- 24 - segment assets and liabilities are not measures ......ntc. 14.2.1 wireline voice net service...
TRANSCRIPT
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Segment assets and liabilities are not measures used by the chief operating decision maker since the assets and liabilities are managed on a group basis.
The Globe Group‟s segment information are as follows:
March 31, 2014
Mobile Wireline Communications Communications Services Services Others Consolidated
(Unaudited and In Thousands Pesos)
REVENUES: Service revenues External customers: Voice P=8,673,224 P=664,889 P=– P=9,338,113 Data 9,728,727 1,318,967 61,269 11,108,963 Broadband 2,783,062 2,783,062 Nonservice revenues: External customers 815,256 253,504 61,231 1,129,991
Segment revenues 19,217,207 5,020,422 122,500 24,360,129
EBITDA 8,037,689 867,900 (109,836) 8,795,753 Depreciation and amortization (2,039,471) (2,014,042) (13,966) (4,067,479)
EBIT 5,998,218 (1,146,142) (123,802) 4,728,274
NET INCOME (LOSS) BEFORE TAX2 5,683,854 (1,263,757) (124,341) 4,295,756 Provision for income tax2 (1,020,443) (298,516) (27,805) (1,346,764)
NET INCOME (LOSS) P=4,663,411 (P=1,562,273) (P=152,146) P=2,948,992
Core NIAT P=– P=– P=– P=3,357,262 Other segment information Intersegment revenues (P=322,827) (P=265,280) (P=588,107) (P=1,176,214) Subsidy1 (1,643,000) (98,216) 3,729 (1,737,487) Interest income2 150,895 11,254 142 162,291
Interest expense (464,292) (23,527) (188) (488,007) Equity in net losses of joint ventures (26,936) – – (26,936)
Impairment losses and others (626,555) (207,715) 587 (833,683) Capital expenditure (5,875,933) – – (5,875,933) Cost of sales (2,458,256) (351,719) (57,503) (2,867,478) Operating expenses (6,795,322) (3,674,120) (174,272) (10,643,714)
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Mobile Wireline Communications Communications Services Services Others Consolidated
(Unaudited and In Thousands Pesos)
Cash Flows Net cash provided by (used in): Operating activities P=7,942,577 P=541,344 P=541,344 P=8,546,078 Investing activities (3,004,625) (1,242,584) (41,030) (4,288,239) Financing activities (5,325,838) – 102,496 (5,223,342)
1Computed as non-service revenues less cost of sales 2Net of final tax
March 31, 2013 Mobile Wireline Communications Communications Services Services Others Consolidated (Unaudited and In Thousand Pesos) REVENUES: Service revenues External customers: Voice P=7,659,812 P=647,510 P=– P=8,307,322 Data 9,433,858 1,111,068 30,403 10,575,329 Broadband – 2,485,854 – 2,485,854 Nonservice revenues: External customers 929,334 172,552 302 1,102,188 Segment revenues 18,023,004 4,416,984 30,705 22,470,693 EBITDA 7,670,790 1,171,187 (65,883) 8,776,094 Depreciation and amortization (4,765,615) (2,637,711) (3,519) (7,406,845) EBIT 2,905,175 (1,466,524) (69,402) 1,369,249 NET INCOME (LOSS) BEFORE TAX2 2,419,520 (1,491,817) (69,333) 858,370 Provision for income tax2 (165,935) (13,946) (22,447) (202,328) NET INCOME (LOSS) P=2,253,585 (P=1,505,763) (P=91,780) P=656,042 Core NIAT P=– P=– P=– P=3,085,600
Other segment information Intersegment revenues (P=38,967) (P=101,677) (P=233,053) (P=373,697) Subsidy1 (1,568,289) (37,250) 302 (1,605,237) Interest income2 151,666 20,647 145 172,458 Interest expense (482,086) (24,689) – (506,775)
Equity in net income of joint ventures 10,794 – – 10,794 Impairment losses and others (322,266) (173,905) – (496,171) Capital expenditures 7,175,679 713,891 1,776 7,891,346 Cost of sales (2,497,623) (209,802) – (2,707,425) Operating expenses 7,854,588 3,035,995 96,588 10,987,171 Cash Flows Net cash provided by (used in): Operating activities 7,528,421 1,620,484 4,055 9,152,960 Investing activities (5,853,958) (781,144) (1,712) (6,636,814) Financing activities (556,624) (2,000,000) (24,998) (2,581,622)
1Computed as non-service revenues less cost of sales 2Net of final tax
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The reconciliation of the EBITDA to income before income tax presented in the consolidated statements of comprehensive income is shown below:
March 31
2014 2013 (Unaudited and In Thousand Pesos )
EBITDA P=8,795,753 P=8,776,094 Depreciation and amortization (4,067,479) (7,406,845) Financing costs (628,723) (689,414) Equity in net income (losses) of joint ventures (26,936) 10,794 Interest income 163,705 179,990 Gains on disposals of property and equipment - net 24,981 12,340 Other items 44,640 (17,057) Income before income tax P=4,305,941 P=865,902
The reconciliation of core NIAT to NIAT is shown below:
March 31
2014 2013 (Unaudited and In Thousand Pesos )
Core NIAT P=3,357,262 P=3,085,600 Mark-to-market gains (losses) 42,864 (51,940) Foreign exchange losses (gains) (51,321) (37,596) Non-recurring items (399,813) (2,340,022) NIAT P=2,948,992 P=656,042
14.1 Mobile Communications Services This reporting segment is made up of digital cellular telecommunications services that
allow subscribers to make and receive local, domestic long distance and international long distance calls, international roaming calls and other value added services in any place within the coverage areas.
14.1.1 Mobile communication voice net service revenues include the following:
a) Monthly service fees on postpaid plans; b) Charges for intra-network and outbound calls in excess of the consumable
minutes for various Globe Postpaid plans, including currency exchange rate adjustments (CERA) net of loyalty discounts credited to subscriber billings;
c) Airtime fees for intra network and outbound calls recognized upon the earlier of actual usage of the airtime value or expiration of the unused value of the prepaid reload denomination (for Globe Prepaid and TM) which occurs between 1 and 60 days after activation depending on the prepaid value reloaded by the subscriber net of (i) bonus credits and (ii) prepaid reload discounts; and
d) Revenues generated from inbound international and national long distance calls and international roaming calls.
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14.1.2 Mobile communication data net service revenues consist of revenues from value-added services such as inbound and outbound SMS and MMS, content downloading, browsing and infotext, subscription fees on unlimited and bucket prepaid SMS services net of any settlement payouts to international and local carriers and content providers.
14.1.3 Globe Telecom offers its wireless communications services to consumers,
corporate and SME clients through the following three (3) brands: Globe Postpaid, Globe Prepaid and Touch Mobile.
The Globe Group also provides its subscribers with mobile payment and remittance services under the GCash brand.
14.2 Wireline Communications Services
This reporting segment is made up of fixed line telecommunications services which offer subscribers local, domestic long distance and international long distance voice services in addition to broadband and mobile internet services and a number of VAS in various areas covered by the Certificate of Public Convenience and Necessity (CPCN) granted by the NTC.
14.2.1 Wireline voice net service revenues consist of the following:
a) Monthly service fees including CERA of voice-only subscriptions; b) Revenues from local, international and national long distance calls made by
postpaid, prepaid wireline subscribers, as well as broadband customers who have subscribed to data packages bundled with a voice service. Revenues are net of prepaid call card discounts;
c) Revenues from inbound local, international and national long distance calls from other carriers terminating on our network;
d) Revenues from additional landline features such as caller ID, call waiting, call forwarding, multi-calling, voice mail, duplex and hotline numbers and other value-added features; and
e) Installation charges and other one-time fees associated with the establishment of the service.
14.2.2 Wireline data net service revenues consist of the following:
a) Monthly service fees from international and domestic leased lines. b) Other wholesale transport services; c) Revenues from value-added services; and d) One-time connection charges associated with the establishment of service.
14.2.3 Broadband service revenues consist of the following:
a) Monthly service fees on mobile and fixed wireless and wired broadband plans
and charges for usage in excess of plan minutes; and b) Prepaid usage charges consumed by mobile broadband subscribers.
14.2.4 The Globe Group provides wireline voice communications (local, national and
international long distance), data and broadband and data services to consumers, corporate and SME clients in the Philippines.
Consumers - the Globe Group‟s postpaid voice service provides basic
landline services including toll-free NDD calls to other Globe landline
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subscribers for a fixed monthly fee. For wired broadband, consumers can choose between broadband services bundled with a voice line, or a broadband data-only service. For fixed wireless broadband connection using Long-Term Evolution (LTE) or Worldwide Interoperability for Microwave Access (WiMax), the Globe Group offers broadband packages bundled with voice, or broadband data-only service. For subscribers who require full mobility, Globe Broadband Tattoo service come in postpaid and prepaid packages and allow them to access the internet via LTE, 3G with HSDPA, Enhanced Datarate for GSM Evolution (EDGE), General Packet Radio Service (GPRS) or WiFi at hotspots located nationwide.
Corporate/SME clients - for corporate and SME enterprise clients wireline
voice communication needs, the Globe Group offers postpaid service bundles which come with a business landline and unlimited dial-up internet access. The Globe Group also provides a full suite of telephony services from basic direct lines to Integrated Services Digital Network (ISDN) services, 1-800 numbers, International Direct Dialing (IDD) and National Direct Dialing (NDD) access as well as managed voice solutions such as Voice Over Internet Protocol (VOIP) and managed Internet Protocol (IP) communications. Value-priced, high speed data services, wholesale and corporate internet access, data center services and segment-specific solutions customized to the needs of vertical industries.
14.3 Others
This reporting segment represents mobile value added data content and application development services. Revenues principally consist of revenue share with various carriers on content downloaded by their subscribers and contracted fees for other application development services provided to various partners.
15. Note to Condensed Consolidated Statements of Cash Flows
The principal noncash transactions are as follows (in thousands pesos):
March 31
2014
(Unaudited)
2013 (Unaudited)
Increase in liabilities related to the acquisition of property and equipment P=941,810 P=780,642
Accretion of interest income from loan receivable 125,249 114,357 Capitalized ARO – 786
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SEC Number 1177 File Number ____
GLOBE TELECOM, INC. (Company‟s Full Name)
27th Floor The Globe Tower
32nd Street corner 7th Avenue, Bonifacio Global City, Taguig (Company‟s Address)
(632) 797-2000 (Telephone Numbers)
30 JUNE 2014 (Quarter Ending)
SEC FORM 17-Q (Form Type)
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 17-Q
QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES
REGULATION CODE AND SRC RULE 17(2)(b) THEREUNDER
1. For the three months ended 30 June 2014 2. Commission identification number: 1177
3. BIR Tax Identification No. 000-768-480-000 4. Exact name of registrant as specified in its charter: GLOBE TELECOM, INC. 5. Province, country or other jurisdiction of incorporation or organization: PHILIPPINES
6. Industry Classification Code: (SEC Use Only)
7. Address of registrant‟s principal office: 27th Floor, The Globe Tower
32nd Street corner 7th Avenue, Bonifacio Global City, Taguig
8. Registrant‟s telephone number, including area code: (632) 797-2000
9. Former name, former address and former fiscal year, if changed since last report: N / A
10. Securities registered pursuant to Sections in Securities Regulation Code Number of shares of stock Title of each class outstanding
Common Stock, P50.00 par value 132,681,827
Preferred Stock, P5.00 par value 158,515,021 11. Are any or all of the Securities listed on the Philippine Stock Exchange? Yes
12. Indicate whether the registrant:
a) Has filed all reports required to be filed by Section 17 of the Code and SRC Rule 17 thereunder or Sections 11 of the SRC and SRC Rule 11(a)-1 thereunder, and Sections 26 and 141 of the Corporation Code of the Philippines, during the preceding 12 months (or for such shorter period the registrant was required to file such reports).
Yes b) Has been subject to such filing requirements for the past 90 days. Yes
GLOBE TELECOM, INC. AND SUBSIDIARIES
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED
30 JUNE 2014
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Our unaudited condensed consolidated financial statements include the accounts of Globe Telecom,
Inc. and its wholly owned subsidiaries, Innove Communications, Inc.(Innove), G-Xchange, Inc.
(GXI), Entertainment Gateway Group (EGG Group), GTI Business Holdings, Inc. (GTI BH),
Kickstart Ventures, Inc. (Kickstart).
The unaudited condensed consolidated financial statements for the three months ended 30 June 2014
(filed as Annex 1 of this report) have been prepared in accordance with Philippine Accounting
Standard 34, Interim Financial Reporting and hence do not include all of the information required in
the December 31, 2013 annual audited financial statements.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A) OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of Globe Group’s financial performance for the six months
ended 30 June 2014. The prime objective of this MD&A is to help the readers understand the
dynamics of the Company’s business and the key factors underlying its financial results. Hence,
Globe’s MD&A is comprised of a discussion of its core business, and analysis of the results of
operations for each business segment. This section also focuses on key statistics from the unaudited
consolidated financial statements and pertains to known risks and uncertainties relating to the
telecommunications industry in the Philippines where we operate up to the stated reporting period.
However, Globe’s MD&A should not be considered all inclusive, as it excludes unknown risks,
uncertainties and changes that may occur in the general economic, political and environmental
condition after the stated reporting period. The Globe Group has adopted an expanded corporate
governance approach in managing its business risks. An Enterprise Risk Management Policy was
developed to systematically view the risks and to manage these risks in the context of the normal
business processes such as strategic planning, business planning, operational and support processes.
The Company’s MD&A should be read in conjunction with its unaudited consolidated financial
statements and the accompanying notes. All financial information is reported in Philippine Pesos
(Php) unless otherwise stated.
Any references in this MD&A to “we”, “us”, “our”, “Company” means the Globe Group and
references to “Globe” mean Globe Telecom, Inc., not including its wholly-owned subsidiaries.
Additional information about the Company, including annual and quarterly reports, can be found on
our corporate website www.globe.com.ph
SEC Form 17Q – 2Q 2014 5
The following is a summary of the key sections of this MD&A: OVERVIEW OF OUR BUSINESS..................................................................................6
FINANCIAL AND OPERATIONAL RESULTS ........................................................ 15
GROUP FINANCIAL SUMMARY .......................................................................... 15
GROUP OPERATING REVENUES ........................................................................ 18
GROUP OPERATING EXPENSES..........................................................................37
LIQUIDITY AND CAPITAL RESOURCES .......................................................... 41
FINANCIAL RISK MANAGEMENT ...................................................................... 47
LEGAL, REGULATORY AND CORPORATE DEVELOPMENTS ....................... 50
OTHER RELEVANT INFORMATION ...................................................................... 57
ANNEX TO THE MD&A SECTION............................................................................59
SEC Form 17Q – 2Q 2014 6
OVERVIEW OF OUR BUSINESS
Globe Telecom, Inc. is a major provider of telecommunications services in the Philippines, supported by over 6,000 employees and over 920,000 retailers, distributors, suppliers, and business partners nationwide. The Company operates one of the largest and most technologically-advanced mobile, fixed line and broadband networks in the country, providing reliable, superior communications services to individual customers, small and medium-sized businesses, and corporate and enterprise clients. Globe currently has about 42.7 million mobile subscribers, 2.2 million broadband customers, and over 640 thousand landline subscribers. Globe is one of the largest and most profitable companies in the country, and has been consistently recognized both locally and internationally for its corporate governance practices. It is listed on the Philippine Stock Exchange under the ticker symbol GLO and had a market capitalization of US$4.9 billion as of the end of June 2014. The Company‟s principal shareholders are Ayala Corporation and Singapore Telecom, both industry leaders in their respective countries. Aside from providing financial support, this partnership has created various synergies and has enabled the sharing of best practices in the areas of purchasing, technical operations, and marketing, among others. Globe is committed to being a responsible corporate citizen. Globe BridgeCom, the company‟s
umbrella corporate social responsibility program, leads and supports various initiatives that promote the quality education, active citizenship to protect the environment, social entrepreneurship and responsive governance through the innovative and Communications Technology, resulting in enabled, empowered and enriched lives for its employees and partner communities. Since its inception in 2003, Globe BridgeCom has made a positive impact on the lives of thousands of public elementary and high school students, teachers, community leaders, and micro-entrepreneurs throughout the country. For its efforts, Globe BridgeCom has been recognized and conferred several awards and citations by various Philippine and international organizations. Globe Bridging Communities is committed to Corporate Social Responsibility by. The Globe Group is composed of the following companies:
Globe Telecom, Inc. (Globe) provides mobile telecommunications services;
Innove Communications Inc. (Innove), a wholly-owned subsidiary, provides fixed line telecommunications and broadband services, high-speed internet and private data networks for enterprise clients, services for internal applications, internet protocol-based solutions and multimedia content delivery;
G-Xchange, Inc. (GXI), a wholly-owned subsidiary, provides mobile commerce services
under the GCash brand;
Entertainment Gateway Group Corp. (EGG), is engaged in the development and creation of wireless products and services accessible through telephones and other forms of
SEC Form 17Q – 2Q 2014 7
communication devices. It also provides internet and mobile value-added services, information technology and technical services including software development and related services;
GTI Business Holdings, Inc. (GTI) is a wholly-owned subsidiary with authority to
provide VOIP services. Its wholly-owned subsidiaries are: GTI Corporation (GTIC US), a company organized under the General Corporation Law of the State of Delaware for the purpose of engaging in any lawful act or activity, Globe Telecom HK Limited (GTHK), a limited company organized under the Companies Ordinance of Hong Kong, Globetel European Limited and its subsidiaries namely: UK Globetel Limited, Globe Mobile' Italy S.r.l. (GMI) and Globetel Internacional European España, S.L. UK Globetel Limited is a private limited company under the Companies Act of 2006, wherein the registered address is in England and Wales; Globe Mobile' Italy S.r.l. (GMI), is a limited liability company to perform, directly, and/or through its subsidiaries, services such as voice calling, SMS, MMS, load top-up and mobile data to Filipinos based in, or visiting Italy with registered address in Milan, Italy; Globetel Internacional European España, S.L. with registered address in Barcelona, Spain;
Kickstart Ventures, Inc. (Kickstart), a wholly-owned subsidiary, is a pioneering business
incubator designed to provide aspiring technopreneurs with funds and facilities, mentorship and market access needed to build new businesses; Its subsidiary, Flipside Publishing Services, Inc. (FPSI), is engaged in acquiring publishing rights to produce, publish, market and sell printed and electronic books and other electronic documents and content for international and domestic sales; and
Asticom Technology, Inc. a wholly-owned subsidiary is a system integrator and
information technology services provider to domestic and international markets.
The Company is a grantee of various authorizations and licenses from the National Telecommunications Commission (NTC) as follows: (1) license to offer and operate facsimile, other traditional voice and data services and domestic line service using Very Small Aperture Terminal (VSAT) technology; (2) license for inter-exchange services; and (3) Certificate of Public Convenience and Necessity (CPCN) for: (a) international digital gateway facility (IGF) in Metro Manila, (b) nationwide digital cellular mobile telephone system under the GSM standard (CMTS-GSM), (c) nationwide local exchange carrier (LEC) services after being granted a provisional authority in June 2005, and (d) international cable landing stations located in Nasugbu, Batangas and Ballesteros, Cagayan. Globe is organized along three key customer facing units (CFUs) tasked to focus on the integrated mobile and fixed line needs of specific market segments. The Company has a Consumer CFU with dedicated marketing and sales groups to address the needs of retail customers, and a Business CFU (Globe Business) focused on the needs of big and small businesses. Globe Business provides end-to-end mobile and fixed line solutions and is equipped with its own technical and customer relationship teams to serve the requirements of its client base. In early 2011, Globe organized an International Business Group to serve the voice and roaming needs of overseas Filipinos, whether transient or
SEC Form 17Q – 2Q 2014 8
permanent. It is tasked to grow the Company‟s international revenues by leveraging on Globe‟s
product portfolio and developing and capitalizing on regional and global opportunities.
