Earnings Call: Q4 2020

Feb 15, 2021

Good afternoon, ladies and gentlemen, and welcome to Exel Axiata Earnings Conference Call for the 2020 Financial Year ended 31st December. My name is Rohit, and I'll be your coordinator today. During the presentation, all participants are in a listen only mode. Instructions will be given on how to register your questions when we get to the question and answer session. As a reminder, this conference is being recorded for replay purposes. Now we would like to turn the conference over to our host, Mr. Inder. Please proceed, sir. Thank you, Rohit. Apologies, everyone, for a bit of delayed time. Good afternoon, and welcome to the call today. On behalf of the Exel management team, I would like to thank all of you for taking the time to join us today. With us on the call, we have Uzi Liang, our Chief Executive Officer Paah Budi, our Chief Financial Officer Paah David, our Chief Commercial Officer for Mobile and Paah Abu Jit, our Chief Commercial Officer for Enterprise and Home. Now, Evidian will share the highlights of 2020, which will then be followed by the Q and A session. Thank you, Inder, and good afternoon, everyone. As well as the aggressive price competition in the market. It is new to our focus in executing our strategy 2018. We feel like 30 months of data due to the increasing digitalization of daily life and SME region's continued over the same period due to the revenue increase and cost efficiencies as well as FSS system reduction, with EBITDA margins now above 50%. We continue to be net profit positive, which is in line with our focus and profitability and results to create sales of our stakeholders. Including the ability of fixed unlimited plans across the This compounded by the steel rich Indonesian economy is expected to continue to see slow growth in the first half of twenty twenty one and this year also has negative impact on industry. Mark Law and segment continued to see weak demand because of the COVID-nineteen impact with many businesses struggling. So, the cast and Panasonic writing taking its focus on consumer spending. Despite this past entire month, the growth we have recorded this year is due to the structural nuance of data, but also the result of the measures we have put in place to ensure our business continues to perform well in the life of 2019 and its impact to the business environment. These steps will benefit us beyond the short term. To ensure that we can use the challenging debt industry status today. This year, Our distribution has been achieved to digital with more products being sourced online and through our own channel. With our recent app, which is MyExcel and AccessNet. Both tracking risk protection from all customers with 11,000,000 active users and increased revenue contribution from these 10 months. This will be key going forward will allow us to offer customized products, channel trends and increased customer care interaction as well At such point, our exposure is increasing the revenue we generate from this channel. On the analytics 5, we have further improved our capabilities in the year 2020 by establishing across functional teams to drive analytics different digital marketing across business functions. This allows us to improve our dynamic pricing model and customer service management in our hearing channel as well as our omni channel offering and increasing its contribution to our revenue to around 25% in 2020. Our investments that we have made our dividend in response and direct in line with what we have been in service trial. In 2021, and ensure that we can continue to grow and gain a return for our stakeholders. With our BDC account now about 144,000. BDC is 158,000 for BDC namely the accelerated growth of data proceeds to ensure our customers will continue to enjoy this network experience. Our balance sheet is strong with net debt to EBITDA of 1x. We have more U. S. Dollar debt, and we have also secured committed facilities with the bank that we can pass any time to see its additional findings. It is important today to deepen the uncertainty in the coming quarters because of the ongoing pandemic. Also, our results are positive so far. With the opportunities in the medium long term, every month of data continues to grow with an integrated digital way operating strategy. Productive consolidation will also be affected if this happens. Asset will reduce the competitive intensity and increase the pricing dynamics due to less players in the market. The only backlog is hedged at the end of last year to also develop the positive feedback for the market. As we are seeing a decreasing amount of 3 gs traffic this year, with and of our busy assets. Taking a one off differentiation chart to reflect that. This makes our assets less more reflective of of the underlying earnings release and this year we did our depreciation chart next going forward and to better improve our profitability. We have also started building a share and leaseback of our key concern sites this past quarter. We have both completed the sale of Bharat, can we have the Q and A? Certainly, sir. Ladies and gentlemen, we will now begin the question and answer session. To cancel, please press the pound or hash key. Please kindly, but strictly limit your questions to only 2 and to allow other participants to raise their questions. We shall end the conference call sharp at 3 pm Jakarta time. Kindly note as there might be a slight pause as the questions have been collected. We have the first question coming from the line of Piyush Choudhary from HSBC. Two questions, please. Firstly, could you comment on the growth outlook for the ex Java region and whether ex Java regions are EBIT positive? If not, then what is the level of EBIT losses right now in ex Java? Secondly, what is the expected time line for 3 gs shutdown? And are there any more write downs asset