Axiata Group Berhad (AXIATA) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. My name is Clare Chin, Head of Investor Relations at Axiata Group Berhad. Thank you for standing by, and welcome to Axiata's Second Quarter 2023 Results Briefing. Today, we have present with us, Vivek Sood, Group CEO; Dr. Hans, on my left, Group ED and CEO of Telecom; Lila Azmin across the table here, who is acting Group CFO as well as Group Chief Development Officer; and we also have representatives from our operating companies. There will be a short presentation followed by a Q&A session. So without further ado, I'll hand over the conference to Vivek.

Thank you, Clare. Very good afternoon to all of you. Good morning to those who are back [indiscernible] in Europe or elsewhere. My pleasure to announce the results for quarter 2 2023. With me, as Clare said, Dr. Hans and Lila are present. So I'll go through the summary and then Lila will take over the financial numbers later on. The quick summary, reported results, PATAMI was impacted with one-off noncash impairment coming from Ncell. Subsequent to the BIT order, which was passed in June, as you recall, we did announce a write-off of receivable of around [ MYR 319 million ] and also subsequent impairment of around [ MYR 398 million ], which has been taken due to the fact that 2029 has a renewal of the license. And at this point in time, there is lack of clarity on what's going to be the basis and value. So we've taken a conservative view in the cash flow on renewal of the license in 2029. In addition to that, of course, CelcomDigi, after merger, the share of the profit of [indiscernible], which we want is around [ MYR 320 million ] lower than what we were getting in the first half. We got in the first half last year as a 100% wholly owned subsidiary of Axiata. Having said that, I think we did benefit of the final closing settlement with Digi, on the final closing adjustment, which did give us cash inflow of around MYR 402 million. With this, the transaction related to the disposal of Celcom, which was completed last year, has been finally closed with all [indiscernible] settled. In addition to that, we have seen lower losses. Having said that, I think the operational performance of the company during the first half, even quarter-on-quarter, has been fairly strong with 11.7% growth coming in revenue and around -- close to 12% growth coming in the EBITDA margins. But slowdown to the profit has been impacted with these one-offs, which I talked about earlier. If I look at the underlying performance, the revenue growth and EBITDA growth remains fairly strong on the underlying basis, with revenue growing at 17.8% contributed by all OpCos except in ADA and Ncell and I'll cover that in detail around why is that the case. EBIT growth was 5.7%, supported by an 18% growth in EBITDA. The impact on the profits coming from the higher block of assets consequent to the acquisition of Link Net as well as the addition of towers in Philippines and Indonesia by EDOTCO and the amortization effect of that is impacting the D&A as well as the increased interest cost, both on account of the increase in interest rates and high leverage consequent of the acquisitions made last year, impacting the overall profitability. However, the cash flows remain strong, around MYR 601 million of adjusted operating cash flow was generated during the first half. As I said, the balance sheet looks better than what it was in quarter 2, with net debt-to-EBITDA down to 3.06x. If I factor in the share of the profits from CelcomDigi, the net debt-to-EBITDA would be sub 3x -- at around 2.93x -- 2.92x. Cash balance remained strong at MYR 6.3 billion. XL, as I go OpCo by OpCo, I think XL sequential growth, extremely strong and coming out of the improvement in ARPU, I think the market structure is seeing some improvement over the last 1, 1.5 years with the ARPU getting lifted to around IDR 41,000, which is around IDR 5,000 improvement, and that's resulted in revenue growth of 12%. But also in addition to that, the enterprise business has given nearly 93% growth over last year, as well as the home broadband growth still small related to the overall size of the company has seen a 50% improvement year-on-year, which is in line with our strategy of continuing sustainable mobile operations, extending the fixed broadband proposition with the help of Link Net as the FibreCo and also fixed mobile convergence offering to our consumers in Indonesia. However, PATAMI growth is 5.9%, but we did see higher finance costs and taxes and losses from associate where, in this case, is Link Net. Robi, a very strong performance, I