Financial Reports

1. Reporting entity

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 2019 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 2019.

The Group primarily is involved in providing a 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.

2. Basis of preparation

(a) Statement of compliance

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 and LKAS) as laid down by The Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) and the requirements of the Companies Act No. 07 of 2007.

(b)

The Financial Statements were authorised for issue by the Board of Directors in accordance with the resolution of the Directors on 3 June 2020.

(c) Basis of measurement

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 is actuarially valued and recognised at the present value of the defined benefit obligation. The Financial Statements have been prepared on a going concern basis.

(d) Functional and presentation currency

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.

(e) Use of estimates and judgements

The preparation of Financial Statements in conformity with Sri Lanka Accounting Standards requires Management to make judgements, 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 judgements 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 14 – Property, plant and equipment
• Note 15 – Intangible assets
• Note 14 (a) – Lease assets and Liabilities
• Note 20 – Trade and other receivable
• Note 23 – Deferred tax
• Note 24 – Deferred income
• Note 26 – Employee benefits
• Note 24 (a) – Contracts assets
• Note 24 (b) – Contract liabilities

(f) Current versus non-current classification

• The Group presents assets and liabilities in the Statement of Financial Position based on current/non-current classification.

An asset is current when it is:

• Expected to be released or intended to be sold or consumed in the normal operating cycle
• Held primarily for the purpose of trading
• Expected to be realised within twelve months after the reporting period

Or

• Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period
• All other assets are classified as non-current.

A liability is current when:

• It is expected to be settled in the normal cycle
• It is held primarily for the purpose of trading
• It is due to be settled within twelve months after the reporting period
• There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period
• The terms of the liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification
• The Group classifies all other liabilities as non-current.

Deferred tax assets and liabilities are classified as non-current assets and liabilities.

3. Significant accounting policies

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, except new accounting standards effective from 1 January 2019 as described in Note 3 (v).

(a) Basis of consolidation

(i) Business combinations

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 on 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 Statement of 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 remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in Statement of Profit or Loss.

Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests and any previous interest held over the net identifiable assets acquired and liabilities assumed). If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group reassesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in Statement of Profit or Loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill has been allocated to a cash-generating unit (CGU) and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.

(ii) Subsidiaries

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. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control over the subsidiary.

(ii-a) Critical judgements in applying the entity’s accounting policies

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).

(ii-b) Interest in subsidiaries

Set out below are the Group’s principal subsidiaries as at 31 December 2019.

Name of entity	Place of business/country of incorporation	Percentage of ownership	Principal activities
Mobitel (Pvt) Ltd.	Colombo/Sri Lanka	100%	Mobile service provider
eChannelling PLC	Colombo/Sri Lanka	87.59%	Providing information infrastructure for the healthcare industry
Mobit Technologies (Pvt) Ltd.	Colombo/Sri Lanka	100%	Providing software solutions
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%	Providing IPTV support services
SLT Digital Info Services (Private) Limited	Colombo/Sri Lanka	100%	Directory information and publication services
SLT Human Capital Solutions (Private) Limited	Colombo/Sri Lanka	100%	Providing workforce solutions
Talentfort (Pvt) Ltd.	Colombo/Sri Lanka	100%	Providing workforce solutions
Sky Network (Private) Limited	Colombo/Sri Lanka	99.94%	Wireless broadband operations
SLT Property Management (Private) Limited	Colombo/Sri Lanka	100%	Managing SLT's real estate resources
SLT Campus (Private) Limited	Colombo/Sri Lanka	100%	Higher educational services of ICT and Business Management

(iii) Equity-accounted investees (Investment in associates and joint ventures)

An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

The considerations made in determining significant influence or joint control is similar to those necessary to determine control over subsidiaries. The Group’s investments in its associates and joint venture are accounted for using the equity method.

Under the equity method, the investment in an associate or a joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the associate or joint venture since the acquisition date. Goodwill relating to the associate or joint venture is included in the carrying amount of the investment and is not tested for impairment separately.

The Statement of Profit or Loss reflects the Group’s share of the results of operations of the associate or joint venture. Any change in Other Comprehensive Income of those investees is presented as part of the Group’s Other Comprehensive Income. In addition, when there has been a change recognised directly in the equity of the associate or joint venture, the Group recognises its share of any changes, when applicable, in the Statement of Changes in Equity. Unrealised gains and losses resulting from transactions between the Group and the associate or joint venture are eliminated to the extent of the interest in the associate or joint venture.

The aggregate of the Group’s share of profit or loss of an associate and a joint venture is shown on the face of the Statement of Profit or Loss outside operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associate or joint venture.

The Financial Statements of the associate or joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group.

After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on its investment in its associate or joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value, and then recognises the loss as “Share of profit or loss of equity accounted investees” in the Statement of Profit or Loss.

Upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognised in the Statement of Profit or Loss.

(iv) Non-conrtolling interest (NCI)

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.

(v) Loss of control

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.

(vi) Transactions eliminated on consolidation

Intra-group balances and transactions and any unrealised income and expenses arising from intra-group transactions, are eliminated.

(b) Foreign currency

(i) Foreign currency transactions

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.

(c) Financial instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and financial liability or equity instrument of another entity.

(i) Financial assets

(i-i) Initial recognition and measurement

Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss.

The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price as disclosed in Note 3 (k) – Revenue from contracts with customers.

In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are “solely payments of principal and interest (SPPI)” on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. Financial assets with cash flows that are not SPPI are classified and measured at fair value through profit or loss, irrespective of the business model.

The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.

Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, i.e. the date that the Group commits to purchase or sell the asset.

(i-ii) Subsequent measurement

For purposes of subsequent measurement, financial assets are classified in four categories;

• Financial assets at amortised cost (debt instruments)
• Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments)
• Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments)
• Financial assets at fair value through profit or loss

Financial assets at amortised cost (debt instruments)

The Group measures financial assets at amortised cost if both of the following conditions are met:

• The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows, and
• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding

Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified, or impaired.

The Group’s financial assets at amortised cost include trade and other receivables, amounts due from related parties and cash and cash equivalents.

Financial assets at fair value through OCI (debt instruments)

The Group measures debt instruments at fair value through OCI if both of the following conditions are met:

• The financial asset is held within a business model with the objective of both holding to collect contractual cash flows and selling, and
• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

For debt instruments at fair value through OCI, interest income, foreign exchange revaluation and impairment losses or reversals are recognised in the statement of profit or loss and computed in the same manner as for financial assets measured at amortised cost. The remaining fair value changes are recognised in OCI. Upon derecognition, the cumulative fair value change recognised in OCI is recycled to profit or loss.

Financial assets designated at fair value through OCI (equity instruments)

Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under LKAS 32 – “Financial Instruments: Presentation” and are not held for trading. The classification is determined on an instrument-by-instrument basis.

Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income in the statement of profit or loss when the right of payment has been established, except when the Group benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment.

This category includes listed and non-listed equity instruments that the Group elected to classify irrevocably.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading, financial assets designated upon initial recognition at fair value through profit or loss, or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at fair value through profit or loss, irrespective of the business model. Notwithstanding the criteria for debt instruments to be classified at amortised cost or at fair value through OCI, as described above, debt instruments may be designated at fair value through profit or loss on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch.

Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in the statement of profit or loss.

This category includes derivative instruments and listed equity investments which the Group had not irrevocably elected to classify at fair value through OCI. Dividends on listed equity investments are also recognised as other income in the statement of profit or loss when the right of payment has been established.

A derivative embedded in a hybrid contract, with a financial liability or non-financial host, is separated from the host and accounted for as a separate derivative if: the economic characteristics and risks are not closely related to the host; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at fair value through profit or loss. Embedded derivatives are measured at fair value with changes in fair value recognised in profit or loss. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through profit or loss category.

(i-iii) Fair value measurement

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 all the following;

1. The particular asset or liability that is the subject of the measurement.
2. For a non-financial asset, the valuation premise that is appropriate for the measurement (consistently with its highest and best use).
3. The principal (or most advantageous) market for the asset or liability.
4. 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.
5. Fair value is a market-based measurement, not an entity-specific measurement. For some assets and liabilities, observable market transactions or market.

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.

Determination of fair values

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 judgement 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 3 – Fair value measurements using inputs for the asset or liability that are not based on observable market data (i.e. unobservable inputs).

(i-iv) Amortised cost

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.

(i-v) Impairment

Non-derivative financial assets.

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.

For trade receivables and contract assets, the Group applies a simplified approach in calculating Expected Credit Losses (ECLs). Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

Investments in fixed deposits, Treasury Bills and Bonds are considered as low risk of default.

Non-financial assets

At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than investment property, 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 the CGU on a 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.

(i-vi) Hedge

For designated and qualifying cash flow hedges, the effective portion of the gain or loss on the hedging instrument is initially recognised directly in equity in the “cash flow hedge reserve”. The ineffective portion of the gains or losses on the hedge instrument is recognised immediately in the profit and loss.

When the hedge cash flow affects the Income Statement, the gain or loss on the hedging instrument is recorded in the corresponding income or expense line of the Income Statement. When a hedging instrument expires, or is sold, terminated, exercised or when a hedge no longer meets the criteria for hedge accounting, any cumulative gains/losses existing in other comprehensive income at that time remains in other comprehensive income and is recognised in the Income Statement. When a forecast transaction is no longer expected to occur the cumulative gains/loss was reported in other comprehensive income is immediately transferred to the Income Statement.

(ii) Financial liabilities

(ii-i) Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as appropriate. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

The Group’s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts, lease liabilities, contract liabilities and deferred income.

(ii-ii) Subsequent measurement

Financial liabilities at amortised cost (loans and borrowings)

This is the category most relevant to the Group. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the EIR method, after considering any discount or premium on acquisition and fees or costs that are an integral part of the EIR. Gains and losses are recognised in profit or loss when the liabilities are derecognised. EIR amortisation is included as finance costs in the statement of profit or loss.

(ii-iii) Derecognition

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss.

(iii) Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.

(e) Intangible assets

(i) Goodwill

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).

Subsequent measurement

Goodwill is measured at cost less accumulated impairment losses.

(ii) Other intangible assets

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.

(iii) Licenses

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.

(iv) Subsequent expenditure

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.

(f) Leased assets

Prior to 1 January 2019, leases in terms of which the Group assumes substantially all the risks and rewards of ownership were classified as finance leases. Upon initial recognition the leased asset was 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 was accounted for in accordance with the accounting policy applicable to that asset.

Prior to 1 January 2019, for operating leases, the leased assets were not recognised on the Group’s statement of Financial Position.

(g) Inventories

Inventories are measured at the lower of cost or 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.

(h) Share capital

Ordinary Share Capital

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.

(i) Government grants

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 of profit or loss on a systematic basis over the useful life of the asset.

(j) Employee benefits

(i) Defined contribution plans

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 which services are 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.

Employees’ Provident Fund

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.

Employees’ Trust Fund

The Company and other subsidiaries contribute 3% of the salary of each employee to the Employees’ Trust Fund.

(ii) Defined benefit plans

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 that 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 five years of continued service.

(iii) Termination benefits

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.

(iv) Short-term benefits

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.

(l) Expenditure

The expenses are recognised on an accrual basis. All expenses incurred in the ordinary course of business and in maintaining property, plant and equipment in a state of efficiency is charged against income in arriving at the profit for the year

(m) Lease payments

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 fulfillment 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.

