U.S. markets open in 6 hours 54 minutes

Edited Transcript of ISAT.JK earnings conference call or presentation 29-Apr-20 9:00am GMT

Q1 2020 Indosat Tbk PT Earnings Call

Jakarta May 4, 2020 (Thomson StreetEvents) -- Edited Transcript of Indosat Tbk PT earnings conference call or presentation Wednesday, April 29, 2020 at 9:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Ahmad Abdulaziz Al Neama

PT Indosat Tbk - President Director & CEO

* Christy Kusumaatmaja

PT Indosat Tbk - Vice President - Head of IR

* Eyas Naif Saleh Assaf

PT Indosat Tbk - CFO & Director

* Vikram Sinha

PT Indosat Tbk - COO & Director

================================================================================

Conference Call Participants

================================================================================

* Arthur Pineda

Citigroup Inc, Research Division - Director and Head of Pan-Asian Telecommunications Research

* Kresna P. Hutabarat

PT Mandiri Sekuritas, Research Division - Analyst

* Niko Margaronis

PT. Danareksa Sekuritas, Research Division - Analyst

* Piyush Choudhary

HSBC, Research Division - Telecoms Analyst, South East Asia

* Prem Jearajasingam

Macquarie Research - Analyst

* Ranjan Sharma

JP Morgan Chase & Co, Research Division - Analyst

* Sachin Mittal

DBS Bank Ltd., Research Division - VP

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for standing by, and welcome to PT Indosat First Quarter 2020 Results Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. And I would now like to hand the conference over to your first speaker today, Christy Kusumaatmaja, VP Head of Investor Relations. Thank you. Please go ahead.

--------------------------------------------------------------------------------

Christy Kusumaatmaja, PT Indosat Tbk - Vice President - Head of IR [2]

--------------------------------------------------------------------------------

Hello. Thank you, everyone, for dialing in to our company first quarter of 2020 earning call.

Before we start, as usual, I will provide a quick safe harbor disclaimer to note that the company, PT Indosat Tbk, caution investors that certain statements contained in this call are management intention, hope, believes, expectations or prediction for the future and are forward-looking statements. Management wishes to caution the participant that forward-looking statements are not historical facts and are only estimates or predictions. Actual results may differ materially from those projected as a result of risks and uncertainties. Furthermore, the company undertakes no obligation to update publicly any forward-looking statement, whether as a result of future investments or events, new information or otherwise. Presentation of this earning call has been uploaded to the website www.indosatooredoo.com under the Investor Relations tab.

I would like to mention that the conference call today is recorded and a replay of this call is available on our website following the call.

On today's earning call, we have Mr. Ahmad Al-Neama, our CEO; Mr. Eyas Assaf, our CFO; Mr. Vikram Sinha, our COO; and Mr. Irsyad Sahroni, our CHRO, on the line.

So now without further ado, I will hand over to our CEO, Mr. Ahmad, to deliver the opening remarks. Please, Mr. Ahmad.

--------------------------------------------------------------------------------

Ahmad Abdulaziz Al Neama, PT Indosat Tbk - President Director & CEO [3]

--------------------------------------------------------------------------------

(foreign language) Good afternoon, and blessed Ramadan to everyone. Thank you for participating in our first quarter 2020 earning call. I am Ahmad Al Neama, Chief Executive Officer of Indosat Ooredoo. Allow me to start this earning call with a few remarks before handing it over to our COO and CFO for more detailed presentation.

Building on the growth momentum for 2019, Indosat Ooredoo has delivered a strong performance in quarter 1 2020. We are on track with our 3-year turnover plan and hope to see positive momentum continuing in the coming quarters.

We all are facing unprecedented challenges, and Indosat Ooredoo has been taking proactive and progressive steps to ensure that we support our employees, customers and community in this challenging situation. We are proud to be among the first to implement virtual way of working for our employees to ensure their health and safety. We have accelerated our network rollout plan to make sure that the people can stay connected during these times. Steps has been taken to support businesses continuity for our enterprise customers, and Indosat Ooredoo continue to support government initiatives in these tough times. Indosat Ooredoo remains committed to accelerating the Indonesian digital economy agenda and will continue to support, to navigate our country through this pandemic. We also have taken several progressive steps to support the government initiatives and community welfare. We are putting in extra measures to ensure network resilience and uptime to ensure communities are staying connected during this challenging situation.

All in all, that concludes my remarks. And for further details on this quarter, I will pass to our COO, Mr. Vikram, for the operations walkthrough. Thank you.

--------------------------------------------------------------------------------

Vikram Sinha, PT Indosat Tbk - COO & Director [4]

--------------------------------------------------------------------------------

Thank you, Ahmad. (foreign language) Good afternoon and blessed Ramadan, everyone. I am Vikram, Chief Operating Officer of Indosat Ooredoo. I will take you through our COVID impact and operational update in quarter 1.

