Earnings Call: Q1 2019

Apr 22, 2019

Good morning, good afternoon. Welcome to Digit's conference call. We need to please begin your call and I'll be standing by for the Q and A session. Thank you. Thank you, Charlotte. A very warm welcome and good afternoon and good morning to everyone joining us in this call today. Welcome to digi.com's Q1 2019 earnings call. As usual, we will actually invite Alvin To actually start off with the key highlights and then after that, I will also invite Lo to actually share a little bit on operational update before handing over to Inger, our CFO, So we'll run you through the financial update. Thereafter, then Alvin will come back again to join us on the 2019 outlook and guidance. So if there's any housekeeping questions that we can't address during the call today, do feel free to address it to So without further ado, Mr. Alvin. Yes. Many thank you. Hi everyone, good afternoon. Shailesh, thank you for the call setup. So just going to go over Q1 numbers and we're going to do some key highlights, performance review, Quick updates. And with me, you will have Inge, the CFO and Lo, the CMO together with the rest of management team. So thank you once again for taking the call. Very quickly, just going over Q1 2019. Let me first start off with Given your overall revenue position, postpaid, we had a revenue growth of 13.5% year on year. And this continues to be a growth area for us. Internet also growing at about 13.3% year on year. Service revenue, a softer we saw softer Q1 with a decline of 2.8% service revenue, Mainly coming from prepaid. And as expected, prepaid, which we indicated in the previous quarters as well on the nonprofitable areas, We see to saw a decline on traditional voice, while data stays positive. On LTE, we have star 8,000,000 LTE subscribers, And we'll touch on the network in a bit. OpEx delivering well on OpEx with 0.4% OpEx reduction year over year, taking EBITDA margins to 48%. And on digital transformation, We continue the transactions at 31,000,000 even in Q1 versus Q4 where Q4 traditionally Yes. Higher pickup on transaction. We saw the same transaction level in Q1 2019. And active users of the app at 3,200,000. Network Virtualization. Network Virtualization is basically our readiness for future technologies and scalability, But it's also mainly taking our core network to the cloud. And I'm happy to say that we are progressing extremely well. That then ends with us taking our number one net promoter score position throughout the Q1 of 2019. On this slide, which is just covering a little bit of our growth opportunities. On the core business, we looked at basically reenergizing and modernizing the Channels. We've gone out there to the market and disrupted a little bit of what we used to do in the channels on our own base. Fostering more growth coming from Internet so that we have a longer term sustainable offering in the market. On postpaid, in order to continue the momentum, we looked at sharpened our own Freedom 365 offering to our customer base. We also brought in the base of customers that now is applicable to both of Freedom 365. On base management and activities around postpaid, that continues as a core business focus for us. On MyDG, I touched on the 3,200,000 customers that we also have a new app out, which is basically giving consumers Better payments and better self help ability, but also more secure sign in and better rewards and personalization. And on personalization side, Office Surprises continues to be outperforming and engaging more customers. On B2B, in the last two quarters, I also introduced that B2B is going to be a focus area for us. Happy to report that the channel It's more efficient and also has much better traction on the true acquisition. We also have taken an MyDG version of the consumer product out to B2B as well And we have now a full range of digital business solutions out in market. Just moving away from core and into digital services a little bit, You would see that beside my DG2.0, we're also moving into the areas of new focus also in line with trends and consumer behavior. In this instance, Republic QG, a one stop command center for gaming, it's sort of an all you need A solution for Arkejune. Just very, very fresh from the weekend. All of you know, those in Malaysia, that we have the 5 gs showcase together with MCMC and the industry. And this was a successful showcase to go in there and look at use cases and what would 5 gs be used for potentially in this country in the near future. And just to give you maybe some highlights here, we took at some test use cases, mainly looking at services, example, emergency services, Better augmented reality experience and virtual reality in sports gaming, but also education when it comes to augmented reality. MTMC is very much part of it. And the next phase of it is going to pilot 5 gs, which we will come through later. And this is part of the 5 gs National Task Force as mentioned by both MCMC and us before. Lou, would you take over the next