Good day, and thank you for standing by. Welcome to PT Indosat Tbk FY 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You'll then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I'll now like to hand the call over to your host today, Indar. Please go ahead.
Thank you, Desmond. Good afternoon, everyone, and welcome to the call today. With us, we have Vikram, our CEO, Pak Nicky, our CFO, and Pak Ritesh, our CCO. I will now hand over to Vikram for his opening remarks. Over to you, sir.
Thanks, Indar. Good afternoon, everyone, and thank you for joining the call today. I am pleased to report that we had a good year in 2023, delivering our strategic objectives of what we set out to achieve for the year. We saw continued improvement in financial metrics in 2023, which I will talk more on. We saw positive ARPU momentum, where our Q4 ARPU is close to IDR 38,000 , and we continue to realize synergies of around $350 million for the year 2023. Thus, 2023 was a record year for Indosat Ooredoo Hutchison, where we saw both revenue and EBITDA increase by double digit, and EBITDA growing more than 2x faster than the revenue.
For the financial year 2023, our revenue increased 10% year-on-year to IDR 51 trillion, and our normalized EBITDA grew by 21% year-on-year to close to IDR 24 trillion. We have also managed to deliver a consistent net profit of IDR 1.3 trillion this quarter, bringing the normalized net profit to IDR 3.56 trillion. This is our 12th consecutive quarter of generating a strong normalized net profit. We closed a landmark transaction this quarter with our purchase of the home broadband customer from MNC, a unique and strategic partnership with Asianet. With this, we are laying the foundation for our future scale-up as we aim to get to 8%-10% of home broadband market by 2026.
We will do this by multi-partner future scale-up, delivering the most reliable customer experience, which we now have a strong team in place to deliver both and support our future growth aspiration. And finally, we have FWA, fixed wireless access, as an option as well to increase our penetration. We also strengthened our data center alliance this quarter through a sale and leaseback transaction, which will further enhance our partnership with BDx. This brings scale to our alliance, and more importantly, we can leverage expertise and cooperation with more partners to bring a world-class data center experience for Indonesia. Finally, let me talk about our 2024 and beyond objectives. We want to double down on growth on our core mobile business, where we still see massive upside from rural Indonesia, as well as the ARPU potential in this market.
We will scale up our home broadband enterprise business further, and we will grow our adjacent revenues in AI, cloud, security, and platform play. With these initiatives, we will continue to realize value for all our stakeholders, while we remain committed to our larger purpose of empowering Indonesia through the spirit of Gotong Royong, which is collaboration and which is very unique to Indonesia. I will now hand over to Nicky for further more detail on financial presentation.
Thank you, Vikram, and good afternoon, everyone on the call. Delighted to present yet another set of strong results for Q4 2023. Our overall revenue for full year 2023 grew 9.6% from IDR 46.3 trillion to IDR 51.0 trillion. This growth was underpinned by robust demand for data and connectivity services across cellular, MIDI, and fixed telecoms. More details will come later. On the back of strong revenue momentum, realization of synergies and optimal cost management, EBITDA after normalization for one-offs is up by 21.3%, from IDR 19.8 trillion to IDR 24 trillion.
The EBITDA margin escalated by 4.5% from last year, achieving 46.8% for full year 2023. As mentioned by Vikram, our normalized net profit after stripping out power and data center sale gain and other one-offs, jumped almost 2.5x from last year. This massive improvement was driven by both top line growth as well as cost synergies realization. Our net debt to EBITDA reduced sharply from 0.61x - 0.4x, reflecting strong cash flows generated from operations as well as cash realized from sale of non-core assets. If we move on to the next slide, focusing on our fourth quarter performance against that of the third quarter, you will notice revenue grew strongly by 7.7%. Demand-driven improvement is coming from both cellular and MIDI.
EBITDA, up by 6%, raised to IDR 6.5 trillion. We were also able to bring all the EBITDA improvement to the bottom line, thereby taking the net profit to IDR 1.3 trillion. As I mentioned earlier, if we go to, yes, the next slide. All of our three business segments did well in 2024, with year-on-year growth ranging from 8.7% - 28.4%. Fixed telecom revenue fell quarter-on-quarter. It has no significant impact on our results, as the movement relates to very low margin wholesale trust covering business. Let's take a look at our cost. OpEx is flat on a year-on-year basis, and is up by 9% quarter-on-quarter, due to a combination of volume-driven spending on our cost of services and higher marketing expenses in Q4.
