Ladies and gentlemen, thank you for standing by, and welcome to Axiata Group's Conference Call. Throughout the presentation, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. Firstly, two housekeeping reminders: please mute your phone during the presentation and kindly avoid using wireless headsets. Today, the conference call is hosted by Tan Sri Jamaludin, Group CEO, and Vivek Sood, Group CFO. I would now like to hand the conference over to your speakers today. Thank you, sir. Please go ahead.
Thank you. This is Jamal. Thank you for joining us for this special conference call. I will go straight to slide three, which is the topic of today's discussion. I'm sure by now all of you have heard the announcement, as surprised as it may be, but that's the announcement we have made. To be sure, I won't go through all of it.
I'm sure you have seen the slides in front of you that we agreed by both sides, and the other key point to note is that while we really appreciate there's a lot of questions to be answered, but at this juncture, Telenor and Axiata have agreed that we cannot and will not be able to provide further comments to the reasons beyond what has been described in the announcement, so I really apologize for that, but I want to spend just two slides.
I will do one slide now, first to Vivek, one slide, just to put back into perspective where we are right now and what we want to do, so slide four is basically to show the eight strategic initiatives that we have presented for the last already three, four years, and I want to stress that among the eight, the three areas we want to focus on today. Let me do five and six, and then I'll pass to Vivek to spend on the operational excellence. Five and six, basically, I just want to reiterate that while the day is over, but we at Axiata are always looking at opportunities, and we really believe in consolidation in practically all the countries. We have done four already.
So obviously, Malaysia and Indonesia, to be more precise, we are not, shall I say, we will still pursue, if not actively, or at least to some extent, we will be looking into the possibilities, right? We will continue to do that ourselves. And we will probably work with other parties to look at a possible net core network consolidation. On number six, as part of our plan going forward, we have been looking at our portfolio. So there's a possibility that there are big changes to base of our portfolio.
We might monetize some. We might be looking at even beyond that for some. So the point is, consistent with our shifting gear that Vivek will present shortly, we will be looking at more delivering profit and cash to the company, at least in the short and medium term, but without sacrificing too much of future.
So those are the two key points I want to bring up with regards to our strategic initiatives. We are going to be quite active looking at five and six, to stress again. Let me pass to Vivek in the context of operational performance. Operational excellence is now our key term, and you will see later on we have progressed quite significantly, and we are on track to achieve at least our 2019 KPIs. Vivek, our CFO, will be presenting after this.
Very good afternoon. I think taking forward from what Tan Sri Jamal mentioned, and specifically the first item on the eight moving initiatives, which was something launched in 2016, 2018, we did say one of the key pillars for us is the operational performance, which we described a little bit more detail in terms of what does that mean in 2018, around November 2018, in this conference, and that was basically the eight specific areas towards profitability and cash focus, so I think we did announce what the two numbers and how we performed so far on each one.
I would say that pretty much we are progressing in line with what we define as shifting gear strategy towards profitability and cash flow. Let me start with each one of them. Focus on profit growth relative more to the revenue market share growth.
I think their intent was to be able to have much better relative performance in the markets on profit growth, so I'm happy to say that five out of the six markets in the first half actually delivered higher profit growth in their respective markets, and we continue to focus on the two markets where we have been negative on profits, XL and Robi, which is, again, given profits in the first half, Robi more wants to look at the underlying performance numbers.
We did, in 2007, lay down our intent of saving MYR 5 billion over five years, and again, we've been pretty much in line with what the targets are, so far this year, we've saved around MYR 473 million, and we are looking at a MYR 1 billion saving.
That said, I think if you look at the performance numbers, the costs have been pretty much flat despite the fact in some of the markets we've been investing and expanding our footprint on the network side, but we've been able to leverage some of the benefits coming out from the procurement, from network efficiencies, IT efficiencies, and also in some of the sales and marketing areas. We have been reprioritizing with the objective of not losing sight of these, but from a short-term objective.
For example, we've been in Celcom; we've kind of achieved the coverage requirements focused on 4G as well as on the LTE-A, Advanced LTE. So we've been prudent in terms of how much further we would expand on that, as well as on the FTTx, where investments have been relatively focused, prioritized in some markets and not all the markets.
