Earnings Call Transcript - GP Q1 2022

Naureen Quayum, Head of Investor Relations

Good morning, everyone. Welcome to Grameenphone's Earnings Disclosure for the First Quarter of 2022. My name is Naureen. I'm the Head of Investor Relations. With me today are our CEO, Mr. Yasir Azman; and our CFO, Mr. Jens Becker. Before we start, I would like to let you know that our financial results, our presentation and additional documents are available on our Investor Relations website. In case you are unable to address your question in this session, please feel free to reach out to me after our session is over. With this, I would now like to welcome our CEO, Mr. Yasir Azman, to start his presentation.

Yasir Azman, CEO

Thank you, Ms. Naureen. Good morning, everyone. My name is Yasir Azman, and I am the CEO of Grameenphone. Thank you for joining us for our first quarter of the year 2022 results announcement this morning here in Dhaka. I would like to begin with some industry facts. As reported by our regulator, till February 2022, the telecommunication industry reported 182.92 million subscribers, increasing by 1.9 million subscribers from the end of 2021. Grameenphone maintained 46% of total mobile subscribers in the country. In the same period, mobile data users have increased by 1 million, reaching 224.85 million from the end of the year 2021. Let me start with some of the highlights of the quarter. The first quarter of 2022 has been monumental for Grameenphone, marking several milestones. On 26th of March, as the country turned 51, Grameenphone completed 25 years of operations in Bangladesh, making our contribution to empowering societies, at the same time committed to continue playing our role as a digital connectivity player in Bangladesh. Also in the first quarter, the regulator held the country's largest spectrum auction in March, where Grameenphone participated and bid for the maximum allowable 60 megahertz of 2.6 gigahertz of spectrum. This was a milestone that happened in Q1 already in 2021. We registered improved growth momentum in our top line in the first quarter as a result of our segmented focus on our product portfolio and digitalization of our customer journeys which fully supported the faster spectrum and site rollouts. Our top line growth momentum was aided by growth from the data segment, actively driven by improved customer experience from our investment in the network. With the intention of providing simplified and enriched offerings to our customers, we have revamped and simplified our product portfolio to a great extent in the same quarter. The quarter ended with positive momentum globally. We embarked upon the third year of the COVID-19 pandemic in 2022. The impact of COVID-19 has eased significantly in Bangladesh in recent months, with a very low number of cases being registered every day. As a result, our economy has started to regain momentum in the first quarter, with all sectors of the economy functioning normally and back to business as usual. However, uncertainties have arisen from the global political scenario, especially with the unrest taking place in Russia and Ukraine, along with fresh lockdowns in China due to new waves of COVID-19. We continue closely monitoring this situation and prepare accordingly. In the first quarter, we continued our planned deployment of the spectrum we acquired in 2021, which has consistently led to improved customer experience. We rolled out so far 423 new sites in Q1, which has led to improved capacity on our network. As a result, we are seeing 21% data usage growth from the last quarter. We continue to convert users to 4G, with 1.1 million new 4G users being registered in this quarter. On the other hand, digital share of sales reached 28.1% in Q1, improving by 4.5 percentage points from the same period last year. This is encouraging because despite the country coming out of the pandemic situation, the digital conversion efforts made to engage customers by digital platforms continue to persist and remain the choice of our customers. Our modernization is helping us to become more efficient and agile to respond faster to market needs. Throughout the year, we have talked about modernization in our business models, such as driving automation, bringing in robotics process automation and touch-free operations. We also discussed building critical competencies and upskilling while exploring partnership models to ensure a future-fit organization at Grameenphone. In 2021, our modernization and transformation journey focused on the automation and streamlining of administrative and technology functions. However, towards the end of 2021 and the beginning of 2022, we initiated a 360-degree modernization of our sales and distribution functions, which explored areas of digitalization, analytics and process automation. Our modernization and transformation journey will continue as we seek further efficiencies in our operations, leading to quantifiable savings in the upcoming years. At the same time, this will bring agility to drive growth and innovation. We believe the right mix of competencies, capabilities and tools will enable our growth ambition, reinforce our position as a connectivity partner, and act as key enablers for sustainable growth. We believe in empowering societies. Grameenphone's operations have always focused on ensuring sustainable and fair business practices. We focus on various aspects encompassing environment, social and governance in our operations and daily interactions with our stakeholders. As part of digital inclusion and enablement, as of 31st March 2022, Grameenphone is connecting a subscriber base of 83.7 million customers at home, 44.6 million customers access the Internet, and 28.7 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 competency. As of the first quarter of 2022, the percentage of women in our total workforce is 17%, which has increased from 11% at the end of 2018. Our FutureNation project, with the commitment to upskill 305,000 workforce by 2024, has onboarded a specialized team to deliver on project goals in 2022, with the ambition to deliver upskilling programs through its smart digital platforms. The program has also signed partnerships with Bangladesh Hi-tech Park Authority and completed workshops with BIDA, which is Bangladesh Investment and Development Authority, to progress towards partnership. Grameenphone promotes high standards within health, safety and security to ensure a well-protected workplace. Recurring sustainable business practices are crucial to maintain health and safety security for our employees and society. Commitment to health, safety and security is strongly driven and demonstrated by the leadership team and is translated down to the entire organization. We focus on people safety throughout our value chain, with an ambition of zero fatalities both internally and externally into our supply chain. Our well-defined climate ambitions are established to make the planet greener and more livable. Grameenphone acts as a responsible corporate citizen, doing our part in protecting the environment and contributing to the prevention of climate change. We focus on building awareness and engagement as the first step in our climate ambition. More details of Grameenphone's ESG initiatives and performance KPIs are available at our Investor Relations website. I will now welcome our CFO, Jens Becker, to take you through our financial performance for the first quarter of 2022. Jens.