write downs left? Thank you. Okay. So David here. I will take your first question regarding the growth in Exjabas. So 2020, we have grown both in Java and ex Java in the full year. The ex Java growth has been one order of magnitude higher and several times higher, as you can imagine. Now the Q4 has been negative, has been declined for both areas because the Competitive aggressiveness and the market visibility has been all over Indonesia. But again, the Xyaba has behaved much better performance. So far, we have a better performance than the other one. I will answer the second. I think it's the ex Japa whether it's making loss or making profit. We don't really disclose the 2nd year. I'm sorry, there is a lot of echo in the noise. We can't I can't understand properly. Sorry, the line is not very clear. Yes. Is it more clear now? Can you hear it better? Little better, but there's also echo in the background. Okay. So I don't think I can do anything regarding that, regarding the echo. So shall we try I will answer again. I'll let Trevor this can work. Otherwise, I will find someone from technical in order to see whether we can do something. Okay. Okay. Anyways, so I was talking about the Java Texliagua. So for 2020, we have grown both areas having positive growth. Ex Java has grown 1 quarter of magnitude higher and several multiples, as you can imagine, rather than Java. So the revenue growth has been in both areas, but with ex Java, one order of magnitude bigger. Now quarter 4 has been declined for also for both areas, although Exxiala has performed almost flat, so has been a slight decline and Exxiala has been the one who has declined a little bit further. So overall, both in quarter 4 In 2020, the Exiava performance has been significantly better and Yes, it's been much better than the other one. Now regarding the profitability, I'm going to let Faburi, our CFO, to answer it. Yes, it's better than before. Thank you. Okay, okay. Yes. Okay. I would like to answer that question related to Exadata's profitability. We don't really disclose the details, but just to give the final call, at Yahoo! I suppose not yet in a positive position, but there are various investments that we did since 2017 or we start profit above in the positive numbers because we will continue investing in Next Data. As we discussed before, we continue with our earlier growth to continue looking at the PayTech and return. In Ex Java, we've been aiming for a reason between 3 to 4 years, from 3 years in our oil approach in Ex I hope I answered your question. And the second question related to 3 gig pipeline timeline, There are 2 things industry we are done, the adoption of the market and also our own effort. So, this is the timeline for what we're going to do with shutdown. But at the beginning deadline, we're looking at 1 to 2 years horizon, maximum to 2.5 years. Those are the guidelines that we're looking at. Again, the reality is when we're going to shut down depending on area by area, whether the adoption in the market on the 4 gs is there or whether Sure. Thanks a lot. Thank you. We have the next question. This is coming from the line of Arthur Pineda from Citigroup. Please go ahead. Hi, thanks for the opportunity. Two questions. First, on the revenue side, what's driving the drop in revenues Q on Q In the Q4, it seems like ARPUs have contracted as well. Is this more macro driven? Or are you seeing escalated competition impacting you in this sense. 2nd question I had is with regards to the dividend policy. If you could remind us what the policy is, please. The free cash flow is quite high and the balance sheet is undergeared. What are the expectations on the dividends? Thank you. So I will So the revenue and the ARPU you're asking. So I think there have been a couple of factors, 2, 3 factors that have affected this. 1, as you mentioned, is the macroeconomic situation. So I think the pandemic is having this impact and the economy is sharpened. So I think that's a good event for everybody. Now on top of that, I think there have been another 2 additional factors that have impacted our performance. The first one is the competition aggressively. So as we have talked, we have the incumbents who have changed their commercial strategy quite radically, entering all the unlimited and the low denomination packages with very, very aggressive prices. So I think that was one of the things that happened. There was another thing that was the government school program, which via the subsidy, we also lost Some of the ARPU of our own customers plus it had impact on some of the customers that we have that now are due as seamless and the ARPU also decreased. So I think those two factors, the competition aggressiveness and the free program subsidized by the government on top of the pandemic or the macro factor are the main reasons of our decline in quarter 4. I think that was for the first question. I will let Abhuri answer the dividend policy. Okay. On the dividend, we still are doing the same thing right before. Our dividend policy basically is 30% of our normalized net income of prior year. For 2020, our profit was 3.17 Hello? Sorry, we lost the line. Sorry, yes. Can you hear me now? Yes, yes. Sorry, could you start from the beginning, please? Sorry, the line was pretty bad. Yes, yes. Our dividend policy is the same like last time. It's 30% of normalized net income of prior year. For our 2020 net income, 30%, correct, 30% Okay. Understood. Did Can you hear me? Yes, yes. So even with the free cash flow being relatively high and the balance sheet at is 0.5x net debt to EBITDA. There is no initiative to revise the outlook on this? Yes. I guess, as a listed company, follow the company policy and it changes we need to go to the ATM. So right now, that's the policy. And looking at the current situation, we can looking at the final decision on that