PT XLSMART Telecom Sejahtera Tbk

Good afternoon, ladies and gentlemen. Welcome to Excel Axiata's earnings conference call for 2019 financial year. My name is Revati and I'll be your coordinator today. During the presentation, all participants are on a listen-only mode. Instructions will be given on how to register your questions when we get to the question and answer session. As a reminder, this conference is being recorded for replay purposes. Now we would like to turn the conference over to your host, Mr. Inder. Please proceed.

Thank you, Revati. Good afternoon, everyone, and welcome to the call. On behalf of the Excel Management Team, I would like to thank all of you for taking the time to join us today. With us on the call today, we have Ibu Dian, our Chief Executive Officer, Pa Adlan, our Chief Financial Officer, Pa Alan, our Chief Commercial Officer, and Pa Budia, our Deputy CFO. Now, Ibu Dian will share the highlights of 2019, which will then be followed by the Q&A session. I will now hand the call over to Ibu Dian.

Thank you, Indar, and good afternoon, everyone. We are incredibly proud of our performance in 2019, which was a record year for the company. Through hard work and consistent implementation and execution of our strategy, we posted our highest ever revenue of R25.1 trillion, and highest ever EBITDA of 10 trillion rupiah, as well as return to profitability of 713 billion rupiah. Our strategy of continuing to invest in 4G, especially in xJava, as well as consistent execution of our dual-brand strategy with an increased focus on operational excellence, has enabled us to outperform the market both on revenue as well as EBITDA this year. In 2019, our service revenue grew 15% year-on-year, driven by growth in data revenue, which increased 28% year-on-year. As a result, data revenue in the fourth quarter now accounts for 91% of service revenue and continues to be higher than our peers. Data growth continues to be driven by increased customer data usage, through our product and analytic driven upselling initiatives. The customer value management initiative that we continue to employ has been a key factor in our success in attracting and upselling customers. Our analytical engine that we developed using a unique omni-channel approach to create, among others, personalized offers encouraging our customers to up-size to bigger data packets, delivered solid results in 2019. Evidence of this is our blended ARPU which rose 9% year-on-year to 35,000 rupiah as our customer base increased 3% to 56.7 million. We intend to do more and make our system smarter to enrich our portfolio and become the new standard in our channel management in 2020. Our focus on operational excellence meant that EBITDA rose faster than revenue, growing 17% year-on-year with margins increasing 3% year-on-year to 40%. This strong growth in EBITDA is driving our return to profit this year, with full-year net profit of Rp713 billion. Indonesia's data safety customers have continued to respond well to our data network, as we are increasingly being recognized as the brand of choice for smartphone users. As of the fourth quarter of 2019, our smartphone subscribers stand at 48.8 million, an 11% growth compared to same period last year. This makes up 86% of our subscriber base, which is significantly higher than the industry average and we also continue to see a faster rate of migration of subs to 4G. At the end of 2019, 4G customers make up 73% of our total subscriber base. Both our Excel and Access brands were successful in addressing their target segments with unique and differentiated product offers in 2019 as part of dual brand strategy. The extra combo VIP that the Accel brand launched in early 2019 has been a key example of our success in upselling. For Axis, the focus has been attracting the youth segment with sachet-based products, as well as customization of offers through partnerships with content providers with mainly social media and gaming. Our post-paid brand, Accel Prioritas, also continues to grow with a focus on smartphone bundling with the latest handsets. In 2019, Excel and Axis grew their respective net promoter score, strengthening their position within their target segment. In parallel, we continue to ensure a high-quality data experience to our customers through the ongoing rollout and upgrade of our network. Our total BTS count is now above 130,000 BTS with our 4G LTE service covering 425 cities and areas across Indonesia with more than 40,000 4G BTS. We also continue to invest in fiberizing our network, building on our efforts from last year as this will help in handling the increase in data traffic we are seeing. At the same time, we continue to increase fiberization of our tower site and in the next two years, the majority of our sites will be fiberized. In 2019, our network investment continues not only within Java, but with a focus also on XJava, following on the efforts from previous years. This has translated to better coverage and network performance in these areas, and we are increasingly known as a nationwide brand. This has also translated to a stronger revenue performance outside Java, which continues to grow at an exponentially faster rate than Java and increased overall contribution to revenue. Despite our record performance in 2019, we are seeing increased competition come into the market from the second half and especially towards the end of the year. We are seeing that even smaller operators are becoming aggressive in product offering. As a result, we have tactically made selective package adjustments in several areas to remain competitive, which impacted our yield this quarter. We hope that competition eases in 2020, as the industry needs data price repair to continue to improve returns and profitability. Today, we have also announced the successful completion of our third tower sale and leaseback transaction, where we sold 2,000 782 towers to Protolindo and Sentratama for total proceeds of 4.05 trillion rupiah. The objective of this transaction is not maximize upfront cash collection, but to monetize our assets and lock in tower lease rates for the next 10 years, as well as to make our operations more efficient. This deal is accretive to us as the EV to EBITDA transaction multiple is more than 10 times, which is higher than our company's trading multiple. The proceeds from this sale will go towards strengthening our balances with additional capital to be used for capital expenditure and working capital purposes. Due to our strong performance in 2019 and aligned with our dividend policy, we are declaring a dividend equivalent to 30% of our normalized net income, subject to approval at our upcoming AGM. Finally, our guidance for 2020 is as follows. For revenue, we are guiding for revenue to grow in line with market. Our EBITDA margin guidance is low 40% on pre-IFRS existing basis, and our capex spend guidance is around 7.5 trillion rupiah, which will remain focused on data network investment in 4G and continuous network improvement and modernization in and outside Java. Thank you, and let us now proceed to the Q&A session.

