PLDT - Q3 2022

Transcript

Melissa Vergel de Dios (First VP, Chief Sustainability Officer and Head of Investor Relations)

Good afternoon, and thank you for joining us today to discuss the company's financial and operating results for the nine months of 2022. A copy of today's presentation is posted on our website. For those who have not been able to do so, you may download this 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 MBS, and the podcast are on the screen and in the confirmation notice you may have received. For today's presentation, we have with us Mr. Alfredo S. Panlilio, President and CEO of Philippine Long Distance Telephone Company, Anabelle L. Chua, Chief Finance Officer and Chief Risk Officer, Mr. Orlando B. Vea, Founder and CEO of PayMaya Philippines, as well as other members of the PLDT management team.

At this point, let me turn the floor over to Mr. Panlilio to begin the presentation.

Alfredo S. Panlilio (President and CEO)

Thank you, Melissa, and good afternoon to everyone. Thank you for joining us today. I apologize for my voice. Next page, please. Well, I think we'll be 94 years this month. Our anniversary. We've also gone through a lot of adversity in our history of 94 years. Really our mindset is thriving against adversity. Shifted from a pandemic into an open economy, but we're facing different set of headwinds. We're expecting, at this point of the year, high inflation, which affects the wallets of our customers. Weak peso against the dollar, which has a big inflation effect on both OpEx and CapEx. Increase in fuel and the price of electricity also affecting both OpEx and CapEx. The recent Typhoon Paeng that hit our country.

Despite that, I think we've done a lot to put things right. Lot of initiatives to address key areas of our business. Next page, please. Back to the report, at least for the first nine months, our performance, our financial performance. Our year-to-date telco is at PHP 25.4 billion. The nine-month telco core is 10% higher than last year. Our net service revenues is at an all-time high, nine-month all-time high of almost PHP 142 billion. Our EBITDA is also an all-time high at PHP 75.4 billion. Which we're also maintaining our EBITDA margin of almost 200%. Next page, please.

As we have indicated in the past, there are a few strategic pillars we continue to focus on. One is customer centricity. Customer promise is to commit, parallel to the transformation journey that we're undertaking right now. Also started our own CX transformation initiatives, and we've launched a CX charter. Really the customer promise aims to amplify the culture of customer obsession within the company. Second, next page please, is still doing business with, you know, businesses, B2B doing business responsibly. Cultivate eco-friendlier organization. We've actually built our first PlantSmart GrowHub as a commitment to helping the Philippines' food security. We've also expanded our solar rooftop facilities in our own locations nationwide, and we will continue to do this, so to speak.

I'm proud to say also based on MSCI ESG, we continue to improve on this measure from 47 in 2020. We ended up 51 last year, and we're recording 59 for 2022. We continue to reduce our greenhouse gas emissions by 75 tons. We continue to focus these efforts in terms of ESG and making sure that we're able to sustain our business moving forward. We also continue to invest on being the most superior network in the country. We've recently launched actually an Integrated Operations Center in Bicutan where we're able to monitor our ops, our network almost real time, if not real time, and really assessing the health of our network.

Ensure that it will continue to serve the customers well and continue to provide service that produces excellent customer experience. We've also, after launching Jupiter about 2 months ago, we're also part of Asia Direct Cable, which will now land on the west side of the country in Batangas. This will add another 36 terabits to our 60 terabits capacity that will really drive digitally in the Philippines, improving again the lives of every Filipino. By next year, hopefully we will almost have 100 terabits of capacity through international capacity. We're also in the middle of VITRO Santa Rosa, which we broke ground in March and started pouring cement to the infrastructure.

We are on track in terms of completing this by the end of 2023. This sets us up for really the hyperscaler business, and we will have an additional 4,500 racks when we complete this data center next year. Moving forward, to end the year in a strong way and also looking out for what we will continue to do in 2023. Really the one word for sustaining the company. These are the five areas where the focus on working on. I mentioned customer centricity. We continue to be obsessed with customers, empowering customers more by additional platforms to continue to build efficiencies in our organization, so we can operate excellently, bring down cost to serve and be more productive.

We've also aimed to be the best place to work. We're also resetting our operating model to support the growth and the needed efficiencies going forward. Obviously, we will also continue to invest in profitable new growth for the company. We're also looking at really maybe only PLDT can do this in this country. We're looking at the potential Fixed Mobile Convergence product, leveraging mobile-use assets, perhaps enabling customers in their digital lifestyles. Lastly, as I mentioned, continue to build into sustainability as a way of working for PLDT. At this point I'd like to shift over to the financials, and I'd like to hand it over to Anabelle Chua to cover this area. Thank you.

Anabelle L. Chua (CFO and Chief Risk Officer)

Thanks. Good afternoon, everyone. As Al has highlighted, we are pleased to report PLDT's nine-month results with our service revenues at PHP 141.9 billion being all-time high for the company. That's on the back of a growth of 4.5% equivalent to PHP 6.1 billion year-on-year. Our home business and our enterprise business have both also achieved record high in terms of the nine-month revenue numbers, with Home at PHP 42.7 billion or 21% increase year-on-year, equivalent to PHP 12.7 billion. Within both, the fiber business is actually growing 52% year-on-year. Enterprise likewise has achieved a high of PHP 35.2 billion or 9% increase year-on-year.

Our individual business remains our largest business, revenue contributor at PHP 61.7 billion, although facing some headwinds at a 5% decline. International and carrier rounds that up at PHP 2.4 billion, which is 22% or PHP 0.7 billion lower year-on-year. Now, next chart, please. When you look at the 141.9 billion revenues we reported in the first nine months, 80% of that, or equivalent to 113.2 billion comes from data broadband services which are up 9% year-on-year. Some of the more exciting pieces within that data service growth is mobile data up 2%, notwithstanding the pressures on the overall individual wireless business.

Home broadband is registering the highest growth at PHP 5.9 billion year-on-year or equivalent to 18%. Corporate data up 12%, ICT up 10%. Within ICT, that includes our data service revenues which are up 14% year-on-year. Next chart, please. Just deep-diving a bit into the three business segments, starting with Home. As I mentioned, Home is up 21%, which is a 9-month all-time high. Likewise, at PHP 14.6 billion, the third quarter is an all-time high quarter for us. Of that PHP 14.6 billion, PHP 12.4 billion is coming from fiber, which is up 36% year-on-year. Demand continues to be strong for fiber requirements, albeit our net additions were impacted by higher churn during this time.

