PLDT - Q4 2022
March 23, 2023
Transcript
Melissa Vergel de Dios (Head of Investor Relations)
Okay, it's 3:30 P.M. Maybe we can start. 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 two years, so we welcome those who've joined us today at the venue and the 58 people who joined online. A copy of today's presentation is posted on our website, and for those who've 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 screen later and in the confirmation notices emailed 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 CorpSec and Chief Legal Counsel, as well as other members of the PLDT management team at the back. At this point, let me turn the floor over to Mr. Panlilio to begin the presentation.
Al Panlilio (President and CEO)
Thank you, Melissa, again, welcome to this analyst briefing, nice to see all of you face to face. I guess the sequence of the presentation will be, I 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, Shailesh will come in for my updates before we pass it on to MVP for the guidance for 2023. 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, actually, most of the companies, Manny, had the same experience.
We started the year, as you recall, with recovery from Typhoon Odette, which really affected our operations in the first quarter. Plus I guess the war in Ukraine also affected a lot of the, you know, as you know, all costs also went up during that time and the issues that we shared with you towards the latter part of last year. Despite that, I think 2022 was a great year for us in terms of performance, marked the start of our multi-year transformation. 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 focused on, elevating customer experience, improving our standing as the Philippine premier workplace, establishing industry-leading operational excellence, growing core profits in core business. We're also looking at new businesses and capabilities that will also be attractive for us moving forward and making PLDT Group the region's leading ESG telco. Just to summarize the performance last year, I'm sure you've seen the disclosures already this morning. Let me just summarize. Telco core grew by 10% to PHP 33.1 billion.
Our net service revenues was at an all-time high at PHP 190.1 billion, with both home and enterprise delivering all-time high 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. Next page. Again, I just wanted to delve down in some of the initiatives that we've been doing.
Customer experience has always been our North Star. We have invested heavily obviously on the network and really trying to deliver the best network experience both in fixed and mobile. 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. 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 supporting the President's initiative on really digitizing the Philippines.
Part of nation-building on our part, PLDT has been involved in nation-building for the longest time, really supporting the agenda of the government in terms of digitalization. One, we've announced this early part of last year, really a build-out of the 11th data center in Santa Rosa, which is expected to be completed end of 2023, we would expect hyperscalers and customers to start, enterprise customers to start, using the data center first quarter of next year. If you recall, we have 10 right now, we're expanding Makati and Parañaque to its full capacity. In fact, we'll be running out of rack sometime, third quarter, we're also trying to expand even Clark a little more.
All those combined, the 10 existing data centers combined, is smaller than the Santa Rosa data center that we're building in, that again should be completed by end 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 and making sure that we're able to, you know, we're quite in a very lucky position that there is an issue, a geopolitical issue in Hong Kong. That's why everybody's going out of Hong Kong. There's a moratorium of 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 government's common tower policy, we have signed four contracts on sale and leaseback. Last two were with Unity of the Aboitiz Group, partnered with Partners Group and Frontier, which is owned by KKR. If you add those two contracts, plus the two contracts we completed last year, we have 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 cost to serve and really help the country narrow the digital divide.
Obviously, with the towers and data center, it will be useless if we don't also invest in international cable systems which we continue to do so. In fact, we've invested in three new cable systems, Jupiter, which went on live June of last year, Asia Direct and Apricot cable systems, which will really meet the rising data capacity demands of our customers and the expected entry of hyperscalers into the country. Next page, please. Transformation doesn't only mean processes and platforms. Obviously, the most important one is about our people. We are transforming also our culture. We're aiming to bring lasting change to the organization, building the foundation for PLDT so that we can empower our organization to even perform better.
We have re-articulated our purpose, vision, mission and values, and more importantly, signature behaviors that we want to espouse across the company. We've launched our cultural aspirations that will enable us to deliver our transformation goals that will help serve us for long term. Next page. Proud to say that we are forging ahead towards becoming region's leading ESG telco. In all metrics, we have improved our measurements, our performance, and at least locally, I think we lead the other telcos in the country, but our aspiration is really benchmarking ourselves against leading ESG leaders. In this case, if you look at the chart on the right, both AIS and True are high operators and we, you know, we'd like to bring about our 59...
our rating of 59 to even, high 80s, if not close to 90, maybe in the next couple of years. We'll continue to do that, and really progress in ESG. For moving forward, for 2023 and beyond, we, as you know, transformation is a journey, so we will continue strengthening the pillars that I mentioned earlier, customer centricity, making sure that we're able to consistently serve, the right quality of service to our customers and continue to improve that. We will continue to take a look at, how we can operate more efficiently, excellence in operations, more stringent controls, especially with the learnings that we had last year in governance.
For best place to work, streamlining efficiencies across the org, putting the right automation, changing the way of working, more collaboration, more openness, and really working together as a company. We also will continue to push growing our core business. Our core business remains to be very strong. The three business remains to be strong, EBITDA numbers continue to remain strong and we hope to see that also in the succeeding years. Looking into new areas of growth for PLDT and Smart. What is the future state of PLDT? That's something that we're starting to define now.
As I said, still continuing to focus on ESG, doing this responsibly, as our efforts, and we do have initiatives to bring down emissions by 40% by year 2030. Lastly, I think before I pass to Danny, we will stay the course, continue the transformation, providing the best for our customers. Each pillar will focus on strengthening their own capabilities, offerings, and service from home, wireless, individual wireless, and enterprise. For home, obviously looking at other products and services that they can offer even beyond connectivity, to our home customers, affordable connectivity packages that cut across the socioeconomic class of our customer base and to continue to deliver good quality of service.
For wireless, obviously, looking at how we can have rewarding and dynamic digital experiences. You know, you do everything on your phone, extending it beyond just the mobile experience. We are working with home hospitals. We have mWell, for example, from MPIC, really pushing digital transactions into your phone. The promise is to bring, deliver epic experiences for all our mobile customers. Lastly, for Enterprise, a lot of our customers, if not most of them, if not all of them, are looking into digital transformation. We wanna be the trusted partner for growth, a partner of choice. Be continually addressing their needs, I think most of them, and the aspiration also for Enterprise together with PLDT is to participate in a big way in the cloud space.
Building the capabilities in cloud to be able to serve all requirements in the country, if not regionally, maybe in the future. Really refocus PLDT in two pillars, data center and cloud and cybersecurity. At this point, I'd like to transfer the mic to Danny for a more detailed presentation.
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. Next, please. 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. Next, please. On a quarterly basis, you'll see that all segments showing positive quarterly trends amidst a challenging backdrop. Let us now discuss the segments in greater detail. The outperformance of our home business can be attributed to. Next, please. PLDT's superior network quality and extensive cable footprint, strong brand equity, improved installation capabilities, as well as having a fixed and wireless portfolio, which allows us to offer varied technologies and price points to address market affordability considerations. Fiber home revenues accounted for 84% of the total home revenues, up from 70% in 2021.
