KUALA LUMPUR: Axiata Group Bhd expects its two engines of growth — Celcom Axiata Bhd and Indonesia’s PT XL Axiata Tbk (XL) to continue to put pressure on its earnings this year, although an improvement is expected in the second half.

“The (growth) trajectory for the second half of the financial year ending Dec 31, 2015 (2HFY15) would be better than the first half,” Axiata group chief executive officer Datuk Seri Jamaludin Ibrahim told a press conference after the group’s annual general meeting yesterday.

Still, Jamaludin admitted that it would be “challenging” to reverse the trend of falling profits seen in the first quarter ended March 31, 2015 (1QFY15).

Axiata saw its net profit for 1QFY15 fall 13.3% to RM584.84 million from RM674.88 million in 1QFY14, dragged by losses in its Indonesian operations, lower profit contribution from Celcom, foreign exchange (forex) losses and higher depreciation costs.

“We have just passed three months (of the financial year) officially. We want to see (results) for this quarter and the next quarter. It is premature to make a forecast for the rest of the year,” said Jamaludin.

He also declined to indicate whether Axiata (fundamental: 0.85; valuation: 1.1) would achieve its initial key performance indicator targets of 4% growth in revenue and earnings before interest, tax, depreciation and amortisation.

Jamaludin explained that Celcom’s earnings in 1QFY15 were dragged by “teething issues” from the company’s IT transformation programme last year which led to loss of confidence among distributors and customers in its systems.

During the quarter, Celcom, the country’s second largest mobile operator, lost 688,000 subscribers while its net profit declined by 18% year-on-year to RM378.1 million.

“To be frank, some dealers lost confidence in us. Regaining that confidence cannot be done overnight. We have to prove that our system has not only recovered, but it is the best. We have dozens of initiatives to regain (confidence) and there are goods signs from them,” said Jamaludin.

XL, which suffered RM215.4 million in losses in 1QFY15 due to forex losses and a shift in strategy from lower value customers to middle-end customers to boost average revenue per user , is also expected to do better in 2HFY15.

“For the record, (XL registered) a very strong black (profitability) if not for forex and its acquisition of PT Axis Tbk. After spending US$865 million (RM3.13 billion), there would be an impact from a loan perspective which is denominated in US dollars and also the interest on the debt,” said Jamaludin.

About 67.2% of XL’s loans are denominated in US dollars, but Axiata group chief financial officer Chari TVT said measures are being taken to mitigate future forex losses which include entering into currency swaps and rate swaps.

“We are also talking to our suppliers and converting some of the US dollar contracts to rupiah. Services contractors are accepting this and we are still negotiating with hardware contractors,” added Chari.

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This article first appeared in The Edge Financial Daily, on May 21, 2015.