Thank you, Vidya. To ask a question, please press star 1. To cancel, please press the pounder hash key. Please kindly but strictly limit your questions to only two. and allow other participants to raise their questions. Should you need to ask more questions, you can go back to the queue by pressing star one again. We shall end the conference call sharp at 3 p.m. Jakarta time. We have a fresh question from the line of Mr. Ranjan Sharma from J.P. Morgan. Please go ahead.

Hi, good afternoon, and thank you for the call. Two questions from my side. Following Axiata's investor day last year, how does that change your CapEx strategy for 2020 and beyond? I see that you have maintained your CapEx at the same absolute level of 7.5 trillion rupees. Is that going to be more spent within Java or are you still maintaining a 50-50 split between Java and XJava? The second question is on the competitive environment. Now that over 85% of your revenues are coming from data, that leaves you most exposed to data price competition, especially what you've seen in markets like Indonesia that a lot of free data is given. How do you mitigate that risk going forward, and what is your pricing strategy? Thank you.

Okay, Rajen, I'll take the first question. Yeah, I think if you look at our CAPEX guidance for 2020, we've kept it at around the same as last year, around $7.5 trillion. I think as we shared during the Asiata Analyst Day, I was in line with the OE. I think what we have actually done is we are tightening up a little bit in terms of our criteria for investment. Yeah, hence, I think the whole objective is probably to get a shorter payback period from our investment. This is especially true for our investment outside Java. Having said that, I think we also see that looking at the momentum that we have done in 2019, there's still quite a fair bit of opportunity coming from outside Java. And hence, I think looking at this year, in terms of investment split between Java outside Java, it's probably still going to be at around 50-50 between Java and outside Java. So I think no change in strategy, but we would have probably a tighter investment criteria when we go into new areas or investing in capacity or be Java or outside Java.

Second question was mainly regarding, we are highly in the 80s regarding revenue coming from data. And you're asking what's the risk that we see there? We are following our strategy. We're going to be a data-savvy company, meaning that we're going to focus only on data now and going forward. And we have never seen this as a disadvantage, as we strongly believe that one of the reasons why we are competing or actually taking over some revenue share in the market for the last couple of years is mainly because of the high data revenue that we're getting. So we don't have to think about legacy product. We don't have to think about voice or SMS when we do a new product, when we do new price planning. We basically only focus on data. So we don't see it as a risk. On the opposite side, we see the risk for the guys who have more legacy product than we have.

Okay, thank you.

Thank you. We have our next question from the line of Colin McLem from Credit Suisse. Please go ahead.

