Corporate Performance Announcement February 2008

Corporate Performance Announcement

FINANCIAL YEAR ENDED 31 DECEMBER 2007
DIALOG TELEKOM PLC
(Company registration number: PQ 38)

Dialog Telekom PLC (DT) announced Monday (18 February 2008) an overview of its Financial Performance for the Financial Year ended 31 December 2007. 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).

Highlights

 

Dialog Telekom (the Company) Recorded 37% Mobile Subscriber Growth, 24% Revenue Growth, 7%EBIDTA Growth and 1% PAT Growth during the FY 2007.

The Board of Directors have proposed to deliver 44% of 2007 earnings to shareholders through adividend payment totalling Rs.4,479.08 Mn. and translating to 55 Cents per share. The Dividend issubject to approval by the shareholders at the AGM of the company (date to be notified) and isexempt from tax in the hands of the shareholders.

Dialog Broadband Networks Launched CDMA WLL Fixed Line, and WiMax Broadband WirelessAccess, Networks during the course of 2007, delivering Revenue Growth of 42% and 36% on anadjacent QoQ and YoY basis respectively.

Dialog Television recorded 40% (adjacent) QoQ subscriber Growth and achieved Revenues of Rs.722.45 Mn. during 2007 – its first Year of Post-Acquisition Operations

Subsidiaries of Dialog Telekom however delivered Negative PAT Contributions comprising ofNegative Rs. 317.96 Mn. from DBN and Negative Rs. 788.53 Mn from DTV respectively

Dialog Group recorded 27% Revenue Growth, Negative 0.03% EBIDTA Growth and Negative 11%PAT Growth post consolidation of Negative Contributions from Subsidiaries (New Businesses)

Financial Highlights– Year ended 31 December 2006 & 2007
(All figures in Rs. Mn.)

P&L Highlights	Company			Group
	2007	2006	Change	2007	2006	Change
Revenue	31,129	25,149	24%	32,517	25,679	27%
Gross Profit	19,248	16,613	16%	19,114	16,858	13%
EBITDA	14,329	13,362	7%	13,740	13,744	- 0.03%
PAT	10,127	10,049	1%	8,967	10,119	- 11%

The above financial results have been subjected to an audit carried out by the external auditors of the Company/Group and have been approved by the Board of Directors.

Group-wide Infrastructure Investments in 2007 totalled Rs 25.70 Bn (237 million USD) fuelling growth in Network Capacity and Reach of GSM, 3G/HSPA, WiMax, CDMA, Digital Television and Fibre Optic Network infrastructures.

Ongoing and accelerated Growth of Multiple Networks/Services will be strongly supported by robust equity and debt funding secured during 2007, featuring in the main strong shareholder support through Sri Lanka’s Largest Rights Issue of Rs 15.54 Bn (Including an equity infusion of Rs 13.05 Bn. by Telekom Malaysia), Institutional Support for the Company’s Preference Share issue of Rs 5 Bn and debt/equity participation by the International Finance Corporation to the value of 100 Mn USD.

DIALOG TELEKOM PLC (“the Company”) PERFORMANCE SUMMARY

 

KEY INDICATORS	UNITS	2007	Change (2007 vs. 2006)
CELLULAR SUBSCRIBER BASE*	Mn.	4.26	37%
REVENUE	Rs. Bn	31.13	24%
EBITDA	Rs. Bn	14.33	7%
PAT	Rs. Bn	10.13	1%
ANNUALISED CHURN	%	6.32	2.9%

The Company’s Mobile Business exhibited strong growth with Mobile Revenues growing by 24% YoY and totalling Rs 31.13 Bn. The Company’s International Business segment continued to exhibit aggressive growth with Revenue Growth of 51% YoY and contributions of 12% and 6% to the Company’s revenue and bottom lines respectively. The Company recorded a PAT of Rs.10.13 Bn. up 1 per cent relative to the year ended 31 December 2006.

The Company’s revenue potential was diluted by intermittent disruption of services in the Northern and Eastern provinces of Sri Lanka during the first half of 2007 and a reduction in tourist arrivals which in turn diluted International Roaming Revenues relative to their full potential. It is surmised that performance of the aforementioned revenue sources to their full potential would have had a significant impact on Revenue and PAT growth in 2007. The Company also experienced operational and direct cost expansion during the second half of 2007 largely arising from the macro-environment as well as from the application of aggressive focus on the roll-out of multiple new services and expansion of subscriber base.

