Earnings Call Transcript - GP Q3 2022

Naureen Quayum, Head of Investor Relations

Welcome to Grameenphone's earnings disclosure for the third quarter of 2022. My name is Naureen. I'm the Head of Investor Relations for Grameenphone. With me today are our CEO, Mr. Yasir Azman; and our CFO, Mr. Jens Becker. The presentation that we are using today, along with additional documents and financial statements, are available for download on our Investor Relations website. You can start posting your questions in the comment box, and we will address them at the end of our presentation. In case you cannot post your questions, please send me an e-mail or text. I will now welcome our CEO, Mr. Yasir Azman, to start our presentation.

Yasir Azman, CEO

Thank you, Naureen. And good morning, everyone. My name is Yasir Azman. I am the CEO of Grameenphone. Thank you for joining us for our third quarter results announcement. I would like to begin with some industry facts. As reported by our regulator, till August 2022, the telecommunication industry reported 183.5 million subscribers, declining by 0.9 million subscribers from June 2022. And till August, mobile data users have increased by over 1 million, reaching 116.1 million from June 2022. If I go by the highlights for Q3 2022. Grameenphone is continuing to experience positive traction this year. We continued growth momentum on revenue and EBITDA in the third quarter. The main driver behind our growth is improving contributions from voice and data revenue and users. We will discuss our performance parameters in further detail in the subsequent slides. However, the third quarter presented many challenges in the macroeconomic and regulatory environment. Like the rest of the world, Bangladesh is also facing pressure from macroeconomic situations due to rising inflation and energy costs, which have dampened our top line and affected customer spending capability. Our teams continue to navigate the challenging circumstances by ensuring that we remain committed to our strategic priorities while delivering value for our customers and shareholders. We are growing despite macroeconomic pressure and regulatory challenges. As mentioned earlier, our ongoing growth momentum is driven by higher revenue and usage from voice and data. This is the result of our commitment to continue improving our network quality and coverage and ensuring an enhanced experience for our customers in meeting the demand for high-speed connectivity. We have been heavily investing in improving the quality of service, as far as the data network experience is concerned. In the third quarter, we continued to invest in our network, leading to over 19,700 sites altogether for Grameenphone. With the vision to expedite the journey towards smart Bangladesh, Grameenphone successfully completed 5G trials in all divisional cities in July. As the tech service leader of the country, we showcased 5G to customers throughout the country, where they experienced advanced technologies and different use cases, like robotic arms, augmented reality videos, virtual reality, gaming, cloud gaming, et cetera. In the third quarter, we made several changes to our product portfolio, revising prices in our data portfolio while remaining user-focused with our bundle offers. As a result, we saw an increase in both data usage and revenue, while bundle contribution also grew. Digital recharge continued to improve in the third quarter with a 6.3% growth in digital recharge volume compared to last year. At the end of the quarter, Grameenphone's self-service, a one-stop solution at MyGP, registered a user base of 13.4 million. We also faced several external challenges in this quarter, mainly from the worsening macroeconomic climate and regulatory environment. The inflation rates in Bangladesh continued to worsen, aided mainly by higher costs of energy. As a measure to curb energy consumption, the government initiated several austerity measures affecting both the public and private sectors, such as controlled load shedding of daily electricity from the national grid, reducing working hours, et cetera. Grameenphone has also engaged in several austerity measures to ensure we remain responsible in our consumption of energy while we tackle the ongoing crisis. And as a result of that ongoing inflation, we see higher operating costs and reduced spending capability of our customers, which is adversely impacting our growth momentum. At the end of June, the regulator imposed a ban on SIM sales of Grameenphone, citing quality of service, due to which Grameenphone's subscriber base witnessed a negative growth of 3.4% from Q2 2022. We have been actively engaging with the regulator and working toward overcoming this imposition, and as of mid-September, the regulator has partially lifted the ban, enabling us to resume our SIM sales immediately. We'll continue to work together with our regulator and engage in constructive dialogue to overcome this embargo. We continued empowering our societies with our various activities. Grameenphone's operations have always focused on ensuring sustainability and fair business practices. We focus on various aspects encompassing environment, social, and governance in our operations and day-to-day interactions with all stakeholders. As a part of digital inclusion enablement, as of 30th September 2022, Grameenphone is connecting a subscriber base of 81.8 million customers, of whom 45.5 million customers access the Internet and 32 million are empowered with 4G connectivity. As an equal opportunity employer, diversity and inclusion are imperative in the way we do business. Our diversity agenda broadly includes gender, skills, and competence. As of the third quarter of this year, 45% of new hires were women, while the percentage of women in the total workforce reached 18.5%. The extended leadership team of Grameenphone's comprises almost 13% female representation at this point in time. GP is focused on creating a positive notion to drive higher skills for the future careers of graduating students through Grameenphone Academy. This is an online platform launched in collaboration with Cisco Networking Academy that is also running student engagement through universities around the country. Since its launch in May this year, Grameenphone Academy has over 11,000 students enrolled, and over 1,900 students received course completion certification on different skills, including career readiness skill, entrepreneurship skill, cybersecurity, introduction to IoT, and Python programming skills. The program has also been creating awareness about future challenges, opportunities, and the importance of skill development among students through town halls in different universities. Besides, two female-focused workshops were also conducted with e-certified training on innovation and robotic process automation. More details of Grameenphone's ESG initiatives as well as performance KPIs are available on our investor relations website. Anytime, you can access those. At this point in time, I will now welcome our CFO, Jens Becker, to take you through our financial performance for the quarter.

