Grameenphone : Quarter 1 2024 Transcript

Grameenphone Earnings Disclosure

Q1 2024

25th April, 2024

Chowdhury Tazrian Israt- Head of Investor Relations- IR

Good morning, Everyone. Welcome to Grameenphone's First Quarter Earnings Call for the year 2024. I'm Chowdhury Tazrian Israt, the Head of Investor Relations. Joining me on the call today are Mr. Yasir Azman, our CEO and Mr. Otto Risbakk, our CFO. Please note, in consideration of local regulations, we will not be providing any forward-looking statements during the call.

Our earnings release, financial report and other documents related to our results can be found in the Quarterly Results section of the Investor Relations website. Participants are all invited to begin posting questions and we shall address them at the end of the presentation. Incase, you are unable to post questions on the portal, please feel free to reach out via email or text message and we will address them. With that, let's get it over to our CEO, Mr. Yasir Azman to tell us about our results.

Yasir Azman - Chief Executive Officer:

Thank you, Chowdhury Tazrian and good morning, everyone; thank you for joining us for our Quarter 1 2024 Earnings Call. I'm Yasir Azman, Chief Executive Officer of Grameenphone. As per our regulators report till February 2024 the telecommunications industry has reached 191.4 million subscribers, increasing by 0.6 million subscribers from December 2023. During the same period, mobile data users decreased by 1 million reaching 117.5 million in February 2024.

Moving on, some of our key business highlights for the quarter. Owing to the rise of emerging technologies and evolving needs of our customers, we have advanced our network capabilities focusing on a progressive and future ready network that is equipped to cater personalization at core and revolutionize the digital landscape. We have continued our efforts to remain the most reliable connectivity partner that can seamlessly accommodate future capabilities for a smarter tomorrow. Our primary objective in revamping our portfolio was to prioritize on increasing customer satisfaction by implementing innovative features and streamlining offers for a more convenient experience; this is what we did in Q1 in this year. Our value driven initiatives and elevated overall experience and engagement on our network resulted in 15.2% Year-on-Year (YoY) growth in 4G data users this quarter. We ought to build a digital infrastructure to transform from telco to telco-tech company and in the process, we are digitally and diligently building digital assets and making strategic partnerships with different digital players in country and global partners. 136% higher data usage has been reported this quarter from digitally engaged customer with more than 24% DSTR (Daily Subscription and Traffic Revenue) contribution from digital channels. Grameenphone has received 'unified license' this quarter, which is a big milestone for us and for the industry, which amalgamates existing licenses 2G, 3G, and 4G, and includes scope for 5G and beyond services. We wholeheartedly welcome this timely initiative and express our deepest gratitude to all the concerned including our regulatory body and

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Telecom Ministry. Looking at future dominated by smart devices, AI, and connected technologies we'll be able to concrete an ecosystem which will serve to make our customers life, I believe, safer, healthier, and happier.

As we move forward, we are still facing macroeconomic challenges as we all are aware of, like rising energy cost, broader inflation, and particularly dollar crisis; however, we remain persistent in our efforts to address this situation and managed to deliver on Topline and EBITDA, demonstrating our unwavering commitment to growth. Touching up on some of the key macroeconomic updates. Point-to-point inflation is around 9.8% as prices of goods and services stayed high, straining the purchasing power of our customers. Electricity prices have been increased from 1st of February after three times increase in last year. As per the latest global economic prospect, the World Bank has projected GDP growth to slow to 5.6%, which is unchanged from its October update. As per our Central Bank, the foreign exchange reserve of Bangladesh has gone above USD 20 Billion as of March 2024. On the regulatory front, on 12th November 2023 in alignment with BTRC, GP sought further time at the court on BTRC audit and next date has been fixed on 29th September 2024. The floor price restriction on stocks of Grameenphone was withdrawn on 3rd March 2024 through a directive issued by the Bangladesh Securities and Exchange Commission; hence regular trade has resumed now.

