Globe Reports Core Net Income at PhP11.7B in 3Q

Taguig—(PHStocks)—Globe Telecom Inc. (PSE: GLO) closed the first nine months of 2016 with consolidated service revenues of PhP89.1 billion, 7% higher than the PhP83.4 billion recorded in the same period of 2015. The sustained robust topline growth was spurred by the gains across data-related product segments, despite the increased competitive intensity. The Company’s effective efforts in providing market-relevant data offers, the best of breed solutions to cater to the evolving needs of its customers, backed by the significant improvements in Globe’s wireless and wired data networks, have paved the way for its continued success.

Globe’s mobile revenues slightly grew by 1% year-on-year, reaching PhP68.3 billion for the first nine months of 2016 from the PhP67.5 billion reported a year ago, given the continued shift towards digital lifestyles from the core services of voice and SMS. TM, the Company’s mass-market brand, posted a 3% growth year-on-year while Globe Postpaid showed a 2% improvement from the same period of 2015. This, however, was partly offset by the slight decline in Globe Prepaid revenues by 1%. At the end of September 2016, Globe’s mobile subscriber base1 reached 65.4 million, up a robust 23% from the 53.1 million subscribers reported in the same period of 2015. The solid increase in Globe’s subscriber base was driven by record-level prepaid gross acquisitions during the period and the improvement of blended churn rate from 6.2% for the first nine months last year to 5.8% this year.

From a product perspective, mobile data2 remains to be the top contributor for mobile revenue growth, which rose to PhP25.2 billion for the nine months just ended or 31% higher than the PhP19.2 billion reported a year ago. The robust growth in mobile data services was underpinned by the growth in data traffic from 176 petabytes (PB) to 249 PB in the nine months just ended, as smartphone penetration increased to 54% and Globe’s data-driven product portfolio expanded. On a sequential basis, mobile data declined by 7% from PhP8.6 billion last quarter to only PhP8 billion in the third quarter of 2016, given the market aggression during the quarter, which affected mobile data yields. Mobile data services comprised 38% of total mobile revenues, up from 29% in the first nine months of 2015.

Globe’s home broadband service revenues grew to PhP10.7 billion as of end-September 2016 from PhP7.8 billion last year, with total subscriber base rising to 1.15 million customers. The sustained growth in revenues was driven by the continued increase in fixed wireless customers (up 35% year-on-year), due to the growing demand for internet and data connectivity and the popularity of Globe’s premium entertainment content from HOOQ, the NBA, Disney, and Netflix among others. The consolidation of Bayan Telecommunications Inc. (Bayan), which started in the second half of 2015, also contributed to the growth in revenues; even excluding Bayan’s contribution for the period, Globe’s home broadband service revenues would have still increased by 23% year-on-year, from the PhP9 billion recorded a year ago. In line with Globe’s vision for the Philippines to become an admired nation for having first world internet connectivity, the Company has started the deployment of fiber broadband technology that aims to provide ultra-fast internet access to two million homes in 20,000 barangays by the year 2020.

Globe’s corporate data business rose to PhP7.3 billion for the first nine months of 2016, from the PhP5.5 billion in the same period of 2015. This was primarily driven by the strong take-up of various data connectivity solutions, managed services, mobility solutions and cloud-based services. The growth was likewise aided by Bayan’s revenue contribution for the first nine months this year amounting to PhP1.9 billion. Similar to home broadband, Globe is embarking on capacity augmentation of its corporate data network to address the bandwidth requirements of enterprise clients for the use of various data solutions to improve business efficiency, enhance productivity and boost competitiveness.

Globe’s consolidated EBITDA stood at PhP37.5 billion for the first nine months of the year, a strong 8% increase from the PhP34.8 billion reported a year ago. Total operating expenses and subsidy grew by 6% year-on-year to PhP51.6 billion from PhP48.7 billion last year, to support the growing subscriber base, the continuous data network expansion and overall service enhancements. EBITDA margin stood at 42%, which is at par with last year’s margin and on track with the earlier full-year guidance of 40%.