There are a few reasons on why we are spending more on marketing expenses. The most significant reason is on seasonal basis, we tend to spend the most in Q4 for marketing. As a reference, the increase on marketing expenses quarter-on-quarter for 2022 was 40%. Secondly, we are also consciously putting more resources into the rural areas and added many new service distribution points and kiosks throughout these areas in order to strengthen our distribution network. Pak Ritesh will elaborate more on this in his section of presentation. Lastly, the knock-on effect of some of the distribution changes also caused a small change in our accounting for such costs to be on a gross basis rather than on- basis as how we treated it in Q3. So, but the impact of is 1.4%.
I'm highlighting this for the sake of transparency. In terms of other operating expense, we booked a one-off profit for data center sale last year, amounting to IDR 3.5 trillion, whereas the one-off gain for this year was only 1.3 trillion. So that explains the movement between the two years. Let's take a look at our CapEx. We have catch up on booking of CapEx spending in the fourth quarter to bring it in, pretty in line with our guidance of IDR 13 trillion for 2023. Our CapEx to revenue ratio continues to trend in the right direction. It is around 23%-25%. Net debt is trending down, as reflected in the reduction from IDR 11.8 trillion to IDR 9.6 trillion year-on-year. That's off 19%, almost 19%.
This also drive our Net Debt to EBITDA ratio at the end of 2023 to shrink significantly from 0.61x in 2022 to 0.4x this year. That's the end of my presentation. I will hand over the time to Pak Ritesh.
Thanks, Nicky. Good morning, good afternoon. So as Vikram and Nicky always talked about the revenues, we have 10% revenue growth. Our customer base in 2023, we saw 3.4 million decline. This is, if you remember, last time we talked about we are increasing the SIM card prices. And this year we have done 8 million lesser cross-add, and this also helped us saving cost and being more efficient. Our home broadband customer, we saw an increase of 331,000. And as we continue to drive our journey towards being more customer-centric and giving power in the hand of consumer, our self-care application, which also serves as a digital lifestyle, we have seen 8.6 million increase during the year 2023.
Our data traffic grew by 10%, and, I think after many, many years, it has happened, for the first time, that traffic growth and revenue growth are in line. So as a company, we have been able to maintain our prices. Can you go to the next slide, please? As we talked about, digitalizing the customer journeys and making things simple, contributed in increasing our customer satisfaction scores for both the brands significantly. Four percentage points for IM3 brand and three percentage points for Tri brand. And we also saw a growth of ARPU customer by 13.4%. Yeah. Can you go to the next slide, please? As, Nicky talked about, marketing cost increase in quarter four, as we see here, we continue to invest in network. So you saw increase of around 42,000 BTSs in 4G.
Primarily, these sites are coming into deep rural areas, and we are actually expanding our distribution reach, and we are opening up own small shops, wherein customer can actually go and replace their SIM card, get the basic services done. And any additional digital services will be launched through this kiosk. And also, this kiosk will also be responsible for distributing SIM card and recharging into deep, deep rural areas at village level. And we believe this is a strategy which is going to improve our reach in deep rural area, as Vikram said, we see huge opportunity available in rural areas, and this will be vehicle for us to get us there. So that's all from my side. I'll hand it back to Vikram. Yeah.
Thanks, Ritesh. Now, on the final slide from my side on the guidance for 2024, I think we see a good momentum on our side. What this merger has done has given us the scale, and after two-year completion of merger, and on all the integration things getting done before time and first time, right, we feel more optimistic on our revenue. That is why we have put better than market because of our in rural market. We believe that we'll be able to grow the market. On EBITDA margin, we are on the right track. We are heading towards close to 50%. CapEx spend will be same like last year.
Then, most of the investment is going on rural area in terms of making sure that we are able to give contiguous coverage and good experience to our existing 100 million customers.
Thanks. Thank you, everyone. Can we go to the Q&A session now?
Certainly. We will now begin the question-and-answer session. To ask a question on the phone, please press star one one and wait for your name to be announced. If you would like to cancel a request, please press the pound or hash key. One moment for the first question. First question comes from the line of Piyush Choudhary from HSBC. Please go ahead.
