Group CEO’s review

ICT has become a pivotal component of how today’s lives are structured and as ICT capabilities become more and more complex, the ensuing solutions are becoming simpler and easier - driving more people to adopt a digital lifestyle. In Sri Lanka too, the impact of ICT has been enormous and its influence, palpable – more and more, customers are moving away from traditional voice communications to non-voice enabled products that provide information at anytime - anywhere - on any device. Sri Lanka today enjoys 100% telephone penetration and is steadily working towards improving its broadband penetration as well, with an aim to achieve a 75% ICT literacy by 2016. The success of our company has been our capacity to ride on the opportunities thus created, in catering to the evolving needs of Sri Lankans through a suite of ICT technologies and services.

In order to achieve this success, we have also had to change from within – and this has been a truly exhilarating experience. A structured programme was implemented to promote a change in the internal culture – to foster new values and attitudes, teamwork and mutual trust, innovation and creativity and an outcome focused decision making regime. We have instilled among our people the desire for continuous improvement and the quest to constantly lift the bar in quality and service delivery. I envision that this new culture, both people and organisation focused, would drive our company and the country to new heights, as we continue to serve the nation diligently in fulfilling our duties as the National ICT Service Provider.

Financial Performance Highlights

Our island-wide footprint was extended further during the year with the share of the population relying on SLT’s services continuing to expand. Notable growth was observed in SLT’s market share for both voice and data

during the year, boosted by the increased island-wide penetration of fixed line and mobile service platforms. As at end of the financial year, the group’s customer base stood at 1.5 million fixed line subscribers and 5 million mobile subscribers. SLT provided enterprise ICT solutions to over 70% of the top 100 listed corporates in the country, while in the broadband sphere, we witnessed a remarkable growth towards a customer base of over 400,000 fixed broadband users, contributing to SLT’s overall market share and bottom-line.

During the year, our top line experienced a 6% YoY growth over the same period last year while judicious cost management initiatives enabled the company to achieve a bottom line of Rs.3,635 million, a commendable increase. Consequently PBT (Profit Before Tax) grew from Rs. 4,567 million to Rs.5,014 million in the year under review, a growth of 10% over the corresponding figure. Meanwhile, the natural

Our long term strategy envisions SLT retaining its leadership position through the adoption of best practices and new technology, facilitated through mega long-term investments.

hedging impact caused by the relative stability of the rupee led to greatly improved foreign exchange income for the year under review.

As margins continue to be challenged by the prevailing competitive market environment, your company remains extremely cost conscious in an effort to mitigate the impact to the bottom line. Stringent monitoring and aggressive recovery strategies applied during the year led to a notable reduction in bad debt to Rs.522 million from Rs.543 million recorded in the previous year, a YoY drop of 4%.

Focusing on efficiently managing other key operational costs, SLT embraced more energy efficient practices. In particular, much effort went into improving SLT’s waste management methodology during the year. Meanwhile the transport fleet was also revamped, with greater emphasis on the use of energy efficient hybrid vehicles to realize further cost benefits to the company while simultaneously reducing SLT’s carbon footprint. Moreover, procurement practices were also streamlined across the group. Leveraging on the strengths of the group’s collective bargaining power, the negotiation process was restructured for economies of scale advantages and long term purchasing efficiency.

Contributing to National Progress

Sri Lanka’s ICT industry has come a long way since its humble beginnings as a mere telegraphy operation 150 years ago. Recognized as one of the most dynamic in the region, the country’s ICT industry today facilitates seamless connectivity and world-class information, communication and entertainment services. The Global Network Readiness Index (NRI) ranks Sri Lanka second only to India in the SAARC region, though both the countries have identical scores. It is pertinent to note that the country’s telephone penetration has now reached 100% including both fixed and mobile users, with exponential growth being recorded in broadband internet subscriptions and usage. For nearly eight years, domestic call rates have been as low as Rs 1 per minute – one of the lowest rates in the world, while the government’s focus on growing the data segment has resulted in data prices also coming down by nearly 90%. In fact, Sri Lanka is on record as the country with the lowest entry level broadband prices in the whole world. As one of the top 5 export earners, Sri Lanka’s IT/BPO sector has experienced a tremendous evolution in the past few years. Moreover, with aspirations to propel the IT/BPO sector into a billion dollar industry, the Government of Sri Lanka’s economic policy paper “Road Map 2013”, strongly favours the ICT industry as a key proponent of success.

