Ladies and gentlemen, thank you for standing by and welcome to Axiata Group First Quarter 2018 Results Briefing. Throughout the presentation, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session. Firstly, three housekeeping reminders. Please mute your phone during the presentation, and kindly avoid using wireless headset. Also, note that the call duration will be for a maximum of 75 minutes. The call will end by 7:00 P.M. sharp in view of the Ramadan month. Today, Vivek Sood, the Group CFO, will lead the conference call. Tan Sri Jamaludin, the President and Group CEO, sends his sincere apology as he is currently still in the midst of Axiata Board meeting. He hopes to join us later. I would now like to hand the conference over to speaker today, Mr. Vivek Sood. 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 Tan Sri Jamaludin. He is still in the Board meeting, so he will probably try and join when the Q&A session happens. In the meantime, I will go through the presentation. I think First Quarter 2018 has been impacted partly by some of the changes which have happened in the accounting standards, MFRS 15, MFRS 9. We have had some impact coming 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 have had the impact coming out of Idea dilution, where we were holding around 19.7% end of last year, and now at 16.3% because we did not participate in some of the new share issuance of Idea.
Lastly, some of the changes in Bangladesh on account of how we consider revenues 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. That has been excluded from the revenue. Barring these impacts, which 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 challenges in Indonesia. We are past the SIM registration activity now, but as you know, the First Quarter did see a significant impact on account of SIM registration regulations in Indonesia. I am very happy to say First Quarter, most of our opcos actually gained market share.
From a profit standpoint, 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. Then we have post-MFRS numbers available, so if there is 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, startup investments, EBITDA grew by 6.2%, which basically continues to factor in our drive to cost optimization. Idea impact this quarter was around MYR 124 million, which did bring down our PATAMI. However, without Idea impact, we did see a positive 2.5% growth in PATAMI.
Quarter-on-quarter numbers show negative for a couple of reasons. One is, of course, lesser number of days in quarter one. Second 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. Just to give you a perspective, from first quarter last year to first quarter in 2018, we've seen around 10% strengthening on an average of MYR compared to other operating currencies. That's had impact on the actual numbers. As you know, this does not have any impact as such on P&L 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 MYR 148 million.
Not material impact when it comes to EBITDA and PATAMI numbers. As we've been saying in the past, our focus around cost optimization continues. We had set a target of MYR 1.3 billion for 2018. I'm happy to say we are progressing in line with our plans. 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. 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 MYR 358 million, which we have normalized for our normalized PATMI numbers, but when we look at PAT numbers for the quarter, this would be visible.
This dilution has basically reduced our holding in Idea from 19.7% to 16.3%. The Vodafone acquisition, I think is progressing in line with the plans. Suresh can cover that later on, where we are. It's fair to say that we should be closing it before the end of this quarter. Now, I can go onto the specific performance of the opcos. I think Celcom had a fairly good run when it comes to revenue growth. Service revenue grew by 2% year-on-year, contributed mainly from prepaid performance. I think for the first time after few quarters, we've actually seen prepaid subscriber number to be stable. The performance on EBITDA is marginally lower at -1.6%, and PATMI marginally lower at 2.5% year-on-year. Data growth continues to be strong, and it accounts for nearly 47% of our total revenue.
I think focus on high-value customers continues to have an impact on our ARPUs. We're seeing a strong growth in ARPU, which is MYR 87 for postpaid and MYR 34 for prepaid. I think one of the main focus areas for Celcom 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 76% on 4G LTE. As I said earlier, I think the subscriber numbers have seen a positive trend for the first time, and that's being pushed through improved sales and distribution. 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 Celcom.
If I may go to the next one, Axiata. You all know what's been happening in Axiata consequent of the SIM registration process. The market has seen a year-on-year degrowth of 5%. What I'm very happy to say, despite the market degrowth of -5%, we've seen a positive growth for Axiata. Year-on-year, Axiata grew by 4.4% on revenue, 7.5% on EBITDA. Marginally negative impact on PAT, mainly coming out of the increased depreciation and interest cost consequent of the increased investment which we've been making into coverage outside the Java region. I think the transformation agenda for Axiata continues to be in place. The dual brand strategy is still doing well. In fact, when the market became extremely competitive, Axiata has done a fairly strong performance in that situation.