Yeah, hi. Good afternoon. Thanks for the call, and congrats for a strong set of results. A few questions. Firstly, could you talk a little bit about the outlook for mobile ARPU? What drove such a, you know, good expansion this quarter, and how sustainable it is? Secondly, on the subscriber side, we still saw some softness sequentially, quarter-over-quarter. What is driving it? Because we thought as you are expanding in rural areas, you know, we could see some stabilization or improvement in subscriber base. So any color over there? And thirdly, on the margin side, you know, sequentially, margins have dipped, but you're guiding for increase to close to 50%. So could you call out the key levers for margin expansion in 2024? Yeah. Thank you.
Yeah, good question, Piyush. Thanks a lot for asking this question. On ARPU increase, we have started doing very targeted customer value management, and that's where we have seen a high-value customer base growing in our on our overall base. And the prices of the recharges, IDR 100,000 and above, the contribution is going up, number one. Number two, as we see that digital services contribution is also going up, and that is also adding to the increase in ARPU. And the third one is, we have done some price changes, and that is also helping us increase the price. And the most significant improvement is coming from acquisition ARPU. Acquisition ARPU, when we increased the price, it was around IDR 16,000.
Now, it has gone up to IDR 29,000. That is also contributing to our ARPU growth. As we talked about soft-subscriber growth, Q4, Piyush, I think I just talked to you about, we have done 8.4 million lesser gross add in 2023 as against 2022. Despite that, our VLR has gone up by around 2 million, and our data unique users has gone up. What does it mean? It means that we have been able to control the rotational churn into our system, the customer who are actually coming and buying and using it... because we have increased the SIM card prices, and any recharges are cheaper than buying a SIM card, SIM card. So that's where we see.
So I think you'll appreciate that 8 million lesser gross add, despite that, we have increased our VLR and data unique user. And that also reflects into our saving also. EBITDA has increased faster, that is also one of the saving material. Margins, I will hand it over to Nicky to talk about.
Sorry, Ritesh, if I may ask, you know, just on this, you know, on the ARPU, these are excellent levers, right? For last year. Going forward, how should we think about the ARPU improvement? Would all these levers still continue to, you know, deliver strong-
Yes.
- ARPU growth next year?
Yes, yes, yes, Piyush. I think these, these are the journeys, this is not the destination. We'll continue to keep on finding out opportunity to increase prices, increase data penetration, data services penetration, and bringing more digital services. As we talked about, the 3 Kiosk and SDP in rural areas, we are planning to launch many digital services through those channels. So that's a significant improvement as a strategies we are going to make in there.
Right. On the subscriber base-
That was my point.
since, you know, it's been almost a year, right? Where you are reducing the rotational churn, and you know-
Yeah
... that's a great strategy. But is the base now stabilizing? And should we start seeing-
Yes, we
Normalized subscriber growth now?
Yes, yes. It is stabilizing in latter part of quarter four. We have seen positive net adds already. Yeah.
Okay. Thanks. Sorry, Nicky, to you, over to you.
Hi, Piyush, thank you for your question on margin. I think there are a few factors contributing to the movement in, a small drop in our EBITDA margin. First of all, we have a very strong growth in our top line, and, on a 7.7% growth. If you look at, the details I presented, we get, 28% revenue growth from MIDI, which has a lower margin. So the first reason is a different, revenue mix. And secondly, on a seasonal basis, as I mentioned in the, earlier part, we are also spending more money on, more in our rural distribution kiosk and service distribution point. And the third factor, I highlighted in the last quarter that we did, around IDR 130 billion of accrual reversal, in Q3.
So it kind of helped Q3 number. And so these are the key reasons why you see a drop in the margin overall for EBITDA from Q3 to Q4. But on a full year, we are definitely able to bring the revenue incremental revenue to EBITDA and also to the bottom line. And we don't see that the movement in Q4 would have a bearing on that.
Piyush, just to add to what Ritesh and Nicky said, on ARPU and base, I want to reiterate that we stay committed when we started our last year journey on the guidance of getting to IDR 40,000 ARPU by Q2 2024. So I think now we see the trajectory. We are heading on that direction. Also, on base, December, what Ritesh said, December, we saw positive net add, in spite of taking all the corrective action. One is the SIM rotation, second is also channel commission, you know. We want to make sure that there is no misuse of any incentive in terms of any of our SIM reaching the market, where the SIM is below the recharge price.