CONNECTIVITY TO DELIVER EMPOWERMENT & ENRICHMENT

 

Outreach

The Company invested aggressively in network infrastructure during 2007 resulting in large scale expansion of its GSM & 3G/HSPA service coverage across the country. New coverage areas encompassed a large number of rural towns including but not limited to Deberawewa, Koslanda, Udadumbara and Diyagama, and spread across all 9 provinces of the country. The rapid and efficient deployment of investments extended strong support to a 37% growth in mobile subscribers and the extensive expansion of 3G/HSPA services to cover most key cities and towns in Sri Lanka. Dialog’s 3G/HSPA network now empowers communities in most provinces with high speed broadband and other 3rd Generation Services delivering manifold enhancement to the quality and capacity of telecommunications infrastructure services available to consumers in outlying regions of the country. The Company also commissioned the first phase of its Fibre Optic Transmission network in the city of Colombo.

As more-fully described alongside subsidiary performance, the Dialog Telekom Group (encompassing subsidiaries DBN and DTV) during the course of 2007, delivered enhanced connectivity through CDMA services (including remote Districts of Anuradhapura, Polonnaruwa, Ampara and Hambantota), WiMax Broadband Services (including outlying urban centres such as Akkareipattuwa, Ampara, Bandarawela, Batticaloa and Dambulla) and Digital Satellite Television Services (island wide footprint) to citizens across Sri Lanka.

Affordability Enhancement

In tandem with large scale expansion to its coverage footprint and portfolio of services (including the expansion of its 3G/HSPA network and high speed broadband services), Dialog Telekom announced an aggressive tariff reduction with a view to expanding the market space and capturing an increasing proportion of incremental subscribers, through the enhancement of the affordability of its services. The tariff reduction featured discounting of key tariff dimensions by up to 50% resulting in an overall increase in affordability by over 35%. The Company has seen requisite results of its endeavours in terms of usage expansion and subscriber and revenue growth. Similar enhancement of affordability was delivered with respect to International Telecommunications service enabling Sri Lankan consumers to call overseas for tariffs as low as Rs 7/- per minute. Furthermore Dialog’s rapidly expanding 3G network delivered a tariff regime featuring a maximum tariff of Rs 3/- per minute and a greatly reduced cost of access with respect to high speed HSPA broadband services.

In its wider scope of operations across multiple connectivity technologies and services, the Dialog Telekom Group enhanced the affordability of WLL Fixed Line Services through a revolutionary tariff regime for CDMA services, reduction of entry barriers to fixed broadband services in tandem with the launch of WiMax services and the introduction of a entry level service plan for Digital Pay Television services featuring an unprecedented level of affordability at Rs 100/- per month.

Proposed Dividend to Shareholders

In compliance with Section 56 and Section 57 of the Companies Act No 7 of 2007, the Board of Directors of Dialog Telekom, has resolved to propose a first and final Dividend amounting to 44% (payout) of 2007 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.

Corporate Responsibility – Connecting the Marginalised

The Company’s Corporate Responsibility thrust continued to enrich the scope of “connectivity” and the empowering impact of technology on the community. The Company in collaboration with the School for the Deaf and Blind launched the Ratmalana Audiology Centre – an early Diagnostic Centre for the hearing impaired. The Company’s Distance Learning Network established in collaboration with the Ministry of Education also saw rapid expansion with the addition of Digital Satellite Broadcasting technology to the platform’s outreach capability. The Digital Bridge architected and sponsored by Dialog is designed to connect up to 1,000 schools in remote regions of Sri Lanka to high quality education administered by the Ministry of Education. The Company also supported a large number of initiatives focussed on marginalised communities such as the differently-abled, hearing and sight impaired and internally displaced persons, protection of the environment and ICT for human and community development. Dialog Telekom is also a signatory to the United Nations Global Compact.

DIALOG TELEKOM GROUP: CONSOLIDATED PERFORMANCE SUMMARY

 

The Dialog Telekom Group comprises of the Company and its subsidiaries Dialog Broadband Networks (Pvt) Ltd and Dialog Television (Pvt) Ltd (formerly known as Asset Media (Pvt) Ltd).

