A S T R A T E G Y t a k e s W I N G S
A N N U A L R E P O R T
2006 ~ 2007
Individual forces with distinctive
strengths.
CHOSEN WITH DISCRETION,
NURTURED WITH CARE.
Flowing in
harmony, strengthening each other.
STRENGTHS in
SYNERGY
Like fingers that work magic together, Subex Azure’s five elements of
strategy complement each other. Forming a robust,
imaginative
growth strategy. Evolving smart and sustainable plans. Creating a
vision that goes beyond current success: a global leader in OSS
solutions, an empowering partner to telecom enterprises, the pioneer
of the ROC concept...
Five currents seamlessly forming a single, potent stream. One that
will create ripples well into the future.
A N N U A L R E P O R T
2006 ~ 2007
1
INDEX
of 2006-07
Highlights of 2006-07
Key financial and ratio analysis
Chairman’s letter to the shareholders
About Subex Azure
Rocware roster
Operational dexterity: the next frontier
Sweeping changes in the economics
of telecom business
Subexian Pride Award winners
Harnessing the people factor post acquisitions
Good governance, great performance
The large-cap IT product company of tomorrow
A compelling proposition in the global OSS space
Board of Directors
Management team
3
5
7
10
11
13
15
17
19
21
23
25
26
General review & accountability
Directors’ report
Report on corporate governance
Management’s discussion & analysis
Financials
2
A N N U A L R E P O R T
2006 ~ 2007
HIGHLIGHTS
OF 2006-07
Acquired Syndesis Limited, added Fulfillment
and Assurance as its third business unit (BU)
Launched new brand identity for integrated
suite of revenue maximization solutions -
Rocware
TM
Subex Azure listed on the London Stock
Exchange (LSE)
Unveiled ROC at the 3GSM World Congress
in Barcelona
Successfully integrated Subex and Azure
businesses, people and products
Launched Prevea – the latest addition to
RevMax solutions
Won over 23 new customers, apart from several
other sales wins from existing customers
Raised US $180 million through the issue of
convertible bonds
A N N U A L R E P O R T
2006 ~ 2007
3
INVESTING INCREMENTALLY
to NURTURE SUCCESS
At Subex Azure we believe in a sustainable investment model, investing
incrementally for better returns. The investment is stepped up only in
relation with the returns and not with the hype.
4
A N N U A L R E P O R T
2006 ~ 2007
KEY FINANCIALS
AND RATIO ANALYSIS
Particulars
Total income
Export sales (incl. sales from overseas subsidiaries)
Operating profits (EBDIT)
Depreciation & amortization
Profit before tax
Profit after tax
Equity dividend
Share capital
Reserves & surplus
Net worth
Gross fixed assets
Net fixed assets
Total assets
Key Indicators
Earning per share (year end) - Rs.
Cash earning per share (year end) - Rs.
Book value per share - Rs.
Debt (incl. working capital) equity ratio - Rs.
EBDIT / Sales
Net profit margin
Return on year end net worth
Return on year end capital employed
Year ended March 31, 2007
Figures in INR Million,
except key indicators
3,710.91
3,701.24
812.46
148.53
576.61
675.66
35%
348.16
8,059.12
8,286.31
821.73
358.55
17,787.98
19.41
12.74
238.00
1.02
24%
20%
8%
5%
Revenue
Basic EPS
Profit After Tax
EBIDTA
Up 87.89% Up 19.75% Up 78.51% Up 52.96%
FY07 Rs. 3409.00m
FY06 Rs. 1814.34m
FY07 Rs. 21.10m
FY06 Rs. 17.62m
FY07 Rs. 675.66m
FY06 Rs. 378.49m
FY07 Rs. 812.45m
FY06 Rs. 531.15m
A N N U A L R E P O R T
2006 ~ 2007
5
NICHE FOCUS for a
CLEAR VISION
We have always chosen to operate in a clearly defined, focused area with
respect to products and markets. This has brought us considerably better
returns and accolades from investors.
6
A N N U A L R E P O R T
2006 ~ 2007
LETTER TO THE SHAREHOLDERS
Subash Menon
Founder Chairman, Managing Director & CEO
Dear Shareholder,
Financial year 2007 has been a very eventful one for your
company. We acquired Azure Solutions Limited, UK and
Syndesis Limited, Canada. Further, we listed on the
London Stock Exchange vide a Sponsored Global
Depository Receipt (GDR) and also raised US$ 180
million through a Convertible Bond offering with a tenure
of 5 years. The year was indeed action-packed. The kind
of action that will have a salutary effect on the future
prospects of your company and result in investments that
will bring good returns in the future.
The question is, are these isolated actions? Or are they
part of a strategic plan? But before we get to that, let me
take you through the key financials for FY07. While the
total revenue of the company increased by 101% to
reach Rs. 3,711.2 million, product revenue recorded a
growth of 96%. The contribution of products to the total
revenue stood at 67% and Profit After Tax grew by 79% to
reach Rs. 675.66 million.
Let us now go back to the strategic plan. Your company
formulated its long term objective and the strategic plan
in 2003 and has been executing that plan ever since, in
phases. The first phase was the acquisition of the fraud
management businesses of Alcatel and Lightbridge and
the objective was to enter developed markets.
The second phase was the acquisition of Azure Solutions
and the objective was to achieve market leadership and
to gain stature and credibility. The third phase was the
acquisition of Syndesis and the objective was to expand
our offering to become a provider of the entire telecom
Operations Support Systems (OSS) suite. This plan that
has had three phases till date is based on an overarching
strategy that we call the Five Petal Strategy. I believe that
the success achieved by the company in software
products, in competition with global companies and on a
global scale, establishes the effectiveness of our
strategy.
The Five Petal Strategy
As the name indicates, the strategy has five equally
important elements, depicted as five petals as shown
below.
Incremental
Investment
Model
Niche Focus
Local Presence
Leveraging
Global
Resources
Growth
&
Leadership
Blended
Growth
Model
Product
Innovation
Product Innovation
This is a critical element for the success of any product
company as the features and functionalities of the
product and the timing of the launch of different versions
go a long way in making the company competitive in the
market place. Product companies should be able to
gauge the needs of the market in advance, comprehend
fully and devise solutions to meet those needs. The race
is to perform these tasks more effectively than and ahead
of the competition and that calls for innovation. Subex
Azure has been quite innovative from the very early
stages of its existence in this space including the design
and launch of features like subscriber pre-check for the
fraud management product. We have also been quite
innovative with our road map, with the conceptualization
and launch of platforms like the Revenue Operations
Center.
A N N U A L R E P O R T
2006 ~ 2007
7
Local Presence Leveraging Global
Resources
Today's flat world is highly networked and leading
companies now practice
integrated resource
management on a global scale. This essentially utilizes
optimal and specialized resources located in dispersed
geographies to effectively perform multiple tasks and
projects. Subex Azure conducts its business in a very
similar manner. We have personnel in every major
location to handle sales and the first level of support as
expected by the customers in the respective region.
This enables us to perform sales and support in
accordance with the local practices using teams with
relevant expertise and regional exposure. These teams
are ably supported by engineering and back-end
support based
in
in Bangalore. The
Bangalore also provides on-site personnel to fulfill the
demands
from other regions. This
structure enables us to meet the needs
of the customers in an effective manner
while ensuring control over costs.
large
team
Incremental Investment
Model
Software product companies generally
have a tendency to invest enormous
in sales and
amounts of money
marketing at the very beginning of their
life to generate substantial hype. Actual revenue
generation lags these investments. If the lag is longer
than what was planned for initially, such cash burn
results in the continuing need to raise more funds and
might even lead to bankruptcies, if the investment
climate is not supportive. At the very least, companies in
this mode fail to be profitable for very long periods of
time. Subex Azure adopted a very different model right
from the beginning – one where investment and return go
hand in hand without one lagging the other too much. In
this model, we invest a small amount and wait for the
return. Once the return happens, additional investments
are made. This model enables quick
feedbacks
providing an opportunity for mid-course corrections,
should the need arise.
Niche Focus
Focus is another key element of our strategy. This keeps
the company on track without getting derailed due to
other enticing opportunities. Any product company will
8
A N N U A L R E P O R T
2006 ~ 2007
come across multiple possibilities in the product space,
all of which look quite attractive. Responding to such
attractions, some companies commence investing in
those areas. The result is an organization that has spread
itself too thin and has lost its specializations that were
wrought by its initial focus. Investment in the relevant
areas gets choked and the company fails to achieve
leadership in its core area. Subex Azure has steered
clear of such an eventuality by maintaining its razor
sharp focus in a particular area. This has equipped us
with the necessary power to excel in our business and to
attain leadership.
Blended Growth Model
That brings me to the last element of our Five Petal
Strategy. Products companies worldwide have used
acquisitions as a way to grow. However, statistics tell a
different story. Almost 67% of all M&A
transactions fail, leading to significant
loss to shareholder value and even
bankruptcy, in some cases. In all these
cases, the desired growth fails to
materialize and the M&A transactions
become counter productive. In certain
other cases, while abject failure is not
the result, the sought after growth
proves elusive. The primary reason
behind such a poor performance is the
wrong choice of target coupled with poor execution.
At Subex Azure, we have adopted a model that ensures
growth. The first step towards achieving that is to choose
the target very carefully ensuring that the strategic fit is
not sacrificed. Given the strategic fit with the continuing
to be
business,
leveraged, leading to excellent organic growth on top of
the acquired business. Such a unique combination of
organic and inorganic growth models is very potent and
has powered the organization ahead. Given the blend of
both organic and inorganic growth, internal synergies
get leveraged, the inherent strengths are employed well
and the resulting entity attains superior positioning vis-à-
vis competition.
As stated above, your company has been employing this
Five Petal Strategy since 2003 and has now accumulated
considerable evidence to prove the efficacy of the
strategy. The overall results have been quite impressive
with product revenue growing at a CAGR of 73% from
FY03 to FY07 as shown in the following graph.
the acquired entity
lends
itself
Growth in product revenue
(Figures in Rs. Mn)
2288
1166.8
627.9
254.5
396.7
FY03
FY04
FY05
FY06
FY07
Syndesis
It is now time to go back to the third phase of our growth.
In this phase, we have acquired Syndesis, a Canadian
company operating in the telecom service fulfillment
space. Syndesis is a leader in the service activation
space and has strong offerings in service provisioning
and network inventory management. The products from
Syndesis embellish the Revenue Operation Center
framework from Subex Azure and make the overall
offering a very attractive one for our customers. This is
expected to boost the prospects of the continuing
business of Subex Azure while paving the way for cross
selling opportunities for both the Revenue Maximization
Solutions and Fulfillment & Assurance Solutions
business units. Therein lies the strategy that we always
seek and establish prior to any acquisition.
Looking Ahead
Today, your company is the global leader in Revenue
Maximization and we are driving towards leadership in
the entire telecom OSS space. All the necessary
ingredients are in place, including a time-proven
strategy – our very own Five Petal Strategy. Above all, we
are powered and are being propelled forward by a
committed and highly qualified group of individuals –
Subexians. A group of individuals who excel as a team
and have brought superior returns to the shareholders,
ever since we went public in 1999. It is my honour and
privilege to thank each and every Subexian, for having
provided me with every reason to believe that they will
continue the pursuit of excellence, in the supreme
interests of the shareholders.
A N N U A L R E P O R T
2006 ~ 2007
9
THE
™
ROSTER
for potential
fraud and uses
Revenue Maximization solutions
Revenue Assurance System is a first-of-its-
Moneta™
kind, complete RA solution, designed to tackle critical
revenue assurance challenges across the entire revenue
chain. It offers a set of pre-configured solution templates
to address RA challenges inherent to individual service
verticals – Wireless, Fixed, Cable, MSPs & MVNOs.
Fraud Management System is a state-of-the-art
Nikira™
solution built to deliver on a 3-step philosophy of Detect-
Investigate-Protect. Nikira detects known fraud types and
patterns of unusual behaviour; helps investigate these
the
unusual pattern
knowledge thus generated to upgrade and protect
against the future.
Risk Management System empowers operators
Prevea™
to continuously assess and mitigate risk presented by
subscribers throughout their lifecycle, by tracking risk in
realtime during subscriber acquisition, ongoing usage
and collections & recovery.
Interconnect Billing System allows operators to
Concilia™
quickly and accurately settle charges with their network
partners. It provides operators with the ability to manage
these major costs & revenues on a day-to-day, hour-to-
hour basis.
Interparty Management System enables
Symphona™
operators to bill their customers and settle with their
partners on a single modular platform. The system is able
to support multiple business models and multiple
currency transactions within a single implementation
through seamless addition of necessary modules.
Route Optimization System is designed to
Optima™
provide operators with the tools to manage network cost
information. The system is capable of taking into account
factors such as call quality rate information, capacity and
network costs in calculating the optimum choice of
operators.
Fulfillment and Assurance solutions
is the industry's only
Syndesis Adaptive Resource Manager
‘live’ inventory management solution which offers service
providers a low-risk path to operational transformation and
highly accurate inventory management.
automates
Syndesis Application Configuration Manager
the configuration, management, and detailed discovery of
applications, policy servers, subscriber databases, and
other service delivery platforms, making self-service a
reality for the mass market.
offers pre-integrated, best-in-class
Syndesis Controller
Order Management, Service Catalog Management and
Technical Workflow solution, providing the basis for the
automation of
the complete order-to-bill cycle and
enhancing scalability and visibility for the entire fulfillment
process.
provides complete subscriber-centric
Syndesis Express
fulfillment for IPTV, VoIP, and other targeted advanced
service offerings from a wholly integrated architecture,
enabling rapid service definition; integrated service design
and activation across connectivity and applications; and
real-time subscriber self-management.
takes the risk, time and effort out of
Syndesis NetOptimizer
the toughest service migrations through service-aware
automation, transforming over-engineered network into
right-sized networks.
increases your revenues and drives
Syndesis NetProvision
time-to-market and operations costs by
down your
the design and activation of complex,
automating
application-aware connectivity, enabling
flow-through
provisioning of next-gen data and IP services across multi-
vendor, multi-technology networks.
employs an operations-wide
Syndesis TrueSource
approach to solving data integrity problems, combining
three powerful data integrity functions: multi-layer network
and service discovery, data reconciliation, and
discrepancy analytics.
10
A N N U A L R E P O R T
2006 ~ 2007
OPERATIONAL DEXTERITY:
THE NEXT FRONTIER
Sudeesh Yezhuvath, Chief Operating Officer
Worldwide, telecom markets are changing at a frenetic
pace and telecom operators (telcos) are faced with
challenges like never before. Change is all-pervasive – in
network technologies, evolution of IT, shifting customer
needs, emergence of new competition etc. – and the
whole sector is going through the pangs of evolution into
the next generation. Telcos used to operate within the
cocoon of regulated markets where profits were assured
and simply arrived at by adding the agreed margin on top
of costs. In today's de-regulated, free markets such
luxuries are long gone; the market decides the price, and
margins – if any – are earned through efficient and agile
operations. In short, telcos will have to differentiate
based on their ability to practise operational dexterity.
To fully understand operational dexterity, let us examine
what telcos need to do to overcome the challenges as
mentioned above. One the one hand, volumes and
complexity are increasing and today’s highly demanding
customers have ever changing needs. On the other,
Average Revenue Per User (ARPU) is constantly eroding
and the focus is shifting to Average Margin Per User
(AMPU). This means that telcos need to be very
proficient in their internal operations so that they can:
(cid:114)Turn up and provide services to customers rapidly
(cid:114)Meet and possibly exceed the quality of service
expectations of customers
(cid:114)Ensure revenue-efficient operations so that they do
not lose out on margins
Indeed, the battle for telecom supremacy will be won or
lost based on the telcos' ability to achieve these three
objectives. The practice of operational dexterity
encompasses all of the above.
Our objective is to be a key partner to the telcos in their
quest for operational dexterity. In keeping with this
objective, we have focused on and built a significant
presence in revenue maximization – the element of
in
telcos
the market
their revenue
to be efficient
helping
management function. With more than one hundred and
sixty customers in seventy countries world wide, we are
leader. The acquisition and
clearly
successful integration of Azure Solutions Ltd. has
cemented our position at the top in this space. We have
solutions that cover the entire breadth of revenue
maximization, namely:
(cid:114)Moneta Revenue Assurance System
(cid:114)Nikira Fraud Management System
(cid:114)Prevea Risk Management System
(cid:114)Concilia Interconnect Billing System
(cid:114)Symphona Interparty Management System
(cid:114)Optima Route Optimization System
This integrated suite of solutions form the basis of our
industry-leading revenue maximization platform, the
Revenue Operations Center (ROC). ROC was
demonstrated successfully at 3GSM World Congress,
Barcelona in February 2007 and was enthusiastically
received.
After having established supremacy
in revenue
maximization, we have now branched out into the
the
adjacent space of service provisioning with
acquisition of Syndesis. Syndesis was a market leader in
service provisioning with a unique, best-in-call, carrier-
grade platform designed to meet the stringent needs of
world's biggest Tier-1 telcos. With the acquisition of
Syndesis, we are now equipped to help telcos in areas of
service fulfillment like:
(cid:114)Automated, subscriber-centric fulfillment
(cid:114)Data integrity management
(cid:114)Inventory/ resource management
(cid:114)New service creation & order management
(cid:114)Service & network migration & optimization
This acquisition is a strategic step that helps us fill out an
important piece in our product strategy.
A N N U A L R E P O R T
2006 ~ 2007
11
At this juncture, it might be worthwhile to examine this
product portfolio and its relevance in the context of our
‘Five Petal Strategy’. The Five Petal Strategy is aimed at
achieving Growth & Leadership, based on the themes of:
(cid:114)Incremental Investment Model
(cid:114)Niche Focus
(cid:114)Blended Growth Model
(cid:114)Product Innovation
(cid:114)Local Presence Leveraging Global Resources
Product Innovation has always been our not-so-secret
weapon and is all about anticipating and understanding
the changes that happen in our market place and
features.
translating those
into product related
Telcos look to thought leadership and solutions from
vendors like us, to solve these new challenges that come
in this dynamic market.
We have always been able to demonstrate these
capabilities and our growth clearly sets out how we are
leading from the front and setting new trends and thought
leadership in our space. We can now help telcos to
provision their customers rapidly, while enabling them to
be revenue efficient in their operations. In short, we are
now in a position to partner even more closely with telcos
in their need to achieve operational dexterity – we can
now help them win the battle!
12
A N N U A L R E P O R T
2006 ~ 2007
SWEEPING CHANGES IN THE
ECONOMICS OF TELECOM BUSINESS
Sanjeev Gadre, Vice President - Marketing
Fundamental shifts are sweeping across the economic
wings of the telecom business. Telecom operators have
seen their margins dramatically shrink as the business
model has changed from a regulated market to a free
one. The key challenge therefore is to build a strategic
framework that fosters sustained, profitable growth.
Earlier: Regulated
Today: Free Market
Price approved
by regulator
Price set
by the market
Margin
guaranteed
Cost of service
delivery
Margin earned
Cost plus
pricing
Competitive
pricing
Cost of service
delivery
Telecom operators now need to focus on a combination
of:
(cid:114)
Service agility
- by reducing time-to-market for new services,
- achieving rapid service provisioning,
- by maintaining high quality of service delivery,
and doing all of this with,
(cid:114)Operational efficiency
-
through cost efficient delivery of service.
We call this combination operational dexterity.
Price set by
the market
Cost of
service
delivery
Enhanced
margins
Service agility gain –
Improved price
realization for services
Operational
efficiency gain
Reduced cost of
service delivery
Operational dexterity ultimately allows operators to
reverse the pressure on the margins by enjoying
improved price realization through better quality of
service and reduced cost of service through an efficient
operation.
Subex Azure's articulated business goal is to be a
leading vendor of telecom OSS solutions. A key element
of our strategy is to offer a wide portfolio of software
solutions that help telecom operators build competitive
advantage. In line with the blended growth model which
is part of the five petal strategy, Subex Azure recently
completed the acquisition of Syndesis which has been a
technology innovator and leader in providing solutions
for many of these areas, most notably provisioning and
automation of service creation, design and activation.
Therefore, through this acquisition, Subex Azure
becomes an
leader, offering a solution
portfolio that truly enables operational dexterity for
telecom operators. We see multiple synergies across
product suites and many up-selling and cross-selling
opportunities that will further fuel our growth and enable
us, realizing our vision to become a leading vendor of
telecom OSS solutions.
industry
the OSS solution space. Post
Market Size and Growth
Subex Azure, prior to the acquisition, addressed the
Interconnect
Fraud & Revenue Assurance and
segments of
the
acquisition, Subex Azure has added Service
Assurance and Service Fulfillment segments to its total
addressable market. Leading telecom analyst OSS
Observer reports that the total addressable market size
in 2006 for the combination of Fraud & Revenue
Interconnect, Service Assurance and
Assurance,
Service Fulfillment segments
is US $2.5 billion.
Moreover, this market size is expected to grow to
US $4.5 billion by 2010.
A N N U A L R E P O R T
2006 ~ 2007
13
s
n
o
i
l
l
i
m
$
S
U
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
2000
500
2006
3600
900
2010
Fraud & RA, Interconnect
Service assurance & fullfillment
Total addressable opportunity
Further, it is our estimate that Subex Azure enjoys almost
25% market share of the Fraud & Revenue Assurance
solution market. It will be Subex Azure's endeavor to
replicate this success in all the addressed segments.
Revenue Operations Center (ROC)
Subex Azure postulates that the Revenue Operations
Center (ROC) is the key to telecom operators delivering
operational dexterity.
The ROC is a centralized, integrated infrastructure that
telecom operators can use to foster operational efficiency
and service agility and thereby operational dexterity.
Subex Azure's software solution portfolio helps power the
ROC. The Rocware portfolio allows operators to monitor,
control and ensure revenue chain integrity (operational
efficiency) while delivering new network and application
experiences to their customers (service agility).
14
A N N U A L R E P O R T
2006 ~ 2007
SUBEXIAN PRIDE AWARD WINNERS
Subexians who made us proud in 2006-07
Name
Division
Location
Name
Division
Location
Achintya Kumar G
Ajay Jose
Ajitha B G
Ajmal Yusuf
Arun Murali
Arun Rozario
Arvind P
Bernie Ingrams
Binu K
Blaze Thomas
Chetana R
David Williams
Deepa Sashindran
Geetha Rao
Girish Bhat
Graham Ellis
Harish H S
Howard Miller
Jaideep Gopinath
James MacEwan
Jubin David
Julia Davis
Karthikeyan R
Kurian Abraham
Mahesh Verma
Manjunath Rao P R
Muralidhar I M
Neville Collins
Nigel Camp
P C George
Engineering
Engineering
Engineering
Engineering
Engineering
PSO
PSO
BT Operations
Engineering
PSO
Engineering
PSO
HR
Finance & Accounts
Sales
PSO
System Administration
PSO
Marketing
PSO
Engineering
BT Operations
PMG
PSO
Engineering
System Administration
Finance & Accounts
PSO
PSO
Engineering
India
India
India
India
India
India
India
UK
India
India
India
UK
India
India
India
UK
India
UK
India
UK
India
US
India
India
India
India
India
UK
UK
India
BT Operations
Engineering
Finance & Accounts
Commercial
System Administration
Engineering
Engineering
Engineering
Engineering
Engineering
Finance & Accounts
Engineering
Engineering
Engineering
Engineering
Finance & Accounts
PSO
BT Operations
PSO
System Administration
Engineering
Finance & Accounts
Engineering
Finance & Accounts
Engineering
Prajay Shah
Pratik Shah
Prema Menon
Raghavendra M V
Rahul Alexander
Rajan R N
Reji Kumar V
Robin Booth
Rohan D Rendalkar
S K Reddy
Safiya Omar
Sanjaya G S
Santosh S
Sathish R
Shilpa Joshi
Srikanth Nayak
Stuart Barnes
Subha Chakraborty
Subhadip Duttagupta
Suman M S
Sumith Varghese
Suresh Rao V R
Syed Rehan Sajjad
Thyagarajan K
Troy Rowe
Tushar Gopinath Shenvi PSO
Vijaya K
Vishal Joshi
Will Richards
System Administration
Engineering
PSO
UK
India
India
India
India
India
India
UK
India
India
UK
India
India
India
India
India
UK
UK
India
India
India
India
India
India
Canada
India
India
US
UK
A N N U A L R E P O R T
2006 ~ 2007
15
SUPPORTING LOCALLY
to WIN GLOBALLY
We ensure that each global market is served by Subexians based locally.
They are powered by large teams in India - a highly efficient delivery structure
offering consistently high returns.
16
A N N U A L R E P O R T
2006 ~ 2007
HARNESSING THE PEOPLE FACTOR
POST ACQUISITIONS
Sanjay Paul Antony, Senior Vice President - Human Resources
It was a
We have grown three-fold by measure of human
resources in the last one year, reflecting our growing
global status. During this period, we grew from around
325 Subexians to over 1000 today through a combination
of acquisitions, lateral hires and campus recruitments.
The challenge that emerged from the two acquisitions
was the seamless integration of the organizations. A lot of
meticulous planning and execution went into this,
making this a remarkable feat. Today as we look back, we
are proud of the results, as the entire process was driven
true
through teams created internally.
demonstration of Perseverance, Commitment, Quality,
Customer Orientation and Leadership, some of the
essential Subexian traits. Another significant indicator of
our success with this has been the single digit attrition
percentage we have had for the past one year.
While we have taken on the acquisition mode, our
strategy has always been to identify talent with expertise
in the geographies we operate in. Our workforce is a
blend of nationalities across geographies. We have also
ensured that cost effectiveness is given a premium while
utilizing this talent spread.
We faced challenges associated with our acquisition
and the integration that followed. Hence one significant
focus area has been cultural integration across the
various organizations. The fundamental premise we
used was `Understand our differences and appreciate
them, so that, together we work as an effective team'.
the senior
There was significant
management team to reach out to new Subexians.
This was to ensure execution of a clear action plan with
tight deadlines on closure of any issues raised during
these meetings. This instilled a great deal of confidence
in the new Subexians who then witnessed that Subex
involvement by
the same
that spoke
Azure indeed 'walked the talk'. The foundation of
credibility was laid there.
Next on the action plan were objective-driven outbound
learning experiences with an eye to build an effective
team. The effort started off with an event in Bangalore for
the senior members in the new team and then, two such
events were rolled out in London. This helped us cover
towards becoming a single
the critical distance
organization
language and
appreciated working together, understanding cultural
differences.
While lateral hiring is a key source for us, we do look at
developing people from within. We have a very strong
foundation for hiring from engineering schools. Last
year, 13% of the total hires came from campuses. Out of
the new roles which emerged due to our growth, 40%
were filled from within and the rest through experienced
hires.
We had spoken about Phase 1 of the Subex Azure
Leadership Program in our last report. During this year,
we implemented Phase 2 of the program for all
Subexians with people management responsibilities for
the India region. This involved classroom sessions
spanning 12 days. Next year, the focus will be to drive a
for other geographies as well.
similar
As a product development organization, innovation is the
key. We have initiated a process to roll out 'Innovation
Days' within our engineering organization. Every
Subexian can work on ideas that are of interest to them
and also help the product/ domain they are working on, or
fuel
this period,
for new products. During
Subexians will not be working on their assigned areas,
but on areas of interest to them which can also be
beneficial to the organization. That is 24 days in a year!
initiative
ideas
A N N U A L R E P O R T
2006 ~ 2007
17
BLENDING MODELS,
SECURING GROWTH
We realize the need to harmonize the best of organic and inorganic growth
models. Hence we build significantly in an organic manner, besides utilizing
inorganic growth opportunities.
18
A N N U A L R E P O R T
2006 ~ 2007
GOOD GOVERNANCE, GREAT
PERFORMANCE!
P. P. Prabhu, Director
P. P. Prabhu is a retired Indian Administrative Service
Officer, who has served in the Central Government and
the state government of Karnataka for nearly 36 years.
Positions held by him include, Chairman and Managing
Director of Vikrant Tyres (now taken over by J. K. Tyres);
Managing Director of Karnataka Power Corporation;
Chairman of Coffee Board; and Commerce Secretary,
Government of India. He has participated in several
inter-governmental discussions and bilateral/
multilateral trade negotiations.
in
Splendid growth and outstanding
financial
performances have earned Subex Azure a well deserved
and enviable reputation
the software sector.
The recognition is all the more sweet because it has
come in the software product space, rarely ventured into
by Indian companies.
The performance of Subex Azure has been remarkable
by any standard; excellent growth, globally acceptable
products, significant enhancement of shareholder
value, and most important, a very promising future.
The revenue of the company has grown from Rs. 315.86
million in 1999-2000 to Rs. 3409.01 million in 2006-07.
The profitability has also been consistently good,
enabling the company to maintain an excellent dividend
record. Shareholders have every reason to be happy
with the performance, as an investment of Rs. 75 in 1999
is worth Rs. 2258.60 (as on 2007) after taking into
account 1:1 bonus issued twice, in the years 2000
and 2006.
financial
The satisfying growth and excellent
performances have been achieved, along with deep
commitment to good corporate governance. In Subex
Azure, good governance has been an article of faith right
from the beginning and not limited to mere compliance
with
the prescribed regulations, such as audit
committee, disclosure requirements etc. Independent
directors were a majority on the Board of Subex Azure
to quickly absorb
to queries and demand
even before the regulations were introduced. The key
elements of Subex Azure's corporate governance are -
apart from significant enhancement of shareholder value
- openness, accountability, ethical conduct of business
by conviction and self discipline.
Protection of shareholders' rights is given highest priority
and the empowered committee hardly gets to hear of any
shareholder grievances. The dissemination of
information through the website of the company and
adequate responses
for
information
the culture of
is again evidence of
the
communication and openness displayed by
management. The quality of management is another
noteworthy feature and the standard of accomplishment
can be appreciated from the ease with which the
the
company has been able
technologies, and seamlessly integrate the operations of
as many as seven companies, acquired overseas, in the
last eight years. The fact that all the clients of the
their
acquired companies decided
association with Subex Azure testifies to the confidence
developed by the clients in the competence and ability of
the company to provide the right solutions and is as much
a tribute to the maturity of the management as to the
superiority of the products and the quality of service
provided.
The high standard of internal audit and the depth of
examination of financial accounts and other operational
details by
independent audit and remuneration
committees have been the other healthy and strong
features. The constructive and purposeful supervision of
the accounts, expert review of financial performance
and extensive analysis of risks are good examples of the
culture of good governance practices followed in
Subex Azure.
The personnel polices of Subex Azure are farsighted and
innovative and that partly explains the company's
to continue
A N N U A L R E P O R T
2006 ~ 2007
19
strength, the quality of its products and growth.
An attractive ESOP package, recognition of outstanding
talent and contributions and fostering of an environment
that encourages and facilitates active participation of all
Subexians in the process of development and delivery of
products are bright aspects of
the personnel
management.
The Board of Subex Azure plays a constructive
supervisory role;
the directors critically review
operations and performance, and provide the external
objectivity to various issues and critical decisions.
This approach is purposeful and a fine balance is
maintained between responsibility of overseeing and
avoidable
interference and micro management.
The Board also focuses on values and ethics of business
conduct.
Going forward, the challenges for the management will
be greater as strong competition in the space in which
the company has decided to grow is anticipated from
large multinational players. The products of the company
will also have to be continuously tailored to the
light of evolving
requirements of customers
technological changes and the dynamic economic
environment. The management and the Board would
need to devote greater time and effort towards study and
in
analysis of technological developments and evolving
customer needs, besides monitoring the policies and
plans of competitors and market trends and their
possible impact on future growth. Thus the management
and the board will have to move beyond the traditional -
though essential - functions and duties of performance
review and risk assessment, and increasingly focus on
crafting growth strategies and development models,
formulation of pro-active policies
that will help
development of products and maintenance of services
which exceed customers' expectation, besides
fashioning appropriate personnel policies that will
attract,
train and retain qualified and competent
professionals and ensure that the bright and promising
talent are motivated to give their best.
The growth prospects in the space in which Subex Azure
has chosen to expand and grow in the future are bright
and promising. The expectations of investors are also
higher in view of the excellent growth and financial
performance of the company so far. The management
and the Board will have to deliver on the promise of
future growth and healthy
strong and sustained
performance of the company and thus fulfill the high
expectations of investors, also serving the larger interest
of all stakeholders.
20
A N N U A L R E P O R T
2006 ~ 2007
THE LARGE-CAP IT PRODUCT
COMPANY OF TOMORROW
Vinod Sethi, Director
Vinod R. Sethi is a director of Subex Azure. He is a
graduate in Chemical Engineering and also holds a
degree in B.Tech from IIT, Mumbai and an MBA in
Finance from Stern School of Business, New York
University. His earlier assignments include working with
Morgan Stanley as Chief Investment Officer and
Portfolio Manager of Morgan Stanley Asset
Management managing over US $2.4 billion of
investments in India. He is also a director on the board
of several companies.
Over time, the scarcity premium that markets accord on
companies, will inevitably shift from 'labor-intensive' IT to
'knowledge-intensive' IT. The strengthening rupee will
further accelerate this process. History also tells us that
labor-intensive businesses haven't been able to sustain
high valuations for sustained periods of time. Capitalism
loves businesses with disproportionate labor/ capital
efficiencies, rather than disproportionate labor/ capital
dependencies. High-end IT product companies rather
than IT services companies will be the market darlings of
tomorrow. I think India is ripe for its own 'desi' equivalent
of a Microsoft/ Oracle/ Google over the next 5-10 years.
