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 2020 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 2020.

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 & LKAS) as laid down by The Institute of Chartered Accountants of Sri Lanka (ICASL) 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 9 March 2021.

(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.

(d) Functional and presentation currency

These Financial Statements are presented in Sri Lankan 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 judgments

The preparation of Financial Statements in conformity with Sri Lanka Accounting Standards requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

Information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the Financial Statements is included in the following notes:

• Note 14 – Property, plant and equipment
• Note 15 – Intangible assets
• Note 14 (a) – Right-of-use assets and lease liabilities
• Note 20 – Trade and other receivables
• Note 23 – Deferred tax assets and liabilities
• Note 24 – Deferred income, contract assets and contract liabilities
• Note 26 – Employee benefits

(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 12 months after the reporting period

Or

• Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 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 12 months after the reporting period
• There is no unconditional right to defer the settlement of the liability for at least 12 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.

(g) Going concern

The Financial Statements have been prepared on a going concern bases. The Directors have considered the potential downsides that the COVID-19 pandemic could bring to business operations of the Group in making this assessment. Impact of the COVID-19 pandemic is described in Note 35.

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 amendments to existing accounting standards which are effective from 1 January 2020 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 or bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in 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 re-assesses 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 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 acquire 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 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 judgments 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 2020.

Name of entity	Place of business/country of incorporation	% of Ownership interest held by the group	Principal activities
Mobitel (Pvt) Ltd.	Colombo/Sri Lanka	100%	Mobile service provider
Sri Lanka Telecom (Services) Limited	Colombo/Sri Lanka	99.99%	Providing network solutions for corporate customers and small businesses
SLT VisionCom (Private) Limited	Colombo/Sri Lanka	100%	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
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
eChannelling PLC	Colombo/Sri Lanka	87.59%	Providing information infrastructure for the healthcare industry
Talentfort (Pvt) Ltd.	Colombo/Sri Lanka	100%	Providing workforce solutions
Mobit Technologies (Pvt) Ltd.	Colombo/Sri Lanka	100%	Providing software solutions

(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 in 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’s 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 (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)

Financial assets at amortised cost (debt instruments)
The Group measures financial assets at amortised cost if both 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 rate (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 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 and 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 judgment depending on liquidity, concentration, uncertainty of market factors, pricing assumption and other risks affecting the specific instrument.

• Level 1 – Fair value measurements using quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2 – Fair value measurements using inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e.,as prices) or indirectly (i.e., derived from prices);and
• Level 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 metrix that is based on its historical credit loss experience, adjusted for forward looking factors specific to the debtors and the economic environment.

The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

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 affect 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 meet 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, borrowings and payables, net of directly attributable transaction costs.

The Group’s financial liabilities include trade and other payables loans and borrowing 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.

(d) Property, plant and equipment

(i) Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour and any other costs directly attributable to bringing the assets to a working condition for their intended use. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that asset.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

(ii) Subsequent costs

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss.

(iii) Depreciation

Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value. Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. In the year of acquisition depreciation is computed on proportionate basis from the month the asset is put into use and no depreciation will be charged to the month in which the particular asset was disposed. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated.

Depreciation method, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

The estimated useful lives for the assets are as follows:

Freehold buildings	5-40 years
Submarine cables	10-25 years
Motor Vehicles	5 years
CDMA Handsets	3 years
PABX System	1-6 years
IT systems	5-10 years
Other Fixed Assets	2-12.5 years
Network equipment
Ducts, cables and other outside plant	5-20 years
Telephone exchanges and transmission equipment	5-12.5 years
Towers	12.5-40 years

(iv) Capital work-in-progress

Capital work-in-progress is stated at cost net of accumulated impairment losses, if any. These are expenses of a capital nature directly incurred in the construction of buildings, network equipment, system development and other fixed assets, awaiting capitalisation.

Major spare parts and project related inventory qualify as Property, plant and equipment when the entity expects to use them during more than one year period and are used in connection with specific items of Property, plant and equipment.

(v) Derecognition

The carrying amount of an item of property, plant and equipment is derecognised on disposal. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within “other income” in the statement of Profit or Loss and Other Comprehensive Income.

When replacement costs are recognised in the carrying amount of an item of property, plant and equipment, the remaining carrying amount of the replaced part is derecognised. Major inspection costs are capitalised. At each such capitalisation, the remaining carrying amount of the previous cost of inspections is derecognised.

(vi) Borrowing cost

Borrowing cost directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

(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) Right of use assets and lease liabilities

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:

Leased assets	Estimated useful lives
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 (U) (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 lease liabilities are included in rights-of-use assets and lease liabilities in Note 14.(a) to the Financial Statements.

Leases of low-value assets

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

Group as a lessor

Leases in which the Group does not transfer substantially all 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.

(g) Inventories

Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the weighted average cost principle.Value of inventories includes expenditure incurred in acquiring, conversion costs and other costs incurred in bringing them to their existing location and condition.

(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 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 and have maturity dates approximating to the terms of the Company’s obligations.

The Group recognises actuarial gains and losses that arise in calculating the Group’s obligation in respect of a plan in other comprehensive income.

The present value of the defined benefit obligation depends on a number of factors that are determined on an actuarial basis using a number of assumptions. Key assumptions used in determining the defined retirement benefit obligations are given in Note 26. Any changes in these assumptions will impact the carrying amount of defined benefit obligations.

Provision has been made for retirement gratuities from the first year of service for all employees, in conformity with LKAS 19 “Employee Benefits”. However, under the Payment of Gratuity Act No. 12 of 1983, the liability to an employee arises only on completion of 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.

(k) Revenue from contracts with customers

The Group is primarily 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, voice and broadband services, domestic and international leased circuits, broadband, satellite up-link, maritime transmission, IPTV service, directory publishing service and educational services.

Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services. The Group has generally concluded that it is the principal in its revenue arrangements.

(i) Performance obligations relevant to contracts

As a telecommunication service provider, the Group’s performance obligation related to service contracts include the installation services and maintenance services provided and the uninterrupted telecommunication service which will be provided throughout the connection period.

The Group expects that above performance obligations would be satisfied throughout the connection period.

Domestic and international call revenue and rental income

Fixed lines

Revenue for call time usage by customers is recognised as revenue as services are performed on accrual basis. Fixed rental is recognised as income on a monthly basis in relation to the period of services rendered.

Mobile revenue

Mobile revenue comprises amounts charged to customers in respect of monthly access charges, airtime usage, messaging, and the provision of other mobile telecommunications services. Mobile monthly access charges are invoiced and recorded as part of a periodic billing cycle. Air time, either from contract customers as part of the invoiced amount or from prepaid customers through the sale of prepaid cards, is recorded in the period in which the customer uses the service.

Revenue from other network operators and international settlements

The revenue received from other network operators, local and international, for the use of the Group’s telecommunication network are recognised, net of taxes, based on usage taking the traffic minutes/per second rates stipulated in the relevant agreements and regulations and based on the terms of the lease agreements for fixed rentals.

Revenue arising from the interconnection of voice and data traffic between other telecommunications operators is recognised at the time of transit across the Group’s network and presented on gross basis. The relevant revenue accrued is recognised under income in the Income Statement and interconnection expenses recognised under operating costs in profit or loss.

Revenue from broadband

Revenue from Data services and IPTV services is recognised on usage and the fixed rental on a monthly basis when it is earned net of taxes, rebates and discounts.

Revenue from other ICT services

The revenue from other telephone services are recognised on an accrual basis based on fixed rental contracts entered between the Group and subscribers.

Recognition of 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.

IRU revenue relating to leasing of SEA-ME-WE 4 cable capacity are recognised on a straight-line basis over the period of the contracts. Amounts received in advance for any services are recorded as deferred revenue. In the event that a customer terminates an IRU prior to the expiry of the contract and releases the Company from the obligation to provide future services, the remaining unamortised deferred revenue is recognised in the period the contract is terminated.

Backhauling revenue which is leasing of SEA-ME-WE 3 cable capacity is recognised on a straight-line basis over the period of contracts. Amounts received in advance for any services are recorded as deferred revenue.

Revenue from the sale of prepaid CDMA cards is deferred until such time as the customer uses the call time, downloadable quota or the credit expires.

Sale of mobile recharge cards and reloads for prepaid subscribers are initially recognised as deferred revenue until such time as the subscribers use the services or credit period expires.

CDMA revenue

The connection fees relating to Code Divisional Multiple Access (CDMA) connections are recognised as revenue at the point the connection is activated.

(ii) New connection fees

The Group provides installation services relevant to the new connections of fixed and mobile telecommunication services including both voice and non-voice categories. These installation services are bundled together with providing of Customer Premises Equipment (CPE) to customers in fixed line voice and some non-voice services. When the performance obligations relevant to such installation services are performed, CPEs provided to customers are considered as assets of the Group as long as the contracts with customers are valid. Accordingly, the Group allocates a bundled price for the equipment and installation services for such facilities.

(iii) Recognition of contract liabilities

The Group concluded that revenue from new connections in fixed and mobile telecommunication services is to be recognised over time because the customer simultaneously receives and consumes the benefits provided by the Group. The fact that another entity would not need to reperform the installation of the service that the Group has provided to date demonstrates that the customer simultaneously receives and consumes the benefits of the Group’s performance as it performs.

The Group identifies the revenue for installation services as a contract liability and recognises the revenue on a systematic basis that is consistent with the entity’s transfer of the related goods or services to the customer since satisfaction for the installation services will be consumed by the customer over the contract period.

(iv) Costs incurred in securing customer contracts

The Group identifies the sales commission paid to sales team for each new connection contract and other such related costs in contract acquisition as costs incurred in securing customer contracts.

(v) Recognition of contract asset

Contract acquisition costs are recognised as a contract asset and subsequently recognised as an expense over the life of a contract on a systematic basis consistent with the pattern of the transfer of services to which the asset relates, that is; as and when the relevant performance obligation is fulfilled for a given month.

