Annual Report 2012 - Dialog

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6 l Dialog Axiata PLC l Annual Report 2012 Group Chief Executive’s Review of Operations “The launch of Sri Lanka’s first Mobile Money and Payment service stands out as the singularly transformational business creation initiative during the course of FY 2012.” the operations of market leading daily deals site Anything.lk with the e-commerce properties of the Dialog Group encompassing ibuy.lk, tradenet.lk, mytrader.lk and WoW.lk. DCL has already made aggressive advancements towards consolidating its requisite e-commerce properties to deliver an aggregated and unified e-commerce platform WoW.lk. The investment in DCL signifies and demonstrates the strategic intent of the Dialog Group to expand its presence in Sri Lanka’s Digital Commerce space, and is billed to herald the formation of an online business power house built on collective strengths of the constituent businesses and the consumer assurance ethos inherent to the Dialog Group. The Economy and Industry Sri Lankan economy delivered a moderate Real GDP growth of 6.4% during the year under review. The Government of Sri Lanka (GoSL) continued to be aggressive with respect to the implementation of major infrastructure projects alongside the targeted enablement of the Tourism sector and empowerment of SMEs and rural industry. Infrastructure projects continued to demonstrate impressive levels of execution efficacy eliciting confidence in the medium term growth potential of the Sri Lankan economy, and presenting a positive case for local and foreign direct investment. A calibrated fiscal management policy has been successful in maintaining inflation at a moderate level of 7.6% during FY 2012 while unemployment reached a record low of 4.5% and tourist arrivals surpassed the milestone figure of 1Mn visitors. Healthy micro-economic dynamics accruing from the afore-referenced levers have resulted in moderate growth of disposable income available for consumption across telecommunications and infotainment sectors. The macro-economic environment during Year 2012 was however characterized by the significantly negative albeit onetime, impact of the devaluation of the Sri Lankan Rupee (SLR). The SLR depreciated by 11.8% relative to its value at the end of FY 2011 resulting in direct and indirect impacts to the operations and financial outcomes of Telecommunications Service Providers. Principal among the direct impacts are the recognition of foreign exchange translational losses accruing from the impact of currency devaluation on the carrying value of foreign currency denominated assets and liabilities. The Dialog Group recorded foreign exchange losses totaling to Rs. 2.18Bn during FY 2012. Albeit substantial in accounting terms, Dialog’s foreign exchange losses primarily were translational (non-cash) in nature due to the stringent adherence to the prudent foreign exchange exposure and cash flow management policies practiced by the Group. The devaluation of the SLR was accompanied by indirect and downstream impacts in the form of inflation in Fuel and Energy prices as well cost expansion of several key capital and operational inputs to the telecommunications sector including but not limited to Network Infrastructure, International Bandwidth and Software Licensing Costs. The cumulative impact of operational cost expansion resulting from currency devaluation was recorded at Rs. 1,140Mn with a commensurate dilution of operating margins. The Telecommunications Regulatory Commission of Sri Lanka (TRCSL) continued to espouse and facilitate the consolidation of a sustainable techno-economic industry framework, steering safely away from the value destructive market environments of 2007-9. The portfolio of strategies and policies introduced by the regulator in 2010, featuring in the main the floor price and interconnect regimes, continue to deliver consumer as well as sector benefits. As planned within the original formulation of the Floor Rate regime, the TRCSL effected a 25% relaxation in the Off-net floor rate in line with its objective of guiding the industry along a trajectory of rational competition modulated with the enhancement of value delivery to consumers. During the course of 2012, mobile subscriptions increased10.9% to 20.3Mn while Fixed telephone lines decreased by 4.4% to 3.4Mn. The Broadband sector demonstrated multi-faceted transformation during the course of FY 2012 with penetration levels increasing from 4.0% to 6.7% underpinned by the expansion of
