Earnings Call: Q2 2020

Jul 15, 2020

Good morning, everyone, and welcome to Grameenphone's Earnings Disclosure for the Q2 of 2020. My name is Maureen. I'm the Head of Investor Relations for Grameenphone. Our presentation today will be in 2 parts. There will be a business and situation update from our CEO, Mr. Yasser Asman followed by an overview of our financial performance with our CFO, Mr. Jens Becker. The presentation that we are using today, along with All documents have been uploaded to our Investor Relations website. Sciences. We will be addressing your questions at the end of our presentation. In case we are unable to answer your question today, please send me an e mail. I would now like to welcome our CEO, Mr. Yasser Asman, to start our presentation. Thank you, Noreen, and a very good morning, everyone. Thank you today for joining us in this session. This is Yasi Asman, Chief Executive Officer of Grameenphone. I will start with a very quick overview of the highlights of this quarter, quarter 2 being one of the toughest quarter for the industry as a whole We have ever faced. I think this global pandemic, I will not stress again and again. Since the end of March till May, According to our regulator, the telecommunications industry has actually lost 3,800,000 subscribers, ending with 161,500,000 total Subscribers as reported by our regulator. Mobile Internet subscribers have also declined by 1,140,000 over the past 2 months. Graminform reported a quarterly year over year revenue degrowth of the first time in at least 6 years owing to the impact from COVID-nineteen. We started to report COVID cases in Bangladesh in March Following the declaration of general holidays at the end of March, and we witnessed most of the negative impact in April. And what we have seen gradually starting We recovered from May, which has continued throughout the quarter. The holidays were declared by the government as a measure to prevent the spread of coronavirus, And this caused an overall slowdown of our economy, but also it is negatively impacting our performance. And as I mentioned that we started recovery from May onwards. At Grameenphone, we put together a very strong business continuity plan, which includes daily interactions between management, functional leaders and health safety experts for overall organization. Our business continuity plan has successfully enabled us to identify, quantify and mitigate possible risks related Phone. Which extensively covers health and safety of our employees being a prime for us and for our customers, partners and value chain As well as countermeasures to impact on our business, implementing some of the best practices in our BCP has helped us navigate this Tough quarter during this global pandemic. During this quarter, our regulator has issued S and P related directives on us, which came into effect in July, and we shall discuss these in detail shortly. The revenue, if we go by the revenue degrowth in due to the COVID-nineteen, If you see, our government declared general holidays from 26 March till 30 May As a precaution to the spread of COVID in our communities, due to these holidays, many city dwellers moved back to the rural homes, while educational institutions and non essential business remain closed, ultimately resulting in a slowdown of economy activity. Telecommunications services were declared essential. Therefore, we kept operating And serving our customers throughout the holiday period. With the announcement of the finance budget In June, industry got a revision on supplementary duty and telecom services, increasing the supplementary duty further from 10% to 15%. These changes were implemented immediately from 11th June. Given by this pandemic, we witnessed significant adaptation of digital reload options by our customers. That was encouraging to see that customers have transferred from physical world to digital world to a great extent. And this resulted In a 10% point jump from peak COVID times in February 2022 to end of Q2. A bit of update on the network rollout. From quarter 1, our regulators started approving no objection certificates, which enabled us to carry out our operational activities. As a result, We were able to resume our network rollout and expansion. In quarter 2, we added 132 sites to our 4 gs network. This time of the year is usually challenging for us on the weather front. And this year was no different Cyclone Amphan was the largest recorded storm over the Bay of Bengal and made landfall in Bangladesh towards the end of the May. The destruction left by this cyclone was massive, resulting in prolonged floods, Power and network outage and extensive damage on our infrastructure. Over the past few years, we have Invested in building a sustainable network and along with the continuous effort from our teams, in force and with the help of local communities, shareholders and law enforcement. We were able to rapidly recover our outages cost as a result of this cyclone. I would say that was