Jens Becker, CFO

Thank you, Azman. And good morning to everybody. Let me start with a short overview of the key KPIs. Grameenphone continued to deliver a strong financial performance in Q3, despite, as mentioned by Azman, the headwinds that we saw from the economic environment due to the inflation, rising energy prices, and austerity measures to reduce energy consumption. We experienced growth in top line and EBITDA for six consecutive quarters, with enhanced growth momentum for five quarters. Increased customer-focused market activities, continued improvement in our operational efficiency, a site rollout, and spectrum deployment contributed to our top line and EBITDA growth momentum. During the quarter, Grameenphone registered 6.9% year-on-year growth in subscribers and traffic revenue, after 6.5% growth in the last quarter. EBITDA grew by 5%, after 4.3% growth in Q2. EBITDA margin stood at 62.2%, with a 1.2 percentage point margin improvement from the last quarter. We continued our network expansion and modernization plans to improve customer experience further. With the continuous investment effort, at the end of Q3, GP's CapEx-to-sales ratio for the quarter stood at 12.7%, based on the fourth quarter moving average. Earnings per share for the quarter stood at BDT 6.72, which is a 6.1% increase from last year. Now starting in the details and turning first to the subscriber base. During Q3, Grameenphone's subscriber growth was impacted by the SIM sale restriction. To lift the ban on SIM sales, GP has been actively engaging with respective stakeholders. BTRC partially lifted the SIM sales restriction in the middle of September. Due to the SIM sale ban, at the end of Q3, Grameenphone's subscriber base had decreased by 2.1% from the previous year to 81.8 million, while the number of data users has decreased by 1.2% year-on-year to 45.5 million. Despite having a degrowth in the subscriber base in Q3, Grameenphone's 4G data users continued to grow and reached 32 million, which is a 15.9% growth from last year, which was possible due to our continued effort to enhance the 4G network experience. Grameenphone's subscription market share also got impacted, as there was no subscriber acquisition till the middle of September due to the regulatory restrictions. According to BTRC's published information as of August '22, GP's subscription market share stood at 45.3%, which is 0.7 percentage points lower compared to the last quarter. Grameenphone registered six consecutive quarters of growth in total revenue and daily subscription and traffic revenue. Total revenue grew by 6.7% in Q3, after 5.9% growth in the last quarter. Growth in total revenue was mainly driven by the 6.9% growth in daily subscription and traffic revenue, which was 6.5% in the last quarter. The growth in subscribers and traffic revenue was driven by all three: bundles, data, and voice. Now turning to the revenue details. Grameenphone refurbished its data portfolio during the quarter due to the implementation of 15% VAT on data services in response to changes in the national budget. Considering customer needs, Grameenphone introduced exclusive data-only products while continuing focus on user-friendly bundle offers. Bundle revenue and data revenue, therefore, increased by 28% and 7.7% year-on-year, respectively. With this significant increase in bundle and data revenue, subscription and traffic revenue as a whole increased by 6.9%. We continued our value propositions through attractive market offers, supported by continuous investment in the deployment of spectrum and 4G network expansion. As a result, amidst macroeconomic and regulatory challenges, GP's average megabyte per user grew by 52.1% from last year and 8.4% from the last quarter. On the other hand, the overall service ARPU increased by 5.9% in Q3, after 2% growth in the last quarter. The growth in service ARPU was driven by higher contributions from bundles, data, and the voice segment all alike. Now turning to the bottom line results. Along with the continuous top-line growth, Grameenphone also had continuous EBITDA growth for six straight quarters. With a healthy margin of 62.2%, Grameenphone's EBITDA increased by 5% in the third quarter. Top-line growth was primarily responsible for the increase in EBITDA. OpEx for the quarter stood at BDT 12 billion, which is a year-on-year 9.1% growth. Year-on-year growth in this OpEx was mainly contributed by higher market spend, regulatory costs, operational maintenance, and energy costs. GP invested BDT 2.8 billion CapEx during the quarter, focusing mainly on 4G network coverage expansion and spectrum deployment. We rolled out over 2,200 new 4G sites and more than 2,000 new coverage sites in the last 12 months. In addition, as of Q3, GP deployed spectrum in more than 18,000 sites. At the end of Q3, the number of 4G sites reached 19,719. During the quarter, 4G population coverage reached 97.8%, which was a 1 percentage point increase from last year. Turning to net profit. Net profit for the quarter stood at BDT 9.1 billion with a margin of 23.5%. The year-on-year net profit growth was led by higher EBITDA and lower modernization costs, which were partially offset by higher depreciation due to new site acquisitions and higher finance costs due to currency devaluation. The operating cash flow, which means EBITDA minus CapEx, for the quarter stood at BDT 21.2 billion, reflecting a year-on-year BDT 0.2 billion growth, in combination with a BDT 1.1 billion higher EBITDA and BDT 0.9 billion higher CapEx spend. On the other hand, net debt stood at BDT 9 billion as of Q3 '22, in combination with BDT 13.8 billion short-term bank loan and BDT 4.8 billion cash balance excluding restricted cash. Now contribution to the national exchequer. Till September '22, GPS paid BDT 78.5 billion, equaling 69.5% of our total revenue, to the national exchequer in the form of taxes, VAT, duties, license, and spectrum assignment fees. And since inception, GP contributed more than BDT 1,000 billion to the national exchequer. I will now hand back to Azman to summarize and wrap up. Thank you.

