Globe Net Income Down 22% in 2010

Globe Telecom Inc. (PSE: GLO) closed 2010 on a high note with, normalized fourth quarter service revenues of PhP16.2 billion nearing all-time highs. The Company’s service revenues for the year reached PhP62 billion, just slightly below prior year’s level of PhP62.4 billion, and an improvement over the 2% or PhP1.1 billion gap as of the first three quarters of the year. Revenues have been normalized to exclude the one-time, upward adjustment of PhP526 million representing prepaid load credits that have either expired or have already been used up. Including this one-off adjustment, consolidated service revenues for the fourth quarter and the full year would be PhP16.7 billion and PhP62.6 billion, respectively.

Fourth quarter mobile revenues were 9% higher than the prior quarter and are the highest in six quarters, given the strong demand for voice and data services during the holiday season. Meanwhile, full year, normalized mobile revenues of PhP50 billion were 6% lower compared to last year given the intense price competition in the market. The fixed line and broadband business continued to grow at a fast pace, rising 32% compared to last year and 2% compared to the prior quarter. Broadband and fixed line revenues totaled P12.1 billion, and comprised 19% of consolidated service revenues compared to 15% a year ago.

Globe’s total mobile SIM base reached 26.5 million, up 14% from the previos year. Steady gross additions and declining churn led to net SIM additions of 1.1 million this quarter – the Company’s highest since 2Q08. Globe Postpaid added 83,000 new subscribers this quarter, surpassing full year 2009 net additions, to close the year with nearly 1.1 million customers. The innovative My Super Plan and My Fully Loaded Plan, which allow subscribers to customize their plans, have both contributed to the surge in Globe’s postpaid clients. Meanwhile, the Company’s efforts to revitalize its prepaid brands, together with the clean-up of lower-quality subscribers, have translated to net subscriber gains for both Globe Prepaid and TM which closed the year with a SIM base of 13.8 million and 11.6 million, respectively.

Globe Prepaid, in particular, added more than 480,000 SIMs this period, more than double last quarter’s level, and comprising 45% of this quarter’s total net SIM additions. The total prepaid segment accounted for 93% of full year’s net incremental subscribers which reversed the previous year’s net reduction of about 1.4 million SIMs. The broadband business likewise registered an impressive performance with total subscribers reaching 1.1 million at the end of the year, up 50% compared to the prior year. This segment comprises postpaid and prepaid subscribers of Globe Broadband Tattoo, the Company’s fully mobile broadband service, as well as Globe WiMAX and DSL for at-home internet access. Wireless broadband subscribers from the Company’s 3G/HSPA and WiMax offerings now comprise 76% of total subscriber base, up from 70% in 2009.

The Company continued to invest in meeting the needs of its growing subscriber base by upgrading and modernizing its networks, increasing capacities to meet the surge in traffic, and improving its customer service capabilities. As a result, operating expenses and subsidy of PhP29 billion were 12% higher than the previous year’s PhP26 billion.

Network-related costs alongside higher marketing and outsourced services were the key drivers behind the growth in full year expenses. Operating expenses for 2009 also included reversals arising from the settlement of previously provisioned receivables and other one-time adjustments. On a normalized basis, excluding these one-off adjustments, operating expenses and subsidy rose by a smaller 9% instead of the reported 12% growth.

With flat full year revenues and higher operating expenses, normalized consolidated EBITDA declined by 9% from PhP36.5 billion to PhP33 billion. While mobile margins remained healthy at 63%, the fast-growing but lower-margin fixed line and broadband businesses diluted consolidated EBITDA margin to 53% compared to previous year’s 58%. Coupled with higher depreciation expenses arising from the Company’s continued expansion of its mobile and broadband networks, full year net income of PhP9.7 billion was 22% lower than last year’s PhP12.6 billion, but was an improvement over the 24% gap as of the first three quarters. Excluding foreign exchange and mark-to-market gains and losses as well as non-recurring items, core net income stood at PhP9.1 billion compared to the previous period’s PhP12 billion.

“Our fourth quarter results are encouraging. Our postpaid brand delivered record subscriber additions, while our prepaid brands’ performance have improved across all key metrics, driving good growth in top-up and usage levels. Meanwhile, our broadband and corporate data businesses continued to grow steadily, providing good counterbalance to a maturing mobile business. This should provide us momentum going into 2011, which we expect to be another challenging year,” said Ernest L. Cu, President and CEO, of Globe Telecom. “We believe our programs are starting to gain traction. However, as this is a hypercompetitive industry, we need to move with even more urgency towards transforming ourselves and the way we operate in order to be the brand of choice.”

Capital expenditures (capex) for 2010 totaled to PhP19.5 billion, down from P24.7 billion the prior year. Of this total, about P9.1 billion was for wired and wireless broadband capacities, while around P7.9 billion was used to expand and upgrade the Company’s mobile network.

For this year, the Company expects to spend an additional $500 million, including carryover spend from projects started in 2010. “This year, we will continue to build on service quality as a key differentiator for Globe. We will implement a pro-active approach in meeting the upsurge in voice and data requirements across all customer segments, including the larger enterprises. We will also improve power and transmission management to meet our quality objectives in terms of network availability and capacity,” said Cu.

In line with the Company’s dividend policy of distributing between 75% to 90% of prior year’s net income, the Board of Directors declared the first semi-annual cash dividend of PhP31 per common share, payable on March 18, 2011 to shareholders on record as of February 22, 2011. On an annualized basis, the first semi-annual cash dividend payment of PhP4.1 billion represents 84% of 2010 net income, similar to last year’s pay-out rate, and translates to an attractive dividend yield of 7.8%, using end-2010 share prices.


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