The Directors present herewith the audited financial statements for the year ended 31 December 2005.
FORMATION
Sri Lanka Telecom (SLT) was established by an Incorporation Order made under Section 2, State Industrial Corporations
Act No. 49 of 1957 and published in Gazette Extraordinary No. 596/11 of 6 February 1990. Under an Order made by
the Minister of Posts and Telecommunications on 24 July 1991 under Section 23, Sri Lanka Telecommunications
Act No. 25 of 1991 and published in Gazette No. 675 of 9 August 1991, all the property, 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 (1 September 1991) were vested in SLT.
As part of the privatisation process SLT was converted to a public limited company, Sri Lanka Telecom Limited (SLTL),
on 25 September 1996 under the Conversion of Public Corporations or Government Owned Business Undertakings into
Public Limited Companies Act No. 23 of 1987, vide Gazette Extraordinary No. 942/7 of 25 September 1996. Following
the incorporation of SLTL, all of the business and related assets and liabilities of SLT were transferred to SLTL.
Subsequently, on 5 August 1997, the Government as the sole shareholder of SLTL divested 35% of its holding in the
issued share capital of SLTL by the sale of 631,701,000 ordinary shares of Rs. 10 each to Nippon Telegraph and
Telephone Corporation (NTT) and entered into an agreement with NTT to transfer the management of the Company to
NTT. On 2 July 1998, the Government of Sri Lanka divested a further 3.5% of the issued share capital of SLTL by the
distribution of 63,170,010 ordinary shares to the employees of SLTL. On 22 March 2000, NTT Corporation transferred
the full amount of its shares in the Company to NTT Communications Corporation (NTT Com) on reconstitution of the former.
The Government of Sri Lanka divested a further 12% of its holding to the public through the Colombo Stock Exchange
in November 2002, bringing down the Government's holding to 49.5%.
RESULTS
The results for the year and the changes in equity are set out in the income statement on page 56 and, the statements
of changes in equity on pages 58 and 59 respectively.
REVIEW OF BUSINESS
The state of affairs of the Company at 31 December 2005 is set out in the balance sheet on page 57. An assessment of
the Company during the financial year is given in the CEO’s Review.
PROPERTY, PLANT & EQUIPMENT
The movements in property, plant & equipment during the year are set out in Note 9 to the financial statements.
GROUP ACTIVITIES
The group provides a broad portfolio of telecommunication services across the Country, the main activity being
domestic and international telephone services. The range of services provided by the Company includes, inter alia,
internet access, data services, domestic and international leased circuits, frame relay, ISDN, satellite uplink and maritime
transmission.
SUBSIDIARIES
Mobitel (Private) Limited and Sri Lanka Telecom (Services) Limited are both wholly-owned subsidiaries of SLTL. Whereas
Mobitel is engaged in a mobile phone operation, Sri Lanka Telecom (Services) is a data communication solutions
provider.
DIVIDEND
During the year a first and final dividend of 5% per share was paid out of the profits of 2004 in May 2005.
The Directors recommend a first and final dividend of 7.5% per share for the year ended 31 December 2005 on the
issued share capital of Rs. 18,048,600,000.
RESERVES
Total reserves of the group and their composition have been given in the statement of changes in equity on pages 58
and 59 of the financial statements.
SUBSTANTIAL SHAREHOLDINGS
As at 31 December 2005 there were 1,804,860,000 ordinary shares of Rs. 10 each in issue, and according to the share
register the undernoted held more than a 5% interest therein at the balance sheet date.
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SHAREHOLDER RELATIONS
The Board lays emphasis on good investor relations. In addition to the Annual General Meetings at which the Directors
have a dialogue with the shareholders, timely financial reports are presented to them on quarterly and annual basis. The
Investor Relations Officers together with CEO meet institutional shareholders and Fund Managers on a regular basis.
Additionally shareholders are kept up-to-date on the Company's business endeavours and other activities undertaken to
enhance shareholder value, through its quarterly newsletter "Investor".
DIRECTORS
During the year the Board comprised eight Directors and as at 31 December 2005 the Directors were:
Mr. Anil Obeysekere, P.C. - Chairman
Mr. Shuhei Anan - Chief Executive Officer
Mr. S B Divaratne
Mr. Nigel Hatch, P.C.
