Earnings Call: Q3 2021

Oct 21, 2021

Good evening, everyone. Welcome to Grameenphone's earnings disclosure for the Q3 of 2021. My name is Noreen. I'm the Head of Investor Relations for Grameenphone, and thank you for joining us today. Our presentation, financial statements Additional documents are available on 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 question, please feel to reach out to me via e mail or text. We will now start our presentation with our CEO, Mr. Yasser Osman. Thank you, Nourin, and good evening, everyone. My name is Yasss Yazman, CEO of Grameenphone. Thank you for joining us for the 3rd quarter results announcement. I would like to begin with some industry facts. As reported by our regulator till August 2021, the telecommunication industry has gained almost 8,500,000 subscribers, registering a 5% growth from end of 2020, ending with 178.6 1,000,000. GP's customer base end of August 2021 was 82,180,000, which is 46.5 percent of the total Mobile subscribers in the country. In the same period, mobile data users have increased by over 13,000,000, reaching to 115,410,000 yen which is 12.7% increase from the end of If I may talk about the highlights of the quarter. We continued our top line growth in the 3rd quarter with A 1.8% growth in total revenue from last quarter, last year, quarter 3. With the addition of 2,400,000 data customers this quarter, we see an increase of 9.7% data users from last year. We also retained the growth traction in 4 gs users, registering a 55% increase year over year. We started the Q3 with a stricter lockdown. I would say the strictest one what we have seen during the whole pandemic starting from March 2020. However, as the quarter comments, the restrictions were eased significantly. Going to next slide. We have seen the ease of restriction and declining rates of COVID-nineteen infection rates and deaths number. If I briefly update on COVID-nineteen situation to the country. Till date, more than 1,500,000 cases of COVID-nineteen have Reported with over 27,000 deaths, while over 16,000,000 people have received both doses of vaccine in the country. The first 33 days of the quarter, in this quarter 3 was actually very strict in terms of lockdown, Where restrictions on movement were far more severe than 2020. This was triggered by the sudden spike, as I mentioned, in COVID cases and deaths With the spread of delta variant as can be seen in the graph in this slide. The infection rates started to decline from August And the restrictions were lifted. We exited the quarter in a near to normal situation. At this point of time, it's near to normal in terms of business In early September, government also declared the educational sector to partly reopen, maintaining all health and safety This is a good development in the second half of the quarter. As of last week, children above age of 12 have been Made eligible to receive their vaccines. Additionally, Bangladesh government has recently opened a vaccination for any citizen under the age of 18 on the Shuraka app. So vaccination is continuing. We have seen significant number of less infection rate and deaths number. As I mentioned, that businesses are In the near to normal now in the country and traffic is back in the city. Going to the next slide, Improving growth momentum after withdrawal of lockdown, what we have seen after the withdrawal, we started to see improving As we see the economic activities coming back, that has fueled the growth momentum. And as an emergency service provider, Our on ground operations related network rollout and spectrum deployment was also uninterrupted. Because of these rollout and network activities and also ease in restrictions, we have been able to continue Overall network rollout to enhance our customer experience, which is Well, in the data usage growth, which was a critical element in the overall business mix. And we were basically mostly focusing on Spectrum alert and 4 gs, all country that we rolled out in Q1 and early Q2 to capitalize on that and give better customer experience to the customer During this period, we focused on acquisition and grossed by launching attractive offers for new users in our product portfolio, Which has led to 7.7% growth in our subscriber base from last year. Customers' uptake on bundles per continued to grow. This is also we have seen a recent uptake among the customers that they are more towards bundles than probably In isolation buying voice and data bank. This gives us opportunity to fuel ARPU growth. We continued our partnership with mobile financial service Partners offering regular cash back, combo packs, increased validity and leading to a growth of 24.9% in digital recharge Last year, this is an area where we see that we have progressed during this period. In addition, we continue to offer combo packs and cashback on MyGP, which is our flagship digital app digital channel. We have included exclusive in app product offers and that has led us to get 11,000,000 users at the end of Q3 Itar, my GPM. Other than driving growth and fixing network experience, we have Basically significantly focused on our modernization journey. We focus on building a future fit company Through digitalization of our processes and modernization. Grameenphone has been undergoing a transformation journey. It's for several years. And that is to become a feature fit company that can cater to the rapidly evolving needs of our customers. However, Also, not only what we have seen over the last few years, the COVID has also demanded on a new way of work and changed the customers' behavior