Corporate Performance Announcement May 2008

Corporate Performance Announcement

Three months ended 31 March 2008
(Company registration number: PQ 38)

Dialog Telekom PLC (DT) announced Thursday (22 May 2008) an overview of its Financial Performance for the three months ended 31 March 2008. 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).

GROUP PERFORMANCE OVERVIEW

 

The company’s core mobile business continued to deliver robust performance in the market ending the quarter with a subscriber base of 4.5 Million, representing 35% growth Year on Year (YoY) and an estimated market share of 53 percent. Revenue growth during the same period was however relatively modest at 8% on the backdrop of a substantial downward revision in tariffs in December 2007. The tariff revision was one of several initiatives carried out during 2007 aimed at expanding the mobile market through affordability enhancement in contra-direction to macro inflation. Sri Lanka’s mobile telephony penetration level reached an estimated 40% at the end of the first quarter substantially ahead of neighbouring countries in tandem with tariff levels in the market being amongst the most affordable in the region. While the company recorded a substantial growth in airtime usage in response to affordability enhancement, elasticity levels (airtime usage increase in response to price change) achieved, have been inadequate to deliver a recovery of revenue growth trajectories during the first quarter post tariff reduction.

Downstream of revenue performance, cost expansion driven in the main by general inflation (23.8 % YoY), energy derived costs (42% YoY), and expansion of the company’s network infrastructure, with associated increases in Network related costs (52% YoY) and Depreciation (60% YoY) has resulted in negative growth of 24% at EBITDA level and a reduction in PAT by 47% on a YoY basis.The conversion of the company’s robust position in terms of mobile market performance (subscriber additions, value added services and network reach) in to Revenue, EBITDA and PAT growth will continue to be challenging on the backdrop of general inflation,cost of funds and enhanced market penetration levels. However, not withstanding medium term pertubations in the macro economic environment, Dialog has continued its aggressive investment thrust towards building infrastructure and service delivery capacity with a view to extending its entrenched leadership in the provision of a broad range of telecommunications services. The company’s capacity building thrust continues to secure a major share of incremental mobile consumers, drive growth in usage levels and trigger encouraging consumer traction with respect to the new businesses of the group.

The new businesses of the Dialog Group – seeded over the past 24 months in expectation of slowing growth trajectories in the mobile sector in line with market penetration, competition and macro-environmental dynamics, demonstrated substantial momentum during Q1 2008, Albeit delivering dilutive PAT contributions to the group the subsidiaries displayed aggressive subscriber and revenue growth in tandem with positive trends in EBITDA and PAT relative to the immediately preceding quarters.

The fixed line service operated by Dialog Broadband Networks (DBN) achieved a subscriber base of 72,433 (157% growth on immediate QoQ basis) fuelling revenue growth of 116% during the same period. DBN also demonstrated early stage revenue growth from its WiMAX based Broadband Wireless Access (BWA) network. DBN recorded an EBITDA of Rs. 14.65 Mn in Q1 2008 representing 114% growth relative to the immediately preceding quarter (Q4 2007). The company recorded a loss of Rs. 127 Mn representing 43% improvement in performance relative to the immediately preceding quarter. Industry wide Fixed Line penetration reached an estimated level of 14% at the end of Q1, while Broadband penetration remained at approximately 1% signifying significant potential for market expansion and growth going forward.

Dialog TV achieved similarly aggressive inroads in to the Pay Television market – reaching a subscriber base of 77,506 (300% growth YoY). Dialog TV revenues grew by 187% relative to Q1 2007 and 39% relative to the immediately preceding Quarter (Q4 2007). DTV EBITDA was recorded at negative Rs 75.29 Mn (42% positive YoY ) and PAT at negative Rs 113.64 Mn (20% positive YoY ) signifying substantial performance enhancements relative to the negative positions recorded at the early stages of market creation. Pay Television penetration (estimated at 1% of television owning households) remains modest signifying substantial growth opportunities for Dialog Television going forward.

While the Dialog Group has achieved a strong foothold in the multiple sectors of fixed line, broadband and pay television through an aggressive range of services commercialised during the course of 2007, the growth potential of the associated new businesses, is expected to be enhanced manifold in tandem with improvements in macro-economic conditions and accompanying enhancement in consumer spending power and consumption of ICT services including broadband and pay television.

