Earnings Call Transcript - GP Q1 2024

Chowdhury Tazrian Israt, Head of Investor Relations

Good morning, everyone. Welcome to Grameenphone's First Quarter Earnings Call for the year 2024. I'm Chowdhury Tazrian Israt, the Head of Investor Relations. Joining me on the call today are Mr. Yasir Azman, our CEO; and Mr. Otto Risbakk, our CFO. Please note, in consideration of local regulations, we'll not be providing any forward-looking statements during the call. Our earnings release, financial report and other documents related to our results, can be found in the Quarterly Results section of the Investor Relations website. With that, let's get it over to our CEO, Mr. Yasir Azman, to tell us about our results.

Yasir Azman, CEO

Thank you, Chowdhury Tazrian, and good morning, everyone. Thank you for joining us for our Quarter 1 2024 earnings call. I'm Yasir Azman, Chief Executive Officer of Grameenphone. As per our regulator's report, till February 2024, the telecommunications industry has reached 191.4 million subscribers, increasing by 0.6 million subscribers from December 2023. During the same period, mobile data users decreased by 1 million, reaching 117.5 million in February 2024. Moving on to some of our key business highlights for the quarter, owing to the rise of emerging technologies and evolving needs of our customers, we have advanced our network capabilities focusing on a progressive and future-ready network that is equipped to cater personalization at core and revolutionize the digital landscape. We have continued our efforts to remain the most reliable connectivity partner that can seamlessly accommodate future capabilities for a smarter tomorrow. Our primary objective in revamping our portfolio was to prioritize increasing customer satisfaction by implementing innovative features and streaming offers for a more convenient experience. This is what we did in Q1 this year. Our value-driven initiatives had elevated overall experience and engagement on our network, resulting in a 15.2% year-on-year growth in 4G data users this quarter. We are diligently building digital assets and making strategic partnerships with different digital players within the country and global partners. 136% higher data usage has been reported this quarter from digitally engaged customers with more than 24% contribution from digital channels. Grameenphone has received a unified license this quarter, which is a big milestone for us and for the industry, which amalgamates existing licenses, 2G, 3G and 4G and includes a scope for 5G and beyond services. We wholeheartedly welcome this timely initiative and express our deepest gratitude to all the parties concerned, including our regulatory body and telecom ministry. Looking at the future dominated by smart devices, AI, and connected technologies, we will be able to create an ecosystem that will, I believe, make our customers' lives safer, healthier, and happier. As we move forward, we are still facing macroeconomic challenges that we are all aware of, like rising energy costs, broader inflation, and particularly the dollar crisis. However, we remain persistent in our efforts to address this situation and manage to deliver on top line and EBITDA, demonstrating our unwavering commitment to growth. Starting up on some of the key macroeconomic updates, point-to-point inflation is around 9.8% as prices of goods and services remain high, straining the purchasing power of our customers. Electricity prices have increased from 1st of February following a threefold increase last year. As per the latest global economic prospect, the World Bank has projected GDP growth to slow to 5.6%, which is unchanged from its October update. According to our Central Bank, the foreign exchange reserves of Bangladesh have gone above USD 20 billion as of March 2024. On the regulatory front, on 12 November 2023, in alignment with BTRC, GP served further time at the court on the BTRC Audit and the next date has been fixed for 29th September 2024. The floor price restriction on stocks of Grameenphone was withdrawn on 3rd March 2024 through a directive issued by the Bangladesh Securities and Exchange Commission, hence regular trade has resumed now. Now let's dive into the detailed aspects of our business for this quarter. Focusing on growth through our network and industry-first initiatives, our focus on network investment has resulted in significant progress through spectrum deployment, site rollout, and addition of sales to increase capacity. We have seen more than a twofold increase in fiber connectivity to 41.5% in the past two years, which is extremely important as we transition to a more data-centric and digital-centric business model. Additionally, we have rolled out over 21,000 total sites. Driven by our commitment to create a smart Bangladesh, we inaugurated our fast Tier 3 standard data center in Sylhet, a technological marvel that sets new benchmarks for our network. This future-ready infrastructure is our commitment to putting our customers first in every aspect of our work, ensuring a future of technological progress and reliability in delivering superior customer experience. We have introduced new offerings in the market, solidifying our position as a leader at the forefront. Our GPStar program has grown from just 350 Dhaka-centric outlets to over 7,000 nationwide outlets. We have also introduced the first-ever truly unlimited data offers for our customers so that they can stay connected no matter what and where. We are proud to be the first in the industry to offer access to an impressive 10 OTT platforms combined