(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 are measured at amount 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 in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity or other comprehensive income.

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. 24 of 2017 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 differences relating to investments in nor taxable profit or loss and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets liabilities will be realised simultaneously.

A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax is not recognised for the undistributed profits of subsidiaries as the Parent Company has control over the dividend policy of its subsidiaries and distribution of those profits. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

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 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 effective from 1 January 2020 the Act mentioned above was abolished.

(iv) Sales tax

Revenue, expenses and assets are recognised net of the amount of sales 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.

(v) Uncertainty over income tax treatment

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 judgment in identifying uncertainties over income tax treatments and it assessed whether the Interpretation had an impact on its consolidated Financial Statements.

If the Group concludes that it is probable that the taxation authority will accept the tax treatment used or planned to be used in its tax filings, the entity determines its tax position on that basis. This is consistent with the requirement that current tax is measured at the amount expected to be paid or recovered from the taxation authorities, and that deferred tax is measured using the rates and tax laws expected to apply when the related asset is realised or liability is settled.

If the Group concludes that acceptance of the uncertain tax treatment by the taxation authorities is not probable, it would apply one of the following two methods for reflecting the effect of uncertainty in its estimate of the amount it expects to pay or recover from the tax authorities

1. the most likely amount – the single most likely amount in a range of possible outcomes; or
2. the expected value – the sum of the probability-weighted amounts in a range of possible outcomes.

The Group uses the method that it expects to better predict the resolution of the uncertainty.

(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 0.1% 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) Statement of Cash flows

The Statement of Cash Flows 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 judgments

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 judgments, 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 underperformance 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 judgment.

(iii) Revenue recognition

Judgment is required in assessing the application of the principles of revenue recognition in respect of revenues. This includes presentation of revenue as principal or as agent in respect of income received from transmission of content provided by third parties.

(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;

1. obsolescence or physical damage;
2. significant changes in technology and regulatory environments;
3. significant changes in the use of its assets or the strategy for its overall business;

(vi) Current tax and deferred tax

Judgment 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 judgments 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) Amendments to existing accounting standards

The Group applied for the first-time certain amendments, to existing accounting standards, which are effective for annual periods beginning on or after 1 January 2020. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

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

The amendment to SLFRS 3 Business Combinations clarifies that to be considered a business, an integrated set of activities and assets must include, at a minimum, an input and a substantive process that, together, significantly contribute to the ability to create output. Furthermore, it clarifies that a business can exist without including all of the inputs and processes needed to create outputs. These amendments had no impact on the Consolidated Financial Statements of the Group, but may impact future periods should the Group enter into any business combinations.

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

The amendments provide a new definition of material that states, “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 clarify that materiality will depend on the nature or magnitude of information, either individually or in combination with other information, in the context of the Financial Statements. A misstatement of information is material if it could reasonably be expected to influence decisions made by the primary users. These amendments had no impact on the Consolidated Financial Statements of, nor is there expected to be any future impact to 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) SLFRS 17 – Insurance Contracts

SLFRS 17 is a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure. Once effective, SLFRS 17 will replace IFRS 4 Insurance Contracts (SLFRS 4). SLFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features.

SLFRS 17 is effective for annual reporting periods beginning on or after 01 January 2023.

SLFRS 17 - Insurance contracts is not expected to have a siginificant impact on the Group’s Consolidated Financial Statements.

(ii) Amendments to SLFRS 9, LKAS 39, SLFRS 7, SLFRS 4 and SLFRS 16 – Interest Rate Benchmark Reform (Phase 1 & 2)

The amendments to SLFRS 9 and LKAS 39 provide a number of reliefs, which apply to all hedging relationships that are directly affected by interest rate benchmark reform. A hedging relationship is affected if the reform gives rise to uncertainty about the timing and/or amount of benchmark-based cash flows of the hedged item or the hedging instrument.

IBOR reforms Phase 2 include number of reliefs and additional disclosures. Amendments supports companies in applying SLFRS when changes are made to contractual cashflows or hedging relationships because of the reform.

These amendments to various standards are effective for the annual reporting periods beginning on or after 1 January 2021.

None of the new or amended pronouncements are expected to have a material impact on the Consolidated Financial Statements of the Group/Financial Statements of the Company in the foreseeable future.

(iii) Amendments to SLFRS 16 – COVID-19 related rent concessions

The amendments provide relief to lessees from applying SLFRS 16 guidance on lease modification accounting for rent concessions arising as a direct consequence of the Covid-19 Pandemic.

As a practical expedient, a lessee may elect not to assess whether a Covid-19 related rent concession from a lessor is a lease modification. A lessee that makes this election accounts for any change in lease payments resulting from Covid-19 related rent concession the same way it would account for the change under SLFRS 16, if the change were not a lease modification.

The amendment applies to annual reporting periods beginning on or after 01 June 2020.

This amendment is not expected to have a significant impact on 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 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 and recommend the credit worthiness for the international interconnect customer. Further, Prepaid sales are used as a means of mitigating credit risk.

Domestic service is offered to a new customer only after scrutinising through a internal blacklisted data base. The group has a well-established credit control policy & process to minimise the credit risk. Customers are categorised according to the segments and credit limit has been fixed as per their average monthly bill value. Customer usage and bill payments are monitored as per the credit limit. Credit limit will be periodically revised as per the past monthly bill value. High risk voice customers are subjected to auto disconnection when they reached the threshold limit. Credit control actions and recovery actions are taken for the overdue customers and defaulted customers to minimise the credit risk. High revenue generated customers including corporate customers are monitored individually.

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

	Group		Company
	2020	2019	2020	2019
Sri Lanka	22,375	23,288	15,466	16,044
Middle east	137	337	137	294
Asia	1,147	1,195	902	869
Europe	1,147	1,615	966	1,047
Australia	171	222	164	214
Other	389	74	13	17
Total Trade Receivables	25,366	26,731	17,648	18,485

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

	Group		Company
	2020	2019	2020	2019
Wholesale customers	3,467	3,999	3,386	3,918
Retail customers	18,042	18,884	13,476	13,820
Others	3,857	3,848	786	747
	25,366	26,731	17,648	18,485

As at 31 December the Group’s most significant customer was Lanka Bell (Private) Limited which accounted for LKR 290 Mn. of trade receivables (2019 – LKR 285 Mn.)

Impairment

As at 31 December, the aging of trade receivables that were not impaired was as follows;

	Group		Company
	2020	2019	2020	2019
Past due 1 year	235	512	78	393
Past due 2 years and above	64	187	64	187
	299	699	142	580

Management believes that the unimpaired amounts that are past due more than 2 years are still collectible in full, based on historical payment behaviour and extensive analysis of customer credit risk.

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

	Group impairment	Company impairment
Balance as at 1 January 2019	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 December 2019	9,232	5,402
Impairment loss recognised	2,212	1,846
Impairment gain recognised	(811)	(811)
Adjustments	(47)	–
Amounts written off	(2,063)	(1,074)
Balance as at 31 December 2020	8,523	5,363

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 bankers with Board approval.

4.1.3 Cash and cash equivalents

The Group held cash and cash equivalents of LKR 11,866 Mn. as at 31 December 2020 (2019 LKR 5,457 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)	847	50	100	300	397
SLT Campus (Pvt) Ltd. – Bank overdraft	110	110	–	–	–

(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 Mn. (2019 – USD 39 Mn.) 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 2020
Bank overdrafts		1,885	1,885	–	–	–
Bank borrowings and others		53,147	7,628	8,827	23,507	13,185
Vendor financing		317	157	136	24	–
Lease liabilities		25	4	9	12	–
Trade and other payables due with-in one year	4.2.1	30,605	30,605	–	–	–
Trade and other payables due after one year	4.2.2	5,371	3,839	382	7	1,143
		91,350	44,118	9,354	23,550	14,328
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	4.2.3	38,181	38,181	–	–	–
Trade and other payables due after one year	4.2.4	1,677	1,096	433	12	136
		101,534	51,775	4,410	32,249	13,100

	Notes	Carrying value	Up to 1 year	Up to 2 years	Up to 5 years	Over 5 years
Company
As at 31 December 2020
Bank overdrafts		1,453	1,453	–	–	–
Bank borrowings and others		46,514	5,659	6,815	21,315	12,725
Lease liabilities		25	4	9	12	–
Trade and other payables due with-in one year	4.2.5	17,131	17,131	–	–	–
Trade and other payables due after one year	4.2.6	3,955	2,826	391	364	374
		69,078	27,073	7,215	21,691	13,099
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	4.2.7	23,506	23,506	–	–	–
Trade and other payables due after one year	4.2.8	346	194	4	12	136
		76,322	33,350	1,969	28,142	12,861

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 2020
Domestic trade payables	5,967	5,967	–	–	–
Foreign trade payables	1,979	1,979	–	–	–
Capital expenditure payables	7,999	7,999	–	–	–
Social security and other taxes	1,039	1,039	–	–	–
Interest payable	71	71	–	–	–
Other payables	13,550	13,550	–	–	–
	30,605	30,605	–	–	–

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 2020
International direct dialling deposits	143	2	4	7	130
Prepayments on VOIP services	122	60	62	–	–
PSTN guarantee deposits	8	5	3	–	–
Domestic trade payables	1,906	580	313	–	1,013
Capital expenditure payables	3,192	3,192	–	–	–
	5,371	3,839	382	7	1,143

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 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	–	–	–

4.2.4 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 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

4.2.5 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 2020
Domestic trade payables	180	180	–	–	–
Foreign trade payables	1,278	1,278	–	–	–
Amount due to subsidiaries	2,798	2,798	–	–	–
Capital expenditure payables	3,242	3,242	–	–	–
Social security and other taxes	601	601	–	–	–
Other payables	9,032	9,032	–	–	–
	17,131	17,131	–	–	–