Thanks very much and well done on the 2019 numbers. A couple of questions from me. The first one actually is also on CapEx. Just in terms of the overall amount, I see you have, as you said, Adland decided to spend seven and a half trillion again for 2020. That's still quite a punchy, almost 30% CapEx to sales ratio. that might have made sense in 2019 when you were growing kind of double digit but from what you said in the MD&A and the tone of competition it sounds like maybe the revenue opportunity will be more constrained this year and therefore was it considered to maybe invest less given how low the profitability is that's the first question and then the second question related point really on the revenue side obviously you won't want to be kind of tied into this but for the industry as a whole do you think as current competition is such that mid single digit revenue is possible for the industry in 2020 or given the intensity that you guys are seeing at the moment do you think low single digit is a more likely outcome thank you

I will take the question. If you talk about CAPEX, I think what we see in 2019, we are seeing both Java and outside Java, we are growing. Obviously, I think if you look at XJava, our rate of growth is growing much faster by bigger multiples as compared to Java. So as we speak, we see that there's still a lot of areas of opportunity for growth coming outside Java, right? So hence, I think if you look at that, we believe that outside Java, we can still grow at a double digit, no doubt about that. At the same time, I think we also are putting a little bit of capacity investment within Java to address some of the network congestions that we are actually seeing. So I think all in all, I think if you look at the momentum, whether we should cut the investment at this point in time when we see good momentum in the market, we believe not. We still see a huge opportunity for growth. Maybe competition will probably be a lot more tougher this year. However, I think given our strategy and the momentum and plan that we have in the market, we are still optimistic, especially in our position outside of Java. And hence, I think we are probably going to continue in terms of rolling out the network outside Java, which at this point in time, I think we are seeing positive momentum and positive results. Second question on the industry outlook. Our view on the industry outlook is we are looking at around low to mid single digit. I think primarily I think it's driven by the growth of the incumbent, right? Because I think as you know in this market the incumbent has close to 60% market share. Whatever revenue growth that comes from the market leader would probably drive the the overall industry growth, right? And looking at the fact that the composition of revenue, there's still quite a big chunk coming from legacy. We feel that I think that growth would not be as fast as one might expect if coming from, for example, data, right? So our view is, yes, there will probably be a bit more intense competition in 2020. However, I think we believe that there's still opportunity coming in some other growth areas outside of Java and hence I think looking at the overall position low and mid to mid single digit is probably our estimate for the industry in 2020.

Got it. If I could just come back quickly on one. So it sounds like from the tone of what you're saying and the As you say, the proportion of revenues from legacy and non, it sounds like you would hope that your revenue growth exceeds what the industry will do, although I see that you've chosen in your guidance to say that you'll grow in line with the industry and not better than. So is that just a difference between what you hope will happen and what you want to commit to? Is that basically conservative guidance?

I think we probably need to see how the competition works out, right? I think as the same as last year, I think we initially, I think we are probably a bit conservative on our guidance. But towards the second half of the year, when we have a bit more clarity on the competitive environment, we adjusted up our guidance. I think we are probably taking the same approach here today. Given that we see that competition is actually increasing at this point in time, we probably want to be a bit more conservative.

Understood. Thanks a lot.

Thank you. We have our next question from the line of Arthur Pineda from Citi. Please go ahead.

Hi. Thanks for the opportunity. Two questions. How should we view dividends going forward? I think it's good to see a dividends return with a 30% payout, but that seems low considering the free cash flow that you actually generate. How should we view this going forward? Second question is a housekeeping question on the finance cost. That's up around 27%, but your debt position is relatively flat year-in-year. What's driving this change? Is this due to accounting? Thank you.

