Earnings Call: Q1 2020

Apr 22, 2020

Welcome to the Q1 2020 earnings disclosure for Grameenphone. Thank you for joining us today. My name is Lorraine. I'm the Head of Investor Relations for Grameenphone. Before we begin, I want to inform you that this presentation, along with all additional documents, have been uploaded to our Investor Relations website. Due to the precautions that we are taking surrounding the spread of coronavirus, We will be unable to host a Q and A session today. Please reach out to me with your questions over e mail after the end of this session so that we can answer any queries you may have. We will also be available to take 1 on 1 meetings over the next few days. I would now like to welcome our CEO, Mr. Yasser Asman, to start our presentation. Thank you, Noreen. Good morning, everyone, and welcome to Grameenphone's earnings disclosure for the Q1 of 2020. I hope all of you are safe, healthy and at home. My name is Yasser Yasman. I am the CEO of Grameenphone. Joining with me today is our CFO, Jens Lundberg. Grameenphone completed 23 years of operations in Bangladesh on 26th March 2020. We are proud to be able to empower Bangladesh By bringing connectivity to 75,300,000 people, out of which 40,400,000 are enjoying connectivity to the world via internet. In the past 3 months of 2020, we have paid more than IN taxes, VAT, duties, license, spectrum fees and revenue shares to the National Executive. The first few COVID-nineteen cases were diagnosed in Bangladesh around the 2nd week of March. The government declared telecommunication services And we are dedicated to continuing serving our customers with the help of our partners and local communities. We have also committed to providing 50,000 units of medical grade professional PPE and 10,000 PCR test kits to our medical frontliners. In close collaboration with the government and various NGOs, we are using our technology expertise in spreading awareness And mapping the spread of coronavirus using our data analytics expertise to help tackle the community spread. If we go by the highlights, the telecommunications industry gained 500,000 new subscribers in January In February, ending 166,100,000 subscribers as reported by our regulator. During the same period, Mobile data users grew by 500,000 to 99,900,000 at the end of February. Grameenphone reported a reduced revenue growth in the 1st 3 months of 2020. The negative impact arises mainly from the highly [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] And scrutinized tussle with our regulator over the audit, which we continue to dispute but look forward Despite our many challenges we faced in our day to day operations, We successfully drove our 4 gs conversion, which led to 14,200,000 4 gs customers. Our network rollout was also hampered due to the regulatory restrictions. Nonetheless, we reached over 10,022 4 gs sites. We have been successful to roll out the 4 gs slides as we planned at the beginning of the year. I'll take you through more details on the COVID Talking about our growth momentum due to the increasingly Challenging environment. For many quarters now, we have been facing several challenges in our regulatory environment. Due to the halt on issuing NOCs by our regulator, which lasted In March this year, our network rollout has been significantly low in Q1.22. We have rolled out only 190 We have recently placed a clear target coming By revising our data pack portfolio, offering incentive to offer to convert to support and We achieved 14.1 Talking about our market operations, in the beginning of Q1, I had publicly talked about the number scarcity That we were facing as our regulator was not issuing new numbers to us. The process of recycling numbers is also lengthy. All these factors combined led to a lower gosset for GP and overall negative net income in Q1. We have now been cleared with the recycling numbers. For a few years now, we have been transforming our way of work, Slowly adapting to simplifying and digitizing our processes, including those that impact our data. This is one of the key drivers of efficiency in our operations. We saw a significant growth in the usage of apps that we have introduced for our sales executives and retailers, thus Further adding to our digitalization ambitions. Across the entire country, we have also added 40 new GP customer services points, Which enables us to widen our reach to our customers and serve them better. On our regulatory environment, In our ongoing tussle with our regulator, a key development was the deposit we made to the TRC of BGT 10,000,000,000 in February And simply the injunction that was granted to us, following which near the end of the March, BTSC started to issue an LC that I have mentioned earlier. We will strongly dispute the validity of this audit, and I will discuss more in details later in this call. For the COVID-nineteen situation