Axiata Group Berhad (AXIATA) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. I'm Jon Duckett for Axiata Investor Relations, and I'd like to thank you for joining this call on Axiata's First Half 2025 performance and financial results. Some housekeeping for the call, [Operator Instructions]. Presenting today will be Vivek Sood, our Group CEO; and also Nik Kamil, our Group CFO. Without further delay, I will hand over the conference to Vivek for the presentation.

Okay. Thank you, Jon. A very good afternoon to all of you. Thanks for joining the quarter 2 investors/analyst call. Let me do one slide, a bit of details around where we are with the strategy which we have put in place, then I'll hand over to Nik to go through the detailed financials for the quarter 2. I think we've headline numbers as a profit of MYR 431 million for first half, and we are happy to declare dividend of the [indiscernible] interim first [indiscernible]. I think a focus around delivering or executing on our 5*5 strategy, which was the five strategic pillars or vectors of value creation is falling in place. We've had a very strong operational performance from our telco, specifically ones in frontier market in this particular quarter. And I think good news that all of them are generating cash, and they've been able to upstream a fairly strong dividend of MYR 1 billion in the first half of this year. If I go one by one and then go through a little bit of a detail. I mean, you are aware of our completion of the merger with XLSMART, which happened in April, and then we also exited out of Myanmar. Both of them are part of our strategy of portfolio optimization. The XLSMART, as you know, has been progressing well on its integration path. Myanmar, as you know, the difficult market conditions as well as operating environment, we decided to exit out of towers in Myanmar. This also, in a way, creates a much stronger capabilities to value, illuminate the tower business of ours. If I go to the next slide. I think frontier markets, I would say, positive signs of market repair with improvement in ARPU. There is also efforts of market consolidation, specifically in Sri Lanka, where Dialog-Airtel merger also is gaining traction, and that's resulting in a fairly strong improvement in the performance -- overall performance of the company. Let me just quickly touch upon each of those operating companies, frontier markets. As you know, these are basically three telcos of ours. Bangladesh, Robi, I think macro challenges are still there. However, we are seeing some indications of economic recovery. I mean the remittances are at such peak. The growth in exports continues to be fairly strong, and we are seeing government getting ready for election sometime in the first quarter of next year. One of the efforts in Robi was to make the balance sheet more resilient. So we are pretty much by the end of this year, would have paid down all of our U.S. debt. Our balance sheet is fairly strong now at around 0.9x net debt to EBITDA. You've seen ARPU stabilizing on a year-to-date basis, but we've seen a fair amount -- strong growth coming in on a quarter-on-quarter basis. I think our ARPU moved up by around BDT 12 in the last quarter, which translated into a strong 9% growth coming in. And also, we've seen a strong profitability improvement over the last year with 55% growth on a year-on-year basis and something like 79% improvement in profitability on a quarter-on-quarter basis. And a lot of it is coming through the slowdown from revenue as well as focus around cost management. Dialog actually has been a very, very strong story. The macro situation is improving there where inflation is fairly low. We are seeing improvement in consumption and the currency remains fairly stable against the U.S. dollar. All that has resulted in a fairly strong balance sheet for us. We've seen debt exposure coming down. We are expecting by next year, we should be out of the U.S. dollar debt and the balance sheet fairly strong at 0.96 net debt to EBITDA. Growth in mobile segment has been tremendous. We've seen organic improvement of nearly 33%. And overall, where 18% came just organic and 15% benefited from the consolidation with Airtel. Subscriber growth, 17% year-on-year and ARPU improvement of nearly 18% year-on-year has translated into a very strong profit where Dialog profit has jumped by greater than 100%, which basically is an outcome of not only integration efficiencies also the fact that market is becoming far more rational, and we are seeing that impact in the overall ARPU improvement as well as translating into profit growth. Smart continues to remain strong with cash of around [ MYR 4,866 ] million last quarter, delivered a profit around USD 36 million. And we've seen ARPU improvement around 12.12% over the last 1 year, and that translated into a profit growth of 6%, partly impacted the year -- the quarter was partly impacted, as you know, because of the tension between Thailand and Cambodia as well as some renegotiation on the A2P SMS business, which did impact the top line growth. So synergies from network modernization and integration, I think, progressing well. Yesterday, the XLSMART did announce their results for quarter 2, where focus is on synergies of USD 100 million to USD 200 million for this year. And what I'm told is around more than 55%, 56% of the synergies have already been captured. And we should start seeing the full benefits of synergies coming sometime around 2027. There's also been an aggressive modernization plan, which is there put in place by XLSMART. I think we've been able to take an aggressive position on CapEx investment to modernize because of certain deferred considerations agreed with the vendors. We have also seen CDB now getting into a growth track with continuing the delivery of net synergies of MYR 1.7 billion to date. Home business for CelcomDigi is doing well. So we should start full benefits. What we communicated earlier, MYR 700 million to MYR 800 million steady-state saving in CDB is somewhat on -- is on track. We should also see XLSMART delivering the MYR 300 million to MYR 400 million by 2027. So far, there's nothing concern, no concern for me to highlight here. Link Net, I think the business has been obviously impacted because last year, if you recall, we did move the residential retail business to XLSMART, making Link Net as a wholesale fiber company. And as a result of that, you would see the top line actually lower because a lot of revenue from the ServCo business is now captured on the XL side. But if I take that out, Link Net has grown by around 47% on a year-to-date basis. We've had some concern on the rollout coming requirements from XLS because they are at the moment going through the merger is to focus on mobile consolidation. So they've been kind of a little bit behind on the home business. However, Link Net is managing to secure ISP outside their new ISPs transitioning itself to a wholesale fiber company. If I remember last month, they actually delivered something like 100,000, around 400,000 new home passes being built for external ISPs. EDOTCO has a fairly strong order book on BTS as well as colo. Their balance sheet is improving, part of it coming out of the proceeds from EDOTCO Myanmar, which has been used for reducing the debt. The profitability of close to MYR 233 million for the year-to-date has been a strong performance. However, revenues got impacted because of translation from operating currencies into ringgit for EDOTCO. There, colo remains fairly strong, 68. Boost, building the loan book on the Boost Bank. I think we are at around MYR 167 million loan book by June. It's moving in the right direction, but slower than what we had anticipated because of various factors including regulatory stability, et cetera. We are also seeing the nonbank losses to come down at least at the EBITDA level on a run rate basis by the end of 2025. So that's what has been focused on. ADA, slightly weaker on revenue mainly because low margin, the market -- programmatic marketing business has been slowed down and the priority has been more around customer engagement and solutions business, which is a higher-margin business. So you see lower revenue. However, the EBITDA and EBIT continues to do well at 25% and 47% improvement. And ADA continues to remain a fairly strong profitable business. Go to the next slide. I think balance sheet, I mean I'll leave more for Nik to cover on how the balance sheet is developing. But as I said earlier, I think the efforts will be of course to deliver strong cash flows and upstreaming that to Axiata help us to deliver our dividend commitment to the shareholders. With that, I'll hand over to Nik to quickly take you through the financial numbers.

