Corporate Performance Announcement October 2006

Corporate Performance Announcement

Nine months ended 30 September 2006

Dialog Telekom Ltd. (DTL), announced Thursday (26 October 2006) an overview of its Financial Performance for the nine months ended 30 September 2006.

Financial Results – Nine months ended 30 September 2006

Dialog Telekom Ltd, post consolidation with subsidiary performance, recorded a Profit after Tax (PAT) of Rs. 7.55 Bn for the nine months ended 30 September 2006. Dialog Telekom and its subsidiaries (Dialog Broadband Networks (Pvt) Ltd and Asset Media (Pvt) Ltd) will hereinafter be referred to collectively, as "the Group".

DTL (hereinafter referred to as “the Company”) recorded a PAT of Rs. 7.46 Bn. up 45 per cent relative to the corresponding period in 2005.

The period ending 30 September 2006 featured significant downward revision of tariffs (in excess of 30 per cent) thereby enhancing the affordability of the company’s telecommunications services to its 2.8 Mn strong subscriber base spread across all provinces of the country. The reduction in tariffs was accompanied by aggressive expansion of coverage in rural areas of the country fuelled by the launching of the Company’s USD 150 Mn (Rs 15 Bn) investment project billed by the BoI as one of the single largest infrastructure investment in 2006.

The Company’s financial results for the nine months ended 30 September 2006 and for the corresponding period in 2005 along with the consolidated results of the Group for the nine months ended 30 September 2006 are depicted in the ensuing table. The results as published have been subjected to a limited review carried out by the external auditors of the Company, PricewaterhouseCoopers.

Nine months ended 30 September 2006 compared to nine months ended 30 September 2005

Profit & Loss Highlights	Group		Company
	Nine months ended 30 September 2006	Change	Six months ended 30 June		Change
ll figures in Rs. Mn.			30 September 2006	30 September 2005
Revenue	18,890	47	18,500	12,813	44
Gross Profit	12,364	44	12,168	8,567	42
EBITDA	10,059	47	9,797	6,845	43
PAT	7,549	47	7,459	5,147	45

Table 1: Highlights for the nine months ended 30 September 2005 and 2006

1. 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 25 October 2006.
2. The consolidated financial results have been furnished to provide information about the overall business of the Company and its subsidiaries.
3. "Change"(Growth) is computed based on a comparison of Group results as at 30 September 2006 against Company results for the 9 months ending 30 September 2005.

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

 

Total operating revenue increased 44 percent to Rs. 18.50 Bn., driven mainly by higher call revenues accruing from a larger subscriber base. The prepaid segment contributed a major part of the growth. Other factors driving revenue growth include 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 79 per cent of the Company Revenue for the nine months ended 30 September 2006.

The major components of total (company) revenue are pre-paid revenue (42 per cent), post-paid revenue (37 per cent) and inbound roaming revenue (4 per cent). When compared with results for the period ended 30 September 2005, the contribution from the pre-paid segment has increased from 36 per cent to 42 per cent.

The Company’s cellular subscriber base increased by 47 per cent to 2.84 Mn subscribers. The prepaid segment increased by 57 per cent from 1.51 Mn to 2.36 Mn. In parallel, the postpaid subscriber base increased by 13 percent from 0.42 Mn to 0.48 Mn.

Tariffs Revised Downwards

The downward revision of tariff on the 7th of July served to enhance the value delivered to Dialog Customers. Tariff reductions also served as a catalyst for the achievement of a significant boost in net additions as well as in Minutes of Use (MoU). Postpaid MoU registered an increase of 5 per cent relative to the quarter ended 30 June 2006. Average Postpaid ARPU (Average Revenue per User per month) for the nine months ended 30 September 2006 was up 6 per cent to Rs. 1,698 per month compared to the same period in 2005.

The subscriber mix for the period ended 30 September 2005 and 2006 is presented in the table below:

No of Subscribers (Thousands)	Sep 05	Mix (%)	Sep 06	Mix (%)	Change (%)
Post	420	22	475	17	13
Pre	1,505	78	2,359	83	57
Total	1,925	100	2,835	100	47

Table 2: Subscriber mix

Peer to Peer SMS revenue continued to represent the largest component of non-voice revenue accounting for 6 per cent of total revenue. The Company continues to drive its non-SMS data revenue through a wide spectrum of retail and enterprise service offerings. Mobile internet access is exhibiting significant growth driven by the increasing penetration of GPRS and EDGE enabled handsets. Increased adoption of mobile email and connectivity solutions (such as Blackberry) has also contributed to increased data usage.

Revenue from international termination increased from Rs. 0.92 Bn to Rs. 1.65 Bn as traffic grew by 86 per cent for the period under review.

COSTS

 

Direct Costs

Direct costs for the period amounted to Rs. 6.33 Bn compared to Rs. 4.25 Bn in the previous year reflecting a 49 per cent increase.