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 2020
International direct dialling deposits	143	2	4	7	130
Prepayments on VOIP services	122	60	62	–	–
PSTN guarantee deposits	8	5	3	–	–
Advance on RDA	769	90	322	357	–
Unclaimed dividend	244	–	–	–	244
Capital expenditure payables	2,669	2,669	–	–	–
	3,955	2,826	391	364	374

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 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	–	–	–

4.2.8 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 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

4.3 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:

	Group		Company
	2020 USD Mn.	2019 USD Mn.	2020 USD Mn.	2019 USD Mn.
As at 31 December
Foreign trade receivables	19	20	14	15
Secured bank loans	(2)	(44)	–	–
Unsecured loans	(30)	(22)	–	(22)
Trade payables	(10)	(15)	(7)	(8)
Net statement of financial position exposure	(23)	(61)	7	(15)

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

	Average rate		Year end spot rate
	2020	2019	2020	2019
USD	185.55	178.78	186.65	181.50
EUR	211.73	200.14	229.53	203.48

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
2020 December USD (10%)	(803)	803	(803)	803
2019 December USD (10%)	(1,829)	1,829	(1,829)	1,829
Company
2020 December USD (10%)	–	–	–	–
2019 December USD (10%)	(394)	394	(394)	394

4.3.2 Interest rate risk

Interest rate risk mainly arises as a result of Group having interest sensitive assets and liabilities, which are directly, impacted by changes in the interest rates. The Group’s borrowings and investments are maintained in a mix of fixed and variable interest rate instruments and periodical maturity gap analysis is carried out to take timely action and to mitigate possible adverse impact due to volatility of the interest rates.

To minimise the adverse impact of variable interest rate borrowings due to an upward movement of USD interest rates in the market, the Group has obtained an interest rate SWAP and arrangements are being made to obtain an interest rate CAP.

Short-term interest rate management is delegated to the treasury operations while long-term interest rate management decisions require approval from the Board of Directors.

Interest rate sensitivity of the Company was computed 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
2020 December variable rate instruments	(383)	383
2019 December variable rate instruments	(267)	267
Company
2020 December variable rate instruments	(323)	323
2019 December variable rate instruments	(344)	344

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 as well as the level of dividends to ordinary shareholders.

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

The Debt/equity ratios at 31 December were as follows:

	Group		Company
	2020	2019	2020	2019
Total borrowings	65,032	72,425	48,077	53,014
Total equity	84,179	78,069	62,443	60,173
Total capital	149,211	150,494	110,520	113,187
Debt/Equity ratio (%)	77.3	92.8	77.0	88.1

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 2020 or 2019.

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 relevant to the operating segments are presented in a method consistent with the management reporting provided to those charged with governance.

Information about reportable segments

	Fixed telephony operations		Mobile operations		Other segments operations		Total
	2020	2019	2020	2019	2020	2019	2020	2019
External revenues	47,065	45,897	41,939	38,482	2,115	1,569	91,119	85,948
Inter-segment revenue	4,487	4,110	1,428	1,697	3,219	3,556	9,134	9,363
Reportable segment revenue	51,552	50,007	43,367	40,179	5,334	5,125	100,253	95,311
Reportable segment profit/(loss) before tax	4,539	4,754	6,134	4,073	94	(143)	10,767	8,684
Interest revenue	819	739	405	510	8	39	1,232	1,288
Interest expenses	(1,391)	(690)	(1,574)	(1,540)	(82)	(35)	(3,047)	(2,265)
Depreciation and amortisation	(14,923)	(13,102)	(8,750)	(8,255)	(145)	(88)	(23,818)	(21,445)
Reportable segment assets	146,189	151,654	73,974	75,250	4,870	4,394	225,033	231,298
Capital expenditure	8,648	13,893	5,463	14,253	507	917	14,618	29,063
Reportable segment liabilities	83,746	91,481	38,611	43,757	3,709	3,226	126,066	138,464

	2020	2019
Revenues
Total revenue for reportable segments	94,919	90,186
Revenue for other segments	5,334	5,125
Reportable segment revenue	100,253	95,311
Elimination of inter-segment revenue	(9,134)	(9,363)
Consolidated revenue	91,119	85,948
Profit or loss
Total profit or loss for reportable segments	10,673	8,827
Profit or loss for other segments	94	(143)
Reportable segment profit before tax	10,767	8,684
Elimination of inter-segment profits	(1,054)	(468)
Consolidated profit before tax	9,713	8,216

Information about reportable segments

	2020	2019
Assets
Total assets for reportable segments	220,163	226,904
Assets for other segments	4,870	4,394
	225,033	231,298
Elimination of inter-segment assets	(20,577)	(22,279)
Consolidated total assets	204,456	209,019
Liabilities
Total liabilities for reportable segments	122,357	135,238
Liabilities for other segments	3,709	3,226
	126,066	138,464
Elimination of inter-segment liabilities	(5,891)	(7,612)
Consolidated total liabilities	120,175	130,852

	Reportable segment totals	Adjustments	Consolidated totals
Other material items – 2020
Interest revenue	1,232	–	1,232
Interest expense	(3,047)	145	(2,902)
Capital expenditure	14,618	–	14,618
Depreciation and amortisation	(23,818)	–	(23,818)
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)

6. Revenue

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

	Group		Company
	2020	2019	2020	2019
Release of deferred connection charges (Note 24)	292	355	292	355
Rental income	6,880	7,216	4,217	4,534
Domestic call revenue	21,295	22,025	3,012	3,447
Receipts from other network operators – Domestic	2,004	2,257	600	599
International call revenue	438	694	156	226
Receipts from other network operators – International	14	35	–	–
International settlements (in-payments)	8,692	9,213	6,226	6,669
CDMA revenue	152	160	152	160
Broadband revenue	27,095	21,926	12,496	11,017
Data and other services	24,257	22,067	24,401	23,000
	91,119	85,948	51,552	50,007

6. (a) The revenue recognised from providing fixed telephony and mobile communication services by Group is LKR 89,004 Mn. (2019 – LKR 84,379 Mn.).

7. Operating costs

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

	Group		Company
	2020	2019	2020	2019
Staff costs (Note 7.1)	19,250	19,108	13,419	12,542
Directors' emoluments	48	43	40	18
Payments to international network operators	1,390	1,656	1,390	1,656
Payments to other network operators
– International	1,326	1,565	910	1,185
– Domestic	2,167	2,640	585	651
International Telecommunication Operators Levy (Note 8)	1,563	1,907	700	891
Auditors’ remuneration
– Audit – Ernst & Young	19	19	12	12
– Other auditors	–	–	–	–
– Non-audit – Ernst & Young	6	8	2	2
– Other auditors	18	–	4	–
Repairs and maintenance expenditure	7,113	6,543	5,052	4,621
Provision for doubtful debts	1,297	54	944	(383)
Impairments/(reversals) of inventory	30	154	(10)	154
Impairment of property, plant and equipment (Note 14)	43	–	1	–
Other operating expenditure	21,399	22,267	10,078	12,206
Depreciation on property, plant and equipment	19,115	17,670	13,570	12,248
Depreciation on right-of-use assets	2,925	2,442	565	514
Amortisation	1,778	1,333	788	340
	79,487	77,409	48,050	46,657

7.1 Staff costs

	Group		Company
	2020	2019	2020	2019
Salaries, wages, allowances, and other benefits	17,047	16,888	11,765	10,954
Post-employment benefits
– Defined contribution plans	1,479	1,429	1,060	968
– Defined benefit obligations (Note 26)	724	791	594	620
	19,250	19,108	13,419	12,542
Average number of persons employed	8,929	9,187	6,005	5,304

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 profit or loss on a straight-line basis over 10 years, as disclosed in Note 33.

9. Interest expense and finance costs

	Group		Company
	2020	2019	2020	2019
Rupee loans [See Note (a) below]	3,969	3,779	3,887	3,744
Foreign currency loans [See Note (a) below]	376	698	91	319
Debenture	892	892	892	892
Other charges [See Note (b) below]	1,376	1,629	232	560
Total Interest and finance cost	6,613	6,998	5,102	5,515
Interest Capitalised [See Note (c) below]	(3,711)	(4,931)	(3,711)	(4,825)
Net total Interest and finance cost	2,902	2,067	1,391	690

(a) Interest cost of the Company relates to the USD loans and Rupee loans. Interest cost of the Group relates to rupee loans, USD loans and vendor financing.

(b) Other charges mainly include interest cost of finance leases and overdraft facilities.

(c) Capitalisation rate used for 2020 is 11.60% (2019 – 13.12%).

9. (a) Foreign exchange loss

	Group		Company
	2020	2019	2020	2019
Net foreign exchange loss	(1,203)	(443)	(727)	(314)

Foreign exchange loss of the Group mainly includes

i. Exchange gain of LKR 69 Mn. (2019 – of LKR 112 Mn.) arising from revaluation of the receivables, fixed deposits and bank balances maintained in USD.

ii.   Exchange loss of LKR 422 Mn. on payment to foreign suppliers (2019 – LKR 287 Mn.).

iii. Exchange loss of LKR 850 Mn. (2019 – LKR 44 Mn.) arising from revaluation of US dollar syndicate loan and other term loans.

Foreign exchange loss of the Company mainly includes

i. Exchange gain of LKR 34 Mn. (2019 – LKR 85 Mn.) arising from revaluation of receivables, fixed deposits and bank balances maintained in US Dollars.

ii. Exchange loss of LKR 170 Mn. on payment to foreign suppliers (2019 – LKR 355 Mn.).

iii. Exchange loss of LKR 591 Mn. (2019 – LKR 44 Mn.) arising from revaluation of US dollar syndicate loan.

