Earnings Call: Q1 2018

May 22, 2018

Ladies and gentlemen, thank you for standing by, and welcome to Asceta Group First Quarter 2018 Results Briefing. There will be a presentation followed by a question and answer session. Firstly, free housekeeping reminder. Please mute your phone during the presentation and kindly avoid using wireless headset. Also note that the call duration will be for maximum of 75 minutes. The call will end by 7 pm sharp. In view of the Ramadan demand. Today, we will assert the group CFO, we will lead the conference call. Dansui Jama Rudin, the President and the Group of CEO sent his sincere apology as he is currently still in the midst of a set up work meeting. He hopes to join us later. I would now like to hand the conference over to your speaker today. Mr. Thank you, sir. Please go ahead. Thank you, Franky. Very good morning, good afternoon depending on where you are based. First of all, apologies from Tanshi Javal. He's still in the board meeting. So, he will probably try and join when the Q And A session happens, but in the meantime, I'll go through the presentation. I think first quarter 2018 has been impacted partly by some of the changes which will happen in the, in the, accounting standards, MFRS 15, MFRS 9. We've had some impact coming on, on account of the ForEx translation from the operating currencies into Ringgit. As you know, Ringgit has over the last quarter strengthened compared to some of our operating currencies. We've had the impact coming out of the idea dilution, where we were holding around 19.7% end of last year, and now at 16.3 percent, because we did not participate in some of the new share issuance of IDEA. And lastly, some of the changes in Bangladesh on account of how we consider revenues from from devices, which in the past was accounted as revenue, now that we have an arrangement where we do not buy and sell revenue, these go directly to the retailers. So that's been excluded from erevenue. Barring these impacts, which have, has resulted in the financial implications for quarter 1, I would say our underlying performance has been healthy. Despite, as you all know, regulatory and market rate market challenges in Indonesia, we are past the same registration activity now. But as you know, the first quarter did see a significant impact on account of SIM Registration regulations in Indonesia. I'm very happy to say first quarter, most of our opcos actually gained market shape. And from a profit standpoint, we profits Patami was in line with our expectations a little bit impacted because of the losses coming from, India. And also some of the startup investments in the new digital verticals, which we explained earlier. In the past. What I would do is try and explain more from a pre MFRS comparison just to give a perspective of what is the underlying performance. And then we have post MFRS numbers available. So if there's any question on that, we can have discussions. Pre MFRS, year on year, we grew, 5.2% on revenue. And 4.3% on EBITDA. If I exclude the investments in new businesses, start up investments, EBITDA grew by 6.2%, which basically, continues to factor in our drive through cost optimization. Idea impact was this quarter was around 124,000,000 ringgit, which did bring down our Potami. However, without Putnam, idea impact, we did see a positive 2.5% growth in Putami. Quarter on quarter numbers show negative for a couple of reasons. 1 is, of course, lesser number of days in quarter 1. 2nd is seasonality. And third, as I said earlier, some of the accounting changes, specifically on how we accounted for devices in Bangladesh. Year on year on actual currency, as I said earlier, some impact coming because of the foreign exchange translation. And this, just to give you a perspective, from first quarter last year to this first quarter in 2018, we've seen around 10% strengthening, on an average of ringgit compared to other operating currencies. And that's had a have that's had impact on the actual numbers. But as you know, this does not have any impact as such on P and L, and or on cash position. It's just translation impact reflected in the numbers. Post MFRS, the impact on account of device bundling has increased our revenue by $148,000,000, however, not material impact, when it comes to EBITDA and, put down your numbers. As we've been saying in the past, our focus around cost optimization continues, we had set a target of $1,300,000,000 for 20.18 and I'm happy to say we are progressing in line with our plans and most of the projects relating to the cost optimization program have been identified and they are being delivered. Balance sheet remains strong. With the gross debt to EBITDA at 2.23x marginally lower than what we were at the end of 2017. And that's mainly because of the EBITDA has shrunk, consequent to the, translation, impact in 2018. Loss on account of dilution of idea, we did account for $258,000,000, which we have normalized for our normalized performing numbers, but when we look at PAT numbers for the quarter, this would be visible. And this dilution has basically reduced our holding in idea from 19.7% to 16.3% The other acquisition I think is progressing in line with the plans And Suresh can cover that later on, where we are, but