must say, with a double-digit growth in revenue, EBITDA and also translating that down to the profit of BDT 664 million, which is more than 100% improvement over last year. Again, like XL, we have seen market structure improvement in Bangladesh. The ARPUs have grown by nearly 15% from around BDT 127 to BDT 141. Dialog, I think it may not be the right comparison on a year-to-date basis, as you recall, Dialog was impacted by the economic crisis back in April last year. And when you compare this half with last year's first half, it may not be real reflective. However, on a sequential basis, we are seeing improvement in EBITDA -- EBIT coming out of growth in revenue as well as cost rescaling initiative but still remains challenging, and I think Hans will cover that in a little more details later on. Ncell, I think that's one asset which we've struggled, not just from the fact that we've had the impairment on the carrying value but also on the fact that the Voice remains weak. And also we are not able to substitute [ with ] adequate growth on the [ Data side ]. However, the international business, which was reversing, has seen a growth over last year by around 5.6%. And also, the company continues to maintain its EBIT margins at stable with a focus around cost containment. Smart, as usual, remains a steady business with strong profit generation as well as continued cash accretion for the group on a steady basis. Link Net, I think we did talk about concerns over Link Net in the last quarter. But this quarter, we've seen improvement coming in the sense improved ARPU, lower churn as well as cost optimization with some bad debt recovery, which has happened, which has seen improvement in EBIT and the profit line for that business. Having said that, the impact still remains because the business has now started building home passes for XL, 1 million home passes and they're on the path of getting further contracts to extend that beyond the 1 million. As you recall, we did mention back in May, our intention of building around 8 million home passes over the next 5 years. Boost, our digital fintech business, I think we've seen some recovery of MDRs from the merchants and also growing loan business. The business has seen a significant growth in revenue. However, there have been early start-up losses booked in the business for the digital bank, which is planned to be launched by end of this year. The overall loan book as it stands around MYR 230 billion -- MYR 230 million, out of which around MYR 140 million is in Malaysia and the remaining is in Indonesia. And the total loan reimbursement so far would have been around MYR 1 billion. Having said that, I think despite the high loan, the NPL remains fairly stable. ADA, which I talked about earlier, impacted by 2 factors. One is renegotiation of their contract with their largest customer, which is XL and also lower consumer marketing spend -- customer marketing spend by consumer product companies where they were providing the digital marketing capabilities to these businesses. And that doesn't impact. EDOTCO, in addition to the inorganic contribution for addition of towers from Indonesia and Philippines, the company remains fairly strong on new co-locations coming in. New tenancies during the last quarter was around 1,300 and the tenancy ratio remained stable at 1.65, even though we've been adding towers from Philippines, which are typically coming at 1 tenancy. So the overall development in Malaysia as well as Bangladesh has been significant. The decline in EBIT comes from the higher D&A. Interesting fact that the assets purchased [indiscernible] be valued on a basis of acquiring the company, what they have been shown as fixed assets which gets amortized every year. And also the fact that some of these acquisitions were on the back of balance sheet, debt finance and the interest impact coming into -- in that process. And I think we've talked about in the past, our intentions of fundraising to reduce the leverage level in EDOTCO. Headline KPIs. Beginning of the year, we did say our headline KPIs at low single-digit revenue growth and high single-digit EBIT growth. I think we're fairly confident that we should be able to hold on to that KPI. And we do expect some lower spend on the CapEx relative to what we have indicated at the beginning of the year. And I'm happy to announce a IDR 0.05 dividend, which is in line with what we have been indicating to the market and which translates to around MYR 460 million payout, which will be sometime in October of this year. With that, I'll hand over to Lila to take us through financial numbers. Lila, over to you.