So, Arthur, yeah, I think on dividend this year, yes, I think it's probably a small token amount that we are giving out this year, but it's in line with our dividend policy, right? It's not significant, but it's probably a good gesture given that we have done well this year. We probably want to start indicating to the market that we're probably going to start declaring dividend, right? I think it's also an indication that we are probably a bit more optimistic in terms of the profitability level moving forward. Hence, I think that 30% dividend policy payout that we set ourselves will probably continue. I think maybe over time, if things are going on well, that ratio will probably go up over a period of time. But for now, I think it seems a bit small, but I think it's just probably a good token of appreciation to the shareholders for this year, and we could probably see that number increasing over a period of time moving forward. Second is on interest costs. I think what we have probably seen is, yes, you're right. If you look at interest, actually, loan is actually coming down. But there's two parts there, right? So if you look at our total interest overall, actually pretty flattish. Yes, rates are coming down. Sorry, total is coming down. However, you remember that we also moved from a USD debt in 2018 to an IDR debt in 2019. And that actually warrants a higher cost of debt in 2019. Having said that, I think if you look at the total interest went up, it's because of the financial lease interest. That's probably coming from our fibreisation project, which in the balance sheet is treated as finance lease, right? And that has been the primary driver of the increase in our overall interest costs. So total interest, real finance costs actually have stayed flat, but interest on finance lease are probably driving the increase in our total interest costs.

And that should grow going forward as well, or?

I think things will change in 2020. With the adoption of IFRS 16, that number is going to go quite substantial because all your operating lease will probably be treated as finance lease in 2020. Effective from January 2020, we are going to adopt IFRS 16 And what the impact of that, the impact is probably going to have a significant impact to your EBITDA and your EBITDA margin in 2020. So I think you would expect that your EBITDA and EBITDA margin would probably increase up to between mid to high 40s. At the same time, I think your profit after tax would actually be slightly lower in 2020. However, over a period of 10 years, I think the total PEC will actually equalize. We will probably give you more color when we announce Q1 numbers in April this year because that would already be IFRS 16 compliance.

Understood. Thank you very much.

Thank you. We have our next question from the line of from CIMB. Please go ahead.

Hi, thanks for the call. Two questions from me. The first question on competition. In the last conference call, you mentioned that the competition has somewhat cooled down. So it seems like it has picked up again in the last two months of 2019. Is that happening in Java or XJava? And can you provide some color to some of these aggressive offers that you are seeing on the ground? That's the first question. And then second question, on the tower sale that you've just announced, what is the rental rate on the leaseback? And does it come with or without inflation escalators? And what would be the tower lease revenue that we would lose on the tower sold? And in terms of the net profit impact, What would be the impact? Would it be positive or negative? Thank you.

Yeah, let me first give a little bit of flavor of the competitive situation, especially here at the end of the year, end of 2019. So I think as you all have been aware of that market is getting much more competitive in Q4, especially at the end of Q4, right? So both telecoms and Indusat were very active in the lower end segment of the market. where the Satchez project became actually being introduced to many of the customers. Satchez is the low price and the short validity. At the same time, we also saw SmartFriend. They have now kind of becoming a significant player in the market because they have now been running for more than one and a half years with unlimited offer in the market. And we also saw HodgeTree at the end of the year introducing unlimited product as well, which was a surprise for us. Now, just to give you one example, let's say Indusat, right? So Indusat, they started the beginning of the year with Unlimited. They took it out again in Q3, the Unlimited, took it out, meaning that new customers could not buy Unlimited anymore. But if you are an existing customer, you can still buy the voucher. And surprisingly, Tuesday, the 4th of February, they again introduced Unlimited in the market for both new and old customers. So suddenly you have three players in the market with this Indosat, its smartphone and its Hodge, who are playing the unlimited game, and you only have Telkomsel and you have XL who is not playing the game. So that's the market situation at the moment. We have made a few adjustments, especially for the Axis brand to be even more competitive in the lower market and for the young people of Indonesia, but at the same time we also kept the XL prices very stable. At the moment, we are monitoring the markets very closely, almost every day, looking into the east of the cluster, east of the cities, to see what's actually going on. We are not doing any foolish things at the moment, as we are monitoring, and we will not be the first mover in the market when it comes to pricing. So right now, we are looking, but to be honest, it looks a little bit disturbing what's happening as the three players now have fully unlimited in the market.