Can Subex Azure be one of the large-cap IT product
companies of India? I think so. It has the critical mass of
ingredients for this to happen.
I have known Subash for a long time and I have been
investing in Subex Azure since its IPO in 1999. What has
struck me about Subex Azure is its remarkable ability to
mutate and stay ahead of the curve. Subex Azure today
is a very dynamic and low-inertia organization. Seamless
execution and quick assimilation of acquisitions have
become a fine art at Subex Azure. The ability to see reality
for what it is and to respond rapidly is a Subex Azure
hallmark. It is also an intensely focused organization,
with management processes far superior to its peer
group. I believe that Subex Azure has painstakingly set
up the building blocks over the last decade.
It hasn't been an easy road. For years, Subash bought
discounted economy class tickets to go to the remotest
parts of the world to kick start the business. All that is
bearing fruit now. I have seen Subash through good and
bad times. Through it all, he has remained the same. I
haven't seen him 'swell up' with good times. That to me is
a very important criterion while looking for investments.
The swollen head ones are usually on a slippery wicket.
Subash is also a very attentive listener; and he delegates
very well. Consequently, he always has the free time and
mental space to brainstorm and look ahead.
The challenges are many. Tectonic plate shifts are
impacting both the telecom industry and the way
IT products are sold. For instance, the whole Google
phenomenon presages a world where the product is free
and is funded by advertising. The other thing that is
happening worldwide is that telecom is becoming an
indispensable part of our lives. Soon humans will be born
with a name and a phone number! Telecom is moving
from being a means of communication to being the main
intermediary of many human activities; commerce,
entertainment, data, search, mobility. Telecom is now
virtually the central nervous system of the global
economy. I believe these are incredible opportunities
for a dominant, world class player like Subex Azure.
At the end of the day, it all boils down to the people driving
the best
an organization. Subash
entrepreneurs I have met and Sudeesh is among the best
COOs I know. The combination is lethal. Consequently,
Subex Azure has great potential going forward. The next
decade will likely see the rise of Subex Azure as a large-
cap, high-end IT product company. Obviously, risks and
uncertainties are aplenty. And there is many a slip
between the cup and the lip. However, I do strongly
the
believe
wherewithal to profit from these changes. There is a great
future ahead.
that Subex Azure management has
is among
A N N U A L R E P O R T
A N N U A L R E P O R T
2006 ~ 2007
2006 ~ 2007
21
LETTING INNOVATION
SET THE TUNE
We pioneered the single-vendor concept for fraud management and revenue
assurance before it became an industry norm. Our path breaking innovation –
Revenue Operations Center (ROC) – is the toast of the market.
22
A N N U A L R E P O R T
2006 ~ 2007
A COMPELLING PROPOSITION
IN THE GLOBAL OSS SPACE
Andrew Garman, Director
Andrew Garman is a director at Subex Azure. He is a
managing partner of New Venture Partners LLC,
a venture capital firm focused on investments in
information
telecommunications
companies. The firm results from the combination of
people who drove new venture development activities
at Lucent Bell Labs and British Telecom.
technology and
the
New Venture Partners, a technology investment firm
based in the United States and England, of which I am a
managing partner, was Azure's main investor since its
spinoff from the BT Group in 2003. By early 2006, we
were in the final stages of signing the terms that would
lead to the merger of Subex and Azure. It was clear from
our discussions with the leadership team at Subex that
future market
we shared similar views of
opportunity.
The simple truth is Operational Support Systems (OSS)
power telecom companies. Without them nothing would
happen. No service would be provided, no network
managed and no bill raised. These systems underpin the
telecom services industry worth almost US $1.5 trillion.
In 2007, the OSS market will be worth US $15 billion per
annum and over 80% of the OSS/ BSS spend market will
come from the largest of 40 Communications Service
Provider (CSP) groups. This means anyone who wants to
be a major OSS player needs to be a credible supplier to
these 40 CSPs. Easier said than done. These 40 groups
are very demanding and want to buy best-in-class
solutions from financially sound, reputable vendors.
However, whilst all vendors claim some technological
differentiator, the majority of the 200 OSS vendors are
small companies with revenues of less than US $10
million per annum. This means most OSS vendors have
limited portfolios, limited geographic coverage and
limited financial resources. That leaves a great market
opportunity for any vendor who can break into the
virtuous circle of winning business from inside the
their geographic
largest 40 CSP groups, to grow their portfolio offerings,
widening
footprint and building
financial scale. But where do we start?
At New Venture Partners, we had been interested in the
Fraud and Revenue Assurance sector of the OSS market
for a number of years. There was growing evidence that
CSPs were consistently failing to collect all of their
revenues and as their profit margins were more and more
under pressure, we believed this had to be one area of
future investment. Independent research confirmed that
on an average CSPs were failing to collect 10-12% of
their revenues. In extreme cases, CSPs were failing to
collect 30% of their possible revenues. In the large,
tightly run CSPs, the missing revenues were much lower
at 1-3% of turnover. But in such cases these were 1-3%
of the huge revenues. We also found that more than half
the CSPs were using in-house fraud and revenue
assurance solutions. Even while their best efforts were
keeping losses low, the CSPs were tying up skilled
people as well funding all the development work and
software maintenance. In Subex, we saw a vendor that
also believed
to buy COTS
that CSPs wanted
(Commercial Off The Shelf) solutions and not develop in-
house solutions. Subex was also approaching the OSS
market from the Fraud and Revenue Assurance sector.
Both companies had similar views of the market
opportunity, bringing highly complementary skill sets.
Azure's BT heritage meant it had extensive telecom
experience whilst Subex brought software product
development and management skills. Azure was an
EMEA (Europe, Middle East and Africa) headquartered
company. Subex was an Asia headquartered company.
Both companies had recognized the importance of
acquisition to grow and enter new geographies. Both
had acquired companies in the US. We firmly believed
the two companies could be stronger together than
apart. We had the same vision and complementary skills.
A N N U A L R E P O R T
2006 ~ 2007
23
the
integration of
The
two companies has been
completed in less than a year. This has been a significant
piece of work that has included merging the product
portfolio and re-organising the company. The customer
base, product set and geographic footprint have
expanded.
The opportunity in the OSS market continues. There have
been a number of large mergers and acquisitions
amongst CSPs and the growth of the CSPs in China,
India, Russia and Brazil mean the market value is even
more focused on a limited number of operators. We see
the opportunity to expand the product portfolio to
address other OSS needs within these groups. Chief
Technology Officers (CTOs) and Chief Information
Officers (CIOs) want less complexity in their systems.
One way of achieving this is to buy new applications from
existing OSS suppliers that can be supported on existing
platforms. This reduces the need for new supplier
interfaces whilst simplifying integration and support. It is
true that most CSPs want a level of multi-supplier
provision to ensure they get a level of vendor competition
and 'best of breed' products. At the same time, too many
vendors result
in unacceptable complexity.
Subex Azure's recent acquisition of Syndesis is a
logical move into an adjacent market sector. The sector
covers provisioning, activation and inventory. The
telecom industry has recognised the enormous cost
burden of poor provisioning and service activation.
Adding this capability to the existing Subex Azure
portfolio creates a compelling proposition for the CSPs
and the market.
CSPs will welcome more and more components of the
OSS stack, sourced from a single vendor. Subex Azure
is well positioned among a small number of global OSS
companies to do exactly that.
24
A N N U A L R E P O R T
2006 ~ 2007
BOARD OF DIRECTORS
Subash Menon
Founder Chairman, Managing Director & CEO
Sudeesh Yezhuvath
Chief Operating Officer
V. Balaji Bhat
Director
K. Bala Chandran
Director
Vinod R. Sethi
Director
S. N. Rajesh
Director
P. P. Prabhu
Director
Harry Berry
Director
Andrew Garman
Director
A N N U A L R E P O R T
2006 ~ 2007
25
MANAGEMENT TEAM
Subash Menon
Founder Chairman,
Managing Director & CEO
Sudeesh Yezhuvath
Chief Operating Officer
Sudha Madhavan
Chief Financial Officer
Mark Nicholson
Chief Technology Officer
Vinod Kumar
President - Revenue Maximization
Solutions Business Unit
Mark Fowlie
President - Fulfillment & Assurance
Solutions Business Unit
Paul Skillen
President - BT Business Unit
Greg LeNeveu
President - Americas
26
A N N U A L R E P O R T
2006 ~ 2007
Saul Nurtman
President - EMEA
Dean Smith
President - Asia Pacific
Anuradha
Senior Vice President - Engineering
Sekharan Y Menon
Senior Vice President -
Professional Services Organization
Eric Palmer
Senior Vice President -
Corporate Development
Sanjay Paul Antony
Senior Vice President - Human Resources
Sanjeev Gadre
Vice President - Marketing
Rajkumar C
Chief Counsel & Company Secretary
A N N U A L R E P O R T
2006 ~ 2007
27
The page is Intentionally left blank
GENERAL REVIEW &
ACCOUNTABLITY
A N N U A L R E P O R T
2006 - 2007
29
DIRECTORS’ REPORT TO THE MEMBERS OF SUBEX AZURE LIMITED
Your directors have pleasure in presenting the 13th Annual Report
of the Company on the business and operations together with the
audited results for the year ended March 31, 2007.
FINANCIAL RESULTS
Consolidated
Amount in Rs. million
Standalone
2006-07 2005-06 2006-07 2005-06
3710.92 1843.25 2361.84 1841.19
812.46
531.15
447.83
539.44
235.85
576.61
(99.05)
675.66
119.39
411.76
33.28
378.49
188.74
259.09
50.95
208.14
117.21
422.23
30.73
391.50
-
-
-
-
-
-
-
-
52.11
16.28
69.63
21.76
20.95
5.60
23.20
39.50
1238.02
741.14
785.67
756.30
Total revenue
Profit before Interest,
Depreciation &
Amortization
Interest, Depreciation
& Amortization
Profit before tax
Provision for taxes
Profit after tax
Appropriations
Interim dividend
Dividend proposed on
equity shares
Provision for tax on
dividends
Transfer to general
reserve
Surplus carried to
balance sheet
RESULTS OF OPERATIONS
Your Company performed well during the financial year ended March
31, 2007. The total revenue grew by 101% to reach Rs. 3,710.92
million. Profit after Tax (PAT) for the financial year 2006-07 was
Rs. 675.66 million witnessing a growth of 79%. The revenue
composition was 67% from products and 33% from services.
Products business, our focus area, is continuing to contribute a
higher proportion to revenue with every passing year. Over the
past 6 years, software products have increased their contribution
in the overall revenue from a low figure of 7% in FY01 to 67% in
FY07. Further, Average Revenue Per Subexian has increased to
US$ 108,000 from US$ 53,000 in FY04.
BUSINESS
Your Company is a provider of solutions in the Operations Support
Systems area for telecom applications. This area can broadly be
classified into Service Fulfillment, Service Assurance and Revenue
Maximization. The Company has traditionally been operating in the
Revenue Maximization space, but has expanded into the Service
Fulfillment space consequent to the acquisition of Syndesis Limited,
Canada. While Revenue Maximization solutions improve the
revenues and profits of the communications service providers
through identification and elimination of leakages in their revenue
chain, Service Fulfillment solutions enable the carriers to fulfill the
needs of their subscribers through provisioning and activation of
services. Subex Azure conceptualizes and develops software
products at its facilities in Bangalore and is focused on the telecom
business segment. Subex Azure has sales and support offices in
the United States, Canada, UK, UAE, India, China and Australia.
Subex Azure is the global leader in revenue maximization for
communications service providers.
Carriers today are facing a variety of challenges. The key among
them are (a) the competitive requirement to provide high quality
services faster and cheaper and (b) the operational requirement
to have a well integrated Operations Support System (OSS) to
meet the competitive requirement. Subex Azure provides software
solutions to meet these critical requirements. Carriers have been
building the support structure by acquiring disparate pieces of
software and that has resulted in stove pipes getting built over
time. Our well integrated platform called Revenue Operations
Center (ROC) addresses this issue of a solid structure within their
networks. The solutions that form part of the ROC enable the
customers to achieve Operational Dexterity which is a combination
of Operational Efficiency and Service Agility. While the former
ensures that cost of operation is maintained at a low enough level,
the latter ensures adequate service levels are achieved.
Prior to the acquisition of Azure Solutions Limited, we were present
only in fraud and revenue assurance. That market is expected to
have a size of about US$ 300 million in 2010. The acquisition of
Azure Solutions added a new segment (Interconnect Billing)
thereby taking the combined market opportunity to US$ 900 million
in 2010. That acquisition also helped us to cement our position in
the traditional space of fraud and revenue assurance.
The recent acquisition of Syndesis has further changed the market
opportunity quite dramatically. Service Fulfillment, the addition, is
slated to grow faster than revenue maximization to reach a market
size of US$ 2,150 million in 2010. Thus, Subex Azure will be
addressing a market opportunity of US$ 3,050 million in 2010, as
against US$ 300 million prior to our acquisition of Azure Solutions
and Syndesis. Needless to say, the inorganic growth strategy has
helped us to increase the addressable market almost ten times
thereby ensuring a strong base for growth in the future.
ACQUISITIONS
Your Company has acquired Syndesis Limited on April 1, 2007 which
will enable it to consolidate its position in the Operations Support
Software (OSS) market. The management is in the process of
integrating the two companies. Based on the successful track record
with several acquisitions in past, including that of Azure Solutions, we
are quite confident of integrating Syndesis well with Subex Azure and
of leveraging that in the coming quarters and years.
CHANGE OF NAME
Subsequent to the acquisition of Azure Solutions Ltd, the name of
your Company has been changed from Subex Systems Limited to
Subex Azure Limited with effect from June 23, 2006.
DIVIDEND
In January 2007, we paid an interim dividend of Rs. 1.50 per share
(15% on par value of Rs. 10). Your directors recommend a final
dividend of Rs. 2 per share (20% on par value of Rs. 10) fortifying
the company’s tradition of enabling shareholders to participate in
30
A N N U A L R E P O R T
2006 - 2007
its progressive performance. If approved by the shareholders at
the ensuing Annual General Meeting, the dividend will be paid as
per the applicable regulations.
In terms of the provisions of the Investor Education and Protection
Fund (Awareness and Protection of Investor) Rules, 2001, the
application monies received during the IPO in 1999-00 and the
unclaimed interim dividend amount declared during the FY 1999-00
have been transferred to Investor Education and Protection Fund.
The register of members and share transfer books will remain
closed from Monday, July 23, 2007 to Thursday, July 26, 2007,
both days inclusive. The Annual General Meeting of the Company
is scheduled to be held on Thursday, July 26, 2007.
CHANGES IN THE SHARE CAPITAL
ESOP SHARES
During the year, your Company has allotted 2,13,264 shares under
its ESOP 2000 scheme and 6,287 shares under its ESOP 2005
scheme to the option holders on their exercise of stock options.
ISSUE OF GLOBAL DEPOSITORY RECEIPTS (GDRs)
During the financial year 2006-07, your Company has issued
11,728,728 GDRs as a part consideration towards the acquisition
of Azure Solutions Limited. Each GDR represent one underlying
equity share of Rs.10 each, which has been allotted to The Bank of
New York, the Depository for the issue.
ISSUE OF FOREIGN CURRENCY CONVERTIBLE BONDS
(FCCBs) AND SPONSORED GLOBAL DEPOSITORY RECEIPTS
During the financial year 2006-07, your Company has issued
FCCBs amounting to US$ 180 million and sponsored an issue of
28,23,713 Global Depository Receipts. The FCCBs carry an initial
coupon of 2% per annum and are redeemable on completion of
five years i.e., in March 2012.
SUBSIDIARIES
The accounts of the following subsidiaries are consolidated with
that of your Company.
SUBEX TECHNOLOGIES, INC
For the year ended March 31, 2007, Subex Technologies Inc (STI)
earned an income of Rs. 1006.13 million and a net profit of Rs.
12.07 million. STI provides manpower for the contracts of the
Company with its customers in US on a transfer pricing mechanism
and as such the profits on the contracts are reflected in your
company’s accounts.
SUBEX TECHNOLOGIES LIMITED
For the year ended March 31, 2007, Subex Technologies Limited
earned an income of Rs. 41.75 million as against Rs.12.26 million
last year and a net profit of Rs. 2.72 million as against a net loss of
Rs. 15.26 million last year.
SUBEX AZURE (UK) LIMITED
On June 23, 2006, the Company acquired the entire share holding
of Azure Solutions Ltd, UK. The consideration was paid partly by
issue of 11,728,728 GDRs each representing one equity share of
Rs. 10/- at a premium of Rs. 522.24 per share and partly by cash
of Rs. 214,570,000/-. For the year ended March 31, 2007, the
consolidated income of Subex Azure (UK) Ltd is Rs. 1415.88 million
and the net profit is Rs. 452.66 million.
SUBEX AZURE (ASIA PACIFIC) PTE. LTD
For the year ended March 31, 2007, Subex Azure (Asia Pacific) Pte.
Ltd has incurred a net loss of SGD 0.35 million. Subex Azure (Asia
Pacific) Pte. Ltd is a 100% subsidiary of Subex Azure (UK) Ltd.
SUBEX AZURE, INC
For the year ended March 31, 2007, Subex Azure, Inc has incurred
a net loss of US$ 2.10 million. Subex Azure, Inc is a 100% subsidiary
of Subex Azure (UK) Ltd.
EMPLOYEE STOCK OPTION PLANS
Your Company has introduced various Stock Option plans for its
employees. Details of the plans, including grants made to directors
and senior management during the year, are given below.
EMPLOYEE STOCK OPTION PLAN-1999 (ESOP – I)
This scheme was instituted during 1999 and managed by Subex
Foundation with a corpus of 1,20,000 equity shares initially. Since
the scheme was formulated prior to the promulgation of SEBI
guidelines on ESOP dated June 19,1999, the Company has
discontinued the scheme.
EMPLOYEE STOCK OPTION PLAN-2000 (ESOP- II)
Under this scheme, a corpus of 5,00,000 options were created for
grant to the eligible employees. Each option is convertible into one
fully paid-up equity share of Rs.10/- each. This scheme has been
formulated in accordance with the Securities and Exchange Board
of India (Employee Stock Option Scheme and Stock Purchase
Scheme) Guidelines, 1999. The corpus of the scheme was
enhanced by another 3,87,125 options in order to accommodate
the effect and benefit of the bonus issue made by the Company
during the financial year 2005-06.
As per the scheme, a compensation committee is formed, which
grants options to the eligible employees. The options are granted
at a price, which is not less than 85% of the average of the closing
price of the shares during the 15 trading days preceding the date
of grant on the stock exchange where there is highest trading
volume during this period. The options granted vests over a period
of 1 to 4 years and can be exercised over a period of 3 years from
the date of vesting. As on March 31, 2007, 19,291 options were
available in this scheme for further grants.
EMPLOYEE STOCK OPTIONS PLAN -2005 (ESOP-III)
Under this scheme a corpus of 500,000 options were created for
grant to the eligible employees. Each option is convertible into one
fully paid-up equity share of Rs.10/- each. This scheme has been
formulated in accordance with the Securities and Exchange Board
of India (Employee Stock Option Scheme and Stock Purchase Scheme)
Guidelines, 1999 and amendments thereto. The corpus of the scheme
was enhanced by another 15,00,000 options pursuant to the approval
of the members at their meeting held on April 23, 2007.
As per the scheme, the compensation committee grants options to
the eligible employees. The options are granted at a price, which is
not less than 85% of the average of the closing price of the shares
during the 15 trading days preceding the date of grant on the
stock exchange where there is highest trading volume during this
period. The options granted vests over a period of 1 to 4 years
and can be exercised over a period of 3 years from the date of
vesting. As on March 31, 2007, 71,180 options were available in
this scheme for further grants.
A N N U A L R E P O R T
2006 - 2007
31
1
2
3
4
5
6
7
8
9
10
11
12
13
14
ADDITIONAL INFORMATION AS ON MARCH 31, 2007 PER SEBI GUIDELINES
SL.NO PARTICULARS
Options granted as on March 31, 2007
Options granted during the year
Pricing formula
Options vested but not exercised as on March 31, 2007
Options exercised as on March 31, 2007
Options exercised during the year
Money realized by exercise of options during the year
The total number of shares arising as a result of exercise of options
as on March 31, 2007
Options lapsed as on March 31, 2007
Options lapsed during the year
Variation of terms of options
No. of employees covered
Employee wise details of options granted during the year under review to:
(i) Senior managerial personnel
Mr. Saul Nurtman
Mr. Dean Smith
Mr. Greg LeNeveu
Mr. Paul Skillen
Mr. Sanjeev Gadre
Mr. Sanjay Paul Antony
Ms. Anuradha
Ms. Sudha Madhavan
Mr. Vinod Kumar
Mr. Sekharan Y Menon
Mr. Raj Kumar
(ii) other employee who receives a grant in any one year of option amounting to
5% or more of option granted during that year
identified employees who were granted option, during any one year, equal to
or exceeding 1% of the issued capital (excluding outstanding warrants and
conversions) of the Company at the time of grant
(iii)
ESOP 2000
4,80,709
1,12,200
As mentioned
above
24,634
2,19,507
1,06,632
15,745,064
3,26,139
3,93,791
1,08,393
None
340
-
-
-
-
-
12,800
15,000
-
26,700
25,400
-
NIL
NIL
ESOP 2005
4,28,820
3,82,200
As mentioned
above
2,963
6,287
6,287
2,156,441
6,287
24,360
24,360
None
406
10,500
15,000
5,000
8,400
10,100
-
-
12,700
-
-
5,000
NIL
NIL
Diluted Earning per Share (EPS) pursuant to issue of shares on exercise of option
calculated in accordance with Accounting Standard (AS) 20 ‘Earning per Share’
Where the Company has calculated the employee compensation cost using
the intrinsic value of the stock options, the difference between the employee
compensation cost so computed and the employee compensation cost that shall
have been recognized if it had used the fair value of the options. The impact of
this difference on profits and on EPS of the Company is:
Weighted-average exercise prices and weighted-average fair values of options
separately for options whose exercise price either equals or exceeds or is less
than the market price of the stock
Description of the method used during the year to estimate the fair values of
options. Significant assumptions used to estimate the share value of options granted
during the year:
risk-free interest rate
1
expected life
2
expected volatility
3
expected dividends
4
5 market price on grant date
Rs 6.48
(85,37,654)
Rs 6.48
Basic EPS (Proforma): 6.23
Diluted EPS (Proforma): 6.21
Weighted
Weighted
average exercise average exercise
price is Rs. 522.32 price is Rs 442.38
Black Scholes
method of valuation
6.03%
3 Years
62.78%
0.37%
460.62
32
A N N U A L R E P O R T
2006 - 2007
CORPORATE GOVERNANCE
Your Company is committed to ensure good corporate governance
practices in its operations. In achieving this objective, the Company
has always endeavored to operate as a responsible and law abiding
corporate citizen. Your Company strives to implement the best
corporate governance model at par with the best companies.
Your Company has complied with all the requirements of the new
Clause 49 of the Listing Agreement of the Stock Exchanges. The
auditor’s certificate on compliance with Clause 49 is annexed
elsewhere in this report. In addition, your Company has documented
its internal policies in line with the corporate governance guidelines.
The Management Discussion & Analysis of the financial position of
the Company is provided in this annual report and is mentioned
hereby for reference.
AUDIT COMMITTEE
The audit committee presently comprises 6 directors as its members
viz. Mr. V. Balaji Bhat, Mr. K. Bala Chandran, Mr. Vinod R Sethi,
Mr. Subash Menon, Mr. S. N. Rajesh and Mr. Andrew Garman.
Except Mr. Subash Menon, all other members of the audit committee
are non-executive independent directors. Mr. V. Balaji Bhat is the
Chairman of the Audit Committee. The role, terms of reference, the
authority and power of the Audit Committee are in conformity with the
requirements of the Companies Act, 1956 and Clause 49 of the Listing
Agreement. More details of the audit committee are provided in the
‘Report on Corporate Governance’ attached to this annual report.
AUDITORS
M/s. Deloitte Haskins & Sells, the auditors retiring at the ensuing
Annual General Meeting, have confirmed their eligibility and
willingness to accept office, if re-appointed.
DIRECTORS
The Board of Directors at their meeting held on April 30, 2007 re-
appointed Mr. Subash Menon as the Chairman & Managing Director
of the Company for a further period of 5 years, which is proposed
for approval before the members in the Annual General Meeting to
be held on Thursday, the July 26, 2007.
Mr. Andrew Garman and Mr. Harry Berry were inducted on the
Board by the members in their Extraordinary General Meeting held
on May 29, 2006.
As per Article 87 of the Articles of Association of the Company,
atleast two-third of your directors shall be subject to retirement by
rotation. One-third of these retiring directors must retire from office
at each Annual General Meeting of the shareholders. Mr. V. Balaji
Bhat and Mr. K. Bala Chandran retire by rotation and being eligible,
offer themselves for re-appointment at the ensuing Annual General
Meeting.
FIXED DEPOSITS
Your Company has not accepted any fixed deposits from the public.
PARTICULARS OF EMPLOYEES
As required under the provisions of section 217(2A) of the
Companies Act, 1956 read with the Companies (Particulars of
Employees) Rules, 1975, the names and other particulars of
employees are set out in the annexure included in this report.
As per the amendment made to Companies (Particulars of
Employees) Rules, 1975, through the Amendment Rules, 2004,
with effect from March 24, 2004, the particulars of employees of
companies engaged in information technology sector posted
and working outside India, not being directors or their relatives,
drawing more than Rs. 24 lakhs per annum or Rs. 2 lakhs per
month, as the case may be, need not be included in the statement.
Accordingly, the statement included in this report does not
contain the particulars of employees who are posted and working
outside India.
INFORMATION UNDER SECTION 217 (1)(e) OF THE COMPANIES
ACT, 1956 READ WITH COMPANIES (DISCLOSURES OF
PARTICULARS IN THE REPORT OF BOARD OF DIRECTORS)
RULES, 1988
A CONSERVATION OF ENERGY
The operations of your Company are not energy-intensive.
However, significant measures are taken to reduce energy
consumption by using energy-efficient computers and by the
purchase of energy-efficient equipment. Your Company constantly
evaluates new technologies and invests to make its infrastructure
more energy-efficient. Your Company uses CFL fittings and
electronic ballasts to reduce the power consumption of fluorescent
tubes. Air conditioners with energy efficient screw compressors
for central air conditioning and air conditioners with split air
conditioning for localized areas are used.
B TECHNOLOGY ABSORPTION, ADOPTION AND INNOVATION
Your Company has not imported any technology. However, the
telecommunications domain, in which your Company operates, is
subject to high level of obsolescence and rapid technological
changes. Your Company has developed inherent skills to keep
pace with these changes. Since software products are the
significant line of business of your Company, the Company incurs
expenses on product related research & development on a continuous
basis. These expenses are charged to revenue under the respective
heads and are not segregated and accounted separately.
C FOREIGN EXCHANGE EARNINGS AND OUTGO
Your Company has over the years shifted its focus from software
services to software products. This has resulted in substantial foreign
exchange earnings as compared to previous years. During the year
2006-07 total foreign exchange inflow and outflow is as follows:
i) Foreign exchange earnings Rs. 1825.73 million (previous year
Rs. 1378.70 million)
ii) Foreign exchange outgo Rs. 1744.32 million (previous year
Rs. 1000.91 million)
SOCIAL RESPONSIBILITIES - SUBEX CHARITABLE TRUST
The Trust was set up to provide for welfare activities for
underprivileged and the needy in the society. The Trust is managed
by trustees elected amongst the Subexians. During the year, the
Trust has provided active support for rural heath care initiatives
and for education of underprivileged children.
HUMAN RESOURCE MANAGEMENT
At Subex Azure, the most important asset is Subexians. Your
Company has created a favorable work environment that
encourages innovation and meritocracy. Your Company has set
up a scalable recruitment and human resource management
A N N U A L R E P O R T
2006 - 2007
33
process, which enable it to attract and retain talented people. As
on March 31, 2007, your Company had over 688 Subexians on its
rolls. They are highly trained and motivated people. This is critical
to the success of your Company. Pursuant to the acquisition of
Syndesis on April 1, 2007, around 300 employees of Syndesis
have become Subexians.
NEW CAMPUS
In order to leverage scale and synergies of integrated business
operations, your Company has decided to move its office to a new
state-of-the-art campus. This move will integrate all existing business
offices of the Company at Bangalore. The new campus will have a
built up area of approx. 125,000 sq.ft.
DIRECTORS’ RESPONSIBILITY STATEMENT
In accordance with the provision of Section 217(2AA) of the
Companies Act 1956, the Board of Directors affirms;
a) That in the preparation of the accounts for the year ending
March 31, 2007, the applicable accounting standards have been
followed and there are no material departures there from.
b) That the accounting policies have been selected and applied
consistently (except with respect to change in provision for
depreciation) and judgments and estimates made are reasonable
and prudent so as to give a true and fair view of the state of affairs
of the Company as at March 31, 2007 and of the profit of the
Company for the year ended on that date.
c) That proper and sufficient care has been taken for the
maintenance of adequate accounting records in accordance with
the provision of the Act for safeguarding the assets of the Company
and for preventing and detecting fraud and other irregularities.
d) That the accounts for the year ended March 31, 2007 has
been prepared on a going concern basis.
APPRECIATIONS / ACKNOWLEDGEMENTS
We thank our clients, vendors, investors and bankers for the
continued support during the year. We place on record our
appreciation for the co-operation and assistance provided by the
Central and State Government authorities particularly Software
Technology Park- Bangalore, Customs and Central Excise
Authorities, Registrar of Companies, Karnataka, the Income Tax
Department, Reserve Bank of India and various authorities under
the Government of Karnataka.
Your directors also wish to place on record their deep appreciation
to Subexians at all levels for their hard work, solidarity, co-operation
and support, as they are instrumental in your Company scaling
new heights, year after year.
Place : Bangalore
Date : June 18, 2007
for and on behalf of the Board
Subash Menon
Founder Chairman,
Managing Director & CEO
ANNEXURE TO THE DIRECTORS’ REPORT
Information as per Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 and being part of the
Directors’ Report for the year ended March 31, 2007.
Name
Sl.
No.
Designation
Qualification
Age
Experience
(No. of
years)
Date of
commencement
of employment
Remuneration
received
Rs.
Previous employment
1
2
3
4
5
6
7
8
9
10
11
12
13
Prashant Shah
Ashwin Chalapathy*
Senior Project Manager
Product Unit Head
BE & MBA
MSC
Nitin D
Product Unit Head
B Tech
Sanjeev Gadre
Sekharan Y Menon
Alok Dashora*
Anuradha
Vinod Kumar
Sudha Madhavan*
Sanjay Paul Antony
Sudeesh Yezhuvath
Subash Menon
Suresh Rao V.R.
Eng
Diploma in IT
BE,IIS(Mgmt),PMI
Vice President - Marketing PGDM
Senior Vice President -
Professional Services
Organisation
Director - Professional
Services Organisation
Senior Vice President -
Engineering
President - Revenue
Maximization Solutions (BU) B Tech
Chief Financial Officer
MS
ACA, ACS,
AICWA, LL.B
Senior Vice President -
Human Resources
Chief Operating Officer
Chief Executive Officer
Vice President - Accounts
& Finance
BE, PM&IR
B Tech
BE
ACA
35
35
36
36
40
34
42
37
42
41
38
42
42
12
12
15
13
21
12
16
15
18
17
16
20
18
24-Mar-03
15-Jan-07
2,496,319
625,000
04-Oct-04
2,733,795
01-Sep-03
3,400,000
Apogee Networks India
Siemens Public
Communication Network
Pvt. Ltd
Siemens Public
Communication Network
Pvt. Ltd
Hughes Software Systems
01-Sep-96
04-Nov-06
30-Jun-03
15-Oct-97
10-Jan-07
10-Oct-05
13-May-93
01-Jun-91
16-Feb-04
4,194,020
Yokogawa Blue Star
866,666 Wipro
4,716,767 Mistral Software Pvt Ltd
3,924,016
963,000
Crompton Greaves Ltd
IBM
5,400,000 Goldman Sachs
1,26,36,430
1,23,09,709
Transmatic Systems Limited
Eltel Industries
3,260,017
BPL Telecom Limited
* Worked for part of the year.