Thank you. So the next 2 -- few slides will show the movement from quarter-to-quarter and also year-to-date numbers. As mentioned by Vivek, we recorded strong top line numbers year-to-date. On a reported basis, year-to-date recorded MYR 11.4 billion. It grew by 11.7%, driven by all the OpCos except for ADA and Ncell. EBITDA grew in tandem at 12.4% year-on-year. However, you can see EBIT is impacted by impairment of assets for Ncell, which is about MYR 393 million; increase in depreciation and amortization and lower EBIT contribution from a few OpCos, namely Dialog, Ncell and EDOTCO. At a reported level, losses widened to MYR 502 million, impacted by lower share of results from CelcomDigi of MYR 223 million relative to the PATAMI contribution of Celcom last year. Ncell impairment of assets of MYR 393 million and the write-off of the CGT related receivables at Ncell of MYR 317 million. This was, however, cushioned by the gain on disposal of Celcom, as mentioned by Vivek, on the final closing adjustment of MYR 402 million and lower forex losses and taxes as well. Next, on the underlying performance. On a constant currency basis, revenue ex-device grew by 17.8%, supported by continued growth from all OpCos except ADA and Ncell. ADA, as mentioned earlier, was impacted by the renegotiation of contract with XL from [ 50% ] to 22%. And then Ncell's top line was impacted by the revision [indiscernible] hitting the Voice segment basically. EBIT continued to grow year-on-year, supported by EBITDA growth of 18%. But this was offset by higher depreciation and amortization charge, largely coming from XL, EDOTCO and Link Net. UPATAMI saw a decline of 83.2% due to a few factors, mainly higher depreciation and amortization, as mentioned earlier, mainly from EDOTCO post the Philippines tower acquisition. Secondly, as mentioned earlier also, higher net finance costs, which mainly is twofold: overall increase in borrowings and increase in borrowing rates itself. These are mainly from EDOTCO and Dialog. Thirdly, smaller contribution from CelcomDigi share of results, as mentioned earlier. Next, on the adjusted OFCF, this shows an increase by 44.2% to MYR 601 million, largely due to higher EBITDA and lower taxation, which is offset by the increase in CapEx, net finance costs and ROU depreciation. The higher EBITDA largely contributed from XL, Robi and EDOTCO. The lower taxation, as mentioned earlier, was largely contributed by Dialog and EDOTCO. On an OpCo basis, the graph below, you see Robi's adjusted OFCF was impacted by higher CapEx, NFC and taxation. Others in the MYR 200 million on the right was supported by lower tax coming from group adjustment, mainly arising from Ncell asset impairment. Link Net's year-on-year movement was due to the noncomparative figures in the first quarter last year as [ consolidation ] only took place after we had completed the deal in second half of 2022. Next, on the balance sheet, you can see the net debt-to-EBITDA improved to 3.06x versus 3.23x in quarter 1. This is on the back of improving EBITDA from OpCos. If we also adjusted for CelcomDigi dividends, the net debt-to-EBITDA would be lower to 2.92x. Overall, capital structure is carefully being managed amidst uncertain macroeconomic backdrop, where 36% of foreign currency loans are hedged and 63% of group borrowings are on fixed rates. Cash balance is standing at a healthy MYR 6.3 billion as at 30th June. Dr. Hans, you can take through the performance of our Digital Telcos.