For the first nine months of 2016, Globe recorded net income of P11.7 billion, down by 17% against the PhP14.1 billion reported in the same period of 2015, as the gains in EBITDA were offset by increases in depreciation and non-operating charges. Note that non-operating charges included PhP641 million of costs related to the acquisition of Vega Telecom Inc. (VTI), including Globe’s share in net losses of joint venture and interest expenses related to additional debt incurred, as compared to the gains recorded in the second half of last year from the consolidation of Bayan and the sale of a 51% stake in Yondu Inc. to Xurpas Inc. (PSE: X). Excluding the impact of these strategic transactions, normalized net income would have only been down 2% year-on-year.

On a recurring basis, Globe’s core net income, which excludes the impact of non-recurring charges, foreign exchange gains and mark-to-market charges, stood at P11.7 billion, stood lower by 8% year-on-year, as the gains in EBITDA were not able to offset the increase in depreciation in the period, given the higher investments Globe has made to improve customer experience on data.

“Notwithstanding the serious turn in the level of competition, Globe’s overall financial results remained strong and still on-track with our guidance for the year, marked by record-level subscriber acquisitions, churn improvements and increased data adoption,” said Ernest L. Cu, President and CEO of Globe. “We remain steadfast with the expansion of our data network and capacities, to maximize the use of the additional 700 and 2600 megahertz (MHz) frequencies, to give our customer the best experience in terms of the speed and reliability of our internet services.”

Globe spent around PhP26.6 billion in capital expenditures through the first nine months of the year to support the growing subscriber base and its aggressive data network expansion, in which 64% was spent for data-related initiatives. This also include spends on the deployments for LTE on 700MHz.

Furthermore, as part of Globe’s commitment to improve internet services in the country and in order to maximize the use of the additional 700MHz and 2600MHz frequencies, Globe further announced additional capital expenditures of $300 million for network expansion, for its mobile data ($160 million), corporate data ($50 million) and home broadband ($90 million). To date, Globe has a total of 29,860 base stations, with close to 19,000 base stations for 4G3, to support the service requirements of its customers.

Recent Developments

The Board of Directors approved in its meeting today the fourth quarterly distribution of cash dividends of PhP22 per share, payable on December 2, 2016 to stockholders on record as of November 18, 2016. The fourth quarter cash dividend payment total is about PhP2.9 billion. For the year, Globe distributed PhP11.7 billion in dividends to common shareholders, translating to about 77% of 2015 core net income.

Similarly, the BOD approved the declaration of annual cash dividend payable to voting preferred stockholders of record as of November 18, 2016. The amount of the cash dividend will be based on the average 30-day PDST-R2, as computed by the Philippine Dealing and Exchange Corporation plus 2%. The dividends to voting preferred stockholders will be payable on December 2, 2016.

• On a consolidated view, Globe ended the first nine months of 2016 with gross service revenues of PhP89.1 billion, 7% higher than the P83.4 billion in the same period last year. The robust revenue performance was due to strong take-up of data-related products and services across mobile, broadband and corporate data segments. Mobile revenues posted a 1% increase year-on-year with improvements coming mostly from Globe Postpaid (+2%) and TM (+3%). This was likewise supported by the record-level prepaid acquisitions and improved blended churn rates (5.8% from 6.2% last year), helping increase the total mobile subscriber base to 65.4 million as of the end of September this year. The home broadband and corporate data segments likewise posted solid growths compared to the same period last year due to the strong demand for data connectivity and managed service solutions for both consumers and corporate clients.
• Globe’s operating expenses and subsidy for the first nine months of 2016 stood at PhP51.6 billion this year, 6% higher from the PhP48.6 billion recorded in the same period last year. This was mainly driven by higher network-related expenses (which include lease, repairs and maintenance, supplies and utilities), services costs, re-contracting expenses and staff costs to support Globe’s aggressive data network expansion and overall service enhancements.
• Depreciation expenses in the first nine months of 2016 increased by 19% from PhP14.6 billion in the same period last year to PhP17.4 billion this period. The increase in depreciation expenses resulted from the one-time depreciation impact arising from the end of useful life of certain corporate assets, and the depreciation costs of incremental asset builds related to Globe’s 2015 and 2016 capital expenditure programs. The increase in depreciation was also due to the full-year impact of Bayan’s depreciation charges, upon consolidation in the second half of 2015.
• Overall, Globe’s total cost and expenses including depreciation charges for the nine months ended September 2016 rose to PhP69 billion or 9% higher than the PhP63.2 billion reported a year ago.
• Consolidated EBITDA for the first nine months of 2016 remained strong at PhP37.5 billion, up a solid 8% from the PhP34.8 billion reported a year ago. The growth in EBITDA was driven by sustained topline growth, as well as controlled operating expense increase. EBITDA margin for the first nine months of the year was steady year-on-year at 42%, on par with last year’s margin and in line with the full-year guidance of 40%.
• Globe closed the first nine months of 2016 with net income amounting to PhP11.7 billion, lower than the PhP14.1 billion net income reported in the same period last year. Note that non-operating charges in 2016 included PhP641 million of costs related to the acquisition of Vega Telecom Inc. (VTI), including Globe’s share in net losses of joint venture and interest expenses related to additional debt incurred, as compared to gains recorded in the second half last year from the consolidation of Bayan and the sale of a 51% stake in Yondu to Xurpas. Excluding the impact of these strategic transactions, normalized net income would have only been down 2% year-on-year.
• On a recurring basis, Globe’s core net income, which excludes the impact of non-recurring charges, foreign exchange gains and mark-to-market charges, stood at PhP11.7 billion, still lower by 8% year-on-year, as the gains in EBITDA was not able to offset the increase in depreciation in the period.

