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Globe Telecoms Q4 profits down 29% on marketing cost spike February 10, 2012

Globe Telecom, Inc. saw its profits tumble by double-digits in the fourth quarter from year ago levels due to steeper marketing expenses following the merger of its two rivals.

Globe Telecoms core net income dropped 28.8% to P1.85 billion from P2.6 billion in the same period in 2010, a statement released on Friday showed. Marketing spending was higher to kick off the companys 2012 sales programs and to counter the increased marketing push of competition during the period, the statement read. Service costs were also higher in the fourth period on account of the various professional, advisory, and legal fees associated with the network modernization program, it added.

Philippine Long Distance Telephone Co. (PLDT) received regulatory approval to take over a controlling stake in Digital Telecommunications Philippines, Inc. for P69.2 billion in October. PLDT unit Smart Communications, Inc. then launched an iPhone subscription plan, which until then had been available exclusively from Globe Telecom. Globe Telecoms financial statements were not immediately made available. Its fourth quarter performance brought full year profit results to P10 billion in 2011, up by 11% from the year previous. The increase was attributed to an all-time high service revenues from mobile and broadband. Revenues grew by 9% to P67.8 billion from the P62 billion it previously posted. Operating expenses for 2011 was recorded at P32.7 billion from P29 billion.

Bulk of the growth came from the broadband business segment which posted a 30% increase in revenues to P7.5 billion last year. The mobile business segment, which includes both post-paid and pre-paid cell phone subscribers, rose 8% to P54 billion. The Ayala-led telco went on to declare a cash dividend of P32.50 per share payable on March 16 to shareholders. Only shareholders of record as of February 24 will be given the dividends. Globe Telecom said it has programmed up to $800 million in capital expenditures for 2012, an amount which includes spending on the upgrading of its information technology system. To fund its capex for 2012, Globe Telecom will undertake a P15 billion retail bond program which will provide the company with the option to tap the retail market in one or more tranches over the next 12 months. Shares of Globe Telecom closed at P1,148 apiece, up 0.087% on Friday.

Overview Globe recognizes the importance of good governance in realizing its vision, carrying out its mission, and living out its values to create and sustain increased value for all its stakeholders. The impact of global conditions and challenges further underscores the need to uphold the Company's high standards of corporate governance to strengthen its structures and processes.

As strong advocates of accountability, transparency and integrity in all aspects of the business, the Board of Directors ("Board"), management, officers, and employees of Globe commit themselves to the principles and best practices of governance in the attainment of its corporate goals.

The basic mechanisms for corporate governance are principally contained in the Company's Articles of Incorporation and By-Laws. These documents lay down, among others, the basic

structure of governance, minimum qualifications of directors, and the principal duties of the Board and officers of the Company.

The Company's Manual of Corporate Governance supplements and complements the Articles of Incorporation and By-Laws by setting forth the principles of good and transparent governance. In 2009, the Company commissioned a review of the manual to update and improve it. This review was completed in February 2010 and new provisions have been incorporated in the manual to conform with SEC Memorandum Circular No. 6, Series of 2009Revised Code of Corporate Governance. The Board Committee Charters were also revisited to align with the Company's revised Manual of Corporate Governance.

The Company has likewise adopted a Code of Conduct, Conflict of Interest, and a Whistleblower Policy, and has existing formal policies concerning Unethical, Corrupt and Other Prohibited Practices covering both its employees and the members of the Board. These policies serve as guide to matters involving work performance, dealings with employees, customers and suppliers, handling of assets, records and information, avoidance of conflict of interest situations and corrupt practices, as well as the reporting and handling of complaints from whistleblowers, including reports of fraudulent reporting practices.

Moreover, the Company adopted an expanded corporate governance approach in managing business risks. A Revised Enterprise Risk Management Policy was developed to provide a better understanding of the different risks that could threaten the achievement of the Company's vision, mission, strategies and goals. The policy also highlights the vital role that each individual plays in the organization from the Senior Executive Group (SEG) to the staff - in managing risks and in ensuring that the Company's business objectives are attained.