10. Interest income

	Group		Company
	2020	2019	2020	2019
Interest income from:
– Treasury bills	–	5	–	–
– Repurchase agreement – Repos	101	137	–	–
– Fixed deposits	513	589	202	183
– Staff loan Interest	618	557	617	556
	1,232	1,288	819	739

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

(a) The weighted average interest rates on restricted funds in bank deposits 6.81% (2019 – 11.48%) and USD was 5.21% (2019 – 4.51%). The weighted average interest rate on bank deposits in LKR was 7.31% (2019 – 11.5%).

(b) The weighted average interest rates on staff loans are between 10% and 15% (2019 – 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% (2019 – 6.24% and 7.20%)

11. Income tax expenses

Tax recognised in Statement of Profit or Loss

	Group		Company
	2020	2019	2020	2019
Current tax expense
Current year	1,654	916	734	–
Adjustments	46	–	76	–
Tax on dividends	140	73	140	–
	1,840	989	950	–
Deferred tax expense
Origination and reversal of temporary differences (Note 23)	(399)	(187)	(824)	(182)
Recognition of tax credit	(615)	–	(615)	–
Tax losses	1,005	1,092	1,009	1,156
	(9)	905	(430)	974
Tax expense	1,832	1,894	520	974

Tax recognised in other comprehensive income – Group

	2020			2019
	Before tax	Tax benefit	Net of tax	Before tax	Tax benefit	Net of tax
Defined benefit plan actuarial loss	(473)	114	(359)	(214)	49	(165)
	(473)	114	(359)	(214)	49	(165)

Tax recognised in other comprehensive income – Company

	2020			2019
	Before tax	Tax benefit	Net of tax	Before tax	Tax benefit	Net of tax
Defined benefit plan actuarial loss	(426)	119	(307)	(49)	14	(35)
	(426)	119	(307)	(49)	14	(35)

Reconciliation between income tax expenses and accounting profit

	Group		Company
	2020	2019	2020	2019
Accounting profit before tax	9,713	8,216	4,539	4,754
Non-taxable receipts/gains	(1,074)	–	(1,074)	(449)
Aggregate disallowable expenses	17,580	14,069	17,273	13,748
Aggregate allowable expenses	(14,007)	(14,068)	(13,663)	(13,926)
Utilisation of tax losses	(3,714)	(4,148)	(3,599)	(4,127)
Current year tax losses not utilised	207	256	–	–
Other adjustments	–	9	–	–
Taxable income	8,705	4,334	3,476	–
Income tax charged at;
Standard rate	770	72	734	–
Concessionary rate of 14%	140	–	140	–
Other rates	885	844	–	–
Tax on dividend income	–	73	–	–
Tax on current year profits	1,795	989	874	–

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

	Group		Company
	2020	2019	2020	2019
Sri Lanka Telecom PLC	733	–	733	–
Mobitel (Pvt) Ltd.	885	844	–	–
Sri Lanka Telecom (Services) Limited	–	–	–	–
SLT Human Capital Solutions (Private) Limited	–	20	–	–
SLT Digital Services (Private) Limited	–	–	–	–
SLT VisionCom (Private) Limited	36	52	–	–
Sky Network (Private) Limited	–	–	–	–
SLT Property Management (Private) Limited	–	–	–	–
SLT Campus (Private) Limited	–	–	–	–
	1,654	916	733	–

(a) Pursuant to agreements dated 15 January 1993 and 26 February 2001 entered into with the Board of Investment of Sri Lanka under Section 17 of the Board of Investment Act No. 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.

(b) As per the agreement with the Board of Investment 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
As at 1 January 2020	471	471
Net movement of cash flow hedges	(501)	(471)
As at 31 December 2020	(30)	–

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

	Group	Company
Recognition of loan impact under other comprehensive income	1,449	1,449
Recognition of revenue impact under other comprehensive income	(1,479)	(1,449)
As at 31 December 2020	(30)	–

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 is 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
	2020	2019	2020	2019
Net profit attributable to equity holders (LKR Mn.)	7,877	6,320	4,019	3,780
Weighted average number of ordinary shares in issue (million)	1,805	1,805	1,805	1,805
Basic earnings per share (LKR)	4.37	3.50	2.23	2.09

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 and towers	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

	Freehold land	Freehold buildings	Ducts, cables, and other outside plant	Telephone exchanges	Transmission equipment and towers	IT systems	Motor vehicles	Other fixed assets	Capital work-in- progress	Total
Cost
As at 1 January 2020	367	4,869	143,783	29,393	103,750	17,785	2,858	14,591	49,176	366,572
Reclassification	–	–	–	–	–	2,813	(192)	(2,621)	–	–
Additions at cost	–	34	186	1	1,758	800	34	302	13,352	16,467
Transfers from capital work-in-progress	–	1,284	13,944	1,501	9,653	867	–	246	(27,495)	–
Transferred to right-of-use assets	–	–	–	–	–	–	–	(219)	–	(219)
Disposals	–	–	(115)	–	(2)	(66)	(90)	(90)	–	(363)
Transfers	–	–	–	–	(643)	–	–	–	–	(643)
As at 31 December 2020	367	6,187	157,798	30,895	114,516	22,199	2,610	12,209	35,033	381,814
Accumulated depreciation
As at 1 January 2020	–	(2,490)	(107,807)	(23,189)	(67,461)	(12,504)	(2,707)	(9,782)	–	(225,940)
Reclassification	–	9	(9)	–	–	(2,002)	148	1,854	–	–
Accumulated depreciation on Disposals	–	–	100	–	1	64	79	82	4	330
Transferred to right-of-use assets	–	–	–	–	–	–	–	162	–	162
Impairment loss	–	–	–	–	–	(1)	–	–	(42)	(43)
Depreciation charge	–	(291)	(7,292)	(1,805)	(7,075)	(2,058)	(63)	(531)	–	(19,115)
As at 31 December 2020	–	(2,772)	(115,008)	(24,994)	(74,535)	(16,501)	(2,543)	(8,215)	(38)	(244,606)
Carrying value as at 31 December 2020	367	3,415	42,790	5,901	39,981	5,698	67	3,994	34,995	137,208

Company

	Freehold land	Freehold buildings	Ducts, cables, and other outside plant	Telephone exchanges	Transmission equipment and towers	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

	Freehold land	Freehold buildings	Ducts, cables, and other outside plant	Telephone exchanges	Transmission equipment and towers	IT systems	Motor vehicles	Other fixed assets	Capital work-in- progress	Total
Cost
As at 1 January 2020	367	4,575	143,783	29,393	40,369	17,753	2,493	9,516	34,667	282,916
Additions at cost	–	–	186	1	52	531	34	48	9,860	10,712
Transfers from capital work-in-progress	–	516	13,944	1,501	401	867	–	238	(17,467)	–
Disposals at cost	–	–	(115)	–	–	(33)	(74)	(1)	–	(223)
Transfers	–	–	–	–	(643)	–	–	–	–	(643)
As at 31 December 2020	367	5,091	157,798	30,895	40,179	19,118	2,453	9,801	27,060	292,762
Accumulated depreciation
As at 1 January 2020	–	(2,482)	(107,816)	(23,189)	(24,706)	(12,486)	(2,413)	(6,024)	–	(179,116)
Accumulated depreciation on disposals	–	–	100	–	–	31	63	–	–	194
Impairment loss	–	–	–	–	–	(1)	–	–	–	(1)
Depreciation charge	–	(253)	(7,292)	(1,805)	(2,178)	(1,680)	(55)	(307)	–	(13,570)
As at 31 December 2020	–	(2,735)	(115,008)	(24,994)	(26,884)	(14,136)	(2,405)	(6,331)	–	(192,493)
Carrying value as at 31 December 2020	367	2,356	42,790	5,901	13,295	4,982	48	3,470	27,060	100,269

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 2020 was LKR 133,464 Mn. (2019 – LKR 125,986 Mn.). The cost of fully depreciated assets still in use in the Group as at 31 December 2020 was LKR 157,927 Mn. (2019 – LKR 145,791 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 2020, is 1,186 (2019 – 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 1,044 Mn. (2019 – LKR 917 Mn.) (Note 27).
6. Impairment of assets mainly consists of the carrying value of IT system LKR 1 Mn. (2019 – LKR – Nil)
7. The capital work-in-progress related to network equipment of the Group is LKR – 21,077 Mn. (2019 – LKR 27,175 Mn.) and of the Company is LKR 13,112 Mn. (2019 – LKR 13,167 Mn.)
8. The Company capitalised borrowing costs amounting to LKR 3,711 Mn. during the year (2019 – LKR 4,825 Mn.). Borrowing cost capitalised from a Group perspective amounted to LKR 3,711 Mn. (2019 – LKR .4,931 Mn.)
9. Property, plant and equipment include submarine cables. The total cost and accumulated depreciation of all cables under this category in as follows:

	Group/Company
	2020	2019
Cost	11,988	12,060
Accumulated depreciation at 1 January	(6,063)	(5,892)
Depreciation charge for the year	(313)	(219)
Carrying amount	5,612	5,949

14. (a) Right-of-use assets and lease liabilities

The Group has lease contracts for various items of land and buildings, E1 Links and towers used in its operations. Leases of land and buildings generally have lease terms between one to two years while leases of towers generally have lease terms between two to three years. The Group’s obligations under its leases are secured by the lessor’s title to the leased assets. Generally the Group is restricted from assigning and subleasing the leased assets.

The Group also has certain leases of towers or tower spaces with low value.

(i) Set out below are the carrying amounts of right-of-use assets recognised and the movements during the year.