On your question on Towersale, let me give you a little bit of a prime driver in terms of us doing our third tranche of Towersale. Again, I think the drive for this is not so much of a cash collection upfront, but it's more of monetization of assets. I think if you see from this Towersale transaction, we are realizing an EV EBITDA of more than 10.2 times here. as compared to probably Excel that's trading today at probably 4.5 times. It's essentially a value accretive deal for us and positive impact to cash, positive impact to probably net profit as well. Second is I think one of the key objectives here is also we actually want to lock in a low release rate over the next 10 years. our lease rate is 8 plus 2 over the 10 years. So that's the second objective. And thirdly, if you look at where we are today, we have close to about 4,000 plus towers. I think this is probably our final tranche of sales. And I think if you look at where we are, we think we do not have scale in terms of to run this business efficiently. And we think that given that permits, getting permits and handling community are actually becoming more and more challenging these days, we think that from a productivity and realization, we are probably better off selling these towers. And that's probably reflected in the value that we have actually realized. In terms of the real impact to profits and all that, I think given that this has got to be in line compliance with IFRS 16, I think we're probably going to give a bit more clarity in detail when the transaction is eventually closed in quarter one. So we'll probably give you a little bit more color in terms of what this is at the end of Q1. But essentially, I would say that this batch of towers are probably not as good as the previous towers that we have because this is the last set of towers that we will be selling.

Adelan, if I can follow up. Just now you mentioned you wanted to lock in a low lease rate and you mentioned 8 plus 2. Is that 8 million plus 2 million on the O&M portion? You can clarify that?

Yes, it is. It's 8 million basic and 2 million O&M.

Okay, so the 2 million has got an inflation escalator on that portion?

Yeah, I think not immediately, but after year 6.

Okay, understood. Thank you so much, Alan and Adeline.

Thank you. We have our next question from the line of Benji Rajasvingam from Macquarie. Please go ahead.

Hi, thank you for the opportunity and congratulations on your numbers. Two questions from me, please. So first of all, you know, we've talked about consolidation in the Indonesian mobile market for quite some time. And now we have a competition appearing to step up quite a bit. What do you think the end game is for the smaller operators? Does consolidation look like it's ever going to happen anytime soon? And do you think the new government may have changed its views around facilitating consolidation in the marketplace? And secondly, I appreciate your data analytics in trying to drive efficiency of CAPEX. but could you remind me again how quickly can you turn on and or turn off the CAPEX spend given the current structure where you own less and less of those sites?

I think the first question is consolidation. Actually, consolidation is good for the industry because the consolidation will make the industry sector healthier. And we've been hearing about this plan for five years. However, currently everyone is still waiting for the clarity in terms of regulation for the spectrum because currently in terms of policy there is no clarity yet whether we can retain the spectrum that we get post-merger or post-acquisition. So we hope that the new minister, the new government, actually will give us that clarity so then the shareholders can have a better view on how will be the business case after the merger or acquisition.

Prem, on your second question, I think on CAPEX, how quickly we can ramp up and ramp down our CAPEX. So essentially, I think if you look at, let's say, there's two types, right? If you talk about co-location on existing towers, I think typically with that, between one to three months, I think we should be able to get the site up and running. So that's on a co-location. But for, let's say, example of new sites that you require you require to build a new tower. So that typically takes around, it can be generally three to six months, but it can also be extended to nine to 12 months or so. And I think the key driver there would probably be finding that location and getting the permits for those sites. But in most cases, what we see even going to new areas, there are quite ample co-location around that other tower providers have probably built with probably a single tenancy on both towers. So I think we would say that it's probably skewed a lot more to co-location than probably built to suit. But in addition, I think even if we let's say we go to a certain site and all that and assuming we don't pick the right sites and for example the revenue coming from those sites are not as good we have managed to negotiate with all our tower providers today that we do have co-location rights meaning that within those periods for example we are able to relocate certain amount of towers from one to the other sites. And that gives us a little bit of flexibility assuming that we don't hit the right sites for whatever reason, even though based on our analytics today, our hit rate are actually quite high, pretty high and pretty good. We actually have that flexibility to relocate those sites to other areas or to other locations. So with that, we do have flexibility, for example, to move around those towers to other locations.

Okay, thank you very much.

Thank you. We have our next question from the line of David Smith from Smith Town Asset Management. Please go ahead.

Hi, guys. Just wondering... Do you guys expect your losses to go up in 2020 for X Java? Or do you expect the losses to shrink?

