Operational Resilience Despite Continuous Pandemic Impacts

• Against the backdrop of extended lockdowns, most OpCos demonstrated resilience to uplift operating performance, and maintain solid growth momentum and profit contribution in the quarter
   
• Reported YTD revenue and EBITDA rose to RM12.5 billion (+5.3%) and RM5.5 billion (+8.2%)
   
• Reported PAT and PATAMI increased to RM602 million (+ 8.6%) and RM353 million (+31.8%) despite one-off gain from XL’s tower sale in YTD20; earning per share of 3.9 sen
   
• Interim dividend of 4 sen announced, equivalent to a RM367 million payout, acknowledging good performance and strong balance sheet
   
• Axiata will contribute RM5 million in medical equipment to Malaysian medical frontliners via the Greater Klang Valley Special Task Force under the Ministry of Health
   

Key highlights for 1H21:

Strong YTD underlying performance: Revenue ex-device and EBITDA expanded 7.2% and 11.2% respectively. Underlying PATAMI¹ surged over 100% from improved EBITDA contribution and lower net finance cost, offset by accelerated depreciation of 3G assets at Celcom and Robi.

Commendable 2Q21 results reflect improved channel readiness during lockdown: QoQ revenue ex-device and EBITDA up 6.4% and 4.1% on the back of higher contribution across all OpCos (except Ncell).

Growth in EBITDA was offset by continued capex investment to support growing demand for data, keeping PAT and PATAMI margin at 4.8% and 2.8% respectively.

OFCF up, strengthened balance sheet: Operating free cash flow rose to RM1.6 billion (+26.4%) as a result of revenue growth and continued efforts in cost management; balance sheet remained strong with a high cash position of RM7 billion as gross debt/ EBITDA decreased to 2.48x.

Good growth trajectory from ASEAN digital telcos: Visible results from Celcom’s Transformation Programme as revenue ex-device increased 4.6% YTD due to strong prepaid performance – Celcom’s subscriber growth of 1.02 million and 12.5% prepaid revenue growth YTD; QoQ growth for XL across all metrics except FCF, encouraged by the Lebaran period and easing price competition; Smart kept steady with revenue ex-device and EBITDA up 9.8% and 4.8% YTD bolstered by higher data revenue.

Except Ncell, South Asian digital telcos on track as well: Strong performance from Dialog with double-digit growth in revenue (+18.6%), EBITDA (+21.9%) and PATAMI (+85.9%), strong data revenue growth bolstered Robi’s performance as YTD revenue ex-device grew 8.3% driven by 19.1% growth in data revenue on the back of higher data subscriber penetration; Ncell’s QoQ recovery dampened by lockdown, revenue ex-device remained flat on account of voice revenue consequent to restrictions in distribution during lockdown.

Axiata Digital boosted by strong profits at ADA and narrowing losses at DFS: YTD net loss narrowed by 65.1% due to lower marketing spend at DFS, coupled with higher profit at ADA. YTD GTV for DFS expanded by 15.4% thanks to increased online transactions; Boost users up 1.2x YoY to 9.1 million and Malaysian merchants up 1.4x to 250,000.

edotco maintained momentum: YTD revenue grew 3.2% fueled by Malaysia and Bangladesh markets. EBITDA margin expanded 1.6 ppt and PATAMI increased 53%. No significant impact from the military coup in Myanmar thus far.

FY2021 Headline KPIs likely to be in line: 2021 revenue ex-device and EBITDA growth are projected to be in line with Headline KPIs of low single digit percentage growth for both.

Solid traction in execution of Axiata 5.0 vision: Steady progress in the proposed Celcom-Digi merger; formation of ADA’s strategic alliance with SoftBank Corp, and acquisition of Awake Asia to boost digital ecommerce capabilities; Joint Venture consortium formed between Boost Holdings and RHB Banking Group and to jointly bid for a digital banking license in Malaysia, Boost Holdings’ majority stake acquisition in PT Creative Mobile Adventure; ongoing discussion to conclude definitive agreement for the recent proposed acquisition of a majority stake in PT Link Net by Axiata and XL.