Business Segments
Mobile Business Globe provides digital mobile communication services nationwide using a fully digital network based on the Global System for Mobile Communication (GSM) technology. It provides voice, data and value-added services to its mobile subscribers through three major brands: Globe Postpaid, Globe
Prepaid and TM. Globe Postpaid includes all postpaid plans such as regular G-Plans and consumable G-Flex Plans, Load Allowance Plans, Load Tipid Plans and Platinum Plans (for the high-end market). In 2010, the Company introduced the MY SUPERPLAN and MY FULLY LOADED PLAN which allow subscribers to personalize their plans, choose and combine various unlimited call, text and web browsing service options. In addition, Globe has made available various add-on roaming and mobile browsing plans to cater to the needs of its subscribers. In 2011, Globe further improved postpaid offerings with the All
New My Super Plan where subscribers are given the flexibility to create their own plans by either subscribing to an All-Unlimited Plan or an All-Consumable Plan. Subscribers also get to choose their freebies and add-ons which they can change on a monthly basis. A fully-customizable unlimited data plan (Unli Surf Combo Plan) was also made available to its subscribers in mid-2011 which provides uninterrupted unlimited mobile surfing without the need for a WIFI connection. The data plan comes with consumable amounts which the subscriber may use to either local and international calls and text messages. Taking the product customization to the next level, the company launched in the second quarter of 2013 the BEST-EVER MY SUPERPLAN with fully-customizable plan components, bigger plan value and more contract periods to choose from (6, 12, 18, and 30 months). Each plan has a corresponding “peso value” that can be converted to avail of a combination of call, text, or surf
services, free or discounted gadgets, and a monthly consumable amount for more calls, texts and surf. In November 2013, Globe Postpaid launched the iPhone Forever program bannering the latest phone from Apple (iPhone 5s and iPhone 5c). Under the iPhone Forever program, new and existing Globe subscribers who are loyal iPhone users may swap their current devices to get a new iPhone every year for free or with minimal one-time cash out. Following the “iPhone Forever Plan” launched in 2013, Globe Postpaid launched “Galaxy Forever Plan” in the second quarter of 2014, wherein new and existing subscribers can acquire or upgrade to the newest Samsung Galaxy phone every year by simply subscribing to any Galaxy Forever Plan (Galaxy Forever Plan 1599; Galaxy Forever Plan 1999; Galaxy Forever Plan 2499). Globe Prepaid and TM are the prepaid brands of Globe. Globe Prepaid is focused on the mainstream market while TM caters to the value-conscious segment of the market. Each brand is positioned at different market segments to address the needs of the subscribers by offering affordable innovative products and services. In February 2012, the Company introduced a self-service menu that provides Globe prepaid subscribers an easy access to avail of the latest promos and services of Globe by simply dialing *143#. In early 2013, this menu was further developed with Globe Prepaid’s GO
SAKTO which allows the subscribers to build their own promos (call, text and surf promos) that is best suited for their needs and lifestyle.
SEC Form 17Q – 2Q 2014 9
Globe also provides its subscribers with mobile payment and remittance services under the GCash brand. GCash transforms a mobile phone into a virtual wallet, enabling secure, fast, and convenient way to transfer money at a cost of a text message. This service enables our subscribers to perform international and domestic remittance transactions, pay fees, utility bills, income taxes, avail of micro-finance transactions, donate to charitable institutions, and buy Globe prepaid reloads. A wide network of local and international partnerships has been established over the years including government agencies, utility companies, cooperatives, insurance companies, remittance companies and commercial establishments, in order to make GCash an accepted mode of payment for various products and services. Globe Prepaid and TM subscribers can reload airtime value or credits using various reloading channels including prepaid call and text cards, bank channels such as ATMs, credit cards, and through internet banking. Subscribers can also top-up via AutoLoad Max retailers nationwide, all at affordable denominations and increments. A consumer-to-consumer top-up facility, Share-A-Load, is also available to enable subscribers to share prepaid load credits via SMS. Globe has a loyalty and rewards program called My Rewards, My Globe for Globe Prepaid subscribers, TM Astig Rewards for TM subscribers and Tattoo+ Rewards for Tattoo Broadband subscribers. Globe Postpaid subscribers can earn points based on their monthly billed amounts in excess of their Monthly Subscription Fee. Subscribers have the option to redeem rewards instantly, or accumulate points to avail of higher value rewards. Redeemed points in the form of telecom services is netted out against revenues whereas points redeemed in the form of non-telco services such as gift certificates and other products are reflected as marketing expense. At the end of each period, Globe estimates and records the amount of probable future liability for unredeemed points. In 2014, Globe Postpaid recently launched the Globe Blue or Platinum Rewards Cards. The new cards can also work as a GCash Mastercard which can be used to shop anywhere within the Philippines and even abroad. Membership to Globe Blue is given to postpaid customers who spend an average of P2,000- P3,499 per month over a 12-month period. Meanwhile membership to the Globe Platinum is given to postpaid customers who subscribe to plan P3,799 or spend an average of P3,500-P4,999 over a 12-month period; and membership to Platinum Elite Rewards card is given to postpaid customers who subscribe to All Net P5,000 or P10,000; roaming P5,000 or P10,000 or spend an average of P5,000 and above over a 12-month period. Special perks may vary depending on the plan subscription. Mobile Voice
Globe‟s voice services include local, national and international long distance call services. It has
one of the most extensive local calling options designed for multiple calling profiles. In addition to its standard, pay-per-use rates, subscribers can choose from bulk and unlimited voice offerings for all-day or off-peak use, and in several denominations to suit different budgets.
Globe keeps Filipinos connected wherever they may be in the world, made possible by its tie-up with over 720 roaming partners in more than 230 calling destinations worldwide. Globe also offers roaming coverage on-board selected shipping lines and airlines, via satellite. Through its Globe Kababayan program, Globe provides an extensive range of international call and text services to allow OFWs (Overseas Filipino Workers) to stay connected with their friends and
SEC Form 17Q – 2Q 2014 10
families in the Philippines. This includes prepaid and reloadable call cards and electronic PINs available in popular OFW destinations worldwide.
Mobile SMS, Mobile Browsing and Value-Added Services
Globe‟s Mobile SMS service includes local and international SMS offerings. Globe also offers various bucket and unlimited SMS packages to cater to the different needs and lifestyles of its postpaid and prepaid subscribers. Globe‟s Mobile Browsing services allow subscribers to access the internet using their internet-capable handsets, devices or laptops with USB modems. Data access can be made using various technologies including LTE, HSPA+, 3G with HSDPA, EDGE and GPRS. Browsing subscribers also have multiple charging options available with Globe‟s Flexible Mobile Internet Browsing
rates which allow subscribers to choose between time or usage-based rates. They can also choose between hourly, daily or monthly browsing plans. Globe‟s Value-Added Services offers a full range of downloadable content covering multiple topics including news, information, and entertainment through its web portal. Subscribers can purchase or download music, movie pictures and wallpapers, games, mobile advertising, applications or watch clips of popular TV shows and documentaries as well as participate in interactive TV, do mobile chat, and play games, among others. Additionally, Globe subscribers can send and receive Multimedia Messaging Service (MMS) pictures and video, or do local and international 3G video calling. Through Globe‟s partnership with major banks and remittance companies, and using Globe‟s
pioneering GCash platform, subscribers can perform mobile banking and mobile commerce transactions. Globe subscribers can complete international and domestic remittance transactions, pay fees, utility bills and income taxes, avail of micro-finance transactions, donate to charitable institutions, and buy Globe prepaid load credits using its GCash-activated SIM.
Fixed Line and Broadband Business
Globe offers a full range of fixed line communications services, wired and wireless broadband access, and end-to-end connectivity solutions customized for consumers, SMEs (Small & Medium Enterprises), large corporations and businesses. Fixed Line Voice
Globe‟s fixed line voice services include local, national and international long distance calling services in postpaid and prepaid packages through its Globelines brand. Subscribers get to enjoy toll-free rates for national long distance calls with other Globelines subscribers nationwide. Additionally, postpaid fixed line voice consumers enjoy free unlimited dial-up internet from their Globelines subscriptions. Low-MSF (monthly service fee) fixed line voice services bundled with internet plans are available nationwide and can be customized with value-added services including multi-calling, call waiting and forwarding, special numbers and voice mail. For corporate and enterprise customers, Globe offers voice solutions that include regular and
SEC Form 17Q – 2Q 2014 11
premium conferencing, enhanced voice mail, IP-PBX solutions and domestic or international toll free services.
Fixed Line Data
Fixed line data services include end-to-end data solutions customized according to the needs of businesses. Globe‟s product offerings include international and domestic leased line services,
wholesale and corporate internet access, data center services and other connectivity solutions tailored to the needs of specific industries. Globe‟s international data services provide corporate and enterprise customers with the most
diverse international connectivity solutions. Globe‟s extensive data network allow customers to
manage their own virtual private networks, subscribe to wholesale internet access via managed international private leased lines, run various applications, and access other networks with integrated voice services over high-speed, redundant and reliable connections. In addition to bandwidth access from multiple international submarine cable operators, Globe also has two international cable landing stations situated in different locales to ensure redundancy and network resiliency. The Company‟s domestic data services include data center solutions such as business continuity and data recovery services, 24x7 monitoring and management, dedicated server hosting, maintenance for application-hosting, managed space and carrier-class facilities for co-location requirements and dedicated hardware from leading partner vendors for off-site deployment. Other fixed line data services include premium-grade access solutions combining voice, broadband and video offerings designed to address specific connectivity requirements. These include Broadband Internet Zones (BIZ) for broadband-to-room internet access for hotels, and Internet Exchange (GiX) services for bandwidth-on-demand access packages based on average usage.
Globe Business also launched in 2013 new cloud capabilities featuring the first large-scale, private and public-ready, next generation cloud in Asia - the PayrollCloud application, an innovative Software-as-a-Service or SaaS providing on-time and accurate payroll accounting system – from automatic calculation of salaries, standard time and attendance reports, biometric integration, online application and customizable approval hierarchy and online payslip access. Another is its Backup-as-a-Service platform which is the most advanced backup and restoration software, that enables continuous data protection, local off-site storage and managed services to industries, enterprises as well as small and medium businesses.
Broadband
Globe offers wired, fixed wireless, and fully mobile internet-on-the-go services across various technologies and connectivity speeds for its residential and business customers. Tattoo@Home consists of wired or DSL broadband packages bundled with voice, or broadband data-only services which are available at download speeds ranging from 1 mbps up to 15 mbps. In selected areas where DSL is not yet available, Globe offers Tattoo WiMAX, a fixed wireless broadband
SEC Form 17Q – 2Q 2014 12
service using its WiMAX network. Meanwhile, for consumers who require a fully mobile, internet-on-the-go broadband connection, Tattoo On-the-Go allows subscribers to access the internet using HSPA+, 3G with HSDPA, EDGE, GPRS or Wi-Fi at various hotspots nationwide using a plug-and-play USB modem. This service is available in both postpaid and prepaid packages. In addition, consumers in selected urban areas who require faster connections have the option to subscribe to Tattoo Torque broadband plans using leading edge GPON (Gigabit Passive
Optical Network) technology with speeds of up to 100 mbps. In September 2012, the Company officially launched its Long-Term Evolution (LTE) broadband service with the Tattoo Black Postpaid Plans. The nomadic broadband plans are equipped with an LTE dongle and LTE superstick that deliver browsing speeds of up to 42 Mbps and come with personalized customer handling services such as a dedicated hotline, a relationship manager, and many other perks. In 2013, Tattoo introduced its 4G product suite with the launch of Tattoo 4G Flash for only P995 with surfing speeds of up to 7.2 Mbps. Tattoo At-Home on the other hand, offered free unlimited calls to Globe/TM in every Tattoo@Home Broadband Bundle (landline + internet service). Meanwhile, Tattoo Postpaid strengthens its lifestyle positioning with the unveiling of Tattoo-
Enjoy Card which allows new Tattoo Postpaid subscribers access to perks and discounts to over 240 brand partners nationwide. Likewise, Tattoo Prepaid Lifestyle sticks with surfing speed of up to 12 Mbps was made available to consumers for only P1,295. With the increasing demand for mobile Wi-Fi and faster internet connectivity, Tattoo Prepaid re-launched its 4G SuperStick during the third period of 2013 with a more affordable price of P1,995. Tattoo Postpaid also launched its new and improved postpaid personalized and consumable plans with increased surfing speed now up to 42 Mbps. LTE plans starting at P1,299 was made available with FREE LTE dongle or pay a one-time fee of P2,000 for an upgrade to a mobile Wi-Fi device. Tattoo consumable plans was further improved with more browsing hours (from 30 hours to 50 hours) for Plan 299 and for Plan 499 (from 50 hours to 85 hours) also with an option to upgrade to a mobile Wi-Fi device for only P150 per month. Another Tattoo revolutionary promo offer during 2013 was the most affordable tablet bundles, wherein its subscribers can get FREE three devices (Skyworth S73 tablet or a Cloudpad 705W, a Blackberry Curve 9220 and the fastest broadband Wi-Fi stick) with unlimited internet browsing and mobile text and call starting at Plan 1,298. During the first quarter of 2014, the widest range of Tattoo Prepaid mobile Wi-Fi devices was made available including 4G mobile Wi-Fi with speed up to 12mbps, connects up to 10 devices for only P1,995; 4G mobile Wi-Fi + Powerbank which full charge the phone up to 3x for only P3,795 and LTE mobile Wi-Fi with speed up to 42mbps, connects up to 10 devices + Powerbank, which full charge the phone, for only P4,995. Tattoo Postpaid likewise introduced the best value tablet bundle with no upfront cash out – Samsung Galaxy Tab 3 + FREE mobile Wi-Fi for P899 per month and Postpaid Tattoo Plan with free LTE stick (Plan999) or LTE Mobile WiFi
(Plan1299). Meanwhile, Tattoo Home Broadband banners its Plan1599 internet service + landline bundle, now with speed up to 5mbps.
SEC Form 17Q – 2Q 2014 13
KEY PERFORMANCE INDICATORS
Globe is committed to efficiently managing the Company‟s resources and enhancing shareholder
value. The Company regularly reviews its performance against its operating and financial plans and strategies, and use key performance indicators to monitor its progress. Some of its key performance indicators are set out below. Except for Net Income, these key performance indicators are not measurements in accordance with Philippine Financial Reporting Standards (PFRS) and should not be considered as an alternative to net income or any other measure of performance which are in accordance with PFRS.
AVERAGE REVENUE PER UNIT (ARPU)
ARPU measures the average monthly gross revenue generated for each subscriber. This is computed by dividing recurring gross service revenues (gross of interconnect charges) for a business segment for the period by the average number of the segment‟s subscribers and then dividing the quotient by the number of months in the period.
SUBSCRIBER ACQUISITION COST (SAC)
SAC is computed by totaling marketing costs (including commissions and handset/SIM subsidies1) related to the acquisition programs for the segment for the period divided by the gross incremental subscribers.
AVERAGE MONTHLY CHURN RATE
The average monthly churn rate is computed by dividing total disconnections (net of reconnections) for the segment by the average number of the segment‟s subscribers, and then divided by the number of months in the period. This is a measure of the average number of customers who leave/switch/change to another type of service or to another service provider and is usually stated as a percentage.
EBITDA
EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) is calculated as service revenues less subsidy1, operating expenses and other income and expenses2. This measure provides useful information regarding a company‟s ability to generate cash flows, incur and service debt, finance capital expenditures and working capital changes. As the Company‟s method of calculating
EBITDA may differ from other companies, it may not be comparable to similarly titled measures presented by other companies.
1 Computed as non-service revenues less cost of sales, mostly on sale of handsets/SIM packs, accessories & gadgets
2 Operating expenses do not include any property and equipment-related gains and losses and financing costs
SEC Form 17Q – 2Q 2014 14
EBITDA MARGIN
EBITDA margin is calculated as EBITDA divided by total service revenues. Total service revenue is equal to total gross operating revenue less non-service revenue. This is useful in measuring the extent to which subsidies and operating expenses (excluding property and equipment-related gains and losses and financing costs), use up revenue.
EBIT and EBIT MARGIN EBIT is defined as earnings before interest, property and equipment-related gains and losses and income taxes. This measure is calculated by deducting depreciation and amortization from EBITDA. Globe Group‟s method of calculating EBIT may differ from other companies, hence, may not be
comparable to similar measures presented by other companies. EBIT margin is calculated as EBIT divided by total service revenues. CORE NET INCOME Core net income is defined as net income after tax (NIAT) but excluding foreign exchange and mark-to-market gains (losses), and non-recurring items such as the Company‟s accelerated depreciation
charges resulting from the network modernization and IT transformation program implemented in 2012. Starting with the 2012 payout, dividends will be computed against prior year‟s core net income
instead of reported net income to ensure that dividends remain sustainable and yields competitive, despite the expected decline in near-term profits arising from accelerated depreciation charges related to the transformation efforts. NET INCOME As presented in the unaudited condensed consolidated financial statements for applicable periods, net income provides an indication of how well the Company performed after all costs of the business have been factored in.
SEC Form 17Q – 2Q 2014 15
FINANCIAL AND OPERATIONAL RESULTS
GROUP FINANCIAL SUMMARY
Globe Group
Quarter on Quarter Year on Year
Results of Operations (Php Mn) Q2 Q1 QoQ 1H 1H YoY
2014 2014 Change 2014 2013 Change
(%) (%)
Operating Revenues 25,708
24,360
6% 50,068
46,569
8%
Service Revenues 24,465
23,230
5% 47,695
44,532
7%
Non-Service Revenues 1,243
1,130
10% 2,373
2,037
16%
Costs and Expenses 15,427
15,564
-1% 30,991
27,629
12%
Cost of Sales 2,854
2,867
- 5,721
4,419
29%
Operating Expenses 12,573
12,697
-1% 25,270
23,210
9%
EBITDA 10,281
8,796
17% 19,077
18,940
1%
EBITDA Margin 42% 38% 40% 43%
Depreciation 4,442
4,068
9% 8,510
16,071
-47%
Affected by network modernization 666 512 30% 1,178
7118 -83%
Others 3,776
3,556
6% 7,332
8,953
-18%
EBIT 5,839
4,728
24% 10,567
2,869
268%
EBIT Margin 24% 20% 22% 6%
Non-Operating Charges (223)
(422)
-47% (645)
(1,079)
-40%
Net Income After Tax (NIAT) 3,886
2,949
32% 6,835
1,410
385%
Core Net Income 4,232
3,357
26% 7,589
6,426
18%
The Globe Group's consolidated service revenues for the first half of the year improved by 7% to reach P47.7 billion from P44.5 billion last year. The sustained topline growth was driven by the strong performances across all key business segments. Mobile revenues posted 5% increase from the same period last year with Globe Postpaid and TM growing by 11% and 9%, respectively. The strong mobile revenue growth was driven in part by solid subscriber base expansion, up 18% year-on-year, to end the first half of the year with total mobile subscribers of 42.7 million. Globe‟s broadband and fixed line data segments likewise posted solid growth of 14% and 17% respectively, due to expanded customer bases and the sustained demand for data connectivity. Fixed line voice, on the other hand, bucked the global trend, registering positive growth of 10% year-on-year.
On a sequential basis, consolidated service revenues grew to P24.5 billion, up by P1.2 billion or
5% from last quarter‟s record-level of P23.2 billion. In step with the year-to-date trend, revenue growth was broad-based, with mobile, broadband and fixed line voice improving 5%, 10% and 12%, respectively, and partially mitigating the slight decline in fixed line data services.
SEC Form 17Q – 2Q 2014 16
Operating expenses and subsidy increased 12% year-on-year from P25.6 billion to P28.6 billion as Globe continued to re-invest gains in revenues in acquiring and retaining high-quality subscribers and improving the quality of service through the expansion of its network. To further support the growing subscriber base, subsidy costs, advertising and promotions, services, provisions and staff-related costs were all up year-on-year. Maintenance costs and lease charges were likewise higher, given the larger Globe network. The increase in operating expenses was partially offset by lower re-contracting costs and interconnect charges, against the same period last year. On a sequential basis, subsidy and operating expenses was down 2% from P14.4 billion last quarter to only P14.2 billion this period.