in Bangladesh, the past cases of coronavirus were recorded on 8th March 2020. And up till 21st April, the number of cases went up to over 3,300, while there were Over 100 deaths have been already reported from the virus via news sources. All educational institutes were declared closed on 16th March, while on 23rd March, the government announced general holidays, which have been extended until 25th April now. The government also advised against non emergency movement from 6 p. M. To 6 a. M. And we see some community lockdown in areas where residents have been positively tested for coronavirus. During these holidays, the government declared that emergency and essential services are to remain operational. And telecommunications, including its value chain, has been recognized as an emergency service for the country. Therefore, along with our partners And with the support of Toa Enforcement and local community, we have been operating during this crisis to keep our network up and running to In fact, if we see the various from the various in market operations, we're very early on during COVID-nineteen outbreak in Bangladesh. Telecommunications have been declared, as I mentioned, as an emergency service. We have been closely collaborating with law enforcement And government's ability to make sure that we are able to operate on the ground as seamlessly as possible. However, We have had to face obstacles in our world. As the virus continues to spread in many areas and localities, Many residents have taken it upon themselves to self imposed community lockdown. This has prevented us from carrying out our operations in many areas. However, with the continued effort and dedication of our employees Through innovation, through collaboration in the local communities with our partners, with our distributors, with the support of law enforcement authorities, We have been taking the necessary precautions and carrying out the operations' normal work. Our vast network of distribution houses, Retailers, sales executives, along with vendors and partners have proven extremely resilient in these trial Thanks. We have not seen that our customers are out of balance or our retailers are not Additionally, we have also had to face whether a few tropical storms During this pandemic, which led to network outages in many areas. And with the sheer dedication of our technology and network support team, We have been able to revive our network in the fastest possible time, and that was almost as business as usual. As we have also started getting clearance on our associates recently, we are starting we all Talking about our employees and workforce, our first and foremost priority in this situation has been to ensure healthy and safe We have been very smart into the 4th To take care of all the concerns and to make sure that our employees are safe so that we continue telecommunications service, It is essential in the country and there is lot of dependence on our services. At Gaminphone, we have fully embarked working from home As the new normal, almost 100% of our employees are operating from home with all necessary digital tools and essentials provided to them, We have also provided training and working from home guidelines to our employees to ensure that they can work Our customers facing On line employees have been provided personal protection equipment following guidelines issued by World Health For our employees and partners who are out in the field every day, helping us reach and serve our customers, We have provided necessary alignment with operative and safety measures as such masks, gloves and proper know how of social distancing. We have also started to provide support to our retail bulletin by providing hardship allowances As the mood of transport and mobility has been changed significantly over the last few weeks. At all our customer point of sales across the country, we have shared awareness and guidelines on proper social distancing, Even in remote areas, we have been able to implement proper safety measures with immense support from our local partners and We have developed glass barriers in our customer walking centers across the country to ensure health and hygiene safety for both We are also encouraging the use of digital platforms such as our self-service app by GP and our website raminphone.com. To further contribute to social distancing, we have partnered with MFS, mobile financial service providers, to enable pack purchase and recharge to their services. In fact, we have seen a big jump I would like to talk about our regulatory Thanks, Kei. Beginning with the BTSC audit. On 20th February 2020, In the hearing of a review petition filed by Gamifong on 26 January 2020, the honorable appellate division Varvalli directed Gamifong to deposit 10,000,000,000 EDT within 24th February 2020. Raminphon deposited the money on 23rd February 2020 and booked the