We saw net adds of 489,000 for the nine-month period. The churn is coming principally from impact of Typhoon Odette after we were able to restore service and apply the normal credit requirements. As well as, I guess tougher economic conditions affecting some customers' ability to pay. Market, we believe, is still very promising at a penetration rate of 25% with an upside all the way to 50% for broadband penetration. Growth will likely come from different segments going forward, new areas of growth in terms of geographic regional areas, as well as likely a lower part of the market which can pay lower prices.

We still remain quite bullish about the prospects for our home growth business going forward. Going into the next chart, which is our individual business. You see here some improving trends with respect to the quarter-on-quarter performance vis-à-vis the prior same quarter the prior year. The rate of decline has decelerated in terms of the percentage terms as well as the peso amounts as highlighted in this chart. Now, the third quarter is seasonally a lower quarter and following the second quarter, which was better because of the May election spending. We do expect that the fourth quarter we should be able to enjoy a bit of a holiday uplift, as well as the continuing benefit of reopening of the economy.

There are first more active competitive moves in the market with the third player, as well as our main competitor, Globe. These are the other thing we're watching out for is really how consumer wallets are being impacted by higher inflation, particularly for the more prepaid mass market segment, who have a tendency to economize during hard times. Our network leadership and superiority will remain our key differentiator, and we will continue to support and roll out new promos that serve the needs of our customers and stay as relevant to all the segments of our market. Moving on to the enterprise business.

As highlighted, Enterprise has hit an all-time high of PHP 35.2 billion during the nine-month period, and an impressive PHP 12 billion quarterly revenue performance during the third quarter. We see the resurgence of business activity post the lockdowns for COVID. As businesses also work on their own respective digital transformation programs for each company, we are there to help accelerate such transformation, be it for large corporates, SMEs or even government, as well as the increasing demand from hyperscalers who have discovered the Philippines as the ideal location for data centers, as well.

Our three business heads are here with us today, and they will be able to talk through some of the other key drivers and dynamics respective to these business segments during the Q&A portion. Now moving on to the P&L for the nine-month period. With the increase in revenues, we did see also our EBITDA hit PHP 75.4 billion, which is up 6% as we were able to manage our OpEx increase to 3%. EBIT is likewise up 14% at an EBIT margin of 27%. Our telco core income at PHP 25.4 billion is 10% higher year-on-year. Next slide, please.

This kinda shows the same numbers, just highlighting that we were able to grow our revenues on the back of higher service revenues, more than offsetting the increase in OpEx that we saw in the business. The higher EBITDA helped boost our telco core income by 10%. Now, within the increase in OpEx that we saw during the nine-month period, I'd like to highlight in the next chart some of the major ones that have had some negative impact on our OpEx levels during the period. In particular, if I may highlight these three items, electricity, fuel, and the Odette restoration costs, right?

For electricity, we've seen the average rate per kWh rise by around PHP 1.80 during the 9-month period for us from an average of about PHP 7.39 to PHP 9.19 per kWh. As well as the impact of higher costs, this fuel cost rate adjustments that have been passed on by the retail market. If you look at these two, the price variance and that we've seen as a result of higher rates is as high as PHP 1.7 billion in terms of higher OpEx that we did not plan for in our budget. Fuel, likewise, in terms of average rate per liter has increased from around PHP 41 per liter to close to PHP 60 per liter on the average.

That also has added to our about PHP 364 million in our OpEx. Then on top of that, we've talked about Odette and the efforts to bring back the service and the ensuing costs that is involved this year of close to PHP 1.26 billion. These so-called headwinds have adversely contributed to expense pressures to the tune of PHP 3.2 billion. That's obviously partly offset by our efforts to try to focus on various operating efficiency measures, which Al Panlilio talked about. Principal one being reduction of power consumption, looking at more energy efficient CPE measures and fuel savings, reduction in our fleet number of cars and many others.

There are also benefits we've seen in terms of the contribution to the Comp. & Ben. or salaries and benefits line as a result of the earlier Manpower rightsizing program that PLDT has partnered on. Other items like selling and promo subsidies and obsolescence have likewise been managed down. We see that the higher inflation impact will remain part of the landscape going next year. We will continue to strive for more ways to drive higher efficiencies and manage our costs going forward. With that goal, I'm pleased to highlight in the next chart that we have been able to keep our OpEx, our EBITDA levels at the PHP 25.1 billion average during this period.

We've been able to cross the PHP 100 billion mark for EBITDA over the last 12 months as our goals were stated earlier. EBITDA margin of about 51% now. Telco core income, as mentioned, next chart, is at PHP 25.4 billion, 10% up. We are on track to achieve our full year guidance of PHP 33 billion. Mathematically, that just requires PHP 7.6 billion in the last quarter to get that, and we've been doing better than that over the last two quarters. We are confident that we should be able to get to the full year income guidance that has been provided. Now, other drivers of our profitability, the next chart.

We do have to pick up our share in the performance of Voyager, which has been increasing its losses as a result of higher cash burn, as well as the startup of the bank. Orlando Vea will be with us later to talk about some of the key highlights and achievements that Maya has been able to attain during post the launch of the bank in particular. With that, we do have also on top of that the benefit of the gain from the sale and leaseback of our towers. The PHP 22.3 billion here, pre-tax or PHP 17 billion post-tax reflects the gain from the first three closings that we have done equivalent to 4,176 sites.

We did add a few more sites in October so that we are 75% completion rate for our tower sale. We do hope that we can do one more closing early December. Although there is a portion of the towers that can only be closed towards the early part of next year. There's this PHP 22.3 billion. We do have other things that have been booked earlier part of the year, the MRP cost in the first quarter, principally the accelerated depreciation that we saw in the second quarter. Forex fluctuations will give back our bottom line as the peso has been quite volatile, hitting 58.646 as of the end of September, although it has improved slightly from that.