digital distribution. Understood. Thank you. Yes. Okay. Shall we move to the next question, sir? All right. The next question comes from the line of pardon me, sir, shall we move to the next one? Yes. Next question, please. The next one comes from the line of Sachin Mitchel from DBS. Go ahead. Hi, thank you. Two questions. We saw data yield declined almost 11% quarter on quarter to almost 3.9 percent per MB. So question is, which are the plans which you had launched, which actually kind of took brought the data yield so low. And again, the question the big question is, are we seeing a bottoming out of the Or are we seeing that your plans have full impact in the quarter or no? Those new plans, which you have launched, will continue to impact Full quarter contribution will be in the upcoming quarters? That's question number 1. Secondly, assuming that the Competition stays at the current levels. What are your expectations of the industry growth for revenue for FY 2021 and for yourself? Anything any color will be good. Thank you. So David here. I will answer the 2 questions. So regarding the first one, you are talking about the ARPU on the data yield decrease. So again, here, I think there have been a couple of factors that have affected me, right? So Again, one is the macro math, especially the competition and the split program subsidized by the government. The school program, as you know, is a program where the data package is high, it's big and the yield is very low, which has driven down our data yield. So the government package, the school government package has had impact in declining our yield. It also had an impact in the ARPUs. Why? Because you will see that many of the papers, I am sure that during this Quarter 4, we announced increase of a number of SaaS. That means that the number of new consumers has increased, mainly according to our analysis because of this split program. This has also had an impact in the ARPU going down. So those are really the 2 extreme drivers of the impact in both the ARPU and the data yield. In any case, we have already internalized it. So and we have also learned from the 3rd fiscal program. So we believe that the impact moving forward for us is going to be more or less neutral. So that's regarding the first question. Regarding the second question, it's a double right. So competition in 2021 has started aggressive. It's not our willingness or plan to enter in a price war and start decreasing prices. We are going to move in a direction that is going to be, number 1, the granularity. So we will analyze city per city what is the best strategy to follow. Number 2, we will be focused a lot in our own and CVN capabilities, so our own customer and optimization app and app compensation in order to focus on that. Now what is our given that, that is the current context, what is Our perspective on the market, we believe that the first half will be fast. So we expect that There will be a slight mild growth during the first half because of 2 reasons again. 1 will be the pandemic, but Still, it's the impact is big and the competition that is still also under high pressure. We believe that during the second half, probably this can release a little bit, both because economical situation can improve and also because of some external factors as potentially industry consolidation or competition Thank you. We have our next question. This is coming from the line of Jonquing Chong from CIMB. Please go ahead. Hi, this is Phong here. Thank you so much for the call. Two questions from me. Firstly, I wanted to ask about the EBITDA margin guidance of low 50s, which suggests that you're expecting some further improvement against last year's margins. Is that largely some growth is that largely due to some growth in revenue and stable absolute costs? Or are you also expecting some decline in the absolute cost itself? And secondly, on CapEx, I'm glad to see that it's staying at around the INR 7,000,000,000,000 Rupiah Mark. But I wanted to understand what were some of the considerations around setting this CapEx budget. Have we rolled out fairly extensive 4 gs coverage already? Are we fairly comfortable with our network quality even though Indosat and Hutch are catching up and potentially the combined network could improve once the merger goes through. So I just want to get your thinking around why you're keeping the CapEx around RMB 7,000,000,000,000 although I'm happy to see that number. Thank you. Thank you, Paul. Thanks for the questions. Let me try to answer your first. So the first one, with respect to Our EBITDA margin that line, right, the low 50%. So We confidently will take those figures because we see a few areas on cost savings are mainly on for example, like our big premium. We have around 30% of our power will be due in the next few years. We also expect some hedging on other area like sales and marketing, because we grow more digital as Seth mentioned. There are also some upside, unfortunately, mainly on the 2020 fee. As you know, we just extend another 10 years of our spectrum and the fee has been increased by approximately by around 10%. So this index of our operating margin. Okay, on the second question related to our CapEx pipeline, 2nd period, Whether it's enough or not, I think that's many of your questions. For us, we still believe that that we've been trying to quote as a guideline. So the CapEx will be focusing on network and as well as other businesses that we have. I hope that I answered your question, Pankaj. And also another point on that $7,000,000,000 we will continue with our strategy on Exadata. So we continue to put our investment there for the increased debt going to continue our growth engine. We cannot continue rely on the other part as far as taking part of our treatment of growth. That's why we're going to continue the power actually at that time. Okay. And