Grameenphone Ltd. International Non Deal Roadshow, May In association with BRAC EPL Stock Brokerage and Macquarie Securities Group

Transcription

1 Grameenphone Ltd. International Non Deal Roadshow, May 2016 In association with BRAC EPL Stock Brokerage and Macquarie Securities Group

2 Disclaimer The following presentation is being made only to, and is only directed at, persons to whom such presentation may lawfully be communicated ( relevant persons ). Any person who is not a relevant person should not act or rely on this presentation or any of its contents. Information in the following presentation relating to the price at which relevant investments have been bought or sold in the past or the yield on such investments cannot be relied upon as a guide to the future performance of such investments. This presentation does not constitute an offering of securities or otherwise constitute an invitation or inducement to any person to underwrite, subscribe for or otherwise acquire securities in any company within the Telenor Group. The release, publication or distribution of this presentation in certain jurisdictions may be restricted by law, and therefore persons in such jurisdictions into which this presentation is released, published or distributed should inform themselves about, and observe, such restrictions. We have obtained certain market data, industry forecasts, internal estimates and data used in this presentation from market research, publicly available information, including governmental publications, and industry publications. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of the information is not guaranteed. While we believe these industry forecasts and market data are reliable, we have not independently verified this information, and we make no representation as to the accuracy of this information. Because the market data included in this presentation is derived from multiple sources, you should not assume that it has been compiled on a consistent basis. You should exercise caution when comparing market data from different sources or across different time periods. We make no representation that such market data is accurate or complete or that it has been compiled or presented on a consistent basis. As per local regulations, listed entities are not allowed to give any forward looking statement.

3 Bangladesh: A fast growing resilient economy 8th most populous country with 167 Mn people Density of 1131 / square KM Median age of 24.3 Real GDP Growth and Std. Dev.* Tunisia % Morocco % Pakistan % Internal demand driven economy; 78% of GDP is driven by private consumption Kenya Bangladesh Vietnam % 6.2% 6.2% Demographic dividend and increased female labor participation fostering household income and consumption growth Economic transformation from the agrarianbase is driven by urbanization, expansion of middle-class and digital revolution Nigeria 1.4 Sri Lanka 1.4 Inflation Correlation with Developing Peers 6.5% 6.5% One of the best performing currencies among peer developing countries** Stable inflation Bangladesh Pakistan Sri Lanka India Vietnam Nigeria Kenya *World Bank,10 Years average from 2005 to 2014, Frontier market only ** World bank development indicators, Vietnam and Kenya figures for 2015 are taken from Oanda 3

4 An industry providing world class telecom services with significant contribution to economic development of the country Competitive market of 6 players Estimated real subscriber penetration of 51% 99% prepaid with voice dominance, encouraging data adoption Widespread network coverage Population coverage of more than 99% for 2G and 80% for 3G Superior service quality with high network availability and low call drop rate Subscriptions (Mn) and Real Penetration* % 46.3% 50.7% % 37.2% 27.5% Industry Revenue and Contribution** Strong distribution foot print nationwide Catalyst of national economic development 1.4% contribution to GDP*** 7.3% contribution to national tax revenue**** Revenue (BDT Bn) Contribution to Exchequer (BDT Bn) *GP own estimation **Compilation of AMTOB *** In consideration of Nominal GDP ****Data source of Ministry of Finance 4

5 22 years of telecom services in the country Launch of state owned operator Teletalk 100 mn subscriber 3G cellular mobile phone services Prepaid service launch Mobile-Mobile service launch mn subscriber major GSM players currently named GP, Banglalink and Robi came into operation First cellular mobile telecom operator, Citycell was launched with CDMA technology 2004 Broadband Wireless Access (Wimax) license. Telcos could not participate Introduction of SIM tax Banglalink re-launch after Orascom s acquisition Renewal of 2G spectrum for 15 years Entry of Airtel Bangladesh 90%+ population coverage 50 Mn subscriber 5

