Financial Times

Dialog profits soar, margins improve to 40%
Dialog Telekom Ltd. (DTL) profit after taxation increased by 64 per cent to Rs. 5.15 billion for the nine months ended 30 September 2005, compared to Rs 3.14 billion for the same period in 2004.

DTL results for the period are based on a limited review carried out by the company’s Auditors, PricewaterhouseCoopers, the mobile operator said in a statement.

For the nine months ended 30 September 2005, DTL recorded a revenue of Rs. 12.81 billion, representing a growth of 60 per cent above the Rs.8.02 billion recorded for the corresponding period in the previous year.

“Revenue growth during the preceding year is representative of the company’s consistent Year on Year (YoY) revenue growth trend over the past few years fuelled by parallel growth in the key revenue drivers of subscriber base, network reach, increase in usage per customer and expansion in international business,” the company said.

“Earnings growth is underpinned by revenue growth of 60 per cent combined with enhancements in operational efficiencies as demonstrated by the fact that net profit after tax has displayed a growth of 64 per cent. The net profit margin has also improved to 40 per cent (from 39 per cent) during the nine months ended 30 September 2005, relative to the period ending 30 September 2004.”

Dialog reached yet another significant milestone in its growth agenda with the registering of two million subscribers as of November 2005. The company surpassed the one million mark in May 2004, and has been successful in doubling its subscriber base over a 16 month period.

Recently, Dialog announced the entering in to of a Share Purchase Agreement (SPA) for the proposed acquisition of a 100% equity interest in MTT Network (Private) limited. MTT will provide Dialog with an avenue to venture into Sri Lanka's lucrative data communications and broadband services market going forward. MTT Network’s License also provides Dialog with the opportunity to make direct investments into the fixed services sector, thereby expanding its presence in Sri Lanka's telecommunications market, and maximising its forward growth opportunities based on a wide spectrum of services to retail as well as wholesale consumers.

Revenue growth has been driven by the consistent growth in both pre-paid and post-paid subscriber base.

The post-paid active subscriber base increased by 44 per cent from 290,725 to 419,986 between the third quarter of 2004 and 2005. In parallel, the pre-paid active subscriber base increased by 64 per cent from 916,619 to 1,505,203. Domestic revenues, which consist mainly of pre-paid and post-paid revenue, accounted for approximately 77 per cent of total revenue in 2005.
When compared to results of 2004 pre-paid contribution has increased from 32 per cent to 3636 per cent.

Total direct costs for the period amounted to Rs. 4.24 billion compared to Rs. 2.79 billion in the previous year, which is a 52 per cent increase. Direct costs to revenue for the nine months period ended 30 September 2004 and 2005 were 35 per cent and 33 per cent respectively exhibiting an improvement of performance in revenue relative terms.

Significant components of direct cost are telecom equipment depreciation, network cost, international origination cost, outbound roaming cost, lease circuit rental costs and International Telecommunication Levy.

Operating costs constitute mainly of selling and distribution expenses, manpower and general administration costs. Total operating costs for the nine months period ended 30 September 2005 was Rs. 3.26 billion amounting to 25 per cent of revenue. Operating expenses as a percentage of revenue for the nine months period ended 30 September 2004 also recorded at 25 per cent.
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 DTL has provided for this levy in full in its financial statements under direct cost. The PAT figures for the periods ended 30 September 2004 and 2005, are stated after the deduction of this levy. 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 into account at this stage.

The Company has shown substantial growth in earnings before Interest, Tax, Depreciation and Amortisation (EBITDA). EBITDA was recorded at Rs 6.89 billion for the period ended 30 September 2005 compared to Rs 4.43 billion for the period ended 30 September 2004 representing a growth of 56 per cent.
The Company enjoys a fifteen-year tax holiday expiring at the end of 2012 by virtue of its Flagship Investor status under the aegis of the Board of Investment of Sri Lanka.

Dialog has been assigned an AAA (sri) (Triple A ‘sri’) rating by Fitch Ratings Lanka. Dialog’s rating reflects its position as Sri Lanka’s leading mobile operator, with strong brand recognition and, as well as its robust operating performance, sound margins, strong cash generation and adequate liquidity.

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