Corporate Performance Announcement October 2007

Corporate Performance Announcement

Nine Months ended 30 September 2007
(Company registration number: PQ 38)
Dialog Telekom PLC (DT) announced Tuesday (30 October 2007) an overview of its Financial Performance for the nine months ended 30 September 2007.

Highlights for the nine months ended 30 September 2007

Mobile subscriber base of 3.96 Mn. Further consolidating market leadership position.
Dialog Telekom (“the Company”) PAT: Rs. 7.98 Bn
Dialog Telekom Group (“Group”) PAT: Rs. 7.30 Bn
Commercial Launch of CDMA Service
Introduction of eZ Pay, South Asia’s first Mobile Payments Network
DIALOG TELEKOM PLC (“the Company”) PERFORMANCE SUMMARY

KEY INDICATORS	UNIT	1-3Q 07	Change (1-3q 07 VS. 1-3Q 06)
CELLULAR SUBSCRIBER BASE *	Mn.	3.96	40%
REVENUE	Rs. Bn	23.03	24%
EBITDA	Rs. Bn	11.30	15%
PAT	Rs. Bn	7.98	7%
ANNUALISED CHURN	%	6.69	4%

*as at 30 September 2007

Dialog Telekom PLC – DT (hereinafter referred to as “the Company”) recorded a PAT of Rs. 7.98 Bn. up 7 per cent relative to the nine months ended 30 September 2006. Company earnings comprise in the main of contributions from Mobile Business supplemented by earnings accruing from the company’s International Business Operations and Internet Service Provider Operations.

DIALOG TELEKOM GROUP: PERFORMANCE SUMMARY

 

Dialog Telekom and its subsidiaries (Dialog Broadband Networks (Pvt) Ltd and Dialog Television (Pvt) Ltd (formerly Asset Media (Pvt) Ltd) will hereinafter be referred to collectively, as “the Group”.

Financial Highlights – Nine Months ended 30 September 2006 & 2007
(All figures in Rs. Mn.)

P & L Highlights	Company			Group
	Nine months ended 30 September		Change	Nine months ended 30 September		Change
	2007	2006		2007	2006
Revenue	23,030	18,500	24	23,916	18,890	27
Gross Profit	14,640	12,168	20	14,484	12,364	17
EBITDA	11,302	9.797	15	10,863	10,059	8
PAT	7,983	7,459	7	7,304	7,549	-3

Table 1: Group and Company P&L highlights for the nine months ended 30 September 2006 & 2007.

* The above financial results have been subjected to a limited review carried out by the external auditors of the Company/Group and have been approved by the Board of Directors.

Dialog Telekom PLC (DT) continued to deliver robust growth recording a 40 per cent increase in mobile subscribers YoY and Revenue, EBIDTA and PAT growth of 24 per cent, 15 per cent and 7 per cent respectively. The performance at DT was delivered not withstanding revenue mitigating externalities mainly the disruption to services in the Northern and Eastern Province of Sri Lanka during the first half of 2007.

In line with the strategic intent of securing future growth and earnings opportunities arising from convergent technology related business lines including but not limited to Fixed Line Telephony, Broadband and Digital Television media, Dialog Telekom has over the past year seeded nascent new business through acquired subsidiaries Dialog Broadband Networks (DBN) and Dialog Television (DTV) and its subsidiaries.

Group results of Dialog Telekom PLC, post consolidation with subsidiary performance, recorded a Profit after Tax (PAT) of Rs. 7.30 Bn. for the nine months ended 30 September 2007, representing a drop by 3 per cent relative to the nine months ended 30 September 2006, due mainly to a negative contribution of Rs. 542.56 Mn from the recently operationalised subsidiary Dialog Television (Pvt) Ltd (DTV) which had a dilutive effect on the profit growth of 7 per cent delivered by the core operations of DT.

Dialog Television is currently in an aggressive subscriber acquisition phase on the backdrop of the rapid expansion of channel (content) portfolios. The month of September witnessed the soft launch of the SET Plans scheme. The SET plans scheme is designed to provide subscribers with the flexibility to customise their Channel bouquet to suit their personal preference.

The Direct to home (DTH) Pay TV business operated by DTV is characterized by a substantial fixed cost base (comprising of satellite capacity costs, minimum payments to content providers and other operation specific fixed costs). Contribution from operations is determined in the main by the extent to which the fixed costs could be recovered against revenue generated by the growing subscriber base. The company is moving aggressively towards achieving a critical mass of subscribers required to fully amortize fixed costs.

The negative contribution from Dialog Broadband Networks (DBN) accrues largely from costs arising from capacity building ahead of demand and revenue realization from recently established CDMA and WiMaX Network infrastructures. The company is moving rapidly towards a reversal of the latter position with the commercial launch of CDMA services in July 2007 and the full commercialization of WiMaX based Wireless Broadband services in the last quarter.

