Robust foundation. sustainable gRowth. Subex Limited Annual Report 2013-14 www.subex.com info@subex.com INDIA Subex Limited USA Subex Inc UK SINGAPORE Subex (UK) Limited Subex (Asia Pacific) Pte Limited (CIN: L85110KA1994PLCO16663) 12303 Airport Way, 3rd Floor, Finsbury Tower, 175A Bencoolen Street Regd. office: RMZ Ecoworld, Bldg. 1, Ste. 390, 103-105 Bunhill Row, #08-03 Burlington Square Devarabisanahalli, Outer Ring Road Broomfield, CO 80021 London, EC1Y 8LZ UK Singapore 189650 Bangalore - 560037, India Tel : +91 80 6659 8700 Fax : +91 80 6696 3333 Tel : +1 303 301 6200 Tel :+44 20 7826 5420 Tel : +65 6338 1218 Fax : +1 303 301 6201 Fax : +44 20 7826 5437 Fax: +65 6338 1216 Regional offices: Dubai | Ipswich | Sydney Forward-looking statement In this Annual Report we have disclosed forward- looking information to enable investors to comprehend our prospects and take 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 of future performance. We cannot guarantee that these forward looking statements will be realized, although we believe we have been prudent in assumptions. The achievement of results is subject to risks, uncertainties and even inaccurate assumptions. Should known or unknown risks or uncertainties materialize, 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 Idenity Operational highlights Managing Director and CEO’s review Key competitive strengths 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 02 04 06 09 10 16 17 18 19 20 28 40 63 97 Shareholders’ Information 133 A Product info@trisyscom.com Innovation with customers Product suite for Business and Operations Support Systems (B/OSS) Growing customer base Strengthening our financials, expanding global footprint, winning competitive bids The story of Subex 2.0 Strong foundation. Sustainable growth. Subex Limited. A global pioneer in providing Business and Operations Support Systems (B/OSS). These services address the growing needs of telecom operators in 70 countries. The Company’s solutions enhance customer efficiency and maximize returns. The Company’s ROC solutions translate into enduring multi-project and multi-year customer engagements. 2 Subex Limited About us Established in 1992, Subex Limited is a leading global provider of Business and Operations Support Systems India with branch offices located in providers. As pioneers of the Revenue the Broomfield, US, London, UK and Operations Centre (ROC®), Subex Singapore with regional offices in is adequately positioned to provide Dubai, Ipswich and Sydney. integrated infrastructural services (B/OSS) that empowers Communication Service Providers (CSPs) to achieve competitive advantage through Business and Capex Optimization – thereby enabling them to improve their operational efficiency to deliver enhanced service experience to subscribers. Where we are located Subex is headquartered in Bangalore, Listing The Company’s shares are listed on the Bombay Stock Exchange (BSE, India) and the National Stock Exchange (NSE, India). The Company enjoyed a market capitalization of H152.48 crores as on 31 March, 2014. Products and services Subex provides industry-leading B/OSS solutions for business and capex optimization to telecom service for day-to-day operations. Built to establish a link between operations and profitability, the ROC combines disparate operations and provides assurance and governance functions in a synergistic manner. It enables service providers to monitor and control the entire revenue chain, identify revenue risks, resulting in increased margins, greater customer satisfaction, proactive management and reduced capex. Subex BSS/OSS Portfolio - Revenue Operations Center REVENUE ANALYTICS COST ANALYTICS NETWORK ANALYTICS ROC Revenue Assurance ROC Partner Settlement ROC Asset Assurance ROC Fraud Management ROC Route Optimization ROC Data Integrity Management ROC Credit Risk Management ROC Cost Management ROC Capacity Management MANAGED SERVICES SaaS (SOFTWARE AS A SERVICE) CONSULTING SERVICES Revenue H34,449 Lakhs 2013-14 EBIDTA H6,999 Lakhs 2013-14 Employees* Global patents* 860 16 (eight granted, eight pending) Global customer base* 200 * As on 31st March, 2014 Annual Report 2013-14 3 Operational Highlights, 2013-14 . 8 7 8 8 4 . 7 4 1 3 3 . 9 4 4 4 3 . 3 6 0 4 1 4 2 0 4 . 9 9 9 6 . 9 1 5 3 . . 8 0 6 5 - 6 1 2 - . 4 8 1 3 . . 4 9 9 5 - . 1 6 1 1 - 7 7 8 2 . 4 1 2 1 . 1 3 0 2 . 2 1 - 1 1 0 2 3 1 - 2 1 0 2 4 1 - 3 1 0 2 2 1 - 1 1 0 2 3 1 - 2 1 0 2 4 1 - 3 1 0 2 2 1 - 1 1 0 2 3 1 - 2 1 0 2 4 1 - 3 1 0 2 2 1 - 1 1 0 2 3 1 - 2 1 0 2 4 1 - 3 1 0 2 2 1 - 1 1 0 2 3 1 - 2 1 0 2 4 1 - 3 1 0 2 Revenue EBIDTA (H crore) (H crore) Profit before tax (H crore) Post-tax profit (H crore) EBIDTA margin (%) 4 Subex Limited 1 5 6 . . 8 0 8 1 - 7 3 3 - . 3 5 8 8 . 7 1 9 - . 9 6 6 4 . 9 2 4 . 7 2 6 - . 4 2 1 - . 7 2 1 . 1 4 0 . 2 7 0 . 9 5 4 . 0 4 4 - . 0 7 0 - . 2 1 - 1 1 0 2 3 1 - 2 1 0 2 4 1 - 3 1 0 2 2 1 - 1 1 0 2 3 1 - 2 1 0 2 4 1 - 3 1 0 2 2 1 - 1 1 0 2 3 1 - 2 1 0 2 4 1 - 3 1 0 2 2 1 - 1 1 0 2 3 1 - 2 1 0 2 4 1 - 3 1 0 2 2 1 - 1 1 0 2 3 1 - 2 1 0 2 4 1 - 3 1 0 2 PAT margin (%) Cash profit (H crore) ROCE (%) ROGB (%) Earnings per share (H) Annual Report 2013-14 5 w e i v e r s ’ O E C d n a r o t c e r i D g n i g a n a M Dear shareholders, 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. Continued connectivity demands growth, persisting security challenges warran service innovation, representing some of the biggest trends catalyzing the global telecommunications industry. A recent GSMA report indicates that the However, at a time of shrinking margins and reduced average revenue per user (ARPU), operators are recognizing the need for capex optimization. A recent study by Ovum indicates that operators could be wasting up to 20% of their network capex each year. At the crux of the problem is the unfortunate reality that operators have a limited visibility of what assets and inventory they already own, telecom industry is gearing to meet the and how these assets are being ever-increasing demand by consumers for used. The need of the hour is ubiquitous connectivity. The number of commercially-available LTE networks is a solution that provides them actionable intelligence in near forecast to increase to more than 500 in 128 real-time for all their network countries over the next four years and almost assets that facilitates in capex four billion mobile broadband connections optimization. are expected to be added globally going forward to 2020. In other words, the rate of growth in data traffic is likely to outpace the growth in mobile connections over the foreseeable future. In the area of business optimisation, the concern for operators has been around maximizing value out of their BSS investments. A recent To support this growth, telecom KPMG report indicates that a operators have made huge shortage of skilled staff and capital investments an absence of automation exceeding US$ 1 trillion and this number is expected to increase to US$ 1.7 tools are some of the reasons preventing operators from making the most of their BSS systems. For operators, the most effective way to overcome these challenges is trillion by to engage in outcome-based 2020. Managed Services, which will not only complement their existing BSS functions but also bring to the table industry-best practices. Subex Limited Subex is among select global provider, Subex leveraged Company’s initial projects have telecom service providers its rich experience of over yielded superior customer working at the core of emerging technologies – constantly innovating, customising, delivering and providing industry-leading 300 implementations across value. Going forward, it is multiple geographies covering a expected that this segment diverse range of customers. This would contribute a significant translated into a strong recall, portion of annual revenues over resulting in client accretion the foreseeable future. solutions to customers. in a weak market and the Subex’s positioning Over the last 20 years, Subex has helped telecom clients adapt with speed to change while enhancing competitiveness. As technologies continue to evolve rapidly, Subex is comfortably positioned to take its business ahead through cutting-edge solutions, marking the start of the Company’s next growth phase in an exciting journey. As a prominent telecom Business and Operations Support Systems (B/OSS) Subex introduced the network analytics solution suite to facilitate substantial capex reduction for telecom operators. 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. Subex introduced the network analytics solution suite to facilitate substantial capex reduction for telecom operators. Asset Assurance, Data Integrity Management and Capacity Management are the three key components of the solution suite. These components moderate capex, discover devices and logical services in diverse network environments, engage analytical functions to provide actionable intelligence, forecast scenarios and estimate their impact on network capacity, in turn helping CSPs plan capacity investments better. Subex is a pioneer in this space; the Subex is also a key player in the area of Managed Services. While operators focus on their core services, Subex takes care of the support services by not only providing software solutions but also allocating resources to stabilize and operate services. This helps in two ways – it increases Subex’s share of the customer’s wallet and provides the Company with assured revenue visibility through multi-year contracts. Subex’s FY14 financial performance: A 10.64% growth in revenues A 77.7% increase in EBIDTA A 110.44% growth in profit after tax (y-o-y) License & Implementation at 40%, Managed Services at 27%, Support at 33% of the total revenue Subex continues to enjoy thought leadership in core areas of Revenue Assurance, Fraud Management and Partner Settlement. Continued focus on product upgradation and Annual Report 2013-14 7 customisation will evolve products Business Service Innovation. These around customer needs and evolving industry recognitions are testimony technologies. Going forward, I expect these initiatives will lead to significant growth and enhanced value in the of our sustained focus on product innovation and strategic growth areas like ROC Asset Assurance and hands of our shareholders. Managed Services. We will strive hard Message to shareholders I am pleased to share that with your strong support, internal transformation, currency gains and continued success in managed services business, we reported a good performance in FY14 with an to continue to invest in improving our solutions to meet the dynamic needs of the telecom industry. India Ratings & Research Pvt. Ltd. accorded Subex an Investment Grade rating in respect of our bank borrowings. improvement in EBITDA of 77.7% and With a clear prioritization of focus operating margins of 79% compared areas for Subex 2.0, we are now to last year. Our revenues were at H34,005 lakhs (US$ 58.0 million), up by 10.64% YoY from H30,734 lakhs (US$ 57.2 million) and for the quarter at H8,541 lakhs (US$ 14.20 million). License & Implementation were at working on an operating plan for next three years even as we focu on delivering a strong 2014-15. As the industry continues to focus on enhanced efficiency and reduced capital expenditure, the prospects of 40%, Managed Services at 27% and a company like Subex continue to be Support at 33% of the total revenue brighter than ever, indicating better for the year. During the year, we prospective performance. competed hard and won key accounts globally, which will provide impetus to our growth journey. I am confident that the foundation of the business that we collectively re- created in 2013 will provide us with a Our Bangalore and London offices launching pad to create a new Subex. were certified for ISO 27001 certificate; we were jointly awarded the prestigious GTB Innovation Award 2014 along with Telstra for Regards, Surjeet Singh Managing Director & CEO With a clear prioritization of focus areas for Subex 2.0, we are now working on an operating plan for next three years even as we focus on delivering a strong 2014-15. As the industry continues to focus on enhanced efficiency and reduced capital expenditure, the prospects of a company like Subex continue to be brighter than ever, indicating better prospective performance. 8 Subex Limited Key competitive strengths Experienced: The Company Widespread: The possesses more than 20 years of experience in the telecom industry; the key management team possesses more than 15 Company has more than 300 installations across 70 countries, reducing its geographic revenue Comprehensive: The Company transformed from a mere license provider into a complete solutions provider of managed concentration and catering services, imparting training person-years of aggregate to a diverse user base. to CSP employees. experience. Pioneering: The Company pioneered the asset assurance model, which analyses asset use and effectiveness leading to enhanced capex efficiency. Intellectual capital: The Company possesses 16 patents across the globe (eight approved and eight pending). Localized domain knowledge: The Company’s presence in diverse geographies has helped it acquire localized consumer insights leading to the development of customized solutions. Product portfolio: Subex’s product portfolio powers the ROC and best-in-class solutions like revenue assurance, fraud management, Low-cost: All the R&D, product development asset assurance, capacity management, data integrity management, and engineering activities credit risk management, cost management, route optimization and partner settlement. are carried out from the Company’s India Development Centre, resulting in a low-cost cum high-quality advantage. Annual Report 2013-14 9 Q. How would you evaluate the performance of the Company during the year under review? A. Analytics is an integral part of Subex’s business and capex optimization product offering. Operators, today, are sitting on a huge pile of data regarding their customers, but are handicapped by the inability to make use of it. This has created a world of opportunity for the Company to come with solutions that analyses these data near real-time for our customers. Our ROC solution suite harnesses operational data, transforms it into actionable intelligence and facilitates business decision. It helps operators solve business problems as diverse as revenue assurance, fraud detection, asset management, capacity management, data discovery and reconciliation and churn reduction. Looking at the numbers below, we can confidently say that the last FY has been a phase of stabilized growth for us: We grew our product revenue 10.64% from H30,734 lakhs in 2012-13 to H34,005 lakhs in 2013-14 We reported positive EBIDTA for two consecutive years Our EBIDTA grew 77.7% from H4,882 lakhs in 2012-13 to H8,678 lakhs in 2013-14 We strengthened our operating profit ex-forex 79% from H4,455.00 lakhs in 2012-13 to H7,978 lakhs in 2013-14 Our positive numbers validate that we have been able to innovate and maintain foresight into the industry’s roadmap. Q. What helped revive the optimism? A. There are multiple aspects that helped improve our performance. Firstly, we remained transparent in communicating our financial stability, the last two years, which helped stakeholders appraise our operational consistency. Secondly, we were able to build the foundations for the next level of growth, which has begun to reflect in our numbers. 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 amortization in excess of US$ 50- 100 billion. With constant changes in technology, these networks are expanding at a feverish pace. Annual network spending at “Subex has created a robust foundation for an exciting future.” Interview with Mr. Vinod Kumar, Chief Operating Officer QA& 10 Subex Limited these operators is commonly in the range US$ 0.5-2 billion. To address this need of network capex management, Subex introduced the industry’s first comprehensive programme, ROC Asset Assurance that provides CSPs with the ability to save millions of dollars in network capex along with helping discover, recapture and re-deploy stranded and unutilized assets. We are also a key player in offering managed services where the contract size is bigger and annuity-based. The result is that we registered a significant growth in average contract sizes over the last year, strengthening our margins. Thirdly, we implemented SOPs and provided resources easily accessible to start new projects. We have also trained our personnel better and located them into our support organization and assigned them on three-month projects. The increase in efficiency generated a 25% increase in EBITDA. Our operating cash flow was H11.5 million in 2013-14. Q. What made Subex win large contracts? A. A look-back at all the large contracts that we have won last year indicates that these wins have been a result of multiple factors. Some of these factors are as straight forward as Subex’s brand value while others are much complex like deciphering market needs and appropriate packaging and positioning of our offerings. First and foremost, Subex’s record of more than 300 installations across 70 countries carries a lot of value while pursuing large deals. These numbers represent a rich insight into consumer behaviour across global telecom markets, making it possible to emerge as a preferred vendor for operators. The strength and proven ability of our ROC solution suite has also been a great influencer in such deals. Our offerings in the areas of Fraud Management and Revenue Assurance are the most comprehensive in the market and our newer solutions like Asset Assurance address specific issues plaguing telecom operators currently. The easily demonstrable value delivery and ROI for operators through our solutions has been the key factor in helping us pocket many large deals. Managed Services contracts are usually large in size and are more preferable owing to the recurring nature of revenues involved. From an operator’s perspective as well, there is a clear need for Managed Services due to higher value delivery. Realizing this win-win situation for both the customer and ourselves, we have significantly strengthened our Managed Services offering. We now have a range of flexible and scalable engagement options that add both strategic and tactical value to operators’ business. Many of our large wins were for Managed Services contracts and today, around 27% of our revenues are derived from this area. Innovation and forward thinking have always been a part of Subex’s culture and this can take the credit for some large wins in untapped/nascent domains. While the telecom industry embraced the increasing CAPEX investments, we delved deeper and understood that the need for CAPEX optimization would soon be realized. Long before other players in the market envisioned a similar solution, we had already established ourselves as the pioneers in Asset Assurance in the industry. From an operator’s perspective, this was the need of the hour and was well received in the market. Q. How are you poised to grow in the coming years? A. We believe that companies that thrive in difficult market conditions are the ones that go a long way ahead. Subex has been on course so far with respect to our growth strategy and we will continue to focus on executing our short and long term plans. We have always been one of the top players in the BSS market and now have a strong foothold in the Asset Assurance space by virtue of being the prime mover. All our solutions are constantly evolving to address changing market needs and we are all set to reinforce our position at the top. Emerging markets will continue to receive a lot of attention as there still exists a huge potential for BSS in that market. We understand the need of CAPEX optimization in developed markets and our efforts in these markets will be concentrated around related solutions. The focus areas for Subex 2.0 are clear and a solid plan for the next 3 years is being worked upon. Our positive performance in 2014 has given the required impetus and the outlook for the next FY looks bright. With the industry’s focus pinned on increasing efficiency and reducing CAPEX, the prospects of Subex continue to be very positive, indicating better performance ahead. Our commitment, achievements and innovation has given us a perfect launching pad to excel in the coming financial year. Annual Report 2013-14 11 12 Subex Limited Innovative product offerings At Subex, effective sustainability is derived from technological contemporarisation within a dynamic industry environment. The Company’s ROC Asset Assurance is a one- of-its kind industry solution that reduces capex while improving network efficiency. This solution counters low visibility in understanding asset disposition, poor data integrity, eroding asset contribution and the need to counter governance absence. Subex’s ROC Asset Assurance solution also extends beyond analytics to drive changes in critical business processes, enhancing data accuracy-supporting capital decisions, idle equipment tracking and utilization enhancement The Company was among the first to commence data analytics for telecom players, managing large amounts of data with corresponding management tools The ROC facilitates profitable growth through coordinated operational control The Company was the first to develop an operator /vendor risk-reward share model for fraud management As CSPs evolve their technology, it becomes imperative for them to upgrade existing modules. By catering to their needs, the Company aims to maximise revenues. Annual Report 2013-14 13 14 Subex Limited Growing Managed Services Business sustainability is derived from increasing the proportion of annuity income, providing assured revenue visibility over the foreseeable future. Subex continues to be one of the leading players in the business optimisation space with over 300 customers trusting Subex products for their B/OSS needs. Subex possesses extensive experience in executing some of the largest, complex, multi- million dollar, multi-year-long managed services programs across the world. CSPs of varying tiers and solution portfolios benefited in the form of efficient, streamlined operations and reduced costs, thanks to Subex’s sound business process knowledge in the Managed Services arena. Subex’s expertise in Managed Services stems from an entrenched experience of functional processes and operations and their implications on the CSP business. Subex’s commitment to improve operations does not end with day-to-day delivery of Managed Services; on the contrary, it translates into incremental efficiency through the review of organisational design and rightsizing, analysing and automating processes to guarantee maximum B/OSS product utilisation. Result: The Company has progressively increased the share of managed services, which now accounts for 27% of the revenue. This delivery model is fast emerging as a key differentiator leading to a considerable increase in contract sizes while maintaining healthy profit margins. Going forward, the Company expects a considerable part of the revenue to be derived from Managed Services. Annual Report 2013-14 15 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) 16 Subex Limited Executive Leadership Team Surjeet Singh (Managing Director & CEO) Vinod Kumar (Chief Operating Officer) Ganesh K.V. (Chief Financial Officer, Global Head- Sekharan Y. Menon (Chief People and Administrative Officer) Legal And Company Secretary) Shankar Roddam (Market Head-Sales and Client Relations-Emerging Markets) Ashwin Chalapathy (Global Head-Portfolio Management, Pankaj Parmar (Global Head, Delivery and Managed Services and Consulting) Client Servicing) David Halvorson (General Counsel) Charles E. Crenshew (Market Head-Sales and Client Relations-Americas) Annual Report 2013-14 17 Subex Charitable Trust (SCT) Updates 2013-14 Strong education focus with SCT believing in empowerment through education Nurture Merit Scholarship scheme to support the education of economically challenged students Support for 30+ students from rural areas Scholarships amounting to approximately H1,20,000 Fund for Anand Marg School Support to Anand Marg School, Kithandur Village, Kolar District This is a school for underprivileged children from in and around Kithanur village It comprises eight sections with seven teaching staff and approximately 120 students Footwear donation Donated footwear to 207 students of Kaggadasapura Government Primary School who otherwise would come barefoot to school Providing scholarships to students referred by fellow Subexians Organizing periodic old clothes / toys / books collection drives and distributing them to needy organizations 18 Subex Limited STARS - Long Service Awards Employee Name Akshatha Kashinath Suvarna Alan Forbes Anandakumar K Annapoorna R Arun L Ashley Hill Ashwin Chalapathy Ashwin Menon Bogdan Zadzilko Channakeshav Joshi Chetan P Herkal Cigy Mathen David Ross Dipak Kumar Mondal G Santosh Kumar Reddy Graham Ellis Harish H S Harsha Burly Harsha S Hemanshu Dhingra Ian Thornton Jeeson Thekkekara Jithu Thomas John Taylor Kalpana T K Manu G Nair Mark Jenkins Martin Bedford Mithun Josalyn Gonsalvez Mohan Kumara P E Nandagopal R Nataraja Prathab D Niranjan B R Nithin Gangadharan Om Prakash Agrawal Parthiban G Pillai Pavan Kumar GV Prabhu H Service Years Employee Name Service Years Prakash S Praveen Kulkarni Purushotham Reddy A Rahul Joseph Alexander Rajesh Abraham Rakesh M S Ramesh S Ravikanth N Reji Kumar R V Roddam Naga Shiva Shankar Rohith P Sandeep Jain Sandeep Naganur Santhosh Vellore Rajendramudaliar Satyanarayana K Sham Ummer Kallarakkal Shankar Nag H S Siva Koteswara Reddy Sivannarayana Reddy Soorej M V Sreedhanya R Srihari U S A Srinath S Subeer Mitra Sudarshan T S Sudha Yeramati Swagato Patra Syed Rehan Sajjad Teresa Orme Tony Adolphus Veeresh Kanavalli Venkatesh N Chethan Kumar Rai D James MacEwan Mohammed Muzammil 7 7 10 15 10 7 7 7 7 10 7 10 7 10 7 7 10 15 7 7 7 7 7 7 7 7 7 10 7 10 10 7 7 15 7 7 7 7 7 10 10 7 7 15 7 7 7 10 7 7 40 7 7 7 7 10 7 10 35 7 7 10 7 7 7 7 10 7 7 7 10 7 7 Annual Report 2013-14 19 Directors’ Report To The Members of Subex Limited Your Directors have pleasure in presenting the Twentieth Annual Report of the Company on the business and operations together with the audited results for the year ended March 31, 2014. Financial results Total Revenue Total Revenue Profit/(Loss) Before Interest, Depreciation, Exceptional Items Profit/(Loss) Before Interest, Depreciation, Exceptional Items & Taxes & Taxes Interest, Depreciation & Amortization Interest, Depreciation & Amortization Profit/(Loss) before Exceptional items & tax Profit/(Loss) before Exceptional items & tax Exceptional Items Exceptional Items Profit/(Loss) before tax Profit/(Loss) before tax Provision for taxes Provision for taxes Profit/(Loss) after tax Profit/(Loss) after tax Discontinuing Operations: Discontinuing Operations: Profit/(Loss) from discontinuing operations before tax Profit/(Loss) from discontinuing operations before tax Tax expenses of discontinuing operations on ordinary Tax expenses of discontinuing operations on ordinary activities attributable to discontinuing operations activities attributable to discontinuing operations Profit/(Loss) after tax Profit/(Loss) after tax APPROPRIATIONS APPROPRIATIONS Interim Dividend Preference Dividend Interim Dividend Preference Dividend Dividend proposed on equity shares Dividend proposed on equity shares Provision for tax on Dividends Provision for tax on Dividends Transfer to General Reserve Transfer to General Reserve Surplus/(Deficit) carried to Balance Sheet Surplus/(Deficit) carried to Balance Sheet Results of Operations During the financial year ended March 31, 2014, the total revenue on a consolidated basis was H34,449.28 Lakhs. The Company has during the year under review incurred a loss of H1,161.27 Lakhs as against loss of H5,994.71 Lakhs in the previous year. 20 Subex Limited Amount in H Lakhs Amount in H Lakhs Consolidated Consolidated Standalone Standalone 2013-14 2013-14 2012-13 2012-13 2013-14 2013-14 2012-13 2012-13 34,449.28 34,449.28 7,215.96 7,215.96 30,823.24 30,823.24 4,623.45 4,623.45 29,669.48 29,669.48 4,680.87 4,680.87 26,677.95 26,677.95 3,338.21 3,338.21 6,953.70 6,953.70 262.26 262.26 - - 262.26 262.26 936.38 936.38 (674.12) (674.12) 5,558.63 5,558.63 (935.18) (935.18) 3,069.92 3,069.92 (4,005.10) (4,005.10) 386.24 386.24 (4,391.34) (4,391.34) 5,990.14 5,990.14 (1,309.27) (1,309.27) 1,497.04 1,497.04 (2,806.31) (2,806.31) 146.57 146.57 (2,952.88) (2,952.88) 5,131.07 5,131.07 (1,792.86) (1,792.86) 1,663.56 1,663.56 (3,456.42) (3,456.42) - - (3,456.42) (3,456.42) (478.71) (478.71) (8.44) (8.44) (1603.37) (1603.37) - - (487.15) (487.15) (1603.37) (1603.37) - - - - - - (1,161.27) (1,161.27) - - - - - - - - (5,994.71) (5,994.71) - - - - - - - - (2,952.88) (2,952.88) - - - - - - - - - - (3,456.42) (3,456.42) On standalone basis, the total revenue stood at H29,669.48 Lakhs. The loss for the financial year 2013-14 was H2,952.88 Lakhs as against loss of H3,456.42 Lakhs in the previous year. The Directors have not proposed any dividend to be paid for the financial year 2013-14. 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. 