Now let's delve into detailed aspect of our business for this quarter. Focusing on growth through number one network and industry first initiatives our focus on network investment has resulted in significant progress through spectrum deployment, site rollout, and addition of cells to increase capacity. We have more than twofold increase in fiber connectivity to 41.5% in past two years, which is extremely important when we move on to more data centric business model, and digital centric business model, and get ready for the future, and have rolled out over 21,000 total sites. Driven by our commitment to create a Smart Bangladesh, we inaugurated our first "Tier III Standard Data Center" in Sylhet; a technological marvel that can set new benchmarks for our network. This future ready infrastructure is our commitment to putting our customers first in every aspect of our work guaranteeing a future of technological progress and reliability in delivering superior customer experience. We have introduced numerous innovative and value driven offerings in the market solidifying our position as a leader at the forefront. Our GPStar program has walked a long journey from only 350 Dhaka centric outlets to over 7,000 nationwide outlets right now as we talk about it. We have introduced the first ever truly unlimited data offers for our customers so that they can stay connected no matter what and where. We are proud to be the first in the industry to offer access to an impressive 10 OTT platforms combined with unlimited data plan demonstrating our commitment towards innovation and attaining our first in the telco-content industry in Bangladesh. Our growing number of subscribers can attribute to our innovative revamped offerings and efficient churn management strategies resulting in a subscriber base increase of 2.9 million YoY to 83 million this quarter. The digital landscape is experiencing a substantial growth bringing with it immense potential. Higher adoption of digitally engaged customer has been seen throughout the online platform resulting in more than one third of revenue flowing through this channel, one third.

Next. The new digital services complementing obviously our core business. We have successfully established ourselves as an integrated digital operator, identified by leveraging the valuable digital assets that we have diligently built. Our flagship channel MyGP continues to be the largest local App in Bangladesh with 8.2 million active users driving continuous growth

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through its enhanced capabilities. The improved version of MyGP 5.0 provides customers the convenience of recharging without even internet, recommends packs based on Artificial Intelligence Machine Learning capability, and has many other advanced features. We have launched wireless broadband solution "GPFi" to redefine and elevate our home internet services offering a holistic solution for families seeking uninterrupted connectivity and entertainment. In the first phase of this journey, we have launched our services in Dhaka and Chittagong regions and will continue to grow throughout Bangladesh eventually. With the launch of 20 new innovative IoT products across various categories, this is the first time probably I am reporting, we are leveraging on the limitless capabilities of technology and embracing a smarter way of living. By introducing this range of IoT solutions we aim to address various concerns with Smart Home and Office Solutions as well as industrial applications in the future. We continue our streak of being trailblazers in the telco content industry within Bangladesh. By expanding the OTT partner portfolio directly selling subscription to GP and non-GP user, partnering with various local, and global, and regional OTT players. Additionally, the OTT access has been bundled with ATL packs and GPFi for customers to enjoy top-notch premium content with best data offers. Introduced country's first cross-platform app marketplace "AppCity"; aiming to transform the digital landscape. The platform connects app developers and purchasers with both B2C and B2B customers and functions both as an app store and API hub connecting content providers and application developers with individual and corporate customers. So, while building on a resilient and a stronger network to deliver on our core growth, at the same time this has been a journey to bring in new and innovative products and services in the IoT space, ICT space, and of course AppCity and on top of that partnering with local, global, and regional players to bring in OTT services bundling with our GPFi and analytics capabilities.

So I'll move on to talk about a little bit of building a sustainable future that we have been always reporting every quarter. At Grameenphone, we understand our responsibility towards the environment, society, and economy at large. We are deeply committed to building a sustainable future and making positive difference in the communities we serve. Our belief in sustainability goals is not just limited to ourselves but we also strategically partner with businesses that share our values and actively support environment, social, and governance initiatives. As of March 2024, 60% of our total spend towards suppliers are with partners who commit to reduce carbon footprint -we are committed to this. Grameenphone conducted a public-private roundtable discussion, "Greening the Grid", to promote policy reforms concerning corporate power purchase agreements in Bangladesh, which is essential for aiding to our decarbonization goal. In our pursuit to purchase renewable energy we have signed a memorandum with USAID to collaborate to developing a policy framework for CPPA (Corporate Power Purchase Agreement) in Bangladesh that will enable businesses to purchase electricity directly from renewable sources without solely relying on traditional power utilities. Online safety program, which we have been running for quite some time, has always remained a key priority in our effort to build an inclusive digital future. We have trained more than 184,000 children and 3,000 teachers from marginalized community on online safety and digital literacy during this time. To continue the education of online safety and digital skills, we extended our reach to the farthest corners of the country through collaboration with Bangladesh Community Radio Association (BCRA) ensuring no community is left behind. In line with our vision of promoting gender equality in the society, marginal women from 378 unions were educated on the endless possibilities of the internet and digital sphere though our initiative "Interneter Duniya Shobar". We have been also making continuous efforts towards accelerating the nations' future economic growth by enhancing the

