Sri Lanka Telecom PLC (the ‘Company’) is a company domiciled in Sri Lanka. The address of the Company’s registered office is Lotus Road, Colombo 1. The separate Financial Statements relates to Sri Lanka Telecom PLC. The Consolidated Financial Statements of the Company as at and for the year ended December 2015 comprise the Company and its subsidiaries (together referred to as the ‘Group’ and individually as ‘Group entities’). The Financial Statements of all Companies within the Group are prepared for a common financial year which ends on 31 December.
The Group primarily is involved in providing broad portfolio of telecommunication services across Sri Lanka. In addition, the range of services provided by the Group include, inter-alia, Internet services, data services, domestic and international leased circuits, broadband, satellite uplink, maritime transmission, IPTV service, directory publishing and provision of manpower. The Company is a quoted public Company which is listed on the Colombo Stock Exchange.
The Financial Statements of the Group and the Company which comprises the Statement of Financial Position, Statement of Profit or Loss and Other Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flows have been prepared in accordance with Sri Lanka Accounting Standards (SLFRS & LKAS) as laid down by The Institute of Chartered Accountants of Sri Lanka (ICASL) and the requirements of the Companies Act No. 07 and 2007.
The Financial Statements were authorised for issue by the Board of Directors in accordance with the resolution of the Directors on 29 March 2016.
The Financial Statements have been prepared on the historical cost basis applied consistently with no adjustments being made for inflationary factors affecting the Financial Statements except for the following item:
The liability for defined benefit obligation recognised are actuarially valued and recognised at the present value of the defined benefit obligation.
The Financial Statements have been prepared on a going concern basis.
These Financial Statements are presented in Sri Lanka rupees, which is the Company’s functional currency and the Group’s presentation currency. All financial information presented in rupees has been rounded to the nearest million, unless otherwise indicated.
The preparation of Financial Statements in conformity with Sri Lanka Accounting Standard requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
Information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the Financial Statements is included in the following Notes:
Note 13 - Property, plant & equipment
Note 20 - Trade and other receivables
Note 32 - Provisions and contingencies
No changes in accounting policies have taken place during the year ended 31 December 2015.
The accounting policies set out below have been applied consistently to all periods presented in Financial Statements and have been applied consistently by the Group entities where applicable, except the following:
The Company has adopted the following Statement of Alternative Treatment (SoAT) on Accounting for Super Gain Tax.
As per the Provisions of Part III of the Finance Act No. 10 of 2015 which was certified on 30 October 2015, the Group was liable for super gain tax of Rs. 769 million. According to the Act, the super gain tax was deemed to be an expenditure in the Financial Statements relating to the year of assessment which commenced on 1 April 2013. The Act supersedes the requirements of the Sri Lanka Accounting Standards, hence the expense of super gain tax is accounted in accordance with the requirements of the said Act as recommended by the Statement of Alternative Treatment (SoAT) on Accounting for Super Gain Tax issued by The Institute of Chartered Accountants of Sri Lanka, dated 24 November 2015.
The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain or bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.
The consideration transferred does not include amounts related to the settlement of pre existing relationships. Such amounts are generally recognised in profit or loss.
Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not re-measured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.
Subsidiaries are entities that are controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The Financial Statements from the date on which control commences until the date on which control ceases.
The Directors have concluded that the Group controls all subsidiaries as it has majority control and voting rights over its subsidiaries as depicted in Note (ii-b) below:
Set out below are the Group’s subsidiaries as at 31 December 2015:
| Name of entity | Place of business/country of incorporation | Percentage of ownership | Principal activities |
| Mobitel (Private) Limited | Colombo/Sri Lanka | 100.00% | Mobile service provider |
| Sri Lanka Telecom (Services) Limited | Colombo/Sri Lanka | 99.99% | Providing network solutions for corporate customers and small businesses |
| SLT VisionCom (Private) Limited | Colombo/Sri Lanka | 100.00% | Providing IPTV support services |
| SLT Publications (Private) Limited | Colombo/Sri Lanka | 100.00% | Directory information and publication services |
| SLT Human Capital Solutions (Private) Limited | Colombo/Sri Lanka | 100.00% | Providing workforce solutions |
| Sky Network (Private) Limited | Colombo/Sri Lanka | 99.94% | Wireless broadband operations |
| SLT Property Management (Private) Limited | Colombo/Sri Lanka | 100.00% | Managing SLT’s real estate resources |
| SLT Campus (Private) Limited | Colombo/Sri Lanka | 100.00% | Higher education services of ICT and Business Management |
NCI are measured at their proportionate share of acquiree’s identifiable net assets at the date of acquisition. Changes in the Group interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.
When the Group loses control over a subsidiary, it derecognises the asset and liabilities of the subsidiary and any related NCI (if applicable) and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest in the former subsidiary is measured at fair value when control is lost.
Intra-group balances and transactions and any unrealised income and expenses arising from intra-group transactions, are eliminated.
Transactions in foreign currencies are translated into the respective functional currencies of Group companies at the exchange rates at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate at the Reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined. Foreign currency differences are generally recognised in Statement of Profit or Loss and Other Comprehensive Income. Non-monetary items that are measured based on historical cost in a foreign currency are not translated.
The Group classifies non-derivative financial assets into the following categories: financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables and available-for-sale financial assets.
The Group classifies non-derivative financial liabilities into the other financial liabilities category.
The Group initially recognises loans and receivables and debt securities issued on the date when they are originated. All other financial assets and financial liabilities are initially recognised on the trade date.
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all risks and rewards of ownership of the financial asset are transferred or it neither transfers nor retains substantially all risks and rewards of ownership and does not retain control over the transferred asset. Any interest in such derecognised financial assets that is created or retained by the Group is recognised as a separate asset or liability.
The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.
Financial assets and financial liabilities are offset and the net amount presented in the Statement of Financial Position when, and only when, the Group has a legal right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.
| Financial assets at fair value through profit or loss | A financial asset is classified as fair value through profit or loss if it is classified as held-for-trading or is designated as such on initial recognition. Directly attributable transaction costs are recognised in the Statement of Profit or Loss and Other Comprehensive Income as incurred. Financial assets at fair value through profit or loss are measured at fair value and changes therein, including any interest or dividend income, are recognised in the Statement of Profit or Loss and Other Comprehensive Income. |
| Held-to-maturity financial assets | These assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortised cost using the effective interest method. |
| Loans and receivables | These assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortised cost using the effective interest method. Loans and receivables comprise cash and cash equivalents, staff loans and trade and other receivables, including related party receivables. |
| Available-for-sale financial assets | These assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, are recognised in other comprehensive income and accumulated in the fair value reserve. When these assets are derecognised, the gain or loss accumulated in equity is reclassified to Statement of Profit or Loss and Other Comprehensive Income. |
Non-derivative financial liabilities are initially recognised at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortised cost using the effective interest method.
SLFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transactions between market participants at the measurement date.
A fair value measurement requires an entity to determine the following:
The particular asset or liability that is the subject of the measurement.
For a non-financial asset, the valuation premise that is appropriate for the measurement (consistently with its highest and best use).
The principal (or most advantageous) market for the asset or liability.
The valuation technique(s) appropriate for the measurement, considering the availability of data with which to develop inputs that represent the assumptions that market participants would use when pricing the asset or liability and the level of the fair value hierarchy within which the inputs are categorised.
Fair value is a market-based measurement, not an entity-specific measurement. For some assets and liabilities, observable market transactions or market information might be available. For other assets and liabilities, observable market transactions and market information might not be available. However, the objective of a fair value measurement in both cases is the same to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions (i.e., an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability).
When transaction price provides the best evidence of fair value at initial recognition, the financial instrument is initially measured at the transaction price and any difference between this price and the value initially obtained from a valuation model is subsequently recognised in profit or loss on an appropriate basis over the life of the instrument but not later than when the valuation is supported wholly by observable market data or the transaction is closed out.
The determination of fair value for financial assets and liabilities for which there is no observable market price requires the use of valuation techniques. For financial instruments that trade infrequently and have little price transparency, fair value is less objective and requires varying degrees of judgment depending on liquidity, concentration, uncertainty of market factors, pricing assumption and other risks affecting the specific instrument.
Level 1 Fair value measurements using quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 Fair value measurements using inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and
Level 3Fair value measurements using inputs for the asset or liability that are not based on observable market data (i.e., unobservable inputs).
The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment.
Reclassifications of financial assets, other than as set out below or of financial liabilities between measurement categories are not permitted following initial recognition:
Held-for-trading non-derivative financial assets are transferred out of the held at fair value through profit or loss category in the following circumstances: to the available-for-sale category, where, in rare circumstances, they are no longer held for the purpose of selling or repurchasing in the near term; or to the loan and receivables category, where they are no longer held for the purpose of selling or repurchasing in the near term and they would have met the definition of a loan and receivable at the date of reclassification and the Group has the intent and ability to hold the assets for the foreseeable future or until maturity.
Financial assets are transferred out of the available-for-sale category to the loan and receivables category where they would have met the definition of a loan and receivable at the date of reclassification and the Group has the intent and ability to hold the assets for the foreseeable future or until maturity.
Held-to-maturity assets are reclassified to the available-for-sale category if the portfolio becomes tainted following the sale of other than an insignificant amount of held-to-maturity assets prior to their maturity.
Financial assets are reclassified at their fair value on the date of reclassification. For financial assets reclassified out of the available-for-sale category into loans and receivables, any gain or loss on those assets recognised in shareholders’ equity prior to the date of reclassification is amortised to the profit or loss over the remaining life of the financial asset, using the effective interest method.
The Group holds derivative financial instruments to hedge its interest rate risk exposure.
Derivatives are initially recognised at fair value; any directly attributable transaction costs are recognised in the Statement of Profit or Loss and Other Comprehensive Income as incurred. Subsequent to initial recognition, derivatives are measured at fair value and changes therein are generally recognised in profit or loss.
Financial assets not classified at fair value through profit or loss, are assessed at each Reporting date to determine whether there is objective evidence of impairment.
Objective evidence that financial assets are impaired includes -
default or delinquency by a debtor;
restructuring of an amount due to the Group on terms that the Group would not consider otherwise;
indications that a debtor or issuer will enter bankruptcy;
adverse changes in the payment status of borrowers or issuers;
the disappearance of an active market for a security; or
observable data indicating that there is a measurable decrease in the expected cash flows from a group of financial assets.
In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.
| Financial assets measured at amortised cost | The Group considers evidence of impairment for these assets at both an individual asset and a collective level. All individually significant assets are individually assessed for impairment. Those found not to be impaired are then collectively assessed for any impairment that has been incurred but not yet individually identified. Assets that are not individually significant are collectively assessed for impairment. Collective assessment is carried out by grouping together assets with similar risk characteristics. In assessing collective impairment, the Group uses historical information on the timing of recoveries and the amount of loss incurred and makes an adjustment if current economic and credit conditions are such that the actual losses are likely to be greater or lesser than suggested by historical trends. An impairment loss is calculated as the difference between an asset’s carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account. When the Group considers that there are no realistic prospects of recovery of the asset, the relevant amounts are written off. If the amount of impairment loss subsequently decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, then the previously recognised impairment loss is reversed through the Statement of Profit or Loss and Other Comprehensive Income |
| Available-for-sale financial assets | Impairment losses on available-for-sale financial assets are recognised by reclassifying the losses accumulated in the fair value reserve to the Statement of Profit or Loss and Other Comprehensive Income. The amount reclassified is the difference between the acquisition cost (net of any principal repayment and amortisation) and the current fair value, less any impairment loss previously recognised in Statement of Profit or Loss and Other Comprehensive Income. If the fair value of an impaired available-for-sale debt security subsequently increases and the increase can be related objectively to an event occurring after the impairment loss was recognised, then the impairment loss is reversed through the statement of profit or loss; otherwise, it is reversed through OCI. |
At each Reporting date, the Group reviews the carrying amounts of its non-financial assets (other than, inventories and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill is tested annually for impairment.
For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. Goodwill arising from a business combination is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the combination.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.
An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount.
Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to reduce the carrying amounts of the other assets in CGU on pro-rata basis.
An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
Items of property, plant & equipment are measured at cost less accumulated depreciation and accumulated impairment losses.
Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, and any other costs directly attributable to bringing the assets to a working condition for their intended use.
Purchased software that is integral to the functionality of the related equipment is capitalised as part of that asset.
When parts of an item of property, plant & equipment have different useful lives, they are accounted for as separate items (major components) of property, plant & equipment.
The cost of replacing part of an item of property, plant & equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The costs of the day-to-day servicing of property, plant & equipment are recognised in profit or loss.
Depreciation is calculated over the depreciable amount, which is the cost of an asset or other amount substituted for cost, less its residual value. Depreciation is recognised profit or loss on a straight-line basis over the estimated useful life of each part of an item of property, plant & equipment. In the year of acquisition, depreciation is computed on proportionate basis from the month the asset is put into use and no depreciation will be charged to the month in which the particular asset was disposed. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated.
