GREENPOWER MOTOR Co INC. Q2 FY2023 Earnings Call

Good morning, everyone. Welcome to Grameenphone's earnings disclosure for the second quarter of 2023. My name is Aleef, and I'm the Head of Investor Relations. And with me today are our CEO, Mr. Yasir Azman; and our CFO, Mr. Jens Becker. Please note that the presentation we are sharing today, financial statements, along with additional documents are available on our Investor Relations website. In case you are unable to post your questions due to technical reasons, please send them to me by email or text. I will now welcome our CEO, Mr. Yasir Azman, to start our presentation.

Thank you, Aleef, and good morning, everyone. Thank you for joining us for our quarter 2 earnings call. I'm Yasir Azman, Chief Executive Officer of Grameenphone, and I would like to begin with some key industry updates. As reported by our regulators, until May this year, the telecommunications industry reported 185.1 million subscribers, increasing by 1.2 million subscribers from March 2023. And during the same period, mobile data users increased by 1.5 million and reached 115.6 million in May 2023. If I go to the highlights of the quarter, Grameenphone has continued its growth momentum, riding on its network investment, innovation, digital adoption, and execution excellence, and showed improved financial performance amidst a challenging macroeconomic situation. Inflation level in Bangladesh currently stands at the highest level in the last 11 years reported by Bangladesh Bank, and it is directly impacting the overall spending capabilities of our customers. Bangladesh Bank in July announced a new monetary policy lifting the interest cap on bank loans and raising the repo rate by 50 basis points to control inflation. As of July, and in line with the IMF guidelines, Bangladesh's Forex reserve stands at $23.6 billion. The macroeconomic pressure from a depleting Forex reserve continues, which also impacts on the LC openings in June being the lowest in 2023 with a year-on-year fall of 27%. However, as I already highlighted, following the growth momentum in the first quarter, Grameenphone is reporting improved performance driven by revenue and EBITDA in the second quarter of 2023. We continue to focus on enhancing our customers' experience through our network investment. At the same time, we are leading the market by launching industry-first initiatives and digital-centric, customer-focused solutions. With regards to dispute resolutions, Grameenphone and the Large Taxpayer Unit, through an alternative dispute resolution process, have settled all income tax disputes for the assessment years from 2007 to 2008 to 2019, 2022, and obtained a tax clearance certificate from LTU Tax for the same period on 22nd June this year. With this settlement of disputes, GP considers that NBR claims under the BTRC audit demands related to corporate tax have been resolved. Following the publication of the honorable Appellate Division's written judgment on 1st June 2023, GP has paid the entire principal amount of BDT 9.9 billion to BTRC on 14th June this year, without prejudice to its right to pursue review petitions and without considering any factual or legal issue in accordance with the said judgment. While making this payment, GP also reserves the right to adjust against its future payment obligations, subject to the outcome of the review petitions. Subsequently, GP also filed review petitions before the honorable Appellate Division challenging the said judgment. GP is also continuing, without prejudice, constructive dialogue with BTRC to resolve any matters related to this in terms of interest and fees. There is a challenging macroeconomic environment. We continue to grow our top line and EBITDA now for nine consecutive quarters, reinforcing our commitment to driving sustainable growth and creating long-term value for our shareholders and stakeholders. Now to expand a bit more on the business aspects. In Q2 2023, we have a significant level of network investment in spectrum rollout, increased number of sites, and capacity enhancement. We have increased fiber connectivity from 17% to 40% over the last six quarters and have rolled out over 21,000 total sites. We have invested in new tools to provide better customer experience in the technology space. We have further strengthened our #1 network position through surgical priority of our increased investment. We have modernized