6 Highly competitive industry with 3 strong players 3 top GSM players- GP, Robi and BL- represent 89% of SIM market share SIM Market Share* One of the lowest ARPU markets in the world Industry blended APPM hovering around lower band of the regulated price range of BDT 0.25 to 2.00 per minute GP tapping well into the premium segment GP s ARPU is 18% higher than the avg of closest competitors Scale benefit drives reasonable margin for top 3 players Teletalk, 3.3% Citycell, 0.5% Airtel, 7.8% GP, 43.0% Robi, 21.0% Avg EBITDA margin for top 3 operators was 44% in 2015 GP is the largest and most profitable player BL, 24.4% 52% service revenue market share amongst top 3 80% population under 3G coverage Largest distribution footprint in the country Banglalink Robi Airtel Citycell Teletalk Standard G S M : G S M : G S M : G S M : G S M : 900/1800/ /1800/ /1800/ /1800/2100 CDMA: /1800/2100 Frequency 2G 22.0 MHz 15.0 MHz 14.8 MHz 15.0 MHz 8.82 MHz 15.2 MHz Frequency 3G 10.0 MHz 5.0 MHz 5.0 MHz 5.0 MHz None 10.0 MHz Launching Date: 2G / Launching Date: 3G **No of Cell Sites 2G 10,336 9,400 9,000 5,500 1,993 3,050 **No of Cell Sites: 3G 7,635 3,750 3,300 3, *As of March 2016 ** GP compiled data from infrastructure business arrangements 6

7 GP is the market leader with strong competitive positioning KPI Comparison ( cumulative) GP Robi BL Service Revenue (BDT Bn) Service Revenue CAGR 6.5% 12.5% 8.3% EBITDA Margin 52.3% 35.0% 35.6% Non-regulatory Capex (BDT Bn) Non-regulatory Capex/ Revenue 14.5% 34.9% 30.2% OCF (BDT Bn) Service Revenue Market Share (RMS) 53.3% 22.9% 23.8% Service RMS Development (2015 vs 2010) -4.31pp pp +0.06pp GP drove 53.3% of the cumulative industry revenue since Revenue and EBITDA-wise, GP was larger than Robi and BL combined On a significantly larger base, GP grew its revenue by 7.0% annually versus industry revenue growth of 9.5% GP outperformed peers with significant difference in terms of EBITDA margin GP accounted for 94.4% of the top three players cumulative OCF since 2010 GP scaled up investments from 2015 to strengthen its network superiority Figures compiled from company websites Service for Robi calculated based on ARPU and average sub base Service for BL of calculated based on ARPU and average sub base Other operators calculations are based on GP s own estimation 7

8 Expanding business scope with strong margin and cash flows 5 year revenue CAGR 7% 14% subscription CAGR is the driver Data revenue, representing 8.5% of net service revenue in 2015, grew by CAGR 46% since % EBITDA margin maintained in 5 years Scale effect and opex optimization to support Average 18% net income margin in 5 years Efficiency initiatives to improve margin Healthy net cash position Strong $1.7 Bn balance sheet position Balanced maturity matching Better working capital management Contributing to improved operating cash flow *Revenue (BDT Bn), EBITDA and NPAT Margin % 53% 53% 51% 53% 53% 14.0% 21.0% 19.0% 15.0% 19.0% 19.0% Revenue EBITDA Margin NPAT Margin Operating Cash Flow (BDT Bn) and Capex to Sales Financing flexibilities Leverage is well below the optimum level Premium credit quality 11.0% 15.0% 14.0% 13.0% 15.0% 18.0% * Deconsolidation of GPIT considered from 2013 EBITDA is before other items OCF defined as EBITDA before other items, less capex excl spectrum fees 8

