Dialog profitability impacted by massive forex losses

Dialog Axiata PLC, Sri Lanka’s market leader in mobile telephony services, saw its June quarter (2Q22) and first half (1H22) profitability impacted by massive forex losses and escalation of costs, though at top line level the group made significant gains. 

The group recorded a consolidated revenue of Rs.81.6 billion for 1H22 and Rs.43.3 billion for 2Q22. However, driven by higher network spend and escalation in the cost base, the group earnings before interest, tax, depreciation and amortisation (EBITDA) declined to Rs.27.5 billion for the first half, down by a moderate one percent YTD. On a quarter-on-quarter (QoQ) basis, the EBITDA declined 14 percent to record Rs.12.7 billion for 2Q22.

Due to the sharp depreciation of the rupee against the US dollar, the group recorded a forex loss of Rs.14.2 billion for the quarter and Rs.34.3 billion for the first half. The forex losses were predominantly contributed by market-to-market translational losses from the US dollar-denominated borrowing of the group.

Largely owing to these forex losses, the group recorded a net loss of Rs.28.3 billion for the first half and a net loss of Rs.12.5 billion for the quarter. Normalised for the said forex losses, the earnings continued to decline albeit recording profits of Rs.6.0 billion for first half and Rs.1.6 billion for the quarter. 

Meanwhile, the group’s capital expenditure reached Rs.22.4 billion for 1H22. The capital expenditure was directed towards investments in high-speed broadband infrastructure to further expand Dialog’s leadership broadband sector. In line with the above capex, the group operating free cash flow (OFCF) declined to Rs.2.8 billion for the first half.

During the quarter under review, the Dialog group entered into a loan agreement of up to US $ 150 million with the International Finance Corporation (IFC) that is expected to help expand and improve the network capacity through the upgrading of the existing sites and deployment of new 4G sites.

Meanwhile, the group’s pay TV business under Dialog Television (DTV) continued to consolidate its leadership position, with a subscriber growth of 6 percent YoY to exceed 1.7 million homes by end-June 2022. The DTV revenue was recorded at Rs.5.6 billion for the first half albeit on a QoQ basis revenue declined 2 percent to reach Rs.2.8 billion for 2Q22. The DTV EBITDA declined 24 percent to reach Rs.1.1 billion for the first half, due to the escalation in the cost base stemming from unfavourable forex movement. Consequently, the DTV net loss widened to Rs.2.9 billion in the first half.

Dialog Broadband Networks (DBN), featuring the group’s fixed telecommunications, broadband and international businesses, recorded a strong revenue growth of 42 percent to reach Rs.28.8 billion for the first half and Rs.16.2 billion for the quarter, due to the growth in wholesale revenue coupled with fixed broadband revenue. Following the revenue performance, the DBN EBITDA increased to reach Rs.7.4 billion for 1H22 while the net profit reached Rs.1.3 billion.

The Dialog group continued to be a significant contributor to state revenues, remitting a total of Rs.16.9 billion to the Government of Sri Lanka (GoSL) during the first six months of 2022 as taxes and levies.

Dialog’s Malaysian parent Axiata Investments (Labuan) Limited holds 82.74 percent shares of the company while the Employees’ Provident Fund has a 2.9 percent stake.

Dialog share closed 10 cents or 1.11 percent up at Rs.9.10, yesterday.