Hi. Good afternoon, ladies and gentlemen. My name is Clare Chin, Head of Investor Relations at Axiata. Thank you for standing by. Welcome to Axiata's third quarter 2020 results briefing. Today, we have with us Tan Sri Jamaludin Ibrahim, Axiata Group CEO, Dato' Izzaddin Idris, Deputy CEO, Vivek Sood, CFO, as well as representatives from our operating companies. There will be a presentation followed by a Q&A session. Lastly, two housekeeping reminders. You will be on mute throughout the presentation. Note that the call duration will be a maximum of 90 minutes. Without further ado, I would like to hand the conference over to Tan Sri Jamaludin.
Good afternoon to all. Thank you for joining us for our third quarter 2020 results. If I can go straight to the first slide.
Sure.
Clicker. All right. This is just a summary of our performance for third quarter. You will see, and I'm sure you have seen the results, that it's been an excellent quarter almost all round. All opcos did pretty well in almost all measurements, if not all measurements. Of course, just trying to make sure that we give the right expectation, fourth quarter, given the re-imposition of lockdown in at least two or three countries, and also the heightened competition in Indonesia and the education freebies that, as you know, have been launched a couple of months back. We might potentially have a soft fourth quarter 2020, just to balance the expectation. By September, revenue for all opcos, except for Ncell, was higher than the pre-lockdown level. Just to be sure of the statement, XL did pretty well Q- on- Q. We are talking about pre-lockdown.
We define it as January, February. Last quarter, in fact, I'm going to show you again. We show you the trajectory of the revenue for each OpCo, and you could see that even by time towards the end of second quarter, the trajectory was already on the uptick. All have been very encouraging. Therefore, the QoQ recovery has been pretty good, and we are very happy about that. In terms of margin, of course, we are very happy that our cost excellence programs, despite the reduction in the revenue, have resulted in a higher margin, and that is something that we are happy about this quarter. That translates to a very strong free cash flow that grew 44.7% to MYR 2.4 billion.
Of course, we kind of temper down the spend on CapEx because of the trying to minimize the impact to our profit and to free cash flow without affecting our ability to compete. Let's talk about the three companies more specific. Celcom grew very nicely, very healthily. In fact, all measurements from subscriber perspective, 370,000 subscribers net adds for that quarter. Grew very nicely on the revenue, EBITDA, and even profit. In fact, quite significantly on a profit. There has been a very strong recovery for Celcom. More importantly, as we kind of alluded to, it started towards the end of second quarter, the nice trajectory of Celcom. Axiata never fail to amaze us. They had a very good first quarter, very good second quarter, and continue to be good in the third quarter despite the heightened competition.
In the fourth quarter, as you all know, the competition remained very stiff. The pandemic might be affecting us a bit. Also the impact of the education freebies that was launched by the government might have some impact. Yet to be seen, but so far, so good. Ncell, we have a nice, very strong recovery second quarter, but not good enough to be pre-lockdown. We are working very hard, and we are now finally utilizing the spectrum, but more to be done to make sure that we are going back to the pre-COVID period. Last but not least, while so far, so good to get the expectation correct, we believe that our revenue by end for the whole year rather, will be a low single-digit decline together with EBITDA. The risk, as mentioned earlier, is related to, again, the pandemic.
We were hoping that by fourth quarter, all clear, all full blast. Of course, in some countries, including Malaysia, there's a bit of the spike in COVID and therefore some re-imposition of the lockdown, and more so the impact to the businesses and the customers yet to be fully known. Last but not least, as mentioned earlier, with regards to competition, we know that there's a marked competition in Indonesia for the last few months. We expect it to continue till end of the year. With that, I'll pass to Vivek, our Group CFO, to give you further elaboration on the results.
Thank you, Tan Sri, and very good afternoon to all of you. If I can talk about the reported numbers. Quarter on quarter, as Tan Sri said, it has been a strong recovery after a relatively weak with 5.5% growth in revenue, around 10% growth in EBITDA, and a very strong profit improvement. On a year-to-date basis, we are still marginally low on revenue but flattish on the EBITDA, that's to some extent reflective of our cost initiatives. PATAMI in last quarter was impacted partly by the restructuring program which we did, which is around MYR 77 million, also partly impacted by the Forex. Also in last quarter, we had benefits of the lease of the gain from the tower sale. Overall, the numbers on EBITDA look good. Revenue is kind of flattish, quarter on quarter, I say 5.5% growth.
Profits on a reported basis looks lower because last year, if you recall, we had gains coming from M1, sale of M1, divestments of some of the digital businesses, and also disposal of Idea rights issues. If I go to the underlying performance, which is, I think, more relevant to really look at the operational performance, again, strong quarter with 6% growth on revenue ex devices, EBITDA growth of 11.4%, and still marginally lower on a year-to-date basis, but flattish when it comes to the EBITDA development on a year-to-date basis. Revenue impacted on a year-to-date basis mainly in two markets, which is Nepal and Malaysia.
Nepal essentially coming out of the fact that two or three factors, which I will cover a little bit later, and Celcom mainly because of the second quarter impact, which was on account of the mandated free data as well as the impact of lockdown in the second quarter. As I said, a strong recovery. Other businesses continue to do well even on a year-to-date basis, despite a number of days of curfew or lockdown. Quarter on quarter, all, of course, have given good results. XL, flattish mainly because of the increased competition and also some mandated government-run program. If I go to EBITDA, I think a key highlight there is strong performance across operations, but mainly improvement in EBITDA margins coming from the continued cost excellence program which we've been running since 2017. If you recall, we had said $5 billion saving over five years.
We should be able to complete that target by the end of this year. In this year so far on CapEx, around $500 million saving and OpEx around $400 million saving. If you look back from 2017 onwards, our adjusted CapEx, EBITDA margin has grown by around 4.5%, coming essentially out of the initiatives driven on the cost program. Our profit, a strong growth in profit compared to previous quarter. Year to date, we are still behind essentially because of the lower Q2. Mainly three factors. One is the increased depreciation, mainly because we haven't really cut down on the CapEx to the extent impact on the EBITDA development, and also the Ncell contribution and the [E2NI] program which we had run in the second quarter of this year. Quarter on quarter, I think a strong performance, which you can see from the numbers.