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 The Company pioneered the concept of a Revenue to improve their operational efficiency. Operations Centre (ROC®) – a centralized approach that sustains profitable growth and financial health through Share Capital 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 with 30+ customers. Your Company has been awarded the Global Market Share Leader in Financial Assurance 2012 by Frost & Sullivan and has been the winner of Pipeline Innovation Award 2013 in Business Intelligence & Analytics; Capacity Magazine Best Product/ Service 2013. Subex has continued to innovate with customers and have been jointly awarded the Global Telecoms Business Innovation Award for 2012 with Idea Cellular for Managed Services and in 2011 with Swisscom for Fraud Management. The Company’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. Headquartered out of Bangalore, India, your Company 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. The As at March 31, 2014, the authorized share capital of the Company was H497,00,00,000 (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 H10 (Rupees Ten only) each and 2,00,000 (Two Lakhs only) preference shares of H98 (Rupees Ninety Eight only) each. As at March 31, 2014, the paid-up share capital of the Company stood at H166,63,99,620 (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 H10/- each. Subsidiaries Subex Technologies Limited For the year ended March 31, 2014, Subex Technologies Limited had NIL income, on a consolidated basis, as against H2323.68 Lakhs last year and a net loss of H487.15 Lakhs as against a net loss of H1603.37 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, 2014, the consolidated income of Subex (UK) Limited was H32,380.87 Lakhs as against Annual Report 2013-14 21 H32,152.02 Lakhs last year, and the net profit was H714.59 Lakhs as against a net profit of H584.37 Lakhs last year. Subex (Asia Pacific) Pte Limited and Subex Inc are direct subsidiaries of Subex (UK) Limited. Subex Americas Inc For the year ended March 31, 2014, the consolidated income of Subex Americas Inc was H2812.88 Lakhs as against H2,728.40 Lakhs last year, and Net Profit was H66.74 Lakhs as against a loss of H1,516.70 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 29, 2014, 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 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 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 120,000 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. by the Company include financial results of its subsidiary In accordance with the scheme, a Compensation Committee companies. Foreign Currency Convertible Bonds (FCCBs) 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 As on March 31, 2014, the Company had outstanding FCCBs equity shares during the 15 trading days preceding the date 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 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. 22 Subex Limited 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. 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 During the year 2011-12, the employees voluntarily options has been created for grant to the eligible employees surrendered 241,012 stock options under ESOP 2000 under the scheme. The Scheme has been formulated in scheme. Also, the Company issued equivalent stock options accordance with the Securities and Exchange Board of to the aforesaid eligible employees under ESOP 2005 and India (Employee Stock Option Scheme and Employee Stock 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. Employee Stock Option Plan-2005 (ESOP-III) 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. Under this scheme, an initial corpus of 5,00,000 options The options are granted at a price, which is not less than was created for grant to the eligible employees, with each 85% of the average of the closing price of the equity shares option convertible into one fully paid-up equity share of H10/-. This scheme has been formulated in accordance with the Securities and Exchange Board of India (Employee 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 Stock Option Scheme and Employee Stock Purchase vests over a period of 1 to 4 years and can be exercised over Scheme) Guidelines, 1999. The corpus of the scheme was a period of 3 years from the date of vesting. 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 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, 2014 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 During the year 2008-09, the Company amended the ESOP Corporate Governance is a key driver of sustainable corporate 2005 scheme by inclusion of provisions allowing employees growth and long-term value creation for the stakeholders to voluntarily surrender their vested/unvested options at and protection of their interests. Your Company endeavors any time during their employment with the Company. to meet the growing aspirations of all stakeholders including 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. shareholders, employees and customers. Your Company is committed to maintaining the highest level of transparency, accountability and equity in its operations. Your Company always strives to follow the path of good governance through a broad framework of various processes. Annual Report 2013-14 23 Your Company has complied with all the requirements as per Auditors 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 of 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 the provisions of Section 152 of the Companies Act, 2013 (corresponding to Section 255 and Section 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 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 141 of the Companies Act, 2013 to be appointed as statutory auditors of the Company and are not disqualified to hold office as such in terms of the said section 141. Pursuant to the provisions of section 139 of the Companies Act, 2013, M/s. Deloitte Haskins & Sells can be appointed as the auditors of the Company upto a period of 3 years ie. upto the conclusion of the 23rd Annual General Meeting of the Company. However, it is proposed to the shareholders to appoint M/s. Deloitte Haskins & Sells to hold office from the conclusion of 20th Annual General Meeting of the Company up to the conclusion of the 21st Annual General Meeting of for re-election. Accordingly, Mr. Karthikeyan Muthuswamy the Company. retires by rotation and being eligible, has offered to be re- appointed at the ensuing Annual General Meeting. Fixed Deposits Mr. Surjeet Singh was re-appointed as the Managing Director & CEO of the Company at the Board Meeting held on October 30, 2013 for a period of one year from October 5, 2013 to October 4, 2014. 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 re-appointment as Managing Director & CEO is being placed before the Members for their approval at the ensuing AGM. 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 Pursuant to the provisions of section 149 of the Companies issued by MCA, are given at Annexure II appended hereto Act, 2013, it is proposed to the members of the Company to and forming part of this report. In terms of Section 219(1) appoint Mr. Anil Singhvi and Mr. Sanjeev Aga, Independent (b)(iv) of the Companies Act, 1956, the report and accounts Directors of the Company to hold office from the conclusion are being sent to the shareholders excluding the aforesaid of the 20th Annual General Meeting upto the conclusion of annexure. Any shareholder interested in obtaining a copy the 21st Annual General Meeting. 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. of the said annexure may write to Mr. Ganesh K V, Chief Financial Officer, Global Head – 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 24 Subex Limited reduce energy consumption by using energy-efficient corporate entity into community service. The trust has been computers and by the purchase of energy-efficient set up to provide for welfare activities for under privileged equipment. Your Company constantly evaluates new and the needy in the society. The trust is managed by technologies and invests to make its infrastructure Trustees elected amongst the employees of the Company. more energy-efficient. Currently your Company uses During the year, the Trust has provided active support for CFL fittings and electronic ballasts to reduce the power education of economically challenged meritorious students, consumption of fluorescent tubes. Air conditioners donated footwear to Government School students, donated with energy efficient screw compressors for central baby diapers and milk powder to an orphanage, provided air conditioning and air conditioners with split air financial aid by way of payment of the water and electricity conditioning for localized areas are used. bills of a Centre which provides vocational training to 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. Foreign Exchange Earnings and Outgo Your Company has over the years shifted its focus from software services to software products. This has resulted in substantial foreign exchange earnings as compared destitute girls and organizing blood donation camps. 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 effort focus 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, 2014, 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, has been completely rolled out. Your Company also refined the Subexians (Employee) Engagement Programme, which is an extremely critical to previous year. During the year 2013-14 total foreign employee retention tool. exchange inflow and outflow is as follows: i) Foreign Exchange earnings H27,867.41 Lakhs (Previous Year H26,105.91 Lakhs) ii) Foreign Exchange outgo H17,000.16 Lakhs (Previous Year H15,079.66 Lakhs) Note: The foreign exchange outgo is inclusive of the inter company charges and the Previous Year’s figure have been restated accordingly. Corporate Social Responsibility - Subex Charitable Trust Subex Charitable Trust extends the outlook of Subex as a Directors’ Responsibility Statement In accordance with the provision of Section 217(2AA) of the Companies Act, 1956, the Board of Directors affirms: a) that in the preparation of the annual accounts for the year ended March 31, 2014, 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 utilized the Business Restructuring Reserve for adjustment of certain expenses/impairments. Such adjustment being Annual Report 2013-14 25 at variance with applicable accounting standards, d) that the accounts for the year ended March 31, 2014 necessary disclosure has been made in the Notes to have been prepared on a going concern basis. the accounts in Standalone and Consolidated Financial Statements. b) 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, 2014 and of the loss of the Company for the year ended on that date. 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 c) that proper and sufficient care has been taken for under the Government of Karnataka. 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. 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 Mumbai, India May 29, 2014 ANNExURE - I For Subex Limited Surjeet Singh Managing Director & CEO Mumbai, India May 29, 2014 Additional Information as at March 31, 2014 as per Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 Sl. No Particulars ESOP 2000 ESOP 2005 ESOP 2008 1. Net options granted as on March 31, 2014 2,40,678 8,76,389 5,67,518 Options granted during the year - - - 2. Pricing formula 3. Options vested but not exercised as on March 31, 2014 As mentioned As mentioned As mentioned earlier in the earlier in the earlier in the report 2,975 report report 7,09,638 4,98,483 4. Options exercised as on March 31, 2014 2,37,703 12,439 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, 2014 - - - - - - - - - - 7. Options lapsed/cancelled/ surrendered as on March 31, 2014 9,95,894 49,62,529 17,66,019 26 Subex Limited Sl. No Particulars 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 (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’ 12. Where the Company has calculated the employee compensation cost using the intrinsic value of the stock options, the difference between the employee compensation cost so computed and the employee compensation cost that shall have been recognized if it had used the fair value of the options. The impact of this difference on profits and on EPS of the Company is: ESOP 2000 1,695 None 623 ESOP 2005 2,67,197 None 2,291 ESOP 2008 1,63,288 None 273 - - - - - - - - - - - - - - - 13. Weighted-average exercise prices and weighted-average fair Weighted- Weighted- Weighted- values of options separately for options whose exercise price average average exer- average either equals or exceeds or is less than the market price of the stock. exercise price is H67 cise price is H30.78 exercise price is H28.56 14. Description of the method used during the year to esti- mate the fair values of options, including the following weighted-average information : i. risk-free interest rate ii. expected life iii. expected volatility iv. expected dividends v. market price on grant date Karthikeyan Muthuswamy Director Mumbai, India May 29, 2014 Refer Note 27 in Standalone Financial Statements For Subex Limited Surjeet Singh Managing Director & CEO Mumbai, India May 29, 2014 Annual Report 2013-14 27 Report on Corporate Governance I. COMPANY’S PHILOSOPHY ON CODE OF CORPORATE of the shareholders to information on the performance GOVERNANCE of the Company. The Company’s Corporate Governance Corporate Governance is about commitment to values and policies ensures, among others, the accountability of the ethical business conduct. It is about how an organization is Board of Directors and the importance of its decisions to managed. Therefore situation, performance, ownership and all its participants viz., customers, employees, investors, governance of the Company are equally important as regards regulatory bodies etc. Subex Code of Corporate Governance to the structure, activities and policies of the organization. has been drafted in compliance with the code of “Corporate Consequently, the organization is able to attract investors, Governance” as promulgated by the Securities and Exchange and enhance the trust and confidence of the stakeholders. Board of India (SEBI) in its meeting held on January 25, 2000 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. and amendments made thereto, from time to time. II. BOARD OF DIRECTORS As on March 31, 2014, 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 The Company’s Corporate Governance philosophy is based Directors and 1 is a Nominee Director. on the following principles: Details of the composition of the Board of Directors and their Satisfy the spirit of the law and not just the letter of the attendance and other particulars are given below. These law details reflect the position as at March 31, 2014 and as such Be transparent and maintain high degree of disclosure do not include details of changes in Directorships after the levels end of the financial year. Communicate externally, in a truthful manner, about how A. Composition and Category of Directors as on March 31, the Company is run internally 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 2014 Category Independent Directors Executive Directors Non-Executive Directors Nominee Directors Total No. of Directors 2 1 1 1 5 % 40 20 20 20 100 28 Subex Limited B. Attendance of Directors at the Board Meetings and the Last AGM and Details about Directorships and Membership in Committees as on March 31, 2014 Director Position No. of Board Meetings Held No. of Board Meetings Attended Last AGM Atten- dance No. of Directorships in Other Companies No. of Com- mittees in Which the Director is Chairman No. of Com- mittees in which the Director is a Member Mr. Surjeet Singh Mr. Anil Singhvi Mr. Sanjeev Aga Mr. Karthikeyan Muthuswamy# Mr. Subash Menon Managing Director and Chief Executive Officer Independent Director Independent Director Nominee Director Non-Executive Director 4 4 4 4 4 4 4 4 4 - Yes Yes Yes Yes No 1 6 5 1 - - 2 2 - - 2 5 7 2 - Excluding private limited companies & overseas companies. Includes only Audit Committee and Stakeholders Relationship Committee. Memberships in Committees of Subex Limited are included. # Mr. Karthikeyan Muthuswamy is nominated by the Foreign Currency Convertible Bonds (FCCB’s) Holders C. Number and Dates of Board Meetings Business Planning and Global operations functions. He has 4 (Four) Board meetings were held during the financial year a successful corporate and entrepreneurial track record of 2013-14. The dates on which meetings were held are as building organizations and fostering collaboration in large follows: 1. May 21, 2013 2. August 14, 2013 3. October 30, 2013 4. February 12, 2014 and culturally diverse cross functional teams. He was the Global Chief Financial officer of Patni Computer Systems where he played key role in shaping business transformation including significant improvements in operating metrics and processes, structuring large platform deals with fortune 500 customers, seamless management transitions, upholding D. Brief Details of Directors Seeking Appointment/Re- highest standards of financial and corporate governance. He appointment: Mr. Surjeet Singh, Managing Director & CEO 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, 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 $68M, which at the time Annual Report 2013-14 29 was one of the largest cross border services transaction by role in making of Ambuja Cements. He conceptualized and an Indian company. In early part of his career, Mr. Surjeet advised merger of Enam, one of the largest investment Singh held various finance and operations roles at Ranbaxy banks in India, with Axis Bank, a deal involving around US$ - a global multinational pharmaceutical company during its 500 million. He is on the Boards of various companies, internationalization phase in the 90’s. Mr. Surjeet Singh is a some of which are Hindustan Construction Co. Ltd, HCC fellow of the Institute of Costs and Works Accountants, India, Infrastructure Ltd, Capital First Limited and Foundation for Certified Public Accountant from AICPA, USA. He holds a B.S. Liberal and Management Education (FLAME). in Finance from the University of Pune and is a graduate of Advanced Management Program from Harvard Business School. He is the Chairman of the Audit Committee and the Nomination and Remuneration Committee, a member of Stakeholders Relationship Committee and a member He is a member of the Audit Committee, a member of of Empoyees’ Stock Options Committee of the Board of Stakeholders Relationship Committee and a member of the Directors of the Company. Nomination and Remuneration Committee of the Board of Directors of the Company. As on the date of this report, Mr. Surjeet Singh does not hold any equity shares of the Company. As on date of this report, he holds 60,000 equity shares of the Company. Mr. Sanjeev Aga, Independent Director Business leader, organization builder, adviser and mentor, Mr. Karthikeyan Muthuswamy, Nominee Director Sanjeev Aga’s career has traversed 38 years, and sectors from Mr. Karthikeyan Muthuswamy is the Managing Director consumer and services, entertainment and light engineering, of Trident Advisors Pvt Ltd, a Mumbai based investment to telecommunications. advisory firm. Prior to Trident, Mr. Karthikeyan Muthuswamy has worked as a fund manager with M3 Investments and Director with Jeetay Investments, both of which are Mumbai based investment management firms. Mr. Karthikeyan Muthuswamy is a BBA from the University of Madras and a Chartered Financial Analyst. In a business career commencing 1973, Sanjeev Aga held senior positions in Asian Paints, Chellarams (Nigeria), and Jenson & Nicholson. In 1987, he joined Blow Plast to head the Furniture business, was made Chief Executive of Mattel Toys in 1990, and in January 1993 was appointed Managing Director of Blow Plast with multi-business responsibility He is a member of Stakeholders Relationship Committee, a including the flagship VIP Luggage business. In November member of the Nomination and Remuneration Committee 1998, he was appointed CEO of the telecom JV, Birla AT&T. and a member of the Employees’ Stock Options Committee He led the company through expansions, mergers and of the Board of Directors of the Company. acquisitions to be CEO of Birla Tata AT&T, which was renamed As on the date of this report, Mr. Karthikeyan Muthuswamy does not hold any equity shares of the Company. Mr. Anil Singhvi, Independent Director Mr. 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, Mr. Anil Singhvi played a defining Idea Cellular. In July 2002, Mr. Aga left Idea to be with the Aditya Birla Group, where from May 2005 until October 2006, he was Managing Director of Aditya Birla Nuvo. For 2009, Idea Cellular was named the ‘ET Emerging Company of the Year’, and for 2010, Forbes India magazine shortlisted Mr. Sanjeev Aga as a ‘Person of the Year’. Mr. Sanjeev Aga is an Honours graduate in Physics from St. Stephen’s College, Delhi (1971) and a post graduate from the Indian Institute of Management, Kolkata (1973). Mr. Sanjeev Aga is based in Mumbai, and now engages in advisory and consultant roles for corporates and not-for-profit organizations. He reads 30 Subex Limited widely, speaks, and occasionally, writes. Chairman of the Empoyees’ Stock Options Committee of the He is the Chairman of the Stakeholders Relationship Board of Directors of the Company. Committee, a member of the Audit Committee, a member As on date of this notice, he does not hold any equity shares of the Nomination and Remuneration Committee and the of the Company. E. Details of Directors as on March 31, 2014 seeking appointment/re-appointment at the Twentieth Annual General Meeting scheduled to be held on August 14, 2014 (Pursuant to Clause 49(IV)(G)(i) of the Listing Agreement) Name of Director Surjeet Singh Anil Singhvi Sanjeev Aga Karthikeyan Muthuswamy Date of birth March 8, 1968 June 30, 1959 February 1, 1952 June 6, 1974 Date of appointment October 5, 2012 April 11, 2011 May 17, 2011 July 6, 2012 Relationship with Directors None None None None Expertise in specific functional area Wide managerial experience Accounts and wide managerial experience Wide managerial experience Financial analyst Board Membership of other companies as on March 31, 2014 Subex Technologies Limited Foundation For Liberal And Management Education Idea Cellular Limited Trident Advisors Private Limited Subex Americas Inc Hindustan Construction Company Limited Pidilite Industries Limited Antony Waste Handling Cell Private Limited Subex (UK) Limited Subex ( Asia Pacific) Pte Limited Subex Inc Subex Azure Holdings Inc Subex Technologies Inc Institutional Investor Advisory Services India Limited Capital First Limited ING Vysya Bank Limited First Home Realty Solutions Private Limited Mahindra Holidays and Resorts India Limited RKM Venture Advisory Private Limited HCC Infrastructure Company Limited Mahindra Logistics Limited AG Enviro Infra Projects Private Limited Greatship (India) Limited Lavasa Corporation Limited Ican Investments Advisors Private Limited (as Chairman) Anagha Advisors LLP (Designated Partner) Antony Revive Ewaste Private Limited KL EnviTech Private Limited Antony Infrastructure and Waste Management Services Private Limited Antony Lara Enviro Solutions Private Limited Annual Report 2013-14 31 Name of Director Surjeet Singh Anil Singhvi Sanjeev Aga Karthikeyan Muthuswamy Chairman/Member of the Committee of the Board of Directors of other companies in which he is a director as on March 31, 2014 1. Audit Committee 2. Remuneration/ Compensation Committee 3. Shareholders’ Grievance Committee 4. Other Committees 1. Hindustan Construction Company Limited 2.Capital First Limited (as Chairman) 3. Lavasa Corporation Limited Hindustan Construction Company Limited (as Chairman) Hindustan Construction Company Limited- Selection Committee 1. ING Vysya Bank Limited (as Chairman) PAE Limited 2. Mahindra Logistics Limited Mahindra Logistics Limited PAE Limited 1. Pidilite Industries Limited 2. Idea Cellular Limited 3. ING Vysya Bank Limited 1. Finance Committee and Security Allotment Committee - Idea Cellular Limited 2. Strategy Committee - Mahindra Holidays and Resorts India Limited 3. IT Strategy Committee, Customer Service Committee and Corporate Governance Committee - ING Vysya Bank Limited 4. MLL Key Executives Stock Option Scheme – 2012 Committee – Mahindra Logistics Limited Having regard to the expertise in the field of accounts and with the Company will be of immense benefit. He is eligible management, it is in the interests of the Company to continue for reappointment at the ensuing Annual General Meeting. to avail the services of Mr. Anil Singhvi, independent director. Detailed profile of these directors forms a part of this report. It is also in the interests of the Company to continue to avail the services of Mr. Sanjeev Aga, independent director who brings his rich managerial experience to the Board of the Company. Mr. Karthikeyan Muthuswamy, nominee director Disclosure in terms of Clause 49 (IV) (G) (ia) of the Listing Agreement There are no inter-se relationships between the Board who retires by rotation at the 20th Annual General Meeting members. is widely experienced in financial matters and his association 32 Subex Limited III. AUDIT COMMITTEE A. Terms of Reference The Audit Committee has, inter alia, the following mandate: Overseeing the Company’s financial reporting process and disclosure of its financial information to ensure that the financial statements are correct, sufficient and credible; Recommendation of appointment and removal of external auditor, fixation of audit fee and also approval for payment for any other services; C. Meetings and Attendance during the Year During the financial year 2013-14, four Audit Committee meetings were held on May 21, 2013, August 14, 2013, October 30, 2013, and February 12, 2014. The audited financial results for the financial year ended March 31, 2014 were taken on record at the meeting held on May 29, 2014. The quarterly results for the quarters April-June 2013, July-September 2013 and October-December 2013 were taken on record on August 14, 2013, October 30, 2013, and February 12, 2014 respectively. Reviewing, with the management, the quarterly financial statements before submission to the Board for approval; D. Attendance of Committee Members at the Audit Committee Meetings Held During the Financial Year 2013-14: Review of annual financial statements before submission Member to the Board; Review of adequacy of internal control systems; Review of adequacy of internal audit function, reporting structure coverage, frequency of internal audit, and findings of any internal investigations by the internal auditors; 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; Review of the Company’s financial and Whistle Blower mechanism; Approval of appointment of CFO (i.e., the whole-time Finance Director or any other person heading the finance function or discharging that function) after assessing the qualifications, experience and background, etc. of the candidate 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. No. of Audit Committee Meetings Held No. of Audit Committee Meetings Attended Mr. Anil Singhvi Mr. Sanjeev Aga Mr. Surjeet Singh 4 4 4 4 4 4 Deloitte Haskins & Sells, the statutory auditors of the Company have attended all the Audit Committee Meetings held during the year. The Internal Auditors of the Company attended the meetings of the Audit Committee held on May 21, 2013 and August 14, 2013. IV. NOMINATION AND REMUNERATION COMMITTEE A. Composition of the Committee Composition Category Mr. Anil Singhvi (Chairman) Independent Director Mr. Sanjeev Aga Mr. Surjeet Singh Independent Director Managing Director and CEO Nominee Director All members of the Audit Committee are financially literate and have related financial management expertise. Mr. Karthikeyan Muthuswamy B. Composition of Audit Committee as at March 31, 2014 Composition Category Mr. Anil Singhvi (Chairman) Independent Director Mr. Sanjeev Aga Mr. Surjeet Singh Independent Director Managing Director and CEO Mr. Ganesh K V, Chief Financial Officer, Global Head - Legal and Company Secretary is the Secretary of the Audit Committee. The Committee considers the performance of the Company as well as general industry trends while fixing the remuneration of Executive Directors. The said Committee have as additional terms of reference, the recommendation of appointment of Directors, including Managing Director and Whole Time Director by whatever name called by the Company. At its meeting held on October 30, 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. Annual Report 2013-14 33 (Amount in HLakhs) Total 15.20 B. Details of Remuneration of Directors Name Salary Commission Benefits Mr. Surjeet Singh 15.20 – a. Medical Reimbursement: Reimbursement of medical expenses incurred, including premium paid on health insurance policies, whether in India or aboard, for self and family, including hospitalization, surgical charges, nursing charges and domiciliary charges for self and for family, as per the policy of the Company or as approved by the Board of Directors. b. Insurance: Personal accident insurance and keyman or other insurance as per the policy of the Company or as approved by the Board of Directors. of all Reimbursement travelling, entertainment and other similar out of pocket expenses necessarily and reasonably incurred by him wholly in the proper performance of his duties and responsibilities. reasonable He shall be entitled to travel business class on all Company related travel which involves travel of more than five hours at any time. As per his employment agreement for his appointment as Managing Director & CEO for the period from October 5, 2012 to October 4, 2013, Mr. Surjeet Singh was eligible for grant of a maximum of 1,920,000 stock options. However as per his employment agreement for his re-appointment as Managing Director & CEO for the period from October 5, 2013 to October 4, 2014 he is not eligible for grant of any stock options. Mr. Surjeet Singh or the Company may terminate the Employment Agreement before the expiry of the Term by giving to the other party notice in writing of Ninety days. - - - - - - The Non-Executive Independent Directors are paid sitting fees of H20,000 per meeting for attendance in the Audit Committee Meetings, Stakeholders relationship Committee Meetings, Nomination & Remuneration Committee Meetings and for attendance at the Board meetings. Details of sitting fees paid to such directors are as follows: Mr. Anil Singhvi Mr. Sanjeev Aga Mr. Subash Menon - - - - - - 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: No. of Shares Held as at March 31, 2014 60,000 NIL 25,80,601 NIL Name Mr. Anil Singhvi Mr. Sanjeev Aga Mr. Subhash Menon Mr. Karthikeyan Muthuswamy 34 Subex Limited Type of Meeting Board of Directors Anil Singhvi Sanjeev Aga Audit Committee Anil Singhvi Sanjeev Aga Nomination & Remuneration Committee Anil Singhvi Sanjeev Aga Stakeholder’s Relationship Committee Anil Singhvi Sanjeev Aga May 21, 2013 Aug 14, 2013 Oct 30, 2013 Feb 12, 2014 (Amount in H) 10,000 10,000 20,000 20,000 - - - - 20,000 20,000 20,000 20,000 - - NIL 20,000 20,000 20,000 20,000 20,000 20,000 20,000 NIL 20,000 20,000 20,000 20,000 20,000 - - 20,000 20,000 The sitting fee payable to each independent director for attending the meeting of the Board of Directors was revised from H10,000 to H20,000 with effect from August 14, 2013. Each independent director is paid sitting fee of H20,000 for attending the meeting of the Audit Committee. For any other meeting of the committee of the Board, sitting fee of H20,000 is paid to each independent director for attending every such meeting of the committee of the Board with effect from August 14, 2013. The Nomination 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 Nomination and Remuneration Committee Meetings Held During the Financial Year 2013-14: Member Mr. Anil Singhvi Mr. Sanjeev Aga Mr. Surjeet Singh Mr.Karthikeyan Muthuswamy No. of Nomination and Remuneration Committee Meetings Held No. of Nomination and Remuneration Committee Meetings Attended 1 1 - 1 1 1 - 1 V. STAKEHOLDERS’ RELATIONSHIP COMMITTEE A. Composition of the Committee Mr. Ganesh K V, Chief Financial Officer, Global Head- Legal and Company Secretary is the Secretary of the Committee Composition Category and the Compliance Officer. Mr. Sanjeev Aga (Chairman) Independent Director Mr. Anil Singhvi Mr. Surjeet Singh Mr. Karthikeyan Muthuswamy Independent Director Managing Director & CEO Nominee Director The Committee is responsible for addressing the 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 At the Board Meeting held on February 12, 2014, Mr. Anil investors are provided in the “Shareholders’ Information” Singhvi, Independent Director was appointed as a member section of this Annual Report. of the Stakeholders Relationship Committee. Annual Report 2013-14 35 B. Attendance of Committee Members at the Stakeholders Relationship Committee Meetings Held During the Financial Year 2013-14: Member Mr. Anil Singhvi* Mr. Sanjeev Aga Mr. Surjeet Singh Mr.Karthikeyan Muthuswamy No. of Stakeholders Relationship Committee Meetings Held No. of Stakeholders Relationship Committee Meetings Attended 1 4 4 4 1 4 4 4 *Mr. Anil Singhvi was appointed as a member of the Stakeholders Relationship Committee on February 12, 2014. He attended the meeting of the said Committee held on February 12, 2014. VI. ESOP COMMITTEE (Compensation Committee) necessary. These resolutions are tabled before the Board of The Company has instituted Employee Stock Option Directors at their respective meetings which is taken note of. 