Mobile service revenues, which accounted for 77% of Globe’s consolidated service revenues during the first nine months of 2016, rose to PhP68.3 billion, slightly up by 1% from last year’s level of P67.5 billion. The growth in mobile service revenues was driven by the sustained revenue growth in mobile data (+34%) despite the escalating competitive intensity. This, however, was partly offset by the continued decline in legacy voice and SMS revenues.

Mobile voice revenues, which accounted for 37% of total mobile service revenues, posted a decline of 9% year-on-year to reach PhP25.4 billion this period from the PhP28.1 billion reported last year. Consistent with global trends, voice revenues remain challenged given the migration of voice traffic to alternative channels that make use of internet-based applications, such as Viber, Facebook, Skype, and Whatsapp, among others.

Mobile SMS, which accounted for 25% of total mobile service revenues, closed the first nine months of the year at PhP17 billion, 16% lower than the PhP20.2 billion recorded in the same period of 2015. The steep decline in SMS revenues was due to the increasing popularity of over-the-top chat applications, offering alternatives for messaging to Globe subscribers outside of SMS services.

Globe’s mobile data revenues on the other hand, posted P25.8 billion for the first nine months of 2016, up by a solid 34% from the P19.2 billion a year ago. Mobile data service revenues now account for 38% of total mobile revenues, up from 29% a year ago. With the sustained increase in smartphone penetration, which now stands at 54% of Globe’s mobile subscriber base, the continuous demand for market-relevant data offers, and the improvements in Globe’s data network, mobile data traffic increased by 41% year-on-year from 176 PB to 249 PB for the nine months just ended, helping offset the decline in yields brought about by increased competitive intensity in the market.

