Corporate Performance Announcement November 2008

Corporate Performance Announcement

Nine months ended 30 September 2008
(Company registration number: PQ 38)

Dialog Telekom PLC (DT) announced Thursday (13 November 2008) an overview of its Financial Performance for the nine months ended 30 September 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).

Financial Highlights for the nine months ended 30 September 2008

Highlights	1 - 3Q 08	Change YoY
Dialog Telekom ("the Company") Revenue	25.16		4%
Dialog Broadband Revenue	1.76		158%
Dialog TV Revenue	0.91		90%
Dialog Telekom ("Group") Revenue	27.39		9%
Dialog Telekom ("the Company") PAT	2.53		68%
Dialog Telekom ("Group") PAT	1.03		86%

Table 1: Financial Highlights for the nine months ended 30 September 2008

Operational Highlightsfor the nine months ended 30 September 2008

Subscribers	Unit	30th September 08	Change YoY
Mobile subscriber base	Mn.	4.98	26%
Net Additions (mobile)	Thousands	718
CDMA subscriber base	Thousands	125	18 Times
Net Additions (CDMA)	Thousands	97
Pay TV subscribers	Thousands	118	197%
Net Additions (Pay TV)	Thousands	62

Table 2: Operational Highlights for the nine months ended 30 September 2008

PERFORMANCE OVERVIEW

 

Dialog Telekom PLC (Company)

The company continued to be aggressive in the mobile market achieving an (active) mobile subscriber base of 4.98 Million customers as at the end of Q3 2008. The mobile subscriber base grew 26% Year on Year (YoY) demonstrating the further consolidation of the company’s leadershsip in Sri Lanka’s mobile telecommunications sector. Revenue Growth YoY was a relatively modest 4% Revenue growth relative to the previous quarter recorded a moderate 3% (Q3 relative to Q2) not withstanding tariff revisions in Q3.

Revenue growth was achieved on the backdrop of aggressive pricing strategies aimed at securing an increasing share of net subscriber additions. The company is focussed on leading the expansion of Sri Lanka’s mobile market through a range of affordability enhancement mechanisms and the deployment of value and utility enhancing services. While the company recorded a growth in airtime usage in response to affordability enhancement strategies, elasticity levels (airtime usage increase in response to price change) achieved, have been inadequate to deliver a recovery of revenue growth trajectories in the short term post tariff reduction.

Downstream of revenue performance, cost expansion driven in the main by general inflation (24 % YoY), energy derived costs (48% YoY), and expansion of the company’s Network infrastructure, with associated increases in Network related costs (48% YoY) has resulted in negative growth of 32% at EBITDA level.

The company has invested aggressively in the expansion of network capacity and coverage during the course of 2008, positioning itself to capture a major share of the incremental mobile market. The incremental market is derived from new coverage areas as well as from increasing usage and adoption within existing coverage areas. Dialog currently operates over 1200 base station sites well ahead of its closest rival and has consistently delivered rapid growth in terms of coverage and capacity ahead of competition. The company’s infrastructure footprint forms an unmatched foundation for the deployment and marketing of the multiple technologies and services operated by the group, spanning mobile, fixed, broadband and digital broadcasting businesses.

In line with investment made to position the company against future opportunity, the financials exhibit an increase in Depreciation (63% YoY) and a provisioning for deferred taxation ( 368% YoY). PAT has been accordingly diluted by 68% on a YoY basis.

Subsidiaries

The subsidiaries of Dialog Telekom have demonstrated substantial growth during the first 3 quarters of 2008, demonstrating strong competitiveness and market capture trajectories, which in turn argur well for the growth prospects of the hitherto nascent new business.

The fixed line service operated by Dialog Broadband Networks (Pvt) Ltd (DBN) achieved a subscriber base of 125,006 (18 times compared to 3Q 07) fuelling revenue growth of 158% compared to the nine months ended 30 September 2007. DBN also demonstrated revenue growth from its WiMAX based Broadband Wireless Access (BWA) Network with the corresponding subscriber base and revenue stream registering growth of 101% and 49% respectively on an adjacent quarter basis .

Dialog Television (Pvt) Ltd (DTV) achieved aggressive inroads in to the Pay Television market – reaching a subscriber base of 117,512 (197% growth YoY). DTV revenues grew by 90% relative to the nine months ended 30 September 2007.

Dialog Telekom PLC (Group)

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 (Company) and its subsidiaries DBN and DTV displayed YoY Revenue growth of 9% and a Profit after Tax (PAT) of Rs. 1.03 Bn. for the nine months ended 30 September 2008. Negative contributions from DBN (Rs. 921.58 Mn.) and DTV (Rs. 542.07 Mn.) resulted in the dilution of the company earnings by a total of Rs. 1,501.36 Mn. (inclusive of consolidation adjustments) resulting in negative growth of 86% with respect to consolidated group earnings for the nine months ended 30 September 2008.

