UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 20-F

☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 – For the fiscal year ended December 31, 2021

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 – For the transition period from _________ to _________

OR

☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 — Date of event requiring this shell company report __________

Commission file number 1-03006

PLDT Inc.

(Exact name of Registrant as specified in its charter)

Republic of the Philippines

(Jurisdiction of incorporation or organization)

Ramon Cojuangco Building

Makati Avenue

Makati City, Philippines

(Address of principal executive offices)

Atty. Marilyn A. Victorio-Aquino, telephone: +(632) 82500254; mvaquino@pldt.com.ph;

Ramon Cojuangco Bldg., Makati Avenue, Makati City, Philippines 1200

(Name, telephone, e-mail and/or facsimile number and address of Company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Capital Stock, Par Value Five Philippine Pesos Per Share		New York Stock Exchange*
American Depositary Shares, evidenced by American Depositary Receipts, each representing one share of Common Capital Stock	PHI	New York Stock Exchange

* Registered on the New York Stock Exchange not for trading but only in connection with the registration of American Depositary Shares, or ADSs, pursuant to the requirements of such stock exchange.

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as at the close of the period covered by the annual report.

As at December 31, 2021:

216,055,775 shares of Common Capital Stock, Par Value Five Philippine Pesos Per Share

300,000,000 shares of Non-voting Preferred Stock, Par Value Ten Philippine Pesos Per Share

150,000,000 shares of Voting Preferred Stock, Par Value One Philippine Peso Per Share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the  Securities Act:  Yes ☒     No ☐

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934:  Yes ☐     No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:   Yes ☒     No☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒     No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Emerging growth company ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards¹ provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☒

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP ☐ International Financial Reporting Standards as issued by the International Accounting Standards Board ☒ Other ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.  Item 17 ☐     Item 18 ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐     No ☒

PCAOB ID: 01755 Auditor Name: SyCip Gorres Velayo & Co. Auditor Location: Makati City, Philippines

¹  The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

TABLE OF CONTENTS

CERTAIN CONVENTIONS AND TERMS USED IN THIS REPORT		3
FORWARD-LOOKING STATEMENTS		5
PRESENTATION OF FINANCIAL INFORMATION		6
PART I		7
Item 1.	Identity of Directors, Senior Management and Advisors	7
Item 2.	Offer Statistics and Expected Timetable	7
Item 3.	Key Information	7
	Performance Indicators	7
	Capital Stock	8
	Dividends Declared	8
	Dividends Paid	9
	Capitalization and Indebtedness	9
	Reasons for the Offer and Use of Proceeds	9
	Risk Factors	9
Item 3A.	[Reserved]	26
Item 4.	Information on the Company	26
	Overview	26
	Historical Background and Development	27
	Recent Developments	27
	Strengths	28
	Strategy	29
	Business Overview	30
	Capital Expenditures and Divestitures	41
	Organization	41
	Infrastructure	41
	Interconnection Agreements	46
	Licenses and Regulations	46
	Material Effects of Regulation on our Business	47
	Competition	53
	Environmental Matters	55
	Intellectual Property Rights	56
	Properties	57
Item 4A.	Unresolved Staff Comments	58
Item 5.	Operating and Financial Review and Prospects	58
	Overview	58
	Management’s Financial Review	58
	Critical Accounting Policies	63
	New Accounting Standards and Interpretations to Existing Standards Effective Subsequent to December 31, 2016	76
	Results of Operations	76
	Capital Expenditure Plans	104
	Liquidity and Capital Resources	105
Item 5E.	Critical Accounting Estimates	111
Item 6.	Directors, Senior Management and Employees	112
	Directors and Executive Officers	112
	Terms of Office	122
	Family Relationships	122
	Compensation of Key Management Personnel	122
	Share Ownership	123
	Board Practices	123
	Audit; Governance, Nomination and Sustainability; Executive Compensation; Technology Strategy; Risk; and Data Privacy and Information Security Committees	124
	Employees and Labor Relations	127
	Pension and Retirement Benefits	127
Item 7.	Major Shareholders and Related Party Transactions	128

Page 2 of 2

	Related Party Transactions	129
Item 8.	Financial Information	130
	Consolidated Financial Statements and Other Financial Information	130
	Legal Proceedings	130
	Dividend Distribution Policy	131
Item 9.	The Offer and Listing	131
	Common Capital Stock and American Depositary Shares	131
Item 10.	Additional Information	131
	Share Capital	131
	Amended Articles of Incorporation and By-Laws	132
	Issuance and Redemption of Preferred Stock	132
	Material Contracts	132
	Exchange Controls and Other Limitations Affecting Securities Holders	132
	Taxation	133
	Documents on Display	139
Item 11.	Quantitative and Qualitative Disclosures About Market Risks	139
Item 12	Description of Securities Other than Equity Securities	139
PART II		141
Item 13.	Defaults, Dividend Arrearages and Delinquencies	141
Item 14.	Material Modifications to the Rights of Security Holders and Use of Proceeds	141
Item 15.	Controls and Procedures	141
Item 16A.	Audit Committee Financial Expert	142
Item 16B.	Code of Business Conduct and Ethics	142
Item 16C.	Principal Accountant Fees and Services	142
Item 16D.	Exemption from the Listing Standards for Audit Committees	143
Item 16E.	Purchases of Equity Securities by the Issuer and Affiliated Purchaser	143
Item 16F.	Change in Registrant’s Certifying Accountant	144
Item 16G.	Corporate Governance	144
Item 16H.	Mine Safety Disclosure	145
PART III		146
Item 17.	Financial Statements	146
Item 18.	Financial Statements	146
Item 19.	Exhibits	166
	Exhibit Index	166

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CERTAIN CONVENTIONS AND TERMS USED IN THIS REPORT

Unless the context indicates or otherwise requires, references to “we,” “us,” “our” or “PLDT Group” mean PLDT Inc. (formerly Philippine Long Distance Telephone Company) and its consolidated subsidiaries, and references to “PLDT” or “the Company” mean PLDT Inc., excluding its consolidated subsidiaries (see Note 2 – Summary of Significant Accounting Policies to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for a list of these subsidiaries, including a description of their respective principal business activities).

Unless the context indicates or otherwise requires, “Board of Directors” or the “Board” refer to the board of directors of PLDT.  

Any discrepancies in any table between totals and the sums of the amounts listed are due to rounding.

All references to the “Philippines” contained in this report mean the Republic of the Philippines and all references to the “U.S.” or the “United States” are to the United States of America.

In this report, unless otherwise specified or the context otherwise requires, all references to “pesos,” “Philippine pesos” or “Php” are to the lawful currency of the Philippines, all references to “dollars,” “U.S. dollars” or “US$” are to the lawful currency of the United States and all references to “Japanese yen,” “JP¥” or “¥” are to the lawful currency of Japan.  Unless otherwise indicated, conversion of peso amounts into U.S. dollars in this report were made based on the volume weighted average exchange rate quoted through the Bankers Association of the Philippines, or BAP, which was Php50.97 to US$1.00 on December 31, 2021.  On March 22, 2022, the volume weighted average exchange rate quoted was Php52.43 to US$1.00.

In this annual report, each reference to:

• ADS means American Depositary Shares;

• ARPU means average revenue per user;

• BIR means Bureau of Internal Revenue;

• BSP means Bangko Sentral ng Pilipinas;

• CMTS means cellular mobile telephone system;

• CPCN means Certificate of Public Convenience and Necessity;

• DFON means domestic fiber optic network;

• DICT means Department of Information and Communications Technology of the Philippines;

• Digitel means Digital Telecommunications Phils., Inc.;

• DMPI means Digitel Mobile Philippines, Inc.;

• DSL means digital subscriber line;

• First Pacific means First Pacific Company Limited;

• First Pacific Group means First Pacific and its Philippine affiliates;

• FP Parties means First Pacific and certain Philippine affiliates and wholly-owned non-Philippine subsidiary;

• FTTH means Fiber-to-the-HOME;

• GAAP means Generally Accepted Accounting Principles;

• GSM means global system for mobile communications;

• HSPA means high-speed packet access;

• IAS means International Accounting Standards;

• ICT means Information and Communication Technology;

• IFRS means International Financial Reporting Standards, as issued by the International Accounting Standards Board;

• IGF means international gateway facility;

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• IP means internet protocol;

• IT means information technology;

• LEC means local exchange carrier;

• LTE means long-term evolution;

• MVNO means mobile virtual network operations;

• NTC means the National Telecommunications Commission of the Philippines;

• NTT means Nippon Telegraph and Telephone Corporation;

• NTT Communications means NTT Communications Corporation, a wholly-owned subsidiary of NTT;

• NTT DOCOMO means NTT DOCOMO, Inc., a majority-owned and publicly traded subsidiary of NTT;

• NYSE means New York Stock Exchange;

• PAPTELCO means Philippine Association of Private Telephone Companies, Inc.;

• PCEV means PLDT Communications and Energy Ventures, Inc.;

• PDRs means Philippine Depositary Receipts;

• Philippine SEC means the Philippine Securities and Exchange Commission;

• PLDT Beneficial Trust Fund means the beneficial trust fund created by PLDT to pay the benefits under the PLDT Employees’ Benefit Plan;

• PSE means the Philippine Stock Exchange, Inc.;

• R.A. means Republic Act of the Philippines;

• SIM means Subscriber Identification Module;

• Smart means Smart Communications, Inc.;

• U.S. SEC means the United States Securities and Exchange Commission;

• VAS means Value-Added Service;

• VoIP means Voice over Internet Protocol;

• VPN means virtual private network;

• W-CDMA means Wideband-Code Division Multiple Access; and

• WiFi means a wireless network technology that uses radio waves to provide high-speed internet and network connections.

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FORWARD-LOOKING STATEMENTS AND RISK FACTOR SUMMARY

Some information in this report may contain forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended.  We have based these forward-looking statements on our current beliefs, expectations and intentions as to facts, actions and events that will or may occur in the future.  Such statements are generally identified by forward-looking words such as “believe,” “plan,” “anticipate,” “continue,” “estimate,” “expect,” “may,” “will” or other similar words.

A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement.  We have chosen these assumptions or bases in good faith.  These forward-looking statements are subject to risks, uncertainties and assumptions, some of which are beyond our control.  In addition, these forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance.  Actual results may differ materially from information contained in the forward-looking statements as a result of a number of factors, including, without limitation, the risk factors set forth in Item 3. “Key Information – Risk Factors.”  When considering forward-looking statements, you should keep in mind the description of risks and other cautionary statements in this report.  

You should also keep in mind that any forward-looking statement made by us in this report or elsewhere speaks only as at the date on which we made it.  New risks and uncertainties come up from time to time, and it is impossible for us to predict these events or how they may affect us.  We have no duty to, and do not intend to, update or revise the statements in this report after the date hereof.  In light of these risks and uncertainties, you should keep in mind that actual results may differ materially from any forward-looking statement made in this report or elsewhere.

Forward‑looking statements involve inherent risks and uncertainties. The forward‑looking statements included in this report reflect our current views with respect to future events and are not a guarantee of future performance. A number of important factors could cause actual results or outcomes to differ materially from those expressed in any forward‑looking statement. These factors include, but are not limited to, the following:

• coronavirus outbreak and any other adverse public health developments;

• increased competition and potential changes in the competitive and regulatory landscape of the telecommunications industry in the Philippines;

• our ability to keep pace with disruptive innovations and new and emerging technologies;

• our ability to maintain and enhance our brands;

• our reliance on outsourcing and strategic sourcing arrangements, technology vendor contracts and other partnerships and/or joint ventures;

• growth of the mobile telecommunications industry in the Philippines;

• our ability to maintain our licenses, franchises and regulatory approvals;

• applicable laws and regulations;

• changes in regulations or user concerns regarding the privacy and protection of user data;

• inadequate handling of confidential information, including personal customer information by our corporate group, contractors and others;

• legislation and regulation of online payment systems;

• limitations in the amount of frequency spectrum or facilities made available to us;

• compatibility of our technologies and frequency bands with those of other mobile service providers;

• the success of our acquisitions of, and investments in, other companies and businesses, and our ability to fully implement our businness strategy;

• fluctuations in the market values of our investments;

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• our ability to secure a permanent office building prior to the expiration of the lease-back agreement for the Smart Headquarters;

• our abiliy to insall and maintain telecommunications facilities and equipment in a timely manner;

• any cyber-attacks on our network infrastructure and computer systems;

• actual or perceived health risks or other problems relating to mobile handsets or transmission masts;

• cable and equipment theft, equipment failures, natural disasters and manmade events;

• damage to our infrastructure;

• international geopolitical conflicts;

• climate change;

• our ability to finance our business;

• foreign exchange rate fluctuations;

• our indebtedness and limitations imposed by our debt covenants;

• work stoppages, slowdowns or increased labor costs;

• loss of key personnel or failure to attract and retain highly qualified personnel;

• pending or future litigation, internal or external investigations and/or disputes;

• fraud relating to device financing, credit cards, dealers or subscriptions; and

• other factors described under “Risk Factors.”

PRESENTATION OF FINANCIAL INFORMATION

Our consolidated financial statements as at December 31, 2021 and 2020 and for the three years ended December 31, 2021, 2020 and 2019 included in Item 18. “Financial Statements” of this annual report on Form 20-F have been prepared in conformity with IFRS.  

As at December 31, 2021, our business activities were categorized into three business units: Wireless, Fixed Line and Others.  

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PART I

Item 1. Identity of Directors, Senior Management and Advisors

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

Performance Indicators

We use a number of non-GAAP performance indicators to monitor financial performance.  These are summarized below and discussed later in this report.

Adjusted EBITDA

Adjusted EBITDA is measured as net income excluding depreciation and amortization, amortization of intangible assets, asset impairment on noncurrent assets, financing costs – net, 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 (expense) – net.  Adjusted EBITDA is monitored by management for each business unit separately for purposes of making decisions about resource allocation and performance assessment.  Adjusted EBITDA is presented because our management believes that it is widely used by investors in their analysis of the performance of PLDT and can assist them in their comparison of PLDT’s performance with those of other companies in the technology, media and telecommunications sector.  We also present Adjusted EBITDA because it is used by some investors as a way to measure a company’s ability to incur and service debt, make capital expenditures and meet working capital requirements.  Companies in the technology, media and telecommunications sector have historically reported Adjusted EBITDA as a supplement to financial measures in accordance with IFRS.  Adjusted EBITDA should not be considered as alternative to net income as an indicator of our performance, nor should Adjusted EBITDA be considered as an alternative to cash flows from operating activities, as a measure of liquidity or as an alternative to any other measure determined in accordance with IFRS.  Unlike net income, Adjusted EBITDA does not include depreciation and amortization, or financing costs and, therefore, does not reflect current or future capital expenditures or the cost of capital.  We compensate for these limitations by using Adjusted EBITDA as only one of several comparative tools, together with IFRS-based measurements, to assist in the evaluation of operating performance. Such IFRS-based measurements include income before income tax, net income, and operating, investing and financing cash flows.  We have significant uses of cash flows, including capital expenditures, interest payments, debt principal repayments, taxes and other non-recurring charges, which are not reflected in Adjusted EBITDA.  Our calculation of Adjusted EBITDA may be different from the calculation methods used by other companies and, therefore, comparability may be limited.  A reconciliation of our consolidated net income to our consolidated Adjusted EBITDA for the years ended December 31, 2021, 2020 and 2019 is presented in Item 5. “Operating and Financial Review and Prospects –– Management’s Financial Review” and Note 4 –– Operating Segment Information to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

Core Income and Telco Core Income

Core income 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, 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.  Core income results are monitored by management for each business unit separately for purposes of making decisions about resource allocation and performance assessment.

Meanwhile, telco core income 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, 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, adjusted for the effect of the share in Voyager Innovations Holdings, Pte. Ltd., (“VIH”) losses, asset sales, and accelerated depreciation.  Telco core income is used by the management as a basis for determining the level of dividend payouts to shareholders and one of the bases for granting incentives to employees.  

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Core income and telco core income should not be considered as alternatives to income before income tax or net income determined in accordance with IFRS as an indicator of our performance.  Unlike net income, core income and telco core income do not include certain items, among others, foreign exchange gains and losses, gains and losses on derivative financial instruments, impairments on non-current assets and non-recurring gains and losses.  We compensate for these limitations by using core income and telco core income as a few of several comparative tools, together with IFRS-based measurements, to assist in the evaluation of operating performance.  Such IFRS-based measurements include income before income tax and net income.  Our calculation of core income may be different from the calculation methods used by other companies and, therefore, comparability may be limited.  A reconciliation of our consolidated net income to our consolidated core income for the years ended December 31, 2021, 2020 and 2019 is presented in Item 5. “Operating and Financial Review and Prospects – Management’s Financial Review” and Note 4 – Operating Segment Information to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

Capital Stock

The following table summarizes PLDT’s capital stock issued and outstanding as at December 31, 2017, 2018, 2019, 2020 and 2021:

	No. of shares										December 31,
	2021		2020		2019		2018		2017		2021		2020		2019		2018		2017
	(in millions)										(amounts in million Php)
Non-Voting Preferred Stock
Series IV Cumulative Non-convertible    Redeemable Preferred Stock**		300		300		300		300		300		360		360		360		360		360
Voting Preferred Stock		150		150		150		150		150		150		150		150		150		150
		450		450		450		450		450		510		510		510		510		510
Common Stock		216		216		216		216		216		1,093		1,093		1,093		1,093		1,093
Total		666		666		666		666		666		1,603		1,603		1,603		1,603		1,603

* On June 8, 2015, the Company issued 870 shares of Series JJ 10% Cumulative Convertible Preferred Stock, which are currently outstanding.  On January 28, 2020 the Board of Directors authorized and approved the redemption and retirement of PLDT’s Series JJ 10% Cumulative Convertible Preferred Stock which were issued in the year 2014, effective May 12, 2020.  In April 2011, the Company issued 370 shares of Series II 10% Cumulative Convertible Preferred Stock, all of which were redeemed by May 11, 2016.  

** Includes 300,000,000 shares subscribed for Php3,000,000,000, of which Php360,000,000 has been paid.

Dividends Declared

The following table shows the dividends declared to common shareholders from the earnings for the years ended December 31, 2017, 2018, 2019, 2020 and 2021:

	Date			Amount
Earnings	Approved	Record	Payable	Per share		Total Declared
				(in Php)		(amounts in million Php)
2017	August 10, 2017	August 25, 2017	September 8, 2017		48		10,371
2017	March 27, 2018	April 13, 2018	April 27, 2018		28		6,050
					76		16,421
2018	August 9, 2018	August 28, 2018	September 11, 2018		36		7,778
2018	March 21, 2019	April 4, 2019	April 23, 2019		36		7,778
					72		15,556
2019	August 8, 2019	August 27, 2019	September 10, 2019		36		7,778
2019	March 5, 2020	March 19, 2020	April 3, 2020		39		8,426
					75		16,204
2020	August 6, 2020	August 20, 2020	September 4, 2020		38		8,210
2020	March 4, 2021	March 18, 2021	April 6, 2021		40		8,642
					78		16,852
2021	August 5, 2021	August 19, 2021	September 3, 2021		42		9,075
2021	March 3, 2022	March 17, 2022	April 4, 2022		42		9,075
					84		18,150

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Dividends Paid

The following table shows a summary of dividends paid per share of PLDT's common stock stated in both Philippine peso and U.S. dollars:

	In Philippine Peso		In U.S. Dollars
2017		76.00		1.51
Regular Dividend – April 6, 2017		28.00		0.56
Regular Dividend – September 8, 2017		48.00		0.95
2018		64.00		1.21
Regular Dividend – April 27, 2018		28.00		0.54
Regular Dividend – September 11, 2018		36.00		0.67
2019		72.00		1.38
Regular Dividend – April 23, 2019		36.00		0.69
Regular Dividend – September 10, 2019		36.00		0.69
2020		77.00		1.60
Regular Dividend – April 3, 2020		39.00		0.89
Regular Dividend – September 4, 2020		38.00		0.71
2021		82.00		1.60
Regular Dividend – April 6, 2021		40.00		0.78
Regular Dividend – September 3, 2021		42.00		0.82

Dividends on PLDT’s common stock were declared and paid in Philippine pesos.  For the convenience of the reader, the Philippine peso dividends have been converted into U.S. dollars based on the Philippine Dealing System Reference Rate on the respective dates of dividend payments for 2017, and based on exchange rates quoted through the BAP for 2018 to 2021 dividend payments.  See Note 20 – Equity to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for further information on our dividend payments.

Capitalization and Indebtedness

Not applicable.

Reasons for the Offer and Use of Proceeds

Not applicable.

RISK FACTORS

You should carefully consider all of the information in this annual report, including the risks and uncertainties described below.  If any of the following risks actually occurs, it could have a material adverse effect on our business, financial condition or results of operations and the trading price of our ADSs could decline and you could lose all or part of your investment.

Risks Relating to Us

Our business may be materially and adversely affected by the coronavirus outbreak and other adverse public health developments.

In December 2019, an outbreak of the disease COVID-19, caused by a novel coronavirus (SARS-CoV-2) was first reported to have surfaced in Wuhan, the People’s Republic of China (the “PRC”), later resulting in millions of confirmed cases and hundreds of thousands of fatalities globally, with thousands of confirmed cases and more than a thousand fatalities in the Philippines. In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. Different variants of COVID-19 have also emerged and reported in many countries around the world.  In August 2021, the Delta variant of COVID-19, which has shorter incubation period became the more dominant variant in the Philippines.  In January 2022, the Philippine health ministry confirmed the local spread of the Omicron variant around the capital region.  The Omicron variant spreads more easily than the original virus that causes COVID-19 and the Delta variant, although it is believed that the Omicron infection generally causes less severe symptoms than prior variants. As at the date of this report, the COVID-19 disease and the different COVID-19 variants have continued to spread globally and remain to be categorized as a global pandemic.

Governments and health authorities around the world have imposed sweeping measures designed to contain the pandemic, including, among others, travel restrictions, border closures, curfews, quarantines, cancellations of

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gatherings and events and closures of universities, schools, restaurants, stores and other business. The economic repercussions of the pandemic and the efforts around the world to contain it have been severe, and include reduced global trade, lower industrial production, broad reductions in general consumption and economic activity and major disruptions to international travel and global air traffic.

On March 8, 2020, Presidential Proclamation No. 922 was issued declaring a State of Public Health Emergency throughout the Philippines due to COVID-19.  In a move to contain the COVID-19 outbreak, on March 12, 2020, the Office of the President of the Philippines issued a memorandum directive to impose stringent social distancing measures in the National Capital Region (“NCR”) effective March 15, 2020. On March 16, 2020, Presidential Proclamation No. 929 was issued, declaring a State of Calamity throughout the Philippines for a  period of six months from March  17, 2020 (at midnight), unless earlier lifted or extended as circumstances may warrant, and imposed an enhanced community quarantine (“ECQ”) throughout the island of Luzon until April 12, 2020, unless earlier lifted or extended as circumstances may warrant. On March 24, 2020, Republic Act No. 11469, otherwise known as the “Bayanihan to Heal As One Act”, was signed into law, declaring a state of national emergency over the entire country, and authorizing the President of the Philippines to exercise certain powers necessary to address the COVID-19 pandemic. On April 7, 2020, the Office of the President of the Philippines released a memorandum extending the ECQ over the entire Luzon island until April 30, 2020. On May 1, 2020, the Government further extended the ECQ over, among others, certain portions of Luzon, including Metro Manila, until May 15, 2020, while easing restrictions in other parts of the country. On May 11, 2020, the Inter-Agency Task Force of Emerging Infectious Disease (“IATF”) placed high-risk local government units (“LGUs”) under modified ECQ (“MECQ”) from May 16, 2020 until May 31, 2020, where certain industries were allowed to operate under strict compliance with minimum safety standards and protocols. On May 27, 2020, the IATF reclassified various provinces, highly urbanized cities and independent component cities depending on the risk-level. Meanwhile, on May 28, 2020, the Government placed Metro Manila under general community quarantine (“GCQ”), allowing for the partial reopening of certain businesses and public transportation while continuing to limit general movements.

Pursuant to the declaration of the President on August 2, 2020, the NCR and the provinces of Laguna, Cavite, Rizal and Bulacan were placed under MECQ from August 4, 2020 until August 18, 2020. On August 17, 2020, the President placed Metro Manila, Bulacan, Cavite, Rizal, Nueva Ecija, Batangas, Quezon Province, Iloilo City, Cebu City, Lapu-Lapu City, Mandaue City, Talisay City, the municipalities of Minglanilla and Consolacion in Cebu under GCQ. The rest of the country was placed under Modified GCQ (“MGCQ”) effective August 19, 2020. The period of GCQ for Metro Manila was extended until November 30, 2020. On December 1, 2020, by the order of the President, the Executive Secretary issued a Memorandum advising that the President, taking into consideration the recommendations of the IATF, had approved the community quarantine classification of Provinces, Highly Urbanized Cities (“HUCs”), and Independent Component Cities from December 1 to 31, 2020 as indicated therein. Under said Memorandum, all HUCs of the NCR, the Municipality of Pateros, Batangas, Iloilo City, Tacloban City, Iligan City, Lanao del Sur Province, Davao City and Davao del Norte Province were placed under GCQ while the rest of the areas listed thereunder were placed under MGCQ without prejudice to the declaration of localized ECQ in critical areas.

On September 16, 2020, Presidential Proclamation No. 1021 was issued, extending the State of Calamity throughout the Philippines due to COVID-19 for a period of one year effective from September 13, 2020 to September 12, 2021, unless lifted earlier or extended as circumstances may warrant.  On September 3, 2021, the IATF approved the shift in the policy in classifying provinces, HUC, and ICCs for purposes of community quarantine, wherein the new classification framework focuses on the imposition of granular lockdown measures based on an alert-level system (alert level 1 to 4), with each alert level imposing restrictions only on identified high-risk activities.  The NCR was designated as the pilot area of implementation, effective September 16, 2021.  Effective October 20, 2021, the pilot area of implementation of the alert level systems was expanded to selected provinces, HUCs and ICCs outside of NCR.  On November 11, 2021, the IATF approved the nationwide implementation of the alert-level system.

These and other measures have affected and caused disruption to businesses and economic activities, and their impact on businesses continues to evolve.  While the Development Budget Coordination Committee estimates that the Philippines economy will grow by 7% to 9% in 2022 and by 6% to 7% for both 2023 and 2024, there is no assurance that the Philippines economy will grow in pace with this prediction.

The outbreak of COVID-19 and other adverse public health developments, such as the outbreak of avian influenza, severe acute respiratory syndrome, or SARS, Zika virus and Ebola virus could materially and adversely affect our business, financial condition and results of operations. These may include, temporary closures of our facilities or premises, hospitalizations or quarantine of our employees, delays or suspensions of supplies from our suppliers, especially those located in the PRC, disruptions or suspensions of our operational activities or labor shortages due to restrictions on our employees’ ability to travel, as well as delayed service

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delivery from our contractors. Although we have taken certain measures to try and minimize the negative effect of COVID-19 on our operations, there is no certainty that such measures will be sufficient or that we will not be required to incur additional expense to address the effect of COVID-19 on our operations. See “Near-term Factors Affecting Our Results of Operations — Measures We Have Taken in Light of the COVID-19 Pandemic”.

As at December 31, 2021, we have incurred additional expenses relating to the purchase of protective equipment for our employees, the disinfection and reconfiguration of company premises, hospitalization and medical expenses for our employees covered by our medical benefits program, the provision of shuttle services for employees with no private transport and donations to various non-profit institutions, among others.  In addition, we reconfigured our network to adjust for geographical and usage shifts during the pandemic.  In 2021, total expenses related to our COVID-19 measures amounted to Php942 million.  See “Near-term Factors Affecting Our Results of Operations — Measures We Have Taken in Light of the COVID-19 Pandemic” and See “Near-term Factors Affecting Our Results of Operations — Impact of COVID-19 Outbreak on our Operations”.

While we were not significantly affected by COVID-19 in 2021 and have benefited from the increased demand for our wireless and fixed line products and services, particularly our data and broadband offers, as people forced to stay at home during community quarantines adopted web-based collaboration tools, distance learning, online shopping, e-payment and e-health services, among others, we cannot predict whether this increase in business activity will continue after the end of the pandemic.

In light of the evolving nature of COVID-19 and the uncertainty it brings globally, we do not believe it is possible to predict the COVID-19 pandemic’s cumulative and ultimate impact on our future business, results of operations, and financial condition. The extent of the impact of the COVID-19 pandemic on our business and financial results will depend largely on future developments, including the duration and extent of the spread of COVID-19 both globally and within the countries in which we operate, the timeliness of vaccine procurement and inoculations, the prevalence of local, national and international travel restrictions, the impact on capital and financial markets and on the U.S. and global economies, foreign currencies exchange, and governmental or regulatory orders that impact our business, all of which are highly uncertain and cannot be predicted. To the extent the COVID-19 pandemic continues to materially and adversely affect our business, results of operations and financial condition, it may also have the effect of heightening many of the other risks described in these “Risk Factors”. Any of the foregoing factors, or other cascading effects of the COVID-19 pandemic that are not currently foreseeable, will materially adversely impact our business, results of operations, and financial condition.

The entry of a third major mobile telecommunications player and/or increased competition from other telecommunications services providers may reduce our market share and decrease our profit margin, and we cannot assure you that any potential change in the competitive and regulatory landscape of the telecommunications industry in the Philippines would not have a material adverse effect on our business, results of operations, financial condition and prospects.

Increasing competition among existing telecommunications services providers, as well as competition from new competitors, could materially and adversely affect our business and prospects by, among other factors, forcing us to lower our tariffs, reducing or reversing the growth of our customer base and reducing usage of our services. Competition in the mobile telecommunications industry is particularly intense, with network coverage, quality of service, product offerings, and price dictating subscriber preference, while competition in the fixed line side, particularly in the fiber home broadband space, is now more active as well. Vital investments in capacity and coverage expansion may continue to increase our capital expenditures.

The mobile telecommunications industry has undergone a period of aggressive competition where mobile operators have attempted to grow market share, especially in light of a maturing voice and short messaging service (“SMS”) market. Competition has since shifted to data, where competition remains active, but more focused on ability to provide good customer experience instead of price.  Our principal mobile competitor, Globe, which began to participate more actively in the home broadband segment, via their fixed wireless home broadband service, has announced a strategic pivot to invest in and offer fiber home broadband.  In addition, Converge ICT Solutions, Inc. (“Converge”), a pure fixed line broadband operator, has made inroads in the underpenetrated fiber home broadband space.

Meanwhile, Dito Telecommunity Corporation (“Dito”), the third major mobile player operated by a consortium consisting of Udenna Corporation, Chelsea Logistics Corporation and Infrastructure Holdings Corp. and China Telecommunications Corporation (together, the “NMP Consortium”) began its operations in June 2019 upon receiving a permit to operate after its chairman, Dennis Uy, was awarded the Certificate of Public Convenience and Necessity (“CPCN”) from the NTC. In October 2019, Dito entered into agreements with Sky Cable and LCS Holdings, Inc. (“LCS Group”), pursuant to which Dito will lease the telecommunications towers that the

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LCS Group is building across different regions in the Philippines and use Sky Cable’s unused fiber-optic cables in Metro Manila.

Dito announced the launch of its commercial operations on March 8, 2021, with the initial launch limited to 15 cities in the Visayas and Mindanao area, and subsequently launched its services in the NCR (including Metro Manila) in May 2021.  Dito is currently available in over 500 cities and municipalities in the country, with more than 4,100 towers, and 83,000 sales touchpoints nationwide.  To level-up the subscriber experience, Dito rolled out next-generation features (Auto Pay and Advance Pay) offering discounts and data incentives for resubcscriptions. Dito reached seven million subscribers in March 2022, and are less than 300 towers away from covering 70% of the population.

Developments in law, regulations and/or Government initiatives may increase competition and cause us to lose customers. In 2017, as part of its push to encourage competition within the telecommunications industry, the Philippine Government introduced various measures to facilitate and enable the operations of new players, including a tower sharing policy, mobile number portability (“MNP”), the removal of mobile interconnect charges and the lifting of foreign ownership restrictions on telecommunication companies. In 2019, Smart, Globe and Dito established a joint venture company, Telecommunications Connectivity, Inc. (“TCI”), to enable number porting services in line with the Government’s MNP initiative, which was launched on September 30, 2021. TCI enables a customer to retain his/her mobile number when he/she moves from one mobile service provider to another or when he/she changes the type of mobile subscription from postpaid to prepaid or vice versa. This ability to retain one’s mobile number when switching between service providers further incentivizes our customer to switch away from us. The loss of customers due to such developments would adversely affect  our business, financial condition and results of operations. Meanwhile, as customers who switch away from us retain their mobile numbers, the mobile number prefixes which used to be exclusive to our subscribers will no longer be exclusive, and such loss may result in the dilution of the premium nature of our brand. We cannot guarantee you that in the future, there will not be similar changes in law, regulations or Government initiatives that may incentivize customers to switch away from us.

In the fixed line business, we are also seeing increased competition from Globe and Converge. Converge, in particular, has been aggressively expanding its network. In September 2019, it raised U.S.$250 million to help finance its plan to build a U.S.$1.8 billion nationwide internet backbone in addition to its plan to construct a domestic submarine cable with 20 landing stations across the Philippines. As of December 31, 2021, Converge has 1.7 million subscribers and has laid 103,000 kilometers of fiber backbone passing through 495 cities and municipalities throughout the country, and is set to invest around Php28 billion for further expansion.  It has also more than double its net income due to aggressive penetration in Visayas and Mindanao. Globe, on the other hand, has indicated a shift in its home broadband strategy from offering fixed wireless to building and offering more fiber connections.  Furthermore, Globe has also ventured into the data center space.  To scale up capacity and capability in the data center space, Globe has entered into a joint venture partnership, with the potential to expand to 100-megawatts capacity in the medium to long term.

Our ability to compete effectively will depend on, among other things, network coverage, quality of service, price, our development of new and enhanced products and services, the reach and quality of our sales and distribution channels and our capital resources. It will also depend on how successfully we anticipate and respond to various factors affecting our industry, including new technologies and business models, changes in consumer preferences and demand for existing services, demographic trends and economic conditions. If we are not able to respond successfully to these competitive challenges, our business, results of operations, financial condition and prospects could be materially and adversely affected.

To maintain our competitive posture in the face of increasing competition, we may need to match our competitors’ offers by lowering our price points and offering other incentives to prevent existing customers from switching, which may result in lower ARPUs and consequently, negatively impact our revenue. Furthermore, we may need to make additional investments in our network to further improve the customer experience in order to effectively compete with Globe and Dito. A loss of market share and increased costs to maintain our competitive posture will adversely affect our business, financial condition and results of operations. We cannot assure you that the number of providers of telecommunications services will not increase in the future or that competition for customers will not cause our mobile and fixed line subscribers to switch to other operators, or otherwise cause us to increase our marketing and capital expenditures, lose customers or reduce our rates, resulting in a reduction in our profitability.

The rapid speed of disruptive innovations by new and emerging technologies may outpace our ability to compete and/or manage the risk appropriately, resulting in a possible decline in demand for our services, significant changes to our business model and a material adverse effect on our business, results of operations, financial condition and prospects.

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The growing use of mobile data in the Philippines, coupled with the prevalence of over-the-top (“OTT”) services and video conferencing applications, have negatively impacted our traditional revenue sources such as SMS and domestic calling services in recent years. We are also facing growing competition from providers offering services using alternative wireless technologies and IP-based networks, including efforts by the Philippine Government to roll-out its free WiFi services to selected areas within various municipalities in the country. Moreover, net settlement payments between PLDT and other foreign telecommunications carriers for origination and termination of international call traffic between the Philippines and other countries, which have been our predominant source of foreign currency revenues, have been declining in recent years and have diminishing contribution to our total service revenues.

While the trend of increasing mobile data usage has resulted in, and is expected to continue to have, a positive impact on our data revenues, there is no guarantee that such increase will fully compensate for the decline in the revenue from our traditional businesses. We may not be able to maintain and attract customers more effectively than our competitors. We will also need to invest in new infrastructure, systems and personnel to provide high quality services that accommodate increasing mobile data usage. As a result, our capital costs could increase as we phase out outdated and unprofitable technologies and invest in new ones.

The advent of fifth-generation wireless (“5G”) is another potential disruptor. 5G is the latest evolution of cellular technology and is characterized by significantly higher speeds and low latency which will enable mobile users to download data at a much faster speed than previous generation technologies. 5G is also expected to anchor the Internet of Things (“IoT”), which will allow users to connect with each other, as well as their homes, vehicles, public infrastructure and more.  In order to make 5G technology available to our customers, we may need to obtain additional licenses or upgrade our networks, which may cause us to incur significant capital expenditures. As new technologies relating to 5G systems are developed, our equipment and infrastructure may need to be replaced or upgraded or we may need to rebuild our network, in whole or in part. If we are unable to acquire such licenses or upgrade such systems, on reasonable terms or at all, we may not be able to implement the 5G technology in a timely manner or at all, which in turn may negatively impact our ability to attract new customers and/or maintain our existing customer base.

We have started rolling out 5G radios in our base stations which are able to support customers’ 5G handsets. We are also conducting pilot tests of 5G equipment from several equipment vendors as standards for 5G technology continue to evolve. We are dependent on the availability of 5G network equipment and software, as well as 5G-capable devices such as handsets and modems before we can roll out commercial services and generate revenues.  A delay in the release of reasonably-priced 5G handsets could negatively impact the mass acceptance of 5G services among our customers and our ability to monetize these investments, which in turn could adversely affect our growth prospects.  Furthermore, a 5G rollout by other operators would introduce another area of competition and could consequently impact our business.

We may not be able to accurately predict further technological trends or the success of new services in the market. In addition, there could be legal or regulatory restraints on our introduction of new services. If our services fail to gain acceptance in the marketplace, or if costs associated with implementation and completion of the introduction of these services materially increase, our ability to retain and attract customers could be adversely affected. We can neither assure you that we would be able to adopt or successfully implement new technologies and services nor assure you that future technological changes will not adversely affect our business, results of operations, financial condition and prospects.

The success of our business depends on our ability to maintain and enhance our brands.

We believe that our reputation and brands in the industry are crucial to the success of our business. To maintain and enhance our reputation and brands, we must continue providing relevant products and services, combined with the best customer experience, such that we not only maintain our current customer base but also attract new subscribers as well. If we are unsuccessful in maintaining and improving our brands, our business, financial position and results of operations may be negatively affected.

Our reliance on outsourcing and strategic sourcing arrangements, technology vendor contracts, and other partnerships and/or joint ventures may prevent us from meeting organizational targets or may impact our brand image.

We have entered into a number of outsourcing agreements with technology vendors covering key operations in order to improve efficiencies and maximize knowledge transfer. These arrangements may disrupt existing operations and result in resistance among employees. Furthermore, any delays in implementation or failure to bring about the desired results will hamper our ability to meet our medium-term targets.

In particular, as part of our extensive capital expenditures program to overhaul our fixed and wireless networks

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infrastructure and our IT systems, we have entered into agreements with Amdocs Philippines, Inc. and Huawei Technologies Co. Ltd. (“Huawei”), to upgrade and modernize a significant portion of our IT infrastructure. We cannot guarantee that we will be able to accomplish this transformation in a timely fashion, or at all, or in the manner intended. Furthermore, we cannot guarantee that such transformation will not result in service disruptions, network outages or encounter other issues that may detrimentally affect consumer experience. This may adversely affect our business, financial condition and results of operations.

Due to our reliance on third party vendors, our business operations may be negatively impacted by any adverse changes in import policies, including increases in import duties and tariffs, or any embargo on imports from countries from which our vendors supply. In particular, trade tensions between the United States and major trading partners, including particularly with China, continue to escalate following the introduction of a series of tariff measures by the United States and/or its trading partners. Any further changes in the United States’ global trade policy against its trading partners, including tightening regulatory restrictions, industry specific quotas, tariffs, non-tariff barriers and taxes may have an adverse effect on our ability to procure the requisite components or services from suppliers located in the United States and/or its trading partners. For example, Huawei and its designated affiliates have been placed on the Entity List, an export control-related list, and Huawei has been designated as a “Communist Chinese military company” by the government of the United States, and the government of the United States has banned a broad array of American companies from utilizing information and communications technology supplied by Huawei. Any additional export restrictions imposed by the United States against Huawei and its designated entities, as well as any damage to Huawei’s image or reputation could potentially have an adverse effect on our business, prospects, results of operations and cash flows. Thus, we continue to monitor developments involving U. S. –  China relations that may impact Huawei’s ability to operate. For example, we note that some countries and telecommunications service providers have banned or limited the use of Huawei’s technologies for various reasons. We have factored in such developments in our planning and decision-making with respect to our operation with Huawei, and will continue to do so.

Our business relies heavily as well on third party vendors, some of whom may encounter financial difficulties or consolidate with other vendors. This may result in a shrinking of the already limited pool of qualified vendors which may in turn, materially impact the third party vendors’ ability to fulfill their obligations and thereby impact our operations. The limited number of vendors may also result in our dependence on a single vendor to provide critical services.

Our ability to generate revenues could be disrupted if our suppliers are no longer able or willing to supply us. In the event that any of our suppliers cannot or will not provide us with the required products, we may be forced to find alternative supplies. There is no guarantee that we will be able to obtain our products or products of a similar quality from alternate suppliers, in part or at all. Failure to acquire alternative suppliers will disrupt our operations and hinder our ability to generate revenues.

The mobile telecommunications industry in the Philippines may not continue to grow.

The majority of our total revenues are currently derived from the provision of mobile services to customers in the Philippines. As a result, we depend on the continued development and growth of the mobile telecommunications industry in the Philippines. We believe the mobile penetration rate in the country, however, reached approximately 145% as at December 31, 2021, based on the number of SIM cards issued, and the industry may well be considered mature insofar as services such as SMS and domestic voice are concerned.

Data has emerged as the key driver for revenues. However, further growth of the market depends on many factors beyond our control, including the continued introduction of new and enhanced mobile devices, the price levels of mobile handsets, consumer tastes and preferences, alternative means of access, and the amount of disposable income of existing and potential subscribers. Any economic, technological or other developments resulting in a reduction in demand for mobile services or otherwise causing the Philippine mobile telecommunications industry to stop growing or slow down its growth, could materially harm our business, results of operations, financial condition and prospects.

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The licenses, franchises and regulatory approvals, upon which PLDT relies, may be subject to revocation or delay, which could result in the suspension of our services or abandonment of any planned expansions and could thereby have a material adverse effect on our business, results of operations, financial condition and prospects.

Amendment to the Public Service Act

Section 11, Article XII of the 1987 Philippine Constitution (the “Constitution”) provides that no franchise, certificate or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least 60% of whose capital is owned by such citizens. Exceeding the foreign ownership restrictions imposed under the Constitution may subject the Company to (1) sanctions set out in Section 14 of the Philippine Foreign Investments Act of 1991, as amended, comprising a fine not exceeding (a) the lower of (x) 0.5% of the total paid in capital of the Company and (y) Php5 million, in the case of a corporate entity, (b) Php200,000, in the case of the president of the Company or other responsible officers, and (c) Php100,000, in the case of other natural persons, which we refer to collectively as the Monetary Sanctions, and/or (2) the Philippine government commencing a quo warranto case in the name of the Republic of the Philippines against the Company to revoke the Company’s franchise, which permits the Company to engage in telecommunications activities.

In February 2022, the Philippine Congress approved the proposed amendments to the Public Service Act, which no longer considers telecommunication companies as “public utilities” but as “public service with critical infrastructure”.  Under such amendments, telecommunication companies would no longer be subject to the 40% foreign ownership restriction under the Constitution, subject to reciprocity rules.  While such an amendment would increase our access to foreign capital, it may also allow foreign nationals to make significant investments in other telco operators that can compete with us.  The bill proposing amendments to the Public Service Act was signed by the President on March 21, 2022.

While we believe that PLDT is still in compliance with the requirements of the Constitution as at the date of this report, we cannot assure you that subsequent changes in law or additional litigation would not result in a different conclusion.  Moreover, the required implementing rules to the amendments have not yet been released by the pertinent government agency on this matter and the details and impacts of such amendments on our business and the telco industry in general remains uncertain.

Failure to renew CPCNs

We operate our business under franchises, each of which is subject to amendment, termination or repeal by the Philippine Congress, and to various provisional authorities and CPCNs, which have been granted by the NTC and will expire between now and 2028. Some of our CPCNs and provisional authorities have already expired, but applications for the renewal of such CPCNs and provisional authorities were filed prior to their expiry. Under the Philippine Revised Administrative Code of 1987 and the Ease of Doing Business and Efficient Government Service Delivery Act of 2018, CPCNs and provisional authorities for which renewal applications have been filed are deemed effective until the applications for renewal are finally decided upon by the NTC. Although we have filed applications for the extension of these CPCNs and provisional authorities, we cannot assure you that the NTC will grant the applications for renewal. Failure to renew CPCNs can materially and adversely affect our ability to conduct the essential functions of our business, and therefore adversely affect our financial condition and results of operations. See Item 4. “Information on the Company – Licenses and Regulations” for more information.

Failure to comply with public ownership requirements under Republic Act No. 7925 or the Public Telecommunications Policy Act of the Philippines

The Philippine Congress may revoke, or the Solicitor General of the Philippines may file a quo warranto case against Smart and DMPI to revoke, the franchise of Smart and DMPI for their failure to comply with Section 21 of Republic Act No. 7925, which requires a telecommunications entity providing regulated services to make a public offering of at least 30% of its aggregate common stocks.  See Item 4. “Information on the Company – Material Effects of Regulation on our Business” for further discussions.  However, on May 19, 2017, Republic Act No. 10926 took effect and effectively extended the legislative franchise of Smart.  The law contains a provision which provides an exemption from such public listing requirement if the grantee is wholly-owned by a publicly listed company with at least 30% of its authorized capital stock is publicly listed.  As Smart is a wholly-owned subsidiary of PLDT, a publicly listed company, Smart is not required to offer any of its shares to the public under Republic Act No. 7925.

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Nonetheless, we cannot assure you that none of our franchises, permits or licenses will not be revoked in the future.  Any such revocations could have a material adverse effect on our business, financial conditions or prospects.

Our business is significantly affected by laws and regulations, including regulations in respect of our service rates, taxes and antitrust laws.

The NTC regulates the rates we are permitted to charge for services that have not yet been deregulated, such as local exchange services and is responsible for granting a long-term license called a CPCN. PLDT has obtained CPCNs for its international gateway facility, local exchange carrier, cellular mobile telephone services and interexchange carrier services. While CPCNs are typically co-terminus with the term of a public utility’s franchise, the NTC may amend certain terms of a CPCN, or revoke a CPCN for a cause, subject to due process procedures. The exercise of regulatory power by regulators, including monetary regulators, may be subject to review by the courts upon the filing of appropriate actions by the affected parties.

We cannot assure you that the NTC will not impose additional obligations on us that could lead to the revocation of our licenses if not adhered to and/or to the reduction of our total revenues or profitability. The NTC could amend applicable regulations or implement additional guidelines governing our interconnection with other telecommunications companies or the rates and terms upon which we provide services to our customers.  In addition, any future expansions in our services, particularly in our mobile services, could subject us to additional conditions in the granting of our provisional authorities by the NTC and to increased regulatory scrutiny, which could have a material adverse effect on our growth and prospects. The occurrence of any of the foregoing could impose substantial costs on us, cause interruptions or considerable delays in the provision, development or expansion of our services, or materially reduce our revenues and profitability. There is no assurance that the regulatory environment will support increases in our business and financial activity.

We are subject to a number of national and local taxes, and regulatory fees imposed by LGUs through their respective ordinances.  We cannot assure you that we will not be subject to new, increased and/or additional taxes or that we would be able to pass on such additional expenses to our customers. See Note 27 – Provisions and Contingencies to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for further discussion.

Moreover, we are subject to antitrust laws and regulations. The Republic Act No. 10667 (the “Philippine Competition Act”) came into effect on August 8, 2015 and prohibits practices that restrict market competition through anti-competitive agreements or the abuse of a dominant position. The Act also requires parties to provide notification and obtain clearance for certain mergers and acquisitions. Violators may be subject to administrative and criminal penalties. While our business practices have not in the past been found to have violated any antitrust laws and regulations, we cannot assure you that any new or existing governmental regulators will not, in the future, take the position that our current or past business practices have an anti-competitive effect on the Philippine telecommunications industry.

In particular, PLDT is currently involved in a litigation with the Philippine Competition Commission (the “PCC”), relating to PLDT’s investments in Vega Telecom Inc., Bow Arken Holdings Company and Brightshare Holdings, Inc. (collectively, the “SMC Transactions”).  Although the Court of Appeals (the “CA”), among other things, compelled the PCC to recognize the SMC Transactions as having been deemed to be approved by operation of law, the CA held that the deemed approved status of the SMC Transactions does not, however, remove the power of the PCC to conduct post-acquisition review to ensure that no anti-competitive conduct was committed by the parties. The CA’s decision is on appeal with the Supreme Court and is not final and executory.  An adverse judgment could materially and adversely affect our business and outlook. See Note 11 – Investments in Associates and Joint Ventures – In the Matter of the Petition against the PCC to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for further discussion.

No assurance can be given that the regulatory environment in the Philippines will remain consistent or open. Current or future policies may affect our business and operations.

Changes in regulations or user concerns regarding the privacy and protection of user data, or any failure to comply with such laws, could adversely affect our business.

Legislations such as Republic Act No. 10173 and its implementing rules and regulations (the “Data Privacy

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Act”) aim to protect individual privacy. The rules apply to the processing of personal data in the public and private sectors, as well as to acts done or practices engaged in, in and outside of the Philippines under certain conditions. In 2021, the NPC has pivoted towards more enforcement actions as more privacy violations come to light and SMS phishing scams become more prevalent.  Personal data breaches and other controversies relating to the unauthorized processing of personal data both within the Philippines and abroad continue to be a concern for consumers.  Provisions in the Data Privacy Act on the Rights of Data Subjects and the NTC issuances under Memorandum Circular No. 05-07-2016 and NTC Memorandum Circular No. 05-06-2007 on the rights of the subscriber on record to their data and call data records highlight PLDT’s statutory obligation to be able to furnish complete and correct data to its users upon their request. These developments lead to an increased impetus on PLDT’s part to not only ensure compliance with the Data Privacy Act and similar laws, rules and regulations but also to meet industry best practices and customer expectations on data protection.

Any failure, or perceived failure, by us to make effective modifications to our policies, or to comply with any privacy, data-retention or data-protection-related laws, regulations, orders or industry self-regulatory principles, including the Data Privacy Act, could result in proceedings or actions against us by governmental entities or others, loss of user confidence, damage to the PLDT brands, or the loss of users or advertising partners, any of which could potentially have a material adverse effect on our business.

In addition, various foreign legislative or regulatory bodies continue to enact new or additional laws and regulations concerning privacy, data-retention and data-protection issues, including laws or regulations mandating disclosure to domestic or international law enforcement bodies, which could adversely impact our results of operations, businesses, brand or reputation with users. For instance, in May 2018, the General Data Protection came into force in the European Union and European Economic Area countries. In the United States, more and more states are adopting their own privacy and data protection legislation.  Transfers of personal data across jurisdictions also continue to be a concern.  For instance, in July 2020, the Court of Justice of the European Union in the case, Data Protection Commissioner v Facebook Ireland Ltd, Maximilian Schrems and intervening parties, Case C-311/18 (also known as “Schrems II”) on the invalidation of the EU-US Privacy Shield, indicate that prevailing arrangements on international data transfers may be subject to change as a result of court decisions in different jurisdictions.  In the Philippines, proposed amendments to the Data Privacy Act have been filed with the Congress of the Philippines. In general, the amendments focus on a review of the penalties for criminal offenses, as well as the authority of the NPC to levy fines for administrative offences. Since stakeholders, including telecommunications service providers, have significant interest in these amendments, it is likely that the amendments will only be approved by the Philippine Congress after a lengthy period of solicitation of public opinion and discussion.

The interpretation and application of privacy, data protection and data retention laws and regulations are often uncertain as these are highly dependent on the local context and culture and they can also be impacted by changes in technology. These laws may be interpreted and applied inconsistently from country to country and inconsistently with our current policies and practices, complicating long-term business planning decisions. If privacy, data protection or data retention laws are interpreted and applied in a manner that is inconsistent with our current policies and practices we may be fined or ordered to change our business practices in a manner that adversely impacts our operating results. Complying with these varying international requirements could cause us to incur substantial costs or require us to change our business practices or operating platforms in a manner adverse to our business.

Inadequate handling of confidential information, including personal customer information by our corporate group, contractors and others, may adversely affect our credibility or corporate image.

We possess a substantial amount of personal information of our customers.  In the event an information leak or cyber security breach occurs, whether on our end or on the part of our contractors and service providers, we may be subject to penalties under the Data Privacy Act, our credibility and corporate image may be significantly damaged and we may experience an increase in cancellations of customer contracts and a slower increase in additional subscriptions, any of which could have a material adverse effect on our business, results of operations, financial condition and prospects.

Despite having adopted stringent policies on employee sanctions to deter employee non-compliance of the Data Privacy Act, in 2021, the PLDT Group had four personal data breaches that met the Data Privacy Act’s requisites for mandatory reporting to the NPC and notice to affected data subjects.  The reported incidents resulted primarily from failure of PLDT personnel to follow PLDT’s data privacy and information security policies.  While the PLDT Group periodically conducts compliance audits and regularly holds privacy and information security training and awareness campaigns, it cannot guarantee that similar personal data breaches resulting from failure of personnel to comply with PLDT policies will not occur in the future.  Such breaches could result in

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litigation and/or regulatory actions and penalties against us, and adversely impact on our business operations and financial conditions.  

Legislation and regulation of online payment systems could create unexpected costs, subject us to enforcement actions for compliance failures, or cause us to change our digital technology platforms or business models.

Regulators have been increasing their focus on online and mobile payment services, and recent regulatory and other developments could reduce the convenience or utility of our payment services for users. Governmental regulation of certain aspects of mobile payment systems under which PLDT operates could result in obligations or restrictions with respect to the types of products that we may offer to consumers, the payment card systems that link to our mobile payments systems, the jurisdictions in which our payment services or apps may be used, and higher costs, such as fees charged by banks to process funds through our mobile payments systems. Such obligations and restrictions could be further increased as more jurisdictions regulate payment systems. Moreover, if this regulation is used to provide resources or preferential treatment or protection to selected payments and processing providers, we could be displaced, prevented or substantially restricted from participating in particular geographies.

Limitations in the amount of frequency spectrum or facilities made available to us could negatively affect our ability to maintain and improve our service quality and level of customer satisfaction, increase our costs and reduce our competitiveness.

The available radio frequency spectrum is one of the principal limitations on a wireless network’s capacity, and there are limitations in the spectrum and facilities available to us to provide our services. Our future wireless growth will increasingly depend on our ability to offer relevant content and data services and a wireless network that has sufficient spectrum and capacity to support such services. Improvements in our service depend on many factors, including continued access to and deployment of adequate spectrum.

In order to acquire spectrum, a duly enfranchised mobile network operator (“MNO”) must apply and secure a provisional authority from the NTC to render a specific telecommunications service through its franchise. After a hearing, the NTC then grants a provisional authority to the MNO, which specifies the period, service area and essential frequencies for delivering the telecommunications service assigned to the MNO.  Moreover, spectrum users’ fees are charged by the NTC for use of the allocated spectrum.

Our competitiveness may decline if we cannot obtain the necessary or optimal allocation of spectrum from the Philippine Government. If the Philippine Government does not fairly allocate spectrums to wireless providers in general, revokes the spectrum previously granted to us, or if we fail to acquire the necessary amount of spectrum or deploy the services that customers desire on a timely basis without burdensome conditions or at adequate cost while maintaining network quality levels, then our ability to attract and retain customers, and therefore maintain and improve our operating margins, could be materially and adversely affected.

Other mobile service providers in the world may not adopt or use the technologies and/or frequency bands that are compatible with ours, which could affect our ability to sufficiently offer international services.

If a sufficient number of mobile service providers does not adopt the technologies and frequency bands that are compatible with ours, if mobile service providers switch to other technologies or frequency bands, or if there is a  delay in the introduction and expansion of compatible technologies and frequency bands, we may not be able to offer international roaming or other international services as expected, which may adversely affect our business.

We may not be successful in our acquisitions of, and investments in, other companies and businesses, and may therefore be unable to fully implement our business strategy.

As growth slows or reverses in our traditional fixed line and mobile businesses, and as part of our strategy to grow other business segments, we make acquisitions and investments in companies or businesses to enter new businesses or defend our existing markets. The success of our acquisitions and investments depends on a number of factors, such as:

• our ability to identify suitable opportunities for investment or acquisition;

• our ability to reach an acquisition or investment agreement on terms that are satisfactory to us or at all;

• the extent to which we are able to influence or exercise control over the acquired or investee company;

• the compatibility of the economic, business or other strategic objectives and goals of the acquired or investee company with those of the PLDT Group, as well as the ability to execute the identified

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strategies in order to generate fair returns on the investment; and

• our ability to successfully integrate the acquired company or business with our existing businesses.

Any of our contemplated acquisitions and investments may not be consummated due to reasons or factors beyond our control. Even if any contemplated acquisitions and investments are consummated, we may not be able to realize any or all of the anticipated benefits of such acquisitions and investments and we cannot assure you that the consummation of such acquisitions and investments will not result in losses for a prolonged period of time. Moreover, if we are unsuccessful in our contemplated acquisitions and investments, we may not be able to fully implement our business strategy to maintain or grow certain of our businesses and our results of operations and financial position could be materially and adversely affected.

We are exposed to the fluctuations in the market values of our investments.

Given the nature of our business and our foray into the digital business, we have made investments in various start-up companies.  For example, we hold an investment in VIH, an important player in the financial technology space and an integral part of our digital payments ecosystem. In accordance with IAS 28, Investments in Associates and Joint Ventures, we account for our investment in VIH using the equity method, whereby we recognize our proportionate share of VIH’s losses, which amount to Php2,237 million and Php2,392 million for the years ended December 31, 2021 and 2020, respectively. Credit ratings and the value of this investment and similar investments can be negatively impacted by liquidity, credit deterioration or losses, financial results, foreign exchange rates, or other factors. As a result, our investments could decline and result in a material impairment, which could have a material adverse effect on our financial condition and operating results.

Our operations and financial conditions may be negatively affected if we fail to secure a permanent office building prior to the expiration of the lease-back agreement for the Smart Headquarters.

On October 5, 2020, PLDT signed an agreement for the sale of Smart’s headquarters, which also included a lease-back agreement with the buyer, pursuant to which we are permitted to continue occupying the building for no more than five years.  If we fail to find a suitable alternative office space or adopt an acceptable office set-up (e. g., work from home or hybrid arrangements) prior to the expiration of the lease-back agreement, we may need to negotiate the extension of the lease-back agreement.  There is no assurance that we will be able to extend the lease-back agreement on reasonable terms, or at all.  Any relocations could disrupt our business operations.  Any of the foregoing events could materially and adversely affect our business operations and financial conditions.

If we are unable to install and maintain telecommunications facilities and equipment in a timely manner, we may not be able to maintain our current market share and the quality of our services, which could have a material adverse effect on our results of operations and financial condition.

Our business requires the regular installation of new telecommunications transmission and other facilities and equipment, and the regular maintenance of such facilities and equipment, which are continually being undertaken. The installation and maintenance of these facilities and equipment are subject to a number of risks and uncertainties, such as:

• shortages of equipment, materials and labor;

• delays in the issuance of national and local government building permits;

• work stoppages and labor disputes;

• interruptions resulting from man-made events (e.g., sabotage), outbreak of epidemics, pandemics or other public health crises, inclement weather and other natural disasters;

• rapid technological obsolescence;

• inability of vendors and/or suppliers to deliver on commitments;

• unforeseen engineering, environmental and geological problems; and

• unanticipated cost increases.

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Any of these factors could give rise to delays or cost overruns in the installation of new facilities or equipment or prevent us from deploying our networks and properly maintaining the equipment used in our networks, and hence affect our ability to maintain existing services and roll-out new services, for example, which could have a material adverse effect on our results of operations and financial condition.

Our business relies on secure network infrastructure and computer systems, and any cyber-attacks against them, or the perception of such attacks, may materially adversely affect our operations, financial condition, results of operations and reputation.

We need to constantly upgrade our cyber security capabilities to support our business needs. We depend on information and digital services to run our business and deliver value. Our Company faces the following challenges in an era of connectivity, digital identity, decentralized decisions, information monetization, transparency, and variable trust:

• An increase in the variety of products and services that we provide to our customers (e.g. customer premise equipment, systems, devices, IoT, data and their dynamic relationships) exposes issues regarding the relevance of various products and services in light of rapid technology updates, as well as scalability issues in our existing security control solutions;

• Our existing deterrence measures against cyber security breaches may become less effective. For instance, defensible gates and impermeable walls that are designed to secure our service and information infrastructure have become less effective. While such tools and measures make it difficult to breach our system, these tools may not stop breaches altogether;

• The infrastructure underpinning the digitalization of consumer and enterprise services has become more complex. In order to enhance work efficiency, we allow our employees to work away from the office. This means giving employees cloud access to collaboration platforms and controlled remote access to pre-identified operational systems on their personal devices, such as mobile phones and workstations. Given the large number of points of access to our internal network, we need to constantly improve our cyber infrastructure and implement more sophisticated tools to protect it from attacks, as well as raise employee awareness and vigilance regarding cyber risks;

• The consequences of a cyber security breach could be severe. Breaches resulting in leakage of our Company’s confidential commercial and/or personal information may result in irreparable damage to our reputation and brand. Moreover, leakage of sensitive personal information could, in some cases, result in a threat to personal safety, as well as legal and/or regulatory liability;

• Perpetrators are adopting more sophisticated technologies in their attempts to breach our defensive security measures. We see a growing number of automated computer programs being used in initiating attacks; and

• While encrypted internet traffic protects private information, it inadvertently hampers cyber protection efforts. Perpetrators could abuse encrypted communication tools and use them in their efforts to breach into our systems, with less risk of such efforts being discovered by cyber security measures.

Our Cyber Security Operations Group (“CSOG”) continues to address cyber threats and attacks.  In 2021, we blocked 5.7 billion access to malicious sites by our customers and employees; detected and prevented 46,000 high-risk endpoint activities; responded to more than 5.7 billion incidents in our corporate structure; mitigated 3,500 DDoS attacks, blocked 10.4 million attacks to our corporate websites; blocked unauthorized access from 4,400 unmanaged devices, blocked 154,000 URLs linked to child sexual abuse and exploitation materials (“CSAEM”) and secured 338.2 million business emails, 193.8 million of which contained malicious threats like spam emails, viruses, malware and invalid recipients.

In addition to protecting our internal infrastructure and platforms, our CSOG continues to safeguard our subscriber base by preventing it from falling victim to cyberattacks, such as malware and phishing. With the upsurge in demand for bandwidth and digital services during the COVID-19 outbreak, there has been a corresponding increase in cyber threat activities, mainly in the form of phishing emails, malware websites and download ransomware, all of which use information regarding COVID-19 as a bait.

On their own and taken as a whole, these incidents did not cause any material financial, legal, reputational or regulatory impact to the Company, nor did they cause any material disruptions to our business operations. However, as cyberattacks have become a persistent global and domestic threat, we cannot assure you that we will be able to successfully prevent all forms of cyber intrusions. Any successful attack on our infrastructure could result in legal and/or regulatory liabilities, disruptions to our business operations, damage to our

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reputation, and financial losses.  While we maintain cyber insurance coverage for some of these events, the potential liabilities associated with these events could exceed the insurance coverage we maintain.  

Actual or perceived health risks or other problems relating to mobile handsets or transmission masts could lead to litigation or decreased mobile communications usage.

The effects of, and any damage caused by, exposure to an electromagnetic field remain the subject of careful evaluations by the international scientific community. We cannot rule out the possibility that exposure to electromagnetic fields or other emissions originating from mobile handsets will not be identified as a health risk in the future. Our mobile business may be harmed as a result of any future alleged, or actual, health risk or the perception of any health risk, which could result in our inability to secure permits to install telecom equipment, a lower number of customers, reduced usage per customer or even potential consumer liability.

Cable and equipment theft, equipment failures and man-made events may materially and adversely affect our operations.

Theft of telecommunication cables, major equipment failures, and man-made events, such as terrorist acts or other similar or related contingencies, could adversely affect our wired and wireless networks, including telephone switching offices, microwave links, third-party-owned local and long-distance networks on which we rely, our cell sites or other equipment, our customer account support and information systems, or our employee and business records, and could in turn have a material adverse effect on our operations.

Natural disasters, terrorist acts or acts of war could cause damage to our infrastructure and/or result in significant disruptions to our operations.

Our business operations are subject to interruption by natural disasters, power outages, terrorist attacks, cyber-attacks and other events beyond our control. Such events could cause significant damage to our infrastructure upon which our business operations rely, resulting in degradation or disruption of  service  to our customers. While we maintain insurance coverage for some of these events, the potential liabilities associated with these events could exceed the insurance coverage we maintain. Our system redundancy may be ineffective or inadequate, and our disaster recovery planning may be insufficient for all eventualities. These events could also damage the infrastructure of the suppliers that provide us with the equipment and services that we need to operate our business and provide products to our customers. A natural disaster or other event causing significant physical damage could cause us to experience substantial losses resulting in significant recovery time and additional expenditures to resume operations. In addition, these occurrences could result in lost revenues from business interruption as well as damage to our reputation.

International geopolitical conflicts may materially and adversely affect our business.

Our business operations may not be insulated from the effects of international conflicts.  The occurence of an international conflict or an escalation in the intensity of such conflict may affect the global economy, including impacting the supply and prices of energy, food and other critical commodities.  In addition, it may affect the global supply chain, consequently affecting vendor delivery.  It may also impact the capital and financial markets, foreign currencies exchange, investments, and governmental or regulatory orders, which in turn, may impact our business.

Climate change could increase the impact of natural disasters and environmental legislation and regulations on our operations.

Climate change poses a number of potential risks for telecommunications operators like us, from both a physical and regulatory perspective. The ongoing global climate change may exacerbate the severity and frequency of natural disasters. The rising intensity and frequency of storms, heatwaves and earthquakes could increase the likelihood of damages to our infrastructure and failures of our wired and wireless networks caused by such natural disasters. Should severe natural disasters occur in quick succession, we may not have sufficient resources to repair and restore our infrastructure in a timely and cost-effective manner. Furthermore, climate change and severe weather conditions could also affect and disrupt our supply chain, resulting in delays in the delivery of our supplies.  The increase in the likelihood of damages to our infrastructure and disruptions in our supply chain as a result of natural disasters could have a material adverse impact on our operations.

In light of heightened awareness on climate change globally, the Philippine Government could introduce new and more stringent environmental legislation and regulations.  If such legislation or regulations are enacted, we could incur increased energy, environmental and other costs and capital expenditures to comply.  We cannot guarantee that we will at all times be in compliance with any new environmental legislation and regulations.  The failure to comply with new environmental legislation and regulations could have a material adverse impact on our

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operations and financial conditions.

Our businesses require substantial capital investment, which we may not be able to finance.

Our projects under development and the continued maintenance and improvement of our networks and services, including Smart’s projects, networks, platforms and services, require substantial ongoing capital investment.  Our consolidated capital expenditures, reflecting gross additions to property and equipment totaled Php88,983 million, Php71,904 million and Php72,871 million for the years ended December 31, 2021, 2020 and 2019, respectively.  We currently estimate that our consolidated capital expenditures in 2022 will be between Php76 billion to Php80 billion.  In 2022, we will prioritize projects that support the growing demand from our customers, enhance our ability to deliver superior customer experience, and help corporate customers revive their businesses.

Future strategic initiatives could require us to incur significant additional capital expenditures. We may be required to finance a portion of our future capital expenditures from external financing sources, some of which have not yet been fully arranged. There can be no assurance that financing for new projects will be available on terms acceptable to us, or at all. If we cannot complete our development programs or other capital projects on time due to our failure to obtain the required financing, our growth, results of operations, financial condition and prospects could be materially and adversely affected. Furthermore, if we are unable to monetize our investments and generate the expected revenues, our cash flows and gearing may be negatively impacted.

Our results of operations and our financial position could be materially and adversely affected if the Philippine peso significantly fluctuates against the U.S. dollar.

A substantial portion of our capital expenditures, a portion of our indebtedness and related interest expense and a portion of our operating expenses are denominated in U.S. dollars and other foreign currencies, whereas most of our revenues are denominated in Philippine pesos, with 19% of revenues denominated in U. S. dollars.

A depreciation of the Philippine peso against the U.S. dollar would increase the amount of our U.S. dollar-denominated debt obligations, capital expenditures, and operating and interest expenses in Philippine peso terms. In the event that the Philippine peso depreciates against the U.S. dollar, we may be unable to generate enough funds through operations and other means to offset the resulting increase in our obligations in Philippine peso terms. Moreover, a depreciation of the Philippine peso against the U.S. dollar may result in our recognition of significant foreign exchange losses, which could materially and adversely affect our results of operations. A depreciation of the Philippine peso could also cause us not to be in compliance with the financial covenants imposed on us by our lenders under certain loan agreements and other indebtedness. Further, fluctuations in the Philippine peso value and of interest rates impact the mark-to-market gains/losses of certain of our financial debt instruments, which were designated as non-hedged items.

The Philippine peso has been subject to significant depreciation in recent years with the Philippine peso depreciated by 24% from a high of Php41.08 for 2012 to Php50.97 as at December 31, 2021 and further depreciated to Php51.385 as at February 28, 2022.  We cannot assure you that the Philippine peso will not depreciate further and be subject to significant fluctuations going forward, due to a range of factors, including:

• political and economic developments affecting the Philippines, including the level of remittances from overseas Filipino workers;

• global economic and financial trends;

• the volatility of emerging market currencies;

• any interest rate increases by the Federal Reserve Bank of the United States and/or the BSP; and

• higher demand for U.S. dollars by both banks and domestic businesses to service their maturing U.S. dollar obligations or foreign exchange traders including banks covering their short U.S. dollar positions, among others.

Our debt instruments contain restrictive covenants which require us to maintain certain financial tests and our indebtedness could impair our ability to fulfill our financial obligations and service our other debt.

Our existing debt instruments contain covenants which, among other things, require PLDT to maintain certain financial ratios and other financial tests, calculated on the basis of IFRS at relevant measurement dates,

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principally at the end of each quarter period. In addition, PLDT’s bonds contain covenants that limit our ability to take certain actions.

Our indebtedness and the requirements and limitations imposed by our debt covenants could have important consequences. For example, we may be required to dedicate a substantial portion of our cash flow to payments on our indebtedness, which could reduce the availability of our cash flow to fund working capital, capital expenditures and other general corporate requirements.

The principal factors that could negatively affect our ability to comply with these financial ratio covenants and other financial tests are the poor operating performance of PLDT and its subsidiaries, the depreciation of the Philippine peso relative to the U.S. dollar, the impairment or similar charges in respect of investments or other long-lived assets that may be recognized by PLDT and its subsidiaries, and increases in our interest expense. Interest expense may increase as a result of various factors including the issuance of new debt, the refinancing of lower cost indebtedness by higher cost indebtedness, the depreciation of the Philippine peso relative to the U.S. dollar, the lowering of PLDT’s credit ratings or the credit ratings of the Philippines, the increase in reference interest rates, and general market conditions. Of our total consolidated debts, approximately 16% was denominated in U.S. dollars as at December 31, 2021. Considering our consolidated hedges and dollar cash allocated for debt, the unhedged portion of our consolidated debt amounts was approximately 5%, as at December 31, 2021, therefore, the financial ratio and other tests are expected to be negatively affected by any weakening of the Philippine peso relative to the U.S. dollar.

If we are unable to meet our debt service obligations or comply with our debt covenants, we may need to restructure or refinance our indebtedness, seek additional equity capital or sell assets. An inability to implement these measures successfully could result in a declaration of default and an acceleration of maturities of some or all of our indebtedness, which could have a material adverse effect on our business, results of operations and financial condition.

Our subsidiaries could be limited in their ability to pay dividends to us due to internal cash requirements and their creditors having superior claims over their assets and cash flows, which could materially and adversely affect our financial condition.

A significant part of our total revenues and cash flows from operating activities are derived from our subsidiaries, particularly Smart. Smart has significant internal cash requirements for debt service, capital expenditures and operating expenses and as a result, may be financially unable to pay any dividends to PLDT. Although Smart has been making dividend payments to PLDT regularly since December 2002, there can be no assurance that PLDT will continue to receive these dividends or other distributions, or otherwise be able to derive liquidity from Smart or any other subsidiary or investee in the future.

Creditors of our subsidiaries generally have priority claims over our subsidiaries’ assets and cash flows. We and our creditors will effectively be subordinated to the existing and future indebtedness and other liabilities, including trade payables, of our subsidiaries, except that we may be recognized as a creditor with respect to loans we have made to subsidiaries. If we are recognized as a creditor of a subsidiary, our claim will still be subordinated to any indebtedness secured by assets of the subsidiary and any indebtedness of the subsidiary otherwise deemed superior to the indebtedness we hold.

We may have difficulty meeting our debt payment obligations if we do not continue to receive cash dividends from our subsidiaries and our financial condition could be materially and adversely affected as a result.

A significant number of shares of PLDT’s voting stock are held by four shareholders, which may not act in the interests of other shareholders or stakeholders in PLDT.

As at February 28, 2022, the First Pacific and its Philippine affiliates (together, the “FP Parties”), NTT Communications and NTT DOCOMO and the JG Summit Group, collectively, beneficially own 57.2% in PLDT’s outstanding common stock (representing 33.8% of our overall voting stock).

Additionally, all of PLDT’s shares of voting preferred stock, which represent 41% of PLDT’s total outstanding shares of voting stock as at February 28, 2022, are owned by a single stockholder, BTF Holdings, Inc. (“BTFHI”).

The FP Parties, NTT Communications, NTT DOCOMO, JG Summit Group and/or BTFHI may exercise their respective voting rights over certain decisions and transactions in a manner that could be contrary to the interests of other shareholders or stakeholders in PLDT.  See Note 1 – Corporate Information to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for further discussion.

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We are unionized and are vulnerable to work stoppages, slowdowns or increased labor costs.

As at December 31, 2021, PLDT has three employee unions, representing in the aggregate 9,053 employees, or 48%, of the employees of the PLDT Group.  This unionized workforce could result in demands that may increase our operating expenses and adversely affect our profitability.  For instance, PLDT experienced significant charges from its manpower rightsizing program in 2019, 2020 and 2021, mainly incurred in the fixed-line business.  Each of our different employee groups require separate collective bargaining agreements. If PLDT and any of its unions are unable to reach an agreement on the terms of their collective bargaining agreement or if PLDT were to experience widespread employee dissatisfaction, PLDT could be subject to collective bargaining deadlocks, strikes, work slowdowns or stoppages. Any of these events would be disruptive to our operations and could have a material adverse effect on our business.

Additionally, on July 3, 2017, PLDT received a Compliance Order from the Department of Labor and Employment (“DOLE”), in connection with the non-payment of statutorily required monetary benefits, including the 13th month pay by certain PLDT contractors to their employees, as well as the regularization of 7,344 contractor employees.  On July 31, 2018, the CA promulgated a decision granting PLDT’s request for an injunction against the Compliance Order and remanded the case back to the DOLE for further proceedings regarding the computation of the monetary awards, which amounted to Php51.8 million according to the regularization orders, and the determination of employees engaged in installation, repair and maintenance work who must be regularized.  On April 5, 2019, PLDT filed a petition for review with the Supreme Court that is now pending resolution. See Item 8. “Financial Information – Legal Proceedings” and Note 27 – Provisions and Contingencies to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for further discussion.

We cannot guarantee that PLDT or its subsidiaries will not be subject to similar proceedings or other labor-related regulatory activities, the results of which may have an adverse reputational and/or financial impact.  While we believe that PLDT has a strong legal position in its pending labor cases, we note that labor tribunals are mandated to resolve cases in favor of employees in the case of any doubt.

The loss of key personnel or the failure to attract and retain highly qualified personnel could compromise our ability to effectively manage our business and pursue our growth strategy.

Our future performance depends on our ability to attract and retain highly qualified key technical, development, sales, services and management personnel. The loss of key employees could result in significant disruptions to our business, and the integration of replacement personnel could be costly and time consuming, could cause additional disruptions to our business and could be unsuccessful. We cannot guarantee the continued employment of any of the members of our senior leadership team, who may depart our Company for any number of reasons, such as other business opportunities, differing views on our strategic direction or other personal reasons. Any inability to attract, retain or motivate our personnel could have a material adverse effect on our results of operations and prospects.

Adverse results of any pending or future litigation, internal or external investigations and/or disputes may impact PLDT’s cash flows, results of operations and financial condition.

We are currently involved in various legal proceedings. Our estimate of the probable costs for the resolution of these claims have been developed in consultation with our counsel and is based upon our analysis of potential results. Our future financial performance could be materially affected by any adverse outcomes or by changes in our estimates or the effectiveness of our strategies relating to these proceedings and assessments. See Item 8. “Financial Information – Legal Proceedings” and Note 27 – Provisions and Contingencies to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for further discussion.

While PLDT believes that the positions it has taken in these cases have strong legal bases, the final outcome of these cases may prove to be different from its expectations. In addition, we cannot assure you that PLDT will not be involved in future litigation or other disputes, the results of which may materially and adversely impact its business and financial conditions.

Our financial condition and operating results will be impaired if we experience high fraud rates related to device financing, credit cards, dealers, or subscriptions.

Our operating costs could increase substantially as a result of fraud, including device financing, customer credit card, subscription or dealer fraud. If our fraud detection strategies and processes are not successful in detecting

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and controlling fraud, whether directly or by way of  the systems, processes, and operations  of third parties such as customers, national retailers, dealers, and others, the resulting loss of revenue or increased expenses could have a material adverse effect on our financial condition and operating results.

RISKS RELATING TO THE PHILIPPINES

Political and social instability.

The Philippines has, from time to time, experienced political and military instability, including acts of political violence. In the last two decades, there has been political instability in the Philippines, including extra-judicial killings, alleged electoral fraud, impeachment proceedings against two former presidents, two chief justices of the Supreme Court of the Philippines, and public and military protests arising from alleged misconduct by the previous and current administrations. In addition, a number of officials of the Philippine Government are currently under investigation or have been indicted on corruption charges stemming from allegations of misuse of public funds, extortion, bribery or usurpation of authority.

In addition, the Philippines has also been subject to a number of terrorist attacks and the Armed Forces of the Philippines has been in conflict with groups which have been identified as being responsible for kidnapping and terrorist activities in the Philippines. In addition, bombings have taken place in the Philippines, mainly in cities in the southern part of the country. For example, in May 2017, the city of Marawi in Lanao del Sur, Mindanao, was assaulted by the Maute Group, terrorists who were inspired by pledged allegiance to the Islamic State of Iraq and Syria. Due to the clash between the Philippine Government forces and the terrorists and the risk of the armed conflict spilling over to other parts of Mindanao, martial law was declared in the entire island of Mindanao, Philippines. In October 2017, the city was declared liberated from the terrorists. Despite this, the Philippine Congress extended the imposition of martial law in Mindanao until the end of 2019, citing persistent threats of terrorism and rebellion. The martial law in Mindanao was lifted on January 1, 2020, however Mindanao remains under a state of emergency as a measure against potential terror threats and communist insurgency and to maintain peace and order in the region. An increase in the frequency, severity or geographic reach of these terrorist acts could destabilize the Philippines, and adversely affect the country’s economy. These armed conflict and terror attacks could lead to further injuries or deaths by civilians and members of the military, which could destabilize parts of the country and adversely affect the country’s economy. In addition, on July 3, 2020, President Rodrigo Duterte signed into law R.A. No. 11479 , or the Anti-Terrorism Act of 2020, which has drawn criticism from, and sparked protests by, various sectors because of its controversial provisions on warrantless arrests and its broad definition of terrorist acts, which may be used to target government critics. The said bill will pass into law upon approval by, or within 30 days of receipt upon inaction of, President Rodrigo Duterte.

Further, a national general elections will be held on May 9, 2022 for various national and local positions, including the presidency.  We cannot assure you that the political environment in the Philippines will be stable or that the current or the incoming administration will adopt economic policies that are conducive to sustained economic growth  or which do not materially and adversely impact the current regulatory environment for the telecommunications and other companies. An unstable political or social environment in the Philippines could negatively affect the general economic conditions and business environment in the Philippines which, in turn, could have a material and adverse impact on our business, financial position and financial performance.

Territorial disputes.

The Philippines, China and several Southeast Asian nations have been engaged in a series of long-standing territorial disputes arising from competing and overlapping claims over certain islands and features in the West Philippine Sea. China claims historic rights to nearly all of the West Philippine Sea based on its so-called “nine-dash line” and in recent years, dramatically expanded its military presence in the sea which has raised tension in the region among the claimant countries. In 2013, the Philippines became the first claimant country to file a case before the Permanent Court of Arbitration, the internal arbitration tribunal based at the Hague, Netherlands to legally challenge claims of China in the West Philippine Sea and to resolve the dispute under the principles of international law as provided for under the United Nations Convention on the Law of the Sea. In July 2016, the Permanent Court of Arbitration rendered a decision stating that the Philippines has exclusive sovereign rights over the West Philippine Sea (in the South China Sea) and that the “nine-dash line” claim of China is invalid. The Philippine Government, under the Duterte administration, has taken action to de-escalate tensions concerning the territorial dispute with China.

There is no guarantee that the territorial dispute between the Philippines and other countries, including China, would end or that any existing tension will not escalate further, as China has taken steps to exercise control over the disputed territory. Should these territorial disputes continue or escalate further, the Philippines and its

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economy may be disrupted and our operations could be adversely affected as a result.  In particular, further disputes between the Philippines and China may lead both countries to impose trade restrictions on the other’s imports. Any such impact from these disputes could adversely affect the Philippine economy, and materially and adversely affect our business, financial position and financial performance.

If foreign exchange controls were to be imposed, our ability to meet our foreign currency payment obligations could be adversely affected.

In general, Philippine residents may freely dispose of their foreign exchange receipts and foreign exchange may be  freely sold and purchased outside the Philippine banking system. However, the Monetary Board of the BSP has statutory authority, with the approval of the President of the Philippines, during a foreign exchange crisis or in times of national emergency, to:

• suspend temporarily or restrict sales of foreign exchange;

• require licensing of foreign exchange transactions; or

• require the delivery of foreign exchange to the BSP or its designee banks for the issuance and guarantee of foreign currency-denominated borrowings.

The Philippine Government has, in the past, instituted restrictions on the conversion of the Philippine peso into foreign currencies and the use of foreign exchange received by Philippine companies to pay foreign currency-denominated obligations.

We cannot assure you that foreign exchange controls will not be imposed in the future. If imposed, these restrictions could materially and adversely affect our ability to obtain foreign currency to service our foreign currency obligations.

The credit ratings of the Philippines may restrict the access to capital of Philippine companies, including PLDT.

Historically, the Philippines’ sovereign debt has been rated non-investment grade by international credit rating agencies. However, in 2013, the Philippines’ credit ratings were upgraded to investment grade by Moody’s, (Baa3, stable) SP Global (BBB-, stable) and Fitch (BBB-, stable).  Subsequently, Moody’s, S&P, and Fitch announced improvements in the Philippines’ credit ratings of Baa2, BBB+ and BBB, respectively.  In May 2021, S&P affirmed its rating of BBB+, with stable outlook, with the expectation that the domestic economy will achieve a healthy economic recovery.  In July 2020, Moody’s affirmed its rating of Baa2 with a stable outlook.  In July 2021, Fitch affirmed its rating of BBB, but revised its outlook to ‘negative’ due to increasing risks to the credit profile from the impact of the pandemic and policymaking for health response.

The Philippine Government’s credit ratings directly affect companies domiciled in the Philippines as international credit rating agencies issue credit ratings by reference to that of the sovereign. No assurance can be given that Fitch, Moody’s, S&P, or any other international credit rating agency will not downgrade the credit ratings of the Philippine Government in the future and, therefore, Philippine companies, including PLDT. Any such downgrade could have a material adverse impact on the liquidity in the Philippine financial markets, on the ability of the Philippine Government and Philippine companies, including PLDT, to raise additional financing, and on the interest rates and other commercial terms at which such additional financing is available.

Item 3A. [Reserved]

Item 4. Information on the Company

OVERVIEW

We are one of the leading telecommunications and digital services providers in the Philippines, in terms of both subscribers and revenues, serving the fixed line, wireless and broadband markets. Through our three principal business segments, Wireless, Fixed Line and Others, we offer a large and diverse range of telecommunications and digital services across our extensive fiber optic backbone and wireless and fixed line networks.

As at December 31, 2021, we serve 78.8 million users through the provision of mobile, fixed line and data services. In addition to the business segments discussed above, PLDT has found it beneficial to view its business from a customer-served perspective. Accordingly, we also assign metrics along the following marketing verticals: individual, home, enterprise and international customers.

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Our common shares are listed and traded on the PSE and our ADSs are listed and traded on the NYSE in the United States.  

Our three business units are as follows:

Wireless.  Our wireless business focuses on driving growth in our data services while managing our legacy business of voice and SMS. We generate data revenues across all segments of our wireless business, whether through the access of mobile internet via smartphones, mobile broadband using pocket WiFi or home WiFi using fixed wireless broadband devices. We provide the following mobile telecommunications services through our wireless business: (i) mobile services, (ii) fixed wireless broadband services, and (iii) MVNO and other services.

Fixed Line. We are the leading provider of fixed line telecommunications services throughout the Philippines, servicing retail, corporate and SME clients. Our fixed line business group offers data, voice and miscellaneous services.  We also provide other fixed line services such as data center, cloud, cyber security services and managed information technology through PLDT’s subsidiary, ePLDT Inc. (“ePLDT”).

Others. Our other business consists primarily of our interests in digital platforms and other technologies, including our interests in VIH and Multisys.

We had a market capitalization of approximately Php391,493 million, or US$7,681 million, as at December 31, 2021.  We had total revenues of Php193,257 million, or US$3,792 million, and net income attributable to equity holders of PLDT of Php26,367 million, or US$517 million, for the year ended December 31, 2021.

HISTORICAL BACKGROUND AND DEVELOPMENT

PLDT was incorporated in the Philippines under the old Corporation Law of the Philippines (Act 1459, as amended) on November 28, 1928 as Philippine Long Distance Telephone Company, following the merger of four telephone companies under common U.S. ownership.  Pursuant to Section 11 of the Revised Corporation Code, which states that corporations shall have perpetual existence unless the corporation elects to retain the specific corporate term indicated in its Articles of Incorporation, PLDT has a perpetual corporate term.

PLDT’s original franchise was granted in 1928 and was last amended in 1991, extending its effectiveness until 2028 and broadening PLDT’s franchise to permit PLDT to provide virtually every type of telecommunications service.  PLDT’s franchise covers the business of providing basic and enhanced telecommunications services in and between the provinces, cities and municipalities in the Philippines and between the Philippines and other countries and territories including mobile, wired or wireless telecommunications systems, fiber optics, multi-channel transmission distribution system, VAS (including, but not limited to, the transmission of voice, data, facsimile, control signals, audio and video), information services bureau and all other telecommunications systems technologies presently available or that can be made available through technical advances or innovations in the future.  Our subsidiaries, including Smart and DMPI, also maintain their own franchises with a different range of services and periods of legal effectiveness for their licenses.

Our principal executive offices are located at the Ramon Cojuangco Building, Makati Avenue, Makati City, Philippines and our telephone number is +(632) 8816-8056.  Our website address is www.pldt.com.  The contents of our website are not a part of this annual report.  The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at https://www.sec.gov.

RECENT DEVELOPMENTS

Prescription of Redemption for Series A to FF Preferred Shares

On September 23, 2011, the Board of Directors approved the redemption of all outstanding shares of PLDT’s Series A to FF 10% Cumulative Convertible Preferred Stock, or the Series A to FF Shares, from holders of record as of October 10, 2011, and all such shares were redeemed and retired effective on January 19, 2012. In accordance with the terms and conditions of the Series A to FF Shares, the holders of Series A to FF Shares as at January 19, 2012 are entitled to payment of the redemption price in an amount equal to the par value of such shares, plus accrued and unpaid dividends thereon up to January 19, 2012, or the Redemption Price of Series A to FF Shares.

PLDT set aside Php4,029 million (the amount required to fund the redemption price for the Series A to FF Shares) in addition to Php4,143 million for unclaimed dividends on Series A to FF Shares, or a total amount of Php8,172 million, to fund the redemption of the Series A to FF Shares, or the Redemption Trust Fund, in a trust account, or the Trust Account, in the name of RCBC, as Trustee.  The Trustee would continue to hold the

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Redemption Trust Fund or any balance thereof, in trust, for the benefit of holders of Series A to FF Shares, for a period of ten years from January 19, 2012 until January 19, 2022.  After the said date, any and all remaining balance in the Trust Account should be returned to PLDT and revert to its general funds, and PLDT’s corresponding obligations to pay the trust amounts would prescribe.

On January 20, 2022, the Trustee returned to PLDT the remaining unclaimed balance of the Trust Account for the Series A to FF, amounting to Php7,839 million.  As PLDT’s obligations to pay the trust amounts has also prescribed, the amount of unclaimed Trust Account that RCBC returned to PLDT is recognized as income in 2022.  We will report this transaction as part of non-telco core income in our 2022 financial results.

STRENGTHS AND STRATEGIES

Strengths

We believe our business is characterized by the following competitive strengths:

• Exposure to Large and Attractive Markets.  Our mobile data services and home broadband services provide exposure to significant growth potential.  As data adoption continues to grow with greater smartphone ownership, with around 60% of our mobile subscribers being active data users, as at December 31, 2021, we believe that demand for mobile data will continue to grow significantly.  Meanwhile, the home broadband market is still underpenetrated at approximately 20%.  This is significantly lower than the average in other Asian countries with similar income levels, indicating significant growth potential.  In addition, the COVID-19 pandemic and the resulting community quarantine measures have generated substantial demand for connectivity services, and in particular, home broadband services, in light of Government-imposed work from home and home schooling arrangements.

• Superior Integrated Networks. With our extensive telecommunications networks in the Philippines, we are able to offer a wide array of communications services.  As part of our capital expenditure program, we continuously invest in upgrading our fixed network to an all IP-based next-generation network, expanding the reach and resiliency of our transmission and FTTH network and increasing our international bandwidth capacity.  To further prepare our network for 5G technology and provide our customers with faster, more reliable services and a superior experience, we have continued to invest in our transmission and backhaul network and have conducted 5G pilot tests with various equipment vendors in different settings, including academic settings, lifestyle hubs and smart cities.

• Recognized Brands.   We have maintained our position as a market leader in the consumer and enterprise fixed line and broadband markets in the Philippines in terms of both subscribers and revenues.  Our success in the fixed line and broadband markets is linked to our strong and diverse portfolio of brands, including PLDT, Smart, TNT and Sun, which are widely recognized brand names in the Philippines.

• Diversified Revenue Sources.   We have a diverse portfolio of business lines across our wireless and fixed line business segments, serving a wide spectrum of customer segments, including individuals, households and enterprises.  Revenue sources of our wireless business include mobile (mobile data, voice, SMS, and inbound roaming and other mobile services), home broadband, MVNO and other services.  The revenues from data services, particularly mobile data services, have increased steadily over the past several years.  Our fixed line business derives service revenues from data/broadband, voice (local exchange, international and domestic services) and miscellaneous services.  The revenue contributions from our home broadband, corporate data, leased lines and information and communication technology services account for the bulk of the fixed line revenues, as at December 31, 2021.

• Innovative Products and Services.   We recently launched a suite of products under the “Giga Life” brand platform, comprised of Giga videos, Giga games, Giga stories and Giga work, which enable customers to select a mobile plan that suits their passions and priorities.  PLDT has continued to innovate in the enterprise business and corporate data services segment, providing business solutions as well as connectivity, including data center services, cyber security services, cloud services, managed IT services and various other IT solutions, and more recently, launching the Philippines’ first carrier-grade cloud infrastructure.  Recognizing the potential of the hyperscaler market, the PLDT Group will construct its 11th data center, whose capacity is expected to be greater than that of its 10 existing data centers combined.  We also create and launch platforms, services and solutions for emerging markets in the area of digital financial services through our associated

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companies, VIH, PayMaya and Maya Bank, which was awarded the sixth and last digital banking license in 2021.

• Strong and Experienced Management Team and Key Strategic Relationships.  Our senior management combines decades of deep expertise in the telecommunications industry with diverse backgrounds in different industries, including banking, utilities, infrastructure and venture capital.  We continue to refresh our talent pool with new hires from the OTT space, among others.  In addition, we have important strategic relationships with First Pacific, NTT DOCOMO and NTT Communications.  We believe the technological support, international experience and management expertise made available to us through these strategic relationships will enable us to enhance our market leadership and provide/cross-sell a wider range of products and services.

Strategies

The key elements of our business strategy are:

• Build on Our Strong Positions in the Fixed Line and Wireless Businesses.  We plan to continue investing in our strong integrated fixed and wireless networks in the Philippines as we believe this is key to our ability to continue providing a differentiated experience and value proposition to our customers.  We will primarily focus on improving our capacity, latency, coverage and reliability, areas in which we are market leaders, based on third party surveys.  We intend to further enhance our leading position through strategic and synergetic investments in the network and IT platforms.

• Focus on Digital Transformation.  PLDT is undergoing a digital transformation, with the core objective of becoming more customer-centric through the delivery of superior customer experience.  It aims to simplify the advanced technologies offered through its world class networks, in order to give Filipinos greater ease of use and encourage them to take advantage of such technologies.  To advance our digital transformation, we have also invested in and made use of data analytics to better understand our customers and design products and plans that are tailored to their specific preferences.

• Capitalize on Our Strength as a Fully Integrated Telecommunications Service Provider.   We believe we offer the broadest range of telecommunications services among all operators in the Philippines.  We plan to capitalize on this position to maximize revenue opportunities by cross-selling our products and services, and by developing convergent products that feature the combined benefits of voice and data, broadband, wireless and other products and services, such as our content portfolio which includes videos, streaming services, entertainment, music, shopping channels and games.

• Maintain a Strong Financial Position. We are focused on growing profitably and continually seek to complement our revenue growth with more effective cost management and enhanced productivity where possible.  Our management strives to achieve an optimal capital structure by maintaining healthy capital ratios and strong credit ratings.  We have a well spread out debt maturity profile, with 63% of debt maturing after 2026.  We also have in place a dividend payout policy of 60% of core telecommunications income to ensure we maintain sufficient reserve funds to invest in the continued growth of our data traffic and in adjacent businesses.  We intend to maintain healthy liquidity on our balance sheet, with our cash and short-term investments generally being maintained at a minimum of US$500 million.

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BUSINESS OVERVIEW

As at December 31, 2021, our business activities were categorized into three business units: Wireless, Fixed Line and Others.  

We monitor the operating results of each business unit separately for purposes of making decisions about resource allocation and performance assessment.  See Note 4 – Operating Segment Information to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

Wireless

Our wireless business focuses on driving growth in our data services while managing our legacy business of voice and SMS. We generate data revenues across all segments of our wireless business, whether through the access of mobile internet using smartphones, mobile broadband using pocket WiFi or home WiFi using fixed wireless broadband devices.

We provide (i) mobile services, (ii) fixed wireless broadband services, and (iii) MVNO and other services, through our wireless business, with mobile services contributing 97% of our 2021 wireless service revenues, and fixed wireless broadband and MVNO and other services contributing the remaining 3% of our 2021 wireless service revenues.  Mobile data usage has surged in the past several years and now accounts for 73% of our mobile service revenues.  Wireless revenues, gross of intersegment transactions, contributed 55% of our consolidated revenues in 2021 as compared to 58% and 57% for the years ended December 31, 2020 and 2019, respectively.  

Our mobile services, which accounted for 97% of our wireless service revenues for the year ended December 31, 2021, are provided through Smart and DMPI with 71,221,952 total subscribers as at December 31, 2021 as compared to 72,933,839 total subscribers as at December 31, 2020, and 73,118,155 total subscribers as at December 31, 2019, representing an estimated combined market share of 45%, 49% and 44% as at December 31, 2021, 2020 and 2019, respectively, based on corporate public disclosures.

Our mobile revenue market share had eroded due to the combined impact of aggressive price competition and the consequent loss of subscribers.  This was exacerbated by our larger proportion of legacy revenues from SMS and international voice relative to competition, which offset growth in our mobile data revenues.  We believe that mobile penetration in the Philippines increased to approximately 145% in 2021 from 138% in 2020, although the existence of subscribers owning multiple SIM cards results in this penetration rate being inflated to a certain extent.

As at December 31, 2021, approximately 97% of our mobile subscribers were prepaid service subscribers.  The predominance of prepaid service reflects one of the distinguishing characteristics of the Philippine mobile market, allowing us to reduce billing and administrative costs on a per-subscriber basis, as well as to control credit risk.

Our mobile internet revenues, which primarily consist of our mobile data service revenues, increased by Php3,993 million, or 6%, to Php66,320 million in 2021 from Php62,327 million in 2020 primarily due to the increase in video streaming, gaming and social media data usage by our subscribers driven by the enhanced product offerings, marketing promotions and content partnerships.  Migration initiatives also resulted in higher number of LTE and 5G device and data users.  Our mobile internet revenues contributed 94% and 93% of our mobile data service revenues in 2021 and 2020, respectively.  

Mobile data traffic on Smart’s network grew from 5,944 Terabytes per day in December 2019 to 9,218 Terabytes per day in December 2021, an increase of more than 50% of 2019 level.  Mobile data traffic on Smart’s network increased from 1,612 petabytes in 2019 to 2,881 petabytes in 2020 and to 3,337 petabytes in 2021, more than two times compared to 2019.  Conversely, mobile broadband revenues, which are derived from the use of pocket internet and other similar mobile broadband devices, decreased by Php374 million, or 12%, to Php2,797 million from Php3,171 million in 2020.

In March 2021, PLDT’s Prepaid Home WiFi (“PHW”) subscribers were transferred to Smart to consolidate our fixed wireless services under Smart. Our fixed wireless broadband service revenues reached Php2,889 million in 2021 with 955,633 subscribers.

Smart’s wireless networks provide extensive voice and broadband coverage in the Philippines, covering substantially all of major metropolitan areas and most of the other population centers in the Philippines.  Our low spectrum band resources (700MHz, 850MHz and 900MHz) are primarily used to provide

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coverage whilst higher spectrum bands (1800MHz, 2100MHz, 2300MHz, 2600MHz and 3500MHz) provide coverage and additional capacity.  Our wireless broadband network supports HSPA+, LTE-Advanced and 5G to provide an improved data experience for our customers.

The following table summarizes key measures of our wireless business as at and for the years ended December 31, 2021, 2020 and 2019:

	December 31,
	2021			2020			2019
Systemwide mobile subscriber base		71,221,952			72,933,839			73,118,155
Prepaid		69,205,731			70,779,021			70,721,789
Postpaid		2,016,221			2,154,818			2,396,366
Fixed Wireless Broadband subscriber base(1)		955,633			52,415			6,098
Growth rate of mobile subscribers
Prepaid		(2	%)		—			22	%
Postpaid		(6	%)		(10	%)		3	%
Growth rate of Fixed Wireless Broadband subscribers		1,723	%		760	%		(47	%)

⁽¹⁾ Includes PHW beginning 2021.

Mobile Services

We offer prepaid and postpaid mobile communications services all over the country under the brand names Smart, TNT and Sun, each of which focuses on the needs of specific market segments.  With a continuous and in-depth consumer understanding program, each of our brands commits to providing relevant products that will cater to the communications, entertainment and services requirements of their respective target market segments.

• Prepaid

Smart continued its brand campaigns to boost data usage, at the same time enhancing connectivity with the aggressive roll-out of 5G sites. In line with this, Smart introduced Giga 5G, Unli Giga, and Giga Power data-packed promos for mobile prepaid services during the year.  In 2021, we also launched the Smart Bro Rocket SIM for the heavy wireless broadband users.

• Postpaid

Smart Postpaid offers Signature plans with data priority powered by Smart LTE.  Smart Signature subscribers receive real-time billing and usage alerts on Giga Life app and has access to exclusive rewards and events and the latest smartphones.

Smart Signature Data Plans are set of Signature Plans specifically tailored for pure data usage fit for online productivity needs.  The plans come with bigger data allocation and are bundled with Smart’s broadband devices.

In 2021, Smart launched its postpaid Signature Plans+, a postpaid line that features unlimited 5G access.

Fixed Wireless Broadband Services

Prepaid Home WiFi

Prepaid Home WiFi (“PHW”) is a wireless internet service introduced to address the growing demand for affordable home broadband in the Philippines.  It is a plug-and-play device powered by Smart’s network that can simultaneously connect multiple WiFi-capable devices.  Smart recently launched its first prepaid 5G Home Router, the Smart Bro Home WiFi 5G that can connect up to 10 WiFi-enabled devices with a fiber-like speed of Smart 5G.

Our wireless business held steady in 2021 despite limited mobility brought about by pandemic restrictions and increased competition. Wireless revenues are driven and influenced by the following key metrics: (i) growing data users and usages; (ii) mobile network quality and continuous roll-outs and (iii) strategic brand building campaigns and product innovations.

(i) Growing data users and usages

Our active data users reached 42.6 million as at December 31, 2021, while mobile data traffic as at

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December 31, 2021 increased to 3,337 petabytes, higher by 16% from 2020. Data traffic on Smart’s 5G network grew significantly in the fourth quarter of 2021, increasing by over 33 times as compared to the fourth quarter of 2020. This growth was driven by aggressive 5G network roll-outs and 5G product offerings.

Meanwhile, our fixed wireless subscriber base has grown to approximately one million subscribers as at December 31, 2021.

(ii) Mobile network quality and continuous roll-outs

Smart has around 7,200 5G sites and 38,600 4G/LTE sites to sustain the growing data usages of our subscribers nationwide.  Smart reasserted its dominance as the fastest 5G mobile network in the Philippines in the second half of 2021, based on the latest report by Ookla®, the global leader in mobile and broadband network intelligence. Smart swept the Ookla® Speedtest Awards in all the quarters of 2021.

Furthermore, Smart won in all seven categories of the first 5G Experience Report for the Philippines by independent mobile analytics firm Opensignal, and Germany-based international internet testing organization, umlaut, also recognized Smart as “Best in Test” award in 2021 for delivering the Philippines’ best-rated broadband coverage, user download experience and latency experience.

(iii) Strategic brand building campaigns and product innovations

a. Aggressive 5G handset and usage offers

To further stimulate and maximize the customer experience on 5G network, Smart offers various plans bundled with 5G capable handsets. Furthermore, Unli 5G offers for prepaid brands were also introduced in 2021, which enable the subscribers non-stop data access with no data capping or speed-throttling at selected Smart 5G-covered areas.

b. Launch of Smart Bro Rocket SIM

Smart launched its Smart Bro Rocket SIM in August 2021 to cater to the needs of subscribers who need shared broadband connectivity or simply to power high-draw devices such as laptops but with the flexibility provided by wireless mobility for work or study from anywhere applications.  This drove the growth in mobile broadband in the second half of 2021.

c. GigaLife app

Brand building and customer engagement hit new strides with GigaLife, Smart’s mobile app which enables Smart subscribers to manage their accounts and enjoy exclusive offers and special promotions such as GigaMania and GigaDays.  Other features and integrations also enhance further the customers’ digital lifestyle.  GigaPay enables digital payments by allowing users to link their PayMaya wallet for in-app transactions such as buying load, subscribing to promos, and paying bills. GigaPlay provides exclusive content experiences on the Smart network, giving users access to the NBA, PBA, K-pop concerts, Korean dramas, pay-per-view films and variety shows.  GigaPlay will continue to expand its content library and will be streaming the UAAP games live starting March 2022.  With its integrated rewards platform GigaPoints, customers can convert points earned into data offers, products and devices.  

The GigaLife App has acquired over 10 million users in less than two years. According to App Annie, a leading global provider of mobile data and analytics, the GigaLife App is the most downloaded network management app in 2021.

Rates for wireless services

Smart prepaid data, call and text cards are sold in denominations of Php100, Php300 and Php500, while TNT prepaid cards are sold in denominations of Php50, Php100 and Php300.  Our eLoad’s over-the-air reloads, which ranges from Php5 to Php1,000 are available through the Giga Life app, Smart and PLDT online stores, e-wallet providers such as PayMaya, e-commerce platforms such as Lazada and Shoppee and via Smart eLoad retailers nationwide.  The stored value of a prepaid card and eLoads remain valid for 365 days regardless of the denomination, pursuant to the MC No. 05-12-2017 issued by the NTC and the DICT.

The Giga suite of products, such as Giga Video, Giga Games, Giga Stories, Giga Music, Giga Pro,

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Giga Study, Giga Work and Giga K-Video, plus the newest Giga Power, Giga 5G and Unli Giga, offer a selection of specially customized packages that are easily accessible and identifiable, designed with the help of extensive data analysis.  Giga offers are priced from Php50 to Php999.

Our current policy is to recognize a prepaid subscriber as active only when the subscriber activates and uses the SIM card.  We consider a prepaid mobile subscriber inactive if the subscriber does not reload within 90 days after the full usage or expiry of the last reload, revised from the previous 120 days.

Smart postpaid “Signature” plans were further enhanced to provide higher data allocations with Unli 5G promo for 6 months, unlimited texts and calls to to all networks including landline in the form of small, medium, large and extra-large plans, ranging from Php599 to Php2,499.  These fixed monthly plans alleviate concerns of unwanted charges.

“Smart Infinity” is our premium mobile postpaid brand with plans ranging from Php3,500 to Php8,000.  With “Smart Infinity”, customers can enjoy local non-stop surf and uninterrupted local mobile services with the “Smart Infinity Limitless Plan” or experience full flexibility both locally and internationally with the “Infinity Traveler” plans.  These plans come with a premium mobile device bundled with exclusive lifestyle perks and privileges accessible through a dedicated concierge.

Smart Enterprise Postpaid is a mobile plan comprised of data, voice, and short message services, with a built-in data bill-cap feature that automatically protects the subscriber from unwanted excess charges up to Php2,500.  Postpaid plans may be availed with or without a device bundle at a fixed monthly subscription, defined by a standard contract period.

For international roaming, we offer various data roaming packages such as GigaRoam with up to 100GB for 10 days on popular travel destinations like Japan, South Korea, Thailand, Saudi Arabia, USA and many more.  Data roaming plans ranges from Php150 to Php9,999, and are open to both prepaid and postpaid subscribers.   

In compliance with NTC Memorandum Circular No. 03-06-2019 or the Rules and Regulations Implementing Republic Act No. 11202 otherwise known as the “Mobile Number Portability Act”, starting on January 2, 2020, the interconnection rate for mobile was reduced from Php0.50 per minute to Php0.00 per minute for domestic calls and from Php0.05 per message to Php0.00 per message for SMS.

Our PHW bundles start at Php795 with free 10GB open access data valid for seven days, while the introductory price of the latest Smart Bro Home WiFi 5G is at Php15,995 with 20GB open access data valid for seven days and connectivity of up to 10 devices.

Fixed Line

We believe we are the leading provider of fixed line telecommunications services throughout the Philippines, servicing retail, corporate and SME clients.  Our fixed line business group offers (i) data services; (ii) voice services and (iii) miscellaneous services.

We had 3,619,372 fixed line subscribers as at December 31, 2021, an increase of 576,557, or 19%, from 3,042,815 fixed line subscribers as at December 31, 2020, while our fixed line broadband subscribers increased by 693,284, or 30%, to 2,966,886 as at December 31, 2021 from 2,273,602 as at December 31, 2020.  Revenues, gross of intersegment transactions, from our fixed line business were 61%, 54% and 53% of our consolidated revenues for the years ended December 31, 2021, 2020 and 2019, respectively.  Local exchange and domestic voice revenues have been declining largely due to a drop in call volumes as a result of the availability of alternative calling options and OTT services, as well as subscribers’ shift to mobile services.  An increase in our data service revenues in recent years has mitigated such decline to a certain extent.  Recognizing the growth potential of data services, we have put considerable emphasis on the development of new data-capable and IP-based networks.

Our fixed line network reaches all of the major cities and municipalities in the Philippines, with a concentration in the Metro Manila area.  We believe our network offers the country’s most extensive connections to our customers with the FTTH and fiber to the building (“FTTB”) installations.  Fiber optic cables are also being deployed aggressively to our wireless base stations for the high bandwidth requirement that surpasses current microwave radio capacities.  The DFON extends to underground inland and submarine cables.  It is a fully resilient network spanning the whole archipelago.  Our international network is comprised of various regional

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and transoceanic submarine cable systems in which we have economic interests.

We offer postpaid and prepaid fixed line services.  Our prepaid fixed line services are intended to be an affordable alternative telephone service for consumers under difficult economic conditions.

The following table summarizes key measures of our fixed line services as at and for the years ended December 31, 2021, 2020 and 2019:

	December 31,
	2021			2020			2019
Systemwide fixed line subscriber base		3,619,372			3,042,815			2,765,209
Postpaid		3,596,019			3,017,565			2,739,367
Prepaid		23,353			25,250			25,842
Growth rate of fixed line subscribers		19	%		10	%		2	%
Postpaid		19	%		10	%		2	%
Prepaid		(8	%)		(2	%)		(7	%)
Number of fixed line employees		11,522			11,427			10,878
Number of local exchange line subscribers per employee		314			266			254
Systemwide broadband subscriber base		2,996,211			3,037,703			2,155,386
Fixed Line broadband		2,966,886			2,273,602			1,931,333
Fixed Wireless Broadband(1)		29,325			764,101			224,053
Growth rate of broadband subscribers		(1	%)		41	%		7	%
Fixed Line broadband		30	%		18	%		7	%
Fixed Wireless Broadband		(96	%)		241	%		11	%

⁽¹⁾ PHW subscribers were transferred to Smart in 2021.

Data Services

Our data services revenues include charges for broadband, leased lines, Ethernet-based and IP-based services. These services are used for broadband internet and domestic and international private data networking communications.

Recognizing the growth potential of data services, and in light of their importance to our business strategy, we have placed considerable emphasis on these service segments. Our data services segments registered the highest percentage growth in revenues among our fixed line services from 2019 to 2021.

Home Broadband Services

We believe that PLDT Home is the country’s leading and fastest home broadband service provider, serving 2.8 million subscribers nationwide as at December 31, 2021 from 2.1 million subscribers as at December 31, 2020.

We believe that PLDT Home is the Philippines’ fastest fixed network with broadband data services including fixed wired (PLDT Home Fiber and PLDT Home Fiber Plus).  PLDT’s FTTH fixed line network has the most extensive transmission and distribution network infrastructure of over 743,700 kilometers of fiber-optic cables that provides broadband availability to approximately 13.9 million homes passed, as at December 31, 2021.  The number of homes passed refers to the approximate potential number of residences that could avail themselves of broadband connectivity services provided through PLDT facilities.

PLDT’s superior FTTH network enables subscribers to enjoy up to 1000 Mbps of symmetrical internet speeds or equal upload and download speeds.  Ookla®, the company behind Speedtest® and the global leader in fixed broadband and mobile network testing applications and data analysis, consistently recognized PLDT as the Philippines’ fastest fixed network for the 4th consecutive year.  Based on the nationwide customer-initiated Ookla® Speedtests in the second half of 2021, PLDT achieved a speed score of 77.24, with top upload and download speeds of 217.07 Mbps and 203.97 Mbps, respectively.

With the consistent wins at the Ookla® Speedtest Awards in 2021, PLDT boosted its efforts to level up the digital experience of its subscribers by launching its biggest speed upgrade with thrice as much speeds versus the previous broadband plans. That means PLDT Home Unli Fiber Plan 2699 subscribers got instantly upgraded from 100 Mbps to 300 Mbps and Unli Fiber Plan 3799 subscribers jumped from 200 Mbps to 600 Mbps internet speeds. From February to May 2021, PLDT Home Fiber subscribers also enjoyed a limited-time offer of free speed boost of up to 500 Mbps. All PLDT Home subscribers enjoyed these automatic speed upgrades without additional cost or applying for plan upgrade.

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PLDT Home also introduced bigger and better Fiber plans to give customers faster and wider internet coverage at home. The new Fiber Plus Plans come with WiFi mesh units that can eliminate dead spots for uninterrupted digital experience at home. PLDT Home subscribers who choose to upgrade were also treated with a free speed boost and permanent Php100 discount in their plans.

In a history-making move towards the future of home connectivity, PLDT Home also introduced the first-ever 10,000 Mbps fiber optic service in the Philippines. Setting the bar for internet speeds in the Philippines, PLDT has put the country next to first-world nations that have access to such ultra-fast home internet speeds such as South Korea, Japan, Sweden, Norway, Italy, New Zealand, and USA. PLDT’s 10,000 Mbps service is expected to rollout in more areas in 2022.  

With PLDT’s aggressive network expansion and migration initiatives, the company continues to deliver reliable and superior connectivity solutions for the customers’ ever-evolving digital lifestyles at home. As part of its migration program, PLDT Home upgraded the lines of over 272,000 subscribers from copper to fiber connection. These subscribers enjoyed the free fiber upgrade with more perks such as free modem, free installation, no additional monthly fee required, same landline number and no refresh in lock-in period. Over 140,000 PLDT Home subscribers who were migrated from copper to fiber connection were also given a free speed boost of up to 600 Mbps from July to December 2021.

Beyond just delivering the fastest internet speeds, PLDT Home continuously improves its customer experience platforms. In its aim to better serve customers during the pandemic, PLDT Home introduced an online booking appointment accessible through the PLDT Home website (pldthome.com). This new service provided customers the convenience of booking either a virtual or in-store appointment with a PLDT representative in their preferred PLDT sales and service center.

PLDT SmartHome

PLDT Home is strongly committed to fulfilling its subscribers’ digital home lifestyle needs through plans that bundle high-speed internet with “Smart Home” digital ecosystem built on the following pillars: connectivity, entertainment, and peace of mind.

PLDT Home first offered the powerful WiFi Mesh Systems, the Philippines’ first smart home WiFi technology designed to cover the entire home with wireless connectivity, eliminating deadspots and making homes Smart-home ready. Leading its roster of mesh systems are top-of-the-line WiFi 6 solutions, Asus ZenWiFi and TP Link Deco X20. These high-performance systems can deliver more than two times the speed of ordinary routers, can power more than 100 devices simultaneously, and can cover more than 300 square meters with high-speed internet. Specifically for gamers, PLDT also offers the Asus ROG Rapture GT AX11000. Running on WiFi 6 technology as well, the Asus Rapture eliminates lag, latency, unstable ping and screen freezes, enabling users to level up their gameplay performance.

Strengthening its suite of connectivity services, PLDT Home also offers WiFi 5 Mesh systems, including the TP Link Deco M4 and M5. Apart from ensuring strong WiFi connectivity anywhere within the home, these systems power every device within the home with equal internet speeds, regardless of the distance to the main modem. The Deco M4 and M5 also come with Parental Controls, enabling parents to block harmful sites and limit online time – helping keep their kids safer online.

PLDT Home also aims to promote peace of mind and wellness for the whole family, with security as one of the top priorities in each household, therefore offering the home monitoring system, “Fam Cam” in its product line up. PLDT Home also partnered with mWell, the country’s first fully integrated health and wellness app designed to transform health care services for Filipinos. In a timely move to provide peace of mind for Filipinos during the pandemic, PLDT Home has provided subscribers with free virtual consultations, free access to fitness and nutrition programs, and discounts on COVID-19 tests through the mWell app.

For Entertainment, PLDT Home has been providing subscribers with a diverse range of bundled content through its partnerships with global content providers including PCCW’s leading pan-regional OTT video streaming service Viu, HBO’s video-on-demand service HBO Go, Philippines’ pay TV service provider Cignal Digital TV, and with North America's most popular basketball league, NBA, for its premium live game subscription series, "NBA League Pass.” PLDT Home Fiber customers can conveniently subscribe to any of these entertainment services and have the fees charged directly to their PLDT bill. Another important part of PLDT Home

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Entertainment offering is its continuing support to a major international e-sports competition and convention in Southeast Asia, Esports and Gaming Summit, which brings together Filipinos e-sports athletes, fans and enthusiasts.

Home Biz

Despite the challenges of the global health crisis, the country’s small business ecosystem continues to thrive as resilient entrepreneurs make the shift and explore the opportunities of going into digital.

In its commitment to help build and enable this business sector through digital acceleration, PLDT Home Biz introduced bigger, better, and faster digital solutions tailor-fit to the needs of the home-based entrepreneurs. The all-new Home Biz Asenso Fiber Plans are designed with faster internet speeds, free digital solutions from e-commerce partners, seamless unlimited calls to any PLDT landline and to any Smart, Sun or TNT mobile number, and a free CAT 6 PHW as a mobile back-up internet.

In addition to providing connectivity, PLDT Home Biz equips home-based entrepreneurs with e-commerce services for worry-free and safe payment, digital platform, and delivery solutions in partnership with industry leaders PayMaya UnionBank GlobalLinker, LBC Express through SoShop! By LBC, Grab Madiskarteng Boss Club, and Sqanly.

PLDT Home Biz also renewed its strategic partnership with DTI to continue giving home-based entrepreneurs direct access to the latest business trends and learning opportunities through events organized by the department.

These end-to-end services provide all-out support for start-ups and pandemic-hit home businesses, helping them rebuild amidst the ongoing pandemic, further establishing PLDT Home Biz’s stance as the true and dependable partner of micro, small, and medium-sized enterprises (“MSMEs”).

Home Rewards

As a way of giving back to its valued subscribers, PLDT Home launched its improved loyalty program, PLDT Home Rewards. With this new program, subscribers can earn and use Crystals to pay for PLDT and Smart products and services, get bill rebates from Cignal, Maynilad and Easytrip, accumulate raffle entries and instantly avail of exclusive deals and discounts from various partner merchants. 

Powered by the fastest and strongest connections, subscribers get to enjoy better digital experiences at home with more exciting promos and treats through the loyalty program of PLDT Home Rewards.

Rates for home broadband services

Monthly charges for our home fixed broadband services vary depending on the amount of bandwidth, speed, market demand and the competitive landscape.

Corporate Data and ICT

PLDT Enterprise is the preferred digital services partner of the B2B market. As the corporate business unit of the PLDT Group, PLDT Enterprise’s vision is to make a positive impact on every single business by simplifying the complex for various industries. With its wide range of fixed line, wireless, and ICT services, which run on the Philippines’ most extensive fiber optic backbone, cellular network, and data center footprint, PLDT Enterprise delivers solutions that create real value for customer.

