2Q 2016 RESULTS Albern Murty, CEO 11 JUL 2016 1 Disclaimer This - - PowerPoint PPT Presentation

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2Q 2016 RESULTS

Albern Murty, CEO

11 JUL 2016

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Disclaimer

This presentation and the following discussion may contain forward looking statements by Digi.com Berhad (Digi) related to financial trends for future periods. Some of the statements contained in this presentation or arising from this discussion which are not of historical facts are statements of future expectations with respect to financial conditions, results of operations and businesses, and related plans and objectives. Such forward looking statements are based on Digi’s current views and assumptions including, but not limited to, prevailing economic and market conditions and currently available information. These statements involve known and unknown risks and uncertainties that could cause actual results, performance or achievements to differ materially from those in the forward looking statements. Such statements are not and, should not be construed, as a representation as to future performance or achievements of Digi. In particular, such statements should not be regarded as a forecast or projection of future performance of Digi. It should be noted that the actual performance or achievements of Digi may vary significantly from such statements.

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Key Highlights Performance Review 2016 Outlook Q&A

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2Q 2016

Resilient performance anchored on solid postpaid growth

SOLID POSTPAID REVENUE GROWTH RESILIENT SERVICE REVENUE STRONGER SEQUENTIAL EBITDA

6.0% q-q and 9.8% y-y RM1,557 m Up 4.4% to RM735 m

• r 44% margin

Key Highlights

62.0%

Smart- phones

LTE-A @ KMCs

76%

4G LTE

~ 8 m

Internet Subs

3.3 m

LTE Subs

HIGHER SHAREHOLDERS RETURN

5.4 sen dividend per share

equivalent to RM420 million or almost 100% payout ratio

Note: KMCs refer to key market centers

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2Q 2016

Sprinting ahead with 4G LTE-A deployment

Network

• Lead the market with deployment of LTE-A network in key

market centres (KMCs) – Twice the internet speed of 4G LTE covering more than 34% of population nationwide

• Rapid expansion of 4G LTE network coverage to 76% of the

population – Available in 191 major towns and cities, supported by 6,500 LTE sites and 7,000 km of fiber network – Higher efficiency and quality of data services with increasing traffic delivery on 4G LTE network from to 27%, from 6% a year ago

• Proliferate growth of LTE subscribers to 3.3 million with

consistent high speed internet experience on their 4G LTE capable smartphones and devices

• Highly committed on strengthening 4G LTE network while

leveraging on efficient technology and fiber rollout to support customers growing digital lifestyle

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Digital Businesses

2Q 2016

Putting skin in the game towards digital transformation

Digital Innovations

• Revolutionise and digitise as a next step of digital

transformation

• Appointment of Chief Digital Officer and empower dedicated

digital teams to develop digitally adjacent businesses, digital innovations and unlock new business partnerships

• Digitise core mobile business across products, channels,

marketing and delivery – Intuitive digital channels for dealer distribution and customer self-serve functions – Enable nimble and agile operations with significantly improved speed to execution and to serve more customers nationwide efficiently

• Leverage on Telenor’s scale and opportunities on

– Acquisitions of global platforms and capabilities – Strategic partnerships with global digital players – Adjacent digital businesses opportunities such as financial services and cloud storage

Accelerate digital transformation

Digital Products / Channels Digital Marketing Digital Engineering and Delivery

Leverage on Telenor’s digital businesses and partnerships

Opportunities via global platforms and capabilities

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Partnerships / Digital Startups Digital Innovation

CDO (Digi-X)

Adjacent digital

• pportunities

DIGITISING OF CORE BUSINESS

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2Q 2016

Making “sens” on MyDigi lifestyle app

Digital Innovations

MyDigi - one stop digital platform for intuitive self-care, customer support, rewards and

primary distribution channel to customers

• One view of all Digi accounts
• Convenience of instant bill

payment and purchase reload

• Personalise setting such as

internet sharing, change of plans

• Purchase Add-Ons and services
• In-app customer support and

rewards coming soon!

