Corporate Performance Announcement May 2006

Corporate Performance Announcement

Dialog Telekom Ltd., (DTL) released Tuesday (9 May 2006) an overview of its Financial Performance for the quarter ended 31 March 2006.

Financial Results - First Quarter 2006

Dialog Telekom Ltd, post consolidation with subsidiary performance, recorded a Profit after Tax (PAT) of Rs. 2.40 Bn for the quarter ended 31 March 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. 2.31 Bn representing a 34 per cent earnings growth relative to the figure of Rs. 1.72 Billion recorded for the corresponding quarter in 2005.

DTL results for quarter ended 31 March 2006 and for the corresponding quarter in 2005 along with the consolidated results of the Group for the quarter ended 31 March 2006 are depicted in the table below. The results are based on a limited review carried out by the Group’s Auditors, PricewaterhouseCoopers.

Profit & Loss Statement	DTL		DTL QoQ growth	Group	Group QoQ growth^
	Qtr Ended 31 March			Qtr Ended 31 March
Rs Billion	2005	2006		2006
Revenue	3.85	5.83	51%	5.95	55%
Direct Cost	1.32	2.07	56%	2.08	58%
Gross Profit	2.53	3.76	49%	3.87	53%
EBITDA	2.19	3.10	40%	3.20	46%
PAT	1.72	2.31	34%	2.40	39%

Table 1: Profit and Loss for the quarter ended 31 March 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 08 May 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 QoQ growth compares Group results as at Q1 2006 against Company results for Q1 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 quarterly results to a limited review by the Group’s auditors.

REVENUE

 

For the quarter ended 31 March 2006, the Company’s Revenue increased by 51 per cent to Rs. 5.83 Bn as compared to the first quarter 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. Domestic revenues, which consist mainly of pre-paid and post-paid revenue, accounted for approximately 71 per cent of the Company’s Revenue in the first quarter of 2006.

Total revenue is composed of 34 per cent from post-paid revenue, 37 per cent from pre-paid revenue and 8 per cent from International Roaming revenue. When compared with results pertaining to the first quarter of 2005, pre-paid contribution has increased from 33 per cent to 37 per cent with a growth in subscriber base from 1.18 Mn to over 1.84Mn.

COSTS

 

Direct Costs

The Company's direct costs for the period amounted to Rs. 2.07 Bn compared to Rs. 1.32 Bn in the previous year, which is a 56 per cent increase. In terms of costs, the Company’s direct costs as a proportion of revenue have increased marginally from the 34 per cent recorded for first quarter 2005 to 35 percent for the same period in 2006.

Significant components of direct cost are Telecom equipment depreciation, Network cost, International Origination cost, Outbound roaming cost, Lease circuit rental costs and International Telecommunication Levy.

Operating Costs

The Company’s operating costs of Rs. 1.32 Bn for the quarter increased by 63 per cent when compared to first quarter 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 (54 per cent)

Manpower cost accounted for 24 per cent of total opex and remained constant compared to corresponding period in 2005. As a proportion to revenue, manpower has been maintained under 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 DTL has provided for this levy in full (Rs. 201 Mn) in its financial statements under direct costs, of which Rs. 128 Mn has been settled as of to date. The PAT figures for the quarter ended 31 March 2005 and 2006 are stated after the deduction of this levy. 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 3.10 Bn for the quarter ended 31 March 2006 compared to Rs 2.19 Bn for the period ended 31 March 2005 representing a growth of 40 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 53% and a PAT margin of 40% in Q1 2006. The first quarter 2006 exhibits an improvement of four points each in terms of EBITDA and PAT margins compared to fourth quarter 2005.

With respect to a QoQ margin analysis, the first quarter 2005 can be considered as exceptional due to the exceptional inbound roaming revenues in the aftermath of the tsunami. Inbound roaming commandeers higher than average margins. The afore mentioned exceptional performance in first quarter 2005 explains the drop in EBITDA and PAT margins by 4 points and 5 points respectively for Q1 2006 relative to the corresponding quarter (Q1) of 2005.

In terms of Cost to Revenue ratios, direct costs and operating costs relative to revenue for the quarter ended 31 March 2006 stand at 35 per cent and 23 per cent respectively. Although these ratios exhibited an increase of 1 point and 2 points respectively compared to the same period in 2005, the said cost to revenue ratios have improved by 2 points each relative to performance in the immediately preceding quarter of Q4 2005.

About Dialog Telekom Limited

Dialog Telekom Limited is the largest mobile operator in Sri Lanka with over 2.30 Mn subscribers as at 31 March 2006 (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 March 2006) of approximately 148 Bn SLR (USD1.44 Bn), representing 21.51 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 USD1 Bn.

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. For more information on Dialog, visit www.dialogtelekom.com