	Group
	Land and buildings	Towers	Others	Total
As at 1 January 2020	2,109	8,263	–	10,372
Classification change	4,902	(4,902)	–	–
Additions	471	442	57	970
Disposals/Adjustments	(375)	–	–	(375)
Depreciation expense	(1,266)	(930)	(21)	(2,217)
As at 31 December 2020	5,841	2,873	36	8,750

	Company
	Land and buildings	Towers	Total
As at 1 January 2020	56	457	513
Additions	45	85	130
Depreciation expense	(46)	(519)	(565)
As at 31 December 2020	55	23	78

(ii) Set out below are the carrying amounts of lease liabilities recognised and the movements during the year.

	Group
	2020	2019
As at 1 January	10,749	10,242
Additions	1,152	2,333
Disposals/Adjustments	(475)	–
Accretion of Interest	1,184	1,160
Payments	(2,952)	(2,986)
As at 31 December	9,658	10,749
Non-current	7,377	8,238
Current	2,281	2,511
	9,658	10,749

	Company
	2020	2019
As at 1 January	544	–
Additions	129	1,027
Accretion of interest	40	96
Payments	(628)	(579)
As at 31 December	85	544
Non-current	27	50
Current	58	494
	85	544

(iii) Following are the amounts recognised in profit or loss;

	Group
	2020	2019
Depreciation expense of right-of-use asset	2,217	2,442
Interest expense on lease liabilities	1,184	1,160
Leases of low value	55	48
Total amount recognised in profit or loss	3,456	3,650

	Company
	2020	2019
Depreciation expense of right-of-use asset	565	514
Interest expense on lease liabilities	40	96
Leases of low value	55	48
Total amount recognised in profit or loss	660	658

Sensitivity analysis

	ROU asset	Lease liability
Sensitivity to discount rate/Incremental borrowing rate – Group
Increase by 1%	(22)	(22)
Decrease by 1%	23	23
Sensitivity to discount rate/Incremental borrowing rate – Company
Increase by 1%	(1)	(1)
Decrease by 1%	1	1

15. Intangible assets

Group

	Goodwill	Licences	Software	Others	Total
Cost
As at 1 January 2019	804	9,521	3,995	502	14,822
– Acquisitions	–	615	426	56	1,097
– Derecognition	–	–	(202)	–	(202)
As at 31 December 2019	804	10,136	4,219	558	15,717
As at 1 January 2020	804	10,136	4,219	558	15,717
– Transfers and acquisitions	–	776	1,655	46	2,477
As at 31 December 2020	804	10,912	5,874	604	18,194
Accumulated amortisation
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
As at 1 January 2020	253	4,555	3,146	347	8,301
– Amortisation	–	966	782	30	1,778
As at 31 December 2020	253	5,521	3,928	377	10,079
Carrying values
As at 31 December 2020	551	5,391	1,946	227	8,115
As at 31 December 2019	551	5,581	1,073	211	7,416

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:

	2020	2019
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:

	2020 %	2019 %
Growth rate	7.4	5
Discount rate	13	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 2020 for the above CGU (2019 – LKR Nil).

Company

	Licences	Software	Others	Total
Cost
As at 1 January 2019	1,817	2,035	330	4,182
– Acquisitions	–	367	–	367
As at 31 December 2019	1,817	2,402	330	4,549
As at 1 January 2020	1,817	2,402	330	4,549
– Transfers and acquisitions	643	1,650	–	2,293
As at 31 December 2020	2,460	4,052	330	6,842
Accumulated amortisation
As at 1 January 2019	941	1,787	330	3,058
– Amortisation	143	197	–	340
As at 31 December 2019	1,084	1,984	330	3,398
As at 1 January 2020	1,084	1,984	330	3,398
– Amortisation	172	616	–	788
As at 31 December 2020	1,256	2,600	330	4,186
Carrying values
As at 31 December 2020	1,204	1,542	–	2,656
As at 31 December 2019	733	418	–	1,151

16. Investments in subsidiaries and associates

16.1 Investments in subsidiaries

	2020	2019
As at 1 January	14,821	14,366
Additions	–	455
As at 31 December	14,821	14,821

Details of the subsidiary companies in which the Company had control as at 31 December are set out below:

Name of company	2020		2019
	Investment LKR Mn.	Company %	Investment LKR Mn.	Company %
Mobitel (Pvt) Ltd. [See Note (a) below]	13,980	100	13,980	100
SLT VisionCom (Private) Limited [See Note (b) below]	100	100	100	100
SLT Digital Info Services (Private) Limited [See Note (c) below]	50	100	50	100
Sri Lanka Telecom (Services) Limited [See Note (d) below]	300	99.99	300	99.99
SLT Human Capital Solutions (Private) Limited [See Note (e) below]	1	100	1	100
Sky Network (Private) Limited (See Note (f) below)	–	99.94	–	99.94
SLT Property Management (Private) Limited (See Note (g) below)	–	100	–	100
SLT Campus (Private) Limited [See Note (h) below]	390	100	390	100
	14,821		14,821
Subsubsidiaries
eChannelling PLC [See Note (i) below]	642	87.59	642	87.59

The Directors believe that the fair value of each of the companies listed above do not differ significantly from their book values.

1. The Company owns 1,320,013,240 shares representing 100% of the entire ordinary share capital of Mobitel (Pvt) Ltd.
2. This investment in the subsidiary company consists of 10,000,000 shares representing the entire stated capital of SLT VisionCom (Private) Limited.
3. This investment in the subsidiary company consists of 5,000,000 shares representing the entire stated capital of SLT Digital Info Services (Private) Limited.
4. This investment in the subsidiary company consists of 30,000,000 shares representing 99.99% of stated capital of Sri Lanka Telecom (Services) Limited.
5. This investment in the subsidiary company consists of 50,000 shares representing the entire stated capital of SLT Human Capital Solutions (Private) Limited.
6. This investment in subsidiary company consists of 42,071,251 shares representing a 99.94% holding of the issued stated capital and 6,000,000 12% cumulative and redeemable preference shares of Sky Network (Private) Limited. The investment is fully impaired.
7. This investment in the subsidiary company consists of 1,500,001 shares representing the entire stated capital of SLT Property Management (Private) Limited. This investment is fully impaired.
8. This investment in the subsidiary company consists of 39,000,001 shares representing the entire stated capital of SLT Campus (Private) Limited.
9. This investment in the subsubsidiary company consists of 106,974,618 shares representing the 87.59% holding of the issued share capital of eChannelling PLC.

16.2 Investment in associates

Galle Submarine Cable Depot (Private) Limited (GSCDPL) engages in the business of providing services related to storage of spare submersible plant for the repair and maintenance of submarine telecommunication cable systems under South East Asia Indian Ocean Cable Maintenance Agreement. The Company’s 40% interest in GSCDPL is accounted for using the equity method in the Company’s Financial Statements.

	Group/Company
	2020	2019
As at 1 January	54	–
Share of profit from associate company	74	54
As at 31 December	128	54

17. Other investments

	Group		Company
	2020	2019	2020	2019
Fixed deposits/Repo	3,666	3,112	3,646	3,082
	3,666	3,112	3,646	3,082

Fixed deposits and Repo are classified as financial assets measured at amortised cost. Fixed deposits in foreign currency with a carrying value of LKR 2,625 Mn. (2019 – LKR 2,181 Mn.) and fixed deposits with a carrying value of LKR 1,018 Mn. (2019 – LKR 898 Mn.) are restricted at bank. Fixed deposits with a carrying value of LKR 3 Mn. (2019 – LKR 3 Mn.) is in local currency.

	Group		Company
	2020 %	2019 %	2020 %	2019 %
Fixed deposits – Restricted at bank	6.81	11.48	6.81	11.48
Fixed deposits – LKR	12.00	12.00	5.80 – 9.83	9.83 – 11.50
Fixed deposits – USD	4.51	4.51	5.21	4.51

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
	2020	2019	2020	2019
Employee loans Non-current	2,748	2,897	2,732	2,868
Employee loans Current	706	678	704	676
	3,454	3,575	3,436	3,544
Employee Loans	3,276	3,419	3,258	3,388
Prepaid staff cost	178	156	178	156
	3,454	3,575	3,436	3,544
Prepaid staff cost 1 January	156	421	156	421
Additions	434	77	434	77
Amortisation	(412)	(342)	(412)	(342)
Prepaid staff cost at 31 December	178	156	178	156

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 which is LKR 412 Mn.
(2019 – LKR 342 Mn.). This amount is recognised in the Statement of Profit or Loss under salaries, wages, allowances and
other benefits.

19. Inventories

	Group		Company
	2020	2019	2020	2019
Customer premises equipment	2,754	2,612	2,215	2,612
Cable and networks	596	831	867	705
Other consumables	893	1,149	372	319
	4,243	4,592	3,454	3,636
Provision for change in carrying value of inventories	(876)	(1,027)	(820)	(868)
	3,367	3,565	2,634	2,768

(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
	2020	2019	2020	2019
Domestic trade receivables	22,375	23,277	15,466	16,033
Foreign trade receivables	2,991	3,258	2,182	2,283
	25,366	26,710	17,648	18,485
Less: Provision for bad and doubtful receivables	(8,523)	(9,232)	(5,363)	(5,402)
Trade receivables – Net	16,843	17,478	12,285	13,083
Amount due from subsidiaries [Note 32.1 (h)]	–	–	1,587	2,883
Amount due from related companies [Note 32.2 (b)]	158	175	158	169
Advances and prepayments [See Note (a) below]	6,975	13,312	2,696	3,884
Employee loans (Note 18)	706	678	704	676
Other receivables [See Note (b) below]	2,388	1,532	502	339
Amounts due within one year	27,070	33,021	17,932	20,865

(a) Advances and prepayments of the Company mainly consist of advances on foreign and local suppliers LKR 1,871 Mn. (2019 – LKR 2,589 Mn.), payments for software maintenance of LKR 282 Mn. (2019 – LKR 342 Mn. Advances and prepayments of the Group mainly consist of advances on foreign and local suppliers LKR 4,791 Mn. (2019 – LKR 10,029 Mn.), payments for software maintenance of LKR 598 Mn. (2019 – LKR 342 Mn.) Prepaid TRC Frequency LKR 660 Mn. (2019 - LKR 740 – Mn.) and free phone offer LKR 330 Mn. (2019 – LKR 321 Mn.)

