Company : Grameenphone Ltd.

Conference Title : 4Q 2016 Results

Date : Tuesday, 31st January 2017
Venue : Ballroom 3, The Westin Dhaka, Gulshan, Dhaka.

Sayed Talat Kamal (Head of External Communications): Assalamualaikum and good evening. I
welcome you all to join us in the announcement of our Quarter-4 results. Today, we have
started a bit late. Thank you very much for your kind patience and cooperation. Today, our
Chief Executive Officer Mr. Peter Furberg will present before us. Our Chief Financial Officer
Mr. Dilip Pal will follow through. Then we will go for question-answer round. So, I would like
to invite Peter on stage to take us through the presentation. Thank you.

Petter Furberg (CEO): Assalamualaikum and good evening everyone. I am very happy to be
here and before I start the presentation, I would like to say a few words about myself. I
have had the privilege of being now CEO in Grameenphone for three months. Before that, I
have been in a number of different positions within the Telenor Group. I joined Telenor
Group back in 1998. So, it has been eighteen years. Most of the time, I spent in Asia
working in Thailand and during the last three years as the CEO in the neighboring country
Myanmar where we built up our mobile operation. So, it is a little bit about me. I will not take
much credit for the results of 2016 but I will present them. So, we have delivered seven
quarters of sequential growth. It is an achievement which is very rare for a company of the
size and the age of Grameenphone and in an industry which you globally see starting to
flatten out or actually degrow. We have had 12% service revenue growth, which is also
astonishing. If you take the overall revenue, it is slightly lower but this is where the business
and the value are really created. We completed a bio-metric verification. Again, also with
compared to the overall industry losing 11 million customers to this, Grameenphone lost
approximately 3 million. So, it is also a strong achievement in terms of actually being able
to verify the customer base of Grameenphone. And lastly, which I think is very important for
the growth that we are seeing particularly in 2016 but also for the growth that we will see
going forward, we have been able to do a massive upgrade of our network through 2016
with now close to or around 90% of the towers being both 2G and 3G. And I think with the
development that we see in terms of growth, this is where the battle will be going forward. A
little bit about what we define as the key success factors. And I would start with what I think
is the core essence of the Grameenphone brand and that is of course our network.
Grameenphone has to be and is the strongest in terms of network and we have expanded
quite substantially in 2016 with around 4700 new 3G base stations in addition to around
1800 2G base stations. There was around 144% increase in data capacity as a result of
this and we have added 56% more indoor solutions. I will come back to this later but indoor
is currently and going forward the biggest challenge that we have to overcome. We have
also done a tremendous work in terms of simplifying the product portfolio for
Grameenphone. We have gone from 8 price plans to 2 and we have taken away a lot of
small print with respect to what people can choose. We have revamped the data portfolio to
make it more relevant and with a clear up sale path which again drives revenue because
people will be interested in actually moving up the back. As I said, there is no small print

