Good afternoon, ladies and gentlemen, and welcome to XL Axiata's Earnings Conference Call for the 2020 Financial Year ended 31st December. My name is Rohit, and I'll be your coordinator today. Now, we would like to turn the conference over to our host, Mr. Indar. Please proceed, sir. Hi. Thank you, Rohit. Apologies, everyone, for a bit of delayed start. Good afternoon, and welcome to the call today. On behalf of the XL management team, I would like to thank all of you for taking the time to join us today. With us on the call, we have Ibu Dian, our Chief Executive Officer, Pak Budi, our Chief Financial Officer, Pak David, our Chief Commercial Officer for Mobile, and Pak Abhijit, our Chief Commercial Officer for Enterprise and Home. Ibu Dian will share the highlights of 2020, which will then be followed by the Q&A session. I will now hand the call over to Ibu Dian. Thank you, Indar. Good afternoon, everyone. We are happy to report a good set of results in 2020, despite challenges from both the COVID-19 pandemic as well as the aggressive price competition in the market. This is due to our focus in executing our strategy to position ourselves as the preferred digital platform in Indonesia. Our service revenue grew 6% year-on-year in 2020, driven by strong demand for data due to the increasing digitalization of daily life and as many Indonesians continue to work and live work from home. EBITDA rose by 31% year-on-year over the same period due to the revenue increase and cost efficiencies, as well as IFRS 16 adoption, with EBITDA margin now above 50%. We continue to be net profit positive, which is in line with our focus on profitability and returns to create value for our stakeholders. Competition continues to be a major issue for the industry, with all players now having some form of unlimited offering in the market, especially with the market leader increasing the ability of its unlimited plans across Indonesia. Aggressive pricing is also seen across the smaller-sized data packets, with operators pricing a share of customer wallet, driving data yields down. Compounded by the still weak Indonesian economy, which is expected to continue to see slow growth in the first half of 2021, this will also have a negative impact on the industry. Mass lower -end segment continues to see weak demand because of the COVID-19 impact, with many businesses struggling. Cuts in unemployment rightly taking its toll on consumer spending. 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 perform well in the light of COVID-19 and its impact to the business environment. These steps will benefit us beyond the short term. These steps are focused on the increased digitalization of our business as well as continued development of our analytics capabilities to ensure that we can meet the challenges that industry faces today. This year, our distribution has seen a shift to digital, with more products being sold online and through our own channels. This comes as both our recent apps, which is myXL and AXISnet, both have seen good reception from our customers, with 11 million active users and increased revenue contribution from these channels. This will be key going forward in allowing us to offer customized products, monthly plans, and increased customer care interaction as well as touchpoints for further increasing the revenue we generate from these channels. On the analytics side, we have further improved our capabilities in the year 2020 by establishing a cross-functional team to drive analytics driven decision making across business functions. This allows us to improve our dynamic pricing model and customer spending management in our current channels, as well as our own channel offerings to enhance our interaction with our customers and remain competitive in a challenging market. Competitively, Ex-Java continues to do extremely well for us. It is growing well ahead of the Java OpCos, increasing its contribution to our revenue to around 25% in 2020. Our investments that we have made are delivering good returns and payback in line with what we had initially planned. In 2021, we will continue to invest in Ex-Java, 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 roll out and upgrade continues to be on track and we continue to roll out networks on schedule. Our BTS count now above 144,000. 4G coverage in 168 cities across Indonesia, with more than 44,000 4G BTSes. We also continue to fiberize our network to manage the accelerated growth of data traffic and ensure our customers will 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. It is important to note deeper the uncertainties in the coming quarters because of the ongoing pandemic. Although our results are positive so far, the situation in the market remains tough with the impact from COVID-19 on pricing and employment and lower income for many Indonesians. While we expect tight competition in the short term, it is likely to impact the overall industry growth. Nevertheless, we see opportunities in the medium to long term as demand for data continues to grow with an increased digital way of living and working. Industry consolidation will also be a positive if it happens, as it will reduce the competitive