Mr. Lalith De Mel
Mr. Kiyoshi Maeda
Mr. Haruhiko Yamada
Mr. Shoji Takahashi - Appointed on 25 August 2005
Mr. Takashi Akiyama ceased to be the alternate to Mr. Kiyoshi Maeda and Mr. Haruhiko Yamada on 25 August 2005.
The principal Directors being non-executive their alternate only attended Board meetings.
With the resignation of Mr. Kiyoshi Maeda, on 13 February 2006, Mr. Tadashi Imachi who replaced Mr. Takashi Akiyama
as alternate to Mr. Kiyoshi Maeda, also ceased to hold office of Alternate Director. However, he remains as Alternate to
Mr. Haruhiko Yamada.
The following who were Directors of the Company at the beginning of the year resigned from the Board on the dates
mentioned below:
Mr. Palitha Thenuwara - Compulsory resignation 28 February 2005
Mr. Sadao Maki - Resigned on 25 August 2005
Mr. Nigel Hatch - Resigned on 26 January 2006
Mr. Lalith De Mel - Resigned on 26 January 2006
Mr. Kiyoshi Maeda - Resigned on 13 February 2006
Re-election of Directors
The Company's Articles of Association require that one-third of the Directors retire at each Annual General
Meeting of the Company.
Accordingly Mr. Haruhiko Yamada retires in terms of Article 91 and being eligible offers himself for re-election.
During the year and in early part of 2006, the undermentioned Directors were appointed to fill casual vacancies arising
from the resignation of incumbent Directors. The Directors who have been so appointed by the Board retire in terms of
Article 97 and being eligible offer themselves for re-election.
Mr. Shoji Takahashi - 25 August 2005
Mr. S.N. Kumar - 27 February 2006
Ms. Leisha Chandrasena - 27 February 2006
DIRECTORS’ INTEREST IN CONTRACTS AND PROPOSED CONTRACTS WITH THE COMPANY
The Directors’ interests in contracts and proposed contracts with the Company, both direct and indirect, are set out in
Note 29 to the financial statements. The Directors have disclosed the nature of their interests in contracts and proposed
contracts with the Company at meetings of the Directors.
DIRECTORS’ INTERESTS IN SHARES OF THE COMPANY
Directors' individual shareholdings in the Company as at year end and their corresponding holdings as at the end of the
previous year are as shown below:
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CORPORATE GOVERNANCE
Within the corporate entity, the Company business and affairs are managed and directed with the objective of balancing
the attainment of corporate objectives, the alignment of corporate behaviour within the expectation of the law and society
and the accountability to shareholders and responsibility to other recognised stakeholders.
The Audit Committee comprises three non-executive Directors namely Mr. Lalith De Mel, Mr. S.B. Divaratne and
Mr. Kiyoshi Maeda.
The Remuneration Committee comprising the Chairman and the CEO determines the Senior Executives remuneration
and compensation.
STATUTORY PAYMENTS
All statutory payments payable to the government and the employees have been made at the balance sheet date.
ENVIRONMENTAL PROTECTION
It is the responsibility of the Company to operate in a manner that will not have a detrimental effect on the environment
and to provide products and services of the highest quality that have a beneficial effect on our customers and the
communities within which we operate.
DONATIONS
The Directors did not consider it prudent to make any contribution for charitable purposes during the year as the
Company itself was a victim of the tsunami and had to incur considerable expenditure in rehabilitating
GOING CONCERN
The financial statements are prepared based on the going concern concept. The Board of Directors is satisfied that the
Company has adequate resources to continue its operations in the foreseeable future.
Post balance sheet events
No events have occurred since the balance sheet date, which would require adjustments to, or disclosure in, the financial
statements.
APPOINTMENT OF AUDITORS
A resolution to re-appoint the present auditors, Messrs PricewaterhouseCoopers, Chartered Accountants, who have
expressed their willingness to continue, will be proposed at the Annual General Meeting.
By Order of the Board
P.G. Dias
Secretary
Colombo
13 March 2006