Yes. Thanks, Lila. I'll start with the XL. Sequential quarters of growth, supported mainly by the sustained rationality in the pricing environment and also some competitive [indiscernible] in the market. Overall, stellar performance by XL. Revenues grew 12% year-to-date driven by Data and also, to some extent, the [indiscernible] in terms of usage increase. ARPUs grew by 8% year-to-date accordingly. And this increase of around IDR 5,000 from IDR 38,000 -- IDR 36,000 to IDR 41,000. XL Home, the fixed broadband business, today, [ 6% ] of XL Home subscribers are also [indiscernible] service subscribers. And EBITDA for XL grew by 13.6% year-to-date with a margin increase of 0.7 points to 48.5%. EBIT, similarly, strong growth too, with a 27.2% increase and a margin expansion of 1.6 points ending at 13.2%, resulting mainly from, as I said, EBITDA flow-through and also partially offset by higher D&A increase of 9.3%. PATAMI grew by 5.9% and reached IDR 651 billion. The higher EBIT flow-through was, in this case, partially offset by higher net finance costs due to the additional borrowings for the Link Net acquisition and also offset somewhat by the share [indiscernible] of around IDR 77 billion. AOFCF grew by more than 100%. There's some phasing of CapEx and [indiscernible] by 12.6% resulting in improved cash [indiscernible]. Moving to Robi. As Vivek mentioned, again, the second market in our portfolio, which has demonstrated good market structure as well as a degree of rationality in the pricing environment. Revenues grew 18.9%. And importantly, the growth was across all segments of Robi's business, Data, Voice and Value-Added Services. ARPUs also expanded and subscribers grew by 3.3%. ARPU expansion was at 15.4%, a very significant step forward in terms of monetizing the market rationality. And this increase from BDT 123 to BDT 142 bodes well for increased revenue traction in quarters ahead. EBITDA grew by 16.4% and - whereas margins fell moderately by 0.8 points to 43.3%. The revenue growth was partially offset in this case by higher manpower cost in the [indiscernible]. EBIT grew by 17.5% and margin, again, similar to the EBITDA, moderately down or rather flat at negative 0.1 points, ending at 13.9%. PATAMI grew by more than 100% and reached BDT 664 million, resulting from higher EBIT flow-through and lower forex losses in the U.S. [ dollar loans ], which more than offset the higher net finance cost and taxation and some asset impairment [indiscernible]. AOFCF, however reduced by 38.1% due to the acceleration of CapEx by 65.6% relative to last year. And this was by design to capture the growth opportunity we see in the market, on the backdrop, greatly improved market conditions and price pressure. Dialog demonstrated a 30% EBIT uplift on Q-on-Q basis, driven largely by cost rescaling initiatives. This is very encouraging given the signs of delivery on the resilience program that we just spoken about in previous quarters. Strong traction on most fronts of cost rescaling as well as revenue initiatives. Revenues grew 19.8% year-on-year, mainly driven by higher revenue contribution from international business and mobile data. EBITDA, however, negative 1.1% year-to-date with a margin contraction of 5.9 points. This is on a year-to-date basis. However, on a quarter-on-quarter basis, as I mentioned, the traction achieved on the resilience program and cost rescaling has delivered an EBITDA growth of 8.8% on a quarter-on-quarter basis. Similarly, for EBIT, with 30.6% growth quarter-on-quarter, as I mentioned earlier. So this has been on the back of increased cost from inflationary pressures and also higher D&A at 7.8% year-to-date. PATAMIs grew by more than 100%, reaching LKR 11.8 billion returned to positive relative to previous period when Sri Lanka went through the macroeconomic prices with certain impacts on Dialog's operations both above and below EBIT. The growth in PATAMI was supported by a forex gain of LKR 12.3 billion, which partially reversed the forex losses [indiscernible] LKR 34.3 billion in the previous year. AOFCF, again, grew more than 100% year-to-date, resulting from lower CapEx at negative 45.1%. Very controlled spend given the macro as well as the risks associated with the market largely arising from the macro environment. Ncell, very challenged, however, green shoots in terms of international traffic business where the decline we have seen in previous periods was reversed. And in fact, ILD revenues grew by 5.6% year-to-date. Core revenues also grew 8.0% quarter-on-quarter on the back of recovery in [indiscernible]. Having said that, on a year-to-date basis, core revenues dipped by 8.3%, mainly due to reduced domestic interconnect rate, which [indiscernible] previously. And this is a phenomenon that has depressed the Voice [indiscernible] January '22. And also lower Voice usage with the contraction in [indiscernible]. EBITDA contracted by 1.6%, whereas EBITDA margin expanded by 2.5 points to reach 56.2% [ for the year ]. Lower revenue flow-through, but margins improved, as I said, rising from cost optimization measures and also lower direct costs. Direct costs contracted by 14.2% year-to-date. EBIT, negative 6% year-to-date with a margin, which is largely stable at 24.4% despite the lower EBITDA flow-through and this has been achieved due to cost optimization measures, which had [ helped EBITDA to stable ]. PATAMI at negative 4.0% and reaching NPR 2.4 billion at the half year mark. So the decline of around NPR 100 million moderated relative to EBIT due to lower net finance costs and lower taxes on a year-to-date basis. AOFCF, negative 12.3% year-to-date compounded -- the EBITDA performance compounded by high CapEx of 28.7% year-on-year. While there has been CapEx rollout in this half, which has been largely to maintain capacity, the Quality of Service following, and year-end, we had strength to roll out [indiscernible]. Smart, on a very stable track of profit generation at 2.7% revenue growth year-to-date. And EBITDA expanding 1.5% year-to-date, a bit strong revenue flow-through and only marginally offset by higher net [indiscernible] costs. EBIT grew by 4.7% with a strong EBITDA flow-through and also [ helped ] by lower D&A on a year-to-date basis. PATAMIs grew 22.7%, resulting from higher EBIT flow-through and supported also by lower net finance cost and an improvement in share from the associates. Cash flows, likewise, 1.3% growth year-to-date, relatively flat while EBITDA growth was marginally offset by higher CapEx, 8.6% CapEx growth year-to-date. Again, CapEx targeting the capture of opportunity in the market and being a foundation of further profit growth in the quarter. Link Net, green shoots, again, after several quarters of decline. Revenue grew 0.9% quarter-on-quarter, as Vivek mentioned, signs of turnaround in terms of ARPUs as well as churned rates, which is good news given the decline that was observed in some previous quarters. In terms of rollout, homes pass has grown by [ 327,000 ] homes passed year-on-year. And today, growth stands at -- total home pass of 3.31 million as at June 2023. EBITDA contracted by 13% year-to-date, with margin contraction of 3.2 points and today, which has grown 46.9% in terms of EBITDA margin. EBIT, likewise, negative 72.6% with a margin contraction of 11.2 points. PATAMI, greater than 100% year-to-date. Lower EBIT flow-through [indiscernible] by higher net finance cost and also the impact of additional drawdown of borrowings [indiscernible] the CapEx expansion, as Vivek mentioned earlier. Link Net is on a journey, rolling-out home passes to support XL through a Wholesale arrangement. And this is the beginning of Link Net's journey as a FibreCo and specialized Wholesale provider of home passes infrastructure. AOFCF grew 34% year-to-date, resulting from the lower CapEx spend and also delayed some of the home passed rollout. But however, this was offset by decline in EBITDA and higher net finance cost. I pass on to...