with an unlimited data plan, demonstrating our commitment to innovation and achieving a leading position in the telco content industry in Bangladesh. Our growing number of subscribers can be attributed to our innovative revamped offerings and effective churn management strategies, resulting in a subscriber base increase of 2.9 million year-on-year to 83 million this quarter. The digital landscape is experiencing substantial growth, bringing immense potential. Higher adoption of digitally engaged customers has been observed throughout the online platform, resulting in more than one-third of revenue flowing through this channel. The new digital services are complementing our core business. We have successfully established ourselves as an integrated digital operator, leveraging the valuable digital assets we have diligently built. Our flagship channel, MyGP, is the largest local app in Bangladesh with 8.2 million active users driving continuous growth through its enhanced capabilities. The improved version of MyGP 5.0 provides customers with the convenience of recharging without needing Internet, backed by artificial intelligence and machine learning capabilities, and includes many other advanced features. We launched a wellness broadband solution, gpfi, to redefine and elevate our home Internet services, offering a holistic solution for families seeking uninterrupted connectivity and entertainment. In the first phase of this journey, we launched our services in Dhaka and Chittagong regions and will continue to expand throughout Bangladesh eventually. Additionally, we have launched 20 innovative IoT products across various categories. We are leveraging the limitless capabilities of technology and embracing a smarter way of living by introducing this range of IoT solutions, aiming to address various concerns with smart home and office solutions as well as industrial applications in the future. We continue our streak of being trailblazers in the telco-content industry in Bangladesh by expanding the OTT partner portfolio, selling direct subscriptions to GP and non-GP users, and partnering with various local, global, and regional OTT players. Additionally, the OTT access has been bundled with ATL packs and gpfi for customers to enjoy top-notch premium content with the best data offers. We have introduced the country's first cross-platform app marketplace, AppCity, aiming to transform the digital landscape. The platform connects app developers and purchasers with both B2C and B2B customers and functions as both an App Store and API hub, connecting content providers and application developers with individual and corporate customers. While building a resilient and robust network to drive our core growth, we are also focused on bringing new and innovative products and services in the IoT space, ICT space, and of course, AppCity. On top of that, we are partnering with local, global, and regional players to bring in OTT services, bundling with OTT analytics capabilities. I will now move on to discuss our commitment to building a sustainable future that we report on every quarter. At Grameenphone, we understand our responsibility towards the environment, society, and economy at large. 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 just limited to ourselves, but we also strategically partner with businesses that share our values and actively support environment, social, and governance initiatives. As of March 2024, 60% of our total spend to our suppliers are with partners who commit to reducing carbon footprints. Grameenphone conducted a public-private roundtable discussion, 'Greening the Grid' to promote policy reforms concerning corporate power purchase agreements in Bangladesh, which is essential for achieving our decarbonization goals. As part of our pursuit of renewable energy, we have signed a memorandum with USAID to collaborate on developing a policy framework for corporate power purchase agreements in Bangladesh that will enable businesses to purchase electricity directly from renewable sources without solely relying on traditional power utilities. Our online safety program, which we have been running for quite some time, has always remained a key priority in our effort to build an inclusive digital future. We have trained more than 184,000 children and 3,000 teachers from marginalized communities on online safety and digital literacy during this time. To continue the education on online safety and digital skills, we extended our reach to the farthest corners of the country through collaboration with Bangladesh Community Radio Association, ensuring no community is left behind. In line with our vision of promoting gender equality in society, marginalized women from 378 unions were educated on the endless possibilities of the Internet and digital skills through our initiative, 'Internet Er Duniya Shobar'. We have also made continuous efforts towards accelerating the nation's economic growth by enhancing the skills and potential of the youth. With this intent, GP Academy has recently introduced five new courses on freelancing. Futurenation has held master classes in 18 universities to enable students with relevant skills, providing access to employment opportunities and empowering them to embark on entrepreneurial endeavors. We believe in a sustainable society, and we are committed to our social impact projects and driving sustainability initiatives forward with an even stronger commitment in the coming days. I will now welcome our CFO, Otto, to take you through our financial performance for the quarter. Otto, over to you.

