CONTENTS 02 04 06 08 10 13 14 16 20 21 22 23 Six Things You Need To Know About Subex Subex Value Pillars Products Note To Shareholders 24 54 67 85 Board’s Report Corporate Governance Report Management Discussion And Analysis Standalone Financial Statements A Conversation With Vinod Kumar, Md & Ceo 134 Consolidated Financial Statements Our Performance In Numbers 182 Shareholder Information Message From Head Of Strategy And Products Message From Head Of Iot Security Subex - Becoming Future-Ready Subex - Making A Difference Together Board Of Directors Leadership Team 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. The global telecommunications industry is developing dynamically; New technologies are making prevailing technologies obsolete with unprecedented speed. In such an environment, successful organizations consistently innovate to stay ahead of the curve. Subex has progressively differentiated its business model to emerge as a future-ready organization. The Company is leveraging its core competence in the telecom sector, gathering data from customers to create analytics-based products and solutions. The Company is also enlarging its presence in the attractive IoT security market niche. At Subex, our efforts are mediated towards the achievement of overarching goal… MAKING TOMORROW SUSTAINABLE 6 SIX THINGS YOU NEED TO KNOW ABOUT SUBEX 02 | SUBEX LIMITED P E D I G R E E L E A D E R S H I P S C A L E 1 Subex is a trusted global telecom solutions provider for 75% of the world’s top 50 telcos. Founded in 1992, Subex has been a part of the evolution of mobile technologies, playing the role of a consultant to global telecom carriers leading to their operational excellence and transformation. 2 Subex is led by Mr. Vinod Kumar (MD & CEO) with a team of experienced professionals who have been around for a while and clearly understands the strengths, challenges, and opportunities of Subex. The company had 900+ employees as on 31st March 2018. 3 Subex is headquartered in Bengaluru with global delivery centers in the US, the UK, the UAE, Singapore, and India. Subex has more than 300 installations at 200+ global telecom enterprises across 90+ countries. P O R T F O L I O U N I Q U E P O S I T I O N 4 Subex has a diversified portfolio across segments and products, providing revenue assurance, fraud management, partner settlement, route Optimisation, capacity management, network asset management, analytics, IoT security, managed services and consulting & advisory services. 5 Subex provides telecom analytics services and telecom consulting and advisory services. The Company is uniquely positioned to serve as a business assurance consultant, having turned around the business viability of several telcos over the last quarter of a century. S T A T E - O F - T H E - A R T - T E C H N O L O G Y 6 Subex has established a reputation for developing next-generation solutions in emerging business areas like advanced data analytics, business intelligence, business assurance and IoT. Annual Report 2017-18 | 03 VALUE PILLARS Drive New Business Models Pivot offerings around revenues, open new revenue streams in emerging business areas and allied services, leveraging the partner ecosystem. Enhance Customer Experience Retain existing customers and acquire new customers using analytics and leverage business insights to better understand customer behavior for deeper engagement. Optimise Enterprise Enable operational excellence by focusing on maximizing revenues and mitigating business risks, ensuring y-o-y cost savings that provide resources for business investments. HIGHLIGHTS OF 2017-18 Subex was awarded a new 5-year Framework Contract with British Telecom (BT) May 29th 2017 Subex was awarded at the 2017 Pipeline Innovation Awards under ‘Innovations in Managed Services’ & ‘Innovations in Security & Assurance’ category May 3rd 2017 May 31st 2017 Subex announced the launch of Subex 3.0. Also unveiled its new brand identity 04 | SUBEX LIMITED ElevenPaths, Telefonica Cybersecurity Unit and Subex signed a global framework agreement to provide a disruptive FMaaS solution July 19th 2017 June 13th 2017 Subex and STC awarded the prestigious Global Telecoms Business Innovation Awards 2017 in the ‘Enterprise Service Innovation’ category Quality statement Listing Subexians are committed to achieve total customer satisfaction by delivering high quality products that meet the needs and expectations of our customers. We are committed to adhere to quality management system requirements and continually improve them. Subex is listed on the Bombay Stock Exchange (scrip code: 532348) and the National Stock Exchange (scrip code: Subex). The Company is also listed on the London Stock Exchange. Pod Solutions and Subex partnered to provide advanced security for IoT Billing and Connectivity Service February 19th 2018 October 24th 2017 Subex launched Consulting and Advisory Services for Telecom Business Assurance February 26th 2018 Vinod Kumar appointed as CEO of Subex Limited Subex announced Winner at the 8th edition of Aegis Graham Bell Award in the Data Science Category April 1st 2018 Annual Report 2017-18 | 05 PRODUCTS ROC Revenue Assurance Provides a comprehensive view of any enterprise by ensuring better visibility into risks surrounding operations, revenue and margins Incorporates an integrated risk assessment and process management framework to address revenue leakage as well as identify and recover lost revenues from diverse streams ROC Fraud Management Combines a traditional rules engine, advanced machine learning capabilities and a scalable architecture to ensure the proactive detection of fraudulent activities on the network Ensures that the system can be easily integrated with the ecosystem by utilizing readily deployable interfaces ROC Network Asset Management Provides a framework to audit network assets, evaluate inventory and make a business case for a network upgrade Offers an in-depth view of network assets and inventory to Optimise OpEx as well as CapEx Drives smarter network capital investment and network asset lifecycle management ROC Capacity Management Provides proactive, actionable business intelligence to make appropriate investments in maximizing network capacity Gleans insights from network capacity trends Correlates end-to-end capacity issues stimulates congestion points due to external events, Forecasts lead time for capacity exhaustion scenarios 06 | SUBEX LIMITED ROC Partner Settlement Ensures swift partner onboarding, partner self-care, end-to- end revenue visibility and seamless communication between business partners Offers a 360-degree view of interconnect agreements to help manage revenues and margins across the partner ecosystem Enables billing platform to introduce innovative product bundling and billing mechanisms for IP-based services ROC Route Optimisation Covers end-to-end processes from dial code/destination operator rate imports to switch updates Enhances visibility and control of critical processes ROC Insights Provides actionable business insights that are consumable and contextual to enable data-enriched decision-making Enables democratization of insights through the generation of consumable storyboards Offers agility by covering all areas of focus: Revenue, Risk, Customer and Product Subex Secure Offers comprehensive IoT security from real-time discovery and monitoring to response and recovery Leverages a one-of-its-kind honeypot network that combines physical devices and device emulations to generate IoT/ICS signatures Evaluates identity and device breaches and updates the Subex Secure signature repository to safeguard the enterprise from emerging IoT threats Annual Report 2017-18 | 07 Note to Shareholders Dear shareholders, It is my privilege to address Subex’s shareholders for the first time since taking on the role of CEO and Managing Director of the Company. The Financial Year 2017-18 (FY18) was a dramatic one marked by a number of challenges. The telecom BSS market, where we predominantly operate, reported flat growth and several countries in emerging markets encountered geopolitical and forex challenges. Even though our revenues were negatively impacted, we completed the year with an increase in contracted order bookings and improved operational profitability. Our contracted new order booking increased by 15% over the previous year and we ended FY18 with revenues of $50.5Million, EBITDA of $7.9 Million and PAT of $3.2 Million. Creditably, we repaid our entire outstanding FCCB debt and reduced our working capital debt, which resulted in significant interest cost savings. We also made significant progress to our products and solutions portfolio. To appreciate this, it is important to understand some key trends of our industry. Voice revenues are declining: As we approach the Fourth Industrial Revolution, the way people communicate is drastically changing. Voice calling and text messaging that dominated the communication industry, are giving way to internet messaging and VoIP (Voice Over Internet Protocol). This substantial reduction in voice and texting, along with a reduction in tariff have resulted in a decline of ARPU (Average Revenue Per User) and aggregate revenues for telcos. 15% Increase in our contracted order booking over the previous year As we approach the Fourth Industrial Revolution, the way people communi- cate is drastically changing. Voice call- ing and text messaging that dominated the communication industry is giving way to internet messaging and VoIP (Voice Over Internet Protocol). 08 | SUBEX LIMITED Massive telco consolidation: In the recent past, the communications industry has been marked by several mergers and acquisitions. Commoditization of legacy services and telcos’ desire to monetize their data are driving telco consolidation. By consolidating, they intend to leverage synergies and operational efficiencies. We witnessed this in India when Vodafone India and Idea Cellular announced their merger. 5G moves from trial to production phase: Several operators are planning for a limited 5G launch in the near future. 5G technology is expected to bring about new digitized services in retail, manufacturing, precision engineering and health verticals. Unlocking the IoT (Internet of Things): According to GSMA Intelligence, the number of global IoT connections could increase more than threefold and reach $25 Billion by 2025. The IoT security space promises tremendous growth and Gartner predicts the IoT security market could grow multi-fold to reach $3 Billion by 2021. Artificial intelligence: Artificial Intelligence (AI) and Machine Learning (ML) is moulding the future and poised to unleash the next wave of digital disruption. Along with the adoption of technologies like virtualization, SDN-NFV, and orchestration, Artificial Intelligence will be key to business and digital transformation in telcos, driving an improved customer experience. Increasing appetite for open standards: Major telcos have started experimenting with open source software and this trend is gaining traction as operators mimic the computing world and deepen their innovation focus. Further, Blockchain technology is reducing complexities in multi-party transactions, thereby moderating costs and enhancing digital competitiveness. It is clear that telcos are transforming from being Communication Service Providers (CSP) to Digital Service Providers (DSP). In line with this, we took some significant steps last year to make Subex more relevant to our customers. We rebranded Subex as a digital transformation enabler around three value pillars: driving new business models, enhancing the customer experience and optimising operations. We incubated a multi-vertical IoT security solution that differentiates itself by having 30% more threat signatures than any other player. We improved the application of Artificial Intelligence (AI) and Machine Learning (ML) capabilities in our products to solve use cases hitherto unsolved in the industry. We engaged with a Tier 1 telco on Network Analytics and proactively evolved our solution capabilities to graduate us ahead of the curve. We concluded the restructuring of entities to attract strategic partners and talents into our relevant business areas. It is abundantly clear that we need to break out from our current revenue level. Towards this, we plan to build on the strong foundation laid last year and aggressively pursue a growth strategy. The growth strategy will cover our core, new and emerging growth areas. We intend to perform well in our core areas and drive efficiencies that will help us invest in new growth areas. The near-term growth is expected from IoT Security and Network Analytics. We also plan to work on one or two new areas with the intention of bringing a new product to the market by the end of this year. During the course of this year, we expect to maintain our revenues from core areas, conclude ongoing trials around new areas and sign strategic partnerships. Considering that SaaS-based revenue models are prevalent in new areas, we expect revenues from new areas to kick in from the next year. The current management team consists of Subexians who have been around for a while. They clearly understand our strengths, challenges and opportunities. We plan to add new talents and capabilities to our teams as and when new areas of growth are identified. The team is well aligned and confident to drive our strategy, leading the Company out of the past into a bright future that makes Subex vibrant again. We are mindful of the fact that our FCCB resolution resulted in a significant equity dilution and pain to our investors. We are indeed thankful to our investors for their continued trust and patience. As elaborated above, we are committed to growing Subex and are optimistic that this strategy will enhance value and benefit our shareholders. We look forward to your support during this crucial phase of our journey. Vinod Kumar Managing Director and CEO Annual Report 2017-18 | 09 A CONVERSATION WITH VINOD KUMAR What are the emerging trends in the telecom space? The telecommunication sector is going through enormous changes. With the global adoption of data and smartphones, legacy communication services like voice and texting that contributed to the bulk of telcos revenues are rapidly declining and over-the-top services like WhatsApp, Facebook and Twitter are rapidly growing. This is forcing telcos to look at new avenues of revenue growth, partnerships with OTT players and take extreme steps to reduce the cost of legacy operations. On the network technology front, most of the telcos have completely migrated their network to 4G and LTE or are in the process of doing so. Some major ones have also started trialling 5G services. 5G will provide a 10-fold increase in speed of data transfer and should act as a catalyst for high bandwidth and low latency services like telemedicine and robotics. Deployment of technologies like NFC, Virtualization and Artificial Intelligence, along with open source adoption, would be a major disruption in the telecom industry. These are being done to reduce time-to- market, decrease cost, enhance the customer experience and improve competitiveness. These primary disruptions could also result in a secondary disruption around the skills needed in the telecom industry and the workforce will also need to go through a transformation. The widespread adoption of IoT by various industries is expected to increase the connectivity requirement; the telcos will slowly start seeing an increase in revenue from their IoT business. As a partner providing software solutions to this industry, this is an interesting time with an urgent need to change with the shift that we are witnessing in the industry. How is Subex placed to capitalize? Currently, we serve over 150 operators in 90 countries with Subex solutions deeply embedded within their network. It is fair to say that a significant portion of the global telecom traffic flows through our platforms. This global presence and access to data are one of our major strengths. We have constantly kept pace with emerging technologies and emerging needs of the market by proactively co-creating solutions with customers. We migrated our portfolio to support big data Hadoop stack and also embedded Artificial Intelligence and Machine Learning into our products. Further, we also invested in services capabilities to assist customers whenever required to extract the maximum value from our solutions. With all these, we possess a very good base to build on. As we double down investments towards growing, we intend to make customers central to whatever we do. Rapid technology adoption by operators will create a new requirement in our core areas that we need to fulfill. We also identified some use cases like monetizing telecom data, digital identity and anomaly detection that offer Revenue growth and a vibrant Subex will be our immediate focus areas. These two aspects feed on each other and one cannot exist without the other. Vinod Kumar MD & CEO 10 | SUBEX LIMITED significant benefits to our customers. We started working with a select few to prove these concepts. These are exciting areas and we hope to make a major impact. Another area that I want to highlight is our multi-vertical IoT Security solution that we launched recently. Leveraging our strengths in the fraud and risk domain, we have created a robust solution that currently has 30% more threat signatures than any other player in the market. What makes you optimistic about the role of IoT? Internet of Things (IoT) is beginning to transform businesses, economies and society. While people build smart cities and businesses, it is also important that they remain safe cities and safe businesses. There is a growing acceptance of this need and IoT security is emerging as a key component in the overall IoT infrastructure. The global IoT security market is slated to witness tremendous growth and expected to reach about $1.5 Billion in 2018. Seeing this need we worked for the last two years to create a multi- vertical IoT security solution called Subex Secure. We have an extensive honeypot network that enables us to proactively capture threat signatures that are subsequently packaged and deployed to protect IoT installations. Subex Secure already protects over 8 Million IoT devices. The IoT Security Laboratory and various partnerships that we have signed will help us to secure a portion of the expected multi-fold increase in the IoT Security market. We recently announced a collaboration with a large automobile Original Equipment Manufacturer (OEM) to provide cutting-edge security solutions to secure Connected Car Domains where Subex will provide vulnerability assessment, penetration testing and security modules incorporated in the OEM’s new products. The connected car segment is extremely buoyant and likely to disrupt the automobile industry. Our mission is to secure the digital world and here we are making good progress. Were you pleased with the Company’s performance in FY 2018? FY18 was a an interesting year. With a bulk of the financial and Balance Sheet clean-up completed, we were able to start working towards growing the Company. Within the means available, we invested in our portfolio to make it relevant to the times and also launched the IoT security product. From a financial standpoint, we managed things reasonably well. Amidst a flat market marked by geopolitical and forex issues, we increased our contracted new order booking by 15% over FY17. We ended FY 18 with a revenue of $50.5 Million, EBITDA for $7.9 Million and PAT of $3.2 Million. From the breakup of revenues, you will notice that the annuity stream that accounts for over 70% of the total revenue stabilized and, going forward, we expect it to continue the same trend. This was the result of a conscious effort to move Annual Report 2017-18 | 11 1 telco belonging to major telecom operator group and the project is near completion. The progress in terms of results has been encouraging, which we intend to promote aggressively. This should provide us with more mileage to showcase our NAM portfolio to other Tier 1 telcos, and we expect them to adopt this new way of handling assets. In the area of IoT security, the market is expected to grow multifold and we are positioned to secure a part of this market expansion. We hope to sign more strategic partnership contracts, one similar to what we announced with Pod Systems during the course of this year. Horizon 3 consists of our long-term growth initiatives. We plan to launch our new portfolio of products and services around new high growth areas such as Customer Journey Analytics, Digital Identity, Anomaly Detection etc. We plan to launch one product during the latter part of this year and incubate a few more ideas for market release next year. We have access to a significant portion of the global telecom traffic and the attempt is to see how we can leverage this access, timing with the planned opening/ set up of digital infrastructure like the ‘IndiaStack’. We are also planning to expand our assurance offerings to markets outside the telecom vertical. On the overall, we plan to invest actively in our mid-term and long-term growth areas starting this year. these areas. However, the business models, valuations and many other aspects of these businesses are different. Hence it was difficult for us to get attention from the right partners. Hence a new structure with different LLPs were created and we hope this will address the issue. What are the key focus areas for Subex? Revenue growth and a vibrant Subex will be our immediate focus areas. These two aspects feed on each other and one cannot exist without the other. We have been stuck at the $50M level for a while and it is critical for us to break out and accelerate. Only then we would be able to report growth and prosperity, for all stakeholders. I intend to relentlessly drive the company’s focus on these two aspects and pursue it with the required vigor to make them happen. How does Subex intend to grow? We foresee the growth of Subex from three horizons. Horizon 1 will focus on the short-term. The objective here is to perform better in our core business, which consists of fraud management, revenue assurance and interconnect billing solutions for the telecom segment. The advancements that we have made in these areas will allow us to compete better and attract a higher market share. We will continue to evolve our products and improve efficiency. Horizon 2 will provide the near-term growth for the Company. We intend to execute well on our new portfolio, namely multi-vertical IoT security and the Network Asset Management (NAM) solution. Last year, we secured our first customer for NAM, a Tier towards managed services to mitigate the challenges of lumpiness of license sales and to bring predictability into revenue and margins. The license revenue will have variations based on the structure and when the contract bookings are done. In Q4 of FY17, we converted $3 Million revenue from the contracts booked in that quarter, whereas in Q4 of FY18 it was only $600K, even though the total contract bookings were higher. Even though on a year-to-year basis, the revenue showed a decrease, from an overall competitive and market share increase perspective, we did better. What was the rationale behind the Subex restructuring? As we expand into new areas outside our core products of revenue management, it is necessary to attract strategic partners and talents to grow On IoT security, the market is expected to grow multifold and we are well positioned to secure a part of this market expansion. We hope to sign more strategic partnership contracts, one similar to what we announced with Pod Systems, during the course of this year. 12 | SUBEX LIMITED OUR PERFORMANCE IN NUMBERS Revenues (H crore) PAT (H crore) PAT (%) 3 3 . 7 5 3 6 4 . 2 2 3 2 3 . 4 2 3 6 1 - 5 1 0 2 Y F 7 1 - 6 1 0 2 Y F 8 1 - 7 1 0 2 Y F 1 2 8 1 - 7 1 0 2 Y F 6 1 - 5 1 0 2 Y F 7 1 - 6 1 0 2 Y F ) 3 4 ( ) 4 7 ( 8 3 . 6 8 1 - 7 1 0 2 Y F 6 1 - 5 1 0 2 Y F 7 1 - 6 1 0 2 Y F ) 0 1 . 2 1 ( ) 4 0 . 3 2 ( Annual Report 2017-18 | 13 Message from Head of Strategy and Products A CONVERSATION WITH ROHIT MAHESHWARI The two key strengths of Subex comprise access to large amounts of data and an in-depth understanding of the telco business. Rohit Maheshwari Head of Strategy and Products T here has been a paradigm shift in the global telco business in the last few years. From mere utility providers of voice and data services, our customers have transformed into digital service providers offering the complete spectrum of communication and digital services. While digital services hold significant prospects, digital service providers are encountering stiff competition from OTT players. The verdict is clear: players can either invest in innovation or become irrelevant. The result is that a larger number of CSPs are making bigger investments in network augmentation, especially in rolling out 5G. This has resulted in a pressure on BSS funding, a key area where Subex operates. However, our experience indicates that following the launch of any new technology or allied infrastructure creation, there could be a need to re-invest in business support systems comprising revenue assurance, fraud management and partner settlements, among others. In view of this, we are confident that our legacy business will rebound even as they were relatively flat during the year under review. Building a sustainable future At Subex, we divide prospects across the near-term, mid-term and long- term – the ‘three horizon outlook’. The most proximate horizon comprises fraud management, revenue assurance and interconnect billing solutions in the telecom segment. We are geared to perform >15 Billion We have worked with some of the largest telcos, who generate >15 Billion transactions per day. Subex is agile, flexible and open-mind- ed compatible with rapid changes across the landscape. Subex expects to continue empowering customers in responding with speed to technological shifts across the foreseeable future. 14 | SUBEX LIMITED well in this area following investments in skill building, big data platform creation and AI cum machine learning investments. We expect to sustain product evolution and solutions efficiency enhancement to address customer requirements and stabilize related revenues. Our second horizon comprises new areas we nurtured in the last few years. We expended significant resources in shoring capabilities across IoT security, network analytics and telecom asset lifecycle management (ALM) solutions. We expect to sustain business through the short-term and accelerate during the mid-term. I am pleased to communicate that in FY18, we secured our first ALM customer, a Tier I telco from a major telecom operator group and this project is expected to be completed by end 2018. The initial results are encouraging and we expect the execution to be successful, helping attract other Tier 1 telcos. In the area of IoT security solutions, the market is expected to grow 15-fold to US$1.5 Billion (Source: Gartner) by 2020. Subex is attractively positioned to secure a part of this market growth. We intend to sign strategic partnership contracts, one being similar to what we announced with Pod Systems during the course of the year under review. The predominant revenue model for IoT security solutions would be subscription-based - different from the conventional model. In any subscription model, revenue accretion will be slow during the initial period but could ramp up with speed following increases IoT adoption. We expect new portfolios to account for an attractive part of the newly contracted business with significant revenues likely from FY20 onwards. The third or the long-term horizon comprises high-growth business areas. Subex’s engagement with telcos provides access to large amounts of data. The Company will examine ways in which it can monetize this access in line with growing digitalization the world over. Subex is respected in the end-to-end business assurance telco segment. Since adjacent markets, where assurance is equally relevant, are not as evolved, we intend to repurpose our assurance skills for these markets outside the telecom segment. Our proven expertise will provide us the with the fuel we need to pursue mid- term and long-term goals. The Subex edge The two key strengths of Subex comprise access to large amounts of data and an in-depth understanding of the telco business. We have worked with some of the largest telcos, who generate >15 Billion transactions per day. These transactions represent data repositories that can be mined to generate useful information. We invested in best-in-class platforms to leverage big data; we scaled the business to stay ahead. Subex is agile, flexible and open- minded compatible with rapid changes across the landscape. Subex expects to continue empowering customers in responding with speed to technological shifts across the foreseeable future. A transforming Subex To sustain our growth engine, we will need to keep innovating while venturing into new areas. In view of this, we started focusing on strengthening our skills, which could help us transform our revenue profiles and enter the ever-expanding IoT segment. At the 2018 Mobile World Congress in Barcelona where I was present, there was a broad consensus that 2018 would be a defining year for IoT. We expect that our head start should translate into a growing presence in this niche. Artificial Intelligence (AI) has emerged as the next big thing; many great ideas in AI that had been languishing in textbooks for decades, because of a lack of computational power to apply them, have gained fruition, thanks to two big changes. One, the rate at which data is being collated has increased exponentially. Two, the arrival of groundbreaking technologies, such as neural nets, have allowed AI to ‘evolve’ to solve complex problems. AI analytics will help us transform our existing businesses and allow us to offer new-age solutions that are customer-centric and in heavy demand. In view of these reasons and realities, we are confident of replicating our retrospective growth across a more compressed period of time. Annual Report 2017-18 | 15 Message from Head of IoT Security A CONVERSATION WITH KIRAN ZACHARIAH By 2020, IoT is expected to aggregate 20 to 50 Billion devices, growing exponentially from ~6.4 Billion devices in 2016. Kiran Zachariah Head of IoT Security T he new global connectivity wave is extending beyond laptops and smartphones. This wave is extending towards connected cars, smart homes, connected wearables, Smart Cities and connected healthcare - a connected life. Over the past few years, there has been extensive discussion around the IoT impact across the world. Although little has transpired in reality, the prospects remain compelling. During the year under review, we spent the first three quarters planning and designing IoT projects; during the last quarter, we implemented them. Most of these projects comprised cost Optimisation while other projects focused on equipment downtime reduction and minimized manual interventions in the areas of monitoring and predictive maintenance. Over the next couple of years, we plan to focus on industrial IoT and automated cars - two rapidly growing segments. The automotive IoT market US$1.5 Billion In the area of IoT security solutions, the market is expected to grow 15-fold to US$1.5 Billion (source: Gartner) by 2020. 16 | SUBEX LIMITED threat intelligence to mitigate risks. Although IoT attacks can target individual components, when they are connected to the entire IT network, they can affect the entire infrastructure. Subex offers solutions for the entire IoT ecosystem. We use signatures from honeypots and machine learning to determine if the device has been compromised. The result: our threat responsiveness is 25-35% more effective than competing alternatives. The Subex edge is derived from its first-mover advantage. The Company has focused singularly on the telecom sector and now the time has come to venture into areas like Defense and education. Subex is transforming with speed By 2020, IoT is expected to aggregate 20 to 50 Billion devices, growing exponentially from ~6.4 Billion devices in 2016. IoT providers will need to address the increasing stress on their existing infrastructure and factor this growth while designing ecosystems. Subex Secure is built around a framework that monitors 500 Million devices and 6 Billion transactions a day on commodity hardware via 300 global installations. This telco-grade solution has been developed using telecom innovations from across the last two decades. The framework, deployed at some of the largest telcos, is is projected to reach US$ 82.79 Billion by 2022. By 2020, an estimated 250 Million connected vehicles would be on roads, enhancing security and hacking concerns. The development of Smart Cities and Smart Nations are at a pilot stage and we are adapting our business model around changes in the IoT realm. Building a sustainable future At Subex, we selected to develop inch-wide and mile-deep competence. Our selection of the IoT security area was on the grounds that it was niche and relatively under-populated by specialized players. Besides, IoT security is different from the security solutions that runs on conventional IT hardware. A normal security solution is difficult to run on the connected devices that are part of the IoT ecosystem. The large cyber-attacks on IoT devices have vindicated our presence in this space. We are now monitoring over 8 Million devices worldwide. What makes Subex different is its focus on building threat intelligence through IoT and ICS and using that constantly modified to address escalating network traffic while reducing the total cost of ownership. Looking ahead, we would like to triple the number of devices we monitor across four years as we carve out a large slice of the segment. We are continuing to lay a keen emphasis on catering to telco customers who are a part of the IoT; we are planning to launch Cloud or SaaS-based models. It is the convergence of these realities that makes me optimistic of the Company’s long-term prospects. Subex Secure is built around a frame- work that monitors 500 Million devices and 6 Billion transactions a day on commodity hardware via 300 global installations. Annual Report 2017-18 | 17 MAKING TOMORROW SUSTAINABLE 18 | SUBEX LIMITED Making our presence felt in the niche IoT security space IoT provides always-connected services to digital subscribers. IoT ecosystems are complex; a typical deployment comprises multiple systems (platforms, databases, mobile apps, load balancers, web interfaces and certificate servers, among others). Since IoT exposes subscribers to identity theft and security breach, an effective IoT security solution can potentially secure components while comprehending traffic flows across OSI layers (three to seven). Subex provides holistic cyber security solutions that protect enterprises, among the first few companies to provide solutions against unauthorized intrusion. The market is large and growing. The number of global IoT devices could quintuple between 2016 and 2020. The market could grow to US$ 29.02 Billion by 2020. Subex Secure offers comprehensive IoT security coverage from real-time discovery and monitoring to response and recovery. This solution leverages a one-of-its-kind honeypot network that combines physical devices and device emulations to generate IoT/ICS signatures. The system evaluates global identity and device breaches, updating the Subex Secure signature repository to safeguard enterprises from emerging IoT threats. Subex has an extensive honeypot network that enables the Company to proactively capture threat signatures that are subsequently packaged and deployed to protect IoT installations. By transforming the existing assurance business As digital technologies disrupt traditional internet service providers and telcos, revenues are shrinking for legacy carriers. IP-based disruptors are eroding traditionally profitable revenue streams (overseas calls), affecting telco growth. The adoption of new technologies entails revenue-related risks. For instance, in the billing domain, diverse data plans enable subscribers to indulge in an all-you-can-eat buffet of gigabytes for a flat rate, while other subscribers can cherry-pick plans that suit their needs. The art of revenue management has been made complex by the addition of virtualized networks, streaming services, onboarding of new subscribers, renewal of subscriptions and termination of subscriptions. Although telcos provisionally moderately their budgets to prepare for 5G, this could re-emerge as a focus area. Subex is globally respected for its strong solutions suite that provides real-time assurance to CSPs. The Company is poised to capitalize on the next wave of sectoral investments; its ability to mine data, garner actionable information and create customized solutions are expected to help Subex emerge as the port-of-first-call for global telcos on the one hand and widen revenue streams on the other. Subex making its future sustainable through continuously strengthening its existing businesses and also through venturing into the the high-growth IoT security space through offering cutting-edge solutions. Annual Report 2017-18 | 19 SUBEX - BECOMING FUTURE-READY… Reputed Over the past 25 years, Subex has made 300+ global installations; its clients comprise >75% of the top- 50 global CSPs, reinforcing its position as one of the most respected names in the telecommunication and IoT spaces. Integrated Subex processes several petabytes of data every day. This data is mined through advanced analytical tools that salvage actionable information and offer customized solutions. Balanced Subex enjoys an adjusted mix of revenue streams (license-based and subscription-based, among others). Focused Subex helps clients address sectoral challenges, open up new revenue streams, enable operational excellence and enhance their customer experience. Differentiated Subex has selected to work in niche and relatively under-crowded segments; the foray into the IoT security segment is a manifestation of this approach. People-oriented Subex is driven by 900+ people working globally to drive innovation and product development. Foresight Subex has an extensive honeypot network that enables the Company to proactively capture threat signatures that are subsequently packaged and deployed to protect IoT installations. Futuristic Subex is leveraging new-age technologies like Artificial Intelligence (AI) and Machine Learning (ML) to stay relevant in the evolving industry space. 20 | SUBEX LIMITED SUBEX - MAKING A DIFFERENCE TOGETHER The Subex Charitable Trust is a non- profit trust that mobilizes employee participation in community projects. SCT supports causes of community welfare, specifically for the economically backward and specially- abled individuals. The Trust supports initiatives based on requests received from diverse sources. ACTIVITIES UNDERTAKEN DURING 2017-18 Education aid: The Subex Charitable Trust sponsored 40 economically- challenged students from rural areas with scholarships through the Nurture Merit program. Education aid: The Company sponsored tuition fees for the Vidyaranya Trust Orphanage. Vocation Training for Women empowerment: SCT tied up with the Prerana Resource Centre for providing vocational training to visually impaired and disabled orphan teenage girls, Sponsoring their tuition fees. As part of this program, 25 blind and disabled girls were provided training in 3 phases – Basic Education, Vocational Training & Employment follow-up. Out of the 25, 22 blind/disabled Girls were successful in attaining jobs in different factories – textile industry, packaging industry, printing and others. Received Nurture Merit contribution from 33 Subexians and more than 20 Subexians are contributing a monthly amount from their salary for SCT activities. Other activities: • Organized blood and stem cell donation camp with TTK Bank. • Visited Bellandur Government School and Government School, Kadubisanahalli for checking their requirements. • Provided 10 desktop computers to Government Higher Secondary School for education purposes. Provided a water cooler for providing clean drinking water to the students. • Donated clothes and toys for economically challenged children through Goonj with the help of Subexian volunteers. • Vidyaranya Trust Orphanage - SCT volunteers spent time with children and donated back packs and water sippers to children. • Opportunity School for mentally challenged: SCT volunteers visited and spent time with mentally challenged children and donated back packs and water sippers. • Donated cots and mattresses to Shishu Mandir, a home for destitute children. Annual Report 2017-18 | 21 BOARD OF DIRECTORS Mr. Anil Singhvi Chairman and Independent Director Mr. Vinod Kumar Managing Director and Chief Executive Officer Ms. Poornima Prabhu Independent Director Ms. Nisha Dutt Independent Director 22 | SUBEX LIMITED LEADERSHIP TEAM Mr. Vinod Kumar Managing Director and Chief Executive Officer Mr. Rohit Maheshwari Head of Strategy & Products Mr. Suraj Balachandran Head of Sales – EMEA & APAC Mr. Mark Bourgoin Vice President Sales - North America Mr. Kiran Zachariah Head of IoT Security Ms. Mehernaz Dalal Chief Financial Officer Mr. Mohan Sitharam Chief Human Resources Officer Mr. David Halvorson General Counsel Annual Report 2017-18 | 23 Boards’ Report Your Directors have pleasure in presenting the 24th Annual Report of the Company on the business and operations together with the audited results for the year ended March 31, 2018. 1. FINANCIAL RESULTS Particulars Total Revenue Share of profit/(loss) net Other Income Finance Cost Profit/ (loss) before exceptional items and tax expense Exceptional Items Profit/ (loss) before tax Tax expenses Profit/ (loss) after tax Other comprehensive income i. to be reclassified to profit or loss in subsequent periods ii. not to be reclassified to profit or loss in subsequent periods Consolidated Standalone* 2017-18 2016-17 2017-18 2016-17 (H in Lakhs) 32,432 35,733 17,993 - 140 775 2,275 1,166 3,441 1,373 2,068 (240) (210) (30) - 1,154 2,040 7,528 (10,890) (3,362) 961 (4,323) (1,376) (1,344) (32) 37 66 547 (200) 389 189 157 32 (8) - (8) 24 32,441 - 1,253 1,505 4,162 (4,591) (429) 254 (683) (33) - (33) (716) Total comprehensive income for the year 1,828 (5,699) *Pursuant to the restructuring, the current year’s standalone figures are not comparable to the previous year’s standalone figures. (Also refer note 31 of the standalone financial statements). 2. RESULTS OF OPERATIONS During the financial year ended March 31, 2018, the total revenue on a standalone basis was H17,993 Lakhs as against the revenue for the previous year which was H32,441 Lakhs. The Company has during the year under review earned a profit of H32 Lakhs as against a loss of H683 Lakhs in the previous year. On a consolidated basis, the total revenue stood at H32,432 Lakhs as against H35,733 Lakhs during the previous year. The profit for the financial year 2017-18 is H2,068 Lakhs as against loss of H4,323 Lakhs in the previous year. 3. DIVIDEND The Directors have not proposed any dividend for the financial year 2017-18. 4. TRANFER TO RESERVES There is no transfer to general reserves during the year 2017-18. Pursuant to restructuring, the difference between net assets transferred and the capital contribution of H2,776 Lakhs has been transferred to Capital reserve. Also refer note 31 of the standalone financial statements. 24 | SUBEX LIMITED 5. SHARE CAPITAL As at March 31, 2018 and as at the date of this report, the authorised, issued, subscribed and paid- up capital of the Company is as below: (Amount in H) Share Capital Authorised At the beginning of the year– Equity Shares @ H10 each Preference Shares @ H98 each Issued Equity Shares @ H10 each Preference Shares @ H98 each Subscribed Equity Shares @ H10 each Preference Shares @ H98 each Fully Paid- up Equity Shares @ H10 each Preference Shares @ H98 each As on April 01, 2017 Increase during the year As on March 31, 2018 5,450,400,000 19,600,000 430,000,000 Nil 5,880,400,000 19,600,000 5,069,079,360 Nil 550,949,990# Nil 5,620,029,350 Nil 5,069,079,360 Nil 550,949,990 Nil 5,620,029,350 Nil 5,069,079,360 Nil 550,949,990 Nil 5,620,029,350 Nil # On May 15, 2017, the Company made an allotment of 55,094,999 equity shares of the Company on a preferential basis at an issue price of H14 per equity share (Face value of H10 per equity share). (The proceeds of the equity shares issued on preferential basis, has been utilized for the acquisition of Intellectual Property Rights viz. DIM from Subex Americas Inc. and to strengthen the long term capital structure of the Company.) Sl. No. i. ii. iii. Investors QVT Singapore Fund Pte. Ltd Tonbridge (Mauritius) Limited Leeds (Mauritius) Limited Total No. of shares 27,531,428 17,916,321 9,647,250 55,094,999 Subex has received numerous awards jointly with its customers. The recent awards include: • Aegis Graham Bell Award 2017 for Innovation in ROC Insights under “Data Science” Category • Global Telecoms Business Innovation Award 2017 with Saudi 6. BUSINESS Subex is a leading telecom analytics solutions provider, enabling a digital future for global telcos. Founded in 1994, Subex has spent over two decades in enabling 3/4th of the largest 50 Communication Service Providers (CSPs) globally achieve competitive advantage. By leveraging data which is gathered across networks, customers and systems coupled with its domain knowledge and the capabilities of its core solutions, Subex helps CSPs to drive new business models, enhance customer experience and optimise enterprises. Subex leverages its award-winning analytics solutions in areas such as Revenue Assurance, Fraud Management, Asset Assurance and Partner Management “Revenue Management Services/RMS business” and complements them through its newer solutions such as IoT Security “Digital Business”. Subex also offers scalable Managed Services and Business Consulting services. It has more than 300 installations across 90+ countries. Telecom Company • Pipeline Innovation Awards under “Managed Services” category & “Innovations in Security & Assurance” As part of the business restructuring efforts of the Company, the Company invested in two Limited Liability Partnership (LLP) entities. Pursuant to this, two LLPs- Subex Digital LLP and Subex Assurance LLP were incorporated on April 05, 2017. Pursuant to: (i) the in-principle approval accorded by the Board of Directors of the Company (“Board”) at its meeting No. 2/2017-18 held on May 25, 2017; (ii) the final approval accorded by the Board at its meeting No. 5/ 2017-18 held on August 21, 2017; and (iii) the approval accorded by the members of the Company vide postal ballot on September 23, 2017; Annual Report 2017-18 | 25 7. SUBSIDIARIES (WHOLLY OWNED AND OTHER SUBSIDIARIES) SUBEX ASSURANCE LLP AND ITS SUBSIDIARIES For the year ended March 31, 2018, Subex Assurance LLP earned a net income of H12,818 Lakhs and a net profit of H635 Lakhs. As at March 31, 2018, Subex Limited held more than 99.99 % of the capital in Subex Assurance LLP and the balance is held by Subex Digital LLP. Pursuant to the business restructuring of the Company, Subex (UK) Limited became a wholly owned subsidiary of Subex Assurance LLP with effect from November 01, 2017. • For the year ended March 31, 2018, the Standalone income of Subex (UK) Limited was H16,398 Lakhs as against H17,619 Lakhs last year, and the net loss was H5,308 Lakhs as against a net gain of H1,859 Lakhs last year. • Subex (Asia Pacific) Pte. Limited is a wholly owned subsidiary of Subex (UK) Limited. For the year ended March 31, 2018, the Standalone income of Subex (Asia Pacific) Pte. Limited was H2,992 Lakhs as against H2,555 Lakhs last year, and the net loss was H655 Lakhs as against a net gain of H892 Lakhs last year. During the year Subex (Asia Pacific) Pte. Ltd issued 8 million shares at SG$1 per share to its holding Company Subex (UK) Limited to meet its fund requirements. • Subex Inc.is a wholly owned subsidiary of Subex (UK) Limited. For the year ended March 31, 2018, the Standalone income of Subex Inc. was H9,353 Lakhs as against H10,694 Lakhs last year, and the net gain was H86 Lakhs as against a net gain of H117 Lakhs last year. • Pursuant to the business restructuring of the Company, Subex Middle East (FZE) became a wholly owned subsidiary of Subex Assurance LLP with effect from November 01, 2017. For the year ended March 31, 2018, the standalone income of Subex Middle East (FZE) is H1,132 Lakhs as against H1,706 Lakhs last year and loss of H14 Lakhs as against a gain of H35 lakhs last year. SUBEX DIGITAL LLP For the year ended March 31, 2018, Subex Digital LLP earned a net income of H33 Lakhs and incurred a net loss of H598 Lakhs. As at March 31, 2018 Subex Limited held more than 99.99 % of the capital in Subex Digital LLP and the balance is held by Subex Assurance LLP. (i) The Revenue Maximization Solutions and related businesses carried out by the Company, was contributed to its subsidiary, Subex Assurance LLP for a consideration of H615,64,56,051/- (Rupees Six Hundred Fifteen Crores, Sixty Four Lakhs, Fifty Six thousand and Fifty one only), in the form of credit to the Company’s capital account with Subex Assurance LLP (ii) The Subex Secure and Analytics solutions and related businesses carried out by the Company, was contributed to its subsidiary, Subex Digital LLP for a consideration of H18,68,84,750/- (Rupees Eighteen Crores, Sixty Eight Lakhs, Eighty Four Thousand, Seven Hundred and Fifty only), in the form of credit to the Company’s capital account with Subex Digital LLP. The purpose of the Restructuring was to achieve the following commercial reasons, inter alia: (i) Segregate the Company’s business into separate verticals, facilitating greater focus on each business vertical and higher operational efficiencies; (ii) enhance the ability of the Company to enter into business specific partnerships and to attract strategic investors at respective business levels; (iii) improve organizational capabilities, arising from the segregation of human capital and focus the diverse skills, talent and experience in specialized fields to compete successfully in an increasingly competitive industry; (iv) de-risk various business verticals from each other; and (v) enhance value for the shareholders of the Company. The Board at its meeting held on October 04, 2017, approved November 01, 2017 as the effective date for the restructuring of the business of the Company. SEZ I and II The Company transferred SEZ units I & II to its subsidiary, Subex Assurance LLP, with effect from November 01, 2017 i.e. the effective date of the business Restructuring. SEZ III During the year the Company completed all its statutory formalities / compliances under SEZ Act/Rules in respect of this new unit and commenced operations from this unit. Further details on the business of the Company is provided in the Management Discussion and Analysis section of the Annual Report. 26 | SUBEX LIMITED Subex Azure Holding Inc. is a wholly owned subsidiary of Subex Americas Inc. There were no transactions during the year under review. As on March 31, 2018, Subex Limited holds 100 common shares (92.59%) in the capital of Subex Americas Inc. and Subex (UK) Limited holds 8 common shares (7.41%) in the capital of Subex Americas Inc. SUBEX TECHNOLOGIES LIMITED Subex Technologies Limited is a wholly owned subsidiary of Subex Limited. For the year ended March 31, 2018, Subex Technologies Limited incurred a net loss of H4 Lakhs as against a net profit of H54 Lakhs last year. There are no business operations at present. SUBEX AMERICAS INC. For the year ended March 31, 2018, the standalone income of Subex Americas Inc. was H851 Lakhs as against H3,186 Lakhs last year, and net profit was H6,264 Lakhs as against a profit of H3,012 Lakhs last year. 8. FINANCE FOREIGN CURRENCY CONVERTIBLE BONDS (FCCB’s) The details of the FCCB’s of the Company are summarized below : Particulars (amount in US$ million) US$ 180,000,000 2.00% coupon convertible bonds "FCCB I" US$ 98,700,000 5.00% convertible unsecured bonds "FCCB II" US$ 127,721,000 5.70% secured convertible bonds "FCCB III" Issue of FCCB I on March 08, 2007 Restructuring of bonds during 2009-10 Discount @ 30% Balance as on November 02, 2009 Conversion to equity in 2009-10 and 2010-11 Balance March 31, 2011 Restructuring of bonds during 2012-13 Premium Balance on July 06, 2012 Mandatory conversion to equity shares on July 17, 2012 Balance after mandatory conversion Conversion to equity up to March 31, 2016 Balance as on March 31, 2016 Conversion during 2016-17 Redemption on March 06, 2017 Balance as on March 31, 2017 Redemption on July 07, 2017 Balance as on March 31, 2018 180.00 (141.00) - 39.00 - 39.00 (38.00) - 1.00 - 1.00 - 1.00 - (1.00) - - Nil As on March 31, 2018, the Company did not have any outstanding FCCB’s. - 141.00 (42.30) 98.70 (43.90) 54.80 (53.40) - 1.40 - 1.40 - 1.40 - (1.40) - - Nil - - - - - - 91.40 36.32 127.72 (36.32) 91.40 (86.85) 4.55 (0.95) - 3.60 (3.60) Nil Annual Report 2017-18 | 27 9. DEPOSITS Your Company has not accepted any deposits from the public. 4 years and can be exercised over a period of 3 years from the date of vesting. 10. EMPLOYEE STOCK OPTION SCHEMES Details of the Company’s Employee Stock Option Plans are given below: a. EMPLOYEE STOCK OPTION PLAN-2005 (ESOP-III) Under this scheme, an initial corpus of 5,00,000 options was created for grant to the eligible employees, with each option convertible into one fully paid-up equity share of H10/-. This scheme was formulated in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. The corpus of the scheme was further enhanced by 15,00,000 options during the financial year 2007-08. The Company has obtained the requisite in-principle approvals from the stock exchanges for the listing of equity shares arising out of exercise of options granted under the scheme. The Compensation Committee granted options to the eligible employees in accordance with the provisions of the scheme. The options were granted at a price, which was 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 was highest trading volume during this period. Unless otherwise resolved, the options granted vest over a period of 1 to 4 years and could be exercised over a period of 3 years from the date of vesting. The tenure for grant of stock options under ESOP 2005 scheme has expired in 2015 and the Company is only administering the outstanding stock options issued under the scheme. b. EMPLOYEE STOCK OPTION PLAN-2008 (ESOP-IV) During 2008-09, your Company instituted the Employee Stock Option Plan-2008. A corpus of 20,00,000 options were created for grant to the eligible employees under the scheme. The Scheme was formulated in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. The Company has obtained the requisite in-principle approvals from the stock exchanges for the listing of equity shares arising out of exercise of options granted under the scheme. The Compensation Committee granted options to the eligible employees in accordance with the provisions of the scheme. The options were 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 was highest trading volume during this period. Unless otherwise resolved, the options granted vest over a period of 1 to 28 | SUBEX LIMITED As on March 31, 2018, there are no outstanding options under the ESOP 2008 Scheme. Additional information regarding the employee stock options as at March 31, 2018 is given in “Annexure A” to this report. 11. PARTICULARS OF GUARANTEES UNDER SECTION 186 Details of guarantees covered under Section 186 of the Companies Act 2013, are given in note number 35 (b) (iv) of the Standalone Financial Statements. 12. MATERIAL CHANGES AND COMMITMENTS BETWEEN THE END OF FINANCIAL YEAR AND DATE OF THE REPORT Mr. Ashwin Chalapathy, Non-Independent, Non-Executive Director, resigned from the Board with effect from May 04, 2018. 13. CORPORATE GOVERNANCE Your Company strongly believes that the spirit of Corporate Governance goes beyond the statutory form. Sound Corporate Governance is a key driver of sustainable corporate growth and long-term value creation for the stakeholders and protection of their interests. It endeavors to meet the growing aspirations of all stakeholders including shareholders, employees and customers and is committed to maintaining the highest level of transparency, accountability and equity in its operations. It always strives to follow the path of good governance through a broad framework of various processes. Your Company has complied with the conditions of Corporate Governance as stipulated in the SEBI (Listing Obligations and Disclosure Requirements), Regulations, 2015 as amended from time to time. The Auditor’s certificate on compliance with respect to the same is annexed herewith in “Annexure B”. In addition, it 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. 14. DIRECTORS As per Section 152 of the Companies Act, 2013, at least two-third of the Directors shall be subject to retirement by rotation. One-third of such Directors must retire from office at each Annual General Meeting of the shareholders and a retiring Director is eligible for re-election. Accordingly, Mr. Vinod Kumar Padmanabhan, retires by rotation and being eligible, has offered to be re-appointed at the ensuing Annual General Meeting. The Board at its meeting held on May 25, 2017 appointed Mr. Anil Singhvi, Independent Director, as the Chairman of the Company. Mr. Vinod Kumar Padmanabhan, Chief Operating Officer of the Company and Mr. Ashwin Chalapathy, Chief Technology Officer and Head of Service Delivery of the Company were appointed as Additional Directors and Whole-Time Directors at the same meeting. The shareholders approved the appointments of Mr. Vinod Kumar Padmanabhan and Mr. Ashwin Chalapathy, at the 23rd Annual General Meeting of the Company held on July 28, 2017. Pursuant to the restructuring of the business of the Company, the Revenue Maximisation Solutions business was contributed to Subex Assurance LLP and the Subex Secure and Analytics solutions and related businesses was contributed to Subex Digital LLP. Consequent to such business restructuring Mr. Vinod Kumar Padmanabhan and Mr. Ashwin Chalapathy were appointed in Subex Assurance LLP and they continued as Non- Executive and Non-Independent Directors on the Board of the Company with effect from November 01, 2017, being the effective date of such business restructuring. Mr. Surjeet Singh was re-appointed as the Managing Director & CEO of the Company at the Board Meeting held on October 04, 2017 for the period from October 05, 2017 to March 31, 2018. The said re- appointment is being placed before the Members of the Company at the ensuing Annual General Meeting for their approval. The Board at its meeting held on March 21, 2018, took note, that pursuant to the terms of the employment agreement of Mr. Surjeet Singh with the Company, his tenure as Managing Director & CEO of the Company concluded on March 31, 2018. In view of the conclusion of tenure of Mr. Surjeet Singh as the Managing Director & CEO of the Company and pursuant to the recommendation of the Nomination and Remuneration Committee, the Board at its meeting held on March 21, 2018, appointed Mr. Vinod Kumar Padmanabhan as the Managing Director & CEO of the Company effective from April 01, 2018, for a tenure of three years. The said appointment is being placed before the Members of the Company at the ensuing Annual General Meeting for their approval. Mr. Ashwin Chalapathy, Non-Independent, Non-Executive Director, resigned from the Board with effect from May 04, 2018. The details regarding the familiarization program for Independent Directors is available on the website of your Company under the link https://www.subex.com/shareholder-services/. 15. BOARD MEETINGS During the year, 10 Board Meetings were convened and held. The intervening gap between the meetings was within the period prescribed under the Companies Act, 2013 and the SEBI (LODR), Regulations, 2015. The Board meeting number and the dates on which the meetings were held are as follows: Board Meeting Number Date of Meeting 1/2017-18 2/2017-18 3/2017-18 4/2017-18 5/2017-18 6/2017-18 7/2017-18 8/2017-18 9/2017-18 10/2017-18 May 25, 2017 May 25, 2017 June 05, 2017 July 28, 2017 August 21, 2017 October 04, 2017 November 10, 2017 December 21, 2017 January 29, 2018 March 21, 2018 The details of the attendance of the Directors is provided in the Corporate Governance Report. 16. PERFORMANCE EVALUATION Pursuant to the provisions of the Companies Act, 2013 and Regulation 17 (10) of the SEBI (LODR) Regulations, 2015, the Board at its meeting held on January 29, 2018 carried out an annual performance evaluation of its own performance, the Directors individually as well as the evaluation of the working of its Committees. The manner in which the evaluation has been carried out has been explained in the Corporate Governance Report. 17. POLICY ON DIRECTORS APPOINTMENT AND REMUNERATION POLICY OF THE COMPANY The Policy on Appointment of Directors and the Remuneration Policy of the Company forms a part of this report in “Annexure F”. and the Details / Disclosures of Ratio of Remuneration to each Director to the median employee’s remuneration in “Annexure H”. 