So all those corrective actions was taken quarter three, and all those things are getting stabilized. So you will see both base and ARPU growing, going forward. On, on-
Got it.
On key points
Yeah
... margin, you know, what will take us to closer to 50%? You know, what merger has done, it has given us a scale network in rural, you know, and with all these investment which we are doing, which you see in our marketing cost on sales and delivery point, and then serving those rural customer. So we want to make sure that both top line and still on synergy values, we still have the tail left, while we have done close to IDR 385 million of synergy realization, but still there are opportunities left there we'll continue to work upon. And also, you know, we will double down on core. So it's a mix of both opportunities on synergy and sustainable revenue growth, which will flow to EBITDA.
It will take us closer to 50%.
Right. And may I just clarify that this guidance of 50% is baking in the broadband expansion also? Because, you know, that mix will come at a lower margin profile, right?
So, you know, that mix in terms of margin at EBITDA, but at net profit and all, because the CapEx, it is a CapEx-like model. So if I do a broadband at 25% EBITDA also—80% of that flows into net profit. Yes, we have factored all those things, and then we feel very confident that our approach on an asset-light model on looking at home broadband is, is now ready to scale up.
Thank you, Vikram, Nicky, and Ritesh. Thank you.
Thank you for the questions. One moment for the next questions. Next question comes from the line, Marissa Putri from UBS. Please go ahead.
Hi, management. I have three questions. Firstly, in terms of your marketing costs, I think it continues to go up on absolute basis and on, also up per revenue. So what would be the new baseline going forward, and is there more exercise that needs to be done on marketing side? Secondly, in terms of your fixed data, I guess, the jump here is kind of also contributed from the MNC Play acquisition. Is it possible to kind of give, kind of a color or maybe dissect this revenue a little bit more? And in terms of the operating metrics as well, is there anything that you can share aside from the number of subscribers?
Lastly, in terms of capital allocation, given that your gearing level has come down a lot, is this probably time to kind of look into the shareholders' return? That's it. Thank you.
Yeah, Marissa, thanks a lot for this question. Marketing cost, if you look at quarter four, is primarily we have rolled out around 400 new retail stores, which in rural areas, wherein we are doing branding, and we are setting up our manpower there to make sure that we are catering to those areas. And those areas will also be responsible for giving basic customer service, for example, SIM replacement and digital literacy. Because if you really want to increase the ARPU in digital areas, the customer needs to be told how to use internet and how they can use the application. So that's our-- that's the investment, I would say. And despite all this cost, I think we are very competitive in the market in terms of marketing costs.
And second one is to handle those, distribution points. We're also having some money invest on, giving the distribution as a salesman to cover those market, because every sales service and distribution point, which, Vikram talked about, will be given 10 sites-15 sites. And those 10 sites-15 site distribution will be done, through two salesperson. So that's the cost which we are actually getting into. On fixed data, yes, it is a inorganic growth. We have acquired customers, so most of the customers, 330,000 around coming from MNC Play. And, our existing HiFi, we were the fastest, to reach to 20,000 when we launched our own, own HiFi services. But yes, to answer you, the jump is coming from MNC Play acquisition, primarily.
Third question, maybe, you would like-
So-
Yeah, sorry.
So on this, Marissa, thank you. These are very important questions. So yes, our marketing cost as percentage of revenue is, is below 3%, and it will stay on that range. So it is not a cost, these are investment to monetize our CapEx and rural infrastructure, but we will be very much within the range of 2.5%-3% as percentage of revenue. And it, you will see this getting stabilized, you know, as we move forward. On FTTH, I think now we have the scale. We have close to 330,000 customer. So moving forward, you will see, you know, progressive base EBITDA, and we are also working on ARPU. We see a lot of opportunity of growing the ARPU by getting the FMC play right with our 100 million customer.
So all these metrics, you will see quarter-on-quarter, and we are very confident it will be very progressive as we go from here.
On capital allocation, I think going forward, we will need to cater for investment in 5G spectrum. We do not know the exact timing for that, but we have to reserve our capital for some extra investment going forward.
Got it. If I may just, follow up a little bit on the fixed data part, because I think, if you just see Q4 2022 versus Q3 2023, for example, it has kind of come down a bit. So, aside from the inorganic acquisition, what is the... what kind of trend that we're looking at, for Q4, for the revenue part?