• Globe closed the first nine months of the year with a total mobile subscriber base of 65.4 million, up 23% from 53.1 million subscribers reported in the same period last year. This was mainly driven by the sustained efforts in acquiring high-value subscribers for the company’s prepaid brands (Globe Prepaid and mass market brand TM). Combined, Globe Prepaid and TM gross acquisitions comprised 98% of acquired SIMs during the period. With the improvement in prepaid churn rates, net incremental subscribers likewise improved by 31% from 7.0 million in 2015 to 9.2 million net additions this period.
• As of the end of September 2016, Globe Postpaid had 2.5 million subscribers, slightly down by 2% from the same period last year. Globe Postpaid’s gross acquisitions for the first nine months of the year stood at 710,587 or 14% lower than the new acquisitions in the first nine months of 2015. The slowdown in gross acquisition, vis-à-vis the previous years’, indicates the saturation of the traditional markets for postpaid and the changing dynamics in the postpaid market. As Globe digs deeper into the postpaid market, the Company has taken prudent steps in ensuring the quality of acquisitions, including the enforcement of stricter credit policies, and the development of specific programs and offerings for the lower-end of the postpaid market. Total net reduction in postpaid subscribers during the first nine months of the year resulted from the declining acquisitions and increased churn rates from 3.2% during the first nine months of last year to 3.5% this period.
• Globe Prepaid gross acquisitions grew by 18% year-on-year reaching a record-high 18.4 million acquisitions from the 15.7 million gross additions in the same period in 2015. The year-on-year improvement in gross additions was driven by the brand’s continued aggressive acquisition efforts, the market’s positive response to various value-for-money promotions and the popularity of GoSurf data bundles. Total net incremental subscribers likewise improved by 8% due to lower churn rate (from 6.1% a year ago to 6.0% as of the first nine months of the year), to reach 3.5 million subscribers from 3.2 million subs in the same period of 2015. Total cumulative Globe Prepaid subscribers reached 29.4 million as of the end September 2016, up 21% year-on-year.
• TM’s gross acquisitions as of end-September 2016, stood at 21.5 million or 17% better than previous year’s 18.4 million. The strong gross acquisition results were boosted by the all-new TM Easy Plan which promises the simplest, easy application process and easy payment scheme. The TM Easy Plan is the most affordable prepaid plan in the market today for only PhP150 every fifteen (15) days (payable on the first and 16th of every month). Coming from the very strong acquisition and improved churn rates as of end-September 2016 (from 6.7% in 2015 to 5.7% this period), net incremental subscribers improved by 59% from 3.6 million in 2015 to 5.8 million this period. TM cumulative subscriber base stood at 33.4 million subscribers at the end of September 2016, up 28% from the 26.1 million subscribers a year ago.
• Blended ARPU for the first nine months of 2016 declined by 18% year-on-year to only PhP125 from PhP151 in same period of 2015, due to the combined effects of higher multi-SIM incidence, continued pressures on yields caused by the shift to value-based bucket, unlimited voice/SMS offers and the shift to promo data offers. Globe Postpaid ARPU was slightly lower at PhP1,117 for 2016, versus PhP1,118 last year. TM and Globe Prepaid ARPUs were also down year-on-year by 19% and 18%, respectively, driven by the decline in yields and dilution of the mix of the subscriber bases from lower ARPU segments.
• Globe Postpaid subscriber acquisition cost (SAC) was slightly lower year-on-year to PhP7,334 from PhP7,382 from a year ago. Globe Postpaid SAC remains recoverable well within the 24-month contract of the postpaid plans. Globe Prepaid SAC likewise was down year-on-year by 7% to PhP15 in the first nine months of 2016 from PhP16 a year ago. However, TM SAC was flat year-on-year at PhP12. Globe Prepaid and TM SAC remained recoverable within a month’s ARPU.

For the first nine months of the year, Globe’s fixed line and home broadband revenues posted a 31% increase from the PhP15.8 billion last year to PhP20.8 billion this period. The growth was driven by solid contributions of both home broadband (+36 %) and corporate data (+33%) segments, as well as Bayan’s revenue contribution starting the second half of 2015.

Globe home broadband posted PhP10.7 billion revenues for the nine months just ended , 36% higher than the PhP7.8 billion reported a year ago, due to the continued subscriber expansion (+12%) year-on-year. The sustained revenue growth and customer base increase was achieved with the strong take-up of the various home broadband products bundled with exclusive access to entertainment content. Home broadband’s subscriber base as of end-September 2016 now reached 1.15 million subscribers from 1.0 million in the same period of 2015.

The corporate data segment likewise sustained its growth momentum with PhP7.3 billion revenues registered in the first nine months of the year, up 33% against the same period last year, fueled by strong demand for corporate connectivity, domestic and international leased line services, managed service solutions and cloud-based services (such as data storage and solutions-based cloud computing). Globe’s total fixed line voice revenues likewise grew year-on-year by 13% due mainly to expansion in subscriber base, both organically given the popularity of bundled home broadband plans and the contribution of Bayan in the first nine months of the year.

Products & Services

Globe continues to solidify its leadership in the digital space as the data provider of choice for Filipinos’ digital lifestyles with the various suite of products and services launched during the quarter.