Our view is that with the SIM 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 now go to Dialog, I think continues to be an extremely good performance of Dialog. They've been beating our expectations on all parameters, with revenue growth year-on-year of 17.2%, EBITDA growth of 32.1%, and profit growth of 82.3%. This is not coming just from mobile, but across different lines of businesses in Sri Lanka. We continue to have good momentum on data growth, with 32% contribution from data revenue, and smartphone penetration continues to be growing. I think extremely good performance from Dialog in quarter one. 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 were negative, pretty much 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%-7%, which have now shot up to around 10%-12% range. We believe this is a short-term impact because of lack of liquidity in the Bangladesh market. Extremely good rollout of 4G, way ahead of the competition. We've done 5,000 4G base stations, which is nearly covering 50% of the population already. A very strong growth on service revenue. As I said earlier, when look at total revenue, last year was including devices. This year revenue is excluding devices.
The service revenue growth of 12.4% and a 3.4% quarter-on-quarter growth with a successful launch of 4G, I think is putting Robi in a fairly strong position. If I can go to the next one, Ncell. Ncell has done an extremely good performance in quarter one, despite the ILD revenue falling. We've been seeing that ILD revenue degrowth of around 17%-18% in the past, which is what the trend is. I am happy to say that has been covered well by the domestic data revenue growth. Ncell 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 was 34.5%, which now accounts for 22% of Ncell's revenue.
Smart, Q1 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 the strength of brand in the market, Smart continues to hold its position. Impact in Q1 has been on revenue because of this price war. 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 it's fairly early days for us to comment on the success of fixed wireless broadband in Cambodia. edotco Group continues to perform well, is now contributing nearly 7% of our revenue and 7.5% of our EBITDA. edotco Group, like Axiata Group Berhad, has also been impacted because of the Forex translation.
If you look at our 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 Sankaran Srinivasan 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 Myanmar and Malaysia. Myanmar tenancies are nearly around two, above two 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 three 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 million in Q1, and having acquired more than 10,000 merchants. 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. Axiata Business Services, Xpand, 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 Idea Cellular earlier, but you know what's happening in Indian market, and Idea Cellular has not escaped that situation and has seen a degrowth in revenue and EBITDA and profit margins, and that has an impact on the share of profit which we have. On a actual currency, MYR 140 million is what has been the impact for us, on a constant around MYR 124 million impact for this quarter. As I said earlier, MYR 358 million impact on Axiata Group Berhad's stake in Idea Cellular because of our non-participation in the new issuance of shares. M1 Limited, fairly stable performance, and its contribution to us, both in form of dividends as well as profit, has been fairly stable. We are obviously watchful of the developments happening 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 here, on constant currency, just to give a perspective of what true underlying performance of the operations has been. Fairly strong revenue growth year-on-year, followed by EBITDA margins. PAT, as I said, negatively impacted because of the MYR 358 million of dilution loss, which we have absorbed in quarter one. Overall PATMI, MYR 200 million, and lower mainly because of the MYR 99 million 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. CapEx at 24.5%, pretty much in line with the full-year plan which we have. In terms of CapEx follow 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 PATMI 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 are non-part of the operational performance of the business, we've seen a positive operational performance coming from most of the opcos. However, that's been offset by the losses from Idea and our investment in the new businesses. 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. From our CapEx, I did cover that, around 23% of sales in first quarter, and that's a positive MYR 160 million cash, I see, first quarter for us. Go on.
Balance sheet remains fairly strong, and I did explain earlier the impact of 2.08x to EBITDA moving to 2.23x is only on account of EBITDA numbers being lower because of the ForEx translation. Our overall debt levels have come down this quarter by around MYR 1 billion, which is the paring of some of the short-term debt which we did in the first quarter. From the financial borrowing position, I think fairly well covered in terms of a combination of local $ 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, which we are seeing challenging mainly on the actual currency, mainly on account of the ForEx translation impact.
Other than that, most of the guidance on the other parameters is pretty much in line with what we said earlier, and we continue to hold this as our key KPIs for 2018. I think just to summarize, we see key opportunities in Indonesia, post SIM registration completion. We hope the market remains fairly stable in Indonesia after the SIM registration is over, and we should see more genuine customers coming onto the network going forward if the regulations continue to hold the way they are. Our 4G opportunity in Bangladesh and Nepal, I think we've done an extremely good job in terms of rolling out a 4G network in Bangladesh way ahead of the market and way ahead of our own expectation. I think we should be able to leverage that going forward.