Our Fixed Line corporate data solutions cater to the internet, networking and managed services requirements across various enterprise customers small, medium and large.  These include (i) domestic data solutions, comprising managed SD-WAN, the latest wide area networking solution; metro Ethernet, a reliable and high bandwidth wide area network solution; IP-virtual private network, an end-to-end managed IP-based data network solution; Shops.Work, a managed connectivity solution designed for retailers, franchisers and SMEs; Shops.Work Unplugged, a wireless VPN service that powers mobile point-of-sale terminals and off-site bank ATMs, as well as other retail outlets located in remote areas; and Beyond Fiber, our new all-in-one digital solution positioned as the ideal business internet service for enterprise customers; and (ii) international data solutions, comprising iGate, our dedicated internet access solution; international ethernet private line services, a resilient international private networking connectivity solution; and international IP VPN, a fully-managed IP

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solution for data, voice, video and multimedia applications supported over a single IP-based platform.

Meanwhile, our ICT services include data center services, cyber security services, cloud services, managed IT services and various other IT solutions.

In July 2016, ePLDT opened VITRO Makati 2, ePLDT’s first data center to be certified by the Telecommunications Industry Association as a rated 3 facility, and a facility that has been recognized by the global solutions company, NTT Communications, as a Nexcenter-certified data center. VITRO Makati 2 is the Philippines’ biggest data center with 3,600 racks capacity, located in one of Philippines’ premiere business districts. In February 2017, ePLDT opened the first data center in Mindanao to address the growing enterprise demand in that region. Four days after the opening of the Mindanao data center, ePLDT opened VITRO Clark, the first TIA-942 Rated 3 Facility certified data center outside of Metro Manila, which is the first purpose-built data center in the North Philippines. VITRO Clark primarily serves back-up requirements of Manila-based enterprises. The following year, ePLDT opened its second VITRO Data Center in Cebu, which uses up-to-date and globally competitive technologies and features. With this latest addition, ePLDT and its consolidated subsidiaries, and associates and joint ventures (the “ePLDT Group”) has a capacity of about 9,000 racks in 10 locations covering Metro Manila, Subic, Clark, Cebu and Davao, as of December 31, 2021.

ePLDT’s Cyber Security strategy involves four critical elements to provide customers with a holistic, multi-layer protection. It covers the frameworks, intelligence, technology and expertise needed to protect IT infrastructure from evolving threats, malicious software attacks, possible data loss and reputational risks. These components allow us to not only detect and prevent threats with the help of technology and best practices, but even predict and respond to cyber attacks. Through our Security Operations Center, we are able to gather cyber intelligence on potential attacks through in-house threat hunting and global threat feeds of our trusted partners. In 2020, ePLDT was recognized as the first and only Philippine organizational member of global leader in incident response Forum of Incident Response and Security Teams.

We commercially launched the Philippines’ first carrier-grade cloud infrastructure in 2012 and have consistently built partnerships with global cloud brands and invested in expertise for professional services. Through these capabilities and partnerships, we offer a full-suite of cloud solutions to clients such as infrastructure-as-a-service, software-as-a-service, unified communications-as-a-service, contact-center-as-a-service, and disaster recovery-as-a-service.

Rates for Corporate Data and ICT Services

Charges for our corporate data service vary by customer.

Voice Services

Our voice services are delivered through our (i) local exchange service; (ii) international service; and
(iii) domestic service.

Local Exchange Service

Our local exchange service, which consists of our basic voice telephony business, is provided primarily through PLDT. We also provide local exchange services through our subsidiaries.

Rates for Local Exchange Service

Basic monthly charges for our local exchange service vary according to the type of customer (business or residential) and location, with charges for urban customers generally being higher than those for rural/provincial customers.

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International Service

We have been pursuing a number of initiatives to sustain our international service business, including: (i) rationalizing our inbound voice termination rates; (ii) managing unauthorized voice traffic terminating to our network;  (iii)  partnering with Orange S.A. for inbound international long distance (“ILD”) traffic management, and OTT service providers  such as Skype and Viber for outbound ILD services; and (iv) growing international data sales by leveraging PLDT’s sub-sea cable ownership and our subsidiary’s, PLDT Global Corporation (“PLDT Global”), reach.

In addition, PLDT Global is enhancing the presence of PLDT in other international markets by providing high quality communications infrastructure and innovative platforms  to its global network of carriers, corporate customers and distribution partners, enabling it to achieve its desired connectivity, reach and business relevance. With offices in key markets abroad, PLDT Global also delivers a full range of digital consumer and enterprise solutions that serve the evolving needs of Filipinos overseas and global enterprises.

The table below sets forth the net settlement amounts for international calls handled by PLDT, by country, for the years ended December 31, 2021, 2020 and 2019:

	Net Settlement
	2021			2020		2019
	(US Dollars in millions)
France		37			41		0.2
Saudi Arabia		3			6		12
Canada		2			3		4
Belgium		1			1		0.1
United States		1			1		2
United Kingdom		0.4			1		1
Hong Kong		0.4			1		5
Ireland		0.2			0.1		—
Malaysia		0.1			0.2		0.5
Others		(1.1	)		0.7		18.3
Total		44			55		43.1

Rates for international service

Rates for outbound international calls are based on the type of service provided, whether operator-assisted or direct-dialed.  Our rates are quoted in U.S. dollars and are billed in Philippine pesos.  The Philippine peso amounts are determined at the time of billing.  We charge a flat rate of US$0.40 per minute to retail customers for direct-dialed calls, applicable to most destinations at any time on any day of the week.

Domestic Service

Our domestic services are provided primarily through PLDT. This service consists of voice services for calls made by our fixed line customers outside of their local service areas within the Philippines and access charges paid to us by other telecommunications carriers for wireless and fixed line calls carried through our backbone network and/or terminating to our fixed line customers.

Mobile substitution, OTT voice call alternatives and the widespread availability and  growing popularity of alternative, more economical to free non-voice means of communications, such as e-mails, SMS, video conferencing applications and social networking sites, have negatively affected our domestic call volumes.

Rates for domestic service

Rates for domestic calls traditionally were based on the type of service provided, such as whether the call is operator-assisted or direct-dialed. However, PLDT simplified these rates in recent years for calls originating from and terminating to the PLDT fixed line network and for calls terminating to fixed line networks of other local exchange carriers. PLDT also simplified its rates for calls terminating to mobile subscribers.

In addition, PLDT bundles the free PLDT-to-PLDT calls in some promotions and product/service launchings in order to stimulate fixed line usage.

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Miscellaneous

Miscellaneous services include the provision of facilities management, rental fees, and other services which are conducted through our wholly-owned subsidiary, ePLDT, which, together with its subsidiaries, is a broad-based integrated information and communications technology company.

We sell and distribute our products and services through the following channels:

Distributors and Dealers

We sell our fixed line and mobile services primarily through our regional and key account partners who generally have their own direct sales forces and retail networks.  As at December 31, 2021, we had 54 field sales distribution partners and 113 key account partners for fixed line services, 18 exclusive regional and 109 exclusive provincial distributors for wireless, and 111 key account partners for fixed line and wireless, 24 of whom are exclusive to us.  A number of our trade partners are likewise major distributors of smartphones and devices that are retailed in their owned telecommunications outlets.  Account managers from our sales force manage the distribution network and regularly update these business partners on upcoming marketing strategies, promotional campaigns and new products.  Our distribution network encompasses approximately over one million retailers.  These retailers must be affiliated with one of Smart’s authorized regional and provincial distributors.  With the prepaid reloading distribution network extended to corner store and individual retailer levels and minimum reloading denominations as low as Php5, Smart’s prepaid service has become even more affordable and accessible to subscribers.  

Retail Stores

Retail stores are the company-owned PLDT Sales and Service Centers with 148 branches and Smart Stores with 128 branches as at December 31, 2021 that showcase our Company’s products and services to customers nationwide.  Our frontlines enable unique digital experiences through daily customer interaction.  We offer enticing products and services based on the customer needs.  We also cater to customers’ after-sales requests and inquiries.  Our stores also accept payment for bills, postpaid and prepaid sales.

Satellite branches, with a total of 25 stores nationwide as at December 31, 2021, are partner-owned Smart branded stores operating as auxiliary touchpoints for converged wired and wireless sales, aftersales and bills payment.

Enterprise Business

Our Enterprise Business Group is responsible for the sales and marketing of Smart products, corporate data and ICT products, solutions and services to corporate clients.  This includes Smart and Sun postpaid GSM and broadband services that may be bundled with mobile phones, tablets and other relevant devices.  Our enterprise solutions portfolio includes Machine to Machine, IoT and platform solutions, such as Bizload and Messaging Suite, an application-to-person (A2P) messaging platform. Wireless Enterprise also partners with various software, platform and application vendors that cater to a wide array of industry-specific requirements.

Telesales

As part of our telesales, we reach out to our subscribers to offer the latest services, solutions and promotions. Our telesales agents, in partnership with different contact center providers, enable new connect application and existing subscribers to avail value-added solutions, upgrade and migrate their fixed line and wireless accounts, as well as recontract their expiring accounts over the phone. All orders are delivered directly to customer’s address for devices and handsets.

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Online sales

Customers can conveniently access our services through our PLDT Home website and Smart Online Store, an end-to-end portal, where they can conduct various online transactions, including selecting fiber broadband or mobile subscription plans, avail of a wide array of the latest 5G and 4G mobile handsets, renewing or upgrading an existing plan, purchasing prepaid SIM and devices, or subscribing for e-load and various add-on promotions. All orders are delivered directly to the customers’ addresses.

Smart’s Gigalife app is a mobile application which allows users to link and manage multiple prepaid and postpaid accounts. With the Gigalife app, users can buy load, pay bills, subscribe to promotions, and earn Gigapoints. By offering various marketing promotions and events within the app, the Gigalife app has gained a lot of traction.  Other online channels include My Smart website, Smart Chatbot, and Paywall which allow our mobile subscribers to avail of add-on promotions.

For e-Commerce,  the PLDT and Smart flagship stores are now available in Lazada and Shopee. Our presence on these e-commerce platforms will further enhance the accessibility of our products to customers.

Postpaid Field Sales (“PFS”)

PFS was established to address postpaid markets belonging to corporate individual and capable communities. The channel intends to strategically regain the wireless postpaid stronghold by identifying and approaching customer segments that do not frequent the store outlets, those upgrading from prepaid, and most importantly, those who would be using postpaid for the first time. With 58 active partners, PFS is expected to continue growing and fortifying our nationwide operations.

Others

Our other business in 2021 consisted primarily of investments in digital platforms and other technologies, made through our investment companies, PCEV, PLDT Global Investment Holdings, Inc. (“PGIH”), PLDT Global Investments Corporation (“PGIC”), and PLDT Digital Investments Pte. Ltd. (“PLDT Digital”) and its subsidiaries.

PayMaya

On June 11, 2021, PCEV, KKR, Tencent, and IFC Financial Institutions Growth Fund, a fund managed by IFC AMC, entered into a new subscription agreement with VIH to subscribe to US$120.75 million Class B Convertible Preference Shares of VIH. VIH will use the funds to support PayMaya’s rapid growth as it pursues its plan to accelerate digital and financial inclusion in the Philippines which will enable the wider Filipino population to participate in the digital economy.  VIH is now leveraging this unique ecosystem to expand into digital banking for the next phase of its mission to improve financial inclusion in the Philippines.

PayMaya is the only end-to-end digital payment ecosystem enabler in the Philippines with platforms and services that cut across consumers and enterprises. Aside from providing payment services for the Philippines’ largest e-commerce platforms and everyday merchants, including food, retail and gas, PayMaya also provides digital payment and disbursement services to national government agencies and local government units. 

As at December 31, 2021, PayMaya has over 44 million registered users nationwide across its consumer platforms.  Through its consumer e-wallet app, PayMaya provides one of the fastest and most convenient means for a Filipino to own a bank account.  Its Smart Padala by PayMaya digital remittance network has over 63,000 partner agent touchpoints nationwide that serve as last-mile digital financial hubs in communities, providing the unbanked and underserved with access to financial services.  

In September 2021, the BSP granted a digital bank license to establish Maya Bank.  Maya Bank’s primary focus will be the largely unbanked and underserved population of consumers and MSMEs.  Maya Bank will provide mobile-first digital banking services on the back of PayMaya's widely trusted e-wallet and proven technology platforms. It will maximize PayMaya's extensive Smart Padala agent network and leading merchant payments processing business to serve more customers and grow the digital financial ecosystem.

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CAPITAL EXPENDITURES AND DIVESTITURES

See Item 5. “Operating and Financial Review and Prospects – Capital Expenditure Plans” for capital expenditures planned for 2022 and Item 5. “Operating and Financial Review and Prospects – Liquidity and Capital Resources” for information concerning our principal capital expenditures for the years ended December 31, 2019, 2020 and 2021.  

On December 19, 2019, the decrease in PCEV’s par value of common stock and authorized capital stock was approved by the Philippine SEC resulting in a partial return of capital to Smart and PCEV’s minority shareholders in proportion to their respective shareholdings, or a decrease in par value of Php6,825 million and Php4 million, respectively.

On January 30, 2020 and July 31, 2020, Rocket Internet redeemed 13.5 million shares and 1.6 million shares, respectively.

On June 19, 2020, iflix entered into an asset purchase agreement with Tencent group relating to the sale of its major assets including trademark, content, platform and resources for a total consideration of US$22.5 million.  

In September 2020, PLDT Online sold 1.4 million Rocket Internet shares for an aggregate amount of €26 million, or Php1,508 million, reducing its equity ownership in Rocket Internet from 1.4% to 0.4%.

In October 2020, PLDT Online sold 0.5 million Rocket Internet shares for an aggregate amount of €9 million, or Php508 million, resulting in the full divestment of its investment in Rocket Internet.

On December 31, 2020, the Convertible Note issued to PCEV was converted in full into 7,891,968 Class A2 preferred shares at US$1.3685 per share.  

On October 25, 2021, PLDT Capital sold all of its PHUN common shares for an aggregate amount of US$9.5 million, or Php482 million, resulting in a full divestment of its investment in Phunware.

ORGANIZATION

See Exhibit 8. “List of Subsidiaries” for a listing of PLDT’s significant subsidiaries, including name, country of incorporation, proportion of ownership interests and, where different, proportion of voting power held.  

TECHNOLOGY INFRASTRUCTURE

Wireless Network Infrastructure

Mobile

Our mobile network supports 2G, 3G and 4G, as well as 5G, which we are rolling out in key areas.  We continue to expand our LTE capacity and roll out more physical sites to widen our coverage in order to sustain the growing demand for our services. As at December 31, 2021, Smart had a total of 38,600 4G/LTE base stations and 16,900 3G base stations throughout the Philippines.  We believe our mobile broadband covers over 96% of the population and is present in over 96% of the country’s cities and municipalities, as at December 31, 2021.

Fixed wireless services are also offered to residential and corporate clients through our high capacity mobile network. This complements our fibered fixed network as our fixed wireless services are able to reach areas that are not currently serviced through wired connections. To support the delivery of this huge amount of traffic, the backhaul of our cell sites are being migrated to fiber. To date, about two-thirds of our cell sites are connected through fiber.

Moreover, in tangent with its ongoing LTE-Advanced roll-out, Smart is deploying 5G-capable equipment.  Smart started rolling out 5G and upgrading the core and transport elements of its network, including upgrading the backhaul to support 5G speed. Smart has completed 5G pilots and has pioneered 5G cities in Makati and Pampanga in 2018, and a 5G lifestyle hub with the Araneta Group, a 5G Campus with Ateneo de Manila University, and the first 5G Stadium at New Clark City during the 30th Southeast Asian Games in 2019.

To support our 5G capabilities, our data core network is being transformed into a virtualized network to instill it with new capabilities, such as automation, network slicing and improved resiliency, while supporting massive

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data traffic growth.  As at December 31, 2021, we have completed 7,200 5G base stations and target to roll out approximately 145 sites in 2022.

Furthermore, we continue to evolve our voice core network through our ongoing transformation activities.  This will endow us with additional capabilities, such as “Voice over WiFi”, which allows users to make and receive voice calls in WiFi environments, and Voice over LTE, which provides high quality voice calls and faster call setup times.

Fixed Line Network Infrastructure

Domestic

PLDT’s fixed line infrastructure is comprised of the latest technologies, delivering voice, broadband and ICT services to home and corporate customers.  We deliver voice and high-speed broadband to each home through our all-fiber network, namely FTTH, and through a hybrid copper network, namely the very high-speed digital subscriber line (“VVDSL”), both of which are IP-based platforms.  At present, FTTH is capable of delivering 2.5 Gbps and up to 10 Gbps, while VVDSL is capable of delivering up to 100 Mbps through its copper network.  We have deployed both FTTH and VVDSL in all cities and in the majority of municipalities in the Philippines.  This network provides broadband availability to approximately 13.9 million homes passed, as at December 31, 2021.

PLDT provides enterprise and ICT services through its carrier Ethernet network (“CEN”). Carrier ethernet service is a global standard for secure, scalable, resilient, cost effective, and high bandwidth point-to-point or multi-point connectivity using the simple and ubiquitous Ethernet technology delivered through PLDT’s MEF-certified CEN. PLDT’s CEN is based on Metro Ethernet Forum (“MEF”) 3.0, the latest standardized, carrier-class service and network. This highly reliable and resilient system provides high capacity and high-speed VPN services for all corporate customers.  It supports enterprise requirements such as data storage, headquarter to branch connectivity, headquarter to disaster recovery site connectivity, cloud services and backhaul for mobile/LTE services.  PLDT also uses the “Software Defined Wide Area Network” to deliver such enterprise services across different service providers and over the internet in a secured manner.

We likewise have an IP backbone network (“IPBB”), composed of high-capacity, high-performance core and edge routers, with capacities of up to 100Gbps per port in key exchanges that provide IP connectivity to the different network elements built for PLDT, Smart and other subsidiaries and affiliates.  It serves as a common and highly resilient IP transport platform for all of our IP-based services.  In 2020, the IPBB underwent a transformation project called the “Transport Network Transformation Project” (“TNT Project”), which significantly increased the network’s capacity and upgraded its routing technology to the latest technology, including segment routing and software defined network (“SDN”) technology.

All our networks are connected nationwide through PLDT’s nationwide fiber backbone, the “Domestic Fiber Optic Network” (“DFON”).  DFON is comprised of transport nodes connected by terrestrial and submarine cable links configured in 11 loops and two appendages extending to Palawan and Iligan.  The DFON loops provide self-healing and alternative segment route protection for added resiliency against single and multiple fiber breaks along the different segments.  The DFON utilizes dense wavelength division multiplexing technology, which has a 200/300 Gbps capacity per channel, giving it greater flexibility for capacity and expansion. The DFON has a capacity of 19.2 Tbps per fiber pair. The DFON network also connects three of PLDT’s international cable landing stations.  Following the implementation of the TNT Project, the DFON network gained added resiliency and network reliability as we implemented an automatic fail capability into the DFON network to automatically transfer traffic to other redundancy links in the event the DFON experiences downtime.  The DFON is complemented by a terrestrial microwave backbone network to deliver services to remote areas unreachable by the fixed terrestrial transport network.

Both the DFON and IPBB serve as the common high bandwidth fiber optic cable-based backbone for the PLDT Group.  DFON is part of the 743,700 total fiber kilometers of the PLDT Group, as at December 31, 2021.  These networks are supported by SDN technology, which simplifies and automates network provisioning and operations.

International

PLDT’s international network was designed and built to support IP-based international services, including voice, messaging, international enterprise solutions, and the biggest use of international network resources today, the Internet services of the PLDT Group. The international network also supports in part requirements of the international retail business run by PLDT Global in various locations in Asia, Europe and the United States.

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For voice services, PLDT operates two IP voice gateways.  As at December 31, 2021, PLDT’s facilities allow the exchange of traffic with 82 foreign carriers from 35 countries and can reach almost a thousand foreign destinations (including fixed and wireless network destination “breakouts”, or specific areas within a country) worldwide.

As at December 31, 2021, the Company has five international internet gateways to fortify PLDT Group’s infrastructure for internet and IP-based services, as well as connections of our fixed and wireless networks to content and internet services available from, and businesses connected to, the global internet.  All these gateways employ high capacity, high performance routers, and together with ancillary facilities (such as security against network/service attacks), they provide premium and differentiated internet and/or IP services to all types of customers ranging from ordinary broadband to high bandwidth internet requirements of corporate customers, knowledge processing solution providers, internet service providers (“ISPs”) and even other service providers.  As at December 31, 2021, PLDT also operates six offshore/ forward gateway routers in Hong Kong, Singapore, United States and Japan to support optimized and direct access to content providers and businesses connected to the internet in Asia as well as the continental U.S which we expect to result in faster internet speed.  Latest offshore gateway routers were established in Japan in 2020 and Singapore in 2021 with 100 Gbps high capacity interface bandwidth.

To localize international internet content, PLDT employs local transparent caching network, and additionally, a network of content provider/distributor-supplied local caching servers at key locations.  With these facilities, high demand contents from popular content and content delivery network providers are available locally and are delivered to PLDT customers.

PLDT operates the Philippines’ most extensive international submarine cable network.  As at December 31, 2021, PLDT maintains and operates three international cable landing stations in La Union and Batangas for international cables coming from the West Philippine Sea, and in Daet in the east for international cables coming from the Pacific Ocean.  These international cable stations are connected to our three international transmission maintenance centers, including direct cable station to cable station interconnection, through an advance terrestrial fiber mesh network (north, south and east Luzon systems).

Connecting the country to the rest of the world via PLDT’s international cable stations are submarine cable systems in which PLDT had invested in and/or acquired capacities.  The table below shows the submarine cable systems in which PLDT has interests, which terminate in the Philippines or connect with other submarine cable systems from the Philippines or other countries or territories:

Cable System	Countries Being Linked
Asia-Pacific Cable Network 2, or APCN2	Philippines, Hong Kong, Japan, South Korea, Malaysia, Singapore, China and Taiwan
Southeast Asia-Middle East-Western Europe No. 3 Cable, or SEA-ME-WE-3	Japan, South Korea, China, Taiwan, Hong Kong, Macau, Philippines, Vietnam, Brunei, Malaysia, Singapore, Indonesia, Australia, Thailand, Myanmar, Sri Lanka, India, Pakistan, United Arab Emirates, Oman, Djibouti, Saudi Arabia, Egypt, Cyprus, Turkey, Greece, Italy, Morocco, Portugal, France, UK, Belgium and Germany
Fiber-optic Loop Around the Globe, or FLAG, Cable	Japan, South Korea, China, Hong Kong, Malaysia, Thailand, India, United Arab Emirates, Saudi Arabia, Egypt, Italy, Spain and UK
Southern Cross Cable	U.S. Mainland, Hawaii, Fiji, Australia and New Zealand
East Asia Crossing, or EAC Cable	Japan, Hong Kong, South Korea, Taiwan, Singapore and the Philippines
Pacific Crossing-1, or PC1, Japan-U.S. Cable Network (JUCN), TGN-Pacific, Unity, FASTER	Japan and the U.S.
Asia-America Gateway, or AAG, Cable Network	Malaysia, Singapore, Thailand, Vietnam, Brunei, Hong Kong, Philippines, Guam, Hawaii and the U.S. Mainland
Asia Submarine-cable Express, or ASE	Philippines, Japan, Singapore, Malaysia and Hong Kong
TGN-Intra Asia	Hong Kong and Japan
Asia Africa Europe-1, or AAE-1 Cable	Hong Kong, Vietnam, Cambodia, Thailand, Malaysia, Singapore, Myanmar, India, Pakistan, Oman, UAE, Qatar, Yemen, Djibouti, Saudi Arabia, Egypt, Greece, Italy and France
TEA2 (Terrestrial)	Hong Kong and Sweden

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PLDT continues to work with major Asian carriers and OTT players for the implementation of the new Jupiter cable system to support the expected new fixed and mobile services requirements. Jupiter, the completion of which has been impacted by COVID-19- related restrictions, is estimated to be completed and ready for service by the second quarter of 2022.

Following completion of marine surveys, Asia Direct Cable (“ADC”) cable installation is in progress. PLDT will own fiber pairs in ADC, which is expected to be ready for service within 2023.

On August 11, 2021, PLDT signed the APRICOT Construction & Maintenance Agreement with four other parties that have formed a consortium. PLDT is investing US$80 million in the APRICOT cable system with acquisition on fiber pair basis. This 12,000-kilometer long cable system will have design capacity of more than 190Tbps connecting the Philippines to Japan, Singapore, Indonesia, Taiwan and Guam. New cable landing stations in Luzon and Mindanao will be built as part of this submarine cable system to enhance network resiliency. With the cable to be routed via the eastern coast of the Philippines, it will also increase the submarine cable route diversity in the Asia-Pacific region.

PLDT is also ready to invest in a new Philippines – US cable system to own fiber pairs and support hyperscale, enterprise and internet requirements.

PLDT’s international automatic optical transport switching system and carrier ethernet network continues to provide effective redundancy and continuity of service to Hong Kong, Japan, Singapore and the U.S. Mainland for premium enterprise clients.  Additional dedicated submarine cable circuits were provisioned, and capacity of nodes upgraded, to support growing business requirements.

CYBER SECURITY

The PLDT Group continues to make investments in cyber security measures.  Aside from focusing its efforts and resources in protecting our most crucial digital information and cyber assets, the PLDT Group’s cyber security investments were also directed to acquire technology, boost capability, and expand partnerships to increase the security of the Philippine cyberspace, combat online child abuse and sexual exploitation, and other worthwhile endeavors.  The following are our accomplishments from our continued efforts to optimize our cyber security operations framework:

• We have deployed an endpoint security to all corporate workstations to detect and prevent attacks.  This capability helped detect thousands of high-risk endpoint activities.  The endpoint security solution also enabled the operations team to quickly respond to and clean-up endpoints by blocking, remotely deleting and/or putting into quarantine malicious file detections.  Additional efforts related to server and workstation security include, centralized authentication, simplified account management while trying to achieve an endpoint “Zero Trust” approach to complement our NAC implementation.  These clean-up efforts were executed as part of our response and remediation process;

• Our fully operational 24x7 Cyber Security Incident and Response Team (“CSIRT”) enables the detection of, and response to, security incidents within less than one minute, on average.  Our membership in the Forum of Incident Response and Security Teams (“FIRST”), a globally recognized leader in cyber security incident response, provides us with access to best practices and tools, and trusted communication with other member incident response teams;

• We continue to prevent attacks on our corporate websites through the use of our web application firewall that has protected our corporate websites from more than 10.4 million malicious attacks in 2021;

• We adopted an automated the review of cyber security protection for applications, databases and operating system access and entitlements.  This capability supports both internal and external annual SOX-audit activities;

• We continue to block billions of attempts to access phishing, scamming and malware-distribution sites using our secure DNS solution which benefits both our corporate employees as well as our customers;

• We have developed a Child Protection Platform that blocked thousands of URLs that contain CSAEM;

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• We have included more than 120 million indicators of compromise in our threat intelligent database, which is now being used for real-time threat correlation;

• We continue to improve our anti-distributed denial of service (“DDoS”) strategy to cover all layers of defenses (e.g. external, edge, internal, and people/process) in response to a significant increase in the number and frequency of DDoS attacks;

• We continued our efforts to expand our security visibility by enrolling active IP-based assets to our Security Operations Center;

• We have established corporate governance processes around the procurement and deployment of Internet of Things (“IoT”) and hardening of customer-premises equipment through vulnerability assessment and penetration testing;

• For application and data security, we have an automated data visibility across the organization and across platforms and operationalized monitoring of sensitive data assets, alert threats and remediation, which are in compliance with Local and Global Data Protection Laws and Regulations;

• In terms of database security, we have achieved full visibility of activities in all critical and sensitive databases to define the details of each transaction while being able to identify and/or block malicious activities/queries;

• For cloud and web security, we continue to boost our efforts to achieve full visibility of cloud assets and activities, secure shadow IT, obtain the ability to discover malicious activities through UEBA, and secure critical and sensitive data in the cloud;

• To further improve our investigation and response capabilities, we have a real time dashboard and improved reporting and visualization, consolidated and standardized event logs from managed systems and devices across the network, sufficient data retention enabling backtracking and pattern visualization, while enhancing event processing capabilities for security incident investigations;

• To improve our security infrastructure and application monitoring system, we utilize real-time visibility and alerting of security solutions' performance and utilization, automated pro-active monitoring to prevent unplanned disruptions, and ensuring higher availability/uptime of all CSOG security solutions;

• We conducted our regular cyber crisis simulation exercise for 2021 entitled, “Cyber D-Day v2.0” with a focus placed on various ransomware scenarios.  The simulation exercise puts CSOG commitments and investments to the test by subjecting participants to a non-live, “peace-time” scenario.  The exercise was deemed successful with the proactive engagement and alignment of CSOG, IT, and Network in executing the necessary incident response process along with suitable actions or interventions needed to recover from a possible ransomware attack incident;

• To strengthen our thought leadership, CSOG offered the Cyber Warrior Course through an internship program, in partnership with the Ateneo De Manila University and the Asia Pacific College.  Through the Cyber Warrior Course, qualified students are given specialized cyber security training that allows them to receive practical knowledge and skills related to cyber security while also giving them an overview of the end-to-end operations of CSOG and integrating the CSOG mindset and values;

• To better safeguard our subscriber, including the children, and in line with the Company’s Child Safeguarding Policy to ensure the online protection of children, a Child Protection Platform solution was developed as part of the multi-billion-peso investment on cyber security.  Embedded into our 24/7 cyber security operations, this solution allows the continued detection and prevention of access to CSAEM within our network, both on the domain and content level.  This solution also utilizes strategic alliances with intelligence units and dedicated organizations through different means such as the integration of the Internet Watch Foundation Automation Tool and the application of information from the Canadian Centre for Child Protection for the blocking of CSAEM; and

• We continue to vigorously conduct weekly cyber security awareness campaigns for our employees and mandatory annual e-learning course to all employees.  We continue to see persistent phishing campaigns targeting our customers, the majority of which are attempts to gain Microsoft Office 365 credentials.  We perform periodic phishing simulations to assess the awareness of our employees on social engineering schemes.  Employees who fall victim to the phishing test were given cyber security

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awareness training.  These periodic exercises resulted in a heightened awareness among employees of phishing and scamming tactics.  Bottom-up engagement of our employees is one of our key success factors for an effective cyber security program execution.

SEASONALITY

Our business is not subject to any material seasonal fluctuations.

INTERCONNECTION AGREEMENTS

Since the issuance of Executive Order, or E.O., No. 59 in 1993, which requires the non-discriminatory interconnection of Philippine carriers’ networks, we have entered into bilateral interconnection arrangements with other Philippine fixed line and mobile carriers.  See Item 1. “Description of Business – Licenses and Regulations – Regulatory Tariffs” for further discussion.

As at December 31, 2021, PLDT has direct interconnection agreements with 59 foreign carriers from 32 countries.  The average international termination rate for calls to PLDT was approximately US$0.1100 per minute in 2021.  PLDT also carries international calls terminating at Smart and Sun networks where they have no direct interconnections.

In compliance with NTC Memoradum Circular No. 03-06-2019 or the Rules and Regulations Implementing Republic Act No. 11202, otherwise known as the “Mobile Number Portability Act”, effective January 2, 2020, the interconnection rate for mobile was reduced from Php0.50 per minute to Php0.00 per minute for domestic calls and from Php0.05 per message to Php0.00 per message for SMS.

LICENSES AND REGULATIONS

Licenses

The table below provides the expiry dates of franchises for each company indicated:

Company	Expiry Date of Franchises
PLDT	November 28, 2028
Clarktel	June 30, 2024
Smart	May 19, 2042
SBI	November 11, 2022
DMPI	April 1, 2028
CURE(1)	May 26, 2026

⁽¹⁾ In the case of CURE, PLDT has agreed to divest the CURE spectrum as a part of the NTC decision with respect to PLDT’s acquisition of a controlling interest in Digitel.

A franchise holder is required to obtain operating authority from the NTC to provide specific telecommunications services authorized under its franchise.  These approvals may take the form of a CPCN, or, while an application for a CPCN is pending, a provisional authority to operate.  Provisional authorities are typically granted for a period of 18 months.  The Philippine Revised Administrative Code of 1987 provides that if the grantee of a license or permit, such as a CPCN or provisional authority, has made timely and sufficient application for the extension thereof, the existing CPCN or provisional authority will not expire until the application is finally decided upon by the administrative agency concerned.

The following table sets forth the frequency bands of our LTE, broadband wireless access, code-division multiple access, GSM, 3G, HSPA and 5G networks held and used by our wireless service subsidiaries:

Assignees	Service/Technology	Bands (in MHz)	Bandwidth Assignment
Smart	3G-WCDMA	850	10 MHz x 2
	GSM 900	900	7.5 MHz x 2
	GSM 1800	1800	20 MHz x 2
	3G-WCDMA	2100	15 MHz x 2
DMPI	CDMA 2000	1900	2 channels of 1.25 MHz of bandwidth
	3G-WCDMA	2100	10 MHz x 2
	TD-LTE	2500	15 MHz
	TD-LTE	3400	30 MHz
	GSM 1800	1800	17.5 MHz x 2
SBI	TD-LTE	2500	20 MHz
	TD-LTE	3400	30 MHz
PDSI	TD-LTE	2300	30 MHz

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On May 27, 2016, the NTC approved the frequency co-use arrangement between Smart and Globe of various frequencies under LTE 700, GSM/3G 900, GSM/LTE 1800, BWA/LTE 2300, and LTE 2500 assigned to Bell Telecommunications Philippines, Inc.

As a condition of our acquisition of a controlling interest in Digitel, we have agreed with the NTC to divest the congressional franchise, spectrum and related permits held by CURE following the migration of CURE’s Red Mobile subscriber base to Smart.  

Material Effects of Regulation on our Business

Pursuant to E.O. No. 109, operators of IGFs and mobile telephone operators are required to install a minimum number of local exchange lines. Of these new lines, operators are required to install at least one rural exchange line for every ten urban exchange lines installed. Smart and PCEV were required to install 700,000 and 400,000 rural lines, respectively, and each received a certificate of compliance from the NTC in 1999.

PLDT, ClarkTel, Smart, DMPI and SBI are required to pay various permit, license, regulatory and supervision fees to the NTC. PLDT was previously engaged in disputes with the NTC over certain assessed fees.

The Philippine Congress has passed laws and the Philippine Government and certain Government agencies have issued a number of directives that regulate the manner in which we conduct our business, including:

• Republic Act No. 9775, or the Anti-Child Pornography Act of 2009, and its implementing rules and regulations, provide, among others, that ISPs shall: (a) notify the Philippine National Police or the National Bureau of Investigation within seven days from obtaining facts and circumstances that any form of child pornography is being committed using its server or facility and preserve such evidence for purposes of investigation and prosecution by relevant authorities; and (b) install available technology, programs or software to ensure that access to or transmittal of any form of child pornography will be blocked or filtered.  PLDT and Smart, together with other ISPs, are currently in discussion with the Department of Justice, NTC and other stakeholders on how to implement conflicting provisions in the law which require mandatory filtering of child pornography by the ISPs while also prohibiting the ISPs from monitoring its users and content.  In 2020, several bills were filed seeking to amend the Anti-Child Pornography Act of 2009 to cover and prohibit all forms of online sexual exploitation of children. The bill also seeks to define the duties and responsibilities of internet intermediaries, including internet service providers, and prescribes rules for compliance thereof. To date, the Senate version of the bill has been approved but the House of Representatives’ version of the bill is pending approval at the plenary.

• On July 23, 2009, the NTC issued Memorandum Circular No. 5-07-2009 which amended the mode of billing from per minute to per pulse such that the maximum units of billing shall be 6 seconds per pulse.  The NTC ruled that Smart violated the Memo Circular by not implementing pulse billing as its default billing scheme.  On appeal, the CA partially ruled in favor of SMART but ruled that the NTC has the power to regulate rates under all circumstances. This has been questioned by Smart on the basis that the NTC’s residual power to regulate rates may be exercised only when ruinous competition results, when monopoly, cartel, or combination in restraint of free competition exists, or when rates are distorted or unable to function freely and the public is adversely affected.  The case is currently pending in the Supreme Court, following a partial appeal by SMART.

• On July 15, 2011, the NTC issued Memorandum Order No. 07-07-2011 requiring broadband service providers to specify the minimum broadband/internet connection speed and service reliability and service rates in their offers to customers in their advertisements, flyers, brochures, service agreements and service level agreements.  The memorandum order prescribed a formula for computing service reliability and set the minimum service reliability at 80%.  On August 13, 2015, the NTC issued Memorandum Circular No. 07-08-2015, which set out the rules for measuring fixed broadband and internet access service, including guidelines for testing broadband and internet speed.  The memorandum circular also sets the minimum broadband speed at 256 kbps and provides additional guidelines on information required to be disclosed to customers of broadband providers or ISPs.  On December 13, 2016, the NTC issued Memorandum Order No. 10-12-2016, which set out the rules for measuring mobile broadband and internet access service, including guidelines for testing mobile broadband and internet speed.

• On October 27, 2017, the NTC issued Memorandum Order No. 10-10-2017, which relates to the migration of all existing seven-digit telephone numbers to eight-digit telephone numbers for local telephone service within the “02” local exchange area.  Under the memorandum order, PTEs were required to conduct a media campaign three months prior to the start of migration and, for a period

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of three months after the migration, to advise their customers through recorded announcements on the use of the new exchange codes and PTE identifiers. On October 6, 2019, the migration was fully implemented.

• On December 20, 2017, NTC, DICT and Department of Trade and Industry (“DTI”) issued the Joint Memorandum Circular No. 05-12-2017, extending the validity of all prepaid load to one year from the date of the latest top-up. Prepaid loads purchased for promotions and bucket of services with a specific period of use duly approved by the DTI and/or NTC are excluded from the mandatory one-year validity period.

• On May 25, 2018, President Rodrigo Duterte issued Executive Order No. 56, which institutionalized the Emergency 911 Hotline as the nationwide emergency answering point and replaced Patrol 117.  The executive order provides, among others, that all calls made to the Emergency 911 Hotline shall be free of any charges.  PLDT and Smart have complied with the executive order and, accordingly, PLDT and Smart subscribers can now call the Emergency 911 Hotline for free.

• On August 15, 2018, the National Electrification Administration (“NEA”), through Memorandum No. 2018-055, set the standard pole rental rate of electric cooperatives at Php420 per cable position per pole per annum.  The memorandum also prescribes a standard joint pole agreement, whereby any change or addition thereto are required to be fair to both parties and should eventually benefit the member-consumer-owners of the relevant electric cooperative.

• On December 14, 2018, the DICT issued Memorandum Order No. 04, series of 2018, which directed (a) PTEs and/or wireless service providers who offer customers mobile phones and devices, free of charge or at a subsidized cost, in exchange for an agreed fixed lock-in period to provide their customers convenient sites, facilities and processes to unlock the mobile phones and devices of customers who wish to change between compatible wireless service providers, provided that such customers must have completed the applicable lock-in periods and have no outstanding obligations under their subscription agreement and (b) the NTC having issued rules and regulations to implement the provisions of the order. Pursuant to such authority, on May 31, 2019, the NTC issued Memorandum Circular No 01-05-2019, which set out the rules and regulations for the unlocking of mobile phones and devices of users after the applicable lock-in period and provided that (i) in the case of a postpaid customer, such customer must have complied with the terms and conditions of the subscription agreement and (ii) in the case of a prepaid customer, such customer must have complied with usage requirements or the agreed terms and conditions.

• On February 8, 2019, RA No. 11202 or the MNP Act was enacted into law.  The Implementing Rules and Regulations (“IRR”) of the MNP Act or NTC MC No. 03-06-2019 was issued on June 11, 2019.  Through the MNP Act and its IRR, qualified customers can retain their mobile numbers when they move from one mobile service provider (“MSP”) to another, or change the type of subscription from postpaid to prepaid or vice versa.  MNP is completely free of charge.

The MNP IRR mandates the creation of a Mobile Number Portability Service Provider (“MNPSP”) that will provide mobile number porting services for the MSPs.  The MSPs shall equally share in the capital expenditures for the software, hardware and other facilities required by the MNPSP.  Operating and maintenance costs of the MNPSP shall be agreed upon by the MSPs and the MNPSP.  In compliance with the IRR, Smart, Globe and Dito established in 2019 a joint venture company, TCI, to provide number porting services and facilitate the expeditious porting of mobile numbers.

Since the commercial launch of MNP on September 30, 2021, subscribers can now avail of MNP services.

• On July 29, 2019, the Department of Interior and Local Government (“DILG”), issued Memorandum Circular No. 2019-121, enjoining local officials to exercise their powers to reclaim and clear public roads which are being used for private purposes. As a consequence, many PLDT poles, including cables and cabinets, were required to be removed or relocated and are currently being removed or relocated.

• On July 17, 2019, the Civil Service Commission (“CSC”), Anti-Red Tap Authority (“ARTA”), and DTI issued Joint Memorandum Circular No. 2019-001, series of 2019, or the implementing rules and regulations of Republic Act No. 11032, otherwise known as the “Ease of Doing Business and Efficient Government Service Delivery Act of 2018”. Pursuant to the law, the memorandum circular directed all agencies which provide Government service to undertake compliance cost analysis, conduct time and motion studies, undergo evaluation and improvement of all their Government services, and reengineer the same, if deemed necessary, to reduce bureaucratic red tape and processing time, and to promote

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efficiency and simplicity of process.  In particular, Section 15 of the Ease of Doing Business provides that the processing and approval or licenses, clearances, permits, certifications or authorizations for the installation and operation of telecommunication, broadcast towers, facilities, equipment and service shall be a total of seven (7) working days for those issued by the Local Government Agencies. Further, Section 10 of the same Act provides that if the granting authority fails to approve or disapprove an application for a license, clearance, permit, certification or authorization within the prescribed processing time, said application shall be deemed approved provided that all documents are complete, and all fees or charges have been paid.

• On May 24, 2019, the DICT issued the rules on the accelerated roll-out of common towers to ensure more access to cost-efficient information and communications technology infrastructure and enable the building or converting of at least 2,500 common towers in (a) identified DICT-owned properties; (b) other Government agencies’ properties; and (c) hard-to-access areas identified by telecommunication operators. The rules provide, among others, that: (i) MNOs which voluntarily offer to share its existing towers shall be permitted to build passive infrastructure in Government properties under such terms as may be permitted by law and, for such purpose, each existing tower to be voluntarily shared by an MNO shall entitle such MNO to select an available Government property where it would place a common tower built by them or by its selected independent tower company, or ITC, which must not be a related party of an MNO; (ii) an ITC shall be required to lease its telecommunications towers, including its associate maintenance services, to all access seekers for a specified lease term to be mutually agreed between the ITC and the telecommunications operator; and (iii) telecommunications towers built after the issuance of the rules shall be subject to the following terms: (1) no new telecommunication tower shall be built or constructed within a proximity radius of 150 meters from an existing/planned telecommunication common tower in an urban area, except in high-density areas like Makati, Ortigas and Bonifacio Global City, or 1,000 meters of an existing/planner telecommunication common tower in a rural area, (2) when presently existing towers built by MNOs and those built by the ITC can no longer accommodate additional equipment and there is demand for additional capacity, (3) new technologies, such as 5G, require telecommunications structures to be within a proximity radius of less than 150 meters or 1,000 meters of each other, and (4) the proximity rule shall not be applied to special telecommunication structures such as street lamps, electric poles, small cell sites, cell sites on wheels and camouflaged towers.

On May 29, 2020, the DICT issued Department Circular No. 008, which provides for the policy guidelines on the co-location and sharing of passive telecommunication tower infrastructure (“PTTIs”) for macro cell sites. The establishment of the policy is intended to, among others, ensure universal access to quality, affordable, reliable and secure ICT services; promote the development and widespread use of emerging ICT; foster and accelerate the convergence of ICT facilities; establish a domestic internet exchange system to facilitate strategic access for the Government and the general public; allow the shared use of passive ICT infrastructure as a component of the Philippine Government’s Free Public Internet Access Program, or FPIAP, in order to provide free internet access in public places throughout the country; and establish, operate and maintain ICT infrastructures in unserved and underserved areas. The department circular expressly declares that no ITC or MNO shall, directly or indirectly, engage in any predatory or anti-competitive act, practice or transaction in relation to the construction, management, operation or maintenance of PTTIs. Further, the department circular provides, among others, that: (a) except for MNOs with legislative franchises and CPCNs, no entity shall own, construct, manage or operate PTTIs in the Philippines unless otherwise granted an ITC Certificate of Registration; (b) all PTTIs built, improved, renovated, retrofitted, upgraded or updated after the effectivity of the department circular shall provide ample access slots for all MNOs and the DICT to co-locate, mount or install their respective antennas, transmitters, receivers, radio frequency modules, radio-communication systems, and other similar active ICT equipment, units and implements, for the rendition of their respective telecommunications and ICT services; (c) all private sector agreements for co-locating in shared PTTIs shall comply with the requirements under the department circular and all private sector MNOs shall be offered the same or reasonably equivalent terms, conditions, fees and charges for co-locating or sharing in the same PTTI; (d) charges and fees imposed by the PTTI owners or operators shall be periodically monitored by DICT; (e) all installations made after the effectivity of the department circular, of private sector antennas, transmitted, receivers, radio frequency modules, radio-communications systems and other ICT equipment, units and implements for macro cell sites, as well as all improvements, renovations, upgrades or updates thereof, shall be co-located in shared PTTIs, except as may be allowed by the DICT upon clear showing of meritorious grounds which are not contrary to departmental policies; (f) all telecommunications electronic equipment shall be covered by the appropriate type-approval or other permit documents as may be required by the NTC, and duly registered with the DICT, prior to being mounted or installed on PTTIs; (g) in order to meet the existing and future demands for connectivity and quality of service in the Philippines, co-location of PTTIs in the

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same or nearby sites, locations or areas may be permitted by the DICT if in line with the directives of the department circular; (h) the establishment and maintenance by the DITC of a registry of all PTTIs owned, constructed, managed or operated by MNOs and ITCs; and (i) all PTTI owners or operators shall utilize and confirm to a uniform financial reporting system in accordance with IFRS, the International Accounting Standards, and other applicable accounting laws, and rules and regulations. Shared PTTIs have also been declared as critical components for establishing connectivity, resilience and reliability in the implementation of the FPIAP across the Philippines and, accordingly, in utilizing shared PTTIs, the DICT may (i) partner with NTC-registered private sector service providers for the delivery of internet connectivity for a reasonable fee, which connectivity, as a value-added service, may be acquired and utilized by the latter directly from satellites and other emerging technologies, (ii) undertake the creation, establishment, installation, maintenance and operation of infrastructure, equipment, systems, platforms, applications and such other FPIAP requirements necessary to effectively provide free internet access in public places throughout the country. Further, whenever deemed necessary and desirable in the public interest, the DICT may participate in the use of shared PTTIs for the effective implementation of its mandate. Accordingly, each shared PTTI shall, in addition to the slots for the MNOs, have an access slot with ample capacity and availability upon which the DICT may install its antennas, transmitters, receivers, radio frequency modules, radio-communications systems and other similar active ICT equipment, units and implements for the ICT backbone and other communications network of the Government.

• On July 23, 2020, the DICT, in coordination with the ARTA, DILG, Department of Public Works and Highways (“DPWH”), Department of Human Settlements and Urban Development (“DHSUD”), Department of Transportation (“DOTr”), Civil Aviation Authority of the Philippines (“CAAP”), Department of Health (“DOH”), and the Food and Drug Administration (“FDA”) electronically signed Joint Memorandum Circular  (“JMC”) No. 01 or the “Streamlined Guidelines for the Issuance of Permits, Licenses, and Certificates for the Construction of Shared Passive Telecommunications Tower Infrastructure.” The circular provides the streamlined processes for the issuance of permits, licenses and clearances particularly with respect to shared PTTIs.  Pursuant to Section 6.5 of the JMC guidelines,
(a) Sangguniang Panlungsod/Bayan Resolution; (b) Sangguniang Barangay Resolution/ Barangay Council Resolution; (c) Environmental Compliance Certificate or Certificate of Non-Coverage, if the proposed site of construction is outside an environmentally critical area; (d) Radiation Safety Evaluation Report from the FDA; and (e) Certified True Copy of NTC Provisional Authority or CPCN or Certificate of Registration to Provide Telecommunication Services; are no longer required as pre-requisites for the construction of PTTIs.

The periods for the processing, approval and issuance of permits are required to be done within seven days to reflect the mandate under Section 15 of R.A. No. 11032 or the “the Ease of Doing Business and Efficient Government Service Delivery Act of 2018” and Section 6.5 of the JMC.  Permits and clearances not approved within the prescribed periods shall be deemed automatically approved, as required by Section 10 of R.A. 11032.

• On September 11, 2020, President Rodrigo Duterte signed into law R.A. No. 11494 or the “Bayanihan to Recover as One Act,” otherwise known as “Bayanihan 2,” which provides measures to accelerate the deployment of critical ICT infrastructure, including:

(1) Temporary suspension of requirements to secure permits for the construction of telecommunications infrastructure for three years. Permits for the construction, installation, repair, operation and maintenance of telecommunications and internet infrastructure have been limited to (a) building permits and (b) height clearance permits.

(2) Streamlining of regulatory processes and procedures for the development and improvement of digital, internet and satellite technology infrastructure where all pending and new applications shall be approved/ disapproved within a non-extendible period of seven working days.

• On December 23, 2020, President Rodrigo Duterte signed into law R.A. No. 11517 or “An Act Authorizing the President to Expedite the Processing and Issuance of National and Local Permits, Licenses and Certifications in Times of National Emergency.” Under said law, the President, in times of national emergency shall have the authority to:

(a) accelerate and streamline regulatory processes and procedures for new and pending applications and renewals of permits, licenses, clearances, certifications or authorizations, including fixing or shortening the periods provided for under existing laws, regulations, issuances, and ordinances;

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(b) suspend or waive the requirements in securing such permits, licenses, clearances, certifications or authorizations; and

(c) in consultation with or upon the recommendation of the affected government agencies, may prescribe to be permanent the streamlined regulatory processes and procedures, and the suspension or waiver of the requirements in securing permits, licenses, clearances, and certifications and authorizations.

• On July 1, 2021, the ARTA, together with various key agencies, signed the revised and expanded JMC No. 01, series of 2021, entitled, “Revising and Expanding Joint Memorandum Circular No. 01, S. 2020 or the Streamlined Guidelines for the Issuance of Permits, Licenses, and Certificates for the Construction of Shared Passive Telecommunications Tower Infrastructure (“PTTIs”).” This expanded JMC harmonized the provisions of the original JMC No. 1 issued in 2020 and RA No. 11494 or the Bayanihan to Recover as One Act.

The JMC provided an exclusive list of documentary requirements for building permit.  It weeded out the documentary requirements for building permit that are not applicable to PTTIs and removed the Fire Safety Evaluation Clearance requirement for the construction of towers only.  PTTIs that will be constructed outside the CAAP Critical Areas and below 50 meters in height above the elevation of the ground will no longer be required to secure a Height Clearance Permit from CAAP.

If the proposed PTTI is to be constructed in a residential area without a duly registered Homeowner’s Association (“HOA”), the applicant will no longer be required to secure Homeowner’s Association Consent but shall only be required to submit a certification that there is no existing duly registered HOA in the proposed project site and undertake that they will conduct social preparation or endeavor to educate the affected homeowners.

The involved government agencies will also set up various coordination mechanisms, including a planning database, public-private consultation and coordination, and a complaints mechanism for seamless and efficient delivery of services.

• On October 25, 2021, the ARTA, in coordination with the DICT, DILG, DPHW, DHSUD, CAAP, NTC, Energy Regulatory Commission (“ERC”), NEA and the Philippine Competition Commission (“PCC”) issued JMC No. 01 or the “Summary of the Streamlined Guidelines for the Issuance of Permits and Clearances for the Erection of Poles, Construction of Underground Fiber Ducts and Installation of Aerial and Underground Cables and Facilities to Accelerate the Roll out of Telecommunications and Internet Infrastructure.

Some salient points of the JMC are as follows:

a) The JMC prescribes for a single excavation clearance for the erection of poles or construction of underground fiber ducts across all poles or ducts in a series.  This means that only a single excavation clearance shall be required from an applicant for a series of projects, regardless of location, within a local government unit.  Thus, the circular provides streamlined processes for the issuance of permits, licenses and clearances particularly with respect to for the erection of poles, construction of underground fiber ducts and installation of aerial and underground cables and facilities.

b) Fees will be streamlined as the JMC mandates that the amount of local fees and charges of a local government unit in connection with the erection of poles and construction of underground fiber ducts shall be reasonably commensurate to the cost of regulation or provision of the service.

• On March 23, 2021, the DPWH issued Department Order No. 29 series of 2021 or the DPWH Policy on Telecommunications and Internet Infrastructures Pursuant to Republic Act (RA) No. 11494 or the “Bayanihan to Recover as One Act”.  Through this issuance, ICT Service Providers and their respective contractors are temporarily allowed to conduct excavation and/or digging or related construction works within government right-of-way.

Assisted by these initiatives of the government to streamline permitting guidelines for telecommunications infrastructure, PLDT and Smart have secured more than 45,000 fixed and wireless permits as of December 31, 2021.

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While the above issuances and the Bayanihan 2 Law are positive developments for PLDT and Smart’s business, some LGUs, including the barangays, still require outdated, redundant, and unnecessary licenses, clearances, permits, and continue to impose tower fees and other regulatory fees without legal basis.  Some LGUs are requiring the telcos to seek the approvals of the municipal or city councils prior to securing a building permit.  Likewise, some of the Homeowners’ Associations are still refusing to give consent, notwithstanding the JMC No. 01 and the Department Order No. 2020-009 issued by the DHSUD revising the Locational Guidelines that dispenses with the neighbors’ or HOAs consent in securing locational clearance.  Outdated, redundant, and unnecessary permits issued by LGUs and the HOAs refusal to give consent, continue to negatively impact on PLDT and Smart’s rollout of telecommunications infrastructure.

• On December 16, 2021, the Senate of the Philippines approved Senate Bill No. 2395 or the “SIM Card Registration Act,” mandating the registration of SIM cards as a prerequisite to the sale thereof, and the registration of social media accounts.  On December 06, 2021, the House of Representatives approved its own version of the SIM Card Registration Act in House Bill No. 5793.  Both Houses of Congress ratified the bicameral conference committee report on February 2, 2022 and, thereafter, sent the reconciled bill to Malacañang for the President’s signature. The SIM Registration bill lapsed into law on March 4, 2022.

• On March 21, 2022, the President signed RA No. 11659 or “An Act Amending Commonwealth Act No. 146 otherwise known as the Public Service Act,” limiting public utilities to the distribution and transmission of electricity, petroleum and petroleum products pipeline transmission systems, water pipeline distribution and wastewater pipeline systems, seaports and public utility vehicles. This law excludes telecommunications from the definition of public utility thereby allowing full foreign ownership in companies engaged in telecommunications. Under the 1987 Constitution, no franchise, certificate, or any other form of authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or associations organized under the laws of the Philippines, at least 60% of whose capital is owned by such citizens.  Nonetheless, under the law, telecommunications is classified as a critical infrastructure, where foreign state-owned enterprises are prohibited from owning capital, and foreign nationals are not allowed to own more than 50% of capital unless the country of such foreign national accords reciprocity to Philippine nationals.

In order to diversify the ownership base of public utilities, Republic Act No. 7925, otherwise known as the “Public Telecommunications Policy of the Philippines”, requires a telecommunications entity with regulated types of services to make a bona fide public offering through the stock exchange of its shares representing at least 30% of its aggregate common shares within five years from: (a) the date the law became effective; or (b) the entity’s commencement of commercial operations, whichever date is later.

PLDT and PCEV have complied with this requirement.  On May 19, 2017, Republic Act No. 10926 took effect which extended the legislative franchise of Smart.  The law contains a provision that exempts a grantee that is wholly-owned by a publicly listed company with at least 30% of its authorized capital stock is publicly listed from the public offering requirement, thereby also exempting Smart.

Meanwhile, DMPI takes the position that the public offering requirement under Republic Act No. 7925 and Republic Act No. 9180 is merely directory and the policy underlying the requirement of telecommunications entities to conduct a public offering should be deemed to have been achieved when in 2011, PLDT, a publicly listed company, acquired its parent company DTPI, which in turn holds a 100% equity interest in DMPI.  This can further be asserted with the inclusion of the aforementioned provision in Republic Act No. 10926 or the extension of the Smart franchise, applying the equality of treatment provision in Republic Act No. 7925.  However, there can be no assurance that the Philippine Congress will agree with such position.  If DMPI is found to be in violation of the public offering requirement under Republic Act No. 7925 and Republic Act No. 9180, DMPI’s franchise could be revoked and a quo warranto case may be filed against it by the Office of the Solicitor General of the Philippines.

See Item 3. “Key Information – Risk Factors – Risks Relating to Us – Our business is significantly affected by governmental laws and regulations, including regulations in respect of our franchises, rates and taxes, and laws relating to anti-competitive practices and monopoly” for further discussion.

Regulatory Tariffs

Interconnect access charges are paid by one carrier to another for calls originating from a carrier’s network and terminating to another carrier’s network. Commencing in January 2009, the access charge for domestic calls from

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one fixed line to a fixed line in another network was Php3.00 per minute while the access charge for calls from fixed line to CMTS was updated to Php4.00 per minute.  

On the other hand, interconnect transit charges are paid to PLDT for connecting calls from one carrier to another or other carriers, most of which have no direct interconnection agreement between and/or with each other.  As an inter-exchange carrier, PLDT provides transit service among CMTS and local exchange carrier operators, including PAPTELCO and non-PAPTELCO members.  From January 2009 to August 2018, PLDT’s transit fee was Php0.50 per minute for short haul (intra-island), Php1.25 per minute for long-haul (inter-island) and Php1.14 per minute for CMTS calls.  However, pursuant to NTC Memorandum Circular No. 05-07-2018, effective on September 1, 2018, PLDT’s interconnection charges is uniformly set at Php0.50 per minute.

PLDT has continually and actively negotiated with other legitimate Philippine fixed and CMTS carriers for interconnection based on the guidelines issued by the NTC or any authorized government agency.  These carriers include the major fixed and mobile players in the industry with nationwide operations, PAPTELCO and other non-PAPTELCO players, both of which usually operate in selected towns in the countryside.  As at December 31, 2021, PAPTELCO has 18 member companies, of which 18 are active, operating 99 main telephone exchanges and franchise areas in the countryside.

On October 24, 2011, the NTC issued Memorandum Circular No. 02-10-2011, entitled Interconnection Charge for SMS, mandating that interconnection charges for SMS between two separate networks shall not be higher than Php0.15 per SMS, among others.  The NTC required the implementation of the new interconnection charge for SMS not later than 20 days from the effective date of the memorandum circular.  The implementation of this memorandum circular has resulted in the NTC filing an administrative case against the CMTS providers, including Smart and DMPI, asserting that the CMTS operators failed to reduce retail rates and as such, should refund subscribers for the difference.  The CA ruled in favor of Smart and other CMTS providers.  The case is pending before the Supreme Court based on appeals filed by the NTC and Bayan Muna, a political party in the Philippines.

On November 24, 2016, the NTC issued Memorandum Circular No. 09-11-2016, entitled Interconnection Charge for Voice Services, mandating that interconnection charge for voice calls between two separate networks shall not be higher than Php2.50 per minute, among others.  The NTC directed relevant parties to amend their existing interconnection agreements to comply with this memorandum circular within 10 days from the effective date of the memorandum circular and directed the implementation of the reduced interconnection charges for voice calls not later than January 1, 2017, to give sufficient time for the necessary adjustment in the operators’ respective billing systems.

On July 19, 2018, the NTC issued Memorandum Circular No. 05-07-2018, entitled Interconnection Charge for SMS and Voice Service, mandating that interconnection access charge for voice service and SMS be fixed at Php0.50 per minute and P0.05 per SMS, respectively, among others.  The NTC required the implementation of the new interconnection charge not later than 20 days from the effective date of the memorandum circular. Consequently, the NTC issued a Memorandum dated August 6, 2018 directing all PTEs to amend their interconnection agreements by August 14, 2018 and impose the new interconnection charges not later than August 24, 2018.  The PTEs have agreed to implement the new interconnection access charge for SMS services and voice services effective September 1, 2018, to align with the PTEs’ existing billing and settlement systems’ cut-off date cycle.  However, by virtue of RA No. 11202 or the MNP Act, interconnection fees or charges are no longer imposed by MSPs for domestic calls and SMS made by subscribers.  This provision does not cover interconnection fees charged by fixed-line operators.  Thus, as of January 2, 2020, no interconnect fees are charged for mobile domestic calls and SMS.

COMPETITION

Including us, there are four major local exchange carriers, six major international gateway facility providers and three major mobile operators in the Philippines. Some new entrants into the Philippine telecommunications market have entered into strategic alliances with foreign telecommunications companies, which provide them with access to technological and funding support as well as service innovations and marketing strategies.

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Mobile Services

Currently, there are three major mobile operators, namely us, Globe and Dito.  As at December 31, 2021, mobile market penetration in the Philippines was approximately 145%, based on the number of SIM cards issued.  

Competition in the mobile telecommunications industry has intensified with greater availability of unlimited offers from the telecommunications operators resulting in increased volumes of data usage, calls and texts but declining yields. Globe continues to compete aggressively to gain revenue market share, with particular focus on the regional and local levels. Competition has also increased in the postpaid space with more aggressive promotions involving greater handset subsidies. The principal bases of competition are price, including handset prices in the case of postpaid plans, quality of service, network reliability, geographic coverage and attractiveness of packaged services, including video content.

In recent years, the prevalence of OTT services, such as social media, instant messaging and internet telephone, also known as VoIP services, has greatly affected our legacy revenue from voice and SMS services. We are also facing growing competition from providers offering services using alternative wireless technologies and IP-based networks, including efforts by the Philippine Government to roll-out its free WiFi services to various municipalities in the country.

In November 2018, the Philippine government, through the DICT, declared the NMP Consortium as the third telecom player. The NMP Consortium indicated that they had reached an agreement with Dito (previously called Mislatel) for the use of Dito’s telecommunications franchise. On July 8, 2019, Dito was granted its permit to operate after President Rodrigo Duterte awarded them their CPCN. In October 2019, Dito entered into agreements with Sky Cable and LCS Group. Under the agreement with LCS Group, Dito will lease the telecommunications towers that the LCS Group is building across different regions in the Philippines.

Data Services

The market for data services is the fastest growing segment in the Philippine telecommunications industry. This development has been spurred by the significant growth in consumer and retail broadband internet access, enterprise resource planning applications, customer relationship management, knowledge processing solutions, online gaming and other e-services that drive the need for broadband and internet-protocol based solutions both in the Philippines and abroad. Our major competitors in this area are Globe, Converge ICT Solutions, Inc. and Sky Cable. The principal bases of competition in the data services market are coverage, price, content, value for money, bundles or free gifts, customer service and quality of service. PLDT intends to compete in this segment, consistent with its overall strategy to maintain network leadership, broaden its distribution platform and increase its ability to deliver multimedia content.

Voice Services

Local Exchange

Although the growth of the fixed line voice market has been impacted by higher demand for mobile services, we have sustained our leading position in the fixed line market on account of PLDT's extensive network in key cities nationwide.  In most areas, we face one or two competitors.  Our principal competitor in the local exchange market, Globe, provides local exchange service through both fixed and fixed wireless landline services.

Fixed wireless landline services resemble a mobile phone service but provide the same tariff structure as a fixed line service such as the charging of monthly service fees.  Our major competitor, Globe, offers services in limited areas of Metropolitan Manila such as Makati, Las Piñas, the Visayas region and selected areas of Southern Luzon, such as Cavite and Batangas.

International

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While we believe we have maintained a leadership position in this highly competitive service segment of the industry, our market share in recent years has declined as a result of: (i) competition from other IGF operators; (ii) the popularity of alternative and cheaper modes of communication such as e-mail, instant messaging, social-networking (such as Facebook, Twitter and Instagram), including “free services” over the internet (such as Skype, Viber, Line, Facebook Messenger, GoogleTalk, Zoom and WhatsApp, and similar services); and (iii) the establishment of VPNs for several corporate entities, which have further heightened competition.

With respect to outbound calls from the Philippines, we compete for market share through our local exchange and mobile businesses, which are the origination points of outbound international calls.  We also have introduced a number of marketing initiatives to stimulate growth of outbound call volumes, including tariff reductions and volume discounts for large corporate subscribers.  

As in recent years, the number of inbound international voice calls into the Philippines has been negatively impacted by the popularity of OTT services due to improved internet access and increased smartphone adoption.   However, with PLDT’s strategic partnership with Orange (formerly France Telecom), the decline of inbound ILD traffic has slowed down.  Joint efforts on traffic sales management and anti-fraud programs have resulted in sustained business value for the ILD business. 

Domestic

Our domestic service business has been negatively affected by the growing number of mobile subscribers in the Philippines, and the widespread availability and growing popularity of alternative economical to free non-voice methods of communication, particularly OTT services, e-mail and social media, coupled with the mandate of the Government regulatory body.  In addition, various ISPs have launched voice services via the internet to their subscribers nationwide.

While domestic call volumes have been declining, we have remained the leading provider of domestic service in the Philippines due to our significant subscriber base and ownership of the Philippines’ most extensive transmission network.  

From time to time, PLDT launches promotions bundled with our other products to attract new subscribers including free PLDT-to-PLDT NDD service.

ENVIRONMENTAL MATTERS

To underscore its importance, sustainability was identified as one of the key fulcrums of PLDT’s strategy.  This provides the basis for our initiatives that focus on environmental, social and governance matters.

In this connection, we reaffirm our commitment to environmental protection and sustainable development by ensuring that we integrate and implement environmental considerations in all aspects of our operations and services as well as business decisions.  

This commitment is embodied, among others, in our Occupational Safety, Health and Environmental Policy which adopts high standards in occupational safety, health and environmental performance to ensure protection of workers and the community, as well as the sustainable development of society.  This policy seeks to address and meet the legal and other requirements such as, but not limited to, the laws and regulations of the Occupational Safety and Health Standards, Department of Labor and Employment, Department of Environment and Natural Resources (“DENR”), Laguna Lake Development Authority and Department of Energy.

We also continue to develop, implement and continually improve on existing environmental management systems, ensuring compliance with environmental regulations as an important part of our business operations.  We have designated Pollution Control Officers who review our performance, ensure our compliance with the relevant Philippine environmental laws, and report our progress on a quarterly basis to the DENR.  A key part our Vendor Management guidelines mandates our suppliers to strictly adhere to applicable national and local environmental regulations. This is encapsulated in the Sustainability Guidelines that form part of the Vendor Conforme Sheet.

Resource management

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Our Network Operations’ Energy Environment Safety and Health (“EESH”) and Property and Facilities Management (“PFM”) teams monitor the consumption of electricity, fuel, and water, in our facilities and operations.  They continue to identify and implement energy efficiency and conservation programs that include the actual replacement of old air conditioning units and chillers, with plans to install building automation systems and solar panels on rooftops, among others.  On the network side, the EEHS group formed energy management teams tasked to lead energy efficiency initiatives such as the installation of direct current generator sets and have put in place a company-wide cascade of fuel request and electricity validation tools meant to improve resource consumption.  

To conserve water, rainwater catchment areas have been constructed in some facilities.

We set and review environmental objectives and targets along identified significant environmental impacts.  As energy savings translate to a substantial cost-saving opportunity, understanding energy efficiency and pursuing efforts to support energy initiatives will be useful for the company.  The consequent reduction in GHG emissions from the implementation of energy efficiency initiatives are also being monitored by the Corporate Sustainability Office.

Environmental impact management

Apart from regularly monitoring the status and performance of all our facilities, equipment, and generator sets,  our PFM and EEHS  teams are also tasked to implement improvements to existing processes and mechanisms that would reduce and mitigate impacts on the environment.  One of these is the creation of management plans, which detail our environmental management strategies for our facilities in protected areas.  We work with our contractor partners to assess the environmental impacts of our new facilities and to work on measures to mitigate them.  In terms of hazardous wastes, we maintain partnerships with DENR-accredited suppliers to recycle our used lead-acid batteries.  Recycling proceeds help fund our corporate social responsibility initiatives, such as school-building donations.

PLDT also continues to evaluate and undertake programs in partnership with appropriate third parties and the concerned local government units that guide the company in developing ecoefficiency by reducing the impact of its business on the environment, helping communities curb the effects of climate change as well as pursue biodiversity management that protects selected Philippine rainforests, mangroves, marine life and peatlands – all leveraging on digital technology and our robust network.

INTELLECTUAL PROPERTY RIGHTS

We do not own any material intellectual property rights apart from our brand names and logos.  We are not dependent on patents, licenses or other intellectual property which are material to our business or results of operations, other than licenses to use the software that accompany most of our equipment purchases and licenses for certain contents used in VAS of our wireless business. See Note 15 – Goodwill and Intangible Assets to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

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PROPERTIES

As at December 31, 2021, PLDT owns three office buildings located in Makati City and owns and operates 289 fixed line exchanges nationwide, of which 48 are located in Metro Manila. The remaining 241 exchanges are located in cities and small municipalities outside the Metro Manila. We also own radio transmitting and receiving equipment used for international and domestic communications.

As at December 31, 2021, our principal properties, excluding property under construction, consisted of the following, based on net book values:

• 49% consisted of central office equipment and network facilities, including IGFs, pure national toll exchanges and combined local and toll exchanges;

• 29% consisted of cable, wire and mobile facilities, including our DFON, subscriber cable facilities, inter-office trunking and toll cable facilities and mobile facilities;

• 11% consisted of information origination and termination equipment, including pay telephones and radio equipment installed for customers use, and cables and wires installed within customers’ premises;

• 5% consisted of land and improvements and buildings and improvements, which we acquired to house our telecommunications equipment, personnel, inventory and/or fleet; and

• 6% consisted of other work equipment.

For more information on these properties, see Note 9 – Property and Equipment to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.  

These properties are located in areas where our subscribers are being served.  In our opinion, these properties are in good condition, except for ordinary wear and tear, and are adequately insured.

The majority of our connecting lines are above or under public streets and properties owned by others.  For example, for many years, the PLDT Group has been using the power pole network of Meralco in Metropolitan Manila for PLDT’s fixed line aerial cables in this area pursuant to short-term lease agreements with Meralco with typically five-year and more recently one-year terms.

The PLDT Group has various lease contracts for periods ranging from one to thirty years covering certain offices, warehouses, cell sites, telecommunications equipment locations and various office equipment.  For more information on the obligations relating to these properties and long-term obligations, see Note 10 – Leases, Note 21 – Interest-Bearing Financial Liabilities and Note 28 – Financial Assets and Liabilities to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

We expect that in 2022, cash from operating activities should enable us to increase the level of our capital expenditures for the continued expansion and upgrading of our network infrastructure.  We expect to make additional investments in our core facilities to leverage existing technologies and increase capacity.  Our current estimate for consolidated capital expenditures in 2021 is approximately Php76 billion to Php80 billion.  See Item 5. “Operating and Financial Review and Prospects – Capital Expenditure Plans” for further discussion on our capital expenditures.

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Item 4A. Unresolved Staff Comments

None.

Item 5. Operating and Financial Review and Prospects

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements (and the related notes) as at December 31, 2021 and 2020 and for each of the three years ended December 31, 2021, 2020 and 2019 included elsewhere in this report.  This discussion contains forward-looking statements that reflect our current views with respect to future events and our future financial performance.  These statements involve risks and uncertainties, and our actual results may differ materially from those anticipated in these forward-looking statements as a result of particular factors such as those set forth under "Forward-Looking Statements" and Item 3. "Key Information – Risk Factors" and elsewhere in this report.  Our consolidated financial statements, and the financial information discussed below, have been prepared in accordance with IFRS.  For convenience, certain Philippine peso financial information in the following discussions have been converted to U.S. dollars at the exchange rate at December 31, 2021 of Php50.97 to US$1.00, as quoted through the BAP.

Overview

We are one of the leading telecommunications and digital services providers in the Philippines, in terms of both subscribers and revenues, serving the fixed line, wireless and broadband markets.  Through our three principal business segments, Wireless, Fixed Line and Others, we offer a large and diverse range of telecommunications and digital services across our extensive fiber optic backbone and wireless and fixed line networks.  See Note 4 – Operating Segment Information to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for further information on each of these segments.

Key performance indicators and drivers that our management uses to monitor and direct the operation of our businesses include, among others, the general economic conditions in the Philippines; market trends, such as customer demands, behavior and satisfaction parameters; technological developments; network performance (in terms of speed, coverage and capacity); market share; and profitability.  

In addition, our results of operations and financial position are increasingly affected by fluctuations of the Philippine peso against the U.S. dollar.  

Management’s Financial Review

As discussed in Item 3. “Key Information – Performance Indicators”, we use our Adjusted EBITDA, core income and telco core income to assess our operating performance.  Set forth below is a reconciliation of our consolidated net income to our consolidated Adjusted EBITDA and a reconciliation of our consolidated net income to our consolidated core income and consolidated telco core income for the years ended December 31, 2021, 2020 and 2019.

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The following table shows the reconciliation of our consolidated net income to our consolidated Adjusted EBITDA for the years ended December 31, 2021, 2020 and 2019:

	December 31,
	2021			2020			2019
	(amounts in million Php)
Consolidated net income		26,676			24,580			22,786
Add (deduct) adjustments:
Depreciation and amortization		52,169			47,480			39,656
Financing costs – net		10,414			10,086			8,553
Provision for income tax		7,478			8,441			9,550
Foreign exchange losses (gains) – net		3,890			(1,488	)		(424	)
Amortization of intangible assets		2,822			2,496			758
Equity share in net earnings of associates and joint ventures		1,101			2,328			1,535
Impairment of property and equipment		148			—			—
Noncurrent asset impairment		—			—			—
Interest income		(656	)		(1,210	)		(1,745	)
Losses (gains) on derivative financial instruments – net		(1,400	)		378			284
Other income – net		(6,742	)		(6,933	)		(1,138	)
Reversal of provisions		(2,594	)		(2,679	)		(999	)
Gain on debt modification		(1,372	)		—			—
Gain on sale of property and equipment		(884	)		(3,369	)		(88	)
Gain on dilution of shares		(826	)		(394	)		—
Others		(1,066	)		(491	)		(51	)
Total adjustments		69,224			61,578			57,029
Consolidated Adjusted EBITDA		95,900			86,158			79,815

The following table shows the reconciliation of our consolidated net income to our consolidated core income and consolidated telco core income for the years ended December 31, 2021, 2020 and 2019:

	December 31,
	2021			2020			2019
	(amounts in million Php)
Consolidated net income		26,676			24,580			22,786
Add (deduct) adjustments:
Foreign exchange losses (gains) – net		3,890			(1,488	)		(424	)
Sun Trademark amortization		2,628			1,877			—
Accelerated depreciation		1,110			—			—
Manpower rightsizing program		269			2,625			3,296
Losses from changes in fair value of financial assets    at FVPL		174			—			675
Impairment/derecognition of investments		60			659			34
Core income adjustment on equity share in net income of associates and joint ventures		(7	)		(6	)		(226	)
Net income attributable to noncontrolling interests		(309	)		(296	)		(265	)
CREATE Act impact for prior year deferred taxes		(355	)		—			—
Gain on debt modification – net of amortization of debt discount		(1,339	)		—			—
Losses (gains) on derivative financial instruments  – net, excluding hedge costs		(1,651	)		284			233
Net tax effect of aforementioned adjustments		(1,209	)		(1,106	)		(998	)
Total adjustments		3,261			2,549			2,325
Consolidated core income		29,937			27,129			25,111
Add (deduct) adjustments:
Share in VIH losses		1,981			1,954			1,776
Accelerated depreciation, net of tax		—			1,496			378
Loss (gain) on sale of Rocket Internet shares		—			364			(185	)
Gain from condonation of debt		—			(240	)		—
Gain on sale and leaseback of Smart Headquarters, net of tax		—			(2,293	)		—
VIH gain on dilution, net of tax		(702	)		(323	)		—
Gain on asset sales, net of tax		(983	)		—			—
Total adjustments		296			958			1,969
Consolidated telco core income		30,233			28,087			27,080

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The following table shows the reconciliation of consolidated basic and diluted earnings per share (“EPS”) attributable to common equity holders of PLDT to our consolidated core EPS for the years ended December 31, 2021, 2020 and 2019:

	2021						2020						2019
	Basic			Diluted			Basic			Diluted			Basic			Diluted
	(in Php)
Consolidated EPS attributable to common equity    holders of PLDT		121.76			121.76			112.12			112.12			103.97			103.97
Add (deduct) adjustments:
Foreign exchange losses (gains) – net		13.50			13.50			(5.36	)		(5.36	)		(1.73	)		(1.73	)
Sun Trademark Amortization		9.12			9.12			6.08			6.08			—			—
Accelerated depreciation		3.85			3.85			—			—			—			—
Manpower rightsizing program		1.02			1.02			8.51			8.51			10.73			10.73
Losses from changes in fair value of financial investments at FVPL		0.81			0.81			—			—			—			—
Impairment/derecognition of investments		0.28			0.28			3.05			3.05			0.16			0.16
Losses in fair value of investments		—			—			—			—			3.12			3.12
Core income adjustment on equity share in net losses of associates and joint ventures		(0.03	)		(0.03	)		(0.03	)		(0.03	)		(1.05	)		(1.05	)
CREATE Act impact for prior year deferred taxes		(1.64	)		(1.64	)		—			—			—			—
Gain on debt modification		(4.65	)		(4.65	)		—			—			—			—
Losses (gains) on derivative financial instruments – net, excluding hedge costs		(5.73	)		(5.73	)		0.92			0.92			0.75			0.75
Total adjustments		16.53			16.53			13.17			13.17			11.98			11.98
Consolidated core EPS		138.29			138.29			125.29			125.29			115.95			115.95

Factors Affecting our Results of Operations

Competition

The mobile telecommunications market is competitive. Including us, there are four major local exchange carriers, six major international gateway facility providers and three major mobile operators in the Philippines. Some new entrants into the Philippine telecommunications market have entered into strategic alliances with foreign telecommunications companies, which provide them with access to technological and funding support as well as service innovations and marketing strategies. We need to make significant investments to refurbish and maintain our existing network infrastructure to comply with regulatory obligations and to remain competitive with respect to our services. See Item 4. “Information on the Company – Competition” for further discussions.

Technology Developments and Capital Expenditures

Improvements in technology influence our customers’ demand for services and equipment. For example, demand for fixed line telecommunications services has been affected by continued significant growth in the mobile data services. The increase in broadband adoption has also proven to be a critical factor in facilitating the offering of value-added services to customers and the combination of products made available to customers.

In providing data services, we must constantly upgrade our access technology and software, embracing emerging transmission technologies and improve the responsiveness, functionality, coverage and features of our services. In the mobile data business, to provide our subscribers with new and better services, we must enhance our mobile network and extend 5G technology and bandwidth for mobile data transmission. In addition, as new technologies develop, equipment may need to be replaced or upgraded, and network facilities may need to be rebuilt in whole or in part, at substantial cost, to remain competitive. These enhancements and the implementation of new technologies will continue requiring increased capital expenditures.

Regulations

We are significantly affected by laws and regulations, particularly those relating to service rates, taxes, labor and antitrust.  The NTC regulates the rates we are permitted to charge for services that have not yet been deregulated, such as local exchange services.

We are also subject to a number of local and national taxes.  On March 26, 2021, the CREATE bill was enacted into law, effectively lowering our applicable corporate income tax rate from 30% to 25%, to be applied retroactively to July 1, 2020.

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We are also subject to antitrust and labor laws.  We have an on-going petition with the PCC with respect to our acquisition of the telecommunications business of SMC in 2016, as well as an outstanding petition pending resolution by the Philippine Supreme Court with respect to the regularization orders by the DOLE.

Sale of PLDT Prepaid Home WiFi Subscribers to Smart

On January 29, 2021, PLDT and Smart entered into a Sale/Purchase Agreement for the transfer of PLDT’s PHW subscribers to Smart to consolidate fixed wireless services under Smart in order to optimize shared resources for wireless broadband, undertake seamless upgrades, cross-sell products for a simplified customer experience, and better manage network costs and wireless network capacity.

The transfer of PHW subscribers took effect on March 1, 2021 after complying with the NTC’s required 30-day notice to subscribers.  The final purchase price for the transfer, as reviewed by an independent firm, together with the PHW inventories and unearned revenues, amounted to Php1,336 million, plus value-added tax.  Smart used its internally generated cashflow to fund the purchase.  This transaction is eliminated in our consolidated financial statements.

Near-term Factors Affecting our Results of Operations

Measures We Have Taken in Light of the COVID-19 Pandemic

In light of the ongoing COVID-19 pandemic, we continue to assess PLDT’s risks, and implement measures to protect our employees, customers and trade partners.

People

Limited access to our corporate premises which was instituted in 2020 remain in effect.  We have allowed a hybrid of work from home and work on site arrangements.  To ensure minimal disruption to our operations, we have taken steps to ensure that employees working from home are properly equipped with the appropriate digital equipment, including internet connection.  For the employees that continue to work on-site, we have taken steps to try and minimize their risk of exposure to the COVID-19 virus.  

Among others, the following measures remain to be in place to protect our employees:

• a vaccination program for our employees and their dependents and household members who are enrolled in the program;

• a coronavirus online form is required to be completed by employees on a daily basis to allow us to monitor if an employee is experiencing symptoms or has been exposed to a COVID-19 patient or someone suspected to be infected;  

• instructions and guidelines issued to our trade partners on how to best deal with the COVID-19 pandemic;

• social distancing measures implemented within our premises, and the installation of HEPA filtering devices within our facilities to improve air quality;

• PLDT medical services provides maintenance medicines and multivitamins through our in-house clinics nationwide, and in partnership with several pharmacies.  Internal channels for 24/7 COVID-19-related assistance are also available for our workforce; and

• advisers can be reached by our employees through the COVID-19 Employee Hotline, available from Monday to Friday from 8AM to 5PM and on weekends, to respond to questions related to internal guidelines, safety protocols and rapid testing.

Moreover, we have partnered with First Pacific Leadership Academy, whose campus located in Antipolo, Rizal has been converted into an isolation and quarantine facility, to accommodate our employees who are asymptomatic and those with mild COVID-19 symptoms.

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Network and IT

Since the beginning of the COVID-19 outbreak in the Philippines, we have been closely monitoring our network traffic for usage spikes and possible congestion.  As at the date of this report, we have sufficient capacity to serve the increased needs of all our subscribers.  We have added international and domestic internet capacity, upgraded our local content delivery network, and refarmed our 2G frequencies to LTE.  We have taken steps to enhance physical security for premises in which our critical network and IT systems are kept.  We have also reinforced our cyber security to protect the network from intrusion and malicious attacks.  We have also moved essential spare parts and supplies from our remote warehouses to Metro Manila to help us undertake maintenance and repairs more efficiently.

Customer Service

We continue to provide zero-rated access to certain Government agencies and emergency hotlines, boosted minimum speeds for our eligible PLDT Home subscribers, increased data allocations for prepaid customers, equipped our corporate customers with telecommuting solutions, and for our Overseas Filipino Workers, or OFWs, extended the duration of free calls through our Free Bee app.  Members of our service teams have also been trained in the proper health protocols for before, during, and after site visits, including maintaining proper social distances with customers at all times.

Precautionary measures at our stores such as provision for foot bath, regular sanitization and disinfection, temperature check, wearing of face masks and face shields, installation of commercial-grade air filters, and other observance of social distancing remain to be in effect.  We also made available to our customers the virtual booking appointment.  We also ensure that all our frontliners are fully vaccinated and undergo periodic COVID-19 testing.

Impact of COVID-19 Outbreak on our Operations

While work-from-home arrangements for businesses and their employees boosted demand for corporate fixed broadband and fixed wireless data services, corporate revenue growth in this period was constrained by the slump in commercial activities resulting from the imposition of various community quarantines.  During the imposition of community quarantines, network traffic grew significantly, with traffic shifting from the commercial business districts to residential areas.  To further ensure that we could handle the increased volume of data traffic, Smart reallocated its assigned 1,800 MHz frequencies from 2G to 4G/LTE.

The various community quarantines highlighted a distinct advantage of PLDT’s fully integrated fixed and wireless network architecture which allowed the seamless and efficient delivery of quality services to fixed and wireless customers.  In general, we were not significantly impacted by COVID-19 and have benefited from an increase in demand for our broadband and mobile data services.  We cannot predict whether this increase in business activity will continue during and after the pandemic, especially with the emergence of new variants of the COVID-19.  Furthermore, the government shifted its system in imposing restrictions from the community quarantine classifications to the alert level system.  

Amidst this uncertainty, new opportunities for future growth have arisen.  Life under the community quarantine has pushed the rapid adoption of online and digital services as people forced to stay at home have turned to web-based collaboration tools, distance learning, online shopping and payment and e-health services, among others.  We believe our superior network and digital infrastructure has driven more data usage to both our mobile and fixed networks.  PLDT Home is ramping up its installation and repair levels and rolling out fixed wireless in areas with no fixed line or fiber connections.  Telecommunications is one of the businesses given exemption by the Inter-Agency Task Force (“IATF”) on COVID-19, allowing our installation and repair teams mobility despite the quarantine lockdowns.  Smart is gearing to capitalize on e-payments and further leverage its online distribution channels and our Enterprise vertical is driving opportunities in e-health, e-learning, telemedicine and other collaboration solutions while seeing renewed demand for data center services.  PLDT Enterprise has partnered with the national and local government units (“LGUs”) in the vaccination program by providing connectivity in vaccination centers.  

Impact of Super Typhoon Odette

On December 16, 2021, parts of the Visayas and Mindanao were hit by Super Typhoon Rai (known as “Odette” in the Philippines), rendering many of the affected areas inaccessible and causing extensive electricity and communication outages.  PLDT deployed teams to the Visayas and Mindanao to restore communication services in the affected areas. To date, we have substantially restored most of the network services.

We estimated the impact of the typhoon to be approximately Php1 billion as at December 31, 2021, from the combined effect of rebates and lost revenues due to service unavailability, free load provided to our subscribers,

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repairs and replacement of damaged facilities, as well as loss of properties.  We have also worked with the LGUs of the affected areas and provided donations to the communities.  Our employees also participated in the relief efforts through their own donations.  We have filed insurance claims which are pending review. 

Financial Instruments

We use financial instruments to reduce our risk exposure associated with fluctuations in foreign currency exchange rates and interest rates. See Note 28 – Financial Assets and Liabilities – Financial Risk Management Objectives and Policies to the accompanying consolidated financial statements in Item 18. “Financial Statements” for a detailed discussion of our foreign currency exchange risk and hedging instruments.

Critical Accounting Policies

The preparation of our consolidated financial statements in conformity with IFRS requires us to make judgments, estimates and assumptions that affect the reported amounts of our revenues, expenses, assets and liabilities and disclosure of contingent liabilities at the end of each reporting period.  The uncertainties inherent in these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the assets or liabilities affected in the future years.

Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Judgments, key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next reporting period are consistent with those applied in the most recent annual financial statements.  Selected critical judgments and estimates applied in the preparation of the consolidated financial statements are discussed below:

Judgments

In the process of applying our accounting policies, management has made judgments, apart from those involving estimations which have the most significant effect on the amounts recognized in our consolidated financial statements.

Revenue Recognition

Identifying performance obligations

We identify performance obligations by considering whether the promised goods or services in the contract are distinct goods or services.  A good or service is distinct when the customer can benefit from the good or service on its own or together with other resources that are readily available to the customer and our promise to transfer the good or service to the customer is separately identifiable from the other promises in the contract.

Revenues earned from multiple element arrangements offered by our fixed line and wireless businesses are split into separately identifiable performance obligations based on their relative stand-alone selling price in order to reflect the substance of the transaction.  The transaction price represents the best evidence of stand-alone selling price for the services we offer since this is the observable price we charge if our services are sold separately.  We account for customer contracts in accordance with IFRS 15 and have concluded that the service (telecommunication service) and non-service components (handset or equipment) may be accounted for as separate performance obligations.  The handset or equipment is delivered first, followed by the telecommunication service (which is provided over the contract/lock-in period of generally two years).  Revenue attributable to the separate performance obligations are based on the allocation of the transaction price relative to the stand-alone selling price.

Installation fees for voice and data services that are not custom built for the subscribers are considered as a single performance obligation together with monthly service fees, recognized over the customer subscription period since the subscriber cannot benefit from the installation services on its own or together with other resources that are readily available to the subscriber.  On the other hand, installation fees of data services that are custom built for the subscribers are considered as a separate performance obligation and is recognized upon completion of the installation services.  Activation fees for both voice and data services are also considered as a single performance obligation together with monthly service fees, recognized over the customer subscription period.

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Principal versus agent consideration

We enter into contracts with our customers involving multiple deliverable arrangements.  We determined that we control the goods before they are transferred to customers, and we have the ability to direct the use of the inventory.  The following factors indicate that we control the goods before they are being transferred to customers.  

• We are primarily responsible for fulfilling the promise to provide the specified equipment;

• We bear inventory risk on our inventory before it has been transferred to the customer;

• We have discretion in establishing the prices for the other party’s goods or services and, therefore, the benefit that we can receive from those goods or services is not limited.  It is incumbent upon us to establish the price of our services to be offered to our subscribers; and

• Our consideration in these contracts is the entire consideration billed to the service provider.

Based on the foregoing, we are considered the principal in our contracts with other service providers except for certain VAS arrangements.  We have the primary obligation to provide the services to the subscriber.

Timing of revenue recognition

We recognize revenues from contracts with customers over time or at a point in time depending on our evaluation of when the customer obtains control of the promised goods or services and based on the extent of progress towards completion of the performance obligation.  For the telecommunication service which is provided over the contract period of two or more years, revenue is recognized monthly as we provide the service because control is transferred over time.  For the device which is sold at the inception of the contract, revenue is recognized at the time of delivery because control is transferred at a point in time.

Identifying methods for measuring progress of revenue recognized over time

We determine the appropriate method of measuring progress which is either through the use of input or output methods.  Input method recognizes revenue on the basis of the entity’s efforts or inputs to the satisfaction of a performance obligation while output method recognizes revenue on the basis of direct measurements of the value to the customer of the goods or services transferred to date.

Revenue from telecommunication services is recognized through the use of input method wherein recognition is over time based on the customer subscription period since the customer simultaneously receives and consumes the benefits as the seller renders the services.

Significant financing component

We concluded that the handset component included in contracts with customers has a significant financing component considering the period between the time of the transfer of control over the handset and the customer’s payment of the price of the handset, which is more than one year.

In determining the interest to be applied to the amount of consideration, we concluded that the interest rate is the market interest rate adjusted with credit spread to reflect the customer credit risk that is commensurate with the rate that would be reflected in a separate financing transaction between us and our customer at contract inception.

Estimation of stand-alone selling price

We assessed that the service and non-service components represent separate performance obligations and thus, the amount of revenues should be recognized based on the allocation of the transaction price to the different performance obligations based on their stand-alone selling prices.  The stand-alone selling price is the price at which we sell the good or service separately to a customer.  However, if goods or services are not currently offered separately, we use the adjusted market or cost-plus margin method to determine the stand-alone selling price to be used in the revenue allocation.

In terms of allocation of transaction price between performance obligations, we assessed that allocating the transaction price using the stand-alone selling prices of the services and handset will result in more revenue allocated to non-service component.  The stand-alone selling price is based on the price in which we regularly sell the non-service and service component in a separate transaction.

Financial Instruments

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Evaluation of business models in managing financial instruments

We determine our business model at the level that best reflects how we manage groups of financial assets to achieve our business objective.  Our business model is not assessed on an instrument-by-instrument basis, but a higher level of aggregated portfolios and is based on observable factors such as:

a. How the performance of the business model and the financial assets held within that business model are evaluated and reported to the entity’s key management personnel;

b. The risks that affect the performance of the business model (and the financial assets held within that business model) and, in particular, the way those risks are managed; and

c. The expected frequency, value and timing of sales are also important aspects of our assessment.

The business model assessment is based on reasonably expected scenarios without taking ‘worst case’ or ‘stress case’ scenarios into account.  If cash flows after initial recognition are realized in a way that is different from our original expectations, we do not change the classification of the remaining financial assets held in that business model, but incorporates such information when assessing newly originated or newly purchased financial assets going forward.

We have determined that for cash and cash equivalents, short-term investments, investment in debt securities and other long-term investments, and trade and other receivables, the business model is to collect the contractual cash flows until maturity.  For receivables from MPIC, we have determined that its business model is to both collect contractual cash flows and sale of financial assets.

IFRS 9, however, emphasizes that if more than an infrequent number of sales are made out of a portfolio of financial assets carried at amortized cost, we should assess whether and how such sales are consistent with the objective of collecting contractual cash flows.  

Definition of default and credit-impaired financial assets

We define a financial instrument as in default, which is fully aligned with the definition of credit-impaired, when it meets one or more of the following criteria:

• Quantitative criteria

For trade receivables and all other financial assets subject to impairment, default occurs when the receivable becomes 90 days past due, except for trade receivables from Corporate subscribers, which are determined to be in default when the receivables become 120 days past due.

• Qualitative criteria

The counterparty meets unlikeliness to pay criteria, which indicates the counterparty is in significant financial difficulty.  These are instances where:

a. The counterparty is experiencing financial difficulty or is insolvent;

b. The counterparty is in breach of financial covenant(s);

c. An active market for that financial assets has disappeared because of financial difficulties;

d. Concessions have been granted by us, for economic or contractual reasons relating to the counterparty’s financial difficulty;

e. It is becoming probable that the counterparty will enter bankruptcy or other financial reorganization; and

f. Financial assets are purchased or originated at a deep discount that reflects the incurred credit losses.

The criteria above have been applied to all financial instruments, except FVPL, held by us and are consistent with the definition of default used for internal credit risk management purposes.  The default definition has been applied consistently to the ECL models throughout our expected loss calculation.

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Significant increase in credit risk

At each reporting date, we assess whether there has been a significant increase in credit risk for financial assets since initial recognition by comparing the risk of default occurring over the expected life between the reporting date and the date of initial recognition.  We consider reasonable and supportable information that is relevant and available without undue cost or effort for this purpose.  This includes quantitative and qualitative information and forward-looking analysis.

An exposure will migrate through the ECL stages as asset quality deteriorates.  If, in a subsequent period, asset quality improves and also reverses any previously assessed significant increase in credit risk since origination, then the loss allowance measurement reverts from lifetime ECL to 12-month ECL.  

Using our judgment and, where possible, relevant historical experience, we may determine that an exposure has undergone a significant increase in credit risk based on particular qualitative indicators that we consider are indicative of such and whose effect may not otherwise be fully reflected in its quantitative analysis on a timely basis.

As a backstop, we consider that a significant increase in credit risk occurs no later than when an asset is more than 30 days past due.  Days past due are determined by counting the number of days since the earliest elapsed due date in respect of which full payment has not been received.  Due dates are determined without considering any grace period that might be available to the counterparty.

Exposures that have not deteriorated significantly since origination, or where the deterioration remains within our investment grade criteria, or which are less than 30 days past due, are considered to have a low credit risk.  The provision for credit losses for these financial assets is based on a 12-month ECL.  The low credit risk exemption has been applied on debt investments that meet the investment grade criteria of the PLDT Group.

Determination of functional currency

The functional currencies of the entities under the PLDT Group are the currency of the primary economic environment in which each entity operates.  It is the currency that mainly influences the revenue from and cost of rendering products and services.

The presentation currency of the PLDT Group is the Philippine Peso.  Based on the economic substance of the underlying circumstances relevant to the PLDT Group, the functional currency of all entities under PLDT Group is the Philippine Peso, except for (a) FECL Group, PLDT Global and certain of its subsidiaries, PGNL and certain of its subsidiaries, Chikka and certain of its subsidiaries and PGIC, which uses the U.S. Dollar; (b) iCommerce, CPL and AGSPL, which uses the Singaporean Dollar; (c) AGS Indonesia, which uses the Indonesian Rupiah; and (d) PLDT Malaysia Sdn Bhd, which uses the Malaysian Ringgit.

Determining the lease term of contracts with renewal and termination options – Company as a Lessee

Upon adoption of IFRS 16, we applied a single recognition and measurement approach for all leases, except for short-term leases and leases of ‘low-value’ assets.  See Section Leases to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for the accounting policy.  

We determine the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.

We, as the lessee, have the option, under some of our lease agreements to lease the assets for additional terms.  We apply judgment in evaluating whether it is reasonably certain to exercise the option to renew. That is, we consider all relevant factors that create an economic incentive for us to exercise the renewal. After the commencement date, we reassess the lease term if there is a significant event or change in circumstances that is within our control and affects our ability to exercise or not to exercise the option to renew or to terminate (e.g., a change in business strategy).

We included the renewal period as part of the lease term for leases such as poles and leased circuits due to the significance of these assets to our operations.  These leases have a non-cancellable period (i.e., one to 30 years) and there will be a significant negative effect on our provision of services if a replacement is not readily available.  Furthermore, the periods covered by termination options are included as part of these lease term only when they are reasonably certain not to be exercised.

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See Note 10 – Leases to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for information on potential future payments relating to periods following the exercise date of extension and termination options that are not included in the lease term.

Total depreciation of ROU assets amounted to Php5,388 million, Php4,940 million and Php4,393 million for the years ended December 31, 2021, 2020 and 2019, respectively.  Total lease liabilities amounted to Php21,686 million and Php20,025 million as at December 31, 2021 and 2020, respectively.  See Note 10 – Leases and Note 28 – Financial Assets and Liabilities to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

Accounting for investment in Multisys Technologies Corporation (“Multisys”)

On December 3, 2018, PGIH completed the closing of its investment in Multisys.  Out of the Php550 million total consideration for the acquisition of existing shares, PGIH paid Php523 million to the owners of Multisys.  On June 3, 2019, the balance of the acquisition consideration amounting to Php27 million was fully paid.  Further, PGIH invested Php800 million into Multisys as a deposit for future stock subscription pending the approval by the Philippine SEC of the capital increase of Multisys.  On February 1, 2019, the Philippine SEC approved the capital increase of Multisys.

Based on our judgment, at the PLDT Group level, PGIH’s investment in Multisys gives PGIH a joint control in Multisys and thus is accounted for as investment in joint venture using the equity method of accounting in accordance with IAS 28, Investments in Associates and Joint Ventures.  See Note 11 – Investment in Associates and Joint Ventures – Investment in Joint Ventures – Investment of PGIH in Multisys to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

Accounting for investments in MediaQuest Holdings, Inc., or MediaQuest, through Philippine Depositary Receipts (“PDRs”)

ePLDT made various investments in PDRs issued by MediaQuest in relation to its direct interest in Satventures, Inc. (“Satventures”), and indirect interest in Cignal TV, Inc. (“Cignal TV”).  

Based on our judgment, at the PLDT Group level, ePLDT’s investments in PDRs gives ePLDT a significant influence over Satventures and Cignal TV as evidenced by provision of essential technical information and material transactions among PLDT, Smart, Satventures and Cignal TV, and thus are accounted for as investments in associates using the equity method.

See related discussion on Note 11 – Investments in Associates and Joint Ventures – Investments in Associates – Investment of ePLDT in MediaQuest PDRs to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

Assessment of loss of control over VIH

The Company assesses the consequences of changes in the ownership interest in a subsidiary that may result in a loss of control as well as the consequence of losing control of a subsidiary during the reporting period.  Whether or not the Company retains control over the subsidiary depends on an evaluation of a number of factors that indicate if there are changes to one or more of the three elements of control.  When the Company has less than majority of the voting rights or similar rights to an investee, the Company considers all relevant facts and circumstances in assessing whether it has power over an investee, including, among others, representation on its board of directors, voting rights, and other rights of other investors, including their participation in significant decisions made in the ordinary course of business.

As a result of the subscriptions of the new investors in VIH, PCEV’s ownership interest was diluted to 48.74% as such and retained only two out of the five Board of Director seats in the investee.  Consequently, as at November 28, 2018, PCEV lost its control over VIH and accounted for its remaining interest as investment in an associate.  

As at December 31, 2021 and 2020, the Company holds 38.45% and 43.97% interest over VIH. PCEV will continue to account for its remaining interest as investment in associate.

See Note 11 – Investments in Associates and Joint Ventures – Investments in Associates – Investment of PCEV in VIH to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

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Accounting for investment of PCEV in Maya Bank

The shareholders’ agreement of the Bank Holdcos requires affirmative vote of at least one director nominated by both PCEV and VIH to direct the relevant activities of the Bank HoldCos. The Bank HoldCos were incorporated for the sole purpose of holding shares or equity investments in Maya Bank.  Because of the contractual arrangement between the parties, the investments in the Bank HoldCos are accounted as joint venture.

See Note 11 – Investments in Associates and Joint Ventures – Investments in Associates – Investment of PCEV in Maya Bank, Inc. (“Maya Bank”) to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

Accounting for investments in Vega Telecom Inc. (“VTI”), Bow Arken Holdings Company (“Bow Arken”) and Brightshare Holdings, Inc. (“Brightshare”)  

On May 30, 2016, PLDT acquired a 50% equity interest in each of VTI, Bow Arken and Brightshare.  See related discussion on Note 11 – Investments in Associates and Joint Ventures – Investments in Joint Ventures to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.  Based on the Memorandum of Agreement, PLDT and Globe Telecom, Inc. (“Globe”) each have the right to appoint half the members of the Board of Directors of each of VTI, Bow Arken and Brightshare, as well as the (i) co-Chairman of the Board; (ii) co-Chief Executive Officer and President; and (iii) co-Controller where any matter requiring their approval shall be deemed passed or approved if the consents of both co-officers holding the same position are obtained.  All decisions of each Board of Directors may only be approved if at least one director nominated by each of PLDT and Globe votes in favor of it.

Based on these rights, PLDT and Globe have joint control over VTI, Bow Arken and Brightshare, which is defined in IFRS 11, Joint Arrangements, as a contractually agreed sharing of control of an arrangement and exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.  Consequently, PLDT and Globe classified the joint arrangement as a joint venture in accordance with IFRS 11 given that PLDT and Globe each have the right to 50% of the net assets of VTI, Bow Arken and Brightshare and their respective subsidiaries.

Accordingly, PLDT accounted for the investment in VTI, Bow Arken and Brightshare using the equity method of accounting in accordance with IAS 28.  Under the equity method of accounting, the investment is initially recognized at cost and adjusted thereafter for the post-acquisition change in the investor’s share of the investee’s net assets.  See Note 11 – Investment in Associates and Joint Ventures – Investment in Joint Ventures – Investments of PLDT in VTI, Bow Arken and Brightshare to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

Accounting for investment in Beacon Electric Asset Holdings, Inc. (“Beacon”) under equity method

IAS 28 provides that where an entity holds 20% or more of the voting power (directly or through subsidiaries) of an investee, it will be presumed that the investor has significant influence, unless it can be clearly demonstrated that this is not the case.  If the ownership interest is less than 20%, the entity will be presumed not to have significant influence unless such influence can be clearly demonstrated.  

PCEV entered into Share Purchase Agreement with MPIC on May 30, 2016 and June 13, 2017, to sell its equity interest in Beacon for a total consideration of Php26,200 million and Php21,800 million, respectively.  Upon closing of these sale transactions, MPIC settled portion of the considerations and the balances are being paid in annual installments until June 2021.  Prior to the final settlement, the unpaid balance from MPIC was measured at fair value using discounted cash flow valuation method and interest income were accreted over the term of the receivable.

MPIC agreed that for as long as: (a) PCEV owns at least 20% of the outstanding capital stock of Beacon; or (b) the purchase price has not been fully paid by MPIC, PCEV shall retain the right to vote 50% of the outstanding capital stock of Beacon.  After the full payment has been settled in June 2021, PCEV ceased to hold significant influence over Beacon.  See Note 11 – Investments in Associates and Joint Ventures – Investments in Joint Ventures – Investment of PCEV in Beacon to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

Material partly-owned subsidiaries

Our consolidated financial statements include additional information about subsidiaries that have non-controlling interest, or NCI, that are material to us, see Note 6 – Components of Other Comprehensive Loss to the

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accompanying audited consolidated financial statements in Item 18. “Financial Statements”.  We determined material partly-owned subsidiaries as those with balance of NCI greater than 5% of the total equity as at December 31, 2021 and 2020.  

Material associates and joint ventures

Our consolidated financial statements include additional information about associates and joint ventures that are material to us.  See Note 11 – Investments in Associates and Joint Ventures to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.  We determined material associates and joint ventures are those investees where our carrying amount of investments is greater than 5% of the total investments in associates and joint ventures as at December 31, 2021 and 2020.  

Determining Taxable Profit, Tax Bases, Unused Tax Losses, Unused Tax Credits and Tax Rates

We assess whether we have any uncertain tax position and applies significant judgment in identifying uncertainties over our income tax treatments.  We determined based on our assessment that it is probable that our income tax treatments (including those for the subsidiaries) will be accepted by the taxation authorities.

Corporate Recovery and Tax Incentives for Enterprises (“CREATE”) Act

On March 26, 2021, President Rodrigo Duterte signed into law Republic Act No. 11534, or the CREATE Act, which introduced reforms to the corporate income tax and incentives systems.  It took effect 15 days after its complete publication in the Official Gazette or in a newspaper of general circulation, or on April 11, 2021.

The CREATE Act provides for the following reduction in corporate income tax rates, among others:

• Lower corporate income tax from 30% to 25%, retroactive to July 1, 2020, for both domestic and foreign corporations;

• Lower corporate income tax of 20% for small and medium domestic corporations (with net taxable income of Php5 million and below, and with total assets of not more than Php100 million excluding land); and

• Lower MCIT from 2% to 1% effective July 1, 2020 until June 30, 2023.

The CREATE Act was not considered substantially enacted as at December 31, 2020 and its passage into law on March 26, 2021 is considered as a non-adjusting subsequent event for 2020.  Accordingly, current and deferred taxes as at and for the year ended December 31, 2020 were computed and measured using the applicable tax rates as at December 31, 2020 (i.e. 30% RCIT / 2% MCIT) for financial reporting purposes.

Under the CREATE Act, the lower regular corporate income tax rate of 25% applies retroactively to July 1, 2020.

• Based on the provisions of BIR Revenue Regulations (RR) No. 05-2021 dated April 8, 2021, the applicable statutory tax rate for the calendar year ended December 31, 2020 is 27.5%.  This resulted in a reduction of provision for current income tax amounting to Php485 million, which was reflected as an adjustment in the 2020 Annual Income Tax Returns; and

• Deferred income tax assets and liabilities as at December 31, 2021 are remeasured using the applicable statutory tax rate of 25% under the CREATE Act.  This resulted in lower net deferred income tax assets and liabilities as at December 31, 2021 of Php3,125 million and additional provision for deferred income tax of Php579 million.

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The above adjustments in income tax provision were recognized in the first quarter of 2021.  Meanwhile, the tax rates provided for under the CREATE Act were used for the year ended December 31, 2021.

Estimates and Assumptions

The key estimates and assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities recognized in our consolidated financial statements within the next financial year are discussed below.  We based our estimates and assumptions on parameters available when our consolidated financial statements were prepared.  Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond our control.  Such changes are reflected in the assumptions when they occur.

Leases – Estimating the incremental borrowing rate, or IBR

In calculating the present value of lease payments, we use the IBR at the lease commencement date if the interest rate implicit in the lease is not readily determinable.  IBR is the rate of interest that a lessee would have to pay to borrow over a similar term, similar security, the funds necessary to obtain an asset of a similar value to the ROU asset in a similar economic environment.

We use benchmark rates from partner banks based on the tenor of our loan borrowings plus a spread adjustment based on our credit worthiness.

Our lease liabilities amounted to Php21,686 million and Php20,025 million as at December 31, 2021 and 2020, respectively.  See Note 10 – Leases to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

Loss of control over VIH – Fair value measurement of interest retained

A deemed disposal occurs where the proportionate interest of PLDT in a subsidiary is reduced other than by an actual disposal, for example, by the issuance of shares to a third party investor by the subsidiary.  When PLDT no longer has control, the remaining interest is measured at fair value as at the date the control was lost.  In determining the fair value of PLDT’s retained interest in VIH, we take into account recent transactions and all the facts and circumstances surrounding the transactions such as timing, transaction size, transaction frequency, and motivations of the investors.  We carefully assess the accounting implications of the stipulation in the shareholders’ agreements and consider whether such a transaction has been made at arm’s length.  See Note 11 – Investments in Associates and Joint Ventures – Investments in Associates – Investment of PCEV in VIH to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

Impairment of non-financial assets

IFRS requires that an impairment review be performed when certain impairment indicators are present.  In the case of goodwill and intangible assets with indefinite useful life, at a minimum, such assets are subject to an impairment test annually and whenever there is an indication that such assets may be impaired.  This requires an estimation of the VIU of the CGUs to which these assets are allocated.  The VIU calculation requires us to make an estimate of the expected future cash flows from the CGU and to choose a suitable discount rate in order to calculate the present value of those cash flows.  See Note 15 – Goodwill and Intangible Assets – Impairment Testing of Goodwill to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for the key assumptions used to determine the VIU of the relevant CGUs.

Determining the recoverable amount of property and equipment, ROU assets, investments in associates and joint ventures, goodwill and intangible assets, prepayments and other noncurrent assets, requires us to make estimates and assumptions in the determination of future cash flows expected to be generated from the continued use and ultimate disposition of such assets.  Future events could cause us to conclude that property and equipment, ROU assets, investments in associates and joint ventures, intangible assets and other noncurrent assets associated with an acquired business are impaired.  Any resulting impairment loss could have a material adverse impact on our financial position and financial performance.

The preparation of estimated future cash flows involves significant estimations and assumptions of future market conditions.  While we believe that our assumptions are appropriate and reasonable, significant changes in our assumptions may materially affect our assessment of recoverable values and may lead to future impairment charges under IFRS.  

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See Note 4 – Operating Segment Information, Note 5 – Income and Expenses – Asset Impairment, and Note 9 – Property and Equipment to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

The carrying values of our property and equipment, ROU assets, investments in associates and joint ventures, investment properties, goodwill and intangible assets, and prepayments are separately disclosed in Note 9 – Property and Equipment, Note 10 – Leases, Note 11 – Investments in Associates and Joint Ventures, Note 14 – Investment Properties, Note 15 – Goodwill and Intangible Assets and Note 19 – Prepayments, respectively, to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

Estimating useful lives of property and equipment

We estimate the useful lives of each item of our property and equipment based on the periods over which our assets are expected to be available for use.  Our estimation of the useful lives of our property and equipment is also based on our collective assessment of industry practice, internal technical evaluation and experience with similar assets.  The estimated useful lives of each assets are reviewed every year-end and updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limitations on the use of our assets.  It is possible, however, that future results of operations could be materially affected by changes in our estimates brought about by changes in the factors mentioned above.  The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances.  A reduction in the estimated useful lives of our property and equipment would increase our recorded depreciation and decrease the carrying amount of our property and equipment.

In 2019, Smart shortened its estimated useful lives of certain network, technology and other equipment, the most significant of which are the 2G technology-related equipment in preparation for the shutdown of said technology.  The shutdown is part of our strategy to address increasing demand for data and data centric applications by moving to faster speed LTE and 5G technologies.  As a result, Smart recognized additional depreciation expense of Php1,397 million in 2021, Php1,458 million in 2020 and Php1,508 million in 2019.  Smart expects additional depreciation expense arising from the acceleration of the estimated useful lives of the affected equipment amounting to Php46 million in each of the years 2022 and 2023.

In 2019, PLDT increased its estimated useful life of certain information origination and termination equipment and central office equipment due to technology advancement allowing longer economic life of the subscriber equipment. As a result, PLDT recognized a decrease in depreciation amounting to Php1,719 million for the year ended December 31, 2019.

In 2020, Smart shortened its estimated useful lives of certain network, technology and other equipment, the most significant of which are the 3G technology-related equipment in preparation for the shutdown of said technology.  The shutdown is the next phase of our strategy to migrate to faster speed LTE and 5G technologies.  Smart also shortened the estimated useful lives of certain network equipment as a result of transformation and cost reengineering initiatives.  As a result, Smart recognized additional depreciation expense of Php1,406 million and Php3,035 million in 2021 and 2020, respectively.  Smart expects additional depreciation arising from the acceleration of estimated useful lives of the technology equipment amounting to Php1,110 million in each of the years from 2022 to 2024.

In 2020, PLDT shortened its estimated useful lives of certain network equipment resulting from the Asymmetric Digital Subscriber Line migration projects from copper to fiber-to-the home to improve better quality of service for its existing broadband subscribers and address the growing demand for higher internet speed brought about by work from home and online classes. As a result, PLDT recognized additional depreciation expense of Php1,028 million in 2020.

In 2021, Smart accelerated the depreciation of certain equipment as a result of its Technology Group initiatives such as IT and Tech refresh programs, core modernization and support replacements.  Additional depreciation expense recognized from these equipment amounted to Php1,138 million in 2021 and no additional depreciation expense is expected in subsequent periods.

The total depreciation and amortization of property and equipment amounted to Php46,781 million, Php42,540 million and Php35,263 million for the years ended December 31, 2021, 2020 and 2019, respectively.  Total carrying values of property and equipment, net of accumulated depreciation and amortization, amounted to Php302,736 million and Php260,868 million as at December 31, 2021 and 2020, respectively.  See Note 4 – Operating Segment Information and Note 9 – Property and Equipment to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

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Estimating useful lives of intangible assets with finite lives

Intangible assets with finite lives are amortized over their expected useful lives using the straight-line method of amortization.  At a minimum, the amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year-end.  Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates.  The amortization expense on intangible assets with finite lives is recognized in our consolidated income statements.

In October 2020, we implemented the rebranding of Sun Prepaid into Smart Prepaid.  As a result, the “Sun Cellular” trademark of DMPI which had been previously projected to be of continued use and was accordingly estimated to have an indefinite life was subsequently treated as having a finite life and was amortized over a period of 12 months starting August 2020.  See Note 2 – Summary of Significant Accounting Policies – Sun Prepaid Rebranding to Smart Prepaid and Note 15 – Goodwill and Intangible Assets – Amortization of Sun Cellular Trademark to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

The total amortization of intangible assets with finite lives amounted to Php2,822 million, Php2,496 million and Php758 million for the years ended December 31, 2021, 2020 and 2019, respectively.  Total carrying values of intangible assets with finite lives amounted to Php1,156 million and Php3,950 million as at December 31, 2021 and 2020, respectively. See Note 4 – Operating Segment Information, Note 5 – Income and Expenses – Selling, General and Administrative Expenses and Note 15 – Goodwill and Intangible Assets to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

Recognition of deferred income tax assets

We review the carrying amounts of deferred income tax assets at the end of each reporting period and reduce these to the extent that these are no longer probable that sufficient taxable income will be available to allow all or part of the deferred income tax assets to be utilized.  Our assessment on the recognition of deferred income tax assets on deductible temporary differences is based on the level and timing of forecasted taxable income of the subsequent reporting periods.  This forecast is based on our past results and future expectations on revenues and expenses as well as future tax planning strategies.  Based on this, management expects that we will generate sufficient taxable income to allow all or part of our deferred income tax assets to be utilized.  

Based on the above assessment, our consolidated unrecognized deferred income tax assets amounted to Php901 million and Php1,940 million as at December 31, 2021 and 2020, respectively.  Total consolidated provision from deferred income tax amounted to Php2,348 million, Php3,989 million and Php6,267 million for the years ended December 31, 2021, 2020 and 2019, respectively.  Total consolidated recognized net deferred income tax assets amounted to Php13,385 million and Php19,556 million as at December 31, 2021 and 2020, respectively.  See Note 4 – Operating Segment Information and Note 7 – Income Taxes to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

Estimating allowance for expected credit losses (“ECLs”)

a. Measurement of ECLs

ECLs are derived from unbiased and probability-weighted estimates of expected loss, and are measured as follows:

• Financial assets that are not credit-impaired at the reporting date: as the present value of all cash shortfalls over the expected life of the financial asset discounted by the EIR.  The cash shortfall is the difference between the cash flows due to us in accordance with the contract and the cash flows that we expect to receive; and

• Financial assets that are credit-impaired at the reporting date: as the difference between the gross carrying amount and the present value of estimated future cash flows discounted by the EIR.

We leverage existing risk management indicators (e.g. internal credit risk classification and restructuring triggers), credit risk rating changes and reasonable and supportable information which allow us to identify whether the credit risk of financial assets has significantly increased.

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b. Inputs, assumptions and estimation techniques

• General approach for cash in bank, short-term investments, debt securities, financial assets at FVOCI and advances and other noncurrent assets

The ECL is measured on either a 12-month or lifetime basis depending on whether a significant increase in credit risk has occurred since initial recognition.  We consider the probability of our counterparty to default its obligation and the expected loss at default after considering the effects of collateral, any potential value when realized and time value of money.  We consider the impact of the COVID-19 pandemic on the operations and financial standing of the counterparties during our assessment on significant increase in credit risk.  Based on our assessment, there is no significant increase in credit risk and the ECL for these financial assets under general approach are measured on a 12-month basis.

The assumptions underlying the ECL calculation are monitored and reviewed on a quarterly basis.

• Simplified approach for trade and other receivables and contract assets

The simplified approach does not require the tracking of changes in credit risk, but instead requires the recognition of lifetime ECL.  For trade receivables and contract assets, we use the simplified approach for calculating ECL.  We have considered similarities in underlying credit risk characteristics and behavior in determining the groupings of various customer segments.

We used historically observed default rates and adjusted these historical credit loss experience with forward-looking information.  At every reporting date, the historical default rates are updated and changes in the forward-looking estimates are analyzed.

There have been no significant changes in the estimation techniques used for calculating ECL on trade and other receivables and contract assets.  

• Incorporation of forward-looking information

We incorporated forward-looking information into both our assessment of whether the credit risk of an instrument has increased significantly since its initial recognition and our measurement of ECL.  

To do this, management considered a range of relevant forward-looking macro-economic assumptions and probability weights for the determination of unbiased general industry adjustments and any related specific industry adjustments that support the calculation of ECLs.  

The macro-economic factors are aligned with information used by us for other purposes such as strategic planning and budgeting.  

The probability weights used in the calculation of ECLs cover a range of possible outcomes and consider the severity of the impact of COVID-19 and the expected timing/duration of the recovery from the pandemic.

We have identified and documented key drivers of credit risk and credit losses of each portfolio of financial instruments and, using an analysis of historical data, has estimated relationships between macro-economic variables and credit risk and credit losses.

Predicted relationship between the key indicators and default and loss rates on various portfolios of financial assets have been developed based on analyzing historical data over the past three to eight years.  The methodologies and assumptions including any forecasts of future economic conditions are reviewed regularly.

We have not identified any uncertain event that it has assessed to be relevant to the risk of default occurring but where we are not able to estimate the impact on ECL due to lack of reasonable and supportable information.

