Annual Report of the Board of Directors on the Affairs of the Company
The Directors are pleased to present their report and the audited Financial Statements of the Company, Sri Lanka Telecom PLC and its subsidiaries for the financial year 2015.
1. Formation
Sri Lanka Telecom (SLT ) was formed by an Incorporation Order made under Section 2 of the State Industrial Corporations Act No. 49 of 1957 and published in the Extraordinary Gazette No. 596/11 of 6 February 1990. Subsequently, in terms of an order made by the Minister of Posts and Telecommunications [‘the Minister’] on 24 July 1991 under Section 23 of the Sri Lanka Telecommunications Act No. 25 of 1991 and published in the Gazette No. 675 of 9 August 1991 all properties, 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 Telecommunications Act) to which the Department of Telecommunications (DOT) was entitled or subject to immediately before the transfer date of 1 September 1991 were vested with SLT.
SLT was converted to a public limited company on 25 September 1996, under the Conversion of Public Corporations of Government Owned Business Undertakings into Public Limited Companies Act No. 23 of 1987, vide Extraordinary Gazette No. 942/7 dated 25 September 1996.
On 5 August 1997, the Government of Sri Lanka as the sole shareholder of SLT divested 35% [631,701,000 ordinary shares] of the issued ordinary share capital to Nippon Telegraph and Telephone Corporation (NTT) and entered into an agreement to transfer the management of SLT to NTT. Subsequently, on 2 July 1998, the Government of Sri Lanka divested a further 3.5% of the issued ordinary share capital by transfer of 63,170,010 ordinary shares to the employees of SLT. On 22 March 2000, NTT transferred the entire 35% of their holding in SLT to NTT Communications Corporation (NTT Com).
The Government of Sri Lanka divested a further 12% of its holding to the public through a listing on the Colombo Stock Exchange in November 2002, reducing its holding to 49.5%.
SLT was re-registered under the Companies Act No. 07 of 2007 as Sri Lanka Telecom PLC [SLT PLC] on 4 June 2007.
On 1 April 2008, NTT Com of Japan who held 635,076,318 ordinary shares, which constituted 35.2% of the total issued stated capital of SLT PLC, sold their entire holding to Global Telecommunications Holdings N.V. of Netherlands (GTH) at a price of Rs. 50.50 per share. Following the share trade by NTT Com, GTH, in terms of the Takeovers and Mergers Code, announced a mandatory offer to the remaining shareholders which was closed on 2 June 2008. At the close of the mandatory offer, GTH had acquired additional 9.78% of the stated capital of SLT PLC, making the total shareholding to 44.98% of the total issued stated capital of SLT PLC. Since the expiration of the management agreement with NTT, no management agreement had been entered into by SLT PLC.
2. Principal Group Activities and Review of the Business
The Group provides a broad portfolio of telecommunication services across Sri Lanka, the main activity being domestic and international fixed and mobile telephone services. In addition, the range of services provided by the Group include, inter-alia, Internet services, IPTV, Wireless broadband, data services, domestic and international leased circuits, frame relay, satellite uplink and maritime transmission.
The Company’s interest in subsidiaries and the business activities of respective subsidiaries are as follows:
| Name of the subsidiary | Business activity |
| Mobitel (Private) Limited | Mobile telephone services |
| Sri Lanka Telecom (Services) Limited | Total network solutions |
| SLT Publications (Private) Limited | Directory publication services |
| SLT Human Capital Solutions (Private) Limited | Manpower solutions |
| SLT VisionCom (Private) Limited | IPTV services |
| Sky Network (Private) Limited | Wireless broadband services |
| SLT Property Management (Private) Limited | Property management |
| SLT Campus (Private) Limited | Higher education |
A detailed review of the Company’s activities, the development of its businesses, and an indication of likely future developments are given under Management discussion and analysis.
