Tea with telecom

Monday, 14 February 2011 00:43 -     - {{hitsCtrl.values.hits}}

Economic Development Minister Basil Rajapaksa enjoys a cup of tea whilst chatting with Dialog Axiata CEO Dr. Hans Wijayasuriya (second from left) and

Telecommunications Regulatory Commission Director-General Anusha Pelpita on Friday after the conclusion of the signing of the BOI agreement to make US$ 150 million fresh investment by Dialog increasing its cumulative figure to $ 1.2 billion. Dialog Group Head of Marketing Nushad Perera is also present

 - Pic by Upul Abayasekara

Dialog dazzles with double delight

  • CEO Hans Wijayasuriya says first BOI firm to top $ 1 b investment milestone proves Sri Lanka’s dynamism to rest of the world

  • Signals Rs. 5 b net profit in 2010 as solid turnaround auguring well for the future

Dialog Axiata last week confirmed its emphatic turnaround in 2010 by posting Rs. 5 billion net profit from a Rs. 12 billion loss in the previous year in addition to celebrating an equally important milestone of being the first BOI firm to surpass the US$ 1 billion investment mark.

The latter was achieved with Dialog announcing a fresh US$ 150 million investment on Friday, bringing the total cumulative figure to US$ 1.2 billion since it began operations in 1994.

Dialog Group CEO and Director Dr. Hans Wijayasuriya told the Daily FT that as a Sri Lankan, he was proud that the country could draw such a huge investment from one of the Asian region’s biggest telecom operators.

“The achievement shows the world the potential of Sri Lanka in terms of the market or customers, people or human resources and that Sri Lanka is a country that can be on par with the rest of the world to do business,” Wijayasuriya said.

Originally Telekom Malaysia and now Axiata, the flagship investor has remained confident and consistent since its entry as the fourth operator at that time.

It had made the biggest investments between 2006 and 2008, a period which saw heightened impact of the north and east conflict, yet Dialog accounted on average 30% (a highest of 40%) of the total Foreign Direct Investment (FDI) inflow to Sri Lanka during this period. Dialog is also the leading mobile telecom operator with over seven million customers.

Wijayasuriya said that as the CEO during the past 13 years it was gratifying and a privilege to do his bit in such an achievement by Dialog Axiata. He said that telecom was a strategic sector for Sri Lanka and Axiata via Dialog has had a long and deep partnership to develop the sector, thereby contributing to the country’s development and serving the people.

“Axiata has valued Sri Lanka’s domestic market, the customers and the overall people (via CSR) and crossing the $ 1 billion mark testifies its faith and confidence in the country, the Government, the economy and regulatory and other agencies,” he added.

The Board of Investment (BOI) valued Dialog and Axiata’s contribution on Friday with Economic Development Minister Basil Rajapaksa presenting a special recognition at a ceremony where the agreement for the fresh $ 150 million investment was also signed.

Identifying telecom as a vital sector, BOI Chairman and Director General Jayampathy Bandaranaike identified Axiata/Dialog as a responsible investor which had partnered Sri Lanka’s development in good and bad times. He also said Dialog has been a socially responsible and good corporate citizen via an impressive CSR emphasis.

The BOI Chief said that the success of the telecom sector was critical for a robust ICT/BPO sector, which the Government has identified as a thrust sector.

Dialog and Axiata Chairman Datuk Azzat Kamaludin expressed his gratitude to the Government, BOI and the Telecommunications Regulatory Commission for ensuring progressive investment, regulatory and development policies. These, he said, created the enabling environment to increase the investments to over US$ 1 billion.

“The enabling environment they have and continue to provide investors, has underpinned our faith in, and commitment to, Sri Lanka,” he added.

“Whilst money (investments) can come, success however depends on the good human resources of a venture. In this regard we are very proud of the talented people at Dialog Axiata who have been dedicated contributing their utmost.  We have some of the most talented people in Sri Lanka and they have proved that they can match world class standards,” Kamaludin said.

Apart from commending the role played by the BOI team led by Executive Director Investment Promotion Duminda Ariyasinghe, said Wijayasuriya speaking at the event also recognised the support received from the TRC, Ministry of Defence, Urban Development Authority and the Central Environmental Authority.