(n) Finance income and expenses

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.

(o) Income tax

Current income tax assets and liabilities are measured at amounts to be recovered from or paid to the taxation authorities.

(i) Current taxation

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.

(ii) Deferred Taxation

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 taxable temporary differences relating to investments in subsidiaries, associates and joint ventures 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.

Deferred tax relating to items recognised outside profit or loss, is recognised either in other comprehensive income or directly in Statement of Changes in Equity in line with the underlying transaction.

No deferred taxation is provided for Mobitel (Pvt) Ltd. due to the fact that the income taxes are computed and paid at 2% on revenue.

(iii) Economic Service Charge (ESC)

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. With effect from 1 January 2020 the Act mentioned above was abolished.

(iv) Sales tax

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.

(p) Earnings per share

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.

(q) Insurance reserve

The Company transfers annually from the retained earnings an amount equal to 0.25% of additions to property, plant and 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 and equipment. The insurance reserve is maintained to recover any losses arising from damage to property, plant and equipment, except for motor vehicles, that are not insured with a third party insurer.

(r) Dividend distribution

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.

(s) Comparatives

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.

(t) Cash flow statement

The Cash Flow Statement 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.

(u) Critical accounting estimates, assumptions and judgements

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 Company’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 judgements, often as a result of the need to make estimates about the effect of matters that are uncertain.

(i) Depreciation of property, plant and equipment

The Company assigns useful lives and residual values to property, plant and 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 and 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 Company’s Financial Statements when the change in estimate is determined.

(ii) Impairment of property, plant and equipment and intangible assets

The Company assesses the impairment of property, plant and 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;

1. obsolescence or physical damage;
2. significant changes in technology and regulatory environments;
3. significant under performance relative to expected historical or projected future operating results;
4. 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 judgement.

(iii) Revenue recognition

Judgement 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.

(iv) Valuation of receivables

The provision for impairment losses for trade and other receivables reflects the Company’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 Company’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.

(v) Inventories

The Company assesses the inventory provision 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 changes in the use of its assets or the strategy for its overall business;

(vi) Current Tax and Deferred tax

Judgement was required to determine the total provision for current, deferred and other taxes due to uncertainties that exist with respect to the interpretation of the applicability of tax law at the time of the preparation of these financial statements.

Certain uncertainties exist with respect to the interpretation of tax regulations and the amount and timing of future taxable income. Differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. Where the final tax outcome of such matters is different from the amounts that were initially recorded, such differences will impact the income and deferred tax amounts in the period in which the determination is made.

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.

(vii) Leases – Estimating the incremental borrowing rate

The Group cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Group “would have to pay”, which requires estimation when no observable rates are available or when they need to be adjusted to reflect the terms and conditions of the lease. The Group estimates the IBR using observable inputs such as market interest rates when available and is required to make certain entity-specific estimates as well.

(viii) Revenue recognition from contracts with customers

Judgement is required in assessing the application of the principles of revenue recognition in respect of revenues. Certain contracts with customers are bundled packages that may include sale of products and telecommunications services that comprise voice, data, and other telecommunications services. The Group accounts for individual products and services separately as separate performance obligations if they are distinct promised goods and services. The Group exercises judgements in determining whether a product is distinct, that is, if such product or service is separately identifiable from other items in the bundled package and if a customer can benefit from it separately. This determination will affect the allocation of consideration specified in the contract and the revenue recognised for each performance obligation.

(v) New accounting standards

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 2019.

Changes in Accounting Policies and Disclosures

New and amended standards and interpretations

(a) SLFRS 16 Leases

The Group applied SLFRS 16 for the first time. The nature and effect of the changes as a result of adoption of these new accounting standards are described below:

Several other amendments and interpretations apply for the first time in 2019, but do not have an impact on the consolidated financial statements of the Group. The Group has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective.

SLFRS 16 supersedes LKAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to recognise most leases on the balance sheet.

Lessor accounting under SLFRS 16 is substantially unchanged from LKAS 17. Lessors will continue to classify leases as either operating or finance leases using similar principles as in LKAS 17. Therefore, SLFRS 16 does not have an impact for leases where the Group is the lessor.

The Group adopted SLFRS 16 using the modified retrospective method of adoption, without restating comparative information. The impact on adoption of SLFRS 16 is reflected in Note 14. (a) to the Financial Statements. The Group also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option (short-term leases), and lease contracts for which the underlying asset is of low value (low-value assets).

Leases

The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

Group as a lessee

The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Group recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.

Right-of-use assets

The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets, as follows:

Assets	Estimated useful lives
Land	2-3 years
Buildings	2-3 years
Towers	2-3 years

If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. The right-of-use assets are also subject to impairment as more fully described In Note (W) (ii) – Impairment of Assets.

Lease liabilities

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.

The Group’s operating lease liabilities are included in Note 14. (a) to the Financial Statements.

Leases of low-value assets

The Group applies the lease of low-value assets recognition exemption to leases of some tower rentals that are considered to be low value. Lease payments on leases of low-value assets are recognised as expense on a straight-line basis over the lease term.

Group as a lessor

Leases in which the Group does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. Rental income arising is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of profit or loss due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned.

The lease liabilities as at 1 January 2019 can be reconciled to the operating lease commitments as of 31 December 2018 as follows:

Assets	Group	Company
Operating lease commitments as at 31 December 2018	18,240	1,162
Incremental borrowing rate as at 1 January 2019	11.7%-12.50%	12.50%
Discounted operating lease commitments at 1 January 2019	10,185	1,027
Commitments related to leases previously classified as finance leases	57	–
Lease Liabilities as at 1 January 2019	10,242	1,027

(b) IFRIC Interpretation 23 Uncertainty over Income Tax Treatment

The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of LKAS 12 Income Taxes. It does not apply to taxes or levies outside the scope of LKAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following:

• Whether an entity considers uncertain tax treatments separately
• The assumptions an entity makes about the examination of tax treatments by taxation authorities
• How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates
• How an entity considers changes in facts and circumstances

The Group determines whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments and uses the approach that better predicts the resolution of the uncertainty.

The Group applies significant judgement in identifying uncertainties over income tax treatments and it assessed whether the Interpretation had an impact on its consolidated financial statements.

Upon adoption of the Interpretation, the Group considered whether it has any uncertain tax positions. The Group determined, based on its tax compliance and transfer pricing study that it is probable that its tax treatments (including those for the subsidiaries) will be accepted by the taxation authorities. The Interpretation did not have an impact on the consolidated financial statements of the Group.

(c) Amendments to SLFRS 9:

Prepayment Features with Negative Compensation Under SLFRS 9, a debt instrument can be measured at amortised cost or at fair value through other comprehensive income, provided that the contractual cash flows are ‘solely payments of principal and interest on the principal amount outstanding’ (the SPPI criterion) and the instrument is held within the appropriate business model for that classification. The amendments to SLFRS 9 clarify that a financial asset passes the SPPI criterion regardless of an event or circumstance that causes the early termination of the contract and irrespective of which party pays or receives reasonable compensation for the early termination of the contract. These amendments had no impact on the consolidated financial statements of the Group.

(d) Amendments to LKAS 19: Plan Amendment, Curtailment or Settlement

The amendments to LKAS 19 address the accounting when a plan amendment, curtailment or settlement occurs during a reporting period. The amendments specify that when a plan amendment, curtailment or settlement occurs during the annual reporting period, an entity is required to determine the current service cost for the remainder of the period after the plan amendment, curtailment or settlement, using the actuarial assumptions used to remeasure the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that event. An entity is also required to determine the net interest for the remainder of the period after the plan amendment, curtailment or settlement using the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that event, and the discount rate used to remeasure that net defined benefit liability (asset).

The amendments had no impact on the consolidated financial statements of the Group as it did not have any plan amendments, curtailments, or settlements during the period.

(e) Amendments to LKAS 28: Long-term interests in associates and joint ventures

The amendments clarify that an entity applies SLFRS 9 to long-term interests in an associate or joint venture to which the equity method is not applied but that, in substance, form part of the net investment in the associate or joint venture (long-term interests). This clarification is relevant because it implies that the expected credit loss model in SLFRS 9 applies to such long-term interests.

The amendments also clarified that, in applying SLFRS 9, an entity does not take account of any losses of the associate or joint venture, or any impairment losses on the net investment, recognised as adjustments to the net investment in the associate or joint venture that arise from applying LKAS 28 Investments in Associates and Joint Ventures.

These amendments had no impact on the consolidated financial statements as the Group does not have long term interests in its associate and joint venture.

(f) Annual Improvements 2015-2017 Cycle

SLFRS 3 Business Combinations

The amendments clarify that, when an entity obtains control of a business that is a joint operation, it applies the requirements for a business combination achieved in stages, including remeasuring previously held interests in the assets and liabilities of the joint operation at fair value. In doing so, the acquirer remeasures its entire previously held interest in the joint operation.

An entity applies those amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2019, with early application permitted.

These amendments had no significant impact on the consolidated financial statements of the Group as there is no transaction where joint control is obtained.

SLFRS 11 Joint Arrangements

An entity that participates in, but does not have joint control of, a joint operation might obtain joint control of the joint operation in which the activity of the joint operation constitutes a business as defined in SLFRS 3. The amendments clarify that the previously held interests in that joint operation are not remeasured.

An entity applies those amendments to transactions in which it obtains joint control on or after the beginning of the first annual reporting period beginning on or after 1 January 2019, with early application permitted.

These amendments had no significant impact on the consolidated financial statements of the Group as there is no transaction where a joint control is obtained.

LKAS 12 Income Taxes

The amendments clarify that the income tax consequences of dividends are linked more directly to past transactions or events that generated distributable profits than to distributions to owners. Therefore, an entity recognises the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where it originally recognised those past transactions or events.

An entity applies the amendments for annual reporting periods beginning on or after 1 January 2019, with early application permitted. When the entity first applies those amendments, it applies them to the income tax consequences of dividends recognised on or after the beginning of the earliest comparative period.

Since the Group’s current practice is in line with these amendments, they had no significant impact on the consolidated financial statements of the Group.

LKAS 23 Borrowing Costs

The amendments clarify that an entity treats as part of general borrowings any borrowing originally made to develop a qualifying asset when substantially all of the activities necessary to prepare that asset for its intended use or sale are complete.

The entity applies the amendments to borrowing costs incurred on or after the beginning of the annual reporting period in which the entity first applies those amendments. An entity applies those amendments for annual reporting periods beginning on or after 1 January 2019, with early application permitted.

Since the Group’s current practice is in line with these amendments, they had no significant impact on the consolidated financial statements of the Group.

(w) Standards Issued but not yet Effective

The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s financial statements are disclosed below. The Group intends to adopt these new and amended standards and interpretations, if applicable, when they become effective.

(i) Amendments to SLFRS 3: Definition of a Business

Amendments to the definition of a business in SLFRS 3 Business Combinations to help entities determine whether an acquired set of activities and assets is a business or not. They clarify the minimum requirements for a business, remove the assessment of whether market participants are capable of replacing any missing elements, add guidance to help entities assess whether an acquired process is substantive, narrow the definitions of a business and of outputs, and introduce an optional fair value concentration test. New illustrative examples were provided along with the amendments.

