SLT September net profit halves on higher depreciation, operating costs

Sri Lanka Telecom PLC (SLT) net profit halved for the third quarter of 2017, which ended this September (3Q17), compared to the corresponding period in 2016, as higher depreciation, operating costs and flat revenue ate into the group’s profitability.

Net profit for 3Q17 was Rs.730 million compared to Rs.1.8 billion, indicating a 60.4 percent year-on-year (YoY) fall. Earnings per share meanwhile fell to 40 cents from Rs.1.02 YoY.

The SLT share, which fell by 70 cents to Rs.29.30 last Thursday when the results were released, fell further down to Rs.29 on Friday to recover at Rs.30 during yesterday’s trading. 

The group revenue for 3Q17 remained virtually unchanged YoY at Rs.19 billion. 

SLT said, so far this year, revenue expanded slower than expected, especially through the mobile arm, due to tax increases.  

However, there was some relief in September with the removal of taxes on data services.

The group operating costs increased 2.4 percent in 3Q17 YoY to Rs.13.9 billion. The depreciation had the biggest effect on the bottom line, increasing 22.8 percent YoY to Rs.4.3 billion.

“Substantial investments by the holding company have resulted in the increase in the depreciation,” SLT said in an earnings review. The main reason for the depreciation was the SE-ME-WE 5 international submarine cable, which SLT commissioned recently to cater to the expected increase in data consumption.

Significant increases in the group’s property, plant and equipment, as well as intangible assets and goodwill, resulted in the group asset base increasing to Rs.160.2 billion at the end of 3Q17, compared to Rs.142.9 billion at the start of the financial year.

Total borrowings for the nine-month period increased 28.8 percent YoY to Rs.42.4 billion.

Net profits for the nine months fell 30.7 percent YoY to Rs.3.2 billion. Revenue edged up 1.3 percent YoY to Rs.56.4 billion, while the operating costs expanded 1.5 percent YoY to Rs.40.3 billion. The depreciation was up 21.6 percent YoY to Rs.12.2 billion.

Although the mobile segment revenue fell due to taxation, SLT said that the parent company, which mainly deals with fixed connections, grew stronger.

“Despite the competitive pressures and changes in taxes, the introduction of new technologies such as LTE and FTTH (fibre to the home), as well as expansions in data related products, have driven the growth,” SLT said.

The nine-month period saw the group’s fixed ICT operations expanding 1.7 percent YoY to Rs.30.4 billion, while profit before tax fell 58.7 percent YoY to Rs.994 million.  The mobile segment revenue expanded 0.4 percent YoY to Rs.25.3 billion, with profit before tax falling 16.5 percent YoY to Rs.3.1 billion.

The Sri Lankan government owns approximately 54 percent of the shares in SLT through the Treasury and other state-controlled financial institutions, while Global Telecommunications Holdings NV owns 44.98 percent of the shares of the firm.