slide then? I'll just share with you a bit on the Key drivers in the Internet business. So in terms of the network, we continue to Expand the 4 gs LTE network to 89% network coverage with 67% LTE Supported by the fiber of 8,500 kilometers. As a result, you will see that now our 4 gs subscribers is all time high In Q1 to RMB8 1,000,000 with the data traffic growth of 31% year on year and 4% quarter on quarter. This actually translates to monthly data users of 10.2 gig in Q1. In terms of the revenue, Internet revenue, as what Alvin mentioned, year on year 13.3% growth, primarily driven by the postpaid 25% year on year and on the prepaid it's 2% year on year. If I take you to the next slide, Slide 7, go a bit deeper into the postpaid. So in Q1, we continue to see a strong momentum in the postpaid, Primarily driven by a multi segment acquisition strategy. I know it's still the entry level postpaid and then we have the borderless roaming position with family as well as the Phone Freedom 365. In the quarter, we also continued to strengthen our base management via personalization offer and also the full premium 3.6y. Postpaid is continued to be our ambition to be one of the fastest growing operators in the market. Today, if you look at the prepaid, despite a dilution from the pre proposed as well as the non Internet, We are able to continue to grow the prepaid Internet base by 2% year on year. This actually proven that our focus and strategy to drive the Internet is actually working. And to intensify the growth for prepaid Internet, So in Q1, we have actually implemented some changes in the acquisition strategy as well as some change in the channel and the distribution model, Mainly eliminate some of the layers in the channel so that we can reach a wider coverage as well as able to acquire more value From the learning on the base management for postpaid, we also start to adopt some of the base management Methodologies in the prepaid as well. This is to further strengthen the base management as well as better on the prepaid wire personalized offer and we believe this will continue to stabilize the Prepaid, Apu, as well as more sustainable growth in the future quarters. So if I take you to the next slide on the Slide number 8. So as a result, I think as we continue to transform the business, Our Internet base is reaching all time high of above RMB9 1,000,000, again with the right acquisition strategy that I mentioned just now. ARPU is relatively stable mainly because of intensified base management As well as the personalized offer that we have put in, in the last 2 quarters. With all the changes in the operation and the distribution model completed in Q1, we believe that the current trajectory will continue And then we should be able to deliver a more sustainable growth in the coming quarters. I'll go back to Inge to share with you a bit on the revenue P and L. Thank you, Lars. So moving to the next slide. On our service revenue, our postpaid revenue grew, I would say, 13.5% year over year, Ex contract asset amortization and 2.6% quarter on quarter. And our posted Internet revenue grew as 25% year over year, 4.8% quarter over quarter to EUR 461,000,000. As expected, prepaid Internet revenue mix has now increased up to 52%, And we continue to see the expected reduction of our traditional voice and interconnect rate revision. So this has re leveled our prepaid revenue by 13.7% year over year. Overall, our Internet revenue has grown 13.2 percent year over year. Our service revenue, as Algren mentioned, is trending 2.8 Lower year over year to DKK 1,440,000,000 or it's been net out contract asset amortization as a result of the MFRS 15 standard, it is BRL 1,399,000,000 and it's mainly driven By the prepaid reduction, as I mentioned, from traditional voice reduction. But we are cushioning it with a solid growth from profile. So as you will see from the graph, the contract asset amortization has accelerated the past quarters up to 48,000,000 As a flow through from prior year's accelerated Pulse Light contract acquisition. So quarter 4 was a record high device sales year for us. However, quarter 1, the device and other revenue moderated to BRL 116,000,000. And we also see the preceding quarter boosted by new device launches and easy device ownership program From the tone, Freedom365. We will expect a stronger take up of devices as we already see traction now in March after the relaunch and the beginning of March. Then I will move over to the next slide on costs. So our COGS have declined 19.1% year over year And 30.1% quarter over quarter. As I mentioned, due to the lower device volume, as we saw this quarter, as Part of our relaunch of the PF365 program. We have a continued focus on the efficiency agenda, And we are seeing a reduction year over year, as Alban mentioned, of 0.4% in our OpEx year over year and 2.4% Quarter over quarter. This is mainly coming from sales and marketing and O and M efficiency. And I would also like to mention that we have a onetime cost reduction of