The next slide is what Tan Sri was alluding to, which is basically compares how our revenue was pre-lockdown, which is an average of January and February, versus how it has developed over until September. All the markets except Nepal is actually running now above the pre-lockdown level, though it's still relatively below the pre-COVID, which is essentially the Q3, Q4 of last year. If I go to the next slide. This basically reflects a kind of waterfall between the year to date last year, PATAMI of MYR 693 versus the MYR 544 this year. Mainly, as I said earlier, coming out of the impact of depreciation. Below is on a reported basis. Essentially, impact is coming because of the gain we had this year between reported and underlying gain from the tower business, which we had in the first quarter of 2020.
If I go to the next slide, I think cash has been our focus, reflected in the form of OFCF. We also look at not just the OFCF impacted because of the lease adjustments, which is, as you know, from an IFRS 16 perspective, requires a different treatment. If you look at the adjusted to that, our cash development for the three quarters has been around $1.2 billion versus the around half a billion which we had last year, largely coming out of the impact coming out of the CapEx moderation, which we've done this year, as well as improvement of the EBITDA in some of the markets. If I go to the next slide. This basically reflects a fairly strong balance sheet for us. The gross debt to EBITDA looks elevated in Q3.
That's mainly because we have after our MYR 1.5 billion issuance, which you recall was done in August this year, we have that cash available, which is eventually being used for refinancing or settling some of the outstanding debt. We expect around MYR 7 billion cash to come down to around MYR 6 billion by the end of this year, with MYR 4 billion being spent on paying off some of the debts, mostly in the corporate center. I think also the fact our balance sheet also reflects a fairly good mix of local versus foreign debt as well as the fixed. Maturity is now quite extended. By the time we pay off these debts, we would have a maturity of over 10 years, which provides us a fair, predictable borrowing and maturity profile.
If I go to the next slide, which is really around Celcom's performance, I think strong quarter on quarter development, essentially coming out of the increase in subscriber base. We saw around close to prepaid subscribers increasing by nearly 350,000 and postpaid subscribers increasing by the balance to take it to 372,000 increase in subscriber base. Also that's resulted in a 6% improvement on revenue quarter on quarter. A strong development on the EBITDA side. Celcom continues to focus on their cost initiatives. That's resulted in a strong EBITDA development. That said, we had one-time benefit coming out of some adjustments on provisions on account of the reward program which was available for the employees here. The free cash flow remains strong for Celcom. Also there's been a positive development on the profit numbers for the quarter. XL continues to do well.
The quarter's been flattish when it comes to revenue, mainly because of the intensified competition in the market. As you know, most of the players have actually now moved to the unlimited or large bucket plans, and specifically the leader being quite active in 104 cities. Year to date basis, still a strong performance from XL, but much more on the profit side or the EBITDA development, which even if you exclude the impact of the IFRS, we are looking at around 16% year to date improvement in EBITDA, and that's reflective in strong cash flow generation. Part of that cash flow is also explained by the realization we got from the sale of towers earlier in the year. Also you're seeing impact of those efforts in improvement in the profits for XL. Quickly on Ncell, I think there are three factors impacting Ncell's performance. One is lockdown.
I think this is one market where we've seen much more frequent intervention to restrain movement or have lockdown in that market. Given that this is essentially a prepaid market, where large paper vouchers being distributed, lockdown does impact our distribution. Also the fact that a lot of people from big cities have moved to the rural area impact the overall consumption. In addition to that, we've seen doubling of the data consumption given the time. However, the absence of tech neutral spectrum for us, which we've been discussing with the government, constrains our network. Also there is a large ISP market which is providing the fixed at a very cheap prices given during the lockdown people are more in-house, the consumption for that additional data goes into the fixed operators.
These are the factors which have actually caused us to have lower revenue this year, resulting in lower EBITDA and also lower profits. However, the company's managed its flow of CapEx well to keep free cash flow in check. If I go to the next slide. I think Robi continues to do extremely well with now EBITDA margins touching 43.5% on a year-to-date basis. Also on a year-to-date basis, while the revenue's been fairly flattish, still better than what the market is delivering given the current environment, continues to show extremely good numbers on EBITDA by keeping their costs virtually flat over the last three to four years. Cash flows being down because this year, if you recall, last year we had challenges on getting approvals from the government to import.
This year has been far more focused rollout of the network, and that's resulting in lower cash than last year. The business continues to do well when it comes to the profits and continues to show profit quarter on quarter. Quickly touching upon some of the other businesses. Dialog remains resilient, and it's seen a strong recovery in the quarter on revenue, translating into strong EBITDA development in the quarter by managing or curtailing some of these spends to drive improvement in EBITDA and also on cash flows. Profit during the quarter has seen a significant improvement coming from MYR 2.3 billion in Q2 to around MYR 4.8 billion. Touching on Smart, I think this business continues to do well for us.
This market, while has been least impacted in terms of the lockdown, but does have high dependency on tourism as well as the Chinese population, which has kind of moved back during this period of time. However, business still does well on the overall management of costs, resulting in strong EBITDA growth on a year-to-date basis at 6.1%, and on quarter on quarter at 7.3%, and a strong cash flow generation of 8% improvement, resulting in a strong profitability of nearly 4.8% on a year-to-date basis. Just on Boost, I think we've been disclosing some information on our digital businesses. Boost continues to utilize the current environment where people are using online and wallets more often than they would have used otherwise, resulting in a strong 1.8x growth on revenue users, merchants as well as GTV. We have now touched around 8.8 million users in Boost with around 203,000 merchants.
Aspirasi, which is the lending business for us on microfinance, which uses the Axiata Digital and Boost as a channel. We've done around MYR 57 million worth of loans being granted, which is around 5,800 loans. It's been doing well, keeping its delinquencies at a fairly manageable level. AdTech business continues to have year on year growth in revenue and keeping itself above water in terms of profitability and has acquired a fair amount of strategic wins during the quarter. These businesses are one where we are looking at external investors coming in. Some you are aware of already in the process, and some are where the discussions are going on. Edotco business from an overall year-to-date basis, still strong.