The increase in operating expenses was likewise offset by lower depreciation charges in the first
half of 2014. As the bulk of such accelerated depreciation charges related to the modernization initiatives were incurred in 2013, accelerated depreciation expenses were significantly lower at P1.2 billion against the P7.1 billion in the same period last year. Normal depreciation of assets was likewise lower at P7.3 billion from P9.0 billion last year, as some assets were considered end of life by the end of 2013
Overall, total cost and expenses for the first half of 2014, including depreciation charges, declined
by 11% year-on-year from P41.7 billion to only P37.1 billion this period. On a sequential basis, cost and expenses including depreciation, slightly increased by 1%.
Consolidated EBITDA for the first six months of the year stood at P19.1 billion, slightly up by
1% against the same period last year, as the top line growth fully covered the increases in operating expenses and subsidy. EBITDA margin declined to 40% in the first half of the year from 43% in the same period last year. However, compared to the previous quarter, consolidated EBITDA increased by 17%, driven by the combined effect of strong revenue performance as well as lower costs this quarter, resulting to EBITDA margin improvement by 4 percentage points, from 38% last quarter to 42% in the second quarter.
Non-operating charges declined year-on-year and quarter-on-quarter by 40% and 47%,
respectively, driven by the net foreign exchange gains coupled with lower interest expenses recognized during the period.
Globe ended the first semester of 2014 with consolidated net income of P6.8 billion, almost four times the P1.4 billion net income recorded in the same period last year. This improvement in net income was driven by higher EBITDA, lower depreciation charges, foreign exchange gain and lower interest expenses recognized during the period. Excluding the non-recurring accelerated depreciation expenses and foreign exchange and mark-to-market gains and losses, core net income after tax reached P7.6 billion as of end June of 2014, an 18% increase from the P6.4 billion in the same period last year. On a sequential basis, consolidated net income improved by 32% to P3.9 billion from P2.9 billion last quarter, given the EBITDA growth and lower non-operating charges. Core net income after tax likewise increased by 26% to P4.2 billion from last quarter's P3.4 billion.
As of June 2014, total cash capital expenditures stood at about P11.0 billion, 28% lower than last
year's level of P15.2 billion. Approximately 54% were spent on data-related access and transport
SEC Form 17Q – 2Q 2014 17
infrastructure, including transmission capacities and international cable facilities. Data-related access investments included deployments in Globe‟s wireless 3G broadband, HSPA+ and LTE
access and roll-outs for fixed broadband and LTE @Home solutions. While 16% of the CAPEX was made for core-related services, including payments for the network transformation program, and coverage solutions. The P11.0 billion CAPEX for the first half of 2014 remains in line with the P29 billion ($650 million) capital expenditure plan for 2014.
SEC Form 17Q – 2Q 2014 18
GROUP OPERATING REVENUES
Quarter on Quarter Year on Year
Q2 Q1 QoQ 1H 1H YoY
Operating Revenues By 2014 2014 Change 2014 2013 Change
Business (Php Mn) (%) (%)
Mobile 20,265 19,333 5% 39,598 37,553 5%
Service Revenues 19,342 18,456 5% 37,798 35,841 5%
Non-Service Revenues 923 877 5% 1,800 1,712 5%
Fixed Line and Broadband 5,443 5,027 8% 10,470 9,016 16%
Service Revenues 5,123 4,774 7% 9,897 8,691 14%
Non-Service Revenues 320 253 26% 573 325 76%
Total Operating Revenues 25,708 24,360 6% 50,068 46,569 8%
Globe Group closed the first half with total operating revenues of P50.1 billion, up 8% from last year. Compared to last quarter‟s result, operating revenues were higher by 6% from P24.4 billion. Mobile revenues, which accounted for 79% of consolidated service revenues as of the first half of 2014, increased to P37.8 billion, up by 5% from last year‟s level of P35.8 billion, given the higher revenue contributions from mobile data (+11%) and voice (+9%) as complemented by the continued subscriber growth across all brands. On a quarterly perspective, Globe‟s mobile revenues are up 5% from P18.5 billion in the first quarter of the year to P19.3 billion, registering a new quarterly high. Broadband and fixed line businesses which comprise 21% of consolidated service revenues likewise sustained its growth momentum across all segment with both broadband and fixed line data growing in double digits at 14% and 17%, respectively. Traditional fixed voice revenues continued to show positive year-on-year growth of 10%. Broadband‟s sustained revenue increase to P5.9 billion from P5.1 billion last year and the 10% quarter-on-quarter growth was driven by the continued aggressive and competitive wireless broadband offers. Globe ended the first six months of 2014 with 2.2 million broadband subscribers, up by 24% from same period last year. Compared to the previous quarter, broadband and fixed line voice improved by 10%, and 12%, respectively, while fixed line data showed a slight decline. Mobile non-service revenues increased year-on-year and quarter-on-quarter by 5%. Fixed line and broadband non-service revenues, also increased compared to the previous year by 76% and by 26% compared to previous quarter on the back of strong broadband acquisitions.
SEC Form 17Q – 2Q 2014 19
MOBILE BUSINESS
Globe Group
Quarter on Quarter Year on Year
Q2 Q1 QoQ 1H 1H YoY
Mobile Service Revenue 2014 2014 Change 2014 2013 Change
(Php Mn) (%) (%)
Service* Voice
1 8,684 8,658 - 17,342 15,938 9%
SMS2 7,233 7,008 3% 14,241 14,310 -
Mobile Browsing and Other Data
3
3,425 2,790 23% 6,215 5,593 11%
Mobile Service Revenues 19,342 18,456 5% 37,798 35,841 5%
1 Mobile voice service revenues include the following:
a) Prorated monthly service fees on consumable minutes of postpaid plans; b) Subscription fees on unlimited and bucket voice promotions including the expiration of the unused value of denomination loaded; c) Charges for intra-network and outbound calls in excess of the consumable minutes for various Globe Postpaid plans, including
currency exchange rate adjustments, or CERA, net of loyalty discounts credited to subscriber billings; d) Airtime fees for intra network and outbound calls recognized upon the earlier of actual usage of the airtime value or expiration of
the unused value of the prepaid reload denomination (for Globe Prepaid and TM) which occurs between 3 and 120 days after activation depending on the prepaid value reloaded by the subscriber net of (i) bonus credits and (ii) prepaid reload discounts; and revenues generated from inbound international and national long distance calls and international roaming calls; and
e) Mobile service revenues of GTI.
Revenues from (a) to (e) are reduced by any payouts to content providers.
2 Mobile SMS revenues consist of local and international revenues from value-added services such as inbound and outbound SMS and MMS, infotext, and subscription fees on unlimited and bucket prepaid SMS services, net of any interconnection or settlement payouts to international and local carriers and content providers. 3 Mobile browsing and other data service revenues consist of local and international revenues from value-added services such as mobile internet browsing and content downloading, mobile commerce services, other add-on VAS, and service revenues of GXI and EGG, net of any interconnection or settlement payouts to international and local carriers and content providers.
Mobile Voice
Mobile voice revenues, which accounted for 46% of total mobile service revenues, grew by 9% compared to the same period last year due to the continued popularity of unlimited and bulk domestic voice subscriptions. offsetting the decline in pay-per-use domestic voice and international voice services. Against last quarter, mobile voice revenues were relatively flat, up slightly by P26 million at P8.7 billion. Globe remains the only operator in the country that offers per-second voice charging with Globe‟s Super Sakto Calls and TM‟s Sulit Segundo which allow subscribers to make a local call for only P0.15 per second. The Company continues to provide attractive and affordable bulk voice offers
SEC Form 17Q – 2Q 2014 20
such as Tawag 236 for 20-minute consumable calls for only P20 for Globe Postpaid and Globe
Prepaid subscribers and TM’s TodoTawag 15/15 service for 15-minute on-net call for only P15. TM subscribers may also subscribe to SuliTawag for only P5 for 3-minute Globe and TM network calls and TM Dagdag Call worth P5 which is an add-on service to subscribers registered to TM‟s text
promotions that provides 3-minute on-net calls. Likewise, GoCall100 was made available via GoSakto which provide Globe Prepaid subscribers 500 minutes of on-net calls to Globe/TM for only P100 for 7 days. Also, TM launched during the first quarter of 2014, UNLICALL15 which gives its subscribers Unlimited call to all Globe and TM subscribers for as low as P15 valid for 1 day. Globe Prepaid on the other hand, launched GoUnli20 which offers unlimited calls to Globe and TM, 20 texts to all networks, and 15MB of mobile data, good for 1 day. Meanwhile, for Filipinos who wish to stay connected with their loved ones abroad, Globe continues to offer its pioneering per-second charging for international voice calls, IDD Sakto Calls for both Globe Postpaid and Globe Prepaid subscribers. Globe Prepaid’s GoTipIDD service remains to be the lowest per-minute IDD rates in the market. In addition, Globe also provides a bucket IDD service to popular and selected overseas destinations with its IDD Tingi promotion, while offering its TipIDD card at various Globe distribution channels. The Company‟s international voice services also include Super IDD, an unlimited call service for 24 hours to select destinations worldwide, and Globe Duo
International, which provides registered Globe Postpaid and Globe Prepaid subscribers with virtual US landline numbers which they can use to communicate with their loved ones in the USA. Families and friends in the USA in turn may call their loved ones back in the Philippines and be charged at domestic US rates. This service was further expanded to cover Korea, Canada and UK with the launch of Globe DUO Korea, Globe DUO Canada and Globe DUO UK where it assigns a Korean, Canadian or UK number to a Globe/TM mobile number in the Philippines which subscribers may use to call friends and loved ones in Korea, Canada and UK directly while enjoying local (Korea/Canada/UK) domestic calling rates. In the same manner, incoming calls from Korea, Canada and UK to Duo numbers registered in the Philippines are also charged at local Korean, Canadian and UK rates. Globe Duo Korea, Globe Duo Canada and Globe Duo UK are available to Globe
Postpaid, Globe Prepaid, and TM subscribers. In addition during the last quarter of 2013, TM launched TipIDD30 which offer four (4) minutes of international calls to Saudi, UAE, Kuwait, Bahrain, Italy, UK, Australia and Japan for only P30 a day. In early 2014, Duo Japan was launched which allows calls from Japan to the Philippines, via a Japanese number assigned to a Globe or TM mobile number, to be charged on local rates. The Company also provides its subscribers with the best possible mix of voice, SMS, and mobile browsing services through its combo packages. For Globe Prepaid, subscribers have the choice to avail of All-Unli Trio60, SuperUnliAllTxt 25, SuperAll Txt 20, Super Combo 20 and All Net Combo. Another option that Globe Prepaid subscribers may choose to avail of is GoUnli, which provides unlimited SMS to all networks as well as unlimited on-net calls, and unlimited use of Facebook. The Company likewise offers Immortal Trio to Globe Prepaid subscribers to allow 50 on-net SMS, 5 all-network texts and 5 minutes of on-net calls for only P25 per subscription. Globe Prepaid subscribers also have the option to subscribe to UnliTingi to get unlimited all-network texts, unlimited on-net calls, and unlimited mobile browsing valid for 1 hour for only P5. SuperUnli, which allows unlimited calls and SMS within the Globe and TM networks, is also available for one day subscription for Globe Prepaid subscribers for only P25. Another industry-shaking innovation from Globe Prepaid is the launch of GoSakto in 2013 which empowers the subscribers and gives them the flexibility to tailor-fit their prepaid promo based on their calling, texting and surfing needs for the
SEC Form 17Q – 2Q 2014 21
day, week or month. On top of this, subscribers can even name the offer they created and share it among their friends on Facebook to allow their friends to register to the same promo. Additionally, Globe, in partnership with Viber, launched several value-for-money service offerings in order to give its Globe Prepaid subscribers a richer mobile experience. GoUnli25, which offers the all-time favorite unlimited on-net voice and texts was made even better with FREE unlimited Viber Chat offered at the same price of P25. Likewise, Globe Prepaid’s GoUnli30 which allows unlimited all-network SMS, unlimited on-net call and unlimited Facebook valid for a day was further improved during the third quarter of 2013 to include the best Chat Apps for the same price of P30. Globe
Prepaid subscribers can call their friends abroad using Viber, enjoy real-time IM conversations via FB Messenger, send cute, animated stickers using Kakao, and even leave personalized walkie-talkie voice messages using WeChat! Other chat apps like Whatsapp, Line and GMessage can also be used for free with NO WIFI needed. In 2014, Globe Prepaid further intensified its customizable service offerings with the launch of the new GoUnli25 via the “GO SAKTO” mobile app (which can now be
downloaded on the Apple App Store or Google Play) or by dialing *143#. The new GoUnli25 now offers unlimited texts and calls to Globe/TM, unlimited Facebook, plus a choice of one FREE app (from the following: twitter, instagram, google, yahoo, viber, foursquare) still at P25/day. For TM on the other hand, subscribers can choose from a wide array of unlimited and bucket offers which will best fit their budget and lifestyle. Among the Unlimited Promo, TM subscribers can avail of UnliCombo for as low as P15 for 1 day if they want to get unlimited on-net calls from 11PM to 6AM the following day and unlimited on-net SMS for 24 hours. Alternatively, they can subscribe to UnliCombo20 if they want to get unlimited on-net calls from 10 PM to 5 PM the following day and unlimited on-net SMS for 24 hours. Subscribers may also opt to choose a 2-day unlimited on-net SMS with Astigtxt15. Bucket text and call services are likewise available for as low as P10 for an unlimited on-net SMS and bulk on-net voice calls with AstigCombo10. Astigcombo15 is also available which gives unlimited on-net texts and 30 minutes on-net calls for P15 a day. TM subscribers may avail of Combo15 to get unlimited on-net SMS, 50 all-network text service, and 10 consumable minutes within the TM and Globe networks for 2 days as well as Combo20 which offer unlimited on-net texts to Globe/TM plus 50 All-net texts and 20 minutes calls to Globe/TM for only P20. Unlicombo20 was likewise introduced during the period which provides unlimited texts to TM/Globe subscribers for 24 hours plus unlimited calls to TM/Globe subscribers from 10 PM to 5 PM the following day. On top of this, TM subscribers can now extend for another 24 hours their favorite TM promo for only P5. Mobile SMS
Mobile SMS which accounted for 38% of total mobile service revenues, closed the first half at P14.2 billion, slightly lower from P14.3 billion SMS revenues recorded in the same period last year. The decrease in SMS revenues on a year-on-year basis reflects the continued shift from regular, pay-per-use SMS services to bucket and unlimited promotions. However, SMS traffic in aggregate continues to remain strong, growing 2% year-on-year and 5% quarter-on-quarter. On a sequential basis, mobile SMS revenues improved by 3% to 7.2 billion from 7.0 billion the previous quarter. Globe showcases a comprehensive line up of mobile SMS services ranging from unlimited and bucket text services to combo voice, SMS and surf promotions. Globe continues to provide its prepaid subscribers with all-day unlimited on-net SMS with UnliTxt and AstigTxt, respectively. Globe Postpaid and Globe Prepaid subscribers may get 30 days of unlimited on-net text service by
SEC Form 17Q – 2Q 2014 22
subscribing to SuperTxt. TM subscribers can likewise subscribe to other variants of the AstigTxt offering for unlimited on-net SMS valid for 2 days, 3 days, or 5 days. For on-net bucket SMS offers, Globe continues to provide SuliTxt which allows 100 and 25 text messages for a single day subscription. The Company also offers all-network text services such as My SuperTxt All, an unlimited text service for 30 days available for postpaid subscribers and UnliTxtAll20 for a 1-day unlimited SMS to all networks for TM subscribers. All network bucket text services are likewise available with Globe Prepaid’s SuperAllTxt for 250 SMS and TM‟s AstigTxtAll for 150 SMS, both valid for a day. Meanwhile, in response to the market‟s clamor for prepaid offers with longer validity
periods, Globe Prepaid likewise introduced via GoSakto GoUnlitxt49 which offer its subscribers unlimited on-net texts to Globe/TM for only P49. TM subscribers may avail of Combo10 and Combo15 to get unlimited on-net SMS, 50 all-network text, and 10 consumable minutes to TM and Globe subscribers. Likewise, AstigItxt20 was introduced in the market during the last quarter of 2013 which gives TM subscribers 30 international and all-network texts for only P20 valid for 1 day. In 2014, TM introduced UNLIALLNET10 which provides its subscribers with unlimited texts to all networks for P10 a day. In addition, during the second quarter, Globe Prepaid introduced GoTXT19Plus which gives its subscribers unlimited texts to all networks, 20 minutes of calls to Globe/TM, and 15MB of mobile internet for only 19 pesos. Dagdagtxt for additional 100 all-network texts added to a UnliCall promo for only P5 a day was likewised launched by TM during the period. Mobile Browsing and Other Data
Mobile browsing & other data revenues which now accounted for 16% of total mobile service revenues stood at P6.2 billion for the first half of 2014, up 11% from P5.6 billion a year ago. The positive growth was mainly driven by the continuous demand for data services and the popularity of data-driven products and applications, the improved and increasing 3G, HSPA+ and LTE networks and the proliferation of data-enabled devices. On a sequential basis, mobile browsing & other data revenues improved by 23%, which coincided with the conclusion last April 2014 of the successful Free Facebook promotion which began in November 2013. Aimed to seed the habit of mobile browsing on Globe‟s expanded 3G and 4G networks, initial results after the Free Facebook campaign
resulted in a step increase in mobile data users, boosting registered mobile data users to 8.9 million monthly average post-Facebook promotion, and revenue uplift. In addition, the promotion provided additional strategic benefits in terms of improved brand equity, providing new customer insights, particularly for prepaid subscribers, and the ability to integrate below-the-line activities and promotions moving forward.
Globe‟s mobile browsing services includes unlimited chatting, downloading, emailing, and surfing
offers to its Globe Postpaid and Globe Prepaid subscribers with its add-on data plan SuperSurf for as low as P50 for 1 day. The Company also offers consumable mobile browsing for as low as P15 for 1 hour with Prepaid Power Surf for its Globe Prepaid and TM subscribers. Prepaid and Postpaid subscribers can avail of different Power Surf variants: 50MB for only P99, 300 MB for only P299 and 1GB for only P499. All Power Surf plans are automatically bundled with the Globe No Bill
Shock Guarantee, so subscribes who exceed their monthly MB allocations will never pay more than P999. For unlimited access to Facebook, Super Facebook and TM Astig Facebook are available for only P10 a day for its Globe Prepaid and TM subscribers. Meanwhile, Globe and TM Prepaid subscribers who want a full Viber experience with unlimited high-definition voice calls and unlimited
SEC Form 17Q – 2Q 2014 23
chat can avail of Viber20 for P20 a day and those who want unlimited Viber chat only can either avail of Viber10, a one day variant for only P10 or Viber30 for five days unlimited Viber chat for P30. Prepaid subscribers who just want unlimited access to messaging applications (Viber, Whatsapp, Line, FB Messenger, Kakao etc.) may opt to register to Unlichat25 for only P25. In the second quarter of 2014, the GoSurf with Spotify consumable internet variants was also made available to the TM subscribers for as low as P10 per day. In response to Smart‟s P2 Facebook promo, TM recently introduced the same offer to all TM subscribers which allows those registered to selected TM offers (Astigtxt, astigcombo, sulitxt or any GoSurf variants) to avail of the unlimited Facebook for only P2. For BlackBerry® users, the Company continues to offer Super Surf for BlackBerry® Max for all-in unlimited BlackBerry® services for as low as P50 a day. Globe also provides unlimited use of push email applications such as Yahoo! Mail, GMAIL, MSN and any POP3 or IPOP email account with its add-on data service BlackBerry® Messaging. The Company also provides unlimited access to social networking applications with its BlackBerry® Social offering of P299 valid for 30 days. For unlimited use of BlackBerry® Messenger and free on-net SMS, Globe Postpaid and Globe Prepaid subscribers may register to BlackBerry® Chat. Setting another milestone in Philippine telecommunications, the Company gave its over 40.7 million subscribers (Postpaid/Prepaid/TM) free mobile phone access to Facebook beginning October 31, 2013 and was extended until April 30, 2014. Globe worked closely with Facebook to enable customer experience innovations for the best free Facebook offer (users can post, like, comment,
chat, add friends, upload photos, share posts, and more on Facebook) without the need for Wi-Fi. This campaign is in line with Globe‟s strategy to bring more people online and overcome the fear of
using mobile internet, and increase the habit of mobile browsing and surfing over Globe‟s improved
3G, HSPA+ and LTE networks.