Depreciation method, useful lives and residual values are reviewed at each Reporting date and adjusted if appropriate. The estimated useful lives for the current and comparative periods are as follows:
| Freehold buildings | 5 - 40 years |
| Ducts, cables and other outside plant | 5 - 12.5 years |
| Submarine cables | 19 - 25 years |
| Telephone exchanges | 8 - 12.5 years |
| Transmission equipment and towers | 12.5 - 40 years |
| Motor vehicles | 5 years |
| CDMA handsets | 3 years |
| PABX system | 1 - 6 years |
| Other fixed assets | 4 - 10 years |
Capital work-in-progress is stated at cost. These are expenses of a capital nature directly incurred in the construction of buildings, major plant and machinery and system development, awaiting capitalisation.
Major spare parts and project-related inventory qualify as property, plant & equipment when the entity expects to use them during more than one period and are used in connection with specific items of property, plant & equipment.
The carrying amount of an item of property, plant & equipment is derecognised on disposal. Gains and losses on disposal of an item of property, plant & equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant & equipment, and are recognised net within ‘other income’ in the Statement of Profit or Loss and Other Comprehensive Income.
When replacement costs are recognised in the carrying amount of an item of property, plant & equipment, the remaining carrying amount of the replaced part is derecognised. Major inspection costs are capitalised. At each such capitalisation, the remaining carrying amount of the previous cost of inspections is derecognised.
Borrowing cost directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as a part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
Goodwill arises on the acquisition of subsidiaries.
Goodwill that arises upon the acquisition of subsidiaries is included in intangible assets. For measurement of goodwill at initial recognition, see Note 3.a(i).
Goodwill is measured at cost less accumulated impairment losses.
Other intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost less accumulated amortisation and accumulated impairment losses.
Separately acquired licences are shown at historical cost. Expenditures on license fees that is deemed to benefit or relate to more than one financial year is classified as license fee and is being amortised over the license period on a straight line basis.
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill is recognised in profit or loss as incurred.
Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use. The estimated useful lives for the current and comparative periods are as follows:
| Software | 2 - 10 Years |
| License and spectrum fees | 2 - 10 Years |
Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.
For operating leases, the leased assets are not recognised on the Group’s Statement of Financial Position.
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the weighted average cost principle. Value of inventories includes expenditure incurred in acquiring, conversion costs and other costs incurred in bringing them to their existing location and condition.
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.
Government grants are recognised initially at fair value when there is reasonable assurance that they will be received and the Group will comply with the conditions associated with the grant. Grants that compensate the Group for expenses incurred are recognised in the Statement of Profit or Loss and Other Comprehensive Income as other income on a systematic basis in the same periods in which the expenses are recognised. Grants that compensate the Group for the cost of an asset are recognised in the profit or loss on a systematic basis over the useful life of the asset.
A defined contribution plan is a post-employment benefit plan under which contributions are made into a separate fund and the entity will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plan are recognised as an employee benefit expense in profit or loss in the periods during services is rendered by employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available.
All employees of the Company are members of the Sri Lanka Telecom Provident Fund to which the Company contributes 15% of such employees’ basic salary and allowances.
All employees of subsidiaries of the Group are members of Employees’ Provident Fund (EPF), to which the respective subsidiaries contribute 12% of such employees’ basic salary and allowances. Employees of Sri Lanka Telecom (Services) Limited are members of Employees’ Provident Fund (EPF), where the Company contribute 15% of such employees’ basic salary and allowances.
The Company and other subsidiaries contribute 3% of the salary of each employee to the Employees’ Trust Fund.
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The defined benefit is calculated by an independent actuary using Projected Unit Credit Method as recommended by LKAS 19 – ‘Employee Benefits’. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using the yield on Government Bonds at the Reporting date and have maturity dates approximating to the terms of the Company’s obligations.
The Group recognises actuarial gains and losses that arise in calculating the Group’s obligation in respect of a plan in other comprehensive income.
The present value of the defined benefit obligation depends on a number of factors that are determined on an actuarial basis using a number of assumptions. Key assumptions used in determining the defined retirement benefit obligations are given in Note 26. Any changes in these assumptions will impact the carrying amount of defined benefit obligations.
Provision has been made for retirement gratuities from the first year of service for all employees, in conformity with LKAS 19 – ‘Employee Benefits’. However, under the Payment of Gratuity Act No. 12 of 1983, the liability to an employee arises only on completion of 5 years of continued service.
Termination benefits are recognised as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised as an expense if the Group has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably.
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.
A liability is recognised for the amount expected to be paid under short-term cash bonus or leave encashment plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
Trade and other payables are stated at their cost.
All discernible risks are accounted for in determining the amount of all known liabilities. The Company’s share of any contingencies and capital commitments and of its Subsidiaries for which the Company is also liable severally or otherwise are also included with appropriate disclosures.
Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates.
Revenue from sales of telecommunications equipment is recognised when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods and the amount of revenue can be measured reliably.
If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognised as a reduction of revenue as the sales are recognised. The total consideration on arrangements with multiple revenue generating activities (generally the sale of telecommunications equipment and ongoing service) is allocated to those components that are separable based on the estimated fair value of the components.
The timing of the transfers of risks and rewards varies depending on the individual terms of the contract of sale.
Revenue from publication sales relating to advertising revenue is recognised on publishing the advertisement on the telephone directory and a copy delivered to the subscriber on a percentage of completion method.
Revenue from services is recognised as the services are provided. Revenue from service contracts that cover periods of greater than 12 months is recognised in the profit or loss in proportion to the services delivered at the Reporting date. In respect of services invoiced in advance, amounts are deferred until provision of the service.
Revenue for call time usage by customers is recognised as revenue as services are performed on accrual basis. Fixed rental is recognised as income on a monthly basis in relation to the period of services rendered.
Mobile revenue comprises amounts charged to customers in respect of monthly access charges, airtime usage, messaging and the provision of other mobile telecommunications services. Mobile monthly access charges are invoiced and recorded as part of a periodic billing cycle. Air time, either from contract customers as part of the invoiced amount or from prepaid customers through the sale of prepaid cards, is recorded in the period in which the customer uses the service.
The revenue received from other network operators, local and international, for the use of the Group’s telecommunication network are recognised, net of taxes, based on usage taking the traffic minutes/per second rates stipulated in the relevant agreements and regulations and based on the terms of the lease agreements for fixed rentals.
Revenue arising from the interconnection of voice and data traffic between other telecommunications operators is recognised at the time of transit across the Group’s network and presented on gross basis. The relevant revenue accrued is recognised under income and interconnection expenses recognised under operating costs in profit or loss.
Revenue from Data services and IPTV services is recognised on usage and the fixed rental on a monthly basis when it is earned net of taxes, rebates and discounts.
The revenue from other telephone services are recognised on an accrual basis based on fixed rental contracts entered between the Group and subscribers.
The connection fees relating to Public Switch Telephone Network (PSTN) are deferred over a period of 15 years. Revenue is recognised on an annual basis irrespective of the date of connection.
IRU revenue relating to leasing of SEA-ME-WE 4 cable capacity are recognised on a straight line basis over the period of the contracts. Amounts received in advance for any services are recorded as deferred revenue. In the event, that a customer terminates an IRU prior to the expiry of the contract and releases the Company from the obligation to provide future services, the remaining unamortised deferred revenue is recognised in the period the contract is terminated.
Backhauling revenue which is leasing of SEA-ME-WE 3 cable capacity is recognised on a straight line basis over the period of contracts. Amounts received in advance for any services are recorded as deferred revenue.
Revenue from the sale of prepaid CDMA cards is deferred until such time as the customer uses the call time, downloadable quota or the credit expires.
Sale of mobile recharge cards and reloads for prepaid subscribers are initially recognised as deferred revenue until such time as the subscribers use the services or credit period expires.
The connection fees relating to Code Divisional Multiple Access (CDMA) connections are recognised as revenue at the point the connection is activated.
The expenses are recognised on an accrual basis. All expenses incurred in the ordinary course of business and in maintaining property, plant & equipment in a state of efficiency is charged against income in arriving at the profit for the year.
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.
Determining whether an arrangement contains a lease.
At inception of an arrangement, the Group determines whether such an arrangement is or contains a lease. A specific asset is the subject of a lease if fulfilment of the arrangement is dependent on the use of that specific asset. An arrangement conveys the right to use the asset if the arrangement conveys to the Group the right to control the use of the underlying asset.
The Group’s finance income and finance cost include:
Interest income from repurchase agreements
Interest income from fixed deposits
Staff loan interest income
Interest expense from borrowings
Interest expense arising from Leases
Foreign exchange gains or losses
Interest income or expense is recognised using the effective interest method. Dividend income is recognised in profit or loss on the date on which the Group’s right to receive payment is established.
Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity or other comprehensive income.
Income tax expense comprises current and deferred tax. Income tax expense is recognised or profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity or other comprehensive income.
Provisions for taxation is based on the profit for the year adjusted for taxation purposes in accordance with the provisions of the Inland Revenue Act No. 10 of 2006 and the amendments thereto.
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss and differences relating to investments in nor taxable profit or loss and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the Reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets liabilities will be realised simultaneously.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax is not recognised for the undistributed profits of subsidiaries as the Parent Company has control over the dividend policy of its subsidiaries and distribution of those profits. Deferred tax assets are reviewed at each Reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
No deferred taxation is provided for Mobitel (Private) Limited due to fact that the income taxes are computed and paid at 2% on revenue.
ESC is payable on the liable turnover at specified rates. As per the provision of the Economic Service Charge Act No. 13 of 2006 and subsequent amendments thereto, ESC is deductible from the income tax liability. Any unclaimed payment can be carried forward and set off against the income tax payable as per the relevant provision in the Act.
Revenue, expenses and assets are recognised net of the amount of sale tax, except: where sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of expense item as applicable.
The Group presents basic Earnings Per Share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period.
Diluted EPS is determinated by adjusting the profit or loss attributable to ordinary shareholders and the weighted-average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares.
The Company transfers annually from the retained earnings an amount equal to 0.1% of additions to property, plant & equipment to an insurance reserve. An equal amount is invested in a sinking fund to meet any funding requirements for potential losses from uninsured property, plant & equipment. The insurance reserve is maintained to recover any losses arising from damage to property, plant & equipment, except for motor vehicles, that are not insured with a third party insurer.
Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s Financial Statements in the period in which the dividends are approved by the Company’s shareholders.
Provision for final dividends is recognised at the time the dividend recommended and declared by the Board of Directors, is approved by the shareholders.
Except when a standard permits or requires otherwise, comparative information is disclosed in respect of the previous period. Where the presentation or classification of items in the Financial Statements are amended, comparative amounts are reclassified unless it is impracticable.
The Statement of Cash Flow has been prepared using the ‘indirect method’ of preparing cash flows in accordance with the Sri Lanka Accounting Standard (LKAS 07) – ‘Statement of Cash Flows’. Cash and Cash Equivalents comprise short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of change in value. The cash and cash equivalent include cash in hand, balances with banks, placements with banks, money at call and short notice.
All material events after the Reporting date have been considered and where appropriate, adjustments or disclosures have been made in respective Notes to the Financial Statements.
The Board of Directors of the Company is responsible for the preparation and presentation of these Financial Statements.
In the preparation of these Financial Statements, a number of estimates and assumptions have been made relating to the performance and the financial position of the Group. Results may differ significantly from those estimates under different assumptions and conditions. The Directors consider that the following discussion addresses the Group’s most critical accounting policies, which are those that are most important to the presentation of its financial performance and position. These particular policies require subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are uncertain.
The Group assigns useful lives and residual values to property, plant & equipment based on periodic studies of actual asset lives and the intended use for those assets. Changes in circumstances such as technological advances, prospective economic utilisation and physical condition of the assets concerned could result in the actual useful lives or residual values differing from initial estimates.
Where the Company determines that the useful life of property, plant & equipment should be shortened or residual value reduced, it depreciates the net carrying amount in excess of the residual value over the revised remaining useful life, thereby increasing depreciation expense. Any change in an asset’s life or residual value is reflected in the Group’s Financial Statements when the change in estimate is determined.
The Group assesses the impairment of property, plant & equipment and intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable or otherwise as required by accounting standards. Factors that are considered important and which could trigger an impairment review include the following:
a. obsolescence or physical damage;
b. significant changes in technology and regulatory environments;
c. significant under performance relative to expected historical or projected future operating results;
d. significant changes in the use of its assets or the strategy for its overall business.
The identification of impairment indicators, the estimation of future cash flows and the determination of the recoverable amount for assets or cash generating units require significant judgment.
Judgment is required in assessing the application of the principles of revenue recognition in respect of revenues. This includes presentation of revenue as principal or as agent in respect of income received from transmission of content provided by third parties.
The provision for impairment losses for trade and other receivables reflects the Group’s estimates of losses arising from the failure or inability of customers to make required payments. The provision is based on the ageing of customer accounts, customer credit-worthiness and the Group’s historical write-off experience etc. Changes to the provision may be required if the financial condition of its customers improves or deteriorates. An improvement in financial condition may result in lower actual write-offs.
The Institute of Chartered Accountants of Sri Lanka has issued the following new Sri Lanka Accounting Standards which will become applicable for the financial periods beginning on or after 1 January 2016. The Group has not assessed the potential impact on its Financial Statements resulting from their application.
SLFRS 9, as issued, reflects the first phase of work on replacement of LKAS 39 and applies to classification and measurement of financial assets and liabilities, depending on the entity’s business model for managing contractual cash flows characteristics of the financial asset.
SLFRS 9 will be effective for financial periods beginning on or after 1 January 2018.
