Axiata Group Berhad - Annual Report 2016

Axiata Group Berhad | Annual Report 2016

SHAPING THE FUTURE

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Expanding and Strengthening our Position by way of M&A

In recent years, we have strengthened our existing operations through

in-country M&A exercises in our markets such as Sri Lanka, Cambodia

and Indonesia. In 2016, we successfully improved our presence in

Bangladesh with the completion of the first telecoms merger in the

country with Bharti Airtel Limited to position Robi as the second largest

operator in the country serving approximately 33.8 million customers.

In a competitive market such as Bangladesh, market consolidation

would result in healthy competition and will benefit customers.

During the year, the Axiata footprint was further expanded with the

acquisition of Ncell, the number one mobile operator in Nepal, which

itself will bring accretion revenue of RM1.6 billion and Profits After Tax

and Minority Interests (PATAMI) of RM454.8 million to the Group.

Together, these developments mark significant milestones for the

Group in solidifying our stronghold in the region.

Largest Global Tower Sector Private Placement Deal in 2016 at

edotco

Our infrastructure services company, edotco, with a portfolio of over

25,000 operated and managed towers in five countries, has become an

important source of growth and a potential dividend yielding company

in the medium-term. One of the Group’s milestones in 2016 was the

maiden equity raising exercise for edotco which set a new benchmark

as the largest global tower sector private placement for the year at

a record of USD600 million. The placement exercise brought about a

very encouraging valuation of edotco at USD1.5 billion, representing an

Enterprise Value (EV) to EBITDA multiple of 12.5x

With the additional capital injection of up to USD400 million, edotco

has the capacity to execute its growth strategies through acquisitions

and further in-country opportunities. The placement of secondary

shares of USD200 million will help Axiata reduce its debt.

We are very encouraged by this deal as it represents valuable external

endorsement of edotco’s performance to date and future growth

potential of the company. We remain determined to make edotco a

world-class business and one of the world’s largest independent tower

companies by 2020.

Monetisation of Assets and Growth at Axiata Digital

Axiata Digital, our digital services arm, made some significant inroads

in 2017 which reinforces our digital ambitions. Our portfolio of digital

companies has grown to 29 with three subsidiaries and seven joint

ventures, and serve 32 million customers, 30% of which are new

to Axiata. Collectively, our e-commerce marketplaces companies

registered a Gross Merchandise Value (GMV) of USD257 million.

Some notable developments at Axiata Digital in 2016 include the

monetisation of its assets through private placement exercises of two

portfolio companies - Freedompop and Adknowledge Asia; making its

first digital service investment in India; successfully rolling out its anchor

Digital Music app Yonder Music in two OpCo countries; continuing its

e-commerce leadership in respective markets as strong number two

players; and establishing mobile money services in five countries.

2017 OUTLOOK

Challenges in 2017

We remain cognisant of the challenges we will face on the road ahead both

internally and externally.

In our core markets we are continuing to witness heightened price

competition especially for data services, which on the back of a 50% Year

on Year (YoY) yield decline in 2016, continues to show a downward trend

especially in Malaysia, Cambodia and Indonesia. In India, we expect the

competition to continue in 2017. It would be ideal if the industry consolidates

to allow for more rational and sustainable competition.

Currency volatility and increasingly stringent forex control requirements in

Malaysia will be a challenge. Similarly, taxation and regulatory uncertainties

continue to exist in all our markets and will be an area the Group will need

to successfully navigate.

The performance of Celcom and XL is our greatest focus in 2017. We will

also continue to explore various initiatives to manage our balance sheet and

US Dollar debt.

Focused and Strategic Plans for 2017

Strategically, we are on the right trajectory, and we remain optimistic about

our future with the focused set of strategic initiatives we have set forth for

2017.

Turnaround at Celcom and XL

We will be aggressive in recapturing our leadership position in certain

areas in Malaysia in 2017. Our products and services are generally very

competitive but more improvements are required in sales, marketing,

network and IT, as well as changes within the organisation.

We are allocating up to RM1.4 billion (USD315 million) capex for

Celcom in 2017, the majority of which will be utilised in improving its

network quality and coverage. This is essential for Celcom to regain

its momentum especially in the prepaid segment. Within its prepaid

business, we will be dealing with issues of pricing and packaging, thus

correcting our trajectory in 2017.

At XL, the Axis brand has been doing well but significant improvements

are now underway to positon and improve the XL brand. There has

been good traction with data savvy customers and it is clear from

smartphone penetration and rising traffic that we are attracting the

right customers. XL’s 4G LTE footprint now spans close to 100 cities

and is further supported by its roll out on UMTS900 frequency which

significantly improved the quality and reach of its data services. We

plan to expand aggressively beyond Java to growth areas in Sumatra,

Kalimantan and Sulawesi that would help contribute positively to

earnings in 2017.

We expect revenue growth for Celcom and XL to be in line with the

industry for 2017 in the first half and exceed industry growth in the

fourth quarter.

PRESIDENT & GROUP CEO’S MESSAGE

Based on 2016 unaudited proforma full year financials