34
A N N U A L R E P O R T
2006 - 2007
Statement pursuant to exemption received under Section 212(8) of the Companies Act, 1956, relating to subsidiary companies for the
FY 2006-07
Name of the Subsidiary
Subex
Technologies
Limited
Subex
Subex
Azure
Azure (UK)
(APAC) Pte.Ltd*
Limited
March 31, 2007 March 31, 2007 March 31, 2007 March 31, 2007 March 31, 2007
Subex
Technologies
Inc
Subex
Azure Inc*
Financial period ended
Holding company’s interest (in equity shares)
Shares held by the holding Company
in the subsidiary
The net aggregate of profits or losses of
the subsidiary for the current period so
far as it concerns the members of the
holding Company
a. dealt with or provided for the account
of the holding Company
b. not dealt with or provided for in the
accounts of the holding Company
The net aggregate of profits or losses for
previous financial years of the subsidiary
so far as it concerns the members of the
holding Company
a. dealt with or provided for in the
account of the holding Company
b. not dealt with or provided for in the
accounts of the holding Company
Issued & Subscribed share capital
(equity shares)
Reserves
Loans
Total assets
Total liabilities
Investments
Long Term
Current
Total
Turnover
Profit/(Loss) before taxation
Provision for taxation
Profit / (Loss) after taxation
Proposed dividend
Country
100%
100%
100%
100%
100%
1,000,000
of Rs. 10/- each
3,000 5,039,565,245
1,000
of US$ 0.67 each of £ 0.00001 each of US$ 0.01 each
2
of SGD 1 each
2,780,058
12,071,815
493,645,563
(34,607,375)
(6,373,260)
(15,487,051)
3,964,436
(2,392,674,252)
(19,386,822)
(63,935,383)
10,000,000
(12,706,993)
15,671,846
12,964,853
12,964,853
-
-
-
41,387,116
3,434,074
654,016
2,780,058
-
India
87,070
16,036,251
48,646,500
274,584,657
274,584,657
-
-
-
1,006,128,562
15,817,760
3,745,945
12,071,815
-
US
4,242,250
329,965,514
460
(55,033,862)
58
(77,557,493)
886,892,404
886,892,404
309,229,379
309,229,379
49,440,892
49,440,892
518
518
1,049,874,045
339,245,563
(154,400,000)
493,645,563
-
311,420,220
(34,607,375)
-
57,266,425
(6,373,260)
(34,607,375)
(6,373,260)
UK
US
Singapore
* Wholly owned subsidiaries of Subex Azure (UK) Limited
Note: The reporting currency for the above-mentioned subsidiaries is Indian rupee. The Indian rupee equivalents in the accounts of the
subsidiary companies are based on the exchange rates as on March 31, 2007.
A N N U A L R E P O R T
2006 - 2007
35
REPORT ON CORPORATE GOVERNANCE
I. COMPANY’S PHILOSOPHY ON CORPORATE GOVERNANCE
Corporate governance is about commitment, values and ethical
business conduct. It is about how an organization is managed.
Therefore ownership, performance, transparency, integrity in
operations besides the structure, activities and policies of the
Company attracts the investors and enhances the trust and
confidence of the stakeholders in the organization.
Subex Azure’s compliance with the corporate governance
guidelines as stipulated by the Stock Exchanges is described in this
section. The Company believes that sound corporate governance
is critical to enhance and retain investor’s trust. Subex Azure
respects minority rights in its business decisions.
Subex Azure’s corporate governance philosophy is based on the
following principles:
1. Satisfy the spirit of the law and not just the letter of the law.
2. Be transparent and maintain a high degree of disclosure levels.
3. Communicate externally, in a truthful manner, about how the
Company is run internally.
4. Comply with the laws in all the countries in which the Company
operates.
Subex Azure Limited is committed to good corporate governance
practices. Consistent with this commitment, Subex Azure seeks to
achieve a high level of responsibility and accountability in its internal
systems and policies. Subex Azure respects the inalienable rights
of the shareholders to information on the performance of the
Company. The company’s corporate governance policies ensures,
among others, the accountability of the Board of Directors and the
uniformity in its decisions towards all its participants viz., customers,
employees, investors, regulatory bodies etc. Subex Azure’s code
of corporate governance has been drafted in compliance with the
code of “Corporate Governance” as promulgated by the Securities
and Exchange Board of India (SEBI) on January 25, 2000 and
amendments made thereto.
II. BOARD OF DIRECTORS
The Board of Directors of Subex Azure comprises 9 directors out
of which 2 are executive directors and 7 are non-executive
independent directors.
Details of the composition of the Board of Directors and their
attendance and other particulars are given below:
A. Composition and category of directors as on March 31, 2007
%
Category
11.1%
Promoter directors
77.8%
Non-executive Independent directors
11.1%
Other executive directors
100%
Total
No. of directors
1
7
1
9
B. Attendance of directors at the Board Meetings and the last AGM and details about their directorships and memberships in committees
as on March 31, 2007.
Director
Position
No. of
Board
meetings
held
No. of
Board
meetings
attended
Last AGM
attendance
No. of
directorships
in other
companies ▲
No. of
committees
in which the
director is
Chairman ■
No. of
committees
in which the
director is a
member ■
Mr. Subash Menon
Mr. Sudeesh Yezhuvath
Mr. V. Balaji Bhat
Mr. Vinod R.Sethi
Mr. K. Bala Chandran
Mr. S N Rajesh
Mr. P.P.Prabhu
Mr. Harry Berry+
Mr. Andrew Garman+
Founder, Chairman
Managing Director & CEO
Chief Operating Officer
and Wholetime Director
Non Executive
Independent Director
Non Executive
Independent Director
Non Executive
Independent Director
Nominee Director
Non Executive
Independent Director
Non Executive
Independent Director
Non Executive
Independent Director
7
7
7
7
7
7
7
7
7
6
4
6
4
2
6
7
3
3
Yes
Yes
Yes
Yes
No
No
Yes
No
No
1
1
4
9
1
1
3
-
-
-
-
2
1
1
-
2
-
-
1
1
-
3
3
1
1
-
1
Excluding private limited companies & overseas companies.
Includes only audit committee and shareholder’s grievance committee. Memberships in committees in Subex Azure Ltd are included.
+ Mr. Harry Berry and Mr. Andrew Garman were inducted on the Board with effect from May 29, 2006.
36
A N N U A L R E P O R T
2006 - 2007
▲
■
C. Number and dates of Board meetings
7 (seven) Board meetings were held during the financial year
2006-07. The dates on which meetings were held are as follows:
April 25, 2006; May 15, 2006; July 27, 2006; October 28, 2006;
December 15, 2006; January 18, 2007; January 29, 2007.
D. Brief details of directors seeking re-appointment
Mr. V Balaji Bhat is a Chartered Accountant and Management
Consultant, specializing in Merger & Acquisitions, Advisory Services
and International Taxation. He is also associated with various
medium and large corporations in India and overseas as an Advisor
and Director. He is the Managing Director and CEO of Primus
Retail Pvt Ltd (formerly Gitanjali Lifestyle Products Pvt Ltd). Primus
Retail Pvt Ltd is a retailing and distribution of lifestyle products with
specific regard to apparel, shoes and related accessories.
Mr. K. Bala Chandran is a Graduate in Physics, from Loyola College
(Madras University) and a Post-Graduate Dip. in Business and
Industrial Management. He has completed courses in Finance
Management, Advanced Sales Management & Quality
Management. Mr. Bala Chandran took charge as the CEO in
December 1997 after joining KRONE Communications Ltd., in 1991
during which period he was responsible for the Sales & Marketing
operations of the Company. He was designated as the Managing
Director of the Company subsequently in October 2000. He started
his career with Lawrence & Mayo (I) Pvt. Ltd., responsible for
Sales Engineering of Edwards High Vacuum Systems of UK. He
subsequently served the S&J Group as its regional manager in the
Industrial Clean Systems Division.
AUDIT COMMITTEE
III.
A. Terms of reference
The audit committee has, interalia, the following mandate:
• Overseeing the company’s financial reporting process and
disclosure of its financial information to ensure that the financial
statements are correct, sufficient and credible
• Recommendation of appointment and removal of external
auditor, fixation of audit fee and also approval for payment for
any other services
• Review of annual financial statements before submission to the
Board
Mr. K. Bala Chandran
• Review of adequacy of internal control systems
• Review of adequacy of internal audit function, including the
reporting structure coverage and frequency of internal audit
• Review of the company’s financial and risk management policies
The current charter of the audit committee is in line with international
best practices and the regulatory changes formulated by SEBI
and the Listing Agreements of the Stock Exchanges on which
Subex Azure is listed.
B. Composition of audit committee
Composition
Mr. Balaji Bhat, Chairman
Category
Non-Executive
Independent Director
Non-Executive
Independent Director
Non-Executive
Independent Director
Nominee Director
Non-Executive
Independent Director
Founder Chairman,
Managing Director & CEO
The Company Secretary is the secretary of the audit committee.
C. Meetings and attendance during the year
During the financial year 2006-07, five audit committee meetings
were held. The dates on which meetings were held are as
follows:
April 25, 2006; May 15, 2006; July 27, 2006; October 28, 2006;
January 29, 2007.
Mr. S. N. Rajesh
Mr. Andrew Garman
Mr. Subash Menon
Mr. Vinod R. Sethi
No. of audit committee meetings attended
5
3
3
4
2
5
No. of audit committee meetings held
5
5
5
5
5
5
Attendance of committee members at the audit committee meetings held during the financial year 2006-07:
Member
Mr. V. Balaji Bhat
Mr. K. Bala Chandran
Mr. Vinod R. Sethi
Mr. S. N. Rajesh
Mr. Andrew Garman*
Mr. Subash Menon
* Mr. Andrew Garman was inducted as the member of the committee with effect from July 27, 2006
IV. REMUNERATION COMMITTEE
Composition of the committee
A.
Mr. S. N. Rajesh - Chairman
Mr. Vinod R. Sethi
Mr. K. Balachandran
Mr. V. Balaji Bhat*
Mr. Harry Berry**
with effect from May 15, 2006
with effect from July 27, 2006
The committee considers the performance of the Company as well
as general industry trends while fixing the remuneration of executive
directors.
* Mr. V. Balaji Bhat was inducted as the member of the committee
** Mr. Harry Berry was inducted as the member of the committee
B. Meetings and attendance during the year
During the year under review, the committee had one meeting on
April 25, 2006. All the members of the committee as on April 25,
2006 were present at the meeting.
A N N U A L R E P O R T
2006 - 2007
37
C. Details of remuneration to directors
Name
Mr. Subash Menon
Mr. Sudeesh Yezhuvath
Mr. K.Bala Chandran*
Mr. V.Balaji Bhat*
Mr. Vinod R. Sethi*
Mr. S.N.Rajesh
Mr. P.P.Prabhu*
Mr. Andrew Garman
Mr. Harry Berry
Note: The above figures are excluding the sitting fees, which are within the limits specified in the Companies Act, 1956.
* The Company compensates Non-Executive Independent Directors keeping in view of the time and attention devoted by them for the Company.
Designation
Founder Chairman, Managing Director & CEO
Chief Operating Officer and Wholetime Director
Non - Executive Independent Director
Non - Executive Independent Director
Non - Executive Independent Director
Non - Executive Independent Director
Non - Executive Independent Director
Non - Executive Independent Director
Non - Executive Independent Director
Amount in Rs.
Total
1,26,36,430
1,23,09,709
5,00,000
5,00,000
5,00,000
-
5,00,000
-
-
Commission
-
-
5,00,000
5,00,000
5,00,000
-
5,00,000
-
-
Salary
1,26,36,430
1,23,09,709
-
-
-
-
-
-
-
The following directors have been allotted stock options under the employee stock options scheme of the Company.
Name
No. of options
Designation
No. of shares vested and exercised
as on March 31, 2007
Mr. K. Bala Chandran
Mr. V. Balaji Bhat
Mr. Vinod R. Sethi
Mr. P. P. Prabhu
Non–Executive Independent Director
Non–Executive Independent Director
Non–Executive Independent Director
Non–Executive Independent Director
7,500
7,500
7,500
7,500
7,500
7,500
7,500
4,875
The above stock options were granted on the same terms and conditions as applicable to the employees in accordance with the ESOP plans
of the Company.
The remuneration committee determines and recommends to
the Board, the compensation payable to the directors. All Board
level compensation is approved by the shareholders and
separately disclosed in the financial statements. Remuneration
of executive directors consists of a fixed component and a
performance based commission. The compensation, however,
shall be within the parameters set by the shareholders meetings
and the provisions of the Companies Act, 1956. The executive
directors have entered into service contracts with the Company.
Both the executive directors have 3 months’ notice period with
the Company if they decide to terminate the contract. If the
termination is from the Company, the notice period shall be 12
months. In case of severance from the Company, Mr. Subash
Menon is eligible for getting compensation of not less than twenty
times and Mr. Sudeesh Yezhuvath is eligible for getting
compensation not less than fifteen times of their total
remuneration for the preceding 12 months from the date of the
notice and the notice period amount. The non-executive directors
are eligible for commission not exceeding 0.5% of the profits of
the Company subject to a maximum of Rs. 2 million in aggregate
per year and also stock options of the Company subject to the
terms of the stock option plans of the Company.
V. SHARE TRANSFER COMMITTEE
A. Composition of the committee
Mr. Sudeesh Yezhuvath, Chairman
Mr. Subash Menon
Authorised Representative of Share Transfer agents.
B. Meetings during the year
The Company holds share transfer committee meetings upto 3
times a month, as may be required, for approving the transfers/
transmissions/rematerialisation of equity shares. The Company has
appointed M/s. Canbank Computer Services Limited, a SEBI
recognised transfer agent, as its Share Transfer Agent with effect
from November 6, 2001. The share transfer committee has met
nine times during the financial year 2006-07 on the following dates:
Date of the meeting
April 15, 2006
May 31, 2006
August 21, 2006
October 16, 2006
September 30, 2006
October 31, 2006
November 30, 2006
December 15, 2006
January 02, 2007
No. of transfer
deeds received
-
2
1
-
13
1
2
4
-
Shares pursuant to
the deeds
-
200
1
-
1300
2
200
400
-
Rematerialisation
requests received
1
-
-
1
-
-
-
-
1
Shares involved
4
-
-
20
-
-
-
-
1
The Company ensures that the share transfers are effected within one month of the receipt of request for transfer.
38
A N N U A L R E P O R T
2006 - 2007
INVESTOR GRIEVANCE COMMITTEE
VI.
A. Composition of the committee
The members of the company’s investor grievance committee
are:
Mr. K. Bala Chandran, Chairman
Mr. Sudeesh Yezhuvath
This committee looks into redressal of shareholders’ and investors’
complaints.
The Company secretary is the compliance officer of the
Company.
B. Meetings during the year
The committee has met 4 (four) times during the current financial
year 2006-07 on the following dates:
April 25, 2006; July 27, 2006;
October 28, 2006; January 29, 2007
Details of grievances of the investors are given in the “Shareholders’
Information” section of this report.
VII. ESOP COMMITTEE (Compensation committee)
The Company has instituted employee stock option plans in line with the
SEBI Guidelines. In order to grant options under the plans to eligible
employees, an ESOP Compensation Committee has been formed.
A. Composition of the committee
The committee comprises the following directors:
Mr. V. Balaji Bhat, Chairman
Mr. K. Bala Chandran
Mr. Subash Menon
B. Meetings during the year
The committee met 6 (six) times during the current financial year
2006-07 on the following dates:
April 1, 2006; July 7, 2006; August 21, 2006; October 21, 2006;
January 2, 2007; February 23, 2007.
Mr. V. Balaji Bhat chaired all the meetings
VIII. GENERAL BODY MEETINGS
A. Location and time of the last three AGMs held
Year
2004
Date of AGM
August 24, 2004
Time
3:00 p.m.
Venue
Le Meridien –
Bangalore
Le Meridien –
Bangalore
Le Meridien –
Bangalore
3:00 p.m.
4:00 p.m.
2005
2006
July 28, 2005
August 28, 2006
Location and time of the last three EGMs held
Venue
Year Date of EGM
Le Meridien - Bangalore 3:00 p.m.
2006 May 29, 2006
2007 January 29, 2007 Le Meridien - Bangalore 3:00 p.m.
4:00 p.m.
2007 April 23, 2007
Corporate office
Time
B. Postal ballot
No special resolutions were required to be put through the postal
ballot in the previous year.
IX. DISCLOSURES
A. There are no materially significant related party transactions of
the Company of material nature, with the promoters, the directors
or the management, their subsidiaries or relatives etc that may
have potential conflict with the interests of the Company at large.
B. The Company has not been subjected to any penalties,
strictures by stock exchange(s)/SEBI or any statutory authorities
on any matter related to capital markets, during the last 3 years.
The Company has been complying with the listing conditions.
X. MEANS OF COMMUNICATION
A. Annual/ half yearly and quarterly results
The annual/half yearly/quarterly audited/un-audited results are
generally published in all editions of Business Standard and
Udayavani. The complete financial statements are posted on the
company’s website www.subexazure.com. Subex Azure also
regularly provides information to the Stock Exchanges as per the
requirements of the Listing Agreements and updates the website
periodically to include information on new developments and
business opportunities.
B. Management’s Discussion and Analysis section is part of the
Annual Report.
XI. General shareholder information is provided in the “Shareholders’
Information” section of the annual report.
XII. Auditors’ certificate in respect of compliance of conditions of
corporate governance as per Clause 49 of the Listing Agreement
with the Stock Exchanges is enclosed in this annual report.
XIII. Compliance with non-mandatory requirements of Clause 49
of the Listing Agreement.
Clause 49 further states that the non-mandatory requirements
may be implemented as per the company’s discretion. However
the disclosures of compliance with mandatory requirements and
adoption (and compliance)/ non adoption of non-mandatory
requirements shall be made in the section on corporate governance
in the annual report. We comply with the following non-mandatory
requirements.
A. The Board
We have an Executive Chairman and as such maintenance of
office by a Non-Executive Chairman does not arise. None of our
independent directors have served for a tenure exceeding nine
years from the date when the new Clause 49 became effective.
B. Remuneration committee
We have instituted a remuneration committee. A detailed note on
the remuneration committee is provided elsewhere in the report.
C. Shareholders’ rights
We communicate with investors regularly through emails,
telephones and face to face meetings like investor conferences,
Company visits or on road shows. We announce quarterly financial
results within one month of the close of a quarter. The Company
A N N U A L R E P O R T
2006 - 2007
39
directors using various parameters. However we are yet to
formalize this evaluation by peer group comprising entire Board of
Directors, excluding the director being evaluated.
G. Whistle blower policy
We have established a mechanism for employees to report concerns
about unethical behaviours, actual or suspected fraud or violation
of our Code of Conduct. The mechanism also provides for adequate
safeguards against victimization of employees who avail of the
mechanism and also provide for direct access to the Chairman of
the Audit Committee in exceptional cases. Our employees are
internal
informed of
communications. None of our employees has been denied access
to this facility.
through appropriate
this policy
Place : Bangalore
Date : June 18, 2007
for Subex Azure Limited
Subash Menon
Founder Chairman,
Managing Director & CEO
publishes the quarterly financial results in leading business
newspaper(s) as well as upload them on the company’s website.
However, we have not initiated sending half-yearly declaration of
financial performance to the household of shareholders so far.
D. Audit qualifications
The Company does not have any audit qualification for the year
under review. We always endeavour to move towards a regime of
unqualified financial statements.
E. Training of board members
All new non-executive directors inducted into the Board are given
adequate orientation on the company’s businesses, group
structure, risk management strategy and policies.
F. Mechanism for evaluating non-executive board members
The Company compensates non-executive directors keeping in
view of the time and attention devoted by them for the Company.
While doing so, we evaluate the performance of the non-executive
40
A N N U A L R E P O R T
2006 - 2007
COMPLIANCE CERTIFICATE TO THE MEMBERS OF SUBEX AZURE LIMITED
1. We have examined the compliance of conditions of corporate
governance by Subex Azure Limited (formerly Subex Systems
Limited) [‘the Company’] for the year ended March 31, 2007,
as stipulated in Clause 49 of the Listing Agreement of the said
Company with the Stock Exchanges.
2. The compliance of conditions of corporate governance is the
responsibility of the management. Our examination has been
limited to a review of the procedures and implementations
thereof, adopted by the Company for ensuring compliance
with the conditions of the corporate governance. It is neither
an audit nor an expression of opinion of the financial statements
of the Company.
In our opinion and to the best of our information and according
to the explanations given to us and the representations made
3.
by the directors and the management, we certify that the
Company has complied with the conditions of corporate
governance as stipulated in Clause 49 of the above-mentioned
Listing Agreement.
4. We further state that such compliance is neither an assurance
as to the future viability of the Company nor the efficiency or
effectiveness with which the management has conducted the
affairs of the Company.
Place : Bangalore
Date : June 18, 2007
for Deloitte Haskins & Sells
Chartered Accountants
V. Srikumar
Partner
Membership No. 84494
DECLARATION BY THE CEO UNDER CLAUSE 49 I (D) OF THE LISTING AGREEMENT REGARDING ADHERENCE TO THE
CODE OF CONDUCT
To,
The Members of Subex Azure Limited
In accordance with Clause 49 I (D) of the Listing Agreement with
the Stock Exchanges, I hereby confirm that, all the Directors and
the Senior Management personnel including me, have affirmed
compliance to their respective Codes of Conduct, as applicable
for the Financial Year ended March 31, 2007.
Place : Bangalore
Date : June 18, 2007
for Subex Azure Limited
Subash Menon
Founder Chairman,
Managing Director & CEO
A N N U A L R E P O R T
2006 - 2007
41
MANAGEMENT’S DISCUSSION AND ANALYSIS
OVERVIEW
Subex Azure Limited (Subex Azure) is listed on the National Stock
Exchange of India Limited (NSE), the Bombay Stock Exchange
Limited (BSE) and The Bangalore Stock Exchange Limited (BgSE).
The Global Depositary Receipts and the Foreign Currency
Convertible Bonds of the Company are listed on the London Stock
Exchange (LSE). Consequent to the acquisition of Azure Solutions
Limited, UK by the Company in June 2006, the name of the
Company was changed to Subex Azure Limited.
The management of Subex Azure is committed to improve the
levels of transparency and disclosure. Keeping this in mind, an
attempt has been made to disclose here under, information about
the Company, its business, operations, outlook, risks and financial
condition.
The financial statements have been prepared in compliance with
the requirements of the Companies Act, 1956, and the Generally
Accepted Accounting Principles (GAAP) in India. The management
of Subex Azure accepts responsibility for the integrity and objectivity
of these financial statements, as well as for various estimates and
judgements used therein. The estimates and judgments relating to
the financial statements have been made on a prudent and
reasonable basis, in order that the financial statements reflect the
form and substance of transactions in a true and fair manner, and
reasonably present the state of affairs and profits for the year
under review.
In addition to the historical information contained herein, the
following discussion may include forward looking statements which
involve risks and uncertainties, including but not limited to the risks
inherent in the company’s growth strategy, dependency on certain
clients, dependency on availability of qualified technical personnel
and other factors discussed in this report.
1. INDUSTRY STRUCTURE AND DEVELOPMENTS
1.1 Subex Azure is a provider of solutions in the Operations Support
Systems (OSS) area for telecom applications. This area can broadly
be classified into Service Fulfillment, Service Assurance and
Revenue Maximization. The Company has traditionally been
operating in the Revenue Maximization space, but has expanded
into the Service Fulfillment space consequent to the acquisition of
Syndesis Limited, Canada from April 1, 2007. While Revenue
Maximization solutions improve the revenues and profits of the
communications service providers through identification and
elimination of leakages in their revenue chain, Service Fulfillment
solutions enable the carriers to fulfill the needs of their subscribers
through provisioning and activation of services. Subex Azure
conceptualizes and develops software products at its facilities in
Bangalore and is focused on the telecom business segment. Subex
Azure has sales and support offices in the United States, Canada,
UK, UAE, India, China and Australia. Subex Azure is a global leader
in Revenue Maximization for communications service providers.
Carriers today are facing a variety of challenges. The key among
them are (a) the competitive requirement to provide high quality
services faster and cheaper and (b) the operational requirement
to have a well integrated Operations Support System (OSS) to
meet the competitive requirement. Subex Azure provides software
solutions to meet these critical requirements. Carriers have been
building the support structure by acquiring disparate pieces of
software and that has resulted in stove pipes getting built over
time. Our well integrated platform called Revenue Operations
Center (ROC) addresses this issue of a siloed structure within their
networks. The solutions that form part of the ROC enable the
customers to achieve Operational Dexterity which is a combination
of Operational Efficiency and Service Agility. While the former
ensures that cost of operation is maintained at a low enough level,
the latter ensures that adequate service levels are achieved.
2. OPPORTUNITIES AND THREATS
2.1 Strategy
For the past 5 years, we have been employing an internally
developed strategic model called The Five Petal Strategy. One of
the key elements of this model is the Blended Growth Model wherein
we have adopted a judicious mix of organic and inorganic avenues
for growth. Our industry is quite fragmented with scores of players
and is consolidating at a quick pace. Given the consolidation on
the carrier front, this consolidation among vendors is inevitable.
We view this as an opportunity to acquire some of the well positioned
vendors and expand our customer reach while widening our
product offering.
In keeping with our long term objectives, we have been identifying
specific companies that mesh well with our plans and strategy.
This has resulted in 6 well executed acquisitions in the product
space over the past 6 years. While the initial 4 were small, the last
2 have been truly transformational. They have propelled us to
leadership in several areas and have also expanded the
management bandwidth, domain expertise and positioning of the
Company. The improvement in stature and credibility is significant
and that is fuelling further organic growth.
The organic part of our Blended Growth Model is achieved through
multiple means like growth in license revenues linked to the
subscriber base, cross selling of products, upselling of additional
modules etc. More than half of the customer base has been acquired
organically.
2.2 Market opportunity
As time goes by, companies need to expand their addressable
market to ensure a sustained rate of growth. We have been doing
this by focusing on the issues being faced by telcos worldwide and
by widening our offering to cover those areas. While we started life
as a vendor of fraud management systems, we have now morphed
into a provider of a variety of solutions across the OSS chain.
These include both Revenue Maximization solutions and Service
Fulfillment solutions.
Prior to the acquisition of Azure Solutions, we were present only in
fraud and revenue assurance. That market is expected to have a
size of about US$ 300 million in 2010. The acquisition of Azure
Solutions added a new segment (Interconnect Billing) thereby
taking the combined market opportunity to US$ 900 million in 2010.
That acquisition also helped us to cement our position in the
traditional space of Fraud and Revenue Assurance.
The recent acquisition of Syndesis has further change the market
opportunity quite dramatically. Service Fulfillment, the addition, is
slated to grow faster than Revenue Maximization to reach a market
42
A N N U A L R E P O R T
2006 - 2007
size of US$ 2,150 million in 2010. Thus, Subex Azure will be
addressing a market opportunity of US$ 3,050 million in 2010, as
against US$ 300 million prior to our acquisition of Azure Solutions
and Syndesis. Needless to say, the inorganic growth strategy has
helped us to increase the addressable market almost 10 times
thereby ensuring a strong base for growth in the future. The data
on market size is provided below.
2007-2010 CAGR: 15%
3, 050
Earlier: Regulated
Today: Free Market
Price
Approved
Cost
Plus
Price set by the
Market
Margin Earned
Competitive
Pricing
Cost of Service
Delivery
Margin Guaranteed
Cost of Service
Delivery
2, 300
550
510
555
420
265
2008
1, 995
480
445
480
350
240
2007
2, 632
622
590
640
500
280
2009
700
690
760
600
300
2010
)
n
m
$
S
U
(
1, 543
370
336
355
266
216
2005
1, 745
420
390
410
300
225
2006
Fraud and Revenue Assurance
Inventory Management
Provisioning
Interconnect Billing
Activation
3. BUSINESS SEGMENTS AND INDUSTRY OUTLOOK
3.1 Business segments
Subex Azure operates in two business segments – telecom software
products and telecom software services. The former is the key
focus area for the Company and will be discussed in detail. The
latter is staff augmentation services for telcos in the United States
and is fast losing its significance as can be seen from the business
mix data provided herein.
80
70
60
50
40
30
20
10
0
t
e
g
a
n
e
c
r
e
P
Revenue Mix
67
64
67
64
55
54
45
46
33
36
36
33
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
Revenue from Products
Revenue from Services
3.2 Telecom software products
There is a fundamental shift in the telecom business economics.
Telecom operators have seen their margins dramatically shrink as
the business model has changed from a regulated market to a free
market. In a regulated market, operators could easily add their
desired or guaranteed margin to the cost and set the price. In
today’s free market, they need to eke out their margin as the
pricing is fixed by the competitive environment. This situation has
been pictorially represented below.
Telco’s Strategy
Grow ARPU
• Manage up revenue
Telco’s Strategy
Grow AMPU
• Manage up revenue
• Manage down cost
The key challenge therefore is to build a strategic framework that
fosters sustained profitable growth. Telecom operators now need
to focus on the combination of:
Service agility
by reducing time-to- market for new service
•
•
achieving rapid service provisioning
• maintaining high quality of service delivery
and
Operational efficiency
•
reducing the cost of delivery of service
Enhanced Margins
Price set
by the
Market
Cost of
Service
Delivery
Service Agility Gain-
Improved price realization for
services
Operational Efficiency Gain-
Reduced cost of service
delivery
We call this combination as Operational Dexterity.
Operational Dexterity ultimately allows operators to reverse the
pressure on the margins by enjoying improved price realization
through better quality of service and reduced cost of service
through an efficient operation. Thus, we enable them to expand
their margin by increasing the revenue through service agility gain
and by reducing the cost of operation through operational efficiency
gain. In short, we help them gain Operational Dexterity by providing
two sets of solutions as detailed below.
Solutions for Operational Efficiency Gains
There are six products in this solution category. They are Nikira,
Moneta, Prevea, Concilia, Symphona and Optima.
Nikira
Nikira™ Fraud Management System is the next generation fraud
management solution built to deliver on a 3-step philosophy of
Detect-Investigate-Protect. Nikira detects known fraud types and
patterns of unusual behaviour; helps investigate these unusual
patterns for potential fraud and uses the knowledge thus generated
to upgrade and protect against future intrusions.
Nikira is differentiated by its unique architecture that harnesses
A N N U A L R E P O R T
2006 - 2007
43
the power of proven rules-based alarms and pattern matching
driven by advanced statistical techniques. Adding power to this
hybrid detection system is a set of strong case management tools.
These tools provide all relevant case data which are made easily
accessible through a single window in a fast web-based GUI.
Nikira’s high flexibility allows operators of different sizes to customize
rules to suit unique network and business requirements. Moreover,
seamless visual alarm linking using 3rd party visualization software
reduces investigation efforts, thus decreasing case turnover time.
Nikira has the ability to detect fraud types in all telecom environments
- Wireline (PSTN, ISP, VoIP), Wireless (2G, 2.5G, 3G) and across all
services - postpaid, prepaid, VAS, MMS, M-commerce.
Moneta
Moneta™ Revenue Assurance System is a first-of-its kind, complete
RA solution, designed to tackle critical Revenue Assurance
challenges across the entire revenue chain. Moneta offers a set of
pre-configured solution templates to address RA challenges
inherent to individual service verticals - Wireless, Fixed, Cable
MSPs & MVNOs. These solution templates address Revenue
Assurance issues across multiple functional areas such as service
fulfilment, usage integrity, retail billing, interconnect/wholesale billing
and content settlement.
Each solution template is ready-to-use and includes:
•
Set of appropriate health checks to monitor
• Control points & interfaces to extract data
• Reports & dashboards to present results, and
• Workflow to monitor, action & close cases
Using these solution templates, operators can dramatically reduce
the time required to implement or extend the coverage of their RA
practice. Moreover, operators can easily reconfigure or remodel
existing templates to accommodate changing business
requirements.
Prevea
The Prevea™ Risk Management System empowers operators to
continuously assess and mitigate risk presented by subscribers
throughout their lifecycle.
Prevea tracks risk in a near real-time during:
•
• Ongoing usage
• Collections and recovery
Prevea provides the operator with a holistic view that helps in
understanding subscriber risk profile and thereby aids its
management. Further, Prevea can quickly and seamlessly,
accommodate new service information to provide an accurate
picture of the exposure at any point in time.
Prevea allows the operator to easily and quickly define various risk
indicators and controls, there by enabling adaptation to local,
cultural and regulatory requirements. This also enables the operator
to stay agile in changing socio-economic conditions that affect the
overall level of risk in a region.
Concilia
Concilia™ Interconnect Billing System allows operators to quickly
Subscriber acquisition
and accurately settle charges with their network partners. Shrinking
margins have highlighted the increased need for visibility of each
deal’s impact on operator’s bottom line. For interconnect agreements
with domestic and international operators, Concilia provides with
the ability to manage these major costs and revenues on a day-to-
day, hour-to-hour basis.
New types of interconnect agreements, in areas such as IP and
SMS, require new system capabilities to ensure that operators
have accurate data available to assure revenues. Concilia’s
flexibility, scalability and ease of use empowers all types of operators
– fixed or mobile, a national PTT or a new entrant, giving them the
edge needed to survive and prosper in today’s market.
Symphona
The Symphona™ Interparty Management System enables
operators to bill their customers and settle with their partners on a
single modular platform. Symphona supports all operational and
management information needs. Its unique architecture allows
calculation of multiple charges for each transaction, and the
correlation of retail revenues with interconnect cost. As product
bundles and their related tariff plans become more complex, this
ability to see all revenues and related costs is vital to ensuring a
healthy bottom line.
Symphona is able to support multiple business models within a
single implementation through seamless addition of necessary
modules. Examples of such modules include Retail, Wholesale,
Satellite, IP and Inter-Company. The Symphona framework has
been designed to evolve with minimal impact to ongoing operations.
