ALLSEC TECHNOLOGIES LIMITED
ANNUAL REPORT 2011-2012
DIRECTOR`S REPORT
The Directors have pleasure in presenting to you the 13th Annual Report of
the company covering the financial year ended 31st March 2012.
FINANCIAL HIGHLIGHTS (Rs. in Million)
Year Year
Particulars Ended Ended
March 31, March 31,
2012 2011
Income from Services 1,247.1 1,415.4
Other Income 50.5 35.8
Total Income 1,297.6 1,451.2
Profit/(Loss) before Interest,
Depreciation & Tax (EBITDA) (32.8) 68.6
Depreciation & Amortisation 107.9 103.3
Profit/(Loss) before
interest & tax (140.7) (34.7)
Interest & Finance charges 6.3 4.7
Profit/(Loss) before taxation (147.0) (39.4)
Profit/(Loss) after taxation (147.0) (39.4)
Profit/(Loss) brought forward (192.6) (153.2)
Surplus/(Deficit) carried
forward to Balance Sheet (339.6) (192.6)
Dividend
Due to the loss incurred during the year, the Board of Directors of your
Company does not recommend any dividend for the Financial Year 2011-12.
Business Outlook
The company was able to clock higher revenues in the domestic market during
the year, growing by over 15%. However the Company is in the process of
repricing of all the Domestic Contracts, so that all contracts are
profitable. Your company`s focus on profitability will yield better results
in the coming years.
During this year, there is a reduction of exports revenue by 40%, though
this was compensated by a huge increase in Domestic business. Drop in
exports revenue is mainly due to market conditions in USA not improving
during the year. The new businesses which we got have only gone to backfill
lost business during last year and this has resulted in a reduced revenue
growth from USA, which has always been our dominant market.
Even though economy in US and UK is not showing definite signs of
improvement, we believe we will see significant growth in the next few
years. With additional focus on business development in US, your company
believes that growth in business from the US and UK is achievable in the
years to come.
Due to a sharp reduction in exports revenue during the year, which is our
main strength, the results for the year have been below par as can be seen
above. In the last quarter of 2010-11, your company lost one of the top
clients from USA which has affected our performance very badly. During the
year, your Company has added a few clients and also increased volumes with
existing clients. Your company is also in talks with existing clients to
explore new opportunities and we are very confident to get back to the old
days of higher exports and profitability. Your company is currently
exploring opportunity in specific verticals like Mortgage and Health Care
Industries in the US Market.
Acquisition of Retreat Capital Management Inc last year seems a right step
taken by your Company and the results of Retreat are very encouraging as
can be seen from the consolidated results. The growth potential looks good
and in the coming years, the contribution to Profit from Retreat business
will be substantial. Your company has also added few clients in the
mortgage non voice space and with Retreat`s domain knowledge, business
growth in this vertical can be achieved in coming years.
The company is continuing to pursue growth through the organic route in
both the markets and see very good traction for growth in both US and
Domestic Markets. The company has delivery centers in USA, India and Manila
for the international segment and has Domestic delivery centers in major
cities in India. It has the capability to offer delivery in multiple Indian
languages. Manila centre was acquired in 2009 and has a seat capacity of
around 600. This is a strategic centre for our business as many of US
Clients prefer Manila as a Delivery Centre. Due to overall market
conditions in USA, our business is affected which has resulted in loss
situation in Manila centre also. With increased possibility of billing from
existing and new clients in the current and future years, we feel the loss
situation in Manila centre will be reversed. In the view of Management, the
investment made in our Manila Centre (wholly owned subsidiary) of Rs.102
Million and the advances recoverable given to them amounting to Rs.122.50
Million do not require any adjustments in the stand alone financials as of
now. The Auditors have made an observation vide para 4 in their Report
regarding this and this may be treated as our explanation.
The Company has not made provisions towards certain Receivables aggregating
to Rs.61.3 Million in respect of two foreign customers, where amounts are
substantially overdue. On the basis of available information and regular
confirmation of balances from customers showing their intent to pay the
same, the Company is confident of recovering the entire amountand therefore
not made any provision in the books of accounts. The Auditors have however
made an observation vide para 5 in their Report regarding this and this may
be treated as our explanation.