Home ARPU grew to 7% year-on-year, while net adds for the year totaled to 514,000, accounting for 60% of the total net adds for the industry. Next, please. Growth in the enterprise business was driven by revenues from data and ICT solutions, as well as resurgence in the business activity with the easing of COVID lockdowns. In the data center space, PLDT is well poised to harness the potential from hyperscaler, rather from hyperscalers, with the completion of our 11th data center at the end of the fourth quarter this year. PLDT's unparalleled network infrastructure supports the enterprise customers' requirements for capacity, resiliency, and reliability. Next, please. While the individual wireless business declined by 5% year-on-year to PHP 82 billion, there are positive underlying trends demonstrated in 2022.
Smart Prepaid drove the prepaid segment's growth momentum, while Smart Bro Pocket WiFi revenues more than doubled with new offers, capitalizing on increased mobility as more people returned to work and traveled. TNT Prepaid, being a value brand that caters to the mass market, was more impacted by rising inflation and tightening wallets during the second half of the year. Smart Postpaid ended 2022 with 6% full year growth. Data usage per sub rose by 26% year-on-year to 9.2 GB, while data traffic rose 32% to 4,393 PB from 2021. In terms of service, 80% of revenues are from data and broadband, which rose 9% to PHP 152.5 billion in 2022. Mobile data grew 2% year-on-year, while home broadband rose 19% to PHP 51 billion.
Corporate data increased by 12% to PHP 24.2 billion. ICT grew 5.4% or 12%. Although nascent, it's worth noting that our data center revenues were higher by 15% year on year. Consolidated EBITDA crossed the PHP 100 billion mark in 2022 as EBITDA grew 4% to PHP 100.5 billion on the back of higher service revenues of PHP 8.1 billion, which fully absorbed higher cash OpEx, provisions, and subsidies. Telco core net income for 2022 of PHP 33.1 billion beat guidance for the year of PHP 33 billion, mainly due to higher EBITDA and lower depreciation, which fully offset higher financing costs and higher income tax for the year. On reported basis, PLDT income stood at PHP 10.5 billion from PHP 26.4 billion in 2021, mainly due to the combined effect of the following. Next, please. Next page, please.
You have gain on sale of, from tower sales of about PHP 24.6 billion. You have income from prescription of preferred redemption liability of PHP 7.8 billion. These two were fully offset by the accelerated depreciation of about PHP 51.2 billion, as well as incremental MRP costs of PHP 5 billion. Next, please. As a result of our aggressive network upgrade, PLDT book accelerated depreciation of about PHP 51.2 billion in 2022, which includes shortening of the estimated useful lives of the following assets: PLDT and Smart transport assets affected by modernization program, migration of VDSL network to fiber, initiative to sunset 3G technology, replacement of existing aerial cables with underground, and the write-down of legacy network equipment at the Makati headquarters.
Today, the board of directors declared a payment of the final regular dividend of PHP 45 per share, and on top of that, final special dividend of PHP 14 per share, for a total of PHP 59 per share. In addition to the interim regular dividend of PHP 47 per share and interim special dividend of PHP 28 paid in September 2022, total dividends for 2022 amount to PHP 134. This represents a payout of 88% and a yield of about 10% computed on yesterday's closing price of PHP 1,381. PLDT's balance sheet continues to be strong with net debt to EBITDA at 2.25, an improvement from last year's 2.38. Gross debt amounted to PHP 251.9 billion, of which 17% are dollar-denominated and 5% unhedged.
Interest costs for 2022 is 4%, while the average life of debt is about 6.73 years. Next, please. Total CapEx for 2022 amounted to PHP 96.8 billion, consisting of IT and network of PHP 76.9 billion and business CapEx of around PHP 12.2 billion. Included in the CapEx spend are investment to support the home broadband business, capacity to support the rise in network traffic, the build-out of our 11 data center and three international cable systems. Next, please. This page just shows the usual network highlights. On the fixed network, we passed 17.2 million homes and cover 17,700 barangays, representing 42% of all barangays in the country. For 2022, we built 1.5 million fiber ports, bringing the total to 6.1 million.
Utilization of these ports remain high at 50%-60% level. We intend to further improve the utilization. PLDT's total fiber footprint remains unmatched with a total of over 1.1 million kilometers. Insofar as our wireless network is concerned, our population coverage stands at 97% with a total of 76,500 base stations. We have about 38,800 LTE base stations and about 82% of the total handsets on the network are LTE based. Next page. A few of our 5G statistics are found on this page. You'll note that the number of unique 5G devices and 5G data traffic continue to rise. Our 5G speeds remain faster than competition based on Ookla speed test. I now turn you over to SB for the Maya presentation.
Shailesh Baidwan (President)
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 are 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. 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 as we had our erstwhile wallet, 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. We saw the benefits of that, if you go to the next slide, please.
In terms of the take-up, we saw 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, and we had also disbursed over PHP 3 billion of loan to customers to help them with their financial needs. We continue to see this momentum, if you go to the next slide, please. Through the course of 2023, we are expanding the number of services and products. On the consumer side of the house, we continue to add new saving methods, allowing people to create personal goals to help them to enable and inculcate a savings behavior. At the same time, launching newer and more products on the lending side or the borrowing side to help them tide over any financial needs.
What we have seen is, as we provide a unified customer interface, the customers are transacting with us two to three times of what they would normally do if it was a wallet only. We are seeing deep engagement from the customers because this is now their primary account. On the other side of the house, we continue to expand our footprint on the SME and the MSME part. These are segments which are hugely underserved, and by helping them to dig-digitize their payments, we're providing them access to all kinds of payment acceptance from QR, wallets, bank wallets or bank applications. We are now expanding to provide them facilities to be able to deposit their cash and also to be able to provide them with short-term working capital.
Through the course of 2023, we'll be expanding with focus on both these segments with the addition of a number of new products and services that we'll keep rolling out through the course of the year. With that, I will hand it back to Al.
Al Panlilio (President and CEO)
Yeah. Thank you, SB. Before I pass it on to our chairman for the guidance, just wanted to really just share with you transactions that we announced in the first quarter of this year. The sale and leaseback of 1,012 towers for Frontier Tower Associates Philippines Inc. Expected gross sales proceeds amounting to PHP 12.1 billion. The values mirror the values for the tower mirror covered by the sale and leaseback transaction announced in April and December 2022. These are the three transactions that we closed before with edotco, EdgePoint and Unity of Aboitiz. The leaseback terms, including tenant and lease rates are similar to those transactions also.
Despite the different financial conditions with high interest rates, we're able to maintain the same values per tower and the same terms and conditions from the previous transaction. This brings total towers monetized to over 7,500 of our towers for a total consideration of PHP 98 billion. The other transaction that we just announced recently is a purchase of Sky Cable Corporation broadband business. This was valued at PHP 6.75 billion for 100% of total issued and outstanding stock. Obviously, this will not be completed. It is subject to closing conditions including obtaining government and regulatory approvals that we should expect in the next few months. We will continue to disclose and announce as those approvals hopefully come to bear.
I'd like to move to MVP for the 2023 outlook and guidance.
Manny Pangilinan (Chairman)
Thank you. Thank you, Al. 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, plus inflation and continuing competition. EBITDA, mid-single digit growth for 2023, partly because of some growth in top line and aggressive cost containment in the course of 2023. CapEx will be lower from the peak CapEx you've seen in 2022.
