Dialog Posts Strong 1H Despite 2nd Quarter Challenges

Dialog Axiata PLC announced, Monday 08th August 2016, its consolidated financial results for the six months ended 30th June 2016. 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"), Dialog Television (Pvt) Ltd ("DTV") and Digital Holdings Lanka (Pvt) Ltd ("DHL").

The Group closed the 1st Half of 2016 on a strong note, delivering growth across Mobile, Digital Pay Television, Tele-infrastructure and Fixed Line businesses, and recording consolidated revenue of Rs42.2Bn for 1H 2016, demonstrating a growth of 20% on a Year to Date ("YTD") basis. While the Group delivered a strong 1st Half across all financial metrics, performance during the 2nd Quarter was significantly impacted by externalities, featuring in main the introduction of Value Added Tax ("VAT") and Nation Building Tax ("NBT") on Mobile and Fixed Telecommunications as well as DTH Pay TV services with effect from 2nd May 2016. Second Quarter performance was further affected by impacts arising from the adverse weather conditions that prevailed in the country during the month of May 2016.

The introduction of VAT at 15% and NBT at 2% on Telecommunication services resulted in aggregate Telecommunication service consumption taxes increasing from 27.6% to 49.7% for voice services and from 12.2% to 31.7% for data services. The increase in consumption taxes have been observed to have a near term impact of constrained consumption. It is envisaged however, that consumption would return to standard levels in the longer run. The inclement weather and severe flood conditions during the month of May dealt a significant impact on livelihoods and commerce. The Dialog Group was quick to respond to assist the general public as well as employees impacted by the floods. Dialog's intervention encompassed flood relief donations totalling to over Rs50Mn, the provision of consumption credits and extension of free of cost services. Telecommunication consumption patterns were also significantly impacted during the month of May.

Specific externalities in the 2nd Quarter have in aggregate, been observed to have constrained the growth momentum demonstrated in previous quarters. Group Revenue was recorded at Rs21.1Bn for Q2 2016 – flat (-0.4%) on a Quarter on Quarter ("QoQ") basis. While Group EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) for the 1H 2016, grew by 18% on a YTD basis to reach Rs14.1Bn, QoQ growth was constrained to 1%, with 2nd Quarter EBITDA being recorded at Rs7.1Bn. The Group EBITDA margin for 1H 2016 was accordingly recorded at 33.3%. Downstream of EBITDA performance, Group NPAT (Net Profit After Tax) for the 2nd Quarter declined 14% QoQ to be recorded at Rs2.3Bn, while 1H 2016 NPAT demonstrated YTD growth of 27% to be recorded at Rs4.9Bn.

The Dialog Group continued to be a significant contributor to state revenues - remitting a total of Rs16.9Bn to the Government of Sri Lanka (GoSL) during 1H 2016. Total remittances included direct taxes and levies as well as consumption taxes collected on behalf of the GoSL. Direct taxes, fees and levies contributed by the Dialog Group totalled to Rs6.5Bn inclusive of income tax. The Group additionally collected consumption taxes and levies, totalling to Rs10.5Bn on behalf of the GoSL in 1H 2016, comprising in the main of Telecom Levy and VAT collections amounting to Rs6.6Bn and Rs1.8Bn respectively.

Consolidating its leadership position in Sri Lanka's ICT sector, Dialog commissioned the Ultra High Capacity 100G-PLUS Bay of Bengal Gateway (BBG) Submarine Fibre Optic Cable in Q2 2016 with an investment in excess of USD34.5Mn (Rs5Bn). The new cable system will deliver over 6.4 Terabits Per Second (Tbps) of international bandwidth to Sri Lanka, and will represent a significant step-up with respect to connectivity speeds and will furthermore catalyse a multiplicity of global networking options for Sri Lanka's enterprise ICT sector. The BBG cable will also infuse further speed and capacity to Dialog's state-of-the-art 3G HSPA+, 4G and Fibre Optic networks.

At an entity level, Dialog Axiata PLC ("the Company") featuring the Mobile, International and Tele-Infrastructure segments of the Group portfolio continued to contribute a major share of Group Revenue (84%) and Group EBITDA (87%). The Company further consolidated its market leading position within Sri Lanka's mobile market to surpass the 11Mn subscriber milestone during the 2nd Quarter. Company Revenue for 1H 2016 was recorded at Rs35.6Bn, up 19% compared to 1H 2015 with revenue decreasing by 2% QoQ to record at Rs17.7Bn due to the impact of the externalities described previously. Company EBITDA for the quarter decreased by 6% QoQ to reach Rs5.9Bn. On a YTD basis however, strong revenue growth resulted in Company EBITDA for 1H 2016 growing by 22% to be recorded at Rs12.2Bn, translating to an EBITDA margin of 34.2%. In line with performance dynamics at EBITDA level, Company NPAT was recorded at Rs2.3Bn for Q2 2016 and Rs5.4Bn for 1H 2016 respectively, representing a decrease of 23% QoQ and an increase of 42% YTD.

Dialog Television (DTV), the Digital Pay Television business of the Group continued its positive growth momentum, recording a revenue growth of 12% YTD to reach Rs3.1Bn for 1H 2016. DTV engaged in an aggressive service and product enhancement program since 2H 2015 featuring the expansion of channel genres and the launch of new prepaid product offerings. Cost expansion arising from aggressive customer acquisition alongside service and product expansion activities, resulted in a medium term contraction of DTV EBITDA by 59% on a YTD basis to record at Rs212Mn. The contraction of DTV EBITDA translated to an equivalent negative impact on NPAT leading to a Net Loss of Rs228Mn for 1H 2016 compared to a Net Profit of Rs114Mn in the corresponding period of 2015.

Dialog Broadband Networks (DBN) featuring the Group's Fixed Telecommunications and Broadband Business recorded revenue of Rs4.4Bn for 1H 2016, representing an increase of 24% YTD. Downstream of robust Revenue performance, DBN EBITDA for 1H 2016 was recorded at Rs1.8Bn, representing an increase of 27% YTD. DBN's Net Loss for 1H 2016 was recorded at Rs40Mn relative to the Net Profit of Rs48Mn in the corresponding period of 2015. Negative movement in NPAT was underpinned by the increase in depreciation accruing from Fixed 4G LTE related investments.

Group capital expenditure for 1H 2016 amounted to Rs7.1Bn. Capital expenditure was directed in the main towards investments in High-Speed Broadband infrastructure alongside the extension of the Group's Optical Fibre Network to further strengthen the Group's leadership in Sri Lanka's ICT sector. Group Operating Free Cash Flow (OFCF) was positive at Rs4.3Bn for 1H 2016 on the back of strong EBITDA performance and calibrated capital expenditure. The Group continued to exhibit a structurally robust balance sheet with the Net Debt to EBITDA ratio being maintained at 1.0x as at end of June 2016.