dtl(fs) - 30 september 2007 - dialog home · xls file · web view ·...

DIALOG TELEKOM PLC

CONDENSED CONSOLIDATED INTERIM FINANCIALINFORMATION FOR THE FOURTH QUARTER ENDED 31 DECEMBER 2008

DIALOG TELEKOM PLC AND ITS SUBSIDIARIES

Balance sheet

(all amounts in Sri Lanka Rupees Thousands) As at 31 December 2008 As at 31 December 2007

Group Company Group CompanyASSETS (Restated) Non-current assetsProperty, plant and equipment 64,698,584 56,718,021 50,665,921 45,955,975 Intangible assets 3,901,887 1,337,747 3,919,177 1,236,106 Investments in subsidiaries Nil 8,826,010 Nil 2,335,510 Other investments 16,000 16,000 Nil Nil Amount due from subsidiaries Nil 2,779,612 Nil 5,332,260

68,616,471 69,677,390 54,585,098 54,859,851 Current assetsInventories 655,957 646,601 707,031 704,194 Trade and other receivables 10,742,903 8,308,351 10,090,263 8,280,628 Cash and cash equivalents 1,645,866 1,544,735 6,343,121 6,062,156

13,044,726 10,499,687 17,140,415 15,046,978 Total assets 81,661,197 80,177,077 71,725,513 69,906,829

EQUITY Capital and reserves attributable to equityholders of the CompanyStated capital 32,556,113 32,556,113 33,056,413 33,056,413 ESOS Trust shares (1,990,921) (1,990,921) (2,000,439) (2,000,439)Dividend reserve - ESOS 260,067 260,067 172,722 172,722 Revaluation reserve 19,913 19,913 20,377 20,377 Retained earnings 10,964,118 14,549,916 19,036,282 20,130,681

41,809,290 45,395,088 50,285,355 51,379,754 Total equity 41,809,290 45,395,088 50,285,355 51,379,754

LIABILITIESNon-current liabilitiesSubscription in advance Nil Nil 306 306 Borrowings 8,828,439 7,818,455 5,172,921 4,751,593 Deferred tax liability 607,437 605,992 140,084 119,823 Retirement benefit obligations 205,069 187,378 211,916 201,554 Provision for other liabilities 194,924 194,924 142,979 142,979

9,835,869 8,806,749 5,668,206 5,216,255 Current liabilitiesTrade and other payables 11,060,739 8,464,849 10,929,692 9,175,605 Current income tax liabilities 60,506 59,590 19,913 19,344 Borrowings 18,894,793 17,450,801 4,822,347 4,115,871

30,016,038 25,975,240 15,771,952 13,310,820 Total liabilities 39,851,907 34,781,989 21,440,158 18,527,075 Total equity and liabilities 81,661,197 80,177,077 71,725,513 69,906,829 Net assets per share (Rs.) 5.13 5.57 6.17 6.30

The financial statements for the year ended 31 December 2008 have been audited by the Company's Auditors, PriceWaterhouseCoopers.


Income statement

(all amounts in Sri Lanka Rupees Thousands) Year ended Year ended

31 December 2008 31 December 2007 Group Company Group Company

(Restated)

Turnover 36,168,830 33,108,013 34,127,050 32,787,471

Direct costs (19,989,153) (17,630,235) (13,153,686) (11,881,600)

Gross margin 16,179,677 15,477,778 20,973,364 20,905,871

Other operating income 610,862 634,047 367,623 325,649

Administrative expenses (10,468,008) (8,501,797) (6,325,860) (5,426,048)

Distribution costs (6,691,043) (5,855,365) (5,432,954) (5,148,813)

Operating (loss) / profit (368,512) 1,754,663 9,582,173 10,656,659

Finance costs (2,003,761) (1,617,071) (630,018) (485,059)

(Loss) / profit before tax (2,372,273) 137,592 8,952,155 10,171,600

Tax (507,068) (525,534) (45,302) (45,086)

(Loss) / profit for the year (2,879,341) (387,942) 8,906,853 10,126,514

Attributable to:

Equity holders of the Company (2,879,341) (387,942)### 8,906,853 10,126,514

- Basic (0.45) (0.14) 1.15 1.30

- Diluted (0.45) (0.14) 1.13 1.29

(Loss) / earnings per share on (loss) / profit attributable to the equity holders of the Company during the year (expressed in Rs per share)


Income Statement

(all amounts in Sri Lanka Rupees Thousands) Three months ended Three months ended


(Restated)

Turnover 8,782,558 7,952,394 8,999,600 8,545,657

Direct costs (6,138,167) (5,327,371) (3,773,339) (3,490,798)

Gross margin 2,644,391 2,625,023 5,226,261 5,054,859

Other operating income 393,062 411,765 154,156 187,632

Administrative expenses (3,600,620) (3,072,054) (2,183,327) (1,705,268)

Distribution costs (1,948,277) (1,631,896) (1,758,985) (1,604,285)

Operating (loss) / profit (2,511,444) (1,667,162) 1,438,105 1,932,938

Finance costs (1,258,808) (1,074,535) 136,905 165,562

(Loss) / profit before tax (3,770,252) (2,741,697) 1,575,010 2,098,500

Tax (140,090) (178,608) 27,977 44,752

(Loss) / profit for the period (3,910,342) (2,920,305)### 1,602,987 2,143,252

Attributable to:

Equity holders of the Company (3,910,342) (2,920,305)### 1,602,987 2,143,252

- Basic (0.54) (0.41) 0.21 0.27

- Diluted (0.54) (0.42) 0.20 0.27

(Loss) / earnings per share on (loss) / profit attributable to the equity holders of the Company during the period (expressed in Rs per share)

The above figures are subject to audit.

Page 3


Cash Flow Statement

(all amounts in Sri Lanka Rupees Thousands) Year ended Year ended


Cash flows from operating activities (Restated) Cash generated from operations 7,967,392 7,042,502 ### 13,211,816 12,793,700 Interest received 83,958 82,969 ### 161,375 160,202 Interest paid (1,196,927) (847,309)### (774,823) (618,028)Tax / SRL/ ESC paid (60,166) (60,164)### (61,532) (60,270)Retirement benefit obligations paid (6,613) (6,363)### (2,403) (2,007)Net cash generated from operating activities 6,787,644 6,211,635 12,534,433 12,273,597

Cash flows from investing activitiesPurchases of property, plant and equipment (PPE) (315,671) (243,620)### (404,165) (193,946)Purchases of intangible assets (33,074) (23,467)### (186,865) (142,353)Issue of shares against amount given to subsidiaries Nil (2,847,427)### Nil (3,130,476)Expenditure incurred on capital work-in-progress (22,699,473) (17,836,330)### (24,944,964) (21,793,825)Acquisition of subsidiary, net of cash acquired Nil ### (39,666) (39,666)Investment in SLINTEC (16,000) (16,000)### Nil Nil Proceeds from sale of PPE 38,230 22,876 76,721 30,036 Net cash used in investing activities (23,025,988) (20,943,968) (25,498,939) (25,270,230)

Cash flows from financing activitiesProceeds from issue of shares Nil Nil 15,376,035 15,376,035 Proceeds from treasury shares - ESOS 9,212 9,212 129,308 129,308 Payment for purchase of ESOS shares Nil Nil (205,452) (205,452)

Nil Nil 5,000,000 5,000,000

(500,000) (500,000) Nil Nil Legal fee on issuing of preference shares (300) (300) Nil Nil Repayment of finance leases (43,755) (17,519) (43,705) (18,656)Repayment of borrowings (11,931,408) (9,973,546) (12,197,706) (11,265,833)Proceeds from borrowings 26,670,939 23,406,955 12,736,259 11,728,760 Dividend reserved - ESOS 87,345 87,345 102,413 102,413 Ordinary Dividends paid (4,479,078) (4,479,078) (4,071,889) (4,071,889)Preference share dividends paid (714,209) (714,209) (60,988) (60,988)Net cash generated from financing activities 9,098,746 7,818,860 16,764,275 16,713,698

Net (decrease) / increase in cash and cashequivalents (7,139,598) (6,913,473) 3,799,769 3,717,065

Movement in cash and cash equivalents At start of year 6,092,069 6,062,156 2,184,664 2,237,455 (Decrease) / increase (7,139,598) (6,913,473) 3,799,769 3,717,065

Proceeds from issuance of rated cumulative redeemable Redemption of rated cumulative redeemable preference shares

Foreign exchange adjustment (756) (756) 107,636 107,636 At end of year (1,048,285) (852,073) 6,092,069 6,062,156

Page 6


Notes to the financial statements

(in the notes all amounts in Sri Lanka Rupees thousands unless otherwise stated)

1 General information

Issued ordinary shares of the Company have been listed on the Colombo Stock Exchange since 28 July 2005.

2 Basis of preparation

3 Accounting policies

4 Segment information

(a) Primary reporting format - business segments

o The segment results for the year ended 31 December 2008 are as follows:

Cellular Global Other Unallocated Group Operations Operations

Total segmental revenue 32,024,966 8,363,319 3,692,203 Nil 44,080,488 Inter-segment revenue (3,869,565) (3,410,706) (631,387) Nil (7,911,658)

Revenue from external customers 28,155,401 4,952,613 3,060,816 Nil 36,168,830

Operating profit / (loss)segment results 3,780,513 (2,025,850) (2,072,889)### (50,286) (368,512)

Finance income 67,571 Finance costs (2,071,332)

Loss before income tax (2,372,273)Income tax expense (507,068)

Loss for the year (2,879,341)

Dialog Telekom PLC (the “Company”) and its subsidiaries (together “the Group”) provide Communication (Mobile, Internet, International, Data and Backbone, Fixed wireless and Transmission infrastructure) and Media related services.

Dialog Telekom PLC is a public limited liability company incorporated and domiciled in Sri Lanka and listed on the Colombo Stock Exchange. The registered office of the Company is located at 475, Union Place, Colombo 2.

The condensed interim consolidated financial information of Dialog Telekom PLC for the period ended 31 December 2008 has been prepared in accordance with Sri Lanka Accounting Standard 35 “Interim Financial Reporting”. The interim consolidated financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2007.

Except as disclosed in Note 7, the accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 December 2007.


Notes to the financial statements (contd)

4 Segment information (contd)

o Other segment items included in the income statement are as follows:

Cellular Global Other GroupOperations Operations

Depreciation / impairment 6,676,756 55,156 ### 1,369,302 8,101,214 Amortization 454,028 63,317 ### 139,402 656,747

Cellular Global Other Unallocated Group Operations Operations

Assets 73,381,072 6,796,004 1,484,121 Nil 81,661,197 Liabilities 7,085,136 1,762,015 2,612,638 28,392,118 39,851,907 Capital expenditure 17,573,447 543,237 4,949,043 Nil 23,065,727

o The segment results for the year ended 31 December 2007 are as follows:

Cellular External Other Unallocated Group Operations gateway

operations


Revenue from external customers 28,545,070 3,631,691 1,950,289 ### Nil 34,127,050 Operating profit / (loss)

segment results 9,906,823 596,823 (868,611) (52,862) 9,582,173 Finance income 169,817 Finance costs (799,835)

Profit before income tax 8,952,155 Income tax expense (45,302)

Profit for the year 8,906,853

(a) Primary reporting format - business segments (Contd)

o Other segment items included in the income statement are as follows:

Cellular External Other GroupOperations gateway

operations

Depreciation / impairment 3,473,433 48,551 674,422 4,196,406 Amortization 376,818 22,835 108,264 507,917

Cellular External Other Unallocated Group Operations gateway

operations

Assets 65,781,937 3,617,869 2,325,707 Nil 71,725,513 Liabilities 11,974,408 569,493 2,683,924 6,212,333 21,440,158 Capital expenditure 21,595,041 209,280 3,455,678 Nil 25,259,999



4 Segment information (contd)

(b) Secondary reporting format - geographical segments

5 Stated capital

6 Loan facility from TM International Bhd

7 Prior year adjustment

8 Subsequent events

Refund of telecommunication development charge

9 Comparatives

Inter segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties.