Since the amendments apply prospectively to transactions or other events that occur on or after the date of first application, the Group will not be affected by these amendments on the date of transition.

(ii) Amendments to LKAS 1 and LKAS 8: Definition of Material

In October 2018, the IASB issued amendments to LKAS 1 Presentation of Financial Statements and LKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to align the definition of “material” across the standards and to clarify certain aspects of the definition. The new definition states that, ’Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.

The amendments to the definition of material are not expected to have a significant impact on the Group’s consolidated financial statements.

4. Financial risk management

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 and 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 and 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.

4.1 Credit risk

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.

4.1.1 Trade receivables

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 the credit worthiness of 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 an 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 is periodically revised as per the past monthly bill value. High risk voice customers are subjected to auto disconnection when they reach the threshold limit. Credit control and recovery actions are taken in respect of customers with overdue accounts to minimise the credit risk. High revenue generating customers including corporate customers are monitored individually.

As at 31 December 2019, the maximum exposure to credit risk for trade by geographic region was as follows:

	Group		Company
	2019	2018	2019	2018
Sri Lanka	23,288	21,851	16,044	15,378
Middle East	337	188	294	117
Asia	1,174	1,480	869	726
Europe	1,615	1,354	1,047	1,176
Australia	222	249	214	222
Other	74	152	17	51
Total trade receivables	26,710	25,274	18,485	17,670

As at 31 December 2019, the maximum exposure to credit risk for trade receivables by type of counterparty was as follows:

	Group		Company
	2019	2018	2019	2018
Wholesale customers	3,978	3,905	3,918	3,816
Retail customers	18,884	18,257	13,820	13,393
Others	3,848	3,112	747	461
	26,710	25,274	18,485	17,670

As at 31 December the Group’s most significant customer was Lanka Government Information Infrastructure (Private) Limited which accounted for LKR 1,204 Mn. of trade receivables (2018 - LKR 1,104 Mn.)

Impairment

The movement in the allowance for impairment in respect of trade receivables during the year is as follows :

W	Group impairment	Company impairment
Balance as at 1 January 2018	9,321	6,483
– Impairment loss recognised	1,166	606
– Amounts written off	(697)	(697)
– Adjustments	(900)	(900)
Balance as at December 2018	8,890	5,492
– Impairment loss recognised	453	18
– Impairment gain recognised	(400)	(400)
– Adjustments	900	900
– Amounts written off	(611)	(608)
Balance as at 31 December 2019	9,232	5,402

4.1.2 Other investments

The Group limits its exposure to credit risk by investing only in Government Debt Securities, Repos and in short-term deposits with selected banks with Board approval.

4.1.3 Cash and cash equivalents

The Group held cash and cash equivalents of LKR 5,457 Mn. as at 31 December 2019 (2018 LKR 11,089 Mn.)

4.1.4 Employee loans

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.

4.2 Liquidity risk

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.

Contractual undiscounted payments the Sri Lanka Telecom PLC would be called upon to make under the issued Corporate Guarantee Contracts on behalf of its subsidiaries are as follows,

	Carrying value	up to 1 year	up to 2 years	up to 5 years	Over 5 years
SLT Campus (Pvt) Ltd. – Seylan loan (a)	850	–	–	550	300
SLT Campus (Pvt) Ltd. – Bank overdraft	110	110	–	–	–
SLT (Services) Ltd. – Working capital requirement	10	10	–	–	–

(a) This term loan was granted by Seylan Bank to SLT Campus (Private) Limited in August 2019. The loan tenure is 120 months including a grace period of 24 months from the granted date.

Apart from the above, SLT PLC has provided a corporate guarantee of USD 39 million (2018 – USD 72 million) for Mobitel (Pvt) Ltd. for the GSM Rollout Stage 7 which will be paid fully by 2021.

The following are the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted.

	Notes	Carrying value	Up to 1 year	Up to 2 years	Up to 5 years	Over 5 years
Group
As at 31 December 2019
Bank overdrafts		3,739	3,739	–	–	–
Bank borrowings and others		57,256	8,419	3,804	32,081	12,952
Vendor financing		615	320	139	156	–
Lease liabilities		66	20	34	–	12
Trade and other payables due with in one year	4.2.1	38,181	38,181	–	–	–
Trade and other payables due after one year	4.2.2	1,677	1,096	433	12	136
		101,534	51,775	4,410	32,249	13,100
As at 31 December 2018
Bank overdrafts		6,460	6,460	–	–	–
Bank borrowings and others		47,764	9,479	8,710	19,950	9,625
Vender financing		1,528	982	245	301	–
Lease liabilities		83	28	43	12	–
Trade and other payables due with in one year	4.2.3	31,983	31,983	–	–	–
Trade and other payables due after one year	4.2.4	1,941	1,247	542	10	142
		89,759	50,179	9,540	20,273	9,767

 

	Notes	Carrying value	Up to 1 year	Up to 2 years	Up to 5 years	Over 5 years
Company
As at 31 December 2019
Bank overdrafts		3,265	3,265	–	–	–
Bank borrowings and others		49,205	6,385	1,965	28,130	12,725
Lease liabilities		–	–	–	–	–
Trade and other payables due with in one year	4.2.5	23,506	23,506	–	–	–
Trade and other payables due after one year	4.2.6	346	194	4	12	136
		76,322	33,350	1,969	28,142	12,861
As at 31 December 2018
Bank overdrafts		5,638	5,638	–	–	–
Bank borrowings and others		40,392	9,464	5,018	16,285	9,625
Lease liabilities		2	2	–	–	–
Trade and other payables due with in one year	4.2.7	20,230	20,230	–	–	–
Trade and other payables due after one year	4.2.8	456	110	194	10	142
		66,718	35,444	5,212	16,295	9,767

4.2.1 Trade and other payables due within one year

	Carrying value	Up to 1 year	Up to 2 years	Up to 5 years	Over 5 years
Group
As at 31 December 2019
Domestic trade payables	5,145	5,145	–	–	–
Foreign trade payables	2,715	2,715	–	–	–
Capital expenditure payables	15,951	15,951	–	–	–
Social security and other taxes	682	682	–	–	–
Interest payable	202	202	–	–	–
Other payables	13,486	13,486	–	–	–
	38,181	38,181	–	–	–

4.2.2 Trade and other payables due after one year

	Carrying value	Up to 1 year	Up to 2 years	Up to 5 years	Over 5 years
Group
As at 31 December 2019
International direct dialling deposits	155	3	4	12	136
Prepayments on VOIP services	182	182	–	–	–
PSTN guarantee deposits	9	9	–	–	–
Domestic trade payables	858	429	429	–	–
Capital expenditure payables	473	473	–	–	–
	1,677	1,096	433	12	136

4.2.3 Trade and other payables due within one year

	Carrying value	Up to 1 year	Up to 2 years	Up to 5 years	Over 5 years
Group
As at 31 December 2018
Domestic trade payables	5,044	5,044	–	–	–
Foreign trade payables	2,093	2,093	–	–	–
Amount due to related companies	132	132	–	–	–
Capital expenditure payables	10,767	10,767	–	–	–
Social security and other taxes	1,079	1,079	–	–	–
Interest payable	222	222	–	–	–
Other payables	12,646	12,646	–	–	–
	31,983	31,983	–	–	–

4.2.4 Trade and other payables due after one year

	Carrying value	Up to 1 year	Up to 2 years	Up to 5 years	Over 5 years
Group
As at 31 December 2018
International direct dialling deposits	157	2	3	10	142
Prepayments on VOIP services	280	98	182	–	–
PSTN guarantee deposits	19	10	9	–	–
Domestic Trade Payables	695	347	348	–	–
Capital expenditure payables	790	790	–	–	–
	1,941	1,247	542	10	142

4.2.5 Trade and other payables due within one year

	Carrying value	Up to 1 year	Up to 2 years	Up to 5 years	Over 5 years
Company
As at 31 December 2019
Domestic trade payables	364	364	–	–	–
Foreign trade payables	1,544	1,544	–	–	–
Amount due to subsidiaries	3,108	3,108	–	–	–
Capital expenditure payables	7,185	7,185	–	–	–
Social security and other taxes	664	664	–	–	–
Other payables	10,641	10,641	–	–	–
	23,506	23,506	–	–	–

4.2.6 Trade and other payables due after one year

	Carrying value	Up to 1 year	Up to 2 years	Up to 5 years	Over 5 years
Company
As at 31 December 2019
International direct dialling deposits	155	3	4	12	136
Prepayments on VOIP services	182	182	–	–	–
PSTN guarantee deposits	9	9	–	–	–
	346	194	4	12	136

4.2.7 Trade and other payables due after one year

	Carrying value	Up to 1 year	Up to 2 years	Up to 5 years	Over 5 years
Company
As at 31 December 2018
Domestic trade payables	391	391	–	–	–
Foreign trade payables	1,237	1,237	–	–	–
Amount due to subsidiaries	1,065	1,065	–	–	–
Amount due to related companies	132	132	–	–	–
Capital expenditure payables	6,989	6,989	–	–	–
Social security and other taxes	903	903	–	–	–
Other payables	9,513	9,513	–	–	–
	20,230	20,230	–	–	–

4.2.8 Trade and other payables due after one year

	Carrying value	Up to 1 year	Up to 2 years	Up to 5 years	Over 5 years
Company
As at 31 December 2018
International direct dialling deposits	157	2	3	10	142
Prepayments on VOIP services	280	98	182	–	–
PSTN guarantee deposits	19	10	9	–	–
	456	110	194	10	142

4.3 Market risk

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.

4.3.1 Currency risk

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:

	USD Mn.
Group
As at 31 December 2019
Foreign trade receivables	20
Secured bank loans	(44)
Unsecured loans	(22)
Trade payables	(15)
Net statement of financial position exposure	(61)
As at 31 December 2018
Foreign trade receivables	18
Secured bank loans	(48)
Unsecured loans	(56)
Trade payables	(10)
Net statement of financial position exposure	(96)

 

	USD Mn.
Company
As at 31 December 2019
Foreign trade receivables	15
Secured bank loans	–
Unsecured loans	(22)
Trade payables	(8)
Net statement of financial position exposure	(15)
As at 31 December 2018
Foreign trade receivables	14
Secured bank loans	–
Unsecured loans	(56)
Trade payables	(7)
Net statement of financial position exposure	(49)

The following significant exchange rates have been applied during the year:

	Average rate		Year end spot rate
	2019	2018	2019	2018
USD	178.78	162.54	181.50	182.71
EUR	200.14	191.71	203.48	209.07

Sensitivity analysis

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
	Strengthening	Weakening	Strengthening	Weakening
Group
2019 December USD (10%)	(1,829)	1,829	(1,829)	1,829
2018 December USD (10%)	(1,418)	1,418	(1,418)	1,418
Company
2019 December USD (10%)	(394)	394	(394)	394
2018 December USD (10%)	1,027	(1,027)	1,027	(1,027)

4.3.2 Interest rate risk

Interest rate risk mainly arises as a result of the 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.