Forex remains to be something that we'll see a lot of uncertainty over. All told, with all of these pluses and minuses, we have a reported income of PHP 27.4 billion, which is a solid PHP 8.5 billion ahead of last year. Now moving on to our balance sheet, some key balance sheet highlights. In terms of our net debt, that was $4 billion as of the end of September, equivalent to a net debt to EBITDA ratio of 2.36x. We did pay out our interim regular dividend as well as some special cash dividend in the month of September. Hence, this reflects, gets captured in the lower cash levels in this chart.

From a debt management perspective, we continue to see our maturities pretty well spread out. Our average interest costs remains at 4% overall. Although admittedly for new borrowings, the cost will be much higher than that already. Average life of our debt has been averaging at about close to seven years or more exactly 6.9 years. We continue to manage the various exposures on FX basis, 5% only unhedged and then at an interest basis that's 60% on a fixed rate basis. Now, moving on. CapEx for the period came in at PHP 67.3 billion. 52.5 of that was behind our network and IT investments. There's another PHP 3 billion of data center CapEx that we also recognized.

Further another PHP 9.3 billion, what we would call the business CapEx, largely to support the new installs of our fiber broadband, where we do have to do the last mile install as well as we do cover the CPE cost for those new connects. CapEx has covered a wide span of activities and initiatives, including our investment to support the home broadband business by adding and rolling out more ports to the tune of PHP 1.22 billion as of the 9 months vis-à-vis our target of PHP 1.7 per year. We've seen data usage grow and data, as we noted, is 50% now of our revenues.

Data usage has seen increases about 29% wireless and as high as 39% on the fixed home side. We are constructing our 11th data center as well as expanding our Vitro Makati data center, which still has additional floor capacity. We have been investing in international cable systems, Jupiter, which was activated a few months ago, as well as other international cable systems coming live next year, which includes Asia Direct Cable, also Apricot. We will continue to invest in our network in order to serve our customer requirements, but we are looking at ways such as the use of co-location to help us move from a CapEx model to a rental model, as well.

Going to the next chart, just kinda highlight as to how the money has been invested. You see here some of the statistics behind our network breadth and scope. We passed 16.8 million homes with our fixed network broadband connectivity. We show here also that we are present in 17,000 out of the 42,000 barangays in the Philippines. It's roughly 40% barangay presence. We've increased our ports that are available for sale as well as sold, combined to 5.9 million ports. Our fiber footprint continues to be something that we are way ahead of others in the market.

This one we show here the breakdown between 860,000 fiber kilometers on a domestic, in-country basis, as well as another 231,000 representing the extent of the international cable systems that we are either a co-owner to a consortium or have IRU rights over. On the wireless side, our total base station count, 77,300. Biggest piece would be in the LTE/4G, close to 40,000, 3G at 17,000, and 5G at 7,300. Adoption of 5G is still limited at 4% as price points of the devices remain still quite high for this market.

Really the market is driven by LTE/4G at 82% adoption, whereas 2G and 3G have continued to drop in terms of the relative proportion now down to less than 50% of total device that we see in our network. We continue to cover 97% of the country with all our various elements from the mobile side. Just highlighting quickly some more items on 5G adoption. We see something like 2.5 billion 5G connected devices out of roughly 41+ million data users. In terms of traffic, 31,000 terabytes in the third quarter compared to less than 10,000 in the fourth quarter of last year.

On various speed tests and other performance measurements by independent agencies, our network continues to outperform the others. We just highlight here in particular the Ookla Speedtest for our 5G network that's way ahead of our main competitor. With that, let me turn over to Shailesh Baidwan to talk about recent developments in the Maya business.

Shailesh Baidwan (President)

Good afternoon, everyone. Let me give you a quick update on Maya. It's only been 6 months since we launched Maya Bank and since we relaunched and rebranded our app into the new Maya app, the only all-in-one money app in the country. Since then, we believe we have changed the conversation in Philippine fintech. The game is now beyond wallet. It's about digital banking and wallet, multi-mode payments, savings, credit, crypto, investments, insurance, and more, all in one single app. Maya's trailblazing efforts has landed it among CB Insights' prestigious Fintech 250 list, a listing of top fintechs in the world for venture capitalists. Maya Bank was also named as the best digital bank by Juniper Research. Allow me now to share some highlights of this continuing journey of ours.

We have the fastest growing customer base and deposit balance among the digital banks, registering 1 million customers just five months into our public launch. We're the only digital bank to go live in just six months after the BSP Monetary Board granted us the authority to set up a digital bank last September 2021. This rapid growth underscores the growing preference of Filipinos for an all-in-one digital banking and payments experience. Let me now go to the consumer side of the business, where Maya is now the top-rated finance app in the country. Propelling this rapid growth and high customer engagement is our game-changing customer experience powered by innovative services, personalized features, and an exceptionally reliable and secure platform.

Customers are excited over the Maya Savings feature that offers up to 6% interest rate per annum, with interest credited daily. No maintaining balance. They like the ability to manage their finances through personal goals that earn high yield interest. We allow them to set up at most five goal-based accounts, like saving for a trip, saving for a gift, or saving for a gadget. They like the convenience of seamlessly moving their money from their savings account to and from their wallet without signing up for another third party bank provider. We've also started offering credit up to PHP 50,000 to Maya app customers and negosyo loans to our agent network via the Maya Business app. We have popularized and simplified crypto. At the start of every month, you can choose if you want to receive your cashback in cash vouchers or Bitcoin.

Soon, we are simplifying the payment experience even more with a username feature. Now, on the enterprise side, we're the largest fully integrated payments processor for businesses with over 810,000 registered merchant acceptance points as of end-September 2022, triple the number we had from last year. The majority of these are already QR Ph-based enabled. This underpins our leadership position versus all other payments processors in the country. We've also started offering business deposit accounts to enterprises. Soon, we're also introducing various credit products for their customers. Next slide, please. Thank you. What is extremely exciting for us and significant for the whole industry is that more digital banking services, such as savings and credit, are positively driving digital payment transactions. It is a symbiotic FinTech ecosystem.

Customers who have savings accounts, for example, are highly active in using their wallets for everyday payments because the experience is conveniently seamless and intuitive. Our unique capabilities underscore our big opportunity as we embed digital banking services across our comprehensive financial services ecosystem. Expect more exciting services as we enable Filipinos to make all their choices through FinTech. Let me now turn you over to Melissa.