significantly In terms of their usage pattern of different services and the way the data uptake has happened. Over the years, we have examined all processes facing Driving simplification and ease of interaction with our customers in mind. We have also, during this period, technology as As a leader in the country, we position ourselves how can we digitalize and modernize the way We use technology, the insights to ensure that we understand the customer behavior better On time and fast track they go to the market. As a result of all this digitalization in terms of Customer journeys and being in the capabilities in the technology side, we have been able to digitize almost one 100% of our customers to be specific, 96% of our customer facing interaction and the services and bring them into our one Yeah, which is self-service app, MyGP. And in addition to product and service, we have also introduced several interactive and attractive features into this app, Some of which are Infinity is strolling and live streaming of its course, which has led to over 2,000,000 daily customer engagement into this app. However, a large portion of our customer base is still not a part of digital world and they're using the basic phone. And focusing on them, we have Extended our flagship retail fiscal stores. We have brought in 30 new flagship Stores focusing in the rural areas to serve our customers better. Now we have 194 Grumman Foods Centers and these stores cater to the needs of our customer, Mostly in the deep rural areas. By Gruminfong, so we are also working towards acquiring opportunities which we trust to deliver on demand of advanced mobile service and a quality network experience. As I mentioned, we are a majority for building a traffic network that will meet customer digital experience, The equipment is by boosting the quality of service with the joint MPL capabilities of bringing in future technologies. And as such, in 5 gs, That's free operation and fault management, customer complaint management. We have recently entered a partnership with global technology service provider Wipro, It is also an opportunity for local talent to obfuscate and pursue global opportunities. We are also driving modernization within our With the transformation of operating models, implementation of robotics and automation, as well as continuously upscaling our talent with future fit capabilities. We believe the right mix of competency, capabilities and tools will enable our growth ambition, reinforce our position as a connectivity partner and help move Bangladesh forward. This has been key focus areas not only this year, since several years. However, as I mentioned, this year, It's been digitalizing our customer journeys, focusing on building digital channels, driving volume there, at the same time, uplifting our technology capabilities internally To support this development, while we see the customer behavior changing, can then the entire organization driving moderation And that's how we see that we are preparing for the future when we see the change in digitalization and data regulations are happening. Moving on the business environment, 2 topics. 1, we see that 5 gs, the government of Bangladesh, has been working towards the launch of 5 gs in the country And having recently launched a consolidation process with the telecom industry, we have duly submitted our feedback And this consolidation process will continue. There is no specific any date for auction. And we as a telco operator and the industry, we don't See that 5 gs discussion is only confined within the option rather than the The tower co area, we have entered partnership with 2 tower co vendors To whom we have already developed and deployed over 1200 sites this year. We are counting in the coming year as well and we are continuing our discussion with other vendors as well as regulators into the new job position. Moving on to our commitment towards the society, how do we empower our Saidi, it's the basic thing that passed that at the end of the September 2021, Grameenphone is connecting a subscriber base of 83,600,000 people, Of whom, 46,100,000 customers accessed the Internet and 27,600,000 are empowered with power of 4 gs and growing. We have forecasted on COVID, relieved the strict lockdown in the 3rd quarter resulted in many subscribers being unable To recharge and stay connected to those who matter the most to them. In an effort to ensure that connectivity remain uninterrupted, We provided free minutes and data to more than 11,000,000 subscribers at 0 cost. At the same time, The way we in the previous quarter, we joined hands with that under the banner of Daxi Abadesh with the purpose of providing food to the highly impacted population of our society. I'm pleased to report that we are able to provide support to over 83,000 families We were gravely affected by the pandemic. While we talk about our focus into the social impact, One is like responding to the disaster. The other is responding towards COVID. As I mentioned through this Doctor. Cheva Desh program, 80 1,000 families were supported. The other area which is beyond or relevant to COVID or not relevant to COVID, We do focus on youth, digital and education. And on 15th July, we jointly celebrated World Youth skill day with UNDP to raise nationwide awareness and support the upper skill of our youth. Multiple online dialogues with youth and Policymakers were organized to bridge the gap, focusing on the strategic importance of equipping our youth with relevant skills. We launched a month long master class series, which will