Similarly, in Indonesia, we started investing on Home Broadband, where we've kind of lowered that investment down and diverted most of our investment towards focused [X Java strategy], which has got a much shorter payback period than what the Home Broadband would have given. Investments on specifically new growth areas where we see digital businesses and also on the EDOTCO, we said that we've been able to monetize some of them.
I think the focus is determining what is the cap on investments, and beyond that would be through strategic partnerships or financial investors or in the EDOTCO. I think we are saying we said that we are potentially ready for an IPO, and that's something which still remains on the end result. Existing monetization, I think we've had a fair amount of restructuring last year that did have some negative impacts on the profitability.
But whether it's M1 sale or monetization of some of the non-core assets last year, I think that's something which has made our portfolio far more focused than what has been in the past. And I think Tan Sri did talk about industry consolidation while the Telenor discussion has come to an end at this point in time. But we are continuing to have ongoing discussions of industry consolidation in specific markets. So I think that we will continue. On the network and IT modernization, we've recently concluded our global RAN procurement process, which does allow us significant benefits as well as the ability to monetize some of our networks.
And also, I think the last point is more around the KPI setting, and we did explain that our KPIs are much more now tuned towards the profit and the cash flow numbers than necessarily revenue or the revenue growth multiples. So I think we will look at a few more changes in that direction as we go through this year. So I think that's more or less what we have been focusing on profitability and cash. So I think fair to say, while we were having the overall merger discussion, but we didn't leave our eyes off the business as usual and focus on profitability.
And that, I think, is reflective of a fairly strong performance in H1 and the fact that we look at outperforming our KPIs, at least in two areas, which is EBITDA and return on invested capital by the end of the year, and also looking at much lower CapEx spend than what we had previously. I think that's something to note.
Thank you, Vivek. So we now do the Q&A, but may I remind you that we will not be able to comment further on the merger. Thank you.
We will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press your pound or hash key followed by the digit two. Your first question comes from Ranjan Sharma from J.P. Morgan. Please go ahead. Ask your question.
Hi, good evening. It's Ranjan from J.P. Morgan. Thank you so much for the call today. Maybe we can start by maybe if you can comment on under what circumstances can you revisit the merger because I think it's still not been ruled out that this could be looked at at a future stage. And does it have to be a mega merger, or can there be transactions in different markets rather than pursuing a mega merger? And then my second question is on EDOTCO. With this being put on hold now, or the talks breaking off for now, does the IPO or monetization of EDOTCO come more to the foreground? Thank you.
Okay. Thank you for the question. On the first one, of course, on the transition, it's very hard to. I wish I could respond, but it's very hard for me to respond at this point in time. My apologies. On the transition, other transitions, well, it doesn't have to be with Telenor at all. As I said, we are looking at other options and during this whole process, by the way, there have been a lot of discussions that have been along the way.
Some have been informal. They have been done by several parties and even before the merger, there's been a lot of interest and discussion before that, so we have to reactivate some of this and some might be starting now, but right now, mostly the options will be other. There are other options also on the plate.
On EDOTCO, well, as you know, we have not even announced whether there'll be IPO in the first place, but it is fair to say that it's one of the options we have looked at early this year, which we have put on hold for sure, but something that we are going to relook again is the IPO or further monetization. I did hint to the possible monetization. Among others, this could be one of them, and like I said, it doesn't have to be IPO.
I think just to add that we still see a strong opportunity of growth in this business, and we do look at expanding beyond the existing footprint, and for that, there would be strategic financing opportunities, and IPO would be one of those which we will be looking at.
Okay. Thank you. Good luck.
I think the key point I want to make is to ensure that we have many options as we move forward.
Okay. Thank you.
Thank you.
Thank you. Your next question comes from Prem Jearajasingam from Macquarie. Please go ahead. Your line is open.
Hi. Thank you for the opportunity. A couple of questions from me, please. Given the improvements we've made in some of the OpCos over the last six months or nine months even, do you think that we really need to be rushing into the next transaction, or should we potentially hold out? I mean, especially in the Malaysian context, should we just hold out to have some proper numbers out of something like Celcom before pursuing any further transactions? What are your thoughts around that?
