Jakarta, 27 April 2021. PT XL Axiata Tbk (XL Axiata or the company) has managed to maintain a positive performance amid the increasingly tight competition in the telecommunication industry and the tough economic condition due to the Covid-19 pandemic. In the first quarter of 2021, XL Axiata managed to grow its profits to IDR 321 billion while also managing to maintain its level of profitability by posting an EBITDA margin of 50%.
President Director & CEO of XL Axiata Dian Siswarini said, "We are grateful that XL Axiata is still able to grow positively even though competition in the telecommunication industry continues to be tight and people's purchasing power has not yet recovered due to the Covid-19 pandemic. We are still able to maintain the company's profitability by continuing to focus on implementing Operational Excellence and digitization in various lines. In addition, we continue to strive to improve business efficiency while also launching the right product tailored to our customer needs. This is optimized further using our data analytics which allows for upselling efforts through omnichannel distribution.
XL Axiata's operating expenses in the first quarter of 2021 decreased by 6% YoY, which was driven by, among others, the reduced interconnection and other direct expenses of -28% YoY, mainly due to lower interconnection due to the decrease of legacy service traffic (SMS and voice). Furthermore, labor costs decreased by -23% YoY due to reversal of provision relating to remuneration and infrastructure costs also decreased by 11% YoY due to lower tower rents. Meanwhile, marketing expenses increased by 16% YoY due to an increase in commission fees.
In the first quarter of 2021, XL Axiata also recorded an increase in the portion of service revenue from data at 94% as well as a smartphone penetration to 90%, both of which continue to be the highest in the industry. Meanwhile, the development of the 4G data network continues, and by the end of the first quarter of 2021 it has reached 458 cities / regencies in various regions in Indonesia with 57 thousand of 4G Base Transceiver Stations (BTS). The total number of BTS currently reaches more than 147 thousand, with the largest portion is 4G BTS. XL Axiata continues to expand 4G throughout Indonesia, especially outside Java, which include conducting extensive fiberization to increase network capacity in order to meet the increasing needs of current and future data services as well as ensuring readiness for the adoption of new technologies. With fiberization and its ability to provide a large capacity, this undertaking will greatly support cost efficiency to achieve profitability.
To prepare the network for 5G, XL Axiata also continues the network fiberization process to increase the transport network capacity. Fiberization has proven to be able to improve network quality to support several data services with large capacities, such as live video streaming. The company also continues to expand its data network, especially outside Java. In this regard, the company is also exploring the use of Open RAN technology so that network development can be more cost efficient. The Open RAN trial began in February 2021 and took place in Ambon, Maluku.
Meanwhile, data traffic during the first quarter of 2021 increased by 40% YoY from 997 Petabyte to 1,391 Petabyte. When compared to the previous quarter, data traffic increased by 1%. This data traffic continues to increase even though the total number of subscribers slightly increased from 55.49 million in the same period of the previous year to 56.02 million in the current period.
During the 1st quarter of 2021, XL Axiata introduced several new offerings. Among other things, for prepaid service customers, there is a Familiar Package (Paket Akrab) for XL customers with the target of families. Then several offers from AXIS for young customers, meanwhile XL Prio which is targeting the postpaid segment focuses on smartphone bundling.
As part of the digital transformation program, the company continues to increase the use of digital IT, artificial intelligence, Omnichannel and data analytics to identify precisely what the needs of each customer segment for telecommunication and data services. Thus, the company can also be more precise in making new service products. The use of these various digital instruments has also yielded promising results, including in increasing the accuracy of product offerings that suit the characteristics of each segment.
In terms of financial condition, the company's balance sheet remains healthy with relatively high cash balances. Free Cash Flow (FCF) is also at a healthy level, which is IDR 1.4 trillion. Net debt also reduced by 15% compared to the same period last year. Likewise, the ratio of net debt to EBITDA also continued to improve until it reached 0.6x. XL Axiata currently does not have US Dollar denominated loans. 66% of the loans include floating interest rates and the payments are managed for the next two years.
Business Opportunity
XL Axiata sees several positive opportunities in the Indonesian Telecommunication Industry. One of them is related to the possibility of operator consolidation, which will have a healthy impact on the Telecommunication Industry in general. Furthermore, the way digital, schools and daily life work will create long-term demand for data. Another opportunity is an increase in demand for fixed broadband (FTTH) services, in which XL Axiata already has XL Home services with an increasing service area, as well as increasing connections. In addition, the existence of the Job Creation Law provides long-term positive benefits, including the efficiency of capex and opex to provide 5G services.
On the other hand, XL Axiata sees several challenges that must be faced in 2021. One of them is the continuation of intense competition between operators. The increasing intensity of competition since the end of 2020 has had an impact on industrial growth. In addition, the Covid-19 pandemic is likely to continue to loom during first Semester of 2021. Economic condition may only begin to improve starting next second Semester.
In regard to the handling of Covid-19, XL Axiata continues to carry out various initiatives both in the form of protection programs for employees, as well as support for customers and the community. Some of the latest programs include organizing the Rising Indonesia Vaccine Center (Sentra Vaksinasi Indonesia Bangkit) at UI hospital for elderly citizens who hold national residency status, increasing network capacity in areas surrounding Covid-19 referral hospitals, organizing capital support programs for MSMEs, donating smartphones for underprivileged students, as well as supporting government programs to smooth and streamline the process of distance learning for school and university students.