• > 750K monthly active users and

growing

• Positive NPS score since MyDigi
• launch. App rating of 4 for both

Android and iOS

• 4-5 folds increase in bill payment

transactions.

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Digi Incub8

• Pre-accelerator program for

idea stage startups

• 6-day intensive bootcamp
• Access to business support,

mentorship, capital and the network to build and grow digital business opportunities

2Q 2016

Fuelling digital innovations and opportunities amongst budding entrepreneurs

Digital innovations

Digi Accelerator

• 360' launchpad to fast track

startup businesses

• 4-month

bootcamp with regional and global exposure, seed funding, as well as commercialisation support

• 1st batch of winners: Vase,

Local Usher and GrabGas

Telenor - Digi Ignite

• Global startup program for

budding intrapreneurs with great ideas

• n

digital products or services

• 1st batch of 8 winners from

across 10 countries

• Digi’s

ALFRED team among the winning team ENGAGEMENT WITH START-UP COMMUNITIES

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2Q 2016

Bringing the best choices, convenience and value for Digi’s customers

Products and Marketing

• Actively designed and shaped postpaid value propositions

relevant to changes in customers’ behaviour and lifestyle – Sharpened focus on internet, digital services, flexible internet sharing propositions – Embarked on nationwide 4G LTE carnival with affordable 4G bundles – Launched quota top up campaigns and promotions on higher tiered subscriptions – Continued to tap on prepaid to postpaid migration

• Targeted campaigns with stronger prepaid mobile internet

proposition on the back of rationalised IDD prices – Introduced internet centric reload voucher – Bundled internet subscriptions with promotional quota upsizing and complimentary off-peak quotas – 360° Ramadan prepaid campaigns in conjunction with Hari Raya festive

• Relentlessly innovate to make life easier for customers such

as the flexibility of charging in-app and game purchases to Digi postpaid and prepaid account via Google Play Store Internet sharing 4G LTE carnival and Internet campaigns

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Key Highlights Performance Review 2016 Outlook Q&A

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2Q 2016

Resilient service revenue performance against relatively weaker industry development

Performance Review 1.3%

• 1.8%
• 2.0%
• 1.9%
• 4.8%
• 8.0%
• 6.0%
• 4.0%
• 2.0%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 2Q15 3Q15 4Q15 1Q16 2Q16

Postpaid Prepaid Service revenue Industry

Relatively steady y-y service revenue development consistent with preceding quarter

0.1%

• 1.7%
• 0.2%
• 1.7%
• 3.7%
• 6.0%
• 4.0%
• 2.0%

0.0% 2.0% 4.0% 6.0% 8.0% 2Q15 3Q15 4Q15 1Q16 2Q16

Postpaid Prepaid Service revenue Industry

Sustained service revenue q-q amid month-long Ramadhan effects in 2Q16

Y-Y Q-Q Effects from significant shift in market conditions

• Industry refers to mobile service revenue from the 3 leading mobile operators in Malaysia
• Ramadhan month usually observes moderated voice traffic and revenue on prepaid
• Post 2Q16 Y-Y comparison will be more comparable with similar market conditions

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• Steady subscriber base at 12.3 million although

challenged by lower daily active subscribers and high rotational churn – Internet subscribers increased to almost 8.0 million or 64.5% of total subscribers – Smartphone penetration rose to 62.0%

• Robust growth development on postpaid continued to

bolster decline on prepaid service revenue from prolonged price war and IDD price rationalisation

• Service revenue sustained q-q on the back of steady

ARPU and subscriber base with increasing contribution from postpaid – Internet revenue grew 4.3% q-q and 10.8% y-y, contributing to 36.1% of service revenue for the quarter

• Steadily strengthened service revenue market share

market although y-y development continued to be distorted by significant shift in market conditions since 2H 2015

11,815 11,675 12,125 12,336 12,347 6,843 7,024 7,502 7,917 7,965 2Q15 3Q15 4Q15 1Q16 2Q16 1,589 1,584 1,587 1,560 1,557

Subscribers (‘000) Service revenue (RM m)