Thank you, Vivek, [Foreign Language] and good afternoon, everyone. I'll take us through the first half '25 financial performance. Starting with revenue. First half of this year recorded a revenue of MYR 5.86 billion. On a year-to-date basis, this implies a 10% decline, which was mainly due to ForEx translation. Looking at it from a constant currency basis, it's relatively flat, slightly below at 0.9%. Quarter-on-quarter increase highlights the positive performance at the OpCos, where on a constant currency basis, revenue grew by 5.7%. EBITDA for the first 6 months of the year was at MYR 2.66 billion. Year-on-year, 8.5% down, again, mainly driven by ForEx translation. However, cost discipline across all our OpCos resulted in an improved EBITDA growth on the constant currency basis, whereby on year-on-year, it grew by about 2.3% and quarter-on-quarter by 21.9%. Reported EBIT was at MYR 700 million. This is on a continuing basis. On an underlying constant currency basis, EBIT grew by 16% to MYR 1 billion. JCE is our joint controlled entities. So share of results for the first half of the year was MYR 171 million, which is a decline year-on-year of 17.4%. CDB performance was stable. However, the slightly lower -- the lower number compared to last year was mainly due to XLSMART's share of results or share of loss for the second quarter of MYR 85 million, of which approximately about MYR 56 million related to accelerated depreciation that was taken at the merged entity post the merger. Just to elaborate on the contribution from CelcomDigi for the first half of this year was MYR 255 million. Actually, it was higher compared to the same period last year of MYR 207 million. PATAMI reported was MYR 431 million. More than 100% growth year-on-year and 69.4% higher quarter-on-quarter. Main reason for this is included in PATAMI will be the gain on disposal of XL of MYR 505 million, loss on disposal of EDOTCO Myanmar, whereby the Axiata share was MYR 187 million. The net gain as such is MYR 318 million. Also included in PATAMI was the results of XL for the first 3 months of the year or quarter 1, plus half of the month of April and also the results of EDOTCO Myanmar for the first 5 months until end of May when it was disposed of by EDOTCO. On the UPATAMI line, UPATAMI grew 39% year-on-year and more than 100% quarter-on-quarter. This is mainly due to the normalization of the XLSMART, XL depreciation of assets and also Link Net goodwill impairment. One thing which I should mention, the EBIT of MYR 700 million on a reported basis on a continuing basis, this is -- the reason why it's come down a fair bit from the EBITDA line is because we also took impairment on Link Net goodwill. I will now take you through our frontier and also infra-opCos, which accounts for 95% of our revenue. This slide, we're talking on Robi, building on what Vivek had alluded to earlier. Quarter-on-quarter, we saw a 9.1% growth in local currency, driven by growth in voice and data and supported by increase in subs and also ARPU, which in quarter 2, they benefited from having two Eid festivals, which is the Hari Raya Puasa and Hari Raya Haji fell in the same quarter. Blended ARPU grew by about 8.6%. EBITDA and EBIT also improved based on the revenue growth and also a reversal of a provision relating to Bangla [ phone ], which improved the EBITDA and flow through to EBIT. On cash flow, a slight decline quarter-on-quarter due to higher CapEx and taxation due to the higher profit before tax, which offset the increase in EBITDA. However, on a year-on-year basis, it grew mainly due to CapEx spend, which was much lower in the first half of this year, roughly about BDT 3 billion compared to BDT 10.4 billion in the same period last year. PATAMI level, quarter-on-quarter improvement was flow-through from the higher EBIT offset with higher net funding costs from additional borrowings for spectrum renewal and also the taxation due to the higher PBT. Next, on Dialog. On a quarter-on-quarter basis, revenue grew by 1.9%, driven by mobile. Where I think Vivek alluded earlier, the mobile segment actually grew on a year-to-date basis by 33%. ARPU was also higher in quarter 2 '25 at 452 compared to last quarter of 422. Quarter-on-quarter EBITDA grew by about 6.4% and EBIT also by 6.4% due to the -- from the higher revenue flow-through and lower interconnect costs in the second quarter. On cash flow, AOFCF quarter-on-quarter was down 14% due to the higher CapEx spend, which offset the higher EBITDA and lower net funding costs, tax expense and ROU depreciation. PATAMI level, quarter-on-quarter grew 22.6%, flowing through from the higher EBIT, lower finance costs and tax expense despite lower ForEx gains. Next, on Smart. Quarter-on-quarter, Smart, I would say, relatively stable performance. So quarter-on-quarter, it grew 2%, driven by prepaid revenue, whilst enterprise business also grew 4.9%. The April -- there was an uplift in April, May, which are offset by the impact of the termination of Internet link from Thailand. This is due to the conflict between Thailand and Cambodia that happened in the second half of June, basically roughly from 16th to 30th of June. Blended ARPU, though, on quarter-by-quarter basis also improved. At the EBITDA and EBIT