intensity and improve the pricing dynamics with less players in the market. The Omnibus Law, which was passed at the end of last year, could also be long-term positive for the market. As we are seeing a decreasing amount of 3G traffic this year, with 3G traffic already less than 10% of total traffic, we have been reducing 3G capacity in several areas and allocating that capacity to 4G. As a result, in this past quarter, we have reduced the useful life of our 3G assets, taking a one-off depreciation charge to reflect that. This makes our asset base more reflective of the underlying usage, this will reduce our depreciation charges going forward and further improve our profitability. In line with our operational excellence strategy of monetizing our non-core assets and further strengthening our balance sheet, we have also started doing a sale and leaseback of our passive sites this past quarter. We have thus completed the sale of 143 sites this past quarter and are looking to sell around 500 passive sites in total through 2021. We would like to introduce our guidance for this year. In 2021, we are guiding for revenue growth to be in line with market, EBITDA margin in the low 50% and CapEx to be around IDR seven trillion for the year. Thank you. Let us proceed to the Q&A session. Operator, can we have the Q&A? Certainly, sir. Ladies and gentlemen, we will now begin the question and answer session. To ask a question, please press star one. To cancel, please press the pound or hash key. Please kindly, but strictly limit your questions to only 2 and to 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 3:00 P.M. Jakarta time. Once again, it is star one to ask a question. Kindly note that there might be a slight pause as the questions are being collated. We have the first question coming from the line of Piyush Choudhary from HSBC. Please go ahead. Yeah. Hi, good afternoon. Thanks for the call. Two questions, please. Firstly, could you comment on the growth outlook for the Ex-Java region and whether Ex-Java regions are EBIT positive? If not, then what is the level of EBIT losses right now in Ex-Java? Secondly, what is the expected timeline for 3G shutdown? Are there any more asset write-downs left? Thank you. Okay, David here, I will take your first question regarding the growth in Ex-Java. Java versus Ex-Java. 2020, we have grown both in Java and Ex-Java in the full year. The Ex-Java growth has been one order of magnitude higher and several times higher as you can imagine. Now, the fourth quarter has been negative, has been declined for both areas because the competitive aggressiveness and the market difficulty has been all over Indonesia. Again, the Ex-Java has behaved much better performance. It has given a better performance than the Java one. I will answer the second. Related to the Ex-Java, whether it's making loss or making profit. We don't really disclose the figures. I'm sorry. There is a lot of echo in the noise. I can't understand properly. Sorry, the line is not very clear. Sorry. Yeah. Is it more clear now? Is it better? Little better, but there's a lot of echo in the background. Okay. I don't think I can do anything regarding that, regarding the echo. Shall we try I will answer again, and let's try whether this can work. Otherwise, I will find someone from technical in order to see whether we can do something. Does that work? Shall we try one more time? Yeah, sure. I was talking about the Java, Ex-Java. For 2020, we have grown, both areas have been positive growth. Ex-Java has grown one order of magnitude higher and several multiples, as you can imagine, rather than Java. The revenue growth has been in both areas, but with Ex-Java one order of magnitude bigger. Quarter four has been declined also for both areas, although Ex-Java has performed almost flat, so has been in a slight decline, and Java has been the one who has declined a little bit further. Overall, both in quarter four and in 2020, the Ex-Java performance has been significantly better and it's been much better than the Java one. Regarding the profitability, I'm going to let Budi, our CFO, to answer it. Hi, Budi. Could you hear us? Yeah, it's better than before. Thank you. Okay. Yeah. Okay. I would like to answer that question related to Ex-Java profitability. We don't really disclose the details. Just to give the high level, Ex-Java is still not yet in the positive position. They are the result of investment that we did since 2017, already start profitable or in the positive numbers. We will continue investing in Ex-Java. As we discussed before, we continue with our OU approach. We continue looking at the payback and return. In Ex-Java, we've been aiming for a return between 3-4 years, from 3 years in our OU approach in Ex-Java. I hope that answer your question. The second question related to 3G shutdown timeline. There are two things in this 3G shutdown, the adoption of the market and also our own efforts. These two things will determine how fast we're going to do the shutdown. To give guidelines, we're looking at one to two years horizon, maximum to two and a half years. Those are the guidelines that we're looking at. The reality when we're going to shut