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Announcement:

Moody's sees PLDT's FY2012 results as in line with expectations

06 Mar 2013

Hong Kong, March 06, 2013 -- Moody's Investors Service says that Philippine Long Distance Telephone Company's (PLDT) full-year results for 2012 were in line with expectations, and have no impact on PLDT's current Baa2 rating and its stable outlook.

"While reported consolidated EBITDA margin based on its service revenues fell to 46% in 2012 from 52% in 2011, such a decline had already been considered in its rating," says Yoshio Takahashi, a Moody's Assistant Vice President and Analyst.

Moody's had expected the decline in margin as PLDT had acquired Digitel Telecommunications Philippines, Inc.(unrated) in October 2011, and had accordingly noted that the latter's margins are much lower than those of PLDT.

Digitel's EBITDA margin in 2012 was 29% -- compared with PLDT's 48%, excluding Digitel. Digitel's revenue accounted for about 13% of consolidated service revenue for the same period.

Incremental costs associated with a manpower right-sizing program, resulting in headcount reductions after the acquisition, also caused PLDT's reported EBITDA margin to decline by about 2 percentage points in 2012.

In the absence of these special factors, Moody's expects PLDT's EBITDA margin to improve in 2013. However, the level of the improvement should be marginal, as a changing revenue mix, from voice to broadband, will continue to pressure margins, although from a high level.

"At the same time, Moody's expects PLDT to maintain adjusted debt/EBITDA below 2x, given its stable earnings and support from its dominant positions in fixed line, broadband, and wireless," adds Takahashi, also Moody's Lead Analyst for PLDT.

PLDT's ability to generate free cash flow should improve in 2013, given the completion of its accelerated capex program to boost its network's quality and coverage, as well as expected declines in capex in 2013. Moody's expects capex to fall to about 18% of consolidated revenue in 2013 from over 20% in 2012. In addition, PLDT expects to complete the sale of its remaining investment in Philweb Corporation (unrated), which would generate the cash flow of about PHP2.3 billion.

However, PLDT's leverage is unlikely to decline as the company will continue with its investments in media-related business and we expect that it will maintain a 100% dividend payout.

In this context, Moody's notes that it intends to make an investment of PHP5.55 billion in the pay-TV business and print assets in 2013 to strengthen its ability to deliver multi-media content through its broadband and mobile networks.

Moody's notes that in February 2013 PLDT entered into an agreement to sell its business process outsourcing (BPO) business to Asia Outsourcing Gamma Limited (AOG, unrated), a company controlled by CVC Capital Partners (unrated). PLDT will also take a 20% stake in AOG. In its 2012 results, PLDT said that these transactions are expected to be completed by the end of March, or early April.

Moody's believes that the planned sale of the BPO business is credit positive. PLDT estimates that the net cash proceeds from these transactions will surpass $300 million, or over 30% and 10% of its cash and reported debt, respectively. If it uses all the cash proceeds to reduce debt, it could improve adjusted debt/EBITDA by 0.1x-0.2x.

BPO is a non-core business, which accounted for only 5% and 3% of reported consolidated revenue and EBITDA respectively in 2012. So the sale should not have a material impact on its core business operations. Instead, it should also help improve its overall margins slightly as the EBITDA margin of the BPO business was relatively low at about 18% in 2012.

The principal methodology used in this rating was the Global Telecommunications Industry Methodology published in December 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

PLDT is the largest telecommunications operator in the Philippines. It is an integrated provider of fixed-line, broadband, cellular, information and communications technology and business process outsourcing services. At end-December 2012, it had a market share of approximately 68% in terms of subscribers for cellular telephony, 68% for fixed-line services, and about 64% for broadband.

Digitel is the 100% owner of Digitel Mobile Philippines, Inc., which owns the brand Sun Cellular -- the Philippines' third largest telecommunications operator after PLDT and Globe Telecom, Inc (unrated).

Yoshio Takahashi
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Laura Acres
Senior Vice President
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's sees PLDT's FY2012 results as in line with expectations
No Related Data.
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