Otto Risbakk, CFO

Okay. Sorry for the interruption, I was muted. So welcome to everybody on this call, and pleased to see that so many are connected. Let me start the presentation of the financial part. I'm very pleased to report a strong start to 2024. Before I comment on the first quarter, let me recap the main trends and the macro environment at the beginning of the first quarter in '24. In Q4 '23, as you may recall, we delivered the best quarter of 2023 with 6.9% subscription and traffic growth and solid financials. Towards the turn of the year, however, we saw a significant cooling of the economy due to a series of factors, including inflation and global tensions impacting energy and currencies, leading to an industry-wide drop in data consumption in the last quarter of the year and a slow start to this quarter. I'm now pleased to see that the economy is picking up and that the business momentum has improved steadily during the first quarter this year. Our first quarter financial results reflect this positive momentum and Grameenphone continued to deliver solid financial performance in the first quarter this year, marking the 12th consecutive quarter of growth in top line and EBITDA. When looking at some of the key metrics this year, I can highlight that S&T revenue this quarter grew at a solid 5.2%, and thanks to our relentless focus on operational excellence and strict financial discipline, the EBITDA margin stood at a strong 60.8%, which is industry-leading in Bangladesh and even globally. Our robust balance sheet, with no debt and strong cash flows, enables us to continue investing in growth and innovation while providing a solid basis for attractive and predictable dividends. Reported EPS for the quarter stood at BDT 9.91, driven by higher EBITDA and reversals of certain one-off tax provisions that I will explain later. Regarding the subscriber base, after a slower Q4 last year, I'm pleased to see that our subscriber base returned to solid growth from higher gross additions and better churn management. In total, we added 2.9 million subscribers to reach 83 million, a growth of 3.6% year-on-year and 1.2% quarter-on-quarter. I'm particularly encouraged by the development of our 4G subscriber base, supported by constant efforts to improve our leading network's performance, with the 4G subscribers increasing by 5 million or 15.2% to 38.2 million. Grameenphone continues to lead the industry with the highest number of 4G data users. The number of data users, which includes feature phone subscribers using data, grew by 6.5%, reaching 46.3 million. In total, our 4G subscriber base now represents 46% of the total subscriber base, which is up from 41% a year ago. As a reference, the average 4G penetration in Southeast Asia is above 70%, and in mature markets, it's above 90%. This indicates that there is still significant upside for 4G penetration growth in Bangladesh. Moving on to revenue growth, it is good to see that subscriber growth translates into solid revenue growth, which comes from both subscriber growth and ARPU improvements. This first quarter marks the 12th consecutive quarter of growth, both in total revenue and subscription and traffic revenue. During the quarter, year-on-year total revenue was up 5.3%, while subscriber and traffic revenues were up 5.2%. Behind the growth, we see a positive development in all revenue drivers, including subscriber growth, higher ARPU, and higher data usage driven by the increase in 4G subscribers. Allow me to detail these metrics further. During the quarter, the service ARPU increased by 1.7% compared to last year. The year-on-year growth in service ARPU is mainly driven by the contribution from higher data consumption and demand for our digital products. We observed positive reception from customers regarding the product portfolio revamp implemented during the quarter, which reduced the number of products by almost half and included a significant simplification for customers. Regarding data usage, during the quarter, Grameenphone data users consumed an average of 7 gigabytes at a 9.8% growth versus last year. After the drop in Q4 last year, we are pleased to see growth returning, with good momentum going into the second quarter of 2024. The year-on-year growth in data usage is supported by positive macro trends after the election and the winter calls, as well as through industry-first innovative market offerings that create better value for customers and continual network improvements from site expansions and capacity enhancements. Now, let's review EBITDA development. In Q1 2024, Grameenphone delivered a 12th consecutive quarter of growth in EBITDA, despite the challenging macro situation due to global political tensions, inflation pressure, and the cooling economy. Grameenphone's EBITDA increased by 5% in the first quarter while maintaining a robust margin of 60.8%. I'm pleased to see the resilience of our operations and our strong ability to mitigate increased cost pressures from rising inflation and energy costs through our relentless focus on operating efficiency, financial discipline, and automation. Reported OpEx for the quarter stood at BDT 13 billion, representing a growth of 7.9% year-on-year, primarily driven by the rise in energy prices, higher sales and marketing costs, and increased variable regulatory costs. The increase in sales and marketing and regulatory costs mainly come from higher sales and a higher volume of gross additions. Now let's discuss net profit. Supported by the positive top-line growth and financial discipline, we achieved a healthy 5% EBITDA growth, alongside a strong balance sheet resulting in lower finance costs and one-off reversals of certain tax provisions. The reported net profit for the quarter stood at BDT 13.4 billion, reflecting a growth of 72% versus last year, with a margin of 24%. Excluding the one-off in the first quarter of '24, and also the certain one-offs in the first quarter of '23, the growth in net profit after tax was 13%. The net profit after tax totals BDT 34 billion, resulting in a record high BDT 9.11 EPS for the first quarter of '24. Moving on to cash flow and balance sheet parameters, operating cash flow for the quarter was BDT 16.8 billion, which exhibits a year-on-year growth of 5.6%. Operating cash flow growth is derived from the healthy growth in top line and EBITDA. The Q1 cash flow growth is partly offset by higher CapEx, as we usually tend to frontload our yearly CapEx program into the first two quarters. On the balance sheet side, we see that the net debt stood at a record minus BDT 18 billion as of the first quarter. This balance is composed of BDT 3.6 billion in short-term bank loans and a BDT 21.3 million cash balance, excluding restocking cash. Thanks to solid cash flow and a robust balance sheet, we are able to adopt a long-term view regarding investments and innovation, and also maintain an attractive shareholder remuneration policy. To summarize, I am very pleased with our performance in Q1, despite the challenging macro environment at the beginning of the quarter. We entered Q2 with good momentum driven by a stronger macro environment and a robust network, which has never been better, coupled with a very attractive and innovative product portfolio that has been very well received by our customers.