SLFRS 15 establishes a comprehensive framework for determining revenue recognition by a 5-step model and will replace the existing LKAS 18 and LKAS 11. This standard contains single model that applies to contracts with customers and two approaches to recognising revenue: at a point in time or over time. The model feature a contract based five-step analysis of transactions to determine whether, how much and when revenue is recognised.
The new standard will result in significant impacts across the telecommunications sector, requiring companies to assess how their financial reporting, information systems and processes will be affected. In particular accounting subsidised handsets, portfolio accounting, multiple user plan, early upgrade right, non-refundable fees, one-off credits and customer retention-type discounts, contracts paid over a period of more than one year, indirect channel sales, commissions and other contract costs, transition options, etc.
SLFRS 15, will be applicable for the financial periods beginning on or after 1 January 2018.
The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework.
The Group’s risk management processes are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management systems are reviewed regularly to reflect changes in market conditions and the Group activities.
The Audit Committee oversees how management monitors compliance with the Group’s risk management processes/guidelines and procedures, and reviews the adequacy of the risk management framework in relation to the risks. The Audit Committee is assisted in its oversight role by internal reviews of risk management controls ad procedures. The results of which are reported to the Audit Committee.
The Group has exposure to the following risks from its use of financial instruments:
Credit risk
Liquidity risk
Market risk
This Note presents information about the Group's exposure to each of the above risks, the Group's objectives, policies and processes for measuring and managing risk and the Group's management of capital. Further, quantitative disclosures are included throughout these Financial Statements.
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligation and arise principally from the Group’s receivables from customers.
Carrying amount of financial assets represents the maximum credit exposure.
The Group having a very well established credit policy for both International Interconnect customers and Domestic customers to minimise the credit risk. A separate committee has been established to evaluate and recommend the credit worthiness for the International Interconnect customer. Further, prepaid sales are used as a means of mitigating credit risk.
Domestic service is offered to a new customer only after scrutinising through a internal blacklisted data base. The Group has a well-established credit control policy and process to minimise the credit risk. Customers are categorised according to the segments and credit limit has been fixed as per their average monthly bill value. Customer usage and bill payments are monitored as per the credit limit. Credit limit will be periodically revised as per the past monthly bill value. High risk voice customers are subjected to auto disconnection when they reached the threshold limit. Credit control actions and recovery actions are taken for the overdue customers and defaulted customers to minimise the credit risk. High revenue-generated customers including corporate customers are monitored individually.
As at 31 December 2015, the maximum exposure to credit risk for trade by geographic region was as follows:
| Group | Company | |||
| Rs. million | 2015 | 2014 | 2015 | 2014 |
| Sri Lanka | 15,802 | 13,900 | 11,880 | 10,602 |
| Middle East | 533 | 405 | 482 | 382 |
| Asia | 510 | 548 | 372 | 327 |
| Europe | 754 | 1,427 | 973 | 1,097 |
| Australia | 35 | 40 | 37 | 25 |
| Other | 451 | 196 | 151 | 137 |
| Total Trade Receivables | 18,085 | 16,516 | 13,895 | 12,570 |
As at 31 December 2015, the maximum exposure to credit risk for trade receivables by type of counterparty was as follows:
| Group | Company | |||
| Rs. million | 2015 | 2014 | 2015 | 2014 |
| Wholesale customers | 5,120 | 4,000 | 4,388 | 3,813 |
| Retail customers | 10,751 | 10,252 | 8,043 | 7,486 |
| Other network operators | 1,625 | 1,134 | 1,357 | 1,134 |
| Other | 589 | 1,130 | 107 | 137 |
| 18,085 | 16,516 | 13,895 | 12,570 | |
As at 31 December the Group’s most significant customer was Dialog Axiata PLC which accounted for Rs. 320 million of trade receivables (2014 – Rs. 407 million).
As at 31 December 2015, the aging of trade receivables that were not impaired was as follows:
| Group | Company | |||
| Rs. million | 2015 | 2014 | 2015 | 2014 |
| Past due 1 year | 131 | 82 | 447 | 378 |
| Past due 2 years and above | 4 | 9 | 300 | 28 |
| 135 | 91 | 747 | 406 | |
Management believes that the unimpaired amounts that are past due more than 2 years are still collectible in full, based on historical payment behaviour and extensive analysis of customer credit risk.
Out of the above not impaired balance, Mobitel (Private) Limited value amounts to Rs. 692 million (2014 – Rs. 365 million).
The Movement in the allowance for impairment in respect of trade receivables during the year is as follows:
| Rs. million | Group Impairment | Company Impairment |
| Balance as at 1 January 2014 | 5,662 | 4,486 |
| - Impairment loss recognised | 898 | 591 |
| Balance as at December 2014 | 6,560 | 5,077 |
| - Impairment loss recognised | 1,177 | 865 |
| - Amounts written off | (172) | (162) |
| Balance as at 31 December 2015 | 7,565 | 5,780 |
The Group limits its exposure to credit risk by investing only in Government debt securities, repos and in short-term deposits with selected bankers with Board approval.
The Group held cash and cash equivalents of Rs. 5,475 million as at 31 December 2015 (2014 – Rs. 4,695 million)
The Group limits its exposure to credit risk by ensuring the loan balance are recovered from the employees’ monthly salary, or if the employee leaves such amounts are recovered from the employees’ EPF balance.
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group ensures its liquidity is maintained by investing in short, medium and long-term financial instruments to support operational and other funding requirements. The Group determines its liquidity requirements by the use of both short and long-term cash forecasts. These forecasts are supplemented by a financial headroom analysis which is used to assess funding adequacy for at least a 12-month period and the same is reviewed on an annual basis.
Short and medium-term requirements are regularly reviewed and managed by the treasury division.
The following are the remaining contractual maturities of financial liabilities at the Reporting date. The amounts are gross and undiscounted:
| Rs. million | Carrying value | Up to 1 year | Up to 2 years | Up to 5 years | Over 5 years |
| Group | |||||
| As at 31 December 2015 | |||||
| Bank overdrafts | 855 | 855 | – | – | – |
| Bank borrowings and others | 16,857 | 4,972 | 4,014 | 7,871 | – |
| Vendor financing | 6,435 | 3,562 | 2,154 | 719 | – |
| Lease liabilities | 248 | 57 | 58 | 133 | – |
| 24,395 | 9,446 | 6,226 | 8,723 | – | |
| As at 31 December 2014 | |||||
| Bank overdrafts | 921 | 921 | – | – | – |
| Bank borrowings and others | 18,011 | 5,356 | 4,414 | 8,241 | – |
| Vendor financing | 7,874 | 2,777 | 2,899 | 2,198 | – |
| Lease liabilities | 316 | 82 | 91 | 143 | – |
| 27,122 | 9,136 | 7,404 | 10,582 | – | |
| Rs. million | Carrying value | Up to 1 year | Up to 2 years | Up to 5 years | Over 5 years |
| Company | |||||
| As at 31 December 2015 | |||||
| Bank overdrafts | 252 | 252 | – | – | – |
| Bank borrowings and others | 15,745 | 3,860 | 4,014 | 7,871 | – |
| Lease liabilities | 175 | 35 | 35 | 105 | – |
| 16,172 | 4,147 | 4,049 | 7,976 | – | |
| As at 31 December 2014 | |||||
| Bank overdrafts | – | – | – | – | – |
| Bank borrowings and others | 15,837 | 4,299 | 3,297 | 8,241 | – |
| Lease liabilities | 222 | 60 | 162 | – | – |
| 16,059 | 4,359 | 3,459 | 8,241 | – | |
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices which will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.
The Group is exposed to currency risk on services provided, services received and borrowings that are denominated in a currency other than the Sri Lankan Rupees (LKR).
The Group manages its currency risk by a natural hedging mechanism to a certain extent by matching currency outflows for repayments of foreign currency loans and services with currency inflows for services settled in foreign currencies.
The summary of quantitative data about the Group’s exposure to foreign currency was as follows:
| Group | |
| USD million | |
| As at December 2015 | |
| Foreign trade receivables | 16 |
| Secured bank loans | (52) |
| Unsecured loans | (109) |
| Trade payables | (3) |
| Net statement of financial position exposure | (149) |
| As at December 2014 | |
| Foreign trade receivables | 21 |
| Secured bank loans | (15) |
| Unsecured loans | (120) |
| Trade payables | (2) |
| Net statement of financial position exposure | (116) |
| Company | |
| USD million | |
| As at December 2015 | |
| Foreign trade receivables | 14 |
| Secured bank loans | – |
| Unsecured loans | (109) |
| Trade payables | (1) |
| Net statement of financial position exposure | (97) |
| As at December 2014 | |
| Foreign trade receivables | 16 |
| Secured bank loans | – |
| Unsecured loans | (120) |
| Trade payables | (1) |
| Net statement of financial position exposure | (105) |
The following significant exchange rates have been applied during the year:
| Average rate | Year end spot rate | ||||
| 2015 | 2014 | 2015 | 2014 | ||
| USD | 136.16 | 130.56 | 144.06 | 131.87 | |
| EUR | 150.55 | 173.47 | 157.32 | 160.51 | |
A reasonable possible strengthening (weakening) USD would have an impact on the Group's borrowings. This analysis assumes that all other variables, in particular interest rates remain constant.
| Profit or loss | Balance sheet | |||
| Rs. million | Strengthening | Weakening | Strengthening | Weakening |
| Group | ||||
| 2015 December USD (10%) | (2,325) | 2,325 | (2,325) | 2,325 |
| 2014 December USD (10%) | (1,777) | 1,777 | (1,777) | 1,777 |
| Company | ||||
| 2015 December USD (10%) | (1,574) | 1,574 | (1,574) | 1,574 |
| 2014 December USD (10%) | (1,579) | 1,579 | (1,579) | 1,579 |
Interest rate risk mainly arises as a result of Group having interest sensitive assets and liabilities, which are directly, impacted by changes in the interest rates. The Group’s borrowings and investments are maintained in a mix of fixed and variable interest rate instruments and periodical maturity gap analysis is carried out to take timely action and to mitigate possible adverse impact due to volatility of the interest rates.
To minimise the adverse impact of variable interest rate borrowings due to an upward movement of USD interest rates in the market, the Company has obtained an interest rate swap and arrangements are being made to obtain an interest rate CAP.
Short-term interest rate management is delegated to the treasury operations while long-term interest rate management decisions require approval from the Board of Directors.
Interest rate sensitivity of the Company was computed using a floor interest rates (Minimum) of 2.5% and 4.75% Cap interest rate (Maximum) of 6.00% as stipulated in the loan agreements. The Group interest rate sensitivity was computed based on a 100 basis point increase or decrease. This analysis assumes that all other variables, in particular, foreign currency exchange rates, remain constant. The sensitivity of interest rate movement is shown below:
| Profit or loss | ||
| Rs. million | Increase in interest rate | Decrease in interest rate |
| Group | ||
| 2015 December Variable rate instruments | (96) | 85 |
| 2014 December Variable rate instruments | (100) | 76 |
| Company | ||
| 2015 December Variable rate instruments | (21) | 10 |
| 2014 December Variable rate instruments | (38) | 14 |
The fair value of financial assets and liabilities, together with carrying amounts shown in the Statement of Financial Position are as follows:
| Type of the Financial Instrument (2015) | Note | Fair value through profit or loss Group/Company | Available-for-sale Group/Company | Loans and Receivables (Note 4.4.1) | Held-to-maturity Group/Company | |
| Group | Company | |||||
| Trade and other receivables | 18 & 20 | – | – | 16,941 | 15,999 | – |
| Other investments | 17 | – | – | 1,043 | 641 | – |
| Total | – | – | 17,984 | 16,640 | – | |
| Type of the Financial Instrument (2014) | ||||||
| Trade and other receivables | 18 & 20 | – | – | 16,124 | 15,517 | – |
| Other investments | 17 | – | – | 6,750 | 6,397 | – |
| Total | – | – | 22,874 | 21,914 | – | |
| Type of the Financial Instrument (2015) | Note | Fair value through profit or loss | Other financial liabilities (Note 4.4.1) | ||
| Group/Company | Group | Company | |||
| Trade and other payables | 25 | – | 24,097 | 17,694 | |
| Borrowings | 22 | – | 24,395 | 16,172 | |
| Total | – | 48,492 | 33,866 | ||
| Type of the Financial Instrument (2014) | |||||
| Trade and other payables | 25 | – | 19,462 | 14,828 | |
| Borrowings | 22 | – | 27,122 | 16,059 | |
| Total | – | 46,584 | 30,887 | ||
4.4.1 These financial instruments are carried at amortised cost in the Financial Statements. The Company does not anticipate the fair value of these instruments to be significantly different to their carrying values and considers the impact as not material for disclosure.
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Capital consists of stated capital and reserves. The Board of Directors monitors the return on capital as well as the level of dividends to ordinary shareholders.
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
The gearing ratios at 31 December 2015 and 2014 were as follows:
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Total borrowings | 24,395 | 27,122 | 16,172 | 16,059 |
| Total equity | 65,240 | 63,900 | 58,702 | 58,577 |
| Total capital | 89,635 | 91,022 | 74,874 | 74,636 |
| Gearing ratio (%) | 27.2 | 29.8 | 21.6 | 21.5 |
The Group has three reportable segments, as described below, which are the Group’s strategic divisions. The strategic divisions offer different products and services and are managed separately because they require different technology and marketing strategies. For each of the strategic divisions, the Board of Directors, (the Chief Operating Decision Maker - CODM) reviews internal management reports at least on quarterly basis. The following summary describes the operations in each of the Group’s reportable segments:
Fixed ICT operations includes supply of fixed telecommunication services.