Downside risks: Risks for 2H21 include unrelenting COVID-19 pandemic impacts which may exert further strain to the overall regional economy as well as slower-than-expected recovery in Ncell from continued restricted movement.

Kuala Lumpur – Delivering solid uplift in operating performance in the face of extended lockdown challenges across its markets, Axiata Group Berhad (Axiata or the Group) demonstrated resilience and growth momentum in its businesses for the quarter ended 30 June 2021 (“2Q21”).

Whilst the same quarter last year does not make a realistic base for Year-on-Year (YoY) performance comparison owing to the watershed period that saw the region grapple with the brunt of COVID-19 shockwaves, the Group stood steady in delivering its Year-to-Date (YTD) performance, demonstrating agility and learning in adjusting to pandemic shifts. All OpCos excluding Ncell are ahead of pre-pandemic levels in 2020.

Reported revenue and Earnings Before Interest, Tax and Depreciation and Amortisation (EBITDA) rose to RM12.5 billion (+5.3%) and RM5.5 billion (+8.2%) YTD on the back of contributions from Celcom² and Axiata Digital³, offset by forex translation impact due to strengthening of the Ringgit against operating companies’ (OpCo) currencies. Profit after Tax and Minority Interest (PATAMI) and Profit After Tax (PAT) rose to RM353 million (+31.8%) and RM602 million (+8.6%) with uplift from higher EBITDA and lower net finance cost, whilst being offset by lower one-off gains compared to last year and accelerated depreciation of 3G assets at Celcom and Robi⁴.

An evaluation of underlying performance showed healthy YTD revenue growth excluding device (“ex-device”) at RM12.1 billion (+ 7.2%) supported by contributions from all OpCos except XL⁵ (dragged by intense competitive pressures) and Ncell⁶ (lower International Long-Distance revenue). EBITDA increased to RM5.5 billion (+11.2%) with margin expansion of 1.2 percentage points (“ppt”) largely attributable to contributions from Celcom, Axiata Digital, Dialog⁷ and edotco⁸. Underlying PATAMI surged to RM521 million (+>100%), with a margin of 4.2%.

In 1H21, the Group successfully achieved cost excellence with YTD operating expenditure savings of RM225 million.

Operating free cash flow (“OFCF”) climbed to RM1.6 billion (+26.4%) YTD primarily driven by higher EBITDA and lower net finance cost. In addition, with a strong cash balance of RM7 billion and gross debt/ EBITDA trending down to 2.48x (from 2.64x in 2Q20), the Group’s balance sheet could be deployed to capitalise on potential growth opportunities in Home, Enterprise and digital business segments.

Digital Telcos⁹

ASEAN

Celcom's turnaround efforts yielded excellent recovery momentum in the market despite an intensely competitive environment. Revenue ex-device increased by 4.6% YTD thanks to the strong prepaid performance as the company recorded net adds of 1.02 million subscribers and 12.5% prepaid revenue growth, as well as higher MVNO revenue. YTD EBITDA increased to RM1.3 billion (+22.9%); excluding one-off Employee Restructuring Programme cost in 2020 and impact from accelerated depreciation, Celcom recorded 12.4% increase in EBITDA and 28.8% in PATAMI. Postpaid subscribers also grew 6.1% YTD amidst impacts from the economic recovery.

XL gained momentum demonstrating strong QoQ growth with increased revenue ex-device (+7.7%), EBITDA (+8%) and PATAMI (+23.4%) driven by Lebaran period and easing price competition. However, YTD revenue ex-device dropped marginally as a result of competitive pressures and weak consumer spending particularly in Q121. EBITDA margin was resilient with 0.4ppt expansion with lower network and direct expenses. PATAMI contracted by 58.9% due to recognition of gain on tower disposal in YTD20.

Smart1¹⁰ sustained its steady pace with growth in revenue ex-device (+9.8%) and EBITDA (+4.8%) YTD, driven by higher data revenue. Consequently, FCF rose 4.2% moderated by higher capex., whilst PATAMI dropped 11.3% due to impairment of investment.

