Earnings Call Transcript - GP Q3 2021

Naureen Quayum, Head of Investor Relations

Good evening, everyone. Welcome to Grameenphone's earnings disclosure for the third quarter of 2021. My name is Naureen. I'm the Head of Investor Relations for Grameenphone, and thank you for joining us today. Our presentation, financial statements and additional documents are available on the Investor Relations website. You can also start posting your questions in the comment box. We will address them at the end of our presentation. In case you're unable to post your questions, please feel free to reach out to me by e-mail or text. We will now start our presentation with our CEO, Mr. Yasir Azman.

Yasir Azman, CEO

Thank you, Naureen, and good evening, everyone. My name is Yasir Azman, CEO of Grameenphone. Thank you for joining us for the third quarter results announcement. I would like to begin with some industry facts. As reported by our regulator until August 2021, the telecommunication industry has gained almost 8.5 million subscribers, registering a 5% growth from the end of 2020, ending with 178.61 million. GP's customer base at the end of August 2021 was 82.18 million, which is 46.5% of the total mobile subscribers in the country. In the same period, mobile data users have increased by over 13 million, reaching 115.41 million, which is a 12.7% increase from the end of 2020. If I may talk about the highlights of the quarter. We continued our top line growth in the third quarter with a 1.8% growth in total revenue from last year’s quarter three. With the addition of 2.4 million data customers this quarter, we see an increase of 9.7% data users from last year. We also retained growth traction in 4G users, registering a 55% increase year-over-year. We started the third quarter with a stricter lockdown, I would say the strictest one we have seen during the whole pandemic starting from March 2020. However, as the quarter commenced, the restrictions were eased significantly. Going to the next slide. We have seen the ease of restrictions and declining rates of COVID-19 infections and deaths. If I briefly update on the COVID-19 situation in the country, till date, more than 1.5 million cases of COVID-19 have been reported with over 27,000 deaths while over 16 million people have received both doses of the vaccine in the country. The past 33 days of this quarter was actually very strict in terms of lockdown, where restrictions on movement were far more severe than 2020. This was triggered by the sudden spike, as I mentioned in COVID cases and deaths with the spread of the delta variant as can be seen in the graph in this slide. The infection rate started to decline from August and the restrictions were lifted. We exited the quarter in a near-normal situation. At this point of time, it's near to normal in terms of business and economic activity. In early September, the government also declared the educational sector to partly reopen, maintaining all health and safety protocols. This is a good development in the second half of the quarter. As of last week, children above the age of 12 have been made eligible to receive their vaccines. Additionally, the Bangladesh government has recently opened vaccination for any citizen above the age of 18 on the Surokkha app. So vaccination is continuing. We have seen a significant decrease in infection rates and deaths. As I mentioned, businesses are near to normal now in the country, and traffic is back in the city. Improving growth momentum with the withdrawal of lockdown has been seen. After the withdrawal, we started to see improvement as we see the economic activities returning. That has fueled the growth momentum. As an emergency service provider, our on-ground operations related to network rollout and spectrum deployment were also uninterrupted. Because of these rollout and network activities and also ease in restrictions, we have been able to continue our overall network rollout to enhance our customer experience, which is fueling the data usage growth, a critical element of the overall business mix. We were primarily focusing on the spectrum deployment of 4G nationwide that we rolled out in Q1 and early Q2 to capitalize on that and provide a better customer experience during this period. We forecast an acquisition and gross additions by launching attractive offers for new users in our product portfolio, which has led to a 7.7% growth in our subscriber base from last year. Customer uptake on bundle packs continues to grow. We have seen a recent uptake among customers who are more inclined towards bundles than buying voice and data packs in isolation. This gives us the opportunity to fuel ARPU growth. We continued our partnership with mobile financial services partners offering regular cashback, combo packs, increased validity leading to a growth of 24.9% in digital recharges from last year. This is an area where we see that we have progressed during this period. In addition, we continue to offer combo packs and cashback on MyGP, our flagship digital app and channel. We have included exclusive in-app product offers, and that has led us to 11 million users at the end of Q3 in our MyGP app. While driving growth and improving network experience, we have significantly focused on our modernization journey. We are focusing on building a future-fit company through digitalization of our processes and modernization. Grameenphone has been undergoing a transformation journey for several years, to become a future-fit company that can