it's fair to say that we should be closing it before the end of this quarter. Now I can go into this specific performance of the OpCos I think Cellcom had a fairly good run when it comes to revenue growth. Service revenue grew by 2% year on year. Contributed mainly from prepaid performance. And I think for the first time of the few quarters, we've actually seen prepaid subscriber number to be stable. The performance on EBITDA is marginally lower at -1.6 and Podami marginally lower at 2.5 percent year on year. Data growth continues to be strong. And it accounts for nearly 47 percent of our total revenue. I think focus on high value customers continues to have an impact on our ARPUs. We've seen a strong growth in ARPU, which is 87 for post paid and 34 for prepaid. I think one of the main focus areas for Cellcom has been to provide good customer experience. And we do measure that on the basis of NPS, which is the transaction NPS which we've seen a growth from 68 to 77. The network investment continues to be there with the increased coverage of 88% on 4G and service exposure on 4G LTA. As I said earlier, I think the subscriber numbers have seen a positive trend, for the first time, and that's being pushed to improve sales in this a margin impact, marginally coming out of some of the investments going into the improved network experience digitization, but continued focus on cost optimization remains for Cellcom. If I may go to the next one, Excel, you all know what's been happening in Excel consequence of the same registration process. The market has seen a year on year degrowth of 5%. What I'm very happy to say, despite the market growth degrowth of -5 percent, we've seen a positive growth for XL and year on year XL grew by 4.4% on revenue, 7.5 percent on EBITDA, marginally negative impact on on PAT, mainly coming out of the increased depreciation and interest cost, into consequent to the increased investments which we've been making, into, coverage outside the Java region. I think the transformation, agenda for Excel continues to be in place. The dual brand strategy is still doing well. In fact, when the market became extremely competitive, XEL has done a fairly strong performance in that situation. Our view is that with the same registration process now behind, we should see a positive or healthier market environment, going forward, which should, over time, give a much better market situation in Indonesia. If I'm not going to dialogue, I think continues to be an extremely good performance of dialogue. They've been beating our expectations on all parameters, with revenue growth year on year of 17.2 percent EBITDA growth 32.1 percent and profit growth of 82.3 percent. And this is not coming just from mobile, but across different lines of businesses in Sri Lanka. We continue to have a good momentum on on the data growth, the 32 percent contribution from data revenue and smartphone penetration continues to be growing. So having extremely good performance from Dialog in quarter 1, but we are also aware of, the structural issues at this point in time in Sri Lanka. Robi, again, another very good quarter of performance for Robi, a strong 5.9% year on year growth and a 24% growth on EBITDA. Profits was negative pretty much in similar to last year, mainly coming out of the impact on local interest rates in Bangladesh. Just to give you a feel, at this time last year, the interest rates used to be around 6 to 7% which have now shot up to around 10% to 12% range. But we believe this is a short term impact because of lack of liquidity in the Bangladesh market. Extremely good rollout of OG, way ahead of the we've done 5000 4G base stations, which is nearly covering 50% of the, population already. And a very strong, growth on service revenue. As I said earlier, when you look at total revenue last year was including devices this year, revenue was excluding devices, the service revenue growth of 12.4% and a 3.4% quarter on quarter growth. With the successful launch of 4G, I think, is putting Rovi in a fairly position. If I can go to the next one, NCELL. NCELL has done an extremely good performance in quarter 1. Despite the ILD revenue following and we've been seeing that ILD revenue degrowth of around 17% to 18%, in the past, which is what the trend is. But I am happy to say that has been covered well by the domestic data revenue growth. MCELL contributes continues to hold their strong margins at a 63% with the focus cost program, which they are running. We are still fairly low on data penetration and 4G penetration in Nepal. But we are seeing the effect of our 4G implementation in the growth in data revenue, which is, was 34.5% which now accounts for 22% of NCELL revenue. Mark, order 1 performance was marginally impacted by the price pressure and the regulatory impact. As we've said in the past, smart continues to face a significant price war in the market. However, given given the strength of brand in the market, smart continues to hold its position. Impact in quarter 1 has been on revenue, because of this price war. And also, EBITDA has been impacted because of some of the new regulatory charges, specifically, revenue share increase to 7% from 2018. Smart has launched their fixed wireless smart home, and the