Segment assets consist primarily of property, plant and equipment, intangible assets, capital work in progress, inventories, trade and other receivables, and cash and cash equivalents.

Segment liabilities comprise operating liabilities. Unallocated liabilities comprise the items such as taxation and borrowings.

Capital expenditure comprises additions to property, plant and equipment and intangible assets, including additions resulting from acquisitions through business combinations.

The Group's two business segments operate in one main geographical area, hence they do not qualify for secondary reporting.

Stated Capital of the Company consist of 8,143,778,405 ordinary shares and 4,500,000,000 rated cumulative redeemable preference shares.

Dialog Telekom PLC has obtained a short term loan amounting Rs 3,724,346,816 as a bridging facility from the ultimate parent Company TM International Bhd. TM International Bhd also provided short term advance amounting to USD 10 Mn for expenditure related to telecommunication expansion, launch of CDMA & Pay TV services.

The policy followed by subsidiary in respect of revenue recognition was changed during the year. The revenue which was previously recognized up front at the time of granting the connection is now recognized over the subscriber churn. This change in accounting policy has been accounted for as a prior year adjustment, in accordance with SLAS 10 – Accounting Policies, Changes in Accounting Estimates and Errors, by restating comparative figures and adjusting the opening balance of retained earnings. The change, in the opinion of the directors, is considered to give a fairer representation of the results for the period and the status of the assets and liabilities at the end of the period.

The Company lodged an application for the refund of telecommunication development charges paid in previous years to the Telecommunication Regulatory Commission on termination revenue. Following a review carried out by the Commission on the network rollout of specified areas, the Commission has confirmed a refund of Rs 497,551,143.

Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current period.



10 Market price per share2008 2007

For the three months ended 31 December

- Highest 8.25 24.50 - Lowest 5.75 19.75 - Last traded 6.00 20.00

11 Contingent liabilities

(a) Pending litigation

(b) Assessment in respect of Value Added Tax (VAT)

(c) Enquiry by Sri Lanka Customs

Page 10

The Group has contingent liabilities in respect of legal claims arising in the ordinary course of business. It is not anticipated that any material liabilities will arise from the contingent liabilities, with no additional payment being anticipated as of date. Accordingly, no provision has been made for legal claims in the financial statements.

The Company has been issued with Value Added Tax assessments for Rs 555,673,434 and penalties of Rs 353,821,168 in respect of Financial year 2006 (year of assessment 2006/07) The Company is not in agreement with the assessments and has appealed against the assessments under Section 34 of the Value Added Tax Act.

The Company has sought legal opinion on the assessments and has been advised that the assessments are not sustainable in law. The Directors therefore are of the view that the assessments made are unlikely to result in significant liabilities and accordingly no provision has been made in the financial statements.

In August 2008, Sri Lanka Customs (SLC) detained a shipment of CDMA Customer Premises Equipment (CPE), belonging to Subsidiary Company, and commenced an investigation into the eligibility of these items falling under the duty exemptions granted under the terms and conditions of the Agreement the Subsidiary has entered with the Board of Investment of Sri Lanka. The shipment was subsequently cleared by submitting bank guarantees and thereafter paying duty under protest to clear subsequent shipments. The main contention of SLC was that the CDMA CPE could not be considered a fixed asset of the Subsidiary. Having completed the investigation, SLC commenced an inquiry into this matter on 30th January 2009.

No assessment has been made on the Subsidiary at the date of the balance sheet. Management has sought the opinion of external legal counsel who is of the view that no material liability would result from the inquiry.


Statement of changes in equity - Group

(all amounts in Sri Lanka Rupees Thousands)Attributable to equity holders of the Company

Stated Shares in Dividend Revaluation Retained Minority Note capital ESOS trust reserve reserve earnings interest Total

Balance at 1 January 2007 12,680,378 (1,925,226) 70,309 20,840 14,206,808 (72) 25,053,037

Net profit Nil Nil Nil Nil 8,967,159 Nil 8,967,159

Issue of shares 15,423,820 Nil Nil Nil Nil Nil 15,423,820

Issue of rated cumulative redeemable

preference shares 5,000,000 Nil Nil Nil Nil Nil 5,000,000

Expenses related to issurance of

preference shares (47,785) Nil Nil Nil Nil Nil (47,785)

Dividend paid to ordinary shareholders Nil Nil Nil Nil (4,071,889) Nil (4,071,889)

Dividend paid to rated cumulative

redeemable preference shares Nil Nil Nil Nil (60,988) Nil (60,988)

Dividend received ESOS Nil Nil 102,413 Nil Nil Nil 102,413

Depreciation transfer Nil Nil Nil (463) 463 Nil Nil

Purchase shares - ESOS Nil (205,452) Nil Nil Nil Nil (205,452)

Shares exercised - ESOS Nil 130,545 Nil Nil Nil Nil 130,545

Subscription in advance Nil (306) Nil Nil Nil Nil (306)

Transfer of minority interest Nil Nil Nil Nil 55,035 72 55,107

Balance as at 31 December 2007 33,056,413 (2,000,439) 172,722 20,377 19,096,588 Nil 50,345,661

Balance at 1 January 2008As previously reported 33,056,413 (2,000,439) 172,722 20,377 19,096,588 Nil 50,345,661 Prior year adjustment 7 Nil Nil Nil Nil (60,306) Nil (60,306)

As restated 33,056,413 (2,000,439) 172,722 20,377 19,036,282 Nil 50,285,355

Net loss Nil Nil Nil Nil (2,879,341) Nil (2,879,341)

Legal fee on Issue of shares (300) Nil Nil Nil Nil Nil (300)

Redemption of rated cumulative redeemable

preference shares (500,000) Nil Nil Nil Nil Nil (500,000)

Dividend paid to rated cumulative redeemable

preference shares Nil Nil Nil Nil (714,209) Nil (714,209)

Dividend paid to ordinary shareholders Nil Nil Nil Nil (4,479,078) Nil (4,479,078)

Dividend received ESOS Nil Nil 87,345 Nil Nil Nil 87,345

Depreciation transfer Nil Nil Nil (464) 464 Nil Nil

Shares exercised - ESOS Nil 9,518 Nil Nil Nil Nil 9,518

Subscription in advance Nil Nil Nil Nil Nil Nil Nil

Balance at 31 December 2008 32,556,113 (1,990,921) 260,067 19,913 10,964,118 Nil 41,809,290

Page 4


Statement of changes in equity - Company

(all amounts in Sri Lanka Rupees Thousands) Attributable to equity holders of the Company

Stated Shares in Dividend Revaluation Retained capital ESOS trust reserve reserve earnings Total

Balance at 1 January 2007 12,680,378 (1,925,226) 70,309 20,840 14,136,581 24,982,882

Net profit Nil Nil Nil Nil 10,126,514 10,126,514

Issue of shares 15,423,820 Nil Nil Nil Nil 15,423,820

Issue of rated cumulative redeemable

preference shares 5,000,000 Nil Nil Nil Nil 5,000,000

Expenses related to issurance of

preference shares (47,785) Nil Nil Nil Nil (47,785)

Dividend paid to ordinary shareholders Nil Nil Nil Nil (4,071,889) (4,071,889)

Dividend paid - Rated Cumulative

redeemable preference shares Nil Nil Nil Nil (60,988) (60,988)

Dividend received ESOS Nil Nil 102,413 Nil Nil 102,413

Depreciation transfer Nil Nil Nil (463) 463 Nil

Share purchased - ESOS Nil (205,452) Nil Nil Nil (205,452)

Shares exercised Nil 130,545 Nil Nil Nil 130,545

Subscription in advance Nil (306) Nil Nil Nil (306)

Balance as at 31 December 2007 33,056,413 (2,000,439) 172,722 20,377 20,130,681 51,379,754

Balance at 1 January 2008 33,056,413 (2,000,439) 172,722 20,377 20,130,681 51,379,754

Net loss Nil Nil Nil Nil (387,942) (387,942)

Legal fee on Issue of shares (300) Nil Nil Nil Nil (300)

Redemption of rated cumulative redeemable

preference shares (500,000) Nil Nil Nil Nil (500,000)

Dividend paid to rated cumulative redeemable

preference shares Nil Nil Nil Nil (714,209) (714,209)

Dividend paid to ordinary shareholders Nil Nil Nil Nil (4,479,078) (4,479,078)

Dividend received ESOS Nil Nil 87,345 Nil Nil 87,345

Depreciation transfer Nil Nil Nil (464) 464 Nil

Shares exercised - ESOS Nil 9,518 Nil Nil Nil 9,518

Subscription in advance Nil Nil Nil Nil Nil Nil

Balance at 31 December 2008 32,556,113 (1,990,921) 260,067 19,913 14,549,916 45,395,088

Page 5

Indipendent Auditor's Report

To the shareholders of Dialog Telekom Plc

Report on the Financial Statements

Management’s Responsibility for the Financial Statements

Scope of Audit and Basis of Opinion

Opinion

Report on Other Legal and Regulatory Requirements

CHARTERED ACCOUNTANTSCOLOMBO

1 We have audited the consolidated financial statements of Dialog Telekom plc and its subsidiaries, which comprise the consolidated balance sheet as at 31 December 2007, consolidated income statements, consolidated statement of changes in equity a

2 Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Sri Lanka Accounting Standards. This responsibility includes: designing, implementing and maintaining internal contr

3 Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable

4 An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as

5 We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit. We therefore believe that our audit provides a reasonable basis for our opinion.

6 In our opinion, the consolidated financial statements give a true and fair view of the state of affairs as at 31 December 2007 and the profit and cash flows for the year then ended, in accordance with Sri Lanka Accounting Standards, of the Comp


Income Statement

(all amounts in Sri Lanka Rupees Thousands) Group Company Notes Year ended 31 December Year ended 31 December

2008 2007 2008 2007

Turnover 3 #REF! 34,127,050 #REF! 32,787,471

Direct costs #REF! (13,193,361) #REF! (11,881,600)

Gross margin #REF! 20,933,689 #REF! 20,905,871

Other operating income #REF! 367,622 #REF! 325,649

Administrative expenses #REF! (6,286,184) #REF! (5,426,048)

Distribution costs #REF! (5,432,954) #REF! (5,148,813)

Operating profit #REF! 9,582,173 #REF! 10,656,659

Finance costs 6 #REF! (630,018) #REF! (485,059)

Profit before tax #REF! 8,952,155 #REF! 10,171,600

Tax 7 #REF! (45,302) #REF! (45,086)

Profit for the year #REF! 8,906,853 #REF! 10,126,515

Attributable to:

Equity holders of the Company #REF!### 8,906,853 ### #REF!### 10,126,515

Minority interest Nil Nil Nil Nil

- basic 9 1.14 1.38 #REF! 1.37

The notes on pages 8 to 36 form an integral part of these financial statements.

