Corporate Performance Announcement August 2008

Corporate Performance Announcement

Six months ended 30 June 2008
(Company registration number: PQ 38)

Dialog Telekom PLC (DT) announced Wednesday (13 August 2008) an overview of its Financial Performance for the six months ended 30 June 2008. Financial results published included those for the entity Dialog Telekom PLC (hereinafter referred to as the “Company”) and for the Dialog Telekom Group (hereinafter referred to as the “Group”), derived from a consolidation of Company performance with those of its subsidiaries Dialog Broadband Networks (Pvt) Ltd (DBN), and Dialog Television (Pvt). Ltd (DTV).

PERFORMANCE OVERVIEW

 

Dialog Telekom (Company)

The company recorded a mobile subscriber base of 4.8 Million customers as at the end of Q2 2008, representing 31% Growth Year on Year (YoY). Revenue growth over the same period was however relatively modest at 6%. Revenue growth was mitigated in the main due to tariff reductions and other affordability enhancement strategies adopted by the company during Q4 2007 on the backdrop of suppressed price-usage elasticity levels arising from inflation related pressures on consumer spending power.

Downstream of revenue performance, cost expansion driven in the main by general inflation (28 % YoY), energy derived costs (46% YoY), and expansion of the company’s network infrastructure, with associated increases in Network related costs (49% YoY) and Depreciation (62% YoY) has resulted in negative growth of 29% at EBITDA level and a reduction in PAT by 59% on a YoY basis.

Not withstanding medium term perturbations in the macro economic environment, Dialog has continued its aggressive investment thrust towards building infrastructure and service delivery capacity with a view to extending its entrenched leadership in the provision of a broad range of telecommunications services. The company’s capacity building thrust continues to secure a major share of incremental mobile consumers, drive growth in usage levels and trigger encouraging consumer traction with respect to the new businesses of the group.

Subsidiaries

The new businesses of the Dialog Group – seeded over the past 2 years in expectation of slowing growth trajectories in the mobile sector in line with market penetration, competition and macro-environmental dynamics, demonstrated substantial momentum during 1H 2008, Albeit delivering dilutive PAT contributions to the group, the subsidiaries displayed aggressive subscriber and revenue growth in tandem with positive trends in EBITDA relative to the immediately preceding quarters.

The fixed line service operated by Dialog Broadband Networks (DBN) achieved a subscriber base of 112,730 (56% growth on immediate QoQ basis) fuelling revenue growth of 181% compared to the first half of 2007. DBN also demonstrated early stage revenue growth from its WiMAX based Broadband Wireless Access (BWA) network. DBN recorded an EBITDA of Rs. 36.71 Mn in Q2 2008 representing 151% growth relative to the immediately preceding quarter (Q1 2008). Industry wide Fixed Line penetration reached an estimated level of 16% at the end of Q2, while Broadband penetration remained at approximately 1% signifying significant potential for market expansion and growth going forward.

Dialog TV achieved similarly aggressive inroads in to the Pay Television market – reaching a subscriber base of 102,293 (276% growth YoY). Dialog TV revenues grew by 176 % relative to first half of 2007 and 34% relative to the immediately preceding Quarter (Q1 2008). DTV EBITDA recorded at negative Rs. 30.78 Mn in Q2 2008 which represents a performance improvement of 84 % relative to Q2 2007 and 59% relative to the immediately preceding Quarter (Q1 2008) signifying substantial performance enhancements relative to the negative positions recorded at the early stages of market creation. Pay Television penetration (estimated at 4% of television owning households) remains modest signifying substantial growth opportunities for Dialog Television going forward.

Dialog Group

While the Dialog Group has achieved a strong foothold in the multiple sectors of fixed line, broadband and pay television through an aggressive range of services commercialised during the course of 2007, the growth potential of the associated new businesses, is expected to be enhanced manifold in tandem with improvements in macro-economic conditions and accompanying enhancement in consumer spending power and consumption, of ICT services including broadband and pay television.

