Annual Report of the Board of Directors on the affairs of the Company
The directors submit their report and the audited financial statements of the company, Sri Lanka Telecom PLC, and the group, which includes its subsidiary undertakings, for the 2013 financial year.
1. > Formation
Sri Lanka Telecom (SLT) was formed by an Incorporation Order made under Section 2 of the State Industrial Corporations Act No. 49 of 1957 and published in the Extraordinary Gazette No. 596/11 of 6 February 1990. Subsequently, in terms of an order made by the Minister of Posts and Telecommunications [“the Minister”] on 24 July 1991 under Section 23 of the Sri Lanka Telecommunications Act No. 25 of 1991 and published in the Gazette No. 675 of 9 August 1991, all properties, rights and liabilities (other than those excluded by the agreement entered into between the Minister and SLT as per sub-section 2 of Section 23 of the Sri Lanka Telecommunication Act) to which the Department of Telecommunications (DOT) was entitled or subject to immediately before the transfer date of 1 September 1991 were vested with SLT.
On 25 September 1996, SLT was converted to a public limited company under the Conversion of Public Corporations of Government Owned Business Undertakings into Public Limited Companies Act No. 23 of 1987, vide Extraordinary Gazette No. 942/7 dated 25 September 1996.
On 5 August 1997, the Government of Sri Lanka as the sole shareholder of SLT divested 35% [631,701,000 ordinary shares] of the issued ordinary share capital to Nippon Telegraph and Telephone Corporation (NTT) and entered into an agreement to transfer the management of SLT to NTT. On 2 July 1998, the Government of Sri Lanka divested a further 3.5% of the issued ordinary share capital by transfer of 63,170,010 ordinary shares to the employees of SLT. On 22 March 2000, NTT transferred the entire 35% of their holding in SLT to NTT Communications Corporation (NTT Com). The Government of Sri Lanka divested a further 12% of its holding to the public through a listing on the Colombo Stock Exchange in November 2002, reducing its holding to 49.5%.
On 4 June 2007, SLT was re-registered under the Companies Act No. 07 of 2007 as Sri Lanka Telecom PLC [SLT PLC].
On 1 April 2008, NTT Com of Japan who held 635,076,318 ordinary shares, which constituted 35.2% of the total issued stated capital of SLT PLC, sold their entire holding to Global Telecommunications Holdings N.V. of Netherlands (GTH) at a price of Rs 50.50 per share. Following the share trade by NTT Com, GTH, in terms of the Takeovers and Mergers Code, announced a mandatory offer to the remaining shareholders which was closed on 2 June 2008. At the close of the mandatory offer, GTH had acquired additional 9.78% of the stated capital of SLT PLC, making the total shareholding to 44.98% of the total issued stated capital of SLT PLC.
2. > Principal group activities and review of the business
The Group provides a broad portfolio of telecommunication services across Sri Lanka, the main activity being domestic and international fixed and mobile telephone services. In addition, the range of services provided by the Group include, inter-alia, internet services, IPTV, Wireless Broadband operations, data services, domestic and international leased circuits, frame relay, satellite uplink and maritime transmission.
The Company’s interest in subsidiaries and the business activities of respective subsidiaries are as follows:
A detailed review of the Company’s activities, the development of its businesses, and an indication of likely future developments are given under Management Discussion and Analysis.
3. > Board of Directors
The directors who served throughout 2013 were;
4. > Director election and re-election
The Directors may from time-to-time appoint one or more Director(s). Any such Director shall hold office only until the next AGM and shall then offer themselves for election by the Company’s shareholders. The Company’s Articles of Association, require the Directors to retire and offer themselves for election by shareholders at the first AGM after their appointment. Notwithstanding that the Articles of Association provide that one third of the Directors (or the number nearest to one third) are to retire by rotation at each AGM and offer themselves for re-election by the shareholders, all of the Directors seek re-election on an annual basis at each AGM, in compliance with the Articles of Association of the Company.
