Dialog Consolidates Growth Trajectory in 3rd Quarter

Key Highlights

• Dialog Group records NPAT of Rs. 3.77 Bn., in 1st 9 Months of 2010

• Group Revenue is recorded at Rs. 30.67 Bn., for the 1st 9 months up 16% YoY

• Dialog Axiata PLC records NPAT of Rs. 4.99 Bn., for the 1st 9 months with an EBITDA Margin of 39% up 11 percentage points relative to the corresponding period in 2009

• DTV and DBN continue positive EBITDA performance with a QoQ EBITDA growth of 173% and 432% respectively

• Dialog Group records Free Cash Flow of Rs. 7.30 Bn. in the 1st 9 months, a 5 fold increase YoY

• Group balance sheet features Gross Debt to EBITDA ratio of 1.72x

Dialog Axiata PLC announced Wednesday 27th October 2010, its financial results for the 9 months ended 30th September 2010. Financial results included those of Dialog Axiata PLC (the “Company”) and of the Dialog Axiata Group (the “Group”) post consolidation with subsidiaries Dialog Broadband Networks (Pvt.) Ltd (“DBN”) and Dialog Television (Pvt.) Ltd (“DTV”).

The Group posted a robust Net Profit After Tax (NPAT) of Rs. 1.69 Bn. for the 3rd Quarter of 2010 taking YTD 2010 NPAT for the 1st 9 months to Rs. 3.77 Bn., a 138% increase YoY. Group profit was underpinned by robust performance at Company level, with Dialog Axiata PLC featuring the Group’s mobile business, posting a Q3 and 9 months profit of Rs. 1.90 Bn. and Rs. 4.99 Bn. respectively, up 162% YoY.

Subsidiaries DTV and DBN delivered robust growth in terms of enhanced profitability at EBITDA and NPAT levels. Enhanced profitability at subsidiary level was underpinned by significant performance improvements in the Fixed Line, Broadband, and Television businesses of the Group. On an adjacent QoQ basis EBITDA (positive) and NPAT (negative) improved by 173% and 48% for DTV and 432% and 57% for DBN respectively.

Dialog Group revenues were recorded at Rs. 30.67 Bn. for the 9 months ended 30th September 2010, up 16% YoY and 4% QoQ. Similar growth was delivered in terms of Group EBITDA which was recorded at Rs. 11,151 Mn., up 5% QoQ and 74% YoY. The Group EBITDA margin improved by 12 percentage points YoY, to reach 36%. The positive growth trajectory in terms of EBITDA underpinned robust growth in Group NPAT of 138% YoY and 23% QoQ.

Mobile Business Continues Growth Trajectory

Driven by robust performance in the mobile market, the Company recorded revenues of Rs. 9,671 Mn. in Q3 2010 and Rs. 28,068 Mn. for the 1st 9 months. Company revenue grew by 16% compared to the 1st 9 months of 2009 and 4% relative to the previous quarter. Dialog’s Mobile subscriber base stood at 6.7 Mn. as at end of September 2010, recording a 6% growth YoY. The 3rd Quarter of 2010 featured the transient impact of downward tariff adjustments in the mobile market, immediately following the introduction of floor rate regulations in July 2010. Accordingly, Core Mobile revenues (excluding interconnection income) which exhibited 13% growth YoY, declined marginally by 1.5% on an adjacent QoQ basis. Notwithstanding the transient impact of tariff adjustments across the sector, total revenues were bolstered by increased consumption of mobile voice and mobile broadband services, as well by interconnection income, resulting overall in a 4% growth in revenue on an adjacent QoQ basis.

Revenue performance was complemented by stable performance in the cost domain. The Company continued to extract profitability enhancement from its re-scaled operating cost structure, with total operating costs being recorded down 10% YoY. The 3rd Quarter of 2010 features the impact of several changes in the sector cost structure including but not limited to those accruing from the introduction of the domestic interconnection regime and the reduction in the international telecommunications levy from USD 0.038 per minute to USD 0.015 per minute. Inclusive of the impact of the aforementioned transients in the cost environment, total costs (excluding depreciation) increased 7% QoQ. Total costs post normalisation for transition impacts however, remained flat on a QoQ basis.