9 Further growth opportunity lies in dominant voice-segment Subscription growth will continue to sustain voice-led industry growth momentum Real SIM penetration is 51%; higher single digit subscription growth likely to sustain Number of connections per household to increase Demographics, income and social transformation will continue to drive telecom penetration Affordability of marginal subscriber improving with- Increasing per capita income Telecom services becoming cheaper in real term Flagship Digital Bangladesh vision of Government has been an enabler GP to spearhead industry voice growth Maintaining, if not improving, growth market share Leveraging on network & spectrum capacity Mobile Sub CAGR ( ) Mobile Sub Penetration and Growth 30% Size of bubble: Pop/Sq. KM 25% 20% Bangladesh Indonesia 15% China India Philippines Malaysia 10% Pakistan Japan 5% Korea 0% 65% 75% 85% 95% 105% 115% 125% 135% 145% 155% 165% Subscription per 100 people (2014) SIM Market Share and Service APPM (BDT) 43.7% 43.3% 42.7% 42.8% 43.0% 42.4% 41.4% Driving relevance and simplicity in service offerings Exploring opportunities in niches such as enterprise, high income districts, post paid, youth & female segments Focus on delivering one-stop and simplified digital service solutions MFS opportunities to maintain stickiness Mar'2016 * Source: ITU Website, World Bank 9

10 Industry transformation to drive data opportunities Bangladesh is at early stage data market with low PC penetration; small-screen, mobile-data usage has been skyrocketing post 3G launching Gradual decline in device pricing is driving affordability Data ecosystem evolving fast with increasing smartphone penetration which is set to double to 40% by 2018 as per Ericson Mobility Report, Nov 2015 WiMax players have lost market share considerably to mobile operators, primarily due to higher cost of ownership for the end-customer and service issues *% of Telecom Industry Subscriber Using Data *Smartphone Price (US) and Penetration % % 7% 3% *Operator Type Wise Market Share 2% 4% 6% 9% 14% 21% 10% 9% 7% 6% 5% 20% 3% 1% 1% 3% 4% 5% 86% 88% 90% 93% 94% 75% Mobile Wimax PSTN/ISP *Based on GP s estimate Smartphone adoption based on country s largest device seller Symphony s senior mgt. media interview 10

11 GP to strengthen market leadership position in rising data market Mobile data volume of the industry grew by 18x since 2012 Fastest coverage roll-out; 3G coverage is 80% of the population as of Mar 16 Encouraging development from average data volume per usage (AMBPU) perspective as coverage ramps up 28% of the GP subscribers used data in 2015; compared to 15% in 2013 Data segment s revenue contribution more than tripled in last two years (increased from 3% in 2013 to 8.5% in 2015) GP 3G Population Coverage(%) and AMBPU** % % % *Industry Data Volume (Petabyte) and Growth % 201% % 0% 51% **GP Data Subscriber and Revenue Contribution 35% 28% 21% 11% 8% 10% 6% 7% 8% 5% 3% 2% 3% 2% Q' Q'16 Data sub/total sub Data revenue/service revenue *Based on GP s estimate ** Data sub definition: Min.50 KB usage within last 30 days ( ) Min.150 KB usage within last 90 days (2014 onwards) 11

12 Ambition of securing profitable growth as the customers favourite partner in digital life Amidst voice-to-data transition and significant changes in ecosystem, delivering a broad range of relevant, personalized and engaging digital products has become crucial. In this context ensuring access, developing digital services and designing engaging digital customer journey will act as the 3 building blocks of Digital Service Provider (DSP) ambition. Access Digital services Digital customer journey GP to maintain best network experience across voice, data and digital services; Easy on boarding for new internet users and relevant service packs Enriching device portfolio with smart phones; co-branding, partnership, flagship launches Drive innovative services developed by GP/Telenor. Strengthen partnership with facebook, OTT apps, Opera, wikipedia, youtube etc. and ensure monetization Carry on with positions built around agriculture, health and education Develop IOT and M2M portfolio; tracking, monitoring and security Strengthening the IT platform for better flexibility and efficiency in service offers Enriching digital self care, customer service, distribution etc. Integrated approach for personalized & contextual offerings Enablers to drive the ambition Analytics : Develop ability to recommend relevant products & services real time. Adoption of best practices within industry as well as Telenor Group Innovation : Pioneering initiatives for empowering tech startups like; GP Accelerator program, APP developer hunt competition, Telenor Youth Forum 12

