Chairman’s statement

Dear Shareholder,

On behalf of the Board of Directors, I warmly welcome you to the 17th Annual General Meeting of Sri Lanka Telecom PLC, and am pleased to present to you the Annual Report and Financial Statements for the year ended 31 December 2013. As this report will show, this has been an exceptional year for your company, during which we have laid a solid foundation for our next phase of growth, which I am certain will propel SLT into new vistas of opportunity and achievement.

Global Economic Roundup

Throughout 2013, growth in the global economy was subdued with growth rates reaching only 2.3% for the year, regardless of the improving global financial conditions. Given the severity of the economic downturn that persisted for the past two years, this restrained growth was only to be expected. It is noteworthy however, that the new policy initiatives introduced by key developed economies in late 2012, did manage to reduce the global financial risks and helped stabilise consumer, business and investor confidence during 2013, albeit with only a very limited impact on global growth patterns for the year.

In the US, automatic spending cuts and uncertainties associated with budget issues put a damper on overall consumer spending in the latter part of the year; despite the strengthening of private sector demand throughout 2013. In contrast to the economic woes that plagued many of the developed nations, emerging economies continued to register much stronger growth with a large number of lesser developed countries also demonstrating better than average growth; which steeply outpaced global growth patterns throughout the year.

Sri Lanka’s Economic Highlights 2013

Sri Lanka’s economic performance for 2013 too strongly mirrored the trend of other emerging economies in the region, with Government of Sri Lanka (GoSL) targeting to achieve the twin goals of being a US$ 100 billion GDP economy and US$ 4,000 per capita income by year 2016. With the country’s economy demonstrating favourable growth throughout the year, a series of well-timed macro level activations were initiated to stimulate growth and reinforce the stability of the economic framework. A bid to further augment economic growth saw the gradual easing of the country’s monetary policy in mid-2013. Seeking to secure a firm credit appetite among private sector investors, the CBSL further eased the country’s monetary policy regime in the latter part of the year. Resulting in an immediate reduction in short term interest rates, this move was also intended to foster a healthy level of credit growth among the private sector.

Meanwhile, continuing with the trend of the past few years, inflation continued to remain at single digit levels throughout the year. Characterized by subdued international commodity prices and reduced domestic supply side pressures, inflation rates for the year remained stable, alongside well contained demand driven inflationary pressures. An analysis of recent YoY inflation figures also indicates that inflation volatility has smoothened, an environment supportive of single-digit levels in the years ahead.

Heightened by expectations of a sustained growth, the external sector also fared well during the year, with exports showing progressive improvement throughout the year. Despite a sudden resurgence in the latter part of the year, imports experienced a marginal decline during the year that led to the narrowing of country’s trade deficit for 2013.

Another notable feature for 2013 is the degree of resilience exhibited by the rupee in comparison to other currencies of the region, a testament to the growing stability of Sri Lanka’s economy. All these efforts by the GoSL are aimed at achieving the country’s development goals. Posting consistently healthy GDP growth for the past four consecutive years, the latest results for 2013, indicate the growing versatility of Sri Lanka’s economy

Sri Lanka’s economic performance for 2013 too strongly mirrored the trend of other emerging economies in the region, with the GoSL targeting to achieve the twin goals of being a US$ 100 billion GDP economy and US$ 4,000 per capita income by year 2016.

Global Telecommunications Industry at a Glance

In today’s complex commercial environment, data services have emerged as the key driver of industry growth; particularly given the near obsolescence of conventional voice mediums. Moreover, the advent of smart-phones has caused an unprecedented increase in the global demand for mobile broadband services. Growing exponentially by 45% YoY for the past four years, the demand for multi-faceted mobile broadband subscriptions has compelled modern telecommunications service providers to continuously augment their offerings to the market. Engaging diverse mediums that support multiple OS and multiple device environments, dynamic service providers are expected to convey a plethora of applications including mCommerce applications and Cloud computing options. Embracing these demand driven parameters, modern day service providers are expected to stay ahead by improving, innovating and managing technology, processes and people.

The group reported Rs.60.1Bn revenue with 5.9% growth when compared to the previous year. The growth of revenue was mainly driven by the revenue increases of SLT, the holding company and its mobile arm Mobitel.

