Earnings Call Transcript - GP Q2 2021

Naureen Quayum, Head of Investor Relations

Good morning, everyone. Welcome to Grameenphone's earnings disclosure for the second quarter of 2021. My name is Naureen. I'm the Head of Investor Relations. Thank you for joining us today. Our presentation, financial statements, additional documents are available for download on our 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 reach out to me through an email or text. We will now start our presentation. I would now like to welcome our CEO, Mr. Yasir Azman.

Yasir Azman, CEO

Thank you, Naureen. And good morning, everyone. My name is Yasir Azman, CEO of Grameenphone. I thank you all for joining us this morning. Let me start with some of the industry facts this time. As reported by our regulator, until May 2021, the telecommunications industry overall has gained more than 5 million subscribers, which is almost a 3% increase from the exit of 2020. In the same period, mobile data users have increased by over 5 million as well, a 5% increase from the end of 2020. And 61% of total mobile subscribers in Bangladesh are now using mobile data services as of May 2021. These figures are reported by our regulator. If we talk about the highlights of quarter 2, 2021 marks Grameenphone's return to top line growth amid the COVID-19 pandemic situation. From last year, our total revenue grew by 8.1%. Having achieved the 80 million subscriber milestone in quarter 1 this year, we ended the first half of the year with 82 million subscribers, which is more than 10% growth year-over-year. In addition to total subscribers, we also have significant growth in 4G users, which is 56.5% from last year. However, the challenges have become even more daunting over the past few weeks, as the country is facing its deadliest wave of COVID-19 to date. I'll come back to this later on. This top line growth of 8.1% is driven by the enhanced customer experience and digitalization we have implemented during this period. We began 2021 with a stronger start compared to 2020, as we were able to manage most of the challenges from the COVID-19 situation and business environment during the pandemic. In the first quarter, we achieved a few milestones such as extensive expansion of 4G rollout across the country, while we also acquired 10.4 megahertz spectrum at the auction held by the regulator. In the second quarter, we prioritized deploying that spectrum while continuing with network rollout, adding more capacity and coverage, which ultimately provided our customers with an enhanced network experience that is very key when we deliver on our customer experience. We have also secured an additional TowerCo vendor, which will further strengthen faster rollout and enhance our network position, as both the demand for Internet and the number of Internet users are on a growing trend in Bangladesh. For us in Grameenphone, we are committed to being a key contributor to the digitalization of Bangladesh by meeting the demand for data while providing a high-speed Internet experience for our customers. Despite the challenges from various restrictions due to the pandemic, we displayed our ability in market execution, bringing in new products such as bundles for our customers' convenience across several price points, leading more customers to choose Grameenphone as their preferred telecommunication service provider. We will continue to drive granular territory-level focus, at the same time offering one-on-one personalized offers to ensure the right products reach the right customers, which enables us to grow and maintain a healthy subscriber base. Our approach in market execution led to 1.3 million net additions in our subscriber base this quarter, and similarly, 2.3 million new 4G users, compared to 1.3 million net users or subscribers previously. Digital recharge has shown promising growth of 14.5% year-over-year, with a 24% year-over-year growth in active MyGP users. This is attributed to our continued drive through our own digital channels such as the launch of new and attractive bundles. I have already mentioned vouchers and cashback campaigns from our flagship digital channels, MyGP app, as well as in partnership with mobile financial service providers. So altogether, this enhanced customer experience and digitalization, along with our ability to execute in the market in the most agile way—taking learnings from the previous quarters during this pandemic—helped us to come back stronger in top line growth. Grameenphone continued empowering the citizens of Bangladesh by being their preferred choice. At the end of the first half of 2021, Grameenphone is connecting a subscriber base of 82 million people, as I mentioned, of whom 43.7 million customers access the Internet. And 23.8 million are empowered with the power of 4G, and that number is increasing. We have also, from July 8, incorporated a national vaccination management portal on our self-service app MyGP, enabling our customers to access the portal right from their fingertips. These initiatives are highly acknowledged and valued by the customers. Grameenphone has been continuously assessing the COVID-19 developments and responding with different direct and indirect contributions from the beginning of the pandemic. In continuation of our COVID-19 response Dakche Amar Desh in 2020, this year, jointly with that, we will provide food assistance under Dakche Abar Desh to the highly impacted population of our society. Families with elderly members, pregnant and lactating mothers, persons with disabilities, families depending on women's earnings, and ultra-poor households, as well as those who have not received any assistance from other sources, will be prioritized under this initiative. We are welcoming many other corporates to join this initiative, and that is why we say that this is Dakche Abar Desh during this time. We are firmly committed to playing our role as a leading technology service provider as well as an emergency service provider during this period and helping our communities overcome these unprecedented challenging times. Regarding the situation that emerged at the end of Q2 in relation to the COVID-19 pandemic, the recent wave, which we've been discussing, of COVID-19 in Bangladesh has proven to be the deadliest so far. We have passed 1 million reported cases and registered over 16,000 deaths. The authorities have successfully vaccinated 5.8 million people during this time. To curb this latest breakout, especially the Delta variant, the border areas of Bangladesh have been in lockdown since May, with stricter lockdown enforced from July 1, which is at the beginning of Q3. We started seeing the increasing trend of Delta infections towards the end of Q2. Telecommunications services continue to be recognized as essential service providers during this lockdown. Since the beginning of the pandemic last year, Grameenphone has been operating with a strong business continuity plan, utilizing best practices and prioritizing the health and safety of our employees—not only our employees, but also our partners, stakeholders, and customers. Despite various challenges and risks, which we continue to mitigate, our network operations have remained unaffected. There have been various retail closures due to the lockdown, which have affected our sales outlets. Our teams have worked nonstop to ensure uninterrupted distribution by utilizing channels that remain open per the authorities' directives to cater to customers in the physical space who need it. We have also used the power of our data analytics to understand the movement of our customers and our retailers and help our retailers keep our customers, providing services as far as the retailers are concerned. As you may understand, the market is mostly a prepaid customer base. We'll continue to monitor the situation and evolve when necessary by working together with our stakeholders. I'll come back with a summary. At this point, I will now welcome our CFO, Jens Becker, to take you through our financial performance for quarter 2, 2021.