deposit as a non current receivables As disclosed in Note 8 of the financial statements. On 24th February, the Honorable AFFOLE division directed Gamifeng to deposit remaining BTD10 billion by 31st May 2020. And in default of the safe The interim order of stay and injunction passed by the Honorable High Court Division shall stand bracket. The honorable Apelej Devotion also directed VTRC to allow Grameenphone to carry it on its business without any hindrance and fixed the matter on 31st May, 2024 passing further quarter. After depositing DDG10 billion, Grameenphone met with BTSC representatives in several locations for release of NOC for equipment import [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] And to address the new and recycled number crisis issue, Grumimfon pursued for 7,900,000 recycle number And allocation of new numbers from 13 Brickpeaks Australia. ATSC has consented for recycling of 7,900,000 The request for NOC remained pending at BTRC impacting network expansion and carrying challenges For Gamifon, to ensure its network readiness under ongoing COVID-nineteen context. After receiving the court order, the TRC Started releasing MOC in phases. The original title should be pending is pending at the District Court On 3rd March, 2020, ATSC appeared in the suit and showed time for submitting The DRC auditor appeared in the truth earlier and has submitted its supply yet, has not submitted The next date is fixed on 21st July 2020 for reply of the TRC and Let me talk about the S and P situation at this point. The directives imposed by DTSC on Grameenphone were declared as illegal by the Honorable High Court Division of the Supreme Court of Bangladesh On 15 December 2019, and the court has ordered BTSC to recall the sale directed. Discussions between BTSC and Gamifong were held after receiving the honorable court judgment And where Gamifong has clarified its position and submitted a supplementary position framework on 6th April, twenty We continue to maintain support for a competition framework, which is consistent with all applicable laws of the land. It does not restrict an entity's ability to grow, innovate or invest We have ongoing dialogues on TauroColo licensing. In March 2020, BTSC has imposed A complete agreement in place of service level agreement on MNO, which is inconsistent with the powerful pipeline. Ramin Fon [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Maury:] He has also reinitiated the bilateral discussions with all towers to conclude on the final agreement and is constructively engaging with MOPT And the BTSC to ensure competitive tower sharing environment. We believe that an agreement between towerco [SPEAKER SRINIVASAN VENKATAKRISHNAN:] And Gamifon, made on commercial terms, will benefit both customers and industry. I will take a pause here, And I will invite our Chief Financial Officer, Jens Breker, to talk about our financial performance in Q1. Thank you, Asman. And let's start with a short overview of the key KPIs. Regarding subscription and traffic revenue, our gross momentum in Q1 has been impacted by the continued on NOCs and number series scarcity until the 2nd week of March as well as the general holidays, which were declared from 26th March. For the quarter, we achieved a 4.1 percent growth in data revenue. EBITDA grew by 4.8% and resulted in a margin of 63.2%. The moving average of the last four quarters saw our CapEx to sales ratio of 7%. On a stand alone basis Of this quarter, the CapEx to sales ratio stood at 1.1% only due to the restrictions on the NOCs. And the earnings per share for the quarter stood at 7.92 BDT. Turning to the subscriber side. Our subscriber base for the quarter was at 75,300,000 with a marginal increase of 1.7% against last year. The subscriber acquisition in this quarter was adversely impacted by the number series scarcity, Resulting in 1,100,000 negative net adds during the quarter and 2,500,000 lower net adds compared to last year, Where we had 1,300,000 net adds in Q1 2019. With this 1,100,000 negative net adds, Our subscriber market share decreased by 0.5 percentage points from last quarter to 45.7% as of February 20 Regarding 4 gs population coverage, we reached 75 0.4%, reflecting a 0.9 percentage point increase from last quarter. Talking about the revenue now. On total revenue, we posted 36,200,000,000 BDT for Q1, reflecting a 3.7% year on year growth, Mainly driven by a 4.1% growth in subscription and traffic revenue, partly offset by lower other revenues, Mainly from interconnection device and infrastructure sharing. While on a daily basis, subscription and traffic revenue increased by 3%. The growth of 1,300,000,000 VDP in subscription and traffic revenue was mainly driven By a 1,700,000,000 bt growth in data and partly offset by lower voice revenue of minus 0.5000000000 bt. The growth in data revenue is attributable to the continued drive