As Ahmad has mentioned, we were one of the first in Indonesia to proactively implement work from home. This policy has been very effective since March 16. We have provided steps like work-from-home allowance, inclusion of COVID-19 in medical insurance, and have been taken towards enhancing our employee welfare. We also support customers by providing free 30 GB data to access online educational from 60-plus universities. Free SIM card delivery to our customers to help them stay connected without going out from their homes. Free extra bandwidth capacity to universities to accommodate online lectures. And have recently launched new educational pack for student, with up to 50% discount to enroll to educational applications.

We also committed to our community by providing uninterrupted and seamless network coverage to keep our customers connected. We have continued to invest to improve our network experience to decongest our network through this unprecedented increase in data consumption. In fact, our network has never been in better shape than it is today. We will continue to partner with government in its initiative to educate customers and spreading awareness, such as converting Indosat Ooredoo merchandize into non-medical mask and distribute them in COVID red zones.

With BNPB, the government task force for fighting COVID, we have pledged 5 buses to help educate society on COVID. We have given 75,000 masks and IDR 5 billion to support government on tackling this pandemic, and we will continue to do more for our community and customers.

Ladies and gentlemen, early COVID impact that we have recognized are customer buying patterns shifting to online channel, in which we have presence in over 150 platform. Significant data traffic growth is also seen in past months, and also shift on traffic -- data traffic from office and mall area to residential area. And we are rapidly preparing and we are in a good state to cater to all those needs.

While roaming business got impacted since mid-January, however, contribution to international roaming towards our total revenue is minimal. And also, our B2B which is showing some slowdown, especially on highly impacted sectors.

Indosat Ooredoo has continued its strong growth momentum in quarter 1 2020, registering highest first quarter revenue since 2018. Cellular subscriber number stands at 56.2 million by end of March 2020, which is 5.4% year-on-year growth. ARPU, Average Revenue Per User, increased to IDR 29,600, up by 11.5% year-on-year, highest in 5 quarters, from previously, which was IDR 26,500 in quarter 1 2019. This has been primarily driven by pricing initiative, customer base management, an increase in 4G users.

Driven by or Ooredoo Indosat expanding 4G networks, data traffic growth is 63% year-on-year. And our 4G BTS is now recorded at 52,200, over 30,000 increase in last year.

So this concludes my highlight. And now I'll pass on to pat Eyas for financial walkthrough. Over to you, pat Eyas.

--------------------------------------------------------------------------------

Eyas Naif Saleh Assaf, PT Indosat Tbk - CFO & Director [5]

--------------------------------------------------------------------------------

(foreign language) Good afternoon, everybody. Have a happy Ramadan on -- to all of you. This is Eyas Assaf, CFO, Indosat Ooredoo. I'll take you through the financial highlights. We are on Slide #9.

As Ahmad and Vikram highlighted that operating revenue increased almost by 8% year-on-year from IDR 6 trillion during 2019 to IDR 6.5 trillion in 2020. Quarter-on-quarter, we saw some drop of 10%, which is normal due to seasonality in Q4 and mainly is coming from B2B. As you know, that Q4 is the highest quarter for B2B business, and we'll cover it later on.

The EBITDA level, this increased also year-on-year by 10% from IDR 2.1 trillion to IDR 2.4 trillion to [IDR 2.380 trillion]. And here, I need to remind you that this includes onetime adjustment or negative cost around IDR 300 billion. Without it, the EBITDA will go around over approximately 41%. Quarter-on-quarter, the EBITDA went down by 9% from IDR 2.6 trillion to IDR 2.3 trillion. Again, if you normalize the Q1, that will be head-to-head as absolute number. At EBITDA margin, it's a growth from 35.7% to 36.5% quarter-to-quarter, but the real number, without the one-time adjustment, that will be 41%. Q4 to Q1 was almost flat, 36% to 36.5%.

Profit attributable to owners of the parent went down from IDR 293 billion to IDR 600 billion. Again, if we normalize the onetime adjustment, the net loss will go down only to IDR 200 billion in the end for Q1, due to 2 adjustments. One is the restructuring staff cost, which is around IDR 300 billion, and one of them below EBITDA which is the tax adjustment, almost EUR 193 billion, and we'll cover it later. Quarter-to-quarter, last quarter Q4 was profitable, mainly coming from the tower grid, and this quarter, IDR 600 billion.

Please, let's move to Slide #4, the segment revenue overview.

We saw strong growth continue in cellular revenue, almost 10.6% year-on-year. Due to low seasonality, and price erosion and current global situation, we saw some challenging and fixed data growth. Fixed voice de-growth has been [arrested].

And now we'll go to the numbers.

Cellular and year-on-year grow from IDR 4.80 trillion to IDR 5.3 trillion, actually IDR [5.48] trillion. And Q-on-Q, it went down from IDR 5.5 trillion to IDR 5.4 trillion. Mainly, the drop is coming from nonrecurring revenue, namely the handsets, which is low margin, as you know.