Jens Becker, CFO

Thank you, Azman. And good morning to everybody. Let me start with the main KPIs. Amidst the continued lockdown situation starting from April, Grameenphone managed to deliver a strong organic financial performance in Q2 with positive growth momentum in the top line along with healthy profitability. The overall economy is largely impacted, as Azman said, by a new wave of COVID-19, with average daily new cases reaching more than 11,000 by the end of June. Despite the volatility of the situation, Grameenphone remained active in the market with strong subscriber acquisition, investment momentum, and customer-focused market activities. In summary, Grameenphone had 8.5% year-on-year growth in subs and traffic revenue in Q2 '21, following a decrease of 2.2% in Q1 '21 and 2.8% in Q4 '20 on a daily basis. In terms of EBITDA, we continued to maintain a healthy margin of 62%. With the continued investment efforts backed by the newly acquired spectrum at the end of the last quarter, GP's CapEx-to-sales ratio for the quarter stood at 11.3%, which was 9.6% in the previous quarter on a rolling 4-quarter average basis. Earnings per share stood at BDT 6.3, reflecting a 17.1% year-on-year growth in Q2. The year-on-year growth in EPS is mainly due to the previously mentioned top line growth as well as lower finance costs. Turning to our subscriber numbers, Grameenphone continued its subscriber acquisition drive in the market, resulting in 1.3 million net additions in Q2, including 2 million new data users. Our subscriber base at the end of the quarter stood at 82 million, reflecting a 10.1% growth from last year and 1.6% from the previous quarter. According to BTRC published information, as of May '21, GP's subscription market share increased to 46.5% from the last quarter, which was 46.4% in Q1. The number of data users for the quarter stood at 43.7 million, including 23.8 million 4G data users, reflecting an increase of 4G data users by 2.3 million. Coming to our revenue development, in quarter 2, Grameenphone subscription and traffic revenue growth was mainly driven by the growth in bundles, meaning voice and data together, and additionally, data alone and voice revenue. The year-on-year daily subscriber and traffic revenue growth for the quarter was 8.5%, compared to the minus 2.2% in Q1 this year, while year-on-year total revenue growth was 8.1% in Q2 due to lower interconnection revenue as a result of a reduction in local call termination rates. Aside from the continued focus on data and voice, Grameenphone has actively driven bundled products in Q2 to provide better customer value along with enhanced experience. By launching attractive and relevant bundled packs, along with the continued digital adoption efforts, bundle revenue grew by 6.5x compared to last year and 2.3x from the last quarter. Excluding bundles, data-only subscription and pay-as-you-go revenue increased by 4% from last year. With this substantial growth in bundles, the overall subscription and traffic revenue grew by BDT 2.6 billion, of which 97% was driven by bundles, contributing BDT 2.2 billion, and data-only generating BDT 0.3 billion. Grameenphone continued its value proposition through attractive market offers, supported by newly acquired spectrum and 4G network expansion. As a result, GP's average megabyte per user grew by 38.6% from last year and 22.5% from last quarter. The overall service ARPU slightly decreased by 1.1% from last year. Now turning to EBITDA, we had a year-on-year growth of 7.6% in EBITDA with a healthy margin of 62%. The growth in EBITDA was mainly driven by higher revenue. OpEx for the quarter stood at BDT 11.2 billion, with a 9% year-on-year growth, while the higher OpEx was primarily driven by increased regulatory and sales and marketing costs due to higher revenue. On the investment side, we maintained the momentum with BDT 5.2 billion CapEx in Q2, primarily focused on 4G network and coverage expansion, along with the deployment of the newly acquired spectrum. GP rolled out 556 new 4G sites and 524 new coverage sites in Q2. At the end of Q2, the total number of 4G sites reached 16,146, achieving a 4G population coverage of 96.3%, with a 0.5 percentage point increase from the previous quarter, which was 95.8% 4G population coverage. Net profit and earnings per share for the quarter grew by 17.1%. The year-on-year growth was positively impacted by lower finance costs, reflecting reduced foreign exchange loss and interest expenses. Net profit for the quarter stood at BDT 8.5 billion, with a 23.8% margin. On a reported basis, the net profit after-tax margin increased by 1.8 percentage points from last year. Year-on-year, we saw a BDT 1.1 billion decline in operating cash flow, which means EBITDA minus CapEx, driven by the BDT 2.7 billion higher CapEx, which was partly offset by BDT 1.6 billion higher EBITDA. Net debt stood at BDT 5.8 billion as of Q2, comprising BDT 12.3 billion in liabilities and a BDT 6.5 billion cash balance, excluding restricted cash. In terms of our contribution to the exchequer for the first half of this year, that stood at BDT 54.4 billion, roughly equating to 77% of our total revenue. With these results, our earnings per share stood at BDT 12.85. We are happy to announce a cash interim dividend of BDT 12.5 per share, constituting a payout ratio of 97%. With this, I would like to hand back to Azman for summarizing.