down, depending on area by area, whether the adoption in the market on the 4G is there or whether the capacity is there. It's combination of both. That answer your question, Piyush. Sure. Thanks a lot. Thank you. We have the next question. This is coming from the line of Arthur Pineda from Citigroup. Please go ahead. Hi. Thanks for the opportunity. Two questions. First, on the revenue side, what's driving the drop in revenues Q o Q in the fourth quarter? It seems like ARPU have contracted as well. Is this more macro-driven or are you seeing escalated competition as impacting you in this sense? Second question I had is with regards to the dividend policy. If you could remind us what the policy is, please. The free cash flow is quite high and the balance sheet is under-geared. What are the expectations on the dividends? Thank you. I will answer the first question regarding the revenue drop in the fourth quarter, on the revenue and the ARPU you're asking. I think there have been couple of factors, two, three factors that have affected this. One, as you mentioned, is the macroeconomic situation. I think the pandemic is having an impact and the economy is sharpness. I think that's a given for everybody. Now, on top of that, I think there have been another two additional factors that have impacted our performance. The 1st one is the competition aggressively. As we have said, we have the incumbents who have changed their commercial strategy quite radically, entering both the unlimited and the low denomination packages with very aggressive prices. I think that was one of the things that happened. There was another thing that was the government school program, which via the subsidy, we also lost some of the ARPU of our own customers. It had impact on some of the customers that we have that now are dual SIM-ers, and they are to also decrease. I think those two factors, the competition aggressiveness and the school program subsidized by the government, on top of the pandemic or the macro factor, are the main reasons of our decline in quarter four. I think that was for the first question. I will let Budi answer the dividend policy. On the dividend, we still are doing the same thing like before. Our dividend policy basically is 30% of our normalized net income of prior year. 2020, our profit was IDR 370. Hello? Sorry. Hello. We lost the line. Sorry, Yeah, can you hear me now? Yes. Sorry, could you start from the beginning, please? Sorry, the line was pretty bad. Yeah. Our dividend policy is still the same like last time. It's 30% of normalized net income of prior year. 2020 net income 30, correct. 30% of normalized net income. Understood. Do you hear me? Yes. Even with the free cash flow being relatively high and the balance sheet at just 0.5 x net debt to EBITDA, there is no initiative to revise the outlook on this? Yeah, I guess, as a listed company, follow the company policy. Any changes, we need to go to the AGM. Right now, that's the policy. Looking at the current situation, we're still looking at the final decision on that dividend distribution. Understood. Okay, thank you. Yeah. Welcome. Shall we move to the next question, sir? Right. The next question comes from the line. Pardon me, sir. Shall we move to the next one? Yes, next question, please. The next one comes from the line of Sachin Mittal from DBS. Go ahead. Hi. Thank you. Two questions. We saw data yield decline almost 11% quarter-on-quarter to almost 3.9. For Indosat, question is, which are the plans which you had launched, which actually brought the data yield so low? Again, the related question is, are we seeing a bottoming out or are we seeing that your plans have full impact in the quarter or no? Those new plans which you have launched will continue to impact, full quarter contribution will be in the upcoming quarters? That's question number 1. Secondly, assuming that the competition stays at the current levels, what are your expectations of the industry growth for revenue for FY21 and for yourself? Anything, any color will be good. Thank you. Okay, David here, I will answer the two questions. Regarding the first one, you were talking about the ARPU and the data yield decrease. Again, here, I think there have been a couple of factors that have affected this, right? Again, one is the macro, but especially the competition and the school program subsidized by the government. The school program, as you know, is a program where the data package is high, it's big, and the yield is very low, which has driven down our data yield. The school government package has had impact in declining our yield. It also had an impact in the ARPU. Why? Because you will see that many of the operators, I am sure that during this quarter four will announce increase of number of subs. That means that the number of dual SIM-ers has increased, mainly, according to our analysis, because of this school program. This has also had an impact in the ARPU going down. Those are, we believe, the two main drivers of the impact in both the ARPU and the data yield. In any case, we have already internalized them, and we have also learned from the first school program. We believe that the impact moving forward, for