Optima
Optima™ Route Optimization System is designed to provide
operators with the tools to manage network cost information supplied
by other operators. Additional analysis on the impact of current
operator tariffs as well as forecasts on potential future operator
tariffs is also featured. The system is capable of taking into account
factors such as call quality rate information, capacity and network
costs in calculating the optimum choice of operators.
Optima ensures that the entire end-to-end processes from dial code/
destination operator rate imports to switch updates is controllable
and auditable. Optima is fully supported by a comprehensive list of
reports, and when generating an optimized routing table the system
provides an integrated management of the routing table changes
across multiple business functions. The automated routing
management functionality converts the routing table into MML script
for either manual or automatic implementation on the switch.
Solutions for Service Agility Gains
Solutions in this category can be grouped into four categories as
given below.
Automated, Subscriber-centric Fulfillment
• Syndesis Application Configuration Manager
• Syndesis Express
• Syndesis NetProvision
Data Integrity Management
• Syndesis TrueSource
44
A N N U A L R E P O R T
2006 - 2007
Inventory/Resource Management
• Syndesis Adaptive Resource Manager
New Service Creation, Order Management
• Syndesis Controller
Service & Network Migration & Optimization
• Syndesis NetOptimizer
Automated, Subscriber-centric Fulfillment
Syndesis Application Configuration Manager
Syndesis Application Configuration Manager (ACM) automates
the configuration, management, and detailed discovery of
applications, policy servers, subscriber databases, and other
service delivery platforms, making self-service a reality for the
mass market. With its high-performance, event-driven bus
architecture, scalable J2EE platform, and high-volume activation
capabilities, ACM supports thousands of requests per second with
instantaneous response time. This enables subscribers to manage
their services 24 hours a day, 7 days a week and supports zero-
touch provisioning, self-care and multi-media impulse buying.
ACM validates service request attributes against pre-defined
service logic, generates application configurations based on service
needs, and activates affected control nodes or databases (e.g.,
IPTV servers, Unified Messaging servers, HLRs, HSSs, softswitches,
VoIP feature servers, etc.) via Syndesis Application Modules.
A wide range of off-the-shelf, productized Application Modules is
available for market leading vendors such as Alcatel, Microsoft,
Nortel, Siemens, Sonus, Sylantro and others, speeding time-to-
market with innovative service offerings.
Syndesis Express
Recognizing the demands of the new communications environment,
Syndesis Express is a subscriber-centric fulfillment solution that
allows carriers to react quickly to ever-changing market conditions
and customer requirements. With Express, new services can be
defined and deployed within days, not weeks or months.
Express is a pre-integrated solution bundle that provides complete,
off-the-shelf, subscriber-centric fulfillment for IPTV, VoIP (for both
Business and Consumer), and other targeted advanced service
offerings. From the wholly integrated Syndesis Express architecture,
providers can quickly and easily create, roll-out, and deliver
advanced services to a broad customer base while achieving new
levels of subscriber control and customization. And because
Express coordinates both application and connectivity service
components from a unified platform, it simplifies and improves the
efficiency of next generation service delivery and management
while decreasing operations costs.
Syndesis NetProvision
In the world of converging and ubiquitous communications, effective
service fulfillment is all about meeting demand – satisfying increasing
order volumes, aggressive delivery schedules, diverse service
requirements, and customers’ heightened expectations.
Traditional approaches to service fulfillment are not equipped to
keep pace with the demands of evolving networks, services, and
subscribers. Manual and siloed service provisioning, in particular,
is slow, complicated, and error-prone, forming a significant barrier
to both revenue growth and customer satisfaction and retention.
Syndesis NetProvision automates the design and activation of
complex, application-aware connectivity services, enabling flow-
through provisioning of next-gen data and IP offerings across multi-
vendor, multi-technology networks.
NetProvision uses the industry’s most advanced and most widely
deployed discovery engine, enabling the system to perform design
and assign based on the network and logical resources as they
really exist, not as an off-line database. This significantly reduces
fallout rates and decreases the time required to activate a service.
NetProvision also features productized Equipment Modules (i.e.,
device interfaces); native support for the widest range of
convergent IP/data technologies; and a modular, extensible, and
scalable design – all of which speed up time-to-market for new
offerings while reducing project risk and TCO.
Data Integrity Management
Syndesis TrueSource
Without consistently accurate network and service information,
OSS and BSS implementations are delayed, their overall
effectiveness falters, asset tracking becomes a guessing game,
and revenue leaks abound.
Syndesis TrueSource combats these problems by providing the
high levels of data integrity central to OSS and BSS data reconciliation
and essential for network and business operations.
TrueSource is the industry’s first Data Integrity Management (DIM)
solution for improving the quality of data that drives key service
provider processes, resulting in lower costs and higher service
profitability. TrueSource employs an operations-wide approach to
solving data integrity problems, combining three powerful data
integrity functions: multi-layer network and service discovery, data
reconciliation, and discrepancy analytics.
Leveraging inherent cross-domain intelligence and extensive off-
the-shelf network equipment support, TrueSource discovers
devices and logical services in complex multi-layer, multi-vendor,
multi-service environments and reconciles this data with OSS/BSS
on a continuous, controlled basis. The result is consistent, relevant
data throughout service provider operations, enhancing the
effectiveness and value of service fulfillment, service assurance,
and billing systems.
Inventory/Resource Management
Syndesis Adaptive Resource Manager
Syndesis Adaptive Resource Manager (ARM), the industry’s only
‘live’ inventory management solution, offers service providers a
low-risk path to operational transformation and highly accurate
inventory management. By considering the complete deployment
and consumption life cycle of both the network and applications,
ARM provides more comprehensive intelligence and control over
the service provider enterprise.
Wholly integrated with the Syndesis Subscriber-Centric Fulfillment
Suite, ARM is a rapidly deployed resource management system
designed specifically to meet the rigorous demands of complex
next generation networks, services, and business environments.
ARM can speed up new service introduction and delivery,
accelerate new equipment deployment and payback, and ease
OSS transformations while lowering total cost of ownership for
next-gen inventory.
A N N U A L R E P O R T
2006 - 2007
45
New Service Creation, Order Management
Syndesis Controller
An extension of the Syndesis Subscriber-Centric Fulfillment Solution,
Syndesis Controller is a pre-integrated, best-in-class Order
Management, Service Catalog Management and Technical
Workflow solution. Based on industry-leading technology, Controller
simplifies the orchestration between Syndesis Fulfillment Solution
and other systems, including BSS systems and any manual
processes associated with mobile and wireline service turn-up.
Controller leverages pre-built integration and service workflow
templates based on the best practices for service delivery. It
provides the basis for the automation of the complete order-to-bill
cycle and enhances scalability and visibility for the entire fulfillment
process, an essential pre-requisite for customer self-service.
Controller decomposes orders into constituent parts, enabling end-
to-end service delivery process management and operational
process improvements.
Service & Network Migration & Optimization
Syndesis NetOptimizer
Network maintenance is an unavoidable cost of doing business.
The world’s largest networks continually evolve and change, as
service providers add bandwidth, replace defective hardware,
perform upgrades, introduce new network infrastructure, optimize
existing capacity and change technology providers. As each of
these changes affects services offered, carriers must be able to
execute large scale changes quickly and accurately while
preserving service integrity and customer experience.
Syndesis NetOptimizer is a high-performance, carrier-class service
migration and maintenance software tool that takes the risk, time
and effort out of the carriers’ toughest grooming operations and
service migrations. Based on accurate views of the network,
NetOptimizer’s automation of large scale reprovisioning activities
enables carriers to rapidly, safely and strategically redistribute
their services to optimize their existing resources and take
advantage of new equipment, technologies, and topologies.
3.3 Customer base and market share
The Company today serves over 170 customers spread across 60
countries. Further, our solutions are used by 32 of the world’s top 50
telecom groups. This puts us in a strong position viz-a-viz competition
and also protects our future growth prospects in the face of increasing
consolidation among carriers. Our wide customer base has enabled
us to garner the top slot in our traditional business of fraud and
revenue assurance. Our market share in this space is given below.
Market Share
Others 8%
Subex Azure 29%
Syndesis, which operates as the Fulfillment & Assurance Solutions
Business Unit from April 1, 2007 within Subex Azure, has traditionally
been quite strong in the Activation space. We currently enjoy a
market share of 10% as shown below.
Market Share
Metasolv 13%
Others 46%
Subex Azure 10%
Telcordia
10%
Amdocs 6%
Convergys 4%
Comptel 3%
HP 4%
Evolving Systems 4%
We will be building on these strong positions and will enhance the
market share with time.
3.4 Revenue model
Subex Azure licenses its software solutions on a per subscriber or
per transaction basis for every service stream of our customers,
resulting in continuous growth in license revenues depending on
the growth of the networks where the solutions are installed. Another
sustainable revenue stream is the support revenue calculated as
a function of the license revenue. These three streams of revenue
– new license, additional license and support – are expected to
lend stability to the overall revenue of the Company. Further, we
also have a fourth stream of revenue namely, customization. Finally,
we have added a fifth stream called Bureau in the current financial
year. Bureau is a new revenue model wherein we provide the
solutions as a service (similar to Software as a Service – SaaS)
through multi-million, multi-year contracts. The following graph gives
the revenue from each of the streams and from Third Party during
FY04, FY05, FY06 and FY07.
t
e
g
a
n
e
c
r
e
P
100
90
80
70
60
50
40
30
20
10
0
2
10
88
Revenue Composition
5
13
18
64
9
5
19
67
2
9
6
26
57
FY04
FY05
FY06
FY07
License & Addl. License
Customization
Support
Bureau
Third Party
The steady increase in the relative position of support revenue
lends stability to the business and addresses quarterly lumpiness.
At the same time, a healthy mix of revenue from license fees
establishes the growth potential and indicates that the business is
not close to saturation.
Amdocs 24%
Intec 6%
Vibrant 6%
Agilent 9%
ECtel 9%
HP 9%
46
A N N U A L R E P O R T
2006 - 2007
3.5 Geographical mix
Given the nature of our products and the challenges faced by
communications service providers in both developed and
developing countries, we have huge opportunities in all the
geographies. This is quite evident from the geographical mix given
below.
Geographical Mix
t
e
g
a
n
e
c
r
e
P
100
90
80
70
60
50
40
30
20
10
0
23
23
54
14
34
52
9
36
55
27
36
37
FY04
EMEA
FY05
FY06
FY07
Americas
APAC
3.6 Average revenue per Subexian
In the Products business, our Average Revenue Per Subexian
(ARPS), a key measure that leads to increased profitability, has
been growing steadily. The following graph shows the progression
on this front
Average Revenue Per Subexian
$
S
U
120000
100000
80000
60000
40000
20000
0
108000
84000
53000
65000
FY04
FY05
FY06
FY07
3.7 Quality
Subex Azure is dedicated to maintain the highest levels of quality
standards throughout its operations. We are an ISO 9001:2000
certified Company.
4. RISKS AND CONCERNS
Any business has several risks related to that and ours is no different.
Following are the risks that we are cognizant of.
4.1 Market
The communications industry continues to experience consolidation
and an increased formation of alliances among communications
service providers and between communications service providers
and other entities. Should one of our significant customers
consolidate with a service provider using a competing product
and decide to discontinue the use of our product(s), this could
have a negative material impact on our business. These
consolidations and alliances may cause us to lose customers or
require us to reduce prices as a result of enhanced customer
leverage, which would have a material adverse effect on our
business. We may not be able to offset the effects of any price
reductions. We may not be able to expand our customer base to
make up any revenue declines if we lose customers.
Subex Azure is fully dependant on the telecom industry. So, any
vagaries in the telecom business environment will considerably
impact the fortunes of the Company. Further, the Revenue
Maximization market is evolving resulting in uncertainties on the
size of the market, opportunities etc.
4.2 Debtors
The debtor situation, which was quite poor in the past, has improved
significantly during FY 2006-07. Days Sales Outstanding (DSO)
currently stands at 130 on consolidated basis and 133 on a stand-
alone basis and is expected to reduce further over the next few
quarters.
4.3 Technology and personnel
Our industry is characterized by rapid technological changes and
frequent new service offerings. Significant technological changes
could make our technology and services obsolete, less marketable
or less competitive. We must adapt to our rapidly changing market
by continually improving the features, functionality, reliability and
capability of our products to meet changing customer needs. We
may not be able to adapt to these challenges or respond successfully
or in a cost-effective way. Our failure to do so would adversely
affect our ability to compete and retain customers or market share.
Launching new products is a key element of our growth, and an
inability to bring new products with high demand to the market in a
timely manner will reduce our growth and profitability.
Subex Azure has set up processes and methodologies to address
this threat and to turn it into a strategic advantage by being in the
forefront of technological evolution. Regular skill upgradation
programs and training sessions that include attending global
conferences, employing specialized consultants etc. are
undertaken.
Retention of software personnel is another major risk being faced
by Subex Azure. Towards this, it provides an empowered
atmosphere with extensive mentoring, career counseling and
constant learning opportunities in cutting edge and challenging
technologies.
4.4 Intellectual property
Our success depends to a significant degree upon the protection of
our software and other proprietary technology rights. We rely on
trade secret, copyright and trademark laws and confidentiality
agreements with Subexians and third parties, all of which offer only
limited protection. The steps we have taken to protect our intellectual
property may not prevent misappropriation of our proprietary rights
or the reverse engineering of our solutions. Legal standards relating
to the validity, enforceability and scope of protection of intellectual
property rights in several countries are uncertain and may afford
little or no effective protection of our proprietary technology.
Consequently, we may be unable to prevent our proprietary
technology from being exploited abroad, which could require costly
efforts to protect our proprietary technology. Policing the unauthorized
A N N U A L R E P O R T
2006 - 2007
47
use of our products, trademarks and other proprietary rights is
expensive, difficult and, in some cases, impossible. Litigation may be
necessary in the future to enforce or defend our intellectual property
rights, to protect our trade secrets or to determine the validity and
scope of the proprietary rights of others. Such litigation could result
in substantial costs and diversion of management resources, either
of which could harm our business. Accordingly, despite our efforts,
we may not be able to prevent third parties from infringing upon or
misappropriating our intellectual property.
4.5 Infringement
Third parties could claim that our current or future products or
technology infringe their proprietary rights. Any claim of infringement
by a third party, even those without merit, could cause us to incur
substantial costs defending against the claim, and could distract
our management from our business. Third parties may also assert
infringement claims against our customers. These claims may
require us to initiate or defend protracted and costly litigation on
behalf of our customers, regardless of the merits of these claims. If
any of these claims succeed, we may be forced to pay damages
on behalf of our customers. We also generally indemnify our
customers if our services infringe the proprietary rights of third
parties. If anyone asserts a claim against us relating to proprietary
technology or information, while we might seek to license their
intellectual property, we might not be able to obtain a license on
commercially reasonable terms or on any terms.
4.6 Acquisition
Acquisition has always been a significant element of our strategy.
After concluding several small acquisitions, we have as on the date
of this report, consummated two large transactions, which have
turned out to be the largest overseas acquisitions by any Indian IT
Company and are also quite big as compared to the past ones in our
history. While we have considerable experience in handling
acquisitions spread over the past 6 years, the scale of these 2
acquisitions (that of Azure Solutions Limited and Syndesis Limited)
increases the risk manifold. It is critical to achieve seamless integration
with the acquired entity as our ability to serve the customers to the
expected levels and meet the expectations of all Subexians will depend
heavily on this integration. Until the acquisition, Azure was a loss
making organization and Syndesis made single digit profit. While
converting these operations into profitable ones, we need to leverage
the strengths of the combined entity to ensure growth in the future.
Thus, these new acquisitions pose several risks that were not
perceived with the acquisitions in the past. While we believe that
adequate planning and strategizing have taken place, the full impact
of the execution (particularly of Syndesis) will be known only by the
end of the financial year 2007 – 08. However, it is worth noting here
that we have turned around Azure Solutions over the past 3 quarters
and that the strategy to be employed to improve the operations at
Syndesis will be similar to the one employed at Azure. Thus, there is
sufficient empirical evidence to believe that Syndesis integration will
also proceed in a smooth manner and that both the acquisitions will
turn out to be great assets for the Company.
4.7 Client concentration
Consequent to the acquisition of Azure Solutions, we now have
client concentration at BT Plc (erstwhile British Telecom). While
there is no concentration in non-BT revenue, we derived 28% of
the revenue from BT during FY07. However, owing to the growth
in non-BT revenue (through both organic and inorganic means)
the share of revenue from BT (though there will be growth in
absolute terms) is expected to reduce significantly in FY08. Thus,
this risk is being adequately mitigated.
4.8 Variability of quarterly operating results
The quarterly operating results of the Company have varied in the
past due to reasons like seasonal pattern of hardware and software
capital spending by customers, information technology investment
trends, achievement of milestones in the execution of projects,
hiring of additional staff and timing and integration of acquired
businesses. Hence, the past operating results and period to period
comparisons may not indicate future performance. The
management is attempting to mitigate this risk through expansion of
client base geographically and increase of steady annuity revenue.
Despite those efforts, variability could continue.
The Company constantly endeavors to safeguard itself against
the above-mentioned risks by adopting best practices, advanced
processes, future proof investments and up-gradation of skills and
capabilities. Consequently, we believe that we are reasonably
well protected against the risks.
4.9 Statutory obligations
Subex Azure is registered with Software Technology Parks of India
for software development activities and has availed Customs Duties,
Sales Tax and Central Excise exemptions. The non-fulfillment of
export obligations may result in penalties as stipulated by the
Government and this may have an impact on future profitability.
4.10 Environmental matter
Software development, being a pollution free industry, is not subject
to any environmental regulations.
4.11 Foreign exchange
Subex Azure has substantial exposure to foreign exchange related
risks on account of revenue from export of software. These are
hedged with banks and risks mitigated to the extent possible.
4.12 Taxation
India, having been among the signatories to the World Trade
Organization, there exist a commitment to reducing the import tariff
levels, thereby exposing the Indian entrepreneurs to global
competition.
Significant tax benefits have been given to the software companies
in India. These benefits are presently available to Subex Azure.
However, the policies are subject to change. Any changes may
adversely affect its post tax profits.
4.13 Litigation
There is an increasing trend in litigation regarding intellectual
property rights, patents and copyrights in the software industry.
There also exist other corporate legal risks. Subex Azure has no
material litigation pending against it in any court in India or abroad.
4.14 Contractual obligation
In terms of the contract entered into by Subex Azure (formerly
Subex Systems Limited) with its customers in the ordinary course
of business, it is obliged to perform and act according to the
contractual terms and regulations. Failure to fulfill the contractual
obligations arising out of such contracts may expose Subex Azure
to financial and other risks.
48
A N N U A L R E P O R T
2006 - 2007
The management has taken sufficient measures to cover all of its
contractual risks and does not foresee any major liability due to its
non fulfillment of any contractual terms and conditions.
5. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
Management maintains internal control system designed to provide
reasonable assurance that assets are safeguarded, transactions
are executed in accordance with management’s authorization and
properly recorded, and accounting records are adequate for
preparation of financial statements and other financial information.
The internal audit function also carries out Operations Review
Audits to improve the processes and strengthen control of the
existing processes. The Audit Committee periodically reviews the
functions of internal audit.
Pursuant to revised Clause 49 of the Listing Agreement, the CEO /
CFO has to accept responsibility for establishing and maintaining
internal controls for financial reporting and that they have evaluated
the effectiveness of internal control systems of the Company pertaining
to financial reporting and that they have disclosed to the auditors
and the Audit Committee, deficiencies in the design or operation of
such internal controls, if any, of which they are aware and the steps
they have taken or propose to take to rectify these deficiencies.
An internal steering committee of a dedicated team of professionals
has been formed to assess the adequacy of the company’s internal
controls over financial reporting, developing remediation plans for
control deficiencies, if any, identified during the assessment, and
validate through testing that the controls are functioning as
documented.
6. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE
6.1 Key financials and ratio analysis
Amount in Rs million, except key indicators
Financial Highlights /
Year ending March 31
Total income
Export sales
Operating profit
Depreciation & Amortization
Profit before tax
Profit after tax
Equity dividend %
Share capital
Reserves & Surplus
Net worth
Gross fixed assets
Net Fixed assets
Total assets
Key Indicators
Earning per share (Year end)
Cash earning per share (Year end)
Book value per share
Debt (including working capital)
equity ratio
Operating profit / sales - %
Net profit margin - %
Return on year end net worth %
Return on year end capital employed %
2007
2006
2005
2004
2003
2002
Consolidated
Standalone
Standalone
3,710.92
3,327.33
812.46
148.53
576.61
675.66
35%
348.16
8,059.12
8,286.31
821.73
358.55
17,787.98
19.41
12.74
238.00
1.02
24%
20%
8%
5%
2361.84
2108.94
447.83
113.39
259.09
208.14
35%
348.16
7,614.14
7,880.10
662.67
306.44
17,088.88
5.98
3.03
226.57
1.06
21%
10%
3%
3%
1,841.19
1,787.39
539.44
90.79
422.23
391.50
25%
217.58
1,597.75
1,816.20
653.06
391.61
2,159.76
17.99
22.17
83.47
0.01
29%
21%
22%
30%
1,172.35 891.94 706.41
1,086.40 828.53 676.01
356.74 246.02 162.19
71.43 42.68 37.98
261.10 189.04 101.75
253.03 177.50 96.12
10%
73.44
1,132.05 540.94 403.26
1,233.04 799.39 628.85
555.42 209.61 161.55
367.83 89.66 77.84
1,745.12 1,085.76 997.68
30%
100.67
20%
73.54
25.13 24.14 13.09
32.23 29.94 18.26
122.48 108.70 85.63
0.23
30%
22%
21%
23%
0.21
28%
20%
22%
26%
0.32
23%
14%
15%
20%
592.51
573.79
95.67
35.68
47.92
41.84
10%
71.23
458.01
367.11
163.81
109.53
896.16
5.87
10.88
51.54
0.46
16%
7%
11%
18%
Note: Earning per share, Cash earning per share and Book value of share are in Rupees.
COMMENTARY ON FINANCIAL STATEMENTS
7.
7.1 Share capital
7.1.1 Of the equity paid-up capital, the Company had issued the
following shares towards consideration other than cash.
115,000 shares of Rs.10/- each, towards the balances in the
current account of partners, Mr. Subash Menon and Mr. Alex
J. Puthenchira, on the takeover of Subex Systems, a
partnership firm, by the Company during 1993-94.
4,626,940 Shares of Rs.10/- each to all eligible shareholders
as on March 31, 1999 in the ratio of 1:1 by capitalizing the
General Reserves.
12,840 shares of Rs.10/- each to the erstwhile owners of
M/s. IVth Generation Inc., towards part consideration of the
A N N U A L R E P O R T
2006 - 2007
49
●
●
●
cost of acquisition of that Company at Rs. 1,023/- per share
during 1999-2000.
10,878,784 Shares of Rs. 10/- each to all eligible shareholders
as on January 6, 2006 in the ratio of 1:1 by capitalizing the
securities premium.
1,109,878 Shares of Rs. 10/- each to the GDR holders as on
April 7, 2006 at Rs. 400/-.
11,728,728 Shares of Rs. 10/- each to the GDR holders as on
June 22, 2006 towards consideration of the cost of acquisition
of Azure Solutions Ltd at Rs. 532.24
7.1.2 During 2006-07 the Company issued 219,551 (including
Bonus shares, wherever options are eligible) shares of Rs. 10/-
each to various Employees on exercise of Stock Options granted
under the Employee Stock Option Plan (ESOP – II & III).
7.1.3 There are no calls in arrears.
7.2 Reserves & Surplus
7.2.1 Capital Reserve of Rs. 13.00 million was created by credit of
the notional premium on 12,840 equity shares of Rs. 10/- each
valued at a price of Rs. 1,023/- per share and issued to the owners
of IVth Generation Inc, USA as part consideration for the transfer
of their shareholding to Subex Systems Ltd.
7.2.2 Share Premium Account represents the premium collected on:
971,000 equity shares issued at a premium of Rs. 65/- per
share through an Initial Public Offer in 1999-2000.
330,800 equity shares issued at a premium of Rs. 740/- per
share to Mutual Funds and Bodies Corporate on a preferential
basis during 1999-2000.
1,887,000 equity shares issued at a premium of Rs. 88/- per
share to holders of ROCCPS on conversion of preferential
shares of Rs. 98/- each, namely Intel Capital, Toronto Dominion
Bank and UTI Venture Funds.
1,538,459 equity shares issued at a premium of Rs. 290/- per
share to holders of FCCBs on conversion of the bonds at a
price of Rs. 300/- per share.
1,109,878 equity shares issued at a premium of Rs. 390/- per
share to holders of GDR at a price of Rs. 400/-.
11,728,728 equity shares issued at a premium of Rs. 522.24
per share to holders of GDR at price of Rs. 532.24/-.
219,551 (including Bonus shares, wherever options are
eligible) equity shares allotted to the employees under ESOP
II & III Scheme as per the provisions of the Scheme at various
premiums.
7.2.3 A sum of Rs. 158,956,637/- being the cost of Intellectual
Property Rights acquired from Magardi Inc, in 2001-02, has
been written off against the Share Premium Account, in terms of
the approval of the Shareholders in an Extraordinary General
Meeting and the subsequent confirmation by the Honourable
High Court of Karnataka under Section 78 and 100 of the
Companies Act, 1956.
7.2.4 The Company has transferred Rs. 23.2 million (Previous
year Rs. 39.5 million) to General Reserves during the year.
7.2.5 In accordance with the guidelines issued by the Institute of
Chartered Accountants of India on Accounting for Deferred Taxes,
deferred tax asset of Rs. 163.26 million on consolidated basis and
Rs. 9.00 million on standalone basis have been recorded in the
Profit & Loss account. On account of this recognition year end
balance of deferred tax asset (net) amounted to Rs. 168.48 million
on consolidated basis and Rs. 16.91 million on stand alone basis.
The amount of Rs. 168.48 million includes an amount of Rs. 151.90
million on account of unabsorbed losses in Subex Azure (UK) Ltd.
This has been recognised with the turning around of the said
Company into a profitable operation this year.
7.2.6 In accordance with the guidelines issued by SEBI under the
ESOS & ESPS Scheme 1999, the Company has created a Reserve
towards the excess of market price of the underlying equity shares
as on the date of the grant of the option over the exercise price of
the option, to be adjusted over the period of vesting. The amount
adjusted and credited to reserves as at March 31, 2007 is Rs.19.64
million (Previous year Rs.8.88 million).
7.3 Secured loans
On consolidated basis, the secured loan of Rs.635.17 million
(Previous Year: Rs. 13.70 million) and on stand alone basis, the
secured loan of Rs. 583.76 million (Previous Year: Rs. 11.12 million)
outstanding in the books as at March 31, 2007 consists of Rs.13.51
million pertaining to motorcars financed by the Company through
Hire purchase scheme with the financiers and is secured by
hypothecation of the vehicles and Rs. 570.25 million pertaining to
the working capital loan from UTI, which is secured by Fixed
Deposits & Receivables.
7.4 Unsecured loans
The unsecured loan of Rs. 7807.50 million (Previous Year: Rs. Nil)
outstanding in the books as at March 31, 2007 pertains to Foreign
Currency Convertible Bonds issued during the year for the purpose
of funding the acquisition of Syndesis. The bonds carry interest of
2% per annum and are redeemable by March 9, 2012 if not converted
into equity shares as per terms of issue. These bonds are listed in the
Professional Securities Market of London Stock Exchange.
7.5 Fixed assets
7.5.1 Intangible assets acquired by the Company include IPRs and
goodwill recorded in the books of accounts as per valuation thereof
received from independent valuers. The breakup of these
intangibles for each acquisition is furnished below:
Amount in Rs. million
Net Block
Gross Block
1. Mantas
Intellectual Property Rights
Goodwill
2. Lightbridge
Intellectual Property Rights
Goodwill
3. Alcatel
Intellectual Property Rights
Goodwill
TOTAL
93.25
7.65
169.01
3.23
135.14
2.89
411.16
73.06
6.00
84.36
1.61
67.46
1.44
233.94
Amount amoritsed during the year is Rs. 82.42 million.
50
A N N U A L R E P O R T
2006 - 2007
●
●
●
●
●
●
●
●
●
●
7.5.2 During the year, the Company added Rs.185.24 million
on consolidated basis and Rs. 37.23 million on stand alone
basis, to its gross block. The Company disposed off certain
assets no longer required. The Company has assets woth
Rs. 34.14 million (previous year: Rs. 27.83 million) on consolidated
basis and Rs. 30.04 million (previous year: Rs. 24.20 million) on
stand alone basis under hire purchase agreements and None
under lease finance (previous year: Nil).
7.6 Investments
7.6.1 During 1999, the Company had acquired the whole of the
outstanding common stocks numbering 3,000 of no par value of
IVth Generation, Inc., New Jersey, USA, Consequent to the
acquisition, IVth Generation Inc, a wholly owned subsidiary of the
Company, has been renamed as “Subex Technologies Inc.” The
investments are carried at cost, including advisory fees, brokerage
and syndication fees for facilitating the investment.
7.6.2 Based on an independent valuation of Subex Technologies,
Inc., there is no impairment in the value of the Investment.
7.6.3 The Company has subscribed to the entire share capital of
Subex Technologies Limited, a wholly owned subsidiary Company
for a cost of Rs. 10 million.
7.6.4 On June 23, 2006, the Company acquired the entire share
holding of Azure Solutions Ltd, UK. The consideration was
discharged by issued of 11,728,728 GDRs each representing one
equity share of Rs.10/- at a premium of Rs. 522.24 per share and
cash of Rs. 214.57 million.
7.6.5 On January 18, 2007, the Company has executed a share
purchase agreement with the owners of Syndesis Ltd, Toronto,
Canada for the purchase of their entire shareholding in that
Company. The total consideration amounting to US$ 165.66 million
has been discharged on March 14, 2007 to the selling shareholders’
escrow agents. Pending closure of the transaction, the amount
paid is classified as Advance for Acquisition. Post Balance Sheet
date, the deal has been closed and all liabilities to the erstwhile
owners of Syndesis stand discharged but for escrowed
consideration of US$ 20.562 million. This hold-back is in respect of
indemnity claims that may arise in the first year of acquisition.
Pending the closure of acquisition of Syndesis by the Company,
the costs associated therewith are not provided for in the Accounts,
owing to the fact that final claims and invoices are yet to be received.
Syndesis Ltd is a Company engaged in Service Assurance and
Fulfillment space in the Telecom service industry.
7.7 Sundry debtors
7.7.1 During the year, the Company has securitized a portion of
its receivables amounting to Rs. 416.66 million with UTI Bank Ltd.
7.7.2 The major customers of the Company are the telecom and
cellular operators overseas and in India. The receivables are spread
over a large customer base. There is no significant concentration
of credit risk on a single customer, but for the majority of the
services business coming from AT&T, USA, and a significant portion
of the products business arising from British Telecom, UK.
7.7.3 All the debtors are generally considered good and realizable
and necessary provision has been made for debts considered to
be bad and doubtful. The level of sundry debtors is normal and is
in tune with business trends and requirements.
Particulars
7.7.4 Sundry debtors as a percentage of total revenue is 36% as
against 53% in the previous year.
7.7.5 The age profile on consolidated basis is as given below:ntages
Amount in Rs. million
2005-2006
%
44.01
29.56
26.43
100.00
Value
Value
Less than 90 days
447.36
424.17
90-180 days
308.89
284.24
More than 180 days
456.37
254.15
961.56
1,212.62
Total
The age profile on stand-alone basis is as given below:
2006-2007
%
36.89
25.47
37.64
100.00
Particulars
Value
197.15
251.01
323.57
771.73
Value
421.80
284.24
254.15
960.19
2006-2007
%
25.55
32.53
41.92
100.00
Amount in Rs. million
2005-2006
%
43.93
Less than 90 days
29.60
90-180 days
26.47
More than 180 days
Total
100.00
7.7.6 The management believes that the overall composition and
condition of sundry debtors is satisfactory. The Company has
made fresh provisions for doubtful debts during the year amounting
to Rs. 150.62 million (previous year Rs. 35.58 million) on
consolidated basis and Rs. 150.00 million (previous year Rs. 35.58
million) on stand alone basis.
7.8 Cash and bank balances
7.8.1 The bank balances in India include both rupee accounts and
foreign currency accounts. The fixed deposit of Rs. 403.75 million
is funded out of book debts securitized.
7.8.2 Cash and Bank balances constitute 5.36% of the total assets
(previous year: 22.25%) on consolidated basis and 4.9 % of the total
assets (previous year: 22.2%) on stand alone basis.
7.9 Loans and advances
7.9.1 Advances recoverable in cash, kind or value to be received are
primarily towards prepayments for value to be received. Advance
income tax, net of provision for taxation represents payments made
towards tax liability pending assessment and refunds due.
7.9.2 Dues from companies under the same management
Subex Technologies Limited
Subex Azure (UK) Ltd
Subex Azure Inc.
Subex Azure (APAC) Pte.Ltd
March 31, 2007
12.91
351.86
249.86
10.67
Amount in Rs. million
March 31, 2006
11.53
-
-
-
7.9.3 Deposits represent electricity deposit, telephone deposits and
advances of like nature. The Company has taken on lease several
buildings for operations and facilities in various cities upon payment
of Rs. 96.32 million (previous year: Rs. 30.66 million) on consolidated
basis and Rs. 32.97 million (previous year: Rs. 8.99 million) on stand
alone basis as rental and maintenance deposits.
