Corporate Performance Announcement May 2007
May 2007
Corporate Performance Announcement
Three Months ended 31 March 2007
Dialog Telekom Ltd
Dialog Telekom Ltd. (DTL) announced Thursday (03 May 2007) an overview of its Financial Performance for the first-quarter ended 31 March 2007.
Dialog Telekom Ltd - DTL (hereinafter referred to as “the Company”) recorded a PAT of Rs. 2.57 Bn. up 11 per cent relative to first-quarter of 2006. Company performance comprises in the main of Cellular Business Performance supplemented by contribution from the company’s International Business Operations and Internet Service Provider Operations.
Financial Highlights - Three Months ended 31 March 2006 & 2007
| Profit & Loss Highlights |
Company | Group | ||||
| 1Q07 | 1Q06 | Change | 1Q07 | 1Q06 | Change | |
| Revenue | 7,240 | 5,829 | 24 | 7,506 | 5,953 | 26 |
| Gross Profit | 4,579 | 3,762 | 22 | 4,581 | 3,872 | 18 |
| EBITDA | 3,626 | 3,070 | 18 | 3,555 | 3,201 | 11 |
| PAT | 2,565 | 2,311 | 11 | 2,426 | 2,397 | 1 |
Table 1: Group and Company P&L highlights for the three months ended 31 March 2006 & 2007.
* The above financial results have been subjected to a limited review carried out by the auditors and have been approved by the Board of Directors on 02 May 2007.
Dialog Telekom and its subsidiaries (Dialog Broadband Networks (Pvt) Ltd and Asset Media (Pvt) Ltd)) will hereinafter be referred to collectively, as “the Group”
Group results of Dialog Telekom Ltd, post consolidation with subsidiary performance, recorded a Profit after Tax (PAT) of Rs. 2.43 Bn for the first-quarter of 2007, representing a 1 per cent Growth relative to the first quarter of 2006, at which stage DBN was the sole subsidiary of Dialog and was in its first quarter of post acquisition operation.
The Dialog Telekom Group
In line with the strategic intent of securing future growth and earnings opportunities arising from convergent technology related business lines including but not limited to Fixed Line Telephony, Broadband and Digital Television media, Dialog Telekom has over the past year seeded nascent new business through acquired subsidiaries Dialog Broadband Networks (DBN) and Asset Media Group (AM).
DBN is currently engaged in the build out of a CDMA based Fixed WLL Network and WiMax Technology based Broadband Wireless Access (BWA) infrastructure aimed at exploiting the severely under-penetrated Broadband Internet Sector. Asset Media recently commenced a satellite based pay television services targeting the future earnings potential of the similarly under-penetrated pay television market. DBN delivered a positive bottom line of Rs 10.39 Mn to Dialog Telekom while the recently seeded business of Asset Media is yet to breakeven having posted an operating loss of Rs. 136 Mn for the first-quarter of 2007.
Both subsidiaries 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 growth and revenue generating phase.
COMPANY PERFORMANCE OVERVIEW
REVENUE
Total operating revenue increased by 24 per cent to Rs. 7.24 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 81per cent of Company Revenue for the first-quarter of 2007. The revenue growth achieved was on the backdrop of intermittent disruption of the company’s services in the Northern and Eastern Provinces of Sri Lanka – markets which previously contributed up to 7 per cent of company revenue, and a reduction (relative to Q1 2006) of inbound roaming clients – 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 (33 per cent) and inbound roaming revenue (4 per cent). When compared with results for first-quarter of 2006, the contribution from the pre-paid segment has increased from 39 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 46 per cent to reach 3.37 Mn subscribers by 31 March 2007. The prepaid segment increased by 56 per cent from 1.84 Mn to 2.88 Mn. In parallel, the postpaid subscriber base increased by 5 per cent from 0.46 Mn to 0.49 Mn.
The subscriber mix for the first-quarter of 2006 and 2007 is presented in the table below:
| No of Subscribers (Thousands) | 1q06 | Mix (%) | 1q07 | Mix (%) | Change (%) |
| Post | 426 | 20 | 486 | 14 | 5 |
| Pre | 1,840 | 80 | 2,879 | 86 | 56 |
| Total | 2,302 | 100 | 3,365 | 100 | 46 |
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. 526 Mn to Rs. 707 Mn representing an increase by 34 per cent.
COSTS
Direct Costs
Direct costs for the period under review amounted to Rs. 2.66 Bn compared to Rs. 2.07 Bn in the first –quarter of 2006 reflecting a 29 per cent increase.
Significant components of direct costs are Network cost (33per cent), Telecom equipment depreciation (27per cent), International Telecommunication Levy (10 per cent), International Origination cost (9per cent), roaming costs (6per cent) and Lease circuit rental costs (2per cent).
Direct costs as a percentage of operating revenue have increased from 35 per cent in first-quarter of 2006 to 37 per cent in the first-quarter 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.
Operating Costs
The Company’s operating costs recorded at Rs. 1.80 Bn grew by 37 per cent relative to those applicable to the first-quarter 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 41 per cent of the operational expenditure, in keeping with the company’s aggressive thrust towards subscriber additions resulting in an 46 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-quarter of 2006 to 25 percent in the first-quarter 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. 277 Mn) for the three months ended 31 March 2007. The levy is provided for and classified under direct costs. The PAT figures for the first quarters of 2006 and 2007 are stated after the deduction of this levy. The total levy paid to date since 2003 amounts to Rs. 1.65 Bn. 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. 3.63 Bn for the three months ended 31 March 2007 compared to Rs. 3.07 Bn for the three months ended 31 March 2006 representing a growth of 18 per cent.
