Axiata Group Berhad (AXIATA) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. My name is Clare Chin, Head of Investor Relations at Axiata. Thank you for standing by, and welcome to our fourth quarter results briefing. Today, we have present with us Vivek Sood, Axiata Group CEO; Nik Rizal, Axiata Group CFO; as well as representatives from our operating companies. There will be a short presentation, followed by a Q&A. So without further ado, I'll hand over the conference to Vivek.

Thank you, Clare. A very good afternoon to all of you. It's a pleasure to present quarter 4, 2024 results of Axiata. Let me start quickly going through the presentation. Just to give you a brief outline or executive summary on how the results of 2024 look like, there are obviously two parts of it. One is the financial elements and second is the execution of the strategy. So just quickly cover a few points on the strategy. As you know, last year, we did merge Airtel with Dialog in Sri Lanka. I'm happy to inform, the merger execution has been in line, much ahead of what was original plan. Most of the network integration has been done, and we should be able to start realizing synergies of the merger here in 2025 itself. Our structural transformation of Indonesia, we did move the customers from Link Net to XL, so that XL can be a converged ServCo of mobile and fixed broadband. They now serve around 1 million customers with access to around 3.4 million home passes. Consolidation in Indonesia, a very important move for us, which is pretty much on track, and we hope to complete that by quarter 2, 2025. And this allows us to be in all markets with 3 players, where we have #1 position in 3 markets, a strong #2 in Bangladesh and close to #2 in Indonesia. I think, good information on the profits. Smart delivered a very strong USD 119 million profit last year. XL had the best profit year, Robi similarly. The profits have grown sevenfold since 2022 and double -- more than double from last year. EDOTCO, they delivered very strong profits for 2024 and also declared maiden dividend. Though it's a small amount, but that basically brings in a discipline for EDOTCO to start giving some returns to the shareholders. How has this come about is by focusing on operational excellence. We've seen the costs being well managed across operating company. In a little bit sluggish markets, the revenue has been a bit of a challenge, but companies have really focused on driving cost, excellence and removing wastages, which has actually delivered higher EBIT margin of 4%. CapEx has been optimized from MYR 6.1 billion, which was what we had guided beginning of the year, we ended up with around MYR 4.1 billion on CapEx. Partly, specifically on EDOTCO, a little bit deferred, but I think more controlled investments in our telco businesses. The effect of CapEx as well as OpEx improvement resulted in 20% -- 39.3% improvement in EBIT margins -- in EBIT in 2024 compared to last year, resulting in a reported near MYR 1 billion profit. We've also been focused on bringing down our debt, most of that at the holding company level, where our net debt to EBITDA down to 2.74x. If you recall, we did say, by 2026, we should be at 2.5x net debt to EBITDA. I think we're tracking in line. I expect this to be ahead of our original guidance, which we had given to the market. We also focused on high dividend payouts from our OpCos. Last year, we received MYR 1.5 billion dividend from our operating companies, which allows us to declare 10 sen dividend, I think important measure for us on how we can bring cash from our operating companies, which we've been doing well on their cash flows to be able to pass on to our shareholders. Getting on to the financial numbers. This is all on reported, so I'll have Nik cover on the underlying reported. We can talk a little bit more in detail, but this is essentially, we had to bring in EDOTCO Myanmar back as continued business, and Nik can explain that later on. I think one of the challenges has been growth for us, specifically in the second half. And that's largely in 2 markets. One is Indonesia and Robi, which is Bangladesh. Bangladesh, the effect of network shutdown, which was during the riots in Bangladesh, where we were asked to shut down; that has an impact on revenues, as well as floods and followed by sluggish economic and political situation. Consumers there seems to be careful in spend -- their spend. Having said that, I think we started seeing things turning positive with the economic conditions improving. However, even though with lower revenue growth, we've been focused a lot on driving profitability, which has translated into a