A N N U A L R E P O R T
2006 - 2007
51
7.10 Current liabilities
7.10.1 Sundry creditors for capital goods represent amount payable to
vendors for supply of capital assets and to financiers for supply of
capital assets on Hire purchase basis.
7.10.2 Sundry creditors for goods represent amount payable to vendors
for supply of goods.
7.10.3 Sundry creditors - others include creditors for operational
expenses, accrued salaries and benefits and advances received from
clients for delivery of future sales.
7.11 Provisions
Provisions for taxation represent income tax, dividend tax and wealth
tax liability. The provision would be set off upon payment of tax. The
proposed dividend represents the final dividend recommended to the
shareholders by the Board, which would be paid after the Annual
General Meeting.
7.12 Financial instruments
7.12.1 Letters of Credit
The Company has Letters of Credit amounting to Rs. 29.99 million
(previous year, Rs. 3.58 million) outstanding as at year-end.
7.12.2 Guarantees
The Company has outstanding guarantees for various purposes
amounting to Rs. 5.24 million as at March 31, 2007 (previous year :
Rs. 10.08 million). These guarantees are in the nature of performance
guarantees and bid bonds and are subject to the risk of performance
by the Company.
7.13 Profit & Loss account
7.13.1 Income
The Company derives its income from providing Software
Development Services, and licensing of Software Products.
The segment wise break up of income on consolidated basis is
given below:
Amount in Rs. million except percentages
Particulars
Software Services
Software Products
Total
2006-07
2005-06
Value
1,121.33
2,287.67
3,409.00
%
Value
%
35.68
647.52
32.89
67.11
64.32
1166.82
100.00 1,814.34 100.00
The segment wise break up of income on stand-alone basis is
given below:
Amount in Rs. million except percentages
Particulars
Software Services
Software Products
Total
2006-07
Value
1116.15
1002.47
2118.61
%
52.68
47.32
100.00
2005-06
%
Value
35.61
645.32
1166.82
64.39
1812.16 100.00
7.13.2 Geographically, the Company earns income from export of
software services to USA and software products to all countries.
7.14 Non operating income
Non operating income consists of income derived by the Company
from, interest on deposit with Bank, insurance claims received
towards damages of assets, VAT refund, rental from sub-lease of
premises and write-back of provisions no longer required and
exchange fluctuation.
7.15 Expenditure
7.15.1 The staff cost increased to Rs. 2077.44 million (previous year:
Rs.915.37 million) on consolidated basis and to Rs. 1434.54 million
(previous year: Rs. 946.13 million) on stand alone basis on account of
integration of Azure Solutions Limited, new recruitment, increments and
increase in onsite consultancy services in US.
7.15.2 The Company incurred administration and other expenses at
19.10% of its total Income during the year as compared to 14.32%
during the previous year on consolidated basis and 15.61% of its total
Income during the year as compared to 12.10 % during the previous
year on a stand-alone basis.
7.16 Operating profit
During the year, on consolidated basis, the Company earned an
operating profit (Profit before interest, depreciation and tax)
of Rs. 812.46 million being 21.89% of total income as against
Rs. 530.87 million at 28.20% during the previous year. On a stand-
alone basis, the Company earned an operating profit (Profit before
interest, depreciation and tax) of Rs. 447.83 million being 18.96%
of total income as against Rs. 539.44 million at 29.30% during the
previous year.
7.17 Interest & Bank charges
The Company incurred an expenditure of Rs. 87.31 million
(previous year: Rs. 26.81 million) on consolidated basis and
Rs. 75.35 million (previous year: Rs. 26.42 million) on stand-
alone basis. The interest paid is related to temporary overdrawls
and securitized receivables. The interest on FCCBs provided
alone amounted to Rs.11.56 million
7.18 Depreciation & Amortisation
7.18.1 The provision for depreciation for the year increased to
Rs. 125.56 million (previous year: Rs. 92.30 million) on consolidated
basis and Rs. 113.39 million (previous year: Rs. 90.79 million) on
stand alone basis. The increase in provision on consolidated basis
is mainly on account of the absorption of entire year’s depreciation
on intangible assets acquired from Mantas and depreciation on
the assets of Azure group.
Miscellaneous expenses amortised for the year increased to
Rs. 22.96 million (previous year: Rs. 0.28 million) on consolidated
basis. The current year’s charge is on account of the absorption of
redundancy and severance payments incurred in Subex Azure
(UK) Ltd. The total amount incurred during the year is Rs. 46.16
million. The accounting treatment adopted is in accordance with
transitional provisions of the Accounting Standard 15 on Employee
Benefits, issued by The Institute of Chartered Accountants of India.
7.18.2 The intangible assets i.e. IPRs and goodwill are being depre-
ciated over 5 years in accordance with the company’s assessment
of useful life thereof. Accordingly, an amount of Rs. 82.42 million
(previous year Rs. 64.19 million) has been provided towards
depreciation of intangible assets in the financial year under review.
52
A N N U A L R E P O R T
2006 - 2007
7.19 Provision for tax
The Company has provided for its tax liability in India and overseas
after considering the exemptions for income from software services
and products under the various applicable tax enactments. As per the
Income Tax Act, provisions for the current year in the standalone entity
has been made based on Minimum Alternative Tax (MAT). Credit has
been taken into the Profit & Loss account for the entitlement to carry
forward the same and set it off against normal tax liability in future.
7.20 Net profit
On consolidated basis, the net profit of the Company amounted to
Rs. 675.66 million as against Rs. 378.48 million during the previous
year. The Company earned a net profit margin of 20% to total income
as against 21% in the previous year.
On stand-alone basis, the net profit of the Company amounted to
Rs. 208.14 million as against Rs. 391.50 million during the previous
year. The Company earned a net profit margin of 10% to total income
as against 22% in the previous year. The net profit margin decreased
by 12% due to change in Revenue Recognition policy. The acquisition
of Azure Solutions has resulted in the Company having to evolve
common policies and practices across all its group companies worldwide.
Consequently, some of the accounting policies have been realigned
and adopted for all companies and divisions. The revenues from
contracts for sale of software licences in standalone entity, which were
recognized at different periods, are being recognised, w.e.f April 1,
2006, over the contract period.
7.21 Earning per share
Earning per share computed on the basis of number of common
stock outstanding as on the balance sheet date was Rs. 21.10 per
share (previous year: Rs. 17.62 per share) on consolidated basis
and Rs. 6.50 per share (previous year: Rs. 18.23 per share) on
stand-alone basis. The diluted Earning per share for the year was
Rs. 21.02 per share (previous year: Rs. 17.53 per share) as on
consolidated basis and Rs. 6.48 per share (previous year: Rs. 18.13
per share) on stand-alone basis.
7.22 Foreign exchange difference
An amount of Rs. 217.26 million has been accounted for as gain
during the current year compared to loss of Rs. 0.79 million during
the previous year on consolidated basis and an amount of Rs. 207.20
million has been accounted for as gain during the current year
compared to loss of Rs. 0.85 million during the previous year on
stand-alone basis, on account of foreign exchange differences arising
due to timing differences between accrual of income / expense and
receipt / payment of the same.
7.23 Depreciation on software and assets costing less than
Rs. 5,000 each
During the year, the Company charged depreciation at one
hundred percent in respect of assets costing less than Rs. 5,000
each, amounting to Rs. 0.58 million (previous year, - Rs. 0.06
million). Cost of software charged off to revenue during the year
amounted to Rs. 4.77 million (previous year - Rs. 1.50 million).
8. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES /
INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF
PEOPLE EMPLOYED.
8.1 Subexians
As on March 31, 2007, we had over 688 Subexians on our rolls.
They are highly trained and motivated. This is critical to the success
of the Company. We focus on attracting and retaining the best
talent with us.
Our human resources department is centralized at our corporate
headquarters in Bangalore and oversees HR functions across all
the geographies where the Company operates. We have
implemented corporate-wise, recruiting, training, performance
evaluation and compensation programs that are tailored to address
the needs of each of our business segments.
8.2 Recruiting
Subex Azure hires entry level graduates from the top engineering
and management universities in India. The Company also hires
through Subexian referral programs, advertisements, placement
consultants, our website postings and walk-ins. To facilitate the
growth of Subexians within the Company, all new openings are
first offered to the current Subexians. The nature of work, skill sets
requirements and experience level are highlighted to prospective
Subexians.
8.3 Training
Each of our new recruits must attend a compulsory induction
program when they begin working with us. New or recent graduates
must also attend additional training programs that are tailored to
their area of technology. We also have a training program for all
subexians to improve their technical as well as their soft skills. We
supplement continuing education program by sponsoring special
programs for Subexians at leading educational institutions, such as
the Birla Institute of Technology & Science, Pilani, to provide them
cutting-edge skill sets.
8.4 Performance management system
Subex Azure has a competency based appraisal system. Key result
area of Subexians are assessed through a process of appraisal
involving self, peers and managers. The score obtained in this
cycle will undergo a normalization and moderation process to bring
it in line with the organization-wide scores.
8.5 Compensation
Subex Azure continually provides Subexians with competitive and
innovative compensation packages. The packages include a
combination of salary, stock options, health and disability insurance.
The Company measures its compensation packages against
industry standards and strives to match or exceed the same.
A N N U A L R E P O R T
2006 - 2007
53
Financial Review
Subex Azure Limited (Standalone)
54
A N N U A L R E P O R T
2006 - 2007
AUDITORS’ REPORT TO THE MEMBERS OF SUBEX AZURE LIMITED
1. We have audited the attached Balance Sheet of Subex Azure
Limited, as at March 31, 2007, the Profit and Loss Account
and the Cash Flow Statement of the Company for the year
ended on that date annexed thereto. These financial statements
are the responsibility of the management of the Company.
Our responsibility is to express an opinion on these financial
statements based on our audit.
2. We conducted our audit in accordance with generally
accepted auditing standards in India. These Standards require
that we plan and perform the audit to obtain reasonable
assurance whether the financial statements are free of material
misstatements. An audit includes, examining on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management as well as evaluating the overall financial
statements presentation. We believe that our audit provides a
reasonable basis for our opinion.
3. As required by the Companies (Auditor’s Report) Order, 2003
issued by the Government of India, in terms of Section 227
(4A) of the Companies Act 1956, we give in the Annexure, a
statement on the matters specified in paragraphs 4 and 5 of
the said Order to the extent applicable to this Company.
4. Further, to our comments in the Annexure referred to above,
we report that:
(a) we have obtained all the information and explanations, which
to the best of our knowledge and belief were necessary for the
purpose of our audit.
(b) in our opinion, proper books of account as required by law
have been kept by the Company, so far as it appears from our
examination of the books and proper returns adequate for the
purpose of our audit have been received from the Company’s
branch, in the United States of America (US Branch) not visited
by us.
(c) the report on the accounts of the US Branch audited by the
Branch Auditors’ has been forwarded to us and has been
dealt with by us in preparing this report.
(d) in our opinion, the Balance Sheet, Profit and Loss Account and
Cash Flow Statement dealt with by this report are in compliance
with the Accounting Standards referred to in Section 211(3C)
of the Companies Act, 1956.
(e) the Balance Sheet, Profit and Loss Account and Cash Flow
Statement dealt with by this report are in agreement with the
books of account and the audited branch returns.
(f) on the basis of written representations received from the
directors of the Company, as at March 31, 2007 and taken on
record by the Board of Directors, we report that none of the
directors is disqualified as on March 31, 2007 from being
appointed as a director in terms of clause (g) of sub-section
(1) of Section 274 of the Companies Act 1956.
(g) in our opinion and to the best of our information and according
to the explanations given to us, the said accounts read together
with the notes thereon, give the information required by the
Companies Act 1956, in the manner so required and give a
true and fair view in conformity with the accounting principles
generally accepted in India,
(i)
in the case of the Balance Sheet, of the state of affairs of
the Company as at March 31, 2007; and
(ii) in the case of the Profit and Loss Account of the profit for
the year ended on that date,
(iii) in the case of the Cash Flow Statement, of the cash flows
for the year ended on that date.
For Deloitte Haskins & Sells
Chartered Accountants
V.Srikumar
Partner
M. No. 84494
Place: Bangalore
Date: April 30, 2007
ANNEXURE TO THE AUDITORS’ REPORT (REFERRED TO IN OUR REPORT OF EVEN DATE TO THE MEMBERS OF SUBEX
AZURE LIMITED)
1. The provisions of clauses i(c), ii, iii (d) to (g), (viii), (x), (xii),
(xiii), (xiv), (xv), (xviii), (xix), (xx) as contained in para 4 and 5
of the Companies (Auditors’ Report) Order, 2003, are not
applicable to the Company for the current year.
In respect of its fixed assets:
In respect of loans, secured or unsecured, granted or taken
by the Company to or from companies, firms or other parties
covered in the register maintained under section 301 of the
Companies Act, 1956, according to the information and
explanations given to us:
3.
2.
(a) The Company has maintained proper records showing full
particulars, including quantitative details and situation of fixed
assets.
(b) The fixed assets were physically verified during the year by
the management in accordance with a programme of
verification, which in our opinion provides for physical
verification of all the fixed assets at reasonable intervals.
According to the information and explanations given to us no
material discrepancies were noticed on such verification.
(a) the Company has granted loans to four parties. At the year
end, the outstanding balances of such loans granted
aggregated to Rs. 625,303,150 and the maximum amount
involved during the year was Rs. 936,114,587.
(b) in our opinion, having regard to the explanation that the
loans are granted to subsidiaries with an intention of providing
financial support, the terms and conditions of the interest
free loans are, prima facie, not prejudicial to the interest of
the Company.
A N N U A L R E P O R T
2006 - 2007
55
party, the transactions have been made at prices which are,
prima facie, reasonable having regard to the prevailing market
prices at the relevant time.
6. The Company has not accepted deposits from the public.
7.
In our opinion, the internal audit functions carried out during
the year by a firm of Chartered Accountants appointed by the
management has been commensurate with the size of the
Company and the nature of its business.
In respect of Statutory dues:
8.
(a) according to the information and explanations given to us, the
Company has been generally regular in depositing undisputed
statutory dues including Provident Fund, Employees’ State
Insurance, Investor Education and Protection Fund, Income
Tax, Wealth Tax, Service Tax, Excise Duty, Customs Duty,
Sales Tax, cess and any other material statutory dues with the
appropriate authorities during the year.
(b) according to the information and explanations given to us,
details of disputed sales tax, income tax, customs duty, wealth
tax, service tax, excise duty and cess which have not been
deposited as on March 31, 2007, on account of any dispute
are given below:
Period to which
the amount relates
2002-03
2003-04
Forum where dispute is pending
CIT (Appeals)
CIT (Appeals)
(c) in terms of the loans granted, no principal was due during the
4.
5.
year ending March 31, 2007.
In our opinion and according to the information and explanations
given to us, having regard to the explanations that some of the
Company’s transactions of (a) purchases of goods and
services and (b) services rendered, are of a specialised nature
for which comparable quotations are not available, there are
adequate internal control procedures commensurate with the
size of the Company and the nature of its business with regard
to the purchase of fixed assets and for the sale of goods and
services and we have not observed any continuing failure to
correct major weaknesses in such internal controls.
In respect of contracts and arrangements entered in the register
maintained in pursuance of section 301 of the Companies Act
1956, to the best of our knowledge and belief, and according
to the information and explanations given to us:
(a) the particulars of contracts or arrangements referred to in
Section 301 that needed to be entered into the register,
maintained under the said section have been so entered.
(b) where each of such transactions (excluding loans reported
under paragraph 3 above), made in pursuance of contracts
or arrangements, is in excess of Rs. 5 lakhs in respect of any
Name of statute
Nature of the dues
Amount (Rs.)
Income Tax Act, 1961
Income Tax Act, 1961
Income tax
Income tax
9,353,609
29,783,022
9.
In our opinion and according to the information and explanations
given to us, the Company has not defaulted in the (re)payment
of dues to financial institutions and banks.
10. To the best of our knowledge and belief and according to the
information and explanations given to us, in our opinion, term
loans availed by the Company were, prima facie, applied by
the Company during the year for the purposes for which the
loans were obtained, other than temporary deployment pending
application.
11. According to the information and explanations given to us and
on an overall examination of the balance sheet of the Company,
funds raised on short term basis have, prima facie, not been
used during the year for long term investment.
12. To the best of our knowledge and belief and according to the
information and explanations given to us, no fraud on or by the
Company was noticed or reported during the year.
For Deloitte Haskins & Sells
Chartered Accountants
V.Srikumar
Partner
M. No. 84494
Place: Bangalore
Date: April 30, 2007
56
A N N U A L R E P O R T
2006 - 2007
BALANCE SHEET AS AT
SOURCES OF FUNDS
Shareholders’ funds
Share capital
Share application money
Reserve and surplus
Loan Funds
Secured loans
Unsecured loans
Total
APPLICATION OF FUNDS
Fixed assets
Gross block
Less : Depreciation
Net block
Capital work in progress
Investments
Deferred tax asset (Net)
CURRENT ASSETS, LOANS & ADVANCES
Sundry debtors
Cash & Bank balances
Loans & Advances
Unbilled revenue
Less: Current Liabilities & Provisions
Net current assets
Total
Schedule
March 31, 2007
March 31, 2006
Amount in Rs.
A
B
C
D
E
F
G
H
I
J
348,157,250
-
7,614,743,935
583,759,501
7,807,500,000
662,665,154
360,261,651
302,403,503
4,037,627
771,734,600
801,158,095
772,476,344
224,571,526
2,569,940,565
734,720,221
7,962,901,185
8,391,259,501
16,354,160,686
306,441,130
14,195,582,212
16,917,000
1,816,204,910
11,119,920
1,827,324,830
391,609,527
318,017,947
7,912,000
217,575,680
878,089
1,597,751,141
11,119,920
-
653,064,906
265,950,677
387,114,229
4,495,298
960,193,124
405,677,943
76,355,395
-
1,442,226,462
332,441,106
1,835,220,344
16,354,160,686
1,109,785,356
1,827,324,830
Significant Accounting policies & Notes to the accounts P
The Schedules referred to above form an integral part of the Balance Sheet
In terms of our report of even date
for Deloitte Haskins & Sells
Chartered Accountants
V. Srikumar
Partner
Membership No. 84494
Bangalore
April 30, 2007
Subash Menon
Founder Chairman, Managing Director & CEO
Sudeesh Yezhuvath
Chief Operating Officer
V. Balaji Bhat
Director
Sudha Madhavan
Chief Financial Officer
Raj Kumar
Chief Counsel & Company Secretary
A N N U A L R E P O R T
2006 - 2007
57
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED
Schedule
March 31, 2007
Amount in Rs.
March 31, 2006
Income
Sales & Services
Other income
Total
EXPENDITURE :
Direct cost
Personnel costs
Other operating, selling and
administrative expenses
Financial costs
Depreciation
Total
Profit Before Taxation
Provision for taxation
K
L
M
N
O
E
66,195,845
(11,128,731)
4,887,171
(9,005,000)
- Current
- MAT credit carried forward
- Fringe benefit tax
- Deferred
Profit After Taxation
Add: Balance brought forward from previous year
Profit Available for Appropriation
APPROPRIATION :
Transfer to General Reserve
Dividend
- Equity shares - proposed final dividend 2006-07 @20%
- Equity shares - interim dividend 2006-07 @15%
- Equity shares - interim dividend 2005-06
- Equity shares - final dividend 2004-05
- Equity shares - final dividend 2005-06
69,631,450
52,113,210
-
-
12,883,222
Tax on distributed profits
Surplus carried to Balance Sheet
Earning per Share (Face value of Rs.10 each)
- Basic
- Diluted
2,118,612,682
243,226,341
2,361,839,023
110,863,909
1,434,537,769
368,603,829
75,345,976
113,394,684
2,102,746,167
259,092,856
50,949,285
208,143,571
756,300,496
964,444,067
23,200,000
134,627,882
20,949,615
785,666,570
964,444,067
6.50
6.48
1,812,162,302
29,027,758
1,841,190,060
132,850,266
946,131,783
222,772,709
26,419,291
90,789,585
1,418,963,634
422,226,426
30,730,446
391,495,980
448,497,788
839,993,768
39,500,000
38,588,896
5,604,376
756,300,496
839,993,768
18.23
18.13
32,775,000
-
1,891,637
(3,936,191)
-
-
16,283,564
547,764
21,757,568
Significant Accounting policies & Notes to the accounts P
The Schedules referred to above form an integral part of the Profit & Loss account
In terms of our report of even date
for Deloitte Haskins & Sells
Chartered Accountants
V. Srikumar
Partner
Membership No. 84494
Bangalore
April 30, 2007
58
A N N U A L R E P O R T
2006 - 2007
Subash Menon
Founder Chairman, Managing Director & CEO
Sudeesh Yezhuvath
Chief Operating Officer
V. Balaji Bhat
Director
Sudha Madhavan
Chief Financial Officer
Raj Kumar
Chief Counsel & Company Secretary
CASH FLOW STATEMENT FOR THE YEAR ENDED
Cash flow from operating activities
Net profit before tax
Adjustments for
a) Depreciation & Amortization
b) Interest / dividend income
c) Interest and bank charges
d) Assets written off / loss on sale
e) Profit on sale of assets
f) Employee compensation expenses
g) Provision for doubtful debts
h) Unrealised exchange fluctuations
i) Direct taxes paid
Operating profit before working capital changes
Adjustments for
a) Sundry debtors
b) Loans and advances
c) Inventories
d) Trade and other payables
Cash generated from operations
Cash flow from investing activities
a) Purchase of fixed assets
b) Sale / disposal of fixed assets
c) Sale / (purchase) of investments
d) Interest received
Net cash from investing activities
Cash flow from financing activities
a) Proceeds from issue of share capital/options
b) Proceeds from/(repayment) of short term borrowings - Net
c) Proceeds from long term borrowings
d) Repayment of long term borrowings
e) Dividends & dividend tax paid
f) Interest and bank charges paid
g) FCCB & GDR expenses
Net cash from financing activities
Net increase in Cash or Cash equivalents [A + B + C]
Cash or Cash equivalents at the start of the year
Cash or Cash equivalents at the close of the year
A
B
C
March 31, 2007
259,092,856
113,394,684
(33,843,931)
75,345,976
3,761,806
(463,514)
10,760,906
150,000,000
(208,784,608)
(39,652,428)
329,611,747
12,197,079
(884,747,202)
-
289,321,484
(253,616,892)
(40,389,091)
8,864,512
(7,635,103,606)
33,843,931
(7,632,784,254)
457,173,808
570,247,932
8,049,544,180
(4,752,531)
(98,720,943)
(75,345,976)
(616,265,172)
8,281,881,298
395,480,152
405,677,943
801,158,095
Amount in Rs.
March 31, 2006
422,226,426
90,789,585
(17,485,876)
26,419,291
1,922,880
(11,976,780)
4,115,709
35,583,448
3,632,964
(21,068,323)
534,159,324
(292,387,910)
(11,546,176)
62,589
93,266,223
323,554,050
(110,095,990)
21,058,612
(9,499,000)
16,352,692
(82,183,686)
18,753,800
(59,387,250)
3,318,000
(6,093,275)
(43,776,147)
(26,419,292)
-
(113,604,164)
127,766,200
277,911,743
405,677,943
Note : Cash & Cash equivalents include balance with scheduled banks on dividend account and GIC deposit account of Rs. 937,379 and
fixed deposit Rs. 320,425,029 (previous year Rs. 963,793) which are not available for use by the Company.
Significant Accounting policies & Notes to the accounts - Schedule
P
In terms of our report of even date
for Deloitte Haskins & Sells
Chartered Accountants
V. Srikumar
Partner
Membership No. 84494
Bangalore
April 30, 2007
Subash Menon
Founder Chairman, Managing Director & CEO
Sudeesh Yezhuvath
Chief Operating Officer
V. Balaji Bhat
Director
Sudha Madhavan
Chief Financial Officer
Raj Kumar
Chief Counsel & Company Secretary
A N N U A L R E P O R T
2006 - 2007
59
SCHEDULES TO THE BALANCE SHEET AS AT
Schedule - A
Share capital
Authorised
48,040,000 (previous year, 30,140,000) equity shares of Rs. 10 each
200,000 Redeemable Optionally
Convertible Cumulative Preference Shares (ROCCPS) of Rs. 98 each
Total
Issued, subscribed and paid up
Equity
34,815,725 (previous year, 21,757,568) equity shares of Rs.10 each
Of the above
a) 115,000 shares of Rs. 10 each were allotted for
consideration other than for cash;
b) 4,626,940 shares of Rs. 10 each are allotted as Bonus
shares by capitalisation of General Reserve;
c) 12,840 shares of Rs. 10 each are allotted in part
settlement of cost of acquisition of subsidiary
d) 10,878,784 (previous year: Nil) shares of Rs. 10 each are
allotted as bonus shares by capitalisation of securities premium;
e) 11,728,728 shares (GDRs) of Rs. 10 each are allotted in full
settlement of cost of acquisition of Azure Solutions (UK) Ltd
Total
Schedule - B
Reserves & Surplus
Capital Reserve
General Reserve - opening balance
Add : Additions during the year
Less : Adjustment in pursuance of transitional provisions of
Accounting Standard - 15 (Note ll.18 .7 Schedule P)
Securities premium account - opening balance
Add : Additions during the year
Less: Utilised towards incidental costs of issue of FCCBs & GDRs
Less : Redemption premium on FCCBs
(Note ll.8 Schedule P)
Employee Stock Options outstanding
Less: Deferred employees compensation expenses
Redemption premium on FCCB
(Note ll.8 Schedule P)
Profit & Loss account
Total
Schedule - C
Secured loans
Short term
Working capital loans from banks
(Secured by first charge on fixed deposits and receivable)
Other loan from banks
(Amount repayable within one year: Rs. 4,335,771,
previous year, Rs. 3,761,855)
Total
Scheduled - D
Unsecured loans
Foreign Currency Convertible Bonds
(Note ll.8 Schedule P)
Total
60
A N N U A L R E P O R T
2006 - 2007
March 31, 2007
March 31, 2006
Amount in Rs.
480,400,000
19,600,000
500,000,000
301,400,000
19,600,000
321,000,000
348,157,250
217,575,680
163,302,608
23,200,000
8,527,028
656,262,011
6,578,458,014
616,265,172
42,150,000
52,775,309
33,135,297
348,157,250
217,575,680
13,006,920
177,975,580
6,576,304,853
19,640,012
42,150,000
785,666,570
7,614,743,935
570,247,932
13,511,569
583,759,501
7,807,500,000
7,807,500,000
123,802,608
39,500,000
-
541,983,360
223,066,491
108,787,840
-
22,738,130
13,859,024
13,006,920
163,302,608
656,262,011
8,879,106
-
756,300,496
1,597,751,141
-
11,119,920
11,119,920
-
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A N N U A L R E P O R T
2006 - 2007
61
SCHEDULES TO THE BALANCE SHEET AS AT
Schedule - F
Investments
(Long term, trade, unquoted)
In wholly owned subsidiaries
Subex Technologies Inc
(incorporated in U.S.A, common stock 3,000 shares,
fully paid up, of no par value)
Subex Technologies Ltd
(incorporated in India, common stock 999,994 shares,
fully paid up, at par value of Rs.10 each)
Subex Azure UK Ltd
(incorporated in UK, (common stock 5,039,565,245 shares,
fully paid up, at par value of £. 0.00001 each)
Advance for acquisition
(Note ll.7 Schedule P)
Total
Schedule - G
Sundry debtors
(Unsecured)
Outstanding for more than six months
- Considered good
- Considered doubtful
Less: Provision for doubtful debts
Others
Total (considered good)
Schedule - H
Cash & bank balances
Cash on hand
Balance with scheduled banks
-
-
-
-
-
-
-
-
-
-
in Current account in Indian Rupees
in Deposit account in Indian Rupees
in Exchange Earner’s Foreign Currency account
Balance with non-scheduled banks
- Deposit with Royal Bank of Canada
-
in current account with Royal Bank of Canada, Canada
(Maximum outstanding during the year Rs. 1,787,598)
in checking account with First Union Bank, New Jersey
(Maximum outstanding during the year Rs. 127,318,302)
in Hellinic Bank - CYP Account, Cyprus
(Maximum outstanding during the year Rs. 1,503)
in Hellinic Bank - USD Account - Cyprus
(Maximum outstanding during the year Rs. 790)
in Bank of China - RMB account - China
(Maximum outstanding during the year Rs. 2,359,802)
in Bank of China - USD Account - China
(Maximum outstanding during the year Rs. 1,862,777)
in First National Bank of Colorado - USD Account - CO
(Maximum outstanding during the year Rs. 11,089,706)
in HSBC Bank - GBP Account - Slough, London
(Maximum outstanding during the year Rs. 8,849,063)
- Wachovia Bank, USA
(Maximum outstanding during the year Rs. 7,820,065,930/-
The balance comprises unutilised monies out of the
proceeds of issue of FCCBs)
- Wachovia Bank, USA
(Maximum outstanding during the year Rs. 1,076,250/-)
Total
62
A N N U A L R E P O R T
2006 - 2007
March 31, 2007
March 31, 2006
Amount in Rs.
308,018,007
308,018,007
9,999,940
9,999,940
323,569,496
203,788,312
527,357,808
203,788,312
254,146,370
58,786,098
312,932,468
58,786,098
6,473,868,240
7,403,696,025
14,195,582,212
323,569,496
448,165,104
771,734,600
61,435
8,509,020
403,750,607
21,921,738
937,379
917,455
2,156,371
-
-
1,465,235
-
-
-
360,362,605
1,076,250
801,158,095
-
-
318,017,947
254,146,370
706,046,754
960,193,124
342,020
9,776,111
333,665,660
43,245,394
963,793
503,094
11,793,295
1,395
1,663
22,595
892,680
1,773,861
2,696,382
-
-
405,677,943
SCHEDULES TO THE BALANCE SHEET AS AT
Schedule - I
Loans & Advances
(Unsecured, considered good, subject to confirmation)
Loans and advances recoverable in cash
or in kind or for value to be received
Loans to wholly owned subsidiaries
Advance income tax including TDS
Other deposits
Total
Schedule - J
Current Liabilities & Provisions :
Sundry creditors
(other than dues to Small Scale Industrial Undertaking
Note ll.I8.9 Schedule P)
Advance received from customers
Deferred income
Duties & Taxes
Subex Technologies Inc. (Net) (Wholly owned subsidiary)
Unclaimed dividends
Provisions :
Taxation
Dividends
Tax on proposed dividends
Employee benefits
Warranty
Total
Schedule - K
Other Income
Interest received (Gross of TDS Rs. 5,417,207,
previous year Rs. 3,794,118)
Other income received
Profit on sale of fixed assets (Net)
Exchange fluctuation gain (Net)
Total
March 31, 2007
March 31, 2006
Amount in Rs.
47,752,966
625,303,150
53,664,130
45,756,098
772,476,344
21,342,369
10,042,277
17,718,857
27,251,892
76,355,395
300,145,835
124,128,357
88,675,783
3,346,731
18,397,515
127,535,322
812,794
93,606,845
69,631,450
11,833,865
17,750,427
2,983,654
64,884,807
-
13,211,952
64,277,408
300,627
37,359,715
22,069,429
3,051,499
-
3,157,312
266,803,151
65,637,955
332,441,106
17,485,876
1,487,982
10,053,900
-
29,027,758
538,913,980
195,806,241
734,720,221
33,843,931
2,182,173
-
207,200,237
243,226,341
A N N U A L R E P O R T
2006 - 2007
63
SCHEDULES TO THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED
March 31, 2007
Amount in Rs.
March 31, 2006
Schedule - L
Direct cost
a. Purchased systems & solutions
Support expenses
(Increase)/ decrease in finished goods
Opening stock - finished goods
Closing stock - finished goods
b. Commission on sales
Total
Schedule - M
Personnel costs
Salaries, wages & allowances
Contribution to provident fund and other funds
Other staff related costs
Sub contract charges
Total
Schedule - N
Other operating, selling and administrative expenses
Software purchases
Rent
Power, fuel and water charges
Repairs & Maintenance others
Insurance
Communication costs
Printing & Stationery
Travelling & Conveyance
Directors sitting fees
Rates & Taxes including filing fees
Advertisement & Business promotion
Consultancy charges
Bad debts written off
Warranty expenses
Provision for doubtful debts
Loss on sale of Assets & Assets written off (Net)
Exchange fluctuation (Net)
Miscellaneous expenses
Total
Schedule - O
Financial costs
Interest on FCCBs and other term loans
Other interest & bank charges
Total
64
A N N U A L R E P O R T
2006 - 2007
52,187,455
36,409,103
-
-
88,596,558
-
-
22,267,351
110,863,909
384,902,756
13,751,205
35,944,162
999,939,646
1,434,537,769
4,767,391
30,639,977
7,048,363
4,792,904
3,713,714
14,767,756
2,727,529
107,126,588
42,500
1,824,242
16,786,474
9,114,000
-
-
150,000,000
3,298,292
-
11,954,099
368,603,829
11,566,667
63,779,309
75,345,976
76,932,834
-
62,589
-
76,932,834
62,589
55,854,843
132,850,266
321,347,918
8,163,941
20,027,863
596,592,061
946,131,783
1,496,013
30,415,017
6,207,953
4,213,304
2,099,094
20,332,862
1,376,270
70,443,729
27,500
962,070
16,120,996
20,909,065
135,104
2,683,362
35,583,448
-
853,205
8,913,717
222,772,709
-
26,419,291
26,419,291
Schedule – P
SIGNIFICANT ACCOUNTING POLICIES
I.