Significant components of direct costs are Network cost (28 per cent), Telecom equipment depreciation (26 per cent), International Telecommunication Levy (10 per cent), International Origination cost (8 per cent), Outbound roaming cost (7 per cent) and Lease circuit rental costs (4 per cent).

Operating Costs

The Company’s operating costs recorded at Rs. 4.37 Bn grew by 34 per cent relative to those applicable to the nine months ended 30 September 2005. The growth rate of 34 per cent is however significantly lower than the 44 per cent growth rate registered by Operating Revenues.

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

Selling expenses inclusive of sales commission, advertising & promotional expenses were the most significant contributor to operational expenditure (53 per cent).

Manpower cost accounted for 25 per cent of total operating costs, however, as a proportion to revenue, manpower has been maintained at 6 per cent of revenue.

Operating expenses as a percentage of operating revenue has improved to 24 per cent relative to the 25 per cent recorded during the first nine months of 2005. The improvement in cost efficiency is attributed to relative cost reductions with respect to maintenance and selling expenses.

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. 640 Mn) for the period under review. The levy is provided for and classified under direct costs. A substantial portion (Rs 510 Mn) of the provision has been paid up as at date. The PAT figures for the nine months ended 30 September 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)

 

EBITDA was recorded at Rs. 10.06 Bn for the nine months ended 30 September 2006 compared to Rs. 6.85 Bn for the period ended 30 September 2005 representing a growth of 43 per cent. The EBITDA margin was maintained at 53 per cent, the same level recorded for the period ended 30 September 2005.

MARGIN ANALYSIS

 

The Company recorded an EBITDA margin of 53 per cent and a PAT margin of 40 per cent in the third -quarter of 2006 exhibiting an improvement by four points each in terms of EBITDA and PAT margins compared to the third-quarter of 2005.

Gross margins recorded during the period under review have declined marginally by 1 percentage point to 66 per cent. The dilution in margins is attributable to an increase in the relative share of lower margin International service revenues. An immediate QoQ comparison reveals however that, gross margin has been maintained at 66 per cent.

Investments / Network rollout

The Company entered in to a hallmark investment agreement with the Board of Investment of Sri Lanka (BoI) in May 2006, to invest a further Rs. 15 Bn (USD 150 Mn) in the country’s telecommunications sector. For the nine months ended 30 September 2006, the Company has made investments in excess of USD 71 Mn (Rs 7 Bn) in telecommunication and infrastructure, a large proportion of which has been deployed in underserved regions of the country.

Investments in Social and Community Development

In addition to investments in infrastructure, the period under review has featured several beachhead investments in technology for the community. Dialog Telekom has architected and is in the process of implementing a large number of investment projects directed at social and community development outcomes. Significant among these are Dialog’s DEWN (Disaster and Emergency Warning Network) and the Dialog Learning Bridge. Dialog’s community development initiatives are spread across a variety of sectors including education, health, youth empowerment and assistance to the disabled.

DEWN

 

Significant progress has been made towards the implementation of a National Disaster and Emergency Warning Network (DEWN), developed by Dialog Telekom in collaboration with Dialog University of Moratuwa Research Laboratory and Microimage, technology partner of Dialog Telekom Limited. DEWN is a cost effective and multi modal mass alert system which could be deployed for the purpose of warning key stakeholders in disaster management as well as the general public in advance of the occurrence of life threatening disasters. Dialog Learning Bridge Dialog University of Moratuwa Research Laboratory in collaboration with the Ministry of Education launched Sri Lanka’s first Online Interactive Education Network on 05 October 2006. The project enables distance learning facilities for schools with learning / resource disparities, to deliver classes in remote schools through an efficient method of sharing instructors, using ICT (Information and Communication Technology).

Subsidiary performance

Dialog Broadband Networks Pvt Ltd (DBN) recorded a PAT of Rs. 121 Mn. as of 30 September 2006 representing a contribution of approximately 1 per cent to group PAT (after fair value adjustments).

For the three months ended 30 September 2006, DBN recorded a revenue of Rs.205.72 Mn up 12 per cent compared to the second-quarter of 2006.

DBN’s EBITDA is recorded at Rs. 99.14 Mn and is up 18 per cent relative to the EBITDA recorded during the second-quarter of 2006.

Acquisition of Asset Media (Pvt) Ltd

On 29 September 2006, DTL acquired a 90 per cent stake in Asset Media (Private) Limited (AMPL), for a purchase consideration of Rs. 325 Mn.

AMPL is yet to commence operations as at 30 September 2006. Accordingly there was no impact from AMPL to the Group Profit and Loss Account for the period under review.

The fair value of the net assets, of AMPL has been incorporated in the Consolidated Balance Sheet of DTL Group as at 30 September 2006.

About Dialog Telekom Limited

Dialog Telekom Limited is the largest mobile operator in Sri Lanka with over 2.8Mn subscribers 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 30 September 2006) of LKR 161.02 Bn (USD 1.57Bn), representing 22.07 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.