Subex Limited Annual Report 2012

Plain-text annual report

Subex Limited Annual Report 2012-13 Growing our PIE Progress > Innovate > Expand Forward-looking statement In this annual report, we have disclosed forward-looking information to enable investors to study our prospects and make informed investment decisions. This report and other statements – written and oral – that we periodically make contain forward-looking statements that set out anticipated results based on the management’s plans and assumptions. We have tried wherever possible to identify such statements by using words such as ‘anticipates’, ‘estimates’, ‘expects’, ‘projects’, ‘intends’, ‘plans’, ‘believes’ and words of similar substance in connection with any discussion on future performance. We cannot guarantee that these forward-looking statements will be realised, although we believe we have been prudent in our assumptions. The achievement of results is subject to risks, uncertainties and even inaccurate assumptions. Should known or unknown risks or uncertainties materialise, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Readers should bear this in mind. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. CONTENTS Corporate identity Our business model Financial highlights CEO’s letter to shareholders COO’s message Board of directors Executive leadership team Subex Charitable Trust Star awards Directors’ Report Corporate Governance Management Discussion & Analysis Financial Review-Standalone Financial Review - Consolidated Shareholders’ Information 02 04 07 08 10 18 19 20 21 22 30 38 55 88 121 T S O M E H T F O E N O S I Y R T S U D N I I D N A G N V L O V E - Y L D P A R I M O C E L E T L A B O L G E H T I S E R T S U D N I . I G N W O R G T S E T S A F R E V O D L R O W E H T The global telecom industry is one of the most rapidly-evolving and fastest growing industries the world over. This dynamic sector is marked by the introduction of new technologies, new services and new products, making it necessary for service providers to possess cutting-edge technologies, knowledge and experience. Subex is among select global telecom service providers working at the very core of emerging technologies, constantly innovating, customising, delivering and providing industry-leading solutions to customers. Over the last 20 years, Subex has helped its telecom clients adapt with speed to change and enhance competitiveness. As technologies continue to evolve rapidly, Subex is attractively positioned to take its business ahead through cutting-edge solutions, marking the start of the Company’s next growth phase in an exciting journey. SUBEX, THE LARGEST GLOBAL BUSINESS SUPPORT SOLUTIONS PROVIDER IN THE AREAS OF REVENUE ASSURANCE AND FRAUD MANAGEMENT. Subex, works with more than 200 customers across 300 global installations. 29 of these customers belong to the top 50 operators and 33 of the world’s 50 biggest telecommunication service providers. 2 Subex Limited *Established in 1992 e g a e n L i * A leading global provider of Business Support Systems (BSS) which empower communications service providers (CSPs) to achieve competitive advantage through Business Optimisation *Headquartered in Bangalore (India), the Company has global delivery centres located in India, the US and the UK *Branch oﬃces located in the US, the UK, Dubai, Singapore and Australia * The Company’s shares are listed on the Bombay Stock Exchange (BSE, India), National Stock Exchange (NSE, India), the London Stock Exchange and the Singapore Stock Exchange e c n e s e r P * The Company is a comprehensive BSS product suite provider to global customers i s e c v r e s d n a s t c u d o r P * The Company pioneered the concept of Revenue Operations Center (ROC®) – a centralised approach that sustains proﬁtable growth and ﬁnancial health through coordinated operational controls. Subex’s product portfolio powers the ROC through best-in-class solutions like revenue assurance, fraud management, asset assurance, capacity management, data integrity management, credit risk management, cost management, route optimisation and partner settlement. The Company also oﬀers a scalable Managed Services program *The Company has 16 patents (eight granted) e d i r P *Market leader in revenue assurance and fraud management for 2010 and 2011 (Source Gartner) *Market leader in Business Optimisation for ﬁve successive years (2007 – 2011) (Source: Analysys Mason) *Market leader in Financial Assurance in 2012 (Source: Frost & Sullivan) Some pride-enhancing customers* Americas Bell Claro 3 Communications T-Mobile Sprint Telus Telmex Comcast Level Rogers Telefonica Verizon EMEA COLT BT MTN STC Telecom Egypt Slovenije Zain Orascom Swisscom du Telekom Telenor Vodafone APAC BSNL Airtel Maxis Indosat Communications dtac Idea Reliance StarHub Tata Communications Telecom Malaysia True Telstra * List is not exhaustive and represents a sample customer base Revenue EBIDTA Human capital Global customer base `33,147.10 lakhs `4,024.92 lakhs 860 200 In 2012-13 In 2012-13 As on March 31, 2013 As on March 31, 2013 Annual Report 2012-13 3 Subex is the global market leader providing eﬃcient business support solutions to telecom operators worldwide. The Company has created a unique business model which is dynamic, globally relevant with adequate localised domain knowledge. Globalised Subex has created a global business model to encounter slowdowns in particular geographies. With over 300 installations across 70 countries, Analyse and innovate Subex understands that the need of the hour for the telecom sector is to optimise operational costs to enhance proﬁtability as most of the markets have progressively matured. The Company has successfully analysed the situation and rolled out innovative products. This was illustrated through the recent introduction of ROC Asset Assurance solution which aims at managing and reducing network capex in assets after a careful analysis of the existing investments. Low-cost model Subex has carefully chosen India as a building ground for all its R&D activities, product development and engineering to get low-cost beneﬁts followed by Subex is aware of consumer behaviours across diverse, global telecom installation through the respective branch markets, which helps the Company build local operational and market knowledge. Localised domain knowledge The business of telecommunication requires an in-depth knowledge of consumer behavioural patterns in a particular geography. Subex possesses a rich repository of localised domain knowledge achieved by employing people from a particular geography and spreading its network far and wide. This is re/ected in the Company’s 860 plus strong employee base. OUR BUSINESS MODEL oﬃces. Evolving The global telecom space is rapidly evolving with the advent of new technologies especially the increase in the mobile data volume. Subex is continuously keeping pace with evolving technologies and upgrading products and services to become more relevant to its customers. The Company is also proactively plugging sectoral gaps with innovative solutions. 4 Subex Limited Experience: The Company possesses more than 20 years of experience in the telecom industry; the key management team possesses rich industry experience. Focused: A singular focus on the telecom industry with rich experience enabled the Company to emerge as one of the strongest player in the global arena. Global presence: The Company has more than 200 customers across 70 countries with 300 plus instilations, reducing revenue concentration from a particular geography. rich industry experience. Product portfolio: Subex’s product portfolio comprises all components of end-to-end Business Optimisation. The Company’s Business Optimisation solutions comprise of ROC Revenue Assurance, ROC Fraud Management, ROC Cost Management, ROC Partner Settlement, ROC Route Optimisation, ROC Credit Risk Management, ROC Asset Assurance, ROC Capacity Management and ROC Data Integrity Management. These oﬀerings include analytics, which are enhanced by the ROC platform and analytics capabilities. THE EDGE Solutions provider: The Company transformed Localised domain knowledge: The Company’s from just being a license provider to a complete presence in diverse geographies has helped solutions provider of managed services. The Company not only provides the support system, but also manages and provides training. Innovative: The Company constantly keeps pace with the changing industry trends and it acquire a localised consumer insight and diverse consumer patterns leading to customised solutions. Low cost: All the R&D activities, product development and engineering activities are carried out from the Company’s India recently introduced the industry’s ﬁrst solution- Development Centre, resulting in a low cost- ROC Asset Assurance which analyses asset use and their eﬀectiveness, leading to prudent network capex eﬃciency. Intellectual capital: The Company possesses robust intellectual capital resources high quality advantage. Market leader: The Company has been a global market leader in revenue assurance and fraud management for ﬁve consecutive years according to leading analyst ﬁrm Analysys represented by 860 employees possessing Mason. Annual Report 2012-13 5 94% SIM penetration, 2012 129% SIM penetration, 2017 (estimated). 1% Global 4G penetration, 2012. 10% Global 4G penetration, 2017 (estimated). 1.1% 4.2% Global population growth, 2012 to 2017 Global subscriber growth, 2012 to 2017 (estimated) 1,577 Quantum (petabytes per month) of global data volume, 2013 11,156 Quantum (petabytes per month) of global data volume, 2017 (estimated). 1.6 Number of billion mobile broadband connections, 2012 5 Number of billion mobile broadband connections expected, 2017 (estimated). 526 Average speed (kbps) of mobile broadband, 2012 4 Projected speed of mobile broadband (mbps), 2017 (estimated). OUR BUSINESS IS GROWING … US$23 billion Estimated loss in SMS revenue incurred by global telecom players due to over-the-top messaging applications by end-2012 US$54 billion Forecasted loss by operators, 2016 (estimated) 6 Subex Limited OUR FINANCIAL PERFORMANCE IN 2012!13 Particulars (Consolidated) Total Income Operating Proﬁt (EBITDA) Before Exceptional Items Depreciation and Amortisation Proﬁt Before Tax and Exceptional Items Proﬁt After Tax and Exceptional Items Share Capital Reserves and Surplus Networth Gross Fixed Assets Net Fixed Assets Total Assets Key Indicators Earnings Per Share Cash Earning Per share Book Value Per Share Debt (Including Working Capital Debt) Equity Ratio EBITDA/ Sales (%) Net Proﬁt Margin(%) Return on Year End Net Worth (%) Return on Year End Capital Employed (%) Amount in ` Lakhs 33,147.10 4,024.92 426.77 (1,611.85) (5,994.71) 16,664.00 5,835.68 22,499.68 10,279.57 466.74 108,797.37 (4.40) (1.04) 13.50 4.39 12.14% -18.09% -26.64% -3.6% Annual Report 2012-13 7 “WE ARE ON COURSE TO ACHIEVE THE NEXT PHASE OF GROWTH FOR YOUR COMPANY” Mr. Surjeet Singh, Managing Mr. Surjeet Singh, Manag Director & CEO, draws out Director & CEO, draws ou the Company’s roadmap the Company’s roadmap for sustainable growth sustainable growth In 2012-13, the global economy remained weak and the global telecom industry saturated, which made it imperative for players to invest in revenue- and proﬁt- protecting initiatives. As a prominent telecom Business Support Systems (BSS) provider, Subex leveraged its rich experience of having worked in multiple countries, with diverse customers, across diverse fraud patterns and a rich installation experience of having worked on more than 300 systems. This translated into a strong recall, resulting in client accretion in a weak market and the ability to report a reasonable performance even at a time of sectoral weakness. Ever since our entry into the world of telecom software a decade ago, we have continuously evolved our technology and revenue model. The result has been an ever-expanding set of products and continuing innovation on every front covering technology, products and delivery. Being diﬀerent Over the last 20 years, Subex strengthened its business model through the following realities: *The Company leveraged its deep domain knowledge of customers, consumers and telecom usage patterns across geographies *The Company leveraged the wage-cum- knowledge arbitrage proposition, resulting in a superior price-value for customers; while all engineering and development activities are carried out in the Company’s India delivery centre (including research and development, product development and engineering), the global branch oﬃces support sales and installations 8 Subex Limited *The Company established itself as a CSPs eﬀectively utilise assets and reduce shift in the global communication service global player through project delivery with network capex expenditure. providers. The industry is evolving into distinctive customer value Expansion: In the business of telecom *The Company’s wide global presence software services and solutions, helped de-risk it from geographic there is a growing need to expand the customer base and address signiﬁcant opportunities. Your Company responded to this need through a two-pronged strategy where it continued to expand its customer base and cross-sell to existing customers. Process strengthening: In the business of telecom software services and solutions, there is a growing need to strengthen a utility service provider, the increase in data and services use incommensurate with an increase in revenues. Over the foreseeable future, one expects to see superior technologies invested in support systems to handle unprecedented volume growth. At Subex, we see this development as an opportunity translating into product up-gradation and a need for new installations. Message for our shareholders At Subex, 2013-14 represents the cusp process discipline to accelerate project of a new beginning. A combination of deliveries. Subex realigned operations brand visibility, process strengthening, around disciplined specialisation where domain focus, innovative solutions and each team worked on a speciﬁc product competitive cost structure promise to component, specialised in it, following translate into signiﬁcant opportunities, which these were assembled with the qualiﬁcations and wins. objective to reduce delivery time and The increase in the proportion of managed services will enhance The complement of these capabilities revenue predictability and cash ﬂows. translated into a competitive advantage The analytics software business will that will accelerate revenues, margins enhance revenues. The Company and proﬁts over the foreseeable future. expects to maintain its leadership position in the revenue assurance and fraud management segments. Product upgradation and customisation will evolve products around customer needs and evolving technologies. Going ahead, I expect these initiatives will lead to signiﬁcant growth and enhanced value in the hands of our shareholders. All of us at Subex thank each and every one of you for your support and I assure you that we will do our best to grow the Company in a proﬁtable and sustainable way. Regards, The advent of smart phones and mobile broadband networks have led to a robust growth in the delivery of mobile data services. Despite challenging economic headwinds, the global mobile market is expected to grow attractively over ﬁve years, with an annual growth of 8% in the number of connections between 2012 and 2017. Subex pioneered the vendor-supplied costs. volatility Writing the future In the business of software services and solutions, success is derived from the ability to manage the entire ecosystem. Over the years, the Company strengthened its various capabilities, translating into an attractive opportunity to grow the business. Innovation: In the business of telecom software services and solutions, there is a growing priority to create products for telecommunication service providers that optimise the cost of operations, enhance productivity and increase proﬁtability. Fraud Management Systems (FMS) with the Company’s ﬁrst standalone software product oﬀered in 2000. Besides, the Company introduced ROCware - an analytics software, which helps CSPs analyse billions of data inputs with the objective to provide sustainable Managed Services oﬀering, generating around 17% of revenues from this segment in 2012-13 and projected to grow to a considerable amount of revenues in 2013-14. Managed Services revenues account for quality predictable revenues that strengthen organisational sustainability. Subex is responding to the evolving needs of its customers through innovative solutions. The Company’s newly-launched ROC Asset Assurance is a ﬁrst-of-its-kind solution which helps Evolving space These are exciting times for the global actionable intelligence and insights to telecom industry from a technology CSPs. The Company also provides a perspective. New services like 4G and other mobile Surjeet Singh data technologies are driving a paradigm Managing Director & CEO Annual Report 2012-13 9 “INNOVATION, DOMAIN EXPERTISE AND GLOBAL FOOTPRINT ARE THE ESSENCE OF SUBEX’S DNA” Mr. Vinod Kumar, Chief Operating Oﬃcer Mr. Vinod Kumar, Chief Operating Oﬃcer 10 Subex Limited Ever since our entry into the world of telecom software a decade ago, we have evolved at a constant pace with regard to technology and revenue model. The result has been an ever expanding set of products and continuing innovation on every front of the business including technology, products and delivery model. What started oﬀ as a single product – fraud management – has now morphed into a holistic platform called Revenue Operation Centre (ROC). ROC covers every part of the revenue chain and presents an end-to-end picture to the users thereby empowering them to improve the eﬃciency of their operations, resulting in improved revenue and proﬁt. ROC has evolved as a reliable and complete RO solution without being plagued by the ill so eﬀects of poor inter-operability and lack eﬀ of data integrity. Several telcos across the of world – in both developed and developing wo countries – have opted for ROC resulting co in a high level of traction. The fact that in ROC is a pioneering oﬀering has improved RO both the stature of your Company and it’s bo prospects. pr Analytics- optimising business An processes pr An Analytics is an integral part of Subex’s business optimisation product oﬀering. bu Op Operators, today, are sitting on a huge pi pile of data regarding their customers, but are handicapped by the inability to bu make use of it. This has created a world of ma opportunity for the Company to come with op solutions that analyses these data near so real-time for our customers. ROCware re harnesses operational data, transforms it ha into actionable intelligence and facilitates in business decision. It helps an operator to solve business problems as diverse as customer experience management, product performance management, that the Company’s business spans US$ 50- 100 billion. With constant capacity management and churn the globe with few exceptions. This is a changes in technology, these networks reduction. remarkable achievement which carries are expanding at a feverish pace. Annual both the rewards and resilience of a truly network spending at these operators Subex continues to be on top of the pack for ﬁve years consecutively in Business global business. Optimisation according to Analysys With over 300 installations across Mason and have been awarded market 70 countries, Subex has developed a leadership in Financial Assurance in 2012 company structure and culture that is commonly in the range US$ 0.5-2 billion. A recent PwC survey stated that operators with a collective annual capex of US$ 200 billion estimated about 20% of their company’s capex is spent on assets that don’t recover their cost of capital. by Frost & Sullivan. Potential growth avenue through managed services While selling and implementing ROC, it became obvious that the telecom carriers, despite their deep expertise and wide experience, still lacked the knowledge required to take advantage of a broad platform such as ROC. This was aggravated by the non-availability of skilled personnel within their has both the durability and diversity to dovetail into the broad range of cultures of our clients and employees. We are in a strong position to leverage the To address this need to critical challenge accelerating properties of a low cost of network capex management, Subex centre of operations with detailed and has introduced the industry’s ﬁrst intimate knowledge of the customers comprehensive programme, ROC Asset and the geographies within which they Assurance that provides CSPs with operate. Customer orientation Subex is a growing organisation and we the ability to save millions of dollars in network capex along with helping discover, recapture and re-deploy stranded and unutilised assets. organisation, resulting in non-utilisation pay special attention in maintaining a of the platform’s maximum potential. high-level of customer orientation across That presented a new opportunity for the organisation. I am convinced that the The path to success The core of Subex’s growth is Fairness, the Company- what started oﬀ as mere customer-oriented culture is part of the Commitment and Innovation. The bureau operation has now matured Subex DNA and that we will replicate it Company’s deep domain knowledge, into Managed Services and full-ﬂedged wherever and whenever we work with our global footprint, cost-eﬀective product outsourcing. customers. Subex’s leadership team and oﬀerings, localised knowledge and We were one of the early movers in our space to oﬀer Managed Services and this delivery model is fast emerging as a key diﬀerentiator and has also led to a considerable increase in contract size while maintaining a healthy proﬁt margin. Going forward, the Company expects a considerable part of the revenue to be derived from Managed Services. Cultural dexterity The team at Subex has built a truly international business that thinks globally and acts locally. If one were to place a pin on a map of the world in each location that we have business, it would be clear Middle Management are not complacent continuous innovation will help us leap and constantly recognise Subexians who to the next phase of growth. Subexians embody the spirit of championing the are realising this opportunity as they customer’s cause. Customer orientation always have – through an unwavering is what our customers want and it is what commitment to our customer to add we strive to deliver to them everyday. value and innovate, with the addition Capex management The impact of the global ﬁnancial crisis and saturation of telecoms markets across the globe has compelled operators and investors to look into more proﬁtable revenue streams such as mobile content and applications. Moderate to large carriers today have network investments after depreciation and amortisation in excess of of new initiatives such as ROC Asset Assurance and Mobile Money. Being the leader in this area and given the industry- changing nature of our technology, Subex is well positioned to also take advantage of these growth areas through Managed Services. This renewed focus will translate to additional growth opportunities for Subex and Subexians. Annual Report 2012-13 11 12 Subex Limited CONTINUOUS INNOV TION GLOBAL TELECOM COMPANIES GENERATED A MERE 6% RETURN ON CAPITAL EXPENDITURE OVER THE LAST DECADE (SOURCE: PWC), NEARLY 300 BASIS POINTS LOWER THAN THEIR CAPITAL COST. SUBEX HELPS OPERATORS GENERATE HIGHER CAPEX PRODUCTIVITY THROUGH INNOVATIVE PRODUCTS AND SOLUTIONS. Subex launched ROC Asset Assurance, a pioneering solution that eﬀectively manages and reduces network capital expenditure. This solution counters low asset disposition, poor data integrity, and weak governance. ROC Asset Assurance solution provides actionable intelligence that is not only descriptive (current stats, trending etc) but also predictive to accurately predict asset exhaustion, procurement, triggering asset warehouse levels and retirement strategies. The Company enjoys a rich track record in enhancing customer productivity; it was among the ﬁrst to provide data analytics for telecom players, providing billions of data items with corresponding data integrity tools. Annual Report 2012-13 13 14 Subex Limited CLIMBING THE VALUE CHAIN FOLLOWING MARKET SATURATION, AN INCREASING NUMBER OF TELECOM COMPANIES ARE OPTING FOR PAY-PER-USE SUPPORT, ITS REMUNERATION BASED ON A TARGETED ACHIEVEMENT FOLLOWED BY ACHIEVEMENT BONUSES. This trend has been inspired by the fact that commercial-of-the-shelf (COTS) software products are not always utilised to their maximum capacities coupled with an ongoing pressure to manage business with limited resources. An increasing number of companies are also looking for vendors to manage support systems facing the aforementioned problems. Subex is attractively placed to leverage its extensive Business Support System (BSS) experience and provide managed services. The Company’s Managed Service experts help global service providers improve their BSS operations signiﬁcantly, complementing operations and transforming eﬀectiveness. This new business translated into a dependable revenue stream, growing its share in the Company’s revenue cake. Annual Report 2012-13 15 16 Subex Limited MAKING GROWTH SUSTAINABLE SUSTAINABLE GROWTH IS DERIVED FROM THE ADDITION OF NEW CUSTOMERS ON ONE HAND AND MAXIMISING A SHARE OF THE CUSTOMER’S WALLET ON THE OTHER. With growing operational complexities as a result of fast-changing technologies and usage patterns, it has become mission-critical for telecom service providers to constantly look at investments in upgrading their systems and processes. For example, a number of operators in developed markets are fast replacing their current fraud management systems. Armed with our holistic approach and specialised oﬀerings, Subex is addressing this emerging opportunity by increasing our sales outreach and engagement. Besides, the Company is revamping its sales teams (North America, the Middle East and Africa) to drive sales. The Company is evolving the role of its sales teams from a one-oﬀ transactional approach to an ongoing consultative arrangement, translating into sustainable revenues. The result is that the Company is expected to increase revenues attractively over the foreseeable future. Annual Report 2012-13 17 BOARD OF DIRECTORS Sanjeev Aga (Independent director) Surjeet Singh (Managing director & CEO) Anil Singhvi (Independent director) Subash Menon (Non executive director) Karthikeyan Muthuswamy (Nominee director) 18 Subex Limited EXECUTIVE LEADERSHIP TEAM Surjeet Singh (Managing director & CEO) Vinod Kumar (Chief operating oﬃcer) Ganesh K.V. (Global head-ﬁnance, legal and company secretary) Sekharan Y. Menon (Chief people and administrative oﬃcer) Shankar Roddam (Market head- sales and client relations-emerging markets) Ashwin Chalapathy (Global head- consulting, solutions and managed services) Pankaj Parmar (Global head, delivery and client servicing) 9 David Halvorson (General counsel) Charles E. Crenshew (Market head- sales and client relations-Americas) Annual Report 2012-13 19 SUBEX CHARITABLE TRUST Christmas celebration at Swanthana Care Home, a home for female children who are mentally challenged and have multiple disabilities Blood Donation Camp organised by Rotary, Bangalore - TTK Blood Bank 20 Subex Limited SCT Mentorship Program STAR AWARD LONG SERVICE AWARD Employee Name Martin Heathcote Anne Hill Vinodkumar Padmanabhan Jamie More Rahul Joseph Alexander Renji George Santhosh Vellore Rajendramudaliar Tony Adolphus Veeresh Kanavalli Anandakumar K Andrew Donaldson Ankur Singh Arthur Ronald Hoglund Arvind P Ashwin Menon Ayush Gupta Christopher Hapeman G Santosh Kumar Reddy Gaurinandan S Basale Gururaghavendran Gopalakrishnan Hari Prasadh R Harish H S Harsha Burly Kalpana T K Madhu Packiam Duraisamy Manu G Nair Mohan Kumara P E Muralidhar I M Niranjan B R Om Prakash Agrawal Pavan Kumar GV Prabhu H Premanandan K Raghu G Raghu Theja Setlem Rajesh Kumar Padihary Ram Prasad A S Ranjit Kumar A Ravikiran M G Ritesh Kumar Sen Rohith P Sabarish Kumar R Santosh Bhat Satyanarayana K Shailesh Gaurav Shikhar Jain Somesh Raina Soorej M V Soumia Annie Jose Srinath S Subha Chakraborty Subhadip Duttagupta Subhasis Nayak Sudarshan T S Sujatha Chitti Sylvan Sam Sugen S Thomas Meeks Tintu Joseph Vinay Malla Reddy Vinay Rajpurohit Vivek Amai Ramachandra Emp Function BT Presales(P) Corporate(P) PSO(P) IT(P) PSO(P) PSO(P) BT Engineering(P) Engineering(P) PSO(P) PSO(P) PSO(P) Engineering(P) Presales(P) Engineering(P) Managed Services(P) Engineering(P) Engineering(P) Engineering(P) Engineering(P) IT(P) Engineering(P) Engineering(P) Engineering(P) Engineering(P) Facilities & Administration Finance(P) Engineering(P) IT(P) Engineering(P) Facilities & Administration Finance(P) Engineering(P) Engineering(P) Engineering(P) Managed Services(P) Engineering(P) Engineering(P) Engineering(P) Engineering(P) Engineering(P) PSO(P) Engineering(P) HR(P) Presales(P) Engineering(P) Engineering(P) Engineering(P) Engineering(P) BT Engineering(P) Engineering(P) Engineering(P) Facilities & Administration Engineering(P) Presales(P) PSO(P) Managed Services(P) Engineering(P) Engineering(P) Reward Name 40 Years 30 Years 15 Years 15 Years 15 Years 15 Years 10 Years 10 Years 10 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years 7 Years Annual Report 2012-13 21 Directors’ Report To The Members of Subex Limited Your Directors have pleasure in presenting the Nineteenth Annual Report of the Company on the business and operations together with the audited results for the year ended March 31, 2013. Financial Results Total Revenue Proﬁt/(Loss) Before Interest, Depreciation, Exceptional Items & Taxes Interest, Depreciation & Amortization Proﬁt/(Loss) Before Exceptional Items & Tax Exceptional Items Proﬁt/(Loss) Before Tax Provision for Taxes Proﬁt/(Loss) After Tax APPROPRIATIONS Interim Dividend Preference Dividend Dividend Proposed on Equity Shares Provision for Tax on Dividends Transfer to General Reserve Consolidated Standalone 2012-13 2011-12 2012-13 2011-12 D in Lakhs 33,147.10 4,024.92 48,878.97 14,063.28 5,636.77 (5,608.47) 3,996.62 (5,608.47) 386.24 (5,994.71) - - - - 5,064.79 3,519.07 5,479.42 3,519.07 334.97 3,184.10 - - - - 26,677.95 3,338.21 5,131.07 (3,456.42) 1,663.56 (3,456.42) - (3,456.42) - - - - 33,902.66 9,700.20 4,404.15 203.65 5,092.40 203.65 (36.05) 239.70 - - - - Surplus/(Deﬁcit) Carried to Balance Sheet (5,994.71) 3,184.10 (3,456.42) 239.70 22 Subex Limited RESULTS OF OPERATIONS During the ﬁnancial year ended March 31, 2013, the total revenue on a consolidated basis was B 33,147.10 Lakhs. The Company has during the year under review incurred a loss of B 5,994.71 Lakhs as against proﬁt of B 3,184.10 Lakhs in the previous year. On standalone basis, the total revenue stood at B 26,677.95 Lakhs. The loss for the ﬁnancial year 2012-13 was B 3,456.42 Lakhs as against proﬁt of B 239.70 Lakhs in the previous year. The Directors have not proposed any dividend to be paid for the ﬁnancial year 2012-13. BUSINESS Your Company is a leading global provider of Business Support Systems (BSS) that empowers Communications Service Providers (CSPs) to achieve competitive advantage through Business Optimisation, thereby enabling them to improve their operational eﬃciency to deliver enhanced service experiences to subscribers. The Company pioneered the concept of a Revenue Operations Center (ROC®) – a centralized approach that sustains proﬁtable growth and ﬁnancial health through coordinated operational control. Subex’s product portfolio powers the ROC and it has best-in-class solutions such as revenue assurance, fraud management, credit risk management, partner settlement, route optimisation, cost management, asset assurance, data integrity management and capacity management. The Company has been declared global market leader in Business Optimisation for CSPs for ﬁve years in a row by analyst ﬁrm Analysys Mason. Business Optimisation improve the revenues and proﬁts of the CSPs through identiﬁcation and elimination of leakages in their revenue chain and includes fraud, revenue assurance, partner management, analytics, cost management and credit risk management. Subex conceptualizes and develops software products at its facilities in Bangalore and is focused on the telecom business segment. Subex has sales and support oﬃces in the United States, UK, UAE, India, Singapore and Australia. Commoditization of the industry is the largest threat that telecom operators around the world are facing. This, coupled with the need to roll out new products and services at regular intervals, is proving to be a tough combination for the operators. Subex is well positioned to address the needs of the telecom operators and help them to overcome these challenges. The Company’s pioneering platform, the Revenue Operations Centre (ROC®) brings together business intelligence, domain knowledge and workﬂow support. ROC acts as the underpinning solution on which telcos can build their processes to achieve several objectives like, lower cost, higher margin, higher revenue etc. Further, Subex oﬀers Managed Services around its products which enable the operators to take advantage of our deep domain expertise to improve their operational eﬃciency. SHARE CAPITAL As at March 31, 2013, the authorised share capital of the Company was B 4,97,00,00,000 (Rupees Four Hundred and Ninety Seven Crores only) divided into 49,50,40,000 (Forty Nine Crores Fifty Lakhs and Forty Thousand only) equity shares of B 10 (Rupees Ten only) each and 2,00,000 (Two Lakhs only) preference shares of B 98 (Rupees Ninety Eight only) each. As at March 31, 2013, the paid-up share capital of the Company stood at B 1,66,63,99,620/- (Rupees One Hundred Sixty Six Crores Sixty Three Lakhs Ninety Nine Thousand Six Hundred and Twenty only) consisting of 16,66,39,962 (Sixteen Crores Sixty Six Lakhs Thirty Nine Thousand Nine Hundred Sixty Two) equity shares of B 10/- each. SUBSIDIARIES SUBEX TECHNOLOGIES LIMITED For the year ended March 31, 2013, Subex Technologies Limited earned an income of B 2,323.68 Lakhs, on a consolidated basis, as against B 4,833.43 Lakhs last year and a net loss of B 1,603.37 Lakhs as against a net proﬁt of B 49.30 Lakhs last year. Pursuant to the demerger in 2007-08, Subex Technologies Inc became a direct subsidiary of Subex Technologies Limited. SUBEX (UK) LIMITED For the year ended March 31, 2013, the consolidated income of Subex (UK) Limited was B 32, 152.02 Lakhs as against B 38,095.30 Lakhs last year, and the net proﬁt was B 584.37 Lakhs as against a net proﬁt of B 3,357.06 Lakhs last year. Annual Report 2012-13 23 Subex (Asia Paciﬁc) Pte Limited and Subex Inc are direct subsidiaries of Subex (UK) Limited. SUBEX AMERICAS INC. For the year ended March 31, 2013, the consolidated income of Subex Americas Inc was B 2,728.40 Lakhs as against B 9,119.03 Lakhs last year, and net loss was B 1,516.72 Lakhs as against B 462.03 Lakhs last year. Subex Azure Holding Inc., is a wholly owned subsidiary of Subex Americas Inc. There were no transactions during the year under review. COMPLIANCE UNDER SECTION 212 The Ministry of Corporate Aﬀairs (MCA) has vide General Circular No: 2/2011 dated February 8, 2011 and General Circular No: 3/2011 dated February 21, 2011 granted a general exemption stating that the provisions of section 212 of the Companies Act, 1956 in relation to subsidiaries’ accounts shall not apply subject to compliance of certain conditions. In accordance with the said circulars, the Board of Directors of the Company has in its meeting held on May 21, 2013, given the consent for not attaching the balance sheet of the subsidiaries concerned alongwith the balance sheet of the Company. However, ﬁnancial information of the subsidiary companies, as required to be provided by the said circulars, are disclosed in Note 39 to the Consolidated Financial Statements. The Company will make available the annual accounts of the subsidiary companies and the related information to any investor of the Company who may be interested in obtaining the same. The annual accounts of the subsidiary companies will also be kept open for inspection by any investor at the Registered Oﬃce of the Company. The Consolidated Financial Statements presented by the Company include ﬁnancial results of its subsidiary companies. FOREIGN CURRENCY CONVERTIBLE BONDS (FCCBs) As on March 31, 2013, the Company had outstanding FCCBs aggregating to US$ 1,000,000 under its US$ 180,000,000 2% Convertible Unsecured Bonds (“FCCBs I”) and US$ 1,400,000 under its US$ 98,700,000 5% Convertible Unsecured Bonds (“FCCBs II”). In July 2012, pursuant to the exchange oﬀer of FCCBs I and FCCBs II, the Company issued US$ 127,721,000 5.70% secured convertible bonds with a maturity period due July 2017 (“FCCBs III”). Principal amount of US$ 36,321,000 were mandatorily converted and US$ 3,250,000 million out of FCCBs III were subsequently converted into equity shares. Pursuant to the mandatory and subsequent conversions, US$ 88,150,000 is currently outstanding under FCCBs III. The maturity period of the un-exchanged FCCBs I worth US$ 1,000,000 and the un-exchanged FCCBs II worth US$ 1,400,000 was extended to March 2017. EMPLOYEE STOCK OPTIONS SCHEMES Your Company has introduced various Stock Option plans for its employees. Details of these, including grants to Directors and Senior Management issued 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 Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, the Company has discontinued the scheme. EMPLOYEE STOCK OPTION PLAN-2000 (ESOP-II) During 1999-2000, your Company established the Employee Stock Option Plan 2000, under which options have been allocated for grant to the employees of the Company and its subsidiaries. The Company has obtained in-principle approval for listing up to a maximum of 8,83,750 equity shares to be allotted pursuant to exercise of options granted under the scheme. This scheme has been formulated in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. In accordance with the scheme, a Compensation Committee has been 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 equity shares during the 15 trading days preceding the date of grant on the stock exchange where there is highest trading volume during this period. Unless otherwise resolved, the options granted vest over a period of 1 to 4 years and can be exercised over a period of 3 years from the date of vesting. During the year 2008-09, the Company amended the ESOP 2000 scheme by inclusion of provisions allowing employees to voluntarily surrender their vested/unvested options at any time during their employment with the Company. During the year 2011-12, the employees voluntarily surrendered 2,41,012 stock options under ESOP 2000 scheme. Also, the Company issued equivalent stock options to the aforesaid eligible employees under ESOP 2005 and ESOP 2008 scheme. The tenure for grant of stock options under ESOP 2000 scheme has expired and the Company is only administering the outstanding stock options issued under the scheme. 