strong year-on-year growth of EBITDA by 12.3% and also quarter-on-quarter improvement on EBITDA as well as EBIT. EBIT more than doubled for the year. We ended up with MYR 3.7 billion EBIT, translating into strong profit number of MYR 947 million versus lost last year. Last year, if you recall, we had few impairments, including Nepal as well as EDOTCO Myanmar. Quickly going through the performance, underlying profit was MYR 707 million with a very strong EBIT growth and the -- while the operating companies did well, we did have lesser contribution coming from CelcomDigi, which you are aware, was impacted because of some of one-off impairments being done by CelcomDigi on their assets. Strong cash flows, MYR 2.3 billion. I think that remains our important focus area, coming mainly from EBITDA growth as well as lower CapEx spend. Our balance sheet, I've already talked about. And also, we did gain by early repayment or buyout of the bonds for during the year of around $275 million. EBIT ahead of the KPI, again, flowed down from strong EBITDA growth. And I'm happy to announce second dividend of 5 sen, which [ now totals ] to 10 sen dividend for the year, which is in line with what we had committed at the beginning of the year. But a lot of that coming from contribution from our operating company. So no dividend is being paid by any kind of borrowing. This is purely from the cash flows generated from operating companies. Just quickly going through the details, I have not spent much time on CelcomDigi, as you're aware of their results they had announced earlier. XL, I think, strong performance, but we did see in the last second half -- though quarter-on-quarter, they still showed an improvement, but second half, we did see increased competition on the mobile side and also some sluggish demand on the home broadband side. But we've seen the improvement in ARPU, but largely coming out of the first half, strong first half performance in 2024. But as the focus has been on the cost optimization, so we've seen EBITDA margin improvement of 3% to 52% and flow-through translating into improved profits. Robi, I think operational excellence lifts profit. However, market sentiment remains weak. But as I said earlier, we have seen positive green shoots coming back within demand coming back in the market. Dialog ended up with a very strong quarter, and this is largely coming out of improved ARPU in the quarter and also excellent execution of the merger with Airtel. Smart continues to be a strong performer with around $120 million of profit, largely coming out of improved ARPU. ARPU in Cambodia now upwards of $5, which has been strong growth in ARPU, and we expect that to stay in the market, and that's translating into improved EBITDA margins as well as strong profit and EBIT growth. Last year, Smart itself declared around $120 million of dividend. Link Net, I think one of the units, which is still being a bit struggling. One is to do with the overall restructuring of the business with focus around the wholesale fiber business or after transfer of the customers. But also, we've seen the growth on the ServCo side, which is XL being relatively slower, as I explained earlier, translating into lesser home connects being provided by Link Net. But I guess that's more to do with the timing. I think we should start seeing that coming back. In fact, the good news is we have been also able to get new businesses from external customers as part of the wholesale fiber than dependence on XL. EDOTCO, I think some of the CapEx has been phased out, largely in Philippines, where we've not seen many orders coming in, but they continue to focus on colos as well as cost excellence, which is driving their profit growth, further supported by some ForEx benefit. Boost has been narrowing losses, despite the fact that they've been investing into the Boost Bank. Around -- close to MYR 69 million of the overall losses were coming out of the money spent in building the Boost Bank. Nonbank losses have come down to around MYR 96 million from MYR [ 113 ] million. And our focus is for nonbank to start becoming profitable on a run rate basis by the end of this year or early next year. ADA continues to do well. We've seen a strong growth in revenue, specifically coming from the customer engagement, which is SMS A2P business, but also on the e-commerce segment, and that growth is translating into strong revenue as well as EBITDA margin improvement. And this business continues for the last 6 years as been profitable, and this year was one of the better years so far. So with that, I'll hand over to Nik to go through the details OpCo by OpCo. Nik, over to you.