However, given that a lot of MNOs have slowed down new tower acquisition during this period and also limitations on movement around this period of time, we've not seen that kind of growth in the number of towers during the year. Also, this business has been impacted by some of the write-offs on account of bad debts from some of our Tier 2 customers, mainly in Cambodia and Pakistan. That's from me on the financials. I would hand over to Dato' to talk about the future.
Thanks, Vivek. Good afternoon, everybody. Well, as Tan Sri and Vivek had explained, and something we acknowledge, the results for the third quarter are very encouraging, very strong by most standards. Directionally, we are giving this guidance of low single-digit percentage. That remains, yeah. Low single-digit percentage decline for revenue and EBITDA for 2020. Guidance for CapEx is likely to hit just below $6 billion. In terms of the fourth quarter, of course, the opportunities remain. We are hopeful that the Collective Brain initiative, which we launched in April this year, will bear fruits in the form of a good price book from the vendors, which we are currently negotiating. This cover, as you recall, the IT network and procurement aspects of the business as a collective. ADS and Edotco monetization. If you remember, we mentioned in passing that we are currently evaluating two proposals from financial investors.
They are very keen to invest in Edotco and be part of the trajectory of the expansion plans we have mapped out for Edotco. Likewise, ADS on top of the Great Eastern investment of MYR 70 million, we are in current talks both on the digital financial services side as well as the AdTech digital advertising side of the business, ADA. As Vivek mentioned just now, there's a higher user engagement for Boost and Aspirasi, supported by the various government Malaysia initiatives for consumers and SMEs. This includes the digitization grant that MDEC is responsible for. e-Tunai and ePENJANA certainly has also encouraged or raised the awareness as well as use of Boost as a platform. Enterprise growth business is something that we are very focused on. The online education and work from home new norm has certainly augurs well for our business.
In terms of risks, as Vivek said just now, the COVID-19 lockdown impact from the extended CMCO in Malaysia, curfews in Sri Lanka, as well as the possible impact in terms of affordability of our consumers given the revised GDP forecast in the various markets across our footprint. I think we are mindful or we are concerned of the high level of bad debts. Well, not so much bad debts, but probably a less ability in terms of prioritizing one's wallet. With closures of businesses and redundancies, this could have an impact on our operations in the months to come. Of course, intensifying competition in Indonesia. The incumbent, Telkomsel, has launched an unlimited package as well recently. That will have an impact also on the competitiveness of the market.
As I mentioned again, the government-led CSR program for university students will cause some pressure on our results. Ncell, the tech neutral spectrum, 900 MHz, the incumbent ISP, are providing very affordable rates. Even before the lockdown, before COVID, if you're on the ground in Nepal, after 7:00 P.M., all the shops are closed, everyone's at home and on the net, and therefore use the ISP's broadband rather than our subscription. That will prove to be a bit of a pressure on the Ncell's results. In terms of the provisions that has been made by Edotco, this relates to Tier 2 customers that Edotco has across the footprint countries, namely Pakistan and Cambodia. Next slide.
The key message that we'd like to articulate today, a strong third quarter results, but potentially soft fourth quarter, so that we are looking at the fourth quarter results, looking at the performance in October and November. Of course, the change in consumer behavior has led to acceleration data subscription and data subscribers as well as usage. That is the good news. Of course, the quarter on quarter recovery is encouraging. As you've seen in the results, the impact of the lockdown second quarter revenue ex-device grew by 6% and EBITDA grew by 11.4%, although year-over-year is very flattish. EBITDA margin expansion driven by the cost excellence, some savings of MYR 396 million, and hopefully this is sustainable in years to come. In terms of operating cash flow, the CapEx moderation has led to an OCF growth of about 44.7% to MYR 2 .4 billion.
Of course, the strong recovery at Celcom in terms of subscribers. We managed to bring in 374,000 new subscribers, both prepaid and postpaid, that is something that we are mindful of and focusing on. Of course, compared to the same period last year, that is still below in terms of our number of subscribers. XL, good performance again, with the heightened competition. We are pursuing the ex-Java strategy relentlessly. It's quite clear that that's a great opportunity for us. Ncell, Vivek mentioned, the impact of the lockdown, the ISP, as well as the current challenges in terms of the spectrum constraint. Directionally, as I've said, the low single-digit percentage decline revenue and EBITDA for 2020, the risks are COVID-19-related ones, lockdown impact, curfews in Sri Lanka.
The additional concern is the economic situation in Sri Lanka, because of the depreciation of the local currency and the economic activities, that will have some impact on Dialog. As well, as I've mentioned earlier, affordability impact as a result of the revised GDP forecast across the markets. Lastly, the other factors, Indonesia heightened competition, the government CSR programs, as well as delays in Ncell spectrum and the provisions at Edotco. As the last slide, this is an open invitation to all of you. Next week on 3rd December, Thursday, we'll be hosting our annual Analyst & Investor Day. The agenda is as what we've set on the screen right now. We are going to showcase a lot of topics that will be of interest to you. Number four, especially, digital telcos, gainers in new normal.
Dr Hans will showcase our efforts in trying to position ourselves to take advantage of the new way of life, new way of working life, and new way of doing things. Idham, the CEO of Celcom, will give a sneak preview of the transformation work that's currently ongoing. There's been a lot of interest in our digital financial services. Khairil will map out the current efforts and the trajectory. We also wish to introduce Adlan, the new CEO of Edotco Group, to all of you for him to showcase Edotco's plans. Of course, topic number 11 should be some interest to all of you. How we repositioning ourselves to be a high dividend company. This is, as we've mentioned earlier, a change in our investor proposition. The rationale and how we're going to do it, how we can make this happen in years to come.
That'll be a topic for Vivek and I to cover next Thursday. I do hope that you can spare the time next Thursday to join us on our annual Investor Day. On that note, thank you for your attention. I hand over back to Clare.
Thank you, Dato'. We're moving on to the Q&A session. It's the same drill as what we did the last quarter. There will be two ways you can ask your question. Option one is if you ask the question verbally, remember to raise your hand in the option bar, wait for your name to be called out. Remember to unmute yourself on your computer, you can follow with your question. After the discussion or your question, please remember to mute your computer again. The second option is via the Show Conversation. You can basically type in your question in the meeting chat room. Again, that's the little chat icon there. You click on it, please type in your message or question there, we will address your questions accordingly. We can start now.
