Dialog Impacted by Further Forex Losses in Q2, Accumulated NPAT in 1H Negative Rs28.3Bn

• Forex losses continue to impact profitability as LKR depreciated against USD by 80% and 23% during 1H 2022 and Q2 2022 respectively
• Forex normalized NPAT at Rs6.0Bn for 1H 2022 and Rs1.6Bn for Q2 2022
• Total Taxes Paid to GoSL Rs16.9Bn for 1H 2022 which included Rs9.2Bn in Direct and Rs7.7Bn in Indirect Taxes; The total taxes paid increased 46% YTD and 56% QoQ
• Capex Investments of Rs22.4Bn in first half; OFCF reached Rs2.8Bn for 1H 2022

Dialog Axiata PLC announced, Tuesday 09th August 2022, its consolidated financial results for the six months ended 30th June 2022. Financial results included those of Dialog Axiata PLC (the “Company”) and of the Dialog Axiata Group (the “Group”).

Sri Lanka continued to be battered by the socio-economic crisis in Q2 2022 which led to adverse movements in macro variables such as Sri Lankan Rupee (“LKR”) depreciating 23% against the United States Dollar (“USD”), Inflation rising to 54.6% (from 18.7% recorded by end Q1 2022), policy rates increasing by 8 percentage points and 12-month T-Bill rate increasing to 21% (from 12% recorded by end Q1 2022).

Despite the challenging environment witnessed in Q2 2022, the Group sustained its consistent performance to record strong Revenue growth across all business segments, namely, Mobile, Fixed Line, Digital Pay Television, International and Tele-infrastructure, relative to prior periods, namely, Year-to- Date (“YTD”) and Quarter-on-Quarter (“QoQ”). Accordingly, the Group recorded consolidated Revenue of Rs.81.6Bn for 1H 2022 and Rs43.3Bn for Q2 2022. However, driven by higher network spend and escalation in the cost base, Group Earnings Before Interest, Tax, Depreciation and Amortisation (“EBITDA”) declined to Rs27.5Bn for 1H 2022 down by a moderate 1% YTD. On a QoQ basis EBITDA declined 14% to record Rs12.7Bn for Q2 2022.

The Group Net Profit After Tax (“NPAT”) was impacted by the forex losses amid continued depreciation of the Sri Lankan Rupee (“LKR”) against the United States Dollar (“USD”). The resulting forex losses reached Rs.14.2Bn for Q2 2022 and Rs.34.3Bn for 1H 2022. The forex losses were predominantly contributed by market-to-market translational losses from USD denominated borrowings.

Group NPAT recorded a loss of Rs28.3Bn for 1H 2022 and a loss of Rs12.5Bn for Q2 2022 amid forex losses. Normalised for the said forex losses, NPAT continued to decline albeit recording profits of Rs6.0Bn for 1H 2022 and Rs1.6Bn for Q2 2022.

Dialog Group continued to be a significant contributor to state revenues, remitting a total of Rs16.9Bn to the Government of Sri Lanka (GoSL) during the first six months of 2022. Total remittances included Direct Taxes and Levies amounting to Rs9.2Bn and Rs7.7Bn in Consumption Taxes collected on behalf of the GoSL. The total taxes paid increased 46% YTD and 56% QoQ. The Direct Taxes included Rs3.8Bn paid during the quarter in lieu of one-off Surcharge Tax of 25% applicable on PAT of FY2020.

The Group continued to support critical investments in 1H 2022 to provide seamless and consistent connectivity whilst meeting the surge in data demand. Accordingly, the Capital expenditure reached Rs22.4Bn for 1H 2022. Capital expenditure was directed towards investments in High-Speed Broadband infrastructure to further expand Dialog’s leadership in Sri Lanka’s Broadband sector. In line with the above Capex, the Group Operating Free Cash Flow (“OFCF”) declined to Rs2.8Bn for 1H 2022.

During the quarter the Dialog Group entered into loan agreement of up to USD150Mn with the International Finance Corporation (“IFC”) that is expected to help expand and improve the network capacity through the upgrading of existing sites and the deployment of new 4G sites. IFC will also ensure that Dialog adopts an enhanced environmental and social management system (ESMS) according to IFC Performance Standards for their mobile network deployment, in line with Dialog’s endeavors of pursuing green connectivity, supporting global climate action goals and achieving net-zero CO2 emission by 2050.

The quarter also marked Dialog earning the distinction of being recognized as ‘Sri Lanka’s Most Valuable Brand’ for the fourth consecutive year by Brand Finance with a brand value of Rs54.0Bn. Dialog also retained its brand rating of AAA for the third consecutive year, as well as the title of ‘Most Valuable Telecommunications Brand’ for the 15th consecutive year reaffirming the brand’s ethos of empowering and enriching Sri Lankan lives and enterprises.

In a mission to provide emergency relief to the worst impacted families and communities in the country due to the ongoing economic crisis, Dialog Group together with like-minded corporates and partners launched the ‘Manudam Mehewara’ relief initiative in April 2022. As of date, this initiative has supported over 102,000 families in need with emergency relief and will continue in coming months with a target to support a total of 200,000 families across all 25 districts.

Being the most valuable Brand and ranked #1 amongst most respected entities for CSR/Sustainability in 2022, Dialog prides in championing ESG (Environmental, Social and Governance) in the country. The Board and Management of Dialog Group are committed to achieving NetZero CO2 emission by 2050 and as a first step aims to achieve Net Neutral by 2030. Accordingly, Dialog has adopted industry specific ESG performance reporting based on Sustainable Accounting Standard Board (SASB) and GSMA frameworks and resulting KPIs will be published along with the quarterly financial results going forward.

At an entity level, Dialog Axiata PLC (the “Company”) continued to contribute a major share of Group Revenue (60%) and Group EBITDA (69%). Company revenue was recorded at Rs49.1Bn for 1H 2022 up 11% YTD and Rs25.1Bn for Q2 2022 up 4% QoQ, resulting from growth in Data segment. Profitability continued to be impacted due to higher network spend and rise in operating expenses resulting from LKR depreciation against the USD as alluded to earlier. Accordingly, Company EBITDA was recorded at Rs19.0Bn for 1H 2022 down 5% and Rs9.0Bn for Q2 2022 down 11%. Downstream of EBITDA performance, Company NPAT recorded a loss of Rs25.9Bn for 1H 2022 and Rs10.7Bn for Q2 2022. Normalised for forex losses NPAT was recorded at Rs4.6Bn for 1H 2022 and Rs1.5Bn for Q2 2022.

Dialog Television (“DTV”), continued to consolidate its leadership position in the Digital Pay Television space with a subscriber growth of 6% YoY to exceed 1.7Mn homes by end June 2022. Driven by strong uptake in prepaid segment, DTV revenue was recorded at Rs5.6Bn for 1H 2022 albeit on a QoQ basis revenue declined 2% to reach Rs2.8Bn for Q2 2022. DTV EBITDA declined 24% to reach Rs1.1Bn for 1H 2022 due to escalation in cost base stemming from unfavorable forex movement. Consequently, DTV Net Loss increased to Rs2.9Bn in 1H 2022.

Dialog Broadband Networks (“DBN”) featuring the Group’s Fixed Telecommunications, Broadband and International Businesses recorded strong revenue growth of 42% YTD to reach Rs28.8Bn for 1H 2022 and Rs16.2Bn for Q2 2022, due to growth in wholesale revenue coupled with Fixed Broadband revenue. Following the revenue performance, DBN EBITDA increased to reach Rs7.4Bn for 1H 2022 while Net Profit reached Rs1.3Bn for 1H 2022.