(b) Other receivables of the Company consist of refundable deposits of LKR 138 Mn (2019 – LKR 144 Mn). Other receivables of the Group mainly consist of refundable deposits of LKR 465 Mn (2019 – LKR 144 Mn),receivables from sales agents LKR 79 Mn (2019 – LKR 113 Mn) and site rentals receivables from other operators LKR 1,165 Mn (2019 – LKR 725 Mn).

21. Cash and cash equivalents

	Group		Company
	2020	2019	2020	2019
Cash at bank and in hand	1,937	3,454	1,041	645
Fixed deposits	6,930	2,003	–	–
Repurchase agreements – Repo	2,999	–	–	–
	11,866	5,457	1,041	645

21. (a) For cash flow purpose:

Cash and cash equivalents

	Group		Company
	2020	2019	2020	2019
Cash and cash equivalents	11,866	5,457	1,041	645
Bank overdrafts	(1,885)	(3,739)	(1,453)	(3,265)
	9,981	1,718	(412)	(2,620)

22. Borrowings

	Group		Company
	2020	2019	2020	2019
Current (due within one year)
Bank overdrafts	1,885	3,739	1,453	3,265
Bank borrowings [See Note 22 (e) below]	7,628	8,419	5,659	6,385
Vendor financing	157	320	–	–
Finance lease liabilities	20	20	20	–
	9,690	12,498	7,132	9,650
Non-current (due after one year)
Bank borrowings [See Note 22 (e) below]	45,519	48,849	40,855	42,820
Vendor financing	160	295	–	–
Finance lease liabilities	5	34	5	–
	45,684	49,178	40,860	42,820
Total borrowings	55,374	61,676	47,992	52,470

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

	Group		Company
	2020	2019	2020	2019
– At fixed rates	10,368	11,110	10,045	10,582
– At floating rates	45,006	50,566	37,947	41,888
	55,374	61,676	47,992	52,470

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

	Group		Company
	2020	2019	2020	2019
Foreign currency	5,993	11,872	–	3,940
Local currency	49,381	49,804	47,992	48,530
	55,374	61,676	47,992	52,470

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

	Group		Company
	2020 %	2019 %	2020 %	2019 %
Average effective interest rates:
– Bank overdrafts	7.54 – 12.00	10.00 – 12.00	7.54	11.39
– Bank borrowings – (USD loans)	LIBOR + 1.9%	5.04	4.13	5.04
– Bank borrowings – (LKR loans)	10.16	11.93	10.16	11.93
– Debenture	12.75	12.75	12.75	12.75
– Lease liabilities	10.00 – 12.50	8.00 – 12.00	12.50	8.00 – 10.00
– Vendor financing	LIBOR + 3.8% – 4%	LIBOR + 3.8% – 4%	–	–

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

	Group		Company
	2020	2019	2020	2019
Maturity of non-current borrowings (excluding finance lease liabilities):
– Between 1 and 2 years	10,670	4,482	6,820	1,965
– Between 3 and 5 years	22,284	31,937	21,310	28,130
– Over 5 years	12,725	12,725	12,725	12,725
	45,679	49,144	40,855	42,820

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

	Borrowings	Bank overdraft	Lease liabilities	Total
Balance as at 1 January 2020	57,883	3,739	54	61,676
Additions during the year	17,919	29,643	27	47,589
Net repayment during the year	(22,338)	(31,497)	(56)	(53,891)
	53,464	1,885	25	55,374

Movement of the borrowings is given below – Company

	Borrowings	Bank overdraft	Lease liabilities	Total
As at 1 January 2020	49,205	3,265	–	52,470
Additions during the year	17,500	29,560	27	47,087
Net repayment during the year	(20,191)	(31,372)	(2)	(51,565)
	46,514	1,453	25	47,992

(e) During the year Company, drew down LKR 17.50 Bn. from the term loan and short-term loans in Rupees.

(f) The loan covenants include submission of audited Financial Statements to the lenders within a specified period from the financial year end, maintenance of covenant ratios and to maintain adequate accounting records in accordance with Sri Lanka Accounting Standards.

(g) The Directors believe that the Company and the Group will have sufficient funds available to meet its present loan commitments.

(h) Lease liabilities of the Company and the Group are effectively secured by the lessor against the rights to the title of the asset.

(i) Bank borrowings and supplier credits of Mobitel (Pvt.) Ltd. a subsidiary of the Company, are secured, interalia, by corporate guarantees given by the Company.

(j) SLT Campus (Private) Limited has borrowed LKR 850 Mn. during the year for the purpose of constructing hostel and academic building project.

(k) Guarantee facilities amounting to USD 39 Mn. (2019 USD 39 Mn) were provided to Sri Lanka Mobitel (Pvt.) Ltd. for GSM rollout stage 7.

(l) Facilities amounting to LKR 960 Mn (2019 – LKR 960 Mn) for SLT Campus (Pvt.) Limited for working capital requirement, hostel and academic building project.

23. Deferred tax assets and liabilities

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 2019 – 28%).

The movement in the deferred tax account is as follows:

	Group		Company
	2020	2019	2020	2019
As at 1 January	7,276	6,389	7,485	6,525
Release to Statement of Comprehensive Income (Note 11)	(9)	905	(430)	974
Release to Statement of Other Comprehensive Income (Note 11)	(114)	(49)	(119)	(14)
Under provision of deferred tax relevant to previous years	19	31	–	–
As at 31 December	7,172	7,276	6,936	7,485

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

	Group		Company
	2020	2019	2020	2019
Deferred tax liabilities	7,357	7,499	6,936	7,485
Deferred tax assets	(185)	(223)	–	–
	7,172	7,276	6,936	7,485

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
	2020	2019	2020	2019	2020	2019
Property, plant and equipment	–	–	11,950	12,465	11,950	12,465
Defined benefit obligations	(746)	(669)	–	–	(746)	(669)
Provisions	(2,316)	(2,322)	–	–	(2,316)	(2,322)
Deferred income	(595)	(668)	–	–	(595)	(668)
Tax losses	(556)	(1,561)	–	–	(556)	(1,561)
Tax credit	(615)	–	–	–	(615)	–
Other adjustment	–	31	50	–	50	31
Tax (assets)/liabilities before set-off	(4,828)	(5,189)	12,000	12,465	7,172	7,276
Set-off of tax	4,828	5,189	(4,828)	(5,189)	–	–
Net tax (assets)/liabilities	–	–	7,172	7,276	7,172	7,276

Movement in deferred tax balances during the year – Group

	Balance 1 January 2019	Recognised in comprehensive income	Recognised in other comprehensive income	Recognised directly in equity	Balance 31 December 2019	Recognised in profit or loss	Recognised in other comprehensive income	Balance 31 December 2020
Property, plant and equipment	12,759	(276)	–	–	12,483	(533)	–	11,950
Defined benefit obligations	(566)	(72)	(49)	–	(687)	55	(114)	(746)
Provisions	(2,434)	112	–	–	(2,322)	6	–	(2,316)
Deferred income	(712)	44	–	–	(668)	73	–	(595)
Tax losses	(2,003)	1,097	–	–	(906)	1,005	–	99
Adjustment to tax losses	(655)	–	–	–	(655)	–	–	(655)
Tax Credit	–	–	–	–	–	(615)	–	(615)
Other adjustments	–	–	–	–	31	–	–	50
	6,389	905	(49)	–	7,276	(9)	(114)	7,172

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

Company	Assets		Liabilities		Net
	2020	2019	2020	2019	2020	2019
Property, plant and equipment	–	–	11,562	12,483	11,562	12,483
Defined benefit obligations	(705)	(596)	–	–	(705)	(596)
Provisions	(2,217)	(2,232)	–	–	(2,217)	(2,232)
Deferred income	(595)	(668)	–	–	(595)	(668)
Tax losses	(494)	(1,502)	–	–	(494)	(1,502)
Tax credit	(615)	–	–	–	(615)	(1,502)
Tax (assets) liabilities before set-off	(4,626)	(4,998)	11,562	12,483	6,936	7,485
Set-off of tax	4,626	4,998	(4,626)	(4,998)	–	–
Net tax (assets) liabilities	–	–	6,936	7,485	6,936	7,485

Movement in deferred tax balances during the year – Company

	Balance 1 January 2019	Recognised in comprehensive income	Recognised in other comprehensive income	Recognised directly in equity	Balance 31 December 2019	Recognised in profit or loss	Recognised in other comprehensive income	Balance 31 December 2020
Property, plant and equipment	12,757	(274)	–	–	12,483	(921)	–	11,562
Defined benefit obligations	(510)	(72)	(14)	–	(596)	10	(119)	(705)
Provisions	(2,351)	119	–	–	(2,232)	15	–	(2,217)
Deferred income	(713)	45	–	–	(668)	73	–	(595)
Tax losses	(2,003)	1,156	–	–	(847)	1,008	–	161
Adjustment to tax losses	(655)	–	–	–	(655)	–	–	(655)
Tax credit	–	–	–	–	–	(615)	–	(615)
	6,525	974	(14)	–	7,485	(430)	(119)	6,936

Tax credits

As at 31 December 2019, the Company had tax credits amounting to LKR 1,289 Mn. that were available indefinitely for offsetting against future tax payable by the Company. The Company has recognised LKR 615 Mn. out of the said tax credits for the year ended 31 December 2020 including setting off of the Turnover Tax liability amounting to LKR 122 Mn.

