Earnings call transcript: XL Axiata reports revenue growth in Q1 2025

In the first quarter of 2025, XL Axiata Tbk PT reported a 2% year-on-year revenue increase, reflecting its strategic moves amid a challenging market environment. The company’s stock experienced a slight decline, with a 1.82% drop, closing at 2,200 IDR. According to InvestingPro data, the stock is currently trading near its 52-week low, while maintaining a healthy gross profit margin of 64.35%. XL Axiata’s focus on digital transformation and network expansion underpins its future growth plans, despite current market pressures.

Key Takeaways

• Revenue grew by 2% year-on-year, despite a 5% decline when excluding First Media.
• EBITDA remained strong, maintaining above 50%.
• The company aims for $100 million in cost synergies this year, with potential for $300-400 million annually post-merger.
• Digital user engagement increased by 18%, reaching 35.7 million active users.

Company Performance

XL Axiata’s performance in Q1 2025 highlights its resilience in a tough industry landscape. The merger with First Media has bolstered its market position, with the company generating strong EBITDA of $781.4M in the last twelve months. Although the company faces challenges such as declining consumer purchasing power and reduced people movement, InvestingPro analysis suggests the stock is currently undervalued based on its Fair Value calculations. Despite these hurdles, mobile traffic saw a 9% growth year-on-year, indicating robust demand for digital services.

Financial Highlights

• Revenue: 2% year-on-year increase
• EBITDA: Maintained above 50%
• Blended ARPU: Declined to around INR 40,000

Outlook & Guidance

XL Axiata is preparing for the 700/2600 MHz spectrum auction and exploring the potential of the 1400 MHz spectrum. The company is committed to improving ARPU and achieving substantial cost synergies, supported by its impressive free cash flow yield of 21%. It also aims to complete network integration within two years, enhancing its competitive edge. InvestingPro subscribers can access 8 additional key insights about XL Axiata’s financial health and growth potential.

Executive Commentary

• "We are here to connect all Indonesians to a better life," said Rajiv, CEO, underscoring the company’s commitment to digital inclusivity.
• Rajiv reiterated the company’s ambition: "We aspire to become the most loved company in Indonesia by 2027."
• On cost synergies, Rajiv expressed confidence: "We believe that we should be in a position to achieve that."

Risks and Challenges

• Weak consumer purchasing power could affect revenue growth.
• Market competition remains intense, requiring strategic differentiation.
• Potential network asset impairment could impact financial stability.
• Caution around free cash flow and dividend policy may affect investor confidence.

XL Axiata’s strategic initiatives, including digital transformation and network expansion, are positioned to drive future growth, with revenue growing at 6.4% over the last twelve months. While the company must navigate several challenges to achieve its ambitious goals, it has maintained dividend payments for six consecutive years, demonstrating financial stability. For comprehensive analysis and detailed metrics, investors can access the full Pro Research Report available on InvestingPro, covering over 1,400 stocks with expert insights and actionable intelligence.

Full transcript - XL Axiata Tbk PT (EXCL) Q1 2025:

Rajiv, CEO/Management, XL Axiata/XS Smart: good afternoon, everyone. Assalamu alaikum. Thank you for joining the call today. We’ll be presenting our first quarter results. And as you would know, we are in the process of merging.

The merger got approved on April 16 and we are in the process of running that merger. The results which we are presenting today are the standalone performance of XL Exadata quarter ending 03/31/2025. The consolidated results of XS Smart will be reported from next quarter, which is the second quarter of the year. At this time, I would also want to express my depressed appreciation for the erstwhile CEO of the company, Ibu Dien Siswarini, who retired end of last quarter. And under her leadership, as you would know, Excel Exiata became our leading convergence player in Indonesia, driving both transformation and growth.

If I just dive into the results of quarter one twenty twenty five, this year started with Modus Pro. Year was a tough year for the entire industry. In that tough year, our top line grew by 2% year on year. We outperformed the market. Competition is intense.

The customer buying power remains weak. Our strategy of disciplined pricing, focus on digital execution and on higher quality subscribers has helped us sustain the revenue growth. Our FMC strategy continues to be an area of focus. We added the first media subscribers to excel and now we believe we are in a very strong position to scale the convergence drive even more effectively in the future. As I mentioned earlier, the merger was completed on April 16 and we believe we are in a much stronger position now to compete effectively in the market.

It will be a new phase for growth for us, combining the complementary strengths, which I spoke about last time when I met you of both companies, one coming from the local cinemas conglomerate and other from the Exiata stable. We’ll be able to combine our assets, spectrum, market reach and be able to compete effectively in the market. We’ll only not only have scale, but we’ll also be able to accelerate the delivery of more comprehensive and better digital and converged services to millions of Indonesians. As we say in our purpose, we are here to connect all Indonesians to a better life. If I move to the next one please.

In 2025, we will continue to spearhead digitalization as one of our core focus areas. We are building a truly digital company from distribution and engagement to service experience. Our digital channels, especially MyExcel and AccessNet continue to drive self care and sales impacting both cost efficiency and also user experience. I’m happy to report that the active users increased 18% year on year, reaching 35,700,000 subscribers. These platforms as I said have helped us to not only improve the customer experience, but has also helped us maintain a more efficient cost structure, which is especially important given the weak quarter the entire industry had.