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 within the floor interest rate (minimum) of 2.5% as stipulated in the loan agreement. 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
	Increase in interest rate	Decrease in interest rate
Group
2019 December Variable rate instruments	(267)	267
2018 December Variable rate instruments	(274)	274
Company
2019 December Variable rate instruments	(344)	344
2018 December Variable rate instruments	(182)	182

4.4 Capital management

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 and recommend 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 Debt/equity ratios at 31 December 2019 and 2018 were as follows:

	Group		Company
	2019	2018	2019	2018
Total borrowings (including lease liabilities)	72,425	55,835	53,014	46,032
Total equity	78,069	73,624	60,173	58,140
Debt/Equity ratio	92.8%	75.8%	88.1%	79.2%

5. Operating segments

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 on at least 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 2019 or 2018.

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.

Information about reportable segments

	Fixed telephony operations		Mobile operations		Other segments operations		Total
	2019	2018	2019	2018	2019	2018	2019	2018
External revenues	45,897	43,307	38,482	36,739	1,569	1,399	85,948	81,445
Inter-segment revenue	4,110	4,082	1,697	2,142	3,556	3,257	9,363	9,481
Reportable segment revenue	50,007	47,389	40,179	38,881	5,125	4,656	95,311	90,926
Reportable segment profit before tax	4,754	3,142	4,073	4,404	(143)	340	8,684	7,886
Interest revenue	739	443	510	200	39	42	1,288	685
Interest expenses	(690)	(93)	(1,540)	(106)	(35)	(40)	(2,265)	(239)
Depreciation and amortisation	(13,102)	(11,616)	(8,255)	(6,294)	(88)	(37)	(21,445)	(17,947)
Reportable segment assets	151,654	138,525	75,250	56,395	4,394	2,982	231,298	197,902
Capital expenditure	13,893	13,129	14,253	8,158	917	129	29,063	21,416
Reportable segment liabilities	91,481	80,385	43,757	27,524	3,226	2,235	138,464	110,144

	2019	2018
Revenues
Total revenue for reportable segments	90,186	86,270
Revenue for other segments	5,125	4,656
Reportable segment revenue	95,311	90,926
Elimination of inter-segment revenue	(9,363)	(9,481)
Consolidated revenue	85,948	81,445
Profit or loss
Total profit or loss for reportable segments	8,827	7,546
Profit or loss for other segments	(143)	340
Reportable segment Profit before tax	8,684	7,886
Elimination of inter-segment profits	(468)	(717)
Consolidated profit before tax	8,216	7,169

Information about reportable segments

	2019	2018
Assets
Total assets for reportable segments	226,904	194,920
Assets for other segments	4,394	2,982
	231,298	197,902
Elimination of inter-segment assets	(22,279)	(17,467)
Consolidated total assets	209,019	180,435
Liabilities
Total liabilities for reportable segments	135,238	107,909
Liabilities for other segments	3,226	2,235
	138,464	110,144
Elimination of inter-segment liabilities	(7,612)	(3,429)
Consolidated total liabilities	130,852	106,715

	Reportable segment totals	Adjustments	Consolidated totals
Other material items (2019)
Interest revenue	1,288	–	1,288
Interest expense	(2,265)	198	(2,067)
Capital expenditure	29,063	–	29,063
Depreciation and amortisation	(21,445)	–	(21,445)
Other material items (2018)
Interest revenue	685	–	685
Interest expense	(239)	–	(239)
Capital expenditure	21,416	–	21,416
Depreciation and amortisation	(17,947)	–	(17,947)

6. Revenue

The significant categories under which revenue is recognised are as follows:

	Group		Company
	2019	2018	2019	2018
Release of deferred connection charges	355	392	355	392
Rental income	7,216	7,261	4,534	4,696
Domestic call revenue	22,025	22,826	3,447	4,048
Receipts from other network operators – Domestic	2,257	1,894	599	578
International call revenue	694	774	226	306
Receipts from other network operators – International	35	94	–	–
International settlements (in-payments)	9,213	8,183	6,669	5,842
CDMA revenue	160	531	160	531
Broadband revenue	21,926	19,572	11,017	10,206
Data and other services	22,067	19,918	23,000	20,790
	85,948	81,445	50,007	47,389

7. Operating costs

The following items have been included in arriving at operating profit :

	Notes	Group		Company
		2019	2018	2019	2018
Staff costs	7.1	19,108	17,750	12,542	11,759
Directors' emoluments		43	41	18	16
Payments to international network operators		1,656	1,260	1,656	1,260
Payments to other network operators
– International		1,565	1,439	1,185	1,166
– Domestic		2,640	2,314	651	735
International Telecommunication Operators Levy	8	1,907	2,054	891	1,055
Auditors’ remuneration
– Audit – Ernst & Young		19	18	12	12
– Other auditors		–	–	–	–
– Non-audit – Ernst & Young		2	2	2	3
– Other auditors		–	1	–	1
Repairs and maintenance expenditure		6,543	6,530	4,621	5,124
Provision/(write-off) of bad and doubtful debts	7	54	1,127	(383)	605
Impairments/(reversals) of inventory		154	(281)	154	(281)
Impairment of property, plant and equipment	14	–	40	–	29
Other operating expenditure		22,273	23,590	12,206	12,448
Depreciation on property, plant and equipment		17,670	16,850	12,248	11,361
Depreciation on right-of-use assets		2,442	–	514	–
Amortization		1,333	1,097	340	255
Total direct costs, sales and marketing costs, and administrative costs		77,409	73,832	46,657	45,548

7.1 Staff costs

	Notes	Group		Company
		2019	2018	2019	2018
Salaries, wages, allowances, and other benefits		16,811	15,600	10,877	10,170
Staff prepaid cost		77	108	77	108
Post-employment benefits
– Defined contribution plans		1,429	1,381	968	956
– Defined benefit obligations	26	791	661	620	525
		19,108	17,750	12,542	11,759
Average number of persons employed		10,423	10,242	5,620	5,403

8. Refunds on Telecommunication Development Charge (TDC)

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 3 March, 2003 where initially the levy was defined in such a way that Operators were allowed to claim 2/3rd of the TDC against the costs of network development charges.

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. As the said regulation was received with effect from July 2010 while eliminating the reimbursement process, the final claim requested from TRC applicable for the above period was received in year 2014.

First revision to this regulation was introduced with effect from 15 July 2010 with an International Telecommunication Operators Levy (ITOL) TDC rate change from USD cents 3.80 to USD cents 1.50. Through the same revision, the disbursement process of TDC was removed from the regulation. As stated above the revised ITOL rate prevailed until such time the rate was revised to USD cents 3.00 per minute with effect from January 2012, in accordance with the Budget Proposal for 2012 and ITOL rate was further revised again to USD cents 6.00 per minute with effect from January 2016 in accordance with the Budget Proposal for 2016.

Mobitel (Pvt) Ltd. recognises Telecommunications Development Charge (TDC) in Statement of profit or loss on a straight-line basis over 10 years, as disclosed in Note 33.

9. Interest expense and finance costs

	Group		Company
	2019	2018	2019	2018
Rupee loans [See Note (a) below]	3,779	2,346	3,744	2,271
Foreign currency loans [See Note (a) below]	698	662	319	602
Debenture	892	628	892	628
Finance cost of the lease liabilities [Note 14. (a)]	1,160	–	96	–
Other charges [See Note (b) below]	469	638	464	627
Total Interest and finance cost	6,998	4,274	5,515	4,128
Interest Capitalised [See Note (c) below]	(4,931)	(4,035)	(4,825)	(4,035)
Net total Interest and finance cost	2,067	239	690	93

(a) Interest cost of the Company relates to the US dollar loans and rupee loans. Interest cost of the Group relates to rupee loans, US dollar loans and vendor financing. (b) Other charges mainly include interest cost of overdraft facilities. (c) Capitalisation rate used for 2019 is 13.12%.

10. Interest income

	Group		Company
	2019	2018	2019	2018
Interest income from:
– Treasury bills	5	4	–	–
– Repurchase agreement – Repos	137	143	–	20
– Fixed deposits	589	225	183	111
– Staff loan Interest	557	307	556	306
– Debenture issue	–	6	–	6
	1,288	685	739	443

The interest income on Bank deposits reflect the prevailing rates on the date of respective investments.

1. The weighted average interest rates on restricted funds in bank deposits 11.48% (2018 – 12.08%) and USD was 4.51% (2018 – 3.34%). The weighted average interest rate on bank deposits in LKR was 11.5%.
2. The weighted average interest rates on investments in Government Securities were nil (2018 – 7.92%).
3. The weighted average interest on staff loans are between 12% and 15% (2018 – 12% and 15%) computed as per the provisions in the Sri Lanka Accounting Standards. The actual interest rates charged on the staff loans are between 6.24% and 7.20% (2018 – 5.24% and 7.20%)

11. Income tax expenses

Tax recognised in Statement of Profit or Loss

	Group		Company
	2019	2018	2019	2018
Current tax expense
Current year	916	960	–	24
Tax on dividends	73	102	–	–
	989	1,062	–	24
Deferred tax expense
Origination and reversal of temporary differences (Note 23)	(187)	1,456	(182)	1,509
Tax losses	1,092	(297)	1,156	(297)
	905	1,159	974	1,212
Tax expense	1,894	2,221	974	1,236

Tax recognised in other comprehensive income – Group

	2019			2018
	Before tax	Tax (expense) benefit	Net of tax	Before tax	Tax (expense) benefit	Net of tax
Defined benefit plan actuarial (loss)/gain	(214)	49	(165)	125	(13)	112
	(214)	49	(165)	125	(13)	112

Tax recognised in other comprehensive income – Company

	2019			2018
	Before tax	Tax (expense) benefit	Net of tax	Before tax	Tax (expense) benefit	Net of tax
Defined benefit plan actuarial (loss)/gain	(49)	14	(35)	85	(23)	62
	(49)	14	(35)	85	(23)	62

Reconciliation between income tax expenses and accounting profit

	Group		Company
	2019	2018	2019	2018
Accounting profit before tax	8,216	7,169	4,754	3,142
Non-taxable receipts/gains	–	–	(449)	(628)
Exempt profit
Aggregate disallowable expenses	14,069	14,475	13,748	14,469
Aggregate allowable expenses	(14,068)	(17,322)	(13,926)	(17,210)
Utilisation of tax losses	(4,148)	(143)	(4,127)	(47)
Current year tax losses not utilised	256	649	–	620
Other adjustments	9	–	–	–
Taxable income	4,334	4,828	–	87
Other adjustments
Standard rate of 28%	72	119	–	24
Concessionary rate of 14%	–	–	–	–
Concessionary rate of 10%	–	–	–	–
Other rates	844	841	–	–
Tax on dividend income	73	102	–	–
Tax on current year profits	989	1,062	–	24

Current income tax charge of the Group/Company is made up as follows:

	Group		Company
	2019	2018	2019	2018
Sri Lanka Telecom PLC	–	24	–	24
Mobitel (Pvt) Ltd.	844	841	–	–
Sri Lanka Telecom (Services) Limited	–	–	–	–
SLT Human Capital Solutions (Private) Limited	20	3	–	–
SLT Digital Info Services (Private) Limited	–	62	–	–
SLT VisionCom (Private) Limited	52	30	–	–
Sky Network (Private) Limited	–	–	–	–
SLT Property Management (Private) Limited	–	–	–	–
SLT Campus (Private) Limited	–	–	–	–
	916	960	–	24

1. 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. 04 of 1978, 15 years tax exemption period granted to Mobitel (Pvt) Ltd. expired on 30 June 2009 and as per the agreement, Mobitel (Pvt) Ltd. 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.
2. As per the agreement with the Board of Investement of Sri Lanka (BOI) dated 19 November 2009 under Section 17 of BOI Act No. 04 of 1978 the Sky Network (Private) Limited is exempt from income tax for a period of six 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.