SEC Form 17Q – 2Q 2014 24
The key drivers for the mobile business are as follows: Globe Group
Quarter on Quarter Year on Year
Operating Revenues Q2 Q1 QoQ 1H 1H YoY
By Business (Php Mn) 2014 2014 Change 2014 2013 Change
(%) (%)
Cumulative Subscribers (or SIMs) - Net
42,717,758 40,749,094 5% 42,717,758 36,092,177 18%
Globe Postpaid 1 2,078,635 2,088,413 - 2,078,635 1,895,183 10%
Prepaid 40,639,123 38,660,681 5% 40,639,123 34,196,994 19%
Globe Prepaid 19,336,030 18,699,346 3% 19,336,030 16,946,052 14%
TM 21,303,093 19,961,335 7% 21,303,093 17,250,942 23%
Net Subscriber (or SIM) Additions 1,968,664 2,273,964 -13% 4,242,628 2,973,142 43%
Globe Postpaid (9,778) 62,875 -116% 53,097 160,715 -67%
Prepaid 1,978,442 2,211,089 -11% 4,189,531 2,812,427 49%
Globe Prepaid 636,684 862,905 -26% 1,499,589 505,910 196%
TM 1,341,758 1,348,184 - 2,689,942 2,306,517 17%
Average Revenue Per Subscriber (ARPU)
ARPU 2
Globe Postpaid 1,207 1,140 6% 1,184 1,206 -2%
Prepaid
Globe Prepaid 125 128 -2% 127 142 -11%
TM 77 77 - 77 88 -13%
Subscriber Acquisition Cost (SAC)
Globe Postpaid 9,272 9,074 2% 9,170 7,145 28%
Prepaid
Globe Prepaid 22 23 -3% 23 31 -26%
TM 12 15 -20% 14 22 -39%
Average Monthly Churn Rate (%)
Globe Postpaid 3.2% 2.2% 2.7% 1.9%
Prepaid
Globe Prepaid 5.9% 5.4% 5.7% 5.7%
TM 6.5% 6.5% 6.5% 6.0% 1 As of 2Q 2014, Globe had a total of 2.52 million wireless postpaid subscribers which include 2.08 million mobile telephony and 0.44 million
wireless broadband customers. This is higher compared to the 2.50 million wireless postpaid subscribers as of 1Q 2014. Mobile telephony revenues are reflected under “Mobile Service Revenues” while wireless broadband revenues are included under “Broadband.”
2 ARPU is computed by dividing recurring gross service revenues (gross of interconnect expenses) segment by the average number of the segment’s
subscribers and then dividing the quotient by the number of months in the period.
Globe ended the first half with a total mobile subscriber base of 42.7 million, up 18% from 36.1 million subscribers versus same period last year. Acquisitions for both Globe Prepaid and TM reached another record-high with over 9.4 million new subscribers in the second quarter of 2014, up 5% quarter-on-quarter, bringing total gross acquisitions for the first six months to 18.7 million or
SEC Form 17Q – 2Q 2014 25
28% higher year-on-year. Despite higher churn for the period, net incremental subscribers improved to 4.2 million, 43% higher than 2013 level of 3.0 million net additions in the first half of 2013. The succeeding sections cover the key segments and brands of the mobile business – Globe Postpaid,
Globe Prepaid and TM. Globe Postpaid
Globe remained as the leader in the postpaid segment with sustained growth in subscribers. As of end June 2014, Globe had 2.1 million subscribers, up 10% from the 1.9 million in the same period last year. The continued success of the fully-customizable and best-in-class postpaid plans together with the exclusive device offers and innovative deals helped boost gross additions to reach 389,695 for the first six months of the year, up 12% from 348,645 in the same period last year. Year-to-date net incremental postpaid subscribers, stood at 53,097, 67% lower than 2013 level of 160,715. The decrease in net additions was due to the elevated level of churn in the second quarter of 2014, given the churn of the residual 71 thousand subscribers affected by Typhoon Yolanda and the accumulated billings after the migration to the new business support system.
In order to sustain the growth momentum for mobile postpaid and maintain its leadership on this segment of the market, the Company continued to make wonderful and exciting offers for its subscribers with the launch of “Galaxy Forever Plan” wherein new and existing subscribers can get a new Samsung phone every year by simply subscribing to any Galaxy Forever Plan (Galaxy
Forever Plan 1599; Galaxy Forever Plan 1999; Galaxy Forever Plan 2499). Meanwhile, another wonderful treat for postpaid subscribers are the availability of new phones (LG G2 Mini, Samsung
Trend Lite, Lenovo A680, LG Optimus L4 II, CloudFone Excite 400dx, Huawei Ascend Y320, Huawei
Ascend Y511, and Nokia Lumia 625) that comes with mySUPERPLAN for as low as P299/month. Globe Postpaid ARPU of P1,184 was lower than last year‟s P1,206. Globe Postpaid subscriber acquisition cost (SAC) significantly increased year-on-year by 28% and quarter-on-quarter by 2%. Nevertheless, Globe Postpaid SAC remained recoverable within the 24-month contract period. Prepaid
Globe‟s prepaid segment, which includes the Globe Prepaid and TM brands, accounts for 95% of its total mobile subscriber base. As of the first six months of the year, cumulative prepaid subscribers stood at about 40.6 million, 19% better than last year‟s level of 34.2 million. A prepaid subscriber is recognized upon the activation and use of a new SIM card. The subscriber is provided with 60 days (first expiry) to utilize the preloaded SMS value. If the subscriber does not reload prepaid credits within the first expiry period, the subscriber retains the use of the mobile number but is only entitled to receive incoming voice calls and text messages for another 120 days (second expiry). The second expiry is 120 days from the date of the first expiry. However, if the subscriber does not reload prepaid credits within the second expiry period, the account is permanently disconnected and considered part of churn. The first expiry periods of reloads vary depending on the denominations, ranging from 1 day for P10 to 60 days for P300 to P500 reloads. The first expiry is
SEC Form 17Q – 2Q 2014 26
reset based on the longest expiry period among current and previous reloads. Under this policy, subscribers are included in the subscriber count until churned. In 2009, the National Telecommunications Commission (NTC) published Memorandum Circular 03-07-2009 which promulgates the extension of the validity periods of prepaid reloads effective July 19, 2009. Under the new pronouncement, the first expiry periods now range from 3 days for P10 or below to 120 days for reloads amounting to P300 and above. The second expiry remains at 120 days from the date of the new first expiry periods. The succeeding sections discuss the performance of the Globe Prepaid and TM brands in more detail. a. Globe Prepaid
Globe Prepaid gross acquisitions slightly improved in the second quarter versus the preceeding quarter‟s record highs, bringing gross additions to 7.9 million or 27% higher than same period last year‟s level of 6.2 million. First half‟s net incremental subscribers also improved by 196% to 1,499,589 from 505,910 in the same period of 2013, despite the elevated churn rates of 5.71% this period from 5.67% in same period last year. In the second quarter of 2014, Globe Prepaid continued to expand its customizable service offerings with the launch of GoUnli20 which offers unlimited calls to Globe and TM, 20 texts to all networks, and 15MB of mobile data, good for 1 day. GoTXT19Plus was also made available during the period which gives its subscribers unlimited texts to all networks, 20 minutes of calls to Globe/TM, and 15MB of mobile internet for only 19 pesos. Globe Prepaid ARPU declined by 11% year-on-year resulting from the revenue dilution from unlimited and bucket service offerings. Globe Prepaid SAC decreased versus last year and last quarter by 26% and 3%, respectively due to lower ads and promo as well as decline in commissions.
b. TM
TM on the other hand, generated the highest gross acquisitions during the quarter, 5,385,300 new SIMs or 6% better than previous quarter level of 5,087,842. The extension of the Free Facebook promo boosted this quarter‟s acquisition coupled by TM‟s continued aggressive acquisition efforts. Despite higher churn rate as of end June 2014, net incremental subscribers posted an increase of 17% from about 2.3 million in 2013 to 2.7 million this period. During the period, TM introduced Dagdagtxt for additional 100 all-network texts added to a UnliCall promo for only P5 a day. In addition, Unlicombo20 was likewise introduced during the period which provides unlimited texts to TM/Globe subscribers for 24 hours plus unlimited calls to TM/Globe subscribers from 10 PM to 5 PM the following day. The GoSurf with Spotify consumable internet variants was also made available to the TM subscribers for as low as P10 per day. In response to the continued popularity of social networking among Filipinos, TM recently introduced a P2 Facebook offer for its subscribers, which allows those registered to selected TM offers (Astigtxt, Astigcombo,
Sulitxt or any GoSurf variants) to avail of the unlimited Facebook for only P2.
SEC Form 17Q – 2Q 2014 27
TM ARPU was down by 13% year-on-year with the continued shift from regular pay-as-you-use service to unlimited and value offers. Similarly, TM SAC, declined from same period a year ago and versus last quarter by 39% and 20%, respectively.
SEC Form 17Q – 2Q 2014 28
GCash
GCash continues to establish its presence in the mobile commerce industry. GCash‟s initial thrust
towards money-transfers, purchase of goods and services from retail outlets, and sending and receiving domestic and international remittances has spurred alliances in the field of mobile commerce. Today, GCash allows Globe and TM subscribers to pay or transact for the following using their mobile phone:
domestic and international remittances utility bills interest and amortization of loans insurance premiums donations to various institutions and organizations sales commissions and payroll disbursements school tuition fees micro tax payments and business registration electronic loads and pins online purchases airline tickets
In addition to the above transactions, GCash is also used as a wholesale payment facility. In 2011, Globe increased the number of establishments that offer GCash as an alternative and efficient payment mode. Quick Delivery tapped GCash to be its newest payment mode to make it easier, safer and more convenient to order food from Metro Manila‟s top restaurants, specialty stores, and even wine merchants. The largest local chain of movie theaters, SM Cinema, was able to launch the first mobile ticketing service in the country through GCash, allowing moviegoers to purchase tickets online, pay via GCash, and redeem movie tickets at the cinemas using their mobile phones. In October 2010, Globe launched the GCash Card, the country‟s first customizable ATM card linked
to a mobile wallet. This gives subscribers 24/7 access to GCash and allows them to withdraw funds via any of the 9,000 Bancnet, Megalink, ExpressNet or Encash Automated Teller Machines (ATMs) nationwide. In addition, the GCash Card is the only customizable ATM Card in the country where subscribers can make their own personalized ATM card design or choose from a variety of design templates. In 2011, GCash further strengthened its presence in the mobile money transfer business by establishing partnerships with various institutions. Globe partnered with Ericsson to integrate GCash into the new Ericsson Money Services making GCash one of the first partners for this innovative end-to-end mobile money solution. The Company also inked a partnership with US-based IDT Corporation which will enable GXI to strengthen its GCash Remit‟s international remittance service
by facilitating connectivity between traditional money transfer operators and GCash utilizing IDT‟s
economical corridor routing, transaction settlement and foreign currency exchange services. Globe, through GXI, also partnered with Japan‟s SOFTBANK Corp. through its subsidiary SBPS for an
affordable, convenient, and secure remittance service that will allow Filipinos living and working in
SEC Form 17Q – 2Q 2014 29
Japan to remit money to the Philippines via the GCash platform. The Company likewise set up a partnership with Xpress Money, a leading global instant money transfer brand, to further extend the latter‟s strong payout network in the Philippines. With this tie-up, beneficiaries of Xpress Money Cash Pick Up remittances can now claim their money from the network of GCash Remit outlets nationwide. In 2012, Globe launched GCash PowerPay+ to provide an additional channel to facilitate mobile transactions. GCash PowerPay+ is a funds disbursement service linked to a Globe or TM SIM and comes with an optional insurance coverage. With GCash PowerPay+,users enjoy mobile money services like sending money, buying Globe or TM airtime load with a rebate (ranging from 7%-10% depending on the amount of load), and paying bills at the speed of a text message without the need to cash-in to one‟s GCash account. It also allows 24/7 withdrawal from any of the 9,000 Automated Teller Machines (ATMs) nationwide, cashless shopping through Megalink, BancNet and ExpressNet point of sale and financial assistance for accidental death and burial assistance, life cover, residential fire, and ATM theft. Globe has also launched GCash Remit Service to provide mobile subscribers a quick, affordable and convenient way to send and receive domestic and international remittances. With the approval of the Bangko Sentral ng Pilipinas (BSP) to use its sub-distributors as cash-in and cash-out outlets, GCash now has the largest remittance network in the country with more than 9,000 active GCash outlets nationwide. Meanwhile, for electronic banking services, GCash secured a partnership with Philippine Savings Bank (PSBank), the thrift banking arm of the Metrobank Group, to enhance its electronic banking channels. Through GCash, PSBank accountholders can do various financial transactions such as payments, account inquiries and reloading from their PSBank account to their enrolled GCash wallet and vice-versa. In the same manner, Globe partnered with UnionBank of the Philippines (UnionBank) for its eMoneyXchange service that will allow customers to link their UnionBank accounts to their GCash mobile wallets enabling UnionBank clients with EON, E-Wallet, ePayCard and UnionBank regular savings and checking accounts to transfer funds to and from their GCash wallets through their UnionBank account via SMS. To further complement its mobile wallet functions, Globe partnered with American Express® to launch the GCash American Express® Virtual Card. The prepaid virtual card is linked to a subscriber‟s GCash mobile wallet and allows users to shop conveniently online from both local and international sites. Further, it gives the user a personalized US Address to allow delivery of purchases from international online sites which may not be directly shipping goods to the Philippines. To reach out to a wider audience and complement the increased smartphone penetration, Globe launched a GCash mobile application for BlackBerry® devices in 2011. The mobile application can be downloaded for free via the BlackBerry® App World. Beginning third quarter of 2012, however, the Company has made the GCash mobile wallet available and accessible to a wider subscriber base who may download the application for free from the App Store and Google Play. The efficiency of GCash’s mobile cash transfer system was recognized by various government agencies and socially-oriented organizations such as DSWD (Department of Social Welfare and Development), Simbahang Lingkod ng Bayan (SLB), and the United Nations World Food
SEC Form 17Q – 2Q 2014 30
Programme (WFP). In 2011, GCash Remit was tapped by DSWD and Land Bank of the Philippines for the distribution of the government‟s Conditional Cash Transfers (CCT). A total of about P4.5 billion worth of CCT were distributed to beneficiary families in over 9,000 barangays nationwide via its domestic cash pick-up service. The GCash platform was also utilized by SLB, a church-based, Jesuit-led organization, as a donation channel for its relief operations for typhoon victims. The WFP meanwhile named GCash as a benchmark for their operations worldwide. WFP is the world‟s largest
humanitarian agency fighting hunger worldwide. WFP is currently involved in the disaster relief operations for typhoon Sendong victims in Mindanao. To improve its efficiency in delivering assistance, WFP has tapped Globe through its GCash mobile technology platform for the fast, secure and low-cost delivery of financial assistance to families who were severely affected by calamities. The partnership flourished with Globe providing the necessary platform to facilitate the Cash-for-Work program and other relief and recovery operations by the WFP. Through GCash, WFP discovered a new and efficient way of providing financial assistance to help families restore and rebuild their lives. On June 19, 2013, Globe achieved another milestone with its partnership with Home Development
Mutual Fund (HDMF) or the PAG-IBIG Fund to allow their over 12.6 million members to transact with Pag-ibig via GCash, making it easy and more convenient for them to facilitate their Pag-Ibig transactions. Pag-Ibig members can now easily pay their monthly mandatory savings and housing loans anytime, anywhere using their GCash wallets linked to their Globe or TM phones, eliminating the need to go to a Pag-Ibig office or an accredited payment center. Also, GCash can now be used to purchase load even for other mobile networks via *143#. In addition, CitiExpress and Unilink, as new GCash express partners, started offering GCash express cards to their customers. Moreover, GCash, is set to expand its network service in the country by growing its user base with the recent partnership with TORCHe Global Marketing, Inc. (TGMI), a marketing consultancy firm focused on helping companies reach out to the widest possible consumer base through the latest technologies in mobile commerce and advertising. GCash services that will be made available for use of TGMI affiliates include PowerPay+ Card, Buy Load service and Gcash outlets. During the last quarter of 2013, several initiatives on GCash were launched in order to expand its portfolio of services including real property tax payments via GCash available in Quezon City and Valenzuela; buy through blink coupon codes for subscribers to experience unlimited Movie and TV show streaming; or convert Gcash to rewards points. In addition, subscribers can now also apply for BanKO loan via GCash with low interest rate, fast approval and hassle-free loan payments. Loan credit and collection will be through their GCashPowerPay+ wallet. In 2014, GCash may now be used at Puregold to pay for groceries, bills and for cash remittances. Also, Globe Charge Mobile Card Reader was likewise introduced to the market last March 27, 2014 which turns the subscriber‟s smartphone into a credit card terminal.
Also, G-Xchange, Inc. (GXI) further expands its reach nationwide as it partners with Rural Net, Inc. (RNet) during the second quarter of 2014 to help create a platform designed to grow the businesses of rural banks, cooperatives and other agencies across the Philippines. The collaboration between GXI and RNet led to the introduction of the Philippines‟ first 3-in-1 card called CashKO. This will deliver
SEC Form 17Q – 2Q 2014 31
to the rural banks and cooperatives industries‟ affordable mobile phone and internet banking with
ATM functionality all powered by Globe GCash.
BPI Globe BanKo
On October 9, 2009, the Company announced that the BSP has approved the sale and transfer by Bank of the Philippine Islands (BPI) of its shares of stock in Pilipinas Savings Bank, Inc. (PSBI) that will result in the ownership of PSBI as follows: 40% each for BPI and Globe Telecom and 20% for Ayala Corporation (AC). On October 23, 2009 the official name of PSBI was changed to BPI Globe BanKo, Inc. after getting the approval of both the BSP and the Securities and Exchange Commission (SEC). BPI Globe BanKo, Inc. is the country‟s first mobile microfinance bank. BPI Globe BanKo, Inc. opened its first branch last February 2010, and added 5 provincial branches located in Dipolog, Dumaguete, Lucena, Naga and Tacloban. While the bank‟s initial focus is on
wholesale lending to other microfinance institutions, it is now expanding into retail banking products and services to include micro-savings, micro-lending, and insurance. In 2011, BPI Globe BanKO, Inc. launched an innovative product that does not only generate healthy financial returns, but also gives depositors an opportunity to help those in the low-income segment by helping create a solid base for their savings and investments. Called the BanKO Social Initiative (BSI) Deposit, the product is a passbook-based, regular savings account which pays 4.5% interest per annum on a quarterly basis. The minimum deposit requirement is P100,000 with a hold-out period of at least 6 months. The BSI Deposit account, which does not charge depositors with documentary stamp taxes, is also insured with the PDIC for amounts up to P500,000 per depositor. In 2013, BPI-Globe Banko, the first mobile-based, microfinance-focused savings bank in the Philippines, have joined hands with US Agency for International Development, in helping rural communities gain access to formal financial services (i.e. cash in and cash out transactions, bills
payment, airtime loading, money remittance, and micro-insurance purchase) using their mobile phones. This partnership was announced during the launch of the mobile money financial service for the llijan Multi-Purpose Cooperative. In 2014, Globe BanKO launched BanKO Interoperability (Phase 1), which allows all BanKO customers to make Cash-in and Cash-out transactions in almost all GCash outlets nationwide.
SEC Form 17Q – 2Q 2014 32
FIXED LINE AND BROADBAND BUSINESS
Globe Group
Quarter on Quarter Year on Year
Service Revenues (Php Mn) Q2 Q1 QoQ 1H 1H YoY
2014 2014 Change 2014 2013 Change
(%) (%)
Service
Broadband 1 3,065 2,790 10% 5,855 5,145 14%
Fixed line Data 2 1,313 1,319 - 2,632 2,259 17%
Fixed line Voice 3 745 665 12% 1,410 1,287 10%
Fixed Line & Broadband Service Revenues 5,123 4,774 7% 9,897 8,691 14%
1 Broadband service revenues consist of the following:
a) Monthly service fees of wired, fixed wireless, and fully mobile broadband data only and bundled voice and data subscriptions; b) Browsing revenues from all postpaid and prepaid wired, fixed mobile and fully mobile broadband packages in excess of
allocated free browsing minutes and expiration of unused value of prepaid load credits; c) Value-added services such as games; and d) Installation charges and other one-time fees associated with the service.
