Corporate Performance Announcement February 2007

Corporate Performance Announcement

Financial Year 2006 - Dialog Telekom Ltd
Dialog Telekom Ltd. (DTL), announced Monday (19 February 2007) an overview of its Financial Performance for the year ended 31 December 2006.

PAT : 10.12 Billion	PAT Growth : 44%
EBIDTA : 13.74 Billion	EBIDTA Growth : 46%
Revenue : 25.68 Bn	Revenue Growth : 42%
Cellular Subscribers : 3.11 Mn	Subscriber Growth : 46%
Infrastructure Investments/Commitments : Rs 16.12 Billion
Proposed Dividends : 40% (Payout of earnings) Proposed Dividends per Share : 55 Cents
Subsidiary Performance : 2% PAT Contribution from Dialog Broadband Networks

Financial Performance

 

Dialog Telekom Ltd, post consolidation with subsidiary performance, recorded a Profit after Tax (PAT) of Rs. 10.12 Bn for the FY2006, representing a robust year on year (YoY) PAT growth of 44 per cent. Dialog Telekom and its subsidiaries (Dialog Broadband Networks (Pvt) Ltd and Asset Media (Pvt) Ltd)) will hereinafter be referred to collectively, as “the Group”. DTL (hereinafter referred to as “the Company”) recorded a PAT of Rs. 10.05 Bn. up 43 per cent relative to FY 2005.

For the year ended 31 December 2006, Group Revenue increased by 42 per cent to Rs. 25.68 Bn vis-à-vis revenue reported for FY 2005. Earnings before interest, tax, depreciation and amortisation (EBITDA) was recorded at Rs.13.74 Bn, representing an YoY growth of 46 per cent.

Proposed Dividend to Shareholders

 

In view of the Group’s strong financial performance, the Board of Directors of Dialog Telekom, has resolved to propose a first and final Dividend amounting to 40% (payout) of 2006 earnings, which translates to 55 Cents per share and is subject to the approval of the shareholders at the Annual General Meeting (AGM). The recommended Dividend is exempt from tax in the hands of the Shareholders. The dates of the AGM and the dividend payment will be notified in due course.

Investments in Infrastructure

 

An overriding feature of 2006 was the Group’s aggressive investments in infrastructure and matching performance in capital project implementation.

The Group invested / committed a total of Rs. 16.12 Bn in infrastructure during 2006 resulting in large scale expansion of service coverage in rural areas of Sri Lanka, the establishment of a CDMA network in 8 Districts outside the western province, and the first phase of a fibre optic network in the City of Colombo. The company also became the first operator to commence commercial 3G services in August 2006. Dialog’s mobile network provides coverage to approximately 90% of Sri Lanka’s population and 70% of the country’s landmass. The Company targets to achieve 100% population coverage by end 2007.

Affordability Enhancement – Connecting 3 Million

 

Aggressive tariff reductions (reductions of up to 30% implemented in July 2006) combined with rapid expansion of coverage areas across all provinces of Sri Lanka resulted in the company reaching the milestone subscriber base of 3 Million in month of November 06, and reaching an Year-End subscriber base of 3.11Mn.

The company accounts for approximately 60% of Sri Lanka’s cellular subscribers and 45% of the total telecommunications market.

Acquisitions

 

Following on from the acquisition and consolidation of Dialog Broadband Networks (DBN) late 2005, the company was, in 2006, focused on securing a Quadruple Play (Mobile and Fixed Telephony, Broadband and Television Media) architecture to fuel future growth in keeping with technology evolution and consumer demand.

The company’s entry in to the digital media space was founded on the beachhead acquisition of a 90% stake in Asset Media (Pvt) Ltd (September 2006). Asset Media possesses licenses from the Ministry of Media to carry out the business of Television Broadcasting, delivery of Pay Television Services and the operation of a Television broadcasting station.

The acquisition of Asset Media was followed closely by the acquisition (by Asset Media) of a 100 per cent stake in Communiq Broadband Network (Pvt) Ltd (CBN) and CBN SAT (Pvt) Ltd in December 2006.. CBN and CBN SAT were companies engaged in the provision of Direct to Home Digital Satellite Television Services. The acquisitions complete the group’s quadruple play service provisioning foundation and will result in transformational investments in Digital Broadcast infrastructure targeting digital terrestrial broadcast, Direct to Home (DTH) and Mobile Television service provisioning. The Group’s Digital Broadcast operations commenced February 2007 under the brand name of Dialog Satellite TV.

Group Performance Overview

 

The Group’s financial results for the FY 2006 and FY2005 are depicted in the ensuing table.

The results as published have been subjected to an audit carried out by the external auditors of the Company, PricewaterhouseCoopers.

FY 2006 compared to FY 2005
(All figures in Rs. Mn.)