18. AUDIT COMMITTEE As on March 31, 2018, the Audit Committee had 4 Directors as its members viz. Mr. Anil Singhvi, Chairman, Ms. Nisha Dutt, Independent Director, Ms. Poornima Prabhu, Independent Director and Mr. Surjeet Singh, Managing Director & CEO. The role, terms of reference, the authority and power of the Audit Committee are in conformity with the provisions of the Companies Act, 2013 and Regulation 18 of the SEBI (LODR) Regulations, 2015. Further details of the Audit Committee have been provided in the report on Corporate Governance forming part of this Annual Report. Mr. Surjeet Singh ceased to be the member of the Audit Committee as on March 31, 2018. Mr. Vinod Kumar Padmanabhan has been appointed as a member of the Committee with effect from April 01, 2018. Annual Report 2017-18 | 29 19. AUDITORS STATUTORY AUDITORS M/s. S. R. Batliboi & Associates LLP, Chartered Accountants, Bengaluru (Firm Registration Number 101049W/E300004), the Statutory Auditors of the Company were appointed for a term of 5 years at the AGM held on June 19, 2015. SECRETARIAL AUDITORS Pursuant to the provisions of Section 204 of the Companies Act 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014, the Company has appointed M/s. V Sreedharan & Associates, a firm of Company Secretaries in practice to undertake the Secretarial Audit of the Company. The report of the Secretarial Audit is annexed herewith in “Annexure C”. The Secretarial Auditors have in their report for the financial year 2017-18 mentioned that while the Company has appointed an Acting Company Secretary, the same does not comply with the provisions of Section 203 (4) of the Companies Act, 2013 wherein the Company is required to appoint a Company Secretary as whole time Key Managerial Person. The Board have noted the same and takes this opportunity to assure the Members and other stakeholders of the Company that it is looking out for a suitable candidate for the position of Company Secretary and till such time Mr. Arjun Makhecha, a member of the Institute of Company Secretaries of India would continue as the Acting Company Secretary of the Company. 20. PARTICULARS OF EMPLOYEES The particulars of employees required under Section 197 of the Companies Act, 2013 read with Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is enclosed hereto in “Annexure D”. 21. CONSERVATION OF ENERGY Your Company is committed to the continual development of its products in a sustained environment, helping its customers to operate their businesses more efficiently and enabling them to reduce their use of scarce resources and minimize waste. As a software product Company, the impact that Subex has on the environment from its own operations is relatively low when compared to companies in other industries. However, Subex recognizes that it still has a role to play in reducing the impact that global business has on the environment. Subex is committed and targets towards following the best practices to reduce utilization of power, natural resources like water and limited E-Waste disposal, executed through government recognized agencies. Though Subex does not fall under the category of manufacturing products and services impacting the environment, we implement few of the best practices with minimal investments through a five-year plan 30 | SUBEX LIMITED - agreement with an industry stalwart having expertise in energy conservation. This investment thereby results in monetary benefits / savings month on month, helping us recover the invested amount in few months, ensuing continued savings through this initiative. Suppliers delivering the products to Subex with regard to lighting, diesel generators etc, abide by the guidelines laid out by the government. Subex aims to reduce its impact on the environment by: i. Monitoring the level of water and energy used along with the waste produced. ii. Targeting a reduction in the use of water and energy reduction in waste along with an increase in amount of waste that is recycled/ reused etc. iii. Increasing the awareness on environment safety and engagement of employees. iv. Adopting sustainable practices designed to ensure the health and safety of Subex’s employees, stakeholders and the environment. v. Operating its business in compliance of environmental laws and regulations. 22. TECHNOLOGY ABSORPTION, ADOPTION AND INNOVATION Your Company has a strong Research & Development Division responsible for developing technologies for its products in the telecom domain. The telecommunications domain, in which your Company operates, is subject to rapid technological changes, introduction of new services and intense competition. 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 expenditure 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. 23. FOREIGN EXCHANGE EARNINGS AND EXPENDITURE During the year 2017-18 total foreign exchange earnings and expenditure is as follows: i) Foreign Exchange earnings H16,240 Lakhs (Previous Year H29,930 Lakhs) ii) Foreign Exchange expenditure H9,592 Lakhs (Previous Year H18,231 Lakhs) Note: The foreign exchange expenditure is inclusive of the inter- Company charges and the Previous Year’s figures have been restated accordingly. 24. CORPORATE SOCIAL RESPONSIBILITY To enable the Company to take required measures to make a meaningful contribution to society and other stakeholders, it has constituted the Corporate Social Responsibility Committee (CSR Committee) comprising of the following Directors. 27. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY In accordance with the provision of Section 134(5) of the Companies Act, 2013, and as per the provisions of the SEBI (LODR), Regulations, 2015, the Company has an Internal Control System, commensurate with the size, scale and complexity of its operations. Composition Category Mr. Anil Singhvi (Chairman) Independent Director Mr. Surjeet Singh Ms. Nisha Dutt Managing Director & CEO Independent Director Mr. Surjeet Singh ceased to be the member of the Committee as on March 31, 2018. Mr. Vinod Kumar Padmanabhan has been appointed as a member of the Committee with effect from April 01, 2018. Pursuant to the CSR Policy adopted by the Board, the Company proposes to undertake such activities as may be useful and contributive in nature. SUBEX CHARITABLE TRUST Subex Charitable Trust (SCT) extends the outlook of Subex as a corporate entity into community service. SCT was set up to provide for welfare activities for the under privileged and the needy in the society. SCT is managed by trustees elected amongst the employees of the Company. During the year, it has provided active support for the education of economically challenged meritorious students as part of the Nurture Merit Programme, conducted blood and stem donation camps, donated clothes and other essentials to Government schools. SCT has tied up with the Prerana Resource Centre for providing Vocational Training to visually impaired and disabled orphan teenage girls. As part of this program, 25 blind and disabled girls were provided vocational training and employment and 22 of them have been successfully attained jobs across various industries. A gist of activities undertaken by the Trust has been provided as a separate section in this Annual Report in “Annexure I ” 25. IMPLEMENTATION OF RISK MANAGEMENT POLICY The Company has developed and adopted a Risk Management Policy. This policy identifies all perceived risks which might impact the operations and on a more serious level also threaten the existence of the Company. Risks are assessed department wise such as financial risks, information technology related risks, legal risks, accounting fraud, etc. The Management also ensures that the Company is taking appropriate measures to achieve prudent balance between risk and reward in both ongoing and new business activities. 26. HUMAN RESOURCE MANAGEMENT Detailed report on Human Resource management is given in the Management Discussion and Analysis section of the annual report. Such internal financial controls were found to be adequate for a Company of this size. The controls are largely operating effectively since there has not been identification of any material weakness in the Company. The Directors have in the Directors Responsibility Statement under paragraph (e) confirmed the same to this effect. The Company has policies and procedures in place for ensuring proper and efficient conduct of its business, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records and timely preparations, reliable financial information. The Company has adopted accounting policies which are in line with Indian Accounting Standards(“Ind AS”). Pursuant to the provisions of the Section 134(5)(f) of the Act, the Company during the year devised proper systems to ensure compliance with the provisions of all applicable laws. Each department of the organization ensured that it had complied with the applicable laws and furnished its report to the Head of department who then along with the Chief Financial Officer discussed on the compliance status of the department. Any matter that required attention was immediately dealt with. The Chief Financial Officer reported to the Audit Committee and the Board on the overall compliance status of the Company. In effect, such compliance system was largely found to be adequate and operating effectively. The Directors have in the Directors Responsibility Statement under paragraph (f) also confirmed the same to this effect. The Internal Auditors monitor and evaluate the efficacy and adequacy of internal control system in the Company, its compliance with operating systems, accounting procedures and policies at all locations of the Company and its subsidiaries. Based on the report of Internal Auditors, process owners undertake corrective action in their respective areas and thereby strengthen the controls. Significant audit observations and corrective actions thereon are presented to the Audit Committee of the Board. Subex is certified for ISO 9001:2008 (Quality Management System) and ISO 27001:2013 (Information Security Management System). Internal audits are conducted periodically for projects and support functions to adhere to these international standards. These audits are conducted across Bengaluru, UK and US locations to ensure processes are followed to provide a better customer experience. Summary of the audits are shared across organization to help understand strengths and weaknesses in the system. People involvement in organization process initiatives is one that Annual Report 2017-18 | 31 approaches towards achieving better compliance, standardizing activities to consistently achieve better customer satisfaction. Company at large. Further, none of the Directors had any pecuniary relationships of transactions vis-à-vis the Company. This year, the emphasis was more towards information security including the privacy aspects of customer data where applicable. Focused effort on data privacy, align with customer’s strategy towards compliance to Global Data Privacy Regulations (GDPR). Information security practices is the base to implement privacy, organization and technological measures in terms of physical and logical access controls are built in to the system. Awareness to employees on the work environment and best practices are imparted through trainings periodically. 28. VIGIL MECHANISM/ WHISTLE BLOWER POLICY The Company has implemented a vigil mechanism policy to deal with instance of fraud and mismanagement, if any. The policy also provides for adequate safeguards against victimization of persons who use such mechanism and makes provision for direct access to the chairperson of the Audit Committee in all cases. The details of the policy are posted on the website of the Company under the link https://www.subex.com/shareholder-services/. There were no complaints during the year 2017-18. 29. POLICY ON SEXUAL HARRASSMENT OF WOMEN AT WORK PLACE The Company has zero tolerance towards sexual harassment at the workplace and towards this end, has adopted a policy in line with the provisions of Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and the Rules thereunder. All employees (permanent, contractual, temporary, trainees) are covered under the said policy. An Internal Complaints Committee has also been set up to redress complaints received on sexual harassment. During the financial year under review, the Company has received one complaint of sexual harassment from a women employee of the Company. The matter was considered and resolved within the timelines stipulated under the said Act. 30. DECLARATION FROM INDEPENDENT DIRECTORS All Independent Directors have given declarations under Section 149 (7) to the effect that they meet the criteria of independence as laid down under Section 149(6) of the Companies Act, 2013. 31. RELATED PARTY TRANSACTIONS All related party transactions that were entered into during the financial year were on an arm’s length basis and were in the ordinary course of business. There were no materially significant related party transactions made by the Company with its Promoters, Directors, Key Managerial Personnel or other designated persons which may have a potential conflict with the interest of the 32 | SUBEX LIMITED All related party transactions are placed before the Audit Committee and the Board for approval. Prior omnibus approval of the Audit Committee is obtained for transactions which are of a foreseen and repetitive nature. A statement giving details of all related party transactions entered into pursuant to the omnibus approval so granted are placed before the Audit Committee and the Board of Directors for their review on a quarterly basis. The Company has entered into sub-contracting arrangements with its subsidiaries, based on transfer pricing methodology, for development and enhancement of its products as well as marketing of its products by the subsidiaries across locations. The Company has also entered into marketing arrangements with its subsidiaries wherein there is a cross charge done by the subsidiaries towards its efforts for the same. The Policy on Related party transactions as approved by the Board is uploaded on the Company’s website under the link https:// www.subex.com/shareholder-services/ Particulars of Contracts or Arrangements with Related parties referred to in Section 188(1) in Form AOC-2 is enclosed to this report in “Annexure G”. 32. SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS There are no significant material orders passed the Regulators/ Courts which would impact the going concern status of the Company and its future operations. 33. EXTRACT OF ANNUAL RETURN The details forming part of the extract of the Annual Return in form MGT 9 is annexed herewith in “Annexure E”. 34. LISTING WITH STOCK EXCHANGES The Company has paid the Annual Listing Fees for the year 2017- 18 to the National Stock Exchange of India Ltd (‘NSE’) and BSE Ltd (‘BSE’) where the Company’s shares are listed. 35. DIRECTORS’ RESPONSIBILITY STATEMENT In accordance with the provision of Section 134(3)(c) of the Companies Act, 2013, the Board of Directors affirm: a) In the preparation of the annual accounts for the financial year ended March 31, 2018, the applicable accounting standards have been followed and there are no material departures; 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, 2018 and of the profit of the Company for the year ended on that date; c) That proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.; d) That the accounts for the year ended March 31, 2018 have been prepared on a going concern basis; e) That internal financial controls have been laid down to be followed by the Company and such internal financial controls were adequate and were operating effectively. f) That systems to ensure compliance with the provisions of all applicable laws were in place and such systems were adequate and operating effectively. 36. APPRECIATION/ACKNOWLEDGEMENTS Your Directors thank the 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 authorities, Registrar of Companies, Karnataka, the Income Tax department, Reserve Bank of India and various authorities under the Government of Karnataka. Your Directors also wish to place on record their deep appreciation to Subexians at all levels for their hard work, solidarity, co- operation and support, as they are instrumental in your Company scaling new heights, year after year. For Subex Limited Vinod Kumar Padmanabhan Managing Director & CEO DIN 06563872 Anil Singhvi Chairman & Independent Director DIN 00239589 Place: Bengaluru, India Date: May 04, 2018 Annual Report 2017-18 | 33 Annexure A Additional Information as at March 31, 2018 as per the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 Sl.No Particulars 1. Net options granted as on March 31, 2018 2. 3. 4. 5. 6. 7. 8. 9. 10. Options granted during the year Pricing formula Options vested but not exercised as on March 31, 2018 Options exercised as on March 31, 2018 Options exercised during the year Exercise Price Money realized by exercise of options during the year The total number of shares arising as a result of exercise of options during the year ended March 31, 2018 Options lapsed/cancelled/ surrendered as on March 31, 2018 Options lapsed/cancelled/ surrendered during the year Variation of terms of options No. of employees covered Employee wise details of options granted during the year under review to: (i) Key managerial personnel (i) other employee receiving a grant in the year of option amounting to 5% or more of options granted during that year identified employees who were granted option, during the year, equal to or exceeding 1% of (i) the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant; ESOP 2005 36,494 - ESOP 2008 - - As mentioned As mentioned earlier in the report 24,055 12,439 - - - - earlier in the report - - - - - - 58,02,424 68,313 None 87 - - - 23,33,537 28,301 None - - - - 0.01 - 11. Diluted Earnings Per Share (EPS) pursuant to issue of shares on exercise of option calculated in 0.01 accordance with Indian Accounting Standard (Ind AS) 33 ‘Earnings per share’ Where the Company has calculated the employee compensation cost using the intrinsic value of 12. - the stock options, the difference between the employee compensation cost so computed and the employee compensation cost that shall have been recognized if it had used the fair value of the options. The impact of this difference on profits and on EPS of the Company is: Weighted-average exercise prices and weighted-average fair values of options separately for options whose exercise price either equals or exceeds or is less than the market price of the stock. (As per note 36 of the Standalone financials) Description of the method used during the year to estimate the fair values of options, including the 13. 14. H18.24 H28.44 N. A. N. A. risk-free interest rate following weighted-average information : i. ii. expected life iii. expected volatility iv. expected dividends Vinod Kumar Padmanabhan Managing Director & CEO DIN 06563872 Place: Bengaluru, India Date: May 04, 2018 34 | SUBEX LIMITED - - - - - - - For Subex Limited Anil Singhvi Chairman & Independent Director DIN 00239589 Annexure B CORPORATE GOVERNANCE COMPLIANCE CERTIFICATE To, Members of Subex Limited We have examined the compliance of conditions of Corporate Governance by Subex Limited (“the Company”), for the purpose of certifying of the Corporate Governance under Regulation 17 to 27 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 from the period April 01, 2017 to March 31, 2018. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of certification. The compliance of conditions of Corporate Governance is the responsibility of the management. Our examination was limited to procedures and implementation thereof, adopted by the Company for ensuring the compliance with the conditions of Corporate Governance. It is neither an audit nor an expression of opinion on the financial statements of the Company. In our opinion and to the best of our information and according to the explanations given to us, we certify that the Company has complied with the conditions of Corporate Governance as stipulated in Regulations 17 to 27 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. We further state that such compliance is neither an assurance as to the future viability of the Company nor of the efficiency or effectiveness with which the management has conducted the affairs of the Company. Place: Bengaluru Date: May 04, 2018 For BMP & Co. LLP, Company Secretaries Pramod S M Partner FCS 7834 / CP No. 13784 Annual Report 2017-18 | 35 Annexure C Form No. MR-3 SECRETARIAL AUDIT REPORT FOR THE FINANCIAL YEAR ENDED: MARCH 31, 2018 [Pursuant to Sub Section (1) of Section 204 of the Companies Act, 2013 and Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014] To, The Members, SUBEX LIMITED v) The following Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’):- We have conducted the secretarial audit of the compliance of applicable statutory provisions and the adherence to good corporate practices by Subex Limited (hereinafter called the Company). Secretarial Audit was conducted in a manner that provided us a reasonable basis for evaluating the corporate conducts/statutory compliances and expressing my opinion thereon. Based on our verification of the Company’s Books, Papers, Minute Books, Forms and Returns filed and other Records maintained by the Company and also the information provided by the Company, its officers, agents and authorized representatives during the conduct of secretarial audit, we hereby report that in our opinion, the Company has, during the financial year ended on March 31, 2018 (the audit period) complied with the statutory provisions listed hereunder and also that the Company has proper Board- processes and compliance-mechanism in place to the extent, in the manner and subject to the reporting made hereinafter: We have examined the books, papers, minute books, forms and returns filed and other records maintained by the Company during the audit period according to the provisions of: i) ii) The Companies Act, 2013 (the Act) and the rules made thereunder; The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the rules made thereunder; iii) The Depositories Act, 1996 and the Regulations and Bye-laws framed thereunder; iv) Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder to the extent of Foreign Direct Investment, Overseas Direct Investment and External Commercial Borrowings; a. b. c. d. e. f. g. h. i. The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011; The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015; The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009; The Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014. The Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008;(Not Applicable to the Company during the Audit Period); The Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 regarding the Companies Act and dealing with client; The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009; and (Not Applicable to the Company during the Audit Period); The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998 (Not Applicable to the Company during the Audit Period); Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 vi) Other Laws Applicable Specifically to the Company namely: (a) Information Technology Act, 2000 and the rules made thereunder (b) Special Economic Zones Act, 2005 and the rules made thereunder 36 | SUBEX LIMITED (c) Copy Right Act, 1957 (d) The Patents Act, 1970 (e) The Trade Marks Act, 1999 We have also examined the compliance with the applicable clauses of the following: a. Secretarial Standards issued by the Institute of Company Secretaries of India on Meetings of the Board of Directors and General Meeting. b. Listing Agreements entered into by the Company with BSE Limited and National Stock Exchange of India Limited. During the period under review the Company has complied with the provisions of the Act, Rules, Regulations, Guidelines, Standards, etc. except that provisions of section 203 of the Companies Act, 2013 has not been complied (the Company has a Company secretary who has been appointed as an acting CS but not as a Key Managerial Personnel). We have not examined compliance with applicable Financial Laws, like Direct and Indirect Tax Laws, since the same have been subject to review by statutory financial audit and other designated professionals. WE FURTHER REPORT THAT: The Board of Directors of the Company is duly constituted with proper balance of Executive Directors, Non-Executive Directors and Independent Directors. The changes in the composition of the Board of Directors that took place during the period under review were carried out in compliance with the provisions of the Act. Adequate notice is given to all directors to schedule the Board Meetings, agenda and detailed notes on agenda were sent at least seven days in advance except with respect to those agenda items which the Company deemed to be unpublished price sensitive information (UPSI), and a system exists for seeking and obtaining further information and clarifications on the agenda items before the meeting and for meaningful participation at the meeting. As per the minutes of the meetings duly recorded and signed by the Chairman, the decisions of the Board were unanimous and no dissenting views have been recorded. We further report that based on the review of the compliance mechanism adopted by the Company of providing adequate presentations by the concerned departments’ heads at the Board Meetings, regarding compliance with the applicable laws and its adherence, there are adequate systems and processes in the Company commensurate with the size and operations of the Company to monitor and ensure compliance with applicable laws, rules, regulations and guidelines. We further report that during the audit period, there was no event / action having a major bearing on the Company’s affairs in pursuance of the above referred laws, rules, regulations, guidelines etc., For V SREEDHARAN & ASSOCIATES Place: Bengaluru Date: May 03, 2018 (Pradeep B. Kulkarni) Partner FCS 7260 / CP No. 7835 Annual Report 2017-18 | 37 Annexure D PARTICULARS OF EMPLOYEES Particulars Mr. Vinod Kumar Padmanabhan Mr. Ashwin Chalapathy Mr. Ganesh K. V. Designation of the employee 1. Whole-Time Director & Chief 1. Whole-Time Director, Chief Operating Officer (May 25, 2017-October 31, 2017) 2. Non-Executive, Non- Independent Director (November 01, 2017-March 31, 2018) 3. Managing Director & CEO with effect from April 01, 2018 Remuneration received Nature of employment, whether contractual or otherwise 1. H53,69,029 2. Nil 1. Permanent 2. Otherwise 3. Permanent Technology Officer and Head of Service Delivery (May 25, 2017-October 31, 2017) 2. Non-Executive, Non- Independent Director (November 01, 2017 onwards) - Resigned from the Board with effect from May 04, 2018. 1. H45,48,746 2. Nil 1. Permanent 2. Otherwise Qualifications and experience of the employee B.Tech 28 Yrs M.Sc (Computer Science) 23 Yrs Date of commencement of employment Oct 15, 1997 Jan 15, 2007 The age of such employee 48 Yrs. The last employment held by such employee before joining the Company The percentage of equity shares held by the employee in the Company within the meaning of clause (iii) of sub-rule (2) above Crompton Greaves 0.01% Whether any such employee is a relative of any Director or manager of the Company and if so, name of such Director or manager NA 46 Yrs. Siemens NA NA CFO, Global Head- Legal & Company Secretary (last working day- July 31, 2017). H37,38,983 Permanent CA, CS, Senior Mgt Program from IIM-C 33Yrs Nov 27, 2012 56 Yrs. Logix Microsystems Ltd NA NA 38 | SUBEX LIMITED Annexure E Form No. MGT-9 EXTRACT OF ANNUAL RETURN AS ON THE FINANCIAL YEAR ENDED MARCH 31, 2018 [Pursuant to Section 92(3) of the Companies Act, 2013 and rule 12(1) of the Companies (Management and Administration) Rules, 2014] 1. REGISTRATION AND OTHER DETAILS: i) CIN ii) Registration Date iii) Name of the Company L85110KA1994PLC016663 6th December, 1994 Subex Limited iv) v) Category / Sub Category of the Company Company having Share Capital Address of the Registered office and contact details RMZ Ecoworld, Outer Ring Road, Devarabisanahalli, Bengaluru-560103 vi) Whether listed Company (Yes / No) Yes, on the National Stock Exchange of India Ltd and BSE Ltd vii) Name, Address and Contact details of Registrar and Transfer Agent, if any Canbank Computer Services Limited J P Royale,1st Floor, No.218 2nd Main, Sampige Road (Near 14th Cross), Malleswaram, Bengaluru – 560 003 Contact No. 080-23469661/662/664/665 II. PRINCIPAL BUSINESS ACTIVITIES OF THE COMPANY: (All the business activities contributing 10 % or more of the total turnover of the Company are stated) Name and Description of main products /services NIC Code of the Product/service % to total turnover of the Company Sl. No. 1. Implementation and customization 2. Managed services 3. Support services - - - 32 34 34 III. PARTICULARS OF HOLDING, SUBSIDIARY AND ASSOCIATE COMPANIES Sl. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. Name and Address of the Company CIN/GLN Holding/Subsidiary % of shares/ Applicable Subex Technologies Limited, India Subex Assurance LLP, India Subex Digital LLP, India Subex Americas Inc., Canada Subex (UK) Limited, England Subex Inc., USA Subex (Asia Pacific) Pte. Limited, Singapore Subex Azure Holdings Inc., USA Subex Middle East (FZE), UAE U74140KA2005PLC035905 AAJ-0729 AAJ-0728 Foreign Company Foreign Company Foreign Company Foreign Company Foreign Company Foreign Company /Associate Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary capital held* 100 100 100 100 100 100 100 100 100 Section 2 (87) 2 (87) 2 (87) 2 (87) 2 (87) 2 (87) 2 (87) 2 (87) 2 (87) *Including % of holding, either directly or indirectly through subsidiaries. Annual Report 2017-18 | 39 IV. SHARE HOLDING PATTERN (Equity Share Capital Breakup as percentage of Total Equity) (i) Category–wise Share Holding* Category of Shareholders No. of Shares held at the beginning of the year No. of Shares held at the end of the year Demat Physical Total % of Total Shares Demat Physical Total % of Total Shares % Change during the year - - - - - - - - - - - - - - - - - - - - - - - - 4,52,844 0.09 4,52,844 - - - - - - 5,21,200 0.10 5,21,200 - - - - - - 9,74,044 0.19 9,74,044 - - - - - - - - - - - - - - - - - - 9,74,044 0.19 9,74,044 - 21,64,479 - 0.43 - 28,48,537 - - - 78,764 28,06,956 - - - - - 0.02 0.55 - - - - - 78,764 - - 5,50,94,999 50,50,199 1.00 5,80,22,300 - - - - - - - - - - - - - - - - - - - - - - - - 4,52,844 0.08 (0.01) - - - - - - 5,21,200 0.09 (0.01) - - - - - - 9,74,044 0.17 (0.02) - - - - - - - - - - - - - - - - - - 9,74,044 0.17 (0.02) - - 28,48,537 0.51 - - - - - - 78,764 0.01 - - - - - 0.08 - - - (0.01) (0.55) - 5,50,94,999 9.80 5,80,22,300 10.32 (9.80) (9.32) 10,62,60,582 400 10,62,60,982 20.96 11,83,97,679 400 11,83,98,079 21.07 - - - - - - - - 0.11 - 11,36,82,693 49,811 11,37,32,504 22.43 12,81,49,774 44,251 12,81,94,025 22.81 0.38 18,38,05,398 0 18,38,05,398 36.26 21,11,59,948 - 21,11,59,948 37.57 1.31 A. Promoters (1) Indian a) Individual/ HUF 4,52,844 b) Central Govt. c) State Govt(s) d) Bodies Corp. e) Banks / FI f) Any Other Sub-total (A)(1) (2) Foreign (a) NRIs – Individuals (a) Other – Individuals (a) Bodies Corp. (a) Banks/FI (a) Any other. Sub-total(A)(2) - - 5,21,200 - - 9,74,044 - - - - - - Total shareholding of Promoter (A) = (A)(1)+(A)(2) 9,74,044 - 21,64,479 - - - 78,764 28,06,956 - - 50,50,199 B. Public Shareholding 1. Institutions a) Mutual Funds b) Banks / FI c) Central Govt. d) State Govt(s) e) Venture Capital Funds f) Insurance Companies g) FIIs h) Foreign Venture Capital Funds i) Others (specify) Foreign Portfolio Investors Sub-total (B)(1) 2. Non-Institutions a) Bodies Corp. i) Indian ii) Overseas b) Individuals i) ii) Individual shareholders holding nominal share capital up to H1 lakh Individual shareholders holding nominal share capital in excess of H1 lakh 40 | SUBEX LIMITED Category of Shareholders No. of Shares held at the beginning of the year No. of Shares held at the end of the year Demat Physical Total % of Total Shares Demat Physical Total - - - - - - - - - - - - - - - - - - 3,88,600 60,000 81,194 - - - 0.08 0.01 0.02 - - - 3,88,600 79,095 81,194 - - 84,97,887 1.68 1,02,22,484 - - 17,79,005 - - - 0.35 - - - 37,95,674 - 2,01,36,829 3.97 2,76,48,411 - - - 6,52,80,387 12.88 22,35,775 - - - - - - - - - - - - - - - - - - - - - - - - - - % Change during the year - (0.01) - (0.01) - - % of Total Shares - 0.07 0.01 0.01 - - - 3,88,600 79,095 81,194 - - 1,02,22,484 1.82 0.14 - - - - 37,95,674 0.68 - - 2,76,48,411 4.92 - - - - 0.33 - 0.95 - 22,35,775 0.40 (12.48) - - - - - - - - - c) Others (specify) Trusts Director & their relatives Foreign Nationals Escrow Account Market Maker - 3,88,600 60,000 81,194 - - Non Resident Indians 84,97,887 O C Bs Societies Clearing Members shares in transit - - 17,79,005 - Hindu Undivided Families 2,01,36,829 NRIs/OCBs - Foreign Corporate Bodies 6,52,80,387 - - - Partnership Firms Custodian of Enemy Property Foreign Collaborators ESOPs/ESOS/ESPS Employee shareholders Total Public Shareholding (B)=(B)(1)+ (B)(2) C. Shares held by Custodian for GDRs & ADRs 6,16,030 1,670 6,17,700 0.12 5,58,729 1,670 5,60,399 0.10 (0.02) Sub-Total(B)(2) 50,05,88,605 51,881 50,06,40,486 98.76 50,27,39,063 46,321 50,27,63,384 50,56,38,804 51,881 50,56,90,685 99.95 56,17,13,407 46,321 56,17,59,728 89.64 99.96 (9.12) 0.01 2,43,207 - 2,43,207 0.05 2,43,207 - 2,43,207 0.04 (0.01) Grand Total (A+B+C) 50,68,56,055 51,881 50,69,07,936 100 56,19,56,614 46,321 56,20,02,935 100 * As per the records of the RTA. II. Shareholding of Promoters Shareholder’s Name Shareholding at the beginning of the year Shareholding at the end of the year Sl. No. No. of Shares % of total Shares of the % of Shares Pledged / No. of Shares % of total Shares % of Shares Pledged/ Company encumbered to total shares of the encumbered to Company total shares % change in share holding during the year* 1. Kivar Holdings Private 5,21,200 Limited Subash Menon Sudeesh Yezhuvath 2. 3. 80,601 3,72,243 0.10 0.02 0.07 0.10 5,21,200 0.02 0.07 80,601 3,72,243 0.09 0.01 0.07 0.01 (0.01) 0.01 0 (0.01) 0 * There was no change in the number of shares held by Promoters during the year. The percentage change in shareholding is due to increase in the paid-up share capital. The reduction in the percentage of shares pledged/encumbered is due to the release of pledge on shares by Axis Trustee Services Ltd, on the redemption of FCCB III. Annual Report 2017-18 | 41 III. Change in Promoters’ Shareholding Sl. No Shareholders name Shareholding at the beginning of the year Cumulative Shareholding during the Year No. of shares % of total shares of the Company No. of shares % of total shares of the Company At the beginning of the year 1. 2. 3. Kivar Holdings Private Limited 5,21,200 Subash Menon Sudeesh Yezhuvath 80,601 3,72,243 0.10 0.02 0.07 5,21,200 80,601 3,72,243 0.09 0.01 0.07 There is no change in shareholding as at the end of the year iv. Shareholding Pattern of top ten Shareholders (other than Directors, Promoters and holders of GDRs and ADRs) Sl No. For Each of the Top 10 Shareholders 1. 2. 3. 4. 5. 6. 7. 8. 9. QVT Singapore Fund Pte. Ltd. Uno Metals Ltd AKG Finvest Ltd Tonbridge (Mauritius) Limited Leeds (Mauritius) Limited Angel Fincap Private Limited IL and FS Securities Services Limited Dilipkumar Lakhi Chirag Dilipkumar Lakhi 10. Societe Generale Shareholding at the beginning of the year Shareholding at the end of the year No. of shares % of total shares of the Company No. of shares % of total shares of the Company NIL 1,72,52,000 2,00,70,000 NIL NIL 72,27,806 3,18,431 28,36,857 20,96,431 NIL - 3.40 3.96 - - 1.43 0.06 0.56 0.41 - 2,75,31,428 2,56,02,000 1,97,10,000 1,79,16,321 96,47,250 75,20,818 42,17,932 40,96,322 20,96,431 20,87,122 4.90 4.56 3.51 3.19 1.72 1.34 0.75 0.73 0.37 0.37 v. Shareholding of Directors and Key Managerial Personnel Sl No. For Each of the Directors and KMP Shareholding at the beginning of the year Cumulative Shareholding during the year No. of shares % of total shares of the Company No. of shares % of total shares of the Company 1. 2. 3. 4. 5. 6. 7. 8. At the beginning of the year Surjeet Singh (term concluded on March 31, 2018) Anil Singhvi Nisha Dutt Poornima Prabhu Vinod Kumar Padmanabhan (appointed as Director on May 25, 2017) Ashwin Chalapathy (appointed as Director on May 25, 2017 & resigned w.e.f May 04, 2018) Mehernaz Dalal (appointed as CFO w.e.f. June 15, 2017) Ganesh KV (resigned as CFO and CS w.e.f. June 15, 2017 NIL 60,000 NIL NIL 19,095 NIL NIL NIL 42 | SUBEX LIMITED N.A. 0.01 N.A. N.A. 0.01 N.A. N.A. N.A. NIL 60,000 NIL NIL 19,095 NIL NIL NIL N.A. 0.01 N.A. N.A. 0.01 N.A. N.A. N.A. V. INDEBTEDNESS Indebtedness of the Company including interest outstanding/accrued but not due for payment Particulars Secured Loans excluding deposits Unsecured Loans Deposits (H In lakhs) Total Indebtedness Indebtedness at the beginning of the financial year i) ii) iii) Principal Amount Interest due but not paid Interest accrued but not due Total (i + ii + iii) Change in Indebtedness during the financial year i) ii) iii) Principal Amount Interest due but not paid Interest accrued but not due Net Change Indebtedness at the end of the financial year i) ii) iii) Principal Amount Interest due but not paid Interest accrued but not due Total (i+ii+iii) 10,059 - 501 10,560 (10,059) - (501) (10,560) - - - - - - - - - - - - - - - - - - - - - - - - - - 10,059 - 501 10,560 (10,059) - (501) (10,560) - - - - The Company repaid the outstanding US$ 3,600,000 under FCCB III on its maturity date, July 07, 2017. The State Bank of India (SBI), Overseas Branch, Bengaluru, vide its letter dated October 25, 2017 has confirmed that the Company has repaid its Working Capital Loan of H42.05 Crores and has no outstanding dues. Pursuant to the restructuring, the Working Capital Limits of the Company to the tune of H54.83 Crores, held with Axis Bank Ltd, CBB Branch, Bengaluru, has been transferred to its subsidiary, Subex Assurance LLP. Hence the Company has no outstanding Working Capital loan as on March 31, 2018. VI. OTHER REMUNERATION OF DIRECTORS AND MANAGERIAL PERSONNEL* A. Remuneration to Managing Director, Whole–time Directors and/or Manager: A1. Sl. No Particulars of Remuneration 1. Gross salary Surjeet Singh Managing Director & CEO** (H In lakhs) Total Amount (a) Salary as per provisions contained in Section 17(1) of the Income-tax Act, 38 38 1961 (b) Value of perquisites u/s 17(2) Income-tax Act, 1961 (c) Profits in lieu of salary under Section 17(3) Income-tax Act, 1961 2. 3. 4. Stock Options Sweat Equity Commission - as % of profit - Others, specify 5. Others, please specify Total Ceiling as per the Act * All the values have been rounded off to the nearest Lakhs. ** Upto conclusion of term as on March 31,2018. - - - - - - - - 38 60 Lakhs p.a as per Section II of Part II of Schedule V of the Act - - - - - - - - 38 60 Lakhs. Annual Report 2017-18 | 43 A2. S l . No Particulars of Remuneration 1. Gross salary (a)Salary as per provisions contained in Section 17(1) of the Income-tax Act, 1961 (b)Value of perquisites u/s 17(2) Income-tax Act, 1961 (c) Profits in lieu of salary under Section 17(3) Income-tax Act, 1961 2. 3. 4. Stock Options Sweat Equity Commission - as % of profit - Others, specify 5. Others, please specify (Flexible Benefit Plan) Total Ceiling as per the Act A3. Sl. No Particulars of Remuneration 1. Gross salary (a)Salary as per provisions contained in Section 17(1) of the Income-tax Act, 1961 (b)Value of perquisites u/s 17(2) Income-tax Act, 1961 (c) Profits in lieu of salary under Section 17(3) Income-tax Act, 1961 2. 3. 4. Stock Options Sweat Equity Commission - as % of profit - Others, specify 5. Others, please specify (Flexible Benefit Plan) Total Ceiling as per the Act (H in Lakhs) Total Amount Vinod Kumar Padmanabhan Whole Time Director (May 25, 2017-October 31, 2017) 54 54 - - - - - - - - - - - - - - - - 54 H120 Lakhs p.a as per Section II of Part II of Schedule V of the Act 54 H120 Lakhs. (H in Lakhs) Total Amount Ashwin Chalapathy Whole Time Director (May 25, 2017-October 31, 2017) 45 45 - - - - - - - - 45 120 Lakhs p.a as per Section II of Part II of Schedule V of the Act - - - - - - - - 45 120 Lakhs. 44 | SUBEX LIMITED B. Remuneration to other Directors: (H in Lakhs) Particulars of Remuneration Name of Directors Total Amount Sl. No. 1. Independent Directors Anil Singhvi Nisha Dutt Poornima Prabhu Fee for attending Board/Committee meetings Commission Others, please specify Total (1) 2. Other Non-Executive Directors Fee for attending Board/Committee meetings Commission Others, please specify Total (2) Total = (1+2) Total Remuneration Overall Ceiling as per the Act 28 - - 28 22 - - 22 Mr. Vinod Kumar Padmanabhan (Nov 01, 2017-March 31, 2018) Ashwin Chalapathy (Nov 01, 2017 -March 31, 2018) - - - - 28 28 - - - - 22 22 23 - - 23 - - - - - 23 23 H1,00,000 per meeting for the Independent Directors 73 - - 73 N.A - - - - 73 73 C. REMUNERATION TO KEY MANAGERIAL PERSONNEL OTHER THAN MD/MANAGER/WTD (H in Lakhs) Particulars of Remuneration Sl. No Key Managerial Personnel Total Amount Mehernaz Dalal Chief Financial Officer with effect from June 15, 2017 1. Gross salary (a) Salary as per provisions contained in Section 17(1) of the Income-tax Act, 43 43 1961 (b) Value of perquisites u/s 17(2) Income-tax Act, 1961 (c) Profits in lieu of salary under Section 17(3) Income-tax Act, 1961 2. 3. 4. Stock Options Sweat Equity Commission - as % of profit - others, specify 5. Others, please specify (Flexible Benefit Plan) Total (1+2+3+4+5) Ceiling as per the Act - - - - - - 1 44 Not Applicable - - - - - - 1 44 Annual Report 2017-18 | 45 VII. PENALTIES / PUNISHMENT/ COMPOUNDING OF OFFENCES: N.A Type A. COMPANY Penalty Punishment Compounding B. DIRECTORS Penalty Punishment Compounding C. OTHER OFFICERS IN DEFAULT Penalty Punishment Compounding Section of the Companies Act Brief Description Details of Penalty / Punishment/ Compounding fees imposed Authority [RD / NCLT/ COURT] Appeal made, if any (give Details) – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 46 | SUBEX LIMITED Annexure F POLICY ON DIRECTORS APPOINTMENT AND REMUNERATION A. CRITERIA FOR APPOINTMENT OF NON-EXECUTIVE DIRECTORS & INDEPENDENT DIRECTORS a) The Non-Executive Directors shall be of high integrity with relevant expertise and experience so as to have a diverse Board with Directors having expertise in the fields of marketing, finance, taxation, law, governance and general management. b) In case of appointment of Independent Directors, the N&R Committee shall satisfy itself with regard to the independent nature of the Directors vis-à-vis the Company so as to enable the Board to discharge its function and duties effectively. c) The N&R Committee shall ensure that the candidate identified for appointment as a director is not disqualified for appointment under Section 164 of the Companies Act 2013. d) The N&R Committee shall consider the following attributes/ criteria, whilst recommending to the Board the candidature for appointment as Non-Executive Director. i) Qualification, experience and expertise of the Non- Executive Directors in their respective fields; ii) Personal, professional or business standing; iii) Diversity of the Board. e) In case of re-appointment of Non-Executive Directors, the Board shall take into consideration the performance evaluation of the Director and his engagement level. Remuneration of Non-Executive Directors The Non-Executive Directors shall be entitled to receive remuneration by way of sitting fees, profit related commission as may be approved by the members and reimbursement of expenses for participation in the Board/Committee meetings as detailed hereunder: i. A Non-Executive Director shall be entitled to receive sitting fees for each meeting of the Board or Committee of the Board attended by him, of such sum as may be approved by the Board of Directors within the overall limits prescribed under the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014; ii. The Independent Directors of the Company shall not be entitled to participate in the Stock Option Scheme of the Company, if any, introduced by the Company. B. CRITERIA FOR APPOINTMENT OF EXECUTIVE DIRECTORS For the purpose of appointment of any Executive Director, the N&R Committee shall identify persons of integrity who possess relevant expertise, experience and leadership qualities required for the position. The Committee shall also ensure that the incumbent fulfils such other criteria with regard to age and other qualifications as laid down under the Companies Act, 2013 or other applicable laws. Remuneration for Executive Director i. At the time of appointment or re-appointment, the Executive Director shall be paid such remuneration as may be mutually agreed between the Company (which includes the N&R Committee and the Board of Directors) and the Executive Director within the overall limits prescribed under the Companies Act, 2013. ii. The Remuneration shall be subject to the approval of the Members of the Company in General Meeting. iii. The remuneration of the Executive Director maybe broadly divided into fixed and variable components. The fixed component comprises salary, allowances, perquisites, amenities and retiral benefits. The variable component comprises performance bonus. iv. In determining the remuneration (including the fixed increment and performance bonus) the N&R Committee shall ensure/consider the following: a. The relationship of remuneration and performance benchmarks is clear; b. Balance between fixed and incentive pay reflecting short and long term performance objectives, appropriate to the working of the Company and its goals; c. Responsibility required to be shouldered by the Executive Director, the industry benchmarks and the current trends; d. The Company’s performance vis-à-vis the annual budget achievement and individual performance vis-à-vis the KRAs / KPIs. Annual Report 2017-18 | 47 C. REMUNERATION POLICY FOR KEY MANAGERIAL PERSONNEL In determining the remuneration of the Key Managerial Personnel, the N&R Committee shall ensure / consider the following: i) The relationship of remuneration and performance benchmark is clear; D. REMUNERATION POLICY FOR OTHER EMPLOYEES In determining the remuneration of the other employees of the Company the Reporting Manager shall ensure / consider the following: i) The relationship of remuneration and performance benchmark is clear; ii) The balance between fixed and incentive pay reflecting short and long term performance objectives, appropriate to the working of the Company and its goals; ii) The balance between fixed and incentive pay reflecting short and long term performance objectives, appropriate to the working of the Company and its goals; iii) The remuneration maybe divided into two components viz. fixed component comprising salaries, perquisites and retirement benefits and a variable component comprising performance bonus; iii) The remuneration maybe divided into two components viz. fixed component comprising salaries, perquisites and retirement benefits and a variable component comprising performance bonus; iv) The remuneration including annual increment and performance bonus is decided based on the criticality of the roles and responsibilities, the Company’s performance vis-à-vis the annual budget achievement, individuals performance vis-à- vis KRAs/ KPIs, industry benchmark and current compensation trend in the market. v) The Reporting Manager will carry out individual performance review based on the standard appraisal matrix and shall take into account the appraisal score card and other factors mentioned herein above, whilst recommending the annual increment and performance incentive. the iv) The remuneration including annual increment and performance bonus is decided based on the criticality of the roles and responsibilities, the Company’s performance vis-à-vis the annual budget achievement, individuals performance vis-à- vis KRAs/ KPIs, industry benchmark and current compensation trend in the market. v) The Managing Director will carry out the individual performance review based on the standard appraisal matrix and shall take into account the appraisal score card and other factors mentioned herein above, whilst recommending the annual increment and performance incentive to N&R Committee for its review and approval. 48 | SUBEX LIMITED Annexure G FORM NO. AOC.2 (Pursuant to clause (h) of sub-section (3) of Section 134 of the Act and Rule 8(2) of the Companies (Accounts) Rules, 2014) Form for disclosure of particulars of contracts/arrangements entered into by the Company with related parties referred to in sub-section (1) of Section 188 of the Companies Act, 2013 including certain arm’s length transactions under third proviso thereto 1. Details of contracts or arrangements or transactions not at arm's length basis 1. 2. 3. 4. 5. 6. 7. 8. Name(s) of the related party and nature of relationship Nature of contracts/ arrangements/ transactions Duration of the contracts/ arrangements/ transactions Salient terms of the contracts or arrangements or transactions including the value, if any Justification for entering into such contracts or arrangements or transactions Date(s) of approval by the Board Amount paid as advances, if any: Date on which the special resolution was passed in general meeting as required under first proviso to section 188 NOT APPLICABLE 2.Details of material contracts or arrangement or transactions at arm’s length basis (a) Name(s) of the related party and nature of relationship (a) Subex Technologies Limited (b) Subex (UK) Limited (c) Subex Americas Inc. (d) Subex (Asia Pacific) Pte. Limited (e) Subex Inc. (f) Subex Middle East (FZE) (g) Subex Assurance LLP (h) Subex Digital LLP (b) Nature of contracts/ arrangements/ transactions A. Sub-Contracting Transactions (All the aforementioned entities are subsidiaries of Subex Limited) Subex (UK) Limited Subex (Asia Pacific) Pte. Ltd Subex Americas Inc. Subex Inc. Subex Middle East (FZE) B. Marketing & Allied Services Expense Transactions Subex (UK) Limited Subex (Asia Pacific) Pte. Ltd Annual Report 2017-18 | 49 (b) Nature of contracts/ arrangements/ transactions (contd.) Subex Americas Inc. Subex Inc. Subex Middle East (FZE) C. Interest Income Subex Americas Inc. D. Reimbursement of expenses Subex (UK) Limited Subex (Asia Pacific) Pte. Ltd Subex Assurance LLP Subex Digital LLP Subex Americas Inc. Subex Inc. Subex Technologies Ltd. The transactions mentioned in 2(b) above are continuing contracts. A. Sub-Contracting Transactions The subsidiary transfers a portion of the revenue generated by them to the ultimate holding Company B. Marketing & Allied Services Expense Transactions The subsidiary transfers the cost incurred in earning the revenue to the ultimate holding Company C. Interest Income The ultimate holding Company charges interest on loan given to its subsidiaries D. Reimbursement of expenses Group entities incur cost on behalf of other entities for administrative convenience, which is then cross charged to respective entity on cost-to-cost basis. May 25, 2017 (approval), January 29, 2018 and May 04, 2018 (ratification) (c) Duration of the contracts/ arrangements/ transactions (d) Salient terms of the contracts or arrangements or transactions including the value, if any: (e) Date(s) of approval by the Board, if any: (f) Amount paid as advances, if any: NA Vinod Kumar Padmanabhan Managing Director & CEO DIN 06563872 Place: Bengaluru, India Date: May 04, 2018 50 | SUBEX LIMITED For Subex Limited Anil Singhvi Chairman & Independent Director DIN 00239589 Annexure H DETAILS / DISCLOSURES OF RATIO OF REMUNERATION Particulars (i) the ratio of the remuneration of each Director to the median remuneration of the employees of the Company for the financial year; (ii) the percentage increase in remuneration of each Director, Chief Financial Officer, Chief Executive Officer, Company Secretary or Manager, if any, in the financial year; (iii) the percentage increase in the median remuneration of employees in the financial year; (iv) the number of permanent employees on the rolls of Company; (v) average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration; (vi) Affirmation that the remuneration is as per the remuneration policy of the Company. For the period from April 01, 2017-October 31, 2017 For the period from November 01, 2017-March 31, 2018 (Post restructuring) 1. Surjeet Singh (MD & CEO) 3.29: 1.00 Surjeet Singh (MD & CEO) 6.29: 1.00 2. Vinod Kumar Padmanabhan (WTD) 20.34:1.00 3. Ashwin Chalapathy(WTD) 18.65: 1.00 MD & CEO: 28.47% CFO: (41.82)% WTD’s :N.A MD & CEO:257.48% CFO: (40.43)% WTD’s :N.A The median remuneration increased by 11.16% during this period. Incomparable due to Business restructuring, where majority of the employees were transferred to Subex Assurance LLP. 905 47 There was an increase of 10.71% in the average percentile of salaries of employees during this period. The details pertaining to average percentile increase/decrease in the salaries of employees is incomparable due to Business restructuring, where majority of the employees were transferred to Subex Assurance LLP. There was an increase of 28.47% in the remuneration paid to the MD & CEO, which was approved by the Board at their meeting held on October 04, 2017. There was an increase of 257.48% in the remuneration paid to the MD & CEO in this period, which was approved by the Board at their meeting held on October 04, 2017. There was a decrease of 41.82% in the remuneration paid to the CFO during this period. There was a decrease of 40.43% in the remuneration paid to the CFO during this period. The remuneration of Directors, Senior Management and Employees is as per the Remuneration Policy of the Company Annual Report 2017-18 | 51 Annexure I ANNUAL REPORT ON CSR ACTIVITIES Sustainable practices have always been an integral part of Subex Limited. Corporate Social Responsibility is a large part of our overall sustainability policy encompassing social action. Subex Charitable Trust is our primary social responsibility trust. The objective for the financial year 2017-18 was enabling education of eligible students from financially weaker sections of society and vocational training for women CSR Committee To enable the Company to take required measures to make a meaningful contribution to society and other stakeholders, it has constituted the Corporate Social Responsibility Committee (CSR Committee) comprising of the following Directors as on March 31, 2018. Composition Category Mr. Anil Singhvi (Chairman) Independent Director Mr. Nisha Dutt Mr. Surjeet Singh Independent Director Managing Director & CEO Mr. Surjeet Singh ceased to be the member with effect from March 31, 2018, due to the conclusion of his term as MD & CEO on the same date. Mr. Vinod Kumar Padmanabhan was appointed as member of the Committee with effect from April 01, 2018. OBJECTIVE AND SCOPE The objective of the Corporate Social Responsibility (“CSR”) policy of the Company is to lay down guidelines to enable the Company to take the required measures to make a meaningful contribution to the society and other stakeholders. Centre for providing Vocational Training to visually impaired and disabled orphan teenage girls. FOCUS AREA • Eradicating extreme hunger and poverty; • Promotion of education; • Promoting gender equality and empowering women; • Employment enhancing vocational skills; ACTIVITIES COVERED DURING THE YEAR • Education aid: Sponsored 40 economically-challenged students from rural areas with scholarships through the Nurture Merit program. • Education aid: Sponsored tuition fees for the Vidyaranya Trust Orphanage. • Vocation Training for Women empowerment: SCT has tied up with the Prerana Resource Centre for providing Vocational Training to visually impaired and disabled orphan teenage girls and has Sponsored their tuition fees. As part of this program, 25 blind and disabled girls are provided Trainings in 3 phases – Basic Education, Vocational Training & Employment follow-up. Out of the 25, 22 Blind/Disabled Girls have been successful in attaining jobs in different factories – Textile Industry, Packaging Industry, Printing and others. • Received Nurture Merit contribution from 33 Subexians and more than 20 Subexians are contributing a monthly amount from their salary for SCT activities. For more responsibility/. details visit https://www.subex.com/social- • Other activities: SUBEX CHARITABLE TRUST Subex Charitable Trust (SCT) extends the outlook of Subex as a corporate entity into community service. SCT was set up to provide for welfare activities for the under privileged and the needy in the society. SCT is managed by trustees elected amongst the employees of the Company. During the year, it has provided active support for the education of economically challenged meritorious students as part of the Nurture Merit Programme, conducted blood and stem donation camps, donated clothes and other essentials to Government schools. SCT has tied up with the Prerana Resource 52 | SUBEX LIMITED • • • • Organized blood and stem cell donation camp with TTK Bank. Visited Bellandur Government School, and Government school, Kadubisanahalli to understand their requirements. Provided 10 Desktops to Government Higher Secondary School for education purpose. Also provided Water Coolers for providing clean drinking water to the students. Donated Clothes, and Toys for economically challenged children through Goonj, with the help of Subexian volunteers. • • • Vidyaranya Trust Orphanage - SCT volunteers spent time with children and donated back packs and water sippers to the children. Opportunity School for the mentally retarded - SCT volunteers visited and spent time with mentally retarded children and donated back packs and water sippers. Donated cots and mattresses to Shishu Mandir, a home for destitute children. FINANCIAL DETAILS In accordance with Section 135 of the Companies Act, 2013 and Rules made under the Company has constituted a CSR Committee as its Net worth has exceeded H500 Crores. As the Company has incurred losses during the preceding 3 years, it is not mandatory to incur expenditure on CSR activities. However, the CSR Committee, in its meeting held on May 25, 2017, approved the contribution of H10,00,000 to the SCT, for the period 2017-18 and the Company has voluntarily undertaken certain activities as listed below. The contribution towards the activities undertaken during the year was made in April 2018. The major projects and heads under which the outlay amount was spent as on the date of this report are as follows: (H In Lakhs) (1) S. No (2) CSR project or activity identified (5) Amount outlay (budget) project or programs wise (3) (4) Sector in which the Project is covered Projects or programs 1) Local area or other 2) Specify the State and district where projects or programs were undertaken (6) (7) (8) Cumulative expenditure up to the reporting period Amount spent Direct or through implementing agency Amount spent on the projects or programs Sub- heads: l) Direct expenditure on projects or programs 2) Overheads Bengaluru 4,08,000 4,08,000 4,08,000 4,08,000 Bengaluru 5,92,000 5,92,000 5,92,000 5,92,000 1 2 Providing Vocational Training to visually impaired and Disabled Orphan Teenage Girls Nurture merit programme Promoting employment enhancing vocation skills especially among children, women and differently abled Providing scholarships to economically challenged students from rural areas Total 10,00,000 10,00,000 10,00,000 10,00,000 We hereby affirm that the CSR Policy, as approved by the Board, has been implemented and the CSR Committee monitors the implementation of the projects and activities in compliance with our CSR objectives. For Subex Limited Vinod Kumar Padmanabhan Managing Director & CEO DIN 06563872 Place: Bengaluru, India Date: May 04, 2018 Anil Singhvi Chairman & Independent Director DIN 00239589 Annual Report 2017-18 | 53 Report on Corporate Governance I. COMPANY’S PHILOSOPHY ON CODE OF CORPORATE GOVERNANCE Corporate Governance is about commitment to values and ethical business conduct. It is about how an organization is managed. Therefore, situation, performance, ownership and governance of the Company are equally important with respect to the structure, activities and policies of the organization. Consequently, the organization is able to attract investors and enhance the trust and confidence of the stakeholders. Subex Limited’s (“Subex/the Company”) compliance with the Corporate Governance guidelines as stipulated by the stock exchanges and Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 [“SEBI (LODR), Regulations, 2015”] is described in this section. The Company believes that sound Corporate Governance is critical to enhance and retain investor’s trust. Subex respects minority rights in its business decisions. The Company’s Corporate Governance philosophy is based on the following principles: • Satisfy the spirit of the law and not just the letter of the law • Be transparent and maintain high degree of disclosure levels • Communicate externally, in a truthful manner, about how 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 of the shareholders to information on the performance of the Company. The Company ensures, among others, the accountability of the Board of Directors and the importance of its decisions to all its participants viz., customers, employees, investors, regulatory bodies etc. II. BOARD OF DIRECTORS As on March 31, 2018, the Board of Directors of Subex Limited comprises 6 directors out of which 1 is an Executive Director, 2 are Non-Executive Directors and 3 are Independent Directors. During the year, Mr. Anil Singhvi was appointed as the Chairman of the Company with effect from May 25, 2017. Further, Mr. Vinod Kumar Padmanabhan, the Chief Operating Officer and Mr. Ashwin Chalapathy, the Chief Technology Officer and Head of Service Delivery were appointed as Whole-Time Directors of the Company on May 25, 2017 as well. Ms. Nisha Dutt, Independent Director was appointed as the Chairperson of the Nomination & Remuneration Committee with effect from May 25, 2017. Mr. Ganesh K V ceased to be the Chief Financial Officer and Company Secretary with effect from June 15, 2017 consequent to his resignation from the Company. Ms. Mehernaz Dalal who was heading the corporate function was appointed as the Chief Financial Officer of the Company with effect from June 15, 2017. Further, Mr. Arjun Makhecha was appointed as the Acting Company Secretary with effect from June 15, 2017. Pursuant to the restructuring of the business of the Company, the Revenue Maximization Solutions business was contributed to Subex Assurance LLP and the Subex Secure and Analytics solutions and related businesses was contributed to Subex Digital LLP. Consequent to such business restructuring Mr. Vinod Kumar Padmanabhan and Mr. Ashwin Chalapathy were appointed in Subex Assurance LLP and they continued as Non- Executive and Non-Independent Directors on the Board of the Company with effect from November 01, 2017 being the effective date of such business restructuring. The Board at its meeting held on October 04, 2017 based on the recommendation of the Nomination & Remuneration Committee re-appointed Mr. Surjeet Singh as the Managing Director and CEO of the Company for the period from October 05, 2017 until March 31, 2018. On account of completion of tenure of Mr. Surjeet Singh as Managing Director and CEO of the Company, he ceased to be a member of the Board and all the Committees. In view of the completion of tenure of Mr. Surjeet Singh as the Managing Director and CEO of the Company on March 31, 2018 and based on the recommendation of the Nomination & Remuneration Committee, the Board at its meeting held on March 21, 2018 appointed Mr. Vinod Kumar Padmanabhan as the Managing Director and CEO of the Company with effect from April 01, 2018. 