Melissa Vergel de Dios (First VP, Chief Sustainability Officer and Head of Investor Relations)

Hi. We're now ready to take your questions. You may type your questions in the Q&A box in the upper right side of your screen. You may also click the Raise Hand button and wait for the moderator to call your name before you unmute your microphone. You may also send your questions via email to PLDT underscore IR underscore center at pldt.com.ph. Please indicate your name and company name so we can get back to you for any additional information. We have a raised hand from Hussaini Saifee. Hussaini Saifee, you may unmute your mic.

Hussaini Saifee (Equity Research Analyst)

Yeah, sure. Good afternoon, and thanks for the call. Several questions from me. First is on SIM registration. Just want to understand how it will be taken forward, and will it entail any cost or is there a risk that it can lead to higher competition? What I understand is that one of the neighboring countries or in the countries in the ASEAN had SIM registration, and that led to significant increase in competition. Just wanted to get your thoughts on SIM registration in the Philippines. The related question on the mobile side is just wanted to understand your view on competition. Is the competition driven by or the softness in growth is driven by competition, particularly from the third operator?

Is the softness linked to weak macro? And finally, another, you said that Philippines is one of the key markets for hyperscalers. Just wanted to understand what are the factors which is driving demand from hyperscalers, particularly in Philippines, where the cost of power is high. Thank you.

Shailesh Baidwan (President)

Fantastic. Francis Flores will take on the SIM registration.

Francis Flores (SVP and Head of Consumer Business Group)

Yeah.

Also the view on competition. Boy Martirez

Hi. That's a great question. Hope you can hear me. On the SIM registration, as we speak right now, all the telcos are meeting with the national NTC in terms of clarifying what will be the implementation rules and regulations moving forward. I think what we want all of us, especially in Smart, want to happen is to make sure that our goal is to have a convenient, easy SIM registration experience for our subscribers. We're gonna allow that. We have to make sure that the laws will have very clear implementation rules and regulations. As we speak, all the telcos are discussing that with the National Telecommunications Commission in order to make sure that we have really clear and ironed out before.

Now, on your question on how it will impact the business, we've studied how SIM registration has impacted other businesses. We know that there is a risk that the number of applications will be. On the other hand, we see an opportunity that we could also take possibly the industry. Therefore, it's also an opportunity for us to grab market share from our competitors. The key there, again, goes back to how our capability in providing a really good solution that may make a convenient, easy, and even rewarding SIM registration experience for our subscribers.

Boy Martirez (COO)

If I just add to that, Francis. I think you talk about savings. Potentially we have a huge number of potential turnovers, so hopefully there'll be some savings. SIMs, the SIMs that are being reused in the economy. Yes, you're really the battle is for primacy on the service and.

Now, on the softening of the business, it's a combination of I think primarily because of the macroeconomic factors, because of the rising cost of inflation. What we observed in the past three months with the high increasing costs of essentials here in the Philippines, we've seen the consumers to be economizing to spend in terms of their data go or their loads. Primarily in terms of frequency, we've seen them reducing frequency. Some good subscribers reducing the frequency of loads per month. At the same time, we've also seen some of them saving by going for lower denomination offers. As a result, we see this. It's impacting our group, especially for our value brand, TNT, whose subscribers are really more of the low-income segment. That's how we just see it affecting us.

Of course, we cannot also discount the competition, especially the DITO player now in the market, who are giving away free SIMs. There's a lot of trial happening from that. We do discount that. It's not affecting us greatly, but we don't really want to say that it's not. People are keeping an eye on that one. I think our eyes are still focusing on providing best value offer in light of all this inflation to our subscribers. That's why recently we've launched a number of new promo offers that will provide the best value and affordability for our subscribers.

Shailesh Baidwan (President)

Hi, Hussaini. On your question regarding the hyperscalers and the growth in the Philippines, this is primarily driven by two things. The first is data usage. In terms of digital adoption, in terms of usage of different apps, from both consumers and enterprises, we see growth coming from consumption. This has really fueled the need for most of the big hyperscalers to look for a destination to be able to provide seamless user experiences for these end users. To give you a very specific example, TikTok, in terms of Philippine consumption, we are the seventh largest TikTok users in the world. You will see this also in different other applications that are being used by the Filipinos here.

The second reason on what's driving the hyperscaler industry is actually the geopolitical situation in other parts of Asia. In Singapore, there has already been a moratorium on new data center build. We see that the Philippines is now being eyed as a safe haven or a neutral party to accommodate a lot of the data center traffic coming from the region connecting to the U.S. and Japan. Because of this, we are actually partnering with government with the Department of Trade and Industry to position the Philippines as the next hyperscaler hub for the region. We are building the infrastructure not only for the data centers, but even for our connectivity assets on a local fiber distribution network together with international submarine cable systems connecting us to the rest of the world.

Hussaini Saifee (Equity Research Analyst)

Thanks. Maybe if I can ask one more question. It is on fixed broadband side. Now, I read that PLDT is looking to offer more affordable plans. My question is, won't it be margins dilutive? Number one. What is the risk of higher-end subscribers downtrading to those lower speed or low denomination plans? How PLDT is going to tackle that?

Jeremiah M. de la Cruz (SVP and Head of Consumer Business - Home)

Hi, Hussaini. It's Jeremiah here. What we're actually talking about is being able to provide a broader range of plans available for our customers to be able to serve the different segments and the different requirements that our customers may have. You would have observed over the last two years, we have actually dramatically increased the inclusions within the different plans that we have available for our customers. What price you would have been paying for 100 Mbps, say for example in 2020 or 2019, would have been far higher than what you would be paying for 100 Mbps in 2022.

The key thing for us when we do provide more and more, a greater range of plans, and especially as we provide greater value for customers at the lower end, is being able to make sure that we continue to match the value we make available for our existing customers. That's something we've been able to manage over the last two years. If you have a look at our ARPU, we've actually been able to hold if not grow our fiber ARPU over the last few years. That's stayed steadily at about PHP 1,500, that level. The real challenge for us is to make sure that we continue to provide value for the customers at different price points that they do have, despite providing lower price points to different segments.