connect our youth to industry leaders and experts. We'll guide them through relevant workforce capability This will remain as a focus area, and we will build on the work we have done in Q3. With this, I'll welcome our CFO, Jens Wecker, to take us through, and I shall come back at the later stage of the session. Jens? All right. Thank you, Asman, and good evening to everybody. Let me start with a short overview of their key KPIs. In Q3, Grameenphone has continued to deliver a solid financial performance with positive momentum in top line as well as in EBITDA, Despite the challenges of a strict lockdown that we saw from the 1st July till 10th August. After this, the overall economy has gradually recovered from COVID-nineteen with average daily new cases declining to a level of around 1,000 With less than 5% infection rate by the end of September, followed by the withdrawal of the lockdown, The economic activities gradually resumed, while educational institutions have been reopening in limited scale from 12th September after actually 18 months of closure. However, Grameenphone remained active in the markets throughout the quarter with strong subscriber acquisition, New spectrum site rollout and customer focused market activities. In summary, Gramilfone had a Plus 1.9% year on year growth in subs and traffic revenue and a +1.3% growth in EBITDA in Q3, while maintaining an EBITDA margin of 63.3%. With the continued investment efforts backed by the newly acquired Spectrum, GP's CapEx to sales ratio for the quarter stood at 10.4% on a 4 quarter moving average, which was 5.3% on a stand alone basis. EPS for the quarter stood at BDT 6.34 with a 3.8 percent degrowth From last year on a reported basis, the degrowth in EPS was contributed by one off modernization cost in this quarter. Now let me turn to more details on the subscriber base. We have continued our subscriber acquisition drive in the market, Resulting into 1,600,000 net adds in Q3 along with 2,400,000 new data users. The sub base at the end of Quarter stood at CHF 83,600,000 with a 7.7% growth from last year and 1.9% from previous quarter. According to BGRC published information as of August, GP subscription market share increased to 40 Quarter stood at 46,100,000, including 27,600,000 4 gs data users in Q3. With our superior 4 gs network experience, Grameenphone's 4 gs data user increased by 3,800,000 from last quarter. Coming to the revenue now. Despite having negative impact from the strict lockdown until 10th August, means nearly half of the quarter. Grameenphone continued to deliver growth in its top line. Total revenue grew by 1 8% year on year to RMB36.2 billion in Q3, fueled by a 1.9% growth of daily subscriber and traffic revenue. The increase of the subscription and traffic revenue was mainly driven by growth in voice data bundles and data only Thanks. Turn to the next page. In addition to the focus on data and voice only packs, Grameenphone continued, as I mentioned, to promote its bundled services in Q3 to provide a better customer value along with enhanced experience. By launching attractive combo bundle packs along with the continued digital adoption efforts through both Owned and third party digital channels, bundle revenue grew by more than 10x compared to last year and 1.6x from last quarter. Excluding these bundles, data only packs and pay as you go revenue increased by 4.5% from last year. With this substantial growth in bundles, The overall subscription and traffic revenue grew by SEK 0.6 billion, as I mentioned, 1.9% year on year. Turning to the ARPU and usage. Grameenphone continued its value proposition through attractive market offers, Supported by the superior network experience through newly acquired spectrum and 4 gs network expansion. As a result, GP's average megabyte per user grew by 52.4% from last year and 9% from last quarter, Standing at 3.9 gigabyte per user now. The overall service ARPU decreased by 5.9 from last year, mainly due to lower contribution from our voice segment due to the lockdown impacts partly offset by the bundles. Next page. OpEx for the quarter stood at DKK11 1,000,000,000 with a year on year Plus 1.9% growth. This year on year growth in OpEx mainly driven by higher regulatory and energy cost. In terms of EBITDA, GP posted a year on year plus 1.3% growth with a stable margin of 63.3%. The growth in EBITDA was mainly driven by the higher revenue though. On the next, turning to CapEx. GPF invested CHF1.9 billion CapEx, excluding license and lease in Q3, focusing mainly on 4 gs network and coverage Expansion. We rolled out more than 5,300 new sites and more than 1500 new coverage sites in the last 12 months. At the end of Q3, the number of 4 gs sites reached 16,795. The 4 gs population coverage reached 96.8%, which an 0.5 percentage points increase from last quarter. Turning to profits. GP's net profit for the quarter stood at 8,600,000,000 with a 23.6% margin. On a reported basis, year on year net profit and EPS for the quarter decreased by 3.8%. The year on year decrease in net Profits is driven by 1 off modernization costs. However, excluding the one off items in both the periods, net profit would have grown by 1%. Next page. In terms of operating cash Flow GP recorded a year on year €1,600,000,000 growth, contributed by €0,300,000,000 higher EBITDA and €1,300,000,000 lower CapEx. Net debt stood at CHF 10,000,000,000 as of Q3 in combination of CHF 13,900,000,000 liability And SEK3.9 billion cash balance, excluding the restricted cash. Next page. In terms of our contribution to the National Exchequer, we