Thanks, Vivek. And good afternoon, everyone. Before I go through the underlying performance, just a quick reminder that our underlying performance means that it's presented in a constant currency basis. Just to elaborate a little bit on EDOTCO Myanmar position, in the quarter 4, '24 our unaudited financial results, the group has really presented the financial results of EDOTCO Myanmar under continuing operations. Essentially, as at the end of 2024, there was a reassessment done. And we concluded that the proposed intention to exit from the infrastructure segment in Myanmar, based on existing terms and conditions of the SPA share purchase agreement, is no longer highly probable under the applicable accounting standards, given that the proposed transaction has yet to obtain certain regulatory approvals in Myanmar. That said, whilst the delay in securing the delayed -- the required regulatory approvals, where the sale is taking longer than anticipated, the intention by Axiata to exit Myanmar continues to remain. As such, we continue to pursue the current sale process, and the SPA actually only lapses on the fourth of April 2025. As such, a discussion on the group's full-year financial year 2024 underlying performance and the financial year 2025 headline KPIs does not include EDOTCO Myanmar. So with that, on this slide, when we look at our underlying performance, on a constant currency basis, revenue grew by 1.9% to MYR 22.4 billion, and this is supported by growth from all OpCos with the exception of Link Net and Dialog. At XL, our revenue grew 8.9% on the back of higher mobile data and digital revenue that resulted in a 4.9% increase in ARPU. And Smart Cambodia saw revenue increased by 8.9% from increases in prepaid enterprise and international business segment, also delivering higher ARPUs. EDOTCO registered a 4.7% increase in revenue year-on-year from higher tower and colo tendencies for the year. Growth was, however, tempered by revenue declines at Link Net and Dialog. And on the right, we see EBIT came in at MYR 3.6 billion for the group -- sorry, it should be MYR 3.5 billion -- MYR 3.6 billion on an underlying basis. And this was essentially on the back of revenue growth and also cost management across the group as we continue to execute one of our key strategies around operational excellences where we operate. At XL, EBIT grew by 25.1%, primarily due to the flow-through from higher revenue, the revenue growth. EDOTCO EBIT improved by 58.8% on the back of OpEx management and lower D&A expenses. And Robi saw a 23.4% increase in EBIT from exceptional OpEx discipline, despite the challenges in Bangladesh, which saw that the revenue was essentially flat for the year. For FY 2024, UPATAMI was at MYR 707 million, which is more than double what we saw in FY 2023. Key contributor was XL. We saw a 67.1% improvement in UPATAMI due to the higher revenues. EDOTCO was also more than 100% improvement from the flow-through from higher EBIT. Robi saw UPATAMI increased 77.7% from the EBIT improvement, despite higher finance costs and tax expenses. And the strong growth in UPATAMI, as shown by the group, was achieved despite lower contributions from CDB in FY '24 compared to the previous year. On the next slide, on adjusted OFCF or AOFCF, this increased by more than 100% year-on-year to MYR 2.3 billion, on the back of -- essentially driven by higher EBITDA and also lower CapEx. This was delivered primarily also by the concentrated discipline in OpEx and CapEx across the OpCos, where there's also improvement in net finance costs, primarily driven by the early redemption of the USD 272 million of our EMTN long-dated paper. At the OpCos, there was also a debt reduction overall. And I will cover the numbers -- some numbers in the -- when we talk about the balance sheet slide. On an OpCo-by-OpCo basis, at the bottom of the slide, you can see that all OpCos made positive contributions to AOFCF in financial year 2024. The standouts were EDOTCO at MYR 604 million, XL MYR 501 million and Smart MYR 255 million. On the next slide, balance sheet. We continue to focus on reducing our debt across the group. This has been one of our key priorities for the Axiata group from last year and going forward, essentially to reduce our debt and also improve the financial health of our balance sheet. To this end, our net debt-to-EBITDA ratio has improved further to 2.74x at the end of 2024, comparing to 3.36x at the end of 2023. On a borrowings basis, we have reduced our borrowings by approximately MYR 1.7 billion, of which at the holdco, the net reduction was MYR 0.4 billion, so -- which accounts for the approximately 25% of the reduction. And the remaining reduction of about MYR 1.3 billion was in selected for most -- for [ selected OpCos ], where the biggest movement was around Link Net -- actually, from most OpCos apart from Link Net and Boost. The debt level also benefited from movements -- ForEx movements, whereby the ringgit strengthened against the dollar for FY 2024 compared to FY 2023. That said, of the 1.7 billion reduction, you could account approximately 20% was accountable due to this ForEx movement and the remaining approximately 80% was actually absolute reduction in the debt balances going forward. Another part of our balance sheet was -- actually balance sheet management is to also reduce our exposure to interest rate and ForEx volatility. To this end, we have increased the fixed portion of our group borrowings to 72% in FY 2024 compared to 66% in FY 2023. On ForEx volatility, we've also successfully reduced our exposure with -- especially with the potential for the strengthening of the USD to ringgit that we have seen since the end of the year. As such, we have increased our foreign hedge borrowing to 47%, including natural hedge positions, which is up from [ 37% ] hedged in FY 2023. On our group debt totaling of MYR 23.2 billion at the end of the year, the average tenure is 6.3 years with a weighted blended rate of 5.48%. Coming back now to my last slide, which is on FY 2024 headlines. As you may recall, we had actually set our KPI targets for revenue and EBIT growth for FY 2024, where for revenue growth, it was mid-single digit and EBIT growth of mid-teens. As you can see from the table, we were slightly short of our revenue growth our target, achieving 1.9% growth in FY 2024, mainly due to the challenging macro and competitive environment, but also with regards to ForEx from -- negative impact of ForEx translation impact. However, on EBIT growth target, we outperformed our target on the back of positive cost management by the of OpCos, where we reached an EBIT growth of 39.3% on a constant rate basis. Just to clarify, there's a slight difference in the 39.3% EBIT growth number compared to what was presented earlier on the year-on-year growth of 48%. And that's mainly because of the FY '23 baseline for the headline KPI, excludes impairments of certain assets. So again, to clarify, these numbers exclude impairments of certain assets and also excludes EDOTCO Myanmar. With that, I will pass now and -- I'll hand it back to Vivek to take us through the next set of slides on Axiata moving forward.