us, it's going to be more or less neutral. That's regarding the first question. Regarding the second question, it's a tough one, right? Competition in 2021 has started aggressive. It's not our willingness or plan to enter in a price war and start decreasing prices. We are going to move in a direction that is going to be, number 1, granularity. We will analyze city per city what is the best strategy to follow. Number 2, we will focus a lot on our own CVM capabilities, so our own Customer optimization, app optimization changing in order to focus on that. Given that the current context, what is our perspective on the market? We believe that the first half will be bad. We expect that there will be a slight, mild growth during the first half because of two reasons. One will be the pandemic that is still, the impact is big, and the competition that is still also under high pressure. We believe that during the second half, probably this can release a little bit, both because economic situation can improve and also because of some external factors as potentially industry consolidation or competition rationalization in the aggressiveness. I hope that I answered both the questions. Yes. Thank you. Thank you very much. Thank you. We have our next question. This is coming from the line of Foong Choong Chen from CIMB. Please go ahead. Hi, this is Foong here. Thank you so much for the call. Two questions from me. Firstly, I wanted to ask about the EBITDA margin guidance of low 50s, which suggests that you're expecting some further improvement against last year's margins. Is that largely due to some growth in revenue and stable absolute cost, or are you also expecting some decline in the absolute cost itself? Secondly, on CapEx, I'm glad to see that it's staying at around the IDR 7 trillion mark. I wanted to understand what were some of the considerations around setting this CapEx budget. Have we rolled out fairly extensive 4G coverage already? Are we fairly comfortable with our network quality even though Indosat and Hutch are catching up and potentially, the combined network could improve once the merger goes through? Yeah, I just want to get your thinking around why you're keeping the CapEx around IDR 7 trillion, although I'm happy to see that number. Yeah. Thank you. Hi, Foong. Thanks for the question of the considerations wereions. Let me try to answer this. The first one related to our EBITDA margin guideline, the low 50%. We're confident with those figures because we still have a few areas on cost-saving, mainly on operational parts like our lease renewal. We have around 30% of our towers will be due in the next two years. Also expect some saving on other area like sales and marketing because we go more digital, as David mentioned. There are also some cost upside, unfortunately, mainly on the frequency fee. As you know, we just extend another 10 years of our spectrum, and the fee has been increased quite significantly, like around 10%. This impacts our overall EBITDA margin. On the second question related to our CapEx guideline, IDR 7 trillion, whether it's enough or not, I think that's mainly your real question. For us, we still believe that IDR 7 trillion would be fair enough. That will be to the level of CapEx intensity that we've been trying to hold as a guideline. That the CapEx will be focusing on network and as well as other businesses that we have. I hope that answered your question, Foong. Another point on that IDR 7 trillion, we will continue with our strategy on Ex-Java. We continue to put our investment there because we believe that's going to continue our growth engine. We cannot continue to rely on Java. That's why we are shifting faster in terms of growth. That's why we're going to continue with our Ex-Java strategy. Okay, a quick follow-up for Pak Budi. Just wanted to ask for your EBITDA margin guidance of low 50s, what are you assuming in terms of the revenue growth? Oh, can you repeat again? Yeah. For your EBITDA margin guidance of low 50%, I wanted to find out what are you assuming in terms of the revenue growth? Yeah. I think we've been saying that we will grow as per the market. I think that's the guideline that we are giving. I think after you can come back to estimate what will be the figure that we're looking at. We are taking more the industry growing based on the GDP growth of the country. There's a lot of assumptions right now floating around about an impact growth in 2021. They will pick up the more growth and more reasonable assumption on the growth. Okay. Thank you so much, Pak Budi. Thank you. Thank you. We have our next question. This is coming from the line of Prem Jearajasingam from Macquarie. Please go ahead. Hi. Thank you for the opportunity. Just one comment before I ask my questions. Your line is very, very bad, and we can hardly hear you. I'm going to ask my questions, and hopefully we can get some clear answers. First of all, what is our strategy around retail broadband, and do we think that we need to ramp up coverage on this more aggressively? Is there room for us to actually make an acquisition to fulfill this demand? One. The second question is, how much of a window of opportunity, in terms of