stand at €79,200,000,000 year to date, equaling around 74 With this, I would like to hand back to Asman for wrapping up. Thank you, Jens. To recap, in the Q3, our top line growth is being driven by the growth in users and users as We highlighted just a while back. Improving our customer experience as a result of network rollout and spectrum deployment will continue to remain Key factors behind our growth momentum. And we will continue to pursue our journey in enabling our growth through modernization, Evolving business models and competency development and as well as creating partnership that will help us to capture to the constantly evolving connectivity needs for our customers. With that, I'll hand back to Norim for Q and A. Thank you, Asandai. Thank you, Jens. Let's start with the first question. I believe, Jens, this is for you. What is the onetime modernization cost and what is the amount? Yes. So let me maybe as you recall also from Asman's speech, modernization is one of our Key pillars of our strategy, which we are pursuing since quite some time. Now you also have heard That we have in terms of for this quarter went into improving our network capabilities, Moving into new partnerships here. So this is has been a key milestone for us, And this is what the modernization costs refer to. So it's basically transition costs and restructuring costs that we have. I think in the overall level, I think there was a question to it. What I saw here is about 1,300,000,000 in the quarter as the one off That we have. And as I mentioned, if you would take it out of this in both of the quarters means So the previous year on year quarter, it would lead to a net profit increase of around 1% year on year. Moving on, what are the major trends in customer behavior you have observed in Q3 as Bangladesh approaches a near normal state amid the pandemic. Aswan may, maybe you can take this one. Yes, I can take it. When we see that Bangladesh is approaching to a new And they are normal, as I mentioned. We have seen that the voice minister coming back. It's increasing with increased mobility and recovery in economy And partial opening of academic institutions. And obviously, the data usage continues Thank you, Songhai. We have a related question to the question Jens just answered. There's a one off modernization cost. And what is the amount? We've answered this. What productivity improvements do you expect from such expenditure? Yes. As we're going forward, I think it's here about the capabilities that we have encountered with this new. I think Asman answered this already in the speech, getting in the details, how we want to enhance customer experience Going into the digital age that is necessary here. So this part is Very much on the capabilities. Of course, there's also a productivity increase. But for this, as you know, we're not allowed to give Any forward looking statements, but of course, we assume this as well. But the key driver here is Capabilities and getting into the digitalization and get the right capabilities on the customer experience end. Jens, I have another one for you. What's the year on year voice growth in Q3? Yes. That's a bit of a tricky question. As you can see, all our growth is basically now into bundles. Bundles means here voice and data bundles. If you would look into voice stand alone, that will be a 14% degrowth. But most of the as I said, It's a bit of artificial on it because the growth is coming from the bundles where we don't actually separate it anymore. Another question that I got over WhatsApp, this is in the quarter despite lockdown, the subscriber net add Trends for the quarter did not drop, but ARPU did. Does this just reflect the net additions came late in the quarter so that there will be a bit of a catch up for revenue in quarter 4? Yes. Because this is the ARPU is independent from the subscriber number, right? It's per subscriber. So The drop of ARPU that we have seen is basically driven by the voice drop that we see during the lockdown. Lockdown usually comes with lower minute usage. Okay, I see a question from IDLC, which is what was the later price scenario last quarter? Will you consider this competitive information and we would not like to share this? We will just wait okay, I see another question. Do you plan to launch any digital products like your competition, Toffee, TV by Banglolink? Asman, would you like to answer? I didn't get the question. Is there any plan to launch any digital products like our competitors? We don't intend to bring in our own digital services. We have and like a long term, We have a Piasco, which is also as it is like toffee has mentioned here. Our model is to do partnership and bring in services to the customers the best possible one in the market. Thank you both. Let's just wait a minute more for okay, I have another question. Is there any regulatory update, especially on the BTRC audit? We have recently seen some movement on the audit part, and that's basically not in relation to Grameenphone, just related to The operator of Banglalink, which was in the media as well, that PTRC earlier did for audit for Grumman and Roby. Now they started For Pangenlink. We are also always in touch with PTRC, and currently, we would like Find out that whether there is a possibility that what we have earlier mentioned for an amicable mediation. However, as we understand, the The matter is in court. And unless and until the court directs us for the mitigation of the court, it will not be possible and supported Hi, Kenny. Okay. Let's wait a few more minutes for any more questions.