Fixed Data is almost flat from Q1 to -- from last year to this year. And from Q4 to Q1, it dropped by 34%, mainly from seasonally in Q4, as we discussed before.

Fixed Voice shows 10% drop year-on-year, almost flat growth by 1.2% from Q4 to Q1 2020.

Please let's move to Slide #11, cellular customer base.

Cellular customer up by 5.4% year-on-year, with net addition of 2.9 million subscriber. Q-on-Q base decline mainly triggered by discontinuation of Unlimited proposition. IO committed to stay away from price war and will continue to focus on offering value for money, sending worry free and relevant product offerings.

The numbers I'll explain. It's -- the year-on-year went up by 5% to 56 million. Quarter-on-quarter, went down to -- from 59 million to 56 million. Customer net add year-on-year is 2.9 million. Quarter-on-quarter, there is a drop 3 million.

Please let's move to Slide 12, ARPU.

ARPU increased by 11.5% year-on-year and increased by 4.5% quarter-on-quarter. ARPU was at highest level in the last 5 quarters. Staying away from unlimited and offering value for money and single product portfolio reaping benefits. Continuous 4G network expansion and significantly growing 4G user base helped us in showing ARPU also. Data usage grew by 63% year-on-year and 5.2% quarter-on-quarter.

Please, Slide 13, balance sheet.

Stronger balance sheet resulted in improved financial ratio, while committing to maintain a ratio below the equivalent value of 4x net debt to EBITDA. The total debt went down from IDR 21 trillion level almost last year to IDR 15.3 trillion. Therefore, we saw a huge reduction from the net debt-to-EBITDA from 3x to 1.5x.

Slide #14, CapEx.

Escalated 2019 CapEx was to ensure the network rollout will be on track in 2020. Due to current situation, there was a slowdown in network rollout in Q1 '20. We are taking all necessary steps to accelerate network rollout in coming months, and we are confident of meeting 2020 expansion plan. Last year number was IDR 1.9 trillion. This month -- quarter 600. Q4, we [overspent], to be ready for this situation, IDR 3.6 trillion to IDR 600 billion in Q1.

Slide #15, network development.

The total BTS in Q1 year-on-year grow by 63%, from 81,000, to 133,000. And from Q4 to Q1, we saw increase by 7%. The most important here, we need to highlight, the growth in the 4G in Q1 year-on-year jumped by 137% from 22,000 to 52,000. And quarter-on-quarter, we saw growth by almost 9% from 48,000 to 52,174. And total (inaudible) 3G is 51,000 and 2G is 29,993.

This is completing my slide. And we open back to Q&A.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question we have is from the line of Sachin Mittal.

--------------------------------------------------------------------------------

Sachin Mittal, DBS Bank Ltd., Research Division - VP [2]

--------------------------------------------------------------------------------

I have a couple of questions. Firstly, there was a loss of 3 million subscribers despite introduction of Freedom Internet in February. So is there something you lost before the Freedom was launched and then you recovered them after it was launched? Or what's the dynamic behind the loss of subscribers? Because now there are less number of multiple SIM cards so this could be close to real number. Question #1. Question #2 is that we saw a substantial decline, 5% year-on-year decline in the cost of services. Are there one-off items in this decline, or you have reduced the cost of services for [management?]Could you just throw some light here? And lastly, I mean there's a partial lockdown. And have you seen the impact on daily business and on your prepaid business so far?

--------------------------------------------------------------------------------

Vikram Sinha, PT Indosat Tbk - COO & Director [3]

--------------------------------------------------------------------------------

Sachin, this is Vikram. So let me start by answering your first question. In terms of customer, what -- when we stopped unlimited in October last year, we saw some customers lost, especially a lot of value seekers and all, because there were other people in the market which were offering such product. And especially customers who are very deal and value seeker, we saw that loss. And the good news is, from March onwards, we are seeing the base coming up. But as you know, these are 90-day reported number, so the impact is more of October, November, December, which is reflecting now. But what we see now is in terms of our base engagement, in terms of our growth on customer, it's a positive trend now.

So second one is on -- in terms of cost of sales, there is no one-off. It is all the result of efficiency and solid performance, fundamental things which we are doing. So there is no one-off when you see this improvement of 5%.

Can you repeat your third question?

--------------------------------------------------------------------------------

Sachin Mittal, DBS Bank Ltd., Research Division - VP [4]

--------------------------------------------------------------------------------

Third question. I mean that if you can throw some light, what are the key costs that you have eliminated in the cost of services? That will be helpful. And my last question is, are you seeing the impact of partial lockdown on the daily basis? And hence, impact on the value seeker segment, because the impact on the daily basis, then they might also reduce their spending rate, yes.