Jens Becker, CFO

Thank you, Azman, and good morning to everybody. Let me start with a short overview of the financial performance of this quarter. In Q1 '22, Grameenphone delivered further improved growth momentum in the top line, along with continued growth in EBITDA. The top line growth momentum was supported by further deployment of spectrum, site rollouts, and enhanced market activities. Grameenphone registered a 4.6% year-on-year growth in subscription and traffic revenue in Q1 after a 3.6% growth in Q4 last year. Additionally, EBITDA grew by 1.7% with a margin of 61.1%. Grameenphone continued its focused investment and relentless efforts to provide customers with a superior network experience. As a result, on 31st March '22, Grameenphone acquired the maximum allowable 60 megahertz of additional spectrum in the 2,600 megahertz frequency band. In the future, with this additional spectrum, Grameenphone will be able to further strengthen its customer experience and quality of service, contributing to Bangladesh's digitalization while meeting the growing needs for high-speed Internet in both rural and urban areas. At the end of Q1 '22, Grameenphone's CapEx-to-sales ratio stood at 12.1% based on a 4-quarter moving average. The EPS for the quarter stood at BDT 6.0, with a 9.1% decrease from last year on a reported basis. The decrease in EPS was mainly contributed by one-off modernization costs in Q1 along with higher finance costs resulting from currency devaluation. Turning to the subscriber base, amidst the number series shortage, Grameenphone managed to deliver growth in its subscriber base through base management. According to BTRC published information as of January '22, Grameenphone's subscription market share stood at 45.9% while being 46.1% in Q4 '21. To counter the number series shortage, Grameenphone focused more on driving higher usage from the subscribers. As a result, substantial growth in data usage was observed from last year as well as from the previous quarter, contributing to top line growth. Grameenphone's subscriber base reached 83.7 million in Q1, with a 3.7% growth from last year, while data users reached 44.6 million with a 6.8% year-on-year growth. With superior 4G network experience, Grameenphone's 4G data users reached 28.7 million, reflecting a 33.9% growth from last year. Total revenue of Grameenphone grew by 4.4% in Q1, largely driven by the growth in subscription and traffic revenue. The year-on-year daily STR, daily subscribers and traffic revenue growth for the quarter was 4.6%, which was 3.6% in the last quarter. The growth in subscribers and traffic revenue was primarily driven by growth in bundles and data, supported by spectrum, site rollout, and enhanced market activities. To provide better customer value along with the enhanced experience, Grameenphone continued its focus on promoting bundles and bundled services in Q1. By launching attractive bundled packs and continuing digital adoption efforts through both own and third-party digital channels, bundled revenue grew 4.5 times compared to last year. With this substantial growth in bundles, the overall subscription and traffic revenue grew by BDT 1.5 billion or 4.6%. The data-only packs and pay-as-you-go revenue increased by 7.5% from last year. The user base grew by 76.8% from last year and 20.8% from the last quarter. The overall service ARPU increased by 0.5% from last year, mainly due to higher contribution from the bundle and data segment, partly offset by lower contribution from voice. Turning to EBITDA, Grameenphone posted a year-on-year 1.7% growth in EBITDA with a margin of 61.1%. The growth in EBITDA was mainly driven by growth in the top line. OpEx for the quarter stood at BDT 11.5 billion, showing a year-on-year growth of 7.7%. The year-on-year growth in OpEx stemmed primarily from higher sales and marketing, and operation and maintenance costs. Grameenphone invested BDT 3.9 billion CapEx in Q1 '22, focusing mainly on 4G network expansion and coverage enhancement. The company rolled out over 2,000 new 4G sites and more than 1,800 new coverage sites in the past 12 months. In addition to this, Grameenphone deployed new spectrum in over 13,000 sites during the last 12 months. At the end of Q1, the number of 4G sites reached 17,650. The 4G population coverage increased to 96.9%, which is a 1.1 percentage point increase from last year, where it was 95.8%. Now turning to net profit. The net profit for the quarter stood at BDT 8.1 billion, with a margin of 22.3%. On a reported basis, the year-on-year net profit and EPS for the quarter decreased by 9.1%. The year-on-year decline in net profit was mainly attributed to one-off modernization and restructuring costs, along with currency devaluation in Q1. In the first 3 months of 2022, Grameenphone has paid BDT 23 billion, equating to 63.3% of total revenues in the form of taxes, VAT, duties, license and spectrum fees, and revenue share to the national exchequer. With this, our total contribution since inception stands at BDT 979.5 billion.