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skills and potential of the youth. With this intent, GP Academy has recently introduced 5 new courses on freelancing. FutureNation has held masterclasses in 18 universities to enable students with relevant skills, provides access to employment, opportunities, and empower them to embark on entrepreneurial endeavor. We believe into a sustainable society and we are committed on our social impact projects and take the sustainability, environment, and governance initiatives forward with even stronger commitment in coming days.

I will now welcome our CFO Otto to take you through our financial performance for the quarter. Otto over to you.

Otto Risbakk - Chief Financial Officer:

Sorry I was muted. So welcome to everybody on this call, I am pleased to see that so many are connected and so let me start the presentation of the financial part. I'm very pleased to report a strong start of 2024. Before I comment on the first quarter, let me recap the main trends and the macroenvironment at the beginning of the first quarter in '24. In Q4 '23 as you may recall we delivered the best quarter of 2023 with 6.9% Subs and traffic growth and solid financials. Towards the turn of the year however, we saw a significant cooling of the economy due to a series of factors, including inflation and global tensions impacting energy and currencies, and that was leading to an industry wide drop in data consumption in the last quarter of the year and a slow start of this quarter. I'm now pleased to see that the economy is picking up and that the business momentum has improved steadily during the first quarter this year. Our first quarter financial results reflect the positive momentum and Grameenphone continue to deliver a solid financial performance in the first quarter this year. This was the twelfth consecutive quarter of growth and topline growth and EBITDA growth. If I look at some of the key metrics this year to give you the highlight, the S&T Revenue (Subscription and Traffic Revenue) this quarter grow at a solid 5.2% and thanks to our relentless focus on operational excellence and strict financial discipline, EBITDA margin stood at a strong 60.8% -industry leading margins in Bangladesh and even globally. Our robust balance sheet with no debt and strong cashflows enable us to continue to invest in growth and innovation and provides a solid basis for attractive and predictable dividends. Reported EPS for the quarter, this quarter, stood at 9.91 taka from higher EBITDA and reversals of certain provisions, one off tax provisions, that I will explain later.

So now talking about the Subscriber base. After a slower Q4 last year I'm pleased to see that our subscriber base returned to solid growth from higher gross adds and better churn management. In total we added 2.9 million subscribers to reach 83 million, a growth of 3.6% YoY and 1.2% Quarter-on-Quarter. I'm particularly encouraged to see the development of our 4G subscriber base. Supported by constant efforts to improve the performance of our leading network, 4G subscribers increased by 5 million or 15.2% to 38.2 million. Grameenphone continues to lead the industry with the highest number of 4G data users. The number of data users which also include feature phone subscriber using data grew by six and a half percent (6.5%) reaching 46.3 million. In total our 4G subscriber base now represents 46% of the subscriber base, up from 41% one year ago. As a reference the average 4G penetration in Southeast Asia is about 70% and in mature markets its above 90%. This indicates that there is still a significant upside from 4G penetration growth in Bangladesh.

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So now a few words on the Revenue growth. It is good to see that the subscriber growth translates into solid revenue growth and that the growth comes from both subscriber growth and ARPU improvements. The first quarter this year was the twelfth consecutive quarter of growth both in total revenue and subscription and traffic revenue. During the quarter, YoY total revenue was up 5.3% and Subscriber and Traffic Revenues were up 5.2%. Behind the growth we see a positive development in all revenue drivers including subscriber growth, higher ARPU, and higher data usage driven by the increase in 4G subs.

So let me in the next slide explain a little bit more about those details. During the quarter the service ARPU increased by 1.7% compared to the last year; the YoY growth in service ARPU is mainly driven by the contribution from higher data consumption and demand for digital products. We also see that the product portfolio revamp implemented during the quarter, reducing the number of products by almost half and including significant simplification for customers, has been very well received by our customers. With regards to data, during the quarter Grameenphone data users consumed an average gigabyte per user close to 7 GB, a 9.8% growth versus last year. After the drop in Q4 last year we are pleased to see that the growth is now coming back, and we see very good momentum going into the second quarter of 2024. The YoY growth in data usage is supported by a better macro trend after the election and the winter cold but also through industry first innovative market offerings creating better value for our customers as well as continued network improvements from site expansions and capacity improvements.