Quality & Information Security
The vision of Quality and Information security at Allsec is to
institutionalize excellence in quality of service and security of data of
Clients, customers and Organization by developing and deploying simple,
efficient and effective processes using the latest Quality models in
accordance with ISO 9001:2008 interlined with data security controls
prescribed by International standards such as ISO 27001:2005. As part of
its continuous improvement program, your Company is recertified for ISO
9001:2008 (Quality Management System) and ISO 27001:2005 (Information
Security Management). To take this to next paradigm, your company is
recertified for PCI DSS and accomplished compliance with HIPAA for service
delivery locations in India.
During the current year, in addition to the existing PCI DSS and HIPAA
compliance at Manila, your company has achieved PCI DSS certification for
service delivery location at Dallas in US. Further, existing SAS 70 Type II
certification for HR BPO services is graduated to ISAE 3402 certification
in line with the new International auditing standard to realize higher
levels of maturity and be consistent with business and market needs in
HR outsourcing.
Disclosure as per Securities and Exchange Board of India (Employees Stock
option Scheme and Employee Stock Purchase Scheme) Guidelines, 2011
The details are given in Annexure-A to Directors Report.
Responsibility Statement
Your Directors confirm the following:
(i) That in preparation of the annual accounts, the applicable accounting
standards had been followed along with proper explanation relating to
material departures;
(ii) That the directors had selected such accounting policies and applied
them consistently and 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 at the end of the financial year and of the profit or loss of the
company for that period;
(iii) That the directors had taken proper and sufficient care for the
maintenance of adequate accounting records in accordance with the
provisions of the Companies Act, 1956 for safeguarding the assets of the
company and for preventing and detecting fraud and other irregularities;
(iv) That the directors had prepared the annual accounts on a going concern
basis.
Subsidiaries
The company has three subsidiaries as at year end namely Allsectech Inc,
USA, Allsectech Manila Inc., Philippines and Retreat Capital Management
Inc, USA. A Statement containing brief financial particulars of the
subsidiary companies for the year ended 31st March, 2012 is included in the
Annual Report. The Consolidated Financial Statements of the Company and its
Subsidiaries prepared in accordance with Accounting Standard AS-21 form
part of the Annual Report and Accounts.
The Annual Accounts of the said subsidiaries and the related detailed
information will be made available to the investors of the
Company/Subsidiaries, seeking such information at any point of time. The
copies of Annual Accounts of the Subsidiary Companies will also be kept for
inspection by any investor at the Corporate Office of the Company.
Deposits:
Your company has not accepted any deposit from the public during the period
under review and did not have any outstanding deposits.
Conservation of energy, technology absorption, foreign exchange earnings
and outgo
Your Company being in the Information Technology Enabled Services (ITES),
the provisions relating to conservation of energy and technology
absorptions are not applicable. The details of the earnings and expenditure
in foreign currency are given below:
Particulars INR (Millions)
Earnings in Foreign Currency 408.1
Expenditure in Foreign Currency 60.1
Remittance of Dividend in
Foreign Currency NIL
Directors
Mr. R. Jagadish and Mr. A. Sankarakrishnan, Directors retire at the ensuing
Annual General Meeting and being eligible offer themselves for re-
appointment.
Mr. Manish Gaur representing M/s. First Carlyle Ventures Mauritius, was
appointed as additional director on 13th October, 2011. The Notice under
Section 257 of the Companies Act, 1956 has been received from a member
signifying the intention to propose Mr. Manish Gaur as a candidate for the
office of Director and accordingly a resolution will be placed before the
members at the forthcoming Annual General Meeting.
Corporate Governance
A Report on Management Discussion & Analysis of Performance and Compliance
of Corporate Governance under Clause 49 of the listing agreement &
Certificate from Auditors confirming compliance of conditions of Corporate
Governance is included in this Annual Report.
Investor Services
Your company will constantly endeavor to give the best possible services to
the investors. Towards this end, the following are some of the initiatives
taken by the Company:
The investor Information section of the Website of the Company
(www.allsectech.com), furnishes important financial details and other data
of frequent reference by the investors. The Company also has a
Shareholders/Investors Relation Committee to address shareholders
grievances if any and resolve them as & when they are highlighted.
The Company has provided an exclusive email id:
investorcontact@allsectech.com for the investors to facilitate the
redressal of the queries and complaints of the investors.
