Corporate Performance Announcement July 2006

Corporate Performance Announcement

Six months ended 30 June 2006 - Dialog Telekom Ltd

Dialog Telekom Ltd., (DTL) released Thursday (27 July 2006) an overview of its Financial Performance for the six months ended 30 June 2006.

Financial Results – First-Half of 2006

Dialog Telekom Ltd, post consolidation with subsidiary performance, recorded a Profit after Tax (PAT) of Rs. 4.93 Bn for the first-half of 2006. Dialog Telekom and its subsidiary Dialog Broadband Networks (Pvt) Ltd will hereinafter be referred to collectively, as "the Group".

DTL (hereinafter referred to as "the Company") recorded a PAT of Rs. 4.89 Bn representing a 42 per cent earnings growth relative to the figure of Rs. 3.45 Bn recorded for the corresponding period in 2005.

DTL results for the six months ended 30 June 2006 and for the corresponding period in 2005 along with the consolidated results of the Group for the six months ended 30 June 2006 are depicted in the ensuing table. The results are based on a limited review carried out by the external auditors of the Company, PricewaterhouseCoopers.

Six months ended 30 June 2006 compared to six months ended 30 June 2005

Profit & Loss Highlights	DTL		DTL growth	Group	Group growth^
	Six months ended 30 June			Six months ended 30 June
Rs Billion	2005	2006		2006
Revenue	8.14	12.03	48%	12.28	51%
Direct Cost	2.59	4.15	60%	4.27	65%
Gross Profit	5.54	7.88	42%	8.01	44%
EBITDA	4.54	6.39	41%	6.60	45%
PAT	3.45	4.89	42%	4.93	43%

Table 1: Profit and Loss for the six months ended 30 June 2005 and 2006

1. The above financial results are based on a limited review carried out by the auditors and approved by the Board of Directors on 26 July 2006.
2. The consolidated financial results have been furnished to provide information about the overall business of the Company and its subsidiary (Dialog Broadband Networks (Pvt) Ltd.)
3. ^ Group growth compares Group results as at 1H2006 against Company results for 1H 2005.
4. Figures in the table may not sum up due to rounding.

The Board of Directors of Dialog Telekom places great emphasis on instituting and maintaining leading edge Corporate Governance practices with respect to the operations of the company. In keeping with the latter paradigm, the company has subjected the interim results to a limited review by the external auditors.

REVENUE

 

For the six months ended 30 June 2006, the Company’s Revenue increased by 48 per cent to Rs. 12.03 Bn as compared to the first -half of 2005.

Revenue growth is fuelled by parallel growth in the key revenue drivers of subscriber base, network reach, increase in usage per customer and expansion in international business.

Revenue growth has been driven by the consistent growth in both pre-paid and post-paid subscriber base. The postpaid active subscriber base increased by 16 per cent when compared to first-half of 2005 from 0.40 Mn to 0.47Mn. In parallel, the pre-paid active subscriber base increased by 55 per cent from 1.35Mn to 2.09Mn. Domestic revenues, which consist mainly of pre-paid and post-paid revenue, accounted for approximately 78 per cent of the Company’s Revenue in the first -half of 2006.

The subscriber mix for the period ending 30 June 2005 and 2006 is given in the ensuing table:

No of Subscribers	1H05	Mix (%)	1H06	Mix (%)	Change (%)
Post	403,200	23	469,526	18	16
Pre	1,353,490	77	2,092,871	82	55
Total	1,756,690	100	2,562,397	100	46

Table 2: Subscriber mix

Total revenue is composed of 40 per cent from pre-paid revenue, 38 per cent from post-paid revenue and 5 per cent from inbound roaming revenue. Prepaid exceeds postpaid contribution in second-quarter of 2006. When compared to results of first-half of 2005 pre-paid contribution has increased from 35 per cent to 40 per cent with a growth in subscriber base from 1.35 Mn to over 2.09Mn.

COSTS

 

Direct Costs

The Company’s direct costs for the period amounted to Rs. 4.15 Bn compared to Rs. 2.59 Bn in the previous year, which is a 60 per cent increase.

Significant components of direct costs are Network cost (33 per cent), Telecom equipment depreciation (27 per cent), International Origination cost (7 per cent), Outbound roaming cost (8 per cent), Lease circuit rental costs (4 per cent) and International Telecommunication Levy (10 per cent).

The Company’s direct costs as a proportion of revenue have increased from the 32 per cent recorded for first -half of 2005 to 35 percent for the same period in 2006. However on sequential quarters (1Q06 to 2Q06) the Company’s direct cost as a proportion of revenue has decreased by 1 percentage point.

Operating Costs

The Company’s operating costs of Rs. 2.75 Bn grew at a slower rate compared to earnings registering an increase of only 38 per cent relative to the first-half of 2005.

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

Selling expenses inclusive of sales commission, advertising & promotional expenses was the most significant contributor of operational expenditure (55per cent)

Manpower cost accounted for 24 per cent of total operating costs, however, as a proportion to revenue, manpower has been maintained under 6 per cent of revenue.

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 DTL has provided for this levy in full (Rs. 423 Mn) for the period under review in its financial statements under direct costs, of which Rs. 348 Mn has been settled as of date. The PAT figures for the six months ended 30 June 2005 and 2006 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)

 

The Company also showed similar growth in Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA). EBITDA was recorded at Rs 6.39 Bn for the six months ended 30 June 2006 compared to Rs 4.54 Bn for the period ended 30 June 2005 representing a growth of 41 per cent.

TAXATION

 

DTL enjoys a fifteen-year tax holiday expiring at the end of 2012 by virtue of its Flagship Investor status under the aegis of the Board of Investment of Sri Lanka.

MARGIN ANALYSIS

 

The company recorded an EBITDA margin of 54 per cent and a PAT margin of 41 per cent in the second -quarter of 2006 exhibiting an improvement of one point each in terms of EBITDA and PAT margins compared to the first-quarter of 2006.

With respect to margins, the spill over effect from exceptional inbound revenues in the aftermath of tsunami for the first-quarter of 2005, have contributed to higher margins in the first-half of 2005 when compared to first-half of 2006. The growth in contribution of the lower margin international termination revenue stream has also contributed towards the slight erosion of the overall margins.

About Dialog Telekom Limited

Dialog Telekom Limited is the largest mobile operator in Sri Lanka with over 2.5Mn subscribers representing more than 60% 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 30 June 2006) of LKR146Bn (USD 1.42Bn), representing 22.77% 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.