54 | SUBEX LIMITED The Board at its meeting held on May 04, 2018 took note of the resignation tendered by Mr. Ashwin Chalapathy from the Board of Subex and its subsidiaries with effect from May 04, 2018. The Board appointed Mr. Vinod Kumar Padmanabhan as a member on the Audit Committee, Stakeholders’ Relationship Committee and Corporate Social Responsibility Committee with effect from April 01, 2018. Details of the composition of the Board of Directors and their attendance and other particulars are given below. A.Composition and Category of Directors as on March 31, 2018 Category No. of Directors % Independent Directors Executive Directors Non- Executive Directors Total 3 1 2 6 50 17 33 100 B. Attendance of Directors at the Board Meetings and the Last AGM and Details about Directorships and Memberships in Committees as on March 31, 2018 Director Position Mr. Surjeet Singh^^ Managing Director and Chief Executive Officer Mr. Anil Singhvi Independent Director Ms. Nisha Dutt Independent Director Ms. Poornima Prabhu Mr. Vinod Kumar Padmanabhan * Mr. Ashwin Chalapathy ** Notes: Independent Director Non-Executive, Non- Independent Director Non-Executive, Non- Independent Director Includes directorship in Subex Limited. No. of Board Meetings Held No. of Board Meetings Attended Last AGM Attended No. of Directorships In Public Companies No. of Board/ Committees In Which The Director Is Chairman No. of Board /Committees In Which The Director Is Member 10 10 10 10 9 9 6 10 8 10 6 7 Yes Yes Yes Yes Yes Yes 2 7 1 1 1 1 - 2 - - - - 2 3 2 1 - - Committee means Audit Committee and Stakeholders’ Relationship Committee. Memberships in Committees of Subex Limited are included. ^^ Pursuant to the terms of the employment agreement of Mr. Surjeet Singh with the Company, his tenure as Managing Director and CEO of the Company concluded on March 31, 2018 and consequently he ceased to continue on the Board of the Company and the Committees. All details of Mr. Surjeet Singh in this report, wherever it appears, are up to March 31, 2018. * The Board of Directors at its meeting held on May 25, 2017 appointed Mr. Vinod Kumar Padmanabhan as a Whole-Time Director of the Company. Subsequently on account of the restructuring of the Company, Mr. Vinod Kumar Padmanabhan was designated as Non- Executive and Non-Independent Director with effect from November 01, 2017. The Board appointed Mr. Vinod Kumar Padmanabhan as the Managing Director and CEO of the Company with effect from April 01, 2018. ** The Board of Directors at its meeting held on May 25, 2017 appointed Mr. Ashwin Chalapathy as a Whole-Time Director of the Company. Subsequently on account of the restructuring of the Company, Mr. Ashwin Chalapathy was designated as Non- Executive and Non- Independent Director with effect from November 01, 2017. Mr. Ashwin Chalapathy resigned from the directorship of the Company with effect from May 04, 2018. Annual Report 2017-18 | 55 III. AUDIT COMMITTEE A. Terms of Reference The Audit Committee has, inter alia, the following mandate as prescribed under Part C of Schedule II of The SEBI (LODR) Regulations, 2015 and Section 177 of the Companies Act, 2013 some of which are: • Overseeing of the Company’s financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible; • Recommending to the Board, the appointment, re-appointment, terms of appointment or reappointment and, if required, the replacement or removal of the statutory auditor and the fixation of audit fees; • Reviewing, with the management, the annual and quarterly financial statements before submission to the Board for approval, with particular reference to: a) Changes, if any, in accounting policies and practices and reasons for the same; b) Major accounting entries involving estimates based on the exercise of judgment by management; c) Significant adjustments made in the financial statements arising out of audit findings; d) Qualifications in the draft Audit Report; • Reviewing and monitoring the auditor’s independence and performance, and effectiveness of audit process; • Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the Board; • Overseeing the vigil mechanism which shall provide for adequate safeguards against victimization of employees and directors who avail of the vigil mechanism and also to take action against repeated frivolous complaints filed by director or employee; • Evaluating the internal financial controls; • Approving the 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; C. Number and Dates of Board Meetings Details of meetings of the Board held during the financial year 2017-18 are as follows: Sl. No. Board Meeting Number Date of the Board Meeting 1. 2. 3. 4. 5. 6. 7. 8 9. 10. May 25, 2017 May 25, 2017 June 05, 2017 July 28, 2017 August 21, 2017 October 04, 2017 November 10, 2017 December 21, 2017 January 29, 2018 March 21, 2018 No. 1/2017-18 No. 2/2017-18 No. 3/2017-18 No. 4/2017-18 No. 5/2017-18 No. 6/2017-18 No. 7/2017-18 No. 8/2017-18 No. 9/2017-18 No. 10/2017-18 D. Disclosure of relationships between directors inter-se There are no inter-se relationships between the Board members. E. Details of Shareholding of Non- Executive Directors In terms of Regulation 36 (3) (e) of the SEBI (LODR) Regulations, 2015, the details of shares held by Non- Executive Directors are as under: Name Mr. Anil Singhvi Ms. Nisha Dutt Ms. Poornima Prabhu Mr. Vinod Kumar Padmanabhan No. of Shares Held as at March 31, 2018 60,000 NIL NIL 19,095 the F. Familiarization Programme for Independent Directors Pursuant to Regulation 25(7) of the SEBI (LODR) Regulations, 2015, the familiarization programme aims to provide independent directors with the socio-economic industry scenario, environment in which the Company operates, the business model, the operational and financial performance of the Company, significant developments to enable them to take well informed decisions in a timely manner. The familiarization programme also seeks to update the directors on the roles, responsibilities, rights and duties under the Companies Act, 2013 and other statutes. There was no independent director appointed during the year. Details of the familiarization programme imparted to independent directors is available on the following link https://www.subex. com/shareholder-services/. 56 | SUBEX LIMITED The current charter of the Audit Committee is in line with the provisions of the Companies Act, 2013, the SEBI (LODR) Regulations, 2015 and regulatory changes formulated by SEBI and international best practices. All members of the Audit Committee are financially literate and have related financial management expertise. Member Mr. Anil Singhvi Mr. Surjeet Singh Ms. Nisha Dutt B. Composition of The Audit Committee as on March 31, 2018 Ms. Poornima Prabhu No. of Audit Committee Meetings Held No. of Audit Committee Meetings Attended 7 7 7 7 7 5 5 7 Sl. No Name of the Director Category 1. 2. 3. 4. Mr. Anil Singhvi (Chairman) Independent Director Ms. Nisha Dutt Independent Director Mr. Surjeet Singh * Managing Director and CEO Ms. Poornima Prabhu Independent Director Mr. Ganesh K V, Chief Financial Officer, Global Head-Legal and Company Secretary ceased to be the Secretary of the Audit Committee with effect from June 15, 2017 consequent to his resignation from the Company. *Mr. Surjeet Singh ceased to be the member of the Audit Committee on March 31, 2018. Mr. Vinod Kumar Padmanabhan was inducted to the Audit Committee with effect from April 01, 2018. C. Meetings and Attendance of the Committee during the Year During the financial year 2017-18, the following Audit Committee meetings were held: 1. No. 1/ 2017-18 2. No. 2/ 2017-18 3. No. 3/ 2017-18 4. No. 4/ 2017-18 5. No. 5/ 2017-18 6. No. 6/ 2017-18 7. No. 7/ 2017-18 May 25, 2017 June 05, 2017 July 28, 2017 August 21, 2017 November 10, 2017 January 29, 2018 March 21, 2018 The dates on which the Quarterly/Half Yearly/Year ended results were considered were as follows: Sl. No. 1. 2. 3. 4. Quarterly/ half yearly/ yearly results Quarter and Year ended March 31, 2017 Quarter ended June 30, 2017 Quarter and Half year ended September 30, 2017 Quarter and nine months ended December 31, 2017 Dates on which the results were considered May 25, 2017 July 28, 2017 November 10, 2017 January 29, 2018 The Attendance of the directors at the Audit Committee Meetings during the financial year 2017-18 were as follows: M/s S.R. Batliboi & Associates LLP, Chartered Accountants, the Statutory Auditors of the Company have attended all the Audit Committee Meetings held during the year. P. C. Chandrashekhar & Co, Chartered Accountants, the Internal Auditors of the Company attended the meeting of the Committee held on May 25, 2017 and were re- appointed by the Committee for the financial year 2017-18. IV. NOMINATION AND REMUNERATION COMMITTEE The Nomination and Remuneration Committee considers the performance of the Company as well as general industry trends while fixing the remuneration of the Executive Directors. The said Committee as a part of the Remuneration Policy considers the recommendation of appointment of Directors, including Managing Director and Whole-Time Director by whatever name called by the Company. A. Composition of the Nomination and Remuneration Committee as on March 31, 2018 is as follows: Sl. No. Name of the Director Category 1. 2. 3. Ms. Nisha Dutt (Chairperson) Independent Director Mr. Anil Singhvi Independent Director Ms. Poornima Prabhu Independent Director B. Meetings and Attendance of the Committee during the Year During the financial year 2017-18, the following meetings of the Nomination and Remuneration Committee were held: 1. 2. 3. 4. 5. 6. No. 1/2017-18 No. 2/2017-18 No. 3/2017-18 No. 4/2017-18 No. 5/2017-18 No. 6/2017-18 May 25, 2017 June 05, 2017 July 28, 2017 October 04, 2017 December 21, 2017 March 21, 2018 At its meeting held on October 04, 2017, the Committee approved the re-appointment and remuneration of Mr. Surjeet Singh as the Managing Director & CEO of the Company for the period from October 05, 2017 to March 31, 2018. Further at the meeting of the Committee held on March 21, 2018, the Committee approved the appointment and remuneration of Mr. Vinod Kumar Padmanabhan Annual Report 2017-18 | 57 as the Managing Director & CEO of the Company for a period of 3 years with effect from April 01, 2018. Companies Act, 2013. However, no commission was paid to the independent directors during the year. Attendance of the members at the Nomination and Remuneration Committee meetings during the financial year 2017-18 were as follows: Member No. of Nomination and Remuneration Committee Meetings Held No. of Nomination and Remuneration Committee Meetings Attended Ms. Nisha Dutt Mr. Anil Singhvi Ms. Poornima Prabhu 6 6 6 4 6 6 C. Details of remuneration paid to all the Directors during the Year 2017-18 are as follows: The Independent Directors are paid sitting fees of H1,00,000 per meeting for attendance in the Board Meetings and Meetings of other Committees of the Board. 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, 2013 and rules made thereunder. Details of remuneration paid to the directors during the year 2017- 18 are as follows: Remuneration Details of Executive Directors: 1. Mr. Surjeet Singh, Managing Director & CEO (October 05, 2017 to March 31, 2018) (a) Tenure: October 05, 2017 to March 31, 2018 (b) Remuneration: H5,00,000 per month. (c) Benefits: a. Medical Reimbursement: Reimbursement of medical expenses incurred, including premium paid on health insurance policies, whether in India or aboard, for self and family. 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. (d) Taxes: All taxes, duties, levies, surcharge etc. shall be borne solely by Mr. Surjeet Singh. (e) Expenses: The Company shall reimburse, on a monthly basis, all reasonable travelling, entertainment and other similar out of pocket expenses necessarily and reasonably incurred by him wholly in proper performance of his duties and responsibilities. He shall be entitled to travel in Business class where travel time is more than 5 hrs. (f) Leave: Casual/sick leave and holidays as per the policy of the Company. (H in Lakhs) Commission $ (g) Termination: The Company or Mr. Surjeet Singh may terminate the agreement giving either party notice in writing of 90 (Ninety) days. Name Sitting fees Salary and perquisites Ms. Nisha Dutt Mr. Anil Singhvi Mr. Surjeet Singh Ms. Poornima Prabhu Mr. Vinod Kumar Padmanabhan 22 28 N. A. 23 N. A. Mr. Ashwin Chalapathy N. A. - - 38 - 54 45 - - - - - - All the values have been rounded off to the nearest Lakhs. $ Remuneration to independent directors by way of commission was approved by the Board at their Meeting held on May 25, 2017 and subsequently approved by the shareholders at the 23rd Annual General Meeting held on July 28, 2017 for an amount not exceeding 1% per annum of the net profits of the Company calculated in accordance with the provisions of Section 198 of the 58 | SUBEX LIMITED 2. Mr. Vinod Kumar Padmanabhan, Managing Director & CEO (April 01, 2018 to March 31, 2021) a) Tenure: 3 years (April 01, 2018 to March 31, 2021) b) Remuneration: H60,00,000 per annum for a period of 3 years from April 01, 2018. c) Taxes: Mr. Vinod Kumar Padmanabhan will be solely responsible for all personal and other taxes relevant including the preparation and filing of such tax returns with appropriate authority. d) Expenses: The Company shall reimburse all reasonable travelling and other similar out of pocket expenses necessarily and reasonably incurred by him wholly in proper performance of his duties and responsibilities. e) Other terms and conditions: As per the employment agreement between Subex Limited and Mr. Vinod Kumar Padmanabhan D. Performance Evaluation Pursuant to the provisions of the Companies Act, 2013 and Regulation 25 of the SEBI (LODR) Regulations, 2015, the Board has carried out the annual performance evaluation of its own performance, the directors individually, as well as the evaluation of all the Committees of the Board. An evaluation criteria for the Chairman, Board of Directors, Members of the Committee and Individual Directors was formulated for such evaluation. The evaluation criteria included aspects related to competency of directors, strategy and performance evaluation, effectiveness, structure of the Board/Committee, level of engagement and contribution, independence of judgement etc. The performance evaluation of the independent directors was carried out by the entire Board. The performance evaluation of the non-independent directors was carried out by the independent directors. The directors expressed their satisfaction with the evaluation process. V. STAKEHOLDERS’ RELATIONSHIP COMMITTEE The Stakeholders’ Relationship 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 other documents etc. Details of grievances of the investors are provided in the “Shareholders’ Information” section of this Annual Report. A. Composition of The Stakeholders’ Relationship Committee as on March 31, 2018 Sl. No Name of the Director Category 1. 2. 3. Mr. Anil Singhvi (Chairman) Ms. Nisha Dutt Independent Director Independent Director Mr. Surjeet Singh* Managing Director & CEO Mr. Ganesh K V, Chief Financial Officer, Global Head-Legal and Company Secretary ceased to be the Secretary of the Committee with effect from June 15, 2017 pursuant to his resignation from the Company. *Mr. Surjeet Singh ceased to be the member of the Stakeholders’ Relationship Committee on March 31, 2018 Mr. Vinod Kumar Padmanabhan was inducted to the Stakeholders’ Relationship Committee by the Board with effect from April 01, 2018. B. Meetings and Attendance of the Committee during the Year During the financial year 2017-18, the following meetings of the Stakeholders’ Relationship Committee were held: 1. 2. 3. 4. No. 1/2017-18 No. 2/2017-18 No. 3/2017-18 No. 4/2017-18 May 25, 2017 July 28, 2017 November 10, 2017 January 29, 2018 Attendance of the Directors at the Stakeholders’ Relationship Committee Meetings for the financial year 2017-18 were as follows: Member No. of takeholders‘ Relationship Committee Meetings Held No. of Stakeholders’ Relationship Committee Meetings Attended Mr. Anil Singhvi Mr. Surjeet Singh Ms. Nisha Dutt 4 4 4 4 4 4 VI. ESOP COMMITTEE (COMPENSATION COMMITTEE) The Company has instituted Employee Stock Option Schemes in line with the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014. The Committee administers options under the stock options schemes. There were no grants made during the financial year 2017-18. A. Composition of The ESOP Committee as on March 31, 2018 Sl. No. Name of the Director Category 1. 2. 3. Mr. Anil Singhvi (Chairman) Independent Director Ms. Nisha Dutt Independent Director Ms. Poornima Prabhu Independent Director B. Meetings and Attendance during the Year The Committee administers the ESOP schemes of the Company by passing resolutions by circulation whenever necessary. These resolutions are tabled before the Board of Directors at their respective meetings which is noted. VII. CORPORATE SOCIAL RESPONSIBILITY (“CSR”) COMMITTEE To enable the Company to take required measures to make a meaningful contribution to society and other stakeholders, it has constituted the Corporate Social Responsibility Committee (“CSR Committee”). The CSR Committee has, inter alia, the following mandate: Annual Report 2017-18 | 59 i. formulate and recommend to the Board of Directors of the Company, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the Company as specified in Schedule VII of the Companies Act, 2013; ii. recommend the amount of expenditure to be incurred on the activities referred to in clause (i); and iii. monitor the Corporate Social Responsibility Policy of the Company from time to time. A. Composition of The CSR Committee as on March 31, 2018 Sl. No. Name of the Director Category 1. 2. 3. Mr. Anil Singhvi (Chairman) Independent Director Ms. Nisha Dutt Independent Director Mr. Surjeet Singh* Managing Director & CEO *Mr. Surjeet Singh ceased to be the member of the Corporate Social Responsibility Committee with effect from March 31,2018. Mr. Vinod Kumar Padmanabhan was inducted to the Corporate Social Responsibility Committee with effect from April 01, 2018. B. Meetings and Attendance of the Committee during the Year 2017-18: Member No. of CSR Committee Meetings Held No. of CSR Committee Meetings Attended Mr. Anil Singhvi Ms. Nisha Dutt Mr. Surjeet Singh 1 1 1 1 1 1 During the financial year 2017-18, the Committee met on May 25, 2017 to discuss and approve the contribution to be made towards the Corporate Social Responsibility programs. The CSR Charter and the Policy of the Company are available on the website of the Company at https://www.subex.com/shareholder- services/. VIII. RISK MANAGEMENT COMMITTEE To ensure that the Company is taking appropriate measures to achieve prudent balance between risk and reward in both ongoing and new business activities, it has constituted a Risk Management Committee to review the internal financial controls amongst other matters. The said Committee has also within its scope, the evaluation of significant risk exposures of the Company and to assess Management’s actions to mitigate the exposures in a timely manner. The Company considers activities at all levels of the organization, i.e. Enterprise level, Division level, Business Unit level and Subsidiary level in the risk management framework. All these components are interrelated and drive the Enterprise Wide Risk Management with focus on three key elements i.e. Risk Assessment, Risk Management and Risk Monitoring. 60 | SUBEX LIMITED A. Composition of the Risk Management Committee as on March 31, 2018 Sl. No. Name of the Director Category 1. 2. 3. Mr. Anil Singhvi (Chairman) Independent Director Mr. Surjeet Singh* Managing Director & CEO Mr. Vinod Kumar Padmanabhan Non- Executive, Non- Independent Director *Mr. Surjeet Singh ceased to be the member of the Risk Management Committee on March 31, 2018. B. Meetings and Attendance during the Year There were no meetings of the Risk Management Committee held during the financial year 2017-18. IX. INDEPENDENT DIRECTOR During the year under review, the Independent Directors met, inter alia, to: • Review the performance of the Non-Independent Directors and the Board of Directors as a whole; • Assess the quality, quantity and timeliness of flow of information between the Management of the listed entity and the Board of Directors that is necessary for the Board to effectively and reasonably perform their duties. X. VIGIL MECHANISM AND WHISTLE BLOWING POLICY With the rapid expansion of business in terms of volume, value and geography, various risks associated with the business have also increased considerably. One such risk identified is the risk of fraud & misconduct. The Companies Act, 2013 and the SEBI (LODR) Regulations, 2015 require all the listed companies to institutionalize the vigil mechanism and whistle blower policy. The Company since its inception believes in honest and ethical conduct from all the employees and others who are associated directly and indirectly with the Company. The Audit Committee is also committed to ensure a fraud-free work environment. The policy provides a platform to all the employees, vendors and customers to report any suspected or confirmed incident of fraud/misconduct through any of the following reporting protocols: Adequate safeguards have been provided in the policy to prevent victimization of anyone who is using this platform and direct access to the Chairman of the Audit Committee at whistleblower@subex.com is also available in exceptional cases. This policy is applicable to all the directors, employees, vendors and customers of the Company. The policy is also posted on the website of the Company. The Whistle Blower Policy of the Company is available on the website of the Company at https://www.subex.com/shareholder-services/. XI. GENERAL BODY MEETINGS A. Location and Time of the Last Three AGMs Year 2014-15 2015-16 2016-17 Date of AGM June 19, 2015 September 12, 2016 July 28, 2017 Venue Registered office Registered Office Le Meridien, “Coronet” hall, No. 28 Sankey Road, Bengaluru-560 052 Time 1.00 PM 2:00 PM 3:00 PM Details of the Special Resolutions passed at the Last Three AGMs: Date of Annual General Meeting No. of special resolutions passed Details of Resolution pertaining too June 19, 2015 September 12, 2016 July 28, 2017 7 2 3 1. Re- appointment of Mr. Surjeet Singh as the Managing Director and CEO of the Company for a period of one year from October 05, 2014 to October 04, 2015. 2. Re-appointment of Mr. Anil Singhvi as an Independent Director for a period of five years. 3. Re-appointment of Mr. Sanjeev Aga as an Independent Director for a period of five years. 4. Issuance of shares pursuant to reset of Conversion Price of FCCB’s. 5. Increase in Authorized Share Capital of the Company. 6. Alteration of Capital Clause contained in the Memorandum of Association and. 7. Approval of Borrowing limits of the Company. 1. Alteration of Articles of Association of the Company. 2. Re-appointment of Mr. Surjeet Singh as Managing Director and CEO of the Company for a period of one year from October 05, 2016 to October 04, 2017. 1. Appointment of Mr. Vinod Kumar Padmanabhan as a Whole-Time Director of the Company. 2. Appointment of Mr. Ashwin Chalapathy as a Whole-Time Director of the Company. 3. Approve payment of remuneration to Independent Directors by way of commission. 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 Registered office Time 11.30 AM 11.30 AM 11.30 AM C. Postal Ballot during the year 2017-18 Pursuant to the provisions of Section 110 and other applicable provisions of the Companies Act, 2013, the following special resolutions were passed by the Members of the Company through postal ballot: A. Postal Ballot conducted during March 30, 2017 to April 29, 2017 Mr. Pramod S M, Practicing Company Secretary (Membership Number FCS:7834, CP No. 13784) was appointed as the scrutinizer for the above mentioned remote e-voting process and Postal Ballot. Details of the special resolutions that were passed are as follows: Resolution No. Particulars Total Number of shares voted Voted in Favour Voted against Percentage (in favour) Result 1. 2. Increase in Authorized Share Capital 51,364,551 51,003,488 361,063 99.30 Approved Issue of Equity Shares on preferential basis 51,238,450 51,054,878 183,572 99.64 Approved Annual Report 2017-18 | 61 B. Postal Ballot conducted during August 25, 2017 to September 23, 2017 Mr. Biswajit Ghosh, Practicing Company Secretary (Membership Number FCS:8750, CP No. 8239) was appointed as the scrutinizer for the above mentioned remote e-voting process and Postal Ballot. Details of the special resolutions that were passed are as follows: Resolution No. Particulars Total Number of shares voted Voted in Favour Voted against Percentage (in favour) Result 1. 2. 3. Restructuring of the business of the Company 119,241,219 118,221,024 1,020,195 99.14% Approved Amendment to Articles of Association 118,450,070 118,066,693 383,377 99.68% Approved Amendment to the object Clause of the Memorandum of Association 115,882,184 115,870,492 11,692 99.99% Approved independence. The Company has relevant declarations in this regard from its Independent Directors Mr. Anil Singhvi, Ms. Nisha Dutt and Ms. Poornima Prabhu. received the B. INSIDER TRADING The Company has adopted a Code of Conduct for prevention of Insider Trading with a view to regulate trading in securities by the Directors and designated employees of the Company. The code requires pre-clearance for dealing in the Company’s shares and prohibits the purchase or sale of Company’s shares by the Directors and the designated employees while in possession of unpublished price sensitive information in relation to the Company and during the period when the Trading Window is closed. The Company Secretary & Compliance Officer is responsible for implementation of the Code. C. FINES During the year 2017-18, there was no fine, penalty nor any stricture passed by SEBI, Stock Exchanges or any other Statutory Authority on matters relating to capital markets. During the year 2015-16, BSE Limited imposed a fine of H18,240/- on the Company under Clause 31 of the erstwhile Listing Agreement for delay in submission to the exchange, the Annual Report for 2014-15 which was duly paid. There was no other fine, penalty nor any stricture passed by SEBI, Stock Exchanges or any other Statutory Authority on matters relating to capital markets, in the last three years, other than as stated above. D. CEO/CFO CERTIFICATION The Company has obtained a certificate from the CEO and CFO as required by Regulation 17 (8) (Part B of Schedule II) of the SEBI (LODR) Regulations, 2015. The complete results of the voting along with the scrutinizers report for the aforementioned postal ballot’s were made available on the website of the Company www.subex.com and on the websites of BSE and NSE. XII. SUBSIDIARY COMPANIES A policy on materiality of subsidiaries has been formulated and the same has been posted on the website of the Company under the link https://www.subex.com/shareholder-services/. The Annual Financial Statements of material subsidiaries are tabled before the Audit Committee and Board meetings. XIII. DISCLOSURES A. RELATED PARTY TRANSACTIONS All transactions entered into with Related Parties as defined under the Companies Act, 2013 and Regulation 23 of the SEBI (LODR) Regulations, 2015 during the financial year were in the ordinary course of business and on an arms’ length pricing basis and do not attract the provisions of Section 188 of the Companies Act, 2013. There were no materially significant transactions with related parties during the financial year which were in conflict with the interest of the Company. Suitable disclosures as required by the Accounting Standards (AS18) and IND AS has been made in the note 33 to the Stand Alone and Note 33 to the Consolidated Financial Statements. The Board has approved a policy for related party transactions which has been uploaded on the Company’s website under the link https://www.subex.com/shareholder- services/. 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 62 | SUBEX LIMITED E. CODE OF CONDUCT In compliance with Regulation 17 (5) of the SEBI (LODR) Regulations, 2015, the Company has adopted a Code of Conduct (the ‘Code’). This Code is applicable to the Members of the Board, Senior Management Personnel and all employees of the Company and Subsidiaries. The Code lays down the standard of conduct which is expected to be followed by the Directors and the designated employees in their business dealings particularly on matters relating to integrity in the work place, in business practices and in dealing with stakeholders. The Code gives guidance through examples on the expected behavior from an employee in a given situation and the reporting structure. During the said Financial year there were no changes made to the Code. All the members of the Board and the Senior Management Personnel have affirmed compliance to the Code, as at March 31, 2018. A declaration to this effect, signed by the Managing Director and CEO is provided in the certification section of the Annual Report. The Code has been posted on the Company’s website https://www.subex.com/shareholder-services/. XIV. MEANS OF COMMUNICATION A. Annual/Half Yearly and Quarterly Results The annual audited /half yearly & quarterly un-audited results are generally published in all editions of Financial Express/ Business Standard (English) and Vijay Karnataka/Udayavani (Kannada). The complete financial statements are posted on the Company’s website https://www.subex.com/shareholder-services/. Subex also regularly provides information to the Stock Exchanges as per the requirements of the SEBI (LODR) Regulations, 2015 and updates the website periodically to include information on new developments and business opportunities. Being a Company with strong focus on green initiatives, Subex proposes to send all shareholder communications such as the notice of General Meetings, Audited Financial Statements, Board’s Report, Auditors’ Report, etc., as done in the past, to shareholders in electronic form to the e-mail id provided by them and made available to us by the Depositories. Members are requested to register their e-mail id with their Depository Participant and inform them of any changes to the same from time to time. However, Members who prefer physical copy to be delivered may write to the Company at its registered office or send an e-mail to investorrelations@subex.com by providing their DP ID and Client ID as reference. XV. MANAGEMENT DISCUSSION AND ANALYSIS The Management Discussion and Analysis forms part of the Annual Report. XVI. GENERAL SHAREHOLDER INFORMATION General shareholder information is provided in the “Shareholder’s Information” Section of the Annual Report. XVII. PRACTISING COMPANY SECRETARIES CERTIFICATE The certificate with regard to compliance of conditions on Corporate Governance as per Clause E of Schedule V of the SEBI (LODR) Regulations, 2015 forms part of the Board’s Report. XVIII. COMPLIANCE WITH DISCRETIONARY REQUIREMENTS PROVIDED UNDER PART E OF SCHEDULE II OF THE SEBI (LODR) REGULATIONS, 2015 Part E of Schedule II of the SEBI (LODR) Regulations, 2015 states that the discretionary 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 in the section on Corporate requirements shall be made Governance in the Annual Report. The Company has complied with the following non-mandatory requirements: A. The Board The Company appointed Mr. Anil Singhvi, Independent Director as the Non-Executive Chairman of the Company at its meeting held on May 25, 2017. The Company reimburses the expenses incurred by the Chairman for discharge of his duties that are attributable to the Company on a regular basis pursuant to the provisions of Regulation 27(1) of SEBI (LODR) Regulation, 2015. B. Shareholders’ Rights The Company communicates with investors regularly through e-mails, telephone calls and face to face meetings. The Company Annual Report 2017-18 | 63 publishes the quarterly financial results in leading business newspaper(s) as well as on the Company’s website. C. Modified opinion(s) in Audit Report The Company did not receive any Modified Opinion in the Audit Report of the Financial Statements during the financial year. D. Separate Posts of Chairperson and Chief Executive Officer The Company has created separate positions to be held by the Chairman of the Company and the Chief Executive Officer. The Board at its meeting held on May 25, 2017 appointed Mr. Anil Singhvi as the Chairman of the Company. The Board at its meeting held on October 04, 2017 re-appointed Mr. Surjeet Singh as Managing Director and CEO of the Company from October 05, 2017 until March 31, 2018. Consequent to the conclusion of tenure of Mr. Surjeet Singh, the Board at its meeting held on March 21, 2018, based on the recommendation of the Nomination & Remuneration Committee appointed Mr. Vinod Kumar Padmanabhan as Managing Director and CEO of the Company for a term of 3 years effective from April 01, 2018. E. Reporting of Internal Auditor The Internal Auditors report to the Audit Committee of the Board of Directors and are requested to be present as invitees at the Audit Committee meetings held every quarter. Vinod Kumar Padmanabhan Managing Director & CEO DIN 06563872 Place: Bengaluru, India Date: May 04, 2018 For Subex Limited Anil Singhvi Chairman and Independent Director DIN 00239589 Place: Bengaluru, India Date: May 04, 2018 64 | SUBEX LIMITED DECLARATION BY THE CEO UNDER CLAUSE D OF SCHEDULE V OF THE SEBI (LODR) REGULATIONS, 2015 REGARDING ADHERENCE TO THE CODE OF CONDUCT To, The Members of Subex Limited In accordance with Clause D of Schedule V of the SEBI (LODR) Regulations, 2015, 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, 2018. Place: Bengaluru Date: May 04, 2018 For Subex Limited Vinod Kumar Padmanabhan Managing Director & CEO DIN 06563872 Annual Report 2017-18 | 65 CEO AND CFO CERTIFICATION IN TERMS OF REGULATION 17 (8) OF THE SEBI (LODR) REGULATIONS, 2015 To, The Board of Directors Subex Limited Dear Sirs, In terms of Regulation 17 (8) of the SEBI (LODR) Regulations, 2015, we hereby certify to the Board of Directors that: A) We have reviewed the financial statements and the cash flow statement of the Company for the year ended March 31, 2018 and to the best of our knowledge and belief: i) These statements do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading; ii) These statements together present a true and fair view of the Company’s affairs and are in compliance with existing accounting standards, applicable laws and regulations. B) There are, to the best of our knowledge and belief, no transactions entered into by the Company during the year which are fraudulent, illegal or violative of the Company’s code of conduct. C) We accept responsibility for establishing and maintaining internal controls for financial reporting and that we have evaluated the effectiveness of internal control systems of the Company pertaining to financial reporting and we have disclosed to the auditors and the Audit Committee, deficiencies in the design or operation of such internal controls, if any, of which we are aware and the steps we have taken or propose to take to rectify these deficiencies. D) We have indicated to the auditors and the Audit Committee i) Significant changes in internal control if any, over financial reporting during the year; ii) Significant changes in accounting policies during the year, if any, and that the same have been disclosed in the notes to the financial statements; and iii) Instances of significant fraud of which we have become aware and the involvement therein, if any, of the management or an employee having a significant role in the Company’s internal control system over financial reporting, wherever needed. Vinod Kumar Padmanabhan Managing Director & CEO DIN 06563872 Mehernaz Dalal Chief Financial Officer Place: Bengaluru Date: May 04, 2018 Place: Bengaluru Date: May 04, 2018 66 | SUBEX LIMITED 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 BSE Limited. The management of Subex is committed to transparency and disclosure. In keeping with that commitment, we are pleased to disclose hereunder information about the Company, its business, operations, outlook, risks and financial condition. The financial statements of the Company have been prepared in compliance with the requirements of the Companies Act, 2013 and the Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015. 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. In addition to the historical information contained herein, the following discussion may include forward looking statements which involve risks and uncertainties, including but not limited to the risks inherent in the Company’s growth strategy, dependency on certain clients, dependency on availability of qualified technical personnel and other factors discussed in this report. COMPANY OVERVIEW We provide software products, solutions and related services to communications service providers (“CSPs”) worldwide. Our licensing, professional revenue contributing pie consists of services related to installations and configuration activity, annual support contracts and managed services. Our pioneering platform, the Revenue Operations Centre (ROC®) – a centralized approach that sustains profitable growth and financial health of CSPs through coordinated operational control - brings together business intelligence, domain knowledge and workflow support. ROC acts as the underpinning solution on which CSPs can build their processes to drive new business models, enhance customer experience and optimise operations. Subex helps CSPs to drive new business models, enhance customer experience and optimise enterprises. Subex leverages its award- winning analytics solutions in areas such as Revenue Assurance, Fraud Management, Network Asset Management and Partner Settlement, and complements them through its newer solutions such as IoT Security. Subex also offers scalable Managed Services and Business Consulting services. We are proud to be recognized as a leader in our market. We are especially proud to have received numerous awards jointly with our customers. Our recent awards include: • • • • • Converge 2018 Big Data & Analytics Award under “Customer Analytics” Category Pipeline Innovation Award 2018 & 2017 for the ‘Innovations in Managed Services’, Big Data & Analytics and Security & Assurance” category Aegis Graham Bell Award 2017 for Innovation in ROC Insights under “Data Science” Category Global Telecoms Business Innovation Award 2017 with Saudi Telecom Company Innovation Awards under “Managed Services” Pipeline category & “Innovations in Security & Assurance” Subex has spent over 25 years in enabling 3/4th of the largest 50 CSPs globally achieve competitive advantage. Being truly a global Company, we have more than 300 installations across 90+ countries. We have a global presence, employing over 900+ people, with headquarters in Bengaluru, India and offices in Singapore, UK, US and UAE. More information on (a) our revenue model, (b) our products, (c) our global customer base and (d) an overview on the CSP industry itself is discussed below. OPPORTUNITIES The last couple of years saw Telcos faced with a paradoxical choice of fighting OTT digital providers vs partnering with the OTT digital providers. It is clear that digital is now deeply embedded in the telco ecosystem as an efficiency and scalability driver, as a customer engagement and experience driver and indeed as a driver of new digital products, services, and offerings. Telcos continue to invest in augmenting networks, forging partnerships and indeed in some cases building walled gardens of an entire ecosystem of digital services. Further, larger-scale adoption of IoT has started gathering momentum and 2018 is now forecast to be the year when IOT becomes massive. We see significant opportunities for Subex in the digital play of telcos and homecoming of IoT. In the core areas of Revenue Assurance and Fraud Management the new digital service expose Annual Report 2017-18 | 67 telcos to new business risks, revenue risks, cost and margin risks, fraud risks, compliance and regulatory risks. Subex is well positioned to help telcos manage these risks, while at the same time helping them remain agile to their customer needs and agile to successfully take on the digital competition. Subex with its Partner Management portfolio is also well positioned to help telcos attract, retain and work efficiently with digital partners. into fintech and digital banks, into home automation and indeed industrial IoT service providers. This is resulting in new buying centers within the telcos for fraud, risk and security solutions. Failure to develop good relationships with the new buying centers can result in Subex getting sidelined. Subex needs to leverage its domain credentials and its relationship with existing buyers to mitigate this risk. Return on invested capital particularly in networks is coming under significant pressure and scrutiny. Subex’s network analytics portfolio with its network lifecycle management and capacity management solutions is well positioned to capitalize on the opportunity created to optimise network spend and use networks as a driver of customer experience. The timing of Subex’s IoT security solution has coincided well with the massive IoT offtake we are experiencing. With security being identified as one of the key barriers to IoT adoption, we believe Subex is well positioned to grab a portion of the IoT security spend market. THREATS Core areas of Subex such as fraud management, revenue assurance, partner settlement are evolving. For instance, Revenue Assurance and Fraud Management are evolving into Business Assurance and increasingly getting closer to Enterprise Risk Management; and partner settlement is evolving into larger partner management to manage the digital ecosystem for telcos. Subex needs to ensure that it can capitalize on these changes and create leadership positions in the evolved areas. With digital services, telcos are changing into content providers, OUR REVENUE MODEL Our revenue generally comes from four streams: (1) licensing; (2) professional services related to installations and configuration activity; (3) annual support contracts; and (4) managed services. We generally license our software products on per subscriber or per transaction basis. This means that when our customers experience growth, we can also expect to benefit from that growth. Typically, there are significant professional services revenues associated with each new software installation as well as with upgrades. Our annual support contracts are generally priced as a function of the total license fees paid by the customer. Thus, our annual support contracts would also tend to experience growth when our customers experience growth. Importantly, annual support contract revenue tends to be recurring revenue. Finally, we have been experiencing increasing success with managed service revenue. Like annual support contracts, managed services provides a relatively predictable recurring revenue stream. At the same time, our managed service offering provides us with an opportunity to maintain a continuous touch point with the customer so we can better understand their needs and we have opportunity to educate them on our offerings and skills. Revenue composition 100 90 80 70 60 50 40 30 20 10 0 e g a t n e c r e P Third party Managed services Customization Support License & Addl. License 68 | SUBEX LIMITED FY ‘05 5 0 13 18 64 FY ‘06 9 0 5 19 67 FY ‘07 2 9 6 26 57 FY ‘08 3 8 10 30 49 FY ‘09 1 11 7 25 56 FY ‘10 2 10 7 27 54 FY ‘11 1 14 3 28 54 FY ‘12 0 18 7 18 57 FY ‘13 0 24 8 31 37 FY ‘14 1 27 8 34 30 FY ‘15 4 34 7 30 25 FY FY FY ‘16 ‘17 ‘18 1 36 8 35 20 1 33 7 32 27 - 33 8 33 26 OUR PRODUCTS Subex offers the Revenue Operations Centre (ROC®) Solution Suite for Business and CapEx Optimisation, which has solutions for ‘Risk & Security’ which consists of Digital Revenue Assurance, Fraud Management and IoT & M2M Security; and for enhancing ‘Experience’ through Customer Journey Analytics, Customer Analytics, and CMO Insights. The platform also provides solutions for helping enterprises to ‘Optimise’ through Network Asset Management, Data Integrity Management and Capacity Management; and also solutions to help CSPs ‘Monetize’ through Interconnect Billing, and Digital Partner Settlement. On top of these solutions, Subex also enables CSPs to leverage their harvested information to take decision-based actions by providing contextual, consumable and actionable business insights through advanced analytics. All solutions come together to help CSPs prevent fraud losses, collect all revenues, reduce defaulted payments, reduce wasteful expenditure, manage inter-carrier and partner expenses and optimise CapEx. The ROC enables profitable service provider growth through coordinated operational control. For service providers that aim to optimise their operational and process infrastructure, ROC delivers Business and CapEx Optimisation 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. • Supports business and operational innovation programs because of its end-to-end view. SUBEX PORTFOLIO DRIVE NEW BUSINESS MODELS ENHANCING CUSTOMER EXPERIENCE OPTIMISE ENTERPRISE CONSULTING & ADVISORY SERVICES Business Operations Infrastructure Revenue Intelligence Customer Intelligence Product Intelligence Partner Management Fraud Management Revenue Assurance Risk Intelligence Interconnect Settlement Network Asset Management s e c i v r e S d e g a n a M l s c i t y a n A d e c n a v d A IoT Security Capacity Management ROC+ Platform Annual Report 2017-18 | 69 RISK & SECURITY Digital Revenue Assurance Subex’s Digital Revenue Assurance is the telecom industry’s first revenue assurance solution that simplifies RA. It helps telecom service providers transform mountains of data from across business platforms/systems into valuable actionable insights that aid revenue maximisation processes. Digital Revenue Assurance has pioneered the Next Generation RA DNA (Dynamic Network Analytics) technology where operators can quickly invoke GUI- driven building blocks to rapidly deploy extensive Revenue Assurance and Enterprise Business Process controls within their operations. DNA is network topology agnostic and supports revenue management for both traditional communication services and digital services offerings. The solution offers both pre-built set of controls packaged to reduce time of production, as well as capabilities to support any business process that aids revenue management, automating and simplifying complex revenue and cost processes. Digital Revenue Assurance also offers two path breaking concepts: Revenue Pad and Zen. RevPad provides end to end view of all business process related metrics that helps key stakeholders derive a view of overall system. ZEN is the industry’s first virtual analyst that assists operators in investigation and diagnosis. This enables material increase in analyst productivity, increased coverage across revenue checkpoints and reduced time to benefit realisation for a service provider and supports Revenue Assurance teams to align their successes with broader organizational goals - such as higher margins and customer satisfaction. Fraud Management The fraud management solution by Subex, is built to increase fraud prevention in the telecom industry by eliminating known frauds, uncovering new fraud patterns, minimizing 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. Subex Fraud Management’s high flexibility allows operators of different sizes to customize rules to suit unique network and business requirements. A configurable workflow management tool integrates the investigation process with detection. 70 | SUBEX LIMITED With Subex’s comprehensive fraud management system, operators can detect fraud types in all telecom environments: Wireline (PSTN, ISP, VoIP), and Wireless (2G, 2.5G, 3G & 4G); and across all services: postpaid, Payment, VAS, MMS and M-commerce. MONETISE Partner Settlement Partner Settlement allows operators to quickly and accurately settle charges with their network and content partners. It helps operators improve efficiency through light touch and automation, accurate billing and settlement and prudent accrual provisioning. Catering to the need for visibility of each deal’s impact on an operator’s bottom line owing to shrinking margins, the solution provides strong coverage in all areas from order to cash. It enables operators to manage costs and revenues on interconnect and partner agreements with domestic and international operators as well as content partners on a day-to-day and hour-to-hour basis. New types of complex agreements in areas such as IP and content- based services require new system capabilities to ensure that operators have accurate data available to assure revenues. Subex Partner Settlement’s flexibility, scalability and ease of use empower all types of service providers, fixed or mobile, national incumbent or new entrant. Partner Settlement is a comprehensive solution to help Telecom operators with interconnect, content and digital settlements giving them the edge needed to prosper in today’s market. Route Optimisation Route Optimization is designed to provide operators with tools to manage network cost information supplied by other operators. Additional analysis on the impact of current operator tariffs as well as forecasts on potential future operator tariffs is also featured. The system is capable of taking into account factors such as call quality, rate information, capacity, and network costs to arrive at the optimum choice of operators. The solution ensures that the entire end-to-end processes from dial code/destination operator rate imports to switch updates are controllable and auditable. It is fully supported by a comprehensive list of reports and when generating an optimised routing table, the system provides an integrated management of the routing table changes across multiple business functions. Subex Route Optimization solution helps telcos to derive the best breakouts and cost routes. The processes also enable communication service providers to establish focused efficiency- increasing task automation, thereby reducing data redundancies. Subex Secure Subex IoT security solution monitors and alerts to threats in near real-time Internet of Things (IoT) environments. The Subex security narrative focuses on the concept of holistic ‘cyber resilience’ from asset and incident discovery and monitoring through response and recovery. In addition to its specialized, agentless software for heterogeneous IoT environments to extract and analyze data from IoT edge sources and apply IDS and SIEM capabilities. It also offers SLA-based 24/7 monitoring services via a global network of SOCs, honeypots and skilled security analysts. Subex uses an agent- based model for homogeneous deployments focused on remote attestation. The Subex IoT security offering is a managed service that primarily consists of four distinct technologies: - an intrusion detection system, - a web access firewall, - a SIEM and - a contextual anomaly detection system In addition to monitoring services, Subex works with clients to develop customized incident response plans in the event of a breach. Through its partners, Subex also brings private VPN, encryption, authentication and secure key storage services to its clients. The combination of Subex’s native security capabilities results in threat detection based on signatures, heuristics and anomaly detection, allowing the Company to identify both known and unknown threats. In addition to its capabilities in the telecom and consumer/ enterprise IoT space, Subex also offers its IoT security solution for industrial control systems and smart city infrastructure domains. This offering includes cascading policy controls across different levels in the ICS environment, role-based access control, privilege control and audit trails. OPTIMISE Network Asset Management Network Asset Management is a Telecom Asset Lifecycle Management solution which provides framework and controls to manage network CapEx efficiently. The solution ties the financial parameters of the assets to its current utilization and location, creating a 360 degree view of the asset, generates accurate reports for audits and calculates return on assets. Bridging the gap between network and finance functions, Subex Asset Assurance uses a state-of-the-art network intelligence for: - Knowing what you have (Knowing what assets you have and its utilization). - Measuring what you have (Setting up controls to monitor assets location and utilization). - Optimising what you have (Asset optimisation leading to CapEx and OPEX efficiency). In addition, it simplifies field audits, provides near real-time capacity views, recommendation to optimise network utilization and optimises P2R (Plan-to-retire) and cash-to-cash cycle for assets and improves overall operational efficiency. Data Integrity Management Subex is the pioneer of data integrity management, with over a decade of experience in data integrity transformations with the world’s leading service providers. Data Integrity Management is the industry’s first solution for improving the quality of data that drives key service provider processes, resulting in lower costs and higher service profitability. Data Integrity Management combines three powerful data integrity functions: multi-layer network and service discovery; data reconciliation; and discrepancy analytics. Integrity Management discovers network Data resources, identifies them and reconciles them with your OSS/BSS databases such as between an inventory management system and an order management system and a billing system or an asset tracking system based on Service Provider business rules. Leveraging inherent cross-domain intelligence and extensive off-the-shelf network equipment support, 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’s operations, enhancing the effectiveness and value of service fulfillment, service assurance, and billing systems. Capacity Management Subex’s Capacity Management solution enables CSPs to prevent an availability or performance impact on business-critical applications due to capacity issues. Capacity Management provides the critical link between network discovery and predictive analytics to identify capacity ‘hot-spots’ and predict ‘time-to-exhaustion’. It provides a holistic view of capacity through which it helps CSPs see threshold violations on key links and resolve capacity issues based on near real-time data. It further engages analytics functions to provide actionable intelligence and predict scenarios and their impact on network capacity which would help CSPs to plan capacity investments accordingly. This ensures removal of capacity issues and ensures smooth operation of business-critical applications thereby resulting in positive customer experience. Business Insights Today, for Communications Service Providers (CSPs), the volume of data required to be dealt with is enormous. Being able to store and access such volumes of data is only part of the problem for them. In order to effectively use the data to improve and optimise business processes, CSPs need analytics & insights to derive actionable intelligence out of it. Many organisations in fact have understood the importance of having a Data Analytics strategy and have made efforts towards harnessing and leveraging the data available to them. Unfortunately, the numerous solutions which they are currently using are limited in terms of providing actionable insights upon which business decisions can be taken. Due to this, CSPs are not able to generate ROI from their Data Analytics solution. Annual Report 2017-18 | 71 Business Insights is a unique approach to solving the problem with data growth. The cornerstone of this offering is to leverage big data and generate nuggets of information – which are “Consumable”, “Actionable” and “Contextual”. Based on Subex’s two decades of B/OSS expertise, telecom domain knowledge and telecom analytics experience, the program is built on the pillars of “Domain”, “Analytics” and “Technology”. Subex Business Insights helps operators extract valuable information from data, predict and act upon irregularities, increase overall efficiency and effectively monitor business changes in near-real time. Moreover, through the generation of consumable and interactive storyboards, Business Insights transcends beyond providing mere dashboards to providing insights which can be consumed by executives across multiple levels. Moreover, ROC Insights ensures costs are kept low by keeping a zero CapEx, only OPEX-driven model. Additionally, the Business Insights service can be used to generate insights only which are relevant and required. Business Insights does this by adopting a pay-as-you go model, tailor-made to address the challenges of today’s telcos around Product, Risk, Customer and Revenue. Consulting & Assessment Services While telcos are undergoing transformation and becoming digital lifestyle service providers, they need trusted partners at the operational level in order to make sure they have the right domain, technology and processes. Subex with its more than 25 years of experience in telecom domain, end-to-end experience in defining strategy to execution and use of relevant tools that are compliant with global forums such as TM Forum and CFCA; is the right partner of choice in consulting and assessment services for global telcos. Subex offers consulting and assessment services in the following domains: • Maturity assessment: Benchmarking of their revenue assurance and fraud management processes with respect to global standards and provide metrics across people skills, processes, technology usage and measurement strategies. • Business operations assessments: Gap analysis of existing processes and provide the roadmap to close these gaps using “analyse, evaluate, assess and recommend” framework. • Risk management: Identify the risks in the revenue chain and plug leakages in a timely manner, through regular end to end assessment of the existing business and revenue streams. Subex’s custom framework is based on a thorough understanding of risks, creating a Risk Control Matrix utilizing TM Forum standards, and developing comprehensive standard operating procedures. • Business process re-engineering: Review of the existing business processes and then design and implement the new business process after considering the best industry practices. 