Corporate Performance Announcement July 2007

Corporate Performance Announcement

Six Months ended 30 June 2007 - Dialog Telekom PLC
(Company registration number: PQ 38)
Dialog Telekom PLC (DT) announced Thursday (26 July 2007) an overview of its Financial Performance for the first-half ended 30 June 2007.

1H07 Highlights

Dialog Telekom PAT : Rs 5.25 Bn
43% Growth in Subscribers
Dialog Telekom Group PAT : Rs 4.87 Bn
Equity Investment of Rs 15.54 Bn to Fuel Growth

Dialog Telekom PLC – DT (hereinafter referred to as “the Company”) recorded a PAT of Rs. 5.25Bn. up 8 per cent relative to first-half of 2006. Company earnings comprise in the main of contributions from Mobile Business supplemented by earnings accruing from the company’s International Business Operations and Internet Service Provider Operations.

Financial Highlights – Six Months ended 30 June 2006 & 2007
(All figures in Rs. Mn.)

Profit & Loss Highlights	Company			Group
	1H07	1H06	Change	1H07	1H06	Change
Revenue	14,827	12,031	23	15,357	12,280	25
Gross Profit	9,522	7,879	21	9,422	8,009	18
EBITDA	7,457	6,395	17	7,237	6,596	10
PAT	5,253	4,885	8	4,868	4,933	-1

Table 1: Group and Company P&L highlights for the six months ended 30 June 2006 & 2007.

* The above financial results have been subjected to a limited review carried out by the external auditors of the Company/Group and have been approved by the Board of Directors on 25 July 2007.

The Dialog Telekom Group

Dialog Telekom and its subsidiaries (Dialog Broadband Networks (Pvt) Ltd and Dialog Television (Pvt) Ltd (formerly Asset Media (Pvt) Ltd) will hereinafter be referred to collectively, as “the Group”

Dialog Telekom PLC (DT) continued to deliver robust growth recording a 43 per cent increase in mobile subscribers YoY and Revenue, EBIDTA and PAT growth of 23 per cent, 17 per cent and 8 per cent respectively.

The inflow of Rs 15.54 Bn via the successfully completed Rights Issue is expected to fuel further aggressive growth in infrastructure and subscribers, while serving to mitigate the funding costs incurred by the company in the 1st half of 2007.

The upturn in macro-economic indices in tandem with the recently concluded clearing operations in the Northern and Eastern Province of Sri Lanka are expected to assist the company in delivering enhanced growth metrics during the 2nd half of the year.

The performance at DT was delivered not withstanding revenue mitigating externalities such as the mitigation of Inbound Roaming revenues due to the reduction in inbound travelers and the intermittent disruption to services in the Northern and Eastern Provinces of Sri Lanka.

Group results of Dialog Telekom PLC, post consolidation with subsidiary performance, recorded a Profit after Tax (PAT) of Rs. 4.87Bn for the first-half of 2007, representing a marginal drop by 1 per cent relative to the first half of 2006, precipitated by a negative contribution of Rs 349.51 Mn from the recently operationalised subsidiary Dialog Television (Pvt) Ltd (DTV) which had a dilutive effect on the profit growth of 8 per cent delivered by the core operations of DT.

Dialog Television is currently in an aggressive subscriber acquisition phase on the backdrop of the rapid expansion of channel (content) portfolios. DTV increased its channel portfolio by 45 per cent in the second-quarter of 2007 thereby establishing a robust product offering for the highly under-penetrated Pay Television market in Sri Lanka.

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).

The marginal negative contribution from Dialog Broadband Networks (DBN) accruing from the delay in launch of CDMA Fixed line services due to spectrum clearance and interconnection issues was mitigated to Rs 7.79 Mn. The negative contribution is expected to be reversed with the successful launch of CDMA operations in 6 districts during July 07.

DBN will expand its fixed wireless operation into four more districts including Colombo, during the second half of the year.

Both subsidiaries (DBN and DTV) 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 present, evolves into a growth and revenue generating phase.

COMPANY PERFORMANCE OVERVIEW
REVENUE

 

Total operating revenue increased by 23 per cent to Rs. 14.83 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.

Domestic revenues, which consist mainly of pre-paid and post-paid revenue, remained the dominant constituent of Company Revenue and accounted for approximately 82 per cent in the first-half of 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 – a market which previously contributed up to 7 per cent of company revenue, and a reduction (relative to Q2 2006) of inbound roaming client volumes – a performance measure which is closely correlated to inbound tourist arrivals.

