SMART COMMUNICATIONS, INC.

SMART COMMUNICATIONS, INC.

Horizontal Analysis.

Balance Sheet Horizontal Analysis

Balance
Sheet As of
December 31,
2014 2015 2016 2013-2014 2014-2015 2015-2016
ASSETS
Property and Equipment 90,878 97,280 109,502 6.2% 7.0% 12.6%
Investment Assets 18,052 19,294 17,156 6.0% 6.9% -11.1%
Intangible assets 1,574 6,369 26,951 -49.8% 304.6% 323.2%
Other Non-current assets 7,683 12,698 14,137 -12.3% 65.3% 11.3%
Total Noncurrent Assets 118,187 135,641 167,746 3.2% 14.8% 23.7%

Current Assets
Cash and cash equivalent 13,342 16,887 10,961 39.9% 26.6% -35.1%
Short-term investments 643 957 1,713 5.6% 48.8% 79.0%
Trade and other receivables 20,422 21,316 20,302 24.1% 4.4% -4.8%
Inventories and supplies 1,908 2,380 1,370 0.5% 24.7% -42.4%
Other current assets 6,514 4,631 5,887 17.1% -28.9% 27.1%
Total Current Assets 42,829 46,171 40,233 25.7% 7.8% -12.9%
TOTAL ASSETS 161,016 181,812 207,979 8.4% 12.9% 14.4%
SMART COMMUNICATIONS, INC.

EQUITY AND LIABILITIES

Equity

Common stock 4,598 4,598 4,598 0.0% 0.0% 0.0%

Capital in excess of par value 11,031 11,031 11,031 0.0% 0.0% 0.0%
Total Paid Up Capital 15,629 15,629 15,629 0.0% 0.0% 0.0%
Retained earnings (133) (1,478) 14,539 - 1011.3% -1083.7%
95.5%
Other items - 157 10,567 0.0% 0.0% 6630.6%
Other comprehensive loss (362) (105) (98) 189.6 -71.0% -6.7%
%
Total Equity 15,134 14,203 40,637 20.8% -6.2% 186.1%

Noncurrent Liabilities
Interest-bearing financial liabilities - net 41,559 54,923 62,737 10.9% 32.2% 14.2%
Unearned revenues - net of current portion 2,362 1,181 - - -50.0% -100.0%
31.0%
Pension and other long-term employee 104 42 42 - -59.6% 0.0%
benefits 94.2%
Other noncurrent liabilities 2,410 1,576 1,712 -3.7% -34.6% 8.6%
Total Noncurrent Liabilities 46,435 57,722 64,491 2.8% 24.3% 11.7%

Current Liabilities
Accounts Payable 32,120 41,034 48,476 17.1% 27.8% 18.1%
Accrued expenses and other current 33,301 36,217 35,710 14.0% 8.8% -1.4%
liabilities
Unearned Revenues -current portion 7,773 7,918 6,001 11.4% 1.9% -24.2%
Other current liabilities 26,253 24,718 12,664 -3.5% -5.8% -48.8%
SMART COMMUNICATIONS, INC.

Total current liabilities 99,447 109,8 102,851 9.5 10.5 -6.4%

87 % %
Total liabilities 145,882 167,6 167,342 7.3 14.9 -0.2%
09 % %
TOTAL EQUITY AND LIABILITIES 161,016 181,8 207,979 8.4 12.9 14.4%
12 % %
Note: Unit of Measure are in Million Pesos

The Total Assets increased due to the higher intangible assets, short-term investments, and other non-current
assets.

Property and equipment also increased due to investments on infrastructure. Although comprehensive losses were

noted in the equity of the company, the retained earnings increased due to the subordinated shareholder’s advances

(SSA) provided by PLDT to Smart to amounting to PhP 10.5B to finance its capital expenditures. Under liabilities,

accounts payable and Interest-bearing financial liabilities – net increased with a compound growth rate of 21% and

19% from 2013 to 2016, respectively due to increase of previous debts in order to support CAPEX funding. Other

current liabilities, unearned revenues, and pension however posted

decline
s.