line, EBITDA grew quarter-on-quarter 12.9%, EBIT 28.3%. The performance was due to the flow-through from revenue and reversal of revenue sharing of $4.3 million. And EBIT further improved due to lower depreciation and amortization due to a one-off accelerated depreciation and ARO adjustment in quarter 1 of this year. At the cash flow level, 10.6% higher quarter-on-quarter due to the higher EBITDA, offset by higher tax and ROU depreciation, where CapEx was flat quarter-on-quarter. PATAMI improved 19.4% quarter-on-quarter from the flow-through of higher EBIT, offset with tax from higher PBT. Link Net. Next -- so FiberCo is driving the build-to-suit and security new ISPs. However, on a quarter-on-quarter, you can see a decline at revenue line of 5.4% due to the decline in FiberCo and Media due to the impacted churn of subs, where churn has increased marginally from 3% in March to about 3.6% in June. Home passes improved by about 200,000 homes from quarter 1. And as at quarter 2, it was 4.4 million home passes. EBITDA was a little bit higher quarter-on-quarter by 21.4% and EBIT showed a contraction of losses by about 10.6%. The improvement was from -- at EBITDA was from lower ECL provision and lower direct costs, and that flew to EBIT. On cash flow, slightly smaller negative cash flow, so improvement of about 30.7%. Again, improvement is back on the higher EBITDA and lower CapEx and funding costs. At PATAMI, the narrow -- the losses narrowed slightly by about 5.1% to IDR 337 million. Lower PATAMI reflects the lower improved -- the lower EBIT and lower finance costs from lower debt and interest rates, partially offset by deferred tax liabilities. And finally, on EDOTCO, whereby on a quarter-by-quarter basis, revenue grew by about 5.3 million -- 5.3%, sorry, mainly from new USP project revenue in Malaysia and higher revenue offsetting the lower revenue in Bangladesh. Quarter -- on a year-to-date basis at constant currency, it was at MYR 1.26 billion, still lower compared to year-to-date '24. However, here, just as a way of recap, included in the year-to-date '24 revenue of MYR 1.34 billion was a one-off price benchmarking adjustment of approximately MYR 121 million. If you were to normalize for that, then revenue growth would have been relatively flattish. EBITDA though was higher by about 16.2% quarter-on-quarter and EBIT 31% quarter-on-quarter, mainly due to the stronger revenue and also reversal of some tax items in Bangladesh, along with some ECL reversal as well. On a year-to-date basis, on a constant currency, EBITDA was 959, which is 1.8% higher year-on-year. And EBIT was also at MYR 567 million, which is 33%, so even higher than the 22.8% that is on a reported basis. Here, again, the main impact is due to the strengthening of the ringgit against other operating currencies in the quarter, in particular, the big OpCo will have to be Bangladesh. From a cash flow perspective, quarter-on-quarter, AOFCF improved 50.8% to MYR 123 million. This is on the back of higher EBITDA and lower CapEx due to delays in rollout in the growth markets. At the PATAMI level, it grew by more than 100% to MYR 160 million quarter-on-quarter, which is driven by the EBIT growth and also FX gain. Next, I will move to the balance sheet as at 30th of June 2025. Starting with group cash of MYR 4.9 billion. This is on the back of strong cash generation from OpCos, resulting in what Vivek mentioned, the upstreaming of about MYR 1 billion in dividends for the first half of the year, but also the proceeds that we received from the merger that was done in Indonesia between XL Axiata and Smartfren after paying off the -- after the repayment of the multicurrency term loan of approximately -- well, of $250 million, roughly about MYR 1.1 billion, which also you can see showed the reduction in holdco borrowings to MYR 7.9 billion. At the group level, borrowings at the end of June was MYR 17.7 billion. This was a 31.4% reduction year-on-year. And quarter-on-quarter, it was also 22.5% lower. Group borrowings at the end of quarter 1 was roughly about MYR 22.8 billion. So the MYR 5.1 billion reduction to MYR 17.7 billion was largely due to the deconsolidation of XL, which actually removed debt of approximately MYR 3.5 billion. And I had alluded to earlier as well, there was over MYR 1 billion reduction in holdco debt due to the repayment of the MCTL term loan facility. Cash flow generation, AOFCF for the first half of the year was MYR 869 million. On a quarter-on-quarter basis, it increased by over 100%. And primarily, this is mainly due to the strict CapEx management across all our OpCos and the operational excellence and cost focus that all our OpCos have put in. Holdco cash at MYR 1.4 billion is higher quarter-on-quarter and also year-on-year, mainly due to the net cash that we received from the proceeds from the Indonesia merger after subtracting the debt repayment at holdco. I've already gone through holdco borrowings. Finally, on net debt to EBITDA at the end of Q2, we were at 2.7x, which is lower than Q1 '25, which is at 3x. This benefited from the reduction in debt, mainly due to the repayment of the MCTL facility at holdco level. With that, I will pass it back to Vivek to take us through the headline KPIs for 2025.