45 45 44 42 42

ARPU (RM) Internet

Blended

Non-Internet

2Q 2016

Well-fought quarter with sustained service revenue at RM1.56 billion

Performance Review

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• Successfully translated robust 4G LTE network built into

stronger postpaid opportunities – Postpaid subscriber base strengthened 2.7% q-q and 10.3% y-y to almost 2.0 million

• Solid postpaid ARPU development fuelled by

– Positive take-up on higher tiered plans – Steady increase in postpaid internet subscribers to 1.6 million or 81.7% – Strong postpaid internet revenue growth of 15.5% q-q and 26.5% y-y to RM239 million

• Postpaid service revenue surged 6.0% q-q and 9.8% y-y to

RM492 million – Contributed to 31.6% of total service revenue

• Innovative postpaid propositions and tactical campaigns

coupled with incremental boost from digital self service capabilities spurred positive growth opportunity for postpaid Postpaid

1,771 1,776 1,840 1,902 1,954 1,351 1,400 1,442 1,527 1,596 2Q15 3Q15 4Q15 1Q16 2Q16 448 443 450 464 492 82 81 80 80 82

Subscribers (‘000) Service revenue (RM m) ARPU (RM) Internet Non-Internet

2Q 2016

Solid postpaid growth supported by stronger subscriber base and ARPU

Performance Review

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• Launched a series of targeted prepaid campaigns to

improve data monetisation through prepaid mobile internet subscriptions and recalibrated IDD pricing

• Prolonged price war continued to hamper immediate

growth – Prepaid subscriber base relatively flat at 10.4 million on the back of higher rotational churns and more targeted acquisition efforts – Prepaid ARPU dipped marginally to RM34

• Stronger data monetisation and IDD margin uplifts but

prepaid service revenue levelled 2.8% q-q and 6.7% y-y mainly due to lower IDD traffic post rationalisation and also effects from continued migration to postpaid plans

• Effects from continued migration to postpaid diluted

incremental revenue from prepaid internet subscriptions for the quarter – Prepaid internet revenue moderated 2.7% sequentially but 1.6% higher y-y to RM323 million Prepaid

10,044 9,899 10,285 10,434 10,393 5,493 5,624 6,060 6,390 6,369 2Q15 3Q15 4Q15 1Q16 2Q16 1,141 1,141 1,137 1,096 1,065 38 38 38 35 34

Subscribers (‘000) Service revenue (RM m) ARPU (RM) Internet Non-Internet

2Q 2016

Modest prepaid service revenue but substantiated by stronger data monetisation

Performance Review

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8.5% 9.0% 9.9% 9.2% 8.6% 4.2% 4.3% 4.0% 4.1% 4.6% 5.4% 6.2% 6.0% 6.2% 8.0% 7.2% 6.4% 7.1% 7.4% 7.5% 3.8% 3.8% 3.9% 4.0% 4.0% 2Q15 3Q15 4Q15 1Q16 2Q16

Sales & Mktg Staff Cost O&M USO Others

28.6% 31.1% 30.7% 30.0% 33.2% 29.1% 29.7% 30.9% 30.9% 32.7%

2Q 2016

Improved cost base although opex inflated by imputed rental for shared sites

Total cost trend

481 464 537 481 403 462 470 490 482 509 943 934 1,027 963 912 2Q15 3Q15 4Q15 1Q16 2Q16

Opex (% of service revenue)

RM m

• Cost of goods sold (COGS) improved 16.2% y-y and q-q

mainly as a flow through from lower device cost as well as moderated IDD traffic cost

• Traffic cost declined 17.5% q-q and 3.7% y-y to RM312

million in line with IDD traffic reduction following post rationalisation exercise and cushioned by relatively stronger MYR currency (Average MYR-USD exchange rate: 2Q 2016: 4.011, 1Q 2016: 4.199)

• Opex to service revenue ratio spiked up to 32.7% mainly

due to – Re-grossing of imputed rental cost for shared sites as well as network related costs from continued rapid expansion plan on 4G LTE and 4G LTE-A network