12. Net movement on cash flow hedges

Movement of cash flow hedge reserve is given below:

	Group	Company
Balance as at 1 January 2019	672	672
Net movement of cash flow hedges	(201)	(201)
Balance as at 31 December 2019	471	471

The composition of the cash flow hedge reserve is given below:

	Group	Company
Recognition of loan impact under other comprehensive income	1,331	1,331
Recognition of revenue impact under other comprehensive income	(860)	(860)
Balance as at 31 December 2019	471	471

Hedging activities

The Group is exposed to certain risks relating to its ongoing business operations. The Group uses foreign currency-denominated borrowings to manage some of its transaction exposures. The primary risks managed using hedging activities is the foreign currency risk.

The Group’s risk management strategy and how it is applied to manage foreign currency risk are explained in Note 4.3.1.

There is an economic relationship between the hedged items and the hedging instruments as there is an opposite relationship between currency inflows for services settled in foreign currencies which are generated from day-to-day business operations and currency outflows for repayments of foreign currency loans which are on fixed terms.

The Group has established a hedge ratio of 1:1 for the hedging relationships as the underlying risk of the foreign exchange are identical to the hedged risk components. To test the hedge effectiveness, the Group uses the hypothetical derivative method and compares the changes in the fair value of the hedging instruments against the changes in fair value of the hedged items attributable to the hedged risks.

The hedge ineffectiveness can arise from:

• Differences in the timing of the cash flows of the hedged items and the hedging instruments
• Changes to the forecasted amount of cash flows of hedged items and hedging instruments

13. Earnings per share

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
	2019	2018	2019	2018
Net profit attributable to equity holders (LKR Mn.)	6,320	4,944	3,780	1,906
Weighted average number of ordinary shares in issue (million)	1,805	1,805	1,805	1,805
Basic earnings per share (LKR)	3.50	2.74	2.09	1.06

Diluted EPS is the same as computed above as the Company does not have any instrument that will potentially dilute the share holdings.

14. Property, plant and equipment

Group

	Freehold land	Freehold buildings	Ducts, cables and other outside plant	Telephone exchanges	Transmission equipment	IT systems	Motor vehicles	Other fixed assets	Capital work-in- progress	Total
Cost
As at 1 January 2018	357	3,723	131,135	29,201	93,600	14,329	2,892	12,117	24,332	311,686
Additions at cost	–	4	748	–	1,303	249	23	670	20,728	23,725
Transfers from capital work-in-progress	–	112	3,116	184	2,518	1,574	–	24	(7,529)	–
Disposals	–	–	(249)	(18)	(597)	(52)	(21)	(80)	–	(1,017)
As at 31 December 2018	357	3,839	134,750	29,367	96,824	16,100	2,894	12,731	37,531	334,393
Accumulated depreciation
As at 1 January 2018	–	(2,123)	(97,413)	(19,917)	(55,358)	(9,566)	(2,353)	(7,921)	–	(194,651)
Disposals	–	–	249	18	597	52	21	61	–	998
Impairment loss	–	(8)	–	–	–	–	(21)	(11)	–	(40)
Depreciation charge	–	(101)	(5,482)	(1,569)	(6,959)	(1,410)	(241)	(1,088)	–	(16,850)
As at 31 December 2018	–	(2,232)	(102,646)	(21,468)	(61,720)	(10,924)	(2,594)	(8,959)	–	(210,543)
Carrying value as at 31 December 2018	357	1,607	32,104	7,899	35,104	5,176	300	3,772	37,531	123,850

	Freehold land	Freehold buildings	Ducts, cables and other outside plant	Telephone exchanges	Transmission equipment	IT systems	Motor vehicles	Other fixed assets	Capital work-in- progress	Total
Cost
As at 1 January 2019	357	3,839	134,750	29,367	96,824	16,100	2,894	12,731	37,531	334,393
Additions at cost	–	534	1,555	26	2,393	973	–	1,981	27,008	34,470
Transfers from capital work-in-progress	10	511	8,059	–	5,992	712	–	79	(15,363)	–
Disposals	–	(15)	(581)	–	(1,459)	–	(36)	(200)	–	(2,291)
As at 31 December 2019	367	4,869	143,783	29,393	103,750	17,785	2,858	14,591	49,176	366,572
Accumulated depreciation
As at 1 January 2019	–	(2,232)	(102,646)	(21,468)	(61,720)	(10,924)	(2,594)	(8,959)	–	(210,543)
Accumulated depreciation on disposals	–	4	581	–	1,458	–	36	194	–	2,273
Depreciation charge	–	(262)	(5,742)	(1,721)	(7,199)	(1,580)	(149)	(1,017)	–	(17,670)
As at 31 December 2019	–	(2,490)	(107,807)	(23,189)	(67,461)	(12,504)	(2,707)	(9,782)	–	(225,940)
Carrying value as at 31 December 2019	367	2,379	35,976	6,204	36,289	5,281	151	4,809	49,176	140,632

Company

	Freehold land	Freehold buildings	Ducts, cables and other outside plant	Telephone exchanges	Transmission equipment	IT systems	Motor vehicles	Other fixed assets	Capital work-in- progress	Total
Cost
As at 1 January 2018	357	3,696	131,135	29,201	35,881	14,316	2,527	7,902	22,888	247,903
Additions at cost	–	4	748	–	962	244	22	196	13,809	15,985
Transfers from capital work-in-progress	–	112	3,116	184	1,693	1,574	–	24	(6,703)	–
Disposals at cost	–	–	(249)	(18)	(13)	(52)	(20)	–	–	(352)
As at 31 December 2018	357	3,812	134,750	29,367	38,523	16,082	2,529	8,122	29,994	263,536
Accumulated depreciation
As at 1 January 2018	–	(2,123)	(97,413)	(19,917)	(20,261)	(9,553)	(2,125)	(5,058)	–	(156,450)
Accumulated depreciation on disposals	–	–	249	18	13	52	20	–	–	352
Impairment loss	–	–	(8)	–	–	–	–	(21)	–	(29)
Depreciation charge	–	(101)	(5,482)	(1,569)	(2,092)	(1,410)	(195)	(513)	–	(11,361)
As at 31 December 2018	–	(2,224)	(102,654)	(21,468)	(22,340)	(10,911)	(2,300)	(5,592)	–	(167,489)
Carrying value as at 31 December 2018	357	1,588	32,096	7,899	16,183	5,171	229	2,530	29,994	96,047

	Freehold land	Freehold buildings	Ducts, cables and other outside plant	Telephone exchanges	Transmission equipment	IT systems	Motor vehicles	Other fixed assets	Capital work-in- progress	Total
Cost
As at 1 January 2019	357	3,812	134,750	29,367	38,523	16,082	2,529	8,122	29,994	263,536
Additions at cost	–	267	1,555	26	736	959	–	1,315	15,154	20,012
Transfers from capital work-in-progress	10	511	8,059	–	1,110	712	–	79	(10,481)	–
Disposals at cost	–	(15)	(581)	–	–	–	(36)	–	–	(632)
As at 31 December 2019	367	4,575	143,783	29,393	40,369	17,753	2,493	9,516	34,667	282,916
Accumulated depreciation
As at 1 January 2019	–	(2,224)	(102,654)	(21,468)	(22,340)	(10,911)	(2,300)	(5,592)	–	(167,489)
Accumulated depreciation on disposals	–	4	581	–	–	–	36	–	–	621
Depreciation charge	–	(262)	(5,743)	(1,721)	(2,366)	(1,575)	(149)	(432)	–	(12,248)
As at 31 December 2019	–	(2,482)	(107,816)	(23,189)	(24,706)	(12,486)	(2,413)	(6,024)	–	(179,116)
Carrying value as at 31 December 2019	367	2,093	35,967	6,204	15,663	5,267	80	3,492	34,667	103,800

Property, Plant and Equipment

1. 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 and equipment as determined by the Government of Sri Lanka. Valuers were used to determine 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 business and the related assets and liabilities of SLT were transferred to SLTL as part of the privatisation process.
2. The cost of fully depreciated assets still in use in the Company as at 31 December 2019 was LKR 125,986 Mn. (2018 – LKR 74,396 Mn.).
   The cost of fully depreciated assets still in use in the Group as at 31 December 2019 was LKR 145,791 Mn. (2018 – LKR 88,189 Mn.).
3. No assets have been mortgaged or pledged as security for borrowings of the Group.
4. The number of buildings as at 31 December 2019, is 1,180 (2018 – 1,180).
5. 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 and equipment. At the reporting date, the insurance reserve amounted to LKR 917 Mn. (2018 – LKR 791 Mn.) (Note 27).
6. Impairment of assets mainly consists of the carrying value of Cable Network Beyond DP LKR Nil (2018 – LKR 15 Mn.) and Cable Network up to DP LKR Nil (2018 – LKR 7 Mn.) were impaired due to the flood. Impairment provision for pay phones LKR Nil (2018 – LKR 5 Mn.) and IPTV CPE LKR Nil (2018 – LKR 62 Mn.).
7. The Company capitalised borrowing costs amounting to LKR 4,825 Mn. during the year (2018 – Rs 4,035 Mn.). Borrowing cost capitalised from a Group perspective amounted to LKR 4,931 Mn. (2018 – LKR 4,035 Mn.)
8. (h) Property, plant and equipment include submarine cables. The total cost and accumulated depreciation of all cables under this category in as follows;

	Group/Company
	2019	2018
Cost	12,060	11,975
Accumulated depreciation at 1 January	(5,892)	(5,560)
Depreciation charge for the year	(219)	(332)
Carrying amount	5,949	6,083

15. Intangible assets

15.1 Intangible assets – Group

	Goodwill	Licences	Software	Others	Total
Cost
Balance as at 1 January 2018	804	8,905	3,740	485	13,934
– Acquisitions	–	616	255	17	889
Balance as at 31 December 2018	804	9,521	3,995	502	14,822
Balance as at 1 January 2019	804	9,521	3,995	502	14,822
– Acquisitions	–	615	426	56	1,097
– Derecognition	–	–	(202)	–	(202)
Balance as at 31 December 2019	804	10,136	4,219	558	15,717
Accumulated amortisation
Balance as at 1 January 2018	253	2,767	2,720	333	6,073
– Amortisation	–	851	246	–	1,097
Balance as at 31 December 2018	253	3,618	2,966	333	7,170
Balance as at 1 January 2019	253	3,618	2,966	333	7,170
– Amortisation	–	937	382	14	1,333
– Derecognition	–	–	(202)	–	(202)
Balance as at 31 December 2019	253	4,555	3,146	347	8,301
Carrying Amounts
As at 31 December 2019	551	5,581	1,073	211	7,416
As at 31 December 2018	551	5,903	1,029	169	7,652

The goodwill in the Group consists of goodwill arising on acquisition of Mobitel (Pvt) Ltd. and eChannelling PLC.