Earnings per share for profit attributable to the equity holders of the Company during the year (expressed in Rs per share)


Income Statement

(all amounts in Sri Lanka Rupees Thousands) Group Company Three Three

months ended months ended 31 December 31 December

2008 2007 2008 2007

Turnover 3 #REF! 8,999,600 #REF! 8,545,657

Direct costs #REF! (3,813,014) #REF! (3,490,798)

Gross margin #REF!### 5,186,586 ### #REF!### 5,054,859

Other operating income #REF! 154,155 #REF! 187,632

Administrative expenses #REF! (2,143,651) #REF! (1,705,268)

Distribution costs #REF! (1,758,985) #REF! (1,604,285)

Operating profit #REF!### 1,438,105 ### #REF!### 1,932,938

Finance costs 6 #REF! 136,905 #REF! 165,562

Profit before tax #REF!### 1,575,010 ### #REF!### 2,098,500

Tax 7 #REF! 27,977 #REF! 44,752

Profit for the year #REF!### 1,602,987 ### #REF!### 2,143,253

Attributable to:

Equity holders of the Company #REF!### 1,602,987 ### #REF!### 2,143,253

Minority interest Nil Nil Nil Nil

- basic 9 #REF! 0.35 #REF! 0.35

Earnings per share for profit attributable to the equity holders of the Company during the year (expressed in Rs per share)


Balance Sheet

(all amounts in Sri Lanka Rupees Thousands) Group Company Notes 31 December 31 December

ASSETS 2008 2007 2008 2007

Non - Current AssetsProperty, Plant and Equipment 11 #REF! 50,665,921 #REF! 45,955,975 Intangible Assets 12 #REF! 3,919,177 #REF! 1,236,106 Investments in Subsidiaries 13 #REF! Nil #REF! 2,335,510 Other Investment #REF! Nil #REF!Deferred tax assets #REF! Nil Nil Nil

#REF! 54,585,098 #REF! 49,527,591 Current AssetsInventories 15 #REF! 707,031 #REF! 704,194 Trade and other Receivables 14 #REF! 10,090,263 #REF! 13,612,888 Cash and Cash Equivalents 16 #REF! 6,343,121 #REF! 6,062,156

#REF! 17,140,415 #REF! 20,379,238 Total Assets #REF! 71,725,513 #REF! 69,906,829

EQUITY

Stated Capital 17 #REF! 33,056,413 #REF! 33,056,413 ESOS Trust shares 17 #REF! (2,000,439) #REF! (2,000,439)Dividend Reserve - ESOS #REF! 172,722 #REF! 172,722 Revaluation Reserve 18 #REF! 20,377 #REF! 20,377 Retained Earnings #REF! 19,036,282 #REF! 20,130,681

#REF! 50,285,355 #REF! 51,379,754

Total equity #REF! 50,285,355 #REF! 51,379,754

Non - current liabilitiesSubscription in Advance 22 #REF! 306 #REF! 306 Borrowings 20 #REF! 5,172,921 #REF! 4,751,593 Deferred Tax Liability 21 #REF! 140,084 #REF! 119,823 Retirement Benefit Obligations 23 #REF! 211,916 #REF! 201,554 Provision for Other Liabilities #REF! 142,978 #REF! 142,979

#REF! 5,668,205 #REF! 5,216,255 Current liabilitiesTrade and Other Payables 19 #REF! 10,929,692 #REF! 9,175,605 Deferred income 19,914 19,344 Current Income Tax Liabilities #REF! 4,822,347 #REF! 4,115,871 Borrowings 20 #REF! #REF!

#REF! 15,771,953 #REF! 13,310,820 Total Liabilities #REF! 21,440,158 #REF! 18,527,075 Total Equity and Liabilities #REF! 71,725,513 #REF! 69,906,829

#REF! - #REF! -

………………………………………………..

Chief Financial Officer…………………………………………)

) Directors…………………………………………)


Capital and Reserves Attributable to Equity Holders of the Company

The Board of Directors is responsible for the preparation and presentation of these financial statements. These financial statements were approved by the Board of Directors on ………………....

I certify that these financial statements have been prepared in compliance with the requirements of the Companies Act No. 07 of 2007.


Cash Flow Statement

(all amounts in Sri Lanka Rupees Thousands) Notes Group Company

Year ended 31 December Year ended 31 December 2008 2007 2008 2007

Cash Flows from Operating ActivitiesCash generated from operations 24 #REF! 16,697,771 #REF! 16,736,582 Interest received #REF! 161,375 #REF! 160,202 Interest paid #REF! (774,823) #REF! (618,028)Tax/ESC paid #REF! (61,482) #REF! (60,220)Retirement benefit obligations paid 23 #REF! (2,403) #REF! (2,007)

Net cash generated from operating activities #REF! 16,020,438 #REF! 16,216,529

Cash Flows from Investing Activities#REF! (404,165) #REF! (193,946)

Purchases of intangible assets #REF! (186,865) #REF! (142,353) 28 #REF! #REF! (3,130,476)

Investment installement to SLINTEC #REF! #REF!#REF! (24,488,034) #REF! (21,793,825)

Acquisition of subsidiary, net of cash acquired (39,666) (39,666) 27

Proceeds from sale of PPE #REF! 76,721 #REF! 30,036 Dividend received - ESOSNet Cash used in Investing Activities #REF! (25,042,009) #REF! (25,270,230)

Cash Flows from Financing ActivitiesProceeds from issuance of ordinary shares 15,376,035 15,376,035 Redemption of preferance shares #REF! #REF!Legal fee on issuing of preference shares #REF! #REF!Proceeds from treasury shares - ESOS 17 #REF! 129,308 #REF! 129,308 Purchase of treasury shares - ESOS (205,452) (205,452)Proceeds from issuance of redeemable preference shares 5,000,000 5,000,000 Repayment of finance leases #REF! (43,705) #REF! (18,656)Repayment of borrowings #REF! (12,197,706) #REF! (11,265,833)Proceeds from borrowings #REF! 8,793,324 #REF! 7,785,828 Dividends paid to company’s shareholders #REF! (4,071,889) #REF! (4,071,889)Dividend reserve ESOS #REF! 102,413 #REF! 102,413 Dividends paid to holders of redeemable preferences shares #REF! (60,988) #REF! (60,988)

#REF! 12,821,340 #REF! 12,770,766

#REF!### 3,799,768 #REF! 3,717,064

Movement in Cash and Cash Equivalents

At start of year #REF! 2,184,664 #REF! 2,237,455 Increase / (decrease) #REF! 3,799,768 #REF! 3,717,064 Forex adjustment #REF! 107,636 #REF! 107,636

At end of year 16 #REF!### 6,092,068 #REF!### 6,062,155 (1) (1)


Purchases of property, plant and equipment (PPE)

Advances given to subsidiaries / Receipt of Subscription in advance

Expenditure incurred on capital work-in-progress

Net Cash generated from/ (used in) Financing Activities

Net increase/ (decrease) in Cash and Cash Equivalents


Notes to the Financial Statements

(In the notes all amounts are shown in Sri Lanka Rupees Thousands unless otherwise stated)

1 General information

Issued ordinary shares of the Company have been listed on the Colombo Stock Exchange since 28 July 2005.

2 Summary of significant accounting policies

2.1 Basis of accounting

2.2 Consolidation(a) Subsidiaries

Dialog Telekom PLC (the "Company") and its subsidiaries (together "the Group") provides Communication (Mobile, Internet, International, Data and backbone and Transmission infrastructure) and Media related services. In 2006, the Group acquired 90% control of Dialog Television (Private) Limited (formerly known as Asset Media (Private) Limited (AML)), Communiq Broadband Networks (Private) Limited (CBNL) and CBN SAT (Private) Limited (CBNSL). DTV is licensed by the Ministry of Media to provide Television Broadcasting services, delivery of Pay Television and Cable Television Services and the operation of a Television broadcasting station. CBNL is a Direct-to-Home satellite TV service, the operations of which are being manage via DTV under the brand Dialog TV. During the year, the Group acquired the remaining stake of 10% in DTV, resulting DTV to become a fully owned subsidiary of the Company.

Dialog Telekom Limited is a public limited liability company incorporated and domiciled in Sri Lanka and listed on the Colombo Stock Exchange. The registered office of the Company is located at 475, Union Place, Colombo 2.

The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

The consolidated financial statements have been prepared in accordance with Sri Lanka Accounting Standards. These financial statements have been prepared under the historical cost convention, as modified by the revaluation of buildings.

Subsidiary undertakings, being those companies in which the Group, directly or indirectly, has an interest of more than one half of the voting rights or otherwise has power to exercise control over the operations, have been consolidated. Subsidiaries are consolidated from the date on which effective control is transferred to the Group and are no longer consolidated from the date of disposal. All inter company transactions, balances and unrealized surpluses and deficits on transactions between group companies have been eliminated. Where necessary, accounting policies for subsidiaries have been changed to ensure consistency with the policies adopted by the Group. All assets and liabilities of the Company and its subsidiaries included in the consolidation are shown in the consolidated balance sheet.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement (see Note 2.5).


Notes to the financial statements (Contd)

2.2 Consolidation (Contd)(a) Subsidiaries (Contd)

The subsidiary undertakings financial years are coterminous with that of the Company.

(b) Transactions and minority interests

2.3 Segment Reporting

2.4 Foreign currencies

2.5 Intangible assets(a) Goodwill

(b) Licenses

Minority interest is measured at the minorities’ share of the post acquisition fair values of the identifiable assets and liabilities of the acquired entity. Separate disclosure is made of minority interest.

The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Disposals to minority interests result in gains and losses for the Group that are recorded in the income statement. Purchases from minority interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary.

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments.

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Sri Lankan Rupees, which is the Company’s functional and presentation currency.

Foreign currency transactions are accounted for at the exchange rates prevailing at the date of the transactions; gains and losses resulting from settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies, are recognized in the income statement. Such balances are translated at year-end exchange rates.

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill acquired in a business combination is tested annually for impairment, or more frequently if events or changes in circumstance indicate that it might be impaired; and carried at costs less accumulated impairment losses. Impairment losses on goodwill are not reversed.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose.

Licenses are shown at historical cost. Licenses have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of licenses over their estimated useful lives of 5 to 10 years.



2.5 Intangible assets (Contd)(c) Computer software

Computer software development costs recognized as assets are amortised over their estimated useful lives.

(c) Other intangibles

2.6 Property, plant and equipment(a) Cost and valuation

Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful life of 2 years.

Costs associated with developing or maintaining computer software programmes are recognized as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognized as intangible assets.

Other intangibles solely consist of the costs incurred to acquire Sea-Me-We 3 usage right and, is amortised over its useful life of 15 years.

All property, plant and equipment is initially recorded at cost. Buildings are subsequently shown at market value, based on triennial valuations by external independent valuers, less subsequent depreciation for property. All other property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Cost of telecommunication network comprises expenditure up to and including the last distribution point before customers’ premises and includes contractors’ charges, materials, direct labour and related overheads. The cost of other property, plant and equipment comprises their purchase cost and any incidental cost of acquisition. These costs include the costs of dismantling, removal and restoration, the obligation incurred as a consequence of installing the asset.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Increases in the carrying amount arising on revaluation are credited to the revaluation reserve in shareholders' equity. Decreases that offset previous increases of the same asset are charged against the revaluation reserve; all other decreases are charged to the income statement. Each year, the difference between depreciation based on the revalued carrying amount of the asset (the depreciation charged to the income statement) and depreciation based on the asset's original cost is transferred from the revaluation reserve to retained earnings.

Depreciation is calculated to write off the cost or valuation of property, plant and equipment on a straight line basis over the expected useful lives of assets concerned.



