Dialog Axiata swings to Rs.16bn loss on forex translation hit

Dialog Axiata PLC swung to a massive loss of Rs.15.8 billion in the three months to March 2022 after the company booked foreign exchange losses to the tune of Rs.20.17 billion, arising out of its foreign currency denominated borrowings as the rupee fell at least by 50 percent in the three months against the dollar, punishing companies with foreign currency borrowings.

Dialog said besides the dollar denominated loans it also has foreign vendor liabilities.

The loss per share of Rs.1.93 in the March quarter is compared with profits of 30 cents a share or Rs.2.45 billion in the same period last year when such foreign exchange losses were much more modest at Rs.2.11 billion.

However the net profit, normalised for the foreign exchange losses was reported at Rs.4.3 billion, nearly twice from what the company generated a year ago. Sri Lanka’s largest telco by revenue saw its top line growing by a robust 16.4 percent over the same period in 2021 although the costs rose across the board surpassing the revenue increase, in a sign that the company may find it extremely difficult to remain profitable even at the operating level without a tariff revision.

Telcos are the only exception, which are yet to pass down the higher cost to the subscriber at a time when consumer prices are charging at 30 percent or more over a year ago levels.

The company said its higher costs were due to the, “higher spend on network and direct costs due to escalation of dollar denominated expenses and increase in energy costs due to power cuts”.

The company generated consolidated revenues of Rs.38.25 billion in the January - March quarter, up 16.4 percent from the same period in 2021.

But the costs, both direct and overheads, rose between 17-20 percent respectively, slowing the EBITDA growth to just 8 percent from a year ago, and declining from the previous quarter ended in December 2021.

Breakdown of the revenue showed that all its three key business segments making higher revenues from the year ago period with the larger mobile segment generating Rs.24.2 billion, followed by Rs.11.2 billion by fixed telephony and broadband services and Rs.2.8 billion by pay TV operations.

This compares with Rs.21.9 billion, Rs.8.5 billion and Rs.2.4 billion recorded in the same quarter in 2021 when in fact the telcos were reporting highflying performances when the pandemic shifted many in person tasks into the digital spheres.

The current quarter revenue growth showed that the shift is still continuing despite numerous challenges stemming from the macro economy.

“The future impact will heavily depend on time taken for the economy to rebound. The overall impact on economy, consumer spending and the recovery of the country’s enterprises all also key determinants of future impact on our business,” Dialog said as part of its notes to the financial accounts.

The company said it made Rs.7.5 billion in capital investments in the quarter on, “investments in high-speed broadband infrastructure to further expand Dialog’s leadership in Sri Lanka’s broadband sector”.

Despite these investments, the company generated an operating free cash flow of Rs.6.2 billion for the quarter.

The Malaysia based Axiata Investments (Labuan) Limited has 82.74 percent stake in Dialog while the Employees’ Provident Fund held 2.90 percent stake being the company’s second largest shareholder.