Mobile ICT operations includes supply of mobile telecommunication services.
Other segment operations includes Directory publication and support services. None of these segments meet the quantitative thresholds for determining reportable segments in 2015 or 2014.
Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before tax. As included in the internal management reports that are reviewed by the Board of Directors (BOD). Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries.
(All amounts in Sri Lanka rupees million)
| Fixed ICT operations | Mobile ICT operations | Other segments operations | Total | |||||
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
| External revenue | 37,213 | 35,708 | 30,195 | 28,325 | 614 | 1,007 | 68,022 | 65,040 |
| Inter-segment revenue | 3,352 | 3,242 | 2,363 | 2,275 | 2,379 | 1,706 | 8,094 | 7,223 |
| Reportable segment revenue | 40,565 | 38,950 | 32,558 | 30,600 | 2,993 | 2,713 | 76,116 | 72,263 |
| Reportable segment profit before tax | 2,795 | 4,859 | 3,363 | 3,500 | 170 | 322 | 6,328 | 8,681 |
| Interest revenue | 486 | 708 | 332 | 177 | 26 | 25 | 844 | 910 |
| Interest expenses | (30) | (49) | (228) | (140) | (12) | (9) | (270) | (198) |
| Depreciation and amortisation | (7,773) | (7,164) | (5,364) | (5,817) | (82) | (80) | (13,219) | (13,061) |
| Reportable segment assets | 103,061 | 99,017 | 42,606 | 41,591 | 1,940 | 1,684 | 147,607 | 142,292 |
| Capital expenditure | 16,120 | 16,440 | 4,218 | 3,800 | 39 | 13 | 20,377 | 20,253 |
| Reportable segment liabilities | 44,359 | 40,440 | 22,936 | 23,177 | 1,462 | 1,290 | 68,757 | 64,907 |
| 2015 | 2014 | |
| Reconciliations of information on reportable segments | ||
| Revenue | ||
| Total revenue for reportable segments | 73,123 | 69,550 |
| Revenue for other segments | 2,993 | 2,713 |
| Reportable segment revenue | 76,116 | 72,263 |
| Elimination of inter-segment revenue | (8,094) | (7,223) |
| Consolidated revenue | 68,022 | 65,040 |
| Profit or loss | ||
| Total profit or loss for reportable segments | 6,158 | 8,359 |
| Profit or loss for other segments | 170 | 322 |
| Reportable segment profit before tax | 6,328 | 8,681 |
| Elimination of inter-segment profits | (813) | (430) |
| Consolidated profit before tax | 5,515 | 8,251 |
| Assets | ||
| Total assets for reportable segments | 145,667 | 140,608 |
| Assets for other segments | 1,940 | 1,684 |
| 147,607 | 142,292 | |
| Elimination of inter-segment assets | (21,062) | (19,688) |
| Consolidated total assets | 126,545 | 122,604 |
| Liabilities | ||
| Total liabilities for reportable segments | 67,295 | 63,617 |
| Liabilities for other segments | 1,462 | 1,290 |
| 68,757 | 64,907 | |
| Elimination of inter-segment liabilities | (7,452) | (6,203) |
| Consolidated total liabilities | 61,305 | 58,704 |
| Reportable segment totals | Adjustments | Consolidated totals | |
| Other material items (2015) | |||
| Interest revenue | 844 | – | 844 |
| Interest expense | (270) | – | (270) |
| Capital expenditure | 20,377 | – | 20,377 |
| Depreciation and amortisation | (13,219) | – | (13,219) |
| Other material items (2014) | |||
| Interest revenue | 910 | – | 910 |
| Interest expense | (198) | – | (198) |
| Capital expenditure | 20,253 | – | 20,253 |
| Depreciation and amortisation | (13,061) | – | (13,061) |
The significant categories under which revenue is recognised are as follows:
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Release of deferred connection charges | 529 | 586 | 529 | 586 |
| Rental income | 6,580 | 6,588 | 4,959 | 4,911 |
| Domestic call revenue | 23,102 | 22,314 | 4,738 | 5,098 |
| Receipts from other network operators – Domestic | 1,874 | 1,767 | 729 | 755 |
| International call revenue | 2,250 | 2,291 | 776 | 921 |
| Receipts from other network operators – International | 102 | 96 | 2 | 13 |
| International settlements | 9,765 | 10,826 | 6,677 | 6,864 |
| CDMA revenue | 1,290 | 1,481 | 1,290 | 1,481 |
| Broadband revenue | 11,351 | 8,232 | 6,913 | 6,199 |
| Data and other services | 11,179 | 10,859 | 13,952 | 12,122 |
| 68,022 | 65,040 | 40,565 | 38,950 | |
The following items have been included in arriving at operating profit before depreciation and amortisation:
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Staff costs (Note 7.1) | 15,557 | 14,150 | 11,014 | 10,322 |
| Directors’ emoluments | 21 | 20 | 19 | 17 |
| Payments to international network operators | 1,444 | 1,499 | 1,444 | 1,499 |
| Payments to other network operators | ||||
| – International | 2,953 | 2,761 | 2,209 | 1,982 |
| – Domestic | 2,107 | 2,016 | 786 | 822 |
| Int’l Telecommunication Operators Levy (Note 8) | 1,861 | 2,186 | 1,052 | 1,297 |
| Auditors’ remuneration | ||||
| Audit | ||||
| – KPMG | 11 | 11 | 9 | 9 |
| – Other auditors | 4 | 4 | – | – |
| Non-audit | ||||
| – KPMG | 7 | 8 | 7 | 8 |
| – Others | 4 | 6 | 4 | 6 |
| Repairs and maintenance expenditure | 3,871 | 3,419 | 3,054 | 2,696 |
| Provision for doubtful debts | 1,188 | 937 | 882 | 630 |
| Impairments/(reversals) of inventory | 201 | 13 | 201 | 13 |
| Impairment of property, plant & equipment (Note 13) | 886 | 518 | 190 | 518 |
| Other operating expenditure | 17,899 | 18,720 | 9,550 | 9,740 |
| 48,014 | 46,268 | 30,421 | 29,559 | |
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Salaries, wages, allowances and other benefits | 13,746 | 12,545 | 9,612 | 9,059 |
| Post employment benefits | ||||
| - Defined contribution plans | 1,177 | 1,087 | 875 | 814 |
| - Defined benefit obligations (Note 26) | 634 | 518 | 527 | 449 |
| 15,577 | 14,150 | 11,014 | 10,322 | |
| Average number of persons employed | 9,972 | 9,985 | 5,824 | 5,786 |
In accordance with the Finance Act No. 11 of 2004, all Telecommunication Gateway Operators are required to pay a levy defined as the Telecommunication Development Charge (TDC) to the Government of Sri Lanka, based on international call minutes terminated in the country. This levy was made effective from 03 March 2003, where initially the levy was defined in such a way that Operators were allowed to claim the 2/3rd of the TDC against the costs of network development charges.
First revision to this regulation was introduced with effect from 15 July 2010 with a TDC rate change from US cents 3.80 to US cents 1.50. Through the same revision, the disbursement process was removed from the regulation. The revised rates prevailed until such time the rate was again revised to US cents 3.0 per minute with effect from January 2012, in accordance with the Budget Proposal for 2012.
Total TDC refunds claimed are as follows:
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| TDC refund | – | 1,259 | – | 937 |
The TDC Refund received in 2014 corresponds to the period from April 2009 to July 2010 which was the last claim obtained under the respective regulation.
International Telecommunication Operators Levy (ITL) recognised as expense for the period is as follows:
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| ITL | 1,861 | 2,186 | 1,052 | 1,297 |
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Rupee loans [see Note (a) below] | 3 | 53 | – | – |
| Foreign currency loans [see Note (a) below] | 975 | 824 | 760 | 481 |
| Other charges [see Note (b) below] | 52 | 68 | 30 | 49 |
| Total interest and finance cost | 1,030 | 945 | 790 | 530 |
| Interest capitalised | (760) | (747) | (760) | (481) |
| Net total interest and finance cost | 270 | 198 | 30 | 49 |
(a) Interest cost of the Company relates to the USD loans. Interest cost of the Group related to rupee loans, USD loans and vendor financing.
(b) Other charges mainly include interest cost of finance leases and overdraft facilities.
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Net foreign exchange (loss)/gain | (2,128) | (13) | (916) | 14 |
i. Exchange gain of Rs. 385 million (2014 – Rs. 129 million) arising from revaluation of receivables, fixed deposits and bank balances maintained in USD.
ii. Exchange loss of Rs. 1,301 million (2014 – Rs. 115 million) arising from revaluation of USD syndicate loans.
i. Exchange gain of Rs. 400 million (2014 – of Rs. 129 million) arising from revaluation of the receivables, fixed deposits and bank balances maintained in USD.
ii. Exchange loss of Rs. 418 million on payment to foreign suppliers (2014 – Rs. 5 million).
iii. Exchange loss of Rs. 2,110 million (2014 – Rs. 137 million) arising from revaluation of USD syndicate loan and other term loans.
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Interest income from: – | ||||
| Repurchase agreement – Repos | 375 | 187 | 48 | 28 |
| Fixed Deposits | 172 | 271 | 141 | 228 |
| Staff Loan Interest | 297 | 452 | 297 | 452 |
| 844 | 910 | 486 | 708 | |
The interest income on bank deposits reflect the prevailing rates on the date of respective investments.
(a) The weighted average interest rates on bank deposits and Government Securities in LKR were 7.06% (2014 – 8.96 %) and 6.07% (2014 – Nil) respectively for restricted investments.
(b) The weighted average interest rate on bank deposits in USD was 3.16% (2014 – 3.65%).
(c) The weighted average interest rates on investments in Government Securities were 5.83 % (2014 – 6.05%).
(d) The weighted average interest rates on staff loans are between 12 % and 14% (2014 – 12% -14%).
(e) According to the Section 137 of the Inland Revenue Act No. 10. of 2006, any person who derives income from the secondary market transactions in Government Securities is entitled to a notional tax credit in relation to the tax payable by such a person. Notional tax credit would be determined by grossing up of the income from the secondary market transactions to an amount equal to 1/9th. Accordingly, Company has accounted for Rs. 3 million as notional tax credit for the year 2015. (2014 – Rs. 3 million).
Tax recognised in statement of profit or loss
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Current tax expense | ||||
| Current year | 987 | 1,061 | 275 | 358 |
| 987 | 1,061 | 275 | 358 | |
| Deferred tax expense | ||||
| Origination and reversal of temporary differences (Note 23) | 804 | 1,189 | 792 | 1,177 |
| 804 | 1,189 | 792 | 1,177 | |
| Tax expense | 1,791 | 2,250 | 1,067 | 1,535 |
| 2015 | 2014 | |||||
| Before tax | Tax (expense) benefit | Net of tax | Before tax | Tax (expense) benefit | Net of tax | |
| Defined benefit plan actuarial (loss)/gain | (8) | (1) | (9) | (478) | 122 | (356) |
| (8) | (1) | (9) | (478) | 122 | (356) | |
| 2015 | 2014 | |||||
| Before tax | Tax (expense) benefit | Net of tax | Before tax | Tax (expense) benefit | Net of tax | |
| Defined benefit plan actuarial (loss)/gain | 4 | (1) | 3 | (438) | 122 | (316) |
| 4 | (1) | 3 | (438) | 122 | (316) | |
| Reconciliation of effective tax rate | Group/2015 | Group/2014 | ||
| % | % | |||
| Profit before tax | – | 5,515 | – | 8,251 |
| Tax using the Company’s domestic tax rate | 28.00 | 1,544 | 28.00 | 2,310 |
| Effect of different tax rates [Notes (a) & (b) below] | (5.44) | (300) | (4.08) | (337) |
| Non-deductible expenses | 14.16 | 781 | 6.47 | 534 |
| Income not subject to tax | (4.24) | (234) | (3.10) | (257) |
| 32.48 | 1,791 | 27.27 | 2,250 | |
| Reconciliation of effective tax rate | Company/2015 | Company/2014 | ||
| % | % | |||
| Profit before tax | – | 2,795 | – | 4,859 |
| Tax using the Company’s domestic tax rate | 28.00 | 783 | 28.00 | 1,361 |
| Non-deductible expenses | 18.75 | 524 | 8.20 | 398 |
| Income not subject to tax | (8.59) | (240) | (4.6) | (224) |
| 38.16 | 1,067 | 31.60 | 1,535 | |
Current income tax charge of the Group/Company is made up as follows:
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Sri Lanka Telecom PLC | 275 | 358 | 275 | 358 |
| Mobitel (Private) Limited | 638 | 644 | – | – |
| Sri Lanka Telecom (Services) Limited | 2 | 14 | – | – |
| SLT Human Capital Solutions (Private) Limited | 2 | (1) | – | – |
| SLT Publications (Private) Limited | 68 | 43 | – | – |
| SLT VisionCom (Private) Limited | 2 | 3 | – | – |
| Sky Network (Private) Limited | – | – | – | – |
| SLT Property Management (Private) Limited | – | – | – | – |
| SLT Campus (Private) Limited | – | – | – | – |
| 987 | 1,061 | 275 | 358 | |
(a) Pursuant to agreements dated 15 January 1993 and 26 February 2001, entered into with the Board of Investment of Sri Lanka under Section 17 of the Board of Investment Act No. 4 of 1978, 15 years tax exemption period granted to Mobitel (Private) Limited expired on 30 June 2009 and as per the agreement, Mobitel (Private) Limited opted for the turnover based tax option in which 2% was charged on the turnover for a further period of 15 years commencing from 1 July 2009.