2.6 Property, plant and equipment (Contd)(a) Cost and valuation (Contd)

The principal annual depreciation rates used are:

% per annum

Buildings 2.5 - 2.9 Building - electrical installation 12.5 Building - leasehold property 33 1/3 Computer equipment 20 Telecom equipment - other than prepaid system 10 Telecom equipment - prepaid system 10 and 20 Office equipment 20 Furniture and fittings 20 Toolkits 10 Motor vehicles 20 Computer Software 50 ISP Infrastructure 10 ISP Electronic & Computer 20

(b) Impairment of property, plant and equipment

2.7 Impairment of non-financial assets

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 2.7).

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in the income statement. When revalued assets are sold, the amounts included in revaluation reserve are transferred to retained earnings.

Interest costs on borrowings to finance the construction of property, plant and equipment are capitalized, during the period of time that is required to complete and prepare the asset for its intended use.

The carrying value of property, plant and equipment is reviewed for impairment either annually or when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount the assets are written down to their recoverable amount. Impairment losses are recognized in the income statement unless it reverses a previous revaluation surplus for the same asset.

Intangibles that have an indefinite useful life, are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.



2.8 Investments

2.9 Inventories

2.10 Trade receivables

2.11 Cash and cash equivalents

2.12 Trade and other payables

2.13 Borrowings

2.14 Deferred income taxes

Investments in subsidiaries, associates and jointly controlled entities are stated at cost. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount.

Inventories are stated at the lower of cost and net realizable value. Cost is determined on a weighted average basis and includes all expenses incurred in bringing the inventories to their present location and condition. Net realizable value is the estimate of the selling price in the ordinary course of business, less the costs of completion and selling expenses.

Trade receivables are recognized initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows. The amount of the provision is recognized in the income statement within selling and distribution costs.

Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant risk of change in value and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.

Liabilities classified as trade and other payables in the balance sheet are those which fall due for payment on demand or within one year from the balance sheet date. Items classified as non-current liabilities are those which fall due for payment beyond a period of one year from the balance sheet date.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.



2.14 Deferred income taxes (Contd)

2.15 Defined benefit plan - Gratuity

2.16 Defined contribution plans

2.17 Short Term Employee Benefits

2.18 Provisions

2.19 Revenue recognition(a) Revenues from provision of telecom services.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

The defined benefit obligation is calculated annually by independent actuaries using Projected Unit Credit Method (PUC). The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows. The gratuity liability was based on the actuarial valuation carried out for the first time during the current accounting period. The assumptions based on which the results of the actuarial valuation was determined, are include in Note 23 to the financial statements.

The assumptions based on which the results of the actuarial valuation was determined, are included in note 23 to the financial statements.

All employees of the Company are members of the Employees' Provident Fund and Employees' Trust Fund, to which the Company contributes 12% or 15% and 3% respectively, of such employees' basic or consolidated wage or salary.

Wages, salaries, paid annual leave and sick leave, bonuses and non-monetary benefits are accrued in the period in which the associated services are rendered by employees of the Group.

Provisions are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operation losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognized as interest expense.

These recurring revenues consists of monthly rental income, airtime usage fees, interconnection revenue, roaming revenue, external gateway operations and other telecommunications services such as internet service, providing data services, connection fees and value added services. Recurring revenues are recognised on an accrued basis, i.e. as the related services are rendered. Unbilled revenues for airtime usage resulting from services provided from the billing cycle date to the end of each month are estimated and recorded.



2.19 Revenue recognition (Contd)(b) Equipment revenue

(c) Interest income

2.20 Current taxes

2.21 Contingent liabilities and contingent assets

2.22 Accounting for leases where Company is the lessee

These revenues consist of the sale of phones and accessories. Revenues from these sales are recognised at the time that the item is delivered to the customer.

Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income.

The provision for income tax is based on the elements of income and expenditure as reported in the financial statements and computed in accordance with the provisions of the Inland Revenue Act.

The Group does not recognise a contingent liability but discloses its existence in the financial statements. A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by uncertain future events beyond the control of the Group or a present obligation that is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in the extremely rare circumstance where there is a liability that cannot be recognised because it cannot be measured reliably.

A contingent asset is a possible asset that arises from past events whose existence will be confirmed by uncertain future events beyond the control of the Group. The Group does not recognise contingent assets but discloses its existence where inflows of economic benefits are probable, but not virtually certain.

Leases of property, plant and equipment where the Group assumes substantially all the benefits and risks of ownership are classified as finance leases. Finance leases are capitalised at the estimated present value of the underlying lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges are included in other short term and long term payables. The interest element of the finance cost is charged to the income statement over the lease period. The property, plant and equipment acquired under finance leasing contracts is depreciated over the useful life of the asset.

Leases of assets under which all the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight line basis over the period of the lease.

When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.



2.23 Dividend distribution

2.24 Critical accounting estimates and judgments

Estimated impairment of non-current assets

3 Segmental analysis

(a) Primary reporting format - business segments

1 Cellular mobile telephone network

2 External gateway operations

Dividend distribution to the Company's shareholders is recognised as a liability in the Group's financial statements in the period in which the dividends are approved by the Company's shareholders.

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below:

The Group tests annually the indicators to ascertain whether non-current assets (including intangibles) have suffered any impairment, in accordance with the accounting policy stated in policy 2.6 (b) and 2.7. The recoverable amounts of cash generating units have been determined based on value-in-use calculations. These calculations require the use of estimates.

At 31 December 2007, the qualifying segments under business segment reporting are as follows:

Other group operations mainly comprise internet services, telecommunication infrastructure provision facilitating switched / non-switched data communication, television broadcasting and media related businesses. None of these constitute a separate segment since revenue from external customers and from transactions with other segments is not 10 per cent or more of the total revenue of all segments; or segment result, whether profit or loss, is not 10 per cent or more of the combined result of all segments in profit or the combined result of all segments in loss, whichever is the greater in absolute amount; or assets are not 10 per cent or more of the total assets of all segments.



3 Segmental analysis (Contd)(a) Primary reporting format - business segments (Contd)

The segment results for the year ended 31 December 2007 are as follows:

Cellular External Other Unallocated Group Operations Gateway

Operations


Revenue 26,886,791 3,631,692 1,998,358 32,516,842

Operating profit / segment results 9,906,824 596,824 (808,305) (52,863) 9,642,479 Finance income - Finance cost -

Finance cost - net - Profit before income tax 9,642,479 Income tax expense -

Profit for the year 9,642,479

Other segment items included in the income statement are as follows:

Cellular External Other Group Operations Gateway

Operations

Depreciation 3,493,669 48,551 427,069 3,969,288 Amortisation 376,818 22,835 108,265 507,917

Cellular External Other Unallocated Group Operations Gateway

Operations

Assets 42,382,956 3,617,869 25,724,688 Nil 71,725,513 Liabilities 5,492,586 569,493 9,105,439 6,212,333 21,379,851 Capital expenditure 22,537,909 209,281 3,472,747 Nil 26,219,938

Inter segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties.

Segment assets consist primarily of property, plant and equipment, intangible assets, capital work in progress, inventories, trade and other receivables, and cash and cash equivalents.

Segment liabilities comprise operating liabilities. Unallocated liabilities comprise the items such as taxation and borrowings.

Capital expenditure comprises additions to property, plant and equipment (Note 11) and intangible assets (Note 12), including additions resulting from acquisitions through business combinations (Note 11, 12 and 27).



3 Segmental analysis (Contd)(b) Secondary reporting format - geographical segments

4 Operating ProfitThe following items have been charged / (credited) in arriving at operating profit:

Group Company 2008 2007 2008 2007

Directors' fee 8,100 8,037 Auditors' emoluments

- audit fees 8,575 6,577 - other 4,026 4,026

Other professional services 74,659 64,981 Amortisation of intangible assets (Note 12) 507,917 390,878 Depreciation on property, plant and equipment (Note 11)

- owned assets 3,925,621 3,583,407 - leased assets under finance leases 43,665 23,267

1,057,278 994,814 Provision for doubtful debts 834,254 786,254 Operating lease rentals

- office 459,193 459,193 - base stations and lease circuits 773,857 679,220

Cost of inventories (included in 'direct costs') 855,869 855,869 Employee benefit expense (Note 5) 2,033,220 1,741,748 Profit on disposal of property, plant and equipment (14,978) (15,154)Provision for impairment

5 Employee benefit expense Group Company

2008 2007 2008 2007

Wages and salaries 1,525,863 1,977,904 1,309,850 Social security costs 139,637 162,647 92,847 Pension costs - defined contribution plans 265,398 344,181 238,125 Pension costs - defined benefit plan (Note 23) 102,322 100,926 100,926

- 2,033,220 2,585,658 1,741,748

- 4,372 4,008 3,767 3,423 - 34 84 34 84

The Group's two business segments operate in one main geographical area, hence do not qualify for secondary reporting.

Repair and maintenance expenditure on property, plant and equipment

Number of persons employed as at 31 December:

Full time Part time



6 Finance cost Group Company

2008 2007 2008 2007

Interest income on deposits 1,174 #REF! 151,572

Interest expense on:

- bank overdrafts (22,097) #REF! (141)- term loans (128,138) #REF! (595,143)- parent company loan Nil Nil - finance cost on ARO - #REF! (35,376)- finance lease charges (11,567) #REF! (7,373)

- (161,802) #REF! (638,033)Net foreign exchange transaction loss 15,670 #REF! 1,402

- (144,959) #REF! (485,059)

7 TaxYear ended 31 December Group Company

2008 2007 2008 2006

Income tax (22,693) #REF! (6,491)Deferred tax charge 96,524 #REF! 80,106 Economic service charge (28,529) (28,529)

- 45,302 #REF! 45,086

Year ended 31 December Group Company 2,008 2,007 2,008 2,007

Profit before tax 9,012,462 10,171,599

Tax at the applicable rate 3,004,154 3,390,533 Income not subject to tax (7,148,329) (7,273,265)Expenses not deductible for tax purposes 4,270,956 3,992,705 Utilization of tax losses (10,301) (10,301)Overprovision of tax (42,649) (26,056)Adjustment on economic service charge (28,529) (28,529)

- 45,300 - 45,086

Under the agreement entered into between the Company and the Board Of Investment of Sri Lanka (BOI), the main source of income of the Company is exempt from income tax for fifteen years (initial tax exemption period of seven years was extended to fifteen years as per the amendment made to BOI agreement on 17 April 2003) commencing either from the year in which it first makes a profit, or in the fifth year subsequent to the start of commercial operations, whichever is earlier. The Company commenced commercial operations during 1995 and profits were first recorded during the year ended 31 December 1998. Accordingly, the tax exemption period commenced from 1 January 1998 and the Company is currently liable to pay income tax only on the interest income earned from fixed and call deposits maintained in Sri Lanka Rupees.

There were overprovision reversals of Rs 26Mn and Rs 16Mn with regard to the provision made previous year, resulting an income tax credit to refelect in the Company's and Group's income statement during the year.

With the new pronouncement made on ESC, through the 2006/ 2007 budget, the ESC including carried forward ESC from Y/A 2005/ 2006 can be setoff against any income tax without restriction to income tax payable on profit from trade, business, profession or vocation. Accordingly, the Company reinstated Rs 28,529,320 that had been incurred and expensed in Y/A 2005/ 2006 during the current year on ESC and setoff against the income tax liability. Of the total reinstated amount, the Company further available Rs 9,960,823 to carry forward and setoff against the income tax liability.

Tax losses available for carry forward to the year of assessment 2008/ 2009 amount to Rs 914,113,001 Accordingly, the Company is entitled to set off 35% of the statutory income of any year of assessment excluding income that does not form part of the the assessable income from the aforementioned brought forward loss. Any balance loss could be carried forward to future years.



