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Chairman's
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Sri Lanka - 2004
The economy grew despite
an uncertain political climate in early 2004 as well as unfortunate
situations of flood and drought that affected areas of the island
at different times.
The growth in GDP was maintained for the second year running
at 5.5%. However, inflation escalated to 7%. The fiscal deficit
in 2004 is set to reach 8.7% of GDP, significantly higher than
the forecasted level of 6.8%. It is also expected to be higher
than the overall budget deficit of 8.0% in 2003.
Whilst one could say
that on a business and economic level the country was closing
a year of modest gain, nothing prepared us for the catastrophic
disaster that ravaged the country on 26 December 2004, in the
shape and fury of a tsunami of epic proportions.
The loss of life and
property has been unlike any we have seen in recent history.
Elsewhere in this report you will read of the implications this
single disaster held for SLT.
Whilst an unprecedented outpouring of caring and assistance
was evoked amongst Sri Lankans of every circumstance in response,
an equally unprecedented global response saw aid rushing into
Sri Lanka.
The rehabilitation and reconstruction of communities and livelihoods
will take years to accomplish.
This incident looked at in the cold light of economics, is not
expected to make any significant impact on the national economy.
However, given the scale and scope of what lies ahead, and the
actual quantum of assistance that the country receives to mitigate
the disaster, the situation could change in terms of its effect
on the economy.
Seizing Opportunities in 2004
Development in the industry,
technology and customer expectations drove our business in relatively
new directions this year. As we said last year, SLT began to
aggressively diversify its sources of revenue. We shifted focus
from the traditional fixed line revenue to other areas such
as mobile telephony and wireless loop technology, among others.
Before I comment on the performance of the Company, I must mention
that last December’s tsunami damaged approximately 2%
of our Total Network, or 10% of Area Networks in the affected
areas. Whilst a fuller account appears elsewhere in this Report,
I am extremely pleased to report that SLT was able to restore
services in a very short period of time to the affected areas;
in fact we provided connectivity to all essential service agencies
within a matter of hours after the disaster.
One of the highlights
for the Company this year was our entry to the Debt Capital
Market through an International Bond Issue which attracted over
US$ 1 billion at launch, which was an oversubscription over
tenfold. SLT was the
first Sri Lankan Company to go in for such an Issue, which attracted
an international rating of B+ from both Fitch and Standard &
Poor’s. This strategic initiative of the Company will
undoubtedly pave the way for other local companies to source
funding. The country too will benefit in the long term, through
an inflow of funds.
I am also happy to report
that SLT inaugurated an Indo-Sri Lanka microwave link in October
2004, bringing to fruition one of the Company’s long term
goals of becoming an international long distance carrier for
Indian telecom traffic. This initiative is the result of an
agreement signed in 2003, between SLT and India’s leading
telecommunications Company, Bharat Sanchar Nigam Limited (BSNL).This
project enables SLT to have access to a over 40 million strong
customer base.
In August 2004, we carried
this concept further by signing an MoU with BSNL to establish
an optical fibre submarine cable system between India and Sri
Lanka, further enhancing services.
As reported last year, Sri Lanka is a co-partner with 15 other
countries in the SEA-ME-WE 4 submarine cable project which will
significantly enhance the core infrastructure of our industry.
This year, we were
honoured by being unanimously elected to chair its Financial
and Administration Committee, with responsibility to secure
its completion.
The other area of significant
growth during 2004, was seen in the field of mobile telephony.
I am pleased to report satisfactory growth in the subscriber
base of Mobitel, now wholly owned by SLT. This growth can be
attributed to the expansion of Mobitel’s product offering
and reach, fuelled by the roll out of its GSM services. Mobitel’s
subscriber base has grown from 142,700 as at 31 December 2003,
to 285,000 as at 31 December 2004. The 1st phase GSM roll out
is expected to be complete by the second quarter of 2005.
Mobitel’s strategy
is to leverage its supremacy in technology, value added services
and customer care to expand coverage, offer the best and most
modern mobile telecom solutions in the market and become Sri
Lanka’s No.1 Mobile Telecom Operator in terms of the 4
Cs - Coverage, Customer Care, Clarity and Content.
For many years now, SLT has been extremely conscious of being
responsible for its actions within the wider stakeholder community.