New initiatives are regularly pursued to develop and adopt corporate governance best practices, and to build the right corporate culture across the organization. In 2010, Globe participated in various activities of the Institute of Corporate Directors (ICD), Philippine Stock Exchange (PSE) and the Philippine Securities and Exchange Commission (SEC) to improve corporate governance practices and refine the corporate governance self-rating system and scorecard used by publicly listed companies to assure good corporate governance.

HISTORY In 1928, Congress passed Act No. 3495 granting the Robert Dollar Company, a corporation organized and existing under the laws of the State of California, a franchise to operate wireless long distance message services in the Philippines. The Robert Dollar Company subsequently incorporated in the Philippines as Globe Wireless Limited and in 1934, Congress passed Act No. 4150 transferring the franchise and privileges of the Robert Dollar Company to Globe Wireless Limited. Globe Wireless Limited was subsequently renamed Globe Mackay Cable and Radio Corporation. Congress, through Republic Act 4630 enacted in 1965, further expanded its franchise to allow it to operate international communications systems. Globe Mackay Cable and Radio Corporation were closed in the Philippines by Martial law. Shortly before the expiration of its franchise, the Batasan Pambansa in 1980 enacted Batas Pambansa 95 granting Globe Mackay Cable and Radio Corporation a new franchise. On June 15, 1990, Isla Communications Co., Inc. (Islacom) was incorporated. Through Republic Act 7372, Islacom was authorized to develop full-service telecommunications network in the country. In 1991, Globe Mackay was subsequently merged with the Clavecilla Radio Corporation. Globe Mackay as the surviving company was renamed GMCR, Inc. and on March 19, 1992, the Philippine Congress passed Republic Act 7229 approving the merger and the transfer of the franchise of Clavecilla Radio Corporation to the surviving company to be renamed GMCR, Inc.

In 1994, Islacom launched the country's first digital mobile communication services using GSM world standard digital technology. On August 20, 1998, the Philippine Securities and Exchange Commission (SEC) approved the change of name of GMCR, Inc. to Globe Telecom, Inc. (Globe). On February 22, 2000, Globe and its principal shareholders Ayala Corporation (AC) and Singapore Telecom International Pte. Ltd. (STI), a wholly owned subsidiary of Singapore Telecom (ST), and Islacom and its principal shareholders Asiacom Philippines, Inc. (Asiacom) and DeTeAsia Holding GmbH (DeTeAsia), a wholly owned subsidiary of Deutsche Telekom AG (DT), entered into a general agreement for a combination of the business and operations of Globe and Islacom.

On June 27, 2001, Globe completed the share swap transaction with Islacom, which effectively made Islacom a 100%-owned subsidiary of Globe. In September 2002, Globe announced the operational integration of Globe and Islacom's wireless networks. A key element of the integration involves the migration of existing wireless subscribers of Islacom to the improved Touch Mobile (TM) service. On August 7, 2003, the National Telecommunications Commission (NTC) approved the legal transfer of Globe's wire line business, authorizations, properties, assets and obligations to Islacom. On August 25, 2003, the SEC approved the change in name of Islacom to Innove Communications, Inc. (Innove). On March 30, 2007, Globe Telecom, through its president and chief executive Gerardo Ablaza Jr. said it is diversifying from its core business to take advantage of the booming broadband business. Ablaza said the company would increase its investments in cable systems and wire lines to build its broadband Internet infrastructure. Industry analysts have viewed Globe's plan to invest in cable systems as a strategy to compete more aggressively with Philippine Long

Distance Telephone Company (PLDT), which took advantage of its wire line infrastructure to diversify into broadband business