This is very good. What you see in Q3 versus Q4, you know, it is all on getting to a more tighter reporting, how we report our base and all. So these are all, you know, when we are doing integration, these are corrective actions which we have done. So it is nothing to do with the base on all. We are just putting everything together as we integrate everything under home broadband umbrella. So here onwards, you will see a more stable and clear number. And our integration got completed. It was not an easy job to integrate the whole MNC Play acquisition, the customer, the employees. So last month, we completed that, and now we are looking towards making sure how we grow this.
... Okay, thanks.
Marissa, if I can add to what Pak Vikram explained, for fixed telecom, we have a segment of business which take care of wholesale level transaction. So these are traffic that we get at the wholesale level, and then we would do refiling, and we are earning a, you know, typically for this kind of business, the margin is very, very low, you know? So, like I said, in my section, this is not the-- maybe you are relating it to fixed network data services, but this is not the case.
So we got quite a bit of such wholesale level transaction, which would kind of inflate the revenue a bit in the fixed telecom segment, but it is not to do with mobile broadband.
Okay, thank you.
Thank you for the questions. Our next question comes from the line of Arthur Pineda from Citi. Please go ahead.
Hi. Hi, thanks for the opportunity. Three questions, please. First, can you get some color on the broadband business? What's the glide path target for market share, and what are the margins that you experience for these services currently? Second question I had is with regard to the earlier question on dividend. I mean, your balance sheet gearing remains very low at 0.4x, you point out in the slide. Why take such a conservative approach to capital return? Is there such a big concern that 5G CapEx would be very high? Is that what you're concerned with? Because I do think there's more than enough room on your balance sheet to do both. Last question I had is with regard to synergies. When do you expect to fully complete this?
Should this finish by 2024, when you're seeing nearly 50% EBITDA margin, or is there more to be realized into 2025? Thank you.
Let me start with home broadband, Arthur. You know, as I said earlier also, so, moving forward, you know, you will be able to see clearly the base revenue, both. We are looking at getting to 8%-10% of home broadband, because we believe that, you know, it is important to get to scale quickly by 2026. And now, with our strategy, what we did with MNC Play and how we have been trying to grow organically, so it's a bit of a hybrid strategy, organic, inorganic, both. And we have the whole team, the whole organization which is needed, that has been put in place in last three months, specifically post the acquisition of MNC Play. So you'll have to wait for the following quarters to come.
In terms of margins, you know, it's an asset-light model, so at an EBITDA level, you know, we see 24%-25%, but the good thing is, you know, there is less below EBITDA, so everything flows into net profit.
On dividend, I think we paid dividend for the last two years, and the question that was raised earlier is not specifically on that. So what we would intend and continue to do would be to reward shareholders with dividend, going forward. But on 5G, I think just to clarify, it's not about CapEx, it's also the cost of spectrum. There are quite a bit of uncertainties around the timing and the quantum of the spending required to be made on the spectrum. So that's what I'm trying to make the point I'm trying to make in relation to the earlier question. But on dividend, we plan to continue paying dividend to the shareholders.
Just to add to what Nicky said, you know, we want to make sure, you know, first year of merger, we paid dividend. Second year, we paid dividend. We want to stay progressive on that also. And then we are working on a clear dividend policy, and we are looking at capital market day happening in 2024, so we'll be able to give you more color and guideline. But, what Nicky said is true, we want to make sure we have a good balance because our current balance sheet, the net debt and all, is quite healthy. On the 5G, I think, the most important point is we see very constructive work from the government and the regulator on how 5G can help Indonesia.
So in fact, we are expecting, the learning coming from the other, especially in Asia market, that the spectrum fees will be more lower. But in terms of planning and all, we take a conservative approach, but, but we see more, constructive and progressive approach from the regulator and, and the government officials on how 5G spectrum costs need to be looked at. Synergy value, I think, at least, 2024, by end of 2024, we will be able to realize everything. There are some IT initiative which might continue in 2025 also, but I think 95% of the synergy value, which are linked to, merger, we'll be able to complete it by end of 2024.
... Understood. Thank you very much.
Thank you for the questions. One moment for the next question. Our next question comes from the line of Henry Tedja from Mandiri Sekuritas. Please go ahead.
