Axiata sees consolidation opportunities, eyeing M&As

• Has a huge war-chest of nearly US$3bil
• Embarking on aggressive capex strategy, aims to lead the data space

MERGERS and acquisitions (M&As) may be on the cards for mobile telecommunications group Axiata Group Bhd this year, as some of the Asian markets are ripe for consolidation.
 
According to its president and group chief executive officer Jamaludin Ibrahim (pic), the company is on the lookout for opportunities, but he admitted that there is nothing on the table right now.
 
“Is there anything cooking now? No. But will there be any? We are obviously looking at consolidation in [certain] countries. It is pretty obvious that if the industry is maturing, you will see mergers or consolidation,” he told a media briefing in Kuala Lumpur on Feb 25.
 
“We are on the road to consolidation. We believe that there are opportunities in a few countries,” he said.
 
Jamaludin said consolidation had pros and cons. The company making the acquisition, for example, would be able to see a big jump in its revenue, but that could come at the expense of its bottomline.
 
“That was what happened to PT XL Axiata Tbk when it acquired PT Axis Telekom Indonesia,” he said.
 
For now, Jamaludin said Axiata has no plans to embark on M&A activities in Indonesia or Malaysia. However, it remains open to such an opportunity in the other countries it is present in, such as Sri Lanka and Bangladesh.

Meanwhile Axiata group chief financial officer Chari TVT said the company is in a good position to embark on M&A deals should such opportunities arise.
 
In fact, he claimed the company would be able to raise RM10 billion (US$2.76 billion) without compromising its financial structure.

“We have the firepower to buy RM10 billion worth of companies anytime. But as always, we will be prudent in terms of what we spend on acquisition,” Jamaludin said however.
 
Aggressive capex strategy
 
Axiata will also be embarking on an aggressive capital expenditure (capex) strategy this year as it aims to capture pole position in terms of data offerings.
 
The company, which is 38.7% owned by Malaysia’s sovereign wealth fund Khazanah Nasional Bhd, plans to spend RM4.8 billion in capex in 2015, which is about RM700 million more than what it spent in 2014.

[RM1 = US$0.28]

“This will be one of the highest capex [spends] for the group,” said Jamaludin.
 
XL Axiata and Celcom Axiata Bhd, the group’s subsidiaries in Indonesia and Malaysia, will get the lion’s share of the capex at RM1.8 billion and RM1.1 billion, respectively.
 
Dialog Axiata Plc, its operating unit in Sri Lanka, has a planned capex of RM500 million. Robi Axiata Ltd, its subsidiary in Bangladesh, has a planned capex of RM900 million, while its Cambodian unit Smart Axiata Co Ltd has a planned capex of RM300 million.

The remaining capex will partly go to its communications infrastructure solutions and services company edotco Group, its digital services business, and others.
 
Jamaludin said that a big bulk of Axiata’s capex will be used on growing its data business.
 
“We are determined to be very aggressive in our markets this year. Data is very important. We want to lead in data, including 4G-LTE (Fourth Generation-Long Term Evolution).
 
“In Malaysia, for example, we are going to blast our LTE coverage big time. We are going to grow our data coverage in general, big time.
 
“We are looking at LTE in other countries too. We want to be the leader in data. We want to outperform our competitors in data. That’s why we are fairly aggressive in terms of capex for 2015.

“Also, to some extent, especially in Malaysia and Indonesia, the governments there have been asking operators to provide better service and better coverage, given that data is becoming an essential part of everyday life.
 
“So, you can also say that we are answering the calls of these governments to provide better services and coverage to our customers,” he declared.
 
Declining net profit in FY 2014
 
Jamaludin was briefing the media on Axiata’s 2014 financial performance. For the full year ended Dec 31, 2014, it registered an 8% decline in net profit at RM2.35 billion, versus RM2.55 billion a year ago.
 
The decline was partly driven by lower profits at Celcom as well as losses at XL Axiata.
 
“It was a rather mixed year for us, with stellar results from most operating companies, but Celcom’s previous exemplary track record was marred partly due to its IT transformation programme,” said Jamaludin.
 
Celcom’s full-year net profit fell by 19% to RM1.7 billion, versus RM2.09 billion a year ago. Its revenue dipped 4% to RM7.74 billion. It also saw a decline of 1% to 12.97 million subscribers, against 13.14 million subscribers early this year.
 
XL Axiata’s revenue jumped 10% to 23.57 trillion rupiah in 2014, but it registered a net loss of 891 billion rupiah. Earnings before interest, tax, depreciation and amortisation (EBITDA) remained flat at 8.6 trillion rupiah. [US$1 = 12,871 rupiah]
 
The performers for Axiata in 2014 were Dialog, Robi and Smart, which saw net profit jump by 17%, 20% and more than 100%, respectively.

The year also saw Axiata miss most of its headline key performance indicators (KPIs). The company, which expected 2014 revenue to grow 10.1%, only managed to grow its revenue by 2% to RM18.7 billion.
 
In terms of EBITDA, the group registered a 3.7% decline to RM7 billion, a big contrast compared with the 1.8% it initially expected.
 
The good news is that it was very close to achieving its Return on Invested Capital (ROIC) and Return on Capital Employed (ROCE) targets of 9.3% and 7.8%, respectively.
 
“Fortunately, our ROIC and ROCE, which are measures of the profitability of our capital deployment, were reasonable at 8.9% and 7.5% [respectively],” said Jamaludin.
 
2015 KPIs
 
For 2015, Axiata expects revenue and EBITDA to grow 4% each, and ROIC and ROCE to grow 8.7% and 7.7% respectively.

“We believe that [these are] moderate KPIs. Our focus this year is also to make sure that our EBITDA growth tracks revenue growth,” said Jamaludin.
 
He said he also hopes that Celcom would be able to regain its growth momentum within one or two quarters. Now that its IT transformation programme is almost over, Celcom will be in a better position to compete.
 
“We want to be able to launch new products better and faster. We are looking at launching products in weeks, not months. We are talking about serving customers in seconds or minutes, not half an hour,” Jamaludin declared.
 
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