Feel free to type in your questions in the meeting chat room or raise your hand and we will address your questions accordingly. We'll give you a couple of minutes to A couple of seconds, perhaps.
We can begin, Boss.
Just a reminder, you can do that via Raise the Hand function, which should be at the top right-hand side of your computer screen to ask your questions verbally or also click on the chat box function on the top right-hand corner to type in your questions at the bottom right of your computer screen.
Is there a question?
Oh, I see. Sorry. Yes, we do have questions coming through. The first question comes from Foong from CIMB. We can unmute your line for Foong from CIMB. Please ask your questions now.
Hi. Good afternoon, thank you for the opportunity, and congrats on the good set of numbers for 3Q. Three main questions from me. Number one, on the government free education quota program in Indonesia, can you provide a bit more color on the revenue and earnings impact for XL now that we are two months into the program? That's question number one. Number two, for Celcom, what drove the big jump in prepaid subscribers Q on Q? What proportion of the gross adds in the third quarter were coming from the prepaid unlimited plans? For postpaid net adds, from which ARPU segments were the subscribers coming in at? With the first increase in subs in five quarters, do you think we have finally turned the corner here? What does the October and November numbers indicate?
Also on Celcom, what else do you need to do to strengthen Celcom's market positioning and any visible gaps that you can see? My third question regarding CapEx, you've optimized CapEx this year, and as you mentioned earlier that it has not affected the consumer experience. Do you think that this is sustainable or will we eventually exhaust spare network capacity or lose competitiveness if we were to keep to this level of CapEx going forward? Yep, those are my three main questions. Thank you.
Thank you, Foong. On your question on CapEx, is that the group or you're talking about Celcom?
I'm talking about the group.
Group?
Yes.
Okay. The first question you asked on Indonesia, I can get Budi from Indonesia to answer the question. Budi, you're on the line?
CFO.
Budi is the CFO.
New CFO.
The new CFO of XL.
Thank you. Probably not too detailed. I will give a bit high level. The program launched in the last two weeks of the quarter, on the third quarter. We are about to try to catch up, getting a quite number of subscriber. Until last month, we managed to inject around 6.1 million subscribers. In terms of the dollar impact, probably I could not disclose the detail, but if you look at the news, you can calculate roughly how much the contribution. However, don't forget to discount because the one that we can recognize is only the used portion. I think that's it. Pretty much it's more on our AXIS brand, which is our youth segment brand that we're playing on this field. Hope that answered your questions.
Budi Pramantika, can I just follow up quickly on what you said?
Yeah.
Is there going to be revenue dilution from this program going into the fourth quarter? Would there be incurrence of higher costs, maybe from SIM distribution or the need to pay your dealer commissions and all that for the program?
Yeah. In terms of cost, not significant because it's pretty much the same channel that we're using, the same infrastructure that we're using, right? It's more on the revenue stream. The pressure on us is more on the ARPU. ARPU is the one that we continue monitoring because that's true, there's potential cannibalism in terms of ARPU for us. The same customer who used to spend more, now they pretty much using their quota first from government before they start using their own.
Okay. Thanks, Budi. Celcom, is it Jennifer to answer the three questions on Celcom? Jen, please go ahead.
Idham Nawawi. I'm also here.
Yes.
Yeah.
Okay. The CFO of Celcom.
Yes. Idham Nawawi, thank you. Thank you, Foong, for the question. Yes. We did have a surge of customers in the third quarter. A couple of factors, but I think one of the main factors, of course, because of the width of our network. The main factors is we introduced our product that is now quite attractive and competitive in the market. I think that's one that drove the demand higher. Besides that, we have also done quite a lot of work in terms of strengthening our trade. A lot of the trade practice, how we look at the trade and our dealers, especially our prepaid dealers. This drove in terms of what we were able to increase our gross add and net add in prepaid over the third quarter. Yes, in terms of proportion, what is unlimited?
Yes, unlimited is one of the most attractive product out there. It forms a majority of our new adds in terms of prepaid.
Yeah. If you want to answer.
Okay. On your question around postpaid. Yes, we have a positive net adds for postpaid after, like you said, the fifth quarter. Finally, I think we do have a product that we launched even before the MCO early in the year. However, because of the MCO, we were not able to take full advantage of the product. Post-MCO, we're seeing this product is doing quite well in the market. We are quite happy with it, though it is still very early days. I'm going to pass to Jen later in terms of your question around bad debt. What we are doing quite a number of things to improve our positioning now in the market. I also have with me Allan Bonke, our new Chief Commercial Officer.
We are doing quite a number of things, which I will allow him to elaborate after this, around, of course, strengthening of our network, around rebuilding our trade, and also continue to introduce new competitive products. Maybe I'll pass to Jen to talk a bit about the numbers.
Hi. Jennifer here. I will quickly bring us through in terms of the bad debts. I think the previous bad debts that we see, which was actually very high, was mainly because of the very aggressive device program that we had till end of 2018. We are starting to see when we actually experience the bad debt, we actually put in a couple of new rules in place. With that, we are starting to see that the number has actually trend a lot more reasonable number. If you look at the Q3 number is at 0.7% of the total revenue. There is quite a couple of things that we have actually imposed in the last couple of quarters to actually bring down the number. One is that in terms of the credit checks that we have with the customer.
In the past, we were a lot more liberal and a lot more lenient in terms of the customer acquisition with devices. With the new things that we actually put in place, like say for instance, credit cards and credit checks, the bad debts has actually trend a lot further down, and it's a lot more sustainable at this current point in time. On top of that, going forward, we are going to put in a few more measures, not just to trim down in terms of the bad debts, but it's also to encourage the new subscribers that's actually coming to actually encourage the customers to come in with our device bundle. I hope that answered the question. I'll pass it to Allan.
No. I can just echo with what Idham was saying regarding the unlimited. You're absolutely right. It's more than half of our cross add at the moment is coming from unlimited. That in line with what we're doing, expanding our trade with both new dealers and expanding our slow dealers being more active. We have increased the number quite a lot when it comes to active outlets who are selling our products. A lot of good effort and a lot of progress in the whole trade. Thank you.
Okay. Fifth question.