The Company has appointed M/s Karvy Computershare Pvt Ltd as Registrars &
Share Transfer Agents for attending to issues relating to physical shares
and routine services requests.
Shareholders can also address any unresolved issues or information requests
by postal mail to - The Company Secretary, Allsec Technologies Limited,
46B, Velachery Main Road, Velachery, Chennai - 600 042. Shareholders are
requested to update their email addresses with their respective depository
participants so that the Company can provide better services at all times.
Auditors
M/s. S.R.Batliboi & Associates, Chartered Accountants were re-appointed as
Auditors of the company at the annual general meeting held on 4th August,
2011. M/s. S.R.Batliboi & Associates retire at this Annual General meeting
and being eligible offers themselves for reelection.
Employees
Information as per Section 217 (2A) of the Companies Act, 1956 read with
the Companies (Particulars of Employees) Rules 1975, as amended regarding
the employees, is given in the Annexure to the Directors` Report. However,
as per the provisions of Section 219 of the Companies Act, 1956, the Report
and Accounts are being sent to all the members of the Company, excluding
the aforesaid information. The said information would be filed with the
Registrar of Companies and also would be available for inspection by the
members at the Corporate Office of the Company. Any member interested in
obtaining such particulars may also write to the Company Secretary, Allsec
Technologies Limited, 46B, Velachery Main Road, Velachery, Chennai 600042.
Acknowledgement
Your Directors wish to place on record their appreciation for the excellent
support and co-operation given by customers, shareholders, service
providers and Government Agencies.
Your Directors also record their appreciation and gratitude to Financial
Institution and Bankers for their continued support and timely assistance
in meeting the Company`s resource requirements. Your Directors acknowledge
the dedicated services rendered by all the employees of the company.
For and on behalf of the Board of Directors
A. Saravanan R. Jagadish
Director Director
Place: Chennai
Date : May 14, 2012
Annexure A to Directors Report
Disclosure as per Securities and Exchange Board of India (Employees Stock
option Scheme and Employee Stock Purchase Scheme) Guidelines, 2011
Employees Stock Option Schemes
The Compensation Committee of the Board authorized the grant of the
following options to the eligible employees in terms of the relevant
schemes. Upon exercise, the holders of each stock option are entitled to
one equity share.
Date of Grant ESOS 2010 Exercise Price
(per option)
August 4, 2010 390,000 Rs.45.05
Descriptions ESOS 2010
a. Options granted 390,000
b. The pricing formula At the Market
Price
c. Options vested NIL
d. Options exercised NIL
e. The total number of
shares arising as a
result of exercise of
options NIL
f. Options Cancelled NIL
g. Options lapsed 47,000
h. Variation of terms of options N.A
i. Money realized by exercise
of options NIL
j. Total number of options in force 343,000
k. Employee wise details of options granted to:
(i) Senior Managerial Personnel:
Name Designation No. of Options
granted under
ESOS 2010
Mr.R.Vaithiyanathan Senior Vice President -
Operations & HR 25,000
Mr.C. Mahadevan Vice President - HR BPO 20,000
Mr.K. Narasimhan Vice President - Finance 15,000
Mr. Saravanan Vice President -
Thambusamy Technology 15,000
Mr. C.S.Bapaiah Vice President - HR 20,000
Mr. Rafael A Martinez Vice President - 25,000
- Allsectech Inc, USA
Subsidiary Company
(ii) Any other employee who receives a grant in any one year of option
amounting to 5% or more of options granted during the year - Not
Applicable.
(iii) Identified employees who were granted option, during any one year,
equal to or exceeding 1% of the issued capital(excluding warrants and
conversions) of the company at the time of grant - Not Applicable
l. Diluted Earnings Per Share (EPS) pursuant to issue of shares on exercise
of option calculated in accordance with Accounting Standard 20. Rs.(9.64).
In accordance with SEBI (Employee Stock Option Scheme and Employee Stock
Purchase Scheme) Guidelines, 1999, had the Compensation cost for ESOS 2010
been recognized based on the fair value at the date of grant in accordance
with binomial method, the amounts of the Company`s net profit and earnings
per share would have been as follows:
Profit/(Loss) Basic Diluted
Particulars after tax EPS EPS
(Rs in Lakhs) (Rs.) (Rs.)