The major components of total (company) revenue are pre-paid revenue (48 per cent), post-paid revenue (34 per cent) and inbound roaming revenue (3 per cent). When compared with results for first-half of 2006, the contribution from the pre-paid segment has increased from 40 per cent to 48 per cent.

The Company added over 1Mn net subscribers within a period of one year, and accordingly the Company’s cellular subscriber base increased by 43 per cent to reach 3.66 Mn subscribers by 30 June 2007. The prepaid segment increased by 50 per cent from 2.09 Mn to 3.14 Mn. In parallel, the postpaid subscriber base witnessed a growth of 11per cent from 0.47 Mn to 0.52 Mn.

The subscriber mix for the first-half of 2006 and 2007 is presented in the table below:

No of Subscribers (Thousands)	1H06	Mix (%)	1H07	Mix (%)	Change (%)
Post	469	18	519	14	11
Pre	2,093	82	3,137	86	50
Total	2,562	100	3,656	100	43

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.

Revenue from international termination increased from Rs. 1,098 Mn to Rs. 1,440 Mn representing an increase of 31 per cent.

COSTS

 

Direct Costs

Direct costs for the period under review amounted to Rs. 5.31 Bn compared to Rs. 4.15 Bn in the first –quarter of 2006 reflecting a 28 per cent increase.

Significant components of direct costs are Network cost (29 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).

Direct costs as a percentage of operating revenue have increased marginally from 35 per cent in first-half of 2006 to 36 percent in the first-half of 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. However on sequential quarters (1Q07 to 2Q07) direct cost as percentage of operating revenue has improved by 2 per cent age points.

Operating Costs

The Company’s operating costs recorded at Rs. 3.81 Bn grew by 39 per cent relative to those applicable to the first-half of 2006.

Operating costs comprise mainly of selling and distribution expenses, manpower and general administration costs. Selling expenses, inclusive of sales commission and advertising & promotional expenses, contributed 40 per cent of the operational expenditure, in keeping with the company’s aggressive thrust towards subscriber additions resulting in a 43 per cent increase in subscriber base over the 12-month period.

Operating expenses as a percentage of revenue has increased from 23 per cent recorded during the first-half of 2006 to 26 percent in the first-half of 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.

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. 561.02 Mn) for the six months ended 30 June 2007 of which Rs. 371.43 Mn. has been settled as of date. The levy is provided for and classified under direct costs. The PAT figures for the first-half of 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 PROFIT (EBIDTA)

 

EBITDA was recorded at Rs. 7.46 Bn for the six months ended 30 June 2007 compared to Rs. 6.40 Bn for the six months ended 30 June 2006 representing a growth of 17 per cent.

Profit After Tax (PAT)

For the six months ended 30 June 2007, the Company recorded a PAT of Rs. 5.25 Bn, representing a 8 per cent earnings growth relative to the figure of Rs 4.89 Bn recorded for the corresponding period in 2006.

Comparison of Quarter Performance

On a QoQ basis (2Q06 Vs 2Q07), the Company has benefited from strong subscriber growth (43 per cent YoY) and resulting scale economies attributed to reduction of selling & distribution expenses relative to revenue by 3 percentage points. Albeit this improved performance, PAT performance has been mitigated due to increase in administration expenses, which are sensitive to the escalation of general inflation in 1H07 vis-à-vis 1H06.

PAT was also negatively impacted by the escalation of benchmark interest rates (resulting in an escalation in the cost of funding) and foreign exchange translation losses arising due to negative movements in the foreign exchange conversion rate of the SLR.

An immediate QoQ (1Q07 vs. 2Q07) comparison reveals however that, PAT margins have been sustained at 35 per cent.

Rs. 15.54 Billion Equity Infusion via Rights Issue

The Company’s Rights issue was successfully subscribed for by over 100%, thereby making the issue the largest ever equity raising to be executed in the Sri Lankan Capital market.