On the digital businesses, I'll start with Boost. So revenue year-to-date shows MYR 60 million, growth of 92.2%. And this is supported by the charging of merchant discount rate, MDR, from January onwards and increased loan disbursement as well. Profitability remained in the rate on the back of provision of estimated credit loss, higher NFC and higher OpEx, which is partly contributed by start up cost for the Digibank, which is to be launched later this year. Subscriber numbers continue to be encouraging. With Boost Life users increasing 6.3% year-on-year to 10.7 million, and the Malaysian merchants increasing by 20.1% to 607,000. Adjusted OFCF declined due to NFC. Next, our digital advertising and analytics company, ADA. The quarter-on-quarter revenue increased by 38.2%. However, revenue year-to-date declined by 13.2% due to lower contribution from Customer Engagement segment following the contract negotiation with XL that was mentioned earlier. And also, as Vivek mentioned, the lower spending from customers industry wide, which impacted the Marketing Solutions for ADA. As a result, EBIT and PATAMI slid into losses, but this is somewhat cushioned by higher interest income and lower taxation. The decline in the adjusted OFCF here was largely be affected by the lower EBITDA, offset by the lower taxation and higher interest income. On the infrastructure side, EDOTCO's top line has benefited from its organic growth in Bangladesh and inorganic ventures in Philippines and Indonesia, contributing to the growth of 12.6% year-on-year to MYR 1.3 billion. Tenancy ratio, as Vivek mentioned just now, was 1.6x. In terms of EBITDA, this grew in line with revenue, but the flattish EBIT was consequent from the higher depreciation and amortization from both organic and inorganic expansion in Bangladesh and Philippines. PATAMI, however, turned to a loss impacted by higher NFC, one-off tax adjustment for Bangladesh of around MYR 36 million. This is a one-off prior year tax adjustment for Bangladesh due to the change in tax law in June 2023, but it's looking retrospectively. Apart from that, one-off tax adjustment is also impacted by forex losses due to depreciation of ringgit Malaysia versus U.S. dollars and pesos. In terms of adjusted OFCF, year-on-year improved, largely due to lower CapEx, excluding the acquisition CapEx for Philippines towers, year-to-date AOFCF would have been positive at MYR 211 million. Next, I hand over to Vivek.