Yes. So I think headline KPI, which we gave earlier this year was high single-digit growth in EBIT. That's why we are still sticking to that. We are looking at the similar numbers. So we're fairly confident that we should be able to meet our headline KPI. Opportunities, we are seeing some early signs of market repair in Indonesia, not so reflective in quarter 2, but quarter 3, we've seen some positive signs on the startup pack as well as the pricing on the recharges and CLM. I think we are seeing some green shoots there. Hopefully, the Indonesian market will see a market repair. Sri Lanka, Bangladesh, as you've seen, I think reflective of ARPU development in these two markets, we are seeing good early signs of sanity coming in these two markets and specifically Sri Lanka with the consolidation between Airtel and Dialog. Merger synergies, I think it's not visible at this point in time. I think the real benefit would be once we finish all the integration across the two companies. Dialog-Airtel, we should start seeing full synergy benefits getting realized because they are pretty much done with the integration of the two companies. Monetization of infra assets, I think we are looking at, as you know, part of the strategy was to look at value elimination, monetization. I think as we go along, we would make necessary announcements. But directionally, we would look at this as an opportunity for us to use that to pay down some of the further holding company debt risks. I think 5G wholesale network discussions are still developing. I think we're coming closer to the timelines where the Ministry of Finance has to exercise its put option. So we're hopeful that there would be some good outcome we can achieve based on the discussion we are having or CelcomDigi has been having with the regulators. Landscape in Indonesia, we see sanity in the market, but if you look back at the Indonesian market, there's always a risk of one of the operators getting aggressive in the market for the sake of market share, and that further starts destroying the market. We expect market sanity to continue, but there's always this risk which exists in that market. Macro challenges, I think global U.S. tariff, we don't see a big issue for our markets because all of them have pretty much a similar 19% to 20% tariff being introduced. It does not necessarily impact the consumption of mobile services. As you know, in other markets, our ARPU per capita income is extremely low. However, the macro and political development inside the countries would have its impact on the overall GDP growth, which does have an impact on the lower end of the pyramid's ability to -- or affordability. So those are potential risks, but we don't see any immediate development of this. Execution of the monetization strategy, I think we say risk, while the efforts may be there to monetize, but the question is markets are not very conducive for investors or investors' appetite, specifically given the overall uncertainty in the overall global macro environment. With that, we would stop talking and get to answer your questions.