Now, other things that we'll also be looking to do is being able to introduce other products or other services that will differentiate our range of plans, right? Say, for example, that you already see this with, say, the introduction of Lionsgate, the streaming service that we make available for all PHP 1,600 plus customers. We're actually using and leveraging other services available to our customers to differentiate higher and, I guess different segments or different types of plans to make available. Did that help answer your question, Husseini?

Hussaini Saifee (Equity Research Analyst)

Yes. This is great, sir. Thank you very much.

Jeremiah M. de la Cruz (SVP and Head of Consumer Business - Home)

Thank you.

Alfredo S. Panlilio (President and CEO)

Thanks. Thanks, everyone.

Melissa Vergel de Dios (First VP, Chief Sustainability Officer and Head of Investor Relations)

Now we'll go to Luis. Luis? Let's go to Richard then first.

Speaker 10

Oh, hello.

Anabelle L. Chua (CFO and Chief Risk Officer)

Luis.

Speaker 10

Hey, Melissa de Dios. Sorry. Yeah, I think I was muted. Hey, thanks. Congrats on the results, and thanks for hosting the call. A couple of questions from my side. Essentially following on what Husseini Saifee was asking, on the fixed broadband side, as you go into these new areas, is there a way for you to, you know, manage the costs in those areas to help, you know, protect the margins for the overall business? Is it cheaper to roll out there marketing and otherwise? Second question is on the current rise in the independent tower companies in the Phils, thanks to yourselves and Globe selling towers and leasing back. On your part, is there a significant number of towers that used to be just Globe-owned that now you would be keen on co-locating in?

Third question is two housekeeping questions. The third is the OpEx expenses, the PHP 1.2 billion, how much has been recovered already in terms of insurance payments? And the last housekeeping question is, interconnect expenses up quite substantially in the quarter. Is this mostly volume going to Globe or DITO, or is there some kind of change in the rates?

Jeremiah M. de la Cruz (SVP and Head of Consumer Business - Home)

Perhaps, Luis, I'll start off with the first question, and if I just wanna make sure that I got that correct. The question was really, as we look to expand into other areas, what are we gonna do to be able to help protect the margin? Was that correct?

Speaker 10

Yes. Is there any cost management measures in those areas which help you protect the margin?

Jeremiah M. de la Cruz (SVP and Head of Consumer Business - Home)

Yes. That's correct. I think I'll start off with by saying as we go out and expand into these new areas, we actually see different types of situations actually arise, where potentially if we're coming into a new area and there is no broadband provider available at all in that particular space, then obviously we have been first to market. That comes with some efficiencies with regards to sales as well as installations. Right. The second type of environment is where we have gone in and expanded into an area which may have an existing provider. That poses some other challenges for us.

What we do find in general is a very warm reception when we do enter those areas, where customers often have commented that they've been waiting for PLDT services, and they actually do tend to, it does attract customers over to the PLDT service. Now, the challenges on that front when there is an existing provider is obviously they have some commitments that they already have with an existing provider, right? Really that's where it becomes key to be able to show, have some aggressive switching offers, but beyond that, actually provide, continue to differentiate our services by showing how it is a superior service, much faster, much more stable, and the overall quality of experience that they'll have with PLDT is much higher than any existing provider.

Now, on a much broader scale, Louis, as you'd be aware, it's something that Al and the whole team have been talking about this year, is we have actually been really focused in on our overall cost base. We've really been looking at the way that we have gone to market and our overall operating model, and we're continuously looking at different ways that we can improve our overall efficiency in rolling out the network and being able to connect our customers, as well as being able to service them ongoing. That's not a one-year activity. That's something that we wanna continue to do. We've seen some improvements already this year, and we're looking to continue to make those improvements next year and beyond. These are the things that we'll look to do.

As you see some commoditization from a price point of view happen, we'll also be focusing on actually making sure that the cost to serve actually decreases, so we're able to sustain, if not be able to grow those margins.

It is on the price point. I think we have benchmarked ourselves, so I'm still believing it's under the cost and there are opportunities for us to improve in the process. I think, Arthur Pineda will answer the tower question on your other question.

Alfredo S. Panlilio (President and CEO)

Sure. I'll probably just share with you. It's not on. Oh, hello. Good afternoon. Would like to answer the question about the towers. These are considered common towers, which we are closely including in our network design plan and enhancement plan. We're looking at it closely, which one will provide benefits before it's in all of our network planning initiatives. Thank you.

Anabelle L. Chua (CFO and Chief Risk Officer)

On the Odette insurance claims, we're able to recoup something like close to PHP 250 million from the insurance. Luis, just to be complete about the info, the cost that I showed were the expenses we booked this year, right? There was also some expenses like to the tune of about PHP 1 billion actually that we already booked last year, right? Although when you look at the impact of Odette, quite you know massive at over PHP 2.3 billion. Of that, about PHP 150 million are claimable from the insurance providers.

Boy Martirez (COO)

interconnect.

Anabelle L. Chua (CFO and Chief Risk Officer)

If we look at that, I think it's not too much interconnect, I think, between ourselves and others. It may be more an intersegment interconnect amongst the PLDT and Smart. I'll take a deeper look at that, though.

Speaker 10

Thanks a lot. Very clear. Thanks, everyone.

Melissa Vergel de Dios (First VP, Chief Sustainability Officer and Head of Investor Relations)

Rachel, you may unmute your mic.

Speaker 11

Hi, good afternoon. Thank you for the call. I have three questions. First one is on fixed line. You reported that there was about 286,000 gross additions for the quarter, but in terms of net adds, it's just about 40,000. This shows that churn has been very high still. When do you expect this to normalize? Are you also looking into going to prepaid broadband? That's the first question. Second one is on Voyager. You reported about PHP 2 billion in losses. Is this a one-off thing in terms of the size of the loss and expected to decrease next year? Lastly, just a housekeeping question. Is there any impact from the recent Typhoon Paeng? Thank you.