Total provision for expected credit losses for trade and other receivables amounted to Php3,737 million, Php6,446 million and Php4,071 million for the years ended December 31, 2021, 2020 and 2019, respectively.  Trade and other receivables, net of allowance for expected credit losses, amounted to Php21,790 million and Php22,053 million as at December 31, 2021 and 2020, respectively.  See Note 5 – Income and Expenses and Note 17 – Trade and Other Receivables to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

Total impairment losses for contract assets amounted to Php253 million, Php266 million and Php291 million for

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the years ended December 31, 2021, 2020 and 2019, respectively.  Contract assets, net of allowance for expected credit losses, amounted to Php2,251 million and Php2,467 million as at December 31, 2021 and 2020, respectively.  See Note 5 – Income and Expenses – Contract Balances to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

• Grouping of instruments for losses measured on collective basis

A broad range of forward-looking information were considered as economic inputs such as the gross domestic product, or GDP, inflation rate, unemployment rates, export rates, G20 GDP and G20 inflation rates.  For expected credit loss provisions modelled on a collective basis, grouping of exposures is performed on the basis of shared risk characteristics, such that risk exposures within a group are homogeneous.  In performing this grouping, there must be sufficient information for the PLDT Group to be statistically acceptable.  Where sufficient information is not available internally, then we have considered benchmarking internal/external supplementary data to use for modelling purposes.  The characteristics and any supplementary data used to determine groupings are outlined below.

Trade receivables – Groupings for collective measurement

a. Retail subscribers;

b. Corporate subscribers;

c. Foreign administrations and domestic carriers; and

d. Dealers, agents and others

The following credit exposures are assessed individually:

• All stage 3 assets, regardless of the class of financial assets; and

• The cash and cash equivalents, investment in debt securities and financial assets at FVOCI, and other financial assets.

Estimating pension benefit costs and other employee benefits

The cost of defined benefit and present value of the pension obligation are determined using the projected unit credit method.  An actuarial valuation includes making various assumptions which consists, among other things, discount rates, rates of compensation increases and mortality rates.  Further, our accrued benefit cost is affected by the fair value of the plan assets.  Key assumptions used to estimate fair value of the unlisted equity investments included in the plan assets consist of revenue growth rate, direct costs, capital expenditures, discount rates and terminal growth rates.  See Note 26 – Pension and Other Employee Benefits to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.  Due to complexity of valuation, the underlying assumptions and its long-term nature, a defined benefit obligation is highly sensitive to changes in assumptions.  While we believe that our assumptions are reasonable and appropriate, significant differences in our actual experience or significant changes in our assumptions may materially affect our cost for pension and other retirement obligations.  All assumptions are reviewed every year-end.

Net consolidated pension benefit costs amounted to Php2,213 million, Php2,218 million and Php1,018 million for the years ended December 31, 2021, 2020 and 2019, respectively.  The prepaid benefit costs amounted to Php1,018 million and Php1,021 million as at December 31, 2021 and 2020, respectively.  The accrued benefit costs amounted to Php7,760 million and Php13,342 million as at December 31, 2021 and 2020, respectively.  See Note 5 – Income and Expenses – Compensation and Employee Benefits, Note 19 – Prepayments and Note 26 – Pension and Other Employee Benefits to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.    

Cycle 1 TIP

On September 26, 2017, the Board of Directors of PLDT approved the TIP which intends to provide incentive compensation to key officers, executives and other eligible participants who are consistent performers and contributors to the Company’s strategic and financial goals.  The incentive compensation will be in the form of Performance Shares, PLDT common shares of stock, which will be released in three annual grants on the condition, among others, that pre-determined consolidated core net income targets are successfully achieved over three annual performance periods from January 1, 2017 to December 31, 2019.  On September 26, 2017, the

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Board of Directors approved the acquisition of 860 thousand Performance Shares to be awarded under the TIP.  On March 7, 2018, the ECC of the Board approved the acquisition of additional 54 thousand shares, increasing the total Performance Shares to 914 thousand.   Metropolitan Bank and Trust Company (“Metrobank”) through its Trust Banking Group, is the appointed Trustee of the trust established for purposes of the TIP.  The Trustee is designated to acquire the PLDT common shares in the open market through the facilities of the PSE and administer their distribution to the eligible participants subject to the terms and conditions of the TIP.  

On December 11, 2018, the ECC, of the Board approved Management’s recommended modifications to the Plan, and partial equity and cash settled set-up was implemented for the 2019 TIP Grant.  The revised set-up includes a fixed number of shares that will be granted (“equity award”) and the estimated fair value of the difference between the number of shares granted in the original equity grant and the equity award will be paid in cash (“cash award”).  The fair value of the cash award is determined at each reporting date using the estimated fair value of the corresponding shares.  

As at May 11, 2021, a total of 757 thousand PLDT common shares have been acquired by the Trustee, of which 239 thousand PLDT common shares have been released on March 12, 2020, April 7, 2020 and January 19, 2021 for the 2019 annual grant, and 302 thousand PLDT common shares have been released on March 28, 2019 for the 2018 annual grant, and 204 thousand shares on April 15, 2018 for the 2017 annual grant.  With the completion of the 2017 to 2019 annual grants, the remaining 12 thousand PLDT common shares have been transferred to the PLDT Beneficial Trust Fund on May 11, 2021.  The cash award for the 2019 annual grant that was paid on March 12, 2020 amounted to Php654 million. The TIP is administered by the ECC of the Board.  

Cycle 2 TIP

On August 7, 2020, the ECC approved the adjusted TIP that covers the years 2020 and 2021, and will be settled in cash.  The cash grant will be for the two years covered and payment will be in 2022.  The Cycle 2 TIP will be based on the achievement of the CCNI for the years 2020 and 2021.

This other long-term employee benefit liability is recognized and measured using the projected unit credit method and to be amortized on a straight-line basis over the vesting period.  

The expense accrued for the TIP amounted to Php1,186 million, Php1,134 million and Php638 million for the years ended December 31, 2021, 2020 and 2019, respectively.  The accrued incentive payable, representing the cash settled set-up amounted to Php1,186 million and Php1,134 million as at December 31, 2021 and 2020, respectively.  See Note 5 – Income and Expenses – Compensation and Employee Benefits and Note 26 – Pension and Other Employee Benefits – Other Long-term Employee Benefits to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.  

Provision for asset retirement obligations

Provision for asset retirement obligations are recognized in the period in which these are incurred if a reasonable estimate can be made.  This requires an estimation of the cost to restore or dismantle on a per square meter basis, depending on the location, and is based on the best estimate of the expenditure required to settle the obligation at the future restoration or dismantlement date, discounted using a pre-tax rate that reflects the current market assessment of the time value of money and, where appropriate, the risk specific to the liability.  Total provision for asset retirement obligations amounted to Php2,121 million and Php2,000 million as at December 31, 2021 and 2020, respectively.  See Note 22 – Deferred Credits and Other Noncurrent Liabilities to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

Provision for legal contingencies and tax assessments

We are currently involved in various legal proceedings and tax assessments.  Our estimates of the probable costs for the resolution of these claims have been developed in consultation with our counsel handling the defense in these matters and are based upon our analysis of potential results.  We currently do not believe these proceedings could materially reduce our revenues and profitability.  It is possible, however, that future financial position and performance could be materially affected by changes in our estimates or effectiveness of our strategies relating to these proceedings and assessments.  See Note 27 – Provisions and Contingencies to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

Based on management’s assessment, appropriate provisions were made; however, management has decided not to disclose further details of these provisions as they may prejudice our position in certain legal proceedings.

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Determination of fair values of financial assets and financial liabilities

When the fair value of financial assets and financial liabilities recorded in our consolidated statements of financial position cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the discounted cash flows model.  The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values.  The judgments include considerations of inputs such as liquidity risk, credit risk and volatility.  Changes in assumptions about these factors could affect the reported fair value of financial instruments.

Other than those whose carrying amounts are reasonable approximations of fair values, total fair values of noncurrent financial assets and noncurrent financial liabilities as at December 31, 2021 amounted to Php3,067 million and Php244,568 million, respectively, while the total fair values of noncurrent financial assets and noncurrent financial liabilities as at December 31, 2020 amounted to Php3,724 million and Php217,291 million, respectively. See Note 28 – Financial Assets and Liabilities to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

New Accounting Standards and Interpretations to Existing Standards Effective Subsequent to December 31, 2021

See Note 2 – Summary of Significant Accounting Policies to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for the discussion of new accounting standards that will become effective subsequent to December 31, 2021 and their anticipated impact on our consolidated financial statements for the current and future periods.

Results of Operations

The table below shows the contribution by each of our business segments to our consolidated revenues, expenses, other income (expenses), income (loss) before income tax, provision for income tax, net income (loss), segment profit (loss), Adjusted EBITDA, Adjusted EBITDA margin and core income for the years ended December 31, 2021, 2020 and 2019.  In each of the years ended December 31, 2021, 2020 and 2019, the majority of our revenues was derived from our operations within the Philippines.  Our revenues derived from outside the Philippines consist primarily of revenues from incoming international calls to the Philippines.  

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	Wireless			Fixed Line			Others			Inter- segment Transactions			Consolidated
				(amounts in million Php)
For the year ended December 31, 2021
Revenues		106,619			117,063			—			(30,425	)		193,257
Expenses		89,172			93,370			7			(30,053	)		152,496
Other income (expenses) – net		(4,647	)		6,556			121			(8,637	)		(6,607	)
Income before income tax		12,800			30,249			114			(9,009	)		34,154
Provision for (benefit from) income tax		3,366			4,103			(270	)		279			7,478
Net income (loss)/Segment profit (loss)		9,434			26,146			384			(9,288	)		26,676
Adjusted EBITDA		60,876			45,832			(7	)		(10,801	)		95,900
Adjusted EBITDA margin(1)		61	%		39	%		—			—			52	%
Core income (loss)		13,645			26,298			(666	)		(9,340	)		29,937
Telco core income		13,645			25,736			192			(9,340	)		30,233
For the year ended December 31, 2020(2)
Revenues		104,211			98,739			—			(21,946	)		181,004
Expenses		81,569			84,717			12			(21,476	)		144,822
Other income (expenses) – net		(2,940	)		4,221			(923	)		(3,519	)		(3,161	)
Income (loss) before income tax		19,702			18,243			(935	)		(3,989	)		33,021
Provision for (benefit from) income tax		4,536			3,734			(617	)		788			8,441
Net income (loss)/Segment profit (loss)		15,166			14,509			(318	)		(4,777	)		24,580
Adjusted EBITDA		60,272			33,405			(12	)		(7,507	)		86,158
Adjusted EBITDA margin(1)		61	%		34	%		—			—			50	%
Core income		16,440			15,463			193			(4,967	)		27,129
Telco core income		17,217			13,649			2,188			(4,967	)		28,087
For the year ended December 31, 2019
Revenues		96,906			89,406			—			(17,125	)		169,187
Expenses		74,359			72,385			101			(17,059	)		129,786
Other income (expenses) – net		(5,023	)		(259	)		(2,112	)		329			(7,065	)
Income (loss) before income tax		17,524			16,762			(2,213	)		263			32,336
Provision for (benefit from) income tax		4,423			5,341			(444	)		230			9,550
Net income (loss)/Segment profit (loss)		13,101			11,421			(1,769	)		33			22,786
Adjusted EBITDA		52,789			33,162			(101	)		(6,035	)		79,815
Adjusted EBITDA margin(1)		58	%		38	%		—			—			49	%
Core income (loss)		13,685			12,531			(1,151	)		46			25,111
Telco core income		14,063			12,531			440			46			27,080

⁽¹⁾ Adjusted EBITDA margin for the year is measured as Adjusted EBITDA divided by service revenues.

⁽²⁾ Certain amounts for the year ended December 31, 2020 were reclassified to conform with the current year presentation.

Years Ended December 31, 2021 and 2020

On a Consolidated Basis

Revenues

We reported consolidated revenues of Php193,257 million in 2021, an increase of Php12,253 million, or 7%, as compared with Php181,004 million in 2020, primarily due to higher revenues from broadband and data services in our Wireless and Fixed Line business segments, and higher revenues from voice services in our Fixed Line business segment, partially offset by lower revenues from voice and SMS services in our Wireless business segment.

Our consolidated service revenues of Php185,751 million in 2021, increased by Php12,117 million, or 7%, from Php173,634 million in 2020.  Our consolidated non-service revenues of Php7,506 million in 2021, increased by Php136 million, or 2%, from Php7,370 million in 2020.

Consolidated service revenues, net of interconnection costs, amounted to Php182,053 million in 2021, an increase of Php10,565 million, or 6%, from Php171,488 million in 2020.

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The following table shows the breakdown of our consolidated revenues by services for the years ended December 31, 2021 and 2020:

	Wireless		Fixed Line		Inter- segment Transactions			Consolidated
	(amounts in million Php)
For the year ended December 31, 2021
Service Revenues
Wireless		99,639				(1,127	)		98,512
Mobile		96,538				(919	)		95,619
Fixed Wireless broadband		2,889				—			2,889
MVNO and others		212				(208	)		4
Fixed Line				116,529		(29,290	)		87,239
Voice				37,232		(17,010	)		20,222
Data				78,576		(11,952	)		66,624
Home broadband				39,723		(47	)		39,676
Corporate data and ICT				38,853		(11,905	)		26,948
Miscellaneous				721		(328	)		393
Total Service Revenues		99,639		116,529		(30,417	)		185,751
Non-Service Revenues
Sale of computers, phone units, mobile handsets and broadband data modems		6,980		454		—			7,434
Point-product sales		—		80		(8	)		72
Total Non-Service Revenues		6,980		534		(8	)		7,506
Total Revenues		106,619		117,063		(30,425	)		193,257
For the year ended December 31, 2020
Service Revenues
Wireless		98,170				(2,422	)		95,748
Mobile		97,566				(1,977	)		95,589
Fixed Wireless broadband		40				—			40
MVNO and others		564				(445	)		119
Fixed Line				97,410		(19,524	)		77,886
Voice				29,541		(10,057	)		19,484
Data				67,183		(9,119	)		58,064
Home broadband				33,045		(81	)		32,964
Corporate data and ICT				34,138		(9,038	)		25,100
Miscellaneous				686		(348	)		338
Total Service Revenues		98,170		97,410		(21,946	)		173,634
Non-Service Revenues
Sale of computers, phone units, mobile handsets and broadband data modems		6,041		1,140		—			7,181
Point-product sales		—		189		—			189
Total Non-Service Revenues		6,041		1,329		—			7,370
Total Revenues		104,211		98,739		(21,946	)		181,004

The following table shows the breakdown of our consolidated revenues by business segment for the years ended December 31, 2021 and 2020:

													Change
	2021			%			2020			%			Amount			%
	(amounts in million Php)
Wireless		106,619			55			104,211			58			2,408			2
Fixed Line		117,063			61			98,739			54			18,324			19
Inter-segment transactions		(30,425	)		(16	)		(21,946	)		(12	)		(8,479	)		(39	)
Consolidated		193,257			100			181,004			100			12,253			7

Our consolidated revenues are further segmented by market, based on the type of customers served.  “Home” refers to household subscribers, “Individual” covers mobile wireless individual customers, “Enterprise”

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encompasses business-based customers, corporate or micro, small and medium enterprises, and “International” refers to international carrier customers.

The following table shows our consolidated revenues by market segment for each of our business segments for the years ended December 31, 2021 and 2020:

													Change
	2021			%			2020(1)			%			Amount			%
	(amounts in million Php)
Wireless		99,639			51			98,170			54			1,469			1
Individual		85,860			44			84,784			47			1,076			1
Home		394			—			442			—			(48	)		(11	)
Enterprise		9,205			5			8,142			4			1,063			13
International		4,180			2			4,802			3			(622	)		(13	)
Fixed Line		116,529			61			97,410			54			19,119			20
Individual		612			—			2,949			2			(2,337	)		(79	)
Home		47,864			25			38,601			21			9,263			24
Enterprise		45,851			24			42,341			23			3,510			8
International		22,111			12			13,414			8			8,697			65
Others		91			—			105			—			(14	)		(13	)
Inter-segment Transactions		(30,417	)		(16	)		(21,946	)		(12	)		(8,471	)		(39	)
Total Service Revenues		185,751			96			173,634			96			12,117			7
Wireless		6,980			4			6,041			4			939			16
Individual		5,675			3			4,453			3			1,222			27
Enterprise		1,289			1			1,579			1			(290	)		(18	)
International		16			—			9			—			7			78
Fixed Line		534			—			1,329			—			(795	)		(60	)
Individual		66			—			572			—			(506	)		(88	)
Home		237			—			190			—			47			25
Enterprise		231			—			567			—			(336	)		(59	)
Inter-segment Transactions		(8	)		—			—			—			(8	)		(100	)
Total Non-Service Revenues		7,506			4			7,370			4			136			2
Total Revenues		193,257			100			181,004			100			12,253			7

⁽¹⁾ Certain amounts for the year ended December 31, 2020 were reclassifed to conform with the current year presentation.

Expenses

Consolidated expenses increased by Php7,674 million, or 5%, to Php152,496 million in 2021 from Php144,822 million in 2020, primarily due to higher interconnection costs, and depreciation and amortization in our Fixed Line and Wireless business segments, as well as higher cost of sales and services in our Wireless business segment, partially offset by lower provisions in our Fixed Line and Wireless business segments.

The following table shows the breakdown of our consolidated expenses by business segment for the years ended December 31, 2021 and 2020:

													Change
	2021			%			2020			%			Amount			%
	(amounts in million Php)
Wireless		89,172			59			81,569			56			7,603			9
Fixed Line		93,370			61			84,717			59			8,653			10
Others		7			—			12			—			(5	)		(42	)
Inter-segment transactions		(30,053	)		(20	)		(21,476	)		(15	)		(8,577	)		(40	)
Consolidated		152,496			100			144,822			100			7,674			5

Other Income (Expenses) – Net

Consolidated other expenses – net amounted to Php6,607 million in 2021, an increase of Php3,446 million, or 109%, from Php3,161 million in 2020, primarily due to the combined effects of the following: (i) foreign exchange losses in 2021 as against foreign exchange gains in 2020 from our Fixed Line and Wireless business segments; (ii) lower equity share in net losses from our Other business segment; and (iii) gains on derivative

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financial instruments in 2021 as against losses on derivative financial instruments from our Fixed Line and Wireless business segments.

The following table shows the breakdown of our consolidated other income (expenses) – net by business segment for the years ended December 31, 2021 and 2020:

							Change
	2021			2020			Amount			%
	(amounts in million Php)
Wireless		(4,647	)		(2,940	)		(1,707	)		(58	)
Fixed Line		6,556			4,221			2,335			55
Others		121			(923	)		1,044			113
Inter-segment transactions		(8,637	)		(3,519	)		(5,118	)		(145	)
Consolidated		(6,607	)		(3,161	)		(3,446	)		(109	)

Net Income

Consolidated net income increased by Php2,096 million, or 9%, to Php26,676 million in 2021 from Php24,580 million in 2020, primarily due to higher net income from our Fixed Line and Other business segments, partially offset by lower net income from our Wireless business segment.  Our consolidated basic and diluted EPS increased to Php121.76 in 2021 from Php112.12 in 2020.  Our weighted average number of outstanding common shares was approximately 216.06 million in each of 2021 and 2020.

The following table shows the breakdown of our consolidated net income (loss) by business segment for the years ended December 31, 2021 and 2020:

													Change
	2021			%			2020			%			Amount			%
	(amounts in million Php)
Wireless		9,434			35			15,166			62			(5,732	)		(38	)
Fixed Line		26,146			98			14,509			59			11,637			80
Others		384			2			(318	)		(1	)		702			221
Inter-segment transactions		(9,288	)		(35	)		(4,777	)		(20	)		(4,511	)		(94	)
Consolidated		26,676			100			24,580			100			2,096			9

Adjusted EBITDA

Our consolidated Adjusted EBITDA amounted to Php95,900 million in 2021, an increase of Php9,742 million, or 11%, as compared with Php86,158 million in 2020, primarily due to higher Adjusted EBITDA from our Fixed Line and Wireless business segments.  

The following table shows the breakdown of our consolidated Adjusted EBITDA by business segment for the years ended December 31, 2021 and 2020:

													Change
	2021			%			2020			%			Amount			%
	(amounts in million Php)
Wireless		60,876			63			60,272			70			604			1
Fixed Line		45,832			48			33,405			39			12,427			37
Others		(7	)		—			(12	)		—			5			42
Inter-segment transactions		(10,801	)		(11	)		(7,507	)		(9	)		(3,294	)		(44	)
Consolidated		95,900			100			86,158			100			9,742			11

Our consolidated Adjusted EBITDA excluding manpower rightsizing program, or MRP, amounted to Php96,169 million in 2021, an increase of Php7,386 million, or 8%, as compared with Php88,783 million in 2020.  Adjusted for the impact of Typhoon Odette, our consolidated Adjusted EBITDA excluding MRP would have been Php97,060 million, an increase of Php8,277 million, or 9% from last year.

Core Income

Our consolidated core income amounted to Php29,937 million in 2021, an increase of Php2,808 million, or 10%, as compared with Php27,129 million in 2020, mainly on account of higher Adjusted EBITDA, lower provision

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for income tax, and lower equity share in net losses of associates and joint ventures, partly offset by higher depreciation and amortization and financing costs, and lower other miscellaneous income.  Our consolidated basic and diluted core EPS increased to Php138.29 in 2021 from Php125.29 in 2020.  

The following table shows the breakdown of our consolidated core income by business segment for the years ended December 31, 2021 and 2020:

													Change
	2021			%			2020			%			Amount			%
	(amounts in million Php)
Wireless		13,645			46			16,440			60			(2,795	)		(17	)
Fixed Line		26,298			88			15,463			57			10,835			70
Others		(666	)		(2	)		193			1			(859	)		(445	)
Inter-segment transactions		(9,340	)		(32	)		(4,967	)		(18	)		(4,373	)		(88	)
Consolidated		29,937			100			27,129			100			2,808			10

Telco Core Income

Our consolidated telco core income amounted to Php30,233 million in 2021, an increase of Php2,146 million, or 8%, as compared with Php28,087 million in 2020, mainly due to higher Adjusted EBITDA and lower provision for income tax, partially offset by higher depreciation and amortization, and financing costs.  Excluding the impact of Typhoon Odette, our consolidated telco core income would have been Php31,029 million, an increase of Php2,942 million, or 10% from last year.

The following table shows the breakdown of our consolidated telco core income by business segment for the years ended December 31, 2021 and 2020:

													Change
	2021			%			2020			%			Amount			%
	(amounts in million Php)
Wireless		13,645			45			17,217			61			(3,572	)		(21	)
Fixed Line		25,736			85			13,649			49			12,087			89
Others		192			1			2,188			8			(1,996	)		(91	)
Inter-segment transactions		(9,340	)		(31	)		(4,967	)		(18	)		(4,373	)		(88	)
Consolidated		30,233			100			28,087			100			2,146			8

On a Business Segment Basis

Wireless

Revenues

We generated revenues of Php106,619 million from our Wireless business segment in 2021, an increase of Php2,408 million, or 2%, from Php104,211 million in 2020.  

The following table summarizes our total revenues by service from our Wireless business segment for the years ended December 31, 2021 and 2020:

									Increase (Decrease)
	2021		%		2020		%		Amount			%
	(amounts in million Php)
Service Revenues:
Mobile		96,538		90		97,566		93		(1,028	)		(1	)
Fixed Wireless broadband(1)		2,889		3		40		—		2,849			7,123
MVNO and others(2)		212		—		564		1		(352	)		(62	)
Total Wireless Service Revenues		99,639		93		98,170		94		1,469			1
Non-Service Revenues:
Sale of mobile handsets and broadband data modems		6,980		7		6,041		6		939			16
Total Wireless Revenues		106,619		100		104,211		100		2,408			2

⁽¹⁾ Includes service revenues from PHW beginning February 2021.

⁽²⁾ Includes service revenues generated by MVNOs of PLDT Global subsidiaries and facility service fees.

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Service Revenues

Our wireless service revenues increased by Php1,469 million, or 1%, to Php99,639 million in 2021 as compared with Php98,170 million in 2020, primarily due to higher fixed wireless broadband revenues, partly offset by lower revenues from mobile, and MVNO and other services.  As a percentage of our total wireless revenues, service revenues accounted for 93% and 94% in 2021 and 2020, respectively.  

Wireless service revenues, net of interconnection costs, amounted to Php98,956 million in 2021, an increase of Php1,253 million, or 1%, from Php97,703 million in 2020.

Mobile Services

Our mobile service revenues amounted to Php96,538 million in 2021, a decrease of Php1,028 million, or 1%, from Php97,566 million in 2020.  Mobile service revenues accounted for 97% and 99% of our wireless service revenues in 2021 and 2020, respectively.  

The following table shows the breakdown of our mobile service revenues for the years ended December 31, 2021 and 2020:

									Increase (Decrease)
	2021		%		2020		%		Amount			%
	(amounts in million Php)
Mobile Services:
Data		70,644		73		66,731		69		3,913			6
Voice		17,774		18		21,542		22		(3,768	)		(17	)
SMS		6,603		7		6,937		7		(334	)		(5	)
Inbound roaming and others(1)		1,517		2		2,356		2		(839	)		(36	)
Total		96,538		100		97,566		100		(1,028	)		(1	)

⁽¹⁾ Refers to other non-subscriber-related revenues consisting primarily of inbound international roaming fees and facility service fees.

Data Services

Mobile revenues from our data services, which include mobile internet, mobile broadband and other data services, increased by Php3,913 million, or 6%, to Php70,644 million in 2021 from Php66,731 million in 2020 due to sustained growth in mobile internet usage that was mainly driven by the continued increase in demand for data connectivity.  This was further boosted by enhanced data products, and continuous network improvement, LTE migration and 5G roll-out.  

Smart also launched brand campaigns to promote 5G network usage with the aggressive roll-out of over 7,000 5G sites during the year.  In 2021, Smart introduced Giga 5G promos, 5G-ready prepaid SIMs, and Signature Plans+, a postpaid line up that features unlimited 5G access.

Data services accounted for 73% and 69% of our mobile service revenues in 2021 and 2020, respectively.

The following table shows the breakdown of our mobile data service revenues for the years ended December 31, 2021 and 2020:

									Increase (Decrease)
	2021		%		2020		%		Amount			%
	(amounts in million Php)
Data Services:
Mobile internet(1)		66,320		94		62,327		93		3,993			6
Mobile broadband		2,797		4		3,171		5		(374	)		(12	)
Other data		1,527		2		1,233		2		294			24
Total		70,644		100		66,731		100		3,913			6

⁽¹⁾ Includes revenues from web-based services, net of discounts and content provider costs.

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Mobile Internet

Mobile internet service revenues increased by Php3,993 million, or 6%, to Php66,320 million in 2021 from Php62,327 million in 2020, primarily due to the increase in video streaming, gaming and social media data usage by our subscribers driven by the enhanced product offerings, marketing promotions and content partnerships.  Migration initiatives also resulted in a higher number of LTE and 5G device and data users. Smart is in the process of migrating more data subscribers to its new 5G network with even faster speeds and lower latency to open new usage possibilities.

Moreover, Smart continues to drive GigaLife App, now with over 10 million subscribers, through exclusive offerings such as Unli 5G, via Gigapoints.  Smart also launched the GigaPlay App, which provides its subscribers exclusive video access to Kpop content, international music festivals and live sports streaming such as PBA, PVL and NBA TV Philippines channel.  In December 2021, Smart launched its first pay-per-view (“PPV”) digital movie on the GigaPlay App.  

Mobile internet services accounted for 69% and 64% of our mobile service revenues in 2021 and 2020, respectively.

Mobile Broadband

Mobile broadband revenues amounted to Php2,797 million in 2021, a decrease of Php374 million, or 12%, from Php3,171 million in 2020, primarily due to subscribers’ shift to fiber and fixed wireless solutions due to the prolonged pandemic and subsequent extension of community quarantine restrictions.  

In August 2021, Smart launched Smart Bro Rocket SIM aimed at heavy wireless broadband users.  Smart Bro Rocket SIM provides unlimited data valid for 30 days at an introductory price of Php499.  Mobile broadband services accounted for 3% of our mobile service revenues in each of 2021 and 2020.  

Other Data

Revenues from our other data services, which include value-added services, or VAS, and domestic leased lines, increased by Php294 million, or 24%, to Php1,527 million in 2021 from Php1,233 million in 2020.  The increase was primarily due to higher revenues from VAS via direct carrier billing, driven by various online activities and transactions, including mobile gaming in-app purchases and tollways reloading fees.  

Voice Services

Mobile revenues from our voice services, which include all voice traffic, decreased by Php3,768 million, or 17%, to Php17,774 million in 2021 from Php21,542 million in 2020, due to subscribers’ shift to alternative calling options, digital teleconferencing solutions, and other OTT services.  In view of these new digital solutions and to improve its voice service, Smart has been provisioning its mobile users for Voice over LTE, or VoLTE, and Voice over WiFi, or VoWiFi, services which routes the voice calls through digital channels. VoLTE and VoWiFi offer better voice quality.  Mobile voice services accounted for 18% and 22% of our mobile service revenues in 2021 and 2020, respectively.

Domestic voice service revenues decreased by Php3,239 million, or 17%, to Php15,683 million in 2021 from Php18,922 million in 2020, mainly due to lower traffic from domestic outbound and inbound voice services.

International voice service revenues decreased by Php529 million, or 20%, to Php2,091 million in 2021 from Php2,620 million in 2020 resulting from lower traffic driven by the prolonged impact of the pandemic in international travel, partially offset by revenues from international voice agreement with international carriers.  

SMS Services

Mobile revenues from our SMS services, which include all SMS-related services, decreased by Php334 million, or 5%, to Php6,603 million in 2021 from Php6,937 million in 2020, mainly due to the decline in SMS volumes arising from the increased adoption of alternative messaging solutions, such as OTT services, social media, and messenger application, partially offset by the Application-to-Person (“A2P”) service revenues.  Mobile SMS services accounted for 7% of our mobile service revenues in each of 2021 and 2020.  

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Inbound Roaming and Others

Mobile revenues from inbound roaming and other services decreased by Php839 million, or 36%, to Php1,517 million in 2021 from Php2,356 million in 2020, mainly due to lower facility service fees related to fixed wireless business and lower revenues from inbound roaming services, partly offset by higher other subscriber-related income.

The following table shows the breakdown of our mobile service revenues by service type for the years ended December 31, 2021 and 2020:

					Increase (Decrease)
	2021		2020		Amount			%
	(amounts in million Php)
Mobile service revenues		96,538		97,566		(1,028	)		(1	)
By service type
Prepaid		76,635		75,790		845			1
Postpaid		18,386		19,420		(1,034	)		(5	)
Inbound roaming and others		1,517		2,356		(839	)		(36	)

Prepaid Mobile Revenues

Revenues generated from our mobile prepaid services amounted to Php76,635 million in 2021, an increase of Php845 million, or 1%, as compared with Php75,790 million in 2020.  Mobile prepaid service revenues accounted for 79% and 78% of mobile service revenues in 2021 and 2020, respectively.  The increase in revenues from our mobile prepaid services was attributed to higher average daily top-ups driven by the sustained growth in mobile internet usage, partially offset by a lower subscriber base.  Decline in prepaid subscribers was due to lower activations as subscribers were less mobile and more apt to use home WiFi due to the protracted pandemic.  

In October 2020, we implemented the rebranding of Sun Prepaid to Smart Prepaid.  Subscribers retained their existing Sun numbers while having access to expanded retail and customer care channels, data-centric Giga offers alongside existing select Sun top-up offers.  With this development, Sun subscribers can already avail of the GigaLife bundles using Smart’s LTE network.

Postpaid Mobile Revenues

Revenues generated from our mobile postpaid services amounted to Php18,386 million in 2021, a decrease of Php1,034 million, or 5%, as compared with Php19,420 million in 2020, primarily due to a decline in the postpaid subscriber base. Mobile postpaid service revenues accounted for 19% and 20% of mobile service revenues in 2021 and 2020, respectively.  

Subscriber Base, ARPU and Churn Rates

The following table shows our mobile subscriber base as at December 31, 2021 and 2020:

					Increase (Decrease)
	2021		2020		Amount			%
Mobile subscriber base
Smart(1)		28,153,047		30,533,816		(2,380,769	)		(8	)
Prepaid		26,665,974		29,090,167		(2,424,193	)		(8	)
Postpaid		1,487,073		1,443,649		43,424			3
TNT		42,539,757		41,688,854		850,903			2
Sun Postpaid(1)		529,148		711,169		(182,021	)		(26	)
Total mobile subscribers		71,221,952		72,933,839		(1,711,887	)		(2	)

⁽¹⁾ Includes mobile broadband subscribers.

Our current policy is to recognize a prepaid subscriber as active only when the subscriber activates and uses the SIM card.  A prepaid mobile subscriber is considered inactive if the subscriber does not reload within 90 days after the full usage or expiry of the last reload.

The average monthly churn rates for Smart Prepaid subscribers was 4.8% in each of 2021 and 2020, while the average monthly churn rates for TNT subscribers was 4.2% in each of 2021 and 2020.  

The average monthly churn rates for Smart Postpaid subscribers were 1.6% and 2.3% in 2021 and 2020,

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respectively.  The average monthly churn rates for Sun Postpaid subscribers were 2.5% and 3.1% in 2021 and 2020, respectively.

The following table summarizes our average monthly ARPUs for the years ended December 31, 2021 and 2020:  

	Gross(1)				Increase (Decrease)						Net(2)				Increase (Decrease)
	2021		2020		Amount			%			2021		2020		Amount			%
	(amounts in Php)
Prepaid
Smart		123		133		(10	)		(8	)		104		113		(9	)		(8	)
TNT		98		91		7			8			84		79		5			6
Postpaid
Smart		853		844		9			1			816		813		3			—
Sun		440		386		54			14			429		375		54			14

⁽¹⁾ Gross monthly ARPU is calculated by dividing gross mobile service revenues for the month, including interconnection income, but excluding inbound roaming revenues, gross of discounts, and content provider costs, by the average number of subscribers in the month.

⁽²⁾ Net monthly ARPU is calculated by dividing gross mobile service revenues for the month, including interconnection income, but excluding inbound roaming revenues, net of discounts, and content provider costs, by the average number of subscribers in the month.

Fixed Wireless Broadband

Revenues from our Fixed Wireless Broadband services amounted to Php2,889 million in 2021, an increase of Php2,849 million from Php40 million in 2020, primarily due to the transfer of PHW subscribers to Smart beginning February 2021.  In March 2021, the GigaLife App was opened to PHW, which allowed the linking of accounts between mobile and home devices and enabled a convergent solution to simplify account management and cross-selling of products.  

In December 2021, Smart lauched the first prepaid 5G Home Router. Smart Bro Home WiFi 5G is a plug-and-play device that can connect up to 10 WiFi-enabled devices with a fiber-like speed of Smart 5G.

MVNO and Others

Revenues from our MVNO and other services amounted to Php212 million in 2021, a decrease of Php352 million, or 62%, from Php564 million in 2020, primarily due to lower facility service fees.  

Non-Service Revenues

Our wireless non-service revenues consist of sale of mobile handsets, broadband data routers, tablets and accessories.  Our wireless non-service revenues increased by Php939 million, or 16%, to Php6,980 million in 2021 from Php6,041 million in 2020, primarily due to a higher revenue per unit of mobile handsets issued and PHW broadband routers issued in 2021.  

Expenses

Expenses associated with our Wireless business segment amounted to Php89,172 million in 2021, an increase of Php7,603 million, or 9%, from Php81,569 million in 2020.  The increase was attributable to higher depreciation and amortization, cost of sales and services, selling, general and administrative expenses, asset impairment and interconnection costs, partially offset by lower provisions.  As a percentage of our total wireless revenues, expenses associated with our Wireless business segment accounted for 84% and 78% in 2021 and 2020, respectively.

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The following table summarizes the breakdown of our total wireless-related expenses for the years ended December 31, 2021 and 2020 and the percentage of each expense item in relation to the total:

									Increase (Decrease)
	2021		%		2020		%		Amount			%
	(amounts in million Php)
Depreciation and amortization		40,459		45		35,134		43		5,325			15
Selling, general and administrative expenses		36,748		41		35,731		44		1,017			3
Cost of sales and services		10,041		11		8,041		10		2,000			25
Provisions		854		1		2,026		2		(1,172	)		(58	)
Interconnection costs		683		1		467		1		216			46
Asset impairment		387		1		170		—		217			128
Total		89,172		100		81,569		100		7,603			9

Depreciation and amortization charges increased by Php5,325 million, or 15%, to Php40,459 million, mainly on account of higher depreciable asset base resulting from significant capitalization, combined with higher depreciation of right-of-use asset.

Selling, general and administrative expenses increased by Php1,017 million, or 3%, to Php36,748 million, primarily due to higher expenses related to repairs and maintenance, professional and other contracted services, amortization of intangibles, and rent, partly offset by lower expenses related to taxes and licenses, selling and promotions, and compensation and employee benefits.

Cost of sales and services increased by Php2,000 million, or 25%, to Php10,041 million, primarily due to a higher number of units issued and higher average cost per unit for mobile handsets, as well as the cost of PHW broadband routers issued in 2021.

Provisions decreased by Php1,172 million, or 58%, to Php854 million, primarily due to lower provision for expected credit losses mainly on account of last year’s provisions related to extended credit arrangements driven by the impact of the pandemic.

Interconnection costs increased by Php216 million, or 46%, to Php683 million, primarily due to higher interconnection costs on A2P, messaging transactions and international data services.

Asset impairment, increased by Php217 million, or 128%, to Php387 million primarily due to impairment charges on certain network equipment damaged by Typhoon Odette.

Other Income (Expenses) – Net

The following table summarizes the breakdown of our total wireless-related other income (expenses) – net for the years ended December 31, 2021 and 2020:

							Change
	2021			2020			Amount			%
	(amounts in million Php)
Other Income (Expenses) – Net:
Financing costs – net		(7,551	)		(6,886	)		(665	)		(10	)
Foreign exchange gains (losses) – net		(1,541	)		431			(1,972	)		(458	)
Interest income		355			537			(182	)		(34	)
Gains (losses) on derivative financial instruments – net		550			(126	)		676			537
Other income – net		3,540			3,104			436			14
Total		(4,647	)		(2,940	)		(1,707	)		(58	)

Our Wireless business segment’s other expenses – net amounted to Php4,647 million in 2021, an increase of Php1,707 million, or 58%, from Php2,940 million in 2020, primarily due to the combined effects of the following: (i) foreign exchange losses of Php1,541 million in 2021 as against foreign exchange gains of Php431 million in 2020, mainly on account of revaluation of net foreign currency-denominated liabilities due to the depreciation of the Philippine peso relative to the U.S. dollar in 2021 as against the appreciation of the Philippine peso relative to the U.S. dollar in 2020; (ii) higher net financing costs by Php665 million mainly due to higher accretion on lease liabilities; (iii) lower interest income by Php182 million; (iv) higher other income – net by Php436 million; and (v) net gains on derivative financial instruments of Php550 million in 2021 as against net losses on derivative financial instruments of Php126 million in 2020 due to the depreciation of the Philippine

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peso relative to the U.S. dollar in 2021 as against the appreciation of the Philippine peso relative to the U.S. dollar in 2020.

Provision for Income Tax

Provision for income tax amounted to Php3,366 million in 2021, a decrease of Php1,170 million, or 26%, from Php4,536 million in 2020, mainly due to lower taxable income and lower corporate income tax rate under the CREATE Act, partly offset by the net unfavorable impact of CREATE adjustments for prior year deferred tax assets booked in the first quarter of 2021.   

Net Income

As a result of the foregoing, our Wireless business segment’s net income decreased by Php5,732 million, or 38%, to Php9,434 million in 2021 from Php15,166 million in 2020.  

Adjusted EBITDA

Our Wireless business segment’s Adjusted EBITDA increased by Php604 million, or 1%, to Php60,876 million in 2021 from Php60,272 million in 2020.  Adjusted EBITDA margin remained at 61% in 2021 and 2020.

Core Income

Our Wireless business segment’s core income decreased by Php2,795 million, or 17%, to Php13,645 million in 2021 from Php16,440 million in 2020, mainly on account of higher depreciation and amortization and financing costs, partially offset by higher Adjusted EBITDA and lower provision for income tax.

Fixed Line

Revenues

Revenues generated from our Fixed Line business segment amounted to Php117,063 million in 2021, an increase of Php18,324 million, or 19%, from Php98,739 million in 2020.

The following table summarizes our total revenues by service from our Fixed Line business segment for the years ended December 31, 2021 and 2020:

									Increase (Decrease)
	2021		%		2020		%		Amount			%
	(amounts in million Php)
Service Revenues:
Data		78,576		67		67,183		68		11,393			17
Voice		37,232		32		29,541		30		7,691			26
Miscellaneous		721		1		686		1		35			5
		116,529		100		97,410		99		19,119			20
Non-Service Revenues:
Sale of computers, phone units and point-product sales		534	—			1,329		1		(795	)		(60	)
Total Fixed Line Revenues		117,063		100		98,739		100		18,324			19

Service Revenues

Our fixed line service revenues increased by Php19,119 million, or 20%, to Php116,529 million in 2021 from Php97,410 million in 2020, primarily due to higher revenues from our data and voice services.  As a percentage of our total fixed line revenues, service revenues accounted for 100% and 99% in 2021 and 2020, respectively.

Fixed Line service revenues, net of interconnection costs, amounted to Php96,522 million in 2021, an increase of Php10,827 million, or 13%, from Php85,695 million in 2020.

Data Services

Our data services, which include Home broadband, corporate data, and ICT portfolio with data center, cloud, cyber security, and managed IT offerings, posted revenues of Php78,576 million in 2021, an increase of

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Php11,393 million, or 17%, from Php67,183 million in 2020, primarily due to higher revenues from home broadband, corporate data and leased lines, and ICT services.  The percentage contribution of this service segment to our fixed line service revenues accounted for 67% and 69% in 2021 and 2020, respectively.

The following table shows information of our data service revenues for the years ended December 31, 2021 and 2020:

					Increase
	2021		2020		Amount		%
	(amounts in million Php)
Data service revenues		78,576		67,183		11,393		17
Home broadband		39,723		33,045		6,678		20
Corporate data and ICT		38,853		34,138		4,715		14

Home Broadband

Home broadband data revenues amounted to Php39,723 million in 2021, an increase of Php6,678 million, or 20%, from Php33,045 million in 2020.  This growth is driven by increasing demand for broadband services, including fixed wired (PLDT Home Fibr), which the company is providing through the nationwide roll-out of its fiber-to-the-home, or FTTH, network and its existing copper network, which is progressively being upgraded to fiber.  Home broadband revenues accounted for 51% and 49% of fixed line data service revenues in 2021 and 2020, respectively.  PLDT’s FTTH nationwide network roll-out has reached over 13.9 million homes passed as of December 31, 2021, while the number of ports has grown to 5.8 million.

Corporate Data and ICT

Corporate data services amounted to Php32,333 million in 2021, an increase of Php4,223 million, or 15%, as compared with Php28,110 million in 2020, mainly due to the sustained demand for broadband internet and data networking services.  Corporate data revenues accounted for 41% and 42% of fixed line data services in 2021 and 2020, respectively.

ICT revenues increased by Php492 million, or 8%, to Php6,520 million in 2021 from Php6,028 million in 2020, mainly due to higher revenues from data center, cloud and managed IT services, partially offset by lower revenues from cyber security services.  The percentage contribution of this service segment to our total data service revenues accounted for 8% and 9% in 2021 and 2020, respectively.

Voice Services

Revenues from our voice services increased by Php7,691 million, or 26%, to Php37,232 million in 2021 from Php29,541 million in 2020, primarily due to higher revenues from international services of PLDT Global, partly offset by lower revenues from local exchange and domestic services.  The decline in local exchange and domestic services was partly due to the continued popularity of services such as Skype, Viber, Line, Facebook Messenger, Google Talk and WhatsApp, offering free OTT calling services, and other similar services, as well as subscribers’ shift to mobile services.  The percentage contribution of voice service revenues to our fixed line service revenues accounted for 32% and 30% in 2021 and 2020, respectively.

Miscellaneous Services

Miscellaneous service revenues are derived mostly from rentals and management fees.  These service revenues increased by Php35 million, or 5%, to Php721 million in 2021 from Php686 million in 2020.  The percentage contribution of miscellaneous service revenues to our total fixed line service revenues accounted for 1% in each of 2021 and 2020.  

Non-service Revenues

Non-service revenues decreased by Php795 million, or 60%, to Php534 million in 2021 from Php1,329 million in 2020, primarily due to lower sale of PHW broadband routers, managed ICT equipment, and computer bundles, partially offset by sale of Home WiFi mesh in 2021.

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Expenses

Expenses related to our Fixed Line business segment totaled Php93,370 million in 2021, an increase of Php8,653 million, or 10%, as compared with Php84,717 million in 2020.  The increase was primarily due to higher interconnection costs, depreciation and amortization, and selling, general and administrative expenses, partly offset by lower provisions, cost of sales and services, and asset impairment.  As a percentage of our total fixed line revenues, expenses associated with our Fixed Line business segment accounted for 80% and 86% in 2021 and 2020, respectively.

The following table shows the breakdown of our total fixed line-related expenses for the years ended December 31, 2021 and 2020 and the percentage of each expense item in relation to the total:

									Increase (Decrease)
	2021		%		2020		%		Amount			%
	(amounts in million Php)
Selling, general and administrative expenses		44,051		47		43,860		52		191			—
Depreciation and amortization		22,139		24		19,383		23		2,756			14
Interconnection costs		20,007		21		11,715		14		8,292			71
Provisions		3,729		4		5,394		6		(1,665	)		(31	)
Cost of sales and services		3,430		4		4,269		5		(839	)		(20	)
Asset impairment		14		—		96		—		(82	)		(85	)
Total		93,370		100		84,717		100		8,653			10

Selling, general and administrative expenses increased by Php191 million to Php44,051 million primarily due to higher expenses related to repairs and maintenance, selling and promotions, and rent, partly offset by lower compensation and employee benefits on account of lower MRP, and professional and other contracted services.

Depreciation and amortization charges increased by Php2,756 million, or 14%, to Php22,139 million mainly on account of higher depreciable asset base, combined with higher depreciation of right-of-use asset.

Interconnection costs increased by Php8,292 million, or 71%, to Php20,007 million, primarily due to higher international interconnection costs of PLDT Global.

Provisions decreased by Php1,665 million, or 31%, to Php3,729 million, primarily due to lower provision for expected credit losses mainly due to the improvement in collection rate.

Cost of sales and services decreased by Php839 million, or 20%, to Php3,430 million, primarily due to lower cost of PHW broadband routers, managed ICT equipment, and computer bundles, partially offset by the cost of Home WiFi mesh in 2021.

Asset impairment, consisting mainly of impairment of contract assets, decreased by Php82 million, or 85%, to Php14 million.

Other Income (Expenses) – Net

The following table summarizes the breakdown of our total fixed line-related other income (expenses) – net for the years ended December 31, 2021 and 2020:

							Change
	2021			2020			Amount			%
	(amounts in million Php)
Other Income (Expenses) – Net:
Gains (losses) on derivative financial instruments – net		850			(270	)		1,120			415
Interest income		275			636			(361	)		(57	)
Equity share in net earnings of associates		103			50			53			106
Foreign exchange gains (losses) – net		(2,433	)		1,153			(3,586	)		(311	)
Financing costs – net		(6,029	)		(6,059	)		30			—
Other income – net		13,790			8,711			5,079			58
Total		6,556			4,221			2,335			55

Our Fixed Line business segment’s other income amounted to Php6,556 million in 2021, an increase of Php2,335 million, or 55%, from Php4,221 million in 2020, primarily due to the combined effects of the following:
(i) higher other income – net by Php5,079 million mainly due to PLDT’s higher dividend income from Smart and gain on sale of PHW subscribers in 2021, as against the gain on sale and leaseback of Smart Headquarters in 2020; (ii) net gains on derivative financial instruments of Php850 million in 2021 as against net losses on derivative financial instruments of Php270 million in 2020 due to the depreciation of the Philippine peso relative to the U.S. dollar in 2021 as against the appreciation of the Philippine peso relative to the U.S. dollar in 2020;
(iii) lower net financing costs by Php30 million; (iv) higher equity share in net earnings of associates and joint ventures by Php53 million; (v) lower interest income by Php361 million; and (vi) net foreign exchange losses of Php2,433 million in 2021 as against net foreign exchange gains of Php1,153 million in 2020 mainly on account of revaluation of net foreign currency-denominated liabilities due to the depreciation of the Philippine peso relative to the U.S. dollar in 2021 as against the appreciation of the Philippine peso relative to the U.S. dollar in 2020.

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Provision for Income Tax

Provision for income tax amounted to Php4,103 million in 2021, an increase of Php369 million, or 10%, from Php3,734 million in 2020, mainly due to higher taxable income, partly offset by the impact of lower corporate income tax under the CREATE Act, as well as the net favorable impact of 2020 income tax retroactive adjustment, per Revenue Regulations (RR) No. 5-2021, recognized in the first quarter of 2021.  

Net Income

As a result of the foregoing, our Fixed Line business segment registered a net income of Php26,146 million in 2021, an increase of Php11,637 million, or 80%, as compared with Php14,509 million in 2020.

Adjusted EBITDA

Our Fixed Line business segment’s Adjusted EBITDA increased by Php12,427 million, or 37%, to Php45,832 million in 2021 from Php33,405 million in 2020.  Adjusted EBITDA margin increased to 39% in 2021 from 34% in 2020.

Core Income

Our Fixed Line business segment’s core income increased by Php10,835 million, or 70%, to Php26,298 million in 2021 from Php15,463 million in 2020, primarily due to higher Adjusted EBITDA and other miscellaneous income, partially offset by higher depreciation and amortization, and provision for income tax.

Others

Revenues

Revenues generated from our Other business segment amounted to nil in each of 2021 and 2020.  

Expenses

Expenses related to our Other business segment decreased by Php5 million, or 42%, to Php7 million in 2021 from Php12 million in 2020.  

Other Income (Expenses) – Net

The following table summarizes the breakdown of other income (expenses) – net for Other business segment for the years ended December 31, 2021 and 2020:

							Change
	2021			2020			Amount			%
	(amounts in million Php)
Other Income (Expenses) – Net:
Foreign exchange gains (losses) – net		49			(48	)		97			202
Interest income		26			92			(66	)		(72	)
Gains on derivative financial instruments – net		—			18			(18	)		(100	)
Financing costs – net		—			(55	)		55			100
Equity share in net losses of associates and joint ventures		(1,204	)		(2,378	)		1,174			49
Other income – net		1,250			1,448			(198	)		(14	)
Total		121			(923	)		1,044			113

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Our Other business segment’s other income amounted to Php121 million in 2021, a change of Php1,044 million from other expenses of Php923 million in 2020, primarily due to the combined effects of the following: (i) lower equity share in net losses of associates and joint ventures by Php1,174 million mainly due to higher equity share in net earnings in Vega Telecom Inc. on account of the favorable impact of CREATE adjustment on the unamortized deferred tax liability component of the investment; (ii) net foreign exchange gains of Php49 million in 2021 as against net foreign exchange losses of Php48 million in 2020; (iii) lower interest income by Php66 million; and (iv) lower other income – net by Php198 million.

Net Income (Loss)

As a result of the foregoing, our Other business segment registered a net income of Php384 million in 2021, a change of Php702 million as against net loss of Php318 million in 2020.

Core Income (Loss)

Our Other business segment’s core loss amounted to Php666 million in 2021, a change of Php859 million as against core income of Php193 million in 2020.

Years Ended December 31, 2020 and 2019

On a Consolidated Basis

Revenues

We reported consolidated revenues of Php181,004 million in 2020, an increase of Php11,817 million, or 7%, as compared with Php169,187 million in 2019, primarily due to higher revenues from data services in our Wireless and Fixed Line business segments, partially offset by lower revenues from voice and SMS services in our Wireless business segment.

Our consolidated service revenues of Php173,634 million in 2020, increased by Php12,279 million, or 8%, from Php161,355 million in 2019, while our consolidated non-service revenues of Php7,370 million in 2020, decreased by Php462 million, or 6%, from Php7,832 million in 2019.

Consolidated service revenues, net of interconnection costs, amounted to Php171,488 million in 2020, an increase of Php13,771 million, or 9%, from Php157,717 million in 2019.

In 2019, the MNP Act was enacted, which provides that a customer can retain their mobile number when they move from one mobile service provider to another or, changes the type of subscription from postpaid to prepaid or vice versa.  The Act also provides that no interconnection fee or charge shall be imposed by any mobile service provider for domestic calls and SMS made by a subscriber.  Thus, effective January 2, 2020, we removed the mobile interconnection fees for domestic calls and SMS, which were formerly priced at Php0.50 per minute for voice calls and Php0.05 per message for SMS.

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The following table shows the breakdown of our consolidated revenues by services for the years ended December 31, 2020 and 2019:

	Wireless		Fixed Line		Inter- segment Transactions			Consolidated
	(amounts in million Php)
For the year ended December 31, 2020
Service Revenues
Wireless		98,170				(2,422	)		95,748
Mobile		97,566				(1,977	)		95,589
Home Broadband		40				—			40
MVNO and others		564				(445	)		119
Fixed Line				97,410		(19,524	)		77,886
Data				67,183		(9,119	)		58,064
Corporate data and ICT				34,138		(9,038	)		25,100
Home broadband				33,045		(81	)		32,964
Voice				29,541		(10,057	)		19,484
Miscellaneous				686		(348	)		338
Total Service Revenues		98,170		97,410		(21,946	)		173,634
Non-Service Revenues
Sale of computers, phone units, mobile handsets and SIM-packs		6,041		1,140		—			7,181
Point-product sales		—		189		—			189
Total Non-Service Revenues		6,041		1,329		—			7,370
Total Revenues		104,211		98,739		(21,946	)		181,004
For the year ended December 31, 2019
Service Revenues
Wireless		90,661				(2,418	)		88,243
Mobile		88,865				(1,042	)		87,823
Home Broadband		85				—			85
MVNO and others		1,711				(1,376	)		335
Fixed Line				87,819		(14,707	)		73,112
Data				60,764		(7,977	)		52,787
Corporate data and ICT				32,315		(7,835	)		24,480
Home broadband				28,449		(142	)		28,307
Voice				26,267		(6,377	)		19,890
Miscellaneous				788		(353	)		435
Total Service Revenues		90,661		87,819		(17,125	)		161,355
Non-Service Revenues
Sale of computers, phone units, mobile handsets and    SIM-packs		6,245		1,223		(30	)		7,438
Point-product sales		—		364		30			394
Total Non-Service Revenues		6,245		1,587		-			7,832
Total Revenues		96,906		89,406		(17,125	)		169,187

The following table shows the breakdown of our consolidated revenues by business segment for the years ended December 31, 2020 and 2019:

													Change
	2020			%			2019			%			Amount			%
	(amounts in million Php)
Wireless		104,211			58			96,906			57			7,305			8
Fixed line		98,739			54			89,406			53			9,333			10
Inter-segment transactions		(21,946	)		(12	)		(17,125	)		(10	)		(4,821	)		(28	)
Consolidated		181,004			100			169,187			100			11,817			7

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Our consolidated revenues are further segmented by market, based on the type of customers served.  “Home” refers to household subscribers, “Individual” covers mobile wireless individual customers, “Enterprise” encompasses business-based customers, corporate or otherwise, and “International” refers to international carrier customers.

													Change
	2020(1)			%			2019			%			Amount			%
	(amounts in million Php)
Wireless		98,170			54			90,661			54			7,509			8
Individual		84,784			47			73,843			44			10,941			15
Home		442		—				1,917			1			(1,475	)		(77	)
Enterprise		8,142			4			6,847			4			1,295			19
International		4,802			3			8,054			5			(3,252	)		(40	)
Fixed Line		97,410			54			87,819			52			9,591			11
Individual		2,949			2		—			—				2,949			100
Home		38,601			21			37,344			22			1,257			3
Enterprise		42,341			23			41,091			24			1,250			3
International		13,414			8			9,201			6			4,213			46
Others		105		—				183		—				(78	)		(43	)
Inter-segment Transactions		(21,946	)		(12	)		(17,125	)		(10	)		(4,821	)		28
Total Service Revenues		173,634			96			161,355			96			12,279			8
Wireless		6,041			4			6,245			3			(204	)		(3	)
Individual		4,453			3			4,276			2			177			4
Enterprise		1,579			1			1,959			1			(380	)		(19	)
International		9		—				10		—				(1	)		(10	)
Fixed Line		1,329		—				1,587			1			(258	)		(16	)
Individual		572		—			—			—				572			100
Home		190		—				928			1			(738	)		(80	)
Enterprise		567		—				659		—				(92	)		(14	)
Total Non-Service Revenues		7,370			4			7,832			4			(462	)		(6	)
Total Revenues		181,004			100			169,187			100			11,817			7

⁽¹⁾ Certain amounts for the year ended December 31, 2020 were reclassifed to conform with the current year presentation.

Expenses

Consolidated expenses increased by Php15,036 million, or 12%, to Php144,822 million in 2020 from Php129,786 million in 2019, primarily due to higher depreciation and amortization, selling, general and administrative expenses, and provisions in our Wireless and Fixed Line business segments, as well as higher interconnection costs in our Fixed Line business segment, partially offset by lower interconnection costs, and cost of sales and services in our Wireless business segment.

The following table shows the breakdown of our consolidated expenses by business segment for the years ended December 31, 2020 and 2019:

													Change
	2020			%			2019			%			Amount			%
	(amounts in million Php)
Wireless		81,569			56			74,359			57			7,210			10
Fixed line		84,717			59			72,385			56			12,332			17
Others		12			—			101			—			(89	)		(88	)
Inter-segment transactions		(21,476	)		(15	)		(17,059	)		(13	)		(4,417	)		(26	)
Consolidated		144,822			100			129,786			100			15,036			12

Other Income (Expenses) – Net

Consolidated other expenses amounted to Php3,161 million in 2020, a decrease of Php3,904 million, or 55%, from Php7,065 million in 2019, primarily due to the combined effects of the following: (i) higher other income – net mainly due to gain on sale and leaseback of Smart Headquarters, partially offset by higher losses on fair value of investments from our Other business segment; (ii) higher foreign exchange gains mainly due to the revaluation of net foreign currency-denominated liabilities due to a higher level of appreciation of the Philippine peso relative to the U.S. dollar; (iii) lower interest income across our business segments; (iv) higher equity share in net losses from our Fixed Line and Other business segments; and (v) higher financing costs from our Wireless and Fixed Line business segments.

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The following table shows the breakdown of our consolidated other income (expenses) – net by business segment for the years ended December 31, 2020 and 2019:

							Change
	2020			2019			Amount			%
	(amounts in million Php)
Wireless		(2,940	)		(5,023	)		2,083			41
Fixed line		4,221			(259	)		4,480			1,730
Others		(923	)		(2,112	)		1,189			56
Inter-segment transactions		(3,519	)		329			(3,848	)		(1,170	)
Consolidated		(3,161	)		(7,065	)		3,904			55

Net Income

Consolidated net income increased by Php1,794 million, or 8%, to Php24,580 million in 2020, from Php22,786 million in 2019, primarily due to higher net income from our Wireless and Fixed Line business segments, as well as lower net loss from our Other business segment.  Our consolidated basic and diluted EPS increased to Php112.12 in 2020 from Php103.97 in 2019.  Our weighted average number of outstanding common shares was approximately 216.06 million in each of 2020 and 2019.

The following table shows the breakdown of our consolidated net income (loss) by business segment for the years ended December 31, 2020 and 2019:

													Change
	2020			%			2019			%			Amount			%
	(amounts in million Php)
Wireless		15,166			62			13,101			58			2,065			16
Fixed line		14,509			59			11,421			50			3,088			27
Others		(318	)		(1	)		(1,769	)		(8	)		1,451			82
Inter-segment transactions		(4,777	)		(20	)		33			—			(4,810	)		(14,576	)
Consolidated		24,580			100			22,786			100			1,794			8

Adjusted EBITDA

Our consolidated Adjusted EBITDA amounted to Php86,158 million in 2020, an increase of Php6,343 million, or 8%, as compared with Php79,815 million in 2019, primarily due to higher Adjusted EBITDA in our Wireless and Fixed Line business segments.

The following table shows the breakdown of our consolidated Adjusted EBITDA by business segment for the years ended December 31, 2020 and 2019:

													Change
	2020			%			2019			%			Amount			%
	(amounts in million Php)
Wireless		60,272			70			52,789			66			7,483			14
Fixed line		33,405			39			33,162			42			243			1
Others		(12	)		—			(101	)		—			89			88
Inter-segment transactions		(7,507	)		(9	)		(6,035	)		(8	)		(1,472	)		(24	)
Consolidated		86,158			100			79,815			100			6,343			8

Our consolidated Adjusted EBITDA excluding MRP amounted to Php88,783 million in 2020, an increase of Php5,672 million, or 7%, as compared with Php83,111 million in 2019.

Core Income

Our consolidated core income amounted to Php27,129 million in 2020, an increase of Php2,018 million, or 8%, as compared with Php25,111 million in 2019 mainly on account of higher Adjusted EBITDA and other miscellaneous income, partly offset by higher depreciation and amortization and financing costs, as well as higher equity share in net losses.  Our consolidated basic and diluted core EPS increased to Php125.29 in 2020 from Php115.95 in 2019.  

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The following table shows the breakdown of our consolidated core income by business segment for the years ended December 31, 2020 and 2019:

													Change
	2020			%			2019			%			Amount			%
	(amounts in million Php)
Wireless		16,440			60			13,685			55			2,755			20
Fixed line		15,463			57			12,531			50			2,932			23
Others		193			1			(1,151	)		(5	)		1,344			117
Inter-segment transactions		(4,967	)		(18	)		46			—			(5,013	)		(10,898	)
Consolidated		27,129			100			25,111			100			2,018			8

Our consolidated telco core income amounted to Php28,087 million in 2020, an increase of Php1,007 million, or 4%, as compared with Php27,080 million in 2019 mainly due to higher Adjusted EBITDA and other miscellaneous income, partially offset by higher depreciation and amortization, and financing costs.

The following table shows the breakdown of our consolidated telco core income by business segment for the years ended December 31, 2020 and 2019:

											Change
	2020			%			2019		%		Amount			%
	(amounts in million Php)
Wireless		17,217			61			14,063		52		3,154			22
Fixed line		13,649			49			12,531		46		1,118			9
Others		2,188			8			440		2		1,748			397
Inter-segment transactions		(4,967	)		(18	)		46		—		(5,013	)		(10,898	)
Consolidated		28,087			100			27,080		100		1,007			4

On a Business Segment Basis

Wireless

Revenues

We generated revenues of Php104,211 million from our Wireless business segment in 2020, an increase of Php7,305 million, or 8%, from Php96,906 million in 2019.  

The following table summarizes our total revenues by service from our Wireless business segment for the years ended December 31, 2020 and 2019:

									Increase (Decrease)
	2020		%		2019		%		Amount			%
	(amounts in million Php)
Service Revenues:
Mobile		97,566		93		88,865		92		8,701			10
Home broadband		40		—		85		—		(45	)		(53	)
MVNO and others(1)		564		1		1,711		2		(1,147	)		(67	)
Total Wireless Service Revenues		98,170		94		90,661		94		7,509			8
Non-Service Revenues:
Sale of mobile handsets and broadband    data modems		6,041		6		6,245		6		(204	)		(3	)
Total Wireless Revenues		104,211		100		96,906		100		7,305			8

⁽¹⁾ Includes service revenues generated by MVNOs of PLDT Global subsidiaries and facilities service fees.

Service Revenues

Our wireless service revenues increased by Php7,509 million, or 8%, to Php98,170 million in 2020 as compared with Php90,661 million in 2019, primarily due to higher mobile revenues, partly offset by lower revenues from home broadband and MVNO and other services.  As a percentage of our total wireless revenues, service revenues accounted for 94% in each of 2020 and 2019.

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Mobile Services

Our mobile service revenues amounted to Php97,566 million in 2020, an increase of Php8,701 million, or 10%, from Php88,865 million in 2019.  Mobile service revenues accounted for 99% and 98% of our wireless service revenues in 2020 and 2019, respectively.  

The following table shows the breakdown of our mobile service revenues for the years ended December 31, 2020 and 2019:

									Increase (Decrease)
	2020		%		2019		%		Amount			%
	(amounts in million Php)
Mobile Services:
Data		66,731		69		52,848		59		13,883			26
Voice		21,542		22		24,597		28		(3,055	)		(12	)
SMS		6,937		7		9,907		11		(2,970	)		(30	)
Inbound roaming and others(1)		2,356		2		1,513		2		843			56
Total		97,566		100		88,865		100		8,701			10

⁽¹⁾ Refers to other non-subscriber-related revenues consisting primarily of inbound international roaming fees.

Data Services

Mobile revenues from our data services, which include mobile internet, mobile broadband and other data services, increased by Php13,883 million, or 26%, to Php66,731 million in 2020 from Php52,848 million in 2019 due to growth in mobile internet usage that was driven mainly by an increased demand for data connectivity amidst the pandemic to conform with the “new normal” ways of working and schooling.  This was further boosted by enhanced data products, consumer engagement promotions, and continuous network improvement and LTE migration.  Data services accounted for 69% and 59% of our mobile service revenues in 2020 and 2019, respectively.

The following table shows the breakdown of our mobile data service revenues for the years ended December 31, 2020 and 2019:

									Increase (Decrease)
	2020		%		2019		%		Amount			%
	(amounts in million Php)
Data Services:
Mobile internet(1)		62,327		93		48,399		91		13,928			29
Mobile broadband		3,171		5		3,547		7		(376	)		(11	)
Other data		1,233		2		902		2		331			37
Total		66,731		100		52,848		100		13,883			26

⁽¹⁾ Includes revenues from web-based services, net of discounts and content provider costs.

Mobile internet

Mobile internet service revenues increased by Php13,928 million, or 29%, to Php62,327 million in 2020 from Php48,399 million in 2019, primarily due to the following: (i) an increase in the use of video, gaming and social media data by our subscribers driven by the enhanced product offerings, marketing promotions and content partnerships; (ii) an increase in digital productivity requirements from work-from-home and study-from-home environment; (iii) an expansion of distribution channels, particularly using digital platforms; and (iv) LTE migration initiatives that further increased the number of LTE device and data users.  Smart remains to have the fastest Mobile Data network in the country as verified by independent third-party agencies, Ookla and OpenSignal.  Mobile internet services accounted for 64% and 54% of our mobile service revenues in 2020 and 2019, respectively.

Mobile broadband

Mobile broadband revenues amounted to Php3,171 million in 2020, a decrease of Php376 million, or 11%, from Php3,547 million in 2019, primarily due to a decrease in the number of broadband subscribers as users shifted to using mobile internet, home fiber and WiFi services.  Meanwhile, there was a noted increase in activations of Smart’s WiFi products in the third quarter of 2020 to cater to the needs of students and the workforce at home, which also serves as a backup service to their fixed home connections.  Mobile broadband services accounted for 3% and 4% of our mobile service revenues in 2020 and 2019, respectively.  

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Other data

Revenues from our other data services, which include value-added services, or VAS, domestic leased lines and share in revenue from PLDT WeRoam, increased by Php331 million, or 37%, to Php1,233 million in 2020 from Php902 million in 2019, primarily due to higher revenues from domestic leased lines and VAS via Direct Carrier Billing, which includes revenues from video subscriptions and mobile gaming in-app purchases.  

Voice Services

Mobile revenues from our voice services, which include all voice traffic, decreased by Php3,055 million, or 12%, to Php21,542 million in 2020 from Php24,597 million in 2019, due to subscribers’ shift to alternative calling options and other OTT services.  Mobile voice services accounted for 22% and 28% of our mobile service revenues in 2020 and 2019, respectively.

Domestic voice service revenues decreased by Php2,908 million, or 13%, to Php18,922 million in 2020 from Php21,830 million in 2019, due to lower domestic outbound revenues, and lower inbound voice service revenues due to the impact of the removal of interconnection rates for domestic mobile voice services.

International voice service revenues decreased by Php147 million, or 5%, to Php2,620 million in 2020 from Php2,767 million in 2019, primarily due to the impact of the pandemic on OFWs and international travelers.  

SMS Services

Mobile revenues from our SMS services, which include all SMS-related services, decreased by Php2,970 million, or 30%, to Php6,937 million in 2020 from Php9,907 million in 2019, mainly due to the decline in SMS volumes arising from the increased adoption of alternative messaging solutions, such as OTT services, social media, and messenger application, combined with the impact of the removal of interconnection charges for domestic mobile SMS services.  Mobile SMS services accounted for 7% and 11% of our mobile service revenues in 2020 and 2019, respectively.  

Inbound Roaming and Others

Mobile revenues from inbound roaming and other services increased by Php843 million, or 56%, to Php2,356 million in 2020 from Php1,513 million in 2019, mainly due to facility service fees related to fixed wireless business.

The following table shows the breakdown of our mobile service revenues by service type for the years ended December 31, 2020 and 2019:

					Increase (Decrease)
	2020		2019		Amount			%
	(amounts in million Php)
Mobile service revenues		97,566		88,865		8,701			10
By service type
Prepaid		75,790		67,850		7,940			12
Postpaid		19,420		19,502		(82	)		—
Inbound roaming and others		2,356		1,513		843			56

Prepaid Revenues

Revenues generated from our mobile prepaid services amounted to Php75,790 million in 2020, an increase of Php7,940 million, or 12%, as compared with Php67,850 million in 2019.  Mobile prepaid service revenues accounted for 78% and 76% of mobile service revenues in 2020 and 2019, respectively.  The increase in revenues from our mobile prepaid services was attributed to higher average daily top-ups, driven by the sustained growth in mobile internet usages.  

In October 2020, we implemented the rebranding of Sun Prepaid into Smart Prepaid.  Subscribers retained their existing Sun numbers while having access to expanded retail and customer care channels, data-centric Giga offers alongside existing select Sun top-up offers.  Following this development, rebranded subscribers can avail of Giga Life bundles, including the newest offers, Giga Work for those working from home and Giga Study for online classes, using Smart’s LTE network.

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Postpaid Revenues

Revenues generated from mobile postpaid services amounted to Php19,420 million in 2020, lower by Php82 million as compared with Php19,502 million in 2019, primarily due to a decline in the postpaid subscriber base. Mobile postpaid service revenues accounted for 20% and 22% of mobile service revenues in 2020 and 2019, respectively.  

Subscriber Base, ARPU, and Churn Rates

The following table shows our wireless subscriber base as at December 31, 2020 and 2019:

					Increase (Decrease)
	2020		2019		Amount			%
Mobile subscriber base
Smart(1)		30,533,816		27,335,602		3,198,214			12
Prepaid		29,090,167		25,866,195		3,223,972			12
Postpaid		1,443,649		1,469,407		(25,758	)		(2	)
TNT		41,688,854		38,308,363		3,380,491			9
Sun(1)		711,169		7,474,190		(6,763,021	)		(90	)
Prepaid(2)		—		6,547,231		(6,547,231	)		(100	)
Postpaid		711,169		926,959		(215,790	)		(23	)
Total mobile subscribers		72,933,839		73,118,155		(184,316	)		—

⁽¹⁾ Includes mobile broadband subscribers.

⁽²⁾ Beginning October 2020, Sun Prepaid was rebranded as Smart Prepaid.

Our current policy is to recognize a prepaid subscriber as active only when the subscriber activates and uses the SIM card.  A prepaid mobile subscriber is considered inactive if the subscriber does not reload within 90 days after the full usage or expiry of the last reload.

The average monthly churn rates for Smart Prepaid subscribers were 4.8% and 4.1% in 2020 and 2019, respectively, while the average monthly churn rates for TNT subscribers were 4.2% and 4.0% in 2020 and 2019, respectively.  The average monthly churn rate for Sun Prepaid subscribers was 4.5% in 2019.  

The average monthly churn rates for Smart Postpaid subscribers were 2.3% and 2.1% in 2020 and 2019, respectively.  The average monthly churn rates for Sun Postpaid subscribers were 3.1% and 2.0% in 2020 and 2019, respectively.

The following table summarizes our average monthly ARPUs for the years ended December 31, 2020 and 2019:  

	Gross(1)				Increase (Decrease)						Net(2)				Increase (Decrease)
	2020		2019		Amount			%			2020		2019		Amount			%
	(in Php)										(in Php)
Prepaid
Smart		133		132		1			1			113		116		(3	)		(3	)
TNT		91		77		14			18			79		69		10			14
Sun(3)		—		84		(84	)		(100	)		—		75		(75	)		(100	)
Postpaid
Smart		844		824		20			2			813		806		7			1
Sun		386		418		(32	)		(8	)		375		411		(36	)		(9	)

⁽¹⁾ Gross monthly ARPU is calculated by dividing gross mobile service revenues for the month, including interconnection income but excluding inbound roaming revenues, gross of discounts, and content provider costs, by the average number of subscribers in the month.

⁽²⁾ Net monthly ARPU is calculated by dividing gross mobile service revenues for the month, including interconnection income, but excluding inbound roaming revenues, net of discounts and content provider costs, by the average number of subscribers in the month.

⁽³⁾ Beginning October 2020, Sun Prepaid was rebranded as Smart Prepaid.

Home Broadband

Revenues from our Home Broadband services amounted to Php40 million in 2020, a decrease of Php45 million, or 53%, from Php85 million in 2019, primarily due to a decrease in the number of subscribers.  

MVNO and Others

Revenues from our MVNO and other services amounted to Php564 million in 2020, a decrease of Php1,147 million, or 67%, from Php1,711 million in 2019, primarily due to lower facility service fees.  

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Non-Service Revenues

Our wireless non-service revenues consist of sale of mobile handsets, mobile broadband data modems, tablets and accessories.  Our wireless non-service revenues decreased by Php204 million, or 3%, to Php6,041 million in 2020 from Php6,245 million in 2019, primarily due to lower quantity of mobile handsets issued as a result of the temporary closure of Smart Stores and Sun Shops brought about by the community quarantine measures during the pandemic.  

Expenses

Expenses associated with our Wireless business segment amounted to Php81,569 million in 2020, an increase of Php7,210 million, or 10%, from Php74,359 million in 2019.  The increase was mainly attributable to higher depreciation and amortization, selling, general and administrative expenses, and provisions, partially offset by lower interconnection costs, and cost of sales and services.  As a percentage of our total wireless revenues, expenses associated with our Wireless business segment accounted for 78% and 77% in 2020 and 2019, respectively.

The following table summarizes the breakdown of our total wireless-related expenses for the years ended December 31, 2020 and 2019 and the percentage of each expense item in relation to the total:

									Increase (Decrease)
	2020		%		2019		%		Amount			%
	(amounts in million Php)
Selling, general and administrative expenses		35,731		44		32,009		43		3,722			12
Depreciation and amortization		35,134		43		29,484		40		5,650			19
Cost of sales and services		8,041		10		9,324		13		(1,283	)		(14	)
Provisions		2,026		2		1,011		1		1,015			100
Interconnection costs		467		1		2,409		3		(1,942	)		(81	)
Asset impairment		170		—		122		—		48			39
Total		81,569		100		74,359		100		7,210			10

Selling, general and administrative expenses increased by Php3,722 million, or 12%, to Php35,731 million, primarily due to higher expenses related to amortization of intangible assets mainly on account of trademark amortization, taxes and licenses, selling and promotions, and rent, partly offset by lower expenses related to professional and other contracted services, compensation and employee benefits, and communication, training and travel.

Depreciation and amortization charges increased by Php5,650 million, or 19%, to Php35,134 million, mainly on account of higher depreciation due to shortened life of certain network, technology and other equipment resulting from the migration to faster speed LTE and 5G technologies, as well as transformation and cost reengineering initiatives, combined with higher depreciation of right-of-use asset.

Cost of sales and services decreased by Php1,283 million, or 14%, to Php8,041 million, primarily due to lower number of units issued for mobile handsets during the temporary closure of Smart Stores and Sun Shops as a result of the community quarantine, coupled by lower cost of content and services.

Provisions increased by Php1,015 million, or 100%, to Php2,026 million, mainly on account of higher expected credit losses primarily driven by the impact of the pandemic to the economy.

Interconnection costs decreased by Php1,942 million, or 81%, to Php467 million, primarily due to lower interconnection cost on domestic voice and SMS services, as a result of the removal of mobile domestic interconnection fees.

Asset impairment, consisting mainly of impairment of contract assets, increased by Php48 million, or 39%, to Php170 million.

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Other Income (Expenses) – Net

The following table summarizes the breakdown of our total wireless-related other income (expenses) – net for the years ended December 31, 2020 and 2019:

							Change
	2020			2019			Amount			%
	(amounts in million Php)
Other Income (Expenses) – net:
Financing costs – net		(6,886	)		(6,422	)		(464	)		(7	)
Losses on derivative financial instruments – net		(126	)		(243	)		117			48
Foreign exchange gains – net		431			118			313			265
Interest income		537			703			(166	)		(24	)
Other income – net		3,104			821			2,283			278
Total		(2,940	)		(5,023	)		2,083			41

Our Wireless business segment’s other expenses amounted to Php2,940 million in 2020, a decrease of Php2,083 million, or 41%, from Php5,023 million in 2019, primarily due to the combined effects of the following: (i) higher other income – net by Php2,283 million mainly due to higher other miscellaneous income; (ii) higher net foreign exchange gains by Php313 million on account of revaluation of net foreign currency-denominated liabilities due to higher level of appreciation of the Philippine peso relative to the U.S. dollar; (iii) lower net losses on derivative financial instruments by Php117 million; (iv) lower interest income by Php166 million; and (v) higher net financing costs by Php464 million mainly due to higher interest expense on loans resulting from higher outstanding loan balance and lower capitalized interest.

Provision for Income Tax

Provision for income tax amounted to Php4,536 million in 2020, an increase of Php113 million, or 3%, from Php4,423 million in 2019. 

Net Income  

As a result of the foregoing, our Wireless business segment’s net income increased by Php2,065 million, or 16%, to Php15,166 million in 2020 from Php13,101 million in 2019.  

Adjusted EBITDA

Our Wireless business segment’s Adjusted EBITDA increased by Php7,483 million, or 14%, to Php60,272 million in 2020 from Php52,789 million in 2019.  Adjusted EBITDA margin increased to 61% in 2020 from 58% in 2019.

Core Income

Our Wireless business segment’s core income increased by Php2,755 million, or 20%, to Php16,440 million in 2020 from Php13,685 million in 2019, mainly on account of higher Adjusted EBITDA and other miscellaneous income, partially offset by higher depreciation and amortization, and net financing costs.

Fixed Line

Revenues

Revenues generated from our Fixed Line business segment amounted to Php98,739 million in 2020, an increase of Php9,333 million, or 10%, from Php89,406 million in 2019.

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The following table summarizes our total revenues by service from our Fixed Line business segment for the years ended December 31, 2020 and 2019:

									Increase (Decrease)
	2020		%		2019		%		Amount			%
	(amounts in million Php)
Service Revenues:
Data		67,183		68		60,764		68		6,419			11
Voice		29,541		30		26,267		29		3,274			12
Miscellaneous		686		1		788		1		(102	)		(13	)
		97,410		99		87,819		98		9,591			11
Non-Service Revenues:
Sale of computers, phone units and SIM packs, and    point-product sales		1,329		1		1,587		2		(258	)		(16	)
Total Fixed Line Revenues		98,739		100		89,406		100		9,333			10

Service Revenues

Our fixed line service revenues increased by Php9,591 million, or 11%, to Php97,410 million in 2020 from Php87,819 million in 2019, primarily due to higher revenues from our data and voice services.

Data Services

Our data services posted revenues of Php67,183 million in 2020, an increase of Php6,419 million, or 11%, from Php60,764 million in 2019, primarily due to higher revenues from home broadband, corporate data and leased lines, and ICT services.  The percentage contribution of this service segment to our fixed line service revenues accounted for 69% in each of the years ended December 31, 2020 and 2019.

The following table shows information of our data service revenues for the years ended December 31, 2020 and 2019:

					Increase
	2020		2019		Amount		%
	(amounts in million Php)
Data service revenues		67,183		60,764		6,419		11
Corporate data and ICT		34,138		32,315		1,823		6
Home broadband		33,045		28,449		4,596		16

Corporate Data and ICT

Corporate data services amounted to Php28,110 million in 2020, an increase of Php1,429 million, or 5%, as compared with Php26,681 million in 2019, mainly due to the sustained demand for broadband internet and data networking services.  Corporate data revenues accounted for 42% and 44% of total data services for the years ended December 31, 2020 and 2019, respectively.

ICT revenues increased by Php394 million, or 7%, to Php6,028 million in 2020 from Php5,634 million in 2019 mainly due to higher revenues from data centers, cloud and cyber security services.  The percentage contribution of this service segment to our total data service revenues accounted for 9% in each of the years ended December 31, 2020 and 2019.

Home Broadband

Home broadband data revenues amounted to Php33,045 million in 2020, an increase of Php4,596 million, or 16%, from Php28,449 million in 2019.  This growth is driven by increasing demand for broadband services, including fixed wired (PLDT Home Fibr) and fixed wireless (PLDT Home WiFi).  PLDT Home offers broadband services through the nationwide roll-out of its fiber-to-the-home, or FTTH, network and its existing copper network.  Home broadband revenues accounted for 49% and 47% of total data service revenues in 2020 and 2019, respectively.  PLDT’s FTTH nationwide network roll-out has reached approximately 9.0 million homes passed as of December 31, 2020.

Voice Services

Revenues from our voice services increased by Php3,274 million, or 12%, to Php29,541 million in 2020 from Php26,267 million in 2019, primarily due to higher revenues from international services of PLDT Global, partly offset by lower revenues from domestic and local exchange services.  The decline in domestic and local exchange

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services was partly due to the continued popularity of services such as Skype, Viber, Line, Facebook Messenger, Google Talk and WhatsApp, offering free OTT calling services, and other similar services, as well as subscribers’ shift to mobile services.  The percentage contribution of voice service revenues to our fixed line service revenues accounted for 30% in each of the years ended December 31, 2020 and 2019.

Miscellaneous Services

Miscellaneous service revenues are derived mostly from rentals and management fees.  These service revenues decreased by Php102 million, or 13%, to Php686 million in 2020 from Php788 million in 2019.  The percentage contribution of miscellaneous service revenues to our total fixed line service revenues accounted for 1% in each of the years ended December 31, 2020 and 2019.  

Non-service Revenues

Non-service revenues decreased by Php258 million, or 16%, to Php1,329 million in 2020 from Php1,587 million in 2019, primarily due to lower sale of hardware, Telpad units, and computer bundles, partially offset by higher sale of PHW and managed ICT equipment.

Expenses

Expenses related to our Fixed Line business segment totaled Php84,717 million in 2020, an increase of Php12,332 million, or 17%, as compared with Php72,385 million in 2019.  The increase was primarily due to higher interconnection costs, selling, general and administrative expenses, depreciation and amortization, and provisions.  As a percentage of our total fixed line revenues, expenses associated with our Fixed Line business segment accounted for 86% and 81% in 2020 and 2019, respectively.

The following table shows the breakdown of our total fixed line-related expenses for the years ended December 31, 2020 and 2019 and the percentage of each expense item in relation to the total:

									Increase (Decrease)
	2020		%		2019		%		Amount			%
	(amounts in million Php)
Selling, general and administrative expenses		43,860		52		40,856		56		3,004			7
Depreciation and amortization		19,383		23		16,141		22		3,242			20
Interconnection costs		11,715		14		7,577		11		4,138			55
Provisions		5,394		6		3,530		5		1,864			53
Cost of sales and services		4,269		5		4,112		6		157			4
Asset impairment		96		—		169		—		(73	)		(43	)
Total		84,717		100		72,385		100		12,332			17

Selling, general and administrative expenses increased by Php3,004 million, or 7%, to Php43,860 million primarily due to higher expenses related to compensation and employee benefits, mainly on account of higher pension benefits, repairs and maintenance, professional and other contracted services, and selling and promotions, partly offset by lower rent, taxes and licenses, and communication, training and travel expenses.

Depreciation and amortization charges increased by Php3,242 million, or 20%, to Php19,383 million mainly on account of higher depreciable asset base and depreciation due to shortened life of certain network equipments, resulting from the migration to FTTH, combined with higher depreciation of right-of-use asset.

Interconnection costs increased by Php4,138 million, or 55%, to Php11,715 million, primarily due to higher international interconnection costs of PLDT Global.

Provisions increased by Php1,864 million, or 53%, to Php5,394 million, primarily due to higher provisions for expected credit losses mainly on account of lower collection efficiency and decline in macroeconomic factors, and higher provision for inventory obsolescence.

Cost of sales and services increased by Php157 million, or 4%, to Php4,269 million, primarily due to higher cost of sale of PHW and managed ICT equipment, partly offset by lower cost of services, as well as lower cost of hardware, Telpad units and computer bundles.

Asset impairment, consisting mainly of impairment of contract assets, decreased by Php73 million, or 43%, to Php96 million.

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Other Income (Expenses) – Net

The following table summarizes the breakdown of our total fixed line-related other income (expenses) – net for the years ended December 31, 2020 and 2019:

							Change
	2020			2019			Amount			%
	(amounts in million Php)
Other Income (Expenses) – net:
Foreign exchange gains – net		1,153			400			753			188
Interest income		636			680			(44	)		(6	)
Equity share in net earnings of associates		50			568			(518	)		(91	)
Losses on derivative financial instruments – net		(270	)		(196	)		(74	)		(38	)
Financing costs – net		(6,059	)		(5,078	)		(981	)		(19	)
Other income – net		8,711			3,367			5,344			159
Total		4,221			(259	)		4,480			1,730

Our Fixed Line business segment’s other income amounted to Php4,221 million in 2020, a change of Php4,480 million as against other expenses of Php259 million in 2019, primarily due to the combined effects of the following: (i) higher other income – net by Php5,344 million mainly due to gain on sale and leaseback of Smart Headquarters and other miscellaneous income; (ii) higher net foreign exchange gains by Php753 million on account of revaluation of net foreign currency-denominated liabilities due to higher level of appreciation of the Philippine peso relative to the U.S. dollar; (iii) lower interest income by Php44 million; (iv) higher net losses on derivative financial instruments by Php74 million; (v) lower equity share in net earnings of associates by Php518 million; and (vi) higher net financing costs by Php981 million mainly due to higher interest expense on loans resulting from higher outstanding loan balance, partially offset by higher capitalized interest.

Provision for Income Tax

Provision for income tax amounted to Php3,734 million in 2020, a decrease of Php1,607 million, or 30%, from Php5,341 million in 2019.

Net Income

As a result of the foregoing, our Fixed Line business segment registered a net income of Php14,509 million in 2020, an increase of Php3,088 million, or 27%, as compared with Php11,421 million in 2019.

Adjusted EBITDA

Our Fixed Line business segment’s Adjusted EBITDA increased by Php243 million, or 1%, to Php33,405 million in 2020 from Php33,162 million in 2019.  Adjusted EBITDA margin decreased to 34% in 2020 from 38% in 2019.

Core Income

Our Fixed Line business segment’s core income increased by Php2,932 million, or 23%, to Php15,463 million in 2020 from Php12,531 million in 2019, primarily due to higher Adjusted EBITDA and other miscellaneous income, as well as lower provision for income tax, partially offset by higher depreciation and amortization, and net financing costs.

Others

Revenues

Revenues generated from our Other business segment amounted to nil for each of 2020 and 2019.  

Expenses

Expenses related to our Other business segment decreased by Php89 million, or 88%, to Php12 million in 2020 from Php101 million in 2019.

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Other Income (Expenses) – Net

The following table summarizes the breakdown of our Other business segment’s other income (expenses) – net for the years ended December 31, 2020 and 2019:

							Change
	2020			2019			Amount			%
	(amounts in million Php)
Other Income (Expenses) – net:
Equity share in net losses of associates and joint ventures		(2,378	)		(2,103	)		(275	)		(13	)
Financing costs – net		(55	)		—			(55	)		(100	)
Foreign exchange losses – net		(48	)		(76	)		28			37
Gains on derivative financial instruments – net		18			155			(137	)		(88	)
Interest income		92			362			(270	)		(75	)
Other income (expenses) – net		1,448			(450	)		1,898			422
Total		(923	)		(2,112	)		1,189			56

Our Other business segment’s other expenses amounted to Php923 million in 2020, a decrease of Php1,189 million, or 56%, from Php2,112 million in 2019, primarily due to the combined effects of the following: (i) other income – net of Php1,448 million in 2020 as against other expenses of Php450 million in 2019 mainly due to losses on fair value of Phunware investment in 2019 and higher other miscellaneous income, partially offset by losses on fair value in 2020 as against gains on fair value in 2019 of Rocket Internet investment, and higher losses on fair value of iflix investment; (ii) lower net foreign exchange losses by Php28 million; (iii) net financing costs of Php55 million in 2020; (iv) lower net gains on derivative financial instruments by Php137 million; (v) lower interest income by Php270 million; and (vi) higher equity share in net losses of associates and joint ventures by Php275 million mainly due to equity share in net losses in 2020 as against equity share in net earnings in 2019 of Multisys, and higher equity share in net losses of VIH.

Net Income (Loss)

As a result of the foregoing, our Other business segment registered a net loss of Php318 million in 2020, a decrease of Php1,451 million, or 82%, from Php1,769 million in 2019.

Core Income (Loss)

Our Other business segment’s core income amounted to Php193 million in 2020 as against core loss of Php1,151 million in 2019.

Capital Expenditure Plans

We are one of the the leading telecommunications and digital services providers in the Philippines.  We intend to reinforce our leading position while offering a broader range and higher quality of products and services.  

Our current estimate for our consolidated capital expenditures in 2022 is approximately Php76 billion to Php80 billion, which is expected to be spent on network maintenance and expansion and IT projects, mainly to support the exponential rise in mobile data traffic, and for broadband installations.  Our capital spending is focused on our objective of supporting the changing demand profile of our customers, allowing the delivery of a superior customer experience, and helping corporate customers revive their businesses.    

We plan to expand our LTE and 5G network in line with our desire to provide coverage to substantially all of the country’s cities and municipalities by the end of 2022.  We intend to expand and upgrade our fixed access networks for cable fortification and resiliency in various locations.  The expansion of our national and domestic networks is intended to follow the roll-out of our access networks.

We also plan to continue the transformation of our service delivery platforms and IT in order to facilitate a real-time, on demand and personalized customer experience across all touch points and channels.

Our capital expenditure budget includes projects addressing the following objectives:

(1)Commercial expansion of capacity and footprint of our wired and wireless services, as well as new platforms to expand service offerings;

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(2)Technical transformation of the PLDT Group’s service delivery platform in order to realize operating and cost efficiencies, provision of greater resilience and redundancy for the network, and investments in additional cable systems;

(3)Continuing investments to expand our LTE and 5G coverage; and

(4)IT/Support Systems –upgrade of our IT and support systems.

We expect to fund incremental capital expenditures from internally generated funds, loan financing, and proceeds from sale of non-strategic assets.

Liquidity and Capital Resources

The following table shows our consolidated cash flows for the years ended December 31, 2021, 2020 and 2019 as well as our consolidated capitalization and other consolidated selected financial data as at December 31, 2021 and 2020:

	2021			2020			2019
	(amounts in million Php)
Cash Flows
Net cash flows provided by operating activities		91,970			85,076			69,392
Net cash flows used in investing activities		(103,640	)		(68,669	)		(84,316	)
Payment for purchase of property and equipment, including capitalized    interest		(103,977	)		(78,100	)		(89,701	)
Net cash flows provided by (used in) financing activities		(4,904	)		463			(11,613	)
Net increase (decrease) in cash and cash equivalents		(16,330	)		15,868			(27,285	)

	2021		2020
	(amounts in million Php)
Capitalization
Interest-bearing financial liabilities:
Long-term financial liabilities:
Long-term debt		241,075		205,195
Current portion of interest-bearing financial liabilities:
Long-term debt maturing within one year		11,482		17,570
Total interest-bearing financial liabilities		252,557		222,765
Total equity attributable to equity holders of PLDT		123,216		115,408
		375,773		338,173
Other Selected Financial Data
Total assets		626,328		575,846
Property and equipment		302,736		260,868
Cash and cash equivalents		23,907		40,237
Short-term investments		2,241		989

Our consolidated cash and cash equivalents and short-term investments totaled Php26,148 million as at December 31, 2021.  Principal sources of consolidated cash and cash equivalents in 2021 were cash flows from operating activities amounting to Php91,970 million, proceeds from availment of long-term debt of Php51,500 million, proceeds from maturity of short-term investments of Php2,518 million, proceeds from disposal of property and equipment of Php1,217 million, interest received of Php714 million and proceeds from disposal of Phunware shares of Php482 million.  These funds were used principally for: (1) purchase of property and equipment, including capitalized interest, of Php103,977 million; (2) long-term debt principal and interest payments of Php22,565 million and Php8,922 million, respectively; (3) cash dividend payments of Php17,712 million; (4) settlement of obligations under lease liabilities of Php6,547 million; (5) payment for purchase of short-term investments of Php3,847 million; and (6) payment for acquisition of investments in associates and joint ventures of Php1,754 million, mainly PCEV’s additional investment in VIH’s preferred shares.  

Our consolidated cash and cash equivalents and short-term investments totaled Php41,226 million as at December 31, 2020.  Principal sources of consolidated cash and cash equivalents in 2020 were cash flows from operating activities amounting to Php85,076 million, proceeds from availment of long-term and short-term debts of Php61,271 million and Php10,000 million, respectively, proceeds from disposal of property and equipment of Php5,830 million, proceeds from maturity of short-term investments of Php4,375 million, proceeds from collection of Metro Pacific Investments Corporation, or MPIC, receivables of Php2,826 million, proceeds from disposal of Rocket Internet shares of Php2,127 million and interest received of Php1,106 million.  These funds were used principally for: (1) purchase of property and equipment, including capitalized interest, of Php78,100 million; (2) long-term debt principal and interest payments of Php28,365 million and Php8,348 million,

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respectively; (3) cash dividend payments of Php16,721 million; (4) payment of short-term debt of Php10,000 million; (5) settlement of obligations under lease liabilities of Php5,781 million; (6) payment for purchase of short-term investments of Php5,147 million; and (7) payment for purchase of investment in debt securities of Php1,194 million.

Financing Requirements

We believe that our available cash, including cash flow from operations, will provide sufficient liquidity to fund our projected operating, investment, capital expenditures and debt service requirements for the next 12 months and in the long-term; however, we may finance a portion of these costs from external sources if we consider it prudent to do so.

See Note 28 – Financial Assets and Liabilities – Financial Risk Management Objectives and Policies to the accompanying consolidated financial statements in Item 18. “Financial Statements” for a detailed discussion on our financing requirements.

Operating Activities

Our consolidated net cash flows provided by operating activities increased by Php6,894 million, or 8%, to Php91,970 million in 2021 from Php85,076 million in 2020, primarily due to lower level of settlement of accounts payable, and higher operating income, partially offset by higher prepayments, higher level of settlement of accrued expenses and other current liabilities, and other noncurrent liabilities, higher pension and other employee benefits, and lower level of collection of receivables.

Our consolidated net cash flows provided by operating activities increased by Php15,684 million, or 23%, to Php85,076 million in 2020 from Php69,392 million in 2019, primarily due to lower prepayments, higher operating income, lower pension and other employee benefits, and lower level of settlement of other noncurrent liabilities and accrued expenses and other current liabilities, partially offset by higher level of settlement of accounts payable.

Cash flows provided by operating activities of our Wireless business segment increased by Php12,780 million, or 26%, to Php62,853 million in 2021 from Php50,073 million in 2020, primarily due to lower level of settlement of accounts payable, and higher operating income, partially offset by higher prepayments and higher level of settlement of accrued expenses and other current liabilities.  Cash flows provided by operating activities of our Fixed Line business segment increased by Php7,440 million, or 21%, to Php43,011 million in 2021 from Php35,571 million in 2020, primarily due to higher operating income, lower level of settlement of accounts payable and higher level of collection of receivables, partially offset by higher pension and other employee benefits, higher prepayments and higher level of settlement of accrued expenses and other current liabilities.  Cash flows used in operating activities of our Other business segment amounted to Php631 million in 2021 as against cash flows provided by operating activities of Php10,174 million in 2020, primarily due to operating loss in 2021 as against operating income in 2020, and higher level of settlement of accounts payable, partially offset by higher level of collection of receivables.

Cash flows provided by operating activities of our Wireless business segment increased by Php5,823 million, or 13%, to Php50,073 million in 2020 from Php44,250 million in 2019, primarily due to lower prepayments and lower level of settlement of other noncurrent liabilities and accrued expenses and other current liabilities, partially offset by higher level of settlement of accounts payable and lower level of collection of receivables.  Cash flows provided by operating activities of our Fixed Line business segment increased by Php15,270 million, or 75%, to Php35,571 million in 2020 from Php20,301 million in 2019 primarily due to lower pension and other employee benefits, lower level of settlement of accounts payable, higher operating income, and lower prepayments, partially offset by lower level of collection of receivables.  Cash flows provided by operating activities of our Other business segment amounted to Php10,174 million in 2020, as against cash flows used in operating activities of Php379 million in 2019, primarily due to higher operating income and lower level of settlement of accounts payables, partially offset by lower level of collection of receivables.

Investing Activities

Consolidated net cash flows used in investing activities amounted to Php103,640 million in 2021, an increase of Php34,971 million, or 51%, from Php68,669 million in 2020, primarily due to the combined effects of the following: (1) higher payment for purchase of property and equipment, including capitalized interest, by Php25,877 million; (2) lower proceeds from disposal of property and equipment by Php4,613 million; (3) lower level of collection of MPIC receivables by Php2,656 million; (4) proceeds from disposal of Phunware shares in 2021 of Php482 million as compared with proceeds from disposal of Rocket Internet shares of Php2,017 million in 2020; (5) higher payment for acquisition of investments in associates and joint ventures by Php1,355 million;

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and (6) net proceeds from redemption of investment in debt securities of Php589 million in 2021 as against net payment for purchase of investment in debt securities of Php1,044 million in 2020.

Consolidated net cash flows used in investing activities amounted to Php68,669 million in 2020, a decrease of Php15,647 million, or 19%, from Php84,316 million in 2019, primarily due to the combined effects of the following: (1) lower payment for purchase of property and equipment, including capitalized interest, by Php11,601 million; (2) higher proceeds from disposal of property and equipment by Php5,606 million; (3) higher proceeds from disposal of Rocket internet shares by Php1,106 million; (4) higher level of collection of MPIC receivables by Php1,055 million; (5) lower interest received by Php617 million; (6) net payment for purchase of investment in debt securities of Php1,044 million in 2020; and (7) net payment for purchase of short-term investment of Php772 million in 2020 as against net proceeds from maturity of short-term investments of Php843 million in 2019.

Our consolidated payment for purchase of property and equipment, including capitalized interest, in 2021 totaled Php103,977 million, an increase of Php25,877 million, or 33%, as compared with Php78,100 million in 2020.  Smart’s payment for purchase of property and equipment, including capitalized interest, increased by Php10,420 million, or 27%, to Php49,216 million in 2021 from Php38,795 million in 2020.  Smart’s capex spending was primarily focused on LTE (4G) coverage and capacity expansion, and rollout of new sites and 5G base stations in key business areas and dense communities nationwide.  PLDT’s payment for purchase of property and equipment, including capitalized interest, increased by Php14,548 million, or 38%, to Php52,839 million in 2021 from Php38,291 million in 2020.  PLDT’s capex spending was used to finance fixed line install, rollout, expansion and modernization of fiber optic transport network and backbone resiliency, and expansion of our international submarine cable network.  The balance represents other subsidiaries’ capital spending.

Our consolidated payment for purchase of property and equipment, including capitalized interest, in 2020 totaled Php78,100 million, a decrease of Php11,601 million, or 13%, as compared with Php89,701 million in 2019.  Smart’s payment for purchase of property, including capitalized interest, decreased by Php15,307 million, or 28%, to Php38,795 million in 2020 from Php54,102 million in 2019.  Smart’s capex spending was primarily focused on expansion of LTE (4G) coverage and capacity, and rollout of 5G base stations in key business districts of Metro Manila, and key cities in Visayas and Mindanao.  PLDT’s payment for purchase of property, including capitalized interest, increased by Php4,332 million, or 13%, to Php38,291 million in 2020 from Php33,959 million in 2019.  PLDT’s capex spending was used to finance the fixed line expansion, modernization and upgrade of transport network, continuous expansion of fiber optic footprint nationwide, and expansion of our international submarine cable network.  The balance represents other subsidiaries’ capital spending.

As part of our growth strategy, we may from time to time, continue to make acquisitions and investments in companies or businesses.

Financing Activities

On a consolidated basis, cash flows used in financing activities amounted to Php4,904 million in 2021, as against cash flows provided by financing activities of Php463 million in 2020, primarily due to the combined effects of the following: (1) lower proceeds from availment of long term debt by Php9,771 million; (2) higher cash dividends paid by Php991 million; (3) higher settlement of obligations under lease liabilities by Php766 million; (4) higher interest paid by Php574 million; and (5) lower payments of long-term debt by Php5,800 million.

On a consolidated basis, cash flows provided by financing activities amounted to Php463 million in 2020, as against cash flows used in financing activities of Php11,613 million in 2019, primarily due to the combined effects of the following: (1) higher proceeds from availment of long-term debt by Php23,771 million; (2) higher settlement of obligations under lease liabilities by Php382 million; (3) higher payment of debt issuance costs by Php732 million; (4) higher interest paid by Php1,200 million; (5) higher cash dividends paid by Php1,129 million; and (6) higher payments of long-term debt by Php7,871 million.

See Note 28 – Financial Assets and Liabilities – Financial Risk Management Objectives and Policies to the accompanying consolidated financial statements in Item 18. “Financial Statements” for a detailed discussion on our treasury policies and objectives in terms of the manner in which treasury activities are controlled.

Debt Financing

Proceeds from availment of long-term debt in 2021 amounted to Php51,500 million, mainly from PLDT’s and Smart’s drawings related to refinancing of maturing loan obligations and financing of capital expenditure requirements.  Payments of principal, including prepayments of Php4,783 million, amounted to Php22,565 million while payments of interest on our total debt amounted to Php8,891 million in 2021.

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Proceeds from availment of long-term and short-term debts in 2020 amounted to Php61,271 million and Php10,000 million, respectively, mainly from PLDT’s issuance of fixed rate U.S. Dollar notes and PLDT’s and Smart’s drawings related to refinancing of maturing loan obligations, prepayment of outstanding loans and financing of capital expenditure requirements.  Payments of principal on our long-term and short-term debts in 2020 amounted to Php28,365 million and Php10,000 million, respectively, while payment of interest amounted to Php8,348 million.

Our consolidated long-term debt increased by Php29,792 million, or 13%, to Php252,557 million as at December 31, 2021 from Php222,765 million as at December 31, 2020, primarily due to drawings from our long-term facilities, partially offset by debt amortizations and prepayments.  As at December 31, 2021, PLDT’s long-term debt level increased by Php13,006 million, or 9%, to Php157,007 million from Php144,001 million as at December 31, 2020, while Smart’s long-term debt level increased by Php16,786 million, or 21%, to Php95,550 million from Php78,764 as at December 31, 2020.

Our consolidated long-term debt increased by Php30,209 million, or 16%, to Php222,765 million as at December 31, 2020 from Php192,556 million as at December 31, 2019, primarily due to issuance of fixed rate U.S. Dollar notes and drawings from our long-term and short-term facilities, partly offset by debt amortizations and prepayments.  As at December 31, 2020, Smart’s long-term debt level increased by 1%, to Php78,764 million from Php78,152 as at December 31, 2019, and PLDT’s long-term debt level increased by 26% to Php144,001 million from Php114,404 million as at December 31, 2019.

See Note 21 – Interest-bearing Financial Liabilities – Long-term Debt to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for a more detailed discussion of our long-term debt.

Equity Financing

On August 5, 2014, the Board of Directors approved the amendment of our dividend policy, increasing the dividend payout rate to 75% from 70% of our core earnings per share as regular dividends.  On August 2, 2016, the PLDT Board of Directors approved the amendment of our dividend policy, reducing our dividend payout rate to 60% of our core earnings per share as regular dividends.  This was in view of the elevated capital expenditures to support the build-out of a resilient and reliable data network, lower EBITDA primarily due to higher subsidies to grow the data business and defend market share, and the resources required to support the acquisition of SMC’s telecommunications business.  In declaring dividends, we take into consideration the interest of our shareholders, as well as our working capital, capital expenditures and debt servicing requirements.  The retention of earnings may be necessary to meet the funding requirements of our business expansion and development programs.  However, in the event that no investment opportunities arise, we may consider the option of returning additional cash to our shareholders in the form of special dividends of up to the balance of our core earnings or to undertake share buybacks.  We were able to pay out approximately 100% of our core earnings for seven consecutive years from 2007 to 2013, approximately 90% of our core earnings for 2014, 75% of our core earnings for 2015, 60% of our core earnings for 2016, 2017 and 2018, and 60% of our telco core income for 2019 and 2020.  The accumulated equity in the net earnings of our subsidiaries, which form part of our retained earnings, are not available for distribution unless realized in the form of dividends from such subsidiaries.  Dividends are generally paid in Philippine pesos.  In the case of shareholders residing outside the Philippines, PLDT’s transfer agent in Manila, Philippines, as the dividend-disbursing agent, converts the Philippine peso dividends into U.S. dollars at the prevailing exchange rate and remits the dollar dividends abroad, net of any applicable withholding tax.

Our subsidiaries pay dividends subject to the requirements of applicable laws and regulations and availability of unrestricted retained earnings, without any restriction imposed by the terms of contractual agreements.  Notwithstanding the foregoing, the subsidiaries of PLDT may, at any time, declare and pay such dividends depending upon the results of operations and future projects and plans, the respective subsidiary’s earnings, cash flow, financial condition, capital investment requirements and other factors.

Consolidated cash dividend payments paid to shareholders amounted to Php17,712 million, Php16,721 million, and Php15,592 million as at December 31, 2021, 2020 and 2019, respectively.

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The following table shows the dividends declared to common and preferred shareholders for the years ended December 31, 2021 and 2020:  

	Date		Amount
Earnings	Approved(1)	Record	Payable	Per share		Total Declared
				(amounts in million Php, except per share amount)
2021
Common Stock
Regular Dividend	March 4, 2021	March 18, 2021	April 6, 2021		40		8,642
	August 5, 2021	August 19, 2021	September 3, 2021		42		9,075
Preferred
Series IV Cumulative Non-convertible    Redeemable Preferred Stock(1)	January 26, 2021	February 22, 2021	March 15, 2021		—		12
	May 6, 2021	May 21, 2021	June 15, 2021		—		13
	August 5, 2021	August 20, 2021	September 15, 2021		—		12
	November 4, 2021	November 19, 2021	December 15, 2021		—		12
Voting Preferred Stock	March 4, 2021	March 24, 2021	April 15, 2021		—		3
	June 8, 2021	June 24, 2021	July 15, 2021		—		2
	August 26, 2021	September 13, 2021	October 15, 2021		—		2
	December 7, 2021	December 23, 2021	January 15, 2022		—		3
Charged to Retained Earnings							17,776
2020
Common Stock
Regular Dividend	March 5, 2020	March 19, 2020	April 3, 2020		39		8,426
	August 6, 2020	August 20, 2020	September 4, 2020		38		8,210
Preferred
Series IV Cumulative Non-convertible    Redeemable Preferred Stock(1)	January 28, 2020	February 24, 2020	March 15, 2020		—		12
	May 7, 2020	May 21, 2020	June 15, 2020		—		13
	August 6, 2020	August 20, 2020	September 15, 2020		—		12
	November 5, 2020	November 19, 2020	December 15, 2020		—		12
Voting Preferred Stock	March 5, 2020	March 25, 2020	April 15, 2020		—		3
	June 9, 2020	June 24, 2020	July 15, 2020		—		2
	September 29, 2020	October 13, 2020	October 15, 2020		—		2
	December 3, 2020	December 18, 2020	January 15, 2021		—		3
Charged to Retained Earnings							16,695

⁽¹⁾ Dividends were declared based on total amount paid up.

Our dividends declared after December 31, 2021 are detailed as follows:

	Date		Amount
Earnings	Approved(1)	Record	Payable	Per share		Total Declared
				(amounts in million Php, except per share amount)
Common Stock
Regular Dividend
	March 3, 2022	March 17, 2022	April 4, 2022		42		9,075
Preferred
Series IV Cumulative Non-convertible    Redeemable Preferred Stock(1)	January 25, 2022	February 21, 2022	March 15, 2022		—		12
Voting Preferred Stock	March 3, 2022	March 23, 2022	April 15, 2022		—		2
Charged to Retained Earnings							9,089

See Item 3 – “Key Information – Dividends Declared” and “ – Dividends Paid” and Note 20 – Equity to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for further information on our dividend payments.

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Credit Ratings

None of our existing indebtedness contains provisions under which credit rating downgrades would trigger a default, changes in applicable interest rates or other similar terms and conditions.

PLDT’s current credit ratings are as follows:

Rating Agency	Credit Rating		Outlook
Moody’s Investor Service, or    Moody’s	Local Currency Issuer Rating	Baa2	Stable
S&P Global (formerly Standard &    Poor’s Ratings Services)	Long-term Foreign Issuer Credit	BBB+	Stable
	Senior Unsecured Notes Programs	BBB+
CRISP	Issuer rating	AAA	Stable

On March 18, 2021, Moody’s affirmed PLDT’s long-term local currency issuer rating at “Baa2”.  Rating is considered “investment grade.”  The outlook is stable.

On November 26, 2020, S&P Global affirmed our long-term foreign issuer credit rating at “BBB+”, with a stable outlook, and also, on our senior unsecured notes programs at “BBB+”.  These ratings are considered as “investment grade.”

On January 28, 2021, Fitch affirmed, on unsolicited basis, PLDT’s long-term foreign currency issuer default rating and long-term local currency issuer default rating at “BBB”, with a stable outlook.  On the same date, Fitch has withdrawn all of PLDT’s ratings for commercial reasons.

On January 6, 2014, CRISP rated PLDT’s inaugural peso retail bonds as “AAA” issuer rating with a “stable” outlook, the highest on the scale.  CRISP cited PLDT’s market leadership, strong historical financial performance and excellent management and governance as key considerations for providing their rating.  As at March 22, 2022, there has been no change in the credit rating issued by CRISP.

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Contractual Obligations and Commercial Commitments

Contractual Obligations

For a detailed discussion of our consolidated contractual undiscounted obligations as at December 31, 2021, see Note 28 – Financial Assets and Liabilities to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

Commercial Commitments

Our outstanding consolidated commercial commitments, in the form of letters of credit, amounted to nil as at December 31, 2021.

Item 5E. Critical Accounting Estimates

Not applicable.

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Item 6. Directors, Senior Management and Employees

Directors and Executive Officers

The Board of Directors is principally responsible for PLDT’s overall direction and governance. PLDT’s Articles of Incorporation provide for 13 members of the Board, who shall be elected by the stockholders. At present, three of PLDT’s 13 directors are independent directors.  The Board holds office for a one year period and until their successors are elected, and are qualified in accordance with the By-Laws.

The name, age and period of service, of each of the current directors, including independent directors, of PLDT as at February 28, 2022 are as follows:

Name	Age		Period during which individual has served as such
Manuel V. Pangilinan		75	November 24, 1998 to present
Manuel L. Argel, Jr.		72	January 28, 2020 to present
Helen Y. Dee		77	June 18, 1986 to present
Albert F. del Rosario		82	July 11, 2016 to present
Ray C. Espinosa		65	November 24, 1998 to present
James L. Go		82	November 3, 2011 to present
Kazuyuki Kozu		48	July 6, 2021 to present
Bernido H. Liu(1)		59	September 28, 2015 to present
Retired Supreme Court Chief Justice Artemio V. Panganiban(1)		85	April 23, 2013 to present
Alfredo S. Panlilio		58	June 8, 2021 to present
Bernadine T. Siy(1)		63	June 8, 2021 to present
Naoki Wakai		56	August 26, 2021 to present
Marife B. Zamora		69	November 14, 2016 to present

⁽¹⁾ Independent Director.

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The name, age, position and period of service of the executive officers of PLDT as at February 28, 2022 are as follows:

Name	Age	Position(s)	Period during which individual has served as such
Executive Officers:
Alfredo S. Panlilio	58	President and CEO	June 8, 2021 to present
Anabelle L. Chua	61	Senior Vice President	February 26, 2002 to present
		Chief Risk Management Officer	August 9, 2018 to present
		Chief Financial Officer of PLDT	May 18, 2015 to present
Victorico P. Vargas	70	Leadership Transition Officer	July 1, 2021 to present
		Business Transformation Office Head	January 1, 2016 to present
Marilyn A. Victorio-Aquino	66	Corporate Secretary	January 25, 2022 to present
		Chief Legal Counsel	December 1, 2018 to present
		Senior Vice President	January 1, 2019 to present
Gina Marina P. Ordoñez	60	Chief People Officer	March 21, 2019 to present
		Senior Vice President	May 1, 2019 to present
Mary Rose L. dela Paz	50	Senior Vice President	August 6, 2020 to present
		Chief Procurement Officer	July 16, 2019 to present
Mario G. Tamayo	61	Senior Vice President	January 1, 2021 to present
		Technology Group Head	January 1, 2021 to present
		Network Head	July 1, 2021 to present
Alejandro O. Caeg	61	Senior Vice President	January 1, 2012 to present
		Consumer Sales Head	July 31, 2019 to present
Menardo G. Jimenez, Jr.	58	Senior Vice President	December 9, 2004 to present
		Consumer Business - Home Head	July 31, 2019 to present
Joseph Ian G. Gendrano	45	First Vice President	November 8, 2018 to present
		Enterprise Group Head	November 16, 2021 to present
Leo I. Posadas	55	First Vice President	March 6, 2007 to present
		Treasurer	May 18, 2015 to present
Melissa V. Vergel De Dios	59	First Vice President	March 5, 2013 to present
		Chief Sustainability Officer	November 4, 2021 to present
		Investor Relations Head	March 6, 2007 to present
Gil Samson D. Garcia	50	First Vice President	November 8, 2018 to present
		OIC-Financial Reporting and Controllership	January 1, 2021 to present

At least three of our directors, namely, Retired Supreme Court Chief Justice Artemio V. Panganiban, Bernido H. Liu and Bernadine T. Siy, are independent directors who are neither officers nor employees of PLDT or any of its subsidiaries, and who are free from any business or other relationship with PLDT or any of its subsidiaries which could, or could reasonably be perceived to, materially interfere with the exercise of independent judgment in carrying out their responsibilities as independent directors.  The independence standards/criteria are provided in our By-Laws and Corporate Governance Manual pursuant to which, in general, a director may not be deemed independent if such director is, or in the past five years had been, employed in an executive capacity by us or any company controlling, controlled by or under common control with us or he is, or within the past five years had been, retained as a professional adviser by us or any of our related companies, or he is not free from any business or other relationships with us which could, or could reasonably be perceived, to materially interfere with his exercise of independent judgment in carrying out his responsibilities as a director.

The following is a brief description of the business experiences of each of our directors, executive officers and advisors for at least the past five years:

Mr. Manuel V. Pangilinan, 75 years old, has been a director of PLDT since November 24, 1998. He was appointed as Chairman of the Board of Directors of PLDT after serving as its President and Chief Executive Officer from November 1998 to February 2004.  Since January 1, 2016, he also held the position of President and Chief Executive Officer of PLDT until June 7, 2021, and served as President and Chief Executive Officer of Smart until August 7, 2019.  Mr. Pangilinan is the Chairman of the Governance, Nomination and Sustainability, Executive Compensation, Technology Strategy, and Data Privacy and Information Security Committees of the Board of Directors of PLDT.  He also serves as  Chairman of MPIC, Meralco, PXP Energy Corporation and Philex Mining Corporation, and Vice Chairman of Roxas Holdings, Inc., all of which are PSE-listed companies, and of several subsidiaries or affiliates of PLDT or MPIC, including, among others, Smart, DMPI, Digitel, PLDT Communications & Energy Ventures, Inc., ePLDT, Inc., Beacon Electric Assets Holdings Inc., Philex Petroleum Corporation, Manila North Tollways Corporation, Maynilad Water Services Corporation, Landco Pacific Corporation, Metro Pacific Hospital Holdings, Inc., Medical Doctors Incorporated (Makati Medical Center), Colinas Verdes Corporation (Cardinal Santos Medical Center), Davao Doctors Incorporated, Riverside Medical Center Incorporated, Our Lady of Lourdes Hospital and Asian Hospital Incorporated.  He is also the Chairman of MediaQuest Holdings Inc., TV5 Network, Inc. and PLDT-Smart Foundation.

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Mr. Pangilinan founded First Pacific Company Limited (“First Pacific”), a Hongkong Stock Exchange-listed company, in 1981 and serves as its Executive Chairman, Managing Director and Chief Executive Officer. Within the First Pacific Group, he also holds the position of President Commissioner of P.T. Indofood Sukses Makmur Tbk, the largest food company in Indonesia.

Outside the First Pacific Group, Mr. Pangilinan is the Chairman of the Board of Trustees of San Beda College and Amateur Boxing Association of the Philippines, a governing body of amateur boxers in the country, and the Chairman Emeritus of the Samahang Basketbol ng Pilipinas. He is also the Chairman of Philippine Business for Social Progress, the largest private sector social action organization made up of the country’s largest corporations and a Co-Chairman of the Philippine Disaster Resilience Foundation, Inc., a non-stock, non-profit foundation established to formulate and implement a reconstruction strategy to rehabilitate and rebuild areas devastated by floods and other calamities, and of the US-Philippine Business Society, a non-profit society which seeks to broaden the relationship between the United States and the Philippines in the areas of trade, investment, education, foreign and security policies and culture. 

Mr. Pangilinan has received numerous prestigious awards including the Business Icon Gold Award for having greatly contributed to the Philippine economy through achievements in business and society by Biz News Asia magazine (2008), Global Filipino Executive of the Year for 2010 by Asia CEO Awards, and Philippines Best CEO for 2012 by Finance Asia.

Mr. Pangilinan graduated cum laude from the Ateneo de Manila University, with a Bachelor of Arts Degree in Economics. He received his Master’s Degree in Business Administration from Wharton School of Finance & Commerce at the University of Pennsylvania, where he was a Procter & Gamble Fellow. He was conferred a Doctor of Humanities Degree (Honoris Causa) by the San Beda College (2002), Xavier University (2007), Holy Angel University (2009) and Far Eastern University (2010).

Retired Judge Manuel L. Argel, Jr., 72 years old, is a member of the Philippine Social Security Commission, the Governing Board of the Social Security System (“SSS”) and shares the responsibility for the governance of the SSS in terms of providing policy directions, monitoring, and overseeing management actions. He is a member of the Risk Management and Investment and Audit Committees of the SSC. He also performs quasi-judicial functions through decisions rendered on cases involving SSS coverage, benefits, contributions and penalties.

He started his law career as an associate in private full-service law firms until he formed his own law firm in 1981.  While in private practice, Retired Judge Argel was accredited in 1995 as a Voluntary Labor Arbitrator of the National Conciliation and Mediation Board.  He also served as President of the Integrated Bar of the Philippines (Ilocos Chapter) from 1993 to 1995, Provincial Secretary of the National Citizens’ Movement for Free Elections, Chairman of the Ilocos Sur Local Amnesty Board, and a member of the People’s Assistance Development Action Center, Inc.