Group performance derived from a consolidation of the performance of Dialog Telekom and its subsidiaries DBN and DTV displayed YoY Revenue growth of 13% and a Profit after Tax (PAT) of Rs. 1.11 Bn. for the three months ended 31 March 2008. Negative contributions from DBN (Rs. 127 Mn.) and DTV (Rs. 114 Mn.) resulted in the dilution of the company earnings by a total of Rs. 252 Mn. (inclusive of consolidation adjustments) resulting in negative growth of 54% with respect to consolidated group earnings during the three months ended 31 March 2008.

REVIEW OF FINANCIAL PERFORMANCE
FINANCIAL PERFORMANCE SUMMARY

 

Three Months ended 31 March 2008 vs 2007
(All figures in Rs. Mn.)

P&L Highlights	Company			Group
	1Q-2008	1Q-2007	Change	1Q-2008	1Q-2007	Change
Revenue	8,220	7,645	8%	8,977	7,912	13%
EBITDA	2,759	3,626	-24%	2,736	3,555	-23%
PAT	1,358	2,565	-47%	1,105	2,426	-54%

Table 1: Group and Company P&L highlights for the three months ended 31 March 2007 & 2008

*Comparatives restated to conform to changes with current year’s presentation.

DIALOG TELEKOM - COMPANY PERFORMANCE OVERVIEW
REVENUE

 

Total operating revenue increased by 8 per cent to Rs. 8.22 Bn., driven by robust growth of the cellular subscriber base.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 from the Company’s International Business Operation.

Domestic revenues, which consist in the main of pre-paid and post-paid mobile revenues, remained the dominant constituent of Company Revenue and accounted for approximately 80 per cent of total revenue for the three months ended 31 March 2008.

The major components of total (company) revenue are pre-paid revenue (50 per cent), post-paid revenue (30 per cent), international termination revenue (11 per cent) and inbound roaming (3 per cent).

Market Performance

The Company added 1.18 Mn. (net) new subscribers YoY resulting in the Company’s cellular subscriber base increasing by 35 per cent to reach 4.55 Mn. subscribers as at 31 March 2008. The prepaid segment increased by 38 per cent from 2.88 Mn to 3.97 Mn. In parallel, the post- paid subscriber base witnessed a growth of 19 per cent from 0.49 Mn. to 0.58 Mn.

The subscriber mix for the first-quarter of 2007 and 2008 is presented in the table below:

UNITS	Mar-07	Mix	Mar-08	Mix	Growth %
Postpaid	000	486	14	579	13	19
Prepaid	000	2,879	86	3,968	87	38
Total active subscriber base	000	3,365	100	4,547	100	35

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.

COSTS

 

Direct Costs

Direct costs for the period under review amounted to Rs. 3.85 Bn. Direct costs expressed as a percentage of operating revenue has increased from 35 per cent during the three months ended 31 March 2007 to 47 percent during the corresponding period in 2008. Significant components of direct costs are Network cost (35 per cent), Telecom equipment depreciation (30 per cent), and International Telecommunication Levy (10 per cent).

International Telecommunication Levy

The Company has provided for this levy in full (Rs. 380 Mn.) for the three months ended 31 March 2008. The levy is provided for and classified under direct costs. The PAT figures for three months ended 31 March 2007 and 2008 are stated after the deduction of this levy, dues pertaining to which have been settled in full. The Telecommunications Regulator announced in 2007 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 were recorded at Rs.2.97 Bn for the quarter ended 31st March 2008. Operating expenses expressed as a percentage of revenue have increased from 29 per cent recorded in the three months ended 31 March 2007 to 36 per cent in three months ended 31 March 2008. 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 35% growth in subscriber base), selling expenses, inclusive of sales commission and advertising & promotional expenses, contributed 43 per cent of total operational expenditure.

Finance Costs

The net finance cost for the three months ended 31 March 2008 was recorded at Rs. 45.93 Mn. The composition of the net finance cost includes interest expenditure during the quarter ended 31 March 2008 amounting to Rs. 106.55 Mn. and interest income of Rs.32.13 Mn.

Net finance cost also includes the impact of foreign exchange gain arising from the revaluation of foreign currency denominated assets and liabilities. On a YoY basis however, the finance costs have reduced by 81 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. 2.76 Bn. for the three months ended 31 March 2008 compared to Rs. 3.63 Bn. for the three months ended 31 March 2007.

PROFIT AFTER TAX (PAT)

 

The Company recorded a PAT of Rs.1.36 Bn. for the three months ended 31 March 2008 compared to Rs. 2.57 Bn. for the three months ended 31 March 2007.