Jeremiah M. de la Cruz (SVP and Head of Consumer Business - Home)

Hi, Rachel. I'll start off with the first question you asked, which was really looking at the net adds for quarter three. You are correct that we did see actually a 7% increase in gross installations in quarter three. That's something we're quite happy with, and we're looking to continue to build on that momentum. What we did see is actually our churn impacted our numbers from a net adds point of view. We're affected partially because of the Odette, continuing to process the impact of customers. The number that we had for quarter three is actually 88,000 net additions. It's actually 88,000 for our fiber business. What we're focused on, particularly and specifically, is gonna be our fiber business. That's 88,000 net adds in our fiber business.

We are starting to see actually an improvement in our overall numbers. I think that's sort of the second part of your question is, are we seeing an improvement, in, I guess, moving forward? Yes, we do expect that, especially as we see the tail end of, Odette impacted customers. Knock on wood, we don't see additional or I guess any further big storms that will impact our customers beyond Paeng. I think you asked a question as well on prepaid broadband. As mentioned, right, we have been able to increase our installation capacity, quarter-over-quarter by 7%. So that's the 288 or so 280,000 gross additions. However, the installations or the applications we've had still far exceed the number of installations we have been able to do.

What we're doing is, while demand remains strong, we're really prioritizing and focusing our installation capacity on our postpaid customers. The reason why we're doing that really twofold. Number one, our postpaid is generally a higher ARPU customer. We're really focusing on the higher value, higher ARPU customer that will yield a better result for PLDT Home. Secondly, the postpaid customer actually provides a longer term commitment. As you know, many of our customers sign up to 36-month contracts, whereas prepaid tends to have a shorter cycle. While we're still in a situation where demand far outstrips our ability to supply from an installation perspective, we'll continue to focus our installation capacity on our postpaid customers. Now, that's not to say that we're not gonna go after more customers in the market.

We do have available our Home Prepaid WiFi, so that's actually being made available to customers on a prepaid basis. That allows you to be able to leverage the speed of our mobile network while providing an ability to share that with multiple users within the household. Does that answer your question, Rachel?

Speaker 11

Yes. Thank you.

Jeremiah M. de la Cruz (SVP and Head of Consumer Business - Home)

Thank you.

Melissa Vergel de Dios (First VP, Chief Sustainability Officer and Head of Investor Relations)

Anabelle Chua, you may unmute. Can you take that question? The investment. PHP 2 billion business.

Anabelle L. Chua (CFO and Chief Risk Officer)

The losses on Voyager effectively reflect our proportionate equity share in the performance of Voyager. Now, as I kinda mentioned earlier, one is, I think Voyager has ramped up its acquisition efforts in an effort to build its user base as well as its merchant base, et cetera. There has been an uptick in terms of the cash burn that Voyager Maya has been spending in order to ramp up its operations. At the same time, we also started the digital bank this year.

As with anything that is a startup and in its first year, we're seeing some investments behind the startup costs for the bank as well, right? We're proud to say that the deposit base has grown, you know, to over PHP 10 billion now. I think following that would be a growth in the asset book side from a loan book side. There are a number of offers that are going out that have gone out and are going out in this fourth quarter in terms of credit products that we offer, generally speaking, as well as to build in as far as subscribers.

While there is still losses on the back in the initial phase, I think once we are able to get the loan portfolio up, I think the path to profitability for the digital bank, we can see that time frame. Obviously, it is Orlando Vea has described it as a whole ecosystem play. We do see the initial success of how the efforts at the bank side is helping the wallet side as well as well as feeds into the merchant side. I think the whole ecosystem play for Voyager Innovations is something that we continue to support and invest in.

I think one of the things that Al has pushed very strongly is the closer synergies and working relationship between PLDT Smart and Maya as well. There are a number of efforts that should help improve the financial results for Voyager going forward.

Boy Martirez (COO)

The last question on that one. I think we're not seeing major expense. Things are very, very minimal.

Anabelle L. Chua (CFO and Chief Risk Officer)

Any more questions, Rachel?

Speaker 11

Thank you. No more questions from me.

Anabelle L. Chua (CFO and Chief Risk Officer)

Next, Aishwarya. You may unmute your mic.

Speaker 12

Hi. Am I audible? Hello.

Anabelle L. Chua (CFO and Chief Risk Officer)

Yes.

Speaker 12

Yeah. Hi. My question, I'm looking at the postpaid blended ARPU for the wireless segment. Just wanted to understand why that has softened over the third quarter.

Boy Martirez (COO)

Which are quite high, so.

Speaker 12

Sorry, I'm not able to hear you clearly now, sir. There's an issue only on my end.

Boy Martirez (COO)

Okay. Can you hear me now?

Speaker 12

Yeah, clear now.

Boy Martirez (COO)

Yes. Okay. You did it right. Your question was, why the business softened in the third quarter?

Speaker 12

Right. Yeah. Specifically looking at the postpaid blended ARPU.

Boy Martirez (COO)

Actually, for our postpaid business, the decline is primarily because of our last year we have two brands under postpaid, Smart and Sun. Sun postpaid was, we actually ended that business. Fortunately, we were able to fully recover all the subscribers from the business, coming from the Sun postpaid. The profile of the Sun postpaid business is actually the ones that are more ARPU. Now, but if you look at our Smart postpaid business, at least on the third quarter, we're still seeing some growth already versus previous quarter and also versus last year.

Melissa Vergel de Dios (First VP, Chief Sustainability Officer and Head of Investor Relations)

Aishwarya, any other questions?

Speaker 12

Yeah, it does. Just wanted to check that even with just if I look at only Smart as well, even that the ARPU has come down, right? Is there any specific reason for that?

Boy Martirez (COO)

I think for the wireless business, the ARPU, what we saw was the decline primarily coming from prepaid, because as I shared a while ago, what happened in quarter three, there's some headwinds, primarily the rising cost. There's a lot of inflation on the essential goods here. As a result, consumers are economizing their spend, particularly on telco. They have either reduced the frequency per month or reduced their basket size or the denomination, they've reduced it lower the denomination. Both of which have resulted to declining their ARPU at this point.

Speaker 12

All right. Got it. Thank you.

Melissa Vergel de Dios (First VP, Chief Sustainability Officer and Head of Investor Relations)

Sanjeev, you're doing a second round of questions.