His stint in the government started when he was elected as a member of the Sangguniang Bayan of Vigan City in 1980.  In 2008, he received the Legislator’s Award given by the City Government of Vigan in recognition of his accomplishments and contributions as former legislator of Vigan City.

In 1995, he was appointed as Regional Trial Court Judge of Laoag City and served as Executive Judge from 2005 to 2007 and Presidential Assistant for Region I in the Philippine Judges Association.  He retired from the Judiciary in 2015.  His record of public service as a judge was marked by a very high degree of competence, integrity, dedication and independence.  He obtained his Bachelor of Arts in Philosophy and Bachelor of Laws Degrees from San Beda College.

Ms. Helen Y. Dee, 77 years old, has been a director of PLDT since June 18, 1986. She is the Chairperson of EEI Corporation, House of Investments, Petro Energy Resources Corporation, Rizal Commercial Banking Corporation, all of which are PSE-listed companies. She is the Chairperson, Vice Chairperson or a director of several companies engaged in banking, insurance and real property businesses, which are listed on page 107 hereof. Ms. Dee received her Master’s Degree in Business Administration from De La Salle University.

Atty. Ray C. Espinosa, 65 years old, has been a director of PLDT since November 24, 1998, is a member of the Technology Strategy and Data Privacy and Information Security Committees of the Board of Directors of PLDT, and was Senior Advisor to the President and CEO of PLDT from January 28, 2019 until June 8, 2021.  He was PLDT’s Chief Corporate Services Officer from December 2016 until January 28, 2019. He served as President and CEO of ePLDT Inc. and its subsidiaries from July 2000 until April 2010 and as President and CEO of TV5

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Network Inc. and Cignal TV Inc. from December 2009 until May 2013.  In June 2013, he joined First Pacific Company Limited as Associate Director.

Atty. Espinosa is also the President and CEO of Meralco. He is a director of Roxas Holdings Inc., an independent director of Lepanto Consolidated Mining Company and chairman of its Audit Committee, and an independent director of Maybank Philippines Inc. and chairman of its Risk Management Committee. He is also the chairman of the Philstar Group of Companies and BusinessWorld Publication Corporation.

He has a Master of Laws degree from the University of Michigan School of Law and a Bachelor of Laws degree from the Ateneo de Manila University School of Law, and is a member of the Integrated Bar of the Philippines. He was a partner of SyCip Salazar Hernandez & Gatmaitan from 1982 to 2000, a foreign associate at Covington and Burling (Washington, D.C.) from 1987 to 1988, and a law lecturer at the Ateneo de Manila School University of Law from 1983 to 1985 and 1989. He placed first in the 1982 Philippine Bar Examinations.

Mr. James L. Go, 82 years old, has been a director of PLDT since November 3, 2011. He is a member of the Technology Strategy and Risk Committees and Advisor of the Audit Committee of the Board of Directors of PLDT. He is also the Chairman of JG Summit Holdings, Inc. and Cebu Air, Inc. Mr. Go holds the position of Chairman and Chief Executive Officer of Oriental Petroleum and Minerals Corporation. He is also the Chairman Emeritus of Universal Robina Corporation, Robinsons Land Corporation, JG Summit Petrochemical Corporation, and JG Summit Olefins Corporation. He is the Vice Chairman of Robinsons Retail Holdings, Inc. and a Director of the Manila Electric Company and Meralco Powergen Corporation. He is also the President and Trustee of the Gokongwei Brothers Foundation, Inc. Mr. James L. Go obtained his Bachelor of Science Degree and Master of Science Degree in Chemical Engineering from Massachusetts Institute of Technology, USA. 

Mr. Kazuyuki Kozu, 48 years old, has been a director of PLDT since July 6, 2021.  He was previously the Director of the Core Network Development Department of NTT DOCOMO, INC., Tokyo, Japan. Prior to that, he served as Senior Manager of Packet Network System Development Department of DOCOMO Technology, Inc., Tokyo, Japan from September 2016 to June 2020, Director of System Management Department of mmbi Inc., Tokyo, Japan from September 2013 to August 2016, and Senior Manager of Networking Research Group of DOCOMO Communications Laboratories, Munich, Germany from April 2010 to August 2013. He started his career in NTTT DOCOMO INC., Tokyo, Japan, as Engineer from April 1997 to March 2002 and then Manager from April 2002 to March 2010 of Core Network Development Department.  He graduated with a Bachelor’s Degree in Electrical Engineering and Computer Science from the Yokohama National University, Kanagawa, Japan and obtained his Master’s Degree in Electrical Engineering and Computer Science from the same university.  

Mr. Bernido H. Liu, 59 years old, has been an independent director of PLDT since September 28, 2015 and is an independent member of the Audit, Governance, Nomination and Sustainability, Executive Compensation, Risk, and Data Privacy and Information Security Committees of the Board of Directors of PLDT.

Concurrently, he is the Chairman and Chief Executive Officer of GOLDEN ABC, Incorporated. (“GABC”), a fashion retail company which designs and sells its own clothing, personal care and accessory lines marketed and retailed under a dynamic portfolio of well-differentiated proprietary brands, namely Penshoppe, OXGN, ForMe, Memo, Regatta and BOCU.  He is also the Group Chairman of LH Paragon Incorporated, a business holdings company which has under its management GABC and other companies in various industries, namely, Matimco Incorporated, Oakridge Realty Development Corporation, Basic Graphics Incorporated, Essentia Medical Group Incorporated, and Greentree Food Solutions, Inc.

Mr. Liu and GABC under his leadership have been recognized by different award-giving bodies. Awards include the Agora Award for Outstanding Achievement in Entrepreneurship from the Philippine Marketing Association, Ten Outstanding Young Men for Entrepreneurship, Global Retailer of the Year from the Philippine Retailers Association and the Department of Trade and Industry, and the ASEAN Business Award of Excellence for Priority Integration Sector in Retail.  Mr. Liu graduated with a Bachelor of Science Degree in Architecture from the University of San Carlos, and completed the Executive Education Owner/President Management Program of the Harvard Business School.

Retired Supreme Court Chief Justice Artemio V. Panganiban, 85 years old, has been an independent director of PLDT since April 23, 2013 and is serving as an independent member of the Audit, Governance, Nomination and Sustainability, and Executive Compensation Committees, and Chairman of the Risk Committee, of the Board

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of Directors of PLDT. He was appointed as Lead Independent Director effective March 21, 2019. He served as an independent member of the Advisory Board and an independent non-voting member of the Governance and Nomination Committee of the Board of Directors of PLDT from June 9, 2009 to May 6, 2013. Currently, he is also an independent director of Meralco, Petron Corporation, Metro Pacific Investments Corporation, GMA Network, GMA Holdings, JG Summit Holdings, Inc., Asian Terminals, Inc., and RL Commercial REIT Inc., and a regular director of Jollibee Foods Corporation, all of which are PSE-listed companies, as well as Senior Adviser of Metropolitan Bank and Trust Company, a member of the Advisory Council of the Bank of the Philippine Islands and an adviser of Double Dragon Properties, Corp. and MerryMart Consumer Corp.  He is also Chairman of the Board of Trustees of the Foundation for Liberty and Prosperity, and of the Board of Advisers of Metrobank Foundation, Inc., a trustee of Tan Yan Kee Foundation and Claudio Teehankee Foundation, President of the Manila Metropolitan Cathedral-Basilica Foundation, a member of the Advisory Board of World Bank (Philippines), Chairman-Emeritus of the Philippine Dispute Resolution Center, Inc.,  Chairman of the Philippine National Committee of the Asean Law Association, Designated Chairperson of the Permanent Court of Arbitration in The Hague, Netherlands, and a column writer of the Philippine Daily Inquirer. 

Hon. Panganiban served the Supreme Court of the Philippines for more than 11 years, first as Associate Justice (October 10, 1995 to December 20, 2005) and later, as Chief Justice (December 21, 2005 to December 6, 2006) during which he sat concurrently as Chairperson of the Presidential Electoral Tribunal, Judicial and Bar Council and Philippine Judicial Academy. He has received over 250 awards in recognition of his role as jurist, practicing lawyer, professor, civic leader, Catholic lay worker and business entrepreneur, including “The Renaissance Jurist of the 21st Century” given by the Supreme Court on the occasion of his retirement from the Court. Hon. Panganiban graduated cum laude from Far Eastern University with a Bachelor of Laws Degree in 1960, and was conferred a Doctor of Laws Degree (Honoris Causa) by the University of Iloilo (1997), Far Eastern University (2002), University of Cebu (2006), Angeles University (2006) and Bulacan State University (2006). He was co-founder and past president of the National Union of Students of the Philippines.

Mr. Alfredo S. Panlilio, 58 years old, has been the President and Chief Executive Officer of PLDT since June 8, 2021, and the President and CEO of Smart since August 8, 2019.  He is also an Advisor of the Governance, Nomination and Sustainability, and Data Privacy and Information Security Committees of the PLDT Board of Directors. Within the PLDT Group, Mr. Panlilio holds leadership positions as:  Chairman, President and CEO of ePLDT, Inc., IP Converge Data Services, Inc., and Mabuhay Investments Corporation; Chairman and President of ABM Global Solutions, Inc., Curo Tecknika, Inc., ePDS, Inc., IPC Rack It Data Center, Inc., VITRO Inc.,  ACeS Philippines Cellular Satellite Corporation, and Smart Broadband, Inc.; Chairman of Maya Bank, Bonifacio Communications Corporation, Telesat, Inc., PLDT Clark Telecom, Inc., PLDT Subic Telecom, Inc., PLDT-Maratel, Inc., and PLDT-Philcom, Inc.; director, President and CEO of Digitel Telecommunications, Inc.,  and Digitel Mobile Philippines, Inc. (DMPI); President and CEO of Talas Data Intelligence, Inc.; President of MVP Rewards and Loyalty Solutions, Inc. (MRSI), Airborne Access Corporation,  PLDT Communications and Energy Ventures, Inc., and Primeworld Digital Systems, Inc.; director of international business unit PLDT Global; and trustee of social outreach arm PLDT-Smart Foundation (PSF) and Asian Carriers Conference Inc.

During Panlilio’s previous tenure in PLDT before returning as its Chief Revenue Officer on July 1, 2019, he served as Senior Vice President from May 2001 to December 2010 and was the President of PLDT Global from June 2004 to December 2010.

Prior to returning to PLDT Group, Panlilio was the Senior Vice President and Head of Customer Retail Services and Corporate Communications at Manila Electric Company (Meralco) from September 10, 2010 to June 30, 2019. Within the Meralco Group, Panlilio served as Chairman of Radius Telecoms, Inc., e-Meralco Ventures Inc., Paragon Vertical Corporation, Powersource First Bulacan Solar, Inc. and Pure Meridian Hydropower Corporation. He was also a Vice Chairman of Aclara Meters Philippines, Inc., and Director of CIS Bayad Center Inc., Corporate Information Solutions, Inc., Customer Frontline Solutions, Inc., Meralco Energy, Inc., MRAIL Inc., Meralco Industrial Engineering Services Corporation, Comstech Integration Alliance, Inc. and MSpectrum, Inc. Panlilio was also a trustee of One Meralco Foundation, Inc. (OMFI) and Meralco Power Academy, and Associate Board Member of Semiconductor and Electronics Industries in the Philippines, Inc. (SEIPI).

A veteran executive who started his career with IBM Philippines and rose through the ranks, Panlilio also serves as Director of Cignal TV, Inc., Asean Telecom Holdings Sdn. Bhd. (ATH), Chikka Holdings Limited, Connectivity Unlimited Resources Enterprises, Inc., Wifun, Inc., and Vega Group of Companies; Independent Director of CEMEX Holdings Philippines, Inc.; Board Member of Makati Central Estate Association, Inc. (MACEA); and Trustee of Asian Carrier Conference, Inc., Kapampangan Development Foundation, and Philpop Musicfest Foundation, Inc.

An advocate of the value of sports in maintaining a strong republic, Panlilio sits as President of the MVP Sports Foundation, Second Vice President of FIBA Asia Central Board, First Vice President of the Philippine Olympic

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Committee and Chairman of the FIBA Basketball World Cup 2023 local organizing committee. He is also the Governor of the Meralco Bolts Team under the Philippine Basketball Association (PBA) and President of Samahang Basketbol ng Pilipinas (SBP). Panlilio is also the Treasurer of the National Golf Association of the Philippines (NGAP) and Manila Golf Country Club, Inc.

Bearing testament to his achievements as President and CEO of PLDT and Smart, Panlilio was among PeopleAsia’s “Men Who Matter” awardees for 2021 and was cited by London-based award-giving body Total Telecom under the CEO of the Year category of the 2020 Asia Communication Awards. He was previously honored as CEO Excel Awardee of the International Association of Business Communicators Philippines in 2013, was one of seven finalists in the Rising Star (individual) category of the PLATTS Global Energy Awards 2015 held in New York, and has received multiple local and international awards for customer management and business communication excellence throughout his 37-year career.

A Member of the Management Association of the Philippines (MAP), Panlilio holds a Bachelor of Science Degree in Business Administration (Computer Information Systems) from San Francisco State University. He obtained his Master in Business Administration at J. L. Kellogg School of Management of Northwestern University and the Hongkong University of Science and Technology.

Ambassador Albert F. del Rosario, 82 years old, has been a director of PLDT since July 11, 2016 and is a member of the Technology Strategy Committee of the Board of Directors of PLDT. He was the former Secretary of Foreign Affairs of the Philippines from February 2011 to March 2016 and also served as Philippine Ambassador to the United States of America from October 2001 to August 2006. Prior to entering public service, he was on the Board of Directors of various firms. His business career for over four decades has spanned the insurance, banking, real estate, shipping, telecommunications, advertising, consumer products, retail, pharmaceutical and food industries.

Ambassador del Rosario is the Chairman of Philippine Stratbase Consultancy, Inc., Gotuaco del Rosario Insurance Brokers, Inc., Stratbase ADR Institute, Inc., Citizens for Promoting Human Rights, Inc. and a director of Metro Pacific Investments Corporation  and Rockwell Land Corporation (both PSE-listed companies), Indra Philippines, Inc., Metro Pacific Tollways Corporation, Two Rivers Pacific Holdings Corporation, Metro Pacific Resources, Inc., Metro Pacific Holdings, Inc., Metro Pacific Asset Holdings, Inc., Philippine Telecommunications Investment Corporation, Enterprise Investments Holdings, Inc., Mediaquest Holdings, Inc., Cignal TV, Inc., TV5 Network, Inc., Studio5, Inc., Businessworld Publishing Corp., Satventures, Inc., Hastings Holdings, Inc., Nation Broadcasting Corporation, Med Vision Resources, Inc., Telemedia Business, Ventures, Inc., Upbeam Investments, Inc., BTF Holdings, Inc. and Asia Insurance (Phil.) Corp.  He is also a trustee of the Carlos P. Romulo Foundation for Peace & Development and Philippine Cancer Society, Inc. and a member of the Asia Society Global Council and the Advisory Board of CSIS Southeast Asia Program and Metrobank Foundation, Inc.

Ambassador del Rosario received numerous awards and recognition for his valuable contributions to the Philippines and abroad.  In September 2004, he was conferred the Order of Sikatuna, Rank of Datu, by H.E. President Gloria Macapagal-Arroyo for his outstanding efforts in promoting foreign relations for the Philippines and the Order of Lakandula with a Rank of Grand Cross (Bayani) for acting as Co-Chair of the 2015 APEC in December 2015. He was a recipient of the EDSA II Presidential Heroes Award in recognition of his work in fostering Philippine democracy in 2001 and the Philippine Army Award from H.E. President Corazon Aquino for his accomplishments as Chairman of the Makati Foundation for Education in 1991. He was awarded as 2013 Professional Chair for Public Service and Governance by Ateneo School of Government and the Metrobank Foundation, 2014 Management Man of the Year by Management Association of the Philippines, 2016 Outstanding Government National Official by Volunteers Against Crime and Corruption (VACC), 2016 Asia CEO Award as Life Contributor, and Manuel L. Quezon Gawad Parangal as Quezon City’s Most Outstanding Citizens for 2016. He was elevated to the Xavier Hall of Fame in New York City in 2006. He received the AIM Washington Sycip Distinguished Management Leadership Award in 2011, Doctor of Laws (Honoris Causa) for “principled commitment to democracy, integrity and the rule of law both at home and around the globe” conferred by the College of Mount Saint Vincent, New York City in September 2015, Rotary Club Makati West’s First “Albert del Rosario Award” (Tungo sa Makatarungang Pamumuhay) in August 2016, Outstanding  Leadership in Diplomatic Service  by Miriam College Department of International Studies and Philippine Tatler’s Diamond Award both in November 2016.  On September 25, 2018, he was conferred the Honorary Degree of Doctor for Humanities by the Ateneo de Manila University for staunchly defending the sovereignty and territorial integrity of the country, raising the standards of economic diplomacy and proactively ensuring the safety and security of overseas Filipinos everywhere. He is moreover the holder of a first Dan Black Belt degree in Korean Hwa Rang Do.  

Ambassador del Rosario graduated from New York University with a Bachelor of Science Degree in Economics.

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Ms. Bernadine T. Siy, 63 years old, is the board chairperson of Epicurean Partners Exchange Inc. (EPEI), and a director of Fil-Pacific Apparel Corporation (FPAC), both leading players in the food service and apparel businesses.  She previously served as President and Chief Executive Officer of EPEI Inc. from 1994 to 2011, and President and Chief Executive Officer of FPAC from 1987 to 1997 and again, from 2004 to 2013.  She has been a trustee in the board of Ateneo de Manila University since 2014, and currently holds the position of board chair.  She is currently an independent director of Cebu Air, Inc. having been elected in March 2021.  She was also elected as an independent director of Anvaya Cove Golf and Country Club, Inc. in September 2021.  She is also a trustee in the board of the Foundation for Economic Freedom, an economic policy advocacy organization and a member of the Management Association of the Philippines.  She was a Consultant to the Board of Directors of the Development Bank of the Philippines from November 2012 to June 2014.  She also served as president of the Manila Golf and Country Club, Inc. in 2008. She obtained her Bachelor of Arts Degree in Economics, Magna Cum Laude from Ateneo de Manila University and a Master’s Degree in Management from J.L. Kellogg Graduate School of Management of Northwestern University in Chicago, Illinois, USA.

Mr. Naoki Wakai, 56 years old, is the Senior Vice President in charge of Global Business in Business Solution Division of NTT Communications Corporation (NTT Com). He joined Nippon Telegraph and Telephone Company (NTT) in 1989 and has been engaged in global telecoms and IT business for the past 25 years. Mr. Wakai was involved in the establishment of subsidiaries and branch offices in China, Taiwan and South Korea, and played a major role in the construction of international submarine cable systems. After serving as Senior Manager of IP Transit Business at NTT Com Asia (Hong Kong) and Director of International Business at Verio (USA), he moved to NTT Com in Japan and became Head of Server Hosting Team in 2006, Head of Carrier Relations in 2008 and Vice President of Global IP Network in 2009. Mr. Wakai moved to London as Deputy Managing Director and COO of NTT Europe Limited in 2012. In 2017, he moved to Singapore to serve as President and CEO of NTT Singapore Pte. Limited. He graduated with a Bachelor’s Degree in Political Science from Keio University in Tokyo, Japan, and holds a Master’s Degree in International Relations from International University in Niigata, Japan.

Ms. Marife B. Zamora, 69 years old, has been a director of PLDT since November 14, 2016.  She is the Chairman of the Board of Willis Towers Watson Insurance Brokers, Inc., and a member of the Board of Trustees of the Asian Institute of Management and ABS-CBN Foundation Inc. She is President of the UP Sigma Delta Phi Alumnae Association and co-founded the Filipina CEO Circle. She was Chairman of Convergys Philippines until December 2018, Managing Director for Asia Pacific, Europe, Middle East, Africa for Convergys Corporation, and served as the first Country Manager of Convergys Philippines, setting up its first contact center in 2003 and leading its growth as the country’s largest private employer. Prior to this, Ms. Zamora served as Managing Director of Headstrong Phils. She was with IBM Philippines where she held a number of sales, marketing and management positions during her 18-year tenure with the company. She is the 3rd woman President and the 68th President of the Management Association of the Philippines.  Honors conferred on Ms. Zamora include the Asia CEO Awards 2011 Global Filipino Executive of the Year, the ‘Go Negosyo’ Woman STARpreneuer Award 2012, and the 100 Most Influential Filipino Women in the World 2013 and Mariang Maya Awardee of the UP Sigma Delta Phi Alumnae Association.

Ms. Zamora received her Bachelor of Arts Degree (major in Mathematics & History) from the College of the Holy Spirit and studied in the University of the Philippines and the Wharton School of the University of Pennsylvania.

Ms. Anabelle L. Chua, 61 years old, Chief Financial Officer and Chief Risk Management Officer of the PLDT Group, is also concurrently the Chief Financial Officer of Smart.  She holds directorships in several subsidiaries of PLDT, Smart, Digitel, as well as in Voyager Innovations, PayMaya Philippines and Maya Bank.  She is a member of the Board of Directors and Audit Committee of the Philippine Stock Exchange and Securities Clearing Corporation of the Philippines.  She is also a member of the Board of Directors of Meralco, where she chairs the Finance Committee and is a member of the Audit, Risk and Nomination and Governance Committees.  Further, Ms. Chua is a director of the Philippine Telecommunications Investment Corporation and a member of the Board of Trustees of the PLDT-Smart Foundation and PLDT Beneficial Trust Fund (“PLDT-BTF”), and a director of the companies owned by PLDT-BTF.  Ms. Chua has over 30 years of experience in the areas of corporate finance, treasury, financial control and credit risk management and was a Vice President at Citibank, N.A. where she worked for 10 years prior to joining PLDT in 1998.  She graduated magna cum laude from the University of the Philippines with a Bachelor of Science Degree in Business Administration and Accountancy.

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Mr. Victorico P. Vargas, 70 years old, Senior Talent Culture and Cultivation-Office of the Chairman, and PLDT Leadership Transition Officer, is an Associate Director of First Pacific since January 2016, overseeing First Pacific Group businesses operating in the Philippines and its region, with particular focus on leading the Business Transformation of PLDT. Prior thereto, Mr. Vargas was the President and Chief Executive Officer of Maynilad Water Services, Inc. since August 2010. He joined PLDT in 2000 as its Human Resources Group Head and through his stay at PLDT got involved in managing the PLDT Business Transformation Office, Asset Protection and Management Group, and the PLDT International Carrier Business. He has worked in senior roles at Union Carbide, Pepsi Cola, Colgate Palmolive and Citibank, NA (both in Manila and in Southeast Asia). He is a director of Meralco, Smart Communications Inc., MGen Global Business Power, Maya Bank, Inc., PLDT Global Corp., PLDT Subic Telecom, Inc., PLDT Clark Telecom, Inc., Beacon Electric Asset Holdings, Inc., and Beacon PowerGen Holdings, Inc., President and Member of the Board of Trustees of the First Pacific Leadership Academy, Trustee of the MVP Sports Foundation, PLDT-Smart Foundation, Inc. and Ideaspace Foundation and President of the PhilPop Music Fest Foundation. Mr. Vargas was educated at Ateneo de Manila and University of Santo Tomas with a Bachelor of Science degree in Psychology.

Atty. Marilyn A. Victorio-Aquino, 66 years old, Chief Legal Counsel, Legal and Regulatory Head, and Corporate Secretary, joined First Pacific in 2012 as Assistant Director. She holds various positions in Philippine subsidiaries and affiliates of First Pacific and Metro Pacific Investments Corporation (an affiliate of First Pacific), including President of First Coconut Manufacturing Inc., and director of Philex Mining Corporation, PXP Energy Corporation and Lepanto Consolidated Mining Company, which are PSE-listed companies, Philex Gold Philippines, Inc., Silangan Mindanao Mining Company, Inc. and Maynilad Water Services, Inc.  

Prior to joining First Pacific, Atty. Victorio-Aquino retired as a Senior Partner at SyCip Salazar Hernandez and Gatmaitan Law Offices (SyCipLaw). She joined SyCipLaw in 1980 and was admitted as Partner in 1989. Her practice areas were mining and natural resources, investments, mergers and acquisitions, construction and infrastructure, and project finance and securities, where she acted as legal counsel and represented local and foreign clients in respect of some of the largest projects and transactions in the Philippines.  

Atty. Victorio-Aquino graduated cum laude (class salutatorian) from the University of the Philippines with a Bachelor of Laws Degree in 1980, placed second in the Philippine Bar Examinations and was admitted to the Philippine Bar in 1981. She obtained her Bachelor of Arts Degree from the University of Santo Tomas.  She is a member of the International Pacific Bar Association, Women Lawyers Circle, Federacion International de Abogadas, Philippine Bar Association and Integrated Bar of the Philippines.

Ms. Gina Marina P. Ordoñez, 60 years old, is the Chief People Officer for PLDT and Smart Communications where she drives the effective implementation of people strategies, employee services, HR business partnering and centers of excellence. She also serves as the MVP Group Vaccine Task Force Co-Chairperson where she leads and oversees COVID-19 vaccination planning and operations of employees and their families nationwide.

In her HR leadership role, she ensures a people-centric and quality-driven environment across the company through optimized organizational structures, policies, processes and analytics. She participated in the development and execution of the PLDT Group Talent Management strategy, ensuring alignment with present and future business requirements.  She joined the PLDT Group in 2016 under the Business Transformation Office (“BTO”) and later assumed the Smart People Group Head role before moving back to BTO in 2017 to head Process and Quality Management.

Under the MVP Group of Companies, Ms. Ordoñez was appointed Vice President for Service Operations and Quality Management at Makati Medical Center. She also served as Head of Customer Experience for Consumer Banking in Citibank where she held various leadership positions for 16 years and where she was certified Six Sigma Black Belt professional.  Ms. Ordoñez is a registered Corporate Coach and Quality Management Consultant who is certified to run coaching clinics. She has over 21 years of experience in People, Process and Quality Management leadership roles.

Ms. Mary Rose L. Dela Paz, 50 years old, Chief Procurement Officer, was PLDT-Smart Program Director for the Business Transformation Office (Technology, Transformation Program Management) from August 2016 until June 2019. She also served as Smart’s Vice President for Supply Chain from April 2009 to May 2014, and for Program Management in Technology Services and New Business Streams from 2000 to 2009. She held various positions in the field of marketing in Smart when she joined the company in 1998. 

Ms. Dela Paz obtained her Bachelor of Arts Degree in Economics with honors from the University of the Philippines. 

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Mr. Mario G. Tamayo, 61 years old, Technology Group Head of PLDT and Smart, reports directly to the President & CEO of the PLDT Group.  His main responsibility is to develop and implement strategies, engineering plans and roadmaps for a more customer-focused and robust mobile and fixed network. This includes transformation plans and programs for a more cost-efficient delivery of service. He likewise ensures the availability and quality of the network in accordance with set regulatory standards and global benchmarks. He leads the technology group in reaching out to consumer, corporate, and international market segments. Mr. Tamayo has more than 27 solid years of telecoms experience with leading fixed and wireless service providers in the Philippines. He graduated with a Bachelor of Science Degree in Electronics & Communications Engineering from the University of Santo Tomas.

Mr. Alejandro O. Caeg, 61 years old, Head of PLDT Smart Consumer Sales Group and a member of the Company’s Management Committee.  Currently he is also a director of PLDT Global Corporation and was its CEO from 2010 to 2017, likewise a director of MVP Rewards & Loyalty Solutions from 2019, and a director of Inspiro Philippines from 2018.  He previously served as Head of Wireless Consumer Sales and Distribution of Smart from 2016 to 2017.  Also as Head of International & Carrier Business from 2009 until 2016 and PLDT’s representative to the ITW Global Leaders Forum as well as to the Pacific Telecommunications Council.  He was Smart’s representative to the Conexus Mobile Alliance (one of Asia’s largest cellular roaming alliances), where he was also designated as its Deputy Chairman until 2012 and eventually as Conexus Chairman until 2014.  Prior to joining PLDT in 2009, he was appointed by PT Smart Telecom Tbk (Indonesia) as its Chief Commercial Strategy Officer from July to December 2008 and as Chief Commercial Officer from 2006 to 2008.  Since joining Smart in 1993, he has held various sales, marketing and customer experience-related positions including that of Group Head of Sales and Distribution (2003-2005), Group Head of Customer Care and National Wireless Centers (1998-2001) and Marketing Head of International Gateway Facilities and Local Exchange Carrier (1997-1998).  He also served as CEO of Telecommunications Distributors Specialist, Inc. (TSI) in 2002 and as Chief Operations Adviser of I-Contacts Corporation (Smart’s Call Center subsidiary) from 2001 to 2002.  Mr. Caeg graduated with a Bachelor’s Degree in AB Applied Economics and obtained MBA credits from De La Salle University Manila.

Mr. Menardo G. Jimenez, Jr., 58 years old, Head of Consumer Business – Home, joined PLDT in December 2001 and  served  in various capacities as Corporate Communications and Public Affairs Head, Retail Business Group Head, Human Resources Group Head and Fixed Line Business Transformation Office Head.  He holds directorships in several subsidiaries of PLDT. Prior to joining PLDT, he had a stint at GMA Network, Inc., where he served as head of a creative services and network promotions.  Mr. Jimenez received his AB Economics Degree from the University of the Philippines.

Mr. Joseph Ian G. Gendrano, 45 years old, Head of Enterprise and International Business, has been in PLDT’s service since May 2013.  Prior to joining PLDT, he worked with Verizon Business, Cisco Systems and Goldman Sachs in the United States.  He has held technical, sales, consulting and leadership roles in these organizations as well as gained industry experience in the global financial services vertical. He served as Vice President of Goldman Sachs’ Network Voice and Multimedia Division and Chief Architect for Unified Communications platforms. Mr. Gendrano obtained his Bachelor of Science degree in Electronics and Communications Engineering from De La Salle University and Master of Science degree in Electrical Engineering, Major in Telecommunications and Networking from the University of Pennsylvania.

Mr. Leo I. Posadas, 55 years old, Treasurer of the PLDT Group and concurrent Treasury Head of PLDT and Smart, handles the treasury management and treasury operations of several companies under the PLDT Group. He is a director and Treasurer of PLDT Global Investments Holdings, a director and Vice President for Treasury of Mabuhay Investments Corporation, and the Treasurer of the Vega Telecom group. He is the Chief Financial Officer of PLDT Global Corporation. He is also the Treasurer of Smart, ePLDT, Digital Telecommunications, Digitel Mobile, PLDT-Smart Foundation and several other subsidiaries of PLDT and Smart. Prior to joining PLDT in September 2000, he served as Treasury Manager of Total Petroleum Philippines, and as Manager for Foreign Exchange Management of San Miguel Corporation. Mr. Posadas received his Bachelor of Arts Degree in Economics and Bachelor of Science Degree in Commerce Major in Management of Financial Institutions from De La Salle University.

Ms. Melissa V. Vergel De Dios, 59 years old, was appointed as Chief Sustainability Officer effective November 4, 2021 and concurrently serves as the Head of Chief Sustainability Office and Head of Investor Relations.  She has been in PLDT’s service since May 2001 and served as Property Management Center Head until May 2003 and as Property and Facilities Management Center Head until September 2007. Prior to joining PLDT, she was the Chief Operating Officer of Wharton Credit Corp. and from June 2000 to May 2001 was the Group Chief Finance Officer of Global 3 Internet Holdings, Inc.  She held various positions in San Miguel Group of Companies from 1984 to 2000. Ms. Vergel de Dios obtained her Bachelor of Science Degree in Marketing and Management and Bachelor of Arts Degree in Economics from Assumption College.

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Mr. Gil Samson D. Garcia, 50 years old, appointed Officer-in-Charge of Financial Reporting and Controllership effective January 1, 2021, is concurrently the Group Chief Financial Officer (CFO) of ePLDT since May 2015 which includes ePLDT, Inc., Curo Teknika (Curo), ABM Global Solutions Inc.(AGS), IP Converge Data Services, Inc.(IPC), IPC RACK I.T. Data Center, Inc.(RACK IT), and ePDS, Inc. (ePDS). He has been the CFO of MVP Rewards & Loyalty Solutions, Inc. (MRSI) since September 2018, and director of ePDS since June 2019. He served as CFO of Curo, AGS, IPC and RACK IT from May 2015 to August 2019.  He joined PLDT in February 2007 as Assistant Vice President for Financial Reporting and Controllership and Head of Revenue and Cash Accounting (RevCash) until March 2010, and as Vice President until June 2010. His role was expanded as Head of Revenue Management and Cash (RevManCash) from July 2010 to October 2018, and was promoted to First Vice President in November 2018.  Prior to joining PLDT, he was a Senior Director of the Business Risk Services Group of SGV & Co. / Ernst & Young until January 2007, where he started his career in November 1992, gaining a wide-range of experiences in various industries, here and abroad, both for public and private sectors, in external audit, internal audit, finance / accounting, business process review and advisory, Sarbanes-Oxley (SOX) 404 / 302 evaluation & consultancy, risk management, corporate governance, and business fraud investigation, and fraud prevention and detection, among others.   Mr. Garcia graduated Cum Laude from the University of Santo Tomas with a Bachelor of Science Degree in Commerce, Major in Accounting. He is a Certified Public Accountant (CPA), and a globally Certified Internal Auditor (CIA) and Certified Fraud Examiner (CFE). He completed the Management Development Program in Asian Institute of Management School of Executive Education in cooperation with PLDT & Smart in August 2016, and the High Potential Program / Leadership Talent Assessment facilitated by Development Dimensions International in October 2020.

Below is a list of directorships in other private and public companies of the director named below.  All directorships of our other director are included in their respective biographies in the preceding pages.

Name of Director	Names of Companies
	Public	Private
Helen Y. Dee	EEI Corporation (Regular Director/Chairman) House of Investments (Regular Director/Chairman) Petro Energy Resources Corporation    (Regular Director/Chairman) Rizal Commercial Banking Corporation    (Regular Director/Chairman)	A.T. Yuchengco, Inc. (Regular Director/Chairman) AY Foundation, Inc. (Regular Director/Chairman) AY Holdings, Inc. (Regular Director/Chairman) ET Yuchengco, Inc. (Regular Director/Chairman) Dee Yu Corporation (Regular Director/Chairman) GPL Holdings, Inc. (Regular Director/President) Hi-Eisai Pharmaceuticals, Inc. (Regular Director/Chairman) Honda Cars, Kaloocan (Regular Director) Honda Cars Philippines, Inc. (Regular Director) Isuzu Philippines, Inc. (Regular Director) La Funeraria Paz Sucat (Regular Director/Chairman) Landev Corp. (Regular Director/Chairman) Luis Miguel Foods (Regular Director)        Luisita Industrial Park Corporation (Regular Director)     Malayan Colleges Laguna, Inc. (Trustee) Malayan Colleges Mindanao Inc. (Regular Director/Chairman) Malayan Educational Systems, Inc. (Regular Director/Chairman)       Malayan Insurance Co. Inc. (Regular Director/Chairman) Malayan High School of Science, Inc. (Regular Director/Chairman) Manila Memorial Park Cemetery, Inc. (Regular Director/Chairman) Mayahin Holdings Corporation (Regular Director/Chairman) MICO Equities, Inc. (Regular Director/Chairman) Mijo Holdings, Inc. (Regular Director/Chairman Pan Malayan Express, Inc. (Regular Director/Chairman) Pan Malayan Management and Investment      Corporation (Regular Director/Chairman) Pan Malayan Realty Corporation (Regular Director/Chairman) Petrowind Energy, Inc. (Regular Director/ Chairman) Philippine Business for Education, Inc. (Regular Director/Trustee) Philippine Integrated Advertising Agency, Inc. (Regular Director) RCBC Land, Inc. (Regular Director) RCBC Leasing & Finance Corp (Regular Director/Chairman) RCBC Realty Corporation (Regular Director/Chairman) Shayamala Corporation (Regular Director/Chairman) Sunlife Grepa Financial, Inc. (Regular Director/Chairman) Tameena Resources, Inc. (Regular Director/Chairman Xamdu Motors, Inc. (Regular Director/Chairman) YGC Corporate Services, Inc. (Regular Director/Chairman) Y Realty, Inc. (Regular Director) Yuchengco Center, Inc. (Regular Director/Chairman)

Terms of Office

The directors of PLDT are elected each year to serve until the next annual meeting of stockholders and until their successors are elected and qualified, except in case of death, resignation, disqualification or removal from office.  The term of office of all officers is coterminous with that of the Board of Directors that elected or appointed them.

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Family Relationships

None of the directors/independent directors and officers of the Company or persons nominated to such positions has any family relationships up to the fourth civil degree either by consanguinity or affinity, except Mr. James L. Go (a director) and Ms. Anabelle L. Chua (Chief Financial Officer and Chief Risk Management Officer) who are relatives to the fourth civil degree by consanguinity, and Mr. Manuel V. Pangilinan (Chairman) and Ms. Gina Marina P. Ordoñez (Chief People Officer) who are relatives to the fourth civil degree by consanguinity.

Compensation of Key Management Personnel

The aggregate compensation paid to our executive officers and directors named above, as a group, for 2021 amounted to approximately Php537 million.

The following table below sets forth the aggregate amount of compensation paid in 2021 and 2020 and estimated amount of compensation expected to be paid in 2022 to: (1) the President and CEO and four most highly compensated officers of PLDT, as a group, namely, Marilyn A. Victorio-Aquino, Anabelle L. Chua, Menardo G. Jimenez, Jr. and Gina Marina P. Ordoñez; and (2) all other executive officers, other officers and directors, as a group.

	2022		2021		2020
	Estimate		Actual
	(amounts in million Php)
President and CEO and four most highly compensated executive officers:
Salary(1)	147		131			130
Bonus(2)	17		21			15
Other compensation(3)	179		95			220
		343		247		365
All other executive officers, other officers and directors as a group
(excluding the President and CEO and four most highly compensated    executive officers):
Salary(1)	588		506			440
Bonus(2)	69		81			54
Other compensation(3)	554		590			616
		1,211		1,177		1,110

⁽¹⁾ Basic monthly salary.

⁽²⁾ Includes longevity pay, mid-year bonus, 13^th month and Christmas bonus.

⁽³⁾ Includes Variable Pay/Short-term Incentive Plan, or STIP, and other payments.  Variable Pay/STIP is based on an annual incentive system that encourages and rewards both individual and group/team performance and is tied to the achievement of Corporate/Unit/Customer Satisfaction Objectives.  It covers regular officers and executives of the Company and is based on a percentage of their Guaranteed Annual Cash Compensation. Included in the figure for 2020 and 2022 is the amount of award under the Transformation Incentive Plan (“TIP”).

Each of the directors of the Company is entitled to a director’s fee of Php250,000 for each meeting of the Board of Directors attended.  In addition, the directors who serve in the committees of the Board of Directors, namely, the Audit, Governance, Nomination and Sustainability, Executive Compensation, Technology Strategy, and Risk Committees and Data Privacy and Information Security Committee, are each entitled to a fee of Php125,000 for each committee meeting attended.

Except for the fees mentioned above, the directors are not compensated, directly or indirectly, for their services as such directors.  The aggregate amount of per diems paid to the directors for their attendance in Board and Board Committee meetings is included in other compensation in the above table.  The total amount of per diems paid in 2021 and 2020 were approximately Php85 million and Php72 million, respectively.  The total amount of per diems estimated to be paid in 2022 is approximately Php78 million.

There are no agreements between PLDT Group and any of its key management personnel providing for benefits upon termination of employment, except for such benefits to which they may be entitled under PLDT Group’s retirement and incentive plans.

Transformation Incentive Plan

As noted above, we have established the TIP to provide incentive compensation to key officers, executives and other eligible participants who are consistent performers and contributors to the Company’s strategic and financial goals.  

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See Note 3 – Management’s Use of Judgments, Estimates and Assumptions, Note 5 – Income and Expenses, Note 24 – Accrued Expenses and Other Current Liabilities and Note 26 – Pension and Other Employee Benefits to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for more information and related discussion.

Share Ownership

The following table sets forth information regarding ownership of our common stock, as at February 28, 2022 by our continuing directors and executive officers.  Each individual below owns less than 1% of our outstanding common shares.

Name of Owner	Shares of Common Stock(1)		Percentage of Class
Manuel V. Pangilinan	306,911(1)			0.142052
Manuel L. Argel, Jr.		1		0.000000
Helen Y. Dee	25,120(2)			0.011627
Ray C. Espinosa	39,743(1)			0.018395
James L. Go	935,724(1)			0.433094
Kazuyuki Kozu	1			0.000000
Bernido H. Liu	1			0.000000
Retired Supreme Court Chief Justice Artemio V. Panganiban	7,771(1)			0.003597
Alfredo S. Panlilio	19,505(1)			0.009028
Albert F. del Rosario	142,410(1)			0.065914
Bernadine T. Siy		1,500		0.000694
Naoki Wakai	1			0.000000
Marife B. Zamora	60			0.000028
Anabelle L. Chua	24,378(3)			0.011283
Victorico P. Vargas	12,965(3)			0.006001
Marilyn A. Victorio-Aquino	27,395(3)			0.012680
Gina Marina P. Ordoñez	5,141(3)			0.002379
Mary Rose L. Dela Paz	4,500(3)			0.002083
Mario G. Tamayo	6,575(3)			0.003043
Alejandro O. Caeg	9,315(3)			0.004311
Menardo G. Jimenez, Jr.	8,044(1)			0.003723
Joseph Ian G. Gendrano	897(3)			0.000415
Leo I. Posadas	4,265(1)			0.001974
Melissa V. Vergel De Dios	3,635(3)			0.001682
Gil Samson D. Garcia	33(3)			0.000015

⁽¹⁾ Includes PLDT common shares that have been lodged with the Philippine Depositary and Trust Co. (“PDTC”).

⁽²⁾ Includes 2,780 shares thru RCBC Trust for the account of Michelle Y. Dee-Santos and 245 shares under the name of Helen Y. Dee, both under PCD Nominee Corporation and 21,957 shares owned by Hydee Management Corporation.  As chairperson and president of Hydee Management Corporation, Ms. Dee may exercise the voting rights in respect of the 21,957 shares of Hydee Management Corporation.

⁽³⁾ Lodged with the PDTC.

The aggregate number of shares of common stock directly and indirectly owned by directors and executive officers listed above, as at February 28, 2022, was 1,585,891, or approximately 0.734019% of PLDT’s outstanding shares of common stock.

Board Practices

Board of Directors –– Independent Directors

At least three of our directors, namely, Retired Supreme Court Chief Justice Artemio V. Panganiban, Ms. Bernadine T. Siy, and Mr. Bernido H. Liu, are independent directors who are neither officers nor employees of PLDT or any of its subsidiaries, and who are free from any business or other relationship with PLDT or any of its subsidiaries which could, or could reasonably be perceived to, materially interfere with the exercise of independent judgment in carrying out their responsibilities as independent directors.  On June 8, 2021, the Board appointed Retired Supreme Court Chief Justice Panganiban as PLDT’s Lead Independent Director.  The independence standards/criteria are provided in our By-Laws and PLDT’s Manual on Corporate Governance (“CG Manual”).

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Audit; Governance, Nomination and Sustainability; Executive Compensation; Technology Strategy; Risk; and Data Privacy and Information Security Committees

Our Board of Directors (“Board”) is authorized under the By-Laws to create committees, as it may deem necessary, to assist in the effective performance of specific functions and responsibilities which may be delegated by the Board. We have six Board committees, namely, the Audit; Governance, Nomination and Sustainability; Executive Compensation; Technology Strategy; Risk; and Data Privacy and Information Security Committees.  Each of these committees has a Board-approved written charter that provides for such committee’s composition, membership qualifications, functions and responsibilities, conduct of meetings, and reporting procedure to the Board.

Audit Committee

Our Audit Committee (“AC”) is composed of three members, all of whom are independent directors, and three advisors.  The AC members are Retired Supreme Court Chief Justice Artemio V. Panganiban, Mr. Bernido H. Liu and Ms. Bernadine T. Siy, who is the chairman of this committee.  The three AC advisors are Mr. Kazuyuki Kozu and Mr. James L. Go, who are non-executive directors, and Ms. Corazon S. de la Paz-Bernardo, a former member of our Board.  All the members of our AC are financially literate, and Ms. Corazon S. de la Paz-Bernardo has expertise in accounting and financial management.  She is a former Chairman and Senior Partner of Joaquin Cunanan & Company, now Isla Lipana & Co., a member firm of Pricewaterhouse Coopers.

As provided in the AC charter, the primary purpose of the AC is to assist our Board in fulfilling its oversight responsibility for:

• the integrity of PLDT’s accounting and financial reporting principles and policies, and system of internal controls, including the review of material related party transactions, and the integrity of PLDT’s financial statements and the independent audit thereof;

• PLDT’s compliance with legal and regulatory requirements;

• the audit process; and

• the performance of the internal audit organization and the external auditors (including the external auditors’ qualifications and independence).

To carry out its direct responsibility for the appointment, setting of compensation, retention and removal of the external auditor, the AC has the following duties and powers:

• review and evaluate the qualifications, performance and independence of the external auditor and its lead audit partner;

• select and appoint, remove or replace the external auditor;

• review and approve, in consultation with the head of the internal audit organization and the head of the finance organization, all audit and non-audit services to be performed by the external auditor and the fees to be paid for such services, and ensure disclosure of any allowed non-audit services in PLDT’s annual report;

• periodically review fees for non-audit services paid to the external auditor and disallow non-audit services that will conflict with the external auditor’s duties to PLDT or pose a threat to the external auditor’s independence;

• ensure that the external auditor prepares and delivers annually a statement as to its independence, discuss with the external auditor any relationships or services disclosed in such statement that may impact the objectivity, independence or quality of services of said external auditor and take appropriate action in response to such statement to satisfy itself of the external auditor’s independence;

• based on the external auditor’s statement submitted at least annually, review the external auditor’s internal quality-control procedures for any material issues raised by recent internal quality-control review or peer review of the external auditor, or by any inquiry or investigation by government or

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professional authorities within the preceding five years, regarding one or more independent audits carried out by the external auditor and steps taken to deal with any such issues;

• ensure that the external auditor or its lead audit partner having the primary responsibility for the audit of PLDT’s financial accounts is rotated at least once every five years or such shorter or longer period provided under applicable laws and regulations;

• advise the external auditor that it is expected to provide the AC a timely analysis of significant/critical financial reporting issues and practices;

• obtain assurance from the external auditor that the audit was conducted in a manner consistent with certain procedures to be followed in any audit of financial statements required under applicable rules; and

• resolve disagreements between management and the external auditor regarding financial reporting.

The AC has the authority to retain or obtain advice from special counsel or other experts or consultants in the discharge of its responsibilities without the need for Board approval.

Governance, Nomination and Sustainability Committee

Our Governance, Nomination and Sustainability Committee (“GNSC”) is composed of five voting members, all of whom are members of our Board and three non-voting members.  Three of the voting members are independent directors, namely, Retired Supreme Court Chief Justice Artemio V. Panganiban, Ms. Bernadine T. Siy and Mr. Bernido H. Liu, and two are non-executive directors namely, Mr. Kazuyuki Kozu and Mr. Manuel V. Pangilinan who is the chairman of this committee.  The three non-voting members are the Chief Governance Officer, the Chief People Officer and the Chief Sustainability Officer.

The primary purpose of the GNSC is to assist the Board in the performance of the following functions:

• establish the Company’s corporate governance framework, principles and policies aligned with business objectives, and oversee their implementation and the implementation of continuing education and communication programs on good governance;

• develop and implement an evaluation process for the annual review of the performance of the Board, the Board Committees and the individual directors;

• implement a selection process to ensure that the Board has an effective and balanced mix of knowledge, expertise, experience and diversity in terms of, among others, age, gender and ethnicity, and review the qualifications of the persons nominated to other positions requiring appointment by the Board;

• identify persons qualified to become members of the Board and/or the Board Committees;

• assess the effectiveness of the Company’s nomination and selection process for the Board and Board Committees;

• establish the Company’s sustainability strategy, framework, program, policies and oversee their implementation; and

• oversee the Company’s social investments and commitments to making meaningful impact to communities.

Executive Compensation Committee

Our Executive Compensation Committee (“ECC”) is composed of five voting members, all of whom are members of our Board of Directors, and one non-voting member.  Three of the voting members are independent directors, namely, Retired Supreme Court Chief Justice Artemio V. Panganiban, Ms. Bernadine T. Siy and Mr. Bernido H. Liu, and two are non-executive directors, namely, Mr. Kazuyuki Kozu and Mr. Manuel V. Pangilinan, who is the chairman of this committee.  The non-voting member is the Chief People Officer.

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The primary purpose of the ECC is to assist the Board in the performance of the following functions:

• oversee the development of a compensation philosophy or policy consistent with the strategy, culture and control environment of PLDT;

• oversee the development and administration of PLDT’s executive compensation programs, including long-term incentive plans and equity-based plans for officers and executives;

• oversee the development and administration of the Company’s performance management framework to monitor and assess the performance of Management;

• oversee the succession plan for officers, including the CEO; and

• oversee the development and implementation of professional development programs for officers.

Risk Committee

Our Risk Committee (“RC”) is composed of five voting members, all of whom are members of our Board.  Three of the voting members are independent directors, namely, Ms. Bernadine T. Siy, Mr. Bernido H. Liu and Retired Supreme Court Chief Justice Artemio V. Panganiban, who is the chairman of this committee. Two members are non-executive directors, namely, Mr. Kazuyuki Kozu and Mr. James L. Go.   

The primary purpose of the RC is to assist the Board in fulfilling its governance functions relating to risk management, which include the following:

• oversee management’s adoption and implementation of a system for identifying, assessing, monitoring and managing key risk areas;

• review management’s reports on PLDT’s major risk exposures; and

• review management’s plans and actions to minimize, control or manage the impact of such risks.

Technology Strategy Committee

Our Technology Strategy Committee (“TSC”) is composed of six voting members and two non-voting members.  The six voting members are non-executive directors, Mr. Manuel V. Pangilinan, who is the chairman of this committee, former Ambassador Albert F. del Rosario, Atty. Ray C. Espinosa, Mr. James L. Go, and Mr. Kazuyuki Kozu, and executive director, Mr. Alfredo S. Panlilio. The two non-voting members are Mr. Oscar S. Reyes and Mr. Orlando B. Vea, who are members of our Advisory Board/Committee.

The primary purpose of the TSC is to assist the Board in the performance of the following functions:

• review and approve the strategic vision for the role of technology in PLDT’s overall business strategy, including the technology strategy and roadmap of PLDT;

• fulfill its oversight responsibilities for PLDT’s effective execution of its technology-related strategies; and

• ensure the optimized use and contribution of technology to PLDT’s business and strategic objectives and growth targets.

Data Privacy and Information Security Committee

Our Data Privacy and Information Security Committee (“DPISC”) is composed of four voting members, all of whom are members of our Board, and an advisor. One of the voting members, Mr. Bernido H. Liu, is an independent director, and three are non-executive directors, namely, Atty. Ray C. Espinosa, Mr. Kazuyuki Kozu, and Mr. Manuel V. Pangilinan, who is the chairman of this committee. Mr. Alfredo S. Panlilio is the advisor of the DPISC.

The primary purpose of the DPISC is to assist the Board in the performance of its oversight function and provide strategic direction to governance functions relating to data privacy and information security, including to:

• promote effective data privacy and information security governance;

• review and approve the Company’s strategic plans on data privacy and information security;

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• ensure accountability for compliance with regulatory standards and best practices on data privacy and information security;

• foster a culture of privacy and information security; and

• oversee management’s adoption and implementation of a system for identifying, assessing, monitoring and managing enterprise-wide data privacy and information security risks.

Advisory Committee

Our Advisory Board/Committee is composed of Mr. Benny S. Santoso, Mr. Orlando B. Vea, Mr. Christopher H. Young and Mr. Oscar S. Reyes.  The Advisory Board/Committee provides guidance and suggestions, as necessary, on matters deliberated upon during Board meetings.

Employees and Labor Relations

As at December 31, 2021, we had 18,822 employees, with 13,389 and 5,433 employees in our fixed line and wireless businesses, respectively.  PLDT had 11,336 employees as at December 31, 2021, of which 43% were rank and file employees, 50% were management/supervisory staff and 7% were executives.

PLDT has three employee unions, representing in the aggregate 9,053, or 48% of the employees of the PLDT Group.  PLDT considers its relationship with our rank-and-file employees’ union, our supervisors’ union and our sales supervisors’ union to be good.

We and our business units had the following employees as at December 31 of each of the following years:

	December 31,
	2021		2020		2019
PLDT Group		18,822		18,848		18,784
Wireless		5,433		5,783		5,907
Fixed Line		13,389		13,065		12,877
LEC		11,522		11,427		10,878
Others		1,867		1,638		1,999
PLDT Only(1)		11,336		11,266		10,649

Department of Labor and Employment, or DOLE, Compliance Order, or Order, to PLDT

In a series of orders, including a compliance order issued by the DOLE in 2018, PLDT was ordered to regularize 7,344 workers from 38 of PLDT’s third party service contractors. PLDT questioned these regularization orders before the CA. The CA partially ruled in favor of PLDT by holding that the following services can be validly outsourced: (i) janitorial, messengerial, clerical; (ii) IT support and application development; (iii) back office support and BPOs; and (iv) sales, and other professional services.  This ruling considerably reduced by at least half, the number of workers of service contractors required to be regularized. PLDT filed a petition for review with the Supreme Court because the CA ordered the regularization of individuals performing installation, repair, and maintenance functions on the basis that they are usually necessary and desirable to the usual course of PLDT’s business.  The petition remains pending before the Supreme Court.

Pension and Retirement Benefits

Defined benefit pension plans

PLDT has defined benefit pension plans, operating under the legal name “The Board of Trustees for the account of the Beneficial Trust Fund created pursuant to the Benefit Plan of PLDT Co.” and covering all of our permanent and regular employees.  Certain subsidiaries of PLDT have not yet drawn up a specific retirement plan for its permanent or regular employees.   For the purpose of complying with Revised IAS 19, Employee Benefits, pension benefit expense has been actuarially computed based on defined benefit plan.

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Defined contribution plans

Smart’s and certain of its subsidiaries’ contributions to the plan are made based on the employees’ years of tenure and range from 5% to 10% of the employee’s monthly salary.  Additionally, an employee has an option to make a personal contribution to the fund, at an amount not exceeding 10% of his monthly salary.  The employer then provides an additional contribution to the fund ranging from 10% to 50% of the employee’s contribution based on the employee’s years of tenure.  Although the plan has a defined contribution format, Smart and certain of its subsidiaries regularly monitor their compliance with R.A. 7641.  As at December 31, 2021 and 2020, Smart and certain of its subsidiaries were in compliance with the requirements of R.A. 7641.    

See Note 2 – Summary of Significant Accounting Policies – Retirement Benefits and Note 26 – Pension and Other Employee Benefits to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for a discussion of our defined benefit pension plans and defined contribution plans.

Item 7. Major Shareholders and Related Party Transactions

The following table sets forth information regarding ownership of shares of PLDT’s voting stock (common and voting preferred stock) as at February 28, 2022, of all shareholders known to us to beneficially own 5% or more of PLDT’s shares of voting stock, or, collectively, PLDT’s Major Shareholders.  All shares of PLDT's voting stock have one vote per share.  PLDT’s Major Shareholders do not have voting rights that are different from other holders of shares of PLDT’s voting stock.  

Shareholder	Common Shares		Percentage of Common Shares (%)		Voting Preferred Shares		Percentage of Voting Preferred Shares (%)		Percentage of Voting Securities (%)
1.First Pacific Company Limited’s affiliates	55,244,642(1)			25.6		—		—		15.1
a. Philippine Telecommunications Investment    Corporation		26,034,263		12.0		—		—		7.1
b. Metro Pacific Resources, Inc.		21,556,676		10.0		—		—		5.9
2. Nippon Telegraph and Telephone Corporation’s    affiliates	43,963,642(2)			20.3		—		—		12.0
a. NTT Communications Corporation		12,633,487		5.8		—		—		3.5
b. NTT DOCOMO, INC.	31,330,155(3)			14.5		—		—		8.6
3. JG Summit Holdings, Inc. and its affiliates	24,342,455(4)			11.3		—		—		6.6
4. The Hongkong and Shanghai Banking    Corporation Limited – Clients’ Acct.	19,682,581(5)			9.1		—		—		5.4
5. Citibank N.A.	13,929,565(5)			6.5						3.2
6. BTF Holdings, Inc.(6)		—		—		150,000,000		100		41.0

⁽¹⁾ Includes (a) 26,034,263 shares of common stock held by PTIC, a Philippine affiliate of First Pacific, (b) 21,556,676 shares of common stock held by MPRI, a Philippine affiliate of First Pacific and (c) 7,653,703 shares of common stock held by another Philippine affiliate of First Pacific and registered in the name of PCD Nominee Corporation..

⁽²⁾      Includes (a) 22,796,902 shares of common stock held by NTT DOCOMO, a Japanese corporation which is a wholly-owned subsidiary of NTT, (b) 8,533,253 ADRs held by NTT DOCOMO and (c) 12,633,487 shares of common stock held by NTT Communications, a Japanese corporation which is a wholly-owned subsidiary of NTT. 

⁽³⁾      Includes 8,533,253 ADRs held by NTT DOCOMO.

⁽⁴⁾      Includes (a) 24,255,732 shares of common stock held by JG Summit Holdings, Inc. and 86,723 shares of common stock held by JG Digital Equity Ventures, Inc., (formerly Express Holdings, Inc.).

⁽⁵⁾      Represents shares held on behalf of clients. PLDT has no knowledge if any client beneficial owners of common shares held 5% or more of PLDT’s outstanding shares of common stock as at February 28, 2022. 

⁽⁶⁾      A wholly-owned company of the Board of Trustees for the Account of the Beneficial Trust Fund created pursuant to the Benefit Plan of PLDT or PLDT Beneficial Trust Fund.

As at February 28, 2022, approximately 77.93% of the outstanding voting stock and 87.87% of the outstanding capital stock of PLDT were owned by Philippine persons.  

As a result of their respective stockholdings, the FP Parties and/or NTT Communications and/or NTT DOCOMO and/or BTFHI are able to influence our actions and corporate governance, including (i) elections of our directors; and (ii) approval of major corporate actions, which require the vote of holders of common and voting preferred stocks.

Additionally, the FP Parties, NTT Communications, NTT DOCOMO and PLDT entered into a Cooperation Agreement, dated January 31, 2006, pursuant to which, among other things, certain rights of NTT Communications under the Stock Purchase and Strategic Investment Agreement dated September 28, 1999, or the Strategic Agreement, and the Shareholders Agreement dated March 24, 2000, or the Shareholders Agreement, were extended to NTT DOCOMO.  As a result of the Cooperation Agreement, NTT Communications and NTT DOCOMO, in coordination with each other, have contractual rights relating to a number of major decisions and transactions that PLDT could make or enter into.

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Specifically, PLDT may not take any of the following actions described without the approval of NTT DOCOMO and NTT Communications, acting in coordination with each other (however, NTT DOCOMO and NTT Communications may not withhold their consent to such actions in circumstances where PLDT proposes to invest in a business that competes with Nippon Telegraph and Telephone Corporation and its subsidiaries and where the Board of Directors has among other things, approved the transaction):

• capital expenditures in excess of US$50 million;

• any investments, if the aggregate amount of all investments for the previous 12 months is greater than US$25 million in the case of all investments to any existing investees and US$100 million in the case of all investments to any new or existing investees, determined on a rolling monthly basis; and

• any investments in a specific investee, if the cumulative value of all investments made by us in that investee is greater than US$10 million in the case of an existing investee and US$50 million in the case of a new investee.

PLDT also may not issue common stock or stock that is convertible into common stock except where NTT Communications and NTT DOCOMO have first been offered the opportunity to purchase their pro rata portion of PLDT’s shares of common stock.

PLDT is also aware that each of NTT Communications and NTT DOCOMO has agreed (pursuant to the Shareholders Agreement in the case of NTT Communications and pursuant to the Cooperation Agreement in the case of NTT DOCOMO) to use its best efforts to procure that PLDT not take the following actions without the consent of First Pacific and certain of its affiliates, as well as other parties bound by the provisions of the Shareholders Agreement:

• new business activities other than those we currently engage in;

• merger or consolidation;

• winding up or liquidation of PLDT; and

• applying to a court to order a meeting of creditors or to sanction any compromise or arrangement between creditors and shareholders of PLDT.

As PLDT is not a party to the Shareholders Agreement, these contractual rights held by NTT Communications, NTT DOCOMO, First Pacific and certain of First Pacific’s affiliates are not directly enforceable against PLDT.

Pursuant to amendments effected by the Cooperation Agreement to the Stock Purchase and Strategic Investment Agreement and the Shareholders Agreement, upon NTT Communications and NTT DOCOMO and their respective subsidiaries owning in the aggregate 20% or more of PLDT’s shares of common stock and for as long as they continue to own in the aggregate at least 17.5% of PLDT’s shares of common stock then outstanding, NTT DOCOMO has additional rights under the Stock Purchase and Strategic Investment Agreement and Shareholders Agreement.  See Note 25 – Related Party Transactions – Transactions with Major Stockholders, Directors and Officers – Cooperation Agreement with First Pacific and certain affiliates, or the FP Parties, NTT Communications and NTT DOCOMO to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

Related Party Transactions

PLDT, in the ordinary course of business, engages in transactions with some of its stockholders, its subsidiaries and affiliates, and directors and officers and their close family members.  

In 2019, PLDT adopted a Material Related Party Transactions (“MRPT”) Policy in accordance with the Company’s Manual on Corporate Governance and in compliance with Philippine SEC Memorandum Circular No.10, Series of 2019 or the Rules on Material Related Party Transactions for Publicly-Listed Companies.  A copy of the MRPT Policy is posted at http://pldt.com/docs/default-source/corporate-governance-files/policies/material-related-party-transactions-policy.pdf. This website does not form part of this annual report on Form 20-F.

Related party transactions involving an amount below a specified materiality threshold shall be covered by our Guidelines on the Proper Handling of Related Party Transactions.

For a detailed discussion of our material related party transactions, see Note 25 – Related Party Transactions to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

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Except for the transactions discussed in Note 25 – Related Party Transactions to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”, there were no other material related party transactions during the last three financial years, nor are there any material transactions currently proposed between PLDT and any: (i) director, officer, direct or indirect owner of 10% or more of the outstanding shares in PLDT; (ii) close family member of such director, officer or owner; (iii) associates of PLDT; (iv) enterprises controlling, controlled by or under common control with PLDT; or (v) enterprises in which a substantial interest in the voting power is owned, directly or indirectly, by any director, officer or owner of 10% or more of the outstanding shares in PLDT or any close family member of such director, key officer or owner, or collectively, the Related Parties.

Item 8. Financial Information

Consolidated Financial Statements and Other Financial Information

See “Item 18 – Financial Statements.”

Legal Proceedings

Except as disclosed in the following paragraphs, neither PLDT nor any of its subsidiaries is a party to, and none of their respective properties is subject to, any pending legal proceedings that PLDT considers to be potentially material to its and its subsidiaries’ business.

DOLE Compliance Order Issued Against PLDT

In a series of orders, including a compliance order issued by the DOLE in 2018, PLDT was ordered to regularize 7,344 workers from 38 of PLDT’s third party service contractors. PLDT questioned these regularization orders before the CA. The CA partially ruled in favor of PLDT by holding that the following services can be validly outsourced: (i) janitorial, messengerial, clerical; (ii) IT support and application development; (iii) back office support and BPOs; and (iv) sales, and other professional services. This ruling considerably reduced by at least half, the number of workers of service contractors required to be regularized. PLDT filed a petition for review with the Supreme Court because the CA ordered the regularization of individuals performing installation, repair, and maintenance functions on the basis that they are usually necessary and desirable to the usual course of PLDT’s business.  The petition remains pending with the Supreme Court.

See Note 27 – Provisions and Contingencies – DOLE Compliance Order to PLDT, to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for further discussion.

Petition against the PCC

In July 2016, PLDT filed before the CA a petition for certiorari and prohibition (with urgent application for a temporary restraining order and/or writ of preliminary injunction) against the PCC.  The Petition seeks to enjoin the PCC from proceeding with the review of the acquisition by PLDT and Globe of equity interest, including outstanding advances and assumed liabilities, in the telecommunications business of SMC, and performing any act which challenges or assails the “deemed approved” status of the said transactions.  In August 2016, the CA issued a writ of preliminary injunction enjoining the PCC to cease and desist from conducting further proceedings for the pre-acquisition review and/or investigation of the SMC Transactions.  In April 2017, the PCC filed before the Supreme Court a petition to annul the writ of preliminary injunction issued by the CA.  The petition remains pending with the Supreme Court.

See Note 11 – Investments in Associaties and Joint Ventures – In the Matter of the Petition against the PCC to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for further discussion.

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Attys. Baquiran and Tecson vs. NTC, et al.

In October 2018, a petition for mandamus was filed against the NTC, the PCC, Liberty Telecoms Holdings, Inc. (also known as Tori Spectrum Telecom, Inc.), Bell Telecommunication, Inc., Globe, PLDT and Smart. This involves the 700 MHz frequency, among others, that was originally assigned to Liberty and which eventually became subject of a co-use agreement between Globe, PLDT and Smart. The petition remains pending with the Supreme Court.

See Note 27 – Provisions and Contingencies – Attys. Baquiran and Tecson vs. NTC, et al. to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for further discussion.

Taxation

Local Business and Franchise Taxes

As at December 31, 2021, PLDT has no contested LGU assessments for franchise taxes based on gross receipts received or collected for services within their respective territorial jurisdiction.

Smart and DMPI currently face various local business and franchise tax assessments by different local government units, while Digitel is discussing with various local government units as to settlement of its franchise tax and real property tax liabilities.

On February 19, 2021, ACeS Philippines entered into an amicable settlement with the Bureau of Internal Revenue for compromise of tax liabilities.

See Note 27 – Provisions and Contingencies to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for further discussion.

Dividend Distribution Policy

See Item 3. “Key Information – Dividends Declared” for a description of our dividend distribution policy, and Note 20 – Equity to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for tables that show dividends declared in 2021.

Significant Changes

There have been no significant changes in our financial position since December 31, 2021.

Item 9. The Offer and Listing

Common Capital Stock and ADSs

The shares of common stock of PLDT are listed and traded on the PSE under the symbol of “TEL”.  On October 19, 1994, an ADR facility was established, pursuant to which Citibank, N.A., as the depositary, issued ADRs evidencing ADSs with each ADS representing one PLDT common share with a par value of Php5.00 per share.  Effective February 10, 2003, PLDT appointed JP Morgan Chase Bank as successor depositary of PLDT’s ADR facility.  The ADSs are listed on the NYSE and are traded on the NYSE under the symbol of “PHI”.  

The public ownership level of PLDT common shares listed on the PSE as at February 28, 2022 is 42.05%.

As at February 28, 2022, 10,005 stockholders were Philippine persons and held approximately 62.61% of PLDT’s common capital stock.  In addition, as at February 28, 2022, there were a total of approximately 17.375 million ADSs outstanding, substantially all of which PLDT believes were held in the United States by 226 holders.

For the period from February 1 to February 28, 2022, a total of 2.3 million shares of PLDT's common capital stock were traded on the PSE.  During the same period, the volume of trading was 552,223 ADSs on the NYSE.

Item 10. Additional Information

Share Capital

Not applicable.

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Amended Articles of Incorporation and By-Laws

Summaries of certain provisions of PLDT’s Articles of Incorporation and By-Laws and amendments thereto and applicable Philippine laws as previously disclosed in Item 10 of our annual reports on Form 20-F for the calendar years ended December 31, 2010 and December 31, 2014 filed on March 30, 2011 and March 26, 2015, respectively, are herein incorporated by reference.

On March 25, 2021, the Board of Directors approved the amendments to our By-laws to conform to or align with the provisions of Republic Act 11232, known as the Revised Corporation Code of the Philippines.  

On July 9, 2021, the application for the amendment of the By-Laws of PLDT was submitted to the Philippine SEC for review and approval.  The application is still pending to date.

On April 8, 2020 and June 9, 2020, the Board of Directors and stockholders, respectively, approved the amendment of the Second Article of the Articles of Incorporation of PLDT, or the Amendment, (a) to reflect the current focus of PLDT’s business, which is the provision of telecommunications services through trending and constantly evolving technologies and innovative products and services, and (b) to allow sufficient flexibility for the PLDT business units to design their operations and expand their products and services by constantly transforming PLDT from being the country’s leading telecommunications company to a dynamic and customer-centric multi-media organization.

On November 24, 2020, the amendment to the Articles of Incorporation was approved by the Philippine SEC.

On April 12, 2016 and June 14, 2016, the Board of Directors and stockholders of PLDT, respectively, approved amendments to our Articles of Incorporation to reflect the change in the name of the Company from Philippine Long Distance Telephone Company to PLDT Inc. and an expansion of the purposes of the Company. On August 30, 2016, the Board of Directors also approved amendments to our By-Laws to reflect the change in the name of the Company. See Note 1 – Corporate Information – Amendments to the Articles of Incorporation of PLDT and – Amendments to the By-Laws of PLDT to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for a further discussion of the amendments to the Articles of Incorporation and By-Laws.

A copy of each of the Articles of Incorporation and By-Laws, each as amended, is furnished under Item 19. “Exhibits”.  

Issuance and Redemption of Preferred Stock

All outstanding shares of PLDT 10% Cumulative Convertible Preferred Stock Series A to Series FF, Series GG and Series HH, which were issued in 2007 and 2008, were redeemed and retired effective on January 19, 2012, August 30, 2012, May 16, 2013 and May 16, 2014, respectively.  

On January 26, 2016, the Board authorized and approved effective May 11, 2016, the redemption of shares of the Company’s Series II 10% Cumulative Convertible Preferred Stock (also known as the Subscriber Investment Plan, or SIP, Shares), which were issued in 2010.  The record date for the determination of the holders of outstanding SIP Shares available for redemption is February 10, 2016.  The Board also approved the creation of 20,000 shares of Non-Voting Preferred Stock constituting Series KK 10% Cumulative Convertible Preferred Stock of the Company, for issuance in the implementation of the SIP from January 1, 2016 through December 31, 2020.

On January 28, 2020, the Board of Directors authorized and approved, the retirement of shares of PLDT’s Series JJ 10% Cumulative Convertible Preferred Stock, or SIP Shares, effective May 12, 2020.  The record date for the determination of the holders of outstanding SIP Shares available for redemption was February 11, 2020.

Material Contracts

Other than the contracts described in Item 7. “Major Shareholders and Related Party Transactions,” we have not entered into any material contract that is not in the ordinary course of business within the two years preceding the date of this annual report.

Exchange Controls and Other Limitations Affecting Securities Holders

In Circular No. 1389 dated November 10, 1993, as amended by Circular No. 224 dated January 26, 2000, of the BSP, foreign investments in the shares of stock of Philippine companies listed in the PSE may be registered either with the BSP or with an investor’s designated custodian bank.  The foreign investments in listed shares of stock, which are duly registered with the BSP or with a custodian bank duly designated by the foreign investor,

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are entitled to full and immediate capital repatriation and dividend and interest remittance privileges.  Without the need to obtain prior BSP approval, commercial banks are authorized to sell and to remit the equivalent foreign exchange (at the exchange rate prevailing at the time of actual remittance) representing sales and divestment proceeds or dividends of a duly registered foreign equity investment upon presentation of a BSP Registration Document, or BSRD, together with other supporting documents.  The BSRD is issued by the BSP or the custodian bank upon registration of the foreign investment and serves as the authority to repatriate such divestment and sales proceeds or remittance of cash dividends.  Effective April 3, 2000, only pre-numbered BSRD forms, printed on BSP security paper may be used and issued as proof of registration of foreign investments in accordance with existing BSP rules.  The remitting commercial bank must submit to the BSP a statement of remittance together with the supporting documents within two banking days from date of actual remittance.  Foreign investments not duly registered with the BSP or with the investor’s designated custodian bank are not entitled to repatriation and remittance privileges through the banking system except capital repatriation or dividend remittance of direct foreign equity investments made prior to March 15, 1973 when BSP registration was not yet required.  The BSP should be notified of the transfer of sale of foreign investments in equity or securities already registered with the BSP, in order that the registration of the foreign investment may be transferred in the name of the transferee or purchaser.

Cash dividends on PLDT’s stock are paid in Philippine peso.  PLDT’s Transfer Agent for its common stock, BDO Unibank, Inc., which also acts as dividend paying agent, converts and remits in U.S. dollars, at the prevailing exchange rate, cash dividends due to all common shareholders residing outside the Philippines.  Under the above-mentioned regulations, PLDT has been able to remit the cash dividends due to shareholders residing outside the Philippines.  As at February 28, 2022, approximately 88% of PLDT’s outstanding shares of common and preferred stock were held by Philippine persons.  For certain restrictions on the declaration and payment of dividends by PLDT, see Note 20 –Equity and Note 21 – Interest-bearing Financial Liabilities to the accompanying audited consolidated financial statements in Item 18. “Financial Statements”.

Taxation

Philippine Taxation

Taxes on Exchange of ADSs for Common Stock

Philippine capital gains or stock transaction taxes and documentary stamp taxes may be payable upon the transfer of shares of common stock to a holder of ADRs or to a holder of Global Depository Receipts.  See “–– Capital Gains Tax and Stock Transaction Tax” and “–– Documentary Stamp Taxes.”

Taxation of Dividends

Under the Philippine Tax Code, dividends paid by a Philippine corporation to citizens of the Philippines and resident aliens in the Philippines are subject to a final withholding tax of 10% while those paid to non-resident aliens engaged in trade or business within the Philippines are subject to a final withholding tax of 20%.  Dividends paid to non-resident aliens not engaged in trade or business within the Philippines are subject to a final withholding tax of 25%. Dividends paid by a Philippine corporation to other Philippine corporations or to resident non-Philippine corporations are not subject to tax.  Dividends paid by Philippine corporations to non-resident non-Philippine corporations not engaged in a trade or business in the Philippines shall be subject to a final withholding tax of 15% (“tax sparing”), subject to the condition that the country in which the non-resident non-Philippine corporation is domiciled either: (i) allows a credit against the tax due from the non-resident non-Philippine corporation for taxes deemed to have been paid in the Philippines equivalent to: (A) up until June 30, 2020, 15% (which represents the difference between the regular income tax on non-resident non-Philippine corporations of 30% effective January 1, 2009 and the 15% tax on dividends); and (B) from July 1, 2020 onwards, 10% (which represents the difference between the regular income tax on non-resident non-Philippine corporations of 25% effective January 1, 2021 and the 15% tax on dividends²) (this condition is not satisfied in the case of corporations domiciled in the United States) or (ii) imposes no income taxes on dividends received by such non-resident non-Philippine corporations from Philippine corporations (this condition is not satisfied in the case of corporations domiciled in the United States).  

²  The rate was amended by R.A. No. 11534 or the Corporate Recovery and Tax Incentives for Enterprises Act (“CREATE”), which was signed into law on March 26, 2021 and became effective on April 11, 2021. The reduced rate retroacts to July 2020.

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Under rulings issued by Philippine tax authorities, Hong Kong is viewed as falling within the condition
(ii) mentioned above and, thus, companies that are organized in Hong Kong that are not engaged in trade or business in the Philippines may be entitled to the benefit of the reduced dividend rate. Such rulings, however, were based upon the laws of Hong Kong as in effect at the time such rulings were issued, and any subsequent changes in the relevant laws of Hong Kong may affect the validity of such rulings.  PLDT reserves the right to change the rate at which it makes payments of withholding tax whenever it deems it appropriate under applicable law.

Under BIR Revenue Memorandum Order (“RMO”) No. 46-2020 (“RMO No. 46-2020”), the Philippine corporation paying the dividends may remit outright the dividends to the non-resident non-Philippine corporation, applying thereon the applicable reduced dividend rate without the need for a confirmatory ruling from the BIR. However, such Philippine corporation must first determine whether the country of domicile of the non-resident non-Philippine corporation grants a “deemed paid” tax credit equivalent to the 15% waived by the Philippines or  exempts from tax the dividends received. Within ninety (90) days from remittance of the dividends or from the determination by the foreign tax authority of the deemed paid tax credit/non-imposition of tax because of the exemption, whichever is later, the non-resident non-Philippine corporation must file with the BIR a request for confirmation of the reduced dividend rate. If neither of the foregoing conditions are met, the dividends paid to the non-resident non-Philippine corporation shall be subject to the regular income tax (in the form of final withholding tax) at the rate of 25% effective January 1, 2021.

If the holder of common stock is a non-resident foreign partnership, which is treated as a corporation for Philippine tax purposes, dividends on the common stock should be subject to a final withholding tax of 25% effective January 1, 2021.  Cede & Co., the partnership nominee of Depository Trust Company, should qualify as a non-resident foreign partnership that would be treated as a corporation for Philippine tax purposes.

In certain circumstances where the holder has common stock, a tax treaty rate may be applicable with respect to the Philippine withholding tax.  For instance, holders under such circumstances and as to which the Philippines-United States Tax Treaty would be applicable would be eligible for a treaty rate of 25% (or 20% in certain instances).  The 20% treaty rate is generally not applicable in the case of non-resident non-Philippine corporations domiciled in the United States which own less than 10% of the voting stock of PLDT.

The BIR has prescribed certain procedures, through administrative issuances, for availment of tax treaty relief. On March 31, 2021, the BIR issued RMO No. 14-2021, which updates the procedures and requirements for the availment of preferential tax treaty rates covering all incomes, including dividends, interests and royalties derived by non-resident taxpayers from Philippine sources. On June 15, 2021, the BIR also issued Revenue Memorandum Circular (“RMC”) No. 77-2021 (“RMC 77-2021”) which clarified certain provisions of RMO No. 14-2021. RMO 14-2021, as clarified by RMC 77-2021, provides that if a non-resident intending to avail of treaty benefits submits to the income payor a Tax Residency Certificate duly issued by the tax authority of the foreign country in which the income recipient is a resident and the appropriate BIR Form No. 0901 (Application Form for Treaty Purposes prior to the payment of income, the income payor may apply the provisions of the applicable treaty, provided that all the conditions for the availment thereof, other than residency, have been satisfied. Otherwise, the regular rates imposed under the Philippine Tax Code should be applied.

When an item of income is subjected to taxation in accordance with the provisions of the relevant treaty, the withholding agent (or a duly authorized representative) shall file with the International Tax Affairs Division of the BIR a request for confirmation that the tax treatment of such income is proper.

On the other hand, when the regular rates are applied by the withholding agent, the non-resident intending to avail of treaty benefits may file a Tax Treaty Relief Application with complete documentary requirements and a claim for refund at any time after the payment of the withholding tax.

RMO No. 14-2021, as clarified by RMC 77-2021, does not cover non-resident non-Philippine corporations invoking the tax sparing provision (or the reduced tax rate on intercorporate dividends paid to non-resident non-Philippine corporations).  This is instead addressed by RMO No. 46-2020 which specifically covers the procedures for non-resident non-Philippine corporations to avail of the tax sparing provision. The said RMO provides that non-resident non-Philippine corporations may opt to avail of the tax sparing provision, irrespective of the existence of a tax treaty.

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Capital Gains Tax and Stock Transaction Tax

The Philippine Tax Code provides that gain from the sale of shares of stock in a Philippine corporation shall be treated as derived entirely from sources within the Philippines, regardless of where the shares are sold.  Subject to applicable tax treaty rates, the rate of tax imposed on individuals, Philippine corporations, and foreign corporations on such gain, where the share is not sold or disposed of through the PSE, is a final tax (i.e., capital gains tax) of 15% of the net capital gains realized during the taxable year from the sale, exchange or other disposition of shares of stock.  On March 15, 2018, the BIR issued Revenue Regulations No. 11-2018, which requires buyers of shares of stock (i.e., individuals, Philippine corporations and resident foreign corporations) to withhold from sellers the capital gains tax due on the sale of shares of stock in a Philippine corporation.  Further, the Philippine tax laws prohibits a sale or transfer of shares of stock from being recorded in the Stock and Transfer Books of the corporation unless the Philippine Commissioner of Internal Revenue certifies that the tax due on the sale or transfer has been paid or certain other conditions are met or, with respect to a non-resident alien or non-Philippine corporation, a bond conditioned upon the future payment of any income tax that may be due on the gains derived from such transfer has been filed by the transferor with the Philippine Commissioner of Internal Revenue.  

The sale of shares which are listed in and sold through the PSE are subject to the stock transaction tax imposed at the rate of 6/10 of 1% of the gross selling price or gross value in money of the shares of stock.  This tax is required to be collected and paid to the  BIR by the selling stockbroker on behalf of his client.  In a letter from the BIR dated December 28, 2010 and addressed to the SEC, the BIR sets out the policy that, for tax purposes:
(i) listed companies should continually maintain, if not surpass, their initial public ownership requirement (the minimum public ownership, or MPO) in order to continually enjoy the preferential tax rate of 6/10 of 1% (formerly, 1/2 of 1%) of the gross selling price or gross value on money arising from the disposal by the stockholders of their listed shares through the PSE; and (ii) failure of listed companies to do so exposes the stockholders selling their shares to the 15% or 5%/10%, as the case may be, capital gains tax as these companies are no longer compliant with their “public ownership” status and will, thus, not be considered publicly-listed companies for taxation purposes. On November 7, 2012, the BIR issued Revenue Regulations No. 16-2012 prescribing the tax treatment of sales, barters, exchanges or other dispositions of shares of stock of publicly-listed companies that do not meet the MPO. The salient provisions of such BIR issuance are as follows: (i) publicly-listed companies which are not compliant with the MPO level were allowed up to December 31, 2012 to comply; (ii) from and after January 1, 2013, the sale, barter, transfer or assignment of shares of stock of publicly-listed companies which is not compliant with the MPO shall be subject to the capital gains tax; and (iii) listed companies are required to submit to the BIR certain reportorial requirements to enable the BIR to monitor compliance with the MPO requirement.  As of the date of this report, PLDT is required to have an MPO of 10% of its issued and outstanding shares, exclusive of any treasury shares.

Sales of shares other than through a Philippine stock exchange will be subject to Philippine capital gains tax in the manner described above.

Under the Philippines-United States Tax Treaty, gains derived by a United States resident from the sale of shares of stock of a Philippine corporation will not be subject to capital gains tax (i.e., where the share is not disposed of through the PSE), unless the shares are those of a corporation of which over 50% of the assets (in terms of value) consist of real property interests located in the Philippines.  PLDT does not believe that it currently is such a corporation.  Holders are required, however, to establish to the Philippine taxing authorities their eligibility for such treaty exemption.  Philippine tax authorities have prescribed, through administrative issuances, procedures for availment of tax treaty relief.  

Documentary Stamp Taxes

The Philippines imposes a documentary stamp tax upon transfers of shares of stock issued by a Philippine corporation at a rate of Php1.50 on each Php200, or fractional part thereof, of the par value of the shares.  The documentary stamp tax is collectible wherever the document is made, signed, issued, accepted or transferred, when the obligation or right arises from Philippine sources or the property is situated in the Philippines.  The sale, barter, transfer or exchange of shares of stock of a Philippine Corporation which is listed and traded through the facilities of the PSE is exempt from the documentary stamp tax.  However, Revenue Regulations No. 16-2012 provides that transfers of shares of stock of publicly-listed companies which are not compliant with the MPO requirement shall be subject to documentary stamp tax.

Estate and Donor’s Taxes

Shares of stock issued by a corporation organized or constituted in accordance with Philippine law are deemed to have a Philippine situs and their transfer by way of succession or donation is subject to Philippine estate and gift taxes.  The transfer of shares of stock by a deceased individual to his heirs by way of succession, whether such an

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individual was a citizen of the Philippines or an alien, regardless of residence, will be subject to Philippine estate tax at 6% of the net estate.  Individual shareholders, whether or not citizens or residents of the Philippines, who transfer the Equity Securities by way of gift or donation will be liable for Philippine donor’s tax on such transfers at the rate of 6% of the total gifts in excess of Php250,000 made during the  calendar year. Estate and gift taxes will not be collected in respect of intangible personal property such as the Equity Securities:

● if the deceased at the time of death, or the donor at the time of donation, was a citizen and resident of a foreign country which at the time of his death or donation did not impose a transfer tax of any character in respect of intangible personal property of citizens of the Philippines not residing in that foreign country; or

● if the laws of the foreign country of which the deceased or the donor was a citizen and resident at the time of his death or donation allow a similar exemption from transfer or death taxes of every character or description in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country.

Shares of stock of a deceased shareholder or shares that have been donated may not be transferred on the books of the corporation without a certificate from the Philippine Commissioner of Internal Revenue that the applicable estate or donor’s taxes have been paid.  In the case of ADRs, however, there is no corresponding requirement, unless a transfer of the ADRs would also entail a change in the registration of the underlying shares.

United States Federal Taxation

The following summary describes certain material U.S. federal income tax considerations generally applicable to U.S. Holders (as defined below) of an investment in the ADSs or common stock. This summary applies only to U.S. Holders that hold the ADSs or common stock as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “U.S. Tax Code”) and that have the U.S. dollar as their functional currency.

This discussion is based on the tax laws of the United States, including the U.S. Tax Code, as in effect on the date hereof and on U.S. Treasury regulations as in effect or, in some cases, as proposed, on the date hereof, as well as judicial and administrative interpretations thereof available on or before such date. All of the foregoing authorities are subject to change or differing interpretations, which change or differing interpretation could apply retroactively and could affect the tax consequences described below. This summary does not address any estate or gift tax consequences, the alternative minimum tax, the Medicare tax on net investment income or any state, local or non-U.S. tax consequences.

This summary also does not address the tax consequences that may be relevant to persons in special tax situations such as banks, certain financial institutions, insurance companies, regulated investment companies, real estate investment trusts, individual retirement accounts and other tax-deferred accounts, broker-dealers, traders that elect to mark to market, U.S. expatriates, tax-exempt entities, persons that own the ADSs or common stock as part of a “straddle,” “hedge,” “conversion transaction” or integrated transaction; persons that actually or constructively own 10% or more of the PLDT’s share capital (by vote or value), persons that are resident or ordinarily resident in or have a permanent establishment in a jurisdiction outside the United States, or pass-through entities or arrangements, or persons holding ADSs or common stock through pass-through entities or arrangements.

THE SUMMARY OF U.S. FEDERAL INCOME TAX CONSIDERATIONS SET OUT BELOW IS FOR GENERAL INFORMATION ONLY. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE APPLICATION OF THE U.S. FEDERAL TAX RULES TO THEIR PARTICULAR CIRCUMSTANCES AS WELL AS THE STATE, LOCAL, NON-U.S. AND OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE ADSS AND COMMON STOCK.

As used herein, the term “U.S. Holder” means a beneficial owner of the ADSs or common stock that is, for U.S. federal income tax purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any state thereof or the District of Columbia, (iii) an estate, the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust that is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

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If an entity or other arrangement treated as a partnership for U.S. federal income tax purposes holds ADSs or common stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. Partnerships considering an investment in ADSs or common stock and partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences of owning and disposing of ADSs and common stock.

The tax treatment of your ADSs or common stock will depend in part on whether or not we are classified as a passive foreign investment company (a “PFIC”) for U.S. federal income tax purposes. Except as discussed below under “Passive Foreign Investment Company Rules”, this discussion assumes that we are not classified as a PFIC for United States federal income tax purposes.

Exchange of ADSs for Common Stock

In general, assuming that each obligation of the Deposit Agreement and any related agreement will be performed according to its terms, for U.S. federal income tax purposes, if you hold ADRs evidencing ADSs, you will be treated as the owner of the shares of common stock represented by those ADRs. Exchanges of shares of common stock for ADRs, and ADRs for shares of common stock, generally will not be subject to U.S. federal income tax.

Taxation of Distributions

The gross amount of any distribution we pay out of our current or accumulated earnings and profits (as determined for U.S. federal income tax purposes), other than certain pro-rata distributions of our common stock, will be treated as a dividend that is subject to United States federal income taxation. If you are a non-corporate U.S. Holder, dividends paid to you with respect to the ADSs or common stock may be qualified dividend income that is taxable to you at the preferential rates applicable to long-term capital gains, provided that you hold the common stock or ADSs for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and certain other requirements are met.

You must include any Philippine tax withheld from the dividend payment in this gross amount even though you do not in fact receive it. The dividend is taxable to you when you, in the case of common stock, or the Depositary, in the case of ADSs, receive the dividend, actually or constructively. The dividend will not be eligible for the dividends-received deduction generally allowed to U.S. corporations in respect of dividends received from other U.S. corporations. The amount of the dividend distribution that you must include in your income will be the U.S. dollar value of the Philippine peso payments made, determined at the spot Philippine peso/U.S. dollar rate on the date the dividend distribution is includible in your income. Distributions in excess of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated as a non-taxable return of capital to the extent of your basis in the ADSs or common stock and thereafter as capital gain. However, we do not expect to calculate earnings and profits in accordance with U.S. federal income tax principles. Accordingly, you should expect to generally treat distributions we make as dividends.

Subject to certain limitations, the Philippine tax withheld in accordance with the Philippines-United States Tax Treaty and paid over to the Philippines will be creditable or deductible against your United States federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the preferential rates applicable to long-term capital gains. Dividends will be income from sources outside the United States. Dividends will generally be “passive” income for purposes of computing the foreign tax credit allowable to you. The rules relating to the determination of the U.S. foreign tax credit are complex, and U.S. Holders should consult their tax advisors regarding the availability of a foreign tax credit in their particular circumstances and the possibility of claiming an itemized deduction (in lieu of the foreign tax credit) for any foreign taxes paid or withheld.

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Taxation of Disposition of the ADSs or Common Stock

Upon a sale or other taxable disposition of ADSs or common stock, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between the amount realized and the U.S. Holder’s adjusted tax basis in such ADSs or common stock. In general, a U.S. Holder’s adjusted tax basis in its ADSs or common stock will be equal to the cost of such ADSs or common stock to the U.S. Holder. Any such gain or loss generally will generally be treated as long-term capital gain or loss if the U.S. Holder’s holding period in the ADSs or common stock exceeds one year. Non-corporate U.S. Holders (including individuals) generally will be subject to U.S. federal income tax on long-term capital gain at preferential rates. The deductibility of capital losses is subject to significant limitations. Gain or loss, if any, recognized by a U.S. Holder on the sale or other disposition of ADSs or common stock generally will be treated as U.S. source gain or loss for U.S. foreign tax credit limitation purposes. As a result, the use of U.S. foreign tax credits relating to Philippine capital gains tax may be limited. In addition, U.S. Holders may not be eligible to credit against their U.S. federal income tax liability amounts paid in respect of the Philippine stock transaction tax. U.S. Holders should consult their tax advisors regarding the tax consequences if Philippine taxes are imposed on a disposition of ADSs or common stock and their ability to credit any Philippine tax against their U.S. federal income tax liability or to claim a deduction for any such Philippine tax.

Passive Foreign Investment Company Rules

We would be classified as a passive foreign investment company (a “PFIC”) for any taxable year if either: (a) at least 75% of our gross income is “passive income” for purposes of the PFIC rules or (b) at least 50% of the value of our assets (determined on the basis of a quarterly average) is attributable to assets that produce or are held for the production of passive income. For this purpose, we will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we, directly or indirectly, 25% or more (by value) of the stock.

We believe that we were not a PFIC for our taxable year ending December 31, 2021, and we do not expect to become a PFIC in the current taxable year or in the foreseeable future. However, this conclusion is a factual determination that is made annually and thus may be subject to change. If we were to be treated as a PFIC, gain realized on the sale or other disposition of your ADSs or common stock would in general not be treated as capital gain.  Instead, unless you elect to be taxed annually on a mark-to-market basis with respect to your ADSs or common stock, you would be treated as if you had realized such gain and certain "excess distributions" ratably over your holding period for the ADSs or common stock. The amounts allocated to the taxable year of the sale or other disposition (or the taxable year of receipt, in the case of an excess distribution) and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed. With certain exceptions, your ADSs or common stock will be treated as stock in a PFIC if we were a PFIC at any time during your holding period in your ADSs or common stock. Dividends that you receive from us will not be eligible for the special tax rates applicable to qualified dividend income if we are a PFIC (or are treated as a PFIC with respect to you) either in the taxable year of the distribution or the preceding taxable year.

If we were a PFIC, a U.S. Holder would also be subject to annual information reporting requirements. U.S. Holders should consult their tax advisors about the potential application of the PFIC rules to an investment in ADSs or common stock.

Information Reporting and Backup Withholding

Dividend payments with respect to ADSs and common stock and proceeds from the sale, exchange or redemption of ADSs or common stock may be subject to information reporting to the IRS and U.S. backup withholding. A U.S. Holder may be eligible for an exemption from backup withholding if the U.S. Holder furnishes a correct taxpayer identification number and makes any other required certification or is otherwise exempt from backup withholding. U.S. Holders who are required to establish their exempt status may be required to provide such certification on IRS Form W-9. U.S. Holders should consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.

Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a U.S. Holder’s U.S. federal income tax liability, and such U.S. Holder may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing an appropriate claim for refund with the IRS and furnishing any required information.

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Information With Respect to Foreign Financial Assets

Certain U.S. Holders who are individuals (and certain entities) that hold an interest in “specified foreign financial assets” (which may include the ADSs and common stock) are required to report information relating to such assets, subject to certain exceptions (including an exception for ADSs or common stock held in accounts maintained by certain financial institutions). U.S. Holders should consult their tax advisors regarding the effect, if any, of this requirement on their ownership and disposition of the ADSs and common stock.

Dividends and Paying Agents

Not applicable.

Statement by Experts

Not applicable.

Documents on Display

We are subject to the informational requirements of the Exchange Act, and file reports and other information with the Commission, as required by this Act.  The Commission maintains a website that contains reports, proxy statements and other information regarding registrants that file electronically with the Commission.  Copies of these materials may be obtained by mail from the public reference section of the Commission, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates.  These reports and other information may also be inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005, on which the ADSs representing our common stock are listed.  Our website address is www.pldt.com, where certain of our filings with the Commission are available online.

Item 11. Quantitative and Qualitative Disclosures About Market Risks

The main risks arising from our financial instruments are liquidity risk, foreign currency exchange risk, interest rate risk and credit risk.  The importance of managing those risks has significantly increased in light of the considerable change and volatility in both the Philippine and international financial markets.  Our Board of Directors reviews and approves policies for managing each of these risks.  We also monitor the market price risk arising from all financial instruments.

See Note 28 – Financial Assets and Liabilities – Financial Risk Management Objectives and Policies to the accompanying audited consolidated financial statements in Item 18. “Financial Statements” for a detailed discussion.

Item 12. Description of Securities Other than Equity Securities

Fees and Charges for Holders of American Depositary Receipts

JP Morgan Chase Bank, N.A., or the depositary, as depositary of our ADS collects fees from each person to whom ADS are issued, US$5.00 for each 100 ADS (or portion thereof) issued, delivered, reduced, cancelled or surrendered.

The depositary also collects the following fees from holders of ADRs or intermediaries acting in their behalf:

• US$0.02 or less per ADS (or portion thereof) for any cash distribution made;

• US$1.50 per ADR for transfers made (to the extent such fee is not prohibited by the rules of the primary stock exchange upon which the ADSs are listed);

• a fee in an amount equal to the fee for the execution and delivery of ADSs for the distribution or sale of securities, which would have been charged as a result of the deposit of such securities but which securities or the net proceeds from the sale thereof are instead distributed by the depositary to the holders entitled thereto;

• US$0.02 per ADS (or a portion thereof) per year for the services rendered by the depositary for administering the ADR program (which fee shall be assessed as of the record date or dates set by the depositary not more than once each calendar year and shall be payable at the sole discretion of the depositary by billing such holders or by deducting such charge from one or more cash dividends or other cash distribution);

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• such fees and expenses as are incurred by the depositary (including without limitation expenses incurred on behalf of holders in compliance with foreign exchange control regulations or any law or regulation relating to foreign investment) in the delivery of the common stock or otherwise in connection with the depositary’s or its custodian’s compliance with applicable laws, rules or regulations;

• stock transfer and other taxes and governmental charges (which are payable by the holder or person depositing the common stock), cable, telex and facsimile transmission and delivery charges incurred at the request of the person depositing the common stock or holder delivering the common stock, ADRs or deposited common stock (which are payable by such person or holder), transfer or registration fees for the registration or transfer of deposited common stock in connection with the deposit or withdrawal of the deposited common stock (which are payable by the person depositing or withdrawing deposited common stock), expense by the depositary in the conversion of foreign currency into U.S. dollars; and

• any other charge payable by the depositary or its agents in connection with its service as depositary in implementation of the Company’s ADR Program pursuant to Section 4.02, 4.03, 4.04, or 4.05 of the Deposit Agreement, as amended.

Fees and Other Payments Made by the Depositary to Us

The depositary has agreed to reimburse certain reasonable expenses of PLDT related to PLDT’s ADR program and incurred by PLDT in connection with the ADR program.  The amounts reimbursable by the depositary are not necessarily related to the fees collected by the depositary from ADR holders.  The total amount that the depositary has agreed to reimburse and the amounts reimbursable for the year ended December 31, 2021 was US$515,777.74.  

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PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

None.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

None.

Item 15. Controls and Procedures

Disclosure Controls and Procedures.  Our management, with the participation of our principal executive officer and principal financial officer, carried out an evaluation on the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as at December 31, 2021.  Based on this evaluation, our CEO and principal financial officer concluded that our disclosure controls and procedures were effective as at December 31, 2021.

Management’s Annual Report on Internal Control Over Financial Reporting.  The Management of the PLDT Group is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the U.S. Securities Exchange Act of 1934, as amended.

Our internal control over financial reporting is designed and implemented under the supervision of our principal executive officers and principal finance officers, in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS as issued by the International Accounting Standards Board.  Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the PLDT Group; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the PLDT Group are being made only in accordance with authorizations of our management and board of directors; and (iii) provide reasonable assurance regarding prevention or timely detection of any unauthorized acquisition, use or disposition of the PLDT Group’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance with respect to financial statements preparation and presentation, and may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Management assessed the effectiveness of the PLDT Group’s internal control over financial reporting as at December 31, 2021, based on the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in 2013.

Based on this assessment, management has determined that the internal control over financial reporting of the PLDT Group was effective as at December 31, 2021.

We reviewed the results of management’s assessment with the AC of the Board of Directors.

SGV & Co. (a member firm of the Ernst & Young Global Limited), an independent registered public accounting firm, has audited our consolidated financial statements included in this Annual Report and has issued an attestation report on our internal control over financial reporting as at December 31, 2021.  This attestation report is dated March 22, 2022 and is set forth in Item 18 “Financial Statements” of the Annual Report on Form 20-F for the year ended December 31, 2021.

Changes in Internal Control Over Financial Reporting  

In 2021, no change to our internal control over financial reporting occurred that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Item 16A. Audit Committee Financial Expert

Our Board has determined that currently, none of the members of the AC is an audit committee financial expert as defined under the applicable rules of the U.S. SEC issued pursuant to Section 407 of the Sarbanes-Oxley Act of 2002.  As our Board believes that the AC members along with its advisors, possess sufficient financial knowledge and experience, our Board has not separately appointed an AC member who qualifies as an AC financial expert.  Our Board has appointed Ms. Corazon S. de la Paz-Bernardo, a former member of our Board of Directors, as AC advisor to render advice on complex financial reporting or accounting issues that may be raised in our AC’s evaluation of our financial statements and other related matters.  Formerly the Chairman and Senior Partner of Joaquin Cunanan & Co., now Isla Lipana & Co., a member firm of PricewaterhouseCoopers Worldwide, Ms. de la Paz-Bernardo is a certified public accountant and possesses in-depth knowledge of accounting principles (including IFRS), internal controls and procedures for financial reporting and AC functions, as well as extensive experience in overseeing or actively supervising the preparation, audit, analysis or evaluation of financial statements and in addressing complex and general financial reporting, accounting and audit issues.

Item 16B. Code of Business Conduct and Ethics

PLDT has adopted a Code of Business Conduct and Ethics (“Code of Ethics”), which constitutes a “code of ethics” as defined in Item 16.B of Form 20-F. The Code of Ethics applies to its directors, officers, including its principal executive officer, principal financial officer and principal accounting officer or controller, and employees.

A copy of the PLDT’s Code of Ethics is posted on our website at https://pldt.com/docs/default-source/policies/pldt-code-of-business-conduct-and-ethics.pdf, under the Corporate Governance section.  This website does not form part of this annual report on Form 20-F.  The Company has undertaken to provide a copy, without charge, to any person requesting for a copy of the Company’s Code of Ethics from our Officer In Charge-Corporate Governance Office, Atty. Ma. Magdalene A. Tan, who can be reached at e-mail address matan@pldt.com.ph or telephone number +632-8816-8917 /8892-4122.

Item 16C. Principal Accountant Fees and Services

The following table summarizes the fees paid or accrued for services rendered by SGV & Co., our independent auditors for the years ended December 31, 2021 and 2020:

	2021		2020
	(Pesos in millions)
Audit Fees		52		59
Audit-Related Fees		2		2
Tax Fees		1		1
All Other Fees		25		25
Total		80		87

Audit Fees.  This category includes the audit of our annual financial statements and services that are normally provided by the independent auditors in connection with statutory and regulatory filings or engagements for those fiscal years.  

Audit-Related Fees.  This category consists of assurance services for our Sustainability Report.

Tax Fees.  This category includes tax services for our Singapore-based subsidiaries.

All Other Fees.  This category consists primarily of fees with respect to our Sarbanes-Oxley Act 404 assessment in 2021 and 2020, and other non-audit engagements.

The fees presented above include out-of-pocket expenses incidental to our independent auditors’ work, amount of which do not exceed 5% of the agreed-upon engagement fees.  The fees and out-of-pocket expenses are exclusive of a 12% VAT.

Our AC pre-approved all audit and non-audit services as these are proposed or endorsed before these services are performed by our independent auditors.  

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Audit Committee’s Pre-approval Policies and Procedures

AC pre-approval of services rendered by our independent auditor follows:

• The AC has adopted a policy for pre-approval of audit, audit-related and permitted non-audit services to be rendered by our independent auditor, which should be interpreted in conjunction with the ACs’ policy on auditor independence.

• The AC does not engage our independent auditor for “prohibited services” at any point during the audit and professional engagement period.

• To ensure the prompt handling of unexpected matters, the AC may delegate its authority to specifically pre-approve services to one or more of its members.  The member(s) to whom such authority is delegated must report any pre-approval decisions to the AC at its next regularly scheduled meeting.

• The AC is directly responsible for the appointment, setting of compensation, retention, removal and oversight of the work of our independent auditor.

Item 16D. Exemption from the Listing Standards for Audit Committees

Not applicable.

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

On September 26, 2017, the Board of Directors of PLDT approved the TIP which intends to provide incentive compensation to key officers, executives and other eligible participants who are consistent performers and contributors to the Company’s strategic and financial goals.  The incentive compensation will be in the form of Performance Shares, PLDT common shares of stock, which will be released in three annual grants on the condition, among others, that pre-determined consolidated core net income targets are successfully achieved over three annual performance periods from January 1, 2017 to December 31, 2019.  On September 26, 2017, the Board of Directors approved the acquisition of 860,000 Performance Shares to be awarded under the TIP.  On March 7, 2018, the ECC of the Board approved the acquisition of additional 54,000 shares, increasing the total Performance Shares to 914,000.   Metropolitan Bank and Trust Company, or Metrobank, through its Trust Banking Group, is the appointed Trustee of the trust established for purposes of the TIP.  The Trustee is designated to acquire the PLDT common shares in the open market through the facilities of the PSE, and administer their distribution to the eligible participants subject to the terms and conditions of the TIP.

On December 11, 2018, the Executive Compensation Committee, or ECC, of the Board approved Management’s recommended modifications to the Plan, and partial equity and cash settled set-up will be implemented for the 2019 TIP Grant.  The revised set-up will include a fixed number of shares that will be granted (“equity award”) and the estimated fair value of the difference between the number of shares granted in the original equity grant and the equity award will be  paid in cash (“cash award”).  The fair value of the cash award is determined at each reporting date using the estimated fair value of the corresponding shares.  

As at May 11, 2021, a total of 757,000 PLDT common shares have been acquired by the Trustee, of which 239,000 PLDT common shares have been released on March 12, 2020, April 7, 2020 and January 19, 2021 for the 2019 annual grant, and 302,000 PLDT common shares have been released on March 28, 2019 for the 2018 annual grant, and 204,000 shares on April 15, 2018 for the 2017 annual grant.  With the completion of the 2017 to 2019 annual grants, the remaining 12,000 PLDT common shares have been transferred to the PLDT Beneficial Trust Fund on May 11, 2021.  The cash award for the 2019 annual grant that was paid on March 12, 2020 amounted to Php654 million.  The TIP is administered by the ECC of the Board.  

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The total number of shares repurchased was nil in 2021, 2020 and 2019.  No further purchase is intended.  

Item 16F. Change in Registrant’s Certifying Accountant

Not applicable.

Item 16G. Corporate Governance

PLDT is a Philippine company with its shares of common stock listed on the PSE and ADSs listed on the NYSE.  As a foreign private issuer, PLDT is permitted under the NYSE listing standards to follow Philippine corporate governance practices on most corporate governance matters, and, accordingly, PLDT complies with the requirements of the Philippine Securities Regulation Code and the Revised Corporation Code of the Philippines³, and, as appropriate, the recommended practices under Philippine SEC Code of Corporate Governance for Publicly-Listed Companies (“CG Code for PLCs”) in respect of corporate governance matters as well as with the NYSE listing standards applicable to foreign private issuers.  The CG Code for PLCs, which was issued by the Philippine SEC and took effect on January 1, 2017, contains Code provisions with recommended corporate governance practices. In accordance with its “comply or explain” approach, the CG Code for PLCs requires publicly-listed companies to state in their respective annual corporate governance reports, due on or before May 30 of the following year⁴, whether they comply with the Code provisions or, in case of non-compliance, explain the reason for such non-compliance. PLDT’s Integrated Annual Corporate Governance Report 2020 is posted at https://cms.pldt.com/drupal/sites/default/files/cgdisclosures/pldt-iacgr-2020-pse_0.pdf.

PLDT’s corporate governance practices are generally consistent with the NYSE listing standards, except that PLDT’s corporate governance practices differ from U.S. companies under the NYSE listing standards in the significant ways summarized below.

• Number of Independent Directors.  The NYSE listing standards require a majority of the board of directors to be independent.  We have three independent directors out of 13 directors, which meets the requirement under Section 38 of the Philippine Securities Regulation Code that at least two (2) or twenty percent (20%) of the total members of the board, whichever is less, must be independent; and Section 22 of the Revised Corporation Code that corporations vested with public interest⁵ shall have independent directors constituting at least 20% of such Board.  

• Director Independence Tests.  There are differences between the director independence tests applied in PLDT’s corporate governance practice and those under the NYSE listing standards. In some cases, the independence tests set forth in the NYSE listing standards are more stringent than those under PLDT’s corporate governance practice, and in other cases the independence tests set forth in the NYSE listing standards are less stringent than those under PLDT’s corporate governance practice.

³ Section 185 of the Revised Corporation Code of the Philippines, which took effect on February 23, 2019, provides:

“SEC. 185. Applicability to Existing Corporation – A corporation lawfully existing and doing business in
the Philippines affected by the new requirements of this Code shall be given a period of not more than two years from the effectivity of this Act within which to comply.”  

⁴  In 2021, the Philippine SEC, in recognition of the difficulties that the COVID-19 pandemic and the imposition of the General Community Quarantine may present on the ability of Publicly-Listed Companies to timely comply with the filing requirement, extended the deadline for the filing of the Integrated Annual Corporate Governance Report (IACGR) until June 30, 2021 through SEC Notice dated May 25, 2021.

⁵ Section 22 of the Revised Corporation Code of the Philippines defines “a corporation vested with public interest” as: Section 22 of the Revised Corporation Code of the Philippines defines “a corporation vested with public interest” as:“a)“a) Corporations covered by Section 17.2 of Republic Act No. 8799, otherwise known as “The Securities Regulation Code” namely those whose securities are registered with the Commission, corporations listed with an exchange or with assets of at least Fifty million pesos (P50,000,000.00) and having two hundred (200) or more holders of shares, each holding at least one hundred (100) shares of a class of its equity shares;

b) Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in money service business, pre-need, trust and insurance companies, and other financial intermediaries; and

c) Other corporations engaged in business vested with public interest similar to the above, as may be determined by the Commission, after taking into account relevant factors which are germane to the objective and purpose of requiring the election of an independent director, such as the extent of minority ownership, type of financial products or securities issued or offered to investors, public interest involved in the nature of business operations, and other analogous factors.”

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• An example where the NYSE listing standards impose more stringent standards than PLDT’s corporate governance practices include the “auditor affiliation” test.  In contrast to the NYSE listing standards, under PLDT’s By-Laws and Board Committee charters, present or previous affiliation or employment of a director’s immediate family member with the external auditor does not preclude a determination that such director is independent.

• An example where PLDT’s corporate governance practices impose more stringent standards than NYSE listing standards is the “material relationship with the listed company” test.  PLDT’s Manual on Corporate Governance (“PLDT’s CG Manual”) provides that a director who owns more than 2% of the shares of stock of PLDT, or whose relative is a substantial shareholder of PLDT, any of its related companies or any of its substantial shareholders cannot be considered as independent.

• Meetings of non-management/independent directors.  The NYSE listing standards require regularly scheduled executive sessions of non-management directors without management participation or regularly scheduled executive sessions consisting of only independent directors.  PLDT’s CG Manual mandates that the Board shall hold executive sessions with the independent directors and non-executive directors, excluding executive directors, at least once a year and at such other times as the Board may deem necessary or appropriate, and that such executive sessions shall be presided by the chairman of the Governance, Nomination and Sustainability Committee, except if said chairman is an executive director, in which case, by an independent director or non-executive director designated by the Board.

• Nominating/Corporate Governance Committee and Compensation Committee. The NYSE listing standards require a listed company to maintain a nominating/corporate governance committee and a compensation committee, both composed entirely of independent directors.  Our GNSC and our ECC are normally composed of five voting members, a majority of whom are normally independent directors.

• The NYSE listing standards require the compensation committee to conduct an independent assessment with respect to any compensation consultant, legal counsel or other adviser that provides advice to the compensation committee.  There is no such requirement under PLDT’s CG Manual.

• Audit Committee. As required by NYSE listing standards, PLDT maintains an audit committee in full compliance with Rule 10A-3 promulgated under the U.S. Securities Exchange Act of 1934, as amended, and Section 303A.06 of the NYSE Listed Company Manual.  All of the members of PLDT’s AC are independent directors meeting the independence requirements of Rule 10A-3 as well as those under Section 303A.07 of the NYSE Listed Company Manual, except in those areas where our independence tests adopted pursuant to the CG Code for PLCs differ from those under the NYSE listing standards, as discussed above.

PLDT’s disclosure containing a summary of differences on corporate governance practices based on requirements of Philippine law on one hand, and U.S. law on the other, is found in this link: https://www.pldt.com/docs/ default-source/compliance/corporate-governance-materials/nyse-section-303a-11-disclosure.pdf. This website does not form part of this annual report on Form 20-F.

Item 16H. Mine Safety Disclosure

Not applicable.

Item 16I.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

145

PART III

Item 17. Financial Statements

PLDT has elected to provide the financial statements and related information specified in Item 18. “Financial Statements” in lieu of Item 17.

Item 18. Financial Statements

Index to Financial Statements

	Page
PLDT INC. ANNUAL FINANCIAL STATEMENTS
Attestation Report of the Independent Registered Public Accounting Firm	F-1
Report of Independent Registered Public Accounting Firm	F-3
Consolidated Statements of Financial Position as at December 31, 2021 and 2020	F-8
Consolidated Income Statements for the Years Ended December 31, 2021, 2020 and 2019	F-10
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2021, 2020 and 2019	F-11
Consolidated Statements of Changes in Equity for the Years Ended December 31, 2021, 2020 and 2019	F-12
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019	F-13
Notes to Consolidated Financial Statements	F-15

146

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of PLDT Inc.

Opinion on Internal Control over Financial Reporting

We have audited PLDT Inc. and its subsidiaries’ (collectively referred to as “PLDT Group”) internal control over financial reporting as at December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 framework (the “COSO criteria”). In our opinion, the PLDT Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial position of the PLDT Group as at December 31, 2021 and 2020, and the related consolidated income statements, statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated March 22, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

The PLDT Group’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the PLDT Group’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the PLDT Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

F-1

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ SyCip Gorres Velayo & Co.

Makati City, Philippines

March 22, 2022

F-2

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of PLDT Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of financial position of PLDT Inc. and subsidiaries (collectively referred to as “PLDT Group”) as at December 31, 2021 and 2020, and the related consolidated income statements and statements of comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2021 and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the PLDT Group as at December 31, 2021 and 2020, and the results of its operations and cash flows for each of the three years in the period ended December 31, 2021, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the PLDT Group’s internal control over financial reporting as at December 31, 2021, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 22, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

These consolidated financial statements are the responsibility of the PLDT Group’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the PLDT Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits include performing procedures to assess the risks of material misstatements of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and the significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and
(2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

F-3

	Revenue recognition
Description of the Matter	At December 31, 2021, the Group recognized revenues amounting to Php193,257 million as disclosed in Notes 3, 4 and 5 to the consolidated financial statements. The Group derives revenues from wireless and fixed line telecommunications services, which includes bundled offers such as telecommunications services and handsets provided to a large number of subscribers.
	Auditing management’s revenue recognition process over bundled offers was complex due to the complexity of the arrangements involving multiple deliverables and elements which required the identification of separate performance obligations, allocation of transaction prices to the performance obligations using amounts that reflect their estimated standalone selling prices and the subsequent recognition of revenue either over time or at a point in time upon the satisfaction of the performance obligations, that are judgmental in nature. In addition, auditing the information technology (IT) systems used to capture accurate and complete information to recognize substantial amounts of the wireless and fixed line service revenues was especially challenging due to the significant volume of data and transactions processed through various systems and the heavy reliance on automated processes and controls over the capture, measurement and recording of transactions.

How We Addressed the Matter in Our Audit	We obtained an understanding of the PLDT Group’s revenue recognition process, involving our IT professionals to assist us in evaluating the design and testing of the effectiveness of controls around the capture, measurement and recording of wireless and fixed line revenues. For example, we evaluated the design and tested the operating effectiveness of controls around access rights, system development, program changes and IT dependent business controls to establish that changes to the system were appropriately authorized, developed, and implemented including those over: set- up of customer accounts, pricing data, segregation of duties and the linkage to usage data that drives revenue recognition.
	To test revenue recognition, among other procedures, we compared the customer billing data to the details in the billing systems for wireless and fixed line postpaid revenues on a sample basis. We also tested the recognition of revenue based on actual usage and inspected the reconciliation of the ending balance of unearned income for prepaid revenues between the subledger and the general ledger. In addition, we obtained a sample of contracts and (a) assessed whether performance obligations within the contracts with customers have been identified (b) tested the allocation of the transaction price to the performance obligations (c) evaluated management’s estimate and underlying assumptions on the standalone selling price for each performance obligation included within the sample of contracts to available published market prices and (d) assessed the PLDT Group’s timing of revenue recognition based on when the performance occurs and control of the related goods or services is transferred to the customer. We also assessed the adequacy of the Group’s disclosures in respect to the accounting policies on revenue recognition.
	Valuation of pension assets
Description of the Matter	At December 31, 2021, the Group has pension assets amounting to Php14,683 million that are netted against accrued pension benefit obligations. As explained in Notes 3 and 26 to the consolidated financial statements, the Company updates the estimates used to measure the unquoted investments of Php11,332 million within the plan assets every year-end to reflect the actual return on plan assets.
	Auditing the valuation of the pension assets was complex due to the significant and judgmental nature of the assumptions used in the discounted cash flow model to measure the fair value of the significant unquoted equity investments included in the plan assets. These significant assumptions included revenue growth rate, direct costs, capital expenditure, discount rate and long-term growth rate as inputs.

F-4

How We Addressed the Matter in Our Audit	We obtained an understanding of the process, assessed the design and tested controls that address the risks of material misstatement relating to the valuation of the plan assets. For example, we tested controls over management’s review of the plan asset calculations, including the significant assumptions used in the discounted cash flow model.
How We Addressed the Matter in Our Audit	To test the valuation of the pension assets, our audit procedures included, among others, evaluating the methodology, the significant assumptions discussed above and the underlying data used by the PLDT Group. We compared the significant assumptions discussed above to historical data, the business plans of the underlying entities, the industry and market outlook and other relevant external data. In addition, we involved our internal specialist to assist us in assessing management’s discounted cash flow valuation model and in testing the parameters used in determining the discount rate and long-term growth rate against market data. We also performed sensitivity analyses over the significant assumptions to evaluate the changes in the value of the unquoted investments that would result from changes in the assumptions.
	Recoverability of goodwill
Description of the Matter	At December 31, 2021, the Group’s goodwill attributable to the Wireless and Fixed Line cash-generating units (CGUs) were Php56,571 million and Php4,808 million, respectively. As discussed in Notes 3 and 15 to the consolidated financial statements, goodwill is tested for impairment at least annually at the corresponding CGUs respectively.
	Auditing management’s annual goodwill impairment test was complex due to the significant judgement required to determine the fair value of the CGUs and sensitivity of the fair value estimate to the significant assumptions, such as revenue growth rate, capital expenditures, discount rate and the long-term growth rate. These assumptions were based on management's expectation about future market conditions which includes inherent uncertainty.
How We Addressed the Matter in Our Audit	We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Group’s goodwill impairment review process, including controls over management’s review of the significant assumptions described above.
	To test the estimated recoverable value of the Group’s reporting units, we performed audit procedures that included, among others, assessing methodologies and testing the significant assumptions discussed above and the underlying data used by the Group in its analysis. We compared the significant assumptions used by management to current industry and economic trends and evaluated whether changes to the Group’s business model, product mix and other factors would affect the significant assumptions. In addition, we involved our internal specialist to assist us in assessing management’s discounted cash flow valuation model and in testing the parameters used in determining the discount rate and long-term growth rate against market data. We assessed whether there were any potential sources of contrary information, including historical forecast accuracy, and performed sensitivity analyses over the significant assumptions to evaluate the changes in the recoverable value that would result from changes in the assumptions.

	Estimating useful lives of property and equipment
Description of the Matter	At December 31, 2021, the Group’s property and equipment was Php302,736 million. As explained in Notes 3 and 9 to the consolidated financial statements, the Group reviews its estimates of useful lives annually or as and when needed if expectations differ from previous estimates due to changes in expectation of physical wear and tear, technical or commercial obsolescence and legal or other limitations on the continuing use of the assets.
	Auditing the Group's estimated useful lives of property and equipment was complex and required significant judgment because the determination of the estimated useful lives considers a number of factors and assumptions including the collective assessment of industry practice, internal technical evaluation and experience with similar assets.