a quick follow-up for Pampudi. Just wanted to For your EBITDA margin guidance of low 50s, what are you assuming in terms of the revenue growth? Yes. For your EBITDA margin guidance of low 50%, I wanted to find out what are you assuming in terms of the revenue growth? Yes. I think we've been saying that We will grow the market. So I think that's the deadline that we have given. So I think after we can come by guessing it, what would be the things that we're looking at. Yes, as you know, the industry is growing based on the GDP growth of the country. So there's a lot of assumptions right now floating around about the new sales growth in 20 21. So they will pick up the most growth and more recent assumption on the growth. Okay. Thank you so much, Bhakwudi. Thank you. Thank you. We have our next question. This is coming from the line of Prem Jairajasinghe from Macquarie. Please go ahead. Hi, thank you for the opportunity. Just one comment before I ask my questions. Your line is Very, very bad and we can hardly hear you. So I'm going to ask my questions and hopefully we can get some clear answers. First of all, Do you what is our strategy around retail broadband? And do we think that we need to ramp up coverage on this more aggressively? And is there room for us to actually make an acquisition to fulfill this demand, 1. The second question is how much of a window of opportunity In terms of time frame, do you think that we will have when IndoSat and Hutch actually do merge, Do you think there's a 12 month or 24 month window for you to take some share in that period while they're merging? Thank you. Yes, hi. This is Abhijit. I will take the first question that you asked about retail broadband. So as you must be aware, we entered this It's about a year and a half ago, with the intent of, tapping the opportunity in the market. The strategy is still the same. We intend to scale our presence in the market. So far in the past year and a half, we have reached around 550,000 homes passed and we have seen a very good response. On our footprint, we have exceeded penetration of 30%. So the intent now is to continue progressing along these lines and explore options with our shareholders on how to scale. Did I answer your question or was there a second part to the first question, Azul? No, that's good. But how much further do we think we can scale up? And should we consider M and A to get this number up considerably from here. So how much the scale up is a function of one's appetite, right? Because we are talking about a market with Sorry, I can barely hear you. Shall we move to the next question? Sorry, I was answering the question about I do apologize. We continue facing some technical challenges, but hopefully you can hear me. So I was answering the question about how much do you scale, right? It's a function of what appetite you have because we are still talking about a market with Around 10% residential broadband penetration. So yes, the ambition to scale is definitely there. And you also asked me about a potential acquisition. To be honest, at any given point in time, anybody is talking to anyone. So I don't think we can comment on any speculation on this year. Sure. Hello, Prem. Hi. This is the second question. Can you hear me clearly? Slightly better, yes. Hello? Okay. So you are asking about the potential merger between Hindustat and Hatch and how long the window, Yes. Before answering that, let me actually As far as we think about the margin, so we are positive about the margin. As I mentioned in the opening speech that If it happens, this will reduce the number of players in the market and result a more healthy industry structure in the future, Yes. But we actually learned from our previous experience when we acquired Axi that such merger will require some time because the merger core We'll actually integrate with 2 different networks and then 2 different IT systems, 2 different channels network, different brands and so on and so forth. So it will take quite some time and we see a short 2 millions of opportunity that when we can get market share while the investment profit is ongoing. Thank you. Did you say 2 years? Or do you think it's less than that? Actually, there are 2 possibilities, right? If it's going well or if it's not going well, but I should say probably within 2 to 3 years. Okay. And do you feel that Xcel would be willing to go and acquire or merge with someone else to make ourselves even stronger? Or do you think we are fine the way we are? Yes. So actually, that question probably is better to address to Assiata. But what we understand is Assiata as shareholders is always trying to find opportunities in Green Merger and Acquisition because they understand that it will improve the fee structure situation. All right. Thank you. All right. Thank you. We have our next question. This is coming from the line of Alex Goh from AM Bank. Please go ahead. Thank you for the opportunity. And I do have to agree with what Prem said. The policy of the conference call this time seems to be quite bad. I couldn't Makes sense of what's going on, but I hope you decided to take it through. Hello? Yes. Okay. My first question is regarding your Data revenue in the 4th quarter, it was down 4% quarter on quarter. What was the reason for that? And my second question is On the IFRS impact in 2020, should we continue to see the high depreciation and finance charges in 2021? Or are there any one off lumpy items in 2020 that we should need to offset? And the third question is regarding your effective tax rate for this year. Given that 2020 was a positive charge, should we expect a normalization in 2021 or should it be a lower rate? Hello? Hello? Alex, can you hear me? Yes, I can. Sorry, could you just repeat the question again? Sorry, We have any trouble hearing you. Can you repeat the question again, please? Okay. Your 