initial take up has been encouraging, but I must say fairly early days for us to comment on the success of fixed wireless broadband in Cambodia. E.co continues to perform well, has, is now contributing nearly 7% of our revenue and 7.5 percent of it because of the ForEx translation. But if we look at a constant currency, the growth has been fairly strong at 4.5%. With strong momentum in Malaysia and Myanmar, specifically with respect to the tenancy in these two markets, has been extremely good. And Suresh can cover that in details later on. We do have a marginal impact on EBITDA this quarter because of some of the settlements of MSA and some regulatory costs which has been accounted for on a prudent basis specifically in Bangladesh. As I said earlier, tenancy continues to be strong, moving up from 1.48 last year. To around 1.59, in 2018, large, effect coming from some of the markets like me and Malaysia. Main emergencies are nearly around 2 above 2, at the moment. We continue to invest in digital businesses. As we said, the focus has moved more from being investors of to running these businesses, operational businesses in the, pre verticals, which we had identified, I. E. Digital Financial Services advertising and platform business. Digital Financial Services has been doing well with the new subscribers on Boost already crossing $2,000,000 in first quarter and having acquired more than 10,000 merchants. But I must say this is quite early phase for us on Digital Financial Services expansion in Malaysia. And does come with some initial investments, which has an overall impact on our EBITDA margin. Exiedra Business Services expand, I think, continues to focus on, Enterprise Solutions. Early days to us to see impact, but it is building a fairly strong pipeline of use cases, going forward for us. I covered the idea earlier, but you know what's happening in Indian market and ideas been has not been able or has not escaped that situation and has seen a deep growth in revenue and EBITDA and profit margins. And that has an impact on the share of profit, which we have. And on a on a actual currency, $114,000,000 is what has been the impact for us on a constant around 124,000,000 impact for this quarter. As I said earlier, $358,000,000 impact on X Yara state, in idea, because of our non participation in the new issuance of shares. Mgon, a fairly stable performance, and its contribution to us both in form of dividends as well as profit has been fairly stable, but we are obviously watchful of the developments in Singapore market. If I can jump to the financial numbers, I think I've covered most of them. I have most focus around pre MFRs there, on constant currency just to give a perspective of for 2 underlying performance of the operations has been. So fairly strong revenue growth year on year, followed by EBITDA margins. Pat, as I said, negatively impacted because of the $358,000,000 ringgit. Of dilution loss, which we have observed in quarter 1. And overall, pardon me, 200,000,000 lower mainly because of the 99,000,000 additional losses on idea, which we absorbed this year compared to the same period last year. ROIC at 4.4. This is despite the impact of idea. And CapEx at 34.5 percent pretty much in line with the full year plan which we have, and in terms of CapEx, for the year, is in line with what we had indicated earlier. If I can go to the next slide, We've tried here to kind of demonstrate how the Pataami movement has happened on a normalized basis If you look at the normalized, if we adjust for one off items, or those which we say, non part of the operational performance of the business. We've seen a positive operational performance coming from more of the opcos. However, that's been offset by the losses from idea and our investment in the new businesses. And that's something which we are conscious of the fact of these investments. And these have been looked very closely in a very calibrated manner. Yes, Pex, I did cover that around 23% of sales in the first quarter, and that a positive $160,000,000 cash, maybe, 1st quarter for us. Our balance sheet remains fairly strong. And I did explain earlier, the impact of 2.08 gross debt to EBITDA moving to 2.23 is fully on account of EBITDA numbers being lower because of the Forex translation. We our overall debt levels have come down this quarter. By around $1,000,000,000, which is the pairing of some of the debt short term debt, which we did in the first quarter. And I think from a, from a, the financial borrowing position, I think, fairly well covered in terms of a combination of local, U. S. Dollar hedged and unhedged position. On headline KPIs, I think we do see pretty much in line with what we had said earlier, barring guidance on EBITDA, of which we are seeing challenging mainly on the actual currency, mainly on account of the ForEx translation impact. Other than that, most of our, the guidance on, on the other parameters is pretty much in line with with what we said earlier. And we continue to hold this as of our key KPIs for 2018. I think just to summarize, we see key opportunities in Indonesia. Post the SIM registration or completion. We hope the market remains the fairly stable in Indonesia after the similar registration is over. And we should see