We're guiding at between PHP 80 billion-PHP 85 billion.
That number of 80-85 includes principally the fresh CapEx of PHP 63 billion. There's about PHP 20 billion or PHP 22 billion of carryover CapEx from the previous year. Free cash flows, principally dividends. I believe we should be able to maintain regular dividends of 60% of our core income for the year 2023. Telco core tentatively being put at an improvement over the telco core of PHP 33.1 billion for 2022. I think we need time to be able to recast our numbers, particularly the telco core income for 2023, since the universal settlement agreements were just signed a few days ago. The last one being yesterday or two days ago.
We need to really look at our numbers again to see how we could perform better in 2023 and 2024 and 2025. That finishes our guidance portion.
Melissa Vergel de Dios (Head of Investor Relations)
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 email to [email protected]. Please indicate your name and company name so we can get back to you for any additional information you may need. Allow me now to take questions from the floor. There are microphones. Raise your hand so we can bring the mic to you. First question. Anyone? If there are none, we'll get a warm-up from Ranjan. Ranjan, you may unmute your mic. Ranjan? Okay.
Ranjan Sharma (Executive Director)
Hello.
Melissa Vergel de Dios (Head of Investor Relations)
There you go. Ranjan.
Ranjan Sharma (Executive Director)
Hi. You can hear me now?
Melissa Vergel de Dios (Head of Investor Relations)
Yes, we can hear you.
Ranjan Sharma (Executive Director)
Okay. Thank you. Thank you, management team, for the presentation and the opportunity. I have a couple of questions. First is on the accelerated depreciation, if you can go back to the number. I believe it's PHP 51 billion. It's a huge number. Considering the issue that we had last year of CapEx overruns over four years, and now even the CapEx that's been spent and deployed, it seems to have a much shorter life of assets. Is that something that the management is looking at as well, like $1 billion of accelerated depreciation in a single year? I mean, it sounds quite a large number. What is the source of that?
How is the company looking at ensuring that the CapEx that they're deploying has, is it generates the returns on capital rather than the asset being impaired? That's the first question. The second is on the Maya business. If you can talk a bit more about the profitability of the business or how the bottom-line trends of that business. Thank you.
Danny Yu (Group Controller)
It's basically technological and demand changes, Ranjan. To answer your first question, that's the only underlying reason. There's no other.
Ranjan Sharma (Executive Director)
Okay. It seems like a big number, right? Like $1 billion of impairment.
Danny Yu (Group Controller)
Yeah, 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 VDSL to fiber. That's PHP 9.7 billion. We also initiated this 3G technology, mainly because there are only about 4% of the total devices that's latched on our network. 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 PLDT headquarters in Makati. That's around PHP 1.8 billion. We don't expect a similar level for 2023, of course.
Ranjan Sharma (Executive Director)
These are all existing assets?
Danny Yu (Group Controller)
Yeah, these are all existing assets.
Ranjan Sharma (Executive Director)
Okay.
Melissa Vergel de Dios (Head of Investor Relations)
Is that okay, Ranjan? We'll do the second-
Ranjan Sharma (Executive Director)
Yeah.
Melissa Vergel de Dios (Head of Investor Relations)
question on Maya.
Ranjan Sharma (Executive Director)
Yeah. Thank you.
Melissa Vergel de Dios (Head of Investor Relations)
SB?
Shailesh Baidwan (President)
Thank you for the question, Ranjan. 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. We've got Maya Bank, which we are working towards profitability in the third quarter of 2024. In about two years from launch, we expect and hope to make the bank profitable. Because of these two businesses, the overall company should be profitable by the fourth quarter of 2024.
Melissa Vergel de Dios (Head of Investor Relations)
That okay, Ranjan?
Ranjan Sharma (Executive Director)
Yeah. Thank you.
Melissa Vergel de Dios (Head of Investor Relations)
Thank you. Second question online from Katie of Sun Life. Katie, you can unmute your mic. Katie? Okay. While we're waiting for Katie, we'll read the question that was sent through email. This is from Marvin Obordo of F. Yap Securities. Could you provide color on the accelerated depreciation? I guess Danny answered that. Does this already include the assets related to the PHP 45 billion budget overrun? Could you provide some breakdown on how much is related on it or related to it?
Manny Pangilinan (Chairman)
They're not interrelated at all. What was accelerated or provided for are assets already on the books. The PHP 45 billion and now PHP 33 billion, we've disclosed that, right? The extent of what we disclosed last year in December was an estimate of about PHP 48 billion of outstanding POs, right? Because of the negotiations with the vendors and the universal Settlement agreements reached with the major vendors, about four of them, that has been brought down to PHP 33 billion. That's a new one. Those are represent POs whose products need to be delivered or put into service as well as services to be rendered in the next year or two, right? This accelerated depreciation really refers to existing assets.
As Danny indicated, the transport network, the 3G network, because it's only about 4% of total devices we have in respect to our subscribers on 3G, right? VDSL has been overtaken by the technology of fiber. You know, it was just a few years ago that we put up the VDSL service to replace the copper infrastructure, but now we're finding out that it's really better to have fiber rather than VDSL. These are the package of assets that we deem to on the base of prudence, to write down, to simply write off them.
In a way, part of it is a cleaning up process of the balance sheet, both the settlement with the major vendors and now these assets that may be either obsolescent or on the threat of obsolescence, right? In some respects it is quite punitive, but, better to clean with house, clean up house at this stage while we have the exceptional gains as well, you know.
Melissa Vergel de Dios (Head of Investor Relations)
Okay. A follow-up question from Marvin and also a question from Manuel Castro of Regina Capital. Basically, the dividend outlook, I think MVP already answered that earlier. The follow-up question is, will there be another special dividend later out of the proceeds of the additional towers that will be sold?
Manny Pangilinan (Chairman)
Well, I, you know, that's a difficult question to answer as we speak, you know. How do I answer this? Well, last night, I spoke to... Well, you know Christian, right? From First Pacific. We were looking at the overall financial health of PLDT and I said that, "Look, come 2024 I think we have the ability to be free cash flowing after dividends, the regular dividends, and certainly in 2025 enough free cash flows to enable PLDT to start reducing our debts, and certainly in 2026." Where's Leo? Okay. Is that correct? I told him that, you know, we have sold 1,000 towers approximately of the 1,600 of the second package of the towers.
We have about 600 towers to close for the balance of the year. In respect of package one of the towers we've sold, the balance to be sold is about 800 towers. We still have 1,400 towers to go. Once all of these towers, assuming all these towers are sold and completed for sale, the total proceeds will be about PHP 98 billion of cash flowing to PLDT. Now, I think in the media briefing, I think Al was asked whether we intend or there are plans or there are discussions ongoing with respect to a sell down of our data center, and the answer is none. No, nothing's, nothing on the table, nothing serious.