our physical distribution by introducing a tax-free distribution model in partnership with Mutual Trust Bank, which eliminates manual intervention. It simplifies our operation and enhances productivity. This signifies a transformative lift towards a streamlined and digitally empowered ecosystem. We have also launched our state-of-the-art Grameenphone Experience Center in Dhaka, which is in Gulshan 2, driven by the commitment to customer at the heart of every endeavor. The experience center has been meticulously designed to fulfill customer demands and queries with utmost convenience. With a future-fit outlook, Grameenphone has created a unique environment here that offers premium service, cutting-edge technologies, and an unforgettable experience for our visitors. Our focus on digital adoption has resulted in almost 32% of year-to-date recharge transactions, demonstrating the growing trend towards digital adoption and engagement of our enhanced customer. MyGP continues to be the largest local app in Bangladesh with 15.7 million customers, while our total self-care app users reach 17.5 million. This reflects the success of our continued efforts to develop a seamless digital experience for our customers. Grameenphone always believes in ensuring simplicity and convenience for customers. 99% of our customer services can be availed through the self-care app. International roaming and its related services are the latest addition in the MyGP app, which was only available through physical visits to Grameenphone centers earlier. Customers can easily activate roaming service through the MyGP app on their own and on-the-go. Subscriber base growth momentum continued in the second quarter, increasing by 1.1 million to 81.3 million in total. Unleashing the next level of customer experience, at Grameenphone, we strive to provide customer-centric digital solutions and industry-first initiatives, putting the demands of our customers at the core. Several exciting and innovative products and services have been launched in this quarter to enrich our customers' digital lifestyle and mobility. One of them, the Grameenphone Prime, is the enhanced and revamped postpaid product that offers customers a limitless digital lifestyle with a variety of benefits. This subscription not only fulfills the customer's telecom needs but also offers diverse lifestyle benefits like digital subscriptions and exclusive privileges at our partners' outlets. Secondly, Grameenphone has partnered with T Sports, Bangladesh's first dedicated sports channel. Through this partnership, we offer our customers access to popular sports. This initiative, which pairs entertainment and connectivity, is designed to meet our customers' needs and enhance their digital experience. As an industry-first initiative, Grameenphone has also introduced tourist SIMs for the first time in Bangladesh. This service enables short-term visitors to purchase authorized SIM cards and enjoy seamless connectivity while visiting Bangladesh. We continued our initiatives that empower societies. We believe that our responsibility extends beyond just our business operations, and we are deeply committed to driving social impact and making a positive difference in the communities we serve. GP is committed to protecting the environment and contributing to the prevention of climate change. The priority is to minimize CO2 emissions from GP's operations in line with the targets set in the Paris Agreement on climate change and through science-based target initiatives. By adopting these climate targets, GP demonstrates its commitment to operate sustainably while also positioning itself as an industry leader in climate reduction in Bangladesh. GP has set a target to reduce 50% of its emissions by 2030 from its baseline in 2019. With Grameenphone Academy, we aim to reach the youth of our nation to build their future-fit skill set. Within one year of our journey, more than 58,000 individuals have enrolled in this platform, out of which 15,000 were female. As an equal opportunity employer, diversity and inclusion are imperative in the way we conduct our business. Our diversity agenda broadly includes gender, skills, and competence. As of the second quarter of 2023, the percentage of women in the total workforce reached 19.4%. I'll now welcome our CFO, Jens Becker, to take you through our financial performance for the quarter and come back at the end to summarize.