more genuine customers coming out of the network, going forward if the regulations continue to hold the way they are. 4G opportunity in Bangladesh and Nepal. I think we've done an extremely good job in terms of rolling out 4G network in Bangladesh, we're ahead of the market and we're ahead of our own expectation I think we should be able to leverage that, going forward, same as true with Nepal. And though in Nepal, we still have a much lower population coverage on 4G, but we will continue to invest to increase the coverage. I think Cellcom turnaround and transformation strategy pretty much in line with what we have said earlier. But the effect of that, we start seeing going forward. Cost program, as I said, in the beginning, moving in line with our expectations, still a way to go, because we do see, there are yields coming down in all our markets So cost will have to be an extremely important focus for us and which continues to be the case. Risk, currency volatility, We've seen movement both on dollar as well as ringgit. So we'll have to be watchful of how the currency moves across different markets. We've seen, some deprecision of currencies in, in Indonesia, Bangladesh and Sri Lanka, which will have some impact on our translation. Indonesia, Cambodia, price war is still there. Cambodia, we're seeing some bit of stability. At least in early part of this quarter. ILD revenue so far have been holding the fall in ILD revenue and been compensated by growth in our domestic revenue. So that could be a possible risk. We don't know there's been an indication on GS the, removal in Malaysia. We really don't know at this point in time what's going to be the impact until we have the rules in place This does have, something we have to be watchful of, what could be the impact. Idea Vodafone merger, we're still watching it carefully. But timing of this is still remains bit uncertain. And we do see continued deterioration in market condition in India. And especially now with the new postpaid plan launch by Geo, we would see some further impact. We've said that in the past, consequent to the merger being completed, there would be a technical write off, which we will have to take which is more an accounting perspective, but we still believe a long term intrinsic value of idea stake is fairly strong. I think that's a presentation from me. Now I can open up you. Your first question comes from Thank you. Hi, thanks. Thanks for the opportunity. Firstly, with regard to your stake in your asset in India, can we expect any further write off in the course of 2018? And secondly with regard to, dividend payout is the intention still to increase the payout ratio to 2015 levels in 2018? Thank you. Let me take this question The first one, take an idea. As I said earlier, whenever the merger between idea and the vote of one gets completed, our stake will fall to half of what it is. So if it's 16.3, we will be down to 8.15 percent, which would mean that, the asset will no longer be qualified as an associate, we will have to or an equity, we will have to classify this as simple investment, because below 10% we lose our right as under the shareholder agreement. Once we classify this as, equity as simple invest we have to mark to market the value of investment. So there would be a one time write off which will happen the moment we mark to market our investment. But movement of subsequent would be all to this balance sheet. So it's all dependent on when this, event happens, that could result in the write off in our books. At the moment given the price of, idea is, is below our carrying value. 2nd one, I think second question, if I may take I think we said in the beginning of this year that we will go back to 2015 dividend level. As I speak, we're still holding that position there's no intention of any changes on that position. All right. Thank you. Your next question comes from Arthur Pineda from City. Your line is open. Thanks for the opportunity. Two questions, please. Firstly, can we get any update with regard to this Sri Lanka Tower taxes? How is that moving? Second question I had is with regard to your debt. What percentage of your debt would be fixed versus floating? And last question I had is with regard to the guidance or the KPIs on slide 13. I noticed that you put a flat EBITDA growth challenging, but you're still maintaining your revenue growth. Is there any specific area where you're finding that the difference is it because margins are compressing at one point? Let me ask Doctor. Hans to give an update on Sri Lanka Tower attacks? Yes, the you know, the tower tax was mentioned in the budget of last year. Subsequent discussions have landed on the fact that it's not a feasible level of taxation to apply, and it appears to be in a bear. There has been no movement on this data. It's not moving in Parliament. That's right. It's not been converted into guideline or a directive. And therefore, we believe that it will not be implemented at least not without a very significant revision. Understood. Okay. Let me take the next question, which is what is the debt fixed? So around 60% of our debt is fixed, 40% would be floating. And when it comes to So when it comes to last question, which is on KPI, I think one of the Of course, as