72 | SUBEX LIMITED • System integration and IT support operations: While migrating from legacy OSS/BSS infrastructure Subex provides extensive checklists and exhaustive test cases making sure that migration cost is reduced. Subex can also help in carrying out customized health-check of RA and FM IT operations of telcos. • Product and service margin assurance: Assessment of the target market and holistic margin and profitability check for the entire service and product catalogue. • Portfolio optimisation: Optimizing offering portfolio by holistic assessment of products and offerings considering subscriber base, price points, usage patterns, revenue share and benefit comparison with other offerings. Managed Services In an era of intensifying competition, demanding customers, shrinking margins and near-flat top lines, it is imperative to manage Business & Operations Support Systems (B/OSS) effectively. Whether you are a business executive or a functional leader, we understand your challenges related to running such operations. There is a dearth of domain experts; Commercial-Of- The-Shelf (COTS) software products while implemented are not being utilized to their maximum capabilities; there is a continuous pressure on managing with limited resources; even though output expectations are sky high. At Subex, our Managed Services offerings are designed to drive outcome and protect revenues by enhancing customer experience. Pillared on four main aspects i.e. Cost, Quality, Time-to-market and Capability, the engagement is aimed to provide rapid ROI, increase efficiency and in-turn deliver maximum value. Driven by robust technology-led capabilities, Subex Managed Services offers a variety of engagement models providing complete flexibility to operators based on their business needs. Subex Managed Services program is designed to add both strategic and tactical value to service providers’ operations and enable better customer experience while also enhancing their operational efficiency, service agility and profitability. With Subex at the helm of its operations, service providers can redirect critical resources at core business functions generating more revenue and saving costs. Subex understands that no two service provider requirements are alike and hence offers the flexibility to pick and choose services based on: • • Scope of Operations: Ranging from standard operations to large scale transformational programs BSS / OSS Domains: Drawing from Subex’s established expertise on various BSS / OSS domains On-Site Support: High caliber, experienced resources to ensure functional continuity and high resource efficiency. 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. Subex Managed Services SMART services leveraging proven technology Product, Domain and Operation Capabilities 30+ Managed Services programs, over 20 billion CDRs processed monthly, applications running on over 100 servers Regular industry forum thought leadership engagements Industry pioneering Revenue Operations Center (ROC*) Platform Over 300 ROC implementations at 200+ service providers Automated workflows, future proof roadmap SM Subex Managed A Accountable Stringent SLAs, innovative Risk-Reward Share Model Robust processes and methodologies Assured migration up the maturity model R T ROC-Enabled Tailored Flexible, bespoke services based on scope of operations, BSS domains and stage of evolution More choice based on your requirements and budget Services leveraging proven technology OUR GLOBAL CUSTOMER BASE Subex today serves over 300 installations spread across 90+ countries. This includes 3/4th of the largest 50 CSPs globally. A partial list of customers is given below: APAC – Aircel, Astro, Airtel, Bakrie Telecom, CAT, Celcom, DTAC, DST Brunei, Idea Cellular, Indosat Ooredoo, Maxis, MTS, Ncell, Optus, Packet One, PLDT, Reliance Communications, Reliance Jio, Robi Axiata, Starhub, Singtel, Smartfren, Tata Communications, Tata Teleservices, Telenor Myanmar, Teletalk, Telstra, Telkom Indonesia, True Move, Telenor India, Vinaphone, Vodafone India. Americas- Alaska Communications, America Movil AT&T, BTC Bahamas, , Cincinnati Bell Wireless, Claro Argentina, Claro Brazil, Claro Colombia, Claro Dominican Republic, Claro Peru, Claro Puerto Rico, Comcast Cable, Cricket Communications, Century Link, Hawaiian Telcom, Etecsa, Entel Bolivia, Liberty Global, Movistar Chile, Movistar Colombia, Movistar Mexico, Movistar Peru, Nextel Brazil, Nextel Chile, ICE, Telcel, Telmex, Telus, T Mobile, Verizon. EMEA- Airtel, Almadar, AST Communications, Atalntique Telecom, Azercell, ALB Telecom Batelco, Bezeq International, BTC Botswana, BT, Cell C, Colt, Coolwave, Cyta, Du, Econet, Elisa, Ethio Telecom, Etisalat UAE, Etisalat Nigeria, Geocell, Glo, Go Malta, Interoute, INWI, Jawwal, K Cell, Level 3, Liberty Global, Life, Mascom, Melita Cable, Mobily, Moldcell, Monaco Telecom, Omantel, Ooredoo Algerie, Ooredoo Kuwait, Ooredoo Tunisia, Ooredoo Qatar, Orange Mali, Orascom Algeria, Paltel, Polkomtel, Sabafon, Sonatel, STC, Swisscom, Talk Talk, Telcom Egypt, Telecom Romania, Telefonica, Telekom, Slovenjie, Telenor, Telia Company, Teo, Tunise Telecom, Turk Telecom, Ucell, Viva, Vodafone Ireland, Vodafone Turkey, Zain. The chart below illustrates the geographical mix of customer base: Geographical Mix (PERCENTAGE) EMEA AMERICAS APAC 100 90 80 70 60 50 40 30 20 10 o 33 16 14 21 8 37 40 35 55 50 26 53 44 51 17 17 20 23 20 22 24 19 21 19 20 63 57 57 57 61 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Annual Report 2017-18 | 73 GLOBAL COMMUNICATION SERVICES INDUSTRY OVERVIEW The global number of mobile subscribers at the end of 2017 stood at 5 million, equivalent to 66% of the world’s population. In 2017, mobile technologies and services generated 4.5% of the global GDP, a contribution that amounted to US$3.6 trillion (economic value-added). In 2017, the wider mobile ecosystem supported 29 million jobs directly and indirectly and made a substantial contribution to the funding of the public sector, with ~US$500 billion raised through general taxation and US$25 billion through mobile spectrum auctions. Migration to smartphones that operate on high-speed mobile networks, coupled with increasing consumer propensity to engage with the digital world, is driving mobile data traffic up across all regions. The number of connections excluding cellular IoT totaled 7.8 billion globally in 2017 and is pegged to reach 9 billion by 2025, taking the SIM ownership ratio to 1.5. In developing countries, the SIM ownership ratio is often higher, especially in Sub-Saharan Africa (1.7), where many consumers use multiple SIMs from different mobile operators, often through dual-SIM handsets, to make use of the best network coverage and call quality in certain locations. (Source: GSMA) GLOBAL UNIQUE SUBSCRIBERS 2017 5.0 billion 2025 5.9 billion PENETRATION RATE GLOBAL CONNECTIONS (Excluding M2M) 2017 66% 2025 71% 7.8bn 2017 103% PENETRATION RATE 9.0bn 2025 110% PENETRATION RATE 5 8 2 7 MOBILE INTERNET USERS T E N R E T N I E L I B O M I S R E B R C S B U S SUBSCRIBER AND MOBILE INTERNET PENETRATION BY REGION 2017 4 8 3 7 0 8 2 5 2 6 6 3 7 6 0 5 4 4 1 2 7 6 1 4 FIGURES IN PER CENT 2017 3.3bn 5.0bn 2025 MOBILE OPERATOR CAPEX INTERNET OF THINGS $479bn 2018 Capex (cumulative) 2020 2017 Total connections 7.5bn 25.1bn 2025 % of connections* 4G 29% 2017 53% 2025 5G 1.2bn 2025 14% of connections* *Excluding cellular IoT Outlook The number of unique mobile subscribers will reach 5.9 billion by 2025, equivalent to 71% of the world’s population. By 2022, contribution of mobile technologies and services will reach US$4.6 trillion, or 5% of the global GDP, as countries increasingly benefit from the improvements in productivity and efficiency brought about by an increased take-up of mobile services and mobile-to-mobile solutions. The more significant growth opportunity will lie in the domain of mobile internet – a market that will add 1.75 billion new users over the next eight years, reaching a milestone of 5 billion mobile internet users by 2025. In 2019, 4G will become the leading mobile network technology worldwide by number of connections (>3 billion) – another major milestone for the mobile industry, about a decade since the launch of early 4G commercial services. Meanwhile, the mobile industry continues to make progress with 5G, including successful trials around the globe and the approval of non-standalone 5G radio specifications in December 2017. A number of mobile 5G commercial launches are expected over the next three years in North America and major markets across Asia and Europe. China, the US and Japan will be the leading countries in terms of 5G connection deployment in 2025, while Europe as a whole will continue to make progress as well. In total, these four economies will account for >70% of the 1.2 billion 5G connections expected to be installed globally by end-2025. By 2025, mobile 74 | SUBEX LIMITED internet penetration will reach 61% of the global population and account with 86% of them being unique subscribers. Most of these new mobile internet users will hail from China (~350 million), India (~330 million) and Sub-Saharan Africa (~280 million). By 2025, two-thirds of all mobile connections (excluding cellular IoT) across the world will operate on high-speed networks, with 4G accounting for 53% of total mobile SIMs and 5G, 14%. To support migration and drive engagement, operators will have to invest a sum of US$0.5 trillion in mobile capex between 2018 and 2020. (Source: GSMA) Internet of things (IoT) IoT connections include cellular and non-cellular connections. At the end of 2017, there were 30 commercial deployments of LTE-M and NB-IoT in 20 countries, including the US, China and several nations across Europe. While IoT is rapidly becoming a mainstream technology in consumer markets such as consumer electronics and smart homes, the industrial IoT segment is still in its infancy. The number of smartphone users is forecast to grow from 2.1 billion in 2016 to ~2.5 billion in 2019, with smartphone penetration rates increasing as well. ~36% of the world’s population is projected to use a smartphone by end-2018, up from ~10% in 2011. With this increase in the smartphone and internet users, the popularity of 4G has increased as well. The number of IoT connections (cellular and non-cellular) will increase more than threefold worldwide between 2017 and 2025, reaching 25 billion. By 2025, licensed cellular IoT connections will reach 3.1 billion worldwide, or 12% of the total IoT connections. As emerging technologies (AI, IoT and advanced data analytics) converge, 5G could play an enabling role in realising their full potential. For example, IoT will require both more pervasive intelligence and a ubiquitous connectivity layer to allow devices to communicate and support the on-demand availability of data analytics. Globally, the industrial connections base will overtake consumer IoT connections by 2023. IoT security spending will increase by 73% to reach US$195 billion 2019 from US$113 billion in 2015 and is predicted to grow at an even faster rate after 2020. (Source: GSMA) Growth drivers • Funding and innovations: Over the last five years, IoT startups are increasingly being backed by private investors. Some of these companies are also adopting a horizontal business model by establishing their presence across multiple sectors and segments of the IoT value chain. More and more companies are commercialising mobile IoT modules for both LTE-M and NB-IoT, typically supported by software development kits. Some mobile operators and equipment vendors are also establishing open labs to help solution developers test new concepts and certify products. • • • • Development in connectivity: While the majority of IoT devices – typically in indoor environments – will likely be connected by radio technologies designed for short-range connectivity (such as Wi-Fi, Z-Wave and Zigbee), other IoT devices that require wide-area network coverage, coverage on the move, lower latency and ultra-reliability will likely be primarily connected by cellular networks using licensed spectrum. Proliferation across verticals: The number of IoT connections (cellular and non-cellular) will increase more than threefold worldwide between 2017 and 2025, driven by rising adoption of smart solutions in buildings (heating, air conditioning, security, lighting and automation), utilities (energy, water and gas, smart metering and smart grid) and manufacturing (inventory tracking, monitoring and diagnostics, warehouse management). Smart cities: Smart city initiatives are on the rise across major metropolitan areas in the US, China, Singapore, India, Qatar and the UAE. Smart homes: Smart homes are increasingly becoming a platform for a suite of digital services, applications and devices, and will be the largest source of growth within the consumer segment, driven by their increased demand in areas such as home security, energy usage monitoring, and infrastructure (routers and extenders). RISKS AND CONCERNS As our investor, you already understand that risks are part of any business. It is not possible to detail every risk to the business. But, we wanted to provide some information on certain risks including: (a) reduction in consumer and business purchasing; (b) consolidation in our customer base; (c) dependence on communications service providers as our major customers; (d) security; (e) improper disclosure of personal data could result in liability and harm to our reputation; (f) Technology changes and obsolescence may impact our business; (g) recruiting and retention of personnel is challenging; (h) adequately protecting our intellectual property may not be possible; (i) allegations of infringement of third party intellectual property poses risks; (j) variability of our quarterly operating results makes comparisons difficult; (k) non-compliance with statutory obligations may result in fines and penalties; (l) non-compliance with environmental regulations may lead to fines and penalties; (m) foreign exchange fluctuations may lead to variability in our revenue; (n) SEZ related taxation benefits may be uncertain; (o) failure to fulfill contractual obligation may lead to claims; and (p) debt obligations. Below, we will discuss each of these risk factors in some more detail. There are, of course, additional risks faced by us. Annual Report 2017-18 | 75 Reduction in Consumer and Business Purchasing We depend on our customers – primarily large communication service providers (“CSPs”). If our primary customers face reduced revenue, we will also face reduced revenue. CSPs primary customers are consumers and businesses. Of course, reductions in spending by consumers or businesses will reduce revenue of CSPs. And, this will result in decreased spending by the CSPs which means reduced revenue for us. Consolidation in our customer base CSPs have gone through considerable consolidation. The consolidation, or merger, of one CSP with another can have at least three impacts on us. First, it will simply reduce the overall size of the market; each consolidation effectively reduces the number of potential customers for our products. Secondly, it can and does happen that one of our existing customers can undergo a consolidation. In that event, the other party to the consolidation may have already have competing products and the combined Company may choose to continue with the use of the competing product rather than use our product/ services. Of course, it can also happen that the two companies as one choose to use our products. While the consolidation of two customers will not necessarily reduce our revenue by half, it certainly has an adverse effect on our revenue as the combined Company attempts to reduce their consolidated spending. Thirdly, larger customers simply have more negotiating power leading to reduced prices for our products. The Company strives to have a deep penetration within the accounts that it serves so as to provide an edge over competitors and be a preferred choice during such consolidations. Dependence on the Communications Service Providers as our major customers We mentioned above our customers are primarily CSPs. We are fully dependent on CSPs as our major customer base. As a result, we are fully susceptible to any downturns or negative changes in the CSP industry. is, perhaps, especially true Security You must be well aware that security threats are prevalent in the everywhere today. This technology industry where we participate. The security vulnerabilities take many forms. Hackers may attempt to compromise computer systems and networks. Fraudsters may attempt to steal the identity of our personnel to gain access to our computer systems, networks and even banking systems. Terror activity could have an adverse impact on our business. We may fail to adequately design our products leaving our customers exposed to hacking and other network vulnerabilities. Perhaps this concern – of failure to adequately design our products leading to exposure of our customer’s information is one of the largest concerns. If one of our customers faced a security breach allegedly as a result of 76 | SUBEX LIMITED use of our products, it would cause significant reputational risk to us and may lead to claims against us. We devote significant resources to mitigate security threats including threats to our internal IT systems, with respect to our products and with respect to physical security of our buildings. But, there cannot be any guarantee that these efforts will avoid security breaches. Improper disclosure of personal data could result in liability and harm our reputation You are probably aware of the global trend toward more sensitivity regarding improper disclosure of personal data. This global trend has a number of impacts on us. There are additional laws and regulations in many jurisdictions. This not only leads to increased administrative costs of compliance and increased difficulties in doing business but violations of these laws and regulations involve higher and higher fines and penalties. At the same time, we are storing and processing increasingly large amounts of personal data which leads to increased potential exposure. We take what we consider to be appropriate steps to provide for the security and protection of all data including personal data. But, despite these efforts, it is possible our practices may not prevent the improper disclosure of personal data. Improper disclosure of this information could harm our reputation, lead to legal exposure, lead to claims against us by customers including claims for indemnification or subject us to liability under laws that protect personal data, resulting in increased costs or loss of revenue. It is important to note that our potential liability for customer financial damages associated with losses of personal data is generally not limited by limitation of liability provisions in customer contracts. In addition to risks related to improper disclosure of personal data, new laws and regulations are being implemented. One significant new regulation is the European General Data Protection Regulation (“GDPR”) which goes into full effect in May 2018. Compliance efforts related to these laws and regulations is significant and could be a distraction from other activities. Further, even without any actual improper disclosure of personal data, non-compliance could result in large fines. Still further, customer focus on these laws and regulations could delay or jeopardize sales and installations of Subex products. Technology changes and obsolescence may impact our business We experience rapid technological changes which could make our technology and services obsolete, less marketable or less competitive. These changes result in our need to continually improve the features, functionality, reliability and capability of our products which poses development challenges and expenses. We may not be able to adapt to these changes successfully or in a cost- effective way which may adversely affect our ability to compete and retain customers or market share. While the rapid technological changes require us to change our products, launching new products is also a key element of our growth. An inability to bring new products with high demand to the market in a timely manner will reduce our growth and profitability. We make strong efforts to put in place processes and methodologies to address these issues and to turn it into a strategic advantage by being in the forefront of technological evolution. For example, regular skill upgradation programs and training sessions that include attending global conferences and employing specialized consultants etc. are undertaken. Recruiting and Retention of Personnel is challenging The retention of personnel generally and, in particular, skilled software personnel is a major risk we face. To assist with our recruiting and retention efforts, we attempt to put in place an empowering atmosphere with opportunity for growth, extensive mentoring and career counseling, and the opportunity to work in cutting edge and challenging technologies. Nonetheless, a competitive environment for personnel with the skills we require poses risks and challenges. Adequately Protecting Our Intellectual Property may not be possible We operate in a global environment, protecting our proprietary technology in the many different jurisdictions we operate in is challenging. We depend on a combination of technical innovations, as well as copyrights and trade secrets for protection of our technology. We also maintain patent and trademark protection as we deem appropriate. But, some jurisdictions have limited laws protecting technologies. Other jurisdictions, even if they have laws, have limited or difficult enforcement systems. And, even in jurisdictions with adequate laws and enforcement systems, detection of infringement of our rights may be difficult and, even if detected, engaging in litigation to enforce our rights would be expensive. Departure of our personnel, especially to a competitor, is a particular risk to our technology and intellectual property rights. We generally require all employees and advisors to sign agreements which require that our information is maintained as confidential during and after employment. These agreements also assign or otherwise vest rights in the intellectual property developed by these employees and advisors in the Company. Even so, these agreements may not effectively prevent disclosure of our information or effectively assign rights to us. Further, detection of violation of these agreements may be difficult and it may be difficult to enforce these agreements even when violations are detected. You will understand that any exposure of our information by former employees or any failure to adequately have rights assigned to us, may have a material adverse effect on our business, financial condition and results of operations. Allegations of Infringement of Third Party Intellectual Property poses Risks We may face claims by third parties that our products infringe on their intellectual property rights. Whether or not we prevail in any intellectual property dispute, defending the dispute may be expensive, it may distract our management and other key personnel and its outcome is uncertain. Further, if any of our products are found to infringe the intellectual property rights of others, or if we settle a claim in an adverse manner, it may restrict or prohibit further development, manufacture and sale of our products. And, a loss or adverse settlement may require us to pay substantial damages. We may also be forced to seek licences to continue to use the intellectual property. These licences may not be available on commercially acceptable terms or at all. Furthermore, we are required to indemnify our customers against third-party claims of infringement of intellectual property arising out of customers’ use of our products and services. Typically, our liability for such indemnification is not limited by limitation of liability provisions in customer contracts. Further, we are often in possession of proprietary information of our customers. This information may be wrongly used or disclosed or may be misappropriated by employees of the Company or others. This would result in a breach of our contractual obligations to our customers. Any such breach may subject us to a significant claim from the customer for damages and may also significantly damage our reputation. The Company has a consistent program of requiring NDAs before disclosure of Company trade secrets/confidential information to third parties. Employees must sign confidentiality terms as part of employment. Allegations of infringement of third party intellectual property rights, against us or our customers with respect to our products, or any allegation of breach of our confidentiality obligations to our customers could have a material adverse effect on our business, financial condition and results of operations. Variability of Our Quarterly Operating Results Makes Comparisons Difficult Our quarterly operating results have varied in the past due to reasons like seasonal pattern of hardware and software capital investment spending by customers, 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. Our information technology Annual Report 2017-18 | 77 management is attempting to mitigate this risk through expansion of our client base geographically and increasing steady annuity revenue such as through managed services. Non-compliance with statutory obligations may result in fines and penalties We face certain statutory obligations. Some of these obligations arise from the fact that we have registered with Special Economic Zone for software development activities and have availed Customs Duties, Sales Tax and Central Excise exemptions. The non- fulfillment of export obligations or other non-compliance with statutory obligations may result in penalties as stipulated by the Government and this may have an impact on future profitability. The Company has team of in-house attorneys and engages outside counsel/consultants on an as-needed basis in India and the U.S. An ongoing monitoring mechanism has been established with respect to applicable laws. Non-compliance with Environmental Regulations may lead to fines and Penalties Software development, being generally a pollution free industry, means we are not subject to significant environmental regulations. Nonetheless, non-compliance with applicable environment regulations may lead to significant fines and penalties. We do adhere to the guidelines for disposing of E-wastes as stipulated by Debt Obligations The details of the FCCB’s of the Company are summarized below: the E-Waste (Management and Handling) Rules. Foreign Exchange Fluctuations May Lead to Variability in Our Revenue We have substantial exposure to foreign exchange related risks on account of revenue from export of software and outstanding liabilities. There is a natural hedge to the extent of expense incurred in same currency. Despite this, particularly given the volatility in the foreign exchange market, there could be significant variations. SEZ related taxation benefits may be uncertain We in India operate out of Special Economic Zone (“SEZ”). SEZ units currently avail various tax benefits. While tax protection is expected to continue under the GST regime, there is a significant amount of uncertainty around its impact on SEZ units. This could potentially lead to incidence of higher tax. Failure to Fulfill Contractual Obligation May Lead to Claims We enter into contracts with our customers in the ordinary course of business under which we are obligated to perform and act according to the contractual terms. Any failure to fulfill these contractual obligations may expose us to financial, reputational and other risks. Our management believes it has taken sufficient measures to assure it meets its customer contractual obligations. Nonetheless, there cannot be any assurance that a customer will not allege a breach by us of our obligations. Particulars Issue of FCCB I on March 08, 2007 Restructuring of bonds during 2009-10 Discount @ 30% Balance as on November 02, 2009 Conversion to equity in 2009-10 and 2010-11 Balance March 31, 2011 Restructuring of bonds during 2012-13 Premium Balance on July 06, 2012 Mandatory conversion to equity shares on July 17, 2012 Balance after mandatory conversion Conversion to equity up to March 31, 2016 Balance as on March 31, 2016 Conversion during 2016-17 Redemption on March 06, 2017 Balance as on March 31, 2017 Redemption on July 07, 2017 Balance as on March 31, 2018 US$ 180,000,000 2.00% coupon convertible bonds "FCCB I" 180.00 (141.00) - 39.00 - 39.00 (38.00) - 1.00 - 1.00 - 1.00 - (1.00) - - Nil As on March 31, 2018, the Company did not have any outstanding FCCB’s. 78 | SUBEX LIMITED US$ 98,700,000 5.00% convertible unsecured bonds "FCCB II" - 141.00 (42.30) 98.70 (43.90) 54.80 (53.40) - 1.40 - 1.40 - 1.40 - (1.40) - - Nil (amount in US$ million) US$ 127,721,000 5.70% secured convertible bonds "FCCB III" - - - - - - 91.40 36.32 127.72 (36.32) 91.40 (86.85) 4.55 (0.95) - 3.60 (3.60) Nil INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY In accordance with the provision of Section 134(5) of the The Internal Auditors monitor and evaluate the efficacy and adequacy of internal control systems in the Company, its Companies Act, 2013, and as per the provisions of the SEBI compliance with operating systems, accounting procedures (LODR), Regulations, 2015, the Company has an Internal and policies at all locations of the Company and its Control System, commensurate with the size, scale and subsidiaries. Based on the report of Internal Auditors, process complexity of its operations. Such internal financial controls were found to be adequate for a Company of this size. The controls are largely operating effectively since there has not been identification of any owners undertake corrective action in their respective areas and thereby strengthen the controls. Significant audit observations and corrective actions thereon are presented to the Audit Committee of the Board. material weakness in the Company. The Directors have in Subex is certified for ISO 9001:2008 (Quality Management the Directors Responsibility Statement under paragraph (e) System) and ISO 27001:2013 (Information Security confirmed the same to this effect. The Company has policies Management System). Internal audits are conducted and procedures in place for ensuring proper and efficient periodically for projects and support functions to adhere to conduct of its business, the safeguarding of its assets, the these international standards. These audits are conducted prevention and detection of frauds and errors, the accuracy across Bengaluru, UK and US locations to ensure processes and completeness of the accounting records and timely are followed to provide a better customer experience. preparations, reliable financial information. The Company Summary of the audits are shared across organization to has adopted accounting policies which are in line with Indian help understand strengths and weaknesses in the system. Accounting Standards(“IndAS”). Pursuant to the provisions of the Section 134(5)(f) of the Act, the Company during the year devised proper systems to ensure compliance with the provisions of all applicable People involvement in organization process initiatives is one that approaches towards achieving better compliance, standardizing activities to consistently achieve better customer satisfaction. laws. Each department of the organization ensured that This year, the emphasis was more towards information it had complied with the applicable laws and furnished its security including the privacy aspects of customer data report to the Head of department who then along with the where applicable. Focused effort on data privacy, align Chief Financial Officer discussed on the compliance status with customer’s strategy towards compliance to Global of the department. Any matter that required attention Data Privacy Regulations (GDPR). Information security was immediately dealt with. The Chief Financial Officer practices is the base to implement privacy, organization reported to the Audit Committee and the Board on the and technological measures in terms of physical and logical overall compliance status of the Company. In effect, such access controls are built in to the system. Awareness to compliance system was largely found to be adequate and employees on the work environment and best practices are operating effectively. The Directors have in the Directors imparted through trainings periodically. Responsibility Statement under paragraph (f) also confirmed the same to this effect. Annual Report 2017-18 | 79 DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE Key Financials and Ratio Analysis Financial Highlights/Year Ending March 31st Revenue from operations Total Income Earnings Before Interest, Exceptional Items & Taxes (EBIT) Profit/(Loss) before Exceptional items & tax Exceptional Items Profit/(Loss) before tax Tax expenses Profit/ (Loss) after tax Other comprehensive income Equity dividend % Share Capital Reserves & Surplus Net worth Gross Property, Plant & equipment and intangible assets Net Property, Plant & equipment and intangible assets Total Assets Key Indicators Earnings per Share (Year end) Debt (including Working capital) Equity-% EBITDA / Sales - % Net Profit Margin - % Return on year end Net Worth % Return on year end capital employed % (EBIT/ Capital Employed) (H in Lakhs) 2018 2017 Consolidated 32,432 Standalone 17,993 Consolidated 35,733 Standalone 32,441 32,572 18,096 36,887 33,694 2,996 2,275 1,166 3,441 1,373 2,068 (240) Nil 56,200 21,745 77,945 2,137 719 314 (200) 389 189 157 32 (8) Nil 56,200 18,034 74,234 6,287 5,624 9,505 7,528 (10,890) (3,362) 961 4,323 (1,376) Nil 50,691 17,718 68,409 1,832 923 5,451 4,162 (4,591) (429) 254 (683) (33) Nil 50,691 13,035 63,726 1,015 482 89,768 75,148 95,669 92,463 2018 2017 Consolidated Standalone Consolidated Standalone 0.37 0.15 10.83 6.38 2.35 3.84 0.01 0.01 5.65 0.17 0.03 0.42 (0.85) 0.40 27.99 (12.10) (8.33) 13.89 (0.13) 0.45 17.65 (2.11) (1.12) 8.55 COMMENTARY ON FINANCIAL STATEMENTS Share Capital During 2016-17, the Company issued 4,096,290 equity shares towards consideration other than cash upon conversion of FCCBs of principal amount of US$ 950,000 out of its US$ 127,721,000 5.70% Secured Convertible Bonds, in accordance with the terms and conditions thereof. Other Equity Foreign Currency Translation Reserve During the year 2017-18, the Company has completed the liquidiation of its subsidiary viz. Subex Technologies Inc., USA and accordingly the balance of foreign currency translation reserve amounting to H1,166 Lakhs has been credited to profit and loss account. During 2017-18, the Company allotted 55,094,999 equity shares on a preferential basis at H14 per share to QVT Singapore Fund Pte. Ltd, Tonbridge (Mauritius) Ltd and Leeds (Mauritius) Ltd (Non- Promoters). Balance of Foreign Currency Translation Reserve, arising on consolidation of foreign subsidiaries, of H11,821 Lakhs has been included in the Reserves and Surplus. 80 | SUBEX LIMITED Securities Premium Securities Premium Account includes the premium collected on: • • 4,096,290 equity shares that were allotted during the year 2016-17 at a premium of H3/- per share on conversion of 0.95 Million FCCB III Bonds. 55,094,999 equity shares that were allotted during the year 2017-18 at a premium of H4/- per share. The shares were allotted to Non-Promoters, on preferential basis. Capital Reserve Pursuant to restructuring, the difference of H2,776 between net assets transferred from the Company to Subex Assurance LLP and Subex Digital LLP and capital contribution made by the Company has been recognized as Capital reserve in the books of the Company. (Refer note 31 of standalone financial statements for further details) Employee Stock Options In accordance with the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 [previously known as Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999], the Company amortizes the excess of market price of the underlying equity shares as on the date of the grant of the option over the exercise price of the option, to be adjusted over the period of vesting. The net amount carried in respect of stock options outstanding at March 31, 2018 amounts to H1 Lakh (Previous Year: H6 Lakhs). Short Term Borrowings As at March 31, 2018, the Company has an outstanding balance of short term borrowings from Axis Bank amounting to H3,215 Lakhs (Previous Year: H5,216 Lakhs from Axis Bank and H3,374 Lakhs from SBI) on a consolidated basis and & H Nil (Previous Year: H8,590 Lakhs) on a standalone basis. Balance of loan outstanding to SBI bank was repaid on October 25, 2017, and accordingly, the corporate guarantee by Subex Technologies Limited and Subex (UK) Limited and 100% shares pledged of Subex (UK) Limited have been released. Pursuant to the restructuring of the Company, balance of loan outstanding from Axis bank was transferred to Subex Assurance LLP. This loan has been secured by primary charge on customers receivables and the current assets of SA LLP and collateral charge on the fixed assets of SA LLP. The Company has also given a corporate guarantee to the lenders of SA LLP for the purpose of availing such working capital loan facilities. Long Term Borrowings (including current maturities) Current maturities of long term debt as at March 31, 2018 consists of: a. On June 30, 2017, the Company redeemed outstanding FCCBs III amounting to US$ 3.60 Million (H2,336 Lakhs) and paid accrued interest of US$ 0.1 Million ( H67 Lakhs) on the aforesaid bonds. On July 06, 2017, the deferred interest in respect of aforesaid bonds for the period July 06, 2012 to January 06, 2016 amounting to US$ 0.72 Million ( H467 Lakhs) has been paid. As at March 31, 2018, there are no outstanding FCCBs and related interest [March 31, 2017 US $ 3.60 Million (H2,336 Lakhs)]. b. During the quarter ended June 30, 2017, Subex Americas Inc., has repaid the term loan of US$ 12 Million (H7,782 Lakhs) to the respective lenders on May 15, 2017. Fixed Assets On a consolidation basis, the Company added H287 Lakhs to its gross block and also disposed off certain assets no longer required. The Company’s net block of fixed assets as at March 31, 2018 is H719 Lakhs (as at March 31, 2017 was H923 Lakhs). On a standalone basis, the Company added H6,283 Lakhs to its gross block which includes the purchase of Intellectual Property Right viz. Data Integrity Management (DIM) amounting to H6,078 Lakhs from Subex Americas Inc. The Company disposed off certain assets no longer required and the net block of fixed assets as at March 31, 2018 is H5,624 lakhs (as at March 31, 2017 was H482 lakhs). Investments During the year 2016-17, the Company recognized an amount of H6,070 lakhs as diminution in carrying value of investments in Subex Americas Inc. Consequently, the investment carrying value as of March 31, 2017 is H936 Lakhs. During the year 2017-18, there is no diminution in the carrying value of investments. Accordingly, the carrying value of those investments remains at H936 Lakhs. During the year 2017-18, the Company invested in Limited Liability Partnerships, namely, Subex Assurance LLP and Subex Digital LLP. The consideration was paid in cash amounting to H9,990 each. During the year 2017-18, the Company, in the form of partner’s capital contribution, invested an amount of H61,564 Lakhs in Subex Assurance LLP and H1,869 Lakhs in Subex Digital LLP. The consideration was discharged by means of transfer of assets and liabilities at fair value Restructuring Effective November 01, 2017, the Company’s RMS business and the Digital business have been transferred to Subex Assurance LLP (“SA LLP”) and Subex Digital LLP (“SD LLP”) at H61,564 Lakhs and H1,869 Lakhs, respectively, in the form of Company’s capital contribution. The Company continues to directly hold 99.99% share in the capital of, and in the profits and losses of, each of these LLPs and the entire economic interest as well as control and Annual Report 2017-18 | 81 ownership of the RMS Business and Digital Business remains with the Company post such Restructuring. (Refer note 31 of standalone financial statement for further details). 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. 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. The management believes that the overall composition and condition of trade receivables is satisfactory post assessment of doubtful receivables. The Provision for doubtful debts stands at H1,346 Lakhs (Previous year H2,596 Lakhs) on a consolidated basis and H2,228 Lakhs (Previous Year H10,408 Lakhs) on a standalone basis. The Company has written off bad debts from the earlier provision for doubtful debts against the aforesaid trade receivables after obtaining necessary approvals. Cash and Cash Equivalents The bank balances includes both rupee accounts and foreign currency accounts. The Margin Money deposit of H Nil (Previous Year: H126 Lakhs) on Standalone basis and H370 Lakhs (Previous Year: H258 Lakhs) on consolidated basis with the bankers is for establishing bank guarantee. Long-terms Loans and Advances Security Deposits represent rent deposit, electricity deposit, telephone deposits and advances of like nature. Income The segment wise break up of income on consolidated basis is given below: Particulars (H in Lakhs except percentages) 2017-18 2016-17 Value % Value % Software Products 3,193 9.85 4,771 Software Services 29,239 90.15 30,962 13.35 86.65 Total 32,432 100.00 35,733 100.00 Geographically, the Company earns income from export of software products and related services to USA, EMEA & Asia Pacific region. Other Income Other income mainly consists of income derived by the Company from write back of withholding taxes paid on interest on FCCB III, interest on deposits from banks and interest on inter-Company loans. 82 | SUBEX LIMITED Expenditure The employee benefits expenses increased to H17,471 Lakhs (Previous year: H15,871 Lakhs) on consolidated basis and decreased to H6,248 Lakhs (Previous year: H8,537 Lakhs) on standalone basis. The Company incurred other administration expenses excluding employee benefit expenses, finance cost, taxes and exceptional items at 37% of its total Income during the year as compared to 31% during the previous year on consolidated basis and 64% of its total income during the year as compared to 58% during the previous year on a standalone basis. Operating Profits During the year, on consolidated basis, the Company earned an operating profit before interest, depreciation, tax, amortization and exceptional items of H3,427 Lakhs being 11% of total revenue (excluding other income) as against H8,909 Lakhs at 25% during the previous year. On a standalone basis, the Company earned operating profit before Interest, depreciation, tax and exceptional items of H947 Lakhs being 5% of total income as against H4,687 Lakhs at 14% during the previous year. Interest & Bank Charges The Company incurred an expenditure of H775 Lakhs (Previous year: H2,040 Lakhs) on a consolidated basis and H547 Lakhs (Previous year: H1,505 Lakhs) on a standalone basis. The interest paid/accrued mainly relates to interest on working capital loan. Depreciation Depreciation and amortization for the year amounted to H517 Lakhs (Previous year: H495 Lakhs) on consolidated basis and H703 Lakhs (Previous year: H273 Lakhs) on standalone basis. Provision for Tax The Company has provided for its tax liability in India and overseas after considering the exemptions for income from software services and products under the various applicable tax enactments. Net Profit/ Total Comprehensive Income On consolidated basis, the net profit of the Company amounted to H2,068 Lakhs, as against a loss of H4,323 Lakhs during the previous year. Total comprehensive income for the year is H1,828 Lakhs as compared to loss of H5,698 Lakhs during previous year. On standalone basis, the profit of the Company amounted to H32 lakhs as against a loss of H683 Lakhs during the previous year. Total comprehensive income for the year is H24 Lakhs as compared to loss of H716 Lakhs during previous year. Exceptional Item On a consolidated basis, the Company has completed the liquidation of one of its subsidiary and accordingly the foreign currency translation gain amounting to H1,166 lakhs, has been credited to the statement of profit and loss. At a standalone level, the Company has shown an income of H389 Lakhs pertaining to a reversal of provisioning of inter-Company loans. Earnings per Share Earnings/ (loss) per share calculated by dividing profit for the year by the weighted average number of equity share outstanding during the year is of H0.37 per share [Previous year: H(0.85) per share] on a consolidated basis and H0.01 per share [Previous year: H(0.13) per share] on a 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 differentiators and how we define our capability requirements, training needs and retention strategies therefore 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 our teams realize their full potential, we can achieve our broader business goals. Our employees are spread across the globe and the larger centers are our offices located in Bengaluru, London, Denver, Dubai and Singapore. As of March 31, 2018, we had 905 full time Subexians on our rolls globally. Human Resources at Subex is centralized at our corporate headquarters in Bengaluru, with regional HR teams providing local support aligned to the global HR strategy. The HR team provides a competitive edge to the business by enabling and supporting a very unique business model of value based delivery, processes and programs on global product development and delivery capabilities on one hand and complex distributed managed services delivery capabilities on the other. HR at Subex consistently strives to adopt leading best practices in designing and deploying HR process and programs across various areas like recruitment, total rewards management, talent management, organizational development, performance management, change management, learning and development, etc. In Subex, we firmly believe that people, when motivated are the true drivers behind Organizational success. It is important to create an enjoyable work environment to keep them engaged and happy. We have reviewed and redefined the HR policies like work from home, sabbatical, continuous learning and certification to make it more employee friendly. We have also amended our maternity policy in line with the resolution passed by the Parliament that provides for an increased maternity leave for our lady employees. In addition to this we have also introduced Happy Feet-a day care facility within the premises for employees to bring their young ones to work and have them being taken care by a professional team of child care experts. We have introduced various other initiatives like quizzes, fun at work, employee-management connect sessions to engage with the workforce and align the employee goals with goals of the organization. Attrition for the year stands at 21%. Pursuant to the conclusion of the term of Mr. Surjeet Singh as the Managing Director and CEO of the Company on March 31, 2018 and based on the recommendations of the Nomination & Remuneration Committee, the Board at its meeting held on March 21, 2018 appointed Mr. Vinod Kumar Padmanabhan as the Managing Director and CEO of the Company for a period of three years with effect from April 01, 2018, subject to the approval of the shareholders at the ensuing Annual General Meeting. Mr. Ashwin Chalapathy, Non-Executive, Non-Independent Director, resigned from the Board with effect from May 04, 2018. The adverse effects on forests, pollution, resultant chemical elements in the atmosphere have all contributed to global warming and is harming the environment. As a socially responsible corporate entity we want to safeguard and protect our environment. We have initiated some go-green programs. This varies from encouraging carpooling to handing over saplings to our new joiners. Recruitment During the year, the recruitment team had to execute a well thought out manpower planning and analysis exercise and adopt global recruitment best practices to fulfill the organization’s talent requirements. In addition to the well established processes like “Coffee with the Hiring Manager”, “Post- offer feedback”, Subexian referral program, partner feedback, interviewer feedback, Buddy Programme etc., which are already entrenched in the Subex way of adding talent to our team, the focus this year was on optimising the overall recruitment cost by adopting innovative recruitment approaches. The main sources for hires were referrals from Subexians (the best bring the best!), direct search, 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 Annual Report 2017-18 | 83 yielded results and this helped a lot on mobilizing Managed Services projects within the permissible time, without having to carry a large bench strength. Keeping the dynamism in the market and the business needs, we have also started a program of proactively hiring fresh graduates and junior resources who will go through our comprehensive training programs to be business ready. Induction and Training Welcoming new Subexians into our fold continues to be extremely critical for us. We believe that the quality of induction that new hires go through determines how successful they are in the Company and has a huge impact on retention. We have customized the induction based on the role and function that new Subexians join in. This has resulted in having more targeted induction, yielding greater benefits. The new hire training is then followed up with an on-the-job training to strengthen the knowledge and skills learnt during the training period. On the learning and development side, the focus this year was to customize the training programs to the individual business need. A Training Need Analysis was done for each business unit to align the need to the goals. A competency matrix of employees is being implemented with the aim of improving the efficiency through personalized 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. L&D Organization delivered 57 different training programmes apart from product trainings in this financial year. As these training programmmes were customized, the rating received has been the highest compared to the last 3 years. This process is expected to improve the retention of talent as well as overall skill and knowledge level of Subexians. Performance Management System Foundation Competencies are the basic value based competencies required by all in Subex. Excel competencies are those that are required to do your current job really well. Lead Competencies focus on the future needs and are the skills required to succeed in leadership roles. Technical Competencies take care of the core areas of the role - knowledge about our products, the various technologies and domains. These, along with the KRAs help build and reinforce the performance oriented culture at Subex. Productivity and a high performance culture are the games of today’s corporates. It is important to equip the employees with right set of tools to help drive the performance culture. In line with this thought we have migrated to Enterprise solution (Success Factors) for conducting performance management. This helps us adopt some of the best practices from the industry while being flexible to customize the systems as per our internal need. We believe constant coaching and feedback would help in maximizing the potentials of the individuals and prepare them for the future. Keeping this in mind, we have also tuned our Performance Management system to factor a quarterly review of goals and performance. Compensation Compensation at Subex is multi-dimensional and consists of fixed salary, variable salary, benefits, health and disability insurance, etc. The Company benchmarks its compensation package against industry data and strives to achieve a balanced position. The Company provides robust and comprehensive cash compensation and benefits as per industry trends. We also arrive at the salary bands of Subexians by conducting comprehensive job matching, data validation and quality audits. Your Company focuses a lot on Employee reward and recognition programme, as this is another important motivational aspect. We have consistently recognized 48% Subexians globally for their contributions and deliverables through our Rewards and Recognition Programme “STAR”. This translates to a significant number of Subexians receiving awards which are monetary. 84 | SUBEX LIMITED INDEPENDENT AUDITOR’S REPORT To the Members of Subex Limited Report on the Standalone Ind AS Financial Statements We have audited the accompanying Standalone Ind AS Financial Statements of Subex Limited (“the Company”), which comprise the Standalone Balance Sheet as at March 31, 2018, the Standalone Statement of Profit and Loss, including Other Comprehensive Income, the Standalone Statement of Cash Flows and the Standalone Statement of Changes in Equity for the year then ended, and a summary of significant accounting policies and other explanatory information (hereinafter referred to as “the Standalone Ind AS Financial Statements”). Management’s Responsibility for the Standalone Ind AS Financial Statements The Company’s Board of Directors is responsible for the matters stated in Section 134(5) of the Companies Act, 2013 (“the Act”) with respect to the preparation of these Standalone Ind AS Financial Statements that give a true and fair view of the standalone financial position, standalone financial performance including other comprehensive income, standalone cash flows and standalone changes in equity of the Company in accordance with accounting principles generally accepted in India, including the Indian Accounting Standards (Ind AS) specified under section 133 of the Act, read with the Companies (Indian Accounting Standards) includes Rules, 2015, as amended. This responsibility also maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Company and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the Standalone Ind AS Financial Statements that give a true and fair view and are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these Standalone Ind AS Financial Statements based on our audit. We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made thereunder. We conducted our audit of the Standalone Ind AS Financial Statements in accordance with the Standards on Auditing, issued by the Institute of Chartered Accountants of India, as specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the Standalone Ind AS Financial Statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Standalone Ind AS Financial Statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the Standalone Ind AS Financial Statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial controls relevant to the Company’s preparation of the Standalone Ind AS Financial Statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by the Company’s Directors, as well as evaluating the overall presentation of the Standalone Ind AS Financial Statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Standalone Ind AS Financial Statements. Opinion In our opinion and to the best of our information and according to the explanations given to us, the Standalone Ind AS 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, of the state of affairs of the Company as at March 31, 2018, its standalone profit including other comprehensive income, its standalone cash flows and the standalone changes in equity for the year ended on that date. Report on Other Legal and Regulatory Requirements 1. As required by the Companies (Auditor’s report) Order, 2016 (“the Order”) issued by the Central Government of India in terms of sub-section (11) of section 143 of the Act, we give in the Annexure 1 a Statement on the matters specified in paragraphs 3 and 4 of the Order. 