CHF 22,000,000 coming from an O and M efficiency initiative. So this gives us an OpEx service revenue at a healthy 35.2%. Further, we have demonstrated a lean and efficient cost structure as you will see also across all areas. This is mainly also driven by our digitalization efforts and moving our customers into a more digital customer journey. Moving on to the EBITDA and profit after tax. So we are showing profitable operations With healthy margins now with an EBITDA margin at 48%. Our EBITDA stays at 723,000,000 Due to the softer top line development we have seen in Q1 mainly driven by the shift in prepaid mix of The reduction in the expected interconnect revenues and traditional voice revenues. So this has moderated our EBITDA by 6.7% year over year and 2.3% quarter over quarter. But we anticipate a stronger EBITDA growth in the remaining quarters. Profit after tax has eased to 5.8 Year over year and 6.4 percent quarter over quarter to €485,000,000 and our profit after tax is At $366,000,000 and a healthy 24% margin. Let me move on to CapEx and operational cash flow. So this The quarter, we have invested RMB168 1,000,000 and at the level of 12.1 percent CapEx to sales The ratio, which is also according to our guiding. And this is mainly spent in Hybrid network expansion and also the network function realization mentioned already and continuous upgrades of our network to serve our customers on LTE and LC Advanced, Where we have now reached on LCV involves 67% of our population. Operational cash flow is moderated to 6 0.6% decline year over year, in line with the EBITDA development that I mentioned earlier. However, if you look at it sequentially, operational cash flow has improved 8.8 percent to BRL 555,000,000 And a healthy 37% margin. Moving to the shareholders' return. We see a healthy resource and stronger asset. The earnings per share is resilient at 0.0497¢ Before the MFRS 16 impact, it's 4.410 after MFRS 16 impact. Therefore, the Board has declared a 1st interim dividend of RMB 4.10 per share equivalent to RMB 334,000,000. This will be payable to shareholders on the 28th June 2019 and gives the ultra dividend yield of 4% base share price. I would like to then go quickly through the balance sheet implications of the MFRS 16. So what you will see here as well is that our assets have strengthened to JPY 8,010,000,000, Up 30 3.9% year over year and 29% quarter over quarter as we have registered Our site leases into the right of use assets according to the MFC standards. So With this, our net debt to EBITDA ratio is 0.8% pre MFRS 16%, and it's actually 1.5% both IFRS 16%. We are well within the shuya threshold of 16% So I'll go a little bit further into the details on the next slide on the So as most of you already know, this The standard the whole industry has to apply to. We are moving our sites and leases and also other leases Into our assets and our balance sheet. And we are amortizing that over the contract period in Depreciation and amortization and also including finance costs. This as you will see here, an effect on the reduction of $81,000,000 and an increase in D and A of $89,000,000 and finance costs of $26,000,000 accordingly. Yes. You see here, we're improving our EBITDA margin post IFRS from 48% to 53.4%, Whereas operational cash flow margin is increasing from 36.8% to 42.3%. I also would like to point out that DG has done a thorough job assessing all our leases, and we are also Aligned with including all leases about 12 months. However, when it comes to the CSUs, The shared sites we have with industry, we have also decided to include these. This amounts to around 2,000 sites. Ben, on the guiding, Albert? Yes. Thank you. Just to wrap up the presentation, Just on 2019 priorities and outlook. We will continue to focus on growth around existing customers. On postpaid, as you've seen, in Q1, we had 13.3% growth, and that will continue, fueled even more by SME and B2B opportunity. We will continue to invest in the network and ensure that the network is ready for a much better Internet experience And they've seen that as you said it's also increasing as Lo shared earlier. Continued focus on structural OE initiatives. You've seen that coming in into Q1 and that focus will continue to go into Q2 and the rest of 2019, While maintaining our customer obsession in Innovation 360 across the channel and the way we work. The guidance that we gave For 2019, our service revenue was around 2018 levels. The EBITDA, we have focused on low single digit growth. And on CapEx, we guided between 11% to 12% service revenue ratio. What we've done on the right is to provide a pre MFRS 9 N15 and a post MFRS 9 N15, similar to what we have done in the end of 2018, maybe give you A view of the guidance for 2019. With that, I want to thank you for allowing us to share the presentation, and then we hand over to Charlotte To manage the Q and A. Thank you. Thank you, Our first question comes from Wei Shi of BNP Paribas. Please go ahead. Thank you. My first question is with regard