Dialog Consolidates Turnaround with Strong Q2 2010

2010-07-26 19:00:41         Colombo


Key Highlights

  • Dialog Group records 1H NPAT of Rs. 2.08 Bn, an increase of 122% YoY

  • Dialog Axiata PLC (the Company) reported a robust NPAT of Rs. 3.09 Bn., up 137% YOY with an EBITDA of Rs. 7.10 Bn., up 67% YoY

  • DBN delivers EBITDA turnaround with positive EBITDA in Q2, 2010

  • DTV posts positive EBITDA for the second successive quarter, with 23% EBITDA growth QoQ

  • Dialog Group records operational cash flow of Rs. 7.05 Bn and positive Free Cash Flow of Rs. 4.32 Bn. in 1H of 2010

  • Strengthened Group balance sheet features improved Gross Debt to EBITDA ratio of 1.86x

Dialog Axiata PLC formerly known as Dialog Telekom PLC announced, Monday 26th July 2010, its financial results for the six months ended 30th June 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 NPAT of Rs. 1.37 Bn. for the second quarter of 2010 taking 1H 2010 NPAT to Rs. 2.08 Bn., a 122% increase YoY. Group profit was underpinned by robust performance at Company Level, with Dialog Axiata PLC featuring the Group’s mobile business posting a Q2 and 1H profit of Rs. 1.81 Bn. and Rs. 3.09 Bn. respectively, up 137% YoY. While DTV and DBN remained dilutive at NPAT level, both subsidiaries recorded positive EBITDA in Q2 2010 signaling the consolidation of performance improvements in the Fixed Line, Broadband and Television businesses of the Group.

Dialog Group revenues were recorded at Rs. 20.11 Bn. for the six months ended 30th June 2010, up 15% YoY. Similarly Group Earnings before Interest, Tax, Depreciation & Amortisation (EBITDA) was up 80% to Rs. 7.15 Bn. over the same period. EBITDA margin improved by 13 percentage points YoY, to reach 36%.

On an adjacent QoQ basis (Q2 2010 vs Q1 2010), the consistent focus on strategic cost re- scaling initiatives implemented over the past quarters, supplemented by multiple revenue enhancement strategies continued to deliver traction, with QoQ improvements in Group EBITDA, and NPAT – of 15% and 95% respectively.

Mobile Business Posts Improvement in all Financial Metrics

The Company continued to register positive gains in the mobile market during Q2 2010, on the backdrop of aggressive competition. Company revenue grew by a robust 15% compared to 1H of 2009 and by 2% QoQ. The subscriber base stood at 6.6 Mn. at end of June 2010, recording a 10% growth YoY.

Supplementing positive revenue performance trajectories, the Company continued to demonstrate significant enhancements in its Operating Cost structure. Operating Costs (excluding depreciation and non-recurring charges) reduced by 3% QoQ and 13% YoY respectively, Operating cost improvements were driven primarily by reduction in operational overheads and administrative expenses. The 1H of 2010 also witnessed realisation of significant cost savings accruing from network modernisation carried out in 2009, in terms of Annual Maintenance Charges of telecommunications equipment and electricity charges. Direct costs (excluding depreciation) dropped by 4% QoQ, driven by continuous cost management efforts. On an YoY basis, the growth in Direct Costs was constricted to 2% relative to a revenue growth of 15% over the same period.

On the backdrop of enhanced revenue coupled with diligent focus on strategic cost management initiatives, the Company EBITDA for 1H of 2010 grew by 67% YoY to reach Rs. 7,101 Mn, improving the EBITDA margin to a robust 39% an increase of 13 percentage points compared to 1H of 2009. 1H of 2010 EBITDA performance featured a 12% QoQ increase in EBITDA during Q2 with the EBITDA margin improving by 3 percentage points to reach 40% for the quarter.

In line with growth at EBITDA level, Company NPAT for the 1H of 2010 was recorded at Rs. 3,090 Mn., up 137% from a negative NPAT of Rs. 8,363 Mn. in the previous year. On an adjacent QoQ basis, Company NPAT grew by a significant 42% to reach Rs. 1,813 Mn. for the 2nd Quarter of 2010.

Strong EBITDA performance was supported by a 28% decrease in non-operating costs (corrected to exclude the network modernisation charge of Rs. 6 Bn. in the previous year) relative to the corresponding period in 2009. Non Operating cost reductions were driven by a 96% decrease in finance costs following the deployment of surplus operating cash for the repayment of borrowings. The 1H of 2010 also evidenced foreign exchange translation gains of Rs. 279 Mn. in contrast with an exchange loss of Rs. 136 Mn. in 1H of 2009.

DBN and DTV Performance Trajectory Gains Traction

DBN recorded a positive EBITDA of Rs. 33 Mn. in Q2 2010, a 113% growth compared to Q2 2009, signalling turnaround at EBITDA level following negative performance over the past seven quarters. EBITDA turnaround at DBN was underpinned by operating and direct cost savings accruing from continued focus on the implementation of strategic cost rescaling initiatives. Notwithstanding significant improvements in DBN’s cost structure, revenue recorded at Rs. 577 Mn., dropped by a marginal 2% and 1% relative to Q1 2010 and Q2 2009 respectively. Broadband revenues grew by 26% fuelled by a 17% YoY growth in fixed broadband subscribers. DBN’s fixed line CDMA subscriber base increased by 3% YoY and 2% QoQ to reach 182,000. CDMA usages revenues however decreased by 10% YoY.

DTV recorded revenue of Rs. 522 Mn. in Q2 2010, up 7% QoQ and 27% relative to Q2 2009. Pay TV subscribers increased by 17% relative to Q2 2009 to reach a total of 160,000. DTV reported an EBITDA of Rs. 30 Mn. in Q2 2010, signifying the second successive quarter of positive EBITDA performance, an improvement of 23% and 135% on QoQ and YoY basis respectively. EBITDA growth was fuelled by robust increase in usage revenues.

Prudent Capex and Healthy Cash Flows Strengthen Group Balance Sheet

Operating cash flows for the Group totalled Rs. 7,048 Mn. as at the end of the Q2, up 43% relative to the corresponding period in the previous year. Healthy cash flows were supplemented by a prudent approach to capital expenditure. Following on the network modernisation focus in 2009, spending on capital items reduced by 46% YoY to total Rs. 2.830 Mn.

The Company’s capital expenditure was, and will continue to be, focused on strategic investment in next generation infrastructures centred on High Speed Mobile Broadband, Optical Fibre Networks (OFN) and in the growth and consolidation of the Company’s coverage leadership in the recently liberated areas.

The combine of strong operating cash flows and a prudent and strategic approach to capital expenditure, lead to the generation of positive free cash flows of Rs. 4.32 Bn. in 1H of 2010, a near four-fold increase relative to the negative free cash flow of Rs. 1.32 Bn. in 1H of 2009. Supplementing operational improvements, the deployment of free cash towards the repayment of debt, lead to multi-faceted strengthening of the Group Balance sheet in 1H 2010. Group debt outstanding was reduced by 19% YoY, leading to an improvement in the Group’s Gross Debt to EBITDA ratio from 4.03x in 1H of 2009 to 1.86x in 1H of 2010, signifying robust traction towards the achievement of investment grade benchmark balance sheet indicators in the near term.