With ambitious investment plans to take the industry to the next level, Sri Lanka is well poised to become the ICT hub of the region. This would require pioneering technological innovations that provide holistic end-to-end communication solutions to a broad range of key industries, including Tourism, Naval, Maritime, Aviation, Commerce and Tertiary Education, amongst others.

A versatile ICT platform is a critical tool towards achieving the GoSL’s goal of a US$ 100 billion GDP economy and US$ 4,000 per capita income by 2016. The first step in creating a resourceful ICT platform is strengthening the National Backbone Network (NBN), with an aim to cater to future needs of all ICT operators of the country. With a significantly enhanced bandwidth, the NBN’s fibre-optic architecture would undoubtedly enhance connectivity and speed, while bridging the digital divide in the country.

Reengineering the national ICT infrastructure is indeed a colossal undertaking, and the Government of Sri Lanka awarded the massive task of building the National Backbone Network (NBN) to SLT in 2013. Covering all 329 divisional secretariats in Sri Lanka within a 5 year time window, the NBN aspires to deliver high speed uninterrupted access at all times, to every business and household in the country. By facilitating access to sophisticated ICT solutions, the NBN would empower companies to deliver greater value to their stakeholders, while higher bandwidth and seamless high-speed connectivity would help convert households into SMART hubs and transform the way in which individuals perceive communication technology. Increasing the capacity of global connectivity hand-in-hand with the development of national backbone is an essential prerequisite to facilitate the anticipated exponential traffic growth and the envisaged high speed-connectivity experience. In 2013, SLT took a strategic initiative to invest in the upcoming SMW5 global connectivity cable. The SMW5 cable would facilitate capacity levels in excess of 100G in addition to SLT’s existing global connectivity realized through SMW3 and SMW4 cables.

A Shift in Strategic Focus

We have taken steps to improve IT infrastructure, encompassing the best of customer relationship management (CRM), enterprise resource planning (ERP) and end-to-end service assurance (E2E SA) tools.

was undertaken during the year. Our aim was to establish a vigorous quality framework which would realign the focus of the total workforce of approximately 8000 employees with long-term corporate goals. The multi-dimensional change philosophy, which is discussed in greater detail in the Management Discussion section of this report, aims to reshape the mindset of employees towards a more customer-centric approach that would drive a sustainable business model for the future. By creating a blueprint for shared goals, this customer-centric transformation

strategy is expected to create a new dimension of service assurance and customer fulfilment. Using a world renowned change management process as the key change agent, we aim to guide our employees to relentlessly pursue the desire for knowledge and perennially reinforce their abilities in cognizance with the changing industry landscape, thereby staying a step ahead of the competition.

strategy is expected to create a new dimension of service assurance and customer fulfilment. Using a world renowned change management process as the key change agent, we aim to guide our employees to relentlessly pursue the desire for knowledge and perennially reinforce their abilities in cognizance with the changing industry landscape, thereby staying a step ahead of the competition.

It is indeed a proud moment for me to see how well the entire SLT team has wholeheartedly welcomed this cultural paradigm shift. Their willingness to embrace the proactive change agenda has been a tremendous boost in our journey to shed the preconceptions of a telco provider and redefine ourselves as a customer focused ICT enabler. In one of the strongest endorsements of the change management programme, 2013 marked the first in many years with zero incidents of industrial disputes.

During the year under review, we focused on continuous development activities for our team with a plethora of knowledge sharing sessions, skills development programmes, and training and development programmes to cover all professions and all categories of employees. Employees at all levels were given basic training in human resource management, performance management as well as financial literacy. A culture has been established where learning opportunities are appreciated and capitalised on, thereby creating a pool of knowledge-hungry resources.

Effectively complementing the customer-centric transformation, we were also awarded the ISO 9001:2008 Quality Management System certification during the year. With the implementation of ISO 9001:2008 QMS, your company is now geared to provide better services to customers while building strong bonds and creating a more open culture for customer interactions and customer satisfaction.

