Earnings Call Transcript - GP Q4 2023

Aleef Pasha, Head of Investor Relations

Good morning, everyone. Welcome to Grameenphone's earnings disclosure for the fourth quarter of 2023. My name is Aleef Pasha, and I'm the Head of Investor Relations. With me today are our CEO, Mr. Yasir Azman, and our CFO, Mr. Otto Risbakk. Please note that the presentation we are sharing today, along with additional documents, are on our Investor Relations website. You can start posting questions, and we shall address them at the end of the presentation. In case you are unable to post your questions due to technical reasons, please send me an e-mail or a text. I will now welcome our CEO, Mr. Yasir Azman, to start our presentation.

Yasir Azman, CEO

Thank you, Mr. Aleef Pasha, and good morning, everyone. Thank you for joining us for our quarter 4 2023 earnings call. I'm Yasir Azman, Chief Executive Officer of Grameenphone. As per our regulator's report till December 2023, the telecommunications industry has reached 190.8 million subscribers, increasing by 1.7 million subscribers from September 2023. During the same period, mobile data users decreased by 1.3 million, reaching 118.5 million in December 2023. Moving on to some of our key highlights for the quarter. Keeping customer centricity and personalization at the core, we have strategically deployed spectrum and constantly enhanced our network capabilities. In this quarter, we prioritized the needs of our customers to provide a seamless user experience to continue to be the most reliable connectivity partner in the country. This has led to a 10% year-on-year increase in our 4G data users on the Grameenphone network. Our streamlined, simplified and innovative product offerings have provided better value for our customers, driving better utilization and convenience. We are now able to elevate value on a continual basis, leading to a 20% growth in data. We continue our efforts to deliver our digital vision and advance our customer service and entertainment arena by enhancing capabilities of our digital assets and expanding our OTT partner portfolio. 2023 has obviously been a year of macroeconomic adversities impacting the entire nation with challenges in many dimensions. Despite multiple challenges in both the local market and global economy, Grameenphone delivered on top line and EBITDA, demonstrating our unwavering commitment to delivering value to our shareholders, stakeholders and customers. Touching on some of the key macroeconomic updates, inflation has remained over 9% as prices of goods and services remain high, restraining the purchasing power of our customers. The Central Bank has declared its intention to introduce a crawling peg system for exchange rate management, a positive step towards supporting the depleting foreign exchange reserves. As for the latest global economic prospects, the World Bank has projected GDP growth to slow down, and now the new projection is 5.6%. On the regulatory front, in relation to the BTRC audit, on 12 November 2023, in alignment with BTRC, Grameenphone sought further time at the court, and the next stage has been set for 29 September 2024. Now to expand a bit more on the business aspects, our focus on network investment has resulted in significant progress in spectrum deployment, site rollout, and addition of cells to increase capacity. We have increased fiber connectivity to 41.5%, a significant jump from previous years. In 2022, it was 34%, which further emphasizes our growth, and we have rolled out over 21,000 total sites in the country. We launched a new brand for IoT services, Alo, which offers 8 different products aimed to position itself as a trusted and reliable IT platform in Bangladesh, adapting to meet the evolving needs of our customers. We have expanded our OTT partnership with iStream, one of the largest libraries of classic Bangladesh movies and dramas, and with Sony LIV, featuring sporting events and movies. Through renowned national and international partnerships, we are working to cement Grameenphone as the gateway to entertainment for millions of our connected customers across Bangladesh. We are in a continuous journey of personalizing the entire customer interface using the power of artificial intelligence and machine learning. Using our digital assets such as MyGP, we have delivered offers and catalog personalization, simplifying the customer decision journey and contributing to an uplift in value. With our continuous focus on improving customer experience and providing more for our customers, our high-value subscriber base has increased by 13% this quarter, contributing to ARPU growth. The digital landscape is experiencing substantial growth, bringing with it immense potential. Higher adoption of digitally engaged customers has been seen throughout our online platforms, resulting in more than one-third of revenue flowing through these channels. While the customer is in the digital space, we can engage with our network and services more effectively, creating value for the company and for subscribers' lifestyles. Moving on, we have been continuously focusing on establishing ourselves as an integrated digital operator by leveraging the digital assets that we have strategically built. MyGP continues to