“We have had excellent coordinated and concerted facilitation and support from the BOI and TRC,” he added.

The highlighted twin factors of enabling environment and facilitation appear to have benefitted the top class team at Dialog certainly in 2010.

Whilst 2009 saw tough market conditions, as a prudent measure in 2009, Dialog made a one-off network modernisation charge of Rs. 6.2 billion which saw its loss balloon to Rs. 12.3 billion.

As price competition saw the telecom industry bleeding, the regulator stepped in, in June, by introducing a floor price whilst Dialog also aggressively pursued with its strategic cost rescaling initiatives.

For example, operating costs (excluding depreciation and non-recurring charges for 2009) reduced by 8% in FY 2010, while remaining flat on (fourth) QoQ basis. Operating cost improvements YoY were driven primarily by reductions in operational overheads and manpower related expenses.

Direct cost (excluding depreciation) grew by 9% YoY (6% when normalised for interconnect costs introduced in 2010) and 11% QoQ. Increase in direct cost was driven in the main by international origination costs and outbound roaming costs in tandem with revenue growth accruing from the corresponding lines of business.

The Rs. 5.05 Group Net Profit After Tax (NPAT) was driven by strong performance at the Company level, with mobile business, posting a profit of Rs. 1.56 b for Q4 and taking the full year profit to Rs. 6.55 b, an increase of 171% relative to 2009.

Performance during 2010 was underpinned by a healthy momentum in revenue growth, positive outcomes of strategic cost rescaling, balance sheet restructuring initiatives and consistent financial discipline across all aspects of the business.

Wijayasuriya told the Daily FT that the turnaround in 2010 was real, with profits being sustained on all four quarters following structural corrections made.

Dialog Group revenues were recorded at Rs. 41.42 b for the year 2010, up 14% YoY and 2% Quarter on Quarter (QoQ). The Group EBITDA was recorded at Rs. 15.08 b, up 55% YoY, and down by a marginal 2% on QoQ basis. The Group EBITDA margin improved by nine percentage points YoY, to reach 36%.

Underpinned by the positive EBITDA growth trajectory, the Group NPAT recorded a strong growth of 141% YoY. The Group NPAT for the 4th Quarter however displayed a 25% reduction when compared to Q3 2010, driven largely by higher depreciation and lower foreign exchange gain in Q4 2010.

The company continued to leverage its market leading position within Sri Lanka’s mobile market to deliver strong growth in revenue and profitability. The company recorded revenues of Rs. 9.89 b and Rs. 37.95 b for Q4 and FY 2010 respectively.

Company revenue grew by 14% compared to 2009 and 2% relative to the previous quarter. The company’s revenue trajectory was driven by the growth in Mobile Voice/VAS, mobile broadband, Global and Tele-infrastructure businesses.

On the backdrop of strong revenue growth and cost improvements, the company EBITDA for 2010 grew by 43% YoY to reach Rs. 14.46 b. The EBITDA margin expanded from 30% in 2009 to 38% in 2010 — an increase of eight percentage points compared to 2009. EBITDA for Q4 2010 however reduced by 4% to Rs. 3.60 b, in line with the increase in direct costs alluded to above.

Company NPAT for 2010 was recorded at Rs. 6.55 b a 306% improvement relative to the normalised (excluding one-off network modernisation charge in 2009) NPAT of negative Rs. 3.2 b in 2009.

In addition to strong EBITDA performance, the improvement in NPAT was underpinned by a 65% YoY decrease in finance costs following the deployment of surplus operating cash for the repayment of borrowings.

The year 2010 also posted foreign exchange gains of Rs. 686 m against an exchange gain of Rs. 8 m in 2009. Company NPAT however displayed negative growth of 18% on a QoQ basis, in line with the reduction in EBITDA, higher depreciation and lower foreign exchange gain during the same period.

Subsidiaries Dialog TV (DTV) and Dialog Broadband (DBN) also registered gains YoY at both EBITDA and NPAT levels, demonstrating traction in terms of the Group’s Fixed Line, Broadband and Television businesses. Relative to 2009, EBITDA (positive) and NPAT (negative) improved by 243% and 80% for DTV and 169% and 50% for DBN respectively.