REVIEW OF FINANCIAL PERFORMANCE
FINANCIAL PERFORMANCE SUMMARY

 

Nine Months ended 30 September 2008 vs Nine Months ended 30 September 2007
(All figures in Rs. Mn.)

P&L Highlights	Company			Group
	1-3Q 08	1-3Q 07	Change	1Q-2008	1-3Q 07	Change
Revenue	25,156	24,242	4%	27,386	25,127	9%
EBITDA	7,630	11,302	-32%	7,402	10,907	-32%
PAT	2,532	7,983	-68%	1,031	7,304	-86%

Table 3: Group and Company P&L highlights for the nine months ended 30 September 2007 & 2008

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

DIALOG TELEKOM - COMPANY PERFORMANCE OVERVIEW
REVENUE

 

Total Operating Revenue increased by 4 per cent to Rs.25.16 Bn., driven by 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 79 per cent of total revenue for the nine months ended 30 September 2008.

The major components of total (company) revenue are pre-paid revenue (49 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 1.02 Mn. (Net) new subscribers YoY resulting in the Company’s cellular subscriber base increasing by 26 per cent to reach 4.98 Mn. subscribers as at 30 September 2008. The prepaid segment increased by 27 per cent from 3.44 Mn to 4.36 Mn. In parallel, the post- paid subscriber base witnessed a growth of 19 per cent from 0.52 Mn. to 0.62 Mn.

The subscriber mix as at 30th September 2007 and 30th September 2008 is presented in the table below:

UNITS	Sep-08	Mix	Sep-07	Mix	Growth %
Postpaid	000	621	12	523	13	19
Prepaid	000	4,357	88	3,441	87	27
Total active subscriber base	000	4,978	100	3,963	100	26

Table 4: 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 single largest component of non-voice revenue accounting for 5 per cent of total revenue.

COSTS

 

Direct Costs

Direct costs for the period under review amounted to Rs. 12.48 Bn. Direct costs expressed as a percentage of operating Revenue has increased from 35 per cent during the nine months ended 30 September 2007 to 50 percent during the corresponding period in 2008. Significant components of direct costs are Network cost ( 52 per cent), Telecom equipment depreciation (30 per cent), and International Telecommunication Levy (9 per cent).

Levies

The Company had paid direct and indirect levies to the goverment amounting to Rs. 4.70 Bn. during the nine months ended 30 September 2008 compared to Rs. 2.20 Bn for the nine months ended 30 September 2007. These levies comprise of Mobile Subscriber levy, VAT, International Telecommunication Levy ,frequency fees etc. The Profit and Loss impact of levies recorded at Rs. 1.95 Bn during the nine months ended 30 September 2008 representing a growth of 64 per cent compared to nine months ended 30 September 2007. The Company has provided for the International Telecommunication levy in full (Rs. 1,160.88 Mn.) for the nine months ended 30 September 2008. This levy is provided for and classified under direct costs. Any 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. 9.47. Bn for the nine months ended 30 September 2008. Operating expenses expressed as a percentage of revenue have increased from 30 per cent recorded for the nine months ended 30 September 2007 to 38 per cent for the nine months ended 30 September 2008. Operating costs comprise mainly of selling and distribution expenses, manpower and general administration costs. Depreciation of non telco equipment registered a growth of 59% YoY. In keeping with the company’s aggressive thrust towards subscriber additions and market capture (delivering 26% growth in subscriber base), selling expenses, inclusive of sales commission and advertising & promotional expenses, contributed 45 per cent of total operational expenditure.

Finance Costs

The net finance cost for the nine months ended 30 September 2008 was recorded at Rs. 542.54 Mn. The net finance cost includes interest expenditure for the nine months ended 30 September 2008 amounting to Rs. 533.72 Mn. ,interest income of Rs.51.84 Mn. and foreign exchange loss arising from the revaluation of foreign currency denominated assets and liabilities of Rs. 60.65 Mn. On YoY basis however, the finance costs have reduced by 17 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 7.63 Bn. for the nine months ended 30 September 2008 compared to Rs. 11.30 Bn. for the nine months ended 30 September 2007.

PROFIT AFTER TAX (PAT)

 

The Company recorded a PAT of Rs. 2.53 Bn. for the nine months ended 30 September 2008 compared to Rs.7.98 Bn. for the nine months ended 30 September 2007.

SUBSIDIARY PERFORMANCE OVERVIEW
DIALOG BROADBAND NETWORKS

 

Highlights

Highlights	UNITS	1-3Q 08	1-3Q 07	Change
Revenue	Rs. Mn	1,756	682	158%
CDMA subscribers	Nos	125,006	7,071	1668%

Table 5: DBN Highlights

Financial Performance Review - DBN

Dialog Broadband Networks Pvt Ltd (DBN) recorded robust growth in revenue posting net operating revenues of Rs. 1 755.73 Mn for the nine months ended 30 September 2008 up 158% relative to the nine months ended 30 September 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. 921.58 Mn. for the nine months ended 30 September 2008 vis-à-vis a loss of Rs. 96.55 Mn recorded for the nine months ended 30 September 2007.

