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Financial Review
 

The year under review was a profitable one for SLT, which recorded an all-time high after tax profit of Rs. 3.1 billion. This represents an increase of 139%, year on year.

Financial Summary - Group Rs. million

  2005 2004
  Quarter 1
3 months
Quarter 2
6 months
Quarter 3
9 months
Quarter 4
12 months

12 months
Turnover 7,513 15,168 23,589 32,515 29,516

EBITDA

4,077 8,125 12,897 17,003 15,031

Earnings before Tax

1,219 1,987 3,708 4,812 1,441

Earnings after Tax

909 1,379 2,489 3,093 1,293

Shareholders’ Funds

32,218 31,956 33,076 33,793 31,064

Total Assets

78,894 77,559 79,659 81,520 78,872

Revenue
SLT recorded Group revenue of Rs. 32.5 billion, a 10% increase over the previous year. All revenue sectors have contributed towards this increase. Local call revenue grew by 9%, directly reflecting the increase in size of SLT's customer base. International settlements, too, have grown by 9% in the face of strong competition and narrowing margins on international call charges and settlement rates. Revenues from data-oriented services, value-added services and new businesses such as the telephone directory recorded a growth of 33% over the previous year.

Mobitel increased its revenue by 22% to Rs. 3.6 billion from Rs. 3 billion in 2004, while the operating costs reduced by 3% to Rs. 2.8 billion, against Rs. 2.9 billion in the previous year. The subsidiary has increased its domestic call revenue, international call revenue and roaming revenue by 18%, 73% and145% respectively. Reduction in dealer commissions, provisions for bad debts, and cost of hand sets has contributed towards the savings in operating costs. The net cash generated from operating activities has improved from a negative Rs. 789 million in 2004 to a positive Rs. 980 million in 2005. An investment of Rs. 3.7 billion was made during the year on property, plant and equipment.


Revenue Analysis
Local earnings, consisting mainly of rentals and domestic call charges, accounted for 66% of total revenues. Although SLT was a late entrant to the market on CDMA services, the Company recorded revenues of Rs. 563 million within the last two months of 2005. This accounted for 2% of the total revenue.

IDD revenue accounted for 8% of total revenue, a marginal decrease when compared with the sector's contribution in 2004. This was due to a decrease in traffic volumes following liberalisation of the international gateway operations.

International incoming traffic volumes increased during the year under review, but there was no corresponding increase in the revenue since international settlement rates had to be decreased in keeping with the world market trends. International revenues, which account for 16% of the total, increased by 9% in 2005 when compared with previous year. Data-oriented and other new services increased by 33%, accounting for 8% of the total revenue.

Costs and Depreciation
Operating costs of the Group were Rs. 15.5 billion in 2005, an increase of 7% on those of 2004. Repairs and maintenance and personnel costs were the main contributory factors. Apart from these, almost all other costs have been maintained at 2004 levels. 2005 also saw a remarkable improvement in collections from debtors; this, too, helped curtail operating expenses. There was a significant increase in capitalisations during the year. However, the increase in Group depreciation is marginal, since a material quantity of assets was fully depreciated in 2004.

Finance Costs
Finance costs consist mainly of interest expenses and include the effects of exchange rate fluctuations generated by restatement of monetary assets and the writing-off of realised exchange fluctuations from the hedging reserve. Finance costs of the Group reduced by 7% in the year under review, from Rs. 2.3 billion in 2004 to Rs. 2.1 billion in 2005, resulting from SLT accelerating the retirement of high-interest-rate-bearing loans during the latter part of 2004. Interest expenses of Mobitel rose by Rs. 208 million due to an increase in borrowings to cater for the expansion of services.

International Operators' Levy
The Government introduced an International Operators' Levy (ITL) on international incoming traffic in late 2004, with retrospective effect from March 2003. ITL expenditure for the year 2005 decreased by Rs. 924 million when compared with last year, as the ITL for year 2004 included the provision for 2003 as well. As per Gazette nofification of 31 March 2005, the Company may reclaim two-thirds of the Telecommunication Development Charge (TDC) Funds, corresponding to the investment made for network rollout in unserved and underserved areas. However, the refund has not been recognised in the financial statements at this time, since the concurrence of the Telecommunication Regulatory Commission is still being awaited.

Taxation
Taxation increased by 1,061% in the year under review, rising to Rs. 1,719 million from Rs. 148 million in the previous year. This was due to the full utilisation of brought forward tax losses in 2004 and the subsequent abolition of the Investment Tax Allowance (ITA). SLT enjoyed the benefits of the ITA, granted for qualifying investments made by the Company in infrastructure development projects in rural areas, until the ITA was abolished by the 2003 budget.

Profitability
Earnings Before Interest, Tax, Depreciation, Amortisation and International Telecommunications Levy (EBITDA) of the Group amounted to Rs. 17 billion, 13% more than the previous year.

After recognising finance costs other income and interest income Earnings Before Tax (EBT) amounted to Rs. 4.8 billion, an increase of 234% over the previous year. Interest income rose by 221% compared to 2004, due to effective treasury management. However, due to increases in taxation, Earnings After Tax (EAT) for the year under review were only Rs. 3.1 billion, a 139% increase over the figure for 2004.