Globe has rolled out Globe broadband powered by WiMAX (Worldwide interoperability for Microwave Access). Globe's network is considered the first and biggest 2.5 GHz WiMAX (802.16e) broadband network in South East Asia. It is first in the Philippines to commercially launch a consumer WiMAX offering. Currently, Globe has around four thousand subscribers on its WiMAX network, after only a few weeks. The service is initially available in selected areas in South Luzon, Metro Manila, Visayas and Mindanao. Globe continues to roll-out WiMAX sites, as a complement to its existing DSL and 3G Internet facilities, to ensure the internet gets to every Filipino who needs it. Globe is providing WiMAX to selected local community government offices

in Cavite, Batangas and Cagayan de Oro City. Globe is also providing Internet access via WiMAX to selected schools and city hospitals in Mindanao as part of its thrust of community service to the marginalized areas. Globe has been expanding its wireless broadband network to accommodate the increasing demand for the Internet. In 2009, Globe introduced Globe Tattoo and Globe broadband powered by WiMAX (Worldwide interoperability for Microwave Access). In June 2009, the company launched hyper-speed plans via fiber-to-the-home technology. Globe Telecom brought iPhone 3G to the Philippines on August 22, 2008. With Globe broadband Tattoo, users can experience speeds of up to 2 Mbit/s, delivered via 3G and High-Speed Downlink Packet Access (HSDPA).

SulitChat is Globe's messaging offer to subscribers who never want to be disconnected from their chatmates and/or textmates. It allows them to continue sending messages complete with emoticons even in the absence of a laptop or personal computer. GCASH Remit, remittances delivered straight to Globe or TM phone in response to Filipino expatriates and overseas Filipino workers growing needs. GCASH Click answered the need for a more secure mode of payment for Internet buys. Its a new payment option for merchants and consumers transacting on the web, which assures security and confidentiality. Duo allows subscribers unlimited calling to and from any landline number, as well as, unlimited calling to and from any Globe DUO postpaid mobile subscriber. Super Duo is an upgrade of the Globe Duo service. It is an unlimited mobile-to-landline call service, which also enables subscribers to make unlimited calls to any Globe, TM and Tattoo mobile numbers within the Philippines. Super Surf is an unlimited mobile Internet browsing service which enables subscribers to gain unlimited access to surf, e-mail, chat and blog from mobile phones, laptops or desktop computers. Super Unli is a service that provides unlimited Globe to Globe/Tattoo/TM text and calls for 7 days or 1 day. Globe IPv6-in-IPv4 Tunnel Service is a service that provides public access to IPv6 websites.

COMPANY ANALYSIS According to the consolidated - Non-Audited financial statement for the first three cumulated quarters of 2011, total net operating revenues increased with 9.30%, from PHP 48,882,187 thousands to PHP 53,429,396 thousands. Operating result increased from PHP 10,701,406 thousands to PHP 14,652,234 thousands which means 36.92% change. The results of the period increased 6.72% reaching PHP 7,948,150 thousands at the end of the period against PHP 7,447,480 thousands last year. Return on equity (Net income/Total

equity) went from 16.66% to 17.04%, the Return On Asset (Net income / Total Asset) went from 5.69% to 6.19% and the Net Profit Margin (Net Income/Net Sales) went from 15.24% to 14.88% when compared to the same period of last year. The Debt to Equity Ratio (Total Liabilities/Equity) was 175.40% compared to 192.77% of last year. Finally, the Current Ratio (Current Assets/Current Liabilities) went from 0.57 to 0.55 when compared to the previous year. MANAGEMENT

The President & CEO, guided by the Company's vision, mission, and values statements, is accountable to the Board for the development and recommendation of strategies, and the execution of the defined strategic imperatives. The President & CEO is assisted by the heads of each of the major business units and support groups. The Office of Strategy Management (OSM) reports to the President & CEO and oversees the Company's strategy management processes from strategy formulation, translation to executable plans, horizontal alignment of business objectives across the organization, to execution and performance tracking linked to the Company's rewards system.Every year, the Company reviews and formulates its strategic priorities which then guide the formulation of the key business strategies and goals for the year. Using the balanced scorecard framework, each business group identifies financial and nonfinancial objectives, and sets targets and initiatives to achieve them as reflected in the groups' Terms of Reference (TOR). To ensure line of sight, the group TORs are cascaded to all employees, making sure that everyone understands and appreciates their contribution to the group goals. This helps in developing individual performance plans that are aligned with the key