Thanks, Nik. Just quickly, the guidance for 2025, so we are looking at a revenue growth of low single digit and EBIT of high single digit. But remember, this is assuming more transactions in business-as-usual. Once we complete the merger in Indonesia, we will have to revisit these numbers. But this is based on existing portfolio of assets we have. CapEx significantly lowered from last year's guidance to around MYR 4.4 billion for 2025. Just to reiterate. If you recall, this is a slide which I had presented when we met in early January as part of our Investor/Analyst Day. So our focus will remain on the portfolio, which is combining all the telco or connectivity businesses. We have 4 of them or 3 of them we have direct control over. The other 2 are jointly controlled. And the focus will remain on operational excellence, ensuring the market sanity prevails and market repair happens with ARPU enhancements and also getting the benefits of market consolidation, which we've been the ones driving it over the years, resulting in improved return on invested capital. I think you've seen the benefits of that in most of the markets, but there's always inertia after a period of time. The one where we've not seen that impact really is Malaysia, which we do expect things should improve. And this actually puts us in a fairly early good position as a #1 or a #2 operator into the market. And eventually, all this will result into a strong dividend play coming in from these assets of ours. As far as the infra and digital businesses are concerned, our focus would be how we illuminate the value of these businesses and also look at path to monetization. In terms of priority, EDOTCO, Link Net would be the first one when it comes to path monetization and ADA and BHSB would be later on. And it's not just monetization, but also ensuring these businesses have sufficient capital for new investors for them to be able to grow and become more valuable in the market. And this -- all this will also relook at what the corporate center role would be or the group role would be. Just on the right-hand side, priority will remain as cash flows and profit. And a lot of that will come out of focus on connectivity and convergence business, which I talked about, the ones on the top, looking at prioritization investments into Malaysia and emerging markets. And frontier markets would really be around improving the market position and ensuring the balance sheet resilience is maintained. And so if you go back to one of the slides, which Nik had covered, I think you would see net debt to EBITDA as well as the gross debt to EBITDA of some of our frontier markets actually very, very strong. Now very -- overall actually, all 3 assets put together, we are actually positive when it comes to dollar balance. So I think that's been one of the key focus areas. While I know a lot of investors who have concerns or our presence in frontier market, what I think we've been able to build that strong resilience by managing the balance sheet, the investments and the returns from these assets very well. And I think the last bit is really around consolidation in Indonesia, which would be a key step. And on our focus, we expect once the synergy starts coming in, that should help increase the value of the Indonesian asset as well as impact to Axiata. What are the risks? I think the -- I mean, you're all aware of the developments on 5G wholesale network in Malaysia. We haven't landed into the final outcome, and the clarity around that will be the one key elements for us to take this risk out of us. Competition remains volatile. Having said that, as I said, broadly, we've seen markets behaving much better than they have behaved in the past. Monetization of digital infrastructure assets, I think that's one of the key priorities for us. Having said that, I think the risk is interest rates remain high and whether the right kind of value we will be able to get as part of the monetization exercise. Frontier markets, I think while we manage the balance sheet well, but the fragile economic conditions and political environment is something which we will have to watch or and that might have coming risks off and on in these markets. And really around value illumination, I think ADA has been fairly strong. It's really about the financial services, fintech business boost as we move to path for profitability and bring -- building a digital bank, whether we will be able to get the right kind of value for these assets. Opportunities remain on portfolio optimization, which is really coming from the strong balance sheet, which we are working on. The merger synergies, Dialog-Airtel, CDB as well as once Indonesia is completed, that would be a key opportunity for us and market repair and cost excellence as a priority for all our footprint markets. So with that, Clare, I'll hand over back to you.