Mobile Business

Globe Postpaid expanded its smartphone line-up with the inclusion of the new Huawei P9, which is one of the most impressive camera phones to date. Customers can get it for free on Plan 1499. Globe myLifestyle Plan 1499, comes with 5GB of data, plus unlimited calls and texts to Globe/TM. Customers can also enjoy Free 1GB Spotify Premium or Hooq for three months, choice of Navigation Pack, Explore Pack, or Fitness Pack for one month, one-month Gadget Care, 1GB Globe Cloud, and free shipping as well.

Moreover, Globe was the first to introduce the No Lock-up plan options that lets customers surf and stream with almost double the data allocation, using the device of their choice. With the myLifestyle Plan No Lock-up Plans customers can get 5GB of data and built-in unlimited calls to Globe/TM, unlimited texts to all networks and free Facebook for 24 months for PhP799. Moreover, Globe Platinum customers can likewise avail of the Platinum Lifestyle No Lock-up Plans, that have double the data of up to 40GB and built-in unlimited roaming allocation per month. Platinum clients get 20GB of mobile data plus two days of unlimited roaming per month for Plan 3799 and four days per month for Plan 4999. Plan 7999 on the other hand, provides customers a supersized 40GB of mobile data and six days per month of unlimited data roaming.

In addition, with the Globe Postpaid myLifestyle Plans, subscribers can now use their leftover data until the next month and/or share data with loved ones with the new variants of GoSurf with Rollover and GoSurf: GoSurf Share. GoSurf with Rollover contains data allowance that can roll over for another month if unused but cannot be shared. Any unused data can only roll over for a maximum of 1 month (up to the 2nd month). If this remains unused by the 3rd month, the rolled over data becomes forfeited. GoSurf Share contains data allowance that can be shared with mobile numbers under the same account for a minimal fee of PhP100 per number per month. Whatever remains unused at the end of the month gets rolled over to the succeeding month or bill cycle.

Meanwhile, TM introduced its latest innovation with the all-new TM Easy Plan which promises the simplest, easy application process and easy payment scheme. The TM Easy Plan is the most affordable prepaid plan in the market today for only PhP150 every fifteen (15) days (payable on the first and 16th of every month). This plan comes with unlimited calls to TM and Globe subscribers, unli allnet texts, 100MB each of FB, Viber, and games such as Clash of Clans, and Summoners’ War, among others. TM Easy Plan customers can still register to their favorite prepaid promos (e.g. GoSurf50) as they please. Also during the third quarter of the year, Globe Prepaid’s top selling GoSurf promo was upgraded and was made even better with the launch of the newest “All-in Prepaid GoSurf “offers. These offers include 1GB of data allocation plus a choice of free application and unlimited texts to all networks for as low as P10 per day. Subscribers may choose from the following:

• GoSurf10 for 40MB plus unlimited allnet texts for P10/day;
• GoSurf15 for 40MB plus 30MB Snapchat and unlimited all-network texts for P15 valid for two days;
• GoSurf30 for 150MB plus 50MB for an application of their choice and unlimited all-network texts for P30 valid for two days;
• GoSurf50 for 700MB plus 300MB for an application of their choice and unlimited all-network texts for P50 valid for three days; and,
• GoSurf505D for 350MB plus 300MB for an application of their choice and unlimited allnetwork texts for P50 valid for five days.

Globe Prepaid customers can also access Pokémon Go by downloading the new Globe Switch application. On Globe Switch, Globe customers can avail of the free 1GB mobile data allowance and 30-days free access to Pokémon Go. The Globe Switch application offers the best online deals as well as over 3GB worth of free access to over 50 of the most popular apps in the market.

Home Broadband

In the third quarter of 2016, Globe Broadband introduced the new customizable Broadband Plans, wherein customers can enjoy fast and consistent broadband internet connection at home, get exclusive access to over 10,000 video content and also have the option to add other exciting entertainment applications, devices and gadgets, and data upgrades on top of their plan. All plans come with free Wi-Fi modem. At the base plan of Plan1299, Globe’s home broadband offers provide free landline and unlimited calls to Globe and TM subscribers, and access to HOOQ and Netflix for six months. Likewise, Broadband customers may also avail of bundled offers for as low as PhP1,487 per month for 10Mbps with data allocation of 50GB, inclusive of Google Chromecast device, and access to Disney Netflix and Hooq . Devices (such as televisions, among others) can also be included for a minimum cash-out for as low as PhP900/month.