cater to the rapidly evolving needs of our customers. The COVID-19 pandemic has also put a demand for a new way of working and has changed customer behavior significantly in terms of their usage patterns of different services and the way data uptake has happened. Over the years, we have examined all processes facing our customers on a granular level, driving simplification and ease of interaction with our customers in mind. During this period, we have positioned ourselves as a technology leader in the country. We have focused on how we can digitalize and modernize the way we use technology to ensure that we understand our customers better, in a timely manner. As a result of all this digitalization in terms of customer journeys and bringing in new technological capabilities, we have been able to digitize almost 100% of our customer-facing interactions and services, bringing them into our app, MyGP. In addition to products and services, we have also introduced several interactive features into this app, such as infinite scrolling and live streaming of sports, leading to 2 million daily customer engagements in this app. However, a large portion of our customer base is still not part of the digital world, and they are using basic phones. To reach them, we have extended our flagship retail stores, establishing entirely new flagship stores in rural areas to better serve our customers. Now we have 194 service centers, and these stores cater predominantly to customers in deep rural areas. While doing so, we are also working towards acquiring advanced network capabilities to help us deliver high-quality advanced mobile services. As I mentioned, we are on a journey towards building a future-fit network that will meet customer digital experience requirements by boosting the quality of services through the development of new capabilities. Recently, we entered a partnership with global technology service provider Wipro, creating opportunities for local talent to upscale and pursue global opportunities. We are also driving modernization within our organization through transformation and modern operating models, implementing robotics and automation, as well as continuously upgrading our talent with future-fit capabilities. We believe the right mix of competency, capabilities, and tools will enable our growth ambitions, reinforce our position as a connectivity partner, and help move Bangladesh forward. This has been a key focus area not only this year but for several years. As mentioned, this year, it’s been about digitalizing our customer journeys, focusing on building digital channels, driving volume there, while uplifting our technology capabilities internally to support this development. We see the customer behavior changing while the entire organization drives modernization through automation and digitalization. We are preparing for the future when we see changes in digitalization and regulations around data. Moving on to the business environment, two topics. First, we see that 5G is on the horizon; the government of Bangladesh has been working towards the launch of 5G in the country. Having recently initiated a consolidation process within the telecom industry, we have submitted our feedback. This consolidation process will continue. There is no specific date for the auction. As a telecom operator, we believe that 5G discussions should not be confined solely to auctions but should encompass the buildup of the ecosystem, and that's how the dialogue is ongoing. In the TowerCo area, we have partnered with two TowerCo vendors, through whom we have already deployed over 1,200 sites this year. We are counting on more in the coming year as well, and we are continuing discussions with other vendors as well as regulators in the new TowerCo region. Regarding our commitment to society, we focused on empowering our community. At the end of September 2021, Grameenphone is connecting a subscriber base of 83.6 million people, of whom 46.1 million customers access the Internet and 27.6 million are empowered through 4G and growing. We have focused on COVID relief amid strict lockdowns in the third quarter, which resulted in many subscribers being unable to recharge and stay connected with those who matter most to them. To ensure uninterrupted connectivity, we provided free minutes and data to more than 11 million subscribers at zero cost. Simultaneously, during our previous call, we collaborated with BRAC under the banner of Dakche Amar Desh, aiming to provide food assistance to the most impacted members of our society. I'm pleased to report that we were able to support over 83,000 families severely affected by the pandemic. As we focus on our social impact, we respond to disaster and COVID. Through the Dakche Amar Desh program, we supported 83,000 families. Beyond COVID, we also focus on youth digital education. On July 15th, we jointly celebrated World Youth Skill Day with UNDP to raise nationwide awareness and support the upskilling of our youth. We organized multiple online dialogues with youth and policymakers to bridge the gap, focusing on the importance of equipping our youth with relevant skills. We launched a month-long masterclass series to connect our youth with industry leaders and experts who will guide them in workforce capability development. This will remain a focus area, and we will build on what we have done in Q3. With this, for the numbers and financials, I welcome our CFO, Jens Becker, to take us through, and I shall return later in the session.