Foong, I'll take the last question, which is on CapEx. CapEx this year is going to be expected to be below MYR 6 billion or around that level. This has been on the basis of us being extremely careful on our CapEx spend and prioritization into 2020. The businesses where there has been lower CapEx has been essentially Edotco, where there is a lesser number of orders on new towers, which I think should open up once all these lockdown, et cetera, gets over, where MNO starts putting new towers in place. It is also in markets like Indonesia and Nepal. Nepal, essentially because of the lack of spectrum, that we cannot really invest on the network.
Apart from that, I think going forward, we should be looking at the CapEx intensity of around 23%-24% going down to 20% over the next three years, which is what we have been communicating even in the past. That said, we still see opportunities to grow in some of the markets. For example, we will continue to focus on investments ex-Java. We will continue to focus selectively on investments in non-CCB, in Bangladesh, which are the markets where we still see opportunities of growth. The level of CapEx would be still around MYR 6.5 Billion, coming down to the levels of around 20% of revenue over the next two to three years.
Thanks, Foong.
Does that answer your questions, Foong? Do you have any follow-up or comments? Otherwise, we'll move on to the next question. Okay. Moving on to Alex. We have a question from Alex Goh from AmInvestment Bank. Your line is now open. Please ask your question.
Foong didn't respond, right?
Please remember to unmute yourself, Alex.
Okay. Thanks for the opportunity, Clare. I've got a number of questions. Thanks for the opportunity. The first thing is that you're guiding now for a potentially soft fourth quarter after a strong third quarter. Given the numbers that you have in October and now, is that the current situation? Do you see softness taking place under this third wave of COVID-19? Are you just being cautious or being prudent in this case? That's my first question. My second question is regarding Celcom. Thanks for the bit more in-depth explanation on Celcom's numbers earlier. Given the rise in competition from almost everywhere, do you see the kind of growth that you've experienced in this third quarter to begin tapering off maybe in the fourth quarter or maybe early next year? My third question is regarding Ncell, where you have these spectrum constraints.
When do you expect these spectrum capacity issues to be resolved? How are the negotiations going on with the regulators? Yeah, sorry. My fourth question is regarding Edotco.
Go ahead, Alex.
Okay. My fourth question is regarding Edotco. You've indicated monetization plans. Could we have some idea of what the timeline that we're looking in, and are we also still looking at an IPO, or are we just looking perhaps for more direct investors?
Thanks, Alex. Why don't I get Idham to answer the second question, and Dato' Izzaddin will answer question number one, number three, and number four.
Dato' Idham.
Please, Idham.
Thank you, Tan Sri. Thank you for the question, Alex. I think we all know the market in Malaysia is highly competitive, and whatever growth that we have seen probably is not going to be exponentially growing continuously. What our objective is, frankly, is to outdo the growth of competition. I think the way that we're doing now, we're looking at market by market, region by region, and how we manage or compete rather in these micro markets and outdo the competition in each of the market. We're also depending very much on how the market is going to be doing. We think we will continue. We believe we can continue to be competitive, and as our trade is being strengthened, as what Allan said earlier, we hope, we look forward, or we think, we believe, actually, we can continue to outdo the competition.
Okay. On the first question on the fourth quarter, whether we're being cautious and conservative. Actually, a bit of that. Alex, in the context of what's going on, with foreclosures and job losses in Sri Lanka, we are equally challenged with the introduction of mobile number portability, competition as well from the Sri Lanka Telecom. In Bangladesh, Grameenphone has a significant market presence. All in, all factors taken into consideration, we just feel our assessment that it'll be a soft quarter for the full year. Well, fourth quarter will be soft so that the full year will be, although it is much better than what we expected earlier on, yes, certainly, the extended CMCO, curfews in Sri Lanka, Indonesia, and so on. Taking all those into consideration, we felt that the fourth quarter will be not as encouraging, not as strong as the third quarter.
The Ncell situation on the spectrum, the discussions with the authorities ongoing. It's not just about the timing of the spectrum that's been ordered. It's also the rollout obligations that will impinge on the viability of the business. We are trying to see, or we are in discussions with the authorities. This, as you would expect, take a bit of time. We're working very hard to try to make sure that the spectrum is awarded on terms that we can make it work. Edotco monetization. There's two aspects to this. As you all know, Edotco in its current form has a lazy balance sheet, meaning it doesn't have that much gearing, and it has something like MYR 1.1 billion cash sitting in its balance sheet.
Based on the trajectory and the plans that we have, certainly Edotco can go out there to gear up to raise something like $1 billion worth of borrowings before there is any concerns in terms of the financial metrics. From 0.7x EBITDA, if we assume three times, 3.5x , you can easily raise something like $1 billion. That's the first point. The second point is, as we mentioned before, we are currently evaluating two proposals from financial investors who are interested to participate in the business of Edotco, as well as the trajectory. If you think about it's very, very understandable because everyone considers the telco sector to be resilient to the pandemic or whatever's going on. I'm a bit cautious to use the word resilient.
We are affected in terms of defaults, in terms of lesser customers and customers having to prioritize their wallet. If you look at the tower business, it's very much resilient because the MNOs will always need these towers to make sure they can provide the service. Of course, Edotco, as we alluded to, has its own set of challenges in terms of deferral of roll-outs, in terms of the Tier 2 customers, which we need to make some provisions for the third quarter. That process, in terms of evaluating the two, the proposals, financial investors are going on. Hopefully we'll have some closure and be in a position to make some announcement before year-end. I'm pretty optimistic that we can do so, but then again, it depends on the final set of numbers after the due diligence work that's ongoing, as well as negotiating the definitive agreements.
As an aside, you may be aware and have picked up the news, INCJ, which has about 22% stake in Edotco. They are a fund, and they are in the process of also exiting the business. That's something we knew for some time back, and we're trying to make sure that the shareholding is very much intact in terms of the capacity of the shareholders moving forward to be able to fund the expansion plans of Edotco. IPO is always on the cards. Given the current circumstances where we are able to raise funding outside of the IPO platform, we take the view that that's always on the table, and that's something that we could possibly pursue in three to five years' time.
In other words, especially given current market conditions, that is not something that we want to pursue, especially when Edotco can raise its own debt to fund the expansion plans. I hope that answers all your questions, Alex.
