Earnings Call Transcript - PHI Q4 2022

Operator, Operator

Okay, it's 3:30. Maybe we can start. So good afternoon, and thank you for joining us today to discuss the company's financial and operating results for the full year of 2022. This is our first face-to-face briefing after almost 2 years. So we welcome those who've joined us today at the venue and the 58 people who joined online. So a copy of today's presentation is posted on our website. And for those who have not been able to do so, you may download the presentation from www.pldt.com under the Investor Relations section. Kindly note that this briefing is being recorded. A podcast of this event will be available on our website after the call. QR codes for the presentation, the MD&A, the FS, and the podcast are on the screen later and in the confirmation notices e-mailed to you. For today's presentation, we have with us our Chairman, Mr. Manny Pangilinan; Mr. Al Panlilio, President and CEO of PLDT and Smart; Mr. Danny Yu, Group Controller; Mr. Shailesh Baidwan, President of Voyager; and Attorney Marilyn Aquino, who's our CorSec and Chief Legal Counsel; as well as other members of the PLDT management team in the back. At this point, let me turn the floor over to Mr. Panlilio to begin the presentation.

Alfredo Panlilio, President and CEO

Thank you, Melissa. And again, welcome to this analyst briefing, and nice to see all of you face-to-face. I guess the sequence of the presentation, we have just a few slides to summarize what happened in 2022. Danny will come in to dig deeper into the financial highlights of the performance. And Shailesh will come in for Maya updates before we pass it on to MVP for the guidance for 2023. So I guess to start with, I think it's an understatement to say that 2022 wasn't a challenging year. It is challenging for PLDT. And actually, most of the companies had the same experience. But we started the year, as you recall, with recovery from Typhoon Odette, which really affected our operations in the first quarter. Plus the war in Ukraine also affected a lot of the costs that went up during that time and the issues that we shared with you towards the latter part of last year. But despite that, I think 2022 was a great year for us in terms of performance and marked the start of our multiyear transformation, and I've been talking about it most of the year. We've made gains across each of the five key pillars, strategic pillars that we focus on: elevating customer experience; improving our standing as a Philippine premier workplace; establishing industry-leading operational excellence; growing profits in core business, and we're also looking at new businesses and capabilities that will be attractive for us moving forward; and making PLDT Group the region's leading ESG telco. So just to summarize the performance last year, I'm sure you've seen the disclosures already this morning. But let me just summarize, telco core grew by 10% to PHP 33.1 billion. Our net service revenues were at an all-time high at PHP 190.1 billion with both Home and Enterprise delivering all-time highs also in terms of the revenues year-on-year. First time we breached EBITDA at PHP 100.5 billion, which is an increase of 4% from the previous year. We've kept a healthy margin of 51% on EBITDA in 2022. Customer experience has always been our North Star. So we invested heavily, obviously, on the network and really trying to deliver the best network experience both in fixed and mobile. And this has been acknowledged by third-party entities in terms of both our fixed and mobile. PLDT Home is the country's fastest fixed network based on Ookla reports. And same with Smart having the best mobile network in the country, the fastest mobile network, the best mobile coverage for the year 2022. Next is we obviously continue to support not only the requirements of our customers but also support the President's initiative on really digitizing the Philippines. So part of nation-building on our part, and PLDT has been involved in nation-building for the longest time, but really supporting the agenda of the government in terms of digitalization. We've announced this early part of last year, really build out the 11th data center in Sta. Rosa, which is expected to be completed by the end of 2023. We expect hyperscalers and enterprise customers to start using the data center in the first quarter of next year. If you recall, we have 10 right now, and we're expanding Makati and Paranaque to its full capacity. In fact, we'll be running out of rack sometime in the third quarter. We're also trying to expand even Clark a little more. But all those combined, the 10 existing data centers combined, are smaller than the VITRO Sta. Rosa data center that we're building in that, again, should be completed by the end of the year. It doesn't only support the requirements of the hyperscalers and local market, but really, we are positioning the Philippines as a transit hub to the region. We're quite in a very lucky position that there is a geopolitical issue in Hong Kong, which is why everybody is going out of Hong Kong. There's a moratorium on build-out in Singapore due to its power limits in terms of carbon emission also for Singapore. This becomes a very great opportunity for PLDT to become a regional transit hub. Obviously, in line with the government's Common Tower Policy, we have signed four contracts on sale and leaseback. The last two were with Unity of the Aboitiz Group, partnered with Partners Group and Frontier, which is owned by KKR. So if you add those two contracts, plus the two contracts we completed last year, we've sold 7,500 of our sites, and the total amount of that sale is at PHP 98 billion in total. Again, it's our strategy of asset-light and trying to bring down costs to serve and really help the country narrow the digital divide.

Danny Yu, Group Controller

Good afternoon. Please allow me to present PLDT's financial and operating highlights for the year 2022. PLDT reported all-time high service revenues of PHP 190.1 billion in 2022, higher by 4% from last year. EBITDA also grew 4% to PHP 100.5 billion, marking the first time the company crossed the PHP 100 billion mark. EBITDA margin remained strong at 51%. Telco core income, excluding the impact of asset sales and Voyager results, rose by 10% to PHP 33.1 billion from PHP 30.2 billion in 2021. Looking at the segment performance, our Home business continued to lead the charge, growing 20% to PHP 57.4 billion in 2022, a historic high. Fiber Only revenues increased by 45% to PHP 48.5 billion. Our Enterprise business also registered an all-time high of PHP 47.5 billion or 8% higher from last year. Faced with industry challenges, our Individual business recorded revenues of PHP 82 billion or lower by 5% from last year.