--------------------------------------------------------------------------------

Vikram Sinha, PT Indosat Tbk - COO & Director [5]

--------------------------------------------------------------------------------

Okay. Let me try answering your question around the impact of partial lockdown. For sure, there is a impact on the overall economy, and we see the economy slowing down. But we all knew that telecom is important as a sector. But now it is proven that it is even more important when it comes to people needs. Nowadays, whether you talk about food or data, it goes hand-in-hand. So we are watching this very carefully. And especially through our customer base management offer, we are trying to make sure that, especially daily wages kind of a customer, low ARPU customer, we are taking care of them and we are trying to support them. So overall, there is one side where we see very unprecedented spike on data. And the opportunity is that how do we make sure that we are able to monetize that and do it properly. And at the same time, as you said, how do we make sure that the daily wager kind of people which is impacted, we keep them discussed, and we provide them the relevant offer. But please understand, the need for telecom and the need for data is getting more stronger, and we all know that everyone wants to stay connected.

--------------------------------------------------------------------------------

Sachin Mittal, DBS Bank Ltd., Research Division - VP [6]

--------------------------------------------------------------------------------

So you support them by offering cheaper plans, discounted plans or some kind of? (inaudible) daily wage earner.

--------------------------------------------------------------------------------

Vikram Sinha, PT Indosat Tbk - COO & Director [7]

--------------------------------------------------------------------------------

This is customer based management. We have a very strong platform with all these analytics and real-time insights. So we study those customer, we sometime extend their validity. We sometime give them the kind of things which they need, basis their usage pattern and how they are. So this is getting managed through our customer value-based management system which we have, which we implemented it from second quarter, and that is working very well for us.

--------------------------------------------------------------------------------

Eyas Naif Saleh Assaf, PT Indosat Tbk - CFO & Director [8]

--------------------------------------------------------------------------------

Regarding the cost of service, I need to highlight the main reasons for the cost of service is, in Q1, there was one-time cost, fixed to the cost of service which is no more in Q1 2020, and also, lower interconnection costs which are achieved with better negotiation. Third items also, the handset. There was a big amount of bundling in Q1 last year, and we didn't do it in Q1 this year. These are the 3 main -- the main reasons.

--------------------------------------------------------------------------------

Operator [9]

--------------------------------------------------------------------------------

Your next question comes from the line of Piyush Choudhary from HSBC.

--------------------------------------------------------------------------------

Piyush Choudhary, HSBC, Research Division - Telecoms Analyst, South East Asia [10]

--------------------------------------------------------------------------------

A couple of questions. Firstly, if you can highlight how has competition changed since March when confirmed cases of COVID-19 were announced in Indonesia. Has it become much more rational? And what specific changes were made by Indosat products to improve data monetization in first quarter? Secondly, if you can throw light on your network rollout and CapEx objectives for 2020. Is there any change in network rollout plans due to COVID-19? What kind of challenges you are facing on rollout?

--------------------------------------------------------------------------------

Vikram Sinha, PT Indosat Tbk - COO & Director [11]

--------------------------------------------------------------------------------

Okay. Piyush, This is Vikram, again. So let me start by the competitive scenario and especially to do with COVID. I think the moment we saw the COVID impact coming, the good news is all of us, all the telcos we are more focused on making sure that we deliver our responsibility of making sure that we keep the customer connected. So there is a very good cooperations. And you will have seen some videos where all the telcos in Indonesia, they got together and they committed that we are there with our customer and we are there for the country. So all of us understand the importance of telecom and the importance of telecom on the time -- on this unprecedented time. So nothing very irrational or nothing very -- something which you can call it competitive strategy to do anything, but it is more of rising up to the occasion on this very important time. That has been the approach from a competitive scenario.

Talking about data monetization. I think the step which we took in quarter 4 last year, October onwards of coming out of Unlimited, and then our umbrella campaign of Freedom, which is very simple and more transparent, is helping us. And that is something. It's also helping us in terms of our product which we have launched. We have come up with a product which gets a daily quota. So all those things are under the umbrella of Freedom, and that is working very well. And we see that in terms of our monetization, helping us in a proper manner.

So the third question is on network rollout. The biggest learning which is coming from COVID is that we see a lot of traffic movement. The networks are generally designed to support all these office and malls and CBD area. Now the traffic has shifted to residential, and there is more demand in terms of indoor. So the good thing is, from last year only, we were focusing on indoor coverage experience improvement, and we were very much ready for that. And the acceleration which we had done -- and then you see the growth in our 4G BTS, which is 137% year-on-year. All these things helped us to be more ready for this kind of unprecedented. So there is no change. In fact, we are getting good support from government by putting telecom as an essential service. So our rollout also continues. So all these things is moving as per plan.

--------------------------------------------------------------------------------

Piyush Choudhary, HSBC, Research Division - Telecoms Analyst, South East Asia [12]

--------------------------------------------------------------------------------

Sure. And if I may follow through on one more thing. You said that online channels are facing higher uptick post-COVID. But how are you planning to mitigate the impacts of lower recharges through traditional channels?

