PT XLSMART Telecom Sejahtera Tbk

Good afternoon, ladies and gentlemen. Welcome to Excel Asada Earning Conference Call for the first nine months of 2020. My name is Don, and I will be your coordinator today. During the presentation, all participants are in a lesson-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 has been recorded for replay purposes. Now we would like to hand the conference over to our host, Mr. Inder. Please proceed.

Hi, thank you, Dawn. 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 this afternoon, we have Ibu Dian, our Chief Executive Officer, Pak David, our Chief Commercial Officer, and Pak Budi, our Chief Financial Officer. Now, Ibu Dian will share the highlights for the first nine months of 2020, which will then be followed by the Q&A session. I will now hand the call over to Ibu Dian.

Inder and good afternoon everyone. We are happy to report a good set of numbers in the first nine months of the year. Despite tough competition and the challenging economic environment to the COVID-19, both of our revenue and EBITDA have increased and we continue to remain in a net profit position this year. In the first nine months of 2020, service revenue grew 8% year on year. driven by strong demand for data as many Indonesians continue to work and school from home. EBITDA rose by 34% year-on-year over the same period as a result of revenue increase and cost efficiency, with EBITDA margin now above 50%. We continue to be profitable, reflecting our focus on executing our operational excellence strategy with an emphasis on profitability and returns. However, competition remains tough, with all players now having some form of unlimited product in the market. Aggressive pricing is also seen across the smaller sachet data packets, as operators strive to win shares of customer wallets, driving data yields down. This aggressive competition is expected to continue into the end of the year. The mass low-end segment continues to see weak demand. As a result of COVID-19 impact with many businesses struggling, job cuts and rising unemployment taking its toll on consumer spending. As the Indonesian economy is expected to contract in the second half of 2020, and this may prolong into first half of 2021, the industry will likely be negatively impacted as well. Despite this tough environment, the growth we have recorded this year is due to the structural demand for data, but also a result of the measures we have put in place to ensure our business continues to grow in the light of COVID-19, and its impact to the business environment. The main benefits are from cost optimization and increased productivity as a result of digitization and simplifying our operations. These measures will benefit us beyond the short term. On the commercial side, the shift to digital continues rapidly with more customers buying data through online channels. We have ensured that customers are able to get the best deals on these channels and have started introducing personalized offers as well. This will have benefits in the longer run as we can control the products and pricing that we want to deliver to customers. On the traditional channel side, we continue to support these channels by ensuring enough stock availability while also redesigning our processes to allow for virtual visits and remote audits. On the network side, we have continued to invest to handle the unprecedented increase in data traffic, upgrading thousands of sites to ensure we have the adequate capacity while ensuring our quality of service remains high. Due to COVID-19 pandemic and the rapid digitalization of daily life, we have seen a faster shift and migration to 4G with now almost 80% of our subscribers and 80% of our traffic on 4G and increasing rapidly. As a result, we are allocating more capacity and resources of our network to 4G and continue to reduce capacity on other services, especially on 3D. We have also launched several new initiatives in the second half so far, including the implementation of SAP HANA Cloud Enterprise Management System. We are the first telco in Southeast Asia to implement this, and it will generate huge benefits by streamlining our internal data and processes and increase our productivity. We have also refreshed our My Excel app, simplifying the user experience, thereby making it easy to use. Finally, as we mentioned last quarter, our fully digital brand, LiveOn, has been launched, and this will help us tap into a growing customer segment, which are the sophisticated data users. Positively, XJava continues to do extremely well for us and is growing well ahead of the Java growth rate, increasing its contribution to our revenue. Our investments that we have made there are delivering returns and payback in line with what we had initially planned. We will continue to invest there, guided by our operational excellence principles and strategy, and ensure that we can continue to see growth and deliver returns for our stakeholders. Our network rollout and upgrade continues to be on track. As our early planning and procurement process has helped us secure all the materials needed to meet our network rollout plan in 2020. Thus, we continue to roll out our network on schedule with our BTS count now above 142,000, with 4G present in 458 cities across Indonesia, with more than 53,000 4G BTS. We also continue to fiberize our network to manage the accelerated growth of data traffic and ensure our customers would continue to enjoy good network experience. Our balance sheet is strong with net debt to EBITDA of below 1x. We have no US dollar debt and we have also secured committed facilities with the bank that we can tap anytime if we need additional funding. This is very important today given the uncertainties in the coming quarters as a result of the ongoing pandemic. The Omnibus Law has been passed in Indonesia in October 2020 and is landmark piece of legislation in line with the nation's aspiration to increase investment by simplify regulation and reduce red tape. The telco sector will see many new opportunities as a result of this and will benefit massively from this regulation. The main benefits are through spectrum where spectrum sharing and spectrum leasing are now allowed, allowing for B2B arrangements between operators. Further benefits would come from the digital dividend or the shift from analog to digital, freeing up more spectrum for the operators. Finally, the regulation will make it easier to facilitate M&A as the rules regarding spectrum retention post-merger are clearer. Although our results are positive so far, the situation in the market remains tough with impacts from COVID-19 on rising unemployment and lower income for many Indonesians, coupled with intense price competition. This creates an unprecedented situation, and as a result, it is difficult to predict what the end of the year will look like. Therefore, we are not able to provide any guidance until we have better clarity on the situation. Finally, as per the results of our eGMS last week, I would like to formally introduce Pak Budi as our new Chief Financial Officer on this call. He has a wealth of financial experience and will help drive our business forward, I am He will do a great job in the next phase of our growth journey. Thank you, and let us proceed to the Q&A session.