We'll now open up the floor to questions. [Operator Instructions]. [indiscernible] has a question.

Three questions from me. Firstly, regarding the monetization of your infrastructure assets, right? Can you give us an update on the progress there for both EDOTCO and Link Net, where are we in the process now? And also your expected time line for completion? That's question number one. Secondly, for EDOTCO, what is the normalized EBITDA for the first half, excluding the one-offs that you mentioned earlier and also on an actual currency basis? And related to EDOTCO, I wanted to know what caused the drop in tenancies and towers in Malaysia on a Q-on-Q basis? And then my third question related to Boost. The nonbank losses widened Q-on-Q. Why was that the case? And are we still expecting breakeven at the net level by year-end? Yes, those are my three questions.

I think the first one, I mean, we are in the process of preparing our plans for monetization. Unfortunately, I would not be in a situation to make any dates or any specific disclosure on this at this point in time. As and when we are ready to make those announcements, we will come back to the investors. On EDOTCO...

So on EDOTCO, I believe your first question is in terms of what will the number be if you normalize it. This is actually more on the year-to-date '24, where we had the one-off price benchmarking exercise. The one-off benefit, if you like, in year-to-date '24 was 121 million. So taking that one out, you come to a year-to-date '24 revenue of about MYR 1.22 billion compared to year-to-date '25 of MYR 1.2 billion. However, if you were to take out the -- you were to look at year-to-date '25 at a constant currency basis so that you're comparing it like-for-like and taking out the ForEx impact, year-to-date '25 will be [ MYR 1.255 billion ], so slightly ahead of a normalized year-to-date '24. So that was the first question on the revenue. Secondly, I believe your question was around why was there a reduction in towers and tenancies for Malaysia. This is mainly coming out of the merger between Celcom and Digi, and post the negotiations between EDOTCO and CelcomDigi, whereby certain towers were decommissioned, certain towers were swapped out, but there are also orders or basically plans for future towers in the future, right? But this is mainly will be from the decommissioning of some of those sites.

