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Announcement:

Moody's: Axiata's FY 2014 results are in line with its Baa2 rating

26 Feb 2015

Singapore, February 26, 2015 -- Moody's Investors Service says that Axiata Group Berhad full-year results for 2014 are broadly in line with expectations and support Axiata's Baa2 issuer rating and stable outlook, despite weakness in its Malaysian operations.

Axiata's revenue for the twelve months to December 2014 grew 1.9% year-on-year to MYR18.7 billion, largely due to the weaker Indonesian rupiah. In constant currency terms, revenue growth for the year was 4.4% .

Revenue for Celcom Axiata Berhad (unrated) in Malaysia - the largest contributor to Axiata's revenue in the twelve months to December 2014 at 42% -- declined 4% year-on-year largely due to system related issues, which constrained its ability to introduce new product offerings.

"Revenue for XL Axiata Tbk (P.T.) (Ba1,stable), which contributed 35% of revenues for the year ended December 2014 increased marginally by 0.5% year-on-year, dragged down by a 9% decline in the Indonesian rupiah against the Malaysian ringgit in 2014. At constant currency, XL's revenue grew 10% driven by its acquisition of PT Axis Telekom Indonesia's (unrated) in April and strong growth in data revenues," says Nidhi Dhruv, a Moody's Assistant Vice President and Analyst.

Moody's expects Axiata's revenue to grow by low-to-mid single digit percentages over the next one to two years, supported by solid growth in revenue from Robi Axiata Limited (unrated) in Bangladesh and Dialog Axiata PLC (unrated) in Sri Lanka, which grew 14% and 9% respectively year-on-year in 2014. Their contribution to Axiata's revenues have been steadily increasing, accounting for about 20% of consolidated revenue for 2014.

Axiata's reported EBITDA margin declined from 39.6% in 2013 to 37.4% in 2014, pressured by soft performance at Celcom and margin dilution at XL following its acquisition of Axis which reported negative EBITDA. As a result, Axiata's reported EBITDA declined by 3.7% year-on-year in 2014.

"We expect Axiata's margins to contract slightly in 2015, as Celcom's recovery will take another couple of quarters; in addition, Axis's margins will remain low and contribution from XL's higher margin tower leasing operations will also reduce following the sale of 3,500 towers to Solusi Tunas Pratama Tbk (unrated)" adds Dhruv, who is also Moody's Lead Analyst for Axiata and XL.

Axiata's capex for FY2014 was stable year-on-year at RM4.0 billion, lower than management's guidance of RM4.4billion. As some of the spending has been carried forward into 2015, management has guided to capex of RM4.8 billion this year.

Moody's expects Axiata's adjusted free cash flow (FCF)/debt to remain negative in 2015, given its progressive dividend payout ratio which increased materially to 84% in 2014 from 75% in 2013, and a year-on-year increase in capex. We expect Axiata's dividend payout ratio to remain high.

Axiata's leverage, as measured by adjusted debt to EBITDA for 2014 increased to about 2.3x from 2.2x in 2013, due largely to XL's acquisition of Axis. Given its weak FCF, Axiata's leverage is unlikely to improve significantly despite expected improvements in its earnings in 2015 with 4.0% EBITDA growth targeted. However, its leverage will remain consistent with its Baa2 rating level.

Despite its weak cash flow metrics, Axiata's stable earnings from its diversified revenue sources, solid market positions, and strong relationships with the Malaysian government, will continue to support its rating.

Axiata's Baa2 rating incorporates extraordinary support that Moody's believes the government is likely to provide in a distress situation, which results in a one-notch uplift to its baseline credit assessment of baa3.

The principal methodology used in this rating was Global Telecommunications Industry published in December 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Axiata is one of Asia's largest regional cellular telecommunications providers with over 250 million subscribers at end-December 2014. Key investments include Celcom in Malaysia (wholly owned); XL in Indonesia (66.48% stake); Dialog in Sri Lanka (83.32%); Smart in Cambodia (87.46%); Robi in Bangladesh (91.59%); M1 Limited in Singapore (28.50%); and Idea Cellular Limited in India (19.79%).

Axiata demerged from Telekom Malaysia Berhad (A3, positive) in April 2008. Axiata is 59.2% directly owned by related entities of the Government of Malaysia (A3 positive), including a 38.71% stake held by Khazanah Nasional Berhad (A3 positive).

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Nidhi Dhruv
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Laura Acres
Associate Managing Director
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's: Axiata's FY 2014 results are in line with its Baa2 rating
No Related Data.
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