8 Minority interest

9 Earnings per share

Group Company 2008 2007 2008 2007

Net profit after tax 8,967,160 10,126,514

Net profit attributable to ordinary shareholders 8,839,147 (128,013) 10,126,514

7,752,477 7,752,477 7,221,523

Par value (Rs) 1.00 1.00 1.00

Basic earnings per share (Rs) 1.14 1.39 1.39

10 Dividends



11 Property, plant and equipmentLand Computer Furniture, Motor Asset in the Total

& systems fittings & vehicles course of buildings & telecom other construction

equipment equipment (CWIP)

Year ended 31 December 2006

Opening net book amount 465,243 15,937,903 232,806 160,203 4,005,681 20,801,836 Additions 31,598 191,407 11,414 86,934 11,657,557 11,978,910 Acquisition of subsidiary Nil 291,411 23,432 23,573 Nil 338,416 Transferred from CWIP 37,424 6,437,158 122,303 Nil (6,596,885) Nil

Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil (34,707) Nil Nil (308,261) (342,968)

Disposals (2,228) (2,178) (1,628) (3,058) Nil (9,092)Depreciation charge (19,433) (2,585,143) (75,275) (55,751) Nil (2,735,602)

Closing net book amount 512,604 20,235,851 313,052 211,901 ### 8,758,092 30,031,500

At 31 December 2006

Cost / valuation 619,966 29,009,099 515,506 407,205 8,758,092 39,309,868 Accumulated depreciation (107,362) (8,773,248) (202,454) (195,304) Nil (9,278,368)

Net book amount 512,604 20,235,851 ### 313,052 ### 211,901 ### 8,758,092 30,031,500

The total loss applicable to 10% minorities of amounting to Rs 55.1 Mn during the post acquisition period was allocated against the majority interest in accordance with SLAS 26. However with the acquisition of the balance 10% stake in Dialog Television (Private) Limited (formally known as Asset Media (Private) Limited) on 13 September 2007, no minority interest was carried at the balance sheet date.

Basic earning per share is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares held by the ESOS Trust (see Note 17).

Weighted average number of ordinary shares in issue (thousands)

Dividends for the year ended 31 December 2007 is to be proposed at the Annual General Meeting. Ordinary share dividends for the year ended 31 December 2006 were declared and paid amounting to Rs 4,071,889,197 (Rs 0.55 per share)

(a) Group

Transferred to intangible assets (Note 12)


Opening net book amount 512,604 ### 20,235,851 ### 313,052 ### 211,901 ### 8,758,092 30,031,500 Additions 138,865 218,363 64,741 84,289 24,468,486 24,974,743 Acquisition of subsidiary Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Transferred from CWIP 152,499 8,864,330 354,218 (9,371,048) Nil

Nil Nil Nil Nil Nil Nil Nil (518,071) (518,071) Nil Nil Nil Nil Nil Nil Nil Nil Nil

Adjustments on CWIP Nil 0 Nil Nil (0) 0 Adjustments on Impairment and di Nil (17,543) Nil Nil Nil (17,543)Internal transfers Nil (28,532) 6,870 632 Nil (21,029)

Disposals (609) (54,443) (3,749) (2,942) Nil (61,743)Depreciation charge (40,287) (3,605,548) (244,357) (79,095) Nil (3,969,287)


At 31 December 2007

Cost / valuation 909,993 37,988,854 936,053 473,027 23,337,459 63,645,388 Accumulated depreciation (146,921) (12,376,375) (445,278) (258,243) Nil (13,226,817)

Net book amount 763,072 25,612,479 ### 490,775 ### 214,785 ### 23,337,459 50,418,570



11 Property, plant and equipment (Contd)Land Computer Furniture, Motor Asset in the Total

& systems fittings & vehicles course of buildings & telecom other construction

equipment equipment (CWIP)


Opening net book amount 392,932 14,915,280 227,447 147,266 3,916,033 19,598,958 Additions 17,123 139,085 3,988 82,169 11,135,832 11,378,197 Transferred from CWIP 37,424 6,267,042 120,634 Nil (6,425,100) Nil

Nil Nil Nil Nil Nil Nil Nil (34,707) Nil Nil (308,261) (342,968)

Disposals (2,228) (317) (1,628) (3,141) Nil (7,314)Depreciation charge (14,845) (2,460,853) (72,962) (48,790) Nil (2,597,450)(Note 4) -


At 31 December 2006

Cost / valuation 503,080 27,059,753 460,197 342,313 8,318,503 36,683,846

Accumulated depreciation (72,674) (8,234,223) (182,718) (164,808) Nil (8,654,423)

Net book amount 430,406 ### 18,825,530 ### 277,479 ### 177,505 ### 8,318,503 28,029,423


Opening net book amount 430,406 ### 18,825,530 ### 277,479 ### 177,505 ### 8,318,503 ### 28,029,423

Additions 1,354 180,694 33,624 19,003 22,218,499 22,453,175 Transferred from CWIP 151,545 8,649,185 227,208 (9,027,938) Nil

Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil (480,269) (480,269)

Adjustments Nil (424,798) Nil Nil Nil (424,798)Disposals (609) (7,583) (3,749) (2,942) Nil (14,883)Depreciation charge Nil (Note 4) (35,198) (3,405,574) (108,453) (57,449) Nil (3,606,674)

Closing net book amount 547,499 ### 23,817,454 ### 426,110 ### 136,116 ### 21,028,795 45,955,974

At 31 December 2007

Cost / valuation 654,643 35,448,106 716,353 344,065 21,028,795 58,191,962

Accumulated depreciation (107,144) (11,630,652) (290,243) (207,948) Nil (12,235,987)

Net book amount 547,499 ### 23,817,454 ### 426,110 ### 136,117 ### 21,028,795 45,955,975


(b) Company





11 Property, plant and equipment (Contd)(c) If the buildings were stated on the historical cost basis, the amount would be as follows:

Group Company 2008 2007 2008 2007

Cost 743,568 633,384

Accumulated depreciation (146,013) (106,236)

Net book amount - 597,555 - 527,147

(d)

Group Company 2008 2007 2008 2007

Cost 199,159 138,368

Accumulated depreciation (100,960) (92,365)

Net book value - 98,199 - 46,003

Property, plant and equipment includes motor vehicles acquired under finance leases, the net book value of which is made up as follows:

(f)

(g)



12 Intangible assetsGroup Goodwill Licenses Others Computer Total

software Year ended 31 December 2006

Opening net book amount 389,857 890,000 228,850 119,598 1,628,305 Acquisition of subsidiary 1,409,683 Nil Nil Nil 1,409,683 Additions Nil 503,053 Nil Nil 503,053 Transferred from capital WIP (Note 11) Nil 44,666 13,009 285,293 342,968

Amortisation charge Nil (111,554) (15,645) (154,073) (281,272)

Closing net book amount 1799540 1326164.88355 226214 250818 3602736.8836

At 31 December 2006

Cost 1,799,540 1,450,438 245,686 819,225 4,314,889 Accumulated amortisation charge Nil (124,273) (19,472) (568,407) (712,152)

Net book amount 1799540 1326164.88355 226214 250818 3602736.8836


Opening net book amount 1,799,540 1,326,165 226,214 250,818 3,602,737

Additions 94,771 105,977 Nil 84,506 285,255 Transferred from capital WIP (Note 11) Nil Nil Nil Nil 134,452 383,618 518,071 Internal transfer Nil Nil Nil Nil 21,030 21,030

Amortisation charge Nil (185,520) (7,746) (314,650) (507,917)

Closing net book amount 1894311.392 1246622.06236 352920.19135 425322.0203 3919175.6658

At 31 December 2007

Cost 1,894,312 1,556,415 380,138 1,308,379 5,139,245

Accumulated amortisation charge Nil (309,793) (27,218) (883,057) (1,220,069)

Net book amount 1894311.873 1246622.18117 352920.19135 425322.0203 3919176.2658

Key assumptions applied in the valuation model

AML CBNL/ CBNSLForecast Forecastperiod period2007 to 2016 2007 to 2016

Implied Revenue growth 13.67% 0.1

12.7% 0.12

Property, plant and equipment includes fully depreciated assets still in use, the cost of which amounted to Rs.1,759,276,338 (2006 Rs 1,172,359,631 ) and Rs 1,834,089,132 ( 2006 - Rs.1,242,431,435 ), for Company and group as at the balance sheet date respectively

Borrowing costs of Rs Nil (2006 Rs 43,782,708) arising on financing specifically for the construction of telecom equipment were capitalised during the year and are included in additions to property, plant and equipment.

Implied growth in Earnings before interest, tax, depreciation and Amortisation (EBITDA)

Provided above are some of the key assumptions made in connection with the fair valuation of the newly acquired subsidiaries, AML, CBNL and CBNSL. The implied Revenue and EBITDA growth depicted above refers to the Compound Annual Growth Rate (CAGR) over the forecast period. These have been essentially based on industry information and management expectations for the newly acquired entities. The discount rates used for the purpose of valuing those entities reflect the specific risks along with market risk premiums which have been based on management expectations.



12 Intangible assets (Contd)Company Licenses Others Computer Total

software Year ended 31 December 2006Opening net book amount Nil 228850 119,598 348,448 Additions 503,052 Nil Nil 503,052 Transferred from capital WIP 44,666 13009 285,293 342,968 Amortisation charge (20,388) -15645 (154,073) (190,106)

Closing net book amount 527330### 226214### 250818 1,004,362

At 31 December 2006Cost 560,438 245,686 819,224 1,625,348 Accumulated amortisation charge (33,107) (19,472) (568,407) (620,986)

Net book amount 527331 226,214 250,817 1,004,362

Year ended 31 December 2007Opening net book amount 527,330 ### 226,214 ### 250,818 1,004,362 Additions 74175 68,178 142,353 Transferred from capital WIP 134452.46535 345,817 480,269 Amortisation charge -90018.11667 -7746.274 (293,113) (390,878)

Closing net book amount 511,487 352,920 371,699 1,236,106

At 31 December 2007Cost 618,967 380,138 1,248,865 2,247,970 Accumulated amortisation charge (107,481) (27,218) (877,165) (1,011,864)

Net book amount 511,486 352,920 371,699 1,236,106 ###

Investments in Subsidiaries

Holding Market value /% directors valuation

2007 2006

100% 364,745 325,080 Dialog Broadband Network (Private) Limited 100% 1,970,764 1,970,764 Communiq Broadband (Private) Limited (Note 27) 0% Nil Nil CBN SAT (Private) Limited (Note 27) 0% Nil Nil

2,335,509 1,970,764

14 Trade and other receivablesGroup Company

2008 2007 2008 2007

Trade receivables 3,222,095 #REF! 2,850,004 Prepayments 1,213,544 #REF! 351,262

Nil Nil 4,610 #REF! 5,336,869

Other receivables 5,650,013 #REF! 5,074,753

- 10,090,262 #REF! 13,612,888



15 InventoriesGroup Company

2008 2007 2008 2007

Phone stock 352,599 #REF! 111,119

Accessories and consumables 601,786 #REF! 593,074

- 954,385 #REF! 704,194

16 Cash and cash equivalentsGroup Company

2008 2007 2008 2007

Cash at bank and in hand 1,373,114 #REF! 1,092,149

Short term bank deposits 4,970,007 #REF! 4,970,007

- 6,343,121 #REF! 6,062,156

Dialog Television (Private) Ltd (Formerly known as Asset Media (Private) Limited) (Note 27)

Amount due from parent company (Note 29)Amounts due from related companies (Note 29)

Group Company 2007 2008 2006 2007 2006

Cash and bank balances - 2,301,422 2,237,455

Bank overdrafts (Note 20) (251,052) (116,758) Nil Nil

(251,052) 2,184,664 - 2,237,455



17 Share capital Stated Capital

Number of Ordinary Share Preference Shares Total shares shares premium share in (thousands) capital trust

As 31 December 2005 7,204,658 7,403,435 5,276,944 Nil (2,385,320) 10,295,059

Shares exercised during th 38,341 Nil Nil Nil 460,094 460,094 As 31 December 2006 7,242,999 7,403,435 5,276,944 Nil (1,925,226) 10,755,153

Issue of preference shares Nil Nil Nil Nil Nil 5,000,000 Nil 5,000,000

Preference share issue relat Nil Nil Nil (47,500) Nil Nil (47,500)Rights Issue 740,343 740,343 14,806,870 Nil (205,452) 15,341,762 Rights related cost setoff Nil Nil Nil (123,678) Nil Nil (123,678)

Shares exercised during th 10,853 Nil Nil Nil 130,239 130,239

As 31 December 2007 7,994,196 8,143,778 19,912,635 5,000,000 (2,000,439) 31,055,974

The parent company, TM International (L) Limited held 83.15% of the ordinary shares in issue as at the balance sheet date.