on 4 gs conversion Along with data usage drive through, relevant and competitive data offers for our subscribers. The voice revenue was negatively impacted by the prolonged winter, lower net adds due to the number of sea viscosity and general holidays triggered by COVID-nineteen. Going with the details of the data revenue. On the data revenue, we reached 8,500,000,000 BTTE this quarter, showing a 24.6% growth, Driven by a 16.1% increase in data ARPU. With our continued focus on 4 gs conversion, 4 gs data users increased by 7,400,000 and with this more than doubled against last year. Total data users for the quarter stood at 40,400,000, reflecting a 5.7% increase from last year. Nevertheless, the data user acquisition in this quarter was as well negatively impacted by number of serious scarcity And delayed network capacity expansion due to the unavailability of NOCs, resulting in 20000000 decrease in data usage This last quarter means Q4 2019. On the service ARPU, we will remain stable in combination of higher contribution from data and lower contribution from voice and interconnect. The higher contribution from data ARPU, as I mentioned before, was mainly driven by the continued 4 gs conversion. In order to provide our subscribers better value under the COVID-nineteen situation, GP launched Several data offers, including 100% bonus on selected data packs, monthly data packs with competitive price and combo packs means voice and data With relevant volume for our subscribers. The 16.1% year on year growth in data ARPU Came as a combination of 56.9 percent increase in average megabyte per user And a 26% decrease in average price per megabyte. Against last quarter, Average price per megabyte was lower by 7.8%. On the voice side, the ARPU was negatively impacted by the prolonged winter and the declared general holidays and was lower by 5.7%, Mainly driven by a 2.8% fall in outgoing average minutes per user and a 3% fall in average price per minute. Turning to EBITDA and OpEx Development. Our EBITDA development was helped by efficient OpEx management, leading to a year on year 4.8% EBITDA growth against 3.7 percent growth in total revenue. The OpEx for the quarter Stood at $11,100,000,000 reflecting a flat development year on year. With this continuous focus on OpEx efficiency, OpEx to sales ratio improved by 1.1 percentage points to 30.8% versus 31.8 percent in Q1 2019. The EBITDA margin, therefore, improved by 0.7 percentage points From Q1 2019 ending at 63.2%. Coming to the CapEx. In Q1 2020, we had with RMB0.4 billion, a Significantly lower CapEx due to the continued regulatory restrictions until late March. With this, CapEx to sales ratio for the standalone quarter stood at 1.1% only, which is significantly lowered due to the mentioned before mentioned restrictions. Nevertheless, GP wants to further continue its focus on the 4 gs rollout And strengthening the existing network for data capacity enhancement and expansion of coverage in order to give our customers Superior experience and greater value. Regarding the network expansion in Q1 of this year and due to the restrictions, GP was only able to roll out 197 4 gs sites and 34 3 gs sites. The number of 4 gs sites crossed 10,219 at the end of Q1 of this year. On the net profit side, GP reached RMB10.7 billion, Reflecting a growth of 25.8% versus last year, resulting from a combination of growth in EBITDA, Significant FX gain and prior periods one off adjustments. The earnings per share Stood at 7.92 bbt. Turning to operating cash flow. The operating cash flow of DKK 22,500,000,000 It was SEK 4,800,000,000 higher this quarter compared to last year, mainly due to the significantly lower CapEx of SEK 3,800,000,000 And to a lower extent, to the SEK 1,000,000,000 growth in EBITDA. Net debt stood at minus SEK 3,400,000,000, reflecting a SEK 0 For the National Exchequer, The contribution for that we had to the National Exchequer in Q1 was DKK24.6 billion BDT, Equaling 68% of revenue, not including the SEK10 1,000,000,000 deposit payment that we made to BTRC. Having said this, I would like to invite Asman back to the presentation. Thank you, Jens. In between these all the challenges we have highlighted beginning of the presentation, Our strategic ambitions will remain on growth by strengthening our 4 gs experience for our customers and reviving our voice. Through structural change initiatives, modernization In Distribution and Technology, we intend to continue improving our EBITDA. As we continue to monitor the situation in Bangladesh Around COVID-nineteen, we will draw our strength from our technology expertise and continue to support the government in battling this pandemic. We are fully committed to contributing to the society. I thank you all for your hearing. And I hope we all together pass this difficult time by maintaining social distance and taking care of our society. Thank you.