DBN’s recently commercialised fixed telephony and broadband services have received strong consumer acceptance (as evidenced by 18 times and 26 times subscriber growth on YoY basis and 11% and 101% subscriber growth on adjacent quarter basis) signifying the growing potential to eclipse capacity building costs through aggressive revenue growth.

DIALOG TELEVISION

 

The board of directors has resolved to institute a change in accounting policy with respect to the recognition of revenues accruing from connection fees pertaining to DTV’s Satellite Television Serivce . The change in policy involves the differment of connection fee revenue recognition (previously recognised at the point of sale of connection) in the interest of prudence and international best practice. The change in policy has been effected for FY08 and as such involves a prudent downward revision of associated revenues. The group financial statements for current period has been amended in line with this change in accounting policy.

Highlights

Highlights	UNITS	1-3Q-2008	1-3Q-2007	Change
Revenue	Rs. Mn	911	480	90%
Pay TV subscribers	Nos	117,512	39,521	197%

Table 6: 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. 911.34 Mn. for the nine months ended 30 September 2008 up 90% relative to nine months ended 30 September 2007. Revenue growth was fuelled by aggressive market performance characterised by a 117000 + strong subscriber base as of the end of Q3 2008 representing YoY growth of 197% and growth of 15% relative to the adjacent quarter (Q2 2008).

The Company recorded a net loss of Rs. 542.07 Mn. for the nine months ended 30 September 2008.

CONSOLIDATED GROUP PERFORMANCE

 

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

For the nine months ended 30 September 2008, Group Revenue increased by 9 per cent to Rs.27.39 Bn. vis-à-vis revenue recorded for the nine months ended 30 September 2007.

Earnings before interest, tax, depreciation and amortisation (EBITDA) was recorded at Rs. 7.40 Bn for the nine months ended 30 September 2008 representing a decline of 32 per cent relative to the figure of Rs.10.91 Bn recorded for the nine months ended 30 September 2007.

DT Group recorded a Profit after Tax (PAT) of Rs. 1.03 Bn. representing a negative growth of 86 per cent relative to the nine months ended 30 September 2007.

Group Investment Strategy

Dialog Telekom Group has the distinction of providing the Largest Telecommunications Infrastructure Footprint, Technology Leader with GSM, 3G, HSPA, WiMAX, DVB-S, DVB-T,H technologies spanning Mobile, Fixed, Broadband and Broadcasting services.

On the backdrop of compressed margins and prevailing economic conditions, the company has however focussed forward investments in capital expenditure on the mobile sector, while directing aggressive market capture efforts with respect to the new (non-mobile) business lines with a view to monetising corresponding start-up investments in fixed line, broadband and broadcasting.

About Dialog Telekom PLC

Dialog Telekom PLC, an ISO 9001 certified company, is a subsidiary of TMI Group. The Company operates 2.5G and 3/3.5G Mobile Communications networks supporting the very latest in multimedia and mobile Internet services. Dialog Telekom PLC 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 destinations. Dialog Telekom PLC, the largest and fastest growing cellular service in Sri Lanka, serves a subscriber base in excess of 5 million Sri Lankans.

It is one of the largest listed Company on the Colombo Stock Exchange in terms of Market Capitalisation with a Market Capitalisation (as of 30 September 2008) of LKR 65.15Bn (USD 0.61. Bn), representing 9.3 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.

About Dialog Broadband Networks (Pvt) Ltd

Dialog Broadband Networks (Pvt) Ltd is a fully owned subsidiary of Dialog Telekom PLC, and is a key player in Sri Lanka’s ICT infrastructure sector, providing backbone and transmission infrastructure facilities and data communication services. The Company has consistently focused on the adoption of international best practices with respect to management systems, business processes and quality systems. Lead by experienced management professionals, the company is richly supported in terms of technical and functional guidance by its holding company Dialog Telekom PLC and ultimate parent company TM International Sdn Bhd. Dialog Broadband Networks (Pvt) Ltd recently commenced the provision of fixed wireless telephony services based on CDMA technology and has a subscriber base of over 100,000 Sri Lankan island wide.

About Dialog Television (Pvt) Ltd

Dialog Television (Pvt) Ltd, a subsidiary of Dialog Telekom PLC, operates Dialog Satellite TV, a Direct to Home (DTH) Satellite TV service. Aiming to offer the best of satellite TV to all Sri Lankans Dialog Television (Pvt) Ltd 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 such as Citi Hitz, Channel C and The Buddhist in addition to the local channels. Currently Dialog Television has a subscriber base of over 100,000 Sri Lankan island wide.