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 Category At the Board Meeting held on May 21, 2013, the Sub- Committee on Borrowings, Allotment Committee, General Management Committee and Share Transfer Committee were dissolved and the powers of these committees vests with the Board of Directors itself. The Board of Directors approves, inter alia, the transfers/ transmissions/ dematerialisation of equity shares. The Mr. Sanjeev Aga (Chairman) Independent Director Company has appointed M/s. Canbank Computer Services Mr. Anil Singhvi Independent Director Limited, a SEBI registered transfer agent, as its Share Transfer Mr. Karthikeyan Muthuswamy Nominee Director Agent with effect from November 6, 2001. The Committee administers the ESOP schemes of the Company by passing resolutions by circulation whenever VII. GENERAL BODY MEETINGS A. Location and Time of the Last Three AGMs Year 2010-11 2011-12 2012-13 Date of AGM July 27, 2011 September 28, 2012 August 14, 2013 B. Location and Time of the Last Three EGMs Year 2011-12 2012-13 2012-13 Date of EGM December 28, 2011 June 28, 2012 August 17, 2012 Venue Registered office Registered office Hotel Lalit Ashok, Bangalore Venue Registered office Registered office Registered office Time 12:00 Noon 12:30 PM 2:00 PM Time 11:30 A M 11:30 A M 11:30 A M At the AGM held on August 14, 2013, one special resolution was passed for the ratification of appointment of Mr. Surjeet Singh as the Managing Director and CEO of the Company for a period of one year from October 5, 2012 to October 4, 2013. 36 Subex Limited VIII. DISCLOSURES A. There are no significant related party transactions of the Company of material nature, that may have potential conflict with the interests of the Company at large D. The Company has obtained a certificate from the CEO/ CFO as required by Clause 49 (V) of the Listing Agreement. E. In compliance with Clause 49 (1) (D) of the Listing Agreement, the Company has adopted a Code of Conduct Transactions with the related parties are disclosed in Note (the ‘Code’). This Code is applicable to the Members of the 31 to the standalone financial statements and Note 30 to Board, Senior Management Personnel and all employees the consolidated financial statements in the Annual Report. of the Company and Subsidiaries. All the members of None of the independent directors have any material pecuniary relationship or transactions with its Promoters, its Directors, its senior management or its subsidiaries which may affect independence. The Company has received the relevant declarations in this regard from its independent directors Mr. Anil Singhvi, and Mr. Sanjeev Aga. 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 the Board and the Senior Management Personnel have affirmed compliance to the Code, as at March 31st, 2014. A declaration to this effect, signed by the Managing Director and 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 Practising Company Secretary. The same were filed with the Stock Exchanges within the stipulated period. Act, 1956 was approved pursuant to the resolution passed by the Board of Directors on February 8, 2010 and special G. The Company has not been subjected to any penalties, strictures by stock exchange(s)/SEBI or any statutory resolution passed by the Members at the Extraordinary authorities on any matter related to capital markets, during General Meeting held on March 4, 2010. The reduction, as the last three years. 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. During the financial year 2013- 14, the balance amount of Rs. 80.63 lakhs lying in the BRR was utilized and thereby closed. Such adjustment being at 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. Ix. 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 (English) and Vijay Karnataka (Kannada). The complete 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. variance with applicable accounting standards, necessary As part of the “Green Initiative in Corporate Governance”, disclosure has been made in Note 25 to the accounts in the Ministry of Corporate Affairs (MCA), Government of Standalone and Note 24 to the Consolidated financial India, through its Circular Nos. 17/2011 and 18/2011, dated statements. C. The Company has a Risk Management Policy in place to manage risks inherent in various aspects of its business which is given in detail in the Management Discussion and Analysis section of the Annual Report. 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 Annual Report 2013-14 37 all shareholder communications such as the notice of as such disclosures on maintenance of office by a Non- General Meetings, Audited Financial Statements, Directors’ Executive Chairman does not arise. The Company ensures Report, Auditors’ Report, etc., henceforth to shareholders in that the persons appointed as Independent Directors have electronic form to the E-mail Id provided by them and made the requisite qualifications and experience which would available to us by the Depositories. Members are requested be of use to the Company and which would enable them to to register their E-mail Id with their Depository Participant contribute effectively to the Company in their capacity as and inform them of any changes to the same from time to Independent Directors. time. However, Members who prefer physical copy to be delivered may write to the Company at its registered office B. Remuneration Committee 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. The Company has a Remuneration Committee which has during the year renamed as the Nomination and Remuneration Committee. A detailed note on the Nomination and Remuneration Committee has been provided earlier in the report. x. General shareholder information is provided in the “Shareholders’ Information” section of the Annual Report. C. Shareholders’ Rights xI. As per the requirements of Clause 41 of the Listing Agreement, the Company has submitted the quarterly/ annual financial results to the Stock Exchanges after the conclusion of the respective Board Meetings held on May 21, 2013, August 14, 2013, October 30, 2013 and February 12, 2014. 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 The Company communicates with investors regularly through E-mails, telephone calls and face to face meetings. The Company publishes the quarterly financial results in leading business newspaper(s) as well as on the Company’s website. 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 or the Audit Committee to made in the section on Corporate Governance in the annual report the aforementioned concerns. report. The Company has complied with the following non- mandatory requirements: A. The Board Presently the Company does not have a Chairman and The Directors of the Company are seasoned persons having expertise and vast experience in their respective fields. As such the Company has not adopted item (5) and (6) under Annexure ID to Clause 49 of the Listing Agreement. For Subex Limited Karthikeyan Muthuswamy Director Mumbai, India Date : May 29, 2014 38 Subex Limited Surjeet Singh Managing Director & CEO Mumbai, India Date : May 29, 2014 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, 2014. Place : Mumbai Date : May 29, 2014 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 March 31, 2014 as stipulated under Clause 49 of the Listing Agreement of the said Company with the Stock Exchanges. 2. The compliance of conditions of Corporate Governance is the responsibility of the management. Our examination has been limited to a review of the procedures and implementations thereof, adopted by the Company for ensuring compliance with the conditions of the Corporate Governance. It is neither an audit nor an expression of opinion of the financial statements of the Company 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. 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: Mumbai Date: May 29, 2014 FOR DELOITTE HASKINS & SELLS, Chartered Accountants Registration No. 008072S MONISHA PARIKH Partner Membership No. 47840 Annual Report 2013-14 39 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% Coupon 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 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 profits/ losses for the year under review. Securities Trading Limited (SGX). As a part of the terms and In addition to the historical information contained herein, conditions of US$ 127,721,000 5.70% Secured Convertible the following discussion may include forward looking Bonds, principal amount of US$ 36,321,000 out of US$ statements which involve risks and uncertainties, including 127,721,000 5.70% were mandatorily converted into equity shares at the conversion price of H22.79/-. Pursuant to the mandatory conversion and subsequent conversion of US$ 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 3,250,000 currently US$ 88,150,000 is outstanding under discussed in this report. 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. Industry Subex Limited is a leading global provider of Business and Operations Support Systems (B/OSS) that empowers communications service providers (CSPs) to achieve competitive advantage through Business and Capex Optimisation - thereby enabling them to improve their 40 Subex Limited operational efficiency to deliver enhanced service with the need to roll out new products and services at regular 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 with 30 + customers. 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. Subex has been awarded the Global Market Share Leader Opportunities and threats in Financial Assurance 2012 by Frost & Sullivan and has been the winner of Pipeline Innovation Award 2013 in Business Intelligence & Analytics; Capacity Magazine Best Product/ Service 2013. Subex has continued to innovate with customers and have been jointly awarded the Global Telecoms Business Innovation Award 2014 along with Telstra Global; in 2012 with Idea Cellular for Managed Services and in 2011 with Swisscom for Fraud Management. 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, the latest being the launch of our pioneering ROC Asset Assurance solution in April 2013. Using our products, Subex’s customers include 29 of top 50 operators* and we have structured several industry leading solutions that 33 of the world’s 50 biggest# telecommunications service address and solve key problems faced by our customers providers worldwide. The company has more than 300 worldwide. These solutions are offered as a well integrated installations across 70 countries. platform called ROC. In addition to this, we also offer ROC *Total Telecom Top 500 Telecom Brands, 2013 #Forbes’ Global 2000 list, 2014 Commoditization of the industry is the largest threat that in the form of Managed Services thereby ensuring that our customers gain significantly from our solutions. This three pronged strategy has helped us retain customers and gain further traction in the B/OSS market through new customer telecom operators around the world are facing. This, coupled accounts. Annual Report 2013-14 41 Business segments and industry outlook Business Segments Subex operated 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 which has been losing its significance as can be seen from the business mix data provided herein, thus Subex strategically moved out of the services as it did not align with the primary focus area which is product business effective beginning of the year. Revenue Mix e g a t n e c r e P 36 100 80 60 40 20 0 79 83 75 87 90 93 100 64 64 67 55 54 45 46 36 3 0 - 2 0 0 2 36 33 25 21 17 13 10 4 0 - 3 0 0 2 5 0 - 4 0 0 2 6 0 - 5 0 0 2 7 0 - 6 0 0 2 8 0 - 7 0 0 2 9 0 - 8 0 0 2 0 1 - 9 0 0 2 1 1 - 0 1 0 2 2 1 - 1 1 0 2 Revenue from Products Revenue from Services 7 3 1 - 2 1 0 2 0 4 1 - 3 1 0 2 Global mobile economy The mobile industry has scaled dramatically over the last decade. At the end of 2003, there were a little over one billion unique subscribers, indicating that one in seven people had subscribed to a mobile service. By the end of 2013, this figure had increased to 3.4 billion unique subscribers, equivalent to almost half of the global population. Globally, there were 6.9 billion SIM connections at the end of 2013 with an average of 1.8 active SIM cards per unique subscriber. Global operating revenues in 2013-14 were US$1.2 trillion and could rise to US$1.4 trillion by 2020; the ecosystem revenues stood at US$2 trillion for 2013-14 and could move to US$2.9 trillion by 2020. While subscriber and connection growth rates are slowing in developed markets, significant untapped potential remains across developing markets with forecasts of an addition of 880 million unique subscribers by 2020. In the developed markets, there is an accelerating technology shift underway in the global connection base with an increasing proportion of connections now on higher speed 3G and 4G networks (globally this proportion is set rise from a third at the end of 2013 to two-thirds by 2020). The number of commercially- available LTE networks is forecast to increase to more than 500 in 128 countries across the world over the next four years, going from covering around a fifth of the global population today to around half by 2017. The mobile industry (both directly and indirectly) contributed around 3.6% of global gross domestic product (GDP) in 2013, equivalent to over US$ 2.4 trillion, and is expected to increase to 5.1% of global GDP by 2020. There are 10.5 million jobs supported directly by the mobile ecosystem across the world; while the mobile ecosystem contributed over US$ 336 billion in public funding in 2013 even before considering regulatory and spectrum fees. 42 Subex Limited Global Mobile Connections (m, excluding M2M) 9 3 0 4 , 5 6 6 4 , 9 6 3 5 , 9 2 0 6 , 5 6 4 6 , 6 8 8 6 , 5 8 3 7 , 0 0 8 7 , 3 5 1 8 , 7 5 4 8 , 3 2 7 8 , 0 6 9 8 , 9 7 1 9 , 11.3% CAGR 2008-2013 4.2% CAGR 2013-2017 8 0 0 2 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 7 1 0 2 8 1 0 2 9 1 0 2 0 2 0 2 Sub-Saharan Africa North America Midle East and North Africa Latin America Europe Commonwealth of Independent States Asia Pacific Total mobile industry contribution to global GDP (2013 GDP impact (US$ Bn) 1325 2367 196 0.3% 174 0.3% 2.0% 3.6% 672 1.0% MOBILE OPERATIONS RELATED INDUSTRIES GENERAL ECONOMY PRODUCTIVITY INCREASE TOTAL IMPACT MOBILE ECOSYSTEM SIM penetration: Global SIM penetration stood at 95% and the figure was already over 124% on average in developed years since 2008, but are now forecast to grow at a rate of 4.2% per annum for the period to 2020, less than half the markets. However there was a slowdown in the growth previous growth rate. This would take the global penetration rate of connections across all regions of the globe, linked rate by 2020 to 119%, with connection penetration passing to slower subscriber penetration growth. SIM connections through the 100% level before the end of 2014. grew globally at a CAGR of 11.3% per annum in the five SIM Penetration by Region % 4 1 2 % 2 4 1 % 6 9 1 % 4 2 1 % 6 8 1 % 5 4 1 111% % 5 5 1 % 8 1 1 % 6 3 1 % 0 1 1 % 9 1 1 % 1 8 2008 2012 2017 % 7 9 % 3 7 % 7 7 % 3 5 EUROPE NORTH AMERICA CIS LATIN AMERICA MIDDLE EAST ASIA PACIFIC AFRICA OTHER SOURCE: A.T. Koarnoy, GSMA Wiroless Intelligence Annual Report 2013-14 43 Technology: According to Ericsson, around 55% of all mobile phones sold in the second quarter of 2013 were smartphones, compared to 50% in the first quarter and only 30% in 2012 as a whole. By the end of 2013, there were just under 1.5 billion smartphones in use, of which almost half were in the Asia-Pacific. Going forward, new smartphone connections will largely come from the Asia-Pacific region with just under 900 million new smartphones expected in the region in the period to 2017. Smartphones Installed Base 2,890m 1,457m 2017 2013 237m 2008 (Source Strategy Analytics) Average revenue per user: The average revenue per user (ARPU) per month stood at US$ 12.15 in the year 2013- 14, which declined by 3.97% over 2012-13. Increasing penetration among some of the world’s poorest countries will inevitably lead to declining ARPU. Mobile economy in developing economies The World Bank estimates that mobile broadband reported a higher economic impact than fixed line broadband in emerging markets; a 10% increase in mobile broadband penetration drove a 1.4% increase in GDP for low-to-middle income countries. The top-10 developing economic mobile markets by number of subscriptions included: Rank Country 1 2 3 4 5 6 7 8 9 10 China India Indonesia Brazil Russia Nigeria Vietnam Pakistan Bangladesh Philippines Subscribers 1,246.3 million 893.3 million 285 million 272.6 million 237.1 million 175 million 127.7 million 126.1 million 116 million 109.5 million Market growth was driven by demand from the developing Source: International Telecommunication Union 2014 world, led by rapid mobile adoption in China and India, the world’s most populous nations. There were 5.4 billion Average revenue per user mobile subscriptions in the developing world – almost Though the global ARPU declined by 3.97%, the biggest 78% of global subscriptions – compared with 5.2 billion in decline was in Africa, where Kenya’s ARPU was US$ 6.2 and 2013, according to ITU. Though mobile penetration in the Tanzania’s was US$ 4.4, Uganda had an ARPU of US$ 3.5, developing world stood at 90.2%, there was still potential which compared to any of the developed economies is far for growth, particularly in Africa, which had the lowest less. mobile penetration worldwide at 69.3%. 44 Subex Limited Mobile economy in the Indian economy SIMs in India. Mobile economy in India, the world’s second largest market by subscribers, will contribute around US$400 billion to the country’s GDP and create 4.1 million jobs by 2020 (Source: GSMA). Mobile telephony continued to be the industry growth driver with net addition of new subscribers at 1.15 million, taking the total wireless subscriber base to 904.51 Average revenue per user: Prepaid ARPU per month increased to H98 in December 2013, while postpaid ARPU per month declined to H456 in December 2013. Monthly ARPU for CDMA full mobility services increased by 5.48% to H103.60 in December 2013. ARPU for CDMA increased by 29.58% on a y-o-y basis in this quarter. million. The data reported by service providers indicated that rural 87% penetration 71% penetration 32% penetration India began to emerge as the growth driver. Mobile services subscriber base in India’s rural areas increased to 377.73 1.26 billion 1.10 billion million in March 2014 from 374.96 million in February 2014. On the other hand, urban subscription declined to 555.26 million from 556.99 million during same period. SIM penetration: India’s 554.8 million unique mobile phone users use 643.4 million active SIMs, counting multiple connections being used by them on one/multiple handsets/ tablets. A study estimated that there were 773.9 million live Total popula- tion (2013) % of population within mobile network coverage Address- able popula- tion Unique mobile subscrib- ers 899 million 405 million 1.88 SIM cards 762 million 886 million 2.30 urban 60% 1.25 urban 40% Average number of connec- tons per subscriber Active mobile connections Registered mobile connec- tions Telecom Software Products Subex offers the Revenue Operations Centre (ROC®) solution suite for business and capex optimization, offering solutions for revenue analytics - ROC revenue assurance, ROC fraud management and ROC credit risk management; for cost analytics - ROC partner settlement, ROC route optimization and ROC cost management and for network analytics - ROC asset assurance, ROC data integrity management and ROC capacity management. All solutions come together to help CSPs pevent fraud losses, collect all revenues, reduce defaulted payments, reduce wastful expenditure, manage inter-carrier and partner expenses and optimise capex. For service providers that aim to optimize their operational and process infrastructure, ROC delivers business and capex optimization in the most pragmatic manner. Functions of ROC Creates a direct linkage between operations and profitability based on credible and timely cross-functional data correlation Brings together, in a synergistic manner, formally disparate assurance, audit and governance functions Enables an operations infrastructure that monitors and controls the entire revenue chain and identifies risks to margins and customer satisfaction ROC enables profitable service provider growth through coordinated operational control. Supports business and operational innovation programmes because of its entrenched end-to-end expertise Annual Report 2013-14 45 Revenue Analytics ROC Revenue Assurance: ROC Revenue Assurance is the telecom industry’s first revenue assurance solution that simplifies the complicated process of revenue assurance. It tackles critical challenges across the entire revenue chain with ease and offers two path breaking products which simplify and speed up the process of revenue recovery, namely RevenuePad and Zen. It helps customers in addressing revenue assurance challenges inherent to 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. This in turn enables customers to dramatically reduce the time required to implement or extend the coverage of their revenue management system and practices. With Subex’s ROC Revenue Assurance, customers can easily reconfigure or remodel existing solutions to accommodate changing business requirements. It is designed not only to detect potential revenue loss, but also to proactively assist operators with investigation, diagnosis and revenue recovery. ROC Revenue Assurance is highly effective in both traditional circuit-switched and Next Generation packet- switched service environment and is the perfect solution for telecom revenue assurance. Subex’s revenue assurance solution detects the symptoms of leakage, prevents incidents before they reach the customer’s bill, accelerate resolution times, and enable revenue assurance teams to align their successes with broader organizational goals - such as higher margins and customer satisfaction. ROC Fraud Management: The fraud management solution by Subex, ROC Fraud Management is built to minimize instances of fraud in the telecom industry by eliminating known threats, uncovering new patterns, minimising fraud run time, augmenting internal controls and supporting continuous fraud management process improvements. Subex’s telecom fraud management system 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. The solution is characterized by 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. With Subex’s comprehensive fraud management system, operators can detect fraud types in all telecom environments: 46 Subex Limited wireline (PSTN, ISP and VoIP), and wireless (2G, 2.5G, 3G); them the edge needed to prosper in today’s market. and across all services: postpaid, payment, VAS, MMS and m-commerce. ROC Route Optimization: Telecom operators need to respond quickly to the abrupt and volatile changes in service ROC Credit Risk Management: The ROC Credit Risk Management solution empowers operators to continuously provider rates in order to remain competitive. Subex’s ROC Route Optimization solution caters to this need, allowing assess and mitigate risk presented by subscribers throughout subscribers to benefit from cost-competitive yet high quality their lifecycle. The solution tracks risk on a near-real time service. The solution delivers value through the following basis during: Subscriber acquisitioning Ongoing usage Collections and recovery The solution also provides the operator with a holistic view that helps in understanding subscriber risk profile and thereby aids its management. capabilities: Analyzes various service parameters such as cost, traffic forecast, network capacity and quality Uses analysis output to streamline service providers’ routing process Establishes competitive sales rates for services Executes the automated routing management system to establish automatic switch connection and generate Further, it can quickly and seamlessly accommodate new Man-machine language commands for switch update service information to provide an accurate picture of the exposure at any point in time. Allowing operators to easily These capabilities round up our comprehensive route optimization solution, helping operators derive the best and quickly, define various risk indicators and controls breakouts and cost routes. Our processes also enable enables the solution to adapt to local cultural and regulatory communication service providers to establish focused requirements. This also enables operators to stay agile in efficiency-increasing task automation, thereby reducing data changing socio-economic conditions that affect the overall redundancies. level of risk in a region. Cost Analytics ROC Partner Settlement: ROC partner settlement allows operators to quickly and accurately settle charges with their network and content partners. It helps operators improve efficiency through light touch automation, accurate billing settlement and prudent accrual provisioning. Catering to 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. the need for visibility of each deal’s impact on an operator’s It ensures the profit margins and operational agility through bottomline owing to shrinking margins, the solution provides reduction of service delivery costs. It is built on a highly strong coverage in all areas from order to cash. It enables integrated platform using components-based technology operators to manage costs and revenues on interconnect to provide striking performance, scalability, interoperability and partner agreements with domestic and international and reliability. operators as well as content partners on a day-to-day and hour-to-hour basis. The solution collects, collates and correlates the information from switches, inventory, billing, partner invoices and New types of complex agreements in areas such as IP and financial systems to provide deeper insights about the cost content-based services require new system capabilities to aspects in an easy to understand format through dashboards ensure that operators have accurate data available to assure & reports. It enhances margins by optimizing leased circuit revenues. ROC Partner Settlement’s flexibility, scalability costs, reducing interconnect costs, assuring access costs and and ease of use empowers all types of service providers, by automating invoice verification process. fixed or mobile, national incumbent or new entrant, giving Annual Report 2013-14 47 Network Analytics ROC Asset Assurance: ROC Asset Assurance helps operators in managing and reducing network capex. It provides an operator a holistic view into current assets, consumption and placement of the assets, with subsequent recommendations on what, where, when, and why to spend capex. The components within ROC Asset Assurance solution are asset analytics, data integrity management, capacity analytics and network intelligence. All of these help operators to manage telecommunications network assets across all dimensions of the asset life cycle, providing complex analytics that are not only descriptive (current states, trending, among others), but also predictive. This facilitates accurate prediction of asset exhaustion, procurement triggers, necessary asset warehouse levels, retirement strategies and growth rates on sparing levels. A complete asset life cycle management program encompasses the continual monitoring and management of life cycles associated with the assets. The overall network asset life cycle is pictured below: Forecast Plan Budget Purchase Receive Deploy Operate Redeploy Retire ROC Data Integrity Management: Subex has been the pioneer in data integrity management, with over a decade of which would help CSPs to plan capacity investments accordingly. It provides a holistic view of capacity through experience with the world’s leading service providers. ROC which it helps CSPs see threshold violations on key links and Data Integrity Management is an industry’s first data integrity resolve capacity-based issues. management solution for improving the quality of data that drives key service provider processes, resulting in lower costs and higher service profitability. The solution 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: management solution enables CSPs to prevent an availability capacity Subex’s Managed Services: In an era of intensifying competition, demanding customers, shrinking margins and near-flat toplines, it is imperative to manage Business Support Systems (BSS) effectively. Understanding this, Subex offers a flexible and scalable Managed Services program that enables Communication Service Providers (CSP) to successfully meet the ever changing business, technology and customer requirements. Subex Managed Services program is designed to add both strategic and tactical value to CSP’s operations and enable better customer experience while also enhancing their operational efficiency, service agility and profitability. Experts from Subex are helping service providers around the world improve their BSS/OSS 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 or performance impact on business critical applications due their business. to capacity-related issues. It provides the critical link between discovering the network ‘as-is’ and presenting the data in a normalized and appropriate format. It further engages analytics functions to provide actionable intelligence and also predict scenarios and their impact on network capacity ROC Cloud: Small and medium telcos have business support system (B/OSS) needs very different from those of larger telcos. In the same vein, most B/OSS 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 48 Subex Limited to smaller organizations, and necessitate a substantial stream is the support revenue calculated as a function of investment in licenses and resources. Quite naturally, it is the license revenue. Further, we also have an additional difficult to justify this investment in most small and medium stream of revenue namely, customization. While the above organizations. Subex is recognized as the leader in the mentioned streams are directly related to the license model, business optimization space and has pioneered the concept we also have embarked on an additional stream of revenue of the ROC – the Revenue Operations Center – to enable namely Managed Services, which has been detailed below. profitable growth through coordinated operational control. The same ROC is delivered as a service to suit the needs of Managed Services small and medium telcos in the form of ROCcloud. Recognizing the strategic imperative of outsourcing in Customer Base today’s environment, Subex offers a flexible and scalable Managed Services program that enables service providers to Subex addresses more than 300 installations across 70 successfully meet the ever changing business, technology and countries. This includes 33 of the world’s 50 biggest customer requirements. Subex’s Managed Services offering is telecommunications service providers worldwide. A partial designed to offer true competitive advantage by focusing on list of customers is given below: strategic, operational and cost benefits that address service APAC–Aircel, Airtel, Bakrie Telecom, CAT, Celcom, Dtac, providers’ current and future challenges and risks. Etisalat, Hutchison Telecom, Idea, Indosat, Maxis, MTNL, Subex understands that no two operators’ requirements are Reliance Communications, Starhub, TelBru, Telkom Indonesia, similar and hence offers the flexibility to pick and choose Telstra, TM, True, TATA, Vodafone services based on scope of operations, domains and on-site Americas–Americatel, America Movil, Bell Canada, support type. Centennial, Cincinnati Bell Wireless, Claro, Comcast, Cricket, Traditional License Model: Typically, this is the model with Etecsa, Frontier, GVT, Glo, Hawaiian Telcom, Grupo ICE, Level highest level of CSP involvement. Here, the CSP hosts the 3, Porta, Sprint, Telesur, Telefonica, Telmex, Telus, T Mobile, application, owns the hardware and operates the software One, Verizon while Subex takes onus of the development, deployment, EMEA- Airtel, AlbTelecom, Atalntique Telecom, Avea, Azercell, support and maintenance of the product. Bezeq International, BTC, BT, Cable & Wireless, Cell C, Colt, Service Bureau/Hosted Model: In this model, Subex takes Coolwave, Cora, Cyta, Du, Eagle, Econet, ecoop, 8-el, emt, responsibility of hosting the application, and hardware Finnet, Goecell, Hot Mobile, iKatel, Interoute, Kcell, Lebara, along with the development, deployment support and Mascom, Matrix, Melita, Mirs, Mobinil, Moldcell, Mcel, MTN, maintenance. 