SLT records steady operating profits for March quarter

• Sees strong new demand for broadband and IPTV services with lockdowns
• Says future profits and cash flows under pressure from challenging collections

Sri Lanka Telecom PLC (SLT) reported steady revenues and strong operating profits for the three months ended March 30, 2020, although the telecom juggernaut is facing pressure on revenues, earnings and cash flows from delayed or at times no collections from subscribers who were provided with uninterrupted supply of services under regulatory instructions during the two-months long shelter-in-place conditions.

Sri Lanka’s largest fixed line operator recorded revenues of Rs.22.1 billion during the January-March quarter, up 3.8 percent year-on-year (YoY). 

The company said it saw an immediate increase in the broadband and IPTV services by the residential sector and data products by the business sectors, which were racing to facilitate work-from-home conditions for their staff to ensure business continuity.

To what extent this new found demand had an impact on the revenues in both the March quarter and in the ongoing one is yet to be announced,  and the company said the pandemic had given rise to opportunities for future as there is demand from corporates and individuals for online and distance services to operate from home.

There is widespread expectation that the remote working arrangements that were experimented during the pandemic could stay in place indefinitely for certain back-office work and work which doesn’t require in-person collaboration as employers had found the arrangement has largely been successful. 

As hybrid work arrangements between remote working and central office for a couple days a week increasingly seem plausible, employers might re-think the need for having central offices in cities at exponential rents and would instead redeploy such money into technology and telecommunication services to provide their employees the flexibility and virtual interaction among them.  

This could stoke new avenues for telecommunication companies, which otherwise would be slow to evolve. 

In order to explore further potential and opportunities coming out of this pandemic, SLT along with its mobile telephone subsidiary Mobitel (Pvt) Limited, has formed a task force in collaboration with other telcos in the industry, the company said in a separate disclosure on the impact of the pandemic on SLT. 

Telecommunication sector was looked upon largely as a ‘pandemic-proof’ industry as self-isolating people and businesses, which strive to continue operations that have heavily relied on telecommunication services to stay connected, share information and conduct virtual meetings. 

Although revenue and operating profit remained intact for the most part during March, SLT said its operating profits were depressed somewhat from the provisioning made against overdue debtors. 

Although such provisioning was not separately given, the company said it had to provide Rs.536 million for overdue debtors together with depreciation. 

“Low disposable income levels of customers coupled with regulatory instructions to refrain from disconnecting the subscribers who have not paid, the collection of billed revenue is a challenge in this financial year,” the company said in a note accompanying the interim results.

“Nevertheless, the government’s decision on extending the due dates for payment of some taxes and levies has eased off the situation in the short term. In order to mitigate cash-flow related challenges, the group has decided to limit capital nature expenditure only for the critical areas and to utilise the procurement models with deferred payment plans,” it added.
The SLT group reported operating profit of Rs.3.2 billion for the three months, up 28 percent YoY.

Meanwhile, the group reported earnings of Rs.1.04 a share or Rs.1.88 billion for the three months compared to Rs.1.22 a share or Rs.2.2 billion in the same period last year as the earnings were impacted by higher finance cost and foreign exchange translational losses resulted from the depreciation of the rupee against the dollar. 

The group had Rs.526 million as interest expenses and finance cost for the three months, up from Rs.209 million in the year earlier period. 

The foreign exchange losses were Rs.683 million compared to a gain of Rs.172 million in the year earlier period. 

While, the group said the higher finance cost is due to increased borrowings made during the last few years on infrastructure development, its share of foreign currency borrowings are at a low level, keeping its associated risks to a minimum. 

Meanwhile, in order to keep the group’s exposure to a minimum over rupee depreciation, SLT said they are renegotiating with foreign suppliers on certain expenses needed to be made using foreign currency.