an encouraging, fastest move to recover from the situation. We can combine efforts from the all corners of The country, be it the regulators, the stakeholders and the company, of course. Gamifon also launched Golty Or what we say, the voice over LTE in June, which will provide our customers with high definition quality voice calls As well as faster call setup time over the 4 gs network. This is significantly improving our customer experience. We have a challenging regulatory environment. Gamifong paid a second adjustable Deposit of BDD 10,000,000,000 on 19th May, following the order of the honorable appellate division relating to the injunction, And we continue to dispute the validity of this audit. Graminphone has also been issued SMB Directories by BTRC, which have been implemented under I'll discuss both these topics in more detail shortly. We believe in empowering societies as a socially responsible citizen. We have taken a few initiatives in the past few months to support our communities to best our ability. In partnership with Bakkt, we launched Doctor. Amadeus initiative, which enabled us to Provide emergency food assistance to 100,000 families in dire need. This initiative has Generated the attention of many other compassionate members of our society who have also come forward to join this call. At the same time, we handed over 50,000 medical grade personal protective equipment to the doctors' working hospitals designated to succeed Globic patient. Gaminform launched Bangladesh Challenge in collaboration with ICT division A2Y Google, which has We want to pinpoint important locations such as hospitals, community markets in their respective localities so that these locations I'm fully accessible to the platform. This has generated youth engagement among the youth all over the country To identify those important locations and eventually, they will be used to serve the evidence of the localities. We have seen the selfless act of many frontline doctors who have stayed away from their families for extended periods to seek COVID patients. To help them keep in touch with their families, Gaminphone offers 30 gigabytes data package for a validity of 6 months at the cost of one's account. We made this offer available to 25,000 listed doctors, of which 19,000 have already opted. Many Grameenphone customers were also unable to recharge their balance while the lockdown was there in April Due to various restrictions and were imposed to prevent the spread of coronavirus, we offer 10 minutes free to such 1 core existing prepaid customers so that they could continue staying in touch with their loved ones. And we also extended expiration of disconnections till 31st May, when the lockdown actually has been withdrawn by the government side. We introduced reduced call rate of 48 Poiseperminutes from 8 a. M. To 12 p. M. For a recharge of BIDD48, which can be availed by our entire sub base. Ensuring Health and safety for our employees is one of our top priorities in this situation. And as such, We have been working from home since middle of March. Over the past few years, we have invested in upskilling our workforce, Transforming our organization and introduced modernization initiatives, which has created digital enrollment of our employees. As a result, our workforce was rapidly able to adapt to work from home with digital empowerment. And we are still continuing work from On with that enrollment and with that engagement for our employees. For the select You are the workforce who still have interface with the external world. We have ensured their safety by taking the recommended measures Good. COVID-nineteen situation and impact, if you would like to Forms. In our society and our market operations, especially as mentioned earlier, the government declared general holidays from 26th March, extending every few weeks team finally lifting the holidays on tardy apnea. During the initial few weeks, we faced some challenges as Despite Telecom being declared as essential service, our value chain did not receive the same recognition, especially when we talk about small retailers. Therefore, we saw a large share of our retailers and point of sale being closed during the initial few days of the holidays. The few areas in the Phong. Few localities were also completely locked down. We have also experienced a community lockdown due to increased numbers of COVID cases with respect to law enforcement measures. With the help of stakeholders, local communities and law enforcement operators, we were able to get our value chain recognized As essential to telecom services. And gradually, more and more retailers and point of sales were made available over the holiday period. However, during the entire holiday period, most businesses, educational establishments and other public places were closed, Causing a sudden and dramatic decrease in economic activity. Since the holidays have been lifted in May, till now, we have witnessed Phong. Gradual recovery of our economic