PLDT sees P32-B earnings this year

Telecommunications giant Philippine Long Distance Telephone Co. (PLDT) expects core earnings this year to reach P32 billion, only 10 percent higher than last year’s P29 billion, even as company officials revealed yesterday that PLDT’s new wave of investments will require capital expenditures of around $1 billion over the next three to four years.

But PLDT chairman Manuel V. Pangilinan explained that 2006 is a year of transition for the company that will lay the foundation for growth starting 2007 and beyond. "Rolling out our new networks and services will entail significant capex even as we cope with higher depreciation and taxes. As a result, we expect that growth in core earnings in the short-term to be largely benign. Growth will modulate first, before we are able to return to a higher growth trajectory," he told stockholders at their annual meeting yesterday.

PLDT’s core income (before the effects of foreign exchange gains, deferred tax assets and additional depreciation) during the first three months of the year grew 16 percent compared to the same period in 2005, but consolidated reported net income was seven percent lower at P8.6 billion due to higher depreciation expenses and lower forex gains.

He noted that the current year is critical for PLDT as it lays the foundation for the next phase of its growth. "And as we build this foundation, its benefits will emerge starting only next year," Pangilinan emphasized.

Despite lower core earnings growth this year, Pangilinan emphasized that earnings available to common shareholders will improve by a higher percentage, since dividends on preferred shares will decline as more preferred shares convert to common shares.

As PLDT’s cash flows remain healthy, Pangilinan said they have raised the dividend payout from 50 percent to 60 percent of 2006 core earnings. "In the future, more and more of our free cash flows will be used to pay dividends, as maturing debt obligations decline," he noted.

PLDT plans to pay down debts of about $350 million this year. During the first quarter of 2006, PLDT paid back $65 million in outstanding loans. By yearend, gross debts are expected at no more than $1.7 billion. After deducting cash balances, net debt could drop to as low as $1.3 billion, which will be a historic low for PLDT, Pangilinan stressed.

The PLDT chief admitted that the company’s greatest concern today is its ability to maintain sustained and steady revenue, or top-line growth.

He said revenues from the wireless business (Smart Communications, Inc. and Pilipino Telephone Inc.) are rising at a pace that is moderate when compared with previous years, as the wireless penetration S-curve starts to flatten.

Meanwhile, revenues from the fixed-line business are being held back by a secular decline in the voice business, offset substantially by the rapid growth in PLDT’s data business. "We find the greatest opportunity for growth in our ICT arm, ePLDT. But we need to raise our investment in ePLDT as we’re now doing for it to make a significant impact on our top line," Pangilinan said.

He identified four key technology drivers to the company’s future growth. First is the dramatic growth and improvements in wireline broadband infrastructure and services, coupled with the emergence of alternative wireless broadband technologies like Wi-Fi/Wi-Max, which Pangilinan said substantiates PLDT’s strategic investment in Meridian Telecoms.

Second, he said, are the advances in 3G mobile, particularly in terms of variety and pricing of handsets, and its increasing capability for video and large file transfers.

The third growth driver is the "everything-over-IP revolution. Pangilinan explained that thanks to the Internet, traditional applications can now be carried more cheaply and more efficiently as general purpose applications on data networks, that establishes the migration of the company’s old voice network over a data-centric, Internet-based next generation network.

Fourth are the new opportunities for growth by way of new investments offered by ePLDT, particularly in calls centers and business process outsourcing. This acquisition approach, he said, complements PLDT’s strategy of organic growth.

"Together, they support our vision for a converged telecoms conglomerate, and warrant the significant investment we’re making in SPI Technologies – one of the largest BPO companies in the world. The SPI investment places PLDT in a leading position in a sunrise, and dynamic, industry where the Philippines can rightfully claim to have a distinct advantage," Pangilinan stressed.

All these technologies, he said, will create new products and services, revenue streams and entirely new businesses, with this new wave of investments requiring around $1 billion in capex over the next three to four years.