--------------------------------------------------------------------------------

Vikram Sinha, PT Indosat Tbk - COO & Director [13]

--------------------------------------------------------------------------------

So the good news here is, while on the one side, Indonesia was always a very digital native, and we see quantum jump, whether it is our phone, my IM3 app or all the online channel, whether it is banks, whether it is all the other online platform. So we have put up a strategy to make sure that we are there, and it is very easy and simple for customers to buy. So this is on the online space. And then there are more initiatives planned. So that if there is a scenario like full lockdown also, we ensure that there is no stock out, whether it is in terms of recharge or whether it's in terms of starter packs. More focus is on recharge. So we are very much prepared for that also.

The second part is that we have close to 200,000 small outlet. So there are some red zones in the country where close to 15% of the outlets have closed. And we are tracking some of those things very closely. And then we are making sure that through our distribution channel, we don't allow any stock out at outlet level also. So that our products are very easily available. It is very conveniently available to all our customer. So we are taking care of both the channel.

While we shift -- what we see is a big shift on online. People, more and more, they are taking quantum jump. But still, the conventional, traditional continues to be very big. And we have put our complete plan and focus, especially keeping away and taking learning from other parts of the world like India and some of our other opco, that there is a complete lockdown also, we are completely ready to make sure that our recharge and our products are available. We have started a free SIM home delivery service also, and we saw some good response on that. These are small step, but it is very important. Please understand somebody who need us in and he cannot go out, he has an option of getting it delivered to his door without stepping out. So I think some of these things are helping us.

--------------------------------------------------------------------------------

Operator [14]

--------------------------------------------------------------------------------

Next question comes from the line of Arthur Pineda from Citi.

--------------------------------------------------------------------------------

Arthur Pineda, Citigroup Inc, Research Division - Director and Head of Pan-Asian Telecommunications Research [15]

--------------------------------------------------------------------------------

Just several questions, please. First is the revenue trends. Are you seeing any changes in terms of the revenue momentum going into the second quarter? I mean given that now we're seeing a longer impact on the partial lockdowns, is that impacting the consumer spending level? Second question I had is with regard to the subs comment a while ago. Sorry if I missed it. So the reduction in the subscriber base, is it mainly because of just rotational churn on the unlimited service? It has nothing to do with COVID? Is that correct? And last question I had is with regards to the provisions. It seems to mention that, that's been lower in 1Q '20, whereas for most other markets, we've actually seen a material increase in provisions. Are we expecting any bump up in the second quarter as the economy goes down?

--------------------------------------------------------------------------------

Vikram Sinha, PT Indosat Tbk - COO & Director [16]

--------------------------------------------------------------------------------

This is Vikram. Let me answer the revenue and customer piece. So in terms of revenue, so far, we see everything on the right direction. And as I explained, the data traffic has gone up. And it is our ability to make sure that we keep our customer in basic need. We are getting into the month of Ramadan and Lebaran, which is very important. And this year will be very different. where people used to go to their home town and villages, the government has announced a stop. So we have designed our campaign and everything to support that. The network readiness has also been done to support that. So far, everything is looking very much on track. Only on B2B side, we saw some orders from certain sectors which are badly impacted, getting delayed or getting postponed. But on the mobile and on the cellular side, so far, we don't see any negative impact of COVID. And also, we are keeping a very close eye on especially low ARPU customer, customers who, daily wages kind of a customer, to make sure that we are able to support them in the best manner. But overall, on the revenue side, we see things moving in the right direction. So far, so good. There is no negative impact.

Coming on to customer. As I explained earlier, this is something more to do with we stopping unlimited in quarter 4. And then we see some challenge because new customer addition has also slowed down in the scenario like this. But overall, we see more base engagement and better growth in terms of engaged base. We see good growth on 4G data users.

So this is how we see the quarter 2 trend. Now I'll request Eyas to highlight on the next question.

--------------------------------------------------------------------------------

Eyas Naif Saleh Assaf, PT Indosat Tbk - CFO & Director [17]

--------------------------------------------------------------------------------

Yes. I'm assuming -- this is Eyas. I assume you are asking about the budget provision.

--------------------------------------------------------------------------------

Arthur Pineda, Citigroup Inc, Research Division - Director and Head of Pan-Asian Telecommunications Research [18]

--------------------------------------------------------------------------------

Yes.

--------------------------------------------------------------------------------

Eyas Naif Saleh Assaf, PT Indosat Tbk - CFO & Director [19]

--------------------------------------------------------------------------------

Okay. If you remember, in Q4, we take a hit of IDR 62 billion because we are very conservative and we took all the worst-case scenario under the (inaudible) Q4. This was exceptional. And now in Q1, for shortly, the collection was as per our expectation, and there was no surprise from any revenue stream. Therefore, it went back to normal. Now in the future, what will happen with regarding COVID and then back to COVID, this is still unclear, and we'll see it more in Q2, Q3. But I assure you, we are very conservative in Q4 and to Q1. And we took all the required provision needed as the international standards and the local standards.