Performance Overview

I find it very gratifying to see that Sri Lanka Telecom PLC (SLT) has demonstrated coherent growth during the year, amidst the challenges imposed by a multi-faceted competitive environment. Regardless of the monumental changes that are taking place, the group has performed remarkably well during 2013. Our performance, both as a group and from the company’s perspective has been above par. Positive results were recorded across all spheres of the business and are indicative of SLT’s versatility in the face of change: group revenue increased to Rs 60.1Bn, EBITDA to Rs 18.9Bn, Profit before Tax was Rs 7.4Bn, Profit after Tax was Rs 5.4Bn and Investments were Rs 21Bn.

During the year 2013, the group reported Rs.60.1Bn revenue with 5.9% growth when compared to the previous year. The growth of revenue was mainly driven by the revenue increases of SLT, the holding company and its mobile arm Mobitel. Meanwhile the group has been able to manage its operational costs at Rs. 41.2Bn with a sustainable increase of 6.2% compared to the previous year. The group reported Rs.18.9Bn Earnings Before Interest Tax Depreciation and Amortization (EBITDA) for the year 2013. Healthy revenue growth coupled with operating cost management, increased EBITDA by 5.4% when compared to the previous year. EBITDA margin remained at 31.5%. Increase in EBITDA and the favourable outcome of non–operational affairs, resulted in an impressive 25.9% Year on Year (YoY) growth of Group Net Profit Before Tax (NPBT) of the year under review to Rs. 7.4Bn. The Group Net Profit After Tax (NPAT) increased to Rs. 5.4Bn with 38.2% growth.

Change in Motion for Sri Lanka and for SLT

The year has been one of momentous change for us at SLT. Leveraging on our 150 year old telecommunications legacy, we sought an unprecedented paradigm shift in pursuance of a future-ready business platform, particularly in the wake of Sri Lanka’s ambitions to be a regional knowledge hub. Spearheaded by these aspirations, the Government of Sri Lanka (GoSL) too continued to accelerate country-wide infrastructure developments, in tandem with the growing momentum of the peace initiatives and post war economic development programme. While creating a favourable business environment enriched with emerging opportunities, this economic resurgence I believe underpins the country’s profile as a destination of choice for foreign direct investments.

The GoSL’s mandate for national economic progress envisions a SMART Sri Lanka, showcasing the ultimate technology in the voice and data space. Promoting digital economy and wide-spread user access vis-à-vis multiple access mediums including broadband, smart devices and cloud computing options remains the crux of the SMART concept. By transcending conventional boundaries, the SMART network seeks to provide the data hungry consumer with efficient solutions to mainstream needs, while seamless network integration facilitates widespread access to a host of special value added services.

As the national ICT enabler, we believe, SLT is the only contender deemed capable of driving the vision to bring forth a SMART Sri Lanka. As the largest integrated communications service provider, following successful negotiations with the regulatory authorities, SLT was granted a 10 year license in 2013 to operate Sri Lanka’s national ICT backbone to fully support the requirements of the Telecommunications Regulatory Commission of Sri Lanka. As the country’s core ICT platform, the National Backbone Network (NBN) would drive the SMART revolution within the country by facilitating high-speed seamless connectivity both locally and globally. Being the single largest undertaking ever embarked on by SLT, the development of the NBN is an ambitious venture that would alter the dimension of Sri Lanka’s ICT landscape.

With the country on a fast-track towards regional ICT supremacy, it is critical that as the nation’s vanguard ICT service provider, SLT is ready to complement this journey. By strengthening its technology leadership amidst the country’s evolving broadband footprint, SLT expects to harness the full potential of broadband connectivity while combining the best-in-class service standards that offer customers the ultimate in convenience and en-suite connectivity. Realignment of SLT’s strategic business priorities culminating with a mammoth reconstitution of technology, processes and people was deemed the only way to elicit the desired change dimension. Having wide-ranging manifestations across the entire business, a multi-functional transformation strategy is deemed to play a pivotal role in reinforcing SLT as the frontrunner in Sri Lanka’s ICT milieu. As key components of the transformation strategy, the Network Modernization and Transformation programme is expected to reengineer SLT’s core backbone network, while the i-Sri Lanka initiative would layout the provisioning architecture for the undertaking. Meanwhile, an all-encompassing customer- centric transformation is expected to give SLT an unparalleled edge vis-à-vis a superior provisioning, delivery and service mechanism.

