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SHAREHOLDER
VALUE |
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Sri Lanka Telecom Limited (SLT)
has continued during 2002 its endeavour to enhance shareholder value through
effective and efficient use of resources. In this process SLT acquired 60%
of the share capital of Mobitel (Private) Limited (Mobitel) which became
a fully owned subsidiary of SLT.
The Group generated a net profit of Rs. 2,685 million in 2002, which is
a 28% increase from Rs. 2,103 million in the previous year. These profits
resulted in earnings of Rs. 1.49 per share against Rs. 1.17 in the previous
year. Accordingly the return on equity in 2002 was 6.9% compared to 5.7%
in the previous year.
The Board of Directors proposes a dividend of Rs. 0.60 per share for the
year. |
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| OPERATING
RESULTS |
| The operating
profit of the Group before depreciation achieved a consistent
growth over the last four years. During the year it was Rs.
15,557 million, which is a 18% increase from Rs. 13,183 million
in the previous year. This has been due to significant increase
in revenue and effective control of operating costs. While revenue
of SLT increased by Rs. 3,147 million, an increase of 14.2%
from the previous year, operating cost (other than depreciation)
increased only by Rs. 833 million contributing Rs. 2,314 million
of the revenue increase towards operating profits. However,
increase of Rs. 691 million in depreciation finally resulted
in a net operating profit of Rs. 7,939 million, an increase
of 25.7% compared with that of the previous year. |
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| REVENUE |
The operating
revenue was Rs. 25,207 million, which is a 14.2% increase
from Rs. 22,060 million last year. Domestic telephony revenue
increased by 15.7% while international telephony revenue increased
by 10.8%.
The increase in domestic call
revenue is due to both volume and tariff increases. SLT increased
the domestic call tariffs in May 2002 by 15% as a part of
tariff rebalancing. During the year SLT expanded its network
by giving 69,258 new connections, which is a 12% drop with
the 78,447 new connections given in 2001 due to curtailment
of investment.
Despite competition in the area
of international communication SLT managed to achieve 10.8%
increase in international telephony income. This was mainly
due to increased volume of international incoming traffic
resulted from close monitoring and control of international
links. International telephony revenue accounted for 41% of
the total revenue in 2002 compared to 42% in 2001. |
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OPERATING
COSTS |
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The operating costs of the Company were
Rs. 9,710 million (previous year Rs. 8,877 million) and the depreciation
cost was Rs. 7,558 million (previous year Rs. 6,867 million). The cost
consciousness and improved productivity of SLT employees in day-to-day
operations contributed to control the increase in costs only to 9.3%.
Increase in staff costs by Rs. 237 million and repairs and maintenance
costs by Rs. 131 million mainly reflects the inflationary effects.
Increase of Rs. 212 million in payments to other network operators (international)
is a reflection of increase in international telephony revenue.
Payments to international network operators decreased due to negotiation
of better rates with international carriers. Payments to NTT communications
corporations decreased due to reduction of expatriate employees assigned
to SLT and cessation of management agreement. |
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CASH
FLOW HEDGE |
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Transfer to hedge reserve in
2002 was Rs. 829 million compared to Rs. 1,351 million in the previous year.
The reduction was partly due to reduction in foreign currency denominated
loans. Another factor was the lower rate of currency depreciation.
Rs. 571 million was charged back to Income Statement as realised exchange
losses. The figure in the previous year was Rs. 108 million less than that
of the current year because the realised exchange losses in the previous
year did not include any brought forward amounts as hedge accounting commenced
in 2001 without retrospective adjustments.
As a result the hedge reserve increased only by Rs. 258 million. |
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| PROFIT
AND TAXATION |
The profit
before tax was Rs. 5,203 million, which was the highest profit
recorded since SLT Limited was formed.
However, after tax profit was adversely affected due a tax charge
of Rs. 2,522 million amounting to an effective tax rate of 48%.
The above tax charge includes Rs. 451 million, part of deferred
tax asset, which had to be written-off. This was a result of
the reduction in the corporate tax rate from 35% to 30% according
to the last budget proposals of the Government. The deferred
tax asset arising from investment tax allowances had been recognised
at prevailing tax rate of 35%, which had to be adjusted to 30%
consequent to the reduction.
The balance amount is in respect of deferred tax on net timing
differences. Due to brought forward tax losses and Investment
Tax Allowance SLT does not have to pay tax in respect of 2002
resulting in no effect on cash flows of the Company. |
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INVESTING
ACTIVITIES |
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SLT acquired 60%
of the shares of Mobitel at a cost of Rs. 922 million. The fair value of
net assets of Mobitel were Rs. 534 million, which resulted in a goodwill
of Rs. 388 million on acquisition.
Apart from the above acquisition the other investing activities amounted
to Rs. 3,445 million, a reduction of Rs. 1,016 million from last year. This
is due to completion of majority of the capital projects. |
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FINANCING
ACTIVITIES |
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During the year there were net
settlements of Rs. 6,948 million (previous year Rs. 4,437 million) long-term
borrowings and the total debt balance as of the end of 2002 was Rs. 25,415
million (previous year Rs. 31,534 million). In addition to regular repayment
of loans, the Company was able to prepay some high interest rate, foreign
currency denominated loans, utilising the excess cash inflows. Interest
income however, was only Rs. 551 million due to reduction of interest rates
and cash investments. |
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EXCELLENCE
IN REPORTING |
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The Annual Report of SLT for the financial
year 2001 was adjudged the runner-up in the services sector by the
Institute of Chartered Accountants of Sri Lanka. This is a creditable
achievement gained by the Company in the Corporate Financial world.
The criteria of selection prove the Company’s high standards
in ensuring transparency, good governance and compliance with statutory
and best accounting practices. |
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