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 and End-to-End Managed Services: This model is perfect for most operators in today’s market as it results in the highest performance with the lowest Opex and Capex Zon 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 Annual Report 2013-14 49 Subex Managed Services SMART services leveraging proven technology Products, Domain and Operations Expertise 30+ Managed Service Programs, over 20 billion CDRs processed monthly, applications running on over 100 servers Regular industry forum thought leadership engagements SM A Industry pioneering Revenue Operations Center (ROC) platform Over 300 ROC implementations at 200+ service providers Automated workflows, future proof roadmap R T Subex Managed Accountable ROC-Enabled Tailored services leveraging proven technology Stringent SLAs, innovative Risk-Reward Share Model Robust processes and methodologies Assured migration up the maturity model Flexible, bespoke service based on scope of operations, BSS/OSS domains and stage of evolution More choice based on your requirements and budget On-demand, Software-as-a-Service (SaaS) – ROC Cloud 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. 50 Subex Limited The following graph gives the revenue from each of the stream during the past several years: e g a t n e c r e P 40 100 90 80 70 60 50 40 30 20 10 0 Revenue Composition 5 0 18 13 9 0 19 5 64 67 2 9 26 6 57 3 8 3 10 49 1 11 25 7 2 10 27 7 56 54 1 14 28 3 54 0 18 18 7 57 0 24 31 8 37 1 27 34 8 30 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 Third Party Managed Services Support Customization License & Addl. License Geographical Mix We have a dominant presence in both developing and developed markets. This is quite evident from the geographical mix given below. e g a t n e c r e P 100 80 60 40 20 0 Geographical Mix 14 34 9 36 52 55 27 36 37 15 35 50 8 37 55 16 40 44 14 35 21 26 51 53 17 20 63 33 50 17 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 EMEA Americas APAC Annual Report 2013-14 51 Risks and concerns Risks are an inherent part of any business activity. Following are the risks associated with our business: The business model of communications service providers 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 is highly dependent on consumer behaviour and any consultants etc. are undertaken. 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 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. 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. Intellectual Property The telecom software industry is characterized 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 maintain patent and trademarks, and patent and trademark applications, as it deems appropriate. The Company and its subsidiaries also have copyrights vested in their software products and related materials. However, as Subex is fully dependant on the telecom industry. As such, is common industry practice, the Company has not generally any vagaries in the telecom business environment will pursued registrations of its copyrights. considerably impact the fortunes of the Company. Technology and Personnel Our industry is characterized by rapid technological changes and frequent new service offerings. Significant technological changes could make our technology and services obsolete, less marketable or less competitive. We must adapt to our rapidly changing market by continually improving the features, functionality, reliability and capability of our products to meet changing customer needs. We may not be 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 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. able to adapt to these challenges or respond successfully or In addition, legal protection of the Company’s intellectual in a cost-effective way. Our failure to do so would adversely property rights in one country will not necessarily provide affect our ability to compete and retain customers or market protection in other countries. The laws of many countries share. Launching new products is a key element of our do not protect intellectual property rights to as great growth and an inability to bring new products with high an extent as those of many western countries. Effective demand to the market in a timely manner will reduce our protection of the Company’s intellectual property rights may growth and profitability. be unavailable or limited in certain countries. For example, 52 Subex Limited many countries, particularly certain developing countries, and legal questions and its outcome is uncertain. Any claim do not favour the aggressive enforcement of trademarks, relating to infringement of intellectual property rights may patents and other measures to protect intellectual require it to pay substantial damages and seek licences to property. Limited intellectual property rights make piracy continue to use such intellectual property, which licences and misappropriation, which are endemic to the software may not be available on commercially acceptable terms industry, more difficult to prevent. Moreover, even when or at all. Even if the Company were to be successful, any the Company has adequate intellectual property rights intellectual property litigation could be costly and time- to stop an infringer, it may lack the resources to detect all consuming, and would divert the attention of management infringements, to trace the source of the infringement or to and key personnel from the Company’s business operations. enforce its rights against the infringer. As a result of any intellectual property infringement suit 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, 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. the Company generally requires all employees and advisors Furthermore, the Company is required to indemnify its to enter into confidentiality agreements that prohibit the customers against third-party claims of infringement of disclosure of confidential information. These agreements intellectual property arising out of the Company’s customers’ also require disclosure and assignment to the Company use of its products and services. Typically, the Company’s of ideas, developments, discoveries and inventions. These liability for such indemnification is not limited by limitation agreements may not effectively prevent disclosure of the of liability provision in customer contracts. 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 may have a material adverse effect on the Company’s business, financial condition and results of operations. 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 Further, the Company is often 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. Variability of Quarterly Operating Results The quarterly operating results of the Company have varied in the past due to reasons like seasonal pattern of hardware and software capital spending by customers, information technology investment trends, achievement of milestones in the execution of projects, hiring of additional staff and timing and integration of acquired businesses. Hence, the past operating results and period to period comparisons may not indicate future performance. The management is attempting to mitigate this risk through expansion of client base geographically and increase of steady annuity revenue such products could be severely restricted or prohibited. through Managed Services model. Intellectual property litigation can involve complex factual Annual Report 2013-14 53 Statutory Obligations Subex has registered with Special Economic Zone for US$ 1,400,000 under its US$ 98,700,000 5% Convertible Unsecured Bonds (“FCCBs II”). In July 2012, pursuant to the software development activities and has availed Customs exchange offer of FCCBs I and FCCBs II, the Company issued Duties, Sales Tax and Central Excise exemptions. The non- US$ 127,721,000 5.70% Secured Convertible Bonds with a fulfillment of export obligations may result in penalties as maturity period due July 2017 (“FCCBs III”). Principal amount stipulated by the Government and this may have an impact of US$ 36,321,000 were mandatorily converted and US$ on future profitability. Environmental Matters Software development, being a pollution free industry, is not subject to any environmental regulations. Foreign Exchange Subex has substantial exposure to foreign exchange related 3,250,000 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. risks on account of revenue from export of software and The ability of the Company to successfully meet the debt outstanding liabilities. There is a natural hedge to the obligations under the FCCBs depends on its internal extent of expense incurred in same currency. Despite this, accruals, additional fund raising in the form of debt or equity particularly given the volatility in the foreign exchange and possible conversion of FCCBs into equity shares prior to market, there could be significant variations. redemption. 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. 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 Internal control systems and their adequacy Management maintains internal control systems designed to provide reasonable assurance that assets are safeguarded, transactions are executed in accordance with management’s authorization and properly recorded, and accounting records are adequate for preparation of financial statements and other financial information. The internal audit function also carries out Operations Review Audits to improve the processes and strengthen control of the existing processes. The Audit Committee periodically reviews the functions of internal audit. regulations. Failure to fulfill the contractual obligations Pursuant to clause 49 of the Listing Agreement, the CEO/CFO arising out of such contracts may expose Subex to financial has to accept responsibility for establishing and maintaining 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. Debt Obligations As on March 31, 2014, the Company had outstanding FCCBs 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 aggregating to US$ 1,000,000 under its US$ 180,000,000 from time to time and control deficiencies, if any, identified 2% Coupon Convertible Unsecured Bonds (“FCCBs I”) and during the assessments are addressed appropriately. 54 Subex Limited Discussion on financial performance with respect to operational performance Key Financials and Ratio Analysis Financial Highlights / Year ending 31st March 2014 2013 2012 Consolidated Stand-Alone Consolidated Stand-Alone Consolidated Stand-Alone Amount in H Lakhs Total income: 34,449.28 29,669.48 33,147.10 26,677.95 48,878.97 33,902.66 – (Continuing Operations) 34,449.28 – (Discontinuing Operations) – – – Operating Profits (EBITDA) 6,999.26 4,680.87 before Exceptional items: – (Continuing Operations) 7,215.96 – (Discontinuing Operations) (216.70) Depreciation & Amortization – (Continuing Operations) – (Discontinuing Operations) 248.34 244.18 4.16 – – 161.31 – – 30,823.24 2,323.86 4,024.92 4,623.45 (598.53) 426.77 420.51 6.26 – – 44,043.24 4,835.73 – – 3,338.21 14,063.28 9,700.20 – – 225.92 – – 13,960.19 103.09 779.60 772.62 6.98 – – 364.90 – – Profit/(Loss) before tax & after (216.45) (1,309.27) (5,608.47) (3,456.42) 3,519.07 203.65 Exceptional items: – (Continuing Operations) – (Discontinuing Operations) 262.26 (478.71) – – (4,005.10) (1,603.37) – – 3,475.01 44.06 – – Profit/(Loss) after tax & (1161.27) (2,952.88) (5994.71) (3,456.42) 3,184.10 239.70 Exceptional items: – (Continuing Operations) – (Discontinuing Operations) 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 % (674.12) (487.15) NIL – – NIL (4,391.34) (1,603.37) Nil – – Nil 3,134.80 49.30 Nil – – Nil 16,664.00 16,664.00 16,664.00 16,664.00 6,931.08 6,931.08 697.90 10,719.72 5,835.68 16,870.39 7,172.35 14,015.80 17,361.90 27,383.72 22,499.68 33,534.39 14,103.43 20,946.88 9,625.76 7,166.04 10,279.57 7,096.86 10,447.13 7,370.52 597.83 316.50 466.74 333.05 772.80 474.80 109,433.04 155,904.29 1,08,797.37 1,47,548.90 1,09,609.37 1,45,873.05 (0.70) 3.65 10.42 4.39 20.31% (3.41%) (6.69%) (1.24%) (1.77) (4.40) (2.54) 2.20 (1.04) (1.44) 16.43 13.50 2.52 3.25 20.12 1.96 15.94% (10.06%) (10.78%) (3.06%) 12.18% (18.13%) (26.64%) (6.27%) 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% Annual Report 2013-14 55 Commentary on financial statements Promoter group, at H80/- per share. 1. Share Capital Of the equity paid-up capital, the Company had issued the following shares towards consideration other than cash. 1,15,000 shares of H10/- 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. 46,26,940 Shares of H10/- 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 H10/- each to the erstwhile owners of M/s. IVth Generation Inc., towards part consideration of the cost of acquisition of that Company at H1,023/- per share during 1999-2000. 1,08,78,784 Shares of H10/- 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 H10/- each to the GDR holders as on April 7, 2006 at H400/-. 1,17,28,728 Shares of H10/- each to the GDR holders as on June 22, 2006 towards consideration of the cost of acquisition of Azure Solutions Ltd at H532.24 per share 1.1 During 2006-07 the Company issued 2,19,551 (including Bonus shares, wherever options are eligible) shares of H10/- each to various Employees on exercise of Stock Options granted under the Employee Stock Option Plan (ESOP – II & III). 1.2 During 2007-08, the Company issued 31,364 (including Bonus shares, wherever options are eligible) shares of H10/- each to various Employees on exercise of Stock Options granted under the Employee Stock Option Plan (ESOP – II & III). 1.3 During 2009-10, the Company issued 1,203 equity shares of H10/- each under its ESOP III scheme and 1,210 equity shares of H10/- each under its ESOP II scheme to various Employees on exercise of Stock Options. 1.4 During 2009-10, the Company issued 40,00,000 equity shares of H10/- each, on a preferential basis, to M/s Woodbridge Consultants, an entity belonging to Promoters/ 56 Subex Limited 1.5 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. 1.6 During 2010-11, the Company issued 41,24,254 equity shares of H10/- each, on a preferential basis, to M/s KBC Aldini Capital Mauritius Limited, at H81/- per share. 1.7 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. 1.8 During 2010-11, the Company issued 3,765 equity shares of H10/- each under its ESOP III scheme and 1,260 equity shares of H10/- each under its ESOP II scheme, to various Employees upon exercise of Stock Options. 1.9 During 2011-12, the Company issued 747 equity shares of H10/- each under its ESOP III scheme to various Employees upon exercise of Stock Options. 1.10 There are no calls in arrears. 1.11 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. 2. Reserves And Surplus 2.1 Capital Reserve of H130 Lakhs was created by credit of the notional premium on 12,840 equity shares of H10/- each valued at a price of H1,023/- 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. 2.2 During the year 2010-11, additions to capital reserve due to reversal of accrued interest on conversion of FCCBs into equity shares amounted to H1,598.9 Lakhs, reductions due to transfer to Business restructuring reserve amount to H400 Lakhs and deferred interest on restructured FCCBs amounted to H1,222.7 Lakhs. 2.3 During the year 2011-12, the balance in capital reserve of H346.70 Lakhs was transferred to Business restructuring reserve. 2.4 During the year 2012-13, the balance of Foreign Currency Translation Reserve of H2,765.65 Lakhs has been included in the Reserves and Surplus to bring it in line with Revised Schedule VI. 2.5 During the year 2013-14, the balance of Foreign Currency Translation Reserve of H5,801.74 Lakhs has been included in the Reserves and Surplus to bring it in line with Revised Schedule VI. 2.6 Securities Premium Account represents the premium collected on: 9,71,000 equity shares issued at a premium of H65/- per share through an Initial Public Offer in 1999-2000. 3,30,800 equity shares issued at a premium of H740/- 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 H88/- per share to holders of ROCCPS on conversion of preferential shares at H98/- each, namely Intel Capital, Toronto Dominion Bank and UTI Venture Funds. 15,38,459 equity shares issued at a premium of H290/- per share to holders of FCCBs on conversion of the bonds at a price of H300/- per share. 11,09,878 equity shares issued at a premium of H390/- per share to holders of GDR at a price of H400/-. 1,17,28,728 equity shares issued at a premium of H522.24 per share to holders of GDR at price of H532.24 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. 2,63,31,244 equity shares were allotted upon conversion of FCCBs aggregating to principal amount of USD 43.9 Million, out of its USD 98.7 Million 5% Convertible Unsecured Bonds, in accordance with the terms and conditions thereof 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 H80 per share including a premium of H70 per share 41,24,254 equity shares of H10/- each, allotted on a preferential basis, to M/s KBC Aldini Capital Mauritius Limited, at an issue price of H81 per share including a premium of H71 per share 747 shares of H10/- each were allotted to the employees under ESOP III scheme as per the provisions of the scheme at various premiums. 2.7 Business Restructuring Reserve During the year 2009-10, H50,000 Lakhs and H17,000 Lakhs were transferred to Business Restructuring Reserve from securities premium and capital reserve respectively. Out of the said amount, H64,997.90 Lakhs were utilized and consequently, the balance in Business Restructuring Reserve as of March 31, 2010 is H2,002.10 Lakhs on consolidated basis. During the year 2010-11, H17,000 Lakhs and H400 Lakhs were transferred to Business Restructuring Reserve from securities premium and capital reserve respectively. Out of the said amount, H18,303.70 Lakhs were utilized and consequently, the balance in Business Restructuring Reserve as of March 31, 2011 is H1,098.40 Lakhs on consolidated basis. During the year 2011-12, H346.70 Lakhs were transferred from Capital Reserve and H854.30 Lakhs un-utilized provisions were transferred back to Business Restructuring Reserve. Out of the said amount, H629.20 Lakhs were utilized and consequently, the balance in Business Restructuring Reserve as of March 31, 2012 is H1,670.20 Lakhs on consolidated basis. During 2012-13, H271.10 Lakhs were transferred to Securities premium Account. Out of the said amount, H1,318.48 Lakhs were utilized and consequently, the balance in Business Restructuring Reserve as of March 31, 2013 is H80.63 Lakhs on consolidated basis. During 2013-14, H80.63 Lakhs was utilized from BRR for making provisions for doubtful debts. The balance in Business Restructuring Reserve as of March 31, 2014 is Nil on consolidated basis. 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 Annual Report 2013-14 57 the excess of market price of the underlying equity shares as premium payable on these bonds is accrued over the life of on the date of the grant of the option over the exercise price the bonds and is carried under Other Long Term Liabilities. of the option, to be adjusted over the period of vesting. The net amount carried in respect of stock options outstanding at March 31, 2014 amounts to H96.29 Lakhs (Previous Year: H123.78 Lakhs). 4. Short Term Borrowings On consolidated basis, the Short term borrowings of H16,015.60 Lakhs (Previous Year: H19,387.91 Lakhs) outstanding in the books as at March 31, 2014 consists of H14,817.30 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. c. H52,815.07 Lakhs (Previous Year: H47,852.27 Lakhs) 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. 6. Fixed Assets During the year, the Company added H368.00 Lakhs on consolidated basis and H147.05 Lakhs on standalone basis, to its gross block. The Company disposed off certain assets On Standalone basis, the Short term borrowings of H14,817.30 Lakhs (Previous Year: H16,550.46 Lakhs ) outstanding in the books as at March 31, 2014, H14,817.30 Lakhs from Banks secured by the charge on Fixed/Current Assets and personnel no longer required. The Company’s net block of fixed assets was H597.83 Lakhs (Previous year H466.74 Lakhs) on consolidated basis and H316.50 lakh (Previous year H333.05 lakh) on standalone basis. 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. 5. Long Term Borrowings (including current provisions) On a consolidated basis and standalone basis 7. Investments 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 Current maturities of long term debt as at March 31, 2014 subsidiary of the Company, has been renamed as “Subex consists of: a. H599.15 Lakhs (Previous Year: H542.81 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. H838.81 Lakhs (Previous Year: H759.99 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 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 Ltd under a scheme of arrangement. On obtaining the order from the Hon’ble High Court of Karnataka, the Company has transferred the Services business to Subex Technologies Ltd with effect from September 1, 2007 (appointed date) at an aggregate consideration of H31,00,00,000. In accordance with the order of the Hon’ble High Court, the Company shall receive 30,00,000 shares of Subex Technologies Ltd valued at H3,00,00,000 in settlement of the consideration with the balance H28,00,00,000 being treated as unsecured loan taken by the subsidiary from the Company. 7.1 On June 23, 2006, the Company acquired the entire share holding of Azure Solutions Ltd, UK. The consideration was 58 Subex Limited discharged by issue of 1,17,28,728 GDRs each representing one equity share of H10/- at a premium of H522.24 per share and cash of H2,145.70 Lakh. 7.5 During the year 2010-11, the Company recognized an amount of H400 lakh as diminution in carrying value of investments in Subex Technologies Ltd. Consequently, the 7.2 During the year 2007-08, the Company completed the acquisition of Syndesis Ltd, 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. 7.3 During the year 2009-10, the Company recognized an amount of H50,000 Lakh as diminution in carrying value of investments in Subex Americas Inc. Consequently, the investment carrying value as of March 31, 2010 is H27,495.70 Lakh. 7.4 During the year 2010-11, the Company recognized an amount of H15,000 Lakh as diminution in carrying value of investments in Subex Americas Inc. Consequently, the investment carrying value as of March 31, 2011 is H12,495.70 Lakh. investment carrying value as of March 31, 2011 is Nil. 8. Trade Receivables 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. 8.1 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 8.2 Sundry Debtors as a percentage of total revenue is 29.19% as against 22.18% in the previous year, on a consolidated basis. 8.3 The age profile on consolidated basis is as given below: Amount in H Lakhs Period in days March 31, 2014 March 31, 2013 Less than 180 days More than 180 days Total Value 9,011.40 1,046.20 10,057.60 The age profile on standalone basis is as given below: Period in days March 31, 2014 Less than 180 days More than 180 days Total Value 56,300.48 15,210.23 71,510.71 % % 89.60 10.40 100.00 78.73 21.27 100.00 Value 7,230.84 102.00 7,332.84 % 98.60 1.40 100.00 Amount in H Lakhs March 31, 2013 Value 51,708.28 10,633.30 62,341.58 % 82.94 17.06 100.00 8.4 The management believes that the overall composition consolidated basis with the bankers is for establishing bank and condition of sundry debtors is satisfactory post guarantee. assessment of doubtful receivables. The provision for doubtful debts stands at H4,770.44 Lakhs (Previous Year H4,727.80Lakhs) on consolidated basis and H6,085.65 Lakhs (Previous Year H3,886.90 Lakhs) on standalone basis. 9. Cash and Cash Equivalents The bank balances includes both rupee accounts and foreign currency accounts. The Margin Money deposit of H45.45 Lakhs (Previous Year: H296.36 Lakhs) on Standalone basis and H485.42 Lakhs (Previous Year: H627.91 Lakhs) on 10. Long-terms Loans and Advances 10.1 Security Deposits represent rent deposit, electricity deposit, telephone deposits and advances of like nature. 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 2013-14 59 10.3 Loans due from Group Companies (Standalone basis) Particulars Subex Americas Inc Subex Technologies Ltd 11. Statement of Profit & Loss 11.1 Income 2013-14 1,838.22 1,705.67 Amount in H Lakhs 2012-13 1,706.70 1,705.70 The segment wise break up of revenue on consolidated basis is given below: Amount in H Lakhs Particulars Software Products Software Services Total 2013-14 2012-13 Value 34,005.16 - 34,005.16 % 100.00 - 100.00 Value 30,734.27 2,323.68 33,057.95 % 92.97 7.03 100.00 11.2 Geographically, the Company earns income from export of software products and related services to USA, EMEA & of total income as against H3,338.21 Lakhs at 12.51% during the previous year. Asia Pacific region. 12. Other Income Other income consists of income derived by the Company from Interest on income tax refund, interest on deposits from banks, interest on Inter Company Loans. 13. Expenditure The employee benefits expenses decreased to H17,929.30 Lakhs (Previous year: H20,669.02 Lakhs) on consolidated basis and increased to H6,559.83 Lakhs (Previous year: H6,532.02 Lakhs ) on standalone basis. The Company incurred administration and other expenses excluding employee benefit expenses at 24.87% of its total 15. Interest & Bank Charges The Company incurred an expenditure of H6,747.76 Lakhs (Previous year: H5,210.00 Lakhs) on consolidated basis and H5,828.83 Lakhs (Previous year: H4,905.15 Lakhs) on standalone basis. The interest paid/accrued is related to working capital loan including interest on FCCBs amounting to H3,422.30 Lakhs (Previous Year: H2,212.06 Lakhs). 