--------------------------------------------------------------------------------

Arthur Pineda, Citigroup Inc, Research Division - Director and Head of Pan-Asian Telecommunications Research [20]

--------------------------------------------------------------------------------

Understood. Sorry. If I can just ask a follow-up question on data monetization you spoke of earlier. Given that in the past (inaudible) were able to raise rate (inaudible).Given this partial lockdown scenario and all, do you think that data growth can be expected? Is there a no call from the government on CSR on this side?

--------------------------------------------------------------------------------

Vikram Sinha, PT Indosat Tbk - COO & Director [21]

--------------------------------------------------------------------------------

So what is -- this is again, Vikram. Just to your point, in fact, we changed our strategy last year itself. During the Lebaran period, we did not increase our rate. So I think this is under our umbrella campaign of being simple and transparent. So last year, during Lebaran also, we did not do a rate increase just for the period of Lebaran, and we continue with that policy. So this year also, we have plans and product to support our customer. But there is no increase on rate just to keep this period. We believe that, that is not the right thing to do.

The other piece is on CSR. We are working very closely with this government. Last week, we worked with the BNPB, which is the President appointed task force here. We are helping them on the best possible manner. We have come up with a lot of plans to support especially education and how do we make sure that our SMEs are collected. So there is a full plan which is going on on CSR. And we will continue to do more because, Indosat Ooredoo, we very strongly believe that this is a time where we need to make sure that we support the community, we support Indonesia. And we'll come out of this challenging time together. And this has been our approach.

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

Your next question comes from the line of Kresna Hutabarat from Mandiri.

--------------------------------------------------------------------------------

Kresna P. Hutabarat, PT Mandiri Sekuritas, Research Division - Analyst [23]

--------------------------------------------------------------------------------

I have 3 questions, please. #1, would you be able to share any guidance on key financials for 2020? I mean any view on how much the industry can grow its revenues in 2020, especially good given this -- given the crisis from COVID-19. Also, any revision on your CapEx budget and EBITDA margin target for 2020? That's question #1. Question #2. Regarding the provision for claim warranty related to the tower sale in fourth quarter '19, could we expect this cost item to be reversed eventually? And what will be the conditions required in order to reverse this position? I will stop there. Yes. There's 2 questions only.

--------------------------------------------------------------------------------

Vikram Sinha, PT Indosat Tbk - COO & Director [24]

--------------------------------------------------------------------------------

Sorry. Can you repeat the second question?

--------------------------------------------------------------------------------

Kresna P. Hutabarat, PT Mandiri Sekuritas, Research Division - Analyst [25]

--------------------------------------------------------------------------------

The second question is on the provision for claim warranty related to your tower sale in the fourth quarter '19. I think in your financial statement, an amount close to IDR 700 billion. Just wondering what sort of conditions required in order to reverse this position.

--------------------------------------------------------------------------------

Eyas Naif Saleh Assaf, PT Indosat Tbk - CFO & Director [26]

--------------------------------------------------------------------------------

Okay. I'll ask -- this is Eyas. Thanks for the question. I'll start with the second question, then Vikram will answer the first question. As you know that the warranty is valid for 6 months. This expire in the second quarter. So in second quarter, I can address it in more details what is the condition and such. But till now, we are feeling positive progress from both tariffs.

--------------------------------------------------------------------------------

Vikram Sinha, PT Indosat Tbk - COO & Director [27]

--------------------------------------------------------------------------------

Yes. Kresna, this is Vikram. The last time also, we -- last quarter, we spoke about this. We still strongly feel that the industry should be close to 4%, 5% growth. And I think the current trend and the new normal, what we see post-COVID, I mean this is what we believe is the new normal. The need for data, the need for telecom is going up. So we still stick to the same outlook of 4% to 5% industry growth.

--------------------------------------------------------------------------------

Kresna P. Hutabarat, PT Mandiri Sekuritas, Research Division - Analyst [28]

--------------------------------------------------------------------------------

Sorry. Any color on the -- in the CapEx target for full year '20 and EBITDA margin target? That will be helpful.

--------------------------------------------------------------------------------

Eyas Naif Saleh Assaf, PT Indosat Tbk - CFO & Director [29]

--------------------------------------------------------------------------------

Yes. As of today, we're still confident that we'll meet our guideline for EBITA margin and from CapEx numbers. So no change on the guideline.

--------------------------------------------------------------------------------

Operator [30]

--------------------------------------------------------------------------------

Your next question comes from the line of Prem Jearajasingam from Macquarie.