So I think this is a question of scale, right? I mean, X Java today, I think we are probably growing double digit. And I think we are seeing very good momentum coming from outside Java. Of course, At this point in time, we do not have scale. And we look at our market share outside Java today, we are probably in low teens. But I think those numbers are actually growing quite quickly. And I think if this trend continues, for example, we would expect overall, I think in all our investment pieces moving forward and investment outside Java, we are looking at a payback of less than four years, between three to four years to be specific. Of course, looking at the current trend, current momentum, losses, any coming from X Java is actually going to reduce. Having said that, I think if I look at cluster per cluster basis, there are clusters, especially the one that we probably built three, four years ago, has already started to turn around and already giving us a positive feedback.

Okay, thank you.

Thank you. We have our next question from the line of Sachin Mittal from DBS. Please go ahead.

Thank you. Two questions for me. Firstly, on the competition side, three players are offering unlimited data plans. The question is, are you waiting for them to get rational or you have already started to offer unlimited plans? Because typically, when there is a reaction or there is kind of a price war, that is when actually the strategies change for other telcos. So could you throw some light? I know you have Axial as a low-end brand. Have you reacted on the Axial brand or not yet? Secondly, my question relates to your Digital strategy. I understand that Telecom Cell has launched BYU digital plans, which are very cheap. And naturally, they are digital, and the cost is very low. Have you offered already some kind of digital plans, which are all digital with no manual intervention required, and I can buy the SIM card digitally, and hence lower cost? Thank you.

The first question regarding have we reacted on the competitive landscape regarding Unlimited? For sure, I will not tell you on this call. That's very clear. If we are going to do something and we are not going to do something, that would be foolish of me. But as I said before, we are monitoring every day and we somehow have reacted when it comes to access. As I said, we have made just some small adjustments when it comes to access. We have also been very regular or very detailed granular in our Excel pricing. So if you go out in the region here in some of the cities, some of the clusters, you will see different prices for the Excel as well. But if we are going to react on unlimited or not, I cannot reveal that at this point in time. Okay. Thank you. Can you repeat the number two? You have a second question?

No, so I think your second one on digital, I think if you look at where we are today, yes, I think we started on digital, even though where we are today is probably small. We will see in the scheme of things, access has been pretty aggressive in terms of the digital plan, right? And I think... And I think if you look at given the segment that Axis is actually driving today, it's a lot of the youth and it tends to be a lot more digital, right? So in 2020, we would expect quite a substantial increase in the acquisition, especially on both brands, but mainly Axis because it's addressing more of the youth brand is probably coming from digital.

Okay, thank you.

Thank you. We have our next question from the line of Let's Go from Amber. Please go ahead.

Thank you. I have two questions. The first is regarding your effective tax rate. In the fourth quarter, your tax rate went up over 40%, while the first three quarters was just around 30%. Could you give us a bit of guidance on what should we expect for effective tax rate? for 2020 and what caused the tax rate to jump up in the fourth quarter? That's my first question. And my second question is regarding your CAPEX guidance of $7.5 trillion. Is there any allocation for spectrum purchase in that? And could you give us a bit of guidance on your spectrum allocation? You've given in your notes that you're looking to move from 2G and 3G to 4G. Could you give us a bit of a timeline on when you expect that to happen and how much do you allocate on the additional spectrum fees?

Effective tax rate is probably a bit high in 2020 because of some non-deductible expenses. I think primarily what actually happened as well at the end of fourth quarter There are some tax losses coming from the acquisition of Axis, which actually expired in 2019, and hence the portion that's not utilized have been provided for. It's a bit artificially high in 2019, given of that fact. However, in 2020, we would expect that tax rate will probably be at around the 30% level or so. And on CAPEX, I think... On CAPEX, the 7.5% excludes spectrum.

I see. Could you give a bit of guidance on your spectrum strategy? I mean, moving from 2G to 3G to 4G, or perhaps even 5G later. Could you give us a bit of time frame? How much you think will be... spend on it and potential amount that you would need to budget for that.