16. Depreciation 16.1 The provision for depreciation for the year amounted to H248.34 Lakhs (Previous year: H426.77 Lakhs) on consolidated basis and H161.31 Lakhs (Previous year: H225.92 Lakhs) on standalone basis. Income during the year as compared to 23.04% during the 16.2 The intangible assets i.e. IPRs and goodwill are being previous year on consolidated basis and 60.80% of its total depreciated over 5 years in accordance with the Company’s income during the year as compared to 62.09% during the assessment of useful life thereof. The asset has been fully previous year on a standalone basis. depreciated. 14. Operating Profits During the year, on consolidated basis, the Company earned 17. Provision for Tax The Company has provided for its tax liability in India and an Operating Profit/(Loss) before Interest, depreciation, tax and exceptional items of H6,999.26 Lakhs being 20.32% of total income as against H4,024.92 Lakhs at 12.14% during the previous year. On a standalone basis, the Company earned Operating Profit/(Loss) before Interest, depreciation, tax and exceptional items of H4,680.87 Lakhs being 15.78% overseas after considering the exemptions for income from software services and products under the various applicable tax enactments. 18. Net Profit On consolidated basis, the net profit of the Company 60 Subex Limited amounted to loss of H1,161.27 Lakhs, as against a loss of H5,994.71 Lakhs during the previous year. On standalone basis, the net profit of the Company amounted to loss of H2,952.88 Lakhs as against a loss of H3,456.42 Lakhs during the previous year. 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 19. Earnings per Share Basic Earnings/(Loss) per share computed on the basis of and adopt global recruitment best practices to fulfill the organization’s talent requirements. In addition to the well number of common stock outstanding, as on the Balance Sheet date is of H(0.70) per share (Previous year: H(4.40) per share) on consolidated basis and loss of H(1.77) per share (Previous year: H(2.54) per share) on standalone basis. 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 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, 2014, we had 862 Subexians on our rolls globally. Human Resources at Subex is centralized at our corporate 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 headquarters in Bangalore, with regional HR teams be extremely critical for us. We believe that the quality providing local support aligned to the global HR strategy. of induction that new hires go through determines how The HR team provides a competitive edge to the business successful they are in the Company and has a huge impact by enabling and supporting a very unique business model on retention. We have customized the induction based on of value based delivery, processes and programs on global the role and function that new Subexians join in. This has product development and delivery capabilities on the one hand and complex distributed managed services delivery resulted in having more targeted induction, yielding greater benefits. 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, 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, Annual Report 2013-14 61 we provided them with out-bound training at Pegasus to Competencies take care of the core areas of the role - inculcate in them our Subex values and help them bond as knowledge about our products, the various technologies and a team. On the learning and development side, the focus this year domains. These, along with the KRAs help build and reinforce the performance oriented culture at Subex. was on taking Subex Academy to the next level and improving Compensation 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 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 development! audits. 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 the current job really well. Lead Competencies focus on the future needs and are the skills required to succeed in leadership roles. Technical 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. 62 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 31st March , 2014, 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. is for responsible Management’s Responsibility for the Financial Statements The Company’s Management the preparation of 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 notified under the Companies Act, 1956 (“the Act”) (which continue to be applicable in respect of Section 133 of the Companies Act, 2013 in terms of General Circular 15/2013 dated 13th September, 2013 of the Ministry of Corporate Affairs) 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 Our responsibility is to express an opinion on these financial 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 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: (a) in the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2014; (b) in the case of the Statement of Profit and Loss, of the loss of the Company for the year ended on that date; and (c) 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 Rs. 80.62 Lakhs to the Business Restructuring Reserve, instead of recording the same as expense for the year ended 31st March, 2014, 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 38.9 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. Our opinion is not qualified in respect of the above matters. Annual Report 2013-14 63 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 information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit. the with the Accounting Standards notified under the Act (which continue to be applicable in respect of Section 133 of the Companies Act, 2013 in terms of General Circular 15/2013 dated 13th September, 2013 of the Ministry of Corporate Affairs). (e) On the basis of the written representations received from the directors as on 31st March, 2014 taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 2014 from being appointed as a director in terms of Section 274(1) (g) of the Act. (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, the Balance Sheet, the Statement of Profit and Loss, and the Cash Flow Statement comply Mumbai May 29, 2014 For DELOITTE HASKINS & SELLS Chartered Accountants (Firm’s Registration No. 008072S) Monisha Parikh Partner (Membership No. 47840) 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, xix and xx of paragraph 4 of the Order are not applicable to the Company. 2. In respect of its fixed assets: (a) The Company has maintained proper records including quantitative showing full particulars, details and situation of the fixed assets. (b) The fixed assets were physically verified during the year by the Management in accordance with a programme of verification, which in our opinion provides for physical verification of all the fixed assets at reasonable intervals. According to the information and explanations given to us no material discrepancies were noticed on such verification. (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. 3. In respect of its inventories: 64 Subex Limited (a) As explained to us, the inventories were physically verified during the year by the Management at reasonable intervals. (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 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) The Company has generally been regular in depositing undisputed statutory dues, including Provident Fund, Investor Education and Protection Fund, Employees’ State Income-tax, Sales Tax, Wealth Tax, Service Tax, Customs Duty, Excise Duty, Cess and other material statutory dues applicable to it with the appropriate authorities. Insurance, (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 31st March, 2014 for a period of more than six months from the date they became payable. (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 31st March, 2014 on account of disputes are given below: Statute Nature of Dues Forum where dispute is pending Period to which the amount relates Amount involved Rs in Lakhs Income Tax Act, 1961 Income tax (Incl. Interest) Hon. High Court of Karnataka 2002-05 2008-09 2009-10 162.02 1.25 1,216.11 9. The Company does not have accumulated losses at the end of the financial year and the Company has incurred cash losses during the financial year covered by our audit and in the immediately preceding financial year. 10. 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. 11. 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. According to the information and explanations given to us, the Company has not taken any term loans during the year. 13. In our opinion and according to the information and explanations given to us and on an overall examination MUMBAI May 29, 2014 of the Balance Sheet of the Company, we report that funds raised on short-term basis have, prima facie, not been used during the year for long- term investment. 14. During the year the Company has not made any preferential allotment of shares to parties and companies covered in the Register maintained under section 301 of the Companies Act, 1956. 15. 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. For DELOITTE HASKINS & SELLS Chartered Accountants (Firm’s Registration No. 008072S) Monisha Parikh Partner (Membership No. 47840) Annual Report 2013-14 65 BALANCE SHEET 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 3 SUB TOTAL - NON CURRENT LIABILITIES 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. AS AT MARCH 31, 2014 H In Lakhs AS AT MARCH 31, 2013 3 4 5 6 7 8 38.5 9 10 11.A 11.B 12 34 13 14 15 16 17 18 16,664.00 10,719.72 27,383.72 54,253.03 5,074.64 601.67 59,929.34 14,817.30 51,448.00 2,318.30 7.63 68,591.23 155,904.29 261.24 55.26 316.50 77,234.42 - 2,472.11 16,793.80 96,816.83 56,989.38 86.09 556.88 1,455.11 59,087.46 155,904.29 16,664.00 16,870.39 33,534.39 49,155.07 533.30 500.61 50,188.98 16,550.46 43,060.04 4,171.77 43.26 63,825.53 147,548.90 251.26 81.79 333.05 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 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 29, 2014 66 Subex Limited For and on behalf of the Board of Directors Surjeet Singh Managing Director & CEO Karthikeyan Muthuswamy Director Anil Singhvi Director Sanjeev Aga Director Mumbai Date: May 29, 2014 Ganesh K.V Chief Financial Officer, Global Head-Legal and Company Secretary STATEMENT OF PROFIT AND LOSS NOTE NO. FOR THE YEAR ENDED MARCH 31, 2014 H In Lakhs FOR THE YEAR ENDED MARCH 31, 2013 1 Revenue from Operations 2 Other Income 3 4 Total revenue Expenses 19 20 (a) Cost of Hardware, Software and Support Charges 38.6 21 22 11 23 24 (b) Employee Benefits Expense (c) Finance Costs (d) Depreciation and Amortisation Expense (e) Other Expenses Total Expenses Profit/(Loss) before exceptional items and Tax (3 - 4) Exceptional Items Profit/(Loss) before Tax (5 - 6) Tax expense (a) Current Tax Expense for current year (b) MAT credit of prior years reversed 5 6 7 8 (c) Short/(excess) provision for tax relating to prior years (d) Deferred Tax Total Tax expense Profit/(Loss) for the year (7 -8) 9 10 Earnings/(Loss) Per Share (Face value of H10/- each) (a) Basic (b) Diluted Corporate Information and Significant Accounting Policies 1 & 2 See accompanying notes forming part of the financial statements 29,366.59 302.89 29,669.48 389.74 6,559.83 5,828.83 161.31 18,039.04 30,978.75 (1,309.27) 1,497.04 (2,806.31) 110.42 174.13 (271.86) 133.88 146.57 26,555.90 122.05 26,677.95 243.30 6,532.02 4,905.15 225.92 16,564.42 28,470.81 (1,792.86) 1,663.56 (3,456.42) - - - - - (2,952.88) (3,456.42) (1.77) (1.77) (2.54) (2.54) In terms of our report attached For Deloitte Haskins & Sells Chartered Accountants Monisha Parikh Partner For and on behalf of the Board of Directors Surjeet Singh Managing Director & CEO Karthikeyan Muthuswamy Director Anil Singhvi Director Sanjeev Aga Director Mumbai Date: May 29, 2014 Mumbai Date: May 29, 2014 Ganesh K.V Chief Financial Officer, Global Head-Legal and Company Secretary Annual Report 2013-14 67 CASH FLOW STATEMENT A CASH FLOW FROM OPERATING ACTIVITIES Profit / (Loss) before tax, for the year Adjustments for : (a) Depreciation and amortization expense (b) Interest Income (c) Finance costs (d) (Profit)/Loss on sale / write off of assets (e) Expense/(Gain) on employee stock option scheme (f) Provision for doubtful Trade receivables and advances (g) Unrealised exchange (Gain)/Loss- Others 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 FOR THE YEAR ENDED MARCH 31, 2014 H In Lakhs FOR THE YEAR ENDED MARCH 31, 2013 (2,806.31) (3,456.42) 161.31 (180.12) 5,828.83 2.29 (27.49) 2,118.13 737.27 5,833.91 225.92 (118.43) 4,905.15 1.43 10.28 1,741.12 (316.31) 2,992.74 (9,430.30) (4,085.72) 173.51 (7.20) 437.17 (217.27) 7,628.78 (864.69) 102.24 (35.44) (8.99) 3,611.72 50.96 3,662.68 93.74 (1.08) 570.48 (343.50) (71.99) (1,432.44) 15.37 (19.68) (31.07) (2,313.15) (78.42) (2,391.57) (a) Capital expenditure on fixed assets, including capital advances (147.05) (112.74) (b) Proceeds from sale of fixed assets (c) Interest received - Others (d) Interest received- Subsidiaries (e) Loans given to Subsidiaries (f) Investment in deposits Net cash flow from / (used in) investing activities (B) - 30.25 171.62 - 250.91 305.73 20.40 18.12 78.46 (103.86) (145.00) (244.62) 68 Subex Limited CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2014 H In Lakhs FOR THE YEAR ENDED MARCH 31, 2013 C CASH FLOW FROM FINANCING ACTIVITIES (a) Net increase/(decrease) in working capital borrowings from banks (1,733.16) (b) Repayment of Other short-term borrowings (c) Repayment of Long-term borrowings (d) Dividends paid (e) Finance cost Net cash flow from / (used in) financing activities (C) 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 1 & 2 Notes: (i) See accompanying notes forming part of the financial statements - (0.92) 1.61 (2,284.98) (4,017.45) (49.04) 88.37 39.33 - 28.91 10.42 39.33 6,647.55 (1,000.00) - (1.15) (2,923.43) 2,722.97 86.78 1.59 88.37 - 78.93 9.44 88.37 In terms of our report attached For Deloitte Haskins & Sells Chartered Accountants Monisha Parikh Partner For and on behalf of the Board of Directors Surjeet Singh Managing Director & CEO Karthikeyan Muthuswamy Director Anil Singhvi Director Sanjeev Aga Director Mumbai Date: May 29, 2014 Mumbai Date: May 29, 2014 Ganesh K.V Chief Financial Officer, Global Head-Legal and Company Secretary Annual Report 2013-14 69 NOTES FORMING PART OF THE 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 Section 211(3C) of the Companies Act, 1956 (“the 1956 Act”) (which continue to be applicable in respect of Section 133 of the Companies Act, 2013 (“the 2013 Act”) in terms of General Circular 15/2013 dated 13 September, 2013 of the Ministry of Corporate Affairs) and the relevant provisions of the 1956 Act/ 2013 Act, as applicable, 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. 70 Subex Limited NOTES FORMING PART OF THE 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 the project is ready for its intended use. 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 Software Furniture & Fixtures Vehicles Office equipments Intellectual Property Rights Depreciation/ Amortisation Rates (%) 25 25 20 20 20 20 Goodwill 20 Individual assets costing less than H5,000 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 and when services are rendered by the employees. Defined benefit plans: For defined benefit plans in the form of gratuity fund, the cost of providing benefits is determined Annual Report 2013-14 71 NOTES FORMING PART OF THE FINANCIAL STATEMENTS 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. 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 72 Subex Limited NOTES FORMING PART OF THE FINANCIAL STATEMENTS 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 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. Annual Report 2013-14 73 NOTES FORMING PART OF THE FINANCIAL STATEMENTS 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. 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. 74 Subex Limited NOTES FORMING PART OF THE FINANCIAL STATEMENTS NOTE: 3 SHARE CAPITAL AUTHORISED 49,50,40,000 Equity Shares of H10/- each (Previous Year: 49,50,40,000 Equity Shares of H10/- each) 2,00,000 Preference Shares of H98/- each Total ISSUED, SUBSCRIBED AND PAID UP EQUITY SHARES 16,66,39,962 Equity Shares of H10/- each (Previous Year : 16,66,39,962 Equity Shares of H10/- each) Total AS AT MARCH 31, 2014 H In Lakhs AS AT MARCH 31, 2013 49,504.00 49,504.00 196.00 49,700.00 196.00 49,700.00 16,664.00 16,664.00 16,664.00 16,664.00 NOTES A Reconciliation of the number of Equity shares at the beginning and at the end of the reporting period Particulars Equity Shares (No. of shares) Year ended March 31, 2014 Year ended March 31, 2013 Opening Balance Fresh issue ESOP Conversion of FCCB Closing Balance 16,66,39,962 6,93,10,772 - - - - - 16,66,39,962 9,73,29,190 16,66,39,962 Reconciliation of the amount outstanding at the beginning and at the end of the reporting period Opening Balance Fresh issue ESOP Conversion of FCCB H In Lakhs Closing Balance 16,664.00 6,931.08 - - - - - 16,664.00 9,732.92 16,664.00 B The Company has only one class of Equity Share, having a par value of H10/-. 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 (together with Persons Acting in Concert[PAC]) holding more than 5% shares. Class of shares / Name of shareholder AS AT MARCH 31, 2014 AS AT MARCH 31, 2013 No. of shares held % holding in that class of shares No. of shares held % holding in that class of shares Equity shares QVT Mauritius West Fund & Quintessence Mauritius West Fund Suffolk (Mauritius) Limited & Mansfield (Mauritius) Limited Deutche Bank AG London -CB Account Nomura Singapore Limited Merill Lynch Capital Markets Promoter and Promoter Group (See Note E below) 1,33,47,888 8.01% 1,33,47,888 8.01% 1,73,72,221 1,08,92,721 1,02,34,433 1,01,92,621 64,74,044 10.43% 1,73,72,221 6.54% 1,08,92,721 6.14% 1,02,34,433 6.12% 1,01,92,621 84,74,044 3.89% 10.43% 6.54% 6.14% 6.12% 5.09% Annual Report 2013-14 75 Particulars Equity Share Capital Year ended March 31, 2014 Year ended March 31, 2013 NOTES FORMING PART OF THE FINANCIAL STATEMENTS NOTE: 3 SHARE CAPITAL (contd.) Bank of New York is the depositary of GDRs on behalf of GDR holders holding 17,99,310 shares representing 1.08% of total shareholding (Previous Year : 69,89,399 shares representing 4.23%).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, 2014 21,91,55,913 shares (As at March 31, 2013, 21,95,88,093 shares) were reserved for issuance as follows: i) 2,975 shares (As at March 31, 2013, 4,670 shares) of H10/- each towards outstanding employee stock options scheme under ‘ESOP 2000’ granted / available for grant. ii) 8,63,950 shares (As at March 31, 2013, 11,31,147 shares) of H10/- each towards outstanding employee stock options scheme under ‘ESOP 2005’ granted / available for grant. iii) 5,67,518 shares (As at March 31, 2013, 7,30,806 shares) of H10/- each towards outstanding employee stock options scheme under ‘ESOP 2008’ granted / available for grant. iv) 67,174 shares (As at March 31, 2013, 67,174 shares) of H10/- each towards conversion of foreign currency convertible bonds(FCCB I) available for conversion. Refer note 26 v) 8,39,721 shares (As at March 31, 2013, 8,39,721 shares) of H10/- each towards conversion of foreign currency convertible bonds (FCCB II) available for conversion. Refer Note 26 vi) 21,68,14,575 shares (As at March 31, 2013 21,68,14,575 shares) of H10/- each towads Conversion of Foreign currency convertible bond (FCCB III) available for conversion. Refer note 26 E Details of shares held by Promoter and Promoter Group*: Name of the Shareholder AS AT MARCH 31, 2014 AS AT MARCH 31, 2013 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 No. of shares held % holding No. of shares held % holding 25,80,601 35,21,200 1.55% 2.11% 25,80,601 55,21,200 1.55% 3.32% 3,72,243 6,474,044 0.22% 3.89% 3,72,243 84,74,044 0.22% 5.09% 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 H10 each to the GDR holders as of June 22, 2006 towards consideration of cost of acquisition of Azure Solutions Limited at H532.24 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 07, 2012. (Refer note 26) Aggregate number of shares AS AT MARCH 31, 2014 AS AT MARCH 31, 2013 1,17,28,728 1,17,28,728 8,93,35,462 8,93,35,462 76 Subex Limited NOTES FORMING PART OF THE FINANCIAL STATEMENTS NOTE: 4 RESERVES AND SURPLUS General Reserve Securities Premium Account Opening Balance Transferred from Business Restructuring Reserve Additions during the year on account ESOP and conversion of FCCBs 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 25 Transferred from/(to) Securities Premium/Capital Reserve 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 28 Opening Balance (Debit)/Credit (Add)/Less: Effect of foreign exchange rate variation during the year (Add)/Less: Amortisation for 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 Foreign Currency Convertible Bonds (Refer Note 26) Secured Unsecured Total NOTE NO. AS AT MARCH 31, 2014 H In Lakhs AS AT MARCH 31, 2013 1,779.76 1,779.76 10,615.20 - - (53.59) - 316.20 271.10 10,505.40 (574.70) 97.20 10,561.61 10,615.20 80.62 - (80.62) - 138.49 - (39.53) 98.96 (2.67) 96.29 (2,765.65) (5,097.97) 2,061.88 (5,801.74) 7,036.68 (2,952.88) 4,083.80 10,719.72 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 16,870.39 AS AT MARCH 31, 2014 H In Lakhs AS AT MARCH 31, 2013 52,815.00 1,438.03 54,253.03 47,852.27 1,302.80 49,155.07 Annual Report 2013-14 77 NOTES FORMING PART OF THE FINANCIAL STATEMENTS NOTE: 6 OTHER LONG TERM LIABILITIES Accrual for premium payable on redemption of bonds Interest accrued but not due on borrowings Deferred Rent Unearned Revenue Total NOTE: 7 LONG-TERM PROVISIONS Provision for Employee Benefits Provision for compensated absences (Refer Note 29 (c) Provision for gratuity (Refer Note 29(b)) Provision for Tax (Net of Advance Tax of H189.99 Lakhs) (As at March 31, 2013 H132.90 Lakhs) Total NOTE: 8 SHORT-TERM BORROWINGS From Banks Secured (Refer Note (i) below) Total AS AT MARCH 31, 2014 H In Lakhs AS AT MARCH 31, 2013 571.59 4,385.44 24.79 92.82 5,074.64 517.93 - 15.37 - 533.30 AS AT MARCH 31, 2014 H In Lakhs AS AT MARCH 31, 2013 75.83 250.69 275.15 77.55 257.96 165.10 601.67 500.61 AS AT MARCH 31, 2014 H In Lakhs AS AT MARCH 31, 2013 14,817.30 14,817.30 16,550.46 16,550.46 (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 U.S.$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. NOTE: 9 OTHER CURRENT LIABILITIES 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 38.1) Unearned Revenue Other Payables Statutory remittances Deferred Rent AS AT MARCH 31, 2014 H In Lakhs AS AT MARCH 31, 2013 - 0.92 886.36 1.31 1,142.21 2,082.19 2.92 1,724.31 249.45 38.97 2,318.30 348.44 12.99 4,171.77 Total (i) Secured against the Hypothecation of vehicles financed under these loans. Hire Purchase loans amount to H Nil as at March 31, 2014 (H0.92 Lakhs as at March 31, 2013). The interest rate on these loans range from 9% to 20%. 78 Subex Limited 10.98 31.08 1.20 43.26 H In Lakhs NET BLOCK NOTES FORMING PART OF THE FINANCIAL STATEMENTS NOTE: 10 SHORT-TERM PROVISIONS AS AT MARCH 31, 2014 H In Lakhs AS AT MARCH 31, 2013 Provision for compensated absences (Refer Note 29 (c)) Provision for gratuity (Refer Note 29 (b)) Provision for Tax (Net of Advance Tax of H Nil) (As at March 31, 2013 H Nil) Total 5.49 1.13 1.01 7.63 NOTE: 11 FIxED ASSETS Particulars Sl. No. 11A Tangible Fixed Assets GROSS BLOCK DEPRECIATION As at 01-Apr-13 Additions during the year Deletions during the year As at 31-Mar-14 Upto 01-Apr-13 for the year Withdrawn on Deletions Upto 31-Mar-14 As at 31-Mar-14 5.26 (7.49) 0.24 (2.55) 30.88 1 Computer Hardware 1,914.72 119.39 - 2,034.11 1,709.02 100.23 - 1,809.25 224.86 (Previous Year balance) (2,059.36) (76.26) (220.90) (1,914.72) (1,794.40) (115.42) (200.80) (1,709.02) (205.70) 2 Furniture & Fixtures 66.19 - (Previous Year balance) (65.30) (0.89) - - 66.19 58.70 (66.19) (55.50) 2.23 (3.20) - - 60.93 (58.70) 3 4 Vehicles 84.10 (Previous Year balance) (241.60) Office Equipments 275.45 (Previous Year balance) (271.50) - - 13.74 (4.65) 53.36 30.74 81.55 2.34 53.39 30.50 (157.50) (84.10) (212.90) (25.26) (156.61) (81.55) 24.51 264.68 239.93 16.06 22.19 233.80 (0.70) (275.45) (205.80) (34.55) (0.42) (239.93) (35.52) TOTAL TANGIBLE ASSETS 2,340.46 133.13 77.87 2,395.72 2,089.20 120.86 75.58 2,134.48 261.24 (Previous Year balance) (2,637.76) (81.80) (379.10) (2,340.46) (2,268.60) (178.43) (357.83) (2,089.20) (251.26) 11B Intangible Fixed Assets 1 2 3 Computer Software 644.78 13.92 (Previous Year balance) (621.14) (23.64) Goodwill 137.67 (Previous Year balance) (137.67) Intellectual Property Rights 3,973.95 (Previous Year balance) (3,973.95) - - - - TOTAL INTANGIBLE ASSETS 4,756.40 13.92 (Previous Year balance) (4,732.76) (23.64) - - - - - - - - 658.70 562.99 40.45 (644.78) (515.50) (47.49) 137.67 137.67 (137.67) (137.67) 3,973.95 3,973.95 (3,973.95) (3,973.95) - - 603.44 55.26 (562.99) (81.79) - - - 137.67 (137.67) - 3,973.95 (3,973.95) - - - - 4,770.32 4,674.61 40.45 (4,756.40) (4,627.12) (47.49) - - 4,715.06 55.26 (4,674.61) (81.79) Total 7,096.86 147.05 77.87 7,166.04 6,763.81 161.31 75.58 6,849.54 316.50 Previous Year (7,370.52) (105.44) (379.10) (7,096.86) (6,895.72) (225.92) (357.83) (6,763.81) (333.05) Notes : (i) The above assets represent assets owned by the company and there are no assets taken on finance lease or given on operating lease (ii) Computers (included under office equipment) and Computer Software have been classified between tangible and intangible assets, respectively in the current year and the prior year comparables have been appropriately reclassified. Annual Report 2013-14 79 NOTES FORMING PART OF THE FINANCIAL STATEMENTS NOTE: 12 NON-CURRENT INVESTMENTS (AT COST, UNLESS OTHERWISE STATED) (Long term, trade, unquoted) Investments in Equity shares In wholly owned subsidiaries 39,99,994 equity shares of H10 each fully paid up in Subex Technlogies Limited, India {Net of provision for other than temporary diminution H400 Lakhs (Previous year H400 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 H65,000 lakhs (Previous year H65,000 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) Advance Tax (net of provision for H1,159.31 Lakhs) (As at March 31,2013 H332.80 Lakhs) Balances with government authorities - Service Tax Credit Receivable Security Deposits MAT credit entitlement Total NOTE: 14 OTHER NON - CURRENT ASSETS Long-term Trade Receivables (Unsecured) Outstanding for more than six months from the due date Considered Good Considered Doubtful Less: Provision for Doubtful trade receivables Unbilled Revenue Balance with related parties Unsecured, considered good (Refer Note 31(ii)) Unsecured, considered Doubtful (Refer Note 31(ii)) Less: Provision for doubtful loans and advances Total 80 Subex Limited AS AT MARCH 31, 2014 H In Lakhs AS AT MARCH 31, 2013 - - 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 AS AT MARCH 31, 2014 H In Lakhs AS AT MARCH 31, 2013 1,470.64 1,250.30 266.90 734.57 - 266.90 727.37 174.13 2,472.11 2,418.70 AS AT MARCH 31, 2014 H In Lakhs AS AT MARCH 31, 2013 14,521.33 6,047.02 (6,047.02) 14,521.33 477.17 1,795.30 1,705.67 (1,705.67) 1,795.30 16,793.80 10,633.30 2,488.00 (2,488.00) 10,633.30 343.50 1,711.70 1,694.66 (1,694.66) 1,711.70 12,688.50 NOTES FORMING PART OF THE FINANCIAL STATEMENTS NOTE: 15 TRADE RECEIVABLES (Unsecured) Outstanding for a period exceeding six months from due date Considered Good Other Trade receivables Considered Good Considered Doubtful Less: Provision for Doubtful Trade receivables Total NOTE: 16 CASH AND BANk BALANCES A. Cash and Cash Equivalents Cash on hand Balance with Banks in Current Accounts in EEFC Accounts Total Cash and Cash Equivalents A B. Other bank balances in Earmarked Accounts Unclaimed dividend Accounts (Refer Note 38.1) Margin Money Deposits (Refer Note below) Total Other Bank Balances B Total (A+B) AS AT MARCH 31, 2014 H In Lakhs AS AT MARCH 31, 2013 688.90 - 56,300.48 38.63 (38.63) 56,300.48 56,989.38 51,708.28 1,398.90 (1,398.90) 51,708.28 51,708.28 AS AT MARCH 31, 2014 H In Lakhs AS AT MARCH 31, 2013 - 28.91 10.42 39.33 1.31 45.45 46.76 86.09 - 78.93 9.44 88.37 2.92 296.36 299.28 387.65 Note: Balances with Banks- Margin money deposits include deposits with remaining maturity of less than 12 months from Balance Sheet date. NOTE: 17 SHORT-TERM LOANS AND ADVANCES (UNSECURED, CONSIDERED GOOD) Loans and advances to related parties [Refer Note 31(ii)] Loans and advances to employees Advance recoverable [Refer Note 38.8] Prepaid expenses Balances with government authorities Service Tax Credit Receivable Advance to Suppliers Total AS AT MARCH 31, 2014 - 137.81 233.80 183.01 - 2.26 556.88 H In Lakhs AS AT MARCH 31, 2013 6.04 183.58 233.80 206.39 43.65 56.93 730.39 Annual Report 2013-14 81 NOTES FORMING PART OF THE FINANCIAL STATEMENTS NOTE: 18 OTHER CURRENT ASSETS (UNSECURED, CONSIDERED GOOD) Unbilled Revenue Interest accrued but not due on deposits Contractually Recoverable Expenses Total NOTE: 19 REVENUE FROM OPERATIONS Income from Sale of Products (and related services) Total NOTE: 20 OTHER INCOME Interest income Interest on deposit accounts from banks Interest on Inter Company loans and advances Other non-operating income Provision for Doubtful Trade Receivables written back/Bad Debts recovered 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 82 Subex Limited AS AT MARCH 31, 2014 1,376.05 2.75 76.31 1,455.11 H In Lakhs AS AT MARCH 31, 2013 1,857.50 24.50 32.03 1,914.03 FOR THE YEAR ENDED MARCH 31, 2014 H In Lakhs FOR THE YEAR ENDED MARCH 31, 2013 29,366.59 29,366.59 26,555.90 26,555.90 FOR THE YEAR ENDED MARCH 31, 2014 H In Lakhs FOR THE YEAR ENDED MARCH 31, 2013 8.50 171.62 - 122.77 302.89 39.97 78.46 2.17 1.45 122.05 FOR THE YEAR ENDED MARCH 31, 2014 H In Lakhs FOR THE YEAR ENDED MARCH 31, 2013 6,110.78 268.20 (14.34) 195.19 6,559.83 6,016.28 339.93 5.56 170.25 6,532.02 FOR THE YEAR ENDED MARCH 31, 2014 H In Lakhs FOR THE YEAR ENDED MARCH 31, 2013 3,422.30 2,188.11 218.42 5,828.83 2,212.06 2,436.94 256.15 4,905.15 NOTES FORMING PART OF THE FINANCIAL STATEMENTS 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 37) Marketing & Allied Service Charges (including commission) Provision for Doubtful trade receivables and loans and advances Loss on sale of Fixed Assets (Net) Exchange Fluctuation loss (Net) Director sitting fees Miscellaneous Expenses Total NOTE: 24 ExCEPTIONAL ITEMS Provision for Doubtful Trade Receivables Based on the assessment of receivables an amount of H1,497 lakhs (31 March, 2013 : H1,664 Lakhs) is provided towards certain doubtful receivables. Considering that such provision is significant and relevant in understanding the financial performance, it has been disclosed separately under exceptional item. FOR THE YEAR ENDED MARCH 31, 2014 H In Lakhs FOR THE YEAR ENDED MARCH 31, 2013 26.57 1,081.32 172.32 354.01 123.48 96.04 33.61 1,290.71 80.12 27.62 600.36 97.77 12,823.16 632.10 2.29 570.52 22.82 4.20 18,039.04 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 1.43 822.61 7.47 2.80 16,564.42 FOR THE YEAR ENDED MARCH 31, 2014 H In Lakhs FOR THE YEAR ENDED MARCH 31, 2013 1,497.04 1,663.56 Total 1,497.04 1,663.56 NOTE: 25 ACCOUNTING UNDER THE PROPOSAL APPROVED BY THE HON’BLE HIGH COURT a) 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. 