Yes. So if you recall, in February, we had given our guidance for 2023, which was a revenue growth of mid-single digit and EBIT growth of high single digit. And I think we are cautiously optimistic in saying that we would be in line with our guidance given at the beginning of the year. And coming out of the -- despite the macro challenges in the frontier market, but I think the improvement on the market structure in some of the key markets is seemingly in the right direction. We also expect CapEx to be marginally lower than what we had estimated earlier, mainly coming out of the conservative approach towards investments in some of the markets where macro challenges exist, also slower acquisition of towers that estimated by EDOTCO. However, some of that will get offset by accelerated investments in Link Net for building the fiber for XL at this point in time. So that's what the headline KPIs look like. Having said that, I think, if I can go to the next slide, the risks are there, and opportunities are there in all businesses that we have. And I think the macro challenge around strengthening of U.S. dollar and rising interest rates will continue to have impact on Axiata's performance given that we, at group level, and also at some of the OpCos, we do still have USD exposure. We are also seeing interest rates increasing in some of the markets. We overall seen around 1.6% weighted average interest rate increase over the last year. Regulatory risks continue. I think the -- whether it's in the form of higher taxes or network Quality of Service expectations or spectrum expected to come out in some of the markets, for example, XL, Bangladesh, et cetera. And also the current landscape on 5G, I mean, this could be an opportunity as well as a risk. I think risk move from the fact that there is still [ an awful ] certainty around the [indiscernible]. I think our balance sheet, which has been a key focus, how do we deleverage our balance sheet, I think that will have an impact on short to medium term, our ability to invest in new opportunities, which I think would be a bit of [indiscernible] having said that, I think this should provide much stronger position for us in the future, I mean macro overhang in Frontier markets. Things have started stabilizing specifically in Sri Lanka as well as Bangladesh. However, there's still not easy to get dollar available for the imports of CapEx and also the fact that there is overhang of existing inflation and affordability challenge in some of the markets, which does impact the frontier market performance. We also see risks of delayed execution of fiber in Indonesia and specifically because Link Net is now building fiber in newer markets where right of access has been a bit of challenge. I think we are moving in the right direction. There will be delays coming on all of that. Opportunities, I think we've seen, as Hans mentioned, at least 2 of our largest markets outside Malaysia has seen some competitive intensity getting rationalized. There is clear understanding amongst the operators on [indiscernible] market structure. I think synergy benefits on XL and Link Net would be a big opportunity for us. And ability to [ delayer ], which we've done for EDOTCO on the past as well as post potential for Link Net and possible asset monetization would be an opportunity for us, which should not only improve the balance sheet, but also give us a better ability to reinvest in growth in these assets. And obviously, the last one is the existing discussions we are having with Bharti on the merger between Dialog and Airtel, which as you know, is a noncash deal requiring some of the approvals from the regulator. And this should, in our view, improve the market structure in Sri Lanka. Well, that's pretty much what we have to talk about. So we will open up for Q&A.