2 Fixed line data service revenues consist of the following:
a) Monthly service fees from international and domestic leased lines; b) Other wholesale transport services; c) Revenues from value-added services; and d) One-time connection charges associated with the establishment of service.
3 Fixed line voice service revenues consist of the following:
a) Monthly service fees; b) Revenues from local, international and national long distance calls made by postpaid, prepaid fixed line voice subscribers and
payphone customers, as well as broadband customers who have subscribed to data packages bundled with a voice service. Revenues are net of prepaid and payphone call card discounts;
c) Revenues from inbound local, international and national long distance calls from other carriers terminating on Globe‟s network; d) Revenues from additional landline features such as caller ID, call waiting, call forwarding, multi-calling, voice mail, duplex and
hotline numbers and other value-added features; e) Installation charges and other one-time fees associated with the establishment of the service; and f) Revenues from DUO and SUPERDUO (Fixed line portion) service consisting of monthly service fees for postpaid and
subscription fees for prepaid.
SEC Form 17Q – 2Q 2014 33
Broadband
Globe Group
Quarter on Quarter Year on Year
Q2 Q1 QoQ 1H 1H YoY
2014 2014 Change 2014 2013 Change
(%) (%)
Cumulative Broadband Subscribers
Wireless 1 1,835,781 1,798,378 2% 1,835,781 1,445,363 27%
Wired 412,416 392,000 5% 412,416 368,648 12%
Total (end of period) 2,248,197 2,190,378 3% 2,248,197 1,814,011 24% 1 Includes fixed wireless and fully mobile broadband subscribers.
For the first semester of 2014, the fixed line and broadband segments posted a 14% growth in revenues from P8.7 billion to P9.9 billion. The growth was driven by improvements across the three business segments, each growing by double digit year-on-year. Globe Tattoo Broadband posted 14% growth from P5.1 billion to P5.9 billion, as a result of the 24% expansion of its customer base. The consistent double digit growth in the broadband business for both wired solutions (+12%) and wireless services (+27%) resulted from the sustained aggressive acquisitions campaigns as well as the competitive pricing offers and product bundles during the period. Quarter-on-quarter, revenues likewise grew by 10% from P2.8 billion last quarter to P3.1 billion in the second quarter if 2014. Tattoo Broadband‟s sustained growth was mainly due to the improved ARPUs across all product segments and higher subscriber base for both Tattoo-At-Home and Tattoo-On-The-Go, rising to 2,248,197 subscribers from 2,190,378 last quarter. The Company continued its commitment to offer broadband differentiated and value priced products as it unlocked its best deals and offers during the period. Tattoo Postpaid introduced its wide array of tablet bundles with no upfront cashout and low monthly fees. The offer comes with a free mobile Wi-Fi and 60 surfing hours for as low as P499 per month. Tattoo Prepaid likewise stepped up its offer just in time for the school opening with a price drop for mobile Wi-Fi (from P1,995 to only P1,795); Prepaid LTE Mobile Wi-Fi (from P4,995 to only P3,888) and Prepaid LTE Stick (from P3,995 to only P2,988).
Fixed line Data
Globe Group
Quarter on Quarter Year on Year
Service Revenues (Php Mn) Q2 Q1 QoQ 1H 1H YoY
2014 2014 Change 2014 2013 Change
(%) (%)
Fixed line Data
International 275 258 7% 533 449 19%
Domestic 622 629 -1% 1,251 1,068 17%
Others 1 416 432 -4% 848 742 14%
Total Fixed line Data Service Revenues 1,313 1,319 - 2,632 2,259 17% 1 Includes revenues from value-added services such as internet, access, data centers and bundled services.
SEC Form 17Q – 2Q 2014 34
The fixed line data segment sustained the positive revenue growth with P2.6 billion in the first six months of the year, 17% higher year-on-year, largely on domestic and internet services subsequent to 23% circuit base expansion. Data‟s non-core services likewise posted growth against last year by 7% mainly coming from Cloud and business application services. The Company‟s continued expansion
of Globe‟s portfolio of products and services to cater to the needs of its corporate clients such as sales
and marketing, intercompany communications, database management and data storage resulted in the year-on-year improvement in revenues. Likewise, the expansion of the local IT Enabled Service (ITES) industry which includes call centers and Business Process Outsourcing (BPO) companies also helped drive the growth of the corporate data business.
Fixed line Voice
Globe Group
Quarter on Quarter Year on Year
Q2 Q1 QoQ 1H 1H YoY
2014 2014 Change 2014 2013 Change
(%) (%)
Cumulative Voice Subscribers – Net (End of period)
1
639,761 611,743 5% 639,761 574,457 11%
Average Revenue Per Subscriber (ARPU)
ARPU 2 397 367 8% 381 337 13%
Average Monthly Churn Rate 1.83% 2.38% 2.09% 6.93% 1 Includes DUO and SuperDUO subscribers 2 ARPU is computed by dividing recurring gross service revenues (gross of interconnect expenses) segment by the average number of the
segment’s subscribers and then dividing the quotient by the number of months in the period. Total fixed line voice revenues improved year-on-year and quarter-on-quarter by 10% and 12%, respectively respectively respectively due to higher ARPU and increase in subscriber base.
SEC Form 17Q – 2Q 2014 35
OTHER GLOBE GROUP REVENUES
International Long Distance (ILD) Services
Globe Group
Quarter on Quarter Year on Year
Q2 Q2 QoQ 1H 1H YoY
2014 2014 Change 2014 2013 Change
(%) (%)
Total ILD Revenues (Php Mn)1 2,863 2,805 2% 5,668 5,803 -2%
Average Collection rates for the Period 44.450 44.643 - 44.450 41.050 8%
Total ILD Minutes (in million minutes)2 604 610 -1% 1,214 1,243 -2%
Inbound 550 562 -2% 1,112 1,087 2%
Outbound 54 48 11% 102 155 -34%
ILD Inbound / Outbound Ratio (x) 10.26 11.63 10.91 7.00
Both Globe and Innove offer ILD voice services which cover international call services between the Philippines to more than 230 destinations with over 720 roaming partners. This service generates revenues from both inbound and outbound international call traffic, with pricing based on agreed international termination rates for inbound traffic revenues and NTC-approved ILD rates for outbound traffic revenues. On a consolidated basis, ILD voice revenues from the mobile and fixed line businesses declined year on year by 2% from P5.8 billion a year ago due to lower ILD traffic. Compared to previous quarter, the increase was 2%. Meanwhile, Globe sustained its promotion on OFW SIM packs and the discounted call rate offers such as IDD Sakto Calls (per-second IDD), TipIDD card, and IDD Tingi – the first bulk IDD service which can be purchased via registration and through AMAX retailers nationwide. This is available in two denominations: P20 for 5-minute calls to US, Canada, Hong Kong Singapore and Taiwan, and P30 for 3-minute calls to Saudi Arabia, UAE and Kuwait. In addition, The Filipino Seafarer SIM
enables Filipino seafarers around the world to keep in touch with their loved ones back home at cheaper rates for as low as US$0.20 per minute while sending SMS for only US$0.10 per sms. Subscribers who will avail of the SIM will get two numbers in one SIM – an international mobile number and a Philippine Globe mobile number. Globe and TM subscribers calling the Globe Seafarer SIM are only charged at local rates. The Globe Local UK SIM card alternatively gives Filipinos one affordable rate of only 10 pence for each call or text sent to Globe or TM number in the Philippines as well as calls and text to all UK networks. Subscribers also pay only 10 pence for every MB of mobile internet. Moreover, Globe once again expanded its international footprint with the launch of Globe local Italy SIM last November 24, 2013. Filipino communities in Italy can now enjoy calls to Globe in the Philippines for just five Euro cents per minute, the lowest among all
SEC Form 17Q – 2Q 2014 36
Italian mobile operators. This 2014, Globe recently announced the partnership with Ingenium Outsourcing Services, S.L.U to be able to launch soon the Local Spain SIM card, which will be the 8th country where Globe would have an international retail presence. Globe Duo International was further expanded to include Japan with the launch of Duo Japan during the period, which allows calls from Japan to the Philippines, via a Japanese number assigned to a Globe or TM mobile number, to be charged on local rates. In 2014, Globe Duo International was further expanded to include Japan and Spain with the launch of Duo Japan in the first quarter and Duo Spain in the second quarter which allows calls from Japan or Spain to the Philippines, via a Japanese and Spain number assigned to a Globe or TM mobile number, to be charged as local calls.
SEC Form 17Q – 2Q 2014 37
GROUP OPERATING EXPENSES
For the first half of 2014, Globe‟s total costs and expenses, including depreciation charges, amounted
to P=37.1 billion, down by 11% from last year‟s P=41.7 billion, largely driven by lower depreciation charges and recontracting and interconnect costs offsetting increases from all other expense line items. On a quarterly basis, total operating spend slightly increased by 1% to P=18.6 billion from P=18.5 billion in the first quarter of 2014. Globe Group
Quarter on Quarter Year on Year
(Php Mn)
Q2 Q1 QoQ 1H 1H YoY
2014 2014 Change 2014 2013 Change
(%) (%)
Cost of Sales 2,854
2,867
- 5,721
4,419
29%
Less: Non-service Revenues 1,243
1,130
10% 2,373
2,037
16%
Subsidy 1,611
1,737
-7% 3,348
2,382
41%
Interconnect 2,173
2,057
6% 4,230
4,676
-10%
Selling, Advertising and Promotions 1,286
1,131
14% 2,417
1,880
29%
Re-contracting 577
600
-4% 1,177
1,511
-22%
Staff Costs 1,988
1,950
2% 3,938
3,530
12%
Utilities, Supplies & Other Administrative Expenses
911
1,145
-20% 2,056
2,117
-3%
Rent 1,025
916
12% 1,941
1,697
14%
Repairs and Maintenance 1,039
1,089
-5% 2,128
1,810
18%
Provisions 720
790
-9% 1,510
1,104
37%
Services and Others 2,854
3,019
-5% 5,873
4,885
20%
Operating Expenses 12,573
12,697
-1% 25,270
23,210
9%
Depreciation and Amortization 4,442
4,068
9% 8,510
16,071
-47%
Affected by modernization 666
512
30% 1,178
7,118
-83%
Others 3,776
3,556
6% 7,332
8,953
-18%
Costs and Expenses 18,626
18,502
1% 37,128
41,663
-11%
Interconnect
Interconnect charges dropped by 10% year-on-year to P=4.2billion from P=4.7 billion in the first semester of 2013, as domestic internetwork voice traffic declined against last year. The decrease in costs was also aided by preferential discounts from roaming partners. However, on a sequential basis, interconnect charges increased by 6% from P=2.1 billion in the previous quarter to P=2.2 billion.
SEC Form 17Q – 2Q 2014 38
Subsidy
Total subsidy increased by 41% year-on-year to P=3.3 billion from P=2.4 billion in same period last year on account of strong postpaid and broadband gross activations. On a sequential basis, subsidy expenses dropped by 7% from P=1.7 billion to P=1.6 billion, due to lower availment of high-end handsets coupled with the impact of 5% quarter-on-quarter decline in new acquisitions for postpaid.
Marketing
Selling, advertising and promotions, which account for 8% of total operating expenses and subsidy, grew by 29% to P=2.4 billion this period from P=1.9 billion as of June 2013. The growth in selling, advertising and promotions costs were driven by higher advertising spend across all business segments, given the programs launched and held in the first half of 2014, and the increase in commissions for the record gross activations in Postpaid during the first half of the year. On a sequential basis, costs increased by 14% from P=1.1billion to P=1.3 billion, given various activities launched in the second quarter such as GoSurf with Spotify promotions, Samsung S5 launch and various sponsorships. Re-contracting
Total re-contracting costs as of first half this year, dropped by 22% to only P=1.2 billion from P=1.5 in the same period last year, as the prior year costs included spill-over subscriber availment of iPhone 5 handsets launched in December 2012. On a sequential basis, re-contracting cost likewise declined by 4% from P=600 million in the first quarter to P=577 million.
Staff Costs
Staff costs which accounted for 14% of total operating expenses and subsidy, increased by 12% to P=3.9 billion from P=3.5 billion billion in the first six months of 2013, due to an increase headcount (from 5,902 as of June 2013 to 6,044 in 2014) to support the growing subscriber base and network infrastructure, and higher corporate and employee incentives. Compared to last quarter, staff costs likewise increased by 2% to P=2.0 billion. Utilities, Supplies and Other Administrative Expenses
Utilities, supplies and other administrative expenses declined year-on-year and quarter-on-quarter by 3% and 20%, respectively. The decrease in utilities charges were driven by the reversals of excess prior year accruals for electricity, though partly offset by higher power generated charges. Rent
Rent expenses, which account for 7% of operating expenses and subsidy, increased to P=1.9 billion, representing a 14% increase year-on-year from the P=1.7 billion reported a year ago. The increase in rent expenses were driven by requirements of Globe‟s expanded network, increasing requirements for
for IP ports, local tielines and co-location facilities and cell sites. On a sequential basis, lease expenses likewise registered a 12% increase from the P=916 million reported last quarter.
SEC Form 17Q – 2Q 2014 39
Provisions
This account includes provisions related to trade, non-trade and traffic receivables and inventory. Overall, total provisions increased to P=1.5 billion, 37% higher than the P=1.1 billion reported in the same period last year, mainly due to increased trade provisions and traffic provisions. The increase in trade provisions are a natural consequence of the sustained growth of Globe‟s postpaid base, which, as earlier mentioned, now stood at 39% of total mobile revenues. The increase in trade provisions were likewise driven by the churn of the residual 71 thousand subscribers affected by Typhoon Yolanda and the accumulated billings after the migration to the new business support system, as partially cushioned by lower inventory-related and non-trade provisions. However, compared to the preceding quarter, total provisions declined by 9%
Repairs and Maintenance
Repairs and maintenance, which accounted for 7% of total operating expenses and subsidy stood at P=2.1 billion, 18% higher against same period last year‟s P=1.8 billion given the increased costs related to maintenance agreements for Globe‟s information technology system and support facilities.
However, compared to prior quarter, repairs and maintenance costs declined by 5% to P=1.0 billion from P=1.1 billion the preceding quarter.. Services and Others
Services and other expenses which accounted for 21% of total operating expenses and subsidy grew by 20% from P=4.9 billion in the first six months of 2013 to P=5.9 million given consultancy and contracted services, escalation of managed services rates, increased customer contact services fees related to higher call volumes from subscribers and line installation costs for landline and broadband customers. However, compared to prior quarter, services and other expenses declined by 5% from P=3.0 billion to P=2.9 billion. Depreciation and Amortization
Depreciation and amortization expenses dropped year-on-year by 47% to P=8.5billion from P=16.1 billion, largely due to the decline of accelerated depreciation charges during the first six months of 2014. As significant amounts of the accelerated depreciation charges for assets to be replaced by the modernization initiatives had already been incurred in 2013, accelerated depreciation charges declined from P=7.1billion to P=1.2 billion in the first semester of 2014. Normal course depreciation charges were likewise lower year-on-year, as some of the old assets were determined to be end of useful life at the end of 2013.
SEC Form 17Q – 2Q 2014 40
OTHER INCOME STATEMENT ITEMS
Other income statement items include net financing costs, net foreign exchange gain (loss), interest income and net property and equipment related income (charges) as shown below: Globe Group
Quarter on Quarter Year on Year
Q2
Q1 QoQ 1H 1H YoY
Mobile Service Revenue (Php Mn) 2014 2014 Change 2014 2013 Change
(%) (%)
Financing Costs – net
Interest Expense (478) (488) -2% (966) (1,028) -6%
Gain / (Loss) on derivative instruments – net
(56) 61 -192% 5 7 -29%
Swap costs and other financing costs (62) (67) -7% (129) (129) 0%
Foreign Exchange (loss) - (73) -100% - (324) -100%
(596) (567) 5% (1,090) (1,474) -26%
Foreign Exchange gain
198
-
125
-
Interest Income 156 164 -5% 320 348 -8%
Others – net 19 (19) -200% - 47 -100%
Total Other Expenses (223) (422) -47% (645) (1,079) -40%
The Globe Group‟s non-operating charges declined by 40% year-on-year and 47% quarter-on-quarter, respectively. The decline of P434 million for the first half to close the period at P645 was mainly driven by the net foreign exchange and mark-to-market gains of P130 million against the P317 million loss recorded in the same period last year, and 6% lower interest expenses in the first semester of 2014. These were partially offset by provisions for non-moving owner supplied inventory as against last year‟s gains on asset disposal. Likewise, this quarter showed a decline of in non-operating charges from P422 million last quarter to P223 million. (See related discussion on derivative instruments and swap costs in the Foreign Exchange and
Interest Rate Exposure section)
SEC Form 17Q – 2Q 2014 41
LIQUIDITY AND CAPITAL RESOURCES
Globe Group
30 Jun 31 Dec YoY
2014 2013 Change
(%)
Balance Sheet Data (Php Mn)
Total Assets 164,173
159,079
3%
Total Debt 68,817
69,301
-1%
Total Stockholders’ Equity 43,578
41,639
5%
Financial Ratios (x)
Total Debt to EBITDA 1.88
1.90
Debt Service Coverage 2.12
2.83
Interest Cover (Gross) 12.48
12.54
Debt to Equity (Gross) 1.58
1.66
Debt to Equity (Net) 1 1.41
1.49
Total Debt to Total Capitalization (Book) 0.61
0.62
Total Debt to Total Capitalization (Market) 0.24
0.24
1 Net debt is calculated by subtracting cash, cash equivalents and short term investments from total debt.
Globe‟s balance sheet and cash flows remain strong with ample liquidity and gearing comfortably
within bank covenants. Albeit slightly elevated from year‟s past, Globe‟s gearing ratios showed
slightly improvements against the end of year results. Globe Group‟s consolidated assets as of 30 June 2014 amounted to P164.2 billion compared to P159.1 billion as of December 31, 2013. Consolidated cash, cash equivalents and short term investments (including investments in assets available for sale and held to maturity investments) was at P7.2 billion as of end June of 2014 compared to P7.4 billion as of end December 2013. Globe ended the first half of the year with gross debt to equity ratio on a consolidated basis at 1.58:1 and is well within the 2:1 debt to equity limit dictated by Globe‟s debt covenants. Meanwhile net debt
to equity ratio was at 1.41:1 as of end June 2014 and 1.49:1 as of end December 2013. The financial tests under Globe‟s loan agreements include compliance with the following ratios:
Total debt to equity not exceeding 2:1; Total debt to EBITDA not exceeding 3:1; Debt service coverage 1 exceeding 1.3 times; and Secured debt ratio 2 not exceeding 0.2 times.
As of 30 June 2014, Globe is well within the ratios prescribed under its loan agreements.
1 Debt service coverage ratio is defined as the ratio of EBITDA to required debt service, where debt service includes subordinated debt but
excludes shareholder loans.
SEC Form 17Q – 2Q 2014 42
2 Secured debt ratio is defined as the ratio of the total amount for the period of all present consolidated obligations for payment, whether
actual or contingent which are secured by Permitted Security Interest as defined in the loan agreement to the total amount of consolidated
debt. Globe has no secured debt as of 30 June 2014.
Consolidated Net Cash Flows
Globe Group
30 Jun 30 Jun YoY
(Php Mn) 2014 2013 Change
(%)
Net Cash from Operating Activities……………………………… 16,697
13,817
21%
Net Cash from Investing Activities………………………………. (10,363)
(14,882)
-30%
Net Cash from Financing Activities……………………………… (6,533)
271
-2511%
Net cash flows provided by operating activities for the first six months of the year were at P16.7 billion, up by 21% year on year. Meanwhile, net cash used in investing activities amounting to P10.4 billion, 30% lower from same period last year. Consolidated cash capital expenditures as of end of first half of 2014 amounted to P=11.0 billion, down by 28% from last year‟s P=15.2 billion. Globe Group
30 Jun 30 Jun YoY
(Php Mn) 2014 2013 Change
(%)
Capital Expenditures (Cash) 11,001
15,225
-28%
Increase (decrease) in Liabilities related to Acquisition of PPE 3,698
4,217
-12%
Total Capital Expenditures1 14,699
19,442
-24%
Total Capital Expenditures / Service Revenues 2 (%) 31% 44%
1 Consolidated capital expenditures include property and equipment, intangibles and capitalized borrowing costs acquired as of report date
regardless of whether payment has been made or not.
