Annual Report 2010 SRI LANKA TELECOM PLC - ANNUAL REPORT 2010 FUTURE READY www.slt.lk CORPORATE INFORMATION Name of the Company Auditors Sri Lanka Telecom PLC KPMG Ford Rhodes, Thornton & Co., (Chartered Accountants), Legal Form No. 32, Sir Mohamed Macan Makar Mw, A public Limited Liability Company incorporated in Sri Lanka in Colombo 03. September 1996 under the Conversion of Public Corporations or Government Owned Business Undertakings into Public Company Secretary Limited Companies Act No.23 of 1987 and quoted on the P W Corporate Secretarial (Pvt) Ltd. Colombo Stock Exchange in January 2003. Credit Rating Company Registration Number The Company has received Fitch AAA (lka) Domestic Rating PQ 7 and Fitch BB- foreign currency ratings. Standard & Poor’s have rated B+ for foreign currency and BB- Stock Exchange Listing for local currency corporate credit ratings. The Ordinary Shares of the Company are listed in the Colombo Stock Exchange Bankers Bank of Ceylon FUTUREA better and brighter future Registered Address Citibank N.A. Telecom Headquarters Commercial Bank of Ceylon PLC awaits everyone. It’s a future Lotus Road Deutsche Bank Colombo 01. Hatton National Bank PLC filled with new experiences. HSBC Bank Board of Directors Nations Trust Bank Nimal Welgama – Chairman NDB Bank It’s a life filled with new hope. Sandip Das People’s Bank Chan Chee Beng Sampath Bank Jeffrey Jay Blatt Our 2010 Highlights 2 . SLT Report 2010 Overview 4 . Our Goals & Objectives 6 . Who We Are 8 . The SLT Group 10 . Seylan Bank Jayantha Dharmadasa Standard Chartered Bank Chairman’s Message 14 . Chief Executive Officer’s Review 22 . Board of Directors 30 . Senior Management 36 . Subsidiary Shameendra Rajapaksa CEOs 38 . Management Discussion And Analysis 40 . Mobitel (Pvt) Limited 50 . Sri Lanka Telecom Services 57 . SLT Hong Kalinga Indatissa Kong Limited 58 . SLT Publications (Pvt) Limited 59 . SLT Visioncom (Pvt) Limited 61 . SLT Manpower Solutions (Pvt) Lawrence Paratz Limited 62 . Sky Network 63 . SLT Financial Review 2010 64 . Mobitel Financial Review 2010 67 . Risk Management 70 Dayananda Widanagamachchi . Corporate Governance 73 . Sustainability Report 84 . Annual Report of the Board of Directors on the Affairs of the Company 106 . Statement of Directors in Relation to their Responsibility for the Preparation of Financial Statements 112 . Audit Committee Report 113 . Independent Auditors’ Report 115 . Consolidated Income Statement 116 . Consolidated Subsidiary Companies Balance Sheet 117 . Consolidated Statement of Changes in Equity 118 . Consolidated Cash Flow Statement 120 . Notes to Name of Company Holding Principal Activity the Consolidated Financial Statements 121 . Ten Year Review 160 . Value Added Statement 161 . Portfolio of Lands 162 . Mobitel (Pvt) Limited 100% Mobile Telephony Abbreviations 163 . Notice of Annual General Meeting 164 . Annexure “A” 165 . Form of Proxy enclosed . Sri Lanka Telecom (Services) Limited 100% Providing total network solutions to corporate and small business customers SLT Hong Kong Limited (off shore subsidiary) 100% Point of Presence - Providing IP transit services SLT Publications (Pvt) Limited 100% Directory publication services SLT Visioncom (Pvt) Limited 100% IPTV operations SLT Manpower Solutions (Pvt) Limited 100% Workforce solutions SKY Network (Pvt) Limited 99.89% Wimax operations Regional Telecom Offices Teleshops Ampara Hatton Matara Ambalangoda Katunayake Mihindu Mw Anuradhapura Havelock Town Negombo Beruwala Kegalle Mount Lavinia Avissawella Jaffna Nugegoda Biyagama Kiribathgoda Negambo Badulla Kalmunai Nuwera Eliya Gampaha Kotte Nittambuwa Bandarawela Kalutara Panadura Homagama Kuliyapitiya Piliyandala Batticaloa Kandy Polonnaruwa Horana Kurunegala Puttalam Chilaw Kegalle Rathnapura HQ Liberty Plaza Slave Island Colombo Central Kotte Ratmalana Ja-ela Maharagama Thangalle Galle Kurunegala Trincomalee Kaduwela Matale Wennappuwa Gampaha Mannar Vavunia Kandy Mattakkuliya World Trade Centre Gampola Maradana Wattala Kankasanthuri Matugama Hambantota Matale ® Designed & Produced by eMAGEWISE Digital Plates by Imageline Printed by Printcare READY Sri Lanka Telecom stands committed to empowering and strengthening the people of Sri Lanka as they stride towards their brighter future. 