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 and rather a simplified self-service. We know that we are moving to smart phones but the
significant part of our customer base is still on feature phones and to simplify the self-
service menu through USSD has also been a critical part of what we have done. The result
of this is that we have seen 75% reduction in complaint to call center through the air. It is
one of the most dramatic changes I have seen in any Telenor company with respect to
impact of simplification and improving overall customers’ satisfaction. In addition to
network, I will say that the strength of Grameenphone lies also in distribution. And we have
done significant changes in terms of distribution. We have expanded the distribution points
with approximately 200%. So, we are ending the year with almost 400 distribution points.
The benefit of this is that the distributors have smaller areas but are closer to the retail
points that they are serving. We have also rolled out 5300 GP Express Stores. Those are
not 100% exclusive but they prefer to serve Grameenphone customers. The benefit of this
is that we are also enabling them for a stronger position going forward in the digital space.
By making them digitally enabled, they can also be pick-up or distribution points for other
services than pure telco services. And then lastly, which I think is something that all telcos
in the world are focused on and have to be continuously focusing on and that is to drive
down the overall cost base. We have a lot of legacy in Grameenphone being a 20 year old
company and that is very much so within the IT area. Dramatic changes are happening with
the IT space in a lot of telcos today and we are moving along. We are driving a very hard
virtual accession of our network and we are driving also towards more and more open
source based software. All of this is to simplify and drive down costs. However, on top of
this, our industry is changing and we have taken a lead in Bangladesh with respect to the
position that we want to have as what we call a digital service provider. A lot of this is still in
early days but I am extremely proud of what the team has been able to achieve in terms of
launching services that we already see have quite substantial traction. And here are some
of the examples. ‘Wowbox’ is a targeted offer to what I would call the younger generations
with respect to offerings and also free stuff. It is a platform that we think we can use to
make more and more individualized offers to customers based on also good customer
profiling. ‘GP Music’ has been launched and is quite a success with more than two million
trial users. ‘Bioscope’, which is actually about TV and still in a beta version but you can still
see from the numbers, there are 200,000 monthly users. And this is still in beta. ‘GP Shop’
is about selling our own services. So, it is about taking any physical store online. Everyone
in the world is doing that today and we see that we have quite a substantial number of
visitors also on the monthly basis. ‘Flexiplan’ is a unique product that was developed for
Grameenphone where customers can choose and compose their own package. Again, an
app we have around 5 million downloads and a significant part of them are also active
users. And lastly, ‘My GP’, which we think is the future platform for how we are going to
serve our customers both with respect to offering and individualizing but will also be able to
connect other services into this platform over time. Again, it was launched in the middle of
this year and already more than 3 million downloads and growing. We have been
recognized for many things through the year. Just picking two things here; we have been
recognized as the number one brand overall in Bangladesh and on the right hand side
(referring to the slide), we see also that we are being recognized as a leading company in
terms of energy efficiency. Now let me give you a quick regulatory update. I mean this

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 could be an endless list in Bangladesh. That is the one thing I have learned that when we
talk about regulatory, you will be able to talk for a long time. But we have, as many of you
probably have read from the media, received a fine or BTRC has imposed a fine on us for
what they claim to be violations under the ‘Go Broadband’ ban and the service that we
have provided. We are still in discussions with BTRC with respect to this. We disputed but
are in discussions. BTRC has started a new audit that was commenced back in August and
it is ongoing. And finally, in number portability, which is something that we expect to come
to the market, as of now, there is no clarity with respect to when that will happen and is still
postponed as far as we know. And with that, I will try to summarize. Coverage and network
is still the most important thing for Grameenphone. Our position is based on having the
number one network in this country. We will continue to expand as we see that the data
growth is happening. The biggest challenge is with our current spectrum to offer good
indoor coverage. This is why you will also see that Grameenphone is pushing the
government very hard on now keeping its promise on giving spectrum neutrality. Spectrum
neutrality was promised as a part of the last auction and has still not happened. However,
with opening up spectrum neutrality, we can be able to offer 3G services also on 900
frequency, which is currently only for 2G. That would significantly improve indoor coverage
and is the only way that you can fix a lot of the indoor issues in the country. We will
continue to simplify our portfolio and we believe this is important. Again, because we want
to go more and more into self-service. A complex portfolio is difficult to communicate. It
drives customers unhappy and it makes it very difficult for the customers to figure out what
they want to use. But we are also cutting as much as we can on manual procedures and
processes going completely digital. We will continue to expand physical distribution with the
main focus on our ‘Express’. We believe in this concept as a platform for also taking a leap
into the digital for distributing more than just pure telco services. And on that basis, we will
continue then to build more digital services. I would say that the launch of all the services
that they presented last year, this year is really about scaling it. We have covered a number
of areas. We now need to get into a position where we scale it and we are able to monetize
it. And then, as I said, GP has been a fantastic operator with respect to continuously driving
down the Opex of our company. That is an effort that we will still keep pushing. We will
grow on the topline but we will also continue to push the Opex. And with that, I would like to
introduce our CFO, Mr. Dilip and I will be ready for question and answers afterwards.