3. Board of Directors
In terms of Section 168 (1) (h) of the Companies Act No. 07 of 2007, the names of persons who held the office as Directors of the Company as at 31 December 2015 are given below:
| Name of Director | Position | Date of appointment | Date of re-election |
| Mr P G Kumarasinghe Sirisena | Chairman | 23.01.2015 | 13.05.2015 |
| Mr Chan Chee Beng | Director | 05.06.2008 | 09.04.2014 |
| Mr Jeffrey Blatt | Director | 05.06.2008 | 13.05.2015 |
| Mr Lawrence Paratz | Director | 26.05.2010 | 09.04.2014 |
| Ms Lai Choon Foong | Director | 09.05.2014 | 13.05.2015 |
| Ms Nilanthi Pieris | Director | 03.02.2015 | 13.05.2015 |
| Ms Chandra Ekanayake | Director | 03.02.2015 | 13.05.2015 |
| Mr W K H Wegapitiya | Director | 02.12.2015 | – |
| Mr Rohan De Silva | Director | 30.12.2015 | – |
Resignations
The names of persons who ceased to hold office as Directors during the financial year were:
| Name of Director | Position | Date of resignation |
| Mr Nimal Welgama | Chairman | 22.01.2015 |
| Mr Jayantha Dharmadasa | Director | 16.01.2015 |
| Mr Shameendra Rajapaksa | Director | 09.01.2015 |
| Mr Kalinga Indatissa | Director | 23.01.2015 |
| Ms Pushpa Wellappilli | Director | 21.01.2015 |
| Mr Krishantha Cooray | Director | 01.12.2015 |
| Mr Firdouse Farook | Director | 07.12.2015 |
4. Appointment and Re-Election of Directors
In terms of the Articles of Association of the Company, the Directors are authorised to appoint any person to be a Director either to fill a casual vacancy or as an additional Director provided that the total number of Directors do not exceed the maximum numbers of Directors specified in the Articles of Association of the Company. The Directors appointed during the year will hold office only until the next Annual General Meeting (‘AGM’) and shall offer themselves for re-election by the shareholders.
In addition, one-third of the Directors (or the number nearest to one third) retire by rotation at each AGM and offer themselves for reappointment by the shareholders.
Messrs W K H Wegapitiya and Rohan De Silva were appointed as Directors on 2 December 2015 and 30 December 2015 respectively to fill the casual vacancies that arose from the resignation of Messrs Krishantha Cooray and Firdouse Farook. Messrs W K H Wegapitiya and Rohan De Silva retire in terms of Article 97 of the Articles of Association of the Company and being eligible offer themselves for reappointment.
Messrs Chan Chee Beng and Lawrence Paratz, who have been longest in office since their last election, retire by rotation in terms of Articles 91 and 92 of the Articles of Association of the Company and being eligible offer themselves for re-election.
Brief profiles of the Directors are contained in the Board of Directors section in the Annual Report.
5. Board Sub-Committees
In terms of Section 186 of the Companies Act, the Articles of Association of the Company and the Listing Rules the following mandatory and voluntary sub-committees have been appointed by the Board so that a small group of committee members may focus in detail on a particular issue and ensure that sufficient attention is being paid to specific issues.
- Audit Committee
- Remuneration & Nomination Committee
- Senior Tender Board
- Technology Sub-Committee
- Risk Management Committee
- Related Party Transactions Review Committee
Information on the sub-committees is given under ‘Corporate Governance’.
6. Directors’ Indemnities and Insurance
The Company maintains Directors’ and officers’ liability insurance which gives appropriate cover for any legal action brought against its Directors and officers.
7. Interest Register and Directors’ Interest in Contracts with the Company
An Interest Register is maintained by the Company as per the requirement of the Companies Act. The Directors have made necessary declarations as provided in Section 192 (2) of the aforesaid Companies Act. The Interest Registers are available for inspection by shareholders or their authorised representatives as required by the Section 119 (1) (d) of the Companies Act No. 07 of 2007.
The Company carries out transactions in the ordinary course of business at commercial rates with entities in which a Director of the Company is the Chairman or Director of such entities or holds substantial interest in such entities.
The Directors have no direct or indirect interest in any contract or proposed contact with the Company for the year ended 31 December 2015 other than those disclosed in Note 33.2 to the Financial Statements.
The Directors have declared all material interest in contracts involving the Company and have refrained from voting on matters in which they have a material interest in.