activity even though the measures by the government are still in place selectively. As far as the workforce concerned, an essential part of our operation includes the maintenance of our network and sites. As such, we have many people, employees who were out in the market ensuring connectivity to our customers. We also have sales executives who constantly lead you with our retailers to encourage recharge and stock availability of our point of view. It is a priority for us to ensure our own employees and those of our partners and vendors are following the proper health and safety measures. All our field force have been equipped with IPEs with proper training on social distancing. We also have several health safety measures in place following the We have been very successful running our distribution and network operation during this period of lockdown. As far as point of sales concern, To meet the needs of our customers, we have customers walking centers, operational even though we encourage availing solutions with digital means. At Leeds Physical Centers, we ensure hygiene and cleanliness of the premises in frequent intervals. Our staff within customers practice individual Phon. Now I would like to briefly discuss our regulatory landscape, as I mentioned previously. And the first one being, if I highlight SMP regulation. BTRC actually issued SMP directives for the 3rd time on 21st June, imposing Asymmetric M and P lock in period and asymmetric approval process for all campaigns, packages and services effective from 1st July. Again, on 28th June, BTSC has also issued a 4th S and P directive imposing asymmetric interconnection charge of BDT 0.07 per minute versus BTD 0.10 per minute effective from 16th July. On 14 June, GIPI wrote to BTRC requesting to review its latest directives and filed A writ petition on 28 June getting no response from BTRC sites since then. However, on 30 June, BTRC responded to DP's letter. On 1st July, GP sent a letter to BTSC informing that GP disagrees with BTS' rationale. However, The GP would comply with BTSC's direct steps under protest and without prejudice to its rights under law. VP intends to work with BTSC so that the emergent S and P regime is anchored in the principles of the market based competition and global best On 2nd July, GPE appraised BTRC of the execution status of M and D lock in period directives. And on 6 July, it is submitted for non prosecution of read petition in the virtual bench of the HIFO division. The virtual court ordered the read petition to be out of the hearing list. To move on to BTSC audit update, DP has been pursuing a resolve audit dispute with The result of what it is with DGSE in 2 tracks actually, either through legal proceedings or finding an amicable resolution through a transparent process. The original title suit is now pending at the district court and the next hearing date is fixed on 21st July for the flight of the DRC and auditor. Due to limited operation of the courts for COVID-nineteen, as we all understand, situation, no hearing It was placed neither in the UP Fee at HyCo Division nor in the review petition of the appellate division on 31st May. It was due after GP had deposited the remainder BTD 10,000,000,000 as Perko's direction. PTRC has continued to broadly comply with the order by gradually withdrawing operational restrictions. If you could touch upon the Taweco license, the Taweco regime actually is still not functional. However, what we see, we are in a continuous dialogue with Tautos and the BTRC to see an outcome of these dialogues Verbally for the investor. Now I would basically like to invite our CFO, Jens Baeta, to take you Thank you, Asman, And good morning, everyone, and thank you for joining us today. I will proceed with our presentation, starting with an overview of our financial performance. In the Q2, our growth in the revenue and profitability was negatively impacted By the COVID-nineteen situation, this was a result of the countrywide general holidays and the COVID-nineteen related restriction and countermeasures Leading to an economic downturn as described by Asman before. After the sharp revenue decline in April, however, recovery Started from May, which was further impacted by the imposition of increased supplementary duty, which increased from 10% to 15% starting from 11th June. In summary, Grameenphone had 8.1% year on year degrowth in subs and traffic revenue, leading to 10% decrease in EBITDA. With the gradual NOC approval from BTRC, CapEx to sales ratio for the quarter improved at 7.5% on a standalone basis, which was only 1.1% in the previous quarter. EPS for the quarter stood at BDT 5.38. We turn to the next slide. On the subscribers, the subscriber acquisition in the second quarter was negatively impacted The general holidays resulting into 800,000 negative net adds during Q2 and 2,100,000 lower net adds compared to last Yes. Where we had EUR 1,300,000 net adds positively last quarter last year's quarter. Our sub base for the quarter