timeframe, do you think that we will have when Indosat and Hutch actually do merge? Do you think there's a 12-month or 24-month window for you to take some share in that period while they're merging? Thank you. Yeah. Hi. This is Abhijit. I will take the first question that you asked about retail broadband. As you must be aware, we entered this space about a year and a half ago, with the intent of tapping the opportunity in the market. The strategy is still the same. We intend to scale our presence in the market. So far, in the past year and a half, we have reached around 550,000 home spots, and we have seen a very good response. On our footprint, we have exceeded penetration of 30%. The intent now is to continue progressing along these lines and explore options with our shareholders on how to scale. Did I answer your question, or was there a second part to the first question as well? No, that's good. How much further do we think we can scale up? Should we consider M&A to get this number up considerably from here? How much to scale up is a function of one's appetite, right? We are talking about a market with less than 10% penetration. Sorry, just bear with me for a sec. Sorry, I can barely hear you. Shall we move to the next question, sir? Sorry, I was answering the question about. I do apologize. We continue facing some technical challenges. Hopefully you can hear me. I was answering the question about how much do you scale, right? It's a function of what appetite you have, because we are still talking about a market with roughly around 10% residential broadband penetration. Yes, the ambition to scale is definitely there. You also asked me about a potential acquisition. To be honest, at any given point in time, anybody's talking to anyone. I don't think we can comment on any speculation on the matter. Sure. Hello, prem. Hi. This is just a second question. Can you hear me clearly? Slightly better, yes. Hello? Okay. You are asking about the potential merger between Indosat and Hutch, and how long the window? Yeah. Before answering that, let me actually address what we think about the merger. We are positive about the merger, as I mentioned in the opening speech, that if it happens, this will reduce the number of players in the market and result in a healthier industry structure in the future. Yeah. We actually learned from our previous experience when we acquired Axis that such mergers will require quite some time, because the merger core will actually integrate the two different networks and then two different IT systems, two different channel networks, different brands, and so on, so forth. It will take quite some time, and we see a short to medium-term opportunity where we can grab market share while the integration process is ongoing. Thank you. Did you say two years, or do you think it's less than that? Actually, there are two possibilities here, right? If it is going well or if it is not going well. I should say probably within two to three years. Okay. Do you feel that XL would be willing to go and acquire or merge with someone else to make ourselves even stronger, or do you think we are fine the way we are? Yeah. actually On that question, probably it is better to address to Axiata, but what we understand is Axiata as shareholder is always trying to find opportunities in doing merger and acquisition because they understand that it will improve the industry structure situation. All right. Thank you. All right. Thank you. We have our next question. This is coming from the line of Alex Goh from AmBank. Please go ahead. Thank you for the opportunity. I do have to agree with what Prem said. The quality of the conference call this time seems to be quite bad. I couldn't make sense of what was going on. I hope, Prem, this time it will be true. Hello? Yeah. Okay. My first question is regarding your data revenue in the fourth quarter. It was down 4% quarter-on-quarter. What was the reason for that? My second question is, on the IFRS impact in 2020, should we continue to see the high depreciation and finance charges in 2021, or are there any one-off lumpy items in 2020 that we should need to offset? The third question is regarding your effective tax rate for this year. Given that 2020 was a positive charge, should we expect a normalization in 2021, or should it be a lower rate? Hello? Hello? Alex, can you hear me? Yes. Can. Sorry, could you just repeat the question again? Sorry, we were having a bit trouble hearing you. Can you pose the question again, please? Okay. Your fourth quarter data revenue had dropped 4% quarter-on-quarter. What was the reason for the drop? Is it a one-off seasonal event? The second question is on the IFRS 16 impact on your depreciation and finance cost. Should we expect these elevated numbers in 2020, or is there any one-off items in that 2020 numbers? My third question is regarding your effective tax rate for this year, given that last year was a positive tax charge. Should we expect a normalization this year, or should we still be much lower levels for this year? Hi, Alex. I will answer your first question regarding the drop on quarter four, the revenue drop on quarter four. We believe there are different factors