DIALOG TELEKOM - COMPANY PERFORMANCE OVERVIEW
REVENUE

 

Total operating revenue increased by 24 per cent to Rs. 23.03 Bn., driven by robust growth of the cellular subscriber base, which translated to the generation of enhanced call revenues. 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.

Domestic revenues, which consist mainly of pre-paid and post-paid revenue, remained the dominant constituent of Company Revenue and accounted for approximately 82 per cent of total revenue in the nine months ended 30 September 2007. The revenue growth achieved was on the backdrop of intermittent disruption of the company’s services in the Northern and Eastern Province of Sri Lanka – during the first half of 2007.

The major components of total (company) revenue are pre-paid revenue (48 per cent), post-paid revenue (34 per cent), international termination revenue (10 per cent) and inbound roaming (3 per cent). When compared with the performance for the nine months ending September 2006, the contribution from the pre-paid segment has increased from 42 per cent to 48 per cent.

The Company added over 1.1 Mn net subscribers over the past 12 months, and accordingly the Company’s cellular subscriber base increased by 40 per cent to reach 3.96 Mn subscribers by 30 September 2007. The prepaid segment increased by 46 per cent from 2.36 Mn to 3.44 Mn. In parallel, the postpaid subscriber base witnessed a growth of 10 per cent from 0.48 Mn to 0.52 Mn.

The subscriber mix for the nine months ended 30 September 2006 and 2007 is presented in the table below:

Subscribers Base	UNITS	Sep-06	Mix	Sep-07	Mix	Growth %
Postpaid	000	475	17	523	13	10
Prepaid	000	2,359	83	3,441	87	46
Total active subscriber base	000	2,835	100	3,963	100	40

Table 2: 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 largest component of non-voice revenue accounting for 6 per cent of total revenue.

Revenue from international termination increased from Rs. 1,649 Mn to Rs. 2,280 Mn representing an increase of 38 per cent.

COSTS

 

Direct Costs

Direct costs for the period under review amounted to Rs. 8.39 Bn. compared to Rs. 6.33 Bn. recorded for the nine months ended 30 September 2006 reflecting a 33 per cent increase.

Significant components of direct costs are Network cost (30per cent), Telecom equipment depreciation (28 per cent), International Telecommunication Levy (11 per cent), International Origination cost (10 per cent), roaming costs (7 per cent) and Lease circuit rental costs (3 per cent).

Direct costs as a percentage of operating revenue has increased from 34 per cent during the nine months ended 30 September 2006 to 36 percent during the corresponding period in 2007. Performance relative to revenue is mitigated in the main due to the company not achieving its full revenue potential due to the revenue mitigating factors cited above.

Operating Costs

The Company’s operating costs recorded at Rs. 6.05 Bn. grew by 39 per cent relative to those applicable to the nine months ended 30 September 2006. The increase in operating expenses is due to increase in administration expenses that are sensitive to the escalation of general inflation levels and associated costs incurred in relation to expansion of operations.

Operating costs comprise mainly of selling and distribution expenses, manpower and general administration costs. Selling expenses, inclusive of sales commission and advertising & promotional expenses, contributed 39 per cent of the operational expenditure, in keeping with the company’s aggressive thrust towards subscriber additions resulting in a 40 per cent increase in subscriber base over the 12-month period.

Operating expenses as a percentage of revenue has increased from 24 per cent recorded during the nine months ended 30 September 2006 to 26 percent in the nine months ended 30 September 2007. In addition to inflationary pressure on principal cost lines, performance relative to revenue is mitigated due to the company not achieving its full revenue potential due to the revenue mitigating factors cited above.

Finance Costs

The net finance cost for the nine months ended 30 September 2007 was Rs. 650.62 Mn. The composition of the net finance cost includes interest on borrowings during the period of Rs. 541.58 Mn, and interest income of Rs. 78.25 Mn.

The net finance cost also includes the impact of exchange rate depreciation amounting to Rs.187.30 Mn in foreign exchange losses arising from the revaluation of foreign currency denominated assets and liabilities. On an immediate QoQ basis however, the finance costs have reduced by 81 per cent.

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. 911.95 Mn.) for the nine months ended 30 September 2007 of which Rs. 467.46 Mn. has been settled as of date. The levy is provided for and classified under direct costs. The PAT figures for the nine months ended 30 September 2006 and 2007 are stated after the deduction of this levy. The Telecommunications Regulator announced recently 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 PROFIT (EBIDTA)

 

EBITDA was recorded at Rs. 11.30 Bn for the nine months ended 30 September 2007 compared to Rs. 9.80 Bn for the nine months ended 30 September 2006 representing a growth of 15 per cent.

Profit After Tax (PAT)

For the nine months ended 30 September 2007, the Company recorded a PAT of Rs. 7.98 Bn, representing a 7 per cent earnings growth relative to the figure of Rs 7.46 Bn recorded for the corresponding period in 2006. PAT performance has been mitigated due to increase in administration expenses, which are sensitive to the escalation of general inflation during the nine months ended 30 September 2007 vis-à-vis nine months ended 30 September 2006.