Thanks, Vivek. Okay, we'll move on to the Q&A session. [Operator Instructions] So we'll start with the verbal questions. We see Ranjan from JPM. [Operator Instructions]

I only have one question. If you can please elaborate on how you plan to delever the business? I see the -- absolute net debt is rising still, between -- in the first half of this year, we have seen like net debt increasing by MYR 3 billion, and the cash flow is still negative. If I look at your operating cash flows ended up -- the lease liabilities and CapEx and include the interest payments from associates. So how -- if you can just share like how you're planning to delever the balance sheet and reduce the debt?

So I think -- yes, Ranjan, and let me try and answer this question. Yes, there has been an increase in the debt level, largely coming out of the fact that ringgit did weaken against dollar, and we have a fair amount of dollar debt in the balance sheet at the corporate level. In addition to that, the tower acquisitions, which was from Philippines and [ a lot ] of that was also coming out of the debt. So as you know, and we talked about it as we are currently running the process in EDOTCO on getting primary and potential secondary opportunity. We are in the midst of that process. There are bidders who have been keen to discuss with us that we expect to take it forward. In addition to that, we do see in future, once we are able to carve out the FibreCo, which is what the intention is in Indonesia, creating a FibreCo and ServeCo, the growth in FibreCo will come out of the partnerships with the other investors getting into it. And third is, I think the organic development on the EBITDA growth, I think is still fairly strong, and we do expect that to continue double-digit growth, which we've talked about. Even quarter-on-quarter, it's actually a double-digit revenue growth and EBITDA growth coming in that, I think, should also help in our -- reducing the leverage. Having said that, I think it's important for, I think, the analysts and investors to look at leverage on the buckets of businesses. They're looking at it on a consolidated basis. And that's how we've started seeing our -- the rating agencies also started to doing that. And that's why even after the deconsolidation of Celcom, we did get additional headroom being provided by the rating agencies. I mean, a fiber -- for example, a fiber business or a tower business cannot be seen on the same eyes as you see a Mobile business. And similarly, Mobile business cannot be seen on the same light as a digital bank business, for example, because there it's really -- that interest income basis because some of the debt which we classify as debt in the -- though is small on the Boost credit business, in reality is not a debt because you have a corresponding loan book to support that debt. So I think we need to start, maybe from our side also, I think we need to start looking at that from that perspective and looking at it from an overall balance sheet for Axiata. So I think those are the things which we think should overall look at deleveraging as well as, I think, looking at from a different eyes on each of those businesses.

Next up is Luis from Citi.

I had 3 questions. The first is related to Ranjan's question, but on the overall strategic review, where are we in terms of when the conclusion will come from it? Or i EDOTCO and FibreCo stake sale forms part of the conclusion? Second question is on Dialog. We noticed that revenues ex-device were down 5% Q-on-Q, but the subs and ARPU were only down 1% each for the quarter. What's driving the incremental downside? And third question is on EDOTCO. After the acquisitions in Philippines and Indonesia last year and year-to-date, the tenancy ratios are still stable. When do you expect these to pick up?

So I think let me take the first one and then maybe Hans will cover the Dialog. And EDOTCO, I think I can cover, or if Adlan is on the call, then maybe Adlan can talk about it. So on the strategic review, yes, we did talk about looking at the -- all the assets and how do we want to look at both from a strategy standpoint, as well as portfolio standpoint. I would not dwell a lot on this today because I think it's better that we do it on an Investor Day, which is on 6th of December. And it would be good to have you present there to look at that aspect. But just to give you a bit of a glimpse, I think our focus would be on the 5 blocks of assets and how we create value across all those blocks of assets and which basically is Celcom-Digi as a merged co. where I think clearly the synergies across the organization as well as looking at newer opportunities to develop in Malaysian market will be one of the key focus. However, there, because we are an associate, we do participate on the Board and the strategy standpoint. Second would be really around the Indonesia which is the strategy around how do we make the mobile business and fixed mobile convergence more sustainable with the intention of making the fiber-side lighter for XL. Third one would be, I think, Frontier markets. I think we do have 4 Frontier markets. It has got a very strong position when it comes to market position. I think all of these 4 -- 3 of them, we are #1 and 4th, we are significantly #2 operator. But I think these markets are challenged because of the macro situation. So I think how do we ensure we ringfence for the downside risk on these and eventually look at how do we strengthen or reduce the exposure or risk around these markets. The fourth one is really around the towers. I think we talked about towers as an opportunity where they could in future be independent as a tower company. And the fifth one is the digital businesses, which, in our view, we would, over a period of time, I think they do attract substantial investor interest, specifically the ADA, and also boost the opportunity of getting into a digital bank. I think eventually, these would be monetized over a period of time as we see the right opportunity to do so. So those are the 5 buckets, we will look at it. I think in terms of more details around how we work with these 5 buckets and still be able to provide sustainable earnings for our shareholders is something we will talk about in more detail in December when we all meet. And also talk about our strategy, which we have alluded in the past days.

So the -- you are correct that the revenue ex-device shows contraction greater than the [indiscernible] question. We have Supun online as well, he can add. But the high level, this difference arises from the drop in International [ hubbing ] due to the appreciation of the Sri Lankan Rupee versus the US Dollar. And also there has been some decline in TV revenue, which does not impact the ARPU sub-situation that you mentioned. Having said that, there's also some pressure on consumer model in the market -- the continuing inflationary pressures, and this would tend to buy into the consumer ordering for discretionary services starting with television. So that kind of sums up the difference. Do you have any follow-up questions, then we can probably expand that?

Adlan, you're on the call?