Thank you, Azman, and good morning, everyone. Let me start with a short overview of the key financial KPIs. Grameenphone continued its financial performance in Q2 with nine consecutive quarters of growth in top line and EBITDA amidst rising inflation and other macroeconomic challenges. Fortifying the deployment of new spectrum and site rollout to improve network experience, along with increased customer-focused market activity, resulted in a 5.3% year-on-year growth in subscription and traffic revenue after 2.7% growth in the last quarter. Additionally, Grameenphone's continued drive for operational excellence, along with top line growth, resulted in a 5.7% year-on-year EBITDA growth in Q2 after 2.7% EBITDA growth in Q1 while maintaining a strong EBITDA margin amidst the highest inflation in the last 11 years. With our continued investment momentum, GP's CapEx to sales ratio, excluding licenses and leases, for the quarter stood at 14.2%, which was 13.4% in the previous quarter based on a four-quarter moving average. However, on a standalone basis, our CapEx to sales ratio for the quarter stood at 17.7%. EPS for the quarter stood at BDT 8.84, with a year-on-year growth of 29.7%. The EPS growth was positively impacted by one-off adjustments. Grameenphone's subscriber growth momentum continued in Q2 with 1.1 million net adds during the quarter, though our subscriber losses during the previous period have not been fully recouped. In addition, after three quarters of degrowth, data users returned to growth momentum with 2.6 million data users added during the quarter. Our reported subscriber base at the end of the quarter stood at 81.3 million, with a 1.4% growth from the previous quarter and a reduction of 4% from last year, while the number of data users stood at 46.1 million with a quarter-on-quarter 6% growth and a reduction of 0.2% from last year. Due to the growth in the subscriber base, GP's subscription market share improved to 43.9% from previously 43.7% during the quarter according to BTRC published information as of May '23. Grameenphone delivered nine consecutive quarters of growth in total revenue as well as in daily subscription and traffic revenue. Total revenue in Q2 grew by 5.6% year-on-year after 2.8% growth in the previous quarter. The growth in total revenue was mainly driven by a 5.3% growth in daily subscription and traffic revenue, which was 2.7% in the last quarter. Continued and improved double-digit growth in data revenue remained the main contributor to the accelerated growth in subscription and traffic revenue this quarter. For the last two quarters, Grameenphone has delivered double-digit growth in data revenue with improved growth momentum. In Q2, Grameenphone delivered a year-on-year 17.1% growth in data revenue, up from 11.5% growth in the previous quarter. This continued growth momentum in data revenue is the outcome of our efforts to improve network experience along with our consistent efforts to simplify the products and improve the digital experience to ensure that our offerings are more focused and effective, meeting our customers' evolving needs. Additionally, Grameenphone introduced appealing bundle packs throughout the quarter in both physical and digital channels, which led to a 9.4% increase in bundle revenue from the prior quarter. Grameenphone's average data usage per user reached the 7 gigabyte milestone during the quarter, the highest ever in GP's history, with a 32.5% growth from last year and 15.2% growth from the previous quarter. The growth in data usage was supported by better network experience as a result of continued efforts toward network expansion, deployment of new spectrum, and fiber connectivity. Despite the year-on-year 4% decline in our subscriber base, GP service ARPU grew by 10.6% in Q2 compared to last year, and we recorded a 5.6% growth in service ARPU compared to the previous quarter against the quarter-on-quarter 1.4% growth in our subscriber base. The year-on-year growth in service ARPU was mainly driven by a higher contribution from both our data and voice segments. Reported OpEx for the quarter stood at BDT 13.1 billion, reflecting a year-on-year growth of 9%. The year-on-year growth in OpEx was mainly contributed by the increased energy price and network expansion. Grameenphone delivered consecutive nine quarters of growth in EBITDA. During the quarter, GP registered a 5.7% year-on-year EBITDA growth, which is double that from the previous quarter, while maintaining our EBITDA margin at 61.1%. The accelerated growth in EBITDA was driven by our top line growth and our continued drive towards operational efficiency, which led to better cost performance amidst the hike in energy prices, inflationary pressures, and other macroeconomic challenges. GP invested BDT 7.1 billion in CapEx during the quarter, focusing mainly on our 4G network, coverage expansion, and spectrum deployment. We rolled out more than 2,200 new 4G sites and over 1,600 new coverage sites in the last 12 months. At the end of Q2, the number of 4G sites reached 20,603. During the quarter, our 4G population coverage reached 97.9%, with a 0.8 percentage point increase from last year. Net profit for the quarter stood at BDT 11.9 billion, with a margin of 29.8%. The year-on-year 29.7% growth in net profit was mainly contributed by positive one-off adjustments arising from the settlement of disputes and completion of assessment. Operating cash flow for the quarter stood at BDT 17.3 billion, reflecting a year-on-year BDT 0.2 billion decline in combination of BDT 1.3 billion higher EBITDA and a BDT 1.5 billion increase in CapEx. On the other hand, net debt stood at BDT 13.8 billion as of Q2, consisting of BDT 23.2 billion short-term bank loans and BDT 9.4 billion cash balance, excluding restricted cash. In the first half of '23, GP has paid BDT 70.3 billion, equaling 91% of its total revenues, to the national exchequer in the form of taxes, VAT, duties, licenses, and spectrum assignment fees. Since inception, GP has contributed BDT 1,131 billion to the national exchequer. During the quarter, Grameenphone saw positive developments on the resolution of legacy disputes. It settled all the income tax disputes until 2018 through the alternative dispute resolution process and paid BDT 7.8 billion to NBR. Additionally, GP has already paid BDT 9.9 billion with regards to the written judgment for 2G. With this, as mentioned before, our contribution to the national exchequer in the first half equals 91% of total revenues. Additionally, GP is in constructive dialogue with BTRC for the remaining settlement with an unknown outcome. Despite this positive development on dispute resolution, this BDT 17.7 billion payment strains GP's cash position, as it comes on top of our regular payments. In light of these additional payments and the uncertainties around the final settlements, GP is not recommending an interim dividend for the first half of '23. With this, I'm handing back to Azman now.