Dilip Pal (CFO): Thanks Peter. Good evening and thank you very much for coming to this event
at this hour and we really appreciate that. This is beyond your work schedule and thank you
for that. I am very pleased to present the Quarter-4 financial performance. It was another
good quarter and a very satisfying year for us. The key theme which we drove throughout
the year has been growth with efficiency. There was 9.6% total revenue growth, which
meant that the revenue base in absolute terms grew by 10.1 billion and just for your
reference, this absolute growth as well as the percentage growth has been the best we had
in last 5 years. In terms of efficiency, you see that our EBITDA margin is now 55.3%, which
was 53.4% in 2015. Against 10.1 billion revenue growth, we added 7.7 billion in our
EBITDA, which means that on incremental revenue our EBITDA margin was 75% and that

3 31 January, 2017
 is really what I meant by growth with efficiency. Capex/sales has been higher, 18.3%. But if
you look at our 2015, that was also absolutely a similar number although at a lower base of
about 19 billion. All this has finally resulted into earning per share of 16.68, which we
believe is healthy and I am going to talk about that a little later. Those of you, who are
present here and have been following us for the last few quarters, there is one theme,
which we have been talking about is growth. Not only a growth, but how that growth is
coming from. Basically, the balanced growth. The way I explain the balanced growth is the
growth coming from voice, growth coming from data and growth coming from bundle
services. Of that 10.1 billion absolute increase in the revenue that we have witnessed in
2016, 60% of it came from data and roughly 30% of that came from voice, which means
that we are still a voice company. The data is growing but on a very high voice base, we
are growing voice by 5.1% for the full year and throughout the year in 2016, we have seen
that growth remaining. If you look at on the left side of the graph (referring to the slide), that
is the total revenue growth and you will see that in last 2 quarters we have been growing
double digits, 11.2% and 11.2% in both the quarters and in full year, 9.6% on total revenue.
The right side is what we call subscription and traffic revenue, which is nothing but mobile
service revenue excluding interconnect and that has grown. As Petter said, there were 7
quarters of sequential growth and also very important thing is all 4 quarters of double digit
growth. The only challenge that we have seen throughout the year was on the value added
services side, which actually was more of our self-discipline that we have put on in terms of
regulating the activations without customer’s consent we are not activating any services
and that is one of the reasons also which is reflected in our 75% customer complaint
through the call centers reduction that we have seen. And that is what Petter was talking
about. The other one is of course on the international incoming side which I have
mentioned in earlier quarters also. Throughout the year, we have seen a decline and we
believe that part of the reason is also I think more and more OTT services are becoming
popular and there is a significant price leverage that a customer can get when they use
services like IMO for making a call whether it is a voice or a video. As I said, data remain
the core part of our revenue growth and Quarter-4, 75% growth on year on year basis. And
the full year growth was 70%. We have spoken to you in last quarter that there was a little
bit of slow down on data additions when the bio-metric led disconnection of deactivation
happened. We lost a few data customers also but Quarter-4 again was a good revival for
us. We added 1.7 million new data customers, which took our base to 24.5 million and also
for the full year we added 8.8 million data customers, which is actually 1/3 of the total base
that we have at the end of the year. What we have also witnessed is that despite having
such a huge increase in the data customers, the megabytes usage per customer has grown
and the growth continued. If you see from Quarter-4 of last year, 360 megabytes per
customer went up to 632 in Quarter-4 of this year. And combined with a more or less stable
realization, what we have also seen that our data ARPU on a quarter on quarter basis has
grown up from BDT 53 in Quarter-4 last year to BDT 59 in Quarter-4 of this year. Data
penetration is now 42.3% of our base, which has also grown significantly during 2016. This
is again a very interesting and unique development in 2016 in terms of how the realization
usage per customer and the ARPU development occurred. If you look at the realization per
minute, these are the blended minutes we have seen more or less stable throughout the

