Condensed Consolidated Statements Of Profit Or Loss
Condensed Consolidated Statements Of Financial Position
Analysis Of Performance
- Service revenue is defined as Group revenue excluding device, hubbing revenue and network income.
- Defined as profit before finance income, finance costs, tax, depreciation, amortisation and allowance for write down of identified network costs.
- Charge out of SA renewal costs prepaid for license period.
- * Less than 1%.
- The comparative information of Postpaid has been restated to exclude non-phone based subscriptions.
- * Less than 1%.
Performance of the current quarter against the preceding quarter (2nd Quarter 2019 versus 1st Quarter 2019)
For the quarter ended 30 June 2019, service revenue decreased by 1.5% to RM1,918 million from RM1,947 million for quarter ended 31 March 2019. This decrease was largely driven by the phase out of a network sharing agreement. Service revenue, excluding wholesale revenue, increased by 0.6% to RM1,887 million in Q2'19 (Q1'19L RM1,876 million).
Postpaid service revenue for Q2'19 decreased by 2.8% to RM972 million (Q1'19: RM1,000 million) on account of a higher RGS base being offset by a lower ARPU; and termination of a network sharing agreement ending in December with limited roll over in to 2019. The Postpaid RGS grew by 96k, a 3.2% increase to 3,104k (1Q'19: 3,008k) contributed mainly by growth in MaxisONE Plan and Hotlink Postpaid Flex subscriber base. Our Hotlink Postpaid Flex and MaxisONE Share offering continued to attract entry level Postpaid subscribers, as well as those migrating from Prepaid to Postpaid. Postpaid ARPU decreased by 1.1% to RM91 for Q2'19 (Q1'19: RM92). Postpaid smartphone penetration at Q2'19 stayed at 88% (Q1'19:88%) and data usage grew to 13.3GB (Q1'19: 12.2GB).
Prepaid service revenue for Q2'19 declined by 0.8% to RM791 million (Q1'19: RM797 million). Prepaid RGS slightly declined by 50k, a 0.8% reduction to 6,417k (Q1'19: 6,467k) subscribers. We continue to see SIM consolidation and migration from Prepaid to Postpaid. Both the Hotlink Red and Superrr Prepaid pack showed positive traction, attracting high mobile internet users, as we enhanced our use of data analytics to create value for our customers. Prepaid ARPU for Q2'19 increased 2.5% to RM41 per month from Q1'19 RM40 per month, the incremental increase in ARPU was a result of higher mobile internet income. Prepaid smartphone penetration maintained at a high level above 80% and data usage increased to 13.7GB (Q1'10: 11.5GB).
The Group retained its network superiority in 4G LTE, delivering download speed of more than 5 Mbps 90% of the time in key market centres on a comparable peer basis, and achieving 93% population coverage. Both these factors are key differentiators for digital lifestyle seekers. Delivering on its unmatched personalised experience promise, the Group improved on its high touch point net promoter score ("TP-NPS") to +58 (Q1'19: +55).
Normalised EBITDA for Q2'19 decreased by 0.6% to RM947 million with a normalised EBITDA margin on service revenue of 49.4% (Q1'19: RM953 million, normalised EBITDA margin on service revenue of 48.9%). The Group is committed to its Home Fibre ambitions and is investing the necessary capacity and capability in resources for the Enterprise segment, which are critical in creating the foundation for growth in future years.
The Group reported for Q2'19 a normalised profit of RM391 million, decreased by 3.2% compared to RM404 million in the preceding quarter. Capex for the current quater was RM267 million (Q1'19: RM127 million), largely due to normal phasing of capex for the ongoing continued investment in network capacity to support our planned data traffic growth, investment in Home Fibre and Enterprise growth. Operating free cash flow for Q2'19 increased to RM1,021 million (Q1'19: RM565 million) due to higher payments in the previous quarter, as well as the productivity and working capital programs capturing results.
Performance of the current quarter against the preceding year corresponding quarter (2nd Quarter 2019 versus 2nd Quarter 2018)
Service revenue for Q2'19 of RM1,918 million was 4.7% lower, compared year-on-year (YoY) than RM2,013 million recorded in Q2'18. This was largely contributed by the termination of a network sharing agreement, decline in Prepaid RGS, and overall reduction in Prepaid and Postpaid ARPU, offset by the growth in Postpaid and Home Fibre subscribers. Service revenue, excluding wholesale revenue was RM1,887 million in Q2'19, a slight decreased of 0.7% compared to RM1,901 million in Q2'18.