Goodwill is allocated to the Group’s cash-generating units (CGUs). A summary of the goodwill allocation is presented below:

	2019	2018
Mobitel (Pvt) Ltd.	141	141
eChannelling PLC	410	410
Total	551	551

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:

	2019 %	2018 %
Growth rate	5	2-7
Discount rate	12	12

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 2019 for the above CGU (2018 – LKR Nil).

15.2 Intangible assets – Company

	Licences	Software	Others	Total
Cost
Balance as at 1 January 2018	1,813	1,727	330	3,870
– Acquisitions	4	308	–	312
Balance as at 31 December 2018	1,817	2,035	330	4,182
Balance as at 1 January 2019	1,817	2,035	330	4,182
– Acquisitions	–	367	–	367
Balance as at 31 December 2019	1,817	2,402	330	4,549
Accumulated amortisation
Balance as at 1 January 2018	798	1,675	330	2,803
– Amortisation	143	112	–	255
Balance as at 31 December 2018	941	1,787	330	3,058
Balance as at 1 January 2019	941	1,787	330	3,058
– Amortisation	143	197	–	340
Balance as at 31 December 2019	1,084	1,984	330	3,398
Carrying Amounts
As at 31 December 2019	733	418	–	1,151
As at 31 December 2018	876	248	–	1,124

16. Investments in subsidiaries and associates

17. Other investments

Current investments

	Group		Company
	2019	2018	2019	2018
Fixed deposits/Repo	3,112	3,665	3,082	3,569
	3,112	3,665	3,082	3,569

Fixed deposits and Repo are classified as financial assets measured at amortised cost. Fixed deposits in foreign currency with a carrying value of LKR 2,181 Mn. (2018 – LKR 2,780 Mn.) and fixed deposits and Repo with a carrying value of LKR 898 Mn. (2018 – LKR 786 Mn.) are restricted at bank. Fixed deposits with a carrying value of LKR 3 Mn. (2018 – LKR 3 Mn.) is in local currency.

	Group		Company
	2019 %	2018 %	2019 %	2018 %
Fixed deposits – Restricted at bank	11.48	12.08	11.48	12.08
Repurchase agreement – Restricted at bank	–	–	–	–
Fixed deposits – LKR	12.00	11.50	9.83 – 11.50	11.50
Fixed deposits – USD	4.51	3.34	4.51	3.34
Repurchase agreement – Repo	–	7.92	–	7.92

The Group’s exposure to credit and market risk and fair value information related to other investment are disclosed in Note 4.

18. Other receivables

	Group		Company
	2019	2018	2019	2018
Non-current	2,897	2,970	2,868	2,938
Current	678	680	676	679
	3,575	3,650	3,544	3,617
Employee Loans	3,419	3,229	3,388	3,196
Prepaid staff cost	156	421	156	421
	3,575	3,650	3,544	3,617
Prepaid staff cost 1 January	421	472	421	472
Additions	77	108	77	108
Amortisation	(342)	(159)	(342)	(159)
Prepaid staff cost at 31 December	156	421	156	421

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 and the amount is recognised in the Statement of Profit or Loss for 2019 was LKR 342 Mn. (2018 – LKR 159 Mn.).

19. Inventories

	Group		Company
	2019	2018	2019	2018
Customer premises equipment	2,612	1,188	2,612	1,188
Cable and networks	831	842	705	701
Other consumables	1,149	1,069	319	321
	4,592	3,099	3,636	2,210
Provision for change in carrying value of inventories	(1,027)	(926)	(868)	(770)
	3,565	2,173	2,768	1,440

(a) Inventories include telecommunication hardware, consumables and office stationery. Inventory is stated net of provisions for slow-moving and obsolete items.

20. Trade and other receivables

	Group		Company
	2019	2018	2019	2018
Domestic trade receivables	23,277	21,846	16,033	15,373
Foreign trade receivables	3,433	3,428	2,452	2,297
	26,710	25,274	18,485	17,670
Less: Provision for bad and doubtful receivables	(9,232)	(8,890)	(5,402)	(5,492)
Trade receivables – Net	17,478	16,384	13,083	12,178
Amount due from subsidiaries [Note 32.1 (h)]	–	–	2,883	2,042
Amount due from related companies	21	148	–	147
Advances and prepayments [See Note (a) below]	13,312	8,561	3,884	2,360
Employee loans (Note 18)	678	680	676	679
Other receivables [See Note (b) below]	1,532	1,567	339	135
Amounts due within one year	33,021	27,340	20,865	17,541

1. Advances and prepayments of the Company mainly consist of advances on foreign and local suppliers LKR 2,589 Mn. (2018 – LKR 2,620 Mn.), payments for software maintenance of LKR 342 Mn. (2018 – LKR 70 Mn.) Advances and prepayments of the Group mainly consist of advances on foreign and local suppliers advances LKR 10,029 Mn. (2018 – LKR 5,911 Mn.), payments for software maintenance of LKR 342 Mn. (2018 – LKR 70 Mn.) advances on building and tower rent of LKR 109 Mn. (2018 – LKR 138 Mn.). Prepaid TRC Frequency LKR 740 Mn. (2018 – LKR 804 Mn.) and free phone offer LKR 321 Mn. (2018 – LKR 283 Mn.)
2. Other receivables of the Company consist of refundable deposits of LKR 144 Mn. (2018 – LKR 132 Mn.). Other receivables of the Group mainly consist of refundable deposits of LKR 144 Mn. (2018 – LKR 132 Mn.), receivables from sales agents LKR 113 Mn. (2018 – LKR 122 Mn.) and site rentals receivables from other operators LKR 725 Mn. (2018 – LKR 864 Mn.)

21. Cash and cash equivalents

	Group		Company
	2019	2018	2019	2018
Cash at bank and in hand	3,454	3,163	645	671
Fixed deposits	2,003	5,791	–	–
Repurchase agreements – Repo	–	2,135	–	–
	5,457	11,089	645	671

22. Borrowings

	Group		Company
	2019	2018	2019	2018
Current (due within one year)
Bank overdrafts	3,739	6,460	3,265	5,638
Bank borrowings and others [See Note 22 (e) below]	8,419	9,479	6,385	9,464
Vendor financing	320	982	–	–
Finance lease liabilities	20	28	–	2
	12,498	16,949	9,650	15,104
Non-current (due after one year)
Bank borrowings and others [See Note 22 (e) below]	48,849	38,285	42,820	30,928
Vendor financing	295	546	–	–
Finance lease liabilities	34	55	–	–
	49,178	38,886	42,820	30,928
Total borrowings	61,676	55,835	52,470	46,032

(a) The interest rate exposure of the borrowings of the Group and the Company were as follows:

	Group		Company
	2019	2018	2019	2018
– At fixed rates	11,110	17,633	10,582	17,355
– At floating rates	50,566	38,202	41,888	28,677
	61,676	55,835	52,470	46,032

The currency exposure of the borrowings of the Group and the Company as at the reporting date were as follows:

	Group		Company
	2019	2018	2019	2018
Foreign currency	11,872	19,125	3,940	10,268
Local currency	49,804	36,710	48,530	35,764
	61,676	55,835	52,470	46,032

(b) Effective interest rates of the Group and the Company are as follows:

	Group		Company
	2019 %	2018 %	2019 %	2018 %
Average effective interest rates:
– Bank overdrafts	10.00 - 12.00	10.00 - 14.40	11.39	11.71
– Bank borrowings – (USD loans)	5.04	4.74	5.04	4.74
– Bank borrowings	–	12.18-12.75	–	12.18
– Debenture	12.75	12.75	12.75	12.75
– Lease liabilities	8.00 -12.00	8.00 -16.00	8.00 - 10.00	8.00 - 10.00
– Vendor financing	LIBOR+3.8%	LIBOR+3.8%	–	–

(c) Maturity analysis of the Group and the Company is as follows:

	Group		Company
	2019	2018	2019	2018
Maturity of non-current borrowings (excluding finance lease liabilities):
– Between 1 and 2 years	4,482	8,956	1,965	5,018
– Between 3 and 5 years	31,937	20,250	28,130	16,285
– Over 5 years	12,725	9,625	12,725	9,625
	49,144	38,831	42,820	30,928

(d) Movement of the borrowings is given below – Group

	Borrowings	Bank overdraft	Finance lease liabilities	Total
Balance as at 1 January 2019	49,292	6,460	83	55,835
Additions during the year	47,537	47,753	1	95,291
Net repayment during the year	(38,946)	(50,474)	(30)	(89,450)
	57,883	3,739	54	61,676

Movement of the borrowings is given below – Company

	Borrowings	Bank overdraft	Finance lease liabilities	Total
Balance as at 1 January 2019	40,392	5,638	2	46,032
Additions during the year	46,350	47,644	–	93,994
Net repayment during the year	(37,537)	(50,017)	(2)	(87,556)
	49,205	3,265	–	52,470

5. During the year Company, drew down LKR 46.35 Bn. from the term loan and short-term loan facilities in Rupees.
6. 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.
7. The Directors believe that the Company and the Group will have sufficient funds available to meet its present loan commitments.
8. Lease liabilities of the Company and the Group are effectively secured by the lessor against the rights to the title of the asset.
9. Bank borrowings and supplier credits of Mobitel (Pvt) Ltd. a subsidiary of the Company, are secured, inter alia, by corporate guarantees given by the Company.
10. Mobitel (Pvt) Ltd. has borrowed LKR 416 Mn. during the year for the purpose of Capital Expansion Projects.
11. Guarantee facilities amounting to USD 39 Mn. (2018 – USD 77 Mn.) were provided to Sri Lanka Mobitel (Pvt) Ltd. for GSM Rollout Stage 7.
12. Guarantee facilities amounting to LKR 10 Mn. (2018 – LKR 26 Mn.) were provided to Sri Lanka Telecom (Services) Limited to obtain facilities for working capital requirements. (m) Facilities amounting to LKR 960 Mn. (2018 – LKR – Nil) were provided to SLT Campus (Pvt) Limited for working capital requirement, hostel and academic building project.

23. Deferred tax liabilities and assets

Recognised deferred tax (assets) and liabilities

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 tax is provided under the liability method using a principal tax rate of 28% (for the year 2018 – 28%).

The movement in the deferred tax account is as follows:

	Group		Company
	2019	2018	2019	2018
At the beginning of the year	6,389	5,872	6,525	5,945
Release to Statement of Comprehensive Income (Note 11)	905	1,159	974	1,212
Release to Statement of Other Comprehensive Income (Note 11)	(49)	13	(14)	23
(Over)/under provision of deferred tax relevant to previous years	31	(655)	–	(655)
At end of year	7,276	6,389	7,485	6,525

The amounts shown in the Statement of Financial Position represents the following:

	Group		Company
	2019	2018	2019	2018
Deferred tax liabilities	7,499	6,537	7,485	6,525
Deferred tax assets	(223)	(148)	–	–
	7,276	6,389	7,485	6,525

The taxable and deductible temporary differences mainly arise from property, plant and equipment, deferred income, provision for defined benefit obligations and other provisions.