Now let us see the EBITDA development. In Q1 2024 Grameenphone delivered twelve consecutive quarter of growth in EBITDA despite challenging macro situation due to global political tension, inflation pressure, and the cooling of the economy. Grameenphone's EBITDA increased by 5% in the first quarter while maintaining a strong margin of 60.8%. I'm pleased to see the resilience of our operations and our strong ability to mitigate increased cost pressure from rising inflation and energy cost through our relentless focus on operating efficiency, financial discipline, and automation. Reported OPEX for the quarter stood at 13 billion, a growth of 7.9% YoY, primarily computed by the hike in energy prices, higher sales and marketing cost, and higher variable regulatory cost. The increase in sales and marketing variables comes mainly from the higher sales and the higher volume of gross adds.

Now the Net Profit. Supported by the positive topline development, sound financial discipline, resulting in a healthy 5% EBITDA growth, strong balance sheet resulting in lower finance cost, and a one-off reversal of certain tax provisions, the reported Net Profit for the quarter stood at

13.4 billion, a growth of 72% versus last year and a margin of 24%. Excluding the one-off in the first quarter '24 and also the certain one-offs in first quarter of '23, the growth in net profit after tax was 13%. The Net Profit after tax of 13.4 billion translates into a record high 9.91 taka EPS for the first quarter of '24.

If you now look at the cashflow and balance sheet parameters, the operating cashflow for the quarter stood at 16.8 billion, a YoY growth of 5.6%. As you have seen from the previous slide the operating cashflow growth comes from the healthy topline and EBITDA growth. The Q1 cashflow growth is partly offset by higher CAPEX as we normally try to frontload the yearly CAPEX program to the first two quarters of the year. On the right side of the graph, you can see that the Net Debt stood at a record minus 18 billion as of the first quarter; this balance is

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composed of 3.6 billion short term bank loans and 21.3 Bn cash balance excluding restricted cash. Thanks to the solid cashflow and strong balance sheet we are able to adopt a long-term view with regard to investment and innovation and also to maintain an attractive shareholder remuneration policy.

So summing up; I am very pleased with the good performance in Q1 despite the challenging macro environment at the beginning of the quarter. We enter now Q2 with a good momentum, supported by a stronger macro, and modern network which has never been better, a very attractive and innovative product portfolio which has been very well received by the customer.

Chowdhury Tazrian Israt- Head of Investor Relations- IR

Thank you, Otto. Let's hear it from our CEO, Mr. Yasir Azman on the summary for this year's quarter 1 earnings call.

Yasir Azman - Chief Executive Officer:

Thank you, Otto and Tazrian. Coming back on the summary of the 2024 Quarter 1 Earnings Call. With a strong financial performance, we see although the macroeconomic headwinds continued to challenge us, we remained focused on our strategy and forged ahead with our investment plans to support our growth opportunities, strengthen our partnerships, and improve our operations; all of which contributed to the great result we see today. We are building new data centers and taking our technology excellence near to the customers to continue to be the most reliable connectivity partner in Bangladesh. On top of connectivity, customer centric innovation remains at the core of our initiatives; from the industry first offerings to IoT solutions, strategic partnerships with content providers, to home broadband services, we provide a spark of innovation that connects people to greater possibilities and build new business opportunities for Grameenphone and create opportunities for our shareholders and with the guidance of our stakeholders and regulators. Our deliberate and focused efforts towards nurturing diversity in our workplace and promoting inclusivity have greatly contributed to create a more dynamic work environment. As of the first quarter of 2024, the percentage of women in the total workforce reached up to 19.8%. Privacy is one of the biggest concerns in this age of machines and rapidly growing era of sophisticated technologies. We understand the need for robust cyber security defenses across the company for which we continue fortifying our defenses building resilience and remain vigilant against evolving cyber threat. Grameenphone, as we reported earlier, the same quarter we built and strengthen our core services, we brought in innovative product and service to the market and preparing for the future; on the other hand, we continued our effort to deliver on our social commitment through strong social impact projects.

With that I thank you again everyone and will turn it Tazrian for Q & A session.

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