I think spectrum today, you know that maybe the 2300 would probably be auctioned out or beauty contest sometime this year, right? The exact timeline, we are probably not sure. But in any case, I think that would probably be around 30 megahertz. In our case, I think it's very clear in terms of our spectrum strategy that we need to free up a lot of our spectrum coming from that's used currently for 2G or 3G to move into 4G. So in 2018, 2019, we have been aggressively moving up and shutting down the 2G sites. And today, I think we are probably only using 2.5 MHz on 2G today. and not in all clusters, even in some clusters it has been switched off. The next level is I think we will also be quite aggressive in terms of freeing up the 3G as well to move the spectrum up to 4G. All this is to make sure that we are able to dedicate a lot more spectrum to cater for our 4G traffic. So in whatever case that we do, we know that there will be some spectrum that's probably coming up on 4G. Not sure when the spectrum on 5G will come up. Actually, there's no clear indication at this point in time.

Okay, thank you so much.

Thank you. We have our next question from the line of Krishna Hotabarat from Mandiri. Please go ahead.

Hi, guys. Congratulations on your strong business turnaround this year and on the Tau sale agreement. I have two questions from my end. My first question is housekeeping. Can we please verify what forms the 202 billion rupee other income in full year 19? I realize that most of it was booked in fourth quarter 19. Is that a one-off? If yes, why is it not included in the profit normalization disclosure? And my second question, can I just get your thoughts also on the next level of differentiation that Excel can establish against the rest of the players? You know, in the past two to three years, I suppose you have managed to expand your mobile broadband coverage in Excel Java ahead of Indosat, Hatch, and Friend. But since the CapEx intensity has picked up too over the past few quarters, that Excel Java gap should narrow too. So, yeah, I just would like to hear your thoughts on what sort of key differentiation points that you think Excel can establish over the next two to three years to secure continued enterprise growth.

Thank you. There's two parts there, Krishna, on the $202 billion gain. In others, we actually have sold our data center to Princeton Group. And part of that, as a result of that, we hold 30% in the joint venture. The bulk of the gain is probably derived from the sale of the data center. Of course, it's actually being normalized in there. But I think in the normalization, we have actually reflected net of the deferred tax from the tax losses, the unadopted tax losses that I explained earlier. Okay, got it. Thanks a lot.

Thank you.

On the second question. I think you, can you please repeat the second question, please?

So, yeah, just basically just like to get your thoughts on the next level of differentiation that Excel can establish against the rest of the mobile players. I suppose XJava was one of them, but what would be next, yeah?

So, as I hear, you're talking about differentiation, right? When it comes to Xjava and when it comes to Jara. So, it's very clear that in our optic, we have a much better engine when it comes to upselling, cross-selling, and approaching our customer in a regular way, right? So, we are trying in many ways, and that's why we see we still have a decent app view. We still believe that we still have a way to go when it comes to revenue from existing customers. So, we are not only doing acquisition in the old traditional way, We're also looking at how can we actually create more revenue from our analytics machine, meaning that we have to do the upselling and cross-selling. And we are doing this in two ways. First of all, we're doing it digital way, of course. We are trying to use all the digital tools, all the digital channels that we have. And the engine behind that is our analytic engine. So we have a pretty robust, and we have spent some money for building that, but we have a pretty robust analytic engine. That is actually feeding in all these offers to our customer, and we are able to upsell and cross-sell to our customer. So we can see some upside in the next couple of years from that analytic engine that we have.

All right, sure. Thank you, Mark.

Thank you. We have our next question from the line of Ranjan Sharma from JP Morgan. Please go ahead.

Hi, just a couple of follow-ups from my side. Firstly, on the unlimited data plans that you mentioned, can you remind us on what price points are they being introduced, especially for the 30-day unlimited plans? And secondly, on the SIM registration regulation, I think there was some discussions on strengthening the regulation and maybe even bringing KYC procedures. If you can share what the update on this is, or where we are in the process, thank you.

Okay, I take the second question on immigration. So basically now the discussion with the government is still going on on the customer journey for this EMA regulation. And also the discussion on what kind of method, which is blacklist versus whitelist, that we use to actually filtering the non-legal EMA. So currently the plan is to have this EMA regulation to be taken to take effect in April 2020. But as I said, it's still not final in terms of the regulation, customer journey, and so on and so forth. So the last status is we are still in discussion with the government and also other operators.