24 Subex Limited EMPLOYEE STOCK OPTION PLAN-2005 (ESOP-III) Under this scheme, an initial corpus of 5,00,000 options was created for grant to the eligible employees, with each option convertible into one fully paid-up equity share of B 10/-. This scheme has been formulated in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. The corpus of the scheme was further enhanced by 15,00,000 options during the ﬁnancial year 2007-08. The Company has obtained the requisite in-principle approvals from the stock exchanges for the purpose of listing of equity shares arising out of exercise of options granted under the scheme. The Compensation Committee grants options to the eligible employees in accordance with the provisions of the scheme. The options are granted at a price, which is not less than 85% of the average of the closing price of the equity shares during the 15 trading days preceding the date of grant on the stock exchange where there is highest trading volume during this period. Unless otherwise resolved, the options granted vest over a period of 1 to 4 years and can be exercised over a period of 3 years from the date of vesting. During the year 2008-09, the Company amended the ESOP 2005 scheme by inclusion of provisions allowing employees to voluntarily surrender their vested/unvested options at any time during their employment with the Company. During the year 2011-12, the employees voluntarily surrendered 9,64,969 stock options under ESOP 2005 scheme. Also, the company issued equivalent stock options to the aforesaid eligible employees under ESOP 2005 scheme. EMPLOYEE STOCK OPTION PLAN-2008 (ESOP-IV) During 2008-09, your Company instituted the Employee Stock Option Plan-2008 vide approval of shareholders through the postal ballot mechanism. A corpus of 20,00,000 options has been created for grant to the eligible employees under the scheme. The Scheme has been formulated in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. The Company has obtained the requisite in-principle approvals from the stock exchanges for the purpose of listing of equity shares arising out of exercise of options granted under the scheme. The Compensation Committee grants options to the eligible employees in accordance with the provisions of the scheme. The options are granted at a price, which is not less than 85% of the average of the closing price of the equity shares during the 15 trading days preceding the date of grant on the stock exchange where there is highest trading volume during this period. Unless otherwise resolved, 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. During the year 2011-12, the employees voluntarily surrendered 10,19,583 stock options under ESOP 2008 scheme. Also, the company issued equivalent stock options to the aforesaid eligible employees under ESOP 2008 scheme. Additional information as at March 31, 2013 required to be disclosed as per Securities and Exchange Board of India (Employee Stock Option Scheme and Stock Purchase Scheme) Guidelines, 1999 is given as Annexure I to this report. CORPORATE GOVERNANCE Your Company strongly believes that the spirit of Corporate Governance goes beyond the statutory form. Sound Corporate Governance is a key driver of sustainable corporate growth and long-term value creation for the stakeholders and protection of their interests. Your Company endeavors to meet the growing aspirations of all stakeholders including shareholders, employees and customers. Your Company is committed to maintaining the highest level of transparency, accountability and equity its operations. Your Company always strives to follow the path of good governance through a broad framework of various processes. in Your Company has complied with all the requirements as per Clause 49 of the listing agreement of the Stock Exchanges, as amended from time to time. The Auditor’s certiﬁcate on compliance with Clause 49 is included in the section on Corporate Governance in this Annual Report. In addition, your Company has documented its internal policies in line with the Corporate Governance guidelines. The Management Discussion & Analysis on the ﬁnancial position of the Company has been provided as a part of this report. DIRECTORS As per Article 87 of the Articles of Association of the Company read with section 255 and 256 of the Companies Act, 1956, atleast two-third of the Directors shall be subject to retirement by rotation. One-third of such Directors must retire from oﬃce at each Annual General Meeting of the shareholders and a retiring director is eligible for re-election. Accordingly, Mr. Anil Singhvi retires by rotation and being eligible, has oﬀered to be re-appointed at the ensuing Annual General Meeting. Annual Report 2012-13 25 On September 27, 2012, Mr. Subash Menon resigned from the oﬃce of Managing Director & CEO of the Company and he continues on the Board as a Non-Executive Director. Mr. Surjeet Singh resigned as Nominee Director from the Board of the Company on October 5, 2012. Subsequently, at the Board of Directors meeting held on October 5, 2012, Mr. Surjeet Singh was appointed as an Additional Director and as Managing Director & CEO for a period of one year from October 5, 2012 to October 4, 2013. In accordance with the provisions of sections 198, 269, 309 read with Schedule XIII and other applicable provisions of the Companies Act, 1956, the said appointment as Managing Director is being placed before the Members for their approval at the ensuing Annual General Meeting. Further, pursuant to the provisions of section 260 of the Companies Act, 1956, Mr. Surjeet Singh holds oﬃce as an Additional Director upto the date of the ensuing Annual General Meeting. A separate notice under section 257 of the Companies Act, 1956 has been received from a Member signifying the intention to propose Mr. Surjeet Singh as a candidate for the oﬃce of Director and accordingly resolutions for his appointment is being placed before the members at the ensuing Annual General Meeting. At the Board Meeting on October 5, 2012, Mr. Sudeesh Yezuvath ceased to be the Chief Operating Oﬃcer (COO) of the Company and consequent to which he vacated his oﬃce as the director also. AUDIT COMMITTEE The Audit Committee presently has 3 Directors as its members viz. Mr. Anil Singhvi, Chairman, Mr. Sanjeev Aga and Mr. Surjeet Singh. The role, terms of reference, the authority and power of the Audit Committee are in conformity with the requirements of section 292A of the Companies Act, 1956 and Clause 49 of the Listing Agreement. Further details of the Audit Committee have been provided in the report on Corporate Governance forming part of this Annual Report. AUDITORS M/s. Deloitte Haskins & Sells (ICAI registration number 008072S), the Statutory Auditors of the Company retire at the ensuing Annual General Meeting. The Statutory Auditors have communicated their willingness to accept oﬃce, if re-appointed and have conﬁrmed that they are eligible as per section 224(1B) to be appointed as statutory auditors of the Company and are not disqualiﬁed to hold oﬃce as such in terms of section 226 of the Companies Act, 1956. FIXED DEPOSITS Your Company has not accepted any deposits from the public. PARTICULARS OF EMPLOYEES The particulars of employees required under Section 217(2A) of the Companies Act, 1956 and Companies (Particulars of Employees) Rules, 1975 as amended by Companies (Particulars of Employees) Amendment Rules, 2011, read with General Circular No. 23/2011 dated May 3, 2011 issued by MCA, are given at Annexure II appended hereto and forming part of this report. In terms of Section 219(1)(b) (iv) of the Companies Act, 1956, the report and accounts are being sent to the shareholders excluding the aforesaid annexure. Any shareholder interested in obtaining a copy of the said annexure may write to the Global Head- Finance, Legal & Company Secretary at the Registered Oﬃce of the Company. INFORMATION UNDER SECTION 217(1) (e) OF THE COMPANIES ACT, 1956 READ WITH COMPANIES (DISCLOSURE 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. Currently 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 a strong R&D Division responsible for developing technologies for its products in the telecom domain. The Company holds several patents for its technological innovations. 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. 26 Subex Limited FOREIGN EXCHANGE EARNINGS AND OUTGO a) 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 2012-13, total foreign exchange inﬂow and outﬂow is as follows: i) ii) Foreign Exchange earnings B 15,195.31 Lakhs (Previous Year B 29,720.70 Lakhs) Foreign Exchange outgo is as below B 2,760.06 Lakhs (Previous Year B 2,222.95 Lakhs) CORPORATE SOCIAL RESPONSIBILITY - SUBEX CHARITABLE TRUST Subex Charitable Trust extends the outlook of Subex as a corporate entity into community service. The trust has been set up to provide for welfare activities for under privileged and the needy in the society. The trust is managed by Trustees elected amongst the employees of the Company. During the year, the Trust has provided active support for education of economically challenged meritorious students, ﬁnancial assistance to old age homes, orphanages and to individuals who needed medical help. A gist of activities undertaken by the Trust has been provided as a separate section in this Annual Report. HUMAN RESOURCE MANAGEMENT Working environment and organization’s culture plays a key role in attracting right talents into any organization and retaining them. Your Company continued with it’s focused eﬀorts in maintaining such a great working environment and organization culture that was built and developed over a period of time, since it’s inception. All senior members of your Company worked really hard and supported Human Resource function in maintaining this. During the year ended March 31, 2013, your Company surged ahead on a lot of the initiatives that were launched in the previous year. Continued infusion of fresh talent and ongoing development and up-skilling of existing talent were the critical focus areas. Online Learning Management System called the Subex Academy, that was launched in the previous year has been completely rolled out. Your Company also reﬁned the Subexians (Employee) engagement programme, which is an extremely critical (Employee) retention tool. DIRECTORS’ RESPONSIBILITY STATEMENT In accordance with the provision of Section 217(2AA) of the Companies Act, 1956, the Board of Directors aﬃrms: that in the preparation of the annual accounts for the year ended March 31, 2013, the applicable accounting standards have been followed. Pursuant to, and in accordance with, the approval of the Members and the Hon’ble High Court of Karnataka to a proposal for reduction of securities premium and capital reserve obtained during 2009-10, the Company has utilised the Business Restructuring Reserve for adjustment of certain expenses/impairments. Such adjustment being at variance with applicable accounting standards, necessary disclosure has been made in the Notes to the accounts in Standalone and Consolidated Financial Statements. that the accounting policies have been selected and applied consistently and it has made judgments and estimates that 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, 2013 and of the loss of the Company for the year ended on that date. that proper and suﬃcient care has been taken for the maintenance of adequate accounting records in accordance with the provision of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities. b) c) d) that the accounts for the year ended March 31, 2013 have been prepared on a going concern basis. APPRECIATION/ACKNOWLEDGEMENTS We thank our clients, vendors, investors and bankers for their 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 SEZ authorities, 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. Karthikeyan Muthuswamy Director Place : Mumbai, India July 9, 2013 For Subex Limited Surjeet Singh Managing Director & CEO California, USA July 11, 2013 Annual Report 2012-13 27 Annexure I Additional Information as at March 31, 2013 as per Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 ESOP 2000 ESOP 2005 ESOP 2008 11,43,586 1,24,100 As mentioned earlier in the report 8,64,489 12,439 - - - 46,95,332 3,49,039 None 2,291 10,000 - - 7,30,806 - As mentioned earlier in the report 4,57,293 - - - - 16,02,731 2,88,483 None 273 - - - 7,352 None 623 - - - B (2.56) B (2.56) B (2.56) Sl. No Particulars 1. Net options granted as on March 31, 2013 Options granted during the year 2. Pricing formula 3. Options vested but not exercised as on March 31, 2013 4. Options exercised as on March 31, 2013 Options exercised during the year 5. Money realized by exercise of options during the year 6. The total number of shares arising as a result of exercise of options during the year ended March 31, 2013 2,42,373 _ As mentioned earlier in the report 4,670 2,37,703 - - - 7. Options lapsed/cancelled/ surrendered as on March 31, 2013 9,94,199 Options lapsed/cancelled/ surrendered during the year 8. Variation of terms of options 9. No. of employees covered 10. Employee wise details of options granted during the year under review to: (i) Senior managerial personnel Mr. Ganesh K V (ii) other employee receiving a grant in the year of option amounting to 5% or more of options granted during that year (iii) identiﬁed employees who were granted option, during the year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant; 11. Diluted Earnings Per Share (EPS) pursuant to issue of shares on exercise of option calculated in accordance with Accounting Standard (AS) 20 ‘Earnings per share’ 28 Subex Limited Sl. No Particulars 12. Where the Company has calculated the employee compensa tion 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 recog nized if it had used the fair value of the options. ESOP 2000 ESOP 2008 Losses would have been higher by B 25.24 Lakhs ESOP 2005 The impact of this diﬀerence on proﬁts and on EPS of the Company is: Basic EPS would have been lower by 0.02. There is no impact on the diluted EPS. 13. 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. Weighted- average exercise price is B 82.63 Weighted- average exercise price is B 34.04 Weighted- average exercise price is B 28.79 14. Description of the method used during the year to estimate the fair values of options, including the following weighted-average information : Black Scholes method of valuation i. risk-free interest rate ii. expected life iii. expected volatility iv. expected dividends v. market price on grant date 8.00% 3 years 64.85% 0% B 15.44 Karthikeyan Muthuswamy Director Mumbai, India July 9, 2013 For Subex Limited Surjeet Singh Managing Director & CEO California, USA July 11, 2013 Annual Report 2012-13 29 Report On Corporate Governance I. COMPANY’S PHILOSOPHY ON CODE OF CORPORATE GOVERNANCE Corporate Governance is about commitment to values and ethical business conduct. It is about how an organization is managed. Therefore situation, performance, ownership and governance of the Company are equally important as regards to the structure, activities and policies of the organization. Consequently, the organization is able to attract investors, and enhance the trust and conﬁdence of the stakeholders. Subex Limited’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 respects minority rights in its business decisions. The Company’s Corporate Governance philosophy is based on the following principles: (cid:102) Satisfy the spirit of the law and not just the letter of the law (cid:102) Be transparent and maintain high degree of disclosure levels (cid:102) Communicate externally, in a truthful manner, about how the Company is run internally (cid:102) Comply with the laws in all the countries in which the Company operates Subex is committed to good Corporate Governance practices. Consistent with this commitment, Subex seeks to achieve a high level of responsibility and accountability in its internal systems and policies. Subex 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 importance of its decisions to all its participants viz., customers, employees, investors, regulatory bodies etc. Subex 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) in its meeting held on January 25, 2000 and amendments made thereto, from time to time. II. BOARD OF DIRECTORS As on March 31, 2013, the Board of Directors of Subex Limited comprises 5 Directors out of which 1 is an Executive Director, 1 is a Non-Executive Director, 2 are Independent Directors and 1 is a Nominee Director. At the Board Meeting held on September 27, 2012 Mr. Subash Menon resigned from the position of Managing Director and Chief Executive Oﬃcer of the Company with immediate eﬀect. Mr. Subash Menon continues as a Non-Executive Director of the Company. At the Board Meeting held on October 5, 2012 the Board accepted the resignation of Mr. Surjeet Singh as the Nominee Director and he was appointed as Managing Director and CEO of the Company with immediate eﬀect. Mr. Sudeesh Yezhuvath ceased to be the Chief Operating Oﬃcer and Wholetime Director of the Company with eﬀect from October 5, 2012. Details of the composition of the Board of Directors and their attendance and other particulars are given below. These details reﬂect the position as at March 31, 2013 and as such do not include details of changes in Directorships after the end of the ﬁnancial year. A. Composition and Category of Directors as on March 31, 2013 Category Independent Directors Executive Directors Non-Executive Directors Nominee Directors Total No. of Directors 2 1 1 1 5 % 40 20 20 20 100 30 Subex Limited B. Attendance of Directors at the Board Meetings and the Last Annual General Meeting and Details about Directorships and Membership in Committees as on March 31, 2013 Director Position No. of Board Meetings Held No. of Board Meetings Attended Last AGM Attendance Mr. Surjeet Singh# Mr. Anil Singhvi Mr. Sanjeev Aga Mr. Karthikeyan Muthuswamy Mr. Subash Menon ^ Mr. Sudeesh Yezhuvath* Managing Director & CEO Independent Director Independent Director Nominee Director Non-Executive Director Chief Operating Oﬃcer & Wholetime Director 5 7 9 5 9 7 (cid:99) Excluding private limited companies & overseas companies 5 6 7 5 6 6 Yes No No Yes No Yes No. of Directorships in Other Companies (cid:99) 1 No. of Committees in Which the Director is Chairman (cid:143) - No. of Committees in which the Director is a Member (cid:143) 2 7 3 1 - 2 1 - - 4 4 2 - NA* NA* NA* (cid:143) Includes only Audit Committee and Shareholder’s Grievance Committee. Memberships in Committees of Subex Limited are included # Mr. Surjeet Singh was appointed as Managing Director & CEO of the Company with eﬀect from October 5, 2012 ^ Mr. Subash Menon resigned from the position of Managing Director & CEO of the Company with eﬀect from September 27, 2012 * Mr. Sudeesh Yezhuvath ceased to be the Chief Operating Oﬃcer and Wholetime Director of the Company with eﬀect from October 5, 2012 Mr. Surjeet Singh, member of the Audit Committee was present at the Annual General Meeting to answer the queries of the shareholders. There were no queries from the shareholders during the meeting. C. Number and Dates of Board Meetings 9 (Nine) Board Meetings were held during the ﬁnancial year 2012-13. The dates on which meetings were held are as follows: D. Brief Details of Directors Seeking Appointment / Re-appointment: Mr. Anil Sinhgvi 1. May 23, 2012 June 12, 2012 2. June 13, 2012 3. 4. July 5, 2012 5. August 9, 2012 6. September 27, 2012 7. October 5, 2012 8. November 8, 2012 9. February 7, 2013 Anil Singhvi is the Chairman of Ican Investments Advisors Pvt Ltd. Prior to establishing Ican Investments, he was Advisor to Reliance ADA Group for about 2 years. He has over 30 years of experience in Corporate sector, out of which 22 years were spent with Ambuja Cements Ltd, where he rose from Manager to Managing Director & CEO. A Chartered Accountant, Anil Singhvi played a deﬁning role in making of Ambuja Cements. He has conceptualized and advised merger of Enam, one of the largest investment banks in India, with Axis Bank, a Annual Report 2012-13 31 deal involving around US$ 500 million. He is on the Board of various companies, some of which are Hindustan Construction Co. Ltd, HCC Infrastructure Company Ltd, Camlin, Mastek Limited, Future Capital, IDFC Securities Ltd and Foundation for Liberal and Management Education (FLAME). As on the date of this report, Mr. Anil Singhvi holds 60,000 equity shares of the Company. Mr. Surjeet Singh improvements including signiﬁcant Mr. Surjeet Singh is a seasoned management professional and business leader with over two decades of multi-industry global experience in leading Finance, Corporate Development, Business Planning and Global operations functions. He has a successful corporate and entrepreneurial track record of building organizations and fostering collaboration in large and culturally diverse cross functional teams. He was till recently the Global Chief Financial oﬃcer of Patni Computer Systems where he played key role in shaping in business transformation operating metrics and processes, structuring large platform deals with fortune 500 customers, seamless management transitions, upholding highest standards of ﬁnancial and corporate governance. He was instrumental in helping realize maximum shareholder value with successful exit of majority shareholders at Patni. Prior to this, Mr. Surjeet Singh was part of founding team of Cymbal Corporation, a mid-sized telecom BSS systems integration boutique out of silicon valley which was acquired by Patni in 2004 for US$ 68M, which at the time was one of the largest cross border services transaction by an Indian company. In early part of his career, Mr. Surjeet Singh held various ﬁnance and operations roles at Ranbaxy its - a global multinational pharmaceutical company during internationalization phase in the 90’s. Mr. Surjeet Singh is a fellow of the Institute of Costs and Works Accountants, India, Certiﬁed Public Accountant from AICPA, USA. He holds a B.S. in Finance from the University of Pune and is a graduate of Advanced Management Program from Harvard Business School. As on the date of this report, Mr. Surjeet Singh does not hold any equity shares of the Company. III. AUDIT COMMITTEE A. Terms of Reference The Audit Committee has, inter alia, the following mandate: (cid:102) Overseeing the Company’s financial reporting process and disclosure of its financial information to ensure that the financial statements are correct, sufficient and credible; (cid:102) Recommendation of appointment and removal of external auditor, fixation of audit fee and also approval for payment for any other services; 32 Subex Limited (cid:102) Reviewing, with the management, the quarterly financial statements before submission to the Board for approval; (cid:102) Review of annual financial statements before submission to the Board; (cid:102) Review of adequacy of internal control systems; (cid:102) Review of adequacy of internal audit function, reporting structure coverage, frequency of internal audit, and findings of any internal investigations by the internal auditors; (cid:102) Discussion with statutory auditors before the audit commences, about the nature and scope of audit as well as post-audit discussion to ascertain any area of concern; (cid:102) Review of the Company’s financial, risk management policies and Whistle Blower mechanism. 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 with the Stock Exchanges on which Subex is listed. All members of the Audit Committee are ﬁnancially literate and have related ﬁnancial management expertise. B. Composition of Audit Committee as at March 31, 2013 Composition Mr. Anil Singhvi (Chairman) Mr. Sanjeev Aga Mr. Surjeet Singh Category Independent Director Independent Director Managing Director and CEO At the Board Meeting held on August 9, 2012, Mr. Subash Menon stepped down as a member of the Committee and Mr. Surjeet Singh, was inducted as a member of the Audit Committee. Mr. Anil Singhvi was appointed as the Chairman of the Audit Committee on May 18, 2012. Mr. Vinay M A resigned as the Secretary of the Audit Committee on November 30, 2012. Pursuant to the above resignation, Mr. Ganesh K. V. Global Head - Finance, Legal and Company Secretary was appointed as the Secretary of the Audit Committee with eﬀect from November 30, 2012. C. Meetings and Attendance during the Year During the ﬁnancial year 2012-13, four Audit Committee meetings were held on May 22, 2012, August 9, 2012, November 8, 2012, and February 7, 2013. The audited ﬁnancial results for the ﬁnancial year ended March 31, 2013 were taken on record at the meeting held on May 21, 2013. The quarterly results for the quarters April-June 2012, July-September 2012 and October-December 2012 were taken on record on August 9, 2012, November 8, 2012, and February 7, 2013 respectively. D. Attendance of Committee Members at the Audit Committee Meetings Held During the Financial Year 2012-13: @ Mr. Surjeet Singh was appointed as Managing Director & CEO of the Company with effect from October 5, 2012 Member Mr. Anil Singhvi Mr. Sanjeev Aga Mr. Surjeet Singh Mr. Subash Menon * No. of Audit Committee Meetings Held 4 4 3 1 No. of Audit Committee Meetings Attended 4 4 3 1 * Mr. Subash Menon stepped down as the member of the committee on August 9, 2012. Also he resigned from the position of Managing Director & CEO of the Company with effect from September 27, 2012 IV. REMUNERATION COMMITTEE A. Composition of the Committee Composition Mr. Anil Singhvi (Chairman) Mr. Sanjeev Aga Mr. Surjeet Singh Mr. Karthikeyan Muthuswamy Category Independent Director Independent Director Managing Director and CEO Nominee Director The Committee considers the performance of the Company as well as general industry trends while ﬁxing the remuneration of Executive Directors. The existing Remuneration Committee was re-named as Appointment and Remuneration Committee at the meeting held on September 27, 2012. It was also decided that the said Committee have as additional terms of reference, the recommendation of appointment of Directors, including Managing Director and Wholetime Director by whatever name called by the Company. At its meeting held on February 7, 2013, the Committee approved the terms and conditions of the remuneration of Mr. Surjeet Singh, which are being placed before the Members for their approval at the ensuing Annual General Meeting. B. Details of Remuneration of Directors Name Mr. Surjeet Singh@ Mr. Anil Singhvi# Mr. Sanjeev Aga$ Mr Subash Menon* Mr Sudeesh Yezhuvath+ Salary 6.64 - - 107.69 108.39 Commission - - - - - D in Lakhs Total 6.64 - - 107.69 108.39 In view of the losses incurred by the Company during the year ended March 31, 2013, the excess of the managerial remuneration paid to the directors over the limits prescribed under Schedule XIII of the Companies Act, 1956 has been treated as monies due from the Directors, being held by them in trust for the Company, and is included under ‘Short-term loans and advances’ amounting to B 123.80 Lakhs. # Mr. Anil Singhvi was appointed as an Independent Director of the Company with effect from April 11, 2011 $ Mr. Sanjeev Aga was appointed as an Independent Director of the Company with effect from May 17, 2011 * Mr. Subash Menon resigned from the position of Managing Director & CEO of the Company with effect from September 27, 2012 and he continues on the Board as a Non–Executive Director + Mr. Sudeesh Yezhuvath ceased to be the Chief Operating Officer and the Wholetime Director of the Company with effect from October 5, 2012 C. Details of Shareholding of Non-Executive Directors: In terms of Clause 49(IV)(E)(iv) of the Listing Agreement, the details of shares held by Non- Executive Directors are as under: Name Mr. Anil Singhvi Mr. Sanjeev Aga Mr. Subhash Menon No. of Shares Held as at March 31, 2013 60,000 NIL 25,80,601 The Non-Executive Independent Directors are paid sitting fees of B 20,000 per meeting for attendance in the Audit Committee Meetings and B 10,000 per meeting for attendance at the Board Meetings. The Appointment and Remuneration Committee determines and recommends to the Board, the compensation payable to the Executive Directors. All Board level compensation is approved by the shareholders, where necessary, and is separately disclosed in the ﬁnancial statements. The compensation, however, is within the parameters set by the provisions of the Companies Act, 1956. D. Attendance of Committee Members at the Remuneration Committee Meetings Held During the Financial Year 2012-13: Member Mr. Anil Singhvi Mr. Sanjeev Aga Mr. Surjeet Singh Mr. Karthikeyan Muthuswamy No. of Remuneration Committee Meetings Held 2 2 2 2 No. of Remuneration Committee Meetings Attended 2 2 2 2 Mr. Balaji Bhat resigned as a Director of the Company with eﬀect from May 18, 2012. Annual Report 2012-13 33 V. SHARE TRANSFER COMMITTEE A. Composition of the Committee Composition Mr. Subash Menon (Chairman) Mr. Surjeet Singh Mr. Karthikeyan Muthuswamy Mr. Sudeesh Yezhuvath* Category Non Executive Director Managing Director & CEO Nominee Director Chief Operating Oﬃcer & Wholetime Director At the Board Meeting held on August 9, 2012, Mr. Surjeet Singh and Mr. Karthikeyan Muthuswamy were inducted as the members of the Committee. * Mr. Sudeesh Yezhuvath ceased to be part of the Share Transfer Committee with effect from October 5, 2012. B. Meetings during the Year The Company holds Share Transfer Committee Meetings on a periodical basis, as may be required, for approving, inter alia, the transfers/transmissions/rematerialisation of equity shares. The Company has appointed M/s. Canbank Computer Services Limited, a SEBI registered transfer agent, as its Share Transfer Agent with eﬀect from November 6, 2001. There were no share transfers during the ﬁnancial year 2012-13. Hence, there were no meetings of the Share Transfer Committee during the year under review. With a view to expedite the transfer process in the interest of investors, SEBI vide its circular no. CIR/MIRSD/8/2012 dated July 5, 2012 has reduced the time-line for registering the transfer of shares to 15 days with eﬀect from October 1, 2012. In line with the aforesaid circular, the Company will ensure that the share transfers are eﬀected within 15 days of the receipt of request for transfer. VI. INVESTOR GRIEVANCE COMMITTEE A. Composition of the Committee Composition Mr. Sanjeev Aga (Chairman) Mr. Sudeesh Yezhuvath * Mr. Surjeet Singh Category Independent Director Chief Operating Oﬃcer & Wholetime Director Managing Director & CEO Mr. Karthikeyan Muthuswamy Nominee Director At the Board Meeting held on May 23, 2012, Mr. Sanjeev Aga, Independent Director was appointed as the Chairman and member of the Investor Grievance Committee. At the Board Meeting held on August 9, 2012, Mr. Surjeet Singh and Mr. Karthikeyan Muthuswamy, were inducted as the members of the Committee. Mr. Ganesh K .V., Global Head – Finance, Legal and Company Secretary is the Secretary of the Committee with eﬀect from November 30, 2012. 34 Subex Limited is responsible for addressing the The Committee investor complaints and grievances. The Committee meets on a periodic basis to address the investor complaints like transfer of shares, non-receipt of balance sheet, non-receipt of declared dividends etc. Details of grievances of the investors are provided in the “Shareholders’ Information” section of this Annual Report. * Mr. Sudeesh Yezhuvath ceased to be part of the Investor Grievance Committee with effect from October 5, 2012. VII. ESOP COMMITTEE (Compensation Committee) The Company has instituted Employee Stock Option Schemes in line with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. The Committee grants and administers options under the stock options schemes to eligible employees. A. Composition of the Committee Composition Mr. Sanjeev Aga ( Chairman) Mr. Anil Singhvi Mr. Karthikeyan Muthuswamy Category Independent Director Independent Director Nominee Director At the Board Meeting held on May 23, 2012, Mr. Sanjeev Aga, Independent Director was appointed as the Chairman and member of the ESOP Committee and Mr. Anil Singhvi, Independent Director was appointed as a member of the committee. At the Board Meeting held on August 9, 2012, Mr. Subash Menon stepped down as a member of the Committee and Mr. Karthikeyan Muthuswamy, was inducted as a member of the Committee. The Committee meets on a periodic basis to administer the ESOP schemes of the Company. VIII. GENERAL BODY MEETINGS A. Location and Time of the Last Three Annual General Meeting (AGM) Date of AGM Year 2009-10 September 13, 2010 2010-11 2011-12 Venue Registered oﬃce July 27, 2011 Registered oﬃce September 28, 2012 Registered oﬃce Time 3:00 P M 12:00 Noon 12:30 PM B. Location and Time of the Last Three Extraordinary General Meeting (EGM) Year 2011-12 2012-13 2012-13 Date of EGM December 28, 2011 June 28, 2012 August 17, 2012 Venue Registered oﬃce Registered oﬃce Registered oﬃce Time 11:30 A M 11:30 A M 11:30 A M No special resolution was passed at the Annual General Meeting held on September 28, 2012. IX. DISCLOSURES A. There are no 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. Transactions with the related parties are disclosed in Note 31 to the standalone ﬁnancial statements and Note 30 to the consolidated ﬁnancial statements in the Annual Report. B. A proposal for reduction and utilization of Securities Premium and Capital Reserve under the provisions of section 78 read with section 100 to 104 of the Companies Act, 1956 was approved pursuant to the resolution passed by the Board of Directors on February 8, 2010 and special resolution passed by the Members at the Extraordinary General Meeting held on March 4, 2010. The reduction, as aforesaid, envisages transfer of certain amounts from the Securities premium and Capital Reserves as on April 1, 2009 and thereafter, to a Business Restructuring Reserve (BRR) to be utilized from or after April 1, 2009 for certain Permitted Utilizations as mentioned in the explanatory statement to the notice of the Extraordinary General Meeting held on March 4, 2010. The petition seeking approval of the reduction was approved by the Hon’ble High Court of Karnataka vide its order dated April 21, 2010. The copy of the said order and the minute conﬁrming the reduction was registered by the Registrar of Companies, Karnataka at Bangalore vide its certiﬁcate dated May 11, 2010. In accordance with the Proposal, the BRR has been utilised for adjustment of certain expenses/impairments. Such adjustment being at variance with applicable accounting standards, necessary disclosure has been made in Note 25 to the accounts in standalone and Note 24 to the consolidated ﬁnancial statements. C. The Company has a Risk Management Policy in place to manage risks inherent in various aspects of its business. D. E. The Company has obtained a certiﬁcate from the CEO/CFO as required by Clause 49 (V) of the Listing Agreement. In compliance with Clause 49 (1) (D) of the Listing Agreement, the Company has adopted a Code of Conduct (the ‘Code’). This Code is applicable to the Members of the Board, Senior Management Personnel and all employees of the Company and Subsidiaries. All the members of the Board and the Senior Management Personnel have aﬃrmed compliance to the Code, as at March 31, 2013. A declaration to this eﬀect, signed by the Managing Director & CEO is provided in the CEO and CFO certiﬁcation section of the Annual Report. F. In compliance with Clause 47 (c) of the Listing Agreement, the Company has obtained certiﬁcates from a Practising Company Secretary. The same were ﬁled with the Stock Exchanges within the stipulated period. G. 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 three years. H. The Company has complied with the listing conditions laid down in the Listing agreement of the Stock Exchanges where the equity shares of the Company are listed. 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 Financial Express The complete (English) and Vijay Karnataka (Kannada). ﬁnancial statements are posted on the Company’s website www.subex.com. Subex 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. As part of the “Green Initiative in Corporate Governance”, the Ministry of Corporate Aﬀairs (MCA), Government of India, through its Circular Nos. 17/2011 and 18/2011, dated April 21, 2011 and April 29, 2011 respectively, has allowed companies to send oﬃcial documents to their shareholders electronically considering its legal validity under the Information Technology Act, 2000. Being a Company with strong focus on green initiatives, Subex proposes to send all shareholder communications such as the Notice of General Meetings, Audited Financial Statements, Directors’ Report, Auditors’ Report, etc., henceforth to shareholders in electronic form to the E-mail Id provided by them and made available to us by the Depositories. Members are requested to register their E-mail Id with their Depository Participant and inform them of any changes to the same from time to time. However, Members who prefer physical copy to be delivered may write to the Company at its registered oﬃce or send an E-mail to investorrelations@subex.com by providing their DP Id and Client Id as reference. B. Management’s Discussion and Analysis section has been separately dealt with in the Annual Report. XI. General shareholder information is provided in the “Shareholders’ Information” section of the Annual Report. Annual Report 2012-13 35 XII. Auditors’ Certiﬁcate with regard to compliance of conditions of Corporate Governance as per Clause 49 of the Listing Agreement entered into with the Stock Exchanges forms part of this Annual Report. XIII. Compliance with non-mandatory requirements of Clause 49 of the Listing Agreement Clause 49 states that the non-mandatory requirements provided therein 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. The Company has complied with the following non-mandatory requirements: A. The Board Presently the Company does not have a Chairman and as such disclosures on maintenance of oﬃce by a Non-Executive Chairman does not arise. The Company ensures that the persons appointed as Independent Directors have the requisite qualiﬁcations and experience which would be of use to the Company and which would enable them to contribute eﬀectively to the Company in their capacity as Independent Directors. B. Remuneration Committee D. Audit Qualiﬁcations The auditors have expressed an unqualiﬁed opinion on the accounts for the year under review. E. Whistle Blower Policy The Company has 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. The employees are informed of this policy through appropriate internal communications. None of the employees have been denied access to this facility. Karthikeyan Muthuswamy Director Surjeet Singh Managing Director & CEO For Subex Limited The Company has a Remuneration Committee. A detailed note on the Remuneration Committee has been provided earlier in the report. Mumbai, India July 9, 2013 California, USA July 11, 2013 C. Shareholders’ Rights investors regularly through The Company communicates with E-mails, telephone and face to face meetings investor conferences, earnings calls, company visits and on road shows. The Company publishes the quarterly ﬁnancial results in leading business newspaper(s) as well as on the Company’s website. like 36 Subex Limited 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 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, 2013. Place : Mumbai Date : May 21, 2013 For Subex Limited Surjeet Singh Managing Director & CEO AUDITORS’ CERTIFICATE ON CORPORATE GOVERNANCE To, The Members Of Subex Limited 1. We have examined the compliance of conditions of Corporate Governance by Subex Limited (“the Company”), for the year ended on March 31, 2013, 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 Corporate Governance. It is neither an audit nor an expression of opinion on the ﬁnancial statements of the Company. 3. In our opinion and to the best of our information and according to the explanations given to us and the representations made 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 except that the Chairman of the Audit Committee was not present at the Annual General Meeting to answer shareholders queries as required under sub clause II(A)(iv) of Clause 49. 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: July 11, 2013 For Deloitte Haskins & Sells, Chartered Accountants Registration No. 008072S Monisha Parikh Partner Membership No. 47840 Annual Report 2012-13 37 Management Discussion and Analysis Overview Subex Limited (“Subex” or “the Company”) has its Equity Shares listed on the National Stock Exchange of India Limited (NSE) and the Bombay Stock Exchange Limited (BSE). The Global Depositary Receipts (GDRs) of the Company are listed on the Professional Securities Market of the London Stock Exchange (LSE). The Company’s outstanding US$ 1,000,000 out of US$ 180,000,000 2% Convertible Unsecured Bonds are listed on the London Stock Exchange (LSE). The Company’s outstanding US$ 1,400,000 out of US$ 98,700,000 5% Convertible Unsecured Bonds and US$ 88,150,000 out of US$ 127,721,000 5.70% Secured Convertible Bonds are listed on the Singapore Exchange Securities Trading Limited (SGX). As a part of the terms and conditions of US$ 127,721,000 5.70% Secured Convertible Bonds, principal amount of US$ 36,321,000 out of US$ 127,721,000 5.70% were mandatorily converted into equity shares at the conversion price of B 22.79/-. Pursuant to the mandatory conversion and subsequent conversion of US$ 3,250,000 currently US$ 88,150,000 is outstanding under US$ 127,721,000 5.70% Secured Convertible Bonds. The management of Subex is committed to improving the levels of transparency and disclosure. Keeping this in mind, an attempt has been made to disclose hereunder, information about the Company, its business, operations, outlook, risks and ﬁnancial condition. The ﬁnancial statements of the Company have been prepared in compliance with the requirements of the Companies Act, 1956, and the Generally Accepted Accounting Principles (GAAP) in India or as per the Proposal approved by the Hon’ble High Court of judicature. The management of Subex accepts responsibility for the integrity and objectivity of these ﬁnancial statements, as well as for various estimates and judgments 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 proﬁt/loss for the year under review. 