Operating Segment Information

12 Months Ended

Dec. 31, 2018

4.	Operating Segment Information

Operating segments are components of the PLDT Group that engage in business activities from which they may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of PLDT Group). The operating results of these operating segments are regularly reviewed by the Management Committee to make decisions about how resources are to be allocated to each of the segments and to assess their performances, and for which discrete financial information is available.

For management purposes, we are organized into business units based on our products and services. We have three reportable operating segments as follows:

•

Wireless – mobile telecommunications services provided by Smart and DMPI, our mobile service providers; SBI and PDSI, our wireless broadband service providers; and certain subsidiaries of PLDT Global, our mobile virtual network operations, or MVNO, provider;

•

Fixed Line – fixed line telecommunications services primarily provided by PLDT. We also provide fixed line services through PLDT’s subsidiaries, namely, ClarkTel, SubicTel, Philcom Group, Maratel, BCC, PLDT Global and certain subsidiaries, and Digitel, all of which together account for approximately 4% of our consolidated fixed line subscribers; data center, cloud, cyber security services, managed information technology services and resellership through ePLDT, IPCDSI Group, AGS Group, Curo and ePDS; business infrastructure and solutions, intelligent data processing and implementation services and data analytics insight generation through Talas; and distribution of Filipino channels and content through PGNL and its subsidiaries; and

•

Others – VIH and certain subsidiaries, our mobile applications and digital platforms developers and mobile financial services provider; PCEV, PGIH, PLDT Digital and its subsidiaries, and PGIC, our investment companies.

See Note 2 – Summary of Significant Accounting Policies for further discussion.

The Management Committee monitors the operating results of each business unit separately for purposes of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on net income for the period; earnings before interest, taxes, and depreciation and amortization, or Adjusted EBITDA; Adjusted EBITDA margin; and core income. Net income for the period is measured consistent with net income in our consolidated financial statements.

Adjusted EBITDA for the period is measured as net income excluding depreciation and amortization, amortization of intangible assets, asset impairment on noncurrent assets, financing costs, interest income, equity share in net earnings (losses) of associates and joint ventures, foreign exchange gains (losses) – net, gains (losses) on derivative financial instruments – net, provision for (benefit from) income tax and other income (expenses) – net.

Adjusted EBITDA margin for the period is measured as Adjusted EBITDA divided by service revenues.

Core income for the period is measured as net income attributable to equity holders of PLDT (net income less net income attributable to noncontrolling interests), excluding foreign exchange gains (losses) – net, gains (losses) on derivative financial instruments – net (excluding hedge costs), asset impairment on noncurrent assets, other non-recurring gains (losses), net of tax effect of aforementioned adjustments, as applicable, and similar adjustments to equity share in net earnings (losses) of associates and joint ventures.

Segment revenues, segment expenses and segment results include transfers between business segments. These transfers are eliminated in full upon consolidation.

Core earnings per common share, or core EPS, for the period is measured as core income divided by the weighted average number of outstanding common shares. See Note 8 – Earnings Per Common Share for the weighted average number of common shares.

Adjusted EBITDA, Adjusted EBITDA margin, core income and core EPS are non-IFRS measures.

The amounts of segment assets and liabilities and segment profit or loss are based on measurement principles that are similar to those used in measuring the assets and liabilities and profit or loss in our consolidated financial statements, which is in accordance with IFRS.

The segment revenues, net income, and other segment information of our reportable operating segments as at and for the years ended December 31, 2018, 2017 and 2016, and are as follows:

	Wireless			Fixed Line			Others			Inter- segment Transactions			Consolidated
	(in million pesos, except for Adjusted EBITDA margin)
December 31, 2018
Revenues
External customers		87,193			76,431			1,128			—			164,752
Service revenues		80,265			72,858			1,084			—			154,207
Non-service revenues		6,928			3,573			44			—			10,545
Inter-segment transactions		2,736			8,791			10			(11,537	)		—
Service revenues		2,736			8,790			10			(11,536	)		—
Non-service revenues		—			1			—			(1	)		—
Total revenues		89,929			85,222			1,138			(11,537	)		164,752

Results
Depreciation and amortization		24,778			22,303			159			—			47,240
Asset impairment		3,319			4,746			—			—			8,065
Impairment of investments		60			—			112			—			172
Interest income		719			812			536			(124	)		1,943
Equity share in net earnings (losses) of associates and joint ventures		62			171			(320	)		—			(87	)
Financing costs		1,865			5,195			131			(124	)		7,067
Provision for income tax		1,333			1,336			1,173			—			3,842
Net income (loss) / Segment profit (loss)		5,725			6,059			7,971			(782	)		18,973
Adjusted EBITDA		34,235			30,875			(2,688	)		1,605			64,027
Adjusted EBITDA margin		41	%		38	%	(246%)			(14%)			(42%)
Core income		9,760			6,925			9,952			(782	)		25,855