SUBSIDIARY PERFORMANCE

 

Dialog Broadband Networks

Dialog Broadband Networks Pvt Ltd (DBN) recorded a revenue of Rs. 681.68 Mn up 19 per cent relative to the Rs. 574.47 Mn. recorded for the nine months ended 30 September 2006.

DBN recorded a net loss of Rs. 96.55 Mn. for the nine months ended 30 September 2007 vis-à-vis a profit of Rs. 126.00 Mn recorded for the nine months ended 30 September 2006. The adverse performance in profitability is in part due to delay in launch of CDMA services. The Bottom line is also impacted by high administration expenses incurred in capacity building for future expansion/new revenue streams.

Top-line revenue growth initiatives centered around an aggressive entry in to the CDMA market will serve to boost revenue streams and normalize profit margins of DBN in the medium term.

The CDMA fixed wireless service was commercially launched in July 2007. The product was simultaneously launched in 6 districts including Kurunegala, Kandy, Puttalam, Kegalle, Kalutara and Ratnapura. With its entrance into the CDMA market, Dialog will further strengthen its market position as the undisputed leader in the telecommunications industry while fulfilling its vision to become a provider of a “total connectivity” encompassing Mobile, Fixed, Broadband and Media. During the third-quarter of 2007, DBN acquired approx. 7,000 CDMA subscribers.

Dialog Television

DTV Group (inclusive of subsidiaries Communiq Broadband Network (Pvt) Ltd (CBN) and CBN SAT (Pvt) Ltd) recorded a revenue of Rs. 479.62 Mn, on the backdrop of over a 200 per cent growth in subscribers within the first- nine months of operations for 2007.

The Company recorded a net loss of Rs 542.56 Mn during the nine months ended 30 September of 2007, as characteristic of a Satellite Television operation in start up phase. The achievement of a break-even volume of subscribers and operating revenues will see the company in a position to override its fixed cost base, leading thereafter to positive bottom line contribution.

CONSOLIDATED GROUP PERFORMANCE

 

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

• For the nine months ended 30 September 2007, Group Revenue increased by 27 per cent to Rs. 23.92 Bn. vis-à-vis revenue reported for the nine months ended 30 September 2006.
• The gross profit of Rs. 14.48 Bn. represents an increase of 17 per cent relative to Rs. 12.36 Bn recorded for the nine months ended 30 September 2006.
• Earnings before interest, tax, depreciation and amortisation (EBITDA) was recorded at Rs. 10.86 Bn for the nine months ended 30 September of 2007 compared to the figure of Rs. 10.06 Bn. for the nine months ended 30 September 2006, representing a growth of 8 per cent.
• DT Group recorded a Profit after Tax (PAT) of Rs. 7.30 Bn. representing a drop in performance by 3 per cent relative to the nine months ended 30 September 2006.

OPERATIONS AND INVESTMENTS - HIGHLIGHTS

 

South Asia’s First Mobile Payments Service

eZPay, South Asia’s first Mobile Payments and Banking Network - a revolutionary service that allows consumers to purchase goods, pay bills, transfer money and perform banking transactions via their mobile phones was launched in the third-quarter of 2007.

Themed “mPowering a New Economy” eZ Pay is set to add a revolutionary and consumer centric dimension to inclusive banking in Sri Lanka. The Dialog-NDB Bank mobile commerce network will empower consumers with the ability to carry out a variety of electronic transactions using their mobile phone from anywhere within Dialog GSM’s network coverage. Mobile Commerce technology enables mCommerce software on the SIM card to transform a standard mobile phone in to an electronic wallet in the hands of the consumer and/or a Point of Sale device capable of capturing and validating electronic (Mobile Commerce) transactions and banking transactions in the hands of retailers and merchants.

Investments/Network rollout

For the nine months ended 30 September 2007, the Company has made investments in excess of USD 95 Mn (Rs 10 Bn) in telecommunication and infrastructure, a large proportion of which has been deployed in underserved regions of the country. Increased capex will lead to a faster island wide coverage and hence higher penetration.

Sri Lanka’s Largest Ever Preference Share Issue

The Company entered into an agreement on 23 October 2007 to raise Rupees Five Billion (Rs 5,000,000,000/-) via the issuance of Rated Cumulative Redeemable Preference Shares, with participating investors that include banks and financial institutions.

The proceeds of the Preference Share Issue will partially finance the Dialog Group’s capital expenditure plan spanning the range of telecommunications and media sectors.

About Dialog Telekom PLC

Dialog Telekom PLC is the largest mobile operator in Sri Lanka with over 3.96 Mn subscribers, representing approximately 60 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 30 September 2007) of LKR 187.31 Bn (USD 1.66 Bn), representing 22.72 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 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 Broadband Internet services through Dialog Internet - a fully-fledged Internet Service Provider (ISP). Dialog Telekom also operates Dialog SAT, a mobile satellite service.

The operations of the Dialog Telekom group span a future oriented quadruple play service offering encompassing fixed line, 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.