38 Subex Limited 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 Subex Limited is a leading global provider of Business Support Systems (BSS) that empowers Communications Service Providers (CSPs) to achieve competitive advantage through Business Optimisation - thereby enabling them to improve their operational eﬃciency to deliver enhanced service experiences to subscribers. The Company pioneered the concept of a Revenue Operations Center (ROC®) – a centralized approach that sustains proﬁtable growth and ﬁnancial health through coordinated operational control. Subex’s product portfolio powers the ROC and its best-in-class solutions such as revenue assurance, fraud management, credit risk management, partner settlement, route optimisation, cost management, asset assurance, data integrity management and capacity management. The Company has been declared global market leader in Business Optimisation for Communications Service Providers for ﬁve years in a row by analyst ﬁrm Analysys Mason and global market leader in Revenue Assurance and Fraud Management by Gartner. improves the revenues and proﬁts of Business Optimisation the Communications Service Providers through identiﬁcation and elimination of leakages in their revenue chain and includes fraud, revenue assurance, analytics, partner management, cost management and credit risk management. Subex conceptualizes and develops software products at its facilities in Bangalore and is focused on the telecom business segment. Subex has sales and support oﬃces in the United States, UK, UAE, India, Singapore and Australia. Commoditization of the industry is the largest threat that telecom operators around the world are facing. This, coupled with the need to roll out new products and services at regular intervals, is proving to be a tough combination for the telcos. Subex is well positioned to address the needs of the telecom carriers and help them to overcome these challenges. Our pioneering platform, the Revenue Operations Centre (ROC®) brings together business intelligence, domain knowledge and workﬂow support. ROC acts as the underpinning solution on which telcos can build their processes to achieve several objectives like, lower cost, higher margin, higher revenue etc. Further, Subex oﬀers Managed Services around its products which enable the operators to take advantage of our deep domain expertise to improve their operational eﬃciency. 2. OPPORTUNITIES AND THREATS Strategy Strategy is a critical aspect in any business. The key elements of our strategy are our oﬀering, positioning and customer acquisition and retention. We have always been at the leading edge of technology and have evolved new concepts to enable our customers to keep pace with changing scenarios. Using our products, we have structured several solutions that address and solve key problems faced by our customers. These solutions are oﬀered as a well integrated platform called ROC. In addition to this, we also oﬀer ROC in the form of Managed Services thereby ensuring that our customers gain signiﬁcantly from our solutions. This three pronged strategy has helped us to weather the storm over the past couple of years. 3. BUSINESS SEGMENTS AND INDUSTRY OUTLOOK 3.1 Business Segments Subex operates in two business segments – telecom software products and telecom software services. The former is the key focus area for the Company and is being 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. e g a t n e c r e P 100 90 80 70 60 50 40 30 20 10 0 Revenue Mix 79 83 75 87 90 93 64 36 55 54 45 46 64 67 36 33 25 21 17 13 10 7 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 Revenue from Products Revenue from Services Annual Report 2012-13 39 3.2 Telecom Software Products Solutions for Business Optimisation Subex oﬀers the Revenue Operations Centre (ROC®) Solution Suite for Business Optimisation, which has solutions for Revenue Assurance, Fraud Management, Credit Risk Management, Partner Settlement, Route Optimisation, Cost Management, Asset Assurance, Data Integrity Management and Capacity Management. Revenue Operations Centre (ROC) ROC functions as a ﬁnancial command and control centre for the telcos by, (cid:102) delivering real-time and actionable insights to effectively monitor and control the operational and tactical response (cid:102) providing an integrated platform that sits on top of all Subex BSS products or third party systems (cid:102) linking service provider operations directly to financial health ROC allows for the correlation of data across business systems, creating an end-to-end view of the customer based on products, services, revenues, margins, costs, and more. ROC also enables service providers to deﬁne key cross-domain metrics and KPIs, speciﬁc to their business strategy that can be monitored and tracked. Subex ROC® Portfolio ANALYTICS & INSIGHTS R Cware REVENUE PROTECTION COST MANAGEMENT CAPITAL MANAGEMENT ROC Revenue Assurance ROC Partner Settlement ROC Asset Assurance ROC Fraud Management ROC Route Optimisation ROC Data Integrity Management ROC Credit Risk Management ROC Cost Management ROC Capacity Management MANAGED SERVICES SaaS (SOFTWARE AS A SERVICE) CONSULTING SERVICES ROC Revenue Assurance ROC Revenue Assurance is the telecom industry’s ﬁrst revenue assurance solution that simpliﬁes RA. It tackles critical challenges across the entire revenue chain with ease. It oﬀers two path breaking concepts – RevenuePad and Zen which simpliﬁes and speeds up the process of revenue recovery. It helps customers address revenue assurance challenges individual service verticals: Wireless, Fixed, Cable MSPs, and MVNOs. It also helps them address revenue assurance issues across multiple functional areas, such as service fulﬁllment, usage integrity, retail billing, interconnect/ wholesale billing, and content settlement. inherent to This helps customers dramatically reduce the time required to implement or extend the coverage of their revenue assurance practices. Moreover, customers can easily reconﬁgure or remodel existing solution to accommodate changing business requirements. ROC Revenue Assurance is designed not only to detect potential revenue loss, but also to proactively assist an operator with its investigation, diagnosis and recovery of these revenues. ROC Revenue Assurance in both traditional circuit-switched and Next Generation packet-switched service environment. is highly eﬀective 40 Subex Limited ROC Revenue Assurance detects the symptoms of leakage, prevents incidents before they reach the customer bill, accelerates resolution times, and enables Revenue Assurance teams to align their successes with broader organizational goals - such as higher margins and customer satisfaction. ROC® Revenue Assurance’s Philosophy - ROC Revenue Assurance philosophy is to simplify RA. It achieves this through two industry- ﬁrst capabilities: RevenuePad and Zen. RevenuePad is the command center for Enterprise-wide RA that helps service providers to chart their RA roadmap, provides guidance on which assurance areas and metrics to cover, and oﬀer Visual aides to isolate problem areas. Zen is the industry’s ﬁrst Virtual RA Analyst, which directly gives root causes of leakages, improving analyst productivity by more than 90%. Not only this, ROC Revenue Assurance is mobile device enabled. So, executives can gauge RA health, analyze key metrics and make business critical decisions while on the move. ROC Fraud Management frauds, uncovering new is built to drive fraud prevention by ROC Fraud Management fraud patterns, eliminating known minimizing fraud run time, augmenting internal controls, and supporting continuous fraud management process improvement. ROC Fraud Management 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. is characterized by The solution its unique architecture that harnesses 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 potent case management tools. These tools provide relevant case data that are made easily accessible through a single window in a fast web-based GUI. ROC Fraud Management’s high ﬂexibility allows operators of diﬀerent sizes to customize rules to suit unique network and business requirements. A conﬁgurable workﬂow management tool integrates the investigation process with detection. ROC Fraud Management has the ability to detect fraud types in all telecom environments: Wireline (PSTN, ISP, VoIP), and Wireless (2G, 2.5G, 3G); and across all services: Postpaid, Payment, VAS, MMS and M-commerce. ROC Credit Risk Management The ROC Credit Risk Management solution empowers operators to continuously assess and mitigate risk presented by subscribers throughout their lifecycle. It tracks risk in near real-time during: (cid:102) Subscriber acquisitioning (cid:102) Ongoing usage (cid:102) Collections and recovery The solution provides the operator with a holistic view that helps its in understanding subscriber risk proﬁle and thereby aids management. Further, it can quickly, and seamlessly, accommodate new service information to provide an accurate picture of the exposure at any point in time. Allowing the operator to easily, and quickly, deﬁne various risk indicators and controls enables the solution to adapt 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. ROC Partner Settlement The ROC Partner Settlement solution allows operators to quickly interconnect, network and and accurately settle charges with content partners on a single, modular platform. In today’s ﬁercely competitive telecom landscape, dwindling voice margins and heavy investments in next generation service (NGN) enablers such as 3G, 4G have forced Communication Service Providers (CSPs) to look at new revenue generation opportunities while driving eﬃciencies to maintain margins from traditional services. ROC Partner Settlement gives service providers the freedom to experiment with new NGN service oﬀerings without having to worry about the scalability of its billing function. A ﬂexible solution ensures that diﬀerent packaging and pricing strategies around content can be easily modeled in the system. Complicated multi- partner revenue share contracts can be modeled and analyzed for proﬁtability before the actual contract is put into place. On the other hand, shrinking margins from voice services have highlighted the need for visibility of each deal’s impact on a service provider’s bottom line. It’s no longer just about billing accurately and managing agreements. Having an analytical view of the wholesale business is the need of the hour. ROC Partner Settlement helps you have a converged view of your wholesale business by managing the entire order to cash & procure to pay lifecycles. ROC Route Optimisation in service provider rates Telecom operators need to respond quickly to the abrupt and in order to remain volatile changes competitive. Subex’s ROC Route Optimisation solution answers this need, allowing subscribers to beneﬁt from competitively priced high quality service. Annual Report 2012-13 41 ROC Route Optimisation delivers value through the following capabilities: of failure and growth rates on sparing levels, and retirement strategies. (cid:102) Analyses various service parameters such as cost, traffic ROC Data Integrity Management forecast, network capacity and quality (cid:102) Uses analysis output to streamline service providers’ routing process (cid:102) Establishes competitive sales rates for services (cid:102) Executes the Automated Routing Management System to establish automatic switch connection and generate (cid:102) Man-Machine Language commands for switch update These capabilities round up our comprehensive route optimisation solution, helping you derive the best breakouts and cost routes. Our processes also enable communication service providers to establish focused eﬃciency-increasing task automation, thereby reducing data redundancies. ROC Cost Management ROC Cost Management is a state-of-the-art revenue management oﬀering from Subex, which helps service providers eﬀectively monitor and manage the cost of services. It enables operators to eﬃciently manage the process of identiﬁcation, collection and comparison of cost related data across multiple sources such as partner invoices, inventory, orders, and call detail records. It ensures the proﬁt margins and operational agility through reduction of service delivery costs. It is built on a highly integrated platform using components-based technology to provide striking performance, scalability, interoperability and reliability. The solution collects, collates and correlates the information from switches, inventory, billing, partner invoices, and ﬁnancial systems to provide deeper insights about the cost aspects in an easier to understand format through dashboards & reports. It enhances margins by optimizing leased circuit costs, reducing interconnect costs, assuring access costs and by automating invoice veriﬁcation process. ROC Asset Assurance Subex’s ROC Asset Assurance provides an operator a complete, holistic view into current assets, consumption and placement of the assets, with subsequent recommendations on what, where, when, and why to spend capex. ROC Asset Assurance is a solution which helps operators to manage telecommunications network assets across all dimensions of the asset life cycle, providing complex analytics that are not only descriptive (show current states, trending, etc.), but also predictive, to accurately predict asset exhaustion, procurement triggering, necessary asset warehouse levels, impacts Subex is the pioneer of Data Integrity Management, with over a decade of experience in data integrity transformations with the world’s leading service providers. ROC Data Integrity Management is the industry’s ﬁrst Data Integrity Management solution for improving the quality of data that drives key service provider processes, resulting in lower costs and higher service proﬁtability. ROC Data Integrity Management combines 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, ROC Data Integrity Management discovers devices and logical services in diverse network environments and reconciles this data with the 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. ROC Capacity Management Subex’s Capacity Management solution enables CSPs to prevent an availability or performance impact on business critical applications due to capacity issues. It provides the critical link between discovering the network ‘as-is’ and presenting the data in a normalized and It further engages analytics functions to appropriate format. provide actionable intelligence and also predict scenarios and their impact on network capacity which would help CSPs to plan capacity investments accordingly. It provides a holistic view of capacity through which it helps CSPs see threshold violations on key links and resolve capacity issues based on near real-time data. Managed Services Subex Managed Services experts are helping service providers around the world improve their BSS operations signiﬁcantly, not just in the long term, but also on a day-to-day basis. We complement existing operations just as much as transform their business. The following ﬁgure illustrates how we add value to service provider operations. Mobile Money Subex, a leader in fraud management is leveraging its ROC Fraud Management solution to prevent mobile money fraud. The solution’s real time in-line controls prevents fraud in real time. It validates registrations, ﬁnancial ﬂow, commissions and controls responses and transactions all in realtime, thus assuring the business process. Its powerful rule based engine monitors transactions for potential 42 Subex Limited fraud and misuse. It performs thorough customer checks and provides risk scorecards with the help of its Know Your Customer controls. Since mobile money transactions contain highly sensitive information, the solution provides complete security by way of data encryption, masking and role based access. ROCcloud Subex is recognized as the leader in the business optimisation space and has pioneered the concept of the ROC – the Revenue Operations Center – to enable proﬁtable growth through coordinated operational control. The same ROC is delivered as a service to suit the needs of small and medium telcos in the form of ROCcloud. Analytics ROCware Platform ROCware is our award-winning business response platform that harnesses the wealth of operational data you have, transforms it into actionable information, and then lets you act on it - all in near- real-time. Payment Channel Assurance Subex’s ROCware can be instrumental in providing the Payment Channel Assurance capability to Service Providers. It can help them align payment channels with billing and General Ledger. ROCware Propensity Proﬁler Subex’s ROCware Propensity Proﬁler helps CSPs predict behaviors and issues before they occur and improve metrics throughout the business. While most other solutions take a reactive approach to issues, ROCware Propensity Proﬁler not only identiﬁes the issue and its cause but also has the capability to predict what is going to happen next. It analyzes the huge volumes of operational data and converts them into actionable intelligence which can be then easily used by CSPs to make appropriate decisions. There is also a human element involved which is instrumental in obtaining actionable intelligence, and Subex’s experts in this ﬁeld provide unmatched value in getting the desired results. ROCware Propensity Proﬁler helps CSPs accurately predict metrics like propensity to churn, propensity to contact, propensity to be dissatisﬁed etc. ROCware Product Performance Management Subex’s ROCware Product Performance Management is the ideal solution for operators looking to monitor performance of newly launched products, and make informed decisions to improve uptake and customer experience. It helps operators detect or pre-empt rollout problems before they are visible to customers by constant monitoring of service delivery metrics. It also facilitates multi- dimensional product performance analysis down to market and subscriber levels for in-depth views into how the launch worked in speciﬁc regions/ clusters/ groups etc. Moreover it collects real time quote-to-cash data, compares these metrics to target service level agreements, and trends key performance indicators (KPIs) over time to provide the service provider complete visibility into the performance of service delivery functions and quickly isolate problem areas requiring attention. 3.3 Customer Base Subex today serves over 300 installations spread across 70 countries. This includes 29 of the top 50 telcos globally. A partial list of customers is given below: APAC – Aircel, Airtel, Bakrie Telecom, BSNL, CAT, Celcom, Dialog, Dtac, Etisalat, Hanoi Telecom, Hutchison Telecom, Idea, Indosat, Maxis, MTNL, Reliance Communications, Starhub, TelBru, Telkom, Telstra, TM, True, TATA, Vodafone, YTL Solutions Americas- Americatel, Bell Canada, Centennial, Cincinnati Bell Wireless, Claro, Comcast, Cricket, Etecsa, Frontier, Glo, Hawaiian Telcom, Grupo ICE, Level 3, Porta, Rogers, Sprint, Telesur, Telefonica, Telmex, Telus, T Mobile, Verizon EMEA- Airtel, Atalntique Telecom, Avea, Azercell, Bezeq International, BTC, BT, Cable & Wireless, Cell C, Colt, Coolwave, Cora, Cyta, Du, Eagle, Econet, ecoop, 8-el, emt, Finnet, Goecell, iKatel, Interoute, Kcell, Lebara, Mascom, Matrix, Melita, Mirs, Mobinil, Moldcell, Mcel, MTN, Ncell, Nedjma, O2, One, Orange, Orascom, Ooredoo, Qicomm, Romtelecom, Roshan, Sabafon, Skanova, Starcomms, STC Kuwait, Swisscom, Syriatel, Tcell, Telecom Egypt, Telekom Slovenije, Telenor, Telfort, TeliaSonera, TEO, Totem, TP, Turk Telecom, UPC, Vodafone, Warid, Wavecrest, Zain, Zong, Zon 3.4 Revenue Model Subex licenses its software solutions on 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. Further, we also have an additional stream of revenue namely, customization. While the above mentioned streams are directly related to the license model, we also have embarked on an additional stream of revenue namely Managed Services, which has been detailed below. Managed Services Recognizing the strategic imperative of outsourcing in today’s environment, Subex oﬀers a ﬂexible and scalable Managed Services program that enables service providers to successfully meet the ever changing business, technology and customer requirements. Annual Report 2012-13 43 alike and hence oﬀers the ﬂexibility to pick and choose services based on: (cid:102) Scope of Operations: Ranging from standard operations to large scale transformational programs (cid:102) BSS/OSS Domains: Drawing from Subex’s established expertise on various BSS/OSS domains (cid:102) On-Site Support: High caliber, experienced resources to ensure functional continuity and high resource efficiency Subex Managed Services oﬀering is designed to oﬀer true competitive advantage by focusing on strategic, operational and cost beneﬁts that address service providers’ current and future challenges and risks. Subex Managed Services program is designed to add both strategic and tactical value to service providers’ operations and enable better customer experience while also enhancing their operational eﬃciency, service agility and proﬁtability. With Subex at the helm of its operations, service providers can redirect critical resources at core business functions generating more revenue and saving costs. Subex understands that no two service provider requirements are Subex Managed Services smart services leveraging proven technology (cid:102) Products, Domain and Operations Expertise (cid:102) Regular industry forum thought leadership (cid:102) Industry pioneering Revenue Operations Center (ROC) platform engagements (cid:102) Over 300 ROC implementations at 200+ service (cid:102) 30+ Managed Service Programs, over 20 billion CDRs processed monthly, applications running on over 100 servers providers (cid:102) Automated workflows, future proof roadmap SM A R T Subex Managed Accountable ROC-Enabled Tailored services leveraging proven technology (cid:102) Stringent SLAs, innovative Risk-Reward Share Model (cid:102) Robust processes and methodologies (cid:102) Assured migration up the maturity model (cid:102) Flexible, bespoke service based on scope of operations, BSS/OSS domains and stage of evolution (cid:102) More choice based on your requirements and budget On-demand, Software-as-a-Service (SaaS) – ROCcloud Small and medium telcos have Business Support System (BSS) needs that are very diﬀerent from those of larger telcos. In the same vein, most BSS products are developed to address the needs of large telcos. They are loaded with a host of standard features, not all of which are relevant to smaller organizations, and necessitate a substantial investment in licenses and resources. Quite naturally, it is diﬃcult to justify this investment in most small and medium organizations. ROCcloud brings Subex’s proven Revenue Operations Center (ROC) to small and medium telcos. It is an on-demand Business Support Systems (BSS) ideally suited for small and medium telcos. ROCcloud employs a monthly subscription based usage model and is delivered over the web in a completely secure environment. It utilizes shared infrastructure at various locations across the globe. It is a pre-conﬁgured service with minimal customization needed and no implementation services required. ROCcloud is currently available for fraud management; addressing all common fraud threats. The following graph gives the revenue from each of the stream during the past several years: 44 Subex Limited e g a t n e c r e P 100 90 80 70 60 50 40 30 20 10 0 Revenue Composition 5 13 18 9 5 19 2 9 6 26 3 8 10 30 1 11 7 25 2 10 7 27 1 14 3 28 0 18 7 18 0 17 8 31 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 is fully dependant on the telecom industry. As such, any vagaries in the telecom business environment will considerably impact the fortunes of the Company. 64 67 57 49 56 54 54 57 44 4.2 Technology and Personnel FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 License and additional license Customization Managed Services Third Party Support 3.5 Geographical Mix We have a dominant presence in both developing and developed markets. This is quite evident from the geographical mix given below. Geographical Mix e g a t n e c r e P 100 90 80 70 60 50 40 30 20 10 0 14 34 9 36 52 55 15 35 50 27 36 37 8 37 55 16 40 14 35 44 51 21 26 53 33 50 17 FY 05 FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 Our industry is characterized by rapid technological changes and frequent new service oﬀerings. Signiﬁcant technological changes could make our products 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. Launching new products is a key element of our growth and our ability to bring new products with high demand to the market in a timely manner will increase our growth prospects and proﬁtability. Subex 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. Towards this, the Company provides an empowered atmosphere with extensive mentoring, career counseling and constant learning opportunities in cutting edge and challenging technologies. EMEA Americas APAC 4.3 Intellectual Property 4. RISKS AND CONCERNS Risks are an inherent part of any business activity. Following are the risks associated with our business: 4.1 Market The business model of communications service providers is highly dependent on consumer behaviour and any reduction on spending by consumers will negatively impact the fortunes of the telcos. That will result in reduction of investment by the telcos and a consequent contraction of market for our products. 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 The telecom software industry is characterised to a large extent by its reliance on proprietary technology. The Company and its subsidiaries own or have licenses to use the technologies embedded in its products. The Company depends on a combination of technical innovations, copyrights, trade secrets and non-disclosure agreements for the protection of this technology. The Company and its subsidiaries also maintains patent and trademarks, and patent and trademark application ﬁlings, as it deems appropriate. The Company and its subsidiaries also have copyrights vested in their software products and related materials. However, as is common industry practice, the Company has not generally pursued registrations of its copyrights. There can, however, be no assurance that the Company’s claims to any intellectual property rights will successfully protect what it considers to be the Company’s intellectual property from third-party use in any or all of the jurisdictions in which it does business, either now or in the future. To the extent that the Company’s innovations Annual Report 2012-13 45 and products are not protected by patents, copyrights or other intellectual property rights, third parties (including competitors) may be able to make use of the Company’s know-how. In addition, legal protection of the Company’s intellectual property rights in one country will not necessarily provide protection in other countries. The laws of many countries do not protect intellectual property rights to as great an extent as those of many western countries. Eﬀective protection of the Company’s intellectual property rights may be unavailable or limited in certain countries. For example, many countries, particularly certain developing countries, do not favour the aggressive enforcement of trademarks, patents and other measures to protect intellectual property. Limited intellectual property rights make piracy and misappropriation, which are endemic to the software industry, more diﬃcult to prevent. Moreover, even when the Company has adequate intellectual property rights to stop an infringer, it may lack the resources to detect all infringements, to trace the source of the infringement or to enforce its rights against the infringer. Much of the Company’s technology and many of the Company’s processes depend upon the knowledge, experience and skills of the Company’s personnel. To protect rights to the Company’s know- how and technology, the Company generally requires all employees and advisors to enter into conﬁdentiality agreements that prohibit the disclosure of conﬁdential information. These agreements also require disclosure and assignment to the Company of ideas, developments, discoveries and inventions. These agreements may not eﬀectively prevent disclosure of the Company’s conﬁdential information, provide meaningful protection for the Company’s conﬁdential information or assign to the Company all such intellectual property rights. The enforceability of these agreements also varies from jurisdiction to jurisdiction, and it is diﬃcult to police disclosures by persons who leave the Company’s employment. Should any of these possibilities occur, it would have a material adverse eﬀect on the Company’s business, ﬁnancial condition and results of operations. 4.4 Infringement The Company and its subsidiaries have not received any notiﬁcation of an alleged infringement of any other party’s proprietary technology. However, the Company and its subsidiaries may in the future face claims of infringing the intellectual property rights of others or that their customers are infringing such third party intellectual property rights through use of the Company’s products. If any of the Company’s products are found to infringe the patents or other intellectual property rights of others, or if the Company settles a claim in a manner adverse to it, the Company’s development, manufacture and sale of such products could be severely restricted or prohibited. Intellectual property litigation can involve complex factual and legal questions and its outcome is uncertain. Any claim relating to infringement of intellectual property rights may require it to pay substantial damages and seek licences to continue to use such intellectual property, which licences may not be available on commercially acceptable terms or at all. Even if the Company were to be successful, any intellectual property litigation could be costly and time-consuming, and would divert the attention of management and key personnel from the Company’s business operations. As a result of any intellectual property infringement suit brought against the Company or its customers, the Company may be forced to stop or delay developing, manufacturing or selling products that are claimed to infringe a third party’s intellectual property rights. Furthermore, the Company is required to indemnify its customers against third-party claims of infringement of intellectual property arising out of the Company’s customers’ use of its products and services. Typically, the Company’s liability for such indemniﬁcation is not limited by limitation of liability provision in customer contracts. is often Further, the Company in possession of proprietary information of its customers. There is a risk that such information may be wrongly used or disclosed or may be misappropriated by employees of the Company resulting, among other things, in a breach by the Company of contractual obligations to its customers. Any of these factors could have a material adverse eﬀect on the Company’s business, ﬁnancial condition and results of operations. 4.5 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 46 Subex Limited of client base geographically and increase of steady annuity revenue. Despite those eﬀorts, variability could continue. 4.6 Statutory Obligations Subex has registered with Special Economic Zone 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. 4.7 Environmental Matters Software development, being a pollution free industry, is not subject to any environmental regulations. 4.8 Foreign Exchange Subex has substantial exposure to foreign exchange related risks on account of revenue from export of software and outstanding liabilities. These are hedged with banks and risks mitigated to the extent possible. Despite this, particularly given the volatility in the foreign exchange market, there could be signiﬁcant variations. 4.9 Taxation Consequent to the end of STPI related tax beneﬁts for Subex, we have moved to a Special Economic Zone (SEZ). While tax protection is expected to continue under the SEZ scheme, there is a signiﬁcant amount of uncertainty in the regulatory environment. This could potentially lead to incidence of higher tax. 4.10 Contractual Obligation In terms of the contract entered into by Subex 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 to ﬁnancial and other risks. 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. 4.11 Debt Obligations As on March 31, 2013, the Company had outstanding FCCBs aggregating to US$ 1,000,000 under its US$ 180,000,000 2% convertible unsecured bonds (“FCCBs I”) and US$ 1,400,000 under its US$ 98,700,000 5% Convertible Unsecured Bonds (“FCCBs II”). In July 2012, pursuant to the exchange oﬀer of FCCBs I and FCCBs II, the Company issued US$ 127,721,000 5.70% secured convertible bonds with a maturity period due July 2017 (“FCCBs III”). Principal amount of US$ 36,321,000 were mandatorily converted and US$ 3,250,000 million out of FCCB III were subsequently converted into equity shares. Pursuant to the mandatory and subsequent conversions US$ 88,150,000 is currently outstanding under FCCBs III. The maturity period of the un-exchanged FCCBs I worth US$ 1,000,000 and the un-exchanged FCCBs II worth US$ 1,400,000 was extended to March 2017. The ability of the Company to successfully meet the debt obligations under the FCCBs depends on its internal accruals, additional fund raising in the form of debt or equity and possible conversion of FCCBs into equity shares prior to redemption. 5. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY internal control systems designed to Management maintains 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 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. The adequacy of the Company’s internal controls are tested from time to time and control deﬁciencies, if any, identiﬁed during the assessments are addressed appropriately. Annual Report 2012-13 47 6. DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE 6.1 Key Financials and Ratio Analysis Financial Highlights / Year ending 31st March Total income Operating Proﬁts (EBITDA) before Exceptional Items Depreciation & Amortization Proﬁt/(Loss) before tax & after Exceptional Items Proﬁt/(Loss) after tax & Exceptional Items 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 EBITDA / Sales - % Net Proﬁt Margin - % Return on year end Net Worth % Return on year end Capital Employed % 2013 2012 2011 Consolidated 33,147.10 4,024.92 Standalone 26,677.95 3,338.21 Consolidated 48,878.97 14,063.28 Standalone 33,902.66 9,700.20 Consolidated 49,279.20 13,797.70 Standalone 32,933.00 11,867.70 D in Lakhs 426.77 (5,608.47) 225.92 (3,456.42) 779.60 3,519.07 364.90 203.65 1,045.02 8,318.50 555.00 7,255.80 (5,994.71) (3,456.42) 3,184.10 239.70 7,879.00 7,150.90 Nil 16,664.00 5,835.68 22,499.68 10,279.57 466.74 1,08,797.37 (4.40) (1.04) 13.50 3.25 12.18% (18.13%) (26.64%) (6.27%) Nil 16,664.00 16,870.39 33,534.39 7,096.86 333.05 1,47,548.90 Nil 6,931.08 7,172.35 14,103.43 10,447.13 772.80 1,09,609.37 Nil 6,931.08 14,015.80 20,946.88 7,370.52 474.80 1,45,873.05 Nil 6,931.00 14,011.00 20,942.00 16,386.48 1,303.80 1,06,435.80 Nil 6,931.00 24,243.90 31,174.90 7,254.90 637.30 1,05,428.60 (2.54) (1.44) 20.12 1.96 12.57% (13.02%) (10.31%) (3.48%) 4.59 7.50 20.35 4.27 29.43% 6.66% 22.58% 4.29% 0.35 3.73 30.22 2.80 29.48% 0.73% 1.14% 0.30% 12.47 7.68 30.22 2.61 28.58% 16.32% 37.62% 10.43% 11.32 7.61 44.98 1.70 37.85% 22.81% 22.94% 8.50% 7. COMMENTARY ON FINANCIAL STATEMENTS 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. (cid:102) 1,15,000 shares of B 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. (cid:102) 46,26,940 shares of B 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 B 10/- each to the erstwhile owners of M/s. IVth Generation Inc., towards part consideration of the cost of acquisition of that Company at B 1,023/- per share during 1999-2000. (cid:102) (cid:102) (cid:102) (cid:102) 1,08,78,784 shares of B 10/- each to all eligible shareholders as on January 6, 2006 in the ratio of 1:1 by capitalizing the securities premium. 11,09,878 shares of B 10/- each to the GDR holders as on April 7, 2006 at B 400/-. 1,17,28,728 shares of B 10/- each to the GDR holders as on June 22, 2006 towards consideration of the cost of acquisition of Azure Solutions Ltd at B 532.24 per share 7.1.2 During 2006-07 the Company issued 2,19,551 (including Bonus shares, wherever options are eligible) shares of B 10/- each to various Employees on exercise of Stock Options granted under the Employee Stock Option Plan (ESOP – II & III). 7.1.3 During 2007-08, the Company issued 31,364 (including Bonus shares, wherever options are eligible) shares of B 10/- each to various Employees on exercise of Stock Options granted under the Employee Stock Option Plan (ESOP – II & III). 48 Subex Limited 7.1.4 During 2009-10, the Company issued 1,203 equity shares of B 10/- each under its ESOP III scheme and 1,210 equity shares of B 10/- each under its ESOP II scheme to various Employees on exercise of Stock Options. 7.1.5 During 2009-10, the Company issued 40,00,000 equity shares of B 10/- each, on a preferential basis, to M/s Woodbridge Consultants, an entity belonging to Promoters/Promoter group, at B 80/- per share. 7.1.6 During 2009-10, the Company issued 1,91,33,637 equity shares allotted upon conversion of FCCBs aggregating to principal amount of US$ 31,900,000 out of its US$ 98,700,000 5% Convertible Unsecured Bonds, in accordance with the terms and conditions thereof. 7.1.7 During 2010-11, the Company issued 41,24,254 equity shares of B 10/- each, on a preferential basis, to M/s KBC Aldini Capital Mauritius Limited, at B 81/- per share. 7.1.8 During 2010-11, the Company issued 71,97,607 equity shares allotted upon conversion of FCCBs aggregating to principal amount of US$ 12,000,000 out of its US$ 98,700,000 5% Convertible Unsecured Bonds, in accordance with the terms and conditions thereof. 7.1.9 During 2010-11, the Company issued 3,765 equity shares of B 10/- each under its ESOP III scheme and 1,260 equity shares of B 10/- each under its ESOP II scheme, to various Employees upon exercise of Stock Options. 7.1.10 During 2011-12, the Company issued 747 equity shares of B 10/- each under its ESOP III scheme to various Employees upon exercise of Stock Options. 7.1.11 There are no calls in arrears. 7.1.12 During 2012-13, the Company issued 9,73,29,190 equity shares allotted upon conversion of FCCBs to principal amount of US$ 39,571,000, out of its US$ 127,721,000 5.70% Secured Convertible Bonds, in accordance with the terms and conditions thereof. 7.2 Reserves And Surplus 7.2.1 Capital Reserve of B 130 Lakhs was created by credit of the notional premium on 12,840 equity shares of B 10/- each valued at a price of B 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. During the year 2010-11, additions to capital reserve due to reversal of accrued interest on conversion of FCCBs into equity shares amounted to B 1,598.9 Lakhs , reductions due to transfer to Business Restructuring Reserve amount to B 400 Lakhs and deferred interest on restructured FCCBs amounted to B 1,222.7 Lakhs . During the year 2011-12, the balance in capital reserve of B 346.70 Lakhs was transferred to Business Restructuring Reserve. During the year 2012-13, the balance of Foreign Currency Translation Reserve of B 2,765.65 Lakhs has been included in the Reserves and Surplus to bring it in line with Revised Schedule VI. 7.2.2 Securities Premium Account represents the premium collected on: (cid:102) 9,71,000 equity shares issued at a premium of B 65/- per share through an Initial Public Oﬀer in 1999-2000. (cid:102) (cid:102) 3,30,800 equity shares issued at a premium of B 740/- per share to Mutual Funds and Bodies Corporate on a preferential basis during 1999-2000. 18,87,000 equity shares issued at a premium of B 88/- per share to holders of ROCCPS on conversion of preferential shares at B 98/- each, namely Intel Capital, Toronto Dominion Bank and UTI Venture Funds. 15,38,459 equity shares issued at a premium of B 290/- per share to holders of FCCBs on conversion of the bonds at a price of B 300/- per share. 11,09,878 equity shares issued at a premium of B 390/- per share to holders of GDR at a price of B 400/-. 1,17,28,728 equity shares issued at a premium of B 522.24 per share to holders of GDR at price of B 532.24 (cid:102) (cid:102) (cid:102) (cid:102) 2,58,353 (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. (cid:102) 2,63,31,244 equity shares were allotted upon conversion of FCCBs aggregating to principal amount of US$ 43.9 Million, out of its US$ 98.7 Million 5% Convertible Unsecured Bonds, in accordance with the terms and conditions thereof (cid:102) 40,00,000 equity shares were allotted, on a preferential basis, to M/s Woodbridge Consultants, an entity belonging to Promoters/Promoter group, at an issue price of B 80 per share including a premium of B 70 per share (cid:102) 41,24,254 equity shares of B 10/- each, allotted on a preferential basis, to M/s KBC Aldini Capital Mauritius Limited, at an issue price of B 81 per share including a premium of B 71 per share (cid:102) 747 shares of B 10/- each were allotted to the employees under ESOP III scheme as per the provisions of the scheme at various premiums. 7.2.3 Business Restructuring Reserve (cid:102) During the year 2009-10, B 50,000 Lakhs and B 17,000 Lakhs were transferred to Business Restructuring Reserve from securities premium and capital reserve respectively. Out of the Annual Report 2012-13 49 said amount, B 64,997.90 Lakhs were utilized and consequently, the balance in Business Restructuring Reserve as of March 31, 2010 is B 2,002.10 Lakhs on consolidated basis. (cid:102) During the year 2010-11, B 17,000 Lakhs and B 400 Lakhs were transferred to Business Restructuring Reserve from securities premium and capital reserve respectively. Out of the said amount, B 18,303.70 Lakhs were utilised and consequently, the balance in Business Restructuring Reserve as of March 31, 2011 is B 1,098.40 Lakhs on consolidated basis. (cid:102) During the year 2011-12, B 346.70 Lakhs were transferred from Capital Reserve and B 854.30 Lakhs un-utilized provisions were transferred back to Business Restructuring Reserve. Out of the said amount, B 629.20 Lakhs were utilized and consequently, the balance in Business Restructuring Reserve as of March 31, 2012 is B 1,670.20 Lakhs on consolidated basis. (cid:102) During 2012-13, B 271.10 Lakhs were transferred to Securities premium Account. Out of the said amount, B 1,318.48 Lakhs were utilized and consequently, the balance in Business Restructuring Reserve as of March 31, 2013 is B 80.63 Lakhs on consolidated basis. 