Yasir Azman, CEO

Thank you, Jens. As you see, we are continuing with the stronger momentum we gained at the beginning of this year with a return to top line growth as a combination of enhanced customer experience, digitalization, and our agility to respond to changing customer demand. We are also managing our operational challenges with all our capabilities in place and playing to our strengths in market execution. As the volatilities related to COVID-19 intensify, we will continue to operate under our business continuity plan. We will maintain collaborative efforts with our regulators and different government and private entities in our dedication to support our communities in the recovery from this pandemic. I'll stop here. Thank you, Naureen and all connected.

Naureen Quayum, Head of Investor Relations

Thank you, Azman bhai. Up until now, we have not received any questions, so maybe we may wait for a few more minutes and see if anybody has any questions. If anybody has any problem logging in or typing in the comment box, you can email me or text me on WhatsApp or SMS, whatever works for you. I think we can start. I see some questions starting to come in. The first one, from Consilium, 'What is the impact of bundled offering on the blended pricing for data during this quarter?' Jens?

Jens Becker, CFO

Yes. I think, as you're aware, bundles—like in other markets—are picking up. Here bundles mean voice and data bundles. So on the pricing side, it's difficult to say, as it's a bundled product, to extract this. Overall, we see continued price pressure, of course, in the market as we have seen in previous quarters, but the uptake on data was tremendous, with a strong growth in usage of 38%, resulting in approximately 3.6 gigabytes per user, compared to 2.6 gigabytes in the same quarter a year ago.

Naureen Quayum, Head of Investor Relations

Azman bhai, maybe you can take the second question. What led to the substantial uptick in data consumption during quarter 2?

Yasir Azman, CEO

This is directly related to our data user growth, which we have driven over the period and heavily supported by new spectrum and site rollout. At the same time, a strong market execution window emerged during this period in Q2 with a lesser impact from COVID.

Naureen Quayum, Head of Investor Relations

Just a reminder to everyone who has logged in, if you cannot post questions, you can also text me on WhatsApp or send me an email if needed. Azman bhai, I have one—I'm sorry, Jens, I have one for you. Current update on TowerCo and what will be the impact on financial statements?

Jens Becker, CFO

Yes, I think as mentioned before by Azman, we have onboarded a second TowerCo now. And so far, in Q1 and Q2, 765 sites have been rolled out by the new TowerCos that we have.

Naureen Quayum, Head of Investor Relations

Jens, I have one more for you, 'On the price per gigabyte basis, can you help us understand the scenario better?'

Jens Becker, CFO

Yes, I think I answered this before. It's only possible to extract price per gigabyte on a stand-alone basis for data only. In the bundled scenario, it's difficult to differentiate. Therefore, it can reflect the price pressure that we observe in the market. It's a very competitive market that's ongoing, but the very high growth rates in usage offset this.

