Dialog reports stable 1Q marred by forex losses

• 1Q revenue and EBITDA stable YoY; PAT impacted by non-cash translational forex losses
• Contributes Rs. 4.5 b in direct and indirect taxes, fees and levies to Govt. 
• Capex Investments managed at Rs. 2 b; OFCF improves to Rs. 9 b 
• Extends support in dealing with COVID-19 to customers, Govt. and community

Dialog Axiata PLC yesterday reported stable first quarter results though bottom line was marred by forex losses. 

It said Group’s all key business segments, viz. Mobile, International, Tele-infrastructure, Digital Pay Television and Fixed Line contributed to record a consolidated revenue of Rs. 29.2 billion for Q1 2020, demonstrating a marginal decline of 1% Quarter-on-Quarter (QoQ), resulting from challenges to core revenue growth, albeit growing 1% Year-on-Year (YoY). 

Group CEO and Director Supun Weerasinghe

Underpinned by strong cost optimisation initiatives, Group Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) grew 4% QoQ and 1% YoY to record at Rs. 12.2 billion for Q1 2020. The EBITDA margin was accordingly recorded at 41.6%, a 2.3pp QoQ improvement for Q1 2020. The Group NPAT declined 39% QoQ and 69% YoY to reach Rs. 1.5 billion for Q1 2020, mainly resulting from the non-cash translational forex losses. 

The rupee (LKR) depreciated against the dollar (USD) by 4.6% in Q1 2020 versus an appreciation of 3.6% and 0.1% in Q1 2019 and Q4 2019 respectively. Normalised for the non-cash translational forex losses/gains NPAT was recorded at Rs. 3.1 billion, up 31% QoQ albeit declining 13% YoY due to increase in depreciation and transactional forex impact.

Dialog Group continued to be a significant contributor to state revenues, remitting a total of Rs. 4.5 billion to the Government of Sri Lanka (GoSL) during Q1 2020. Total remittances included Direct Taxes and Levies amounting to Rs. 1.4 billion as well as Rs. 3.1 billion in Consumption Taxes collected on behalf of the GoSL. The Group capital expenditure was prioritised in Q1 2020, amid COVID-19 outbreak and associated challenges, which recorded at Rs. 2 billion representing a capex to revenue ratio of 7%. 

Capital expenditure was directed in the main towards transforming Dialog into a digital telco, by digitising all spheres of the organisation and to further strengthen the Group's leadership in Sri Lanka's Broadband sector. The slowdown in capex supported Group Operating Free Cash Flow (OFCF) to improve to Rs. 9 billion in Q1 2020. 

The Group continued to exhibit a low geared balance sheet with the Net Debt to EBITDA ratio being maintained at 0.81x as at end of March. 

At an entity level, Dialog Axiata continued to contribute a major share of Group Revenue (70%) and Group EBITDA (75%). The company further consolidated its market leadership position in the Sri Lankan mobile space to reach 15.0 million subscribers during the quarter. Company Revenue was impacted by slowdown in core revenues and reached Rs. 20.5 billion for Q1 2020. 

The revenue remained stable QoQ and declined 2% YoY due to ongoing shift in consumption behaviour from Voice to Data. Underpinned by cost optimisations, Company EBITDA for Q1 2020 was recorded at Rs. 9.2 billion, an increase of 4% QoQ and a decline of 2% YoY amid drop in revenue and increased bad debt provisioning. 

Company NPAT was recorded at Rs. 1.6 billion for Q1 2020 declining 45% QoQ and 65% YoY due to the impact from non-cash translational forex losses. Normalised for same, Company NPAT recorded growth of 19% QoQ albeit declining 4% YoY. 

Dialog Television (DTV), continued to consolidate its leadership position in the Digital Pay Television space with a subscriber growth of 25% YoY to reach 1.5 million as at end of March 2020. 

DTV Revenue remained stable QoQ and was up 8% YoY, amid growing subscription revenue, to reach Rs. 2.2 billion. DTV EBITDA was recorded at Rs. 676 million for Q1 2020 increasing 43% YoY due to strong cost focus. However, DTV’s reported Net Loss increased to Rs. 227 million for Q1 2020 relative to a Net Loss of Rs. 166 million for Q1 2019 resulting from the forex losses. 

Dialog Broadband Networks (DBN) featuring the Group’s Fixed Telecommunications and Broadband Business recorded revenue of Rs. 7.4 billion for Q1 2020, down 2% QoQ and up 10% YoY. The top line movement was mainly resulting from the movement in wholesale revenue. The EBITDA for DBN grew 4% YoY to record Rs. 2.5 billion in Q1 2020. DBN NPAT however declined 43% YoY to reach Rs. 273 million due to increased depreciation and finance cost.

Dialog said the outbreak of COVID-19 in Sri Lanka resulted in the country being placed under mandatory lockdown/curfew from 20 March. The COVID-19 outbreak and the associated developments impacted the business on multiple fronts including distribution, network rollout, collections and working capital management. 

The company transitioned to Work from Home (WFH) seamlessly and enabled all staff to continue operations using digital tools and platforms through the ongoing digital transformation program initiated in 2017. 

The lockdown and shift to WFH resulted in a significant surge in the traffic carried on the network. Despite the challenges, the Company was able to manage the additional load on the network with minimal impact on user experience. 

“The continued lockdown and credit extensions to keep our subscribers connected, significantly impacted cash collections during the lockdown period, on both retail and enterprise fronts, leading to pressure on working capital,” Dialog said. 

“To mitigate the impact of lower collections during this period, Dialog Group has undertaken many initiatives to maintain liquidity and business operations uninterrupted. In addition, the Group has resorted to aggressive cost rescaling and rationalisation initiatives both in operating and capital expenditure to soften the impact on the business,” the company added.