Postpaid service revenue for Q2'19 decreased by 3.7% to RM972 million compared to RM1,009 million in Q2'18. The growth was supported by a solid 10.8% increased in subscriber base of 302k to 3,104k (Q2'18: 2,802k). Hotlink Postpaid Flex and MaxisONE Share continue to be strong catalysts driving incremental port-ins of entry-level Postpaid subscribers. Postpaid ARPU at Q2'19 decreased to RM91 (Q2'18: RM96), largely due to the changes in the Mobile Termination Rates MTR and ARPU dilution from Hotlink Postpaid Flex offerings.
Prepaid service revenue declined YoY by 7.4% to RM791 million from RM854 million on the back of a lower subscription base which was due to continued SIM consolidation, migration from Prepaid to Postpaid, and reduced MTR. Subscribers decreased by 330k from 6,747k at Q2'18 to 6,417k at Q2'19. Mobile internet revenue contributed to the stable underlying ARPU of RM41 per month. This was supported by our enhanced and expanded use of data analytics for segmental and personalised offerings, which attracted high data users.
Data consumption continued to increase YoY with data usage increasing in both Postpaid and Prepaid. Postpaid monthly average data usage for the quarter was 13.3GB, an increase from 11.2GB a year ago. Prepaid monthly average data usage for the quarter was 13.7GB, a significant increase from 8.2GB a year ago, and edging ahead of Postpaid data usage. This reflects the competitive nature of the mobile business and the bundling of more data and more value.
The Group continued to lead the market in terms of quality and best digital experience. The Group maintained our TP-NPS of +58 (Q2'18: +57), showing our commitment to deliver unmatched personalised experience.
Normalised EBITDA for Q2'19 declined 6.0% to RM947 million from RM1,007 million in Q2'18. The normalised EBITDA margin on service revenue was 49.4% for Q2'19, compared with 50.0% in Q2'18.
Normalised profit for Q2'19 declined 18.5% to RM391 million (Q2'19: RM480 million). This is in line with the revenue and cost drivers discussed in previous sections.
Capex for the current second quarter was higher at RM267 million (Q2'18: RM212 million), mainly due to incremental investment for Home Fibre and Enterprise growth. Operating free cash flow for the current quarter was RM1,021 million, compared to RM931 million in Q2'18 due to improved working capital management and productivity programs delivering results.
Statement Of Financial Position
- Debt includes derivative financial instruments designated for hedging relationship on borrowings but excludes payables under deferred payment scheme.
The increase in total assets was mainly due to the recognition of right-of-use assets, arising from the adoption of MFRS 16. This has caused a corresponding increase in debt which includes lease liabilities. Total equity of the Group remained stable. Net debt-to-EBITDA increased from 1.86x as at 31 December 2018 to 2.21x as at 30 June 2019 mainly as a result of increase in lease liabilities as explained above.
Prospects For The Financial Year Ending 31 December 2019
Our guidance remains unchanged for the full year ending 31 December 2019.
The market is expected to remain competitive and Maxis continues to focus on its long term ambition being Malaysia's leading converged communications and digital services company, leveraging on its strong 4G Network and expanding its presence in the Fixed Broadband market in both Consumer and Enterprise.
In the mobiles market we will focus on building upon our core offerings in the Consumer and Enterprise segments with innovative new solutions and services. In the Fixed Broadband market we will focus on executing new access agreements with access providers, migrating our existing base to new price points and higher speeds and providing new innovative solutions to both Consumer and Enterprise customers and increased bundling.
Our priorities remain to execute our growth strategy whilst maintaining leadership in the core mobile business.
Notwithstanding the above actions and strong fundamentals in our core mobile business, there are a few key items impacting the Group's EBITDA in year 2019 as previously stated:
- the impact of changes to a major wholesale network sharing agreement in the Q1'19 and Q2'19;
- dilution in Fibre ARPU from the new competitive priced plans and the cost of customer migration initiative coupled with increase in cost to serve; and
- increase in cost of business from Sales & Service Tax introduction.
After incorporating the effects above, and the implementation of MFRS 16 as disclosed in Note 1, our guidance for the financial year ending 31 December 2019 remains unchanged:
- service revenue and EBITDA to decline by low single digit and mid-single digit respectively;
- core network capital expenditure to be around RM1 billion plus capex supporting new growth opportunities in Broadband and Enterprise business (around RM1 billion over 3 years); and
- operating free cash flow (excluding upfront spectrum fee assignment) at a similar level to year 2018.
In view of the change in regulatory environment and market opportunities, the Group is implementing a significant change in strategic direction building on its strong mobile base to deliver its internal annual service revenue target in excess of RM10 billion by year 2023. The Group's vision is to be Malaysia's leading converged communications and digital services organization; achieved through maintaining its leadership in core consumer mobile, taking advantage of its first mover position in Fibre and offering differentiated and customised solutions to Enterprise Business segments.