Profit & Loss Highlights	Group		Company
	2006	Change*	2006	2005	Change
Revenue	25,679	42	25,149	18,034	39
Gross Profit	16,858	43	16,613	11,821	41
EBITDA	13,744	46	13,362	9,416	42
PAT	10,119	44	10,049	7,012	43

Table 1: P&L highlights Group and Company for the FY 2006 vis-à-vis FY 2005

1. The above financial results have been subjected to an audit carried out by the auditors and have been approved by the Board of Directors on 15 February 2007.
2. The consolidated financial results have been furnished to provide information about the overall business of the Company and its subsidiaries.

Key features of the consolidated results of DTL Group which includes Dialog Broadband Networks (Pvt) Ltd and Asset Media (Pvt) Ltd) are presented below:

• For the year ended 31 December 2006, Group Revenue increased by 42 per cent to Rs. 25.68 Bn vis-à-vis revenue reported for FY 2005.
• The gross profit of Rs. 16.86 Bn represents an increase of 43 per cent relative to Rs. 11.82 Bn recorded for FY2005. GP margin remained constant at 66 per cent year on year in spite of a downward revision of tariff effective from the 7th of July 2006.
• Earnings before interest, tax, depreciation and amortisation (EBITDA) was recorded at Rs.13.74 Bn for the year ended 31 December 2006 compared to the figure of Rs. 9.42 Bn. for FY2005, representing a growth of 46 per cent.
• DTL Group recorded a Profit after Tax (PAT) of Rs. 10.12 Bn, representing a 44 per cent growth relative to 2005 earnings of Rs 7.01 Bn. The PAT of DTL Group, will be the highest recorded to date by a Group/Company in the history of the Colombo Stock Exchange (CSE), surpassing DTL’s own PAT record established in FY2005.

COMPANY PERFORMANCE SUMMARY
REVENUE

 

Total operating revenue increased 39 per cent to Rs. 25.15 Bn., driven by robust growth of the cellular subscriber base delivering enhanced call revenues. The prepaid segment contributed a major part of the growth. Other factors driving revenue growth included the growth in coverage and increased international traffic and associated revenues.

Domestic revenues, which consist mainly of pre-paid and post-paid revenue, accounted for approximately 80 percent of Company Revenue for the FY2006.

The major components of total (company) revenue are pre-paid revenue (43 per cent), post-paid revenue (37 per cent) and inbound roaming revenue (4 per cent). When compared with results for FY 2005, the contribution from the pre-paid segment has increased from 37 per cent to 43 per cent.

The Company added approximately 1Mn net subscribers during 2006, and accordingly the Company’s cellular subscriber base increased by 46 per cent to reach 3.11 Mn subscribers by end of 2006. The prepaid segment increased by 56 per cent from 1.68 Mn to 2.62 Mn. In parallel, the postpaid subscriber base increased by 10 percent from 0.44 Mn to 0.48 Mn.

The subscriber mix for the years 2005 and 2006 is presented in the table below:

No of Subscribers (Thousands)	2005	Mix (%)	2006	Mix (%)	Change (%)
Post	441	21	484	16	10
Pre	1,682	79	2,621	84	56
Total	2,124	100	3,106	100	46

Table 2: Subscriber mix

Value added services (VAS) revenues accounted for close to 9 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.

Revenue from international termination increased from Rs. 1.37 Bn to Rs. 2.22 Bn as traffic grew YoY by 63 per cent.

COSTS

 

Direct Costs

Direct costs for the year amounted to Rs. 8.54 Bn compared to Rs. 6.21 Bn in the previous year reflecting a 37 per cent increase.

Significant components of direct costs are Network cost (29 per cent), Telecom equipment depreciation (28 per cent), International Telecommunication Levy (10 per cent), International Origination cost (9 per cent), roaming costs (7 per cent) and Lease circuit rental costs (4 per cent).

Direct costs as a percentage of operating revenue have remained constant from previous year, at 34 per cent.

Operating Costs

The Company’s operating costs recorded at Rs. 6.04 Bn grew by 33 per cent relative to those applicable to the FY 2005. The growth rate of 33 per cent is however lower than the 39 per cent growth rate registered by Operating Revenues.

Operating costs comprise mainly of selling and distribution expenses, manpower and general administration costs.

Operating expenses as a percentage of operating revenue has improved to 24 per cent relative to the 25 per cent recorded during FY2005. The improvement in cost efficiency is attributed to relative cost reductions with respect to administration and selling expenses.

Selling expenses, inclusive of sales commission and advertising & promotional expenses, were the most significant contributor to operational expenditure (51 per cent).

Manpower cost accounted for 25 per cent of total operating costs, however, as a proportion of revenue, manpower has been maintained at 6 per cent.

