Piltel income soars 125% to P17.8 billion in 9 months: Due to one-time gain from asset sale

MANILA, Philippines - Pilipino Telephone Inc. (Piltel) posted a 125 percent increase in its net income to P17.8 billion during the first nine months of 2009, from P7.9 billion in the same period last year, mainly due to gains from the sale of its telecommunications assets to parent Smart Communications Inc. and derivative transactions.

Piltel’s core net income, before exceptional items, rose eight percent to P8.5 billion during the January to September 2009 period. Core earnings from continuing operations was at P1.1 billion while those from discontinued operations stood at P7.4 billion.

“This quarter marks the transition in Piltel’s transformation from being a cellular operator to a holding company whose primary asset and source of income will be its 20-percent  holding in the Manila Electric Co. (Meralco). We look forward to working together with Meralco in creating synergies that will add value to all shareholders,“ Piltel president and CEO Napoleon Nazareno said. 

Effective last Aug. 17, Piltel’s cellular assets, subscriber base and Talk ‘N Text trademark were sold and transferred to Smart, resulting in a one-time net gain of P7.6 billion. Piltel is now 99.5 percent owned by Smart.

Last March 13, Piltel entered into an exchangeable note agreement with the Lopez Group where Piltel purchased an exchangeable note, issued by First Philippine Utilities Corp., with a face value of P2 billion which Piltel subsequently exchanged into 22.22 million shares of Meralco and which constitute part of the 20 percent Meralco shares now held by Piltel. The mark-to-market gain recorded on the derivative asset linked to this exchangeable note was P1.2 billion.

Company officials said the reported net income benefited as well from the reduction in the statutory tax rate from 35 percent in 2008 to 30 percent in 2009 and the application of the optional standard deduction method in computing Piltel’s net taxable income. 

Having acquired 223 million shares in Meralco, equivalent to 20 percent of Meralco’s outstanding common shares, Piltel   financial reports now include Meralco’s financial results, under the equity accounting method. For July 15 to Sept. 30, 2009, the equity share in Meralco’s earnings accounted for P361.3 million of Piltel’s revenues.

Piltel’s financial report for the first nine months reflects the results of its GSM cellular business only until Aug. 16, 2009 as the sale and transfer of that business to Smart was finalized on that date. Accordingly, net income from that business is reported as “net income from discontinued operations”.

Going forward, Piltel’s primary asset and source of income will be its 20 percent holding of Meralco.