PLDT Inc. — FY2018 Form 20-F Summary
Business context and reporting period
PLDT is a Philippine telecommunications and digital services group with Wireless, Fixed Line and Other segments. This is an audited annual report for the fiscal year ended December 31, 2018, prepared under IFRS; it does not provide standalone fourth-quarter results. Unless otherwise indicated, amounts below are in Philippine pesos (Php) millions.
Key financial metrics
| Metric | FY2018 | FY2017 | Change |
|---|---|---|---|
| Revenue | 164,752 | 159,926 | +3% |
| Service revenue | 154,207 | 151,165 | +2% |
| Expenses | 150,979 | 150,415 | Approximately flat |
| Net income | 18,973 | 13,466 | +41% |
| Net income attributable to PLDT equity holders | 18,916 | 13,371 | +41% |
| Adjusted EBITDA | 64,027 | 66,174 | -3% |
| Core income | 25,855 | 27,668 | -7% |
| Operating cash flow | 61,116 | 56,114 | +9% |
| Cash used in investing activities | (25,054) | (21,060) | Higher use |
| Cash used in financing activities | (18,144) | (40,319) | Lower use |
- Consolidated Adjusted EBITDA margin was 42% of service revenue, versus 44% in 2017. Management-reported segment margins were 41% Wireless and 38% Fixed Line.
- Basic and diluted EPS attributable to common equity holders were Php87.28, versus Php61.61. Core EPS was Php119.39, down from Php127.79.
- Capital expenditure payments, including capitalized interest, were Php48,771, up from Php37,432. Operating cash flow less these payments was approximately Php12,345.
- At year-end, cash and cash equivalents were Php51,654 and short-term investments Php1,165. Total debt was Php176,276, including Php20,441 due within one year. Debt less cash and short-term investments was approximately Php123,457.
- Total assets were Php482,750; total liabilities Php366,084; and total equity Php116,666. Current assets were Php99,574 and current liabilities Php192,608.
- Common dividends declared for 2018 earnings totaled Php15,556, or Php72 per share. Cash dividends paid during 2018 were Php13,928. Management reported a payout of approximately 60% of core earnings.
Material changes versus comparable periods
- Revenue increased as Fixed Line data growth and higher wireless non-service sales outweighed weakness in wireless service and traditional voice. Fixed Line revenue rose 9% to Php85,222; Wireless revenue fell 3% to Php89,929.
- Wireless mobile data revenue grew 46% to Php38,350, including mobile internet revenue up 65% to Php33,207. That growth was offset by mobile voice revenue down 9% and SMS down 50% to Php13,103.
- Fixed Line data revenue rose 24% to Php54,770, including home broadband up 48% to Php26,733. Fixed Line voice revenue declined 12% to Php25,178.
- Net income increased sharply while Adjusted EBITDA and core income declined. The result included a Php12,054 gain on deconsolidation of Voyager Innovations Holdings (VIH); therefore, reported net income growth was not matched by underlying core-income growth.
- Operating cash flow increased, but capex payments also rose. Total debt increased 2% from Php172,611 at year-end 2017.
Outlook, commentary, risks and unusual items
- Management estimated 2019 consolidated capex of approximately Php78 billion, focused on LTE coverage and capacity, fiber and fixed access upgrades, IT transformation, network resilience and 5G readiness. Management expected operating cash flow to support spending and stated available cash and operating cash flow should cover projected needs and debt service for the next 12 months.
- PLDT reported 5G pilot sites in Makati and Pampanga and planned further pilots; commercial rollout, customer adoption and monetization depend on network investment, licenses and availability of affordable compatible devices.
- Technology disruption and OTT services continue to pressure legacy voice, SMS and international calling. The company also faces price competition and anticipated entry of a third major Philippine telecom player.
- Foreign exchange is a material risk: most revenue is peso-denominated, while some debt, capex and expenses are in U.S. dollars. A weaker peso can raise costs, produce FX losses and pressure debt covenants. Approximately 13% of consolidated debt was U.S.-dollar-denominated at year-end; management reported the unhedged portion, after consolidated hedges and allocated dollar cash, at approximately 8%.
- Other material risks include substantial network investment needs, vendor and IT transformation execution, cybersecurity and data privacy, spectrum and franchise/CPCN requirements, regulatory changes, natural disasters, and potential restrictions on subsidiary cash distributions. The filing reports 223 phishing cases targeting employees in 2018, versus 232 in 2017.
- Unusual earnings and accounting items include the VIH deconsolidation gain, impairments and manpower-rightsizing costs. Shortened useful lives of certain technology equipment added Php15,807 to 2018 depreciation; management expected a further Php540 of such depreciation in 2019.
- PLDT adopted IFRS 9 and IFRS 15 from January 1, 2018 using the modified retrospective method; prior-year figures were not restated. IFRS 15 changed allocation between service and non-service revenue. The filing’s illustrative comparison indicates 2018 revenue would have been Php695 higher under IAS 18, so year-over-year revenue and service mix are not fully comparable.
- Legal matters include the continuing PCC litigation concerning the SMC telecom transactions and labor proceedings over contractor workers. The Court of Appeals set aside much of the labor regularization order and remanded certain issues; further legal remedies were under evaluation. Management said it had recorded provisions but withheld details that could prejudice its position. The auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- How much 2018 net income depended on the VIH deconsolidation gain and other nonrecurring or investment-related items; compare net income with core income and operating cash flow.
- Whether data revenue growth and broadband additions can offset continued declines in SMS, voice and international traffic, while sustaining margins and subscriber economics.
- Whether the planned Php78 billion 2019 capex can be funded without materially increasing debt or weakening liquidity, and whether network improvements translate into service quality and returns.
- The maturity, currency, hedge coverage and covenant headroom of debt, including sensitivity to peso depreciation and interest-rate changes.
- The financial and operational consequences of IFRS 15/IFRS 9 adoption, loss of control of VIH, investment valuation changes, and unresolved legal and regulatory matters.