Jens Becker, CFO

All right. Thank you, Azman, and good evening, everybody. Let me start with a short overview of the key KPIs. In Q3, Grameenphone has continued to deliver solid financial performance with positive momentum in top line as well as in EBITDA, despite the challenges of a strict lockdown from July 1st to August 10th. After this, the overall economy gradually recovered from COVID-19, with average daily new cases declining to around 1,000, with less than a 5% infection rate by the end of September. Following the withdrawal of the lockdown, economic activities gradually resumed while educational institutions partially reopened from September 12th after being closed for 18 months. However, Grameenphone remained active in the market throughout the quarter with strong subscriber acquisition, new spectrum site rollout, and customer-focused market activities. In summary, Grameenphone had a 1.9% year-on-year growth in subscribers and traffic revenue and a 1.3% growth in EBITDA in Q3 while maintaining an EBITDA margin of 63.3%. With continued investment efforts supported by the newly acquired spectrum, GP's CapEx to sales ratio for the quarter stood at 10.4% on a four-quarter moving average, compared to 5.3% on a stand-alone basis. EPS for the quarter stood at BDT 6.34, with a 3.8% degrowth from last year on a reported basis. The degrowth in EPS was contributed by one-off modernization costs in this quarter. Now let me turn to more details regarding the subscriber base. We have continued our subscriber acquisition drive in the market, resulting in 1.6 million net adds in Q3, along with 2.4 million new data users. The subscriber base at the end of the quarter stood at 83.6 million, reflecting a 7.7% growth from last year and 1.9% from the previous quarter. According to BTRC published information as of August, GP subscription market share increased to 46.6% from last quarter, which was 46.5%. Our data users for the quarter stood at 46.1 million, including 27.6 million 4G data users in Q3. With our superior 4G network experience, Grameenphone's 4G data user base increased by 3.8 million from last quarter. Coming to revenue now, despite the negative impact from the strict lockdown until August 10th, which nearly covered half of the quarter, Grameenphone continued to deliver growth in its top line. Total revenue grew by 1.8% year-on-year to BDT 36.2 billion in Q3, fueled by a 1.9% growth in daily subscriber and traffic revenue. This revenue increase was mainly driven by growth in voice data bundles and data-only packs. In addition to focusing on data and voice-only packs, Grameenphone continued to promote its bundled services in Q3 to provide better customer value and an enhanced experience. By launching attractive combined bundled packs and continuing digital adoption efforts via both owned and third-party channels, bundle revenue grew more than 10 times compared to last year and 1.6 times from last quarter. Excluding these bundles, data-only packs and pay-as-you-go revenue increased by 4.5% from last year. With substantial growth in bundles, overall subscription and traffic revenue grew by 0.6 billion, as mentioned, representing a 1.9% year-on-year increase. Turning to ARPU and usage, Grameenphone continued its value proposition through attractive market offers, supported by superior network experience facilitated by newly acquired spectrum and 4G network expansion. As a result, GP's average megabyte per user grew by 52.4% from last year and 9% from last quarter, now standing at 3.9 GB per user. The overall service ARPU decreased by 5.9% from last year, mainly due to lower contribution from our voice segment as a result of the lockdown impacts, partly offset by the bundles. Operating expenses for the quarter stood at BDT 11 billion with a year-on-year growth of 1.9%. This year-on-year growth in OpEx was driven mainly by higher regulatory and energy costs. In terms of EBITDA, GP posted a year-on-year growth of 1.3% with a stable margin of 63.3%. The EBITDA growth was driven primarily by higher revenue. Turning to CapEx, GP invested BDT 1.9 billion in CapEx in Q3, excluding license and lease, focusing on 4G network and coverage expansion. We rolled out more than 5,300 new sites, and over 1,500 new coverage sites in the last 12 months. At the end of Q3, the number of 4G sites reached 16,795, resulting in a 4G population coverage of 96.8%, a 0.5 percentage point increase from the last quarter. Regarding profit, GP's net profit for the quarter stood at BDT 8.6 billion, reflecting a 23.6% margin. On a reported basis, year-on-year net profit and EPS for the quarter decreased by 3.8%. The decrease in net profit was driven by one-off modernization costs. However, excluding those one-off items in both periods, net profit would have shown a growth of 1%. In terms of operating cash flow, GP recorded a year-on-year BDT 1.6 billion increase, supported by a BDT 0.3 billion higher EBITDA and a BDT 1.3 billion reduction in CapEx. Net debt stood at BDT 10 billion as of Q3, in combination with BDT 13.9 billion liabilities and BDT 3.9 billion in cash balance, excluding restricted cash. In terms of our contribution to the national exchequer, we spent BDT 79.2 billion year-to-date, equating to around 74% of our revenues. I would now like to hand back to Azman for wrapping up.