7.3 Employee Stock Options In accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999, the Company amortizes 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 net amount carried in respect of stock options outstanding at March 31, 2013 amounts to B 123.78 Lakhs (Previous Year: B 113.50 Lakhs ). 7.4 Borrowings On consolidated basis, the Short term borrowings of B 19,387.91 Lakhs (Previous Year: B 12,436.50 Lakhs ) outstanding in the books as at March 31, 2013 consists of B 16,550.46 Lakhs from banks secured by the charge on Fixed/Current Assets and personnel guarantee of the director of the Company apart from the corporate guarantee in which the director is interested as well as guarantee of Subex Technologies Ltd, B 937.56 Lakhs working capital loan secured by Corporate Guarantee of the Holding Company. On Standalone basis, the Short term borrowings of B 16,550.46 Lakhs (Previous Year: B 10,893.91 Lakhs ) outstanding in the books as at March 31, 2013, B 16,550.46 Lakhs from Banks secured by the charge on Fixed/Current Assets and personnel guarantee of the director of the Company apart from the corporate guarantee in which the director is interested as well as guarantee of Subex Technologies Ltd. 7.5 Long Term Borrowings (including current provisions) On a consolidated basis and standalone basis Current maturities of long term debt as at March 31, 2013 consists of: a. B 542.81 Lakhs (Previous Year: 19,841.30 Lakhs ) relating to Foreign Currency Convertible Bonds issued in fiscal 2006-07. The bonds carry interest of 2% per annum and are redeemable by March 9, 2017 as a result of re-structure (the same was considered as current portion in previous year). These bonds are listed in the Professional Securities Market of London Stock Exchange. The premium payable on these bonds is accrued over the life of the bonds and is carried under Other Long Term Liabilities. b. B 759.99 Lakhs (Previous Year: B 27,879.50 Lakhs ) relating to Foreign Currency Convertible Bonds issued in fiscal 2009-10 as a result of restructuring existing bonds mentioned in (a) above. The bonds carry interest of 5% per annum and are redeemable by March 9, 2017. These bonds are listed on the Singapore Exchange Securities Trading Limited. The premium payable on these bonds is accrued over the life of the bonds and is carried under Other Long Term Liabilities. c. B 47,852.27 Lakhs (Previous Year: B Nil) relating to Foreign Currency Convertible Bonds issued in fiscal 2012-13 as a result of restructuring existing bonds mentioned in (a), (b) above. The bonds carry interest of 5.70% per annum and are redeemable by July 7, 2017. These bonds are listed on the Singapore Exchange Securities Trading Limited. The premium payable on these bonds is accrued over the life of the bonds and is carried under Other Long Term Liabilities. 7.6 Fixed Assets 7.6.1 During the year, the Company added B 125.73 Lakhs on consolidated basis and B 105.44 Lakhs on standalone basis, to its gross block. The Company disposed oﬀ certain assets no longer required. The Company’s net block of ﬁxed assets was B 466.74 Lakhs (Previous year B 772.80 Lakhs ) on consolidated basis and B 333.05 Lakhs (Previous year B 474.80 Lakhs) on standalone basis. 7.7 Investments 7.7.1 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.” During 2007-08, the Company ﬁled an application with Hon’ble High Court of Karnataka to transfer the Services Business Division (which included the investment in Subex Technologies Inc.,) to Subex Technologies Ltd, a wholly owned subsidiary of Subex Limited under a scheme of arrangement. On obtaining the order from the Hon’ble High Court 50 Subex Limited of Karnataka, the Company has transferred the Services business to Subex Technologies Limited with eﬀect from September 1, 2007 (appointed date) at an aggregate consideration of B 31,00,00,000. In accordance with the order of the Hon’ble High Court, the Company shall receive 30,00,000 shares of Subex Technologies Limited valued at B 3,00,00,000 in settlement of the consideration with the balance B 28,00,00,000 being treated as unsecured loan taken by the subsidiary from the Company. 7.7.2 On June 23, 2006, the Company acquired the entire share holding of Azure Solutions Ltd, UK. The consideration was discharged by issue of 1,17,28,728 GDRs each representing one equity share of B 10/- at a premium of B 522.24 per share and cash of B 2,145.70 Lakhs. 7.7.3 During the year 2007-08, the Company completed the acquisition of Syndesis Limited, Canada, a Company engaged in Service Assurance and fulﬁllment space in the Telecom service industry. Pursuant to the acquisition, Syndesis Limited has been renamed as Subex Americas Inc. 7.7.4 During the year 2009-10, the Company recognized an amount of B 50,000 Lakhs as diminution in carrying value of investments in Subex Americas Inc. Consequently, the investment carrying value as of March 31, 2010 is B 27,495.70 Lakhs. 7.7.5 During the year 2010-11, the Company recognized an amount of B 15,000 Lakhs as diminution in carrying value of investments in Subex Americas Inc. Consequently, the investment carrying value as of March 31, 2011 is B 12,495.70 Lakhs. 7.7.6 During the year 2010-11, the Company recognized an amount of B 400 Lakhs as diminution in carrying value of investments in Subex Technologies Limited. Consequently, the investment carrying value as of March 31, 2011 is B Nil. 7.8 Trade Receivables 7.8.1 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. 7.8.2 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 requirements. 7.8.3 Sundry Debtors as a percentage of total revenue is 22.18% as against 15.36% in the previous year, on a consolidated basis. 7.8.4 The age proﬁle on consolidated basis is as given below: Period in days Less than 180 days More than 180 days Total D in Lakhs March 31, 2013 % Value 98.6 7,230.84 March 31, 2012 % Value 92.99 6,824.80 102.00 1.4 514.56 7.01 7,332.84 100.00 7,339.38 100.00 The age proﬁle on standalone basis is as given below: Period in days Less than 180 days More than 180 days Total D in Lakhs March 31, 2013 % Value 82.94 51,708.28 March 31, 2012 % Value 59,245.70 99.2 10,633.30 17.06 435.48 0.8 62,341.57 100.00 59,681.20 100.00 7.8.5 The management believes that the overall composition and condition of sundry debtors is satisfactory post assessment of doubtful receivables. The provision for doubtful debts stands at B 4,727.80 Lakhs (Previous Year B 1,523.33 Lakhs ) on consolidated basis and B 3,886.90 Lakhs (Previous Year B 1,392.89 Lakhs ) on standalone basis. 7.9 Cash and Cash Equivalents The bank balances includes both rupee accounts and foreign currency accounts. The Margin Money deposit of B 296.36 Lakhs (Previous Year: B 150.22 Lakhs ) on Standalone basis and B 627.91 Lakhs (Previous Year: B 185.62 Lakhs ) on consolidated basis with the bankers is for establishing bank guarantee/ issuing corporate credit cards. 7.10 Long-terms Loans and Advances 7.10.1 Security Deposits represent rent deposit, electricity deposit, telephone deposits and advances of like nature. 7.10.2 Advance Taxes comprise of advance income taxes, net of provision for taxation represents payments made towards tax liability pending assessment and refunds due. MAT credit entitlement represents the net available credit of the Minimum Alternate tax for future years. Annual Report 2012-13 51 7.10.3 Loans due from Group Companies (Standalone basis) 2012-13 - - 1,706.73 - 1,705.70 D in Lakhs 2011-12 - - 1,608.82 - 1,699.70 Subex (UK) Limited Subex (Asia Paciﬁc) Pte Ltd Subex Americas Inc Subex Inc Subex Technologies Ltd 7.11 Statement of Proﬁt & Loss 7.11.1 Income The Company derives Development Services and licensing of Software Products. income from providing Software its The segment wise break up of income on consolidated basis is given below: D in Lakhs except percentages Particulars 2012-13 2011-12 Software Products Software Services Total Value 30,734.27 % 92.97 Value 42,949.20 % 89.88 2,323.68 7.03 4,833.43 10.12 33,057.95 100.00 47,782.63 100.00 7.11.2 Geographically, the Company earns income from export of software services and products to USA, EMEA and Asia Paciﬁc. before Interest, depreciation, tax and exceptional items of B 3,338.21 Lakhs being 12.51% of total income as against B 9,700.20 Lakhs at 28.61% during the previous year. 7.15 Interest & Bank Charges The Company incurred an expenditure of B 5,210 Lakhs (Previous year: B 4,285.19 Lakhs ) on consolidated basis and B 4,905.15 Lakhs (Previous year: B 4,039.25 Lakhs ) on standalone basis. The interest paid is related to temporary overdrawals and working capital loan. The interest on FCCBs provided alone amounted to B 2,212.06 Lakhs (Previous Year: B 1,045.40 Lakhs ). 7.16 Depreciation 7.16.1 The provision for depreciation for the year amounted to B 426.77 Lakhs (Previous year: B 779.60 Lakhs) on consolidated basis and B 225.92 Lakhs (Previous year: B 364.90 Lakhs) on standalone basis. intangible assets 7.16.2 The depreciated over 5 years assessment of useful depreciated. i.e. IPRs and goodwill are being in accordance with the Company’s life thereof. The asset has been fully 7.17 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. 7.12 Other Income 7.18 Net Proﬁt 7.12.1 Other income consists of income derived by the Company from bad debts recoveries, interest on deposits from banks, interest on Inter Company Loans. 7.13 Expenditure 7.13.1 The employee beneﬁts expenses decreased to B 20,669.02 Lakhs (Previous year: B 25,358 Lakhs ) on consolidated basis and decreased to B 6,532.02 Lakhs (Previous year: B 7,892.47 Lakhs ) on standalone basis. The Company incurred administration and other expenses at 23.04% of its total Income during the year as compared to 17.57% during the previous year on consolidated basis and 62.09% of its total income during the year as compared to 45.56% during the previous year on a standalone basis. 7.14 Operating Proﬁts During the year, on consolidated basis, the Company earned an Operating Proﬁt/(Loss) before Interest, depreciation, tax and exceptional items of B 4,024.92 Lakhs being 12.14% of total income as against B 14,063.28 Lakhs at 28.77% during the previous year. On a standalone basis, the Company earned Operating Proﬁt/(Loss) On consolidated basis, the net proﬁt of the Company amounted to loss of B 5,994.71 Lakhs , as against a proﬁt of B 3,184.10 Lakhs during the previous year. On standalone basis, the net proﬁt of the Company amounted to loss of B 3,456.42 Lakhs as against a proﬁt of B 239.70 Lakhs during the previous year. 7.19 Earnings per Share Basic Earnings/(Loss) per share computed on the basis of number of common stock outstanding, as on the Balance Sheet date is B (4.40) per share (Previous year: B 4.59 per share) on consolidated basis B (2.54) per share (Previous year: B 0.35 per share) on standalone basis. 8. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED Subexians Our greatest assets are our people - Subexians! Subexians are our biggest diﬀerentiator and how we deﬁne our capability requirements, training needs and retention strategies becomes crucial. The Subex 52 Subex Limited work culture hinges on our core values of Fairness, Innovation and Commitment and nurtures initiative and creativity, bringing out the best in every Subexian. We know that when Subexians realize their full potential, we can achieve our broader business goals. The Subex population is spread across the globe in our multiple oﬃces. The larger centers are our oﬃces in Bangalore, London, Singapore, Dubai and Denver. As of March 31, 2013, we had 860 Subexians on our rolls globally. is centralized at our corporate Human Resources at Subex headquarters in Bangalore, with regional HR teams providing local support aligned to the global HR strategy. The HR team provides a competitive edge to the business by enabling and supporting a very unique business model of value based delivery, processes and programs on global product development and delivery capabilities on the one hand and complex distributed managed services delivery capabilities on the other. HR at Subex consistently strives to adopt leading best practices in designing and deploying HR process and programs across various areas like recruitment, total rewards management, talent management, organizational development, performance management, change management, learning and development, mergers and acquisitions etc. Recruitment During the year, the recruitment team had to execute a well thought out manpower planning and analysis exercise and adopt global recruitment best practices to fulﬁll the organization’s talent requirements. In addition to the well established processes like “Coﬀee with the Hiring Manager”, “Post- oﬀer feedback”, Subexian referral program, partner feedback, interviewer feedback, etc., which are already entrenched in the Subex way of adding talent to our team, the focus this year was on optimizing the overall recruitment cost by adopting innovative recruitment approaches. The main sources for hires were referrals from Subexians (the best bring the best!), campus recruitments, website postings and walk- ins. We explored innovative processes on the campus recruitment side, where we introduced a process of “hiring for learnability”. This process, we believe, will add scalability to our model while continuing to give us great technical talent like we have had before. One of the key focus areas that your Company has set, in the previous year, of adding the capability of doing “just-in-time” recruitment for the managed services part of the business, has yielded results and this helped a lot on mobilizing Managed Service projects within the permissible time, without having to carry a large bench strength. Induction and Training Welcoming new Subexians into our fold continues to be extremely critical for us. We believe that the quality of induction that new hires go through determines how successful they are in the Company and has a huge impact on retention. We have customized the induction based on the role and function that new Subexians join in. This has resulted in having more targeted induction, yielding greater beneﬁts. As happened in the previous years, for the new engineering recruits that we welcomed into Subex this year, we had a packed agenda spanning across 3 months. In addition to the regular induction, they also went through additional training programs tailored to their area of technology. In addition, we provided them with out-bound training at Pegasus to inculcate in them our Subex values and help them bond as a team. On the learning and development side, the focus this year was on taking Subex Academy to the next level and improving the eﬃciency of skill and knowledge development. Subex Academy is a global Learning and Development Platform (supporting instructor led training, on the job learning, as well as e-learning) that enable a role based curriculum led approach to learning, while streamlining the training process as well as ensuring global reach and appropriateness of content. This automated platform added signiﬁcant value to training identiﬁcation, design, delivery and evaluation. This has been very well received by Subexians globally and is a giant stride on the path of continuous learning and skill development! Performance Management System Foundation Competencies are the basic Values based competencies required by all in Subex. Excel competencies are those that are required to do your current job really well. Lead Competencies focus on the future needs and are the skills required to succeed in leadership roles. Technical Competencies take care of the core areas of the role - knowledge about our products, the various technologies and domains. These, along with the KRAs help build and reinforce the performance oriented culture at Subex. Compensation Compensation at Subex is multi-dimensional and consists of salary, beneﬁts, stock options, health and disability insurance. The Company benchmarks its compensation package against industry data and strives to achieve a balanced position. The Company provides robust and comprehensive cash compensation and beneﬁts as per industry trends. We also arrive at the salary bands of Subexians by conducting comprehensive job matching, data validation and quality audits. Your Company focuses a lot on Employee reward and recognition programme, as this is another important motivational aspect. We have achieved 30% penetration with our Reward and Recognition Programme “STAR”. In other words 30% of Subexians were included in STAR, the Reward and Recognition programme, which carries monetary beneﬁts. Annual Report 2012-13 53 FINANCIAL SECTION 54 Subex Limited INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF SUBEX LIMITED Report on the Financial Statements We have audited the accompanying ﬁnancial statements of SUBEX LIMITED (“the Company”), which comprise the Balance Sheet as at March 31, 2013, the Statement of Proﬁt and Loss and the Cash Flow Statement for the year then ended, and a summary of the signiﬁcant accounting policies and other explanatory information. Opinion In our opinion and to the best of our information and according to the explanations given to us, the aforesaid ﬁnancial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: Management’s Responsibility for the Financial Statements The Company’s Management is responsible for the preparation of these ﬁnancial statements that give a true and fair view of the ﬁnancial position, ﬁnancial performance and cash ﬂows of the Company in accordance with the Accounting Standards referred to in Section 211(3C) of the Companies Act, 1956 (“the Act”) and in accordance with the accounting principles generally accepted in India. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the ﬁnancial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility is to express an opinion on these ﬁnancial Our responsibility statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the ﬁnancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the ﬁnancial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the ﬁnancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the ﬁnancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the eﬀectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Management, as well as evaluating the overall presentation of the ﬁnancial statements. We believe that the audit evidence we have obtained is suﬃcient and appropriate to provide a basis for our audit opinion. (a) (b) (c) in the case of the Balance Sheet, of the state of aﬀairs of the Company as at March 31, 2013; in the case of the Statement of Proﬁt and Loss, of the loss of the Company for the year ended on that date; and in the case of the Cash Flow Statement, of the cash ﬂows of the Company for the year ended on that date. Emphasis of Matter (a) We draw attention to Note 25 to the ﬁnancial statements, as more fully explained therein, during the year the Company has in accordance with the Proposal approved by the Hon’ble High Court of Karnataka in prior years, debited amounts aggregating to ` 1,318.48 Lakhs (net) to the Business Restructuring Reserve, instead of recording such expenses for the year ended March 31, 2013, in the Statement of Proﬁt and Loss, as required by Accounting Standard 5 ‘Net Proﬁt or Loss for the Period, Prior Period Items’. (b) We draw attention to Note 39.9 (a) to the ﬁnancial statements regarding treatment of the managerial remuneration paid in excess of the applicable limits under Schedule XIII of the Companies Act, 1956, aggregating to ` 123.80 Lakhs. (c) We draw attention to Note 36(d) to the ﬁnancial statements regarding the service tax demand of ` 3,607.60 Lakhs on import of certain services against which the Company has ﬁled an appeal with the concerned authority. (d) We draw attention to Note 26 (b) to the ﬁnancial statements, regarding the treatment of amounts due on the restructuring of the foreign currency convertible bonds based on legal advice. (e) We draw attention to Note 39(10) regarding the management’s assessment that the amounts recoverable from one of its subsidiaries are good and that there is no diminution, other than temporary, in the carrying value of its investment in the said subsidiary and hence no provision has been made at this stage for the reasons stated therein. Annual Report 2012-13 55 Our opinion is not qualiﬁed in respect of the above matters. Report on Other Legal and Regulatory Requirements 1. As required by the Companies (Auditor’s Report) Order, 2003 (“the Order”) issued by the Central Government in terms of Section 227(4A) of the Act, we give in the Annexure a statement on the matters speciﬁed in paragraphs 4 and 5 of the Order. 2. As required by Section 227(3) of the Act, 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 purposes 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 those books. (c) The Balance Sheet, the Statement of Proﬁt and Loss, and the Cash Flow Statement dealt with by this Report are in agreement with the books of account. (d) In our opinion, read with paragraph (a) in the Emphasis of Matter paragraph, the Balance Sheet, the Statement of Proﬁt and Loss, and the Cash Flow Statement comply with the Accounting Standards referred to in Section 211(3C) of the Act. (e) On the basis of the written representations received from the directors as on March 31, 2013 taken on record by the Board of Directors, none of the directors is disqualiﬁed as on March 31, 2013 from being appointed as a director in terms of Section 274(1) (g) of the Act. For DELOITTE HASKINS & SELLS Chartered Accountants (Firm Registration No. 008072S) Monisha Parikh Partner (Membership No. 47840) MUMBAI, May 21, 2013 ANNEXURE TO THE AUDITORS’ REPORT (Referred to in paragraph 1 under ‘Report on Other Legal and Regulatory Requirements’ section of our report of even date) 1. Having regard to the nature of the Company’s business/ activities/results during the year, clauses vi, viii, xii, xiii, xiv, xvi, xix and xx of paragraph 4 of the Order are not applicable to the Company. 3. In respect of its inventory: (a) As explained to us, the inventories were physically veriﬁed during the year by the Management at reasonable intervals. 2. In respect of its ﬁxed assets: (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of the ﬁxed assets. (b) Most of 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. (c) The ﬁxed assets disposed oﬀ during the year, in our opinion, do not constitute a substantial part of the ﬁxed assets of the Company and such disposal has, in our opinion, not aﬀected the going concern status of the Company. (b) In our opinion and according to the information and explanation given to us, the procedures of physical veriﬁcation of inventories followed by the Management were reasonable and adequate in relation to the size of the Company and the nature of its business. (c) In our opinion and according to the information and explanations given to us, the Company has maintained proper records of its inventories and no material discrepancies were noticed on physical veriﬁcation. 4. The Company has neither granted nor taken any loans, secured or unsecured, to/from companies, ﬁrms or other parties covered in the Register maintained under Section 301 of the Companies Act, 1956. 5. In our opinion and according to the information and explanations given to us, having regard to the explanations that some of the items purchased are of special nature and suitable alternative sources are not readily available for obtaining comparable quotations, there is an adequate 56 Subex Limited internal control system commensurate with the size of the Company and the nature of its business with regard to purchases of inventory and ﬁxed assets and the sale of goods and services. During the course of our audit, we have not observed any major weakness in such internal control system. 6. To the best of our knowledge and belief and according to the information and explanations given to us, there are no contracts or arrangements that needed to be entered in the Register maintained in pursuance of Section 301 of the Companies Act, 1956. 7. In our opinion, the internal audit functions carried out during the year by ﬁrm of Chartered Accountants appointed by the Management have been commensurate with the size of the Company and the nature of its business. 8. According to the information and explanations given to us in respect of statutory dues: (a) Other than Stamp duty dues, Provident Fund dues, withholding tax dues and Employees’ State Insurance dues in depositing undisputed dues, where there have been delays in remittances of such dues with the appropriate authority, the Company has generally been regular including Investor Education and Protection Fund, Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, Cess and other material statutory dues applicable to it with the appropriate authorities during the year. (b) There were no undisputed amounts payable in respect of Provident Fund, Investor Education and Protection Fund, Employees’ State Insurance, Income-tax, Sales Tax, Wealth Tax, Service Tax, Customs Duty, Excise Duty, Cess and other material statutory dues in arrears as at March 31, 2013 for a period of more than six months from the date they became payable, except for Withholding tax dues (including interest thereon) of ` 73.60 Lakhs pertaining to earlier years and ` 3.06 lakhs of current year. (c) Details of dues of Income-tax, Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty and Cess which have not been deposited as on March 31, 2013 on account of disputes are given below: Statute Nature of Dues Forum where dispute is pending Period to which the amount relates Amount involved ` in Lakhs Income Tax Act, 1961 Income Tax Act, 1961 Income Tax Act, 1961 Finance Act 2006 Income tax (Incl. Interest) Income tax (Incl. Interest) Income tax (Incl. Interest) Service tax (excluding penalty and interest) HON. HIGH COURT OF KARNATAKA HON. HIGH COURT OF KARNATAKA HON. HIGH COURT OF KARNATAKA CESTAT 2005-06 2006-07 2008-09 2006-09 19.49 178.75 1.25 3,607.60 9. The Company does not have accumulated losses at the end of the ﬁnancial year and has incurred cash losses only in the current ﬁnancial year but not in the immediately preceding ﬁnancial year. 10. 11. In our opinion and according to the information and explanations given to us, the Company has not defaulted in the repayment of dues to banks, ﬁnancial institutions and debenture holders. In our opinion and according to the information and explanations given to us, the terms and conditions of the guarantees given by the Company for loans taken by others from banks and ﬁnancial institutions are not, prima facie, prejudicial to the interests of the Company. 12. information and In our opinion and according to the explanations given to us and on an overall examination of the Balance Sheet of the Company, we report that funds raised on short-term basis have not been used during the year for long- term investment. 13. Accordingly to the information and explanations given to us, the Company has not made any preferential allotment of shares to parties and companies covered in the Register maintained under section 301 of the Act. 14. To the best of our knowledge and according to the information and explanations given to us, no fraud by the Company and no material fraud on the Company has been noticed or reported during the year. MUMBAI, May 21, 2013 For DELOITTE HASKINS & SELLS Chartered Accountants (Firm Registration No. 008072S) Monisha Parikh Partner (Membership No. 47840) Annual Report 2012-13 57 BALANCE SHEET AS AT A EQUITY AND LIABILITIES 1. SHAREHOLDERS' FUNDS (a) Share Capital (b) Reserves and Surplus SUB TOTAL - SHAREHOLDERS' FUNDS 2. NON - CURRENT LIABILITIES (a) Long-term Borrowings (b) Other Long-term Liabilities (c) Long-term Provisions SUB TOTAL - NON CURRENT LIABILITIES 3. CURRENT LIABILITIES (a) Short-term Borrowings (b) Trade Payables - Other than acceptances (c) Other Current Liabilities (d) Short-term Provisions SUB TOTAL - CURRENT LIABILITIES TOTAL B ASSETS 1. NON-CURRENT ASSETS (a) Fixed Assets (i) Tangible Assets (ii)Intangible Assets (b) Non Current Investments (c) Deferred Tax Assets (net) (d) Long-term Loans and Advances (e) Other Non - Current Assets SUB TOTAL - NON-CURRENT ASSETS 2. CURRENT ASSETS (a) Trade Receivables (b) Cash and Bank Balances (c) Short-term Loans and Advances (d) Other Current Assets Sub Total - CURRENT ASSETS TOTAL NOTE NO. MARCH 31, 2013 MARCH 31, 2012 B in Lakhs 3 4 5 6 7 8 39.6 9 10 11.A 11.B 12 34 13 14 15 16 17 18 16,664.00 16,870.39 33,534.39 49,155.07 517.93 500.61 50,173.61 16,550.46 43,088.40 4,158.78 43.26 63,840.90 147,548.90 333.05 - 77,234.42 133.88 2,418.70 12,688.50 92,808.55 51,708.28 387.65 730.39 1,914.03 54,740.35 147,548.90 6,931.08 14,015.80 20,946.88 - - 531.68 531.68 10,893.91 43,663.65 69,773.75 63.18 124,394.49 145,873.05 474.80 - 77,234.42 133.88 2,339.45 5.00 80,187.55 59,681.18 155.89 2,426.97 3,421.46 65,685.50 145,873.05 Anil Singhvi Director Sanjeev Aga Director Corporate Information and Signiﬁcant Accounting Policies See accompanying notes forming part of the ﬁnancial statements 1 & 2 In terms of our report attached For Deloitte Haskins & Sells Chartered Accountants Monisha Parikh Partner Mumbai Date: May 21, 2013 58 Subex Limited For and on behalf of the Board of Directors Surjeet Singh Managing Director & CEO Karthikeyan Muthuswamy Director Ganesh K.V. Global Head - Finance, Legal and Company Secretary STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED B in Lakhs NOTE NO. MARCH 31, 2013 MARCH 31, 2012 1. Revenue from Operations 2. Other Income 3. Total Revenue 4. Expenses (a) Cost of Hardware, Software and Support Charges (b) Employee Beneﬁts Expense (c) Finance Costs (d) Depreciation and Amortisation Expense (e) Other Expenses 19 20 39(7) 21 22 11 23 26,555.90 122.05 26,677.95 243.30 6,532.02 4,905.15 225.92 16,564.42 32,901.10 1,001.56 33,902.66 864.66 7,892.47 4,039.25 364.90 15,445.33 Total Expenses 28,470.81 28,606.61 5. Proﬁt/(Loss) before exceptional items and Tax (3 - 4) (1,792.86) 5,296.05 6. Exceptional Items 24 1,663.56 5,092.40 7. Proﬁt/(Loss) before Tax (5 - 6) (3,456.42) 203.65 8. Tax expense (a) Current Tax Expense for current year (b) (Less): MAT credit (c) Deferred Tax Total Tax expense 9. Proﬁt/(Loss) for the year (7 -8) 10. Earnings/(Loss) Per Share (Face value of ` 10/- each) (a) Basic (b) Diluted Corporate Information and Signiﬁcant Accounting Policies See accompanying notes forming part of the ﬁnancial statements 1 & 2 - - - - (3,456.42) ` (2.54) ` (2.54) In terms of our report attached For Deloitte Haskins & Sells Chartered Accountants For and on behalf of the Board of Directors Monisha Parikh Partner Mumbai Date: May 21, 2013 Surjeet Singh Managing Director & CEO Karthikeyan Muthuswamy Director Ganesh K.V. Global Head - Finance, Legal and Company Secretary 150.18 (174.13) (12.10) (36.05) 239.70 ` 0.35 ` 0.35 Anil Singhvi Director Sanjeev Aga Director Annual Report 2012-13 59 CASH FLOW STATEMENT FOR THE YEAR ENDED B in Lakhs MARCH 31, 2013 MARCH 31, 2012 A. CASH FLOW FROM OPERATING ACTIVITIES Proﬁt/(Loss) before tax, for the year (3,456.42 203.65 Interest Income Adjustments for : (a) Depreciation and amortization expense (b) (c) Finance costs (d) (e) Expense/(Gain) on employee stock option scheme (f) Provision for doubtful Trade and other receivables (g) Unrealised exchange (Gain)/Loss- Forward contracts (h) Unrealised exchange (Gain)/Loss- Others (Proﬁt)/Loss on sale/write oﬀ of assets Operating proﬁt/(loss) before working capital changes Changes in working capital Adjustments for (increase)/decrease in operating assets (a) Trade receivables (b) Short-term loans and advances (c) Long-term loans and advances (d) Other current assets (e) Other Non-current assets Adjustments for increase/(decrease) in operating liabilities (a) Trade payables (b) Other current liabilities (c) Other Long-term liabilities (d) Short-term provisions (e) Long-term provisions Cash generated from/(used in) operations Net tax (paid)/refunds and others Net cash ﬂow from/(used in) operating activities (A) B. CASH FLOW FROM INVESTING ACTIVITIES (a) Capital expenditure on ﬁxed assets, including capital advances (b) Proceeds from sale of ﬁxed assets (c) (d) (e) Loans given to Subsidiaries (f) Loans repaid by Subsidiaries Investment in deposits (g) Interest received - Others Interest received- Subsidiaries Net cash ﬂow from/(used in) investing activities (B) 60 Subex Limited 225.92 (118.43) 4,905.15 1.43 10.28 1,741.12 - (316.31) 2,992.74 (4,085.72) 93.74 (1.08) 570.48 (343.50) (43.63) (1,445.43) - (19.68) (31.07) (2,313.15) (78.42) (2,391.57) (112.74) 20.40 18.12 78.46 (103.86) - (145.00) (244.62) 364.90 (161.53) 4,039.25 (7.62) (327.26) 666.60 1,239.38 2,160.09 8,177.46 (4,510.90) 147.80 (9.90) (743.40) (5.00) 222.46 (174.90) - 9.70 (17.73) 3,095.59 (512.10) 2,583.49 (254.19) 28.44 1.64 157.24 - 2,589.31 (88.70) 2,433.74 CASH FLOW STATEMENT FOR THE YEAR ENDED B in Lakhs C. CASH FLOW FROM FINANCING ACTIVITIES (a) Proceeds from issue of Equity shares (b) Net increase/(decrease) in working capital borrowings from banks (c) Repayment of Other short-term borrowings (d) Repayment of Long-term borrowings (e) Dividends paid (f) Finance cost MARCH 31, 2013 MARCH 31, 2012 - 6,656.55 (1,000.00) - (1.15) (2,923.43) 0.40 1,864.65 (2,000.00) (66.57) (1.83) (4,833.49) Net cash ﬂow from/(used in) ﬁnancing activities (C) 2,722.97 (5,036.84) Net increase/(decrease) in Cash and cash equivalents (A+B+C) Cash or Cash equivalents at the beginning of the year Cash or Cash equivalents at the end of the year *Cash and cash equivalents Cash on hand Balance with Banks in Current Accounts in EEFC accounts Total Corporate Information and Signiﬁcant Accounting Policies Notes: (i) See accompanying notes forming part of the ﬁnancial statements 1 & 2 86.78 1.59 88.37 - 78.93 9.44 88.37 In terms of our report attached For Deloitte Haskins & Sells Chartered Accountants For and on behalf of the Board of Directors Monisha Parikh Partner Mumbai Date: May 21, 2013 Surjeet Singh Managing Director & CEO Karthikeyan Muthuswamy Director Ganesh K.V. Global Head - Finance, Legal and Company Secretary (19.61) 21.20 1.59 - 1.12 0.47 1.59 Anil Singhvi Director Sanjeev Aga Director Annual Report 2012-13 61 NOTES FORMING PART OF FINANCIAL STATEMENTS SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO THE FINANCIAL STATEMENTS 1. CORPORATE INFORMATION Subex Limited, a public limited Company incorporated in 1994, is a leading global provider of Operations and Business Support Systems (OSS/BSS) to Communication Service Providers (CSPs) worldwide in the Telecom industry. The Company pioneered the concept of a Revenue Operations Center (ROC) – a centralized approach that sustains proﬁtable growth and ﬁnancial health for the CSPs through coordinated operational control. Subex’ s product portfolio powers the ROC and its best-in-class solutions enable new service creation, operational transformation, subscriber-centric fulﬁllment, provisioning automation, data integrity management, revenue assurance, cost management, fraud management and interconnect/inter-party settlement. Subex also oﬀers a scalable Managed Services Program. The CSPs achieve competitive advantage through Business Optimization and Service Agility and improve their operational eﬃciency to deliver enhanced service experiences to their subscribers. The Company has a development center in India and sales oﬃces in the form of wholly owned subsidiaries/ branches in UK, USA, Singapore, Australia, Dubai and Canada. 2. SIGNIFICANT ACCOUNTING POLICIES I. Basis for preparation of Financial Statements The ﬁnancial statements of the Company have been prepared in accordance with the Generally Accepted Accounting Principles in India (Indian GAAP) to comply with the Accounting Standards notiﬁed under the Companies (Accounting Standards) Rules, 2006 (as amended) and the relevant provisions of the Companies Act, 1956 except to the extent permitted under the Proposal approved by the Hon’ble High Court of Karnataka (Refer Note 25). The ﬁnancial statements have been prepared on accrual basis under the historical cost convention. The accounting policies adopted in the preparation of the ﬁnancial statements are consistent with those followed in the previous year. II. Use of Estimates The preparation of the ﬁnancial statements in conformity with Indian GAAP requires the Management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) and the reported income and expenses during the year. The Management believes that the estimates used in preparation of the ﬁnancial statements are prudent and reasonable. Future results could diﬀer due to these estimates and the diﬀerences between the actual results and the estimates are recognised in the periods in which the results are known/materialised. III. Revenue recognition Revenue from Contracts for software product license includes fees for transfer of licenses, installation and commissioning. This revenue is recognized on the basis of milestones achieved, determined based on percentage of completion of work completed at each milestone 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 software licenses (including additional licenses) are recognized on transfer of such licenses. In case of composite contracts involving granting of license and support services, license revenues are recognized on transfer of the license if identiﬁed separately and in other cases, they are recognized over the period of the contract along with revenue from support services. 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. Maintenance and service income is recognised on time proportion basis. IV. Tangible Fixed Assets Fixed assets are stated at cost of acquisition inclusive of freight, duties, taxes and other direct expenditure incurred. Assets acquired on hire purchase are capitalised at gross value and interest thereon is charged to revenue. 