Chowdhury Tazrian Israt, Head of Investor Relations

Thank you, Otto. Now let's hear from our CEO, Mr. Yasir Azman, on the summary for this year's Quarter 1, 2024 earnings call.

Yasir Azman, CEO

Thank you, Otto and Tazrian. Coming back to summarize the 2024, Quarter 1 earnings call with a strong financial performance. Although the macroeconomic headwinds continued to challenge us, we remained focused on our strategy and forged ahead with our investment plans to support our growth opportunities, strengthen our partnerships, and improve our operations, all of which contributed to the great results we see today. We are building new data centers and taking our technological excellence closer to the customers to continue being the most reliable connectivity partner in Bangladesh. Along with connectivity, customer-centric innovation remains at the core of our initiatives. From industry-first offerings to IoT solutions, strategic partnerships with content providers to home broadband services, we provide a spark of innovation that connects people to greater possibilities and builds new business opportunities for Grameenphone while creating value for our shareholders under the guidance of regulators. Our efforts towards nurturing diversity in our workplace and promoting inclusivity have greatly contributed to creating a more dynamic work environment. As of the first quarter of 2024, the percentage of women in the total workforce reached up to 19.8%. Privacy is one of the biggest concerns in this age of machines and rapidly growing sophisticated technologies. We understand the need for robust cybersecurity defenses across the company for which we continue fortifying our defenses, building resilience, and remaining vigilant against evolving cyber threats. Grameenphone has built and strengthened our core services this quarter by bringing innovative products and services to the market and preparing for the future. On the other hand, we continued our efforts to deliver on our social commitments through strong social impact projects. With that, I thank you again, everyone, and we'll turn it to Tazrian for a Q&A session. Tazrian?