Hi. Thanks for the call, and congratulations, gentlemen, for the strong results. Two questions from my end, please. The first question, perhaps, if we can go back to the discussion on the retail touchpoint and distribution network developments. Understand that the increase in the marketing expenses could be attributed to the expansion in the rural areas and et cetera. So just curious on the what kind of metrics that we should follow to ensure or, you know, to get a sense that basically all these investments will have a good return to the shareholders and also to the companies. So what kind of operational metrics, whether it's in, it's in the subscriber base, the apps, users or the other metrics? And then the second one, if we can ask about the fixed broadband business.
You mentioned that the market share target will be around, like, 8%-10% by 2026, and you plan to scale up this business this year. Any, you know, like, a fixed target in terms of the subscriber addition for this year until 2026? So those are my two questions. Thank you.
Thanks, Henry. If you look at the areas wherein we have rolled out our SDP and 3K iosk, we have seen 2.7 x more revenue increase as compared to national average. In the areas of Sumatra and Balikpapan and those kind of areas wherein we wanted to follow our strategy. So that's a good indicator. And also, the ARPU increase is higher as compared to national average in the areas where we have rolled out our sales and distribution point, service and distribution point. And we continue to follow that KPIs, and that's a significant increase in our direct distribution. Let me remind you, this is our direct distribution. It's not that we are going through subchannel.
We are finding out son of soil kind of business person there, and who is actually running the business, and people can actually relate to in that particular area. And home broadband, I think we are focusing more on take-up rates. So whatever, whatever we are rolling out, we are focusing how we can connect them faster. And only two simple strategy which we are following in home broadband category is, if the customer is requiring any connection, we should be the fastest company to connect. And if there is some issue in case arises in terms of network challenge, we should be the fastest company to resolve the complaint. So these are two strategies which we'll follow very significantly.
We don't guide specifically with subscriber type target, but I think the most important thing is that whenever we are launching a home pass, we should be the fastest company to connect them, and we keep on improving our take-up rate. But ideally, we should have around IDR 280 million-IDR 300 million revenues by 2026. That's the target which we are taking.
Okay, that's clear. Thank you, bye.
Thank you for the questions. One moment for the next question. Our next question comes from the line, Niko Margaronis from BRI Danareksa. Please go ahead.
Yeah, thank you for the opportunity, and congratulations to the management for the good strong fourth quarter. My first question is on the rollout in rural areas. If you can walk back on your earlier comments. So you have... Can you reiterate how many gross adds you had on the fourth quarter? And how many of those are from the new locations? I understand that you're reducing your rotational customers in your existing coverage, and then all the new growth side is coming from the new areas.
If you can confirm my, yeah, my understanding. And what are the CapEx for 2024, the IDR 12 trillion, is this... If we can yeah break it down into based on your coverage currently how much is this going to those new areas? And additionally this new distribution points how many of those are we talking about? And is this under your cost structure? The this entire new distribution points is under your cost structure, or is it some outlets that you are partnering with? Yeah. Thank you.
Thanks, Pak Niko, for the important question. We don't give detail on these things, you know, how many gross add on rural and all these things. I think fundamentally what Ritesh is explaining, and Henry also asked, these are investment in to monetize our large network presence in rural. You know, these customers used to travel 50 kilometers, 40 kilometers to, you know, get SIM card, get their SIM replaced. So we want to give them the right kind of service. And also recharge, we're getting reached to these customers through not direct channel. It was coming through wholesaler and all. So when it goes through wholesaler, you know, it is marked up by 15%-20%. So if I'm selling something for IDR 25,000, they get it for IDR 30,000.
So we want to make sure they get it for IDR 25,000. So it is about making sure we serve the rural customer. You will see the measure in terms of our base growing, and that is where in 2024 you will see that all this investment is helping us grow our base. So that is what we can talk about, the investment in rural in terms of marketing and monetizing our asset. Talking about CapEx, we don't give so much of detail into... But what you saw on marketing increase is mainly on investment on rural area to monetize our enhanced network presence.
Yes. Yes, Vikram. Thank you. I guess,
Hope you are satisfied with our answer.
Yeah.
Like and buy.
I'll try to do the most of it, but. Thank you. Yeah, thank you. Maybe one more additional question, Vikram.
Please, please, please.
In terms of the savings. Sorry, say again? Can you hear me?
Yes, I can hear you.
