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SHAPING THE FUTURE
Axiata Group Berhad | Annual Report 2016
013
PRESIDENT &
GROUP CEO’S MESSAGE
Dear Shareholders,
Since its establishment in 2008, Axiata has been growing from strength to strength, delivering strong performance
across most of our markets and businesses. Our performance track record and milestones culminated in the realisation
of Axiata’s vision of becoming a Regional Champion in 2015. We are now recognised as one of Asia’s leading
telecommunications groups.
2016, however, proved to be our most difficult year yet due to significant external challenges and our own internal
weaknesses. It was what I refer to as the ‘Perfect Storm’, a unique combination of circumstances that intensified an
already daunting business environment.
In the face of these challenges, we maintained our commanding regional
standing with approximately 320 million customers across ten countries in
the region, with some of our Operating Companies (OpCos) in dominant
leadership positions in their markets.
Moving into phase three of our Group’s growth strategy, Axiata remains
committed to delivering the value proposition of moderate growth and
moderate yield to our shareholders over the longer term. In transforming
ourselves into a
New Generation Digital Champion
, with Axiata 3.0 as our
strategy blueprint, we foresee growth opportunities not only in strengthening
our core mobile business, but also in new ventures such as communications
infrastructure and tower services, fixed-mobile convergence, digital services,
and Enterprise Internet-of-Things (IoT).
As such, 2017 will be the year where we can expect solid turnaround in
our mobile businesses, while we continue building ourselves into a
Digital
Champion
.
2016 IN REVIEW
Group Financial Performance
Despite the challenges we faced which were consistent to the industry,
Axiata recorded firm top line growth in 2016. Our revenue broke the RM20
billion barrier when we recorded our highest revenue ever at RM21.6 billion.
We saw double-digit Earnings Before Interest, Tax, Depreciation and
Amortisation (EBITDA) which increased by 10.0% to reach RM8.0 billion.
There were three significant factors that created the ‘Perfect Storm’ which
led to the Group’s Profit After Tax (PAT) being impacted:
(i) Unprecedented external events
The depreciation and volatility of the Ringgit Malaysia against the US
Dollar resulted in the Group recording a substantial pre-tax foreign
exchange (forex) loss of RM685.1 million mainly due to US Dollar
exposed debt incurred from the acquisition of Ncell.
At the point of the Ncell acquisition in April 2016, the Ringgit Malaysia
was at its strongest for the year at approximately RM3.90 against the
US Dollar. Unfortunately, by the end of 2016, it had depreciated to
RM4.49 against the US Dollar, falling 9% in the fourth quarter alone.
Furthermore, aggressive competition in India with the entry of a
disruptive new player at an unheard of scale, resulted in considerably
lower contribution from Idea by RM303.7 million.
(ii) Costs related to strategic investments for long-term growth
In strengthening Robi’s market position in Bangladesh with the
country’s first telecoms consolidation, the Group incurred merger
fee and related costs totalling RM87.1 million. At the same time, Ncell
acquisition related costs amounted to RM312.4 million during the year.
Our capex investments for data leadership, especially in Malaysia,
Indonesia and Bangladesh, led to a higher depreciation and amortisation
(D&A) of RM1.5 billion compared to 2015, including accelerated
depreciation at XL and Robi of RM581.5 million. Investments in the
Group’s digital/Internet ventures portfolio led to start-up losses in 2016.
(iii) Underperformance at some of our OpCos and Associates
Despite showing early signs of stabilisation in the final two quarters of
the year, Celcom registered 2016 PAT results of RM976.3 million versus
RM1.3 billion in 2015. Performance at XL, to some extent, also impacted
overall performance. Fortunately, this was partially offset by the tower
sales gains of XL’s non-strategic assets of RM536.5 million.
As a consequence of these factors, the Group’s PAT for the year was at
RM657.2 million, as compared to RM2.6 billion in 2015. If we normalise these
numbers to exclude one-off charges and only reflect on operations, the
Group’s PAT would be RM1.5 billion. Understandably, the Group’s profitability
reflected on Axiata’s share price for the year.
Strengthening Our Position as Asia’s Leading Telco
In 2016, despite all the challenges the Group faced, we delivered stronger
performance at some of our other OpCos and recorded key strategic
developments during the year.
1.
Better Performing Markets
Despite the hypercompetitive Cambodian telecoms environment,
Smart performed exceedingly well, recording yet another year of
outstanding performance on the back of very strong growth of data
revenue. 2016 revenue, EBITDA and PAT grew double-digits at 20.0%,
19.4% and 26.3% respectively.
In South Asia, Dialog and Ncell continue to strengthen their leadership
position in their respective markets with excellent overall performance.
Dialog’s 2016 revenue, EBITDA and PAT growth were 16.0%, 21.1% and
more than 100% respectively. Ncell registered better than our internal
investment and accretion targets to contribute RM1.6 billion in revenue
for eight months in 2016. Ncell’s full year revenue grew 2.4%, EBITDA
increased 2.3%, and PAT improved 7.8%.