I said earlier, the, when we look at the numbers, this is more on the current, not on constant currency because we still believe on constant currency, we are in line with our KPIs. But when you look at the actual currency, the impact is one is obviously on account of currency translation. And second impact is also on account of our expectation on the Pakistan Tower which we were expecting much earlier closure and also our incontinence investments in the new businesses which will have some impact on the EBITDA. Understood. Okay. Thank you very much. Your first question comes from gopakumar from CNB. Your line is open. Please ask your questions. Yeah, hi. Thanks. This is Gopa for Nomura. A few questions. Firstly, what's in your particular guidance and KPIs, what have you factored in for Indonesia? Are you expecting a price increase or is that already built into your growth expectations for the group level? Second is, just to go back to the comments earlier from the management on potentially increasing stakes in associates where you believe you are at a strong number 1 sorry, number 1 or a strong number 2. Do you think that given how Excel share prices, is there an opportunity for Axiata to consider as take increase? Okay. Let me first answer the first question, which is on the, I think fundamentally, we had factored in impact of SIM Registration, into our KPIs. So there's no major change in our expectation. It is pretty much in line with whatever expectations were. So if the competition were to improve and if for some reason you were able to increase prices, there will be an upside risk? Can I ask Adlan, Adlan, are you on the line? Yes, right. So, I think, if you look at our guidance that we have issued, right? I think I presume it's in line with the group guidance as well, right? I think your doing a consolidation, right? So, so in our case, we expect that first half is going to be a bit challenging given the same registration and the heightened competition that you probably have seen, I think we have probably started enforcing the barring starting 1st May. And whilst I think we have seen that there have been some signals in the in terms of price increase. And that's essentially what we have slowly trickled down to some of our offers and product. However, we have not seen any of the competition reacting to that yet, right? Nevertheless, looking at, let's say, market and communication that what we have seen from other competitors we believe that the second half and will probably be a much better market condition given that the enforcement of prepaid registration as well as I think looking at where the prices of where we are today is something that will probably not continue, right? So second half will definitely be a much better position for us as well as the industry as well, right? So and hence, I think our guidance is on the pretax of of an improving market position industry position in the second half of the year. Okay. Okay. The next, the potential increase of stake in XL, something which is not, we've looked at at this point in time. Okay. Just a one more question on the digital business investments. I think, can you please confirm if the losses you're expecting is around 200,000,000 ringgit for this year, is that so far been in line in 1Q? Thank you. I think that was the estimate at the beginning of the year. So it's so far a in line with that estimate. But as I said earlier, I think we are hopeful of the amount of money, which will be into these business Thank you. Your next question comes from Chongqing from CMB Bank. Hi, thanks for the call. 3 questions from me. Firstly, for Cellcom, the margin drop this quarter, as mentioned in the presentation, had something to do with additional investments to enhance the network experience Can you just elaborate a bit more on that? Was that the addition of more sites and therefore OpEx in running those sites or what was it? Secondly, Wivid, you mentioned that Aviasa is aware of structural issues in Sri Lanka. Can you also elaborate on what that is? And thirdly, on the new businesses loss, can I just clarify whether this is on top of the losses from new businesses last year? But obviously, you're doing a normalization here. So I'm just wondering whether this 51,000,000 dollars, $59,000,000 when you get lost is on top of the losses that you made last year for new businesses. And is that coming mainly from boost Yes, those are my three questions. Thank you. Can I ask Jennifer on first question on telecom? Right, from Jennifer here, on the margin drop in Q1 mainly was because of certain services that we have actually put in in quarter 1 for network. And those are one off expense that we actually have incurred in Q1, that's no, it's not in relation to, additional sites. I hope that, that answer your question. How much was the one off expense you gave us? The one off is about It's about 1%. Okay. 1%. Okay. Okay. 1% of your or the margin erosion, okay. Got it. End of revenue. 