2. As required by section 143 (3) of the Act, we report that: (a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit of the aforesaid Standalone Ind AS Financial Statements; (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 Standalone Balance Sheet, the Standalone Statement including Other Comprehensive of Profit and Loss Annual Report 2017-18 | 85 Income, the Standalone Statement of Cash Flows and the Standalone Statement of Changes in Equity dealt with by this Report are in agreement with the books of account maintained for the purpose of preparation of the Standalone Ind AS Financial Statements; (d) In our opinion, the aforesaid Standalone Ind AS Financial Statements comply with the Accounting Standards specified under section 133 of the Act, read with Companies (Indian Accounting Standards) Rules, 2015, as amended; (e) On the basis of written representations received from the directors of the Company as on March 31, 2018, and taken on record by the Board of Directors of the Company, none of the directors of the Company is disqualified as on March 31, 2018, from being appointed as a director in terms of section 164 (2) of the Act; (f) With respect to the adequacy and the operating effectiveness of the internal financial controls over financial reporting of the Company, refer to our separate Report in “Annexure 2” to this report; and (g) With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us: i. ii. The Company has disclosed the impact of pending litigations on its financial position in its Standalone Ind AS Financial Statements – Refer note 35 (b) to the Standalone Ind AS Financial Statements; The Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses; and iii. There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Company. For S.R. Batliboi & Associates LLP Chartered Accountants ICAI Firm Registration Number: 101049W/E300004 per Rajeev Kumar Partner Membership Number: 213803 Place: Bengaluru Date: May 04, 2018 Annexure 1 to the Independent Auditor’s Report of even date on the Standalone Ind AS Financial Statements of Subex Limited Statement on the matters specified in paragraph 3 and 4 of the Companies (Auditor’s Report) Order, 2016 (“the Order”) (i) (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of property, plant and equipment and intangible assets. (b) Property, plant and equipment have been physically verified by the management during the year and no material discrepancies were identified on such verification. (c) According to the information and explanations given by the management, there are no immovable properties included in property, plant and equipment of the Company and accordingly, the requirements under paragraph 3(i) (c) of the Order are not applicable to the Company. (ii) The Company’s business does not involve inventories and accordingly, the requirements under paragraph 3(ii) of the Order are not applicable to the Company. (iii) According to the information and explanations given by the management, the Company has not granted any loans, secured or unsecured to companies, firms, limited liability partnerships or other parties covered in the register maintained under section 189 of the Companies Act, 2013 (“the Act”). Accordingly, the provisions of clause 3(iii) (a), (b) and (c) of the Order are not applicable to the Company and hence not commented upon. (iv) In our opinion and according to the information and explanations given by the management, the Company has complied with the provisions of section 185 and 186 of the Act in respect of grant of loans to directors including entities in which they are interested and in respect of loans and advances given, making investments and providing guarantees and securities, as applicable. In this regard, we also draw attention to note 35(b)(iii) to the Standalone Ind 86 | SUBEX LIMITED AS Financial Statements relating to amounts recoverable from erstwhile directors of the Company towards excess managerial remuneration pertaining to the financial year 2012-13, which is under litigation. (v) The Company has not accepted any deposits within the meaning of sections 73 to 76 of the Act and the Companies (Acceptance of Deposits) Rules, 2014 (as amended). Accordingly, the provisions of clause 3(v) of the Order are not applicable. (vi) To the best of our knowledge and as explained, the Central Government has not specified the maintenance of cost records under section 148(1) of the Act for the products/services of the Company. (vii)(a) The Company is generally regular in depositing with appropriate authorities undisputed statutory dues including provident fund, employees’ state insurance, income-tax, sales-tax, service tax, duty of custom, duty of excise, value added tax, goods and services tax, cess and other material statutory dues applicable to it. (b) According to the information and explanations given by the management, no undisputed amounts payable in respect of provident fund, employees’ state insurance, income-tax, sales- tax, service tax, duty of customs, duty of excise, value added tax, goods and services tax, cess and other material statutory dues were outstanding, at the year end, for a period of more than six months from the date they became payable. (c) According to the records of the Company, there are no dues of income-tax, sales-tax, service tax, duty of customs, duty of excise, value added tax, goods and services tax and cess, which have not been deposited on account of any dispute, except the following: Name of the Statute Nature of the dues Income Tax Act, 1961 Adjustment for transfer pricing, disallowances under section 10A and other disallowances Finance Act, 1994 Service tax Disputed amount* (H in Lakhs) Amount paid/ refund adjusted under protest (H in Lakhs) Period to which the amount relates (Financial Year) 3,382 724 2012-13 2010-11 2009-10 2006-07 2005-06 2004-05 2003-04 30 - - 4 141 212 924 379 10 346 4 80 211 1,004 3,608 Forum where dispute is pending Income Tax Appellate Tribunal (‘ITAT’), Bangalore # Hon’ble High Court of Karnataka Commissioner of Income Tax (Appeals), Bangalore Commissioner of Income Tax (Appeals), Bangalore Deputy Commissioner of Income Tax (Appeals), Bangalore Hon’ble High Court of Karnataka Hon’ble Supreme Court of India April 2006 to October 2007 Central Excise and Service Tax Appellate Tribunal, Bangalore - April 2006 to July 2009 Commissioner of Service Tax, Bangalore * Excluding penalty and interest from the date of Order to March 31, 2018. # In respect of amount disputed for the year 2012-13, the Company has obtained a stay order from ITAT. (viii) In our opinion and according to the information and explanations given by the management, the Company has not defaulted in repayment of loans or borrowing to a financial institution, bank or government or dues to debenture holders. (ix) According to the information and explanations given by the management, the Company has not raised any money by the way of initial public offer / further public offer (including debt instruments) and term loans during the year. Hence, reporting under paragraph 3(ix) of the Order is not applicable to the Company and hence not commented upon. (x) Based upon the audit procedures performed for the purpose of reporting the true and fair view of the Standalone Ind AS Financial Statements and according to the information and explanations given by the management, we report that no Annual Report 2017-18 | 87 fraud by the Company or no fraud on the Company by its officers or employees has been noticed or reported during the year. (xi) According to the information and explanations given by the management, the managerial remuneration has been paid / provided in accordance with the requisite approvals mandated by the provisions of section 197 read with Schedule V to the Act. In this regard, we also draw attention to note 35(b)(iii) to the Standalone Ind AS Financial Statements relating to amounts recoverable from erstwhile directors of the Company towards excess managerial remuneration pertaining to the financial year 2012-13, which is under litigation. (xii) In our opinion, the Company is not a nidhi company. Therefore, the provisions of clause 3(xii) of the Order are not applicable to the Company and hence not commented upon. (xiii) According to the information and explanations given by the management, transactions with the related parties are in compliance with section 177 and 188 of the Act, where applicable and the details have been disclosed in the notes to the Standalone Ind AS Financial Statements, as required by the applicable accounting standards. (xiv) According to the information and explanations given by the management and on an overall examination of the balance sheet, the Company has complied with provisions of section 42 of the Act in respect of the preferential allotment/ private placement of shares and amounts raised, have been used for the purposes for which the funds were raised. Further, the Company has not made any preferential allotment/ private placement of fully or partly convertible debentures during the year under review. (xv) According to the information and explanations given by the management, the Company has not entered into any non- cash transactions with directors or persons connected with him as referred to in section 192 of the Act. (xvi) According to the information and explanations given by the management, the provisions of section 45-IA of the Reserve Bank of India Act, 1934 are not applicable to the Company. For S.R. Batliboi & Associates LLP Chartered Accountants ICAI Firm Registration Number: 101049W/E300004 per Rajeev Kumar Partner Membership Number: 213803 Place: Bengaluru Date: May 04, 2018 Annexure 2 to the Independent Auditor’s Report of even date on the Standalone Ind AS Financial Statements of Subex Limited Report on the Internal Financial Controls under clause (i) of sub-section 3 of section 143 of the Companies Act, 2013 (“the Act”) We have audited the internal financial controls over financial reporting of Subex Limited (“the Company”) as of and for the year ended March 31, 2018 in conjunction with our audit of the Standalone Ind AS Financial Statements of the Company as of and for the year then ended. including adherence to the Company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Act. Management’s Responsibility for Internal Financial Controls The Company’s Board of Directors is responsible for establishing and maintaining internal financial controls based on the internal controls over financial reporting criteria established by the Company considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India (the “Guidance Note”). These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, Auditor’s Responsibility Our responsibility is to express an opinion on the Company’s internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Guidance Note and the Standards on Auditing as specified under section 143(10) of the Act, to the extent applicable to an audit of internal financial controls, both applicable to an audit of Internal Financial Controls and, both issued by the Institute of Chartered Accountants of India. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal 88 | SUBEX LIMITED financial controls over financial reporting were established and maintained and if such controls operated effectively in all material respects. timely detection of unauthorised acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal controls based on the assessed risk. The procedures including the selected depend on the auditor’s assessment of the risks of material misstatement of the Standalone Ind AS Financial Statements, whether due to fraud or error. judgment, Inherent Limitations of Internal Financial Controls Over Financial Reporting Because of the inherent limitations of internal financial controls over financial reporting, including the possibility of collusion improper management override of controls, material or misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls over financial reporting to future periods are subject to the risk that the internal financial controls over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We believe that the audit evidence, we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Company’s internal financial controls over financial reporting. Meaning of Internal Financial Controls Over Financial Reporting A company’s internal financial controls over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal financial controls over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorisations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or Opinion In our opinion, the Company has, maintained in all material respects, adequate internal financial controls over financial reporting and such internal financial controls over financial reporting were operating effectively as at March 31, 2018, based on the internal financial controls over financial reporting criteria established by the Company considering the essential components of internal controls stated in the Guidance Note. For S.R. Batliboi & Associates LLP Chartered Accountants ICAI Firm Registration Number: 101049W/E300004 per Rajeev Kumar Partner Membership Number: 213803 Place: Bengaluru Date: May 04, 2018 Annual Report 2017-18 | 89 Standalone balance sheet as at March 31, 2018 Notes As at March 31, 2018 As at March 31, 2017 (H in Lakhs) ASSETS Non-current assets Property, plant and equipment Intangible assets Financial assets Investments Loans Other balances with banks Other financial assets Income tax assets (net) Deferred tax asset Other non-current assets Current assets Financial assets Loans Trade receivables Cash and cash equivalents Other financial assets Other current assets Total assets EQUITY AND LIABILITIES Equity Equity share capital Other equity Total equity Liabilities Non-current liabilities Provisions Current liabilities Financial liabilities Borrowings Trade payables Other financial liabilities Other current liabilities Provisions Income tax liabilities (net) 3 4 5 6 7 10 11 12 13 6 8 9 10 13 14 15 20 16 17 18 19 20 21 Total liabilities Total equity and liabilities Corporate information and significant accounting policies The accompanying notes are an integral part of the standalone financial statements 1 & 2 As per our report of even date For and on behalf of the Board of Directors 29 5,595 64,406 35 - 234 2,494 425 288 73,506 6 1,364 211 - 61 1,642 75,148 56,200 18,034 74,234 1 1 - 415 49 51 112 286 913 914 75,148 362 120 65,701 349 126 234 1,873 478 564 69,807 180 18,966 151 2,536 823 22,656 92,463 50,691 13,035 63,726 250 250 8,590 14,383 3,472 1,216 266 560 28,487 28,737 92,463 For S.R. Batliboi & Associates LLP Chartered Accountants ICAI Firm registration number: 101049W/E300004 Vinod Kumar Padmanabhan Managing Director & CEO DIN : 06563872 Anil Singhvi Chairman & Director DIN : 00239589 Nisha Dutt Director DIN : 06465957 per Rajeev Kumar Partner Membership No.: 213803 Place: Bengaluru Date: May 04, 2018 90 | SUBEX LIMITED Poornima Kamalaksh Prabhu Director DIN: 03114937 Place: Bengaluru Date: May 04, 2018 Mehernaz Dalal Chief Financial Officer Standalone statement of profit and loss for the year ended March 31, 2018 Notes Year ended March 31, 2018 Year ended March 31, 2017 (H in Lakhs) 22 23 24 25 26 27 28 29 21 1 2 3 4 5 6 7 8 9 Income Revenue from operations Share of profit/ (loss), (net), from Limited Liability Partnerships Other income Total income Expenses Employee benefits expense Finance costs Depreciation and amortization expense Other expenses Total expenses (Loss)/ profit before exceptional items and tax expense (1-2) Exceptional items (net) Profit/ (loss) before tax expense (3+4) Tax expense (net): Current tax (credit)/charge Provision - foreign withholding taxes (net) MAT charge/ (credit) Net profit/ (loss) for the year (5-6) Other comprehensive income ('OCI'), net of tax Items that will not be reclassified subsequently to profit or loss Re-measurement loss on defined benefit plans Total comprehensive income for the year attributable to equity holders of the Company (7+8) 10 Basic and diluted earnings/ (loss) per equity share [nominal value of share H 10 (March 31, 2017: H 10)] Corporate information and significant accounting policies The accompanying notes are an integral part of the standalone financial statements 30 1 & 2 As per our report of even date For and on behalf of the Board of Directors 17,993 37 66 18,096 6,248 547 703 10,798 18,296 32,441 - 1,253 33,694 8,537 1,505 273 19,217 29,532 (200) 4,162 389 189 (53) 157 53 157 32 (8) (8) 24 (4,591) (429) 94 254 (94) 254 (683) (33) (33) (716) 0.01 (0.13) For S.R. Batliboi & Associates LLP Chartered Accountants ICAI Firm registration number: 101049W/E300004 Vinod Kumar Padmanabhan Managing Director & CEO DIN : 06563872 Anil Singhvi Chairman & Director DIN : 00239589 Nisha Dutt Director DIN : 06465957 per Rajeev Kumar Partner Membership No.: 213803 Place: Bengaluru Date: May 04, 2018 Poornima Kamalaksh Prabhu Director DIN: 03114937 Place: Bengaluru Date: May 04, 2018 Mehernaz Dalal Chief Financial Officer Annual Report 2017-18 | 91 50,281 410 50,691 5,509 56,200 (H in Lakhs) Total Standalone statement of changes in equity for the year ended March 31, 2018 A. Equity share capital (refer note 14): No. H in Lakhs Equity shares of H 10 each issued, subscribed and fully paid-up As at April 1, 2016 Issued during the year - Conversion of FCCBs As at March 31, 2017 Issued during the year - Preferential issue of equity shares** As at March 31, 2018 502,811,646 4,096,290 506,907,936 55,094,999 562,002,935 B. Other equity (refer note 15): Particulars Attributable to equity holders of the Company Reserves and surplus General Securities reserve premium Capital reserve Employee stock options reserve Surplus / (deficit) in the statement of profit and loss Equity component of compound financial instruments 259 - - (54) 24,378 - - 123 - - - - - - As at April 1, 2016 Less: Loss for the year Less: Other comprehensive income Add/ (less): On account of conversion of FCCBs Less: Compensation on ESOP cancelled/lapsed during the year Add: Deferred stock compensation expenses As at March 31, 2017 Add: Profit for the year Less: Other comprehensive income Add/ (less): On account of repayment of FCCBs* Add: Additions during the year on account of preferential issue of equity shares** Less: Compensation on ESOP cancelled/lapsed during the year Add: Deferred stock compensation expenses - Add: On account of restructuring (refer note 31) 2,776 2,776 As at March 31, 2018 Corporate information and significant accounting policies (refer notes 1 & 2) The accompanying notes are an integral part of the standalone financial statements - 205 - - (205) - - - - - - - - - - - - - 24,501 - - - 2,204 - - - 26,705 1,780 - - - 16 - - - (12,996) (683) (33) 255 13,437 (683) (33) 324 - - (10) - (10) - 1,780 - - - - - - - 1,780 - 6 - - - - (5) - - 1 - (13,457) 32 (8) 205 - - - - (13,228) - 13,035 32 (8) - 2,204 (5) - 2,776 18,034 *Upon repayment of FCCBs, the residual portion of equity component of compound financial instrument in relation to the same, has been transferred to surplus/(deficit) in the statement of profit and loss. **refer note 14(e) on preferential issue of equity shares. As per our report of even date For and on behalf of the Board of Directors For S.R. Batliboi & Associates LLP Chartered Accountants ICAI Firm registration number: 101049W/E300004 Vinod Kumar Padmanabhan Managing Director & CEO DIN : 06563872 Anil Singhvi Chairman & Director DIN : 00239589 Nisha Dutt Director DIN : 06465957 per Rajeev Kumar Partner Membership No.: 213803 Place: Bengaluru Date: May 04, 2018 92 | SUBEX LIMITED Poornima Kamalaksh Prabhu Director DIN: 03114937 Place: Bengaluru Date: May 04, 2018 Mehernaz Dalal Chief Financial Officer Standalone statement of cash flows for the year ended March 31, 2018 (H in Lakhs) Year ended March 31, 2018 Year ended March 31, 2017 (A) Operating activities Profit/(loss) before tax expense Adjustments to reconcile profit/(loss) before tax expense to net cash flows: Depreciation of property, plant and equipment Amortisation of intangible assets Loss/ (gain) on disposal of property, plant and equipment (net) Interest income (including fair value changes) Finance costs (including fair value changes) Provision for doubtful debts and advances (net of reversal) Provisions for doubtful advances no longer required written back (exceptional item) Impairment of investment in subsidiaries (exceptional item) Write back of withholding taxes paid earlier Amortised cost of deposits Fair value change in financial instruments Share of profit/ (loss) (net) from Limited Liability Partnership Net foreign exchange differences Operating profit before working capital changes Working capital adjustments: (Increase)/decrease in loans (Increase)/decrease in trade receivables (Increase)/decrease in other financial assets (Increase)/decrease in other assets Increase/(decrease) in trade payables Increase/(decrease) in other financial liabilities Increase/(decrease) in other current liabilities Increase/(decrease) in provisions Income tax paid (including TDS, net of refund) Net cash flows from operating activities (B) Investing activities Purchase of property, plant and equipment Purchase of intangible assets Proceeds from sale of property, plant and equipment Additional investment in subsidiaries Cash transferred pursuant to restructuring (refer note 31) Movement in deposits (net) Interest received Net cash flows used in investing activities 189 155 548 2 (34) 547 (182) (389) - (30) 32 (62) (37) (55) 684 389 8,789 453 464 (3,381) (144) (53) 43 7,244 (999) 6,245 (203) (6,080) - - (1,300) 89 14 (7,480) (429) 241 32 (1) (215) 1,505 1,094 (1,579) 6,170 (1,037) 53 21 - 576 6,431 1,551 187 (1,004) (302) (1,610) 42 1,143 (57) 6,381 (495) 5,886 (275) (78) 2 (100) - (67) 5 (513) Annual Report 2017-18 | 93 Standalone statement of cash flows for the year ended March 31, 2018 (C) Financing activities Movement in working capital loans (net) Interest paid Preferential issue of equity shares Repayment of borrowings (FCCBs) Net cash flows from/(used in) financing activities (D) Net increase/(decrease) in cash and cash equivalents (A+B+C) Net foreign exchange difference Cash and cash equivalents at the beginning of the year (E) Cash and cash equivalents at year end (refer note 9) Corporate information and significant accounting policies (refer notes 1 & 2) The accompanying notes are an integral part of the standalone financial statements (H in Lakhs) Year ended March 31, 2018 Year ended March 31, 2017 (3,107) (975) 7,713 (2,336) 1,295 60 - 151 211 (1,981) (1,189) - (2,249) (5,419) (46) 1 196 151 As per our report of even date For and on behalf of the Board of Directors For S.R. Batliboi & Associates LLP Chartered Accountants ICAI Firm registration number: 101049W/E300004 Vinod Kumar Padmanabhan Managing Director & CEO DIN : 06563872 Anil Singhvi Chairman & Director DIN : 00239589 Nisha Dutt Director DIN : 06465957 per Rajeev Kumar Partner Membership No.: 213803 Place: Bengaluru Date: May 04, 2018 Poornima Kamalaksh Prabhu Director DIN: 03114937 Place: Bengaluru Date: May 04, 2018 Mehernaz Dalal Chief Financial Officer 94 | SUBEX LIMITED Notes to the standalone financial statements for the year ended March 31, 2018 1. Corporate information Subex Limited (“the Company” or “Subex”) 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 Centre (“ROC”) – a centralized approach that sustains profitable growth and financial health for the CSPs through coordinated operational control. Subex’s product portfolio powers the ROC and its best- in-class solutions enable new service creation, operational transformation, subscriber-centric fulfilment, provisioning automation, data integrity management, revenue assurance, cost management, fraud management and interconnect/ inter-party settlement. Subex also offers a scalable Managed Services Program. The CSPs achieve competitive advantage through Business Optimization and Service Agility and improve their operational efficiency to deliver enhanced service experiences to their subscribers. The Company has its registered office in Bengaluru and operates through its wholly owned subsidiaries in India, USA, UK, Singapore, Canada and UAE and branches in USA, UK, Canada, Australia, Italy, UAE and Saudi Arabia. Effective November 1, 2017, the Company has restructured its business by way of transfer of its Revenue Maximisation Solutions and related businesses (“RMS business”) and the Subex Secure and Analytics solutions and related businesses (“Digital business”) to its newly formed subsidiaries, Subex Assurance LLP (“SA LLP”) and Subex Digital LLP (“SD LLP”) (together referred to as “LLPs”), respectively, hereinafter referred to as the “Restructuring” to achieve amongst other aspects, segregation of the Company’s business into separate verticals to facilitate greater focus on each business vertical, higher operational efficiencies, and to enhance the Company’s ability to enter into business specific partnerships and attract strategic investors at respective business levels, with an overall objective of enhancing shareholder value. Post such Restructuring, the Company continues to directly hold 99.99% share in the capital of, and in the profits and losses of, each of these LLPs and the entire economic interest as well as control and ownership of the RMS Business and Digital Business remains with the Company post such Restructuring. Also, refer note 31 in this regard. These standalone financial statements for the year ended March 31, 2018 are approved by the Board of Directors on May 04, 2018. 2. Significant accounting policies a. Basis of preparation The standalone financial statements of the Company have been prepared and presented in accordance with accounting principles generally accepted in India including Indian Accounting Standards (Ind AS) specified under Section 133 of the Companies Act, 2013 read with Companies (Indian Accounting Standards) Rules 2015 (as amended from time to time). The standalone financial statements have been prepared on a historical cost basis, except for certain financial instruments which are measured at fair value at the end of each reporting period, as explained further in the accounting policies below. The standalone financial statements are presented in INR (“H”) and all the values are rounded off to the nearest Lakhs (INR 00,000) except when otherwise indicated. b. Use of estimates, assumptions and judgements The preparation of the standalone financial statements in conformity with Ind AS requires the management to make estimates, judgements and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities on the date of the standalone financial statements and the reported amounts of revenues and expenses for the year reported. Actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimates are revised and future periods are affected. Key source of estimation of uncertainty as at the date of standalone financial statements, which may cause a material adjustment to the carrying amounts of assets and liabilities within the next financial year, is in respect of the following: Revenue recognition The Company uses the percentage of completion method in accounting for revenue from implementation and customisation projects. Use of the percentage of completion method requires the Company to estimate the efforts to date as a proportion of the total efforts. Efforts have been used to measure progress towards completion as there is a direct relationship between input and productivity. Provisions for estimated losses, if any, on uncompleted contracts are recorded in the year in which such losses become probable based on the expected contract estimates at the reporting date. Annual Report 2017-18 | 95 Notes to the standalone financial statements for the year ended March 31, 2018 Impairment of non-financial assets Impairment exists when the carrying value of an asset or cash generating unit (“CGU”) exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow (“DCF”) model. The cash flows are derived from the budget for future years and do not include restructuring activities that the Company is not yet committed to or significant future investments that will enhance the asset’s performance of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. Impairment of financial assets In accordance with Ind AS 109, the Company assesses impairment of financial assets (‘Financial instruments’) and recognises expected credit losses, which are measured through a loss allowance. The Company provides for impairment of investment in subsidiaries. Impairment exists when there is a diminution in value of the investment and the recoverable value of such investment is lower than the carrying value of such investment. The Company provides for impairment of trade receivables and unbilled revenue based on assumptions about risk of default and expected timing of collection. The Company uses judgement in making these assumptions and selecting inputs to the impairment calculation, based on the Company’s past history, customer’s creditworthiness, existing market conditions as well as forward looking estimates at the end of each reporting period. Also, refer note 2(h). Defined benefit plans The cost of the defined benefit gratuity plan and other post-employment benefits and the present value of the gratuity obligation is determined using actuarial valuation. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date (refer note 37). The parameter most subject to change is the discount rate. In determining the appropriate discount rate for plans operated in India, the management considers the interest rates of government bonds in currencies consistent with the currencies of the post-employment benefit obligation. The mortality rate is based on publicly available mortality tables. These mortality tables tend to change only at interval in response to demographic changes. Future salary increases and gratuity increases are based on expected future inflation rates. Fair Value measurement of financial instruments When the fair values of financial assets and financial liabilities recorded in the balance sheet cannot be measured based on quoted prices in active markets, their fair value is measured using internal valuation techniques. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. Also, refer note 2(k). Share-based payments Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in note 36. Taxes The Company’s tax jurisdiction is India. Significant judgments are involved in determining the provision for income taxes and tax credits including the amount expected to be paid or refunded. Also refer note 2(q) and note 21. 96 | SUBEX LIMITED Notes to the standalone financial statements for the year ended March 31, 2018 c. Current/ non-current classification The Company presents assets and liabilities in the balance sheet based on current/ non-current classification. An asset is treated as current when it is: • • • • Expected to be realised or intended to be sold or consumed in normal operating cycle Held primarily for the purpose of trading Expected to be realised within twelve months after the reporting period, or Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period All other assets are classified as non-current. A liability is current when: • • • It is expected to be settled in normal operating cycle It is due to be settled within twelve months after the reporting period, or There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period The Company classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non-current assets and liabilities, respectively. The operating cycle is the time between the acquisition of assets for processing and their realisation in cash and cash equivalents. The Company has identified twelve months as its operating cycle. d. Revenue recognition The Company derives its revenues primarily from sale and implementation of its license and implementation of its proprietary software and managed/ support services. Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured, regardless of when the payment is made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment. The following specific recognition criteria must also be met before revenue is recognised: Revenues from licensing arrangements is recognized on transfer of the title in user licenses, except those contracts where transfer of title is dependent upon rendering of significant implementation and other services by the Company, in which case revenue is recognized over the implementation period in accordance with the specific terms of the contracts with clients. Revenue from implementation and customisation services is recognised using the percentage of completion method. Percentage of completion is determined on the basis of completed efforts against the total estimated efforts, which represent the fair value of services rendered. Revenue from managed/ support services comprise income from fixed price contracts, time-and-material contracts and annual maintenance contracts. Revenue from fixed price contracts is recognized over the period of the contracts using the percentage of completion method. Revenue from time and material contracts is recognized when the services are rendered in accordance with the terms of contracts. Revenue from annual maintenance contracts is recognised rateably over the period of the contracts. Revenue from sale of hardware under reseller arrangements is recognized when all the significant risks and rewards of ownership of the goods have been passed to the buyer, usually on delivery of goods to customers. Revenue is shown as net of sales tax, value added tax, other taxes and applicable discounts. In case of multiple element arrangements for sale of software license, related implementation and maintenance services the Company has applied the guidance in Ind AS 18, by applying the revenue recognition criteria for each separately identifiable component of a single transaction. The arrangements generally meet the criteria for considering the sale of software license, related implementation and maintain services as separately identifiable components. For allocating the consideration, the Company has measured the Annual Report 2017-18 | 97 Notes to the standalone financial statements for the year ended March 31, 2018 revenue in respect of each separable component of a transaction at its fair value, in accordance with principles given in Ind AS 18. The price that is regularly charged for an item when sold separately is the best evidence of its fair value. In cases where the Company is unable to establish objective and reliable evidence of fair value for the aforesaid services, the Company has used a residual method to allocate the arrangement consideration. In these cases the balance of the consideration, after allocating the fair values of undelivered components of a transaction has been allocated to the delivered components for which specific fair values do not exist. The Company collects Goods and Service tax and other taxes as applicable in the respective tax jurisdictions where the Company operates, on behalf of the government and therefore it is not an economic benefit flowing to the Company. Hence it is excluded from revenue. Provisions for estimated losses on contracts are recorded in the period in which such losses become probable based on the current contract estimates. ‘Unbilled revenue’ included in other financial assets represent revenues in excess of amounts billed to clients as at the balance sheet date. ‘Unearned revenue’ included in other current liabilities represent billings in excess of revenues recognized. Interest Interest income is recognized as it accrues in the standalone statement of profit and loss using effective interest rate method. e. Property, plant and equipment Plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. The cost comprises purchase price, borrowing costs if capitalization criteria are met, directly attributable cost of bringing the plant and equipment to its working condition for the intended use and cost of replacing part of the plant and equipment. When significant parts of plant and equipment are required to be replaced at intervals, the Company depreciates them separately based on their specific useful lives. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in the standalone statement of profit and loss as incurred. The present value of the expected cost for the decommissioning of an asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met. Gains or losses arising from derecognition of the assets are measured as the difference between the net disposal proceeds and the carrying amounts of the assets and are recognized in the standalone statement of profit and loss when the assets are derecognized. f. Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses. Internally generated intangibles, excluding capitalised development costs, are not capitalised and the related expenditure is reflected in the standalone statement of profit and loss in the period in which the expenditure is incurred. Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortization period or method, as appropriate, and are treated as changes in accounting estimates. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the standalone statement of profit and loss when the asset is derecognised. g. Depreciation and amortization Depreciation of property, plant and equipment and amortization of intangible assets with finite useful lives is calculated on a straight- line basis over the useful lives of the assets estimated by the management, basis technical assessment: 98 | SUBEX LIMITED Notes to the standalone financial statements for the year ended March 31, 2018 The Company has used the following useful lives to provide depreciation on plant and equipment and amortization of intangible assets: Assets Computer hardware Furniture and fixtures Vehicles Office equipment Computer software Intellectual property rights Useful life 3 years 5 years 5 years 5 years 4 years 10 years The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate. h. Impairment Financial assets The Company assesses at each date of balance sheet whether a financial asset or a group of financial assets is impaired. Ind AS 109 (‘Financial instruments’) requires expected credit losses to be measured through a loss allowance. The Company recognises lifetime expected losses for all contract assets and/ or all trade receivables that do not constitute a financing transaction. For all other financial assets, expected credit losses are measured at an amount equal to the 12-month expected credit losses or at an amount equal to the life time expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. Impairment of non-financial assets Non-financial assets including Property, plant and equipment and intangible assets with finite life are evaluated for recoverability whenever there is any indication that their carrying amounts may not be recoverable. If any such indication exists, the recoverable amount (i.e. higher of the fair value less cost to sell and the value-in-use) is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. In such cases, the recoverable amount is determined for the CGU to which the asset belongs. If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. An impairment loss is recognised in the standalone statement of profit and loss. For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Company estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the standalone statement of profit and loss unless the asset is carried at a revalued amount, in which case, the reversal is treated as a revaluation increase. Equity investments in subsidiaries Investments in subsidiaries are classified as non-current investments. Impairment recognized, if any, is reduced from the carrying value. On disposal of an investment, the difference between its carrying amount and net disposal proceeds is charged or credited to the standalone statement of profit and loss. Leases The determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement. i. j. Annual Report 2017-18 | 99 Notes to the standalone financial statements for the year ended March 31, 2018 Company as a lessee: A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the risks and rewards incidental to ownership to the Company is classified as a finance lease. Finance leases are capitalised at the commencement of the lease at the inception date at fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the standalone statement of profit and loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Company’s general policy on the borrowing costs. A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Company will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. Operating lease payments are recognised as an expense in the standalone statement of profit and loss on a straight-line basis over the lease term unless the lease escalations are linked to inflation, in such a case the lease expense is recognised as per the terms of the lease arrangement. k. Financial instruments A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets and liabilities are recognised when the Company becomes a party to the contract that gives rise to financial assets and liabilities. Financial assets and liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value measured on initial recognition of financial asset or financial liability. Cash and cash equivalents The Company considers all highly liquid financial instruments, which are readily convertible into known amounts of cash that are subject to an insignificant risk of change in value and having original maturities of three months or less from the date of purchase, to be cash equivalents. Cash and cash equivalents consist of balances with banks which are unrestricted for withdrawal and usage. Financial assets at amortized cost Financial assets are subsequently measured at amortized cost if these financial assets are held within a business whose objective is to hold these assets in order to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Financial assets at fair value through other comprehensive income Financial assets are measured at fair value through other comprehensive income if these financial assets are held within a business whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Financial assets at fair value through profit or loss Financial assets are measured at fair value through profit or loss unless it is measured at amortized cost or at fair value through other comprehensive income on initial recognition. The transaction costs directly attributable to the acquisition of financial assets at fair value through profit or loss are immediately recognised in standalone statement of profit and loss. Financial liabilities Financial liabilities are subsequently carried at amortized cost using the effective interest method, except for contingent consideration recognized in a business combination which is subsequently measured at fair value through profit or loss. For trade and other payables maturing within one year from the balance sheet date, the carrying amounts approximate fair value due to the short maturity of these instruments. Derecognition of financial assets and liabilities The Company derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for derecognition under Ind AS 109. A financial liability (or a part of a financial liability) 100 | SUBEX LIMITED Notes to the standalone financial statements for the year ended March 31, 2018 is derecognized when the obligation specified in the contract is discharged or cancelled or expires. When an existing financial asset/ liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the standalone statement of profit and loss. Embedded derivatives If the hybrid contract contains a host that is a financial asset within the scope of Ind AS 109, the Company does not separate embedded derivatives. Rather, it applies the classification requirements contained in Ind AS 109 to the entire hybrid contract. Derivatives embedded in all other host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value though profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in profit or loss, unless designated as effective hedging instruments. Compound financial instruments Compound financial instruments in the form of Foreign Currency Convertible Bonds (“FCCBs”) are separated into liability and equity components based on the terms of the contract. On issuance of the Foreign Currency Convertible Bonds, the fair value of the liability component is determined using a market rate for an equivalent non-convertible instrument. This amount is classified as a financial liability measured at amortized cost (net of transaction costs) until it is extinguished on conversion or redemption. The remainder of the proceeds is allocated to the conversion option that is recognised and included in other equity since conversion option meets Ind AS 32 criteria for fixed to fixed classification. Transaction costs are deducted from other equity, net of associated income tax. The carrying amount of the conversion option is not remeasured in subsequent years. Transaction costs are apportioned between the liability and equity components of the Foreign Currency Convertible Bonds based on the allocation of proceeds to the liability and equity components when the instruments are initially recognised. Reclassification of financial assets The Company determines classification of financial assets and liabilities on initial recognition. After initial recognition, no reclassification is made for financial assets which are equity instruments and financial liabilities. For financial assets which are debt instruments, a reclassification is made only if there is a change in the business model for managing those assets. Changes to the business model are expected to be infrequent. The Company’s senior management determines change in the business model as a result of external or internal changes which are significant to the Company’s operations. Such changes are evident to external parties. A change in the business model occurs when the Company either begins or ceases to perform an activity that is significant to its operations. If the Company reclassifies financial assets, it applies the reclassification prospectively from the reclassification date which is the first day of the immediately next reporting period following the change in business model. The Company does not restate any previously recognised gains, losses (including impairment gains or losses) or interest. Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the standalone balance sheet if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously. Fair value of financial instruments In determining the fair value of its financial instruments, the Company uses following hierarchy and assumptions that are based on market conditions and risks existing at each reporting date. Fair value hierarchy All assets and liabilities for which fair value is measured or disclosed in the standalone financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities. Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable. Annual Report 2017-18 | 101 Notes to the standalone financial statements for the year ended March 31, 2018 Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. For assets and liabilities that are recognised in the standalone financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. l. Borrowing cost Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Borrowing cost also includes exchange differences to the extent regarded as an adjustment to the borrowing costs. m. Standalone statement of cash flows Cash flows are reported using the indirect method, whereby profit/ (loss) for the period is adjusted for the effects of transactions of a non-cash nature or any deferrals or accruals of past or future operating cash receipts or payments and item of income or expenses associated with investing or financing cash flows. The cash flows from operating, investing and financing activities of the Company are segregated. n. Employee share based payments The Company measures compensation cost relating to employee stock options plans using the fair valuation method in accordance with Ind AS 102, Share-Based Payment. Compensation expense is amortized over the vesting period of the option on a straight line basis. The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model (Black-Scholes valuation model). That cost is recognised, together with a corresponding increase in employee stock options reserves in other equity, over the period in which the performance and/or service conditions are fulfilled in employee benefits expense. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Company’s best estimate of the number of equity instruments that will ultimately vest. The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share. o. Employee benefits Employee benefits include provident fund, gratuity and compensated absences. Defined contribution plans Contributions payable to recognized provident funds, which are defined contribution schemes, are charged to the standalone statement of profit and loss. Defined benefit plans Gratuity, which is a defined benefit plan, is accrued based on an independent actuarial valuation, which is done based on project unit credit method as at the balance sheet date. The Company recognizes the net obligation of a defined benefit plan in its balance sheet as an asset or liability. Gains and losses through re-measurements of the net defined benefit liability/ (asset) are recognized in other comprehensive income. In accordance with Ind AS, re-measurement gains and losses on defined benefit plans recognised in OCI are not to be subsequently reclassified to the standalone statement of profit and loss. As required under Ind AS compliant Schedule III, the Company transfers it immediately to ‘Surplus/ (deficit) in the statement of profit loss’. Short-term employee benefits 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. Compensated absences, which are expected to be utilised within the next 12 months, are treated as short-term employee benefits. The Company measures the expected cost of such absences as the additional amount that it expects to pay as a result of the unused entitlement that has accumulated at the reporting date. Long-term employee benefits Compensated absences which are not expected to occur within twelve months after the end of the period in which the employees render the related services are treated as long-term employee benefits for measurement purpose. Such long-term compensated 102 | SUBEX LIMITED Notes to the standalone financial statements for the year ended March 31, 2018 absences are provided for based on the actuarial valuation using the projected unit credit method at the year end, less the fair value of the plan assets out of which the obligations are expected to be settled. Actuarial gains/losses are immediately taken to the standalone statement of profit and loss and are not deferred. The Company presents the entire compensated absences balance as a current liability in the balance sheet, since it does not have an unconditional right to defer its settlement for twelve months after the reporting date. p. Foreign currencies Foreign currency transactions are initially recorded in the functional currency of the Company by applying exchange rates prevailing on the date of the transaction. For practical reasons, the Company uses an average rate if the average approximates the actual rate at the date of the transaction. Foreign currency denominated monetary assets and liabilities are restated into the functional currency using exchange rates prevailing on the balance sheet date. Gains and losses arising on settlement and restatement of foreign currency denominated monetary assets and liabilities are included in the standalone statement of profit and loss. The Company’s standalone financial statements are presented in INR (H). The Company determines the functional currency as INR on the basis of primary economic environment in which the entity operates. q. Taxes on income Income tax expense comprises current tax expense and the net change in the deferred tax asset or liability during the year. Current and deferred tax are recognised in standalone statement of profit and loss, except when they relate to items that are recognised in other comprehensive income or directly in other equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in other equity, respectively. Current income tax Current income tax for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the taxable income for that period. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date. Deferred income tax Deferred income tax is recognised using the balance sheet approach, deferred tax is recognized on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, except when the deferred income tax arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and affects neither accounting nor taxable profit or loss at the time of the transaction. Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Deferred income taxes are not provided on the undistributed earnings of branches where it is expected that the earnings of the branch will not be distributed in the foreseeable future. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred tax assets include Minimum Alternative Tax (“MAT”) paid in accordance with the tax laws in India, which is likely to give future economic benefits in the form of availability of set off against future income tax liability. Accordingly, MAT is recognized as deferred tax asset in the balance sheet when the asset can be measured reliably and it is probable that the future economic benefit associated with the asset will be realized. Annual Report 2017-18 | 103 Notes to the standalone financial statements for the year ended March 31, 2018 r. Provision and contingencies A provision is recognized when an enterprise has a present obligation (legal or constructive) as a result of past event 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 of the amount of the obligation. If the effect of time value of money is material, provision is discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. Provisions for onerous contracts, i.e. contracts where the expected unavoidable costs of meeting obligations under a contract exceed the economic benefits expected to be received, are recognized when it is probable that an outflow of resources embodying economic benefits will be required to settle a present obligation as a result of an obligating event, based on a reliable estimate of such obligation. A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non- occurrence of one or more uncertain future events beyond the control of the Company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The Company does not recognize a contingent liability but discloses its existence in the standalone financial statements. s. Earnings/ (loss) per share Basic earnings/ (loss) per share is computed by dividing the profit/ (loss) after tax attributable to the equity holders of the Company 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 as adjusted for dividend, interest (net of any attributable taxes) 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 or increase the net loss per share. 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. t. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. 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. The analysis of geographical segments is based on the areas in which major operating divisions of the Company operate. The accounting policies adopted for segment reporting are in line with the accounting policies of the Company. Segment revenue, segment expenses, segment assets and segment liabilities have been identified to the segments on the basis of their relationship to the operating activities of the segment. Common allocable costs are allocated to each segment according to the relative contribution of each segment to the total common costs. Revenue, expenses, assets and liabilities which relate to the Company as a whole and are not allocable to segments on a reasonable basis have been included under ‘unallocated revenue/ expenses/ assets/ liabilities’. 104 | SUBEX LIMITED Notes to the standalone financial statements for the year ended March 31, 2018 3. Property, plant and equipment Computer equipment Furniture and fixtures Vehicles Office equipment Cost As at April 1, 2016 Additions Disposals As at March 31, 2017 Additions Disposals Transfer on account of restructuring (refer note 31) As at March 31, 2018 Depreciation As at April 1, 2016 Charge for the year Disposals As at March 31, 2017 Charge for the year Disposals Transfer on account of restructuring (refer note 31) As at March 31, 2018 Net block As at March 31, 2017 As at March 31, 2018 4. Intangible assets Cost As at April 1, 2016 Additions Disposals As at March 31, 2017 Additions Disposals Transfer on account of restructuring (refer note 31) As at March 31, 2018 Amortization As at April 1, 2016 Amortization for the year Disposals As at March 31, 2017 Amortization for the year Disposals Transfer on account of restructuring (refer note 31) As at March 31, 2018 Net block As at March 31, 2017 As at March 31, 2018 501 252 (1) 752 193 (1) (884) 60 204 227 - 431 145 (1) (531) 44 321 16 7 - - 7 1 - (7) 1 2 2 - 4 1 - (5) - 3 1 1 11 - 12 1 - - 13 - 2 - 2 2 - - 4 10 9 38 12 - 50 8 (2) (52) 4 12 10 - 22 7 - (28) 1 28 3 (H in Lakhs) Total 547 275 (1) 821 203 (3) (943) 78 218 241 - 459 155 (1) (564) 49 362 29 Computer software Intellectual property rights* (H in Lakhs) Total 117 78 - 195 2 - (67) 130 43 32 - 75 65 - (10) 130 120 - - - - - 6,078 - - 6,078 - - - - 483 - - 483 - 5,595 117 78 - 195 6,080 - (67) 6,208 43 32 - 75 548 - (10) 613 120 5,595 *The Company, vide agreement dated June 7, 2017, purchased Intellectual Property Rights (“IPR”), pertaining to its Network Analytics portfolio from its subsidiary Subex Americas Inc., for a purchase consideration of US$ 9.4 Million (H 6,078 Lakhs) based on valuation carried out by an external valuer. The aforesaid acquisition would enable the Company to consolidate the Intellectual Property Rights embedded in various software products, which would enhance the product offering portfolio of the Company. Annual Report 2017-18 | 105 Notes to the standalone financial statements for the year ended March 31, 2018 5. Investments As at March 31, 2018 (H in Lakhs) As at March 31, 2017 Non-current Investments carried at cost* A. Investments in equity shares of wholly owned subsidiaries (unquoted equity instruments) 100 (March 31, 2017: 100) equity shares fully paid-up, no-par value, in Subex Americas Inc. [Impairment on investment H 76,560 Lakhs (March 31, 2017: H 76,560 Lakhs)] 4,999,994 (March 31, 2017: 4,999,994) equity shares of H 10 each fully paid- up in Subex Technologies Limited [Impairment on investment H 500 Lakhs (March 31, 2017: H 500 Lakhs)] Nil (March 31, 2017: 5,039,565,245) equity shares of GBP 0.00001 each fully paid-up in Subex (UK) Limited** Nil (March 31, 2017: 1) equity shares of AED 150,000 each fully paid-up, in Subex Middle East (FZE)** B. Investment in limited liability partnership firms (refer note 1, 23 & 31) Investment in Subex Assurance LLP in form of capital contribution of H 61,564 Lakhs and share of profit of H 635 Lakhs for the period ended March 31, 2018 Investment in Subex Digital LLP in form of capital contribution of H 1,869 Lakhs and share of loss of H 598 Lakhs for the period ended March 31, 2018 Total Investments carried at cost (A+B) Aggregate amount of unquoted investments in subsidiaries Aggregate amount of impairment on investments 936 - - - 936 - 64,738 27 936 65,701 62,199 1,271 63,470 64,406 141,466 77,060 64,406 - - - 65,701 142,761 77,060 65,701 * As at March 31, 2018, the Company has assessed the carrying value of the investment in its subsidiaries, based on future operational plan, projected cash flows and valuation carried out by an external valuer. Considering the aforesaid valuation, the management is of the view that, the carrying value of the investment in subsidiaries as at March 31, 2018 is appropriate. **Pursuant to the restructuring, Subex Limited has transferred its investment in equity shares of wholly owned subsidiaries Subex (UK) Limited and Subex Middle East (FZE) to Subex Assurance LLP. Also, refer note 31. 6. Loans Unsecured Carried at amortized cost Non-current Loans to related parties (refer note 33) Considered good Considered doubtful Less: Allowances for doubtful loans and advances Others (considered good) Security deposits Current (considered good) Loans and advances to employees 106 | SUBEX LIMITED As at March 31, 2018 (H in Lakhs) As at March 31, 2017 - 1,706 (1,706) - 35 35 6 6 - 2,095 (2,095) - 349 349 180 180 Notes to the standalone financial statements for the year ended March 31, 2018 7. Other balances with banks Non-current Other bank balances (refer note 9) Margin money deposits 8. Trade receivables* Unsecured Carried at amortized cost Non-current Considered good Considered doubtful Less: Allowance for doubtful debts** Current Considered good As at March 31, 2018 (H in Lakhs) As at March 31, 2017 - - 126 126 As at March 31, 2018 (H in Lakhs) As at March 31, 2017 - 2,228 (2,228) - 1,364 1,364 - 10,408 (10,408) - 18,966 18,966 *includes dues from related parties. Refer note 33. **During the year ended March 31, 2018, the Company has written off bad debts amounting to H 1,621 Lakhs (March 31, 2017 : H 4,855 Lakhs) including related party receivables from its allowances for doubtful debts. As at March 31, 2017, the Company had netted off H 28,735 Lakhs of trade receivables from its subsidiaries against trade payables to the respective subsidiaries pursuant to approval from its Authorised Dealer. No trade or other receivable are due from directors or other officers of the Company either severally or jointly with any other person. Further, there are no trade or other receivables which are due from firms or private companies in which any director is a partner, a director or a member. Trade receivables are non-interest bearing and are generally on terms of 30 to 180 days. 9. Cash and cash equivalents Current Balance with banks In current accounts In EEFC accounts Non-current Other balances with banks Deposits with remaining maturity for more than 12 months Less: Disclosed under other balances with banks (Non-current) (refer note 7) As at March 31, 2018 (H in Lakhs) As at March 31, 2017 211 - 211 - - - - 130 21 151 126 126 (126) - For the purpose of the standalone statement of cash flows, cash and cash equivalents comprise the total of current portion of cash and cash equivalents as above. Annual Report 2017-18 | 107 Notes to the standalone financial statements for the year ended March 31, 2018 10. Other financial assets Unsecured, considered good Carried at amortized cost Non-current Advance recoverable from former directors [refer note 35(b)(iii)] Current Unbilled revenue Interest accrued but not due on bank deposits 11. Income tax assets (net) Non-current Advance income-tax [net of provision for taxation H 612 Lakhs (March 31, 2017: H 665 Lakhs)] 12. Deferred tax asset Non-Current Minimum alternative tax ('MAT') credit entitlement (refer note 21) 13. Other assets Non-current Balance with statutory/ government authorities* Advance recoverable in cash or kind Prepaid expenses Current Balance with statutory/ government authorities Advance recoverable in cash or kind Prepaid expenses Advance to suppliers Expenses incurred on behalf of customers As at March 31, 2018 (H in Lakhs) As at March 31, 2017 234 234 - - - 234 234 2,526 10 2,536 As at March 31, 2018 (H in Lakhs) As at March 31, 2017 2,494 2,494 1,873 1,873 As at March 31, 2018 (H in Lakhs) As at March 31, 2017 425 425 478 478 As at March 31, 2018 (H in Lakhs) As at March 31, 2017 267 21 288 - 48 1 12 61 267 297 564 60 538 169 56 823 *Balance represents service tax erroneously paid by the Company during the financial years 2004 to 2008, under reverse charge mechanism, for which refund application has been filed with the service tax department and the same is under dispute. The Company is contesting the same and the management including its tax advisors are confident of obtaining the refund. 108 | SUBEX LIMITED Notes to the standalone financial statements for the year ended March 31, 2018 14. Share capital Authorised share capital Equity shares of H 10 each As at April 1, 2016 Increase during the year As at March 31, 2017 Increase during the year As at March 31, 2018 Preference shares of H 98 each As at April 1, 2016 Increase during the year As at March 31, 2017 Increase during the year As at March 31, 2018 Issued, subscribed and fully paid-up share capital Equity shares of H 10 each issued, subscribed and fully paid-up* As at April 1, 2016 Issued during the year - Conversion of FCCBs As at March 31, 2017 Issued during the year - Preferential issue of equity shares [refer note 14(e)] As at March 31, 2018* No. (H in Lakhs) H in Lakhs 545,040,000 - 545,040,000 43,000,000 588,040,000 200,000 - 200,000 - 200,000 502,811,646 4,096,290 506,907,936 55,094,999 562,002,935 54,504 - 54,504 4,300 58,804 196 - 196 - 196 50,281 410 50,691 5,509 56,200 *includes 243,207 (March 31, 2017: 243,207) shares in respect of which Global Depository Receipts of the Company are listed on London Stock Exchange. (a) Terms/ rights attached to equity shares The Company has only one class of equity shares having par value of H 10 per share. Each holder of equity shares is entitled to one vote per share and such amount of dividend per share as declared by the Company. The Company declares and pays dividend in Indian rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting. The Company has not declared any dividend during the years ended March 31, 2018 and March 31, 2017. In the event of liquidation of the Company, the holders of the equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders. (b) Details of shares held by each shareholder [together with Persons Acting in Concert(PAC)] holding more than 5% shares in the Company Equity shares of H 10 each issued, subscribed and fully paid-up Name of the shareholders As at March 31, 2018 No. % of total shares As at March 31, 2017 No. % of total shares Tonbridge (Mauritius) Limited and Leeds (Mauritius) Limited QVT Singapore Fund Pte. Ltd. QVT Mauritius West Fund & Quintessence Mauritius West Fund Deutsche Bank AG London -CB Account Nomura Singapore Limited 27,563,571 27,531,428 - - - - 4.90 4.90 - - - - 47,843,816 17,436,426 2,806,956 - - 9.44 3.44 0.55 As per records of the Company, including its register of shareholders/members and other declarations received from shareholders regarding beneficial interest, the above shareholding represents both legal and beneficial ownership of shares. Annual Report 2017-18 | 109 Notes to the standalone financial statements for the year ended March 31, 2018 14. Share capital (contd.) c) Shares reserved for issue under options (No.) (i) Outstanding employee stock options under below schemes, granted/ available for grant: (refer note 36) ESOP III ESOP IV (ii) FCCBs (refer note 16) FCCBs III As at March 31, 2018 As at March 31, 2017 24,055 - - 24,055 92,368 28,301 15,522,785 15,643,454 d) Aggregate number of bonus shares issued, shares issued for consideration other than cash and shares bought back during the period of five years immediately preceding the reporting date: Equity shares (No.) Equity shares allotted as fully paid-up pursuant to contract (no.) [In accordance with the terms of FCCBs III, out of the principal face value of US$ 127.72 Million (H 71,593 Lakhs), an amount of US$ 36.32 Million (H 20,359 Lakhs) were mandatorily converted into equity shares on July 07, 2012]. As at March 31, 2018 As at March 31, 2017 89,335,462 89,335,462 e) During the year ended March 31, 2018, the Company made an allotment of 55,094,999 equity shares of the Company on a preferential basis at an issue price of H 14 per equity share (Face value of H 10 per equity share) amounting to H 7,713 Lakhs under section 42 of the Companies Act, 2013. 