stood at €74,500,000 reflecting a 1.1 degrowth from previous quarter. As of May 2020, the mobile industry lost 3,800,000 subscribers compared to previous quarter, which is a 2.3% degrowth. As a result, GP's subscription market share has improved to 46% with a 0.4 Percentage points improvement from previous quarter has been 45.6% in Q1. The 4 gs population coverage reached 77.1 percent with a 1.8 percentage points increase from last quarter on this. So turning to the next slide, please. The subscription and traffic revenue had a sharp decline in terms of year on year growth after the declaration of the general holidays from 26th March. After this sharp decline in April, gradual recovery started from May, which was further impacted by the imposition Of the increased supplementary duty, at the end of the second quarter, GP is yet to reach the positive for year on year growth, which is also subject to the overall economic recovery of the country in the coming days. Next page. The 8.2 year on year total revenue degrowth in Q2 is mainly driven by the 8.1 10 fall in subscription and traffic revenues and the lower other revenues from interconnection and devices. The 2,700,000,000 decrease in subscription traffic revenue is mainly driven by a fall in voice revenues, Roughly minus €3,900,000,000 which is partly offset by a higher data revenue plus €1,200,000,000 The voice revenue decreased by 15.6% in a combination of 10.9% fall in outgoing minutes and a 5.3% Dilution in voice APPM. Data revenue continued to grow with the rate of 16.7%. Next page. The 16.7% growth we see here in the data revenue was mainly driven by an 11.7% increase in the data ARPU. The contribution from data revenue continued to increase in the Q2. So as of Q2, data revenue contributes to 25.7 Fund. Of service revenue, which was 24% in the previous quarter. The data user acquisition in the 2nd quarter was positively impacted By the number series availability, along with the expansion of network capacity with the gradual NOC approvals that we got. The number of data users for the quarter stood at 40,900,000 With a 1.2% increase from last quarter. With our continued focus on the 4 gs Conversion, the 4 gs data users increased by 900,000, while total data users increased by 500,000 from previous quarter. Okay. Next slide. On the service RPU, Lower service ARPU that you see was mainly impacted by the lower contribution from voice and interconnection, which was partly offset by the higher contribution from beta. The lower contribution from voice is mainly attributed to lower usage during general holidays, Where the outgoing average minutes per user decreased by 10.7%, so 148 versus 166, while voice average Price per user decreased by 5.3%. The growth in data ARPU came from continued growth in the data usage. GP's average megabyte per user grew by 65.1% despite the 2 months of the general holidays. We have launched Several dedicated offers to the market to provide subscribers with a better value under this pandemic COVID-nineteen situation. On the OpEx side, return, you see that our Efficient OpEx Management led to a year on year 6.7 OpEx degrowth, including our CSR contribution that Asma mentioned before for the COVID-nineteen, so the OpEx for the quarter stood at EUR 10,300,000,000 And this lower OpEx is mainly attributed to the lower revenue driven cost and lower overhead expenses. The 10% degrowth in EBITDA is mainly driven by the lower revenue during the general holidays and the increased cost for the enhanced The bandwidth capacity. So our EBITDA margin could be maintained at 62.4% for the quarter. In terms of our investment, we resumed in Q2 with this gradual NOC approval from our regulators starting Son. From the end of Q1, so the majority of the Q2 investment were focused towards 4 gs capacity expansion and the network modernization. We rolled out 13240 sites and thirteen 3 gs sites in the 2nd quarter despite having the general holiday. So the number of 4 gs sites reached 10,351 at the end of Good quarter. On the net profit, we saw 23.9% decrease in the NPAT, which was mainly driven by the lower EBITDA, Modernization cost and some higher financing cost. The lower EBITDA, as mentioned before, mainly driven by the lower revenue. Regarding the modernization cost, this relates to our organizational restructuring that we have and the higher finance costs We're mainly driven by the higher FX losses and the interest expenses. On the operating cash flow, we had €1,000,000,000 lower in the 2nd quarter compared to last year. And this degrowth is mainly driven by the €2,300,000,000 degrowth in EBITDA, which was partly offset by also lower €1,300,000,000 CapEx. Our net debt stood at €900,000,000 The €4,300,000,000 increase in net debt from last quarter comes mainly from a €200,000,000 lower cash balance, excluding the restricted cash and €2,100,000,000 higher liability. In terms of the contribution to the National Exchequer, during the 1st 6 months of 2020, Grameenphone has paid 