We remain committed to investing in digital capabilities to build deeper customer engagement and create long term value. In light with that in line with that, in the first quarter we launched Excel Circle feature in MyExcel that provides host of features and one amongst them is group data sharing with bonus quotas and several other benefits. If I move to the next slide please, this is about our convergence play. This will remain a strategic pillar for us in future and there are three priorities which I want to talk about. The first one is the First Media integration.

We got the subscribers on board end of last quarter. The integration is well underway and the migration of the First Media customers will pave the way forward towards improved customer retention by combining the strengths of mobile, broadband and the content offerings. Second is we’ll focus on much better quality acquisition, especially on the Excelsatu side. And by accelerating the FMC penetration, we aim to deliver long term customer sustainability and drive subscriber expansion. Thirdly, we are building a foundation for future value creation.

We’re advancing cross sell initiatives, enhancing value proposition for existing mobile and broadband customers and preparing to launch new product offerings that will enrich the convergence experience. This will be enabled through a very disciplined execution against these priorities and we are confident that we’ll be able to cement our place as one of the prominent players in this space. If I move to the next slide, which speaks about the financial resilience, which we have demonstrated. As I mentioned, the quarter one was marked by price competition and the ARPU especially the prepaid ARPU was under pressure across the industry. Despite this, we maintained financial resilience.

Revenue grew modestly year on year 2%, helped by the First Media subscriber acquisition. Our cost discipline and the productivity improvements helped us cushion the margin pressures which we had. EBITDA is maintained above 50% and we’ll continue to evaluate our pricing strategies to ensure that we are able to balance both growth and profitability. If you move to the Slide nine, our mobile traffic grew 9% year on year, which means that the demand is pretty stable. In fact, it’s growing at a pretty healthy pace.

And despite the intense market competition and softer consumer environment, we maintained a stable subscriber base and our focus is to acquire and retain high quality engaged customers. The blended ARPU declined during this quarter slightly to around INR 40,000, Again, a reflection of the weaker consumer spending in the market and also the lower seasonal mobility. This year, we noticed that people movement in Lebanon was around 25% lower than last year in the same period, which is a very significant number, which also indicates the overall weaker macroeconomic situation. Nevertheless, we are committed to drive, ARPU sustainability and as I mentioned earlier, our digital platforms, MyExcel, MyAccess and also the smart platform will help us move forward on that path. Also the convergence offerings on the wireless business, fixed wireless business will help us move forward here.

If I move to Slide 10, which is about the profitable growth through cost discipline. As always, we will continue to prioritize cost efficiency and network productivity and aiming for a profitable growth. This becomes even more important once we merge the two companies. In our first quarter, the operating expenses increased by 7% year on year. This is in a way a reflection of the change in the business portfolio we have.

As I mentioned earlier, we onboarded customers from LinkNet to us, which has changed the cost mix which we have in this quarter. The year on year costs which are higher were primarily driven by fiber lease expansion, the First Media business transfer related costs, internalization of mass segment distribution operations, while savings in sales and marketing expenses through distribution channel optimization, digital acceleration and more selective sales and marketing spending helped us moderate this cost pressure. We remain committed to maintaining strict cost discipline while continuing to invest prudently in areas which will help us drive growth. Moving to Slide 11 now, our network continues to grow both in quality and also in size. At the end of the quarter, we are close to 165,000 BTS.

The four gs BTS grew 7% year on year and now 63 of our sites are fibrized, which will enable us to enter the five gs era which should be soon upon us in a much better position. And with the merger now effective, we’ll be further able to expand and rationalize our network infrastructure to serve our customers better. Me, if I move to the next slide please. This is about the merger and we are very excited. The merger happened on April 16 when the two companies officially came together and we believe this is a landmark event not only for us as people within the organization, but for the entire industry in Indonesia.

And our ambitions are very clear. Firstly, we aspire to become the most loved company in Indonesia for our customers by 2027 And we would do this by consistently delivering better customer experiences, meaningful innovations and best in class service quality. Secondly, we aim to be the best place to work for our people, building an environment where talent thrives, collaboration is encouraged and purpose drives our actions. Thirdly, we are determined to become the most efficient service provider operating with discipline, agility and a relentless focus on operational excellence. Our guiding spirit, which in Bhasha is Balsama Melaju Tampabhatas or Go Beyond Together underscores our commitment to work collaboratively within an organization, with our partners, with all the stakeholders internally and externally to unlock new possibilities and create a better future for all Indonesians.

And which leads to our mission, which is to connect every Indonesian for a better life. I’m personally very excited about this opportunity and confident that together with the strengths of both the companies which have merged, we’ll achieve extraordinary success. The formal merger is over, but our immediate focus now is to ensure that the synergies which this merger promises to unlock, we are able to deliver on that. And at the same time ensure that we maintain and enhance customer experiences as we move forward. So I’ll take a pause now and hand it back over to Chris.

Chris, Moderator/Host, XL Axiata/XS Smart: Thank you, Mr. Rajiv. Ladies and gentlemen, we will now proceed to the Q and A session. As a reminder, the Q and A session will be in hybrid mode. To ask a question, you may type it in the Q and A box.

Please ensure to also type in your full name. And if you’d like further clarification after your question, please kindly use the raise hand buttons, and we will proceed to unmute your microphone. Okay. We will go to the first question. The first question comes from Sabrina, Sabrina from Trimoga Securities.