15. Other equity Equity component of compound financial instruments Balance as per last financial statements Less: Conversion of FCCBs Less: Transfer to surplus/(deficit) in the statement of profit and loss* Closing balance Capital reserve Balance as per last financial statements Add: Additions during the year on account of restructuring (refer note 31) Closing balance Securities premium Balance as per last financial statements Add: Additions during the year on conversion of FCCBs Add: Additions during the year on account of preferential issue of equity shares [refer note 14 (e)] Closing balance As at March 31, 2018 (H in Lakhs) As at March 31, 2017 205 - (205) - - 2,776 2,776 24,501 - 2,204 26,705 259 (54) - 205 - - - 24,378 123 - 24,501 110 | SUBEX LIMITED Notes to the standalone financial statements for the year ended March 31, 2018 15. Other equity (contd.) General reserve Balance as per last financial statements Add: Additions during the year Closing balance Employee stock options reserve Balance as per last financial statements Less: Compensation on ESOP cancelled/lapsed during the year Add: Deferred stock compensation expenses Closing balance Surplus/(deficit) in the statement of profit and loss Balance as per last financial statements Add: Profit/(loss) for the year Add: Residual portion on account of FCCBs conversion Add: Transfer from equity component of compound financial instrument* Less: OCI - Remeasurement loss on defined benefit obligations Closing balance Summary of other equity: Equity component of compound financial instruments Capital Reserve (refer note 31) Securities premium account General reserve Employee stock options reserve Surplus/(deficit) in the statement of profit and loss Total other equity As at March 31, 2018 (H in Lakhs) As at March 31, 2017 1,780 - 1,780 6 (5) - 1 (13,457) 32 - 205 (8) (13,228) - 2,776 26,705 1,780 1 (13,228) 18,034 1,780 - 1,780 16 (10) - 6 (12,996) (683) 255 - (33) (13,457) 205 - 24,501 1,780 6 (13,457) 13,035 *Upon repayment of FCCBs, the residual portion of equity component of compound financial instrument in relation to the same, has been transferred to surplus/(deficit) in the statement of profit and loss. 16. Borrowings Carried at amortized cost Non-current Foreign currency convertible bonds* Current maturities of long-term borrowings (secured) Less: Disclosed under other financial liabilities (current) (refer note 18) Current Loans repayable on demand from banks (Secured) Loan type - I [refer note (i) & (iii)] Loan type - II [refer note (i), (ii) and (iii)] As at March 31, 2018 (H in Lakhs) As at March 31, 2017 - - - - - - - 2,277 2,277 (2,277) - 5,216 3,374 8,590 Annual Report 2017-18 | 111 Notes to the standalone financial statements for the year ended March 31, 2018 16. Borrowings (contd.) *Secured FCCBs were carried at amortized cost at an effective interest rate of 9% p.a. (March 31, 2017: 9% p.a.) with maturity date of July 07, 2017. On June 30, 2017, the Company redeemed outstanding FCCBs III amounting to US$ 3.6 Million (H 2,336 Lakhs) and paid accrued interest of US$ 0.1 Million (H 67 Lakhs) on the aforesaid bonds. On July 6, 2017, the deferred interest in respect of aforesaid bonds for the period July 6, 2012 to January 6, 2016 amounting to US$ 0.72 Million (H 467 Lakhs) was paid. As at March 31, 2018, there are no outstanding FCCBs and related interest. (i) The secured loan from banks were secured by primary charge on customer receivables and paripassu first charge on the current assets of the Company, and collateral paripassu first charge on the fixed assets of the Company. Pursuant to the restructuring of the Company, Loan type - I was transferred to Subex Assurance LLP and Loan type - II was repaid on October 31, 2017 and the aforesaid security was released. (ii) Further, the Company had submitted a corporate guarantee by Subex Technologies Limited of H 4,205 Lakhs and Subex (UK) Limited of H 4,205 Lakhs and pledged it’s 100% shares in Subex (UK) Limited. Pursuant to the restructuring, the loan was repaid on October 31, 2017 and the aforesaid securities have been released. (iii) Loans repayable on demand from bank as at March 31, 2018 consisted of Cash Credit (CC) H Nil (March 31, 2017: H 2,934 Lakhs), Pre-shipment Credit in Foreign Currency (PCFC) H Nil (March 31, 2017: H 1,420 Lakhs) and Export Bill Rediscounting (EBRD) H Nil (March 31, 2017: H 4,237 Lakhs), which carried an average interest rate of 10.14%, 3.10% and 4.16% (March 31, 2017: 11.67%, 3.89% and 5.51%) respectively. During the current year, the facilities in relation to Loan type - I were transferred to Subex Assurance LLP and Loan type - II were repaid, pursuant to the restructuring. 17. Trade payables* Carried at amortized cost Current Trade payables As at March 31, 2018 (H in Lakhs) As at March 31, 2017 - total outstanding dues of micro enterprises and small enterprises** - total outstanding dues of creditors other than micro enterprises and small enterprises - 415 415 - 14,383 14,383 *includes dues to related parties. Refer note 33. Terms and conditions of the above financial liabilities: - trade payables are non-interest bearing and are normally settled on 30 - 45 days terms. - for explanations on the Company’s credit risk management, refer note 40. **There are no micro, small and medium enterprises to whom the Company owes any dues as at March 31, 2018 and March 31, 2017. This information has been determined to the extent such parties have been identified on the basis of information available with the Company. 18. Other current financial liabilities Carried at amortized cost Employee related liabilities Interest accrued but not due on borrowings Current maturities of long term borrowings (refer note 16) 112 | SUBEX LIMITED As at March 31, 2018 49 - - 49 (H in Lakhs) As at March 31, 2017 694 501 2,277 3,472 Notes to the standalone financial statements for the year ended March 31, 2018 19. Other current liabilities Unearned revenue Statutory dues 20. Provisions Non-current Provisions for employee benefits Gratuity [refer note 37(b)] Current Provisions for employee benefits Gratuity [refer note 37(b)] Leave benefits Provision for litigations* (H in Lakhs) As at March 31, 2018 As at March 31, 2017 - 51 51 1,001 215 1,216 As at March 31, 2018 (H in Lakhs) As at March 31, 2017 1 1 3 9 100 112 250 250 31 135 100 266 *Provision for litigations consists of matters which are sub-judice. There is no movement in the provision during the current and previous years, refer note 35(b) for further details. 21. Income tax liabilities (net) Current Provision for tax [net of advance tax H 234 Lakhs (March 31, 2017: H 202 Lakhs)] Provision for foreign taxes Provision for litigation [net of tax deducted at source H 62 Lakhs (March 31, 2017: H 62 Lakhs)]* As at March 31, 2018 (H in Lakhs) As at March 31, 2017 150 34 102 286 182 276 102 560 *Provision for litigations consists of matters which are sub-judice. There is no movement in the provision during the current and previous year, refer note 35(b) for further details. Income tax expense in the standalone statement of profit and loss consist of the following: Tax expense: Current tax (credit)/ charge Provision - foreign witholding taxes (net)* MAT charge/ (credit) (H in Lakhs) Year ended March 31, 2018 Year ended March 31, 2017 (53) 157 53 157 94 254 (94) 254 Notes: *Provision for foreign withholding taxes represents provision in respect of withholding taxes deducted/ deductible by customers. Annual Report 2017-18 | 113 Notes to the standalone financial statements for the year ended March 31, 2018 21. Income tax liabilities (net) (contd.) Reconciliation of tax to the amount computed by applying the statutory income tax rate to the income before tax is summarized below: (H in Lakhs) Profit/ (loss) before tax expense Applicable tax rates in India Computed tax charge (A) Components of tax expense: Provision for foreign withholding taxes (net) MAT provision at 18.5% on the adjusted book profits of the Company in accordance with the provisions of Income Tax Act, 1961 Reversal of tax charge in relation to earlier periods Impact of allowances and disallowances as per Income Tax Act, 1961 (net) MAT credit entitlement (available)/ reversed on the MAT provision as mentioned above as per the provisions of Income Tax Act, 1961 Total adjustments (B) Total tax expense (A+B) 22. Revenue from operations Sale of products Sale of services Details of products sold Sale of license Sale of hardware and software Details of services rendered Implementation and customisation Managed services Support services Sub-contracting services Others 23. Share of profit/ (loss), (net), from Limited Liability Partnerships* Share of profit from Subex Assurance LLP Share of loss from Subex Digital LLP *refer note 31 114 | SUBEX LIMITED Year ended March 31, 2018 189 34.61% 65 Year ended March 31, 2017 (429) 34.61% - 157 - (53) (65) 53 92 157 254 94 - - (94) 254 254 Year ended March 31, 2018 725 17,268 17,993 725 - 725 1,268 2,222 2,693 11,085 - 17,268 (H in Lakhs) Year ended March 31, 2017 1,332 31,109 32,441 1,168 164 1,332 3,853 4,035 4,498 18,715 8 31,109 Year ended March 31, 2018 635 (598) 37 (H in Lakhs) Year ended March 31, 2017 - - - Notes to the standalone financial statements for the year ended March 31, 2018 24. Other income Write back of withholding taxes paid earlier (refer note 43) Net gain on disposal of property, plant and equipment Miscellaneous income Interest income on: Security deposits Bank deposits Inter-company loans and advances 25. Employee benefits expense Salaries, wages and bonus Contribution to provident and other funds Staff welfare expenses 26. Finance cost Interest Foreign currency convertible bonds Other borrowings Other finance charges Bank charges 27. Depreciation and amortization expense Depreciation of property, plant and equipment (refer note 3) Amortization of intangible assets (refer note 4) Year ended March 31, 2018 30 - 2 21 7 6 66 Year ended March 31, 2018 5,684 214 350 6,248 (H in Lakhs) Year ended March 31, 2017 1,037 1 - 36 11 168 1,253 (H in Lakhs) Year ended March 31, 2017 7,865 331 341 8,537 (H in Lakhs) Year ended March 31, 2018 Year ended March 31, 2017 95 294 11 147 547 494 657 21 333 1,505 Year ended March 31, 2018 155 548 703 (H in Lakhs) Year ended March 31, 2017 241 32 273 Annual Report 2017-18 | 115 Notes to the standalone financial statements for the year ended March 31, 2018 28. Other expenses Cost of hardware, software and support charges Sub-contract charges Rent Power and fuel Repairs and maintenance Building Others Insurance Communication costs Printing and stationery Traveling and conveyance Rates and taxes Advertisement and business promotion Consultancy charges Payments to auditors [refer note 28(i)] Sales commission Marketing and allied service charges Provision for doubtful debts (net) Exchange fluctuation loss (net) Directors sitting fees Loss on sale of fixed assets (net) Miscellaneous expenses 28(i). Payments to the auditors* As auditor Audit fee Tax audit fee In other capacity Other services (certification services) Reimbursement of expenses *Payment to auditors is exclusive of goods and services tax/ service tax. 29. Exceptional items (net) Inter company balances [refer note 29(i)] (i) Provision for doubtful advances no longer required written back (ii) Impairment of investments in subsidiaries [refer note 29(ii)] 116 | SUBEX LIMITED Year ended March 31, 2018 398 90 765 124 45 322 57 75 38 1,154 130 87 483 114 54 6,658 (182) 311 73 2 - 10,798 (H in Lakhs) Year ended March 31, 2017 574 148 1,264 185 108 368 90 98 27 1,909 66 128 553 122 37 11,676 1,094 713 49 - 8 19,217 (H in Lakhs) Year ended March 31, 2018 Year ended March 31, 2017 87 4 15 8 114 100 4 5 13 122 (H in Lakhs) Year ended March 31, 2018 Year ended March 31, 2017 389 389 - - 389 1,579 1,579 (6,170) (6,170) (4,591) Notes to the standalone financial statements for the year ended March 31, 2018 29(i) Represent, provision for doubtful advances no longer required written back upon collection of the loans and advances from its overseas subsidiaries which were provided during the year ended March 31, 2016. 29(ii) As at March 31, 2017, basis the valuation carried out by an external valuer, the Company had made an impairment provision of H6,070 Lakhs and H100 Lakhs towards the carrying value of its investment in its subsidiaries viz., Subex Americas Inc. and Subex Technologies Limited, respectively. 30. Earnings/ (loss) per share Basic earnings/ (loss) per share (EPS) amounts are calculated by dividing the profit/ (loss) for the year attributable to equity holders of the Company by the weighted average number of equity shares outstanding during the year. Diluted EPS amounts are calculated by dividing the profit/ (loss) attributable to equity holders of the Company by the weighted average number of equity shares outstanding during the year plus the weighted average number of equity shares that would be issued on conversion of all the dilutive potential equity shares into equity shares. Computation of basic and diluted EPS: Nominal value per equity share (H per share) Profit/ (loss) attributable to equity shareholders (H in Lakhs) Weighted average number of equity shares (No. in Lakhs) Earnings/ (loss) per share basic and diluted (H per share)* Year ended March 31, 2018 10 32 5,554 0.01 Year ended March 31, 2017 10 (683) 5,063 (0.13) *Employee stock options outstanding as at March 31, 2018 and Employee stock options outstanding and foreign currency convertible bonds outstanding as at March 31, 2017 are anti-dilutive and accordingly have not been considered for the purpose of computing dilutive EPS of the respective years. 31. Restructuring The Board of Directors of the Company in its meeting held on August 21, 2017 approved the restructuring of the Company’s business by way of transfer of its Revenue Maximization Solutions and related businesses (“RMS business”) and the Subex Secure and Analytics solutions and related businesses (“Digital business”) to its subsidiaries, Subex Assurance LLP (“SA LLP”) and Subex Digital LLP (“SD LLP”) (together referred to as “LLPs”), respectively, hereinafter referred to as the “Restructuring”, subject to shareholders and other requisite approvals, to achieve amongst other aspects, segregation of the Company’s business into separate verticals to facilitate greater focus on each business vertical, higher operational efficiencies, and to enhance the Company’s ability to enter into business specific partnerships and attract strategic investors at respective business levels, with an overall objective of enhancing shareholder value. The shareholders of the Company approved the Restructuring by way of special resolution passed through postal ballot on September 23, 2017 and subsequently, the Board of Directors of the Company in its meeting held on October 4, 2017 approved November 1, 2017 to be the effective date of Restructuring. Accordingly, effective November 1, 2017, the Company’s RMS business and the Digital business have been transferred on a going concern basis for a fair value consideration of H 61,564 Lakhs and H 1,869 Lakhs, respectively, in the form of Company’s capital contribution in the aforesaid LLPs. The Company has accounted for the restructuring in accordance with Appendix C (“Common control transactions”) to Ind AS 103 (“Business Combinations”), which requires common control transactions to be recorded at books values. Accordingly, the difference between net assets transferred and the capital contribution of H 2,776 Lakhs has been recognised as Capital reserve. Annual Report 2017-18 | 117 Notes to the standalone financial statements for the year ended March 31, 2018 31. Restructuring (contd.) Balances transferred from Subex Limited to the LLPs pursuant to the restructuring are as follows: (H in Lakhs) SA LLP SD LLP Total (A) 61,564 1,869 63,433 Particulars Capital contribution Net assets: Assets: Property, plant and equipment Intangible assets Investment in Subex (UK) Ltd., UK Investment in Subex Middle East (FZE), UAE Loans and advances Trade receivables Cash and cash equivalents Other balances with banks Other current financial assets Other current assets Total assets (B1) Liabilities: Borrowings Trade payables Other current financial liabilities Other current liabilities Provisions Total liabilities (B2) 356 57 64,739 27 742 9,039 1,000 37 2,076 242 78,315 5,483 10,347 455 1,082 382 17,749 60,566 998 23 - - - 81 - 300 - - 3 407 - 241 46 - 29 316 91 1,778 379 57 64,739 27 823 9,039 1,300 37 2,076 245 78,722 5,483 10,588 501 1,082 411 18,065 60,657 2,776 Net assets transferred Capital reserve (B=B1-B2) (A-B) 32. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The board of directors of the Company assesses the financial performance and position of the Company. The Chief Executive Officer has been identified as the chief operating decision maker. The Company has identified a single business segment being software products and related services. This being a single segment no additional segment disclosure has been made for the business segment. The Company’s operations spans across the world and are categorized geographically as (a) Americas, (b) EMEA (c) India and (d) APAC and rest of the World. ‘Americas’ comprises the Company’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, excluding India are organized under ‘APAC and the rest of the world’. Customer relationships are driven based on customer domicile. Segment revenue by geographical location are as follows*: Region Americas EMEA India APAC and rest of the world *Revenues by geographic area are based on the geographical location of the customer. 118 | SUBEX LIMITED Year ended March 31, 2018 2,997 10,371 1,607 3,018 17,993 (H in Lakhs) Year ended March 31, 2017 5,199 21,047 2,642 3,553 32,441 Notes to the standalone financial statements for the year ended March 31, 2018 32. Segment reporting (contd.) No external customer individually accounted for more than 10% of the total revenue of the Company during the years ended March 31, 2018 and March 31, 2017. Revenue from certain subsidiaries accounts for more than 10% of the total revenues of the Company. (Refer note 33). Non-current operating assets by geographical location are as follows**: Region India Outside India Total non-current operating assets As at March 31, 2018 5,912 - 5,912 (H in Lakhs) As at March 31, 2017 1,046 - 1,046 **Non-current operating assets includes Property, plant and equipment, Intangible assets, Balance with statutory/ government authorities and Prepaid expenses. 33. Related party transactions i. Related parties where control exists Wholly owned subsidiaries Subex Americas Inc. Subex (UK) Limited Subex Technologies Limited Subex Azure Holdings Inc. Subex (Asia Pacific) Pte. Limited Subex Inc. Subex Technologies Inc.(liquidated during the year ended March 31, 2018) Subex Middle East (FZE) Subex Assurance LLP (w.e.f. April 5, 2018) Subex Digital LLP (w.e.f. April 5, 2018) ii. Related parties under Ind AS 24 and Companies Act, 2013 Key management personnel Anil Singhvi Surjeet Singh Chairman (w.e.f. May 25, 2017) and Independent Director Managing Director and Chief Executive Officer (Up to March 31, 2018) Vinod Kumar Padmanabhan Managing Director and Chief Executive Officer (w.e.f April 1, 2018) Whole Time Director (w.e.f. May 25, 2017 to October 31, 2017) Non Executive, Non Independent Director (w.e.f. November 1, 2017 to March 31, 2018) Ashwin Chalapathy Whole Time Director (w.e.f. May 25, 2017 to October 31, 2017) Non Executive, Non Independent Director (w.e.f. November 1, 2017 to May 4, 2018) Nisha Dutt Independent Director Poornima Kamalaksh Prabhu Independent Director Sanjeev Aga Priyanka Roy Mehernaz Dalal Ganesh KV Independent Director (Up to October 27, 2016) Independent Director (Up to March 10, 2017) Chief Financial Officer (w.e.f. June 15, 2017) Chief Financial Officer, Global Head - Legal and Company Secretary (Up to June 15, 2017) Annual Report 2017-18 | 119 Notes to the standalone financial statements for the year ended March 31, 2018 33. Related party transactions (contd.) iii. Details of the transactions with the related parties during the year ended March 31, 2018: A. Transactions with wholly owned subsidiaries Income from software development and services: Subex (UK) Limited Subex Inc. Subex (Asia Pacific) Pte. Limited Subex Americas Inc. Subex Middle East (FZE) Marketing and allied service charges: Subex (UK) Limited Subex Inc. Subex Americas Inc. Subex (Asia Pacific) Pte. Limited Subex Middle East (FZE) Interest received/ receivable on inter company loans: Subex Americas Inc. Employee Stock Option expenses allocated to: Subex (UK) Limited Subex Inc. Reimbursement of expenses made to: Subex Assurance LLP Subex Digital LLP Subex (Asia Pacific) Pte. Limited Subex (UK) Limited Subex Americas Inc. Subex Inc. Subex Technologies Limited Reimbursement of expenses received from: Subex Assurance LLP Subex Digital LLP Subex (Asia Pacific) Pte. Limited Subex (UK) Limited Subex Inc. Subex Americas Inc. Provision for doubtful advances/ debts and (provision no longer required written back) Subex Americas Inc. Subex Inc. Subex (Asia Pacific) Pte. Limited Subex (UK) Limited Subex Technologies Limited 120 | SUBEX LIMITED (H in Lakhs) Year ended March 31, 2018 Year ended March 31, 2017 5,394 2,479 2,213 288 711 11,085 2,710 3,315 244 356 33 6,658 6 6 - - - 408 11 10 7 - 1 1 438 756 69 21 29 8 1 884 1,173 (793) (609) (148) (12) (389) 10,587 3,322 1,886 1,479 1,441 18,715 5,153 5,149 631 521 222 11,676 168 168 1 1 2 - - 35 29 5 1 1 71 - - 9 19 11 - 39 (1,579) 3 - - - (1,576) Notes to the standalone financial statements for the year ended March 31, 2018 33. Related party transactions (contd.) A. Transactions with wholly owned subsidiaries Bad debts written off:* Subex (Asia Pacific) Pte. Limited Subex Americas Inc. Net off of trade receivables from subsidiaries against trade payables to respective subsidiaries during the year:** Subex (Asia Pacific) Pte. Limited Subex Inc. Subex (UK) Limited Subex Americas Inc. Investments in equity shares in wholly owned subsidiaries: Subex Technologies Limited Investment made in form of capital contribution: Subex Assurance LLP Subex Digital LLP Share of profit/(loss), (net), from Limited Liability Partnerships: Subex Assurance LLP Subex Digital LLP Impairment on investment during the year: Subex Americas Inc. Subex Technologies Limited Net assets, including investment, transferred pursuant to restructuring (refer note 31): Subex Assurance LLP Subex Digital LLP B. Transactions with key managerial personnel Salary and perquisites*** Vinod Kumar Padmanabhan Ashwin Chalapathy Mehernaz Dalal Surjeet Singh Ganesh KV (H in Lakhs) Year ended March 31, 2018 Year ended March 31, 2017 - 480 480 - - - - - - - 61,564 1,869 63,433 635 (598) 37 - - - 60,566 91 60,657 766 2,637 3,403 513 12,864 10,665 4,693 28,735 100 100 - - - - - - 6,070 100 6,170 - - - (H in Lakhs) Year ended March 31, 2018 Year ended March 31, 2017 54 45 44 38 37 218 - - - 17 77 94 Annual Report 2017-18 | 121 Notes to the standalone financial statements for the year ended March 31, 2018 33. Related party transactions (contd.) B. Transactions with key managerial personnel Director sitting fees Anil Singhvi Nisha Dutt Poornima Prabhu Sanjeev Aga Priyanka Roy (H in Lakhs) Year ended March 31, 2018 Year ended March 31, 2017 28 22 23 - - 73 22 14 - 10 3 49 *Bad debts written off during the year ended March 31, 2018 and March 31, 2017 are from allowances for doubtful debts. **During the year ended March 31, 2017, the Company had netted off trade receivables from its subsidiaries against trade payables to the respective subsidiaries pursuant to approval from its Authorised Dealer. ***The remuneration to the key managerial personnel does not include the provision/ accruals made on best estimate basis as they are determined for the Company as a whole. iv. Details of balances receivable from and payable to related parties are as follows: As at March 31, 2018 (H in Lakhs) As at March 31, 2017 Balances receivable from and payable to wholly owned subsidiaries Trade receivables Subex Americas Inc. [Net of provision of H 1,841 Lakhs (March 31, 2017: H 770 Lakhs)] Subex UK Limited [Net of provision of H Nil Lakhs (March 31, 2017: H 148 Lakhs)] Subex Inc. [Net of provision of H Nil Lakhs (March 31, 2017: H 2,965 Lakhs)] Subex (Asia Pacific) Pte. Limited [Net of provision of H 34 Lakhs (March 31, 2017: H 4,016 Lakhs)] Subex Middle East (FZE) Subex Technologies Limited Subex Digital LLP Trade payables Subex (UK) Limited Subex Inc. Subex (Asia Pacific) Pte. Limited Subex Americas Inc. Subex Technologies Limited Subex Middle East (FZE) Subex Assurance LLP Loans and Advances Subex Americas Inc. [Net of provision of H Nil Lakhs (March 31, 2017: H 377 Lakhs)] Subex Technologies Limited [Net of provision of H 1,706 Lakhs (March 31, 2017: H 1,718 Lakhs)] Outstanding guarantees received from (refer note 16): Subex Technologies Limited Subex (UK) Limited Outstanding guarantees given to: Subex Assurance LLP 122 | SUBEX LIMITED - 1 363 248 - - 6 618 - 206 - 2 - - 127 335 - - - - - 2,420 6,127 878 1,188 1,029 1 - 11,643 6,745 3,679 992 1,827 1 39 - 13,283 - - - 4,205 4,205 8,250 - Notes to the standalone financial statements for the year ended March 31, 2018 34. Disclosure as per Regulation 34(3) and Regulation 53(f) read with Para A of Schedule V of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 of the listing agreement with the Stock Exchanges. Loans and advances given to wholly owned subsidiaries: Particulars Subex Americas Inc.* Subex Technologies Limited** (H in Lakhs) As at March 31, 2018 As at March 31, 2017 Outstanding Amount Maximum balance outstanding during the year Outstanding Amount Maximum balance outstanding during the year - 1,706 1,706 377 1,718 377 1,718 2,095 1,948 1,718 *Loans and advances to Subex Americas Inc., have been collected and related provision has been written back H 377 Lakhs (March 31, 2017: H 1,579 Lakhs). **Loans and advances to Subex Technologies Limited is provided as at March 31, 2018: H 1,706 Lakhs (March 31, 2017: H 1,718 Lakhs). 35. Commitments and contingent liabilities a) Commitments Operating leases The Company is obligated under non-cancellable lease for office and residential space that are renewable on a periodic basis at the option of both the lessor and lessee. The total rental expenses for the year under non-cancellable operating leases amounted to H Nil Lakhs (March 31, 2017: H 698 Lakhs). Future minimum lease payments under non-cancellable operating lease payable within one year and subsequently, from balance sheet date is H Nil (March 31, 2017: H Nil). The Company leases office facilities, residential facilities and servers under cancellable operating lease agreements. The Company intends to renew such leases in the normal course of its business. Total rental expense for the year under cancellable operating leases was H 765 Lakhs (March 31, 2017: H 567 Lakhs) b) Contingent liabilities Income tax demands [refer note (i)] Service tax demands [refer note (ii)] Others [refer note (iii)] Corporate guarantee issued by the Company [refer note (iv) below and note 16] Bank guarantees (furnished to customers) As at March 31, 2018 (H in Lakhs) As at March 31, 2017 12,692 3,687 1,293 8,250 6 6,982 3,687 1,293 - 119 Income tax i. The Company has received assessment orders in respect of each of the financial years from March 31, 2002 to March 31, 2014, wherein certain adjustments were made to the taxable income in relation to various matters including adjustments in respect of transfer pricing under section 92CA of the Income Tax Act, 1961 and disallowances of certain expenditures. These demands are disputed by the management and the Company has filed appeals against these orders with various appellate authorities. The management is of the view that the prices determined by it are at arm’s length, expenditures are deductible based on outcome of previous litigations, and is confident that the demands raised by the Assessing Officers are not tenable under the Income Tax Act, 1961. Pending outcome of the aforesaid matters under litigation, no provision has been made in the books of account towards these tax demands. Annual Report 2017-18 | 123 Notes to the standalone financial statements for the year ended March 31, 2018 35. Commitments and contingent liabilities (contd.) ii. Service tax The Company has received demand order towards the service tax on import of certain services and equivalent amount of penalties under the provisions of the Finance Act, 1994 along with the consequential interest during the period April 2006 to July 2009. These demands are disputed by the management and the Company has filed appeals against these orders with various appellate authorities. The management is of the view that the service tax is not applicable on those import of services, and is confident that the demands raised by the Assessing Officers are not tenable under law. Pending outcome of the aforesaid matter under litigation, no provision has been made in the books of account for these tax demands. iii. Others The Company had received certain claims from ex-directors for an amount of H 1,293 Lakhs. The aforesaid claims are disputed by the Company and the matter is presently under arbitration with the arbitration tribunal. The management is of the view that these claims are not tenable. Subsequent to the year ended March 31, 2018, in respect of arbitration concerning one of the ex-directors the Honorable Tribunal has passed an award directing the Company to pay a sum of H 700 Lakhs. The Company has filed an application to set aside the order and has also sought an interim stay in this regard. Basis opinion obtained from its legal counsel, the management is of the view that the outcome of the matter is not predictable at this point. Accordingly, no provision is made in this regard and the same has been disclosed as contingent liability. The Company has also claimed the excess managerial remuneration of H 124 Lakhs (March 31, 2017: H 124 Lakhs) paid to the aforementioned ex-directors during the year ended March 31, 2013, in excess of the limits prescribed under Schedule XIII of the Companies Act, 1956 which has been treated as monies due from the directors, being held by them in trust for the Company, and other advances paid to directors during the year 2012-13 amounting to H 110 Lakhs (March 31, 2017: H 110 Lakhs). The aggregate amount of H 234 Lakhs (March 31, 2017: H 234 Lakhs) is included in ‘Other Financial Assets’ in the financial statements. Pending final outcome of the litigations, no provision has been made in the books of account in this regard. iv. Corporate Guarantee With effect from November 1, 2017, the Company has given corporate guarantee to the lenders of its subsidiary, Subex Assurance LLP, of H 8,250 Lakhs for the purpose of availing of working capital loan facilities by the said subsidiary. v. The Company has issued comfort letter to provide continued financial support to its subsidiary viz., Subex Americas Inc., to ensure that the entity is able to meet its commitments and liabilities as they fall due and it continues as a going concern. 36. Employee stock options plans (‘ESOPs’) The Company during the years 2005-2006 and 2008-09 has established equity settled ESOP schemes of ESOP III and ESOP IV respectively. 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. 124 | SUBEX LIMITED Notes to the standalone financial statements for the year ended March 31, 2018 36. Employee stock options plans (‘ESOPs’) (contd.) Employees stock options details as on the balance sheet date are: Options outstanding at the beginning of the year ESOP – III ESOP – IV Cancelled, surrendered or lapsed during the year ESOP – III ESOP – IV Options outstanding at the end of the year ESOP – III ESOP – IV Options exercisable at the end of the year ESOP – III ESOP – IV 2017-18 Options (no.) Weighted average exercise price per stock option (H) 2016-17 Options (no.) Weighted average exercise price per stock option (H) 92,368 28,301 68,313 28,301 24,055 - 24,055 - 22.97 28.44 24.67 28.44 18.24 - 18.24 - 1,44,979 1,30,500 52,611 1,02,199 92,368 28,301 92,368 28,301 24.28 28.51 26.54 28.53 22.97 28.44 22.99 28.44 Details of weighted average remaining contractual life and range of exercise prices for the options outstanding at the balance sheet date: Weighted average remaining contractual life(years)* 2017-18 2016-17 1.26 - 1.99 0.67 Range of exercise prices (H) 2017-18 10.26 - 54.83 2016-17 10.26 - 54.83 - 28.44 ESOP – III ESOP – IV *considering vesting and exercise period 37. Employee benefit plans a) Provident fund The Company makes contributions for qualifying employees to Provident Fund which is defined contribution plan. Under the scheme, the Company is required to contribute a specified percentage of the payroll costs to fund the benefits. The Company recognized H 198 Lakhs (March 31, 2017: H 281 Lakhs) for Provident Fund contributions. b) Gratuity The Company offers Gratuity benefits to employees, a defined benefit plan, Gratuity plan is governed by the Payment of Gratuity Act, 1972. Under gratuity plan, every employee who has completed at least five years of service gets a gratuity on departure @15 days of last drawn salary for each completed year of service. The scheme is funded with an insurance company in the form of qualifying insurance policy. Annual Report 2017-18 | 125 Notes to the standalone financial statements for the year ended March 31, 2018 37. Employee benefit plans (contd.) The following tables set out the status of the gratuity plan: Disclosure as per Ind AS 19 A. Change in defined benefit obligation B. Obligations at beginning of the year Service cost Interest cost Benefits settled Actuarial loss (through OCI) Liability transferred pursuant to restructuring (refer note 31) Obligations at end of the year Change in plan assets Plan assets at beginning of the year, at fair value Expected return on plan assets Actuarial gain (through OCI) Contributions Benefits settled Asset transferred pursuant to restructuring (refer note 31) Plan assets at the end of the year Present value of defined benefit obligation at the end of the year Fair value of plan assets at the end of the year C. Net liability recognised in the standalone balance sheet D. E. F. Expenses recognised in the standalone statement of profit and loss: Service cost Interest cost (net) Net gratuity cost Re-measurement gains/(losses) in OCI Actuarial loss due to financial assumption changes Actuarial loss due to experience adjustments Actuarial gain - return on plan assets greater than discount rate Total expenses recognised through OCI Assumptions Discount rate Expected return on plan assets Salary escalation Attrition rate Retirement age 126 | SUBEX LIMITED As at March 31, 2018 (H in Lakhs) As at March 31, 2017 425 42 17 (51) 9 (420) 22 144 6 1 60 (51) (142) 18 (22) 18 (4) 406 56 30 (101) 34 - 425 115 9 1 120 (101) - 144 (425) 144 (281) (H in Lakhs) Year ended March 31, 2018 Year ended March 31, 2017 42 11 53 - 9 (1) 8 56 21 77 11 23 (1) 33 7.60% 7.00% 8.00% 18.00% 60 years 7.00% 7.60% 8.00% 18.00% 60 years Notes to the standalone financial statements for the year ended March 31, 2018 37. Employee benefit plans (contd.) G. Five years pay-outs Year 1 Year 2 Year 3 Year 4 Year 5 After 5th Year H. Contribution likely to be made for the next one year As at March 31, 2018 (H in Lakhs) As at March 31, 2017 3 3 3 3 3 20 3 31 60 57 55 51 340 120 The estimate of future salary increases considered, takes into account the inflation, seniority, promotion, increments and other relevant factors, benefit obligation such as supply and demand in the employment market. I. The major categories of plan assets as a percentage of the fair value of total plan assets are as follows: Investment with insurer J. Sensitivity analysis As at March 31, 2018 100% As at March 31, 2017 100% Year ended March 31, 2018 Year ended March 31, 2017 (H in Lakhs) Effect of change in discount rate 0.5% increase 0.5% decrease 0.5% increase 0.5% decrease Impact on defined benefit obligation increase/ (decrease) (1) 1 (9) 10 Effect of change in salary 1% increase 1% decrease 1% increase 1% decrease Impact on defined benefit obligation increase/ (decrease) 1 (1) 16 (15) Effect of change in withdrawal 5% increase 5% decrease 5% increase 5% decrease Impact on defined benefit obligation increase/ (decrease) (1) 1 (9) 8 38. Capital management The Company’s objective is to maintain a strong capital base to ensure sustained growth in business and to maximise the shareholders value. The capital management focusses to maintain an optimal structure that balances growth and maximizes shareholder value. Particulars As at March 31, 2018 (H in Lakhs) As at March 31, 2017 A. Total equity attributable to the share holders of the Company* 74,234 63,726 Borrowings - Current** Current maturities of long term borrowings*** B. Total loans and borrowings C. D. E. Total capital (A+B) Total loans and borrowings as a percentage of total capital (B/C) Total equity as a percentage of total capital (A/C) - - - 74,234 - 100% 8,590 2,277 10,867 74,593 15% 85% *The Company has made preferential allotment of equity shares during the current year. Refer note 14(e). Annual Report 2017-18 | 127 Notes to the standalone financial statements for the year ended March 31, 2018 38. Capital management (contd.) **As at March 31, 2017 the current borrowings were in the nature of working capital loans from State Bank of India and Axis Bank. During the year, entire loan from State Bank of India has been paid off and loan from Axis bank has been transferred to Subex Assurance LLP pursuant to restructuring (refer note 31). ***Current maturities of long term borrowings as at March 31, 2017 represented FCCBs III of H 2,277 Lakhs and have been repaid on May 15, 2017. Accordingly, the Company is entirely supported by equity funds as at March 31, 2018. 39. Fair value hierarchy The carrying value of financial instruments by categories is as follows: Particulars Financial assets measured at amortized cost Interest accrued but not due on bank deposits* Trade receivables* Unbilled revenue* Security deposits^ Loans and advances to employees* Cash and cash equivalents and other balances with banks Balance with banks# Margin money deposits# Financial liabilities measured at amortized cost Employee related liabilities* Trade payables* Interest accrued but not due on borrowings^ Borrowings^ As at March 31, 2018 (H in Lakhs) As at March 31, 2017 - 1,364 - 35 6 1,405 211 - 211 49 415 - - 464 10 18,966 2,526 349 180 22,031 151 126 277 694 14,383 501 10,867 26,445 *The carrying value of these accounts are considered to be the same as their fair value, due to their short term nature. Accordingly, these are classified as level 3 of fair value hierarchy. #These accounts are considered to be highly liquid/ liquid and the carrying amount of these are considered to be the same as their fair value. Accordingly, these are classified as level 3 of fair value hierarchy. ^ The fair value of these accounts was calculated based on cash flow discounted using a current lending/ borrowing rate, they are classified as level 3 fair value hierarchy due to inclusion of unobservable inputs including counterparty credit risk. 40. Financial risk management: The Company’s activities expose it to the following risks: i. Credit risk ii. Interest rate risk iii. Liquidity risk iv. Market risk i. Credit risk: Credit risk is the risk that counter party will not meet its obligations under a financial instruments or customer contract leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables and unbilled revenue) from its financing activities including deposits with banks, investments, foreign exchange transactions and other financial instruments. 128 | SUBEX LIMITED Notes to the standalone financial statements for the year ended March 31, 2018 40. Financial risk management (contd.) a. Trade receivables Credit risk is managed by each business unit as per the Company’s established policy, procedures and control relating to customer credit risk management. Outstanding customer receivables are regularly monitored. The impairment analysis is performed at each reporting date on an individual basis for major clients. In addition, a large number of minor receivables are grouped into homogeneous groups and assessed for impairment collectively. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets. The Company does not hold collateral as security. b. Credit risk exposure The Company’s credit period generally ranges from 30 - 180 days. The credit risk exposure of the Company is as below: Particulars Trade receivables Unbilled revenue Total As at March 31, 2018 (H in Lakhs) As at March 31, 2017 1,364 - 1,364 18,966 2,526 21,492 The Company evaluates the concentration of risk with respect to trade receivables as low, since majority of its customers are reputed telecom companies and are spread across multiple geographies. c. Other financial assets and deposits with banks Credit risk is limited, as the Company generally invests in deposits with banks with high credit ratings assigned by international and domestic credit rating agencies. Counter-party credit limits are reviewed by the Company periodically and the limits are set to minimise the concentration of risks and therefore mitigate financial loss through counterparty’s potential failure to make payments. ii. Interest rate risk Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Company’s risk of changes in interest rates relates primarily to the Company’s debt obligations with floating interest rates for the period the Company was holding the debts. The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant. The impact on entity’s loss before tax due to change in the interest rate/ fair value of financial liabilities are as disclosed below: Particulars Working capital loans (H in Lakhs) Year ended March 31, 2018* Change in interest rate Effect on loss before exceptional items and tax expense Year ended March 31, 2017 Change in interest rate Effect on profit before exceptional items and tax expense +1% -1% 54 (54) +1% -1% (94) 94 * The Company does not have any outstanding working capital loans as at March 31, 2018. iii. Liquidity risk The Company’s principal sources of liquidity are cash and cash equivalents and the cash flow that is generated from operations. The Company believes that the cash and cash equivalents is sufficient to meet its current requirements. Accordingly no liquidity risk is perceived. The break-up of cash and cash equivalents and deposits is as below: Particulars Cash and cash equivalents Other balances with banks As at March 31, 2018 (H in Lakhs) As at March 31, 2017 211 - 211 151 126 277 Annual Report 2017-18 | 129 Notes to the standalone financial statements for the year ended March 31, 2018 40. Financial risk management: (contd.) The table below summarises the maturity profile of the Company’s financial liabilities at the reporting date. The amounts are based on contractual undiscounted payments. (H in Lakhs) Total Particulars On demand 0-180 Days 180-365 Days 365 Days and above As at March 31, 2018 Trade payables Borrowings Other financial liabilities As at March 31, 2017 Trade payables Borrowings Other financial liabilities 80 - - 80 238 - - 238 - - 49 49 9,399 10,924 1,199 21,522 335 - - 335 253 - - 253 - - - - 4,493 - - 4,493 415 - 49 464 14,383 10,924 1,199 26,506 iv. Market risk Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Company’s exchange risk arises from its foreign operations, foreign currency revenues and expenses. The Company has exposures to United States Dollars (‘US$’), Great Britain Pound (‘GBP’), Euro (‘EUR’), United Arab Emirates Dirham (‘AED’) and other currencies. The Company’s exposure to the risk of changes in foreign exchange rates relates primarily to the Company’s operating activities and financing activities. March 31, 2018 Particulars Financial assets Trade receivables Other financial assets Total financial assets Financial liabilities Borrowings Trade payables Other financial liabilities Total financial liabilities Net financial assets/ (liabilities) March 31, 2017 Particulars Financial assets Trade receivables Other financial assets Total financial assets Financial liabilities Borrowings Trade payables Other financial liabilities Total financial liabilities Net financial assets/ (liabilities) 130 | SUBEX LIMITED US$ Denominated Currency AED GBP Others 607 - 607 - 208 - 208 399 1 - 1 - - - - 1 - - - - - - - - 251 - 251 - - - - 251 US$ Denominated Currency AED GBP Others 8,267 2,057 10,324 2,786 6,124 2,794 11,704 (1,380) 6,125 - 6,125 1,979 6,697 - 8,676 (2,551) 1,668 42 1,710 73 100 3 176 1,534 2,090 112 2,202 818 683 3 1,504 698 (H in Lakhs) Total 859 - 859 - 208 - 208 651 (H in Lakhs) Total 18,150 2,211 20,361 5,656 13,604 2,800 22,060 (1,699) Notes to the standalone financial statements for the year ended March 31, 2018 40. Financial risk management: (contd.) Sensitivity analysis Every 1% appreciation or depreciation in the respective foreign currencies against functional currency of the Company would cause the loss before exceptional items in proportion to revenue of the Company to decrease or increase respectively by 0.04%. (Previous year ended March 31, 2017: profit before exceptional items to decrease or increase respectively by 0.02%). 41. Standards issued but not yet effective: Ind AS 115- Revenue from contract with customers: On March 28, 2018, the Ministry of Corporate Affairs notified Ind AS 115 Revenue from contracts with customers. The standard replaces Ind AS 11 Construction Contracts and Ind AS 18 Revenue. The core principle of Ind AS 115 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Ind AS 115 introduces a 5-step approach to revenue recognition: • • Identify the contract(s) with a customer Identify the performance obligation in contract • Determine the transaction price • • Allocate the transaction price to the performance obligations in the contract Recognize revenue when (or as) the entity satisfies a performance obligation Ind AS 115 establishes control-based revenue recognition model. An entity recognizes revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the performance obligation is transferred to the customer. Also, Ind AS 115 provides more guidance for deciding whether revenue is recognized at a point in time or over time. Transitional options under Ind AS 115: • Retrospectively to each prior period presented in accordance with Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors, subject to some practical expedients mentioned in Ind AS 115 • Retrospectively with the cumulative effect of initial application recognized at the date of initial application The standard is effective for annual periods beginning on or after April 1, 2018. The Company is currently evaluating the requirements and impact of Ind AS 115 on its financial statements. Ind AS 21 - Appendix B: The Appendix clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine the transaction date for each payment or receipt of advance consideration. Entities may apply the Appendix requirements on a fully retrospective basis. Alternatively, an entity may apply these requirements prospectively to all assets, expenses and income in its scope that are initially recognised on or after: (i) The beginning of the reporting period in which the entity first applies the Appendix, or (ii) The beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period in which the entity first applies the Appendix. The standard is effective for annual periods beginning on or after April 1, 2018. The Company is currently evaluating the requirements and impact of the aforesaid on its financial statements. Annual Report 2017-18 | 131 Notes to the standalone financial statements for the year ended March 31, 2018 42. As per section 135 of The Company’s Act, 2013, a Corporate Social Responsibility (‘CSR’) committee has been formed by Subex Limited. The primary function of the Committee is to assist the Board of Directors in formulating the CSR policy and review the implementation and progress of the same from time to time. The CSR Policy focuses on creating opportunities for the disadvantaged with emphasis on persons with disabilities. The Company has incurred losses during the three immediately preceding years and accordingly, is not required to spend any amount during the current year for this purpose. Accordingly, the Company has not made any expenditure during the year ended March, 2018. Subsequent to the year end, on April 20, 2018, the Company has voluntarily incurred an expense of H 10 lakhs towards CSR activities. 43. The Company had remitted withholding taxes on interest on FCCBs III in accordance with the provisions of the Income Tax Act, 1961 amounting to H 1,067 Lakhs pertaining to FCCBs III which have been converted into equity shares of the Company. Pursuant to such conversion, the interest accrued but not due is considered no longer payable and the management basis expert advice, is of the view that the withholding taxes paid by the Company in respect of the aforesaid interest, are recoverable from income tax department and/ or are adjustable against its other withholding taxes obligations. Accordingly, upon revision of withholding taxes returns, the Group has adjusted withholding taxes of H 30 Lakhs (March 31, 2017: H 1,037 Lakhs) on salary, professional services and others by write-back of withholding taxes on interest on FCCBs paid earlier, and such write back is included under other income. 44. The Company has entered into ‘International transactions’ with ‘Associated Enterprises’ which are subject to Transfer Pricing regulations in India. The Company is in the process of carrying out transfer pricing study for the year ended March 31, 2018 in this regard, to comply with the requirements of the Income Tax Act, 1961. 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 standalone financial statements, particularly on account of tax expense and that of provision for taxation. 45. Consequent to the restructuring more fully described in note 1 and 31, the current year figures are not comparable to previous year figures. Previous year figures have been regrouped/ reclassified, wherever necessary to conform to current year’s classification. As per our report of even date For and on behalf of the Board of Directors For S.R. Batliboi & Associates LLP Chartered Accountants ICAI Firm registration number: 101049W/E300004 Vinod Kumar Padmanabhan Managing Director & CEO DIN : 06563872 Anil Singhvi Chairman & Director DIN : 00239589 Nisha Dutt Director DIN : 06465957 per Rajeev Kumar Partner Membership No.: 213803 Place: Bengaluru Date: May 04, 2018 Poornima Kamalaksh Prabhu Director DIN: 03114937 Place: Bengaluru Date: May 04, 2018 Mehernaz Dalal Chief Financial Officer 132 | SUBEX LIMITED FORM AOC 1 (Information in respect of each subsidiary to be presented) Particulars Subex (Asia Pacific) Pte Ltd Subex (UK) Limited Subex Americas Inc Subex Inc. Name of the subsidiary Subex Technologies Ltd.*** Subex Middle East Reporting period of the subsidiary concerned March 31, 2018 March 31, 2018 March 31, 2018 March 31, 2018 March 31, 2018 March 31, 2018 (H in Lakhs) Subex Tech- nologies Inc^ Subex Assurance LLP Subex Digital LLP - - April 5, 2017 to March 31, 2018 INR April 5, 2017 to March 31, 2018 INR Reporting Currency Exchange rate as on the last date of relevant financial year in the case of foreign subsidiaries Share Capital/Partners Capital and current account Reserve & surplus Total Assets Total Liabilities Investments Turnover* Profit/(loss) before tax Profit/(loss) after tax Proposed Dividend % of Shareholding** Date of acquisition SGD GBP US$ US$ INR AED 49.82 92.28 65.17 65.17 1.00 17.75 1.00 1.00 3,986 41 49,806 - 500 27 (3,205) 1,661 880 - 2,992 (550) (654) - 100% June 23, 2006 5,576 13,903 8,286 4,482 16,398 (5,391) (5,308) - 100% June 23, 2006 (44,691) 5,544 429 1 851 6,266 6,264 - 100% April 1, 2007 (2,985) 2,631 5,616 - 9,353 128 86 - 100% June 23, 2006 (475) 87 62 - - 4 4 - 100% March 28, 2005 32 809 750 - 1,132 83 (14) - 100% March 25, 2015 - - - - - - - - - - - 62,200 1,271 - 77,493 15,293 21,476 12,813 1,125 635 - 100% April 5, 2017 - 1,780 509 - 33 (598) (598) - 100% April 5, 2017 ^ Liquidated during the year. * Turnover Includes Intercompany Transactions ** inlcuding % of holding either directly or indirectly through subsidiaries. *** Represents non-operating company. For and on behalf of the Board of Directors Vinod Kumar Padmanabhan Managing Director & CEO DIN : 06563872 Poornima Kamalaksh Prabhu Director DIN: 03114937 Place: Bengaluru Date: May 04, 2018 Anil Singhvi Chairman & Director DIN : 00239589 Mehernaz Dalal Chief Financial Officer Nisha Dutt Director DIN : 06465957 Annual Report 2017-18 | 133 INDEPENDENT AUDITOR’S REPORT To the Members of Subex Limited Report on the Consolidated Ind AS Financial Statements We have audited the accompanying Consolidated Ind AS Financial Statements of Subex Limited (hereinafter referred to as “the Holding Company”) and its subsidiaries (the Holding Company and its subsidiaries together referred to as “the Group”), comprising of the Consolidated Balance Sheet as at March 31, 2018, the Consolidated Statement of Profit and Loss including Other Comprehensive Income, the Consolidated Statement of Cash Flows, the Consolidated Statement of Changes in Equity for the year then ended, and a summary of significant accounting policies and other explanatory information (hereinafter referred to as “the Consolidated Ind AS Financial Statements”). Management’s Responsibility for the Consolidated Ind AS Financial Statements The Holding Company’s Board of Directors is responsible for the preparation of these Consolidated Ind AS Financial Statements in terms of the requirement of the Companies Act, 2013 (“the Act”) that give a true and fair view of the consolidated financial position, consolidated financial performance including other comprehensive income, consolidated cash flows and consolidated changes in equity of the Group in accordance with accounting principles generally accepted in India, including the Accounting Standards specified under section 133 of the Act, read with the Companies (Indian Accounting Standard) Rules, 2015, as amended. The respective Board of Directors of the Companies included in the Group are responsible for maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Group and for preventing and detecting frauds and other irregularities; the selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and the design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, 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, which have been used for the purpose of preparation of the Consolidated Ind AS Financial Statements by the Directors of the Holding Company, as aforesaid. 134 | SUBEX LIMITED Auditor’s Responsibility Our responsibility is to express an opinion on these Consolidated Ind AS Financial Statements based on our audit. While conducting the audit, we have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made thereunder. We conducted our audit in accordance with the Standards on Auditing, issued by the Institute of Chartered Accountants of India, as specified under section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the Consolidated Ind AS Financial Statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the Consolidated Ind AS Financial Statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the Consolidated Ind AS Financial Statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial controls relevant to the Holding Company’s preparation of the Consolidated Ind AS Financial Statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of the accounting estimates made by the Holding Company’s Board of Directors, as well as evaluating the overall presentation of the Consolidated Ind AS Financial Statements. We believe that the audit evidence obtained by us, is sufficient and appropriate to provide a basis for our audit opinion on the Consolidated Ind AS Financial Statements. Opinion In our opinion and to the best of our information and according to the explanations given to us, the aforesaid Consolidated Ind AS 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 of the consolidated state of affairs of the Group as at March 31, 2018, their consolidated profit including other comprehensive income, their consolidated cash flows and consolidated changes in equity for the year ended on that date. Report on Other Legal and Regulatory Requirements As required by section 143 (3) of the Act, we report, to the extent applicable, that: (a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit of the aforesaid Consolidated Ind AS Financial Statements; (b) In our opinion proper books of account as required by law relating to preparation of the aforesaid consolidation of the financial statements have been kept so far as it appears from our examination of those books; (c) The Consolidated Balance Sheet, Consolidated Statement of Profit and Loss including the Other Comprehensive Income, the Consolidated Statement of Cash Flows and the Consolidated Statement of Changes in Equity dealt with by this Report are in agreement with the books of account maintained for the purpose of preparation of the Consolidated Ind AS Financial Statements; (d) In our opinion, the aforesaid Consolidated Ind AS Financial Statements comply with the Accounting Standards specified under section 133 of the Act, read with Companies (Indian Accounting Standard) Rules, 2015, as amended; (e) On the basis of the written representations received from the directors of the Holding Company and its Subsidiary Company, which are incorporated in India as on March 31, 2018 taken on record by the Board of Directors of the Holding Company and its Subsidiary Company, none of the directors of the the Holding Company and its Subsidiary Company is disqualified as on March 31, 2018 from being appointed as a director in terms of Section 164 (2) of the Act. are incorporated in India, refer to our separate report in “Annexure I” to this report; and (g) With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us: i. ii. The Consolidated Ind AS Financial Statements disclose the impact of pending litigations on its consolidated financial position of the Group – Refer Note 34 (b) to the Consolidated Ind AS Financial Statements; The Company did not have any long-term contracts including derivative contracts for which there were any material foreseeable losses; and iii. There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Holding Company and its Subsidiary Company, which are incorporated in India during the year ended March 31, 2018. For S.R. Batliboi & Associates LLP Chartered Accountants ICAI Firm Registration Number: 101049W/E300004 per Rajeev Kumar Partner Membership Number: 213803 (f) With respect to the adequacy and the operating effectiveness of the internal financial controls over financial reporting of the Holding Company and its Subsidiary Company, which Place: Bengaluru Date: May 04, 2018 Annual Report 2017-18 | 135 Annexure 1 to the Independent Auditor’s Report of even date on the Consolidated Ind AS Financial Statements of Subex Limited Report on the Internal Financial Controls under clause (i) of sub-section 3 of Section 143 of the Companies Act, 2013 (“the Act”) We have audited the internal financial controls over financial Our audit involves performing procedures to obtain audit evidence reporting of Subex Limited (“the Holding Company”) and its about the adequacy of the internal financial controls over financial Subsidiary Company, which are incorporated in India, as of and for reporting and their operating effectiveness. Our audit of internal the year ended March 31, 2018 in conjunction with our audit of the financial controls over financial reporting included obtaining an Consolidated Ind AS Financial Statements of Subex Limited and its understanding of internal financial controls over financial reporting, Subsidiary Company as of and for the year then ended. assessing the risk that a material weakness exists, and testing and Management’s Responsibility for Internal Financial Controls The respective Board of Directors of the Holding Company and its Subsidiary Company, which are incorporated in India, are responsible for establishing and maintaining internal financial controls based on the internal financial controls over financial evaluating the design and operating effectiveness of internal controls based on the assessed risk. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the Consolidated Ind AS Financial Statements, whether due to fraud or error. reporting criteria established by the Holding Company and its We believe that the audit evidence, we have obtained is sufficient Subsidiary Company considering the essential components and appropriate to provide a basis for our audit opinion on the of internal control stated in the Guidance Note on Audit of Holding Company and its Subsidiary Company’s internal financial Internal Financial Controls Over Financial Reporting issued by controls over financial reporting. the Institute of Chartered Accountants of India (“the Guidance Note”). These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to the respective company’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Act. Auditor’s Responsibility Meaning of Internal Financial Controls Over Financial Reporting A company’s internal financial controls over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal financial controls over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the Company; (2) provide reasonable Our responsibility is to express an opinion on the Holding Company assurance that transactions are recorded as necessary to permit and its Subsidiary Company’s internal financial controls over preparation of the financial statements in accordance with financial reporting based on our audit. We conducted our audit generally accepted accounting principles, and that receipts and in accordance with the Guidance Note and the Standards on expenditures of the Company are being made only in accordance Auditing as specified under section 143(10) of the Act, to the with authorisations of management and directors of the Company; extent applicable to an audit of internal financial controls, both and (3) provide reasonable assurance regarding prevention or applicable to an audit of Internal Financial Controls and both issued timely detection of unauthorised acquisition, use or disposition by the Institute of Chartered Accountants of India. Those Standards of the Company’s assets that could have a material effect on the and the Guidance Note require that we comply with ethical financial statements. requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting were established and maintained and if such controls operated effectively in all material respects. Inherent Limitations of Internal Financial Controls Over Financial Reporting Because of the inherent limitations of internal financial controls over financial reporting, including the possibility of collusion 136 | SUBEX LIMITED or improper management override of controls, material by the Holding Company and its Subsidiary Company considering misstatements due to error or fraud may occur and not be detected. the essential components of internal controls stated in the Also, projections of any evaluation of the internal financial controls Guidance Note. over financial reporting to future periods are subject to the risk that the internal financial controls over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Opinion For S.R. Batliboi & Associates LLP Chartered Accountants ICAI Firm Registration Number: 101049W/E300004 In our opinion, the Holding Company and its Subsidiary Company, which are incorporated in India, have, maintained in all material respects, adequate internal financial controls over financial reporting and such internal financial controls over financial per Rajeev Kumar Partner Membership Number: 213803 reporting were operating effectively as at March 31, 2018 based Place: Bengaluru on the internal controls over financial reporting criteria established Date: May 04, 2018 Annual Report 2017-18 | 137 Consolidated balance sheet as at March 31, 2018 Notes As at March 31, 2018 As at March 31, 2017 (H in Lakhs) ASSETS Non-current assets Property, plant and equipment Goodwill on consolidation Other intangible assets Financial assets Loans Other balances with banks Other financial assets Income tax assets (net) Deferred tax assets Other non-current assets Current assets Financial assets Loans Trade receivables Cash and cash equivalents Other balances with banks Other financial assets Other current assets Total assets EQUITY AND LIABILITIES Equity Equity share capital Other equity Total equity Liabilities Non-current liabilities Provisions Deferred tax liabilities(net) Current liabilities Financial liabilities Borrowings Trade payables Other financial liabilities Other current liabilities Provisions Income tax liabilities (net) Total liabilities Total equity and liabilities 3 5 4 6 7 10 11 12 13 6 8 9 7 10 13 14 15 20 21 16 17 18 19 20 22 656 65,882 63 439 75 234 2,810 552 537 71,248 134 9,290 3,007 295 5,250 544 18,520 89,768 56,200 21,745 77,945 280 826 1,106 3,215 1,331 1,511 3,230 712 718 10,717 11,823 89,768 785 65,882 138 399 258 234 1,977 478 564 70,715 196 11,851 7,386 - 4,508 1,013 24,954 95,669 50,691 17,718 68,409 297 - 297 8,590 1,805 11,922 3,085 677 884 26,963 27,260 95,669 Corporate information and significant accounting policies The accompanying notes are an integral part of the consolidated financial statements 1 & 2 As per our report of even date For and on behalf of the Board of Directors For S.R. Batliboi & Associates LLP Chartered Accountants ICAI Firm registration number: 101049W/E300004 Vinod Kumar Padmanabhan Managing Director & CEO DIN : 06563872 per Rajeev Kumar Partner Membership No.: 213803 Place: Bengaluru Date: May 04, 2018 138 | SUBEX LIMITED Poornima Kamalaksh Prabhu Director DIN: 03114937 Place: Bengaluru Date: May 04, 2018 Anil Singhvi Chairman & Director DIN : 00239589 Mehernaz Dalal Chief Financial Officer Nisha Dutt Director DIN : 06465957 Consolidated statement of profit and loss for the year ended March 31, 2018 (H in Lakhs) Notes Year ended March 31, 2018 Year ended March 31, 2017 23 24 25 26 27 28 29 1 2 3 4 5 6 7 8 Income Revenue from operations Other income Total income Expenses Employee benefits expense Finance costs Depreciation and amortization expense Other expenses Total expenses Profit before exceptional items and tax expense (1-2) Exceptional items (net) Profit/ (loss) before tax expense (3+4) Tax expense (net)(refer note 22): Current tax (credit)/ charge Provision - foreign withholding taxes (net) MAT charge/ (credit) Deferred tax charge (net) Profit/ (loss) for the year (5-6) Other comprehensive income ('OCI'), net of tax expense Items that will be reclassified subsequently to profit or loss: Net exchange differences on translation of foreign operations Items that will not be reclassified subsequently to profit or loss: Re-measurement loss on defined benefit plans 9 Total comprehensive income for the year attributable to equity holders of the Company (7+8) 10 Basic and diluted earnings/ (loss) per equity share [nominal value of 30 share H 10 (March 31, 2017 : H 10)] Corporate information and significant accounting policies The accompanying notes are an integral part of the consolidated financial statements 1 & 2 As per our report of even date For and on behalf of the Board of Directors 32,432 140 32,572 17,471 775 517 11,534 30,297 2,275 1,166 3,441 (171) 789 53 702 1,373 2,068 (210) (30) (240) 1,828 35,733 1,154 36,887 15,871 2,040 495 10,953 29,359 7,528 (10,890) (3,362) 243 812 (94) - 961 (4,323) (1,344) (32) (1,376) (5,699) 0.37 (0.85) For S.R. Batliboi & Associates LLP Chartered Accountants ICAI Firm registration number: 101049W/E300004 Vinod Kumar Padmanabhan Managing Director & CEO DIN : 06563872 Anil Singhvi Chairman & Director DIN : 00239589 Nisha Dutt Director DIN : 06465957 per Rajeev Kumar Partner Membership No.: 213803 Place: Bengaluru Date: May 04, 2018 Poornima Kamalaksh Prabhu Director DIN: 03114937 Place: Bengaluru Date: May 04, 2018 Mehernaz Dalal Chief Financial Officer Annual Report 2017-18 | 139 Consolidated statement of changes in equity for the year ended March 31, 2018 A. Equity share capital (refer note 14): Equity shares of H 10 each issued, subscribed and fully paid-up As at April 1, 2016 Issued during the year - Conversion of FCCBs As at March 31, 2017 Issued during the year - Preferential issue of equity shares** As at March 31, 2018 B. Other equity (refer note 15): No. H in Lakhs 502,811,646 4,096,290 506,907,936 55,094,999 562,002,935 50,281 410 50,691 5,509 56,200 (H in Lakhs) Attributable to equity holders of the Company Reserves and surplus General reserve Securities premium Employee stock options reserve Equity component of compound financial instruments 259 - - (54) Particulars 1,780 - - - - - 1,780 - - - - - 205 - - 24,378 - - 123 As at April 1, 2016 Less: Loss for the year Less: Other comprehensive income Add/ (less): On account of conversion of FCCBs Less: Compensation on ESOP cancelled/lapsed during the year Add: Deferred stock compensation expenses As at March 31, 2017 Add: Profit for the year Less: Other comprehensive income Add: Other comprehensive income - Foreign currency translation reserve gain on liquidation of subsidiary [refer note 29(b)(ii)] Add/ (less): On account of repayment of FCCBs* Add: Additions during the year on account of preferential issue of equity shares** Less: Compensation on ESOP cancelled/lapsed during the year - Add: Deferred stock compensation expenses As at March 31, 2018 26,705 Corporate information and significant accounting policies (refer notes 1 & 2) The accompanying notes are an integral part of the standalone financial statements - 24,501 - - 2,204 (205) - - - - - - - - - 1,780 - - - - OCI Exchange reserve on consolidation Total Surplus / (deficit) in the state- ment of profit and loss 6,935 (4,323) (32) 256 - - 2,836 2,068 (30) (10,267) - (1,344) - 23,101 (4,323) (1,376) 325 - (9) - (11,611) - (1,376) - 17,718 2,068 (1,406) - 1,166 1,166 205 - - - - - - 2,204 (5) - 5,079 - (11,821) - 21,745 16 - - - (9) - 7 - - - - - (5) - 2 *Upon repayment of FCCBs, the residual portion of equity component of compound financial instrument in relation to the same, has been transferred to surplus/ (deficit) in the statement of profit and loss. **refer note 14(e) on preferential issue of equity shares. As per our report of even date For and on behalf of the Board of Directors For S.R. Batliboi & Associates LLP Chartered Accountants ICAI Firm registration number: 101049W/E300004 Vinod Kumar Padmanabhan Managing Director & CEO DIN : 06563872 per Rajeev Kumar Partner Membership No.: 213803 Place: Bengaluru Date: May 04, 2018 140 | SUBEX LIMITED Poornima Kamalaksh Prabhu Director DIN: 03114937 Place: Bengaluru Date: May 04, 2018 Anil Singhvi Chairman & Director DIN : 00239589 Mehernaz Dalal Chief Financial Officer Nisha Dutt Director DIN : 06465957 (H in Lakhs) Year ended March 31, 2018 Year ended March 31, 2017 3,441 (3,362) Consolidated statement of cash flows for the year ended March 31, 2018 (A) Operating activities Profit/ (loss) before tax expense Adjustments to reconcile profit/ (loss) before tax expense to net cash flows: Depreciation of property, plant and equipment Amortization of intangible assets Gain on disposal of property, plant and equipment (net) Interest income (including fair value changes) Finance costs (including fair value changes) Provision for doubtful debts and advances (net of reversal) Impairment of goodwill (exceptional item) 439 78 - (54) 775 (32) - Foreign currency translation reserve gain on liquidation of subsidiary (exceptional item) (1,166) Write back of withholding taxes paid earlier Amortised cost of deposits Fair value change in financial instruments Net foreign exchange differences Operating profit before working capital changes Working capital adjustments: (Increase)/decrease in loans (Increase)/decrease in trade receivables (Increase)/decrease in other financial assets (Increase)/decrease in other assets Increase/ (decrease) in trade payables Increase/ (decrease) in other financial liabilities Increase/ (decrease) in other current liabilities Increase/ (decrease) in provisions Income tax paid (including TDS, net of refund) Net cash flows from operating activities (B) Investing activities Purchase of property, plant and equipment Purchase of intangible assets Proceeds from sale of property, plant and equipment Movement in deposits (net) Interest received Net cash flows used in investing activities (30) 50 (62) 250 3,689 43 2,943 (395) 488 (421) 211 381 52 6,991 (1,626) 5,365 (285) (2) 2 (95) 31 (349) 459 36 (1) (63) 2,040 1,203 10,890 - (1,037) 53 21 (320) 9,919 (32) (2,745) (2,174) (308) 193 (159) 1,928 8 6,630 (1,238) 5,392 (604) (92) 2 (29) 20 (703) Annual Report 2017-18 | 141 Consolidated statement of cash flows for the year ended March 31, 2018 (C) Financing activities Movement in working capital loans (net) Interest paid Preferential issue of equity shares Repayment of term loans Repayment of borrowings (FCCBs) Net cash flows used in financing activities (D) Net decrease in cash and cash equivalents (A+B+C) Net foreign exchange difference Cash and cash equivalents at the beginning of the year (E) Cash and cash equivalents at year end (refer note 9) Corporate information and significant accounting policies (refer notes 1 & 2) The accompanying notes are an integral part of the consolidated financial statements (H in Lakhs) Year ended March 31, 2018 Year ended March 31, 2017 (5,424) (1,255) 7,713 (7,782) (2,336) (9,084) (4,068) (311) 7,386 3,007 (1,981) (1,258) - - (2,249) (5,488) (799) (415) 8,600 7,386 As per our report of even date For and on behalf of the Board of Directors For S.R. Batliboi & Associates LLP Chartered Accountants ICAI Firm registration number: 101049W/E300004 Vinod Kumar Padmanabhan Managing Director & CEO DIN : 06563872 Anil Singhvi Chairman & Director DIN : 00239589 Nisha Dutt Director DIN : 06465957 per Rajeev Kumar Partner Membership No.: 213803 Place: Bengaluru Date: May 04, 2018 Poornima Kamalaksh Prabhu Director DIN: 03114937 Place: Bengaluru Date: May 04, 2018 Mehernaz Dalal Chief Financial Officer 142 | SUBEX LIMITED Notes to the consolidated financial statements for the year ended March 31, 2018 1. Corporate information Subex Limited (“the Company” or “Subex” or “holding company”) 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 Centre (“ROC”) – a centralized approach that sustains profitable growth and financial health for the CSPs through coordinated operational control. Subex’s product portfolio powers the ROC and its best- in-class solutions enable new service creation, operational transformation, subscriber-centric fulfilment, provisioning automation, data integrity management, revenue assurance, cost management, fraud management and interconnect/ inter-party settlement. Subex also offers a scalable Managed Services Program. The CSPs achieve competitive advantage through Business Optimization and Service Agility and improve their operational efficiency to deliver enhanced service experiences to their subscribers. The Company has its registered office in Bengaluru and operates through its subsidiaries in India, USA, UK, Singapore, Canada and UAE and branches in USA, UK, Canada, Australia, Italy, UAE and Saudi Arabia. Effective November 1, 2017, the Company has restructured its business by way of transfer of its Revenue Maximisation Solutions and related businesses (“RMS business”) and the Subex Secure and Analytics solutions and related businesses (“Digital business”) to its newly formed subsidiaries, Subex Assurance LLP (“SA LLP”) and Subex Digital LLP (“SD LLP”) (together referred to as “LLPs”), respectively, hereinafter referred to as the “Restructuring” to achieve amongst other aspects, segregation of the Company’s business into separate verticals to facilitate greater focus on each business vertical, higher operational efficiencies, and to enhance the Company’s ability to enter into business specific partnerships and attract strategic investors at respective business levels, with an overall objective of enhancing shareholder value. Also, refer note 31 in this regard. These consolidated financial statements for the year ended March 31, 2018 comprise financial statements of Subex Limited and its subsidiaries (collectively hereafter referred to as “the Group”). These consolidated financial statements for the year ended March 31, 2018 are approved by the Board of Directors on May 04, 2018. Following subsidiaries have been considered in the preparation of the consolidated financial statements: Name of the subsidiary Country of incorporation Subex Americas Inc. Subex (UK) Limited* Subex Inc. Subex (Asia Pacific) Pte. Limited Subex Middle East, FZE* Subex Technologies Limited** Subex Technologies Inc. ^ Subex Azure Holdings Inc.** Subex Assurance LLP*** Subex Digital LLP*** Canada United Kingdom United States of America Singapore United Arab Emirates India United States of America United States of America India India % of holding and voting power either directly or indirectly through subsidiaries as at March 31, 2018 March 31, 2017 100 100 100 100 100 100 - 100 100 100 100 100 100 100 100 100 100 100 - - *Pursuant to restructuring, the Company has transferred its investment in Subex (UK) Limited and Subex Middle East, FZE to Subex Assurance LLP w.e.f November 1, 2017. Refer above and note 31. **Represents non-operating companies. ***Incorporated/ registered on April 5, 2017. ^ Liquidated during the current year. All the above subsidiaries are under the same management and are engaged in the same principle activities as the holding company. Annual Report 2017-18 | 143 Notes to the consolidated financial statements for the year ended March 31, 2018 2. Significant accounting policies a. Basis of preparation The consolidated financial statements of the Group have been prepared and presented in accordance with accounting principles generally accepted in India including Indian Accounting Standards (Ind AS) specified under Section 133 of the Companies Act, 2013 read with Companies (Indian Accounting Standards) Rules 2015 (as amended from time to time). The consolidated financial statements have been prepared on a historical cost basis, except for certain financial instruments which are measured at fair value at the end of each reporting period, as explained further in the accounting policies below. The consolidated financial statements are presented in INR (“H”) and all the values are rounded off to the nearest Lakhs (INR 00,000) except when otherwise indicated. b. Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at March 31, 2018 as disclosed in Note 1. Control exists when the parent has: • • • Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee) Exposure or rights, to variable returns from its involvement with the investee, and The ability to use its power over the investee to affect its returns. The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. If a member of the group uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to that group member’s financial statements in preparing the consolidated financial statements to ensure conformity with the group’s accounting policies. The financial statements of all entities used for the purpose of consolidation are drawn up to same reporting date as that of the parent company, i.e., year ended on March 31. When the end of the reporting period of the parent is different from that of a subsidiary, the subsidiary prepares, for consolidation purposes, additional financial information as of the same date as the financial statements of the parent, to enable the parent to consolidate the financial information of the subsidiary, unless it is impracticable to do so. Consolidation procedure: i. Combine like items of assets, liabilities, income, expenses and cash flows of the parent with those of its subsidiaries. For this purpose, income and expenses of the subsidiary are based on the amounts of the assets and liabilities recognised in the consolidated financial statements at the acquisition date. ii. Offset (eliminate) the carrying amount of the parent’s investment in each subsidiary and the parent’s portion of equity of each subsidiary. The excess of cost to the Company of its investments in the subsidiary companies over its share of equity of the subsidiary companies, at the date on which the investment in the subsidiaries were made, is recognised as ‘Goodwill’ being an intangible asset in the consolidated financial statements and is tested for an impairment on an annual basis. On the other hand, where the share of equity in the subsidiary companies as on the date of investment is in excess of cost of investments of the Company, it is recognised as ‘Capital Reserve’ and shown in ‘Other Equity’, in the consolidated financial statements. The ‘Goodwill’ is determined separately for each subsidiary company and such amounts are not set off between different entities. iii. Eliminate in full intragroup assets and liabilities, income, expenses and cash flows relating to transactions between entities of the group (profits or losses resulting from intragroup transactions that are recognised in assets, such as inventory and fixed assets, are eliminated in full). Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group. 144 | SUBEX LIMITED Notes to the consolidated financial statements for the year ended March 31, 2018 c. Use of estimates, assumptions and judgements The preparation of the consolidated financial statements in conformity with Ind AS requires the management to make estimates, judgements and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities on the date of the consolidated financial statements and the reported amounts of revenues and expenses for the year reported. Actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimates are revised and future periods are affected. Key source of estimation of uncertainty as at the date of consolidated financial statements, which may cause a material adjustment to the carrying amounts of assets and liabilities within the next financial year, is in respect of the following: Revenue recognition The Group uses the percentage of completion method in accounting for revenue from implementation and customisation projects. Use of the percentage of completion method requires the Group to estimate the completed efforts as a proportion of the total efforts. Efforts have been used to measure progress towards completion as there is a direct relationship between input and productivity. Provisions for estimated losses, if any, on uncompleted contracts are recorded in the year in which such losses become probable based on the expected contract estimates at the reporting date. Impairment of non-financial assets Impairment exists when the carrying value of an asset or cash generating unit (“CGU”) exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions, conducted at arm’s length, for similar assets or observable market prices less incremental costs for disposing of the asset. The value in use calculation is based on a discounted cash flow (“DCF”) model. The cash flows are derived from the budget for future years and do not include restructuring activities that the Group is not yet committed to or significant future investments that will enhance the asset’s performance of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. These estimates are most relevant to goodwill recognized by the Group. The key assumptions used to determine the recoverable amount for the different CGUs, are disclosed and further explained in note 5. Impairment of financial assets In accordance with Ind AS 109, the Group assesses impairment of financial assets (‘Financial instruments’) and recognises expected credit losses, which are measured through a loss allowance. The Group provides for impairment of trade receivables and unbilled revenue based on assumptions about risk of default and expected timing of collection. The Group uses judgement in making these assumptions and selecting inputs to the impairment calculation, based on the Group’s past history, customer’s creditworthiness, existing market conditions as well as forward looking estimates at the end of each reporting period. Also, refer note 2(j). Defined benefit plans The cost of the defined benefit gratuity plan and other post-employment benefits and the present value of the gratuity obligation is determined using actuarial valuation. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date (refer note 36). The parameter most subject to change is the discount rate. In determining the appropriate discount rate for plans operated in India, the management considers the interest rates of government bonds in currencies consistent with the currencies of the post-employment benefit obligation. The mortality rate is based on publicly available mortality tables. These mortality tables tend to change only at interval in response to demographic changes. Future salary increases and gratuity increases are based on expected future inflation rates. Fair Value measurement of financial instruments When the fair values of financial assets and financial liabilities recorded in the consolidated balance sheet cannot be measured based on quoted prices in active markets, their fair value is measured using internal valuation techniques. The inputs to these models are Annual Report 2017-18 | 145 Notes to the consolidated financial statements for the year ended March 31, 2018 taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. Also refer note 2(l). Share-based payments Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in note 35. Taxes The Group’s two major tax jurisdictions are India and the United Kingdom, though the Group also files tax returns in other foreign jurisdictions. Significant judgments are involved in determining the provision for income taxes and tax credits including the amount expected to be paid or refunded. Also refer note 2(r) and note 21. d. Current/ non-current classification The Group presents assets and liabilities in the consolidated balance sheet based on current/ non-current classification. An asset is treated as current when it is: • • • • Expected to be realised or intended to be sold or consumed in normal operating cycle Held primarily for the purpose of trading Expected to be realised within twelve months after the reporting period, or Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period All other assets are classified as non-current. A liability is current when: • • • It is expected to be settled in normal operating cycle It is due to be settled within twelve months after the reporting period, or There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period The Group classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non-current assets and liabilities, respectively. The operating cycle is the time between the acquisition of assets for processing and their realisation in cash and cash equivalents. The group has identified twelve months as its operating cycle. e. Business combination and goodwill Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. After initial recognition, Goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. A cash generating unit to which goodwill has been allocated is tested for impairment annually as at March 31 or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised in the consolidated statement of profit and loss. An impairment loss recognised for goodwill is not reversed in subsequent periods. 146 | SUBEX LIMITED Notes to the consolidated financial statements for the year ended March 31, 2018 f. Revenue recognition The Group derives its revenues primarily from sale and implementation of its license and implementation of its proprietary software and managed/ support services. Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment. The following specific recognition criteria must also be met before revenue is recognised: Revenues from licensing arrangements is recognized on transfer of the title in user licenses, except those contracts where transfer of title is dependent upon rendering of significant implementation and other services by the Group, in which case revenue is recognized over the implementation period in accordance with the specific terms of the contracts with clients. Revenue from implementation and customisation services is recognised using the percentage of completion method. Percentage of completion is determined on the basis of completed efforts against the total estimated efforts, which represent the fair value of services rendered. Revenue from managed/ support services comprise income from fixed price contracts, time-and-material contracts and annual maintenance contracts. Revenue from fixed price contracts is recognized over the period of the contracts using the percentage of completion method. Revenue from time and material contracts is recognized when the services are rendered in accordance with the terms of contracts. Revenue from annual maintenance contracts is recognised rateably over the period of the contracts. Revenue from sale of hardware under reseller arrangements is recognized when all the significant risks and rewards of ownership of the goods have been passed to the buyer, usually on delivery of goods to customers. Revenue is shown as net of sales tax, value added tax, other taxes and applicable discounts. In case of multiple element arrangements for sale of software license, related implementation and maintenance services the Group has applied the guidance in Ind AS 18, by applying the revenue recognition criteria for each separately identifiable component of a single transaction. The arrangements generally meet the criteria for considering the sale of software license, related implementation and maintain services as separately identifiable components. For allocating the consideration, the Group has measured the revenue in respect of each separable component of a transaction at its fair value, in accordance with principles given in Ind AS 18. The price that is regularly charged for an item when sold separately is the best evidence of its fair value. In cases where the Group is unable to establish objective and reliable evidence of fair value for the aforesaid services, the Group has used a residual method to allocate the arrangement consideration. In these cases the balance of the consideration, after allocating the fair values of undelivered components of a transaction has been allocated to the delivered components for which specific fair values do not exist. The Group collects Goods and Service tax and other taxes as applicable in the respective tax jurisdictions where the group operates, on behalf of the government and therefore it is not an economic benefit flowing to the Group. Hence it is excluded from revenue. Provisions for estimated losses on contracts are recorded in the period in which such losses become probable based on the current contract estimates. ‘Unbilled revenue’ included in other financial assets represent revenues in excess of amounts billed to clients as at the balance sheet date. ‘Unearned revenue’ included in other current liabilities represent billings in excess of revenues recognized. Interest Interest income is recognized as it accrues in the consolidated statement of profit and loss using effective interest rate method. g. Property, plant and equipment Plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. The cost comprises purchase price, borrowing costs if capitalization criteria are met, directly attributable cost of bringing the plant and equipment to its working condition for the intended use and cost of replacing part of the plant and equipment. When significant parts of plant and equipment are required to be replaced at intervals, the Group depreciates them separately based on their specific useful lives. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognised in the consolidated statement of profit and Annual Report 2017-18 | 147 Notes to the consolidated financial statements for the year ended March 31, 2018 loss, as incurred. The present value of the expected cost for the decommissioning of an asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met. Gains or losses arising from derecognition of the assets are measured as the difference between the net disposal proceeds and the carrying amounts of the assets and are recognized in the consolidated statement of profit and loss when the assets are derecognized. h. Intangible assets (excluding goodwill on consolidation) Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses. Internally generated intangibles, excluding capitalised development costs, are not capitalised and the related expenditure is reflected in the consolidated statement of profit and loss in the period in which the expenditure is incurred. Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortization period or method, as appropriate, and are treated as changes in accounting estimates. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the consolidated statement of profit and loss when the asset is derecognised. i. Depreciation and amortization Depreciation of property, plant and equipment and amortization of intangible assets with finite useful lives is calculated on a straight- line basis over the useful lives of the assets estimated by the management, basis technical assessment: The Group has used the following useful lives to provide depreciation on plant and equipment and amortization of intangible assets: Assets Computer hardware Furniture and fixtures Vehicles Office equipment Computer software Useful life 3 years 5 years 5 years 5 years 4 years The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate. j. Impairment Financial Assets The Group assesses at each date of balance sheet whether a financial asset or a group of financial assets is impaired. Ind AS 109 (‘Financial instruments’) requires expected credit losses to be measured through a loss allowance. The Group recognises lifetime expected losses for all contract assets and/ or all trade receivables that do not constitute a financing transaction. For all other financial assets, expected credit losses are measured at an amount equal to the 12-month expected credit losses or at an amount equal to the life time expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. Impairment of non-financial assets Non-financial assets including Property, plant and equipment and intangible assets with finite life are evaluated for recoverability whenever there is any indication that their carrying amounts may not be recoverable. If any such indication exists, the recoverable amount (i.e. higher of the fair value less cost to sell and the value-in-use) is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. In such cases, the recoverable amount is determined for the CGU to which the asset belongs. 148 | SUBEX LIMITED Notes to the consolidated financial statements for the year ended March 31, 2018 If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. An impairment loss is recognised in the consolidated statement of profit and loss. For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the consolidated statement of profit and loss unless the asset is carried at a revalued amount, in which case, the reversal is treated as a revaluation increase. k. Leases The determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement. Group as a lessee: A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the risks and rewards incidental to ownership to the Group is classified as a finance lease. Finance leases are capitalised at the commencement of the lease at the inception date at fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the consolidated statement of profit and loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Group’s general policy on the borrowing costs. A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. Operating lease payments are recognised as an expense in the consolidated statement of profit and loss on a straight-line basis over the lease term unless the lease escalations are linked to inflation, in such a case the lease expense is recognised as per the terms of the lease arrangement. l. Financial instruments A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets and liabilities are recognised when the Group becomes a party to the contract that gives rise to financial assets and liabilities. Financial assets and liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value measured on initial recognition of financial asset or financial liability. Cash and cash equivalents The Group considers all highly liquid financial instruments, which are readily convertible into known amounts of cash that are subject to an insignificant risk of change in value and having original maturities of three months or less from the date of purchase, to be cash equivalents. Cash and cash equivalents consist of balances with banks which are unrestricted for withdrawal and usage. Financial assets at amortized cost Financial assets are subsequently measured at amortized cost if these financial assets are held within a business whose objective is to hold these assets in order to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates Annual Report 2017-18 | 149 Notes to the consolidated financial statements for the year ended March 31, 2018 to cash flows that are solely payments of principal and interest on the principal amount outstanding. Financial assets at fair value through other comprehensive income Financial assets are measured at fair value through other comprehensive income if these financial assets are held within a business whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Financial assets at fair value through profit or loss Financial assets are measured at fair value through profit or loss unless it is measured at amortized cost or at fair value through other comprehensive income on initial recognition. The transaction costs directly attributable to the acquisition of financial assets at fair value through profit or loss are immediately recognised in the consolidated statement of profit and loss. Financial liabilities Financial liabilities are subsequently carried at amortized cost using the effective interest method, except for contingent consideration recognized in a business combination which is subsequently measured at fair value through profit or loss. For trade and other payables maturing within one year from the balance sheet date, the carrying amounts approximate fair value due to the short maturity of these instruments. Derecognition of financial assets and liabilities The Group derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for derecognition under Ind AS 109. A financial liability (or a part of a financial liability) is derecognized when the obligation specified in the contract is discharged or cancelled or expires. When an existing financial asset/ liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit and loss. Embedded derivatives If the hybrid contract contains a host that is a financial asset within the scope of Ind AS 109, the group does not separate embedded derivatives. Rather, it applies the classification requirements contained in Ind AS 109 to the entire hybrid contract. Derivatives embedded in all other host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value though profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in profit or loss, unless designated as effective hedging instruments. Compound financial instruments Compound financial instruments in the form of Foreign Currency Convertible Bonds are separated into liability and equity components based on the terms of the contract. On issuance of the Foreign Currency Convertible Bonds, the fair value of the liability component is determined using a market rate for an equivalent non-convertible instrument. This amount is classified as a financial liability measured at amortized cost (net of transaction costs) until it is extinguished on conversion or redemption. The remainder of the proceeds is allocated to the conversion option that is recognised and included in other equity since conversion option meets Ind AS 32 criteria for fixed to fixed classification. Transaction costs are deducted from other equity, net of associated income tax. The carrying amount of the conversion option is not remeasured in subsequent years. Transaction costs are apportioned between the liability and equity components of the Foreign Currency Convertible Bonds based on the allocation of proceeds to the liability and equity components when the instruments are initially recognised. Reclassification of financial assets The group determines classification of financial assets and liabilities on initial recognition. After initial recognition, no reclassification is made for financial assets which are equity instruments and financial liabilities. For financial assets which are debt instruments, a reclassification is made only if there is a change in the business model for managing those assets. Changes to the business model are expected to be infrequent. The group’s senior management determines change in the business model as a result of external 150 | SUBEX LIMITED Notes to the consolidated financial statements for the year ended March 31, 2018 or internal changes which are significant to the group’s operations. Such changes are evident to external parties. A change in the business model occurs when the group either begins or ceases to perform an activity that is significant to its operations. If the group reclassifies financial assets, it applies the reclassification prospectively from the reclassification date which is the first day of the immediately next reporting period following the change in business model. The group does not restate any previously recognised gains, losses (including impairment gains or losses) or interest. Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the consolidated balance sheet if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously. Fair value of financial instruments In determining the fair value of its financial instruments, the Group uses following hierarchy and assumptions that are based on market conditions and risks existing at each reporting date. Fair value hierarchy All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities. Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable. Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. For assets and liabilities that are recognised in the consolidated financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. m. Borrowing cost Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Borrowing cost also includes exchange differences to the extent regarded as an adjustment to the borrowing costs. n. Consolidated statement of cash flows Cash flows are reported using the indirect method, whereby profit/ (loss) for the period is adjusted for the effects of transactions of a non-cash nature or any deferrals or accruals of past or future operating cash receipts or payments and item of income or expenses associated with investing or financing cash flows. The cash flows from operating, investing and financing activities of the Group are segregated. o. Employee share based payments The Group measures compensation cost relating to employee stock options plans using the fair valuation method in accordance with Ind AS 102, Share-Based Payment. Compensation expense is amortized over the vesting period of the option on a straight line basis. The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model (Black-Scholes valuation model). That cost is recognised, together with a corresponding increase in employee stock options reserves in other equity, over the period in which the performance and/or service conditions are fulfilled in employee benefits expense. The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The dilutive effect of outstanding options is reflected as additional share dilution in the computation of diluted earnings per share. Annual Report 2017-18 | 151 Notes to the consolidated financial statements for the year ended March 31, 2018 p. Employee benefits Employee benefits include provident fund, pension fund, employee state insurance, gratuity and compensated absences. Defined contribution plans Contributions payable to recognized provident funds and employee state insurance which are defined contribution schemes, are charged to the consolidated statement of profit and loss. Defined benefit plans Gratuity, which is a defined benefit plan, is accrued based on an independent actuarial valuation, which is done based on project unit credit method as at the balance sheet date. The Group recognizes the net obligation of a defined benefit plan in its balance sheet as an asset or liability. Gains and losses through re-measurements of the net defined benefit liability/ (asset) are recognized in other comprehensive income. In accordance with Ind AS, re-measurement gains and losses on defined benefit plans recognised in OCI are not to be subsequently reclassified to the consolidated statement of profit and loss. As required under Ind AS compliant Schedule III, the Group transfers it immediately to ‘Surplus/ (deficit) in the statement of profit loss’. Short-term employee benefits 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. Compensated absences, which are expected to be utilised within the next 12 months, are treated as short-term employee benefits. The Group measures the expected cost of such absences as the additional amount that it expects to pay as a result of the unused entitlement that has accumulated at the reporting date. Long-term employee benefits Compensated absences which are not expected to occur within twelve months after the end of the period in which the employees render the related services are treated as long-term employee benefits for measurement purpose. Such long-term compensated absences are provided for based on the actuarial valuation using the projected unit credit method at the year end, less the fair value of the plan assets out of which the obligations are expected to be settled. Actuarial gains/ losses are immediately taken to the consolidated statement of profit and loss and are not deferred. The Group presents the entire compensated absences balance as a current liability in the consolidated balance sheet, since it does not have an unconditional right to defer its settlement for twelve months after the reporting date. q. Foreign currencies The Group’s consolidated financial statements are presented in INR, which is also the parent company’s functional currency. For each entity the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency. The functional currency of the Company and its Indian subsidiaries is Indian Rupee whereas the functional currency of foreign subsidiaries is the currency of their countries of domicile. Foreign currency transactions are initially recorded in the functional currency of the Company by applying exchange rates prevailing on the date of the transaction. For practical reasons, the Company uses an average rate if the average approximates the actual rate at the date of the transaction. Foreign currency denominated monetary assets and liabilities are restated into the functional currency using exchange rates prevailing on the balance sheet date. Gains and losses arising on settlement and restatement of foreign currency denominated monetary assets and liabilities are included in the consolidated statement of profit and loss. Assets and liabilities of entities with functional currency other than presentation currency have been translated to the presentation currency using exchange rates prevailing on the balance sheet date. The statement of profit and loss have been translated using weighted average exchange rates. The exchange differences arising on translation for consolidation are recognised in OCI as ‘Exchange reserve on consolidation’. On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is recognised in the consolidated statement of profit and loss. 152 | SUBEX LIMITED Notes to the consolidated financial statements for the year ended March 31, 2018 r. Taxes on income Income tax expense comprises current tax expense and the net change in the deferred tax asset or liability during the year. Current and deferred tax are recognised in the consolidated statement of profit and loss, except when they relate to items that are recognised in other comprehensive income or directly in other equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in other equity, respectively. Current income tax Current income tax for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the taxable income for that period. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date. Deferred income tax Deferred income tax is recognised using the balance sheet approach, deferred tax is recognized on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, except when the deferred income tax arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and affects neither accounting nor taxable profit or loss at the time of the transaction. Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Deferred income taxes are not provided on the undistributed earnings of subsidiaries and branches where it is expected that the earnings of the subsidiary or branch will not be distributed in the foreseeable future. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Deferred tax assets include Minimum Alternative Tax (“MAT”) paid in accordance with the tax laws in India, which is likely to give future economic benefits in the form of availability of set off against future income tax liability. Accordingly, MAT is recognized as deferred tax asset in the consolidated balance sheet when the asset can be measured reliably and it is probable that the future economic benefit associated with the asset will be realized. s. Provision and contingencies A provision is recognized when an enterprise has a present obligation (legal or constructive) as a result of past event 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 of the amount of the obligation. If the effect of time value of money is material, provision is discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. Provisions for onerous contracts, i.e. contracts where the expected unavoidable costs of meeting obligations under a contract exceed the economic benefits expected to be received, are recognized when it is probable that an outflow of resources embodying economic benefits will be required to settle a present obligation as a result of an obligating event, based on a reliable estimate of such obligation. A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the Group or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The Group does not recognize a contingent liability but discloses its existence in the consolidated financial statements. Annual Report 2017-18 | 153 Notes to the consolidated financial statements for the year ended March 31, 2018 t. Earnings/ (loss) per share Basic earnings/ (loss) per share is computed by dividing the profit/ (loss) after tax attributable to the equity holders of the Group 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 as adjusted for dividend, interest (net of any attributable taxes) 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 or increase the net loss per share. 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. u. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The Group 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. The analysis of geographical segments is based on the areas in which major operating divisions of the Group operate. 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 the segments on the basis of their relationship to the operating activities of the segment. Common allocable costs are allocated to each segment according to the relative contribution of each segment to the total common costs. Revenue, expenses, assets and liabilities which relate to the Group as a whole and are not allocable to segments on a reasonable basis have been included under ‘unallocated revenue/ expenses/ assets/ liabilities’. 154 | SUBEX LIMITED Notes to the consolidated financial statements for the year ended March 31, 2018 3. Property, plant and equipment Computer equipment Furniture and fixtures Vehicles Office equipment 915 569 (1) (11) 1,472 267 (14) 27 1,752 350 430 - (10) 770 410 (12) 3 1,171 702 581 23 11 - (1) 33 1 - 2 36 5 7 - - 12 6 - - 18 21 18 1 11 - - 12 1 - - 13 - 2 - - 2 2 - - 4 10 9 85 12 - (4) 93 16 (2) 3 110 21 20 - - 41 21 - - 62 52 48 (H in Lakhs) Total 1,024 603 (1) (16) 1,610 285 (16) 32 1,911 376 459 - (10) 825 439 (12) 3 1,255 785 656 Cost As at April 1, 2016 Additions Disposals Exchange differences As at March 31, 2017 Additions Disposals Exchange differences As at March 31, 2018 Depreciation As at April 1, 2016 Charge for the year Disposals Exchange differences As at March 31, 2017 Charge for the year Disposals Exchange differences As at March 31, 2018 Net block As at March 31, 2017 As at March 31, 2018 4. Intangible assets Cost As at April 1, 2016 Additions Disposals Exchange differences As at March 31, 2017 Additions Disposals Exchange differences As at March 31, 2018 Amortization As at April 1, 2016 Amortization for the year Disposals Exchange differences As at March 31, 2017 Amortization for the year Disposals Exchange differences As at March 31, 2018 Net block As at March 31, 2017 As at March 31, 2018 Note: Refer note 16 for the assets given on security. Computer software (H in Lakhs) Total 131 92 - - 223 2 - 1 226 49 36 - - 85 78 - - 163 138 63 131 92 - - 223 2 - 1 226 49 36 - - 85 78 - - 163 138 63 Annual Report 2017-18 | 155 Notes to the consolidated financial statements for the year ended March 31, 2018 5. Goodwill on consolidation Following is the movement of carrying value of Goodwill: Carrying value as per last financial statement Less: Impairment of goodwill [refer note 29 (i)] Closing balance Below is the Cash Generating Unit (‘CGU’) wise break-up of goodwill: Revenue Management Solutions ('RMS') Data Integrity Management ('DIM') As at March 31, 2018 65,882 - 65,882 As at March 31, 2018 62,156 3,726 65,882 (H in Lakhs) As at March 31, 2017 76,772 (10,890) 65,882 (H in Lakhs) As at March 31, 2017 62,156 3,726 65,882 Goodwill impairment testing The Group tests whether goodwill has suffered any impairment on an annual basis as at March 31. The recoverable amount of a CGU is determined based on value-in-use calculations which require the use of assumptions. The calculations use cash flow projections based on financial budgets approved by the management. An average of the range of each assumption used is mentioned below: Growth rate Operating margins Discount rate As at March 31, 2018 7% to 31% 24% to 36% 12% to 14% As at March 31, 2017 8% to 28% 23% to 29% 13% to 14% The above discount rate is based on the Weighted Average Cost of Capital (WACC) which represents the weighted average return attributable to all the assets of the CGU. These estimates are likely to differ from future actual results of operations and cash flows. As at March 31, 2018, the Group assessed the carrying value of its goodwill along with the carrying value of related CGUs, based on future operational plan, projected cash flows and valuation carried out by an external valuer. Considering the aforesaid valuation, the management is of the view that, the carrying value of its goodwill as at March 31, 2018 is appropriate. As at March 31, 2017, the Company had recognized a loss on impairment of goodwill related to its RMS CGU of H 4,880 Lakhs and DIM CGU of H 6,010 Lakhs. Also, refer note 29(i). Loans 6. (Unsecured, considered good) Carried at amortized cost Non-Current Security deposits Current Loans and advances to employees 156 | SUBEX LIMITED As at March 31, 2018 (H in Lakhs) As at March 31, 2017 439 439 134 134 399 399 196 196 Notes to the consolidated financial statements for the year ended March 31, 2018 7. Other balances with banks Non-current Other bank balances (refer note 9) Margin money deposits Current Other bank balances (refer note 9) Margin money deposits 8. Trade receivables Unsecured Carried at amortized cost Non-current Considered doubtful Less: Allowances for doubtful debts* Current Considered good As at March 31, 2018 (H in Lakhs) As at March 31, 2017 75 75 295 295 258 258 - - As at March 31, 2018 (H in Lakhs) As at March 31, 2017 1,346 (1,346) - 9,290 9,290 2,596 (2,596) - 11,851 11,851 *During the year ended March 31, 2018, the Group has written off bad debts amounting to H 1,242 Lakhs (March 31, 2017 : H 1,572 Lakhs), from its allowance for doubtful debts. No trade or other receivable are due from directors or other officers of the Company either severally or jointly with any other person. Further, there are no trade or other receivables which are due from firms or private companies in which any director is a partner, a director or a member. Trade receivables are non-interest bearing and are generally on terms of 30 to 180 days. 9. Cash and cash equivalents Current Balance with banks In current accounts In EEFC accounts Cash on hand Other balances with banks A Deposits with remaining maturity for more than 3 months and less than 12 months Less: Disclosed under Other balances with banks (Current) (refer note 7) B (A+B) As at March 31, 2018 (H in Lakhs) As at March 31, 2017 3,006 - 1 3,007 295 295 (295) - 3,007 7,364 21 1 7,386 - - - - 7,386 Annual Report 2017-18 | 157 Notes to the consolidated financial statements for the year ended March 31, 2018 9. Cash and cash equivalents (contd.) Non-current Other balances with banks Deposits with remaining maturity for more than 12 months Less: Disclosed under Other balances with banks (Non-current) (refer note 7) As at March 31, 2018 (H in Lakhs) As at March 31, 2017 75 75 (75) - 258 258 (258) - For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise the total of current portion of cash and cash equivalents as above. 10. Other financial assets Unsecured, considered good Carried at amortized cost Non-current Advance recoverable from former directors [refer note 34(b)(iii)] Current Unbilled revenue Interest accrued but not due on bank deposits 11. Income tax assets (net) Non-current Advance income-tax [net of provision for taxation H 688 Lakhs (March 31, 2017: H 706 Lakhs)] 12. Deferred tax assets (net)* Non-current Minimum alternative tax ('MAT') credit entitlement (refer note 22) Deferred tax assets (net) Depreciation and amortization expense: Difference between tax depreciation and depreciation and amortization expense as per statement of profit and loss A Losses available for offsetting against future taxable profits Provision for employee benefits and others B (A+B) *Also, refer note 22 158 | SUBEX LIMITED As at March 31, 2018 (H in Lakhs) As at March 31, 2017 234 234 5,247 3 5,250 234 234 4,497 11 4,508 As at March 31, 2018 (H in Lakhs) As at March 31, 2017 2,810 2,810 1,977 1,977 As at March 31, 2018 (H in Lakhs) As at March 31, 2017 425 425 10 40 77 127 552 478 478 - - - - 478 Notes to the consolidated financial statements for the year ended March 31, 2018 13. Other assets Non-current Balance with statutory/ government authorities* Advance recoverable in cash or kind Prepaid expenses Current Balance with statutory/ government authorities Advance recoverable in cash or kind Prepaid expenses Advance to suppliers Expenses incurred on behalf of customers As at March 31, 2018 (H in Lakhs) As at March 31, 2017 267 270 537 - 418 30 96 544 267 297 564 80 671 193 69 1,013 *Balances represents service tax erroneously paid by the Group during the financial years 2004 to 2008, under reverse charge mechanism, for which refund application has been filed with the service tax department and the same is under dispute. The Group is contesting the same and the management including its tax advisors are confident of obtaining the refund. 