Messrs Lawrence Michael Paratz and Chan Chee Beng, will be proposed for re-election this year, at the forthcoming AGM in accordance with the Company’s Articles of Association
5. > Directors’ indemnities and insurance
The Company maintains Directors’ and officers’ liability insurance which gives appropriate cover for any legal action brought against its Directors.
6. > Directors’ interest in contracts with the Company
The particulars of entries made in the Interests Register pertaining to General Disclosures made by the Directors of the Company in terms of the Companies Act No. 7 of 2007 during the financial year under review, are given in Note 34.2 to the financial statements on page 180
As at 31 December 2013, none of the Directors held shares in the Company or its subsidiaries.
7. > Related Party Transactions
The details are given in Note 34.1 in the notes to the Financial Statements on pages 177 to 179.
8. > Remuneration and other benefits of directors
The remuneration and other benefits of the Directors are given in Note 6 to the financial statements on page 144
9. > Stated capital
Details of the Company’s share capital are set out in Note 29 on page 169 to the financial statements. The issued share capital of the Company as at 31 December 2013 was 1,804,860,000 ordinary shares of Rs.10/- each.
Voting rights
Ordinary shareholders are entitled to receive notice and to attend and speak at any general meeting of the Company. On a show of hands every shareholder present in person or by proxy (or being a corporation present by a duly authorised representative) shall have one vote, and on a poll every shareholder who is present in person or by proxy or (in the case of a corporate member) by a duly authorised representative shall have one vote for every share of which he is the holder. A shareholder entitled to attend and vote at a general meeting may appoint a proxy to attend and vote instead of him. A proxy need not be a shareholder of the Company.
10. > Financial statements
A statement by the directors of their responsibilities for preparing the financial statements is included in the Statement of directors’ responsibilities on page 122. Our significant accounting policies are set out on pages 131 to 141 of the financial statements and conform with SLFRS.
These policies, and applicable estimation techniques, have been reviewed by the directors who have confirmed them to be appropriate for the preparation of the 2013 financial statements.
So far as each of the directors are aware, there is no relevant information that has not been disclosed to the auditors and each of the directors believe that all steps have been taken that ought to have been taken to make them aware of any relevant audit information and to establish that the auditors have been made aware of that information.
All amounts are stated in Sri Lanka Rupees million, unless otherwise stated.
11. > Financial Results
11.1 Income & Expenses for 2012 and 2013
11.2 Profits
Details are given in the Statement of Comprehensive Income of the Financial Statements.
12. > Dividends
The Board of Directors of the company has declared a first and final dividend of Rs. 0.85 per share for the Financial Year ended 31st December 2013 at a meeting held on 20th February 2014. As required by Section 56 (2) of the Companies Act No. 7 of 2007, the Board of Directors have certified that the company satisfies the Solvency Test in accordance with the Section 57 of the Companies Act No. 7 of 2007. The first and final dividend will be paid on 23rd April 2014 to those shareholders on the register as at 10th April 2014.
13. > Reserves
Total Reserves of the Company stood at Rs. 57,103 Mn as at 31.12.2013, details of which are given in the Statement of Changes in Equity on pages 128 and 129 of the Annual Report.
14. > Respective Responsibilities of Directors and Auditors for the Financial Statements
The Directors are responsible for the preparation of the Financial Statements so that they present a true and fair view of the state of affairs of the Company. The Directors are of the view that these Financial Statements have been prepared in conformity with the requirements of the Companies Act No.7 of 2007, the Sri Lanka Accounting and Auditing Standards Act No.15 of 1995 and the Continuing Listing Rules of the Colombo Stock Exchange.
15. > Independent auditors’ report
The independent auditors’ report is set out on page 125
16. > Changes in accounting policies
The accounting policies adopted by the Company and its subsidiaries have been consistently applied from previous years.
17. > Property, plant and equipment
The movements in property, plant and equipment during the year are set out in Note 13 to the financial statements. Current status of value of properties is disclosed in Pages 149 to 151.
Land is carried at cost within the financial statements. It is not practical to estimate the market value of land at each reporting date.