Year ended March 31, 2012
- Amounts as Reported (1,470) (9.64) (9.64)
- Amounts as per pro-forma (1,506) (9.88) (9.88)
Year ended March 31, 2011
- Amounts as Reported (394) (2.59) (2.59)
- Amounts as per pro-forma (442) (2.90) (2.90)
The fair value of options was estimated at the date of grant using the
binomial method with the following assumptions:
Particulars ESOS 2010
Risk-free interest rate 7.25%
Expected life 5 years
Expected volatility 56%
Expected dividend yield -
Share price on the date of grant Rs.45.05
Expected forfeiture 30%
For and on behalf of the Board of Directors
A. Saravanan R. Jagadish
Director Director
Place: Chennai
Date : May 14, 2012
MANAGEMENT DISCUSSION AND ANALYSIS
INDIAN ITES INDUSTRY - DEVELOPMENTS & OUTLOOK
The BPO industry in India has become one of the most significant growth
catalysts for the country`s economy. In the last decade, the industry has
grown 16 times in size. In addition to fuelling India`s economy, direct and
indirect employment creation is estimated at 4.5 million. India is the
leading BPO destination, accounting for over 37% of total global sourcing
BPO revenues, followed by Canada and Philippines.
BPO industry today is a diversified sector spanning across multiple
services and becoming the hotbed for knowledge workers in the country.
India headquartered; multinational firms, Global in-house centers and niche
firms are building the sector in the country contributing to process
excellence, transformation and best practices. Indian BPO industry is
undergoing a transition. While the second phase of Indian outsourcing
industry has begun, a new set of challenges like economic slowdown and
flourishing market of Philippines are the latest challenges.
While the global macro economic scenario remained uncertain, the industry
exhibited resilience and adaptability in continually reinventing itself to
retain its appeal to clients. Embracing emerging technologies, increased
customer-centricity, deepening focus on new markets, adopting new business
models are some successful growth strategies followed by the industry.
Indian IT-BPO industry-aggregate revenues cross the USD 100 billion mark,
export revenues (including Hardware) estimated to reach USD 69.1 billion in
FY 2012 growing by over 16%; Domestic revenues (including Hardware) at
about USD 31.7 billion, growing by over 9%. BPO segment is expected to grow
by 14% overall in FY 2012. Domestic market is expected a healthy growth of
17% in FY 2012.
Indian BPO Industry - Sector-wise revenue break-up
2010-11 2011-12 E % inc
BPO USD bn 16.9 19.3 14%
Exports USD bn 14.1 16.0 13%
Domestic INR bn 127 149 17%
Domestic USD Bn 2.8 3.3 -
Notes: E=: Estimates Figures may not add up due to rounding off.
Source: NASSCOM
Exports
The BPO export segment grew by 13% to reach USD 16 Billion in FY 2012. In
the last few years, the BPO segment has been focusing on re-engineering
itself in order to deliver transformational impact on customers.
BPO firms are increasing onshore and near shore footprint to enable
customer entry to local markets. Firms have also been actively implementing
non linear growth initiatives.
US continue to drive exports in this year also. BFSI vertical is set to
increase its share of exports, while telecom registered a degrowth.
Emerging verticals like retail, healthcare, media and utilities recorded
significant growth in this year.
Domestic
Domestic BPO segment is expected to grow by 17% in FY 2012, to reach Rs.149
billion, driven by demand from voice-based (including local language)
services and increasing adoption by both traditional and emerging
verticals.
Industry Outlook
FY 2012 is a landmark year - while the Indian IT-BPO industry weathered
uncertainties in the global business environment, this is also the year
when the industry is set to reach a significant milestone - aggregate
revenue for FY 2012 is expected to cross USD 100 billion.
BPO firms move from efficiency to effectiveness - focusing on re-
engineering themselves in order to deliver transformational impact to
customers - follow a `Verticalised` approach by developing in-depth
capabilities across verticals; increase onshore footprint and implement
non-linear growth initiatives.
Indian BPO firms are developing future-ready solutions - platform + cloud
and creating customer impact through service delivery excellence. Knowledge
services segment is the fastest growing among BPO segments at over 15%;
Indian Companies have pioneered outsourcing in areas such as data
analytics, data management and legal services. Data analytics is expected
to grow 19%, much faster than BPO industry average; key drivers include
emergence of analytic tools, rising volumes of data, increased data-driven
decision making and emergence of on-demand models.