F-5

How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Group’s process of estimating the useful lives of property and equipment. For example, we tested controls over management’s assessment which includes consideration for industry data and practice, market outlook and other relevant data. To test whether the estimated useful life of property and equipment used by management was reasonable, our audit procedures included, among others, obtaining an understanding of the Group’s technology roadmap plan and strategy related to asset replacement and assessing the reasonableness by considering external sources such as telecommunication technology growth, changes in market demand and current economic and market outlooks. We assessed whether there were any potential sources of contrary information by performing benchmarking analysis on the estimated useful lives of property and equipment against other public companies within the telecommunication industry.

/s/ SyCip Gorres Velayo & Co.

We have served as the PLDT Group’s auditor since 2002.

Makati City, Philippines

March 22, 2022

F-6

PLDT INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS AT DECEMBER 31, 2021 AND 2020

AND FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019

F-7

PLDT INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

As at December 31, 2021 and 2020

(in million pesos)

	2021			2020
ASSETS
Noncurrent Assets
Property and equipment (Notes 9 and 22)		302,736			260,868
Right-of-use assets (Note 10)		20,081			18,303
Investments in associates and joint ventures (Note 11)		53,364			52,123
Financial assets at fair value through profit or loss (Note 12)		339			380
Debt instruments at amortized cost – net of current portion (Note 13)		400			1,153
Investment properties (Notes 6 and 14)		929			895
Goodwill and intangible assets (Note 15)		62,535			65,329
Deferred income tax assets – net (Note 7)		13,385			19,556
Derivative financial assets – net of current portion (Note 28)		48			—
Prepayments – net of current portion (Notes 19 and 25)		94,777			66,109
Contract assets – net of current portion (Note 5)		566			668
Other financial assets – net of current portion (Note 28)		3,099			2,915
Other non-financial assets – net of current portion		138			109
Total Noncurrent Assets		552,397			488,408
Current Assets
Cash and cash equivalents (Note 16)		23,907			40,237
Short-term investments (Note 28)		2,241			989
Trade and other receivables (Note 17)		21,790			22,053
Inventories and supplies (Note 18)		3,662			4,085
Current portion of contract assets (Note 5)		1,685			1,799
Current portion of derivative financial assets (Note 28)		93			22
Current portion of debt instruments at amortized cost (Note 13)		207			—
Current portion of prepayments (Notes 19 and 25)		12,707			10,657
Financial assets at fair value through other comprehensive income (Notes 6, 11 and 25)		—			168
Current portion of other financial assets (Notes 20 and 28)		7,064			7,172
Current portion of other non-financial assets		575			256
Total Current Assets		73,931			87,438
TOTAL ASSETS		626,328			575,846
EQUITY AND LIABILITIES
Equity
Non-voting serial preferred stock (Note 20)		360			360
Voting preferred stock (Note 20)		150			150
Common stock (Note 20)		1,093			1,093
Treasury stock (Note 20)		(6,505	)		(6,505	)
Treasury shares under employee benefit trust (Note 26)		—			(21	)
Capital in excess of par value (Note 20)		130,312			130,312
Other equity reserves (Note 26)		—			19
Retained earnings (Note 20)		34,243			25,652
Other comprehensive loss (Note 6)		(36,437	)		(35,652	)
Total Equity Attributable to Equity Holders of PLDT		123,216			115,408
Noncontrolling interests (Note 6)		4,249			4,257
TOTAL EQUITY		127,465			119,665

See accompanying Notes to Consolidated Financial Statements.

F-8

PLDT INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (continued)

As at December 31, 2021 and 2020

(in million pesos)

	2021		2020
Noncurrent Liabilities
Interest-bearing financial liabilities – net of current portion (Notes 21 and 28)		241,075		205,195
Lease liabilities – net of current portion (Note 10)		17,131		15,982
Deferred income tax liabilities – net (Note 7)		169		726
Derivative financial liabilities – net of current portion (Note 28)		100		360
Customers’ deposits (Note 28)		2,270		2,371
Pension and other employee benefits (Note 26)		7,760		13,342
Deferred credits and other noncurrent liabilities (Note 22)		6,084		4,668
Total Noncurrent Liabilities		274,589		242,644
Current Liabilities
Accounts payable (Note 23)		99,718		82,413
Accrued expenses and other current liabilities (Notes 24 and 27)		106,113		107,759
Current portion of interest-bearing financial liabilities (Notes 21 and 28)		11,482		17,570
Current portion of lease liabilities (Note 10)		4,555		4,043
Dividends payable (Note 20)		1,708		1,194
Current portion of derivative financial liabilities (Note 28)		115		176
Income tax payable		583		382
Total Current Liabilities		224,274		213,537
TOTAL LIABILITIES		498,863		456,181
TOTAL EQUITY AND LIABILITIES		626,328		575,846

See accompanying Notes to Consolidated Financial Statements.

F-9

PLDT INC. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS

For the Years Ended December 31, 2021, 2020 and 2019

(in million pesos, except earnings per common share amounts which are in pesos)

	2021			2020			2019
REVENUES FROM CONTRACTS WITH CUSTOMERS
Service revenues (Note 5)		185,751			173,634			161,355
Non-service revenues (Note 5)		7,506			7,370			7,832
		193,257			181,004			169,187
EXPENSES
Selling, general and administrative expenses (Note 5)		78,303			75,255			68,230
Depreciation and amortization (Notes 9 and 10)		52,169			47,480			39,656
Cost of sales and services (Note 5)		13,341			12,295			13,429
Asset impairment (Note 5)		4,985			7,646			4,833
Interconnection costs		3,698			2,146			3,638
		152,496			144,822			129,786
		40,761			36,182			39,401
OTHER EXPENSES – NET (Note 5)		(6,607	)		(3,161	)		(7,065	)
INCOME BEFORE INCOME TAX		34,154			33,021			32,336
PROVISION FOR INCOME TAX (Note 7)		7,478			8,441			9,550
NET INCOME		26,676			24,580			22,786
ATTRIBUTABLE TO:
Equity holders of PLDT (Note 8)		26,367			24,284			22,521
Noncontrolling interests		309			296			265
		26,676			24,580			22,786
Earnings Per Share Attributable to Common Equity Holders of PLDT    (Notes 5 and 8)
Basic		121.76			112.12			103.97
Diluted		121.76			112.12			103.97

See accompanying Notes to Consolidated Financial Statements.

F-10

PLDT INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Years Ended December 31, 2021, 2020 and 2019

(in million pesos)

	2021			2020			2019
NET INCOME		26,676			24,580			22,786
OTHER COMPREHENSIVE INCOME (LOSS) – NET OF TAX (Note 6)
Fair value changes of financial assets at fair value through    other comprehensive income (loss) (Note 25)		(2	)		37			127
Foreign currency translation differences of subsidiaries		(329	)		(27	)		23
Net transactions on cash flow hedges:		(725	)		(306	)		(256	)
Net fair value losses on cash flow hedges (Note 28)		(967	)		(433	)		(330	)
Income tax related to fair value adjustments charged directly to equity (Note 7)		242			127			74
Net other comprehensive loss to be reclassified to profit or loss    in subsequent years		(1,056	)		(296	)		(106	)
Actuarial gains (losses) on defined benefit obligations:		2,908			(3,957	)		(6,074	)
Remeasurement in actuarial losses on defined benefit obligations (Note 26)		3,879			(5,640	)		(8,672	)
Income tax related to remeasurement adjustments (Note 7)		(971	)		1,683			2,598
Revaluation increment on investment properties:		—			—			(2	)
Depreciation of revaluation increment in investment properties    transferred to property and equipment (Note 9)		—			(1	)		(3	)
Income tax related to revaluation increment charged directly to equity (Note 7)		—			1			1
Share in the other comprehensive income (loss) of associates and    joint ventures accounted for using the equity method (Note 11)		23			(37	)		—
Fair value adjustment on sale of property and equipment:		(108	)		—			—
Fair value adjustment on sale of property and equipment (Note 26)		(144	)		—			—
Income tax related to fair value adjustment on sale of property    and equipment		36			—			—
Net other comprehensive loss not to be reclassified to profit or loss in    subsequent years		2,823			(3,994	)		(6,076	)
Total Other Comprehensive Income (Loss) – Net of Tax		1,767			(4,290	)		(6,182	)
Tax adjustments due to Corporate Recovery and Tax Incentives for Enterprises,    or CREATE, Act		(2,546	)		—			—
TOTAL COMPREHENSIVE INCOME		25,897			20,290			16,604
ATTRIBUTABLE TO:
Equity holders of PLDT		25,582			20,000			16,343
Noncontrolling interests		315			290			261
		25,897			20,290			16,604

See accompanying Notes to Consolidated Financial Statements.

F-11

PLDT INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Years Ended December 31, 2021, 2020 and 2019

(in million pesos)

	Preferred Stock		Common Stock		Treasury Stock			Treasury Shares under Employee Benefit Trust			Capital in Excess of Par Value			Other Equity Reserves			Retained Earnings			Other Comprehensive Loss			Total Equity Attributable to Equity Holders of PLDT			Noncontrolling Interests			Total Equity
Balances as at January 1, 2021		510		1,093		(6,505	)		(21	)		130,312			19			25,652			(35,652	)		115,408			4,257			119,665
Treasury shares under employee benefit trust    (Note 26)		—		—		—			21			—			—			—			—			21			—			21
Cash dividends (Note 20)		—		—		—			—			—			—			(17,776	)		—			(17,776	)		(84	)		(17,860	)
Total comprehensive income (loss):		—		—		—			—			—			—			26,367			(785	)		25,582			315			25,897
Net income (Note 8)		—		—		—			—			—			—			26,367			—			26,367			309			26,676
Other comprehensive income (loss) (Note 6)		—		—		—			—			—			—			—			(785	)		(785	)		6			(779	)
Other equity reserves		—		—		—			—			—			(19	)		—			—			(19	)		—			(19	)
Distribution charges on perpetual notes (Note 20)		—		—		—			—			—			—			—			—			—			(236	)		(236	)
Acquisition and dilution of noncontrolling interests		—		—		—			—			—			—			—			—			—			(3	)		(3	)
Balances as at December 31, 2021		510		1,093		(6,505	)		—			130,312			—			34,243			(36,437	)		123,216			4,249			127,465
Balances as at January 1, 2020		510		1,093		(6,505	)		(394	)		130,312			276			18,063			(31,368	)		111,987			4,303			116,290
Treasury shares under employee benefit trust    (Note 26)		—		—		—			373			—			—			—			—			373			—			373
Other equity reserves (Note 26)		—		—		—			—			—			(257	)		—			—			(257	)		—			(257	)
Cash dividends (Note 20)		—		—		—			—			—			—			(16,695	)		—			(16,695	)		(90	)		(16,785	)
Total comprehensive income (loss):		—		—		—			—			—			—			24,284			(4,284	)		20,000			290			20,290
Net income (Note 8)		—		—		—			—			—			—			24,284			—			24,284			296			24,580
Other comprehensive loss (Note 6)		—		—		—			—			—			—			—			(4,284	)		(4,284	)		(6	)		(4,290	)
Distribution charges on perpetual notes (Note 20)		—		—		—			—			—			—			—			—			—			(236	)		(236	)
Acquisition and dilution of noncontrolling interests		—		—		—			—			—			—			—			—			—			(10	)		(10	)
Balances as at December 31, 2020		510		1,093		(6,505	)		(21	)		130,312			19			25,652			(35,652	)		115,408			4,257			119,665
Balances as at January 1, 2019 (as previously stated)		510		1,093		(6,505	)		(854	)		130,526			697			12,081			(25,190	)		112,358			4,308			116,666
Effect of adoption of IFRS 16		—		—		—			—			—			—			(924	)		—			(924	)		—			(924	)
Balances as at January 1, 2019 (as restated)		510		1,093		(6,505	)		(854	)		130,526			697			11,157			(25,190	)		111,434			4,308			115,742
Treasury shares under employee benefit trust    (Note 26)		—		—		—			460			(130	)		—			—			—			330			—			330
Other equity reserves (Note 26)		—		—		—			—			—			(421	)		—			—			(421	)		—			(421	)
Cash dividends (Note 20)		—		—		—			—			—			—			(15,615	)		—			(15,615	)		(15	)		(15,630	)
Total comprehensive income (loss):		—		—		—			—			—			—			22,521			(6,178	)		16,343			261			16,604
Net income (Note 8)		—		—		—			—			—			—			22,521			—			22,521			265			22,786
Other comprehensive loss (Note 6)		—		—		—			—			—			—			—			(6,178	)		(6,178	)		(4	)		(6,182	)
Distribution charges on perpetual notes (Note 20)		—		—		—			—			—			—			—			—			—			(236	)		(236	)
Acquisition and dilution of noncontrolling interests		—		—		—			—			(84	)		—			—			—			(84	)		(15	)		(99	)
Balances as at December 31, 2019		510		1,093		(6,505	)		(394	)		130,312			276			18,063			(31,368	)		111,987			4,303			116,290

See accompanying Notes to Consolidated Financial Statements.

F-12

PLDT INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2021, 2020 and 2019

(in million pesos)

	2021			2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax		34,154			33,021			32,336
Adjustments for:
Depreciation and amortization (Notes 9 and 10)		52,169			47,480			39,656
Interest on loans and other related items – net (Note 5)		8,900			8,736			7,275
Asset impairment (Note 5)		4,985			7,646			4,833
Foreign exchange losses (gains) – net (Notes 5 and 28)		3,890			(1,488	)		(424	)
Amortization of intangible assets (Notes 5 and 15)		2,822			2,496			758
Pension benefit costs (Notes 5 and 26)		2,213			2,218			1,018
Incentive plan (Notes 5 and 26)		1,186			1,134			638
Accretion on lease liabilities (Notes 5, 10 and 29)		1,170			1,125			1,061
Equity share in net losses of associates and joint ventures (Notes 5 and 11)		1,101			2,328			1,535
Accretion on financial liabilities (Notes 5 and 21)		239			146			122
Impairment of investments (Note 11)		60			60			34
Interest income (Note 5)		(656	)		(1,210	)		(1,745	)
Gains on dilution of shares (Notes 5 and 11)		(826	)		(394	)		—
Losses (gains) on disposal of property and equipment (Notes 4, 5 and 9)		(884	)		(3,369	)		88
Losses (gains) on derivative financial instruments – net (Notes 5 and 28)		(1,400	)		378			284
Investment derecognized (Note 12)		—			599			—
Others		(2,254	)		(3,072	)		696
Operating income before changes in assets and liabilities		106,869			97,834			88,165
Decrease (increase) in:
Prepayments		(34,002	)		(18,894	)		(28,898	)
Contract assets		(38	)		160			337
Trade and other receivables		(3,713	)		(585	)		(1,560	)
Other financial and non-financial assets		(120	)		324			(198	)
Inventories and supplies		57			(1,017	)		12
Increase (decrease) in:
Customer's deposits		(101	)		166			12
Pension and other employee benefits		(3,846	)		(249	)		(7,965	)
Other noncurrent liabilities		(95	)		5,220			(1,559	)
Accounts payable		29,382			(2,813	)		18,768
Accrued expenses and other current liabilities		(301	)		7,178			4,375
Net cash flows generated from operations		94,092			87,324			71,489
Income taxes paid		(2,122	)		(2,248	)		(2,097	)
Net cash flows from operating activities		91,970			85,076			69,392

See accompanying Notes to Consolidated Financial Statements.

F-13

PLDT INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

For the Years Ended December 31, 2021, 2020 and 2019

(in million pesos)

	2021			2020			2019
CASH FLOWS USED IN INVESTING ACTIVITIES
Interest received		714			1,106			1,723
Proceeds from:
Maturity of short-term investments		2,518			4,375			1,415
Disposal of property and equipment (Note 9)		1,217			5,830			224
Redemption of investment in debt securities (Note 13)		993			150			—
Disposal of financial assets at fair value through profit or loss (Note 12)		482			2,020			1,023
Disposal of investments in associates and joint ventures		359			—			—
Collection of financial assets at fair value through other comprehensive income		170			2,534			1,771
Dividends received (Note 11)		—			316			—
Disposal of investment properties (Note 14)		—			—			11
Payments for:
Purchase of investment in debt securities (Note 13)		(404	)		(1,194	)		—
Interest capitalized to property and equipment (Notes 5, 9 and 29)		(1,582	)		(1,597	)		(1,455	)
Acquisition of investments in associates and joint ventures (Note 11)		(1,754	)		(579	)		(20	)
Purchase of short-term investments		(3,847	)		(5,147	)		(572	)
Purchase of property and equipment (Note 9)		(102,395	)		(76,503	)		(88,246	)
Acquisition of investments in subsidiaries – net of cash acquired (Note 11)		—			—			(80	)
Net additions to right-of-use assets (Note 10)		—			—			(145	)
Decrease (increase) in other financial and non-financial assets		(111	)		20			35
Net cash flows used in investing activities		(103,640	)		(68,669	)		(84,316	)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Proceeds from:
Availments of long-term debt (Notes 21 and 29)		51,500			61,271			37,500
Availments of short-term debt (Note 21)		—			10,000			—
Payments for:
Derivative financial instruments (Notes 28 and 29)		(25	)		(430	)		(50	)
Distribution charges on perpetual notes (Note 20)		(236	)		(236	)		(236	)
Debt issuance costs (Notes 21 and 29)		(397	)		(927	)		(195	)
Obligations under lease liabilities (Notes 10 and 29)		(6,547	)		(5,781	)		(5,399	)
Interest – net of capitalized portion (Notes 5, 21 and 29)		(8,922	)		(8,348	)		(7,143	)
Cash dividends (Notes 20 and 29)		(17,712	)		(16,721	)		(15,592	)
Long-term debt (Notes 21 and 29)		(22,565	)		(28,365	)		(20,494	)
Short-term debt (Note 21)		—			(10,000	)		—
Increase in treasury shares under employee trust benefits		—			—			(4	)
Net cash flows from (used in) financing activities		(4,904	)		463			(11,613	)
NET EFFECT OF FOREIGN EXCHANGE RATE CHANGES    ON CASH AND CASH EQUIVALENTS		244			(1,002	)		(748	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(16,330	)		15,868			(27,285	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR (Note 16)		40,237			24,369			51,654
CASH AND CASH EQUIVALENTS AT END OF THE YEAR (Note 16)		23,907			40,237			24,369

See accompanying Notes to Consolidated Financial Statements.

F-14

PLDT INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate Information

PLDT Inc. (formerly Philippine Long Distance Telephone Company), which we refer to as PLDT or the Parent Company, was incorporated under the old Corporation Law of the Philippines (Act 1459, as amended) on November 28, 1928, following the merger of four telephone companies under common U.S. ownership.  PLDT has a perpetual corporate term pursuant to Section 11 of the Revised Corporation Code of the Philippines (Republic Act No. 11232), which entitles existing corporations to have a perpetual existence, unless the corporation, upon a vote of its stockholders representing a majority of its outstanding capital stock, notifies the Philippine Securities and Exchange Commission, or Philippine SEC, that the corporation elects to retain its specific corporate term pursuant to its articles of incorporation.  While PLDT’s amended Articles of Incorporation states that its corporate term is limited to 50 years from the date of incorporation on November 28, 1928, and another term of 50 years from November 28, 1978, PLDT has not elected to retain such specific corporate term. In 1967, effective control of PLDT was sold by the General Telephone and Electronics Corporation, then a major shareholder since PLDT’s incorporation, to a group of Filipino businessmen.  In 1981, in furtherance of the then existing policy of the Philippine government to integrate the Philippine telecommunications industry, PLDT purchased substantially all of the assets and liabilities of the Republic Telephone Company, which at that time was the second largest telephone company in the Philippines.  In 1998, certain subsidiaries of First Pacific Company Limited, or First Pacific, and its Philippine affiliates (collectively the First Pacific Group and its Philippine affiliates), acquired a significant interest in PLDT.  On March 24, 2000, NTT Communications Corporation, or NTT Communications, through its wholly-owned subsidiary NTT Communications Capital (UK) Ltd., became PLDT’s strategic partner with approximately 15% economic and voting interest in the issued and outstanding common stock of PLDT at that time.  Simultaneous with NTT Communications’ investment in PLDT, the latter acquired 100% of Smart Communications, Inc., or Smart.  On March 14, 2006, NTT DOCOMO, Inc., or NTT DOCOMO, acquired from NTT Communications approximately 7% of PLDT’s then outstanding common shares held by NTT Communications with NTT Communications retaining ownership of approximately 7% of PLDT’s common shares.  Since March 14, 2006, NTT DOCOMO has made additional purchases of shares of PLDT, and together with NTT Communications beneficially owned approximately 20% of PLDT’s outstanding common stock as at December 31, 2021.  NTT Communications and NTT DOCOMO are subsidiaries of NTT Holding Company.  On February 28, 2007, Metro Pacific Asset Holdings, Inc., a Philippine affiliate of First Pacific, completed the acquisition of an approximately 46% interest in Philippine Telecommunications Investment Corporation, or PTIC, a shareholder of PLDT.  This investment in PTIC represented an attributable interest of approximately 6% of the then outstanding common shares of PLDT and thereby raised First Pacific Group’s and its Philippine affiliates’ beneficial ownership to approximately 28% of PLDT’s outstanding common stock as at that date.  Since then, First Pacific Group’s beneficial ownership interest in PLDT decreased by approximately 2%, mainly due to the holders of Exchangeable Notes, which were issued in 2005 by a subsidiary of First Pacific and exchangeable into PLDT shares owned by First Pacific Group, who fully exchanged their notes.  First Pacific Group and its Philippine affiliates had beneficial ownership of approximately 26% in PLDT’s outstanding common stock as at December 31, 2021.  On October 26, 2011, PLDT completed the acquisition of a controlling interest in Digital Telecommunications Phils., Inc., or Digitel, from JG Summit Holdings, Inc., or JGSHI, and its affiliates, or JG Summit Group.  As payment for the assets acquired from JGSHI, PLDT issued approximately 27.7 million common shares.  In November 2011, JGSHI sold 5.81 million and 4.56 million PLDT shares to a Philippine affiliate of First Pacific and NTT DOCOMO, respectively, pursuant to separate option agreements that JGSHI had entered into with a Philippine affiliate of First Pacific and NTT DOCOMO, respectively.  As at December 31, 2021, the JG Summit Group beneficially owned approximately 11% of PLDT’s outstanding common shares.  

On October 16, 2012, BTF Holdings, Inc., or BTFHI, a wholly-owned company of the Board of Trustees for the Account of the Beneficial Trust Fund, or PLDT Beneficial Trust Fund, created pursuant to PLDT’s Benefit Plan, subscribed to 150 million newly issued shares of Voting Preferred Stock of PLDT, or Voting Preferred Shares, at a subscription price of Php1.00 per share for a total subscription price of Php150 million pursuant to a subscription agreement between BTFHI and PLDT dated October 15, 2012.  As a result of the issuance of Voting Preferred Shares, the voting power of the NTT Group (NTT DOCOMO and NTT Communications), First Pacific Group and its Philippine affiliates, and JG Summit Group was reduced to 12%, 15% and 7%, respectively, as at December 31, 2021.  See Note 20 – Equity – Preferred Stock – Voting Preferred Stock.

F-15

The common shares of PLDT are listed and traded on the Philippine Stock Exchange, Inc., or PSE.  On October 19, 1994, an American Depositary Receipt, or ADR, facility was established, pursuant to which Citibank N.A., as the depositary, issued American Depositary Shares, or ADSs, with each ADS representing one PLDT common share with a par value of Php5.00 per share.  Effective February 10, 2003, PLDT appointed JP Morgan Chase Bank as successor depositary for PLDT’s ADR facility.  The ADSs are listed on the New York Stock Exchange, or NYSE, in the United States and are traded on the NYSE under the symbol “PHI”.  There were approximately 17.4 million ADSs outstanding as at December 31, 2021.

PLDT and our Philippine-based fixed line and wireless subsidiaries operate under the jurisdiction of the Philippine National Telecommunications Commission, or NTC, which jurisdiction extends, among other things, to approving major services offered and certain rates charged to customers.

We are the largest and most diversified telecommunications company in the Philippines which delivers data and multi-media services nationwide.  We have organized our business into business units based on our products and services and have three reportable operating segments which serve as the bases for management’s decision to allocate resources and evaluate operating performance.  Our principal activities are discussed in Note 4 – Operating Segment Information.

Our registered office address is Ramon Cojuangco Building, Makati Avenue, Makati City, Philippines.  Information on our structure is provided in Note 2 – Summary of Significant Accounting Policies – Basis of Consolidation.  Information on other related party relationships of the PLDT Group is provided in Note 25 – Related Party Transactions.

Our consolidated financial statements as at December 31, 2021 and 2020, and for the years ended December 31, 2021, 2020 and 2019 were approved and authorized for issuance by the Board of Directors on March 22, 2022 as reviewed by the Audit Committee on March 21, 2022.

Amendments to the Articles of Incorporation

On April 8, 2020 and June 9, 2020, the Board of Directors and stockholders, respectively, approved the amendment of the Second Article of the Articles of Incorporation of PLDT, or the Amendment, (a) to reflect the current focus of PLDT’s business, which is the provision of telecommunications services through trending and constantly evolving technologies and innovative products and services; and (b) to allow sufficient flexibility for the PLDT business units to design their operations and expand their products and services by constantly transforming PLDT from being the country’s leading telecommunications company to a dynamic and customer-centric multi-media organization.

On November 24, 2020, the Amendment of the Articles of Incorporation of PLDT was approved by the Philippine SEC.

Amendments to the By-Laws

On March 25, 2021, the Board of Directors approved the amendments to the By-Laws of PLDT to conform with the provision of Republic Act No. 11232.  On July 9, 2021, the application for the amendment of the By-Laws of PLDT was submitted to the Philippine SEC for review and approval.  The application is still pending to date.

2. Summary of Significant Accounting Policies

Basis of Preparation

Our consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, or IFRSs, as issued by the International Accounting Standards Board, or IASB.  

Our consolidated financial statements have been prepared under the historical cost basis, except for financial instruments at fair value through profit or loss, or FVPL, financial instruments at fair value through other comprehensive income, or FVOCI, and investment properties that are measured at fair values.

F-16

Our consolidated financial statements are presented in Philippine Peso, PLDT’s functional currency, and all values are rounded to the nearest million, except when otherwise indicated.

Our consolidated financial statements provide comparative information in respect of the previous period.

F-17

Basis of Consolidation

Our consolidated financial statements include the financial statements of PLDT and the following subsidiaries (collectively, the “PLDT Group”) as at December 31, 2021 and 2020:

F-18

			2021				2020
	Place of		Percentage of Ownership
Name of Subsidiary	Incorporation	Principal Business Activity	Direct		Indirect		Direct		Indirect
Wireless
Smart:	Philippines	Cellular mobile services		100.0		—		100.0		—
Smart Broadband, Inc., or SBI, and Subsidiary	Philippines	Internet broadband distribution services		—		100.0		—		100.0
Primeworld Digital Systems, Inc., or PDSI	Philippines	Internet broadband distribution services		—		100.0		—		100.0
I-Contacts Corporation	Philippines	Operations support servicing business		—		100.0		—		100.0
Far East Capital Limited, or FECL(a)	Cayman Islands	Cost effective offshore financing and    risk management activities for Smart		—		100.0		—		100.0
PH Communications Holdings Corporation	Philippines	Investment company		—		100.0		—		100.0
Connectivity Unlimited Resource Enterprise	Philippines	Cellular mobile services		—		100.0		—		100.0
Francom Holdings, Inc.	Philippines	Investment company		—		100.0		—		100.0
Chikka Holdings Limited, or Chikka, and Subsidiaries, or    Chikka Group(a)	British Virgin Islands	Content provider, mobile applications    development and services		—		100.0		—		100.0
Wifun, Inc.	Philippines	Software developer and selling    of WiFi access equipment		—		100.0		—		100.0
PLDT Global, Inc.(b)	Philippines	Cross-border digital platforms and other allied services		100.0		—		100.0		—
ACeS Philippines Cellular Satellite Corporation, or    ACeS Philippines	Philippines	Satellite information and messaging services		88.5		11.5		88.5		11.5
Digitel Mobile Philippines, Inc., or DMPI,    (a wholly-owned subsidiary of Digitel)	Philippines	Cellular mobile services		—		99.6		—		99.6
Fixed Line
PLDT Clark Telecom, Inc., or ClarkTel	Philippines	Telecommunications services		100.0		—		100.0		—
PLDT Subic Telecom, Inc., or SubicTel	Philippines	Telecommunications services		100.0		—		100.0		—
PLDT Global Corporation, or PLDT Global, and Subsidiaries	British Virgin Islands	Telecommunications services		100.0		—		100.0		—
Smart-NTT Multimedia, Inc.(a)	Philippines	Data and network services		100.0		—		100.0		—
PLDT-Philcom, Inc., or Philcom, and Subsidiaries, or    Philcom Group	Philippines	Telecommunications services		100.0		—		100.0		—
Talas Data Intelligence, Inc.	Philippines	Business infrastructure and solutions;    intelligent data processing and    implementation services and data    analytics insight generation		100.0		—		100.0		—
ePLDT, Inc., or ePLDT:	Philippines	Information and communications    infrastructure for internet-based    services, e-commerce, customer    relationship management and IT    related services		100.0		—		100.0		—
IP Converge Data Services, Inc., or IPCDSI, and Subsidiary,    or IPCDSI Group	Philippines	Information and communications    infrastructure for internet-based    services, e-commerce, customer    relationship management and IT    related services		—		100.0		—		100.0

F-19

Curo Teknika, Inc., or Curo	Philippines	Managed IT outsourcing	—	100.0	—	100.0
ABM Global Solutions, Inc., or AGS, and Subsidiaries,    or AGS Group	Philippines	Internet-based purchasing, IT    consulting and professional services	—	100.0	—	100.0
ePDS, Inc., or ePDS	Philippines	Bills printing and other related    value-added services, or VAS	—	100.0	—	100.0
netGames, Inc.(a)	Philippines	Gaming support services	—	57.5	—	57.5
MVP Rewards Loyalty Solutions, Inc., or MRSI	Philippines	Full-services customer rewards and loyalty    programs	—	100.0	—	100.0
Digitel:	Philippines	Telecommunications services	99.6	—	99.6	—
Digitel Information Technology Services, Inc.(a)	Philippines	Internet services	—	99.6	—	99.6
PLDT-Maratel, Inc., or Maratel	Philippines	Telecommunications services	98.0	—	98.0	—
Bonifacio Communications Corporation, or BCC	Philippines	Telecommunications, infrastructure and related    VAS	75.0	—	75.0	—
Pacific Global One Aviation Company, Inc., or PG1	Philippines	Air transportation business	65.3	—	65.3	—
Pilipinas Global Network Limited, or PGNL, and Subsidiaries	British Virgin Islands	International distributor of Filipino    channels and content	64.6	—	64.6	—
Others
PLDT Global Investments Holdings, Inc., or PGIH	Philippines	Investment company	100.0	—	100.0	—
PLDT Digital Investments Pte. Ltd., or PLDT Digital,    and Subsidiaries	Singapore	Investment company	100.0	—	100.0	—
Mabuhay Investments Corporation(a)	Philippines	Investment company	67.0	—	67.0	—
PLDT Global Investments Corporation, or PGIC	British Virgin Islands	Investment company	—	100.0	—	100.0
PLDT Communications and Energy Ventures, Inc., or PCEV	Philippines	Investment company	—	99.9	—	99.9

^(a) Ceased commercial operations.

^(b) On June 30, 2021, the Philippine SEC approved the amendment of Telesat, Inc.’s Articles of Incorporation, resulting to the adoption of (i) a new corporate name —“PLDT Global Inc.”; and (ii) a revised primary purpose stating that the Company will now be in the business of providing various cross-border digital platforms and other allied services for global customers, especially for overseas/offshore Filipinos.

F-20

Subsidiaries are fully consolidated from the date of acquisition, being the date on which PLDT obtains control, and continue to be consolidated until the date that such control ceases.  We control an investee when we are exposed, or have rights, to variable returns from our involvement with the investee and when we have the ability to affect those returns through our power over the investee.

The financial statements of our subsidiaries are prepared for the same reporting period as PLDT.  We prepare our consolidated financial statements using uniform accounting policies for like transactions and other events with similar circumstances.  

Profit or loss and each component of other comprehensive income are attributed to the equity holders of PLDT and to the noncontrolling interests, even if this results in the noncontrolling interests having a deficit balance.  

Noncontrolling interests share in losses even if the losses exceed the noncontrolling equity interest in the subsidiary.

A change in the ownership interest of a subsidiary, without loss of control, is accounted for as an equity transaction and impact is presented as part of other equity reserves.

If PLDT loses control over a subsidiary, it: (a) derecognizes the assets (including goodwill) and liabilities of the subsidiary; (b) derecognizes the carrying amount of any noncontrolling interest; (c) derecognizes the cumulative translation differences recorded in equity; (d) recognizes the fair value of the consideration received; (e) recognizes the fair value of any investment retained; (f) recognizes any surplus or deficit in profit or loss; and (g) reclassifies the Parent Company’s share of components previously recognized in other comprehensive income to profit or loss or retained earnings, as appropriate.

Expiration of SubicTel’s Franchise

Effective January 23, 2020, SubicTel ceased to operate as a telecommunications service provider, pursuant to the expiration of its franchise issued by the Subic Bay Metropolitan Authority, or SBMA.  In order to facilitate continued customer service, arrangements have been made between SubicTel and PLDT where PLDT would make its services available to the affected SubicTel subscribers on a voluntary basis, and SubicTel assigned its assets and subscribers to PLDT for a consideration of Php622 million.  The NTC did not object to the transfer of SubicTel’s subscribers to PLDT, subject to certain conditions.  Likewise, the SBMA Board approved the issuance of Certificate of Registration to PLDT to operate within SBMA.  The PLDT Board of Directors had approved the acquisition of the assets and subscribers of SubicTel on September 24, 2019.  This transaction was eliminated in our consolidated financial statements.

Expiration of Maratel’s Legislative Franchise

Effective April 27, 2020, Maratel ceased to operate as a telecommunications service provider, following the expiration of its legislative franchise, Republic Act No. 7970.  In order to ensure continued customer service, Maratel assigned its assets and subscribers to PLDT for a consideration of Php500 million.  The NTC did not object to the transfer of Maratel subscribers to PLDT, subject to certain conditions.  The PLDT Board of Directors had approved the acquisition of Maratel’s assets and subscribers on November 7, 2019.  This transaction was eliminated in our consolidated financial statements.

Corona Virus, or COVID-19, Pandemic

On March 8, 2020, Presidential Proclamation No. 922 was issued, declaring a State of Public Health Emergency throughout the Philippines due to COVID-19.  In a move to contain the COVID-19 pandemic, on March 12, 2020, the Office of the President of the Philippines issued a memorandum directive to impose stringent social distancing measures in the National Capital Region, or NCR, effective March 15, 2020. On March 16, 2020, Presidential Proclamation No. 929 was issued, declaring a State of Calamity throughout the Philippines for a period of six months from March 17, 2020 (at midnight), unless earlier lifted or extended as circumstances may warrant, and imposed an enhanced community quarantine, or ECQ, throughout the island of Luzon until April 12, 2020, unless earlier lifted or extended as circumstances may warrant. On March 24,

F-21

2020, Republic Act No. 11469, otherwise known as the “Bayanihan to Heal As One Act”, was signed into law, declaring a state of national emergency over the entire country, and authorizing the President of the Philippines to exercise certain powers necessary to address the COVID-19 pandemic. On April 7, 2020, the Office of the President of the Philippines released a memorandum extending the ECQ over the entire Luzon island until April 30, 2020.  On May 1, 2020, the Government further extended the ECQ over, among others, certain portions of Luzon, including Metro Manila, until May 15, 2020, while easing restrictions in other parts of the country. On May 11, 2020, the Inter-Agency Task Force for the Management of Emerging Infectious Diseases, or IATF, placed high-risk local government units under modified ECQ, or MECQ, from May 16, 2020 until May 31, 2020, where certain industries were allowed to operate under strict compliance with minimum safety standards and protocols. On May 27, 2020, the IATF reclassified various provinces, Highly Urbanized Cities, or HUCs, and independent component cities, or ICCs, depending on the risk-level. Meanwhile, on May 28, 2020, the Government placed Metro Manila under general community quarantine, or GCQ, allowing for the partial reopening of certain businesses and public transportation while continuing to limit general movements. Pursuant to the declaration of the President on August 2, 2020, the NCR and the provinces of Laguna, Cavite, Rizal and Bulacan were placed under MECQ from August 4, 2020 until August 18, 2020.  On August 17, 2020, the President placed Metro Manila, Bulacan, Cavite, Rizal, Nueva Ecija, Batangas, Quezon Province, Iloilo City, Cebu City, Lapu-Lapu City, Mandaue City, Talisay City, the municipalities of Minglanilla and Consolacion in Cebu under GCQ. The rest of the country was placed under modified GCQ, or MGCQ, effective August 19, 2020. The period of GCQ for Metro Manila was extended until November 30, 2020.  On December 1, 2020, by order of the President, the Executive Secretary issued a Memorandum, advising that the President, taking into consideration the recommendation of the IATF, had approved the community quarantine classification of provinces, HUCs, and ICCs from December 1 to 31, 2020 as indicated therein. Under said Memorandum, all HUCs of the NCR, the Municipality of Pateros, Batangas, Iloilo City, Tacloban City, Iligan City, Lanao del Sur Province, Davao City and Davao del Norte Province were placed under GCQ, while the rest of the areas listed thereunder were placed under MGCQ, without prejudice to the declaration of localized ECQ in critical areas.

On September 15, 2020, Republic Act No. 11494 or the “Bayanihan to Recover As One Act” took effect, providing for COVID-19 response and recovery interventions and providing mechanisms to accelerate the recovery and bolster the resiliency of the Philippine economy, providing funds therefore and for other purposes. Apart from authorizing the President to exercise powers necessary to undertake certain COVID-19 response and recovery interventions, Republic Act No. 11494 also affirmed the existence of a continuing national emergency, in view of unabated spread of the COVID-19 virus and the ensuing economic disruption therefrom.

On September 16, 2020, Presidential Proclamation No. 1021 was issued, extending the State of Calamity throughout the Philippines due to COVID-19 for a period of one-year effective September 13, 2020 to September 12, 2021, unless earlier lifted or extended as circumstances may warrant.

On September 3, 2021, the IATF approved the shift in the policy in classifying provinces, HUC, and ICCs for purposes of community quarantine, wherein the new classification framework focuses on the imposition of granular lockdown measures and having an alert-level system (alert level 1 to 4), with each alert level limiting restrictions only to identified high-risk activities.  The National Capital Region was designated as the pilot area of implementation, effective September 16, 2021.  Effective October 20, 2021, the pilot area of implementation of the alert level systems was expanded to selected provinces, HUCs and ICCs outside of NCR.  On November 11, 2021, the IATF approved the nationwide implementation of the alert-level system.

These and other measures have affected and caused disruption to businesses and economic activities, and their impacts on businesses continue to evolve.  See Amendments to IFRS 16, Leases, COVID-19 Related Rent Concessions Beyond June 30, 2021, Note 3 – Estimating allowance for expected credit losses and Note 5 – Income and expenses – Contract balances.

To provide our customers with connectivity when they need it the most, we provided zero-rated access to certain Government agencies and emergency hotlines, boosted minimum speeds for our eligible PLDT Home subscribers, increased data allocations for postpaid and prepaid customers, equipped our corporate customers with telecommuting solutions, and for our Overseas Filipino Workers, extended the duration of free calls through our Free Bee app.  On May 1, 2020, we implemented a six-month installment payment program for the outstanding monthly bills of our postpaid subscribers.  Under this payment program, PLDT Home, Smart

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consumer postpaid, and Sun consumer postpaid subscribers can settle their unpaid balances as at April 30, 2020 in six equal monthly payments with 0% interest and no penalties.  This program was further extended for two months that ended on December 31, 2020.  In cases where our service teams need to enter customers’ homes or business premises, we have equipped them with protective gear such as face masks and gloves.  Members of our service teams have also been trained in the proper health protocols for before, during, and after site visits, including maintaining proper social distances with customers at all times.

We have implemented limited access to our corporate premises. We have allowed a hybrid of work-from-home and work on-site arrangements. To ensure minimal disruption to our operations, we have taken steps to ensure that employees working from home are properly equipped with the appropriate digital equipment, including internet connection. For the employees that continue to work on-site, we have taken steps to try and minimize their risk of exposure to the COVID-19 disease. We have also rolled-out the vaccination program for our employees and their dependents and household members who were enrolled in the program. These and other measures remain in place to protect our employees, as well as our customers.

Total expenses related to our COVID-19 measures amounted to Php942 million and Php903 million for the years ended December 31, 2021 and 2020, respectively.

Sun Prepaid Rebranding to Smart Prepaid

On October 21, 2020, Smart and DMPI entered into a Rebranding Agreement wherein Sun Prepaid subscribers were rebranded as Smart Prepaid subscribers.  The brand consolidation under Smart aims to capitalize on Smart’s robust mobile data network to provide superior mobile data experience to all Sun subscribers and achieve cost efficiency in brand management.

Post-rebranding, the ownership of Sun Prepaid subscribers remains under DMPI.  Under the terms of the agreement, Smart will settle a fixed fee representing DMPI’s proportionate share on the distributed subscriber revenues.  This transaction was eliminated in our consolidated financial statements.

As a result of the rebranding, PLDT reassessed the useful life of the Sun Trademark arising from the acquisition of Digitel in 2011 amounting to Php4,505 million.  The Sun Trademark, which had been previously projected to be of continued use and accordingly estimated to be with indefinite life was amortized over a period of 12 months starting August 2020.  Total amortization of the Sun Trademark amounted to Php2,628 million and Php1,877 million for the years ended December 31, 2021 and 2020, respectively.  See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Estimating useful lives of intangible assets with finite lives and Note 15 – Goodwill and Intangible Assets – Amortization of Sun Cellular Trademark.

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Sale of PLDT Prepaid HOME WiFi, or PHW, Subscribers to Smart

On January 29, 2021, PLDT and Smart entered into a Sale/Purchase Agreement on the transfer of PLDT’s 748 thousand PHW subscribers to Smart to consolidate fixed wireless services under Smart in order to optimize shared resources for wireless broadband, have seamless upgrades and cross-selling of products for simplified customer experience and to better manage network costs and wireless network capacity.

The agreement took effect on February 1, 2021 and the PHW subscribers were transferred on March 1, 2021 after complying with the NTC’s required 30-day notice to subscribers.  The initial purchase price for the transfer, together with the PHW inventories and unearned revenues, amounted to Php1,455 million, exclusive of value-added tax.  The transaction price was based on December 31, 2020 balances.

The parties also agreed that any difference between these values as at December 31, 2020 and the values as of cut-off date will have to be confirmed between Smart and PLDT.  The final purchase price amounted to Php1,336 million, plus value-added tax, and was reviewed by an independent party, Isla Lipana & Co., an independent auditing firm, and confirmed to be made on an arm’s length basis.  This transaction is eliminated in our consolidated financial statements.

Amended Standards

The accounting policies adopted are consistent with those of the previous financial year, except that we have adopted the following amended standards starting January 1, 2021.  The adoption of these amended standards did not have significant impact on our financial position or performance.    

• Amendments to IFRS 9, Financial Instruments, IFRS 7, Financial Instruments: Disclosures, IFRS 4, Insurance Contracts, and IFRS 16, Leases – Interest Rate Benchmark Reform – Phase 2

The amendments provide the following temporary reliefs which address the financial reporting effects when an interbank offered rate, or IBOR, is replaced with an alternative nearly risk-free interest rate, or RFR.

a) Practical expedient for changes in the basis for determining the contractual cash flows as a result of IBOR reform;

b) Relief from discontinuing hedging relationships; and

c) Relief from the separately identifiable requirement when an RFR instrument is designated as a hedge of a risk component.

We shall also disclose information about:

a) The nature and extent of risks to which the entity is exposed arising from financial instruments subject to IBOR reform, and how the entity manages those risks; and

b) Their progress in completing the transition to alternative benchmark rates, and how the entity is managing that transition.

We adopted these amendments beginning January 1, 2021. These amendments apply to some of our financial instruments which are linked to the old interest rate benchmark.  However, we have outstanding financial instruments linked to the three-month and six-month LIBOR that will cease to be provided after June 30, 2023.  The financial instruments that will mature beyond the discontinuance of the said LIBOR rates will be amended accordingly.  Therefore, the amendments have no significant impact on our consolidated financial statements.  

Effective April 1, 2021

• Amendments to IFRS 16, Leases, COVID-19 Related Rent Concessions Beyond June 30, 2021

The amendment provides relief to lessees from applying the IFRS 16 requirement on lease modifications to rent concessions arising as a direct consequence of the COVID-19 pandemic.  A lessee may elect not to assess whether a rent concession from a lessor is a lease modification if it meets all of the following criteria:

a) The rent concession is a direct consequence of COVID-19;

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b) The change in lease payments results in a revised lease consideration that is substantially the same as, or less than, the lease consideration immediately preceding the change;

c) Any reduction in lease payments affects only payments originally due on or before
June 30, 2022; and

d) There is no substantive change to other terms and conditions of the lease.

A lessee that applies this practical expedient will account for any change in lease payments resulting from the COVID-19 related rent concession in the same way it would account for a change that is not a lease modification, i.e., as a variable lease payment.

The amendments are effective for annual reporting periods beginning on or after April 1, 2021.  Early adoption is permitted.

We adopted the amendments beginning April 1, 2021 and applied the practical expedient where rent concessions as a result of the COVID-19 pandemic that meets the criteria above shall not be considered as a lease modification. We continued to apply the said amendment for rent concessions beyond June 30, 2021.

Lessors have granted forgiveness on lease payments as an effect of the COVID-19 pandemic.  The rent concessions for PLDT amounted to Php3 million and Php15 million for the years ended December 31, 2021 and 2020, respectively.  The rent concessions for Smart and DMPI amounted to nil and Php122 million for the years ended December 31, 2021 and 2020, respectively.

Summary of Significant Accounting Policies

The following is the summary of significant accounting policies we applied in preparing our consolidated financial statements.  These policies have been consistently applied to all the years presented, unless otherwise stated.

Business Combinations and Goodwill

Business combinations are accounted for using the acquisition method.  The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value, and the amount of any noncontrolling interest in the acquiree.  For each business combination, we elect whether to measure the components of the noncontrolling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets.  Acquisition-related costs are expensed as incurred and included in selling, general and administrative expenses.

When we acquire a business, we assess the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.  This includes the separation of embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognized in profit or loss.  The fair value of previously held equity interest is then included in the amount of total consideration transferred.

Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date.  Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.  Contingent consideration classified as an asset or liability that is a financial instrument within the scope of IFRS 9 is measured at fair value with the changes in fair value recognized in profit or loss.  In accordance with IFRS 9, other contingent consideration that is not within the scope of IFRS 9 is measured at fair value at each reporting date with changes in fair value recognized in profit or loss.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognized for noncontrolling interests and any previous interest held, over the net identifiable assets acquired and liabilities assumed.  If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, we reassess whether we correctly identified all of the assets acquired and all of the liabilities assumed and review the procedures used to measure the amounts to be recognized at the acquisition

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date.  If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain on a bargain purchase is recognized in profit or loss.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, we report in our consolidated financial statements provisional amounts for the items for which the accounting is incomplete.  During the measurement period, which is no longer than one year from the acquisition date, the provisional amounts recognized at acquisition date are retrospectively adjusted to reflect new information obtained about facts and circumstances that existed as of the acquisition date and, if known, would have affected the measurement of the amounts recognized as of that date.  During the measurement period, we also recognize additional assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date and, if known, would have resulted in the recognition of those assets and liabilities as of that date.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses.  For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of our cash-generating units, or CGUs, that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill acquired in a business combination has yet to be allocated to identifiable CGUs because the initial accounting is incomplete, such provisional goodwill is not tested for impairment unless indicators of impairment exist and we can reliably allocate the carrying amount of goodwill to a CGU or group of CGUs that are expected to benefit from the synergies of the business combination.

Where goodwill has been allocated to a CGU and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation.  Goodwill disposed of in this circumstance is measured based on the relative values of the disposed operation and the portion of the CGU retained.

Investments in Associates

An associate is an entity in which we have significant influence.  Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies.  The existence of significant influence is presumed to exist when we hold 20% or more, but less than 50% of the voting power of another entity.  Significant influence is also exemplified when we have one or more of the following: (a) a representation on the board of directors or the equivalent governing body of the investee; (b) participation in policy-making processes, including participation in decisions about dividends or other distributions; (c) material transactions with the investee; (d) interchange of managerial personnel with the investee; or (e) provision of essential technical information.

Investments in associates are accounted for using the equity method of accounting and are initially recognized at cost.  The cost of the investments includes directly attributable transaction costs.  The details of our investments in associates are disclosed in Note 11 – Investments in Associates and Joint Ventures – Investments in Associates.

Under the equity method, an investment in an associate is carried at cost plus post acquisition changes in our share of net assets of the associate.  Goodwill relating to an associate is included in the carrying amount of the investment and is not amortized nor individually tested for impairment.  Our consolidated income statements reflect our share in the financial performance of our associates.  Where there has been a change recognized directly in the equity of the associate, we recognize our share in such change and disclose this, when applicable, in our consolidated statement of comprehensive income and consolidated statement of changes in equity.  Unrealized gains and losses resulting from our transactions with and among our associates are eliminated to the extent of our interests in those associates.

Our share in the profits or losses of our associates is included under “Other income (expenses)” in our consolidated income statement.  This is the profit or loss attributable to equity holders of the associate and therefore is profit or loss after tax and net of noncontrolling interest in the subsidiaries of the associate.  

When our share of losses exceeds our interest in an associate, the carrying amount of the investment, including

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any long-term interests that form part thereof, is reduced to zero, and the recognition of further losses is discontinued except to the extent that we have an obligation or have made payments on behalf of the investee.

Our reporting dates and that of our associates are identical and our associates’ accounting policies conform to those used by us for like transactions and events in similar circumstances.  When necessary, adjustments are made to bring such accounting policies in line with our policies.

After application of the equity method, we determine whether it is necessary to recognize an additional impairment loss on our investments in associates.  We determine at the end of each reporting period whether there is any objective evidence that our investment in associate is impaired.  If this is the case, we calculate the amount of impairment as the difference between the recoverable amount of our investment in the associate and its carrying value and recognize the amount in our consolidated income statements.

Upon loss of significant influence over the associate, we measure and recognize any retained investment at its fair value.  Any difference between the carrying amounts of our investment in the associate upon loss of significant influence and the fair value of the remaining investment and proceeds from disposal is recognized in our consolidated financial statements.

Joint Arrangements

Joint arrangements are arrangements with respect to which we have joint control, established by contracts requiring unanimous consent from the parties sharing control for decisions about the activities that significantly affect the arrangements’ returns.  They are classified and accounted for as follows:

• Joint operation – when we have rights to the assets, and obligations for the liabilities, relating to an arrangement, we account for each of our assets, liabilities and transactions, including our share of those held or incurred jointly, in relation to the joint operation in accordance with the IFRS applicable to the particular assets, liabilities and transactions.

• Joint venture – when we have rights only to the net assets of the arrangements, we account for our interest using the equity method, the same as our accounting for investments in associates.

The financial statements of the joint venture are prepared for the same reporting period as our consolidated financial statements.  Where necessary, adjustments are made to bring the accounting policies of the joint venture in line with our policies.  The details of our investments in joint ventures are disclosed in Note 11 – Investments in Associates and Joint Ventures – Investments in Joint Ventures.

Adjustments are made in our consolidated financial statements to eliminate our share of unrealized gains and losses on transactions between us and our joint venture.  Our investment in the joint venture is carried at equity method until the date on which we cease to have joint control over the joint venture.

Upon loss of joint control over the joint venture, we measure and recognize our retained investment at fair value. Any difference between the carrying amount of the former joint venture upon loss of joint control and the fair value of the remaining investment and proceeds from disposal is recognized in profit or loss. When the remaining investment constitutes significant influence, it is accounted for as an investment in an associate with no remeasurement.

Current Versus Noncurrent Classifications

We present assets and liabilities in our consolidated statements of financial position based on current or noncurrent classification.

An asset is current when it is:

• Expected to be realized or intended to be sold or consumed in the normal operating cycle;

• Held primarily for the purpose of trading;

• Expected to be realized within twelve months after the reporting period; or

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• Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

All other assets are classified as noncurrent.

A liability is current when:

• It is expected to be settled in the normal operating cycle;

• It is held primarily for the purpose of trading;

• It is due to be settled within twelve months after the reporting period; or

• There is no unconditional right to defer the settlement of the liability for at least twelve months after the period.

The terms of the liquidity that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

All other liabilities are classified as noncurrent.

Deferred income tax assets and liabilities are classified as noncurrent assets and liabilities, respectively.

Foreign Currency Transactions and Translations

Our consolidated financial statements are presented in Philippine Peso, which is also the Parent Company’s functional currency.  The Philippine Peso is the currency of the primary economic environment in which we operate.  This is also the currency that mainly influences the revenue from and cost of rendering products and services.  Each entity in our Group determines its own functional currency and items included in the separate financial statements of each entity are measured using that functional currency.

The functional and presentation currency of the entities under PLDT Group (except for the subsidiaries discussed below) is the Philippine Peso.

Transactions in foreign currencies are initially recorded by entities under our Group at the respective functional currency rates prevailing at the date of the transaction.  Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency closing rate of exchange prevailing at the end of the reporting period.  All differences arising on settlement or translation of monetary items are recognized in our consolidated income statement except for foreign exchange differences that qualify as capitalizable borrowing costs for qualifying assets.  Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions.  Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.  The gain or loss arising from transactions of non-monetary items measured at fair value is treated in line with the recognition of this gain or loss on the change in fair value of the items (i.e., translation differences on items whose fair value gain or loss is recognized in other comprehensive income or profit or loss are also recognized in other comprehensive income or profit or loss, respectively).  

The functional currency of FECL Group, PLDT Global and certain of its subsidiaries, PGNL and certain of its subsidiaries, Chikka and certain of its subsidiaries and PGIC is the U.S. Dollar; the functional currency of iCommerce Investments Pte. Ltd., or iCommerce, Chikka Pte. Ltd., or CPL, and ABM Global Solutions Pte. Ltd., or AGSPL, is the Singaporean Dollar; the functional currency of PT Advance Business Microsystems Global Solutions, or AGS Indonesia, is the Indonesian Rupiah; and the functional currency of PLDT Malaysia Sdn Bhd is the Malaysian Ringgit.  As at the reporting date, the assets and liabilities of these subsidiaries are translated into Philippine Peso at the rate of exchange prevailing at the end of the reporting period, and income and expenses of these subsidiaries are translated monthly using the weighted average exchange rate for the month.  The exchange differences arising on translation are recognized as a separate component of other comprehensive income as cumulative translation adjustments.  Upon disposal of these subsidiaries, the amount of deferred cumulative translation adjustments recognized in other comprehensive income relating to subsidiaries is recognized in our consolidated income statement.

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When there is a change in an entity’s functional currency, the entity applies the translation procedures applicable to the new functional currency prospectively from the date of the change.  The entity translates all assets and liabilities into the new functional currency using the exchange rate at the date of the change.  The resulting translated amounts for non-monetary items are treated as the new historical cost.  Exchange differences arising from the translation of a foreign operation previously recognized in other comprehensive income are not reclassified from equity to profit or loss until the disposal of the operation.

Foreign exchange gains or losses of the Parent Company and our Philippine-based subsidiaries are treated as taxable income or deductible expenses in the period such exchange gains or losses are realized.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate as at reporting date.

Financial Instruments

Financial Instruments – Initial recognition and subsequent measurement

Classification of financial assets

Financial assets are classified in their entirety based on the contractual cash flows characteristics of the financial assets and our business model for managing the financial assets.  We classify our financial assets into the following measurement categories:

• Financial assets measured at amortized cost;

• Financial assets measured at FVPL;

• Financial assets measured at FVOCI, where cumulative gains or losses previously recognized are reclassified to profit or loss; and

• Financial assets measured at FVOCI, where cumulative gains or losses previously recognized are not reclassified to profit or loss.

Contractual cash flows characteristics

In order for us to identify the measurement of our debt financial assets, a solely payments of principal and interest, or SPPI, test needs to be initially performed in order to determine whether the contractual terms of the financial asset gives rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.  Once a debt financial asset passed the SPPI test, business model assessment, which identifies our objective of holding the financial assets – hold to collect or hold to collect and sell, will be performed.  Otherwise, if the debt financial asset failed the test, such will be measured at FVPL.

In making the assessment, we determine whether the contractual cash flows are consistent with a basic lending arrangement, i.e., interest includes consideration only for the time value of money, credit risk and other basic lending risks and costs associated with holding the financial asset for a particular period of time.  In addition, interest can include a profit margin that is consistent with a basic lending arrangement.  The assessment as to whether the cash flows meet the SPPI test is made in the currency in which the financial asset is denominated.  Any other contractual terms that introduce exposure to risks or volatility in the contractual cash flows that is unrelated to a basic lending arrangement, such as exposure to changes in equity prices or commodity prices, do not give rise to contractual cash flows that are solely payments of principal and interest on the principal amount outstanding.

Business model

Our business model is determined at a level that reflects how groups of financial assets are managed together to achieve a particular business objective.  Our business model does not depend on management’s intentions for an individual instrument.

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Our business model refers to how we manage our financial assets in order to generate cash flows.  Our business model determines whether cash flows will result from collecting contractual cash flows, collecting contractual cash flows and selling financial assets or neither.  

Financial assets at amortized cost

A financial asset is measured at amortized cost if: (i) it is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and (ii) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.  These financial assets are initially recognized at fair value plus directly attributable transaction costs and subsequently measured at amortized cost using the effective interest rate, or EIR, method, less any impairment in value.  Amortized cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the EIR.  The amortization is included in ‘Other income (expenses) – net’ in our consolidated income statements and is calculated by applying the EIR to the gross carrying amount of the financial asset, except for (i) purchased or originated credit-impaired financial assets and (ii) financial assets that have subsequently become credit-impaired, where, in both cases, the EIR is applied to the amortized cost of the financial asset.  Losses arising from impairment are recognized in ‘Asset impairment’ in our consolidated income statements.

Our financial assets at amortized cost include debt instruments at amortized cost, cash and cash equivalents, short-term investments, trade and other receivables, and portions of other financial assets as at December 31, 2021 and 2020.  See Note 13 – Debt Instruments at Amortized Cost, Note 16 – Cash and Cash Equivalents, Note 17 – Trade and Other Receivables and Note 28 – Financial Assets and Liabilities.

Financial assets at FVOCI (debt instruments)

A financial asset is measured at FVOCI if: (i) it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and (ii) its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.  These financial assets are initially recognized at fair value plus directly attributable transaction costs and subsequently measured at fair value.  Gains and losses arising from changes in fair value are included in other comprehensive income within a separate component of equity.  Impairment losses or reversals, interest income and foreign exchange gains and losses are recognized in profit and loss until the financial asset is derecognized.  Upon derecognition, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss.  This reflects the gain or loss that would have been recognized in profit or loss upon derecognition if the financial asset had been measured at amortized cost.  Impairment is measured based on the expected credit loss, or ECL, model.

Our financial assets at FVOCI include receivables from Metro Pacific Investments Corporation, or MPIC, as at December 31, 2020.  See Note 25 – Related Party Transactions and Note 28 – Financial Assets and Liabilities.

Financial assets at FVPL

Financial assets at FVPL are measured at fair value.  Included in this classification are derivative financial assets, equity investments held for trading and debt instruments with contractual terms that do not represent solely payments of principal and interest.  Financial assets held at FVPL are initially recognized at fair value, with transaction costs recognized in our consolidated income statements as incurred.  Subsequently, they are measured at fair value and any gains or losses are recognized in our consolidated income statements.

Additionally, even if the asset meets the amortized cost or the FVOCI criteria, we may choose at initial recognition to designate the financial asset at FVPL if doing so eliminates or significantly reduces a measurement or recognition inconsistency (an accounting mismatch) that would otherwise arise from measuring financial assets on a different basis.

Trading gains or losses are calculated based on the results arising from trading activities of the PLDT Group, including all gains and losses from changes in fair value for financial assets and financial liabilities at FVPL, and the gains or losses from disposal of financial investments.

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Our financial assets at FVPL include portions of short-term investments, derivative financial assets, equity investments and redemption trust fund as at December 31, 2021 and 2020.  See Note 12 – Financial Assets at FVPL and Note 28 – Financial Assets and Liabilities.

Classification of financial liabilities

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

Financial liabilities are subsequently measured at amortized cost, except for the following:

• Financial liabilities measured at FVPL;

• Financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when we retain continuing involvement;

• Financial guarantee contracts;

• Commitments to provide a loan at a below-market interest rate; and

• Contingent consideration recognized by an acquirer in accordance with IFRS 3.

A financial liability may be designated at FVPL if it eliminates or significantly reduces a measurement or recognition inconsistency (an accounting mismatch) or:

• If a host contract contains one or more embedded derivatives; or

• If a group of financial liabilities or financial assets and liabilities is managed and its performance evaluated on a fair value basis in accordance with a documented risk management or investment strategy.

Where a financial liability is designated at FVPL, the movement in fair value attributable to changes in our own credit quality is calculated by determining the changes in credit spreads above observable market interest rates and is presented separately in other comprehensive income.

Our financial liabilities at FVPL include forward foreign exchange contracts, long-term principal only-currency swaps, interest rate swaps, call spreads and liability from redemption of preferred stock as at December 31, 2021 and 2020.  See Note 20 – Equity – Redemption of Preferred Stock, Note 24 – Accrued Expenses and Other Current Liabilities and Note 28 – Financial Assets and Liabilities.

Our other financial liabilities include interest-bearing financial liabilities, lease liabilities, customers’ deposits, dividends payable, certain accounts payable and certain accrued expenses and other current liabilities and certain deferred credits and other noncurrent liabilities, (except for statutory payables) as at December 31, 2021 and 2020.  See Note 10 – Leases, Note 21 – Interest-bearing Financial Liabilities, Note 22 – Deferred Credits and Other Noncurrent Liabilities, Note 23 – Accounts Payable, Note 24 – Accrued Expenses and Other Current Liabilities and Note 28 – Financial Assets and Liabilities.

Reclassifications of financial instruments

We reclassify our financial assets when, and only when, there is a change in the business model for managing the financial assets.  Reclassifications shall be applied prospectively and any previously recognized gains, losses or interest shall not be restated.  We do not reclassify our financial liabilities.

We do not reclassify our financial assets when:

• A financial asset that was previously a designated and effective hedging instrument in a cash flow hedge or net investment hedge no longer qualifies as such;

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• A financial asset becomes a designated and effective hedging instrument in a cash flow hedge or net investment hedge; and

• There is a change in measurement on credit exposures measured at FVPL.

Impairment of Financial Assets

We recognize ECL for debt instruments that are measured at amortized cost and FVOCI.

No ECL is recognized on financial assets at FVPL.

ECLs are measured in a way that reflects the following:

• An unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes;

• The time value of money; and

• Reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions.

Financial assets migrate through the following three stages based on the change in credit quality since initial recognition:

Stage 1: 12-month ECL – not credit impaired

For credit exposures where there have not been significant increases in credit risk since initial recognition and that are not credit-impaired upon origination, the portion of lifetime ECLs that represent the ECLs that result from default events that are possible within the 12-months after the reporting date are recognized.

Stage 2: Lifetime ECL – not credit-impaired

For credit exposures where there have been significant increases in credit risk since initial recognition on an individual or collective basis but are not credit-impaired, lifetime ECLs representing the ECLs that result from all possible default events over the expected life of the financial asset are recognized.

Stage 3: Lifetime ECL – credit-impaired

Financial assets are credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of those financial assets have occurred.  For these credit exposures, lifetime ECLs are recognized and interest revenue is calculated by applying the credit-adjusted EIR to the amortized cost of the financial asset.

Loss allowances

Loss allowances are recognized based on 12-month ECL for debt instruments that are assessed to have low credit risk at the reporting date.  A financial asset is considered to have low credit risk if:

• The financial instrument has a low risk of default;

• The counterparty has a strong capacity to meet its contractual cash flow obligations in the near term; and

• Adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the counterparty to fulfill its contractual cash flow obligations.

We consider a

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debt instrument to have low credit risk when its credit risk rating is equivalent to the globally understood definition of ‘investment grade’, or when the exposure is less than 30 days past due.

The loss allowances recognized in the period is impacted by a variety of factors, as described below:

• Transfers between Stage 1 and Stage 2 and 3 due to the financial instruments experiencing significant increases (or decreases) of credit risk or becoming credit-impaired in the period, and the consequent “step up” (or “step down”) between 12-month and lifetime ECL;

• Additional allowances for new financial instruments recognized during the period, as well as releases for financial instruments derecognized in the period;

• Impact on the measurement of ECL due to changes in probability of defaults, or PDs, loss given defaults, or LGDs, and exposure at defaults, or EADs, in the period, arising from regular refreshing of inputs to models;

• Impacts on the measurement of ECL due to changes made to models and assumptions;

• Unwinding of discount within ECL due to passage of time, as ECL is measured on a present value basis; and

• Financial assets derecognized during the period and write-offs of allowances related to assets that were written off during the period.

Write-off policy

We write-off a financial asset measured at amortized cost, in whole or in part, when the asset is considered uncollectible, and we have exhausted all practical recovery efforts and concluded that we have no reasonable expectations of recovering the financial asset in its entirety or a portion thereof.  We write-off an account when all of the following conditions are met:

• The asset is in past due for over 90 days, or is already an item-in-litigation with any of the following:

a. No properties of the counterparty could be attached

b. The whereabouts of the client cannot be located

c. It would be more expensive for the Group to follow-up and collect the amount, hence we have ceased enforcement activity, and

d. Collections can no longer be made due to insolvency or bankruptcy of the counterparty;

• Expanded credit arrangement is no longer possible;

• Filing of legal case is not possible; and

• The account has been classified as ‘Loss’.

Simplified approach

The simplified approach, where changes in credit risk are not tracked and loss allowances are measured at amounts equal to lifetime ECL, is applied to ‘Trade and other receivables’ and ‘Contract assets’.  We have established a provision matrix for billed trade receivables and a vintage analysis for contract assets and unbilled trade receivables that is based on historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

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Derecognition of Financial Assets and Liabilities

Financial assets

A financial asset (or where applicable as part of a financial asset or part of a group of similar financial assets) is primarily derecognized when: (1) the right to receive cash flows from the asset has expired; or (2) we have transferred the right to receive cash flows from the asset or have assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either:
(a) we have transferred substantially all the risks and rewards of the asset; or (b) we have neither transferred nor retained substantially all the risks and rewards of the asset, but have transferred control of the asset.

When we have transferred the right to receive cash flows from an asset or have entered into a “pass-through” arrangement and have neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, a new asset is recognized to the extent of our continuing involvement in the asset.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that we could be required to repay.

When continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of our continuing involvement is the amount of the transferred asset that we may repurchase, except that in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, the extent of our continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.

Financial liabilities

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has expired.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the carrying amount of a financial liability extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in consolidated income statement.

The financial liability is also derecognized when equity instruments are issued to extinguish all or part of the financial liability.  The equity instruments issued are recognized at fair value if it can be reliably measured, otherwise, it is recognized at the fair value of the financial liability extinguished. Any difference between the fair value of the equity instruments issued and the carrying value of the financial liability extinguished is recognized in consolidated income statement.

Derivative Financial Instruments and Hedge Accounting

Initial recognition and subsequent measurement

We use derivative financial instruments, such as long-term currency swaps, foreign currency options, forward currency contracts and interest rate swaps to hedge our risks associated with foreign currency fluctuations and interest rates.  Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value.  Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

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The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles.  The fair value of long-term currency swaps, foreign currency options, forward currency contracts and interest rate swap contracts is determined using applicable valuation techniques.  See Note 28 – Financial Assets and Liabilities.

Any gains or losses arising from changes in fair value on derivatives during the period that do not qualify for hedge accounting are taken directly to the “Other income (expense) – Gains (losses) on derivative financial instruments – net” in our consolidated income statements.

For the purpose of hedge accounting, hedges are classified as: (1) fair value hedges when hedging the exposure to changes in the fair value of a recognized financial asset or liability or an unrecognized firm commitment (except for foreign currency risk); or (2) cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized financial asset or liability, a highly probable forecast transaction or the foreign currency risk in an unrecognized firm commitment; or (3) hedges of a net investment in a foreign operation.

At the inception of a hedge relationship, we formally designate and document the hedge relationship to which we wish to apply hedge accounting and the risk management objective and strategy for undertaking the hedge.  The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how we will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk.  Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an on-going basis to determine that they actually have been highly effective throughout the financial reporting periods for which they are designated.  In a situation when that hedged item is a forecast transaction, we assess whether the transaction is highly probable and presents an exposure to variations in cash flows that could ultimately affect our consolidated income statements.

Hedges which meet the criteria for hedge accounting are accounted for as follows:

Fair value hedges

The change in the fair value of a hedging instrument is recognized in our consolidated income statements as financing cost.  The change in the fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and is also recognized in our consolidated income statements.

For fair value hedges relating to items carried at amortized cost, any adjustment to carrying value is amortized through profit or loss over the remaining term of the hedge using the EIR method.  EIR amortization may begin as soon as adjustment exists and no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.

If the hedged item is derecognized, the unamortized fair value is recognized immediately in our consolidated income statements.

When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in our consolidated income statements.

Cash flow hedges

The effective portion of the gain or loss on the hedging instrument is recognized in other comprehensive income, while any ineffective portion is recognized immediately in our consolidated income statements.  See Note 28 – Financial Assets and Liabilities for more details.

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Amounts taken to other comprehensive income are transferred to our consolidated income statement when the hedged transaction affects our consolidated income statement, such as when the hedged financial income or financial expense is recognized or when a forecast transaction occurs.  Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts taken to other comprehensive income are transferred to the initial carrying amount of the non-financial asset or liability.

If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognized in other comprehensive income are transferred to our consolidated income statement.  If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognized in other comprehensive income remain in other comprehensive income until the forecast transaction or firm commitment occurs.

We use an interest rate swap agreement to hedge our interest rate exposure and a long-term principal only-currency swap agreement to hedge our foreign exchange exposure on certain outstanding loan balances.  See Note 28 – Financial Assets and Liabilities.

Current versus noncurrent classification

Derivative instruments that are not designated as effective hedging instruments are classified as current or noncurrent or separated into a current and noncurrent portion based on an assessment of the facts and circumstances (i.e., the underlying contracted cash flows).

Where we expect to hold a derivative as an economic hedge (and does not apply hedge accounting) for a period beyond 12 months after the reporting date, the derivative is classified as noncurrent (or separated into current and noncurrent portions) consistent with the classification of the underlying item.

Embedded derivatives that are not closely related to the host contract are classified consistent with the cash flows of the host contract.

Derivative instruments that are designated as effective hedging instruments are classified consistently with the classification of the underlying hedged item.  The derivative instrument is separated into a current portion and a noncurrent portion only if a reliable allocation can be made.

We recognize transfers into and transfers out of fair value hierarchy levels as at the date of the event or change in circumstances that caused the transfer.

Property and Equipment

Property and equipment, except for land, is stated at cost less accumulated depreciation and amortization and any accumulated impairment losses.  Land is stated at cost less any impairment in value.  The initial cost of property and equipment comprises its purchase price, including import duties and non-refundable purchase taxes and any directly attributable costs of bringing the property and equipment to its working condition and location for its intended use.  Such cost includes the cost of replacing component parts of the property and equipment when the cost is incurred, if the recognition criteria are met.  When significant parts of property and equipment are required to be replaced at intervals, we recognize such parts as individual assets with specific useful lives and depreciate them accordingly.  Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the property and equipment as a replacement if the recognition criteria are satisfied.  All other repairs and maintenance costs are recognized as expense as incurred.  The present value of the expected cost for the decommissioning of the asset after use is included in the cost of the asset if the recognition criteria for a provision are met.  

Depreciation and amortization commence once the property and equipment are available for their intended use and are calculated on a straight-line basis over the estimated useful lives of the assets.  The estimated useful lives used in depreciating our property and equipment are disclosed in Note 9 – Property and Equipment.

The residual values, estimated useful lives, and methods of depreciation and amortization are reviewed at least at each financial year-end and adjusted prospectively, if appropriate.

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An item of property and equipment and any significant part initially recognized are derecognized upon disposal or when no future economic benefits are expected from its use or disposal.  Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in consolidated income statement when the asset is derecognized.

Property under construction is stated at cost less any impairment in value.  This includes cost of construction, plant and equipment, capitalizable borrowing costs and other direct costs associated to construction.  Property under construction is not depreciated until such time that the relevant assets are completed and available for its intended use.

Property under construction is transferred to the related property and equipment when the construction or installation and related activities necessary to prepare the property and equipment for their intended use have been completed, and the property and equipment are ready for operational use.

Borrowing Costs

Borrowing costs are capitalized if they are directly attributable to the acquisition, construction or production of a qualifying asset.  Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale.  Capitalization of borrowing costs commences when the activities to prepare the asset for its intended use or sale are in progress and the expenditures and borrowing costs are incurred.  Borrowing costs are capitalized until the assets are substantially completed for their intended use or sale.  

All other borrowing costs are expensed as incurred.  Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

Asset Retirement Obligations

We are legally required under various lease agreements to dismantle the installation in leased sites and restore such sites to their original condition at the end of the lease contract term.  We recognize the liability measured at the present value of the estimated costs of these obligations and capitalize such costs as part of the balance of the related item of property and equipment.  The amount of asset retirement obligations is accreted and such accretion is recognized as interest expense.  See Note 10 – Leases and Note 22 – Deferred Credits and Other Noncurrent Liabilities.

Investment Properties

Investment properties are initially measured at cost, including transaction costs.  Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the reporting date.  Gains or losses arising from changes in the fair values of investment properties are included in our consolidated income statement in the period in which they arise, including the corresponding tax effect.  Fair values are determined based on an amount evaluation performed by a Philippine SEC accredited external independent valuer applying a valuation model recommended by the International Valuation Standards Committee.

Investment properties are derecognized when they are disposed of or when they are permanently withdrawn from use and no future economic benefit is expected from their disposal.  Any gain or loss on the retirement or disposal of an investment property is recognized in our consolidated income statement in the year of retirement or disposal.

Transfers are made to or from investment property only when there is a change in use.  For a transfer from investment property to owner-occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use.  If owner-occupied property becomes an investment property, we account for such property in accordance with the policy stated under property and equipment up to the date of change in use.  The difference between the carrying amount of the owner-occupied property and its fair value at the date of change is accounted for as revaluation increment recognized in other comprehensive income.  On subsequent disposal of the investment property, the revaluation increment recognized in other comprehensive income is transferred to retained earnings.

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Intangible Assets

Intangible assets acquired separately are measured at cost on initial recognition.  The cost of intangible assets acquired from business combinations is initially recognized at fair value on the date of acquisition.  Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses.  The useful lives of intangible assets are assessed at the individual asset level as either finite or indefinite.

Intangible assets with finite lives are amortized over the economic useful life using the straight-line method and assessed for impairment whenever there is an indication that the intangible assets may be impaired.  At the minimum, the amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at each financial year-end.  Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates.  The amortization expense on intangible assets with finite lives is recognized in our consolidated income statements.

Intangible assets with indefinite useful lives are not amortized but are tested for impairment annually either individually or at the CGU level.  The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether the indefinite life assessment continues to be supportable.  If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis.

The estimated useful lives used in amortizing our intangible assets are disclosed in Note 15 – Goodwill and Intangible Assets.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in our consolidated income statements when the asset is derecognized.

Internally generated intangibles are not capitalized, and the related expenditures are charged against operations in the period in which the expenditures are incurred.

Inventories and Supplies

Inventories and supplies, which include cellular and landline phone units, materials, spare parts, terminal units and accessories, are valued at the lower of cost and net realizable value.

Costs incurred in bringing inventories and supplies to its present location and condition are accounted for using the weighted average cost method.  Net realizable value is determined by either estimating the selling price in the ordinary course of business, less the estimated cost to sell or determining the prevailing replacement costs.

Impairment of Non-Financial Assets

We assess at each reporting period whether there is an indication that an asset may be impaired.  If any indication exists, or when the annual impairment testing for an asset is required, we make an estimate of the asset’s recoverable amount.  An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal and its value in use, or VIU.  The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent from those of other assets or groups of assets.  When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.  

In assessing the VIU, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.  In determining the fair value less costs of disposal, recent market transactions are taken into account.  If no such transactions can be identified, an appropriate valuation model is used.  Impairment losses are recognized in our consolidated income statements.

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For assets, excluding goodwill and intangible assets with indefinite useful life, an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment losses no longer exist or have decreased.  If such indication exists, we make an estimate of the recoverable amount.  A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized.  If this is the case, the carrying amount of the asset is increased to its recoverable amount.  The increased amount cannot exceed the carrying amount that would have been determined, net of depreciation and amortization, had no impairment loss been recognized for the asset in prior years.  Such reversal is recognized in our consolidated income statements.  After such reversal, the depreciation and amortization charges are adjusted in future years to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining economic useful life.

The following assets have specific characteristics for impairment testing:

Property and equipment, right-of-use, or ROU, assets, and intangible assets with finite useful lives

For property and equipment and ROU assets, we assess for impairment on the basis of impairment indicators such as evidence of internal obsolescence or physical damage.  For intangible assets with finite useful lives, we assess for impairment whenever there is an indication that the intangible assets may be impaired.  See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Impairment of non-financial assets, Note 9 – Property and Equipment, Note 10 – Leases and Note 15 – Goodwill and Intangible Assets for further disclosures relating to impairment of non-financial assets.

Investments in associates and joint ventures

We determine at the end of each reporting period whether there is any objective evidence that our investments in associates and joint ventures are impaired.  If this is the case, the amount of impairment is calculated as the difference between the recoverable amount of the investments in associates and joint ventures, and its carrying amount.  The amount of impairment loss is recognized in our consolidated income statements.  See Note 11 – Investments in Associates and Joint Ventures for further disclosures relating to impairment of non-financial assets.    

Goodwill

Goodwill is tested for impairment annually as at December 31 and when circumstances indicate that the carrying value may be impaired.  Impairment is determined for goodwill by assessing the recoverable amount of each CGU, or group of CGUs, to which the goodwill relates.  When the recoverable amount of the CGU, or group of CGUs, is less than the carrying amount of the CGU, or group of CGUs, to which goodwill has been allocated, an impairment loss is recognized.  Impairment losses relating to goodwill cannot be reversed in future periods.

See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Impairment of non-financial assets and Note 15 – Goodwill and Intangible Assets for further disclosures relating to impairment of non-financial assets.

Intangible asset with indefinite useful life

Intangible asset with indefinite useful life is not amortized but is tested for impairment annually either individually or at the CGU level, as appropriate.  We calculate the amount of impairment as being the difference between the recoverable amount of the intangible asset or the CGU, and its carrying amount and recognize the amount of impairment in our consolidated income statements.  Impairment losses relating to intangible assets can be reversed in future periods.  

See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Impairment of non-financial assets and Note 15 – Goodwill and Intangible Assets for further disclosures relating to impairment of non-financial assets.

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Investment in Debt Securities

Investment in debt securities consists of time deposits and government securities which are carried at amortized cost using the EIR method.  Interest earned from these securities is recognized under “Other income (expenses) – net – Interest income” in our consolidated income statements.

Cash and Cash Equivalents

Cash includes cash on hand and in banks.  Cash equivalents, which include temporary cash investments, are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less from the date of acquisition, and for which there is an insignificant risk of change in value.

Short-term Investments

Short-term investments are money market placements, which are highly liquid with maturities of more than three months but less than one year from the date of acquisition.

Fair Value Measurement

We measure financial instruments such as derivatives, financial assets at FVPL, financial assets at FVOCI and non-financial assets such as investment properties, at fair value at each reporting date.  The fair values of investment properties are disclosed in Note 14 – Investment Properties.  The fair values of the pension plan assets are disclosed in Note 26 – Pension and Other Employee Benefits.  The fair values of financial instruments measured at amortized cost are disclosed in Note 28 – Financial Assets and Liabilities.  

Fair value is the estimated price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: (i) in the principal market for the asset or liability; or (ii) in the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible to us.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

We use valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in our consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: (i) Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities; (ii) Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; and (iii) Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are recognized in our consolidated financial statements on a recurring basis, we determine whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

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We determine the policies and procedures for both recurring fair value measurement, such as investment properties and unquoted FVPL financial assets, and for non-recurring measurement, such as assets held for distribution in discontinued operation.

External valuers are involved for valuation of significant assets, such as investment properties.  Involvement of external valuers is decided upon annually.  Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained. At each reporting date, we analyze the movements in the values of assets and liabilities which are required to be re-measured or re-assessed as per our accounting policies.  For this analysis, we verify the major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant documents.

We, in conjunction with our external valuers, also compare the changes in the fair value of each asset and liability with relevant external sources to determine whether the change is reasonable.  This includes a discussion of the major assumptions used in the valuations.  For the purpose of fair value disclosures, we have determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

Revenues from contracts with customers

Revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration which we expect to be entitled to in exchange for those goods or services.  IFRS 15 prescribes a five-step model to be followed in the recognition of revenue, wherein we take into consideration the performance obligations which we need to perform in the agreements we have entered into with our customers.  Revenue is measured by allocating the transaction price, which includes variable considerations, to each performance obligation on a relative stand-alone selling price basis, taking into account contractually defined terms of payment and excluding value-added tax, or VAT, or overseas communication tax, or OCT, where applicable.  Transaction prices are adjusted for the effects of a significant financing component if we expect, at contract inception, that the period between the transfer of the promised goods or services to the customer and when the customer pays for that good or service will be more than one year.  

When allocating the total contract transaction price to identified performance obligations, a portion of the total transaction price may relate to service performance obligations which were not satisfied or are partially satisfied as of end of the reporting period.  In determining the transaction price allocated, we do not include nonrecurring charges and estimates for usage, nor do we consider arrangements with an original expected duration of one year or less.

Remaining performance obligations are associated with our wireless and fixed line subscription contracts.  As at December 31, 2021, excluding the performance obligations for contracts with original expected duration of less than one year, the aggregate amount of the transaction price allocated to remaining performance obligations was Php38,595 million, of which we expect to recognize approximately 62% in 2022 and 38% in 2023 and onwards.  As at December 31, 2020, excluding the performance obligations for contracts with original expected duration of less than one year, the aggregate amount of the transaction price allocated to remaining performance obligations was Php22,921 million, of which we expect to recognize approximately 72% in 2021 and 28% in 2022 and onwards.

When determining our performance obligations, we assess our revenue arrangements against specific criteria to determine if we are acting as principal or agent.  We consider both the legal form and the substance of our agreement, to determine each party’s respective roles in the agreement.  We are a principal and record revenue on a gross basis if we control the promised goods or services before transferring them or rendering those to the customer.  However, if our role is only to arrange for another entity to provide the goods or services, then we are an agent and will need to record revenue at the net amount that we retain for our agency services.

The disclosures of significant accounting judgments, estimates and assumptions relating to revenues from contracts with customers are provided in Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Identifying performance obligations.

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Our revenues are principally derived from providing the following telecommunications services: cellular voice and data services in the wireless business; and local exchange, international and national long distance, data and other network, and information and communications services in the fixed line business.  

Services may be rendered separately or bundled with goods or other services.  The specific recognition criteria are as follows:

i. Single Performance Obligation (POB) Contracts

Postpaid service arrangements include fixed monthly charges (including excess of consumable fixed monthly service fees) generated from cellular voice, short messaging services, or SMS, and data services through the postpaid plans of Smart Signature, and Infinity brands, from local exchange services primarily through landline and related services, and from fixed line and other network services primarily through broadband and leased line services, which we recognize on a straight-line basis over the customer’s subscription period.  Services provided to postpaid subscribers are billed throughout the month according to the billing cycles of subscribers.  Services availed by subscribers in addition to these fixed fee arrangements are charged separately at their stand-alone selling prices and recognized as the additional service is provided or as availed by the subscribers.

Our prepaid service revenues arise from the usage of airtime load from channels and prepaid cards provided from Prepaid Home WiFi, Sulit Talk, Landline Plus products, Smart, TNT, SmartBro and Sun Broadband brands.  Proceeds from over-the-air reloading channels and prepaid cards are initially recognized as contract liability and realized upon actual usage of the airtime value for voice, SMS, mobile data and other VAS, prepaid unlimited and bucket-priced SMS and call subscriptions, net of bonus credits from load packages purchased, such as free additional call minutes, SMS, data allocation or airtime load, or upon expiration, whichever comes earlier.

We also consider recognizing revenue from the expected breakage or expiry of airtime load in proportion to the pattern of rights exercised by the customer if it expects to be entitled to that breakage amount.  If we do not expect to be entitled to a breakage amount based on historical experience with the customers, then we recognize the expected breakage amount as revenue when the likelihood of the prepaid customer exercising its remaining rights becomes remote.

Interconnection fees and charges arising from the actual usage of airtime value or subscriptions are recorded as incurred.

Revenue from international and national long-distance calls carried via our network is generally based on rates which vary with distance and type of service (direct dial or operator-assisted, paid or collect, etc.).  Revenue from both wireless and fixed line long distance calls is recognized as the service is provided.  In general, non-refundable upfront fees, such as activation fees, that do not relate to the transfer of a promised good or service, are deferred and recognized as revenue throughout the estimated average length of the customer relationship, and the related incremental costs incurred are similarly deferred and recognized as expense over the same period, if such costs generate or enhance resources of the entity and are expected to be recovered.

Installation fees for voice and data services that are not custom built for the subscribers are considered as a single performance obligation together with monthly service fees, recognized over the customer subscription period since the subscriber cannot benefit from the installation services on its own or together with other resources that are readily available to the subscriber.  On the other hand, installation fees of data services that are custom built for the subscribers are considered as a separate performance obligation and is recognized upon completion of the installation services.  Activation fees for both voice and data services are also considered as a single performance obligation together with monthly service fees, recognized over the customer subscription period.  The related incremental costs are recognized in the same manner in our consolidated income statements, if such costs are expected to be recovered.

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ii. Bundled Contracts

In revenue arrangements, which involve bundled sales of mobile devices and accessories (non-service component), and telecommunication services (service component), the total transaction price is allocated based on the relative stand-alone selling prices of each distinct performance obligation.  Stand-alone selling price is the price at which we sell the good or service separately to a customer.  However, if goods or services are not currently offered separately, we use the adjusted market or cost-plus margin method to determine the stand-alone selling price to be used in the transaction price allocation.  We adjust the transaction price for the effects of the time value of money if the timing of the payment and delivery of goods or services do not coincide, effects of which are considered as containing a significant financing component.

Revenues from the sale of non-service component are recognized at the point in time when the goods are delivered while revenues from telecommunication services component are recognized over on a straight-line basis over the contract period when the services are provided to subscribers.

Significant Financing Component

The non-service component included in contracts with customers have significant financing component considering the period between the time of the transfer of control over the mobile device and the customer’s payment of the price of the mobile device, which is more than one year.

The transaction price for such contracts is determined by discounting the amount of promised consideration using the appropriate discount rate.  We concluded that there is a significant financing component for those contracts where the customer elects to pay in arrears considering the length of time between the transfer of mobile device to the customer and the customer’s payment, as well as the prevailing interest rates in the market adjusted with customer credit spread.

Customer Loyalty Program

We operate customer engagement and loyalty programs which allow customers to accumulate crystal points when postpaid Home customers pay their bills on time and in full, purchase products or services, enrollment to electronic billing and auto-payment scheme once registered to the program.  Customers may sign-up or register to PLDT Home Rewards Program thru the MVP Rewards apps/website of thru the PLDT Home Rewards website powered by MVP Rewards Solutions, Inc.  Earned crystal points of members may be redeemed for bill credits, vouchers or load.  Meanwhile, “Giga Points”, Smart’s loyalty program, gives rewards in the form of points for every subscriber top-up and buy Giga.  Each Giga Point is equivalent to Php1.00.  These customer loyalty programs are not treated as a separate performance obligation but as a reduction of revenue when earned, which is booked under loyalty expense.

iii. International and Domestic Long Distance Contracts

Interconnection revenues for call termination, call transit and network usages are recognized in the period in which the traffic occurs.  Revenues related to local, long distance, network-to-network, roaming and international call connection services are recognized when the call is placed, or connection is provided, and the equivalent amounts charged to us by other carriers are recorded under interconnection costs in our consolidated income statements.  Inbound revenue and outbound charges are based on agreed transit and termination rates with other foreign and local carriers.

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Variable consideration

We assessed that a variable consideration exists in certain interconnection agreements where there is a monthly aggregation period and the rates applied for the total monthly traffic will depend on the total traffic for the month.  We also consider whether contracts with carriers contain volume commitment or tiering arrangement whereby the rate being charged will change upon meeting certain volume of traffic.  We estimate the amount of variable consideration to which we are entitled and include in the transaction price some or all of the amount of variable consideration estimated arising from these agreements, unless the impact is not material.

iv. Others

Revenues from VAS include streaming and downloading of games, music, video contents, loan services, messaging services, applications and other digital services which are only arranged for by us on behalf of third-party content providers.  The amount of revenue recognized is net of content provider’s share in revenue.  Revenue is recognized at a point in time upon service availment.  We act as an agent for certain VAS arrangements.

Revenue from server hosting, co-location services and customer support services are recognized at point in time as the services are performed.

Contract balances

Contract assets

A contract asset is recognized when a performance obligation is satisfied, but the payment is conditional not only on the passage of time.  The other conditions attached to realizing that recognized contract asset usually relate to the entity’s fulfillment of other performance obligations in the contract.  Refer to accounting policies on impairment of financial assets in section Financial instruments – initial recognition and subsequent measurement.

Trade receivables

A receivable is recognized if an amount of consideration that is unconditional is due from the customer (i.e., only the passage of time is required before payment of the consideration is due).  Refer to accounting policies of financial assets in section Financial instruments – initial recognition and subsequent measurement.

Contract liabilities and unearned revenues

A contract liability is the obligation to transfer goods or services to a customer for which we have received consideration (or an amount of consideration is due) from the customer.  If a customer pays consideration before we transfer goods or services to the customer, a contract liability is recognized when the payment is made or the payment is due (whichever is earlier).  Contract liabilities and unearned revenues are recognized as revenue when we perform under the contract.

Incremental costs to obtain contracts

We often give commissions and incentives to sales agents for meeting certain volumes of new connections and corresponding value of plans contracted.  These costs are incremental costs to obtain as we would have not incurred these if the contract had not been obtained.  These are capitalized as an asset if these are expected to be recovered.  Any capitalized incremental costs to obtain would be amortized and recognized as expense over customer subscription period.  The capitalized incremental costs are subject to regular impairment assessment.

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Interest income

Interest income is recognized as it accrues on a time proportion basis taking into account the principal amount outstanding and the EIR.

Dividend income

Revenue is recognized when our right to receive the payment is identified.

Expenses

Expenses are recognized as incurred.

Provisions

We recognize a provision when we have a present obligation, legal or constructive, as a result of a past event, and when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.  When we expect some or all of a provision to be reimbursed, the reimbursement is recognized as a separate asset, but only when the reimbursement is virtually certain to be received if the entity settles the obligation.  The expense relating to any provision is presented in our consolidated income statements, net of any reimbursements.  If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability.  Where discounting is used, the increase in the provision due to the passage of time is recognized as interest expense in our consolidated income statements.

Retirement Benefits

PLDT and certain of its subsidiaries are covered under Republic Act No. 7641 otherwise known as “The Philippine Retirement Law”.

Defined benefit pension plans

PLDT has separate and distinct retirement plans for itself and majority of its Philippine-based operating subsidiaries, administered by the respective Funds’ Trustees, covering permanent employees.  Retirement costs are separately determined using the projected unit credit method.  This method reflects services rendered by employees to the date of valuation and incorporates assumptions concerning employees’ projected salaries.  

Retirement costs consist of the following:

• Service cost;

• Net interest on the net defined benefit asset or obligation; and

• Remeasurements of net defined benefit asset or obligation.

Service cost (which includes current service costs, past service costs and gains or losses on curtailments and non-routine settlements) is recognized as part of “Selling, general and administrative expenses – Compensation and employee benefits” account in our consolidated income statements.  These amounts are calculated periodically by an independent qualified actuary.

Net interest on the net defined benefit asset or obligation is the change during the period in the net defined benefit asset or obligation that arises from the passage of time which is determined by applying the discount rate based on the government bonds to the net defined benefit asset or obligation.  Net defined benefit asset is recognized as part of advances and other noncurrent assets and net defined benefit obligation is recognized as part of pension and other employee benefits in our consolidated statements of financial position.

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Remeasurements, comprising actuarial gains and losses, return on plan assets and any change in the effect of the asset ceiling (excluding net interest on defined benefit obligation) are recognized immediately in other comprehensive income in the period in which they occur.  Remeasurements are not classified to profit or loss in subsequent periods.

The net defined benefit asset or obligation comprises the present value of the defined benefit obligation (using a discount rate based on government bonds, as explained in Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Estimating pension benefit costs and other employee benefits), net of the fair value of plan assets out of which the obligations are to be settled directly.  Plan assets are assets held by a long-term employee benefit fund or qualifying insurance policies and are not available to our creditors nor can they be paid directly to us.  Fair value is based on market price information and in the case of quoted securities, the published bid price and in the case of unquoted securities, the discounted cash flow using the income approach.  The value of any defined benefit asset recognized is restricted to the asset ceiling which is the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan.  See Note 26 – Pension and Other Employee Benefits – Defined Benefit Pension Plans for more details.

Defined contribution plans

Smart and certain of its subsidiaries maintain a defined contribution plan that covers all regular full-time employees under which it pays fixed contributions based on the employees’ monthly salaries and provides for qualified employees to receive a defined benefit minimum guarantee.  The defined benefit minimum guarantee is equivalent to a certain percentage of the monthly salary payable to an employee at normal retirement age with the required credited years of service based on the provisions of Republic Act No. 7641.

Accordingly, Smart and certain of its subsidiaries account for their retirement obligation under the higher of the defined benefit obligation related to the minimum guarantee and the obligation arising from the defined contribution plan.

For the defined benefit minimum guarantee plan, the liability is determined based on the present value of the excess of the projected defined benefit obligation over the projected defined contribution obligation at the end of the reporting period.  The defined benefit obligation is calculated annually by a qualified independent actuary using the projected unit credit method.  Smart and certain of its subsidiaries determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments.  Net interest expense (income) and other expenses (income) related to the defined benefit plan are recognized in our consolidated income statement.

The defined contribution liability, on the other hand, is measured at the fair value of the defined contribution assets upon which the defined contribution benefits depend, with an adjustment for margin on asset returns, if any, where this is reflected in the defined contribution benefits.

Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in our other comprehensive income.

When the benefits of the plan are changed or when the plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in our profit or loss.  Gains or losses on the settlement of the defined benefit plan are recognized when the settlement occurs.  See Note 26 – Pension and Other Employee Benefits – Defined Contribution Plans for more details.

Employee benefit costs include current service cost, net interest on the net defined benefit obligation, and remeasurements of the net defined benefit obligation.  Past service costs and actuarial gains and losses are recognized immediately in our consolidated income statement.  

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The long-term employee benefit liability comprises the present value of the defined benefit obligation (using a discount rate based on government bonds) at the end of the reporting period and is determined using the projected unit credit method.  See Note 26 – Pension and Other Employee Benefits – Other Long-term Employee Benefits for more details.

Other Long-term Employee Benefits

Transformation Incentive Plan, or TIP

Cycle I TIP

PLDT provides incentive compensation to key officers, executives and other eligible participants, in the PLDT Group in the form of PLDT Inc. common shares of stock, or Performance Shares, over a three-year vesting period from January 1, 2017 to December 31, 2019.  The award of the performance shares is contingent on the achievement of Performance Targets based on PLDT Group’s cumulative consolidated core net income. 

The starting point of expense recognition is the date of grant, which is the date when the formal invitation letter was sent to the eligible participants.  The fair value of the award (excluding the effect of any service and non-market performance vesting conditions) is determined at the grant date.  At each subsequent reporting date until vesting, a best estimate of the cumulative charge to profit or loss at that date is computed.  As the share-based payments vests in installments over the service period, the award is treated as expense over the vesting period.  On December 11, 2018, the Executive Compensation Committee, or ECC, of the Board approved Management’s recommended modifications to the Plan, and partial equity and cash settled set-up was implemented for the 2019 TIP Grant.  The revised set-up includes a fixed number of shares that will be granted (“equity award”) and the estimated fair value of the difference between the number of shares granted in the original equity grant and the equity award will be paid in cash (“cash award”).  The fair value of the cash award is determined at each reporting date using the estimated fair value of the corresponding shares.

Cycle 2 TIP

On August 7, 2020, the ECC approved the adjusted TIP that covers the years 2020 and 2021, and will be settled in cash.  The cash grant will be for the two years covered and payment will be in 2022.  The Cycle 2 TIP will be based on the achievement of the Cumulative Consolidated Core Net Income, or CCNI, for the years 2020 and 2021.

This other long-term employee benefit liability is recognized and measured using the projected unit credit method and to be amortized on a straight-line basis over the vesting period.

Please see Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Estimating pension benefit cost and other employee benefits.

Leases

We assess at contract inception whether the contract is, or contains, a lease that is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for a consideration.

As a Lessee.  We apply a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets.  We recognize lease liabilities to make lease payments and ROU assets representing the right to use assets to the underlying assets.

• ROU assets

We recognize ROU assets at the commencement date of the lease (i.e., the date the underlying asset is available for use).  ROU assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities.  The cost of ROU assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received.  Unless it is reasonably certain that we obtain ownership of the leased

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asset at the end of the lease term, the recognized ROU assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term.  ROU assets are subject to impairment.  Refer to the accounting policies in impairment of non-financial assets section.

• Lease liabilities

At the commencement date of the lease, we recognize lease liabilities measured at the present value of lease payments to be made over the lease term.  The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees.  The lease payments also include the exercise price of a purchase option reasonably certain to be exercised and payments of penalties for terminating a lease, if the lease term reflects exercising the option to terminate.  The variable lease payments that do not depend on an index or a rate are recognized as expense in the period on which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, we use the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable.  After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made.  In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.

• Short-term leases and leases of low-value assets

We apply the short-term lease recognition exemption to our short-term leases of machinery and equipment  (i.e., those leases that have a lease term ending within 12 months or less from the commencement date and do not contain a purchase option).  We also apply the lease of low-value assets recognition exemption to leases that are considered of low value (i.e., below Php250 thousand).  Lease payments on short-term leases and leases of low-value assets are recognized as expense in our consolidated income statement on a straight-line basis over the lease term.

As a Lessor.  Leases in which we do not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases.  Rental income is accounted for on a straight-line basis over the lease term and is included in revenue in our consolidated income statements due to its operating nature.  Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the bases as rental income.

Sale and Leaseback.  If we transfer an asset to another entity (the buyer-lessor) and leases that asset back from the buyer-lessor, we account for the transfer contract and the lease by applying the requirements of IFRS 16. We first apply the requirements for determining when a performance obligation is satisfied in IFRS 15 to determine whether the transfer of an asset is accounted for as a sale of that asset.

For transfer of an asset that satisfies the requirements of IFRS 15 to be accounted for as a sale of the asset, we measure the right-of-use asset arising from the leaseback at the proportion of the previous carrying amount of the asset that relates to the right of use retained by us.  Accordingly, we recognize only the amount of any gain or loss that relates to the rights transferred to the buyer-lessor.

If the transfer of an asset does not satisfy the requirements of IFRS 15 to be accounted for as a sale of the asset, we continue to recognize the transferred asset and recognize a financial liability equal to the transfer proceeds. We account for the financial liability applying IFRS 9.

Income Taxes

Current income tax

Current income tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the taxation authorities.  The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted as at the end of the reporting period where we operate and

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generate taxable income.

Current income tax relating to items recognized directly in equity is recognized in equity and not in our consolidated income statement.  Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

Deferred income tax

Deferred income tax is provided on all temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the end of the reporting period.

Deferred income tax liabilities are recognized for all taxable temporary differences except: (1) when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and (2) with respect to taxable temporary differences associated with investments in subsidiaries, associates and interest in joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.  

Deferred income tax assets are recognized for all deductible temporary differences, the carryforward benefits of unused tax credits from excess minimum corporate income tax, or MCIT, over regular corporate income tax, or RCIT, and unused net operating loss carry over, or NOLCO.  Deferred income tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and carryforward benefits of unused tax credits and unused tax losses can be utilized, except: (1) when the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and (2) with respect to deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred income tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax assets to be utilized.  Unrecognized deferred income tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that future taxable profit will allow the deferred income tax assets to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted as at the end of the reporting period.

Deferred income tax relating to items recognized in “Other comprehensive income” account is included in our consolidated statements of comprehensive income and not in our consolidated income statements.

Deferred income tax assets and liabilities are offset, if a legally enforceable right exists to offset current income tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.  

Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, would be recognized subsequently if new information about facts and circumstances changed.  The adjustment would either be treated as a reduction to goodwill (as long as it does not exceed goodwill) if it is incurred during the measurement period or in our consolidated income statement.

VAT

Revenues, expenses and assets are recognized net of the amount of VAT, if applicable.  When VAT from sales of goods and/or services (output VAT) exceeds VAT passed on from purchases of goods or services (input

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VAT), the excess is recognized as payable in our consolidated statements of financial position.  When VAT passed on from purchases of goods or services (input VAT) exceeds VAT from sales of goods and/or services (output VAT), the excess is recognized as an asset in our consolidated statements of financial position to the extent of the recoverable amount.

Contingencies

Contingent liabilities are not recognized in our consolidated financial statements.  They are disclosed in the notes to our consolidated financial statements unless the possibility of an outflow of resources embodying economic benefits is remote.  Contingent assets are not recognized in our consolidated financial statements but are disclosed in the notes to our consolidated financial statements when an inflow of economic benefits is probable.

Segment Information

PLDT and its subsidiaries are organized into three business segments.  Such business segments are the bases upon which we report our primary segment information.  Financial information on business segments is presented in Note 4 – Operating Segment Information.

Events After the End of the Reporting Period

Post year-end events up to the date of approval of the Board of Directors that provide additional information about our financial position at the end of the reporting period (adjusting events) are reflected in our consolidated financial statements.  Post year-end events that are not adjusting events are disclosed in the notes to our consolidated financial statements when material.

Equity

Preferred and common stocks are measured at par value for all shares issued.  Incremental costs incurred directly attributable to the issuance of new shares are shown in equity as a deduction from proceeds, net of tax.  Proceeds and/or fair value of considerations received in excess of par value are recognized as capital in excess of par value in our consolidated statement of changes in equity and consolidated statements of financial position.

Treasury stocks are our own equity instruments which are reacquired and recognized at cost and presented as reduction in equity.  No gain or loss is recognized in our consolidated income statements on the purchase, sale, reissuance or cancellation of our own equity instruments.  Any difference between the carrying amount and the consideration upon reissuance or cancellation of shares is recognized as capital in excess of par value in our consolidated statement of changes in equity and consolidated statements of financial position.

Change in the ownership interest of a subsidiary, without loss of control, is accounted for as an equity transaction and any impact is presented as part of capital in excess of par value in our consolidated statement of changes in equity.

Retained earnings represent our net accumulated earnings less cumulative dividends declared.

Other comprehensive income comprises of income and expense, including reclassification adjustments that are not recognized in our consolidated income statement as required or permitted by IFRS.

Standards Issued But Not Yet Effective

The standards that are issued, but not yet effective, up to the date of issuance of the consolidated financial statements are listed below.  We will adopt these standards and amendments to existing standards which are relevant to us when these become effective.  

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Effective beginning on or after January 1, 2022

• Amendments to International Accounting Standards, or IAS, 16, Property, Plant and Equipment, Proceeds Before Intended Use

The amendments prohibit entities deducting from the cost of an item of property, plant and equipment, any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management.  Instead, an entity recognizes the proceeds from selling such items, and the costs of producing those items, in profit or loss.

The amendment is effective for annual reporting periods beginning on or after January 1, 2022 and must be applied retrospectively to items of property, plant and equipment made available for use on or after the beginning of the earliest period presented when the entity first applies the amendment.

The amendments will have no significant impact on our consolidated financial statements.

• Amendments to IAS 37, Provisions, Contingent Liabilities and Contingent Assets, Onerous Contracts: Cost of Fulfilling a Contract

The amendments specify which costs an entity needs to include when assessing whether a contract is onerous or loss-making.  The amendments apply a “directly related cost approach”.  The costs that relate directly to a contract to provide goods or services include both incremental costs and an allocation of costs directly related to contract activities.  General and administrative costs do not relate directly to a contract and are excluded unless they are explicitly chargeable to the counterparty under the contract.

The amendments are effective for annual reporting periods beginning on or after January 1, 2022.  We will apply these amendments to contracts for which we have not yet fulfilled all our obligations at the beginning of the annual reporting period in which we first apply the amendments.  

We are currently assessing the impact of the amendments on our consolidated financial statements.

• Amendments to IFRS 3, Business Combinations, Reference to the Conceptual Framework

The amendments are intended to replace a reference to the Framework for the Preparation and Presentation of Financial Statements, issued in 1989, with a reference to the Conceptual Framework for Financial Reporting issued in March 2018 without significantly changing its requirements.  The amendments added an exception to the recognition principle of IFRS 3 to avoid the issue of potential ‘day 2’gains or losses arising for liabilities and contingent liabilities that would be within the scope of IAS 37 or International Financial Reporting Interpretations Committee 21, Levies, if incurred separately.

At the same time, the amendments add a new paragraph to IFRS 3 to clarify that contingent assets do not qualify for recognition at the acquisition date.

The amendments are effective for annual reporting periods beginning on or after January 1, 2022 and apply prospectively.

The amendments will have no significant impact on our consolidated financial statements.

Annual Improvements to IFRSs 2018-2020 Cycle

• Amendments to IFRS 1, First-time Adoption of International Financial Reporting Standards, Subsidiary as a first-time adopter

The amendment permits a subsidiary that elects to apply paragraph D16(a) of IFRS 1 to measure cumulative translation differences using the amounts reported by the parent, based on the parent’s date of transition to IFRS.  This amendment is also applied to an associate or joint venture that elects to apply paragraph D16(a) of IFRS 1.

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The amendment is effective for annual reporting periods beginning on or after January 1, 2022 with earlier adoption permitted.

The amendments will have no significant impact on our consolidated financial statements.

• Amendments to IFRS 9, Financial Instruments, Fees in the “10 percent” test for derecognition of financial liabilities

The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability.  These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf.  An entity applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment.

The amendment is effective for annual reporting periods beginning on or after January 1, 2022 with earlier adoption permitted.  We will apply the amendments to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment.

The amendments will have no significant impact on our consolidated financial statements.

• Amendments to IAS 41, Agriculture, Taxation in Fair Value Measurements

The amendment removes the requirement in paragraph 22 of IAS 41 that entities exclude cash flows for taxation when measuring the fair value of assets within the scope of IAS 41.

An entity applies the amendment prospectively to fair value measurements on or after the beginning of the first annual reporting period beginning on or after January 1, 2022 with earlier adoption permitted.

The amendments will have no significant impact on our consolidated financial statements.

Effective beginning on or after January 1, 2023

• Amendments to IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, Definition of Accounting Estimates

The amendments introduce a new definition of accounting estimates and clarify the distinction between changes in accounting estimates and changes in accounting policies and the correction of errors.  Also, the amendments clarify that the effects on an accounting estimate of a change in an input or a change in a measurement technique are changes in accounting estimates if they do not result from the correction of prior period errors.

An entity applies the amendments to changes in accounting policies and changes in accounting estimates that occur on or after January 1, 2023 with earlier adoption permitted.

The amendments will have no significant impact on our consolidated financial statements.

• Amendments to IAS 1, Presentation of Financial Statements and IFRS Practice Statement 2, Making Materiality Judgements, Disclosure of Accounting Policies

The amendments provide guidance and examples to help entities apply materiality judgements to accounting policy disclosures. The amendments aim to help entities provide accounting policy disclosures that are more useful by:

a. Replacing the requirement for entities to disclose their ‘significant’ accounting policies with a requirement to disclose their ‘material’ accounting policies; and

b. Adding guidance on how entities apply the concept of materiality in making decisions about accounting policy disclosures

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The amendments to the Practice Statement provide non-mandatory guidance. Meanwhile, the amendments to IAS 1 are effective for annual periods beginning on or after January 1, 2023.  Early application is permitted as long as this fact is disclosed.

We are currently assessing the impact of the amendments to our disclosures on accounting policies.

• Amendments to IAS 12, Income Taxes, Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction

The amendments narrow the scope of the initial recognition exception under IAS 12, so that it no longer applies to transactions that give rise to equal taxable and deductible temporary differences.

The amendments also clarify that where payments that settle a liability are deductible for tax purposes, it is a matter of judgement (having considered the applicable tax law) whether such deductions are attributable for tax purposes to the liability recognized in the financial statements (and interest expense) or to the related asset component (and interest expense).

An entity applies the amendments to transactions that occur on or after the beginning of the earliest comparative period presented for annual reporting periods on or after January 1, 2023.

The amendments will have no significant impact on our consolidated financial statements.

Effective beginning on or after January 1, 2024

• Amendments to IAS 1, Classification of Liabilities as Current or Noncurrent

The amendments clarify paragraphs 69 to 76 of IAS 1 to specify the requirements for classifying liabilities as current or non-current. The amendments clarify:

a. What is meant by a right to defer settlement;

b. That a right to defer must exist at the end of the reporting period;

c. That classification is unaffected by the likelihood that an entity will exercise its deferral right; and

d. That only if an embedded derivative in a convertible liability is itself an equity instrument would the terms of a liability not impact its classification

The amendments are effective for annual reporting periods beginning on or after January 1, 2023 and must be applied retrospectively.  However, in November 2021, the IASB tentatively decided to defer the effective date to no earlier than January 1, 2024.  We are currently assessing the impact the amendments will have on current practice and whether existing loan agreements may require renegotiation.  

Effective beginning on or after January 1, 2025

• IFRS 17, Insurance Contracts

IFRS 17 is a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure.  Once effective, IFRS 17 will replace IFRS 4, Insurance Contracts.  This new standard on insurance contracts applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features.  A few scope exceptions will apply.

The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for insurers.  In contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local accounting policies, IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects.  The core of IFRS 17 is the general model, supplemented by:

1. A specific adaptation for contracts with participation features (the variable fee approach); and

2. A simplified approach (the premium allocation approach) mainly for short-duration contracts.

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The Circular Letter No. 2020-62 issued by the Insurance Commission deferred the implementation of IFRS 17 by two years after its effective date on January 1, 2023, as decided by the IASB.

IFRS 17 is effective for reporting periods beginning on or after January 1, 2025, with comparative figures required.  Early application is permitted.

The standard will have no significant impact on our consolidated financial statements.

• Amendments to IFRS 17, Insurance Contracts, Initial Application of IFRS 17 and IFRS 9: Comparative Information

The amendments add a transition option for a “classification overlay” to address possible accounting mismatches between financial assets and insurance contract liabilities in the comparative information presented on initial application of IFRS 17.

If an entity elects to apply the classification overlay, it can only do so for comparative periods to which it applies IFRS 17 (i.e., from transition date to the date of initial application of IFRS 17).

No amendments have been made to the transition requirements of IFRS 9.

The amendments shall be applied at the same time IFRS 17 is adopted.

The amendments will have no significant impact on our consolidated financial statements.

Deferred effectivity

• Amendments to IFRS 10, Consolidated Financial Statements and IAS 28, Investments in Associates and Joint Ventures, Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

The amendments address the conflict between the IFRS 10 and IAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture.  The amendments clarify that a full gain or loss is recognized when a transfer to an associate or joint venture involves a business as defined in IFRS 3.  Any gain or loss resulting from the sale or contribution of assets that does not constitute a business, however, is recognized only to the extent of unrelated investors’ interests in the associate or joint venture.

In December 2015, the IASB decided to defer the effective date of the amendments until such time as it has finalised any amendments that result from its research project on the equity method.

3. Management’s Use of Accounting Judgments, Estimates and Assumptions

The preparation of our consolidated financial statements in conformity with IFRS requires us to make judgments, estimates and assumptions that affect the reported amounts of our revenues, expenses, assets and liabilities and disclosure of contingent liabilities at the end of each reporting period.  The uncertainties inherent in these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the assets or liabilities affected in the future years.

Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Judgments, key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next reporting period are consistent with those applied in the most recent annual financial statements.  Selected critical judgments and estimates applied in the preparation of the consolidated financial statements are discussed below:

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Judgments

In the process of applying our accounting policies, management has made judgments, apart from those involving estimations which have the most significant effect on the amounts recognized in our consolidated financial statements.

Revenue Recognition

Identifying performance obligations

We identify performance obligations by considering whether the promised goods or services in the contract are distinct goods or services.  A good or service is distinct when the customer can benefit from the good or service on its own or together with other resources that are readily available to the customer and our promise to transfer the good or service to the customer is separately identifiable from the other promises in the contract.

Revenues earned from multiple element arrangements offered by our fixed line and wireless businesses are split into separately identifiable performance obligations based on their relative stand-alone selling price in order to reflect the substance of the transaction.  The transaction price represents the best evidence of stand-alone selling price for the services we offer since this is the observable price we charge if our services are sold separately.  We account for customer contracts in accordance with IFRS 15 and have concluded that the service (telecommunication service) and non-service components (handset or equipment) may be accounted for as separate performance obligations.  The handset or equipment is delivered first, followed by the telecommunication service (which is provided over the contract/lock-in period of generally two years).  Revenue attributable to the separate performance obligations are based on the allocation of the transaction price relative to the stand-alone selling price.

Installation fees for voice and data services that are not custom built for the subscribers are considered as a single performance obligation together with monthly service fees, recognized over the customer subscription period since the subscriber cannot benefit from the installation services on its own or together with other resources that are readily available to the subscriber.  On the other hand, installation fees of data services that are custom built for the subscribers are considered as a separate performance obligation and is recognized upon completion of the installation services. Activation fees for both voice and data services are also considered as a single performance obligation together with monthly service fees, recognized over the customer subscription period.

Principal versus agent consideration

We enter into contracts with our customers involving multiple deliverable arrangements.  We determined that we control the goods before they are transferred to customers, and we have the ability to direct the use of the inventory.  The following factors indicate that we control the goods before they are being transferred to customers.

• We are primarily responsible for fulfilling the promise to provide the specified equipment;

• We bear inventory risk on our inventory before it has been transferred to the customer;

• We have discretion in establishing the prices for the other party’s goods or services and, therefore, the benefit that we can receive from those goods or services is not limited.  It is incumbent upon us to establish the price of our services to be offered to our subscribers; and

• Our consideration in these contracts is the entire consideration billed to the service provider.

Based on the foregoing, we are considered the principal in our contracts with other service providers except for certain VAS arrangements.  We have the primary obligation to provide the services to the subscriber.

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Timing of revenue recognition

We recognize revenues from contracts with customers over time or at a point in time depending on our evaluation of when the customer obtains control of the promised goods or services and based on the extent of progress towards completion of the performance obligation.  For the telecommunication service which is provided over the contract period of two or more years, revenue is recognized monthly as we provide the service because control is transferred over time.  For the device which is sold at the inception of the contract, revenue is recognized at the time of delivery because control is transferred at a point in time.

Identifying methods for measuring progress of revenue recognized over time

We determine the appropriate method of measuring progress which is either through the use of input or output methods.  Input method recognizes revenue on the basis of the entity’s efforts or inputs to the satisfaction of a performance obligation while output method recognizes revenue on the basis of direct measurements of the value to the customer of the goods or services transferred to date.

Revenue from telecommunication services is recognized through the use of input method wherein recognition is over time based on the customer subscription period since the customer simultaneously receives and consumes the benefits as the seller renders the services.

Significant financing component

We concluded that the handset component included in contracts with customers has a significant financing component considering the period between the time of the transfer of control over the handset and the customer’s payment of the price of the handset, which is more than one year.

In determining the interest to be applied to the amount of consideration, we concluded that the interest rate is the market interest rate adjusted with credit spread to reflect the customer credit risk that is commensurate with the rate that would be reflected in a separate financing transaction between us and our customer at contract inception.

Estimation of stand-alone selling price

We assessed that the service and non-service components represent separate performance obligations and thus, the amount of revenues should be recognized based on the allocation of the transaction price to the different performance obligations based on their stand-alone selling prices.  The stand-alone selling price is the price at which we sell the good or service separately to a customer.  However, if goods or services are not currently offered separately, we use the adjusted market or cost-plus margin method to determine the stand-alone selling price to be used in the revenue allocation.

In terms of allocation of transaction price between performance obligations, we assessed that allocating the transaction price using the stand-alone selling prices of the services and handset will result in more revenue allocated to non-service component.  The stand-alone selling price is based on the price in which we regularly sell the non-service and service component in a separate transaction.

Financial Instruments

Evaluation of business models in managing financial instruments

We determine our business model at the level that best reflects how we manage groups of financial assets to achieve our business objective.  Our business model is not assessed on an instrument-by-instrument basis, but a higher level of aggregated portfolios and is based on observable factors such as:

a. How the performance of the business model and the financial assets held within that business model are evaluated and reported to the entity’s key management personnel;

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b. The risks that affect the performance of the business model (and the financial assets held within that business model) and, in particular, the way those risks are managed; and

c. The expected frequency, value and timing of sales are also important aspects of our assessment.

The business model assessment is based on reasonably expected scenarios without taking ‘worst case’ or ‘stress case’ scenarios into account.  If cash flows after initial recognition are realized in a way that is different from our original expectations, we do not change the classification of the remaining financial assets held in that business model, but incorporates such information when assessing newly originated or newly purchased financial assets going forward.

We have determined that for cash and cash equivalents, short-term investments, investment in debt securities and other long-term investments, and trade and other receivables, the business model is to collect the contractual cash flows until maturity.  For receivables from MPIC, we have determined that its business model is to both collect contractual cash flows and sale of financial assets.

IFRS 9, however, emphasizes that if more than an infrequent number of sales are made out of a portfolio of financial assets carried at amortized cost, we should assess whether and how such sales are consistent with the objective of collecting contractual cash flows.  

Definition of default and credit-impaired financial assets

We define a financial instrument as in default, which is fully aligned with the definition of credit-impaired, when it meets one or more of the following criteria:

• Quantitative criteria

For trade receivables and all other financial assets subject to impairment, default occurs when the receivable becomes 90 days past due, except for trade receivables from Corporate subscribers, which are determined to be in default when the receivables become 120 days past due.

• Qualitative criteria

The counterparty meets unlikeliness to pay criteria, which indicates the counterparty is in significant financial difficulty.  These are instances where:

a. The counterparty is experiencing financial difficulty or is insolvent;

b. The counterparty is in breach of financial covenant(s);

c. An active market for that financial assets has disappeared because of financial difficulties;

d. Concessions have been granted by us, for economic or contractual reasons relating to the counterparty’s financial difficulty;

e. It is becoming probable that the counterparty will enter bankruptcy or other financial reorganization; and

f. Financial assets are purchased or originated at a deep discount that reflects the incurred credit losses.