There are two questions. We note the first one is we note an increase in the bonus quota allocation, notwithstanding the absence of any adjustment to headline pricing. Concurrently, a higher price package previously offered at 168,480 gigs was discontinued, while a more accessible alternative price at 25,004 and 9.5 gigs, featuring a lower renewal threshold was introduced. Does Excel continue to observe sustained pressure on consumer purchasing power through April and into May? And the second question is also about commercial.

We will also observe that XL has aligned with peers by launching a three gig starter pack priced at 35,000. It would be helpful to understand the initial traction of this offering, especially how this resonate with consumers and what proportion of this total revenue does Starter Pack currently contribute?

David, Management, XL Axiata/XS Smart: Yes. So hello, Sabrina. Thanks for the questions. Regarding the first one, yes, we have seen pressure on consumer purchasing power that I think it’s a reality for us and for the industry, as you can see during quarter one. Now very specific products changing like higher end or more premium, less premium, etcetera, that typically goes very, very detailed.

So we take very tactical decisions based on which products are more attractive, less attractive, more traction, less traction in the geography, etcetera. So yes, there is pressure on the consumer purchasing power. Now don’t take this as a clear example of that because, we do many of these changes during the year. To the second one, well, we have not aligned with anybody about any new price package. Now it’s a reality that we are moving towards reducing the number of SIM cards or SP different SKUs that we have in the market because it’s for us, it’s from a distribution point of view, it’s more complicated.

For the customer and even the outlet, it’s also more complicated. So we are moving into a much more simplified distribution system. So in that sense, we are trying to reduce the number of SKUs that we have in the SIM card. As you may know, the physical vouchers are much easier to move because we can move a blank voucher, let’s say, and then those vouchers can get whatever amount of gigabytes or products, the different products, right? So for the SIM cards, we are trying to simplify as well.

Hope that answers the question.

Chris, Moderator/Host, XL Axiata/XS Smart: Thank you, David. I would like now to unmute the line for Sabrina to ask any follow-up question.

Speaker 3: Thanks, David, and thanks, Chris. I don’t have any follow-up questions.

Chris, Moderator/Host, XL Axiata/XS Smart: Thank you. Okay. Thank you. All right. Let’s move on to the next question, please.

The next question comes from Piyush Chowdhury from HSBC. Hi, thank you for the call. Congratulations on the merger completion. Three questions. Are you able to retain all spectrum post merger?

Can you share your network integration strategy and margin target for 2025, ’20 ’20 ’6 as you integrate networks? And the third question is on the would you retain all brands if you can share your brand strategy? Any change in your distribution strategy across the brand? I think for the first question, would like to invite for Mr. Rajiv to help answer the question.

Rajiv, CEO/Management, XL Axiata/XS Smart: So if you’re okay, Chris, I’ll try and answer all the three questions. With your permission, Chris.

Chris, Moderator/Host, XL Axiata/XS Smart: Yes, please.

Rajiv, CEO/Management, XL Axiata/XS Smart: The first one is on the spectrum side. Yes, we are able to retain all the spectrum till end of twenty twenty six. By end of twenty twenty six, we have agreed with the regulator to return the 900 spectrum, which is 15 megahertz. I think this is something which we plan for. We believe this is better for us to return this expensive spectrum.

And as you would know, there is a new spectrum auction which is on the horizon, and we intend to participate in that. The merged entity will have much better spectrum portfolio even after 2026 based on whatever I just informed to you. On the network integration strategy, as you know, we have 45,000 towers XL Exiata. Smart has around 20,000 to 23,000 towers. 67,000, 60 eight thousand towers is the total numbers which we have.

We believe between 15% to 20% of those towers are overlapping and those towers would be sunset taken off. That’s an ongoing negotiation we are having with our partners. That will result in a significant synergy for us. And some of those towers will redeploy in areas where we believe we can compete effectively and profitably. So that’s going to be our approach on the network integration.

But obviously, this is not only just about combining the towers, it’s also about combining the spectrum. And you know, we do not have overlapping spectrum, we have different spectrum bands, which in a way is a blessing, which will help us not only do this synergy of the networks, but will also help us prepare our network, which was which is future ready. In terms of the margin target, unfortunately, I cannot get into that. At this stage, you know, we are into the early stage of integration. But as we promised earlier, we expect after the merger is completed, an annual run rate saving of between 300,000,000 to $400,000,000 pretax.

And we believe that we should be in a position to achieve that. Retain all brands, yes, we intend to retain all the three brands. I think we spoke about this earlier also pre merger investor calls. We believe that’s a pretty strong strength which we have, a very strong differentiator we have. Indonesia is a very large market, very different customer segments and the three brands which we have, they resonated with very different customer segments.

If anything, we’ll want to sharpen this differentiation in future and ensure that these brands are clearly targeting different customer segments. Changes in distribution strategy, distribution is always evolving. Nothing is set in stone. We always look at what is the best distribution model for us And as we move forward, we’ll continuously evaluate the different models which are there in front of us. There’s one model which is used in Excel and Access.

There’s another model which is used in Smart. It’s not that we force it one approach to the other, but we will do what is best for that brand. And somewhere which I spoke about earlier, the entire brand strategy in which segment which we are wanting to focus on will also feed into this distribution plan or strategy which we make. So those are the answers, in case you have any follow-up question, Piyush, please go ahead and ask.