62 Subex Limited NOTES FORMING PART OF FINANCIAL STATEMENTS Exchange diﬀerences arising on restatement/settlement of long-term foreign currency borrowings relating to acquisition of depreciable ﬁxed assets are adjusted to the cost of the respective assets and depreciated over the remaining useful life of such assets. Subsequent expenditure relating to ﬁxed assets is capitalised only if such expenditure results in an increase in the future beneﬁts from such asset beyond its previously assessed standard of performance. Fixed assets acquired and put to use for project purpose are capitalised and depreciation thereon is included in the project cost till commissioning of the project. V. Intangible Assets Intangible assets are carried at cost less accumulated amortisation and impairment losses, if any. The cost of an intangible asset comprises its purchase price, including any import duties and other taxes (other than those subsequently recoverable from the taxing authorities), and any directly attributable expenditure on making the asset ready for its intended use and net of any trade discounts and rebates. Subsequent expenditure on an intangible asset after its purchase/completion is recognised as an expense when incurred unless it is probable that such expenditure will enable the asset to generate future economic beneﬁts in excess of its originally assessed standards of performance and such expenditure can be measured and attributed to the asset reliably, in which case such expenditure is added to the cost of the asset (Refer Note: 2.XI for accounting for R&D expenses). VI. Depreciation & Amortisation Fixed assets and Intangibles are depreciated/amortised using the straight-line method over the useful life of assets. Depreciation is charged on pro-rata basis for assets purchased/sold during the year. The rates of depreciation/amortisation adopted are as under: Particulars Computers (including Software) Furniture & Fixtures Vehicles Oﬃce equipments Intellectual Property Rights Goodwill Depreciation/Amortisation Rates (%) 25 20 20 20 20 20 Individual assets costing less than ` 5,000 are depreciated in full, in the year of purchase. The estimated useful life of the intangible assets and the amortisation period are reviewed at the end of each ﬁnancial year and the amortisation method is revised to reﬂect the changed pattern. VII. Employee Stock Option Plans The Company has formulated Employee Stock Option Schemes (ESOS) in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. The Schemes provide for grant of options to employees of the Company and its subsidiaries to acquire equity shares of the Company that vest in a graded manner and that are to be exercised within a speciﬁed period. The Company has used intrinsic value method to account for the compensation cost of stock options. Intrinsic value is the amount by which the quoted market price on the day prior to the grant of the options under ESOS exceeds the exercise price of the option. In accordance with the SEBI guidelines, the intrinsic value is amortised on a straight line basis over the vesting period. VIII. Employee Beneﬁts Employee beneﬁts include provident fund, gratuity fund, employee state insurance, compensated absences, retention and performance linked payouts. Deﬁned Contribution Plans: The Company’s contribution to provident fund and employee state insurance scheme is considered as deﬁned contribution plan and is charged as an expense as they fall due based on the amount of contribution required to be made. Deﬁned Beneﬁt Plans: For deﬁned beneﬁt plans in the form of gratuity fund, the cost of providing beneﬁts is determined using the Projected Unit Credit method, with actuarial valuations being carried out at each Balance Sheet date. Actuarial gains and losses are Annual Report 2012-13 63 NOTES FORMING PART OF FINANCIAL STATEMENTS recognised in the Statement of Proﬁt and Loss in the period in which they occur. Past service cost is recognised immediately to the extent that the beneﬁts are already vested and otherwise is amortised on a straight-line basis over the average period until the beneﬁts become vested. The retirement beneﬁt obligation recognised in the Balance Sheet represents the present value of the deﬁned beneﬁt obligation as adjusted for unrecognised past service cost, 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 reductions in future contributions to the schemes. Short-term Employee Beneﬁts: The undiscounted amount of short-term employee beneﬁts expected to be paid in exchange for the services rendered by employees are recognised during the year when the employees render the service. These beneﬁts include retention and performance linked payouts and compensated absences which are expected to occur within twelve months after the end of the period in which the employee renders the related service. The cost of such compensated absences is accounted as under: (a) in case of accumulated compensated absences, when employees render the services that increase their entitlement of future compensated absences; and (b) in case of non-accumulating compensated absences, when the absences occur. Long-term Employee Beneﬁts: Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related service are recognised as a liability at the present value of the deﬁned beneﬁt obligation as at the Balance Sheet date less the fair value of the plan assets out of which the obligations are expected to be settled. IX. Other Income Interest income is accounted on accrual basis. Dividend income is accounted for when the right to receive it is established. X. Leases Assets leased by the Company in its capacity as lessee where substantially all the risks and rewards of ownership vest in the Company are classiﬁed as ﬁnance leases. Such leases are capitalised at the inception of the lease at the lower of the fair value and the present value of the minimum lease payments and a liability is created for an equivalent amount. Each lease rental paid is allocated between the liability and the interest cost so as to obtain a constant periodic rate of interest on the outstanding liability for each year. Lease arrangements where the risks and rewards incidental to ownership of an asset substantially vest with the lessor are recognised as operating leases. Lease rentals under operating leases are recognised in the Statement of Proﬁt and Loss on a straight line basis. XI. Research and Development Revenue expenditure pertaining to research is charged to the Statement of Proﬁt and Loss. Development costs of products are also charged to the Statement of Proﬁt and Loss. Fixed assets utilised for research and development are capitalised and depreciated in accordance with the policies stated for Tangible Fixed Assets and Intangible Assets. XII. Foreign Currency Transactions Initial recognition Transactions in foreign currencies entered into by the Company and its integral foreign operations are accounted at the exchange rates prevailing on the date of the transaction or at rates that closely approximate the rate at the date of the transaction. Measurement of foreign currency monetary items at the Balance Sheet date Foreign currency monetary items (other than derivative contracts) of the Company and its net investment in non-integral foreign operations outstanding at the Balance Sheet date are restated at the year-end rates. 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 the average exchange rates prevailing during the year. Exchange diﬀerences arising out of these translations are charged to the Statement of Proﬁt and Loss. 64 Subex Limited NOTES FORMING PART OF FINANCIAL STATEMENTS Treatment of exchange diﬀerences Exchange diﬀerences arising on settlement/restatement of short-term foreign currency monetary assets and liabilities of the Company and its integral foreign operations are recognised as income or expense in the Statement of Proﬁt and Loss. The exchange diﬀerences on restatement/settlement of loans to non-integral foreign operations that are considered as net investment in such operations are accumulated in a “Foreign currency translation reserve” until disposal/recovery of the net investment. The exchange diﬀerences arising on restatement/settlement of long term foreign currency monetary items are: !capitalised, if related to acquisition of depreciable ﬁxed assets, and depreciated over the remaining useful life of such assets; or !amortised over the maturity period of such items in other cases. The Company has adopted the amendments to Accounting Standard 11 “The Eﬀects of Changes in Foreign Exchange Rates” that were notiﬁed during the year ended March 31, 2012. Pursuant to this amendment, exchange ﬂuctuations arising on restatement of all long term monetary foreign currency assets and liabilities at rates diﬀerent from those at which they were initially recorded or reported in the previous ﬁnancial statements (whichever is later), are accumulated in a Foreign Currency Monetary Item Translation Diﬀerence account and are amortised over the balance period of such long term asset/liability (Refer Note 28). Accounting for Forward contracts: Premium/discount on forward exchange contracts, which are not intended for trading or speculation purposes, are amortised over the period of the contracts if such contracts relate to monetary items as at the Balance Sheet date. Accounting for Derivatives: Derivative contracts in the nature of foreign currency swaps, currency options, forward contracts with an intention to hedge its existing assets and liabilities, ﬁrm commitments and highly probable forecast transactions, which are closely linked to the existing assets and liabilities are accounted as per the policy stated for Forward contracts. All other derivative contracts are marked-to-market and losses are recognised in the Statement of Proﬁt and Loss. Gains arising on the same are not recognised, until realised, on grounds of prudence. XIII. Investments Long-term investments are stated at cost less diminution in the value of investments that is other than temporary. XIV. Taxes on income Current tax is the amount of tax payable on the taxable income for the year as determined in accordance with the provisions of the Income Tax Act, 1961. Minimum Alternate Tax (MAT) paid in accordance with the tax laws, which gives future economic beneﬁts in the form of adjustment to future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay normal income tax in the foreseeable future. Accordingly, MAT is recognised as an asset in the Balance Sheet when it is probable that future economic beneﬁt associated with it will ﬂow to the Company and can be measured reliably. Deferred tax is recognised on timing diﬀerences, being the diﬀerences between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted as at the reporting date. Deferred tax liabilities are recognised for all timing diﬀerences. Deferred tax assets in respect of unabsorbed depreciation and carry forward of losses are recognised only if there is virtual certainty that there will be suﬃcient future taxable income available to realise such assets. Deferred tax assets are recognised for timing diﬀerences of other items only to the extent that reasonable certainty exists that suﬃcient future taxable income will be available against which these can be realised. Deferred tax assets and liabilities are oﬀset if such items relate to taxes on income levied by the same governing tax laws and the Company has a legally enforceable right for such set oﬀ. Deferred tax assets are reviewed at each Balance Sheet date for their realisability. XV. Cash and cash equivalents (for purposes of Cash Flow Statement) Cash comprises cash on hand and demand deposits with banks. Cash equivalents are short-term balances, highly liquid investments that are readily convertible into known amounts of cash and which are subject to insigniﬁcant risk of changes in value. Annual Report 2012-13 65 NOTES FORMING PART OF FINANCIAL STATEMENTS XVI. Cash Flow Statement Cash ﬂows are reported using the indirect method, whereby proﬁt/(loss) before tax, is adjusted for the eﬀects of transactions of non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash ﬂows from operating, investing and ﬁnancing activities of the Company are segregated based on the available information. XVII. Provisions and Contingencies 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. Contingent liabilities are not provided for but disclosed in the notes to the ﬁnancial statements. XVIII. Impairment of Assets The carrying values of assets/cash generating units at each Balance Sheet date are reviewed for impairment. If any indication of impairment exists, the recoverable amount of such assets is estimated and impairment is recognised, if the carrying amount of these assets exceeds their recoverable amount. The recoverable amount is the greater of the net selling price and their value in use. Value in use is arrived at by discounting the future cash ﬂows to their present value based on an appropriate discount factor. When there is indication that an impairment loss recognised for an asset in earlier accounting periods no longer exists or may have decreased, such reversal of impairment loss is recognised in the Statement of Proﬁt and Loss. XIX. Earnings per share Basic earnings per share is computed by dividing the proﬁt/(loss) after tax (including the post tax eﬀect of extraordinary items, if any) by the weighted average number of equity shares outstanding during the year. Diluted earnings per share is computed by dividing the proﬁt/(loss) after tax (including the post tax eﬀect of extraordinary items, if any) as adjusted for dividend, interest and other charges to expense or income relating to the dilutive potential equity shares, by the weighted average number of equity shares considered for deriving basic earnings per share and the weighted average number of equity shares which could have been issued on the conversion of all dilutive potential equity shares. Potential equity shares are deemed to be dilutive only if their conversion to equity shares would decrease the net proﬁt per share from continuing ordinary operations. Potential dilutive equity shares are deemed to be converted as at the beginning of the period, unless they have been issued at a later date. The dilutive potential equity shares are adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. average market value of the outstanding shares). Dilutive potential equity shares are determined independently for each period presented. The number of equity shares and potentially dilutive equity shares are adjusted for share splits/reverse share splits and bonus shares, as appropriate. XX. Segment reporting The Company identiﬁes primary segments based on the dominant source, nature of risks and returns and the internal organization and management structure. The operating segments are the segments for which separate ﬁnancial information is available and for which operating proﬁt/loss amounts are evaluated regularly by the Executive Management in deciding how to allocate resources and in assessing performance. XXI. Operating Cycle Based on the nature of products/activities of the Company and the normal time between acquisition of assets and their realisation in cash or cash equivalents, the Company has determined its operating cycle as 12 months for the purpose of classiﬁcation of its assets and liabilities as current and non-current. 66 Subex Limited Particulars Equity Shares Year ended March 31, 2013 Year ended March 31, 2012 NOTES FORMING PART OF FINANCIAL STATEMENTS NOTE 3 Share Capital AUTHORISED 49,50,40,000 Equity Shares of ` 10/- each (Previous Year: 24,50,40,000 Equity Shares of ` 10/- each) 2,00,000 Preference Shares of `98/- each Total ISSUED, SUBSCRIBED AND PAID UP EQUITY SHARES 16,66,39,962 Equity Shares of ` 10/- each (Previous Year : 6,93,10,772 Equity Shares of ` 10/- each) Total AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 B in Lakhs 49,504.00 24,504.00 196.00 49,700.00 196.00 24,700.00 16,664.00 6,931.08 16,664.00 6,931.08 NOTES A. Reconciliation of the number of Equity shares at the beginning and at the end of the reporting period Opening Balance Fresh Issue ESOP Conversion of FCCB B in Lakhs Closing Balance 6,93,10,772 6,93,10,025 - - - 747 9,73,29,190 - 16,66,39,962 6,93,10,772 Reconciliation of the amount outstanding at the beginning and at the end of the reporting period Opening Balance Fresh Issue Particulars ESOP B in Lakhs Closing Balance Conversion of FCCB Equity Shares Year ended March 31, 2013 Year ended March 31, 2012 6,931.08 6,931.00 - - - 0.08 9,732.92 - 16,664.00 6,931.08 B. The Company has only one class of Equity Share, having a par value of ` 10/-. The holder of equity shares is entitled to one vote per share and such amount of dividend per share as declared by the Company. In the event of liquidation of the Company, the holders of the equity shares will be entitled to receive any of the remaining assets of the Company, after distribution to all other parties concerned. The distribution will be in proportion to number of equity shares held by the shareholders. C. Details of shares held by each shareholder holding more than 5% shares Class of shares/Name of Shareholder Equity shares GIC Singapore KBC Aldini Capital Mauritius Limited QVT Mauritius West Fund Suﬀolk (Mauritius Limited) Deutche Bank AG London -CB Account Nomura Singapore Limited Merill Lynch Capital Markets Promoter and Promoter Group (See Note E below) No. of shares held AS AT MARCH 31, 2013 % holding in that class of shares No. of shares held AS AT MARCH 31, 2012 % holding in that class of shares - - 1,33,47,888 1,73,72,221 1,08,92,721 1,02,34,433 1,01,92,621 84,74,044 - - 8.07% 10.50% 6.59% 6.19% 6.16% 5.12% 34,98,288 8,52,920 - - - - - 81,01,801 5.05% 1.23% - - - - - 11.69% Bank of New York is the depositary of GDRs on behalf of GDR holders holding 69,89,399 shares representing 4.23% of total shareholding (Previous Year : 70,08,746 shares representing 10.11%). The Company does not have details of individual GDR holders/beneﬁciaries to determine if anyone holds more than 5% of the beneﬁcial interest individually in the equity shares. Annual Report 2012-13 67 NOTES FORMING PART OF FINANCIAL STATEMENTS NOTE 3 Share Capital (Contd.) D As at March 31, 2013, 21,95,88,093 shares (As at March 31, 2012, 3,94,88,476 shares) were reserved for issuance as follows: i) 4,670 shares (As at March 31, 2012, 12,022 shares) of ` 10 each towards outstanding employee stock options scheme under ‘ESOP 2000’ granted/available for grant. 11,31,147 shares (As at March 31, 2012, 19,87,561 shares) of ` 10 each towards outstanding employee stock options scheme under ‘ESOP 2005’ granted/available for grant. 7,30,806 shares (As at March 31, 2012, 20,00,000 shares) of ` 10 each towards outstanding employee stock options scheme under ‘ESOP 2008’ granted/available for grant. 67,174 shares (As at March 31, 2012, 26,19,811 shares) of ` 10 each towards conversion of foreign currency convertible bonds (FCCB I) available for conversion. Refer note 26. 8,39,721 shares (As at March 31, 2012, 32,869,082 shares) of ` 10 each towards conversion of foreign currency convertible bonds (FCCB II) available for conversion. Refer Note 26. 21,68,14,575 shares ( As at March 31, 2012 NIL) of ` 10 each towads conversion of Foreign currency convertible bond (FCCB III) avaibale for conversion. Refer note 26. ii) iii) iv) v) vi) E Details of shares held by Promoter and Promoter Group*: Name of Shareholders Subash Menon Kivar Holdings Private Limited (KHPL) (including Woodbridge Consulting & Investments Inc, which merged with KHPL) Sudeesh Yezhuvath Total Promoter and promoter group *as conﬁrmed by the registrar B in Lakhs % holding AS AT MARCH 31,2013 No. of shares held 25,80,601 55,21,200 1.56% 3.34% % holding AS AT MARCH 31, 2012 No. of shares held 25,80,601 55,21,200 3.72% 7.97% 3,72,243 84,74,044 0.23% 5.13% 81,01,801 11.69% F Aggregate number and class of shares allotted as fully paid up pursuant to contract(s) without payment being received in cash, bonus shares and shares bought back for the period of 5 years immediately preceding the Balance Sheet date: Particulars Company had issued Equity shares of `10 each to the GDR holders as of June 22, 2006 towards consideration of cost of acquisition of Azure Solutions Limited at ` 532.24 per share. In accordance with the terms of FCCBs III, out of the principal face value of US$ 127.721 Million, an amount of US$ 36.321 Million were mandatorily converted into Equity shares on July 17, 2012. (Refer note 26) Aggregate number of shares AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 1,17,28,728 1,17,28,728 8,93,35,462 - NOTE 4 Reserves and Surplus Capital Reserve Opening Balance Less : Transferred to Business Restructuring Reserve Closing balance General Reserve Securities Premium Account Opening Balance Transferred from Business Restructuring Reserve Additions during the year on account ESOP and conversion of FCCBs 68 Subex Limited NOTE NO AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 B in Lakhs - - - 1,779.76 316.20 271.10 10,505.40 346.70 (346.70) - 1,779.76 7,333.90 - 0.32 NOTES FORMING PART OF FINANCIAL STATEMENTS NOTE 4 Reserves and Surplus (Contd.) Write back from/(Accrual for) redemption premium on FCCBs (Net) Write back of expenses on issue of Shares Closing Balance Business Restructuring Reserve Opening Balance Transferred from/(to) Securities Premium/Capital Reserve Unutilised provisions created from BRR in earlier years now reversed Amounts utilised for Permitted Utilisations (Net) (Refer note 25) Closing Balance Share Options Outstanding Account Opening Balance Add: Amounts recorded on Grants during the year Add: Written back to the Statement of Proﬁt and loss/other accounts during the year Closing Balance Less : Deferred Stock Compensation Expenses Share Options Outstanding Account (Net) Foreign Currency Monetary Item Translation Diﬀerence Account Opening Balance -(Debit)/Credit (Add)/Less: Eﬀect of foreign exchange rate variation during the year (Add)/Less: Amortisation for the year Closing Balance 28 Surplus/(Deﬁcit) in Statement of Proﬁt and Loss Opening balance Add : Proﬁt/(Loss) for the year Closing Balance AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 B in Lakhs (574.70) 97.20 10,615.20 1,670.20 (271.10) - (1,318.48) 80.62 197.00 56.60 (115.11) 138.49 (14.71) 123.78 (357.00) (3,157.10) 748.45 (2,765.65) 10,493.10 (3,456.42) 7,036.68 (7,018.02) - 316.20 3,898.44 346.69 253.20 (2,828.13) 1,670.20 718.80 155.70 (677.50) 197.00 (83.46) 113.54 - (5,890.63) 5,533.63 (357.00) 10,253.40 239.70 10,493.10 Total Reserves and Surplus 16,870.39 14,015.80 NOTE 5 Long-term Borrowings Secured Foreign Currency Convertible Bonds (Refer note 26) Unsecured Foreign Currency Convertible Bonds (Refer note 26) Total NOTE 6 Other Long term Liabilities: Accrual for premium payable on redemption of bonds Total AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 B in Lakhs 47,852.27 1,302.80 49,155.07 - - - B in Lakhs AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 517.93 517.93 - - Annual Report 2012-13 69 NOTES FORMING PART OF FINANCIAL STATEMENTS NOTE Long-term Provisions 7 Provision for Employee Beneﬁts Provision for compensated absences Provision for gratuity Provision for Tax (Net of Advance Tax of ` 132.90 Lakhs) (As at March 31, 2012 ` 132.90 Lakhs) As at March 31, 2013 As at March 31, 2012 B in Lakhs 77.55 257.96 165.10 97.79 268.79 165.10 Total 500.61 531.68 NOTE 8 Short-term Borrowings Loans repayable on demand From Banks/Financial Instituitions Secured (Refer Note (i) below) From Financial Institutions Unsecured (Refer Note (ii) below) Total AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 B in Lakhs 16,550.46 9,893.91 - 16,550.46 1,000.00 10,893.91 (i) The secured loans from banks are secured by ﬁrst charge on receivables, current assets and ﬁxed assets of the Company. First ranking charge on ‘FCCB Repayment fund’ on a paripassu basis jointly and equally with bondholders of Company’s US$ 127,721,000 5.70% secured Foreign Currency Convertible Bonds due 2017. Paripassu First Charge by way of Hypothecation of Stocks and Book Debts and other Current Assets of the Company both present and future stored at Company premises at RMZ Ecoworld. This is further covered by a personal guarantee of a director of the Company apart from corporate guarantee in which a director is interested as well as a guarantee of Subex Technologies Ltd. (ii) Secured by a personal guarantee and shares pledged of a director of the Company. NOTE 9 Other Current Liabilities AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 B in Lakhs Current Maturities of Long-term Borrowings - FCCB (Unsecured)(Refer note 26) Current maturities of Long-term borrowings - Hire Purchase Loans from Banks (Secured) (Refer note (i) below) Interest accrued but not due on borrowings Unclaimed Dividends (Refer note 39.2) Unearned Revenue Advances from customers Accrual for premium payable on redemption of bonds Estimated Liability on Forward Contracts Other Payables Statutory remittances - 0.92 2,082.19 2.92 1,724.31 - - - 348.44 47,720.75 25.03 109.47 4.08 1,552.80 428.27 18,421.50 1,239.38 272.47 69,773.75 Total (i) Secured against the Hypothecation of vehicles ﬁnanced under these loans. Hire Purchase loans amount to ` 0.90 Lakhs as at March 31, 2013 (` 25 Lakhs as at March 31, 2012). The interest rate on these loans range from 9% to 20%. 4,158.78 70 Subex Limited NOTES FORMING PART OF FINANCIAL STATEMENTS NOTE 10 Short-term Provisions Provision for Employee Beneﬁts Provision for compensated absences Provision for gratuity Warranty Provision for Tax ( Net of Advance Tax of ` Nil ) (As at March 31, 2012 ` Nil) Total NOTE 11 Fixed Assets As at March 31, 2013 As at March 31, 2012 B in Lakhs 10.98 31.08 - 1.20 43.26 8.50 10.95 42.29 1.44 63.18 B in Lakhs SL. NO PARTICULARS 11.A Tangible Assets GROSS BLOCK DEPRECIATION NET BLOCK As at April 1, 2012 Additions Disposals As at March 31, 2013 Upto March 31, 2012 For the year Withdrawn on Deletions Upto March 31, 2013 As at March 31, 2013 As at March 31, 2012 1 Computers 2,680.50 99.90 220.90 2,559.50 2,309.90 162.91 200.80 2,272.01 287.49 370.60 2 3 4 Previous year balance Furniture & Fixtures Previous year balance Vehicles Previous year balance Oﬃce Equipments Previous year balance Total Tangible Assets (2,476.70) (203.80) - (2,680.50) (2,059.80) (250.10) - (2,309.90) (370.60) 65.30 0.89 (57.20) (8.10) - - 66.19 55.50 3.20 (65.30) (53.00) (2.50) - - 58.70 7.49 9.80 (55.50) (9.80) 241.60 - 157.50 84.10 212.90 25.26 156.61 81.55 2.55 28.70 (347.90) (0.60) (106.90) (241.60) (232.10) (67.20) (86.40) (212.90) (28.70) 271.50 4.65 0.70 275.45 205.80 34.55 0.42 239.93 35.52 65.70 (261.40) (10.80) (0.70) (271.50) (161.00) (45.10) (0.30) (205.80) (65.70) 3,258.90 105.44 379.10 2,985.24 2,784.10 225.92 357.83 2,652.19 333.05 474.80 Previous Year (3,143.20) (223.30) (107.60) (3,258.90) (2,505.90) (364.90) (86.70) (2,784.10) (474.80) 11.B Intangible Assets 1 2 Goodwill Previous year balance Intellectual Property Rights 137.67 (137.67) 3,973.95 Previous Year (3,973.95) Total intangible Assets 4,111.62 Previous Year (4,111.62) - - - - - - - - - - 137.67 137.67 (137.67) (137.67) 3,973.95 3,973.95 (3,973.95) (3,973.95) 4,111.62 4,111.62 (4,111.62) (4,111.62) - - - - - - - - - - 137.67 (137.67) 3,973.95 (3,973.95) 4,111.62 (4,111.62) - - - - - - - - - - - TOTAL 7,370.52 105.44 379.10 7,096.86 6,895.72 225.92 357.83 6,763.81 333.05 474.80 Previous Year (7,254.82) (223.30) (107.60) (7,370.52) (6,617.52) (364.90) (86.70) (6,895.72) (474.80) Annual Report 2012-13 71 NOTES FORMING PART OF FINANCIAL STATEMENTS NOTE 12 Non-Current Investments (At cost, unless otherwise stated) AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 B in Lakhs (Long term, trade, unquoted) Investments in Equity shares In wholly owned subsidiaries 39,99,994 equity shares of ` 10 each fully paid up in Subex Technlogies Limited, India {Net of provision for other than temporary diminution ` 400 Lakhs (Previous year - ` 400 Lakhs)} 50,39,565,245 Equity shares fully paid, Par Value of GBP 0.00001 each, in Subex (UK) Ltd. 100 equity shares fully paid, no-par value, in Subex Americas Inc, Canada {Net of provision for other than temporary diminution ` 65,000 Lakhs (Previous year - ` 65,000 Lakhs)} Total Aggregate amount of unquoted investments (At cost) Aggregate provision made for other than temporary diminution in value of long term investments NOTE 13 Long-term Loans and Advances (Unsecured, considered good) 64,738.68 64,738.68 12,495.74 12,495.74 77,234.42 142,634.42 65,400.00 77,234.42 142,634.42 65,400.00 B in Lakhs AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 Advance Tax (net of provision for ` 332.80 Lakhs) (As at March 31, 2012 ` 332.80 Lakhs) Balances with government authorities - Service Tax Credit Receivable Security Deposits MAT credit entitlement Total 1,250.30 266.90 727.37 174.13 2,418.70 1,172.13 266.90 726.29 174.13 2,339.45 B in Lakhs NOTE 14 Other Non - Current Assets Long-term Trade Receivables (Unsecured) Considered Good Outstanding for more than six months from the due date Considered Doubtful Less: Provision for Doubtful trade receivables Unbilled Revenue Loans and advances to related parties Unsecured, considered good (Refer note 31) Doubtful (Refer note 31) Less: Provision for doubtful loans and advances Total 72 Subex Limited AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 10,633.30 - 2,488.00 (2,488.00) 10,633.30 343.50 1,711.70 1,694.66 (1,694.66) 12,688.50 1,392.89 (1,392.89) - - 5.00 1,694.66 (1,694.66) 5.00 NOTES FORMING PART OF FINANCIAL STATEMENTS NOTE 15 Trade Receivables (Unsecured) Outstanding for a period exceeding six months from due date Considered Good Other Trade receivables Considered Doubtful Less: Provision for Doubtful trade receivables Other Trade receivables Considered Good Total NOTE 16 Cash and Bank Balances Cash on hand Balance with Banks in Current Accounts EEFC Accounts Other bank balances in Earmarked Accounts Unclaimed dividend Accounts (Refer Note 39.2) Margin Money Deposits Total NOTE 17 Short-term Loans and Advances Loans and advances to related parties Unsecured, considered good (Refer note 31) Loans and advances to employees (Unsecured, considered good) Advance recoverable (Refer note 39.9) Prepaid expenses (Unsecured, considered good) Balances with government authorities (Unsecured, considered good) Service Tax Credit Receivable Others (Unsecured, considered good) Advance to Suppliers Total NOTE 18 Other Current Assets (Unsecured, considered good) Unbilled Revenue Accruals: Interest accrued but not due on deposits Recoverable Expenses Total AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 B in Lakhs - 435.48 1,398.90 (1,398.90) - 51,708.28 51,708.28 - - - 59,245.70 59,681.18 B in Lakhs AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 - 78.93 9.44 88.37 2.92 296.36 299.28 387.65 - 1.12 0.47 1.59 4.08 150.22 154.30 155.89 B in Lakhs AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 6.04 183.58 233.80 206.39 43.65 56.93 730.39 1,608.84 179.82 - 350.71 270.50 17.10 2,426.97 B in Lakhs AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 1,857.50 24.50 32.03 1,914.03 3,350.32 2.66 68.48 3,421.46 Annual Report 2012-13 73 NOTES FORMING PART OF FINANCIAL STATEMENTS NOTE 19 Revenue from Operations Income from Sale of Products (and related services) Platform Based Solutions Standalone Product Solutions Total NOTE 20 Other Income Exchange Fluctuation gain (Net) Interest income Interest on deposit accounts from banks Interest on Inter Company loans Other non-operating income Provision for Doubtful Debts written back/Bad Debts recovered Proﬁt on sale of Fixed Assets (Net) Miscellaneous Income Total NOTE 21 Employee Beneﬁts Expense Salaries & Wages Contribution to Provident Fund and Other Funds Expense on Employee Stock Option Scheme (ESOP) Staﬀ Welfare Expenses Total NOTE 22 Finance Costs Interest Expenses on: Foreign Currency Convertible Bonds Other Borrowings Other Borrowings Costs - Bank Charges Total NOTE 23 Other Expenses Software Purchases Rent Power, Fuel and Water Charges Repairs & Maintenance Insurance Communication Costs Printing & Stationery Travelling & Conveyance Rates & Taxes Including Filing Fees Advertisement & Business Promotion Consultancy Charges Payments to Auditors (Refer Note 38) Marketing & Allied Service Charges Provision for Doubtful trade and other receivables Miscellaneous Expenses Loss on sale of Fixed Assets (Net) Exchange Fluctuation loss (Net) Total 74 Subex Limited FOR THE YEAR ENDED MARCH 31, 2013 FOR THE YEAR ENDED MARCH 31, 2012 B in Lakhs 3,268.03 23,287.87 26,555.90 FOR THE YEAR ENDED MARCH 31, 2013 - 39.97 78.46 2.17 - 1.45 122.05 2,091.30 30,809.80 32,901.10 B in Lakhs FOR THE YEAR ENDED MARCH 31, 2012 724.35 4.30 157.24 63.17 7.62 44.88 1,001.56 B in Lakhs AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 6,016.28 339.93 5.56 170.25 6,532.02 7,408.40 338.10 (112.38) 258.35 7,892.47 B in Lakhs AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 2,212.06 2,436.94 256.15 4,905.15 1,045.40 2,917.70 76.15 4,039.25 B in Lakhs AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 40.32 940.95 161.67 320.18 125.39 99.76 33.74 1,204.85 170.25 33.69 88.28 79.23 12,354.25 77.55 10.27 1.43 822.61 16,564.42 20.42 906.12 216.19 344.62 116.70 104.18 30.95 1,190.45 72.91 63.48 106.55 78.10 11,448.94 666.60 79.12 - - 15,445.33 NOTES FORMING PART OF FINANCIAL STATEMENTS NOTE 24 Exceptional Items AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 B in Lakhs Exchange (Gain)/Loss on Restatement of FCCBs Exchange (Gain)/Loss on intra group foreign currency loans and advances Reversal of stock compensation expenses pursuant to voluntary surrender of options Exceptional Provision for Doubtful trade and other receivables Total - - - 1,663.56 1,663.56 5,533.60 (226.30) (214.90) - 5,092.40 NOTE 25 Accounting under the Proposal approved by the Hon’ble High court a) b) (cid:1) c) (cid:1) (cid:1) d) (cid:1) (cid:1) (cid:1) (cid:1) During the year ended March 31, 2010, the shareholders of the Company approved the Board’s proposal (hereinafter referred to as ‘the Proposal’ for transferring amounts from the Securities Premium and Capital Reserves as on or arising after April 1, 2009) (upto March 31, 2012) to a Business Restructuring Reserve (BRR) to be utilised from April 1, 2009 for certain Permitted Utilisations as mentioned in the Proposal. The Proposal was approved by the Hon’ble High court of Karnataka on May 4, 2010 and was registered with the Registrar of Companies on May 11, 2010, thereby completing all the requirements for the order to be eﬀective. Adjustments in the BRR during the previous year ended March 31, 2011 In accordance with the Proposal, the Board of Directors of the Company have approved the following for ﬁnancial year ended March 31, 2011: (cid:113)(cid:1) (cid:113)(cid:1) (cid:85)(cid:83)(cid:66)(cid:79)(cid:84)(cid:71)(cid:70)(cid:83)(cid:1)(cid:80)(cid:71)(cid:1)` 17,400.00 Lakhs during the year from the balances in Securities Premium Account and Capital Reserve to the BRR (cid:86)(cid:85)(cid:74)(cid:77)(cid:74)(cid:91)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:35)(cid:51)(cid:51)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:81)(cid:70)(cid:83)(cid:78)(cid:74)(cid:85)(cid:85)(cid:70)(cid:69)(cid:1)(cid:86)(cid:85)(cid:74)(cid:77)(cid:74)(cid:84)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:84)(cid:1)(cid:85)(cid:80)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:70)(cid:89)(cid:85)(cid:70)(cid:79)(cid:85)(cid:1)(cid:80)(cid:71)(cid:1)` 15,503.70 Lakhs (net). Adjustments in the BRR during the previous year ended March 31, 2012 In accordance with the Proposal, the Board of Directors of the Company have approved the following for ﬁnancial year ended March 31, 2012: (cid:113)(cid:1) (cid:85)(cid:83)(cid:66)(cid:79)(cid:84)(cid:71)(cid:70)(cid:83)(cid:1)(cid:80)(cid:71)(cid:1)(cid:1)` 346.69 Lakhs during the year from the balances in Capital Reserve to the BRR (cid:86)(cid:85)(cid:74)(cid:77)(cid:74)(cid:91)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:1)(cid:80)(cid:71)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:35)(cid:51)(cid:51)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:81)(cid:70)(cid:83)(cid:78)(cid:74)(cid:85)(cid:85)(cid:70)(cid:69)(cid:1)(cid:86)(cid:85)(cid:74)(cid:77)(cid:74)(cid:84)(cid:66)(cid:85)(cid:74)(cid:80)(cid:79)(cid:84)(cid:1)(cid:85)(cid:80)(cid:1)(cid:85)(cid:73)(cid:70)(cid:1)(cid:70)(cid:89)(cid:85)(cid:70)(cid:79)(cid:85)(cid:1)(cid:80)(cid:71)(cid:1)` 2,574.93 Lakhs (net of reversals). (cid:113)(cid:1) Adjustments in the BRR during the current year ended March 31, 2013 In accordance with the Proposal, the Board of Directors of the Company have approved the following for ﬁnancial year ended March 31, 2013: (cid:113)(cid:1) (cid:85)(cid:83)(cid:66)(cid:79)(cid:84)(cid:71)(cid:70)(cid:83)(cid:1)(cid:80)(cid:71)(cid:1)` 271.10 Lakhs during the year to Securities Premium, (cid:85)(cid:80)(cid:88)(cid:66)(cid:83)(cid:69)(cid:84)(cid:1)(cid:39)(cid:36)(cid:36)(cid:35)(cid:1)(cid:83)(cid:70)(cid:84)(cid:85)(cid:83)(cid:86)(cid:68)(cid:85)(cid:86)(cid:83)(cid:74)(cid:79)(cid:72)(cid:1)(cid:70)(cid:89)(cid:81)(cid:70)(cid:79)(cid:84)(cid:70)(cid:84)(cid:1)` 359.58 Lakhs, (cid:85)(cid:80)(cid:88)(cid:66)(cid:83)(cid:69)(cid:84)(cid:1)(cid:83)(cid:70)(cid:87)(cid:70)(cid:83)(cid:84)(cid:66)(cid:77)(cid:1)(cid:80)(cid:71)(cid:1)(cid:86)(cid:79)(cid:67)(cid:74)(cid:77)(cid:77)(cid:70)(cid:69)(cid:1)(cid:83)(cid:70)(cid:87)(cid:70)(cid:79)(cid:86)(cid:70)(cid:1)` 206.00 Lakhs, (cid:85)(cid:80)(cid:88)(cid:66)(cid:83)(cid:69)(cid:84)(cid:1)(cid:81)(cid:83)(cid:80)(cid:87)(cid:74)(cid:84)(cid:74)(cid:80)(cid:79)(cid:1)(cid:71)(cid:80)(cid:83)(cid:1)(cid:51)(cid:70)(cid:68)(cid:70)(cid:74)(cid:87)(cid:66)(cid:67)(cid:77)(cid:70)(cid:84)(cid:1)` 752.90 Lakhs. (cid:113)(cid:1) (cid:113)(cid:1) (cid:113)(cid:1) e) Had the Proposal not provided for the above, the eﬀect of accounting under the Accounting Standards referred to in Section 211(3C) of the Companies Act, 1956 would have been as under Amount in B Lakhs except as otherwise indicated In the Statement of Proﬁt and loss MARCH 31, 2013 MARCH 31, 2012 Revenue would have been lower by: The loss under Exceptional items would have been higher as follows: - One time non-recurring expenses including restructuring fees, advisory fees, marketing expenses and reversal of long term retention beneﬁt plan (net) - Provision towards trade receivables Sub-Total Proﬁt/(loss) after Tax would have been lower/higher by Basic Earnings/(Loss) per share would have been – ` Diluted Earnings/(Loss) per share would have been – ` 206.00 359.58 752.90 1,112.48 1,318.48 (3.50) (3.50) - 2,574.93 - 2,574.93 2,574.93 (3.37) (3.37) Annual Report 2012-13 75 NOTES FORMING PART OF FINANCIAL STATEMENTS NOTE 26 Foreign Currency Convertible Bonds (FCCBs) a) During the year 2006-07, the Company issued Foreign Currency Convertible Bonds (FCCB I) aggregating to US$ 180 Million, with Exchange rate for conversion of FCCB : ` 44.08/ US$ 1 an interest rate of 2% p.a. payable semi-annually in arrears, with terms of conversion being : i) ii) Conversion price : ` 656.20 per share iii) Redemption date : March 09, 2012 iv) Premium payable on redemption : US$ 14.05 Million v) Listing on the London Stock Exchange The bonds were available for conversion at any point in time during the period prior to the redemption date. During the year 2009-10, the Company presented to restructure the FCCBs I by oﬀering a discount of ~30% on the face value of the existing bonds in return for new FCCBs (“FCCBs II”) having a face value of US$ 126 Million. Pursuant to the oﬀer, the FCCBs I Bondholders, with a face value of US$ 141 Million exchanged their bonds for new FCCBs with a face value of US$ 98.70 Million. The remaining FCCBs I bondholders holding bonds with a face value of US$ 39 Million (out of the original bondholders holding US$ 180 Million) did not choose the option for restructuring. The terms and conditions applicable for the new FCCB II bonds, for the US$ 98.70 Million face value, were as under : i. ii. iii. Conversion price : ` 80.31 per share iv. Redemption date : March 09, 2012 v. Premium payable on redemption : US$. 