I.1. Basis for preparation of financial statements
The financial statements have been prepared under the historical
cost convention in accordance with the applicable Accounting
Principles in India, the Accounting Standards issued by the
Institute of Chartered Accountants of India and the relevant
provisions of the Companies Act, 1956, as adopted consistently
by the Company. Revenues are recognised and expenses
accounted on their accrual, including provisions / adjustments
for committed obligations and amounts determined as payable
or receivable during the year.
I.2. Use of estimates
The preparation of the financial statements in conformity with
Indian GAAP requires that management makes estimates and
assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent liabilities as at the date of the
financial statements and the reported amounts of revenue and
expenses during the reported period. Actual results could differ
from those estimates.
I.3. Revenue recognition
Revenue from contracts for software product licenses includes
fees for transfer of licenses, installation and commissioning. This
revenue is recognized under the percentage completion method
based on the extent of work determined to have been completed
as compared to the work involved in the overall scope of the
contract. In the event of any expected losses on a contract, the
entire amount is provided for in the accounting period in which
such losses are first anticipated.
Revenue from sale of additional software licenses are recognized
on transfer.
Revenue from software development is recognized on the basis of
chargeable time or achievement of prescribed milestones as relevant
to each contract.
Sale of hardware under reseller arrangements are recognized on
dispatch of goods to customers and are recorded net of discounts,
rebates for price adjustment, projections, shortage in transit, taxes
and duties.
Interest on investments and deposits are booked on a time proportion
basis taking into account the amount invested and the rate of interest.
Maintenance and service income is recognised on accrual basis.
I.4. Fixed assets
Fixed assets are stated at cost of acquisition inclusive of freight,
duties, taxes and interest on borrowed money allocated to and
utilised for fixed assets up to the date of capitalisation and other
direct expenditure incurred on ongoing projects. Assets acquired
on hire purchase are capitalised at gross value and interest thereon
is charged to revenue.
I.5. Depreciation
Fixed assets are depreciated using the straight-line method over
the useful lives of assets. Depreciation is charged on pro-rata
basis for assets purchased/sold during the year.
Depreciation Rates
20.00 %
25.00 %
20.00 %
20.00 %
20.00 %
20.00 %
The rates of depreciation adopted are as under:
Particulars
Plant & Machinery
Computers
Vehicles
Furniture & Fixtures
Intangible assets
Goodwill
Individual assets costing less than Rs. 5,000 are depreciated in
full, in the year of purchase.
I.6. Employee Stock Option plans
For the shares granted /allocated under Employee Stock Option
Plan - I (ESOP-I), the Securities Exchange Board of India (SEBI)
guidelines are not followed, since the scheme was formulated prior
to the promulgation of the guidelines.
Employee Stock Options under Employees Stock Option Plan – II
and Plan-III (ESOP-II and ESOP-III) are accounted in accordance
with the guidelines stipulated by SEBI. The difference between the
market price of the shares underlying the options granted on the
date of grant of option and the option price is expensed as
‘Employees Compensation’ over the period of vesting.
I.7. Employee benefits
The company’s contribution to provident fund, a defined
contribution scheme, is charged to the profit and loss account on
accrual basis.
Liability for gratuity is funded with Life Insurance Corporation of
India (LIC). Gratuity expense for the year has been accounted
based on acturial valuation carried out at the end of the financial
year. The retirement benefit obligation recognized in the balance
sheet represents the present value of the defined benefit obligations
adjusted for unrecognized past service cost and as reduced by
the fair value of scheme assets. Any asset resulting from this
calculation is limited to past service cost plus the present value of
available refunds and reduction in future contributions to the
scheme.
Liability for encashment of leave, considered to be long term liability,
is accounted for on the basis of an acturial valuation. Provision for
outstanding leave credits considered is short term liability is as
estimated by the management and accrued for based on last
month’s salary. Other short term employee benefits like medical,
leave travel etc are accrued based on the terms of employment on
a time proportion basis.
I.8. Research and development
Expenses incurred on research and development is charged to
revenue in the same year. Fixed asset purchased for research
and development are capitalized and depreciated as per the
company’s policy.
I.9. Foreign currency transactions and translation
Transactions denominated in foreign currencies are recorded at
the exchange rates prevailing on the date of the transaction.
Monetary items denominated in foreign currencies at year end are
translated at the exchange rate prevailing on the date of the Balance
Sheet. Non-monetary items denominated in foreign currencies are
carried at cost. Exchange differences on settlement or restatement
A N N U A L R E P O R T
2006 - 2007
65
are adjusted in the profit & loss account/fixed assets as appropriate.
Premium or discount on forward contracts is amortized over the
life of such contract and is recognized as income or expense,
except in respect of the liabilities for the acquisition of fixed assets,
where such amortization is adjusted in the carrying cost of the
fixed assets. Any profit or loss arising on cancellation or renewal
or retirement of forward contract is recognized in profit and loss
account / other accounts as appropriate.
Assets (other than fixed assets) and liabilities of the foreign branches
are translated into Indian rupees at the rate of exchange prevailing
as at the Balance Sheet date. Fixed Assets of foreign branches are
restated at the exchange rate prevailing on the date of transaction.
Revenue and expenses are translated into Indian rupees at yearly
average exchange rates prevailing during the year.
I.10. Investments
Long term investments are stated at cost. Diminution in the value
of investments other than temporary in nature is provided for.
I.11. Income Taxes
Income tax comprises the current tax provision under the tax
payable method and the net change in the deferred tax asset or
liability in the year. Deferred tax assets and liabilities are
recognized for the future tax consequences of temporary
differences between the carrying values of the assets and liabilities
and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which the
temporary differences are expected to be received or settled.
The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in the income statement in the period of
enactment of the change.
Deferred tax assets are recognized and carried forward to the
extent that there is a reasonable / virtual certainty, as applicable,
that sufficient future taxable income will be available against which
such deferred tax assets can be realized.
I.12. Cash flow statement
Cash flow statement has been prepared in accordance with the
indirect method prescribed in Accounting Standard 3, issued by
the Institute of Chartered Accountants of India.
I.13. Preliminary and share issue expenses
Expenses incurred during the Initial Public Offer, follow on offer
and issue of Bonus Shares are amortised over 5 years. Other
issue expenses are charged to the securities premium account.
I.14. Provisions
A provision is recognized when an enterprise has a present
obligation as a result of past event; it is probable that an outflow of
resources will be required to settle the obligation, in respect of
which a reliable estimate can be made. Provisions are not
discounted to its present value and are determined based on best
estimate required to settle the obligation at the balance sheet date.
These are reviewed at each balance sheet date and adjusted to
reflect the current best estimates.
II.
NOTES TO ACCOUNTS
II.1. Deferred income taxes
a) Provision for income taxes has been made in terms of Accounting
66
A N N U A L R E P O R T
2006 - 2007
Standard 22 ‘Accounting for Taxes on Income’ issued by Institute
of Chartered Accountants of India.
Movement in deferred tax asset (Liability)
Amount in Rs.
2005-06
2006-07
3,975,809
7,912,000
Net deferred tax asset
at beginning of the year
Add: Tax benefits
for current year
Net deferred tax asset
at end of the year
7,912,000
b) The net deferred tax asset as at March 31, 2007 comprises the
tax impact arising from the timing differences on account of:
16,917,000
9,005,000
3,936,191
As at
March 31, 2007
16,917,000
Amount in Rs.
As at
March 31, 2006
7,912,000
Depreciation
II.2. Contingent liabilities
Receivables factored – Rs. 416,664,307 (previous year,
Rs. 389,264,166)
Claims against the Company not acknowledged as debt –
Rs. 39,136,631* (previous year, Rs. 9,353,609)
* These claims relate to income tax demands pertaining to FY 2002-03
& 2003-04. The demands are being contested by the Company.
II.3. Acquisition of Azure Solutions Ltd, UK
On June 23, 2006, the Company acquired the entire shareholding of
Azure Solutions Ltd, UK. The consideration was discharged by issue of
11,728,728 GDRs each representing one equity share of Rs. 10/- at a
premium of Rs. 522.24 per share and cash of Rs. 214,570,000.
II.4. Acquisition of tangible and intangible assets – Lightbridge Inc and
Alcatel, UK
During 2004-05, the Company had acquired Intellectual Property Rights
comprising of technology, know how, source code and software
connected with the Fraud Management software businesses from
Alcatel, UK and Lightbridge, USA for an amount of Rs. 172,812,213
and Rs. 141,685,665 respectively, including expenses incurred in
connection with the said acquisitions. During the year ended March
31, 2006, an amount of US$ 25,307 (Rs. 1,102,753) has been paid to
Lightbridge as additional consideration and is capitalized as Goodwill.
The intangible assets based on the valuation report by independent
valuers, are being amortised over 5 years in accordance with the
company’s assessment of useful life thereof. Accordingly, an amount
of Rs. 60,830,004 has been amortised in the financial year under
review (previous year, Rs. 62,502,860).
II.5. Acquisition of tangible and intangible assets –Mantas Inc
The Company acquired business contracts, hardware, Intellectual
Property Rights (comprising of trademarks, patents, copyrights
and software) connected with the Fraud Management Software
businesses from Mantas Inc. USA in an all cash deal of US$ 2.10
million, on March 1, 2006. The same has been capitalized along
with the expenses incurred in connection with the said acquisition.
The intangible assets accounted for based on the valuation report
by independent valuers, are being amortised over 5 years in
accordance with the company’s assessment of useful life thereof.
Accordingly, an amount of Rs. 18,840,067 has been amortised in
the financial year under review (Previous year, Rs. 1,696,053).
II.6. The Company has made 2 issues of Global Depository receipts
(GDRs) in April 2006 and June 2006. The details of these issues are
as given below :
Sl No. Month of
Issue
April 2006
June 2006
Issue price
per GDR (Rs.)
400.00
532.24
Equivalent
Equity shares
1 of Rs. 10 each
1 of Rs. 10 each
Amount in Rs.
No. of GDRs
issued
1,109,878
1
2
11,728,728
In addition, the Company has completed a programme of sponsored
GDR offerings, whereby an option has been offered to the existing
share holders of the Company to transfer their holdings in favour of
Institutional Investors.
All the above GDR’s are listed on the Professional Securities Market of
the London Stock Exchange.
II.7. On January 18, 2007, the Company has executed a share
purchase agreement with the owners of Syndesis Limited, Toronto,
Canada for the purchase of their entire shareholding in that
Company. The total consideration amounting to US$ 165.66 million
has been discharged on March 14, 2007 to the selling shareholders’
escrow agents. Pending closure of the transaction, the amount
paid is classified as Advance for Acquisition. Post Balance Sheet
date, the deal has been closed and all liabilities to the erstwhile
owners of Syndesis Limited stand discharged but for escrowed
consideration of US$ 20.562 million. This hold-back is in respect of
indemnity claims that may arise in the first year of acquisition.
Pending the closure of deal in the case of acquisition of Syndesis
Limited by the Company, the costs associated therewith are not
provided for in the accounts, owing to the fact that final claims and
invoices are yet to be received.
Syndesis Limited is a Company engaged in service assurance and
fulfillment space in the Telecom service industry.
II.8. Foreign Currency Convertible Bonds (FCCB)
During the year 2006-07, the Company issued Foreign Currency
Convertible Bonds (FCCBs) aggregating to US$ 180 million to
Institutional Investors. The bonds carry an initial interest rate of
2% per annum and are redeemable by March 9, 2012, if not
converted into equity shares as per terms of issue.
Other terms and conditions governing the bonds are as follows:
a) Conversion of the bonds into equity shares at the option of the
bond holders at any time after April 18, 2007
b) Conversion price – Rs. 656.20 per share
c) Exchange rate for purpose of conversion - 1 US$ = Rs. 44.08
d)
Interest of 2% per annum payable semi-annually in arrears
e) Redemption with yield to maturity guaranteed return of 8% per
annum, calculated on semi-annual basis
The Company can exercise an option to redeem the bonds in
whole or in part, on or any time after March 9, 2010, but prior
to January 29, 2011, subject to appropriate approvals at a
price determined on the terms defined in the offer document.
f)
g) Listing on the Professional Securities Market of London Stock
Exchange.
The difference between the yield to maturity guaranteed rate of
return of 8% and the coupon rate of 2% represents the premium
payable on redemption and is charged to Securities Premium over
the life of the bonds.
II.9. Bonus issue
In January 2006, the Company had declared bonus shares in the
ratio of 1:1. The bonus shares (10,878,784) have been issued by
capitalizing an amount of Rs. 108,787,840 from the Securities
premium account.
II.10. Operating leases
The Company has various operating leases for office facilities and
residential premises for employees which include leases that are
renewable on a yearly basis, cancelable at its option and other
long term leases. Rental expenses for operating leases included in
the income statement for the year is Rs. 29,915,778 (previous
year, Rs. 26,580,147)
As of March 31, 2007 future minimum lease payments for non-
cancelable operating leases for the next five fiscal years are:
Within 1 year
Due in a period between
1 year and 5 years
Due after 5 years
Amount in Rs.
March 31, 2007 March 31, 2006
18,281,307
32,478,686
55,814,278
—
44,188,721
—
II.11. Employees Stock Option Plan (ESOP)
ESOP – I
The Company had issued 120,000 Equity Shares at Rs. 10/- each
to Subex Foundation, an Employee Welfare Trust, constituted to
operate an Employees Stock Option Plan. Since the scheme was
formulated prior to the promulgation of SEBI guidelines on ESOP
dated June 19, 1999, the Company has discontinued the scheme.
The scheme has been closed pursuant to disposal of the shares by
the Foundation.
ESOP – II
During 1999-2000, the Company established a Stock Option Scheme
under which 500,000 options have been allocated for grant to the
employees. Each option comprises of one underlying equity share of
Rs.10/- each and carries an entitlement of bonus shares if and when
declared. This scheme has been formulated in accordance with the
SEBI guidelines on ESOP & ESPS dated June 19, 1999. As per the
scheme, the Compensation Committee grants the options to the
employees deemed eligible by the Advisory Board constituted for the
purpose. The options are granted at a price, which is not less than
85% of the average market price of the underlying shares based on
the quotation on the Stock Exchange where the highest volume of
shares are traded for 15 days prior to the date of grant. The shares
granted vest over a period of 1 to 4 years and can be exercised over
a maximum period of 3 years from the date of vesting.
Under this scheme 480,709 options have been granted to 340
employees as at March 31, 2007. Out of the above 24,634 options
have been vested. The difference between the market price of
A N N U A L R E P O R T
2006 - 2007
67
the share underlying the options granted on the date of grant of
option and the exercise price of the option are expensed over the
vesting period as per the SEBI guidelines. The net impact of the
movement in option grants during the year resulted in a debit of
Rs. 2,238,027 (previous year: Debit of Rs. 4,910,159) to the Profit
& Loss account for the year.
ESOP – III
During 2005-2006, the Company established a new Stock Option
Scheme under which 500,000 options have been allocated for grant
to the employees. Each option comprises of one underlying equity
share of Rs. 10/- each. This scheme has been formulated in accor-
dance with the SEBI guidelines on ESOP & ESPS dated June 19,
1999. As per the scheme, the Compensation Committee grants the
options to the employees deemed eligible by the Advisory Board
constituted for the purpose. The options are granted at a price,
which is not less than 85% of the average market price of the under-
lying shares based on the quotation on the Stock Exchange where
the traded volume is the highest for the 15 days prior to the date of
grant. The shares granted vest over a period of 1 to 4 years and can
be exercised over a maximum period of 3 years from the date of
vesting.
As on March 31, 2007, 428,820 options have been granted to 406
employees under this scheme. Out of the above options 2,963 options
have been vested. The difference between the market price of the
share underlying the options granted on the date of grant of option and
the exercise price of the option are expensed over the vesting period
as per the SEBI guidelines. The net impact of the movement in option
grants resulted in a debit of Rs. 11,981,639 (previous year: Debit of
Rs. 497,664) to the Profit & Loss account for the year.
Employee Stock Options details as on the balance sheet date are ;
ESOP – I : Nil
ESOP – II :
Options outstanding at
the beginning of the year
Granted during the year
Forfeited/ cancelled
Exercised
Balance at end of the year
ESOP – III :
Options outstanding at
the beginning of the year
Granted during the year
Forfeited/ cancelled
Exercised
Balance at end of the year
As at
March 31, 2007 March 31, 2006
As at
364,027
112,200
108,393
106,632
261,202
336,385
144,000
50,950
65,408
364,027
As at
March 31, 2007 March 31, 2006
As at
70,380
382,800
24,360
6,287
422,533
0
70,380
0
0
70,380
Method used for accounting for share based payment plan:
The Company has used intrinsic value method to account for the
compensation cost of stock option to employees of the Company.
Intrinsic value is the amount by which the quoted market price of
the underlying share exceeds the exercise price of the option.
Particulars
Options outstanding at the beginning of the year
ESOP – II
ESOP – III
Granted during the year
ESOP – II
ESOP – III
Exercised during the year
ESOP – II
ESOP – III
Cancelled & Lapsed during the year
ESOP – II
ESOP – III
Options outstanding at the end of the year
ESOP – II
ESOP – III
Options exercisable at the end of the year
ESOP – II
ESOP – III
2006-07
2005-06
Options (Nos)
Weighted average
exercise price per
stock options (Rs.)
Weighted average
exercise price per
stock options (Rs.)
Options (Nos)
364,027
70,380
284.25
342.55
336,385
168.52
112,200
382,800
522.32
442.38
144,000 442.80
70,380 342.55
106,632
6,287
108,393
24,360
65,408
50,950
261,202
422,533
408.57
429.37
364,027 284.25
70,380 342.55
24,634
2,963
70,323
Fair value methodology
The fair value of options used to compute pro forma net income
and earnings per equity share have been estimated on the date of
grant using Black-Scholes model.
The key assumptions used in Black-Scholes model for calculating fair
value is : risk-free interest rate of 6.03%, expected life : 3 years,
expected volatility of share : 62.78% and expected dividend yield:
0.37%. The variables detailed herein represent the average of the
assumptions during the pendency of the grant dates.
68
A N N U A L R E P O R T
2006 - 2007
The impact on the EPS of the Company if fair value method is adopted is given below:
Particulars
Net profit (as reported)
Add: Stock-based employee compensation (intrinsic value method)
Less: Stock based compensation expenses determined under fair value method for the grants issued after April 1, 2006
Net Profit (proforma)
Basic Earning per share (as reported)
Basic Earning per share (proforma)
Diluted Earning per share (as reported)
Diluted Earning per share (proforma)
March 31, 2007 March 31, 2006
391,495,980
3,516,774
11,181,604
383,831,150
18.23
17.87
18.13
17.78
208,143,571
14,219,667
22,757,321
199,605,917
6.50
6.23
6.48
6.21
II.12. Related party information
A) Related parties
Wholly owned subsidiaries controlled by the company:
Subex Technologies Inc., USA
Subex Technologies Ltd, India
Subex Azure (UK) Ltd
Subex Azure, Inc, USA
B) Details of the transactions with the related parties other than employees who are related to the Directors of the company is as under:
Subex Azure (Asia Pacific) Pte Ltd
Companies under same management
Cellcomm Solutions Ltd (formerly known as Subex Cellcomm Ltd)
Subex Holdings Private Limited (SHPL)
Key Management Personnel
Subash Menon, Chairman & Managing Director
Sudeesh Yezhuvath, Wholetime Director
Amount in Rs.
Nature of Transaction
Subsidiary
Companies under same
management
Key Management
Personnel
2006-07
2005-06
2006-07
2005-06
2006-07
2005-06
a) Purchase of services:
i)
STI*
ii) STL**
iii) Subex Azure (UK) Ltd
b) Purchase of hardware from
Cellcomm Solutions Ltd
c) Sale of services:
Subex Azure (UK) Ltd
i)
ii) Subex Azure, Inc
iii) Subex Azure (Asia Pacific) Pte Ltd
d) Salary, Perquisites & Commission
e) Amount due as at year end from
i)
STI*
ii) STL**
iii) Subex Azure (UK) Ltd
iv) Subex Azure, Inc
v) Subex Azure (Asia Pacific) Pte Ltd
f) Amount due as at year end to
i)
STI*
ii) STL**
iii) Subex Azure (UK) Ltd
iv) Subex Azure, Inc
v) Subex Azure (Asia Pacific) Pte Ltd
vi) Cellcomm Solutions Ltd
999,939,646
36,687,827
28,286,929
596,592,061
9,967,322
-
-
49,777,248
13,323,908
3,021,228
-
144,231,174
129,11,455
351,862,273
249,856,467
10,672,956
-
271,766,496
-
-
-
-
-
-
-
-
-
-
104,173,846
11,533,049
-
-
-
-
168,451,255
1,490,772
-
-
-
-
-
-
-
693.243
-
-
-
-
-
-
-
-
-
-
-
-
-
-
330,496
g) Sharing of expenses related to services
business (STL) see Note – 1
5,616,032
4,225,051
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
24,946,139
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
23,409,166
-
-
-
-
-
10,000,000
-
-
-
-
-
-
h) Expenses allocated to
Subex Azure (UK) Ltd
20,302,150
17,636,896
3,413,161
1,405,562
i)
ii) Subex Azure, Inc
iii) Subex Azure (Asia Pacific) Pte Ltd
i) Commission paid on service business
* STI = Subex Technologies, Inc.
** STL = Subex Technologies Ltd
Note-1 – Sharing of expenses is in relation to expenses borne by Subex Technologies Ltd towards software service business of Subex
Azure Limited as agreed between both companies. These have been accounted under depreciation, personnel cost and various heads
included under Schedule-N
-
-
-
1,164,280
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
A N N U A L R E P O R T
2006 - 2007
69
II.13. Earnings per share:
a) Basic
Profits after tax attributable to shareholders
Weighted average number of shares for basic EPS
Weighted average number of shares for diluted EPS
Earnings per share – basic
Earnings per share – diluted
A
B
C
A / B
A / C
2006-07
208,143,571
32,020,111
32,145,562
6.50
6.48
Amount in Rs.
2005-06
391,495,980
21,480,220
21,590,084
18.23
18.13
Face value of shares : Rs. 10 each
As mentioned in II.9, there was a bonus issue in January 2006. The weighted average number of shares outstanding and consequently the
Earning per share has been recomputed for the year ended March 31, 2006 to adjust for the said bonus issue, in accordance with
Accounting Standard-20 ‘Earning per Share’ issued by Institute of Chartered Accountants of India.
The difference in the number of share used for calculation of diluted EPS as compared to that used for computing Basic EPS is due to
existence of stock options that are granted to employees.
II.14. a. Managerial remuneration to Managing Director and Whole-time Director:
Salary
Contribution to Provident Fund
Perquisites
Commission (as computed below)
Total
Year ended March 31, 2007
22,719,996
1,704,000
522,143
-
24,946,139
Amount in Rs.
Year ended March 31, 2006
11,694,610
1,402,896
311,660
10,000,000
23,409,166
b. Computation of net profit in accordance with Section 349 of the Companies Act, 1956
2006-07
Amount in Rs.
2005-06
Profit before tax as per the Profit & Loss Account
Add: Directors’ Sitting Fees
Remuneration to Directors (including Commission)
Add/(Less): Surplus/(Loss) on sale of Fixed Assets (Net)
Profits for computation of Directors’ Commission
Maximum remuneration of Whole-time Directors
under provisions of the Companies Act, 1956 @ 10%
Remuneration (including commission)
Maximum commission to Non- Wholetime Directors
under the Companies Act, 1956 @ 1%
Commission paid
II.15. Auditors remuneration
27,500
24,609,166
42,500
26,946,139
259,092,856
286,081,495
3,298,292
282,783,203
28,278,320
24,946,139
2,827,832
2,000,000
422,226,426
24,636,666
10,053,901
436,809,191
43,680,920
23,409,166
4,368,090
1,200,000
Year ended March 31, 2007
Amount in Rs.
Year ended March 31, 2006
Audit fees (including fees for audit of consolidated account &
1,346,880
issuance of report on the corporate governance, of service tax)
55,600
For tax matters (including service tax)
-
Other services
3,097
Reimbursement of expenses
1,405,577
Total
* Represents fees and out of pocket expenses towards work done in connection with issue of FCCBs and GDRs. These amounts have
been debited to the securities premium in the current year.
II.16. Details of warranty
Year
2006-07
2005-06
Probable period of outflow in case of warranty is 6-12 months.
Utilisation / reversal during the year
(3,157,312)
(473,950)
Additions during the year
2,983,654
3,157,312
Amount in Rs.
Closing balance
2,983,654
3,157,312
2,244,800
224,480
7,888,654*
260,247*
10,618,181
Opening balance
3,157,312
473,950
70
A N N U A L R E P O R T
2006 - 2007
II.17. Quantitative details
None of the traded items are in excess of 10% of revenues and it
is not practicable to give quantitative information in the absence of
common expressible units.
II.18. Others
1. The Company is availing non-fund based limits and overdrafts against
lien on the fixed deposits. The loans outstanding as on March 31, 2007
is Rs. 343,017,163 (previous year, Rs. Nil)
2. Estimated amount of contracts, remaining to be executed on capital
account and not provided for (net of advances paid) Rs. 9,277,855
(previous year, Rs. Nil)
3. Unclaimed dividend of Rs. 812,794 represent dividends not
claimed for the period from 1999-2007. No part thereof has
remained unpaid or unclaimed for a period of seven years from
the date they become due for payment requiring a transfer to the
‘Investor Education and Protection Fund’.
4. The amount of Rs.15,000 has been transferred to ‘Investor Education
& Protection Fund’ being the unclaimed refund money in August 2006.
5. Personnel cost for the year includes expenditure on Research and
Development of Rs. 44,871,701 (previous year, Rs. 6,549,332). This
is as certified by the management and relied upon by the auditors.
6. The Company has entered into the following derivative instruments
for the purposes of hedging the risks associated with foreign exchange
exposures as at March 31, 2007:
(a) Forward Exchange Contracts:
Particulars
Option contracts (to the extent there is an
unhedged foreign currency exposure)
March 31, 2007
Buy/Sell
Amount (INR)
US$
March 31, 2006
US$
Buy/Sell
Amount (INR)
800,000
Buy
37,238,000
2,650,000
Buy
118,605,250
The year end foreign currency exposures that have not been hedged by a derivative instrument or otherwise are given below:
March 31, 2007
March 31, 2006
Rs.
8,966,994
60,605,178
847,508,032
Foreign currency
GBP 115,980
Euro 1,125,183
US$ 19,069,765
Receivable towards
Export of Goods & Services
Loans to wholly owned subsidiaries
Rs.
9,972,165
47,465,366
862,864,309
1,502,028
351,862,273
249,856,467
10,672,955
Foreign currency
GBP 118,480
Euro 830,250
US$ 19,971,259
CAD 40,551
GBP 4,253,265
US$ 5,519,653
SGD 374,097
Amounts payable in foreign currency on account of:
Import of Goods & Services
Capital imports [including
intangibles]
Foreign Currency
Convertible Bonds
b. Derivative instruments
March 31, 2007
Rs.
137,695,655
2,263,268
2,160,075
Foreign currency
US$ 3,149,436
Euro 39,000
US$ 49,800
March 31, 2006
Rs.
111,612,663
10,619,700
696,329
Foreign currency
US$ 2,474,800
Euro 195,000
US$ 15,550
7,807,500,000
US$ 180,000,000
March 31, 2007
March 31, 2006
F C (US$)
Buy / Sell
Rate
Amount (INR)
Total
NIL
NIL
NIL
NIL
Total
FC (US$)
300,000
100,000
100,000
500,000
600,000
200,000
200,000
1,000,000
Buy / Sell
Buy
Buy
Buy
Sell
Sell
Sell
Rate
44.12
44.26
44.30
44.12
44.26
44.30
Amount (INR)
13,236,000
4,426,000
4,430,000
22,092,000
26,472,000
8,852,000
8,860,000
44,184,000
A N N U A L R E P O R T
2006 - 2007
71
7. In terms of the transitional provisions of the Accounting Standard
15 (AS) on employee benefits issued by the Institute of Chartered
Accountants of India, the net incremental liability towards leave
encashment and gratuity amounting to Rs. 8,527,028 has been
adjusted against the opening balance of the reserves at
April 1, 2006. Consequent to the adoption of the AS, the profits for
the year ending March 31, 2007 are lower by approximately
Rs. 9,223,399.
The Company offers the following employee benefit schemes to it’s
employees. The following table sets out the funded status of the
defined benefit schemes and the amount recognized in the financial
statements as of March 31, 2007.
Gratuity
Leave
I
1
2
3
4
5
6
7
8
II
1
2
III
1
2
3
4
5
IV
1
2
3
4
5
6
7
8
9
10
V
1
2
3
4
5
6
VI
1
2
3
4
Components of employer expense
Current service cost
Interest cost
Expected return on plan assets
Curtailment cost/(credit)
Settlement cost/(credit)
Past service cost
Actuarial losses/(Gains)
Total expense recognised in the Statement of Profit & Loss Account
Actual contribution and benefits payments for year ended March 31 2007
Actual benefit payments
Actual contributions
Net asset/(liability) recognised in balance sheet as at March 31, 2007
Present value of Defined Benefit Obligation (DBO)
Fair value of plan assets
Funded status [Surplus/(Deficit)]
Unrecognised past service costs
Net asset/(liability) recognised in balance sheet
Change in Defined Benefit Obligations during the year ended March 31, 2007
Present value of DBO at beginning of year
Current service cost
Interest cost
Curtailment cost/(credit)
Settlement cost/(credit)
Plan amendments
Acquisitions
Actuarial (gains)/ losses
Benefits paid
Present value of DBO at the end of year
Change in fair value of assets during the year ended March 31, 2007
Plan assets at beginning of year
Acquisition adjustment
Actual return on plan assets (estimated)
Actual Company contributions (less risk premium, ST)
Benefits paid
Plan assets at the end of period
Actuarial assumptions
Discount rate
Expected return on plan assets
Salary escalation
Attrition rate
3,426,895
333,852
98,418
-
-
-
(72,393)
3,786,772
632,474
366,658
7,229,036
1,062,832
(6,166,204)
-
(6,166,204)
4,173,156
3,426,895
333,852
-
-
-
-
(72,393)
(632,474)
7,229,036
1,230,230
-
98,418
366,658
(632,474)
1,062,832
8.00%
8.00%
5.00%
5.00%
12,584,657
446,728
-
-
-
-
(62,767)
12,968,618
7,066,915
7,066,915
11,485,805
-
(11,485,805)
-
(11,485,805)
5,584,102
12,584,657
446,728
-
-
-
-
(62,767)
(7,066,915)
11,485,805
-
-
-
7,066,915
(7,066,915)
-
8.00%
8.00%
5.00%
5.00%
72
A N N U A L R E P O R T
2006 - 2007
8. Consequent to the acquisition of Azure group of companies
during the year and other planned acquisitions, it has become
imperative that common policies and practices are adopted across
all group companies worldwide. With the introduction of common
group accounting policies, the Company has revised its policy for
recognition of revenue from sale of software licences with effect
from April 1, 2006. Income from contracts for sale of software
licences, which were earlier recognised fully on the transfer of
licences, are now recognised under the percentage of completion
method over the period of the contract, based on the extent of
work completed. In the current year, the information necessary to
ascertain the effect of such change in accounting policy on the
financial statements for the period is not available with the Company.
The Company, however, believes that the above change in policy
does not impact the results of the year significantly. This is not
verifiable by the auditors.
9. Based on the information available with the Company, there
are no dues to Small Scale Industries and Micro Small & Medium
enterprises as defined in The Micro, Small & Medium Enterprises
Development Act, 2006. This information has not been verified
upon by the auditors.
10. Previous year’s figures have been regrouped to conform to
the classifications for the current year.
II.19. Other information pursuant to Schedule VI of the Companies Act, 1956.
CIF value of imports :
Import of systems and solutions
Capital goods
Expenditure in foreign currency
Traveling expenses
Interest expenses
Consideration for acquired assets
Product marketing expense and other expenditure incurred overseas for
software development
Earnings in foreign exchange
Income from software development services and
products on receipt basis
Remittance in foreign currency on account of dividend
Amount remitted during the year in foreign currency on account of
dividends for the year
No. of non-resident shareholders for the year
2006-07
2005-06
2004-05
2006-07
2005-06
2004-05
Shares held by non-resident shareholders on which dividend was
due for the year
2006-07
2005-06
2004-05
Signature to the Schedules A – R
Signature to the Schedules A – R
Signature to the Schedules A – R
Signature to the Schedules A – R
Signature to the Schedules A – R
Sudeesh Yezhuvath
Director
Director
Place : Bangalore
V. R. Suresh Rao
Date : 25th April, 2006
Legal Counsel
Accounts & Finance
Subash Menon
V. Balaji Bhat
Chairman & Managing
Wholetime Director
Rajkumar C
Company Secretary &
General Manager -
Year ended
March 31, 2007
Amount in Rs.