13 Healthy growth momentum in place with growing contribution from data Service revenue market share improvement of 0.6 pp during 2015 amongst the top 3 operators Average quarterly data revenue growth (YoY) of 67% for the last 4 quarters Relevant and simplified offers driving healthy minutes of usage and data volume Stabilizing service APPM Revenue growth and efficient spending contributing to improving EBITDA and margin *Daily Subscription and Traffic Revenue (BDT Mn) & Growth (YoY) % 3.9% 5.2% 0.2% 0.1% Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Data Revenue (BDT Bn) and % of Service Revenue** EBITDA (BDT Bn) and Margin % 8.1% 9.1% 9.7% 10.7% 54.2% 53.9% 50.8% 54.6% 55.3% Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 Q1'15 Q2'15 Q3'15 Q4'15 Q1'16 *Average daily revenues generated by own subscription (excludes interconnection) **Revenues generated by own subscription (includes interconnection) 13

14 In-market consolidation likely between Robi and Airtel The industry is fit for a three-operator model Greater bargaining power of the leading operators in the industry value chain Incumbents likely to get back participation flexibilities in next spectrum auctions With clear differences in market positions in terms of SIM market share, operators will have more pricing space Merged entity will have greater frequency allocation Spectrum Allocation Particulars Robi Airtel Merged Entity GP SIM market share* 21% 8% 29% 43% Spectrum MHz MHz MHz (3G) Total Spectrum SIM market share of Airtel 8.0% 7.9% 7.3%7.5% 7.5% 7.6% 7.1% 7.2%7.0% 7.1% 7.3% 7.3% 7.3% 7.4% 6.9% 6.6% 6.7% 6.6% 6.5% 6.3% 6.2% *As of March

15 Continued focus on opex optimization contributing to EBITDA Despite generating huge volumes, opex was contained at the same level during the last 2 years Economies of scale continue to drive margin stability and return on capital improvement Higher revenue contribution from data has positive margin implication No handset subsidy for driving data growth EBITDA, MoU and Data volume 53% 53% 53% 53% 51% 50% EBITDA Margin MoU (Bn) Data Volume (Petabyte) Operational excellence initiatives continue to drive efficiency gain Network up-gradation during with greater energy efficiency and simplified architecture Passive network operation and maintenance through 3 rd party vendor High ranking performance index of Global Competitive Benchmarking by A.T. Kearney 2% away from top 3 performance across all Asia Comparative position (Rebased to 100) Subbase Revenue BTS Opex EBITDA 15

16 Investment for strengthening network superiority Investments for maintaining industry leadership 3G coverage investments to be completed by G cell-sites are 4G compatible with low incremental investment need for 4G expansion 2G investments for addressing pocket areas and strengthening indoor coverage GP Capex* (BDT Bn) and Capex to sales % 15% 13% 15% 11% % Enhancement of IT infrastructure for better service offerings Earliest round of license renewal is due in 2026 Spectrum auction likely in 2016 for the unsold portion of 1800 and 2100 MHz bands Reasonable pricing is expected given the market structure and supply side With strong OCF and low leverage, there is a range of financing options MNO Frequency Bands (MHz) Frequency Bands (MHz) Total Allocated Total Remaining Grameenphone Banglalink Robi Airtel Teletalk Total Average per MNO *Capex excluding license and fees 16

17 Regulatory Landscape SIM re-registration through NID & Biometric Verification System BTRC Audit Spectrum Auction Mobile Number Portability Mobile Financial Services Towerco Regulator introduced new SIM registration with online National Identification Database & Biometric Verification System New SIM sale through Biometric Verification System started from 16 Dec'15 Voluntary re-registration of the existing base started from 1 Jan'16 and the mandatory part started from 1 Feb'16 with an initial deadline of 30 Apr 16. Extended deadline is 31 May 16. Re-registration of 74% of total sub base completed as of 14 May 16 Regulator took initiative to undertake audit of system and services for all MNOs during 2015 The move was taken without settling the previous audit claim However, the audit is yet to get started GP is still waiting for clarification of earlier audit claim Regulator is in process of finalizing the auction guideline for releasing remaining spectrum bandwidth in1800 MHz (10.6 MHz) & 2100 MHz (15 MHz) bands The is a likelihood that commission might bring in changes in the guideline Media reports indicate that base price for both 1800 & 2100 MHz are likely to be USD 25 Mn Regulator published draft MNP directives on 13 Jun 13 and accordingly MNO s feedback was provided After considerable changes, the draft was approved on 21 Sept 15 A third party managed model was adopted and it is likely to be implemented by Q2'16. Bangladesh Bank (BB) circulated the MFS guideline in 2011 adopting a bank led model During 2015 central bank proposed another guideline with provision of MNO participation not exceeding 15% MNOs provided feedback on the proposed guideline during Sept 15. Regulator drafted a licensing guideline for tower sharing during Ministry and regulator are yet to come out with a finalized guideline. 17