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 H17,400.00 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 H15,503.70 Lakhs (net). Annual Report 2013-14 83 NOTES FORMING PART OF THE FINANCIAL STATEMENTS NOTE: 25 ACCOUNTING UNDER THE PROPOSAL APPROVED BY THE HON’BLE HIGH COURT (contd.) 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 H346.74 Lakhs during the year from the balances in Capital Reserve to the BRR, utilization of the BRR for permitted utilisations to the extent of H2,574.93 Lakhs (net of reversals). d) Adjustments in the BRR during the Previous 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 H271.10 Lakhs during the year to Securities Premium, towards FCCB restructuring expenses H359.58 Lakhs, towards reversal of unbilled revenue H206.00 Lakhs, towards provision for Doubtful trade Receivables H752.90 Lakhs. e) Adjustments in the BRR during the current year ended March 31, 2014 In accordance with the Proposal, the Board of Directors of the Company have approved the following for financial year ended March 31, 2014 • towards provision for Doubtful trade Receivables H80.62 Lakhs. f) 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 In the Statement of Profit and loss. Revenue would have been lower by: The loss under Exceptional items would have been higher as follows: - One time non-recurring expenses being FCCB restructuring fees - Provision towards doubtful trade receivables Sub-Total Profit/(loss) after Tax would have been lower/higher by Basic Earnings/(Loss) per share would have been – H Diluted Earnings/(Loss) per share would have been – H Amount in H Lakhs except as otherwise indicated MARCH 31, 2014 MARCH 31, 2013 - - - 80.62 80.62 80.62 (1.82) (1.82) 206 - 359.58 752.90 1,112.48 1,318.48 (3.50) (3.50) 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 an interest rate of 2% p.a. payable semi-annually in arrears, with terms of conversion being : i) Exchange rate for conversion of FCCB : H44.08/ US1$ ii) Conversion price : H656.20 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 84 Subex Limited NOTES FORMING PART OF THE FINANCIAL STATEMENTS NOTE: 26 FOREIGN CURRENCY CONVERTIBLE BONDS (FCCBS) (contd.) 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 : Interest rate : 5% p.a. payable semi annually i. ii. Exchange rate for conversion of FCCB : H48.17/ US1$ iii. Conversion price : H80.31 per share iv. Redemption date : March 09, 2012 v. Premium payable on redemption : US$. 23.23 Million. vi. Listing on the Singapore Exchange Securities Trading Limited Both the bonds were initially redeemable on or by March 9, 2012, if not converted into equity shares as per terms of issue. Based on an approval received from the Reserve Bank of India and bond holders, the redemption date was extended to July 09, 2012. Out of the US$ 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. c) The terms and conditions of FCCB III are as under: Interest rate : 5.70% p.a. payable semi annually i. ii. Exchange rate for conversion of FCCB : H56.06/ US1$ iii. Equity Conversion price : H22.79 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. vii. Mandatory conversion of bonds with a face value of US$ 36.32 Million into equity shares at the aforesaid conversion price on July 07, 2012. For 2012 – 13 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. During the year, the Company received approvals from the FCCB Holders for deferment of the semiannual interest due in January 2013, July 2013 and January 2014 to be settled with the principal on the redemption date. These have accordingly been categorized as long-term liabilities. 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. Annual Report 2013-14 85 NOTES FORMING PART OF THE FINANCIAL STATEMENTS NOTE: 26 FOREIGN CURRENCY CONVERTIBLE BONDS (FCCBs) (contd.) e) FCCB I: As at March 31, 2014, the face value of the US$ 1 Million FCCBs (Previous Year US$ 1 Million) amounts to H599.15 Lakhs (Previous Year: H542.81 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, 2014, the face value of the US$ 1.40 Million FCCBs (Previous Year US$ 1.40 Million) amounts to H838.81 Lakhs (Previous Year: H759.99 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, 2014, the face value of the US$ 88.15 Million FCCBs (Previous Year US$ 88.15 Million) amounts to H52,815.07 Lakhs (Previous Year: H47,852.27 Lakhs) 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 2008-09 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 Options Details as on the Balance Sheet Date are Particulars 2013-14 2012-13 Options (No’s) Weighted average exercise price per stock option (H) Options (No’s) Weighted average exercise price per stock option (H) 11,31,147 4,670 82.63 34.04 7,30,806 28.79 12,022 85.22 13,56,086 39.30 10,19,289 28.95 - - - - - - 1,695 2,67,197 1,63,288 - - - - - - - - - - - 12.82 1,24,100 - - - - - - - - 7,352 - 3,49,039 - 2,88,483 - Options outstanding at the beginning of the year ESOP – II ESOP – III ESOP – IV Granted during the year ESOP – II ESOP – III ESOP – IV Exercised during the year ESOP – II ESOP – III ESOP – IV Cancelled, Surrendered or Lapsed during the year ESOP – II ESOP – III ESOP – IV 86 Subex Limited NOTES FORMING PART OF THE FINANCIAL STATEMENTS NOTE: 27 EMPLOYEES STOCk OPTION PLAN (ESOP) (contd.) Particulars 2013-14 2012-13 Options (Nos) Weighted average exercise price per stock option (H) Options (Nos) Weighted average exercise price per stock option (H) 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 2,975 8,63,950 5,67,518 2,975 7,09,638 4,98,483 - 11,23,611 14,32,482 67.00 30.78 28.56 4,670 82.63 34.04 28.79 11,31,147 7,30,806 - - - - - - 4,670 - 8,64,489 - 4,57,293 - - - 8,56,414 - 12,69,194 - [Weighted average remaining contractual life (considering vesting and exercise period)] ESOP – II At March 31, 2013: 1.41 Years At March 31, 2014: 1.02 Years ESOP – III At March 31, 2013: 3.08 Years At March 31, 2014: 2.12 Years ESOP – IV At March 31, 2013: 3.16 Years At March 31, 2014: 2.17Years 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: 54.49% (Previous year 64.85%), 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: Particulars Amount in H Lakhs except as otherwise indicated MARCH 31, 2014 MARCH 31, 2013 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) - H Basic earnings per share (proforma) - H - H Diluted earnings per share (as reported) - H Diluted earnings per share (proforma) (2,952.88) (14.34) (3,456.42) 5.56 20.71 30.80 (2,987.93) (1.77) (1.79) (1.77) (1.79) (3,481.66) (2.54) (2.56) (2.54) (2.56) Annual Report 2013-14 87 NOTES FORMING PART OF THE 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 H5,801.74 Lakhs (PY H2,765.65 Lakhs) at March 31, 2014 and the loss for the year is lower by a corresponding amount. NOTE: 29 EMPLOYEE BENEFIT 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 H209.42 Lakhs (Year ended March 31, 2013 H231.63 Lakhs) for Provident Fund contributions H1.89 Lakhs (Year ended March 31, 2013 H2.04 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: I 1 2 3 4 5 6 7 8 II 1 2 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 III Net asset / (liability) recognized in Balance Sheet 1 2 3 Present value of Defined Benefit Obligation (DBO) Fair value of plan assets Funded status [Surplus / (Deficit)] 4 Unrecognized Past Service Costs 5 Net asset / (liability) recognized in Balance Sheet - Current - Non current Estimated contribution in the Immediate next year 88 Subex Limited Amount in H Lakhs except assumptions Gratuity MARCH 31, 2014 MARCH 31, 2013 54.24 20.91 (1.45) - - - (14.92) 58.78 76.39 96.00 (280.70) 28.88 (251.82) - (251.82) (1.13) (250.69) Nil 56.77 20.63 (0.59) - - - 31.51 108.32 99.31 98.84 (296.40) 7.36 (289.04) - (289.04) (31.08) (257.96) 31.08 NOTES FORMING PART OF THE FINANCIAL STATEMENTS NOTE: 29 EMPLOYEE BENEFIT PLANS (contd.) IV Change in Defined Benefit Obligations during the year 1 2 3 4 5 6 7 8 9 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 Amount in H Lakhs except assumptions Gratuity MARCH 31, 2014 MARCH 31, 2013 296.35 54.24 20.91 - - - - (14.41) (76.39) 286.84 56.77 20.63 - - - - 31.42 (99.31) 10 Present Value of DBO at the end of year 280.70 296.35 V 1 2 3 4 5 6 7 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 VI Actuarial Assumptions 1 Discount Rate 2 3 4 Expected Return on plan assets Salary escalation Attrition Rate 7.31 - 1.45 0.51 96.00 (76.39) 28.88 9.25% 8.50% 6.00% 9.00% 7.10 - 0.59 0.09 98.84 (99.31) 7.31 8.10% 8.50% 6.00% 9.00% (H In Lakhs) Five Year Data 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, 2010 March 31, 2011 March 31, 2012 March 31, 2013 March 31, 2014 (193.23) (299.41) (286.84) (296.40) (280.7) 50.84 (142.39) 3.86 33.04 (266.37) (4.83) 7.10 (279.74) 54.12 7. 36 (289.04) 11.31 28.88 (251.82) (10.25) - 0.38 0.31 (0.09) 0.51 6.84 - 12.77 (42.73) 24.66 Annual Report 2013-14 89 NOTES FORMING PART OF THE FINANCIAL STATEMENTS NOTE: 29 EMPLOYEE BENEFIT PLANS (contd.) • The composition of the plan assets held under the funds managed by the Insurer is as follows: Fund Type Equity Instruments Debt Instruments FD and Other Asset % 2014 4.93 78.12 16.95 2013 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. c) Actuarial Assumption for long-term compensated absences Discount rate Expected return on plan asset Salary escalation rate Attrition MARCH 31, 2014 9.25% NA 6.00% 9.00% MARCH 31, 2013 8.10% NA 6.00% 9.00% • • 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. Total Liabilities Estimated Current Portion Non Current portion NOTE: 30 MARCH 31, 2014 (81.32) (5.49) (75.83) H In Lakhs MARCH 31, 2013 (88.53) (10.98) (77.55) 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, 5th October, 2012 onwards Subash Menon, Managing Director & CEO upto 27th September, 2012 Sudeesh Yezhuvath, Wholetime Director & Chief Operating Officer upto 5th October, 2012 90 Subex Limited NOTES FORMING PART OF THE FINANCIAL STATEMENTS NOTE: 31 RELATED PARTY INFORMATION (contd.) ii. Details of the transactions with the related parties: Particulars Subsidiaries Key Management Personnel 2013-14 2012-13 2013-14 2012-13 H 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 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 38.8) Subash Menon SudeeshYezhuvath Surjeet Singh Interest received on Inter Company Loans and advances 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 i) Subex UK Ltd ii) Subex Inc. iii) Subex (Asia Pacific) Pte Ltd iv) Subex Americas Inc.## v) Subex Technologies Ltd vi) Surjeet Singh Amount due as at year end to i) Subex UK Ltd ii) Subex Inc. iii) Subex (Asia Pacific) Pte Ltd iv) Subex Americas Inc.## v) Subex Technologies Inc. Loans / advances outstanding as at year end from / (to) i) Subex Americas Inc. ii) Subex Technologies Ltd# Outstanding Guarantees taken/ given from / (to) i) Subex Technologies Limited ii) Subex Technologies Inc. 6,212.75 5,471.83 342.48 822.03 8,163.93 3,746.50 1,869.60 1,109.46 - 171.62 - - 8.87 3.40 0.48 0.06 5,655.11 5,676.42 278.65 709.42 8,005.93 4,175.86 1,480.44 1,533.05 - 78.46 - - (2.60) - (0.41) (1.60) - - 15.07 107.69 108.39 6.64 H In Lakhs March 31, 2014 March 31, 2013 March 31, 2014 March 31, 2013 - 5.97 22,162.91 17,068.67 7,496.54 21,429.94 6.76 23,643.91 18,394.05 2,279.27 5,501.89 53.92 1,838.22 1,705.67 6,850.00 - 16,493.73 15,310.12 6,532.69 20,929.48 - 17,391.66 17,101.54 1,333.89 5,169.60 53.92 1,706.70 1,705.70 7,500.00 (2,171.40) * Amount paid/ payable in Foreign Currency. # Loans and Advances to Subex Technologies Ltd has been provided during the financial year 2010-11 to an extent of H1,694.66 Lakhs out of utilisation of BRR and the remaining H11.01 Lakhs has been provided for as provision for Bad debts during the financial year 2013-14. ## Receivables of H1,497.04 Lakhs from Subex Americas Inc. have been provided for during the year. Annual Report 2013-14 91 NOTES FORMING PART OF THE FINANCIAL STATEMENTS 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 H1,081.32 Lakhs (Previous year - H940.95 Lakhs). NOTE: 33 EARNINGS PER SHARE (EPS) Amount in HLakhs except as otherwise indicated MARCH 31, 2013 MARCH 31, 2014 Profit after Tax attributable to shareholders (A) (2,952.88) (3,456.42) 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)] - H Earnings per Share - Diluted [(B)/(D)] - H(Refer Note below). Face value of shares: H10/- each - - (2,952.88) 1,666.40 - 1,666.40 (1.77) (1.77) - - (3,456.42) 1,362.43 0.10 1,362.53 (2.54) (2.54) Note: FCCBs outstanding as at March 31, 2014 are anti-dilutive and hence have not been considered for purposes of Dilutive EPS in year ended March 31, 2014. Certain FCCBs as at March 31, 2013 were anti-dilutive and hence were not considered for purposes of Dilutive EPS in year ended March 31, 2013. 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, 2014 - - - H In Lakhs MARCH 31, 2013 62.80 71.08 133.88 The Company has a net deferred tax asset as at March 31, 2014 significantly arising from brought forward unabsorbed depreciation and tax losses, which has not been recognized as a matter of prudence. NOTE: 35 COMMITMENTS AND CONTINGENT LIABILITIES (a) Claims against the Company not acknowledged as debt: I. Current Year - H1,379.37 Lakhs (Previous year – H163.26 Lakhs). These claims relate to Income Tax demands significantly pertaining to transfer pricing and other adjustments which are being contested by the company. These cases are pending at various forum with the respective authorities. Outflows, if any, arising out of these claims would depend upon the outcome of the decision of the appellate authority and the Companies right for future appeals before Judiciary. No reimbursements are expected II. Others : Current year – H956.84 Lakhs (Previous Year – H956.84 Lakhs) (b) Guarantees given to Subex Technologies Inc H Nil Lakhs (Previous year – H2,171.40 Lakhs) 92 Subex Limited NOTES FORMING PART OF THE FINANCIAL STATEMENTS NOTE: 35 COMMITMENTS AND CONTINGENT LIABILITIES (contd.) (c) The Company has received a demand of service tax of H3,607.60 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. During the year, CESTAT without expressing any opinion, has remanded the appeal back to the adjudication authority and dispensed with the requirement of Pre- deposit. (d) Estimated amount of contracts, remaining to be executed on capital account and not provided for (net of advances paid) Nil (Previous year - H Nil) NOTE: 36 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) Travelling expenses & Other related expenses Interest expense Product marketing expense and other expenditure incurred overseas for software development. YEAR ENDED MARCH 31, 2014 205.49 117.68 728.65 3,422.30 0.12 H In Lakhs YEAR ENDED MARCH 31, 2013 124.41 60.72 541.71 2,212.12 6.23 Marketing and allied services 12,849.09 12,319.60 Earnings in foreign exchange (on accrual basis) Income from software development services and products NOTE: 37 PAYMENTS TO AUDITORS (Net of Service tax credit’s recognised) Particulars As Auditors – Statutory audit For Taxation matters For Certification matters For Other assurance services For Reimbursement of expenses Total 27,867.41 2013-14 75.00 1.50 1.20 14.69 5.38 97.77 26.105.91 H In Lakhs 2012-13 65.00 1.50 - 10.00 2.73 79.23 NOTE: 38 OTHERS 1. Unclaimed dividend of H1.31 Lakhs as at March 31, 2014 (Previous Year - H2.92 Lakhs) represent dividends not claimed for the period from 2006-2007. No part thereof has remained unpaid or unclaimed for a period of seven years from the date they become due for payment requiring a transfer to the ‘Investor Education and Protection Fund’. During the current year, the Company has transferred H1.60 Lakhs (Previous Year - H0.59 Lakhs) to Investor Protection Fund. 2. Net Cash Flow Statement comprises outflows on account of permitted utilizations from the BRR of H Nil Lakhs (Previous Year - H359.58 Lakhs). 3. Personnel Cost for the year includes expenditure on Research and Development of H1,665.37 Lakhs (Previous year - H1,108.71 Lakhs). This is as certified by the management and relied upon by the auditors. 4. The Company does not have any outstanding foreign exchange forward contracts or other derivative instruments for the purposes of hedging the risks associated with foreign exchange exposures as at the year end. Annual Report 2013-14 93 NOTES FORMING PART OF THE FINANCIAL STATEMENTS NOTES FORMING PART OF THE FINANCIAL STATEMENTS NOTE: 38 OTHERS (contd.) The year-end foreign currency exposures that have not been hedged by a derivative instrument or otherwise are given below: (a) The amounts receivable in foreign currency on account of: H In Lakhs Particulars Receivable towards Export of Goods & Services(Including receivables from wholly owned subsidiaries) MARCH 31, 2014 MARCH 31, 2013 Amount (H) Foreign currency Amount (H) Foreign currency 46,365.57 USD 773.86 42,232.30 USD 778.41 22,163.19 GBP 222.15 16,493.72 GBP 199.43 7,496.54 SGD 157.55 6,532.71 SGD 149.42 795.53 231.34 114.02 84.78 EUR 9.62 AED 14.18 QAR 6.93 CHF 1.25 241.87 AUD 4.37 329.93 1.81 53.52 71.32 - EUR 4.72 AED 0.11 QAR 3.63 CHF 1.31 - Loans/Advances to wholly owned subsidiaries 524.95 CAD 9.67 516.80 CAD9.71 Bank Balance 1,313.27 USD 21.91 1,189.90 USD 21.90 11.19 USD 0.19 10.36 USD 0.19 (b) The amounts payable in foreign currency on account of: H In Lakhs Particulars Payable towards Import of Goods & Services(Including payables to wholly owned subsidiaries) Capital goods (including intangibles) MARCH 31, 2014 MARCH 31, 2013 Amount (H) Foreign currency Amount (H) Foreign currency 29,291.85 USD 488.89 16,881.23 USD 311.02 23,644.2 GBP 237.00 15,409.21 GBP187.41 5.72 EUR 0.07 1,140.52 SGD 26.12 2,279.28 SGD 47.90 5.00 CAD 0.12 5.09 CAD 0.09 - - - - 0.22 1.43 SGD 0.10 GBP 0.11 20.91 EUR 0.31 15.42 CHF 0.22 Towards interest on Foreign Currency loans 5,271.80 USD 87.99 2,082.19 USD 40.61 Towards Foreign Currency Convertible Bonds (FCCB's) 54,253.03 USD 905.50 49,155.07 USD 886.51 Redemption premium accrued on FCCB's 571.59 USD 9.54 517.93 USD 9.66 Loan (being other amounts payable in foreign currency) 4,695.61 USD 17.95 2,766.26 USD 30.29 GBP 26.57 EUR 0.50 SGD 19.50 GBP 13.78 EUR 0.18 94 Subex Limited NOTES FORMING PART OF THE FINANCIAL STATEMENTS 5. 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 : Disclosures required under Section 22 of the Micro, Small and Medium Enterprises Development Act, 2006 Particulars AS AT MARCH 31, 2014 AS AT MARCH 31, 2013 H In Lakhs (i) Principal amount remaining unpaid to any supplier as at the end of the accounting year (ii) Interest due thereon remaining unpaid to any supplier as at the end of the accounting year (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 4.56 - - 0.22 0.53 1.20 - - 0.20 0.31 (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 - - 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. 6. 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 – Particulars Software charges Purchased hardware/ Software Total FOR THE YEAR ENDED MARCH 31, 2014 - 389.74 389.74 H In Lakhs FOR THE YEAR ENDED MARCH 31, 2013 19.81 223.49 243.30 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, 2014, the excess of the managerial remuneration paid to the directors during the FY 2012-13 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 H123.80 Lakhs ((Previous year H123.80 Lakhs) . b) Other advances to directors paid during FY 2012-13 H110.00 Lakhs (Previous year H110.00 Lakhs) . The Company has taken necessary steps for recovery of the above amounts and these items along with other claims are a subject matter of arbitration which is in progress. Annual Report 2013-14 95 NOTES FORMING PART OF THE FINANCIAL STATEMENTS NOTES FORMING PART OF THE FINANCIAL STATEMENTS NOTE: 38 OTHERS (contd.) 9. During the year, the Company has rescheduled the terms of repayment of dues from its subsidiary viz. Subex Americas Inc. In the opinion of the management, considering the future operational plans and cash flows, the net outstanding, classified under Note 14 “Other Non-current Assets” of H14,521.33 Lakhs (Previous Year : H10,633.30 lakhs) of trade receivables and H1,838.22 Lakhs (Previous Year H1,706.73) of advances 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 H12,495.74 Lakhs included in Note 12 “Non-current investments” and accordingly, no provision is required to be made at this stage. 10. 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 Relationship Subex Americas Inc. Wholly Owned Subsidiaries Subex Technologies Ltd. Wholly Owned Subsidiaries Note : Figures in brackets relate to previous year. NOTE: 39 Amount outstanding as at March 31, 2014 1,838.22 (1,706.73) 1,705.67 (1,705.70) H In Lakhs Maximum balance outstanding during the year 1,959.59 (1,841.87) 1,705.70 (1,705.70) 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 Monisha Parikh Partner For and on behalf of the Board of Directors Surjeet Singh Managing Director & CEO Karthikeyan Muthuswamy Director Anil Singhvi Director Sanjeev Aga Director Mumbai Date: May 29, 2014 Mumbai Date: May 29, 2014 Ganesh K.V Chief Financial Officer, Global Head-Legal and Company Secretary 96 Subex Limited INDEPENDENT AUDITORS’ REPORT TO THE BOARD OF DIRECTORS OF SUBEX LIMITED Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of SUBEX LIMITED ( the “Company”), and its subsidiaries (the Company and its subsidiaries constitute “the Group”), which comprise the Consolidated Balance Sheet as at 31st March, 2014, the Consolidated Statement of Profit and Loss and the Consolidated Cash Flow Statement for the year then ended, and a summary of the significant accounting policies and other explanatory information. is for responsible Management’s Responsibility for the Consolidated Financial Statements The Company’s Management the preparation of 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 in India. This responsibility includes the design, implementation 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 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 consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated 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 presentation of the consolidated financial statements that give a true and fair view 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 consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion and to the best of our information and according to the explanations given to us, the aforesaid consolidated financial statements give a true and fair view in conformity with the accounting principles generally accepted in India: (a) in the case of the Consolidated Balance Sheet, of the state of affairs of the Group as at 31st March, 2014; (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 (c) in the case of the Consolidated Cash Flow Statement, of the cash flows of the Group for the year ended on that date. 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 by the Hon’ble High Court of Karnataka in prior years, debited Rs.80.63 Lakhs to the Business Restructuring Reserve, instead of considering the same as expense for the year ended 31st March, 2014, as required by Accounting Standard 5 ‘Net Profit or Loss for the Period, Prior Period Items’. (b) We draw attention to Note 38 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. regarding Our opinion is not qualified in respect of the above matters. For DELOITTE HASKINS & SELLS Chartered Accountants (Firm’s Registration No. 008072S) Monisha Parikh Partner (Membership No. 47840) Annual Report 2013-14 97 MUMBAI May 29, 2014 CONSOLIDATED BALANCE SHEET 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 3 SUB TOTAL - NON CURRENT LIABILITIES 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 NOTE NO. AS AT MARCH 31, 2014 H In Lakhs AS AT MARCH 31, 2013 3 4 5 6 7 8 9 10 11 33 12 13 14 15 16 17 16,664.00 697.90 17,361.90 60,244.53 5,546.12 601.67 66,392.32 16,015.60 5,253.34 4,060.67 349.21 25,678.82 109,433.04 532.40 65.43 597.83 85,642.22 - 2,411.95 1,424.60 90,076.60 10,057.60 4,793.37 948.59 3,556.88 19,356.44 109,433.04 16,664.00 5,835.68 22,499.68 53,769.37 533.30 553.41 54,856.08 19,387.91 4,864.48 6,841.52 347.70 31,441.61 108,797.37 372.73 94.01 466.74 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 18,587.51 108,797.37 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 29, 2014 98 Subex Limited For and on behalf of the Board of Directors Surjeet Singh Managing Director & CEO Karthikeyan Muthuswamy Director Anil Singhvi Director Sanjeev Aga Director Mumbai Date: May 29, 2014 Ganesh K.V Chief Financial Officer, Global Head-Legal and Company Secretary CONSOLIDATED STATEMENT OF PROFIT AND LOSS NOTE NO. FOR THE YEAR ENDED MARCH 31, 2014 H In Lakhs FOR THE YEAR ENDED MARCH 31, 2013 A CONTINUING OPERATIONS 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) MAT credit of prior years reversed (c) Short/(excess) provision for tax relating to prior years (d) Deferred Tax Net Tax expense 9 Profit/(Loss) from continuing operations for the year (7 - 8) B DISCONTINUING OPERATIONS 10 Profit/ (Loss) from discontinuing operations (before tax) 11 Add/ (Less): Tax expense of discontinuing operations on ordinary activities attributable to the discontinuiing operations 12 Profit/ (Loss) from discontinuing operations (10-11) C TOTAL OPERATIONS 13 Profit/ (Loss) for the year (9 + 12) 14 Earnings/(Loss) Per Share (Face value of H10/- each) 18 19 20 21 11 22 23 33 35 35 (a) Basic (b) Diluted Corporate Information and Significant Accounting Policies See accompanying notes forming part of the financial statements 32 32 1 & 2 34,005.16 444.12 34,449.28 955.32 17,778.58 6,709.52 244.18 8,499.42 34,187.02 262.26 - 262.26 613.10 174.13 5.33 143.82 936.38 (674.12) 30,734.26 88.98 30,823.24 817.16 17,955.80 5,138.12 420.51 7,426.83 31,758.42 (935.18) 3,069.92 (4,005.10) 354.08 - 32.16 - 386.24 (4,391.34) (478.71) (8.44) (1,603.37) - (487.15) (1,603.37) (1,161.27) (5,994.71) (0.70) (0.70) (4.40) (4.40) In terms of our report attached For Deloitte Haskins & Sells Chartered Accountants Monisha Parikh Partner For and on behalf of the Board of Directors Surjeet Singh Managing Director & CEO Karthikeyan Muthuswamy Director Anil Singhvi Director Sanjeev Aga Director Mumbai Date: May 29, 2014 Mumbai Date: May 29, 2014 Ganesh K.V Chief Financial Officer, Global Head-Legal and Company Secretary Annual Report 2013-14 99 CONSOLIDATED CASH FLOW STATEMENT A CASH FLOW FROM OPERATING ACTIVITIES Profit / (Loss) before tax, for the year Adjustments for : (a) Depreciation and amortization expense (b) Interest Income (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 (h) 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 & 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) Interest received - Others (d) Investment in deposit Net cash flow from / (used in) investing activities (B) FOR THE YEAR ENDED MARCH 31, 2014 H In Lakhs FOR THE YEAR ENDED MARCH 31, 2013 (216.45) (5,608.47) 248.34 (9.45) 6,747.75 7.10 (27.16) (240.03) 737.27 - 7,247.37 970.07 177.69 (21.95) 2,194.85 (1,985.11) (2,094.94) 102.24 (45.73) (8.99) 6,535.50 (454.89) 6,080.61 (369.14) - 30.58 250.91 (87.65) 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) 100 Subex Limited CONSOLIDATED CASH FLOW STATEMENT C CASH FLOW FROM FINANCING ACTIVITIES (a) Net increase / (decrease) in working capital borrowings (b) Repayment of Short-term borrowings (c) Proceeds / (repayments) from Long-term borrowings (d) Dividends paid (e) 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 and Cash equivalents at the end of the year (Refer Note 15A) *Cash and cash equivalents Cash on hand Balance with Banks in Current Accounts in EEFC accounts Total FOR THE YEAR ENDED MARCH 31, 2014 H In Lakhs FOR THE YEAR ENDED MARCH 31, 2013 (1,733.16) (927.04) (0.92) 1.61 (3,336.53) (5,996.04) (3.08) (142.11) 4,451.83 4,306.64 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 0.94 0.77 4,295.28 10.42 4,306.64 4,441.62 9.44 4,451.83 Corporate Information and Significant Accounting Policies 1 & 2 Notes: (i) The consolidated cash flow statement reflects the combined cash flows pertaining to continuing and discontinuing operations. (ii)See accompanying notes forming part of the financial statements In terms of our report attached For Deloitte Haskins & Sells Chartered Accountants Monisha Parikh Partner For and on behalf of the Board of Directors Surjeet Singh Managing Director & CEO Karthikeyan Muthuswamy Director Anil Singhvi Director Sanjeev Aga Director Mumbai Date: May 29, 2014 Mumbai Date: May 29, 2014 Ganesh K.V Chief Financial Officer, Global Head-Legal and Company Secretary Annual Report 2013-14 101 NOTES FORMING PART OF THE CONSOLIDATED 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 Section 211(3C) of the Companies Act, 1956 (“1956 Act”) (which continue to be applicable in respect of Section 133 of the Companies Act, 2013 (“the 2013 Act”) in terms of General Circular 15/2013 dated 13 September, 2013 of the Ministry of Corporate Affairs) and the relevant provisions of the 1956 Act/ 2013 Act, as applicable, 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 consolidated financial statements relate to Subex Limited (the ‘Company’) and its subsidiary companies. The consolidated financial statements have been prepared on the following basis: (i) The financial statements of the subsidiary companies used in the consolidation are drawn upto the same reporting date as that of the Company i.e., March 31, 2014. (ii) The financial statements of the Company and its subsidiary companies have been combined on a line-by-line basis by adding together like items of assets, liabilities, income and expenses, after eliminating intra-group balances, intra-group transactions and resulting unrealised profits or losses, unless cost cannot be recovered. (iii) The excess of cost to the Group of its investments in the subsidiary companies over its share of equity of the subsidiary companies, at the dates on which the investments in the subsidiary companies were made, is recognised as ‘Goodwill’ being an asset in the consolidated financial statements and is tested for impairment on annual basis. Alternatively, where the share of equity in the subsidiary companies as on the date of investment is in excess of cost of investments of the Group, it is recognised as ‘Capital Reserve’ and shown under the head ‘Reserves & Surplus’, in the consolidated financial statements. (iv) Goodwill arising on consolidation is not amortised but tested for impairment. 