Several initiatives were undertaken during the year to improve customer experience and service quality, which included improvements to project and programme management philosophy, streamlining procurement practices and strengthening contract management. Furthermore, we have taken steps to improve IT infrastructure, Service Oriented Architecture (SOA) framework, encompassing the best of Customer Relationship Management (CRM), Enterprise Resource Planning (ERP), End-to-End Service Assurance (E2E SA), Data Warehousing (DWH) and Business Intelligence (BI) tools. In tandem, the brand and marketing capabilities of the group were also strengthened to deliver greater value to customers.

I must also stress, that in no way is the customer-centric transformation a means to an end. It is in fact a concept that demands perpetual evaluation and responsiveness on our part, given that customer satisfaction remains at the crux of the entire concept. I believe the success of the methodology depends on establishing a more proactive customer rapport to help assess the changing face of customer needs in the future. To stay ahead, it is therefore imperative that we continue to foster timely and relevant customer communications. While helping us to stay focused, these exchanges would also reshape our perception of what the customer needs.

Future-ready Infrastructure

As Sri Lanka’s premier ICT service provider, it is our foremost duty to develop a robust ICT infrastructure that supports the country’s aspiration to achieve the regional hub status for Knowledge, Naval and Maritime, Aviation, Commerce, Energy and Tourism. Our efforts towards achieving this goal require massive long-term investments in technology, people and processes. Underpinning our endeavour to create an agile business blueprint, we also remain committed to implement global best practices for Project Management, Knowledge Management and Enterprise Risk Management which would drive a new dimension of functionality and versatility at all levels of the business.

Our effort to reengineer the entire network towards a fully-fledged Next Generation Network (NGN) is well underway. In parallel, SLT’s capacity building effort is taking care of upgrading the core backbone and establishing the National Backbone Network (NBN) - as the sole NBN licence holder. While revolutionizing SLT’s core infrastructure platform, NGN is expected to transform Sri Lanka’s ICT readiness by replacing conventional legacy platforms in favour of an optical fibre based backbone network that extends the network edge closer to the customer. With NGN migration being a pre-requisite for Telecommunications Regulatory Commission of Sri Lanka (TRCSL) licensing requirements, the progress made towards NGN migration during the year helped secure SLT’s operating license, for a further period of 10 years.

For the first time in the history of your company, we have earmarked investments exceeding Rs. 25 Bn (in the last 2 years) which will be directed towards core technology related projects such as NGN and NBN, and also to improve access technologies such as 4G LTE, Carrier-grade Wi-Fi and Fibre-to-the-home connectivity. Furthermore, investment is being channelled to accelerate the growth of Enterprise and SME business segments as well as to enable a robust and resilient public sector.

Identifying that broadband is the catalyst for development, GDP growth and innovation efficiency of a country, we are deploying multiple platforms to deliver superior yet affordable broadband services to the masses. Riding on SLT’s world class fibre optic transport and backbone network, a full range of fixed broadband access technologies such as ADSL2+, VDSL2, FTTx and 4G/LTE has been unleashed by the company enabling download speeds of up to 100Mbps.

Though dominance in technology is critical in the ICT industry, I firmly believe that our competitive edge would hinge on our promise of delivery, service excellence and customer experience. Our ongoing initiatives in steering the company through an all-encompassing, customer-centric transformation would provide SLT an unparalleled edge through a superior provisioning, delivery and service regime. My vision is that SLT should redefine the industry norms in setting the benchmark for exceptional customer assurance and fulfilment standards as a truly market-driven, customer-centric business entity.

Subsidiary Performance

I am glad to note that all subsidiaries performed exceptionally well during the year, to achieve commendable results while complementing the group’s strategic agenda.

The ICT revolution that has taken hold of the country in the past few years has led to an unprecedented demand for internet and networking facilities. With the NBN rollout, the industry will certainly be empowered to provide high speed broadband access at affordable and competitive prices.

The performance of SLT Publications (Private) Ltd., was once again noteworthy with the company launching a number of new publications during the year, while pursuing diverse business interests.