Future market opportunity:
Despite 2011 ending in a difficult economic environment, some geographic
regions and services are expected to circumvent the situation in 2012.
Global GDP, after growing by 2.7% in 2011, is expected to grow 2.5% in
2012, with developing economies growing thrice as fast as the developed
economies. Better economic conditions in the second half of the year,
signifying return of consumer confidence and renewal of business growth, is
expected to drive IT spending going forward.
* Global technology related spend expected to grow by 5% in 2012.
* Global sourcing to continue growth trend as organisations aim to cut
costs, access local market and innovation and sourcing requirements.
* Indian IT-BPO services exports expected to grow by 11-14% while domestic
services to grow by 13-16%. (in Rs.terms)
* India accounts for less than 5% of global technology spending -
tremendous untapped potential for growth of Indian IT-BPO sector, in both
core as well as emerging opportunities.
* To achieve this growth, the sector has to continue to re-invent itself -
through new business models, global delivery, partnerships and
transformative focus.
* Prevailing global megatrends presents new opportunities and risks for the
industry, which will shape the technology industry landscape.
* IT-BPO sector will need to build on its strengths and address challenges
around competition, talent, security and business environment.
OPPORTUNITIES & THREATS
OPPORTUNITIES
- Core Competency
The strategy of Allsec has always been to grow by developing its expertise
in specific verticals. This has helped us sharpen our training & processes
for specific domains enabling us to achieve domain specialization
resulting in delivering quality solutions to each of our customers. We have
been in the international business for 10 years and have continuously
refined our offerings to suit this market. We expanded our offering in the
domestic market by positioning our services to suit the domestic business
with its unique features like multi language requirements etc. Currently
our horizontals of specialization are in Customer Life cycle management,
telemarketing, collections, Quality assurance, Payroll management,
mortgage, technical support and Web development support. We look to grow in
each of these horizontals and also identify and develop vertical
specialization in other geographies and domains to grow our offerings
continuously.
- Client Acquisition
The focus on winning fresh clients across geographies where we can serve on
the strength of our core competencies on the basis of our track record of
delivery and positive client references is an ongoing process. Allsec is
also in the process of extending its core competency in the Indian domestic
markets. There has been a steady increase in the domestic business
especially in retail and BFSI segments. With our philosophy of long term
client relationships, which has served us well with our international
clients, we are sure that we will be able to maintain our track record and
strike long term relationships with all our Domestic clients as well.
In non-voice segment, with the growth of domestic call center business, our
Quality Assurance process triggered great interest in many of the captive/
outsourced centers of domestic Telecom and BFSI segment clients. Having
acquired knowledge and experience of servicing in different Indian
languages and with the Pan-India presence, there are enough opportunities
to grow this multifold. Post our acquisition of Retreat mortgage business,
there has been a considerable increase in revenues from this business and
we see a visibility of high growth in the coming years. Our strength in the
platform based HR-BPO business is our track record of delivery coupled with
responsive services which has helped us grow this business steadily. We are
now making significant investments in a cutting edge technology platform
and this coupled with strong process and domain strength, we expect that
our Payroll business will have a significant growth across geographies in
the next year.
- Quality
The vision of Quality and Information security at Allsec is to
institutionalize excellence in quality of service and security of data of
Clients, customers and Organization by developing and deploying simple,
efficient and effective processes using the latest Quality models in
accordance with ISO 9001:2008 interlined with data security controls
prescribed by International standards such as ISO 27001:2005. As part of
its continuous improvement program, your Company is recertified for ISO
9001:2008 (Quality Management System) and ISO 27001:2005 (Information
Security Management). To take this to next paradigm, your company is
recertified for PCI DSS and accomplished compliance with HIPAA for service
delivery locations in India.
During the current year, in addition to the existing PCI DSS and HIPAA
compliance at Manila, your company has achieved PCI DSS certification for
service delivery location at Dallas in US. Further, existing SAS 70 Type II
certification for HR BPO services is graduated to ISAE 3402 certification
in line with the new International auditing standard to realize higher
levels of maturity and be consistent with business and market needs in HR
outsourcing.