If we do, I think it will give rise most likely to some gain, depending of course on the valuation and the extent of the sell down, 10%, 20%, 40%, right? That could produce a gain. I think we just have to wait for events to come to fruition in the course of 2022, 2023 and I guess if the towers are indeed completed within the year and Al in his wisdom decides to sell, say, 40%, 30% of data centers, we may produce actual excess cash to the requirements. I guess the answer would be, let's look back. If we're able to do all of these things, the significant gains from asset sales, then, are we open-minded about a special dividend? Yeah, why not, right?
At the moment, since the share price has slid today, we're probably back to 10% yield, no, based on the regular special dividend we declared out of the 2022 income.
Melissa Vergel de Dios (Head of Investor Relations)
Okay. To wrap up...
Manny Pangilinan (Chairman)
Is that clear enough? Anyway.
Melissa Vergel de Dios (Head of Investor Relations)
Okay. To wrap up the questions from Marvin, his last question is: Is there any update on the pending suit filed in the U.S.?
Marilyn Aquino (Corporate Secretary and Chief Legal Counsel)
Well, so far there has been no developments in that case. We have not been served any summons or any pleadings on in respect of that suit. We will await further development. At the moment, no development.
Melissa Vergel de Dios (Head of Investor Relations)
Okay. Next question we'll take from online. Luis Hilado, you can unmute your mic.
Luis Hilado (VP)
Hi, good afternoon, thank you for hosting the call. Just two questions from me. In terms of the outlook for, you know, depreciation and amortization this year, given you've taken that hefty accelerated depreciation, does that mean that it should be relatively flattish outlook this year, even with your CapEx? Second question is regarding the, you know, the broad guidance that telco core income will be higher this year. Just wondering on the Voyager side, will this be a year of, you know, still, you know, more investments, so we should expect higher costs for Voyager this year versus last year?
Danny Yu (Group Controller)
On the depreciation, if you look at our CapEx last year, or rather total PPE, it was around PHP 302 billion. This year it's just gonna be, you know, PHP 292 billion. I mean, the end of 2022. To answer your question, it's hopefully it's gonna be slightly lower.
Luis Hilado (VP)
Thanks.
Shailesh Baidwan (President)
On the Voyager side of the house, 2022 was a year of high investment because we launched a digital bank and transformed the business. In 2023, as I said, we see the enterprise business becoming a bit positive. Our requirements in terms of our EBITDA losses will definitely be much lower than 2022.
Melissa Vergel de Dios (Head of Investor Relations)
Okay. One last question online before we give a chance to people. Louie, you had a follow-up?
Luis Hilado (VP)
I don't. Yeah. Thanks a lot.
Melissa Vergel de Dios (Head of Investor Relations)
All right. The last hand raised is from Heather Lim. Heather, you can unmute your mic.
Heather Lim (Equity Research Analyst)
Hello. Yes. Can you hear me?
Melissa Vergel de Dios (Head of Investor Relations)
Yes, we can.
Heather Lim (Equity Research Analyst)
Okay, great. Thanks. Thanks for the presentation, management. Heather from Sumitomo Mitsui Asset Management here. Just have one question. On the PHP 33 billion CapEx budget overrun, some of it already recognized in FY 2022 CapEx, and then some of it is in the 2023 CapEx. Other than that, what is happening is that the products for the PHP 33 billion will be delivered this year, next year, in the next one or two years, as you mentioned? Just to confirm, there was no debt taken to pay any of the vendors.
Danny Yu (Group Controller)
Most of these CapEx items will only be delivered, over the next two or three years.
Heather Lim (Equity Research Analyst)
Okay. Okay. That PHP 33 billion is just purely in the PHP 80 billion-PHP 85 billion guide, or it'll be in FY 2024 also?
Danny Yu (Group Controller)
I didn't get it. Sorry.
Heather Lim (Equity Research Analyst)
So-
Melissa Vergel de Dios (Head of Investor Relations)
Will it only be in the 2023 guidance, or will it spill over into 2025?
Danny Yu (Group Controller)
It's gonna be spread out over the next two or three years.
Heather Lim (Equity Research Analyst)
Okay. Understand. Right. No debt was taken needed to pay vendors this year, right?
Danny Yu (Group Controller)
None yet so far.
Heather Lim (Equity Research Analyst)
Okay. Okay. Understand. Okay. Thank you.
Melissa Vergel de Dios (Head of Investor Relations)
Anything else, Heather?
Heather Lim (Equity Research Analyst)
No, that's all. Thank you.
Melissa Vergel de Dios (Head of Investor Relations)
Thank you. We'll take questions from the floor. Anyone, raise your hand so we can pass the mic on to you. Rachelle. Just press the button.
Rachelle Rodriguez (Head of Equity Research)
Hello? I'm sorry. Okay. Hi, good afternoon. Sir, just a question on the ₱33 billion. It mentioned that it's on the larger suppliers, is there a possibility of it rising, or if you don't get the same terms with the smaller suppliers, or is that the maximum? The ₱33 billion.
Danny Yu (Group Controller)
That's it. Yeah. I think that's.
Rachelle Rodriguez (Head of Equity Research)
you have negotiated, that's the maximum.
Danny Yu (Group Controller)
That's the agreed amount with them. It's unlikely to rise beyond that level.
Rachelle Rodriguez (Head of Equity Research)
All right. Just another question. Could you give us an update regarding the management reorganization that you announced before?
Manny Pangilinan (Chairman)
Which company? We would be here all night thinking about Rachelle, right?
Rachelle Rodriguez (Head of Equity Research)
Okay.
Manny Pangilinan (Chairman)
No, I mean, kidding aside. You mean in PLDT?
Rachelle Rodriguez (Head of Equity Research)
Yes, yes.
Manny Pangilinan (Chairman)
I leave it to our CEO here. Yeah.
Al Panlilio (President and CEO)
Yeah. No, we've started also doing a refresh on key positions. I think reorganization is an ongoing thing as the business also runs. There are changes. Even without this issue, there are changes that are happening across the board in the transformation office of Noel. Also in network, there are changes happening there. Also in the wireless group, something is happening also there. It's a continuous review of what is the right organization structure. Never gonna be perfect, as the business demands change, we have to continue to adapt, no? Specifically to this one, I think, we're able to you know, refresh certain positions, certain leaders in certain groups in the company.
Rachelle Rodriguez (Head of Equity Research)
All right. Thank you. I just want to ask, did you implement new systems or in relation to this so that the issue won't recur in the future?
Al Panlilio (President and CEO)
Yeah. That's been heavily discussed, also during the board, this morning. A lot of data is also coming from audit. A lot of data is coming from the final report of Milbank together with PwC. We have already started adapting and implementing a number of improvements in the end-to-end CapEx process. Just to name a few, we are implementing controls in enhancements in policies, procedures, budget planning, approvals, and monitoring, including investments in better tracking tools now. It's a bit of automation needs, you know, is also needed. Improvements on project management systems, data systems to make sure the company is equipped to efficiently monitor and optimize CapEx spending.
Even our procurement process has been quite deliberately slow as of the moment to make sure that we're able to look at all projects. Hopefully we normalize as we move forward. We need to simplify our processes, especially in purchase order processing. That has been a very complex process, and that's something we need to improve on. We obviously need to improve our vendor management processes also at the same time. At the end of the day also, this will be implemented by people, and I think we do have to enhance training for employees who were involved in the CapEx process, and that's something that we're also working on. It's a much longer list than this. This is just a summary of the major initiatives.