23.23 Million vi. Listing on the Singapore Exchange Securities Trading Limited Interest rate : 5% p.a. payable semi annually Exchange rate for conversion of FCCB : ` 48.17/ US$ 1 Both the bonds were initially redeemable on or by March 9, 2012, if not converted into equity shares as per terms of issue. Based on an approval received from the Reserve Bank of India and bond holders, the redemption date was extended to July 09, 2012. Out of the US$ 98.70 million of FCCBs II, bonds having a face value of US$ 31.90 million were converted into equity shares as of March 31, 2010 and bonds with a face value of US$ 12 million were converted during the year ending March 31, 2011, retaining a closing balance of US$ 54.80 Million outstanding FCCBs II bonds. b) Pursuant to the approval of the holders of “US$ 180 Million 2% convertible unsecured bonds”, [of which US$ 39 Million was outstanding (“FCCBs I”)] and “US$ 98.70 Million 5% convertible unsecured bonds”, [of which US$ 54.80 was outstanding (“FCCBs II”)], at their respective meetings held on July 5, 2012 and exchange oﬀers received under the exchange oﬀer memorandum dated June 13, 2012, holders of US$ 38 Million out of FCCBs I and US$ 53.40 Million out of FCCBs II oﬀered their bonds for exchange and secured bonds with a face value of US$ 127.72 million (“FCCBs III”) were issued with maturity date of July 7, 2017. The Company has been legally advised that there is no tax incidence arising from the above restructuring. i. c) The terms and conditions of FCCB III are as under: Interest rate : 5.70% p.a. payable semi annually Exchange rate for conversion of FCCB : ` 56.06/ US$ 1 ii. iii. Equity Conversion price : ` 22.79 per share iv. Redemption date : July 07, 2017 v. Listing on the Singapore Exchange Securities Trading Limited vi. Second ranking paripassu charge in respect of all movable properties, present & future, covered under the Existing security and First ranking charge in respect of all movable properties, present & future, other than & to the extent covered by the existing security. First ranking charge on FCCB Repayment fund on a paripassu basis jointly & equally with SBI & Axis Bank Ltd. The promoters of the Company have pledged their share towards securing the repayment of FCCB III. 76 Subex Limited NOTES FORMING PART OF FINANCIAL STATEMENTS NOTE 26 Foreign Currency Convertible Bonds (FCCBs) (Contd.) vii. Mandatory conversion of bonds with a face value of US$ 36.32 Million into equity shares at the aforesaid conversion price on July 17, 2012. During the year FCCB III with face value of US$ 3.25 Million were converted into equity shares of the Company, retaining a closing balance of US$ 88.15 Million. d) Pursuant to approval of the RBI dated April 27, 2012 and requisite approvals under the trust deed of the holders of the Company’s US$ 180 million convertible unsecured bonds and US$ 98.70 million convertible unsecured bonds the maturity period of the un- exchanged portion of FCCBs I of face value US$ 1 Million and FCCBs II of face value US$ 1.40 Million stands extended to March 9, 2017, with its other terms and conditions remaining unchanged. e) FCCB I : As at March 31, 2013, the face value of the US$ 1 Million FCCBs (Previous Year: US$ 39 Million) amounts to ` 542.81 Lakhs (Previous Year: ` 19,841.27 Lakhs) and is included in Note 5 – Long Term Borrowings. The premium payable on maturity has been accrued by a charge to Securities Premium. FCCB II : As at March 31, 2013, the face value of the US$ 1.40 Million FCCBs (Previous Year: US$ 54.80 Million) amounts to ` 759.99 Lakhs (Previous Year: ` 27,879.48 Lakhs) and is included in Note 5 – Long Term Borrowings. The premium payable on maturity has been accrued by a charge to Securities Premium. FCCB III : As at March 31, 2013, the face value of the US$ 88.15 Million FCCBs (Previous Year: US$ Nil) amounts to ` 47,852.27 Lakhs (Previous Year: ` Nil) and is included in Note 5 – Long Term Borrowings. NOTE 27 Employees Stock Option Plan (ESOP) The Company during the years 1999-2000, 2005-2006 and 2008-2009 has established ESOP II, ESOP III and ESOP IV respectively. These schemes have been formulated in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. As per these schemes, 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. The Company has obtained in-principle approval for listing of shares upto a limit as mentioned below. ESOP II : 8,83,750 shares ESOP III : 20,00,000 shares ESOP IV : 20,00,000 shares EMPLOYEES’ STOCK OPTION DETAILS AS ON THE BALANCE SHEET DATE ARE Particulars Options outstanding at the beginning of the year ESOP – II ESOP – III ESOP – IV Granted during the year ESOP – II ESOP – III ESOP – IV MARCH 31, 2013 MARCH 31, 2012 Options (No’s) Weighted Average Exercise Price per Stock Option (`) Options (No’s) Weighted Average Exercise Price per Stock Option (`) 12,022 13,56,086 10,19,289 85.22 39.30 28.95 2,78,259 16,15,233 11,87,619 71.71 104.11 54.17 - 1,24,100 - - 12.82 - - 14,61,441 10,19,583 - 31.61 28.44 Annual Report 2012-13 77 NOTES FORMING PART OF FINANCIAL STATEMENTS NOTE 27 Employees Stock Option Plan (ESOP) Particulars MARCH 31, 2013 MARCH 31, 2012 Options (No’s) Weighted Average Exercise Price per Stock Option (`) Options (No’s) Weighted Average Exercise Price per Stock Option (`) - - - 7,352 3,49,039 2,88,483 Exercised during the year ESOP – II ESOP – III ESOP – IV Cancelled, Surrendered or Lapsed during the year ESOP – II ESOP – III ESOP – IV Options outstanding at the end of the year ESOP – II ESOP – III ESOP – IV Options exercisable at the end of the year ESOP – II ESOP – III ESOP – IV Options available for Grant at the end of the year ESOP – II ESOP – III ESOP – IV [Weighted average remaining contractual life (considering vesting and exercise period)] - 8,56,414 12,69,194 4,670 11,31,147 7,30,806 4,670 8,64,489 4,57,293 - - - - - - 82.63 34.04 28.79 - - - - - - - 747 - 2,66,237 17,19,841 11,87,913 12,022 13,56,086 10,19,289 9,397 98,823 9,191 - 6,31,475 9,80,711 - - - - - - 85.22 39.30 28.95 - - - - - - ESOP – II ESOP – III At March 31, 2012: 1.54 Years At March 31, 2013: 1.07 Years At March 31, 2012: 3.81 Years At March 31, 2013: 3.07 Years ESOP – IV At March 31, 2012: 4.16 Years At March 31, 2013: 3.46Years 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 8% (Previous year 8%), expected life: 3 years (Previous year: 3 years), expected volatility of share: 64.85% (Previous year 33.73%), and expected dividend yield: 0% (Previous year 0%) 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: Amount in B Lakhs except as otherwise indicated Particulars Net Proﬁt for the year (as reported) Add : Stock-based employee compensation relating to grants after Apr 1, 2006 Less : Stock-based compensation expenses determined under fair value based method for the above grants Net Proﬁt/(loss) - (proforma) Basic earnings per share (as reported) Basic earnings per share (proforma) Diluted earnings per share (as reported) Diluted earnings per share (proforma) - ` - ` - ` - ` MARCH 31, 2013 (3,456.42) 5.56 30.80 MARCH 31, 2012 239.70 (327.30) 33.00 (3,481.66) (2.54) (2.56) (2.54) (2.56) (120.60) 0.35 (0.17) 0.35 (0.17) 78 Subex Limited NOTES FORMING PART OF FINANCIAL STATEMENTS NOTE 28 The Company adopted the amendments to Accounting Standard 11 “The Eﬀects of Changes in Foreign Exchange Rates” that were notiﬁed during the year ended March 31, 2012. Pursuant to this amendment, exchange ﬂuctuations arising on restatement of all long term monetary foreign currency assets and liabilities at rates diﬀerent from those at which they were initially recorded or reported in the previous ﬁnancial statements (whichever is later), are accumulated in a Foreign Currency Monetary Item Translation Diﬀerence account and are amortised over the balance period of such long term asset/liability. Consequently, exchange ﬂuctuation losses (net) arising on restatement of such items have been deferred to the extent of ` 2,765.65 Lakhs (Previous Year: ` 357.00 Lakhs) at March 31, 2013 and the loss for the year is lower by a corresponding amount. NOTE 29 Employees Beneﬁt’s Plans a) Deﬁned Contribution Plans The Company makes contributions to Provident Fund, Employee State Insurance scheme contributions which are deﬁned contribution plan for qualifying employees. Under the Scheme, the Company is required to contribute a speciﬁed percentage of the payroll costs to fund the beneﬁts. The Company recognized ` 229.59 Lakhs (Year ended March 31, 2012 ` 307.51 Lakhs) for Provident Fund contributions ` 2.04 Lakhs (Year ended March 31, 2012 ` 2.09 Lakhs) for Employee state insurance scheme contribution in the Statement of Proﬁt and Loss. b) Deﬁned Beneﬁt Plans The Company oﬀers Gratuity beneﬁts to employees, a deﬁned beneﬁt plan. The following table sets out the funded status of Gratuity liability and the amounts recognised in the ﬁnancial statements: Amount in B Lakhs except Assumptions Gratuity MARCH 31, 2013 MARCH 31, 2012 I 1 2 3 4 5 6 7 8 II 1 2 III 1 2 3 4 5 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 recognized in the Statement of Proﬁt and Loss Actual Contribution and Beneﬁt Payments for the year Actual beneﬁt payments Actual Contributions Net asset/(liability) recognized in Balance Sheet Present value of Deﬁned Beneﬁt Obligation (DBO) Fair value of plan assets Funded status [Surplus/(Deﬁcit)] Unrecognized Past Service Costs Net asset/(liability) recognized in Balance Sheet - Current - Non current 56.77 20.63 (0.59) - - - 31.51 108.32 99.26 98.84 (296.40) 7.36 (289.04) - (289.04) (31.08) (257.96) 74.31 23.00 (1.61) - - - (67.20) 28.50 43.00 15.21 (286.84) 7.10 (279.74) - (279.74) (10.95) (268.79) Annual Report 2012-13 79 NOTES FORMING PART OF FINANCIAL STATEMENTS NOTE 29 (Contd.) Amount in B Lakhs except Assumptions Gratuity MARCH 31, 2013 MARCH 31, 2012 299.40 74.31 23.00 - - - - (66.87) (43.00) 286.84 33.00 - 1.61 0.30 15.19 (43.00) 7.10 8.70% 8.60% 6.00% 5.00% March 31, 2013 (296.40) 7. 36 (289.04) 11.31 IV 1 2 3 4 5 6 7 8 9 10 V 1 2 3 4 5 6 7 VI 1 2 3 4 Change in Deﬁned Beneﬁt Obligations during the year 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 Plan assets at beginning of year Acquisition Adjustment Expected return on plan assets(estimated) Actuarial Gain/(Loss) Actual Company contributions Beneﬁts paid Plan assets at the end of period Actuarial Assumptions Discount Rate Expected Return on plan assets Salary escalation Attrition Rate Five Year Data 286.84 56.77 20.63 - - - - 31.42 (99.26) 296.40 7.10 - 0.59 0.09 98.84 (99.26) 7.36 8.10% 8.50% 6.00% 9.00% Period Ending Deﬁned Beneﬁt Obligation at end of the period Plan Assets at end of the period Funded Status Experience Gain/(Loss)adjustments on Plan Liabilities Experience Gain/(Loss)adjustments on Plan Assets Actuarial Gain/(Loss) due to change on assumptions March 31, 2009 March 31, 2010 March 31, 2011 March 31, 2012 (286.84) 7.10 (279.74) 54.12 (299.41) 33.04 (266.37) (4.83) (153.28) 15.04 (138.24) 8.08 (193.23) 50.84 (142.39) 3.85 0.33 (12.23) - 6.84 0.38 - 0.31 12.77 (0.09) (42.73) The composition of the plan assets held under the funds managed by the Insurer is as follows: Fund Type 2013 % 2012 Equity Instruments Debt Instruments FD and Other Asset Estimated amounts to be contributed in the immediate next year ` 31.08 Lakhs (Previous year: ` 10.95 Lakhs) 4.68 74.88 20.44 5.22 79.73 15.05 The discount rate is based on the prevailing market yields of Government of India securities as at the Balance Sheet date for the estimated term of the obligations. The estimate of future salary increases considered, takes into account the inﬂation, seniority, promotion, increments and other relevant factors 80 Subex Limited NOTES FORMING PART OF FINANCIAL STATEMENTS NOTE 29 (Contd.) Actuarial Assumption for long term compensated absences 8.70% Discount rate NA Expected return on plan asset 6.00% Salary escalation rate Attrition 5.00% The discount rate is based on the prevailing market yields of Government of India securities as at the Balance Sheet date for the 8.10% NA 6.00% 9.00% estimated term of the obligations. The estimate of future salary increases considered, takes into account the inﬂation, seniority, promotion, increments and other MARCH 31, 2013 MARCH 31, 2012 relevant factors NOTE 30 Since the Company prepares consolidated ﬁnancial statements in addition to these ﬁnancial statements, both of which form part of the annual report of the Company, as permitted by Accounting Standard 17 “Segment reporting”, the segment information is presented on the basis of the consolidated ﬁnancial statements. NOTE 31 Related Party Information i. Related Parties Wholly Owned Subsidiaries Subex Americas Inc. Subex (UK) Ltd Subex Technologies Ltd Subex Azure Holdings Inc. Subex (Asia Paciﬁc) Pte Ltd Subex Inc. Subex Technologies Inc. Key Management Personnel Surjeet Singh, Managing Director & CEO, October 5, 2012 onwards Subash Menon, Managing Director & CEO upto September 27, 2012 Sudeesh Yezhuvath, Wholetime Director & Chief Operating Oﬃcer upto October 5, 2012 ii. Details of the transactions with the related parties: Particulars Subsidiaries Key Management Personnel 2012-13 2011-12 2012-13 2011-12 B in Lakhs Marketing and allied Service Charges and reimbursement (including software development charges)* i) Subex (UK) Ltd ii) Subex Inc. iii) Subex Americas Inc. iv) Subex (Asia Paciﬁc) Pte Ltd 5,689.76 5,676.42 278.65 709.42 6,136.91 6,589.82 970.81 538.63 - - - - - - - - Annual Report 2012-13 81 NOTES FORMING PART OF FINANCIAL STATEMENTS NOTE 31 Related Party Information (Contd.) B in Lakhs Particulars Subsidiaries 2012-13 2011-12 Key Management Personnel 2011-12 2012-13 Income from Software Development and Services: i) Subex (UK) Ltd ii) Subex Inc. iii) Subex (Asia Paciﬁc) Pte Ltd iv) Subex Americas Inc. Salary and Perquisites (Also refer Note 39.9) Subash Menon SudeeshYezhuvath Surjeet Singh Interest received on Inter Company Loans i) Subex UK Ltd ii) Subex Americas Inc. iii) Subex Inc. iv) Subex (Asia Paciﬁc) Pte Ltd Expenses allocated to/(from): i) Subex (UK) Ltd ii) Subex Inc. iii) Subex (Asia Paciﬁc) Pte Ltd iv) Subex Americas Inc. As at: Amount due as at year end from/(to) i) Subex (UK) Ltd ii) Subex Inc. iii) Subex (Asia Paciﬁc) Pte Ltd iv) Subex Americas Inc. v) Surjeet Singh Loans/advances outstanding as at year end from/(to) i) Subex (UK) Ltd ii) Subex (Asia Paciﬁc) Pte Ltd iii) Subex Americas Inc. iv) Subex Inc. v) Subex Technologies Ltd# Outstanding Guarantees given from/(to)Z i) Subex Technologies Inc * Amount paid/ payable in Foreign Currency. # 107.69 108.39 6.64 216.51 197.41 - 8,005.93 4,175.86 1,480.44 1,533.05 8,730.91 3,861.81 1,529.83 3,726.62 - 784.55 - - (2.60) - (0.41) (1.60) - 157.24 - - 111.90 52.01 3.91 23.81 March 31, 2013 March 31, 2012 March 31, 2013 March 31, 2012 B in Lakhs (897.90) (1,791.41) 5,198.81 15,759.92 - - - 1,706.70 - 1,705.70 (2,348.72) (1,060.01) 4,771.01 15,459.21 - - - 1,608.82 - 1,699.70 2,171.40 2,171.40 - - - - 5.97 - - - - - - - - - - - - - - - - - - - Advances to Subex Technologies Ltd has been provided during the ﬁnancial year 2010-11 to an extent of ` 1,694.66 Lakhs out of utilisation of BRR. NOTE 32 Operating Leases The Company had non-cancellable leasing arrangement for its oﬃce premises which on renewal during the year got converted into cancellable operating lease arrangement. Rental expenses for operating leases included in the Statement of Proﬁt and Loss for the year is ` 940.95 Lakhs (Previous year: ` 906.12 Lakhs) The future minimum lease payments for non-cancelable operating leases were: Within one year Due in a period between one year and ﬁve years Due after ﬁve years 82 Subex Limited March 31, 2013 - - - B in Lakhs March 31, 2012 974.31 4,338.21 1,999.62 NOTES FORMING PART OF FINANCIAL STATEMENTS NOTE 33 Earnings per Share (EPS) Proﬁt after Tax attributable to shareholders (A) Add : Interest on FCCBs Add/(Less) : Exchange Fluctuation on FCCB Adjusted Proﬁts after Tax for Diluted EPS (B) Weighted Average Number of Shares (in Lakhs) for Basic EPS (C) Eﬀect of Existence of Dilutive Instruments (FCCBs and ESOPs) – (in Lakhs) Weighted Average Number of Shares (in Lakhs) for Diluted EPS (D) Earnings per Share – Basic [(A)/(C)] - ` Earnings per Share - Diluted [(B)/(D)] - ` (Refer Note below). Face value of shares: ` 10/- each Amount B Lakhs except as otherwise indicated MARCH 31, 2013 (3,456.42) - - (3,456.42) MARCH 31, 2012 239.70 - - 239.70 1,362.43 0.10 1,362.53 (2.54) (2.54) 693.11 0.80 693.91 0.35 0.35 Note: FCCBs outstanding as at March 31, 2013 are anti-dilutive and hence have not been considered for purposes of Dilutive EPS in year ended March 31, 2013. Certain of the FCCBs as at March 31, 2012 were anti-dilutive and hence were not considered for purposes of Dilutive EPS in year ended March 31, 2012. NOTE 34 Deferred Tax The deferred tax asset recognised comprises of the tax impact arising from timing diﬀerences on: Particulars Leave Encashment and Gratuity Diﬀerences between the book balance and tax balance of Fixed assets Total MARCH 31, 2013 62.80 71.08 133.88 NOTE 35 Details of Warranty B in Lakhs MARCH 31, 2012 62.80 71.08 133.88 B in Lakhs Year 2012-13 Opening Balance Additions During the year Utilization/Reversal during the year Closing Balance 42.29 - 42.29 - NOTE 36 Commitments and Contingent Liabilities (a) Receivables factored: Current Year –Nil (Previous Year: ` 2,661.10 Lakhs). (b) Claims against the Company not acknowledged as debt: I. Current Year - ` 15.97 Lakhs (Previous Year: ` 15.97 Lakhs). These claims relate to Indian Income Tax demands which are being contested by the Company. II. Others : Current year – ` 956.84 Lakhs (Previous Year: Nil) (c) Guarantees given to Subex Technologies Inc ` 2,171.40 Lakhs (Previous year: ` 2,171.40 Lakhs) (d) The Company has received a demand of service tax of ` 3,607.60 Lakhs and equivalent amount of penalties under the provisions of the Finance Act, 1994 along with the consequential interest, for the period from April, 2006 to July, 2009 towards service tax payable on import of certain services. The Company has ﬁled an appeal contesting the demand before the Central Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore. The Company has also obtained a stay against the said demand on March 27, 2013. In view of the Company, the demand is not sustainable. Further, the Company contends that in the event of the demand being upheld by the Appellate Authority, the Company is eligible to avail the service tax as input credit upon payment of the tax, excluding penalty and interest, if any. Annual Report 2012-13 83 NOTES FORMING PART OF FINANCIAL STATEMENTS NOTE 37 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 (on accrual basis) Traveling expenses Interest expense Product marketing expense and other expenditure incurred overseas for software development. Also refer note 30(ii). Earnings in foreign exchange (on accrual basis) Income from software development services and products Marketing and allied service charges i) Subex (UK) Ltd ii) Subex Inc iii) Subex Americas Inc iv) Subex (Asia Paciﬁc) Pte Ltd NOTE 38 Payments to Auditors As Auditors – Statutory audit For Taxation matters For Other services For Reimbursement of expenses Total NOTE 39 Others Particulars B in Lakhs YEAR ENDED MARCH 31,2013 YEAR ENDED MARCH 31,2013 124.41 60.72 541.71 2,212.12 6.23 79.72 121.83 518.51 1,696.21 8.23 15,195.31 29,720.70 5,655.11 5,676.43 278.62 709.41 2012-13 65.00 1.50 10.00 2.73 79.23 6,136.93 6,589.81 970.82 538.61 B in Lakhs 2011-12 65.00 1.50 10.00 1.60 78.10 1. 2. 3. 4. Estimated amount of contracts, remaining to be executed on capital account and not provided for (net of advances paid) Nil (Previous year - ` 17.31 Lakhs) Unclaimed dividend of ` 2.92 Lakhs as at March 31, 2013 (Previous Year - ` 4.08 Lakhs) represent dividends not claimed for the period from 2005-2006. 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’. During the current year, the Company has transferred ` 0.59 Lakhs (Previous Year - ` 1.80 Lakhs) to Investor Protection Fund. Direct Taxes paid and others in the Cash Flow Statement comprises outﬂows on account of permitted utilizations from the BRR of ` 359.58 Lakhs (Previous Year - ` 120.50 Lakhs) and Direct Taxes Nil. (Previous Year - ` 391.70 Lakhs). Personnel Cost for the year includes expenditure on Research and Development of ` 1,108.71 Lakhs (Previous year - ` 1,295.12 Lakhs). This is as certiﬁed by the management and relied upon by the auditors. 5. The Company has entered into the following derivative instruments for the purposes of hedging the risks associated with foreign exchange exposures. (a) Forward contracts to hedge foreign currency risk on export receivables Particulars Foreign Currency March 31, 2013 Buy/ Sell Amount (`) Foreign Currency Amount in Lakhs March 31, 2012 Buy/ Sell Amount (`) Forward contracts - USD contracts 84 Subex Limited - - - US$ 361.31 Sell 17,328.52 NOTES FORMING PART OF FINANCIAL STATEMENTS NOTE 39 Others (Contd.) Amount in Lakhs The year-end foreign currency exposures that have not been hedged by a derivative instrument or otherwise are given below: Particulars MARCH 31, 2013 MARCH 31, 2012 Receivable towards Export of Goods & Services (Including receivables from wholly owned subsidiaries) Loans/ Advances to wholly owned subsidiaries Bank Balance Loan (being other amounts payable in foreign currency) (b) The amounts payable in foreign currency on account of: Particulars Import of goods and services Capital goods (including intangibles) Towards interest on Foreign Currency loans Redemption premium accrued on FCCB’s Marketing and Allied Service Charges and Software charges payable to wholly owned subsidiaries Amount (`) Foreign currency USD 778.41 GBP 199.43 SGD 149.42 - EUR 4.72 AED 0.11 QAR 3.63 CHF 1.31 - - CAD 9.71 USD 21.90 USD 0.19 USD 30.29 GBP 13.78 EUR 0.18 - 42,232.30 16,493.72 6,532.71 - 329.93 1.81 53.52 71.32 - - 516.81 1,189.92 10.36 2,766.26 - - - Amount (`) 21,994.00 16,402.60 6,979.81 66.40 166.32 49.50 15.71 70.41 53.12 2.53 493.72 1,115.12 0.87 - - - (30.94) Foreign currency USD 432.31 GBP 201.42 SGD 172.43 AUD 1.33 EUR 2.52 AED 3.61 QAR 1.12 CHF 1.31 CAD 1.02 CNY 0.31 CAD 9.71 USD 21.91 USD 0.02 - - - CAD (0.61) Amount in Lakhs MARCH 31, 2013 Amount (`) Foreign currency USD 0.41 CAD 0.12 SGD 0.10 GBP 0.11 EUR 0.31 CHF 0.22 USD 40.61 22.71 5.00 0.22 1.43 20.91 15.42 2,213.42 517.93 - - - 15,409.21 - 1,140.52 16,858.52 - - USD 9.66 - - - GBP 187.41 - SGD 26.12 USD 310.61 - - MARCH 31, 2012 Amount (`) 166.42 36.81 - 7.12 - - 109.42 Foreign currency USD 3.31 GBP 0.51 - GBP 0.11 - - USD 2.21 18,421.50 9.92 63.62 1.31 15,539.50 0.22 1,181.20 26,689.50 31.00 2.51 USD 362.12 AED 0.71 CAD 1.21 EUR 0.01 GBP 190.8 MYR 0.00 SGD 29.22 USD 524.61 AUD 0.62 CNY 0.32 6. The dues to Micro and Small enterprises as deﬁned in The Micro, Small & Medium Enterprises Development Act, 2006, The details of same are as follows : B in Lakhs Disclosure required under Section 22 of the Micro, Small and Medium Enterprise Development Act,2006 Particulars (i) (ii) Principal amount remaining unpaid to any supplier as at the end of the accounting year Interest due thereon remaining unpaid to any supplier as at the end of the accounting year MARCH 31, 2013 1.20 MARCH 31, 2012 - - - Annual Report 2012-13 85 NOTES FORMING PART OF FINANCIAL STATEMENTS NOTE 39 Others (Contd.) Disclosure required under Section 22 of the Micro, Small and Medium Enterprise Development Act,2006 Particulars (iii) The amount of interest paid along with the amounts of the payment made to the supplier beyond the appointed day (iv) The amount of interest due and payable for the year (v) The amount of interest accrued and remaining unpaid at the end of the accounting year (vi) The amount of further interest due and payable even in the succeeding year, until such date when the interest dues as above are actually paid MARCH 31, 2013 - 0.20 0.20 - B in Lakhs MARCH 31, 2012 - - - - Dues to Micro and Small Enterprises have been determined to the extent such parties have been identiﬁed on the basis of information collected by the Management. This has been relied upon by the auditors. 7. The Company purchases hardware and software to fulﬁll its obligations under contracts for sale of its Products. There were no inventory of such hardware/software at the beginning and end of the year. The breakup of balances included in line 4(a) in the Statement of Proﬁt and Loss is as under B in Lakhs Particulars Software charges Purchased hardware/ Software Total FOR THE YEAR ENDED MARCH 31, 2013 19.81 223.49 243.30 FOR THE YEAR ENDED MARCH 31, 2012 678.31 186.35 864.66 8. The Company has ‘International transactions’ with ‘Associated Enterprises which are subject to Transfer Pricing regulations in India. The Management of the Company, is of the opinion that such transactions with Associated Enterprises are at arm’s length and hence in compliance with the aforesaid legislation. Consequently, this will not have any impact on the ﬁnancial statements, particularly on account of tax expense and that of provision for taxation. 9. a) In view of the losses incurred by the Company during the year ended March 31, 2013, the excess of the managerial remuneration paid to the directors over the limits prescribed under Schedule XIII of the Companies Act, 1956 has been treated as monies due from the directors, being held by them in trust for the Company, and is included under ‘Short-term loans and advances’ amounting to ` 123.80 Lakhs. b) Other advances to directors ` 110.00 Lakhs (Previous year: Nil). 10. During the year, the Company has rescheduled the terms of repayment of dues from its subsidiary viz. Subex Americas Inc., amounting to ` 15,599.00 Lakhs of trade receivables and ` 1,706.73 Lakhs of advances. In the opinion of the management, considering the future operational plans and cash ﬂows, the said dues are considered good and recoverable. Further, based on the management’s assessment, there is no diminution, other than temporary, in the carrying value of its investment in the said subsidiary of ` 12,495.74 Lakhs and accordingly, no provision is required to be made at this stage. 86 Subex Limited NOTES FORMING PART OF FINANCIAL STATEMENTS NOTE 39 Others (Contd.) 11. Disclosure as per Clause 32 of the Listing Agreements with the Stock Exchanges Loans and advances in the nature of loans given to subsidiaries: Name of the party Subex Americas Inc. Subex Technologies Ltd. Relationship Wholly Owned Subsidiaries Wholly Owned Subsidiaries Amount outstanding as at March 31, 2013 Maximum balance outstanding during the year Amount in B Lakhs 1,706.73 (1,608.82) 1,705.70 (1,699.70) 1,841.87 (4,008.82) 1,705.70 (1,699.70) Note : Figures in brackets relate to previous year. NOTE 40 Previous year’s ﬁgures have been regrouped/reclassiﬁed wherever necessary to correspond with the current year’s classiﬁcation/ disclosures. In terms of our report attached For Deloitte Haskins & Sells Chartered Accountants For and on behalf of the Board of Directors Monisha Parikh Partner Mumbai Date: May 21, 2013 Surjeet Singh Managing Director & CEO Karthikeyan Muthuswamy Director Ganesh K.V. Global Head - Finance, Legal and Company Secretary Anil Singhvi Director Sanjeev Aga Director Annual Report 2012-13 87 INDEPENDENT AUDITORS’ REPORT TO THE BOARD OF DIRECTORS OF SUBEX LIMITED Report on the Consolidated Financial Statements about the amounts and the disclosures in the consolidated We have audited the accompanying consolidated ﬁnancial ﬁnancial statements. The procedures selected depend on the statements of SUBEX LIMITED (the “Company”), and its auditor’s judgement, including the assessment of the risks of subsidiaries (the Company and its subsidiaries constitute “the material misstatement of the consolidated ﬁnancial statements, Group”), which comprise the Consolidated Balance Sheet as at whether due to fraud or error. In making those risk assessments, March 31, 2013, the Consolidated Statement of Proﬁt and Loss and the auditor considers internal control relevant to the Company’s the Consolidated Cash Flow Statement for the year then ended, preparation and presentation of the consolidated ﬁnancial and a summary of the signiﬁcant accounting policies and other statements that give a true and fair view in order to design audit explanatory information. Management’s Responsibility for the Consolidated Financial Statements The Company’s Management is responsible for the preparation of these consolidated ﬁnancial statements that give a true and fair view of the consolidated ﬁnancial position, consolidated ﬁnancial performance and consolidated cash ﬂows of the Group in accordance with the accounting principles generally accepted procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the eﬀectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Management, as well as evaluating the overall presentation of the consolidated ﬁnancial statements. We believe that the audit evidence we have obtained is suﬃcient in India. This responsibility includes the design, implementation and appropriate to provide a basis for our audit opinion. and maintenance of internal control relevant to the preparation and presentation of the consolidated ﬁnancial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated ﬁnancial statements based on our audit. We conducted our audit in Opinion In our opinion and to the best of our information and according to the explanations given to us, and based on the consideration of the reports of the other auditors on the ﬁnancial statements/ ﬁnancial information of the subsidiaries referred to below in the Other Matter paragraph, the aforesaid consolidated ﬁnancial statements give a true and fair view in conformity with the accordance with the Standards on Auditing issued by the Institute accounting principles generally accepted in India: of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated ﬁnancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence (a) in the case of the Consolidated Balance Sheet, of the state of aﬀairs of the Group as at March 31, 2013; (b) in the case of the Consolidated Statement of Proﬁt and Loss, of the loss of the Group for the year ended on that date; and 88 Subex Limited (c) in the case of the Consolidated Cash Flow Statement, of the Other Matter cash ﬂows of the Group for the year ended on that date. We did not audit the ﬁnancial statements of two subsidiaries whose ﬁnancial statements reﬂect total assets (net) of ` 1,145.81 Lakhs as at March 31, 2013, total revenues of ` 2,323.68 Lakhs and net cash inﬂows amounting to ` 105.44 Lakhs for the year ended on that date, as considered in the consolidated ﬁnancial statements. These ﬁnancial statements have been audited by other auditors whose reports have been furnished to us by the Management and our opinion, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries is based solely on the reports of the other auditors. Our opinion is not qualiﬁed in respect of this matter. For DELOITTE HASKINS & SELLS Chartered Accountants (Firm Registration No. 008072S) MUMBAI, May 21, 2013 MP/JST/PJ/MAR2013 Monisha Parikh Partner (Membership No. 47840) Emphasis of Matter (a) We draw attention to Note 24 to the consolidated ﬁnancial statements, as more fully explained therein, during the year the Company has in accordance with the Proposal approved in prior years, by the Hon’ble High Court of Karnataka debited amounts aggregating to ` 1,318.48 Lakhs (net) to the Business Restructuring Reserve, instead of considering the same as expense for the year ended March 31, 2013, as required by Accounting Standard 5 ‘Net Proﬁt or Loss for the Period, Prior Period Items’. (b) We draw attention to Note 37.8 (a) to the consolidated ﬁnancial statements regarding treatment of the managerial remuneration paid in excess of the applicable limits under Schedule XIII of the Companies Act, 1956, aggregating to ` 123.80 Lakhs. (c) We draw attention to Note 35(c) to the consolidated ﬁnancial statements regarding the service tax demand of ` 3,607.60 Lakhs on import of certain services against which the Company has ﬁled an appeal with the concerned authority. (d) We draw attention to Note 25(a) to the consolidated ﬁnancial statements, regarding the tax treatment on restructuring of the foreign currency convertible bonds based on legal advice. (e) We draw attention to Note 38 regarding the management’s assessment that the goodwill arising from the consolidation of one of its subsidiaries is not impaired and hence no provision has been made at this stage for the reasons stated therein. Our opinion is not qualiﬁed in respect of the above matters. Annual Report 2012-13 89 CONSOLIDATED BALANCE SHEET AS AT B in Lakhs Note No. MARCH 31, 2013 MARCH 31, 2012 A EQUITY AND LIABILITIES 1. SHAREHOLDERS' FUNDS (a) Share Capital (b) Reserves and Surplus SUB TOTAL - SHAREHOLDERS' FUNDS 2. NON - CURRENT LIABILITIES (a) Long-term Borrowings (b) Other Long-term Liabilities (c) Long-term Provisions SUB TOTAL - NON CURRENT LIABILITIES 3. CURRENT LIABILITIES (a) Short-term Borrowings (b) Trade Payables - Other than acceptances (c) Other Current Liabilities (d) Short-term Provisions SUB TOTAL - CURRENT LIABILITIES TOTAL B ASSETS 1. NON - CURRENT ASSETS (a) Fixed Assets (i) Tangible Assets (ii)Intangible Assets (b) Goodwill on Consolidation (c) Deferred Tax Assets (net) (d) Long-term Loans and Advances (e) Other Non - Current Assets SUB TOTAL-NON - CURRENT ASSETS 2. CURRENT ASSETS (a) Trade Receivables (b) Cash and Bank Balances (c) Short-term Loans and Advances (d) Other Current Assets SUB TOTAL - CURRENT ASSETS TOTAL 3 4 5 6 7 8 9 10 11.A 11.B 33 12 13 14 15 16 17 16,664.00 5,835.68 22,499.68 53,769.37 517.93 553.41 54,840.71 19,387.91 4,892.84 6,828.53 347.70 31,456.98 1,08,797.37 466.74 - 466.74 85,642.22 141.20 2,645.76 1,313.94 90,209.86 7,332.84 5,082.66 997.94 5,174.07 18,587.51 1,08,797.37 Corporate Information and Signiﬁcant Accounting Policies See accompanying notes forming part of the ﬁnancial statements 1 & 2 In terms of our report attached For Deloitte Haskins & Sells Chartered Accountants Monisha Parikh Partner Mumbai Date: May 21, 2013 90 Subex Limited For and on behalf of the Board of Directors Surjeet Singh Managing Director & CEO Karthikeyan Muthuswamy Director Ganesh K.V. Global Head - Finance, Legal and Company Secretary 6,931.08 7,172.35 14,103.43 - - 585.05 585.05 12,436.50 8,009.13 74,203.91 271.35 94,920.89 1,09,609.37 772.80 - 772.80 86,568.81 141.20 2,408.85 - 89,891.66 7,339.38 241.95 1,211.82 10,924.56 19,717.71 1,09,609.37 Anil Singhvi Director Sanjeev Aga Director CONSOLIDATED STATEMENT OF PROFIT & LOSS FOR THE YEAR ENDED B in Lakhs NOTE NO. MARCH 31, 2013 MARCH 31, 2012 18 19 20 21 11 22 23 1. Revenue from Operations 2. Other Income 3. Total revenue 4. Expenses (a) Cost of Hardware, Software and Support Charges (b) Employee Beneﬁts Expense and sub-contract charges (c) Finance Costs (d) Depreciation and Amortisation Expense (e) Other Expenses Total Expenses 5. Proﬁt/(Loss) before exceptional items and Tax (3 - 4) 6. Exceptional Items 7. Proﬁt/(Loss) before Tax (5 - 6) 8. Tax expense (a) Current Tax Expense for current year (b) Short provision for tax relating to prior years (c) (Less): MAT credit (d) Deferred Tax Total Tax expense 33,057.95 89.15 33,147.10 817.16 20,669.02 5,210.00 426.77 7,636.00 47,782.63 1,096.34 48,878.97 869.88 25,358.00 4,285.19 779.60 8,587.81 34,758.95 39,880.48 (1,611.85) 3,996.62 (5,608.47) 354.08 32.16 - - 386.24 8,998.49 5,479.42 3,519.07 537.20 - (174.13) (28.10) 334.97 9. Proﬁt/(Loss) for the year (7 -8) (5,994.71) 3,184.10 10. Earnings/(Loss) Per Share (Face value of ` 10/- each) (a) Basic (b) Diluted Corporate Information and Signiﬁcant Accounting Policies See accompanying notes forming part of the ﬁnancial statements 32 32 1 & 2 ` (4.40) ` (4.40) ` 4.59 ` 4.59 In terms of our report attached For Deloitte Haskins & Sells Chartered Accountants For and on behalf of the Board of Directors Monisha Parikh Partner Mumbai Date: May 21, 2013 Surjeet Singh Managing Director & CEO Karthikeyan Muthuswamy Director Ganesh K.V. Global Head - Finance, Legal and Company Secretary Anil Singhvi Director Sanjeev Aga Director Annual Report 2012-13 91 CASH FLOW STATEMENT FOR THE YEAR ENDED A. CASH FLOW FROM OPERATING ACTIVITIES Proﬁt/(Loss) before tax, for the year (5,608.47) 3,519.07 MARCH 31, 2013 MARCH 31, 2012 B in Lakhs 426.77 (40.02) 5,210.00 40.49 10.28 3,240.43 - 143.76 926.70 4,349.94 (2,900.94) 227.48 24.69 3,646.39 (2,861.01) (3,622.20) 70.15 31.09 (1,034.41) (702.53) (1,736.94) (132.86) 20.40 21.87 (440.94) (531.53) 779.60 (34.48) 4,285.19 (2.70) (522.03) 666.60 1,239.37 2,256.30 - 12,186.92 (2,295.54) 874.62 (4.37) (2,112.15) (2,057.19) (710.97) (3.32) (18.11) 5,859.89 (664.69) 5,195.20 (336.20) 149.10 31.83 (16.67) (171.94) Interest Income Adjustments for : (a) Depreciation and amortization expense (b) (c) Finance costs (d) (Proﬁt)/Loss on sale/write oﬀ of assets - net (e) Expense/(Gain) on employee stock option scheme (f) Provision for doubtful Trade and other receivables (g) Unrealised exchange (Gain)/Loss- Forward contracts (h) Unrealised exchange (Gain)/Loss- Others (i) Goodwill Written oﬀ Operating proﬁt/(loss) before working capital changes Adjustments for (increase)/decrease in operating assets (a) Trade receivables (b) Short-term loans and advances (c) Long-term loans and advances (d) Other current assets and non-current assets Adjustments for increase/(decrease) in operating liabilities (a) Trade payables (b) Other current liabilities (c) Short-term provisions (d) Long-term provisions Cash generated from/(used in) operations Net tax (paid)/refunds and others Net cash ﬂow from/(used in) operating activities (A) B. CASH FLOW FROM INVESTING ACTIVITIES (a) Capital expenditure on ﬁxed assets, including capital advances (b) Proceeds from sale of ﬁxed assets (c) (d) Interest received - Others Investment in deposits Net cash ﬂow from/(used in) investing activities (B) 92 Subex Limited CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2013 MARCH 31, 2012 B in Lakhs C. CASH FLOW FROM FINANCING ACTIVITIES (a) Proceeds from issue of Equity shares (b) Repayment of Long-term borrowings (c) Net increase/(decrease) in working capital borrowings (d) Repayment of Short-term borrowings (e) Proceeds from Long-term borrowings (f) Dividend paid (g) Finance cost Net cash ﬂow from/(used in) ﬁnancing activities (C) Net increase/(decrease) in Cash and Cash equivalents (A+B+C) Eﬀect of Exchange Diﬀerences on restatement/ translation of foreign currency cash and cash equivalents Cash or Cash equivalents at the beginning of the year Cash or Cash equivalents at the end of the year *Cash and cash equivalents Cash on hand Balance with Banks in Current Accounts in Deposit Accounts in EEFC Accounts Total Corporate Information and Signiﬁcant Accounting Policies Notes: (i) See accompanying notes forming part of the ﬁnancial statements 1 & 2 - - 7,855.61 (1,000.00) 4,616.78 (1.15) (3,077.32) 8,393.92 6,125.45 (1,725.87) 52.25 4,451.83 0.77 - 4,441.62 - 9.44 4,451.83 In terms of our report attached For Deloitte Haskins & Sells Chartered Accountants For and on behalf of the Board of Directors Monisha Parikh Partner Mumbai Date: May 21, 2013 Surjeet Singh Managing Director & CEO Karthikeyan Muthuswamy Director Ganesh K.V. Global Head - Finance, Legal and Company Secretary 0.40 (66.50) 1,787.03 (2,000.00) - (1.83) (4,985.59) (5,266.49) (243.23) 57.89 237.59 52.25 0.83 - 50.95 - 0.47 52.25 Anil Singhvi Director Sanjeev Aga Director Annual Report 2012-13 93 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS 1. CORPORATE INFORMATION Subex Limited, a public limited company incorporated in 1994, is a leading global provider of Operations and Business Support Systems (OSS/BSS) to communication service providers (CSPs) worldwide in the Telecom industry. The Company pioneered the concept of a Revenue Operations Center (ROC) – a centralized approach that sustains proﬁtable growth and ﬁnancial health for the CSPs through coordinated operational control. Subex’ s product portfolio powers the ROC and its best-in-class solutions enable new service creation, operational transformation, subscriber-centric fulﬁlment, provisioning automation, data integrity management, revenue assurance, cost management, fraud management and interconnect/inter-party settlement. Subex also oﬀers a scalable Managed Services Program. The CSPs achieve competitive advantage through Business Optimization and Service Agility and improve their operational eﬃciency to deliver enhanced service experiences to their subscribers. The Company has a development center in India and sales oﬃces in the form of wholly owned subsidiaries/ branches in UK, USA, Singapore, Australia, Dubai and Canada. 2. SIGNIFICANT ACCOUNTING POLICIES I. Basis for preparation of ﬁnancial statements The ﬁnancial statements of the Company have been prepared in accordance with the Generally Accepted Accounting Principles in India (Indian GAAP) to comply with the Accounting Standards notiﬁed under the Companies (Accounting Standards) Rules, 2006 (as amended) and the relevant provisions of the Companies Act, 1956 except to the extent permitted under the Proposal approved by the Hon’ble High Court of Karnataka (Refer Note 24). The ﬁnancial statements have been prepared on accrual basis under the historical cost convention. The accounting policies adopted in the preparation of the ﬁnancial statements are consistent with those followed in the previous year. II. Principles of Consolidation The ﬁnancial statements of the Company and its wholly owned subsidiaries have been combined on a line by line basis by adding together like items of assets, liabilities, income and expense. The intra-group balances and intra-group transactions are eliminated. The excess of cost to the Company of its investments in the subsidiary over it’s share of the equity of the subsidiary, at the date on which the investments in the subsidiary Company was made, is recognized as ‘Goodwill on Consolidation’ being an asset in the consolidated ﬁnancial statements. The following entities are considered in the consolidated ﬁnancial statements. SL. NO. Name of Entity 1 2 3 4 5 6 7 Subex Technologies Ltd. Subex Technologies Inc. (Wholly owned subsidiary of Subex Technologies Ltd., India) Subex (UK) Limited Subex Inc. (Wholly owned subsidiary of Subex (UK) Ltd.) Subex (Asia Paciﬁc) Pte. Ltd. (Wholly owned subsidiary of Subex (UK) Ltd.) Subex Americas Inc. Subex Azure Holdings Inc. (wholly owned subsidiary of Subex Americas Inc.) Country of Incorporation India United States of America United Kingdom United States of America Singapore Canada United States of America % age of ownership held at March 31, 2013 % age of ownership held at March 31, 2012 100 100 100 100 100 100 100 100 100 100 100 100 100 100 The ﬁnancial statements of the Company and its subsidiaries (“Group”) are prepared under uniform accounting policies in accordance with the generally accepted accounting principles in India. 94 Subex Limited NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS III. Use of Estimates The preparation of the ﬁnancial statements in conformity with Indian GAAP requires the Management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) and the reported income and expenses during the year. The Management believes that the estimates used in preparation of the ﬁnancial statements are prudent and reasonable. Future results could diﬀer due to these estimates and the diﬀerences between the actual results and the estimates are recognised in the periods in which the results are known/materialised. IV. Revenue recognition Revenue from Contracts for software product license includes fees for transfer of licenses, installation and commissioning. This revenue is on the basis of milestones achieved, determined based on percentage of completion of work completed at each milestone 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 software licenses (including additional licenses) are recognized on transfer of such licenses. In case of composite contracts involving granting of license and support services, license revenues are recognized on transfer of the license if identiﬁed separately and in other cases, they are recognized over the period of the contract along with revenue from support services. 