Chowdhury Tazrian Israt, Head of Investor Relations

Thank you. Thanks to both of you for the wonderful presentation. We'll now be moving on to the Q&A part of the call. We have a question. The first one is why GP is not regaining its subscriber market share? Azman, would you like to take that?

Yasir Azman, CEO

Yes, let me take it. We are actually growing. We are growing in the subscriber base. We are growing in quality subscribers, and we are growing our 4G subscriber base in a very robust way. At the same time, while others are focusing on aggressive subscriber acquisition, GP is prioritizing improving the network experience, increasing ARPU with existing subscribers, bringing new services to our existing subscribers, and simplifying products to improve the digital experience. We must remember that we have a large customer base that demands new products and services. As a result, GP delivered improved top line growth in Q1 2024 compared to last year’s Q1 growth. As I mentioned at the beginning, we are indeed growing our subscriber base. Thank you.

Chowdhury Tazrian Israt, Head of Investor Relations

Thank you. We are waiting for more questions. There is another question: What leads to the year-on-year 8% OpEx growth? Otto, can you take that?

Otto Risbakk, CFO

Yes. The growth in OpEx is primarily driven by energy costs and the volume of growth corresponding to the top line growth. Regarding energy costs, as you know, electricity prices increased in February this year. Additionally, we are continuously building out our network, leading to higher consumption. Energy is one of the three major drivers. We also experienced higher costs in sales and marketing, primarily driven by the growth that Azman was referring to. Finally, there is revenue share, which is a mathematical outcome of our top line growth. So these are the three main elements of OpEx growth. At the same time, we have implemented several measures to mitigate costs. Therefore, I am pleased with the result of 7.9% growth.

Chowdhury Tazrian Israt, Head of Investor Relations

Thank you. There is another question on our portal: Any explanation regarding previous year's tax adjustments? Otto, over to you.

Otto Risbakk, CFO

Yes. The tax adjustment relates to the new Income Tax Act introduced in 2023. As you may recall, on June 22 last year, the new income tax law replaced the previous Income Tax Ordinance of 1994. Due to some ambiguity in new provisions in the new tax act, we decided to make certain provisions in 2023 in line with IFRS. Upon receiving further clarification on the act, we were able to reverse this provision in this quarter. These provisions were based on our conservative application of IFRS, and we now believe we can reverse them.

Chowdhury Tazrian Israt, Head of Investor Relations

Thank you. We don't have any other questions at the moment, but let's just wait for a minute, if we have any. Okay. I think we have another question here: How do you see the potential of the 5G rollout in Bangladesh and GP's priority in this regard? I would request Azman to answer.

Yasir Azman, CEO

Please repeat the question.

Chowdhury Tazrian Israt, Head of Investor Relations

How do you see the potential of the 5G rollout in Bangladesh and GP's priority in this regard?

Yasir Azman, CEO

We don't provide any forward-looking statements regarding development or investment. However, we see that the network we are building today is essentially 5G-ready. As I mentioned earlier, we have doubled our fiber connectivity in the last two years, now at 41.8%, which prepares us well for the future and for 5G. When discussing 5G in Bangladesh, we must be precise. We need to identify use cases for 5G for our general customers, necessitating a strong 4G network. In specific areas like airports, and ports, we need to develop use cases that will be serviced by 5G in time. We have a potent network of various business units in advanced markets, especially in Europe, where there are established use cases that are ready for testing and trial. We are constantly learning and preparing ourselves to bring this out to our customers, particularly our enterprise clients when the time comes.

Chowdhury Tazrian Israt, Head of Investor Relations

Thank you, Azman. With that, we would be ending the call for Quarter 1. If there are any other questions from your end, please reach out to me via text or email, and we'll get back to you shortly. Thank you, everyone.

Yasir Azman, CEO

Thank you.

Otto Risbakk, CFO

Thank you.