18. > Amounts payable to the firm holding office as an Auditor
The remuneration payable by the Company to the Independent Auditors is given in Note 06 to the financial statements on page 144
19. > Auditors’ relationship or any interest with the Company
The Directors are satisfied that, based on written representations made by the Independent Auditors to the Board, they did not have any relationship or any interest with the Company and its subsidiaries that would impair their independence.
20. > Statutory payments
The Directors confirm that to the best of their knowledge all taxes, duties and levies payable by the company and all contributions, levies and taxes payable on behalf of and in respect of the employees of the company and all other known statutory dues as were due and payable by the company as at the reporting date have been paid or where relevant provided for in the financial statements.
21. > Environmental protection
After making adequate enquiries from management, the Directors are satisfied that the Company and its subsidiaries operate in a manner that minimises the detrimental effects on the environment and provides products and services that have a beneficial effect on the customers and the communities within which the Group operates.
22. > Donations
During the year the Directors had approved donations amounting to Rs. 850,000 for charitable purposes (2012 – Rs. 1,068,846). The amount includes contributions on account of Corporate Social Responsibility (CSR) initiatives as well. Political and charitable donations
23. > Employment policies
Sri Lanka Telecom has a range of employment policies covering such issues as diversity, employee well-being and equal opportunities. The Company takes its responsibilities to the disabled seriously and seeks not to discriminate against current or prospective employees because of any disability. Employees who become disabled during their career at SLT will be retained in employment wherever possible and given help with rehabilitation and training.
Policies and procedures for recruitment, training and career development promote equality of opportunity regardless of gender, sexual orientation, age, marital status, disability, race, religion or other beliefs and ethnic or national origin. The aim is to encourage a culture in which all employees have the opportunity to develop fully according to their individual abilities and the needs of the Group. The Group remains committed to the fair treatment of people with disabilities regarding applications and training.
The number of persons employed by SLT PLC as at 31st December 2013 was 7,861.
24. > Sustainability Reporting
The Group is conscious of the impact, direct and indirect, on the environment due to its business activities. Every endeavour is made to minimise the adverse effects on the environment to ensure sustainable continuity of our natural resources. The activities undertaken by the Group in recognition of its responsibility as a corporate citizen are disclosed more fully on pages 63 to 67 of this Report.
25. > Events after the reporting date
The Board of Directors is exploring the options viably open to SLT to comply with the rules on minimum public holding of 20% in the hands of public shareholders as a continuous listing requirement; a directive issued under Section 13 (c) and 13 (cc) of the Securities and Exchange Commission of Sri Lanka Act No. 36 of 1987 (as amended).
No other events had occurred since the reporting date and the approval of these consolidated financial statements, which would require adjustments to, or disclosure in, these consolidated financial statements.
26. > Appointment of auditors
The Company’s auditor, KPMG has indicated its willingness to continue in office and resolutions seeking to reappoint them as the Company’s auditors and to authorise the Directors to determine their remuneration will be proposed at the forthcoming AGM.
SLT Group Audit Committee carried out the annual review of their performance by gathering feedback from Committee members and senior management prior to their recommendation for re-appointment of KPMG as Company’s auditors.
27. > Audit information
Each of the Directors at the date of the approval of this Report confirms that: so far as the Director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and the Director has taken all the steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company’s auditor is aware of such information.
28. > Internal control and risk management
The Board of SLT PLC, the group’s ultimate parent, is responsible for the group’s systems of internal control and risk management and for reviewing each year the effectiveness of those systems. Such systems are designed to manage, rather than eliminate, the risk of failure to achieve business objectives; any system can provide only reasonable, and not absolute, assurance against material misstatement or loss. The process in place for reviewing SLT’s systems of internal control includes procedures designed to identify and evaluate failings and weaknesses, and, in the case of any categorised as significant, procedures exist to ensure that necessary action is taken to remedy the failings.
Appended to this Annual Report is the Board’s analysis of what it believes to be the main risks and uncertainties facing the Company. Full details can be seen on pages 108 to 114
Internal control over financial reporting >
SLT’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the group including the consolidation process. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with SLFRS.
