Dialog Group Records Strong Growth in First Quarter

Dialog Axiata PLC announced, Wednesday 11th May 2011, its consolidated financial results for the three months ended 31 March 2011. Financial results included those of Dialog Axiata PLC (the “Company”) and of the Dialog Axiata Group (the “Group”) post consolidation with subsidiaries Dialog Broadband Networks (Pvt.) Ltd (“DBN”) and Dialog Television (Pvt.) Ltd (“DTV”).

The Group recorded a strong growth in revenue to reach Rs 10.9 billion in Q1 2011, up 10% Year on Year (YoY) whilst posting a net profit of Rs 1.2 billion, up 64% compared to Q1 2010. Financial outcomes at group level were driven by strong performance across the Company and its subsidiaries. Group profitability was founded on a healthy momentum in EBITDA growth of 7%, founded on the positive outcomes of strategic cost rescaling in combine with revenue gains. Judicious balance sheet restructuring initiatives featuring the achievement of a lower cost debt profile has underpinned the translation of EBITDA performance to commensurate growth in Net profit at Group, Company and subsidiary levels. The Company, featuring in the main, the Mobile, International Services and Tele-Infrastructure businesses of the Group continued to leverage its market leading position to deliver strong growth in revenue and profitability. The Company recorded revenue of Rs 10.0 billion for Q1 2011 and a profit of Rs 1.4 billion, an increase of 10% and 7% relative to Q1 2010 respectively. Growth in Mobile revenues was driven by a healthy growth in mobile subscribers and the increased adoption of mobile broadband services. The Company’s customer base surpassed 7 Million in Q1 2011. Company revenues were further bolstered through Interconnection revenues of Rs 0.4 billion accruing since the implementation of the interconnection regime in June 2010. Notwithstanding a 10% growth in revenues, EBITDA at company level contracted by 2% YoY to be recorded at Rs 3.3 billion in Q1 2011. The Company’s operating costs (excluding depreciation) grew by 17% compared to Q1 2010. International origination costs and domestic interconnection charges grew in tandem with the growth in corresponding revenue lines and formed a significant contributor (65%) to YoY cost expansion. In addition to the afore mentioned revenue linked (direct) costs, network costs increased (18%) in tandem with the aggressive expansion of the company’s network infrastructure footprint and price hikes with respect to key inputs including electricity and fuel. The variation in costs YoY, was further influenced by the impact of VAT expenditure arising from the changes in the VAT environment applicable to the Telecom Industry.

DTV and DBN Performance Continues to Improve

DTV continued its growth momentum with revenue shoring up by 15% from Rs 490 million in Q1 2010 to Rs 561 million in Q1 2011. The DTH Pay Television business added approximately 13,000 new customers in the first quarter of 2011 cumulating to a subscriber base of over 181,000 as at 31 March 2011. DTV EBITDA grew to Rs 131 million, an improvement of 445% compared to Q1 2010 on the backdrop of strong revenue growth and cost rescaling initiatives. Accordingly, DTV reported a PAT of negative Rs 2 million in Q1 2011, a significant improvement of 97% compared to a loss of Rs 94 million recorded in Q1 2010. DBN continued to consolidate the performance trends of the previous quarters to record its fourth successive quarter of positive EBITDA in Q1 2011. Q1 EBITDA was recorded at Rs 145 million compared to a negative EBITDA of Rs 44 million in the corresponding quarter in 2010. EBITDA turnaround at DBN was underpinned by substantial reductions in operating and direct costs accruing from cost rescaling programmes implemented over the past quarters. DBN remained PAT negative in Q1 2011 in the wake of accelerated depreciation of its CDMA and WiMAX networks. DBN recorded a negative PAT of Rs 197 million, an improvement of 58% compared to Q1 2010.