Yeah, it do. Can I just follow up the question on Ncell?
Yeah.
Could you describe the issues that we are really facing with the authorities? Are you still having these issues that you are linked with the capital gains tax issue in the past? How would you describe your relationship with the regulators?
All regulators, they are, how should we say, always trying to make sure that they're able to generate enough revenue for the country. Telcos in the emerging markets have always been considered the tobacco companies of yesteryears. You see this manifested in Bangladesh, for example. Suddenly the regulator introduced a tax on our revenue, for example, last year. It's a pretty healthy discourse. That's how I describe it. The capital gains tax issue, as you all know, the Supreme Court has already decided. We are in the process of an arbitration with the government of Nepal through the bilateral investment treaty, and that's ongoing. That is also long drawn. That can be long drawn. On the ground, I think the government, the way we pitch our business is that we are trying to provide connectivity for the people of Nepal, the consumers.
If the government imposed conditions, for example, we talk about rollout obligations. If the condition is nationwide, that will certainly not make our business viable. That's not something that we can accept without any sort of concessions, if you like. Rollout obligations are common across all the footprint countries, and there are ways of doing that. That could be over a period of time, focus on certain cities, and so on. These are the challenges that we face. Nothing new, actually, if you ask me, Alex.
Okay. Thank you so much.
Thanks, Alex. Thanks.
Okay. Moving on. We have questions from Prem from Macquarie. Your line is open now. Prem? Remember to press unmute as well.
Prem, can't hear you, Prem.
You need to unmute. Click on the unmute button. He said he can't.
Okay, maybe we come back to you. Sorry about that. The next in line is Arthur from Citibank. Please unmute your line and ask your questions, Arthur.
Can you hear me?
Yes.
Yes.
The radio silence.
Okay, sorry. Some technical issues. Three questions, please. Firstly, on the risk factors, you mentioned bad debt provisions for Edotco. I'm just wondering if that can be clarified. Why would Edotco have bad debt issues considering its B2B nature? Second question I have is with regards to the digital services. You mentioned reduction in losses into this quarter. What's driving this swing quarter-over-quarter is sustainable going forward? Last but not least, with regard to government service, so this JENDELA program, as well as the 2021 budget, how will that impact the company? What are your responsibilities under these programs? Thank you.
I'll take the first one.
Thanks, Arthur. Why don't you answer the first one?
Yeah. Thanks, Arthur, for the question. On Edotco has got essentially two types of customer. We call them Tier 1 and Tier 2. Tier 1 are, if you like, the Ooredoos, the Axiatas, and the Telenors of the world. The bad debts are provisions that we're making against the Tier 2 customers. Yeah. These are not, if you like, those names I've mentioned. Specifically, these are operators in countries like Pakistan and Cambodia. Yeah. In the case of Pakistan, the obligations, or rather the operator, the second tier, the Tier 2 operator, has not met the payments that have been outstanding. What we've decided to do is make provisions for the amount that they owed. Even took quite drastic actions actually, because the amount due has been for some time.
We've decided to even switch off and dismantle the towers that were for that particular customer. In Cambodia, the license of one operator has been revoked by the Cambodian government. This happened two months or three months ago. Given the circumstances in which that was done, we've taken the more conservative view to make provisions for the amount owing by that operator. On ADS, what's driving lower losses? I think like all the startups, the mandate that was given to both the digital financial services and the digital AdTech has always been for them to turn around for profit in time to come. In the case of ADA, the digital advertising, they turned a profit, a small profit last year, a bit more than breakeven last year. They're good to go.
On the DFS side, the ePENJANA cost that was neutralized with the MDEC grant, for example, yeah. It wasn't like the first round where e-Tunai affected the bottom line in quite a dramatic way. Of course, the marketing funds, we are much more focused. I think you would have picked up from the market as well, the other wallets are spending more than Boost. At the same time, we've also able to negotiate some rebates or lower discounts from the merchants themselves. All in all, this is the general direction that we have given to the team to target towards profitability in the near term.
Idham, can you answer the third question?
Yes. Thank you. Thank you, Arthur. On JENDELA, of course, Celcom is fully participating in the JENDELA as part of our commitment to our regulators, as part of the industry to support the JENDELA program. If I may, there is a couple of areas that we need to do. Number one is, of course, is the expansion of the network to cover beyond what the industry has today to about 95%-96% population coverage by the end of next year, 2021, and also to improve the overall Quality of Experience to the customers. This is something that, together as an industry, we are working on it with the regulator or MCMC. One of the biggest plan for JENDELA is the 3G shutdown, which is planning now towards the end of 2021. Which is 3G shutdown has always been in our plan.
The only difference here is we are accelerating it even earlier to 2021, and we are doing it as an industry. This is something that's not a surprise to us, but in a way to make it a lot more coordinated than what we've been. We are working towards this, especially on migration of our customers from the 3G voice network to the VoLTE network, so on and so forth. What it does also with the JENDELA program to make sure that we doing this in the most efficient way, the industry is collaborating a lot more, a lot tighter, especially in working out to roll out into zone three and zone four for the more rural areas, especially in East Malaysia, the Sabah and Sarawak.
Just to add on to what Idham said, as you all know, all the countries have set up this equivalent of the USP in Malaysia. For Malaysia, one formulation that is being discussed is how those funds can be utilized to roll out the JENDELA initiative by the government. As it is, there's nothing of substance that we can share with all of you. That's still work in progress. As Idham said, this is a industry-wide effort to support the JENDELA program. Hope that answer your question. Arthur?
Hi. Yeah, sorry, just to clarify, on the budget for 2021, there was also this comment of MYR 1.5 billion being taken on by the telcos in terms of subsidies. How is that going to translate into Celcom?
Idham.
Okay. Let me give you a bit background on that. There is a program that has been driven by the government, is to help in terms of penetration into the B40 segment. This including the government subsidizing some of the devices as needed, especially for the youngsters and the students in the B40 segments and the family. The telcos as an industry will support and will provide a different kind of either subsidy or service in kind.
Idham, we can't hear you.
Idham, we can't hear you.
Can't hear me?
Can you start again, as an industry?
Let me start from the beginning. In the budget. Can you hear me now?