We must be responsive as well as responsible for needs and wants
that will eventually lead to the growth of the economy, the
preservation of the environment and the creation of a healthy
social milieu to build strong rural and urban societies. A full
account of our activities in this cause appears in our Social
Impact Report, on pages 38 to 48.
Of the accolades we garnered in 2004, SLT being chosen the No.1
Company in Sri Lanka by the LMD Business Magazine, ranks high.
Our blockbuster IPO in 2002, plus our success at transforming
SLT into a vibrant blue chip Company saw us virtually storm
into the LMD Top 50 to occupy the No.1 slot as Sri Lanka’s
Most Valuable Brand, and the country’s top corporate.
We are also extremely
proud to have received a SL AAA (sri) bestowed by Fitch Ratings
Lanka, in recognition of SLT’s lowest expectation of credit
risk. Only companies
with exceptionally strong capacity to meet their financial commitments
in full and on time, are recipients of such high honour.
SLT is ranked as the second largest public company in Sri Lanka
on the strength of a market capitalisation exceeding Rs. 30
billion.
Reviewing the Company’s financial performance for the
year 2004, revenues amounted to Rs. 29,588 million as against
Rs. 25,553 million for 2003. Net Profit for 2004 amounted to
Rs. 1,293 million as against Rs. 2,249 million in 2003.
One factor that contributed in large measure to a drop in profits
was the effect of the Government’s levy on International
Telecommunication Operators. SLT made a provision against this
levy, of Rs. 2,067 million for 2004, which in turn impacted
negatively on profits.
Additionally, the Company has made full provision for an outstanding
debt amounting to Rs. 1.0 billion, recoverable on the Sigiriya
Card transaction. The Board is making every possible effort
to ensure that all legal remedies are pursued to recover this
outstanding. The consolidated profits have also been impacted
by the substantial level of capital investment made by Mobitel,
the return on which should be reflected in Mobitel’s performance
in the coming years, and also by the excessive level of receivables
in the books of Mobitel, provision for part of which has been
made in the accounts. These negative aspects were outside the
control of the
present Board, many members of which took office only in the
latter part of last year.
The Road Ahead
SLT’s successes have been built upon rock solid ground
- we have worked extremely hard over a number of years to build
the Company into a blue chip corporate, shedding our earlier
image of a moribund giant and transforming ourselves into a
vibrant, modern and competitive institution at the cutting edge
of a sophisticated and futuristic world of communications.
We are moving beyond traditional, locally based fixed line telephony
to the exciting world of mobile communications and internet
and satellite enabled voice, data, media and entertainment products.
The Company’s main strategy is to position SLT as a premier
regional telecommunications operator. This outward looking approach
sees the Company seeking to upgrade its global connectivity
through additional investments in its international bandwidth
capacity such as through the SEA-ME-WE 4 submarine cable project
and through interconnection agreements with other national and
regional carriers. We
also intend to continue expansion of our international operations
by setting up points-of-presence (POPs) outside Sri Lanka, to
be able to offer termination, hubbing and transit services to
overseas telecommunications service providers.
We will continue to expand
and modernise network and services to meet anticipated demand.
A whole plethora of technology and product offerings continue
to become available at blinding speed. SLT has cumulatively
spent Rs. 97,409 million in infrastructure and network development
up to 31 December 2003. Our spend in 2004 was Rs. 7,379 million
bringing the cumulative spend to Rs. 104,764 million. For 2005,
we will earmark Rs. 8,000 million for this purpose.
We are looking to introduce several new value added services
whilst fine tuning and developing existing ones to increase
our customer base and usage, whilst improving revenue.
A key area of diversification of revenue streams will consist
of the Company marketing its considerable capacities and expertise
in network, system integration and advanced technology to other
telecommunications operators in South Asia and elsewhere in
the world.
We also intend to introduce new technology in line with global
trends.
A key strategy is also the development of SLT’s brand
image into that of a technologically advanced, reliable and
customer focussed telecommunications service provider with global
reach.
Acknowledgements
I would like to take this opportunity to pay tribute to and
thank, every employee of the Company across rank and file, for
their excellent effort and commitment to the success of SLT.
They have taken our strategies from drawing board to operational
areas with commendable success. I also thank my colleagues on
the Board, whose support and contributions have been invaluable
in conducting the business of the Company.
I thank our shareholders for their confidence and continued
support of SLT and wish to assure them of our continued commitment
to safeguarding and adding value to their investment in the
Company.
Anil Obeyesekere, P.C.
Chairman
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