to the lease liabilities. Could you please explain why part of the lease liabilities are classified as borrowing? Secondly, I want to get management's thoughts on how it proposes to meet the 2019 EBITDA growth guidance given that the year to date number is Down 7% year over year on a pre MFRS basis. And then certainly related to this, DG seems to be doing all the right things in terms of strategy, but revenue gains continue to be Cat by competition and regulations. Can management share some thoughts on the factors that It gives you comfort that things will improve. Yes, so those are my 3 questions. Thank you. Hi, Sanjeev. I'm being taking care of the financial reporting here. So why these leases are lease liability are considered as a borrowing? Because these lease liabilities are being intersparing. So it's been the requirement of the standard, the standard classifiers to classify this as interest bearing liabilities And we find the borrowings is the best place to cover it. Yes, Wei, Shing, question number 2, Ingo, While we keep on the guidance on EBITDA, so as mentioned earlier, we expected a softer Q1 and we have put in Measures to focus on the top line for the coming quarters. So We see a compounding effect of the more sustainable growth that we are moving more customers into Postpaid and also the device program and as management, we would like to see the effects of this before we change our guidance According. Yes, we should just go on to question number 3. Just on We're doing all the right things, but revenue looks like it continues to be challenged by overly competitive office market and regulation. I think regulations are there and I'm assuming you're referring to the interconnect rates that started in January 2019. For sure, that definitely did have an impact on interconnection, especially on voice. But what we see is that you have the right focus on both postpaid, both from a consumer's perspective And also on B2B, and both being driven from both a digital and an Internet need. And we see that DG has the opportunity to grow into that. If you remember, we have postpaid has been new for us. And yes, we started this 3 years ago, but the growth in postpaid is definitely a plus for us. Also because of our prepaid base migrating to postpaid, that has also been a key focus for us. On B2B, I mentioned that there is an upside for us on B2B for SME and larger than SME, B2B customers. And on prepaid, it's about getting the prepaid users that are Internet users and not so much that are on still on Traditional voice, but yes, short term, as mentioned in previous quarters as well, short term, we would have to be able to sustain that decline. And of course, changes in regulations will further take that decline down, but we need to stay focused on our Internet. And we believe that we can, We believe that the changes and the painful decisions and strategic decisions that have taken on the channels and on focus on acquiring these future customers is the right thing to do. Could you share some just more color on your B2B strategy for instance? Yes. So on our B2B enterprise business, what we're focused on is if you look at the pace of SME and B2B in Malaysia. They are not they were not the fastest adopting in digital or Internet. And us now having An LTE network, which is close to 90% of coverage and the ability to now go out there and provide solutions, individual solutions, we definitely see that as an opportunity. And if you look at the latest plans in the market from us, it is it does focus on Internet and it focuses on borderless. And we also assume that SMEs and B2B customers We'll need more of this as we expand their business beyond Malaysian shores as well. Hence, we see that as an opportunity. Thank you. Thank you. Our next question comes from Arthur of Citigroup. Please go ahead, Arthur. Hi, thanks for the opportunity. Several questions please. Can you clarify why we're seeing a reduction in the Internet subs in 1Q 2019 versus For Q18, Slide 21 seems to indicate that you've dropped around $160,000 Q on Q. Secondly, on same slide, Just to reconcile the $366,000,000 pre MFRS 16 number you have there, the math doesn't seem to add up on the pretax Less tax number. It doesn't come out to $366,000,000 Which number there needs to be corrected? 