Group results of Dialog Telekom PLC, post consolidation with subsidiary performance, recorded a Profit after Tax (PAT) of Rs. 8.97 Bn. for the year ended 31 December 2007. Negative contributions from DTV (Rs. 788.53 Mn.) and DBN (Rs. 317.96 Mn) resulted in the dilution of company earnings by a total of Rs. 1,156.77 Mn. (inclusive of consolidation adjustments) resulting in negative growth of 11% with respect to consolidated group earnings.

With respect to the subsidiaries of the company (DBN and DTV) the Year 2007 represented an Year of aggressive network and service build-out, with the commercial service portfolio of the Group expanding manifold during the course of the year through the commissioning of WLL CDMA, WiMax Broadband Wireless Access (BWA) and Satellite Based Digital Pay Television Services.

The Direct to home (DTH) Pay TV business operated by DTV is characterized by a substantial fixed cost base (comprising of satellite capacity costs, minimum payments to content providers and other operation specific fixed costs). Contribution from operations is determined in the main by the extent to which the fixed costs could be recovered against revenue generated by the growing subscriber base. DTV recorded a 40 percent increase in subscribers during 4Q 07 compared to the immediately preceding quarter. The company is moving aggressively towards achieving a critical mass of subscribers required to fully amortize fixed costs.

The negative contribution from Dialog Broadband Networks (DBN) accrues largely from costs arising from capacity building ahead of demand and revenue realization, corresponding to the recently established CDMA and WiMaX Network infrastructures. The company is moving rapidly towards a reversal of the latter position with the commercial launch of CDMA services in July 2007 and the subsequent commercialization of WiMaX based Wireless Broadband services during the last quarter in 2007. Both (new) services are receiving strong market acceptance and are driving DBN’s revenue growth of 42% (adjacent) QoQ basis.

DBN and DTV are characterised by their principal lines of business being at nascent and build-up phase. New businesses are expected to deliver robust revenues and healthy margins over time as the market and infrastructure development phase in which the subsidiaries are engaged in at the present, evolves into a high growth and revenue generating phase.

DIALOG TELEKOM - COMPANY PERFORMANCE OVERVIEW
REVENUE

 

Total operating revenue increased by 24 per cent to Rs. 31.13 Bn., driven by robust growth of the cellular subscriber base, which translated to the generation of enhanced call revenues. 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 to the Company’s International Business Operation.

Domestic revenues, which consist in the main of pre-paid and post-paid mobile revenue, remained the dominant constituent of Company Revenue and accounted for approximately 81 per cent of total revenue during the year ended 31 December 2007. The revenue growth achieved was on the backdrop of intermittent disruption of the company’s services in the Northern and Eastern Province of Sri Lanka during the first half of the year, and the dilution of International Roaming Revenues (correlated with Tourist arrivals) relative to the corresponding period in the previous year.

The major components of total (company) revenue are pre-paid revenue (48 per cent), post-paid revenue (33 per cent), international termination revenue (11 per cent) and inbound roaming (3 per cent). When compared with the performance for the year ended 31 December 2006, the contribution from the pre-paid segment has increased from 43 per cent to 48 per cent.

The Company added 1.15 Mn. (net) new subscribers during 2007 resulting in the Company’s cellular subscriber base increasing by 37 per cent to reach 4.26 Mn subscribers by 31 December 2007. The prepaid segment increased by 41 per cent from 2.62 Mn to 3.69 Mn. In parallel, the post- paid subscriber base witnessed a growth of 18 per cent from 0.48 Mn to 0.57 Mn. The subscriber profile recorded as of 31 December 2006 and 2007 respectively is presented in Table 2 below:

SUBSCRIBER BASE	UNITS	2007	2006	Change %
Postpaid	000	569	484	18
Prepaid	000	3,690	2,621	41
Total active subscriber base	000	4,260	3,106	37

Table 2: Subscriber mix

Value Added Services (VAS) revenues accounted for close to 10 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. 2,221 Mn. to Rs.3,270 Mn representing an increase of 47 per cent.

COSTS

 

Direct Costs

Direct costs for the period under review amounted to Rs. 11.88 Bn. Direct costs expressed as a percentage of operating revenue has increased from 34 per cent during the year ended 31 December 2006 to 38 percent during the corresponding period in 2007. Performance relative to revenue is mitigated in the main due to the company not achieving its full revenue potential due to the revenue mitigating factors cited above, and a relative expansion in costs during the latter half of 2007 arising from the macro environment.