--------------------------------------------------------------------------------

Prem Jearajasingam, Macquarie Research - Analyst [31]

--------------------------------------------------------------------------------

2 questions from me, please. Firstly, could you share with us what percentage of your subscribers are currently using digital channels to reload their prepaid packs? And secondly, with regards to the trends that you're seeing, maybe you could get -- I'm wondering if you could get a bit granular. If you look at the last 2 weeks of March versus the first 2 weeks of April, have you seen any change in patterns around people's reload activities or even in terms of their spending patterns over that period?

--------------------------------------------------------------------------------

Vikram Sinha, PT Indosat Tbk - COO & Director [32]

--------------------------------------------------------------------------------

This is Vikram. So on your first question, around 22% of our customer is on digital channels and digital platform. And we see a very good growth in last 1 month. Just to give you one more indicator. In terms of our own app IM3, we are seeing a growth of -- within 1 month, 15% to 20%. So all the digital channel is seeing a quantum jump.

Moving on to the second question. In terms of customer usage pattern and behavior, we see a very strong need for content and gaming. So this is something which we are also working with our partner. We came up with a partnership with [BU]. And we see a good traction on content. And also, we see some of our gaming applications and gaming partnerships getting quantum jump.

--------------------------------------------------------------------------------

Prem Jearajasingam, Macquarie Research - Analyst [33]

--------------------------------------------------------------------------------

Sorry. I was referring more to both revenue as well as reload (inaudible). You compare the second half of March and the first half of April, is there any material slowdown and all that because of the lockdown?

--------------------------------------------------------------------------------

Vikram Sinha, PT Indosat Tbk - COO & Director [34]

--------------------------------------------------------------------------------

No, no, no. No significant change. As I said, we see everything moving in the right direction. There is no significant change.

--------------------------------------------------------------------------------

Prem Jearajasingam, Macquarie Research - Analyst [35]

--------------------------------------------------------------------------------

So it could have increased rather than decreased within that period?

--------------------------------------------------------------------------------

Vikram Sinha, PT Indosat Tbk - COO & Director [36]

--------------------------------------------------------------------------------

So it is all as per our plan. So we don't see any significant change. Whatever kind of month-on-month growth, what we have projected, it is all in line with that. Also, during Ramadan, we see everything on track.

--------------------------------------------------------------------------------

Operator [37]

--------------------------------------------------------------------------------

Your next question comes from the line of Ranjan Sharma from JP Morgan.

--------------------------------------------------------------------------------

Ranjan Sharma, JP Morgan Chase & Co, Research Division - Analyst [38]

--------------------------------------------------------------------------------

(foreign language) A couple of questions from my side. Firstly, on the network rollout. Are you seeing any difficulties in rolling outside? First, that you have had to add capacity to existing sites instead of building new sites? And how does that compare to your initial plans? So that's the first question. Secondly, on the leverage, right, like how should we think about the leverage? Because if you sell more towers, your net debt-to-EBITDA will come down. But the way credit agencies look at tower sale and leaseback agreements is to adjust for the lease liabilities. So should we be adjusting our net debt-to-EBITDA ratio for these liabilities as well? I mean is that how your credit agencies and your debt covenants are based on? Those are the 2 main questions that I had. So if you could answer those.

--------------------------------------------------------------------------------

Eyas Naif Saleh Assaf, PT Indosat Tbk - CFO & Director [39]

--------------------------------------------------------------------------------

Excuse me. Can you repeat the second question about the leverage? This is Eyas.

--------------------------------------------------------------------------------

Ranjan Sharma, JP Morgan Chase & Co, Research Division - Analyst [40]

--------------------------------------------------------------------------------

So leverage, right, you show your net debt to EBITDA is declining. But that would happen if you are doing tower sale and leaseback agreements. Because not only are you getting cash upfront from the tower sale, but your EBITDA will rise as you account for like capital leases now. So -- but I know for the credit rating agencies, they look at tower sale and leaseback agreements as more credit neutral events, because you get cash upfront, but you also get lease liabilities. So should we not be adjusting your net debt to EBITDA by the lease liabilities? And I think that's what Ooredoo does as well.

--------------------------------------------------------------------------------

Eyas Naif Saleh Assaf, PT Indosat Tbk - CFO & Director [41]

--------------------------------------------------------------------------------

To be frank, is -- we need to understand the question. As you are talking now on behalf of the creditors or on behalf of the credit agent. In summary, there's no change in the terms and condition with the creditors. And the banks and bonds covenant is the same. No change before or after the quarantine.

--------------------------------------------------------------------------------

Ranjan Sharma, JP Morgan Chase & Co, Research Division - Analyst [42]

--------------------------------------------------------------------------------

So the question was when you look at your leverage ratios, your net debt-to-EBITDA ratios, should we also not add lease liabilities to the net debt to look at the underlying leverage ratio?