• Re-grossing of rental cost for shared sites have no impact
• n EBITDA as a corresponding rental income is recognised

as part of other revenue

[1] Net Opex = Opex + Forex/FV changes + Other Income

Net Opex [1] Opex

Performance Review

Total cost (RM m) Opex COGS

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2Q 2016

EBITDA and PAT strengthened sequentially

PAT and margin

788 719 701 704 735 46% 43% 41% 43% 44% 0% 20% 40% 60% 80% 100%

• 200

400 600 800 1,000 2Q15 3Q15 4Q15 1Q16 2Q16

EBITDA and margin

RM m RM m

• EBITDA improved 4.4% sequentially to RM735 million or

44% margin anchored by notable uplifts from IDD margins and stronger data monetisation

• Narrowed y-y EBITDA decline to 6.7% from 9.2% in the

preceding quarter

• Depreciation for the quarter improved 8.3% q-q to RM143

million (1Q 2016: RM156 million) – Adjusted for RM20 million reversal of over-accrued depreciation relating to prior years – Identified after the completion of a comprehensive asset register review undertaken as part of good governance

• PAT increased to RM421 million, up 5.5% q-q as a flow

through from stronger EBITDA and lower depreciation for the quarter

464 397 382 399 421 27% 24% 22% 24% 25%

• 10%

10% 30% 50% 70% 90%

• 200

400 600 800 2Q15 3Q15 4Q15 1Q16 2Q16 +4.4%

• 6.7%

+5.5%

• 9.3%

Performance Review

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200 223 288 171 167 13% 14% 18% 11% 11% 0% 10% 20% 30%

• 100

200 300 2Q15 3Q15 4Q15 1Q16 2Q16

2Q 2016

Continued capex investment for growth opportunities

Ops cashflow and margin Capex and Capex to service revenue ratio

RM m RM m

• Capex for the quarter remained fairly stable at RM167

million with progressive coverage and capacity network expansion on 4G LTE and LTE-A as planned

• Continued efforts to fortify network positioning and drive

technology innovations to deliver the best internet and digital experience to customers

• Increased leverage on global and collaboration synergies to

drive efficient and scalable investments

• Ops cashflow improved to RM568 million or 34% margin as

flow through from stronger sequential EBITDA for the quarter

4G-LTE Covg 40% 50% 65% 73% 76% 588 496 413 533 568 34% 30% 24% 32% 34% 0% 10% 20% 30% 40% 50% (100) 100 300 500 700 2Q15 3Q15 4Q15 1Q16 2Q16 Performance Review

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5.9 5.1 4.9 5.1 5.4 6.0 5.1 4.9 5.1 5.4 99% 100% 100% 100% 100%

(2.0) 3.0 8.0 13.0 2Q15 3Q15 4Q15 1Q16 2Q16 DPS EPS 2Q15 3Q15 4Q15 1Q16 2Q16 Total Assets 4,441 4,449 4,662 4,922 4,708 Total Equity 596 534 519 537 562 Interest-bearing debts 1,246 1,296 1,294 1,631 1,424 Cash & cash equivalents 303 306 234 503 366

2Q 2016

Healthy shareholders’ returns

• Earnings per share (EPS) improved to 5.4 sen, up 5.9% q-q
• 2nd interim dividend at 5.4 sen per share (net) equivalent to

RM420 million or almost 100% payout, payable to shareholders on 30 September 2016

• Total assets moderated to RM4,708 million mainly due to

lower cash balances after repayment of RM400 million revolving credit (RC) facility

• Interest-bearing debts moderated to RM1.4 billion net of

repayment RC and drawdown of additional term loan of RM200 million during the quarter

• Balance sheet remained robust on the back of prudent net

debt to EBITDA ratio at 0.4x with continued investments on network and IT infrastructure capabilities to drive growth

• pportunities

EPS and DPS Balance sheet

Payout Ratio sen RM m Performance Review

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Key Highlights Performance Review 2016 Outlook Q&A