Shailesh Baidwan, President of Voyager

Thank you, Danny. Good afternoon, everyone. For Maya, 2022 was a year of growth across all our business and also a significant transformation of our fintech ecosystem. On the enterprise side, where we provide payment services, we have the payment gateway from some of the largest online and face-to-face companies across the Philippines. In this business, we strengthened our market share position as the market leader even further as we processed more and more transactions, added QR Ph and other payment sources. So we are the number one processor for transactions across Visa, Mastercard, BancNet, QR in the Philippines. On the consumer side of the house, this was a year where we transformed the erstwhile PayMaya into Maya. We added a number of new services, completely changed the customer interface. This was brought about with the launch of Maya Bank, which happened in the middle of 2022. With the Maya Bank coming at the heart of our ecosystem and us unifying Maya Bank in the same consumer app, we were able to significantly change the number and add the number of products and services that we offered and, more importantly, provide customers with a very strong unified customer experience. By the time we exited 2022, we had more than 1.5 million bank customers who had deposited with the bank close to PHP 15 billion. We also disbursed over PHP 3 billion in loans to customers to help them with their financial needs. We continue to see this momentum.

Alfredo Panlilio, President and CEO

Before I pass it on to our Chairman for guidance, I wanted to share the transactions we announced in the first quarter of this year. We completed the sale and leaseback of 1,012 towers for Frontier Tower Associates Philippines, Inc., with expected gross sales proceeds of PHP 12.1 billion. These values reflect those covered by the sale and leaseback transactions announced in April and December 2022. Additionally, these three transactions we closed earlier include EdgePoint and Unity of Aboitiz. Despite the varying financial conditions with our interest rates, we have managed to maintain the same values per tower and the same terms and conditions as the previous transactions.

Manuel Pangilinan, Chairman

Okay, thank you, Al, and good afternoon to all of you, both here and online. In terms of service revenue growth guidance for this year, 2023, we expect growth in revenue line to be mid-single digit. The Home revenues, home broadband will continue to grow mid-teens. The momentum for Enterprise revenues will continue, underpinned by data centers and IT solutions. In Mobile, we expect the environment to be challenging, partly because of the SIM registration, which will affect revenues in the short run, of course, inflation and continuing competition.

Operator, Operator

So we're now ready to take your questions. For those online, you may type your questions in the Q&A box in the upper-right side of the screen. You may also click the Raise Hand button and wait for me to call your name before you unmute your microphone. You may also send your questions via e-mail to [email protected]. Please indicate your name and company name, so we can get back to you for any additional information you may need.

Ranjan Sharma, Analyst

I have a couple of questions. First, regarding the accelerated depreciation, can you clarify the number? I believe it's PHP 51 billion, which is quite substantial. Given the CapEx overruns we faced last year over four years, and now that the CapEx has been spent and deployed, it appears the assets have a much shorter lifespan. Is the management also considering this $1 billion of accelerated depreciation in a single year? It seems like a significant amount. What is the source of that? How is the company planning to ensure that the CapEx it deploys will generate a return on capital instead of the assets becoming impaired? That's my first question.

Danny Yu, Group Controller

It's basically technological in demand changes, Ranjan. To answer your first question, that's the only underlying reason. There's no other.

Ranjan Sharma, Analyst

Okay. It seems like a big number, right, like $1 billion of impairment...

Danny Yu, Group Controller

Yes. Because if you look at the breakdown, you've got PLDT and Smart transport assets affected by the modernization program, that's already PHP 19.2 billion. We also migrated our VVDSL to fiber, that's PHP 9.7 billion. We initiated this 3G technology mainly because there are only about 4% of the total devices latched on our network. Then you have a replacement of existing aerial cables with underground, that's PHP 3.2 billion. Plus the write-down of legacy network equipment at the Makati headquarters, that's around PHP 1.8 billion. We don't expect a similar level for 2023, of course.

Shailesh Baidwan, President of Voyager

So as I mentioned, we have the Enterprise business. The Enterprise business will be segment EBITDA positive in 2023 around the third quarter of this year itself. And then we've got Maya Bank, which we are working towards profitability in the third quarter of 2024. So in about 2 years from launch, we expect and hope to make the bank profitable. And because of these two businesses, the overall company should be profitable by the fourth quarter of 2024.

Operator, Operator

Is that okay, Ranjan?

Marilyn Victorio-Aquino, Chief Legal Counsel

We've already disclosed the result of the forensic investigation in our disclosure today, which is that there is no evidence of fraud, intentional concealment or bad faith conduct on the part of any employee of the company.

Manuel Pangilinan, Chairman

Let me just reiterate, I think, our collective thanks for your attendance today physically and online. I think it's, actually, to all those present in this hall, it's good to see you after a 3-year absence, right? We plan to give you a better idea of the telco core income guidance for 2023 when we announce our first quarter results sometime in May this year.

Operator, Operator

And that concludes our briefing. Thank you for joining us today. Have a good Easter. Join us for refreshments outside. Good evening.