3rd question I had is with regard to this B2B and Enterprise segment in terms of the opportunity base. At the moment, when we look at your revenues, What percent of these would actually be on the enterprise side? What market share do you have in the enterprise segment as well? Thank you. Back to your first question. The drop in Internet slot is, as we share, is mainly due to the change of the acquisition strategy that we have implemented in Q1. That's also together with we have actually revamped the channel as well as the distribution model By focusing more on the bigger ticket Internet items with a longer validity because we believe that that will give us more value and We are able to monetize the subscriber much better than going into a broad based acquisition with a smaller value That we have been doing in the previous quarter. Sorry, just to clarify that, it doesn't seem to be materializing in the ARPU trends. Is it just a lag period? Yes, there was a bit of timing. So we will see a short term impact in terms of swaps, We believe that this will give us a more sustainable and also a more better base for us to monetize in the future quarters. Understood. Hi, Arjun. This is Binin here. With regards to the Pre NFI 16 PAT number, the tax actually should be RMB119, so that it will consult back to Yes, Arthur, this is Alvin. Just a comment on your question on B2B. Actually, I understand the interest, but haven't really given a breakdown on the percentage of revenue or some, but we definitely, as you can see, have full attention on it And we're both building the channel and the opportunity to serve this base. So we see this as a clear upside Understood. Thank you very much. Thank you. And our next question comes from Prem of Macquarie. Please go ahead, Prem. Hi, good afternoon and thank you for the opportunity. A couple of questions from me. First of all, with regards to the network, in recent weeks, there's been some reports of network outages and I'm sure you're not alone in that, but what has caused these network outages? And has that had an impact On your more recent acquisitions and strategies, is there a need for us to consider bumping up that CapEx number? That's one. Secondly, sorry to belabor this, but it looks like the market has had some pretty Table headline pricing for more than 2 years now, but we still seem to be having this issue with revenues. Could you where exactly is this coming from? I can appreciate going away from the migrant worker market, which Probably was higher ARPU and more voice, but should we not have got through all of that already? And finally, just to clarify, You mentioned a ringgit 1,000,000 ringgit one off cost gain or Cost reduction from your O and M efficiency, does that mean that the underlying EBITDA would actually have been CHF22 1,000,000 worse Had that not come through? Yes. Bem, hi Bem. Just hang on one second. We Couldn't hear the third question. Can you repeat the third question again? The third one was essentially in your slides, you point To a ringgit,000,000 ringgit one time cost reduction for O and M efficiencies. So if that $22,000,000 had not come through, would that have implied that the EBITDA number would instead of coming in $7.23 would essentially have come in at $700,000,000 just over $700,000,000 Hi, friends. I'll take the last question first. This is Winnie here. With regards to a one time Slide that we see for OpEx, which actually helps improve the EBITDA. In a way, it's really much due to our cost focus initiatives. And we also see that same happening last quarter last year same quarter as well. So in a way, it's both a part and parcel of our cycle to actually focus into Unlocking new opportunities around OpEx, but of course, this is just a one off effect that we are kind of enjoying and it's not But it's a real, I would say, savings per se. Yes. But you will have to Work harder for that to keep that $22,000,000 into 2Q and 3Q and 4Q, is that right? So in a way, Yes, in our way, that's right. But I think we have also pipelines in that's happening that will help us with Managing our cost structure going forward. Sure. Yes, we will take question 2 and then I'll come back on the network question. Yes. And back to the revenue dilution, if you look at the non Internet, of course, a year ago, we were at about 27% mix. As of now, Q1, right, we still have almost 20% of non Internet. So it's still quite sizable. And that is also incorporated the interconnect and no any regulatory change Also impacting the component of the revenue. So when it comes to the Internet pricing, right, yes, the pricing might be stable, But let's not forget also about the free quota I mean the free data and the free quota that usually is riding on some of the data packages. So if you look at the usage, right, it's definitely very healthy. I mean, look at our base, we have been Going from 7.2 gig and as of Q1 now, we have 10.2 gig. So I know it's not Necessarily just the data pricing, but it's all this free allowance that will hamper the data monetization. We don't see I mean, we don't have the info on the Internet ARPU, but I think if you look at the Internet ARPU, We do manage to grow the Internet ARPU year on year for both postpaid and pre. Do you see a point where you will actually outrun these declines on the non Internet Revenue or is this something we have to continue for the next couple of years even? It is non Internet, right, as in when as I say, as in when more people adopt Internet and then you were losing to From circuit traffic to the VoIP? Yes. And then IDD will be pretty much depend on the migrant market in the country. So there's a difference of course, I think a year ago, right, we are sitting slightly on a different environment on the non