Sanjeev Rana (Senior Analyst)

Yeah. Hi. Thanks once again. Some follow-up questions. The first is on the... I mean, I see that, you know, more than PHP 10 billion in deposit base at Maya level. Just wanted to understand how much of it is deployed as loans as of third quarter, and what is the outlook on, you know, further deployment of that deposit base to the loans. The second is on the CapEx cycle. You know, I mean, PLDT had been spending on the higher side in the last three, four years. Just wanted to understand how should we see the CapEx going forward.

Alfredo S. Panlilio (President and CEO)

On the first question, yes, we have more than PHP 10 billion in deposits. We cannot disclose as of now how much of that is deployed for credit extensions. A good part has been deployed. As you know, we launched our credit service after a bit after we had started operations. It's only now we have started building up the loan book, but it has good traction and we expect to...

To grow the credit part of the business as fast as the deposit part of the business, going forward. Sorry, I cannot give out any figures, no.

Anabelle L. Chua (CFO and Chief Risk Officer)

Also our deploying a credit algorithmic model in terms of our lending side for Maya. I think there's a, as you may appreciate, there's this self-learning type of approach to this lending side as well. You need a bit of time to kinda see those models mature a bit. The initial phase would be a little slower to start, but as we get more experience, I think that will enhance the credit models based on Maya's more experience in data. Yeah.

Alfredo S. Panlilio (President and CEO)

We hope to accelerate that with the using technology loan credit access using that data at Maya. On your topic's question, what was your question? I was thinking.

Sanjeev Rana (Senior Analyst)

Just wanted to get a view on how should we see the CapEx intensity going forward. I understand that PLDT has been spending at a higher side. Plus there had been an elevated spending on the fixed broadband in the last two, three years. How should we see the spending going forward in the fixed broadband space also?

Alfredo S. Panlilio (President and CEO)

Yes. We again continue to invest on CapEx like that. The network, as I mentioned this morning, key network investments. The data center that we're building, so you know, there might still be quite a few investments that's needed to secure the requirements for the business moving forward. It is elevated at this point. Hopefully we're looking at a glide path in maybe one to two years, maybe that we're keeping the envelope maybe at PHP 185 billion per year. Something that we're trying to look at or something that we're also looking at. We could reduce this negotiation factor also for procurement cycle. We're able to hopefully bring down costs in terms of our negotiation with vendors.

There are a lot of things that are happening, but takes a bit of time. We do understand that there's an envelope that we want to achieve in the next two years hopefully. Maybe achieve some 40% tied to that negotiation.

Melissa Vergel de Dios (First VP, Chief Sustainability Officer and Head of Investor Relations)

What do you say?

Sanjeev Rana (Senior Analyst)

Understood. Very clear. Thank you very much.

Alfredo S. Panlilio (President and CEO)

Thank you.

Melissa Vergel de Dios (First VP, Chief Sustainability Officer and Head of Investor Relations)

Luis.

Speaker 10

Hi. Yes. My follow-up was also actually regarding the CapEx. You mentioned in the press release that you're evaluating it for the full year and it could exceed PHP 85 billion. What's the timetable for the review to be concluded? If you look at the 9-month run rate, if you can annualize it will be closer to PHP 89 billion. Would that be a ballpark?

Alfredo S. Panlilio (President and CEO)

We're reviewing it right now, Luis Ubias. I would think that, you know, yes, the guidance would be that it will exceed PHP 85 billion. We're hoping that we can finish the review within 3 to 4 weeks. We will issue certain disclosures we are able to identify the level of CapEx.

Speaker 10

Thanks a lot for that.

Alfredo S. Panlilio (President and CEO)

Thank you.

Melissa Vergel de Dios (First VP, Chief Sustainability Officer and Head of Investor Relations)

We're taking a question in the chat box. This is from Joshua G. Tab. Congrats on your wonderful news, ma'am. Just wanted to ask the following questions. Please share your CapEx guidance for full year 2023 and the breakdown of the major infrastructure investments you've been planning. In relation to this, the scale of the plan to fund your CapEx next year, will there be a need for additional loans, or will projected internally generated funds be enough to fund this?

Alfredo S. Panlilio (President and CEO)

I think for 2023, we're in the middle of the budget cycle also. Still a little early to determine the CapEx needed and how we would fund that. Maybe again, we're supposed to present the budget for next year to the board on December. We'll have a better picture about it then.

Melissa Vergel de Dios (First VP, Chief Sustainability Officer and Head of Investor Relations)

Also from Joshua: Given that 40% of your loans are floating, what is the additional impact to P&L for full year 2023? Is there a plan to refinance this?

Anabelle L. Chua (CFO and Chief Risk Officer)

Yeah.

I guess we would have to manage our interest rate exposure on an overall portfolio basis. As you may imagine, as you reprice the loans, the rates will get higher, right? At the moment, we're still able to, on an overall basis, keep our cost of debt quite good at 4.01%, right? You know, new loans are definitely not gonna be at that rate, right? As Al had said, we are still in the middle of doing our budgets for next year.

There will have to be a bit of a determination of, you know, how many borrowers do we have, what type of, you know, sort of balance do we strike between tenors versus rates and all. I think a little still early to talk about that.

Impact this week on 2023.

Please share your dividend guidance, and will PayMaya need additional investments in 2023? If yes, could you share guidance on Maya?

On Maya, I guess, there was a Series C round that they took this year. We participated with that, so that's part of our support to Maya. I think potentially there could be another funding round. Not clear yet exactly when and what they want to. I think there is still early days in terms of how Maya is looking at it, because there is eventually gonna be still some funding support required for the bank, some funding support for this ramp up that they are doing. Too early to also pin down the exact you know configuration for that.

Alfredo S. Panlilio (President and CEO)

I think having said that, we have very good support from our shareholders and we are

Melissa Vergel de Dios (First VP, Chief Sustainability Officer and Head of Investor Relations)

The question's emailed from Steven of China Bank. How are consumer top ups faring in the third quarter versus second quarter? Do you have early indications of how these are performing in early fourth quarter?

Alfredo S. Panlilio (President and CEO)

Top ups in the third quarter are softer versus quarter two. I think for the same reasons I mentioned earlier, softer business. Now in early indications, I think net of the typhoons that we had in October, we did see some slight increase in the top ups, really in the first week of November quarter. We're more optimistic as Christmas season comes. I think this week okay we're seeing some increase in top ups.

