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  Report of the Directors
  1. The Directors present herewith the audited financial statements for the year ended 31 December 2003.

    Sri Lanka Telecom (SLT) was established by an Incorporation Order made under Section 2, State Industrial Corporations Act No. 49 of 1957 and published in Gazette Extraordinary No. 596/11 of 6 February 1990. Under an Order made by the Minister of Posts and Telecommunications on 24 July 1991 under Section 23, Sri Lanka Telecommunications Act No. 25 of 1991 and published in Gazette No. 675 of 9 August 1991, all the property, rights and liabilities (other than those excluded by the agreement entered into between the Minister and SLT as per Sub-Section 2 of Section 23 of the Sri Lanka Telecommunications Act) to which the Department of Telecommunications (DOT) was entitled or subject to immediately before the transfer date (1 September 1991) were vested in SLT.

    As part of the privatisation process SLT was converted to a public limited company, Sri Lanka Telecom Limited (SLTL), on 25 September 1996 under the Conversion of Public Corporations or Government Owned Business Undertakings into Public Limited Companies Act No. 23 of 1987, vide Gazette Extraordinary No. 942/7 of 25 September 1996. Following the incorporation of SLTL, all of the business and related assets and liabilities of SLT were transferred to SLTL.

    Subsequently, on 5 August 1997, the Government as the sole shareholder of SLTL divested 35% of its holding in the issued share capital of SLTL by the sale of 631,701,000 ordinary shares of Rs. 10/- each to Nippon Telegraph and Telephone Corporation (NTT) and entered into an agreement with NTT to transfer the management of the Company to NTT. On 2 July 1998, the Government of Sri Lanka divested a further 3.5% of the issued share capital of SLTL by the distribution of 63,170,010 ordinary shares to the employees of SLTL. On 22 March 2000, NTT Corporation transferred the full amount of its shares in the Company to NTT Communications Corporation on reconstitution of the former.

    The Company sought and obtained a stock exchange listing from the Colombo Stock Exchange in March 2000, following a Board decision to issue Unsecured Redeemable five year Debentures 2000/2005 with a par value of Rs. 1,000/- each, to the public. Consequent to the listed status conferred, the Company now comes under the supervision of the Securities Exchange Commission and the Colombo Stock Exchange. On 28 November 2002, the Government of Sri Lanka divested a further 12% of the holding in the Company by an Initial Public Offering (IPO).

    The results for the year and the changes in equity, are set out in the Income Statement on page 55 and the Statements of Changes in Equity on pages 57 and 58 respectively.

    The state of affairs of the Company as at 31 December 2003 is set out in the Balance Sheet on page 56 An assessment of the Company during the financial year is given in the CEO’s Review.

    The movements in property, plant & equipment during the year are set out in Note 9 to the financial statements.

    The Group provides a broad portfolio of telecommunication services across the country, the main activity being domestic and international telephone services. The range of services provided by the Company include, inter alia, internet access, data services, domestic and international leased circuits, frame relay, ISDN, satellite uplink and maritime transmission. With the acquisition of Mobitel, Sri Lanka Telecom becomes the only integrated operator in Sri Lanka able to offer fixed line, data and mobile services to its retail and corporate customers.

    During the year an interim dividend of 3% per share and a final dividend also of 3% per share were paid out of the profits of 2002 in February and June 2003 respectively. The Directors recommend a first and final dividend of 5% per share for the year ended 31 December 2003 payable in June 2004.

    Total reserves of the Group and their composition have been given in the Statement of Changes in Equity on page 57 of the financial statements.

    As at 31 December 2003 there were 1,804,860,000 ordinary shares of Rs. 10 each in issue, and according to the share register the under noted held more than a 5% interest therein at the Balance Sheet date.

    Name Holding Percentage No. of Shares
    Government of Sri Lanka 49.50% 893,405,700
    NTT Communications Corporation 35.20% 635,076,318
    The public holds 15.30% of the Issued Share Capital as at December 2003.

    The Board lays emphasis on good investor relations. In addition to the Annual General Meetings at which the Directors have a dialogue with the shareholders, timely financial reports are presented to them on a quarterly an annual bases. The Investor relations officers together with CEO meet institutional shareholders and fund managers on a regular basis. Additionally shareholders are kept up-to-date on the Company's business endeavours and other activities undertaken to enhance shareholder value, through its quarterly newsletter "Investor".