Group performance derived from a consolidation of the performance of Dialog Telekom and its subsidiaries DBN and DTV displayed YoY Revenue growth of 13% and a Profit after Tax (PAT) of Rs. 1.64 Bn. for the six months ended 30 June 2008. Negative contributions from DBN (Rs. 291.07 Mn.) and DTV (Rs. 196.40 Mn.) resulted in the dilution of the company earnings by a total of Rs. 512.61 Mn. (inclusive of consolidation adjustments) resulting in negative growth of 66% with respect to consolidated group earnings for the six months ended 30 June 2008.

REVIEW OF FINANCIAL PERFORMANCE
FINANCIAL PERFORMANCE SUMMARY

 

Six Months ended 30 June 2008 vs 2007
(All figures in Rs. Mn.)

P&L Highlights	Company			Group
	1H-2008	1H-2007	Change	1H-2008	1H-2007	Change
Revenue	16,566	15,607	6%	18,269	16,137	13%
EBITDA	5,312	7,457	-29%	5,334	7,237	-26%
PAT	2,156	5,253	-59%	1,643	4,868	-66%

Table 1: Group and Company P&L highlights for the six months ended 30 June 2007 & 2008

*Comparatives restated to conform to changes with current year’s presentation.

DIALOG TELEKOM - COMPANY PERFORMANCE OVERVIEW
REVENUE

 

Total operating revenue increased by 6 per cent to Rs.16.57 Bn., driven by robust growth of the cellular subscriber base.The prepaid segment continued to contribute an increasing proportion of subscriber growth. Other factors driving revenue growth included the growth in coverage and increased international traffic and associated revenues accruing from the Company’s International Business Operation.

Domestic revenues, which consist in the main of pre-paid and post-paid mobile revenues, remained the dominant constituent of Company Revenue and accounted for approximately 81per cent of total revenue for the six months ended 30 June 2008.

The major components of total (company) revenue are pre-paid revenue (51 per cent), post-paid revenue (30 per cent), international termination revenue (11 per cent) and inbound roaming (3 per cent).

Market Performance

The Company added 1.15 Mn. (net) new subscribers YoY resulting in the Company’s cellular subscriber base increasing by 31 per cent to reach 4.81 Mn. subscribers as at 30 June 2008. The prepaid segment increased by 34 per cent from 3.14 Mn to 4.22 Mn. In parallel, the post- paid subscriber base witnessed a growth of 14 per cent from 0.52 Mn. to 0.59 Mn.

The subscriber mix as at 30th June 2007 and 2008 is presented in the table below:

UNITS	Jun-07	Mix	Jun-08	Mix	Growth %
Postpaid	000	5 19	14	590	12	14
Prepaid	000	3,137	86	4,216	88	38
Total active subscriber base	000	3,656	100	4,806	100	31

Table 2: Subscriber mix

Value Added Services (VAS) revenues accounted for close to 11 per cent of total revenues. Peer-to-Peer SMS revenue continued to represent the largest component of non-voice revenue accounting for 6 per cent of total revenue.

COSTS

 

Direct Costs

Direct costs for the period under review amounted to Rs. 7.84 Bn. Direct costs expressed as a percentage of operating revenue has increased from 34 per cent during the six months ended 30 June 2007 to 47 percent during the corresponding period in 2008. Significant components of direct costs are Network cost (51per cent), Telecom equipment depreciation (31 per cent), and International Telecommunication Levy (10 per cent).

International Telecommunication Levy

The Company has provided for this levy in full (Rs. 757.16 Mn.) for the six months ended 30 June 2008. The levy is provided for and classified under direct costs. The Telecommunications Regulator announced in 2007 that it would refund a part of this levy as compensation for rural network development. Accordingly the Company has submitted a claim for the years 2003 - 2005 amounting to Rs. 702.06 Mn. Any refund would be reflected as a cost reversal at a future date and has not been taken in to account at this stage.

Operating Costs

The Company’s operating costs were recorded at Rs. 6.24. Bn for the six months ended 30 June 2008.