24. Deferred income, contract assets and contract liabilities

• 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 recognised on a straight-line basis over the period of the contracts. Amounts received in advance for any services are recorded as deferred revenue. In the event that a customer terminates an IRU prior to the expiry of the contract and releases the Company from the obligation to provide future services, the remaining unamortised deferred revenue is recognised in the period the contract is terminated.

	Group		Company
	2020	2019	2020	2019
At the end of the year
Representing deferred income – Current	2,812	2,859	240	290
Representing deferred income – Non-current	1,832	2,076	1,832	2,057
	4,644	4,935	2,072	2,347

24. (a) Contract assets

The contract asset movements are provided below:

	Group	Company
As at 1 January 2020	1,418	235
Additions	1,056	107
Amortisations	(1,136)	(90)
As at 31 December 2020	1,338	252

	Group		Company
	2020	2019	2020	2019
At the end of the year
Representing contract assets – Current	778	711	97	87
Representing contract assets – Non-current	560	707	155	148
	1,338	1,418	252	235

24. (b) Contract liabilities

As per SLFRS 15 revenue is recognised when the individual performance obligations specified in a contract are satisfied.
The total consideration received or receivable has been allocated between separate performance obligations based on the
relative stand-alone selling price.

The figure shows the contract liabilities due to unsatisfied performance obligations as at 31 December 2020.

	Group	Company
As at 1 January 2020	1,130	977
Additions	1,215	566
Amortisations	(943)	(399)
As at 31 December 2020	1,402	1,144

	Group		Company
	2020	2019	2020	2019
At the end of the year
– Representing contract liabilities – Current	742	592	484	444
– Representing contract liabilities – Non-Current	660	538	660	533
	1,402	1,130	1,144	977

25. Trade and other payables

	Group		Company
	2020	2019	2020	2019
Amounts due within one year
Domestic trade payables	5,846	5,145	180	364
Foreign trade payables	1,979	2,589	1,157	1,423
Amount due to subsidiaries [Note 32.1 (h)]	–	–	2,798	3,108
Amount due to related companies [Note 32.2 (b)]	121	126	121	121
Capital expenditure payables [See Note (a) below]	7,999	15,951	3,242	7,185
Social security and other taxes [See Note (b) below]	1,039	682	601	664
Interest payable	71	202	–	–
Other payables [See Note (c) below]	13,550	13,486	9,032	10,641
	30,605	38,181	17,131	23,506
Amounts due after one year
International direct dialling deposits	143	155	143	155
Prepayments on VOIP services	122	182	122	182
PSTN guarantee deposits	8	9	8	9
Advance on RDA	769	–	769	–
Unclaimed Dividend	244	–	244	–
Domestic trade payables	893	858	–	–
Capital expenditure payables	3,192	473	2,669	–
	5,371	1,677	3,955	346

(a) Capital expenditure payables of the Company mainly consist of contractors’ payables and retention of LKR 3,094 Mn. (2019 – LKR 6,194 Mn.) and advances on network restoration after road works of LKR 148 Mn. (2019 – LKR 990 Mn.) Capital expenditure payables of the Group mainly consist of contractors’ payable and retention of LKR 7,883 Mn. (2019 – LKR 14,960 Mn.) and advances on network restoration after road works of LKR 148 Mn. (2019 – LKR 990 Mn.).

(b) Social security and other taxes of the Company mainly consist of Telecommunication Levy (TL) of LKR 178 Mn. (2019 – LKR 182 Mn.), Cess LKR 78 Mn. (2019 – LKR 81 Mn.), VAT Payable of LKR 114 Mn. (2019 – LKR 26 Mn.), EPF payable of LKR 131 Mn. (2019 – LKR 109 Mn.). Social security and other taxes of the Group mainly consist of Telecommunication Levy (TL) of LKR 315 Mn. (2019 – LKR 257 Mn.), Cess of LKR 195 Mn. (2019 – LKR 184 Mn.). VAT payable of LKR 114 Mn. (2019 – LKR 26 Mn.) and EPF payable of LKR.139 Mn. (2019 – LKR 109 Mn.)

(c) Other payables of the Company mainly consist of dividend payable to the Government of Sri Lanka of LKR 244 Mn. (2019 – LKR 244 Mn.), payable for unpaid supplies of LKR 5,459 Mn. (2019 – LKR 6,428 Mn.), International Telecommunication Operators’ Levy payable of LKR 90 Mn. (2019 – LKR 129 Mn.) and accrued expenses and other payables of LKR 414 Mn. (2019 – LKR 747 Mn.). Other payables of the Group mainly consist of dividend payable to the Government of Sri Lanka of LKR 244 Mn. (2019 – LKR 244 Mn.), payable for unpaid supplies of LKR 5,459 Mn. (2019 – Rs 6,428 Mn.), International Telecommunication Operators’ Levy payable of LKR. 220 Mn. (2019 – LKR 283 Mn.), and accrued expenses and other payables of LKR 1,524 Mn. (2019 – LKR 3,397 Mn.).

26. Employee benefits

	Group		Company
	2020	2019	2020	2019
Total employee benefit liability as at 1 January	4,697	4,239	3,806	3,598
Movement in present value of employee benefit liabilities
Current service cost	271	522	204	438
Interest cost	453	269	390	182
Actuarial loss	473	214	426	49
Benefit paid during the year	(690)	(547)	(468)	(461)
As at 31 December	5,204	4,697	4,358	3,806
Expenses recognised in the Income Statement
Current service cost	271	522	204	438
Interest cost	453	269	390	182
	724	791	594	620
Recognised in Other Comprehensive Income
Actuarial loss	473	214	426	49
	473	214	426	49

The principal actuarial assumptions used were as follows:

In addition to above, demographic assumptions such as mortality, withdrawal, retirement age were considered for the actuarial valuation. In 2020,1967/70 Mortality Table issued by the Institute of Actuaries London (2019 – 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 Solution (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
2020
Discount rate (Change by 1%)	(244)	216	(244)	216
Salary increment rate (Change by 1%)	263	(238)	263	(238)

	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)

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
2020
Discount rate (Change by 1%)	(46)	53	(46)	53
Salary increment rate (Change by 1%)	56	(50)	56	(50)

	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)

Distribution of present value of defined benefit obligation in future years as at 31 December 2020

	Less than 1 year	1-2 years	3-5 years	over 5 years	Total
Sri Lanka Telecom PLC	1,289	646	799	1,624	4,358

27. Insurance reserves

	Group/Company
	2020	2019
As at 1 January	917	791
Transferred to retained earnings	127	126
As at 31 December	1,044	917

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
	2020	2019
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
		2020	2019	2020	2019
Profit before tax		9,713	8,216	4,539	4,754
Adjustments for:
Depreciation on property, plant and equipment	7	19,115	17,670	13,570	12,248
Depreciation on right-of-use assets	7	2,925	2,442	565	514
Amortisation of intangible assets	7	1,778	1,333	788	340
Provision/(write-off) of bad and doubtful debts	7	1,297	54	944	(383)
Impairment/(reversal) of inventory		30	154	(10)	154
Interest expense and finance costs	9	2,902	2,067	1,391	690
Foreign exchange loss	9. a	1,203	443	727	314
Interest income	10	(1,232)	(1,288)	(819)	(739)
Connection fees less amortisation		(291)	280	(275)	(193)
Profit on sale of property, plant and equipment		(93)	(249)	(85)	(204)
Impairment of property, plant and equipment	7	43	–	1	–
Share of profit from associate company	16.2	(74)	(54)	(74)	(54)
Provision for retirement benefit obligations	26	724	791	594	620
Net movement on cash flow hedges		501	201	471	201
SLFRS 15 adjustment		351	(465)	150	(46)
		38,892	31,595	22,477	18,216
Changes in working capital:
– Receivables and prepayments		4,803	(5,662)	2,125	(2,871)
– Inventories		222	(3,196)	198	(3,132)
– Payables		(3,355)	6,570	(2,752)	3,263
Cash generated from operations		40,562	29,307	22,048	15,476

30. Capital commitments

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

	Group		Company
	2020	2019	2020	2019
Property, plant and equipment
– Approved but not contracted	64,924	5,250	64,924	5,250
– Approved and contracted	13,474	15,491	10,194	9,744
	78,398	20,741	75,118	14,994
Operating lease commitments
The maturity analysis of the future minimum lease payments and other commitment payments are as follows:
– Not later than one year	2,820	3,834	63	617
– Later than one year and not later than five years	13,007	12,580	30	62
	15,827	16,414	93	679

Above cash flows are the contractual gross and undiscounted cash flows. Such undiscounted cash flows differ from the discounted amounts included in the Statement of Financial Position.

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

(a) 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. Subsequently, Global Electroteks Limited has appealed to the Supreme Court against the Order.

(b) 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. Case was withdrawn by the offcial recevicer (Liquiditor) on behaf of DLPL (Liquidated company) on 19 January 2021.

(c) 12/2008 CBCU, an inquiry by Sri Lanka Custom – 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 on SLT. SLT has filed a Case in the Court of Appeal under the Number CA/writ/387/2014 against this Order, and an interim order was issued by the Court on 9 March 2016, precluding Respondents from enforcing Order dated 17 October 2014. In September 2020, the Court of Appeal gave the judgement in favour of SLT, and the Order given by the Customs Authority was dismissed. However, the Customs Authority has appealed to the Supreme Court against the Order.

(d) Customs Case No. ADP/031/2009 – Goods valued at USD 996,785.65, which was imported under the last consignment of equipment for NGN Phase II expansion project, was detained by the Customs in May 2009. Subsequently, the equipment was cleared in July 2009. Pending the Inquiry. Presently awaiting the decision of the Customs Department. 