We have started, and we will continue to really improve. It's also being highlighted at the board level, where we are also, I guess, reporting in more detail in terms of the CapEx processes that we're doing and approvals that the board has approved. I hope that answers the question.
Rachelle Rodriguez (Head of Equity Research)
Yes. Thank you.
Al Panlilio (President and CEO)
Thank you.
Melissa Vergel de Dios (Head of Investor Relations)
Any other questions from the floor?
Derek Hung (Managing Director and Head of Transaction Management)
Hi. Good afternoon, everyone. A few questions on the operations side first. Noticed that though fixed broadband gross adds remained steady at the 50K range per quarter, churn gradually grew quarter-on-quarter. What's the reason for this? Any plans to offer lower priced plans for the fixed broadband side?
Al Panlilio (President and CEO)
I'll give it to Jeremiah, who heads home business, and explain both churn and products that you're looking to, Jeremiah.
Jeremiah de la Cruz (SVP and Head of Consumer Business)
Thanks, Al. The first question on churn actually gradually increasing. If you recall last year, we experienced quite a large calamity with Odette, right? It took us actually. We did share with you that it had taken us some time to restore full services back to all the Odette affected areas. That wasn't done until about the later part of April, May. By the time we started processing and actually billing our customers in those areas, you didn't start seeing that take effect with our churn until about the third quarter. We actually extended quite extensively financial services for our customers, extended their payment plans and really tried to give them as much opportunity to be able to stay with us.
Unfortunately, some of those customers were not able to recover, and actually have opted not to renew their services with us. You would've seen an uptick in our churn in quarter three and quarter four. The biggest chunk of that was actually attributed to the delayed impact of Odette that came through from earlier part in the year. We have seen, obviously with rising competition, there is going to be naturally more opportunities and more options for customers, right? We have seen a slight uptick with regards to churn, but that's something that we're continue to work with our customers closely, to make sure that we actually provide them with the best services possible so that we don't give them opportunities or reasons to leave us.
I think on the second part of your question really was around, other services that or other products that we'd be looking to make available to our customers. PLDT has always provided a range of products for our customers, right? If you look at our broadband services, our fiber services, they actually start from as low as PHP 999 and can range all the way up, when we have services like our 10 Gbps plan. We make all of these products available, and ultimately, we wanna serve all the different segments of the market, and we give them those options.
For other segments of the market where it may actually be a little bit more difficult to be able to get to, we are very fortunate that we are a fully integrated telco and that we also have a mobile network, which actually is one of the strongest mobile networks in the country. We're able to offer other segments of the market with a fixed wireless solution. Our fixed wireless solution, is available all the way down from sachet-based prepaid pricing on a per day or, seven-day or one-month basis and enables them to actually use it as much or as little as they want, depending on their individual circumstance. We're looking to actually use a full array, a full spectrum of plans for our fiber as well as our fixed wireless offerings to ensure that we serve all segments of the market.
Derek Hung (Managing Director and Head of Transaction Management)
All right. thanks for that. I have another question on the Sky Cable purchase. Seems to be cheap. How will this improve PLDT's existing subscriber base?
Jeremiah de la Cruz (SVP and Head of Consumer Business)
Would you like me to? You know, one of our commitments is to grow connectivity. You know, as we mentioned, I think actually earlier on today, both Manny and Al talked about one of the big drive from government to connect as many homes and as many people as we possibly can. This is one way that we can actually do that. Sky has an extensive network, and this will actually be augmented within a PLDT network. It allows us to expand our reach and also expand the number of customers that we can serve.
Manny Pangilinan (Chairman)
What is your name again?
Derek Hung (Managing Director and Head of Transaction Management)
My name is Derek from CLSA.
Al Panlilio (President and CEO)
Okay, Derek. In terms of numbers, Sky actually has two businesses, one much bigger than the other, no? Approximately PHP 5.5 billion of revenues are attributable to their fixed broadband, right? The EBITDA flowing from that business, PHP 5.5 billion, is about PHP 1.7 billion. Automatically we should raise the targets, right, of Jeremiah for the year. Well, not quite the year. We don't know when it will close because the transaction is subject to PCC, right? The potential impact, assuming we do that concurrent in debt is it should flow directly to his P&L. The smaller bit, which is quite surprising because the origin of Sky has been pay TV, so that has now shrunk in large part because the government shut down their DTH.
We migrated at about 1.2 million subs on DTH, and we migrated about two years ago, about, 1 million of that over to Cignal. They're left now with approximately about 150 million pay TV subs.
Jeremiah de la Cruz (SVP and Head of Consumer Business)
There's about 250,000 pay TV subscribers, of which about 150,000 of them are in Metro Manila.
Al Panlilio (President and CEO)
Metro Manila. We will migrate first the 150,000 over to Cignal. Which really doesn't show up in our accounts, no? Then we'd probably migrate a portion of the balance in the provinces over to Cignal, maybe not the entire 100,000. It will have a modest impact on the P&L and cash flow of Cignal because Cignal has about 4.2 million subs, so adding about 200,000 is about 5% or so of the subscribers. The advantage of the pay TV subs of Sky is that the ARPU is much higher than the ARPU of Cignal, about 2x as high, no? I think it will be moderately beneficial to Cignal moving forward.
Definitely if you add about 320,000 subs, that's about a little over 10% of the. You have about last year, 2.9 million, no?
Jeremiah de la Cruz (SVP and Head of Consumer Business)
2.9 million fiber customers.
Al Panlilio (President and CEO)
Fiber customers. It'll be more than 10%, maybe 12% addition.
Melissa Vergel de Dios (Head of Investor Relations)
Derek, anything else?
Derek Hung (Managing Director and Head of Transaction Management)
Thanks for that. I have one last question regarding Maya. Until when will the high interest rates last for deposits? Seems like the cost of funds will be impacting the profitability of the bank in the next year or so.
Shailesh Baidwan (President)
Yeah, Derek. At this stage, we are offering that we're finding that the customers to earn that high interest rate need to do a number of transactions and spend with us. Each of those use cases, of course, owns a margin for the company when you do those transactions. What we are seeing is that that engagement creates a very rich data set for us which then goes into a credit scoring model. The customers that we are attracting are customers who in certain months have excess cash, but in certain months, if they have to buy a laptop or have to buy a good or do something, also need access to cash, right?
By putting high engagement banking, as we call it's not just vanilla interest rate, but you really need to do and spend and transact with us to earn the higher interest rate. We actually learn about the customers and then are able to lend them as and when they need to do that. That's part A of the answer. The second part is, you know, the rates are adjustable. At this stage, for us to park the excess liquidity and with BSP we earn overnight fairly strong interest rates on the overnight placements or the short-term placements that we are doing. As the world changes, interest rate changes, we will of course, be looking at balancing our cost of fund and our spreads over there.
