MAY 10, 2006
 (STAR) By Aurea Calica - The budget department released yesterday P10.85 billion for half of the year-end bonus and a P2,500 cash gift each for government workers, including military and police personnel.

Budget Secretary Rolando Andaya Jr. noted that the release was timely, in view of the rising cost of living and the coming school year.

More than a million government employees will receive their mid-year benefits even if Congress has yet to pass the proposed 2006 P1-trillion national budget because funds for these are considered mandatory expenditures just like salaries, Andaya explained.

Each government employee is entitled to a year-end bonus equivalent to one month of their basic salary and a year-end cash gift of P5,000.

The mid-year bonus, Andaya said, has already been included in the release funds for May in anticipation of the cash dilemma of government workers at the start of the school season.

Andaya said mid-year benefits would be given to all government employees starting May 1 but not later than May 31, while the remaining half would be released between Nov. 15 and 30.

Local government units, government financial institutions, and government-owned or controlled corporations are authorized to pay the half-year bonus and cash gift to their employees, chargeable against their respective local or corporate funds.

Meanwhile, Andaya again expressed hope that Congress would pass the proposed budget for 2006 to give the executive the power to spend the revenues coming from the expanded value added tax.

"The impression that we donít actually have the resources is wrong. But we cannot release them without authority from Congress," he said.

Andaya said it would be "better late than never" as regards the proposed budget for 2006.

The budget bill is one of the priority measures of the executive that has been pending before Congress and is believed to be a casualty of the rift between the executive and legislative branches of government.

The Senate earlier accused the Palace of conniving with the House of Representatives in delaying the budget passage, saying a reenacted 2005 budget would allow President Arroyo to use the funds for already completed projects for other purposes.

But the House has passed the proposed measure and MalacaŮang said it would now be up to the Senate to take action.

Presidential Political Adviser Gabriel Claudio said it would be better for the Senate to focus on passing important pieces of legislation rather than conducting "politically-charged" investigations.

The conflict between the Executive branch and Congress erupted after President Arroyo accused opposition lawmakers of holding inquiries in aid of destabilization.

She then issued Executive Order No. 464 barring government, military and police officials from attending legislative hearings without her consent. This move enraged the lawmakers, particularly the senators.

Despite this, Sen. Manny Villar, chairman of the committee on finance, has assured that the Senate would do its best to pass the budget within a month after Congress resumes session on May 15.

PLDT income declines 7% to P8.6B in Q1 By Mary Ann Ll. Reyes The Philippine Star 05/10/2006

Telecommunications giant Philippine Long Distance Telephone Co. (PLDT) posted a consolidated reported net income of P8.6 billion during the first quarter of 2006, seven percent lower than the same quarter last year.

But PLDT chairman Manuel Pangilinan was quick to emphasize that core net income (before the effects of foreign exchange gains, deferred tax assets and additional depreciation) was higher by 16 percent during the first three months of the year as against the comparable period last year which reported P6.5 billion in earnings. "Core income better reflects the underlying performance of the business compared to reported net income," he said.

The reported net income for the first quarter of 2006 dropped seven percent from P9.2 billion last year due to additional depreciation expenses and lower forex gains due to declining net debt balances.

"This kind of financial accounts (core income increasing and reported income dropping) will be reflective of how our accounts will look like for the rest of the year," Pangilinan said.

For the rest of 2006, core income is expected to grow to P31 billion from P28.7 billion last year while reported net income may be slightly lower than last yearís P34 billion if the foreign exchange rate stays at the P51 to P52 to $1 level.

Pangilinan said the reported net income is difficult to forecast and depends largely on the foreign exchange rate. "It is totally beyond our control. And especially with the net debts of PLDT dropping and 60 percent of our $1.4-billion debt hedged, our ability to realize forex gains becomes limited because our foreign debts are already mostly hedged," he pointed out.

"Our core earnings for the first quarter have been more encouraging than anticipated. We envisage revenues to continue growing while we manage down our cash costs, including interest expense. Cash flows will be healthy, debts will continue to reduce across the board, including prepayment of most of Piltelís debts," he added.