Yasir Azman, CEO

Thank you, Mr. Jens. As I mentioned, the first nine months of the year have been good in terms of our continued and improving growth momentum, mainly driven by higher usage, strong market execution, and a strategic focus on network investment to enhance our customer experience. At the same time, as we discussed and mentioned, we are facing challenges both externally and from the macroeconomic climate, as well as the regulatory environment, which has dampened our growth momentum as far as new subscriber growth is concerned. However, as mentioned earlier, with strong teamwork, Grameenphone remains committed to delivering value for our customers and shareholders through continued investment and modernization initiatives that will help us cater to the constantly evolving connectivity needs of our customer. With that, I will hand over to Ms. Naureen for the Q&A session.

Naureen Quayum, Head of Investor Relations

Thank you, Azman bhai. And thank you, Jens. We will now take 1 to 2 minutes for questions to start coming in, so please start posting your questions. Azman bhai, we received some questions from IDLC, so I will start with the first questions for you. Could you please provide more details on the partial uplifting of SIM purchase restrictions? And do you have any estimate on how much the revenue was lost during the restriction?

Yasir Azman, CEO

I think on this particular ban on SIM sales, we appreciate that our regulator has withdrawn the SIM sales ban on unused prepaid pre-approved numbers to address our customer needs. Those were approved earlier, and we are committed to meet our customers' expectations with those. The growth in subscriber acquisition and the overall growth of subscribers slowed down in the industry due to the demand and supply shortage of Grameenphone SIMs in the market and due to an embargo on recent new SIM sales. We believe the industry will be back to growth momentum once the ban is fully lifted, and customers will get connections from the most preferred telecom brand in the country. At this point, our pre-approved SIMs are available in the market. GP has been continuously improving experience. That has been reflected in our regulator's findings at the same time, and we continue our dialogue to progress in this area further positively. At this point, really pinpointing the revenue loss due to this SIM ban is difficult because, as you understand, it's a multi-SIM market. Even with slowed-down growth for Grameenphone, we have seen the continued usage growth of our existing subscribers. And with the investment we are making to improve our network quality, we have seen our growth momentum continue in both revenue and EBITDA.

Naureen Quayum, Head of Investor Relations

Thank you, Azman bhai. Just to follow up: When do you plan to complete the rolling out of the new spectrum? I believe this is a reference to the spectrum acquired in 2022.

Yasir Azman, CEO

Yes. So it's like obviously according to our plan and for the market, it's essential to ensure quality data network experience. It is important that we have the right rollout planning for the spectrum rollout. We acquired spectrum in 2021 and have almost completed the rollout of the 2100 megahertz spectrum, which we acquired in '21, and we are now starting to roll out the 2600 megahertz spectrum.

Naureen Quayum, Head of Investor Relations

Thank you, Azman bhai. We'll move on to the performance questions for Jens. What was the voice growth in quarter 3 2022?

Jens Becker, CFO

Yes, year-on-year, this was a 3.1% growth in the voice revenue.

Naureen Quayum, Head of Investor Relations

Additionally, Jens, have you experienced substantial data price cuts among competitors in Q3 '22?

Jens Becker, CFO

As you all know, this is a very competitive market and there is pressure on prices always, but I can't say that we have seen a dramatic cut. If this is the question, you asked for substantial data price cuts among the competition. I think the answer is no. The whole market has rather been impacted by the data VAT increase from 5% to 10%. As a result, according to BTRC published information, the overall industry lost 2.4 million subscribers. So, in essence, we don't see substantial price cuts over what we have seen before.

Naureen Quayum, Head of Investor Relations

Thank you, Jens. We don't have any further questions on the portal. We will wait 1 or 2 more minutes to see if there are any more questions. Thank you, everyone. As there are no further questions, we will be closing our session today. Thank you very much for joining us. If you do have any follow-up questions, please feel free to get in touch with me over e-mail or text. We will be taking meetings for the next few days on any questions related to the quarter 3 performance. Thank you, Jens and Azman bhai, for your presentations today.

Jens Becker, CFO

Thank you very much.

Yasir Azman, CEO

Thank you, everyone.