- Capacity
With the acquisition of call center division of i2i Telesource Pvt Limited,
in the year 2008, we added around 1000 seats for the domestic business.
Another 1500 seats in different locations were also added and we have also
relocated/upgraded most of the i2i facilities over a period of last 3
years. Today, Allsec has a pan India presence with facilities in locations
such as Delhi, Mumbai, Hyderabad, Bengaluru, Chennai, Pune and Trichy. The
Company has also invested in additional technology investments primarily to
cater to its new client additions in the Domestic segment. Apart from
India, we also have a capacity of 600 seats in Manila, Philippines and more
than 100 seats in Dallas, USA.
THREATS
ATTRITION:
Allsec, is in an industry where attrition is one of the major concern
areas. Allsec has an annual attrition of 40% and is within the industry
benchmark which ranges between 30% and 50%.
The Company also faces tough challenge in getting employable manpower from
the large manpower pool available. Allsec has been investing a lot of
resources for training candidates on the basic skills that are required to
make them employable. These are also done through partnering with
educational institutions and governmental organizations.
The attrition rate in the Domestic segment is also on similar lines. Allsec
has extended its learning in the International segment to Domestic market
and necessary processes are in place to ensure that right candidates are
being hired, trained and retained. However, the availability of employable
candidates is higher in the pool available for Domestic segments.
Further, efforts are also taken in the direction of training, employee
referral scheme, employee satisfaction surveys and other creative
activities to address the threat posed by attrition.
RISKS AND CONCERNS
BUSINESS RISKS
The economic slow down and competition from other low cost countries like
Philippines, Vietnam, South Africa and China are the two main reasons for
the reduction in demand for international outsourcing business from India.
The economic slow down has also triggered a lot of changes in the existing
operational philosophy of many enterprises, especially in the areas of
outsourcing. This coupled with governmental policies will continue to
affect the demand in the outsourcing arena. The low cost operators from
other countries continue to be competitors in the few outsourcing deals
that are happening across the globe.
Also, the proposed withdrawal of tax benefits for the outsourcing
enterprises by the US Government may also considerably reduce the
opportunity for services to be outsourced.
The decline in demand in International market and unutilized capacity in
India has forced many International Players including major players to
concentrate on the domestic market. This has considerably increased the
competition and consequently affected the profitability in the domestic
market.
This threat is in addition to the possible pricing and volume reduction
pressures in the international clientele.
FINANCIAL RISKS
GEOGRAPHICAL CONCENTRATION OF CLIENTS
Our revenues are still dependent on clients located in the United
States/United Kingdom or from Indian subsidiaries of such companies and we
are looking to increase revenues from US/UK clients. Also, the growth that
we have achieved in the domestic market will reduce this risk although with
lower margins. We believe that with the growth this year internationally,
we will achieve an optimum mix of clients, though this is dependant on
favorable client addition in US/UK geographies.
EXCHANGE FLUCTUATION
Movements in exchange rates continue to be a major threat. The current
economic slow down and possible reduction in price by our existing
customers may adversely affect the earnings and expenditure in foreign
currency. We are currently adopting hedging strategies as approved by the
Board and in addition use bank balances in foreign currency to meet our
foreign currency liabilities. These measures would assist in reducing the
impact of unfavorable movements in exchange rates. However, our results of
operation will be affected if the rupee-dollar rates continues to behave in
a volatile manner in future or rupee appreciates significantly against
dollar and other currencies.
COST ARBITRAGE
Our most significant costs are the salaries and related benefits of our
operations staff and other employees. Wage costs in India have historically
been significantly lower than wage costs in the United States and other
developed countries, which has been one of our competitive advantages in
the international market. However, wages in India are increasing at a
faster rate compared to the developed countries, which may reduce our
competitive advantage in relation to pricing. We may need to increase the
levels of employee compensation more rapidly than in the past to remain
competitive and to attract necessary employees. Wage increases in the long-
term may reduce our profit margins in both the domestic and international
businesses.
INDIAN TAXATION RISK
Taxes and other levies imposed by the Government of India and/or the States
of India that we operate in like: (i) Customs Duties; (ii) Service Tax;
(iii) Income Tax; (iv) Value Added Tax etc., has affected the BPO industry.