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• Our competitive network, growing digital capabilities and

relentless drive to become customers’ favourite partner in digital life will provide Digi with strong resilience against competition headwinds while unlocking growth

• pportunities from postpaid and digital services
• Focus for the next 6 months will be to

– Capitalise on growing data demand to drive data monetisation and profitable growth – Deliver

• n

the building blocks

• n

digital transformation journey – Coordinate efforts to strengthen

• perational

efficiency

• 2016 financial guidance as follows:

2Q 2016

Exciting journey into 2H 2016 with more choices and flexibility for customers

2016 Outlook 2016 Guidance 1H16 Service revenue Sustain at 2015 level 3,117 EBITDA margin 43.5% Capex 13% -14% of service revenue (revised) 10.8%

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Q&A

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Investor_Relations@digi.com.my www.digi.com.my

THANK YOU See you next quarter!

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Appendix

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2Q 2016

Stronger data monetisation with 4.3% sequentially higher internet revenue

281 134 102 66 109 2Q15 3Q15 4Q15 1Q16 2Q16

• No. of smartphones

& devices sold

‘000 57.9% 60.2% 61.9% 64.2% 64.5% 57.1% 58.4% 59.2% 61.3% 62.0% Appendix 507 530 535 539 562 115 112 119 117 110 51 49 42 38 36 673 691 696 694 708 2Q15 3Q15 4Q15 1Q16 2Q16

Penetration and data revenue

Data Rev (RM m) VAS Messaging Internet % of internet subscribers % smartphone subscribers

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2Q 2016

Key operating performance KPIs

(RM m) 2Q16 1Q16 4Q15 3Q15 2Q15 1Q15 4Q14 3Q14 2Q14 Q-o-Q Y-o-Y Subscribers (‘000) 12,347 12,336 12,125 11,675 11,815 11,691 11,421 11,345 10,903 0.1% 4.5% Internet subscribers (‘000) 7,965 7,917 7,502 7,024 6,843 6,624 6,452 6,011 5,384 0.6% 16.4% MOU 203 217 221 226 240 235 248 252 251

• 6.5%
• 15.4%

Revenue 1,655 1,653 1,725 1,675 1,723 1,791 1,799 1,756 1,746 0.1%

• 3.9%

Service revenue 1,557 1,560 1,587 1,584 1,589 1,588 1,627 1,584 1,568

• 0.2%
• 2.0%

EBITDA 735 704 701 719 788 775 801 789 795 4.4%

• 6.7%

EBITDA margin 44% 43% 41% 43% 46% 43% 45% 45% 46% 1.8pp

• 1.3pp

Depreciation & Amortisation (143) (156) (169) (170) (150) (140) (132) (127) (115)

• 8.3%
• 4.7%

EBIT 592 548 532 549 638 635 669 662 680 8.0%

• 7.2%

Net finance (costs)/income (16) (14) (13) (12) (12) (9) (9) (5) (6) 14.3% 33.3% Profit Before Tax 576 534 519 537 626 626 660 657 674 7.9%

• 8.0%

Taxation 155 135 137 140 162 147 100 170 175 14.8%

• 4.3%

Profit After Tax 421 399 382 397 464 479 560 487 499 5.5%

• 9.3%

EPS (sen) 5.4 5.1 4.9 5.1 6.0 6.2 7.2 6.3 6.4 5.9%

• 10.0%

Prepaid ARPU (RM) 34 35 38 38 38 39 41 41 41

• 2.9%
• 10.5%

Postpaid ARPU (RM) 82 80 80 81 82 81 83 82 83 2.5% 0.0% Blended ARPU (RM) 42 42 44 45 45 46 47 47 48 0.0%

• 6.7%

Appendix

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2Q 2016

Revenue composition

(RM m) 2Q16 1Q16 4Q15 3Q15 2Q15 1Q15 4Q14 3Q14 2Q14 Q-o-Q Y-o-Y REVENUE 1,655 1,653 1,725 1,675 1,723 1,791 1,799 1,756 1,746 0.1%