Chris, Moderator/Host, XL Axiata/XS Smart: Thank you. Mr. Rajiv, I would like to open line for Piyush to ask any follow-up question.

Speaker 4: Yes. Hi. Thanks a lot, Rajiv, for all the responses. So just on the spectrum, so would you be using the eight fifty megahertz for the indoor coverage you know, for four g and going forward for five g? Like, what’s the spectrum kind of strategy going forward?

And if you can also share, you know you mentioned that there are more spectrum bands coming for auction. If you can highlight highlight which bands are coming in, which would be of keen interest to you?

Rajiv, CEO/Management, XL Axiata/XS Smart: Yes. I think eight fifty on the smart side is being used for indoor four gs coverage. And the good part is eight fifty will be available to the entire set of even XL customers to take advantage of. So yes, eight fifty would be used for indoor four gs. The spectrum roadmap, I think that’s public knowledge, most likely 07/2600 are going to come up for auction in the near future, end of this year or beginning of next year.

That is something which would be of interest to us. Obviously subject to the auction mechanism, the quantum available and the pricing, I think those are always a factor there. But we would be interested in those spectrum bands. There’s also ongoing discussion about 1,400, that is something which we are evaluating. We are not very sure about the use cases around that, but that is something which we are actively considering and we’ve not concluded on yes or a no for a 1,400 as we speak, but that’s being actively considered.

So these are the ones which I see in the next one quarter to the next four quarters, the spectrums which will be up and available in the auction.

Speaker 4: Got it, Rajiv. This is very clear. And any kind of, like, annual cost synergies which you can share? Like or or maybe it would be better after 2Q once kind of the combined numbers are there. I just want to know the big picture we know, but kind of milestones to see on the cost synergies on a year wise basis, how should we think about that?

Rajiv, CEO/Management, XL Axiata/XS Smart: We’ve just as you know, we’ve just finished the merger. Now we have just started to learn to work together. We have some plans, but I think we’ll wait a few more weeks, possibly a quarter or so before we come back to you with some exact milestones which we have.

Chris, Moderator/Host, XL Axiata/XS Smart: Great. Thanks a lot. Okay. Thank you, Piyush. All right, let’s move on to now to the next question from Indra Jahya from Macquarie.

Are two questions. The first one is on spectrum retention, which I think has already been addressed that basically we’ll have to return the spectrum of 900 megahertz by twenty twenty six December. Second question is on guidance for CapEx to sales revenue. Post merger. I would like now to invite Patentri to give some colors on the question.

Patani/Anthony, Financial Officer, XL Axiata/XS Smart: Okay. Thank you, Chris. So Indra, on the guidance for the CapEx, I think as explained by Rajiv earlier that we just finished completed the merger. We are currently aligning all the key operational network, financial strategic frameworks against across the two entities here. So I think we are in the early states in integrating the two businesses.

So I think we believe I think it’s better to hold off to the issuing the guidance here at this moment. I think another, like Rajiv mentioned, maybe another few weeks or months that we will issue the guidance until we have a greater clarity and alignment across our operations. Once the integration reaches greater clarity, then, of course, we will share the guidance based on the well defined post merger model. So I think we need to secure sort of like consideration or understanding as we focus currently on the execution of the seamless integration. But for sure, the CapEx will be elevated this year, of course, mainly driven by the network consolidation.

We have to

Chris, Moderator/Host, XL Axiata/XS Smart: do

Patani/Anthony, Financial Officer, XL Axiata/XS Smart: the asset network disbanding. We have to do redeployment as well as the upgrading the capacity. Okay. Thank you, Indra.

Chris, Moderator/Host, XL Axiata/XS Smart: Thank you, Pa Anthony. Now I’d like to open the line for Indra to ask any follow-up question.

Speaker 6: Thank you, Pantani. That’s very clear. But probably it’s also a bit too early to to gauge about dividend policy. Wondering, I mean, if you were to, let’s say, to sustain a more sustainable dividend policy, how long would you take it’s it it take for the two companies to to discuss and yeah. Yeah.

About that part. Thanks a

Patani/Anthony, Financial Officer, XL Axiata/XS Smart: You’re talking about dividend now? So

Speaker 6: Yes, Scott.

Patani/Anthony, Financial Officer, XL Axiata/XS Smart: In terms of the dividend, I think at this moment, we cannot Yep. Giving you any certainty whether it’s going to be we will maintain or not. But I think we’ll, along the way, that we will see that what will be our profit at the end of the year. And after that, then we will start discussing internally and proposing to the shareholders of that subject. Thank you.

Speaker 6: All right. Thank you, Pantani.

Chris, Moderator/Host, XL Axiata/XS Smart: Thank you, Vayndra, Pantani. Let’s move on to the next question comes from Aurelia from Indo Premier. So there are two questions. Can you share the guidance for this year on EBITDA margin and growth? Second one, any color on the network integration technology and how fast would the integration happen, I think.

For the let’s answer the second question first on the network integration process. I would like to invite Parajiv to help address the question on network integration part.

Rajiv, CEO/Management, XL Axiata/XS Smart: Yes. On the network integration process, we believe the entire integration to be over in the next two years. Obviously, we’ll try and accelerate it faster than that, but that’s the outer limit which we have kept for us is to finish this integration in its entirety. Obviously, it will start immediately in the next few weeks and gradually it will gather pace. But over the next, as I said, two years, it will be completely done.