Employee Share Option Scheme (ESOS)

The Trustees of the ESOS Trust as at 31 December 2007 were as follows:

Mr Prabahar s/o Nagalingam Kirupalasingam

Mr Moksevi Rasingh Prelis

Mr Arittha Rahula Wikramanayake

Mr Yusof Annuar Bin Yaacob (Appointed on 20 May 2006)

The weighted average effective interest rate on short term foreign currency bank deposits was 4.64% p.a. while the effective earnings on LKR deposits was 15.31% p.a. For the purposes of the cash flow statement, the year-end cash and cash equivalents computation

Pursuant to the new Companies Act, No.7 of 2007 of Sri Lanka, the concept of authorized and paid-up capital has been replaced with the concept of stated capital, effective from May 3, 2007. The value of stated capital consists of ordinary shares,share premium and preference share capital.

Pursuant to a resolution adopted by the shareholders at a meeting held on 21 May 2007, the Company raised Rs.15.54 Billion through a 1 for 10 rights issue to its shareholders at Rs. 21/- per share, by issuing 740,343,492 ordinary shares.

The Company issued 5 Billion rated cumulative redeemable preference shares for Rs.1 each on 23 October 2007. The shares are and the shares are mandatory redeemable on 31 May 2012 at Rs.1 per share.The rated Cumulative Preference Share dividend is payable semi annualy,at AWPLR minus 0.9% ,on 31 March and 30 September.

The Board of Directors of the Company at the meeting held on 8 June 2005 resolved and created an Employee share Option Scheme (ESOS) in order to align the interest of the employees of the Company with those of the shareholders. On 11 July 2005 the Board resolved and issued 199,892,741 ordinary shares of the Company at the IPO price to the ESOS, being 2.7% of the issued share capital of the Company.

Of the total ESOS shares that was transferred to the ESOS Trust, 88,841,218 shares (44.44%) were allocated to ‘Tranche 0’, at the point of the IPO. The balance 111,051,523 shares (56.6%) shall be allocated to employees as an ongoing performance incentive



17 Share capital (Contd)

- has attained the age of eighteen (18) years;

- is employed full-time by and on the payroll of a company within the Group; and

-

The movement in the number of ESOS shares and their related weighted average exercised price is as follows:

2007 2006Average Options Average Optionsexercise (thousands) exercise (thousands)price in Rs price in Rsper share per share

At 1 January 12 48,735 12 87,725 Forfeited 12 (317) 12 (649)Exercised 12 (10,853) 12 (38,341)Expired Nil Nil Nil Nil

At 31 December 37,565 48,735

Forfeited shares to be reallocated to subsequent Tranches 1,012 649 Available for subsequent Tranches 111,052 111,052

At 31 December 149,628 160,435

18 Revaluation reserve Group Company

2008 2007 2008 2007 Buildings:At beginning of year 20,377 20,840 20,377 20,840 Revaluation additions during the year Nil Nil Nil NilTransfer of depreciation to retained earnings (463) (463) (463) (463)

At end of year 19,914 20,377 19,914 20,377

The revaluation reserve is non-distributable.



19 Trade and other payablesGroup Company

2008 2007 2008 2007

Trade payables 2,415,868 #REF! 986,572 Amount due to parent company (Note 29) 74,074 #REF! 74,074 Amount due to related companies (Note 29) 256,928 #REF! 256,928 Accrued expenses 1,852,372 #REF! 1,671,259 Customer deposits 1,350,310 #REF! 1,290,534 Other payables 8,861,388 #REF! 8,839,169

- 14,810,940 #REF! 13,118,537

ESOS shares are granted to eligible employees. The exercise price of the granted ESOS shares will be based on the five (5) days weighted average market price of the Company's shares immediately preceding the offer date for options, with the ESOS Committee having the discretion to set an exercise price up to 10% lower than that derived weighted average market price. Options are conditional on an employee satisfying the following:

has been in the employment of the Group for a period of at least one (1) year of continuous service prior to and up to the offer date, including service during the probation period.

The total number of shares granted under Tranche 0 was 88,841,218. At 31 December 2007, 50,310,499 shares (inclusive of 39,457,279 shares as at 31 December 2006) have been exercised and 37,564,819 shares remain unexercised and are exercisable before 2010.

20 Borrowings

Group Company 2008 2007 2008 2007

CurrentBank overdrafts (Note16) 251,050 Nil Bank borrowings 586,097 155,000 Loan from ultimate parent company Nil Nil Lease liabilities 42,267 17,938

- 879,414 - 172,938

Non currentBank borrowings 5,101,572 8,011,812 4,729,097 7,313,861 Loan from ultimate parent company Nil Nil Nil Nil Lease liabilities 71,349 46,035 22,497 24,589

5,172,921 8,057,847 4,751,593 7,338,450

Between 1 and 2 years 2,155,843 5,834,158 1,783,368 5,496,928 Between 2 and 5 years 1,818,125 2,177,654 1,818,125 1,816,933 More than 5 years 1,127,604 Nil 1,127,604 Nil

5,101,572 8,011,812 4,729,097 7,313,861

Maturity of non current borrowings (excluding finance lease liabilities):

The Citi/Commercial Syndicated Loan , HSBC loan, & Standard Chartered syndicated loan facilities were settled before the date of the maturity during Q3 2007 utilising the monies received from the rights issue of shares.

The IFC loan was settled before the maturity date during the month of November 2007, and USD 25 Mn was drawn down from the new loan under revised conditions. These funds will be used for capital project financing which consists primarily of the upgrade and expansion of the Borrower's telecommunication operations in Sri Lanka, as well as the expansion of its expansion of its business into broadband and pay TV services. The loan is repayable in twelve equal semi-annual instalments commencing from December 2009.

In addition a LKR loan of Rs 1 Billion was obtained from DFCC for project financing with a 5 year tenor period. Current drawdown stands at Rs 775 Mn of which the total is outstanding as at 31 December 2007.



20 Borrowings (Contd)

2008 2007 Weighted average effective interest rates:

- bank overdrafts N/A

- bank borrowings - term loan N/A

- lease liabilities 13.11%

- bank borrowings - Standard Chartered Bank AWPLR + 0.35% p.a.- bank borrowings - DFCC Bank AWDR + 6%p.a.

- bank borrowings - syndicated Rupee loan N/A

- bank borrowings - syndicated USD loan N/A

- loan obtained from ultimate parent company N/A

- IFC Borrowings 6M USD LIBOR + 2.125%p.a.

Finance lease liabilities - minimum lease payments:

Group Company 2006 2007 2008 2007

Not later than 1 year 56,508 #REF! 22,402 Later than 1 year and not later than 5 years 82,547 #REF! 24,612

139,055 139,055 #REF! 47,014 Future finance charges on finance leases (25,440) #REF! (6,580)

Present value of finance lease liabilities 139,055 113,615 #REF! 40,434

Representing lease liabilities:- current 42,266 17,938 - non current 71,348 22,496

- 113,615 - 40,434

Deferred tax liabilitiesDeferred income taxes are calculated on all temporary differences under the liability method using the tax rate of 33 1/3%.

The gross movement on the deferred income tax account is as follows:

Group Company 2007 2006 2007 2006

At the Beginning of the year 39,717 Nil 39,717 Nil Under provision of deferred tax - DTV 3,844 Nil Nil Nil Nil Income statement charge (Note 7) 96,524 39,717 80,106 39,717

At the end of the year 140,084 ### 39,717 119,823 39,717



21 Deferred tax liabilities (Contd)

22 Subscription in advanceGroup Company

2007 2006 2007 2006

At beginning of year 1,235 Nil 1,235 Nil Additions during the year - ESOS shares 27,469 1,235 27,469 1,235 Shares issued during the year (28,398) Nil (28,398) Nil Repayment during the year Nil Nil Nil Nil

At end of year 306 1235 306 1235

23 Retirement benefit obligations

Group Company 2007 2006 2007 2006

At beginning of year 111,997 81,833 102,635 75,190 Current service cost (Note 5) 102,322 33,224 100926.2786 30467Acquisition of subsidiary Nil 744 Nil Nil

Contributions paid (2,403) (3,804) (2,007) (3,022)

At end of year 211915.89259 111997 201554.2786 102635

This obligation is not externally funded.

2007

1. Discount rate 0.1

2. Future salary increase 0.1

Deferred tax liability and the deferred tax charge/ (release) in the income statement are attributable to accelerated tax depreciation and provision for defined benefit obligations, to the extent that they are likely to result in an actual liability or an asset in the foreseeable future.

The current year additions relate to subscriptions in advance for cash receipted by the ESOST on exercise of shares for which the share certificates had not been issued at the year end.

The Gratuity liability of the Company is based on the actuarial valuation carried out by Messrs. Actuarial & Management Consultants (Private) Limited, Actuaries, on 13 December 2007. The principal actuarial valuation assumptions used were as follows:

In addition to the above, demographic assumptions such as mortality, withdrawal and disability, and retirement age were considered for the actuarial valuation. The 2007mortality table issued by the Institute of Actuaries London (A 67 / 70 mortality table)



24 Cash generated from operationsReconciliation of profit before tax to cash generated from operations:

Group Company 2007 2006 2007 2006

Profit before tax 9,012,462 10,193,467 10,171,599 10,104,873

Adjustments for:Exchange loss on borrowings 8,103 88,817 8,103 88,817 Profit on sale of property, plant and equipment (Note 4) (14,978) (9,643) (15,154) (8,001)

Interest expense (Note 6) 761,178 741,201 602,657 636,803 Interest income (Note 6) (152,746) (249,770) (151,572) (249,770)Depreciation charge (Note 11) 3,969,289 2,735,602 3,606,674 2,597,450 Amortisation (Note 12) 507,917 281,273 390,878 190,106 Retirement benefit obligation (Note 23) 102,321 33,224 100,925 30,467 Dismantling Provision 35,376 Nil 35,376 Nil Transfer of CWIP 14,083 Nil Nil Nil Nil Nil Provision for impairment loss 17,543 Nil Nil Nil Nil Nil

Changes in working capital

- trade and other receivables (4,133,755) (3,359,417) (2,711,150) (3,294,638)- inventories (369,670) (189,880) (185,131) (168,567)- payables 7,048,284 2,326,015 4,991,012 2,520,474

Cash generated from operations 16,805,407 12,590,889 16,844,218 12,448,014

25 Contingencies

Contingent liabilities

26 CommitmentsCapital commitments

Capital expenditure contracted for at the balance sheet date but, not yet incurred is as follows:

Group Company 2007 2006 2007 2006

Supply of telecom equipment 2,984,660 2,984,660 2,984,660 2,984,660

Financial commitments

The Group has an annual commitment to pay Sri Lanka Rupees equivalent to USD 4,000 as annual fee to the Board of Investm

The Group has an annual commitment to pay Rs 432,749,204 as rent to Base Station site owners.