Yeah.
In the budget, the government put together a plan or program to assist the B40 segment. Especially in making affordable devices available to the B40 families, especially with the children that's schooling, to help with the learning from home. As an industry, we are supporting these initiatives because we have the distribution to help reach to these families through, by giving out some further assistance, either in a kind of service in kind, in terms of capacity, or as well as in terms of some device subsidy if necessary. Predominantly for Celcom, we are looking at how we can complement the existing subsidy as given by the government with our services to help these families.
I think just to add to what Idham said, the government is giving the telcos the latitude of how best this can be implemented. For example, in the early days of that one GB per day free data, there was no restrictions whatsoever. Later on in that program, telcos were able to tweak it so that access is only to the more informative educational type of access. I think, it's a balance what the telcos are trying to do in support of the government's initiative, to help the B40 segment of the community. I think the guidance or the assurance we can give is that the government's also sensitive to the viability and profitability of the telcos. Thanks, Arthur.
Understood. Thank you very much.
Thank you.
Thanks, Arthur.
Okay. We'll circle back to Prem from Macquarie. Your line is now on. Hopefully, we can hear you this time.
Yep. Yeah. I won't get into the details. Anyway, thank you for the opportunity, and congratulations on a good set of numbers. My focus is largely on Celcom. First of all, specifically for Allan. Sorry to put you on the spot, but what do you think has been wrong at Celcom? What needs to be done? You've done a good job so far, but I believe you only came into Malaysia recently. What have you seen on the ground, and what do you think needs to be shaken up even more to deliver better performance, right? Do you think that whatever you do could elicit a response from the peers, which could then cause the industry to go into a tailspin mode? How do you balance that growth versus the potential destruction of the entire market?
Secondly, for Idham, we were talking about VoLTE and fiberization, et cetera, with regards to JENDELA. Could you give us some color as to how far we've got with actual fiberization, where we need to get to, what it's going to cost? With VoLTE, I do understand that there's a certain amount of CapEx that needs to go into it, and could there be any further asset write-downs as a result of all of that?
Okay. Thank you, Prem. Allan?
Yes. Thank you, Prem.
Idham respectively.
Thank you for your questions. This could be a very long answer, right? I'll try to do a little bit of-
I've got time, man.
I'll try to do a little bit of focus, right? I think because one of the main word when I came into Celkom was focus, right? The first thing I did was looking at the last four or five quarters, and it was very clear there was a lack of success stories within Celkom, and there was not a lot of energy in Celkom. You couldn't actually pinpoint some of the big wins. I said, "Okay, let's focus on a couple of things to make sure that we at least get some success." I was looking at the market situation, seeing that we are not very competitive, or we were not very competitive in the market.
Actually, our ARPU was a certain level above our peers, and I know that we have a premium network et cetera, but we could allow ourselves to be a little more competitive in the market. I said to the guys, "Guys, the first thing we need to do is, number one, we need to acquire cross-sell. We need to have new customers coming into Celkom." By doing that, we need to be very granular in our approach in the market, looking at all the drivers that drive the cross-sell. Meaning they look at the retailer, look at the dealers, are they active, are they not active, et cetera. Look at the advocacy, have the best storytelling, be close to them, et cetera. We have done all that for the last four or five months.
Now, looking into all the, what you call, the surveys that we've been doing regarding advocacy, visibility, brand tracker, Facebook stat when it comes to cross-sell. We are number one now. We are the most preferred brand/product in the market at the moment. That's a huge achievement. It's about being focused and simplicity and get some energy back to the field force. That's the first thing. Now, you're also asking, what about the peers in the market? Would they react? For sure, they will react, and we are also reacting. That is a never-ending story. I think when we capture the customer coming into our base, then we need to have a second to none CLM.
Meaning we need to upsell, we need to cross-sell to our customer, that has to be supported by a very, what you call it, sophisticated analytics team to make sure that we can actually deliver that. If we can grab the customer into our base, then I'm sure working with the CLM analysis, we get to get more ARPU, upselling, cross-selling to these guys. Yes, I cannot expect they will not come back in the market, especially if you see Digi has not come in yet. There will be some adjustment. Again, I don't think that's gonna be a big mess. I just think we need to be better to monetization our customer in the future. That was the short answer. Thank you, Prem, for the question.
Thanks, Allan.
Oh, hi, Prem. How are you? Thanks for the-
I'm good, thanks.
For the question. Yes. The biggest part of the JENDELA is the 3G shutdown, which we need to, one, is migrate our voice traffic from the current 3G to VoLTE. We are in progress on that, actually. As far as the network is concerned, we have all that ready for VoLTE, except for licenses that we need to invest in as the number of customers is growing. We have planned for that. In terms of fiberization, we're talking about our sites fiberization. Today, we have about one-third of our sites fiberized to the sites itself. Another 40 odd percent of our sites is actually about one hop to fiber.
We look forward to actually increase this 33% to reach around 50% within the next 12 to 18 months, so that we can support the higher QoE that's expected by the JENDELA, as well as to improve our overall plan. In terms of the asset write down, et cetera, maybe I will leave it to Vivek to maybe to pick this one up.
I mean, there's no write-off as such, but the fact is that across markets, not just Celcom, across markets with the change in dynamics which is happening at this point in time, we are seeing a much early shutdown of 3G network because we do need to refund the spectrum for the 4G requirement. That's more a technology-driven initiative that may result in acceleration or early shutdown, consequently write-off of some of the 3G network. That's going to be operating come OpCo by OpCo evaluated.
Non-cash.
This would obviously be a non-cash, and obviously, we will look at it from a business case standpoint, not just from an accounting perspective. There is a positive effect of early shutdown of the network.
Thanks for that. Vivek, maybe if I could just throw in one more, especially with regards to depreciation. This quarter, we saw quite a big drop-off in your depreciation expense. Was there anything one-off-ish in that, or it's just because we've cut down on CapEx?
Yeah. I mean, it's on account of come down on CapEx, so there's no one-off in the depreciation this year, or this quarter.
Okay. Thank you very much. Thanks, everyone.
Thanks, Prem.
Thanks, Prem.
All right. Moving on, we have questions from the line of Ranjan from JPMorgan. Please go ahead, Ranjan.