Globe Business

Globe, through its enterprise information communications and technology arm Globe Business, is set to provide its enterprise clients with enhanced Virtual Private Cloud and Dedicated Private Cloud offerings supported by the NetApp SolidFire, which is an all-flash, scale-out storage platform built for the next-generation data center. Globe Business has partnered with NetApp SolidFire in order to accelerate its cloud offerings and give Globe enterprise clients a better competitive edge. Through the SolidFire platform, it will modernize its data center infrastructure, allowing it to equip its customers with cloud technology’s transformational capabilities, allowing Globe Business customers access to storage capacity and other solutions at a cost two to three times lower than before. They can also control performance and capacity independently, without downtime or disruption. In addition, customer data will always stay safe and secure through SolidFire’s always-on-data-at-rest encryption and real-time replication.

Globe myBusiness finally introduces its managed digital advertising service, DigiAds. It aims to handhold entrepreneurs on the appropriate online content and platform to maximize its returns. DigiAds is an avenue for SMEs to be able to take control over its marketing direction. Through DigiAds, business owners will be able to consult on appropriate content and platforms for their specific requirements including guidance on the overall digital campaign execution and reporting to measure the performance. With a minimum campaign or subscription period of three (3) months, Globe myBusiness customers can avail of packages starting at P4,500/month. DigiAds’ advertising platforms include Facebook, Instagram, and Google Search. These platforms can be mixed and match depending on the
customer’s budget and preference.

Also during the period, the myBusiness Consultancy Service was launched. The myBusiness Consultancy Service is an exclusive service that provides Globe myBusiness customers access to inhouse experts & business consultants to help improve their business processes & operations.

GCash

During the third quarter of 2016, various promotions with the use of GCash Mastercard including discounts on airfare, hotel rates, and online shopping. Partnerships with AirAsia allow GCash customers to enjoy the rate for as low as P938 on airfare for selected domestic and international destinations. To complement this, GCash is partnered with Agoda to provide 7% exclusive discount on hotel rates. Globe also existing arrangements with Lazada (e.g., P100 discount for a minimum purchase of P1,000 ) and Zalora(e.g., 15% discount) to further spur e-commerce in the market.

Partnerships

Globe partnered with Musical.ly, the top music video community, to allow Globe to provide Globe customers access to the latter’s platform that allows creation of original content and publication of said content by the users themselves. Musical.ly is the world’s fastest growing online video community for creating, sharing and discovering 15-second videos.

Globe customers can enjoy and try the Musical.ly app for free via Globe Switch as part of its exclusive hot deals.

GoWifi

GoWiFi, Globe’s premium open national WiFi network was likewise recently launched. As a national wifi network, the service is open to any customer with a wifi-enabled device. They just register their mobile number, Globe or non-Globe, for them to enjoy the free premium 30 minutes access; on top of the free access, customers can purchase GoWifi mobile data offers starting at P20 with up to 500MB volume allocation and an additional 250MB YouTube accelerator valid per day. Also available are the 3-day and 30-day variants at P50 and P99, respectively. Purchase of GoWiFi credits can be used in any GoWiFi hotspot. GoWiFi, is now serving close to three million customers per month enjoying speeds of up to 100Mbps, with YouTube accelerator, for free for 30 minutes per day. Globe GoWiFi hotspots include airports to bus terminals (DLTB, Philtranco, Bataan Transit, ES Transport and Genesis Bus Terminals), Manila Metro Rail Transit System (MRT) stations, Ayala Malls, Starbucks coffeehouse chain, select convenience stores and fast food chains.

About Globe

Globe Telecom, Inc. is a leading full service telecommunications company in the Philippines. The Company operates one of the largest and most technologically-advanced mobile, fixed, and broadband networks in the country, providing reliable, superior communications, data connections, internet and managed services to individual customers, small and medium-sized businesses, corporate and enterprise clients.

It is listed on the Philippine Stock Exchange under the ticker symbol GLO and had a market capitalization of US$5.7 billion as of the end of September 2016.

Further information can be obtained by visiting the web at www.globe.com.ph.