Deferred tax assets and liabilities of the Group are attributable to the following:

Group	Assets		Liabilities		Net
	2019	2018	2019	2018	2019	2018
Property, plant and equipment	–	–	12,465	12,759	12,465	12,759
Defined benefit obligations	(669)	(566)	–	–	(669)	(566)
Provisions	(2,322)	(2,434)	–	–	(2,322)	(2,434)
Deferred income	(668)	(712)	–	–	(668)	(712)
Tax losses	(1,561)	(2,658)	–	–	(1,561)	(2,658)
Other adjustment	31	–	–	–	31
Tax (assets)/liabilities before set-off	(5,189)	(6,370)	12,465	12,759	7,276	6,389
Set-off of tax	5,189	6,370	(5,189)	(6,370)	–	–
Net tax (assets)/liabilities	–	–	7,276	6,389	7,276	6,389

Movement in deferred tax balances during the year – Group

	Balance 1 January 2018	Recognised in comprehensive income	Recognised in other comprehensive income	Recognised directly in equity	Balance 31 December 2018	Recognised in profit or loss	Recognised in other comprehensive income	Balance 31 December 2019
Property, plant and equipment	11,536	1,223	–	–	12,759	(276)	–	12,483
Defined benefit obligations	(670)	91	13	–	(566)	(72)	(49)	(687)
Provisions	(2,552)	118	–	–	(2,434)	112	–	(2,322)
Deferred income	(736)	24	–	–	(712)	44	–	(668)
Tax losses	(1,706)	(297)	–	–	(2,003)	1,097	–	(906)
Adjustment to tax losses	–	–	–	–	(655)	–	–	(655)
Other adjustments	–	–	–	–	–	–	–	31
	5,872	1,159	13	–	6,389	905	(49)	7,276

Deferred tax assets and liabilities of the Company are attributable to the following:

Company	Assets		Liabilities		Net
	2019	2018	2019	2018	2019	2018
Property, plant and equipment	–	–	12,483	12,757	12,483	12,757
Defined benefit obligations	(596)	(510)	–	–	(596)	(510)
Provisions	(2,232)	(2,351)	–	–	(2,232)	(2,351)
Deferred income	(668)	(713)	–	–	(668)	(713)
Tax losses	(1,502)	(2,658)	–	–	(1,502)	(2,658)
Tax (assets) liabilities before set-off	(4,998)	(6,232)	12,483	12,757	7,485	6,525
Set-off of tax	4,998	6,232	(4,998)	(6,232)	–	–
Net tax (assets) liabilities	–	–	7,485	6,525	7,485	6,525

Movement in deferred tax balances during the year – Company

	Balance 1 January 2018	Recognised in comprehensive income	Recognised in other comprehensive income	Recognised directly in equity	Balance 31 December 2018	Recognised in profit or loss	Recognised in other comprehensive income	Balance 31 December 2019
Property, plant and equipment	11,530	1,227	–	–	12,757	(274)	–	12,483
Defined benefit obligations	(663)	130	23	–	(510)	(72)	(14)	(596)
Provisions	(2,479)	128	–	–	(2,351)	119	–	(2,232)
Deferred income	(737)	24	–	–	(713)	45	–	(668)
Tax losses	(1,706)	(297)	–	–	(2,003)	1,156	–	(847)
Adjustment to tax losses	–	–	–	–	(655)	–	–	(655)
	5,945	1,212	23	–	6,525	974	(14)	7,485

Tax credits

The Company has tax credits of LKR 1,289 Mn. (2018 – LKR 1,289 Mn.) that are available indefinitely for offsetting against future taxable profits of the company. The Company will be able to recover this amount and recognise a deferred tax asset as and when the current unused tax losses are fully utilised and sufficient taxable profits are available to claim against this unused tax credit.

At the end of each reporting year, the Company reassesses its unrecognised deferred tax assets and recognises them only to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

24. 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 and 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. – IRU revenue relating to leasing of SEA-ME-WE 4 cable capacity is recognized 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
	2019	2018	2019	2018
At the end of the year
Representing deferred income – Current	2,859	2,469	290	385
Representing deferred income – Non-current	2,076	2,186	2,057	2,155
	4,935	4,655	2,347	2,540

25. Trade and other payables

	Group		Company
	2019	2018	2019	2018
Amounts due within one year
Domestic trade payables	5,145	5,044	364	391
Foreign trade payables	2,715	2,093	1,544	1,237
Amount due to subsidiaries [Note 32.1 (h)]	–	–	3,108	1,065
Amount due to related companies [Note 32.2 (b)]	–	132	–	132
Capital expenditure payables [See Note (a) below]	15,951	10,767	7,185	6,989
Social security and other taxes [See Note (b) below]	682	1,079	664	903
Interest payable	202	222	–	–
Other payables [See Note (c) below]	13,486	12,646	10,641	9,513
	38,181	31,983	23,506	20,230
Amounts due after one year
International direct dialling deposits	155	157	155	157
Prepayments on VOIP services	182	280	182	280
PSTN guarantee deposits	9	19	9	19
Domestic trade payables	858	695	–	–
Capital expenditure payables	473	790	–	–
	1,677	1,941	346	456

1. Capital expenditure payables of the Company mainly consist of contractors’ payables and retention of LKR 6,194 Mn. (2018 – LKR 6,083 Mn.) and advances on network restoration after road works of LKR 990 Mn. (2018 – LKR 906 Mn.). Capital expenditure payables of the Group mainly consist of contractors’ payable and retention of LKR 14,960 Mn. (2018 – LKR 9,670 Mn.) and advances on network restoration after road works of LKR 990 Mn. (2018 – LKR 906 Mn.).
2. Social security and other taxes of the Company mainly consist of Telecommunication Levy (TL) of LKR 182 Mn. (2018 – LKR 190 Mn.), Cess LKR 81 Mn. (2018 – LKR 78 Mn.), VAT payable of LKR 26 Mn. (2018 – LKR 201 Mn.), EPF payable of LKR 109 Mn. (2018 – LKR 106 Mn.). Social security and other taxes of the Group mainly consist of Telecommunication Levy (TL) of LKR 257 Mn. (2018 – LKR 449 Mn.), Cess of LKR 184 Mn. (2018 - LKR 378 Mn.). VAT payable of LKR 26 Mn. (2018 – LKR 9 Mn.), EPF payable of LKR 109 Mn. (2018 – LKR 106 Mn.) and NBT payable LKR 21 Mn. (2018 – LKR 113 Mn.)
3. Other payables of the Company mainly consist of dividend payable to the Government of Sri Lanka of LKR 244 Mn. (2018 – LKR 244 Mn.), payable for unpaid supplies of LKR 6,428 Mn. (2018 – LKR 7,623 Mn.), International Telecommunication Operators’ Levy payable of LKR 129 Mn. (2018 – LKR 190 Mn.) and accrued expenses and other payables of LKR 747 Mn. (2018 – LKR 225 Mn.). Other payables of the Group mainly consist of dividend payable to the Government of Sri Lanka of LKR 244 Mn. (2018 - LKR 244 Mn.), payable for unpaid supplies of LKR 6,428 Mn. (2018 – LKR 7,623 Mn.), International Telecommunication Operators’ Levy payable of LKR 283 Mn. (2018 – LKR 190 Mn.), and accrued expenses and other payables of LKR 3,397 Mn. (2018 – LKR 3,275 Mn.).

26. Employee benefits

	Group		Company
	2019	2018	2019	2018
Total employee benefit liability as at 1 January	4,239	4,355	3,598	3,719
Movement in present value of employee benefit liabilities
Current service cost	522	445	438	375
Interest cost	269	216	182	150
Actuarial loss/(gain)	214	(125)	49	(85)
Benefit paid during the year	(547)	(652)	(461)	(561)
Balance as at 31 December	4,697	4,239	3,806	3,598
Expenses recognised in the Income Statement
Current service cost	522	445	438	375
Interest cost	269	216	182	150
	791	661	620	525
Recognised in Other Comprehensive Income
Actuarial loss/(gain)	214	(125)	49	(85)
	214	(125)	49	(85)

The principal actuarial assumptions used were as follows:

	Group		Company
	2019 %	2018 %	2019 %	2018 %
Discount rate (long-term)	10.2-11.0	11.0-12.2	10.2	12.2
Future salary increases	7.5-10.0	7.5-10.0	8.0	7.5

In addition to above, demographic assumptions such as mortality, withdrawal, retirement age were considered for the actuarial valuation. In 2019,1967/70 Mortality Table issued by the Institute of Actuaries London (2018 – 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, SLT Campus (Private) Limited, SLT Visioncom (Private) Limited and Mobitel (Pvt) Ltd. are actuarially valued by Messrs Actuarial and Management Consultants (Private) Limited and Messrs Piyal S Goonetilleke and Associates respectively.

The provision for defined benefit obligations is not externally funded.

Sensitivity analysis

Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, 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 in the following table.

Sri Lanka Telecom PLC

	Effect on charge to the statement of profit or loss and other comprehensive income		Effect on net defined benefit liability
	Increase	Decrease	Increase	Decrease
2019
Discount rate (Change by 1%)	(176)	195	(176)	195
Salary increment rate (Change by 1%)	214	(196)	214	(196)

	Effect on charge to the statement of profit or loss and other comprehensive income		Effect on net defined benefit liability
	Increase	Decrease	Increase	Decrease
2018
Discount rate (Change by 1%)	(140)	156	(140)	156
Salary increment rate (Change by 1%)	177	(162)	177	(162)

Mobitel (Pvt) Ltd.

	Effect on charge to the statement of profit or loss and other comprehensive income		Effect on net defined benefit liability
	Increase	Decrease	Increase	Decrease
2019
Discount rate (Change by 1%)	(34)	38	(34)	38
Salary increment rate (Change by 1%)	37	(33)	37	(33)

	Effect on charge to the statement of profit or loss and other comprehensive income		Effect on net defined benefit liability
	Increase	Decrease	Increase	Decrease
2018
Discount rate (Change by 1%)	(26)	29	(26)	29
Salary increment rate (Change by 1%)	36	(32)	36	(32)

Distribution of present value of defined benefit obligation in future years as at 31 December 2019

	Less than 1 year	1-2 years	3-5 years	over 5 years	Total
Sri Lanka Telecom PLC	1,223	520	692	1,371	3,806
Mobitel (Pvt) Ltd.	70	142	225	370	807

27. Insurance reserves

	Group/Company
	2019	2018
As at 1 January	791	691
Transferred to retained earnings	126	100
As at 31 December	917	791

As stated in accounting policy 3 (q) the Company transfers annually from the retained earnings an amount equal to 0.25% of additions to property, plant and 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 and equipment.

Management regularly monitors the charges made against the insurance reserve and the adequacy of the provision made.