Just maybe on Boost, I can answer. The Boost losses on the nonbank side is while the EBITDA has improved over last year, there is amortization of some of these intangibles over the -- during the quarter, which has resulted into higher losses. I think we're still targeting to move towards run rate breakeven on EBITDA basis by the end of this year because there are some of these amortization, which will have -- which will keep coming. So at a profit level, not, but at the EBITDA level on a nonbank, we should be breaking even by the end of this year on a run rate basis.

Okay. And if I can just follow up with two questions, right? Firstly, just coming back to Vivek, right? Just now during the segment on opportunities and risk, you mentioned on the risk side, markets may not be very conducive. There's still uncertainty in the global environment, and that may have some influence, right, on your plans for asset monetization. I'm wondering whether you are just mentioning that as academic mentioning of it? Or are you sort of seeing any real indications of that having an impact on what you're trying to do? That's first question. And then secondly, on the EDOTCO. So Nik, just wanted to confirm, MYR 885 million EBITDA in the first half of '25 is a normalized number on actual currency basis. The ECL reversal was in the first half of '24, is it?

I didn't say ECL reversal. The first half of '24 was a price benchmarking. So it impacts the revenue numbers. So the 885 million EBITDA for year-to-date '25 -- what was your question around the 885 million for the actual EBITDA -- this is actual reported EBITDA.

Actual reported. So it's not normalized.

It's not normalized.

It's on actual currency.

Yes, would you have the normalized EBITDA on actual currency?

On actual currency. Give me one second, I'll come back to you on that one.

Yes. Okay.

Your first question, a little bit academic, but also we would see given our portfolio is multiple countries, and they may be given the global macro situation, there may be concerns on some of those portfolio at this point in time. So while we've not gone out, but that's the feel we get on an informal discussion here.

Okay. Got it, Vivek. So Nik, do you want to come back on that EBITDA number?

Yes, I'm just getting my team to take it up, get it out for me and I'll mention it.

Okay. We've got some questions from Luis, do you want to ask your questions?

I had three questions, please. First on, just wanted to get a sense for what major items accounted for the difference between reported PATAMI and UPATAMI. I didn't quite catch it. It might be useful for future if it's in the deck, so you don't have to keep pulling it out. Second question is regarding EDOTCO. Q-on-Q is what I'm looking at. EBITDA up about MYR 70 million, where revenues were up only 31%. Is this due to cost savings -- cash cost savings during the quarter and therefore, the 77% EBITDA margin is a new baseline we should look at for EDOTCO? And last question is just a housekeeping one. The restatements you've seen for first quarter this year and first half last year, these are primarily to deconsolidate XLSMART up to the start of the year and not from the point of merger.

You want to go on the first one...

I will take that question on -- So maybe I can just give a perspective. So if you -- there's two major items coming from EBITDA. One is essentially the price benchmarking from the revenue perspective, if you slow down EBITDA 100%, right, because that's based on the settlement with [ SEB ] last year. And secondly, I think -- and that's a slowdown of 121. And essentially, I think if you look at the currency from a translation losses, that is around 40 million impact on EBITDA. So this two impact on itself, if you were to take and compare it is year-to-date '25, our growth rate will be around 11% for EBITDA. If you take into account of all the reversals and all that, our normalized EBITDA margin will be around 72.5% just to answer question as well earlier on.

Just to clarify, the ForEx is essentially in EBITDA as well. So it's not below the EBITDA line.

So this is a translation -- is a translation losses from our NDCs, predominantly Bangladesh and Indonesia.

Yes. So with regards to exclusions on the continuing UPATAMI, firstly, we have ForEx related, which is ForEx derivative gains and hedging costs. This is MYR 111 million net. There was PPA amortization, mainly for Link Net and also CelcomDigi of MYR 24.8 million. XLSMART also had accelerated depreciation of MYR 57 million, and there was a Link Net goodwill impairment at the group level of MYR 230 million level.