Internet. A year later, while we have managed to Continue to remain focused and grow the Internet. We are currently having different challenges in the non Internet sector. This is quite normal when you actually switch and see switching patterns. So the dividend to post migration It's a great part of that to get more customers onto the postpaid and most of the Internet data users will move into that. So our focus is So try to address the non Internet. We are rather focused a lot more on how can we continue to drive Internet adoption, acquire Internet stuff And more important is how can we monetize the Internet via the personalization, the base management? Yes. Prem, and then for the first question on network. I think just to maybe take your time to your channel, link network To sort of a lack of CapEx spend, the outages was not related to the mono CapEx spend that is spent on rent. We had one instance where we had taken it out and informed both our customers and the media, and that was when we had HLR software upgrade that was done during the maintenance window and then when it was turned on After the upgrade, we had about an 1.5 hour experience for some of the customers on our bank And that was quickly fixed, but in spite of being fixed, we took a customer view and notified customers and also the relevant party All that outage. But outages continue, of course, from other things as you will always have 5 outages and everything else. Let me take a proactive stand in informing our customers. CapEx will remain the same as for the guidance. And as and when we feel that we need to We view that for customer experience or to cater for the need of the growing kit usage. We will do so accordingly. Okay. Thank you very much. Thank you. Thank you. Our next Question comes from Chung Chung of CIMB. Please go ahead. Hi, thanks for the call. Two questions from me. Firstly, can you give us an update on the competition front, both on the postpaid and on the prepaid segment? Particularly on the prepaid as well, seeing the fair bit of offers coming out from the MVNOs, do these MVNO offers Have any sort of major impact on the competitive landscape for Digi? And I also wanted to understand whether the Competition itself was a major factor for the prepaid subscriber decline Q on Q in the Q1? Or is that more due to the change in the acquisition strategy that you were referring to earlier? And second question on the change in the acquisition strategy. Do you expect to see further negative effects on the subscriber numbers or the Internet users going into the Q2? Yes, those are my 2 questions. Thank you. Hi, Phong. I think in terms of the competition, it's always there. So again, I think for us, we continue to focus on our strategy that we have just shared with you. In terms of the postpaid, really, I think the entry level, the borderless roaming, as well as now the Device financing. So we believe that these are the right things that will continue to help us to protect our base. And at the same time, we will have pockets of opportunity to acquire more postpaid stuff. Then back to the prepaid, the change of the acquisition strategy and the channel. Again, it's really a bit of our focus on do we sell a lot of SIM with a lower value versus to acquire previous Subscribers with a slightly higher entry level, then they will with a longer validity as well. It's kind of like a bit You know, emulate what the behavior of postpaid. And we believe that the impact will be short term. And if this is right, Hopefully, this will translate into a more sustainable prepaid growth in the coming quarters. Okay. So basically competition was not a major issue in the quarter Because the prepaid revenue dropped off quite sharply Q on Q, that's got nothing to do with competition intensifying, right? That will impact the data monetization. I think we have covered those. Whereas for us, other than the non Internet Revenue dilution is something that we need to address separately. Other than that, a lot of the things that we're Working on this according to our implant and we are happy with the progress. Okay, sure. Okay, thank you so much. Thank you. The next question comes from Srinhvi of Deutsche. Please go ahead. Hi, thank you very much. Srini here. I have a couple of questions. First on the interconnect rate, Just want to check that at least based on the numbers, you have lost about $50,000,000 on the revenue side And about $30,000,000 was the savings on the cost side? Just again, broad number. So is it fair to say that the impact was approximately 20,000,000 Ringgit, sorry, not dollars. That's my first question. And what if you can just if these numbers are correct, then Could you just let us know what the margin impact was on account of the cut in the MTR? Related to that, I just want to check that You were it seems that then a net beneficiary in terms of mobile interconnect rate. So is that again, is that conclusion correct? Second question is on your subscribers. Your active subscribers over a period of time and I understand the prepaid to post But the overall sub base is coming down over a period of time. What is the primary reason for that? A, I mean, I'm assuming unique users on your network are not decreasing. So what is the reason for this dynamic? Is that multi Coming down as people take more 4 gs plans and unbundled plans. So can you just help us as to what exactly is happening with 4, in the overall subscribers. 