    During the year the Board comprised nine Directors and as at 31 December 2003 the Directors were:

    Mr. Thilanga Sumathipala - Chairman
    Mr. Shuhei Anan - Chief Executive Officer
    Mr. K.A.P. Goonatilleke
    Mr. N. Pathmanathan
    Mr. Kiyoshi Maeda
    Mr. Mitsuhiro Takase - Appointed on 22 July 2003
    Mr. Haruhiko Yamada - Appointed on 4 September 2003
    Ms. M.A.R.C. Cooray - Appointed on 2 December 2003
    Mr. K.C. Logeswaran - Appointed on 17 December 2003

    Mr. Takashi Akiyama was appointed to act as alternate to Messrs. Maeda, Takase and Yamada during their absence abroad. The principal Directors being non-executive their alternate only attended Board meetings.

    The following who were Directors of the Company at the beginning of the year resigned from the Board on the dates mentioned below:

    Mr. R.H. Fernando - Resigned on 7 February 2003
    Mr. K. Yaginuma - Resigned on 22 July 2003
    Mr. S. Kimura - Resigned on 4 September 2003
    Mr. H.N. Gunewardena - Resigned on 10 October 2003
    Mr. A.R. Ekanayake - Resigned on 11 November 2003

    Mr. N. Saito who was alternate to Mr. Yaginuma was appointed on 23 January 2003 which appointment was revoked on 27 May 2003.

    Mr. T. Akiyama was appointed as alternate to Mr. S. Kimura on 27 May 2003 which appointment was revoked on 4 September 2003.

    Re-election of Directors
    The Company's Articles of Association require that one-third of the Directors retire at each Annual General Meeting of the Company.

    Accordingly, Mr. N. Pathmanathan retires in terms of Article 91 and being eligible offers himself for re-election.

    During the year, the undermentioned Directors were appointed to fill casual vacancies arising from the resignation of incumbent Directors. The Directors who have been so appointed by the Board retire in terms of Article 97 and being eligible offer themselves for re-election.

    Mr. Mitsuhiro Takase
    Mr. Haruhiko Yamada
    Ms. M.A.R.C. Cooray
    Mr. K.C. Logeswaran

    Directors' Interests in Debentures of the Company
    Mr. H.N. Gunewardena who resigned from the Board on 10 October 2003, held 2,500 debentures of the Company. None of the other Directors directly or indirectly held any debentures of the Company during the year ended 31 December 2003.

    The Directors’ interests in contracts and proposed contracts with the Company, both direct and indirect, are set out in Note 29 to the financial statements. The Directors have disclosed the nature of their interests in contracts and proposed contracts with the Company at meetings of the Directors.

    Directors’ individual shareholdings and their spouses' shareholdings in the Company as at the year end and their corresponding holdings as at the end of the previous year are as shown below:

    Name 2003 2002
    Mr. N. Pathmanathan 5,000 5,000
    Mrs. M. Pathmanathan 5,000 5,000
    Mr. W.R.H. Fernando - 10,000
    Mrs. A. Fernando - 5,000

    Within the corporate entity, the Company’s business and affairs are managed and directed with the objective of balancing the attainment of corporate objectives, the alignment of corporate behaviour within the expectation of the law and society and the accountability to shareholders and responsibility to other recognized stakeholders. The Remuneration Committee comprising of the Chairman and the CEO determines the Senior Executives remuneration and compensation.

    All statutory payments to the Government and the employees have been made up to date.

    It is the responsibility of the Company to operate in a manner that will not have detrimental effect on the environment and to provide products and services of highest quality that have a beneficial effect for our customers and the communities within which we operate.

    The Company holds an unlisted investment in Intelsat Limited which provides telephony and other related services via geosynchronous satellites around the globe. In November 2003 the Board decided to dispose of SLT's investment in Inmarsat Ventures plc on a Management buy out. On this arrangement all selling shareholders including SLT received US$ 15 per share. The total amount realised by SLT on the sale its holding of 50,000 shares was US$ 750,000.

    During the year, the Company contributed Rs. 1,425,000/- (2002 - Rs. 1,384,286/-) for charitable purposes. Of the above contributions Rs. 1,200,000/- (2002 - Rs. 1,100,000/-) was for a government approved charity.

    No events have occurred since the Balance Sheet date, which would require adjustments to, or disclosure in, the financial statements.

    A resolution to reappoint our present Auditors, Messrs. PricewaterhouseCoopers, Chartered Accountants, who have expressed their willingness to continue, will be proposed at the Annual General Meeting.
  By Order of the Board
(Sgd.) P.G. Dias

6 April 2004
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