Profit After Tax (PAT)
The Company recorded a PAT of Rs. 2.57 Bn, representing a 11 per cent earnings growth relative to the figure of Rs 2.31 Bn recorded for the corresponding period in 2006
PAT performance was achieved on the backdrop of the revenue mitigating factors experienced during the period under review and cited earlier in the review compounded with the escalation of benchmark interest rates (SLIBOR – Sri Lanka Inter Bank Offer Rate and the AWPLR – Average Weighted Prime Lending Rate) by over 100 basis points.
Quarter Performance analysis
The Company recorded a PBT of Rs. 2,585 Mn in the first-quarter of 2007, an increase of Rs.10 Mn vis-à-vis the fourth-quarter of 2006. With respect to a QoQ margin analysis, the first-quarter 2007 can be considered as exceptional due largely to the negative impacts via intermittent closure of North & East operations and higher finance costs. The benchmark interest rates increased by over 100 basis points compared to the immediately preceding quarter (4Q06). As a result of this, PAT margins have declined by four points in the first-quarter of 2007 vis-à-vis the fourth-quarter of 2006.
Subsidiary performance
Dialog Broadband Networks Pvt Ltd (DBN) recorded a revenue of Rs.207.61 Mn up 12 per cent relative to the Rs. 184.76 Mn. recorded for the first-quarter of 2006.
The recorded GP margin stood at 49 per cent in the first –quarter of 2007 an increase of 8 percentage points vis-à-vis 41 per cent recorded in the fourth- quarter of 2006.
DBN has successfully completed the implementation of a CDMA WLL Network in several regions of the country and has also implemented a WiMax Network in the city of Colombo, with pilot enterprise customers now enjoying Wireless Broadband Services on the company’s state of the art platform.
On the backdrop of an aggressive network implementation programme, DBN recorded a Net profit of Rs. 10.39 Mn. for the first-quarter 2007. The company is currently incurring the direct and operational costs pertaining to its CDMA network, the commercial operation of which has been postponed due to delays in spectrum clearance and implementation of inter-operator inter-connections. The NP margins are expected to increase in the second – quarter of 2007 with the projected growth in revenue following the rollout of CDMA and WiMax services.
Acquisition of Asset Media (Pvt) Ltd
Asset Media Group (inclusive of subsidiaries Communiq Broadband Network (Pvt) Ltd (CBN) and CBN SAT (Pvt) Ltd) recorded a revenue of Rs. 139.14 Mn, on the backdrop of a 60 per cent growth in subscribers within the first- quarter of operations.
The business is characterized by a substantial fixed cost base (comprising of satellite capacity costs, minimum payments to content providers and other operation specific fixed costs) is currently engaged in an aggressive subscriber acquisition.
The company recorded an operating loss of Rs 136 Mn during the first quarter 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 DTL Group are presented below:
- For the three months ended 31 March 2007, Group Revenue increased by 26 per cent to Rs. 7.51 Bn vis-à-vis revenue reported for first-quarter of 2006.
- The gross profit of Rs. 4.58 Bn represents an increase of 18 per cent relative to Rs. 3.87 Bn recorded for the three months ended 31 March 2006.
- Earnings before interest, tax, depreciation and amortisation (EBITDA) were recorded at Rs. 3.54 Bn for the first-quarter of 2007 compared to the figure of Rs. 3.20 Bn. for the first-quarter of 2006, representing a growth of 11 per cent.
- DTL Group recorded a Profit after Tax (PAT) of Rs 2.43 Bn representing a 1 per cent growth relative to first-quarter of 2006.
Rights Issue and Rated Cumulative Redeemable Preference Shares Issue
As announced on 20th April 2007, the Directors of DTL, resolved to propose to the company’s shareholders, the execution of a Rights Issue aimed at raising Rs 15.54 Bn. to partially fund the aggressive expansion plans of the company. The proposed rights issue will provide ordinary shareholders of the company with an entitlement to one ordinary share for every ten ordinary shares held, at a price of Rs. 21 per share.
The Dialog Telekom Rights Issue is expected to attract substantial interest from Dialog’s shareholders spanning foreign institutional, domestic institutional and domestic retail investors. Dialog's principal shareholder Telekom Malaysia (TM) placing a strong vote of confidence in Sri Lanka and Dialog Telekom has pledged to enhance its direct investment in the country through subscribing in full for its entitlement under the rights issue.
The proceeds of the Rights Issue and Preference Share Issue totaling approximately Rs. 20.54 Bn. will partially finance the Dialog Group’s capital expenditure planned for the next 3 years targeting accelerated expansion of network capacity and coverage and transformational investments in convergent technologies spanning the multiple businesses lines of the group.
The Rights Issue and RCRPS will be submitted for approval by the shareholders of the company at an Extraordinary General Meeting scheduled for the 21st of May 2007.
About Dialog Telekom Limited
Dialog Telekom Limited is the largest mobile operator in Sri Lanka with over 3.2 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 31 March 2007) of LKR 188.79 Bn (USD 1.73 Bn), representing 21.7 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, and Broadband Wireless Access Services using WiMax 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. 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.