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. Maintenance and service income is recognised on time proportion basis. V. Tangible Fixed Assets Fixed assets are stated at cost of acquisition inclusive of freight, duties, taxes and other direct expenditure incurred. Assets acquired on hire purchase are capitalised at gross value and interest thereon is charged to revenue. Exchange diﬀerences arising on restatement/settlement of long term foreign currency borrowings relating to acquisition of depreciable ﬁxed assets are adjusted to the cost of the respective assets and depreciated over the remaining useful life of such assets. Subsequent expenditure relating to ﬁxed assets is capitalised only if such expenditure results in an increase in the future beneﬁts from such asset beyond its previously assessed standard of performance. Fixed assets acquired and put to use for project purpose are capitalised and depreciation thereon is included in the project cost till commissioning of the project. VI. Intangible Assets Intangible assets are carried at cost less accumulated amortisation and impairment losses, if any. The cost of an intangible asset comprises its purchase price, including any import duties and other taxes (other than those subsequently recoverable from the taxing authorities), and any directly attributable expenditure on making the asset ready for its intended use and net of any trade discounts and rebates. Subsequent expenditure on an intangible asset after its purchase/completion is recognised as an expense when incurred unless it is probable that such expenditure will enable the asset to generate future economic beneﬁts in excess of its originally assessed standards of performance and such expenditure can be measured and attributed to the asset reliably, in which case such expenditure is added to the cost of the asset (Refer note: 2.XII for accounting for R&D expenses). VII. Depreciation & Amortisation Fixed assets and Intangibles are depreciated/amortised using the straight-line method over the useful life of assets. Depreciation is charged on pro-rata basis for assets purchased/sold during the year. Annual Report 2012-13 95 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS The rates of depreciation/amortisation adopted are as under: PARTICULARS Computers (including Software) Furniture & Fixtures Vehicles Oﬃce equipments Intellectual Property Rights Goodwill Depreciation/Amortisation Rates (%) 25 20 20 20 20 20 Individual assets costing less than ` 5,000 are depreciated in full, in the year of purchase. The estimated useful life of the intangible assets and the amortisation period are reviewed at the end of each ﬁnancial year and the amortisation method is revised to reﬂect the changed pattern. VIII. Employee Stock Option Plans The Group has formulated Employee Stock Option Schemes (ESOS) in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. The Schemes provide for grant of options to employees of the Company and its subsidiaries to acquire equity shares of the Company that vest in a graded manner and that are to be exercised within a speciﬁed period. The Company has used intrinsic value method to account for the compensation cost of stock options. Intrinsic value is the amount by which the quoted market price on the day prior to the grant of the options under ESOS exceeds the exercise price of the option. In accordance with the SEBI guidelines, the intrinsic value is amortised on a straight line basis over the vesting period. IX. Employee Beneﬁts Employee beneﬁts include provident fund, gratuity fund, compensated absences, retention and performance linked payouts. Deﬁned contribution plans: The Group’s contribution to provident fund is considered as deﬁned contribution plan and is charged as an expense as they fall due based on the amount of contribution required to be made. Deﬁned beneﬁt plans: For deﬁned beneﬁt plans in the form of gratuity fund, the cost of providing beneﬁts is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each Balance Sheet date. Actuarial gains and losses are recognised in the Statement of Proﬁt and Loss in the period in which they occur. Past service cost is recognised immediately to the extent that the beneﬁts are already vested and otherwise is amortised on a straight-line basis over the average period until the beneﬁts become vested. The retirement beneﬁt obligation recognised in the Balance Sheet represents the present value of the deﬁned beneﬁt obligation as adjusted for unrecognised past service cost, 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 reductions in future contributions to the schemes. Short-term employee beneﬁts: The undiscounted amount of short-term employee beneﬁts expected to be paid in exchange for the services rendered by employees are recognised during the year when the employees render the service. These beneﬁts include retention and performance linked payouts and compensated absences which are expected to occur within twelve months after the end of the period in which the employee renders the related service. The cost of such compensated absences is accounted as under: (a) in case of accumulated compensated absences, when employees render the services that increase their entitlement of future compensated absences; and (b) in case of non-accumulating compensated absences, when the absences occur. Long-term employee beneﬁts: Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related service are recognised as a liability at the present value of the deﬁned beneﬁt obligation as at the Balance Sheet date less the fair value of the plan assets out of which the obligations are expected to be settled. 96 Subex Limited NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS X. Other income Interest income is accounted on accrual basis. Dividend income is accounted for when the right to receive it is established. XI. Leases Assets leased by the Group in its capacity as lessee where substantially all the risks and rewards of ownership vest in the Group are classiﬁed as ﬁnance leases. Such leases are capitalised at the inception of the lease at the lower of the fair value and the present value of the minimum lease payments and a liability is created for an equivalent amount. Each lease rental paid is allocated between the liability and the interest cost so as to obtain a constant periodic rate of interest on the outstanding liability for each year. Lease arrangements where the risks and rewards incidental to ownership of an asset substantially vest with the lessor are recognised as operating leases. Lease rentals under operating leases are recognised in the Statement of Proﬁt and Loss on a straight line basis. XII. Research and development Revenue expenditure pertaining to research is charged to the Statement of Proﬁt and Loss. Development costs of products are also charged to the Statement of Proﬁt and Loss. Fixed assets utilised for research and development are capitalised and depreciated in accordance with the policies stated for Tangible Fixed Assets and Intangible Assets. XIII. Foreign currency transactions Initial recognition Transactions in foreign currencies entered into by the Company and its integral foreign operations are accounted at the exchange rates prevailing on the date of the transaction or at rates that closely approximate the rate at the date of the transaction. Measurement of foreign currency monetary items at the Balance Sheet date Foreign currency monetary items (other than derivative contracts) of the Group outstanding at the Balance Sheet date are restated at the year-end rates. 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 the average exchange rates prevailing during the year. Exchange diﬀerences arising out of these translations are charged to the Statement of Proﬁt and Loss Treatment of exchange diﬀerences Exchange diﬀerences arising on settlement/restatement of short-term foreign currency monetary assets and liabilities of the Company and its integral foreign operations are recognised as income or expense in the Statement of Proﬁt and Loss. The exchange diﬀerences arising on restatement/settlement of long term foreign currency monetary items are: !capitalised, if related to acquisition of depreciable ﬁxed assets, and depreciated over the remaining useful life of such assets; or !amortised over the maturity period of such items in other cases. The Company has adopted the amendments to Accounting Standard 11 “The Eﬀects of Changes in Foreign Exchange Rates” that were notiﬁed during the year ended March 31, 2012. Pursuant to this amendment, exchange ﬂuctuations arising on restatement of all long term monetary foreign currency assets and liabilities at rates diﬀerent from those at which they were initially recorded or reported in the previous ﬁnancial statements (whichever is later), are accumulated in a Foreign Currency Monetary Item Translation Diﬀerence account and are amortised over the balance period of such long term asset/liability (Refer Note -27). Accounting for Forward contracts: Premium/discount on forward exchange contracts, which are not intended for trading or speculation purposes, are amortised over the period of the contracts if such contracts relate to monetary items as at the Balance Sheet date. (cid:113)(cid:1) (cid:113)(cid:1) Annual Report 2012-13 97 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS Accounting for Derivatives: Derivative contracts in the nature of foreign currency swaps, currency options, forward contracts with an intention to hedge its existing assets and liabilities, ﬁrm commitments and highly probable forecast transactions, which are closely linked to the existing assets and liabilities are accounted as per the policy stated for Forward contracts. All other derivative contracts are marked-to-market and losses are recognised in the Statement of Proﬁt and Loss. Gains arising on the same are not recognised, until realised, on grounds of prudence. 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 on consolidation’ under Reserves & Surplus. XIV. Investments Long term Investments are stated at cost less diminution in the value of investments that is other than temporary. XV. Taxes on income Current tax is the amount of tax payable on the taxable income for the year as determined in accordance with the provisions of the Income Tax Act, 1961. Minimum Alternate Tax (MAT) paid in accordance with the tax laws, which gives future economic beneﬁts in the form of adjustment to future income tax liability, is considered as an asset if there is convincing evidence that the Company will pay normal income tax in the foreseeable future. Accordingly, MAT is recognised as an asset in the Balance Sheet when it is probable that future economic beneﬁt associated with it will ﬂow to the Company and can be measured reliably. Deferred tax is recognised on timing diﬀerences, being the diﬀerences between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted as at the reporting date. Deferred tax liabilities are recognised for all timing diﬀerences. Deferred tax assets in respect of unabsorbed depreciation and carry forward of losses are recognised only if there is virtual certainty that there will be suﬃcient future taxable income available to realise such assets. Deferred tax assets are recognised for timing diﬀerences of other items only to the extent that reasonable certainty exists that suﬃcient future taxable income will be available against which these can be realised. Deferred tax assets and liabilities are oﬀset if such items relate to taxes on income levied by the same governing tax laws and the Company has a legally enforceable right for such set oﬀ. Deferred tax assets are reviewed at each Balance Sheet date for their realisability. XVI. Cash and cash equivalents (for purposes of Cash Flow Statement) Cash comprises cash on hand and demand deposits with banks. Cash equivalents are short-term balances, highly liquid investments that are readily convertible into known amounts of cash and which are subject to insigniﬁcant risk of changes in value. XVII. Cash Flow Statement Cash ﬂows are reported using the indirect method, whereby proﬁt/(loss) before tax, is adjusted for the eﬀects of transactions of non-cash nature and any deferrals or accruals of past or future cash receipts or payments. The cash ﬂows from operating, investing and ﬁnancing activities of the Company are segregated based on the available information. XVIII. Provisions and Contingencies 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. Contingent liabilities are not provided for but disclosed in the notes to the ﬁnancial statements. 98 Subex Limited NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS XIX. Impairment of Assets The carrying values of assets/cash generating units at each Balance Sheet date are reviewed for impairment. If any indication of impairment exists, the recoverable amount of such assets is estimated and impairment is recognised, if the carrying amount of these assets exceeds their recoverable amount. The recoverable amount is the greater of the net selling price and their value in use. Value in use is arrived at by discounting the future cash ﬂows to their present value based on an appropriate discount factor. When there is indication that an impairment loss recognised for an asset in earlier accounting periods no longer exists or may have decreased, such reversal of impairment loss is recognised in the Statement of Proﬁt and Loss, except in case of revalued assets. XX. Earnings per share Basic earnings per share is computed by dividing the proﬁt/(loss) after tax (including the post tax eﬀect of extraordinary items, if any) by the weighted average number of equity shares outstanding during the year. Diluted earnings per share is computed by dividing the proﬁt/(loss) after tax (including the post tax eﬀect of extraordinary items, if any) as adjusted for dividend, interest and other charges to expense or income relating to the dilutive potential equity shares, by the weighted average number of equity shares considered for deriving basic earnings per share and the weighted average number of equity shares which could have been issued on the conversion of all dilutive potential equity shares. Potential equity shares are deemed to be dilutive only if their conversion to equity shares would decrease the net proﬁt per share from continuing ordinary operations. Potential dilutive equity shares are deemed to be converted as at the beginning of the period, unless they have been issued at a later date. The dilutive potential equity shares are adjusted for the proceeds receivable had the shares been actually issued at fair value (i.e. average market value of the outstanding shares). Dilutive potential equity shares are determined independently for each period presented. The number of equity shares and potentially dilutive equity shares are adjusted for share splits/reverse share splits and bonus shares, as appropriate. XXI. Segment reporting The Group identiﬁes primary segments based on the dominant source, nature of risks and returns and the internal organisation and management structure. The operating segments are the segments for which separate ﬁnancial information is available and for which operating proﬁt/loss amounts are evaluated regularly by the Executive Management in deciding how to allocate resources and in assessing performance. XXII. Operating Cycle Based on the nature of products/activities of the Company and the normal time between acquisition of assets and their realisation in cash or cash equivalents, the Company has determined its operating cycle as 12 months for the purpose of classiﬁcation of its assets and liabilities as current and non-current. Annual Report 2012-13 99 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 Share Capital B in Lakhs AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 AUTHORISED 49,50,40,000 Equity Shares of ` 10/- each (Previous Year: 24,50,40,000 Equity Shares of ` 10/- each) 2,00,000 Preference Shares of ` 98/- each Total ISSUED, SUBSCRIBED AND PAID UP EQUITY SHARES 16,66,39,962 Equity Shares of ` 10/- each (Previous Year : 6,93,10,772 Equity Shares of ` 10/- each) Total 49,504.00 24,504.00 196.00 49,700.00 196.00 24,700.00 16,664.00 6,931.08 16,664.00 6,931.08 NOTES A. Reconciliation of the number of Equity shares at the beginning and at the end of the reporting period Particulars Equity Shares Year ended March 31, 2013 Year ended March 31, 2012 Opening Balance Fresh issue ESOP Conversion of FCCB Closing Balance 6,93,10,772 6,93,10,025 - - - 747 9,73,29,190 - 16,66,39,962 6,93,10,772 Reconciliation of the amount outstanding at the beginning and at the end of the reporting period Opening Balance Fresh issue Particulars ESOP B in Lakhs Closing Balance Conversion of FCCB Equity Shares Year ended March 31, 2013 Year ended March 31, 2012 6,931.08 6,931.00 - - - 0.08 9,732.92 - 16,664.00 6,931.08 B. The Company has only one class of Equity Share, having a par value of ` 10/-. The holder of equity shares is entitled to one vote per share and such amount of dividend per share as declared by the Company. In the event of liquidation of the Company, the holders of the equity shares will be entitled to receive any of the remaining assets of the Company, after distribution to all other parties concerned. The distribution will be in proportion to number of equity shares held by the shareholders. C. Details of shares held by each shareholder holding more than 5% shares Class of shares/Name of shareholder Equity shares GIC Singapore KBC Aldini Capital Mauritius Limited QVT Mauritius West Fund Suﬀolk (Mauritius Limited) Deutche Bank AG London -CB Account Nomura Singapore Limited Merill Lynch Capital Markets Promoter and Promoter Group (See Note E below) AS AT MARCH 31, 2013 % holding No. of shares held AS AT MARCH 31, 2012 % holding No. of shares held - - 1,33,47,888 1,73,72,221 1,08,92,721 1,02,34,433 1,01,92,621 84,74,044 - - 8.07% 10.50% 6.59% 6.19% 6.16% 5.12% 34,98,288 8,52,920 - - - - - 81,01,801 5.05% 1.23% - - - - - 11.69% Bank of New York is the depositary of GDRs on behalf of GDR holders holding 69,89,399 shares representing 4.23% of total shareholding (Previous Year : 70,08,746 shares representing 10.11%). The Company does not have details of individual GDR holders/beneﬁciaries to determine if anyone holds more than 5% of the beneﬁcial interest individually in the equity shares. D As at March 31, 2013, 21,95,88,093 shares (As at March 31, 2012, 3,94,88,476 shares) were reserved for issuance as follows: i) 4,670 shares (As at March 31, 2012, 12,022 shares) of ` 10 each towards outstanding employee stock options scheme under ‘ESOP 2000’ granted/available for grant. ii) 11,31,147 shares (As at March 31, 2012, 19,87,561 shares) of ` 10 each towards outstanding employee stock options scheme under ‘ESOP 2005’ granted/available for grant. 100 Subex Limited NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 Share Capital (Contd.) 7,30,806 shares (As at March 31, 2012, 20,00,000 shares) of ` 10 each towards outstanding employee stock options scheme under ‘ESOP 2008’ granted/available for grant. 67,174 shares (As at March 31, 2012, 26,19,811 shares) of ` 10 each towards conversion of Foreign Currency Convertible Bonds (FCCB I) available for conversion. Refer note 25 8,39,721 shares (As at March 31, 2012, 32,869,082 shares) of ` 10 each towards conversion of Foreign Currency Convertible Bonds (FCCB II) available for conversion. Refer Note 25 21,68,14,575 shares (As at March 31, 2012 NIL) of ` 10 each towads Conversion of Foreign Currency Convertible Bonds (FCCB III) available for conversion. Refer note 25 iii) iv) v) vi) E Details of shares held by Promoter and Promoter Group*: Name of Shareholders Subash Menon Kivar Holdings Private Limited (KHPL) (including Woodbridge Consulting & Investments Inc, which merged with KHPL) Sudeesh Yezhuvath Total Promoter and promoter group *as conﬁrmed by the registrar AS AT MARCH 31, 2013 % holding No. of shares held 25,80,601 55,21,200 1.56% 3.34% 3,72,243 84,74,044 0.23% 5.13% AS AT MARCH 31, 2012 No. of shares held 25,80,601 55,21,200 % holding 3.72% 7.97% 81,01,801 11.69% F Aggregate number and class of shares allotted as fully paid up pursuant to contract(s) without payment being received in cash, bonus shares and shares bought back for the period of 5 years immediately preceding the Balance Sheet date: Particulars Company had issued Equity shares of ` 10 each to the GDR holders as of June 22, 2006 towards consideration of cost of acquisition of Azure Solutions Limited at ` 532.24 per share. In accordance with the terms of FCCBs III, out of the principal face value of US$ 127.721 Million, an amount of US$ 36.321 Million were mandatorily converted into equity shares on July 17, 2012. (Refer note 25) Aggregate number of shares AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 1,17,28,728 1,17,28,728 8,93,35,462 - NOTE 4 Reserves and Surplus Capital Reserve Opening Balance Add : Additions during the year on account of reversal of Accrued interest on conversion of FCCBs into Equity shares Less : Transferred to Business Restructuring Reserve Closing balance General Reserve Securities Premium Account Opening Balance Transferred from/(to) Business Restructuring Reserve Add : Additions due to conversion of FCCBs, ESOP and preferential placement of equity shares Less : Expenses on issue of shares Write back from/(Accrual for) redemption premium on FCCBs (net) Less/Add: Expenses on issue of Shares Closing Balance NOTE NO. AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 B in Lakhs - - - - 1,779.76 316.20 271.10 10,505.40 - (574.70) 97.20 10,615.20 346.74 - - (346.74) - 1,779.76 7,333.90 - 0.32 - (7,018.02) - 316.20 Annual Report 2012-13 101 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 Reserves and Surplus (Contd.) B in Lakhs NOTE NO. AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 Business Restructuring Reserve Opening Balance Transferred from/(to) Securities Premium/Capital Reserve Unutilised provisions created from BRR in earlier years now reversed Amounts utilised for Permitted Utilisations Closing Balance Share Options Outstanding Account Opening Balance Add : Amounts recorded on Grants during the year Less : Written back to the Statement of Proﬁt and loss/other accounts during the year Closing Balance Less : Deferred Stock Compensation Expenses Share Options Outstanding Account (net) Foreign Currency Monetary Item Translation Diﬀerence Account Opening Balance -(Debit)/Credit (Add)/Less : Eﬀect of foreign exchange rate variation during the year (Add)/Less: Amortisation for the year Closing Balance 27 Exchange Reserve on Consolidation Opening Balance Eﬀect of Foreign exchange rate variations during the year Closing Balance Surplus/(Deﬁcit) in Statement of Proﬁt and Loss Opening balance Add : Proﬁt/(Loss) for the year Closing Balance Total Reserves and Surplus NOTE 5 Long-term Borrowings Secured Foreign Currency Convertible Bonds (Refer note 25) Unsecured Foreign Currency Convertible Bonds (Refer note 25) From Others (Refer note (i)) Unsecured Total 1,670.21 (271.10) - (1,318.48) 80.63 197.00 56.59 (115.10) 138.49 (14.71) 123.78 (357.00) (3,157.10) 748.45 (2,765.65) (4,178.42) (1,653.01) (5,831.43) 7,828.10 (5,994.71) 1,833.39 5,835.68 1,098.40 346.74 854.30 (629.23) 1,670.21 718.80 155.70 (677.50) 197.00 (83.50) 113.50 - (5,890.63) 5,533.63 (357.00) (1,823.51) (2,354.91) (4,178.42) 4,644.00 3,184.10 7,828.10 7,172.35 B in Lakhs AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 47,852.27 1,302.80 4,614.30 53,769.37 - - - (i) Represents loan taken by Subex Americas Inc, which has been guaranteed by Subex (UK) Limited. 102 Subex Limited NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 Other Long term Liabilities Accrual for premium payable on redemption of bonds Total NOTE 7 Long-term Provisions Provision for Employee Beneﬁts Provision for compensated absences Provision for gratuity Provision for other employee beneﬁts Provision for Tax (Net of Advance Tax of ` 934.90 Lakhs As at March 31, 2012 ` 934.90 Lakhs) Total NOTE 8 Short-term Borrowings Loans repayable on demand From Banks/ Financial Instituitions Secured (Refer note (i) below) Unsecured (Refer note (ii) below) From Others Unsecured (Refer note (iii) for previous year and (iv) for Current Year) Total ` in Lakhs AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 - - 517.93 517.93 ` in Lakhs AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 77.55 257.96 - 217.90 553.41 97.76 268.77 0.62 217.90 585.05 ` in Lakhs AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 16,550.46 937.55 1,899.90 19,387.91 11,320.20 116.30 1,000.00 12,436.50 (i) “The secured loans from banks are secured by ﬁrst charge on receivables, current assets and ﬁxed assets of the Company. Jointly and equally with ﬁrst ranking charge on “”FCCB Repayment fund”” on a paripassu basis with bondholders of Company’s US$127,721,000 5.70% secured Foreign Currency Convertible Bonds due 2017. Paripassu First Charge by way Hypothecation of Stocks and Book Debts and Other Current Assets of the Company both present and future stored at Company premises at RMZ Ecoworld, This is further covered by a personal guarantee of a director of the Company apart from corporate guarantee in which a director is interested as well as a guarantee of Subex Technologies Ltd.” (ii) Represents loan taken by Subex Technologies Inc which is secured by a corporate guarantee from Subex Ltd (iii) Secured by a personal guarantee and shares pledged of a director of the Company. (iv) Represents loan taken by Subex Americas Inc, which has been guaranteed by Subex (UK) Ltd. Annual Report 2012-13 103 NOTES FORMING PART OF FINANCIAL STATEMENTS NOTE 9 Other Current Liabilities Current Maturities of Long-term Borrowings - FCCB (Unsecured) (Refer note 25) Current Maturities of Long-term borrowings - Hire Purchase Loans from Banks (Secured) (Refer note (i) below) Interest accrued but not due on borrowings Unclaimed Dividends (Refer note 37.2) Unearned Revenue Advances from customers Accrual for premium payable on redemption of bonds Estimated Liability on Forward Contracts Other Payables Statutory remittances Total ` in Lakhs AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 - 0.92 2,282.16 2.92 3,905.43 - - - 47,720.75 25.03 203.34 4.08 5,306.59 679.60 18,421.50 1,239.37 603.65 74,203.91 Secured against the Hypothecation of vehicles ﬁnanced under these loans. Hire Purchase loans amount to ` 0.90 Lakhs as at March 31, 2013 (` 25 Lakhs as at March 31, 2012). The interest rate on these loans range from 9% to 20%. 637.10 6,828.53 (i) NOTE 11 Fixed Assets ` in Lakhs GROSS BLOCK DEPRECIATION NET BLOCK As at 1-Apr-12 Adjustm- ents* Additio- ns Deleti- ons As at 31-Mar- 13 Upto 31-Mar-12 Adjustm- ents For the year Withdrawn on Deletions Upto As at As at 31-Mar- 13 31-Mar- 13 31- Mar-12 SR. NO PARTICULARS 11.A Tangibles Fixed Assets 1 Computers 5,263.10 74.45 120.19 220.90 5,236.84 4,605.70 58.64 358.40 200.80 4,821.94 414.90 657.40 Previous year balance (9,681.10) (1,005.40) (283.90) (5,707.30) (5,263.10) (8,640.80) (921.80) (641.30) (5,598.20) (4,605.70) (657.40) 2 Furniture & Fixtures 136.50 4.88 0.89 - 142.27 120.70 4.52 5.84 - 131.06 11.21 15.80 Previous year balance (803.50) (105.20) (8.10) (780.30) (136.50) (780.70) (102.70) (16.30) (779.00) (120.70) (15.80) 3 Vehicles 241.60 Previous year balance (347.90) - - - 157.50 84.10 212.90 (0.60) (106.90) (241.60) (232.10) - - 25.26 156.61 81.55 2.55 28.70 (67.20) (86.40) (212.90) (28.70) 4 Oﬃce Equipments 524.80 4.89 4.65 0.70 533.64 453.90 4.68 37.27 0.29 495.56 38.08 70.90 Previous year balance (871.60) (84.80) (12.80) (444.40) (524.80) (748.00) (81.56) (53.50) (429.16) (453.90) (70.90) 5 Leasehold Improvements 169.50 1.60 - - 171.10 169.50 1.60 - - 171.10 Previous year balance (570.70) (79.40) - (480.60) (169.50) (569.40) (79.20) (1.30) (480.40) (169.50) - - - Total Tangible Assets 6,335.50 85.82 125.73 379.10 6,167.95 5,562.70 69.44 426.77 357.70 5,701.21 466.74 772.80 Previous Year (12,274.80) (1,274.80) (305.40) (7,519.50) (6,335.50) (10,971.00) (1,185.26) (779.60) (7,373.16) (5,562.70) (772.80) 11.B Intangibles 1 Goodwill 137.67 Previous year balance (137.67) 2 Intellectual Property Rights 3,973.95 Previous year balance (3,973.95) Total intangible Assets 4,111.62 Previous Year (4,111.62) - - - - - - - - - - 137.67 137.67 (137.67) (137.67) - 3,973.95 3,973.95 (3,973.95) (3,973.95) - 4,111.62 4,111.62 - (4,111.62) (4,111.62) - - - - - - - - - 137.67 (137.67) - 3,973.95 (3,973.95) - 4,111.62 - (4,111.62) - - - - - - - - - - Note: The above assets represent the assets owned by the Company and there are no assets taken on ﬁnance lease or given on operating lease. * Adjustments represent exchange ﬂuctuation arising on account of conversion of ﬁxed assets from foreign currency to reporting currency 104 Subex Limited NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 Short-term Provisions B in Lakhs AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 Provision for Employee Beneﬁts Provision for compensated absences Provision for gratuity Warranty Provision for Tax (Net of advance tax ` Nil) (As at March 31, 2012 ` Nil) Total NOTE 12 Long-term Loans and Advances (Unsecured, considered good) 263.30 83.20 - 1.20 347.70 161.49 66.13 42.29 1.44 271.35 B in Lakhs Advance Taxes (Net of Provision of ` 176.50 Lakhs) (As at March 31, 2012 ` 176.00 Lakhs) Balances with government authorities - Service Tax Credit Receivable Security Deposits MAT credit entitlement Total NOTE 13 Other Non-current Assets Long-term Trade Receivables (Unsecured) Outstanding for a period exceeding six months from due date Considered Doubtful Less: Provision for Doubtful trade receivables Unbilled Revenue Total NOTE 14 Trade Receivables (Unsecured) Outstanding for a period exceeding six months from due date Considered Good Considered Doubtful Less: Provision for Doubtful trade receivables Other Trade receivables Considered Good Total NOTE 15 Cash and Bank Balances Cash on Hand Balance with Banks in Current Accounts in EEFC Accounts Other bank balances in Earmarked Accounts Unclaimed dividend Accounts (Refer note 37.2) Margin Money Deposits Total AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 1,430.30 266.90 774.43 174.13 2,645.76 1,172.67 266.90 795.15 174.13 2,408.85 B in Lakhs AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 4,080.60 (4,080.60) - 1,313.94 1,313.94 1,523.33 (1,523.33) - - - B in Lakhs AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 102.00 647.20 (647.20) - 7,230.84 7,332.84 514.56 - - - 6,824.82 7,339.38 B in Lakhs AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 0.77 4,441.62 9.44 4,451.83 2.92 627.91 630.83 5,082.66 0.83 50.95 0.47 52.25 4.08 185.62 189.70 241.95 Annual Report 2012-13 105 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 16 Short-term Loans and Advances (Unsecured, considered good) B in Lakhs AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 Advance recoverable (Refer note 37.8) Loans and advances to employees Prepaid expenses Balances with government authorities Service Tax Credit Receivable Others Advance to Suppliers Total NOTE 17 Other Current Assets Unbilled Revenue Accruals: Interest accrued on deposits Others: Receivable on sale of Activation assets (pertaining to Activation business) Recoverable Expenses Total NOTE 18 Revenue from Operations Income from Sale of Products (and related services) Income from Sale of Services Total NOTE 19 Other Income Exchange Fluctuation gain (net) Interest income Interest on deposit accounts from banks Other non-operating income Bad Debts recovered Proﬁt on sale of Fixed Assets (net) Insurance claims received Miscellaneous Income Total NOTE 20 Employee Beneﬁts Expense and Sub-contract Charges Salaries & Wages Contribution to Provident Fund and Other Funds Expense on Employee Stock Option Scheme (ESOP) Staﬀ Welfare Expenses Sub-contract Charges Total 106 Subex Limited 233.79 342.08 311.33 43.67 67.07 997.94 - 264.35 637.72 - 270.51 - 39.24 1,211.82 B in Lakhs AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 5,135.91 29.92 - 8.24 5,174.07 FOR THE YEAR ENDED MARCH 31, 2013 30,734.27 2,323.68 33,057.95 FOR THE YEAR ENDED MARCH 31, 2013 - 40.02 2.17 - - 46.96 89.15 10,026.74 - 2.66 - 763.13 132.03 10,924.56 B in Lakhs FOR THE YEAR ENDED MARCH 31, 2012 42,949.20 4,833.43 47,782.63 B in Lakhs FOR THE YEAR ENDED MARCH 31, 2012 589.32 34.48 63.17 2.70 357.30 49.37 1,096.34 FOR THE YEAR ENDED MARCH 31, 2013 18,130.48 1,096.53 11.27 864.49 20,102.77 566.25 20,669.02 B in Lakhs FOR THE YEAR ENDED MARCH 31, 2012 21,729.78 1,289.91 (118.43) 1,207.11 24,108.37 1,249.63 25,358.00 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 21 Finance Costs B in Lakhs Interest Expenses on: Foreign Currency Convertible Bonds Other Borrowings Other Borrowings Costs - Bank Charges Total NOTE 22 Other Expenses Software Purchases Rent Power, Fuel and Water Charges Repairs & Maintenance Insurance Communication Costs Printing & Stationery Travelling & Conveyance Rates & Taxes Including Filing Fees Advertisement & Business Promotion Consultancy Charges Payments to Auditors (Refer Note 36) Commission on Sales Provision for Doubtful trade and other receivables Miscellaneous Expenses Loss on sale of Fixed assets (Net) Exchange Fluctuation Loss (Net) Total NOTE 23 Exceptional Items AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 2,212.06 2,611.50 386.44 5,210.00 1,045.40 3,101.20 138.59 4,285.19 B in Lakhs AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 54.23 1,426.53 193.12 681.90 184.60 500.55 46.42 2,540.43 186.92 247.34 392.67 80.53 182.25 170.51 53.00 40.49 654.51 7,636.00 62.20 1,524.21 286.81 827.54 179.23 725.98 63.35 2,701.14 141.18 405.55 613.38 79.40 186.95 666.60 124.29 - - 8,587.81 B in Lakhs AS AT MARCH 31, 2013 AS AT MARCH 31, 2012 Exchange (Gain)/Loss on Restatement of FCCBs Exchange (Gain)/Loss on intra group foreign currency loans & advances (Gain)/Loss on sale of assets pertaining to activation business net of redundancy costs Other Redundancy Costs Reversal of stock compensation expenses pursuant to voluntary surrender of options Impairment of goodwill from Subex Technologies Limited Exceptional Provision for Doubtful trade and other receivables Total - - - - 926.70 3,069.92 3,996.62 5,533.63 (190.40) (56.22) 596.01 (403.60) - - 5,479.42 NOTE 24 Accounting under the Proposal approved by the Hon’ble High Court a) During the year ending March 31, 2010, the shareholders of the Company approved the Board’s proposal (hereinafter referred to as ‘the Proposal’) for transferring amounts from the Securities Premium and Capital Reserves as on or arising after April 1, 2009 (upto March 31, 2013) to a Business Restructuring Reserve (BRR) to be utilised from April 1, 2009 for certain Permitted Utilisations as mentioned in the Proposal. The Proposal was approved by the Hon’ble High Court of Karnataka on May 4, 2010 and was registered with the Registrar of Companies on May 11, 2010, thereby completing all the requirements for the order to be eﬀective. Annual Report 2012-13 107 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 24 Accounting under the Proposal approved by the Hon’ble High Court (Contd.) b) Adjustments in the BRR during the previous year ended March 31, 2011 In accordance with the Proposal, the Board of Directors of the Company have approved the following for ﬁnancial year ended March 31, 2011: Transfer of ` 17,400.00 Lakhs during the year from the balances in Securities Premium Account and Capital Reserve to the BRR Utilization of the BRR for permitted utilisations to the extent of ` 15,503.70 Lakhs (net) c) Adjustments in the BRR during the previous year ended March 31, 2012 In accordance with the Proposal, the Board of Directors of the Company have approved the following for ﬁnancial year ended March 31, 2012: Transfer of ` 346.74 Lakhs during the year from the balances in Capital Reserve to the BRR, Reversals of the provisions to the BRR for an aggregate amount of ` 225.07 Lakhs (net of reversals). d) Adjustments in the BRR during the current year ended March 31, 2013 In accordance with the Proposal, the Board of Directors of the Company have approved the following for ﬁnancial year ended March 31, 2013: Transfer of ` 271.10 Lakhs during the year to Securities Premium Utilised for FCCB reconstruction ` 359.58 Lakhs Provision for Unbilled Revenue created ` 206.00 Lakhs Provision for Receivables created ` 752.90 Lakhs e) Had the Proposal not provided for the above, the eﬀect of accounting under the Accounting Standards referred to in Section 211(3C) of the Companies Act, 1956 would have been as under: Amount in B Lakhs except as otherwise indicated In the Statement of Proﬁt and loss. MARCH 31, 2013 MARCH 31, 2012 Revenue would have been lower by: The loss under Exceptional items would have been higher as follows: One time non-recurring expenses including restructuring fees, advisory fees, marketing expenses and reversal of long term retention beneﬁt plan (net) Sub-Total Proﬁt/(loss) after Tax would have been lower/higher by Basic Earnings/(Loss) per share would have been – ` Diluted Earnings/(Loss) per share would have been – ` NOTE 25 Foreign Currency Convertible Bonds (FCCBs) 958.90 359.58 359.58 1,318.48 (5.36) (5.36) - 225.07 225.07 225.07 4.92 4.91 a) During the year 2006-07, the Company issued Foreign Currency Convertible Bonds (FCCB I) aggregating to US$ 180 Million, with an interest rate of 2% p.a. payable semi-annually in arrears, with terms of conversion being : i) ii) Conversion price : ` 656.20 per share Exchange rate for conversion of FCCB : ` 44.08/ US$ 1 iii) Redemption date : March 09, 2012 iv) Premium payable on redemption : US$14.05 Million v) Listing on the London Stock Exchange The bonds were available for conversion at any point in time during the period prior to the redemption date. During the year 2009-10, 108 Subex Limited NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 25 Foreign Currency Convertible Bonds (FCCBs) (Contd.) the Company presented to restructure the FCCBs I by oﬀering a discount of ~30% on the face value of the existing bonds in return for new FCCBs (“FCCBs II”) having a face value of US$ 126 Million. Pursuant to the oﬀer, the FCCBs I Bondholders, with a face value of US$ 141 Million exchanged their bonds for new FCCBs with a face value of US$ 98.70 Million. The remaining FCCBs I bondholders holding bonds with a face value of US$ 39 Million (out of the original bondholders holding US$ 180 Million) did not choose the option for restructuring. The terms and conditions applicable for the new FCCB II bonds, for the US$ 98.70 Million face value, were as under : i. ii. iii. Conversion price : ` 80.31 per share iv. Redemption date : March 09, 2012 v. Premium payable on redemption : US$23.23 Million vi. Listing on the Singapore Exchange Securities Trading Limited Interest rate : 5% p.a. payable semi annually Exchange rate for conversion of FCCB : ` 48.17/ US$ 1 Both the bonds were initially redeemable on or by March 9, 2012, if not converted into equity shares as per terms of issue. Based on an approval received from the Reserve Bank of India and bond holders, the redemption date was extended to July 09, 2012. Out of the US$ 98.70 million of FCCBs II, bonds having a face value of US$ 31.90 million were converted into equity shares as of March 31, 2010 and bonds with a face value of US$ 12 million were converted during the year ending March 31, 2011, retaining a closing balance of US$ 54.80 Million outstanding FCCBs II bonds. b) Pursuant to the approval of the holders of “US$ 180 Million 2% convertible unsecured bonds”, [of which US$ 39 Million was outstanding (“FCCBs I”)] and “US$ 98.70 Million 5% convertible unsecured bonds”, [of which US$ 54.80 was outstanding (“FCCBs II”)], at their respective meetings held on July 5, 2012 and exchange oﬀers received under the exchange oﬀer memorandum dated June 13, 2012, holders of US$ 38 Million out of FCCBs I and US$ 53.40 Million out of FCCBs II oﬀered their bonds for exchange and secured bonds with a face value of US$ 127.72 million (“FCCBs III”) were issued with maturity date of July 7, 2017. The Company has been legally advised that there is no tax incidence arising from the above restructuring. i. c) The terms and conditions of FCCB III are as under: Interest rate : 5.70% p.a. payable semi annually Exchange rate for conversion of FCCB : ` 56.06/ US$ 1 ii. iii. Equity Conversion price : ` 22.79 per share iv. Redemption date : July 07, 2017 v. vi. Listing on the Singapore Exchange Securities Trading Limited Second ranking paripassu charge in respect of all movable properties, present & future, covered under the Existing security and First ranking charge in respect of all movable properties, present & future, other than & to the extent covered by the existing security. First ranking charge on FCCB Repayment fund on a paripassu basis jointly & equally with SBI & Axis Bank Ltd. The promoters of the Company have pledged their share towards securing the repayment of FCCB III. vii. Mandatory conversion of bonds with a face value of US$ 36.32 Million into equity shares at the aforesaid conversion price on July 17, 2012. During the year FCCB III with face value of US$ 3.25 Million were converted into equity shares of the Company, retaining a closing balance of US$ 88.15 Million. d) Pursuant to approval of the RBI dated April 27, 2012 and requisite approvals under the trust deed of the holders of the Company’s US$ 180 million convertible unsecured bonds and US$ 98.70 million convertible unsecured bonds the maturity period of the un-exchanged portion of FCCBs I of face value US$ 1 Million and FCCBs II of face value US$ 1.40 Million stands extended to March 9, Annual Report 2012-13 109 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 25 Foreign Currency Convertible Bonds (FCCBs) (Contd.) 