Income Statement Horizontal Analysis

Income Statement
For the year ended December 31,
REVENUES 2014 2015 2016 2014 2015 2016
Service revenues 113,513 109,469 104,352 -0.6% -3.6% -4.7%
1,913 2,080 3,517 9.1% 8.7% 69.1%
Sale of cellular handsets and
115,426 111,549 107,869 -0.4% -3.4% -3.3%
15,201 15,677 13,552 12.2% 3.1% -13.6%
SIM packs Less share of other 100,225 95,872 94,317 -2.1% -4.3% -1.6%
SMART COMMUNICATIONS, INC.

EXPENSES
Depreciation and amortization 14,589 16,656 18,248 -1.0% 14.2% 9.6%
Rent 11,974 11,676 10,537 15.4% -2.5% -9.8%
Cost of sales 9,580 11,008 13,486 3.7% 14.9% 22.5%
Compensation and employee 6,375 7,038 6,247 -24.9% 10.4% -11.2%
benefits
Selling and promotions 7,217 6,264 5,072 5.1% -13.2% -19.0%
Professional and other service 5,179 6,937 8,970 27.6% 33.9% 29.3%
fees
Repairs, maintenance and others 8,410 8,847 8,463 1.3% 5.2% -4.3%
Other administrative expenses 8,006 14,237 16,525 -14.7% 77.8% 16.1%
71,330 82,663 87,548 -0.2% 15.9% 5.9%
28,895 13,209 6,769 -6.6% -54.3% -48.8%

OTHER INCOME (EXPENSES)

Dividend Income 4,700 6,347 19,758 175.0% 35.0% 211.3%
Gain from sale of subscription 0.0% 0.0% 0.0%
assets
Rental Income - 1,185 890 0.0% 0.0% -24.9%
Income from consultancy 3,933 4,877 3,062 13.3% 24.0% -37.2%
Interest income 209 311 280 -34.1% 48.8% -10.0%
Foreign exchange losses (409) (1,505) -1,627 -76.9% 268.0% 8.1%
Financing costs - net (1,749) (1,880) -2,532 -48.6% 7.5% 34.7%
Other income - net 1,738 980 -3,720 131.7% -43.6% -479.6%
8,422 10,315 16,111 686.4% 22.5% 56.2%

INCOME BEFORE INCOME 37,317 23,524 22,880 16.6% -37.0% -2.7%

TAX
PROVISION FOR INCOME TAX 7,972 2,369 4,056 -13.6% -70.3% 71.2%

NET INCOME 29,345 21,155 18,824 28.9% -27.9% -11.0%

Note: Unit of Measure are in Million Pesos
SMART COMMUNICATIONS, INC.

Service revenue have a compound decline rate of 3% despite the increase in the sales of cellular handsets. Net

Income also declined for three consecutive years. The decrease was attributed to lower voice and SMS services

revenues due to the popularity of OTT products in the market. Expenses also increased with a compound average

growth of 7% with growth on communication, training and travel, and professional and other service fees. Share of

other carrier decreased due to decline in interconnection charges with the popularity of OTT and the signed agreement

on IP peering resulting to lower data charges.

Vertical Analysis.

Balance Sheet Vertical

Analysis
Balance
Sheet As of
December 31,
2014 2015 2016 201 2015 201
4 6
ASSETS
Property and Equipment 90,878 97,280 109,502 58 56% 54
% %
Investment Assets 18,052 19,294 17,156 11 11% 11
% %
Intangible assets 1,574 6,369 26,951 2% 1% 4%
Other Non-current assets 7,683 12,698 14,137 6% 5% 7%
Total Noncurrent Assets 118,187 135,641 167,746 77% 73% 75%

Current Assets
Cash and cash equivalent 13,342 16,887 10,961 6% 8% 9%
Short-term investments 643 957 1,713 0% 0% 1%
Trade and other receivables 20,422 21,316 20,302 11 13% 12
% %
SMART COMMUNICATIONS, INC.

Inventories and supplies 1,908 2,380 1,370 1% 1% 1%

Other current assets 6,514 4,631 5,887 4% 4% 3%
Total Current Assets 42,829 46,171 40,233 23% 27% 25%
SMART COMMUNICATIONS, INC.