The criteria above have been applied to all financial instruments, except FVPL, held by us and are consistent with the definition of default used for internal credit risk management purposes.  The default definition has been applied consistently to the ECL models throughout our expected loss calculation.

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Significant increase in credit risk

At each reporting date, we assess whether there has been a significant increase in credit risk for financial assets since initial recognition by comparing the risk of default occurring over the expected life between the reporting date and the date of initial recognition.  We consider reasonable and supportable information that is relevant and available without undue cost or effort for this purpose.  This includes quantitative and qualitative information and forward-looking analysis.

An exposure will migrate through the ECL stages as asset quality deteriorates.  If, in a subsequent period, asset quality improves and also reverses any previously assessed significant increase in credit risk since origination, then the loss allowance measurement reverts from lifetime ECL to 12-month ECL.  

Using our judgment and, where possible, relevant historical experience, we may determine that an exposure has undergone a significant increase in credit risk based on particular qualitative indicators that we consider are indicative of such and whose effect may not otherwise be fully reflected in its quantitative analysis on a timely basis.

As a backstop, we consider that a significant increase in credit risk occurs no later than when an asset is more than 30 days past due.  Days past due are determined by counting the number of days since the earliest elapsed due date in respect of which full payment has not been received.  Due dates are determined without considering any grace period that might be available to the counterparty.

Exposures that have not deteriorated significantly since origination, or where the deterioration remains within our investment grade criteria, or which are less than 30 days past due, are considered to have a low credit risk.  The provision for credit losses for these financial assets is based on a 12-month ECL.  The low credit risk exemption has been applied on debt investments that meet the investment grade criteria of the PLDT Group.

Determination of functional currency

The functional currencies of the entities under the PLDT Group are the currency of the primary economic environment in which each entity operates.  It is the currency that mainly influences the revenue from and cost of rendering products and services.

The presentation currency of the PLDT Group is the Philippine Peso.  Based on the economic substance of the underlying circumstances relevant to the PLDT Group, the functional currency of all entities under PLDT Group is the Philippine Peso, except for (a) FECL Group, PLDT Global and certain of its subsidiaries, PGNL and certain of its subsidiaries, Chikka and certain of its subsidiaries and PGIC, which uses the U.S. Dollar;
(b) iCommerce, CPL and AGSPL, which uses the Singaporean Dollar; (c) AGS Indonesia, which uses the Indonesian Rupiah; and (d) PLDT Malaysia Sdn Bhd, which uses the Malaysian Ringgit.

Determining the lease term of contracts with renewal and termination options – Company as a Lessee

Upon adoption of IFRS 16, we applied a single recognition and measurement approach for all leases, except for short-term leases and leases of ‘low-value’ assets.  See Section Leases for the accounting policy.  

We determine the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.

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We, as the lessee, have the option, under some of our lease agreements to lease the assets for additional terms.  We apply judgment in evaluating whether it is reasonably certain to exercise the option to renew. That is, we consider all relevant factors that create an economic incentive for us to exercise the renewal. After the commencement date, we reassess the lease term if there is a significant event or change in circumstances that is within our control and affects our ability to exercise or not to exercise the option to renew or to terminate (e.g., a change in business strategy).

We included the renewal period as part of the lease term for leases such as poles and leased circuits due to the significance of these assets to our operations.  These leases have a non-cancellable period (i.e., one to 30 years) and there will be a significant negative effect on our provision of services if a replacement is not readily available.  Furthermore, the periods covered by termination options are included as part of these lease term only when they are reasonably certain not to be exercised.

See Note 10 – Leases for information on potential future payments relating to periods following the exercise date of extension and termination options that are not included in the lease term.

Total depreciation of ROU assets amounted to Php5,388 million, Php4,940 million and Php4,393 million for the years ended December 31, 2021, 2020 and 2019, respectively.  Total lease liabilities amounted to Php21,686 million and Php20,025 million as at December 31, 2021 and 2020, respectively.  See Note 10 – Leases and Note 28 – Financial Assets and Liabilities.

Accounting for investment in Multisys Technologies Corporation, or Multisys

On December 3, 2018, PGIH completed the closing of its investment in Multisys.  Out of the Php550 million total consideration for the acquisition of existing shares, PGIH paid Php523 million to the owners of Multisys.  On June 3, 2019, the balance of the acquisition consideration amounting to Php27 million was fully paid.  Further, PGIH invested Php800 million into Multisys as a deposit for future stock subscription pending the approval by the Philippine SEC of the capital increase of Multisys.  On February 1, 2019, the Philippine SEC approved the capital increase of Multisys.

Based on our judgment, at the PLDT Group level, PGIH’s investment in Multisys gives PGIH a joint control in Multisys and thus is accounted for as investment in joint venture using the equity method of accounting in accordance with IAS 28, Investments in Associates and Joint Ventures.  See Note 11 – Investment in Associates and Joint Ventures – Investment in Joint Ventures – Investment of PGIH in Multisys.

Accounting for investments in MediaQuest Holdings, Inc., or MediaQuest, through Philippine Depositary Receipts, or PDRs

ePLDT made various investments in PDRs issued by MediaQuest in relation to its direct interest in Satventures, Inc., or Satventures, and indirect interest in Cignal TV, Inc., or Cignal TV.  

Based on our judgment, at the PLDT Group level, ePLDT’s investments in PDRs gives ePLDT a significant influence over Satventures and Cignal TV as evidenced by provision of essential technical information and material transactions among PLDT, Smart, Satventures and Cignal TV, and thus are accounted for as investments in associates using the equity method.

See related discussion on Note 11 – Investments in Associates and Joint Ventures – Investments in Associates – Investment of ePLDT in MediaQuest PDRs.

Assessment of loss of control over VIH

The Company assesses the consequences of changes in the ownership interest in a subsidiary that may result in a loss of control as well as the consequence of losing control of a subsidiary during the reporting period.  Whether or not the Company retains control over the subsidiary depends on an evaluation of a number of factors that indicate if there are changes to one or more of the three elements of control.  When the Company has less than majority of the voting rights or similar rights to an investee, the Company considers all relevant facts and circumstances in assessing whether it has power over an investee, including, among others,

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representation on its board of directors, voting rights, and other rights of other investors, including their participation in significant decisions made in the ordinary course of business.

As a result of the subscriptions of the new investors in VIH, PCEV’s ownership interest was diluted to 48.74% and retained only two out of the five Board of Director seats in the investee.  Consequently, as at November 28, 2018, PCEV lost its control over VIH and accounted for its remaining interest as investment in associate.

As at December 31, 2021 and 2020, the Company holds 38.45% and 43.97% interest over VIH. PCEV will continue to account for its remaining interest as investment in associate.

See Note 11 – Investments in Associates and Joint Ventures – Investments in Associates – Investment of PCEV in VIH.

Accounting for investment of PCEV in Maya Bank, Inc., or Maya Bank

The shareholders’ agreement of the Bank Holdcos requires affirmative vote of at least one director nominated by both PCEV and VIH to direct the relevant activities of the Bank HoldCos. The Bank HoldCos were incorporated for the sole purpose of holding shares or equity investments in Maya Bank.  Because of the contractual arrangement between the parties, the investments in the Bank HoldCos are accounted as joint venture.

See Note 11 – Investments in Associates and Joint Ventures – Investments in Associates – Investment of PCEV in Maya Bank.

Accounting for investments in Vega Telecom Inc., or VTI, Bow Arken Holdings Company, or Bow Arken, and Brightshare Holdings, Inc., or Brightshare  

On May 30, 2016, PLDT acquired a 50% equity interest in each of VTI, Bow Arken and Brightshare.  See related discussion on Note 11 – Investments in Associates and Joint Ventures – Investments in Joint Ventures.  Based on the Memorandum of Agreement, PLDT and Globe Telecom, Inc., or Globe, each have the right to appoint half the members of the Board of Directors of each of VTI, Bow Arken and Brightshare, as well as the (i) co-Chairman of the Board; (ii) co-Chief Executive Officer and President; and (iii) co-Controller where any matter requiring their approval shall be deemed passed or approved if the consents of both co-officers holding the same position are obtained.  All decisions of each Board of Directors may only be approved if at least one director nominated by each of PLDT and Globe votes in favor of it.

Based on these rights, PLDT and Globe have joint control over VTI, Bow Arken and Brightshare, which is defined in IFRS 11, Joint Arrangements, as a contractually agreed sharing of control of an arrangement and exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.  Consequently, PLDT and Globe classified the joint arrangement as a joint venture in accordance with IFRS 11 given that PLDT and Globe each have the right to 50% of the net assets of VTI, Bow Arken and Brightshare and their respective subsidiaries.

Accordingly, PLDT accounted for the investment in VTI, Bow Arken and Brightshare using the equity method of accounting in accordance with IAS 28.  Under the equity method of accounting, the investment is initially recognized at cost and adjusted thereafter for the post-acquisition change in the investor’s share of the investee’s net assets.  See Note 11 – Investment in Associates and Joint Ventures – Investment in Joint Ventures – Investments of PLDT in VTI, Bow Arken and Brightshare.

Accounting for investment in Beacon Electric Asset Holdings, Inc., or Beacon, under equity method

IAS 28 provides that where an entity holds 20% or more of the voting power (directly or through subsidiaries) of an investee, it will be presumed that the investor has significant influence, unless it can be clearly demonstrated that this is not the case.  If the ownership interest is less than 20%, the entity will be presumed not to have significant influence unless such influence can be clearly demonstrated.  

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PCEV entered into Share Purchase Agreement with MPIC on May 30, 2016 and June 13, 2017, to sell its equity interest in Beacon for a total consideration of Php26,200 million and Php21,800 million, respectively.  Upon closing of these sale transactions, MPIC settled portion of the considerations and the balances are being paid in annual installments until June 2021.  Prior to the final settlement, the unpaid balance from MPIC was measured at fair value using discounted cash flow valuation method and interest income were accreted over the term of the receivable.

MPIC agreed that for as long as: (a) PCEV owns at least 20% of the outstanding capital stock of Beacon; or
(b) the purchase price has not been fully paid by MPIC, PCEV shall retain the right to vote 50% of the outstanding capital stock of Beacon.  After the full payment has been settled in June 2021, PCEV ceased to hold significant influence over Beacon.  See Note 11 – Investments in Associates and Joint Ventures – Investments in Joint Ventures – Investment of PCEV in Beacon.

Material partly-owned subsidiaries

Our consolidated financial statements include additional information about subsidiaries that have non-controlling interest, or NCI, that are material to us, see Note 6 – Components of Other Comprehensive Loss.  We determined material partly-owned subsidiaries as those with balance of NCI greater than 5% of the total equity as at December 31, 2021 and 2020.  

Material associates and joint ventures

Our consolidated financial statements include additional information about associates and joint ventures that are material to us.  See Note 11 – Investments in Associates and Joint Ventures.  We determined material associates and joint ventures are those investees where our carrying amount of investments is greater than 5% of the total investments in associates and joint ventures as at December 31, 2021 and 2020.  

Determining Taxable Profit, Tax Bases, Unused Tax Losses, Unused Tax Credits and Tax Rates

We assess whether we have any uncertain tax position and applies significant judgment in identifying uncertainties over our income tax treatments.  We determined based on our assessment that it is probable that our income tax treatments (including those for the subsidiaries) will be accepted by the taxation authorities.

Corporate Recovery and Tax Incentives for Enterprises, or CREATE, Act

On March 26, 2021, President Rodrigo Duterte signed into law Republic Act No. 11534, or the CREATE Act, which introduced reforms to the corporate income tax and incentives systems.  It took effect 15 days after its complete publication in the Official Gazette or in a newspaper of general circulation, or on April 11, 2021.

The CREATE Act provides for the following reduction in corporate income tax rates, among others:

• Lower corporate income tax from 30% to 25%, retroactive to July 1, 2020, for both domestic and foreign corporations;

• Lower corporate income tax of 20% for small and medium domestic corporations (with net taxable income of Php5 million and below, and with total assets of not more than Php100 million excluding land); and

• Lower MCIT from 2% to 1% effective July 1, 2020 until June 30, 2023.

The CREATE Act was not considered substantially enacted as at December 31, 2020 and its passage into law on March 26, 2021 is considered as a non-adjusting subsequent event for 2020.  Accordingly, current and deferred taxes as at and for the year ended December 31, 2020 were computed and measured using the applicable tax rates as at December 31, 2020 (i.e. 30% RCIT / 2% MCIT) for financial reporting purposes.

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Under the CREATE Act, the lower regular corporate income tax rate of 25% applies retroactively to July 1, 2020.

• Based on the provisions of BIR Revenue Regulations (RR) No. 05-2021 dated April 8, 2021, the applicable statutory tax rate for the calendar year ended December 31, 2020 is 27.5%.  This resulted in a reduction of provision for current income tax amounting to Php485 million, which was reflected as an adjustment in the 2020 Annual Income Tax Returns; and

• Deferred income tax assets and liabilities as at December 31, 2021 are remeasured using the applicable statutory tax rate of 25% under the CREATE Act.  This resulted in lower net deferred income tax assets and liabilities as at December 31, 2021 of Php3,125 million and additional provision for deferred income tax of Php579 million.

The above adjustments in income tax provision were recognized in the first quarter of 2021.  Meanwhile, the tax rates provided for under the CREATE Act were used for the year ended December 31, 2021.

Estimates and Assumptions

The key estimates and assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities recognized in our consolidated financial statements within the next financial year are discussed below.  We based our estimates and assumptions on parameters available when our consolidated financial statements were prepared.  Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond our control.  Such changes are reflected in the assumptions when they occur.

Leases – Estimating the incremental borrowing rate, or IBR

In calculating the present value of lease payments, we use the IBR at the lease commencement date if the interest rate implicit in the lease is not readily determinable.  IBR is the rate of interest that a lessee would have to pay to borrow over a similar term, similar security, the funds necessary to obtain an asset of a similar value to the ROU asset in a similar economic environment.

We use benchmark rates from partner banks based on the tenor of our loan borrowings plus a spread adjustment based on our credit worthiness.

Our lease liabilities amounted to Php21,686 million and Php20,025 million as at December 31, 2021 and 2020, respectively.  See Note 10 – Leases.

Loss of control over VIH – Fair value measurement of interest retained

A deemed disposal occurs where the proportionate interest of PLDT in a subsidiary is reduced other than by an actual disposal, for example, by the issuance of shares to a third-party investor by the subsidiary.  When PLDT no longer has control, the remaining interest is measured at fair value as at the date the control was lost.  In determining the fair value of PLDT’s retained interest in VIH, we take into account recent transactions and all the facts and circumstances surrounding the transactions such as timing, transaction size, transaction frequency, and motivations of the investors.  We carefully assess the accounting implications of the stipulation in the shareholders’ agreements and consider whether such a transaction has been made at arm’s length.  See Note 11 – Investments in Associates and Joint Ventures – Investments in Associates – Investment of PCEV in VIH.

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Impairment of non-financial assets

IFRS requires that an impairment review be performed when certain impairment indicators are present.  In the case of goodwill and intangible assets with indefinite useful life, at a minimum, such assets are subject to an impairment test annually and whenever there is an indication that such assets may be impaired.  This requires an estimation of the VIU of the CGUs to which these assets are allocated.  The VIU calculation requires us to make an estimate of the expected future cash flows from the CGU and to choose a suitable discount rate in order to calculate the present value of those cash flows.  See Note 15 – Goodwill and Intangible Assets – Impairment Testing of Goodwill for the key assumptions used to determine the VIU of the relevant CGUs.

Determining the recoverable amount of property and equipment, ROU assets, investments in associates and joint ventures, goodwill and intangible assets, prepayments and other noncurrent assets, requires us to make estimates and assumptions in the determination of future cash flows expected to be generated from the continued use and ultimate disposition of such assets.  Future events could cause us to conclude that property and equipment, ROU assets, investments in associates and joint ventures, intangible assets and other noncurrent assets associated with an acquired business are impaired.  Any resulting impairment loss could have a material adverse impact on our financial position and financial performance.

The preparation of estimated future cash flows involves significant estimations and assumptions of future market conditions.  While we believe that our assumptions are appropriate and reasonable, significant changes in our assumptions may materially affect our assessment of recoverable values and may lead to future impairment charges under IFRS.  

See Note 4 – Operating Segment Information, Note 5 – Income and Expenses – Asset Impairment, and Note 9 – Property and Equipment.

The carrying values of our property and equipment, ROU assets, investments in associates and joint ventures, investment properties, goodwill and intangible assets, and prepayments are separately disclosed in Note 9 – Property and Equipment, Note 10 – Leases, Note 11 – Investments in Associates and Joint Ventures, Note 14 – Investment Properties, Note 15 – Goodwill and Intangible Assets and Note 19 – Prepayments, respectively.

Estimating useful lives of property and equipment

We estimate the useful lives of each item of our property and equipment based on the periods over which our assets are expected to be available for use.  Our estimation of the useful lives of our property and equipment is also based on our collective assessment of industry practice, internal technical evaluation and experience with similar assets.  The estimated useful lives of each assets are reviewed every year-end and updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limitations on the use of our assets.  It is possible, however, that future results of operations could be materially affected by changes in our estimates brought about by changes in the factors mentioned above.  The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances.  A reduction in the estimated useful lives of our property and equipment would increase our recorded depreciation and decrease the carrying amount of our property and equipment.

In 2019, Smart shortened its estimated useful lives of certain network, technology and other equipment, the most significant of which are the 2G technology-related equipment in preparation for the shutdown of said technology.  The shutdown is part of our strategy to address increasing demand for data and data centric applications by moving to faster speed LTE and 5G technologies.  As a result, Smart recognized additional depreciation expense of Php1,397 million in 2021, Php1,458 million in 2020 and Php1,508 million in 2019.  Smart expects additional depreciation expense arising from the acceleration of the estimated useful lives of the affected equipment amounting to Php46 million in each of the years 2022 and 2023.

In 2019, PLDT increased its estimated useful life of certain information origination and termination equipment and central office equipment due to technology advancement allowing longer economic life of the subscriber equipment.  As a result, PLDT recognized a decrease in depreciation amounting to Php1,719 million for the year ended December 31, 2019.

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In 2020, Smart shortened its estimated useful lives of certain network, technology and other equipment, the most significant of which are the 3G technology-related equipment in preparation for the shutdown of said technology.  The shutdown is the next phase of our strategy to migrate to faster speed LTE and 5G technologies.  Smart also shortened the estimated useful lives of certain network equipment as a result of transformation and cost reengineering initiatives.  As a result, Smart recognized additional depreciation expense of Php1,406 million and Php3,035 million in 2021 and 2020, respectively.  Smart expects additional depreciation arising from the acceleration of estimated useful lives of the technology equipment amounting to Php1,110 million in each of the years from 2022 to 2024.

In 2020, PLDT shortened its estimated useful lives of certain network equipment resulting from the Asymmetric Digital Subscriber Line migration projects from copper to fiber-to-the home to improve better quality of service for its existing broadband subscribers and address the growing demand for higher internet speed brought about by work from home and online classes.  As a result, PLDT recognized additional depreciation expense of Php1,028 million in 2020.

In 2021, Smart accelerated the depreciation of certain equipment as a result of its Technology Group initiatives such as IT and Tech refresh programs, core modernization and support replacements.  Additional depreciation expense recognized from these equipment amounted to Php1,138 million in 2021 and no additional depreciation expense is expected in subsequent periods.

The total depreciation and amortization of property and equipment amounted to Php46,781 million, Php42,540 million and Php35,263 million for the years ended December 31, 2021, 2020 and 2019, respectively.  Total carrying values of property and equipment, net of accumulated depreciation and amortization, amounted to Php302,736 million and Php260,868 million as at December 31, 2021 and 2020, respectively.  See Note 4 – Operating Segment Information and Note 9 – Property and Equipment.

Estimating useful lives of intangible assets with finite lives

Intangible assets with finite lives are amortized over their expected useful lives using the straight-line method of amortization.  At a minimum, the amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year-end.  Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates.  The amortization expense on intangible assets with finite lives is recognized in our consolidated income statements.

In October 2020, we implemented the rebranding of Sun Prepaid into Smart Prepaid.  As a result, the “Sun Cellular” trademark of DMPI which had been previously projected to be of continued use and accordingly estimated to have an indefinite life was subsequently treated as having a finite life and was amortized over a period of 12 months starting August 2020.  See Note 2 – Summary of Significant Accounting Policies – Sun Prepaid Rebranding to Smart Prepaid and Note 15 – Goodwill and Intangible Assets – Amortization of Sun Cellular Trademark.

The total amortization of intangible assets with finite lives amounted to Php2,822 million, Php2,496 million and Php758 million for the years ended December 31, 2021, 2020 and 2019, respectively.  Total carrying values of intangible assets with finite lives amounted to Php1,156 million and Php3,950 million as at December 31, 2021 and 2020, respectively.  See Note 4 – Operating Segment Information, Note 5 – Income and Expenses – Selling, General and Administrative Expenses and Note 15 – Goodwill and Intangible Assets.

Recognition of deferred income tax assets

We review the carrying amounts of deferred income tax assets at the end of each reporting period and reduce these to the extent that these are no longer probable that sufficient taxable income will be available to allow all or part of the deferred income tax assets to be utilized.  Our assessment on the recognition of deferred income tax assets on deductible temporary differences is based on the level and timing of forecasted taxable income of the subsequent reporting periods.  This forecast is based on our past results and future expectations on revenues

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and expenses as well as future tax planning strategies.  Based on this, management expects that we will generate sufficient taxable income to allow all or part of our deferred income tax assets to be utilized.  

Based on the above assessment, our consolidated unrecognized deferred income tax assets amounted to Php901 million and Php1,940 million as at December 31, 2021 and 2020, respectively.  Total consolidated provision from deferred income tax amounted to Php2,348 million, Php3,989 million and Php6,267 million for the years ended December 31, 2021, 2020 and 2019, respectively.  Total consolidated recognized net deferred income tax assets amounted to Php13,385 million and Php19,556 million as at December 31, 2021 and 2020, respectively.  See Note 4 – Operating Segment Information and Note 7 – Income Taxes.

Estimating allowance for ECLs

a. Measurement of ECLs

ECLs are derived from unbiased and probability-weighted estimates of expected loss, and are measured as follows:

• Financial assets that are not credit-impaired at the reporting date: as the present value of all cash shortfalls over the expected life of the financial asset discounted by the EIR.  The cash shortfall is the difference between the cash flows due to us in accordance with the contract and the cash flows that we expect to receive; and

• Financial assets that are credit-impaired at the reporting date: as the difference between the gross carrying amount and the present value of estimated future cash flows discounted by the EIR.

We leverage existing risk management indicators (e.g. internal credit risk classification and restructuring triggers), credit risk rating changes and reasonable and supportable information which allow us to identify whether the credit risk of financial assets has significantly increased.

b. Inputs, assumptions and estimation techniques

• General approach for cash in bank, short-term investments, debt securities, financial assets at FVOCI and advances and other noncurrent assets

The ECL is measured on either a 12-month or lifetime basis depending on whether a significant increase in credit risk has occurred since initial recognition.  We consider the probability of our counterparty to default its obligation and the expected loss at default after considering the effects of collateral, any potential value when realized and time value of money.  We consider the impact of the COVID-19 pandemic on the operations and financial standing of the counterparties during our assessment on significant increase in credit risk.  Based on our assessment, there is no significant increase in credit risk and the ECL for these financial assets under general approach are measured on a 12-month basis.

The assumptions underlying the ECL calculation are monitored and reviewed on a quarterly basis.

• Simplified approach for trade and other receivables and contract assets

The simplified approach does not require the tracking of changes in credit risk, but instead requires the recognition of lifetime ECL.  For trade receivables and contract assets, we use the simplified approach for calculating ECL.  We have considered similarities in underlying credit risk characteristics and behavior in determining the groupings of various customer segments.

We used historically observed default rates and adjusted these historical credit loss experience with forward-looking information.  At every reporting date, the historical default rates are updated and changes in the forward-looking estimates are analyzed.

There have been no significant changes in the estimation techniques used for calculating ECL on trade and other receivables and contract assets.

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• Incorporation of forward-looking information

We incorporated forward-looking information into both our assessment of whether the credit risk of an instrument has increased significantly since its initial recognition and our measurement of ECL.  

To do this, management considered a range of relevant forward-looking macro-economic assumptions and probability weights for the determination of unbiased general industry adjustments and any related specific industry adjustments that support the calculation of ECLs.  

The macro-economic factors are aligned with information used by us for other purposes such as strategic planning and budgeting.  

The probability weights used in the calculation of ECLs cover a range of possible outcomes and consider the severity of the impact of COVID-19 and the expected timing/duration of the recovery from the pandemic.

We have identified and documented key drivers of credit risk and credit losses of each portfolio of financial instruments and, using an analysis of historical data, has estimated relationships between macro-economic variables and credit risk and credit losses.

Predicted relationship between the key indicators and default and loss rates on various portfolios of financial assets have been developed based on analyzing historical data over the past three to eight years.  The methodologies and assumptions including any forecasts of future economic conditions are reviewed regularly.

We have not identified any uncertain event that it has assessed to be relevant to the risk of default occurring but where we are not able to estimate the impact on ECL due to lack of reasonable and supportable information.

Total provision for expected credit losses for trade and other receivables amounted to Php3,737 million, Php6,446 million and Php4,071 million for the years ended December 31, 2021, 2020 and 2019, respectively.  Trade and other receivables, net of allowance for expected credit losses, amounted to Php21,790 million and Php22,053 million as at December 31, 2021 and 2020, respectively.  See Note 5 – Income and Expenses and Note 17 – Trade and Other Receivables.

Total impairment losses for contract assets amounted to Php253 million, Php266 million and Php291 million for the years ended December 31, 2021, 2020 and 2019, respectively.  Contract assets, net of allowance for expected credit losses, amounted to Php2,251 million and Php2,467 million as at December 31, 2021 and 2020, respectively.  See Note 5 – Income and Expenses – Contract Balances.

• Grouping of instruments for losses measured on collective basis

A broad range of forward-looking information were considered as economic inputs such as the gross domestic product, or GDP, inflation rate, unemployment rates, export rates, G20 GDP and G20 inflation rates.  For expected credit loss provisions modelled on a collective basis, grouping of exposures is performed on the basis of shared risk characteristics, such that risk exposures within a group are homogeneous.  In performing this grouping, there must be sufficient information for the PLDT Group to be statistically acceptable.  Where sufficient information is not available internally, then we have considered benchmarking internal/external supplementary data to use for modelling purposes.  The characteristics and any supplementary data used to determine groupings are outlined below.

Trade receivables – Groupings for collective measurement

a. Retail subscribers;

b. Corporate subscribers;

c. Foreign administrations and domestic carriers; and

d. Dealers, agents and others

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The following credit exposures are assessed individually:

• All stage 3 assets, regardless of the class of financial assets; and

• The cash and cash equivalents, investment in debt securities and financial assets at FVOCI, and other financial assets.

Estimating pension benefit costs and other employee benefits

The cost of defined benefit and present value of the pension obligation are determined using the projected unit credit method.  An actuarial valuation includes making various assumptions which consists, among other things, discount rates, rates of compensation increases and mortality rates.  Further, our accrued benefit cost is affected by the fair value of the plan assets.  Key assumptions used to estimate fair value of the unlisted equity investments included in the plan assets consist of revenue growth rate, direct costs, capital expenditures, discount rates and terminal growth rates.  See Note 26 – Pension and Other Employee Benefits.  Due to complexity of valuation, the underlying assumptions and its long-term nature, a defined benefit obligation is highly sensitive to changes in assumptions.  While we believe that our assumptions are reasonable and appropriate, significant differences in our actual experience or significant changes in our assumptions may materially affect our cost for pension and other retirement obligations.  All assumptions are reviewed every year-end.

Net consolidated pension benefit costs amounted to Php2,213 million, Php2,218 million and Php1,018 million for the years ended December 31, 2021, 2020 and 2019, respectively.  The prepaid benefit costs amounted to Php1,018 million and Php1,021 million as at December 31, 2021 and 2020, respectively.  The accrued benefit costs amounted to Php7,760 million and Php13,342 million as at December 31, 2021 and 2020, respectively.  See Note 5 – Income and Expenses – Compensation and Employee Benefits, Note 19 – Prepayments and Note 26 – Pension and Other Employee Benefits.

Cycle 1 TIP

On September 26, 2017, the Board of Directors of PLDT approved the TIP which intends to provide incentive compensation to key officers, executives and other eligible participants who are consistent performers and contributors to the Company’s strategic and financial goals.  The incentive compensation will be in the form of Performance Shares, PLDT common shares of stock, which will be released in three annual grants on the condition, among others, that pre-determined consolidated core net income targets are successfully achieved over three annual performance periods from January 1, 2017 to December 31, 2019.  On September 26, 2017, the Board of Directors approved the acquisition of 860 thousand Performance Shares to be awarded under the TIP.  On March 7, 2018, the ECC of the Board approved the acquisition of additional 54 thousand shares, increasing the total Performance Shares to 914 thousand.  Metropolitan Bank and Trust Company, or Metrobank, through its Trust Banking Group, is the appointed Trustee of the trust established for purposes of the TIP.  The Trustee is designated to acquire the PLDT common shares in the open market through the facilities of the PSE and administer their distribution to the eligible participants subject to the terms and conditions of the TIP.  

On December 11, 2018, the ECC, of the Board approved Management’s recommended modifications to the Plan, and partial equity and cash settled set-up was implemented for the 2019 TIP Grant.  The revised set-up includes a fixed number of shares that will be granted (“equity award”) and the estimated fair value of the difference between the number of shares granted in the original equity grant and the equity award will be paid in cash (“cash award”).  The fair value of the award is determined at each reporting date using the estimated fair value of the corresponding shares.  

As at May 11, 2021, a total of 757 thousand PLDT common shares have been acquired by the Trustee, of which 239 thousand PLDT common shares have been released on March 12, 2020, April 7, 2020 and January 19, 2021 for the 2019 annual grant, and 302 thousand PLDT common shares have been released on March 28, 2019 for the 2018 annual grant, and 204 thousand shares on April 15, 2018 for the 2017 annual grant.  With the completion of the 2017 to 2019 annual grants, the remaining 12 thousand PLDT common shares have been transferred to the PLDT Beneficial Trust Fund on May 11, 2021.  The cash award for the 2019 annual grant that was paid on March 12, 2020 amounted to Php654 million.  The TIP is administered by the ECC of the Board.  

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Cycle 2 TIP

On August 7, 2020, the ECC approved the adjusted TIP that covers the years 2020 and 2021, and will be settled in cash.  The cash grant will be for the two years covered and payment will be in 2022.  The Cycle 2 TIP will be based on the achievement of the CCNI for the years 2020 and 2021.

This other long-term employee benefit liability is recognized and measured using the projected unit credit method and to be amortized on a straight-line basis over the vesting period.

The expense accrued for the TIP amounted to Php1,186 million, Php1,134 million and Php638 million for the years ended December 31, 2021, 2020 and 2019, respectively.  The accrued incentive payable, representing the cash settled set-up amounted to Php1,186 million and Php1,134 million as at December 31, 2021 and 2020, respectively.  See Note 5 – Income and Expenses – Compensation and Employee Benefits and Note 26 – Pension and Other Employee Benefits – Other Long-term Employee Benefits.  

Provision for asset retirement obligations

Provision for asset retirement obligations are recognized in the period in which these are incurred if a reasonable estimate can be made.  This requires an estimation of the cost to restore or dismantle on a per square meter basis, depending on the location, and is based on the best estimate of the expenditure required to settle the obligation at the future restoration or dismantlement date, discounted using a pre-tax rate that reflects the current market assessment of the time value of money and, where appropriate, the risk specific to the liability.  Total provision for asset retirement obligations amounted to Php2,121 million and Php2,000 million as at December 31, 2021 and 2020, respectively.  See Note 22 – Deferred Credits and Other Noncurrent Liabilities.

Provision for legal contingencies and tax assessments

We are currently involved in various legal proceedings and tax assessments.  Our estimates of the probable costs for the resolution of these claims have been developed in consultation with our counsel handling the defense in these matters and are based upon our analysis of potential results.  We currently do not believe these proceedings could materially reduce our revenues and profitability.  It is possible, however, that future financial position and performance could be materially affected by changes in our estimates or effectiveness of our strategies relating to these proceedings and assessments.  See Note 27 – Provisions and Contingencies.

Based on management’s assessment, appropriate provisions were made; however, management has decided not to disclose further details of these provisions as they may prejudice our position in certain legal proceedings.

Determination of fair values of financial assets and financial liabilities

When the fair value of financial assets and financial liabilities recorded in our consolidated statements of financial position cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the discounted cash flows model.  The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values.  The judgments include considerations of inputs such as liquidity risk, credit risk and volatility.  Changes in assumptions about these factors could affect the reported fair value of financial instruments.

Other than those whose carrying amounts are reasonable approximations of fair values, total fair values of noncurrent financial assets and noncurrent financial liabilities as at December 31, 2021 amounted to Php3,067 million and Php244,568 million, respectively, while the total fair values of noncurrent financial assets and noncurrent financial liabilities as at December 31, 2020 amounted to Php3,724 million and Php217,291 million, respectively.  See Note 28 – Financial Assets and Liabilities.    

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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, BCC and PLDT Global and certain subsidiaries, data center, cloud, cyber security services, managed information technology services and resellership through ePLDT, IPCDSI Group, AGS Group, Curo and ePDS; full-service customer rewards and loyalty programs provided by MRSI; and distribution of Filipino channels and content through PGNL and its subsidiaries; and

• Others – PCEV, PGIH, PLDT Digital and its subsidiaries, and PGIC, our investment companies.

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

The chief operating decision maker, which we refer to as 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 year; earnings before interest, taxes, and depreciation and amortization, or Adjusted EBITDA; Adjusted EBITDA margin; and core income.  Net income for the year is measured consistent with net income in our consolidated financial statements.

Adjusted EBITDA for the year is measured as net income excluding depreciation and amortization, amortization of intangible assets, asset impairment on noncurrent assets, financing costs – net, 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 year is measured as Adjusted EBITDA divided by service revenues.

Core income for the year 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 year 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

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financial statements, which is in accordance with IFRS.The segment revenues, net income, and other segment information of our reportable operating segments for the years ended December 31, 2021, 2020 and 2019, and as at December 31, 2021 and 2020 are as follows:

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	Wireless			Fixed Line			Others			Inter- segment Transactions			Consolidated
	(in million pesos, except for Adjusted EBITDA margin)
December 31, 2021
Revenues
External customers		105,492			87,765			—			—			193,257
Service revenues		98,512			87,239			—			—			185,751
Non-service revenues		6,980			526			—			—			7,506
Inter-segment transactions		1,127			29,298			—			(30,425	)		—
Service revenues		1,127			29,290			—			(30,417	)		—
Non-service revenues		—			8			—			(8	)		—
Total revenues		106,619			117,063			—			(30,425	)		193,257
Results
Depreciation and amortization		40,459			22,139			—			(10,429	)		52,169
Asset impairment		1,241			3,743			1			—			4,985
Interest income		355			275			26			—			656
Equity share in net earnings (losses) of associates and joint    ventures		—			103			(1,204	)		—			(1,101	)
Financing costs – net		7,551			6,029			—			(3,166	)		10,414
Provision for (benefit from) income tax		3,366			4,103			(270	)		279			7,478
Net income (loss) / Segment profit (loss)		9,434			26,146			384			(9,288	)		26,676
Adjusted EBITDA		60,876			45,832			(7	)		(10,801	)		95,900
Adjusted EBITDA margin		61	%		39	%		—			—			52	%
Core income (loss)		13,645			26,298			(666	)		(9,340	)		29,937
Telco core income (loss)		13,645			25,736			192			(9,340	)		30,233
Assets and liabilities
Operating assets		299,513			285,083			7,351			(32,368	)		559,579
Investments in associates and joint ventures		39			43,519			9,806			—			53,364
Deferred income tax assets – net		4,695			8,433			(81	)		338			13,385
Total assets		304,247			337,035			17,076			(32,030	)		626,328
Operating liabilities		213,219			293,162			1,023			(8,710	)		498,694
Deferred income tax liabilities		—			169			—			—			169
Total liabilities		213,219			293,331			1,023			(8,710	)		498,863
Other segment information
Capital expenditures, including capitalized interest (Note 9)		36,898			52,085			—			—			88,983
December 31, 2020
Revenues
External customers		101,789			79,215			—			—			181,004
Service revenues		95,748			77,886			—			—			173,634
Non-service revenues		6,041			1,329			—			—			7,370
Inter-segment transactions		2,422			19,524			—			(21,946	)		—
Service revenues		2,422			19,524			—			(21,946	)		—
Non-service revenues		—			—			—			—			—
Total revenues		104,211			98,739			—			(21,946	)		181,004
Results
Depreciation and amortization		35,134			19,383			—			(7,037	)		47,480
Asset impairment		2,196			5,490			1			(41	)		7,646
Interest income		537			636			92			(55	)		1,210
Equity share in net earnings (losses) of associates and joint    ventures		—			50			(2,378	)		—			(2,328	)
Financing costs – net		6,886			6,059			55			(2,914	)		10,086
Provision for (benefit from) income tax		4,536			3,734			(617	)		788			8,441
Net income (loss) / Segment profit (loss)		15,166			14,509			(318	)		(4,777	)		24,580
Adjusted EBITDA		60,272			33,405			(12	)		(7,507	)		86,158
Adjusted EBITDA margin		61	%		34	%		—			—			50	%
Core income (loss)		16,440			15,463			193			(4,967	)		27,129
Telco core income (loss)		17,217			13,649			2,188			(4,967	)		28,087
Assets and liabilities
Operating assets		219,412			319,384			6,371			(41,000	)		504,167
Investments in associates and joint ventures		40			43,690			8,393			—			52,123
Deferred income tax assets – net		6,943			11,628			(350	)		1,335			19,556

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Total assets	226,395		374,702		14,414		(39,665	)	575,846
Operating liabilities	227,687		274,614		1,457		(48,303	)	455,455
Deferred income tax liabilities	23		330		—		373		726
Total liabilities	227,710		274,944		1,457		(47,930	)	456,181
Other segment information
Capital expenditures, including capitalized interest (Note 9)	33,118		38,786		—		—		71,904
December 31, 2019
Revenues
External customers	94,488		74,699		—		—		169,187
Service revenues	88,243		73,112		—		—		161,355
Non-service revenues	6,245		1,587		—		—		7,832
Inter-segment transactions	2,418		14,707		—		(17,125	)	—
Service revenues	2,418		14,707		—		(17,125	)	—
Non-service revenues	—		—		—		—		—
Total revenues	96,906		89,406		—		(17,125	)	169,187
Results
Depreciation and amortization	29,484		16,141		—		(5,969	)	39,656
Asset impairment	1,133		3,699		1		—		4,833
Interest income	703		680		362		—		1,745
Equity share in net earnings (losses) of associates and joint    ventures	—		568		(2,103	)	—		(1,535	)
Financing costs – net	6,422		5,078		—		(2,947	)	8,553
Provision for (benefit from) income tax	4,423		5,341		(444	)	230		9,550
Net income (loss) / Segment profit (loss)	13,101		11,421		(1,769	)	33		22,786
Adjusted EBITDA	52,789		33,162		(101	)	(6,035	)	79,815
Adjusted EBITDA margin	58	%	38	%	—		—		49	%
Core income (loss)	13,685		12,531		(1,151	)	46		25,111
Telco core income	14,063		12,531		440		46		27,080
Assets and liabilities
Operating assets	287,059		198,468		7,943		(45,929	)	447,541
Investments in associates and joint ventures	10		73,386		9,897		(29,430	)	53,863
Deferred income tax assets – net	13,102		11,791		(711	)	(559	)	23,623
Total assets	300,171		283,645		17,129		(75,918	)	525,027
Operating liabilities	221,755		229,855		833		(46,289	)	406,154
Deferred income tax liabilities	1,986		384		252		(39	)	2,583
Total liabilities	223,741		230,239		1,085		(46,328	)	408,737
Other segment information
Capital expenditures, including capitalized interest (Note 9)	30,718		42,153		—		—		72,871

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The following table shows the reconciliation of our consolidated net income to our consolidated Adjusted EBITDA for the years ended December 31, 2021, 2020 and 2019:

	2021			2020			2019
	(in million pesos)
Consolidated net income		26,676			24,580			22,786
Add (deduct) adjustments:
Depreciation and amortization (Notes 9 and 10)		52,169			47,480			39,656
Financing costs – net (Note 5)		10,414			10,086			8,553
Provision for income tax (Note 7)		7,478			8,441			9,550
Foreign exchange gains (losses) – net (Notes 5 and 28)		3,890			(1,488	)		(424	)
Amortization of intangible assets (Note 15)		2,822			2,496			758
Equity share in net losses of associates and joint ventures (Note 11)		1,101			2,328			1,535
Impairment of property and equipment (Notes 5 and 9)		148			—			—
Interest income (Note 5)		(656	)		(1,210	)		(1,745	)
Losses (gains) on derivative financial instruments – net (Note 28)		(1,400	)		378			284
Other income – net		(6,742	)		(6,933	)		(1,138	)
Gain on dilution of shares (Notes 5 and 11)		(826	)		(394	)		—
Gains on sale of property and equipment (Note 5)		(884	)		(3,369	)		(88	)
Gain on debt modification (Note 5)		(1,372	)		—			—
Reversal of provisions (Note 5)		(2,594	)		(2,679	)		(999	)
Others		(1,066	)		(491	)		(51	)
Total adjustments		69,224			61,578			57,029
Consolidated Adjusted EBITDA		95,900			86,158			79,815

The following table shows the reconciliation of our consolidated net income to our consolidated core income and telco core income for the years ended December 31, 2021, 2020 and 2019:

	2021			2020			2019
	(in million pesos)
Consolidated net income		26,676			24,580			22,786
Add (deduct) adjustments:
Foreign exchange losses (gains) – net (Notes 5 and 28)		3,890			(1,488	)		(424	)
Sun Trademark amortization (Note 15)		2,628			1,877			—
Accelerated depreciation		1,110			—			—
Manpower rightsizing program, or MRP (Note 5)		269			2,625			3,296
Losses from changes in fair value of financial assets at FVPL		174			—			675
Impairment/derecognition of investments (Notes 11 and 12)		60			659			34
Core income adjustment on equity share in net income    of associates and joint ventures		(7	)		(6	)		(226	)
Net income attributable to noncontrolling interests		(309	)		(296	)		(265	)
CREATE Act impact on deferred income taxes – net		(355	)		—			—
Net tax effect of aforementioned adjustments		(1,209	)		(1,106	)		(998	)
Gain on debt modification – net of amortization of debt discount		(1,339	)		—			—
Losses (gains) on derivative financial instruments – net,    excluding hedge costs (Note 28)		(1,651	)		284			233
Total adjustments		3,261			2,549			2,325
Consolidated core income		29,937			27,129			25,111
Add (deduct) adjustments:
Share in VIH losses		1,981			1,954			1,776
Accelerated depreciation		—			1,496			378
Loss (gain) on sale of Rocket Internet SE, or Rocket Internet, shares		—			364			(185	)
Gain from condonation of debt		—			(240	)		—
Gain on sale and leaseback of Smart Headquarters – net of tax		—			(2,293	)		—
VIH gain on dilution – net of tax		(702	)		(323	)		—
Gain on asset sales – net of tax (Note 5)		(983	)		—			—
Total adjustments		296			958			1,969
Telco core income		30,233			28,087			27,080

F-73

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, 2021, 2020 and 2019:

	2021						2020						2019
	Basic			Diluted			Basic			Diluted			Basic			Diluted
Consolidated core EPS		138.29			138.29			125.29			125.29			115.95			115.95
Add (deduct) adjustments:
Gains (losses) on derivative financial instruments –    net, excluding hedge costs		5.73			5.73			(0.92	)		(0.92	)		(0.75	)		(0.75	)
Gain on debt modification		4.65			4.65			—			—			—			—
CREATE Act impact on deferred taxes – net		1.64			1.64			—			—			—			—
Core income adjustment on equity share in net    earnings of associates and joint ventures		0.03			0.03			0.03			0.03			1.05			1.05
Impairment/derecognition of investments		(0.28	)		(0.28	)		(3.05	)		(3.05	)		(0.16	)		(0.16	)
Losses from changes in fair value of financial    assets at FVPL		(0.81	)		(0.81	)		—			—			—			—
MRP		(1.02	)		(1.02	)		(8.51	)		(8.51	)		(10.73	)		(10.73	)
Accelerated depreciation		(3.85	)		(3.85	)		—			—			—			—
Sun Trademark amortization		(9.12	)		(9.12	)		(6.08	)		(6.08	)		—			—
Foreign exchange gains (losses) – net		(13.50	)		(13.50	)		5.36			5.36			1.73			1.73
Unrealized losses in fair value of investments		—			—			—			—			(3.12	)		(3.12	)
Total adjustments		(16.53	)		(16.53	)		(13.17	)		(13.17	)		(11.98	)		(11.98	)
Consolidated EPS attributable to common equity    holders of PLDT (Note 8)		121.76			121.76			112.12			112.12			103.97			103.97

The following table presents our revenues from external customers by category of products and services for the years ended December 31, 2021, 2020 and 2019:

	2021		2020		2019
	(in million pesos)
Wireless services
Service revenues:
Mobile		95,619		95,589		87,823
Home broadband		2,889		40		85
MVNO and others		4		119		335
		98,512		95,748		88,243
Non-service revenues:
Sale of mobile handsets and broadband data modems		6,980		6,041		6,245
Total wireless revenues		105,492		101,789		94,488
Fixed line services
Service revenues:
Voice		20,222		19,484		19,890
Data		66,624		58,064		52,787
Miscellaneous		393		338		435
		87,239		77,886		73,112
Non-service revenues:
Sale of computers, phone units and SIM cards		454		1,140		1,193
Point-product-sales		72		189		394
		526		1,329		1,587
Total fixed line revenues		87,765		79,215		74,699
Total revenues		193,257		181,004		169,187

Disclosure of the geographical distribution of our revenues from external customers and the geographical location of our total assets are not provided since 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, 2021, 2020 and 2019.

F-74

5. Income and Expenses

Revenues from Contracts with Customers

Disaggregation of Revenue

We derived our revenue from the transfer of goods and services over time and at a point in time in the following major product lines.  This is consistent with the revenue information that is disclosed for each reportable segment under IFRS 8, Operating Segments.  See Note 4 – Operating Segment Information.

Set out is the disaggregation of PLDT Group’s revenues from contracts with customers for the years ended December 31, 2021, 2020 and 2019:

Revenue Streams	Wireless		Fixed Line		Others		Inter- segment Transactions			Consolidated
	(in million pesos)
December 31, 2021
Type of good or service
Service revenue		99,639		116,529		—		(30,417	)		185,751
Non-service revenue		6,980		534		—		(8	)		7,506
Total revenues from contracts with customers		106,619		117,063		—		(30,425	)		193,257
Timing of revenue recognition
Transferred over time		99,639		116,529		—		(30,417	)		185,751
Transferred at a point time		6,980		534		—		(8	)		7,506
Total revenues from contracts with customers		106,619		117,063		—		(30,425	)		193,257
December 31, 2020
Type of good or service
Service revenue		98,170		97,410		—		(21,946	)		173,634
Non-service revenue		6,041		1,329		—		—			7,370
Total revenues from contracts with customers		104,211		98,739		—		(21,946	)		181,004
Timing of revenue recognition
Transferred over time		98,170		97,410		—		(21,946	)		173,634
Transferred at a point time		6,041		1,329		—		—			7,370
Total revenues from contracts with customers		104,211		98,739		—		(21,946	)		181,004
December 31, 2019
Type of good or service
Service revenue		90,661		87,819		—		(17,125	)		161,355
Non-service revenue		6,245		1,587		—		—			7,832
Total revenues from contracts with customers		96,906		89,406		—		(17,125	)		169,187
Timing of revenue recognition
Transferred over time		90,661		87,819		—		(17,125	)		161,355
Transferred at a point time		6,245		1,587		—		—			7,832
Total revenues from contracts with customers		96,906		89,406		—		(17,125	)		169,187

Contract Balances

Contract balances as at December 31, 2021 and 2020 consists of the following:

	2021		2020
	(in million pesos)
Trade and other receivables (Note 17)		35,625		38,304
Contract assets		2,306		2,559
Contract liabilities and unearned revenues (Notes 22 and 24)		13,621		9,571

The decrease in gross trade and other receivables of Php2,679 million as at December 31, 2021 was primarily due to accounts written-off.

F-75

The decrease of Php253 million in contract assets as at December 31, 2021 was due to lower device plan activations.  

The increase of Php4,050 million in contract liabilities and unearned revenues as at December 31, 2021 is related to the overall higher revenues from postpaid and prepaid subscribers due to the increase in demand as more people are doing their activities online due to the COVID-19 restrictions.

Set out below is the movement in the allowance for expected credit losses of contracts assets for the years ended December 31, 2021, 2020 and 2019.

	2021			2020		2019
	(in million pesos)
Balances at beginning of the year		92			70		131
Provisions		32			—		—
Reclassification		(69	)		22		(61	)
Balances at end of the year		55			92		70

Changes in the contract liabilities and unearned revenues accounts for the years ended December 31, 2021, 2020 and 2019 are as follows:

	2021			2020			2019
	(in million pesos)
Balances at beginning of the year		9,571			8,483			7,182
Deferred during the year		138,346			127,160			111,084
Recognized as revenue during the year		(134,296	)		(126,072	)		(109,783	)
Balances at end of the year		13,621			9,571			8,483

The contract liabilities and unearned revenues accounts as at December 31, 2021 and 2020 are as follows:

	2021		2020
	(in million pesos)
Unearned revenues from prepaid contracts		6,716		6,185
Advance monthly service fees		2,476		1,747
Short-term advances for installation services		2,355		1,167
Leased facilities		2,045		446
Long-term advances from equipment		29		26
Total contract liabilities and unearned revenues		13,621		9,571
Contract liabilities:
Noncurrent (Note 22)		223		4
Current (Note 24)		21		12
Unearned revenues:
Noncurrent (Note 22)		3,335		972
Current (Note 24)		10,042		8,583

Unearned revenues on leased circuits pertain to prepayments for various leased circuit contracts.  See Note 24 – Related Party Transactions.

As at December 31, 2021, the noncurrent and current portion of contract liabilities and unearned revenues amounted to Php3,558 million and Php10,063 million, respectively, while as at December 31, 2020, the noncurrent and current portion of contract liabilities and unearned revenues amounted to Php976 million and Php8,595 million, respectively.

F-76

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the years ended December 31, 2021, 2020 and 2019 consist of the following:

	2021		2020		2019
	(in million pesos)
Compensation and employee benefits		25,344		26,833		24,883
Repairs and maintenance (Notes 14, 18 and 25)		24,653		21,555		20,007
Professional and other contracted services (Note 25)		8,371		7,307		7,408
Selling and promotions (Note 25)		6,716		6,542		5,395
Taxes and licenses		4,331		5,495		4,570
Amortization of intangible assets (Note 15)		2,822		2,496		758
Rent (Notes 10 and 25)		2,231		1,384		1,290
Insurance and security services (Note 25)		1,739		1,699		1,671
Communication, training and travel (Note 25)		977		903		1,203
Other expenses		1,119		1,041		1,045
Total selling, general and administrative expenses		78,303		75,255		68,230

Compensation and Employee Benefits

Compensation and employee benefits for the years ended December 31, 2021, 2020 and 2019 consist of the following:

	2021		2020		2019
	(in million pesos)
Salaries and other employee benefits		21,676		20,856		19,931
Pension benefit costs (Note 26)		2,213		2,218		1,018
Incentive plan (Note 26)		1,186		1,134		638
MRP		269		2,625		3,296
Total compensation and employee benefits		25,344		26,833		24,883

Over the past several years, we have been implementing the MRP in line with our continuing efforts to reduce the cost base of our businesses.  The decision to implement the MRP was a result of challenges faced by our businesses as significant changes in technology, increasing competition, and shifting market preferences have reshaped the future of our businesses.  The MRP is being implemented in compliance with the Labor Code of the Philippines and all other relevant labor laws and regulations in the Philippines.

Cost of Sales and Services

Cost of sales and services for the years ended December 31, 2021, 2020 and 2019 consist of the following:

	2021		2020		2019
	(in million pesos)
Cost of computers, mobile handsets and broadband data modems (Note 18)		8,286		8,275		9,402
Cost of services (Note 18)		3,492		2,991		3,680
Cost of point-product-sales (Note 18)		1,563		1,029		347
Total cost of sales and services		13,341		12,295		13,429

Asset Impairment

Asset impairment for the years ended December 31, 2021, 2020 and 2019 consist of the following:

	2021		2020		2019
	(in million pesos)
Trade and other receivables (Note 17)		3,737		6,446		4,071
Inventories and supplies (Note 18)		847		934		471
Contract assets (Note 3)		253		266		291
Property and equipment (Note 9)		148		—		—
Total asset impairment		4,985		7,646		4,833

F-77

Other Income (Expenses) – Net

Other income (expenses) – net for the years ended December 31, 2021, 2020 and 2019 consist of the following:

	2021			2020			2019
	(in million pesos)
Reversal of provisions		2,594			2,679			999
Gains (losses) on derivative financial instruments – net (Note 28)		1,400			(378	)		(284	)
Gain on debt modification(1)		1,372			—			—
Gains on sale of property and equipment (Note 9)		884			3,369			88
Gain on dilution of shares (Note 11)		826			394			—
Interest income		656			1,210			1,745
Gain on change in fair value of Phunware, Inc., or Phunware (Note 12)		306			—			—
Gain on sale of Phunware (Note 12)		115			—			—
Equity share in net losses of associates and joint ventures (Note 11)		(1,101	)		(2,328	)		(1,535	)
Foreign exchange gains (losses) – net (Note 28)		(3,890	)		1,488			424
Financing costs – net		(10,414	)		(10,086	)		(8,553	)
Others – net (Notes 11, 12 and 14)		645			491			51
Total other expenses – net		(6,607	)		(3,161	)		(7,065	)

⁽¹⁾ PLDT and Smart re-negoiateted certain terms of selected outstanding Philippine Peso loans in 2021.  Under IFRS 9, the difference of the current carrying value and the present value of the modified cash flows of the loan should be recognized as a gain or loss on debt modification.

Interest Income

Interest income for the years ended December 31, 2021, 2020 and 2019 consist of the following:

	2021		2020		2019
	(in million pesos)
Interest income arising from revenue contracts with customers		299		414		431
Interest income on cash and cash equivalents (Note 16)		269		560		1,022
Interest income on financial instruments at FVPL		23		8		—
Interest income on financial instruments at amortized cost (Note 13)		13		143		45
Interest income on financial instruments at FVOCI		2		70		239
Interest income – others		50		15		8
Total interest income		656		1,210		1,745

F-78

Financing Costs – Net

Financing costs – net for the years ended December 31, 2021, 2020 and 2019 consist of the following:

	2021			2020			2019
	(in million pesos)
Interest on loans and other related items (Notes 21 and 28)		10,482			10,333			8,730
Accretion on lease liabilities (Note 10)		1,170			1,125			1,061
Accretion on financial liabilities (Note 21)		239			146			122
Financing charges		105			79			95
Capitalized interest (Notes 9 and 29)		(1,582	)		(1,597	)		(1,455	)
Total financing costs – net		10,414			10,086			8,553

F-79

6. Components of Other Comprehensive Loss

Changes in other comprehensive loss under equity of our consolidated statements of financial position for the years ended December 31, 2021, 2020 and 2019 are as follows:

	Foreign currency translation differences of subsidiaries			Net loss on financial instrument at FVOCI – net of tax			Net transactions on cash flow hedges – net of tax			Revaluation increment on investment properties – net of tax			Fair value adjustment on sale of property and equipment			Actuarial losses on defined benefit plans – net of tax			Share in the other comprehensive income (loss) of associates and joint ventures accounted for using the equity method			Fair value changes of financial instrument at FVOCI			Total other comprehensive loss attributable to equity holders of PLDT			Share of noncontrolling interests			Total other comprehensive loss – net of tax
	(in million pesos)
Balances as at January 1, 2021		701			(9	)		(1,202	)		508			108			(35,720	)		(37	)		(1	)		(35,652	)		9			(35,643	)
Other comprehensive income (loss)		(335	)		—			(763	)		36			(108	)		364			23			(2	)		(785	)		6			(779	)
Balances as at December 31, 2021		366			(9	)		(1,965	)		544			—			(35,356	)		(14	)		(3	)		(36,437	)		15			(36,422	)
Balances as at January 1, 2020		722			(9	)		(896	)		508			108			(31,763	)		—			(38	)		(31,368	)		15			(31,353	)
Other comprehensive income (loss)		(21	)		—			(306	)		—			—			(3,957	)		(37	)		37			(4,284	)		(6	)		(4,290	)
Balances as at December 31, 2020		701			(9	)		(1,202	)		508			108			(35,720	)		(37	)		(1	)		(35,652	)		9			(35,643	)
Balances as at January 1, 2019		695			(9	)		(640	)		510			108			(25,689	)		—			(165	)		(25,190	)		19			(25,171	)
Other comprehensive income (loss)		27			—			(256	)		(2	)		—			(6,074	)		—			127			(6,178	)		(4	)		(6,182	)
Balances as at December 31, 2019		722			(9	)		(896	)		508			108			(31,763	)		—			(38	)		(31,368	)		15			(31,353	)

Revaluation increment on investment properties pertains to the difference between the carrying value and fair value of property and equipment transferred to investment property at the time of change in classification.

F-80

7. Income Taxes

Corporate Income Tax

The major components of consolidated net deferred income tax assets and liabilities recognized in our consolidated statements of financial position as at December 31, 2021 and 2020 are as follows:

	2021		2020
	(in million pesos)
Net deferred income tax assets		13,385		19,556
Net deferred income tax liabilities		169		726

The components of our consolidated net deferred income tax assets and liabilities as at December 31, 2021 and 2020 are as follows:

	2021			2020
	(in million pesos)
Net deferred income tax assets:
Pension and other employee benefits		3,590			6,394
Unamortized past service pension costs		3,364			4,874
Unearned revenues		3,022			2,509
Accumulated provision for expected credit loss		2,920			3,577
Accumulated write-down of inventories to net realizable values		662			699
Lease liability over ROU assets under IFRS 16		581			666
Unrealized foreign exchange gains (losses)		403			(457	)
Customer list and trademark		129			1,116
Fixed asset impairment/depreciation due to shortened life of property    and equipment		79			61
NOLCO		10			88
Excess MCIT over RCIT		1			3
Derivative financial instruments		(30	)		33
Taxes and duties capitalized		(141	)		(124	)
Capitalized charges and others		(1,205	)		117
Total deferred income tax assets – net		13,385			19,556
Net deferred income tax liabilities:
Investment property		241			569
Unrealized foreign exchange gains		5			167
Intangible assets and fair value adjustment on assets acquired – net of amortization		—			70
Others		(77	)		(80	)
Total deferred income tax liabilities		169			726

Changes in our consolidated net deferred income tax assets (liabilities) as at December 31, 2021 and 2020 are as follows:

	2021			2020
	(in million pesos)
Net deferred income tax assets – balances at beginning of the year		19,556			23,623
Net deferred income tax liabilities – balances at beginning of the year		(726	)		(2,583	)
Net balances at beginning of the year		18,830			21,040
Provision for deferred income tax		(2,348	)		(3,989	)
Movement charged directly to other comprehensive income (loss)		(3,239	)		1,811
Others		(27	)		(32	)
Net balances at end of the year		13,216			18,830
Net deferred income tax assets – balances at end of the year		13,385			19,556
Net deferred income tax liabilities – balances at end of the year		(169	)		(726	)

The impact of the change in tax rates in our deferred income tax assets and liabilities under the CREATE law is included in the deferred income tax assets charged directly to other comprehensive income and provision for deferred income tax.

F-81

The analysis of our consolidated net deferred income tax assets as at December 31, 2021 and 2020 are as follows:

	2021		2020
	(in million pesos)
Deferred income tax assets:
Deferred income tax assets to be recovered after 12 months		10,127		13,041
Deferred income tax assets to be recovered within 12 months		3,258		6,515
		13,385		19,556

The analysis of our consolidated net deferred income tax liabilities as at December 31, 2021 and 2020 are as follows:

	2021			2020
	(in million pesos)
Deferred income tax liabilities:
Deferred income tax liabilities to be settled after 12 months		(173	)		(477	)
Deferred income tax liabilities to be settled within 12 months		4			(249	)
Net deferred income tax liabilities		(169	)		(726	)

Provision for income tax for the years ended December 31, 2021, 2020 and 2019 consist of:

	2021		2020		2019
	(in million pesos)
Current		5,130		4,452		3,283
Deferred (Note 3)		2,348		3,989		6,267
		7,478		8,441		9,550

The impact of the application of MCIT amounting to Php2 million, Php1,426 million and Php206 million for the years ended December 31, 2021, 2020 and 2019, respectively, was considered in the provisions for current and deferred income taxes.

The reconciliation between the provision for income tax at the applicable statutory tax rate and the actual provision for corporate income tax for the years ended December 31, 2021, 2020 and 2019 are as follows:

	2021			2020			2019
	(in million pesos)
Provision for income tax at the applicable statutory tax rate		8,538			9,906			9,701
Tax effects of:
Nondeductible expenses		558			144			907
NOLCO/MCIT expiration		248			352			302
Tax adjustment due to CREATE		94			—			—
Loss (income) not subject to income tax		(50	)		(27	)		154
Income subject to final tax		(186	)		(189	)		(599	)
Special deductible items and income subject to lower tax rate		(204	)		(537	)		(643	)
Equity share in net income of associates and joint ventures		(284	)		(20	)		(220	)
Difference between Optional Standard Deduction, OSD, and    itemized deductions		(610	)		(426	)		(251	)
Net movement in unrecognized deferred income tax assets and    other adjustments		(626	)		(762	)		199
Actual provision for income tax		7,478			8,441			9,550

F-82

The breakdown of our consolidated deductible temporary differences, carryforward benefits of unused tax credits from excess of MCIT over RCIT, and NOLCO (excluding those not recognized due to the adoption of the OSD method) for which no deferred income tax assets were recognized and the equivalent amount of unrecognized deferred income tax assets as at December 31, 2021 and 2020 are as follows:

	2021			2020
	(in million pesos)
Fixed asset impairment		1,286			1,284
Accumulated provision for expected credit losses		963			2,907
Provisions		787			761
NOLCO		327			1,358
Pension and other employee benefits		75			61
Unrealized foreign exchange losses		28			5
Excess MCIT over RCIT		22			20
Unearned revenues		21			17
Lease liability over ROU assets under IFRS 16		19			—
Accumulated write-down of inventories to net realizable values		13			2
Interest on subordinated shareholder advances		(4	)		(4	)
Operating lease		—			10
		3,537			6,421
Unrecognized deferred income tax assets		901			1,940

DMPI and ePLDT availed of the OSD method in computing their taxable income.  This assessment is based on projected taxable profits at a level where it is favorable to use OSD method.  These companies are also expected to avail of the OSD method in the foreseeable future.  Thus, certain deferred income tax assets of DMPI and ePLDT amounting to Php201 million and Php209 million as at December 31, 2021 and 2020, respectively, were not recognized.  Meanwhile, portion of the deferred income tax liability provided with valuation allowance due to OSD amounting to Php58 million as at December 31, 2021 pertains to the gain on fair value adjustment of PCEVs investment to VIH as PCEV expects to use the OSD method in computing its taxable income in the future when said gain is realized.

Our consolidated deferred income tax assets have been recorded to the extent that such consolidated deferred income tax assets are expected to be utilized against sufficient future taxable profit.  Deferred income tax assets shown in the preceding table were not recognized as we believe that future taxable profit will not be sufficient to realize these deductible temporary differences and carryforward benefits of unused tax credits from excess of MCIT over RCIT, and NOLCO in the future.

The breakdown of our consolidated excess MCIT and NOLCO as at December 31, 2021 are as follows:

Date Incurred	Expiry Date	MCIT			NOLCO
		(in million pesos)
December 31, 2019	December 31, 2022		7			1
December 31, 2020	December 31, 2023		14			—
December 31, 2020	December 31, 2025		—			183
December 31, 2021	December 31, 2024		2			—
December 31, 2021	December 31, 2026		—			181
			23			365
NOLCO incurred by foreign affiliates which can be    carried over indefinitely		—				5
			23			370
Consolidated tax benefits			23			92
Consolidated unrecognized deferred income tax assets			(22	)		(82	)
Consolidated recognized deferred income tax assets			1			10

F-83

The excess MCIT totaling Php23 million as at December 31, 2021 can be deducted against future RCIT liability.  The excess MCIT that was deducted against RCIT amounted to Php2 million, Php1,426 million and Php206 million for the years ended December 31, 2021, 2020 and 2019, respectively.  No excess MCIT expired for the year ended December 31, 2021, while the amount of expired portion of excess MCIT amounted to Php1 million and Php10 million for the years ended December 31, 2020 and 2019, respectively.

NOLCO totaling Php365 million as at December 31, 2021 can be claimed as deduction against future taxable income.  The NOLCO claimed as deduction against taxable income amounted to Php556 million, Php2,109 million and Php9,530 million for the years ended December 31, 2021, 2020 and 2019, respectively.  The amount of expired NOLCO amounted to Php990 million, Php1,170 million and Php973 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Republic Act No. 11494 Bayanihan to Recover as One Act, or Bayanihan II

Republic Act No. 11494, otherwise known as the Bayanihan to Recover as One Act, or Bayanihan II, was signed by the President on September 11, 2020.  It contains the government’s second wave of relief measures to address the health and economic crises stemming from the COVID-19 outbreak.  

As part of mitigating the costs and losses stemming from the disruption of economic activities, Bayanihan II extends the carry-over of the NOLCO incurred in 2021 and 2020 as deductions from gross income for the next five consecutive taxable years immediately following the year of the loss.  Hence, the carry-over period for the expiration of NOLCO incurred in 2021 and 2020 amounting to Php189 million and Php183 million, respectively, has been extended to five years from the previous three years.

Registration with Subic Bay Freeport Zone and Clark Special Economic Zone Enterprise Zone

SubicTel and ClarkTel are registered with the Subic Bay Freeport Zone and the Clark Special Economic Zone, or Economic Zones, respectively, under Republic Act No. 7227 otherwise known as the Bases Conversion and Development Act of 1992.  As registrants, SubicTel and ClarkTel are entitled to all the rights, privileges and benefits established thereunder including tax and duty-free importation of capital equipment and a special income tax rate of 5% of gross income, as defined in Republic Act No. 7227.  SubicTel’s entitlement to 5% gross income tax expired last December 26, 2021.  Thus, income generated thereafter is subject to RCIT.

Our consolidated income derived from non-registered activities within the Economic Zones is subject to the RCIT rate at the end of the reporting period.

F-84

8. Earnings Per Common Share

The following table presents information necessary to calculate the EPS for the years ended December 31, 2021, 2020 and 2019:

	2021						2020						2019
	Basic			Diluted			Basic			Diluted			Basic			Diluted
	(in million pesos)
Consolidated net income attributable to equity    holders of PLDT		26,367			26,367			24,284			24,284			22,521			22,521
Dividends on preferred shares (Note 20)		(59	)		(59	)		(59	)		(59	)		(59	)		(59	)
Consolidated net income attributable to common    equity holders of PLDT		26,308			26,308			24,225			24,225			22,462			22,462
	(in thousands, except per share amounts which are in pesos)
Weighted average number of common shares		216,056			216,056			216,056			216,056			216,056			216,056
EPS attributable to common equity holders of PLDT    (Note 4)		121.76			121.76			112.12			112.12			103.97			103.97

Basic EPS amounts are calculated by dividing our consolidated net income for the period attributable to common equity holders of PLDT (consolidated net income adjusted for dividends on all series of preferred shares, except for dividends on preferred stock subject to mandatory redemption) by the weighted average number of common shares issued and outstanding during the year.

Diluted EPS amounts are calculated in the same manner assuming that, at the beginning of the year or at the time of issuance during the year, all outstanding options are exercised, and convertible preferred shares are converted to common shares, and appropriate adjustments to our consolidated net income are effected for the related income and expenses on preferred shares.  Outstanding stock options will have a dilutive effect only when the average market price of the underlying common share during the period exceeds the exercise price of the stock option.

Convertible preferred shares are deemed dilutive when required dividends declared on each series of convertible preferred shares divided by the number of equivalent common shares, assuming such convertible preferred shares are converted to common shares, decreases the basic EPS.  As such, the diluted EPS is calculated by dividing our consolidated net income attributable to common shareholders (consolidated net income, adding back any dividends and/or other charges recognized for the period related to the dilutive convertible preferred shares classified as liability, less dividends on non-dilutive preferred shares except for dividends on preferred stock subject to mandatory redemption) by the weighted average number of common shares excluding the weighted average number of common shares held as treasury shares, and including the common shares equivalent arising from the conversion of the dilutive convertible preferred shares and from the mandatory tender offer for all remaining Digitel shares.

Where the effect of the assumed conversion of the preferred shares and the exercise of all outstanding options have an anti-dilutive effect, basic and diluted EPS are stated at the same amount.

F-85

9. Property and Equipment

Changes in property and equipment account for the years ended December 31, 2021, 2020 and 2019 are as follows:

	Cable and wire facilities			Central equipment			Network facilities			Buildings			Vehicles, furniture and other network equipment			Information origination and termination equipment			Land improvements			IT systems and platforms			Security platforms			Property under construction			Total
	(in million pesos)
As at December 31, 2019
Cost		201,652			2,800			321,798			28,128			29,241			30,906			4,597			50,654			17			46,167			715,960
Accumulated depreciation, impairment and amortization		(161,534	)		(2,172	)		(211,288	)		(22,560	)		(23,169	)		(18,707	)		(270	)		(44,125	)		(1	)		—			(483,826	)
Net book value		40,118			628			110,510			5,568			6,072			12,199			4,327			6,529			16			46,167			232,134
Year Ended December 31, 2020
Net book value at beginning of the year		40,118			628			110,510			5,568			6,072			12,199			4,327			6,529			16			46,167			232,134
Additions (Note 4)		915			155			2,124			238			1,548			2,771			102			991			—			63,060			71,904
Disposals/Retirements		(12	)		—			(114	)		(212	)		(59	)		—			(265	)		(1	)		—			(16	)		(679	)
Reclassifications		6,116			(707	)		(31,539	)		(263	)		4,030			10,979			(70	)		(5,893	)		24			17,312			(11	)
Transfers and others		21,066			—			42,477			897			(455	)		5,614			11			6,576			76			(76,262	)		—
Translation differences charged directly to cumulative    translation adjustments		—			—			(1	)		—			(1	)		—			—			(1	)		—			—			(3	)
Adjustments		9			871			(700	)		28			125			1			53			(122	)		—			(201	)		64
Depreciation of revaluation increment on investment    properties transferred to property and equipment    charged to other comprehensive income		—			—			—			(1	)		—			—			—			—			—			—			(1	)
Depreciation and amortization		(9,922	)		(398	)		(11,154	)		(1,282	)		(4,664	)		(14,224	)		(10	)		(862	)		(24	)		—			(42,540	)
Net book value at end of the year		58,290			549			111,603			4,973			6,596			17,340			4,148			7,217			92			50,060			260,868
As at December 31, 2020
Cost		205,338			3,134			298,169			23,647			41,856			46,885			4,427			23,868			104			50,060			697,488
Accumulated depreciation, impairment and amortization		(147,048	)		(2,585	)		(186,566	)		(18,674	)		(35,260	)		(29,545	)		(279	)		(16,651	)		(12	)		—			(436,620	)
Net book value		58,290			549			111,603			4,973			6,596			17,340			4,148			7,217			92			50,060			260,868
Year Ended December 31, 2021
Net book value at beginning of the year		58,290			549			111,603			4,973			6,596			17,340			4,148			7,217			92			50,060			260,868
Additions (Note 4)		1,306			906			141			145			570			5,678			43			23			145			80,026			88,983
Disposals/Retirements		(9	)		(1	)		(81	)		(27	)		(52	)		—			(163	)		—			—			—			(333	)
Reclassifications		—			1,850			—			2,795			55			—			—			—			—			(4,554	)		146
Impairment losses recognized during the year (Note 5)		(27	)		—			(121	)		—			—			—			—			—			—			—			(148	)
Transfers and others		22,641			—			30,328			629			195			10,077			145			4,900			107			(69,022	)		—
Translation differences charged directly to cumulative    translation adjustments		—			—			1			—			(1	)		—			—			1			—			—			1
Adjustments		8			—			—			(8	)		—			—			—			—			—			—			—
Depreciation and amortization (Note 3)		(10,676	)		(552	)		(23,282	)		(1,091	)		(2,124	)		(5,245	)		(10	)		(3,635	)		(166	)		—			(46,781	)
Net book value at end of the year		71,533			2,752			118,589			7,416			5,239			27,850			4,163			8,506			178			56,510			302,736
As at December 31, 2021
Cost		229,160			5,896			327,195			26,838			40,586			62,595			4,451			27,099			355			56,510			780,685
Accumulated depreciation, impairment and amortization		(157,627	)		(3,144	)		(208,606	)		(19,422	)		(35,347	)		(34,745	)		(288	)		(18,593	)		(177	)		—			(477,949	)
Net book value		71,533			2,752			118,589			7,416			5,239			27,850			4,163			8,506			178			56,510			302,736

F-86

Interest capitalized to property and equipment that qualified as borrowing costs amounted to Php1,582 million, Php1,597 million and Php1,455 million for the years ended December 31, 2021, 2020 and 2019, respectively.  See Note 5 – Income and Expenses – Financing Costs – Net and Note 29 – Notes to the Statements of Cash Flows.  The average interest capitalization rate used was approximately 4% for each of the years ended December 31, 2021 and 2020 and 5% for the year ended December 31, 2019.

Our net foreign exchange differences, which qualified as borrowing costs, amounted to Php29 million for the year ended December 31, 2021 and nil for each of the years ended December 31, 2020 and 2019.

The cost of fully depreciated property and equipment that are still being used in the Group’s operations amounted to Php77,201 million and Php73,995 million as at December 31, 2021 and 2020, respectively.

As at December 31, 2021, the estimated useful lives of our property and equipment are as follows:

Cable and wire facilities	5 – 15 years
Central equipment	3 – 15 years
Network facilities	3 – 15 years
Buildings	25 – 50 years
Vehicles, furniture and other network equipment	3 – 15 years
Information origination and termination equipment	5 – 15 years
Land improvements	10 years
IT systems and platforms	3 – 5 years
Security platforms	3 – 5 years
Leasehold improvements	3 – 10 years or the term of the lease, whichever is shorter

See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Estimating useful lives of property and equipment.

10. Leases

Group as a Lessee

We have lease contracts for various items of sites, buildings, leased circuits and poles used in our operations.  We considered in the lease term the non-cancellable period of the lease together with the periods covered by an option to extend and option to terminate the lease.

Our consolidated estimated useful lives of ROU assets as at December 31, 2021 are as follows:

Sites	1 – 30 years
International leased circuits(1)	1 – 10 years
Poles(2)	1 – 12 years
Domestic leased circuits(3)	1 – 10 years
Office buildings	1 – 25 years
Co-located sites	3 – 7 years

⁽¹⁾ As at December 31, 2020, the estimated useful life ranges from 3-7 years.

⁽²⁾ As at December 31, 2020, the estimated useful life ranges from 1-10 years.

⁽³⁾ As at December 31, 2020, the estimated useful life ranges from 4-10 years.

F-87

Our consolidated rollforward analysis of ROU assets as at December 31, 2021 and 2020 are as follows:

	Sites			International Leased Circuits			Poles			Domestic Leased Circuits			Office Buildings			Co-located Sites			Total
	(in million pesos)
As at December 31, 2020
Costs:
Balances at beginning of the year		14,412			4,341			726			1,214			906			11			21,610
Additions (Note 29)		3,538			2,600			2,576			39			582			—			9,335
Asset retirement obligation		556			—			—			—			172			—			728
Terminations		(158	)		(1,181	)		—			—			(24	)		—			(1,363	)
Modifications		(294	)		(1,472	)		79			41			(52	)		(2	)		(1,700	)
Adjustments		(3	)		—			(11	)		—			—			—			(14	)
Reclassifications		(197	)		—			—			—			197			—			—
Balances at end of the year		17,854			4,288			3,370			1,294			1,781			9			28,596
Accumulated depreciation and amortization:
Balances at beginning of the year		(3,926	)		(834	)		(340	)		(183	)		(436	)		(1	)		(5,720	)
Terminations		113			223			—			—			37			—			373
Adjustments		1			—			—			—			1			—			2
Modifications		3			—			(7	)		—			(4	)		—			(8	)
Depreciation (Note 3)		(2,764	)		(735	)		(620	)		(244	)		(574	)		(3	)		(4,940	)
Reclassifications		17			—			—			—			(17	)		—			—
Balances at end of the year		(6,556	)		(1,346	)		(967	)		(427	)		(993	)		(4	)		(10,293	)
Net book value as at December 31, 2020		11,298			2,942			2,403			867			788			5			18,303
As at December 31, 2021
Costs:
Balances at beginning of the year		17,854			4,288			3,370			1,294			1,781			9			28,596
Additions (Note 29)		5,967			226			47			890			184			—			7,314
Modifications		107			33			230			(309	)		(9	)		1			53
Asset retirement obligation		211			—			—			—			2			—			213
Currency translation		—			—			—			—			1			—			1
Disposals		(1	)		—			(16	)		—			(6	)		—			(23	)
Terminations		(1,045	)		(290	)		—			(143	)		(284	)		—			(1,762	)
Balances at end of the year		23,093			4,257			3,631			1,732			1,669			10			34,392
Accumulated depreciation and amortization:
Balances at beginning of the year		(6,556	)		(1,346	)		(967	)		(427	)		(993	)		(4	)		(10,293	)
Terminations		889			148			—			35			281			—			1,353
Disposals		1			—			16			—			6			—			23
Currency translation		—			—			—			—			(1	)		—			(1	)
Modifications		(1	)		—			—			—			(4	)		—			(5	)
Depreciation (Note 3)		(2,999	)		(816	)		(678	)		(574	)		(319	)		(2	)		(5,388	)
Balances at end of the year		(8,666	)		(2,014	)		(1,629	)		(966	)		(1,030	)		(6	)		(14,311	)
Net book value as at December 31, 2021		14,427			2,243			2,002			766			639			4			20,081

F-88

The following amounts are recognized in our consolidated income statements for the years ended December 31, 2021, 2020 and 2019:

	2021		2020		2019
	(in million pesos)
Depreciation expense of ROU assets (Note 3)		5,388		4,940		4,393
Expenses relating to short-term leases    (included in general and administrative expenses) (Note 5)		1,459		618		378
Interest expense on lease liabilities (Note 5)		1,170		1,125		1,061
Variable lease payments (included in general and administrative expenses)    (Note 5)		771		764		708
Expenses relating to leases of low-value assets    (included in general and administrative expenses) (Note 5)		1		2		204
Total amount recognized in consolidated income statements		8,789		7,449		6,744

Our consolidated rollforward analysis of lease liabilities as at December 31, 2021 and 2020 are as follows:

	2021			2020
	(in million pesos)
Balances at beginning of the year		20,025			16,315
Additions (Note 29)		7,314			11,122
Accretion on lease liabilities (Note 5)		1,170			1,125
Foreign exchange gain (losses) – net		147			(171	)
Lease modifications		33			(1,397	)
Adjustment		11			—
Termination		(467	)		(1,188	)
Settlement of obligations		(6,547	)		(5,781	)
Balances at end of the year (Notes 3 and 29)		21,686			20,025
Less current portion of lease liabilities (Note 28)		4,555			4,043
Noncurrent portion of lease liabilities (Note 28)		17,131			15,982

We had total cash outflows for leases of Php6,547 million, Php5,781 million and Php5,399 million for the years ended December 31, 2021, 2020 and 2019, respectively.  We also had non-cash additions to ROU assets of Php7,314 million and Php9,335 million, respectively, as at December 31, 2021 and 2020, respectively.  We had non-cash additions to lease liabilities of Php7,314 million and Php11,122 million as at December 31, 2021 and 2020, respectively.   The future cash outflows relating to leases that have not yet commenced are disclosed in Note 29 – Notes to the Statements of Cash Flows.

We have entered into several lease contracts that include automatic extension and termination options.  These options are negotiated by us to provide flexibility in managing the leased-asset portfolio and align with our business needs.  However, in some of these lease contracts, we did not impute the renewal period in our assessment of the lease terms of these contracts since said renewal period is not yet reasonably estimable at the time of transition or commencement date of the lease, see Note 3 – Managements Use of Accounting Judgments, Estimates and Assumptions – Determining the lease term of contracts with renewal and termination options – Company as a Lessee.

Group as a Lessor

We have entered into operating leases on our investment property portfolio consisting of certain office buildings and business offices.  See Note 14 – Investment Properties.  These leases have term of five years.  All leases include a clause to enable upward revision of the rental charge on annual basis according to prevailing market conditions.  The lessee is also required to provide a residual guarantee on the properties.  Rental income recognized by us amounted to Php48 million, Php51 million and Php49 million for the years ended December 31, 2021, 2020 and 2019, respectively.

F-89

Future minimum rentals receivable under non-cancellable operating leases as at December 31, 2021 and 2020 are as follows.

	2021		2020
	(in million pesos)
Within one year		51		58
After one year but not more than five years		—		—
More than five years		—		—
		51		58

Sale and Leaseback

On January 28, 2020, PLDT was authorized by the Board of Directors to negotiate and enter into a contract for the sale of Smart Headquarters.  The transaction is subject to the compulsory notification process of the Philippine Competition Commission, or PCC, pursuant to Sections 12(b) and 16 of the Philippine Competition Act.  

After undertaking the compulsory notification process, PLDT on September 3, 2020 received the PCC Decision No. 16-M-013/2020 stating that the PCC resolves to take no further action on the transaction considering that it will not likely result in substantial lessening of competition due to the existence of sufficient competitive constraints.

On October 5, 2020, PLDT signed the sale agreement with the buyer and received in full the consideration of Php5,500 million plus 12% VAT.  The sale does not include the telecommunication assets owned or used by PLDT and Smart that are located in the Smart Headquarters.  Smart, the current lessee of the property, continues to occupy the property pursuant to a new contract of lease with the buyer executed on October 5, 2020.  The sale and leaseback resulted to a gain of Php3,275 million.  The new contract of lease is for a period of five years and stipulates that the lessee has the option to pre-terminate without penalty after the second-year subject to a 12-month notice.

11. Investments in Associates and Joint Ventures

As at December 31, 2021 and 2020, this account consists of:

	2021			2020
	(in million pesos)
Carrying value of investments in associates:
MediaQuest PDRs		9,984			9,914
VIH		7,080			6,702
Appcard, Inc.		110			102
Asia Outsourcing Beta Limited, or Beta		32			33
Digitel Crossing, Inc., or DCI		—			241
AF Payments, Inc., or AFPI		—			—
Asia Netcom Philippines Corp., or ANPC		—			—
		17,206			16,992
Carrying value of investments in joint ventures:
VTI, Bow Arken and Brightshare		33,596			32,625
Multisys		2,521	(1)		2,466	(1)
Telecommunications Connectivity, Inc., or TCI		39			40
Paymaya Finserve Corporation, or PFC		1			—
Voyager Finserve Corporation, or VFC		1			—
Beacon		—			—
		36,158			35,131
Total carrying value of investments in associates and joint ventures		53,364			52,123

⁽¹⁾ Including subscription payable of Php620 million and Php800 million as at December 31, 2021 and 2020, respectively.

F-90

Changes in the cost of investments for the years ended December 31, 2021 and 2020 are as follows:

	2021		2020
	(in million pesos)
Balances at beginning of the year		60,110		59,516
Additions during the year		1,777		609
Translation and other adjustments		99		(15	)
Balances at end of the year		61,986		60,110

Changes in the accumulated impairment losses for the years ended December 31, 2021 and 2020 are as follows:

	2021		2020
	(in million pesos)
Balances at beginning of the year		2,603		2,543
Additional impairment (Note 4)		60		60
Translation and other adjustments		92		—
Balances at end of the year		2,755		2,603

Changes in the accumulated equity share in net earnings (losses) of associates and joint ventures for the years ended December 31, 2021 and 2020 are as follows:

	2021			2020
	(in million pesos)
Balances at beginning of the year		(5,384	)		(3,110	)
Share in the other comprehensive income (losses) of associates and joint    ventures accounted for using the equity method		23			(37	)
Equity share in net losses of associates and joint ventures:		(1,101	)		(2,328	)
VTI, Bow Arken and Brightshare		971			87
MediaQuest PDRs		70			166
Multisys		55			(73	)
DCI		33			(116	)
Appcard, Inc.		8			—
TCI		(1	)		—
VIH		(2,237	)		(2,392	)
Dividends		—			(316	)
Translation and other adjustments		595			407
Balances at end of the year		(5,867	)		(5,384	)

Investments in Associates

Investment of ePLDT in MediaQuest PDRs

In 2012, ePLDT made deposits totaling Php6 billion to MediaQuest, an entity wholly-owned by the PLDT Beneficial Trust Fund, for the issuance of PDRs by MediaQuest in relation to its indirect interest in Cignal TV.  Cignal TV is a wholly-owned subsidiary of Satventures, which is a wholly-owned subsidiary of MediaQuest incorporated in the Philippines.  The Cignal TV PDRs confer an economic interest in common shares of Cignal TV indirectly owned by MediaQuest, and when issued, will provide ePLDT with a 40% economic interest in Cignal TV.  Cignal TV operates a direct-to-home, or DTH, Pay-TV business under the brand name “Cignal TV”, which is the largest DTH Pay-TV operator in the Philippines.

In June 2013, ePLDT’s Board of Directors approved additional investments in PDRs of MediaQuest:

• a Php3.6 billion investment by ePLDT in PDRs to be issued by MediaQuest in relation to its interest in Satventures.  The Satventures PDRs confer an economic interest in common shares of Satventures owned by MediaQuest and provide ePLDT with a 40% economic interest in Satventures; and

• a Php1.95 billion investment by ePLDT in PDRs to be issued by MediaQuest in relation to its interest in Hastings, a wholly-owned subsidiary of MediaQuest incorporated in the Philippines.  The Hastings PDRs confer an economic interest in common shares of Hastings owned by MediaQuest.  Hastings is a wholly-

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owned subsidiary of MediaQuest and holds all the print-related investments of MediaQuest, including equity interests in the three leading newspapers: The Philippine Star, Philippine Daily Inquirer, and Business World.  See Note 26 – Pension and Other Employee Benefits – Unlisted Equity Investments – Investment in MediaQuest.

The Php6 billion Cignal TV PDRs and Php3.6 billion Satventures PDRs were issued on September 27, 2013.  These PDRs provided ePLDT an aggregate of 64% economic interest in Cignal TV.  

On February 19, 2014, ePLDT’s Board of Directors approved an additional investment of up to Php500 million in Hastings PDRs to be issued by MediaQuest.  On March 11, 2014, MediaQuest received from ePLDT an amount aggregating to Php300 million representing additional deposits for future PDRs subscription.  As at December 31, 2014, total deposit for PDRs subscription amounted to Php2,250 million.

On May 21, 2015, ePLDT’s Board of Directors approved an additional Php800 million investment in Hastings PDRs and settlement of the Php200 million balance of the Php500 million Hastings PDR investment in 2014.  Subsequently, on June 1, 2015, the Board of Trustees of the PLDT Beneficial Trust Fund and the Board of Directors of MediaQuest approved the issuance of Php3,250 million Hastings PDRs.  This provided ePLDT with 70% economic interest in Hastings.  See Note 26 – Pension and Other Employee Benefits – Unlisted Equity Investments – Investment in MediaQuest.

In 2017, an impairment test was carried out for ePLDT’s investment in MediaQuest PDRs where it showed that an impairment provision must be recognized.  In determining the provision, the recoverable amount of the Print business and Pay TV were determined based on VIU calculations.  The VIU calculations were derived from cash flow projections over a period of three to five years based on the 2018 financial budgets approved by the Board of Directors and calculated terminal value.

Using the detailed projections of Print business for five years and applying a terminal value thereafter, ePLDT calculated a recoverable amount of Php1,664 million.  Consequently, ePLDT recognized a provision for impairment of its investment in MediaQuest PDRs in relation to its Print business amounting to Php1,784 million for the year ended December 31, 2017, representing the difference between the recoverable amount and the carrying value of the Print business as at December 31, 2017.  No impairment provision was recognized for the Pay TV business.

Transfer of Hastings PDRs to PLDT Beneficial Trust Fund

On January 22, 2018, ePLDT’s Board of Directors approved the assignment of the Hastings PDRs, representing a 70% economic interest in Hastings to the PLDT Beneficial Trust Fund for a total consideration of Php1,664 million.  The assignment was completed on February 15, 2018 and subsequently ePLDT ceased to have any economic interest in Hastings.  See Note 26 – Pension and Other Employee Benefits – Unlisted Equity Investments – Investment in MediaQuest.

The PLDT Group’s financial investment in PDRs of MediaQuest is part of the PLDT Group’s overall strategy of broadening its distribution platforms and increasing the PLDT Group’s ability to deliver multimedia content to its customers across the PLDT Group’s broadband and mobile networks.  

ePLDT’s aggregate value of investment in MediaQuest PDRs amounted to Php9,984 million and Php9,914 million as at December 31, 2021 and 2020, respectively.  See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Accounting for investment in MediaQuest through PDRs.

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The table below presents the summarized financial information of Satventures and subsidiaries as at December 31, 2021 and 2020, and for the years ended December 31, 2021, 2020 and 2019:

	2021		2020
	(in million pesos)
Statements of Financial Position:
Noncurrent assets		22,402		22,287
Current assets		7,942		6,064
Noncurrent liabilities		2,304		2,567
Current liabilities		11,440		10,294
Equity(1)		16,600		15,490
Carrying amount of interest in Satventures		9,984		9,914
Additional Information:
Cash and cash equivalents		749		1,350
Current financial liabilities(2)		386		478
Noncurrent financial liabilities(2)		1,319		1,413

⁽¹⁾ Including Php1 billion deposit for preferred stock subscriptions by Mediaquest in 2021.

⁽²⁾ Excluding trade, other payables and provisions.

	2021		2020		2019
	(in million pesos)
Income Statements:
Revenues		11,467		9,127		7,367
Depreciation and amortization		1,268		1,049		920
Interest income		2		16		4
Interest expense		219		241		235
Provision for income tax		200		153		165
Net income		110		260		308
Other comprehensive income		—		—		—
Total comprehensive income		110		260		308
Equity share in net income of Satventures		70		166		485

Investment of PCEV in VIH

Consolidation of the Digital Investments of Smart under PCEV

On February 27, 2018, the Board of Directors of PCEV approved the consolidation of the various Digital Investments under PCEV, which was carried out through the following transactions:

(i) PCEV entered into a Share Purchase Agreement with Voyager Innovations, Inc., or Voyager, to purchase 53 million ordinary shares of Voyager Innovations Holdings Pte. Ltd., or VIH, representing 100% of the issued and outstanding ordinary shares of VIH, for a total consideration of Php465 million;

(ii) VIH entered into a Share Purchase Agreement with Smart to purchase all of its 170 million common shares of Voyager for a total consideration of Php3,527 million; and

(iii) PCEV entered into a Subscription Agreement with VIH to subscribe to additional 96 million ordinary shares of VIH, with a par value of SG$1.00 per ordinary share, for a total subscription price of SG$96 million, or Php3,806 million, which was settled on April 13, 2018.

Loss of Control over VIH

In 2018, PLDT, as the ultimate Parent Company of PCEV, VIH, Vision Investment Holdings Pte. Ltd., or Vision, an entity indirectly controlled by KKR, Cerulean Investment Limited, or Cerulean, an entity indirectly owned and controlled by Tencent, International Finance Corporation, or IFC, and IFC Emerging Asia Fund, or IFC EAF, a fund managed by IFC Asset Management Company, or IFC AMC, entered into subscription agreements to subscribe VIH’s Convertible Class A preferred shares with a total subscription price amounting to US$215 million.  As a result, PCEV’s ownership was diluted to 48.74% and retained two out of five BOD

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seats in VIH, which resulted to a loss of control.  Consequently, PCEV accounted for its remaining interest in VIH as an investment in an associate.

On June 17, 2020, VIH appointed a new director, representing IFC, bringing the total number of BOD seats in VIH to six.  PCEV still holds two out of the six BOD seats after the appointment of the new director.

Investment in Convertible Notes and Warrant Instruments

On April 16, 2020, PCEV, KKR, Tencent, IFC and IFC EAF, or the “Subscribers”, entered into a new subscription agreement with VIH amounting to US$120 million.  The Notes Subscription Agreement covers the issuance of VIH’s convertible notes, with an aggregate principal amount of US$65 million and issuance of warrants with an aggregate subscription amount of US$55 million.

On May 14, 2020, VIH issued the convertible note instruments together with warrant certificates to the Subscribers.  PCEV paid US$10.8 million for the VIH notes and received a warrant certificate amounting to US$9.2 million.  The investments in convertible notes and warrants are classified as financial assets at FVPL and derivative financial assets, respectively.

The convertible notes issued to PCEV with fair value amounting to Php449 million at inception date was revalued on December31, 2020 for US$10.8M or Php519 million and was converted into 7,891,968 VIH Class A2 preferred shares at US$1.3685 per share.  Thereafter, PCEV’s ownership was diluted from 48.74% to 43.97%.

On March 12, 2021, PCEV, KKR and Tencent exercised their rights to subscribe to additional Class A2 convertible preferred shares of VIH in accordance with the warrant instrument issued by VIH.  The total exercise price of US$9.2 million or Php447 million and the fair value of the warrant instrument amounting to Php110 million formed part of the cost of the investment, and PCEV’s ownership interest was diluted from 43.97% to 41.87%.

Investment in Class B Convertible Preference Shares

On June 11, 2021, PCEV, KKR, Tencent, and IFC Financial Institutions Growth Fund, a fund managed by IFC AMC, entered into a new subscription agreement with VIH to subscribe to US$120.8 million Class B convertible preferred shares of VIH.  PCEV paid a total consideration of US$25 million or Php 1,218 million for 15.6 million VIH convertible preferred shares and resulting to another equity interest dilution from 41.87% to 38.45%.

The summarized financial information of VIH as at December 31, 2021 and 2020, and for the years ended December 31, 2021, 2020 and 2019 is shown below:

	2021		2020
	(in million pesos)
Statements of Financial Position:
Noncurrent assets		2,403		1,374
Current assets		10,146		8,940
Noncurrent liabilities		115		682
Current liabilities		5,310		5,980
Equity		7,124		3,652
Carrying amount of interest in VIH		7,080		6,702
Additional Information:
Cash and cash equivalents		6,597		5,347
Current financial liabilities*		5,253		5,944

* Excluding statutory payables and accrued taxes.

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	2021			2020			2019
	(in million pesos)
Income Statements:
Revenues		5,336			4,717			1,291
Depreciation and amortization		218			237			254
Interest income (expense)		9			(516	)		146
Provision for (benefit from) income tax		2			5			(4	)
Net loss		(5,541	)		(4,880	)		(4,576	)
Other comprehensive gains (losses)		30			(47	)		(124	)
Total comprehensive income (losses)		(5,511	)		4,927			4,700
Equity share in net losses of VIH		(2,237	)		(2,392	)		(2,268	)

The carrying value of PCEV’s investment in VIH as at December 31, 2021 and 2020 are as follows.

	2021			2020
	(in million pesos)
VIH Equity(1)		6,398			3,224
PCEV's noncontrolling interests		38.45	%		43.97	%
Share in net assets of VIH		2,460			1,418
Goodwill arising from acquisition		4,620			5,283
Carrying amount of interest in VIH		7,080			6,701
Minority interest's share in net losses		—			1
Carrying amount of interest in VIH		7,080			6,702

⁽¹⁾ VIH Equity is net of Php726 million and Php427 million Stock Option in 2021 and 2020, respectively.

Investment of PLDT Capital Pte. Ltd., or PLDT Capital, in AppCard

On October 9, 2015, PLDT Capital entered into a Convertible Preferred Stock Purchase Agreement with AppCard for US$5 million.  AppCard, a Delaware Corporation, is engaged in the business of developing, marketing, selling and servicing digital loyalty program platforms.

Investment of PCEV in Maya Bank

Pursuant to the Investment Agreement dated September 21, 2021, PCEV, VIH and Voyager have agreed to invest in Maya Bank, to be carried out through the following transactions:

(i) PCEV and VIH to subscribe to VFC shares and PFC shares (collectively, the Bank HoldCos shares);

(ii) VFC and PFC (collectively, the Bank HoldCos) and Voyager to subscribe to Maya Bank shares;

(iii) VIH to subscribe to convertible bonds to be issued by the Bank HoldCos, which are convertible to common shares of the Bank HoldCos; and

(iv) VIH to subscribe to exchangeable bonds to be issued by the Bank HoldCos, which are exchangeable to common shares of Maya Bank held by the Bank HoldCos.

On September 24, 2021, PCEV entered into separate subscription agreements with VFC and PFC to subscribe to 8.9 million Common B shares each at a subscription price of Php0.10 per share, representing 60% voting rights and 1.48% economic interest in the Bank HoldCos.

Based on the assessment and accounting principles of control as a basis of financial consolidation provided in IFRS 10, PCEV cannot demonstrate control over the Bank HoldCos requiring consolidation. PCEV will account for these investments as joint venture in accordance with IFRS 11 and IAS 28.  See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions.

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PCEV’s investment in Bank HoldCos are recorded under investment in joint venture and are carried in the PLDT’s consolidated financial statements at equity method.  As at December 31, 2021, PCEV’s investment in each of the Bank HoldCos amounted to Php1 million.

Investment of PGIC in Beta

On February 5, 2013, PLDT entered into a Subscription and Shareholders’ Agreement with Asia Outsourcing Alpha Limited, or Alpha, wherein PLDT, through its indirect subsidiary PGIC, acquired from Alpha approximately 20% equity interest in Beta for a total cost of approximately US$40 million, which consists of preferred shares of US$39.8 million and ordinary shares of US$0.2 million.  On various dates in 2013 and 2014, PGIC has bought and transferred-in a net in total of 27 ordinary shares and 9,643 preferred shares to certain employees of Beta for a total net payment of US$51 thousand.  In 2014, Beta has divested its healthcare BPO business.  PGIC received a total cash distribution of US$41.8 million from Beta through redemption of 35.3 million preferred shares and repayment of loan from PGIC.  The equity interest of PGIC in Beta remained at 20% after the transfer with economic interest of 18.32%.

Alpha and Beta are both exempted limited liability companies incorporated under the laws of Cayman Islands and are both controlled by CVC Capital Partners.  Beta has been designated to be the ultimate holding company of the SPi Technologies, Inc. and Subsidiaries.

On July 22, 2016, Asia Outsourcing Gamma Limited, or AOGL, entered into a SPA with Relia, Inc., one of the largest BPO companies in Japan, relating to the acquisition of AOGL’s Customer Relationship Management, or CRM, business under the legal entity SPi CRM, Inc. and Infocom Technologies, Inc., wholly-owned subsidiaries of SPi Technologies, Inc., for a total purchase consideration of US$190.9 million.  AOGL is a wholly-owned subsidiary of Beta and the direct holding company of SPi Technologies, Inc. and Subsidiaries.  The transaction was completed on September 30, 2016.  As a result of the sale, PGIC received a cash distribution of US$11.2 million from Beta through redemption of its preferred shares and portion of its ordinary shares.  

On May 19, 2017, AOGL entered into a SPA with Partners Group, a global private markets investment manager, relating to the acquisition of SPi Global, a wholly-owned subsidiary of AOGL, for an enterprise value of US$330 million.  The transaction was completed on August 25, 2017.  As a result of the sale, PGIC received a total cash distribution of US$57.05 million from Beta on various dates in 2017 and 2018 through redemption of a portion of its ordinary shares.  The remaining balance of US$2.29 million is held in escrow subject to indemnity claims of the buyer.

Investment of PLDT Capital in Beta

On May 14, 2021, PGIC entered into an Instrument of Transfer with its affiliate, PLDT Capital, relating to the acquisition of PGIC’s 554 ordinary shares (or 18.32% full economic interest) in Beta for a purchase consideration of US$0.68 million.  PGIC received the cash consideration from PLDT Capital also on May 14, 2021.

The transfer of shares to PLDT Capital was completed on May 25, 2021.

PGIC is a wholly-owned subsidiary of PLDT Global, which was incorporated under the laws of British Virgin Islands.

Investment of Digitel in DCI and ANPC

Digitel has 60% and 40% interest in ANPC and DCI, respectively.  DCI is involved in the business of cable system.  ANPC is an investment holding company owning 20% of DCI.

In December 2000, Digitel, Pacnet Network (Philippines), Inc., or PNPI, (formerly Asia Global Crossing Ltd.) and BT Group O/B Broadband Infrastructure Group Ltd., or BIG, entered into a joint venture agreement, or JVA, under which the parties agreed to form DCI with each party owning 40%, 40% and 20%, respectively.  DCI was incorporated to develop, provide and market backhaul network services, among others.

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On April 19, 2001, after BIG withdrew from the proposed joint venture, Digitel and PNPI formed ANPC to replace BIG.  Digitel contributed US$2 million, or Php69 million, for a 60% equity interest in ANPC while PNPI owned the remaining 40% equity interest.  

Digitel provided full impairment loss on its investment in DCI and ANPC in prior years on the basis that DCI and ANPC have incurred significant recurring losses in the past.  In 2011 and 2017, Digitel recorded a reversal of impairment loss amounting to Php92 million and Php201 million, respectively, following improvement in DCI’s operations.  

Though Digitel owned more than half of the voting interest in ANPC, management assessed that Digitel only had significant influence, and not control, due to certain governance matters.

Digitel’s investment in DCI did not qualify as investment in joint venture as there was no provision for joint control in the JVA among Digitel, PNPI and ANPC.

Following PLDT’s acquisition of a controlling stake in Digitel, PNPI, on November 4, 2011, sent a notice to exercise its Call Right under Section 6.3 of the JVA, which provides for a Call Right exercisable by PNPI following the occurrence of a Digitel change in control.  On June 2, 2021, Digitel fully divested its investments in DCI and ANPC.  Following the divestment, the JVA dated December 2000, as amended, between and among the Company, DCI, ANPC and PNPI was mutually terminated.

Investment of Smart in AFPI

In 2013, Smart, along with other conglomerates MPIC and Ayala Corporation, or Ayala, embarked on a venture to bid for the Automated Fare Collection System, or AFCS, a project of the Department of Transportation and Communications, or DOTC, and Light Rail Transit Authority, to upgrade the Light Rail Transit 1 and 2, and Metro Rail Transit ticketing systems. 

In 2014, AFPI, the joint venture company, was incorporated in the Philippines and registered with the Philippine SEC.  Smart initially subscribed to Php503 million equivalent to 503 million shares at a subscription price of Php1.00 per share representing 20% equity interest, and participated in subsequent capital calls, thereafter.  MPIC and Ayala Group signed a ten-year concession agreement with the DOTC to build and implement the AFCS project.

In March 2019, Smart infused additional capital of Php70 million as additional subscription of preferred shares.

In March 2021 and 2020, Smart infused additional capital of Php60 million each year as additional subscription of preferred shares and retained its 20% equity interest in AFPI as at December 31, 2021 and 2020.  

The summary of investments in AFPI made by Smart as at December 31, 2021 and 2020 is shown below:

	2021		2020
	(in million pesos)
Common shares	625.7		625.7
Preferred shares		314.2		254.3

Smart’s investment in AFPI has been fully impaired as at December 31, 2021 and 2020.  Share in net cumulative losses were not recognized as it does not have any legal or constructive obligation to pay for such losses and have not made any payments on behalf of AFPI.

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Summarized financial information of individually immaterial associates

The following table presents the summarized financial information of our individually immaterial investments in associates for the years ended December 31, 2021, 2020 and 2019:

	2021		2020			2019
	(in million pesos)
Income Statements:
Revenues		20		66			107
Net income (loss)		25		(116	)		90
Other comprehensive income		—		—			—
Total comprehensive income (loss)		25		(116	)		90

We received nil, Php316 million and nil dividends from our associates for the years ended December 31, 2021, 2020 and 2019, respectively.

We have no outstanding contingent liabilities or capital commitments with our associates as at December 31, 2021 and 2020.

Investments in Joint Ventures

Investments of PLDT in VTI, Bow Arken and Brightshare

On May 30, 2016, the PLDT Board approved the Company’s acquisition of 50% equity interest, including outstanding advances and assumed liabilities, in the telecommunications business of San Miguel Corporation, or SMC, with Globe acquiring the other 50% interest.  On the same date, PLDT and Globe executed: (i) a Share Purchase Agreement, or SPA,  with SMC to acquire the entire outstanding capital, including outstanding advances and assumed liabilities, in VTI (and the other subsidiaries of VTI), which holds SMC’s telecommunications assets through its subsidiaries, or the VTI Transaction; and (ii) separate SPAs with the owners of two other entities, Bow Arken (the parent company of New Century Telecoms, Inc.) and Brightshare (the parent company of eTelco, Inc.), which separately hold additional spectrum frequencies through their respective subsidiaries, or the Bow Arken Transaction and Brightshare Transaction, respectively.  We refer to the VTI Transaction, Bow Arken Transaction and Brightshare Transaction collectively as the SMC Transactions.

The consideration in the amount of Php52.8 billion representing the purchase price for the equity interest and assigned advances of previous owners to VTI, Bow Arken and Brightshare was paid in three tranches: 50% upon signing of the SPAs on May 30, 2016, 25% on December 1, 2016 and the final 25% on May 30, 2017.  The SPAs also provide that PLDT and Globe, through VTI, Bow Arken and Brightshare, would assume liabilities amounting to Php17.2 billion from May 30, 2016.  In addition, the SPAs contain a price adjustment mechanism based on the variance in these assumed liabilities to be agreed among PLDT, Globe and previous owners on the results of the confirmatory due diligence procedures jointly performed by PLDT and Globe.  On May 29, 2017, PLDT and Globe paid the previous owners the net amount of Php2.6 billion in relation to the aforementioned price adjustment based on the result of the confirmatory due diligence.  See Note 28 – Financial Assets and Liabilities – Commercial Commitments.

As part of the SMC Transactions, PLDT and Globe acquired certain outstanding advances made by the former owners of VTI, Bow Arken and Brightshare to VTI, Bow Arken and Brightshare or their respective subsidiaries.  The largest amounts of the advances outstanding to PLDT since the date of assignment to PLDT amounted to Php11,359 million: (i) Php11,038 million from VTI and its subsidiaries; (ii) Php238 million from Bow Arken and its subsidiaries; and (iii) Php83 million from Brightshare and its subsidiaries.  

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On February 28, 2017, PLDT and Globe each subscribed to 2.8 million new preferred shares to be issued out of the unissued portion of the existing authorized capital stock of VTI, at a subscription price of Php4 thousand per subscribed share (inclusive of a premium over par of Php3 thousand per subscribed share) or a total subscription price for each of Php11,040 million (inclusive of a premium over par of Php8,280 million).  PLDT and Globe’s assigned advances from SMC which were subsequently reclassified to deposit for future subscription of each amounting to Php11,040 million were applied as full subscription payment for the subscribed shares.

Also, on the same date, PLDT and Globe each subscribed to 800 thousand new preferred shares of the authorized capital stock of VTI, at a subscription price of Php4 thousand per subscribed share (inclusive of a premium over par of Php3 thousand per subscribed share), or a total subscription price for each Php3,200 million (inclusive of a premium over par of Php2,400 million).  PLDT and Globe each paid Php148 million in cash for the subscribed shares upon execution of the relevant agreement.  The remaining balance of the subscription price of PLDT and Globe were fully paid as at December 29, 2017.

On December 15, 2017, PLDT and Globe each subscribed to 600 thousand new preferred shares of the authorized capital stock of VTI, at a subscription price of Php5 thousand per subscribed share (inclusive of a premium over par of Php4 thousand per subscribed share), for a total subscription price of Php3,000 million (inclusive of a premium over par of Php2,400 million).  PLDT and Globe each paid Php10 million in cash for the subscribed shares upon execution of the agreement.  The remaining balance of the subscription price was paid via conversion of advances amounting to Php2,990 million as at December 31, 2017.

The amount of the advances outstanding of PLDT, to cover for the assumed liabilities and working capital requirements of the acquired companies, amounted to Php139 million and Php13 million as at December 31, 2021 and 2020, respectively.

Purchase Price Allocation

PLDT has engaged an independent valuer to determine the fair value adjustments relating to the acquisition.  As at May 30, 2016, our share in the fair value of the intangible assets, which includes spectrum, amounted to Php18,885 million and goodwill of Php17,824 million has been determined based on the results of an independent valuation.  Goodwill arising from this acquisition and carrying amount of the identifiable assets and liabilities, including deferred tax liability, and the related amortization through equity in net earnings were retrospectively adjusted accordingly.

The table below presents the summarized financial information of VTI, Bow Arken and Brightshare as at December 31, 2021 and 2020, and for the years ended December 31, 2021, 2020 and 2019:

	2021		2020
	(in million pesos)
Statements of Financial Position:
Noncurrent assets		76,925		77,099
Current assets		4,836		5,974
Noncurrent liabilities		9,442		11,204
Current liabilities		2,155		2,090
Equity		70,164		69,779
Carrying amount of interest in VTI, Bow Arken and Brightshare		33,596		32,625
Additional Information:
Cash and cash equivalents		3,183		3,074
Current financial liabilities*		60		66
Noncurrent financial liabilities*		—		—

* Excluding trade, other payables and provisions.

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	2021		2020		2019
	(in million pesos)
Income Statements:
Revenues		3,772		3,413		3,339
Depreciation and amortization		1,490		1,445		1,337
Interest income		16		25		64
Provision for income tax		174		196		216
Net income		157		175		70
Other comprehensive income		—		—		—
Total comprehensive income		157		175		70
PLDT's share		79		87		35
CREATE adjustment		892		—		—
Equity share in net income of VTI, Bow Arken and Brightshare		971		87		35

The carrying value of PLDT’s investment in VTI, Bow Arken and Brigtshare as at December 31, 2021 and 2020 are as follows:

	2021			2020
	(in million pesos)
VTI, Bow Arken and Brightshare equity		70,164			69,779
PLDT's share		50	%		50	%
Share in net assets of VTI, Bow Arken and Brightshare		35,082			34,890
Share in adjustment based on liability and ETPI net cash balance		442			442
Reimbursements		(155	)		(145	)
Share in SMC's advances in VTI, Bow Arken and Brightshare		(840	)		(840	)
Non-controlling interests		(857	)		(748	)
Others		(76	)		(974	)
Carrying amount of interest in VTI, Bow Arken and Brightshare		33,596			32,625

Notice of Transaction filed with the PCC

On May 30, 2016, prior to closing the transaction, each of PLDT, Globe and SMC submitted notices of the VTI, Bow Arken and Brightshare Transaction (respectively, the VTI Notice, the Bow Arken Notice and the Brightshare Notice and collectively, the Notices) to the PCC pursuant to the Philippine Competition Act, or PCA, and Circular No. 16-001 and Circular No. 16-002 issued by the PCC, or the Circulars.  As stated in the Circulars, upon receipt by the PCC of the requisite notices, each of the said transactions shall be deemed approved in accordance with the Circulars.

Subsequently, on June 7, 2016, PLDT and the other parties to the said transactions received separate letters dated June 6 and 7, 2016 from the PCC which essentially stated, that: (a) with respect to VTI Transaction, the VTI Notice is deficient and defective in form and substance, therefore, the VTI Transaction is not “deemed approved” by the PCC, and that the missing key terms of the transaction are critical since the PCC considers certain agreements as prohibited and illegal; and (b) with respect to the Bow Arken and Brightshare Transactions, the compulsory notification under the Circulars does not apply and that even assuming that the Circulars apply, the Bow Arken Notice and the Brightshare Notice are deficient and defective in form and substance.

On June 10, 2016, PLDT submitted its response to the PCC’s letter articulating its position that the VTI Notice is adequate, complete and sufficient and compliant with the requirement under the Circulars and does not contain false material information; as such, the VTI Transaction enjoys the benefit of Section 23 of the PCA.  Therefore, the VTI Transaction is deemed approved and cannot be subject to retroactive review by the PCC.  Moreover, the parties have taken all necessary steps, including the relinquishment/return of certain frequencies and co-use of the remaining frequencies by Smart and Belltel and Globe and Belltel as discussed above, to ensure that the VTI Transaction will not substantially prevent, restrict or lessen competition to violate the PCA.  Nevertheless, in the spirit of cooperation and for transparency, the parties voluntarily submitted to the PCC, among others, copies of the SPAs for the PCC’s information and reference.  

In a letter dated June 17, 2016, the PCC required the parties to further submit additional documents relevant to the co-use arrangement and the frequencies subject thereto, as well as other definitive agreements relating to the VTI Transaction.  It also disregarded the deemed approved status of the VTI Transaction in violation of the

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Circulars which the PCC itself issued, and insisted that it will conduct a full review, if not investigation of the said transaction under the different operative provisions of the PCA.

In the Matter of the Petition against the PCC

On July 12, 2016, PLDT filed before the Court of Appeals, or CA, a Petition for Certiorari and Prohibition (With Urgent Application for the Issuance of a Temporary Restraining Order, or TRO, and/or Writ of Preliminary Injunction), or the Petition, against the PCC.  The Petition sought to enjoin the PCC from proceeding with the review of the acquisition by PLDT and Globe of equity interest, including outstanding advances and assumed liabilities, in the telecommunications business of SMC, or the SMC Transactions, and performing any act which challenges or assails the “deemed approved” status of the SMC Transactions.  On July 19, 2016, the 12^th Division of the CA, issued a Resolution directing the PCC through the Office of the Solicitor General, or the OSG, to file its Comment within a non-extendible period of 10 days from notice and show cause why the Petition should not be granted.  On August 11, 2016, the PCC through the OSG, filed its Comment to the Petition (With Opposition to Petitioner’s Application for a Writ of Preliminary Injunction).  

On August 19, 2016, PLDT filed its Reply to Respondent PCC’s Comment.  On August 26, 2016, the CA issued a Writ of Preliminary Injunction enjoining and directing the respondent PCC, their officials and agents, or persons acting for and in their behalf, to cease and desist from conducting further proceedings for the pre-acquisition review and/or investigation of the SMC Transactions based on its Letters dated June 7, 2016 and June 17, 2016 during the pendency of the case and until further orders are issued by the CA.  On September 14, 2016, the PCC filed a Motion for Reconsideration of the CA’s Resolution.  During this time, Globe moved to have its Petition consolidated with the PLDT Petition.  In a Resolution promulgated on October 19, 2016, the CA, or the First CA Resolution: (i) accepted the consolidation of Globe’s petition versus the PCC (CA G.R. SP No. 146538) into PLDT’s petition versus the PCC (CA G.R. SP No. 146528) with the right of replacement;
(ii) admitted the Comment dated October 4, 2016 filed by the PCC; (iii) referred to the PCC for Comment (within 10 days from receipt of notice) PLDT’s Urgent Motion for the Issuance of a Gag Order dated September 30, 2016 and to cite the PCC for indirect contempt; and (iv) ordered all parties to submit simultaneous memoranda within a non-extendible period of 15 days from notice.  On November 11, 2016, PLDT filed its Memorandum in compliance with the CA’s Resolution.

On February 17, 2017, the CA issued a Resolution, or the Second CA Resolution, denying PCC’s Motion for Reconsideration dated September 14, 2016, for lack of merit.  The CA denied PLDT’s Motion to Cite the PCC for indirect Contempt for being premature.  In the same Resolution, as well as in a separate Gag Order attached to the Resolution, the CA granted PLDT’s Urgent Motion for the Issuance of a Gag Order and directed PCC to remove immediately from its website its preliminary statement of concern and submit its compliance within five days from receipt thereof.  All the parties were ordered to refrain, cease and desist from issuing public comments and statements that would violate the sub judice rule and subject them to indirect contempt of court.  The parties were also required to comment within ten days from receipt of the Second CA Resolution, on the Motion for Leave to Intervene and to Admit the Petition-in-Intervention dated February 7, 2017 filed by Citizenwatch, a non-stock and non-profit association.  

On April 18, 2017, the PCC filed before the Supreme Court a Petition to Annul the Writ of Preliminary Injunction issued by the CA’s 12^th Division on August 26, 2016 restraining PCC’s review of the SMC Transactions.  In compliance with the Supreme Court’s Resolution issued on April 25, 2017, PLDT on July 3, 2017 filed its Comment dated July 1, 2017 to the PCC’s Petition.  The Supreme Court issued a Resolution dated July 18, 2017 noting PLDT’s Comment and requiring the PCC to file its Consolidated Reply.  The PCC filed a Motion for Extension of Time and prayed that it be granted until October 23, 2017 to file its Consolidated Reply.  The PCC filed its Consolidated Reply to the: (1) Comment filed by PLDT; and
(2) Motion to Dismiss filed by Globe on November 7, 2017.  The same was noted by Supreme Court in a Resolution dated November 28, 2017.  

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During the intervening period, the CA rendered its Decision on October 18, 2017, granting the Petitions filed by PLDT and Globe.  In its Decision, the CA: (i) permanently enjoined the PCC from conducting further proceedings for the pre-acquisition review and/or investigation of the SMC Transactions based on its Letters dated June 7, 2016 and June 17, 2016; (ii) annulled and set aside the Letters dated June 7, 2016 and June 17, 2016; (iii) precluded the PCC from conducting a full review and/or investigation of the SMC Transactions;
(iv) compelled the PCC to recognize the SMC Transactions as deemed approved by operation of law; and
(v) denied the PCC’s Motion for Partial Reconsideration dated March 6, 2017, and directed the PCC to permanently comply with the CA’s Resolution dated February 17, 2017 requiring PCC to remove its preliminary statement of concern from its website.  The CA clarified that the deemed approved status of the SMC Transactions does not, however, remove the power of PCC to conduct post-acquisition review to ensure that no anti-competitive conduct is committed by the parties.

On November 7, 2017, PCC filed a Motion for Additional Time to file a Petition for Review on Certiorari before the Supreme Court.  The Supreme Court granted PCC’s motion in its Resolution dated November 28, 2017.

On December 13, 2017, PLDT, through counsel, received the PCC’s Petition for Review on Certiorari filed before the Supreme Court assailing the CA’s Decision dated October 18, 2017.  In this Petition, the PCC raised procedural and substantive issues for resolution.  Particularly, the PCC assailed the issuance of the writs of certiorari, prohibition, and mandamus considering that the determination of the sufficiency of the Notice pursuant to the Transitory Rules involves the exercise of administrative and discretionary prerogatives of the PCC.  On the substantive aspect, the PCC argued that the CA committed grave abuse of discretion in ruling that the SMC Transactions should be accorded the deemed approved status under the Transitory Rules.  The PCC maintained that the Notice of the SMC Transactions was defective because it failed to provide the key terms thereof.