Naureen Quayum, Head of Investor Relations

Jens, continuing with another one. 'Since the voice ARPU is stabilizing while the data revenue is moving up sharply in terms of contribution, should one safely assume stronger revenue growth in coming quarters?'

Jens Becker, CFO

I think that's the million-dollar question. In general, you would be correct if we were not facing the uncertainties with COVID right now. There will be a business impact as a result of the strict lockdown that has been implemented from July 1, supported by the military deployed to keep people safe in their homes.

Naureen Quayum, Head of Investor Relations

I would just like to give a reminder that in Bangladesh, we are restricted from giving out forward-looking statements as well.

Jens Becker, CFO

Jens, I have a question for you, 'What percentage of total revenue came from digital channels, such as bKash, MyGP app in the last quarter?' I think this is a very competitive question that we would not like to disclose. I hope for your understanding there regarding the revenue breakdown. What is important for us is the share of digital reload that we have as part of transitioning into a more digital world. This has moved up by nearly 15% year-on-year, now totaling to 26.8%, from which we have digital reload from digital and alternative channels.

Naureen Quayum, Head of Investor Relations

Azman bhai, I have a question for you. 'Can you please elaborate on the operational restrictions that the lockdown forces upon us? What kind of impact are we indicating here?'

Yasir Azman, CEO

You see that telecommunications services have been declared as an essential service in the country. So as far as our network operation is concerned, maintenance, optimization, and rollout, we have not seen any obstacles or restrictions at this point. Ideally, there shouldn't be restrictions because it has been declared an essential service. However, we see obstacles and restrictions in terms of our distribution activities. Many shops are not allowed to operate. Consequently, even if we sometimes are allowed to distribute, we face barriers. There are other means of addressing this, such as using marketing activities and data analytics to understand and provide opportunities for our customers to retail by connecting with our retailers, as it is mostly an electronic retail system in the market. As for the impact, while COVID restrictions get stricter, we see a drop in recharges. Initially, we have seen a drop in users, but then they restart.

Naureen Quayum, Head of Investor Relations

Thank you, Azman bhai. We do not have any follow-up questions. I do see another question. 'Were there any new promotional offers that were introduced during the quarter that drove strong 4G conversions along with strong data usage?'

Yasir Azman, CEO

I can share a few thoughts here that these promotional offers depend on many angles. It's not only the new pricing or reducing prices but also bringing in new price points. We understand our customer needs and changing behavior due to the pandemic. This is one aspect. The other aspect is obviously how granular we are in understanding customer movement before entering new areas where we are rolling out our new sites, spectrum, and 4G. Altogether, in combination with our enhanced customer experience, digitalization, and our ability and agility to respond to customer needs, we have driven strong 4G conversions, while customers see the value of these activities and efforts.

Naureen Quayum, Head of Investor Relations

We're waiting for some more questions.

Yasir Azman, CEO

I can take the last one, concerning the increased electronic recharges during the lockdown, we see that electronic digital recharges are more convenient.

Naureen Quayum, Head of Investor Relations

Azman bhai, I have one more for you. 'Unlike previous lockdowns when we witnessed lots of SIMs getting inactive, is there a change in customer usage that we are witnessing during the lockdowns in 2021?'

Yasir Azman, CEO

This observation occurs each time new restrictions are implemented. In the prepaid market, where many small businesses and large enterprises are stopping operations, we initially see a drop in customer usage, followed by a resurgence, especially with regard to site traffic.

Naureen Quayum, Head of Investor Relations

I have one more, Jens. 'What is driving the increase in sales and marketing expenses?'

Jens Becker, CFO

This is primarily due to revenue growth. We see a strong revenue increase. Consequently, this is largely due to commissions we have as the biggest driver in sales and marketing. Additionally, we are utilizing the spectrum deployment for further marketing activities to drive this.

Naureen Quayum, Head of Investor Relations

Okay. We will wait two more minutes for any further questions.

Azman bhai, CEO

I have one last question for you. 'Is there further headroom available for subscriber addition before we have to go back to the regulator for approval?'

Yasir Azman, CEO

Yes, in terms of subscriber addition before we reach out to regulatory approval. We don't see that we are operationally restricted regarding subscriber growth in the country, and we see that more and more subscribers are favoring their preference based on the customer experience and digitalization we are providing, which delivers value to the customers.

Naureen Quayum, Head of Investor Relations

Okay. I don't see any new questions. So thank you, everyone. Thank you for participating. Have a good day. If you have any questions at all, please feel free to get in touch with me over email or phone. We can also arrange a few meetings next week. Thank you, and advance wishes to everyone.