30. > Going concern
The Performance section on pages 126 to 130 Includes information on our financial Results, financial outlook, cash flow, loans and borrowings and financial position. Notes 17, 21, 22 and 30 of the consolidated financial statements include information on the group’s investments, cash and cash equivalents, borrowings, financial risk management objectives, and exposures to interest, foreign exchange, credit, liquidity and market risks. The directors are satisfied that this cash flow forecast, taking into account reasonably possible risk sensitivities associated with this forecast and SLT Group’s current funding and facilities, alongside SLT Group’s funding strategy, shows that the group will continue to operate for the foreseeable future. The directors therefore continue to have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future and continue to adopt a going concern basis.
31. > Annual General Meeting
The Company’s AGM will be held at 10.00 am on Wednesday 09th April 2014 at Balmoral Ballroom (Lobby Level) Kingsbury Hotel, 48, Janadhipathi Mawatha, Colombo 01. Details of the meeting and the resolutions to be proposed are set out in a separate Notice of Meeting which accompanies this Annual Report.
By order of the Board
Statement of Directors in relation to their responsibility for the preparation of financial statements
The responsibility of the Directors in relation to the financial statements of the Company and the Group is set out in the following statement. The responsibility of the Independent Auditors, in relation to the financial statements, prepared in accordance with the provisions of the Companies Act No. 07 of 2007 [“ the Act”], is set out in the Independent Auditors ‘Report on page 125.
The financial statements comprise of:
- Statement of comprehensive income, which present a true and fair view of the profit and loss of the Company and the Group for the financial year; and
- Statement of financial position, which present a true and fair view of the state of affairs of the Company and the Group as at the end of the financial year, and which comply with the requirements of the Act.
- The Directors are required to ensure that, in preparing these financial statements:
- appropriate accounting policies have been selected and applied in a consistent manner and material departures, if any, have been disclosed and explained;
- all applicable Accounting Standards issued by the Institute of Chartered Accountants of Sri Lanka, as relevant, have been followed;
- judgments and estimates have been made which are reasonable and prudent.
The Directors are also required to ensure that the Company and of the Group have adequate resources to continue in operation to justify applying the going concern basis in preparing these financial statements.
Further, the Directors have a responsibility to ensure that the Company maintains sufficient accounting records to disclose, with reasonable accuracy the financial position of the Company and of the Group, and to ensure that the financial statements presented comply with the requirements of the Act.
The Directors are also responsible for taking reasonable steps to safeguard the assets of the Company and of the Group and in this regard to give proper consideration to the establishment of appropriate internal control systems with a view to preventing and detecting fraud and other irregularities.
The internal auditors have conducted periodic audits to provide reasonable assurance that the established policies and procedures of the Company were consistently followed.
However, there are inherent limitations that should be recognised in weighing the assurances provide by any system of internal controls and accounting.
The Audit Committee of the Company meets periodically with the Internal Auditors and the Independent Auditors to review the manner in which these auditors are performing their responsibilities, and to discuss auditing, internal control and financial reporting issues. To ensure complete independence, the independent auditors and the internal auditors have full and free access to the members of the Audit Committee to discuss any matter of substance.
The Directors are required to prepare the financial statements and to provide the independent auditors with every opportunity to take whatever steps and undertake whatever inspections that they may consider to be appropriate to enable them to give the independent auditors ‘opinion.
The Directors are of the view that they have discharged their responsibilities as set out in this statement
Compliance report
The Directors confirm that to the best of their knowledge, all taxes, duties and levies payable by the Company and its subsidiaries, all contributions, levies and taxes payable on behalf of and in respect of the employees of the Company and its subsidiaries, and all other known statutory dues as were due and payable by the Company and its subsidiaries as at the reporting date have been paid, or where relevant provided for, except as specified in Note 33 to the financial statements covering contingent liabilities.
By Order of the Board
Sri Lanka Telecom PLC
P W Corporate Secretarial (Pvt) Ltd.
20th February 2014
Colombo