Can we unmute the Adlan's line? Okay, Adlan, can you take the answer, please?

So I think if you look at Philippines, I think if you look at the first half of this year, we have been focusing in terms of closing our transaction, right? With PLDT. So far, we have actually closed -- we have closed about 2,600 towers. The balance, we are going to focus on in the second half of the year. I think we'll try and complete whatever we can by quarter 3 this year. And essentially, I think, whilst closing the transaction with PLDT, we've also been focusing in terms of finalizing our agreements with all the other customers, which include Globe and DITO. So we do have some element of co-location on discovering from them, but essentially I think it is still work in progress. You will probably see a better progress coming from Globe and DITO, probably towards the second half of this year as you know, there were some changes, for example, with regard to probably in terms of shareholding and all that with regards to DITO and hence, there were a little bit of slowdown from that perspective. On Indonesia, I think we were focusing with finalizing all our agreements [ MLE ] with all our customers. We do have some audit, but I think delivery would probably come in the second half of the year.

I think next up is Arthur from Citi as well. [Operator Instructions]

Can you hear me?

Yes.

Yes. Just two questions for me, please, both on Link Net. Can we get some clarity on the performance from Link Net? When you look at the losses, they seem to have expanded quarter-on-quarter on higher depreciation and presumably higher interest charges as well. How should we look into this in the following quarters, given that you're further expanding in the network investment side on the pivot InfraCo? Basically, I'm trying to find out when we're seeing the bottom in terms of the losses. And second question is with regard to the InfraCo plans. If you can elaborate on that? Also for the plans for XL to acquire the subscribers from Link Net, will this be subject to shareholder approval as well? And will Axiata be allowed to vote on this? Or is it purely minorities?

Link Net performance, perhaps...

Yes. Like I mentioned previously, the quarter has shown several green shoots in terms of reduction in churn, increase in net adds, stabilization of the ARPU. In fact, if you look at ARPU on a year-on-year basis, it has actually increased. So the stabilization of the business -- incline that we saw in previous quarters mainly arising from post-pandemic churn and rationalizing of [indiscernible]. It has been abated and I think we can be confident that these turnaround measures will continue to deliver in the quarters ahead. The increase in depreciation coming through mainly from new rollout as well as lagging effects of the [indiscernible] was carried out in the previous year. And techwise, tech fund finance was on the rollout of 1 million home passes, which has now been -- the project, which has now been commenced to support XL's contract of 1 million home passes on a wholesale basis.

We do have Kanishka on the line. Perhaps you may want -- do you need to -- would you like to add anything, Kani?

I think we arguably can be bullish about business as usual performance. However, likewise, prepared for continuing increases in beginning and net finance costs, given the demands of the home pass rollout for the whole service. Kanishka is online.

Yes. As Dr. Hans highlighted, its quarter-on-quarter, the operational metrics are improving in terms of gross adds, net adds and gross churn. And even though the depreciation and net finance costs will continue to increase, we are optimistic that the gains from the operational performance will offset the downside from depreciation and additional net finance costs coming in. That's all, Dr. Hans.

Yes. On the second question, the preparations for the separation of ServCo and InfraCo on the FibreCo and ServeCo is underway. Yes, there would need to be a shareholder approval for such a transaction.

On the Link Net side...

On the Link Net not on the XL side, due to materiality. And on the Link Net side, again, Axiata will not be able to vote at the shareholder meeting for this transaction.

And for the acquisition of subscribers by XL, from Link, is that?

If it is subjected to Chairman's opinion only, that will not be a requirement for a shareholder.

Not on the XL side. XL side is only finance [ opinion ].

Okay. I think next on the call, we have a question from [ Angel Sam ]. [Operator Instructions]

Hello?

Sorry, we can't hear you. Angel, we can't hear you.

Am I audible?

Yes, go ahead.

Okay. Angel from Prudence. And I just had one question probably also relating to some of the questions asked earlier in terms of since now your leverage ratio has probably gone up quite a bit, whether you guys have any internal target in terms of leverage ratios both at the consolidated level as well as at individual subsidiary level, especially the [indiscernible]. And also any target time line that you can share that you can guide, to probably bring that leverage down by a certain timeframe?