1% of revenue. Let me take the second question, which is on the structural issues. I think it's more around the economy. We've seen around two point six person, the so far, their position in Sri Lankan rupee, which does have an impact on our forex borrowing. We're also not seeing the economy, growth coming back in Sri Lanka. So it's still sub 4% GDP growth. So that's I think where we are looking at and are also increased fiscal deficit. So at the moment, no major worry, but we just need to be watchful of how the how the, redeem on taxes and all that develop going forward. So most of new businesses I think mostly is, yes, we're right. This is mostly coming from, Yes. So I think we, as you know, are still Hi, Kyro, the Chief Executive of the Agoda this call. The losses are actually from I guess our 4 different digital business lines, boost is one of them and boost actually does have a fair share of 59,000,000. But on top of that, there's also our ad tech business, our platform business and our enterprise IoT business, will sort of account for that. Okay. Thank you so much everyone. Your next question comes from Alex Gold from Thank you for the opportunity. For Cellcom, I noticed your revenue was off a little bit quarter on quarter caused your ARPUs have actually come down just by just one ringgit. I'm just wondering, based upon the new packages that you may be planning, do you expect further pressure on your ARPUs. And that would lead to the next question, which is on your margin. You mentioned earlier that margin was due to one off expenses. Would that mean that you expect your margin to snap back to normal in the 2nd quarter? And my third question is on, based what is going on with the MC MC renewal minister? What is the status of the spectrum for the 700 Megahertz? And, yeah, what is the status at this current stage? I'll take the food and incentives. Hi, Jennifer here. The first question in terms of the approval, whether it's actually because of the new packages and whatnot, Technically, the revenue from posted and prepaid has actually not declined. It was mainly because there's less number of days in Q1 as compared Q4. That's why you at least see a slight decline in that sense. So other than that, there is actually no decline in terms of the in essence in terms of ARPU because of the new packages. So that's for the first one. The second one In terms of EBITDA margin, yes, is because of the one off that we actually have in terms of network cost. Then after the network cost will be back to what was the, I mean, the previous level Whether the EBITDA margin is going to go back to the Q4, it's it's always the case where we need to look at the revenue trend, right? And it always happened that the revenue trend actually at the beginning of the year is always much lower as compared to the rest of the periods in the year. Yes, I guess on the 700 spectrum, you're probably aware of the new Minister gave a press conference today. The only statement he made was his intention to double broadband speeds, which is pretty much in line with what we aspire to do as a company. Now specifically on the 700, the results were supposed to be announced, post election. Now clearly with the changes in, the ministry, the timing may be impacted, but we don't have any news to either way, to be honest, other than just the statement on broadband. Yes, hope that answers. Your next questions come from Archer Pineda from Citi. Your line is open. Please ask your question. Yes, sorry. Just a follow-up question. Has there been any analysis in the firm in terms of how the move to sales service tax from GST could impact your cost and revenue base? And just to clarify the minister's statement on broadband, would that extend into mobile broadband as well? And would that require further investments on your side? Thank you. Yes, I think, first question. The move in terms of GST technically, it will not have significant impact, through our numbers at the moment. It's actually pretty neutral. The way we actually see it. But of course, to the end customer, is actually better off, especially for the postpaid customer. And if we look at the way that we're actually trending, posted actually represents quite a significant portion of our revenue. And in that sense, the customers should actually feel much better in the sense that they don't have to pay for the GST. For SFC, the impact to revenue is 2 very early days, we haven't been given enough details to actually share with you, how it's going to impact the revenue or the cost Yes, I guess on the second question, again, you know, as much as I do, just by reading the press statements, So Minister is not stated specifically, whether it's fixed, mobile, just the general statement that he wants to double, broadband speed Now we believe that our speeds are very competitive. Typically, our average speed is north of 20 MBPS on mobile and our fixed wireless is typically north of 40 MBPS. So we think our product is competitive. But like I said, it's is second day in office. So, very hard for us to comment until we know more. Understood. Thank you very much. There are no further questions at this time. We will now pass the call back to Mr. Weiwei. Please continue, sir. This is there any further question? There's no further question, right? Hi, sir. There are no further questions at this time. Okay. Then I think, we would then close the call. Thank you very much everyone for attending the call. This concludes today's call. Thank you for participation. You may now disconnect.