Yasir Azman, CEO

Thank you, Jens. To recap, in the third quarter, our top line growth is driven by the growth in users and usage, as highlighted just a while back. Improving our customer experience as a result of network rollout and spectrum deployment will continue to remain key factors behind our growth momentum. We will continue to pursue our journey in enabling our growth through modernization, evolving business models, competency development, and creating partnerships that will help us cater to the constantly evolving connectivity needs of our customers. With that, I'll hand back to Naureen for Q&A.

Naureen Quayum, Head of Investor Relations

Thank you, Azman. Thank you, Jens. Let's start with the first question. I believe, Jens, this is for you. What is the one-time modernization cost? And what is the amount?

Jens Becker, CFO

Yes. As you may recall from Azman's speech, modernization is one of the key pillars of our strategy that we have been pursuing for quite some time. You also heard that this quarter we focused on improving our network capabilities and establishing new partnerships. This has been a significant milestone for us. The modernization costs pertain to the transition and restructuring expenses we have incurred. Overall, this figure is approximately BDT 1.3 billion for the quarter as a one-time cost. If we were to exclude this from both quarters, it would result in a net profit increase of around 1% year-on-year.

Naureen Quayum, Head of Investor Relations

Moving on, what are the major trends in customer behavior you've observed in Q3 as Bangladesh approaches a near-normal state amid the pandemic? Azman, maybe you can take this one?

Yasir Azman, CEO

Yes, I can take it. As we see Bangladesh approaching a new normal, we are noticing that voice minutes are returning. Usage is increasing with enhanced mobility and recovery in the economy, along with the partial reopening of academic institutions, and of course, data usage continues to grow.

Naureen Quayum, Head of Investor Relations

Thank you, Azman bhai. We have a related question concerning Jens’ earlier answer. What productivity improvements do you expect from this expenditure?

Jens Becker, CFO

Going forward, it’s about the capabilities we have encountered with this new focus. Azman answered this in detail during his speech, detailing how we want to enhance customer experience as we transition into the digital age. While there will undoubtedly be productivity increases, as you know, we're not allowed to share forward-looking statements, but we do expect this as well. The key driver, however, is the improvement in capabilities and enhancing customer experiences.

Naureen Quayum, Head of Investor Relations

Jens, I have another one for you. What's the year-on-year voice growth in Q3?

Jens Becker, CFO

That’s a bit of a tricky question. As you can see, all our growth is coming from bundles. If you look into standalone voice growth, that would show a 14% decline. However, this is somewhat artificial because the growth we are seeing is from bundles, where we don’t actually separate them.

Naureen Quayum, Head of Investor Relations

I see a question from IDLC, which is, 'What was the later price scenario last quarter?' We consider this competitive information and would prefer not to disclose this. Do you plan to launch any digital products like your competition, Toffee TV by Banglalink? Azman, would you like to answer? Azman, are you here?

Yasir Azman, CEO

I didn't catch the question.

Naureen Quayum, Head of Investor Relations

Is there any plan to launch any digital products like our competitors?

Yasir Azman, CEO

We do not intend to bring our own digital services. We have, long-term, our own bio-scope, which is similar to Toffee as mentioned here. Our model is to partner with others to provide services to customers as best as possible.

Naureen Quayum, Head of Investor Relations

Is there any regulatory update, especially on the BTRC audit? Azman?

Yasir Azman, CEO

We have recently seen some movement on the audit part, and that's mainly not regarding Grameenphone. It pertains to the operator Banglalink, which has been reported in the media. The BTRC had earlier conducted an audit on Grameenphone and Robi, but they have now started for Banglalink. We are constantly in touch with BTRC, seeking to explore any amicable mediation possibilities. However, we understand that the matter is currently in court. Until the court directs us for mediation, it is unlikely to be possible or supported.

Naureen Quayum, Head of Investor Relations

Let’s wait a few more minutes for additional questions. Okay, I don’t see any other questions. I think we’ve waited a while. I don’t see any additional inquiries. For those of you still online, if you have further questions, feel free to reach out to me via e-mail or text. We’ll get back to you. Please note that we will be available next week if you would like to meet for further discussions. Thank you so much. Thank you, Azman bhai, Jens. Thank you, everyone. Have a great day.

Jens Becker, CFO

Thank you.

Yasir Azman, CEO

Thank you, Naureen.