The success of the Landmark issue symbolized a strong vote of confidence placed on Sri Lanka and Dialog Telekom by the investing community, with Dialog’s parent Telekom Malaysia leading the pack by enhancing its direct investment in the country by Rs 13 Bn, through subscribing in full for its entitlement under the rights issue. The Dialog Telekom Rights Issue attracted substantial interest from Dialog’s shareholders spanning foreign institutional, domestic institutional and domestic retail segments. The inward foreign currency remittances for the rights issue exceeded USD 130 Mn representing one of the largest foreign investment flows to the country. The proceeds of the Rights Issue will go towards partially financing Dialog Group’s planned capital expenditure, which focuses on accelerated expansion of network capacity and coverage and transformational investments in convergent technologies spanning the multiple businesses lines of the group.

Investments in infrastructure - Single Largest Investor

Dialog Telekom signed yet another landmark investment agreement with the Board of Investment of Sri Lanka (BoI) to invest a further Rs. 33 Bn (USD 300 Mn) in the country’s Telecommunications and Media sectors within the next 2 years. This investment brings Dialog’s total commitment to the Telco sector in Sri Lanka to over USD 800 Mn.

Investment in the Community - Establishment of Sri Lanka’s First Digitally Equipped Audiology Centre in Ratmalana

The Ratmalana Audiology Centre, equipped with state-of-the-art diagnostic equipment is constructed on the premises of the Ceylon School for the Deaf and blind was operational with effect from 15th June 2007. The Centre features cutting edge diagnostic equipment to facilitate the early detection of hearing deficiencies in children.

The Centre also provides management and after care services such as Speech Therapy, Counseling and a Hearing Aid Repair Unit and is staffed by a group of highly trained professionals. The centre is designed to be a one-stop diagnostic facility supplemented with post-diagnostic services.

Dialog Telekom is committed to providing parity dividends to local communities in which the Company operates, while mitigating adverse social and environmental impacts both directly and indirectly. Dialog’s multi-faceted Corporate Responsibility embraces reaching out to all segments of society regardless of demographic disparity, to enrich the nation through inclusion. The best practices Dialog Telekom has imbued through its Corporate Social Responsibility initiatives have earned the Company three consecutive World GSM Awards.

Subsidiary performance

Dialog Broadband Networks Pvt Ltd (DBN) recorded a revenue of Rs. 420.96 Mn up 14 per cent relative to the Rs. 368.76 Mn. recorded for the first-half of 2006.

DBN recorded a net loss of Rs. 7.79 Mn. for the first half of 2007 vis-à-vis a profit of Rs. 80.07 Mn for recorded for first half of 2006. The adverse performance in profitability is largely due to delay in launch of CDMA services. However, on the backdrop of an aggressive network implementation programme, the preliminary operating expenses in relation to ramping up operations to launch the CDMA network have been incurred and provided in 1H 2007. The CDMA fixed wireless service launched in July 2007, along with the deployment of Wimax based broadband solutions are expected to boost revenue streams and normalize profit margins of DBN.

Dialog Television (Pvt) Ltd

DTV Group (inclusive of subsidiaries Communiq Broadband Network (Pvt) Ltd (CBN) and CBN SAT (Pvt) Ltd) recorded a revenue of Rs. 285.42 Mn, on the backdrop of over a 100 per cent growth in subscribers within the first- half of operations.

The company recorded a net loss of Rs 349.51 Mn during the first half 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.

Consolidated Group Performance

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

• For the six months ended 30 June 2007, Group Revenue increased by 25 per cent to Rs. 15.36 Bn vis-à-vis revenue reported for first-half of 2006.
• The gross profit of Rs. 9.42Bn represents an increase of 18 per cent relative to Rs. 8.01Bn recorded for the six months ended 30 June 2006.
• Earnings before interest, tax, depreciation and amortisation (EBITDA) was recorded at Rs. 7.24 Bn for the first-half of 2007 compared to the figure of Rs. 6.60 Bn. for the first-half of 2006, representing a growth of 10 per cent.
• DT Group recorded a Profit after Tax (PAT) of Rs. 4.87 Bn representing a marginal drop in performance by 1 per cent relative to first-half of 2006.

About Dialog Telekom PLC

Dialog Telekom PLC is the largest mobile operator in Sri Lanka with over 3.5 Mn subscribers, representing approximately 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 30 June 2007) of LKR 191.38 Bn (USD 1.72Bn), representing 23.1 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 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, 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 uses state of the art Digital Video Broadcasting through Satellite (DVB-S) technology, and aims to be a trend-setter in Digital Satellite Television Broadcasting in Sri Lanka.