be the largest local self-service app in Bangladesh with now 17.5 million monthly active users. Our new segment is also significant, reaching millions. This highlights the success of our continuous focus to develop a seamless digital experience for our customers. We are continuously investing and developing better customer experiences, ensuring our customers enjoy the channels that are emerging in our market. The newly introduced version of MyGP 5.0, with its simplified and sleek interface, provides an intuitive user experience for our customers and is integral to telco service entertainment, learning, and much more. Our Cockpit, which serves our retailers in the mass market and is the largest retail platform, connects over 400,000 retailers in Bangladesh, offering a higher margin of contextual sales through this interactive app, also helping us uplift ARPU. With 100% biometric services and 50% electronically charged transactions being conducted through this platform, it is clear that the future is digital with Cockpit in our distribution ecosystem. With the launch of 8 new innovative IoT products across various categories, along with our existing partner base, we are leveraging the limitless capabilities of technology and embracing a smarter way of living. We are the first in the industry to aggregate content from more than 24 OTT platforms under one umbrella, making it easy for our customers to access these platforms and positioning Grameenphone to attain more firsts in the telco content industry of Bangladesh. Moving on to a sustainable future, we believe our responsibility extends beyond just our business operations. We are deeply committed to building a sustainable future and making a positive difference in the communities we serve. Our belief in sustainability goals is not limited to ourselves, but we also strategically partner with businesses that share our values and actively support social impact initiatives. As of December 2023, 49% of our total spend to our suppliers are partners who commit to reducing the carbon footprint, which is a significant achievement. We are investing in the renewable energy sector through the purchase of Energy Attribute Certificates that are aiding our decarbonization goals. Grameenphone seeks to purchase renewable energy enabling the corporate power purchase agreement policy to achieve its climate targets and has partnered with USAID's flagship clean energy project. Online safety programs have remained a key priority in our efforts to build an inclusive digital future. We have trained more than 140,000 children from vulnerable communities on online safety and digital skills. To boost digital literacy and internet safety for Bangladesh's most marginalized and vulnerable groups, Grameenphone, in partnership with Plan International, commenced a comprehensive baseline survey that delves into the behavior, challenges, and needs of 8 hard-to-reach communities. In alignment with the vision of promoting gender equality in society, we introduced our initiative, 'Internet Er Duniya Shobar', focusing on accelerating digital inclusion for women by educating them across the nation and enabling them to explore the endless possibilities of the internet and the digital space. We are also making continuous efforts towards accelerating the nation's future economic growth by enhancing the skills and potential of our youth. Our innovation platform, GP Accelerator, has launched 'Jelay Jelay Smart Uddyokta', a regional design bootcamp aimed at fostering entrepreneurship to address regional challenges and build local innovative solutions. We have been recognized for our good practices, and the multiple recognitions we received this year serve as a strong testament to our business practices, which have been appreciated both locally and internationally. Grameenphone is leading in sustainability global practices and has secured the highest score among Bangladeshi listed firms in Bloomberg's sustainability list. We were also awarded the Sustainability Excellence Award in the Financial Inclusion category for our GP Accelerator and GP Academy initiatives. Grameenphone has been recognized as the highest taxpayer in the telecom sector for the past 8 years by the National Board of Revenue as well as the Large Taxpayer Unit, LTU-Tax. We are also recognized by LTU-Tax for our contribution to tax deduction at source, thereby playing a key role in the government's revenue collection efforts. This is a testament to Grameenphone's lawful and compliant tax practices and governance. Not only our sustainability and contribution to the national exchequer, our leaders have also been appreciated and acknowledged. Asia Marketing Federation has selected one of our inspiring leaders, Farha Naz Zaman, as Asia's Top Outstanding Woman Marketer of the Year for her exceptional leadership and contribution in the field of marketing. We have also received the prestigious C-Suite Awards for our CMO and Chief Business Officer this year, signifying that Grameenphone is being steered by a strong leadership team for a sustainable future. With that, I now welcome our newly joined Chief Financial Officer, Otto Risbakk, to take us through our financial performance for Q4 2023. Otto, I'm handing over to you. Thank you.

