadband. And as indicated, we're seeing progress also in terms of mobile as possible lockdowns really -- not only lightened and there are no more lockdowns according to the precedent even (inaudible) lockdown moving forward. So that is positive to the wireless business. Maybe Jeremiah can answer the churn?

Sure. Sure. I'll -- this question, I believe, was what percentage of the churn in fixed broadband can be directly attributed to a debt versus what you would normally see as churn in the marketplace? Sorry, was that correct?

Yes. Yes. Yes, please.

So to answer this question, I'll speak specifically about the debt first to give you a better understanding of the time lines, again, actually struck December 16. I was actually referencing a little bit about the different date earlier but it's December 16. And one of the things that we did in response to that aside from springing into action to go, our communities and families as well as phones, are restore services was we actually applied a different process for those customers in different treatment. We actually wanted to alleviate some of the concern and pressure that they may have on their household. And so we actually put them under special treatment over that period.

So what you'll see in quarter 1, we actually saw lower churn in totality in quarter 1 because we're actually not treating customers in debt struck areas, right? So we saw a slight decline in churn in quarter 1. If you normalize that and you have a look at churn as a percentage of our base for quarter 1 and quarter 2, what you will see is churn directly attributable to a debt specific -- debt areas is actually 50,000 customers, right? It's about 50,000 customers directly attributable to the debt areas. Does that answer your question?

I understood. So if you take net of the 50,000, then it suggests that the churn level is increasing in the market. Is that a right assessment?

There's a slight uptick in quarter 2, but it can actually flatten it out over quarter 1, quarter 2 and look at the roll as a percentage, it's not a significant increase.

(inaudible) the fourth question.

Thank you for your question. VITRO Makati expansion, happy to report (inaudible) the expansion involves 2 floors, when is the fourth floor expansion and the other one is the fifth floor. If you look at the fourth floor, that's going to add roughly 672 racks available for the fourth floor. And if you look at the fifth floor, that's an additional 896 racks. So all told, with the full expansion of the fourth and fifth floor Makati will have 1,568 new racks by the end of the year.

Understood. And then just going back on the mobile question, I think that is not answered, is that how you would characterize the mobile competition? Or -- and how -- has it changed related to the first and second quarter going into the third quarter?

I can answer this.

Yes.

I think in terms of competition, our competition are actually going for really going for more value for money. And that's how I think that's what we need to consider as we move moving forward and especially in the light of a recession, I think more (inaudible) can give more vector So that's number one.

And number two, I think, is I think our competition is really expanding the coverage and also trying to improve their network. So I think that's something that we also have to consider moving forward.

Arthur of Citi, you may unmute your line and ask your question.

Several questions, please. You mentioned that there were headwinds mainly because of inflation issues. Are you already starting to see that in terms of monthly trends on consumption? I'm just wondering if you look at it, let's say, April to July, has there been any notable changes?

Second question I had is with regard to the digital bank. You've mentioned 650,000 users for the 3 months, which is quite impressive I'm just wondering, are you monetizing on these users? Like are you already deploying the capital for items like credits? Has that already started?

Third question I had is with regard to the data centers. Obviously, this is a big focus area for you. Are there any moves actually -- have you taken any strategic investors such as what your competitors locally and regionally have been doing? And maybe as a housekeeping question on accelerated depreciation. Can you talk about the impact of accelerated depreciation? What's the annual depreciation from bookings that you have on 3G, VVDSL and HQ network so that we can actually model it into the following years?

Thank you. Thank you, Arthur. Nice to hear from you. Well, first of all, on the impact on the business, I think, as I said earlier, I think all the business have been impacted. There's some softness on top-ups for July. But having said that, I think, as Francis indicated, the market is looking for value for money propositions, which actually, has just launched that 2 weeks ago.

So there are offers in the market that are basically answering the needs of the times and we set the packages that are already out there in the market. And we're seeing some traction in that. And hopefully, we can continue to see progress in the next few months. But yes, we are very wary of it.