Thank you, Jens. To summarize, the second quarter of 2023 registered ongoing growth momentum in both revenue, which is at a 5.6% level, and EBITDA, which is at 5.7%, driven by 10.6% ARPU growth, strong market execution, innovation, and a strategic focus on network investment. Keeping the customer at the core of everything we do, we are enhancing customer value and strengthening our position as the #1 network. We have invested BDT 7.1 billion in CapEx in the last quarter. We continue to focus on looking towards the needs of our customers to promote digital-centric innovation and services driving growth momentum. More than 99% of customer services can be fulfilled by the largest local app in the country. Digitalization of our customer interactions through MyGP and other digital channels has contributed to both efficiency and driving growth. We have had positive developments on dispute resolutions with our authorities, and those have already been highlighted by our Chief Financial Officer. I'll now hand back to Aleef for the Q&A session. Thank you, everyone.

Thank you, Azman Bhai. We will wait for a few minutes now for the questions to start coming in, I believe which they have. So we can start first with Jens. So Jens, where did such a substantial tax addition come from?

Yes. Let me address this. This amount includes the sums related to the resolution of disputes and the completion of assessments. If you refer to the financial statements, you will find additional details in disclosure note 29.1.

Thank you. We have another question for you, Jens. What was the total settled amount for two litigations? How did you incorporate them in financial reporting?

Yes, I assume that this refers to the 2G litigation. So during the quarter, Grameenphone saw positive developments on the resolution of our legacy dispute, settling all the income tax disputes until 2018 through alternative dispute resolution and paid BDT 7.8 billion to NBR. Additionally, GP has already paid BDT 9.9 billion concerning the written judgment for 2G. For accounting topics, please refer to note 20.1 and 35b.

Thank you, Azman Bhai. This one is for you. What is causing the active data users' decline?

Okay. Actually, Grameenphone's subscriber growth momentum, which has continued in Q2, as we already mentioned, includes 1.1 million subscriber additions during the quarter. However, the losses during the previous period have not been fully recouped. After three quarters of decline, data users have returned to growth momentum with 2.6 million data users added during the quarter, which is significant progress. Thank you.

Thank you, Azman Bhai. Jens, we have some more questions for you. What are the updates on other legal issues?

Yes. Except as disclosed in note 35 of the interim financials, there have been no significant developments of the events disclosed in the financial statements for the year ended 31st December 2022. So no further significant developments on the other topics.

Thank you. Jens, we have one more for you. We see no declaration of interim dividend, which is an exception to GP's usual norm. What are the reasons?

Yes, I think I mentioned it in the speech already, but let me reiterate. During the quarter, Grameenphone saw positive developments on the resolution of our legacy disputes. We have settled all the income tax disputes until 2018 via alternative dispute resolution and paid BDT 7.8 billion to NBR. Additionally, GP has already paid BDT 9.9 billion regarding the written judgment for 2G. Our contribution to the national exchequer in the first half equals 91% of total revenues. We are also in constructive dialogue with BTRC for the remaining settlement, which as of today has an unknown outcome. Despite these positive developments, these issues, particularly the BDT 17.7 billion payment, strain our cash position as they come on top of our regular payments. In light of these additional payments and the uncertainties surrounding the final settlements, we are not recommending an interim dividend for the first half of '23.

Thank you, Jens. We have one more for you. What is the current total amount of contingent liabilities net of all these payments?

I think you can find Grameenphone's contingencies in the annual financial statements of the year 2022 and also in the interim financials for the first half of this year.

Thank you. Another one for you. Could you please explain the BDT 4 billion provision under finance expenses and BDT 6.4 billion provision reversal under income taxes? What are their sources?

Yes. GP has taken the provision for regulatory disputes based on the available information regarding the outcomes of court proceedings mentioned in disclosure note 28.1. The tax, as I mentioned before, includes amounts arising from the settlement of disputes and completion of assessment. And again, more details can be found in disclosure note 29.1.

Perfect. So that's all the questions and answers that I can see until now. Why don't we give it a couple of minutes and see if any more questions come in. Okay. So I think that concludes it. If there are any more questions that may have been unanswered or if you have any further questions, please reach out to me, and then we will take it forward. So there are no further questions. And thank you very much, Azman Bhai and Jens, and thank you all for joining. Goodbye.