Transforming Axiata

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Saturday July 17, 2010

By B.K. SIDHU
bksidhu@thestar.com.my

Can Jamaludin Ibrahim make the group a regional champion?
SCEPTICS were doubtful if Datuk Seri Jamaludin Ibrahim could make any real change to Axiata Bhd apart from the branding perspective when he returned to the world of technology and communications.

This silver-haired corporate chief quit Maxis Communications Bhd in July 2007 to take a break and spend time with his family. Little did he know that his retreat would be short-lived.

In March 2008, he was back, heading Axiata (formerly TMI International Bhd). Axiata was a gem within Telekom Malaysia Bhd’s (TM) ambit but it needed a real good shine. Sceptics thought his experience did not match the job he had taken on at Axiata, which had legacy issues too.

At that point Axiata had also just finished spending millions of ringgit to widen its geographical footprint in Asia and those assets needed to be consolidated. Axiata has operations in 10 countries including two populous countries, India and Indonesia, where cellular growth has been phenomenal.

It is indeed a challenging job given his mandate to turn Axiata into a regional champion, pitting it against giant Singapore Telecommunications that has struck that pose in Asia.
What lured Jamaludin to dump his beach wear and the white sandy beaches for the job was the chance of “having a nice platform to develop talent for Malaysia and internationally,’’ besides doing national service.

“That really motivated me,’’ he says in an interview. He is the managing director, president and group CEO of Axiata and formerly group CEO of Maxis.
The call may have been tough, the sceptics unconvinced, but he just moved in to take the bull by its horns.

Enter Jamal
He looks at the group and felt “enough of inorganic growth”. That came just less than two months at the job.

He also closed the doors to new acquisitions. Moreover, opportunities were also limited in Asia and assets becoming increasingly pricey.
“I also felt then and even now that we had this nice bunch of companies and if we bring the right management team and strategy, it would be better,’’ he says.

Axiata, or TMI then, had its own strategy, but to work towards becoming a regional champ meant heads must roll, cuts must be made, and change was critical.
A simple branding exercise was not the way to go.

The obvious first step was the need to strengthen the management team. To do that the bar needed to be raised, standards improved, operational models revamped, cost reduced to raise the return to stakeholders.

“Good is not good enough,’’ he says.
Of course, change is often difficult when it concerns people and that was one of the most difficult parts of the change process, admits Jamaludin.

Engage the talent
Among the first things he did was engage with the staff to build talent and that was tough.
It was not a question of Axiata not having talent but managing that, retaining, rewarding and at the same time axing what did not jell. The thought process then was “build for the future.’’
Jamaludin says: “We had the wrong notion that people don’t work hard, so we were pleasantly surprised that Axiata had a good set of people. That was good news (from the onset).’’

After two years, he has 50 CxOs (the x stands for such things as operations, financial, technology and information) across Asia of which 25 are new. It was a good mix of Malaysians and foreigners some of whom are from the respective geographic locations from which Axiata operates.

“It is diversity and our strategy is supportive of that,’’ Jamaludin says.
But getting 25 newcomers in was not easy because of resistance from within, especially from those who thought they were candidates for the posts.
The way he handled the situation was via discussions and engaging with the employees. He explained the need to bring in talent and the need to drive Axiata into a regional champ. Recently Axiata announced some management changes and these were intended to give people a chance to learn new things and this move helps minimise vertical promotion.
“We asked them to go somewhere else or do something else, such as from finance to non-finance before they move up,’’ he says.

By 2015 he wants 100 CxOs, and he is well on track to achieving that. Half would be Malaysians.

The makeover
Legacy issues were a given. The name change was a necessity to reflect the dynamism of a cellular company which evolves at a fast pace. Logically, the separation from TM was critical for it to stand alone.

Axiata was picked from the 700-odd names on its list. It does not mean anything but it reflects “an international company.’’ Its theme now is “advancing Asia’’ and that is about connecting Asia to the rest of the world.

“It is not a jaguh kampung. We were quite worried about the name change, about its sensitivity and trying to find a name that reflects a bit of Malaysian (yet) not so Malaysian,’’ explains Jamaludin.

To stay further away from the image of TM and to cut links, Axiata moved to its spanking new address at Sentral KL where its corporate office is located and so is the shared training facility known as “Celcom Axiata Infinity Centre.’’ It has 120 people at its corporate office and the total staff strength of the group is 25,000 people.