to it. One factor is the macro economy, which the pandemic it is still having an impact, and the purchasing power of our customers have decreased. That's one. Number 2 is the competition aggressiveness. As we have been talking about, we have an incumbent who has changed their commercial strategy massively in the fourth quarter, going to much lower prices and entering value propositions like unlimited or short validity low denominations that previously they were not doing. That's the second one. There is a third factor that is the school program subsidized by the government, which created many dual SIM-ers, but it imposed an ARPU cannibalization of our own customers as well. We believe that those three factors have impacted us in the fourth quarter in order to take the decline that you can see. Regarding the second question, I will let Budi, the CFO, answer. Yes, Alex, and everyone. We do apologize on this technical issue, but we can assure you nothing to do with our network quality. It's more on the technical in this office. Alex, can you still hear us? I just want to make sure that you can hear us clearly. Hello? I'm afraid I can't quite hear, but maybe I will email Indar later on this. Thanks very much. Alex, can you hear us? There's still a lot of echo. I'm not sure why. Yeah. Hold on. What about the rest of audience? Can you hear us? We have a little problem with the customer. Shall we move to the next one, sir? Yeah, let's try the last question, Rohit. Then I think what we'll do is Budi will answer Alex's question first. Hopefully, the rest of the participants can hear, yeah. Let me try to answer. I think the second question related to impact on IFRS 16. Whether it's one time off or is it going to come again. It's only one time off because we adopted that IFRS 16 in first January 2020, it won't come back. The impact on the financial charge is IDR 402 million that you see in our chart. That one only happened in 2020. Going forward, it will be business as usual. All numbers will be operating on season. Hope that answer your question, Alex. I see. Okay. What numbers should we be looking at for 2021? How much do you think the depreciation and financial charges would drop if you were to compare to 2020? In terms of whether the financial charges will be dropped or not, or depreciation will be dropped or not, on the financial charges, it will depend on the interest rate in the market, that will be. Also the investment on the thing that we're going to do, that will impact the financial charges. In terms of depreciation, again, depending on our capitalization, right, on the IDR 7 trillion. That will impact the number. I cannot really give you the guideline on how much the number is going to be. Okay. Did I answer your question, Alex? Yeah. The third question is regarding your effective tax rate. Given that last year was a positive tax charge. What I mean is 2020 was a positive tax charge. This year, should we be expecting a normalization of the tax rate, or will the tax rate be lowered significantly than what is your normal corporate tax rate? Yeah. We are right now at 22%, that's the effective tax rate that we have. If you look at 2020, you should look at the detail of the structure of that tax number that we have in our financial. That one have detail on which one is 22%, which one is the impact of other figures related to tax. 2021 will be roughly the same, at 22% tax rate. I see. Okay, thank you so much. I think, Roy, let's try the last question from Arthur, if it's possible to bring him up. Right. We will move to the next one. The next question comes from Arthur Pineda from Citigroup. Please go ahead. Hi. Sorry, one follow-up question just to comply with the two- question limit earlier. If Indosat and Hutch do end up merging, how do you think this will affect the longer-term competitive position? Would you need to ramp up on network upgrades? Would you need to look for other M&A options? I'm just wondering why there is such conservatism on capital with 30% payouts, given that your parent, Axiata, had stated a desire to become a yield play anyway. Arthur, thank you for the question. Yes, it is true that with the potential merger between Indosat and Hutch, it will position us into the number three position. We are currently looking into our long-term plan, and at this point, we are not able to share or disclose that. We are assessing any possibility in actually defending our market position in the industry. However, we are confident in our company's ability to compete with the merged entity. Also, as I mentioned before, we see a short-term opportunity because the merger will require a lot of activities in integrating and so on and so forth. We will come back to market in terms of our long-term plan, if the merger happens. Thank you. Understood. Thank you. Okay. I think we'll just close it here. Again, everybody, I apologize for the audio quality today. I think we're having some technical issues. Nevertheless, everybody please get back to me. You know where to reach me if you have follow-up questions, and we'll address them. Yeah. Thank you, everyone, for the call, for your participation today, and we will speak to you next quarter.