2017, with its other terms and conditions remaining unchanged. e) FCCB I : As at March 31, 2013, the face value of the US$ 1 Million FCCBs (Previous Year US$ 39 Million) amounts to ` 542.81 Lakhs (Previous Year: ` 19,841.27 Lakhs) and is included in Note 5 – Long Term Borrowings. The premium payable on maturity has been accrued by a charge to Securities Premium. FCCB II : As at March 31, 2013, the face value of the US$ 1.40 Million FCCBs (Previous Year US$ 54.80 Million) amounts to ` 759.99 Lakhs (Previous Year: ` 27,879.48 Lakhs) and is included in Note 5 – Long Term Borrowings. The premium payable on maturity has been accrued by a charge to Securities Premium. FCCB III : As at March 31, 2013, the face value of the US$ 88.15 Million FCCBs (Previous Year US$ Nil) amounts to ` 47,852.27 Lakhs (Previous Year: ` Nil) and is included in Note 5 – Long Term Borrowings. NOTE 26 Employees Stock Option Plan (ESOP) The Company during the years 1999-2000, 2005-2006 and 2008-2009 has established ESOP II, ESOP III and ESOP IV respectively. These schemes have been formulated in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. As per these schemes, 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. 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 Company has obtained in-principle approval for listing of shares up to a limit as mentioned below. ESOP II : 8,83,750 shares ESOP III : 20,00,000 shares ESOP IV : 20,00,000 shares Employees’ Stock Options Details as on the Balance Sheet Date are: Particulars 2012-13 2011-12 Options outstanding at the beginning of the year ESOP – II ESOP – III ESOP – IV Granted during the year ESOP – II ESOP – III ESOP – IV Options (No.’s) Options (No.’s) Weighted average exercise price per stock option (`) Weighted average exercise price per stock option (`) 12,022 13,56,086 10,19,289 85.22 39.30 28.95 2,78,259 16,15,233 11,87,619 71.71 104.11 54.17 - 1,24,100 - - 12.82 - - 14,61,441 10,19,583 - 31.61 28.44 110 Subex Limited NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 26 Employees Stock Option Plan (ESOP) (Contd.) B in Lakhs Particulars 2012-13 2011-12 Exercised during the year ESOP – II ESOP – III ESOP – IV Cancelled, Surrendered or Lapsed during the year ESOP – II ESOP – III ESOP – IV Options outstanding at the end of the year ESOP – II ESOP – III ESOP – IV Options exercisable at the end of the year ESOP – II ESOP – III ESOP – IV Options available for Grant at the end of the year ESOP – II ESOP – III ESOP – IV Options (No.’s) Options (No.’s) Weighted average exercise price per stock option (`) Weighted average exercise price per stock option (`) - - - 7,352 3,49,039 2,88,483 4,670 11,31,147 7,30,806 4,670 8,64,489 4,57,293 - 8,56,414 12,69,194 - - - - - - 82.63 34.04 28.79 - - - - - - - 747 - 2,66,237 17,19,841 11,87,913 12,022 13,56,086 10,19,289 9,397 98,823 9,191 - 6,31,475 9,80,711 - - - - - - 85.22 39.30 28.95 - - - - - - [Weighted average remaining contractual life (considering vesting and exercise period)] ESOP – II At March 31, 2012: 1.54 Years At March 31, 2013: 1.07 Years ESOP – III At March 31, 2012: 3.81 Years At March 31, 2013: 3.07 Years ESOP – IV At March 31, 2012: 4.16 Years At March 31, 2013: 3.46 Years Fair Value Methodology The fair value of options used to compute proforma 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 8% (Previous year: 8%), expected life: 3 years (Previous year: 3 years), expected volatility of share: 64.85% (Previous year: 33.73%), and expected dividend yield: 0% (Previous year: 0%) 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 methoid is adopted, is given below: Particulars Net Proﬁt for the year (as reported) Amount in B Lakhs except as otherwise indicated MARCH 31, 2012 3,184.10 MARCH 31, 2013 (5,994.71) Add : Stock-based employee compensation relating to grants after Apr 1, 2006 Less : Stock-based compensation expenses determined under fair value based method for the above grants Net Proﬁt (proforma) Basic earnings per share (as reported) -` Basic earnings per share (proforma) - ` Diluted earnings per share (as reported) - ` Diluted earnings per share (proforma) - ` 11.27 30.80 (6,014.24) (4.40) (4.41) (4.40) (4.41) (522.09) 33.00 2,629.01 4.59 3.79 4.59 3.79 Annual Report 2012-13 111 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 27 (Contd.) The Company adopted the amendments to Accounting Standard 11 “The Eﬀects of Changes in Foreign Exchange Rates” that were notiﬁed during the year ended March 31, 2012. Pursuant to this amendment, exchange ﬂuctuations arising on restatement of all long term monetary foreign currency assets and liabilities at rates diﬀerent from those at which they were initially recorded or reported in the previous ﬁnancial statements (whichever is later), are accumulated in a Foreign Currency Monetary Item Translation Diﬀerence account and are amortised over the balance period of such long term asset/liability. Consequently, exchange ﬂuctuation losses (net) arising on restatement of such items has been deferred to the extent of ` 2,765.65 Lakhs (Previous Year ` 357.00 Lakhs) at March 31, 2013 and the loss for the year are lower by a corresponding amount. NOTE 28 Employee Beneﬁt Plans a) Deﬁned Contribution Plans The Group makes contribution to Provident Fund and Employee State Insurance scheme which are deﬁned contribution plan, in respect of employees in India. In respect of employees in overseas subsidiaries, the Group makes contributions to certain deﬁned contribution plans, based on respective local laws. Under these plans, a speciﬁed percentage of payouts are required to be contributed by the Group. The Group recognized ` 936.23 Lakhs (Year ended March 31, 2012 ` 1,234.86 Lakhs) towards contributions to these plans. b) Deﬁned Beneﬁt Plans The Group oﬀers the Gratuity beneﬁts to employees, a deﬁned beneﬁt plan. The following table sets out the funded status of Gratuity liability in respect of parent Company and its domestic subsidiaries and the amounts recognised in the consolidated ﬁnancial statements: Amount in B Lakhs except assumption Gratuity MARCH 31, 2013 MARCH 31, 2012 I 1 2 3 4 5 6 7 8 II 1 2 III 1 2 3 4 IV 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 recognized in the Statement of Proﬁt and Loss Actual Contribution and Beneﬁt Payments for year Actual beneﬁt payments Actual Contributions Net asset/(liability) recognized in Balance Sheet Present value of Deﬁned Beneﬁt Obligation (DBO) Fair value of plan assets Funded status [Surplus/(Deﬁcit)] Unrecognized Past Service Costs Net asset/(liability) recognized in Balance Sheet - Current - Non current 112 Subex Limited 108.70 20.63 (0.59) - - - 31.51 160.25 99.26 - (348.46) 7.30 (341.16) - (341.16) (83.20) (257.96) 100.85 23.00 (1.60) - - - (67.20) 55.05 43.00 - (342.00) 7.10 (334.90) - (334.90) (66.13) (268.77) NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 28 Employee Beneﬁt Plans (Contd.) Amount in B Lakhs except assumption Gratuity MARCH 31, 2013 MARCH 31, 2012 V 1 2 3 4 5 6 7 8 9 10 11 VI 1 2 3 4 5 6 7 Change in Deﬁned Beneﬁt Obligations during the year 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 Currency translation adjustment Beneﬁts paid Present Value of DBO at the end of year Change in Fair Value of Assets during the year Plan assets at beginning of year Acquisition Adjustment Expected return on plan assets(estimated) Actuarial Gain/(Loss) Actual Company contributions(less risk premium, ST) Beneﬁts paid Plan assets at the end of period VII Actuarial Assumptions 1 2 3 4 Discount Rate Expected Return on plan assets Salary escalation Attrition Rate 342.00 108.70 20.63 - - - - 24.93 (48.54) (99.26) 348.46 7.06 0.59 0.09 99.00 (99.26) 7.60 8.10% 8.50% 6.00% 9.00% 305.90 100.85 23.00 - - - - (66.90) 22.15 (43.00) 342.00 33.00 - 1.60 0.30 15.20 (43.00) 7.10 8.70% 8.60% 6.00% 5.00% Five Year Data Period Ending Mar 31, 09 Mar 31, 10 Mar 31, 11 Mar31, 12 Mar 31, 13 Deﬁned Beneﬁt Obligation at end of the period Plan Assets at end of the period Funded Status Experience Gain/(Loss) adjustments on Plan Liabilities Experience Gain/(Loss) adjustments on Plan Assets Actuarial Gain/(Loss) due to change on assumptions The composition of the plan assets held under the funds managed by the Insurer is as follows: (153.28) 15.04 (138.24) 8.08 0.33 (12.23) (193.23) 50.84 (142.39) 3.85 - 6.84 (299.41) 33.04 (266.37) (4.83) 0.38 - (348.50) 7.10 (341.40) 54.12 0.31 12.77 (348.46) 7.60 (340.86) 11.31 (0.09) (42.73) Fund Type 2013 % 2012 Equity Instruments Debt Instruments FD and Other Asset Estimated amounts to be contributed in the immediate next year ` 31.08 Lakhs (Previous year: ` 10.95 Lakhs) 4.68 74.88 20.44 5.22 79.73 15.05 The discount rate is based on the prevailing market yields of Government of India securities as at the Balance Sheet date for the estimated term of the obligations The estimate of future salary increases considered, takes into account the inﬂation, seniority, promotion, increments and other relevant factors Annual Report 2012-13 113 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 28 Employee Beneﬁt Plans (Contd.) Actuarial assumption for long term compensated absences MARCH 31, 2012 Discount rate 8.70% Expected return on plan asset NA Salary escalation rate 6.00% Attrition 5.00% The discount rate is based on the prevailing market yields of Government of India securities as at the Balance Sheet date for the MARCH 31, 2013 8.10% NA 6.00% 9.00% estimated term of the obligations. The estimate of future salary increases considered, takes into account the inﬂation, seniority, promotion, increments and other relevant factors NOTE 29 Segmental Reporting The Group has identiﬁed business segment as its Primary reporting segment with Secondary segments reported geographically. The accounting policies adopted for segment reporting are in line with the accounting policies of the Group outlined in Note 2. Segment revenue, segment expenses, segment assets and segment liabilities have been identiﬁed to segments on the basis of their relationship to the operating activities of the segment. Revenue, expenses, assets and liabilities which are not allocable to segments on reasonable basis have been included under “unallocated revenue/expenses/assets/liabilities.” Information about Primary Business Segment: The Group’s operations comprise two Business segments viz, (a) Software Products and (b) Services. Under the business segment of Software products, the Group provides Software Products (and related services) in the Revenue Assurance space to Communication Service providers (CSPs) who operate in the Telecom industry. The Staﬀ Augmentation business of the Group is organized under the Services segment and is carried out through its subsidiaries Subex Technologies Limited and Subex Technologies Inc. B in Lakhs Products Services Unallocable Consolidated 2011-12 2012-13 30,734.27 42,949.20 13,187.60 4,202.94 2012-13 2,323.68 (604.79) 2011-12 4,833.43 96.08 (3,069.92) 53.18 (926.70) - - - - 2012-13 2011-12 2012-13 33,057.95 3,598.15 2011-12 47,782.63 13,283.68 - - (5,532.60) (3,996.62) (5,479.42) - 1,133.02 - 13,240.78 - (1,531.49) - (5,210.00) 96.08 (5,210.00) (4,285.19) (9,817.79) (5,210.00) (5,608.47) (4,285.19) 3,519.07 Revenues Segment results before interest, taxes & exceptional item Unallocable Income, net of unallocable expense Interest expense Proﬁt/(Loss) Before Tax Tax expenses (Net) Proﬁt/(Loss) After Tax Particulars of Segment Assets & Liabilities - - - - - - (386.24) (5,994.71) 334.97 3,184.10 B in Lakhs Segment Assets Unallocable Assets: Total Assets Products Services Unallocable Consolidated 2011-12 2012-13 1,06,545.70 1,06,461.70 - - 2012-13 506.00 - 2011-12 1,302.80 - 2012-13 2011-12 2012-13 2011-12 - - - 1,07,051.70 1,07,764.50 1,844.93 - 1,08,797.37 1,09,609.43 1,745.67 16,475.50 Segment Liabilities 79,030.50 Unallocable Liabilities: Total Liabilities 95,506.00 Segment assets include all assets relating to the segment and consist principally of Fixed assets, Receivables, Other current assets and non-current assets and Goodwill (on consolidation). Unallocable asset includes advance tax, MAT credit and deferred tax. 10,118.09 76,179.60 86,297.69 16,291.50 - 9,345.44 - 184.00 - 772.65 - - - - - Segment liabilities include all liabilities relating to the segment and consist principally of Trade payables and other operating liabilities. Unallocable liabilities include loans, provision for tax and deferred tax liability. 114 Subex Limited NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 29 Segmental Reporting (Contd.) Addition to assets Products Services 2012-13 122.90 2.83 B in Lakhs 2011-12 304.90 0.50 Total amount of expense included in the segment result for depreciation and amortisation in respect of segment assets for the period. B in Lakhs Particulars Products Services Consolidated Depreciation 2012-13 2011-12 2012-13 2011-12 2012-13 2011-12 420.51 772.60 6.26 7.00 426.77 779.60 Total amount of signiﬁcant non-cash expenses, other than depreciation and amortization in respect of segment assets that are included B in Lakhs in segment expense and, therefore, deducted in measuring segment result. Products Services Consolidated - Expense on Employee Stock Option Scheme (ESOP) (net)* - Provision for Doubtful trade and other receivables Total - * Amount in bracket indicates balance credited to Statement of Proﬁt and Loss (net of expenses). 11.27 3,240.43 3,251.70 2011-12 (522.00) 666.60 144.60 2012-13 2012-13 2011-12 - - - 2012-13 11.27 3,240.43 3,251.70 2011-12 (522.00) 666.60 144.60 Information about Secondary Business Segment The Group operations spans across the world and are categorized geographically as (a) Americas, (b) EMEA and (c) APAC and rest of the World. ‘Americas’ comprises the Group’s operations in North America, South America and Canada. ‘EMEA’ comprises the Group’s operations in Europe, Middle East and Africa and the Group’s operations in the rest of the world are organized under ‘APAC and the rest of the world’. Segment revenue by geographical location are as follows: B in Lakhs AMERICAS EMEA APAC and rest of the world Total Products Services Consolidated 2011-12 2012-13 8,009.78 12,117.50 16,386.44 24,274.83 6,556.90 6,338.05 30,734.27 42,949.23 2012-13 2,323.68 - - 2,323.68 2012-13 2011-12 4,833.40 10,333.46 - 16,386.44 - 6,338.05 4,833.40 33,057.95 2011-12 16,950.90 24,274.83 6,556.90 47,782.63 Assets and additions to tangible and intangible ﬁxed assets by geographical area: The following table shows the carrying amount of segment assets and additions to tangible and intangible ﬁxed assets by geographical area in which the assets are located: B in Lakhs Location AMERICAS EMEA APAC and rest of the world Total 2012-13 2011-12 Carrying Amount of Segment Assets 3,314.99 7,215.82 96,395.19 1,06,926.00 Additions to Fixed assets and Intangible assets 12.50 2.16 111.04 125.70 Carrying Amount of Segment Assets 12,959.60 6,581.50 87,918.00 1,07,459.10 Additions to Fixed assets and Intangible assets 46.90 33.60 224.90 305.40 Note: Segment assets relating to the Services business are located primarily in Americas and APAC regions Annual Report 2012-13 115 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 30 Related Party Information Related Parties Key Management Personnel Surjeet Singh, Managing Director & CEO, October 5, 2012 onwards Subash Menon, Managing Director & CEO upto September 27, 2012 Sudeesh Yezhuvath, Wholetime Director & Chief Operating Oﬃcer upto October 5, 2012 Details of the transactions with the related parties: Particulars a) Salary and Perquisites (Also refer Note 37.8) Subash Menon Sudeesh Yezhuvath Surjeet Singh b) Amount due as at year end from/(to) Surjeet Singh NOTE 31 Operating leases B in Lakhs Key Management Personnel 2012-13 2011-12 107.69 108.39 224.60 (70.00) 216.51 197.41 - The Group had entered into non cancelable leasing arrangement for its India oﬃce premises which on renewal this year became cancelable. Rental expenses for operating leases included in the Statement of Proﬁt and Loss for the year is ` 1,426.53 Lakhs (Previous year ` 1,524.21 Lakhs) The future minimum lease payments for non-cancelable operating leases were: B in Lakhs Within one year Due in a period between one year and ﬁve years Due after ﬁve years NOTE 32 Earnings per Share (EPS) Particulars Proﬁt after Tax attributable to shareholders (A) Add : Interest on FCCBs Add/(Less) : Exchange Fluctuation on FCCB Adjusted Proﬁts after Tax for Diluted EPS (B) Weighted Average Number of Shares (in Lakhs) for Basic EPS (C) Eﬀect of Existence of Dilutive Instruments (FCCBs and ESOPs) (in Lakhs) Weighted Average Number of Shares (in Lakhs) for Diluted EPS (D) Earnings per Share – Basic [(A)/(C)] - ` Earnings per Share - Diluted [(B)/(D)] - ` Face value of shares: ` 10/- each MARCH 31, 2013 - - - MARCH 31,2012 1,300.82 4,661.83 1,999.62 Amount in ` in Lakhs except otherwise than indicated 2012-13 (5,994.71) - - (5,994.71) 1,362.43 0.10 1,362.53 (4.40) (4.40) 2011-12 3,184.10 - - 3,184.10 693.11 0.80 693.91 4.59 4.59 Note: FCCBs outstanding as at March 31, 2013 are anti-dilutive and hence have not been considered for purposes of Dilutive EPS in year ended March 31, 2013. Certain of the FCCBs as at March 31, 2012 were anti-dilutive and hence were not considered for purposes of Dilutive EPS in year ended March 31, 2012. NOTE 33 Deferred Taxes B in Lakhs The deferred tax asset and liability recognised comprises of the tax impact arising from timing diﬀerences on: Particulars Leave Encashment and Gratuity Diﬀerences between the book balance and tax balance of Fixed assets Total Deferred tax Assets MARCH 31, 2013 MARCH 31,2012 62.80 78.40 141.20 62.80 78.40 141.20 116 Subex Limited NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 34 Details of Warranty B in Lakhs Year 2012-13 Opening Balance Additions During the year Utilization/reversal during the year Closing Balance 42.29 - (42.29) - NOTE 35 Contingent liabilities (a) Receivables factored: Current Year – Nil (Previous year - ` 7,569.51 Lakhs). (b) Claims against the Company not acknowledged as debt: MARCH 31, 2013 MARCH 31,2012 B in Lakhs Income Tax Demands 3,151.11 Value Added Taxes & Central Sales Tax - - Others (c) The Company has received a demand of service tax of ` 3,607.60 Lakhs and equivalent amount of penalties under the provisions of the Finance Act, 1994 along with the consequential interest, for the period from April, 2006 to July, 2009 towards service tax payable on import of certain services. The Company has ﬁled an appeal contesting the demand before the Central Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore. The Company has also obtained a stay against the said demand on March 27, 2013. In view of the Company, the demand is not sustainable. Further, the Company contends that in the event of the demand being upheld by the Appellate Authority, the Company is eligible to avail the service tax as input credit upon payment of the tax, excluding penalty and interest, if any. 3,151.11 27.80 1,001.04 NOTE 36 Payments to Auditors A. Statutory Auditors Particulars As Auditors – Statutory audit For Taxation matters For Other services For Reimbursement of expenses Total B. Other auditors for the Subsidiaries Particulars Audit fees For Taxation matters For Other services For Reimbursement of expenses Total NOTE 37 Others 2012-13 65.00 1.51 10.00 2.73 79.23 2012-13 1.30 - - - 1.30 B in Lakhs 2011-12 65. 00 1.51 10.00 1.60 78.10 B in Lakhs 2011-12 1.30 - - - 1.30 1. 2. 3. Estimated amount of contracts, remaining to be executed on capital account and not provided for (net of advances paid) is Nil (Previous year - ` 17.31 Lakhs). Unclaimed dividend of ` 2.92 Lakhs as at March 31, 2013 (Previous Year - ` 4.08 Lakhs) represent dividends not claimed for the period from 2005-2006. 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’. During the current year, the Company has transferred ` 0.59 Lakhs (Previous Year - ` 1.80 Lakhs) to Investor Protection Fund. Direct Taxes paid and Others in the Cash Flow Statement comprises outﬂows on account of permitted utilisations from the BRR of ` 359.58 (Previous Year - ` 120.50 Lakhs) and Direct Taxes of ` Nil (Previous Year - ` 544.30 Lakhs). Annual Report 2012-13 117 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 37 Others (Contd.) 4. Personnel Cost for the year includes expenditure on Research and Development of ` 1,108.71 Lakhs (Previous year - ` 1,295.12 Lakhs). This is as certiﬁed by the management and relied upon by the auditors. 5. The Company has entered into the following derivative instruments for the purposes of hedging the risks associated with foreign exchange exposures. Forward contracts to hedge foreign currency risk on export receivables: Amount in Lakhs Particulars MARCH 31, 2013 Buy/ Sell Foreign Currency Amount (`) MARCH 31, 2012 Buy/ Sell Foreign Currency Amount (`) Forward contracts - USD contracts -- - -- USD 361.31 Sell 17,328.52 6.(a) The year-end foreign currency exposures that have not been hedged by derivative instruments or otherwise are given below. MARCH 31, 2013 MARCH 31, 2012 Amount in Lakhs Amount (`) - 475.35 71.25 735.29 252.15 73.87 43.31 53.52 9.93 23.90 9,719.16 Foreign currency AED 0.00 AUD 8.39 CHF 1.25 EUR 10.58 GBP 3.07 MYR 4.22 OMR 0.31 QAR 3.59 SEK 1.19 SGD 0.55 USD 179.04 Amount (`) 1.71 852.50 70.42 687.81 33.10 0.10 8.21 15.70 3.10 26.33 - Foreign currency AED 0.10 AUD 16.11 CHF 1.30 EUR 10.12 GBP 0.41 MYR 0.00 OMR 0.10 QAR 1.10 SEK 0.40 SGD 0.61 - Note: The above does not include exposure on intra-group balances, being eliminated on consolidation. Particulars MARCH 31, 2013 MARCH 31, 2012 (b) Bank Balances c) Loan (being other amounts payable in foreign currency) (d) Import of goods and services (e) Capital goods (including intangibles) (f) Towards interest on Foreign Currency loans Towards Foreign Currency Convertible Bonds (FCCB’s) Amount (`) 2,451.41 64.86 0.07 27.56 38.68 2,766.25 - 22.71 5.00 0.22 1.43 20.91 15.42 2,213.42 Foreign currency USD 45.15 AED 4.38 AUD 0.001 CAD 0.51 EUR 0. 55 USD 30.29 GBP 13.77 EUR 0.18 - USD 0.41 CAD 0.12 SGD 0.10 GBP 0.11 EUR 0.31 CHF 0.22 USD 40.61 Amount (`) 2.39 4.34 3.19 - 58.78 - - - (30.93) 166.42 36.81 - 7.12 - - 109.42 Foreign currency USD 0.05 AED 0.31 AUD 0.06 - EUR 0.86 - - - CAD (0.61) USD 3.31 GBP 0.51 - GBP 0.11 - - USD 2.21 49,155.07 USD 886.51 47,720.75 USD 938.09 Redemption premium accrued on FCCB’s 517.93 USD 9.66 18,421.50 USD 362.10 118 Subex Limited NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 37 Others (Contd.) 7. The Company has ‘International transactions’ with ‘Associated Enterprises which are subject to Transfer Pricing regulations in India. The Management of the Company, is of the opinion that such transactions with Associated Enterprises are at arm’s length and hence in compliance with the aforesaid legislation. Consequently, this will not have any impact on the ﬁnancial statements, particularly on account of tax expense and that of provision for taxation. 8. a) In view of the losses incurred by the Company during the year ended March 31, 2013, the excess of the managerial remuneration paid to the directors over the limits prescribed under Schedule XIII of the Companies Act, 1956 has been treated as monies due from the directors, being held by them in trust for the Company, and is included under ‘Short-term loans and advances’ amounting to ` 123.80 Lakhs. b) Other advances to directors ` 110.00 Lakhs (Previous year Nil) NOTE 38 During the year, the Company has assessed the carrying value of goodwill arising from its investment in its subsidiary viz Subex Americas Inc, amounting to ` 18,606.00 Lakhs. Based on management’s assessment there is no impairment of goodwill taking into account the future operational plans and cash ﬂows as prepared by the management and accordingly no impairment loss is required to be recognized at this stage. NOTE 39 Details of the subsidiaries consolidated for the year ended March 31, 2013 B in Lakhs Particulars Subex (Asia Paciﬁc) Pte Ltd Subex (UK) Limited Subex Americas Inc. Subex Incorporated (Note 2 below) (Note 2 below) Singapore - (3,161.30) 9,918.30 13,079.60 - Country of Incorporation Capital Reserves* Total Assets Total Liabilities Details of investment (other than Subsidiaries) Turnover Proﬁt/(Loss) before taxation Provision for taxation Proﬁt after taxation Proposed Dividend Base Currency Exchange Rate *Inclusive of exchange reserve on consolidation 3,013.70 (231.20) 122.20 (353.40) - SGD 43.70 UK 40.60 10,337.40 31,164.90 20,786.90 - 16,870.00 833.90 207.80 626.10 - GBP 82.20 (Note 2 & 3 below) Canada 38,274.10 (56,827.00) 36,233.50 54,786.40 - 2,728.40 (1,495.30) 21.40 (1,516.70) - USD 54.30 (Note 2 below) USA - (2,265.20) 19,896.10 22,161.30 - 12,268.30 332.00 20.30 311.70 - USD 54.30 Subex Technologies Inc. (Note 1 below) Subex Technologies Limited (Note 1 below) USA 2,090.50 348.90 3,396.40 957.00 - 2,323.70 (1,230.80) - (1,230.80) - USD 54.30 India 400.00 (124.90) 284.01 8.91 - - (372.60) - (372.60) - INR 1.00 Note: 1. These details are extracted from the ﬁnancial statements of the subsidiaries audited by the independent auditors of Subex Technologies Limited. 2. The information in respect of these entities are extracted from the ﬁnancial summary considered in the consolidated ﬁnancial statements, which have been subject to audit, by the statutory auditors solely for the purpose of the inclusion of these balances in the consolidated ﬁnancial statements. 3. The details given in respect of Subex Americas Inc. are on a consolidated basis. The subsidiaries of Subex Americas Inc. that have been consolidated are as follows: Subsidiary Subex Azure Holding Inc. Country of Incorporation United Sates of America Annual Report 2012-13 119 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 40 Previous year’s ﬁgures have been regrouped/reclassiﬁed wherever necessary to correspond with the current year’s classiﬁcation/disclosures. In terms of our report attached For Deloitte Haskins & Sells Chartered Accountants For and on behalf of the Board of Directors Monisha Parikh Partner Mumbai Date: May 21, 2013 Surjeet Singh Managing Director & CEO Karthikeyan Muthuswamy Director Ganesh K.V. Global Head - Finance, Legal and Company Secretary Anil Singhvi Director Sanjeev Aga Director 120 Subex Limited Shareholders’ Information REGISTERED OFFICE The Registered oﬃce of the Company is at RMZ Ecoworld, Outer Ring Road, Devarabisanahalli, Bangalore – 560 037. DATE AND VENUE OF THE ANNUAL GENERAL MEETING (AGM) Date Venue August 14, 2013 : : The LaLiT Ashok Bangalore, “Lalit 3 & 4”, 1st Floor, Kumara Krupa High Grounds, Bangalore - 560001 2:00 PM Time : DATES OF BOOK CLOSURE From August 7, 2013 to August 14, 2013 (both days inclusive) BOARD MEETINGS & FINANCIAL CALENDAR Financial year : April 1, 2013 to March 31, 2014 Calendar of Board Meetings to adopt the accounts (tentative and subject to change): For quarter ending June 30, 2013 For quarter ending September 30, 2013 For quarter ending December 31, 2013 For the year ending March 31, 2014 DIVIDEND 4th week of August, 2013 4th week of October, 2013 4th week of January, 2014 3rd week of May, 2014 The Directors have not proposed any dividend to be paid for the ﬁnancial year 2012-13. LISTING ON STOCK EXCHANGES Equity Shares of the Company are quoted on the National Stock Exchange of India Limited (NSE) since September 5, 2003 and on the BSE Limited (BSE) since July 31, 2000. The Company has paid listing fees for the year 2013-14 in accordance with the provisions of the Listing Agreement with NSE and BSE. The Global Depositary Receipts (GDRs) of the Company are listed on the Professional Securities Market of London Stock Exchange since March 9, 2007. The Company’s outstanding US$ 180 million, 2% Coupon Convertible Unsecured Bonds are listed on the London Stock Exchange since March 9, 2007. The Company’s outstanding US$ 98.7 million 5% Convertible Unsecured Bonds, issued pursuant to the restructuring of US$ 180 million, 2% Coupon Convertible Unsecured Bonds, have been listed on the Singapore Exchange Securities Trading Limited since November 6, 2009. The Company’s US$ 127.721 million 5.70% Convertible Secured Bonds, issued pursuant to the restructuring of US$ 180 million 2% Convertible Unsecured Bonds and US$ 98.7 million 5% Convertible Unsecured Bonds, have been listed on the Singapore Exchange Securities Trading Limited since July 10, 2012. 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, Plot No. C/1, G Block Bandra Kurla Complex, Bandra (East) Mumbai- 400051 BSE Limited, Phiroze Jeejeebhoy Towers Dalal Street, Mumbai 400001 London Stock Exchange 10 Paternoster Square London EC4M 7LS Singapore Exchange Securities Trading Limited 2 Shenton Way #19-00 SGX Centre 1 Singapore 068804 Stock code SUBEX 532348 SUBX 4AFB (SUBEX US$ 98.7 million 5% bonds) 2EUB (SUBEX US$ 127.721 million 5.70% bonds) The International Securities Identiﬁcation Number (ISIN) for the Company’s Equity Shares in dematerialized form is INE754A01014. Annual Report 2012-13 121 CUSTODIAL FEE Pursuant to the Securities and Exchange Board of India (SEBI) Circu- lar No. MRD/DoP/SE/Dep/Cir-4/2005 dated January 28, 2005 is- suer companies are required to pay custodial fees to the deposito- ries with eﬀect from April 1, 2005. The said circular has been partially modiﬁed vide SEBI’s Circular No. MRD/DoP/SE/Dep/Cir-2/2009 dated February 10, 2009. The Company has, in accordance with the aforesaid circulars, paid custodial fees for the year 2013-14 to NSDL and CDSL on the basis of the number of beneﬁcial accounts main- tained by them as on March 31, 2013. STOCK MARKET DATA RELATING TO EQUITY SHARES LISTED IN INDIA Monthly high and low quotes during each month in the ﬁnancial year 2012-13 as well as the volume of shares traded on NSE and BSE are as under: Month Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 TOTAL High D 26.70 26.05 23.55 26.15 15.50 14.30 18.05 15.75 14.80 14.50 13.75 12.95 NSE BSE Low D 23.65 22.70 22.15 14.80 11.30 12.40 13.30 13.30 13.15 11.85 10.40 9.90 Volume Nos. 74,44,972 87,14,250 32,51,051 3,73,47,238 2,05,15,704 1,83,18,313 6,24,75,790 60,79,253 81,96,061 80,09,966 82,02,533 1,04,81,984 19,90,37,115 High D 26.65 25.90 23.55 26.15 15.56 14.30 18.07 15.76 14.85 14.57 13.81 12.95 TOTAL Low D 23.55 22.70 22.20 14.85 11.35 12.41 13.27 13.31 13.13 11.82 10.42 9.91 Volume Nos. 42,14,575 42,44,188 17,99,039 1,59,56,974 1,08,76,116 1,20,48,284 3,16,02,438 28,63,959 32,86,036 39,45,624 45,06,093 53,07,401 10,06,50,727 *The monthly high and low quotes are calculated on the basis of the closing prices of the month. SUBEX LIMITED SHARE PRICE VERSUS NSE S&P CNX NIFTY AND SENSEX 6000.00 4500.00 3000.00 1500.00 0.00 50 25 0 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar S&P CNX Nifty Subex 122 Subex Limited 20000 15000 10000 5000 0.00 50.00 25.00 0.00 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Sensex Subex SHAREHOLDING PATTERN Distribution of Shareholding: No. of Equity Shares held 1 – 5000 5001 – 10000 10001 – 20000 20001 –30000 30001 – 40000 40001 – 50000 50001 – 100000 100001 and above TOTAL Categories of Shareholders: Category Public & Others Companies/ Bodies Corporate Core Promoters Mutual Funds ESOP- employee shareholders FII TOTAL As on March 31, 2013 As on March 31, 2012 No. of share holders 52,850 8,112 4,332 1,547 742 723 1,028 882 70,216 % to total share holders 75.27 11.55 6.17 2.20 1.06 1.03 1.46 1.26 100.00 No. of share holders 52,565 5,696 2,681 895 447 398 528 452 63,662 % to total share holders 82.57 8.95 4.21 1.41 0.70 0.63 0.83 0.70 100.00 No. of share holders As on March 31, 2013 Voting Strength % No. of shares held No. of share holders As on March 31, 2012 Voting Strength % No. of shares held 69,009 1,147 3 Nil 50 7 70,216 83.99 7.48 5.12 Nil 0.25 3.16 100.00 13,89,17,848 1,23,80,644 84,74,044 Nil 4,18,235 52,19,387 16,54,10,158 62,451 1,146 2 1 52 10 63,662 52.36 13.51 11.69 1.77 0.33 20.34 100.00 3,62,86,857 93,66,826 81,01,801 12,24,490 2,29,792 1,41,01,006 6,93,10,772 Annual Report 2012-13 123 R & T AGENTS AND SHARE TRANSFER SYSTEM Canbank Computers Services Limited, J P Royale, 1st Floor, No. 218, 2nd Main, Sampige Road (Near 14th Cross), Malleswaram, Bangalore - 560 003, were appointed as ‘Registrar and Transfer Agent’ both in respect of shares held in physical form and dematerialized form vide a tripartite agreement dated December 5, 2001 in respect of shares held with NSDL and a tripartite agreement dated November 27, 2001 in respect of shares held with CDSL. Process for Transfer of Shares: With a view to expedite the transfer process in the interest of investors, SEBI vide its Circular No. CIR/MIRSD/8/2012 dated July 5, 2012 has reduced the time-line for registering the transfer of shares to 15 days with eﬀect from October 1, 2012. Share transfers would be registered and returned within a period of ﬁfteen days from the date of receipt, if the documents are clear in all respects. The Company holds Share Transfer Committee Meetings as may be required for approving the transfers/transmissions of equity shares. Share transfers and other communication regarding share certiﬁcates, updation of records, e-mail ids, etc. may be addressed to: M/s Canbank Computer Services Limited, J P Royale, 1st Floor, No.218, 2nd Main, Sampige Road (Near 14th Cross), Malleswaram, Bangalore - 560 003 Tel Nos. +91 80-23469661/62, 23469664/65 Fax Nos. +91 80-23469667/68 E-mail: canbankrta@ccsl.co.in Website: www.canbankrta.com SHARES HELD IN PHYSICAL AND DEMATERIALISED FORM As on March 31, 2013, 99.97 % 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, 2013, 6,989,399 GDRs were outstanding. As on March 31, 2013, the Company had outstanding FCCBs aggregating to US$ 1 million under its US$ 180,000,000 2% Convertible Unsecured Bonds (“FCCBs I”) and US$ 1.4 million under its US$ 98,700,000 5% Convertible Unsecured Bonds (“FCCBs II”). The details of impact of the aforesaid instruments on the equity of the Company have been provided under the shareholding pattern for the year ended March 124 Subex Limited 31, 2013 available on the Company’s website under the Investors section. In July 2012, pursuant to the exchange of US$ 38 million out of FCCBs I and US$ 53.40 million out of FCCBs II under a cashless exchange oﬀer, the Company issued US$ 127.721 million 5.70% Secured Convertible Bonds (“FCCBs III”) with a maturity period due July 2017 with a conversion price of Rs. 22.79 per equity share. As a part of the terms and conditions of FCCBs III, principal amount of US$ 36.321 million out of FCCBs III were mandatorily converted into equity shares at the aforesaid conversion price. Pursuant to the mandatory conversion and subsequent conversion of US$ 3.25 million of FCCBs III, currently US$ 88.15 million is outstanding under FCCBs III. Also, the maturity period of the un-exchanged FCCBs I worth US$ 1 million and the un-exchanged FCCBs II worth US$ 1.40 million now stands extended to March 2017. LEGAL PROCEEDINGS There are no legal proceedings against the Company which are material in nature except those disclosed in Note no. 36 in the notes to the standalone ﬁnancial statements. 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 M/s Canbank Computer Services Limited, the R&T Agents. Members holding shares in electronic form are requested to give the nomination request to their respective Depository Participants directly. UPDATION OF E-MAIL ADDRESS As part of the “Green Initiative in Corporate Governance”, the Ministry of Corporate Aﬀairs (MCA), Government of India, through its Circular Nos. 17/2011 and 18/2011, dated April 21, 2011 and April 29, 2011 respectively, has allowed companies to send oﬃcial documents to their shareholders electronically considering its legal validity under the Information Technology Act, 2000. Being a Company with strong focus on green initiatives, Subex has been sending all shareholder communications such as the notice of General Meetings, Audited Financial Statements, Directors’ Report, Auditors’ Report, etc., to shareholders in electronic form to the E-mail Id provided by them and made available to us by the Depositories. Members are requested to register their E-mail Id with their Depository Participant and inform them of any changes to the same from time to time. However, Members who prefer physical copy to be delivered may write to the Company at its registered oﬃce or send an E-mail to investorrelations@subex.com by providing their DP Id and Client Id as reference. 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: Year to Which Dividend Pertains 2003-04 2004-05 2004-05 2005-06 2006-07 Declared at the AGM/ Board Meeting Held on August 24, 2004 January 27, 2005 July 28, 2005 October 28, 2005 August 28, 2006 January 29, 2007 July 26, 2007 Nature of Dividend % of Divi- dend Final Interim Final Interim Final Interim Final 20 10 20 15 10 15 20 Due date for Transfer to the Fund See note below* See note below* See note below* See note below* October 4, 2013 March 7, 2014 September 1, 2014 The Company declared bonus at 1:1 in the years 2000-01 and 2005-06. * The ﬁnal dividend for the ﬁnancial year 2003-04 and 2004-05 and the interim dividend declared for the ﬁnancial year 2004-05 and 2005-06 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 the unpaid dividend cannot be claimed from the Company after it has been transferred to the Investors Education and Protection Fund. Pursuant to the provisions of Investor Education and Protection Fund (Uploading of information regarding unpaid and unclaimed amounts lying with companies) Rules, 2012, the Company will be making available the requisite details of unpaid dividend to the Ministry of Corporate Aﬀairs (MCA) and will also be uploading the same on its website. The Investors may refer to these details in order to ascertain the unpaid dividend standing to their credit. INVESTOR GRIEVANCES Investor grievances received from April 1, 2012 to March 31, 2013: Nature of complaints Non-receipt of share certiﬁcates/ refund orders/call money notice/al- lotment 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 certiﬁ- cates / dividend warrants Other general query Total Received Cleared 4 - - - - 4 4 - - - - 4 During the year ended March 31, 2013, the Company has attended to all the investors’ grievances/correspondence within a period of 10 days from the date of receipt of the same, if the requisite documents, if any, were clear and complete in all respects. ADDRESS FOR CORRESPONDENCE For any queries, please write to: Ganesh K. V. Global Head - Finance, Legal and Company Secretary Subex Limited, RMZ Ecoworld, Outer Ring Road, Devarabisanahalli, Bangalore – 560 037, India. Telephone: +91 80 6659 8700 Fax: +91 80 6696 3333 Email: investorrelations@subex.com WEBSITE Company’s website www.subex.com contains comprehensive information about the Company, products, press releases and investor relations. It serves as a source of information to the shareholders by providing key information like Board of Directors and the committees, ﬁnancial results, shareholding pattern, distribution of shareholding, dividend etc. Annual Report 2012-13 125 NOTES NOTES NOTES About Subex Subex Limited is a leading global provider of Business Support Systems (BSS) that empowers communications service providers (CSPs) to achieve competitive advantage through Business Optimisation - thereby enabling them to improve their operational eﬃciency to deliver enhanced service experiences to subscribers. The Company pioneered the concept of a Revenue Operations Center (ROC®) a centralized approach that sustains proﬁtable growth and ﬁnancial health through coordinated operational control. Subex’s product portfolio powers the ROC and its best-in-class solutions such as revenue assurance, fraud management, asset assurance, capacity management, data integrity management, credit risk management, cost management, route optimization and partner settlement. Subex also oﬀers a scalable Managed Services program and has been the market leader in Revenue Assurance and Fraud Management for 2 years in a row according to Gartner (2010 & 2011). Subex has also been enjoying market leadership in Business Optimisation for ﬁve consecutive years according to Analysys Mason (2007, 2008, 2009, 2010 & 2011). Business Optimisation includes fraud, revenue assurance, analytics, cost management and credit risk management. Subex has been awarded the Global Telecoms Business Innovation Award for 2012 along with Idea Cellular and 2011 along with Swisscom for fraud management. Subex has also been awarded the Global Market Share Leader in Financial Assurance 2012 by Frost & Sullivan. Subex’s customers include 29 of top 50 operators* and 33 of the world’s 50 biggest# telecommunications service providers worldwide. The Company has more than 300 installations across 70 countries. *Total Telecom Top 500 Telecom Brands, 2013 #Forbes’ Global 2000 list, 2013 www.subex.com INDIA Subex Limited RMZ Ecoworld, Devarabisanahalli, Outer Ring Road Bangalore - 560037, India USA Subex, Inc 12303 Airport Way, Bldg. 1, Ste. 390, Broomﬁeld, CO 80021 UK Subex (UK) Limited 3rd Floor, Finsbury Tower, 103-105 Bunhill Row, London, EC1Y 8LZ UK SINGAPORE Subex (Asia Paciﬁc) Pte Limited 175A Bencoolen Street #08-03 Burlington Square Singapore 189650 Tel : +91 80 6659 8700 Fax : +91 80 6696 3333 Tel : +1 303 301 6200 Fax : +1 303 301 6201 Tel :+44 20 7826 5420 Fax : +44 20 7826 5437 Tel : +65 6338 1218 Fax: +65 6338 1216 Regional oﬃces: Dubai | Ipswich | Sydney

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