Axiata’s crown jewel, Celcom Axiata Bhd, has been a major contributor to earnings. That remains, but increasingly the overseas operations are contributing more. Indonesia’s PT XL Axiata tbk (XL) is seemingly fast becoming a favourite as its contribution has been staggering the past one year.

Axiata found its way to Bursa Malaysia in April 2008 and has been a pick of fund managers who see this as a pure cellular play competing with the likes of Singapore Technologies, SK Telecom and several other regional players.

Fast forward to today
Axiata’s market capitalisation today has tripled from RM12bil before the demerger to RM34.7bil as at this week. Its share price has never hit the RM4 mark until this week. It hit RM4.12 on Monday. The stock has outperformed the KLCI by 35.1%. The stock closed at RM411 yesterday for a year-to-date gain of more than 30%.

In terms of subscribers, the change has been drastic from 40 million when he took over, to 130 million of which 10 million is in Malaysia alone.
Celcom has been a major contributor towards Axiata’s coffers but change is happening as the overseas operations are now contributing positively.
The revenue contribution equation of 45:55 (Malaysian:international) will change to 35:65 by 2015.

“We have targets for both revenue and profit for 2015, and we are not far from that,’’ he says.
It is no wonder Jamal feels Axiata is undervalued.
At RM34.7bil, its market value is still below the re-listed Maxis (sans its foreign operations) whose market value is RM39.8bil. Should Axiata then re-consider a re-listing of Celcom to get into the same league as Maxis in terms of market cap?

“In the short term it is tempting, but in the longer term that may not be the best vision. We need to have complete control to spurt our growth,’’ Jamaludin said.
Its India operations from Spice has been merged with Ideal Cellular, giving Axiata a 20% stake in a much bigger company that has business in seven out of the 22 circles in India from three previously. The book value of this investment in India is about US$2bil now.
Axiata wants a bigger stake in India, but may have to wait as “right now there is none.’’
Jamaludin says the source of future earnings will be from its overseas business and product-wise, data and broadband services will bring in the returns the market has been talking about for over a decade. Its data business contribution should be about 40% over the next 3-5 years from 30% currently.

There is cash in the coffers to the tune of RM2.85bil (cash and bank balances at at end-March 2010) and a dividend policy is in the works. But Jamaludin is not saying anything for the moment.
But analysts are betting on it for this year. Let’s see if he shocks the market later this year.
Profit forecast for this year is well “on track’’, he says.

The hurdle ahead
While Jamaludin may have done things smartly by bringing in people, getting the processes in order and bringing the cost down, the job is far from complete.
Axiata’s challenge will be to bring innovations to the market place and video-based applications. It is working with partners but the call would be tough given the fact that Maxis, its biggest rival, is going to combine content with sister company Astro for its future offerings.
Perhaps this is the time for Axiata to go back to TM, both of whom share common shareholder Khazanah Nasional Bhd.

It works to Axiata and TM’s advantage to team up as one lacks a fibre network and the other is a cellular outfit. The fit could bode well for both but content will be the biggest challenge and video-based services will be the theme of the future.

Axiata is also not about to pour in millions of ringgit to build a fibre network. Jamaludin is not for it, saying “we have the licences to roll out fixed broadband but it is not economical.’’
Elsewhere its operations will be subject to regulations, geopolitical issues and competition. The emergence of over the top non-traditional players such as Google and Skype that can offer free voice and other services will be something to watch out for.
Building partnerships to reduce cost, like it is contemplating with DiGi.Com Bhd, for sharing of transmission facilities will help reduce costs and duplication.
It would also need more spectrum locally and abroad and there is a price for that as seen in the recent intense price war in spectrum auctions in India. All this requires funding but Jamaludin says “according to our plan, all the operations are self-funding and we do not see the need to raise funding over the next one to 1½ years.’’
Could the entire transformation of Axiata be done differently or at a faster speed?
Says Jamaludin: “It could have been done slightly faster, be it in talent management, leadership programmes, strengthening of the company etc.
“However, we do not simply make changes as we are dealing with people’s lives. We have to respect that.’’
The real champ
Yes, he has made changes beyond mere re-branding change. It is a total revamp, and if the people and systems are the right ones and at the right places, there is more than a decent chance that Axiata will become one of Malaysia’s regional champions.
“I have to hand it to him as there was sceptism earlier that he will not make it,’’ says an analyst.

But for now, we will have to wait as the finishing line is still miles ahead. Regional champ in 2015 – that is five years from now, and there is already talk of a second economic slowdown.

http://biz.thestar.com.my/news/story.asp?file=/2010/7/17/business/6669764&sec=business