Annual Report 2012 l Dialog Axiata PLC l 7 Broadband service availability and quantum reductions in Broadband tariffs to levels recognized by the International Telecommunication Union (ITU) to be the lowest globally. Our Operational Performance Our determined and diligent focus over the past years on establishing a robust platform for profitable growth delivered superlative returns in FY 2012 with the Dialog Group recording consolidated revenue growth of 24% YoY. Revenue growth was paralleled by healthy operational returns with Group EBITDA being recorded at Rs. 18.55Bn, a significant increase of 13% YoY. While EBITDA demonstrated aggressive growth in absolute and relative terms, inflation led expansion of key cost drivers as described earlier in this report resulted in a contraction of the Group’s EBITDA margin by 3 percentage points to 33%. Underpinned by EBITDA performance, Group NPAT grew by 23% YoY to be recorded at Rs. 6.02Bn. Non-operational performance below EBITDA was however characterized by several material albeit non-cash exceptional items. Principal among these were non-cash translational foreign exchange losses amounting to Rs. 2.18Bn, a network modernization related impairment charge of Rs 931 Mn and a one-off write back of the Company’s deferred tax provision of positive Rs. 2.28Bn. Non-cash foreign exchange losses accrued due to the devaluation of the SLR by 11.8% and the write back of deferred tax was effected subsequent to the Company opting for a 2% revenue tax with effect from 2013, following the expiry of the Company’s tax holiday. The impairment charge of Rs. 931Mn was recognized in line with the Group’s conservative approach to ensuring network asset valuations are closely aligned to their efficient economic life, making way for the modernization of network elements to achieve optimum operating efficiency. Group NPAT post normalisation for exceptional gains/charges was recorded at Rs. 6.26Bn for the FY 2012 demonstrating a significant growth in normalized NPAT performance of 29% YoY. The positive performance trajectory at Group level was underpinned by robust growth in the Group’s core mobile business as reflected in the financial performance of Dialog Axiata PLC as well as positive performance dynamics accruing at its subsidiaries Dialog Television (DTV) and Dialog Broadband Networks (DBN). Mobile & Adjacent Business Dialog Axiata PLC (‘the Company), featuring the Mobile, International and Tele-Infrastructure business of the Group, continued to leverage its market leading position within Sri Lanka’s mobile sector featuring a subscriber base of 7.7Mn, to deliver strong growth in revenue and profitability. Dialog continued to supplement its leadership in the mobile sector with commensurate leadership with respect to broadband subscribers. Broadband subscribers on the Dialog Network grew by 44% to be recorded over 455,000. The Company continued to contribute a major share (87%) of Group Revenue and (87%) of Group EBITDA. The Company recorded revenue of Rs. 49.80Bn in FY 2012, up 19% relative to 2011. Company NPAT grew by 6% to be recorded at Rs. 6.19Bn. Growth in Company profitability was underpinned by a strong EBITDA growth (6% YoY) at a margin of 32%. Digital Pay Television The year 2012 witnessed the revolutionisation of the pay television market in Sri Lanka with DTV introducing Sri Lanka’s first ever Prepaid Television Service which enables subscribers to pay for channels on a per-day basis. DTV also earned the distinction of launching High Definition (HD) Television services for the first time in Sri Lanka. During FY 2012 DTV translated its market leading position in Sri Lanka’s Pay TV market to superlative growth in terms of subscribers (23% YoY, recorded over 264,000), top line (27% YoY, recorded at Rs. 2.99Bn) and EBITDA (11% YoY, recorded at Rs. 636Mn) respectively. DTV embarked on an aggressive modernization programme during the year under review featuring the upgrade of its digital satellite broadcasting network from MPEG2 to MPEG4 and HD technologies, which will increase the return on investment on satellite transponder resources in tandem with enhancing the quality of service to consumers. The modernization programme incurred the recognition of a one-off non-cash impairment charge of Rs. 85Mn. DTV NPAT was recorded at Rs. 11Mn for FY 2012, a marginal contraction in bottom line profitability relative to the FY 2011 figure of Rs. 26Mn.
Page 1 and 2: Dialog Axiata PLC l Annual Report 2
Page 3 and 4: Introduction to the Company Dialog
Page 5 and 6: Annual Report 2012 l Dialog Axiata
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Page 13 and 14: Mr. Moksevi Prelis Independent, Non
Page 15 and 16: Mr. James Maclaurin Non-Independent
Page 17 and 18: Group NPAT Rs. Mn +23% 7,000 6,000
Page 19 and 20: Gross Debt to Equity 2.0 1.5 1.0 0.
Page 23 and 24: Dialog Axiata PLC - Financial Revie
Page 27 and 28: EBITDA Annual Report 2012 l Dialog
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Annual Report 2012 - Dialog

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