Dialog Posts Strong 4th Quarter Asset Restructuring Charges Take FY2009 to Rs 12.2Bn Loss

Dialog Telekom PLC announced Friday 12th February, its financial results for the quarter ended 31st December 2009 and full year 2009. Financial results included those of Dialog Telekom PLC (the “Company”) and of the Dialog Telekom Group (the “Group”) post consolidation with subsidiaries Dialog Broadband Networks and Dialog Television.

On the backdrop of strong 4th Quarter performance featuring the Company and the Group recording NPAT of Rs. 1,213 Mn. and Rs. 761 Mn. respectively on normalised basis (excluding non-recurring charges), the Group closed the Year 2009 with a NPAT of negative Rs. 12,208 Mn. Significantly, the recorded NPAT includes non-recurring charges of Rs. 11.05 Bn. arising from one-off adjustments for International Best Practice aligned Fixed Asset treatment, forward looking network modernisation and a portfolio of strategic cost re-scaling initiatives. A major portion (92%) of the non-recurring charges, are non-cash in nature.

Performance Trend Consolidates – Strong 4th Quarter The Company’s 4th Quarter featured the consolidation of the positive performance trends demonstrated over the previous quarters. Normalised Operating profit (EBITDA) grew 27% relative to the 3rd Quarter to reach Rs 2,987 Mn., signifying the 4th successive quarter of EBITDA growth and an improvement of 2% YoY. Accordingly the 4th Quarter demonstrates a normalised EBITDA margin of 35% up 6% points QoQ and 16% points relative to Q4 2008.

In tandem with EBITDA improvement, Normalised Net Profit after Tax (NPAT) was recorded at Rs. 1,213 Mn. up 228% QoQ further reinforcing the Company’s positive performance trajectory. Full year normalised EBITDA was recorded at Rs. 9,465 Mn., yielding a normalised NPAT of Rs. 1,129 Mn. for the Company.

The Company’s 4th Quarter performance features robust revenue growth of 6% and a reduction in direct costs and Operating costs of 2% and 4% respectively relative to Q3 2009. Revenues for the quarter grew 8% relative to the corresponding (4th) Quarter in 2008. During the 4th Quarter of 2009, Revenue Growth was fuelled by positive gains in the mobile market on the backdrop of aggressive price competition. The Company’s mobile subscriber base stood at 6.37 Mn. representing a 16% growth YoY and a 1% growth relative to Q3 2009. Notwithstanding QoQ improvement, full year Company revenue was recorded 2% down relative to 2008, at Rs. 32,515 Mn.

Supplementing positive revenue performance trajectories, the Company continued to demonstrate significant enhancements to its Operating Cost structure. Direct costs and Operating Costs (excluding depreciation and non-recurring charges) reduced by 6% and 21% respectively, relative to Q4 2008, signifying the quantum impact of strategic cost rescaling initiatives undertaken by the Company during the corresponding period. Full year operating costs reduced by 11% relative to year 2008, primarily driven by reduction in operational overhead, administration, and manpower related expenses.

The Company’s cash flows were similarly strengthened with operating cash flows for 2009 recorded at Rs. 12,326 Mn, a two-fold increase relative to 2008.The 4th Quarter financials also include non-cash non-recurring charges totaling to Rs. 1.96 Bn. Non-recurring charges for the year cumulated to Rs. 10.34 Bn., yielding an absolute (including all non-recurring charges) EBITDA of Rs. 7,889 Mn. and NPAT of negative Rs. 9,210 Mn.

Robust 4th Quarter performance supported by a consistent growth trajectory demonstrated over the previous quarters, the completion of a comprehensive portfolio of Operational and Structural Rescaling activities, and the emergence of a positive business environment in the wake of peace and the resurgence of several regional markets, places the Company in a position of confidence and strength to capture and monetize growth opportunities going forward.

Final Phase of Re-Structuring Charges The 4th Quarter and correspondingly the full-year financials also featured the final instalment of large scale non-recurring charges arising from Network Modernisation, introduction of International best practice aligned depreciation estimates, Conservative Inventory/Capital Work in Progress provisioning, and one-off impacts from other rescaling activities pertaining to the Company’s operational cost structure and balance sheet.