And I'm going to be a bit cheeky here, but maybe dust off something which we were talking about two years ago, and that is with the kind of valuations that are being implied on Celcom and looking at your sister company, Telekom Malaysia, and also the need for fiber in the entire network, how does a remerger scenario play out under these circumstances? Your thoughts on this would be most appreciated.
Well, the first one is a very good question, actually. Very good question and a very good point at the same time. Obviously, when we are concerned on Celcom, we are putting all the focus now on Celcom to improve its performance, to put into perspective. We have eight excellent years, two or three disaster years, and we spent two years stabilizing the company and improving our revenue engine.
Then with the change of CEO, now we focus down on profit. So that plan to improve further on profit and cash is still going on. And you're quite right that we don't have to rush. All I'm saying is that we, at the same time, must be actively looking at all possibilities and options, if not Malaysia or Indonesia, if not Indonesia, somewhere else. But we should be always on the lookout, right?
But that doesn't mean that we're holding back. As in any case, any transaction will take nine months or one year in any case, even if we get to start tomorrow. But there's a lot more work to be done on Celcom, and hopefully, within the next year or two, Celcom will be in a positive good state that we might not need consolidation, but it will still be helpful given the industry, especially in Malaysia and Indonesia to some extent. On the second question, it's a very good question. No, there's no plan whatsoever to look at remerger. But obviously, there are plans to work with TM on the fiber network. We are already rolling out based on TM's network already. And so we are working closer than before.
All right. Thank you very much, Tan Sri.
Thanks, Brian.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone. Your next question comes from Alex Goh from Am Bank. Please ask your question.
Thank you so much for the opportunity. I have two questions. Now that the potential merger with Telenor Asia is off, do you think mobile competition is going to become just as intense as it was in the past? You're looking at some of the MVNOs like redONE is offering really, really attractive postpaid propositions. That's my first one. My second one is, with the rollout of NFCP and the coming 5G plan, I'm just wondering, how does Celcom now fit into if re-merger with TM is not on the card? How would you position yourself in this area?
On the first question, let me try to understand. You mentioned, sorry, maybe you can rephrase the first question if you don't mind.
Yeah. I'm just concerned about the mobile cellular competition that now that earlier there was supposed to be one merger of two entities that would have presumably removed some of the pressure on outputs. But now that you're going back to square one, would that mean competition is going to revert back to the earlier two years kind of intensity?
Yeah, good question. The mobile industry in Malaysia is, you're right, is intense. It's very competitive, that's for sure, leading to where the industry today. But at the same time, from a Celcom perspective, we have a lot of room for improvement on the cost side. So our focus will be relatively less on market share but more on the cost side, which can be, to some extent, not completely independent from the industry growth.
On the MVNO per se, you're right, they have been quite aggressive. Most of them are actually running on top of Celcom network anyway. So to some extent, we will gain from the offering, depending on to what extent we have been capitalized at the same time. So that's something that we, of course, are concerned, and we have to work on. On the second question, we will participate in NFCP and the 5G plan.
We will support the government's intention in this area. At the same time, given where we are right now and our strength of the merger with this network, we are quite keen to work with other parties, other operators in both scenarios, be it TM or other mobile operators. Because in 5G, for example, we believe that while the opportunities are great in the long run, short-term-wise, it can be quite challenging. There's no real good business case, actually, not just here but almost everywhere in the world. But to support the government, we will come up with a creative way to make it happen.
If I may ask a question?
I'm going to...
Just if I may add on your first question, I mean, we have not involved the operating companies in the discussion. So they continue to be as competitive in the market space as they were even before the discussion started. So we do not see any potential impact of the discussions being closed having on the intent or the competition between the two players and the market space. If you wanted to add something else, Alex?
Yeah. Yeah. Given the competition that's coming up from MVNOs, for example, redONE, and they are using your network, I understand that. Would you be revisiting those partnerships or those arrangements in any way over the next medium term or short term?
Revisiting the commercial terms with the MVNOs? Is that what you meant? Okay.
Yes, correct.
I cannot say that. I do not think necessarily what's happening is hurting us. We need to understand that we have to reduce or review it. What we are looking for, what is our incremental benefit from having them? And so far, in general, for all of the MVNOs, it has been positive. But to be frank, there's a lot to be done in general with all of our MVNOs.