Consolidated net cash from financing activities amounting to P6.5 billion was significantly lower from last year driven by higher repayments of borrowings, dividends and interest payments. Consolidated total debt, likewise, slightly decreased by 1% from P=69.3 billion at the end of 2013 to P=68.8 billion at the end of June. 46% of US$ consolidated loans have been effectively converted to PHP via US$165Mln in currency hedges. After swaps, effectively 12% of total debt are denominated in US$ as of end-June 2014.
SEC Form 17Q – 2Q 2014 43
Below is the schedule of debt maturities for Globe for the years stated below based on total outstanding debt as of June 30, 2014: Year Due Principal *
(US$ Mn)
2014….……………………………………………………………………………….……... 91 2015.……………………………………………………………………………………….... 141 2016………………………………………………………………………………………..… 172 2017 through 2023 ………………………………………………………………………… 1,181
Total 1,585
* Principal amount before debt issuance costs.
On March 6, 2013, Globe Telecom signed a USD 75 million 3-year term loan with floating interest rate with Bank of Tokyo - Mitsubishi UFJ, Ltd., Singapore Branch as lender. The purpose of the loan is to fund Globe Telecom‟s capital expenditures. On March 22, 2013, Globe Telecom signed a USD 120 million 7-year term loan with floating interest rate with Metrobank as lender to finance Globe Telecom‟s capital expenditures.
On July 17, 2013, the Globe Group issued P=7,000.00 million fixed rate bond. The amount comprises P=4,000.00 million and P=3,000.00 million bonds due in 2020 and 2023, with interest rate of 4.8875% and 5.2792%, respectively. The net proceeds of the issue were used to partially finance the Globe Group‟s capital expenditure requirements in 2013. On July 29, 2013, Globe Telecom signed a USD 40 million 3-year term loan with floating interest rate with Mizuho Bank Ltd. as lender to prepay and refinance certain debts. On December 4, 2013, Globe Telecom signed a P=7,000.00 million 7-year term loan credit facility with fixed interest rate with Land Bank of the Philippines as lender. The proceeds of the loan was used to partially finance Globe Telecom‟s general financing and corporate requirements for capital
expenditures. On February 10, 2014, the Board of Directors approved the amendment of the Company‟s Articles of
Incorporation to reclassify thirty one (31,000,000) million unissued common shares with par value of P=50.00 per share and ninety (90,000,000) million unissued voting preferred shares with par value of P=5.00 per share into a new class of forty (40,000,000) million non-voting preferred shares with par value of P=50.00 per share. The non-voting preferred shares shall be redeemable, non-convertible, non-voting, cumulative and may be issued in series. Further on April 7, 2014, the Board of Directors approved the issuance, offer and listing of up to twenty (20) million non-voting preferred shares, with an issue volume of up to P=10.00 billion pesos. On June 6, 2014, the Securities and Exchange Commission approved the amendment of the Seventh Article of the Company‟s Articles of Incorporation to implement the foregoing reclassification of
shares. At the Stockholders‟ meeting held on April 8, 2014, the Stockholders representing at least two
thirds of the outstanding capital stock, considered and approved the (i) amendment to the Seventh
SEC Form 17Q – 2Q 2014 44
Article of the Articles of Incorporation, and (ii) the issuance, offering and listing of up to twenty (20) million non-voting preferred shares. Under the Articles and as approved by the Board of Globe, the Non-Voting Preferred Shares have the following features, rights and privileges:
The issue value of the Non-Voting Preferred Shares will be determined by the Board of Directors at the time of issuance;
The dividend yield of the Non-Voting Preferred Shares will be determined by the Board of Directors at the time of issuance;
Unless otherwise specified by the Board of Directors at the time of issuance, dividends shall be deemed cumulative from the date of issue.
In the event of liquidation, the Non-Voting Preferred Shares shall rank ahead of the Common Shares and equally with the Voting Preferred Shares. The Board of Directors shall prescribe the amount which shares of such series shall be entitled to receive in the event of any liquidation, dissolution or winding up of the Corporation, which shall not exceed the consideration received therefore plus accrued and unpaid dividends thereon nor be less than the par value thereof.
The Non-Voting Preferred Shares shall not participate in dividends declared as regards any other class of Shares;
The Non-Voting Preferred Shares have no voting rights, except on all corporate matters where the law grants such voting right;
The Non-Voting Preferred Shares shall have no pre-emptive rights over any sale or issuance of any share in the Company's capital stock;
The Non-Voting Preferred Shares shall be redeemable at the option of the Corporation at such times and price(s) as may be determined by the Board of Directors at the time of issue, which price may not be less than the par value thereof plus accrued dividends. Any shares redeemed or purchased by the Corporation shall be recorded as treasury stock and may be re-issued in the future. The Board of Directors shall determine the terms and conditions of a retirement or sinking fund, if any, for the purchase or redemption of the shares of such series; and
As determined by the Board of Directors of Globe, dividends on the non-voting preferred shares may be deferred, but dividends on the Company's common shares cannot be paid for as long as there are deferred dividends that remain unpaid on the non-voting preferred shares.
The holders of the Preferred Shares do not have identical rights and privileges with holders of the existing common shares of the Company.
Stockholders‟ equity as of end-June 2014 was higher by 5% from P41,639 million to P5% million this period. Globe‟s capital stock consists of the following:
Voting Preferred Shares Preferred stock at a par value of P5 per share of which 158 million shares are outstanding out of a total authorized of 250 million shares.
SEC Form 17Q – 2Q 2014 45
Preferred stock has the following features: a. Issued at P5 par; b. Dividend rate to be determined by the BOD at the time of Issue; c. One preferred share is convertible to one common share starting at the end of the 10th year of
the issue date at a price to be determined by the Globe Telecom‟s BOD at the time of issue
which shall not be less than the market price of the common share less the par value of the preferred share;
d. Call option – Exercisable any time by Globe Telecom starting at the end of the 5th year from issue date at a price to be determined by the BOD at the time of the issue;
e. Eligibility of Investors – Only Filipino citizens or corporations or partnerships wherein 60% of the voting stock of voting power is owned by Filipino;
f. With voting rights; g. Cumulative and non-participating; h. Preference as to dividends and in the event of liquidation; and i. No preemptive right to any share issue of Globe Telecom, and subject to yield protection in
case of change in tax laws. The dividends for voting preferred stock are declared upon the sole discretion of the Globe Telecom‟s BOD.
To date, none of the voting preferred shares have been converted to common shares. Common Shares Common shares at par value of P50 per share of which 132 million are issued and outstanding out of a total authorized of 180 million shares.
Cash Dividends The dividend policy of Globe Telecom as approved by the Board of Directors is to declare cash dividends to its common stockholders on a regular basis as may be determined by the Board. The dividend payout rate starting 2006 is approximately 75% of prior year‟s net income payable semi-annually in March and September of each year. This is reviewed annually, taking into account Globe Telecom‟s operating results, cash flows, debt covenants, capital expenditure levels and liquidity. On November 6, 2009, the Board of Directors amended the dividend payment rate from 75% to a range of 75% - 90% of prior year‟s net income. On November 8, 2011, the Board of Directors amended the Company‟s dividend policy to be based
on core instead of reported net income. Pay-out range remains at 75% to 90%. This is to ensure that dividends will remain sustainable and yields competitive despite the expected near-term decline in net income that would result from the accelerated depreciation charges related to assets that will be decommissioned as part of the Company‟s network and IT transformation programs. As currently
defined, core net income excludes all foreign exchange, mark-to-market gains and losses, as well as non-recurring items. On August 6, 2013, the Board of Directors approved the proposed change in the frequency of the cash dividend distribution from semi-annual to quarterly beginning first quarter of 2014. The quarterly cash dividends will continue to be based on the policy of 75%-90% of prior year‟s core net
SEC Form 17Q – 2Q 2014 46
income. The amended frequency in the payouts will provide the Company with the better cash planning and liquidity management and at the same time ensure a more consistent dividend distribution to the shareholders. On December 10, 2013, the Company announced that the quarterly cash dividend distribution will be implemented beginning in the third quarter of 2014 instead of the first quarter of 2014. The dividend payout rate is reviewed annually by the Board of Directors, taking into account the company‟s operating results, cash flows, debt covenants, capital expenditure levels and liquidity. On 10 February 2014, the Board of Directors approved the declaration of the 1st semi-annual cash dividend of P37.50 per common share, payable to shareholders on record as of 26 February 2014. Total dividends of about P4.97 billion were paid on 20 March 2014. Consolidated Return on Average Equity (ROE) registered at 32% as of end-June 2014, compared to 6% in the same period in 2013 using net income and based on average equity balances for the year ended. Using annualized core net income excluding the effects of accelerated depreciation on net income, return on average equity for the first half this year was at 36% compared to 29% of 2013. Accordingly, consolidated basic earnings per common share were P51.39 and P10.53, while consolidated diluted earnings per common share were P51.29 and P10.53 as of end-June 2014 and 2013, respectively.
SEC Form 17Q – 2Q 2014 47
FINANCIAL RISK MANAGEMENT
FOREIGN EXCHANGE EXPOSURE
Foreign exchange risks are managed such that USD inflows from operations (transaction exposures) are balanced or offset by the net USD liability position of the company (translation exposures). Globe Group‟s objective is to maintain a position which results in, as close as possible, a neutral
effect to the P&L relative to movements in the foreign exchange market. Transaction exposures
Globe has natural net US$ inflows arising from its operations. Consolidated foreign currency-linked revenues1 was at 16% and 17% of total gross service revenues for the periods ended 30 June 2014 and 2013, respectively. In contrast, Globe‟s foreign-currency linked expenses were at 9% of total operating expenses for the same periods ended, respectively. The US$ flows are as follows:
June 30, 2014 US$ and US$ Linked Revenues ₱7.6 billion US$ Operating Expenses ₱1.8 billion US$ Net Interest Expense ₱0.115 billion Due to these net US$ inflows, an appreciation of the Peso has a negative impact on Globe‟s Peso
EBITDA. Globe occasionally enters into forward contracts to hedge against a peso appreciation. A total of US$3 million of contracts remain outstanding as of end-June 2014. The mark-to-market of the outstanding forwards stood at a gain of P4.8million as of end-June 2014. Realized gain from forward contracts that matured as of June 30, 2014 amounted to P1.01 million Includes the following revenues:
(1) billed in foreign currency and settled in foreign currency, and
(2) billed in Pesos at rates linked to a foreign currency tariff and settled in Pesos
SEC Form 17Q – 2Q 2014 48
Translation Exposures
Globe also has US$ assets and liabilities which are revalued at market rates every period. These are as follows:
June 30, 2014
US$ Assets US$195 million
US$ Liabilities US$558 million
Net US$ Liability Position US$362 million
For accounting purposes, the foreign currency assets and liabilities are revalued at the exchange rate at the end of each reporting period. Given the net US$ liability position, an appreciation of the peso results in a revaluation or forex gain in our P&L. As of June 2014, the Philippine Peso stood at P43.647 to the US dollar, an increase versus the 2013 year-end rate of P44.398. Due to the strengthening peso, the Globe Group charged a total of P125 million in net foreign exchange gain to current operations for the first half of 2014. Globe entered into cross currency swaps amounting to US$125 million in April 2013 and US$40 million in February 2014 to hedge the FX and interest rate risk on some of its USD loans. The MTM of the swap contracts stood at a gain of P270 million as of end-June 2014. INTEREST RATE EXPOSURE Interest rate exposures are managed via targeted levels of fixed versus floating rate debt that are meant to achieve a balance between cost and volatility. Globe‟s policy is to maintain between 44-88% of its peso debt in fixed rate, and between 31-62% of its US$ debt in fixed rate. As of end-June 2014, Globe has a total of P3.2 billion in PHP interest rate swaps and $165 million in cross currency swaps that were entered into contracts to achieve these targets. The US$ and Peso swaps fixed some of the Company‟s outstanding floating rate debts with quarterly or semi-annual payment intervals up to April 2020. As of end-June 2014, 69% (excluding short-term debt) of peso debt is fixed, while 51% of USD debt is fixed after swaps. The MTM of the interest swap contracts (not including the currency swap contracts) stood at a loss of P73 million as of end-June 2014.
SEC Form 17Q – 2Q 2014 49
CREDIT EXPOSURES FROM FINANCIAL INSTRUMENTS
Outstanding credit exposures from financial instruments are monitored daily and allowable exposures are reviewed quarterly. For investments, the Globe Group does not have investments in foreign securities (bonds, collateralized debt obligations (CDO), collateralized mortgage obligations (CMO), or any instruments linked to the mortgage market in the US). Globe‟s excess cash is invested in short term bank and
SDA deposits. The Globe Group also does not have any investments or hedging transactions with investment banks. Derivative transactions as of the end of the period are with large foreign and local banks. Furthermore, the Globe Group does not have instruments in its portfolio which became inactive in the market nor does the company have any structured notes which require use of judgment for valuation purposes.
VALUATION OF DERIVATIVE TRANSACTIONS
The company uses valuation techniques that are commonly used by market participants and that have been demonstrated to provide reliable estimates of prices obtained in actual market transactions. The company uses readily observable market yield curves to discount future receipts and payments on the transactions. The net present value of receipts and payments are translated into Peso using the foreign exchange rate at time of valuation to arrive at the mark to market value. For derivative instruments with optionality, the company relies on valuation reports of its counterparty banks, which are the company‟s best estimates of the close-out value of the transactions. Gains (losses) on derivative instruments represent the net mark-to-market (MTM) gains (losses) on derivative instruments. As of 30 June 2014, the MTM value of the derivatives of the Globe Group amounted to a gain of P185 million while net loss on derivative instruments arising from changes in MTM reflected in the consolidated income statements amounted to P55 million. To measure riskiness, the Company provides a sensitivity analysis of its profit and loss from financial instruments resulting from movements in foreign exchange and interest rates. The interest rate sensitivity estimates the changes to the following P&L items, given an indicated movement in interest rates: (1) interest income, (2) interest expense, (3) mark-to-market of derivative instruments. The foreign exchange sensitivity estimates the P&L impact of a change in the USD/PHP rate as it specifically pertains to the revaluation of the net unhedged liability position of the company, and foreign exchange derivatives.
SEC Form 17Q – 2Q 2014 50
LEGAL, REGULATORY AND CORPORATE DEVELOPMENTS
A. On 23 July 2009, the NTC issued NTC Memorandum Circular (MC) No. 05-07-2009
(Guidelines on Unit of Billing of Mobile Voice Service). The MC provides that the maximum unit of billing for the cellular mobile telephone service (CMTS) whether postpaid or prepaid shall be six (6) seconds per pulse. The rate for the first two (2) pulses, or equivalent if lower period per pulse is used, may be higher than the succeeding pulses to recover the cost of the call set-up. Subscribers may still opt to be billed on a one (1) minute per pulse basis or to subscribe to unlimited service offerings or any service offerings if they actively and knowingly enroll in the scheme. In compliance with NTC MC 05-07-2009, Globe refreshed and offered to the general public its existing per-second rates that, it bears emphasizing, comply with the NTC Memorandum Circular. Globe made per second charging for Globe-Globe/TM-TM/Globe available for Globe Subscribers dialing prefix 232 (GLOBE) OR 803 plus 10-digit TM or Globe number for TM subscribers. The NTC, however, contends that Globe‟s offering does not comply with the circular and with the NTC‟s Order
of 7 December 2009 which imposed a three-tiered rate structure with a mandated flag-down of P3.00, a rate of P0.4375 for the 13th to the 160th second of the first minute and P0.65 for every 6-second pulse thereafter. On 9 December 2009, the NTC issued a Cease and Desist Order requiring the carriers to refrain from charging under the previous billing system or regime and refund consumers.
Globe maintains that the Order of the NTC of 7 December 2009 and the Cease and Desist Order are void as being without basis in fact and law and in violation of Globe‟s rights to due
process. Globe, Smart, Sun and CURE all filed petitions before the Court of Appeals seeking the nullification of the questioned orders of the NTC. On 18 February 2010, the Court of Appeals issued a Temporary Restraining Order preventing the NTC from enforcing the disputed Order.
On 25 May 2010, the CA issued a writ of preliminary injunction directing the NTC to cease and desist from enforcing their assailed Order/s. On 28 December 2010, the CA rendered a Decision declaring the questioned decisions invalid for being violative of the Petitioners‟
right to due process, among others. The Petitioners and the NTC filed their respective Motions for Partial Reconsideration. The motions were DENIED by the CA in an Order dated 19 January 2012. Due to lack of material time, the NTC and the Petitioners seasonably filed their respective Motions for Extension of Time to File Petition for Review with the Supreme Court. The Movants are expected to file their respective petitions within the month of March 2012. Globe believes that its legal position is strong and that its offering is compliant with the NTC‟s Memorandum Circular 05-07-2009, and therefore believes that it would not be obligated to make a refund to its subscribers. If, however, Globe would be held as not being in compliance with the circular, Globe may be contingently liable to refund to any complaining subscribers any charges it may have collected in excess of what it could have charged under the NTC‟s disputed Order of 7 December 2009, if indeed it is proven by any
complaining party that Globe charged more with its per second scheme than it could have under the NTC‟s 6-second pulse billing scheme stated in the disputed Order. Management has no estimate of what amount this could be at this time.
SEC Form 17Q – 2Q 2014 51
B. On 22 May 2006, Innove received a copy of the Complaint of Subic Telecom Company
(“Subictel”), Inc., a subsidiary of PLDT, seeking an injunction to stop the Subic Bay
Metropolitan Authority and Innove from taking any actions to implement the Certificate of Public Convenience and Necessity granted by SBMA to Innove. Subictel claimed that the grant of a CPCN allowing Innove to offer certain telecommunications services within the Subic Bay Freeport Zone would violate the Joint Venture Agreement (“JVA”) between
PLDT and SBMA. The Supreme Court ordered the reinstatement of the case and has forwarded it to the NTC-Olongapo for trial.
C. PLDT and its affiliate, Bonifacio Communications Corporation (BCC) and Innove and Globe
are in litigation over the right of Innove to render services and build telecommunications infrastructure in the Bonifacio Global City. In the case filed by Innove before the NTC against BCC, PLDT and the Fort Bonifacio Development Corporation (FBDC), the NTC has issued a Cease and Desist Order preventing BCC from performing further acts to interfere with Innove‟s installations in the Bonifacio Global City.