(e) 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 reinstatement or compensation under the Proceedings before Labour Tribunal. An appeal bearing WR232/2015 was filed against the Order delivered by the Commissioner of Labour.
The Order was delivered in Case No. WR232/2015, dismissing SLT’s application. SLT filed an appeal to Supreme Court bearing Case No. SC (Spl) LA 02/2020 on 3 January 2020 against the Order in WR232/2015. The appeal Case No. SC (Spl) LA 02/2020 is fixed for argument on 10 September 2021.

(f) On 18 July 2017, Dialog Broad Band Network (Pvt) Ltd. (“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 prayer under the petition. Petition of DBN was dismissed by Court on the 8 August 2018.Dialog Broad Band Network (Pvt) Ltd. (“DBN”) appealed to the Supreme Court under the Case bearing No. SC Appeal 139/2018 against the aforesaid Order. Case bearing Number SC Appeal 139/2018 was withdrawn by DBN on 10 September 2020 simultaneously upon withdrawal of cases filed by SLT as per settlement entered between the parties.

(g) 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 an enjoining order were granted. Due to the enjoining order SLT was restricted from utilising spectrum for which the payment was already done. SLT, Mobitel and Airtel were permitted to intervene for the case. This case was settled in September 2020, and the enjoining order given against SLT was lifted enabling SLT to utilise already allocated 70MHz spectrum in the 2600MHz spectrum band.

In addition to the above referred cases there are other claims by employees and third parties for damages and other relief. In the opinion of the Directors, none of these actions are likely to result in a material liability to the Company and its subsidiaries.

The Company has provided guarantees on behalf of its subsidiaries for following credit and trade finance facilities:

(i) Facilities amounting to USD 39 Mn. (2019 – USD 39 Mn.) for Mobitel (Pvt) Ltd. for the GSM rollout Stage 7.

(ii) Facilities amounting to LKR 960 Mn. (2019 – LKR 960 Mn.) 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 2020.

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
	2020	2019
Sale of goods and services:
Provision of E1 links	3,990	3,776
Interconnection charges	385	211
TDM, VOIP platform and transit	4	14
ERP rental	377	376
	4,756	4,377
Purchase of goods and services:
Call charges on official mobile phone	95	120
Interconnection charges	938	1,071
Antenna tower space	391	518
Building rent	4	4
	1,428	1,713

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. (2019 – USD 39 Mn.) for Mobitel (Private) Limited for the GSM rollout Stage 7.

(b) SLT Digital Info Services (Private) Limited

	Company
	2020	2019
Sale of goods and services:
Supply of services	58	59
Purchase of goods and services:
Directory distribution and other services	32	110

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
	2020	2019
Sale of goods and services:
Supply of services	4	4

(d) SLT Human Capital Solutions (Private) Limited

	Company
	2020	2019
Sale of goods and services:
Supply of services	3	3
Purchase of goods and services:
Provision of manpower service	755	1,593

(e) SLT VisionCom (Private) Limited

	Company
	2020	2019
Sale of goods and services:
Supply of services	31	17
Purchase of goods and services:
Service fees/revenue share	1,526	713

Ad-insertion revenue:

Sri Lanka Telecom received an ad-insertion revenue from SLT VisionCom (Private) Limited amounting to LKR 11 Mn. (2019 – LKR 12 Mn.) SLT’s share of revenue is based on the following percentages:

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

Service fees/Revenue share:

Sri Lanka Telecom PLC paid VisionCom (Private) Limited a unit rate based fee computed at the rate of LKR 65/- per cumulative billable subscriber up to 30 June 2020 which amounted to LKR 188 Mn. (2019 – LKR 351 Mn.). From 1 July 2020, 45% of IPTV revenue was recognised as revenue share payable to SLT VisionCom (private) Limited amounted to LKR 1,174 Mn. (2019 – Nil).

(f) SLT Campus (Private) Limited

	Company
	2020	2019
Sale of goods and services:
Supply of services	12	3

Facilities amounting to LKR 960 Mn. (2019 – LKR 960 Mn.) for SLT Campus (Pvt) Limited to working capital requirement, hostel and academic building project.

Supply of services provided for the above mentioned subsidiaries include Voice, Broad band, Data, and providing building spaces.

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

	Company
	2020	2019
SLT Digital Info Services (Private) Limited	49	49
SLT VisionCom (Private) Limited	20	17
	69	66

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

	Company
	2020	2019
Receivable from subsidiaries:
Mobitel (Pvt) Ltd.	1,324	1,288
SLT Digital Info Services (Private) Limited	19	44
SLT Human Capital Solutions (Private) Limited	2	170
SLT VisionCom (Private) Limited	42	1,167
Sri Lanka Telecom (Services) Limited	60	54
SLT Property Management (Private) Limited	29	28
SLT Campus (Private) Limited	111	132
	1,587	2,883
Payable to subsidiaries:
Mobitel (Pvt) Ltd.	1,060	849
SLT Digital Info Services (Private) Limited	59	113
SLT Human Capital Solutions (Private) Limited	4	361
SLT VisionCom (Private) Limited	1,295	1,494
Sri Lanka Telecom (Services) Limited	380	291
	2,798	3,108

32.2 Transactions with other related parties

(a) Maxis Communications Berhad and its subsidiaries

	Group		Company
	2020	2019	2020	2019
Sale of goods and services:
International incoming traffic	96	49	71	43
	96	49	71	43
Purchase of goods and services:
International outgoing traffic	8	4	–	–

(b) Outstanding balance arising from sale/purchase services

	Group		Company
	2020	2019	2020	2019
Receivable from related company:
Maxis Communications Berhad and its subsidiaries	158	175	158	169
Payable to related company:
Maxis Communications Berhad and its subsidiaries	121	126	121	121

The sales to and purchases from related parties are made on terms equivalent to those that prevail in arm’s length transactions. Outstanding balances at the year end are unsecured and interest free and settlement occurs in cash. There have been no guarantees provided or received for any related party receivables or payables. For the year ended 31 December 2020, the Group recognised provision for expected credit losses of LKR Nil relating to amounts owed by related parties. (2019 – Nil)

(C) Government-related key institutions

The Government of Sri Lanka holds 49.5% of the voting rights of the Company as at 31 December 2020 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 2020, 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 2020 amounted to LKR 6,881 Mn. (2019 – LKR 8,761 Mn.) and credit receivables as at 31 December 2020 amounted to LKR 1,297 Mn. (2019 – LKR 3,246 Mn.)

(ii) Deposits, repurchase agreements (Repo) and Borrowings of the Group at/from Government banks amounted to LKR 3,646 Mn. (2019 LKR 3,082 Mn.) and LKR 31,848 Mn. (2019 LKR 33,183 Mn.) as at 31 December 2020.

(iii) Dividend payable to the Government amounting to LKR 244 Mn. (2019 – LKR 244 Mn.)

The sales to and purchases from Government-related key institutions are made on terms equivalent to those that prevail in arm’s length transactions.

32.3 Transactions with key management personnel

Key management personnel comprise the Directors and Chief Officers of the Company and the Group

	Group		Company
	2020	2019	2020	2019
Short-term benefits	422	392	341	290
Post employment benefits	35	30	31	27
Salaries and other benefits	457	422	372	317

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.

33. Non-uniform accounting policies

The impact of non-uniform accounting policies adopted by the subsidiary company has been adjusted in the Consolidated Financial Statements as set out below:

Adjustment due to different accounting policies of the parent and the Group entity

(a) Sri Lanka Telecom PLC accounts for refunds on Telecommunication Development Charge (TDC) on cash basis when the payment is received whereas Mobitel (Pvt) Ltd. recognises it in the Statement of Profit or Loss and Other Comprehensive Income on a straight line basis.

Therefore, the recognition of the refund by Mobitel (Pvt) Ltd. was eliminated and is recognised on cash basis in the consolidated accounts.

	Group impact
	2020	2019
Reversal of deferred revenue recognised in Statement of Profit or Loss and Other Comprehensive Income by Mobitel (Pvt) Ltd.	(14)	(35)

(b) Sri Lanka Telecom PLC recognises and measures property, plant and equipment based on cost model where as SLT Campus (Pvt) Limited has adopted revaluation model in the financial year 2020.

Therefore, the revaluation gain recognised by SLT Campus (Private) Limited and its underlying deferred tax impact was eliminated and the property, plant and equipment of SLT Campus (Private) Limited was recognised at cost in the consolidated accounts.

Reversal of revaluation gain and the underlying deferred tax impact recognised in Statement of Other Comprehensive Income by SLT Campus (Private) Limited in 2020 is LKR NIL (2019 – LKR 111 Mn.).

34. Fair value disclosure

Set out below is a comparison by class of the carrying amounts and fair values of the financial instruments that are carried in the Financial Statements:

	Carrying amount				Fair value
	Group		Company		Group		Company
	2020	2019	2020	2019	2020	2019	2020	2019
Financial assets
Trade and other receivables	19,999	19,709	15,236	16,981	19,999	19,709	15,236	16,981
Short-term deposits	3,666	3,112	3,646	3,082	3,666	3,112	3,646	3,082
Cash at bank and in hand	11,866	5,457	1,041	645	11,866	5,457	1,041	645
Total	35,531	28,278	19,923	20,708	35,531	28,278	19,923	20,708
Financial liabilities
Obligations under finance leases	25	54	25	–	25	54	25	–
Borrowings	53,489	57,268	46,539	49,205	40,357	36,137	34,812	30,682
Trade and other payables	35,331	39,176	20,485	23,188	33,789	38,451	19,350	23,038
Bank overdrafts	1,885	3,739	1,453	3,265	1,885	3,739	1,453	3,265
Total	90,730	100,237	68,502	75,658	76,056	78,381	55,640	56,985

The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following method and assumption was used to estimate the fair values:

Cash and bank balances, short-term deposits, trade receivables, trade payables (current) and bank overdraft approximate their carrying amounts lastly due to the short term maturities of these investments.

Fair value of trade and other payables and borrowings have been arrived by discounting gross values by the year end AWFDR rate.