• 3.9%

Service Revenue 1,557 1,560 1,587 1,584 1,589 1,588 1,627 1,584 1,568

• 0.2%
• 2.0%

Voice revenue 849 866 891 893 916 916 973 957 970

• 2.0%
• 7.3%

Data revenue 708 694 696 691 673 672 654 627 598 2.0% 5.2% Internet 562 539 535 530 507 505 480 449 409 4.3% 10.8% Messaging 110 117 119 112 115 119 126 131 142

• 6.0%
• 4.3%

VAS 36 38 42 49 51 48 48 47 47

• 5.3%
• 29.4%

Device and other revenue 98 93 138 91 134 203 172 172 178 5.4%

• 26.9%

Prepaid Revenue 1,065 1,096 1,137 1,141 1,141 1,154 1,192 1,153 1,135

• 2.8%
• 6.7%

Voice revenue 655 680 708 713 728 731 777 763 772

• 3.7%
• 10.0%

Data revenue 410 416 429 428 413 423 415 390 363

• 1.4%
• 0.7%

Postpaid Revenue 492 464 450 443 448 434 435 431 433 6.0% 9.8% Voice revenue 194 186 183 180 188 185 196 194 198 4.3% 3.2% Data revenue 298 278 267 263 260 249 239 237 235 7.2% 14.6% Appendix

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2Q 2016

COGS and OPEX

(RM m) 2Q16 1Q16 4Q15 3Q15 2Q15 1Q15 4Q14 3Q14 2Q14 Q-o-Q Y-o-Y COGS 403 481 537 464 481 551 525 536 524

• 16.2%
• 16.2%

Cost of materials 91 103 156 98 157 228 197 177 183

• 11.7%
• 42.0%

Traffic charges 312 378 381 366 324 323 328 359 341

• 17.5%
• 3.7%

OPEX 509 482 490 470 462 463 473 428 432 5.6% 10.2% Sales & marketing 134 144 157 142 135 145 140 133 133

• 6.9%
• 0.7%

Staff costs 72 64 63 68 67 64 72 58 58 12.5% 7.5% Operations & maintenance 124 96 96 98 85 86 85 76 81 29.2% 45.9% Other expenses 179 178 174 162 175 168 176 161 160 0.6% 2.3% USP fund and license fees 116 116 112 102 115 113 112 107 107 0.0% 0.9% Credit loss allowances 13 14 14 12 8 8 9 10 6

• 7.1%

62.5% Others 50 48 48 48 52 47 55 44 47 4.2%

• 3.8%

TOTAL 912 963 1,027 934 943 1,014 998 964 956

• 5.3%
• 3.3%

Appendix

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(RM m) 2Q16 1Q16 4Q15 3Q15 2Q15 1Q15 4Q14 3Q14 2Q14 Q-o-Q Y-o-Y Cash at start 503 234 306 303 357 526 259 403 372 115.0% 40.9% Cashflow from operations 728 546 535 523 744 551 524 780 770 33.3%

• 2.2%

Changes in working capital (103) (77) 72 98 (327) 29 1 93 (65) 33.8%

• 68.5%

Cashflow used in investing activities (162) (168) (280) (218) (198) (189) (226) (271) (191)

• 3.6%
• 18.2%

Cashflow used in financing activities (599) (31) (396) (409) (277) (561) (37) (746) (483) 1832.3% 116.2% Net change in cash (136) 270 (69) (6) (58) (170) 262 (144) 31

• 150.4%

134.5% Effect of exchange rate changes on cash and cash equivalents (1) (1) (3) 9 4 1 5 0.0%

• 125.0%

Cash at end 366 503 234 306 303 357 526 259 403

• 27.2%

20.8% Capex 167 171 288 223 200 193 233 276 193

• 2.3%
• 16.5%

Ops cashflow (EBITDA – Capex) 568 533 413 496 588 582 568 513 602 6.6%

• 3.4%

2.1 0.2pp Ops cashflow margin 34% 32% 24% 30% 34% 32% 32% 29% 34%

2Q 2016

Cashflow

Appendix