On the first part, Payantani, would you want to

Patani/Anthony, Financial Officer, XL Axiata/XS Smart: Yes. On the first part, this is from Aurelia, right? On that one, I think I have covered that one also when I explained to Paindra. I hope Aurelia can get the same understanding. You.

Chris, Moderator/Host, XL Axiata/XS Smart: Thank you, Parajiv, by Anthony. I would like to unmute Aurelia’s line. Please ask if you have any follow-up question.

Speaker 3: Yes. Thank you, Chris, and thank you, management, for the answer. I have another question regarding your cost synergy. You mentioned the potential cost synergy is around 300,000,000 to $400,000,000 annually, right? For this year, how much should we expect that to materialize?

Can you give us guidance in terms of the timing as well? When should we expect the cost synergy to kick in? Thank you.

Patani/Anthony, Financial Officer, XL Axiata/XS Smart: Yes. Thank you, Aurelia. I think on the for this year, of course, given we understand that there will be a lot of integration costs, but also we expect that some savings will happen will realize. So maybe the numbers, maybe what we expect that we cannot get, of course, the 300,000,000 to 400,000,000, but at least like EUR 100,000,000 that hopefully we can get it from this synergy savings. Thank you.

Speaker 3: Okay. Thank you. Maybe another follow-up question. What’s the split gap between the OpEx and CapEx? Is that the hundred million you mentioned only for OpEx or that’s including for your CapEx for this year?

Patani/Anthony, Financial Officer, XL Axiata/XS Smart: Yes. I’m referring to the operating expenses only.

think it’s more to the cost avoidance here because basically, if there is no merger, so Xcel and SmartRamp will continue to deploy the network on their own. But, of course, we after this merger, then there will be a synergy from the cost avoidance.

Speaker 3: Okay. Thank you, Pat. And for the following year, I mean, out of the 300 to 400, how much OpEx should we expect the split include so the 304, that’s including the cost avoidance, right, for the practice. So on normalized full year basis, how much should we expect the OpEx efficiency?

Patani/Anthony, Financial Officer, XL Axiata/XS Smart: The $700,000,000 that we talked about is about the operating expenses.

Speaker 3: Only for the OpEx. Okay. Thank you, And

Rajiv, CEO/Management, XL Axiata/XS Smart: just to jump in here, just to clarify, when we speak about operating expenses, we’re talking about the lease rentals. You know, in the IFRS, it’s not classified strictly as OpEx. So just clarity there. Yes. So some of that is reported below EBITDA so that we are clear in terms of what we’re talking about.

Speaker 3: I see. So that’s majorly only for the lease. Yeah. No no no cost of efficiency on the, like, like, manpower, etcetera. Yeah.

Rajiv, CEO/Management, XL Axiata/XS Smart: So there are multiple angles to it, but a significant component of that will be the leases.

Speaker 3: Okay. Thank you, Pat. Very good luck.

Chris, Moderator/Host, XL Axiata/XS Smart: Thank you, Parajiv, Patani. Let’s move on to the next question from Ranjan Sharma from JPMorgan. There are two questions. The first one is about the what is the wireless revenue growth for First Media? And then if there is any reason for why CapEx has declined 40% year on year?

Rajiv, CEO/Management, XL Axiata/XS Smart: Yes, I think we spoke about this earlier, but correct me if I’m wrong, Papharous, the adjusted for First Media, there’s a decline of 45%. So that’s the number if you are adjusting it for First Media. CapEx declined 40 Y o Y. As you know, the merger was impending. So any CapEx which we thought would be done better in the merged entity with the network integration happening was not done in quarter one.

So that’s the reason. But you would see a significant CapEx being done, especially on the integration side between now and the next few quarters.

Chris, Moderator/Host, XL Axiata/XS Smart: Thank you, Varajeev. Ranjan, you have any follow-up question?

Speaker 7: Yes. Thank you. Thank you so much, management, and thank you for the presentation as well. Yes. Just a couple of follow ups.

Did I hear that right? So your revenues would have declined 5% on a year on year basis excluding First Media?

Rajiv, CEO/Management, XL Axiata/XS Smart: That’s correct.

Speaker 7: Okay. And on the CapEx side, if I just triangulate that with your free cash flows and I’m adjusting your lease liabilities and using your financial statements. I come to a negative free cash flow for the firm even before considering interest payments. Is there a thinking around when you can become, like, free cash flow positive, and is it prudent for you to pay dividends before you become free cash flow positive? Thank you.

Patani/Anthony, Financial Officer, XL Axiata/XS Smart: Sorry. You are referring, Ranjan, to the EBITDA lower EBITDA margin, you mean?

Speaker 7: No. I’m looking at the financial statements that you send out separately along with the presentation. And I go to page nine where you report the cash flow statement. In that, I just take the operating cash flow, deduct acquisition of fixed assets, lease payments, and I come to a negative free cash flow even before considering interest payments. And this is considering that the CapEx is down 40% year on year.

Patani/Anthony, Financial Officer, XL Axiata/XS Smart: Yes. No, I think we know that the EBITDA margin was slower because of the result from the revenues, right? So with the lower revenues figures and then also that there is additional cost happens in the first quarter or this or the last quarter because of the acquisition of linked net customers. So with that one, our EBITDA is getting lower. In terms of free cash flow, I would say that, yes, I think our free cash flow also, of course, reflecting to the negative free lower free cash flow, I would say.