4 31 January, 2017
 year. If you look at Quarter-4, it was about 62 paisa but that is kind of a drop from 64 paisa
high we have seen in Quarter-3. But I have to remind you about Quarter-3 when we got a
very good uplift in realization because there were two Eids which coincided during that
time. But otherwise, it is 62/63 paisa throughout the year and this is the least decline in
realization which has happened in 2016, roughly about 1.1% on a blended basis and this is
also we want to believe a very positive development. If you look at the minutes of usage
per customer throughout the year, in all quarters we have seen sequential growth. From
241 minutes in Quarter-4 of last year, we ended the year with 267 minutes in all-quarter
sequential growth. So, stable realization and increased usage per customer has resulted
into again a very unique development in 2016 as an ARPU uplift. ARPU on a quarter on
quarter basis has improved by 9.4%, which was 152 in 2015 that went up to 166 in 2016
Quarter-4 and on a yearly basis ARPU improved by 4.3%. Coming to EBITDA, let me start
with the Opex first. So our Opex/sales on a year on year basis declined 1% point. 35.4 is
what you see for 2016. A year back it was 1% point higher. And as for Quarter-4
development, I must highlight here that, as Petter mentioned in his presentation, there is a
fine that regulator has imposed on us, which we are debating and still discussing. We
believe that we have a strong reason why we should not be paying this but based on
conservative accounting principles, we have provided for this. So, there is a 300 million
regulatory fine, which is part of this 10.7 billion Opex that you see in Quarter-4. Apart from
that, as planned, we had marketing spends, which were higher than Quarter-3 and also I
have to mention about little bit of acquisition led promotion which is going on which actually
come in Quarter-4, wherein a lot of data are offered as part of startup offer. What has
caused this is the gross addition level has gone up significantly and of course the gross
addition level going up means that we are spending more on the commission side. And that
is also a factor in the part of 10.7 billion that we see. But overall it is 6.5% growth on a year
on year basis. I mentioned about the EBITDA margin being 55.3% for the full year. It is
close to 200 basis points improvement. In Quarter-4, it was 54.9%. Also with one-off that I
mentioned and on a full year basis against revenue growth of 9.6%, our EBITDA growth
was 13.8%. in terms of Capex, I think Petter already mentioned, we have significantly
expanded our network in 2016 especially on the 3G site. And most of our spends in 2016
was around expanding our data footprint which is the 3G. As you can see, our 2G base has
now touched 11871 and 3G about 10556. Roughly about 90% of 3G sites are co-located in
2G location. In terms of Capex /sales, four quarter average was 18.3%, which was our
average in 2015 as well. There was a very healthy operating cash flow, 11.1 billion, that
has taken our operating cash flow margin to 37% for the full year and which is also a
growth of 16% on a year on year basis. Net debt to EBITDA, is now almost historical low,
which is 0.29. We have been generating quite a good amount of cash internal accrual and
that is also helping us to reduce our debt level. We have a foreign currency loan. So, there
were two installments roughly amounting to 5.4 billion BDT, which we have paid this year
and also our local borrowing level came down at the end of December. So, this has
resulted into a higher EBITDA and also lower borrowing which has resulted into net debt to
EBITDA at 0.29. So with all of this, finally, net profit after tax, growth for the quarter was
5.7%. However, I must highlight here also that this is below EBITDA. There are 2 one-offs
that we have taken in this quarter. One is on our impairment on our network inventory. So,

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 this is part of regular exercise that we carry out; the inventory that we carry. Because of the
technological change, sometimes those are not usable. So, we carry out an annual
exercise based on which we found that there are approximately 313 million of network
inventory which we may not be able to use. So we took impairment on that. And then you
would recall that in the past we discussed that we have our associate company, which is
Accenture and according to the profit level or the loss we have seen there, they are not
earning profits anymore and we have a carrying amount of investment in that company. So,
as per accounting standard 36, as part of an accounting evaluation that we have done, we
took an impairment of that as well in this quarter, which is roughly 478 million. So, 313
million of network inventory right down and 478 million of impairment of our carrying
amount of investment is also reflected here. Despite that, we have 14.3% net profit after tax
improvement in the full year and EPS is lower than Quarter-3 in Quarter-4. But overall, it
was 16.68 for the full year. Now the most important thing is the dividend. So, we had our
board meeting today and I am very pleased to announce that the board has recommended
a final dividend for 2016 of 9.00 taka per share and this takes our full year dividend to 17.5
taka per share. As you know, our interim dividend was 8.5 taka per share. Of course this is
subject to the shareholder approval in the upcoming AGM and the record date for this has
been fixed at 22 February 2017. So overall, I think it has been a satisfying year for us. We
kept our growth momentum and we also ensured that the Opex level is kept at a level
where we are able to grow our margin. We had a very clear strategy on how we execute
our commercial strategy. We expanded our network and we believe that it has given us the
result. And we also believe that according to the strategy that we have adapted in 2016, we
are on that journey. We are very hopeful that we can continue to stay committed to that.
And with that, I conclude the financial presentation. Thank you very much.

6 31 January, 2017