Working Capital
The working capital of the Group as at 31 December 2005 was Rs. 10 billion, a decrease of 8% from that of 2004. The main cause was the increase in current tax liability from Rs. 297 million to Rs. 2.8 billion. Cash and cash equivalents amounting to Rs. 14.5 billion as at balance sheet date includes a sinking fund of USD 2.0 million equivalent to Rs. 2.0 billion created during the year to redeem the USD 100 million bond in 2009.The closing inventory level has come down from Rs. 1.3 billion in 2004 to Rs. 844 million in 2005, as Mobitel managed to control its inventory levels, while writing-off some TDMA inventories amounting to Rs. 167 million.

A significant improvement in collections from both local and international debtors resulted in lowering the receivables and prepayments from Rs.10 billion to Rs. 8.5 billion in 2005, while increasing the cash and cash equivalent from Rs.10.8 billion in 2004 to Rs.14.5 billion in 2005. Trade and other payables have increased by Rs. 800 million as a result of increase in payables pertaining to capital expenditure. At the same time, deposits and advances received from customers worth Rs. 297 million, which was included under trade and other payables of current liabilities in the previous year, was shifted to non-current liabilities as the settlement of this liability does not fall within one financial year.

The total asset turnover of the year has improved to 0.4 times when compared with 0.37 in 2004. Return on assets was 7% during 2005. The current ratio of the Group has decreased to 1.7 times from 1.9 in the previous year since current liabilities and current assets have increased by 22% and 7.7% respectively. The quick asset ratio at the end of 2005 was 1.66, compared with 1.83 in 2004.

Activity and Liquidity Ratios

  2001 2002 2003 2004 2005

Asset Turnover Ratio

0.28 0.34 0.35 0.37 0.40

Current Ratio

1.13 1.32 1.17 1.95 1.72

Quick Asset Ratio

1.05 1.27 1.11 1.83 1.66

Capital Structure
The total assets of the Group, amounting to Rs. 81 billion, were funded by shareholders' funds together with deferred income, long-term and short-term liabilities in proportions of 51%, 32% and 17% respectively.

SLT maintained its strategy of reducing gearing. There were no additional borrowings. As at 31 December 2005, the balance of borrowings stood at Rs. 15.7 million, 15% lower than in 2004. As at the balance sheet date, the borrowings of the Group stood at Rs. 22.8 billion, 10% lower than the previous year

SLT's low gearing is effectively leveraged for the Group as a whole. Mobitel borrowed Rs. 2 billion for expansion activities in the year under review. SLT transferred Rs. 4 billion being part of the international bond proceeds to the same company by way of 12% redeemable preference shares and a five-year loan bearing an interest rate of 12% per annum.

Capital Structure - Rs.

  Shareholders’ Funds Debt
SLT 36.6 billion 15.7 billion

Group 33.8 billion 22.8 billion

Debt
The total debt of the Company was Rs. 15.7 billion as at balance sheet date and comprises 88% of long-term debt as against 12% of short-term debt. In 2004, long-term debt was 87% of the total. The debt/equity ratio at the end of the year under review was 0.3, a reduction of 14% when compared with the ratio for 2004. The total debt of the Group was Rs. 22.8 billion at the end of 2005, which consisted of 84% long-term debt, as against a Rs. 25.3 billion total debt in 2004, which includes 82% of long-term debt.

Debt/equity ratio of the Group for 2005, was 0.4, a reduction of 11.1% when compared with 2004.

Interest Cover
The Company’s interest cover ratio of 8.5 in the year under review is a remarkable improvement when compared with a figure of 2.7 in 2004. When viewed against the low debt/equity ratio, it accurately reflects the Company’s potential debt capacity. However, the Group interest cover is 4.3 during 2005, due to Mobitel’s borrowings, for its expansion of GSM network.

 
Interest Cover - Group
  2005 2004
  6,249 3,491
  1,437 2,050
  4.3 1.7

 

Cash Flow
The net increase in cash and cash equivalents was Rs. 3.9 billion. Cash generated from operating activities was Rs. 17 billion as compared to Rs. 10.4 billion in 2004. Of this, Rs. 10.7 billion was invested. The main investment was in the South-East Asia-Middle East-Western Europe (SEA-ME-WE 4) submarine optical fibre cable, which cost Rs. 2.9 billion. Dividend payments of Rs. 899 million accounted for net cash outflow in financing activities.

Performance Measurement
Basic Earnings Per Share (EPS) of SLT (Group) for the year were Rs. 1.71 compared to Rs. 0.72 the previous year. Return on equity was 9.2% in 2005, based on Group figures as at 31 December 2005. The comparative ratio for 2004 was 4.2%. The Group's equity as of balance sheet date was Rs. 34 billion, as against Rs. 31 billion in 2004. The key cause of the movement is an increase in retained earnings.

 
 
Statement of Changes in Equity
The Group’s equity as of balance sheet date was Rs. 34 billion, as against Rs. 31 billion in 2004. The key cause of the movement is an increase in retained earnings.