Globe Telecom profits drop 9% to P8.8 B in 9 months

Globe Telecom, the country’s second largest telecommunications firms, posted a nine percent drop in its consolidated net income for the first nine months of 2008 to P8.8 billion, from P9.7 billion in the same period last year, driven mainly by lower revenues but partially offset by lower financing costs.

Excluding foreign exchange, mark-to-market gains and losses, as well as charges related to the redemption of the senior notes recognized in 2007, core net income for the nine-month period this year reached P9.4 billion, down 11 percent from last year’s P10.5 billion.

“We are encouraged by this quarter’s strong subscriber growth and steady revenues despite a tougher economic and competitive environment. We remain committed to improving further our executional capabilities to make our business more resilient and better placed to meet the challenges that lie ahead,” Globe president and CEO Gerardo Ablaza said.

He added: “We are particularly pleased with the significant progress we have made in the broadband space. We remain committed to continuously improving the quality of our service and relevance of our product offerings.”

Meanwhile, Globe’s board of directors approved management’s proposal to undertake a P10-billion retail bond program to enable the company to diversify its funding sources in 2009.

The bond program is expected to provide Globe with the option to tap the retail market over the next 12 months, side by side with its other traditional funding sources. The company is planning to initially issue P5 billion under this program early next year.

Consolidated service revenues during the period declined one percent to P46.6 billion. Company officials explained that if adjusted for the one-time impact of last year’s national elections, normalized service revenues are flat year on year.

Wireless revenues, which account for 89 percent of total service revenues, declined two percent, while wireline revenues grew five percent driven by improvements in the broadband and wireline data business.

With lower revenues and increased operating expenses, consolidated earnings before interests, taxes, depreciation and amortization (EBITDA) dropped six percent to P28.5 billion with EBITDA margins declining to 61 percent from last year’s 65 percent.

Total capital expenditures for the nine months of 2008 amounted to P13.6 billion, 49 percent higher than last year’s P9.1 billion due to increased expenditures related to the broadband rollout, continued deepening of the company’s 2G coverage and investments in domestic and international transmission including the purchase of capacities in the TGN-Intra Asia submarine cable system.

Cumulative 2G cellsites increased three percent from 6,129 to 6,308 bringing geographic and population coverage to 96 percent and 99 percent, respectively.

Wireline service revenues grew five percent year on year due to growth in the broadband and wireline data businesses. partially offsetting the declines in the wireless business. Quarter on quarter, the group’s total net operating revenues were flat, breaking the trend of a seasonally leaner third quarter.

Meanwhile, wireless service revenues declined two percent year on year. “If we exclude the P356 million estimated election-related revenues in 2007, wireless service revenues would have been flat year on year,” officials said.

They added that despite strong subscriber growth in the first nine months of the year, revenues were soft driven by a weaker consumer environment and intensifying competition.

The continued strength of the peso relative to last year’s levels also affected revenue growth.

With 29 percent of Globe’s net service revenues linked to the dollar, the impact on revenues of the 10 percent year on year peso appreciation amounted to approximately P1.6 billion. “Our service revenues would have grown by two percent instead of declining two percent had exchange rates been steady,” an official pointed out.

As of the end of the third quarter, Globe’s fixed wired and wireless broadband subscribers (excluding broadband-on-the-go Visibility subscribers) increased 41 percent year on year.

Globe also maintained strong subscriber growth, expanding its cumulative wireless SIM base 24 percent to reach 23.7 million SIMs as of end-September. Gross additions grew 36 percent to 14.8 million from 10.8 million in 2007. On the other hand, cumulative net additions of 3.4 million fell four percent short of last year’s 3.6 million due to slight increase in churn resulting from a more challenging macro-economic environment, intense market competition, as well as network disruptions in the first quarter which severely affected service quality.