TOTAL ASSETS 161,016 181,812 207,979 100 100% 100%

%
EQUITY AND LIABILITIES

Equity
Common stock 4,598 4,598 4,598 3% 3% 3%
Capital in excess of par value 11,031 11,031 11,031 7% 7% 6%
Total Paid Up Capital 15,629 15,629 15,629 11% 10% 9%
Retained earnings (133) (1,478) 14,539 -2% 0% -1%
Other items - 157 10,567 0% 0% 0%
Other comprehensive loss (362) (105) (98) 0% 0% 0%
Total Equity 15,134 14,203 40,637 8 9% 8%
%
Noncurrent Liabilities
Interest-bearing financial liabilities - net 41,559 54,923 62,737 25% 26% 30%
Unearned revenues - net of current portion 2,362 1,181 - 2% 1% 1%
Pension and other long-term employee 104 42 42 1% 0% 0%
benefits
Other noncurrent liabilities 2,410 1,576 1,712 2% 1% 1%
Total Noncurrent Liabilities 46,435 57,722 64,491 30% 29% 32%

Current Liabilities
Accounts Payable 32,120 41,034 48,476 18% 20% 23%
Accrued expenses and other current 33,301 36,217 35,710 20% 21% 20%
liabilities
Unearned Revenues -current portion 7,773 7,918 6,001 5% 5% 4%
Other current liabilities 26,253 24,718 12,664 18% 16% 14%
Total current liabilities 99,447 109,887 102,851 61% 62% 60%
Total liabilities 145,882 167,609 167,342 92% 91% 92%
TOTAL EQUITY AND LIABILITIES 161,016 181,812 207,979 100 100% 100%
%
Note: Unit of Measure are in Million Pesos
SMART COMMUNICATIONS, INC.

Vertical analysis showed that more than 50% of the assets belonged to property and equipment followed by

trade and other receivables at above 10%. This means that the company is heavily investing in its non-current assets

including infrastructure and investments. Interest-bearing financial liabilities – net also have a higher percentage

accounting 30% of the total equity and liability which means that the company is heavily debt leveraged.

Income Statement Vertical Analysis

Income Statement
For the year ended December 31,
REVENUES 2014 2015 2016 2014 2015 2016
Service revenues 113,513 109,469 104,352 98% 98% 97%
Sale of cellular handsets and SIM 1,913 2,080 3,517 2% 2% 3%
packs
115,426 111,549 107,869 100% 100% 100%
Less share of other carriers 15,201 15,677 13,552 13% 14% 13%
100,225 95,872 94,317 87% 86% 87%
EXPENSES
Depreciation and amortization 14,589 16,656 18,248 13% 15% 17%
Rent 11,974 11,676 10,537 10% 10% 10%
Cost of sales 9,580 11,008 13,486 8% 10% 13%
Compensation and employee 6,375 7,038 6,247 6% 6% 6%
benefits
Selling and promotions 7,217 6,264 5,072 6% 6% 5%
Professional and other service fees 5,179 6,937 8,970 4% 6% 8%
Repairs, maintenance and others 8,410 8,847 8,463 7% 8% 8%
Other administrative expenses 8,006 14,237 16,525 7% 13% 15%
71,330 82,663 87,548 62% 74% 81%
28,895 13,209 6,769 25% 12% 6%
OTHER INCOME (EXPENSES)
Dividend Income 4,700 6,347 19,758 4% 6% 18%
Rental Income - 1,185 890 0% 1% 1%
Income from consultancy 3,933 4,877 3,062 3% 4% 3%
SMART COMMUNICATIONS, INC.

Interest income 209 311 280 0%

Foreign exchange losses (409) (1,505) -1,627 0%
Financing costs - net (1,749) (1,880) -2,532 -2%
Other income - net 1,738 980 -3,720 2%
8,422 10,315 16,111 7%

INCOME BEFORE INCOME TAX 37,317 23,524 22,880 32

%
PROVISION FOR INCOME TAX 7,972 2,369 4,056 7%
NET INCOME 29,345 21,155 18,824 25
%

Note: Unit of Measure are in Million Pesos

Vertical analysis of the income statement yielded that expenses account

more than 60% up to 80% of the service revenues and was only supported by

the revenue from other income. Among the highest expenses noted are

depreciation and amortization, rent, and cost of sales, communication, training,

and travel. Other Income increased due to the dividend income received from

the company’s investment in PCEV. Net Income was declining comprising only

17% of the service revenue in 2016.