In the case filed by PLDT against the NTC in Branch 96 of the Regional Trial Court (RTC) of Quezon City, where PLDT sought to obtain an injunction to prevent the NTC from hearing the case filed by Innove, the RTC denied the prayer for a preliminary injunction and the case has been set for further hearings. PLDT has filed a Motion for Reconsideration and Globe has intervened in this case. In a resolution dated 28 October 2008, the RTC QC denied BCC‟s motion for the issuance of a temporary restraining order (TRO). The case is still pending with the QC RTC. In the case filed by BCC against FBDC, Globe Telecom and Innove, Bonifacio Communications Corp. before the Regional Trial Court of Pasig, which case sought to enjoin Innove from making any further installations in the BGC and claimed damages from all the parties for the breach of the exclusivity of BCC in the area, the court did not issue a Temporary Restraining Order and has instead scheduled several hearings on the case. In a resolution dated 28 October 2008, the RTC QC denied BCC‟s motion for the issuance of a
temporary restraining order (TRO). The case is still pending with the RTC Pasig. On 11 November 2008, Bonifacio Communications Corp. (BCC) filed a criminal complaint against the officers of Innove Communications Inc., the Fort Bonifacio Development Corporation (FBDC) and Innove contractor Avecs Corporation for malicious mischief and theft arising out of Innove‟s disconnection of BCC‟s duct at the Net Square buildings. The accused officers filed their counter-affidavits and are currently pending before the Prosecutor‟s Office of Pasig. The case is still pending resolution with the Office of the City
Prosecutor. On 21 January 2011, BCC and PLDT filed with the Court of Appeals a Petition for Certiorari and Prohibition against NTC, et al. seeking to annul the Orders of the NTC dated 28 October 2008 directing BCC, PLDT and FBDC to comply with the provisions of NTC MC 05-05-02 and the CEASE AND DESIST from performing further acts that will prevent Innove from implementing and providing telecommunications services in the Fort Bonifacio Global City pursuant to the authorization granted by the NTC. BCC and PLDT anchor their petition on
SEC Form 17Q – 2Q 2014 52
the grounds that: 1) the NTC has no jurisdiction over BCC it being a non telecommunications entity; 2) the NTC violated BCC and PLDT‟s right to due process; and 3) there was no
urgency or emergency for the issuance of the cease and desist order. The case is pending with the court of appeals. On April 25, 2011, Innove Communications, filed its comment on the case filed by PLDT that seeks to ban all Globe services from the Bonifacio Global City before the CA‟s Tenth
Division. In its comment, Globe argued that it is in the public‟s best interest that open access and free competition among telecom operators be allowed at the Bonifacio Global City. On August 16, 2011, the Ninth Division of the CA ruled that PLDT‟s case against Innove and
the National Telecommunications Commission (NTC) lacked merit, and thus denied the petition and DISMISSED the case. PLDT and its co-petitioner, BCC file their motion for reconsideration. The same is still pending resolution.
Other Developments
In November 2004, Globe and seven other leading Asia Pacific mobile operators („JV
partners‟) signed an agreement („JV agreement‟) to form Bridge Alliance. The joint venture
company operates through a Singapore-incorporated company, Bridge Mobile Pte. Limited (BMPL) which serves as a commercial vehicle for the JV partners to build and establish a regional mobile infrastructure and common service platform to deliver different regional mobile services to their subscribers. The Bridge Alliance currently has a combined customer base of over 250 million subscribers among its partners in India, Thailand, Hong Kong, South Korea, Macau, Philippines, Malaysia, Singapore, Australia, Taiwan and Indonesia. Globe Group has a ten percent (10%) stake in BMPL. The other joint venture partners each with equal stake in the alliance include SK Telecom, Co. Ltd., Advanced Info Service Public Company Limited, Bharti Airtel Limited, Maxis Communications Berhad, Optus Mobile Pty. Limited, Singapore Telecom Mobile Pte, Ltd., Taiwan Mobile Co. Ltd., PT Telekomunikasi Selular and CSL Ltd. Under the JV Agreement, each partner shall contribute USD4.00 million based on an agreed schedule of contribution. Globe Telecom may be called upon to contribute on dates to be determined by the JV. As of December 31, 2013 and 2012, Globe Telecom has invested a total of USD2.20 million (₱111.28 million), in the joint venture In February 2013, Globe obtained approval from its Board of Directors to invest in a Philippine entity to be named as Taodharma, Inc. to explore growth opportunities in the mobile market. In March 2013, Globe entered into a Shareholders Agreement among four other entities to incorporate Taodharma Inc. (“Tao”). Globe subscribed for the 25% preferred shares of Tao
amounting to P55.00 million which has been fully paid up as of August 2013. Tao shall carry on the business of establishing, operating and maintaining retail stores in strategic locations within the Philippines that will sell telecommunications or internet-related services, and devices, gadgets, accessories or embellishments in connection and in accordance with the terms and conditions of the Dealer Agreement executed among all of the entities. Globe also entered into an exclusive dealership arrangement with Tao that included provisions to build
SEC Form 17Q – 2Q 2014 53
and open retail outlet stores scattered across in cities and other major high-traffic locations nationwide.
ABS-CBN Deal
On 27 May 2013, Globe, Innove and ABS-CBN Convergence Inc. (“ABS-C” and formerly
known as Multimedia Telephony Inc.) have entered into a network sharing arrangement in order to provide capacity and coverage for new mobile telephony, data and value-added services to be offered by ABS-C nationwide to its subscribers using shared network and interconnect assets of the parties.
Under the network sharing arrangement, Globe and Innove will provide network capacity and coverage to ABS-C on a nationwide basis and connect ABS-C‟s prepaid and postpaid billing,
and customer service management system to the network resources to be provided by Globe and Innove. The parties shall use and where necessary, share existing network elements/resources and interconnect assets including switches, servers, towers, and radio elements. The parties will accordingly notify the National Telecommunications Commission of this arrangement.
Bayantel Update
Globe Telecom, Inc. and Bayan Telecommunications, Inc. (“BTI”) obtained approval from
the NTC for the joint use of the frequencies 1750-1760 MHz / 1845-1855 MHz originally assigned to BTI. The joint-use agreement will enable Globe to address increasing demand for voice, short message and mobile data services, and allow BTI to be able to offer mobile-telecommunications services nationwide. In another development, the Company announced in November 2012 that it has obtained the approval by its Board of Directors to commence offers to purchase (the “Debt Offers”) up to
100% of the financial obligations of BTI and subsidiary Radio Communications of the Philippines, Inc. (“RCPI”) to their respective financial creditors. The Debt Offers were concluded last 22 December 2012, wherein Globe secured the acceptance of 93.66% of the holders of the unsecured financial indebtedness of BTI under the US$ 13.5% bonds originally due in 2006; 98.26% of the outstanding other financial indebtedness owed by BTI; and 100% of the outstanding financial indebtedness owed by RCPI, based on outstanding aggregate principal amount under the terms of the rehabilitation plan of BTI and RCPI. BTI has been subject to court-supervised rehabilitation proceedings since 2003. The current rehabilitation plan anticipates that BTI and RCPI will remain in rehabilitation until 2023. Globe intends to apply with the rehabilitation court to amend the terms of the rehabilitation plan in the interest of assuring BTI‟s long-term sustainability. Meanwhile, Globe has also commenced separate discussions with the controlling shareholders of BTI regarding a wide range of commercial arrangements including a potential acquisition by Globe of an equity interest in BTI. The approval of the National Telecommunications Commission is required to complete the acquisition. The parties remain in discussions on the terms of the commercial arrangements including the price and other
SEC Form 17Q – 2Q 2014 54
conditions under which the acquisition may be effected. No definitive arrangement has been executed at this time. Subsequently, last May 30, 2013, Globe, Bayan Telecommunications Holdings Corporation, the controlling shareholder of BTI, and BTI jointly filed a motion with the court having jurisdiction over BTI 's debts. The motion seeks to significantly restructure BTI 's financial debt in order to prevent the recurrence of default and ensure BTI's continued viability. Following Globe's tender offers for the BTI debt in 2012, Globe currently holds approximately 96.5% of the total financial indebtedness of BTI. The joint motion is intended to achieve a successful rehabilitation of BTI at the earliest possible date. The current outstanding principal amount of this debt is approximately the equivalent of US$423.3 million. BTI's operations have not generated sufficient revenue to continue making the debt payments under its existing rehabilitation plan. This has been attributed to a decline in revenue from traditional fixed line services offered by BTI, increasing competitive pressures in the telecommunications industry and BTI's inability to make any considerable capital investments while under its high debt burden. The restructuring would, upon confirmation by the court, significantly decrease this through a conversion of up to 69% of the debt into BTI shares. As restructured, the outstanding principal debt balance would be reduced to approximately US$131.3 million, assuming the debt to equity conversions occur to their fullest extent. The restructuring, including the debt to equity conversion feature, would apply to all of BTI‟s creditors equally upon receipt of certain regulatory approvals,
including the confirmation of the court. By acquiring the BTI debt, Globe sought to enable BTI's continued viability as a telecommunications provider. For Globe's part, such a restructuring would allow Globe to further strengthen collaborative efforts with BTI in respect of their local exchange networks, corporate data and broadband businesses. Ensuring that BTI remains a going concern would allow both companies to become more competitive in the current industry environment. On the part of BTI, a restructuring of its debt and the entry of Globe as a shareholder as well as a Creditor will enable BTI to unlock and maximize potential of its key business assets and capabilities, and help accelerate its rehabilitation. Globe appreciates further that BTI's continued operations benefits all of its employees, suppliers, stakeholders and public telecommunications customers in the Philippines as a whole. On September 2013, Globe received a Resolution issued by Branch 158 of the Regional Trial Court in Pasig City. This is the court having jurisdiction over the debts of BTI and its corporate rehabilitation proceedings. The Resolution granted the joint motion filed by Globe and BTI to amend current debt restructuring plan and implement a new Master Restructuring Agreement for all BTI‟s creditors. The Amendments principally involve a conversion of up to 69% of the debt into BTI shares comprising up to 56.6% of BTI‟s capital stock, on a fully
diluted basis. Assuming that debt to equity conversion occur to their fullest extent, the Amendments will reduce BTI‟s outstanding principal debt by 69% from the equivalent of approximately US$423.3 to approximately US$131.3 million. The Amendments also facilitate the entry of Globe into BTI as a shareholder and are expected to assure BTI‟s
successful rehabilitation. In addition to Globe, the debt to equity conversion of the new debt restructuring terms will apply to all BTI‟s creditors.
SEC Form 17Q – 2Q 2014 55
On October 1, 2013, Globe Telecom acquired 38% interest in BTI following the conversion of its unsustainable debt (Tranche B) into 45 million common shares based on the confirmation of the court dated August 27, 2013 of the Amended Rehabilitation Plan. Globe Telecom will further convert its share of the Tranche A debt upon certain regulatory approvals. Globe Telecom‟s acquisition of BTI is intended to increase its current data and DSL businesses using BTI‟s existing platform. As of March 31, 2014, the equity in BTI was recognized as investment in an associate carried at acquisition cost valued at nil. BTI remains in a capital deficiency after Tranche B conversion with a negative book value of common shares at P47.45 per share. The accumulated unrecognized share in net loss and other comprehensive income as of March 31, 2014 amounted to P488.68 million and P31.88 million, respectively. As of June 30, 2014, the equity in BTI was accounted as investment in an associate carried at acquisition cost valued at nil. BTI remains in a capital deficiency after Tranche B conversion with a negative book value of common shares at 48.53 per share. The accumulated unrecognized share in net loss and other comprehensive income as of June 30, 2014, amounted to 506.00 million and 32.36 million, respectively. As of June 30, 2014, the National Telecommunications Commission (NTC) approval for the change in control of BTI is still pending
Asticom Technology, Inc.
On June 3, 2014, Globe signed an agreement with Azalea Technology, Inc. and SCS Computer Systems, acquiring the entire ownership stake in Asticom. Asticom, a systems integrator and information technology services provider to domestic and international markets, is 49% owned by Azalea, a 100%-owned subsidiary of Ayala Corporation and 51% owned by SCS Computer Systems, a subsidiary of Singapore Telecom.
Globe‟s acquisition of Asticom is in line with its strategy to expand its business operations in
the information technology space. Details on these transactions have been extensively discussed in the disclosures filed with the SEC and PSE and may be accessed from the PSE and Company websites.
NTC Memorandum Circular
On October 10, 2011, the NTC issued Memorandum Circular No. 2-10-2011 titled Interconnection Charge for Short Messaging Service requiring all public telecommunication entities to reduce their interconnection charge to each other from P0.35 to P0.15 per text, which Globe complied with as early as November 2011. On December 11, 2011, the NTC One Stop Public Assistance Center (OSPAC) filed a complaint against Globe, Smart, and Digitel alleging violation of the said MC No. 02-10-2011 and mandating a reduction in the
SEC Form 17Q – 2Q 2014 56
SMS off-net retail price from P1.00 to P0.80 per text. Globe filed its Answer maintaining the position that the circular did not require a reduction in the retail rate, only the interconnection charge; that SMS is a value added service (VAS) which, under the NTC's own circular issued in 2008, is deregulated; and that a reduction of the SMS interconnection charge does not automatically translate to a reduction in the SMS retail charge per text.
On November 20, 2012, the NTC rendered a decision directing Globe to:
1. Reduce its REGULAR SMS Retail rate from P1.00 to not more than P0.80 2. Refund/reimburse its subscribers the excess charge of P0.20 3. Pay a fine of P200.00 per day from December 1,2011 until date of compliance.
On May 7, 2014, NTC denied the Motion for Reconsideration (MR) filed by Globe last December 5, 2012 in relation to the November 20, 2012 decision. Globe stands on its legal position that it is compliant with the NTC‟s Memorandum Circular No. 02-10-2011 and did not violate said circular when it did not reduce the SMS retail rate. On June 9, 2014, Globe filed its petition for review of the assailed NTC decision and resolution denying Globe's MR with the Court of Appeals.
SEC Form 17Q – 2Q 2014 57
OTHER RELEVANT INFORMATION MAJOR STOCKHOLDERS The following are the major stockholders of Globe Telecom as of 30 June 2014:
Stockholders Common
Shares
% of
Common
Preferred
Shares
% of
Preferred
Shares
Total % of
Total
Ayala Corp. 40,328,090 30.4% - - 40,328,090 13.8% SingTel 62,646,487 47.2% - - 62,646,487 21.5% Asiacom - - 158,515,018 100% 158,515,018 54.4% Public* 29,707,250 22.4% 3 - 29,707,250 10.2% Total 132,681,827 100% 158,515,021 100% 291,196,848 100%
*Includes shares held by Directors/Officers/ESOP
BOARD OF DIRECTORS (BOD) As of 30 June 2014, the members of the Board of Directors of the Globe Group are:
Name Position
Jaime Augusto Zobel de Ayala Chairman Gerardo C. Ablaza, Jr. Co-Vice Chairman Mark Chong Chin Kok Co-Vice Chairman Romeo L. Bernardo Director Ernest L. Cu Director, President and CEO Delfin L Lazaro Director Rex Ma. A. Mendoza* Director Guillermo D. Luchangco* Director Manuel A. Pacis* Director Tay Soo Meng Director Fernando Zobel de Ayala Director
* Independent Director
Key Officers - Globe
Name Position
Ernest L. Cu President and Chief Executive Officer Alberto M. de Larrazabal Chief Finance Officer Henry Rhoel R. Aguda Chief Information Officer and SVP, Information Systems Group Vicente Froilan M. Castelo General Counsel and SVP, Corporate and Legal Services Group Marisalve Ciocson-Co Compliance Officer and Assistant Corporate Secretary and VP, Legal Services Rebecca V. Eclipse Chief Customer Experience Officer and EVP, Office of Strategy Management Gil B. Genio Chief Operating Officer for Business and International Markets and Chief
Strategy Officer Carmina J. Herbosa Chief Audit Executive and SVP, Internal Controls Group Renato M. Jiao Chief Human Resource Officer Bernard P. Llamzon EVP, Consumer Sales Solomon M. Hermosura Corporate Secretary Consultants
Name Position
Chee Loo Fun Senior Adviser for Consumer Marketing Rodolfo A. Salalima Chief Legal Counsel and Senior Advisor Robert Tan Chief Technical Advisor Chee Loo Fun Senior Adviser for Consumer Marketing
Globe
SIGNATURES
Pursuant to the requirement of the Securities Regulation Code, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly authorized.
Registrant GLOBE TELECOM, INC.
CARMELI PAULINE M. BRIONESHead - Financial Control Atf"
5 August 2014
S&dLBERTO M. DRiARRAZABALChief Financial Officer
5 August 2014
SEC Form 17Q-2Q2014 58
SEC Form 17Q – 2Q 2014 59
ANNEX TO THE MD&A SECTION
1) Any events that will trigger direct or contingent financial obligation that is material to the
company, including any default or acceleration of an obligation:
Changes in Accounting Policies The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Globe Group‟s consolidated financial statements as of and for the year ended December 31, 2013,
except for the adoption of the following new and amended standards effective as of January 1, 2014. The nature and impact of each new standard and amendments is described below: Amendments to PFRS 10, PFRS 12 and PAS 27, Investment Entities
They provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under PFRS 10. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. It is not expected that this amendment would be relevant to Globe Group since none of the entities in the Group would qualify to be an investment entity under PFRS 10.
Amendments to PAS 36, Impairment of Assets - Recoverable Amount Disclosures for
Non-Financial Assets These amendments remove the unintended consequences of PFRS 13, Fair Value
Measurement, on the disclosures required under PAS 36. In addition, these amendments require disclosure of the recoverable amounts for the assets or cash-generating units (CGUs) for which impairment loss has been recognized or reversed during the period. The amendments have no impact on the Globe Group‟s financial position or
performance.
Philippine Interpretation IFRIC 21, Levies IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached. The adoption of the standard has no impact to the Globe Group.
Amendments to PAS 39, Financial Instruments: Recognition and Measurement -
Novation of Derivatives and Continuation of Hedge Accounting These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. The Globe Group has not novated its derivatives during the current period. However, these amendments would be considered for future novations.
Amendments to PAS 32, Financial Instruments: Presentation - Offsetting Financial
Assets and Financial Liabilities
SEC Form 17Q – 2Q 2014 60
The amendments clarify the meaning of “currently has a legally enforceable right to set-off” and the criteria for simultaneous settlement mechanisms of clearing houses to
qualify for offsetting. The amendments affect presentation only and have no impact on the Globe Group‟s financial position or performance.
Future Changes in Accounting Policies
The Globe Group has not opted for an early adoption of any standard, interpretation or amendment that has been issued but is not yet effective.
2) Description of material commitments and general purpose of such commitments. Material
off-balance sheet transactions, arrangements, obligations and other relationships with
unconsolidated entities or other persons created during the period:
For details on material commitments and arrangements, see Notes 6 and 13 in the attached Notes to the Financial Statements. Globe Telecom and Innove, in their regular conduct of business, enter into transactions with their major stockholders, AC and STI, joint ventures and certain related parties. Globe Telecom also has investments in the following:
Investment in BTI On October 1, 2013, Globe Telecom acquired 38% interest in BTI following the conversion of its unsustainable debt (Tranche B) into 45 million common shares based on the confirmation of the Court dated August 27, 2013 of the Amended Rehabilitation Plan submitted by Globe Telecom and BTI. Globe Telecom will further convert its share of the Tranche A debt upon obtaining certain regulatory approvals. Globe Telecom‟s
acquisition of BTI is intended to increase its current data and DSL businesses using BTI‟s existing platform. As of June 30, 2014, the equity in BTI was accounted as investment in an associate carried at acquisition cost valued at nil. BTI remains in a capital deficiency after Tranche B conversion with a negative book value of common shares at ₱48.53 per share. The accumulated unrecognized share in net loss and other comprehensive income as of June 30, 2014, amounted to ₱506.00 million and ₱32.36 million, respectively. As of June 30, 2014, the National Telecommunications Commission (NTC) approval for the change in control of BTI is still pending.
Investment in Automatic Fare Collection System Inc. (AFCS)
On January 30, 2014, following a competitive bidding process, the Department of Transportation and Communication awarded to AF consortium, composed of AC Infrastructure Holdings Corp., BPI Card Finance Corp., Globe Telecom, Inc., Meralco Financial Services, Inc., Metro Pacific Investments Corp., and Smart Communications, Inc. the rights to design, build and operate the ₱1.72 billion automated fare collection system.
SEC Form 17Q – 2Q 2014 61
This is a public-private partnership project intended to upgrade and consolidate the fare collection systems of the three urban rail transit systems which presently serve Metro Manila.
On February 10, 2014, AF Consortium incorporated AFCS, a special purpose company, which will assume the rights and obligations of the concessionaire. These rights and obligations include the construction and establishment of systems, infrastructure including implementation, test, acceptance and maintenance plans, and operate the urban transit system for a period of 10 years.
As of June 30, 2014, Globe Telecom has invested a total of ₱300.00 million in the
consortium with 20% equivalent equity interest.
The accumulated share in net losses and other comprehensive income from this investment for the six-month period ended June 30, 2014 amounted to ₱3.61 million and nil,
respectively.