The Group has contingent liabilities in respect of legal claims arising in the ordinary course of business. It is not anticipated that any material liabilities will arise from the contingent liabilities, nor are additional payments anticipated at the date

Capital commitments that were approved and contracted for the supply of Telecommunication equipment and services are as follows:



26 Commitments (Contd)Financial commitments (Contd)The Group has annual commitment to pay Rs 7,920,000 as rent to TMI Lanka (Private) Limited.

The Group has an annual commitment to pay 1% on the value of all the additions to Fixed Assets and 0.3% of the annual tur

The Group has to pay Rs 332,572,573 to the previous shareholders of CBNL and CBNSL as deferred purchase consideration.

The Group has to pay Change Trust Fund an amount equivalent to the contributions received from its customers.

There were no other material financial commitments outstanding at the balance sheet date.

27 Business acquisition(a)

Details of net assets acquired and goodwill are as follows:

CompanyPurchase consideration:Cash paid 39665Total purchase consideration 39,665 Fair value of net liabilities acquired (55,106)

Goodwill 94771

The fair value on the net liabilities approximated to the book value of the net liabilities acquired.

The assets and liabilities arising from the acquisition are as follows:

Acquiree's Fair value carrying

amount

Cash and cash equivalent 1 1Trade and other payables (722) (722)

Net liabilities -721 -721

Minority interest 10% 72

Net liabilities acquired -649

Purchase consideration settled in cash 325,080

Cash and cash equivalents in subsidiary acquired -1

Cash outflow on acquisition 325079

On 13 September 2007, the Company acquired balance 10% of the share capital of Dialog Television (Pvt) Limited (Formally known as Asset Media (Pvt) Limited) a company which provides television broadcasting services. The assets and liabilities of the acqui



29 Related party transactions

The following transactions were carried out with related parties:

Company 2007 2006

(a) Sale of services

i) TM International Lanka (Private) Limited - Rendering of management services 2700 2700

ii) Dialog Broadband Networks (Private) Limited - Site sharing revenue 57888 Nil - International bandwidth revenue 51806 19,288 - Scrach card cost and commission revenue 2072 Nil

iii)Dialog Television (Private ) Limited (formerly known as Asset Media (Private) Limited) - Revenue from call centre agent fee 9598.467772 Nil

(b) Purchase of services

i) TM International Lanka (Private) Limited - Rental 7920 7920

ii) Telekom Malaysia Berhad 40332 38119 - Lease rental

iii) Dialog Broadband Networks (Private) Limited - Lease circuit rental and electricity 296554 224,168 - Cost of CDMA Card sales and Ez revenue 17493 Nil

iv)Dialog Television (Private ) Limited (formerly known as Asset Media (Private) Limited) - Cost on Initial connection given to DTP staff and others (holiday bunglows) 5276.26086 Nil - Cost on subscription fees on connection given to DTP staff 5056.915753 Nil - Donation of DTV connection given to SL Armed forces (margin) 1364.782606 Nil - Cost on e-mobile, cartoon nerwork and CNN mobile vedio streeming. 1486.112499 Nil

(c) Loans to related parties

vi) 119572 913,596

(d) Purchase of property, plant and equipment

vii) CBN SAT (Private) Limited 39069.89104 Nil - Earth station with accessories and computer process device

(d) Year-end balances arising from sales/ purchases of services

Nil Nil

- Asset Media (Private) Limited 1945134.976 910954- Communiq Broadband Network (Private) Limited 292396.368 173934- CBN SAT (Private) Limited 112700 57700- Telekom Malaysia Berhad Nil 261 - TM International Lanka (Private) Limited 1,482 5,732 - Dialog Broadband (Private) Limited 2,982,028 Nil - Change Trust Fund 3,128 Nil

5,336,870 1,148,581

74,074 41,208

- Telekom Malaysia Berhad 198,201 Nil - Dialog Broadband (Private) Limited 38587- Change Trust Fund Nil 95,077 - TM International (Bangladesh) Limited 58,727 52,171

256,928 185,835

Nil Nil

The Company and TM International Lanka (Private) Limited are fully owned subsidiaries of TM International (L) Limited, which is a subsidiary of Telekom Malaysia Berhad.

Amounts advanced to Dialog Television (Private ) Limited (formerly known as Asset Media (Private) Limited)

The above transactions were carried out on commercial terms and conditions and at a price agreed upon by the management.

Amount due from TM International Sdn.Bhd. (Note 14)

Amounts due from related companies (Note 14)

Amount due to TM International Sdn.Bhd. (Note 19)

Amounts due to related companies (Note 19)

Loan from ultimate parent company, Telekom Malaysia Berhad (Note 20)



30 Parent Company

31 Post balance sheet events

TM International (L) Limited is the parent company of Dialog Telekom Limited. TM International Sdn. Bhd. Limited is the parent company of TM International (L) Limited. Telekom Malaysia Berhad is the parent company of TM International Sdn Bhd. Accordingly

No material events have occurred since the balance sheet date which require adjustments to, or disclosure in, the financial statements.

Company 31-Dec

ASSETS 2007

Non - current assets

Property, plant and equipment 45,955,974,779 #REF! #REF!Intangible assets 1,236,105,803 #REF! #REF!Investment in subsidiary 2,335,509,631 #REF! #REF!Other #REF! #REF!

0 0

#REF! #REF! #REF!0

Current assets 0 0

Inventories 704,193,575 #REF! #REF!Receivables and prepayments 13,612,888,462 #REF! #REF!Cash and cash equivalents 6,062,155,804 #REF!

Total assets #REF! #REF!

EQUITY AND LIABILITIES

Capital and reserves

Stated Capital 33,056,413,435 #REF! #REF!ESOS Trust shares (2,000,438,724) #REF! #REF!Dividend reserve 172,721,852 #REF! #REF!Revaluation reserve 20,376,542 #REF! #REF!Retained earnings 10,065,155,118 #REF! #REF!Preference dividend (60,987,989) 60,987,989 Profit for the period 10,126,513,715 #REF! #REF!

- Minority interest in equity - Total Equity -

- Non - current liabilities -

- Subscription in advance 306,000 #REF! #REF!Borrowings 4,751,593,341 #REF! #REF!Provision for other liabilities(dism 142,978,298 #REF! #REF!Deffered tax liability 119,822,991 #REF! #REF!Retirement benefit obligations 201,554,173 #REF! #REF!

- Current liabilities -

- Trade and other payables 9,175,603,276 #REF! #REF!Diferred Income - Subscription in advance - Advance from Parent Company - Current tax liabilities 19,344,387 #REF! #REF!Borrowings 4,115,871,640 #REF! #REF!

#REF!

Total liabilitiesTotal equity and liabilities 69,906,828,054 #REF! #REF!

6,062,155,804

#REF! #REF! #REF!#REF!

DIALOG BROADBAND NETWORKS (PRIVATE) LIMITED

Income statement

(all amounts in Sri Lanka Rupees) 1 January to 31 March

2008

Revenue 597,496,402

Direct operating expenses (633,539,130)

Gross profit (36,042,728)

Other operating income 27,696,257

Administrative expenses (123,039,814)

Distribution costs (104,908,973)

Operating profit (236,295,258)

Finance cost (45,128,911)

Profit before tax (281,424,169)

Tax (3,518,203)

Net profit (284,942,371)

Earnings/(Loss) per share (3.46)



Balance sheet

(all amounts in Sri Lanka Rupees) March 2008

ASSETS

Non-current assetsProperty, plant and equipment 1,847,085,932 Capital inventories 2,453,484,368 Intangible assets 361,811,210

4,662,381,510

Current assetsInventory 146,374,125 Receivables and prepayments 1,761,929,668 Cash and cash equivalents 22,895,769

1,931,199,562 Total assets 6,593,581,073

EQUITY

Capital and reservesOrdinary share capital 823,682,030 Retained earnings (180,575,950)

643,106,080

LIABILITIES

Non-current liabilitiesBorrowings 2,977,608,111 Retirement benefit obligations 9,987,234 Deffered Tax Liability 19,029,874

3,006,625,219

Current liabilitiesTrade and other payables 1,355,741,778 Differed income 3,048,142 Current tax liabilities 587,589 Borrowings 1,584,472,265

2,943,849,774 Total liabilities 5,950,474,993 Total equity and liabilities 6,593,581,073

-

........................................................... ) ………………………………………

The Board of Directors is responsible for the preparation and presentation of these financial statements. These financial statements were approved by the Board of Directors on ………………....


) Directors Chief Financial Officer........................................................... )The notes on pages 6 to 22 form an integral part of these financial statements.


Statement of changes in equity

(all amounts in Sri Lanka Rupees) Ordinary share Retained capital earnings

Balance at 1 January 2007 823,682,030 ### 422,327,658

Net profit Nil (317,961,237)

Balance at 31 December 2007 823,682,030 ### 104,366,421

Balance at 1 January 2008 823,682,030 ### 104,366,421

Net profit Nil (284,942,371)

Balance at 31 March 2008 823,682,030 ### (180,575,950)



Cash flow statement

(all amounts in Sri Lanka Rupees) 1 January 2008

to 31 March

2008 Cash flows from operating activities

Cash (used in) / generated from operations (354,767,706)Interest received 51,493 Interest paid (47,460,851)Retirement benefit obligations paid - Tax paid -

Net cash (used in) / generated from operating activities (402,177,064)

Cash flows from investing activities

Purchase of property, plant and equipment (13,558,290)Purchase of capital inventory (661,975,575)Purchase of intangible assets (399,000)Proceeds from sale of property, plant and equipment 2,270,703

Net cash used in investing activities (673,662,161)

Cash flows from financing activities

Repayment of finance leases (195,495)Repayment of long term borrowings - Proceeds from borrowings 1,398,965,460 Repayment of short term borrowings (1,190,516,459)Proceeds of other loans (related company) 575,000,000

Net cash generated from financing activities 783,253,506

Increase / (decrease) in cash and cash equivalents (292,585,719)

Movement in cash and cash equivalents

At start of year 18,532,835 Increase / (decrease) (292,585,719)

At end of year (274,052,884)

1 January to 31 March

2007

207,697,386

(146,174,428)

61,522,958

15,848,622

(35,804,441)

(4,454,007)

37,113,132

(22,142,615)

14,970,517

(4,576,342)

10,394,175

0.13

December 2007

1,846,368,603 1,844,551,363 379,150,318

4,070,070,284

247,353,820 1,541,791,697 245,244,091

2,034,389,608

6,104,459,892

823,682,030 104,366,421

928,048,451

2,998,721,583 9,387,234 15,529,874

3,023,638,691

1,440,956,402 1,379,073 569,386 709,867,889

2,152,772,750

5,176,411,441

6,104,459,892

-

………………………………………


Chief Financial Officer

Total

1,246,009,688

#VALUE!

#VALUE!

#VALUE!

(284,942,371)

#VALUE!