Operating expenses expressed as a percentage of revenue have increased from 29 per cent recorded for the six months ended 30 June 2007 to 38 per cent for the six months ended 30 June 2008. Operating costs comprise mainly of selling and distribution expenses, manpower and general administration costs. In keeping with the company’s aggressive thrust towards subscriber additions and market capture (delivering 31% growth in subscriber base), selling expenses, inclusive of sales commission and advertising & promotional expenses, contributed 44 per cent of total operational expenditure.

Finance Costs

The net finance cost for the six months ended 30 June 2008 was recorded at Rs. 282.34 Mn. The net finance cost includes interest expenditure for the six months ended 30 June 2008 amounting to Rs. 275.22 Mn. ,interest income of Rs.42.34 Mn. and foreign exchange loss arising from the revaluation of foreign currency denominated assets and liabilities of Rs. 34.54 Mn. . On a YoY basis however, the finance costs have reduced by 52 per cent due in the main to prepayment of several commercial borrowing facilities during the third-quarter of 2007.

OPERATING PROFIT (EBITDA)

 

EBITDA was recorded at Rs. 5.31 Bn. for the six months ended 30 June 2008 compared to Rs. 7.46 Bn. for the six months ended 30 June 2007.

PROFIT AFTER TAX (PAT)

 

The Company recorded a PAT of Rs. 2.16 Bn. for the six months ended 30 June 2008 compared to Rs.5.25 Bn. for the six months ended 30 June 2007.

RECENT DEVELOPMENTS

 

External

The Central Environmental Authority (CEA) announced recently an Environment Conservation Levy (ECL) of 2% on mobile usage, with effect from 15 August 2008. Moreover, a fixed levy has been imposed per telecom transmission tower with effect from 01 August 2008.

Internal

The Company has undertaken several Performance Improvement Plans to combat inflationary pressures and rise in energy costs on margins, the outcome of which will have positive impact in the medium term.

SUBSIDIARY PERFORMANCE
DIALOG BROADBAND NETWORKS

 

Highlights

Highlights	UNITS	1Q-2008	2Q-2008	Change
Revenue	Rs. Mn	537	645	20%
CDMA subscribers	Nos	72,433	112,730	56%
Wimax Subscribers	Nos	958	1,589	66%

Table 3: DBN Highlights

Financial Performance Review - DBN

Dialog Broadband Networks Pvt Ltd (DBN) recorded robust growth in revenue posting net operating revenues of Rs. 1,181.84 Mn for the six months ended 30 June 2008 up 181% and 20% relative to the first –half of 2007 and Q1 2008 respectively. DBN revenue components include Transmission and Infrastructure Business, Fixed Telephony (CDMA WLL), Data communication services, and Broadband and Internet services.

DBN recorded a EBITDA of Rs. 51.36 Mn. for the six months ended 30 June 2008 vis-à-vis a figure of Rs.120.70 Mn recorded for the six months ended 30 June 2007.

Immediate QoQ performance however displays a positive trajectory in terms of key performance indicators – with EBITDA recording positive performance of 151% relative to Q1 2008.

DBN recorded a net loss of Rs. 291.07 Mn. for the six months ended 30 June 2008 vis-à-vis a loss of Rs. 7.79 Mn recorded for the six months ended 30 June 2007.

DBN’s recently commercialised fixed telephony and broadband services have received strong consumer acceptance (as evidenced by 56% and 66% subscriber growth on adjacent quarter basis) emphasising the growing potential to eclipse capacity building costs through aggressive revenue growth.

DIALOG TELEVISION

 

Highlights

Highlights	UNITS	1Q-2008	2Q-2008	Change
Revenue	Mn	336	451	34%
Pay TV subscribers	Nos	77,506	102,293	32%

Table 4: DTV Highlights

Financial Performance Review - DTV

DTV Group (inclusive of subsidiaries Communiq Broadband Network (Pvt) Ltd (CBN) and CBN SAT (Pvt) Ltd) recorded revenue of Rs.787.66 Mn. for the six months ended 30 June 2008 up 176% and 34% relative to first half of 2007 and Q1 2008 respectively. Revenue growth was fuelled by aggressive market performance characterised by the achievement of a 100,000+ strong subscriber base as of the end of Q2 2008 representing YoY growth of 276% and growth of 32% relative to the adjacent quarter (Q1 2008).