In the Supreme Court Resolution dated November 28, 2017, which was received by PLDT on December 27, 2017, the Supreme Court decided to consolidate the PCC’s Petition to Annul the Writ of Preliminary Injunction issued by the CA’s 12^th Division with that of its Petition for Review on Certiorari assailing the decision of the CA on the merits.  

On February 13, 2018, PLDT received Globe’s Motion for Leave to File and Admit the Attached Rejoinder, which was denied by the Supreme Court in a Resolution dated March 13, 2018.  On February 27, 2018, PLDT received notice of the Supreme Court’s Resolution dated January 30, 2018 directing PLDT and Globe to file their respective Comments to the Petition for Review on Certiorari without giving due course to the same.

On April 5, 2018, PLDT filed its Comment on the Petition for Review on Certiorari. On April 11, 2018, PLDT received Globe’s Comment/Opposition [Re: Petition for Review on Certiorari dated December 11, 2017] dated March 4, 2018.   On April 24, 2018, PLDT received the PCC’s Motion to Expunge [Respondent PLDT’s Comment on the Petition for Review on Certiorari] dated April 18, 2018. On May 9, 2018, PLDT filed a Motion for Leave to File and Admit the Attached Comment on the Petition for Review on Certiorari dated May 9, 2018.

On June 5, 2018, PLDT received the Supreme Court’s Resolution dated April 24, 2018 granting the motion for extension of PLDT and noting its Comment on the Petition for Review on Certiorari filed in compliance with the Supreme Court’s Resolution dated January 30, 2018 and requiring the PCC to file a Consolidated Reply to the comments within ten days from notice.  On June 20, 2018, PLDT, through counsel, received PCC’s Urgent Omnibus Motion for: (1) Partial Reconsideration of the Resolution dated April 24, 2018; and (2) Additional Time dated June 11, 2018.

PCC filed its Consolidated Reply Ad Cautelam dated July 16, 2018, which was received on July 19, 2018.  On July 26, 2018, PLDT received a Resolution dated June 19, 2018 where the Supreme Court resolved to grant PLDT’s Motion for Leave to File and Admit the Attached Comment, and PCC’s Motion for Extension to file a Comment/Opposition on/to PLDT’s Motion for Leave to File and Admit the Attached Comment.

On August 14, 2018, PLDT received a Resolution dated July 3, 2018 where the Supreme Court resolved to deny the PCC’s motion to reconsider the Resolution dated April 24, 2018 and grant its motion for extension of time to file its reply to PLDT’s and Globe’s Comments, with a warning that no further extension will be given.  

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On August 16, 2018, PLDT received a Resolution dated June 5, 2018 where the Supreme Court noted without action the Motion to Expunge by PCC in view of the Resolution dated April 24, 2018 granting the motion for extension of time to file a comment on the petition in G.R. No. 234969.

On October 4, 2018, PLDT received a Resolution dated August 7, 2018 where the Supreme Court noted the PCC’s Consolidated Reply Ad Cautelam.

On July 2, 2020, PLDT received a Resolution dated March 3, 2020 requiring petitioners in G.R. No. 242352 (Atty. Joseph Lemuel Baligod Baquiran and Ferdinand C. Tecson v. NTC, et al.,) to file a Consolidated Reply to the comments on the petition within 10 days from notice.

On September 2, 2020, PLDT received a Resolution dated June 30, 2020 where the Supreme Court resolved to Await the Consolidated Reply of the petitioners in G.R. No. 242352 as required in the resolution dated March 3, 2020.

On November 16, 2020, PLDT received a Resolution of the Supreme Court dated October 6, 2020 which granted the motions filed by the petitioners in G.R. No. 242352 to extend the filing of the Consolidated Reply until September 29, 2020.

On February 8, 2021, PLDT received a Resolution where the Supreme Court noted the Consolidated Reply dated September 29, 2020 filed by the Petitioners in G.R. 242352.

The consolidated petitions remain pending as of the date of this report.

VTI’s Tender Offer for the Minority Stockholders’ Shares in Liberty Telecom Holdings, Inc., or LIB

On August 18, 2016, the Board of Directors of VTI approved the voluntary tender offer to acquire the common shares of LIB, a subsidiary of VTI, which are held by the remaining minority shareholders, and the intention to delist the shares of LIB from the PSE.  

On August 24, 2016, VTI, owner of 87.12% of the outstanding common shares of LIB, undertook the tender offer to purchase up to 165.88 million common shares owned by the remaining minority shareholders, representing 12.82% of LIB’s common stock, at a price of Php2.20 per share.  The tender offer period ended on October 20, 2016, the extended expiration date, with over 107 million shares tendered, representing approximately 8.3% of LIB’s issued and outstanding common shares.  The tendered shares were crossed at the PSE on November 4, 2016, with the settlement on November 9, 2016.

The tender offer was undertaken in compliance with the PSE’s requirements for the voluntary delisting of LIB common shares from the PSE.  The voluntary delisting of LIB was approved by the PSE effective November 21, 2016.

Following the conclusion of the tender offer, VTI now owns more than 95% of the issued and outstanding common shares, and 99.1% of the total issued and outstanding capital stock, of LIB.

Investment of PGIH in Multisys

On November 8, 2018, the PLDT Board of Directors approved the investment of Php2,150 million in Multisys for a 45.73% equity interest through its wholly-owned subsidiary, PGIH.  Multisys is a Philippine software development and IT solutions provider engaged in designing, developing, implementing business system solutions and services covering courseware, webpage development and designing user-defined system programming.  PGIH’s investment involves the acquisition of new and existing shares. 

On December 3, 2018, PGIH completed the closing of its investment in Multisys.  Out of the Php550 million total consideration for the acquisition of existing shares, PGIH paid Php523 million to the owners of Multisys.  On June 3, 2019, the balance of the acquisition consideration amounting to Php27 million was fully paid.  Further, PGIH invested Php800 million into Multisys as a deposit for future stock subscription pending the approval by the Philippine SEC of the capital increase of Multisys, and a balance of another Php800 million

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subscription payable was outstanding.  On February 1, 2019, the Philippine SEC approved the capital increase of Multisys.

PLDT has engaged an independent appraiser to determine the fair value adjustments relating to the acquisition.  As at December 3, 2018, our share in the fair value of the identifiable net assets and liabilities, which include technologies and customer relationships, amounted to Php1,357 million.  Goodwill of Php1,031 million has been determined based on the final results of the independent valuation.  Goodwill arising from this acquisition and carrying amount of the identifiable net assets and liabilities, including deferred tax liability, and the related amortization through equity in net earnings were retrospectively adjusted accordingly.

Based on its 2019 performance, the owners of Multisys are entitled to Php170 million out of the total Php230 million contingent consideration.  Subsequently on April 6, 2020 and December 1, 2020, PGIH paid the owners Php153 million and Php17 million, respectively.  The difference of the lower payout and the original contingent consideration amounting to Php60 million was closed to profit and loss.

On October 6, 2021, PGIH paid Php180 million of the subscription payable to Multisys.

The subscription payable of PGIH to Multisys was at Php620 million and Php800 million as at December 31, 2021 and 2020, respectively.

Investment of PCEV in Beacon

In relation to PCEV’s previous investment in Beacon Common and Preferred shares amounting to Php40,966 million, PCEV has entered into the following Share Purchase Agreements with MPIC:

Date	Number of Shares Sold	Selling Price (Php)		Deferred Gain Realized (Php)
	(in millions)
June 6, 2012	282 Preferred Shares		3,563		2,012
May 30, 2016	646 Common shares and 458 Preferred Shares		26,200		4,962
June 13, 2017	646 Common shares and 458 Preferred Shares		21,800		4,962

On May 30, 2016, MPIC settled a portion of the consideration amounting to Php17,000 million immediately upon signing of the Share Purchase Agreement dated May 30, 2016 and the balance of Php9,200 million was paid in annual installments until June 2020.  

On June 27, 2017, MPIC settled a portion of the consideration amounting to Php12,000 million upon closing of the sale under the Share Purchase Agreement dated June 13, 2017 and the balance of Php9,800 million was paid in annual installments from June 2018 to June 2021.  

MPIC agreed that for as long as: (a) PCEV owns at least 20% of the outstanding capital stock of Beacon; or
(b) the purchase price has not been fully paid by MPIC, PCEV shall retain the right to vote 50% of the outstanding capital stock of Beacon. After the full payment has been settled in June 2021, PCEV ceased to hold significant influence over Beacon.

Sale of PCEV’s Receivables from MPIC (FVOCI)

On December 5, 2017, the Board of Directors of PCEV approved the proposed sale of 50% of PCEV’s receivable from MPIC, with an option on the part of PCEV to upsize to 75%, consisting of the proceeds from the sale of its shares in Beacon, which are due in 2019 to 2021.

On March 2, 2018, PCEV entered into a Receivables Purchase Agreement, or RPA, with various financial institutions, or the Purchasers, to sell a portion of its receivables from MPIC due in 2019 to 2021 amounting to Php5,550 million for a total consideration of Php4,852 million.  Under the terms of the RPA, the Purchasers will have exclusive ownership of the purchased receivables and all of its rights, title, and interest.

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On March 23, 2018, PCEV entered into another RPA with a financial institution to sell a portion of its receivables from MPIC due in 2019 amounting to Php2,230 million for a total consideration of Php2,124 million.

The remaining net balance of Php168 million as at December 31, 2020 was fully settled on June 30, 2021.

Investment of Smart in TCI

On February 8, 2019, the RA 11202 or the “Mobile Number Portability, or MNP, Act” was enacted into a law. This act allows subscribers to change their subscription plans or service providers while allowing the subscribers to retain their current mobile numbers. In addition, no interconnection fee or charge shall be imposed for mobile domestic calls and SMS made by a subscriber. The act shall take effect fifteen days after its publication in the Official Gazette or in any newspaper of general circulation. Within 90 days from the effectivity of the act, the NTC, as the government entity mandated to implement nationwide MNP, shall coordinate with the Department of Information and Communications Technology, The National Privacy Commission, the Philippine Competition Commission, and other concerned agencies, and promulgate rules and regulations and other issuances to ensure the effective implementation of the Act.

Subsequently, Smart, along with Globe and Dito Telecommunity, Inc. entered into an agreement to form a joint venture that will address the requirements of the MNP Act.  The joint venture company, TCI was incorporated in the Philippines on December 26, 2019 and registered with the Philippine SEC on January 17, 2020.  The primary purpose of the joint venture is to serve as a clearing house for MNP.  TCI would ensure smooth implementation of mobile number porting services.  On December 23, 2019, Smart subscribed Php10 million representing 33.3% equity interest in TCI, which is equivalent to 10 million shares at a subscription price of Php1.00 per share.

In December 2020, Smart subscribed to additional 30 million shares, at a subscription price of Php1.00 per share, representing its 33.33% equity interest.  The subscription price of Php30 million was settled in July 2021, upon TCI’s capital call.  

The core services of MNP was made available by TCI on September 30, 2021.  This allows subscribers to change their subscription plans or service providers while allowing the subscribers to retain their current mobile numbers.

Summarized financial information of individually immaterial joint ventures

The following table presents the summarized financial information of our individually immaterial joint investments in joint ventures for the years ended December 31, 2021, 2020 and 2019:

	2021		2020		2019
	(in million pesos)
Income Statements:
Revenues		754		166		367
Net income		13		320		200
Other comprehensive income		—		—		—
Total comprehensive income		13		320		200

Outstanding contingent liabilities or capital commitments with our joint ventures amounted to Php620 million and Php800 million as at December 31, 2021 and 2020, respectively.

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12. Financial Assets at FVPL

As at December 31, 2021 and 2020, this account consists of:

	2021		2020
	(in million pesos)
Club shares and others		339		319
Phunware		—		61
Rocket Internet		—		—
iflix Limited, or iflix		—		—
		339		380

Investment of PLDT Capital in Phunware

On September 3, 2015, PLDT Capital subscribed to an 8% US$5 million Convertible Promissory Note, or Note, issued by Phunware, a Delaware corporation.  Phunware provides an expansive mobile delivery platform that creates, markets, and monetizes mobile application experiences across multiple screens.  The US$5 million Note was issued to and paid for by PLDT Capital on September 4, 2015.

On December 18, 2015, PLDT Capital subscribed to Series F Preferred Shares of Phunware for a total consideration of US$3 million.  On the same date, the Note and its related interest were converted to additional Phunware Series F Preferred Shares.  

On February 27, 2018, Phunware entered into a definitive Agreement and Plan of Merger, or Merger Agreement, with Stellar Acquisition III, Inc., or Stellar, relating to a business combination transaction for an enterprise value of US$301 million, on a cash-free, debt-free basis.  Pursuant to the Merger Agreement, the holders of Phunware common stock will be entitled to the right to receive the applicable portion of the merger consideration in the form of Stellar common shares, which are listed on the Nasdaq Stock Market.  As a result, the holders of Phunware preferred stock have requested the automatic conversion of all outstanding preferred shares into common shares effective as of immediately prior to the closing of the transaction on a conversion ratio of one common share per one preferred share.  In addition to the right to receive Stellar common shares, each holder of Phunware Stock is entitled to elect to receive its pro rata share of warrants to purchase Stellar common shares that are held by the affiliate companies of Stellar’s co-Chief Executive Officers, or Stellar’s Sponsors.

On November 28, 2018, PLDT Capital elected to receive its full pro rata share of the warrants to purchase Stellar common shares held by Stellar’s Sponsors.

On December 26, 2018, Phunware announced the consummation of its business combination with Stellar.  Stellar, the new Phunware holding company, changed its corporate name to “Phunware, Inc.,” or PHUN, and Phunware changed its corporate name to “Phunware OpCo, Inc.”  Upon closing, PLDT Capital received the PHUN common shares equivalent to its portion of the merger consideration and its full pro rata share of warrants to purchase PHUN common shares.

On March 15, 2019, PLDT Capital exercised its warrants to purchase PHUN common shares for a total consideration of US$1.6 million.

On October 25, 2021, PLDT Capital sold all of its PHUN common shares for an aggregate amount of US$9.5 million, or Php482 million, resulting to a gain on fair value changes amounting to Php306 million and gain on sales amounting to Php115 million and full divestment of the investment in Phunware.

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Investment of PLDT Online in Rocket Internet

On August 7, 2014, PLDT and Rocket Internet entered into a global strategic partnership to drive the development of online and mobile payment solutions in emerging markets.  Rocket Internet provides a platform for the rapid creation and scaling of consumer internet businesses outside the U.S. and China.  Rocket Internet’s prominent brands include the leading Southeast Asian e-Commerce businesses Zalora and Lazada, as well as fast growing brands with strong positions in their markets such as Dafiti, Linio, Jumia, Namshi, Lamoda, Jabong, Westwing, Home24 and HelloFresh in Latin America, Africa, Middle East, Russia, India and Europe.  Financial technology and payments comprise Rocket Internet’s third sector where it anticipates numerous and significant growth opportunities.

Pursuant to the terms of the investment agreement, PLDT invested €333 million, or Php19,577 million, in cash, for new shares equivalent to a 10% stake in Rocket Internet as at August 2014.  These new shares are of the same class and bear the same rights as the Rocket Internet shares held by the investors as at the date of the agreement namely, Investment AB Kinnevik and Access Industries, in addition to Global Founders GmbH (formerly European Founders Fund GmbH).  PLDT made the €333 million investment in two payments (on September 8 and September 15, 2014), which it funded from available cash and new debt.  

On August 21, 2014, PLDT assigned all its rights, title and interests as well as all of its obligations related to its investment in Rocket Internet, to PLDT Online, an indirectly wholly-owned subsidiary of PLDT.

On October 1, 2014, Rocket Internet announced the pricing of its initial public offering, or IPO, at €42.50 per share.  On October 2, 2014, Rocket Internet listed its shares on Entry Standard of the Frankfurt Stock Exchange under the ticker symbol “RKET.”  Our ownership stake in Rocket Internet after the IPO was reduced to 6.6%.  In February 2015, due to additional issuances of shares by Rocket Internet, our ownership percentage in Rocket Internet was further reduced to 6.1% and remained as such as at December 31, 2017.  

On September 26, 2016, Rocket Internet applied for admission to trading under the regulated market (Prime Standard) of the Frankfurt Stock Exchange.  RKET has been admitted to the Prime Standard and is part of the Frankfurt Stock Exchange’s SDAX.

On April 16, 2018, Rocket Internet announced the buyback of up to 15 million shares through a public share purchase offer, or the Offer, against payment of an offer price in the amount of €24 per share.  PLDT Online committed to accept the Offer of Rocket Internet for at least 7 million shares, or approximately 67.4% of the total number of shares directly held by PLDT Online.

On May 4, 2018, Rocket Internet accepted the tender of PLDT Online of 7 million shares and paid the total consideration of €163 million, or Php10,059 million, which was settled on May 9, 2018, reducing the equity ownership in Rocket Internet from 6.1% to 2.0%.

On May 23, 2018, Rocket Internet redeemed 10.8 million shares reducing its share capital to €154 million.  As a result of the redemption of shares, PLDT Online’s equity ownership in Rocket Internet increased from 2.0% to 2.1%.

On various dates in the third quarter of 2018, PLDT Online sold 0.7 million Rocket Internet shares for an aggregate amount of €22 million, or Php1,346 million, reducing equity ownership in Rocket Internet from 2.1% to 1.7%.

On December 6, 2018, Rocket Internet redeemed 1.9 million shares reducing its share capital to €153 million.  PLDT Online’s equity ownership in Rocket Internet remained at 1.7%

On various dates in 2019, PLDT Online sold 0.7 million Rocket internet shares for an aggregate amount of €18 million, or Php1,021 million, reducing equity ownership in Rocket Internet from 1.7% to 1.3%.

On October 9, 2019, Rocket Internet redeemed 1.7 million shares reducing its share capital to €151 million.  PLDT Online’s equity ownership in Rocket Internet remained at 1.3%

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On January 30, 2020, Rocket Internet redeemed 13.5 million shares reducing its share capital to €137 million.  As a result of the redemption of shares, PLDT Online’s equity ownership in Rocket Internet increased from 1.3% to 1.4%.

On July 31, 2020, Rocket Internet redeemed 1.6 million shares reducing its share capital to €136 million. PLDT Online’s equity ownership in Rocket Internet remained at 1.4%

In September 2020, PLDT Online sold 1.4 million Rocket internet shares for an aggregate amount of €26 million, or Php1,508 million, reducing its equity ownership in Rocket Internet from 1.4% to 0.4%.

In October 2020, PLDT Online sold 0.5 million Rocket internet shares for an aggregate amount of €9 million, or Php508 million, resulting in the full divestment of the investment in Rocket Internet.

Further details on investment in Rocket Internet for the years ended December 31, 2020 and 2019, and as at December 31, 2020 are as follows:

	2020		2019
Total market value as at beginning of the year (in million pesos)		2,381		3,128
Closing price per share at end of the year (in Euros)		—		22.10
Total market value as at end of the year (in million Euros)		—		42
Total market value as at end of the year (in million pesos)		—		2,381
Net losses recognized during the year (in million pesos)		—		89

	2020
	(in million pesos)
Balances at beginning of the year		2,381
Disposal of investments		(2,381	)
Balances at end of the year		—

Investment of PLDT Online in iflix

On April 23, 2015, PLDT Online subscribed to a convertible note of iflix, an internet TV service provider in Southeast Asia, for US$15 million, or Php686 million.  The convertible note was issued and paid on August 11, 2015.  iflix will use the funds to continue roll out of the iflix subscription video-on-demand services across the Southeast Asian region, acquire rights to new content, and produce original programming to market to potential customers. 

This investment is in line with our strategy to develop new revenue streams and to complement our present business by participating in the digital world beyond providing access and connectivity.  

On March 10, 2016, the US$15 million convertible note held by PLDT Online was converted into 20.7 million ordinary shares of iflix in connection with a new funding round led by Sky Plc, Europe’s leading entertainment company, and the Indonesian company, Emtek Group.  The conversion resulted on a valuation gain amounting to U$19 million, or Php898 million, increasing the fair value of PLDT Online’s investment amounting to US$34 million, or Php1,584 million.  

On August 4, 2017, PLDT Online subscribed to a convertible note of iflix for US$1.5 million, or Php75 million, in a new funding round led by Hearst Entertainment.  The convertible note was paid on August 8, 2017.  The note is zero coupon, senior and unsubordinated, non-redeemable, transferable and convertible into Series B Preferred Shares subject to occurrence of a conversion event.  iflix will use the funds to invest in its local content strategy and for its regional and international expansion.

On December 15, 2018, the US$1.5 million convertible note held by PLDT Online was converted into 1.0 million Series B Preferred Shares of iflix upon the occurrence of the cut-off date.  After the conversion of all outstanding convertible notes, PLDT Online’s equity ownership in iflix was reduced from 7.3% to 5.3%.

In 2019, due to additional issuances of shares by iflix, PLDT Online’s equity ownership in iflix was reduced from 5.3% to 4.9%.

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On June 19, 2020, iflix entered into an asset purchase agreement with Tencent group relating to the sale of its major assets including trademark, content, platform and resources for a total consideration of US$22.5 million.  Upon closing of the transaction on June 24, 2020, the remaining assets of iflix are its existing cash, receivables and the right to pursue certain ongoing arbitration proceedings against certain business counterparties which it intends to use for the settlement of its liabilities.  As a result, PLDT Online derecognized its investment in iflix composed of ordinary and Series B Preferred Shares which rank last and second to the last, respectively, with respect to rights upon liquidation, dissolution and winding up of iflix.  The derecognition amounting to Php599 million was charged to “Other income (expenses) – net” in our consolidated income statement in 2020.  See Note 4 – Operating Segment Information.

13. Debt Instruments at Amortized Cost

As at December 31, 2021 and 2020, this account consists of:

	2021		2020
	(in million pesos)
Retail Treasury Bonds		400		—
Time deposits		207		1,153
GT Capital Bond		—		—
		607		1,153
Less: Current portion of debt instrument at amortized cost (Note 28)		207		—
Noncurrent portion of debt instrument at amortized cost (Note 28)		400		1,153

Retail Treasury Bonds

On March 9, 2021, Smart purchased at par a three-year Retail Treasury Bond Tranche 25 with face value of Php100 million maturing on March 9, 2024.  The bond has a gross coupon rate of 2.375% payable on a quarterly basis.  The bond is classified as debt instrument at amortized cost under IFRS 9.  Interest income, net of withholding tax, recognized on this investment amounted to Php1.5 million for the year ended December 31, 2021.  The carrying value of this investment amounted to Php100 million as at December 31, 2021.

On December 2, 2021, PLDT and Smart purchased at par a 5.5 year Retail Treasury Bond Tranche 26 with face value of Php300 million maturing on June 2, 2027.  The bond has a gross coupon rate of 4.6250% payable on a quarterly basis.  The bond is classified as debt instrument at amortized cost under IFRS 9.  Interest income, net of withholding tax, recognized on this investment amounted to Php904 thousand for the year ended December 31, 2021.  The carrying value of this investment amounted to Php300 million as at December 31, 2021.

Time Deposits

In June 2020, PLDT invested US$10.0 million in a two-year time deposit with BDO Unibank, Inc., or BDO, maturing on June 29, 2022 at a gross coupon rate of 0.90% (net of Trust Fees).  This long-term fixed rate time deposit pays interest on a monthly basis or an estimate of 30 days.  The deposits may be terminated prior to maturity at the applicable pretermination rates.  Interest income, net of withholding tax, recognized on this investment amounted to US$63 thousand, or Php3.1 million, and US$39 thousand, or Php1.9 million, for the years ended December 31, 2021 and 2020, respectively.  Investment was preterminated on October 21, 2021.  The carrying value of this investment amounted to nil and Php480 million as at December 31, 2021 and 2020, respectively.

In July 2020, PLDT invested US$10.0 million in a two-year time deposit with BDO maturing on July 2, 2022 at a gross coupon rate of 1.00%.  This long-term fixed rate time deposit pays interest on a monthly basis or an estimate of 30 days.  The deposits may be terminated prior to maturity at the applicable pretermination rates.  Interest income, net of withholding tax, recognized on this investment amounted to US$69 thousand, or Php3.4 million, and US$43 thousand, or Php2.1 million, for the years ended December 31, 2021 and 2020, respectively.  Investment was preterminated on October 21, 2021.  The carrying value of this investment amounted to nil and Php480 million as at December 31, 2021 and 2020, respectively.  

In July 2020, PLDT and Smart invested US$2.0 million each in a two-year time deposit with Landbank of the Philippines, or LBP, maturing on July 29, 2022 and August 1, 2022, respectively, at a gross coupon rate of

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2.00%.  These long-term fixed rate time deposits pay interest on a yearly basis or an estimate of 360 days. The deposit may be terminated prior to maturity at the applicable pretermination rates.  Interest income, net of withholding tax, recognized on this investment amounted to US$68 thousand, or Php3.5 million, and US$30 thousand, or Php1.4 million, for the years ended December 31, 2021 and 2020, respectively.  The carrying value of this investment amounted to Php207 million and Php193 million as at December 31, 2021 and 2020, respectively.

GT Capital Bond

In February 2013, Smart purchased at par a seven-year GT Capital Bond with face value of Php150 million which matured on February 27, 2020.  The bond has a gross coupon rate of 4.84% payable on a quarterly basis and was recognized as HTM investment.  Starting January 1, 2018, the bond was classified as debt instrument at amortized cost under IFRS 9.  Interest income, net of withholding tax, recognized on this investment amounted to Php1 million for the year ended December 31, 2020.

BDO ASEAN Sustainable Bond

On January 28, 2022, PLDT and Smart purchased at par a two-year BDO Fixed Rate ASEAN Sustainability Bond Due 2024 with face value of Php100 million maturing on January 28, 2024.  The bond has a gross coupon rate of 2.90% payable on a quarterly basis.  The bond is classified as debt instrument at amortized cost under IFRS 9.

14. Investment Properties

Changes in investment properties account for the years ended December 31, 2021 and 2020 are as follows:

	Land		Land Improvements			Building			Total
	(in million pesos)
December 31, 2021
Balances at beginning of the year		728		4			163			895
Net gains (losses) from fair value adjustments charged    to profit or loss		43		(1	)		(8	)		34
Balances at end of the year		771		3			155			929
December 31, 2020
Balances at beginning of the year		607		5			166			778
Transfers from property and equipment		70		—			4			74
Net gains (losses) from fair value adjustments charged    to profit or loss		51		(1	)		(7	)		43
Balances at end of the year		728		4			163			895

Investment properties, which consist of land, land improvements and building, are stated at fair values, which have been determined based on appraisal performed by an independent firm of appraisers, an industry specialist in valuing these types of investment properties.  

The valuation for land was based on a market approach valuation technique using price per square meter ranging from Php35 to Php35 thousand.  The valuation for building and land improvements was based on a cost approach valuation technique using current material and labor costs for improvements based on external and independent reviewers.

We have determined that the highest and best use of some of the idle or vacant land properties at the measurement date would be to convert the properties for residential or commercial development.  The properties are not being used for strategic reasons.

We have no restrictions on the realizability of our investment properties and no contractual obligations to either purchase, construct or develop investment properties or for repairs, maintenance and enhancements.

Repairs and maintenance expenses related to investment properties that do not generate rental income amounted to Php78 million, Php70 million and Php65 million for the years ended December 31, 2021, 2020

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and 2019, respectively.

Rental income relating to investment properties that are being leased and included as part of revenues amounted to Php48 million, Php51 million and Php49 million for the years ended December 31, 2021, 2020 and 2019, respectively.  See Note 10 – Leases.

The above investment properties were categorized under Level 2 and Level 3 of the fair value hierarchy.  There were no transfers in and out of Level 2 and Level 3 of the fair value hierarchy.

Significant increases (decreases) in price per square meter for land, current material and labor costs of improvements would result in a significantly higher (lower) fair value measurement.

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15. Goodwill and Intangible Assets

Changes in goodwill and intangible assets account for the years ended December 31, 2021 and 2020 are as follows:

	Intangible Assets with Indefinite Life			Intangible Assets with Finite Life															Total Intangible Assets with			Total					Total Goodwill and
	Trademark			Trademark		Franchise		Licenses			Customer List			Spectrum		Others			Finite Life			Intangible Assets			Goodwill		Intangible Assets
	(in million pesos)
December 31, 2021
Costs:
Balances at beginning and    end of the year		—			4,505		3,016		135			4,703			1,205		771			14,335			14,335			62,033		76,368
Additions during the year		—			—		—		—			—			—		28			28			28			—		28
Balances at end of the year		—			4,505		3,016		135			4,703			1,205		799			14,363			14,363			62,033		76,396
Accumulated amortization    and impairment:
Balances at beginning of the year		—			1,877		1,706		123			4,703			1,205		771			10,385			10,385			654		11,039
Amortization during the    year (Notes 4 and 5)		—			2,628		186		8			—			—		—			2,822			2,822			—		2,822
Balances at end of the year		—			4,505		1,892		131			4,703			1,205		771			13,207			13,207			654		13,861
Net balances at end of the year		—			—		1,124		4			—			—		28			1,156			1,156			61,379		62,535
Estimated useful lives (in years)		—			—		16		18			—			—		5			—			—			—		—
Remaining useful lives (in years)		—			—		6		1			—			—		5			—			—			—		—
December 31, 2020
Costs:
Balances at beginning and    end of the year		4,505			—		3,016		1,079			4,726			1,205		775			10,801			15,306			62,033		77,339
Reclassification		(4,505	)		4,505		—		—			—			—		—			4,505			—			—		—
Translation and other adjustments		—			—		—		(944	)		(23	)		—		(4	)		(971	)		(971	)		—		(971	)
Balances at end of the year		—			4,505		3,016		135			4,703			1,205		771			14,335			14,335			62,033		76,368
Accumulated amortization    and impairment:
Balances at beginning of the year		—			—		1,520		1,059			4,301			1,205		775			8,860			8,860			654		9,514
Amortization during the    year (Notes 4 and 5)		—			1,877		186		8			425			—		—			2,496			2,496			—		2,496
Translation and other adjustments		—			—		—		(944	)		(23	)		—		(4	)		(971	)		(971	)		—		(971	)
Balances at end of the year		—			1,877		1,706		123			4,703			1,205		771			10,385			10,385			654		11,039
Net balances at end of the year		—			2,628		1,310		12			—			—		—			3,950			3,950			61,379		65,329
Estimated useful lives (in years)		—			1		16		18			—			—		—			—			—			—		—
Remaining useful lives (in years)		—			1		7		2			—			—		—			—			—			—		—

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The consolidated goodwill and intangible assets of our reportable segments as at December 31, 2021 and 2020 are as follows:

	2021						2020
	Wireless		Fixed Line		Total		Wireless		Fixed Line		Total
	(in million pesos)
Franchise		1,124		—		1,124		1,310		—		1,310
Licenses		4		—		4		12		—		12
Trademark		—		—		—		2,628		—		2,628
Others		—		28		28		—		—		—
Total intangible assets		1,128		28		1,156		3,950		—		3,950
Goodwill		56,571		4,808		61,379		56,571		4,808		61,379
Total goodwill and intangible assets		57,699		4,836		62,535		60,521		4,808		65,329

The consolidated future amortization of intangible assets as at December 31, 2021 are as follows:

Year	(in million pesos)
2022		196
2023		192
2024		192
2025		191
2026 and onwards		385
		1,156

Amortization of Sun Cellular Trademark

Trademark pertains to the “Sun Cellular” trademark of DMPI, resulting from PLDT’s acquisition of Digitel in 2011.  It was assessed during the acquisition that the trademark would have indefinite useful life because we had no plans to fade out DMPI’s trademark.  We expected the continued use of the trademark on our services and we introduced services that displayed the trademark.

In October 2020, we implemented the rebranding of Sun Prepaid into Smart Prepaid.  Subscribers retained their existing Sun numbers while having access to expanded retail customer care channels, data-centric offers of Smart alongside existing select Sun top-up offers.  As a result, we amortized Php2,628 million and Php1,877 million for the years ended December 31, 2021 and 2020, respectively, of the “Sun Cellular” trademark.  See Note 2 – Summary of Significant Accounting Policies – Sun Prepaid Rebranding to Smart Prepaid and Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Estimating useful lives of intangible assets with finite lives.

Impairment Testing of Goodwill

The organizational structure of PLDT and its subsidiaries is designed to monitor financial operations based on fixed line and wireless segmentation.  Management provides guidelines and decisions on resource allocation, such as continuing or disposing of asset and operations by evaluating the performance of each segment through review and analysis of available financial information on the fixed line and wireless segments.  As at December 31, 2021, the PLDT Group’s goodwill comprised of goodwill resulting from acquisition of PLDT’s additional investment in PG1 in 2014, ePLDT’s acquisition of IPCDSI in 2012, PLDT’s acquisition of Digitel in 2011, ePLDT’s acquisition of ePDS in 2011, Smart’s acquisition of PDSI and Chikka in 2009, SBI’s acquisition of Airborne Access Corporation in 2008, and Smart’s acquisition of SBI in 2004.  

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Although revenue streams may be segregated among the companies within the PLDT Group, cash inflows are not considered coming from independent group of assets on a per Company basis due largely to the significant portion of shared and commonly used network/platform that generates related revenue.  On the other hand, PLDT has the largest fixed line network in the Philippines.  PLDT’s transport facilities are installed nationwide to cover both domestic and international IP backbone to route and transmit IP traffic generated by the customers.  In the same manner, PLDT has the most Internet Gateway facilities which are composed of high capacity IP routers and switches that serve as the main gateway of the Philippines to the Internet connecting to the World Wide Web.  With PLDT’s network coverage, other fixed line subsidiaries share the same facilities to leverage on a Group perspective.

Because of the significant common use of network facilities among fixed line and wireless companies within the Group, management deems that the Wireless and Fixed Line units are the lowest CGUs to which goodwill is to be allocated and tested for impairment given that the Fixed Line and Wireless operations generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

The recoverable amount of the Wireless and Fixed Line CGUs have been determined using the value- in-use approach calculated using cash flow projections based on the financial budgets approved by the Board of Directors.  The post-tax discount rates applied to cash flow projections are 7.38% for the Wireless and Fixed Line CGUs.  Cash flows beyond the projection period of three years are determined using a 2% growth rate for the Wireless and Fixed Line CGUs, which is the same as the long-term average growth rate for the telecommunications industry.  Other key assumptions used in the cash flow projections include revenue growth rate and capital expenditures.  

Based on the assessment of the VIU of the Wireless and Fixed Line CGUs, the recoverable amount of the Wireless and Fixed Line CGUs exceeded their carrying amounts, hence, no impairment was recognized in relation to goodwill for each of the years ended December 31, 2021 and 2020.

The accumulated impairment balance as at December 31, 2021 and 2020 is comprised of Php438 million from PLDT’s acquisition of Digitel and Php216 million from ePLDT’s acquisition of AGS.

16. Cash and Cash Equivalents

As at December 31, 2021 and 2020, this account consists of:

	2021		2020
	(in million pesos)
Cash on hand and in banks (Note 28)		10,616		9,526
Temporary cash investments (Note 28)		13,291		30,711
		23,907		40,237

Cash in banks earn interest at prevailing bank deposit rates.  Temporary cash investments are made for varying periods of up to three months depending on our immediate cash requirements and earn interest at the prevailing temporary cash investment rates.  Due to the short-term nature of such transactions, the carrying value approximates the fair value of our temporary cash investments.  See Note 28 – Financial Assets and Liabilities.

Interest income earned from cash in banks and temporary cash investments amounted to Php269 million, Php560 million and Php1,022 million for the years ended December 31, 2021, 2020 and 2019, respectively.  See Note 5 – Income and Expenses.

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17. Trade and Other Receivables

As at December 31, 2021 and 2020, this account consists of receivables from:

	2021		2020
	(in million pesos)
Retail subscribers (Note 28)		15,676		17,142
Corporate subscribers (Note 28)		13,079		13,318
Foreign administrations (Note 28)		1,341		1,520
Domestic carriers (Note 28)		241		226
Dealers, agents and others (Note 28)		5,288		6,098
		35,625		38,304
Less: Allowance for expected credit losses		13,835		16,251
		21,790		22,053

Receivables from foreign administrations and domestic carriers represent receivables based on interconnection agreements with other telecommunications carriers.  The aforementioned amounts of receivables are shown net of related payables to the same telecommunications carriers where a legal right of offset exists and settlement is facilitated on a net basis.

Receivables from dealers, agents and others consist mainly of receivables from credit card companies, dealers and distributors having collection arrangements with the PLDT Group, dividend receivables and advances to affiliates.

Trade and other receivables are noninterest-bearing and generally have settlement terms of 30 to 180 days.

For terms and conditions relating to related party receivables, see Note 25 – Related Party Transactions.

See Note 28 – Financial Assets and Liabilities on credit risk of trade receivables to understand how we manage and measure credit quality of trade receivables that are neither past due nor impaired.

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The following table explains the changes in the allowance for expected credit losses as at December 31, 2021 and 2020:

	2021
	Retail Subscribers								Corporate Subscribers								Foreign Administrations						Domestic Carriers						Dealers, Agents and Others						Total
	Stage 1		Stage 2			Stage 3			Stage 1		Stage 2			Stage 3			Stage 2			Stage 3			Stage 2			Stage 3			Stage 2			Stage 3			Stage 1		Stage 2			Stage 3
			Lifetime ECL								Lifetime ECL						Lifetime ECL						Lifetime ECL						Lifetime ECL								Lifetime ECL						Total
			(in million pesos)
Balances at    beginning of    the year		—		2,433			7,557			—		1,380			3,478			9			227			3			58			135			971			—		3,960			12,291			16,251
Provisions and    other    adjustments    (Note 5)		—		(820	)		3,516			—		(18	)		1,045			(9	)		4			(3	)		8			(48	)		62			—		(898	)		4,635			3,737
Reclassifications    and reversals		—		(5	)		86			—		(1	)		(31	)		—			(12	)		—			—			—			(30	)		—		(6	)		13			7
Write-offs		—		(35	)		(4,693	)		—		—			(1,168	)		—			(98	)		—			(52	)		—			(137	)		—		(35	)		(6,148	)		(6,183	)
Translation    adjustments		—		—			—			—		17			6			—			—			—			—			—			—			—		17			6			23
Balances at end    of the year		—		1,573			6,466			—		1,378			3,330			—			121			—			14			87			866			—		3,038			10,797			13,835
	2020
	Retail Subscribers								Corporate Subscribers								Foreign Administrations						Domestic Carriers						Dealers, Agents and Others						Total
	Stage 1		Stage 2			Stage 3			Stage 1		Stage 2			Stage 3			Stage 2			Stage 3			Stage 2			Stage 3			Stage 2			Stage 3			Stage 1		Stage 2			Stage 3
			Lifetime ECL								Lifetime ECL						Lifetime ECL						Lifetime ECL						Lifetime ECL								Lifetime ECL						Total
			(in million pesos)
Balances at    beginning of    the year		—		926			9,766			—		732			3,870			3			374			4			86			98			1,045			—		1,763			15,141			16,904
Provisions    (Note 5)		—		2,387			2,550			—		1,020			438			6			(20	)		(1	)		(3	)		52			17			—		3,464			2,982			6,446
Reclassifications    and reversals		—		(840	)		1,015			—		(358	)		324			—			(111	)		—			(4	)		(15	)		(6	)		—		(1,213	)		1,218			5
Write-offs		—		(40	)		(5,774	)		—		—			(1,151	)		—			(16	)		—			(21	)		—			(85	)		—		(40	)		(7,047	)		(7,087	)
Translation    adjustments		—		—			—			—		(14	)		(3	)		—			—			—			—			—			—			—		(14	)		(3	)		(17	)
Balances at end    of the year		—		2,433			7,557			—		1,380			3,478			9			227			3			58			135			971			—		3,960			12,291			16,251

The significant changes in the balances of trade and other receivables and contract assets are disclosed in Note 5 – Income and Expenses, while the information about the credit exposures are disclosed in Note 28 – Financial Assets and Liabilities.

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18. Inventories and Supplies

As at December 31, 2021 and 2020, this account consists of:

	2021		2020
	(in million pesos)
Commercial:
At net realizable value(1)		2,109		1,406
At cost		2,835		1,755
Network:
At net realizable value(1)		515		420
At cost		1,702		1,445
Others:
At net realizable value(1)		1,038		2,259
At cost		1,813		3,248
Total inventories and supplies at the lower of cost or net realizable value		3,662		4,085

⁽¹⁾ Amounts are net of allowance for inventory obsolescence and write-downs.

The cost of inventories and supplies recognized as expense for the years ended December 31, 2021, 2020 and 2019 are as follows:

	2021		2020		2019
	(in million pesos)
Cost of sales		7,375		8,882		9,528
Repairs and maintenance		850		613		823
Provisions (Note 5)		847		934		471
Selling and promotions		9		3		138
		9,081		10,432		10,960

Changes in the allowance for inventory obsolescence and write-down for the years ended December 31, 2021 and 2020 are as follows:

	2021			2020
	(in million pesos)
Balances at beginning of the year		2,363			2,303
Provisions (Note 5)		847			934
Translation revaluation		2			(1	)
Reversals		(11	)		(346	)
Reclassification		(73	)		(209	)
Cost of sales		(440	)		(262	)
Write-off		—			(56	)
Balances at end of the year		2,688			2,363

19. Prepayments

As at December 31, 2021 and 2020, this account consists of:

	2021		2020
	(in million pesos)
Advances to suppliers and contractors		82,749		55,891
Prepaid taxes		15,652		15,241
Prepaid fees and licenses		1,631		1,182
Prepaid benefit costs (Note 26)		1,018		1,021
Prepaid rent		574		401
Prepaid repairs and maintenance		531		228
Prepaid insurance (Note 25)		163		130
Other prepayments		5,166		2,672
		107,484		76,766
Less current portion of prepayments		12,707		10,657
Noncurrent portion of prepayments		94,777		66,109

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Advances to suppliers and contractors are noninterest-bearing and are to be applied to contractors’ subsequent progress billings for projects.

Prepaid taxes include creditable withholding taxes and input VAT.

Prepaid benefit costs represent excess of fair value of plan assets over present value of defined benefit obligations recognized in our consolidated statements of financial position.  See Note 26 – Pension and Other Employee Benefits.

20. Equity

PLDT’s number of shares of subscribed and outstanding capital stock as at December 31, 2021 and 2020 are as follows:

	2021		2020
	(in million pesos)
Authorized
Non-Voting Serial Preferred Stock		388		388
Voting Preferred Stock		150		150
Common Stock		234		234
Subscribed
Non-Voting Serial Preferred Stock(1)		300		300
Voting Preferred Stock		150		150
Common Stock		219		219
Outstanding
Non-Voting Serial Preferred Stock(1)		300		300
Voting Preferred Stock		150		150
Common Stock		216		216
Treasury Stock
Common Stock		3		3

⁽¹⁾ 300 million shares of Series IV Cumulative Non-Convertible Redeemable Preferred Stock subscribed for Php3 billion, of which Php360 million has been paid.

There were no changes in PLDT’s capital account for the year ended December 31, 2021.  The change in PLDT’s capital account for the year ended December 31, 2020 is the redemption and retirement of 870 shares of Series JJ 10% Cumulative Convertible Preferred stock with a par value of Php10.00 per share effective May 12, 2020.

Preferred Stock

Non-Voting Serial Preferred Stock

On November 5, 2013, the Board of Directors designated 50,000 shares of Non-Voting Serial Preferred Stock as Series JJ 10% Cumulative Convertible Preferred Stock to be issued from January 1, 2013 to December 31, 2015, pursuant to the PLDT Subscriber Investment Plan, or SIP.  On June 8, 2015, PLDT issued 870 shares of Series JJ 10% Cumulative Convertible Preferred Stock.

On January 26, 2016, the Board of Directors designated 20,000 shares of Non-Voting Serial Preferred Stock as Series KK 10% Cumulative Convertible Preferred Stock to be issued from January 1, 2016 to December 31, 2020, pursuant to the SIP.

The Series JJ and KK 10% Cumulative Convertible Preferred Stock, or SIP shares, earns cumulative dividends at an annual rate of 10%.  After the lapse of one year from the last day of the year of issuance of a particular Series of 10% Cumulative Convertible Preferred Stock, any holder of such series may convert all or any of the shares of 10% Cumulative Convertible Preferred Stock held by him into fully paid and non-assessable shares of Common Stock of PLDT, at a conversion price equivalent to 10% below the average of the high and low daily sales price of a share of Common Stock of PLDT on the PSE, or if there have been no such sales on the PSE on any day, the average of the bid and the ask prices of a share of Common Stock of PLDT at the end of such day

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on such Exchange, in each case averaged over a period of 30 consecutive trading days prior to the conversion date, but in no case shall the conversion price be less than the par value per share of Common Stock.  The number of shares of Common Stock issuable at any time upon conversion of 10% Cumulative Convertible Preferred Stock is determined by dividing Php10.00 by the then applicable conversion price.

In case the shares of Common Stock outstanding are at any time subdivided into a greater or consolidated into a lesser number of shares, then the minimum conversion price per share of Common Stock will be proportionately decreased or increased, as the case may be, and in the case of a stock dividend, such price will be proportionately decreased, provided, however, that in every case the minimum conversion price shall not be less than the par value per share of Common Stock.  In the event the relevant effective date for any such subdivision or consolidation of shares of stock dividend occurs during the period of 30 trading days preceding the presentation of any shares of 10% Cumulative Convertible Preferred Stock for conversion, a similar adjustment will be made in the sales prices applicable to the trading days prior to such effective date utilized in calculating the conversion price of the shares presented for conversion.

In case of any other reclassification or change of outstanding shares of Common Stock, or in case of any consolidation or merger of PLDT with or into another corporation, the Board of Directors shall make such provisions, if any, for adjustment of the minimum conversion price and the sale price utilized in calculating the conversion price as the Board of Directors, in its sole discretion, shall deem appropriate.

At PLDT’s option, the Series JJ and KK 10% Cumulative Convertible Preferred Stock are redeemable at par value plus accrued dividends five years after the year of issuance.

The Series IV Cumulative Non-Convertible Redeemable Preferred Stock earns cumulative dividends at an annual rate of 13.5% based on the paid-up subscription price.  It is redeemable at the option of PLDT at any time one year after subscription and at the actual amount paid for such stock, plus accrued dividends.

The Non-Voting Serial Preferred Stocks are non-voting, except as specifically provided by law, and are preferred as to liquidation.

All preferred stocks limit the ability of PLDT to pay cash dividends unless all dividends on such preferred stock for all past dividend payment periods have been paid and or declared and set apart and provision has been made for the currently payable dividends.

Voting Preferred Stock

On June 5, 2012, the Philippine SEC approved the amendments to the Seventh Article of PLDT’s Articles of Incorporation consisting of the sub-classification of its authorized Preferred Capital Stock into: 150 million shares of Voting Preferred Stock with a par value of Php1.00 each, and 807.5 million shares of Non-Voting Serial Preferred Stock with a par value of Php10.00 each, and other conforming amendments, or the Amendments.  The shares of Voting Preferred Stock may be issued, owned, or transferred only to or by: (a) a citizen of the Philippines or a domestic partnership or association wholly-owned by citizens of the Philippines; (b) a corporation organized under the laws of the Philippines of which at least 60% of the capital stock entitled to vote is owned and held by citizens of the Philippines and at least 60% of the board of directors of such corporation are citizens of the Philippines; and (c) a trustee of funds for pension or other employee retirement or separation benefits, where the trustee qualifies under paragraphs (a) and (b) above and at least 60% of the funds accrue to the benefit of citizens of the Philippines, or Qualified Owners.  The holders of Voting Preferred Stock will have voting rights at any meeting of the stockholders of PLDT for the election of directors and for all other purposes, with one vote in respect of each share of Voting Preferred Stock.  The Amendments were approved by the Board of Directors and stockholders of PLDT on July 5, 2011 and March 22, 2012, respectively.

On October 12, 2012, the Board of Directors, pursuant to the authority granted to it in the Seventh Article of PLDT’s Articles of Incorporation, determined the following specific rights, terms and features of the Voting Preferred Stock: (a) entitled to receive cash dividends at the rate of 6.5% per annum, payable before any dividends are paid to the holders of Common Stock; (b) in the event of dissolution or liquidation or winding up of PLDT, holders will be entitled to be paid in full, or pro-rata insofar as the assets of PLDT will permit, the par value of such shares of Voting Preferred Stock and any accrued or unpaid dividends thereon before any

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distribution shall be made to the holders of shares of Common Stock; (c) redeemable at the option of PLDT; (d) not convertible to Common Stock or to any shares of stock of PLDT of any class; (e) voting rights at any meeting of the stockholders of PLDT for the election of directors and all other matters to be voted upon by the stockholders in any such meetings, with one vote in respect of each Voting Preferred Share; and (f) holders will have no pre-emptive right to subscribe for or purchase any shares of stock of any class, securities or warrants issued, sold or disposed by PLDT.

On October 16, 2012, BTFHI subscribed to 150 million newly issued shares of Voting Preferred Stock of PLDT, at a subscription price of Php1.00 per share for a total subscription price of Php150 million pursuant to a subscription agreement between BTFHI and PLDT dated October 15, 2012.  As a result of the issuance of Voting Preferred Shares, the voting power of the NTT Group (NTT DOCOMO and NTT Communications), First Pacific Group and its Philippine affiliates, and JG Summit Group was reduced to 12%, 15% and 7%, respectively, as at December 31, 2021.  See Note 1 – Corporate Information.

Redemption of Preferred Stock

On September 23, 2011, the Board of Directors approved the redemption, or the Redemption, of all outstanding shares of PLDT’s Series A to FF 10% Cumulative Convertible Preferred Stock, or the Series A to FF Shares, from holders of record as of October 10, 2011, and all such shares were redeemed and retired effective on January 19, 2012.  In accordance with the terms and conditions of the Series A to FF Shares, the holders of Series A to FF Shares as at January 19, 2012 are entitled to payment of the redemption price in an amount equal to the par value of such shares, plus accrued and unpaid dividends thereon up to January 19, 2012, or the Redemption Price of Series A to FF Shares.

PLDT set aside Php4,029 million (the amount required to fund the redemption price for the Series A to FF Shares) in addition to Php4,143 million for unclaimed dividends on Series A to FF Shares, or a total amount of Php8,172 million, to fund the redemption of the Series A to FF Shares, or the Redemption Trust Fund, in a trust account, or the Trust Account, in the name of RCBC, as Trustee.  Pursuant to the terms of the Trust Account, the Trustee will continue to hold the Redemption Trust Fund or any balance thereof, in trust, for the benefit of holders of Series A to FF Shares, for a period of ten years from January 19, 2012 until January 19, 2022.  After the said date, any and all remaining balance in the Trust Account shall be returned to PLDT and revert to its general funds.  Any interests on the Redemption Trust Fund shall accrue for the benefit of, and be paid from time to time, to PLDT.

On May 8, 2012, the Board of Directors approved the redemption of all outstanding shares of PLDT’s Series GG 10% Cumulative Convertible Preferred Stock, or the Series GG Shares, from the holders of record as of May 22, 2012, and all such shares were redeemed and retired effective August 30, 2012.  In accordance with the terms and conditions of the Series GG Shares, the holders of the Series GG Shares as at May 22, 2012 are entitled to the payment of the redemption price in an amount equal to the par value of such shares, plus accrued and unpaid dividends thereon up to August 30, 2012, or the Redemption Price of Series GG Shares.

PLDT set aside Php236 thousand (the amount required to fund the redemption price for the Series GG Shares) in addition to Php74 thousand for unclaimed dividends on Series GG Shares, or a total amount of Php310 thousand, to fund the redemption price of the Series GG Shares, or the Redemption Trust Fund for Series GG Shares, which forms an integral part of the Redemption Trust Fund previously set aside in the Trust Account with RCBC, as Trustee.  Pursuant to the terms of the Trust Account, the Trustee will continue to hold the Redemption Trust Fund for Series GG Shares or any balance thereof, in trust, for the benefit of holders of Series GG Shares, for a period of ten years from August 30, 2012, or until August 30, 2022.  After the said date, any and all remaining balance in the Redemption Trust Fund for Series GG Shares shall be returned to PLDT and revert to its general funds.  Any interests on the Redemption Trust Fund for Series GG Shares shall accrue for the benefit of, and be paid from time to time, to PLDT.

On January 29, 2013, the Board of Directors approved the redemption of all outstanding shares of PLDT’s Series HH 10% Cumulative Convertible Preferred Stock which were issued in 2007, or the Series HH Shares issued in 2007, from the holders of record as of February 14, 2013 and all such shares were redeemed and retired effective May 16, 2013.  In accordance with the terms and conditions of the Series HH Shares issued in 2007, the holders of the Series HH Shares issued in 2007 as at February 14, 2013 are entitled to the payment of

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the redemption price in an amount equal to the par value of such shares, plus accrued and unpaid dividends thereon up to May 16, 2013, or the Redemption Price of Series HH Shares issued in 2007.

PLDT set aside Php24 thousand (the amount required to fund the redemption price for the Series HH Shares issued in 2007) in addition to Php6 thousand for unclaimed dividends on Series HH Shares issued in 2007, or a total amount of Php30 thousand, to fund the redemption price of the Series HH Shares issued in 2007, or the Redemption Trust Fund for Series HH Shares issued in 2007, which forms an integral part of the Redemption Trust Funds previously set aside in the Trust Account with RCBC, as Trustee.  Pursuant to the terms of the Trust Account, the Trustee will continue to hold the Redemption Trust Fund for Series HH Shares issued in 2007 or any balance thereof, in trust, for the benefit of holders of Series HH Shares issued in 2007, for a period of ten years from May 16, 2013, or until May 16, 2023.  After the said date, any and all remaining balance in the Redemption Trust Fund for Series HH Shares issued in 2007 shall be returned to PLDT and revert to its general funds.  Any interests on the Redemption Trust Fund for Series HH Shares issued in 2007 shall accrue for the benefit of, and be paid from time to time, to PLDT.

On January 28, 2014, the Board of Directors approved the redemption of all outstanding shares of PLDT’s Series HH 10% Cumulative Convertible Preferred Stock which were issued in 2008, or the Series HH Shares issued in 2008, from the holders of record as of February 14, 2014 and all such shares were redeemed and retired effective May 16, 2014.  In accordance with the terms and conditions of the Series HH Shares issued in 2008, the holders of the Series HH Shares issued in 2008 as at February 14, 2014 are entitled to the payment of the redemption price in an amount equal to the par value of such shares, plus accrued and unpaid dividends thereon up to May 16, 2014, or the Redemption Price of Series HH Shares issued in 2008.

PLDT set aside Php2 thousand (the amount required to fund the redemption price of Series HH Shares issued in 2008) in addition to Php1 thousand for unclaimed dividends on Series HH Shares issued in 2008, or a total amount of Php3 thousand, to fund the redemption of the Series HH Shares issued in 2008, or the Redemption Trust Fund for Series HH Shares issued in 2008, which forms an integral part of the Redemption Trust Funds previously set aside in the Trust Account with RCBC, as Trustee.  Pursuant to the terms of the Trust Account, the Trustee will continue to hold the Redemption Trust Fund for Series HH Shares issued in 2008 or any balance thereof, in trust, for the benefit of holders of Series HH Shares issued in 2008, for a period of ten years from May 16, 2014, or until May 16, 2024.  After the said date, any and all remaining balance in the Redemption Trust Fund for Series HH Shares issued in 2008 shall be returned to PLDT and revert to its general funds.  Any interests on the Redemption Trust Fund for Series HH Shares issued in 2008 shall accrue for the benefit of, and be paid from time to time, to PLDT.

On January 26, 2016, the Board of Directors approved the redemption of all outstanding shares of PLDT’s Series II 10% Cumulative Convertible Preferred Stock, or the Series II Shares, from the holder of record as of February 10, 2016, and all such shares were redeemed and retired effective May 11, 2016.  In accordance with the terms and conditions of the Series II Shares, the holder of the Series II Shares as at February 10, 2016 is entitled to the payment of the redemption price in an amount equal to the par value of such shares, plus accrued and unpaid dividends thereon up to May 11, 2016, or the Redemption Price of Series II Shares.

PLDT set aside Php4 thousand to fund the redemption price of Series II Shares, or the Redemption Trust Fund for Series II Shares, which forms an integral part of the Redemption Trust Funds previously set aside in the Trust Account with RCBC, as Trustee.  Pursuant to the terms of the Trust Account, the Trustee will continue to hold the Redemption Trust Fund for Series II Shares or any balance thereof, in trust, for the benefit of holder of Series II Shares, for a period of ten years from May 11, 2016, or until May 11, 2026.  After the said date, any and all remaining balance in the Redemption Trust Fund for Series II Shares shall be returned to PLDT and revert to its general funds.  Any interests on the Redemption Trust Fund for Series II Shares shall accrue for the benefit of, and be paid from time to time, to PLDT.

As at January 19, 2012, August 30, 2012, May 16, 2013, May 16, 2014 and May 11, 2016, notwithstanding that any stock certificate representing the Series A to FF Shares, Series GG Shares, Series HH Shares issued in 2007, Series HH Shares issued in 2008 and Series II Shares, respectively, were not surrendered for cancellation, the Series A to II Shares were no longer deemed outstanding and the right of the holders of such shares to receive dividends thereon ceased to accrue and all rights with respect to such shares ceased and terminated, except only the right to receive the Redemption Price of such shares, but without interest thereon.

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On January 28, 2020, the Board of Directors authorized and approved, the retirement of shares of PLDT’s Series JJ 10% Cumulative Convertible Preferred Stock, or SIP Shares, effective May 12, 2020.  The record date for the determination of the holders of outstanding SIP Shares available for redemption was February 11, 2020.

PLDT withdrawn Php7 million, Php2 million and Php11 million from the Trust Account, representing total payments on redemption for the years ended December 31, 2021, 2020 and 2019, respectively.  The balance of the Trust Account of Php7,842 and Php7,849 million, net of the eliminated Php986 million perpetual notes issued by Smart to RCBC, were presented as part of “Current portion of other financial assets” as at December 31, 2021 and 2020, respectively, and the related redemption liability were presented as part of “Accrued expenses and other current liabilities” in our consolidated statements of financial position.  See related disclosures below under Perpetual Notes and Note 28 – Financial Assets and Liabilities.

On January 20, 2022, RCBC returned to PLDT the remaining unclaimed balance of the Trust Account for the Series A to FF, amounting to Php7,839 million.  PLDT’s obligations to pay the trust amounts for Series A to FF has also prescribed, resulting in the recognition of income in 2022 for the same amount as the unclaimed Trust Account that RCBC returned to PLDT.

Common Stock/Treasury Stock

The Board of Directors approved a share buyback program of up to five million shares of PLDT’s common stock, representing approximately 3% of PLDT’s then total outstanding shares of common stock in 2008.  Under the share buyback program, PLDT reacquired shares on an opportunistic basis, directly from the open market through the trading facilities of the PSE and NYSE.

As at November 2010, we had acquired a total of approximately 2.72 million shares of PLDT’s common stock at a weighted average price of Php2,388 per share for a total consideration of Php6,505 million in accordance with the share buyback program.  There were no further buyback transactions subsequent to November 2010.  

Dividends Declared

Our dividends declared for years ended December 31, 2021, 2020 and 2019 are detailed as follows:

December 31, 2021

	Date			Amount
Class	Approved	Record	Payable	Per Share		Total
				(in million pesos, except per share amounts)
Cumulative Non-Convertible    Redeemable Preferred Stock
Series IV*	January 26, 2021	February 22, 2021	March 15, 2021		—		12
	May 6, 2021	May 21, 2021	June 15, 2021		—		13
	August 5, 2021	August 20, 2021	September 15, 2021		—		12
	November 4, 2021	November 19, 2021	December 15, 2021		—		12
							49
Voting Preferred Stock	March 4, 2021	March 24, 2021	April 15, 2021		—		3
	June 8, 2021	June 24, 2021	July 15, 2021		—		2
	August 26, 2021	September 13, 2021	October 15, 2021		—		2
	December 7, 2021	December 23, 2021	January 15, 2022		—		3
							10
Common Stock
Regular Dividend	March 4, 2021	March 18, 2021	April 6, 2021		40.00		8,642
	August 5, 2021	August 19, 2021	September 3, 2021		42.00		9,075
							17,717
Charged to retained earnings							17,776

* Dividends were declared based on total amount paid up.

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December 31, 2020

	Date			Amount
Class	Approved	Record	Payable	Per Share		Total
				(in million pesos, except per share amounts)
Cumulative Convertible    Redeemable Preferred Stock
Series JJ	April 8, 2020	February 11, 2020	May 12, 2020	0.0027/day			—
Cumulative Non-Convertible    Redeemable Preferred Stock
Series IV*	January 28, 2020	February 24, 2020	March 15, 2020		—		12
	May 7, 2020	May 21, 2020	June 15, 2020		—		13
	August 6, 2020	August 20, 2020	September 15, 2020		—		12
	November 5, 2020	November 19, 2020	December 15, 2020		—		12
							49
Voting Preferred Stock	March 5, 2020	March 25, 2020	April 15, 2020		—		3
	June 9, 2020	June 24, 2020	July 15, 2020		—		2
	September 29, 2020	October 13, 2020	October 15, 2020		—		2
	December 3, 2020	December 18, 2020	January 15, 2021		—		3
							10
Common Stock
Regular Dividend	March 5, 2020	March 19, 2020	April 3, 2020		39.00		8,426
	August 6, 2020	August 20, 2020	September 4, 2020		38.00		8,210
							16,636
Charged to retained earnings							16,695

* Dividends were declared based on total amount paid up.

December 31, 2019

	Date			Amount
Class	Approved	Record	Payable	Per Share		Total
				(in million pesos, except per share amounts)
Cumulative Convertible    Redeemable Preferred Stock
Series JJ	May 9, 2019	May 31, 2019	June 28, 2019		1.00		—
Cumulative Non-Convertible    Redeemable Preferred Stock
Series IV*	January 29, 2019	February 22, 2019	March 15, 2019		—		12
	May 9, 2019	May 24, 2019	June 15, 2019		—		12
	August 8, 2019	August 27, 2019	September 15, 2019		—		13
	November 7, 2019	November 22, 2019	December 15, 2019		—		12
							49
Voting Preferred Stock	March 7, 2019	March 27, 2019	April 15, 2019		—		3
	June 11, 2019	June 28, 2019	July 15, 2019		—		2
	September 24, 2019	October 8, 2019	October 15, 2019		—		2
	December 3, 2019	December 18, 2019	January 15, 2019		—		3
							10
Common Stock
Regular Dividend	March 21, 2019	April 4, 2019	April 23, 2019		36.00		7,778
	August 8, 2019	August 27, 2019	September 10, 2019		36.00		7,778
							15,556
Charged to retained earnings							15,615

*Dividends were declared based on total amount paid up.

Our dividends declared after December 31, 2021 are detailed as follows:

	Date			Amount
Class	Approved	Record	Payable	Per Share		Total
				(in million pesos, except per share amounts)
Cumulative Non-Convertible     Redeemable Preferred Stock(*)
Series IV	January 25, 2022	February 21, 2022	March 15, 2022		—		12
Voting Preferred Stock	March 3, 2022	March 23, 2022	April 15, 2022		—		2
Common Stock
Regular Dividend	March 3, 2022	March 17, 2022	April 4, 2022		42.00		9,075
Charged to retained earnings							9,089

* Dividends were declared based on total amount paid up.

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Perpetual Notes

Smart issued Php2,610 million and Php1,590 million perpetual notes on March 3, 2017 and March 6, 2017, respectively, under two Notes Facility Agreements dated March 1, 2017 and March 2, 2017, respectively.  The transaction costs amounting to Php35 million were accounted as a deduction from the perpetual notes.  Smart paid distributions amounting to Php236 million as at December 31, 2021 and 2020.

On July 18, 2017, Smart issued Php1,100 million perpetual notes, to RCBC, Trustee of PLDT’s Redemption Trust Fund, under the Notes Facility Agreement dated July 18, 2017.  The transaction costs amounting to Php5 million were accounted as a deduction from the perpetual notes.  Smart paid distributions amounting to Php57 million each as at December 31, 2021 and 2020.  This transaction was eliminated in our consolidated financial statements.  On January 18, 2022, Smart redeemed the Php1,100 million perpetual notes issued to RCBC at the relevant Redemption Price.  This transaction was eliminated in our consolidated financial statements.

On September 19, 2019, Smart issued Php4,700 million perpetual notes to DMPI under the Notes Facility Agreement dated September 16, 2019.  The transaction cost amounting to Php35 million was accounted as a deduction from the perpetual notes.  Smart paid distributions amounting to Php281 million each as at December 31, 2021 and 2020.  This transaction was eliminated in our consolidated financial statements.

Proceeds from the issuance of these notes were used to finance capital expenditures.  The notes have no fixed redemption dates.  However, Smart may, at its sole option, redeem the notes.  In accordance with IAS 32, Financial Instruments: Presentation, the notes are classified as part of equity in the financial statements.  The notes are subordinated to and rank junior to all senior loans of Smart.

Retained Earnings Available for Dividend Declaration

The following table shows the reconciliation of our consolidated retained earnings available for dividend declaration as at December 31, 2021:

	(in million pesos)
Consolidated unappropriated retained earnings available for dividends as at December 31, 2020		25,652
Effect of IAS 27, Consolidated and Separate Financial Statements, adjustments		6,429
Parent Company’s unappropriated retained earnings available for dividends at beginning of the year		32,081
Less: Cumulative unrealized income – net of tax:
Fair value adjustments of investment property resulting to gain		(1,145	)
Unrealized foreign exchange gains – net (except those attributable to cash and cash equivalents)		(2,362	)
Fair value adjustments (mark-to-market gains)		(3,440	)
Parent Company’s unappropriated retained earnings available for dividends as at January 1, 2021		25,134
Parent Company’s net income for the year		22,944
Less: Fair value adjustment of investment property resulting to gain		(27	)
Fair value adjustments (mark-to-market gains)		(771	)
		22,146
Less: Cash dividends declared during the year
Preferred stock		(59	)
Common stock		(17,717	)
		(17,776	)
Parent Company’s unappropriated retained earnings available for dividends as at December 31, 2021		29,504

As at December 31, 2021, our consolidated unappropriated retained earnings amounted to Php34,243 million while the Parent Company’s unappropriated retained earnings amounted to Php37,249 million.  The difference of Php3,006 million pertains to the effect of IAS 27, Separate Financial Statements, in our investments in subsidiaries, associates and joint ventures accounted for under equity method.

As at December 31, 2020, our consolidated unappropriated retained earnings amounted to Php25,652 million while the Parent Company’s unappropriated retained earnings amounted to Php32,081 million.  The difference of Php6,429 million pertains to the effect of IAS 27 in our investments in subsidiaries, associates and joint ventures accounted for under equity method.

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21. Interest-bearing Financial Liabilities

As at December 31, 2021 and 2020, this account consists of the following:

	2021		2020
	(in million pesos)
Long-term portion of interest-bearing financial liabilities:
Long-term debt (Notes 28 and 29)		241,075		205,195
Current portion of interest-bearing financial liabilities:
Long-term debt maturing within one year (Notes 28 and 29)		11,482		17,570
		252,557		222,765

Unamortized debt discount, representing debt issuance costs and any difference between the fair value of consideration given or received at initial recognition, included in our financial liabilities amounted to Php2,857 million and Php1,262 million as at December 31, 2021 and 2020, respectively.  See Note 28 – Financial Assets and Liabilities.

The following table describes all changes to unamortized debt discount for the years ended December 31, 2021 and 2020:

	2021			2020
	(in million pesos)
Unamortized debt discount at beginning of the year		1,262			491
Additions during the year		1,768			927
Revaluations during the year		13			(10	)
Accretion during the year included as part of financing costs – net (Note 5)		(186	)		(146	)
Unamortized debt discount at end of the year		2,857			1,262

Long-term Debt

As at December 31, 2021 and 2020, long-term debt consists of:

		2021				2020
Description	Interest Rates	U.S. Dollar		Php		U.S. Dollar		Php
		(in millions)
U.S. Dollar Debts:
Fixed Rate Notes	2.5000% to 3.4500% in 2021 and 2020		588		29,971		587		28,179
Term Loans:
Others	2.8850% and US$ LIBOR +    0.7900% to 1.0500% in 2021    and 2.8850% and US$ LIBOR +    0.7900% to 1.45000% in 2020		205		10,468		264		12,693
			793		40,439		851		40,872
Philippine Peso Debts:
Fixed Rate Corporate Notes	5.6423% in 2021 and 5.6423% to    5.9058% in 2020				—				3,854
Fixed Rate Retail Bonds	5.2250% to 5.2813% in 2021 and 2020				2,594				14,989
Term Loans:
Unsecured Term Loans	3.9000% to 6.7339%; PHP BVAL    + 0.5000% to 0.9000% (floor rate    3.9000% to 4.5000%) and TDF +    0.2500% in 2021 and 3.9000% to    6.7339%; PHP BVAL + 0.5000%    to 1.0000% (floor rate 4.5000%),    PDST-R2 + 0.5000% to 0.6000%    and TDF + 0.2500% in 2020				209,524				163,050
					212,118				181,893
Total long-term debt (Notes 28 and 29)					252,557				222,765
Less portion maturing within one year (Note 28)					11,482				17,570
Noncurrent portion of long-term debt (Note 28)					241,075				205,195

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The scheduled maturities of our consolidated outstanding long-term debt at nominal values as at December 31, 2021 are as follows:

	U.S. Dollar Debt				Php Debt		Total
Year	U.S. Dollar		Php		Php		Php
	(in millions)
2022		44		2,262		9,592		11,854
2023		39		1,988		25,943		27,931
2024		39		1,988		14,280		16,268
2025		14		714		21,970		22,684
2026		14		713		14,155		14,868
2027 and onwards		656		33,439		128,370		161,809
Total long-term debt (Note 28)		806		41,104		214,310		255,414

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Repurchase

Outstanding Amounts

Amount

2021

2020

Loan Amount

Issuance Date

Trustee

Terms

Php

Dates

Paid in full on

U.S. Dollar

Php

U.S. Dollar

Php

(in millions)

(in millions)

Fixed Rate Notes(1)

PLDT

US$300M

June 23, 2020

The Bank of New    York Mellon,    London Branch

Non-amortizing, payable in full upon maturity on    January 23, 2031

—

—

—

295

(*)

15,017

(*)

294

(*)

14,110

(*)

PLDT

US$300M

June 23, 2020

The Bank of New    York Mellon,    London Branch

Non-amortizing, payable in full upon maturity on    June 23, 2050

—

—

—

293

(*)

14,954

(*)

293

(*)

14,069

(*)

588

29,971

587

28,179

^(*) Amounts are net of unamortized debt discount/premium and/or debt issuance cost.

⁽¹⁾ The purpose of this loan is to refinance debt maturing in 2020 and 2021, prepay outstanding loans and partially finance capital expenditures.

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Date of

Drawn

Cancelled Undrawn

Outstanding Amounts

Amount

Amount

2021

2020

Loan Amount

Loan Agreement

Lender(s)

Terms

Dates Drawn

U.S. Dollar

Paid in full on

U.S. Dollar

Php

U.S. Dollar

Php

(in millions)

(in millions)

U.S. Dollar Debts

Other Term Loans(1)

PLDT

US$100M

August 5, 2014

Philippine National Bank, or PNB

Annual amortization rate of 1% of the issue price on the first-year up to the fifth-year from the initial drawdown date, with final installment on August 11, 2020

Various dates in 2014

100

—

August 11, 2020

—

—

—

—

PLDT

US$50M

August 29, 2014

Metrobank

Annual amortization rate of 1% of the issue price payable semi-annually starting on the first-year up to the fifth-year anniversary of from the initial drawdown date and the balance payable upon maturity on September 2, 2020

September 2, 2014

50

—

September 2, 2020

—

—

—

—

PLDT

US$200M    Tranche A:    US$150M;    Tranche B:    US$50M

February 26, 2015

MUFG Bank, Ltd.

Commencing 36 months after loan date, with semi-annual amortization of 23.75% of the loan amount on the first and second repayment dates and seven semi-annual amortizations of 7.5% starting on the third repayment date, with final installment on February 25, 2022

Various dates in 2015

200

—

February 24, 2022

15

(*)

764

(*)

45

(*)

2,157

(*)

Smart

US$200M

March 4, 2015

Mizuho Bank Ltd.

9 equal semi-annual installments commencing on the date which falls 12 months after the loan date, with final installment on March 4, 2020

Various dates in 2015

200

—

March 4, 2020

—

—

—

—

15

764

45

2,157

^(*) Amounts are net of unamortized debt discount/premium and/or debt issuance cost.

⁽¹⁾ The purpose of this loan is to finance capital expenditures and/or to refinance existing loan obligations which were utilized for network expansion and improvement programs.

F-128

Drawn

Cancelled Undrawn

Outstanding Amounts

Date of

Amount

Amount

2021

2020

Loan Amount

Loan Agreement

Lender(s)

Terms

Dates Drawn

U.S. Dollar

Paid in full on

U.S. Dollar

Php

U.S. Dollar

Php

(in millions)

(in millions)

Smart

US$100M

December 7, 2015

Mizuho Bank Ltd.

13 equal semi-annual installments commencing on the date which falls 12 months after the loan date, with final installment on December 7, 2022

Various dates in 2016

100

—

—

15

(*)

781

(*)

30

(*)

1,469

(*)

PLDT

US$25M

March 22, 2016

NTT TC Leasing Co., Ltd., or NTT TC Leasing(1)

Non-amortizing, payable upon maturity on March 30, 2023

March 30, 2016

25

—

—

25

(*)

1,272

(*)

25

(*)

1,197

(*)

PLDT

US$25M

January 31, 2017

NTT TC Leasing(1)

Non-amortizing, payable upon maturity on March 27, 2024

March 30, 2017

25

—

—

25

(*)

1,271

(*)

25

(*)

1,195

(*)

Smart

US$140M

March 4, 2020

PNB

Quarterly amortization rates equivalent to: (a) 2.5% of the total amount drawn payable on the first interest payment date up to the 28th interest payment date; (b) 5% of the total amount drawn payable on the 29th interest payment date up to the 32nd interest payment date; and (3) 2.5% of the total amount drawn payable on the 37th interest payment date up to maturity on December 13, 2030

December 14, 2020

140

—

—

125

(*)

6,380

(*)

139

(*)

6,675

(*)

190

9,704

219

10,536

205

10,468

264

12,693

^(*) Amounts are net of unamortized debt discount/premium and/or debt issuance cost.

⁽¹⁾ Effective July 1, 2020, these loans were transferred from NTT Finance Corporation to NTT TC Leasing.  See Note 25 – Related Party Transactions.

F-129

	Date of			Date of	Payments			Outstanding Amounts
	Loan			Issuance/	Amount			2021		2020
Loan Amount	Agreement	Facility Agent	Installments	Drawdown	Php		Date	Php		Php
					(in millions)			(in millions)
Philippine Peso Debts
Fixed Rate Corporate Notes(1)
PLDT
Php8,800M    Series A:    Php4,610M;	September 19, 2012	Metrobank	Series A: 1% annual amortization on the first up to sixth-year, with the balance payable on September 21, 2019;	September 21, 2012	2,055 2,741 3,521		June 21, 2013 September 23, 2019 December 21, 2021		—		3,560
Series B:    Php4,190M			Series B: 1% annual amortization on the first up to ninth-year, with the balance payable on September 21, 2022
PLDT
Php6,200M    Series A:    7-year notes    Php3,775M;	November 20, 2012	BDO	Series A: Annual amortization rate of 1% of the issue price on the first-year up to the sixth-year from issue date and the balance payable upon maturity on November 22, 2019	November 22, 2012		3,549	February 22, 2019		—		—
Series B:    10-year notes    Php2,425M			Series B: Annual amortization rate of 1% of the issue price on the first-year up to the ninth-year from issue date and the balance payable upon maturity on November 22, 2022			2,255	November 23, 2020		—		—
PLDT
Php2,055M    Series A:    Php1,735M;	June 14, 2013	Metrobank	Series A: Annual amortization rate of 1% of the issue price up to the fifth-year and the balance payable upon maturity on September 21, 2019	June 21, 2013	1,644 291		September 23, 2019 December 21, 2021		—		294
Series B:    Php320M			Series B: Annual amortization rate of 1% of the issue price up to the eighth-year and the balance payable upon maturity on September 21, 2022
									—		3,854

⁽¹⁾ The purpose of this loan is to finance capital expenditures and/or refinance existing loan obligations which were utilized for network expansion and improvement programs.

Date of

Payments

Outstanding Amounts

Issuance/

Amount

2021

2020

Loan Amount

Agreement

Paying Agent

Terms

Drawdown

Php

Date

Php

Php

(in millions)

(in millions)

Fixed Rate Retail Bonds(1)

PLDT

Php15,000M

January 22, 2014

Philippine Depositary Trust Corp.

Php12.4B – non-amortizing, payable in full upon maturity on February 6, 2021; Php2.6B – non-amortizing payable in full on February 6, 2024

February 6, 2014

12,400

February 8, 2021

2,594

(*)

14,989

(*)

^(*) Amounts are net of unamortized debt discount/premium and/or debt issuance cost.

⁽¹⁾ The purpose of this loan is to finance capital expenditures and/or refinance existing loan obligations which were utilized for network expansion and improvement programs.

F-130

Drawn

Cancelled Undrawn

Outstanding Amounts

Date of Loan

Amount

Amount

Paid in

2021

2020

Loan Amount

Agreement

Lender(s)

Terms

Dates Drawn

Php

Php

full on

Php

Php

(in millions)

(in millions)

Term Loans

Unsecured Term Loans(1)

PLDT

Php2,000M

March 20, 2012

RCBC

Annual amortization rate of 1% on the fifth-year up to the ninth-year from the initial drawdown date and the balance payable upon maturity on April 12, 2022

April 12, 2012

2,000

—

January 12, 2022

1,900

1,920

PLDT

Php1,000M

September 3, 2012

Union Bank of the Philippines, or Union Bank

Annual amortization rate of 1% on the first-year up to the sixth-year from the initial drawdown date and the balance payable upon maturity on January 13, 2020

January 11, 2013

1,000

—

January 13, 2020

—

—

PLDT

Php1,000M

October 11, 2012

AIA Philippines Life and General Company, or AIA Life, formerly Philippine American Life and General Insurance Company

Payable in full upon maturity on December 5, 2022

December 3, 2012

1,000

—

December 3, 2020

—

—

PLDT

Php2,000M

November 13, 2013

Bank of the Philippine Islands, or BPI

Annual amortization rate of 1% on the first-year up to the sixth-year from the initial drawdown and the balance payable upon maturity on November 22, 2020

Various dates in 2013-2014

2,000

—

August 24, 2020

—

—

Smart

Php3,000M

November 25, 2013

Metrobank

Annual amortization rate of 10% of the total amount drawn for six-years and the final installment is payable upon maturity on November 27, 2020

November 29, 2013

3,000

—

September 29, 2020

—

—

1,900

1,920

⁽¹⁾ The purpose of this loan is to finance the capital expenditures and/or refinance existing loan obligations, which were utilized for service improvements and expansion programs.

F-131

Drawn

Cancelled Undrawn

Outstanding Amounts

Date of Loan

Amount

Amount

Paid in

2021

2020

Loan Amount

Agreement

Lender(s)

Terms

Dates Drawn

Php

Php

full on

Php

Php

(in millions)

(in millions)

Smart

Php3,000M

December 3, 2013

BPI

Annual amortization rate of 1% of the total amount drawn for the first six-years and the final installment is payable upon maturity on December 10, 2020

December 10, 2013

3,000

—

October 9, 2020

—

—

Smart

Php3,000M

January 29, 2014

LBP

Annual amortization rate of 1% of the principal amount on the first-year up to the sixth-year commencing on the first-year anniversary of the initial drawdown and the balance payable upon maturity on February 5, 2021

February 5, 2014

3,000

—

November 18, 2020

—

—

Smart

Php500M

February 3, 2014

LBP

Annual amortization rate of 1% of the principal amount on the first-year up to the sixth-year commencing on the first-year anniversary of the initial drawdown and the balance payable upon maturity on February 5, 2021

February 7, 2014

500

—

November 18, 2020

—

—

Smart

Php2,000M

March 26, 2014

Union Bank

Annual amortization rate of 1% of the principal amount on the first-year up to the sixth-year commencing on the first-year anniversary of the initial drawdown and the balance payable upon maturity on March 29, 2021

March 28, 2014

2,000

—

October 30, 2020

—

—

PLDT

Php1,500M

April 2, 2014

AIA Life

Payable in full upon maturity on April 4, 2024

April 4, 2014

1,500

—

January 31, 2022

1,500

1,500

Smart

Php500M

April 2, 2014

BDO

Annual amortization rate of 1% of the principal amount on the first-year up to the sixth-year commencing on the first-year anniversary of the initial drawdown and the balance payable upon maturity on April 2, 2021

April 4, 2014

500

—

October 30, 2020

—

—

1,500

1,500

F-132

Drawn

Cancelled Undrawn

Outstanding Amounts

Date of Loan

Amount

Amount

Paid in

2021

2020

Loan Amount

Agreement

Lender(s)

Terms

Dates Drawn

Php

Php

full on

Php

Php

(in millions)

(in millions)

PLDT

Php1,000M

May 23, 2014

AIA Life

Payable in full upon maturity on May 28, 2024

May 28, 2014

1,000

—

February 28, 2022

1,000

1,000

PLDT

Php1,000M

June 9, 2014

LBP

Annual amortization rate of 1% on the first-year up to the ninth-year from initial drawdown date and the balance payable upon maturity on June 13, 2024

June 13, 2014

1,000

—

—

930

940

PLDT

Php1,500M

July 28, 2014

Union Bank

Annual amortization rate of 1% on the first-year up to the ninth-year from initial drawdown date and the balance payable upon maturity on July 31, 2024

July 31, 2014

1,500

—

—

1,395

1,410

PLDT

Php2,000M

February 25, 2015

BPI

Annual amortization rate of 1% on the first-year up to the ninth-year from initial drawdown date and the balance payable upon maturity on March 24, 2025

March 24, 2015

2,000

—

—

1,810

(*)

1,900

PLDT

Php3,000M

June 26, 2015

BPI

Annual amortization rate of 1% on the first-year up to the ninth-year from initial drawdown date and the balance payable upon maturity on June 30, 2025

June 30, 2015

3,000

—

—

2,820

2,850

PLDT

Php5,000M

August 3, 2015

Metrobank

Annual amortization rate of 1% on the first-year up to the ninth-year from initial drawdown date and the balance payable upon maturity on September 23, 2025

Various dates in 2015

5,000

—

—

4,700

4,750

12,655

12,850

^(*) Amounts are net of unamortized debt discount/premium and/or debt issuance cost.

F-133

Drawn

Cancelled Undrawn

Outstanding Amounts

Date of Loan

Amount

Amount

Paid in

2021

2020

Loan Amount

Agreement

Lender(s)

Terms

Dates Drawn

Php

Php

full on

Php

Php

(in millions)

(in millions)

Smart

Php5,000M

August 11, 2015

Metrobank

Annual amortization rate of 1% of the principal amount on the first-year up to the ninth-year commencing on the first-year anniversary of the initial drawdown date and the balance payable upon maturity on September 1, 2025

September 1, 2015

5,000

—

—

4,690

(*)

4,737

(*)

Smart

Php5,000M

December 11, 2015

BPI

Annual amortization rate of 1% of the principal amount on the first-year up to the ninth-year commencing on the first-year anniversary of the initial drawdown date and the balance payable upon maturity on December 21, 2025

December 21, 2015

5,000

—

—

4,689

(*)

4,736

(*)

Smart

Php5,000M

December 16, 2015

Metrobank

Annual amortization rate of 1% of the principal amount up to the tenth-year commencing on the first-year anniversary of the initial drawdown and the balance payable upon maturity on June 29, 2026

December 28, 2015

5,000

—

—

4,688

(*)

4,736

(*)

Smart

Php7,000M

December 18, 2015

China Banking Corporation, or CBC

Annual amortization rate of 1% of the principal amount on the third-year up to the sixth-year from the initial drawdown date, with balance payable upon maturity on December 28, 2022

December 28, 2015 and February 24, 2016

7,000

—

—

4,199

(*)

4,897

(*)

PLDT

Php3,000M

July 1, 2016

Metrobank

Annual amortization rate of 1% on the first-year up to the ninth-year from initial drawdown date and the balance payable upon maturity on February 22, 2027

February 20, 2017

3,000

—

—

2,872

(*)

2,900

(*)

PLDT

Php6,000M

July 1, 2016

Metrobank

Annual amortization rate of 1% on the first-year up to the sixth-year from initial drawdown date and the balance payable upon maturity on August 30, 2023

August 30, 2016 and November 10, 2016

6,000

—

—

5,692

(*)

5,748

(*)

26,830

27,754

^(*) Amounts are net of unamortized debt discount/premium and/or debt issuance cost.

F-134

Drawn

Cancelled Undrawn

Outstanding Amounts

Date of Loan

Amount

Amount

Paid in

2021

2020

Loan Amount

Agreement

Lender(s)

Terms

Dates Drawn

Php

Php

full on

Php

Php

(in millions)

(in millions)

PLDT

Php8,000M

July 14, 2016

Security Bank

Annual amortization rate of 1% of the total amount drawn payable semi-annually starting from the end of the first-year after the initial drawdown date until the ninth-year and the balance payable on maturity on March 1, 2027

February 27, 2017

8,000

—

—

7,338

(*)

7,495

(*)

PLDT

Php6,500M

September 20, 2016

BPI

Annual amortization rate of 1% on the first- year up to the sixth-year from initial drawdown date and the balance payable upon maturity on November 2, 2023

November 2, 2016 and December 19, 2016

6,500

—

—

6,165

(*)

6,225

(*)

Smart

Php3,000M

September 28, 2016

BDO

Annual amortization rate of 1% of the principal amount on the first-year up to the ninth-year commencing on the first-year anniversary of the initial drawdown date and the balance payable upon maturity on October 5, 2026

October 5, 2016

3,000

—

—

2,850

2,880

Smart

Php5,400M

September 28, 2016

Union Bank

Annual amortization rate of 1% of the principal amount on the first-year up to the sixth-year commencing on the first-year anniversary of the initial drawdown date and the balance payable upon maturity on October 24, 2023

October 24, 2016 and November 21, 2016

5,400

—

—

5,126

(*)

5,178

(*)

PLDT

Php5,300M

October 14, 2016

BPI

Annual amortization rate of 1% on the first-year up to the sixth-year from initial drawdown date and the balance payable upon maturity on December 19, 2023

December 19, 2016

5,300

—

—

5,027

(*)

5,076

(*)

Smart

Php2,500M

October 27, 2016

CBC

Annual amortization rate of 10% of the amount drawn starting on the third-year up to the sixth-year, with balance payable upon maturity on December 8, 2023

December 8, 2016

2,500

—

—

1,750

2,000

28,256

28,854

^(*) Amounts are net of unamortized debt discount/premium and/or debt issuance cost.

F-135

Drawn

Cancelled Undrawn

Outstanding Amounts

Date of Loan

Amount

Amount

Paid in

2021

2020

Loan Amount

Agreement

Lender(s)

Terms

Dates Drawn

Php

Php

full on

Php

Php

(in millions)

(in millions)

Smart

Php4,000M(1)

October 28, 2016

Security Bank

Semi-annual amortization rate of 1% of the total amount drawn from first-year up to the ninth-year and the balance payable upon maturity on April 5, 2027

April 5, 2017

4,000

—

—

1,899

(*)

1,917

(*)

Smart

Php1,000M

December 16, 2016

PNB

Annual amortization rate of 1% of the amount drawn starting on the first anniversary of the advance up to the ninth anniversary of the advance and the balance payable upon maturity on December 7, 2027

December 7, 2017

1,000

—

—

925

(*)

970

Smart

Php2,000M

December 22, 2016

LBP

Annual amortization rate of 1% of the amount drawn starting on the first anniversary of the advance up to the ninth anniversary of the advance and the balance payable upon maturity on January 21, 2028

January 22, 2018

2,000

—

—

1,940

1,960

PLDT

Php3,500M

December 23, 2016

LBP

Annual amortization rate of 1% on the first-year up to the ninth-year after the drawdown date and the balance payable upon maturity on April 5, 2027

April 5, 2017

3,500

—

—

3,350

(*)

3,383

(*)

Smart

Php1,500M

April 18, 2017

PNB

Annual amortization rate of 1% of the amount drawn starting on the first anniversary of the advance up to the sixth-year anniversary of the advance and the balance payable upon maturity on January 3, 2025

January 3, 2018

1,500

—

—

1,455

1,470

PLDT

Php2,000M

May 24, 2017

Security Bank

Semi-annual amortization rate of Php10 million starting on October 5, 2017 and every six months thereafter with the balance payable upon maturity on April 5, 2027

May 29, 2017

2,000

—

—

1,910

1,930

11,479

11,630

^(*) Amounts are net of unamortized debt discount/premium and/or debt issuance cost.

⁽¹⁾ The amount of Php2,000 million was prepaid on May 29, 2017.

F-136

Drawn

Cancelled Undrawn

Outstanding Amounts

Date of Loan

Amount

Amount

Paid in

2021

2020

Loan Amount

Agreement

Lender(s)

Terms

Dates Drawn

Php

Php

full on

Php

Php

(in millions)

(in millions)

PLDT

Php3,500M

July 5, 2017

LBP

Annual amortization rate of 1% on the first- year up to the ninth-year after the drawdown date and the balance payable upon maturity on July 12, 2027

July 10, 2017

3,500

—

—

3,360

3,395

PLDT

Php1,500M

August 29, 2017

LBP

Annual amortization rate equivalent to 1% of the total loan payable on the first-year up to the ninth-year after the drawdown date and the balance payable upon maturity on April 3, 2028

April 2, 2018

1,500

—

—

1,458

(*)

1,470

Smart

Php1,000M

September 28, 2017

Union Bank

Annual amortization rate of 1% of the amount drawn starting on the first-year anniversary of the advance up to the ninth- year anniversary of the advance and the balance payable upon maturity on February 21, 2028

February 19, 2018

1,000

—

December 10, 2021

—

980

PLDT

Php2,000M

April 19, 2018

LBP

Annual amortization rate equivalent to 1% of the total loan payable on the first-year up to the ninth-year after the drawdown date and the balance payable upon maturity on April 25, 2028

April 25, 2018

2,000

—

—

1,767

(*)

1,960

PLDT

Php1,000M

April 20, 2018

LBP

Annual amortization rate equivalent to 1% of the total loan payable on the first-year up to the ninth-year after the drawdown date and the balance payable upon maturity on May 3, 2028

May 3, 2018

1,000

—

—

878

(*)

980

PLDT

Php2,000M

May 9, 2018

BPI

Annual amortization rate equivalent to 1% of the amount drawn starting on the first- year anniversary of the advance up to the ninth-year anniversary of the advance and the balance payable upon maturity on May 10, 2028

May 10, 2018

2,000

—

—

1,773

(*)

1,960

9,236

10,745

^(*) Amounts are net of unamortized debt discount/premium and/or debt issuance cost.

F-137

Drawn

Cancelled Undrawn

Outstanding Amounts

Date of Loan

Amount

Amount

Paid in

2021

2020

Loan Amount

Agreement

Lender(s)

Terms

Dates Drawn

Php

Php

full on

Php

Php

(in millions)

(in millions)

Smart

Php2,000M

May 25, 2018

BPI

Annual amortization rate equivalent to 1% of the amount drawn starting on the first- year anniversary of the advance up to the fifth-year anniversary of the advance and the balance payable upon maturity on May 28, 2024

May 28, 2018

2,000

—

—

1,933

(*)

1,951

(*)

Smart

Php1,500M

June 27, 2018

Development Bank of the Philippines, or DBP

Annual amortization rate equivalent to 1% of the amount drawn starting on the third- year anniversary of the advance up to the fifth-year anniversary of the advance and the balance payable upon maturity on June 28, 2024

June 28, 2018

1,500

—

—

1,485

1,500

Smart

Php3,000M

July 31, 2018

BPI

Annual amortization rate equivalent to 1% of the amount drawn starting on the first-year anniversary of the advance up to the ninth-year anniversary of the advance and the balance payable upon maturity on  May 10, 2028

August 10, 2018

3,000

—

—

2,894

(*)

2,922

(*)

Smart

Php5,000M

January 11, 2019

DBP

Annual amortization rate equivalent to 1% of the amount drawn starting on the third-year anniversary of the advance up to the ninth-year anniversary of the advance and the balance payable upon maturity on May 6, 2029

May 6, 2019 September 2, 2019

2,000 3,000

—

—

4,865

(*)

4,980

(*)

PLDT

Php8,000M

February 18, 2019

Union Bank

Annual amortization rate equivalent to 1% of the amount drawn starting on the first-year anniversary up to the ninth-year anniversary of the initial drawdown date and the balance payable upon maturity on July 11, 2029

July 11, 2019 September 6, 2019 October 1, 2019 November 5, 2019

3,000 2,000 1,000 2,000

—

—

7,822

(*)

7,900

(*)

Smart

Php4,000M

February 21, 2019

PNB

Annual amortization rate equivalent to 1% of the amount drawn starting on the first-year anniversary up to the seventh-year anniversary of the initial drawdown date and the balance payable upon maturity on March 11, 2027

March 11, 2019

4,000

—

—

3,708

(*)

3,936

(*)

22,707

23,189

^(*) Amounts are net of unamortized debt discount/premium and/or debt issuance cost.

F-138

Drawn

Cancelled Undrawn

Outstanding Amounts

Date of Loan

Amount

Amount

Paid in

2021

2020

Loan Amount

Agreement

Lender(s)

Terms

Dates Drawn

Php

Php

full on

Php

Php

(in millions)

(in millions)

PLDT

Php2,000M

April 11, 2019

Bank of China (Hong Kong) Limited, Manila Branch

Annual amortization rate equivalent to 1% of the amount of loan payable on the first-year anniversary up to the sixth-year anniversary of the initial drawdown date and the balance payable upon maturity on September 7, 2026

September 6, 2019

2,000

—

—

1,949

(*)

1,968

(*)

PLDT

Php2,000M

July 1, 2019

PNB

Annual amortization rate equivalent to 1% of the total amount drawn from the facility on the first-year anniversary up to the sixth-year anniversary of the initial drawdown date and the balance payable upon maturity on September 7, 2026

September 6, 2019

2,000

—

—

1,949

(*)

1,967

(*)

Smart

Php8,000M

September 25, 2019

CBC

Annual amortization rate equivalent to 10% of the total amount drawn starting on the third-year anniversary up to the ninth-year anniversary of the initial drawdown date and the balance payable upon maturity on October 2, 2029

October 2, 2019

8,000

—

—

7,635

(*)

7,949

(*)

Smart

Php4,000M

December 9, 2019

DBP

Annual amortization rate equivalent to 1% of the total amount drawn starting on the third-year anniversary up to the ninth-year anniversary of the initial drawdown date and the balance payable upon maturity on December 12, 2029

December 12, 2019

4,000

—

—

3,975

(*)

3,973

(*)

PLDT

Php4,500M

December 12, 2019

BPI

Annual amortization rate equivalent to 1% of the advance on the first year up to the ninth-year anniversary of the drawdown date and the balance payable upon maturity on December 18, 2029

December 15, 2019

4,500

—

—

4,382

(*)

4,424

(*)

Smart

Php3,000M

January 20, 2020

BDO

Annual amortization rate equivalent to 1% of the total amount drawn starting on the first-year anniversary up to the ninth-year anniversary of the drawdown date and the balance payable upon maturity on January 24, 2030

January 24, 2020

3,000

—

—

2,893

(*)

2,979

(*)

22,783

23,260

^(*) Amounts are net of unamortized debt discount/premium and/or debt issuance cost.

F-139

Drawn

Cancelled Undrawn

Outstanding Amounts

Date of Loan

Amount

Amount

Paid in

2021

2020

Loan Amount

Agreement

Lender(s)

Terms

Dates Drawn

Php

Php

full on

Php

Php

(in millions)

(in millions)

PLDT

Php5,000M

January 29, 2020

BDO

Annual amortization rate equivalent to 1% of the total amount drawn starting on the first-year anniversary up to the ninth-year anniversary of the drawdown date and the balance payable  upon maturity on January 31, 2030

January 31, 2020

5,000

—

—

4,854

(*)

4,965

(*)

PLDT

Php4,000M

March 24, 2020

RCBC

Annual amortization rate equivalent to 1% of the advance starting on the first-year anniversary of the drawdown date and the balance payable upon maturity on March 27, 2028

March 26, 2020

4,000

—

—

3,827

(*)

3,972

(*)

PLDT

Php2,500M

March 30, 2020

MUFG Bank, Ltd.

Amortization rate equivalent to: (1) 20% of the amount drawn payable on the 30th, 48th, 54th and 72nd month from the drawdown date; (2) 0.50% of the amount drawn payable on the 36th, 42nd, 60th and 66th month from the drawdown date; and (3) 18% of the amount drawn payable upon maturity on October 2, 2026

April 2, 2020

2,500

—

—

2,488

(*)

2,484

(*)

PLDT

Php3,000M

May 20, 2020

LBP

Annual amortization rate equivalent to 1% of the advance starting on the first-year up to the ninth-year anniversary of the drawdown date and the balance payable upon maturity on May 28, 2030

May 28, 2020

3,000

—

—

2,951

(*)

2,979

(*)

Smart

Php4,000M

May 20, 2020

LBP

Annual amortization rate equivalent to 1% of principal amount of the loan starting on the first-year up to the ninth-year anniversary of the initial advance and the balance payable upon maturity on November 20, 2030

November 20, 2020

4,000

—

—

3,933

(*)

3,970

PLDT

Php3,000M

May 21, 2020

LBP

Annual amortization rate equivalent to 1% of the advance starting on the first-year up to the ninth-year anniversary of the drawdown date and the balance payable upon maturity on December 18, 2030

December 18, 2020

3,000

—

—

2,949

(*)

2,978

(*)

21,002

21,348

^(*) Amounts are net of unamortized debt discount/premium and/or debt issuance cost.

F-140

Drawn

Cancelled Undrawn

Outstanding Amounts

Date of Loan

Amount

Amount

Paid in

2021

2020

Loan Amount

Agreement

Lender(s)

Terms

Dates Drawn

Php

Php

full on

Php

Php

(in millions)

(in millions)

PLDT

Php5,000M

February 9, 2021

BPI

Annual amortization rate equivalent to 1% of the advance starting on the first-year up to the tenth-year anniversary of the drawdown date and the balance payable upon maturity on February 16, 2032

February 15, 2021

5,000

—

—

4,965

(*)

—

Smart

Php3,000M

March 4, 2021

LBP

Annual amortization rate equivalent to 1% of the advance starting on the first-year up to the ninth-year anniversary of the drawdown date and the balance payable upon maturity on March 9, 2031

March 9, 2021

3,000

—

—

2,979

(*)

—

Smart

Php3,000M

March 5, 2021

LBP

Annual amortization rate equivalent to 1% of the advance starting on the first-year up to the ninth-year anniversary of the drawdown date and the balance payable upon maturity on May 25, 2031

May 25, 2021

3,000

—

—

2,979

(*)

—

Smart

Php4,000M

March 8, 2021

LBP

Annual amortization rate equivalent to 1% of the advance starting on the first-year up to the ninth-year anniversary of the drawdown date and the balance payable upon maturity on March 30, 2031

March 30, 2021

4,000

—

—

3,972

(*)

—

PLDT

Php3,000M

March 31, 2021

BPI

Annual amortization rate equivalent to 1% of the advance starting on the first-year up to the tenth-year anniversary of the drawdown date and the balance payable upon maturity on April 14, 2032

April 14, 2021

3,000

—

—

2,979

(*)

—

PLDT

Php2,000M

March 31, 2021

BPI

Annual amortization rate equivalent to 1% of the advance starting on the first-year up to the tenth-year anniversary of the drawdown date and the balance payable upon maturity on April 29, 2032

April 29, 2021

2,000

—

—

2,000

—

19,874

—

^(*) Amounts are net of unamortized debt discount/premium and/or debt issuance cost.

F-141

Drawn

Cancelled Undrawn

Outstanding Amounts

Date of Loan

Amount

Amount

Paid in

2021

2020

Loan Amount

Agreement

Lender(s)

Terms

Dates Drawn

Php

Php

full on

Php

Php

(in millions)

(in millions)

Smart

Php4,000M

April 14, 2021

Metrobank

Annual amortization rate equivalent to 1% of the advance starting on the second-year up to the tenth-year anniversary of the drawdown date and the balance payable upon maturity on June 8, 2032

June 8, 2021

4,000

—

—

3,971

(*)

—

Smart

Php3,000M

April 15, 2021

Metrobank

Annual amortization rate equivalent to 1% of the advance starting on the second-year up to the tenth-year anniversary of the drawdown date and the balance payable upon maturity on September 1, 2032

September 1, 2021

3,000

—

—

2,978

(*)

—

PLDT

Php3,000M

April 30, 2021

Metrobank

Annual amortization rate equivalent to 1% of the advance starting on the second-year up to the tenth-year from drawdown date and the balance of 91% payable upon maturity on June 21, 2032

June 21, 2021

3,000

—

—

2,978

(*)

—

PLDT

Php3,000M

June 14, 2021

RCBC

Annual amortization rate equivalent to 1% of the advance starting on the first-year up to the eighth-year and tenth-year from drawdown date and equal amortization equivalent to 45.5% of the advance on the ninth-year and upon maturity on July 15, 2032

July 15, 2021

3,000

—

—

2,978

(*)

—

PLDT

Php4,000M

June 14, 2021

RCBC

Annual amortization rate equivalent to 1% of the advance starting on the first-year up to the eighth-year and tenth-year from drawdown date and equal amortization equivalent to 45.5% of the advance on the ninth-year and upon maturity on September 1, 2032

September 1, 2021

4,000

—

—

3,971

(*)

—

Smart

Php1,000M

September 28, 2021

BDO

Annual amortization rate equivalent to 1% of the advance starting on the first-year up to the ninth-year from the drawdown date and the balance of 91% payable upon maturity on October 15, 2031

October 15, 2021

1,000

—

—

1,000

—

17,876

—

^(*) Amounts are net of unamortized debt discount/premium and/or debt issuance cost.

F-142

Drawn

Cancelled Undrawn

Outstanding Amounts

Date of Loan

Amount

Amount

Paid in

2021

2020

Loan Amount

Agreement

Lender(s)

Terms

Dates Drawn

Php

Php

full on

Php

Php

(in millions)

(in millions)

Smart

Php3,000M

November 17, 2021

BDO

Annual amortization rate equivalent to 1% of the advance starting on the first-year up to the sixth-year from the drawdown date and the balance of 94% payable upon maturity on November 22, 2028

November 22, 2021

3,000

—

—

2,978

(*)

—

PLDT

Php1,000M

November 24, 2021

BPI

Annual amortization rate equivalent to 1% of the advance starting on the first-year up to the tenth-year anniversary of the drawdown date and the balance payable upon maturity on March 1, 2033

December 1, 2021

1,000

—

—

1,000

—

PLDT

Php3,000M

November 24, 2021

BPI

Annual amortization rate equivalent to 1% of the advance starting on the first-year up to the tenth-year anniversary of the drawdown date and the balance payable upon maturity on March 17, 2033

December 17, 2021

3,000

—

—

2,978

(*)

—

PLDT

Php4,000M

November 24, 2021

BPI

Annual amortization rate equivalent to 1% of the advance starting on the first-year up to the tenth-year anniversary of the drawdown date and the balance payable upon maturity on March 17, 2033

December 17, 2021

4,000

—

—

3,970

(*)

—

PLDT

Php2,500M

December 10, 2021

LBP

Annual amortization rate equivalent to 1% of the advance starting on the first-year up to the ninth-year anniversary of the drawdown date and the balance payable upon maturity on December 17, 2031

December 17, 2021

2,500

—

—

2,500

—

Smart

Php3,000M

December 14, 2021

DBP

Annual amortization rate equivalent to 1% of the advance starting on the first-year up to the seventh-year from the drawdown date and the balance of 93% payable upon maturity on January 21, 2030

January 20, 2022

3,000

—

—

—

—

Smart

Php2,000M

December 14, 2021

DBP

Annual amortization rate equivalent to 1% of the advance starting on the first-year up to the eight-year from the drawdown date and the balance of 92% payable upon maturity on January 20, 2031

January 20, 2022

2,000

—

—

—

—

13,426

—

209,524

163,050

^(*) Amounts are net of unamortized debt discount/premium and/or debt issuance cost.

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Short-term Debt

In March and April 2020, PLDT and Smart availed unsecured short-term debt from various banks amounting to Php6,000 million and Php4,000 million respectively with interest ranging from 5.00% to 5.75%.  In May 2020, PLDT and Smart prepaid their outstanding short-term debt amounting to Php3,000 million and Php4,000 million, respectively.  PLDT prepaid its remaining short-term debt in the aggregate amount of Php3,000 million in June 2020.  In March 2022, PLDT availed unsecured short-term debt amounting to Php2,000 million with interest rate of 2.60%.

U.S. Dollar Fixed Rate Notes

On June 23, 2020, PLDT issued US$300 million 10-year and US$300 million 30-year senior unsecured fixed-rate notes with coupon of 2.50% and 3.45%, respectively.  Proceeds from the issuance of these notes have been used to refinance maturing debt obligations, prepay outstanding loans and partially finance capital expenditures.  The 2031 Notes will mature on January 23, 2031 and the 2050 Notes will mature on June 23, 2050.

Compliance with Debt Covenants

PLDT’s debt instruments contain restrictive covenants, including covenants that require us to comply with specified financial ratios tests, such as total debt to EBITDA and interest cover ratio, at relevant measurement dates, principally at the end of each quarterly period.  We have complied with all of our maintenance financial ratios as required under our loan covenants and other debt instruments.

The principal factors that could negatively affect our ability to comply with these financial ratio covenants and other financial tests are poor operating performance of PLDT and its subsidiaries, depreciation of the Philippine Peso relative to the U.S. Dollar, impairment or similar charges in respect of investments or other long-lived assets that may be recognized by PLDT and its subsidiaries, and increases in our interest expense.  Interest expense may increase as a result of various factors including issuance of new debt, the refinancing of lower cost indebtedness by higher cost indebtedness, depreciation of the Philippine Peso relative to the U.S. Dollar, the lowering of PLDT’s credit ratings or the credit ratings of the Philippines, increase in reference interest rates, and general market conditions.  Of our total consolidated debts, approximately 16% and 18% were denominated in U.S. Dollars as at December 31, 2021 and 2020, respectively.  Considering PLDT’s hedges and U.S. Dollar cash balances allocated for debt, the unhedged portion of the PLDT’s net debt amounts was approximately 8% (or 5%, net of our consolidated U.S. Dollar cash balances allocated for debt) and 13% (or 5%, net of our consolidated U.S. Dollar cash balances allocated for debt) as at December 31, 2021 and 2020, respectively.  Therefore, the financial ratio and other tests are expected to be negatively affected by any weakening of the Philippine Peso relative to the U.S. Dollar.  See Note 28 – Financial Assets and Liabilities – Foreign Currency Exchange Risk.

PLDT’s debt instruments contain a number of other negative covenants that, subject to certain exceptions and qualifications, restrict PLDT’s ability to take certain actions without lenders’ approval, including:
(a) making or permitting any material change in the character of its business; (b) selling, leasing, transferring or disposing of all or substantially all of its assets or  any significant portion thereof other than in the ordinary course of business; (c) creating any lien or security interest; (d) permitting set-off against amounts owed to PLDT; (e) merging or consolidating with any other company; and (f) making or permitting any preference or priority in respect of any other relevant indebtedness of PLDT.

PLDT’s debt instruments also contain customary and other default provisions that permit the lender to accelerate amounts due or terminate their commitments to extend additional funds under the debt instruments.  These default provisions include: (a) cross-defaults that will be triggered only if the principal amount of the defaulted indebtedness exceeds a threshold amount specified in these debt instruments;
(b) failure by PLDT to meet certain financial ratio covenants referred to above; (c) the occurrence of any material adverse change in circumstances that a lender reasonably believes materially impairs PLDT’s ability to perform its obligations under its debt instrument with the lender; (d) the revocation, termination or amendment of any of the permits or franchises of PLDT in any manner unacceptable to the lender; (e) the nationalization or sustained discontinuance of all or a substantial portion of PLDT’s business; and (f) other typical events of

F-144

default, including the commencement of bankruptcy, insolvency, liquidation or winding up proceedings by PLDT.

Smart’s debt instruments contain certain restrictive covenants that require Smart to comply with specified financial ratios and other financial tests at semi-annual measurement dates.  Smart’s loan agreements include compliance with financial tests such as Smart’s consolidated debt to consolidated EBITDA and interest coverage ratio.  The agreements also contain customary and other default provisions that permit the lender to accelerate amounts due under the loans or terminate their commitments to extend additional funds under the loans.  These default provisions include: (a) cross-defaults and cross-accelerations that permit a lender to declare a default if Smart is in default under another loan agreement.  These cross-default provisions are triggered upon a payment or other default permitting the acceleration of Smart debt, whether or not the defaulted debt is accelerated; (b) failure by Smart to comply with certain financial ratio covenants; and
(c) the occurrence of any material adverse change in circumstances that the lender reasonably believes materially impairs Smart’s ability to perform its obligations or impair the guarantors’ ability to perform their obligations under its loan agreements.

The loan agreements with banks (foreign and local alike) and other financial institutions provide for certain restrictions and requirements with respect to, among others, maintenance of percentage of ownership of specific shareholders, incurrence of additional long-term indebtedness or guarantees and creation of property encumbrances.

As at December 31, 2021 and 2020, we were in compliance with all of our debt covenants.  See
Note 28 – Financial Assets and Liabilities – Derivative Financial Instruments.

Under the terms of certain loan agreements and other debt instruments, PLDT may not create, incur, assume, permit or suffer to exist any mortgage, pledge, lien or other encumbrance or security interest over the whole or any part of its assets or revenues or suffer to exist any obligation as lessee for the rental or hire of real or personal property in connection with any sale and leaseback transaction.

Consent Solicitation Exercise of PLDT

On October 11, 2019, PLDT announced its undertaking of a consent solicitation exercise relating to the 5.2250% 7-Year Fixed Rate Bonds due 2021 and 5.2813% 10-Year Fixed Rate Bonds due 2024, to amend PLDT’s maximum stand-alone Total Debt to EBITDA Ratio stipulated in the Trust Indenture from 3.0:1 to 4.0:1.  The proposed amendment seeks to provide PLDT with greater flexibility to support, if necessary, higher levels of capital expenditures and general corporate requirements.  Moreover, it will align the covenant ratio of PLDT’s outstanding debt capital market issuances with that of the existing bilateral facilities of both PLDT and Smart.

On October 30, 2019, PLDT announced the early closing of the consent solicitation exercise from its original schedule of November 15, 2019 when the Company received the required consents to effect the proposed amendment.  The new debt covenants became effective on November 8, 2019.

22. Deferred Credits and Other Noncurrent Liabilities

As at December 31, 2021 and 2020, this account consists of:

	2021		2020
	(in million pesos)
Contract liabilities and unearned revenues (Note 5)		3,558		976
Provision for asset retirement obligations		2,121		2,000
Accrual of capital expenditures under long-term financing		300		1,542
Others		105		150
		6,084		4,668

F-145

The following table summarizes the changes to provision for asset retirement obligations for the years ended December 31, 2021 and 2020:

	2021			2020
	(in million pesos)
Provision for asset retirement obligations at beginning of the year		2,000			1,767
Capitalized to ROU assets during the year		239			205
Accretion expenses		65			61
Change in assumptions		(62	)		(22	)
Revaluation due to change in IBR		(102	)		39
Gain on settlement of asset retirement obligation		—			(50	)
Settlement of obligations and others		(19	)		—
Provision for asset retirement obligations at end of the year		2,121			2,000

Accrual of capital expenditures under long-term financing represents expenditures related to the expansion and upgrade of our network facilities which are not due to be settled within one year.  Such accruals are settled through refinancing from long-term loans obtained from the banks.  See Note 21 – Interest-bearing Financial Liabilities.

23. Accounts Payable

As at December 31, 2021 and 2020, this account consists of:

	2021		2020
	(in million pesos)
Suppliers and contractors (Note 28)		85,903		75,322
Taxes (Note 27)		1,741		2,330
Carriers and other customers (Note 28)		1,469		1,336
Related parties (Notes 25 and 28)		200		300
Others		10,405		3,125
		99,718		82,413

Accounts payable are noninterest-bearing and are normally settled within 180 days.

In 2020, one of our major suppliers entered into Trade Financing Arrangements, or TFA, to sell a portion of its Philippine Peso receivables from the Parent Company amounting to Php400 million and from Smart amounting to Php1,155 million.  Under the terms of the TFA, the Purchaser will have exclusive ownership of the purchased receivables and all of its rights, title and interest.

In 2021, two of our major suppliers entered into TFAs to sell a portion of their Philippine Peso receivables from the Parent Company amounting to Php7,559 million and from Smart amounting to Php1,834 million.

The amount reclassified from “Accounts Payable – Suppliers and contractors” to “Accounts Payable – Others” amounted to Php9,393 million and Php1,555 million as at December 31, 2021 and 2020, respectively.  There were no changes in the payment terms.

For terms and conditions pertaining to the payables to related parties, see Note 25 – Related Party Transactions.

For detailed discussion on the PLDT Group’s liquidity risk management processes, see Note 28 – Financial Assets and Liabilities – Liquidity Risk.

F-146

24. Accrued Expenses and Other Current Liabilities

As at December 30, 2021 and 2020, this account consists of:

	2021		2020
	(in million pesos)
Accrued utilities and related expenses (Notes 25 and 28)		63,105		64,624
Accrued taxes and related expenses (Note 27)		11,464		11,918
Contract liabilities and unearned revenues (Note 5)		10,063		8,595
Accrued employee benefits and other provisions (Note 28)		9,087		10,397
Liability from redemption of preferred shares (Notes 20 and 28)		7,842		7,849
Accrued interests and other related costs (Note 29)		1,783		1,872
Others		2,769		2,504
		106,113		107,759

Accrued utilities and related expenses pertain to costs incurred for electricity and water consumption, repairs and maintenance, selling and promotions, professional and other contracted services, rent, insurance and security services and other operational related expenses pending receipt of billings and statement of accounts from suppliers.  These liabilities are noninterest-bearing and are normally settled within a year.

Accrued taxes and related expenses pertain to licenses, permits and other related business taxes, which are normally settled within a year.

Contract liabilities and unearned revenues represent advance payments for leased lines, installation fees, monthly service fees and unused and/or unexpired portion of prepaid loads.

Accrued interests and other related costs are noninterest-bearing and are normally settled within a year.  This pertains to other costs incurred for operations-related expenses pending receipt of invoice and statement of accounts from suppliers.

Other accrued expenses and other current liabilities are noninterest-bearing and are normally settled within a year.  This pertains to other costs incurred for operations-related expenses pending receipt of invoice and statement of accounts from suppliers.     

25. Related Party Transactions

Parties are considered to be related if one party has the ability, directly and indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions.  Parties are also considered to be related if they are subject to common control.  Related parties may be individuals or corporate entities.  Transactions with related parties are on an arm’s length basis, similar to transactions with third parties.

Settlement of outstanding balances of related party transactions at year-end are expected to be settled with cash.

F-147

The following table provides the summary of outstanding balances as at December 31, 2021 and 2020, and transactions for the years ended December 31, 2021, 2020 and 2019 that have been entered into with related parties:

Company Name	Particulars	Terms	Conditions	Statement of Financial Position Classification	2021		2020		Income Statement Classification	2021		2020		2019
					(in million pesos)					(in million pesos)
Indirect investment in joint ventures through PCEV:
Manila Electric Company, or Meralco	Electricity services to PLDT and certain subsidiaries’ offices within Meralco's franchise area	Immediately upon receipt of invoice	Unsecured	Accounts payable and accrued expenses and other current liabilities (Notes 23 and 24)		186		418	Repairs and maintenance		2,519		2,231		2,689
	Pole attachment contracts, wherein Meralco leases its pole spaces to accommodate PLDT and Smart’s cable network facilities	45 days upon receipt of billings	Unsecured	Accrued expenses and other current liabilities (Note 24)		—		—	Rent		40		38		29
		Upon depreciation or expiration of lease	Unsecured	ROU assets (Note 10)		2,433		1,916	Depreciation and amortization		486		473		218
		2021 – due after December 31, 2022; 2020 – due after December 31, 2021	Unsecured	Lease liabilities - net of current portion (Note 10)		1,118		1,589
		2021 – due on or before December 31, 2022; 2020 – due on or before December 31, 2021	Unsecured	Current portion of lease liabilities (Note 10)		487		437
Meralco Industrial Engineering Services Corporation, or MIESCOR	Customer line installation, repair, rehabilitation and maintenance activities	30 days upon receipt of invoice	Unsecured	Accrued expenses and other current liabilities (Note 24)		1		3
MPIC	Notes receivable	2020 – due on or before December 31, 2021; noninterest-bearing	Unsecured	Current portion of financial assets at FVOCI (Note 11)		—		168

F-148

Company Name	Particulars	Terms	Conditions	Statement of Financial Position Classification	2021		2020		Income Statement Classification	2021		2020		2019
					(in million pesos)					(in million pesos)
Transactions with major stockholders, directors and officers:
NTT TC Leasing(1)	PLDT signed a US$25 million term loan facility agreement on March 22, 2016	Non-amortizing, payable upon maturity on March 30, 2023	Unsecured	Interest-bearing financial liabilities (Note 21)		1,272		1,201	Financing costs – net		17		29		52
	PLDT signed a US$25 million term loan facility agreement on January 31, 2017	Non-amortizing, payable upon maturity on March 27, 2024	Unsecured	Interest-bearing financial liabilities (Note 21)		1,271		1,200	Financing costs – net		18		30		52
NTT World Engineering Marine Corporation	On February 1, 2008, PLDT entered into a service agreement, wherein NTT World Engineering Marine Corporation provides offshore submarine cable repair and other allied services for the maintenance of PLDT’s domestic fiber optic network submerged plant.	1st month of each quarter; noninterest-bearing	Unsecured	Accounts payable and accrued expenses and other current liabilities (Notes 23 and 24)		240		183	Repairs and maintenance		97		139		169
NTT Communications	On March 24, 2000, PLDT entered into an advisory service agreement (as amended on March 31, 2003, March 31, 2005 and June 16, 2006), under which NTT Communications provides PLDT with technical, marketing and other consulting services for various business areas of PLDT starting April 1, 2000.	30 days upon receipt of invoice; noninterest-bearing	Unsecured	Accrued expenses and other current liabilities (Note 24)		12		11	Professional and other contracted services		68		81		95
	On March 24, 2000, PLDT entered into an agreement with NTT Communications under which PLDT and NTT Communications agreed to cooperative arrangements for conventional international telecommunications services to enhance their respective international businesses.	30 days upon receipt of invoice; noninterest-bearing	Unsecured	Accounts payable (Note 23)		3		3
NTT Worldwide Telecommunications Corporation	On March 24, 2000, PLDT entered into an agreement under which PLDT markets, and manages data and other services under NTT Communications’ “Arcstar” brand to its corporate customers in the Philippines.  PLDT also entered into a Trade Name and Trademark Agreement with NTT Communications under which PLDT has been given the right to use the trade name “Arcstar” and its related trademark, logo and symbols, solely for the purpose of PLDT’s marketing, promotional and sales activities for the Arcstar services within the Philippines.	30 days upon receipt of invoice; noninterest-bearing	Unsecured	Accounts payable (Note 23)		4		1	Selling and promotions		2		3		5

⁽¹⁾ Effective July 1, 2020, these loans were transferred from NTT Finance Corporation to NTT TC Leasing.  See Note 21 – Interest-bearing Financial Liabilities.