Investment in FPSI
On December 19, 2013, Kickstart entered into a Memorandum of Agreement with FPSI and FPSI‟s stockholders to subscribe to 5.07 million common shares of FPSI for a total subscription price of ₱18.88 million to obtain 65% cumulative ownership. FPSI is engaged in acquiring, publishing rights to produce, publish, market and sell printed and electronic books and other electronic documents and content for international and domestic sales. On February 4, 2014, Kickstart entered into a subscription agreement with FPSI for the acquisition of 2.08 million common shares for a total subscription price of ₱8.22 million which constitutes 40% ownership. The transaction was accounted for as acquisition of a subsidiary. The purchase price consideration had been allocated to the identifiable assets and liabilities of FPSI on the basis of its book values. As allowed under the relevant standard, Kickstart will recognize any adjustment to those provisional values as an adjustment to goodwill upon determining the final fair values of identifiable assets and liabilities within 12 months from acquisition date. From the date of acquisition, FPSI has contributed ₱1.39 million of revenue and loss
before income tax of ₱0.76 million. The provisional fair value of the identifiable assets and liabilities of FPSI at the date of acquisition is as follows (in thousand pesos): Current assets P=10,520 Current liabilities (2,304) Total identifiable net assets at fair value 8,216 Goodwill arising from acquisition (provisional) – Net cash outflow on acquisition P=8,216
SEC Form 17Q – 2Q 2014 62
From the date of acquisition, FPSI has contributed P=1.39 million of revenue and loss before income tax of P=0.76 million.
Net cash outflow from the acquisition is as follows (in thousand pesos):
Total cash paid on acquisition P=8,216 Cash and cash equivalents acquired from Flipside (198) Net cash outflow on acquisition P=8,018
Investment in Asticom Technology, Inc. (Asticom)
On June 3, 2014, Globe signed an agreement with Azalea Technology, Inc. and SCS Computer Systems, Pte. Ltd. acquiring 100% ownership of Asticom Technology, Inc. for a total consideration of ₱12.45 million. The transaction was accounted for as an
acquisition of a subsidiary. Formerly known as Ayala Systems Technology, Inc., Asticom provides enterprise resource planning, customer relationship management systems, other systems integration and information technology services to domestic and international markets. Asticom was 49% owned by Azalea, a 100%-owned subsidiary of Ayala Corporation and 51% owned by SCS Computer Systems, a subsidiary of Singapore Telecom. Globe‟s acquisition of Asticom is in line with its strategy to expand its business
operations in the information technology space. The acquisition has been accounted for using the acquisition method. The interim condensed consolidated financial statements include the results of Asticom for the one month period from the acquisition date. The purchase price consideration had been allocated to the identifiable assets and liabilities of Asticom on the basis of its book values. As allowed under the relevant standard, Globe will recognize any adjustment to those provisional values as an adjustment to goodwill upon determining the final fair values of identifiable assets and liabilities within 12 months from acquisition date. From the date of acquisition, Asticom has contributed ₱5.56 million of revenue and loss
before income tax of ₱0.53 million. Gain arising from acquisition of Asticom is reported under “Others - net” in the interim statements of comprehensive income.
The net fair value of the identifiable assets and liabilities of Asticom as at the date of acquisition is as follows (in thousand pesos):
Current assets P=81,674 Noncurrent assets 7,705 Current liabilities (27,860) Total identifiable net assets at fair value 61,519 Gain arising from acquisition (provisional) (49,065) Purchase consideration transferred P=12,454
SEC Form 17Q – 2Q 2014 63
From the date of acquisition, Asticom has contributed P=5.56 million of revenue and loss before income tax of P=0.53 million. Gain arising from acquisition of Asticom is reported under “Others - net” in the interim statements of comprehensive income. Net cash outflow from the acquisition is as follows (in thousand pesos):
Total cash paid on acquisition P=12,454 Cash and cash equivalents acquired from Asticom (8,221) Net cash outflow on acquisition P=4,233
3) Any significant elements of income or loss that did not arise from the registrant's
continuing operations:
Not applicable.
4) Any seasonal aspects that had a material effect on the financial condition or results of
operations:
There are no seasonal aspects that have material effects in the financial statements.
Globe Telecom, Inc. and Subsidiaries
Interim Condensed Consolidated Financial Statements
June 30, 2014 and 2013
and
Independent Auditor’s Report
GLOBE TELECOM, INC. AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION June 30 December 31
Notes 2014
(Unaudited)
2013 (Unaudited)
2013 (Audited)
(In Thousand Pesos)
ASSETS Current Assets Cash and cash equivalents P=7,194,450 P=6,149,760 P=7,420,735 Receivables 13,663,046 14,164,332 15,200,923 Inventories and supplies 4,346,362 3,701,350 3,544,887 Derivative assets 15 7,771 8,786 1,834 Prepayments and other current assets 5 10,220,618 10,998,307 9,462,823 35,432,247 35,022,535 35,631,202 Assets classified as held for sale – 778,321 – 35,432,247 35,800,856 35,631,202 Noncurrent Assets Property and equipment 3 115,069,713 103,906,029 110,424,072 Intangible assets and goodwill 4 5,132,553 4,646,923 3,840,660 Investments in an associate and joint ventures 6 473,366 152,581 162,754 Deferred income tax assets - net 11 1,628,448 1,093,055 1,916,878 Derivative assets 15 386,350 631,521 553,562 Other noncurrent assets 5 6,050,299 7,838,111 6,549,805 128,740,729 118,268,220 123,447,731 Total Assets P=164,172,976 P=154,069,076 P=159,078,933
LIABILITIES AND EQUITY Current Liabilities Accounts payable and accrued expenses 7 P=42,762,760 P=33,922,940 P=39,486,830 Notes payable 8 2,309,410 2,162,850 5,219,900 Provisions 291,295 331,342 294,700 Derivative liabilities 15 180,468 308,915 219,694 Income tax payable 1,308,108 1,577,119 1,028,263 Unearned revenues 2,526,157 2,242,794 2,759,644 Current portion of long-term debt 8 3,092,187 12,572,699 5,980,300 52,470,385 53,118,659 54,989,331 Liabilities directly associated with the assets classified
as held for sale – 393,987 – 52,470,385 53,512,646 54,989,331 Noncurrent Liabilities Long-term debt - net of current portion 8 63,415,312 53,981,187 58,100,749 Derivative liabilities 15 28,857 174 – Other long-term liabilities - net of current portion 4,680,701 3,679,296 4,349,602 68,124,870 57,660,657 62,450,351 Total Liabilities 120,595,255 111,173,303 117,439,682 Equity Attributable to equity holders of the Parent Paid-up capital 34,478,207 34,308,482 34,402,396 Cost of share-based payments 276,188 270,804 261,144 Other reserves 9 (750,855) (313,749) (739,575) Retained earnings 9 9,575,826 8,630,236 7,715,286 43,579,366 42,895,773 41,639,251 Noncontrolling interest (1,645) – – Total Equity 43,577,721 42,895,773 41,639,251 Total Liabilities and Equity P=164,172,976 P=154,069,076 P=159,078,933 See accompanying Notes to Interim Condensed Consolidated Financial Statements.
GLOBE TELECOM, INC. AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three-Month Period Ended
June 30
Six-Month Period Ended
June 30
Notes 2014
(Unaudited)
2013 (Unaudited)
2014
(Unaudited)
2013 (Unaudited)
(In Thousand Pesos)
REVENUES Service revenues P=24,465,021 P=23,163,044 P=47,695,159 P=44,531,549 Nonservice revenues 1,243,348 934,772 2,373,339 2,036,960 25,708,369 24,097,816 50,068,498 46,568,509
INCOME Interest income 5 156,013 168,299 319,718 348,289 Gain on disposals of property and equipment - net 3 8,423 14,769 33,404 27,109 Other income - net 6 303,865 211,750 294,117 237,529 468,301 394,818 647,239 612,927
COSTS AND EXPENSES General, selling and administrative 10 9,682,707 9,198,623 19,563,681 17,604,999 Depreciation and amortization Incremental effect of network modernization 3,4 666,206 4,055,998 1,178,474 7,117,820 Others 3,4 3,776,562 4,607,946 7,331,773 8,952,969 Cost of sales 2,853,424 1,711,368 5,720,902 4,418,793 Interconnect costs 2,172,483 2,480,519 4,229,778 4,675,942 Impairment losses and others 10 758,714 603,272 1,592,397 1,099,443 Financing costs 10 596,021 859,864 1,095,301 1,481,318 Equity in net losses of joint ventures 6 55,755 50,412 82,691 39,618 20,561,872 23,568,002 40,794,997 45,390,902
INCOME BEFORE INCOME TAX 5,614,798 924,632 9,920,740 1,790,534
PROVISION FOR (BENEFIT FROM)
INCOME TAX 11 Current 1,315,566 1,585,659 2,780,458 2,815,410 Deferred 413,474 (1,415,406) 305,531 (2,435,297) 1,729,040 170,253 3,085,989 380,113
NET INCOME P=3,885,758 P=754,379 P=6,834,751 P=1,410,421
Total net income attributable to: Equity holders of the Parent P=3,886,245 P=754,379 P=6,835,891 P=1,410,421 Noncontrolling interest (487) – (1,140) – P=3,885,758 P=754,379 P=6,834,751 P=1,410,421
OTHER COMPREHENSIVE INCOME (LOSS) 9 Items to be reclassified to profit or loss in
subsequent periods:
Transactions on cash flow hedges - net (119,980) 246,741 (55,148) 292,531 Changes in fair value of available-for-sale investment in equity securities
34,190
(7,447) 17,729 6,369
Exchange differences arising from translations of foreign investments
(1,891) 866 9,594 1,650 Income tax effect 35,994 (74,023) 16,545 (87,760) (51,687) 166,137 (11,280) 212,790
TOTAL COMPREHENSIVE INCOME P=3,834,071 P=920,516 P=6,823,471 P=1,623,211
Total comprehensive income (loss) attributable to: Equity holders of the Parent P=3,834,558 P=920,516 P=6,824,611 P=1,623,211 Noncontrolling interest (487) – (1,140) – P=3,834,071 P=920,516 P=6,823,471 P=1,623,211
Earnings Per Share 14 Basic P=29.24 P=5.18 P=51.39 P=10.53 Diluted P=29.16 P=5.18 P=51.29 P=10.53 Cash dividends declared per common share 9 P=– ₱– P=37.50 P=33.50 See accompanying Notes to Interim Condensed Consolidated Financial Statements.
GLOBE TELECOM, INC. AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Six-Month Period Ended June 30, 2014 (Unaudited)
Attributable to Equity Holders of the Parent
Notes
Capital
Stock
Additional
Paid-in
Capital
Cost of
Share-Based
Payments
Other
Reserves
Retained
Earnings
Subtotal
Non-controlling
Interest Total
(In Thousand Pesos) As of January 1, 2014 P=7,422,360 P=26,980,036 P=261,144 (P=739,575) P=7,715,286 P=41,639,251 P=– P=41,639,251
Total comprehensive income for the period 9 – – – (11,280) 6,835,891 6,824,611 (1,140) 6,823,471
Dividends on common stock 9 – – – – (4,975,351) (4,975,351) – (4,975,351)
Cost of share-based payments – – 75,250 – – 75,250 – 75,250
Exercise of stock options 4,306 71,505 (60,206) – – 15,605 – 15,605
Noncontrolling interest arising from a business combination 6 – – – – – – (505) (505)
As of June 30, 2014 P=7,426,666 P=27,051,541 P=276,188 (P=750,855) P=9,575,826 P=43,579,366 (P=1,645) P=43,577,721
Six-Month Period Ended June 30, 2013 (Unaudited)
Notes Capital
Stock
Additional Paid-in Capital
Cost of Share-Based
Payments Other
Reserves Retained Earnings Total
(In Thousand Pesos) As of January 1, 2013 P=7,412,866 P=26,683,110 P=472,911 (P=526,539) P=11,655,643 P=45,697,991 Total comprehensive income for the period 9 – – – 212,790 1,410,421 1,623,211 Dividends on common stock 9 – – – – (4,435,828) (4,435,828) Exercise of stock options 5,589 206,917 (202,107) – – 10,399 As of June 30, 2013 P=7,418,455 P=26,890,027 P=270,804 (P=313,749) P=8,630,236 P=42,895,773
(Forward)
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For the Year Ended December 31, 2013 (Audited)
Notes Capital
Stock
Additional Paid-in Capital
Cost of Share-Based
Payments Other
Reserves Retained Earnings Total
(In Thousand Pesos) As of January 1, 2013 P=7,412,866 P=26,683,110 P=472,911 (P=526,539) P=11,655,643 P=45,697,991 Total comprehensive income for the year 9 – – – (213,036) 4,960,245 4,747,209 Dividends on: 9 Common stock – – – – (8,876,764) (8,876,764) Preferred stock – – – – (23,838) (23,838) Cost of share-based payments – – 50,000 – – 50,000 Exercise of stock options 9,494 296,926 (261,767) – – 44,653 As of December 31, 2013 P=7,422,360 P=26,980,036 P=261,144 (P=739,575) P=7,715,286 P=41,639,251
See accompanying Notes to Interim Condensed Consolidated Financial Statements
GLOBE TELECOM, INC. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Six-Month Period Ended June 30
Notes 2014
(Unaudited)
2013 (Unaudited)
(In Thousand Pesos)
CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P=9,920,740 P=1,790,534 Adjustments for: Depreciation and amortization 3, 4 8,510,247 16,070,789 Interest expense 10 966,459 1,028,308 Interest income (319,718) (348,289) Foreign exchange losses (gains) - net (124,960) 323,773 Impairment (reversal of) losses on property
and equipment and intangible assets 10 82,810 (4,190) Equity in net losses of joint ventures 82,691 39,618 Cost of share-based payments 75,250 – Gain on derivative instruments - net (35,751) (8,666) Gain on disposals of property and equipment - net 3 (33,404) (38,485) Provisions for claims and assessments 10 115 128,292 Operating income before working capital changes 19,124,479 18,981,684 Changes in operating assets and liabilities: Decrease (increase) in: Receivables 1,197,343 (1,942,151) Inventories and supplies (801,475) (1,625,174) Prepayments and other current assets (810,970) 1,075,340 Increase (decrease) in: Accounts payable and accrued expenses 392,730 (183,885) Unearned revenues (233,487) (260,109) Other long-term liabilities 196,634 149,149 Net cash generated from operations 19,065,254 16,194,854 Income taxes paid (2,367,752) (2,378,217) Net cash flows provided by operating activities 16,697,502 13,816,637
CASH FLOWS FROM INVESTING ACTIVITIES Additions to: Property and equipment 3, 17 (11,001,423) (15,224,890) Intangible assets 4 (50,057) (33,887) Investments in an associate and joint ventures 6 (360,000) – Decrease in other noncurrent assets 909,474 174,127 Proceeds from sale of property and equipment 117,201 39,427 Interest received 34,046 163,563 Acquisition of subsidiaries, net of cash acquired 6 (12,251) – Net cash flows used in investing activities (10,363,010) (14,881,660)
(Forward)
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Six-Month Period Ended June 30
Notes 2014
(Unaudited)
2013 (Unaudited)
(In Thousand Pesos)
CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings: 8 Long-term P=7,000,000 P=7,950,195 Notes payable 1,700,112 428,880 Repayments of borrowings: 8 Long-term (4,384,071) (1,954,041) Notes payable (4,568,088) (432,070) Payments of dividends to stockholders: 9 Common (4,975,351) (4,435,828) Preferred – (33,145) Interest paid (1,320,809) (1,263,064) Exercise of stock options 15,605 10,399 Net cash flows provided by (used in) financing activities (6,532,602) 271,326
NET DECREASE IN CASH AND CASH
EQUIVALENTS (198,110) (793,697)
NET FOREIGN EXCHANGE DIFFERENCE (28,175) 183,702
CASH AND CASH EQUIVALENTS AT
BEGINNING OF THE PERIOD 7,420,735 6,759,755
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD P=7,194,450 P=6,149,760
See accompanying Notes to Interim Condensed Consolidated Financial Statements.
GLOBE TELECOM, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Financial Statement Preparation
The interim condensed consolidated financial statements of Globe Telecom, Inc. and Subsidiaries (the “Globe Group”) as of and for the six months and quarter ended June 30, 2014 and 2013 were authorized for issue in accordance with a resolution of the Board of Directors (BOD) on August 5, 2014.
Globe Telecom, Inc. (herein referred to as “Globe Telecom” or “Globe”) is a company
incorporated and domiciled in the Philippines whose shares are publicly traded. The principal activities of Globe and its subsidiaries are described in Note 16.
The accompanying interim condensed consolidated financial statements have been prepared in accordance with Philippine Accounting Standard (PAS) 34, Interim Financial Reporting. Accordingly, the interim condensed consolidated financial statements do not include all of the information required in the annual audited financial statements, and should be read in conjunction with the Globe Group’s annual financial statements as at December 31, 2013.
The preparation of the financial statements in compliance with Philippine Financial Reporting Standards (PFRS) require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The estimates and assumptions used in the accompanying interim condensed consolidated financial statements are based upon management’s evaluation of relevant facts and circumstances as of the date of the interim condensed consolidated financial statements. Actual results could differ from such estimates.
The interim condensed consolidated financial statements include the accounts of Globe Telecom and its wholly owned subsidiaries such as, Innove Communications, Inc. (herein referred to as “Innove”), G-Xchange, Inc. (herein referred to as “GXI”), Entertainment Gateway Group Corp.
(EGGC), GTI Business Holdings, Inc. (herein referred to as “GTI”) and its subsidiaries, Kickstart
Ventures, Inc. (herein referred to as “Kickstart”) and its subsidiary, and Asticom Technology, Inc. (herein referred to as “Asticom”), collectively referred to as “Globe Group”.
GTI wholly-owned subsidiaries are: GTI Corporation (GTIC US), Globe Telecom HK Limited (GTHK) and Globetel European Limited (GTEU). GTEU wholly owned subsidiaries are UK Globetel Limited (UKGT), Globe Mobile’ Italy S.r.l. (GMI) and Globetel Internacional European
España, S.L.
In February 2014, Kickstart acquired 40% equity interest in Flipside Publishing Services, Inc. (FPSI) which was accounted for as a subsidiary based on Kickstart’s assessment of relevant facts and circumstances (see Note 6). FPSI was consolidated starting February 2014. On June 3, 2014, Globe signed an agreement with Azalea Technology, Inc. and SCS Computer Systems, Pte. Ltd. acquiring 100% ownership stake in Asticom (see Note 6). Asticom was consolidated starting June 2014. The interim condensed consolidated financial statements are presented in Philippine Peso (P=), the Globe’s functional currency, and rounded to the nearest thousands except when otherwise indicated.
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2. Accounting Policies
2.1 Changes in Accounting Policies
The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Globe Group’s consolidated financial statements effective as of and for the year ended December 31, 2013, except for the adoption of following new and amended standards effective as of January 1, 2014.
The nature and impact of each new standard and amendment is described below:
Amendments to PFRS 10, PFRS 12 and PAS 27, Investment Entities
They provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under PFRS 10. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. It is not expected that this amendment would be relevant to Globe Group since none of the entities in the group would qualify to be an investment entity under PFRS 10.
Amendments to PAS 36, Impairment of Assets - Recoverable Amount Disclosures for
Non-Financial Assets
These amendments remove the unintended consequences of PFRS 13, Fair Value
Measurement, on the disclosures required under PAS 36. In addition, these amendments require disclosure of the recoverable amounts for the assets or cash-generating units
(CGUs) for which impairment loss has been recognized or reversed during the period. The amendments have no impact on the Globe Group’s financial position or performance.
Philippine Interpretation IFRIC 21, Levies
IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached. The adoption of the standard has no impact to the Globe Group.
Amendments to PAS 39, Financial Instruments: Recognition and Measurement -
Novation of Derivatives and Continuation of Hedge Accounting
These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. The Globe Group has not novated its derivatives during the current period. However, these amendments would be considered for future novations.
Amendments to PAS 32, Financial Instruments: Presentation - Offsetting Financial
Assets and Financial Liabilities
The amendments clarify the meaning of “currently has a legally enforceable right to
setoff” and the criteria for simultaneous settlement mechanisms of clearing houses to qualify for offsetting. The amendments have no impact on the Globe Group’s financial position or performance.
2.2 Future Changes in Accounting Policies The Globe Group has not opted for an early adoption of any standard, interpretation or amendment that has been issued but is not yet effective.