Assets and liabilities
Operating assets		230,182			199,557			30,962			(61,075	)		399,626
Investments in associates and joint ventures		—			43,426			12,001			—			55,427
Deferred income tax assets – net		16,879			12,479			(1,119	)		(542	)		27,697
Total assets		247,061			255,462			41,844			(61,617	)		482,750
Operating liabilities		168,837			206,812			16,773			(29,319	)		363,103
Deferred income tax liabilities – net		2,321			482			367			(189	)		2,981
Total liabilities		171,158			207,294			17,140			(29,508	)		366,084

Other segment information
Capital expenditures, including capitalized interest (Note 9)		32,248			26,242			—			—			58,490

December 31, 2017
Revenues
External customers		91,288			67,389			1,249			—			159,926
Service revenues		86,128			63,811			1,226			—			151,165
Non-service revenues		5,160			3,578			23			—			8,761
Inter-segment transactions		1,284			10,952			30			(12,266	)		—
Service revenues		1,284			10,946			30			(12,260	)		—
Non-service revenues		—			6			—			(6	)		—
Total revenues		92,572			78,341			1,279			(12,266	)		159,926

Results
Depreciation and amortization		36,776			15,001			138			—			51,915
Asset impairment		6,104			2,098			56			—			8,258
Impairment of investments		439			1,583			540			—			2,562
Equity share in net earnings (losses) of associates and joint ventures		(129	)		44			2,991			—			2,906
Interest income		305			695			655			(243	)		1,412
Financing costs		2,247			5,106			214			(197	)		7,370
Provision for income tax		(2,787	)		3,680			210			—			1,103
Net income (loss) / Segment profit (loss)		(2,215	)		7,474			8,825			(618	)		13,466
Adjusted EBITDA		36,395			29,478			(1,307	)		1,608			66,174
Adjusted EBITDA margin		42	%		39	%	(104%)			(13%)				44	%
Core income		9,812			8,846			9,628			(618	)		27,668

Assets and liabilities
Operating assets		211,983			174,217			34,504			(37,856	)		382,848
Investments in associates and joint ventures		—			44,867			1,263			—			46,130
Deferred income tax assets – net		18,826			11,994			—			(354	)		30,466
Total assets		230,809			231,078			35,767			(38,210	)		459,444
Operating liabilities		153,622			196,451			13,624			(18,802	)		344,895
Deferred income tax liabilities – net		2,656			286			424			—			3,366
Total liabilities		156,278			196,737			14,048			(18,802	)		348,261

Other segment information
Capital expenditures, including capitalized interest (Note 9)		27,305			12,994			—			—			40,299

December 31, 2016
Revenues
External customers		102,639			61,806			817			—			165,262
Service revenues		98,406			58,086			718			—			157,210
Non-service revenues		4,233			3,720			99			—			8,052
Inter-segment transactions		1,448			10,922			30			(12,400	)		—
Service revenues		1,448			10,920			30			(12,398	)		—
Non-service revenues		—			2			—			(2	)		—
Total revenues		104,087			72,728			847			(12,400	)		165,262

Results
Depreciation and amortization		18,767			15,471			217			—			34,455
Asset impairment		9,016			1,758			268			—			11,042
Impairment of investments		—			134			5,381			—			5,515
Interest income		269			707			307			(237	)		1,046
Equity share in net earnings (losses) of associates and joint ventures		(127	)		(40	)		1,348			—			1,181
Financing costs		2,482			4,917			192			(237	)		7,354
Provision for income tax		(1,257	)		3,018			148			—			1,909
Net income (loss) / Segment profit (loss)		10,618			8,134			1,410			—			20,162
Adjusted EBITDA		32,915			26,950			(276	)		1,572			61,161
Adjusted EBITDA margin		33	%		39	%	(37%)			(13%)				39	%
Core income		12,275			7,746			7,836			—			27,857

Assets and liabilities
Operating assets		217,964			183,533			22,804			(33,388	)		390,913
Investments in associates and joint ventures		1,945			40,874			14,039			—			56,858
Deferred income tax assets – net		13,985			13,363			—			—			27,348
Total assets		233,894			237,770			36,843			(33,388	)		475,119
Operating liabilities		161,480			203,777			12,637			(14,879	)		363,015
Deferred income tax liabilities – net		2,923			384			260			—			3,567
Total liabilities		164,403			204,161			12,897			(14,879	)		366,582

Other segment information
Capital expenditures, including capitalized interest (Note 9)		32,097			10,728			—			—			42,825

Certain revenues and expenses in 2017 and 2016 were reclassified to conform with the 2018 presentation.