102 Subex Limited NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS (v) Following subsidiary companies have been considered in the preparation of the consolidated financial statements: Name of the entity Country of Incorporation Ownership held by Subex Technologies Limited India Subex Limited Subex Technologies Inc. United States of America Subex Technologies Limited Subex (UK) Limited United Kingdom Subex Limited Subex Inc. United States of America Subex (UK) Limited Subex (Asia Pacific) Pte. Ltd, Singapore Subex Americas Inc. Canada Subex (UK) Limited Subex Limited Subex Azure Holdings Inc. United States of America Subex Americas Inc. % of Holding and voting power either directly or indirectly through subsidiary as at March 31, 2014 March 31, 2013 100 100 100 100 100 100 100 100 100 100 100 100 100 100 (vi) The consolidated financial statements have been prepared using uniform accounting policies for like transactions and other events in similar circumstances and are presented to the extent possible, in the same manner as the Company’s separate 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 Annual Report 2013-14 103 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS acquired and put to use for project purpose are capitalised and depreciation thereon is included in the project cost till the project is ready for its intended use. 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. The rates of depreciation / amortisation adopted are as under: Particulars Computers Software Furniture & Fixtures Vehicles Office equipments Intellectual Property Rights Depreciation/ Amortisation Rates (%) 25 25 20 20 20 20 Goodwill 20 Individual assets costing less than H5,000 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 and when services are rendered by the employees. 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 104 Subex Limited NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS 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. 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 i. Transactions in foreign currencies (other than the entity’s functional currency) entered into by the Group 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. ii. Integral foreign operations: Transactions in foreign currencies entered into by the Company’s 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. iii. Net investment in non-integral foreign operations: Net investment in non-integral foreign operations is 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. iv. Non-integral foreign operations: Transactions of non-integral foreign operations are translated 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. Annual Report 2013-14 105 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS Measurement at the Balance Sheet date i. Foreign currency monetary items (other than derivative contracts) of the Group, outstanding at the Balance Sheet date are restated at the year-end rates. Non-monetary items of the Company are carried at historical cost. ii. Integral foreign operations: Foreign currency monetary items (other than derivative contracts) of the Company’s integral foreign operations outstanding at the Balance Sheet date are restated at the year-end rates. Non-monetary items of the Company’s integral foreign operations are carried at historical cost. iii. Net investment in non-integral foreign operations: Foreign currency monetary items (other than derivative contracts) of the Company’s net investment in non-integral foreign operations outstanding at the Balance Sheet date are restated at the year-end rates. iv. Non-integral foreign operations: All assets and liabilities of non-integral foreign operations are translated at the year-end rates. v. Goodwill on consolidation entirely attributable to foreign operations is restated at the exchange rate prevailing on the Balance Sheet date. Treatment of exchange differences i. Exchange differences arising on settlement / restatement of short-term foreign currency monetary assets and liabilities of the Company are recognised as income or expense in the Consolidated Statement of Profit and Loss. ii. Integral foreign operations: Exchange differences arising on settlement / restatement of short-term foreign currency monetary assets and liabilities of the Company’s integral foreign operations are recognised as income or expense in the Consolidated Statement of Profit and Loss. iii. Net investment in non-integral foreign operations: The exchange differences on restatement of long-term receivables / payables from / to non-integral foreign operations that are considered as net investment in such operations is accounted as per policy for long-term foreign currency monetary items stated in para (v) below until disposal / recovery of such net investment, in which case the accumulated balance in “Foreign currency translation reserve” is recognised as income / expense in the same period in which the gain or loss on disposal / recovery is recognised. iv. Non-integral foreign operations: The exchange differences relating to non-integral foreign operations are accumulated in a “Foreign currency translation reserve” until disposal of the operation, in which case the accumulated balance in “Foreign currency translation reserve” is recognised as income / expense in the same period in which the gain or loss on disposal is recognised. v. Exchange difference on long-term foreign currency monetary items: The exchange differences arising on settlement / restatement of long-term foreign currency monetary items are capitalised as part of the depreciable fixed assets to which the monetary item relates and depreciated over the remaining useful life of such assets. If such monetary items do not relate to acquisition of depreciable fixed assets, the exchange difference is amortised over the maturity period / upto the date of settlement of such monetary items, whichever is earlier, and charged to the Consolidated Statement of Profit and Loss except in case of exchange differences arising on net investment in non-integral foreign operations, where such amortisation is taken to “Foreign currency translation reserve” until disposal / recovery of the net investment. The unamortised exchange difference is carried under Reserves and surplus as “Foreign currency monetary item translation difference account” net of the tax effect thereon, where applicable. Change in classification of foreign operation When a foreign operation that is integral to the operations of the Company is reclassified as a non-integral operation, exchange differences arising on the translation of non-monetary items at the date of such reclassification are accumulated in the “Foreign currency translation reserve” account. When a non-integral foreign operation is reclassified as an integral foreign operation, the translated amounts for non- monetary items at the date of the change are treated as the historical cost for those items in the period of change and 106 Subex Limited NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS subsequent periods. Exchange differences that have been deferred are not recognised as income or expense until the disposal of the operation. Subsequent to the date of change in classification of the foreign operation, transactions and balances in such operations are accounted as per the accounting policy applicable to the new classification. 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 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 Consolidated Statement of Profit and Loss. Gains arising on the same are not recognised, until realised, on grounds of prudence. XIV. Investments Long-term investments, are carried individually at cost less provision for diminution, other than temporary, in the value of such investments. Current investments are carried individually, at the lower of cost and fair value. Cost of investments include acquisition charges such as brokerage, fees and duties. XV. Taxes on income Current tax is determined on the basis of taxable income and tax credits computed for each of the entities in the Group in accordance with the provisions of applicable tax laws of the respective jurisdictions where the entities are located. 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 entity will pay normal income tax. Accordingly, MAT is recognised as an asset in the Consolidated Balance Sheet when it is highly probable that future economic benefit associated with it will flow to the entity. 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 are recognised for timing differences of items other than unabosrbed depreciation and carry forward losses only to the extent that reasonable certainty exists that sufficient future taxable income will be available against which these can be realised. However, if there are unabsorbed depreciation and carry forward of losses, deferred tax assets are recognised only if there is virtual certainty that there will be sufficient future taxable income available to realise the assets. Deferred tax assets and liabilities are offset if such items relate to taxes on income levied by the same governing tax laws and the entity has a legally enforceable right for such set off. Deferred tax assets are reviewed at each Balance Sheet date for their realisability. The Group offsets deferred tax assets and deferred tax liabilities, and advance income tax and provision for tax, if it has a legally enforceable right and these relate to taxes in income levies by the same governing taxation laws. Current and deferred tax relating to items directly recognised in reserves are recognised in reserves and not in the Consolidated Statement of Profit and Loss. 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. Annual Report 2013-14 107 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS XVIII. Provisions and Contingencies A provision is recognised when the Group has a present obligation as a result of past events and 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 (excluding retirement benefits) are not discounted to their present value and are determined based on the 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 disclosed in the Notes. Contingent assets are not recognised in the 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 Consolidated 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. The accounting policies adopted for segment reporting are in line with the accounting policies of the Group. 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. Inter-segment revenue is accounted on the basis of transactions which are primarily determined based on market / fair value factors. Revenue, expenses, assets and liabilities which relate to the Group as a whole and are not allocable to segments on reasonable basis have been included under ‘unallocated revenue / expenses / assets / liabilities. 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. 108 Subex Limited NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE: 3 SHARE CAPITAL AUTHORISED 49,50,40,000 Equity Shares of H10/- each (Previous Year: 49,50,40,000 Equity Shares of H10/- each) 2,00,000 Preference Shares of H98/- each Total ISSUED, SUBSCRIBED AND PAID UP EQUITY SHARES 16,66,39,962 Equity Shares of H10/- each (Previous Year : 16,66,39,962 Equity Shares of H10/- each) Total AS AT MARCH 31, 2014 H In Lakhs AS AT MARCH 31, 2013 49,504.00 49,504.00 196.00 49,700.00 196.00 49,700.00 16,664.00 16,664.00 16,664.00 16,664.00 NOTES A Reconciliation of the number of Equity shares at the beginning and at the end of the reporting period Particulars Equity Shares (No. of shares) Year ended March 31, 2014 Year ended March 31, 2013 Opening Balance Fresh issue ESOP Conversion of FCCB Closing Balance 16,66,39,962 6,93,10,772 - - - - - 16,66,39,962 9,73,29,190 16,66,39,962 Reconciliation of the amount outstanding at the beginning and at the end of the reporting period Opening Balance Fresh issue ESOP Conversion of FCCB H In Lakhs Closing Balance 16,664.00 6,931.08 - - - - - 16,664.00 9,732.92 16,664.00 B The Company has only one class of Equity Share, having a par value of H10/-. 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 (together with Persons Acting in Concert[PAC]) holding more than 5% shares. Class of shares / Name of shareholder AS AT MARCH 31, 2014 AS AT MARCH 31, 2013 Equity shares QVT Mauritius West Fund & Quintessence Mauritius West Fund Suffolk (Mauritius) Limited & Mansfield(Mauritius) 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 % holding No. of shares held % holding 1,33,47,888 8.01% 1,33,47,888 8.01% 1,73,72,221 1,08,92,721 1,02,34,433 1,01,92,621 64,74,044 10.43% 1,73,72,221 6.54% 1,08,92,721 6.14% 1,02,34,433 6.12% 1,01,92,621 84,74,044 3.89% 10.43% 6.54% 6.14% 6.12% 5.09% Annual Report 2013-14 109 Particulars Equity Share Capital Year ended March 31, 2014 Year ended March 31, 2013 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE: 3 SHARE CAPITAL (contd.) Bank of New York is the depositary of GDRs on behalf of GDR holders holding 17,99,310 shares representing 1.08% of total shareholding (Previous Year : 69,89,399 shares representing 4.23%). 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, 2014 21,91,55,913 shares (As at March 31, 2013, 21,95,88,093 shares) were reserved for issuance as follows: i) 2,975 shares (As at March 31, 2013, 4,670 shares) of H10 each towards outstanding employee stock options scheme under ‘ESOP 2000’ granted / available for grant. ii) 8,63,950 shares (As at March 31, 2013, 11,31,147 shares) of H10 each towards outstanding employee stock options scheme under ‘ESOP 2005’ granted / available for grant. iii) 5,67,518 shares (As at March 31, 2013, 7,30,806 shares) of H10 each towards outstanding employee stock options scheme under ‘ESOP 2008’ granted / available for grant. iv) 67,174 shares (As at March 31, 2013, 67,174 shares) of H10 each towards conversion of foreign currency convertible bonds(FCCB I) available for conversion. Refer note 25 v) 8,39,721 shares (As at March 31, 2013, 8,39,721 shares) of H10 each towards conversion of foreign currency convertible bonds (FCCB II) available for conversion. Refer Note 25 vi) 21,68,14,575 shares ( As at March 31, 2013 21,68,14,575 shares) of H10 each towads Conversion of Foreign currency convertible bond (FCCB III) avaibale for conversion. Refer note 25 E Details of shares held by Promoter and Promoter Group*: Name of the Shareholder AS AT MARCH 31, 2014 AS AT MARCH 31, 2013 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 No. of shares held % holding in that class of shares No. of shares held % holding in that class of shares 25,80,601 1.55% 25,80,601 1.55% 35,21,200 2.12% 55,21,200 3.32% 3,72,243 64,74,044 0.22% 3.89% 3,72,243 84,74,044 0.22% 5.09% 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 H10 each to the GDR holders as of June 22, 2006 towards consideration of cost of acquisition of Azure Solutions Limited at H532.24 per share. In accordance with the terms of FCCBs III, out of the principal face value of US$ 127.72 Million, an amount of US$ 36.32 Million were mandatorily converted into equity shares on July 17, 2012. (Refer note 25) Aggregate number of shares AS AT MARCH 31, 2014 AS AT MARCH 31, 2013 1,17,28,728 1,17,28,728 8,93,35,462 8,93,35,462 110 Subex Limited NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE: 4 RESERVES AND SURPLUS 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 Write back from / (Accrual for) redemption premium on FCCBs (net) Less / Add: Expenses on issue of Shares Closing Balance Business Restructuring Reserve Opening Balance Transferred from / (to) Securities Premium / Capital Reserve 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 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 Foreign Currency Convertible Bonds (Refer Note 25) Secured Unsecured From Others (Refer note (i)) Unsecured Total NOTE NO. AS AT MARCH 31, 2014 1,779.76 H In Lakhs AS AT MARCH 31, 2013 1,779.76 24 27 10,615.20 - - (53.59) - 10,561.61 80.63 - (80.63) - 138.49 - (39.53) 98.96 (2.67) 96.29 (2,765.65) (5,097.99) 2,061.88 (5,801.74) (5,831.43) (778.71) (6,610.14) 1,833.39 (1,161.27) 672.12 697.90 316.20 271.10 10,505.40 (574.70) 97.20 10,615.20 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 AS AT MARCH 31, 2014 H In Lakhs AS AT MARCH 31, 2013 52,815.00 1,438.03 5,991.50 60,244.53 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. The repayment terms varies from 18 to 42 months carrying interest rate of 10.5% compounded semiannually. Annual Report 2013-14 111 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE: 6 OTHER LONG TERM LIABILITIES Accrual for premium payable on redemption of bonds Interest accrued but not due on borrowings Deferred rent Unearned Revenue Total NOTE: 7 LONG-TERM PROVISIONS Provision for Employee Benefits Provision for compensated absences (Refer Note 28(c )) Provision for gratuity (Refer Note 28(b)) Provision for Tax (Net of Advance Tax of H189.99 Lakhs As at March 31, 2013 H934.90 Lakhs) Total NOTE: 8 SHORT-TERM BORROWINGS From Banks / Financial Instituitions Secured (Refer note (i) below) Unsecured (Refer note (ii) below) From Others Unsecured (Refer note (iii)) Total AS AT MARCH 31, 2014 H In Lakhs AS AT MARCH 31, 2013 571.59 4,854.31 24.79 95.43 5,546.12 517.93 - 15.37 - 533.30 AS AT MARCH 31, 2014 H In Lakhs AS AT MARCH 31, 2013 75.83 250.69 275.15 77.55 257.96 217.90 601.67 553.41 AS AT MARCH 31, 2014 H In Lakhs AS AT MARCH 31, 2013 14,817.30 - 1,198.30 16,015.60 16,550.46 937.55 1,899.90 19,387.91 (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 U.S.$127,721,000 5.70% secured Foreign Currency Convertible Bonds due 2017, carrying interest rates ranging from 14% to 17%. 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, Bangalore. 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 from Subex Technologies Inc which is secured by a corporate guarantee from Subex Limited. (iii) Represents loan taken by Subex Americas Inc, which has been guaranteed by Subex (UK) Limited. The repayment terms varies from 18 to 24 months carrying interest rate of 10.5% compounded semiannually. 112 Subex Limited NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE: 9 OTHER CURRENT LIABILITIES 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(1)) Unearned Revenue Other Payables Statutory remittances Deferred rent Total AS AT MARCH 31, 2014 - H In Lakhs AS AT MARCH 31, 2013 0.92 1,059.39 1.31 2,418.79 542.21 38.97 4,060.67 2,282.16 2.92 3,905.43 637.10 12.99 6,841.52 (i) Secured against the Hypothecation of vehicles financed under these loans. Hire Purchase loans amount to HNil as at March 31, 2014 (H0.92 Lakhs as at March 31, 2013). The interest rate on these loans range from 9% to 20%. NOTE: 10 SHORT-TERM PROVISIONS Provision for Employee Benefits Provision for compensated absences (Refer Note 28(c )) Provision for gratuity (Refer Note 28(b)) Provision for Tax (Net of advance tax HNil) (As at March 31, 2013 HNil) Total AS AT MARCH 31, 2014 H In Lakhs AS AT MARCH 31, 2013 306.31 41.89 1.01 349.21 263.30 83.20 1.20 347.70 H In Lakhs NOTE: 11 FIxED ASSETS Particulars Sl. No. 11A Tangible Fixed Assets 1 Computer Hardware (Previous Year balance) Furniture & Fixtures (Previous Year balance) Vehicles (Previous Year balance) Office Equipments (Previous Year balance) Lease Hold Improvements (Previous Year balance) 2 3 4 5 2 TOTAL TANGIBLE ASSETS (Previous Year balance) 11B Intangible Fixed Assets Computer Software 1 (Previous Year balance) Goodwill (Previous Year balance) Intellectual Property Rights (Previous Year balance) TOTAL INTANGIBLE ASSETS (Previous Year balance) Total Previous Year 3 GROSS BLOCK DEPRECIATION As at 01-Apr-13 Adjust- ments * Additions during the year Deletions during the year As at 31-Mar-14 Upto 01-Apr-13 Adjust- ments * for the year NET BLOCK Upto 31-Mar-14 As at 31-Mar-14 Withdrawn on Deletions 4,348.59 (4,414.00) 142.27 (136.50) 84.10 (241.60) 533.64 (524.80) 171.10 (169.50) 5,279.70 (5,486.40) 888.25 (849.10) 137.67 (137.67) 2,534.19 (3,973.95) 3,560.11 (4,960.72) 8,839.81 (10,447.12) 434.19 (63.39) 8.03 (4.88) - - 50.14 (4.89) 36.50 (1.60) 528.86 (74.76) 33.34 (11.06) - - - - 33.34 (11.06) 562.20 (85.82) 336.80 (92.10) - (0.89) - - 14.10 (4.65) - - 49.10 (220.90) 17.35 - 53.30 (157.50) 24.50 (0.70) - - 5,070.48 (4,348.59) 132.95 (142.27) 30.80 (84.10) 573.38 (533.64) 207.60 (171.10) 4,027.70 (3,895.04) 131.06 (120.70) 81.55 (212.90) 495.56 (453.90) 171.10 (169.50) 418.40 (49.62) 7.60 (4.52) - - 49.50 (4.68) 36.50 (1.60) 176.60 (283.84) 4.70 (5.84) 2.30 (25.26) 17.59 (37.27) - - 45.94 (200.80) 15.88 - 53.34 (156.61) 22.19 (0.29) - - 4,576.76 (4,027.70) 127.48 (131.06) 30.51 (81.55) 540.46 (495.56) 207.60 (171.10) 493.72 (320.89) 5.47 (11.21) 0.29 (2.55) 32.92 (38.08) - - 350.90 (97.64) 144.25 4,906.97 6,015.21 (379.10) (5,279.70) (4,852.04) 512.00 (60.42) 201.19 (352.21) 137.35 5,482.81 (357.70) (4,906.97) 532.40 (372.73) 17.10 (28.09) - - - - 17.10 (28.09) 368.00 (125.73) 938.69 (888.25) 137.67 (137.67) 2,534.19 794.24 - (710.66) - 137.67 - (137.67) - - 2,534.19 - (3,973.95) (3,973.95) - 3,466.10 - (4,999.87) (4,822.28) 9,625.76 8,373.07 (10,279.57) (9,674.32) 3,610.55 144.25 (379.10) 31.87 (9.02) - - - - 31.87 (9.02) 543.87 (69.44) 47.15 (74.56) - - - - 47.15 (74.56) 248.34 (426.77) 873.26 - (794.24) - 137.67 - (137.67) - - 2,534.19 - (3,973.95) - 3,545.12 - (4,905.86) 9,027.93 (357.70) (9,812.83) 137.35 65.43 (94.01) - - - - 65.43 (94.01) 597.83 (466.74) Note: (i) The above assets represent assets owned by the company and there are no assets taken on finance lease or given on operating lease (ii) Computers (included under office equipment) and Computer Software have been classified between tangible and intangible assets, respectively in the current year and the prior year comparables have been appropriately reclassified. * Adjustments represent exchange fluctuation arising on account of translation from foreign currency to reporting currency Annual Report 2013-14 113 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE: 12 LONG-TERM LOANS AND ADVANCES (UNSECURED, CONSIDERED GOOD) Advance Taxes (Net of Provision of H3617.18 Lakhs) (As at March 31, 2013 H176.50 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 Debts receivables Other debts Considered Good Considered Doubtful Less: Provision for Doubtful trade receivables Total AS AT MARCH 31, 2014 H In Lakhs AS AT MARCH 31, 2013 1,342.22 1,430.30 266.90 802.83 - 266.90 774.43 174.13 2,411.95 2,645.76 AS AT MARCH 31, 2014 H In Lakhs AS AT MARCH 31, 2013 4,731.81 (4,731.81) - 1,424.60 1,424.60 4,080.60 (4,080.60) - 1,313.94 1,313.94 AS AT MARCH 31, 2014 H In Lakhs AS AT MARCH 31, 2013 1,046.20 - - 1,046.20 9,011.40 38.63 (38.63) 9,011.40 10,057.60 102.00 647.20 (647.20) 102.00 7,230.84 - - 7,230.84 7,332.84 114 Subex Limited NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE: 15 CASH AND BANk BALANCES A. Cash and Cash Equivalents Cash on hand Balance with Banks in Current Accounts in EEFC Accounts B. Other bank balances in Earmarked Accounts Total Cash and Cash Equivalents A Unclaimed dividend Accounts (Refer Note 37.1) Margin Money Deposits (Note(i)) Total Other Bank Balances B Total (A+B) AS AT MARCH 31, 2014 H In Lakhs AS AT MARCH 31, 2013 0.94 0.77 4,295.28 10.42 4,306.64 1.31 485.42 486.73 4,793.37 4,441.62 9.44 4,451.83 2.92 627.91 630.83 5,082.66 Note (i) Margin money deposits include deposits with a remaining maturity period of less than 12 months from the Balance Sheet date. NOTE: 16 SHORT-TERM LOANS AND ADVANCES (UNSECURED, CONSIDERED GOOD) Advance recoverable (Refer Note 37.6) 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 Interest accrued on deposits Contractually Recoverable Expenses Total NOTE: 18 REVENUE FROM OPERATIONS Income from Sale of Products (and related services) Income from Sale of Services less: Income from Discontinuing Operations (Refer Note 35) Total SUB TOTAL AS AT MARCH 31, 2014 233.80 280.99 325.96 H In Lakhs AS AT MARCH 31, 2013 233.80 342.07 311.33 - 43.67 107.84 948.59 67.07 997.94 AS AT MARCH 31, 2014 3,494.30 9.33 53.25 3,556.88 H In Lakhs AS AT MARCH 31, 2013 5,135.91 29.92 8.24 5,174.07 FOR THE YEAR ENDED MARCH 31, 2014 H In Lakhs FOR THE YEAR ENDED MARCH 31, 2013 34,005.16 - 34,005.16 - 34,005.16 30,734.27 2,323.68 33,057.95 (2,323.69) 30,734.26 Annual Report 2013-14 115 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE: 19 OTHER INCOME Interest income Interest on deposit accounts from banks Other non-operating income Miscellaneous Income Reversal of provision for doubtful trade receivables/bad debts recovered SUB TOTAL less: Other Income from Discontinuing Operations (Refer Note 35) 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 less: Employee Benefit Expense and Sub-contract Charges from Discontinuing Operations (Refer Note 35) SUB TOTAL FOR THE YEAR ENDED MARCH 31, 2014 H In Lakhs FOR THE YEAR ENDED MARCH 31, 2013 9.45 200.16 240.03 449.64 (5.52) 444.12 40.02 46.96 2.17 89.15 (0.17) 88.98 FOR THE YEAR ENDED MARCH 31, 2014 H In Lakhs FOR THE YEAR ENDED MARCH 31, 2013 16,137.10 1,161.35 (27.16) 655.50 17,926.79 2.51 17,929.30 (150.72) 17,972.37 1,254.64 11.27 864.49 20,102.77 566.25 20,669.02 (2,713.22) Total 17,778.58 17,955.80 NOTE: 21 FINANCE COSTS Interest Expenses on: Foreign Currency Convertible Bonds Other Borrowings Other Borrowings Costs - Bank Charges less: Finance Costs from Discontinuing Operations (Refer Note 35) Total SUB TOTAL FOR THE YEAR ENDED MARCH 31, 2014 H In Lakhs FOR THE YEAR ENDED MARCH 31, 2013 3,422.30 3,025.60 299.86 6,747.76 (38.24) 6,709.52 2,212.06 2,611.50 386.44 5,210.00 (71.88) 5,138.12 116 Subex Limited NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS 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 Director sitting fees Loss on sale of Fixed assets (Net) Exchange Fluctuation Loss (Net) Miscellaneous Expenses less: Other Expenses from Discontinuing Operations (Refer Note 35) Total SUB TOTAL NOTE: 23 ExCEPTIONAL ITEMS (REFER NOTE 37(7)) Impairment of goodwill from Subex Technologies Limited Provision for Doubtful trade and other receivables less: Exceptional Items from Discontinuing Operations (Refer Note 35) SUB TOTAL Total FOR THE YEAR ENDED MARCH 31, 2014 51.14 1,540.70 198.31 676.48 152.90 469.03 45.85 2,213.60 150.71 309.04 900.70 120.42 20.09 - 4.20 7.10 1,676.98 32.77 8,570.02 (70.60) 8,499.42 FOR THE YEAR ENDED MARCH 31, 2014 H In Lakhs FOR THE YEAR ENDED MARCH 31, 2013 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 2.80 40.49 654.51 50.20 7,636.00 (209.17) 7,426.83 H In Lakhs FOR THE YEAR ENDED MARCH 31, 2013 - 219.61 219.61 (219.61) - 926.70 3,069.92 3,996.62 (926.70) 3,069.92 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. 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 H17,400.00 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 H15,503.70 Lakhs (net) Annual Report 2013-14 117 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE: 24 ACCOUNTING UNDER THE PROPOSAL APPROVED BY THE HON’BLE HIGH COURT (contd.) 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 H346.74 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 H225.07 Lakhs (net of reversals). d) Adjustments in the BRR during the previous 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 H271.10 Lakhs during the year to Securities Premium, towards FCCB restructuring expenses H359.58 Lakhs, towards reversal of unbilled revenue H958.90 Lakhs, e) Adjustments in the BRR during the current year ended March 31, 2014 In accordance with the Proposal, the Board of Directors of the Company have approved the following for financial year ended March 31, 2014 • towards provision for doubtful trade receivables H80.63 Lakhs. f) 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: In the Statement of Profit and loss. Revenue would have been lower by: The loss under Exceptional items would have been higher as follows: - One-time non-recurring expenses, being FCCB restructuring fees - Provision towards doubtful trade receivables Sub-Total Profit/(loss) after Tax would have been lower/higher by Basic Earnings/(Loss) per share would have been – H Diluted Earnings/(Loss) per share would have been – H Amount in H Lakhs except as otherwise indicated MARCH 31, 2014 MARCH 31, 2013 - - - 80.63 80.63 80.63 (0.75) (0.75) 958.90 - 359.58 - 359.58 1,318.48 (5.36) (5.36) NOTE: 25 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 an interest rate of 2% p.a. payable semi-annually in arrears, with terms of conversion being : i) Exchange rate for conversion of FCCB : H44.08/ US1$ ii) Conversion price : H656.20 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. 118 Subex Limited NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE: 25 FOREIGN CURRENCY CONVERTIBLE BONDS (FCCBS) (contd.) Interest rate : 5% p.a. payable semi annually 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. Exchange rate for conversion of FCCB : H48.17/ US1$ iii. Conversion price : H80.31 per share iv. Redemption date : March 09, 2012 v. Premium payable on redemption : US$. 23.23 Million. vi. Listing on the Singapore Exchange Securities Trading Limited Both the bonds were initially redeemable on or by March 9, 2012, if not converted into equity shares as per terms of issue. Based on an approval received from the Reserve Bank of India and bond holders, the redemption date was extended to July 09, 2012. Out of the US$ 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 Million 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. c) The terms and conditions of FCCB III are as under: Interest rate : 5.70% p.a. payable semi annually i. ii. Exchange rate for conversion of FCCB : H56.06/ US1$ iii. Equity Conversion price : H22.79 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. vii. Mandatory conversion of bonds with a face value of US$ 36.32 Million into equity shares at the aforesaid conversion price on July 07, 2012. For 2012-13 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. During the year, the Company received approvals from the FCCB Holders for deferment of the semi annual interest due on January 2013, July 2013 and January 2014 to be settled with the principal on the redemption date. These have accordingly been categorized as long-term liabilities. 