Otto Risbakk, CFO

Thank you, Azman, and good morning to everyone. As Azman said, I joined Grameenphone just a few weeks ago. So this is my first earnings call. It's great to be here on Zoom, and I hope to meet many of you personally during the year. So before I go into the details, let me first start with some highlights of the fourth quarter. I'm happy to see that the market, despite the macro challenges, has been relatively resilient, as we see in most markets globally. We have performed well in that market, achieving a 6.9% year-on-year growth in S&T revenue. On the cost side, there has been pressure, not just here in Bangladesh but also globally, particularly regarding energy costs. I am pleased with our response to those cost pressures. We have a disciplined approach to cost management, and we have maintained efficiency programs, allowing us to offset that pressure, leading to a solid EBITDA margin of 61.3%. On the investment side, our strong balance sheet and cash position allows us a long-term view, and we are continuing our efforts to modernize the network and build digital platforms, independently of the macro situation. In the fourth quarter, the CapEx to sales ratio represented 30% of revenue, which is stable. Regarding earnings, we report strong earnings per share of BDT 4.35, reflecting the growth in topline and our cost discipline. Moving to subscriber numbers, we continue to attract customers, with a total of 82 million subscribers at the end of the quarter, representing a growth of 3.6% compared to last year. In terms of data users, we saw a strong growth of 7% in the quarter to almost 47 million, driven largely by our digital platform, as described by Azman earlier. The service ARPU increased by 5.5% to BDT 161 compared to last year, mainly driven by higher contributions from data services and increased demand for our digital products. In Q4, Grameenphone maintained an average megabyte per user at 6.7 GB, a 12.5% growth from the same quarter last year, which was affected by seasonal impacts. Revenue grew by 7.3%, our highest growth rate in 2023. Data revenue grew by a remarkable 20% year-on-year, represented 31% of subscription and traffic revenue, up from about 28% in the fourth quarter of '22. The improved momentum in data revenue is due to efforts in improving the data network experience along with all digital innovations, including our MyGP platform which leverages AI and machine learning. We see high engagement on our digital platform, and we are very confident that this growth will continue. For OpEx, Grameenphone reported BDT 13.2 billion, representing a 19.2% year-on-year growth, mainly due to the energy price hikes in 2023. Excluding one-off adjustments from the previous quarter, the like-for-like growth was 9%. We are proud to say that Grameenphone has seen the 11th consecutive quarter of growth in EBITDA in Q4 2023, maintaining a solid margin of 61.3%. Our investment for the quarter stood at BDT 3.2 billion, focusing on improving our leading 4G network and fiber connectivity expansions. We rolled out over 1,600 new 4G sites in the last 12 months, maintaining the highest number of 4G sites in the industry, covering about 98%. The profit for the quarter stood at BDT 5.9 billion, reflecting a year-on-year growth of 58.2%, positively influenced by lower FX losses and finance costs compared to the last year. Comparing like-for-like in Q4 2023 with the same quarter last year, we had a growth of around 8%. Our operating cash flow for the quarter stood at a solid BDT 21.5 billion, generated by a BDT 2 billion growth from lower CapEx and improvements in EBITDA. Our net cash position as of Q4 is BDT 10 billion. This unique strength enables us to continue our investment plans through different macro cycles and environments. Regarding our contributions to the national exchequer, we have been increasing our payments year-on-year, standing at BDT 122 billion in 2023, which includes taxes, VAT, duties, licenses, and spectrum fees. Since inception, Grameenphone has contributed more than BDT 1,183 billion to the national exchequer. On dividends, we propose a final dividend for 2023 of BDT 12.50 per share, representing about BDT 17 billion in total. This adheres to our dividend policy of maintaining at least a 51% payout ratio. However, this is contingent on Board approval, as we need to consider future risks and uncertainties. In summary for the full year of 2023, we realized a profit growth of 5.2%, aligning closely with last year's growth rate. We see good growth across all major lines of business, and as Azman indicated, we have exciting developments on our digital platforms, allowing us to enter 2024 with strong momentum.