F-149

Company Name	Particulars	Terms	Conditions	Statement of Financial Position Classification	2021		2020		Income Statement Classification	2021		2020		2019
					(in million pesos)					(in million pesos)
Transactions with major stockholders, directors and officers:
NTT DOCOMO	On June 5, 2006, in accordance with the Cooperation Agreement dated January 31, 2006, an Advisory Services Agreement was entered into by NTT DOCOMO and PLDT.  Pursuant to the Advisory Services Agreement, NTT DOCOMO will provide the services of certain key personnel in connection with certain aspects of the business of PLDT and Smart.  Also, this agreement governs the terms and conditions of the appointments of such key personnel and the corresponding fees related thereto.	30 days upon receipt of invoice; noninterest-bearing	Unsecured	Accrued expenses and other current liabilities (Note 24)		12		8	Professional and other contracted services		80		58		70
JGSHI and Subsidiaries	PLDT and certain of its subsidiaries have existing agreements with Universal Robina Corporation and Robinsons Land Corporation for office and business office rental.	1st month of each quarter; 30 days upon receipt of invoice; noninterest-bearing	Unsecured	Accounts payable and accrued expenses and other current liabilities (Notes 23 and 24)		52		59	Rent		232		314		198
		Upon depreciation or expiration of lease	Unsecured	ROU assets (Note 10)		83		134	Depreciation and amortization		29		34		—
		2021 – due after December 31, 2022; 2020 – due after December 31, 2021	Unsecured	Lease liabilities - net of current portion (Note 10)		62		114
		2021 – due on or before December 31, 2022 2020 – due on or before December 31, 2021	Unsecured	Current portion of lease liabilities (Note 10)		30		20
	PLDT group's other transactions with JGSHI and subsidiaries	30 days upon receipt of invoice; noninterest-bearing	Unsecured	Accrued expenses and other current liabilities (Note 24)		7		3	Repairs and maintenance		25		6		38
									Professional and other contracted services		—		2		—
									Communication, training and travel		—		1		10
									Financing costs – net		5		13		—
									Miscellaneous expenses		—		—		98

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Company Name	Particulars	Terms	Conditions	Statement of Financial Position Classification	2021		2020		Income Statement Classification	2021		2020		2019
					(in million pesos)					(in million pesos)
Transactions with major stockholders, directors and officers:
Malayan Insurance Co., Inc.or Malayan	PLDT and certain of its subsidiaries have insurance policies with Malayan covering directors, officers, liability to employees and material damages for buildings, building improvements, equipment and motor vehicles.  The premiums are directly paid to Malayan.	Immediately upon receipt of invoice	Unsecured	Accounts payable and accrued expenses and other current liabilities (Notes 23 and 24)		10		10	Insurance and security services		196		194		295
		Immediately upon receipt of invoice	Unsecured	Prepayments (Note 19)		23		18
Gotuaco del Rosario and Associates, or Gotuaco	Gotuaco acts as the broker for certain insurance companies to cover certain insurable properties of the PLDT Group.  Insurance premiums are remitted to Gotuaco and the broker’s fees are settled between Gotuaco and the insurance companies.	Immediately upon receipt of invoice	Unsecured	Accounts payable and accrued expenses and other current liabilities (Notes 23 and 24)		1		10	Insurance and security services		179		149		165
		Immediately upon receipt of invoice	Unsecured	Prepayments (Note 19)		—		5
First Pacific Investment Management Limited, or FPIML	On March 1, 2018, Smart entered into an Advisory Services Agreement with FPIML effective for a period of one-year subject to a 12-month automatic renewal unless either party notifies the other party of its intent not to renew the agreement.  FPIML provides advisory and related services in connection with the operation of Smart’s business of providing mobile communications services, high-speed internet connectivity, and access to digital services and content.  The agreement provides that Smart shall pay monthly service fee of US$$250 thousand and any additional fee shall be mutually agreed upon by both parties on a monthly basis.  On March 26, 2020, Smart and FPIML mutually agreed to reduce the monthly service fee to US$100 thousand in consideration of the services provided under this agreement, effective April 1, 2020.  Starting April 2021, the fee has been increased to $220k per month. Smart prepaid the fees for the period April to October 2021 (US$1.54 million).	–	Unsecured	Prepayments (Note 19)		—		—	Professional and other contracted services		111		72		156

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Company Name	Particulars	Terms	Conditions	Statement of Financial Position Classification	2021		2020		Income Statement Classification	2021		2020		2019
					(in million pesos)					(in million pesos)
Other related parties:
Cignal Cable Corporation, or Cignal Cable	PLDT and Smart entered into a two-year agreement with Cignal Cable to resell and distribute the iflix service to their respective subscribers effective June 18, 2019.  The agreement stipulates that PLDT and Smart will each pay a minimum guarantee of US$1,500 thousand annually, which is committed for the Advertising Spend Guarantee.  iflix shall pay PLDT and Smart 30% each of the monthly marketing costs subject to a monthly cap of US$500 thousand each.  This agreement was pre- terminated of March 2021.	30 days upon receipt of invoice	Unsecured	Accrued expenses and other current liabilities (Note 24)		—		102	Cost of services		—		22		306
									Selling and promotions		—		23		82
									Other income – net		—		51		166
Various	PLDT and certain of its subsidiaries provide telephone, data communication and other services to various related parties.	30 days upon receipt of invoice	Unsecured	Trade and other receivables (Note 17)		1,892		2,036	Revenues		2,368		2,145		2,401
		2021 – due after December 31, 2022; 2020 – due after the December 31, 2021	Unsecured	Lease liabilities - net of current portion (Note 10)		386		413	Expenses		2,386		1,582		1,908
		2021 – due on or before December 31, 2022; 2020 – due on or before December 31, 2021	Unsecured	Current portion of lease liabilities (Note 10)		234		156
		Upon depreciation or expiration of lease	Unsecured	ROU assets (Note 10)		750		598
		30 days upon receipt of billing; noninterest-bearing	Unsecured	Accounts payable (Note 23)		1,314		1,049
		Immediately upon receipt of billing	Unsecured	Accrued expenses and other current liabilities (Note 24)		11		63

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Material Related Party Transactions, or MRPT, Policy

On September 24, 2019, the Board of Directors approved and adopted the MRPT Policy in compliance with the Philippine SEC Memorandum Circular No. 10, Series of 2019, or the Rules on MRPT for Publicly-Listed Companies.

This MRPT Policy applies to the PLDT Group and covers related party transactions that meet the Materiality Threshold of 10% of PLDT’s total consolidated assets.  It defines the processes, controls and safeguards for the proper handling, including review, approval and disclosure, of such related party transactions in accordance with applicable laws and regulations.

Related party transactions involving an amount below the Materiality Threshold shall be covered by our Guidelines on the Proper Handling of Related Party Transactions.

Compensation of Key Officers of the PLDT Group

The compensation of key officers of the PLDT Group by benefit type for the years ended December 31, 2021, 2020 and 2019 are as follows:

	2021		2020		2019
	(in million pesos)
Short-term employee benefits		311		327		311
Share-based payments (Note 26)		115		297		138
Post-employment benefits (Note 26)		21		22		58
Total compensation paid to key officers of the PLDT Group		447		646		507

The amounts disclosed in the table above are the amounts recognized as expenses during the period related to key management personnel.

Effective January 2014, each of the directors, including the members of the advisory board of PLDT, was entitled to a director’s fee in the amount of Php250 thousand for each board meeting attended.  Each of the members or advisors of the audit, governance, nomination and sustainability, executive compensation, technology strategy, and risk and data privacy and information security committees was entitled to a fee in the amount of Php125 thousand for each committee meeting attended.

Total fees paid for board meetings and board committee meetings amounted to Php85 million, Php72 million and Php68 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Except for the fees mentioned above, the directors are not compensated, directly or indirectly, for their services as such directors.

There are no agreements between PLDT Group and any of its key management personnel providing for benefits upon termination of employment, except for such benefits to which they may be entitled under PLDT Group’s retirement and incentive plans.

26. Pension and Other Employee Benefits

Pension

Defined Benefit Pension Plans

PLDT has defined benefit pension plans, operating under the legal name “The Board of Trustees for the account of the Beneficial Trust Fund created pursuant to the Benefit Plan of PLDT Co.” and covering all of our permanent and regular employees.  Certain subsidiaries of PLDT have not yet drawn up a specific retirement plan for its permanent or regular employees.  For the purpose of complying with Revised IAS 19, Employee Benefits, pension benefit expense has been actuarially computed based on defined benefit plan.

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PLDT’s actuarial valuation is performed every year-end.  Based on the latest actuarial valuation, the actual present value of accrued (prepaid) benefit costs, net periodic benefit costs and average assumptions used in developing the valuation as at and for the years ended December 31, 2021, 2020 and 2019 are as follows:

	2021			2020			2019
	(in million pesos)
Changes in the present value of defined benefit obligations:
Present value of defined benefit obligations at beginning of the year		28,197			22,638			20,683
Service costs		1,614			1,313			1,043
Interest costs on benefit obligation		922			1,056			1,338
Actuarial losses on obligations – experience		538			265			570
Actual benefits paid/settlements		(3,471	)		(369	)		(4,558	)
Actuarial losses on obligations – economic assumptions		(5,502	)		3,507			3,829
Actuarial losses on obligations – demographic assumptions		—			—			4
Curtailments and others		—			(213	)		(271	)
Present value of defined benefit obligations at end of the year		22,298			28,197			22,638
Changes in fair value of plan assets:
Fair value of plan assets at beginning of the year		15,000			13,724			13,539
Actual contributions		3,614			3,227			7,598
Interest income on plan assets		605			322			1,360
Return on plan assets (excluding amount included in net interest)		(1,065	)		(1,904	)		(4,215	)
Actual benefits paid/settlements		(3,471	)		(369	)		(4,558	)
Fair value of plan assets at end of the year		14,683			15,000			13,724
Unfunded status – net		(7,615	)		(13,197	)		(8,914	)
Accrued benefit costs		7,760			13,342			8,985
Prepaid benefit costs (Note 19)		145			145			71
Components of net periodic benefit costs:
Service costs		1,614			1,313			1,043
Interest costs – net		317			734			(22	)
Curtailment/settlement gains and other adjustments		—			(99	)		(181	)
Net periodic benefit costs (Note 5)		1,931			1,948			840

Actual net losses on plan assets amounted to Php460 million, Php1,582 million and Php2,855 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Based on the latest actuarial valuation, our expected contribution to the defined benefit plan in 2022 will amount to Php1,460 million.

The following table sets forth the expected future settlements by the Plan of maturing defined benefit obligation as at December 31, 2021:

	(in million pesos)
2022		373
2023		427
2024		597
2025		888
2026		1,275
2027 to 2031		13,763

The average duration of the defined benefit obligation at the end of the reporting period is 8 to 19 years.

The weighted average assumptions used to determine pension benefits for the years ended December 31, 2021, 2020 and 2019 are as follows:

	2021			2020			2019
	(in million pesos)
Rate of increase in compensation		5.7	%		6.0	%		6.0	%
Discount rate		5.3	%		3.5	%		4.8	%

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In 2019, we have changed the source of the mortality rates from the 1994 Group Annuity Mortality Table developed by the U.S. Society of Actuaries to the 2017 Philippine Intercompany Mortality Table developed by the Actuarial Society of the Philippines Life Insurance Committee.  Both sources provide separate rates for males and females.  The disability rates were based on the 1952 Disability Study of the U.S. Society of Actuaries for Period 2, Benefit 5 adjusted to suit local experience.

The sensitivity analysis below has been determined based on reasonably possible changes of each significant assumption on the defined benefit obligation as at December 31, 2021 and 2020, assuming if all other assumptions were held constant:

	Increase (Decrease)
	(in million pesos)
Discount rate	1%	(2,869	)
	(1%)	3,448
Future salary increases	1%	3,328
	(1%)	(2,835	)

PLDT’s Retirement Plan

The Board of Trustees, which manages the beneficial trust fund, is composed of: (i) a member of the Board of Directors of PLDT, who is not a beneficiary of the Plan; (ii) a member of the Board of Directors or a senior officer of PLDT, who is a beneficiary of the Plan; (iii) a senior member of the executive staff of PLDT; and (iv) two persons who are not executives nor employees of PLDT.

Benefits are payable in the event of termination of employment due to: (i) compulsory, optional, or deferred retirement; (ii) death while in active service; (iii) physical disability; (iv) voluntary resignation; or
(v) involuntary separation from service.  For a plan member with less than 15 years of credited services, retirement benefit is equal to 100% of final compensation for every year of service.  For those with at least 15 years of service, retirement benefit is equal to 125% of final compensation for every year of service, with such percentage to be increased by an additional 5% for each completed year of service in excess of 15 years, but not to exceed a maximum of 200%.  In case of voluntary resignation after attainment of age 40 and completion of at least 15 years of credited service, benefit is equal to a percentage of his vested retirement benefit, in accordance with percentages prescribed in the retirement plan.

The Board of Trustees of the beneficial trust fund uses an investment approach with the objective of maximizing the long-term expected return of plan assets.  

The majority of the Plan’s investment portfolio consists of listed and unlisted equity securities while the remaining portion consists of passive investments like temporary cash investments and fixed income investments.

The plan assets are primarily exposed to financial risks such as liquidity risk and price risk.

Liquidity risk pertains to the plan’s ability to meet its obligation to the employees upon retirement.  To effectively manage liquidity risk, the Board of Trustees invests at least the equivalent amount of actuarially computed expected compulsory retirement benefit payments for the year to liquid/semi-liquid assets such as government securities, savings and time deposits with commercial banks.  

Price risk pertains mainly to fluctuations in market prices of equity securities listed in the PSE.  In order to effectively manage price risk, the Board of Trustees continuously assesses these risks by closely monitoring the market value of the securities and implementing prudent investment strategies.

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The following table sets forth the fair values, which are equal to the carrying values, of PLDT’s plan assets recognized as at December 31, 2021 and 2020:

	2021		2020
	(in million pesos)
Noncurrent Financial Assets
Investments in:
Unquoted equity investments		11,332		10,728
Shares of stock		2,316		1,903
Corporate bonds		242		255
Government securities		7		76
Mutual funds		17		21
Total noncurrent financial assets		13,914		12,983
Current Financial Assets
Cash and cash equivalents		518		1,771
Receivables		5		8
Total current financial assets		523		1,779
Total PLDT’s Plan Assets		14,437		14,762
Subsidiaries Plan Assets		246		238
Total Plan Assets of Defined Benefit Pension Plans		14,683		15,000

Investment in shares of stocks is valued using the latest bid price at the reporting date.  Investments in corporate bonds, mutual funds and government securities are valued using the market values at reporting date.  

Unquoted Equity Investments

As at December 31, 2021 and 2020, this account consists of:

	2021			2020			2021		2020
	% of Ownership						(in million pesos)
MediaQuest		100	%		100	%		10,508		9,955
Tahanan Mutual Building and Loan Association, Inc.,    or TMBLA, (net of subscriptions payable of    Php32 million)		100	%		100	%		584		542
BTFHI		100	%		100	%		240		231
								11,332		10,728

Investments in MediaQuest

MediaQuest was registered with the Philippine SEC on June 29, 1999 primarily to purchase, subscribe for or otherwise acquire and own, hold, use, manage, sell, assign, transfer, mortgage, pledge, exchange, or otherwise dispose of real and personal property or every kind and description, and to pay thereof in whole or in part, in cash or by exchanging, stocks, bonds and other evidences of indebtedness or securities of this any other corporation.  Its investments include common shares of stocks of various communication, broadcasting and media entities.

Investments in MediaQuest are carried at fair value.  The VIU calculations were derived from cash flow projections over a period of five years based on the 2021 financial budgets approved by the MediaQuest’s Board of Directors and calculated terminal value.  Other key assumptions used in the cash flow projections include revenue growth rate, direct costs and capital expenditures.  The post-tax discount rates applied to cash flow projections range from 11.4% to 11.8%.  Cash flows beyond the five-year period are determined using 0.0% to 4.8% growth rates.

On May 8, 2012, the Board of Trustees of the PLDT Beneficial Trust Fund approved the issuance by MediaQuest of PDRs amounting to Php6 billion.  The underlying shares of these PDRs are the shares of stocks of Cignal TV held by MediaQuest through Satventures (Cignal TV PDRs).  On the same date, MediaQuest Board of Directors approved the investment in Cignal TV PDRs by ePLDT, which gave ePLDT a 40% economic interest in Cignal TV.  In June 2012, MediaQuest received a deposit for future PDRs subscription of Php4 billion from ePLDT.  Additional deposits of Php1 billion each were received on July 6, 2012 and August 9, 2012.  

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On January 25, 2013, the Board of Trustees of the PLDT Beneficial Trust Fund and the MediaQuest Board of Directors approved the issuance of additional MediaQuest PDRs amounting to Php3.6 billion.  The underlying shares of these additional PDRs are the shares of Satventures held by MediaQuest (Satventures PDRs), the holder of which will have a 40% economic interest in Satventures.  Satventures is a wholly-owned subsidiary of MediaQuest and the investment vehicle for Cignal TV.  From March to August 2013, MediaQuest received from ePLDT an amount aggregating to Php3.6 billion representing deposits for future PDRs subscription.  The Satventures PDRs and Cignal TV PDRs were subsequently issued on September 27, 2013, providing ePLDT an effective 64% economic interest in Cignal TV.  

Also, on January 25, 2013, the Board of Trustees of the PLDT Beneficial Trust Fund and the MediaQuest Board of Directors approved the issuance of additional MediaQuest PDRs amounting to Php1.95 billion.  The underlying shares of these additional PDRs are the shares of stocks of Hastings held by MediaQuest (Hastings PDRs).  Hastings is a wholly-owned subsidiary of MediaQuest, which holds all the print-related investments of MediaQuest, including equity interests in the three leading newspapers: The Philippine Star, Philippine Daily Inquirer, and Business World.  From June 2013 to October 2013, MediaQuest received from ePLDT an amount aggregating to Php1.95 billion representing deposits for future PDRs subscription.

On February 19, 2014, ePLDT’s Board of Directors approved an additional Php500 million investment in Hastings PDRs.  On March 11, 2014, MediaQuest received from ePLDT an amount aggregating to Php300 million representing deposits for future PDRs subscription.  As at December 31, 2014, total deposit for PDRs subscription amounted to Php2,250 million.

On May 21, 2015, ePLDT’s Board of Directors approved an additional Php800 million investment in Hastings PDRs and settlement of the Php200 million balance of the Php500 million Hastings PDR investment in 2014.  Subsequently, on May 30, 2015, the Board of Trustees of the PLDT Beneficial Trust Fund and the Board of Directors of MediaQuest approved the issuance of Php3,250 million Hastings PDRs.  This provided ePLDT with 70% economic interest in Hastings.  In February 2018, ePLDT entered into a Deed of Assignment with the Board of Trustees of the PLDT Beneficial Trust Fund transferring the Hastings PDRs for Php1,664 million.  See Note 11 – Investments in Associates and Joint Ventures – Investment of ePLDT in MediaQuest PDRs.

In 2019 and 2020, the Board of Trustees of the PLDT Beneficial Trust Fund approved additional investment in MediaQuest amounting to Php3,100 million and Php1,400 million, respectively, to fund MediaQuest’s investment requirements.  The full amounts were fully drawn by MediaQuest during 2019 and 2020.

In 2021, the Board of Trustees of the PLDT Beneficial Trust Fund approved the additional investment in MediaQuest amounting to Php2,000 million to fund MediaQuest’s investment requirements.  As at December 31, 2021, MediaQuest has drawn the total amount of Php1,600 million.  The balance of Php400 million was subsequently drawn in January 2022.

Investment in TMBLA

TMBLA was incorporated for the primary purpose of accumulating the savings of its stockholders and lending funds to them for housing programs.  The beneficial trust fund’s total investment into TMBLA amounted to Php119 million consisting of initial direct subscription in shares of stocks of TMBLA in the amount of Php20 million (net of unpaid subscription amounting to Php32 million) and subsequently via a Deed of Pledge amounting to Php99 million.  The cumulative change in the fair market values of this investment amounted to Php462 million and Php423 million as at December 31, 2021 and 2020, respectively.

Investment in BTFHI

BTFHI was incorporated for the primary purpose of acquiring voting preferred shares in PLDT and while the owner, holder of possessor thereof, to exercise all the rights, powers, and privileges of ownership or any other interest therein.

On October 26, 2012, BTFHI subscribed to a total of 150 million shares of Voting Preferred Stock of PLDT at a subscription price of Php1.00 per share for a total subscription price of Php150 million.  Total cash dividend

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income amounted to Php10 million for each of the years ended December 31, 2021, 2020 and 2019.  Dividend receivables amounted to Php2 million each as at December 31, 2021 and 2020.

Shares of Stocks

As at December 31, 2021 and 2020, this account consists of:

	2021		2020
	(in million pesos)
Common shares
PSE		1,401		1,026
PLDT		48		35
Others		507		482
Preferred shares		360		360
		2,316		1,903

Dividends earned on PLDT common shares amounted to Php2 million for each of the years ended December 31, 2021, 2020 and 2019.

Preferred shares represent 300 million unlisted preferred shares of PLDT at Php10 par value, net of subscription payable of Php2,640 million as at December 31, 2021 and 2020.  These shares, which bear dividend of 13.5% per annum based on the paid-up subscription price, are cumulative, non-convertible and redeemable at par value at the option of PLDT.  Dividends earned on this investment amounted to Php47 million for the year ended December 31, 2021 and Php49 million for each of the years ended December 31, 2020 and 2019.

Corporate Bonds

Investment in corporate bonds includes various long-term peso and dollar denominated bonds with maturities ranging from July 2022 to September 2027 and fixed interest rates from 3.25% to 6.94% per annum.

Government Securities

Investment in government securities includes Retail Treasury Bonds bearing an interest rate of 3.7% per annum.  This security is fully guaranteed by the government of the Republic of the Philippines.

Mutual Funds

Investment in mutual funds includes UITF, bond and equity funds, which aims to out-perform benchmarks in various indices as part of its investment strategy.

The allocation of the fair value of the assets for the PLDT pension plan as at December 31, 2021 and 2020 are as follows:

	2021			2020
	(in million pesos)
Investments in listed and unlisted equity securities		94	%		86	%
Temporary cash investments		4	%		12	%
Debt and fixed income securities		2	%		2	%
		100	%		100	%

Defined Contribution Plans

Smart’s and certain of its subsidiaries’ contributions to the plan are made based on the employees’ years of tenure and range from 5% to 10% of the employee’s monthly salary.  Additionally, an employee has an option to make a personal contribution to the fund, at an amount not exceeding 10% of his monthly salary.  The employer then provides an additional contribution to the fund ranging from 10% to 50% of the employee’s contribution based on the employee’s years of tenure.  Although the plan has a defined contribution format, Smart and certain of its subsidiaries regularly monitor their compliance with Republic Act No. 7641.  As at December 31, 2021 and 2020, Smart and certain of its subsidiaries were in compliance with the requirements of Republic Act No. 7641.    

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Smart’s and certain of its subsidiaries’ actuarial valuation is performed every year-end.  Based on the latest actuarial valuation, the actual present value of prepaid benefit costs as at December 31, 2021 and 2020, and for the years ended December 31, 2021, 2020 and 2019 are as follows:

	2021			2020			2019
	(in million pesos)
Changes in the present value of defined benefit obligations:
Present value of defined benefit obligations at beginning of the year		2,775			2,813			2,804
Service costs		313			294			239
Interest costs on benefit obligation		101			118			174
Actuarial losses – experience		12			69			100
Actuarial losses – economic assumptions		(40	)		28			13
Actual benefits paid/settlements		—			(567	)		(37	)
Curtailment and others		103			20			(480	)
Present value of defined benefit obligations at end of the year		3,264			2,775			2,813
Changes in fair value of plan assets:
Fair value of plan assets at beginning of the year		3,651			3,084			3,159
Actual contributions		306			282			281
Interest income on plan assets		132			142			190
Return on plan assets (excluding amount included in net interest)		(18	)		143			100
Actual benefits paid/settlements		—			—			(37	)
Others		66			—			(609	)
Fair value of plan assets at end of the year		4,137			3,651			3,084
Funded status – net		873			876			271
Prepaid benefit costs (Note 19)		873			876			271
Components of net periodic benefit costs:
Service costs		313			294			239
Interest costs – net		(31	)		(24	)		(16	)
Curtailment/settlement gains		—			—			(6	)
Others		—			—			(39	)
Net periodic benefit costs (Note 5)		282			270			178

Actual net gains on plan assets amounted to Php113 million, Php285 million and Php290 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Based on the latest actuarial valuation, Smart and certain of its subsidiaries expect to contribute the amount of approximately Php322 million to the plan in 2022.

The following table sets forth the expected future settlements by the Plan of maturing defined benefit obligation as at December 31, 2021:

	(in million pesos)
2022		88
2023		108
2024		162
2025		209
2026		234
2027 to 2061		1,877

The average duration of the defined benefit obligation at the end of the reporting period is 11 years.

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The weighted average assumptions used to determine pension benefits for the years ended December 31, 2021, 2020 and 2019 are as follows:

	2021			2020			2019
	(in million pesos)
Rate of increase in compensation		5.0	%		5.0	%		5.0	%
Discount rate		5.0	%		3.5	%		7.3	%

The sensitivity analysis below has been determined based on reasonably possible changes of each significant assumption on the defined benefit obligation as at December 31, 2021 and 2020, assuming if all other assumptions were held constant:

	Increase (Decrease)
	(in million pesos)
Discount rate	(0.30%)	(10	)
	0.62%	20
Future salary increases	0.61%	20
	(0.30%)	(10	)

Smart’s Retirement Plan

The fund is being managed and invested by BPI Asset Management and Trust Corporation, as Trustee, pursuant to an amended trust agreement dated February 21, 2012.  

The plan’s investment portfolio seeks to achieve regular income, long-term capital growth and consistent performance over its own portfolio benchmark.  In order to attain this objective, the Trustee’s mandate is to invest in a diversified portfolio of bonds and equities, both domestic and international.  The portfolio mix is kept at 70% and 30% for fixed income securities and equity securities, respectively.  

The following table sets forth the fair values, which are equal to the carrying values, of Smart’s plan assets recognized as at December 31, 2021 and 2020:

	2021		2020
	(in million pesos)
Noncurrent Financial Assets
Investments in:
Domestic fixed income		2,833		2,416
Domestic equities		997		832
International equities		844		902
International fixed income		224		74
Philippine foreign currency bonds		558		240
Total noncurrent financial assets		5,456		4,464
Current Financial Assets
Cash and cash equivalents		37		388
Total current financial assets		37		388
Total plan assets		5,493		4,852
Less:  Employee’s share, forfeitures and mandatory reserve account		1,356		1,201
Total Plan Assets of Defined Contribution Plans		4,137		3,651

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Domestic Fixed Income

Investments in domestic fixed income include Philippine Peso denominated bonds, such as government securities and corporate debt securities, with fixed interest rates from 2.1% to 12.0% per annum.

Domestic Equities

Investments in domestic equities include direct equity investments in common shares listed in the PSE.  These investments earn on stock price appreciation and dividend payments.  This includes investment in PLDT shares with fair value of Php45 million and Php44 million as at December 31, 2021 and 2020, respectively.

International Equities

Investments in international equities include exchange traded funds, mutual funds and unit investment trust funds managed by BlackRock, State Street Global Advisors and Wellington Management.

Philippine Foreign Currency Bonds

Investments in Philippine foreign currency bonds include U.S. Dollar denominated fixed income instruments issued by the Philippine government and local corporations with fixed interest rates from 2.95% to 10.63% per annum.

International Fixed Income

Investments in international fixed income include exchange traded funds, mutual funds and unit investment trust funds managed by Pacific Investment Management and BPI Asset Management and Trust Corporation.

Cash and Cash Equivalents

This pertains to the fund’s excess liquidity in Philippine Peso and U.S. Dollars including investments in time deposits, money market funds and other deposit products of banks with duration or tenor less than a year.

The asset allocation of the Plan is set and reviewed from time to time by the Plan Trustees taking into account the membership profile, the liquidity requirements of the Plan and risk appetite of the Plan sponsor.  This considers the expected benefit cash flows to be matched with asset durations.

The plan assets are primarily exposed to financial risks such as liquidity risk and price risk.

Liquidity risk pertains to the plan’s ability to meet its obligation to the employees upon retirement.  To effectively manage liquidity risk, the Plan Trustees invest a portion of the fund in readily tradeable and liquid investments which can be sold at any given time to fund liquidity requirements.

Price risk pertains mainly to fluctuations in market prices of equity securities listed in the PSE.  In order to effectively manage price risk, the Plan Trustees continuously assess these risks by closely monitoring the market value of the securities and implementing prudent investment strategies.

The allocation of the fair value of Smart and certain of its subsidiaries pension plan assets as at December 31, 2021 and 2020 are as follows:

	2021			2020
	(in million pesos)
Investments in debt and fixed income securities and others		67	%		64	%
Investments in listed and unlisted equity securities		33	%		36	%
		100	%		100	%

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Other Long-term Employee Benefits

Cycle 1 TIP

On September 26, 2017, the Board of Directors of PLDT approved the TIP which intends to provide incentive compensation to key officers, executives and other eligible participants who are consistent performers and contributors to the Company’s strategic and financial goals.  The incentive compensation will be in the form of Performance Shares, PLDT common shares of stock, which will be released in three annual grants on the condition, among others, that pre-determined consolidated core net income targets are successfully achieved over three annual performance periods from January 1, 2017 to December 31, 2019.  On September 26, 2017, the Board of Directors approved the acquisition of 860 thousand Performance Shares to be awarded under the TIP.  On March 7, 2018, the ECC of the Board approved the acquisition of additional 54 thousand shares, increasing the total Performance Shares to 914 thousand.  Metrobank, through its Trust Banking Group, is the appointed Trustee of the trust established for purposes of the TIP.  The Trustee is designated to acquire the PLDT common shares in the open market through the facilities of the PSE and administer their distribution to the eligible participants subject to the terms and conditions of the TIP.  On December 11, 2018, the ECC of the Board approved Management’s recommended modifications to the Plan, and partial equity and cash settled set-up was implemented for the 2019 TIP Grant.  The revised set-up includes a fixed number of shares that will be granted (“equity award”) and the estimated fair value of the difference between the number of shares granted in the original equity grant and the equity award will be paid in cash (“cash award”).  The fair value of the cash award is determined at each reporting date using the estimated fair value of the corresponding shares.

As at May 11, 2021, a total of 757 thousand PLDT common shares have been acquired by the Trustee, of which 239 thousand PLDT common shares have been released on March 12, 2020, April 7, 2020 and January 19, 2021 for the 2019 annual grant, and 302 thousand PLDT common shares have been released on March 28, 2019 for the 2018 annual grant, and 204 thousand shares on April 15, 2018 for the 2017 annual grant.  With the completion of the 2017 to 2019 annual grants, the remaining 12 thousand PLDT common shares have been transferred to the PLDT Beneficial Trust Fund on May 11, 2021.  The cash award for the 2019 annual grant that was paid on March 12, 2020 amounted to Php654 million.  The TIP is administered by the ECC of the Board.  

Cycle 2 TIP

On August 7, 2020, the ECC approved the adjusted TIP that covers the years 2020 and 2021, and will be settled in cash.  The cash grant will be for the two years covered and payment will be in 2022.  The Cycle 2 TIP will be based on the achievement of the CCNI for the years 2020 and 2021.

This other long-term employee benefit liability is recognized and measured using the projected unit credit method and to be amortized on a straight-line basis over the vesting period.

The expense accrued for the TIP amounted to Php1,186 million, Php1,134 million and Php638 million for the years ended December 31, 2021, 2020 and 2019, respectively.  The accrued incentive payable, representing the cash settled set-up amounted to Php1,186 million and Php1,134 million as at December 31, 2021 and 2020, respectively.  See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Estimating Pension Benefit Costs and Other Employee Benefits and Note 5 – Income and Expenses – Compensation and Employee Benefits.     

27. Provisions and Contingencies

PLDT’s Local Business and Franchise Tax Assessments

As at December 31, 2021, PLDT has no contested LGU assessments for franchise taxes based on gross receipts received or collected for services within its respective territorial jurisdiction.

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Smart’s Local Business and Franchise Tax Assessments

The Province of Cagayan issued a tax assessment against Smart for alleged local franchise tax.  In 2011, Smart appealed the assessment to the Regional Trial Court, or RTC, of Makati on the ground that Smart cannot be held liable for local franchise tax mainly because it has no sales office within the Province of Cagayan pursuant to Section 137 of the Local Government Code (Republic Act No. 7160).  The RTC issued a TRO and a writ of preliminary injunction.  On April 30, 2012, the RTC rendered a decision nullifying the tax assessment.  The Province of Cagayan was also directed to cease and desist from imposing local franchise taxes on Smart’s gross receipts.  The Province of Cagayan then appealed to the Court of Tax Appeals, or CTA.  In a Decision promulgated on July 25, 2013, the CTA ruled that the franchise tax assessment is null and void for lack of legal and factual justifications.  Cagayan’s Motion for Reconsideration was denied.  Cagayan then appealed before the CTA En Banc.  The CTA En Banc issued a Decision dated December 8, 2015 affirming the nullity of the tax assessment.  On January 26, 2016, the Province of Cagayan filed a Partial Motion for Reconsideration, praying among others, that the Court enter a new decision declaring as valid and legal the tax assessment issued by Province of Cagayan to Smart.  The CTA En Banc then issued a Resolution dated June 22, 2016 denying the Partial Motion for Reconsideration filed by the Province of Cagayan for lack of merit.  On July 31, 2016, the Decision dated December 8, 2015 became final and executory and recorded in the book of entries of judgement of the CTA.

In 2016, Cagayan issued another local franchise tax assessment against Smart covering years 2011-2015.  Using the same grounds in the first case, Smart appealed the assessment with the RTC of Tuguegarao where the case is pending.  The RTC then directed the parties to file their respective Memorandum within 30 days from date of receipt.  Smart filed its Memorandum on November 7, 2018 and the case is now submitted for resolution.  On November 29, 2021, the RTC rendered its Decision dismissing the appeal of Smart for lack of jurisdiction without prejudice.  Smart has filed its Motion for Reconsideration last February 2, 2022.

Digitel’s Franchise Tax Assessment and Real Property Tax Assessment

Digitel is discussing with various local government units as to settlement of its franchise tax and real property tax liabilities.

DMPI vs. City of Trece Martires

In 2010, DMPI petitioned to declare void the City of Trece Martires ordinance of imposing tower fee of Php150 thousand for each cell site every year.  Application for the issuance of a preliminary injunction by DMPI is pending resolution as of date.

ACeS Philippines’ Withholding Tax Assessments

ACeS Philippines has a pending case with the Supreme Court (ACeS Philippines Satellite Corporation vs. Commissioner of Internal Revenue Supreme Court G.R. No. 226680) for alleged 2006 deficiency withholding tax.  On July 23, 2014, the CTA Second Division affirmed the assessment of the Commissioner of Internal Revenue for deficiency basic withholding tax, surcharge plus deficiency interest and delinquency interest amounting to Php87 million.  On November 18, 2014, ACeS Philippines filed a Petition for Review with the CTA En Banc.  On August 16, 2016, the CTA En Banc also affirmed the assessment with finality.  Hence, on October 19, 2016, ACeS Philippines filed a petition before the Supreme Court assailing the decision of the CTA.  On February 23, 2017 and March 15, 2017, respectively, the Company paid and filed a formal request for compromise of tax liabilities amounting to Php27 million before the BIR while the case is pending before the Supreme Court.  The application for compromise was denied on January 21, 2021.

On February 19, 2021, ACeS Philippines entered into an amicable settlement with the Bureau of Internal Revenue pursuant to the provisions of the Civil Code of the Philippines and paid an additional compromise amounting to Php20 million.  On April 18, 2021, the Commissioner of Internal Revenue signed the judicial compromise agreement.

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Arbitration with Eastern Telecommunications Philippines, Inc., or ETPI

Since 1990 up to the present, PLDT and ETPI have been engaged in legal proceedings involving a number of issues in connection with their business relationship.  Among PLDT’s claims against ETPI are ETPI’s alleged uncompensated bypass of PLDT’s systems from July 1, 1998 to November 28, 2003; unpaid access charges from July 1, 1999 to November 28, 2003; and non-payment of applicable rates for Off-Net and On-Net traffic from January 1, 1999 to November 28, 2003 arising from ETPI’s unilateral reduction of its rates for the Philippines-Hong Kong traffic stream through Hong Kong REACH-ETPI circuits.  ETPI’s claims against PLDT, on the other hand, involve an alleged Philippines-Hong Kong traffic shortfall for the period July 1, 1998 to November 28, 2003; unpaid share of revenues generated from PLDT’s activation of additional growth circuits in the Philippines-Singapore traffic stream for the period July 1, 1999 to November 28, 2003; under reporting of ETPI share of revenues under the terms of a Compromise Agreement for the period January 1, 1999 to November 28, 2003 (which ETPI is seeking to retroact to February 6, 1990); lost revenues arising from PLDT’s blocking of incoming traffic from Hong Kong from November 1, 2001 up to November 2003; and lost revenues arising from PLDT’s circuit migration from January 1, 2001 up to December 31, 2001.

While the parties have entered into Compromise Agreements in the past (one in February 1990 and another in March 1999), said agreements have not put to rest the issues between them.  To avoid protracted litigation and to preserve their business relationship, PLDT and ETPI agreed to submit their differences and issues to voluntary arbitration.  On April 16, 2008, PLDT and ETPI signed an Arbitration Settlement Agreement and submitted their respective Statement of Claims and Answers.  Subsequent to such submissions, PLDT and ETPI agreed to suspend the arbitration proceedings.  ETPI’s total claim against PLDT is about Php2.9 billion while PLDT’s total claim against ETPI is about Php2.8 billion.    

In an agreement, PLDT and Globe have agreed that they shall cause ETPI, within a reasonable time after May 30, 2016, to dismiss Civil Case No. 17694 entitled Eastern Telecommunications Philippines, Inc. vs. Philippine Long Distance Telephone Company, and all related or incidental proceedings (including the voluntary arbitration between ETPI and PLDT), and PLDT, in turn, simultaneously, shall withdraw its counterclaims against ETPI in the same entitled case, all with prejudice.  As of date of this report, there are no changes on the status of the case.

Department of Labor and Employment, or DOLE, Compliance Order, or Order, to PLDT

In a series of orders including a Compliance Order issued by the DOLE Regional Office on July 3, 2017, which was partly affirmed by DOLE Secretary Silvestre Bello, III, or DOLE Secretary, in his resolutions dated January 10, 2018 and April 24, 2018, the DOLE had previously ordered PLDT to regularize 7,344 workers from 38 of PLDT’s third party service contractors.  PLDT questioned these “regularization orders” before the CA, which led to the July 31, 2018 Decision of the CA.

In sum, the CA: (i) granted PLDT’s prayer for an injunction against the regularization orders; (ii) set aside the regularization orders insofar as they declared that there was labor-only contracting of the following functions: (a) janitorial services, messengerial and clerical services; (b) information technology, or IT, firms and services; (c) IT support services, both hardware and software, and applications development; (d) back office support and office operations; (e) business process outsourcing or call centers; (f) sales; and  (g) medical, dental engineering and other professional services; and (iii) remanded to the DOLE for further proceedings, the matters of:
(a) determining which contractors, and which individuals deployed by these contractors, are performing installation, repair and maintenance, or IRM, of PLDT lines which individuals will be covered by the regularization orders because they are performing the core functions of PLDT; and (b) properly computing monetary awards for benefits such as unpaid overtime or 13th month pay, which in the regularization orders amounted to Php51.8 million.

The CA agreed with PLDT’s contention that the DOLE Secretary’s regularization order was “tainted with grave abuse of discretion” because it did not meet the “substantial evidence” standards set out by the Supreme Court in landmark jurisprudence.  The Court also said that the DOLE’s appreciation of evidence leaned in favor of the contractor workers, and that the DOLE Secretary had “lost sight” of distinctions involving the labor law concepts of “control over means and methods,” and “control over results.”

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On August 20, 2018, PLDT filed a motion seeking a partial reconsideration of that part of the CA decision, which ordered a remand to the Office of the Regional Director of the DOLE-National Capital Region of the matter of the regularization of individuals performing installation, repair and maintenance, or IRM, services. In its motion, PLDT argued that the fact-finding process contemplated by the Court’s remand order is actually not part of the visitorial power of the DOLE (i.e., the evidence that will need to be assessed cannot be gleaned in the ‘normal course’ of a labor inspection) and is therefore, outside the jurisdiction of the DOLE Secretary. 

PLDT also questioned that part of the CA ruling which seems to conclude that all IRM jobs are “regular or core functions of PLDT.”  It argued that the law recognizes that some work of this nature can be project-based or seasonal in nature. Instead of the DOLE, PLDT suggested that the National Labor Relations Commission – a tribunal with better fact-finding powers – take over from the DOLE to determine whether the jobs are in fact IRM, and if so, whether they are “regular” or can be considered project-based or seasonal.

Both adverse parties, the PLDT rank-and-file labor union Manggagawa sa Komunikasyon ng Pilipinas, or MKP, and the DOLE filed Motions for Reconsideration. 

On February 14, 2019, the CA issued a Resolution denying all Motions for Reconsideration and upheld its July 31, 2018 Decision.  After filing a Motion for Extension of Time on March 7, 2019, PLDT filed on April 5, 2019 a Petition for Review with the Supreme Court, questioning only one aspect of the CA decision i.e. its order remanding to the DOLE the determination of which jobs fall within the scope of “installation, repair and maintenance,” without however a qualification as to the “project” or “seasonal” nature of those engagements.  The Supreme Court has consolidated PLDT’s Petition with the separate Petitions for Review filed by the DOLE and MKP.  On February 17, 2020, PLDT submitted its Comment on the Petitions for Review filed by the DOLE Secretary and MKP. PLDT also received the Comment filed by MKP and the DOLE Secretary dated January 13, 2020 and September 3, 2020, respectively.  On September 10, 2020, PLDT filed a Motion for Leave and for Time to File a Consolidated Reply (re: MKP’s Comment dated January 13, 2020 and DOLE Secretary’s Comment dated September 3, 2020).  On December 23, 2020, PLDT filed its Reply to the Comment submitted by MKP and the DOLE Secretary.  On March 11, 2021, PLDT received DOLE’s Reply dated March 2, 2021.  To date, the Petition is pending resolution by the Supreme Court. 

Attys. Baquiran and Tecson vs. NTC, et al.

This is a Petition for Mandamus filed on October 23, 2018 by Attys. Joseph Lemuel Baligod Baquiran and Ferdinand C. Tecson against the Respondents NTC, the PCC, Liberty, BellTel, Globe, PLDT and Smart. Briefly, the case involves the 700 MHz frequency, among others, or Subject Frequencies, that was originally assigned to Liberty and which eventually became subject of the Co-Use Agreement between Globe, on the one hand, and PLDT and Smart, on the other, or the Co-Use Agreement.

The Petition prayed that: (a) a Temporary Restraining Order, or TRO, /Writ of Preliminary Injunction, or WPI, be issued to enjoin and restrain Globe, PLDT and Smart from utilizing and monopolizing the Subject Frequencies and the NTC from bidding out or awarding the frequencies returned by PLDT, Smart and Globe; (b) the NTC’s conditional assignment of the Subject Frequencies be declared unconstitutional, illegal and void; (c) alternatively, Liberty and its successors-in-interest be divested of the Subject Frequencies and the same be reverted to the State; (d) Liberty be declared to have transgressed Section 11 (1), Article XVI of the Constitution; (e) Liberty and its parent company be declared to have contravened paragraph 2 of Section 10, Article XII of the 1987 Constitution; (f) Liberty’s assignment of the Subject Frequencies to BellTel be declared illegal and void; (g) the Co-Use Agreement be declared invalid; (h) the NTC be found to have unlawfully neglected the performance of its positive duties; (i) the PCC be found to have unlawfully neglected the performance of its positive duties; (j) a Writ of Mandamus be issued commanding the NTC to revoke the Co-Use Agreement, recall the Subject Frequencies in favor of the State, and make the same available to the best qualified telecommunication players; (k) a Writ of Mandamus be issued commanding the PCC to conduct a full review of PLDT’s and Globe’s acquisition of all issued and outstanding shares of Vega Telecom; (l) an Investigation of NTC be ordered for possible violation of Section 3 (e) of Republic Act No. 3019 and other applicable laws; and (m) the said TRO/WPI be made permanent.

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Essentially, petitioners contend that the NTC’s assignments of the Subject Frequencies of Liberty were void for failing to comply with Section 4 (c) of Republic Act No. 7925 which essentially states that “the radio frequency spectrum is a scarce public resource xxx.” Even assuming the assignments were valid, Liberty should be deemed divested of the same by operation of law (with the Subject Frequencies reverted to the State), considering that it underutilized or never utilized the Subject Frequencies in violation of the terms and conditions of the assignments.  Assuming further that the NTC’s assignments of the Subject Frequencies were valid and that Liberty was not divested of the same by operation of law, still, Liberty did not validly assign the Subject Frequencies to BellTel because of the absence of Congressional approval. Petitioners conclude that since the assignments of the Subject Frequencies from the NTC to Liberty, and from Liberty to BellTel, were all illegal and void, it follows that the Subject Frequencies could not serve as the object of the Co-Use Agreement between PLDT, Smart and Globe.

On November 23, 2018, PLDT filed an Entry of Appearance on behalf of PLDT and Smart.  On January 17, 2019, PLDT and Smart filed their Comment.  Essentially, the Comment raised the following arguments: first, that the requisites for judicial review and for a mandamus petition are lacking; second, that there was no need for Liberty to obtain prior Congressional approval before it assigned the Subject Frequencies to BellTel; and third, that the Co-Use Agreement is valid and approved by the NTC, and did not violate the Constitution or any laws.

On January 15, 2019, PLDT received a copy of BellTel’s Comment/Opposition dated January 10, 2019.  On February 12, 2019, PLDT received a copy of Globe Telecom, Inc.’s, or Globe’s Comment/Opposition dated January 21, 2019.  In a Resolution dated March 19, 2019, the Supreme Court noted the aforesaid filings.  As at the date of the report, however, PLDT has not received any pleadings from the OSG on behalf of the public respondents.

On June 18, 2019, the Supreme Court issued a Resolution consolidating this case with G.R. No. 230798 (Philippine Competition Commission vs. CA [Twelfth Division] and PLDT; Globe, intervenor) and G.R. No. 234969 (Philippine Competition Commission vs. PLDT and Globe).  The consolidated cases were assigned to the Supreme Court Division in charge of G.R. No. 230798, the case with the lowest docket number.

Other disclosures required by IAS 37, Provisions, Contingent Liabilities and Contingent Assets, were not provided as it may prejudice our position in on-going claims, litigations and assessments.  See Note 3 – Management’s Use of Accounting Judgments, Estimates and Assumptions – Provision for legal contingencies and tax assessments.

28. Financial Assets and Liabilities

We have various financial assets such as trade and non-trade receivables, cash and short-term deposits.  Our principal financial liabilities, other than derivatives, comprise of bank loans, lease liabilities, trade and non-trade payables.  The main purpose of these financial liabilities is to finance our operations.  We also enter into derivative transactions, primarily principal only-currency swap agreements, interest rate swaps and forward foreign exchange contracts and options to manage the currency and interest rate risks arising from our operations and sources of financing.  Our accounting policies in relation to derivatives are set out in Note 2 – Summary of Significant Accounting Policies – Financial Instruments.

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The following table sets forth our consolidated financial assets and financial liabilities as at December 31, 2021 and 2020:  

	Financial instruments at amortized cost				Financial instruments at FVPL				Total financial instruments
	(in million pesos)
Assets as at December 31, 2021
Noncurrent:
Financial assets at fair value through profit or loss		—				339				339
Debt instruments at amortized cost – net of current portion		400				—				400
Derivative financial assets – net of current portion		—				48				48
Other financial assets – net of current portion		3,099		(1)		—				3,099
Current:
Cash and cash equivalents		23,907				—				23,907
Short-term investments		1,986				255		(2)		2,241
Trade and other receivables		21,790				—				21,790
Current portion of derivative financial assets		—				93				93
Current portion of debt instruments at amortized cost		207				—				207
Current portion of other financial assets		208		(1)		6,856		(3)		7,064
Total assets		51,597				7,591				59,188
Liabilities as at December 31, 2021
Noncurrent:
Interest-bearing financial liabilities – net of current portion		241,075				—				241,075
Lease liabilities – net of current portion		17,131				—				17,131
Derivative financial liabilities – net of current portion		—				100				100
Customers' deposits		2,270				—				2,270
Deferred credits and other noncurrent liabilities		398				—				398
Current:
Accounts payable		97,959				—				97,959
Accrued expenses and other current liabilities		76,377				7,842				84,219
Current portion of interest-bearing financial liabilities		11,482				—				11,482
Current portion of lease liabilities		4,555				—				4,555
Dividends payable		1,708				—				1,708
Current portion of derivative financial liabilities		—				115				115
Total liabilities		452,955				8,057				461,012
Net assets (liabilities)		(401,358	)			(466	)			(401,824	)

⁽¹⁾ Includes refundable deposits and notes receivables.

⁽²) Includes investments in the funds of Credit Suisse and Julius Baer.  PLDT withdrew US$6.6 million from the Supply Chain Finance fund of Credit Suisse in 2021.  As at December 31, 2021, the fund’s value is US$3.4 million which was fully impaired as at year-end.  In November 2021, Smart invested US$5.0 million in the Focus Fixed Income Asia Defensive fund of Julius Baer.  As at December 31, 2021, the fund’s value is US$5.02 million.

⁽³⁾Includes RCBC Redemption Trust Account.  See Note 20 – Equity – Redemption of Preferred Stock.

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	Financial instruments at amortized cost				Financial instruments at FVPL				Financial instruments at FVOCI		Total financial instruments
	(in million pesos)
Assets as at December 31, 2020
Noncurrent:
Financial assets at fair value through profit or loss		—				380				—		380
Debt instruments at amortized cost – net of current portion		1,153				—				—		1,153
Other financial assets – net of current portion		2,915		(1)		—				—		2,915
Current:
Cash and cash equivalents		40,237				—				—		40,237
Short-term investments		508				481		(2)		—		989
Trade and other receivables		22,053				—				—		22,053
Current portion of derivative financial assets		—				22				—		22
Current portion of financial assets at fair value    through other comprehensive income		—				—				168		168
Current portion of other financial assets		200		(1)		6,972		(3)		—		7,172
Total assets		67,066				7,855				168		75,089
Liabilities as at December 31, 2020
Noncurrent:
Interest-bearing financial liabilities – net of current portion		205,195				—				—		205,195
Lease liabilities – net of current portion		15,982				—				—		15,982
Derivative financial liabilities – net of current portion		—				360				—		360
Customers' deposits		2,371				—				—		2,371
Deferred credits and other noncurrent liabilities		1,683				—				—		1,683
Current:
Accounts payable		80,051				—				—		80,051
Accrued expenses and other current liabilities		79,000				7,849				—		86,849
Current portion of interest-bearing financial liabilities		17,570				—				—		17,570
Current portion of lease liabilities		4,043				—				—		4,043
Dividends payable		1,194				—				—		1,194
Current portion of derivative financial liabilities		—				176				—		176
Total liabilities		407,089				8,385				—		415,474
Net assets (liabilities)		(340,023	)			(530	)			168		(340,385	)

⁽¹⁾ Includes refundable deposits and notes receivables.

⁽²⁾ In December 2020, PLDT invested US$10.0 million in the Supply Chain Finance fund of Credit Suisse equivalent to 9,114.53 shares.  As at December 31, 2020, the fund’s value is US$10.01 million.

⁽³⁾Includes RCBC Redemption Trust Account.  See Note 20 – Equity – Redemption of Preferred Stock.

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The following table sets forth our consolidated offsetting of financial assets and liabilities recognized as at December 31, 2021 and 2020:

	Gross amounts of recognized financial assets and liabilities		Gross amounts of recognized financial assets and liabilities set-off in the consolidated statements of financial position		Net amount presented in the consolidated statements of financial position
	(in million pesos)
December 31, 2021
Current Financial Assets
Trade and other receivables
Foreign administrations		7,625		6,405		1,220
Domestic carriers		595		368		227
Total		8,220		6,773		1,447
Current Financial Liabilities
Accounts payable
Suppliers and contractors		132,459		46,556		85,903
Carriers and other customers		16,950		5,093		11,857
Total		149,409		51,649		97,760
December 31, 2020
Current Financial Assets
Trade and other receivables
Foreign administrations		7,161		5,877		1,284
Domestic carriers		717		552		165
Total		7,878		6,429		1,449
Current Financial Liabilities
Accounts payable
Suppliers and contractors		75,394		72		75,322
Carriers and other customers		7,128		2,699		4,429
Total		82,522		2,771		79,751

There are no financial instruments subject to an enforceable master netting arrangement as at December 31, 2021 and 2020.

The following table sets forth our consolidated carrying values and estimated fair values of our financial assets and liabilities recognized as at December 31, 2021 and 2020 other than those whose carrying amounts are reasonable approximations of fair values:  

	Carrying Value				Fair Value
	2021		2020		2021		2020
	(in million pesos)
Noncurrent Financial Assets
Debt instruments at amortized cost		400		1,153		403		1,163
Other financial assets – net of current portion		3,099		2,915		2,664		2,561
Total		3,499		4,068		3,067		3,724
Noncurrent Financial Liabilities
Interest-bearing financial liabilities:
Long-term debt – net of current portion		241,075		205,195		242,545		213,908
Customers' deposits		2,270		2,371		1,619		1,821
Deferred credits and other noncurrent liabilities		398		1,683		404		1,562
Total		243,743		209,249		244,568		217,291

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Below is the list of our consolidated financial assets and liabilities carried at fair value that are classified using a fair value hierarchy as required for our complete sets of consolidated financial statements as at December 31, 2021 and 2020.  This classification provides a reasonable basis to illustrate the nature and extent of risks associated with those financial statements.  

	2021								2020
	Level 1(1)		Level 2(2)		Level 3(3)		Total		Level 1(1)		Level 2(2)		Level 3(3)		Total
	(in million pesos)
Noncurrent Financial Assets
Financial assets at FVPL		—		315		24		339		61		294		25		380
Derivative financial assets    – net of current portion		—		48		—		48		—		—		—		—
Current Financial Assets
Short-term investments		—		255		—		255		—		481		—		481
Current portion of derivative    financial assets		—		93		—		93		—		22		—		22
Current portion of FVOCI		—		—		—		—		—		168		—		168
Current portion of other    financial assets		—		6,856		—		6,856		—		6,972		—		6,972
Total		—		7,567		24		7,591		61		7,937		25		8,023
Noncurrent Financial Liabilities
Derivative financial liabilities    – net of current portion		—		100		—		100		—		360		—		360
Current Financial Liabilities
Accrued expenses and other    current liabilities		—		7,842		—		7,842		—		7,849		—		7,849
Current portion of derivative    financial liabilities		—		115		—		115		—		176		—		176
Total		—		8,057		—		8,057		—		8,385		—		8,385

⁽¹⁾ Fair values determined using observable market inputs that reflect quoted prices in active markets for identical assets or liabilities.

⁽²⁾ Fair values determined using inputs other than quoted market prices that are either directly or indirectly observable for the assets or liabilities.

⁽³⁾ Fair values determined using discounted values of future cash flows for the assets or liabilities.

As at December 31, 2021 and 2020, there were no transfers into and out of Level 3 fair value measurements.

As at December 31, 2021 and 2020, there were no transfers between Level 1 and Level 2 fair value measurements.

The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate such value:

Long-term financial assets and liabilities:  

Fair value is based on the following:

Type	Fair Value Assumptions	Fair Value Hierarchy
Noncurrent portion of advances and    other noncurrent assets	Estimated fair value is based on the discounted values of future cash flows using the applicable zero-coupon rates plus counterparties’ credit spread.	Level 3
Fixed Rate Loans: U.S. Dollar notes	Quoted market price.	Level 1
Investment in debt securities	Fair values were determined using quoted prices. For non-quoted securities, fair values were determined using discounted cash flow based on market observable rates.	Level 1 Level 2
Other loans in all other currencies	Estimated fair value is based on the discounted value of future cash flows using the applicable Commercial Interest Reference Rate and BVAL rates for similar types of loans plus PLDT’s credit spread.	Level 3
Variable Rate Loans	The carrying value approximates fair value because of recent and regular repricing based on market conditions.	Level 2

F-170

Derivative Financial Instruments

Forward foreign exchange contracts, foreign currency swaps, foreign currency options and interest rate swaps:  The fair values were computed as the present value of estimated future cash flows using market U.S. Dollar and Philippine Peso interest rates as at valuation date.

The valuation techniques considered various inputs including the credit quality of counterparties.

Due to the short-term nature of the transactions, the fair value of cash and cash equivalents, short-term investments, trade and other receivables, accounts payable, accrued expenses and other current liabilities and dividends payable approximate their carrying values as at the end of the reporting period.

Our derivative financial instruments are accounted for as either cash flow hedges or transactions not designated as hedges.  Cash flow hedges refer to those transactions that hedge our exposure to variability in cash flows attributable to a particular risk associated with a recognized financial asset or liability and exposures arising from forecast transactions.  Changes in the fair value of these instruments representing effective hedges are recognized directly in other comprehensive income until the hedged item is recognized in our consolidated income statement.  For transactions that are not designated as hedges, any gains or losses arising from the changes in fair value are recognized directly to income for the period.  

As at December 31, 2021 and 2020, we have taken into account the counterparties’ credit risks (for derivative assets) and our own non-performance risk (for derivative liabilities) and have included a credit or debit valuation adjustment, as appropriate, by assessing the maximum credit exposure and taking into account market-based inputs which considers the risk of default occurring and corresponding losses once the default event occurs.  The changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationships and other financial instruments recognized at fair value.

F-171

The table below sets out the information about our consolidated derivative financial instruments as at December 31, 2021 and 2020:

										2021					2020
	Original Notional Amount	Trade Date	Underlying Transaction in U.S. Dollar	Termination Date	Weighted Average Hedge Cost			Weighted Average Foreign Exchange Rate		Notional Amount		Net Mark-to- market Gains (Losses) in Php			Notional Amount		Net Mark-to- market Gains (Losses) in Php
	(in millions)		(in millions)							(in millions)
Transactions not designated as hedges:
PLDT
Forward foreign exchange contracts	US$69	Various dates in October to December 2021	U.S. Dollar Liabilities	Various dates in January to July 2022		—		Php50.90		US$69			17		US$13			(5	)
	US$8	Various dates in January to February 2022	U.S. Dollar Liabilities	Various dates in June 2022		—		Php51.38			—		—			—		—
	EUR5	Various dates in July and August 2019	EUR Assets	January 2020		—		Php58.65			—		—			—		—
Foreign exchange options capped forward(a)	US$6	Various dates in October 2021	U.S. Dollar Liabilities	Various dates in April and May 2022		—		Php50.80		US$6			(2	)		—		—
						—		Php52.17			—		—			—		—
Foreign exchange options seagull(b)	US$4	Various dates in October 2021	U.S. Dollar Liabilities	Various dates in May 2022		—		Php50.68			4		(1	)		—		—
						—		Php51.02			—		—			—		—
						—		Php52.05			—		—			—		—
													14					(5	)
Smart
Forward foreign exchange contracts	US$133	Various dates in 2019 and 2020	U.S. Dollar Liabilities	Various dates in 2020		—		Php50.73			—		—			—		—
	US$332	Various dates in 2020 and 2021	U.S. Dollar Liabilities	Various dates in 2021		—		Php49.03							US$26			(9	)
	US$116	Various dates in October to December  2021	U.S. Dollar Liabilities	Various dates in 2022		—		Php50.83		US$116			40			—		—
	US$30	Various dates in January to March 1, 2022	U.S. Dollar Liabilities	Various dates in April to September 2022		—		Php51.65			—		—			—		—
Subsidized forwards(c)	US$2	Various dates in November 2021	U.S. Dollar Liabilities	Various dates in 2022		—		Php50.38			—		—			—		—
						—		Php51.65		US$2			(1	)		—		—
Seagull(d)	US$3	Various dates in November to December 2021	U.S. Dollar Liabilities	Various dates in 2022		—		Php49.90			—		—			—		—
						—		Php50.88			—		—			—		—
						—		Php51.75		US$3			(2	)		—		—
	US$4	Various dates in January to February 2022	U.S. Dollar Liabilities	Various dates in May and July 2022		—		Php51.20			—		—			—		—
						—		Php52.17			—		—			—		—
						—		Php52.96			—		—			—		—
													37					(9	)
													51					(14	)
Transactions designated as  hedges:
PLDT
Interest rate swaps(e)	US$100	August 2014	100 PNB	August 11, 2020		3.46	%		—		—		—			—		—
	US$50	September 2014	50 Metrobank	September 2, 2020		3.47	%		—		—		—			—		—
	US$150	April and June 2015	200 Term Loan	February 25, 2022		2.70	%		—	US$11			(5	)	US$34			(25	)
Long-term currency swaps(f)	US$4	January 2017	100 PNB	August 11, 2020		1.01	%	Php49.79			—		—			—		—
	US$6	February 2018	200 MUFG Bank, Ltd.	February 26, 2020		1.82	%	Php51.27			—		—			—		—
	US$27	November 2018 to August 2020	200 MUFG Bank, Ltd.	February 25, 2022		2.15	%	Php50.78		US$5			2		US$16			(52	)
Long-term foreign currency options(g)	US$290	Various dates in July 2020 and February to March 2021	300M Notes 2031	January 23, 2031		1.20	%	Php49.61 Php55.28		US$290			(175	)	US$200			(406	)
													(178	)				(483	)
Smart
Interest rate swaps(h)	US$200	Various dates in 2015	200 Mizuho	March 4, 2020		2.10	%		—		—		—			—		—
	US$30	February 2016	100 Mizuho	December 7, 2021		2.03	%		—		—		—		US$6			(2	)
Long-term currency swaps(i)	US$18	Various dates in 2017, 2018 and 2019	100 Mizuho	December 7, 2020		1.76	%	Php50.98			—		—			—		—
	US$13	Various dates in 2018 and 2019	200 Mizuho	March 4, 2020		2.06	%	Php51.93			—		—			—		—
	US$6	February 2019	100 Mizuho	December 7, 2021		2.22	%	Php51.83			—		—		US$2			(8	)
	US$6	August 2020	100 Mizuho	December 7, 2022		1.99	%	Php48.64		US$3			9		US$6			(7	)
Long-term foreign currency options(j)	US$109	February to April 2021	140 PNB	December 13, 2030		1.63	%	Php48.00 Php53.34		US$99			44			—		—
													53					(17	)
													(125	)				(500	)
													(74	)				(514	)

F-172

(a) If the Philippine peso to U.S. dollar spot exchange rate on fixing date settles above Php52.17, PLDT will purchase the U.S. dollar for Php50.80 plus the excess above Php52.17, and if the exchange rate is at or lower than Php52.17, PLDT will purchase the U.S. dollar at Php50.80.

(b) If the Philippine peso to U.S. dollar spot exchange rate on fixing date settles between Php51.02 to Php52.05, PLDT will purchase the U.S. dollar for Php51.02. However, if on maturity, the exchange rate settles above Php52.05, PLDT will purchase the U.S. dollar for Php51.02 plus the excess above Php52.05, and if the exchange rate is lower than Php51.02, PLDT will purchase the U.S. dollar at the prevailing Philippine peso to U.S. dollar spot exchange rate, subject to a floor of Php50.68.

(c) If the Philippine peso to U.S. Dollar spot exchange rate on fixing date settles above Php51.65, Smart will purchase the U.S. Dollar for Php50.38 plus the excess above Php51.65, and if the exchange rate is at or lower than Php51.65, Smart will purchase the U.S. Dollar at Php50.38.

(d) If the Philippine peso to U.S. Dollar spot exchange rate on fixing date settles between Php50.88 to Php51.75, Smart will purchase the U.S. Dollar for Php50.88. However, if on maturity, the exchange rate settles above Php51.75, Smart will purchase the U.S. Dollar for Php50.88 plus the excess above Php51.75, and if the exchange rate is lower than Php50.88, Smart will purchase the U.S. Dollar at the prevailing Philippine peso to U.S. Dollar spot exchange rate, subject to a floor of Php49.90.

(e) PLDT’s interest rate swap agreements outstanding as at December 31, 2021 and 2020 were designated as cash flow hedges, wherein the effective portion of the movements in fair value is recognized in our consolidated statements of other comprehensive income, while any ineffective portion is recognized immediately in our consolidated income statements.  The mark-to-market losses amounting to Php1 million and Php16 million were recognized in our consolidated statements of other comprehensive income as at December 31, 2021 and 2020, respectively.  Interest accrual on the interest rate swaps amounting to Php3 million and Php9 million were recorded as at December 31, 2021 and 2020, respectively.  There were no ineffective portion in the fair value recognized in our consolidated income statements for the years ended December 31, 2021, 2020 and 2019.

(f) PLDT’s long-term principal only-currency swap agreements outstanding as at December 31, 2021 and December 31, 2020 were designated as cash flow hedges, wherein effective portion of the movements in the fair value is recognized in our consolidated statements of other comprehensive income, while any ineffective portion is recognized immediately in our consolidated income statements.  The mark-to-market gains amounting to Php4 million and Php46 million were recognized in our consolidated statements of other comprehensive income as at December 31, 2021 and 2020, respectively.  Hedge cost accrual on the long-term principal only-currency swaps amounting to Php2 million and Php6 million were recognized as at December 31, 2021 and 2020, respectively.  The amounts recognized as other comprehensive income are transferred to profit or loss when the hedged loan is revalued for changes in the foreign exchange rate.  The hedge cost portion of the movements in the fair value amounting to Php0.5 million, Php2 million and Php2 million were recognized in our consolidated income statements for the years ended December 31, 2021, 2020 and 2019, respectively.

(g) PLDT’s long-term foreign currency option agreements outstanding as at December 31, 2021 and 2020 were designated as cash flow hedges, wherein the effective portion of the movements in fair value is recognized in our consolidated statements of other comprehensive income, while any ineffective portion is recognized immediately in our consolidated income statements.  Settlement of the foreign currency option agreements will depend on the spot exchange rate on the fixing date.  If the Philippine peso to U.S. dollar spot exchange rate on fixing date is between Php49.61 and Php55.28, PLDT will purchase the U.S. dollar at Php49.61.  However, if on fixing date, the exchange rate is beyond Php55.28, PLDT will purchase the U.S. dollar at the prevailing Philippine peso to U.S. dollar spot exchange rate minus a subsidy of Php5.67, and if the exchange rate is lower than Php49.61, PLDT will purchase the U.S. dollar at the prevailing Philippine peso to U.S. dollar spot exchange rate.  The mark-to-market losses amounting to Php100 million and Php342 million were recognized in our consolidated statement of other comprehensive income as at December 31, 2021 and 2020, respectively.  Hedge cost accrual on the long-term foreign currency option agreements amounting to Php75 million and Php64 million were recognized as at December 31, 2021 and 2020, respectively.  The intrinsic value of the long-term foreign currency options recognized as other comprehensive income are transferred to profit or loss when the hedged loan is revalued for changes in the foreign exchange rate.  The hedge cost portion of the movements in the fair value amounting to Php89 million and Php26 million were recognized in our consolidated income statement for the years ended December 31, 2021 and 2020, respectively.  

F-173

(h) Smart’s interest rate swap agreements outstanding as at December 31, 2021 and 2020 were designated as cash flow hedges, wherein the effective portion of the movements in fair value is recognized in our consolidated statements of other comprehensive income, while any ineffective portion is recognized immediately in our consolidated income statements.  The mark-to-market losses amounting to nil and Php2 million were recognized in our consolidated statements of other comprehensive income as at December 31, 2021 and 2020, respectively.  Interest accrual amounting to nil and Php197 thousand were recognized as at December 31, 2021 and 2020, respectively.  There were no ineffective portion in the fair value recognized in our consolidated income statements for the years ended December 31, 2021 and 2020.

(i) Smart’s long-term principal only-currency swap agreements outstanding as December 31, 2021 and 2020 were designated as cash flow hedges, wherein the effective portion of the movements in fair value is recognized in our consolidated statements of other comprehensive income, while any ineffective portion is recognized immediately in our consolidated income statements.  The mark-to-market gain amounting to Php9 million and mark-to-market loss amounting to Php13 million were recognized in our consolidated statements of other comprehensive income as at December 31, 2021 and 2020, respectively.  Hedge cost accrual on the long-term principal only-currency swaps amounting to Php201 thousand and Php2 million was recognized as at December 31, 2021 and 2020, respectively.  The amounts recognized as other comprehensive income are transferred to profit or loss when the hedged loan is revalued for changes in the foreign exchange rate.  The hedge cost portions of the movements in the fair value amounting to Php309 thousand and Php1 million were recognized in our consolidated income statements for the years ended December 31, 2021 and 2020, respectively.

(j) Smart’s long-term foreign currency option agreements outstanding as at December 31, 2021 were designated as cash flow hedges, wherein the effective portion of the movements in fair value is recognized in our consolidated statements of other comprehensive income, while any ineffective portion is recognized immediately in our consolidated income statements.  Settlement of the foreign currency option agreements will depend on the spot exchange rate on the fixing date.  If the Philippine Peso to U.S. Dollar spot exchange rate on fixing date is between Php48.00 and Php53.34, Smart will purchase the U.S. Dollar at Php48.00.  However, if on fixing date the exchange rate is beyond Php53.34, Smart will purchase the U.S. Dollar at the prevailing Philippine Peso to U.S. Dollar spot exchange rate minus a subsidy of Php5.34, and if the exchange rate is lower than Php48.00, Smart will purchase the U.S. Dollar at the prevailing Philippine Peso to U.S. Dollar spot exchange rate.  The mark-to-market gain amounting to Php48 million was recognized in our consolidated statement of other comprehensive income as at December 31, 2021.  Hedge cost accrual on the long-term foreign currency option agreements amounting to Php4 million was recognized as at December 31, 2021.  The intrinsic value of the long-term foreign currency options recognized as other comprehensive income are transferred to profit or loss when the hedged loan is revalued for changes in the foreign exchange rate.  The hedge cost portion of the movements in the fair value amounting to Php8 million was recognized in our consolidated income statement for the year ended December 31, 2021.

Our derivative financial instruments as at December 31, 2021 and 2020 are presented in the statements of financial position as follows:

	2021			2020
	(in million pesos)
Noncurrent assets		48			—
Current assets		93			22
Noncurrent liabilities (Note 29)		(100	)		(360	)
Current liabilities (Note 29)		(115	)		(176	)
Net liabilities		(74	)		(514	)

F-174

Movements of our consolidated mark-to-market losses for the years ended December 31, 2021 and 2020 are summarized as follows:

	2021			2020
	(in million pesos)
Net mark-to-market losses at beginning of the year		(514	)		(71	)
Gains (losses) on derivative financial instruments (Note 4)		1,651			(284	)
Effective portion recognized in the profit or loss for the cash flow hedges		(75	)		(156	)
Settlements, interest expense and others		(169	)		430
Net fair value losses on cash flow hedges charged to other comprehensive income		(967	)		(433	)
Net mark-to-market losses at end of the year		(74	)		(514	)

Our consolidated analysis of gains (losses) on derivative financial instruments for the years ended December 31, 2021, 2020 and 2019 are as follows:

	2021			2020			2019
	(in million pesos)
Gains (losses) on derivative financial instruments		1,651			(284	)		(233	)
Hedge costs		(251	)		(94	)		(51	)
Net gains (losses) on derivative financial instruments (Note 5)		1,400			(378	)		(284	)

Financial Risk Management Objectives and Policies

The main risks arising from our financial instruments are liquidity risk, foreign currency exchange risk, interest rate risk and credit risk.  The importance of managing those risks has significantly increased in light of the considerable change and volatility in both the Philippine and international financial markets.  Our Board of Directors reviews and approves policies for managing each of these risks, which are summarized below.  We also monitor the market price risk arising from all financial instruments.

Liquidity Risk

Our exposure to liquidity risk refers to the risk that our financial requirements, working capital requirements and planned capital expenditures will not be met.

We manage our liquidity profile to be able to finance our operations and capital expenditures, service our maturing debts and meet our other financial obligations.  To cover our financing requirements, we use internally generated funds and proceeds from debt and equity issues and sales of certain assets.

As part of our liquidity risk management program, we regularly evaluate our projected and actual cash flows, including our loan maturity profiles, and continuously assess conditions in the financial markets for opportunities to pursue fund-raising initiatives.  These activities may include bank loans, export credit agency-guaranteed facilities, debt capital and equity market issues.

Any excess funds are primarily invested in short-term and principal-protected bank products that provide flexibility of withdrawing the funds anytime.  We also allocate a portion of our cash in longer tenor investments such as fixed income securities issued or guaranteed by the Republic of the Philippines, and Philippine banks and corporates and managed funds.  We regularly evaluate available financial products and monitor market conditions for opportunities to enhance yields at acceptable risk levels.  Our investments are also subject to certain restrictions contained in our debt covenants.  Our funding arrangements are designed to keep an appropriate balance between equity and debt and to provide financing flexibility while enhancing our businesses.

Our cash position remains sufficient to support our planned capital expenditure requirements and service our debt and financing obligations; however, we may be required to finance a portion of our future capital expenditures from external financing sources.  We have cash and cash equivalents, and short-term investments amounting to Php23,907 million and Php2,241 million, respectively, as at December 31, 2021, which we can use to meet our short-term liquidity needs.  See Note 16 – Cash and Cash Equivalents.  

F-175

The following table summarizes the maturity profile of our financial assets based on our consolidated undiscounted claims outstanding as at December 31, 2021 and 2020:

	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(in million pesos)
December 31, 2021
Financial instruments at amortized cost:		55,428		51,317		2,898		430		783
Other financial assets		3,919		208		2,798		430		483
Debt instruments at amortized cost		607		207		100		—		300
Temporary cash investments		13,291		13,291		—		—		—
Short-term investments		1,986		1,986		—		—		—
Retail subscribers		15,676		15,676		—		—		—
Corporate subscribers		13,079		13,079		—		—		—
Foreign administrations		1,341		1,341		—		—		—
Domestic carriers		241		241		—		—		—
Dealers, agents and others		5,288		5,288		—		—		—
Financial instruments at FVPL:		7,624		7,285		—		—		339
Financial assets at fair value through profit or loss		339		—		—		—		339
Short-term investments		429		429		—		—		—
Other financial assets		6,856		6,856		—		—		—
Total		63,052		58,602		2,898		430		1,122
December 31, 2020
Financial instruments at amortized cost:		74,365		69,723		3,439		732		471
Other financial assets		3,689		200		2,286		732		471
Debt instruments at amortized cost		1,153		—		1,153		—		—
Temporary cash investments		30,711		30,711		—		—		—
Short-term investments		508		508		—		—		—
Retail subscribers		17,142		17,142		—		—		—
Corporate subscribers		13,318		13,318		—		—		—
Foreign administrations		1,520		1,520		—		—		—
Domestic carriers		226		226		—		—		—
Dealers, agents and others		6,098		6,098		—		—		—
Financial instruments at FVPL:		7,833		7,453		—		—		380
Financial assets at fair value through profit or loss		380		—		—		—		380
Short-term investments		481		481		—		—		—
Other financial assets		6,972		6,972		—		—		—
Financial instruments at FVOCI:		168		168		—		—		—
Financial assets at fair value through other    comprehensive income		168		168		—		—		—
Total		82,366		77,344		3,439		732		851

F-176

The following table summarizes the maturity profile of our financial liabilities based on our consolidated contractual undiscounted obligations outstanding as at December 31, 2021 and 2020:

	Payments Due by Period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(in million pesos)
December 31, 2021
Debt(1):		331,933		7,681		77,865		53,026		193,361
Principal		255,414		7,649		48,404		37,552		161,809
Interest		76,519		32		29,461		15,474		31,552
Lease obligations		30,770		11,609		9,004		4,523		5,634
Various trade and other obligations:		179,484		176,816		667		54		1,947
Suppliers and contractors		86,203		85,903		292		8		—
Utilities and related expenses		62,989		62,988		1		—		—
Employee benefits		9,090		9,090		—		—		—
Liability from redemption of preferred shares		7,842		7,842		—		—		—
Customers’ deposits		2,270		—		277		46		1,947
Dividends		1,708		1,708		—		—		—
Carriers and other customers		1,469		1,469		—		—		—
Others		7,913		7,816		97		—		—
Total contractual obligations		542,187		196,106		87,536		57,603		200,942
December 31, 2020
Debt(1):		292,639		12,562		74,960		51,659		153,458
Principal		224,027		12,400		47,753		37,785		126,089
Interest		68,612		162		27,207		13,874		27,369
Lease obligations		29,312		10,995		8,897		5,068		4,352
Various trade and other obligations:		169,808		165,750		2,010		36		2,012
Suppliers and contractors		76,864		75,322		1,535		7		—
Utilities and related expenses		64,580		64,577		3		—		—
Employee benefits		10,404		10,404		—		—		—
Liability from redemption of preferred shares		7,849		7,849		—		—		—
Customers’ deposits		2,371		—		330		29		2,012
Carriers and other customers		1,336		1,336		—		—		—
Dividends		1,194		1,194		—		—		—
Others		5,210		5,068		142		—		—
Total contractual obligations		491,759		189,307		85,867		56,763		159,822

⁽¹⁾ Consists of long-term debt, including current portion; gross of unamortized debt discount and debt issuance costs.

Debt

See Note 21 – Interest-bearing Financial Liabilities – Long-term Debt for a detailed discussion of our debt.

Our consolidated future minimum lease commitments payable with non-cancellable leases as at December 31, 2021 and 2020 are as follows:  

	2021		2020
	(in million pesos)
Within one year		11,609		11,061
After one year but not more than five years		13,527		13,899
More than five years		5,634		4,352
Total		30,770		29,312

Various Trade and Other Obligations

PLDT Group has various obligations to suppliers for the acquisition of phone and network equipment, contractors for services rendered on various projects, foreign administrations and domestic carriers for the access charges, shareholders for unpaid dividends distributions, employees for benefits and other related obligations, and various business and operational related agreements.  Total obligations under these various agreements amounted to approximately Php179,484 million and Php169,808 million as at December 31, 2021

F-177

and 2020, respectively.  See Note 23 – Accounts Payable and Note 24 – Accrued Expenses and Other Current Liabilities.

Commercial Commitments

We have no outstanding commercial commitments, in the form of letters of credit, as at December 31, 2021 and 2020.

Collateral

There are no pledges as collaterals with respect to our financial liabilities as at December 31, 2021 and 2020.  

Foreign Currency Exchange Risk

Foreign currency exchange risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

The revaluation of our foreign currency-denominated financial assets and liabilities as a result of the appreciation or depreciation of the Philippine Peso is recognized as foreign exchange gains or losses as at the end of the reporting period.  The extent of foreign exchange gains or losses is largely dependent on the amount of foreign currency denominated financial assets and liabilities.  While a certain percentage of our revenues are either linked to or denominated in U.S. Dollars, a substantial portion of our capital expenditures, a portion of our indebtedness and related interest expense and a portion of our operating expenses are denominated in foreign currencies, mostly in U.S. Dollars.  As such, a strengthening or weakening of the Philippine Peso against the U.S. Dollar will decrease or increase in Philippine Peso terms both the principal amount of our foreign currency-denominated debts and the related interest expense, our foreign currency-denominated capital expenditures and operating expenses as well as our U.S. Dollar-linked and U.S. Dollar-denominated revenues.  In addition, many of our financial ratios and other financial tests are affected by the movements in the Philippine Peso to U.S. Dollar exchange rate.

To manage our foreign exchange risks and to stabilize our cash flows in order to improve investment and cash flow planning, we enter into forward foreign exchange contracts, currency swap contracts, currency option contracts and other hedging products aimed at reducing and/or managing the adverse impact of changes in foreign exchange rates on our operating results and cash flows.  Further details of the risk management strategy are recognized in our hedge designation documentation.  We use forward foreign exchange purchase contracts, currency swap contracts and currency option contracts to manage the foreign currency risks associated with our foreign currency-denominated financial liabilities.  We accounted for these instruments as either cash flow hedges, wherein changes in the fair value are recognized in our consolidated other comprehensive income until the hedged transaction affects our consolidated income statement or transactions not designated as hedges, wherein changes in the fair value are recognized directly as income or expense for the year.

F-178

The impact of the hedging instruments on our consolidated statements of financial position as at December 31, 2021 and 2020 are as follows:

	Notional Amount		Carrying Amount			Line item in our Consolidated Statements
	(U.S. Dollar)		(Php)			of Financial Position
	(in million pesos)
December 31, 2021
Long-term currency swaps		8		—		Derivative financial assets – net of current portion
		—		15		Current portion of derivative financial assets
		—		(2	)	Current portion of derivative financial liabilities
Long-term foreign currency options		389		48		Derivative financial assets – net of current portion
		—		(100	)	Derivative financial liabilities – net of current portion
		397		(39	)
December 31, 2020
Long-term currency swaps		24		—		Derivative financial assets – net of current portion
		—		(14	)	Current portion of derivative financial assets
		—		(48	)	Derivative financial liabilities – net of current portion
		200		(342	)	Current portion of derivative financial liabilities
		224		(404	)

The impact of the hedged items on our consolidated statements of financial position as at December 31, 2021 and 2020 are as follows:

		2021					2020
		Cash flow hedge reserve			Cost of hedging reserve		Cash flow hedge reserve			Cost of hedging reserve
	(in million pesos)
PLDT:
US$300M Term Loan			(273	)		—		(273	)		—
US$100M PNB			(11	)		—		(11	)		—
US$200M MUFG Bank, Ltd.			(8	)		2		(47	)		6
US$300M Notes 2031			(1,011	)		75		(414	)		64
			(1,303	)		77		(745	)		70
Smart:
US$200M Mizuho			—			—		(1	)		—
US$100M Mizuho			(9	)		—		(18	)		15
US$140M PNB			(429	)		4		—			—
			(438	)		4		(19	)		15

The effect of the cash flow hedge on our consolidated statements of financial position and statements of other comprehensive income as at December 31, 2021 and 2020 are as follows:

	Total hedging loss recognized in OCI			Line item in our Consolidated Statements of Financial Position
	(in million pesos)
December 31, 2021
Long-term currency swaps		(301	)	Other comprehensive loss
Long-term foreign currency options		(1,440	)	Other comprehensive loss
		(1,741	)
December 31, 2020
Long-term currency swaps		(350	)	Other comprehensive loss
Long-term foreign currency options		(414	)	Other comprehensive loss
		(764	)

F-179

The following table shows our consolidated foreign currency-denominated monetary financial assets and liabilities and their Philippine Peso equivalents as at December 31, 2021 and 2020:

	2021				2020
	U.S. Dollar		Php(1)		U.S. Dollar		Php(2)
	(in millions)
Noncurrent Financial Assets
Debt instruments at amortized cost		—		—		24		1,153
Derivative financial assets – net of current portion		1		48		—		—
Other financial assets – net of current portion		—		19		—		7
Total noncurrent financial assets		1		67		24		1,160
Current Financial Assets
Cash and cash equivalents		146		7,466		338		16,251
Short-term investments		5		254		10		480
Trade and other receivables – net		142		7,218		131		6,290
Current portion of derivative financial assets		2		93		1		22
Current portion of debt instruments at amortized cost		4		207
Current portion of other financial assets		—		—		—		12
Total current financial assets		299		15,238		480		23,055
Total Financial Assets		300		15,305		504		24,215
Noncurrent Financial Liabilities
Interest-bearing financial liabilities – net of current portion		758		38,648		802		38,530
Derivative financial liabilities – net of current portion		2		100		7		360
Other noncurrent liabilities		—		23		1		22
Total noncurrent financial liabilities		760		38,771		810		38,912
Current Financial Liabilities
Accounts payable		1,150		58,599		670		32,201
Accrued expenses and other current liabilities		239		12,164		253		12,135
Current portion of interest-bearing financial liabilities		44		2,252		59		2,842
Current portion of derivative financial liabilities		2		115		4		176
Total current financial liabilities		1,435		73,130		986		47,354
Total Financial Liabilities		2,195		111,901		1,796		86,266

⁽¹⁾ The exchange rate used to convert the U.S. Dollar amounts into Philippine Peso was Php50.97 to US$1.00, the Philippine Peso-U.S. Dollar exchange rate as quoted through the Bankers Association of the Philippines, or BAP, as at December 31, 2021.

⁽²⁾ The exchange rate used to convert the U.S. Dollar amounts into Philippine Peso was Php48.02 to US$1.00, the Philippine Peso-U.S. Dollar exchange rate as quoted through the BAP as at December 31, 2020.

As at March 21, 2022, the Philippine Peso-U.S. Dollar exchange rate was Php52.37 to US$1.00.  Using this exchange rate, our consolidated net foreign currency-denominated financial liabilities would have increased in Philippine Peso terms by Php2,653 million as at December 31, 2021.

Approximately 16% and 18% of our total consolidated debts (net of consolidated debt discount) was denominated in U.S. Dollars as at December 31, 2021 and 2020, respectively.  Our consolidated foreign currency-denominated debt decreased to Php40,439 million as at December 31, 2021 from Php40,872 million as at December 31, 2020.  See Note 21 – Interest-bearing Financial Liabilities.  The aggregate notional amount of our consolidated outstanding long-term principal only-currency swap contracts and long-term foreign currency options were US$397 million and US$224 million as at December 31, 2021 and 2020, respectively.  Consequently, the unhedged portion of our consolidated debt amounts was approximately 8% (or 5%, net of our consolidated U.S. Dollar cash balances allocated for debt) and 13% (or 5%, net of our consolidated U.S. Dollar cash balances allocated for debt) as at December 31, 2021 and 2020, respectively.

Approximately 20%, 19% and 15% of our consolidated revenues were denominated in U.S. Dollars and/or were linked to U.S. Dollars for the years ended December 31, 2021, 2020 and 2019, respectively.  Approximately 18%, 16% and 11% of our consolidated expenses were denominated in U.S. Dollars and/or linked to the U.S. Dollar for the years ended December 31, 2021, 2020 and 2019, respectively.  In this respect, the higher weighted average exchange rate of the Philippine Peso against the U.S. Dollar increased our revenues and expenses, and consequently, affects our cash flow from operations in Philippine Peso terms.  In view of the anticipated continued decline in dollar-denominated/dollar-linked revenues, which provide a natural hedge against our foreign currency exposure, we are progressively refinancing our dollar-denominated debts in Philippine Pesos.  

F-180

The Philippine Peso depreciated by 6.14% against the U.S. Dollar to Php50.97 to US$1.00 as at December 31, 2021 from Php48.02 to US$1.00 as at December 31, 2020.  As a result of our consolidated foreign exchange movements, as well as the amount of our consolidated outstanding net foreign currency financial assets and liabilities, we recognized net consolidated foreign exchange losses of Php3,890 million for the year ended December 31, 2021 and net consolidated foreign exchange gains of Php1,488 million and Php424 million for the years ended December 31, 2020 and 2019, respectively.  

Management conducted a survey among our banks to determine the outlook of the Philippine Peso-U.S. Dollar exchange rate until March 31, 2022.  Our outlook is that the Philippine Peso-U.S. Dollar exchange rate may weaken/strengthen by 1.03% as compared to the exchange rate of Php50.97 to US$1.00 as at December 31, 2021.  If the Philippine Peso-U.S. Dollar exchange rate had weakened/strengthened by 1.03% as at December 31, 2021, with all other variables held constant, consolidated profit after tax for the year 2021 and stockholders’ equity as at year end 2021 would have been approximately Php1,404 million and Php21 million, respectively, lower/higher, mainly as a result of consolidated foreign exchange gains and losses on conversion of U.S. Dollar-denominated net assets/liabilities and mark-to-market valuation of derivative financial instruments.

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

Our exposure to the risk of changes in market interest rates relates primarily to our long-term debt obligations with floating interest rates.

Our policy is to manage interest cost through a mix of fixed and variable rate debts.  We evaluate the fixed to floating ratio of our loans in line with movements of relevant interest rates in the financial markets.  Based on our assessment, new financing will be priced either on a fixed or floating rate basis.  We enter into interest rate swap agreements in order to manage our exposure to interest rate fluctuations.  Further details of the risk management strategy are recognized in our hedge designation documentation.  We make use of hedging instruments and structures solely for reducing or managing financial risk associated with our debt obligations and not for trading purposes.

The impact of the hedging instruments on our consolidated statements of financial position as at December 31, 2021 and 2020 are as follows:

	Notional Amount		Carrying Amount			Line item in our Consolidated Statements
	(U.S. Dollar)		(Php)			of Financial Position
	(in million pesos)
December 31, 2021
Interest rate swaps		11		—		Derivative financial assets – net of current portion
		—		21		Current portion of derivative financial assets
		—		(26	)	Current portion of derivative financial liabilities
		11		(5	)
December 31, 2020
Interest rate swaps		40		—		Derivative financial assets – net of current portion
		—		22		Current portion of derivative financial assets
		—		(4	)	Derivative financial liabilities – net of current portion
		—		(44	)	Current portion of derivative financial liabilities
		40		(26	)

F-181

The impact of the hedged items on our consolidated statements of financial position as at December 31, 2021 and 2020 are as follows:

		2021					2020
		Cash flow hedge reserve			Cost of hedging reserve		Cash flow hedge reserve			Cost of hedging reserve
	(in million pesos)
PLDT:
US$200M MUFG Bank, Ltd.			(1	)		—		(16	)		—
Smart:
2015 Mizuho US$200M			—			—		(2	)		—
2015 Mizuho US$100M			—			—		(6	)		—
			—			—		(8	)		—

The effect of the cash flow hedge on our consolidated statements of financial position as at December 31, 2021 and 2020 are as follows:

	Total hedging loss recognized in OCI			Line item in our Consolidated Statements of Financial Position
	(in million pesos)
December 31, 2021
Interest rate swaps		(1	)	Other comprehensive loss
December 31, 2020
Interest rate swaps		(24	)	Other comprehensive loss

F-182

The following tables set out the carrying amounts, by maturity, of our financial instruments that are expected to have exposure on interest rate risk as at December 31, 2021 and 2020.  Financial instruments that are not subject to interest rate risk were not included in the table.

As at December 31, 2021

F-183

	In U.S. Dollars																			Fair Value
	Below 1 year		1-2 years		2-3 years		3-5 years		Over 5 years			Total		In Php		Discount/ Debt Issuance Cost In Php		Carrying Value In Php		In U.S. Dollar		In Php
																(in millions)
Assets:
Debt Instruments at Amortized Cost
U.S. Dollar		4		—		—		—		—			4		207		—		207		4		207
Interest rate	2.0000%			—		—		—		—			—		—		—		—		—		—
Philippine Peso		—		—		2		—		6			8		400		—		400		8		403
Interest rate		—		—	2.3750%			—		4.6250	%		—		—		—		—		—		—
Cash in Bank
U.S. Dollar		3		—		—		—		—			3		152		—		152		3		152
Interest rate	0.0500% to 0.5000%			—		—		—		—			—		—		—		—		—		—
Philippine Peso		99		—		—		—		—			99		5,068		—		5,068		99		5,068
Interest rate	0.0500% to 1.0000%			—		—		—		—			—		—		—		—		—		—
Temporary Cash Investments
U.S. Dollar		53		—		—		—		—			53		2,676		—		2,676		53		2,676
Interest rate	0.0500% to 0.2000%			—		—		—		—			—		—		—		—		—		—
Philippine Peso		208		—		—		—		—			208		10,615		—		10,615		208		10,615
Interest rate	0.2000% to 1.9900%			—		—		—		—			—		—		—		—		—		—
Short-term Investments
Philippine Peso		39		—		—		—		—			39		1,986		—		1,986		39		1,986
Interest rate	0.5000% to 1.9900%			—		—		—		—			—		—		—		—		—		—
		406		—		2		—		6			414		21,104		—		21,104		414		21,107
Liabilities:
Long-term Debt
Fixed Rate
U.S. Dollar Notes		—		—		—		—		600			600		30,584		613		29,971		597		30,441
Interest rate		—		—		—		—	2.5000% to 3.4500%				—		—		—		—		—		—
U.S. Dollar Fixed Loans		4		—		—		—		—			4		191		—		191		4		193
Interest rate	2.8850%			—		—		—		—			—		—		—		—		—		—
Philippine Peso		120		519		185		649		1,122			2,595		132,285		1,056		131,229		2,571		131,039
Interest rate	4.5500% to 5.4000%		3.9000% to 6.3457%		4.0000% to 6.3457%		4.0000% to 6.3457%		4.2588% to 6.3457%				—		—		—		—		—		—
Variable Rate
U.S. Dollar Loans		26		53		39		28		56			202		10,329		52		10,277		202		10,329
Interest rate	0.7900% to 0.9500% over LIBOR		1.0500% over LIBOR		1.0500% over LIBOR		1.0500% over LIBOR		1.0500% over LIBOR				—		—		—		—		—		—
Philippine Peso		—		59		95		59		1,396			1,609		82,025		1,136		80,889		1,609		82,025
Interest rate		—	0.5000% to 0.9000% over PHP BVAL/ 0.2500% over TDF  (floor rate 3.9000% to 4.5000%)		0.5000% to 0.9000% over PHP BVAL/ 0.2500% over TDF  (floor rate 3.9000% to 4.5000%)		0.6000% to 0.9000% over PHP BVAL/ 0.2500% over TDF (floor rate 3.9000% to 4.5000%)		0.6000% to 0.9000% over PHP BVAL/ 0.2500% over TDF  (floor rate 3.9000% to  4.5000%)				—		—		—		—		—		—
		150		631		319		736		3,174			5,010		255,414		2,857		252,557		4,983		254,027

F-184

As at December 31, 2020

	In U.S. Dollars																			Fair Value
	Below 1 year			1-2 years		2-3 years		3-5 years		Over 5 years		Total		In Php		Discount/ Debt Issuance Cost In Php		Carrying Value In Php		In U.S. Dollar		In Php
																(in millions)
Assets:
Debt Instruments at Amortized Cost
U.S. Dollar		—			24		—		—		—		24		1,153		—		1,153		24		1,163
Interest rate		—		0.8962% to 2.0000%			—		—		—		—		—		—		—		—		—
Cash in Bank
U.S. Dollar		49			—		—		—		—		49		2,337		—		2,337		49		2,337
Interest rate	0.0100% to 0.5000%				—		—		—		—		—		—		—		—		—		—
Philippine Peso		103			—		—		—		—		103		4,940		—		4,940		103		4,940
Interest rate	0.0500% to 2.5000%				—		—		—		—		—		—		—		—		—		—
Temporary Cash Investments
U.S. Dollar		254			—		—		—		—		254		12,222		—		12,222		254		12,222
Interest rate	0.0200% to 2.5000%				—		—		—		—		—		—		—		—		—		—
Philippine Peso		385			—		—		—		—		385		18,490		—		18,490		385		18,490
Interest rate	0.3200% to 1.6000%				—		—		—		—		—		—		—		—		—		—
Short-term Investments
U.S. Dollar		10			—		—		—		—		10		480		—		480		10		480
Interest rate		—			—		—		—		—		—		—		—		—		—		—
Philippine Peso		11			—		—		—		—		11		509		—		509		11		509
Interest rate	2.0000%				—		—		—		—		—		—		—		—		—		—
		812			24		—		—		—		836		40,131		—		40,131		836		40,141
Liabilities:
Long-term Debt
Fixed Rate
U.S. Dollar Notes		—			—		—		—		600		600		28,813		634		28,179		632		30,336
Interest rate		—			—		—		—	2.5000% to 3.4500%			—		—		—		—		—		—
U.S. Dollar Fixed Loans		—			11		—		—		—		11		540		—		540		11		545
Interest rate		—		2.8850%			—		—				—		—		—		—		—		—
Philippine Peso		258			313		525		657		1,612		3,365		161,597		532		161,065		3,489		167,520
Interest rate		5.2250	%	3.9000% to 6.7339%		3.9000% to 6.7339%		3.9500% to 6.7339%		4.2500% to 6.7339%			—		—		—		—		—		—
Variable Rate
U.S. Dollar Loans		—			93		39		53		70		255		12,222		69		12,153		255		12,222
Interest rate		—		0.7900% to 1.0500% over LIBOR		1.0500% over LIBOR		1.0500% over LIBOR		1.0500% over LIBOR			—		—		—		—		—		—
Philippine Peso		—			9		4		77		344		434		20,855		27		20,828		434		20,855
Interest rate		—		0.5000% to 0.7500% over PHP BVAL (floor rate 4.5000%)		0.5000% to 0.7500% over PHP BVAL (floor rate 4.5000%)		0.5000% to 0.7500% over PHP BVAL (floor rate 4.5000%)		0.6000% to 0.7500% over PHP BVAL (floor rate 4.5000%)			—		—		—		—		—		—
		258			426		568		787		2,626		4,665		224,027		1,262		222,765		4,821		231,478

F-185

Fixed rate financial instruments are subject to fair value interest rate risk while floating rate financial instruments are subject to cash flow interest rate risk.

Repricing of floating rate financial instruments is mostly done on intervals of three months or six months.  Interest on fixed rate financial instruments is fixed until maturity of the particular instrument.

Approximately 36% and 15% of our consolidated debts were variable rate debts as at December 31, 2021 and 2020, respectively.  Our consolidated variable rate debt increased to Php92,354 million as at December 31, 2021 from Php33,077 million as at December 31, 2020.  Considering the aggregate notional amount of our consolidated outstanding long-term interest rate swap contracts of US$11 million and US$40 million as at December 31, 2021 and 2020, respectively, approximately 64% and 86% of our consolidated debts were fixed as at December 31, 2021 and 2020, respectively.

Management conducted a survey among our banks to determine the outlook of the U.S. Dollar and Philippine Peso interest rates until March 31, 2022.  Our outlook is that the U.S. Dollar and Philippine Peso interest rates may move 10 basis points, or bps, and 25 bps higher/lower, respectively, as compared to levels as at December 31, 2021.  If the U.S. Dollar interest rates had been 10 bps higher/lower as compared to market levels as at December 31, 2021, with all other variables held constant, consolidated profit after tax for the year 2021 and stockholders’ equity as at year end 2021 would have been approximately Php2 million and Php27 million, respectively, lower/higher, mainly as a result of higher/lower interest expense on floating rate borrowings and loss/gain on derivative transactions.  If the Philippine Peso interest rates had been 25 bps higher/lower as compared to market levels as at December 31, 2021, with all other variables held constant, consolidated profit after tax for the year 2021 and stockholders’ equity as at year end 2021 would have been approximately Php5 thousand and Php10 million, respectively, lower/higher, mainly as a result of higher/lower interest expense on floating rate borrowings and loss/gain on derivative transactions.  

Credit Risk

Credit risk is the risk that we will incur a loss arising from our customers, clients or counterparties that fail to discharge their contracted obligations.  We manage and control credit risk by setting limits on the amount of risk we are willing to accept for individual counterparties and by monitoring exposures in relation to such limits.

We trade only with recognized and creditworthy third parties.  It is our policy that all customers who wish to trade on credit terms are subject to credit verification procedures.  In addition, receivable balances are monitored on an on-going basis to reduce our exposure to bad debts.

We established a credit quality review process to provide regular identification of changes in the creditworthiness of counterparties.  Counterparty limits are established and reviewed periodically based on latest available financial data on our counterparties’ credit ratings, capitalization, asset quality and liquidity.  Our credit quality review process allows us to assess the potential loss as a result of the risks to which we are exposed and allow us to take corrective actions.

Maximum exposure to credit risk of financial assets not subject to impairment

The gross carrying amount of financial assets not subject to impairment also represents our maximum exposure to credit risk as at December 31, 2021 and 2020 are as follows:

	2021		2020
	(in million pesos)
Financial assets at fair value through profit or loss (Note 12)		339		380
Derivative financial assets – net of current portion		48		—
Current portion of derivative financial assets		93		22
Total		480		402

F-186

Maximum exposure to credit risk of financial assets subject to impairment

The table below shows the maximum exposure to credit risk for the components of our consolidated statements of financial position, including derivative financial instruments as at December 31, 2021 and 2020.  The maximum exposure is shown gross before both the effect of mitigation through use of master netting and collateral arrangements.  The extent to which collateral and other credit enhancements mitigate the maximum exposure to credit risk is described in the footnotes to the table.

For financial assets recognized on our consolidated statements of financial position as at December 31, 2021 and 2020, the gross exposure to credit risk equal their carrying amount.

For financial guarantees granted, the maximum exposure to credit risk is the maximum amount that we would have to pay if the guarantees are called upon.  For loan commitments and other credit related commitments that are irrevocable over the life of the respective facilities, the maximum exposure to credit risk is the full amount of the committed facilities.

	2021
	Stage 1 12-Month ECL		Stage 2 Lifetime ECL		Stage 3 Lifetime ECL		Total
	(in million pesos)
High grade		29,251		9,180		—		38,431
Standard grade		556		4,116		—		4,672
Substandard grade		—		8,494		—		8,494
Default		612		3,038		10,797		14,447
Gross carrying amount		30,419		24,828		10,797		66,044
Less allowance		612		3,038		10,797		14,447
Carrying amount		29,807		21,790		—		51,597
	2020
	Stage 1 12-Month ECL		Stage 2 Lifetime ECL		Stage 3 Lifetime ECL		Total
	(in million pesos)
High grade		44,618		8,239		—		52,857
Standard grade		563		4,443		—		5,006
Substandard grade		—		9,371		—		9,371
Default		574		3,960		12,291		16,825
Gross carrying amount		45,755		26,013		12,291		84,059
Less allowance		574		3,960		12,291		16,825
Carrying amount		45,181		22,053		—		67,234

Maximum exposure to credit risk after collateral held or other credit enhancements

Collateral held as security for financial assets depends on the nature of the instrument.  Debt investment securities are generally unsecured.  Estimates of fair value are based on the value of collateral assessed at the time of borrowing and are regularly updated according to internal lending policies and regulatory guidelines.  Generally, collateral is not held over loans and advances to us except for reverse repurchase agreements.  Collateral usually is not held against investment securities, and no such collateral was held as at December 31, 2021 and 2020.

Our policies regarding obtaining collateral have not significantly changed during the reporting period and there has been no significant change in the overall quality of the collateral held by us during the year.

We have not identified significant risk concentrations arising from the nature, type or location of collateral and other credit enhancements held against our credit exposures.

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An analysis of the maximum exposure to credit risk for the components of our consolidated statements of financial position, including derivative financial instruments as at December 31, 2021 and 2020:

	2021
	Gross Maximum Exposure		Collateral and Other Credit Enhancements*		Net Maximum Exposure
	(in million pesos)
Financial instruments at amortized cost:		51,597		513		51,084
Other financial assets		3,307		—		3,307
Debt instruments at amortized cost		607		—		607
Cash and cash equivalents		23,907		127		23,780
Short-term investments		1,986		—		1,986
Corporate subscribers		8,371		379		7,992
Retail subscribers		7,637		7		7,630
Foreign administrations		1,220		—		1,220
Domestic carriers		227		—		227
Dealers, agents and others		4,335		—		4,335
Financial instruments at FVPL:		7,591		—		7,591
Financial assets at FVPL		339		—		339
Short-term investments		255		—		255
Interest rate swap		93		—		93
Long-term currency swaps		48		—		48
Other financial assets		6,856		—		6,856
Total		59,188		513		58,675

* Includes bank insurance, security deposits and customer deposits.  We have no collateral held as at December 31, 2021.

	2020
	Gross Maximum Exposure		Collateral and Other Credit Enhancements*		Net Maximum Exposure
	(in million pesos)
Financial instruments at amortized cost:		67,066		528		66,538
Other financial assets		3,115		—		3,115
Debt instruments at amortized cost		1,153		—		1,153
Cash and cash equivalents		40,237		173		40,064
Short-term investments		508		—		508
Retail subscribers		7,152		18		7,134
Corporate subscribers		8,460		337		8,123
Foreign administrations		1,284		—		1,284
Domestic carriers		165		—		165
Dealers, agents and others		4,992		—		4,992
Financial instruments at FVPL:		7,855		—		7,855
Financial assets at FVPL		380		—		380
Short-term investments		481		—		481
Other financial assets		6,972		—		6,972
Interest rate swap		22		—		22
Financial instruments at FVOCI:		168		—		168
Financial assets at FVOCI		168		—		168
Total		75,089		528		74,561

* Includes bank insurance, security deposits and customer deposits.  We have no collateral held as at December 31, 2020.

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The table below provides information regarding the credit quality by class of our financial assets according to our credit ratings of counterparties as at December 31, 2021 and 2020:  

			Neither past due nor credit impaired				Past due but not
	Total		Class A(1)		Class B(2)		credit impaired		Impaired
	(in million pesos)
December 31, 2021
Financial instruments at amortized cost:		66,044		38,431		4,672		8,494		14,447
Other financial assets		3,919		3,020		287		—		612
Debt instruments at amortized cost		607		607		—		—		—
Cash and cash equivalents		23,907		23,638		269		—		—
Short-term investments		1,986		1,986		—		—		—
Retail subscribers		15,676		5,411		297		1,929		8,039
Corporate subscribers		13,079		2,650		1,044		4,677		4,708
Foreign administrations		1,341		193		486		541		121
Domestic carriers		241		78		46		103		14
Dealers, agents and others		5,288		848		2,243		1,244		953
Financial instruments at FVPL:		7,765		7,467		124		—		174
Financial assets at FVPL		339		215		124		—		—
Short-term investments		429		255		—		—		174
Interest rate swap		93		93		—		—		—
Long-term currency swaps		48		48		—		—		—
Other financial assets		6,856		6,856		—		—		—
Total		73,809		45,898		4,796		8,494		14,621

⁽¹⁾ This includes low risk and good paying customer accounts with no history of account treatment for a defined period and no overdue accounts as at report date; and deposits or placements to counterparties with good credit rating or bank standing financial review.

⁽²⁾ This includes medium risk and average paying customer accounts with no overdue accounts as at report date, and new customer accounts for which sufficient credit history has not been established; and deposits or placements to counterparties not classified as Class A.

			Neither past due nor credit impaired				Past due but not
	Total		Class A(1)		Class B(2)		credit impaired		Impaired
	(in million pesos)
December 31, 2020
Financial instruments at amortized cost:		83,891		52,689		5,006		9,371		16,825
Other financial assets		3,689		2,833		282		—		574
Debt instruments at amortized cost		1,153		1,153		—		—		—
Cash and cash equivalents		40,237		39,956		281		—		—
Short-term investments		508		508		—		—		—
Retail subscribers		17,142		3,263		2,348		1,541		9,990
Corporate subscribers		13,318		3,358		228		4,874		4,858
Foreign administrations		1,520		246		567		471		236
Domestic carriers		226		14		38		113		61
Dealers, agents and others		6,098		1,358		1,262		2,372		1,106
Financial instruments at FVPL:		7,855		7,741		114		—		—
Financial assets at FVPL		380		266		114		—		—
Short-term investments		481		481		—		—		—
Other financial assets		6,972		6,972		—		—		—
Interest rate swap		22		22		—		—		—
Financial instruments at FVOCI:		168		168		—		—		—
Financial assets at FVOCI		168		168		—		—		—
Total		91,914		60,598		5,120		9,371		16,825

⁽¹⁾ This includes low risk and good paying customer accounts with no history of account treatment for a defined period and no overdue accounts as at report date; and deposits or placements to counterparties with good credit rating or bank standing financial review.

⁽²⁾ This includes medium risk and average paying customer accounts with no overdue accounts as at report date, and new customer accounts for which sufficient credit history has not been established; and deposits or placements to counterparties not classified as Class A.

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The aging analysis of past due but not impaired class of financial assets as at December 31, 2021 and 2020 are as follows:

					Past due but not credit impaired
	Total		Neither past due nor credit impaired		1-60 days		61-90 days		Over 91 days		Impaired
	(in million pesos)
December 31, 2021
Financial instruments at amortized cost:		66,044		43,103		4,200		1,278		3,016		14,447
Other financial assets		3,919		3,307		—		—		—		612
Debt instruments at amortized cost		607		607		—		—		—		—
Cash and cash equivalents		23,907		23,907		—		—		—		—
Short-term investments		1,986		1,986		—		—		—		—
Retail subscribers		15,676		5,708		1,484		171		274		8,039
Corporate subscribers		13,079		3,694		2,420		926		1,331		4,708
Foreign administrations		1,341		679		119		55		367		121
Domestic carriers		241		124		47		17		39		14
Dealers, agents and others		5,288		3,091		130		109		1,005		953
Financial instruments at FVPL:		7,765		7,591		—		—		—		174
Financial assets at FVPL		339		339		—		—		—		—
Short-term investments		429		255		—		—		—		174
Interest rate swap		93		93		—		—		—		—
Long-term currency swaps		48		48		—		—		—		—
Other financial assets		6,856		6,856		—		—		—		—
Total		73,809		50,694		4,200		1,278		3,016		14,621
December 31, 2020
Financial instruments at amortized cost:		83,891		57,695		3,090		1,139		5,142		16,825
Other financial assets		3,689		3,115		—		—		—		574
Debt instruments at amortized cost		1,153		1,153		—		—		—		—
Cash and cash equivalents		40,237		40,237		—		—		—		—
Short-term investments		508		508		—		—		—		—
Retail subscribers		17,142		5,611		884		348		309		9,990
Corporate subscribers		13,318		3,586		1,606		559		2,709		4,858
Foreign administrations		1,520		813		144		70		257		236
Domestic carriers		226		52		31		10		72		61
Dealers, agents and others		6,098		2,620		425		152		1,795		1,106
Financial instruments at FVPL:		7,855		7,855		—		—		—		—
Financial assets at FVPL		380		380		—		—		—		—
Short-term investments		481		481		—		—		—		—
Other financial assets		6,972		6,972		—		—		—		—
Interest rate swap		22		22		—		—		—		—
Financial instruments at FVOCI:		168		168		—		—		—		—
Financial assets at FVOCI		168		168		—		—		—		—
Total		91,914		65,718		3,090		1,139		5,142		16,825

Capital Management Risk

We aim to achieve an optimal capital structure in pursuit of our business objectives which include maintaining healthy capital ratios and strong credit ratings and maximizing shareholder value.

Our approach to capital management focuses on balancing the allocation of cash and the incurrence of debt as we seek new investment opportunities for new businesses and growth areas.  On August 5, 2014, the PLDT Board of Directors approved an amendment to our dividend policy, increasing the dividend payout rate to 75% from 70% of our core EPS as regular dividends.  However, in view of our elevated capital expenditures to build-out a robust, superior network to support the continued growth of data traffic, plans to invest in new adjacent businesses that will complement the current business and provide future sources of profits and dividends, and management of our cash and gearing levels, the PLDT Board of Directors approved on August 2, 2016, the amendment of our dividend policy, reducing the regular dividend payout to 60% of core EPS.  In declaring dividends, we take into consideration the interest of our shareholders, as well

F-190

as our working capital, capital expenditures and debt servicing requirements.  The retention of earnings may be necessary to meet the funding requirements of our business expansion and development programs.

As part of the dividend policy, in the event no investment opportunities arise, we may consider the option of returning additional cash to our shareholders in the form of special dividends or share buybacks.  Philippine corporate regulations prescribe, however, that we can only pay out dividends or make capital distribution up to the amount of our unrestricted retained earnings.

Some of our debt instruments contain covenants that impose maximum leverage ratios.  In addition, our credit ratings from the international credit ratings agencies are based on our ability to remain within certain leverage ratios.

No changes were made in our objectives, policies or processes for managing capital during the years ended December 31, 2021, 2020 and 2019.

29. Notes to the Statements of Cash Flows

The following table shows the changes in liabilities arising from financing activities as at December 31, 2021 and 2020:

	January 1, 2021		Cash flows			Foreign exchange movement			Others			December 31, 2021
	(in million pesos)
Interest-bearing financial liabilities (Note 21)		222,765		28,538			2,440			(1,186	)		252,557
Lease liabilities (Notes 3 and 10)		20,025		(6,547	)		—			8,208			21,686
Derivative financial liabilities		536		(25	)		—			(296	)		215
Accrued interests and other related costs (Note 24)		1,872		(8,922	)		—			8,833			1,783
Dividends (Note 20)		1,194		(17,712	)		—			18,226			1,708
		246,392		(4,668	)		2,440			33,785			277,949
	January 1, 2020		Cash flows			Foreign exchange movement			Others			December 31, 2020
	(in million pesos)
Interest-bearing financial liabilities (Note 21)		192,556		31,979			(1,917	)		147			222,765
Lease liabilities (Notes 3 and 10)		16,315		(5,781	)		—			9,491			20,025
Derivative financial liabilities		113		(430	)		—			853			536
Accrued interests and other related costs (Note 24)		1,531		(8,348	)		—			8,689			1,872
Dividends (Note 20)		1,584		(16,721	)		—			16,331			1,194
		212,099		699			(1,917	)		35,511			246,392

Others include the effect of accretion of long-term borrowings, effect of recognition and accretion of lease liabilities, effect of accrued but not yet paid interest on interest-bearing loans and borrowings and accrual of dividends that were not yet paid at the end of the period.

F-191

Non-cash Investing Activities

The following table shows our significant non-cash investing activities and corresponding transaction amounts as at December 31, 2021 and 2020:

	2021		2020
	(in million pesos)
Acquisition of property and equipment on account		23,522		9,992
Additions to ROU assets (Note 10)		7,314		9,335
Capitalization to property and equipment of:
Inventories		5,989		3,934
Borrowing costs (Notes 5 and 9)		1,582		1,597
Foreign exchange differences – net (Note 9)		29		—
Fair value adjustments of property and equipment		—		18
		38,436		24,876

Non-cash Financing Activities

The following table shows our significant non-cash financing activities and corresponding transaction amounts as at December 31, 2021 and 2020:

	2021		2020
	(in million pesos)
Additions to lease liabilities (Note 10)		7,314		11,122

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Item 19. Exhibits

See Item 18. “Financial Statements” above for details of the financial statements filed as part of this annual report.

Exhibits to this report:

EXHIBIT INDEX

Exhibit Number	Description of Exhibit
1(a)	Amended Articles of Incorporation (as amended on June 9, 2020) (incorporated by reference to PLDT’s Form 20-F as filed with the Securities and Exchange Commission on April 23, 2021)
1(b)	Amended By-Laws (as amended on August 30, 2016) (incorporated by reference to PLDT’s Form 20-F as filed with the Securities and Exchange Commission on April 27, 2017)
2(a)	We have not included as exhibits certain instruments with respect to our long-term debt, the amount of debt authorized under each of which does not exceed 10% of our total assets, and we agree to furnish a copy of any such instrument to the Securities and Exchange Commission upon request.
2(b)*	Description of rights of each class of securities registered under Section 12 of the Securities Exchange Act of 1934
4(a)	Stock Purchase and Strategic Investment Agreement, dated September 28, 1999, by and among PLDT, First Pacific Limited, Metro Pacific Corporation, Metro Pacific Asia Link Holdings, Inc., Metro Pacific Resources, Inc. and NTT Communications Corporation (incorporated by reference to PLDT’s Form 6-K for the month of September 1999) (P)
4(b)	Executive Stock Option Plan (incorporated by reference to PLDT’s Form 20-F as filed with the Securities and Exchange Commission in May 2001) (P)
4(c)	Master Restructuring Agreement, dated June 21, 2000, as amended on December 12, 2000 and December 19, 2000, between PCEV, PCEV (Cayman) Limited, PLDT, The Chase Manhattan Bank, as escrow agent, Metropolitan Bank and Trust Company, as administrative agent and the creditors named therein (incorporated by reference to PLDT’s Form 20-F as filed with the Securities and Exchange Commission in May 2001) (P)
4(d)	The Cooperation Agreement, dated January 31, 2006, entered into by and among PLDT, First Pacific, Metro Pacific Corporation, Metro Asia Link Holdings, Inc., Metro Pacific Resources, Inc., Larouge B.V., Metro Pacific Assets Holdings, Inc., NTT Communications and NTT DOCOMO (incorporated by reference to Schedule 13D/A (Amendment No. 2) as filed with the United States Securities and Exchange Commission by Nippon Telegraph and Telephone Corporation and NTT Communications Corporation on January 31, 2006)
4(e)	Sale and Purchase Agreement, dated May 30, 2016, by and among San Miguel Corporation, Philippine Long Distance Telephone Company, Globe Telecom, Inc., and Vega Telecom, Inc. (incorporated by reference to PLDT’s Form 20-F as filed with the Securities and Exchange Commission on April 27, 2017)
4(f)	First Amendment to the Sale and Purchase Agreement, dated July 26, 2016, by and among San Miguel Corporation, Philippine Long Distance Telephone Company, Globe Telecom, Inc., and Vega Telecom, Inc. (incorporated by reference to PLDT’s Form 20-F as filed with the Securities and Exchange Commission on April 27, 2017)
4(g)	Sale and Purchase Agreement, dated May 30, 2016, by and among Grace Patricia W. Vilchez-Custodio, Philippine Long Distance Telephone Company, Globe Telecom, Inc., and Brightshare Holdings Corporation. (incorporated by reference to PLDT’s Form 20-F as filed with the Securities and Exchange Commission on April 27, 2017)
4(h)	Sale and Purchase Agreement, dated May 30, 2016, by and among Schutzengel Telecom, Inc., Philippine Long Distance Telephone Company, Globe Telecom, Inc., and Bow Arken Holding Company, Inc. (incorporated by reference to PLDT’s Form 20-F as filed with the Securities and Exchange Commission on April 27, 2017)
8*	Subsidiaries
12.1*	Certification of CEO required by Rule 13a-14(a) of the Exchange Act

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Exhibit Number	Description of Exhibit
12.2*	Certification of the Principal Financial Officer required by Rule 13a-14(a) of the Exchange Act
13.1*	Certification of CEO required by Rule 13a-14(b) of the Exchange Act
13.2*	Certification of the Principal Financial Officer required by Rule 13a-14(b) of the Exchange Act
101.INS	Inline XBRL Instance Document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document

*Filed herewith

(P) – Paper filings

167

SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

April 6, 2022
	PLDT INC.
	By:	/s/ Marilyn A. Victorio-Aquino
		MARILYN A. VICTORIO-AQUINO
		Chief Legal Counsel

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