Modest Growth in Revenue & EBITDA, and Strong Cash Position Ahead of COVID-19 Crisis

1Q20 YoY Key Highlights

• Free Cashflow (FCF) grew by 25.6% YoY to RM1.2 billion
  FCF growth lifted by EBITDA expansion and lower capex of 11.7% (capex intensity fell 3.1 ppt to 21.1%)

• Early USD300 million drawdown edged up gross debt/EBITDA to 2.64x in 1Q20
  Correspondingly, cash balance increased to RM6 billion as debt repayment is due in April; without early drawdown, gross debt/EBITDA at 2.51x; in early May, secured USD800 million syndicated facility to further strengthen liquidity position

• Early impact on revenue and EBITDA from COVID-19
  EBITDA¹ up 2.5% YoY outpacing 1.5% revenue¹ growth (excluding device); opex savings of RM102 million kept cost flat YoY, lifting EBITDA margin¹ by 0.8 ppt to 41.5%; underlying PATAMI affected by higher D&A charges, lower contribution from Ncell and higher losses from digital business; PAT for 1Q20 stood at RM 398.3 million in line with 4Q19

• Most markets impacted by COVID-19 in 2H March
  Apart from Indonesia and Cambodia, all other markets were impacted by stringent lockdown from mid-March, affecting sales and services at retail outlets, including prepaid reload, SIM activation and device sales; in Nepal, further impact arising from mobile-to-fixed substitution

• CSR and customer engagement initiatives
  In the immediate wake of Covid-19 crisis, Axiata supported its customers via free data and connectivity to areas in healthcare, education, enterprise and government; launched RM150 million Axiata COVID-19 Assistance Program for micro-SMEs; Celcom and XL as example, contributed 1GB and 2GB free data respectively per day to customers

• Celcom performance impacted by lower customer acquisition
  Mobile service revenue declined 7% YoY affected by lower customer acquisition and slower prepaid to postpaid migration; good early response of unlimited product launched Feb 2020; 1Q20 EBITDA margin² at 39.4% as EBITDA² grew 7.8% YoY due to lower direct cost and sales marketing cost

• XL and Robi sustained strong performance
  XL and Robi recorded high single-digit revenue growth with EBITDA margin expansion as a result of high operating leverage and cost optimisation

• FY20 Headline KPIs withdrawn
  Given the uncertainty surrounding the depth and duration of this pandemic, and the difficulty in predicting the pace of recovery at this point, Axiata is withdrawing its guidance on 2020 Headline KPIs

KUALA LUMPUR - Axiata Group Berhad (“Axiata” or the “Group”) demonstrated steady progress against its Operational Excellence (OE) strategy for the first quarter ended 31 March 2020 (1Q20) with stronger revenue, earnings and Free Cash Flow (FCF) achieved mainly on the back of better performance from most operating companies (OpCos), sustainable cost structure, lower capex and resilient balance sheet.

Despite the increasingly challenging operating environment and early consequences of the damaging COVID-19 fallout, Group revenue grew 1.5% Year-on-Year (YoY) to RM6 billion in 1Q20 on a reported basis. Group EBITDA increased 3.4% to RM2.5 billion due to improved operational performance from all OpCos except Ncell and Axiata Digital (AD). FCF rose 25.6% to RM1.2 billion lifted by EBITDA growth and lower capex.

Despite better toplines, Group Profit After Tax (PAT) at RM398.3 million, was dragged mainly by forex losses arising from the strengthening of the US dollar against local currencies and one-offs, especially Celcom’s RM76.9 million employee restructuring program (ERP). Group Profit After Tax and Minority Interests (PATAMI), further impacted by lower one-off gains, stood at RM188.1 million. Axiata recognised a gain of RM278.9 million (PATAMI level) from XL’s sale and leaseback of telecommunication towers as compared to 1Q19, where the Group saw a one-off gain totaling RM415.4 million from the disposal of non-strategic investments.

Underlying performance¹ held up in 1Q20 as revenue (ex-device) rose 1.5% to RM5.9 billion attributable to increased contribution from all OpCos, although Celcom and Ncell faced tough market competition. Group underlying EBITDA grew 2.5% YoY to RM2.5 billion driven by double-digit growth from XL, Smart and edotco, with Robi posting strong single digit growth. Excluding Celcom’s ERP, EBITDA rose 6.7%.

However, despite steady operational performance, underlying PATAMI fell 41.9% YoY impacted by higher Depreciation and Amortisation (D&A) charges mainly from XL’s aggressive 4G network expansion beyond Java, lower contribution from Ncell and AD’s spend on the e-Tunai Rakyat initiative involving an RM45.5 million disbursement.

Cost remained largely flat during the quarter at RM3.5 billion, as XL’s higher network expansion cost was cushioned by savings in network/IT, and sales & marketing cost as a result of the Group’s execution of OE initiatives.

Cash balance rose to RM6 billion while gross debt/EBITDA edged up 2.64x from an early drawdown to refinance a bond due in April. Without the early drawdown, gross debt/EBITDA would have stood at 2.51x.

In further strengthening the Group’s liquidity position to ensure adequate working capital to face economic challenges in the COVID-19 realities, the Group also successfully completed the region’s first-of-its-kind Syndicated Multi-Currency Shariah-compliant sustainability-linked financing facilities of USD800 million.

In its proactive response to the devastating impact of COVID-19, Axiata initiated several initiatives across its footprint to support governments, customers and communities by providing free data, connectivity, digital solutions and funding to areas in healthcare, education, enterprise and government in addition to the launch of up to RM150 million Axiata COVID-19 Assistance Program for micro-SMEs in Malaysia.