Significant components of direct costs are Network cost (31 per cent), Telecom equipment depreciation (28 per cent), International Telecommunication Levy (11 per cent), International Origination cost (10 per cent), roaming costs (7 per cent) and Lease circuit rental costs ( 3 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. 1,279.49 Mn.) for the year ended 31 December 2007 of which Rs.1,043.09 Mn. has been remitted as of date. The levy is provided for and classified under direct costs. The PAT figures for the year ended 31 December 2006 and 2007 are stated after the deduction of this levy. The Telecommunications Regulator announced recently that it would refund 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 Costs

The Company’s operating costs recorded at Rs.8.92 Bn. Operating expenses expressed as a percentage of revenue has increased from 24 per cent recorded in 2006 to 29 per cent in the year ended 31 December 2007. In addition to inflationary pressure on principal cost lines, performance relative to revenue is mitigated due to the company not achieving its full revenue potential due to the revenue mitigating factors cited above.

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 37% growth in subscriber base), selling expenses, inclusive of sales commission and advertising & promotional expenses, contributed 39 per cent of total operational expenditure.

Finance Costs

The net finance cost for the year ended 31 December 2007 was Rs. 485.06 Mn. The composition of the net finance cost includes interest on borrowings during the period of Rs. 602.66 Mn, and interest income of Rs.151.57 Mn.

Net finance cost also includes the impact of foreign exchange gain arising from the revaluation of foreign currency denominated assets and liabilities. On an immediate YoY basis however, the finance costs have reduced by 12 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. 14.33 Bn. for the year ended 31 December 2007 compared to Rs. 13.36 Bn. for the year ended 31 December 2006 representing a growth of 7 per cent.

PROFIT AFTER TAX (PAT)

 

The Company recorded a PAT of Rs.10.13 Bn. representing a 1 per cent earnings growth relative to the figure of Rs 10.05 Bn. recorded for the corresponding period in 2006. Principal drivers of PAT mitigation include (external) Revenue Mitigating factors as described earlier in tandem with cost escalation arising form macro environmental factors as well as expansion of internal operations.

FUNDING FUTURE GROWTH

 

Sri Lanka’s Largest Ever Rights & Preference Share Issue

The accelerated growth of the company’s services and subscriber base going forward is strongly supported by local and international shareholders and Institutional investors from the Sri Lanka’s banking and finance sector. The Company’s Rights issue to raise Rs. 15.54 Bn was successfully subscribed for by over 100%, thereby making the issue the largest ever equity raising exercise to be executed on the Sri Lankan Capital market.

The Company has also secured growth funding of Rupees Five Billion (Rs 5,000,000,000/-) via the issuance of Rated Cumulative Redeemable Preference Shares, which were strongly supported by a large number of banks and financial institutions.

The Preference Dividend Entitlement for the period ending 30 November 2007 based on a floating interest rate of Average Weighted Prime Lending Rate (AWPLR) less a discount of 90 (Ninety) basis points computed to a final preference dividend of Rs. 60,987,989/-. (Rs. 0.0122 per share) and was paid in December 2007.

IFC Investment of US$ 100 Mn

The International Finance Corporation (IFC) enhanced its commitment to Dialog Telekom PLC through a Debt/Equity commitment totalling US$ 100 Mn. IFC funding targets the expansion of the Company’s telecom network and the building of new telecommunication infrastructure networks. The US$100 million package includes a US$ 70 million term loan facility and a US $30 million equity commitment via the acquisition of a 1.6 percent holding in Dialog from Telekom Malaysia (TM).

SUBSIDIARY PERFORMANCE

 

Dialog Broadband Networks

Dialog Broadband Networks Pvt Ltd (DBN) recorded a revenue of Rs. 1,052.28 Mn up 36 per cent relative to the Rs. 774.62 Mn. recorded for the year ended 31 December 2006.

DBN recorded a net loss of Rs. 317.96 Mn. for the year ended 31 December 2007 vis-à-vis a profit of Rs. 152.92 Mn recorded for the year ended 31 December 2006. The adverse performance in profitability is in part due to the delay in launch of CDMA services due to spectrum related issues in tandem with associated escalation of administration expenses incurred during the course of capacity building in advance of future expansion/new revenue streams.