4th quarter data revenue had dropped 4% quarter on quarter. What was the reason for the drop? Or is it a one off seasonal event? The second question is on the IFRS 16 impact on your depreciation and finance costs. Should we expect This elevated numbers in 2021 or is there any one off items in that 2020 numbers? And my third question is regarding your effective tax rate for this year. Given that last year was a positive tax charge, should we expect a normalization this year or should we still be much lower levels for this year. Hi, Alex. So I will answer your first question regarding the drop on quarter 4, the revenue drop on quarter 4. So we believe there are like different factors to it. One factor is the macro economy, which the pandemic is still having an impact and the power of our customers have decreased. So that's 1. Number 2 is the competition aggressiveness. So as we have been talking about, we have an incumbent so far changed the commercial strategy In the Q4, going to much lower prices and entering value propositions like unlimited or short value the low denominations that previously they were not doing. So that's the second one. And there is a third factor that is the school program subsidized by the government, which created many dual simmers, but it's supposed to have to cannibalization of our on customers as well. So we believe that those three factors have impacted us in the Q4 in order to take the decline that you guys see. Regarding the second question, I will let Diri, the CFO, answer. Yes, hi, everyone. We do apologize on this technical issue, but we can assure you nothing to do with our network quality. It's not on the technical in this office. Alex, can you still hear us? Just want to make sure that you can hear us clearly. I'm afraid I can't hear, but maybe I will e mail Indah later on this. Thanks very much. There's still a lot of echo. I'm not sure why. Yes. Hold on. What is the breadth of audience? Can you hear that? Shall we move to the next one, sir? Yes. Let's Let's try the last question, Rohit. I think what we'll do is, Pabri will answer Alex's question first. Hopefully, you can hear the rest of the participants can hear, yes? Somehow you Yes. Let me try to answer. Yes. So I think the second question related to impact on IFRS 16, yes, whether it's one time off or is it going to come again? It's only one time out because we adopted that IFRS fifteen in 1st January 2020. So you won't come back. The impact on the finance share charge is R102,000,000 that you see in our chart, that one on the April 2020. So going forward, this is Sheshwar. All number will be operational season. Hope that answer your questions, Alex. I see. Okay. So what numbers should we be looking at for 2021? I mean, how much do you think the depreciation and finance charge would drop if you would compare to 2020? The numbers on I mean, in terms of whether the financial charges will be drop or no or the depreciation will be drop or no. On the financial charges, it will depend on the interest rate that in the market that will be. Also the investment on leasing that we're going to do, that will impact the financial charges. In terms of depreciation, again, depending on our capitalization, right, on the second period, That will impact the number. I cannot really give you the guideline on how much the number is going to be. Okay. Yes. The second question is regarding your effective tax rate. Given that last year was a positive tax charge, I mean what I mean is 2020 was a positive tax charge. This year, should we be expecting Expecting a normalization of the tax rate or will the tax rate be lowered significantly and what is your normal corporate tax rate? Yes. We are right now at 20%, 23%, that's the effective tax rate that we have. If you look at 2020, you should look at the detail of the structure of that tax number that we have in our financial year. They have a detail of their best one have detail on which one is 22%, which one the impact of other figures related effects. 2021 will be roughly the same at 23% tax rate. I see. Okay. Thank you so much. I think, Rohit, let's try the last question from Arthur, if the cost is bringing up. We will move to the next one. The next question comes from Arthur Pineda from Citigroup. Please go ahead. Hi, sorry. One follow-up question just to comply with the 2 questions limit earlier. If Indosat and Hutch do end up merging, how do you think this will affect the longer term competitive position? Would you need to ramp up on network upgrades? Would you need to look for other M and A options? I'm just wondering why there is such conservatism on capital with 30% payout, given that your parent, Axata, had stated a desire to become Yield Play anyway. Atul, thank you for the question. Yes, it is true that with the I think your merger between IngoTech and Hatch, it will position us into the number 3 position. So we are currently looking into our Ralston plan. And at this point, we I'm not able to share you or disclose that. So we are affecting any possible and possibility is actually defending our market position in the industry. First one, we are confident in our customer's ability to compete with the merged entity. And also, as I mentioned before, we see a short term opportunity because the merger will require a lot of activities in integrating and so on and so forth. So we will come back by head in terms of our long term plan if the merger happens. Thank you. Understood. Thank you. Okay. I think we're just closing here. Again, everybody, I apologize for the audio quality today. I think we're having some technical issues. But nevertheless, everybody, please Get back to me. You know it's reached me if you have follow-up questions and Anya will address them. Yes. So thank you everyone for the call for your participation today and we will speak to you next quarter.