Really for us at this stage, the focus is to expand the credit aspect and lending more and more. How we design products to ensure we get more and more data on our customers, whether it is SMEs or whether it's consumers using their banking behavior in terms of transactions and then translating that into our lending models.
Derek Hung (Managing Director and Head of Transaction Management)
All right. Thank you. Thank you so much.
Melissa Vergel de Dios (Head of Investor Relations)
Any more questions on the floor? We have a few emailed, but Aaron.
Speaker 15
Hi, good afternoon. Can you give us an update on Starlink and what's the possible impact on your business? Thank you.
Al Panlilio (President and CEO)
Is Mitch here now? Mitch, maybe you can talk about...
Mitch Locsin (Head of Enterprise and International Business Groups)
We're also talking to Starlink in terms of some of the services that they want to acquire from PLDT. I see Starlink as complementary to our service. I think, there are areas where we, you know, we're not there and the satellite is obviously available. You also have to look at the commerciality of the service. I think first I think you have to buy the dish which as I, as far as I know, is about 30,000 PHP one time. The monthly service fees, I think that they charge is about $100, so that's about PHP 5,200. It's quite steep.
If you look at the ARPU that I think Danny showed for home, it's about PHP 13, and people turning on because they can't pay the monthly service.
It's complementary to our service, obviously, but I think it depends whether the market can bear the cost. Maybe Mitch can add to more of a relationship with Starlink.
Danny Yu (Group Controller)
Yes. Our international enterprise team handles the Starlink and SpaceX relationship. We were actually the one that powered them up in the Philippines. It started with Pagbilao here in Luzon. It's the only one live right now, and they're planning to expand in Visayas and Mindanao. We are also in discussions on a possible go-to-market partnership. As ASP or boss Al mentioned, again, it's a question of affordability from the retail side. From an enterprise side, whether you're a mining company or a resort on a specific island that's dependent on microwave, it's a good alternative for that. It complements, basically. From a service perspective, it's soon to be seen, or we'll see how when the consumer market actually adopts it. We'll see how the performance will be soon.
Melissa Vergel de Dios (Head of Investor Relations)
Any follow-ups?
Speaker 15
My next question would be on the individual segment. We noticed that it has shown the declines versus the previous year. Can you enlighten us on what will be your strategy for 2023 to lower the declines or possibly return to growth?
Al Panlilio (President and CEO)
Mm-hmm.
Francis Bautista (VP)
Thank you.
Al Panlilio (President and CEO)
I'll have Francis.
Francis Bautista (VP)
I'll take it. Hi.
Speaker 15
Francis.
Francis Bautista (VP)
Good afternoon. I'm Francis. I think to answer your final question on what we're doing for 2023, it's important for us to understand what drove the decline in 2022. I just have three key points. The first one, actually 43% of the decline or a total decline of PHP 4.13 billion actually came from because we sunsetted Sun. 43% of that or around PHP 1.8 billion we lost because of Sun Prepaid and Sun Postpaid. Unfortunately, the subscribers even migrate to Smart or TNT. That's why you will see actually our mobile data revenue grew up, but we have a significant decline on our SMS and voice because that's where most of the legacy offers of Sun are.
Second point, or if you look at the trends quarter-on-quarter, 42% of the decline actually happened in quarter one. That's around PHP 1.7 billion, and PHP 1.3 billion of that is actually Smart Prepaid. What we've done in quarter two, when we assess the business of Total Smart, it's fixing the fundamentals, strengthening the brand proposition, reinforcing our network superiority, and we came up with more relevant and competitive offers, like the Power All that we launched in the second half. From a PHP 1.3 billion decline, we were able to manage to bring it down to PHP 80 million in quarter four. We will continue to do that in quarter three.
The third point, in the second half when the inflation hit us hard, you know, we have another brand, TNT, and we saw that the inflation hit the subscribers of TNT being a mass brand much harder. There was, like, around a PHP 650 million decline coming from our TNT business. Having said that to answer your question, I think moving forward, what we have seen also in quarter one, of course, one key thing happening this year is SIM registration. It's very important for us in order for us not just to reverse the decline or remove the decline but to clearly grow, is to be ahead in SIM registration. I'm happy to say that as of today we're 5 million ahead of our competitor. We've also noticed that those who have SIM registered, there's a 5% increase in ARPU.
That's one key thing we're going to do. Second, we're going to continue to strengthen the fundamentals of our businesses for prepaid and postpaid. Going back to what Al said, at the end of the day, it's providing the best experience for network, providing the best offers, and exciting them with new products and innovation. We're gonna stick to those two strategies or three strategies really as for 2023.
Speaker 15
Thank you. That's all for me.
Melissa Vergel de Dios (Head of Investor Relations)
Okay. Any other questions from the floor? There's a question. Katie sent her questions. She wasn't able to ask them online. Basically she's asking about the status of the Makati operating permit and unpaid taxes.
Al Panlilio (President and CEO)
Well, that's been resolved that same week. We were able to have a settlement with the city of Makati. By that Friday, I think they've taken out the closure notice on the building. Actually, they didn't really. They just put the sign. They didn't really padlock or prevent our employees from entering and exiting. The same day, that's on Monday, same day we were in touch with the Office of the Mayor and there was a settlement already done the next couple of days after that. By Friday that week, the sign was taken out. That's been resolved.
Melissa Vergel de Dios (Head of Investor Relations)
Okay. Also from Katie on the CapEx question together with that of Herman de la Paz, any upside to the PHP 33 billion CapEx overrun? I think that's similar to the question that Rachelle asked. Is it my understanding that PHP 33 billion CapEx overrun will be for the next two years?
Al Panlilio (President and CEO)
Actually, depending on when the delivery of the hardware and the services come in. We expect maybe the next two, three years now for the delivery of the PHP 33 billion.
Melissa Vergel de Dios (Head of Investor Relations)
Finally from Herman: "How does management plan to utilize the PHP 12 billion tower sales proceeds?
Al Panlilio (President and CEO)
Pay for Sky. That's what the Chairman said, Danny?
Danny Yu (Group Controller)
Well, I mean, the balance would be for general working capital purposes.
Al Panlilio (President and CEO)
Yeah.
Manny Pangilinan (Chairman)
Right?
Al Panlilio (President and CEO)
Partly Sky.
Danny Yu (Group Controller)
Huh?
Al Panlilio (President and CEO)
Partly Sky.
Danny Yu (Group Controller)
Partly Sky.
Al Panlilio (President and CEO)
Yeah.
Danny Yu (Group Controller)
Yeah, yeah. That won't happen, I think. I don't know. Maybe the Philippine Competition Commission will need to approve the home broadband side of it might take them three months or so. We don't know.
Al Panlilio (President and CEO)
I think just one last comment on Sky Cable. Aside from the additional 300+ thousand, that we're looking at, I think we have 1,800 multi-dwelling unit or MDUs that are, you know, that gives us an opportunity to upgrade those services in those MDUs. Some of them are hotels, some of them are condominiums. I think, you know, eventually fiber becomes a better option in those, in those areas. So it's really improving customer offerings, customer experience as far as broadband is concerned. A lot of those are high-end also, no, Jeremiah?