Yasir Azman, CEO

Thank you, Jens. We wrapped up the first quarter of 2022 with positive growth momentum, supported by our investment in the network and growth in the data segment. As the pandemic situation eases, we are also confident about macroeconomic development, while we remain wary of uncertainties arising from the global political situation. We extend our gratitude to our regulator and the government for a successful closing of the country's largest spectrum auction, and we look forward to continuing our planned rollout and deployment to enhance the digital adoption of Bangladesh. We'll continue to pursue our journey to sustainable growth through modernization, evolving business models, competency deployment, and creating partnerships that will help us to meet the constantly evolving connectivity needs of our customers in Bangladesh. Here, I'm handing back to Naureen for Q&A. Thank you, Naureen.

Naureen Quayum, Head of Investor Relations

Thank you, everyone. We already have a few questions. So Jens, let me start with the first one: why did the number of active data customers decline from the Q3 2021 base?

Jens Becker, CFO

Yes. Here, we have seen a data subscriber decline in Q4 '21, but it's flat in Q1 '22. The negative impact comes from the number series shortage we experienced, but Grameenphone focused on increasing usage of the existing data users, which I mentioned in the speech already.

Naureen Quayum, Head of Investor Relations

Okay. Moving on to the second question: why have the commission expenses increased year-on-year basis?

Jens Becker, CFO

The commission increased to support the growth. We see strong growth in revenue. The economy is bouncing back after COVID, and Grameenphone is driving this growth while we are improving network experience and competitive value propositions for our customers.

Naureen Quayum, Head of Investor Relations

One more for you, Jens: have you charged depreciation of the new spectrum in Q1 '22? Is this what drove the higher D&A expenses?

Jens Becker, CFO

No. The depreciation of the newly secured spectrum, which we acquired at the end of the quarter, has not yet started. We still need to decide when to deploy it, and then depreciation will begin once we have the assignment date of the new spectrum. The year-on-year higher depreciation observed in Q1 primarily relates to the capitalized spectrum bought last year in Q2 '21 and the addition of the lease ROU in 2022 with the further rollout.

Naureen Quayum, Head of Investor Relations

Thank you, Jens. We will wait a few minutes for more questions to come in.

Jens Becker, CFO

Yes, we are working internally on how to break this down better.

Naureen Quayum, Head of Investor Relations

Okay. I do not see any further questions, so thank you, everyone. It has been a pleasure taking the session with you today. If you do have questions that we were unable to answer, please reach out to me through e-mail or WhatsApp, whatever works for you. We will be taking meetings today. Unfortunately, due to Eid holidays, we will be returning the second week of May for any meetings that you may require. Thank you, everyone. Stay safe. Happy Ramadan and Eid Mubarak in advance.

Jens Becker, CFO

Thank you.

Yasir Azman, CEO

Eid Mubarak. Thank you.