18 Contingencies BTRC Audit BTRC carried out an audit of the information system of GP from Apr 11 and issued a letter on 3 Oct 11 claiming BDT Bn on various grounds. GP during and after the audit clarified to both BTRC and auditors that those observations were framed on wrong basis. GP took the issue to the court and obtained a 'status quo' valid till disposal of the rule. On a separate writ petition filed by another audit firm, the appointment of the auditor by BTRC was declared illegal by the High Court Division which was later on upheld by the Appellate Division. SIM tax on replacement SIMs Large Taxpayers Unit (LTU)-VAT by a letter dated 16 May 12 claimed SIM tax of BDT Bn including interests of BDT 5.45 Bn for all replacement SIMs issued during the Jul 07 to Dec 11 alleging that GP evaded SIM tax by selling new connections in the name of replacement SIMs. On 18 May 15 LTU-VAT has issued a Demand Notice for finalization of the demand letter issued earlier asking GP to deposit BDT Bn as evaded SIM Tax. After thorough discussion and analysis, management has filed an appeal to the VAT Appellate Tribunal under Section 42(1)(Kha) of the VAT Act 1991 against the demand order. The appeal procedure prescribed by the VAT Act requires the appellant to deposit 10% of the disputed claim before filing such appeal. Such amounts are refundable or adjustable against final claim after appeal procedure. The decision does not indicate any change in GP s earlier assessments as to recoverability of the amount being deposited. The deposit was considered as contingent asset under (IAS/BAS) 37: Provisions, Contingent Liabilities and Assets. VAT rebate on 2G license renewal fee This issue relates to whether or not VAT on 2G license and spectrum cost should be eligible for rebate. The amount involved is BDT 4.88 Bn (15% of the fee). 2G license of GP was renewed on 7 Aug 12 for 15 years effective from Nov % of the renewal fee has been capitalized based on the assumption (High Court's verdict in Feb 12) that GP's VAT exposure will be nil. The lawsuit over the VAT rebate mechanism is still pending before the Appellate Division of Supreme Court. Claim for VAT based on C&AG audit Large Taxpayers Unit (LTU)-VAT on 14 May 14 issued a pay or explain demand of BDT Bn referring an assessment by Local and Revenue Audit Department of Comptroller and Auditor General (C&AG) office. C&AG office made this assessment for the fiscal year and GP filed a writ petition challenging this pay or explain demand and the High Court issued a rule nisi asking LTU to show cause as to why the demand shall not be declared to have been issued without lawful authority and is of no legal effect, and stayed the operation of the demand. The High Court on 15 Dec 14 heard the case and passed a judgment making the rule absolute without any cost and set aside the demand. Refer to Annual Report 2015 for further details: ( 18

19 Positive regulatory changes to support industry growth Government s vision of Digital Bangladesh Government recognizes Telecom and ICT as a thrust sectors Telecom is playing key role in Govt. s effort to provide public services in Digital format ( On line passport, E-tender, on line legal service etc.) Regulator is more open for discussion with industry players Taking consultative approach while dealing with industry related issues BTRC arranged industry and public consultative on ongoing industry issues like Mobile Number Portability, Competition regulation for telecom sector, tower sharing licenses, Robi-Airtel merger etc. It has been observed that inputs from public consultation are being used while making decision on Robi Airtel merger Structured mechanism of auctions for awarding spectrum and likelihood of removal of spectrum cap as a result of consultation process Reduction of SIM tax in driving affordability for the marginal subscribers Availability of spectrum at reasonable price Opened up spectrum auction for the unused portion of 1800 and 2100 MHz band in 2015 Considering to release new spectrum in 700 MHz band National Telecom Policy (NTP) is now at ratification stage and is a forward leaning one Likelihood of addressing important provisions like technology neutrality, convergence of various services etc. Association of mobile telecom operators is working as a strong advocacy platform 19