Yes.

Speaker 7: Thank you. Is there a thinking around when you can be free cash flow positive? And is it prudent prudent for you to pay dividends before you become free cash flow positive?

Patani/Anthony, Financial Officer, XL Axiata/XS Smart: EBITDA positive, which is parity with?

Speaker 7: Free cash flow annual free cash flow positive.

Pharos, Management, XL Axiata/XS Smart: Free cash flow, right, you’re referring to Ranjit? Can you hear me, Ranjan?

Speaker 7: Yes, I’m referring to the annual free cash flow.

Pharos, Management, XL Axiata/XS Smart: Correct. So you’re absolutely right. Think from a free cash flow, if you take all in, right, it’s negative for the quarter. I think one also have to look at the timing, right. So we look in the year on year, there’s an improvement in the free cash flow position, albeit it’s still negative.

It’s also the timing of when we actually make the payments in the quarters of the year. Now certainly moving forward, to answer that question, it will be also depend on the synergies that we’ve just highlighted and also the integration costs. So unable to give you an indication as for XR Smart moving forward, but I think once we’re able to give the guidance, they will be able to provide a bit of color, right, in terms of how their free cash flow, how should I say, progress throughout the integration.

Speaker 7: Okay. Thank you. So the other part of that was like, is it prudent for ExcelSmart to pay a dividend before you become free cash flow positive?

Pharos, Management, XL Axiata/XS Smart: I think for the dividend policy of XLSmart, as Bhai Antony has highlighted, that they will come back, right, in terms of how the financials will look like, right, after factoring a lot of the integration exercise. I think that’s something that we will relook, right, together as a team and then come back, right, to you.

Speaker 9: Yes.

Speaker 7: As

Rajiv, CEO/Management, XL Axiata/XS Smart: you would know also, the dividend policy is by the shareholders and the BOC. So as management, we’ll obviously have our own views, but the new BOC has been constituted. And as and when they finalize the dividend policy, that will be shared with all of you.

Speaker 7: Got it. Thank you.

Chris, Moderator/Host, XL Axiata/XS Smart: Okay. Thank you, Ranjan. Thank you, Paragyiv. Let’s move on now to the next question from Elisabeth Novionna. So the first question is about how big is the impact from First Media business transfer to first quarter revenue?

And then we saw a decline in sales and marketing costs in twenty twenty five first quarter. Do you think this number is sustainable? Or will it increase in the remaining months? And the third question is, is there any potential one off costs which is associated from the merger, which you could already tell us. I think for the first question, I would like to invite Pa, Anthony and Pa, Pharos, maybe to help address the question.

Pharos, Management, XL Axiata/XS Smart: Sure. Thank you, Elizabeth. I think for the first question, I think the indication was already provided by Paragiv. You can see from a year on year, the consolidated for XL numbers grew 2%, but excluding the First Media, it would have been minus 5%. So then you can actually work the impact, right, of the First Media business based on those numbers.

Chris, Moderator/Host, XL Axiata/XS Smart: And then the second question is about the decline in sales and marketing costs for twenty twenty five Q1. Do you think this number is sustainable? Or will it increase in the remaining months? Maybe I’ll just jump in. Basically the So thank

David, Management, XL Axiata/XS Smart: you for your question. I think on this one, as in the previous question, right? So since we merged, this margin or this sales and marketing cost was for the XL Axiata. So since now we will have a third brand and as XL Smart, probably this will have to revise. It will be a different number moving forward.

I still cannot give the guidance, but it will be a different number.

Chris, Moderator/Host, XL Axiata/XS Smart: Thank you, David. Anthony, if you would like to address that question and maybe address the third question as well on one off cost potentially, anything about the merger?

Patani/Anthony, Financial Officer, XL Axiata/XS Smart: Okay. Thank you, Elizabeth. I think that the answer that, of course, yes, there will be a potential one off cost. For example, I think that we anticipate that there will be recording on impairment in relation with the network assets. I think we know that similar like what Indosat and Hutchison at that time, there will be a certain impairment asset that we have to do.

Because, of course, we recognize that there are certain legacy assets that will no longer be part of the long term network roadmap. So with that one, of course, we have to do impairment. But it is a non cash in nature, and I think aligns with our transition to a more modern network infrastructure. Thank you.

Chris, Moderator/Host, XL Axiata/XS Smart: Thank you, Anthony. Now we’d like to open the line for El Sabet to ask follow-up question.

Chris, Moderator/Host, XL Axiata/XS Smart0: Yes. Sorry, it’s actually Bob from CGS. I think the yes, all the answer is already answered correctly. More question for me. Thank you, Paul.

Chris, Moderator/Host, XL Axiata/XS Smart: All right. Let’s move on now to the next question from Andy Kurniewan from Afris. If we look at the interconnection and other direct expenses, we see that your home broadband expenses increased significantly. Is it due to First Media integration or what? And then could you share your revenue from first FBB business ARPU and the growth in year on year in 2025?

And it is still on FBB. Then third question is about do you still expect the ARPU will increase in 2Q twenty twenty five? I think this is more on mobile. I think first question, yes, the increase is because of the integration for First Media, which we acquired the subscriber in September. Maybe Pavaros would like to add more colors on that.