46,700,000,000, equaling 67% of our total revenues To the National Exchequer in the form of taxes, VAT, duties, revenue share and fees related to license and spectrum. Then for the interim cash dividend, I'm pleased to inform you that the Board of Directors of Grameenphone As a recommended 130 percent of paid up capital as a cash interim dividend for 2020, This is equivalent to 98% of our profit after taxes, which our dividend per share comes to BDT 13 Who is this? Finishing here the overview of the financials and would now like to welcome back I want to conclude our presentation before we then go into the Q and A. Sorry, I was on mute probably. COVID-nineteen, what we have seen has left its mark on our business performance and growth momentum. As we witness gradual recovery, we will continue to focus on strengthening our network with planned investment. Undoubtedly, we are facing one of the toughest situation in recent history that also brings high uncertainty and risk to human life. Our dedication to our communities and the betterment of our societies will always remain at our core as we will continue to use our expertise And 8 are government in battling this pandemic. We are all together into 8. And thank you, Jens, taking us through the numbers Q2. I would now like to hand over to Noreen for our Q and A session. Okay. Thank you, Ben. Thank you, Asanda. Thank you, Jens. So we have a couple of questions already. Yes. Let me start with the first one I see here on the it's a question, let me read Percentage of the revenues go to b cash, digital wallet providers, banks, etcetera. Is it higher or lower than that of the traditional channels? For reloads through digital channels, it's far more convenient to customers and is more empowering. And for this also more efficient. Although reloads through digital channels is still lower than physical channels, the mix improved by 10 percentage points From the pre COVID level. On what we have here next one, payment to suppliers, Contractors and others increased by 76% year on year in the last 6 months. Why does it happen? Here, you have to reflect that this includes the adjustable €20,000,000,000 deposit to BTRC in the months of February 20 May 2020 that we have made. Then Please let us know about your increased debt financing in this quarter. Here we have at the end June, loans and borrowings include short term bank loan of what is €5,000,000,000 on it. And for December, we still had the last installment for the International Finance Corporation, IFC, And we have paid back here. I think That is from the finance side. And there is a question on, I think, Asman, for you On the service level agreements for BTRC, is it? Yes. I think it's some BTSC imposed a complete agreement in place of service level agreement on MNOs. It is Obviously, what I clearly understand is on We have some more questions rolling in. What are the first major changes in customer behavior you have observed compared to the pre pandemic level. I can take it. Yes, sir. I think as we mentioned already that there was a 10% jump we have seen in terms of our Recharge Pattern was a digital channel. That one was very indented from the very beginning. We have also seen that e commerce change in terms of their locations, their users patterns Phon. From Metro and Semi Arbunct towards the rural all over Bangladesh and which is still opening to a great extent. And the reason behind I'm bringing into the perspective because it has implications on the way we build our Network strength and maneuver and which we are pretty successful during this period. Other than that, I would say that obviously, as Forms. During the presentations, you mentioned that there is a deep invoice whereas that data continues with a healthy look. And that indicates the user is better. Just to continue with that same Chen. Did you see any drop in the level of digital recharge after the holiday was over? This is, You'd say till end of June it was basically holding back. Jens, there's a question for you. Could you please Blaine, what drove higher salaries and personnel costs during the quarter? Yes. I think this include The restructuring costs that we have for the modernization. Okay. We have one question for from Consolim. Can you elaborate on the S and P regulatory issue a bit more? And how will this impact the operations incrementally for the rest of the year? Unfortunately, we will not be giving out any forward looking statements because we are prohibited by our SEC to do so. But there are more details on the S and P issue on our documents. We will wait a few more minutes for any more questions. Okay. So since there are no more questions, we will end the call here. Again, if anybody has any questions or if you would like a meeting with us, please get in touch with me, send me an e mail. We'll set something up. Thank you very much. Thank you, Asanda and Jens, for the session today. I hope you all stay safe. Thank you. Thank you very much. Thank you, everybody. Goodbye.