(b) As per the amendment to Inland Revenue Act No. 22 of 2011, for the year of assessment 2015/2016, SLT Human Capital Solutions (Private) Limited is liable for income taxes at the rate of 10 % on their taxable income.
(c) As per the agreement with the Board of Investment of Sri Lanka (BOI) dated 19 November 2009, under Section 17 of BOI Act No. 4 of 1978, the Sky Network (Private) Limited is exempt from income tax for a period of 6 years. For the above purpose, the year of assessment shall be reckoned from the year in which the Company commences to make profits or any year of assessment not later than two years reckoned from the date on which the Company commences commercial operation, whichever is earlier as may be specified in a certificate issued by the Board. In view of the above, the Company is not liable to income tax on business profit.
The basic earnings per share is calculated by dividing the net profit attributable to equity holders by the weighted average number of ordinary shares in issue during the year.
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Net profit attributable to equity holders (Rs. million) | 3,724 | 6,001 | 1,728 | 3,324 |
| Weighted average number of ordinary shares in issue (million) | 1,805 | 1,805 | 1,805 | 1,805 |
| Basic earnings per share (Rs.) | 2.06 | 3.32 | 0.96 | 1.84 |
Diluted EPS is the same as computed above, as the Company does not have any instrument that will potentially dilute the shareholdings.
| Group | Freehold land | Freehold buildings | Ducts, cables and other outside plant | Telephone exchanges | Transmission equipment | Other fixed assets | Capital work-in- progress | Total |
| Cost | ||||||||
| As at 1 January 2014 | 356 | 3,007 | 85,791 | 19,660 | 76,882 | 31,683 | 12,643 | 230,022 |
| Additions | 1 | – | 912 | 101 | 1,736 | 1,196 | 19,933 | 23,879 |
| Transfers from capital work-in-progress | – | 81 | 4,845 | 2,423 | 3,586 | 2,856 | (13,791) | – |
| Disposals | – | – | (24) | (164) | (9,833) | (379) | – | (10,400) |
| Adjustments | – | (9) | – | – | – | 9 | – | – |
| As at 31 December 2014 | 357 | 3,079 | 91,524 | 22,020 | 72,371 | 35,365 | 18,785 | 243,501 |
| Accumulated depreciation | ||||||||
| As at 1 January 2014 | – | (1,734) | (69,175) | (14,849) | (38,360) | (25,398) | – | (149,516) |
| Disposals | – | – | 24 | 164 | 9,231 | 374 | – | 9,793 |
| Impairments loss | – | – | – | (435) | – | (83) | – | (518) |
| Depreciation charge | – | (97) | (2,707) | (932) | (6,102) | (2,487) | – | (12,325) |
| As at 31 December 2014 | – | (1,831) | (71,858) | (16,052) | (35,231) | (27,594) | – | (152,566) |
| Carrying value as at 31 December 2014 | 357 | 1,248 | 19,666 | 5,968 | 37,140 | 7,771 | 18,785 | 90,935 |
| Group | Freehold land | Freehold buildings | Ducts, cables and other outside plant | Telephone exchanges | Transmission equipment | Other fixed assets | Capital work-in- progress | Total |
| Cost | ||||||||
| As at 1 January 2015 | 357 | 3,079 | 91,524 | 22,020 | 72,371 | 35,365 | 18,785 | 243,501 |
| Additions | – | – | 685 | 50 | 1,912 | 1,859 | 17,300 | 21,806 |
| Transfers from capital work in progress | – | 224 | 3,213 | 666 | 2,493 | 1,324 | (7,920) | – |
| Disposals | – | – | (103) | (96) | (80) | (103) | – | (382) |
| As at 31 December 2015 | 357 | 3,303 | 95,319 | 22,640 | 76,696 | 38,445 | 28,165 | 264,925 |
| Accumulated depreciation | ||||||||
| As at 1 January 2015 | – | (1,831) | (71,858) | (16,052) | (35,231) | (27,594) | – | (152,566) |
| Disposals | – | – | 103 | 97 | 74 | 103 | – | 377 |
| Impairments loss | – | – | – | – | (696) | (190) | – | (886) |
| Depreciation charge | – | (99) | (3,008) | (1,023) | (5,718) | (2,719) | – | (12,567) |
| As at 31 December 2015 | – | (1,930) | (74,763) | (16,978) | (41,571) | (30,400) | – | (165,642) |
| Carrying value as at 31 December 2015 | 357 | 1,373 | 20,556 | 5,662 | 35,125 | 8,045 | 28,165 | 99,283 |
| Company | Freehold land | Freehold buildings | Ducts, cables and other outside plant | Telephone exchanges | Transmission equipment | Other fixed assets | Capital work-in- progress | Total |
| Cost | ||||||||
| As at 1 January 2014 | 356 | 2,980 | 85,019 | 19,682 | 21,183 | 29,948 | 12,166 | 171,334 |
| Additions | 1 | – | 912 | 101 | 74 | 799 | 18,181 | 20,068 |
| Transfers from capital work-in-progress | – | 81 | 4,845 | 2,423 | 1,907 | 2,856 | (12,112) | – |
| Disposals | – | – | (24) | (164) | (106) | (330) | – | (624) |
| Adjustments | – | (9) | – | – | – | 9 | – | – |
| As at 31 December 2014 | 357 | 3,052 | 90,752 | 22,042 | 23,058 | 33,282 | 18,235 | 190,778 |
| Accumulated depreciation | ||||||||
| As at 1 January 2014 | – | (1,734) | (68,661) | (14,874) | (14,168) | (24,348) | – | (123,785) |
| Disposals | – | – | 24 | 164 | 106 | 327 | – | 621 |
| Impairments loss | – | – | – | (435) | – | (83) | – | (518) |
| Depreciation charge | – | (97) | (2,643) | (932) | (1,009) | (2,194) | – | (6,875) |
| As at 31 December 2014 | – | (1,831) | (71,280) | (16,077) | (15,071) | (26,298) | – | (130,557) |
| Carrying value as at 31 December 2014 | 357 | 1,221 | 19,472 | 5,965 | 7,987 | 6,984 | 18,235 | 60,221 |
| Company | Freehold land | Freehold buildings | Ducts, cables and other outside plant | Telephone exchanges | Transmission equipment | Other fixed assets | Capital work-in- progress | Total |
| Cost | ||||||||
| As at 1 January 2015 | 357 | 3,052 | 90,752 | 22,042 | 23,058 | 33,282 | 18,235 | 190,778 |
| Additions | – | – | 685 | 50 | 111 | 1,526 | 15,208 | 17,580 |
| Transfers from capital work-in-progress | – | 224 | 3,213 | 666 | 1,275 | 1,324 | (6,702) | – |
| Disposals | – | – | (103) | (96) | (14) | (49) | – | (262) |
| As at 31 December 2015 | 357 | 3,276 | 94,547 | 22,662 | 24,430 | 36,083 | 26,741 | 208,096 |
| Accumulated depreciation | ||||||||
| As at 1 January 2015 | – | (1,831) | (71,280) | (16,077) | (15,071) | (26,298) | – | (130,557) |
| Disposals | – | – | 103 | 96 | 8 | 49 | – | 256 |
| Impairments loss | – | – | – | – | – | (190) | – | (190) |
| Depreciation charge | – | (99) | (2,944) | (1,023) | (1,063) | (2,395) | – | (7,524) |
| As at 31 December 2015 | – | (1,930) | (74,121) | (17,004) | (16,126) | (28,834) | – | (138,015) |
| Carrying value as at 31 December 2015 | 357 | 1,346 | 20,426 | 5,658 | 8,304 | 7,249 | 26,741 | 70,081 |
(a) On 1 September 1991, the Department of Telecommunications (DoT) transferred its entire telecommunications business and related assets and liabilities to SLT. A valuation of the assets and liabilities transferred to SLT was performed by the Government of Sri Lanka. The net amount of those assets and liabilities represents SLT’s Contributed Capital on incorporation, and the value of property, plant & equipment as determined by the Government of Sri Lanka. Valuers were used as the opening cost of fixed assets on 1 September 1991 in the first statutory accounts of SLT. Further, SLT was converted into a public limited company, Sri Lanka Telecom Limited (SLTL), on 25 September 1996 and on that date, all of the business and the related assets and liabilities of SLT were transferred to SLTL as part of the privatisation process.
(b) The cost of fully-depreciated assets still in use in the Company as at 31 December 2015 was Rs. 53,843 million (2014 – Rs. 49,285 million). The cost of fully-depreciated assets still in use in the Group as at 31 December 2015 was Rs. 55,005 million (2014 – Rs. 59,385 million).
(c) No assets have been mortgaged or pledged as security for borrowings of the Group.
(d) The Directors believe that the Company has freehold title to land and buildings transferred on incorporation (conversion of SLT into a public limited company on 25 September 1996), although the vesting orders specifying all the demarcations and extents of such land and buildings could not be traced. The Company has initiated action to transfer legal title documentations.
(e) The property, plant & equipment is not insured except for buildings and equipment situated at SLT headquarters and Welikada premises. Further, all the motor vehicles have been insured. An insurance reserve has been created together with a sinking fund investment to meet any potential losses with regard to uninsured property, plant & equipment. At the Reporting date, the insurance reserve amounted to Rs. 605 million (2014 – Rs. 560 million) (Note 27).
(f) Impairment of assets of Company mainly consists of the carrying value of switches Nil (2014 – Rs. 29 million) that were impaired as a result of implementation of Next Generation Network (NGN), IPTV CPE Rs. 50 million (2014 - Nil) and impairment provision for IPTV equipments and switches Rs. 140 million (2014 Rs. 489 million). Impairment of assets of Group mainly consists of impairment of Network assets Rs. 696 million (2014 – Rs. 29 million), IPTV CPE Rs. 50 million (2014 - Nil) and impairment provision for IPTV equipment and switches Rs. 140 million (2014 – Rs. 489 million).
(g) Additions include assets costing Rs. Nil (2014 – Rs. 11 million) obtained under finance leases (where the Company is the lessee) and the additions of the Group includes assets costing Rs. Nil obtained under finance leases (2014 – Rs. 78 million) where the Group is the lessee.
(h) The Company capitalised borrowing costs amounting to Rs. 760 million during the year (2014 – Rs. 481 million). Borrowing cost capitalised from a Group perspective amounted to Rs. 760 million (2014 – Rs. 747 million).
(i) The property, plant & equipment includes assets acquired under finance leases, the net book value of which is made up as follows:
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Cost | 557 | 557 | 440 | 440 |
| Accumulated depreciation | (358) | (286) | (302) | (247) |
| Carrying value | 199 | 271 | 138 | 193 |
(j) Property, plant & equipment include submarine cables. The total cost and accumulated depreciation of all cables under this category are as follows:
| Group/Company | ||
| 2015 | 2014 | |
| Cost | 6,640 | 6,304 |
| Accumulated depreciation as at 1 January | (4,887) | (4,711) |
| Depreciation charge for the year | (158) | (176) |
| Carrying amount | 1,595 | 1,417 |
| Goodwill | Licences | Software | Others | Total | |
| Cost | |||||
| Balance as at 1 January 2014 | 394 | 4,059 | 2,702 | 330 | 7,485 |
| – Acquisitions | – | 2 | 73 | – | 75 |
| Balance as at 31 December 2014 | 394 | 4,061 | 2,775 | 330 | 7,560 |
| Balance as at 1 January 2015 | 394 | 4,061 | 2,775 | 330 | 7,560 |
| – Acquisitions | 37 | – | 37 | ||
| Balance as at 31 December 2015 | 394 | 4,061 | 2,812 | 330 | 7,597 |
| Accumulated amortisation | |||||
| Balance as at 1 January 2014 | 253 | 893 | 2,033 | 330 | 3,509 |
| – Amortisation | – | 386 | 253 | – | 639 |
| Balance as at 31 December 2014 | 253 | 1,279 | 2,286 | 330 | 4,148 |
| Balance as at 1 January 2015 | 253 | 1,279 | 2,286 | 330 | 4,148 |
| – Amortisation | 380 | 178 | – | 558 | |
| Balance as at 31 December 2015 | 253 | 1,659 | 2,464 | 330 | 4,706 |
| Carrying Amounts | |||||
| December 2015 | 141 | 2,402 | 348 | – | 2,891 |
| December 2014 | 141 | 2,782 | 489 | – | 3,412 |
The goodwill of the Group consists of goodwill arising on acquisition of Mobitel (Private) Limited.
Goodwill is allocated to the Group’s Cash-Generating Units (CGUs). A summary of the goodwill allocation is presented below:
| 2015 | 2014 | |
| Mobitel (Private) Limited | 141 | 141 |
| Total | 141 | 141 |
The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use pre-tax cash flow projections, based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below. The growth rate does not exceed the long-term average growth rate for the business in which the CGU operates.