Same is true with Nepal, though Nepal, we still have a much lower population coverage on 4G, but we will continue to invest to increase the coverage. I think Celcom turnaround and transformation strategy pretty much in line with what we have said earlier. The effect of that we should 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 data yields coming down in all our markets. 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 USD as well as MYR. We'll have to be watchful of how the currency moves across different markets.
We've seen some depreciation of currencies 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 somewhere 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. That could be a possible risk. We don't know, there's been an indication on GST 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 still are watching it carefully, timing of this still remains a bit uncertain. We do see continued deterioration in market condition in India.
Especially now with the new postpaid plan launched by Jio, 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, we still believe long-term intrinsic value of Idea stake is fairly strong. I think that's the presentation from me. Now, I can open up for Q&A session.
Thank you. We will now begin the question and answer session. If you wish to ask a question, please press star one on telephone keypad and wait for your name to be announced. If you wish to cancel a request, please kindly press the star two key. Your first question comes from Wei-Shi Wu from CIMB Peregrine. Your line is open.
Thank you. Hi, thanks for the opportunity. Firstly, with regard to your asset in India, can we expect any further write-offs in the course of 2018? 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, stake in Idea. As I said earlier, whenever the merger between Idea and Vodafone gets completed, our stake will fall to half of what it is. If it's 16.3, we will be down to 8.15%, which would mean that the asset would no longer be qualified as an associate or an equity. We will have to classify this as simple investment. Below 10%, we lose our rights under the shareholder agreement. Once we classify this as equity, as simple investment, we have to mark to market the value of investment. There would be a one-time write-off which would happen the moment we mark to market our investment. Movement subsequent to that would be all to the balance sheet. It's all dependent on when this event happens, that would result in a write-off in our books.
At the moment, given the price of Idea is below our carrying value. Second 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 Citigroup. Your line is open.
Hi, thanks for-
Please go ahead.
Hi. Thanks for the opportunity. Three questions, please. Firstly, can we get any update with regard to the 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? Last question I had is with regard to the guidance or the KPIs on slide 13. I noticed that you put flat EBITDA growth as challenging, you're still maintaining your revenue growth. Is there any specific area where you're finding that difference? Is it because margins are compressing at one point? Thank you.
Let me ask Dr. Hans to give an update on Sri Lanka tower tax.
Yes. As we 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 abeyance. There has been no movement on this thereof.
It's not moving in parliament?
That's right. Yes. It's not been converted into a guideline or a directive. 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? Around 60% of our debt is fixed, 40% would be floating. When it comes to the last question, which is on KPI, of course, as I said earlier, when we look at the numbers, this is more on the actual currency, not on constant currency, because we still believe on constant currency, we are in line with our KPIs. When we look at the actual currency, the impact is, one, is obviously on account of currency translation. Second impact is also on account of our expectation on the Pakistan tower, which we were expecting much earlier closure. Also our in continuing investments in the new businesses, which will have some impact on the EBITDA.
Understood. Okay, thank you very much.
Once again, if you wish to ask a question, please press star one on your telephone keypad. Your first question comes from Gopa Kumar from Nomura. Your line is open. Please ask your questions.
Yeah. Hi, thanks. This is Gopa from Nomura. A few questions. Firstly, 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 one or a strong number two. Do you think that given how XL share prices, is there an opportunity for Axiata to consider a stake increase? Thank you.
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. There's no major change in our expectation. It is pretty much in line with what our expectations were.
If the competition were to improve.
Yeah.
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?
Yeah. I think if you look at our guidance that we have issued, right? I presume it's in line with the group guidance as well, right? I think you're probably doing a consolidation, right? In our case, we expect that first half is going to be a bit challenging given the SIMs registration and the heightened competition that you probably have seen. I think we have probably started enforcing the barring starting first of May. Whilst I think we have seen that there have been some signals in the market 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 the, let's say, market and communication that what we have seen from other competitors, we believe that the second half 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? Second half will definitely be a much better position for us as well as the industry as well, right? Hence, I think our guidance is on the pretext of an improving industry position in the second half of the year.
Okay.
Okay. The next, the potential increase of stake in XL, something which we've looked at this point in time.
Okay. Just one more question on the digital business investments. Can you please confirm if the losses you're expecting is around MYR 200 million for this year? Has that so far been in line in 1Q? Thank you.
I think that was the estimate at the beginning of the year. So far it's in line with that estimate.
Thank you
I think we are watchful of the amount of money which will be into these businesses.
Thank you.
Your next question come from Foong Choong Chen from CIMB Bank. Your line is open.