And it's also affecting some of the broadband customers in terms of what Jeremiah indicated that some people churning out given the ability for them to afford, continue to service. So we are looking at other solutions basically just to address also the affordability issue and really looking at, for example, fixed wireless as a solution to certain segments of the demographics of the broadband market.

And the second question, I think, I'll give it to Doy...

Yes, to your question, Arthur. Yes, we are already deploying the deposits that we're generating, particularly, as you pointed out for lending. Having said that, credit just started as a business for us, but we are tracking a faster trajectory than our peers, just like in savings.

So I think we can see a better view of that in the next 3 months as the traction increases for both sides lendings and in savings.

On your third question or on the data center. I think right now, we are going to be (inaudible) expanding our capacities. And as you might know, we broke ground on our 11 data center, which is the biggest data center that we have hyperscaler of that, which should be completed sometime late next year.

So we have not really gone forward with the view of bringing in a strategic partner at this time. Maybe we will revisit that maybe sometime next year. But right now, we're just focused on making sure that we're able to address the demands that are being asked of us that's why we're expanding our data center capacity as we indicated earlier.

On the fourth question, I guess, I need to Anabelle to answer the accelerated depreciation.

Yes. So Arthur, there are, as I indicated, 3 different asset categories with different remaining lives. But roughly, the impact of reduced depreciation for this half year remaining half of the year is breakout PHP 2.3 billion, roughly, yes, PHP 2.2 billion, PHP 2.3 billion. So we can analyze that by, I guess, for next year, that will be double that number on a pretax basis.

Understood. Sorry, if I could just sneak in one last question? Are you seeing any changes from the third operator? I mean there's a lot of talk of them facing financial difficulties. Has that changed their investment intensity from what you've been seeing on the ground?

I think they're still building out, right? I think they have announced that they have over 5,500 sites.

(inaudible) Continuing to roll out their base stations so far. So as far as that's concerned, they're continuing the roll out.

The next set of question is from Ranjan of JP Morgan.

Two questions from my side. Maybe we can take them one by one. Firstly, on this accelerated depreciation, should we be penciling more to come in the coming quarters? I know Anabelle talked about the savings that we'll see, but should we be expecting more accelerated depreciation in the -- let's say, in the next 2, 3 quarters?

Ranjan, we'll take stock at year-end. So that's typically when we do a review, right, of the assets, but I guess, if we have some one-off gains from the tower sales, it's always a good time to kind of look at some of these sort of cleanup that we can do here in as well.

Okay. And the second question is on the financial services side. What's driving your rapid growth in financial services? Are you offering incentives? Are you offering higher deposit rates? So if you can just share what's driving that growth?

First of all, it's a -- as I mentioned, it's an all-in-one app. It's all purpose in 1 app, you can do everything, okay? So our customers are crossing from one service to another seamlessly. And when they do that, they get attracted by offers as well as on particular services.

In the case of savings, we're offering 6% as an introductory rate up to August-September, as we announced that we can extend that if we think like based on results. So it's a mixture of both the attractiveness of the offers and the fact that there is already inside the app, like -- just like there are many savings customers that are coming in. Same case with crypto. So they get all -- they get to move around the app very seamlessly to test the (inaudible) business.

And what are the lending products that you've grown so far on the app?

It's like a personal credit line, PHP 15,000 (inaudible) small ticket items, 30 days tenure (inaudible) personal loans, you can establish accounts where you want to save for a particular goal and we encourage you to do that. And as a result, we reward you for doing that.

So it is a more consumer loans?

Consumer, but we're already starting to offer MSME loans as well. We just launched our Maya business last week, and that's part of the suite of services.

Can I just ask one last question? So how will you do collections for these loans? I mean the issue with giving out loans rapidly is that your credit quality can (inaudible) swiftly, right? So how does the credit collection work?

Our collection experience is -- right now, we're tracking 95% collection rate. So it's not about the number. Maybe the question is are we taking enough risk? So it's been a good performance for -- on collections.

Next in line Rachelle of Maybank.

So on the fixed line, can you share your take on competition on the fixed line especially as you have been quite aggressive in raising speeds. I think it's about 100 Mbps, so do you think this is also causing the churn or are those using mobile data -- shifting to mobile data from broadband?