The key assumptions used for value-in-use calculations are as follows:
| 2015 % | 2014 % | |
| Growth rate | 6-9 | 8-12 |
| Discount rate | 10 | 10.22 |
Management determined budgeted gross margin based on past performance and its expectations of market development. The weighted average growth rates used are consistent with the forecasts included in industry reports. The discount rates used are pre-tax and reflect specific risks relating to the relevant operating segments. No impairment charge has been recognised for the year ended 31 December 2015 for the above CGU (2014 – Rs. Nil).
| Licences | Software | Others | Total | |
| Cost | ||||
| Balance as at 1 January 2014 | 1,428 | 1,698 | 330 | 3,456 |
| – Acquisitions | 2 | – | – | 2 |
| Balance as at 31 December 2014 | 1,430 | 1,698 | 330 | 3,458 |
| Balance as at 1 January 2015 | 1,430 | 1,698 | 330 | 3,458 |
| Acquisitions | – | 7 | – | 7 |
| Balance as at 31 December 2015 | 1,430 | 1,705 | 330 | 3,465 |
| Accumulated amortisation | ||||
| Balance as at 1 January 2014 | 172 | 1,341 | 330 | 1,843 |
| – Amortisation | 146 | 143 | – | 289 |
| Balance as at 31 December 2014 | 318 | 1,484 | 330 | 2,132 |
| Balance as at 1 January 2015 | 318 | 1,484 | 330 | 2,132 |
| – Amortisation | 142 | 107 | – | 249 |
| Balance as at 31 December 2015 | 460 | 1,591 | 330 | 2,381 |
| Carrying amounts | ||||
| December 2015 | 970 | 114 | – | 1,084 |
| December 2014 | 1,112 | 214 | – | 1,326 |
| Group | ||
| 2015 | 2014 | |
| As at 1 January | 1,097 | 1,097 |
| Acquired/Incurred during the period | – | – |
| As at 31 December | 1,097 | 1,097 |
| Amortisation | ||
| As at 1 January | 920 | 823 |
| Amortisation for the year | 94 | 97 |
| As at 31 December | 1014 | 920 |
| Carrying amount – Current | 83 | 98 |
| Carrying amount – Non-current | – | 79 |
| As at 31 December | 83 | 177 |
| 2015 | 2014 | |
| Opening net book amount | 14,189 | 14,156 |
| Impairment of investment | – | – |
| Additions | 31 | 33 |
| Closing net book amount | 14,220 | 14,189 |
Details of the subsidiary companies in which the Company had control as at 31 December are set out below:
| 2015 | 2014 | |||
| Name of the Company | Investment Rs. million | Company holding % | Investment Rs. million | Company holding % |
| Mobitel (Private) Limited [See Note (b) below] | 13,980 | 100 | 13,980 | 100 |
| SLT VisionCom (Private) Limited [See Note (e) below] | 100 | 100 | 100 | 100 |
| SLT Publications (Private) Limited [See Note (c) below] | 50 | 100 | 50 | 100 |
| Sri Lanka Telecom (Services) Limited [See Note (a) below] | 25 | 99.99 | 25 | 99.99 |
| SLT Human Capital Solutions (Private) Limited [See Note (d) below] | 1 | 100 | 1 | 100 |
| Sky Network (Private) Limited [See Note (f) below] | – | 99.94 | – | 99.94 |
| SLT Property Management (Private) Limited [See Note (g) below] | 14 | 100 | 8 | 100 |
| SLT Campus (Private) Limited [See Note (h) below] | 50 | 100 | 25 | 100 |
| 14,220 | 14,189 | |||
The Directors believe that the fair value of each of the companies listed above do not differ significantly from their book values.
(a) This investment in subsidiary company consists of 2,500,000 shares representing 99.99% of stated capital of Sri Lanka Telecom (Services) Limited.
(b) The Company owns 1,320,013,240 shares representing 100% of the entire Ordinary Share Capital of Mobitel (Private) Limited.
(c) This investment in subsidiary company consists of 5,000,000 shares representing the entire stated capital of SLT Publications (Private) Limited.
(d) This investment in subsidiary company consists of 50,000 shares representing the entire stated capital of SLT Human Capital Solutions (Private) Limited.
(e) This investment in subsidiary company consists of 10,000,000 shares representing the entire stated capital of SLT VisionCom (Private) Limited.
(f) This investment in subsidiary company consists of 42,071,251 shares representing a 99.94% holding of the issued stated capital and 6,000,000 12% cumulative and redeemable preference shares of Sky Network (Private) Limited. The investment is fully impaired.
(g) This investment in subsidiary company consists of 1,500,001 shares representing the entire stated capital of SLT Property Management (Private) Limited.
(h) This investment in subsidiary company consists of 5,000,001 shares representing the entire stated capital of SLT Campus (Private) Limited.
All the subsidiaries except for Mobitel (Private) Limited are audited by KPMG.
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Current investments | ||||
| Fixed deposits | 1,043 | 6,750 | 641 | 6,397 |
| 1,043 | 6,750 | 641 | 6,397 | |
Fixed deposits are classified as loans and receivables and measured at amortised cost.
Fixed deposits with a carrying value of Rs. 618 million (2014 – Rs. 568 million) are restricted at bank.
Interest rates of other investments are as follows:
| Group | Company | |||
| 2015 % | 2014 % | 2015 % | 2014 % | |
| Fixed deposits – Restricted at bank | 7.06 | 8.96 | 7.06 | 8.96 |
| Repurchase agreement – Restricted at bank | 6.07 | – | 6.07 | – |
| Fixed deposits – LKR | 6.00-7.00 | 6.00-7.00 | Nil | Nil |
| Fixed deposits – USD | 2.00-3.16 | 3.65 | 3.16 | 3.65 |
| Repurchase agreement – Repo | 4.00-7.00 | 6.05 | 5.83 | 6.05 |
The Group’s exposure to credit and market risk and fair value information related to other investment are disclosed in Note 4.
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Non-current | 2,908 | 2,789 | 2,908 | 2,789 |
| Current | 719 | 695 | 711 | 686 |
| 3,627 | 3,484 | 3,619 | 3,475 | |
| Employee loans | 3,096 | 2,947 | 3,088 | 2,938 |
| Prepaid staff cost | 531 | 537 | 531 | 537 |
| 3,627 | 3,484 | 3,619 | 3,475 | |
| Prepaid staff cost 1 January | 537 | 640 | 537 | 640 |
| Additions | 138 | 180 | 138 | 180 |
| Amortisation | (144) | (283) | (144) | (283) |
| Prepaid staff cost at 31 December | 531 | 537 | 531 | 537 |
The Group provides loans to employees at concessionary rates. These employee loans are fair valued at initial recognition using level 2 inputs. The fair value of the employee loans are determined by discounting expected future cash flows using market-related rates for similar loans.
The difference between the cost and fair value of employee loans is recognised as prepaid staff cost.
The employee loans are classified as loans and receivable and subsequently measured at amortised cost.
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| CDMA equipment | 406 | 370 | 406 | 370 |
| Cable and networks | 577 | 293 | 577 | 293 |
| Other consumables | 591 | 414 | 238 | 182 |
| 1,574 | 1,077 | 1,221 | 845 | |
| Provision for change in carrying value of inventories | (700) | (602) | (660) | (563) |
| 874 | 475 | 561 | 282 | |
(a) Inventories include telecommunication hardware, CDMA handsets, consumables and office stationery. Inventory is stated net of provisions for slow moving and obsolete items.
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Domestic trade receivables | 15,802 | 13,900 | 11,880 | 10,602 |
| Foreign trade receivables | 2,283 | 2,616 | 2,015 | 1,968 |
| 18,085 | 16,516 | 13,895 | 12,570 | |
| Less: Provision for bad and doubtful receivables | (7,565) | (6,560) | (5,780) | (5,077) |
| Less: Interest/revenue in suspense | (19) | (19) | – | – |
| Trade receivables – Net | 10,501 | 9,937 | 8,115 | 7,493 |
| Amount due from subsidiaries [Note 33. 1 (j)] | – | – | 3,821 | 3,871 |
| Amount due from related companies [Note 33.2 (f)] | 67 | 272 | 67 | 272 |
| Advances and prepayments [See Note (a) below] | 1,726 | 1,908 | 258 | 260 |
| Employee loans (Note 18) | 719 | 695 | 711 | 686 |
| Other receivables [See Note (b) below] | 1,020 | 523 | 119 | 146 |
| Amounts due within one year | 14,033 | 13,335 | 13,091 | 12,728 |
(a) Advances and prepayments of the Company mainly consist of advances on building rent of Rs. 8 million (2014 – Rs. 9 million), payments for software maintenance of Rs. 181 million (2014 – Rs. 186 million), Prepaid Frequency charges Rs. 51 million (2014 – Rs. 40 million), Advances and prepayments of the Group mainly consist of advances on building and tower rent of Rs. 152 million (2014 – Rs. 139 million) payments for software maintenance of Rs. 181 million (2014 – Rs. 186 million), Prepaid TRC Frequency Rs. 953 million (2014 – Rs. 952 million) and current portion of financial prepayment Rs. 83 million (2014 – Rs. 98 million).
(b) Other receivables of the Company consist of refundable deposits of Rs. 113 million (2014 – Rs. 99 million). Other receivables of the Group mainly consist of refundable deposits of Rs. 113 million (2014 – Rs. 99 million), receivables from sales agents Rs. 96 million (2014 – Rs. 53 million) and site rentals receivables from other operators. Rs. 492 million (2014 – Rs. 214 million).
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Cash at bank and in hand | 389 | 1,123 | 37 | 369 |
| Call deposits | 438 | 400 | 438 | 398 |
| Fixed deposits | 9 | 14 | – | – |
| Repurchase agreements - Repo | 4,639 | 3,158 | – | 235 |
| 5,475 | 4,695 | 475 | 1,002 | |
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Cash and cash equivalents | 5,475 | 4,695 | 475 | 1,002 |
| Bank overdrafts | (855) | (921) | (252) | – |
| 4,620 | 3,774 | 223 | 1,002 | |
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Current (due within one year) | ||||
| Bank overdrafts | 855 | 921 | 252 | – |
| Bank borrowings and others [See Note 22 (e) below] | 4,972 | 5,356 | 3,860 | 4,299 |
| Vendor financing | 3,562 | 2,777 | – | – |
| Lease liabilities | 57 | 82 | 35 | 60 |
| 9,446 | 9,136 | 4,147 | 4,359 | |
| Non-current (due after one year) | ||||
| Bank borrowings and others [See Note 22 (e) below] | 11,885 | 12,656 | 11,885 | 11,538 |
| Vendor financing | 2,873 | 5,096 | – | – |
| Lease liabilities | 191 | 234 | 140 | 162 |
| 14,949 | 17,986 | 12,025 | 11,700 | |
| Total borrowings | 24,395 | 27,122 | 16,172 | 16,059 |
(a) The interest rate exposure of the borrowings of the Group and the Company were as follows:
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Total borrowings | ||||
| – at fixed rates | 13,359 | 14,622 | 13,291 | 13,580 |
| – at floating rates | 11,036 | 12,500 | 2,881 | 2,479 |
| 24,395 | 27,122 | 16,172 | 16,059 | |
The currency exposure of the borrowings of the Group and the Company as at the Reporting date were as follows:
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Foreign currency | 23,267 | 25,807 | 15,745 | 15,837 |
| Local currency | 1,128 | 1,315 | 427 | 222 |
| 24,395 | 27,122 | 16,172 | 16,059 | |
(b) Effective interest rates of the Group and the Company are as follows:
| Group | Company | |||
| 2015 % | 2014 % | 2015 % | 2014 % | |
| Average effective interest rates: | ||||
| – Bank overdrafts | 6.39–10.00 | 6.10–10.00 | 6.39 | 7.39 |
| – Foreign bank borrowings | 1.26–2.26 | 1.20–2.24 | – | – |
| – Bank borrowings (USD loan) | 4.86 | 4.98 | 4.86 | 4.98 |
| – Bank borrowings | 7.65 – 8.25 | 7.34 – 8.25 | – | – |
| – Lease liabilities | 8.00–16.00 | 8.00–16.00 | 8.00–10.00 | 8.00–10.00 |
| – Vendor financing | 2.30 – 4.33 | 1.95 – 4.15 | – | – |
(c) Maturity analysis of the Group and the Company is as follows:
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Maturity of non-current borrowings: (excluding finance lease liabilities) | ||||
| – Between 1 and 2 years | 6,168 | 7,664 | 4,014 | 3,297 |
| – Between 3 and 5 years | 8,590 | 10,088 | 7,871 | 8,241 |
| – Over 5 years | – | – | – | – |
| 14,758 | 17,752 | 11,885 | 11,538 | |
(d) Analysis of the finance lease liabilities of the Group and the Company are follows:
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Finance lease liabilities – minimum lease payments | ||||
| – Not later than 1 year | 108 | 122 | 79 | 88 |
| – Later than 1 year and not later than 5 years | 191 | 289 | 128 | 198 |
| 299 | 411 | 207 | 286 | |
| Less: future finance charges on finance leases | (51) | (95) | (32) | (64) |
| Present value of finance lease liabilities | 248 | 316 | 175 | 222 |
| Representing lease liabilities: | ||||
| – Current | 57 | 82 | 35 | 60 |
| – Non-current | 191 | 234 | 140 | 162 |
(e) During the year the Company drew down 1st tranch of USD term loan amounting to USD 20 million (equivalent to Rs. 2,816 million). The total amount of the term loan was USD 75 million.
