Axiata’s forex burden
Net profit for financial year 2016 down 75% on currency swings
KUALA LUMPUR: Axiata Group Bhd has taken a hit from the declining ringgit against the US dollar, prompting the company to adopt a more prudent dividend strategy.
In the final quarter of 2016 to end-December, the company reported a net loss of RM309mil from a net profit of RM467mil in the same quarter in 2015, although its revenue grew to RM5.7bil from RM5.3bil previously.
For the full year, its net profit fell 75% to RM504mil from RM2.5bil a year earlier, led by the huge currency swings, lower contribution from several units, higher financing, depreciation and impairment costs. Its revenue, however, rose 8.5% to RM21.5bil from RM19.9bil.
The foreign exchange (forex) loss totalled RM685mil for 2016 due to its exposure to the US dollar from its acquisition of an 80% stake in Ncell Pvt Ltd in Nepal.
The ringgit’s weakening in the year from RM3.94 to RM4.49 against the US dollar impacted its earnings.
Axiata’s earnings before interest, tax, depreciation and amortisation (EBITDA) grew 10% to RM8bil in 2016, while margins stood at 37.2%. Earnings per share for the full year was at 5.7 sen, down from 29.5 sen.
But the surprise was Axiata’s dividend policy to cut its dividend payout to eight sen for the year, down from 20 sen in 2015. It sliced the dividend payout ratio (DPR) to 50% in 2016 from 85% in 2015.
President and group CEO Tan Sri Jamaludin Ibrahim explained the rationale for the dividend cut, which was in line with their prudent stance.
“The change in the dividend policy was a conservative move in view of the forex volatility,” he said at a press conference to announce the results.
However, he said it was only a short-term measure expected to last for two years, from 2016 to 2017.
“We have every intention of going back to offering the DPR of 85% in dividends for 2018,” he said.
The share price of Axiata fell 30 sen after the results, regaining marginally to close at RM4.53 a share, down 27 sen.
Analysts tracking the stock said they expected such results from Axiata, but were surprised at the quantum of the DPR.
They said the lower dividends would affect the investors who had invested in the stock for the dividends, be it retail or institutional. The foreign shareholding in Axiata stood at 10% as at end-January.
The move is also to help them conserve, as he expects more spectrum options this year, currency volatility and the need to invest more aggressively in the markets with the heightened competition.
Axiata will increase its capital expenditure (capex) from RM6.1bil in 2016 to RM6.6bil this year to be funded by internal funds, as the company does not want to increase debts.
It has RM5bil in cash and borrowings of RM22.3bil, although Jamaludin said debt was at “a comfortable level”.
Of the RM22.3bil, 55% is in US dollar-denominated loans, with the rest in other currencies as it has operations in several countries, mainly in ringgit.
Axiata has businesses in Malaysia via Celcom Axiata Bhd, Singapore, Indonesia, Cambodia, India, Bangladesh and Sri Lanka.
For 2017, Axiata will keep its lid on costs to improve profitability. Jamaludin has set aggressive headline key performance indicators (KPIs) of 9%-11% for revenue and 7%-9% for EBITDA growth.
He said the main challenge in 2017 is currency volatility, competition and regulatory issues.
He also expects the tower business under edotco Group Sdn Bhd to report mid to high single-digit growth in 2017. edotco is valued at US$1.5bil.
“The group is working towards group-wide cost management to improve profitability and RM800mil operation expenditure and capex savings are built in our 2017 plan, as well as aiming for RM1.5bil in additional savings in 2018 and 2019,” Jamaludin said.
Celcom has been the main contributor to earnings for several years but the quantum has dropped, given its own internal woes as it struggles to gain market share.
“Celcom did not perform as well, it was disappointing,” said Jamaludin.
Celcom and Indonesia’s PT XL Axiata’s contribution to Axiata’s revenue fell from 37% and 33% respectively in 2015 to 31% each in 2016. Celcom turned in RM976mil in net profit for 2016, down from RM1.3bil in 2015.
Some analysts are cautious about Celcom’s ability to regain market share, but Jamaludin said “this year is about stabilisation, we will see a better contribution next year”.
For XL Axiata, Jamaludin said the plan is to expand aggressively beyond Jawa to growth areas in Sumatra, Kalimantan and Sulawesi and that would help earnings this year.
“We have not been expanding beyond Jawa and that is where we did badly in 2016,” he added.
In India, where Axiata has a 19.8% stake in Idea Cellular, talks are ongoing for a possible merger with Vodafone. If this goes as planned, the merged entity would be the biggest in a market that is growing rapidly.
We have every intention of going back to offering the DPR of 85% in dividends for 2018. Tan Sri Jamaludin Ibrahim