SLT VisionCom (Private) Ltd., too experienced unprecedented growth in 2013, with revenue crossing the Rs. 1 billion mark and the subscriber count reaching 90,000 customers.

Sri Lanka Telecom (Services) Ltd., continued to perform well with notable increases in volume, turnover and profits. Providing intelligent business solutions, the company successfully completed a series of high profile projects for a number of high ranking companies in Sri Lanka, adding to the existing portfolio of accomplishments.

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.

Branching out into non-traditional business lines led to the revamping of SLT Human Capital Solutions (Private) Ltd., as well as setting up of SLT Property Development (Private) Ltd., during the year 2013. An independent HR solutions provider accessible to corporates across Sri Lanka, SLT Human Capital Solutions (Private) Ltd., provides total HR solutions geared for the modern commercial environment. SLT Property Development (Private) Ltd., was established as an entity that ensures the effective utilisation of company’s vast real estate base.

The performance of these subsidiaries is reviewed in much broader detail on pages 60 to 62.

ICT solutions for CHOGM

The main highlight in SLT’s event calendar for the year was the much awaited Commonwealth Heads of Government Meeting (CHOGM) hosted by Sri Lanka in November 2013. As the key ICT enabler for the CHOGM, SLT comprehensively supported all events held across the country. Intelligent communication solutions were formulated to service multiple geographic locations and key forums of the CHOGM. The specially designed Wi-Fi access network, which was backhauled by a high speed, reliable and resilient optical fibre ring architecture, ensured uninterrupted service availability. The largest ever Wi-Fi deployment in Sri Lanka, this module was equipped with the capability of facilitating 2,500 concurrent users.

A Promise for the Future

I am indeed proud that SLT’s progress has remained above par, regardless of the highly competitive nature of the business environment that we operate in. We have remained steadfast in our commitment to transfer sustainable value to all stakeholders associated with our business.

The ICT revolution that has taken hold of the country in the past few years has led to an unprecedented demand for internet and networking facilities. With the NBN rollout, the industry will certainly be empowered to provide high speed broadband access at affordable and competitive prices. Access to world class broadband technologies such as ADSL2+, VDSL2, 4G LTE, Carrier-grade Wi-Fi and Fibre technologies would transform the potency of Sri Lanka’s economy. Serving over 4.5 million people across one million households via a plethora of telecommunication products, we will strive to extend our reach to empower more communities and help them share the fruits of Sri Lanka’s development. In addition to being the national ICT enabler for the consumer segment, SLT is committed towards supporting the country’s growing SME segment through a range of customized communication solutions. Moreover, as the preferred partner of the biggest corporate and public sector entities in the country, our state-of-the-art “Intelligent Solutions” will undoubtedly be a major catalyst in achieving GoSL’s road map for national progress.

Although much work remains to be done to achieve the desired results, it is indeed encouraging to see that we are on the right track. It is reassuring to note that the measured steps taken at present to augment the country’s ICT capabilities, would certainly elicit cohesive socio-economic change in the longer term. Powered by SLT’s infrastructure solutions and unrivalled service platform, the ICT industry is set to achieve unparalleled growth as a high value added industry that would feature a great many job opportunities for the youth of Sri Lanka.

As the undisputed leader in Sri Lanka’s ICT sector, I believe it is our duty to lead by example. Captioned by our seven core values, we remain committed to herald in Sri Lanka’s ICT revolution. By truly epitomizing our brand promise of effectively providing seamless connectivity with world-class information, communication and entertainment services, we pledge to connect one country with one voice.

Appreciations

This has been my first year in office as Group CEO of this great company. I feel privileged to have the honour of leading the Sri Lanka Telecom Group in one of the most dynamic and transformative phases of the history of the Group as well as the country.

It is my duty to thank the Chairman and Board Directors for their valuable guidance and advice, extended readily to me and the senior management alike.

I have received the unstinted support of the senior management who have committed their vast knowledge and skills, and their time, to mould our shared vision for the company.

My sincere appreciation is extended to every single member of the SLT team; they have embraced the new culture and risen to the challenges thrown at them. Each individual contribution has been an inspiration.

The momentum we have achieved already has positioned us well to build a company that is truly a benchmark of business excellence.

Lalith De Silva
Group Chief Executive Officer