8. Related Party Transactions
Transactions if any that could be classified as related party transactions in terms of LKAS 24 – ‘Related Party Disclosures’ are given in Note 33 to the Financial Statements.
The Board in terms of the Listing Rules has appointed a Related Party Transactions Review Committee (RPTRC) to review transactions carried out between related entities except those set out in Rule 9.5 of the Listing Rules.
There have been no related party transactions exceeding 10% of the equity or 5% of the total assets of the Company during the year under review.
9. Directors’ Shareholding
The Directors and the Chief Executive Officer did not hold shares in the Company or its subsidiaries during the financial year under review.
10. Remuneration and Other Benefits of Directors
The remuneration and other benefits received by the Directors are given in Note 7 to the Financial Statements as required by Section 168 (1) (f) of the Companies Act.
11. Stated Capital
The stated capital of the Company as at 31 December 2015 was Rs. 18,048,600,000 divided into 1,804,860,000 ordinary shares. There were no changes to the issued capital of the Company during the year under review.
Details of the Company’s stated capital are set out in Note 29 to the Financial Statements.
Substantial shareholding
The following shareholders held more than 5% of the issued shares as at 31 December 2015:
|
Secretary to the Treasury (Government of Sri Lanka) |
49.50% |
|
Global Telecommunications Holdings N.V. |
44.98% |
Voting rights
Ordinary shareholders are entitled to receive Notice and to attend and speak at any General Meeting of the Company. A shareholder entitled to attend and vote at a General Meeting may appoint a proxy to attend and vote instead of him. A proxy need not be a shareholder of the Company.
On a show of hands, every shareholder present in person or by proxy (or being a corporation present by a duly authorised representative) shall have one vote and on a poll every shareholder who is present in person or by proxy (or being a corporation present by a duly authorised representative) shall have one vote for every share held by him.
12. Financial Statements
The Financial Statements of the Group and the Company have been prepared in accordance with Sri Lanka Accounting Standards (SLFRSs/LKASs), laid down by The Institute of Chartered Accountants of Sri Lanka and comply with the requirements of the Companies Act No. 07 of 2007.
The significant accounting policies adopted by the Group and the Company in preparing the Financial Statements are set out on Note 3 to the Financial Statements. These policies, and applicable estimation techniques, have been reviewed by the Directors who have confirmed them to be appropriate for the preparation of the 2015 Consolidated Financial Statements. The policies adopted are consistent with those adopted in the previous financial year. However, Super Gain Tax has been accounted in accordance with an accounting treatment recommended by The Institute of Chartered Accountants of Sri Lanka.
The aforementioned Financial Statements for the year ended 31 December 2015 certified by the Chief Financial Officer and signed by two Directors are given on the Statement of Financial Position of this Report.
A statement by the Directors of their responsibilities for preparing the Financial Statements is included in the Statement of Directors’ Responsibilities while the independent Auditors’ Report is set out under the Independent Auditors' Report of this Report.
13. Financial Results and Appropriations
| 2015 | 2014 | |||
| Company Rs. million | Group Rs. million | Company Rs. million | Group Rs. million | |
|
Revenue |
40,565 | 68,022 | 38,950 | 65,040 |
|
Profit |
1,728 | 3,724 | 3,324 | 6,001 |
|
Reserves |
58,702 | 65,240 | 58,577 | 63,900 |
Results of the Company and of the Group are given in the Statement of Profit or Loss and Other Comprehensive Income.
The movement of the reserves are given in the Statement of Changes in Equity - Group and Company sections of this Annual Report.
14. Dividends
Subject to the approval of the shareholders, the Directors recommend a first and final dividend of Rs. 0.89 per share (2014 – Rs. 0.89 per share) for the financial year ended 31 December 2015 payable on 24 May 2016 to the shareholders registered as at 12 May 2016.
Prior to recommending the final dividend and in accordance with Section 56 (2) of the Companies Act No. 07 of 2007 the Directors have signed a certificate stating that, in their opinion, based on the available information, the Company will satisfy the Solvency Test immediately after the distribution is made and have obtained a Certificate from the Auditors in terms of Section 57 of the Companies Act.