(f) The loan covenants include submission of Audited Financial Statements to the lenders within a specified period from the financial year end, maintenance of covenant ratios and to maintain adequate accounting records in accordance with Sri Lanka Accounting standards.
(g) The Directors believe that the Company and the Group will have sufficient funds available to meet its present loan commitments.
(h) Lease liabilities of the Company and the Group are effectively secured by the lessor against the rights to the title of the asset.
(i) Bank borrowings and supplier credits of Mobitel (Private) Limited, a subsidiary of the Company, are secured, inter alia, by corporate guarantees given by the Company.
(j) Mobitel (Private ) Limited has borrowed Rs. 612 million during the year for the purpose of Capital Expansion Projects.
(k) Guarantee facilities amounting to Rs. 26 million (2014 – Rs. 26 million) were provided to Sri Lanka Telecom (Services) Limited to obtain facilities for working capital requirements.
Deferred tax (assets) and liabilities are calculated on all taxable and deductible temporary differences arising from differences between accounting bases and tax bases of assets and liabilities. Deferred income tax for the Company is provided under the liability method using a principal tax rate of 28% (for the year 2014 - 28%).
The amount shown in the Statement of Financial Position represents the following:
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Deferred tax liabilities | 3,600 | 2,805 | 3,594 | 2,801 |
| Deferred tax assets | (37) | (46) | – | – |
| 3,563 | 2,759 | 3,594 | 2,801 | |
The movement in the deferred tax account is as follows:
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| At beginning of year | 2,759 | 1,692 | 2,801 | 1,746 |
| Release to comprehensive income (Note 11) | 804 | 1,189 | 792 | 1,177 |
| Release to other comprehensive income (Note 11) | 1 | (122) | 1 | (122) |
| At end of year | 3,563 | 2,759 | 3,594 | 2,801 |
The taxable and deductible temporary differences mainly arise from property, plant & equipment, deferred income, provision for defined benefit obligations and other provisions.
The movement in deferred tax assets and liabilities of the Group during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:
| Assets | Liabilities | Net | ||||
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
| Property, plant & equipment | – | – | 7,626 | 6,453 | 7,626 | 6,453 |
| Defined benefit obligations | (1,096) | (987) | – | – | (1,096) | (987) |
| Provisions | (2,181) | (1,841) | – | – | (2,181) | (1,841) |
| Deferred income | (786) | (856) | – | – | (786) | (856) |
| Tax losses | – | (10) | – | (10) | ||
| Tax (assets) liabilities before set off | (4,063) | (3,694) | 7,626 | 6,453 | 3,563 | 2,759 |
| Set off of tax | 4,063 | 3,694 | (4,063) | (3,694) | – | – |
| Net tax (assets) liabilities | – | – | 3,563 | 2,759 | 3,563 | 2,759 |
| Balance 1 January 2014 | Recognised in profit or loss | Recognised in other comprehensive income | Balance 31 December 2014 | Recognised in profit or loss | Recognised in other comprehensive income | Balance 31 December 2015 | |
| Property, plant & equipment | 4,934 | 1,519 | – | 6,453 | 1,173 | – | 7,626 |
| Defined benefit obligations | (765) | (100) | (122) | (987) | (109) | 1 | (1,096) |
| Provisions | (1,508) | (333) | – | (1,841) | (340) | – | (2,181) |
| Deferred income | (937) | 81 | – | (856) | 70 | – | (786) |
| Tax losses | (32) | 22 | – | (10) | 10 | – | – |
| 1,692 | 1,189 | (122) | 2,759 | 804 | 1 | 3,563 |
| Assets | Liabilities | Net | ||||
| 2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
| Property, plant & equipment | – | – | 7,620 | 6,450 | 7,620 | 6,450 |
| Defined benefit obligations | (1,089) | (983) | – | – | (1,089) | (983) |
| Provisions | (2,150) | (1,810) | – | – | (2,150) | (1,810) |
| Deferred income | (787) | (856) | – | – | (787) | (856) |
| Tax (assets) liabilities before set off | (4,026) | (3,649) | 7,620 | 6,450 | 3,594 | 2,801 |
| Set off of tax | 4,026 | 3,649 | (4,026) | (3,649) | – | – |
| Net tax (assets) liabilities | – | – | 3,594 | 2,801 | 3,594 | 2,801 |
| Balance 1 January 2014 | Recognised in profit or loss | Recognised in other comprehensive income | Balance 31 December 2014 | Recognised in profit or Loss | Recognised in other comprehensive income | Balance 31 December 2015 | |
| Property, plant & equipment | 4,932 | 1,518 | – | 6,450 | 1,170 | – | 7,620 |
| Defined benefit obligations | (763) | (98) | (122) | (983) | (107) | 1 | (1,089) |
| Provisions | (1,486) | (324) | – | (1,810) | (340) | – | (2,150) |
| Deferred income | (937) | 81 | – | (856) | 69 | – | (787) |
| 1,746 | 1,177 | (122) | 2,801 | 792 | 1 | 3,594 |
Deferred tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit through future taxable profits is probable. Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profit will be available against which the Group can utilise the benefit therefrom. The Group did not recognise deferred tax assets in respect of tax losses of subsidiaries amounting to Rs. 190 million (2014 – 195 million) that can be carried forward against future taxable income.
| Adjusted tax losses available for carry forward as at 31 December | ||
| 2015 | 2014 | |
| SKY Network (Private) Limited | 52 | 52 |
| SLT VisionCom (Private) Limited | 138 | 143 |
| 190 | 195 | |
Deferred Income
The connection fees relating to Public Switch Telephone Network (PSTN) are deferred over a period of 15 years. Revenue is recognised on an annual basis irrespective of the date of connection.
Revenue from the sale of prepaid credit, Internet is deferred until such time as the customer uses the call time, downloadable quota or the credit expires.
Backhauling revenue which is leasing of SEA-ME-WE 3 cable capacity is recognised on a straight line basis over the period of the contracts. Amounts received in advance for any services are recorded as deferred revenue.
Directory income includes amounts collected for directories not yet printed. Such income will be recognised as income depending on the percentage of directories distributed to the end customer as described in accounting policy (m) (i).
IRU revenue relating to leasing of SEA-ME-WE 4 cable capacity is recognised on a straight line basis over the period of the contracts. Amounts received in advance for any services are recorded as deferred revenue. In the event that a customer terminates an IRU prior to the expiry of the contract and releases the Company from the obligation to provide future services, the remaining unamortised deferred revenue is recognised in the period the contract is terminated.
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| At end of year | 4,397 | 4,976 | 2,976 | 3,218 |
| Representing deferred income – Current | 2,027 | 2,398 | 661 | 706 |
| – Non-current | 2,370 | 2,578 | 2,315 | 2,512 |
| 4,397 | 4,976 | 2,976 | 3,218 | |
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Amounts due within one year | ||||
| Domestic trade payables | 1,890 | 1,524 | 318 | 499 |
| Foreign trade payables | 464 | 214 | 183 | 95 |
| Amount due to subsidiaries [Note 33.1 (j)] | – | – | 3,050 | 2,028 |
| Amount due to related companies [Note 33.2 (f)] | 46 | 47 | 46 | 47 |
| Capital expenditure payables [See Note (a) below] | 10,965 | 7,693 | 8,778 | 7,245 |
| Social security and other taxes [See Note (b) below] | 1,355 | 796 | 824 | 763 |
| Interest payable | 229 | 489 | – | – |
| Other payables [See Note (c) below] | 6,213 | 6,292 | 4,243 | 3,901 |
| 21,162 | 17,055 | 17,442 | 14,578 | |
| Amounts due after one year | ||||
| International direct dialling deposits | 232 | 232 | 232 | 232 |
| PSTN guarantee deposits | 20 | 18 | 20 | 18 |
| Domestic trade payables | 673 | 614 | – | – |
| Capital expenditure payables | 2,010 | 1,543 | – | – |
| 2,935 | 2,407 | 252 | 250 | |
(a) Capital expenditure payables of the Company mainly consist of contractors’ payables and retention of Rs. 7,642 million (2014 – Rs. 6,104 million) and advances on network restoration after road works of Rs. 1,115 million (2014 – Rs. 1,132 million). Capital expenditure payables of the Group mainly consist of contractors’ payable and retention of Rs. 9,829 million (2014 – Rs. 6,551 million) and advances on network restoration after road works of Rs. 1,115 million (2014 – Rs. 1,132 million).
(b) Social security and other taxes of the Company mainly consist of Telecommunication Levy (TL) of Rs. 485 million (2014 – Rs. 445 million), Cess Rs. 70 million ( 2014 – Rs. 67 million ), IDD Levy of Rs. 14 million (2014 – Rs. 16 million), EPF payable of Rs.91 million (2014 – Rs. 86 million). Social security and other taxes of the Group mainly consist of Telecommunication Levy (TL) of Rs. 852 million (2014 – 633 million), Cess of Rs. 131 million (2014 – 127 million). IDD Levy payable of Rs. 29 million (2014 – 36 million).
(c) Other payables of the Company mainly consist of dividend payable to the Government of Sri Lanka of Rs. 244 million (2014 – Rs. 244 million), payable for unpaid supplies of Rs. 1,746 million (2014 – Rs. 1,242 million), International Telecommunication Operators’ Levy payable of Rs. 157 million (2014 – Rs. 206 million) and accrued expenses and other payables of Rs. 1,243 million (2014 – Rs. 1,201 million). Other payables of the Group mainly consist of dividend payable to the Government of Sri Lanka of Rs. 244 million (2014 – Rs. 244 million), payable for unpaid supplies of Rs. 1,746 million (2014 – Rs. 1,242 million), International Telecommunication Operators’ Levy payable of Rs. 224 million (2014 – Rs. 231 million), and accrued expenses and other payables of Rs. 2,852 million (2014 – Rs. 3,661 million).
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Total employee benefit liability as at 1 January | 3,875 | 3,003 | 3,512 | 2,725 |
| Movement in present value of employee benefit liabilities | ||||
| Current service cost | 410 | 205 | 352 | 162 |
| Interest cost | 224 | 313 | 175 | 287 |
| Actuarial loss/(gain) | 8 | 478 | (4) | 438 |
| Benefit paid during the year | (164) | (124) | (143) | (100) |
| Balance as at 31 December | 4,353 | 3,875 | 3,892 | 3,512 |
| The expenses recognised in the income statement | ||||
| Current service cost | 410 | 205 | 352 | 162 |
| Interest cost | 224 | 313 | 175 | 287 |
| 634 | 518 | 527 | 449 | |
| Recognised in other comprehensive income | ||||
| Actuarial (gain)/loss | 8 | 478 | (4) | 438 |
| 8 | 478 | (4) | 438 | |
The principal actuarial assumptions used were as follows:
| Group | Company | |||
| 2015 % | 2014 % | 2015 % | 2014 % | |
| Discount rate (long-term) | 10.0 – 10.5 | 9.5 – 10 | 10.0 | 10.0 |
| Future salary increases | 8.5 – 9.5 | 8.5 | 8.5 | 8.5 |
In addition to above, demographic assumptions such as mortality, withdrawal, retirement age were considered for the actuarial valuation. In 2015,1967/70 Mortality Table issued by the Institute of Actuaries London (2014 - 1967/70 Mortality Table) was taken as the base for the valuation.
The provisions for defined obligations of Sri Lanka Telecom PLC, SLT Human Capital Solutions (Private) Limited, SLT Publications (Private) Limited, Sri Lanka Telecom (Services) Limited and Mobitel (Private) Limited are actuarially valued by Actuarial and Management Consultants (Private) Limited and Piyal S Goonetilleke and Associates respectively. The employee benefit liability of all other companies in the Group are based on gratuity formula.
The provision for defined benefit obligations is not externally funded.
Reasonably possible changes at the Reporting date to one of the relevant actuarial assumptions, holding other assumptions consultant, would have affected the defined benefit obligation by the amount shown below.
The sensitivity of the Statement of Profit or Loss and Other Comprehensive Income and the Statement of Financial Position is the effect of the assumed changes in discount rate and salary increment rate as depicted below.
| Effect on charge to the statement ofprofit or loss and other comprehensive income | Effect on net defined benefit liability | |||
| Increase | Decrease | Increase | Decrease | |
| 2015 | ||||
| Discount rate (Change by 1%) | (179) | 200 | (179) | 200 |
| Salary increment rate (Change by 1%) | 221 | (201) | 221 | (201) |
| 2014 | ||||
| Discount rate (Change by 1%) | (172) | 193 | (172) | 193 |
| Salary increment rate (Change by 1%) | 211 | (191) | 211 | (191) |
| Effect on charge to the statement ofprofit or loss and other comprehensive income | Effect on net defined benefit liability | |||
| Increase | Decrease | Increase | Decrease | |
| 2015 | ||||
| Discount rate (Change by 1%) | (23) | 27 | (23) | 27 |
| Salary increment rate (Change by 1%) | 28 | (25) | 28 | (25) |
| 2014 | ||||
| Discount rate (Change by 1%) | (19) | 22 | (19) | 22 |
| Salary increment rate (Change by 1%) | 21 | (19) | 21 | (19) |
| Group/Company | ||
| 2015 | 2014 | |
| As at 1 January | 560 | 500 |
| Transferred from retained earnings | 45 | 60 |
| As at 31 December | 605 | 560 |
As stated in Accounting Policy 3(s) the Company transfers annually from the retained earnings an amount equal to 0.1% of additions to property, plant & equipment to an insurance reserve. An equal amount is invested in a sinking fund to meet any funding requirements for potential losses from uninsured property, plant & equipment.