The Company recorded a net loss of Rs. 196.40 Mn. for the six months ended 30 June 2008 – an improved albeit dilutive performance relative to the loss of Rs 349.51 Mn. recorded in six months ended 30th June 2007. While negative performance at PAT level is characteristic of a Pay TV operation during its start up phase, the strong market acceptance of the services of the company in tandem with the substantial growth potential offered by the under-penetrated pay-tv market in Sri Lanka, augurs well for growth and revenue expansion going forward.

CONSOLIDATED GROUP PERFORMANCE

 

Key features of the consolidated performance of DT Group are presented below:

For the six months ended 30 June 2008, Group Revenue increased by 13 per cent to Rs.18.27 Bn. vis-à-vis revenue recorded for the six months ended 30 June 2007.

Earnings before interest, tax, depreciation and amortisation (EBITDA) was recorded at Rs. 5.33 Bn for the six months ended 30 June 2008 representing a decline of 26 per cent relative to the figure of Rs.7.24 Bn recorded for the six months ended 30 June 2007.

DT Group recorded a Profit after Tax (PAT) of Rs. 1.64 Bn. representing a negative growth of 66 per cent relative to the six months ended 30 June 2007.

About Dialog Telekom PLC

Dialog Telekom PLC, an ISO 9001 certified company, is a subsidiary of TMI Group. The Company operates 2.5G and 3/3.5G Mobile Communications networks supporting the very latest in multimedia and mobile Internet services. Dialog Telekom PLC has the distinction of being the first 3G operator in South Asia to commence commercial operations. Its local coverage spans all provinces of Sri Lanka, while international roaming is provided in over 200 destinations. Dialog Telekom PLC, the largest and fastest growing cellular service in Sri Lanka, serves a subscriber base in excess of 4.8 Million Sri Lankans.

It is also the largest listed Company on the Colombo Stock Exchange in terms of Market Capitalisation with a Market Capitalisation (as of 30 June 2008) of LKR 116.05Bn (USD 1.08. Bn), representing 14.6 per cent of the Market Capitalisation on the Colombo Stock Exchange. The Company has the distinction of having become the first Company in Sri Lanka to achieve a Market Capitalisation exceeding USD1Bn.

About Dialog Broadband Networks (Pvt) Ltd

Dialog Broadband Networks (Pvt) Ltd is a fully owned subsidiary of Dialog Telekom PLC, and is a key player in Sri Lanka’s ICT infrastructure sector, providing backbone and transmission infrastructure facilities and data communication services. The Company has consistently focused on the adoption of international best practices with respect to management systems, business processes and quality systems. Lead by experienced management professionals, the company is richly supported in terms of technical and functional guidance by its holding company Dialog Telekom PLC and ultimate parent company TM International Sdn Bhd. Dialog Broadband Networks (Pvt) Ltd recently commenced the provision of fixed wireless telephony services based on CDMA technology and has a subscriber base of 100,000 Sri Lankan island wide.

About Dialog Television (Pvt) LtdM

Dialog Television (Pvt) Ltd, a subsidiary of Dialog Telekom PLC, operates Dialog Satellite TV, a Direct to Home (DTH) Satellite TV service. Aiming to offer the best of satellite TV to all Sri Lankans Dialog Television (Pvt) Ltd supports a broad array of international content including CNN, BBC, HBO, Cinemax, AXN, ESPN, Ten Sports, Discovery Channel, MTV (Music Television) and Cartoon Network, in addition to a wide portfolio of Sri Lankan television channels such as Citi Hitz, Channel C and The Buddhist in addition to the local channels. Currently Dialog Television has a subscriber base of 100,000 Sri Lankan island wide.