Overview of Subsidiaries

I am indeed very pleased to note that all subsidiaries have displayed tremendous capabilities during 2013.

Mobitel (Pvt) Ltd., continued to grow both in strength and stature throughout the year. In tandem with the company’s expansion agenda, island-wide network coverage was significantly enhanced during the year. Also focusing on technology enhancements, Mobitel’s expansion programme saw a series of successful NGN roll outs including 4G/LTE deployments, during the year. With the expansion programme well aligned to group goals, I am reassured that Mobitel is en-route to realize exponential growth in the years ahead.

SLT VisionCom (Pvt) Ltd., also performed commendably well during the year, demonstrating PEO TV operation’s growth in all key revenue streams. Successfully penetrating identified niche markets, the company also managed to generate new revenue streams during 2013. Embodying the commitment to deliver the ultimate entertainment experience, PEO TV is expected to launch a new IPTV platform that is expected to transform the viewer perceptions. Sri Lanka Telecom (Services) Ltd., continued to successfully service both the corporates and small business customer vis-à-vis total network and system integration solutions, having undertaken a series of large scale projects during 2013. While emphasizing on the development of the core business, SLT Publications (Pvt) Ltd., SLT’s directory publication services progressed well to also engage in a well-planned business diversification strategy that is interlinked to the company’s primary objectives.

The formation of SLT Human Capital Solutions (Pvt) Ltd., marks a significant milestone in SLT’s business diversification agenda. Envisioning the provision of total workforce solutions, the company is expected to be key driver of non-traditional revenues for SLT in the future. SLT Property Management (Pvt) Ltd., was also established during the year, to streamline and maximize the utilization of the group’s extensive property portfolio.

Sky Networks (Pvt) Ltd., was a driver of SLT’s 4G LTE and Wi-Fi investments across the country, managing several projects which are designed to upgrade broadband capabilities and increase bandwidth levels across the country.

Future Outlook

I believe the Sri Lanka’s future growth trajectory is strongly appended to the infrastructure competencies of the country, of which the NBN is a core facilitator. By cohesively supporting the NBN through carrier grade wireless technology and fiber-optic architecture, SLT is well placed to capture significant synergies in the longer term. The unmatched capabilities of SLT’s NGN structure would help articulate a multi-layered ICT platform that would convey Voice, Networking, Data Hosting, Managed Services and Cloud Computing options. By providing integrated solutions for large scale corporates while simultaneously supporting the growing SME segment and the public sector through extensive broadband connectivity, SLT aims to convey meaningful value and nation-wide economic progress. While NGN delivers tangible ICT solutions, SLT’s superior customer-centric service components would transpire to create a new dimension of service assurance and fulfilment for the customer. Epitomizing the “One country, One voice” philosophy, SLT expects to build on these core competencies to render a truly SMART nation on par with global standards.

Appreciations

Being a part of one of the most dynamic global industries, I cannot deny the importance of state-of-the-art technology. Having said that, I believe technology will remain only a vehicle to reach the desired destination, while it is the human element with a shared vision that steers the course to success. In the spirit of people power, I must acknowledge that SLT’s achievements are the results of a profound team effort. Let me take this opportunity to thank the Group CEO of SLT and CEOs of each of the subsidiaries, the respective senior management teams and each and every member of the SLT team for their steadfast support and unquestionable loyalty. Your commitment to SLT’s success is truly inspiring.

I wish to also express my sincere thanks to the Board of Directors of SLT for their valuable contribution and active participation in supporting and guiding the strategic vision of SLT. I take this opportunity to bid farewell to Mr Sandip Das who resigned from the Board on 24 April 2013, and thank him for his contribution during his tenure.

To our valued stakeholders, thank you for the trust and confidence placed in us at all times. As always, SLT remains committed to bring you unimaginable possibilities that will help you to change your life on your terms.

Nimal Welgama
Chairman