Management regularly monitors the charges made against the insurance reserve and the adequacy of the provision made.
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Balance at 1 January | 22 | 28 | 22 | 28 |
| Grant credited to profit or loss | (6) | (6) | (6) | (6) |
| Balance at 31 December | 16 | 22 | 16 | 22 |
Grant in Company and Group consists of Exchange equipment received from Alcatel CIT France in 2005.
| Company | ||
| Issued and fully Paid | 2015 | 2014 |
| 1,804,860,000 ordinary shares | 18,049 | 18,049 |
The stated capital is made up as follows:
| 2015 | 2014 | |||
| Holding % | Number of shares | Holding % | Number of shares | |
| Government of Sri Lanka | 49.50 | 893,405,709 | 49.50 | 893,405,709 |
| Global Telecommunications Holdings N.V. | 44.98 | 811,757,869 | 44.98 | 811,757,869 |
| Public shareholders | 5.52 | 99,696,422 | 5.52 | 99,696,422 |
| 100 | 1,804,860,000 | 100 | 1,804,860,000 | |
Reconciliation of profit before tax to cash generated from operations:
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Profit before tax | 5,515 | 8,251 | 2,795 | 4,859 |
| Adjustments for: | ||||
| Depreciation (Note 13) | 12,567 | 12,325 | 7,524 | 6,875 |
| Grant amortisation (Note 28) | (6) | (6) | (6) | (6) |
| Amortisation of intangible assets (Note 14) | 558 | 639 | 249 | 289 |
| Amortisation of financial prepayments (Note 15) | 94 | 97 | – | – |
| Provision/write off of bad and doubtful debts | 1,188 | 937 | 882 | 630 |
| Provision for fall in value of inventories | 201 | 13 | 201 | 13 |
| Interest expense and finance costs (Note 9) | 270 | 198 | 30 | 49 |
| Foreign exchange (loss)/gain (Note 9.a) | 2,128 | 13 | 916 | (14) |
| Interest income (Note 10) | (844) | (910) | (486) | (708) |
| Connection fees amortisation | (579) | (532) | (242) | (274) |
| Profit on sale of property, plant & equipment | (33) | 528 | (14) | (64) |
| Impairment of assets (Note 13) | 886 | 518 | 190 | 518 |
| Provision for retirement benefit obligations (Note 26) | 634 | 518 | 527 | 449 |
| 22,579 | 22,589 | 12,566 | 12,616 | |
| Changes in working capital | ||||
| – Receivables and prepayments | (1,862) | (2,999) | (1,260) | (2,544) |
| – Inventories | (1,307) | (1,450) | (1,187) | (1,513) |
| – Payables | 4,044 | 2,215 | 2,861 | 2,763 |
| Cash generated from operations | 23,454 | 20,355 | 12,980 | 11,322 |
The Group and the Company have purchased commitments in the ordinary course of business as at 31 December 2015 are as follows:
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Property, plant & equipment | ||||
| – approved but not contracted | 28,468 | 33,829 | 28,468 | 33,829 |
| – approved and contracted | 13,724 | 15,069 | 11,838 | 12,371 |
| 42,192 | 48,898 | 40,306 | 46,200 | |
| Operating lease commitments | ||||
| The future minimum lease payments other commitment payments as follows: | ||||
| – Not later than 1 year | 85 | 141 | 85 | 118 |
| – Later than 1 year and not later than 5 years | 95 | 221 | 95 | 153 |
| 180 | 362 | 180 | 271 | |
Except for any regular maintenance contracts entered into with third parties in the normal course of business, there are no other material financial commitments that requires separate disclosure.
(a) Global Electroteks Limited initiated legal action under High Court Case No. 20/2006 claiming damages of USD 12 million from Sri Lanka Telecom PLC (‘SLT’) for alleged unlawful disconnection of interconnection services. Further trial will be held on 30 March 2016.
(b ) Appeal Case filed by Directories Lanka Private Limited (DLPL) against SLT against the dismissal of CHC 2/2006(3) claimed damages of Rs. 250 million, for alleged unfair competition with regard to artwork on the cover page of the Directory by SLT. The proceedings have not commenced. DLPL appealed against the above order.
(c) 12/2008 CBCU, an inquiry by Sri Lanka Customs –A consignment of CDMA equipment was detained in October 2008 by the Customs Authority. Subsequently the equipment were cleared pending the Inquiry, based on a cash deposit and bank guarantee submitted by SLT for the total value of Rs. 122,189,514. The Order was delivered in October 2014 imposing a mitigated forfeiture of Rs. 1,820,502,062 on SLT. SLT has filed Case CA/writ/387/2014 against this Order.
(d) Customs Case No. ADP/031/2009 – Goods valued at USD 996,785.65, which was imported under the last consignment of equipment for NGN Phase II expansion project, was detained by the Customs in May 2009. Subsequently, the equipment was cleared in July 2009. Pending the Inquiry, SLT placed a bank guarantee to the value of Rs. 35,000,000. The Customs Inquiry against SLT is pending.
(e) Ahmedabad City Civil Court, India 802/2014 – Legal action filed in April 2014 against SLT claiming for damages of Indian Rs. 161,521,447 for malicious prosecution in relation to the SLT-Dhiraagu undersea cable. The case is proceeding and SLT is jointly handling with Dhiraagu Telecom of Maldives.
(f) Labour Tribunal Colombo Case Nos. 08/760/2014, 08/820/2014, 08/821/2014 and 08/819/2014 – Former employees of SLT Human Capital Solutions (Private) Limited (HCS) filed legal action in January 2014 against SLT and HCS at Labour Tribunal Colombo against termination of their employment by HCS. The proceedings were stayed until the determination of revision application in High Court, Colombo.
(g) 25 of Debt Collectors who served at SLT on commission basis made an application at Labour Department claiming EPF from SLT. The Labour Commissioner by his Order in February 2015 directed SLT to pay EPF. However, SLT filed writ application against the Order in May 2015 and obtained an interim injunction staying the operation of the Order and the same is proceeding. The case is fixed for objection on 29 March 2016.
In addition to the above referred cases there are other claims by employees and third parties for damages and other relief. In the opinion of the Directors none of these actions are likely to result in a material liability to the Company and its subsidiaries.
The Company has provided guarantees on behalf of its subsidiaries for following credit and trade finance facilities:
(i) Facilities amounting to USD 147 million (2014 - USD 194.2 million) for Mobitel (Private) Limited for the GSM roll-out stages 4, 6 and 7.
(ii) Facilities amounting to Rs. 26 million (2014 – 26 million) for Sri Lanka Telecom (Services) Limited to obtain facilities for working capital requirement.
(iii)With regard to cases detailed above, pending the outcome of the appeals and hearings, no provisions have been recognised in the Financial Statements up to 31 December 2015.
As per the TRC approval dated 19 May 2014, Mobitel is entitled to receive discounts if the Company uses more than 3,500 E1 Links.
Further, Mobitel receives discounts on infrastructure services provided by Sri Lanka Telecom PLC.
The Company has provided guarantees on behalf of Mobitel for the following loans and obligations.
USD 147 million (2014 - USD 194.2 million) for Mobitel (Private) Limited for the GSM rollout stages 4, 6 and 7.
| Company | ||
| 2015 | 2014 | |
(b) Sky Network (Private) Limited |
||
| Sale of goods and services | ||
| Supply of services | – | – |
| Purchase of goods and services | ||
| Service provisioning | – | – |
Impairment of related party receivable amounting Rs. 61 million was made during the year.
| Company | ||
| 2015 | 2014 | |
(c) SLT Publications (Private) Limited |
||
| Sale of goods and services | ||
| Supply of services | 5 | 4 |
| Purchase of goods and services | ||
| Directory distribution and other services | 148 | – |
SLT Publications provides event management services to SLT PLC. As per the agreement, SLT Publications entitle to receive a retainer for the services provided.
Impairment of related party receivable amounting to Rs. 8.3 million was made during the year.
| Company | ||
| 2015 | 2014 | |
(d) Sri Lanka Telecom (Services) Limited |
||
| Sale of goods and services | ||
| Supply of services | 4 | 4 |
| Purchase of goods and services | ||
| Project-related services | 316 | 112 |
The Company has provided guarantees on behalf of Sri Lanka Telecom (Service) Limited for the following loans and obligations:
Facilities amounting to Rs. 26 million (2014 – Rs. 26 million) for Sri Lanka Telecom (Services) Limited to obtain facilities for working capital requirements.
Sri Lanka Telecom received an ad-insertion revenue from SLT VisionCom (Private) Limited amounting to Rs. 4.1 million. SLT’s share of revenue is based on the following percentages:
|
Advertisement on PEO TV – EPG |
- |
34% |
|
Channel advertisement |
- |
17% |
Sri Lanka Telecom PLC pays VisionCom (Private) Limited the total cost incurred plus a 5% margin which amounted to Rs. 123 million in 2015.
The Government of Sri Lanka holds 49.5% of the voting rights of the Company as at 31 December 2015 through the Secretary to the Treasury and those have significant influence over the financial and operating policies of the Company. Accordingly, the Company has considered the Government of Sri Lanka as a related party according to LKAS ‘24 Related Party Disclosure’.
During the year ended 31 December 2015, the Company has carried out transactions with the Government of Sri Lanka and other Government-related entities in the ordinary course of business.
The Company identified individually significant transactions with Key Government Related entities are as given below:
(i) Revenue from provision of telecommunication services during the year ended 31 December 2015 amounted to Rs. 3,845 million (2014 – Rs. 4,450 million) and credit receivables as at 31 December 2015 amounted to Rs. 1,379 million (2014 – Rs. 784 million).
(ii) Deposits, repurchase agreements (Repo) and borrowings of the Group at/from Government banks amounted to Rs. 1,465 million (2014 – Rs. 7,020 million) and Rs. 287 million (2014 – Rs. 2,479 million) respectively as at 31 December 2015.
(iii) Dividend payable to the Government amounting to Rs. 244 million (2014 – Rs. 244 million).
Key Management Personnel comprise the Directors and Chief Officers of the Company and the Group.
| Group | Company | |||
| 2015 | 2014 | 2015 | 2014 | |
| Short-term benefits | 269 | 238 | 195 | 189 |
| Post-employment benefits | 29 | 24 | 20 | 20 |
| Salaries and other benefits | 298 | 262 | 215 | 209 |
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. A related party transaction takes place with a transfer of resources or obligations between related parties, regardless of whether a price is charged.
All transactions during the year and balances as at the Reporting date between the following companies have been eliminated in preparing the Consolidated Financial Statements:
Mobitel (Private) Limited
Sri Lanka Telecom (Services) Limited
SLT Publications (Private) Limited
SLT Human Capital Solutions (Private) Limited
SLT VisionCom (Private) Limited
Sky Network (Private) Limited
SLT Property Management (Private) Limited
SLT Campus (Private) Limited
Related party transactions disclosed above should be read in conjunction with Notes 16 to the Financial Statements.
The impact of non-uniform accounting policies adopted by the subsidiary company has been adjusted in the Consolidated Financial Statements as set out below:
Sri Lanka Telecom PLC accounts for refunds on Telecommunication Development Charge (TDC) on cash basis when the payment is received whereas Mobitel (Private) Limited recognises it in the Statement of Profit or Loss and Other Comprehensive Income on a straight line basis.
Therefore, the recognition of the refund by Mobitel (Private) Limited was eliminated and is recognised on cash basis in the consolidated accounts.
| Group impact | ||
| 2015 | 2014 | |
| Reversal of deferred revenue recognised in statement of profit or loss and Other comprehensive income by Mobitel (Private) Limited | (100) | (92) |
| Other comprehensive income by Mobitel (Private) Limited | – | – |
| Receipt of refund during the year from TDC recognised in the Consolidated Financial Statements | – | 322 |
The Board of Directors of the Company has recommended a first and final dividend of Rs. 0.89 per share (2014 – Rs .0.89 per share) on voting shares of the Company to be paid by way of cash dividend for the financial year ended 31 December 2015.
Further, this dividend is to be approved at the Annual General Meeting to be held on 12 May 2016. This proposed final dividend has not been recognised as a liability as at 31 December 2015. Under the Inland Revenue Act No. 10 of 2006, a WHT of 10% has been imposed on dividend declared. Final dividend proposed for the year amounts to Rs. 1,606,325,400, in compliance with Sections 56 and 57 of Companies Act No. 07 of 2007.
As required by Section 56 of the Companies Act No. 07 of 2007, the Board of Directors of the Company satisfied the solvency test in accordance with the Section 57, prior to recommending the final dividend. A statement of solvency completed and duly signed by the Directors on 29 March 2016 has been audited by KPMG.
Except as disclosed above, no other events have arisen since the Statement of Financial Position date which require changes to, or disclosure in the Financial Statements.