Okay. So firstly, the -- as I mentioned earlier on, the vast majority of the churn that actually we experienced in quarter 2. The uplift in churn is prominently and directly related to debt, right? So we saw that impact of our debt. These are customers actually in those areas, those and those accesses actually (inaudible)

From a competitive pressure perspective, what we are seeing, what I can share with you is we have seen still very, very strong demand from the market for PLDT services. In fact, if you look at the number of gross additions that PLDT Home do in H1 of 2022 versus H1 of 2021, both gross and migrations, we actually grew over the same period, right? So it's about an 80,000 increase over that same period in terms of new customers being applied to our fiber network.

We have seen an increase in competition, right? And especially as you start to see that there is quite a large available market. There's been a lot of talk about that. What we've been focused on is actually making sure that we deliver the best possible service we can win for our customer.

And you're seeing that come through in terms of the awards that we've been able to secure as being fastest fixed broadband network in the country. And we're also seeing that in terms of the number of applications that we still see coming in.

Having said that, we'll always make sure that our customers receive value for money, and we constantly scan the market to ensure that the plans that we offer to our customers remain really good value for money, and there is still plenty of reason to actually join PLDT Group.

All right. Two more questions from me. First is on this space. So is it the same product being offered by your (inaudible) partnership? And second one is VITRO Telesat now that has 11 million subscribers?

I missed the first question (inaudible)

The one with Telesat.

So I'll take that. So I think from the Telesat partnership that we're looking at is more on B2B solutions on higher ARPU. So it doesn't directly compete to the though Telesat will not be available in country until about 2025 or 2026, right? So it is not impacting right now.

On the question on VITRO I saw that announced 11 million. At the end of the day, I think the question should be asked, what types of revenues (inaudible) there have been a lot of -- seems to be giving away at the start. So maybe the question should have been asked for us, what is the revenue that are seeing revenue? I don't know what (inaudible) flavor competition is doing, but (inaudible) did say earlier that customers are looking for value for money (inaudible)

The next question is from (inaudible)

My first question is, I understand that the home broadband business has been one of the key drivers for revenues for the past several quarters. And this might be most likely due to the underpenetrated nature of the market. I guess my question is, does the company have an internal expectation as to how long the robust growth will last and considering that people are moving back to the offices and mobility is increasing as well?

Yes. As Jeremiah indication earlier on, I think the demand remains to be strong. I think that's how we see home broadband to be at this point. And I think next year will continue to be still -- there will still be some demand, maybe that at the same level that we're experiencing this year, which is 23%.

Maybe you're looking at higher teens this year, but we still see some growth in this market. I think just to put some context, I think in other countries, maybe Thailand and Vietnam - in other countries penetration of different broadband is the 40% or 50% level. We're only at the 20%, 25% level terms of fixed broadband (inaudible) so there's still a lot of opportunities to grow in this segment.

And just another one. On the postpaid mobile ARPUs, could you give more color as to why it's trending a bit lower sequentially?

I think one challenge we're seeing on book speed. Again, part of the part of the recession, I think we're seeing also a decline in ARPU from our speed, especially what we see also sees is the prepaid offers are also becoming more value for money that's just across all the different brands.

And I think that really poses the challenge really (inaudible) So those are the 2 factors. One, again, related to the economic factors and also because also the prepaid offers have also become more attractive (inaudible)

Arthur, you have your hand raised, you have a follow-up before we go to (inaudible)

Can you hear me?

Yes. We can hear you.

Yes. Sorry, I just had a follow-up. Just to better understand the guidance. So you kept it at PHP 33 billion for the year, for core telco profit. You had PHP 17 billion in the first half. And basically, for the second half, you mentioned that you'll see D&A savings of around PHP 2.3 billion because of this accelerated depreciation. Why keep PHP 33 billion? Shouldn't this be stronger?

Before (inaudible) answers that question, just to clarify, it's PHP 2 billion for 6 months.

I think he answered that question for us.