International Telecommunication Levy

Based on the Finance Act No. 11 of 2004 enacted by the Parliament in late 2004, a levy was imposed on International Telecommunication operators with retrospective effect dating back to March 2003. Accordingly the Company has provided for this levy in full (Rs.861 Mn) for FY2006. The levy is provided for and classified under direct costs. A substantial portion (Rs. 711 Mn.) of the provision has been paid up as at date. The PAT figures for FY 2005 and FY2006 are stated after the deduction of this levy. The total levy paid in respect of FY 2005 amounted to Rs. 504 Mn. It is envisaged that the Telecommunications Regulator would determine a refund of a part of this levy as compensation for rural network development. Any such refund would be reflected as a cost reversal at a future date and has not been taken in to account at this stage.

OPERATING PROFIT (EBIDTA)

 

EBITDA was recorded at Rs. 13.36 Bn for the FY2006 compared to Rs. 9.42 Bn for FY 2005 representing a growth of 42 per cent. The EBITDA margin of 53 per cent registered during FY2006 represents a one percentage point improvement relative to that recorded for FY2005.

Other achievements in 2006

Investments/ Network Rollout

During 2006, the DTL group invested in excess of USD 150 Mn in telecommunications infrastructure, a large proportion of which has been deployed in underserved regions of the country. The Group’s depreciation charge (including amortisation) for the full year amounted to Rs. 3.02 Bn (Company -Rs. 2.79 Bn) up 40 per cent relative to FY2005.

Fitch Ratings Lanka

Fitch affirmed the Company’s long term rating at AAA (lka) which is the highest possible credit rating, reinforcing the Company’s reputation as one of the best and most bankable corporate entities in Sri Lanka.

3Mn subscriber base

In November 2006, Dialog surpassed the milestone of a 3 Mn strong subscriber base further consolidating its market leadership position. The company has experienced increasing growth trends in keeping with market expansion and the competitiveness of its services.

3G Services

Dialog became the first operator in South Asia to commence commercial 3G services following the launch of Dialog 3G in the City of Colombo with effect from 16th August 2006. Sri Lanka is the first country in South Asia to launch a 3rd Generation network.

Tariffs Revised Downwards

Successive downward revisions of tariffs served to enhance the value delivered to Dialog Customers. Tariff reductions also served as a catalyst for the achievement of a significant boost in net additions as well as in Minutes of Use (MoU).

Subsidiary performance

Dialog Broadband Networks Pvt Ltd (DBN) recorded a PAT of Rs. 152.92 Mn. For FY2006 representing a contribution of approximately 2 per cent to group PAT (after fair value adjustments).

For the year ended 31 December 2006, DBN recorded a revenue of Rs. 774.62 Mn up 42 per cent relative to FY2005.

The recorded GP margin and NP margin stood at 41 per cent and 20 per cent respectively.

Asset Media (Pvt) Ltd

The Goodwill resulting from the acquisition of CBN and CBN SAT has been reflected in the Consolidated Financial Statements of the Group. The intangibles of Asset Media as at the 31 December 2006 have been tested for impairment.

About Dialog Telekom Limited

Dialog Telekom Limited is the largest mobile operator in Sri Lanka with over 3.11 Mn subscribers representing more than 60 per cent market share. It is also the largest listed Company on the Colombo Stock Exchange in terms of Market Capitalisation with a market capitalisation (as of 31 December 2006) of LKR 196.19 Bn (USD 1.82Bn), representing 23.5 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 capitalization exceeding USD1Bn.

Dialog Telekom Limited is a subsidiary of the Telekom Malaysia Group. In addition to its core mobile telephony business, the Company provides international services, supporting an International Gateway infrastructure providing retail and wholesale international voice and data services under the brand name of Dialog Global. The company also provides Internet services through Dialog Internet - a fully-fledged Internet Service Provider (ISP). Dialog Telekom also operates Dialog SAT, a mobile satellite service.

About Dialog Broadband Networks (Pvt) Ltd

Dialog Broadband Networks (DBN) is a fully owned subsidiary of Dialog Telekom Ltd, and is a key player in Sri Lanka’s ICT infrastructure sector, providing backbone and transmission infrastructure facilities and data communication services. Dialog Broadband is also soon to commence the provision of fixed wireless telephony services based on CDMA technology.

About Asset Media (Pvt) Ltd

Asset Media is a subsidiary of Dialog Telekom Ltd., and is licensed by the Ministry of Media to provide Television Broadcasting services, delivery of Pay Television and Cable Television Services and the operation of a Television broadcasting station.

Following the acquisition of Communiq Broadband Networks, the company operates a Direct to Home Satellite based Pay Television service under the brand name of Dialog TV.

Dialog TV supports a broad array of International content including CNN, BBC, HBO, Cinemax, AXN, ESPN, Discovery Channel, MTV (Music Television) and Cartoon Network, in addition to a wide portfolio of Sri Lankan television channels including Rupavahini and ITN. Dialog TV services are based on cutting edge DVB-S digital broadcast infrastructure.