Year ended
March 31, 2006
1,883,954
20,793,484
49,433,888
-
-
24,951,522
7,468,007
16,187,638
5,110,082
108,692,786
1,456,331,194
838,504,812
1,825,734,725
1,378,695,807
464,490
-
-
3
-
-
311,077
-
-
-
808,628
1,085,890
-
2
3
-
539,085
542,945
A N N U A L R E P O R T
2006 - 2007
73
BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE
COMPANY: SUBEX AZURE LIMITED
YEAR : 2006-2007
I.
II.
III.
Registration details
Registration No.
Balance sheet date
1 6 6 6 3
3 1 - 0 3 - 2 0 0 7
State code
Capital raised during the year (Rupees in thousands)
Public issue
Bonus issue
-
1 0 8 7 8 7 . 8 4
Rights issues
Private placements - Equity
- Preference
0 8
-
Preferential offer of shares under Employee Stock Option Plan scheme* - Equity
2 1 9 5 . 5 1
Position of the mobilisation and development of funds (Rupees in thousands)
Total liabilities
1 6 3 5 4 1 6 0 . 6 8
Total assets
1 6 3 5 4 1 6 0 . 6 8
Source of funds
Paid up capital
Secured loans
3 4 8 1 5 7 . 2 5
5 8 3 7 5 9 . 5
Share application money
Reserves & surplus
-
7 6 1 4 7 4 3 . 9 3
Unsecured loans
Deferred tax liability
7 8 0 7 5 0 0 . 0 0
-
Application of funds
Net fixed assets
Net current assets
Miscellaneous expenditure
3 0 6 4 4 1 . 1 3
1 8 3 5 2 2 0 . 3 4
-
Investments
Deferred tax assets
Accumulated lossess
1 4 1 9 5 5 8 2 . 2 1
1 6 9 1 7 . 0 0
-
IV. Performance of Company (Rupees in thousands)
2 3 6 1 8 3 9 . 0 2
2 5 9 0 9 2 . 8 6
6 . 5
Total expenditure
Profit after tax
Earning per share from
ordinary activities (diluted) (Rs.)
2 1 0 2 7 4 6 . 1 7
2 0 8 1 4 3 . 5 7
6 . 4 8
Turnover
Profit before tax
Earning per share from
ordinary activities (basic) (Rs.)
Interim dividend rate %
Final dividend rate %
1 5
2 0
V.
Generic name of three principal products/ services of the Company (As per monetary terms)
Item code no.
(ITC code no.)
Product
Description
8 5 / 2 4
C O M P U T E R
S O F T W A R E
*Issue of shares arising of the exercise of option granted to employees under the Company’s ESOP II (2000)
Subash Menon
Founder Chairman & Managing Director
Sudeesh Yezhuvath
Chief Operating Officer
V. Balaji Bhat
Director
Place : Bangalore
Date : April 30, 2007
Sudha Madhavan
Chief Financial Officer
Raj Kumar
Chief Counsel & Company Secretary
74
A N N U A L R E P O R T
2006 - 2007
Financial Review
Subex Azure Limited (Consolidated)
A N N U A L R E P O R T
2006 - 2007
75
AUDITORS’ REPORT TO THE MEMBERS OF SUBEX AZURE LIMITED
4. We report that the consolidated financial statements have been
prepared by the Company in accordance with the requirements
of Accounting Standard (AS) 21, Consolidated Financial
Statements, issued by the Institute of Chartered Accountants
of India and on the basis of the separate audited financial
statements of Subex Azure Limited and its subsidiaries included
in the consolidated financial statements.
a)
5. On the basis of the information and explanation given to us and
on the consideration of the separate audit reports on individual
financial statements and on the other financial information of
the components of Subex Azure Limited and its subsidiaries,
we are of the opinion that the attached consolidated financial
statements give a true and fair view in conformity with the
accounting principles generally accepted in India:
in the case of the Consolidated Balance Sheet, of the
consolidated state of affairs of Subex Azure Limited and its
subsidiaries as at March 31, 2007;
in the case of the Consolidated Profit and Loss Account, of the
consolidated results of operations of Subex Azure Limited and
its subsidiaries for the year then ended;
in the case of the consolidated Cash Flow Statement of the
consolidated cash flows of Subex Azure Limited and its
subsidiaries for the year then ended.
c)
b)
For Deloitte Haskins & Sells
Chartered Accountants
V Srikumar
Partner
M. No. 84494
Place : Bangalore
Date : June 18, 2007
1. We have audited the attached Consolidated Balance Sheet of
Subex Azure Limited (“the Company”) and it’s subsidiaries (the
Company and its subsidiaries constitute “the group”) as at
March 31, 2007, the Consolidated Profit and Loss Account
and the Consolidated Cash Flow Statement for the year then
ended, both annexed thereto. These financial statements are
the responsibility of the Company’s management and have
been prepared by the management on the basis of separate
financial statements and other financial information regarding
components. Our responsibility is to express an opinion on
these financial statements based on our audit.
2. We conducted our audit in accordance with generally
accepted auditing standards in India. These Standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatements. An audit includes, examining on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management as well as evaluating the overall financial
statements presentation. We believe that our audit provides a
reasonable basis for our opinion.
3. We did not audit the financial statements of the subsidiaries,
whose financial statements reflect gross total assets of Rs.
1,535,367,454 as at March 31, 2007, total revenues of Rs.
2,468,982,578 and cash flows of Rs. 101,982,015 for the year
then ended and the financial statements of the Company’s
branch, in the United States of America (US branch). These
financial statements and other financial information have been
audited by other auditors, whose report/returns have been
furnished to us, and our opinion, insofar as it relates to the
amounts included in respect of the subsidiaries and the US
branch, is based solely on the report of the other auditors.
76
A N N U A L R E P O R T
2006 - 2007
CONSOLIDATED BALANCE SHEET AS AT
Schedule
March 31, 2007
March 31, 2006
Amount in Rs.
SOURCES OF FUNDS
Shareholders’ funds
Share capital
Share application money
Reserve & Surplus
Loan funds
Secured loans
Unsecured loans
Total
APPLICATION OF FUNDS
Fixed assets
Gross block
Less : Depreciation
Net block
Capital work in progress
Investments
Goodwill
Deferred tax asset (net)
Current assets, Loans & Advances
Sundry debtors
Cash & Bank balances
Loans & Advances
Unbilled revenue
A
B
C
D
E
F
G
H
I
348,157,250
-
8,059,119,459
635,166,392
7,807,500,000
821,726,754
467,212,184
354,514,570
4,037,627
1,212,618,736
903,476,921
249,854,008
423,896,364
2,789,846,029
938,035,704
J
Less: Current Liabilities & Provisions
Net current assets
Miscellaneous expenditure
(To the extent not written off or adjusted)
Termination benefits
(Note II.16.7 Schedule P)
Total
Significant Accounting policies & Notes to the accounts P
The Schedules referred to above form an integral part of the balance sheet
217,575,680
878,089
8,407,276,709 1,592,684,945 1,811,138,714
8,442,666,392
16,849,943,101
13,695,549
-
13,695,549
1,824,834,263
397,427,996
-
308,987,980
7,727,514
358,552,197
7,403,696,025
7,021,229,033
168,488,974
665,735,874
272,803,176
392,932,698
4,495,298
961,559,552
406,014,754
73,718,402
-
1,441,292,708
330,601,935
1,851,810,325
1,110,690,773
46,166,547
-
16,849,943,101
1,824,834,263
In terms of our report of even date
for Deloitte Haskins & Sells
Chartered Accountants
V. Srikumar
Partner
Membership No. 84494
Bangalore
June 18, 2007
Subash Menon
Founder Chairman, Managing Director & CEO
Sudeesh Yezhuvath
Chief Operating Officer
V. Balaji Bhat
Director
Sudha Madhavan
Chief Financial Officer
Raj Kumar
Chief Counsel & Company Secretary
A N N U A L R E P O R T
2006 - 2007
77
CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED
Schedule
March 31, 2007
March 31, 2006
Amount in Rs.
K
L
M
N
O
E
INCOME
Sales & Services
Other income
Total
EXPENDITURE
Direct cost
Personnel costs
Other operating, selling and
administrative expenses
Financial costs
Miscellaneous expenses amortised
Depreciation
Total
Profit before taxation
Provision for taxation
- Current
- MAT credit carried forward
- Fringe benefit tax
- Deferred
Profit after taxation
Add: Balance brought forward from previous year
Profit available for appropriation
APPROPRIATION
Transfer to general reserve
Dividend
3,409,002,598
301,915,848
3,710,918,446
112,237,461
2,077,443,229
708,782,549
87,318,294
22,964,112
125,563,180
3,134,308,825
576,609,621
70,226,003
(11,128,731)
5,107,115
(163,255,141) (99,050,754)
675,660,375
741,138,063
1,416,798,438
23,200,000
- Equity shares - proposed final dividend 2006-07 @ 20%
- Equity shares - interim dividend 2006-07 @15%
- Equity shares - interim dividend 2005-06
- Equity shares - final dividend 2004-05
- Equity shares - final dividend 2004-05
69,631,450
52,113,210
-
-
12,883,222
Tax on distributed profits
Surplus carried to balance sheet
Earning Per Share (Face value of Rs.10 each)
- Basic
- Diluted
134,627,882
20,949,615
1,238,020,941
1,416,798,438
21.10
21.02
Significant Accounting policies & Notes to the accounts P
The Schedules referred to above form an integral part of the Profit and Loss account
1,814,342,238
28,908,788
1,843,251,026
132,850,266
915,371,277
263,876,814
26,805,705
283,079
92,301,159
1,431,488,300
411,762,726
33,276,205
378,486,521
446,344,814
824,831,335
39,500,000
38,588,896
5,604,376
741,138,063
824,831,335
17.62
17.53
34,903,702
-
2,124,208
(3,751,705)
-
-
16,283,564
547,764
21,757,568
In terms of our report of even date
for Deloitte Haskins & Sells
Chartered Accountants
V. Srikumar
Partner
Membership No. 84494
Bangalore
June 18, 2007
78
A N N U A L R E P O R T
2006 - 2007
Subash Menon
Founder Chairman, Managing Director & CEO
Sudeesh Yezhuvath
Chief Operating Officer
V. Balaji Bhat
Director
Sudha Madhavan
Chief Financial Officer
Raj Kumar
Chief Counsel & Company Secretary
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED
Cash flow from operating activities
Net profit before tax
Adjustments for :
a) Depreciation & Amortization
b) Interest / Dividend income
c) Interest and bank charges
d) Assets written off / Loss on sale
e) Profit on sale of assets
f) Employee compensation expenses
g) Provision for doubtful debts
h) Unrealised exchange fluctuations
i) Termination benefits paid
j) Direct taxes paid
Operating profit before working capital changes
Adjustments for :
a) Sundry debtors
b) Loans & Advances
c) Inventories
d) Trade and other payables
Cash generated from operations
Cash flow from investing activities
a) Purchase of fixed assets
b) Sale / Disposal of fixed assets
c) Sale / (Purchase) of Investments
d) Advance for acquisition
e) Interest received
Net cash from investing activities
Cash flow from financing activities
March 31, 2007
March 31, 2006
Amount in Rs.
576,609,621
411,762,727
148,527,292
(35,339,870)
87,318,294
3,761,806
(463,514)
10,760,906
150,629,851
(208,784,608)
(69,130,659)
(42,560,496)
621,328,623
(336,412,199)
(451,754,603)
-
(3,608,669)
(170,446,848)
(73,393,930)
10,045,172
(261,061,544)
(7,403,696,025)
35,339,870
(7,692,766,458)
A
B
92,584,238
(17,485,876)
26,805,705
2,041,851
(11,976,780)
4,115,709
35,583,448
3,632,964
(23,451,823)
523,612,163
(292,300,823)
(6,939,824)
62,589
93,495,061
317,929,166
(116,323,509)
21,058,613
1,000
-
16,352,692
(78,911,204)
18,753,800
a) Proceeds from issue of Share capital / Options
(59,387,250)
b) Proceeds from / (repayment) of short term borrowings - Net
6,247,000
c) Proceeds from long term borrowings
(6,446,647)
d) Repayment of long term borrowings
(43,776,148)
e) Dividends & Dividend tax paid
(26,805,705)
f) Interest and bank charges
-
g) FCCB & GDR expenses
(111,414,950)
Net cash from financing activities
-
Exchange fluctuation reserve on account of consolidation
127,603,012
Net increase in Cash or Cash equivalents [A + B + C]
-
Consolidation adjustments
278,411,742
Cash or Cash equivalents at the start of the year
Cash or Cash equivalents at the close of the year
406,014,754
Note : Cash & Cash Equivalents include balance with Scheduled Banks on Dividend Account, GIC Deposit Account of Rs. 937,379 and
fixed deposit Rs. 320,425,029 (PY : Rs. 963,793) which are not available for use by the Company.
Significant Accounting policies & Notes to the accounts - Schedule
457,173,808
618,894,432
8,049,728,942
(4,752,531)
(98,720,943)
(87,318,294)
(616,265,172)
8,318,740,242
(18,075,084)
455,526,936
60,010,315
406,014,754
903,476,921
C
P
In terms of our report of even date
for Deloitte Haskins & Sells
Chartered Accountants
V. Srikumar
Partner
Membership No. 84494
Bangalore
June 18, 2007
Subash Menon
Founder Chairman, Managing Director & CEO
Sudeesh Yezhuvath
Chief Operating Officer
V. Balaji Bhat
Director
Sudha Madhavan
Chief Financial Officer
Raj Kumar
Chief Counsel & Company Secretary
A N N U A L R E P O R T
2006 - 2007
79
SCHEDULES TO THE CONSOLIDATED BALANCE SHEET AS AT
Schedule - A
Share capital :
Authorised :
48,040,000 (previous year, 30,140,000) Equity Shares of Rs.10 each
200,000 Redeemable Optionally Convertible
Cumulative Preference Shares (ROCCPS) of Rs.98 each
Total
Issued, subscribed and paid up:
Equity :
34,815,725 (previous year, 21,757,568) equity shares of Rs.10 each
of the above:
a) 115,000 shares of Rs.10 each were allotted for
consideration other than for cash;
b) 4,626,940 shares of Rs.10 each are allotted as
bonus shares by capitalisation of general reserve;
c) 12,840 shares of Rs.10 each are allotted in part
settlement of cost of acquisition of subsidiary
d) 10,878,784 (previous year, Nil) shares of Rs.10 each are
allotted as bonus shares by capitalisation of
securities premium;
e) 11,728,728 share (GDRs) of Rs.10 each are allotted in full
settlement of cost of acquisition of Azure Solutions (UK) Ltd
Total
Schedule - B
Reserves & Surplus :
Capital reserve
General reserve - opening balance
Add: Additions during the year
Less: Adjustment in pursuance of transitional provisions of
Accounting Standard - 15 (Note ll.18 .7 Schedule P)
Securities premium account - opening balance
Add: Additions during the year
Less: Utilised towards incidental costs of issue of FCCBs & GDRs
Less: Redemption premium on FCCBs
(Note II.8 Schedule P)
Employees stock options outstanding
Less: Deferred employees compensation expenses
Redemption premium on FCCB
(Note II.8 Schedule P)
Exchange reserve on consolidation
Profit & loss account
Total
Schedule - C
Secured Loans :
Short term
Working capital loans from banks
(Secured by first charge on fixed deposit and receivables)
Other loans from banks
(secured by Hypothecation of assets financed by these loans)
(Amount repayable within one year: Rs. 5,261,159,
previous year, Rs. 5,190,507)
Total
Schedule - D
Unsecured loans :
Foreign Currency Convertible Bonds
(Note II.8 Schedule P)
Total
80
A N N U A L R E P O R T
2006 - 2007
March 31, 2007
March 31, 2006
Amount in Rs.
480,400,000
19,600,000
500,000,000
301,400,000
19,600,000
321,000,000
348,157,250
217,575,680
163,302,608
23,200,000
8,527,028
656,262,011
6,578,458,014
616,265,172
42,150,000
52,775,309
33,135,297
348,157,250
217,575,680
13,006,920
177,975,580
6,576,304,853
19,640,012
42,150,000
(7,978,847)
1,238,020,941
8,059,119,459
618,894,432
16,271,960
123,802,608
39,500,000
-
541,983,360
223,066,491
108,787,840
-
22,738,130
13,859,024
13,006,920
163,302,608
656,262,011
8,879,106
-
10,096,237
741,138,063
1,592,684,945
-
13,695,549
635,166,392
13,695,549
7,807,500,000
7,807,500,000
-
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A N N U A L R E P O R T
2006 - 2007
81
SCHEDULES TO THE CONSOLIDATED BALANCE SHEET AS AT
March 31, 2007
March 31, 2006
Amount in Rs.
7,403,696,025
7,403,696,025
-
-
456,366,957
203,788,312
660,155,269
203,788,312
254,146,370
58,786,098
312,932,468
58,786,098
254,146,370
707,413,182
961,559,552
342,020
10,018,765
333,665,660
43,339,550
963,793
503,094
11,793,296
1,395
1,663
22,595
892,680
1,773,861
2,696,382
-
-
406,014,754
456,366,957
756,251,779
1,212,618,736
61,435
110,750,716
403,815,607
21,933,868
937,379
917,455
2,156,371
-
-
1,465,235
-
-
-
360,362,605
1,076,250
903,476,921
Schedule - F
Investments (Long term, trade)
Advanced for acquisition (Note II.7 Schedule P)
Total
Schedule - G
Sundry debtors
(Unsecured)
Outstanding for more than six months
- considered good
- considered doubtful
Less: Provision for doubtful debts
Others
Total (considered good)
Schedule - H
Cash & Bank Balances :
Cash on hand
Balance with Scheduled Banks
-
-
-
in Current Account in Indian Rupees
in Deposit Account in Indian Rupees
in Exchange Earner’s Foreign Currency account
Balance with Non Scheduled Banks
- Deposit with Royal Bank of Canada
-
in Current Account with Royal Bank of Canada, Canada
(Maximum outstanding during the year Rs. 1,787,598/-)
in Checking Account with First Union Bank, New Jersey
(Maximum outstanding during the year Rs.127,318,302/-)
in Hellinic Bank - CYP Account, Cyprus
(Maximum outstanding during the year Rs. 1,503/-)
in Hellinic Bank - USD Account - Cyprus
(Maximum outstanding during the year Rs. 790/-)
in Bank of China - RMB account - China
(Maximum outstanding during the year Rs.2,359,802/-)
in Bank of China - USD Account - China
(Maximum outstanding during the year Rs.1,862,777/-)
in First National Bank of Colorado - USD Account - CO
(Maximum outstanding during the year Rs.11,089,706/-)
in HSBC Bank - GBP Account - Slough, London
(Maximum outstanding during the year Rs.8,849,063/-)
-
-
-
-
-
-
-
- Wachovia Bank, USA
(Maximum outstanding during the year Rs.7,820,065,930/-)
the balance comprises unutilised monies out of the
proceeds of issue of FCCBs)
- Wachovia Bank, USA
(Maximum outstanding during the year Rs.1,076,250/-)
Total
82
A N N U A L R E P O R T
2006 - 2007
SCHEDULES TO THE CONSOLIDATED BALANCE SHEET AS AT
March 31, 2007
March 31, 2006
Amount in Rs.
Schedule - I
Loans & Advances
(Unsecured, considered good, subject to confirmation)
Loans and advances recoverable in cash
or in kind or for value to be received
Advance income tax including TDS
Other deposits
Total
Schedule - J
Current Liabilities & Provisions
Sundry creditors:
Sundry creditors
Advance received from customers
Deferred income
Duties & Taxes
Unclaimed dividends
Provisions:
Taxation
Dividends
Tax on proposed dividends
Employee benefits
Warranty
Total
85,016,018
55,729,889
109,108,101
249,854,008
740,373,039
197,662,665
938,035,704
24,615,200
18,281,313
30,821,889
73,718,402
262,717,364
67,884,571
330,601,935
183,730,622
64,884,807
13,801,308
300,627
38,196,322
22,069,429
3,051,499
1,410,009
3,157,312
489,919,581
88,675,783
93,920,975
67,043,906
812,794
94,795,108
69,631,450
11,833,865
18,418,588
2,983,654
A N N U A L R E P O R T
2006 - 2007
83
SCHEDULES TO THE CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED
Schedule - K
Other income
Interest received (Gross of TDS Rs. 5,417,207, Previous year, Rs. 3,794,118)
Other income received
Profit on sale of fixed assets (Net)
Provisions written back
Exchange fluctuation account (Net)
Total
Schedule - L
Direct cost
a. Purchase of Systems & Solutions
(Increase) / decrease in finished goods
Opening stock - finished goods
Closing stock - finished goods
b. Commission on sales
Total
Schedule - M
Personnel costs
Salaries, Wages & Allowances
Contribution to provident fund and other funds
Other staff related costs
Sub contract charges
Total
March 31, 2007
March 31, 2006
Amount in Rs.
35,339,870
31,533,710
-
17,780,065
217,262,203
301,915,848
17,485,876
1,487,982
9,934,930
-
-
28,908,788
89,965,014
76,932,834
62,589
-
-
-
-
22,272,447
112,237,461
1,743,588,098
133,362,412
61,557,532
138,935,187
2,077,443,229
62,589
55,854,843
132,850,266
828,320,502
8,826,455
23,471,249
54,753,071
915,371,277
84
A N N U A L R E P O R T
2006 - 2007
SCHEDULES TO THE CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED
March 31, 2007
March 31, 2006
Amount in Rs.
Schedule - N
OTHER OPERATING, SELLING AND
ADMINISTRATIVE EXPENSES :
Software purchases
Rent
Power, fuel and water charges
Repairs & Maintenance others
Insurance
Communication costs
Printing & Stationery
Travelling & Conveyance
Directors’ sitting fees
Rates & Taxes including filing fees
Advertisement & Business promotion
Consultancy charges
Bad debts written off
Warranty expenses
Provision for doubtful debts
Loss on sale of Assets & Assets written off (Net)
Exchange fluctuation (Net)
Miscellaneous expenses
Total
Schedule - O
Financial costs :
Interest on FCCBs and other term loans
Interest & Bank charges
Total
27,604,255
91,352,573
7,745,824
12,754,886
17,631,573
46,608,218
8,749,915
192,030,046
42,500
6,680,314
35,329,849
62,945,417
24,983,956
-
150,629,851
3,337,815
-
20,355,557
708,782,549
11,566,667
75,751,627
87,318,294
1,837,904
35,834,182
6,672,679
4,815,705
13,174,483
22,233,837
1,480,250
80,086,232
27,500
1,014,727
16,356,876
28,787,589
1,637,075
2,683,362
35,583,448
-
794,643
10,856,321
263,876,814
-
26,805,705
26,805,705
A N N U A L R E P O R T
2006 - 2007
85
SCHEDULE – P
I. SIGNIFICANT ACCOUNTING POLICIES
I.1. Basis for preparation of consolidated financial statements
The consolidated financial statements relate to Subex Azure Limited
(the Company) and its wholly owned subsidiaries.
The consolidated financial statements have been prepared under
the historical cost convention in accordance with the applicable
Accounting Principles in India, the Accounting Standards issued
by the Institute of Chartered Accountants of India and the relevant
provisions of the Companies Act, 1956, as adopted consistently
by the Company. Revenues are recognised and expenses
accounted on their accrual, including provisions / adjustments for
committed obligations and amounts determined as payable or
receivable during the year.
I.2. Use of Estimates
The preparation of the financial statements in conformity with Indian
GAAP requires that management makes estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure
of contingent liabilities as at the date of the financial statements
and the reported amounts of revenue and expenses during the
reported period. Actual results could differ from those estimates.
I.3. Principles of Consolidation
The financial statements of the Company and it’s wholly owned
subsidiaries have been combined on a line by line basis by adding
together like items of assets, liabilities, income and expenses. The
intra-group balances and intra-group transactions are eliminated.
The excess of cost to the Company of its investments in the subsidiary
over its share of the equity of the subsidiary, at the date on which the
investments in the subsidiary Company was made, is recognized as
‘goodwill’ being an asset in the consolidated financial statements.
The following entities are considered in the consolidated financial
statements.
Sl.
no. entity
Country of
incorporation
Name of
% of
% of
ownership ownership
held at
March 31, March 31,
2007
held at
2006
1
2
3
4
5
USA
India
Subex
Technologies,
Inc, USA
Subex
Technologies
Ltd. India
Subex
Azure (UK) Ltd. UK
Subex
Azure Inc.
(Wholly owned
subsidiary of
Subex Azure
(UK) Ltd)
Subex Azure
(APAC) Pte. Ltd,
[Wholly owned
subsidiary of
Subex Azure
(UK) Ltd]
USA
Singapore
100
100
100
100
100
Nil
100
Nil
100
Nil
86
A N N U A L R E P O R T
2006 - 2007
The financial statements of the Company and its subsidiaries are
prepared under uniform accounting policies in accordance with the
generally accepted accounting principles in India.
During the year, the Company acquired Azure Solutions Limited,
UK, [Now known as Subex Azure (UK) Ltd] and its subsidiaries.
The consolidated financial statements include the balances
disclosed in the table relating to the consolidated balances of Subex
Azure (UK) Ltd at the Balance Sheet date.
Date of Acquisition
Liabilities
Current liabilities
Assets
Fixed assets
Current assets
Miscellaneous expenditure
Revenue
Expenditure
Profit / (loss) before tax
Deferred tax
Profit / (loss) after tax
Amount in Rs. million
June 23, 2006
263.35
46.02
879.43
151.91
1,387.09
1,050.95
336.14
(154.40)
490.54
Figures pertaining to subsidiaries were reclassified to bring them in
line with company’s financial statements.
I.4. Revenue recognition
Revenue from contracts for software product licenses includes
fees for transfer of licenses, installation and commissioning. This
revenue is recognized under the percentage completion method
based on the extent of work determined to have been completed
as compared to the work involved in the overall scope of the
contract. In the event of any expected losses on a contract, the
entire amount is provided for in the accounting period in which
such losses are first anticipated.
Revenue from sale of additional software licenses are recognized
on transfer.
Revenue from software development is recognized on the basis of
chargeable time or achievement of prescribed milestones as relevant
to each contract.
Sale of hardware under reseller arrangements are recognized on
dispatch of goods to customers and are recorded net of discounts,
rebates for price adjustment, projections, shortage in transit, taxes
and duties.
Interest on investments and deposits are booked on a time
proportion basis taking into account the amount invested and the
rate of interest.
Maintenance and service income is recognized on accrual basis.
I.5. Fixed assets
Fixed assets are stated at cost of acquisition inclusive of freight,
duties, taxes and interest on borrowed money allocated to and
utilised for fixed assets up to the date of capitalisation and other
direct expenditure incurred on ongoing projects. Assets acquired
on hire purchase are capitalised at gross value and interest thereon
is charged to revenue.
I.6. Depreciation
Fixed assets are depreciated using the straight-line method over
the useful lives of assets. Depreciation is charged on pro-rata
basis for assets purchased/sold during the year.
The rates of depreciation adopted are as under ;
Particulars
Plant & machinery
Computers
Vehicles
Furniture & fixtures
Intangible assets
Goodwill
Rate of depreciation (%)
20.00
25.00
20.00
20.00
20.00
20.00
Individual assets costing less than Rs. 5,000 are depreciated in
full, in the year of purchase.
I.7. Employee Stock Option
For the shares granted /allocated under Employee Stock Option
Plan - I (ESOP-I), the Securities Exchange Board of India (SEBI)
guidelines are not followed, since the scheme was formulated prior
to the promulgation of the guidelines.
Employee Stock Options under Employees Stock Option Plan – II
(ESOP-II) are accounted in accordance with the guidelines
stipulated by SEBI. The difference between the market price of the
shares underlying the options granted on the date of grant of
option and the option price is expensed as “Employees
Compensation” over the period of vesting.
Company has floated ESOP III in the financial year 2005-06, which
is on the same lines as ESOP II.
I.8. Employee benefits
The company’s contribution to provident fund, a defined contribution
scheme, is charged to the profit and loss account on accrual basis.
Liability for gratuity is funded with Life Insurance Corporation of India
(LIC). Gratuity expense for the year has been accounted based on
acturial valuation carried out at the end of the financial year. The
retirement benefit obligation recognized in the balance sheet repre-
sents the present value of the defined benefit obligations adjusted for
unrecognized past service cost and as reduced by the fair value of
scheme assets. Any asset resulting from this calculation is limited to
past service cost plus the present value of available refunds and
reduction in future contributions to the scheme.
Liability for encashment of leave, considered to be long term liabil-
ity, is accounted for on the basis of an acturial valuation. Provision
for outstanding leave credits considered is short term liability is as
estimated by the management and accrued for based on last
month’s salary. Other short term employee benefits like medical,
leave travel etc are accrued based on the terms of employment on
a time proportion basis.
Other companies in the group run defined contribution schemes,
the cost of which is fully provided for and charged to expenditure.
Accrued leave is accounted for fully and charged to the profit &
loss account.
I.9. Research and development
Expenses incurred on research and development is charged to
revenue in the same year. Fixed asset purchased for research
and development are capitalized and depreciated as per the
company’s policy.
I.10. Foreign currency transactions and translation
Transactions denominated in foreign currencies are recorded at the
exchange rates prevailing on the date of the transaction. Monetary
items denominated in foreign currencies at year end are translated
at the exchange rate prevailing on the date of the Balance Sheet.
Non-monetary items denominated in foreign currencies are carried
at cost. Exchange differences on settlement or restatement are
adjusted in the profit & loss account/fixed assets as appropriate.
Premium or discount on forward contracts is amortized over the life
of such contract and is recognized as income or expense, except in
respect of the liabilities for the acquisition of fixed assets, where such
amortization is adjusted in the carrying cost of the fixed assets. Any
profit or loss arising on cancellation or renewal or retirement of
forward contract is recognized in profit and loss account.
On Consolidation,
• In the case of non-integral operations, assets and liabilities are
translated at the exchange rate prevailing on the balance sheet
date. Revenue and expenses are translated at yearly average
exchange rates prevailing during the year. Exchange
differences arising out of these translations are included in
‘Exchange Reserve’ under Reserves & Surplus.
• In the case of integral operations, assets and liabilities (other
than non-monetary items), are translated at the exchange rate
prevailing on the balance sheet date. Non monetary items are
carried at historical cost. Revenue and expenses are translated
at yearly average exchange rates prevailing during the year.
Exchange differences arising out of these translations have
been charged to the Profit and Loss account.
I.11. Investments
Long term Investments are stated at cost. Diminution in the value
of investments other than temporary in nature is provided for.
I.12. Income taxes
Income tax comprises the current tax provision under the tax
payable method and the net change in the deferred tax asset or
liability in the year. Deferred tax assets and liabilities are recognized
for the future tax consequences of temporary differences between
the carrying values of the assets and liabilities and their respective
tax bases. Deferred tax assets are recognized and carried forward
to the extent that there is a reasonable / virtual certainty as
applicable that sufficient future taxable income will be available
against which such deferred tax assets can be realized.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which the
temporary differences are expected to be received or settled.
The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in the income statement in the period of
enactment of the change.
I.13. Cash flow statement
Cash flow statement has been prepared in accordance with the
indirect method prescribed in Accounting Standard 3, issued by
the Institute of Chartered Accountants of India.
I.14. Preliminary and share issue expenses
Expenses incurred during the Initial Public Offer, follow on offer
and issue of Bonus Shares are amortised over 5 years. Other
issue expenses are charged to the securities premium account.
A N N U A L R E P O R T
2006 - 2007
87
I.15. Provisions
A provision is recognized when an enterprise has a present
obligation as a result of past event; it is probable that an outflow of
resources will be required to settle the obligation, in respect of
which a reliable estimate can be made. Provisions are not
discounted to its present value and are determined based on best
estimate required to settle the obligation at the balance sheet date.
These are reviewed at each balance sheet date and adjusted to
reflect the current best estimates.
II. NOTES TO ACCOUNTS
II.1. Deferred income taxes
Provision for income taxes has been made in terms of Accounting
Standard 22 ‘Accounting for Taxes on Income’ issued by Institute
of Chartered Accountants of India.
Movement in deferred tax asset (Liability)
Amount in Rs.
2005-06
2006-07
Net deferred tax asset
at the beginning
of the year
Add: Tax benefits
for current year
Net deferred tax asset
at the end of the year
7,727,514
3,975,809
160,761,460
3,751,705
168,488,974
7,727,514
b) The net deferred tax asset as at March 31, 2007 comprises
the tax impact arising from the timing differences on account of:
Amount in Rs.
As at
March 31, 2007 March 31, 2006
7,674,401
53,113
-
7,727,514
- Depreciation
- Gratuity
- Business loss
Net deferred asset
13,353,449
-
155,135,525
168,488,974
As at
Deferred tax assets recognized on unabsorbed tax losses as above,
pertain to the company’s subsidiary, Subex Azure (UK) Ltd. The
recognition is restricted to the extent that there is virtual certainty
of future taxable incomes arising and is supported by the business
achieved subsequent to the year end and on the basis of confirmed
orders on hand in the subsidiary.
II.2. Contingent liabilities
Receivables factored – Rs. 416,664,307 (previous year,
Rs. 389,264,166)
Claims against the Company not acknowledged as debt – Rs.