Hi, yeah.
Please ask your question.
Hi, thanks for the call. Three questions from me. Firstly, for Celcom, the margin drop this quarter, as you have 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, Vivek, you mentioned that Axiata is aware of structural issues in Sri Lanka. Can you also elaborate on what that is? Thirdly, on the new businesses loss, can I just clarify whether this is on top of the losses from new businesses last year? Because obviously you're doing a normalization here. So I'm just wondering whether this 59 million MYR loss is on top of the losses that you made last year for new businesses. Is that coming mainly from Boost? Yep.
Those are my three questions. Thank you.
Can I ask Jennifer on first question on Celcom?
Hi. Jennifer here. On the margin drop, in Q1 mainly was because of there are certain services that we have actually put in in quarter one for network. Those are one-off expense that we actually have incurred in Q1. It's not in relation to additional sites. I hope that answer your question.
How much was the one-off expense, Jennifer?
The one-off is about 1%. It's about 1%.
Okay. 1% of the margin erosion. Okay, got it.
1% of revenue. What? 1% of revenue.
Okay. Yeah. Got that. Yeah. Okay.
Let me take the second question which is on the structural issues. I think it's more around the economy. We've seen around 2.6% so far depreciation in LKR, 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. That's, I think, where we are looking at, and also increased fiscal deficit. At the moment, no major worry, but we just need to be watchful of how the regime on taxes and all that develop going forward. Most of new businesses, yes, you're right, this is mostly coming from. I think we, as you know. Do you want to come?
Yeah.
Khairil, you can.
Hi. Khairil here, Chief Executive of the Axiata Digital. The losses are actually from our four different digital business lines. Boost is one of them, and Boost actually does have a fair share of that MYR 59 million. On top of that, there's also our tech business, our platform business, and our enterprise IoT business will sort of account for that.
Got it.
Okay, understood. Okay, thank you so much, everyone.
Your next question comes from Alex Goh from Maybank. Your line is open.
Thank you.
Please ask your question.
Thank you for the opportunity. For Celcom, I noticed your revenue was off a little bit quarter-on-quarter because your ARPUs have actually come down by just about MYR 1. I'm just wondering, based upon the new packages that you may be planning, do you expect further pressure on your ARPUs? 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 second quarter? My third question is on, what is going on with the MCMC, the new minister. What is the status of the spectrum for the 700 megahertz? Yeah. What is the status at this current stage?
Yeah.
I'll take the third one.
I'll take the first and second question. Hi, Jennifer here. The first question in terms of the ARPU, whether it's actually because of the new packages and whatnot. Technically, the revenue from postpaid and prepaid has actually not declined. It was mainly because there's less number of days in Q1 as compared to Q4. That's why you actually see a slight decline in that sense. Other than that, there is actually no decline in essence, in terms of ARPU because of the new packages. That's for the first one. The second one, in terms of EBITDA margin, yes, it's because of the one-off that we actually have in terms of network cost. Thereafter, the network cost will be back to the previous level.
Whether the EBITDA margin is going to go back to the Q4, it's always the case where we need to look at the revenue trend, right? It always happen that the revenue trend actually, at the beginning of the year, is always much lower as compared to the rest of the periods in a year.
Azman?
I guess, on the 700 spectrum, you're probably aware 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. Specifically on the 700, the results were supposed to be announced post-election. 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. Hope that answers.
Okay. Thank you.
Your next questions come from Arthur Pineda from Citigroup. Your line is open. Please ask your question.
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? 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.
I'll take the first question. The move in terms of GST, technically, it will not have significant impact to our numbers at the moment. It's actually pretty neutral, the way we actually see it. Of course, to the end customer, it's actually better off, especially for the postpaid customer. If you look at the way that we are actually trending, postpaid actually represents quite a significant portion of our revenue. In that sense, the customer should actually feel much better in the sense that they don't have to pay for the GST. For SST, the impact to revenue, it's still 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.
I guess on the second question, again, you know as much as I do just by reading the press statements. Minister's not stated specifically whether it's fixed, mobile, just a general statement that he wants to double broadband speeds. 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. We think our product is competitive. Like I said, it's his second day in office, 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. Clare Wee. Please continue, sir.
Is there any further question? There's no further question, right?
Hi, sir. There are no further question at this time.
Okay. I think we would then close the call. Thank you very much, everyone, for attending the call.
This concludes the call. Thank you for participation. You may now disconnect.