strategies. Rewards and incentives are given based on the achievement of the committed group and individual targets. Key programs, projects, and major organizational initiatives are taken up at the SEG, composed of the President and CEO, as well as the heads of each of the major business units and support groups. All budgets and major capital expenditures must be approved in accordance with the Company's limits of authority and by the CEO prior to endorsement to the Board for approval. The Chief Operating Adviser and Chief Legal Adviser also provide inputs to the SEG as required. The SEG meets at least once a week.Management is mandated to provide complete and accurate information on the operations and affairs of the Company in a timely manner. Management is also required to prepare financial statements for each preceding financial year in accordance with Philippine Financial Reporting Standards (PFRS). Management's statement of responsibility with regard to the Company's financial

statements is included in this annual report. The annual compensation of the key officers of the Company, including the President & CEO, is disclosed in the Definitive Information Statement distributed to the shareholders. The total annual compensation includes the basic salary, guaranteed bonuses, fixed allowances, and variable pay (performance-based annual incentive).


The continuous effort of Globe in strengthening the Companys good governance and practices led to several citations and awards.In May 2010, the Institute of Corporate Directors (ICD) conferred Globe Telecom the Gold award as one of the top 15 highest scorers at 95 percent and above among publicly listed companies in the 2009 Corporate Governance Scorecard. This is a joint project of ICD with the Securities and Exchange Commission, Philippine Stock Exchange, Institute of Internal Auditors of the Philippines, Ateneo Law School, and Center for International Private Enterprise.Globe also bagged seven awards out of the nine sectors in the 10th Annual Poll of Philippine Top Companies by Finance Asia, a leading financial publishing company in Asia with bureaus in Hong Kong, Singapore, and Sydney. Among the distinctions received are second place in Best Managed Company and Best in Corporate Governance categories, second place in terms of the Most Committed to a Strong Dividend, third in Investor Relations, and eighth in Corporate Social Responsibility. Also, Ernest L. Cu, Globe President and CEO was adjudged Best CEO along with Globe Chairman and Ayala CEO Jaime Augusto Zobel de Ayala, while Alberto de Larrazabal, Globe CFO was hailed Best CFO. These honors affirm the Companys deliberate commitment to the principles of good governance and transparency with its key stakeholders while it constantly find ways to improve the business given the challenging times.

Case Analysis
I. II. III. Viewpoint Marketing Manager Time Context - February 12, 2012 Statement Of The Problem How will Globe Telecom reduce its marketing expense in year 2012? Statement Of The Objective To implement cost-efficient strategies and provide good customer service



Areas Of Consideration Strength: 1. Has large quantity of advertisements 2. The ability to be competitive by learning from past failures. Weakness 1. Poor reception in some places 2. Globes products are offered at a high price. Opportunities 1. Globe seeks a lot of opportunities that utilizes their strengths of innovation. 2. Availability of Latest technology

Threats 1. Globe Telecom has been competing with two of the top three service providers in the Philippines. With Smart and Sun joining forces, globe faces a much tougher competition.


Alternative Courses Of Action

1. Use Guerilla marketing to reduce cost while still gaining profit 2. Increase use of Telecommuting 3. Eliminate unprofitable products


Analysis Alternative Courses of Action 1. Use Guerilla marketing to reduce cost while still gaining profit Advantage: Less cost Disadvantage: Risk of not being successful 2. Increase use of Telecommuting Advantage: Improves productivity from time saved Disadvantage: Loss of brainstorming ability 3. Eliminate unprofitable products Advantage: Cost Efficient Disadvantage: reduce variety of products that can be offered to the market.

Legend: 1(lowest) 3(Highest) ACA 1 Cost Efficient Feasible Effectiveness 3 3 3 1 2 2 ACA 2 2 1 1 ACA 3



Based from the matrix above, ACA 1 got 9 points therefore it will be the chosen ACA.


Plan Of Action

Activity Conduct a Meeting Planning of necessary

Persons Responsible Marketing Department Marketing Department

Time Frame February 13, 2012 February 14, 2012

actions and strategies Assigning specific tasks to different people Implementation of the Project head February 22,2012 Project head February 15,2102

new strategies in guerilla marketing