39,136,631* (previous year, Rs. 9,353,609)
* These claims relate to Indian income tax demands pertaining to FY
2002-03 & 2003-04. The demands are being contested by the Company.
II.3. Acquisition of Azure Solutions Ltd, UK
On June 23, 2006, the Company acquired the entire shareholding of
Azure Solutions Ltd, UK. The consideration was discharged by issue of
11,728,728 GDRs each representing one equity share of Rs. 10/-
at a premium of Rs. 522.24 per share and cash of Rs. 214,570,000.
88
A N N U A L R E P O R T
2006 - 2007
II.4. Acquisition of tangible and intangible assets – Lightbridge Inc and
Alcatel, UK
During 2004-05, the Company had acquired Intellectual Property
Rights comprising technology, know-how, source code and
software connected with the Fraud Management software
businesses from Alcatel, UK and Lightbridge, USA for an amount
of Rs. 172,812,213 and Rs. 141,685,665 respectively, including
expenses incurred in connection with the said acquisitions. During
the year ended March 31, 2006, an amount of US$ 25,307 (Rs.
1,102,753) has been paid to Lightbridge as additional consideration
and is capitalized as Goodwill.
The intangible assets based on the valuation report by independent
valuers, are being amortised over 5 years in accordance with the
company’s assessment of useful life thereof. Accordingly, an amount
of Rs. 60,830,004 has been amortised in the financial year under
review (previous year, Rs. 62,502,860).
II.5. Acquisition of tangible and intangible assets –Mantas Inc
The Company acquired business contracts, hardware, intellectual
Property Rights (comprising of trademarks, patents, copyrights
and software) connected with the Fraud Management Software
businesses from Mantas Inc. USA in an all cash deal of US$ 2.10
million, on March 1, 2006. The same has been capitalized along
with the expenses incurred in connection with the said acquisition.
The intangible assets accounted for based on the valuation
report by independent valuers, are being amortised over 5
years in accordance with the company’s assessment of useful
life thereof. Accordingly, an amount of Rs. 18,840,067 has
been amortised in the financial year under review (previous
year, Rs. 1,696,053).
II.6. The Company has made 2 issues of Global Depository Receipts
(GDRs) in April 2006 and June 2006. The details of these issues
are as given below :
Sl
No.
1
2
Month of issue
April 2006
June 2006
Equivalent
equity
shares
1 of Rs. 10 each
1 of Rs. 10 each
Amount in Rs.
Issue price No. of GDRs
per GDR
(Rs.)
400.00
532.24
1,109,878
11,728,728
issued
In addition, the Company has completed a programme of sponsored
GDR offerings, whereby an option has been offered to the existing
share holders of the Company to transfer their holdings in favour
of Institutional Investors.
All the above GDRs are listed on the Professional Securities Market of
the London Stock Exchange
II.7. On January 18, 2007, the Company has executed a share
purchase agreement with the owners of Syndesis Limited, Toronto,
Canada for the purchase of their entire shareholding in that Company.
The total consideration amounting to US$ 165.66 million has been
discharged on March 14, 2007 to the selling shareholders’ escrow
agents. Pending closure of the transaction, the amount paid is
classified as Advance for Acquisition. Post Balance Sheet date the
deal has been closed and all liabilities to the erstwhile owners of
Syndesis Limited stand discharged but for escrowed consideration
of US$ 20.562 million. This hold back is in respect of indemnity claims
that may arise in the first year of acquisition.
Pending the closure of deal in the case of acquisition of Syndesis
Limited by the Company, the costs associated therewith are not
provided for in the accounts, owing to the fact that final claims and
invoices are yet to be received.
Syndesis Limited is a Company engaged in service assurance and
fulfillment space in the Telecom service industry.
II.8. Foreign Currency Convertible Bonds (FCCB)
During the year 2006-07, the Company issued Foreign Currency
Convertible Bonds (FCCBs) aggregating to US$ 180 million to
Institutional Investors. The bonds carry an initial interest rate of 2%
per annum and are redeemable by March 9, 2012, if not converted
into equity shares as per terms of issue.
Other terms and conditions governing the bonds are as follows:
a) Conversion of the bonds into equity shares at the option of the
bond holders at any time after April 18, 2007
b) Conversion price – Rs. 656.20 per share
c) Exchange rate for purpose of conversion - 1 US$ = Rs. 44.08
d)
Interest of 2% per annum payable semi-annually in arrears
e) Redemption with yield to maturity guaranteed return of 8% per
annum, calculated on semi-annual basis
The Company can exercise an option to redeem the bonds in
whole or in part, on or any time after March 9, 2010, but prior
to January 29, 2011, subject to appropriate approvals at a
price determined on the terms defined in the offer document
g) Listing on the Professional Securities Market of London Stock
f)
Exchange
The difference between the yield to maturity guaranteed rate of
return of 8% and the coupon rate of 2% represents the premium
payable on redemption and is charged to Securities Premium over
the life of the bonds.
II.9. Bonus issue
In January 2006, the Company had declared bonus shares in the
ratio of 1:1. The bonus shares (10,878,784) have been issued by
capitalizing an amount of Rs. 108,787,840 from the Securities
premium account.
II.10. Operating leases
The Company has various operating leases for office facilities and
residential premises for employees which include leases that are
renewable on a yearly basis, cancelable at its option and other
long term leases. Rental expenses for operating leases included in
the income statement for the year are Rs. 90,628,374 (previous
year, Rs. 31,615,375)
As of March 31, 2006 future minimum lease payments for non-
cancellable operating leases for the next five fiscal years are:
For the year ending
Within one year
Due in a period between
one year and five years
Due after five years
Amount In Rs.
March 31, 2007 March 31, 2006
23,770,250
104,428,881
140,026,532
-
54,166,897
-
II.11. Employee Stock Option Plan (ESOP)
ESOP – I
The Company had issued 120,000 Equity Shares at Rs. 10/- each to
Subex Foundation, an Employee Welfare Trust, constituted to operate
an Employee Stock Option Plan. Since the scheme was formulated
prior to the promulgation of SEBI guidelines on ESOP dated June 19,
1999, the Company has discontinued the scheme. The scheme has
been closed pursuant to disposal of the shares by the Foundation.
ESOP – II
During 1999-2000, the Company established a Stock Option
Scheme under which 500,000 options have been allocated for
grant to the employees. Each option comprises of one underlying
equity share of Rs.10/- each and carries an entitlement of bonus
shares if and when declared. This scheme has been formulated in
accordance with the SEBI guidelines on ESOP & ESPS dated June
19, 1999. As per the scheme, the Compensation Committee grants
the options to the employees deemed eligible by the Advisory
Board constituted for the purpose. The options are granted at a
price, which is not less than 85% of the average market price of
the underlying shares based on the quotation on the Stock Ex-
change where the highest volume of shares are traded for 15
days prior to the date of grant. The shares granted vest over a
period of 1 to 4 years and can be exercised over a maximum
period of 3 years from the date of vesting.
Under this scheme 480,709 option have been granted to 340
employees as at March 31, 2007. Out of the above 24,634 options
have been vested. The difference between the market price of
the share underlying the options granted on the date of grant of
option and the exercise price of the option are expensed over the
vesting period as per the SEBI guidelines. The net impact of the
movement in option grants during the year resulted in a debit of
Rs. 2,238,027 (previous year: Debit of Rs. 4,910,159) to the Profit
& Loss account.
ESOP – III
During 2005-2006, the Company established a new Stock Option
Scheme under which 500,000 options have been allocated for grant to
the employees. Each option comprises of one underlying equity share
of Rs.10/- each. This scheme has been formulated in accordance with
the SEBI guidelines on ESOP & ESPS dated June 19, 1999. As per the
scheme, the Compensation Committee grants the options to the em-
ployees deemed eligible by the Advisory Board constituted for the
purpose. The options are granted at a price, which is not less than 85%
of the average market price of the underlying shares based on the
quotation on the Stock Exchange where the traded volume is the high-
est for the 15 days prior to the date of grant. The shares granted vest
over a period of 1 to 4 years and can be exercised over a maximum
period of 3 years from the date of vesting.
As on March 31, 2007, 428,820 options have been granted to 406
employees under this scheme. Out of the above above 2,963
options have been vested. The difference between the market
price of the share underlying the options granted on the date of
grant of option and the exercise price of the option are ex-
pensed over the vesting period as per the SEBI guidelines. The
net impact of the movement in option grants resulted in a debit of
Rs. 11,981,639 (previous year: Debit of Rs. 497,664) to the
Profit & Loss account.
A N N U A L R E P O R T
2006 - 2007
89
Employee Stock Options details as on the balance sheet date are ;
ESOP – I : Nil
ESOP – II :
As at
March 31, 2007 March 31, 2006
As at
Options outstanding at
the beginning of the year
Granted during the year
Forfeited/ cancelled
Exercised
Balance at end of the year
364,027
112,200
108,393
106,632
261,202
336,385
144,000
50,950
65,408
364,027
ESOP – III
As at
March 31, 2007 March 31, 2006
As at
Options outstanding at
the beginning of the year
Granted during the year
Forfeited/ cancelled
Exercised
Balance at end of the year
70,380
382,800
24,360
6,287
422,533
-
70,380
-
-
70,380
Method used for accounting for share based payment plan:
The Company has used intrinsic value method to account for the
compensation cost of stock option to employees of the Company.
Intrinsic value is the amount by which the quoted market price of
the underlying share exceeds the exercise price of the option.
Particulars
Options outstanding at the beginning of the year
ESOP – II
ESOP – III
Granted during the year
ESOP – II
ESOP – III
Exercised during the year
ESOP – II
ESOP – III
Cancelled & Lapsed during the year
ESOP – II
ESOP – III
Options outstanding at the end of the year
ESOP – II
ESOP – III
Options exercisable at the end of the year
ESOP – II
ESOP – III
2006-07
2005-06
Options (Nos)
Weighted average
exercise price per
stock options (Rs.)
Weighted average
exercise price per
stock options (Rs.)
Options (Nos)
364,027
70,380
284.25
342.55
336,385
168.52
112,200
382,800
522.32
442.38
144,000 442.80
70,380 342.55
106,632
6,287
108,393
24,360
65,408
50,950
261,202
422,533
408.57
429.37
364,027 284.25
70,380 342.55
24,634
2,963
70,323
Fair value methodology
The fair value of options used to compute pro forma net income
and earnings per equity share have been estimated on the date of
grant using Black-Scholes model.
The key assumptions used in Black-Scholes model for calculating
fair value is : risk-free interest rate of 6.03%, expected life :3 years,
expected volatility of share : 62.78% and expected dividend
yield : 0.37%. The variables detailed herein represent the average
of the assumptions during the pendency of the grant dates.
The impact on the EPS of the Company if fair value method is
adopted is given below:
Particulars
Net profit (as reported)
Add: Stock-based employee compensation (intrinsic value method)
Less: Stock based compensation expenses determined under fair value
method for the grants issued after April 1, 2006
Net profit (proforma)
Basic Earning per share (as reported)
Basic Earning per share (proforma)
Diluted Earning per share (as reported)
Diluted Earning per share (proforma)
March 31, 2007
675,660,375
14,219,667
22,757,321
667,122,721
21.10
20.83
21.02
20.75
90
A N N U A L R E P O R T
2006 - 2007
Amounts in Rs.
March 31, 2006
378,486,522
3,516,774
11,181,604
370,821,692
17.62
17.26
17.53
17.18
II.12. Related party information
A) Related parties
Companies under same management
Cellcomm Solutions Ltd (formerly known as Subex Cellcomm Ltd)
Subex Holdings Private Limited (SHPL)
Key management personnel
Subash Menon, Chairman & Managing Director
Sudeesh Yezhuvath, Whole Time Director
B) Details of the transactions with the related parties other than employees who are related to the directors of the company is as under:
Nature of Transaction
a) Salary, perquisites and commission
b) Amount due to
c) Purchase of hardware from Cellcomm Solutions Limited
d) Amount due to Cellcomm Solutions Limited as at year end
II.13. Earning per Share
Companies under
same management
Amounts in Rs.
Key management personnel
2006-07
-
-
693,243
330,469
2005-06
-
-
-
-
2006-07
24,946,139
-
-
-
2005-06
23,409,166
10,000,000
-
-
Profits after tax attributable to shareholders
Weighted average number of shares for basic EPS
Weighted average number of shares for diluted EPS
Earning per Share – basic
Earning per Share - diluted
A
B
C
A / B
A / C
2006-07
675,660,375
32,020,111
32,145,562
21.10
21.02
Amount in Rs.
2005-06
378,486,522
21,480,220
21,590,084
17.62
17.53
Face value of shares : Rs. 10 each
As mentioned in II.9, there was a bonus issue in January 2006.
The weighted average number of shares outstanding and
consequently the Earning per Share has been recomputed for the
year ended March 31, 2006 to adjust for the said bonus issue, in
accordance with Accounting Standard-20 ‘Earning per Share’
issued by Institute of Chartered Accountants of India.
The difference in the number of share used for calculation of
diluted EPS as compared to that used for computing Basic EPS is
due to existence of stock options that are granted to employees.
II.14. Segmental reporting
The group’s operation comprises software development, services
and sale of telecom products. Primary segmental reporting
comprises of products and services segment. Secondary segment
is reported based on geographical location of customers. The
accounting principles consistently used in the preparation of the
financial statements are also consistently applied to record income
and expenditure in individual segments. These are as set out in the
note on significant accounting policies.
In primary segment, revenue and direct expenses, which relate to
particular segment and which are identifiable, are reported, while
certain expenses such as depreciation and interest, which form a
significant component of total expenses, are not specifically allocable
to specific segments as the underlying services are used
interchangeably. The Company believes that it is not practical to
provide segment disclosures relating to those costs and expenses,
and accordingly these expenses are separately disclosed as
“unallocated” and directly charged against total income.
A N N U A L R E P O R T
2006 - 2007
91
Information about primary business segment:
Amounts in Rs.
Particulars
Products
Services
Consolidated
2006-07
2,287,666,256
2005-06
2006-07
1,166,818,957 1,121,336,342
2005-06
647,523,281
2006-07
3,409,002,598
2005-06
1,814,342,238
453,574,552
497,732,918
123,980,655
21,571,856
577,555,207
519,304,774
Revenues
Segment results before
interest, depreciation & taxes
Add: Unallocable Income,
net of unallocable expense
Interest expense
Depreciation & Amortization
Profit before tax
Provision for taxation:
Current
MAT carried forward
Fringe benefit tax
Deferred
Profit after tax
234,900,000
87,318,294
148,527,292
576,609,621
70,226,003
(11,128,731)
5,107,115
(163,255,141)
675,660,375
11,847,897
26,805,705
92,584,239
411,762,726
34,903,702
-
2,124,208
(3,751,705)
378,486,522
Amount in Rs.
Particulars of Segment Assets & Liabilities
Products
Services
Unallocable
Consolidated
2006-07
1,287,908,519
2005-06
656,180,448
Segment assets
Segment liabilities
Unallocable assets exclude
Goodwill
Investments
Advance income taxes
Miscellaneous expenditure
Deferred tax asset
Total
Unallocable liabilities exclude
Loans - secured
Loans – unsecured
Provisions
Total
2005-06
2006-07
2005-06
394,773,128 305,379,105 1,456,153,237 858,879,837
843,240,596 292,405,609
2006-07
2006-07
3,138,834,884
843,240,596
2005-06
1,820,439,390
292,405,609
7,021,229,033
7,403,696,025
55,729,889
-
168,488,974
14,649,143,921
635,166,392
7,807,500,000
94,795,108
8,537,461,500
308,987,980
-
18,281,313
226,463
7,727,514
335,223,270
13,695,549
-
38,196,323
51,891,872
Fixed assets used in the company’s business or liabilities contracted
have not been identified to any of the primary reportable segments,
as the fixed assets and services are used interchangeably between
segments. Significantly all the fixed assets of the Company are
located in India. The Company believes that it is currently not
practicable to provide segment disclosures relating to total assets
and liabilities since a meaningful segregation of the available data
is onerous.
Segment assets based on their location
APAC
AMERICAS
EMEA
Total
2006-07
124,360,690
734,030,132
778,124,278
1,636,515,100
Amount in Rs.
2005-06
98,925,812
456,487,450
406,146,290
961,559,552
92
A N N U A L R E P O R T
2006 - 2007
Information about secondary business segment
Revenue attributable to location of customers is:
Amount in Rs.
Products
Services
Consolidated
APAC
AMERICAS
EMEA
Total
Signature to the Schedules A – R
Signature to the Schedules A – R
Signature to the Schedules A – R
Signature to the Schedules A – R
Signature to the Schedules A – R
2006-07
438,373,237
591,977,963
1,255,548,973
2,285,900,173
2005-06
110,335,323
415,693,577
640,790,057
1,166,818,957
2006-07
-
1,123,102,425
-
1,123,102,425
2005-06
-
647,523,281
-
647,523,281
2006-07
437,522,649
1,715,930,976
1,255,548,973
3,409,002,598
2005-06
110,335,323
1,063,216,858
640,790,057
1,814,342,238
Subash Menon
Chairman & Managing Director
Rajkumar C
Company Secretary & Legal Counsel
II.15. Quantitative details
None of the traded items are in excess of 10% of revenues and it
is not practicable to give quantitative information in the absence of
Place : Bangalore
common expressible units.
Date : 15th May, 2006
II.16. Others
1. The Company is availing non-fund based limits and overdrafts
against lien on the fixed deposits. The loans outstanding as on
March 31, 2007 is Rs. 343,017,163 (previous year, Rs. Nil).
2. Estimated amount of contracts, remaining to be executed on
capital account and not provided for (net of advances paid)
Rs. 9,277,855 (previous year, Rs. Nil).
3. Unclaimed divident of Rs. 812,794 represent dividends not
claimed for the period from 1999-2007. No part thereof has
remained unpaid or unclaimed for a period of seven years from the
date they become due for payment requiring a transfer to the
‘Investor Education and Protection Fund’.
4. Consequent to the acquisition of Azure group of companies
during the year and other planned acquisitions, it has become
imperative that common policies and practices are adopted across
all group companies worldwide. With the introduction of common
group accounting policies, the Company has revised its policy
for recognition of revenue from sale of software licences with
effect from April 1, 2006. Income from contracts for sale of
software licences, which were earlier recognised fully on the
transfer of licences, are now recognised under the percentage
Sudeesh Yezhuvath
Wholetime Director
V. R. Suresh Rao
General Manager - Accounts & Finance
V. Balaji Bhat
of completion method over the period of the contract, based on
Director
the extent of work completed. In the current year, the information
necessary to ascertain the effect of such change in accounting
policy on the financial statements for the period is not available
with the Company.
The Company, however, believes that the above change in policy
does not impact the results of the year significantly. This is not
verifiable by the auditors.
5. Personnel cost for the year includes expenditure on
research and development of Rs. 44,871,701 (previous year,
Rs. 6,549,332). This is as certified by the management and relied
upon by the auditors.
6. Previous year’s figures have been regrouped to conform to the
classifications for the current year.
7. In terms of transitional provisions of the Accounting Standard
15 on Employee Benefits issued by The Institute of Chartered
Accountants of India,
• The Net incremental liability on account of gratuity and leave
encashment amount to Rs. 8,527,028 has been charged to the
opening balance of General Reserve.
• Termination benefits incurred in respect of employees in
Subex Azure (UK) Limited in the current year amounting to
Rs. 69,130,659 has been amortised over a period from the time
such costs were incurred till March 31, 2010.
A N N U A L R E P O R T
2006 - 2007
93
SHAREHOLDERS’ INFORMATION
:
:
:
– on July 26, 2007
: April 1 to March 31
July 26, 2007
Le Meridien, 28, Sankey Road, Bangalore - 560 052
4.00 P.M.
REGISTERED OFFICE
The Registered office of the Company is at # 721, 7th Main,
Mahalaxmi Layout, Bangalore – 560 086
CORPORATE OFFICE
The Corporate office of the Company is at # 372, Koramangala III
Block, Sarjapur Road, Bangalore- 560 034.
DATE AND VENUE OF THE ANNUAL GENERAL MEETING (AGM)
Date
Venue
Time
DATES OF BOOK CLOSURE
From Monday, July 23, 2007 to Thursday, July 26, 2007 (both
days inclusive)
BOARD MEETINGS & FINANCIAL CALENDAR
Financial year
Calendar of board meetings to adopt the accounts (tentative and
subject to change):
For quarter ending June 30, 2007
For quarter ending September 30, 2007 – on October 23, 2007
For quarter ending December 31, 2007 – on January 22, 2008
For the year ending March 31, 2008
DIVIDEND
An interim dividend of 15% (Re. 1.50 per share) was declared by
the Board of Directors at their meeting held on January 29, 2007.
A final dividend of 20% (Rs. 2.00 per share) was recommended
by the Board of Directors on April 30, 2007 and subject to the
approval of the shareholders at the Annual General Meeting will
be payable on or after July 26, 2007 but within the statutory time
limit of 30 days.
Payment of dividend
Dividend warrants are posted to members at their registered
address within the statutory time limit.
Dividend warrants in respect of shares held in electronic/
dematerialized form are posted to the beneficial owners to their
addresses as per the information furnished by NSDL and CDSL as
on the record date. Warrants for high value amounts are sent
through registered post.
Bank particulars for dividend warrants
With a view to prevent fraudulent encashment of dividend warrants,
members holding shares in physical form are advised to furnish to
the Company, particulars of their bank account with a request to
incorporate the same in the dividend warrant.
ELECTRONIC CLEARING SERVICE
The Company makes payment of dividend through Electronic
– on April 22, 2008
Clearing Service (ECS) to its members. Under this system of
payment of dividend, the shareholders get the credit of dividend
directly in their designated bank account. This ensures direct and
immediate credit with no chance of loss of warrant in transit or its
fraudulent encashment. Members holding shares in physical form
who wish to avail of the ECS facility, are requested to give the ECS
mandate in the prescribed form. The form can be obtained from
the R & T agents.
LISTING ON STOCK EXCHANGES
Shares of the Company have been quoting on National Stock
Exchange of India Limited (NSE) since September 5, 2003 ; on
Bombay Stock Exchange Limited (BSE) since July 31, 2000 and on
The Bangalore Stock Exchange Limited (BgSE) since September
3, 1999. Global Depositary Receipts (GDRs) and Foreign Currency
Convertible Bonds (FCCBs) of the Company are listed at London
Stock Exchange since March 14, 2007.
The Company delisted the GDRs, which were quoted on the
Luxembourg Stock Exchange with effect from March 14, 2007.
Listing Fees have been paid to all the above Stock Exchanges for
2007-08.
The stock codes of the Company at the Stock Exchanges are as
follows:
Name and address of the stock exchange
National Stock Exchange of India Limited,
Exchange Plaza, 5th Floor,
Bandra Kurla Complex,
Mumbai- 400051
Bombay Stock Exchange Ltd,
Phiroze Jeejeebhoy Towers
Dalal Street, Fort, Mumbai 400023
The Bangalore Stock Exchange Limited
P. B. No. 27024,
No. 51, Stock Exchange Towers
1st Cross, J. C. Road
BANGALORE
London Stock Exchange
10 Paternoster Square
London
EC4M 7LS
Stock code
SUBEX
SUBEXAZU
SUBEXSYS
SUBX
The International Securities Identification Number (ISIN) for the
company’s shares in dematerialized form is INE754A01014.
CUSTODIAL FEE
Pursuant to the Securities and Exchange Board of India (SEBI)
Circular No. MRD/DoP/Stock Exchange/DEP/CIR-4/2005 dated
January 28, 2005 issuer companies are required to pay custodial
fees to the depositories with effect from April 1, 2005. Accordingly,
the Company has paid custodial fees for the year 2007-08 to
NSDL and CDSL on the basis of the number of beneficial accounts
maintained by them as on March 31, 2007.
94
A N N U A L R E P O R T
2006 - 2007
STOCK MARKET DATA RELATING TO SHARES LISTED IN INDIA
Monthly high and low quotations during each month in last financial year as well as the volume of shares traded at National Stock Exchange
of India Limited, The Bombay Stock Exchange Limited and The Bangalore Stock Exchange Limited for 2006-07 are:
Month
Apr ‘06
May ‘06
Jun ‘06
Jul ’06
Aug ‘06
Sep’ 06
Oct ‘06
Nov ‘06
Dec ‘06
Jan ‘07
Feb ‘07
Mar ‘07
752.05
716.85
830.35
604.05
670.15
571.40
536.10
496.65
482.55
426.25
390.05
High
Rs.
649.80
585.00
496.60
474.00
477.00
479.90
582.00
664.00
680.00
790.00
750.00
654.00
TOTAL
NSE
Low
Rs.
425.00
396.00
385.00
380.00
384.20
418.65
440.20
551.00
605.00
611.00
606.00
510.10
Volume
Nos.
17,44,698
10,01,161
11,43,406
3,49050
5,45,373
8,77,548
15,01,337
16,02,201
7,67,172
13,05,962
7,66,317
8,51,438
1,24,55,663
BSE
Low
Rs.
425.00
395.65
381.00
380.00
355.00
427.00
440.05
550.00
602.00
648.00
525.00
532.00
High
Rs.
650.00
581.80
490.00
480.00
534.00
549.00
585.00
663.00
699.00
803.25
750.00
671.00
TOTAL
Volume
Nos.
10,49,573
4,06,308
3,07,434
1,28,693
4,06,992
2,89,285
9,16,235
12,93,766
6,09,414
8,61,432
4,85,846
6,15,087
73,70,065
BgSE
Low
Rs.
High
Rs.
Volume
Rs.
d
e
d
a
r
t
t
o
N
SUBEX AZURE SHARE PRICE VERSUS NSE S&P CNX NIFTY AND SENSEX
4224.30
4086.15
3006.00
3745.95
3587.70
3428.55
3209.43
3110.25
2951.10
2791.95
2632.90
60%
50%
40%
30%
20%
10%
0%
10%
03/04/06
14/05/06
22/06/06
01/11/06
11/01/07
30/03/07
May
Jun
Jul
– Subex Azure share price – S&P CNX NIFTY
Aug
Sep
– Subex
Oct
Nov
Dec
– SENSEX
Jan
Feb
Mar
SHAREHOLDING PATTERN
Distribution of shareholding:
No. of Equity shares held
As on March 31, 2007
As on March 31, 2006
5000
–
10000
–
20000
–
30000
–
40000
-
-
50000
- 100000
1
5001
10001
20001
30001
40001
50001
100001 and above
No. of shareholders
9,735
699
303
94
74
36
70
134
11,145
% of shareholders
87.35
6.27
2.72
0.84
0.66
0.32
0.63
1.20
100
No. of shareholders
7,177
659
331
109
66
35
91
126
8,594
% of shareholders
83.51
7.67
3.85
1.27
0.77
0.41
1.06
1.46
100.00
A N N U A L R E P O R T
2006 - 2007
95
Categories of shareholders
Category
Public & Others
Companies
Core Promoters
Mutual Funds
ESOP
FII
TOTAL
No. of share
holders
As on March 31, 2007
Voting
strength %
No. of shares
held
No. of share
holders
As on March 31, 2006
Voting
strength
No. of shares
shares held
10,312
685
2
32
77
37
11,145
18.93
3.87
8.73
14.59
0.52
53.35
100.00
65,91,762
13,46,948
30,40,960
50,79,842
1,81,885
1,85,74,328
3,48,15,725
7,903
565
2
35
65
24
8,594
22.639
14.623
18.572
24.433
0.576
19.157
100.00
49,25,727
31,81,581
40,40,960
53,15,913
1,25,278
41,68,109
2,17,57,568
R&T AGENTS AND SHARE TRANSFER SYSTEM
By a tripartite agreement dated December 5, 2001 in respect of
shares held with NSDL and by a tripartite agreement dated
November 27, 2001 in respect of shares held with CDSL, Canbank
Computers Services Limited, R & T Centre, Naveen Complex, 4th
Floor, 14 M G Road, Bangalore –560 001, were appointed as
‘Registrar and Transfer Agent’ both in respect of shares held in
physical form and dematerialized form.
Process for the transfer of shares:
Share transfers would be registered and returned within a period
of 20 days from the date of receipt, if the documents are clear in all
respects. The Company holds Share Transfer Committee meetings
1/2/3 times a month, as may be required, for approving the transfers/
transmissions of equity shares.
Share transfers and other communication regarding Share
Certificates and change of address, etc., may be addressed to:
M/s Canbank Computer Services Ltd.,
R & T Centre
Naveen Complex, 4th Floor,
#14, M.G.Road,
Bangalore -560 001
Phone : 91-80-25320541 / 542 / 543
Fax : 91-80-25320544
Email : ccslrnt@vsnl.com
Website: www.canbankrta.com
SHARES HELD IN PHYSICAL AND DEMATERIALISED FORM
As on March 31, 2007, 99.80% of the company’s shares were held
in dematerialized form and the rest in physical form.
OUTSTANDING GDRs / ADRs / WARRANTS / CONVERTIBLE
INSTRUMENTS AND THEIR IMPACT ON EQUITY
As on March 31, 2007 1,33,50,464 GDRs issued by the Company
are outstanding. Each GDR represent one equity share of Rs. 10/-
each. The Company issued Foreign Currency Convertible Bonds
amounting to US$ 180 Million in March 2007, which are outstanding
as on March 31, 2007.
LEGAL PROCEEDINGS
There is one pending case relating to dispute over the title to
shares, in which we had been made a party. However, this case is
not material in nature.
NOMINATION
Pursuant to the provisions of Section 109A of the Companies
Act, 1956, members may file nomination in respect of their
shareholdings. Any member willing to avail this facility may submit
to the Company the prescribed Form 2B (in duplicate), if not
already filed. Form 2B can be obtained with the help of the R&T
Agents. Members holding shares in electronic form are requested
to give the nomination request to their respective Depository
Participants directly.
96
A N N U A L R E P O R T
2006 - 2007
PROCEDURE FOR CLAIMING UNPAID DIVIDEND
In terms of Section 205A (5) of the Companies Act, 1956, monies
transferred to the Unpaid Dividend Account of the Company, which
remain unpaid or unclaimed for a period of seven years from the date
of such transfer, shall be transferred by the Company to the Investor
Education and Protection Fund established by the Central Government.
Brief particulars of dividend declared on the equity share capital
are given below:
Which year the
dividend pertains
to
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2005-06
2006-07
Declared at the
AGM / Board
meeting held on
March 17, 2000
June 19, 2000
July 13, 2001
November 15, 2002
September 9, 2003
August 24, 2004
January 27, 2005
July 28, 2005
October 28, 2005
August 28, 2006
January 29, 2007
Nature of dividend
% of dividend
Due date for
transfer to the fund
Interim
Final
Final
Final
Final
Final
Interim
Final
Interim
Final
Interim
35
5
20
10
10
20
10
20
15
10
15
See note below*
Before July 18, 2007
Before August 12, 2008
Before December 14, 2009
Before October 8, 2010
Before September 23, 2011
Before February 26, 2012
Before August 27, 2012
Before November 27, 2012
Before September 27, 2013
Before February 28, 2014
The Company declared bonus at 1:1 in the years 2000-01 and 2005-06.
* The interim dividend declared in the FY 1999-00 which was
unclaimed for 7 years from the date of payment being due, was
transferred to the Investor Education and Protection Fund.
Members can claim the unpaid dividend from the Company before
transfer to the Investors Education and Protection Fund. It may be
noted that after the unpaid dividend is transferred to the said Fund,
the same cannot be claimed.
INVESTOR GRIEVANCES
Investor grievances received from April 1, 2006 to March 31, 2007:
Nature of complaints
Non-receipt of share certificates/refund orders/call money
notice/allotment advice/dividend warrant
Letters from NSDL, Banks etc.
Correction/change of bank mandate of refund order, Change of address
Postal returns of cancelled stock invests / refund orders/ share
certificates / dividend warrants
Other general query
Total
Received
Cleared
8
-
-
-
-
8
8
-
-
-
-
8
During the year ended March 31, 2007 the company has attended to all the investors’ grievances / correspondence within a period of
10 days from the date of receipt of the same.
INVESTORS’ CORRESPONDENCE
For any queries, please write to:
Raj Kumar
Chief Counsel & Company Secretary
Subex Azure Limited,
No. 372, Koramangala, 3rd Block, Sarjapur Road,
Bangalore – 560 034, India,
Tel : +91 80 6659 8700
Email: rajkumar.c@subexazure.com
investorrelations@subexazure.com
WEBSITE
Company’s website www.subexazure.com contains
comprehensive information about the Company, products, press
release and investor relations. It serves to inform the shareholders
by providing key information like Board of Directors and the
committees, financial results, shareholding pattern, distribution of
shareholding, dividend etc.
A N N U A L R E P O R T
2006 - 2007
97
A N N U A L R E P O R T
2006 ~ 2007
SUBEX AZURE LIMITED, 372, KORAMANGALA III BLOCK, SARJAPUR ROAD, BANGALORE 560 034, INDIA
B E I J I N G
D E N V E R
D U B A I
O T T A W A
P I T T S B U R G H
I P S W I C H
S I N G A P O R E
L O N D O N M E L B O U R N E
S Y D N E Y
T O R O N T O
www.subexazure.com
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