Jeremiah de la Cruz (SVP and Head of Consumer Business)
Yes.
Melissa Vergel de Dios (Head of Investor Relations)
There's a hand raised. Hussaini, you can unmute your mic. Hussaini? If you're not able to speak, you can email your questions to us. Any last questions from the floor? Hussaini?
Hussaini Saifee (Director)
Yeah.
Melissa Vergel de Dios (Head of Investor Relations)
You're coming in choppy.
Hussaini Saifee (Director)
Yeah, we will try my best. Just two questions from me. One is on SIM registration. Just wanted to understand that is SIM registration having any competitive implications? I mean, in other markets where SIM registration took place, we have seen some competition creeping up. Just wanted to understand how it is progressing and is there any impact on competition? The second question, again, is competition more related to the current macroeconomic situation in the Philippines. Is it, is that having some consumer spending leading to some competition? Just want your thoughts.
Melissa Vergel de Dios (Head of Investor Relations)
Hussaini, the last question, if you could repeat. Did you ask whether inflation is having an impact on competition in the Philippines?
Hussaini Saifee (Director)
Yeah, we'll. Can you hear me?
Melissa Vergel de Dios (Head of Investor Relations)
We can hear you, yeah.
Hussaini Saifee (Director)
Yeah. The last question is related to inflation, higher inflation and relatively weaker macroeconomic situation. Is that having any impact on consumer spending, and which in turn is leading to competition in the sense more value for money kind of packages or more, say packages from in the market?
Francis Bautista (VP)
I can answer those two questions. On the first one, on SIM registration, definitely it will have an impact on how a brand or a business will be more competitive. Like I said a while ago, I think this is the window of opportunity for you to actually get primacy. There's a lot of dual SIMers in the Philippines, and normally when a subscriber would register his SIM, there's already a commitment to stick to it, and therefore lesser churn. Definitely I think the brand or the business that will do a better job in SIM registration will have a bigger competitive advantage this year. That's why we're investing a lot of resources and effort to make sure that we are ahead of our competition when it comes to SIM registration.
On your second question, definitely inflation, since it's, it hit us hard at the start of the second semester of last year. What we have seen is, I think not just for us, if you look at the numbers of our competitors, it definitely affected, number one, the lower income consumers even more than the middle to upper income. In our case, that those are mostly the TNT subscribers, and in our competition, that's TM. You will see that both brands are more affected in terms of business, because what happened is those consumers actually have lessened their use. They've lessened their frequency of using their mobile.
They've either they just wait to go home to use their, or to use someone else's Wi-Fi, or they've lessened watching YouTube or lessened looking at their social media. Because they're saving for the more essential expenses in the household. We see, we think that inflation will continue to be a challenge for us this year. As you know, inflation rates hasn't really gone down. We've learned a lot on how to counter that. We made sure all our offers are more competitive, and we put more value for money in all our promo offers for, especially for prepaid.
Melissa Vergel de Dios (Head of Investor Relations)
A follow-up on that from Ken Gotianse. Oh, sorry, Hussaini, did you have a follow-up?
Hussaini Saifee (Director)
That's it from me. Thank you very much. Very helpful.
Melissa Vergel de Dios (Head of Investor Relations)
Thanks, Hussaini. There's a question from Ken Gotianse: "Looking at mobile, it appears that you lost some revenue market share in the fourth quarter from being flat year-on-year in the nine months. Could you elaborate on the weakness being seen in the mobile segment relative to competition?
Francis Bautista (VP)
Okay. I think in quarter four, what we saw was again, because compared to our competition, we have a biggest contribution or business for the value brand like TNT compared to our competition. Again, during the second semester, even until, I mean, fourth quarter, what happened was the highest inflation rate happened in December. We were more affected by the inflation because our TNT business, which caters as low income consumer, has a bigger contribution to our total business. As compared to our competitor, it's actually the opposite. Their bigger brand is Globe, which has a better share amongst the in terms of spending-wise, amongst the middle to upper class. I think that's one. That's why they may manage to grow their ARPU even higher.
Melissa Vergel de Dios (Head of Investor Relations)
This next set of questions were, of course, through Leo's, obviously from the banks. Let me read them. Does PLDT expect any write-offs in 2022 or in 2023 arising from the CapEx overspend? I think that's been answered earlier. Why was the CapEx overspend an issue, and why did it take so long to discover this? How was the CapEx overspend reflected in PLDT's books? What are the exact causes of the overspend from the perspective of market dynamics, procurement process, and reporting? Then, what measures and policies are going to be put in place? I think that question has been answered as well. Please disclose the results of the forensic investigation conducted.
Marilyn Aquino (Corporate Secretary and 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. On the other question, the question is whether when it will it be reflected?
Melissa Vergel de Dios (Head of Investor Relations)
Yes. Was it reflected in the books or?
Marilyn Aquino (Corporate Secretary and Chief Legal Counsel)
Oh, when it will be.
Al Panlilio (President and CEO)
That's announced. It's privileged information.
Marilyn Aquino (Corporate Secretary and Chief Legal Counsel)
Yes. The investigation, we will the report will not be disclosed. It's an attorney-client privilege, what we have disclosed is the result of the investigation. The other question is when will it be reflected, the PHP 33 billion, the CapEx carryover. The note in the 2022 audited financials included a note on the universal settlement and the PHP 33 billion and the fact that there will be continued engagement on the 20% non-major vendors. The outcome of the universal settlement for all the vendors will be an item or will be reflected in the 2023 audited financial statements.
Al Panlilio (President and CEO)
I think there was a question on what is the main reason for the, for the overrun. I think it's really the multi-year contracts that was the main reason that there were overruns. It was not an overorder, but really just the monitoring of the CapEx. We were not able to include the multi-year contracts.
Marilyn Aquino (Corporate Secretary and Chief Legal Counsel)
Just to clarify, when we talk about overrun, we interchangeably use overrun and carryover. It's actually really a carryover, the CapEx that will be continued in the next few years after their commitment.
Melissa Vergel de Dios (Head of Investor Relations)
Okay. There's a follow-up from Katie regarding the tax issue. Understand the matter was settled in a short stand, and the office was not locked. Nonetheless, there are still some outstanding tax issues, and it was also reported that there was no permit issued since 2019. Can the company confirm that the proper operating permit has since been issued and provide an update on the unpaid tax matter?
Al Panlilio (President and CEO)
Lorena or?
Speaker 16
Accounts for the charges against both Smart and DMPI for the business permits has been issued. They're just negotiating with Makati City to cancel the surcharges, interest, and penalties that are being assessed before we settle the statements of accounts. Eventually, they aim to process the permits, hopefully within this month for the issuance of the permits for both Smart and B-DMPI, SBI. The compromise agreements have been signed for both Smart and SBI. Yes.
Melissa Vergel de Dios (Head of Investor Relations)
One last round of questions from the floor before we deal with the one sent by email. Last chance. Okay, the last one from Ken Gotianze was on Maya. There's a sizable gap between deposits and loan disbursements. Could you talk more about your approach on asset and liability management?