Thank you. Okay. But what are the measures that you're planning to change in those areas?
Maybe I'm not really in a position to make it public at this point in time, but certainly, the whole concept of MVNO and the management and the partnership MVNO will be, we have to relook at not so much because of being reactive to the aggressiveness, but more to align with our strategy.
Thank you. Okay, great. Thank you so much.
Thank you.
Thank you. Your next question comes from Rama Maruvada from Daiwa. Please go ahead. Your line is open. Okay. Our next question comes from Danny Chan from Credit Suisse. Please ask your question.
Hi, Tan Sri. Good evening. Hi, Vivek. Just a quick question. Well, when you were discussing the deal with Telenor, essentially, how important was Malaysia in the scheme of things? What I'm trying to get at is that, is there a possibility that you will come back to the table and perhaps explore a separate deal without Malaysia in the equation?
Okay. Of course, Malaysia is important. As I mentioned during the last few conference calls, that a significant part, if not the biggest part of synergy, comes from Malaysia, right? By virtue of being the biggest and by virtue of the one that has the overlap territory and therefore the synergies, right? That's the first point. On your second question, I can't really comment at all. Like I said, both parties probably have a lot of other options to look at, and perhaps this is not, we are not at any juncture to even explore that at this point in time.
Okay. Thanks very much.
Thank you.
Thank you. Your next question comes from Rama Maruvada from Daiwa. Please go ahead. Ask your question.
Hi. Good evening. I have two clarifications, please. Firstly, I do understand that you probably would need some time to recoup on revised strategy. But as it states on slide five, I would like to understand you talk about accelerating structural changes through network sharing and industry consolidation. Are there any specific markets or where you think network sharing is feasible and where you see industry to consolidate over the medium term? And along with it, the monetization of existing investments for cash. Are there any specific assets you are looking at and any particular time frames revolving around this? Thank you.
So I think let me take the first question, which was talked about structural changes, industry consolidation. I think we've said even in the past, there are a few markets where potential opportunities of consolidation exist. And we will continue to pursue those discussions. More specifically, it would be, let's say, Indonesia or even countries like Bangladesh, for example.
In Malaysia, we do see network sharing as an opportunity. And I think given the fact that we've had quite a detailed discussion with Telenor, we do see, and we've already done in the past some network sharing, and that's an area of opportunity which we could possibly accelerate. Can't comment on it because we've not had those discussions yet, but that's an opportunity which is there on the network sharing.
On monetization of assets, I think we've done somewhat on the digital businesses with three verticals, with Mitsui coming in, and we already have another option to come in with the higher stakes, so I think that's one area where we will continue to look at, and as you said earlier, that while we do see them moving towards profitability, but in short term, they do burn cash for us, and the way for us to manage that is to get partnerships and external investments coming in, so that, I think, we will continue to do.
The other area, as we said, possible strategic financing for the tower business, which could mean the potential investor coming in or an IPO could be an opportunity. Specific telco business, I think it's more around, if any, more around consolidation or structural, not necessarily just around the monetization.
Okay. And if I could just follow up, so the network sharing you talk about for Malaysia, is this predicated on 5G, or is it a feasibility even for your existing 4G networks, if at all? Thank you.
Honestly, we could look, I mean, 5G obviously makes a lot of sense. Undoubtedly, it's tough without that, we all know. But we will look at even beyond 5G.
Yeah. And just to add, that's right, 4G and 5G, but not just Malaysia. We're looking at other countries too. However, some is still in the early days.
Okay. Got it. Thank you very much.
Thank you.
Thank you. This will end today's question-and-answer session. I would now like to hand the call back over to the speakers. Please.
Thank you very much again for joining us for this special conference call. We thank you and sorry for the short notice. For obvious reasons, we couldn't have invited you earlier because of the confidentiality of the situation. We know that this has come as a surprise for most of you and for us too, actually, and I guess in due course, we will be informing you more about what our plans in the Build8 strategic initiatives that we talk about. A lot of progress will be made, but we will keep updating you. With that, thank you again for joining us, and have a good weekend.
This will conclude today's presentation. Thank you all for your participation. You may now disconnect.