On the backdrop of Revenue and Cost performance as described above, Company EBITDA for the 1st 9 months of 2010 grew by 59% YoY to reach Rs. 10,851 Mn. The Company’s EBITDA margin was recorded at a robust level of 39% – an increase of 11 percentage points compared to the corresponding 9 months of 2009. On an adjacent quarter comparison, EBITDA remained flat at Rs. 3,750 Mn., in line with 3rd Quarter transients in revenue and cost structures described earlier.

Company NPAT for the 1st 9 months of 2010 was recorded at Rs. 4,990 Mn. up 347% relative to the normalised (excluding one-off network modernisation charge in 2009) NPAT of negative Rs. 2,018 Mn. during the corresponding period in 2009. On an adjacent QoQ basis, Company NPAT grew 5% to reach Rs. 1,901 Mn. in Q3 2010. In addition to strong EBITDA performance, the improvement in NPAT was underpinned by a 108% YoY decrease in finance costs following the deployment of surplus operating cash for the repayment of borrowings. The 9 months of 2010 also evidenced foreign exchange translation gains of Rs. 533 Mn. in contrast with an exchange loss of Rs. 11 Mn., recorded during the corresponding period in 2009.

DBN and DTV – Performance Improves Further

DBN featuring the Fixed Telephony, Fixed Broadband and Data Transmission businesses of the Dialog Group recorded revenue of Rs. 604 Mn. in Q3 2010, up 5% QoQ and 4% relative to Q3 2009. Broadband and ISP revenues grew by 19% YoY, fuelled by the increase in usage of the corresponding services. DBN’s fixed line CDMA subscriber base increased by 4% YoY to reach 183,000. CDMA usages revenues grew by 3% YoY driven primarily by an increase in interconnection revenue.

A consistent focus on a portfolio of strategic cost rescaling programmes implemented over the past quarters continued to deliver traction as DBN recorded its second successive quarter of positive EBITDA. DBN EBITDA was recorded at Rs. 176 Mn. in Q3 2010, up 432% relative to Q2 2010. Strong EBITDA performance in Q3 was supplemented by a 92% QoQ reduction in finance cost underpinned by the repayment and cost based restructuring of borrowings over the past two quarters. Accordingly, DBN exhibited a significant improvement in profitability, up 57% QoQ and 77% relative to Q3 2009, recording an NPAT of negative Rs. 146 Mn. in Q3 2010, relative to an NPAT of negative Rs. 341 Mn. in the previous quarter.

Performance momentum was further consolidated at DTV, with Q3 EBITDA recorded at Rs. 81. Mn., exhibiting an improvement of 173% and 157% on QoQ and YoY basis respectively. EBITDA growth was fuelled by a robust increase in usage revenues on the backdrop of reductions in operating and direct costs accruing from a continued focus on strategic cost rescaling initiatives. DTV’s NPAT was recorded at negative Rs. 46 Mn. in Q3 2010, a significant improvement relative to the NPAT of negative Rs. 88 Mn. recorded in the previous quarter, signalling a robust improvement in profitability of 48% QoQ and 58% relative to Q3 2009.

Healthy Free Cash Flows Strengthen Group Balance Sheet

Group Operating cash flows totalled Rs. 10,045 Mn. as at the end of the Q3, up 23% relative to the corresponding period in the previous year. The strength of the Group Balance sheet and positive outlook on Free Cash flows underpinned an upgrade of Dialog’s National Long Term Credit Rating to ‘AAA(lka)’ by Fitch Ratings Lanka Limited.

Strong operating cash flows combined with a prudent and strategic approach to capital expenditure, have underpinned the generation of free cash flow of Rs. 7.30 Bn. for the 1st 9 months of 2010, a five-fold increase relative to the negative free cash flow of Rs. 1.46 Bn. in the previous year. Positive free cash flows were directed towards de-leveraging the Company’s balance sheet, resulting in a reduction of the Group’s total debt outstanding by 12% YoY. Accordingly, the Dialog Group continued to maintain a structurally robust balance sheet with the Gross Debt to EBITDA ratio being recorded at a stable level of 1.72x for the 9 months of 2010.