COVID-19 relief impact Dialog revenues but cost control sustains profitability in Q2

• Top line impact of Rs. 2.9 b estimated for 1H 2020 stemming from COVID-19
• Contributes Rs. 9 b as direct and indirect taxes, fees and levies to Govt. 
• Makes capex investments of Rs. 6.4 b during 1H 2020, Operating Free Cash Flow improves to Rs.14 b 
• Extends support customers, Govt. and community in dealing with COVID-19

Dialog Axiata PLC said yesterday that COVID-19 concessions had an extended impact on its revenue in the first half of 2020, but cost control measures helped to sustain profitability. 

Dialog Axiata CEO Supun Weerasinghe

The Company said the concluded June quarter faced the brunt of the COVID-19 outbreak, which began unfolding from mid-March 2020. It said the estimated revenue impact stemming from concessions offered to customers and other COVID-19 associated challenges was approximately Rs. 2.9 billion for 1H 2020.  “While the overall performance in the month of June 2020 has improved to pre-COVID levels, the full and sustained recovery of performance will depend on the overall recovery of the Sri Lankan economy, in particular manufacturing, tourism, export sectors and easing of wallet pressure for the consumers,” Dialog said.

Driven by the unprecedented COVID-19 crisis and the impact in Q2, Dialog Axiata Group revenue for 1H 2020 recorded de-growth Year-to-Date (YTD), Quarter-on-Quarter (QoQ) and Year-on-Year (YoY) basis. 

The Group recorded consolidated revenue of Rs. 57.4 billion for 1H 2020, demonstrating a marginal decline of 1% YTD, while Group Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) also declined by 1% YTD to reach Rs. 22.9 billion for 1H 2020. 

The consolidated Group revenue for Q2 2020 was recorded at Rs. 28.2 billion, declining 4% QoQ and 3% YoY due to the slowdown in core revenue during the quarter. The Group EBITDA was recorded at Rs. 10.7 billion for Q2 2020 down 12% QoQ and 3% YoY. The Group EBITDA Margin was recorded at 39.8% for 1H 2020.

The Group Net Profit After Tax (NPAT) demonstrated a decline of 45% YTD to record at Rs. 3.8 billion for 1H 2020, underpinned by the dip in topline and increased provision for bad debts. 

On a QoQ and YoY basis, NPAT recorded growth of 55% and 16% respectively to reach Rs. 2.3 billion for Q2 2020. 

The Sri Lankan Rupee (LKR) appreciated by 2.0% against the United States Dollar (USD) during the quarter, resulting in an upliftment to NPAT. 

Normalised for forex (unrealised forex gain of Rs. 649 million for Q2 2020 and an unrealised forex loss of Rs. 950 million for 1H 2020), NPAT was recorded at Rs. 4.5 billion for 1H 2020, down 18% YTD, while on a QoQ and YoY basis, Q2 2020 NPAT declined 55% and 34% respectively to record at Rs. 1.4 billion.

Dialog said the Group continued to be a significant contributor to State revenues, remitting a total of Rs. 9.0 billion to the Government of Sri Lanka (GoSL) during the first six months of 2020. Total remittances included Direct Taxes and Levies amounting to Rs. 2.6 billion and Rs. 6.4 billion in Consumption Taxes collected on behalf of the GoSL.

The Group capital expenditure was prioritised in 1H 2020 to accommodate urgent network upgrades, while the restrictions on importation and deployment of capex in Q2 2020 resulted in lower capex for 1H 2020, which was recorded at Rs. 6.4 billion representing a capex to revenue ratio of 11%. 

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. 14 billion for 1H 2020. The Group continued to exhibit a low geared balance sheet with the Net Debt to EBITDA ratio being maintained at 0.75x as at end of June 2020.

At an entity level, Dialog Axiata PLC continued to contribute a major share of Group Revenue (69%) and Group EBITDA (75%). 

Company revenue was record at Rs. 39.6 billion for 1H 2020 and Rs. 19.1 billion for Q2 2020, declining 5% YTD, 7% QoQ and 8% YoY respectively, mainly due to the externalities alluded to earlier and the corresponding slowdown in core revenues. 

Downstream of the revenue performance Company EBITDA was recorded at Rs. 17.1 billion for 1H 2020 and Rs. 7.9 billion for Q2 2020, representing a decrease of 3% YTD, 14% QoQ, and 4% YoY respectively. Company NPAT declined by 34% YTD to record at Rs. 4.5 billion for 1H 2020, albeit growing 72% QoQ and 43% YoY to reach Rs. 2.8 billion, owing to the favourable forex movement during the quarter. Normalised for forex2, Company NPAT recorded a decline of 3% YTD, 42% QoQ and 7% YoY.

Dialog Television (DTV) continued to consolidate its leadership position in the Digital Pay Television space, with a subscriber growth of 17% YoY to surpass the milestone of reaching 1.5 million homes by end June 2020. DTV revenue was significantly impacted in Q2 2020, due to provision of access to all channels during the lockdown period. Accordingly, DTV revenue declined 10% QoQ and 8% YoY to reach Rs. 2 billon, albeit on YTD basis revenue remained flat at Rs. 4.3 billion for 1H 2020. 

On the back of muted revenue performance and increased provision for bad debts, DTV EBITDA declined by 1% YTD to reach Rs. 1.1 billion for 1H 2020. Consequently, DTV Net Loss increased to Rs. 625 million in 1H 2020 relative to a Net Loss of Rs. 269 million for the corresponding period in 2019.

Dialog Broadband Networks (DBN), featuring the Group’s Fixed Telecommunications, Broadband and International Businesses, recorded revenue of Rs. 15.3 billion for 1H 2020 and Rs. 7.9 billion for Q2 2020, up 14% YTD, 7% QoQ and 18% YoY respectively, due to growth in Fixed Broadband and wholesale revenues. 

Despite the strong revenue performance, DBN EBITDA declined 3% YTD to reach Rs. 4.6 billion for 1H 2020, owing to increased provision for bad debts. Accordingly, DBN recorded a Net Loss of Rs. 45 million for 1H 2020, relative to a Net Profit of Rs. 0.8 billion for the corresponding period in 2019.