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. Annual Report 2013-14 119 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE: 25 FOREIGN CURRENCY CONVERTIBLE BONDS (FCCBS) (contd.) e) FCCB I: As at March 31, 2014, the face value of the US$ 1 Million FCCBs (Previous Year US$ 1 Million) amounts to H599.15 Lakhs (Previous Year: H542.81 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, 2014, the face value of the US$ 1.40 Million FCCBs (Previous Year US$ 1.40 Million) amounts to H838.81 Lakhs (Previous Year: H759.99 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, 2014, the face value of the US$ 88.15 Million FCCBs (Previous Year US$ 88.15 Million) amounts to H52,815.07 Lakhs (Previous Year: H47,852.27 Lakhs) 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 2008-09 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 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 Options Details as on the Balance Sheet Date are Particulars 2013-14 2012-13 Options (Nos) Weighted average exercise price per stock option (H) Options (Nos) Weighted average exercise price per stock option (H) 4,670 11,31,147 7,30,806 82.63 34.04 28.79 - - - - - - 1,695 2,67,197 1,63,288 - - - - - - - - - 12,022 13,56,086 10,19,289 - 1,24,100 - - - - 7,352 3,49,039 2,88,483 85.22 39.30 28.95 - 12.82 - - - - - - - Options outstanding at the beginning of the year ESOP – II ESOP – III ESOP – IV Granted during the year ESOP – II ESOP – III ESOP – IV Exercised during the year ESOP – II ESOP – III ESOP – IV Cancelled, Surrendered or Lapsed during the year ESOP – II ESOP – III ESOP – IV 120 Subex Limited NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE: 26 EMPLOYEES STOCk OPTION PLAN (ESOP) (contd.) Particulars 2013-14 2012-13 Options (Nos) Weighted average exercise price per stock option (H) Options (Nos) Weighted average exercise price per stock option (H) 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 2,975 8,63,950 5,67,518 2,975 7,09,638 4,98,483 - 11,23,611 14,32,482 67.00 30.78 28.56 4,670 11,31,147 7,30,806 82.63 34.04 28.79 - - - - - - 4,670 8,64,489 4,57,293 - 8,56,414 12,69,194 - - - - - - [Weighted average remaining contractual life (considering vesting and exercise period)] ESOP – II At March 31, 2013: 1.41 Years At March 31, 2014: 1.02 Years ESOP – III At March 31, 2013: 3.08 Years At March 31, 2014: 2.12 Years ESOP – IV At March 31, 2013: 3.16 Years At March 31, 2014: 2.17Years 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: 54.49% (Previous year: 64.85%), 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: Particulars Amount in H Lakhs except as otherwise indicated MARCH 31, 2014 MARCH 31, 2013 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 (proforma) - H Basic earnings per share (as reported) - H Basic earnings per share (proforma) Diluted earnings per share (as reported) - H - H Diluted earnings per share (proforma) (1,161.27) (27.16) (5,994.71) 11.27 20.71 30.80 (1,209.14) (0.70) (0.73) (0.70) (0.73) (6,014.24) (4.40) (4.41) (4.40) (4.41) Annual Report 2013-14 121 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE: 27 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 amortized 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 H5,801.74 Lakhs (PY H2,765.65 Lakhs) at March 31, 2014 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 H1,087.16 Lakhs (Year ended March 31, 2013 H1,094.39 Lakhs) for Provident Fund contributions H1.89 Lakhs (Year ended March 31, 2013 H2.04 Lakhs) for Employee state insurance scheme contribution in the Statement of Profit and Loss. 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: I 1 2 3 4 5 6 7 8 II 1 2 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 III Net asset / (liability) recognized in Balance Sheet 1 2 3 Present value of Defined Benefit Obligation (DBO) Fair value of plan assets Funded status [Surplus / (Deficit)] 4 Unrecognized Past Service Costs IV Net asset / (liability) recognized in Balance Sheet - Current - Non current 122 Subex Limited Amount in H Lakhs except assumptions Gratuity MARCH 31, 2014 MARCH 31, 2013 69.65 20.91 (1.45) - - - (14.92) 74.19 76.39 96.00 321.46 28.88 (292.58) - (292.58) (41.89) (250.69) 108.70 20.63 (0.59) - - - 31.51 160.25 99.31 98.84 348.47 7.31 (341.16) - (341.16) (83.20) (257.96) NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE: 28 EMPLOYEE BENEFIT PLANS (contd.) V 1 2 3 4 5 6 7 8 9 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 10 Benefits paid 11 Present Value of DBO at the end of year VI Change in Fair Value of Assets during the year 1 2 3 4 5 6 7 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 Discount Rate 2 3 4 Expected Return on plan assets Salary escalation Attrition Rate Five Year Data 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 Amount in H Lakhs except assumptions Gratuity MARCH 31, 2014 MARCH 31, 2013 348.47 69.65 20.91 - - - - (14.41) (26.77) (76.39) 321.46 342.00 108.70 20.63 - - - - 31.42 (54.97) (99.31) 348.47 7.31 7.10 - 1.45 0.51 96.00 (76.39) 28.88 9.25% 8.50% 6.00% 9.00% - 0.59 0.09 98.84 (99.31) 7.31 8.10% 8.50% 6.00% 9.00% Period ending (H In Lakhs) March 31, 2010 March 31, 2011 March 31, 2012 March 31, 2013 March 31, 2014 (193.23) (299.41) (348.50) (348.47) (321.46) 50.84 (142.39) 3.85 33.04 (266.37) (4.83) 7.10 (341.40) 54.12 7. 31 (341.16) 11.31 28.88 (292.58) (10.25) - 0.38 0.31 (0.09) 0.51 6.84 - 12.77 (42.73) 24.66 Annual Report 2013-14 123 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE: 28 EMPLOYEE BENEFIT PLANS (contd.) • The composition of the plan assets held under the funds managed by the Insurer is as follows: Fund Type Equity Instruments Debt Instruments FD and Other Asset % 2014 4.93 78.12 16.95 2013 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. c) Actuarial Assumption for long-term compensated absences Discount rate Expected return on plan asset Salary escalation rate Attrition MARCH 31, 2014 9.25% NA 6.00% 9.00% MARCH 31, 2013 8.10% NA 6.00% 9.00% • • 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. Total Liabilities Estimated Current Portion Non Current portion NOTE: 29 SEGMENTAL REPORTING MARCH 31, 2014 (382.14) (306.31) (75.83) MARCH 31, 2013 (340.85) (263.30) (77.55) 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.The Group has discontinued the service segment entirely, refer Note 35 for more information 124 Subex Limited NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE: 29 SEGMENTAL REPORTING (contd.) Products Services Consolidated 2013-14 2012-13 2013-14 2012-13 2013-14 2012-13 H In Lakhs Revenues 34,005.16 30,734.27 - 2,323.68 34,005.16 33,057.95 Segment results before interest, taxes & exceptional item Exceptional Items Interest expense Profit/(Loss) before tax Tax expenses (Net) Profit/(Loss) After Tax 6,971.78 4,202.94 (220.86) (604.79) 6,950.92 3,598.15 - (3,069.92) (219.61) (926.70) (219.61) (3,996.62) (6,709.52) (5,210.00) (38.24) - (6,747.75) (5,210.00) 6,971.78 1,133.02 (478.71) (1,531.49) (216.45) (5,608.47) - - - - (944.82) (386.24) (1,161.27) (5,994.71) Amount H In Lakhs Consolidated Particulars of Segment Assets & Liabilities Products Services Unallocable 2013-14 2012-13 2013-14 2012-13 2013-14 2012-13 2013-14 2012-13 Segment Assets 1,08,090.82 1,06,545.70 - 506.00 - - 1,08,090.82 1,07,051.70 Unallocable Assets: Total Assets - - Segment Liabilities 8,928.03 9,345.44 Unallocable Liabilities: - - - - - - 1,342.22 1,745.67 1,342.22 1,745.67 1,09,433.04 1,08,797.37 772.65 - - 8,928.03 10,118.09 - 83,143.11 76,179.60 83,143.11 76,179.60 Total Liabilities 92,071.14 86,297.69 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 income tax balances and deferred taxes. Segment liabilities include all liabilities relating to the segment and consist principally of Trade payables and other operating liabilities. Unallocable liabilities include loans and tax. Addition to assets Particulars Products Services 2013-14 368.00 - Amount H In Lakhs 2012-13 122.90 2.83 Total amount of expense included in the segment result for depreciation and amortisation in respect of segment assets for the period. Particulars Depreciation Products Services Amount H In Lakhs Consolidated 2013-14 2012-13 2013-14 2012-13 2013-14 2012-13 244.18 420.51 4.16 6.26 248.34 426.77 Annual Report 2013-14 125 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE: 29 SEGMENTAL REPORTING (contd.) Total amount of significant non-cash expenses, other than depreciation and amortization in respect of segment assets that are included in segment expense and, therefore, deducted in measuring segment result. Expense on Employee Stock Option Scheme (ESOPs) (net)* Exceptional Items Products Services Amount H In Lakhs Consolidated 2013-14 2012-13 2013-14 2012-13 2013-14 2012-13 (27.16) 11.27 - - (27.16) 11.27 - Provision for doubtful trade and other receivables - Impairment of goodwill - - Provision for Doubtful trade and other receivables (240.03) 168.34 3,069.92 219.61 - 219.61 3,069.92 - - - 926.70 - - (240.03) 926.70 168.34 Total (267.19) 3,249.53 219.61 926.70 47.58 4,176.23 * Amount in bracket indicates balance credited to Statement of Profit and Loss (net of expenses). 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: AMERICAS EMEA APAC and rest of the world Total H In Lakhs Products Services Consolidated 2013-14 2012-13 2013-14 2012-13 2013-14 2012-13 6,758.41 8,009.78 21,393.84 16,386.44 5,852.91 6,338.05 34,005.16 30,734.27 - - - - 2,323.68 6,758.41 10,333.46 - 21,393.84 16,386.44 - 5,852.91 6,338.05 2,323.68 34,005.16 33,057.95 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: H In Lakhs Location 2013-14 2012-13 Carrying Amount of Segment Assets 3,516.64 8,046.22 96,527.96 1,08,090.82 Additions to Fixed assets and Intangible assets 216.33 4.44 147.23 368.00 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 12.55 2.13 111.05 125.73 AMERICAS EMEA APAC,and rest of the world Total 126 Subex Limited NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE: 30 RELATED PARTY INFORMATION Related Parties Key Management Personnel Surjeet Singh, Managing Director & CEO, 5th October, 2012 onwards Subash Menon, Managing Director & CEO upto 27th September, 2012 Sudeesh Yezhuvath, Wholetime Director & Chief Operating Officer upto 5th October, 2012 Details of the transactions with the related parties: a) Salary and Perquisites (Also refer Note 37.6) Subash Menon Sudeesh Yezhuvath Surjeet Singh b) Amount due as at year end from/(to) Surjeet Singh NOTE: 31 OPERATING LEASES H In Lakhs Key Management Personnel 2013-14 2012-13 - - 512.53 - 107.69 108.39 224.60 (70.00) The Group had entered into non-cancellable leasing arrangement for its India office premises which on renewal this year became cancellable. Rental expenses for operating leases included in the Statement of Profit and Loss for the year is H1,540.70 Lakhs (Previous year H1,426.53 Lakhs). The Current year balance includes H57.53 Lakhs towards Subex (UK) Limited paid as part of rental service charges. NOTE: 32 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)] - H Earnings per Share - Diluted [(B)/(D)] - H Face value of shares: H10/- each Amount in HLakhs except as otherwise indicated MARCH 31, 2013 (5,994.71) - - (5,994.71) 1,362.43 0.10 1,362.53 (4.40) (4.40) MARCH 31, 2014 (1,161.27) - - (1,161.27) 1,666.40 - 1,666.40 (0.70) (0.70) Note: FCCBs outstanding as at March 31, 2014 are anti-dilutive and hence have not been considered for purposes of Dilutive EPS in year ended March 31, 2014. Certain of the FCCBs as at March 31, 2013 were anti-dilutive and hence were not considered for purposes of Dilutive EPS in year ended March 31, 2013. NOTE: 33 DEFERRED TAxES 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 MARCH 31, 2014 - - - H In Lakhs MARCH 31, 2013 62.80 78.40 141.20 The Group has a net deferred tax asset as at March 31, 2014 significantly arising from brought forward unabsorbed depreciation and tax losses, which has not been recognized as a matter of prudence. Annual Report 2013-14 127 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE: 34 CONTINGENT LIABILITIES Claims against the Company not acknowledged as debt: Particulars Income Tax Demands significantly pertaining to transfer pricing and other adjustments which are being contested by the company These cases are pending at various forum with the respective authorities. Outflows, if any, arising out of these claims would depend upon the outcome of the decision of the appellate authority and the Companies right for future appeals before Judiciary. No reimbursements are expected MARCH 31, 2014 H In Lakhs MARCH 31, 2013 4,514.57 3,298.47 Value Added Taxes & Central Sales Tax Nil 27.80 Others The Company has received a demand of service tax of H3,607.60 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. During the year, CESTAT without expressing any opinion, has remanded the appeal back to the adjudication authority and dispensed with the requirement of Pre-deposit. 1,001.04 1,001.04 NOTE: 35 DISCONTINUING OPERATIONS During the year, pursuant to the approval of the Board of Directors, the Company has discontinued the operations of two of its subsidiaries with effect from April 01, 2013. The two subsidiaries represented and were reported as services segment of the Company. The results of the discontinued business during the year until discontinuation were as under: Particulars Profit / (Loss) from ordinary activities Sale of services Other Income Total revenue (A) Cost of Material Consumed Employee benefits expense Finance costs Depreciation and amortization expense Other expenses Exceptional Item Total expenses (B) Profit / (Loss) before tax from ordinary activities (A-B) Add / (Less): Gain / (Loss) on disposal of assets / settlement of liabilities attributable to the discontinuing operations Tax expense Profit / (Loss) after tax of discontinuing operations Carrying amount of assets as at the Balance Sheet date relating to the discontinued business to be disposed off Carrying amount of liabilities as at the Balance Sheet date relating to the discontinued business to be settled Net cash flow attributable to the discontinued business Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities 128 Subex Limited FOR THE YEAR ENDED MARCH 31, 2014 H In Lakhs FOR THE YEAR ENDED MARCH 31, 2013 - 5.52 5.52 0.90 150.72 38.24 4.16 70.60 219.61 482.23 (478.71) - (478.71) 8.44 (487.15) 32.43 2,323.69 0.17 2,323.86 - 2,713.22 71.88 6.26 209.17 926.70 3,927.23 (1,603.37) - (1,603.37) - (1,603.37) 506.00 151.57 883.49 894.62 0.45 (969.37) (757.91) (2.67) 866.02 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE: 36 PAYMENTS TO AUDITORS INCLUDE A. Statutory Auditors Particulars As Auditors – Statutory audit For Taxation matters For Certification matters For Other assurance 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 2013-14 75.00 1.50 1.20 15.00 5.38 98.08 2013-14 22.34 - - - 22.34 H In Lakhs 2012-13 65. 00 1.50 - 10.00 2.73 79.23 H In Lakhs 2012-13 1.30 - - - 1.30 NOTE: 37 OTHERS 1. Unclaimed dividend of H1.31 Lakhs as at March 31, 2014 (Previous Year - H2.92 Lakhs) represent dividends not claimed for the period from 2006-2007. No part thereof has remained unpaid or unclaimed for a period of seven years from the date they become due for payment requiring a transfer to the ‘Investor Education and Protection Fund’. During the current year, the Company has transferred H1.60 Lakhs (Previous Year - H0.59 Lakhs) to Investor Protection Fund. 2. Net cash flow from operating activities in the Cash Flow Statement comprises outflows on account of permitted utilisations from the BRR of HNil Lakhs (Previous Year - H359.58 Lakhs). 3. Personnel Cost for the year includes expenditure on Research and Development of H1,665.37 Lakhs (Previous year - H1,108.71 Lakhs). This is as certified by the management and relied upon by the auditors. 4. The Company does not have any outstanding forward foreign exchange contracts or other derivative instruments for the purposes of hedging the risks associated with foreign exchange exposures as the year end. The year-end foreign currency exposures that have not been hedged by derivative instruments or otherwise are given below. Note: The above does not include exposure on intra-group balances, being eliminated on consolidation. Particulars MARCH 31, 2014 MARCH 31, 2013 (a) Receivables towards export of goods and services Amount (H) 6.82 326.88 84.78 Foreign currency AED 0.42 AUD 5.91 CHF 1.25 1,454.07 EUR 17.59 178.69 71.69 114.02 MYR 9.74 OMR 0.46 QAR 6.93 10.74 SGD 0.23 Amount (H) Foreign currency 475.35 71.25 735.29 252.15 73.87 43.31 53.52 9.93 23.90 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 10,462.68 USD 174.63 9,719.16 USD 179.04 Annual Report 2013-14 129 NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE: 37 OTHERS (contd.) Particulars MARCH 31, 2014 MARCH 31, 2013 (b) Payables towards import of goods and services (c) Loan (being other amounts payable in foreign currency) Amount (H) 5,363.15 0.29 1.62 17.30 5.21 10.09 1.32 3.04 7.40 4,695.61 (d) Capital goods (including intangibles) - Foreign currency USD 89.51 GBP 0.003 OMR 0.01 EUR 0.21 AUD 0.09 CAD 0.19 SAR 0.08 AED 0.19 MYR 0.40 USD 17.95 GBP 26.57 EUR 0.50 SGD 19.50 - (e) Towards interest on Foreign Currency loans Towards Foreign Currency Convertible Bonds (FCCB’s) Redemption premium accrued on FCCB’s (f) Bank Balances 5,271.80 54,253.03 571.59 2,161.69 53.30 62.23 25.53 225.60 USD 87.99 USD 905.50 USD 9.54 USD 36.08 AED 3.27 AUD 1.13 CAD 0.47 EUR 2.73 Amount (H) 22.71 5.00 Foreign currency USD 0.41 CAD 0.12 2,766.25 USD 30.29 GBP 13.77 EUR 0.18 SGD 0.10 GBP 0.11 EUR 0.31 CHF 0.22 USD 40.61 USD 886.51 USD 9.54 USD 45.15 AED 4.38 AUD 0.001 CAD 0.51 EUR 0. 55 0.22 1.43 20.91 15.42 2,213.42 49,155.07 517.93 2,451.41 64.86 0.07 27.56 38.68 5. 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. 6. a) In view of the losses incurred by the Company during the year ended March 31, 2014, the excess of the managerial remuneration paid to the directors during the FY 2012-13 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 H123.80 Lakhs (Previous Year H123.80 Lakhs) b) Other advances to directors during the FY 2012-13: H110.00 Lakhs (Previous year H110.00 Lakhs) The Company has taken necessary steps for recovery of the above amounts and these items along with other claims are a subject matter of arbitration which is in progress. 7. Exceptional items include an amount of H219.61 lakhs pertaining to provision for doubtful trade receivables arising from the discontinuance of the services segment. The management has decided to classify the same as exceptional item being non-recurring in nature. 130 Subex Limited NOTES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS NOTE: 37 OTHERS (contd.) During the year ended March 31, 2013, a. b. the Company had carried out an assessment of its receivables and an amount of H3,069.92 lakhs had been provided towards doubtful receivables. Considering that the amount of provision towards doubtful receivables was significant and relevant in understanding the financial performance, it had been disclosed separately under exceptional item. the Company had impaired goodwill outstanding in books pertaining to its services business for an amount of H926.70 Lakhs. As an impairment in goodwill is not considered to be regular adjustment in the results, the same had been categorised as an exceptional item. 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 H18,606.00 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. Capital Reserves* Total Assets NOTE: 39 DETAILS OF THE SUBSIDIARIES CONSOLIDATED FOR THE YEAR ENDED MARCH 31, 2014 Particulars Subex (Asia Pacific) Pte Ltd Subex (UK) Limited Subex Americas Inc. Subex Incorporated Subex Technologies Inc. (Note 1 below) (Note 1 below) (Note 1 & 2 below) (Note 1 below) (Note 1 below) Country of Incorporation Singapore UK Canada - 40.60 38,274.10 USA - USA 2,090.54 (3,364.94) 13,439.47 (59,318.54) (2,714.37) (2,134.95) 12,006.62 40,852.85 38,937.30 22,005.72 Total Liabilities 15,371.56 27,372.79 59,981.74 24,720.09 Details of investment (other than Subsidiaries) - - - - Turnover 3,131.70 17,514.12 2,812.88 11,735.05 Profit / (Loss) before taxation 156.06 1,084.67 Provision for taxation Profit after taxation Proposed Dividend Base Currency Exchange Rate 80.04 76.02 - SGD 47.58 230.53 854.15 - GBP 99.77 *Inclusive of exchange reserve on consolidation 81.46 14.73 66.74 - USD 59.92 257.38 472.96 (483.56) - (215.58) (483.56) - USD 59.92 - USD 59.92 (4.66) 39.76 - - H In Lakhs Subex Technologies Limited India 400.00 671.48 284.32 12.84 - - (3.59) - (3.59) - INR 1.00 Note: 1. 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. 2. 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 Country of Incorporation Subex Azure Holding Inc. United Sates of America Annual Report 2013-14 131 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 Monisha Parikh Partner For and on behalf of the Board of Directors Surjeet Singh Managing Director & CEO Karthikeyan Muthuswamy Director Anil Singhvi Director Sanjeev Aga Director Mumbai Date: May 29, 2014 Mumbai Date: May 29, 2014 Ganesh K.V Chief Financial Officer, Global Head-Legal and Company Secretary 132 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 : August 14, 2014 Venue : Subex Limited, RMZ Ecoworld, Outer Ring Road, Devarabisanahalli, Bangalore - 560 037 Time : 1 PM DATES OF BOOk CLOSURE From August 7, 2014 to August 14, 2014 (both days inclusive) 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 Stock code National Stock Exchange of India Limited, SUBEX BOARD MEETINGS & FINANCIAL CALENDAR Financial year : April 1, 2014 to March 31, 2015 Exchange Plaza, 5th Floor, Plot No. C/1, G Block Calendar of Board Meetings to adopt the accounts (tentative and subject to change): For quarter ending June 30, 2014 For quarter ending September 30, 2014 For quarter ending December 31, 2014 For the year ending March 31, 2015 – 3rd week of August, 2014 – 2nd week of November, 2014 – 2nd week of February, 2015 – 4th week of May, 2015 DIVIDEND The Directors have not proposed any dividend to be paid for the financial year 2013-14. 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 2014-15 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. Bandra Kurla Complex, Bandra (East) Mumbai- 400051 BSE Limited, 532348 Phiroze Jeejeebhoy Towers Dalal Street, Mumbai 400001 London Stock Exchange SUBX 10 Paternoster Square London EC4M 7LS Singapore Exchange Securities Trading Limited 4AFB (SUBEX US$ 98.7 million 5% bonds) 2 Shenton Way #19-00 SGX Centre 1 Singapore 068804 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. CUSTODIAL FEE Pursuant to the Securities and Exchange Board of India (SEBI) Circular No. MRD/DoP/SE/Dep/Cir-4/2005 dated January 28, 2005 issuer companies are required to pay custodial fees to the depositories with effect from April 1, 2005. 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 2014-15 to NSDL and CDSL on the basis of the number of beneficial accounts maintained by them as on March 31, 2014. Annual Report 2013-14 133 STOCk MARkET DATA RELATING TO EQUITY SHARES LISTED IN INDIA Monthly high and low quotes during each month in the financial year 2013-14 as well as the volume of shares traded on NSE and BSE are as under: Month Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 TOTAL High H 11.35 9.75 7.2 6.3 5.95 5.1 8.4 7.85 10.15 10.65 10.35 9.3 NSE BSE Low H 9.05 7.05 5.8 4.85 4.4 4.45 5.05 6.9 6.65 8.85 8.8 8.15 Volume Nos. 7160007 7404075 3324816 3032827 6029913 9038636 10552119 7168971 11598649 10656285 5825799 4125450 85917547 High H 11.39 9.73 7.16 6.26 5.93 5.14 8.59 7.88 10.13 10.71 10.43 9.28 TOTAL Low H 9.09 7.05 5.80 4.85 4.43 4.44 5.08 6.80 6.68 8.82 8.82 8.15 Volume Nos. 3376903 3006104 1333028 1407400 2071915 2786277 6158773 2108052 6562130 5037062 3081200 1670876 38599720 *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 7500.00 6000.00 4500.00 3000.00 1500.00 0.00 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar S&P CNX Nifty Subex 134 Subex Limited 15.00 10.00 5.00 0.00 25000.00 20000.00 15000.00 10000.00 5000.00 0.00 15.00 10.00 5.00 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 As on March 31, 2014 As on March 31, 2013 1 – 5000 5001 – 10000 10001 – 20000 20001 –30000 30001 – 40000 40001 – 50000 50001 – 100000 100001 and above TOTAL Categories of Shareholders: No. of share holders % to total share holders No. of share holders % to total share holders 48,218 7,653 4,412 1,591 789 788 1,134 1,084 65,669 73.43 11.65 6.72 2.42 1.20 1.20 1.73 1.65 100.00 52,850 8,112 4,332 1,547 742 723 1,028 882 70,216 75.27 11.55 6.17 2.20 1.06 1.03 1.46 1.26 100.00 Category As on March 31, 2014 As on March 31, 2013 No. of share holders Voting strength % No. of shares held No. of share holders Voting strength % No. of shares held Public & Others Companies/ Bodies Corporate 64,661 952 83.61 139,807,211 12.16 20,261,298 69,009 1,147 Core Promoters Mutual Funds ESOPs/Employee shareholders FII TOTAL 3 Nil 51 2 3.88 Nil 0.29 0.06 6,474,044 Nil 474,265 97,409 3 Nil 50 7 83.99 138,917,848 7.48 12,380,644 5.12 8,474,044 Nil 0.25 3.16 Nil 418,235 5,219,387 65,669 100 166,639,962 70,216 100.00 165,410,158 Annual Report 2013-14 135 R & T AGENTS AND SHARE TRANSFER SYSTEM aggregating to US$ 1 million under its US$ 180,000,000 Canbank Computers Services Limited, J P Royale, 1st 2% Coupon Convertible Unsecured Bonds (“FCCBs I”) and Floor, No.218, 2nd Main, Sampige Road (Near 14th Cross), US$ 1.4 million under its US$ 98,700,000 5% Convertible Malleswaram, Bangalore - 560 003, were appointed as Unsecured Bonds (“FCCBs II”). The details of impact of the ‘Registrar and Transfer Agent’ both in respect of shares held aforesaid instruments on the equity of the Company have in physical form and dematerialized form vide a tripartite been provided under the shareholding pattern for the year agreement dated December 5, 2001 in respect of shares ended March 31, 2014 available on the Company’s website held with NSDL and a tripartite agreement dated November under the Investors section. 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. 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 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. 35 in the notes to the standalone financial statements. Tel Nos. +91 80-23469661/62, 23469664/65 NOMINATION 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, 2014, 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, 2014, 1,799,310 GDRs were outstanding. As on March 31, 2014, the Company had outstanding FCCBs 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 136 Subex Limited companies to send official documents to their shareholders The Company declared bonus at 1:1 in the years 2000-01 electronically considering its legal validity under the and 2005-06. 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 final dividend for the financial years 2003-04, 2004-05 and 2005-06 and the interim dividend declared for the financial years 2004-05, 2005-06 and 2006-07 which were unclaimed for 7 years from the date of payment being due, were transferred to the Investor Education and the E-mail Id provided by them and made available to us by Protection Fund. 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 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 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 transferred by the Company to the Investor Education and their credit. 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 Declared at the AGM/Board Meeting Held on 2003-04 2004-05 2004-05 August 24, 2004 January 27, 2005 July 28, 2005 2006-07 2005 August 28, 2006 January 29, 2007 July 26, 2007 Nature of Dividend % of Dividend Final Interim Final Final 20 10 20 15 10 Interim 15 Due date for Transfer to the Fund See note below* See note below* See note below* See note below* See note below* See note below* Final 20 September 1, 2014 2005-06 October 28, Interim INVESTOR GRIEVANCES Investor grievances received from April 1, 2013 to March 31, 2014: Nature of complaints Received Cleared Non-receipt of share certificates/ refund orders/call money notice/ allotment advice/dividend warrant/ annual report Letters from NSDL, Banks etc. Correction/change of bank mandate of refund order/Change of address Postal returns of cancelled stock invests / refund orders/ share certificates / dividend warrants Other general query Total 4 - - - - 4 4 - - - - 4 During the year ended March 31, 2014, 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. Annual Report 2013-14 137 ADDRESS FOR CORRESPONDENCE For any queries, please write to: Ganesh K V Chief Financial Officer, Global Head- 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. 138 Subex Limited NOTES Annual Report 2013-14 139 140 Subex Limited Forward-looking statement In this Annual Report we have disclosed forward- looking information to enable investors to comprehend our prospects and take 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 of future performance. We cannot guarantee that these forward looking statements will be realized, although we believe we have been prudent in assumptions. The achievement of results is subject to risks, uncertainties and even inaccurate assumptions. Should known or unknown risks or uncertainties materialize, 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 Idenity Operational highlights Managing Director and CEO’s review Key competitive strengths 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 02 04 06 09 10 16 17 18 19 20 28 40 63 97 Shareholders’ Information 133 A Product info@trisyscom.com Robust foundation. sustainable gRowth. Subex Limited Annual Report 2013-14 www.subex.com info@subex.com INDIA Subex Limited USA Subex Inc UK SINGAPORE Subex (UK) Limited Subex (Asia Pacific) Pte Limited (CIN: L85110KA1994PLCO16663) 12303 Airport Way, 3rd Floor, Finsbury Tower, 175A Bencoolen Street Regd. office: RMZ Ecoworld, Bldg. 1, Ste. 390, 103-105 Bunhill Row, #08-03 Burlington Square Devarabisanahalli, Outer Ring Road Broomfield, CO 80021 London, EC1Y 8LZ UK Singapore 189650 Bangalore - 560037, India Tel : +91 80 6659 8700 Fax : +91 80 6696 3333 Tel : +1 303 301 6200 Tel :+44 20 7826 5420 Tel : +65 6338 1218 Fax : +1 303 301 6201 Fax : +44 20 7826 5437 Fax: +65 6338 1216 Regional offices: Dubai | Ipswich | Sydney
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