February 23, 2017 6:18 pm JST

Axiata Group swings to a loss, warns of challenging year ahead

KUALA LUMPUR (NewsRise) -- Axiata Group, Malaysia's largest telecom company by revenue, swung to a net loss in the fourth quarter, slashed its dividend and warned that its performance this year would be vulnerable to growing competition and tax and regulatory challenges in some of its major markets.

Axiata on Thursday reported a net loss of 309.50 million ringgit ($70 million) for the October-December quarter, compared with a net profit of 467.26 million ringgit a year earlier.

The company attributed the poor showing to foreign exchange losses and acquisition costs as it expanded overseas.

Revenue grew 8% to 5.79 billion ringgit during the period.

"Globally, the telecoms sector has been experiencing greater competitive market pressures and regulatory challenges," chairman Azman Mokhtar said in a statement. "As a regional group operating under a multitude of conditions, Axiata was not spared."

The company slashed its dividend for the quarter to 8 sen per ordinary share from 15 sen last year, citing the weak financial performance and an uncertain investment climate. "This is a temporary measure. We expect to return to previous financial-year levels within the next few years," said Jamaludin Ibrahim, the company's chief executive and president.

Kuala Lumpur-based Axiata, which counts state-owned investment fund Khazanah Nasional Bhd. as a major shareholder, has over 300 million subscribers in 10 countries, including Indonesia, Bangladesh, Sri Lanka and India.

Foreign exchange losses on financing activities stood at 556.69 million ringgit for the quarter, compared with a gain of 90.83 million ringgit a year earlier. The losses were incurred on the U.S. dollar debt that Axiata took on in 2015 to acquire NCell, Nepal's top mobile operator in terms of market share, for $1.37 billion. The ringgit depreciated by 9% against the U.S. dollar in the last quarter.

In addition, the company incurred one-time fees after Robi Axiata, its Bangladesh arm, merged last year with the Bangladesh unit of India's Bharti Airtel.

Axiata's performance has been marred in recent times by weakness in Malaysia's Celcom and Indonesia's PT XL Axiata, two of its largest units that face falling revenue and a shrinking subscriber base. Celcom, which accounts for nearly two-thirds of Axiata's profit, is battling intense price competition in Malaysia, where subscriber numbers have peaked as postpaid services become more popular, limiting subscriber attrition rates.

Although Celcom and XL Axiata are showing signs of stability, the group expects competition and regulatory challenges to deepen in Malaysia, Singapore and India, CEO Ibrahim said.

"There were quite a number of (regulatory) surprises last year, Malaysia being the biggest one," he said.

In September, the Malaysian government asked telecom companies, including Axiata, to pay $1.5 billion as spectrum fee.

Such challenges, along with rising capital expenditure, would weigh on overall performance and profitability, Ibrahim said.

Axiata holds a minority interest in Singapore's M1 and India's Idea Cellular. Idea Cellular is seeking to merge with Vodafone Plc's India operations amid cutthroat price competition from a new entrant, Reliance Jio Infocomm, owned by Indian billionaire Mukesh Ambani. Last month, Idea Cellular reported its first quarterly loss in a decade, crimping its contribution to Axiata.

The Malaysian company's performance has also been damped by the financing costs on its staggering debt which stood at more than $5 billion, according to a September report by BMI Research, a unit of Fitch Ratings. Axiata said its total finance costs jumped 29% at the end of December from a year ago, excluding the impact of foreign exchange fluctuations.

According to media reports, the group is trying to trim its stakes in many overseas operations, including in Indonesia, Cambodia and Sri Lanka, to raise as much as $700 million to pare debt.

In December, Axiata agreed to sell a part of its stake in Edotco, its telecom infrastructure services unit, for $600 million to Khazanah and Innovation Network Corp. of Japan.

--Alexander Winifred and Dhanya Ann Thoppil

Asia300

Axiata Group Bhd.

Malaysia

Market(Ticker): KLS(6888)
Sector:
Industry:
Communications
Wireless Telecommunications
Market cap(USD): 10,653.45M
Shares: 8,973.93M

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