DBN acquired 21,167 CDMA subscribers within the last quarter of 2007.Top-line revenue growth initiatives centered on an aggressive entry in to the CDMA market will serve to boost revenue streams and normalize profit margins of DBN in the short to medium term. The CDMA fixed wireless service commercially launched in July 2007 now covers over 18 districts including Colombo. With its entrance into the CDMA market, the Dialog group will further its vision of being a provider of a “total connectivity” encompassing Mobile, Fixed, Broadband and Media services.

WiMax based broadband services launched in November 2007 are positioned for high end residential , Small Office and Home Office (SOHO), Small and Medium Enterprises (SME) and Corporate segments. Delivering speeds of up to 10Mbps in tandem with a rapidly expanding coverage footprint, WiMax is set to greatly enhance Broadband Access in Sri Lanka.

Dialog Television

DTV Group (inclusive of subsidiaries Communiq Broadband Network (Pvt) Ltd (CBN) and CBN SAT (Pvt) Ltd) recorded a revenue of Rs. 722.45 Mn, from a rapidly growing subscribe base which surpassed 50,000 at year end.

The Company recorded a net loss of Rs. 788.53Mn. during the year ended 31 December of 2007, as characteristic of a Satellite Television operation in start up phase. The achievement of a break-even volume of subscribers and operating revenues will see the Company in a position to override its fixed cost base, leading thereafter to positive bottom line contribution.

In January 2008, Dialog TV expanded its Digital Broadcast (DVB) infrastructure to encompass Terrestrial Digital Television services based on DVB-T/H technology, signalling the entry of Sri Lanka’s media sector in to the emerging era of Terrestrial Digital Television. The efficiencies delivered by digital broadcast technology are set to facilitate the expansion of television (channel) availability to all regions of Sri Lanka, where economic viability constrained the expansion of incumbent analogue infrastructure.

CONSOLIDATED GROUP PERFORMANCE

 

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

For the year ended 31 December 2007, Group Revenue increased by 27 per cent to Rs. 32.52 Bn. vis-à-vis revenue reported for the year ended 31 December 2006.

The gross profit of Rs. 19.11 Bn. represents an increase of 13 per cent relative to Rs. 16.86 Bn recorded for the year ended 31 December 2006.

Earnings before interest, tax, depreciation and amortisation (EBITDA) was recorded at Rs. 13.74 Bn for the year ended 31 December of 2007 representing a marginal decline of 0.03 per cent relative to the year ended 31 December 2006.

DT Group recorded a Profit after Tax (PAT) of Rs. 8.97 Bn. representing a drop in performance by 11 per cent relative to the year ended 31 December 2006.

About Dialog Telekom PLC

Dialog Telekom PLC is the largest mobile operator in Sri Lanka with over 4.2 Mn subscribers, representing approximately 56 per cent of Sri Lanka’s cellular market. 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 2007) of LKR 162.88 Bn (USD 1.50 Bn), representing 19.85 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.

Dialog Telekom, an ISO 9001 certified company, is a subsidiary of Telekom Malaysia. Dialog operates 2.5G and 3G Mobile Communications networks supporting the very latest in multimedia and mobile Internet services. The Company 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 countries and destinations.

The operations of the Dialog Telekom group span a future oriented quadruple play service offering encompassing fixed line, broadband wireless, converged IP and backbone transmission services offered by Dialog Broadband Networks (Pvt) Ltd (DBN), and Digital Television services provided by Dialog Television (Pvt) Ltd., (DTV) .DBN and DTV are subsidiaries of Dialog Telekom PLC.

About Dialog Broadband Networks (Pvt) Ltd

Dialog Broadband Networks, a fully owned subsidiary of Dialog Telekom PLC, is the pioneer WiMAX service provider and a key player in Sri Lanka’s ICT infrastructure sector, providing backbone and transmission infrastructure facilities and data communication services. It recently commenced the provision of fixed wireless telephony services, with the launch of Dialog CDMA.

About Dialog Television (Pvt) Ltd

Dialog Television is a subsidiary of Dialog Telekom PLC and operates Dialog Satellite Television (Dialog TV) - a Satellite based Pay Television Service. Dialog TV 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. Dialog Satellite TV deploys state of the art Digital Video Broadcasting through Satellite (DVB-S) technology, and aims to be a trendsetter in Digital Satellite Television Broadcasting in Sri Lanka.