14. Share capital Authorized share capital Equity shares of H 10 each As at April 1, 2016 Increase during the year As at March 31, 2017 Increase during the year As at March 31, 2018 Preference shares of H 98 each As at April 1, 2016 Increase during the year As at March 31, 2017 Increase during the year As at March 31, 2018 Issued, subscribed and fully paid-up share capital Equity shares of H 10 each issued, subscribed and fully paid-up* As at April 1, 2016 Issued during the year - Conversion of FCCBs As at March 31, 2017 Issued during the year - Preferential issue of equity shares [refer note 14 (e)] As at March 31, 2018 No. H in Lakhs 545,040,000 - 545,040,000 43,000,000 588,040,000 200,000 - 200,000 - 200,000 502,811,646 4,096,290 506,907,936 55,094,999 562,002,935 54,504 - 54,504 4,300 58,804 196 - 196 - 196 50,281 410 50,691 5,509 56,200 *includes 243,207 (March 31, 2017: 243,207) shares in respect of which Global Depository Receipts of the Company are listed on London Stock Exchange. Annual Report 2017-18 | 159 Notes to the consolidated financial statements for the year ended March 31, 2018 14. Share capital(contd.) (a) Terms/ rights attached to equity shares The Company has only one class of equity shares having par value of H 10 per share. Each holder of equity shares is entitled to one vote per share and such amount of dividend per share as declared by the Company. The Company declares and pays dividend in Indian rupees. The dividend proposed by the Board of Directors is subject to the approval of the shareholders in the ensuing Annual General Meeting. The Group had not declared any dividend during the year ended March 31, 2018 and March 31, 2017. In the event of liquidation of the Company, the holders of the equity shares will be entitled to receive remaining assets of the Company, after distribution of all preferential amounts. The distribution will be in proportion to the number of equity shares held by the shareholders. (b) Details of shares held by each shareholder [together with Persons Acting in Concert (PAC)] holding more than 5% shares in the Company Equity shares of H 10 each issued, subscribed and fully paid-up Name of the shareholders Tonbridge (Mauritius) Limited and Leeds (Mauritius) Limited QVT Singapore Fund Pte. Ltd QVT Mauritius West Fund & Quintessence Mauritius West Fund Deutsche Bank AG London -CB Account Nomura Singapore Limited As at March 31, 2018 No. % of total shares As at March 31, 2017 No. % of total shares 27,563,571 27,531,428 - - - 4.90 4.90 - - - - - 47,843,816 17,436,426 2,806,956 - - 9.44 3.44 0.55 As per records of the Company, including its register of shareholders/ members and other declarations received from shareholders regarding beneficial interest, the above shareholding represents both legal and beneficial ownership of shares. (c) Shares reserved for issue under options (No.) (i) Outstanding employee stock options under below schemes, granted/ available for grant: (refer note 35) ESOP III ESOP IV (ii) FCCBs (refer note 16) FCCBs III As at March 31, 2018 As at March 31, 2017 24,055 - 92,368 28,301 - 24,055 15,522,785 15,643,454 (d) Aggregate number of bonus shares issued, shares issued for consideration other than cash and shares bought back during the period of five years immediately preceding the reporting date: Equity shares (No.) Equity shares allotted as fully paid-up pursuant to contract (no.) [In accordance with the terms of FCCBs III, out of the principal face value of US$ 128 Million (H 71,593 Lakhs), an amount of US$ 36 Million (H 20,359 Lakhs) were mandatorily converted into equity shares on July 07, 2012] As at March 31, 2018 As at March 31, 2017 89,335,462 89,335,462 (e) During the year ended March 31, 2018, the Company made an allotment of 55,094,999 equity shares of the Company on a preferential basis at an issue price of H 14 per equity share (Face value of H 10 per equity share) amounting to H 7,713 Lakhs under section 42 of the Companies Act, 2013. 160 | SUBEX LIMITED Notes to the consolidated financial statements for the year ended March 31, 2018 15. Other equity Equity component of compound financial instruments Balance as per last financial statements Less: Conversion of FCCBs Less: Transfer to surplus/ (deficit) in the statement of profit and loss* Closing balance Securities premium Balance as per last financial statements Add: Additions during the year on conversion of FCCBs Add: Additions during the year on account of preferential issue of equity shares [refer note 14 (e)] Closing balance General reserve Balance as per last financial statements Add: Additions during the year Closing balance Employee stock options reserve Balance as per last financial statements Less: Compensation on ESOP cancelled/lapsed during the year Add : Deferred stock compensation expenses Closing balance Surplus / (deficit) in the statement of profit and loss Balance as per last financial statements Add: Profit/ (loss) for the year Add: Residual portion of FCCBs conversion Add: Transfer from equity component of compound financial instrument* Less: OCI - Re-measurement losses on defined benefit obligations Closing balance Exchange reserve on consolidation Balance as per last financial statements Add: Effect of foreign exchange rate variations during the year Less: On account of liquidation of foreign subsidiary [refer note 29(ii)] Closing balance As at March 31, 2018 (H in Lakhs) As at March 31, 2017 205 - (205) - 24,501 - 2,204 26,705 1,780 - 1,780 7 (5) - 2 2,836 2,068 - 205 (30) 5,079 (11,611) (1,376) 1,166 (11,821) 259 (54) - 205 24,378 123 - 24,501 1,780 - 1,780 16 (9) - 7 6,935 (4,323) 256 - (32) 2,836 (10,267) (1,344) - (11,611) * Upon repayment of FCCBs, the residual portion of equity component of compound financial instrument in relation to the same, has been transferred to surplus/ (deficit) in the statement of profit and loss. Summary of other equity: Equity component of compound financial instruments Securities premium account General reserve Employee stock options reserve Surplus/ (deficit) in the statement of profit and loss Exchange reserve on consolidation Total other equity As at March 31, 2018 (H in Lakhs) As at March 31, 2017 - 26,705 1,780 2 5,079 (11,821) 21,745 205 24,501 1,780 7 2,836 (11,611) 17,718 Annual Report 2017-18 | 161 Notes to the consolidated financial statements for the year ended March 31, 2018 16. Borrowings Carried at amortized cost Non - current Foreign currency convertible bonds* Current maturities of long-term borrowings (secured): Term loans** Current maturities of long-term borrowings (unsecured) Less: Disclosed under other financial liabilities (current) (refer note 18) Current Loans repayable on demand from banks (Secured) Loan type - I [refer note (i) & (iii)] Loan type - II [refer note (i), (ii) and note (iii)] As at March 31, 2018 (H in Lakhs) As at March 31, 2017 - - - - - 3,215 - 3,215 2,277 7,782 10,059 (10,059) - 5,216 3,374 8,590 * Secured FCCBs were carried at amortized cost at an effective interest rate of 9% p.a. (March 31, 2017: 9% p.a.) with maturity date of July 07, 2017. On June 30, 2017, the Company redeemed outstanding FCCBs III amounting to US$ 3.6 Million (H 2,336 Lakhs) and paid accrued interest of US$ 0.1 Million (H 67 Lakhs) on the aforesaid bonds. On July 6, 2017, the deferred interest in respect of aforesaid bonds for the period July 6, 2012 to January 6, 2016 amounting to US$ 0.72 Million (H 467 Lakhs) was paid. As at March 31, 2018, there are no outstanding FCCBs and related interest. ** Represents loan taken by Subex Americas Inc., which had been guaranteed by Subex (UK) Limited. This loan was carried at amortized cost at an effective interest rate of 9.5% p.a. (March 31, 2017: 9.5% p.a.). The loan of US$ 12 Million (H 7,782 Lakhs) has been repaid on May 15, 2017 and the guarantee by Subex (UK) Limited was released. (i) The secured loan from banks were secured by primary charge on customer receivables and paripassu first charge on the current assets of the Company, and collateral paripassu first charge on the fixed assets of the Company. Pursuant to the restructuring of the Company Loan type - I was transferred to Subex Assurance LLP and Loan type - II was repaid on October 31, 2017 and the aforesaid security was released. Subsequently Loan type - I is secured by primary charge on customer receivables and current assets of Subex Assurance LLP (“SA LLP”), and collateral charge on the fixed assets of SA LLP. Further, Loan type - I is also guaranteed by the Company. Also, refer note 34(b)(iv). (ii) The Company had submitted a corporate guarantee by Subex Technologies Limited of H 4,205 Lakhs and Subex (UK) Limited of H 4,205 Lakhs and pledged it’s 100% shares in Subex (UK) Limited. Pursuant to the restructuring, the Loan type - II was repaid on October 31, 2017 and the aforesaid securities have been released. (iii) Loans repayable on demand from bank as at March 31, 2018 consisted of Cash Credit (CC) of H Nil (March 31, 2017: H 2,934 Lakhs), Pre- shipment Credit in Foreign Currency (PCFC) of H 3,215 Lakhs (March 31, 2017: H 1,420 Lakhs), and Export Bill Rediscounting (EBRD) of H Nil (March 31, 2017: H 4,237 Lakhs), which carried an average interest rate of 9.71%, 3.27%, and 4.54% (March 31, 2017: 11.67%, 3.89% and 5.51%) respectively. During the current year, the facilities in relation to Loan type - I were transferred to Subex Assurance LLP and Loan type - II were repaid, pursuant to the restructuring. 162 | SUBEX LIMITED Notes to the consolidated financial statements for the year ended March 31, 2018 17. Trade payables Carried at amortized cost Current Trade payables - total outstanding dues of micro enterprises and small enterprises* - total outstanding dues of creditors other than micro enterprises and small enterprises Terms and conditions of the above financial liabilities: - Trade payables are non-interest bearing and are normally settled on 30 - 45 days terms. - For explanations on the Group’s liquidity risk management, refer note 40. As at March 31, 2018 (H in Lakhs) As at March 31, 2017 - 1,331 1,331 - 1,805 1,805 **There are no micro, small and medium enterprises to whom the Company owes any dues as at March 31, 2018 and March 31, 2017. This information has been determined to the extent such parties have been identified on the basis of information available with the Company. 18. Other current financial liabilities Carried at amortized cost Employee related liabilities Interest accrued but not due on borrowings Current maturities of long term borrowings (refer note 16) 19. Other current liabilities Unearned revenue Statutory dues 20. Provisions Non-current Provisions for employee benefits Gratuity [refer note 36(b)] Current Provisions for employee benefits Gratuity [refer note 36(b)] Leave benefits Provision for litigations* As at March 31, 2018 1,511 - - 1,511 As at March 31, 2018 2,086 1,144 3,230 As at March 31, 2018 (H in Lakhs) As at March 31, 2017 1,362 501 10,059 11,922 (H in Lakhs) As at March 31, 2017 2,120 965 3,085 (H in Lakhs) As at March 31, 2017 280 280 89 523 100 712 297 297 43 534 100 677 *Provision for litigations consists of matters which are sub-judice. There is no movement in the provision during the current and previous year, refer note 34(b) for further details. Annual Report 2017-18 | 163 Notes to the consolidated financial statements for the year ended March 31, 2018 21. Deferred tax liabilities (net) Non-current Deferred tax liabilities Depreciation and amortization expense: Difference between tax depreciation and depreciation and amortization expense as per statement of profit and loss Deferred tax assets Provision for employee benefits and others Losses available for offsetting against future taxable profits 22. Income tax liabilities (net) A B (A-B) Provision for tax [net of advance tax H 250 Lakhs (March 31, 2017: H 367 Lakhs)] Provision for foreign taxes Provision for litigation [net of tax deducted at source H 62 Lakhs (March 31, 2017: H 62 Lakhs)]* As at March 31, 2018 (H in Lakhs) As at March 31, 2017 1,693 1,693 65 802 867 826 - - - - - - As at March 31, 2018 162 394 162 718 (H in Lakhs) As at March 31, 2017 235 487 162 884 *Provision for litigation consists of matters which are sub-judice. There is no movement in the provision during the current and previous year, refer note 34(b) for further details. Income tax expense in the consolidated statement of profit and loss consist of the following: Tax expense: Current tax (credit)/ charge Provision - foreign withholding taxes(net) [refer note 22(i)] MAT charge / (credit) Deferred tax charge (net) [refer note 22(ii)] Total tax expense (H in Lakhs) Year ended March 31, 2018 Year ended March 31, 2017 (171) 789 53 702 1,373 243 812 (94) - 961 Notes: 22(i) Provision for foreign withholding taxes represents provision in respect of withholding taxes deducted/ deductible by customers. 22(ii) Deferred tax charge, comprises of deferred tax liability arising on account of tax benefits from amortization of intangible assets of Subex Assurance LLP, net of deferred tax assets arising on account of carry forward losses and other taxable temporary differences, which arose mainly on account of restructuring. 164 | SUBEX LIMITED Notes to the consolidated financial statements for the year ended March 31, 2018 22. Income tax liabilities (net)(contd.) Reconciliation of tax to the amount computed by applying the statutory income tax rate to the income before tax is summarized below: (H in Lakhs) Profit/ (loss) before tax Applicable tax rates in India Computed tax charge (A) Components of tax expense: Year ended March 31, 2018 3,441 34.61% 1,191 Year ended March 31, 2017 (3,362) 34.61% - Provision for foreign withholding taxes (net) MAT provision at 18.5% on the adjusted book profits of the Company in accordance with the provisions of Income Tax Act, 1961 Reversal of tax charge in relation to earlier period Tax expense/ (reversal) on taxable income of foreign subsidiaries with differential tax rates Impact of non-taxable income* Impact of other allowances and disallowances as per Income Tax Act, 1961 (net) MAT credit entitlement (available)/ reversed on the MAT provision as mentioned above as per the provisions of Income Tax Act, 1961 Total adjustments (B) 789 - (53) (242) (404) 39 53 182 812 94 - 149 - - (94) 961 Total tax expense (A+B) *Represents tax impact on foreign currency translation reserve amounting to H 1,166 Lakhs, which is credited to the consolidated statement of profit and loss upon completion of liquidiation of its subsidiary. Refer note 29(ii). 1,373 961 23. Revenue from operations Sale of products Sale of services Details of products sold Sale of license Sale of hardware and software Details of services rendered Implementation and customization Managed services Support services Others 24. Other income Write back of withholding taxes paid earlier (refer note 43) Net gain on disposal of property, plant and equipment Miscellaneous income Interest income on: Security deposits Bank deposits (H in Lakhs) Year ended March 31, 2018 Year ended March 31, 2017 3,193 29,239 32,432 3,193 - 3,193 7,504 10,870 10,865 - 29,239 4,771 30,962 35,733 4,488 283 4,771 8,656 10,913 11,138 255 30,962 (H in Lakhs) Year ended March 31, 2018 Year ended March 31, 2017 30 - 56 31 23 140 1,037 1 53 36 27 1,154 Annual Report 2017-18 | 165 Notes to the consolidated financial statements for the year ended March 31, 2018 25. Employee benefits expense (H in Lakhs) Year ended March 31, 2018 Year ended March 31, 2017 Salaries and wages* Contribution to provident and other funds Staff welfare expenses 14,210 1,127 534 15,871 *Net of reversal of provision no longer required, in respect of employee incentives amounting to H 725 Lakhs (March 31, 2017: H 700 Lakhs). 15,674 1,112 685 17,471 26. Finance cost Interest Foreign currency convertible bonds Term loan Other borrowings Other finance charges Bank charges 27. Depreciation and amortization expense Depreciation of property, plant and equipment (refer note 3) Amortization of other intangible assets (refer note 4) 28. Other expenses Cost of hardware, software and support charges Sub-contract charges Rent Power and fuel Repairs and maintenance Building Others Insurance Communication costs Printing and stationery Traveling and conveyance Rates and taxes Advertisement and business promotion Consultancy charges Payments to auditors [refer note 28(i)] Sales commission Provision for doubtful debts (net of reversal) Exchange fluctuation loss/ (gain)(net) Directors' sitting fees Loss on sale of fixed assets (net) Miscellaneous expenses 166 | SUBEX LIMITED (H in Lakhs) Year ended March 31, 2018 Year ended March 31, 2017 95 - 326 21 333 775 494 464 657 23 402 2,040 (H in Lakhs) Year ended March 31, 2018 Year ended March 31, 2017 439 78 517 459 36 495 (H in Lakhs) Year ended March 31, 2018 Year ended March 31, 2017 577 1,549 1,767 210 128 646 111 308 54 2,549 212 418 950 201 153 (32) 1,650 77 2 4 11,534 943 1,603 1,803 201 159 500 112 331 34 3,082 109 400 785 191 123 1,203 (698) 53 - 19 10,953 Notes to the consolidated financial statements for the year ended March 31, 2018 28(i). Payments to the auditors* (a) Statutory auditors As auditor Audit fee Tax audit fee In other capacity Other services (certification services) Reimbursement of expenses (b) Other auditors for the subsidiaries As auditor Audit fee In other capacity Reimbursement of expenses *Payment to auditors is exclusive of goods and services tax/ service tax. 29. Exceptional items (net) Loss on impairment of goodwill [refer note 29(i)] Foreign currency translation reserve gain on liquidation of foreign subsidiary [refer note 29(ii)] (H in Lakhs) Year ended March 31, 2018 Year ended March 31, 2017 98 4 25 10 137 62 2 64 201 102 4 5 14 125 64 2 66 191 Year ended March 31, 2018 - 1,166 1,166 (H in Lakhs) Year ended March 31, 2017 (10,890) - (10,890) 29(i) As at March 31, 2017, the Company had recognized a loss on impairment of goodwill related to its RMS CGU of H 4,880 Lakhs and DIM CGU of H 6,010 Lakhs based on its assessment of the carrying value of its goodwill along with the carrying value of related CGUs as at such date. 29(ii) During the year ended March 31, 2018, the Company has completed the liquidiation of its subsidiary viz. Subex Technologies Inc., USA and accordingly the balance of foreign currency translation reserve amounting to H 1,166 Lakhs has been credited to the statement of profit and loss. 30. Earnings/ (loss) per share Basic earnings/ (loss) per share (EPS) amounts are calculated by dividing the profit/(loss) for the year attributable to equity holders of the parent by the weighted average number of equity shares outstanding during the year. Diluted EPS amounts are calculated by dividing the profit/(loss) attributable to equity holders of the Company by the weighted average number of equity shares outstanding during the year plus the weighted average number of equity shares that would be issued on conversion of all the dilutive potential equity shares into equity shares. Annual Report 2017-18 | 167 Notes to the consolidated financial statements for the year ended March 31, 2018 30. Earnings/ (loss) per share (contd.) Computation of basic and diluted EPS: Nominal value per equity share (H per share) Profit/ (loss) attributable to equity shareholders (H in Lakhs) Weighted average number of equity shares (No. in Lakhs) Profit/ (loss) per share basic and diluted (H per share)* Year ended March 31, 2018 Year ended March 31, 2017 10 2,068 5,554 0.37 10 (4,323) 5,063 (0.85) *Employee stock options outstanding as at March 31, 2018 and Employee stock options outstanding and foreign currency convertible bonds outstanding as at March 31, 2017 are anti-dilutive and accordingly have not been considered for the purpose of computing dilutive EPS of the respective years. 31. Restructuring The Board of Directors of the Company in its meeting held on August 21, 2017 approved the restructuring of the Company’s business by way of transfer of its RMS business and Digital business to its subsidiaries, SA LLP and SD LLP, respectively, subject to shareholders and other requisite approvals. The shareholders of the Company approved the Restructuring by way of special resolution passed through postal ballot on September 23, 2017 and subsequently, the Board of Directors of the Company in its meeting held on October 4, 2017 approved November 1, 2017 to be the effective date of Restructuring. Accordingly, effective November 1, 2017, the Company’s RMS business and the Digital business have been transferred on a going concern basis for a fair value consideration of H 61,564 Lakhs and H 1,869 Lakhs, respectively, in the form of Company’s capital contribution in the aforesaid LLPs. Post such Restructuring, the Company continues to directly hold 99.99% share in the capital of, and in the profits and losses of, each of these LLPs and the entire economic interest as well as control and ownership of the RMS Business and Digital Business remains with the Company post such Restructuring. The Group has accounted for the restructuring in accordance with Appendix C (”Common control transactions”) to Ind AS 103 (”Business Combinations”), which requires common control transactions to be recorded at books values. This being an intra group transaction, has been eliminated in full for the purpose of consolidation, except the impact of taxes as described in note 22(ii). 32. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The board of directors of the Group assesses the financial performance and position of the Group. The Chief Executive Officer has been identified as the chief operating decision maker. The Group has identified a single business segment being software products and related services. This being a single segment no additional segment disclosure has been made for the business segment. The Group’s operations spans across the world and are categorized geographically as (a) Americas, (b) EMEA (c) India and (d) 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, excluding India are organized under ‘APAC and the rest of the world’. Customer relationships are driven based on customer domicile. Segment revenue by geographical location are as follows*: Region Americas EMEA India APAC and rest of the world (H in Lakhs) Year ended March 31, 2018 Year ended March 31, 2017 5,322 19,076 2,656 5,378 32,432 6,555 20,392 2,835 5,951 35,733 *Revenues by geographic area are based on the geographical location of the customer. No customer individually accounted for more than 10% of the total revenue of the group during the years ended March 31, 2018 and March 31, 2017. 168 | SUBEX LIMITED Notes to the consolidated financial statements for the year ended March 31, 2018 32. Segment reporting (contd.) Non-current operating assets by geographical location are as follows**: Region India Outside India Unallocated*** Total non-current operating assets As at March 31, 2018 (H in Lakhs) As at March 31, 2017 989 267 65,882 67,138 1,046 441 65,882 67,369 **Non-current operating assets includes Property, plant and equipment, Other intangible assets and Balance with statutory/ government authorities and Prepaid expenses. ***Unallocated represents Goodwill on consolidation. The management is of the view that it is not practically feasible to allocate such goodwill to various regions. 33. Related party transactions i. Related parties under Ind AS 24 and Companies Act, 2013 Key management personnel of the Company: Anil Singhvi Surjeet Singh Chairman (w.e.f. May 25, 2017) and Independent Director Managing Director and Chief Executive Officer (Up to March 31, 2018) Vinod Kumar Padmanabhan Managing Director and Chief Executive Officer (w.e.f April 1, 2018) Whole Time Director (w.e.f. May 25, 2017 to October 31, 2017) Non Executive, Non Independent Director (w.e.f. November 1, 2017 to March 31, 2018) Ashwin Chalapathy Whole Time Director (w.e.f. May 25, 2017 to October 31, 2017) Non Executive, Non Independent Director (w.e.f. November 1, 2017 to May 4, 2018) Nisha Dutt Independent Director Poornima Kamalaksh Prabhu Independent Director Sanjeev Aga Priyanka Roy Independent Director (Up to October 27, 2016) Independent Director (Up to March 10, 2017) Mehernaz Dalal Chief Financial Officer (w.e.f. June 15, 2017) Ganesh KV Chief Financial Officer, Global Head - Legal and Company Secretary (Up to June 15, 2017) ii. Details of transactions with key management personnel Salary and perquisites:* Vinod Kumar Padmanabhan Ashwin Chalapathy Mehernaz Dalal Surjeet Singh Ganesh KV (H in Lakhs) Year ended March 31, 2018 Year ended March 31, 2017 54 45 44 586 37 766 - - - 572 77 649 Annual Report 2017-18 | 169 Notes to the consolidated financial statements for the year ended March 31, 2018 33. Related party transactions (contd.) Director sitting fees Anil Singhvi Nisha Dutt Poornima Prabhu Sanjeev Aga Priyanka Roy (H in Lakhs) Year ended March 31, 2018 Year ended March 31, 2017 28 22 23 - - 73 22 14 - 10 3 49 *The remuneration to the key managerial personnel does not include the provision/ accruals made on best estimate basis as they are determined for the Group as a whole. 34. Commitments and contingent liabilities a) Commitments Operating leases The Group is obligated under non-cancellable lease for office and residential space that are renewable on a periodic basis at the option of both the lessor and lessee. The total rental expenses for the year under non-cancellable operating leases amounted to H 64 Lakhs (March 31, 2017: H 762 Lakhs). Future minimum lease payments under non-cancellable operating leases are as follows: Within one year After one year but not more than five years More than five years As at March 31, 2018 (H in Lakhs) As at March 31, 2017 5 - - 64 5 - The Group leases office facilities, residential facilities and servers under cancellable operating lease agreements. The Group intends to renew such leases in the normal course of its business. Total rental expense for the year under cancellable operating leases amounted to H 1,703 Lakhs (March 31, 2017: H 1,042 Lakhs). b) Contingent liabilities Income tax demands [refer note (i)] Service tax demands [refer note (ii)] Others [refer note (iii)] Bank guarantees (furnished to customers) Corporate guarantee issued by Subex Limited [refer note (iii) below and note 16] Corporate guarantee issued by Subex Technologies Limited and Subex (UK) Limited (refer note 16) As at March 31, 2018 (H in Lakhs) As at March 31, 2017 16,995 3,687 1,293 321 8,250 - 8,196 3,687 1,293 249 - 4,205 170 | SUBEX LIMITED Notes to the consolidated financial statements for the year ended March 31, 2018 34. Commitments and contingent liabilities (contd.) i. Income tax The Group has received assessment orders in respect of each of the financial years from March 31, 2002 to March 31, 2014, wherein certain adjustments were made to the taxable income in relation to various matters including adjustments in respect of transfer pricing under section 92CA of the Income Tax Act, 1961 and disallowances of certain expenditures. These demands are disputed by the management and the Group has filed appeals against these orders with various appellate authorities. The management is of the view that the prices determined by it are at arm’s length, expenditures are deductible based on outcome of previous litigations, and is confident that the demands raised by the Assessing Officers are not tenable under the Income Tax Act, 1961. Pending outcome of the aforesaid matters under litigation, no provision has been made in the books of account towards these tax demands. ii. Service tax The Group has received demand order towards the service tax on import of certain services and equivalent amount of penalties under the provisions of the Finance Act, 1994 along with the consequential interest during the period April 2006 to July 2009. These demands are disputed by the management and the Group has filed appeals against these orders with various appellate authorities. The management is of the view that the service tax is not applicable on those import of services, and is confident that the demands raised by the Assessing Officers are not tenable under law. Pending outcome of the aforesaid matter under litigation, no provision has been made in the books of account for these tax demands. iii. Others The Group had received certain claims from ex-directors for an amount of H 1,293 Lakhs. The aforesaid claims are disputed by the Group and the matter is presently under arbitration with the arbitration tribunal. The management is of the view that these claims are not tenable. Subsequent to the year ended March 31, 2018, in respect of arbitration concerning one of the ex-directors the Honorable Tribunal has passed an award directing the Group to pay a sum of H 700 lakhs. The Group has filed an application to set aside the order and has also sought an interim stay in this regard. Basis opinion obtained from its legal counsel, the management is of the view that the outcome of the matter is not predictable at this point. Accordingly, no provision is made in this regard and the same has been disclosed as contingent liability. The Group has also claimed the excess managerial remuneration of H 124 Lakhs (March 31, 2017: H 124 Lakhs) paid to the aforementioned ex-directors during the year ended March 31, 2013, in excess of the limits prescribed under Schedule XIII of the Companies Act, 1956 which has been treated as monies due from the directors, being held by them in trust for the Group, and other advances paid to directors during the year 2012-13 amounting to H 110 Lakhs (March 31, 2017: H 110 Lakhs). The aggregate amount of H 234 Lakhs (March 31, 2017: H 234 Lakhs) is included in ‘Other Financial Assets’ in the financial statements. Pending final outcome of the litigations, no provision has been made in the books of account in this regard. iv. Corporate Guarantee With effect from November 1, 2017, the Company has given corporate guarantee to the lenders of its subsidiary, Subex Assurance LLP, of H 8,250 Lakhs for the purpose of availing of working capital loan facilities by the said subsidiary. v. The Group does not have any commitments as at balance sheet date except towards the operating lease as disclosed in note 34(a). Annual Report 2017-18 | 171 Notes to the consolidated financial statements for the year ended March 31, 2018 35. Employee stock options plans (‘ESOPs’) The Group during the years 2005-2006 and 2008-09 has established equity settled ESOP schemes of ESOP III and ESOP IV respectively. 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. Employees stock options details as on the balance sheet date are: Particulars Options outstanding at the beginning of the year ESOP – III ESOP – IV Cancelled, surrendered or lapsed during the year ESOP – III ESOP – IV Options outstanding at the end of the year ESOP – III ESOP – IV Options exercisable at the end of the year ESOP – III ESOP – IV 2017-18 Options (no.) Weighted average exercise price per stock option (H) 2016-17 Options (no.) Weighted average exercise price per stock option (H) 92,368 28,301 68,313 28,301 24,055 - 24,055 - 22.97 28.44 24.67 28.44 18.24 - 18.24 - 1,44,979 1,30,500 52,611 1,02,199 92,368 28,301 92,368 28,301 24.28 28.51 26.54 28.53 22.97 28.44 22.99 28.44 Details of weighted average remaining contractual life and range of exercise prices for the options outstanding at the balance sheet date: Particulars ESOP – III ESOP – IV *considering vesting and exercise period. 36. Employee benefit plans Weighted average remaining contractual life(years)* 2017-18 2016-17 1.26 - 1.99 0.67 Range of exercise prices (H) 2017-18 10.26 - 54.83 - 2016-17 10.26 - 54.83 28.44 a) Provident fund The Group makes contributions to Provident Fund, Pension Fund, Employee State Insurance scheme and other funds which are defined contribution plan for qualifying employees. Under the scheme, the Group is required to contribute a specified percentage of the payroll costs to fund the benefits. The Group recognized H 980 Lakhs (March 31, 2017: H 990 Lakhs) towards Provident Fund and Pension Fund contributions and H 44 Lakhs (March 31, 2017: H 47 Lakhs) towards 401K contribution. b) Gratuity The Group offers Gratuity benefits to employees, a defined benefit plan, Gratuity plan is governed by the Payment of Gratuity Act, 1972. Under gratuity plan, every employee who has completed at least five years of service gets a gratuity on departure @15 days of last drawn salary for each completed year of service. The scheme is funded with an insurance company in the form of qualifying insurance policy. 172 | SUBEX LIMITED Notes to the consolidated financial statements for the year ended March 31, 2018 36. Employee benefit plans (contd.) The following tables set out the status of the gratuity plan: Disclosure as per Ind AS 19 A. Change in defined benefit obligation Obligations at beginning of the year Service cost Interest cost Benefits settled Actuarial loss (through OCI) Currency translation adjustment Obligations at end of the year B. Change in plan assets Plan assets at beginning of the year, at fair value Expected return on plan assets Actuarial gain (through OCI) Contributions Benefits settled Plan assets at the end of the year Present value of defined benefit obligation at the end of the year Fair value of plan assets at the end of the year C. Net liability recognized in the consolidated balance sheet D. E. F. Expenses recognized in the consolidated statement of profit and loss: Service cost Interest cost (net) Net gratuity cost Re-measurement gains/ (losses) in OCI Actuarial loss due to financial assumption changes Actuarial gain due to experience adjustments Actuarial loss - return on plan assets greater than discount rate Total expenses recognized through OCI Assumptions Discount rate Expected return on plan assets Salary escalation* Attrition rate Retirement age As at March 31, 2018 (H in Lakhs) As at March 31, 2017 484 89 31 (64) 32 1 573 144 10 2 110 (62) 204 (573) 204 (369) 453 76 32 (108) 33 (2) 484 116 9 - 120 (101) 144 (484) 144 (340) (H in Lakhs) Year ended March 31, 2018 Year ended March 31, 2017 89 21 110 (16) 48 (2) 30 7.60% 7.00% 8.00% 18.00% 60 years 76 23 99 13 20 - 33 7.00% 7.60% 8.00% 18.00% 60 years Annual Report 2017-18 | 173 Notes to the consolidated financial statements for the year ended March 31, 2018 36. Employee benefit plans (contd.) G. Five years pay-outs Year 1 Year 2 Year 3 Year 4 Year 5 After 5th Year As at March 31, 2018 (H in Lakhs) As at March 31, 2017 89 82 78 73 68 458 43 70 65 62 57 366 *The estimate of future salary increases considered, takes into account the inflation, seniority, promotion, increments and other relevant factors, benefit obligation such as supply and demand in the employment market. H. Contribution likely to be made for the next one year I. The major categories of plan assets as a percentage of the fair value of total plan assets are as follows: As at March 31, 2018 (H in Lakhs) As at March 31, 2017 89 120 100% 100% (H in Lakhs) Year ended March 31, 2018 0.5% increase 0.5% decrease Year ended March 31, 2017 0.5% increase 0.5% decrease (12) 13 (10) 11 1% increase 1% decrease 1% increase 1% decrease 23 (22) 18 (17) 5% increase 5% decrease 5% increase 5% decrease (12) 13 (12) 9 Investment with insurer J. Sensitivity analysis Effect of change in discount rate Impact on defined benefit obligation increase/ (decrease) Effect of change in salary Impact on defined benefit obligation increase/ (decrease) Effect of change in withdrawal Impact on defined benefit obligation increase/ (decrease) 174 | SUBEX LIMITED Notes to the consolidated financial statements for the year ended March 31, 2018 37. Additional information pursuant to para 2 of general instructions for the preparation of consolidated financial statements: (a) Contribution of net assets/ (liability) in the consolidated financial statements: As at and for the year ended March 31, 2018 Net Assets i.e., total assets minus total liabilities Amount As % of Consolidated net assets Share in profit or loss Amount As % of Consolidated profit or loss (H in Lakhs) Share in other comprehensive income Amount As % of consolidated other com- prehensive income Share in total comprehensive income Amount As % of consolidated total com- prehensive income Name of the entity Parent Subex Limited Indian subsidiaries Subex Technologies Limited Subex Assurance LLP Subex Digital LLP Foreign subsidiaries Subex (Asia Pacific) Pte Ltd. Subex (UK) Ltd. Subex Americas Inc. Subex Inc., Subex Technologies Inc. Subex Middle East Total Adjustments arising out of consolidation Total Name of the entity Parent Subex Limited Indian subsidiaries Subex Technologies Limited Subex Assurance LLP Subex Digital LLP Foreign subsidiaries Subex (Asia Pacific) Pte Ltd. Subex (UK) Ltd. Subex Americas Inc. Subex Inc., Subex Technologies Inc. Subex Middle East Total Adjustments arising out of consolidation Total 49% 74,234 1% 32 (1%) (8) - 24 - 41% 1% 1% 7% 3% (2%) - - 25 62,262 1,279 780 10,098 5,115 (2,983) - 59 - 14% (12%) (13%) (16%) 124% 2% - - (4) 710 (586) (655) (826) 6,264 87 - (14) - (1%) - (19%) 127% (4%) (2%) - - - (12) (4) (179) 1,185 (37) (20) - 1 - 12% (10%) (14%) 6% 105% 1% - - (4) 698 (590) (834) 359 6,227 67 - (13) 100% 150,869 100% 5,008 100% 926 100% 5,934 - - (72,924) 77,945 - - (2,940) 2,068 - - (1,166) (240) - - (4,106) 1,828 Net Assets i.e., total assets minus total liabilities Amount As % of Consolidated net assets Share in profit or loss Amount As % of Consolidated profit or loss (H in Lakhs) Share in other comprehensive income Amount As % of consolidated other com- prehensive income Share in total comprehensive income Amount As % of consolidated total com- prehensive income 95% 63,726 (13%) (683) 2% (33) (18%) (716) - - - (4%) (16%) (2%) (5%) - - 29 - - (2,378) 9,733 (1,181) (3,049) - 71 1% - - 17% 35% 57% 2% - 1% 54 - - 892 1,859 3,012 116 (1) 35 - - - (13%) 124% (7%) (6%) 0% 0% - - - 182 (1,705) 102 81 - (3) 1% - - 27% 4% 80% 5% - 1% 54 - - 1,074 154 3,114 197 (1) 32 100% 66,951 100% 5,284 100% (1,376) 100% 3,908 - - 1,458 68,409 - - (9,607) (4,323) - - - (1,376) - - (9,607) (5,699) Annual Report 2017-18 | 175 As at and for the year ended March 31, 2017 Notes to the consolidated financial statements for the year ended March 31, 2018 38. Capital management The Group’s objective is to maintain a strong capital base to ensure sustained growth in business and to maximize the shareholders value. The capital management focuses to maintain an optimal structure that balances growth and maximizes shareholder value. Particulars A. Total equity attributable to the share holders of the Company* Borrowings - Current* Current maturities of long term borrowings** B. Total loans and borrowings C. D. E. Total capital (A+B) Total loans and borrowings as a percentage of total capital (B/C) Total equity as a percentage of total capital (A/C) As at March 31, 2018 77,945 3,215 - (H in Lakhs) As at March 31, 2017 68,409 8,590 10,059 3,215 18,649 81,160 4% 96% 87,058 21% 79% *The Company has made preferential allotment of equity shares during the current year. Refer note 14(e). *The current borrowings are in the nature of working capital loans from banks. The Group has sufficient cash and cash equivalents and other financial assets which are liquid to meet the aforesaid current borrowings. **Current maturities of long term borrowings represented term loans of US$ 12 Million (H 7,782 Lakhs) and FCCBs III of H 2,277 Lakhs and has been duly repaid as on May 15, 2017 and July 07, 2017, respectively. In order to achieve the aforesaid objective, the Group’s capital management, amongst other things, aims to ensure that it meets financial covenants attached to the borrowings that define capital structure requirements. There have been no breaches in the financial covenants of any borrowing in the current year. 39. Fair value hierarchy The carrying value of financial instruments by categories is as follows: Financial assets measured at amortized cost Interest accrued but not due on bank deposits* Trade receivables* Unbilled revenue* Security deposits^ Loans and advances to employees* Cash and cash equivalents and other balances with banks Cash on hand# Balance with banks# Margin money deposits# Financial liabilities measured at amortized cost Employee related liabilities* Trade payables* Interest accrued but not due on borrowings^ Borrowings^ 176 | SUBEX LIMITED As at March 31, 2018 (H in Lakhs) As at March 31, 2017 3 9,290 5,247 439 134 15,113 1 3,006 370 3,377 1,511 1,331 - 3,215 6,057 11 11,851 4,497 399 196 16,954 1 7,385 258 7,644 1,362 1,805 501 18,649 22,317 Notes to the consolidated financial statements for the year ended March 31, 2018 39. Fair value hierarchy (contd.) *The carrying value of these accounts are considered to be the same as their fair value, due to their short term nature. Accordingly, these are classified as level 3 of fair value hierarchy. #These accounts are considered to be highly liquid/ liquid and the carrying amount of these are considered to be the same as their fair value. Accordingly, these are classified as level 3 of fair value hierarchy. ^The fair value of these accounts was calculated based on cash flow discounted using a current lending/ borrowing rate, they are classified as level 3 fair value hierarchy due to inclusion of unobservable inputs including counterparty credit risk. 40. Financial risk management: The Group’s activities expose it to the following risks: i. Credit risk ii. iii. Liquidity risk iv. Market risk Interest rate risk Credit risk i. Credit Risk is the risk that a counter party will not meet its obligations under a financial instrument or customer contract leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily trade receivables and unbilled revenue) from its financing activities including deposits with banks, foreign exchange transactions and other financial instruments. Trade receivables a. Credit risk is managed by each business unit as per the Group’s established policy, procedures and control relating to customer credit risk management. Outstanding customer receivables are regularly monitored. The impairment analysis is performed at each reporting date on an individual basis for major clients. In addition, a large number of minor receivables are grouped into homogeneous groups and assessed for impairment collectively. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets. The Group does not hold collateral as security. b. Credit risk exposure The Group’s credit period generally ranges from 30 - 180 days. The credit risk exposure of the Group is as below: Trade receivables Unbilled revenue Total As at March 31, 2018 9,290 5,247 14,537 (H in Lakhs) As at March 31, 2017 11,851 4,497 16,348 The Group evaluates the concentration of risk with respect to trade receivables as low, since majority of its customers are reputed telecom companies and are spread across multiple geographies. c. Other financial assets and deposits with banks Credit risk is limited, as the Group generally invests in deposits with banks with high credit ratings assigned by international and domestic credit rating agencies. Counterparty credit limits are reviewed by the Group periodically and the limits are set to minimize the concentration of risks and therefore mitigate financial loss through counterparty’s potential failure to make payments. Interest rate risk ii. Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Company’s risk of changes in interest rates relates primarily to the Company’s debt obligations with floating interest rates for the period the Company was holding the debts. Annual Report 2017-18 | 177 Notes to the consolidated financial statements for the year ended March 31, 2018 40. Financial risk management (contd.) The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant. The impact on entity’s profit before tax due to change in the interest rate/ fair value of financial liabilities are as disclosed below: Particulars Working capital loans (H in Lakhs) Year ended March 31, 2018 Effect of Change Year ended March 31, 2017 Effect of Change in interest rate profit before in interest rate profit before exceptional items exceptional items and tax expense (60) 60 +1% -1% and tax expense (94) 94 +1% -1% iii. Liquidity risk The Group’s principal sources of liquidity are cash and cash equivalents and the cash flow that is generated from operations. The Group believes that the cash and cash equivalents is sufficient to meet its current requirements. Accordingly, no liquidity risk is perceived. The break-up of cash and cash equivalents and deposits is as below: Particulars Cash and cash equivalents Other balances with banks As at March 31, 2018 (H in Lakhs) As at March 31, 2017 3,007 370 3,377 7,386 258 7,644 The table below summarizes the maturity profile of the Group’s financial liabilities at the reporting date. The amounts are based on contractual undiscounted payments. Particulars On demand 0-180 Days 180-365 Days 365 Days and above (H in Lakhs) Total As at March 31, 2018 Trade payables Borrowings Other financial liabilities As at March 31, 2017 Trade payables Borrowings Other financial liabilities 251 - - 251 542 - - 542 983 3,215 1,511 5,709 1,000 18,701 1,867 21,568 95 - - 95 263 - - 263 3 - - 3 - - - - 1,331 3,215 1,511 6,057 1,805 18,701 1,867 22,373 iv. Market risk Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in foreign exchange rates. The Group’s exchange risk arises from its foreign operations, foreign currency revenues and expenses. The Group has exposures to United States Dollars (‘US$’), Great Britain Pound (‘GBP’), Euro (‘EUR’), United Arab Emirates Dirham (‘AED’) and other currencies. The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Company’s operating activities and financing activities. 178 | SUBEX LIMITED Notes to the consolidated financial statements for the year ended March 31, 2018 40. Financial risk management (contd.) Below is the summary of foreign currency exposure of Group’s financial assets and liabilities. As at March 31, 2018 Particulars Financial assets Trade receivables Cash and cash equivalents and other bank balances Other financial assets Total financial assets Financial liabilities Borrowings Other financial liabilities Total financial liabilities Net financial assets/ (liabilities) As at March 31, 2017 Particulars Financial assets Trade receivables Cash and cash equivalents and other bank balances Other financial assets Total financial assets Financial liabilities Borrowings Other financial liabilities Total financial liabilities Net financial assets/ (liabilities) US$ Denominated Currency AED GBP Others 5,482 334 1,109 6,925 837 1,306 2,143 4,782 - - - - 793 1 794 (794) 1,507 54 150 1,711 840 (92) 748 963 842 121 181 1,144 745 (160) 585 559 US$ Denominated Currency AED GBP Others 6,631 4,694 3,070 14,395 2,786 3,278 6,064 8,331 - - - - 1,979 - 1,979 (1,979) 1,587 582 186 2,355 73 191 264 2,091 1,670 339 85 2,094 818 265 1,083 1,011 (H in Lakhs) Total 7,831 509 1,440 9,780 3,215 1,055 4,270 5,510 (H in Lakhs) Total 9,888 5,616 3,341 18,845 5,656 3,734 9,390 9,455 Sensitivity analysis Every 1% appreciation or depreciation in the respective foreign currencies against functional currency of the each of the group entities would cause the profit before exceptional items in proportion to revenue to increase or decrease respectively by 0.17% (March 31, 2017: 0.29%). Annual Report 2017-18 | 179 Notes to the consolidated financial statements for the year ended March 31, 2018 41. Standards issued but not yet effective Ind AS 115- Revenue from contract with customers: On March 28, 2018, the Ministry of Corporate Affairs notified Ind AS 115 Revenue from contracts with customers. The standard replaces Ind AS 11 Construction Contracts and Ind AS 18 Revenue. The core principle of Ind AS 115 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Ind AS 115 introduces a 5-step approach to revenue recognition: • • Identify the contract(s) with a customer Identify the performance obligation in contract • Determine the transaction price • • Allocate the transaction price to the performance obligations in the contract Recognize revenue when (or as) the entity satisfies a performance obligation Ind AS 115 establishes control-based revenue recognition model. An entity recognizes revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the performance obligation is transferred to the customer. Also, Ind AS 115 provides more guidance for deciding whether revenue is recognized at a point in time or over time. Transitional options under Ind AS 115: • Retrospectively to each prior period presented in accordance with Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors, subject to some practical expedients mentioned in Ind AS 115 • Retrospectively with the cumulative effect of initial application recognized at the date of initial application The standard is effective for annual periods beginning on or after April 1, 2018. The Group is currently evaluating the requirements and impact of Ind AS 115 on its financial statements. Ind AS 21 - Appendix B: The Appendix clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognizes the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine the transaction date for each payment or receipt of advance consideration. Entities may apply the Appendix requirements on a fully retrospective basis. Alternatively, an entity may apply these requirements prospectively to all assets, expenses and income in its scope that are initially recognized on or after: (i) The beginning of the reporting period in which the entity first applies the Appendix, or (ii) The beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period in which the entity first applies the Appendix. The standard is effective for annual periods beginning on or after April 1, 2018. The Group is currently evaluating the requirements and impact of the aforesaid on its financial statements. 180 | SUBEX LIMITED Notes to the consolidated financial statements for the year ended March 31, 2018 42. As per section 135 of The Company’s Act, 2013, a Corporate Social Responsibility (‘CSR’) committee has been formed by Subex Limited. The primary function of the Committee is to assist the Board of Directors in formulating the CSR policy and review the implementation and progress of the same from time to time. The CSR Policy focuses on creating opportunities for the disadvantaged with emphasis on persons with disabilities. The Company has incurred losses during the three immediately preceding years and accordingly, is not required to spend any amount during the current year for this purpose. Accordingly, the Company has not made any expenditure during the year ended March, 2018. Subsequent to the year end, on April 20, 2018, the Company has voluntarily incurred an expense of H 10 lakhs towards CSR activities. 43. The Group had remitted withholding taxes on interest on FCCBs III in accordance with the provisions of the Income Tax Act, 1961 amounting to H 1,067 Lakhs pertaining to FCCBs III which have been converted into equity shares of the Company. Pursuant to such conversion, the interest accrued but not due is considered no longer payable and the management basis expert advice, is of the view that the withholding taxes paid by the Group in respect of the aforesaid interest, are recoverable from income tax department and/ or are adjustable against its other withholding taxes obligations. Accordingly, upon revision of withholding taxes returns, the Group has adjusted withholding taxes of H 30 Lakhs (March 31, 2017: H 1,037 Lakhs) on salary, professional services and others by write-back of withholding taxes on interest on FCCBs paid earlier, and such write back is included under other income. 44. The Group Companies has entered into ‘International transactions’ with ‘Associated Enterprises’ which are subject to Transfer Pricing regulations in India, as well as in the other geographies. The Group is in the process of carrying out transfer pricing study for the year ended March 31, 2018 in this regard, to comply with the requirements of the Income Tax Act, 1961 and other applicable laws in other countries. The Management of the Group, 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 consolidated financial statements, particularly on account of tax expense and that of provision for taxation. 45. Previous year figures have been regrouped/ reclassified, wherever necessary to conform to current years’s classification. As per our report of even date For and on behalf of the Board of Directors For S.R. Batliboi & Associates LLP Chartered Accountants ICAI Firm registration number: 101049W/E300004 Vinod Kumar Padmanabhan Managing Director & CEO DIN : 06563872 Anil Singhvi Chairman & Director DIN : 00239589 Nisha Dutt Director DIN : 06465957 per Rajeev Kumar Partner Membership No.: 213803 Place: Bengaluru Date: May 04, 2018 Poornima Kamalaksh Prabhu Director DIN: 03114937 Place: Bengaluru Date: May 04, 2018 Mehernaz Dalal Chief Financial Officer Annual Report 2017-18 | 181 Shareholders’ Information REGISTERED OFFICE The Registered office of the Company is at RMZ Ecoworld, Outer Ring Road, Devarabisanahalli, Bengaluru – 560 103. DATE AND VENUE OF THE 24th ANNUAL GENERAL MEETING (AGM) Date July 31, 2018 Venue The “Grand Ball Room”, Hotel Lalit Ashok, Kumara Krupa High Grounds, Bengaluru – 560 001 Time 2 PM DATES OF BOOK CLOSURE From July 25, 2018 to July 31, 2018 (both days inclusive). BOARD MEETINGS & FINANCIAL CALENDAR Financial year : April 01, 2018 to March 31, 2019 Calendar of Board Meetings to adopt the accounts For quarter ending June 30, 2018 For quarter ending September 30, 2018 For quarter ending December 31, 2018 For the year ending March 31, 2019 – 4th week of July 2018 – 2nd week of November 2018 – 2nd week of February 2019 – 4th week of May 2019 DIVIDEND The Directors have not proposed any dividend for the financial year 2017-18. LISTING ON STOCK EXCHANGES Equity Shares of the Company are quoted on the National Stock Exchange of India Limited (NSE) since September 05, 2003 and on the BSE Limited (BSE) since July 31, 2000. The Company has paid listing fees for the year 2017-18 in accordance with the provisions of the SEBI (LODR) Regulations, 2015. The 2,43,207 Global Depositary Receipts (GDRs) of the Company are listed on the Professional Securities Market of London Stock Exchange since March 09, 2007. During the year the outstanding amount of US$ 3.60 Million of the Company’s US$ 127.721 million 5.70% Convertible Secured Bonds, listed on the Singapore Exchange Securities Trading Limited since July 10, 2012 was redeemed on July 07, 2017. 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, Exchange Plaza, 5th Floor, Plot No. C/1, G Block Bandra Kurla Complex, Bandra (East) Mumbai- 400051 BSE Limited, Phiroze Jeejeebhoy Towers Dalal Street, Mumbai 400001 London Stock Exchange 10 Paternoster Square London EC4M 7LS SUBEX 532348 SUBX 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 01, 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, in accordance with the aforesaid circulars, paid custodial fees for the year 2017-18 to NSDL and CDSL on the basis of the number of beneficial accounts maintained by them as on March 31, 2017. STOCK MARKET DATA RELATING TO EQUITY SHARES LISTED IN INDIA Average Monthly high and low quotes during each month in the financial year 2017-18 as well as the volume of shares traded on 182 | SUBEX LIMITED NSE and BSE are as under: Month Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 NSE BSE Index Close Price High* H Low* H High H Low H Sensex (Closing price) Nifty (closing price) 11.58 11.32 9.97 10.57 9.02 8.86 8.58 8.77 8.73 11.39 9.43 8.44 11.12 10.87 9.70 10.04 8.62 8.54 8.30 8.40 8.37 10.51 8.93 8.14 11.59 11.31 9.95 10.58 9.02 8.85 8.59 8.73 8.76 11.37 9.43 8.43 11.12 10.88 9.72 10.04 8.63 8.57 8.30 8.41 8.38 10.52 8.94 8.13 29,695.83 30,420.07 31,144.68 31,879.61 31,772.23 31,887.12 32,397.64 33,395.14 33,424.40 34,989.42 34,287.04 33,323.32 9,214.57 9,436.99 9,606.95 9,850.12 9,901.18 9,977.92 10,138.68 10,324.75 10,322.26 10,771.15 10,533.11 10,232.63 *The monthly high and low quotes are calculated based on the average high and low prices of the month respectively. SUBEX LIMITED SHARE PRICE VERSUS NSE S&P CNX NIFTY AND SENSEX 40000 35000 30000 25000 20000 15000 10000 25 20 15 10 5 0 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Sensex-Avg close Subex BSE Annual Report 2017-18 | 183 15000 10000 5000 0 25 20 15 10 5 0 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Nifty - Avg Close Subex NSE CREDIT RATING The India Ratings and Research organisation (Ind-Ra) in their letter dated July 20, 2017 made to the Company upgraded the Credit Rating of Subex Limited from IND BBB+ to IND A-. Instrument wise rating actions are mentioned below: Instrument Type Fund-based limits Size of Issue (million) Rating/Outlook Rating Action INR 956 (reduced from INR 1,148) IND A-/Stable/IND A2+ Upgraded Upgraded Non-fund based limits* INR180 IND A2+ *INR 145 million of the non-fund-based limits is interchangeable with the fund-based limits. SHAREHOLDING PATTERN (As per records of the RTA)* Distribution of Shareholding: No. of Equity shares held 1 – 5000 5001 – 10000 10001 – 20000 20001 –30000 30001 – 40000 40001 – 50000 50001 – 100000 100001 and above TOTAL As on March 31, 2018 As on March 31, 2017 No. of share holders % to total share holders No. of share holders % to total share holders 57,792 19,670 12,783 5,572 2,681 4,091 5,481 5,841 50.73 17.27 11.22 4.89 2.35 3.59 4.81 5.14 56,308 17,686 11,422 4,938 2,468 3,585 4,863 5,164 52.90 16.62 10.73 4.64 2.32 3.37 4.57 4.85 1,13,911 100.00 1,06,434 100.00 184 | SUBEX LIMITED Categories of Shareholders: Category Public & Other (includes GDR’s and Foreign Corporate Bodies) As on March 31, 2018 As on March 31, 2017 No. of share holders Voting strength % No. of shares held No. of share holders Voting strength % No. of shares held 112,577 78.66 442,070,413 105,041 78.17 396,248,254 Companies/ Indian Bodies Corporate 1,292 21.07 118,398,079 1,348 20.96 106,260,982 Core Promoters Mutual Funds ESOPs/ Employee shareholders FII TOTAL 3 Nil 39 Nil 0.17 Nil 0.10 Nil 974,044 Nil 560,399 Nil 3 Nil 41 1 0.19 Nil 0.12 0.56 974,044 Nil 617,700 2,806,956 1,13,911 100 562,002,935 1,06,434 100 506,907,936 R & T AGENTS AND SHARE TRANSFER SYSTEM Canbank Computers Services Limited, J P Royale, 1st Floor, No.218, 2nd Main, Sampige Road (Near 14th Cross), Malleswaram, Bengaluru - 560 003, were appointed as ‘Registrar and Transfer Agent’ both in respect of shares held in physical form and dematerialized form vide a tripartite agreement dated December 05, 2001 in respect of shares held with NSDL and a tripartite agreement dated November 27, 2001 in respect of shares held with CDSL. A. 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 05, 2012 has reduced the timeline for registering the transfer of shares to 15 days with effect from October 01, 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. B. 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, Bengaluru - 560 003 Tel Nos. +91 80-23469661/62, 23469664/65 Fax Nos. +91 80-23469667/68 E-mail: canbankrta@ccsl.co.in Website: www.canbankrta.com SHARES HELD IN PHYSICAL AND DEMATERIALISED FORM As on March 31, 2018, 99.99% 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, 2018, the outstanding GDRs were 243,207. During the year the outstanding amount of US$ 3.60 Million of the Company’s US$ 127.721 million 5.70% Convertible Secured Bonds, listed on the Singapore Exchange Securities Trading Limited since July 10, 2012 was redeemed on July 07, 2017. LOCATIONS • Broomfield, CO 80021, USA • Harrow, Middlesex, HA1 1JU, UK • Burlington Square, Singapore • Sharjah Airport International Free Zone, Sharjah, UAE NOMINATION Pursuant to the provisions of Section 72 of the Companies Act, 2013, members may file nomination in respect of their shareholdings. Any member willing to avail this facility may submit to the Company the prescribed Form SH-13 (in duplicate), if not already filed. Form SH-13 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. COMMODITY PRICE RISK / FOREIGN EXCHANGE RISK AND HEDGING ACTIVITIES Company is exposed to foreign exchange risk on account of import and export transactions entered. The Company is not doing any Annual Report 2017-18 | 185 hedging activities, as there is a natural hedge between exports and imports. ADDRESS FOR CORRESPONDENCE For any queries, please write to: INVESTOR GRIEVANCES Details of the investor grievances received from the Registrar and Transfer agent (RTA) for the period from April 01, 2017 to March 31, 2018 are as stated below. Additionally, the Company has attended to all the investor grievances/correspondence received through E-mails or telephone on a timely manner. Arjun Makhecha Acting Company Secretary, Subex Limited, RMZ Ecoworld, Outer Ring Road, Devarabisanahalli, Bengaluru – 560 103, India. Telephone: +91 80 6659 8700 Fax: +91 80 6696 3333 Email: investorrelations@subex.com Nature of complaints (excluding the grievances received through E-mails or telephone) 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 Received Cleared WEBSITE Company’s website www.subex.com contains comprehensive information about the Company, products, press releases, financials 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 etc. 0 0 0 0 4 4 0 0 0 0 4 4 Notes Notes INDIA Subex Limited (CIN: L85110KA1994PLCO16663) Regd. office: RMZ Ecoworld, Devarabisanahalli, Outer Ring Road Bengaluru - 560103, India Tel: +91 80 6659 8700 Fax: +91 80 6696 3333 USA Subex Inc. 12303 Airport Way, Bldg. 1, Suite. 390, Broomfield, CO 80021 Tel: +1 303 301 6200 Fax: +1 303 301 6201 UK Subex (UK) Limited 1st Floor, Rama Apartment, 17 St Ann’s Road, Harrow, Middlesex, HA1 1JU Tel: +44 0207 8265300 Fax: +44 0207 8265352 Singapore Subex (Asia Pacific) Pte Limited 175A Bencoolen Street #08-03 Burlington Square Singapore - 189650 Tel: +65 6338 1218 Fax: +65 6338 1216 Middle East Subex Middle East (FZE) Executive Desk Q1-04-098/B, P.O. Box: 513156, Sharjah Airport International Free Zone, Sharjah, UAE Canada Subex Americas Inc. C/O BDO Canada LLP, 5494, Manotick Main Street Box. 918, Manotick, Ontario Canada, K4M1A8 Regional offices: Dubai | Ipswich
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