15. Property, Plant & Equipment
The movements in property, plant & equipment during the year are set out in Note 13 to the Financial Statements. Current status of value of properties is disclosed under Note 13.
16. Auditors
KPMG, Chartered Accountants served as the External Auditors of the Company during the year under review. The audit fees payable and fees payable for non-audit services rendered are as follows:
|
Audit fees |
Rs. 9 million (2014 – Rs. 9 million) |
|
Fees for Non–audit services |
Rs. 7 million (2014 – Rs. 8 million) |
KPMG has been SLT’s Auditors since 2010. SLT Group Audit Committee having considered KPMG’s performance and their independence has recommended the reappointment of KPMG by the shareholders as Auditors of the Company for the ensuing year.
Based on the written representation made by the Auditors the Directors are satisfied that the Auditors had no interest or relationship with the Company or its subsidiaries other than that of External Auditors.
KPMG have expressed their willingness to continue in office. A resolution to re-appoint them and to authorise the Directors to determine their remuneration will be proposed at the forthcoming AGM.
17. Statutory Payments and Compliance with Laws and Regulations
The Directors confirm that to the best of their knowledge all taxes, duties and levies payable by the Company and subsidiaries, all contributions, levies and taxes payable on behalf of and in respect of the employees of the Company and its subsidiaries and all other known statutory dues as were due and payable by the Company and its subsidiaries as at the Reporting date have been paid or where relevant provided for in the Financial Statements.
The Company has also ensured that it complied with the applicable laws and regulations including the Listing Rules of the Colombo Stock Exchange.
18. Environmental Protection
After making adequate enquiries from management, the Directors are satisfied that the Company and its subsidiaries operate in a manner that minimises the detrimental effects on the environment and provides products and services that have a beneficial effect on the customers and the communities within which the Group operates.
19. Donations
During the year, the Directors had approved donations amounting to Rs. 2.0 million for charitable purposes for the year 2015 (2014 – Rs. 50,000). The amount includes contributions on account of Corporate Social Responsibility (CSR) initiatives as well.
20. Employment Policies
SLT has a range of employment policies covering issues such as diversity, employee well-being and equal opportunities. The Company takes its responsibilities to the disabled seriously and seeks not to discriminate against current or prospective employees because of any disability. Employees who become disabled during their career at SLT will be retained in employment wherever possible and given help with rehabilitation and training.
Group Companies operate within a framework of human resource policies, practices and regulations appropriate to their market sector. Policies and procedures for recruitment, training, career development and Code of Ethics of employees promote equality of opportunity regardless of gender, sexual orientation, age, marital status, disability, race, religion or other beliefs and ethnic or national origin. The aim is to encourage a culture in which all employees have the opportunity to develop fully according to their individual abilities and the needs of the Group.
The number of persons employed by SLT is given in Note 7.1 (and under Employee Capital).
21. Sustainability Reporting
The Group is conscious of the impact, direct and indirect, on the environment due to its business activities. Every endeavour is made to minimise the adverse effects on the environment to ensure sustainable continuity of our natural resources. The activities undertaken by the Group in recognition of its responsibility as a corporate citizen are disclosed more fully under this section of this Report.
22. Events after the Reporting Date
No events have occurred since the Reporting date and the approval of these consolidated Financial Statements, which would require adjustments to, or disclosure in, these consolidated Financial Statements, that require adjustment or disclosure except for the disclosure in Note 35 to the Financial Statements.
23. Going Concern
The Directors have reviewed the Company’s business plans and is satisfied that the Company has adequate resources to continue its operations in the foreseeable future to justify adopting the going concern basis in preparing the Financial Statements.
24. Annual General Meeting (AGM)
The AGM will be held at 10.00 a.m. on Thursday, 12 May 2016 at the Main Hall of the Bandaranaike Memorial International Conference Hall (BMICH), Bauddhaloka Mawatha, Colombo 7. Details of the Meeting and the resolutions to be proposed are set out in a separate Notice of Meeting which accompanies this Annual Report.
By Order of the Board,
Sri Lanka Telecom PLC
P G Kumarasinghe Sirisena
Chairman
Chandra Ekanayake
Director
Mahesh Athukorale
Company Secretary
29 March 2016
Colombo