1 January 2007 to 31 March

2007

379,651,112 83,172 (25,589,719) (1,299)

354,143,266

(11,507,862) (656,613,477) (2,500,000) 5,974,643

(664,646,696)

(1,630,067) - 191,175,000 (62,086,349) 100,000,000

227,458,584

(83,044,846)

(60,137,439) (83,044,846)

(143,182,285)

DIALOG TELEVISION (PRIVATE) LIMITED AND ITS SUBSIDIARIES

Income statement

(all amounts in Sri Lanka Rupees) Group Group

1st January to 1st January to 31 March 31 March

2008 2007

Turnover 336,417,333 117,236,799

Direct cost (222,292,820) (193,280,556)

Gross margin 114,124,513 (76,043,757)

Other operating income 6,897,227 6,470,978

Administrative expenses (273,408,631) (50,904,836)

Distribution costs (75,126,769) (15,767,102)

Operating loss (227,513,660) (136,244,717)

Finance costs (10,502,605) (5,165,336)

Loss before tax (238,016,266) (141,410,053)

Tax Nil Nil

Net loss for the year (238,016,266) (141,410,053)

Basic loss per share (Rs) (11,900,813) (7,070,503)

The notes on page 7 form an integral part of these condensed consolidated interim financial information.


Balance sheet

(all amounts in Sri Lanka Rupees) Group 31 March 31 March

2008 2007 ASSETS

Non-current assetsProperty, plant and equipment 429,039,739 263,473,620 Capital Working Progress 405,675,284 - Intangible assets 1,094,561,097 1,107,153,846

1,929,276,121 1,370,627,466

Current assetsInventories 5,334,470 133,199,678 Receivables and prepayments 336,210,427 166,057,115 Cash and cash equivalents 94,465,794 57,692,757

436,010,691 356,949,550

Total assets 2,365,286,812 1,727,577,016

EQUITY AND LIABILITIES

Capital and reservesStated capital 200 200 Retained earnings (1,068,914,419) (1,068,914,219)

(1,068,914,219) (1,068,914,019)

Non-current liabilities

Borrowings 41,966,986 15,187,985 Retirement benefit obligations 974,217 1,437,025

42,941,203 16,625,010 Current liabilities

Trade and other payables 2,089,719,667 723,653,815 Advance from parent Company 1,119,572,708 1,119,572,708 Deferred tax liabilities 4,731,191 3,843,500 Borrowings 177,236,262 47,460,544

3,391,259,828 1,894,530,567

Total liabilities 3,434,201,031 1,911,155,577

Total equity and liabilities 2,365,286,812 842,241,559

The Board of Directors is responsible for the preparation and presentation of these financial statements.

These financial statements were approved by the Board on ......................................

.............................................. )

) Directors.............................................. )


Statement of changes in equity

(all amounts in Sri Lanka Rupees)

GroupStated Retained capital loss Total

Balance at 01 January 2007 200 (42,368,683) (42,368,483)

Net loss Nil (788,529,470) (788,529,470)

Balance at 31 December 2007 200 (830,898,153) (830,897,953)

Balance at 1st January 2008 200 (830,898,153) (830,897,953)

Net loss Nil (238,016,266) (238,016,266)

Balance at 31 March 2008 200 (1,068,914,419) (1,068,914,219)

* Stated capital includes amounts previously reported under ordinary share capital and share premium, as required by the companies Act No. 7 of 2007.

DIALOG TELEVISION (PRIVATE) LIMITED AND ITS SUBSIDIARIESCash flow statement

(all amounts in Sri Lanka Rupees) Group

1st January 1st January 31 March 31 March

2008 2007 Operating activitiesCash used in operations 445,209,544 (225,329,418)Interest paid (7,828,085) (2,543,578)

437,381,459 (227,872,996)

Investing activities

Purchase of property, plant and equipment (5,524,612) Nil

Expenditure incurred on capital work-in-progress (245,623,787) 34,644,826

Expenditure incurred on Intangible assets (5,014,801) Nil

Proceeds from sale of property, plant and equipment 4,711,667 Nil

(251,451,533) 34,644,826

Financing activitiesRepayments of borrowings Nil Repayments of leases (9,039,236) (1,526,043)Exchange gain Nil 1,516,959 Net Proceeds from Borrowings (250,015,392) Nil Advance received from parent company Nil 205,976,251

(259,054,628) 205,967,167

(73,124,703) 12,738,997

At start of period 11,382,240 6,506,003 Increase (73,124,703) 12,738,997

At end of period (61,742,463) 19,245,000

Net cash from used in operating activities

Net cash generated from / (used in) investing activities

Net cash generated from financing activities

Net increase in cash and cash equivalents


DIALOG TELEVISION (PRIVATE) LIMITED AND ITS SUBSIDIARIES Page 2

Income statement

(all amounts in Sri Lanka Rupees thousands) Three Three months ended months ended

31 March 2008 31 March 2007 Group Group

Nil Turnover 336,417,333 117,236,799

Direct costs (222,292,820) (193,280,556)

Gross margin 114,124,513 ### (76,043,757)

Other operating income 6,897,227 6,470,978

Administrative expenses (273,408,631) (50,904,836)

Distribution costs (75,126,769) (15,767,102)

Operating loss (227,513,660)### (136,244,717)

Finance costs (10,502,605) (5,165,336)

Loss before tax (238,016,266)### (141,410,053)

Tax - -

Net loss (238,016,266)### (141,410,053)

Attributable to:

Basic loss per share (Rs) (11,900,813) (7,070,503)


DIALOG TELEVISION (PRIVATE) LIMITED AND ITS SUBSIDIARIESBalance sheet

(all amounts in Sri Lanka Rupees thousands) 31 March 2008 31 December 2007 Group Group

ASSETS

Non - current assetsProperty, plant and equipment 429,434,460 307,559,541 Capital work-in-progress 405,280,563 464,112,960 Intangible assets 1,094,561,097 1,099,654,266

1,929,276,121 1,871,326,767 Current assets

Inventories 5,334,470 2,837,872 Receivables and prepayments 297,727,838 268,770,258 Cash and cash equivalents 94,465,794 35,720,923

397,528,102 ### 307,329,053 Total assets 2,326,804,223 ### 2,178,655,820

EQUITY

Capital and reserves

Stated capital 200 200 Retained earnings (1,068,914,419) (830,898,154)

(1,068,914,219)### (830,897,954)###

LIABILITIES ###

Non - current liabilitiesBorrowings 41,966,986 47,106,180 Retirement benefit obligations 974,217 974,218

42,941,203 48,080,398 Current liabilities

Trade and other payables 2,051,237,078 1,540,561,876 Advance from parent company 1,119,572,708 1,119,572,708 Deferred tax liability 4,731,191 4,731,191 Borrowings 177,236,262 296,607,601

3,352,777,240 2,961,473,376 Total liabilities 3,395,718,442 ### 3,009,553,774 Total equity and liabilities 2,326,804,224 ### 2,178,655,820

-

………………………………………. ………………………………………. Dr S S H Wijayasuriya W Z W Mahyudin

Director / CEO Director

The Board of Directors are responsible for the preparation and presentation of these financial statements. These financial statements were approved by the Board on 23rd March 2008

DIALOG TELEVISION (PRIVATE) LIMITED AND ITS SUBSIDIARIESCash Flow Statement ###

(all amounts in Sri Lanka Rupees thousands) from from 1 January 2008 to 1 January 2007 to 31 March 2008 31 December 2007

Group Group

Operating activities

Cash generated from /(used in) operations 445,209,544 188,491,419 Interest paid (7,828,085) (31,225,733)Net cash used in operating activities 437,381,459 157,265,686


Purchase of property, plant and equipment (5,919,333) (25,555,793)Expenditure incurred on capital work-in-progress (245,229,066) (597,148,604)Expenditure incurred on Intangible assets (5,014,801) (4,030,000)Proceeds from sale of property, plant and equipment 4,711,667 39,070,891 Net cash used in investing activities (251,451,533) (587,663,506)

Financing activities

Repayment of finance leases (9,039,236) (20,717,586)Advance received from parent company Nil 205,976,251 Net proceeds/(repayment) from borrowings (250,015,392) 250,015,392 Net cash generated from financing activities (259,054,628) 435,274,057

Increase in cash and cash equivalents (73,124,703) 4,876,237


At start of period 11,382,240 6,506,003 Increase (73,124,703) 4,876,237 At end of period (61,742,463) 11,382,240



Cash Flow Statement

(all amounts in Sri Lanka Rupees thousands) from from 1 January 2008 to 1 January 2007 to 31 March 2008 31 March 2007

Group Group

Operating activities

Cash generated from /(used in) operations 445,209,544 (225,329,418)Interest paid (7,828,085) (2,543,578)Net cash used in operating activities 479,597,009 (227,872,996)


Purchase of property, plant and equipment (5,919,333) Nil Expenditure incurred on capital work-in-progress (245,229,066) Nil Expenditure incurred on Intangible assets (5,014,801) Nil Proceeds from sale of property, plant and equipment 4,711,667 34,644,826 Net cash used in investing activities (145,831,360) 34,644,826

Financing activities

Repayment of finance leases (9,039,236) (1,526,043)Advance received from parent company Nil 205,976,251 Exchange gain Nil 1,516,959 Net proceeds from borrowings (250,015,392) Nil Net cash generated from financing activities (254,694,519) 205,967,167

Increase in cash and cash equivalents (73,124,703) 12,738,997


At start of period 11,382,240 6,506,003

Increase (73,124,703) 12,738,997 At end of period (61,742,463) 19,245,000

DTP Employee Share Option TrustTrial Balance as at 29.2.2008

Description Notes Dr CrRs. Rs.

Payable to DTP - Current A/C 1 1,829,235,392 Bank Balance as at 29.2.2008 3 4,922,051 Investment in DTP shares 2 1,996,851,924 Subscription clearing a/c 4 - Other Payable - Acceptance of foreign expat & employe 5 25,000 Debit tax 7 26 Bank deductions 6 500 Surplus b/f 1.1.2008 172,280,109 Subscription in advance 234,000

2,001,774,501 2,001,774,501

-

DTP Employee Share Option TrustStatement of Total Return as at 29.2.2008

Amount AmountRs Rs

Income

Other Income -

Expenses

Debit atx (26)Bank deductions (500) (526)

Surplus for the period (526)

Surplus b/f as at 1.1.2008 172,280,109

Surplus c/f as at 29.2.2008 172,279,583

DTP Employee Share Option Trust Balance Sheet as at 29.2.2008

Notes Amount AmountRs. Rs.

Liabilities

Payable to DTL - Current A/C 1 1,829,235,392 Surplus c/f as at 29.2.2008 172,279,583

2,001,514,975

Current Liabilities

Subscription clearing a/c 4 0 Other Payables - Acceptance -foreign expat & employee 5 25,000

2,001,539,975

Assets

Investment

Investment in DTP shares 2 1,996,851,924

Current Assets

Bank Balance as at 29.2.2008 3 4,922,051

2,001,773,975

(234,000.00)

DTP Employee Share Option TrustCash Flow Statement as at 29.2.2008

Amount AmountRs. Rs.

Surplus/(deficit )for the period (526)

Adjustments -

CF from Operating activities (526)

CF from Investment activities

Reduction of Investment in DTL 294,000 Realisation of acceptance

294,000 293,474

CF from Finance activities

Loan repayment - Jan '08

-

Net Cash Flows for the period 293,474

Bank Balance as at 1.2.2008 4,628,577

Bank Balance as at 28.2.2008 4,922,051

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