Hi. Sorry. I'm in a mask. I hope you can hear me.
Yeah. A little louder, Ranjan.
A little louder might help.
Hi. It's better now?
Maybe slightly. Go ahead.
Okay. I have three questions, and thank you so much for taking the time. Firstly, on your cost optimization plans, you had previously shared a MYR 5 billion plan between 2017 to 2021. If you can share what the progress is and if you have new targets in place. The second question is on the Omnibus Law in Indonesia. The draft regulations are out, which talks about spectrum retention post M&A.
Yeah.
Since you have spoken about consolidation in the past, how do you think this impacts the industry going forward? Last question is on the third quarter, the big jumps in EBITDA in Celcom and Ncell. Are there any one-offs that we should be aware of? Thank you.
Thanks, Ranjan. Vivek, on the first question.
Yeah. Let me take, Ranjan, the first one.
Sorry, just to get ready. Maybe Budi, just get ready for the second question, and Idham on the, well, Jennifer on the third question.
Jen, and maybe I can take on Ncell. On cost optimization, Ranjan, in 2017, we said we will take out $5 billion, which was kind of distributed equally between CapEx and OpEx, from a savings standpoint. We're kind of completing that $5 billion journey by the end of this year. Around 40% of the savings are in OpEx, and around 60% would be on the CapEx. OpEx obviously goes down straight into the profit line, but we've also been simultaneously investing into the growth in some of the markets. Going forward, we do not have any target in place, but the efforts are more coming out of the Collective Brain initiative, which is really getting, in a way, brains across the entire group on IT network and procurement. With procurement more centralized as Axiata Procurement Center to drive the efficiencies on the cost.
The ultimate objective is for us to achieve a targeted MYR 0.10 as cost per GB by 2024.
Yes.
We'll explain that more in the Investor Day, how we intend to drive that. What we've seen in $5 billion, while the number sounds extremely good and attractive to follow, but it does not really translate into the cost per GB. It also does not translate into the margins for data. Our focus now is how do we work on different initiatives to gradually improve our data margin, because by 2024, we expect nearly 90%-95% of the traffic in the form of data.
Budi, you answer question three? Yes.
Question three on the EBITDA jump. I think, one item which would be a one-off, I would say is really not one-off. There is a reversal in the provisions relating to the reward program which we have on an annual target achievement. Given that this year has been an exceptional year, where the gap between the target and what we are likely to end up the year with, there was this excess provision available, which is being reversed, which is on account of short-term incentives available to the employees. That's not necessarily a one-off, it's more linked to the performance as such. That's something which has come in quarter three. Apart from that, I think the big gain has come out of the bad debt improvement this year.
Some of it relates to the losses which we had provided for in quarter two, where we've been able to recover those losses through a very effective collection program during the quarter. These are the two items. Other than that, in case of Celcom, there's nothing else which is in the nature of one-off. Ncell improvement is essentially coming out of the growth quarter on quarter, on the top line. Nothing as such exceptional. Obviously, given that there has been shift to some extent on the digital recharges in that market, given because of the lockdown, et cetera. There has been lower sales and marketing spend in the quarter, and also some curtailment of some of the overheads in that market. Those are not one-off in nature.
Yeah. Ranjan, thanks for the questions. You're right, this Omnibus Law came as a good surprise to the industry. Not only on the spectrum, as you know. This law pretty much make things even more clearer for us as the player in the industry. Not only spectrum sharing, but also the law allow us to do not only retention but also spectrum sharing. It's not only post M&A you can retain the spectrum, but also you can share the spectrum amongst the player. With that, the option is not only M&A. For us, it become more options now. Not only M&A, but we can also do spectrum sharing between players.
Also, the infrastructure setting also aligned a lot by this law. The price floor and the price ceiling will be there. It's pretty much very positive law for telco industry. Whether we going to do M&A or we do something else, that's going to be something that we continue exploring. Now, for us, the option is more, and it's just a matter of time, where are we going to go within those options available, Ranjan? Thanks for the question. Hope that address.
Ranjan, maybe I can add to what Budi responded. As you know, the Omnibus Law was issued by the government of Indonesia with the main objective attracting FDI. As you would appreciate, this the beginning, if you like, of that effort. What is happening right now, and possibly in the next couple of months, is the operationalizing of the various Omnibus Laws, the various provisions. In other words, the various ministries are engaging with the operators in the telco industry, for example, Telkomsel, XL, Indosat, Hutch, everyone's providing their inputs as to the, if you like, the various aspects of the specifics, if you like, of the law that the government is trying to introduce. In other words, I would exercise a bit of caution in terms of what we can do in terms of M&A, spectrum sharing, and so on.
Hopefully, in the spirit of trying to attract FDIs, hopefully that will manifest in the way that we expect it to.
Thanks, Ranjan.
Thank you so much.
Thanks. We actually have a follow-up question from Arthur. He sent it via email. Basically, Arthur from Citi. Basically, to clarify, were the provisions for Edotco already done, or this is yet to be done?
It's already done.
It's already done.
I'll just add to that. While these are done, but there is still certain poor Tier 2 operators where we are monitoring it closely in terms of potential risks which are exposed. At this point in time, nothing that we
The ones that we did was in relation to the Pakistani Tier 2 operator, Arthur. That one is long overdue, if you like. It's beyond six months sort of debt that was due. That led us to the drastic action of dismantling and turning off the towers. Yeah.
Thank you, Arthur.
Okay. Last call for any further questions, whether verbally or in the chat room. I don't see any more questions, and we can proceed with closing from Tan Sri.
Okay. Yep. All right. Thank you very much for everyone for joining the third quarter 2020 results. This has been the easiest IR discussion that I've ever had in my career. One, because we have good results. Second, my job is just to pass the question to everybody else, so that I don't have to answer any questions. Jokes aside, thank you very much for all. This is my last day as the IR discussion or presentation or conference that we have with you. Oh, not really. Sorry. Not really.
Last meeting.
I forgot that we will have one more.
Yeah, this is results, so it is last.
For results, the last one. We will have I hope to see of you virtually during the next meeting, which is the Axiata Analyst Day. With that, thank you very much for all the questions. Thank you very much for participating in this call.
Thank you.
Thank you.