Well, I think maybe we anticipate a stronger full year number that was higher than the PHP 33 billion. So what we're concerned about really is what I indicated to you and sure the rest of the team here is that the corrosive effect of inflation on consumer spending, particularly in the most venerable portion would be the wireless because that's where the individual parts are affected.

I think the strongest segment of PLDT would be enterprise because they got in resources to be able to weather better inflationary pressures. And thus, I think the effect on efficiency and savings on enterprises are getting to be more realized by corporates in terms of the deployment of technology (inaudible).

So the middle case is really in the home business, which I think Jeremiah told you, to some extent, they're insulated by the fact that the hybrid environment and are not totally mobile yet. And of course, there's still a big market out there in terms of the demand for home fiber.

And I think the total fiber subscribers might only be about 5 million to 6 million. And we think that the addressable market is at least anywhere between 10 million, 12 million households. So there's some ways to go in terms of affordability and the number of households that are able to afford the price points of fixed export bank. So wireless is what possibly be the concern. But yes, I think we will indeed support most likely report a higher number than the PHP 33 billion.

We read now questions from the chatbox. After the sale transaction of 5,907 towers, how many towers in PLDT will remain and after 5,907 towers been sold, how many will be leaseback by Smart and how many will be leaseback by Digital? Are these towers originally booked under Smart And digital?

Now all the leaseback will be quite smart. Overall, we have 11,000 towers, but those are of different types of towers. So that includes the macro, the micro, et cetera. So I guess yes, we potentially could still have another tower sale transaction after this 5,907, but it will be of a slightly smaller magnitude. And then if we look at it probably more likely next year than this year.

Any color on the recent (inaudible) Did it result any damages to your infrastructure equipment? And will it have any material effect on (inaudible) financials?

(inaudible) very little. No impact on our network. There just somehow outages when we lost power in certain areas. Really no major damage in towers infrastructure.

Any impact in financials it may...

No, no, very minimal. Very minimal. Zero. That's it.

Since the Chairman is here, I might as well ask the question of a Bloomberg headline (inaudible) So you might as well clarify.

So the Bloomberg headline reads that the Philippines (inaudible)

Well, we've been in discussion with ABS for quite a number of months, in fact, more than a year. And so it's fair to characterize where we are in relation to (inaudible) we're in the final stages of updating the premium in terms of the -- in respect of the commercial terms an agreement with them.

If we start, we are not acquiring any shares or we're not making an investment (inaudible) itself. Rather ABS will make an investment in TV5 and the basic model, we agreed with them is that the principal free-to-air platform that (inaudible) and ABS-CBN would be dignified.

So that's been (inaudible) they will acquire a minority interest, minority voting interest in TV5, I think that's around 75% in control with the rest is (inaudible) So that's -- of course, there are many more items in that agreement, but that's the basic (inaudible).

(inaudible) from Hussaini of UBS. Hussaini?

Just one housekeeping question that it was in the earlier presentation mentioned that PHP 1.6 billion was booked as an operating expense linked to audit. Just wanted to check how much of it was booked in first quarter and how much of it is in the second quarter? And is that considered as one-off or is a part of regular OpEx?

Yes. For that, we booked about PHP 600 million of OpEx, principally repairs and maintenance in the first quarter and then close to PHP 500 million in the second quarter, so about PHP 1.1 billion combined.

We didn't classify them as one-offs. So they effectively are embedded inside the core numbers. So that's why it's indicated that our EBITDA of PHP 50.5 billion would actually have been PHP 1.1 billion higher has there been no debt related costs. And this is just the repair cost. This doesn't include the impact effectively on the business side for particularly.

Any last questions, final call? If there are none, we will not turn the floor over back to Mr. Pangilinan for his closing remarks.

Thank you all for joining us today in this conversation with you and look forward seeing it against some time in November when we announce our third quarter results. and perhaps give you an idea of what it would look like to be at as this question -- because the full impact, I forgot to add to it -- the full impact of the gains on the tower sales actually fell starting next year (inaudible) year. Thank you.

With that note, we're concluding today's and as always, should you have any further questions or clarifications, please feel free to reach out to Investor Relations. Thank you for your participation. Stay safe.

Thank you.