3rd, if you can help us understand the device bundling. This is something which is generally what other telcos in other markets are kind of moving away from. So what is the reason for the device lending or is it something that since you are a challenger in the postpaid market, this is one pillar of that strategy? Thanks. I'll come back for more questions. Hi, Trini. Winnie here. With regards to the interconnect impact, what we see is that from a top line perspective, interconnect roughly around RMB15 1,000,000 year on year dilution and the same similar impact towards the COGS as well. So from an EBITDA perspective, it's Kind of neutral to a large extent. So it's not so much of a significant earnings kind of a solution, But it's more rebaselining the top line and also the CapEx cost within the Okay. I think back to the question from the subscriber base, right? I think if you look at just on the slide that I have covered, if you look at postpaid, Definitely, we are on the growing trend. Even the prepaid, the subs is really If you look at the non Internet stuff, I think that's really the big chunk of the top drop And there's many reasons there. I think one of them is like, I think a multi SIM onetime SIM Thanks, Ramon in the prepaid. Then we started with a year ago, the non internet for prepaid is really at 31%. And then over time, you have actually dropped to 23%. For the Internet subs, I think we have been on the also on the positive trend Except quarter on quarter in Q1 and that is mainly due to the change of the acquisition strategy that we have covered just now. So all in all, stock based on Internet, I think we're happy with the progress. And then non Internet, again, there's factor on the migrant segment and then there's a one time SIM I think there's a lot of multi scene and it also depends on how the whole industry are driving the acquisition. So this is Wei. I think in Q1, we have actually take a couple of steps to correct some of these fundamental. Okay. On the item number 3, in the device, I think the device financing is a bit different from the device bundle, By the bundle giving subsidies upfront, the financing are more on ease of entry. We believe that this is a very important component to continue to lock in our existing base and And also part of the monetization program to drive the upgrade of plan As well as also managing the I think the voice is getting very important as part of the Customer ecosystem that we would like to play a more active role. Thanks. Can I ask a couple of 1 or 2 more questions? So I just if Winnie, if you can help me then understand later on maybe offline, what is the margin impact? Because if it's €50,000,000 both on revenues and cost, Then the EBITDA margins will methodically just go up. So is that the way to look at it? That's number 1. On the device financing, Just want to check as to do you continue to bear the credit risk and basically How do you think you're better placed than the bank or someone has actually managed the credit risk of essentially what will be a retail portfolio? So if you can help understand how you're doing it or should or is there a potential or a chance that there could be Write offs maybe 1.5 years later, which will be higher than your usual postpaid revenue write offs which you see on bad debts. Okay. Srini, I'll take those questions offline with you. But just to also emphasize that it's RMB15 1,000,000 on the interconnect, RMB15, not RMB50, yes. And then with regards to the device financing, I think we are also monitoring Our PFDD or Pro Shen for doubtful that's very, very closely, but I can actually also discuss with you offline later as well Thank you. Thanks a lot. Thank you. Thank you. Another question comes from Alex of Ambank. Please go ahead. Thanks for the opportunity. I've got a few questions. The first is regarding your MFRS 16, your special set up, there's a CHF 24,000,000 impact. I just want to know, is this an ongoing impact every quarter? Or is Are there any one off items within that that we need to offset? The other thing also So regarding the MFRS 15, I think in one of the briefings earlier this year, you indicated there could be some late moving impact from MFRS 15. I'm just wondering was there any reversals there that has also impacted this quarter's earnings? No, my second question is on Alex, sorry, Alex. It's a little bit distorted. We can't hear you very clearly. Can you just repeat both question 1 and question 2? The numbers that you mentioned, we heard you said 24, can you just repeat both those questions please? Yes. For IFRS 16, your slide Indicated that there's