--------------------------------------------------------------------------------

Eyas Naif Saleh Assaf, PT Indosat Tbk - CFO & Director [43]

--------------------------------------------------------------------------------

This is -- we are following the terms and condition with the bank's agreement. And this is the calculation with the bank. Nothing has changed. What we are seeing here is exactly what has been mentioned in the bank's agreement, and we are following exactly the calculation and the way to calculate it. Nothing has changed in the bank's agreement after we change (inaudible). If we want to discuss this, we can discuss offline in more details. But as of today, this is -- what we present is exactly what has been mentioned in the bank's agreement.

--------------------------------------------------------------------------------

Vikram Sinha, PT Indosat Tbk - COO & Director [44]

--------------------------------------------------------------------------------

Ranjan, Ramadan Mubarak to you also. This is Vikram. Talking about your first question on network rollout. Overall, we -- till now, we have been able to roll out network as per plan. We see some challenge on fiberization. And keeping the current situation in mind, we have set up a plan to mitigate that through microwave. So the good thing is we have been able to cover that with the equipment being in the country. So we -- you will see the acceleration and the growth. But the impact was only on fiberization. Otherwise, government is supporting by telecom as an essential services, so especially network operation team, the field rollout team. In areas where it is difficult to go out, they have the permissions and the approvals to do their work.

--------------------------------------------------------------------------------

Operator [45]

--------------------------------------------------------------------------------

Your next question comes from the line of Niko Margaronis from Danareksa Securities.

--------------------------------------------------------------------------------

Niko Margaronis, PT. Danareksa Sekuritas, Research Division - Analyst [46]

--------------------------------------------------------------------------------

And I have a few questions on competition basically. Noted on the -- your comments on the performance on the top line. I just want to -- maybe on the ARPU, yes, seeing that the revenue on Q-on-Q basis coming down. The ARPU has gone up. And can you explain what has driven this ARPU improvement in the first quarter 2020? That's my first question. Secondly, yes, given that this is very dynamic, I suppose, current with the market, how do you see the competition going into the second quarter? I mean what you've seen so far in April and going into March -- going into May? And thirdly, it's on -- we noticed the severance costs on the first quarter. Will there be additional costs going forward in relation to the employee terminations?

--------------------------------------------------------------------------------

Eyas Naif Saleh Assaf, PT Indosat Tbk - CFO & Director [47]

--------------------------------------------------------------------------------

Okay. This is Eyas. I'll answer the third question and I'll leave Vikram handle first and second. No. We booked the total cost for the restructuring in Q1. So we don't expect to book additional costs in Q2 or Q3 or Q4. It's clear?

--------------------------------------------------------------------------------

Niko Margaronis, PT. Danareksa Sekuritas, Research Division - Analyst [48]

--------------------------------------------------------------------------------

Yes, Yes.

--------------------------------------------------------------------------------

Eyas Naif Saleh Assaf, PT Indosat Tbk - CFO & Director [49]

--------------------------------------------------------------------------------

Okay. Thanks. Vikram?

--------------------------------------------------------------------------------

Vikram Sinha, PT Indosat Tbk - COO & Director [50]

--------------------------------------------------------------------------------

Niko, this is Vikram. So ARPU is mainly driven by growth in 4G customers and also the correction which we took in quarter 4 of coming out of Unlimited. These are the 2 main driver of ARPU. In terms of Q2 early trend, we see positive traction. We don't see any concerns. In fact, we are seeing a better base engagement and base growth.

--------------------------------------------------------------------------------

Niko Margaronis, PT. Danareksa Sekuritas, Research Division - Analyst [51]

--------------------------------------------------------------------------------

On your -- on the remarks for the second quarter, I noticed that you also issue a new pack named Harian, which is very similar to smartfren package. Is there some competition brewing with -- yes, with smaller peers?

--------------------------------------------------------------------------------

Vikram Sinha, PT Indosat Tbk - COO & Director [52]

--------------------------------------------------------------------------------

No. I think this is more to do with our whole umbrella campaign of Freedom and Simplicity. We saw a strong need for daily, weekly and monthly pack. So the Harian thing is mainly based on 1 GB, 7 GB, 28 GB. Only thing is this is not unlimited, and we are very transparent in talking about it. And in terms of our FUPs and our throttling, it comes under Freedom umbrella. So this product also, once you complete your quota, you only get 64 kbps. So we are staying consistent, and this has nothing to do with competition. This is on the study of our customer and the feedback from customer on the need for this kind of products.

--------------------------------------------------------------------------------

Operator [53]

--------------------------------------------------------------------------------

There are no further questions at this time. I would like to hand the conference back to today's presenters. Please continue.

--------------------------------------------------------------------------------

Christy Kusumaatmaja, PT Indosat Tbk - Vice President - Head of IR [54]

--------------------------------------------------------------------------------

I think everybody already placed the questions. So with that, I think we'll conclude the earning call for today. Thank you, everybody, for participating. And if there's any additional questions, please send me an e-mail or WhatsApp me. Thank you so much. Bye.

--------------------------------------------------------------------------------

Operator [55]

--------------------------------------------------------------------------------

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may all disconnect.