Pharos, Management, XL Axiata/XS Smart: Thank you, Andy Kouriawan for the question. On the impact of the First Media, right, the customer transfer, actually, you can at least see the impact from the fourth quarter of twenty twenty four, which you could also see the movements, right, from the interconnection and the direct costs. So primarily the reason is it’s on the lease model, right? But in this case, it’s accounted for as under cost of goods sold due to the nature of the contract and arrangement. So you would expect this interconnection direct expenses contribution is coming also from this Home business, right?

I hope that answers the question, Chris.

Chris, Moderator/Host, XL Axiata/XS Smart: Thank you, Pat. And then the third question on ARPU for mobile for twenty twenty five Q2 onwards, I think I would like to invite Farifit to provide colors.

David, Management, XL Axiata/XS Smart: So for sure, our main goal, as Farai was mentioning before, is to acquire and have good quality subscribers. So ARPU is one of our main targets, and we want to increase the ARPU. Now whether it will happen in second quarter twenty twenty five or later, again, I mean, that’s the guidance that I cannot give. But you can be sure that, that’s our top priority, increasing the ARPU moving forward. Thank you, David.

Now Andy Kneelman, do

Chris, Moderator/Host, XL Axiata/XS Smart: you have any follow-up question?

Speaker 6: One more question for me. Thank you.

Chris, Moderator/Host, XL Axiata/XS Smart: Okay. Thank you. I think we have addressed all the questions. We’ll wait. If you have any follow-up questions, please type it in the q and a box, and we’ll address it.

We have a question coming from Arthur Pinata from Citi. So there are two questions. First one is where do you see the mobile industry revenue growth on organic basis for 2025? And then second is on, can you provide some colors on the broadband progress and expectation for 2025? Why is this not accelerating even with the relatively low market penetration?

Is there a demand problem or capacity problem? I think the first question, maybe David can help address. And second one is Paverus.

David, Management, XL Axiata/XS Smart: So for the mobile industry revenue growth, as you can see, I think we have been for a few months that has been like a tough environment. A couple of reasons, right? But one, as we were mentioned before, is the macro situation and also higher competitive stance, right? So I believe that moving forward, probably the market, it’s going to be more rational. So in that sense, we have positive news there.

Now we would like to see also some positive macro news so that we can see that the mobile industry starts recovering a little bit and going back to where it was at the beginning of last year. So again, like out of the two factors, the competition and the macro, I believe that the competition will start rationalizing, and I’m confident that we have touched the bottom in there. But again, I think we need still the macro to come also and support, right?

Pharos, Management, XL Axiata/XS Smart: I think Arthur, on the second question, to provide color on the broadband progress. While we certainly see there’s still a demand and potential, a very strong potential in this market, I think we also have to be mindful in terms of how to serve the demand, right? So as you’re aware, in the backdrop of also weaker economic, we need to be also trying to be very selective in terms of the kind of segments and how we serve, right? So you’ve seen also in this market that the pricing competition, right, has also stepped up. So we’re also being very mindful and very selective in terms of trying to acquire the right segments and the quality customers.

So that’s something that we are working on. I think the three pillars that Rajiv has highlighted provides you a color in terms of what are the areas that we intend to do, right, in this segment. Thank you.

Chris, Moderator/Host, XL Axiata/XS Smart: Thank you, Balfouris. Now I’d like to open the line for Arthur to ask follow-up question.

Speaker 9: That’s very clear. Sorry. Just to clarify on the comment a while ago, I mean, to Ranjan on the 4% reduction. So when we look at the pro form a numbers for FY twenty four, that does not adjust for any any of the MNC numbers. How should I look at the FY twenty four pro form a numbers?

Speaker 6: Thank you.

Chris, Moderator/Host, XL Axiata/XS Smart: Sorry. Arthur, can you clarify again your question about the 4% and then the Yeah.

Speaker 9: Sorry. On the on the MNC contributions, sorry if I if I didn’t catch this correctly. You

David, Management, XL Axiata/XS Smart: said Sorry. MNC.

Speaker 9: There was a adjustment that needed to be made, on the revenues by around 4%. Oh, sorry. On first media contributions rather. When we look at the the pro form a numbers, which is released on the presentation deck on the merger, that does not do any adjustment, right? So we should reduce the revenues accordingly.

Is that how we should look at this?

Pharos, Management, XL Axiata/XS Smart: You’re referring to the pro form a number for the merger, is it?

Rajiv, CEO/Management, XL Axiata/XS Smart: Yes. I think let me try and clarify that. We reported a 2% growth in our revenue this quarter as compared to last quarter last year same quarter, Q1 twenty twenty five versus Q1 twenty twenty four. In Q1 twenty twenty four, the First Media business was not part of the base. So if you exclude the First Media from our Q1 twenty twenty five and compare like to like, we are speaking about a 5% decline.

So that’s what it was mentioned. So 2024 numbers in quarter four of twenty twenty four, the First Media business was consolidated. So 2024, there is no change in the numbers.

Speaker 9: Understood. Thank you very much for clarifying.

Chris, Moderator/Host, XL Axiata/XS Smart: Okay. Thank you, Arthur. If you have any follow-up question, please type it in the Q and A box. The next question comes from Paolo Schimi from Secours Securities. There are two questions.

First one is on the can management provide the view on market repair, especially on the industry competition climate in 2Q and for the rest of 2025? And then second is broadband subs is relatively flat on Q on Q basis. What are the factors during the slower organic growth?