The following table shows the reconciliation of our consolidated net income to our consolidated adjusted EBITDA for the years ended December 31, 2018, 2017 and 2016:

	2018			2017			2016
				(in million pesos)
Consolidated net income		18,973			13,466			20,162
Add (deduct) adjustments:
Depreciation and amortization		47,240			51,915			34,455
Financing costs		7,067			7,370			7,354
Provision for income tax		3,842			1,103			1,909
Noncurrent asset impairment		2,122			3,913			1,074
Amortization of intangible assets		892			835			929
Foreign exchange losses – net		771			411			2,785
Impairment of investments (Note 10)		172			2,562			5,515
Equity share in net losses (earnings) of associates and joint ventures		87			(2,906	)		(1,181	)
Gains on derivative financial instruments – net		(1,086	)		(533	)		(996	)
Interest income		(1,943	)		(1,412	)		(1,046	)
Other income – net		(14,110	)		(10,550	)		(9,799	)
Total adjustments		45,054			52,708			40,999
Consolidated Adjusted EBITDA		64,027			66,174			61,161

The following table shows the reconciliation of our consolidated net income income to our consolidated core income for the years ended December 31, 2018, 2017 and 2016:

	2018			2017			2016
				(in million pesos)
Consolidated net income		18,973			13,466			20,162
Add (deduct) adjustments:
Depreciation due to shortened life of property and equipment		4,564			12,816			—
Noncurrent asset impairment		2,122			3,913			1,074
Manpower rightsizing program, or MRP		1,703			—			—
Loss in fair value of investments		1,154			—			—
Foreign exchange losses – net		771			411			2,785
Investment written-off		362			—			—
Impairment of investments (Note 10)		172			2,562			5,515
Core income adjustment on equity share in net losses of associates and joint ventures		23			60			95
Net income attributable to noncontrolling interests		(57	)		(95	)		(156	)
Other nonrecurring income		(1,018	)		—			—
Gains on derivative financial instruments – net, excluding hedge costs (Note 27)		(1,135	)		(724	)		(1,539	)
Net tax effect of aforementioned adjustments		(1,779	)		(4,741	)		(79	)
Total adjustments		6,882			14,202			7,695
Consolidated core income		25,855			27,668			27,857

The following table shows the reconciliation of our consolidated basic and diluted core EPS to our consolidated basic and diluted EPS attributable to common equity holder of PLDT for the years ended December 31, 2018, 2017 and 2016:

	2018						2017						2016
	Basic			Diluted			Basic			Diluted			Basic			Diluted
Consolidated core EPS		119.39			119.39			127.79			127.79			128.66			128.66
Add (deduct) adjustments:
Gains on derivative financial instruments – net, excluding hedge costs		4.08			4.08			2.34			2.34			4.99			4.99
Core income adjustment on equity share in net losses associates and joint ventures		(0.11	)		(0.11	)		(0.28	)		(0.28	)		(0.44	)		(0.44	)
Impairment of investment		(0.80	)		(0.80	)		(11.86	)		(11.86	)		(25.52	)		(25.52	)
Investment written-off		(1.68	)		(1.68	)		—			—			—			—
Foreign exchange losses – net		(3.57	)		(3.57	)		(1.74	)		(1.74	)		(10.40	)		(10.40	)
Loss in fair value of investments		(5.34	)		(5.34	)		—			—			—			—
MRP		(5.52	)		(5.52	)		—			—			—			—
Asset impairment		(9.82	)		(9.82	)		(13.12	)		(13.12	)		(4.96	)		(4.96	)
Depreciation due to shortened life of property and equipment		(14.06	)		(14.06	)		(41.52	)		(41.52	)		—			—
Other nonrecurring income and others		4.71			4.71			—			—			—			—
Total adjustments		(32.11	)		(32.11	)		(66.18	)		(66.18	)		(36.33	)		(36.33	)
Consolidated EPS attributable to common equity holders of PLDT		87.28			87.28			61.61			61.61			92.33			92.33

The following table presents our revenues from external customers by category of products and services for the years ended December 31, 2018, 2017 and 2016:

	2018		2017		2016
			(in million pesos)
Wireless services
Service revenues:
Mobile		79,904		83,166		95,066
Home broadband		155		2,547		2,758
MVNO and others		206		415		582
		80,265		86,128		98,406
Non-service revenues:
Sale of mobile handsets and broadband data modems		6,928		5,160		4,233
Total wireless revenues		87,193		91,288		102,639
Fixed line services
Service revenues:
Voice		22,986		25,296		25,502
Data		48,858		37,445		31,727
Miscellaneous		1,014		1,070		857
		72,858		63,811		58,086
Non-service revenues:
Sale of computers, phone units and SIM cards		3,056		2,706		2,907
Point-product-sales		517		872		813
		3,573		3,578		3,720
Total fixed line revenues		76,431		67,389		61,806
Other services		1,128		1,249		817
Total revenues		164,752		159,926		165,262

Disclosure of the geographical distribution of our revenues from external customers and the geographical location of our total assets are not provided since the majority of our consolidated revenues are derived from our operations within the Philippines.

There is no revenue transaction with a single external customer that accounted for 10% or more of our consolidated revenues from external customers for the years ended December 31, 2018, 2017 and 2016.