SUBSIDIARY PERFORMANCE
DIALOG BROADBAND NETWORKS

 

Highlights

Highlights	UNITS	1Q-2008	4Q-2007	Change
Revenue	Rs. Mn	537	371	45%
CDMA subscribers	Nos	72,433	28,238	157%
Wimax Subscribers	Nos	958	470	104%

Table 3: DBN Highlights

Financial Performance Review - DBN

Dialog Broadband Networks Pvt Ltd (DBN) recorded robust growth in revenue posting net operating revenues of Rs. 536.66 Mn up 158 per cent relative to the Rs. 207.70 Mn. recorded for the three months ended 31 March 2007. DBN revenue components include Transmission and Infrastructure Business, Fixed Telephony (CDMA WLL), Data communication services, and Broadband and Internet services.

DBN recorded a net loss of Rs. 126.52 Mn. for the three months ended 31 March 2008 vis-à-vis a profit of Rs. 10.39 Mn recorded for the three months ended 31 March 2007. Immediate QoQ performance however displays a positive trajectory in terms of key performance indicators – with EBITDA and PAT recording positive performance of 114% and 43% respectively relative to Q4 2007.

DBN’s recently commercialised fixed telephony and broadband services have received strong consumer acceptance (as evidenced by 157% and 104% subscriber growth on adjacent quarter basis) emphasising the growing potential to eclipse capacity building costs through aggressive revenue growth

DIALOG TELEVISION

 

Highlights

Highlights	UNITS	1Q-2008	4Q-2007	Change
Revenue	Mn	336	117	187%
Pay TV subscribers	Nos	77,506	19,383	300%
Channels	Nos	56	30	87%

Table 4: DTV Highlights

Financial Performance Review - DTV

DTV Group (inclusive of subsidiaries Communiq Broadband Network (Pvt) Ltd (CBN) and CBN SAT (Pvt) Ltd) recorded revenue of Rs. 336.42 Mn. for the three months ended 31 March 2008 up 187% and 39% relative to Q1 2007 and Q4 2007 respectively. Revenue growth was fuelled by aggressive market performance characterised by the achievement of a 75,000+ strong subscriber base as of the end of Q1 2008 representing YoY growth of 300% and growth of 39% relative to the adjacent quarter (Q4 2007).

The Company recorded a net loss of Rs. 113.64 Mn. for the three months ended 31 March 2008 – an improved albeit dilutive performance relative to the loss of Rs 245.97 Mn. recorded in Q4 2007. While negative performance at PAT level is characteristic of a Pay TV operation during its start up phase, the strong market acceptance of the services of the company in tandem with the substantial growth potential offered by the under-penetrated pay-tv market in Sri Lanka, augurs well for growth and revenue expansion going forward.

CONSOLIDATED GROUP PERFORMANCE

 

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

For the for three months ended 31 March 2008, Group Revenue increased by 13 per cent to Rs. 8.98 Bn. vis-à-vis revenue recorded for the three months ended 31 March 2007.

Earnings before interest, tax, depreciation and amortisation (EBITDA) was recorded at Rs. 2.74 Bn for the three months ended 31 March 2008 representing a decline of 23 per cent relative to the figure of Rs. 3.56 Bn recorded for the three months ended 31 March 2007.

DT Group recorded a Profit after Tax (PAT) of Rs. 1.11 Bn. representing a negative growth of 54 per cent relative to the three months ended 31 March 2007.

RECENT ACHIEVEMENTS AND RECOGNITION

 

Domestic and International recognition and accolades achieved by Dialog Telekom PLC in the recent past include the following:

Fitch Ratings affirmed Dialog Telekom PLC’s (Dialog) National Long Term Rating at ‘AAA(lka)’. The rating Outlook is Stable. Fitch has also affirmed the rating on Dialog’s outstanding preference shares of LKR 5 Bn at ‘AA+(lka)’.

Dialog Telekom PLC was recognized as the single largest investor in Sri Lanka at the Invest Sri Lanka felicitation event hosted by BOI. Dialog Telekom PLC secured the top slot in investment rankings for the 3rd year in succession.

Dialog Telekom was ranked No 1 among Sri Lanka’s Top 10 companies by Business Today TOP 10 (Sri Lanka’s leading business magazine) based on the company’s performance during the 2006/7 period.

Dialog Telekom emerged at the pinnacle of Sri Lanka's Top 100 Brand Index (conducted by Business Today), for the second year in succession.

About Dialog Telekom PLC

Dialog Telekom PLC is the largest mobile operator in Sri Lanka with over 4.5 Mn subscribers, representing approximately 53 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 March 2008) of LKR 136.41Bn (USD 1.3 Bn), representing 16.5 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 International Berhad Group. Dialog operates 2.5G and 3G/3.5G 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.