Yasir Azman, CEO

Thank you, Otto. The financial summary has already been detailed by our CFO, Otto Risbakk. Still, I'll highlight a few more key points to reinforce our quarter 4 accomplishments for 2023, which registered continued growth momentum across both revenue and EBITDA, while expertly navigating external challenges and strengthening our core services. We also discussed network investment and expansion to transform user experience, strengthening our position as the #1 network in the country. We are building new data centers; we have recently launched one this quarter, bringing our technological excellence closer to our customers to maintain our status as the most reliable connectivity partner in Bangladesh. To drive growth momentum, we will continue to tailor our offerings to meet unique customer needs through digital-centric innovation and advanced technology capabilities. Our focused efforts towards fostering diversity in our workplace and promoting inclusivity have also greatly contributed to a dynamic work environment. As of Q4 2023, the percentage of women in our total workforce reached 19.8%, and we are observing a positive trend. Lastly, I'd like to emphasize the importance of privacy. It is a significant concern in today's era of advanced technology. At Grameenphone, we adhere to best practices by strengthening access control implementations and enhancing network security to ensure the privacy of our customers, employees, and others connected to the Grameenphone network. With that, I will hand it over to Aleef for our Q&A session. Have a good day, everyone. Thank you once again.

Aleef Pasha, Head of Investor Relations

Thank you, Azman bhai. We have a couple of questions that have come in separately to me. I will address them right now. So Otto, the first one is for you. Why is quarter-on-quarter Grameenphone not performing well in total revenue or DSTR in Q4?

Otto Risbakk, CFO

Thank you for that question. It's good to see that somebody has high ambitions for us. We did perform quite well, achieving 6.9% year-on-year growth, marking the 11th consecutive quarter of growth. Considering inflation and the macro situation, I believe our performance remains solid, especially with elections on the horizon. Overall, I am pleased with our revenue performance.

Aleef Pasha, Head of Investor Relations

Thank you, Otto. One more for you. Regarding data revenue, the question is that data revenue composition in Q4 has fallen. What's your view on that?

Otto Risbakk, CFO

That's a good question. We have experienced tremendous growth in data revenue, and we see a lot of engagement on our platforms. However, we can observe seasonal impacts in markets, and I believe the underlying growth should continue, predicting that data usage will show further growth in 2024.

Aleef Pasha, Head of Investor Relations

Thank you. Azman bhai, we have one for you. This is in terms of data usage. The question is that data usage has been stagnant since Q2 and Q3, followed by a drop in Q4. Why?

Yasir Azman, CEO

Thank you, Aleef. It's essential to clarify that it's data usage, not data subscribers or revenue. In Q2 and Q3, data usage per user reached over 7 gigabytes, which was a milestone in the industry. However, in Q4, several factors impacted this, including rising inflation and pre-election political instability that affected overall economic customer spending. Additionally, lower validity packs were discontinued per BTRC's instruction, which also lowered data usage, as customers were adapting their usage patterns due to macroeconomic challenges.

Aleef Pasha, Head of Investor Relations

Thank you, Azman bhai. Otto, two more for you. What led to NPAT growing significantly in Q4?

Otto Risbakk, CFO

Net profit grew significantly when compared to the same quarter last year. However, we see that there are often ups and downs in the quarter. The underlying profit growth remains stable, with this quarter's growth standing at 58.2%. If comparing a like-for-like basis, the growth was around 8%. We did experience some one-off financial impacts last year, which skewed the results. Long-term growth trends show continued stability.

Aleef Pasha, Head of Investor Relations

Finally, there's one last question. The dividend payout ratio is around 51%. It has dropped significantly. Why is that?

Otto Risbakk, CFO

First, we have a very strong balance sheet with a net positive cash position. We acknowledge the challenging macro situation around us. For this quarter, we prefer a prudent stance, adhering to our dividend policy of at least 51%. If the macro picture improves, we have the capacity to increase dividends, but we can never promise anything on dividends until approved by our Board.

Aleef Pasha, Head of Investor Relations

Thank you very much, Otto. We do not have any more questions at this time. If any of the analysts have further questions, please reach out to me; we can take them separately. For now, we end the fourth quarter. Thank you, everybody, for joining us. Thank you, Azman bhai. Thank you, Otto. Goodbye.

Yasir Azman, CEO

Thank you, everyone. Thank you, Aleef.

Otto Risbakk, CFO

Thank you. Thank you, everyone.