Digital Telco³

The strong momentum of Celcom’s multi-year transformation journey that began in 2017 will intensify this year as it enters the third phase (2020-2022). The earlier two phases were aimed at strengthening the core components of people, IT, products, distribution, as well as building a culture of operational excellence in order to prepare for this pivotal final phase. The next steps will require Celcom to double down on mission critical deliverables such as innovative, consumer-oriented products; enhancing enterprise solutions capacity; going beyond digital in terms of technologies and re-engineering network operations.

In 1Q20, Celcom’s mobile service revenue declined by 7% YoY affected by lower customer acquisition in prepaid and slower prepaid to postpaid migration. New unlimited product launched in February 2020 showing positive early response. EBITDA declined 10% YoY mainly due to the one-off ERP. Adjusting for this, Celcom’s EBITDA grew 7.8% attributable to lower direct and sales and marketing costs, driving EBITDA margin expansion of 5.1 percentage points (ppt). PATAMI declined 26% largely as a result of the ERP. Excluding this, PATAMI grew 31.6% because of underlying EBITDA growth, while FCF increased 34.7% largely from 46.9% lower capex.

XL’s stellar performance continued its positive trajectory. Revenue was up 8.8% YoY on the back of strong data monetisation, as Average Revenue Per User (ARPU) rose 9.1% to IDR36,000. Cost optimisation and IFRS adjustments led to double-digit EBITDA growth of 39.7% YoY with 10.9 ppt margin improvement to hit 49%. Despite the 18% increase in capex to IDR1.8 trillion, FCF jumped 82.4% YoY driven by 39.7% EBITDA growth. PATAMI surged to IDR1.5 trillion from gain on tower sale.

Dialog’s 1Q20 revenue and EBITDA remained largely flat YoY, with EBITDA margin sustained at 41.6%. FCF grew 7.9% YoY, on the back of lower capex amidst flat EBITDA growth. PATAMI declined 69.5% as a result of higher depreciation charges and forex loss.

Robi recorded healthy service revenue growth of 7% YoY fueled by strong data growth of 28.8% as ARPU increased 0.8% to BDT124. As a result of high operating leverage and lower staff costs, EBITDA grew faster than revenue at 10.1% YoY improving margins by 1.3 ppt to 40.4%. FCF declined 95.2% driven by 152% higher capex as capex rollout accelerated post delays in 2019. PATAMI grew 176% YoY due to EBITDA growth, aided by lower net finance cost and depreciation charges.

Ncell’s revenue declined by 11% YoY, dragged also by a 9.7% drop in core revenue impacted by slower data adoption due to capacity constraint from the delay in spectrum assignment and intense price competition from fixed ISPs. EBITDA fell 16.3% YoY primarily from decrease in revenue coupled by higher direct costs, whilst PATAMI declined 67% on the back of EBITDA decline and higher D&A charges.

Smart recorded another excellent quarter with double-digit growth YoY across key metrics.

Digital businesses

ADA continued its growth momentum in Q1 2020 (1.8x YoY NR growth) by adding 20 new big brands to its growing list, including Sony Pictures Malaysia, Malaysia; OCBC NISP, Indonesia; Bonchon, Thailand; UNHCR, Singapore; Infobip, Bangladesh; LB Finance, Sri Lanka; and Amore Pacific, South Korea. ADA continues to expand its AI and data capabilities through the release of its social video machine learning and analytics tool, "Video Analytics and Creation Engine"; the merger of ADA in Cambodia with Branderz, a multidisciplinary creative agency, whilst continuing to enhance its creative offering with new expanded teams and capabilities; and the launch of its COVID-19 microsite to provide strategies and solutions for businesses to cope with the changing business climate.

Boost’s Gross Transaction Value (GTV) expanded 3.8x from a year prior. Total users grew 1.8x to 7.3 million while total merchants grew 2.0x to 156,000 compared to 1Q2019. Active user spending increased to an average of RM326 per week this quarter compared to RM209 a year ago. This quarter, Boost entered into significant new partnerships with Sabah Pay, several state Zakat collection bodies, Village Grocer, SOGO Departmental Store, HeroMarket and Golden Screen Cinemas.

Apigate, Axiata’s homegrown API platform is now connected to 125 digital merchants and recorded 29% increase in GTV YoY, driven by a 34% increase in Monthly Active Users for its Payment business and 51% surge in Application-to-Person traffic.

Aspirasi funded 1,070 merchants in Q1 2020 and collaborated with GHL, RHB Islamic, and On Site Services. For micro-insurance, new options for individuals and businesses include Aspirasi Hospicash and Aspirasi SME OwnerProtect-X. Aspirasi supports the Axiata COVID-19 Assistance program, launched on March 25 via Aspirasi Assist with Shariah compliant micro-financing ranging from RM1,000 to RM10,000. Initially targeted to micro-businesses within the Axiata ecosystem, Aspirasi made this available from April 24 to any eligible micro-business to help restart their business.

Infrastructure

edotco’s performance remained steady, as the tower company recorded double digit growth across most metrics. Whilst revenue was up 3.7% YoY due to positive contribution across major footprints, adjusted⁴ EBITDA rose 19.1% YoY as margin increased 8.3 ppt to 63.9% attributable to new tenancy growth aided by IFRS 16 adjustment. FCF surged 232% YoY to RM192 million encouraged by lower capex spend and the improvement in EBITDA, and PATAMI by 89.9% as a result of improvement in EBITDA. edotco’s towers owned increased 10.3% to 20,728 while tenancy ratio remained stable at 1.61x.