28. Stated capital

Issued and fully paid	Group/Company
	2019	2018
1,804,860,000 ordinary shares	18,049	18,049

29. Cash generated from operations

Reconciliation of profit before tax to cash generated from operations:

	Note	Group		Company
		2019	2018	2019	2018
Profit before tax		8,216	7,169	4,754	3,142
Adjustments for:
Depreciation on property, plant and equipment	7	17,670	16,850	12,248	11,361
Depreciation on right-of-use assets	7	2,442	–	514	–
Amortisation of intangible assets	7	1,333	1,097	340	255
Grant received less amortisation		–	(3)	–	(3)
Provision/(write-off) of bad and doubtful debts	7	54	1,127	(383)	605
Impairment/(reversal) of inventory		154	(281)	154	(281)
Interest expense and finance costs	9	2,067	239	690	93
Foreign exchange (loss)/gain	9. (a)	443	1,809	314	1,200
Interest income	10	(1,288)	(685)	(739)	(443)
Connection fees less amortisation		280	273	(193)	(136)
Profit on sale of property, plant and equipment		(249)	(332)	(204)	(306)
Impairment of property, plant and equipment	7	–	40	–	29
Share of profit/(loss) from associate company	16.2	(54)	28	(54)	28
Provision for retirement benefit obligations	26	791	661	620	525
Net movement on cash flow hedges		201	(672)	201	(672)
SLFRS 15 adjustment		(465)	(290)	(46)	16
		31,595	27,030	18,216	15,413
Changes in working capital:
– Receivables and prepayments		(5,662)	(7,556)	(2,871)	(103)
– Inventories		(3,196)	2,137	(3,132)	1,937
– Payables		6,570	2,441	3,263	(2,344)
Cash generated from operations		29,307	24,052	15,476	14,903

30. Capital commitments

The Group and the Company have purchased commitments in the ordinary course of business as at 31 December 2019 as follows:

	Group		Company
	2019	2018	2019	2018
Property, plant and equipment
– Approved but not contracted	5,250	2,582	5,250	2,582
– Approved and contracted	15,491	13,085	9,744	4,742
	20,741	15,667	14,994	7,324
Operating lease commitments
The future minimum lease payments and other commitment payments are as follows:
– Not later than 1 year	3,834	–	617	–
– Later than 1 year and not later than 5 years	12,580	–	62	–
	16,414	–	679	–

Other financial commitments

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.

31. Contingencies

1. Global Electroteks Limited initiated legal action under High Court Case No. 20/2006 claiming damages of USD 12 Mn. from Sri Lanka Telecom PLC (“SLT”) for alleged unlawful disconnection of interconnection services. The order was given in favour of SLT in Commercial High Court on 12 June 2020 dismissing the application of Global Electroteks Limited.
2. Appeal Case filed by Directories Lanka Private Limited (DLPL) against SLT against the dismissal of CHC 2/2006 (3) claimed damages of LKR 250 Mn., for alleged unfair competition with regard to artwork on the cover page of the Directory by SLT. DLPL appealed against the above order. To take steps by the Petitioner (DLPL) to get the case fixed for argument. Notice returnable on Official Receiver (Liquidator) on 2 April 2020 and the case is re fixed for Support on 24 September 2020.
3. 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. The Order was delivered in October 2014 imposing a mitigated forfeiture of LKR 1,820,502,062.00 on SLT. SLT has filed Case in Court of Appeal under CA/writ/387/2014 against this Order and interim order was issued by court on 9 March 2016, precluding Respondents from enforcing order dated 17 October 2014. Next date of the case is 28 July 2020.
4. 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. Presently awaiting the decision of the Customs Department. 
5. Debt Recovery Officers who were attached to SLT had filed legal proceedings in Labour Department (Labour Commissioner) and Labour Tribunal and number of proceeding initiated under each forum are 49 and 21 respectively. The relief claimed includes EPF, ETF and compensation with regard to proceedings initiated before the Labour Commissioner and includes re-instatement or compensation under the Proceedings before Labour Tribunal. An appeal bearing No. WR 232/2015 was filed against the Order delivered by the Commissioner of Labour. The Order was delivered in case No. WR 232/2015, dismissing SLT’s application. SLT filed an appeal to Supreme Court bearing case No. SC(Spl) LA 02/2020 against the order in WR 232/2015. The appeal case No. SC(Spl) LA 02/2020 is fixed for Support on 23 October 2020.
6. On 18 July 2017 Dialog Broad Band Network (Pvt) Limited (“DBN”) filed a case against SLT regarding violation of Intellectual Property Rights in the Commercial High Court requiring SLT to disclose the source/party who revealed the RFP and to furnish the original under the provisions of Intellectual Property Act. Further damages of LKR 7,800,000,000.00 was prayed under the petition. Petition of DBN was dismissed by Court on the 8 August 2018. Dialog Broad Band Network (Pvt) Limited (“DBN”) appealed to the Supreme Court under the case bearing No. S.C Appeal No. 139/2018 against the aforesaid order. Both parties filed written submissions and the next date of the case will be 7 September 2020 for hearing.
7. SC/FR/142/2019 – Dialog Axiata PLC and Dialog Broad Band Network instituted Fundamental Rights Application against TRCSL, regarding allocation of 70MHz from 2600MHz band to SLT by TRCSL. Leave to proceed and enjoining order were granted. Due to the enjoining order SLT is restricted from utilising spectrum for which the payment is already done. SLT, Mobitel and Airtel were permitted to intervene for the case. Arguments are due on 14 September 2020.

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.

1. Facilities amounting to USD 39 Mn. (2018 – USD 77 Mn.) for Mobitel (Pvt) Ltd. for the GSM Rollout Stage 7.
2. Facilities amounting to LKR 10 Mn. (2018 – LKR 26 Mn.) for Sri Lanka Telecom (Services) Limited to obtain facilities for working capital requirement.
3. Facilities amounting to LKR 960 Mn. (2018 – LKR.- Nil) for SLT Campus (Pvt) Limited to working capital requirement, hostel and academic building project.

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 2019.

32. Related party transactions

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.

32.1 (a) Mobitel (Pvt) Ltd.

	Company
	2019	2018
Sale of goods and services:
Provision of E1 links	3,776	3,613
Interconnection charges	211	390
TDM, VOIP platform and transit	14	28
ERP rental	376	631
	4,377	4,662
Purchase of goods and services:
Call charges on official mobile phone	120	131
Interconnection charges	1,071	1,029
Antenna tower space	518	816
Building rent	4	5
Commission on bill collection	–	4
	1,713	1,985

As per the TRC approval dated 19 May 2014, Mobitel is entitled to receive discounts if the Company uses more than 3500 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 39 Mn. (2018 – USD 77 Mn.) for Mobitel (Pvt) Ltd. for the GSM Rollout Stage 7.

(b) SLT Digital Info Services (Private) Limited

	Company
	2019	2018
Sale of goods and services:
Supply of services	59	6
Purchase of goods and services:
Directory distribution and other services	110	3

SLT Digital Info Services (Private) Limited provides event management services to SLT PLC. As per the agreement, SLT Digital Info Services (Private) Limited is entitled to receive a retainer for the services provided.

(c) Sri Lanka Telecom (Services) Limited

	Company
	2019	2018
Sale of goods and services:
Supply of services	4	8

The Company has provided guarantees on behalf of Sri Lanka Telecom (Service) Limited for the following loans and obligations:

Facilities amounting to LKR 10 Mn. (2018 – LKR 26 Mn.) for Sri Lanka Telecom (Services) Limited to obtain facilities for working capital requirements.

(d) SLT Human Capital Solutions (Private) Limited

	Company
	2019	2018
Sale of goods and services:
Supply of services	3	7
Purchase of goods and services:
Provision of manpower service	1,593	1,778

(e) SLT VisionCom (Private) Limited

	Company
	2019	2018
Sale of goods and services:
Supply of services	17	17
Purchase of goods and services:
Service provisioning	713	804

Ad-insertion revenue:

Sri Lanka Telecom received an ad-insertion revenue from SLT VisionCom (Private) Limited amounting to LKR 12 Mn. (2018 – LKR 13 Mn.) SLT’s share of revenue is based on the following percentages:

Advertisement on PEO TV – EPG	34%
Channel advertisement	17%

Service fee:

Sri Lanka Telecom PLC pays Visioncom (Private) Limited a unit rate based fee computed at the rate of LKR 65/- per cumulative billable subscriber which amounted to LKR 351 Mn. in 2019. (2018 – LKR 297 Mn.) Total cost incurred plus a 5% margin.

(f) SLT Campus (Private) Limited

	Company
	2019	2018
Sale of goods and services:
Supply of services	3	15
Purchase of goods and services:
Service provisioning	–	–

Facilities amounting to LKR 960 Mn. (2018 – LKR – Nil) for SLT Campus (Pvt) Limited to working capital requirement, hostel and academic building project.

(g) Fees for secondment of personnel and services provided to/by SLT PLC

	Company
	2019	2018
SLT Digital Info Services (Private) Limited	49	51
SLT VisionCom (Private) Limited	17	–
	66	51

(h) Outstanding balances arising from sale/purchase of services

	Company
	2019	2018
Receivable from subsidiaries:
Mobitel (Pvt) Ltd.	1,288	1,277
SLT Digital Info Services (Private) Limited	44	140
SLT Human Capital Solutions (Private) Limited	170	155
SLT VisionCom (Private) Limited	1,167	–
Sri Lanka Telecom (Services) Limited	54	181
SLT Property Management (Private) Limited	28	31
SLT Campus (Private) Limited	132	258
	2,883	2,042
Payable to subsidiaries:
Mobitel (Pvt) Ltd.	849	53
SLT Digital Info Services (Private) Limited	113	197
SLT Human Capital Solutions (Private) Limited	361	283
SLT VisionCom (Private) Limited	1,494	238
Sri Lanka Telecom (Services) Limited	291	273
Sky Network (Private) Limited	–	1
SLT Campus (Private) Limited	–	20
	3,108	1,065

32.2 Transactions with other related parties

(a) Maxis Communications Berhad and its subsidiaries

	Group		Company
	2019	2018	2019	2018
Sale of goods and services:
Sale of SEA-ME-WE 3 cable capacity	–	6	–	6
International incoming traffic	49	3	43	3
	49	9	43	9
Purchase of goods and services:
International outgoing traffic	4	1	–	1

(b) Outstanding balance arising from sale/purchase services

	Group		Company
	2019	2018	2019	2018
Receivable form related company:
Maxis Communications Berhad and its subsidiaries	175	148	169	147
Payable to related company:
Maxis Communications Berhad and its subsidiaries	126	132	121	132

(C) Government-related key institutions

The Government of Sri Lanka holds 49.5% of the voting rights of the Company as at 31 December 2019 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 2019, 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 as given below:

(i) Revenue from provision of telecommunication services during the year ended 31 December 2019 amounted to LKR 8,761 Mn. (2018 – LKR 4,789 Mn.) and credit receivables as at 31 December 2019 amounted to LKR 3,246 Mn. (2018 – LKR 2,948 Mn.) (ii) Deposits, repurchase agreements (Repo) and Borrowings of the Group at/from Government banks amounted to LKR 3,082 Mn. (2018 LKR 3,569 Mn.) and LKR 1,352 Mn. (2018 LKR 20,752 Mn.) as at 31 December 2019. (iii) Dividend payable to the Government amounting to LKR 244 Mn. (2018 – LKR 244 Mn.)

32.3 Transactions with key management personnel

Key management personnel comprise the Directors and chief officers of the Company and the Group.

	Group		Company
	2019	2018	2019	2018
Short-term benefits	392	270	290	189
Post-employment benefits	30	16	27	15
Salaries and other benefits	422	286	317	204

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 (Pvt) Ltd.
• Sri Lanka Telecom (Services) Limited
• SLT Digital Info Services (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
• eChannelling PLC
• Mobit Technologies (Private) Limited
• Talentfort (Private) Limited

Related party transactions disclosed above should be read in conjunction with Note 16 to the Financial Statements.