David, Management, XL Axiata/XS Smart: Okay. So regarding the first question, I think in the past also we discussed, right? I think the last few quarters have been quite tough regarding competition, especially in the competition in the acquisition. So there were like very cheap SIM card prices and products in the market. That has been the case, to be honest, until now.

We believe that it’s starting to change. It’s starting to change, and we are confident that in the rest of the year, we hope to see much more rational behavior in that acquisition market. We are following more rational. And as I was mentioning before, we are trying to decrease the number of SKUs that we have out there in order to simplify our distribution. And again, we hope to see also from the market more rational behavior in that sense.

Pharos, Management, XL Axiata/XS Smart: Yes. On the second question, Jimmy, right, as we’ve highlighted, number one, the first pillar, so we’re also focusing on migration of the FM customers, right? So that process is currently ongoing. So we’re managing that process. At the same time, we’re also looking at very mindful in terms of how do we ensure quality acquisitions, right, because we also don’t want to go down the path of how should I say, going after the lower end of the customers at lower price.

So hence, that explains the relatively stable, right, quarter on quarter basis. You.

Chris, Moderator/Host, XL Axiata/XS Smart: Thank you, Balfiros and Parivit. I’d like to open the line for Jimmy, if you have any follow-up question to us.

Speaker 6: Yeah. Thank you, Marcus. Just one follow-up question. But so, yeah, I I think we we have noticed that the normalization of the sample package has has begun, and we see that we are just waiting for the old inventory to be fast in the in the market. Right?

But we also noticed that there’s a that all the players are basically giving away. There’s so many bonus quota, I would say, to basically retain all of these customers that are acquired during the previous quarters. Right? So should this be the trend that we should expect going forward for the rest of the year for, I mean, like, lower data yield, but higher data traffic? Or are we still focusing on the market repair that we see we see during 2022 and 2023?

So

David, Management, XL Axiata/XS Smart: again, I can talk about ourselves, right? Yes, there is, I think, a simplification also from competition regarding the SIM cards or the acquisition products, which we believe is good. I mean we are doing it for distribution reasons, etcetera, but everything that comes in that direction, it’s good. We are very focused on increasing the ARPUs. We believe that in order to increase the ARPUs, prices need to be reasonable.

So as you mentioned, there are a couple of things that you can do. If you believe that the elasticity is decreased yields, not prices, decreased yields further and increased the usage. That’s one way. The other way, it’s like, no, I mean, let’s have also price or yield reparation or stabilization. And when the usage comes, the monetization will come, right?

So we are moving to a second one. To be honest, we believe that decrease in prices in order to decrease yield and give more than what we are giving already at very low yields in general in the market probably is not the correct way of moving forward, right? So our strategy, it’s quality. It’s going to go for ARPU increase. And in order to go in that direction, we believe simplification of the acquisition that will help a lot in the distribution as well.

And price rationalization in order to get more monetization.

Chris, Moderator/Host, XL Axiata/XS Smart: If you have any follow-up question from the floor, please type your question in the chat box or in the Q and A box. Okay. The next question comes from Theodorus Melvin from Stockpit. The depreciation and home broadband cost decreasing on a quarterly basis. Can you elaborate on this trend?

Is it due to cost efficiency? Maybe Anthony, you would like to give some colors.

Patani/Anthony, Financial Officer, XL Axiata/XS Smart: You, Tayo. I think on the depreciation expenses, why it’s decreasing in quarter one. I think one of the reason is because of the recent change of the accounting policies on the tower lease, especially. Because I think as we know that we are entering into a merger, so we are for a certain number of sites, we are negotiating with the tower providers to change to a one year basis instead of a five year basis. So with that one, so we need to apply the accounting policies using IFRS SAKA 73, which is where we have to record it as an OpEx.

I think that’s the reason why our depreciation expense goes down. Yes. I hope that one answered the question. Thank you.

Chris, Moderator/Host, XL Axiata/XS Smart: Thank you, Bhatani. Now, Deodorus, do you have any follow-up question to us?

Speaker 6: Yeah. Thank you, Brian, and thanks for the answer. I just want to follow-up on the fixed broadband cost on a quarterly basis. I see the trend is going down. Can you explain what this trend is?

Pharos, Management, XL Axiata/XS Smart: Yeah. So which which line are you referring to? So need to be to be clear.

Speaker 6: The interconnection and the whole broadband.

Pharos, Management, XL Axiata/XS Smart: Interconnection and home broadband. Are you referring to interconnection and and what do you call this, direct expenses, is it? Yes. Okay. So it’s not entirely related to home broadband, right?

Think bucket of the cost, we’ve highlighted one of the item is the impact of the increased COGS, cost of goods sold due to the home broadband. But also it also relates to also our enterprise business, right? So sometimes it’s also due to timings, right, of the closure of the project. At the end of the year, obviously, typically, in the enterprise business, a lot more projects gets closed at the end of the year compared to the first year. So there’s a slight timing as well, right, in that cost bucket that relates to the enterprise business.

Speaker 6: Perfect. Thanks, Pat, for the management.

Chris, Moderator/Host, XL Axiata/XS Smart: Thanks, Theodore. Thank you, Theodore. All right. I think we have come to the end of our conference call today. We’d like to thank you for your participation, and thank you for joining us today.

If you have any further questions, please reach out to Investor Relations. We wish you stay safe, healthy, and we look forward to speaking with you next quarter. Thank you.

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