Piltel which during the first quarter recorded a net income of P2.24 billion will be prepaying 43 percent ($177 million) of its debts, of which around $56 million is owed to third parties while $121 million will be paid to Smart. After the prepayment, Piltelís debt balance will be reduced to $236 million in principal. "If Piltelís cash flow improves, the intention is to prepay all," Pangilinan said.

Pangilinan added that free cash flow utilization is shifting in favor of dividend payments as maturing debt obligations decline. While last year, the dividend payout was 40 percent of basic earnings per share, this year PLDT is looking at improving this to 60 percent (compared to an earlier target for the year of 50 percent).

"We want to return more money to the shareholders. While in 2005, 80 percent of the free cash flow was given to the creditors and only 20 percent to the shareholders, this year, we are looking at an equal sharing," he said.

Consolidated EBITDA (earnings before interests, taxes, depreciation and amortization) improved by eight percent to P20.1 billion while EBITDA margins rose to 67 percent compared with 64 percent last year. Cash flow of the group remained strong at P6.4 billion.

The groupís capital expenditure reached P4.9 billion during the quarter compared with the full year estimate of P18 billion mainly for the net generation network upgrade and 3G and wireless broadband rollout.

PLDT also reported that wireless service revenues rose to P18.9 billion for the first quarter, six percent higher than that for the same period last year as Smart Communications and Pilipino Telephone Inc. sustained their solid performances.

Consolidated wireless EBITDA improved by seven percent to P12.4 billion while EBITDA margins improved to 66 percent. Capital expenditure for the first three months of 2006 were P2.5 billion with total capex for the year expected to reach P9 billion.

Smart and Piltel increased their total cellular subscriber base by 491,000 to 20.9 million. Smart recorded net additions of 117,000 subscribers while Talk ĎN Text added about 374,000 subscribers to end the first quarter of this year with 15.4 million and five million subscribers, respectively.

"Viewed from the widening array of services that we now offer, Smart is no longer just a cellular company. On the one hand, we continue to build our 2G business through creative SMS and voice service packages that enable us to generate incremental revenues and at the same time further broaden our base in the large lower income segments of the cellular market," PLDT and Smart president and CEO Napoleon Nazareno said.

Looking at subscriber take up, Nazareno noted it was robust during the first three months. "In January and February, there was a slight increase in churn due to the clean-up of non revenue generating SIMs that spilled over from last year. In March, the take-up went up and churn normalized while the April net subscriber additions surpassed the first quarter net adds. The trend in April was sustained in May," he explained.

Cellular penetration rate stood at a little over 40 percent to date and Nazareno projects this to increase to 42 to 43 percent by the end of the year.

Meanwhile, fixed line revenues improved three percent to P12.1 billion in the first quarter of 2006 as the increase in data revenues more than offset declines in revenues of local exchange and international long distance services. Retail DSL (digital subscriber line) already broke the 100,000 subscriber mark while the Vibe dial-up Internet service grew to 420,000. The groupís broadband subscribers are expected to double by the end of the year as network coverage expands.

Capex for the fixed line business reached P2 billion during the first quarter, mostly for the accelerated spend on the next generation network. As of end-March 2006, the network had in place around 65,000 broadband-capable lines. Total capex for the year is expected to reach P9 billion.

PLDTís fixed line business meanwhile generated free cash flow of P9.4 billion for the first quarter, supplemented by the P7-billion dividend from Smart. As a result, the business was able to reduce debts by $65 million bringing down the debt balance of fixed line to $1.3 billion. Debt reduction target for the year has been raised to $300 million.

"The fixed line business continues to hold steady even as we embark on the NGN roll-out and as we pursue the growth of the broadband business on a parallel path with broadbanding our wireless business," Nazareno added.

For the remainder of the year, Pangilinan said growth in core earnings will be achieved as revenues increase, cash costs are managed, interest expense declines and provision for income taxes increases.

He also expects cash flows will be robust this year. This will strengthen the balance sheet by reducing debts by $350 million and enhance shareholder returns through dividend payments representing 60 percent of 2006 core earnings.

"2006 will be a year to lay the foundation for earnings growth in 2007 onwards. The NGN upgrade and wireless broadband rollout will enable growth in broadband/data revenues while new investments will boost the PLDT Groupís access to content and other growth opportunities," Pangilinan said.

Chief News Editor: Sol Jose Vanzi

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