Melissa Vergel de Dios (First VP, Chief Sustainability Officer and Head of Investor Relations)

Follow-up from Steven. How are your consumers behaving in the light of macro uncertainties? Do you expect these behaviors to persist through 2023? What is your outlook for 2023, and what are the growth drivers?

Boy Martirez (COO)

I could share the behavior, I think as a result of the rising inflation, cost of consumer goods, that consumers are economizing. They're also prioritizing what to spend for their monthly recovery. A lot of the essentials have more prioritized. People still prioritize essentials and less prioritize. I think telco or connectivity has become one of the essentials, but we do see that they have also regulated their use of the loads for their top ups, because the most use cases are actually for playing games and also watching video, going through social media. These are some of them are not as essential, but for base connectivity, these are essentials that they prioritize. We expect the challenges to continue next year.

I think the economic, macroeconomic factors, inflation will still, as forecasted, continue next year. What will be key for us is really to go for initiatives that will try to be aspiring. At the same time continuously providing our customers the best network experience in order for us to try to get through these challenging macroeconomic times.

Alfredo S. Panlilio (President and CEO)

I think the question on 2023, I think I started the presentation by trying to be a bit conservative. I think that with the, you know, geopolitical issues that are happening globally now, I think we may still see that there will be some challenges still that will continue next year. That's what we're preparing for. I think as the company continuing to really make sure that we remain to offer relevant products to our customers, remain to give a great customer experience and really try to manage also our own operational efficiencies. As we said earlier, try to drive costs as some of the as an ongoing major concern for us. As we, you know, we expect to continue to face the headwinds.

I guess the challenge management is how we continue to grow and continue to thrive amidst these difficult times.

Melissa Vergel de Dios (First VP, Chief Sustainability Officer and Head of Investor Relations)

The next set of questions. What are your comments on the Starlink tie-up with Globe and DITO of Mr. Dennis Uy?

Alfredo S. Panlilio (President and CEO)

I think we will take this item.

Boy Martirez (COO)

All right. Oh, sorry. Yeah.

Alfredo S. Panlilio (President and CEO)

Please go ahead. Go ahead.

Boy Martirez (COO)

Hi. Good afternoon. Yes. What's happening right now in the market is that Starlink, AST, and some of these satellite providers are collaborating with the telco providers. Similarly, we are working with these satellite providers such as AST, Telesat. We understand the technology of that low earth orbit satellites, and we would like to make sure that this would complement our terrestrial sites.

In areas particularly in some missionary locations and rural areas.

Melissa Vergel de Dios (First VP, Chief Sustainability Officer and Head of Investor Relations)

First question on Maya. What is the assessment, your competitive advantage compared to other digital banks and other

Shailesh Baidwan (President)

I think what we're doing now already, Maya, is the direction that we have taken, which was to create a full ecosystem such that to the customer, what he sees is a single app. A single app that can address all his financial needs. Now, at the back end, over on our side, it's to create a set of platforms that can work together to be able to provide an interlocking set of services that are seamlessly connected. The objective is, of course, the seamless customer experience. This has, I think, proven fruitful as of this time.

To address the question directly, what advantage we have is that the other digital banks do not have a wallet, a mobile wallet on to feed their banking business. They also don't have a merchant business that to us is a very important linkage with merchants who also bring in their own customers as Maya customers. It's a full ecosystem play, and fortunately, I think, we're the only ones with a set of assets that these assets that I described that can put them together, leverage them with each other to create the best customer experience. We're seeing that now.

You know, you don't have to go in and out of the app to do whatever you want to do in terms of fintech services. It's all in the app. We are our own bank. Our customers don't have to step out and go to a third party bank app just to complete whatever transaction he wants. In our case, everything is within the same app. Okay. Payments, credit, savings, insurance, investments, or crypto, whatever.

Melissa Vergel de Dios (First VP, Chief Sustainability Officer and Head of Investor Relations)

Asking questions we received in the email. What is your Forex exposure, and what is the status of the receivables from?

Anabelle L. Chua (CFO and Chief Risk Officer)

From a Forex standpoint, we do still have quite significant dollar-linked revenues that offset our dollar-linked expenses. We're net positive on the FX desk at this point. However, of course, there are CapEx, for example, we indicated that 45% of CapEx would be dollar-linked. I think what also is more than anything that's hard to is really the speed and extent of the movement, right? Managed movements are always easier to deal with. I think the high volatility and the short operations are the ones that we have to watch out for.

Shailesh Baidwan (President)

On the Bills to Pay bills, I think tomorrow. Their deadline is tomorrow for if it's still not paid, then I think we will explore all our legal options. Right, Marilyn? I think Marilyn has been there.

Marilyn A. Victorio-Aquino (SVP, Corporate Secretary and Head of Supply Chain and Privacy)

Yes. They promised to give us a proposal today, but we have not received the proposal. If we do not receive any proposal by tomorrow, they will be in default, and we will be entitled to exercise all our options under the contract and under the-

Shailesh Baidwan (President)

Can I add something to the Maya question? I missed, I think, an important point. Doing the ecosystem play also puts us in a position to have a very rich data source. Data from the bank, data from the wallet, data from our agent network. This enables us to understand our customers better and to address them better in terms of their requirements. Of course, it also gives us the agility to move faster. Rather than depending on partners, everything is in the Maya Bank, and we don't have to rely on others to create a rich customer experience.

We can be very quick in developing and offering features and functionalities, which would otherwise take us a lot more time to put together with partners.

Melissa Vergel de Dios (First VP, Chief Sustainability Officer and Head of Investor Relations)

Looks like there are no further questions. At this point, we now turn the floor back to Mr. Panlilio for his closing.

Alfredo S. Panlilio (President and CEO)

Again, thank you very much for joining us this afternoon. We're getting ready to close the year and also preparing for next year. I guess, looking forward, hopefully a merrier Christmas, better year next. A much merry Christmas to all, and thank you again.

Melissa Vergel de Dios (First VP, Chief Sustainability Officer and Head of Investor Relations)

That concludes today's meeting. As always, should you have any further questions or clarifications, please reach out to PLDT Investor Relations at [email protected]. Thank you for your participation. Stay safe.

Shailesh Baidwan (President)

Thank you.