South Asia

At Robi, stronger data consumption bolstered revenue ex-device (+8.3%) YTD on the back of higher data subscriber penetration. YTD EBITDA was slightly affected by higher network cost and sales and marketing expenses. PATAMI, however, improved by 4.9% due to lower net finance cost and taxation.

Dialog’s steady run resulted in double-digit growth across all metrics YTD, namely revenue ex-device (+18.6%), EBITDA (+21.9%), PATAMI (+85.9%) and FCF (+18.1%). These improvements were driven by higher contribution across all segments of mobile, fixed and TV.

Ncell’s recovery continued to be mired in pandemic impacts, as revenue ex-device growth remained flattish QoQ amidst lockdown pressures on voice revenue. YTD core revenue grew (+3.5%), however, revenue ex-device slid 2.2% due to stiff competition and prolonged lockdown in 2Q21. EBITDA and PATAMI on the other hand, increased by 5.5% and 38.1% from reduced direct expense, as well as lower Depreciation and Amortisation (D&A) cost. In terms of future uplifts, the 900MHz spectrum awarded to Ncell in April this year will provide higher 4G footprint coverage to serve a larger customer base.

Digital businesses

Axiata Digital’s YTD net loss narrowed by 65.1% thanks to lower marketing spend at digital financial services (DFS), coupled with higher profit at ADA, whilst revenue and EBITDA grew by 125.3% and 68.5% respectively. Revenue growth during the quarter was spurred by improvements recorded in the DFS and digital analytics and AI businesses.

During the quarter, Axiata Digital’s fintech holding arm Boost Holdings¹¹ acquired a 68.75% stake in an Indonesian licensed entity, PT Creative Mobile Adventure which has enlarged Boost Holdings’ regional footprint to reach underserved micro-SMEs in Indonesia.

As announced, Boost Holdings and RHB Banking Group formed a consortium and submitted the digital bank license application under the framework issued by Bank Negara Malaysia. Under this partnership, Boost Holdings will own a 60% stake in the consortium.

For Boost Holdings’ eWallet business, total users grew 1.2x to 9.1 million, while total merchants rose 1.4x to 250,000 compared to 2Q20. This quarter, Boost was recognised once again as a leading e-wallet by the Malaysian Government to support its eBelia initiative through the RM150 eBelia credit to empower youth under the PEMERKASA economic stimulus package.

Boost Holdings’ microfinancing business¹² funded 2,639 merchants and disbursed 11,746 loans amounting to RM177 million, whilst under micro-insurance, it sold a total of 23,802 policies with 187% growth compared to the same period last year.

ADA¹³ kicked off the quarter with a strategic investment of USD60 million from SoftBank Corp., forming a business alliance that will secure ADA as the core of its digital and data marketing arm in Southeast Asia. The investment will be used by ADA to enhance data and AI offerings, and market solutions to brands and enterprises it serves. ADA acquired Awake Asia, a regional e-Commerce enabler in a move to fully integrate Awake Asia’s operations under the ADA brand where both parties come together to champion and fulfil the needs of brands moving towards online channels across 10 markets in South and Southeast Asia.

Infrastructure

Maintaining a steady pace, edotco’s YTD revenue grew by 3.2% as a result of higher contribution mainly from its major markets Malaysia and Bangladesh, and similar encouraging contributions from its smaller markets including Pakistan. EBITDA hit RM619 million, an incremental growth of +5.8% YTD, encouraged by higher revenue as well as lower manpower cost and bad debt provision thus, improving margin to 64.9%. PATAMI jumped to RM165 million, an incremental growth of 53% YTD, on the back of EBITDA improvement coupled with lower D&A cost and higher unrealised forex gain. Whilst there has been no significant impact to PATAMI from the Myanmar coup thus far, edotco management remains vigilant of developments that could pose business, operational and financial risks as it remains focused towards fulfilling existing commitments to customers in Myanmar.