a CNY 24,000,000 impact to the net profit, which we can see on Slide 14. I'm just wondering, is that something that is going to happen on a recurring basis? Or is that just a one off for this quarter? And also for MFRS 15, in the previous briefing that we had, You indicated there could be some lingering impact from IFRS 15. I'm just wondering whether that Actually, it took place this quarter as well. Thank you for those two questions and repeating them. Please go ahead. Yes. And that's my first question. My second question is on your sales and marketing. I noticed it is down 9% year on year. Is that a seasonal impact or was that is there a structural impact because of your reductions in your efforts to reduce your costs? And what sort of base should we be looking at going forward for your sales and marketing? And as well as the O and M because those are the 2 segments that seem to be quite impacted This quarter. And my third question is regarding your device sales, which is down this quarter. I'm just wondering also Was that also a senior impact or was there because your 365 Promotion was steeper and the launch impact was becoming less effective going forward. And how would that impact if let's say your device sales were to go up, how would that Given the fact that MFRS 15, your recognition of your profit for device revenue, how would that Impact your profit bottom line going forward. Okay. Hi, Alex. Willy here. This is the NFI RMB1624 million impact to the PAT. There is also Yes, definitely recurring for the next few quarters. But what I need to point out is that including this inside this RMB 24,000,000, Also the one time so called O and M reversal that we actually focused to you about also. So that Net of tax, RMB 22,000,000 is about RMB 16,000,000. So you can actually remove RMB 16,000,000 from the recurring kind of run rate. That should be the kind of projection for NFI 16 for you, yes. And with regards to NFI 15 kind of lingering Yes, we do see that coming in because of what IFRS fifteen does is that it actually captures The contract asset capitalization and amortized over 24 months. So whatever things that we have done, especially last year, especially in Accelerating on our postpaid contracts, that will actually have an effect into this year and into next year as well across that 24 months. So that's where you'll see that it's not just immediately activities that's impacting the current financial statement. How much was the impact from NFI 15 in this quarter? Could you give some impact on your on the net profit level? It actually is in Slide 9, which is the RMB 48,000,000 contract asset amortization. Welcome. How about on the profit level? It will flow directly to the bottom line as well. So it's a dilutive to the top line and then all the way to the bottom. Okay. Okay. Great. All right. Then the next question was on S and M, Inge? Yes. So on the S and M question, yes, this is a structural change. Going forward, we continue to work on efficiency measures. We won't go into the details on the effects, but definitely, We have a strong ambition of continuous reduction in this area. And O and M has always been part of the efficiency program that we've had. So no changes there, Alex. Then your last question on device sales, That is seasonal or not located, just put that in. I think definitely Q4 is there's a seasonal impact and then We actually launched the 365 in the middle of Q4. So as and when there's some learning and then we actually work on To enhance the operating model of the 365, so therefore it's kind of like impact a bit on the run rate in the Q1 Edward Xie by Inger just now. And again, we have since relaunched the 365 in the month of March. And then we do see a good traction. And how does this impact the MFRS 15, again, let's go back to the subsidy level. Of course, if it's higher the subsidy level, then you will have a bigger MFRS fifteen impact in the future. Okay. Could I just squeeze one final question? It's regarding your CapEx. I mean, you're exploring 5 gs and also you were looking at the Jaffin Malacca for your fiber plants. I mean, Just wondering how much potentially do you have any sort of preliminary estimate or how much CapEx would be needed if you were to roll out the 5 gs and Lita, your fiber plans. Alex, thank you for that question. Actually, it's too early to say At 5 gs, this was just a showcase, and it's a pilot, and no one really knows that full Requirement in terms of CapEx to do that. Same thing on fiber. It's very early days. As you pointed out, we are on a pilot, And we will have to come back. So I apologize for not being able to give you much more than that. Okay. Thank you so much. Thank you. Charlotte, then I just want to say thank you to everyone for dialing in and for all the good questions. We appreciate you taking the time this afternoon to speak with us. Please enjoy the rest of the day, And speak to you soon. Okay. Thank you for your participation and management to join the conference today. Have a good day. Bye bye.