Thank you, Vivek and Nik. Moving on to the Q&A session, and I would highlight that we also have representatives from Axiata, EDOTCO, Link Net, Robi and Dialog on the call, if any of you have questions for them too. [Operator Instructions]. So perhaps we will take the question that actually came through via e-mail from [ Louis ] from Citi first. He does have a list of questions, so let's go through that whilst we wait for the rest to prepare for their questions. So I'll read it out. First question is, does the FY '25 guidance incorporate second-half merger happening in Indonesia?

No, it does not. As I said earlier, that this is based on a BAU. And any [ completion ] of the transaction, we will come back to restate the guidance.

Okay. Second question, some housekeeping questions over here to understand the Q-on-Q performance of OpCos. Firstly is for Robi. Question is, what drove Robi's profits up by 59% quarter-on-quarter in fourth quarter despite lower EBITDA as well as EBIT?

So I think one of the reasons for that is we've been -- the realized losses on ForEx, which was higher in quarter 3, we saw a gain because we've been paring down some of the debt, and that impact is held. And also, the overall debt has reduced by around 33% to around MYR 9.6 billion. So there have been efforts to reduce the debt coming out of the better cash flows and also, to some extent, benefits of taxation.

Okay. Moving on to his third question, which is actually on Dialog. Again, a Q-on-Q performance question. Whilst Dialog's profits were up Q-on-Q despite -- what was the driver between -- for the performance from the improvement in profits Q-on-Q basis?

Let me ask Supun to answer that. Supun, you're on the call?

Yes, I'm here, Vivek. Yes, so the key improvements come from the price hardening that we continued from Q2 and then the results of that price hardening market repair actions. Then big impact coming from the Airtel merger consolidation and synergies resulting from the merger. If you recall, we acquired Airtel end of Q2. Q3 was more consolidation, but a big part of synergies started coming from the [ fourth ] quarter, and then that gave a boost to the earnings. And then we expect to see this going forward as well. So market repair results, price hardening, then Airtel synergies and apart from that, cost rationalization initiatives, which continue.

Okay. We'll move on to the question #4, which is on Link Net. So Link Net losses were lower despite lower EBITDA and EBIT on a Q-on-Q basis. So the question is what provided the partial relief at the bottom line for Link Net performance in the fourth quarter?

So I think one of them is it's really not comparable quarter-on-quarter for Link Net because till 30th of September, we have -- they had the consumer business, the retail business, which was as part of their portfolio, which was, 30th September, transferred to XL. So you have that impact of it taking away a fair amount of EBITDA out to the other side. In return, they also got the money of around $120 million, right? That money was also used for pairing down some of the debt. So you would see the impact on the interest cost coming down because they paid down some of the debt. So I think that's -- so it's not really comparable. Second, I think, is quarter 3, when we did this transaction, there was a tax which had to be paid on capital gains on the sale of -- on the transfer of customers to the ServCo, which was around [ MYR 148 billion ]. So that also had an impact coming in quarter 3, which didn't feature in quarter 4.

Okay. Thank you. Vivek. Let's move on to question #5. Why did EDOTCO Malaysia's revenue dropped 12% on a Q-on-Q basis in fourth quarter 2024?

May be Adlan is there on the call. Adlan, you're on the call ?

Yes. Yes. Yes. So I think if you look at performance for this year and last year in Malaysia, I think that's essentially due to the recognition of Jendela revenue because Jendela revenue milestone, there were quite a fair bit of recognition in the previous quarter, right? And then I think you also see that if you compare on the year-to-year as well, Jendela revenue last year, we have recognized a substantial sum compared to 2024.