Healthy Free Cash Flows Underpin Strong Group Balance Sheet

The Group continued to record positive Free Cash Flows (FCF) for the fifth consecutive quarter, with Q1 2011 FCF being recorded at Rs 1.1 billion. Capital expenditure in Q1 amounted to Rs 2.5 billion, 54% higher compared to the corresponding quarter in 2010. Capital expenditure was directed in the main towards strategic investments in High Speed Mobile Broadband and Optical Fibre Network (OFN) expansion projects and towards the continued growth and consolidation of the Company’s coverage leadership in mobile services.

The Dialog Group continued to maintain a structurally strong balance sheet with the group’s Net Debt to EBITDA ratio improving from 2.1x as at 31 March 2010 to 1.4x at the end of Q1 2011.

The cash dividend of twenty cents (Rs. 0.20) per share declared for FY 2010, totalling to Rs 1.6 billion was approved by shareholders at the 14th Annual General Meeting held on the 10th May 2011. The dividend to ordinary shareholders of the company translates to a payout of 34% of Group PAT post-preference dividend. The Dividend payment dispatch date has been scheduled for the 20th of May 2011.

Growth in Infrastructure and Service Leadership

During the course of Q1 2011, the Company’s network footprint surpassed the milestone of 2000 Base stations. In tandem with the growth in network footprint, the Company’s customer service network recorded the opening of its 121st service outlet in Chavakachcheri. In line with aggressive growth aspirations with respect to 3G/HSPA High Speed Mobile Broadband services, the company also recorded the commissioning of the 1000th 3G/HSPA base station early in the year.

In line with its promise to deliver The Future Today, Dialog was the first to roll out a commercial 3G network in South Asia in 2006, and has since advanced its high speed mobile broadband services through the introduction of HSPA and HSPA+ technology evolutions delivering peak speeds of up to 42 MBps. Dialog’s High Speed Mobile Broadband services are available across all key towns and cities in the country and have succeeded in empowering consumers from all provinces of Sri Lanka with affordable broadband services. With a view to preparing its network capability for the next generation in high speed broadband services, Dialog recently launched its 4th Generation LTE pilot Network in the City of Colombo. The pilot network will initially cover several key zones within the city and is billed to be the first exposition of a 4th Generation LTE network in the South Asian region. The pilot network has demonstrated the delivery of over 100 Mbps in indoor demonstration mode and 40-50Mbps under outdoor mobile conditions.

Dialog’s International service portfolio was further enhanced during the period through the establishment of a partnership with London-based QiComm. Through the partnership, Dialog offers an unique mobile calling solution Dialog VIZZ Mobile, to Sri Lankans living in the UK. Dialog VIZZ Mobile runs on the Vodafone network in the UK and offers customers’ low cost calling to Sri Lanka and air time transfer services, whereby customers in the UK can instantly top-up any Dialog prepaid number in any part of Sri Lanka. In February 2011, Dialog Axiata PLC, entered in to an agreement with the Board of Investment of Sri Lanka (BOI) to invest a further USD 150 Million towards the advancement and expansion of ICT infrastructure in Sri Lanka. In concert with the signing of the investment agreement, the Board of Investment of Sri Lanka announced the recognition of Dialog Axiata as the first company under its aegis to reach the Foreign Direct Investment milestone of 1 Billion US Dollars. Dialog Axiata surpassed the 1 Billion USD cumulative investment milestone as at 31st December 2010.

During the latter part of the quarter, the company announced the formation of a subsidiary aimed at seeding the Group’s entry in to the IT Enabled Services (ITES) and Business Process Outsourcing (BPO) arena. The venture was since (in May 2011) operationalised in the form of a Joint Venture with Firstsource Solutions – India’s largest listed pure-play BPO Company and a leading global BPO services provider. In addition to serving Local BPO clientele, Firstsource-Dialog Solutions will from its inception manage Dialog’s customer contact management operations across its mobile, fixed line, Pay Television & broadband businesses. The Dialog Contact Management centre is the first and only facility in Sri Lanka to have been awarded International Industry Standard COPC-CSP 2000 certification, and has been the recipient of several regional awards over the past years.