20 Telenor Group s strategic ambitions Telenor Group will retain the focus on growth and value creation. The growth will come from both telco business, current digital verticals (IoT/M2M, Online Classifieds and Financial Services) and in new digital verticals. Loved by Customers: Telenor group will create a superior experience for customers, and turn them into promoters of services by providing the best network experience, personalized customer interactions, and digitized and automated customer journeys. Engaging Digital Products: Ambition to create strong end-user positions within selected internet service categories (e.g. communication and storage) and in digital verticals (e.g. IoT/M2M, Online Classifieds, etc.). Winning Team: To become a more expertize driven company, and be an attractive employer for people with digital mindset and competence. Most Efficient Operator: To operate smarter and more efficiently, Telenor will accelerate technology efficiency, pursue process simplification and deploy new operating models.. 20

21 GP s commitment towards a better future Enabling underserved group through ICT based education and health initiatives 10 online schools located in different remote locations Localizing Khan Academy website contents in Bengali Online Book reading program: Alorpathshala.org Digitizing school monitoring system Telemedicine program Providing safe services and user experience on mobile and internet Conducted 500 school workshops nationwide on safe internet. Launched guide book Child Helpline (1098) with UNICEF to provide support to the vulnerable children across the country. Child filter to block sexually abusive contents Extending support for community in the time of natural disasters Relief pack and health camp for flood affected community Blanket distribution among poorest during extreme winter Promoting green initiatives for a sustainable lifestyle 1049 solar sites as of December 2015 E-waste management Optimization and modernization of network, IT infrastructure and offices Awareness and advocacy programs 21

22 Healthy shareholder return Shareholding Structure** 44% cumulative average annual return for shareholders since 2010 Dividend policy states at least 50% dividend payout of NPAT; last three years average payout was 111% Outperformed local equity market benchmark* by 33% in last 6 years Local Institutions, 5.01% Grameen Telecom, 34.20% Foreign, 2.10% Public, 2.89% Telenor, 55.80% Payout Ratio and Dividend Yield*** Total Shareholder Return**** 151% 147% 4.9% 12.5% 108% 8.0% 129% 7.0% 109% 4.4% 96% 5.5% 260% 210% 160% 110% 60% 10% Payout Ratio Dividend Yield -40% -90% * Used CASPI of Chittagong Stock Exchange **As of 31 December 2015 ***Considered yearly closing price for yield calculation ****Including dividends reinvested 22

23 Stock performance and valuation Largest capitalized stock in local bourse US$ 4.3 bn market cap (represents ~14% of total equity market cap) Around US$ 1 mn average daily volume Free-float: 10% Valuation multiples improves as the stock underperformed both local market and international peers in last 12 months *GP comparative stock performance Trailing P/ E 16.9x (based on LTM earnings) EV/ EBITDA is 6.3x with 0.6x net debt-to-ebitda (based on LTM EBITDA) Dividend yield 5.5% (based on 2015 s DPS) May Jun Jul-15 9-Aug-15 8-Sep-15 8-Oct-15 7-Nov-15 7-Dec-15 6-Jan-16 5-Feb-16 6-Mar-16 5-Apr-16 Frontier Telecom Composite GP DSEX 5-May-16 **EBITDA Margin and EV/EBITDA multiple **Price-to-earnings 54% 54% 28.7x 37% 37% 37% 32% 8.2x 6.5x 4.2x 3.5x 47% 11.1x 40% 41% 34% 32% 7.1x 7.3x 4.0x 4.7x 44% 8.4x 4.7x 6.3x 18.4x 16.0x 16.9x 18.6x 17.0x 19.3x 15.9x 9.7x 19.1x 12.4x 16.9x *Frontier Telecom Composite built with equal weights of the stated 12 entities **Source: Capital IQ. Share price, mkt cap are as on May 06, 2016 (except GP which is on May 08, 2016) 23 Other information is based on Last Twelve Months (LTM)

24 Thank You