Yeah, yeah. But on your savings, yeah, you mentioned about IDR 380 million, if I'm hearing correctly, synergies. What is your estimate, how much higher can it be in 2024? Yeah. Thank you.
Pak Niko, I think, you know, we don't give too much of forward guidance, but we are expecting at least 15%-20% more, you know, in 2024, especially coming out of synergy activities.
Synergy. 20% from, yeah, from this additional from this number you quoting, yeah?
Yes. Yes.
Yes, but maybe if I can ask Ritesh, what is the competition landscape currently? Yeah, so you are going ex-Java, you are going to these new rural areas. I presume that Telkomsel is already present there. So, how the market is settling? Do you see some kind of pushback maybe in the next quarters, given your recent rollouts? Yeah. Thank you.
We focus on our strategy, and we are very mindful of giving best service in terms of network and in terms of distribution. As Vikram said, the rural customer requires actual pricing and transparent pricing. Customer in Balikpapan should be getting 25,000 IDR, recharged at 25,000 IDR. It should not happen because wholesaler is sending stock where they should be paying 10% more. We will follow our strategy and make sure that customer don't have to walk more than 1-2 kilometer to get his SIM replacement. That's the strategy we are following. Overall, we see the market is going in the right direction, and I think there is a national behavior we see in telecom industry in last year, and we hope that will continue in 2024 as well.
Yeah. Thank you so much, everyone. Thank you.
Thank you for the questions. One moment for the next question. Our next question comes from Ranjan Sharma, from JP Morgan. Please go ahead.
Hi, good afternoon, and thank you for the presentation. A couple of questions from my side. Allow me to take them one by one. The first question is on the MNC customers acquired. If you've shared details of how much is the amount paid to acquire these customers, and what is the wholesale access fees that you've agreed to pay for those, for the access to that alliance to support the customers?
Hi, Ranjan, this is Vikram. So for sure, I will request Indar to give you those details. But I think one important point I want to highlight, which is very unique, this is not like a traditional wholesale deal, you know. We had made sure that partners like Asianet have a skin in the game. So it's a model of fixed and variable. You know, especially, we want to make sure that, you know, the partner who is working with us on this, especially on providing home passes and all those infrastructure is completely aligned on the objective of risk and reward on ARPU and giving good experience. So this is very unique, first time we have been able to achieve, so which is very different from a traditional wholesale deal.
All the other detail, I'll request Indar to share it with you separately.
Okay, thank you. And just to confirm, that these, these wholesale costs are as part of OpEx, right? They're not capitalized.
First of all, it is not wholesale. Again, you know, it is not a traditional wholesale, but yes, whatever it is, it is a part of OpEx. So, you know, there is very little below EBITDA. This is what I was trying to explain. These business, if we do it at 25%-28% EBITDA, you know, everything flows into net profit. So there is, you know, it's a capitalized model, nothing is below EBITDA.
Got it. Thank you. So next question is on impact from accounting changes and sales and leaseback deals. So you had a pretty robust growth in ARPUs in the fourth quarter. If you can share, like, if this has been impacted by some change in accounting or to gross revenues, I think, which management mentioned earlier. And on the sale and on the margin guidance given for 50%, are you factoring in further capitalization of certain leases? I see you've done a data center deal. You might have done some tower deals. So if the margin is benefiting from capitalization of costs.
Hi, Ranjan, this is Nicky. I'm trying to point out the capitalization, as I said, more for transparency sake, more than explaining the, the... Because the impact is minimal, but it's only 0.4%, you know, so... And the movement is 40%, so, so that's the kind of difference we are talking about. It's not something we want to achieve, to achieve certain objective. It's just that when we make certain changes, auditors ask us, tell us that this is a right way of doing that. So unless there are other changes which would call for a different accounting treatment, we do not have any plan to, like, orchestrate any gross-up accounting.
Sure. And on the margins from the sales and leaseback deals?
Yeah, on the margin. Yes, on the margin, what we are guiding is closer to 50%, not exactly 50%. We believe we should make progressive steps to improve our margin. And already we feel yes, 50% is in the shooting distance, and we'll work towards that. But again, it's not, it has nothing to do with changes in accounting, so please do not mix up the two, yeah.