When it comes to the pricing for the Unlimited, there are many details for that, and it can change overnight depending where you are. But if I just look at one of our competitors, Smartframe, they started introducing the Unlimited for around $65,000. And we also see that all other Unlimited products, they're actually above $50,000. Then at the end of Q4, we saw that smartphones were actually increasing the price around 10% to 15%, so it came up to $70,000, $75,000. So in that range, we have all the Unlimited packs at the moment. But we also see that 3 has introduced a new Unlimited, as I said before. I haven't seen the prices yet in that level, but it's above $50,000 for all of them.

Got it. Thank you.

Thank you. We have our next question from the line of Shun Shen Fung from CIMB. Please go ahead.

Hi, thanks. I've got two follow-up questions. Firstly, in the info memo, you mentioned that the majority of Excel sites will be fiberized in the next two years. Are we referring to one hop to fiber here, or are we referring to fiberization all the way to the site? Where are we now in terms of this definition? IFRS 16 aside, because of this fiberization of the site over the next two years, should we expect to see a big increase in lease expenses or is this fiberization going to come out of your capex that you have budgeted for? Then second question on the EBITDA margin guidance, you've guided for low 40s and in the fourth quarter, you've already hit about close to 41%. I'm just wondering whether you see further improvements from the 4Q19 levels in 2020? Those are my two questions.

When we talk about fiberization, is fiberization our insights? We are looking at in the next two years that the majority of our insights have already been fiberized. We already started the process. I think we're probably going to go quite aggressive this year and even next year. Second is, if you talk about fibrillation today, the impact on our aggressive fibrillation has already started. You can see that impact is already coming in the 290 numbers. So I think the trajectory that we'll probably be looking at in 2020 will be the same as what you've probably seen in 2019. Because we have pasted in such a way that we will achieve those numbers if we go not acceleration just purely in one year, but actually doing it on a gradual manner. And I think those impact you've probably seen pre-IFRS in 2019 already. Of course, the biggest driver of this financial lease would be IFRS 16 implementation, which is probably going to drive your overall margin to meet to high 40s. Lastly, on EBITDA margin, I think yes, we are already at 40% in Q4 2019. Obviously, I think with the increase in revenue and our continued operational excellence, we would expect that EBITDA margin to grow and hence the guidance would be low 40s. Low 40s means it can be from 40% to probably 43%. But again, this is pre-FRS. The implementation of POST would probably drive EBITDA margin to low 40s. to mid and high 40s.

Adlan, just following up on that. In terms of fiberization to end sites, what is the percentage today? On the margin question, do you see significant amount of power leases that will be up for renewal this year that will help to contain your network cost increase?

I think this year, where we are today, we are fiberizing slightly less than one-third of our sites. In the next two years, we will probably hit a majority of our sites. And EBITDA margin is primarily going to be driven definitely from network costs, either from renewal of our tower rental. What we are actually working on now today is also early renewal of our tower rental. so that we can benefit the lower rental earlier than before the actual expiry. So that's one of the key drivers to our network. Secondly, we are working quite extensively on our power management, because today, under the new managed service contract, power is under Excel's responsibility. And as part of our power management, we also... modernizing our site, as well as closely monitoring to make sure that we have really close monitoring on our site utilities for each and every site that's pre-monitored on a monthly basis, on a very granular basis. So I think year 2020, you would probably see that we would probably see benefits coming from this power savings initiative that we are probably working on at this point in time. Last, I think, thirdly, I think the other part that we are also working on as well, I think, is also looking at our cost of goods sold, primarily coming from if we look at where we are on the On the voice side, given that voice is actually relatively small, our position on interconnect is also improving quite substantially. That would also help us in terms of driving costs down as well as improvement in margins. Those are some of the areas that we see that we could potentially benefit and hence contribute to EBITDA margin improvement in 2020.

Okay, got it. Thank you so much, Adeline, and all the best for 2020.

Thank you. We don't have any more questions now. I would now like to hand the conference back to our host today. Please go ahead.

Thank you, everyone, for your participation in today's call. As always, do reach out to us if you need further information. Otherwise, we'll speak to you next quarter. Thank you.

Thank you. That concludes today's conference call. You may disconnect your line now. Thank you.