PLDT Inc. — FY2017 Form 20-F
Business context and reporting period. This is an annual report for the year ended December 31, 2017, not a standalone fourth-quarter filing. PLDT is a Philippine telecommunications provider operating wireless, fixed-line and other businesses. Its consolidated financial statements are prepared under IFRS. The auditor issued an unqualified opinion on the financial statements and internal controls.
Key financial metrics
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | Php159.9 billion | Php165.3 billion |
| Service revenue | Php151.2 billion | Php157.2 billion |
| Expenses | Php150.4 billion | Php140.6 billion |
| Net income | Php13.5 billion | Php20.2 billion |
| Net income attributable to PLDT equity holders | Php13.4 billion | Php20.0 billion |
| EPS attributable to common equity holders | Php61.61 | Php92.33 |
| Adjusted EBITDA (non-IFRS) | Php66.2 billion; 44% margin | Php61.2 billion; 39% margin |
| Core income (non-IFRS) | Php27.7 billion | Php27.9 billion |
| Net cash from operating activities | Php56.1 billion | Php49.0 billion |
| Property and equipment purchases, including capitalized interest | Php37.4 billion | Php42.8 billion |
| Total debt | Php172.6 billion | Php185.0 billion |
| Cash and short-term investments | Php34.0 billion | Php41.5 billion |
Cash and short-term investments less total debt imply net debt of approximately Php138.6 billion. Current assets were Php89.7 billion and current liabilities Php168.1 billion. Operating cash flow less reported property and equipment purchases was approximately Php18.7 billion; this is a simple calculation, not a company-defined free-cash-flow measure. The filing does not provide a consolidated operating-margin figure in the presented data.
Material changes versus the prior comparable period
- Revenue fell 3%, primarily from wireless and home broadband declines, partly offset by fixed-line data growth. Wireless revenue decreased 11%; fixed-line revenue increased 8%.
- Mobile voice revenue declined 17% and SMS revenue 20%; mobile data revenue rose 3%, including 17% growth in mobile internet.
- Fixed-line data revenue increased 17%, with home broadband up 21% and corporate data and ICT up 15%.
- Net income declined 33%, while core income was nearly flat, down 1%. Adjusted EBITDA rose 8%.
- Expenses increased 7%. Depreciation and amortization rose to Php51.9 billion from Php34.5 billion, including Php19.5 billion of additional depreciation from shortened estimated useful lives of certain network and technology assets. Wireless also recorded Php3.9 billion of noncurrent-asset impairment.
- Operating cash flow increased 15%; investing cash outflow fell to Php21.1 billion, mainly reflecting lower investment purchases and capital spending. Financing cash outflow rose to Php40.3 billion, and cash declined Php5.8 billion.
- Debt fell 7% year over year. Debt maturing within one year decreased to Php15.0 billion from Php33.3 billion. PLDT reported compliance with debt covenants.
Outlook, management commentary, risks and unusual items
- Management estimated 2018 consolidated capital expenditures of approximately Php58 billion: Php27 billion wireless and Php31 billion fixed line. Planned priorities include network capacity and coverage, fiber expansion, resilience and IT transformation. The company targeted mobile broadband coverage of 90% of Philippine cities and municipalities by year-end 2018.
- PLDT and Smart signed a seven-year, US$300 million managed transformation agreement with Amdocs in January 2018 to upgrade IT systems and processes. Execution, cost and potential service disruption are risks identified in the filing.
- Management said operating cash and cash flow should fund projected operating, investment, capital-expenditure and debt-service needs over the next 12 months, while noting external financing could be used if considered prudent.
- Key business risks include intense competition and the prospective entry of a third major telecom operator; mature mobile-market conditions; OTT substitution and declines in legacy voice, SMS and international calling; network transformation and execution risk; spectrum and regulatory uncertainty; cyber and data-privacy risks; and peso depreciation against the U.S. dollar. The peso was Php49.96 per U.S. dollar at year-end and Php52.29 on March 26, 2018.
- Cash dividends declared for 2017 totaled Php76 per common share. The company said its regular dividend payout was approximately 60% of core earnings in 2017, subject to funding needs and investment opportunities.
- Other notable matters include a Php66.3 million labor-related liability in a DOLE resolution, which PLDT contested and sought to have reconsidered; and pending Supreme Court proceedings concerning the Competition Commission’s review of the 2016 SMC telecom transactions. The 2017 resolution on foreign-ownership challenges was favorable to PLDT.
- IFRS 15 adoption was estimated to increase opening 2018 retained earnings by approximately Php2.6 billion, with contract assets and tax balances also changing. Management expected IFRS 9 to affect impairment allowances and increase profit-or-loss volatility for certain equity investments.
Most important facts for investors to verify
- Whether wireless subscriber losses and sharp voice/SMS declines continue, and whether mobile-data growth can offset them.
- Whether the Php19.5 billion increase in depreciation reflects a one-time estimate change or signals persistently higher earnings costs; review the related asset lives and impairment assumptions.
- Whether the Php58 billion 2018 capex plan is delivered within budget and produces measurable improvements in network quality, broadband growth and operating cash flow.
- Debt maturities, refinancing needs, covenant headroom, and exposure to further peso depreciation or interest-rate increases.
- The timing and outcome of the DOLE and competition-law matters, as well as other contingencies for which the company says it withholds detail to avoid prejudicing its position.
- The assumptions underlying non-IFRS Adjusted EBITDA and core income, and the effects of IFRS 9 and IFRS 15 on future reported results.