No, no. So what I meant is, like, if you, if you sell, let's say, towers or data centers, and you lease them back, the OpEx gets recorded below EBITDA line, right? And that has a positive impact on margins. So I'm just trying to understand, like, what is the impact with... if, let's say, there was no sales and lease back.
So it has no impact, Ranjan. What Nicky is trying to explain, that, the EBITDA growth, which you have seen, you know, we, we have got, good movement, you know, in last 12 months, and going forward will be more organic coming from revenue and, and, getting even more opportunities on our integration opportunities and then the way we are running it. So it is more organic, where we see that, you know, we will - we are already at, close to 47%, so we are very confident we'll, we'll be progressive quarter-on-quarter as you see us.
And, Ranjan, if I can add to what Vikram just explained. If there is any impact on the EBITDA margin, it will be negative for sale and leaseback transaction. But it's not a very, very significant impact we're talking about. We have different accounting treatment for different types of transaction.
Hello?
Yes, I believe that we just lost the audio from the main speaker. They probably just clicked on mute. Please stand by. Thank you, speakers. You may now continue.
Have we lost the connection or is it okay? I think it's okay.
Hi. Sorry, we had lost you, middle of a sentence.
Please continue with the answer.
Hello?
- Sir Ranjan, your questions again, please.
So yeah, we were just discussing the impact of sales and leaseback on margins, because for every other telco, we have seen that it has a positive impact on EBITDA margin. And I believe the management is explaining, like, what the-
Desmond, can you hear us now?
Yes, we can. Please continue. Ranjan, we can hear you. Please continue. Thank you for your patience, Ranjan Sharma. We were just addressing the technical issues here, and they will be connected shortly.
So we do that?
Yeah, let me just get the number.
Yeah.
Yeah, yeah. Are there a number? 001, right?
Indar, you are now connected. Can you hear us, please? Pardon me for the interruption. This is the operator speaking. We are still addressing the technical issues. Thank you everyone for your patience. The conference will resume shortly.
Hi, everyone, this is the operator speaking, just to confirm that we can hear the room.
Hi, Desmond.
Yes, please continue. We now have the questions from Piyush. Would you like to continue with the Q&A session, please? Hi, can you hear me? Piyush, thank you. Just want to confirm that the speakers can hear us, but please stay on the line. Thank you.
This is the operator speaking, just confirming that we are still active, addressing the technical difficulties. Thank you everyone for your patience. Please remain on the line. Thank you for rejoining. This is the operator speaking. We are now connected.
Sorry, I think we got cut off.
Certainly. We still have the line from Piyush Choudhary. You may like to go ahead with your questions, please. Thank you.
Sure.
Yeah, Piyush, I think we have-
Can you hear?
We have passed the hour, but, maybe if you just have one - yeah, brief question, so we can just...
Yeah, sure. Just very quickly, just on the mobile, coverage side, could you talk a little bit about your, network, coverage expansion objective in 2024 and 2025? Like, how much population coverage expansion you are looking. And for your current network, like, what's the, peak capacity utilization? Just trying to understand from a customer experience perspective. Thank you.
Thanks, Piyush. Good question. So, I think what we are trying to do is build a more contiguous coverage in rural. So what merger has done, it has really given us a scale network in deep rural. And what is important is there are still pockets where we are under index. So the first market which we picked up was Nusa Tenggara, you know, Bali, Nusa, and there are seven, eight more pockets like that. So, you know, we are going one by one, and while we are going there, we want to at the same time build our capability on the sales and distribution, so that we are able to monetize all our investment which we are doing. So this is one.
Second, you know, as you would have seen, that we are in a good place in terms of our spectrum holding, with all the sites now getting enabled to use this combined network spectrum, which we have. So overall, on the capacity side, we are in a good place. You know, in most of the location, we are in our range on capacity planning, and that is a very healthy place. And that is where when Ritesh presented, both the brands, especially Tri brand, has seen significant improvement on indoor network experience. And also IM3 has seen improvement on indoor, and Tri brand is seeing significant improvement on new coverage, which is coming out of this integration.
Got it, Vikram. Thanks a lot.
Thank you for the questions. We now have no more questions from the phone line. I would like to hand the call back to management for closing.
Hi, thanks, everyone. Apologies for that slight disruption at the end. Hope you everyone got their good inputs from today. And if you need anything else, please do reach out to us. Otherwise, we'll speak to you next quarter. Thank you, everyone.
Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect your lines.