Marilyn Aquino (Corporate Secretary and Chief Legal Counsel)
Sorry. In relation to what has been explained earlier, the issue on surcharges and penalties is something that we are convincing Makati not to charge us because from the beginning when this issue was pending in court, we
We consigned the amount for the payment of the business permits. In our view, we should not be liable for penalties or surcharges in this case. That is the ongoing discussion.
Manny Pangilinan (Chairman)
Kasi may pending tax issue, which is the bigger tax issue in relation to the franchise tax. 'Di ba? Since that was pending for a number of years, PLDT was trying to pay for the business operating permits as and when they fell due in any of the relevant years, ayaw nilang tanggapin eh.
Marilyn Aquino (Corporate Secretary and Chief Legal Counsel)
Signed in court.
Manny Pangilinan (Chairman)
Eh 'di wala kang magagawa, 'di ba? Sana hindi sila nag-i-issue ng business permit.
Melissa Vergel de Dios (Head of Investor Relations)
Katie, what the Chairman said is we wanted to pay the permits. They didn't want to accept them, we can't do anything. That's why Attorney Ma Va said we consigned the amounts with the courts. Due to the pending tax issue. If we can move on to the last question, if there are more questions from the floor. That one was from Maya. About Maya, there's a sizable gap between.
Manny Pangilinan (Chairman)
Ano yung eh, we're also, of course, there was clearly a difference of opinion as to the quantum of taxes due on flowing from the franchise tax, no? That's, I don't wanna get into details of that because that might... Anyway, we were willing to pay at least what we think was due, and then maybe the differential we could argue a bit later. At least we settled that point because ang lumalabas, particularly sa Daily Inquirer, is that we were unwilling to pay the franchise tax that was due to Makati City. We were, except for the calculation, 'di ba? Kung tanggapin nila yung aming calculation, bibigay namin yun eh. Until finally it was settled by way of compromise na ayan yung number. Oh sige, tanggapin na yan para matapos na ito. 'Di ba?
Yan ang problema eh, 'di ba?
Melissa Vergel de Dios (Head of Investor Relations)
Difference rate, yeah.
Manny Pangilinan (Chairman)
Eh, ganito. Ganito na naman yun eh. Yun.
Melissa Vergel de Dios (Head of Investor Relations)
Okay. the last-
Manny Pangilinan (Chairman)
Pero hindi totoo yun na we were evading taxes, right? Ito sinasabi na ito ang tama namang calculation eh. Anyway, there was a compromise number, so tapos na. Well, for the meantime.
Melissa Vergel de Dios (Head of Investor Relations)
Okay. The final question on Maya. There's a sizable gap between deposits and loan disbursements. Could you talk more about your approach on asset and liability management?
Shailesh Baidwan (President)
Sure. As we said, you know, we're very pleased that the customers have reacted so positively to the launch of Maya Bank. People have found it extremely easy for us to be used and have transferred their funds over. We are seeing a lot of usage overall, not just depositing with us, but like I said, the whole model is based for them doing transactions with us. First of all, that helps us create revenue from the various transaction. The second in the short term, as I mentioned, the placements that we have with the excess liquidity with BSP, pretty much zero risk-weighted placements, you know, giving us very high returns at this stage. In terms of us being able to cover for that, we are able to cover for that cost of funding.
The second part in terms of our assets, yes, again, we are seeing on the loan side of the house, people taking up and the disbursements are beginning to build out pretty quickly. Now, in the Philippines, as we know, the coverage of the credit bureau and national ID are still weak, so we want to be smart in the way we disperse loans, as we launch various scoring models. These model needs a little bit of time as they learn about the customer behavior. But we are seeing, like I said, a rapid ramp-up. So what we disbursed in the first few months, of 2022 towards the end about PHP 3 billion. In the last couple of months, we are disbursing close to that number and now in a quarter.
We are seeing a big, a steep build-up, and on top of that, we are launching new products. SME, for example, for segment, even for consumer, there are new products coming out. It is about being prudent on the lending side of the house, as you would expect us to be, to make sure that we are able to manage the flows and any losses. On the consumer side of the house at this stage, excess liquidity is actually being parked with us getting fairly handsome returns. Yes, we are seeing now the build-up, and as we launch more and more products with different tenors, with different line sizes, we will start seeing the asset liability begin to match, getting closer in terms of disbursement of loan versus deposits.
Melissa Vergel de Dios (Head of Investor Relations)
Hussaini, you still have your hand raised. Did you have a follow-up question?
Hussaini Saifee (Director)
No, sorry. I forgot to lower it down. I will do that.
Melissa Vergel de Dios (Head of Investor Relations)
All right.
Ranjan Sharma (Executive Director)
Thanks.
Melissa Vergel de Dios (Head of Investor Relations)
Thank you. All right. If there are no other questions on the floor and none from the participants online, last chance. Okay. If there are no further questions, we'll now turn the floor back to Mr. Pangilinan for his closing remarks.
Manny Pangilinan (Chairman)
Well, 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 three-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, you know. Hopefully we could see some of you, all of you, and more of you, come May, no? I'd like you to know that we feel the disappointment that you guys must feel as well that we failed in our governance, in relation to this CapEx issue.
For the past five or six months, a great deal of attention has been paid by management in rectifying that particular issue and of course the relevant controls that have to be imposed, including personnel, I think to your question, Rachelle, no? We're mindful of that and we're mindful as well that we have taken a severe knock on our reputation. We know we have a big job ahead in trying to prove that the governance principles which we have adhered since the time that First Pacific invested in PLDT, sometime 1998, is continuing to be upheld.
In mitigation, the whilst we cannot publish in full the report of Milbank and the other accounting and legal advisors that they have engaged in the course of their forensic investigation, we have disclosed the main conclusions flowing from that report. Ma Va told the board that she will retain a copy of the full report in our offices and anybody, any director or advisor on the board is free, welcome to come to the office and read the full report. Maybe Siguro, I guess as a Bank Secrecy Act at some point after 50 years, we might be able to release the report to you. I think some of you are young enough perhaps to survive the 50 years, right? You lang.
We know we have a big job to do, but through it all, what we endeavor to do this afternoon to you and to media is based on the 2022 numbers, you've seen the numbers. It is as strong as can ever be. It's certainly much stronger than the numbers you've seen with respect to the other telcos who have all reported their results to you. We will certainly endeavor to improve on our 2022 results and make it better in 2023 and beyond, no? Because we do want to prove that despite these difficulties that we have encountered, the last five or six months, we will recover. A stronger company than it was before, because as I told media, somebody said, "Let's not waste this crisis, no?
Let's use it as an important event for us to remedy what's wrong and move on." It's important as well, this is my reminder to Al, that we get back on the saddle, that we should return to business as usual as quickly as we can and do certain things that will improve both the processes, the controls, the operations, and the profits of this company. Thank you again, and we wish you all a Happy Easter. Right? This is our Good Friday, actually. We were flagellating ourselves the whole day. Thank you. Thank you.
Melissa Vergel de Dios (Head of Investor Relations)
That concludes our briefing. Thank you for joining us today. Have a good Easter. Join us for refreshments outside. Good evening.