2 Sri Lanka Telecom MANAGEMENT REPORT GOVERNANCE REPORT SUSTAINABILITY REPORT FINANCIAL REPORT Annual Report 2010 Pages 2 - 67 Pages 70 - 81 Pages 84 - 103 Pages 106 - 161 OUR 2010 HIGHLIGHTS GROUP 2010 2009 Revenue Rs. 50.25 Bn Rs. 48.08 Bn Profit Before Tax Rs. 5,961 Mn Rs. 1,395 Mn Profit After Tax Rs. 3,943 Mn Rs. 778 Mn Earnings Per Share Rs. 2.18 Rs. 0.43 COMPANY 2010 2009 Revenue Rs. 33.31 Bn Rs. 34.09 Bn Profit Before Tax Rs. 3,969 Mn Rs. 1,608 Mn Profit After Tax Rs. 2,478 Mn Rs. 1,232 Mn Earnings Per Share Rs. 1.37 Rs. 0.68 Committed to empowering the people of Sri Lanka Sri Lanka Telecom 3 Annual Report 2010 Group 2010 2009 % Rs. Mn Rs. Mn Results for the Year Income 50,250 48,077 4.52 Profit Before Tax 5,961 1,395 327.31 Profit After Tax 3,943 778 406.81 Gross Dividends (2010 proposed) 1,083 451 140.13 At the Year End Shareholders' Funds (Capital and Reserves) 49,849 46,311 7.64 Total Assets 87,030 90,220 (3.54) Information Per Ordinary Share Earnings - Rs. 2.18 0.43 406.97 Dividends - Rs. (2010 proposed) 0.60 0.25 140.00 Dividend Yield - % (2010 proposed) 1.22 0.54 125.92 Net Asset Value (Rs.) 27.62 25.66 7.64 Market Value (Rs.) 49.00 46.00 6.52 Ratios Return on Average Shareholders' Funds (%) 8.20 1.67 Dividend Cover - Times (2010 proposed) 3.64 1.73 4 Sri Lanka Telecom MANAGEMENT REPORT GOVERNANCE REPORT SUSTAINABILITY REPORT FINANCIAL REPORT Annual Report 2010 Pages 2 - 67 Pages 70 - 81 Pages 84 - 103 Pages 106 - 161 SLT REPORT 2010 oVERVIEW OUR BUSINESS OUR PERFORMANCE SUSTAINABILITY FINANCIALS Pages 2 - 3 Pages 14 -21 Pages 84 - 103 Pages 106 -159 Highlights of 2010 Chairman’s Message Sustainability report Annual Audited Financial A quick overview of the key A message from the Chairman A comprehensive overview statements figures of the SLT Group. looking at the local economy of our commitment to and the Group’s performance sustainable development. Page 160 in the year under review. Pages 6 - 8 Ten Year Review Our Goals & Objectives Pages 70 - 81 Pages 22 - 29 A detailed description of our Governance Reports Page 161 Chief Executive Officer’s strategic objectives and how Describes SLT’s approach to Value added statement we have achieved them. Review Corporate Governance and A detailed review of Risk Management. operations by the Chief Page 164 Page 10 - 11 Executive Officer, reviewing Notice of AGM The SLT Group the Group’s performance, An overview of the SLT subsidiary performance and Enclosed Group with a description of strategic developments in the subsidiary activities. year under review, as well as Form of Proxy prospects for the year ahead. Pages 30 -35 Board of Directors Pages 40 - 67 Provides profiles of members Management Discussion & of the Board of Directors of Analysis Sri Lanka Telecom. A detailed report of our operations including a Pages 36 - 39 description of each of the subsidiary companies and Management Team their performance. Provides profiles of the senior management of Sri Lanka Telecom and the heads of subsidiaries. Committed to empowering the people of Sri Lanka Sri Lanka Telecom 5 Annual Report 2010 Our Vision All Sri Lankans seamlessly connected with world class information, communication and entertainment services. Our Mission Your trusted and proven partner for innovative and exciting communication experiences, delivered with passion, quality and commitment. 6 Sri Lanka Telecom MANAGEMENT REPORT GOVERNANCE REPORT SUSTAINABILITY REPORT FINANCIAL REPORT Annual Report 2010 Pages 2 - 67 Pages 70 - 81 Pages 84 - 103 Pages 106 - 161 our goals & objectives PERFORMANCE AGAINST STRATEGIC OBJECTIVES STRATEGIC OBJECTIVE ACHIEVEMENT IN THE FINANCIAL YEAR Customer and Market Centric New Customer Centres/ Front Office Refurbishment, Call Enhance customer experience by being more responsive to Centre Modification, Improvements to maintenance centres, customer needs, delivering higher quality products and services CRM Implementation, New products development, facilities faster with increased value aligned to market requirements and customized solutions provision via IP technology. Services expanded to Unserved and Underserved areas Grow and Protect our Traditional Business A total of 118,375 new telephone connections made up of 58,328 Grow and protect our market, usage and revenue share wired connections and 60,047 CDMA connections. Expanding of traditional business, increase our revenues and sustain geographically to unserved areas (North/East). Maintaining our profitability as the voice market becomes increasingly the Megaline position as the best medium for the triple play. commoditised and subject to price erosion, reduce churn, improve Emphasizing unmatched quality of wire line telephone. Improving quality of service and manage cost. reliability and functionality/services (NGN) Managing the churn. Maintaining the CDMA position as the low cost option for fixed line phone. Transform and Innovate New Vision , Mission and Values, Best practices, governance, Transform ourselves by changing the way we work and how prudent risk management, emphasis on ethics, professionalism, we work, driving new innovative products and services across transparency, accountability and sincerity of action new platforms and a cutting-edge network with processes and organisation focused on delivering customer