The Group accounted for a total of Rs. 11.05 Bn. in non-recurring charges during the course of 2009. A major portion (92%) of the said charges is non-cash in nature, and relate to policy driven fixed asset/balance sheet rescaling initiatives undertaken by the Group.

The alignment of depreciation estimates to International (Telecommunications Industry) best practice, feature the reduction of Telco Asset Lives in the context of technology advancement dynamics. The revision of Useful Lives of Telco assets has resulted in a one-off correction to depreciation charges of Rs. 855 Mn. in Q4 2009. The Group has applied similar best practice aligned policies with respect to capital inventory and capital work in progress. The initiation of the said policies, have in turn resulted in non-recurring provisions totalling to Rs. 2.33 Bn. for the year 2009, Rs. 1.53 Bn. of which, has been accounted in Q4 2009.

The said charges and provisions constituted the final stage of the policy driven balance sheet/fixed asset re-scaling programme undertaken by the Group. When combined with the large scale TDM to NGN network modernization exercise of Rs. 6.0 Bn., carried out in Q2 2009, non-recurring (non-cash) charges for the Year 2009 cumulate to Rs. 9.24 Bn.

The residual 8% (Rs. 903 Mn.) in non-recurring cash charges/provisions impacting EBITDA relate in the main to the Company’s Human Resource Optimisation programme implemented through the implementation of a Two-Phase Voluntary Resignation Scheme (“VRS”). The Company’s Q4 financials feature a one-off provision of Rs. 550 Mn., in lieu of the second phase of the Company’s VRS which is expected to be completed during the first quarter of 2010. The total provision in 2009 for both phases of the VRS is Rs. 904 Mn.

Subsidiary Business The subsidiaries of the Company – Dialog Broadband Networks (Pvt) Ltd. (“DBN”) and Dialog Television (Pvt) Ltd. (“DTV”) demonstrated similar positive performance trends in the 4th Quarter. DBN EBITDA improved 104% QoQ to Rs. 3 Mn. and DTV EBITDA was recorded at negative Rs. 5.6 Mn. in Q4 2009. Both subsidiaries remained dilutive to the Group recording negative Full Year NPAT levels of Rs. 2,588 Mn. and Rs. 769 Mn. respectively.

DBN revenue grew by 3% QoQ to Rs. 598 Mn. The fixed line CDMA subscriber base grew marginally by 1% as at the end of Q4 2009 to stand at 177,061 subscribers. DBN’s Broadband and internet based service segment continued to exhibit aggressive growth with revenue increasing by 8% QoQ and 57% YoY, while broadband and internet subscribers recorded a growth of 4% relative to Q3 2009 and 39% YoY.

DTV recorded revenue of Rs. 458 Mn. in Q4 2009, up 12% QoQ and 28% YoY. Revenue growth was fuelled by aggressive market performance characterised by a year-end subscriber base of 149,449, representing a 6% growth relative to Q3 2009 and a 22% growth YoY.

Non-recurring charges relating to the subsidiaries totalled to Rs. 1.12 Bn. for 2009, yielding a normalised EBITDA and NPAT of, negative, Rs. 129 Mn. and Rs. 1,501 Mn., for DBN and Rs. 233 Mn. and Rs. 735 Mn. for DTV respectively.

Consolidated Group Performance Group performance derived from the consolidation of the Company with its subsidiaries DTV and DBN, recorded consolidated revenue of Rs. 9,473 Mn. for Q4 2009, an increase of 6% relative to previous quarter and a marginal drop of 1% YoY relative to 2008. Group costs excluding depreciation and non-recurring charges exhibited a 3% reduction QoQ and a 15% reduction relative to Q4 2008.

In line with the strengthening performance trend characterised by aggressive growth in revenues, re-scaling of cost structures and improvements in working capital management, Group operating cash flows reached Rs. 10,837 Mn., increasing by over 50% on an YTD basis relative to 2008.

The Group recorded normalised EBITDA and NPAT performance of Rs. 3,044 Mn. and Rs. 761 Mn. Respectively, for the 4th Quarter, signifying positive profitability (excluding non-recurring charges) for the quarter at Group Level. Full year normalised performance was recorded at EBITDA of 9,306 Mn. and NPAT of negative Rs. 1,159 Mn. Following the application of non- recurring charges of Rs. 11.05 Bn., absolute Group NPAT is recorded at negative Rs. 12.2 Bn for FY2009.