Certain changes introduced over the years had their impact on the ITES
industry, inclusion of profits eligible for 10A deduction for computing
Minimum Alternate Tax, introduction of Service Tax on accrual basis with
respect to related party transactions instead of on payment basis, Service
Tax introduction on import of services under reverse charge method etc.
which have had a dampening effect on the Industry. The withdrawal of Sec
10A benefit on deduction of export profits for IT/ ITES units will have a
great impact for our Company in the years to come.
LEGAL AND CONTRACTUAL RISKS
Our business is subject to a variety of country specific regulations.
Particularly, we must comply with a number of laws in the respective
geographies in relation to debt collection and telephone and email based
solicitation.
The requirements of many of these regulations are complex and the failure
to comply could result in enforcement or private actions which can
potentially affect our reputation and in turn adversely affect our
business. In addition, these laws are subject to change and new laws
affecting our business may be enacted, which could significantly affect the
demand for, and our ability to provide, certain service offerings and
significantly increase the cost of regulatory compliance.
INFRASTRUCTURE RISKS
The Company has invested substantially in the state of the art
infrastructure and equipment in its centers to provide a world-class
service to its customers. Service to our clients also depend on the
uninterrupted functioning of these equipment, power and stability of
telecom network. Any obsolescence in the infrastructure and equipment
leading to incompatibility with client`s systems or any disruption in the
essential services may affect the business of the company.
HUMAN RESOURCES RISK
There have been cases of companies losing BPO orders for not being able to
demonstrate a competent team that can manage a large workforce. High level
of attrition further complicates the problem. In this industry, we have
seen atleast 40% of the workforce change jobs every year. There is a gap
between the supply and demand of work force. Further, the available man
power is not immediately employable in terms of the skill sets required for
the industry. Thus the shortage of supply in quality manpower both at the
managerial level and at the agent`s level may significantly affect the
functioning of the Company.
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY:
The Company has a well-defined and documented internal control system that
is adequate and commensurate with the size and nature of its business.
Adequate checks and balances and control systems are established to ensure
that assets of the company are safeguarded and transactions are executed
under proper authorization and are properly recorded in the books of
account. There exists a proper definition of roles and responsibilities
across the organization to ensure information flow and effective
monitoring. The Company has an independent Internal Audit carried out
periodically by a firm of Chartered Accountants who draw out their audit
program based on risk assessments and in consultation with the Audit
committee. The Company has an Audit Committee consisting of 3 Directors
which has a majority of Independent Directors. This committee reviews the
internal audit reports, statutory audit reports, the quarterly and/annual
financial statements and discusses all significant audit observations and
follow up actions arising from them. It further monitors the risk exposures
of the company. The committee also reviews and recommends to the Board, the
terms of appointment of the statutory auditors and internal auditors.
MATERIAL DEVELOPMENTS ON HUMAN RESOURCE FRONT INCLUDING HEAD COUNT:
As at 31st March 2012, number of employees was 5513 -a decrease of 2485
from the previous year end figure of 7998.
For detailed write up and section on HR and Training and material
developments, please refer pages no. 6 of the Annual Report.
SEGMENT WISE OR PRODUCT WISE PERFORMANCE
Allsec is currently providing voice and data services to its International
and Domestic clients in the Information Technology Enabled Services Sector
(ITES).
Exports constituted major share of Revenue in the previous two years.
However, in the last year due to the increased volumes in the Indian
domestic outsourcing work and also due to the slow down in the US which
led to declines in quantum of export revenues, the proportion of domestic
revenues has significantly increased as shown below.
(Rs. in Million)
For the year Exports % Domestic % Total
ended income
31st March, 2012 408.10 33 838.95 67 1,247.05
31st March, 2011 684.81 48 730.64 52 1,415.45
DISCUSSION ON FINANCIAL AND OPERATIONAL PERFORMANCE AND FINANCIAL CONDITION
(STANDALONE):
Overview
The following discussion is based on our audited standalone financial
statements which have been prepared to comply in all material respects with
the Notified accounting standard by Companies Accounting Standards Rules,
2006 and the relevant provisions of the Companies Act, 1956. The financial
statements have been prepared under the historical cost convention on an
accrual basis. The accounting policies have been consistently applied by
the Company except for changes in accounting policy if any, made to ensure
compliance with law for the applicable periods. The discussion should be
read in conjunction with the Audited Standalone Financial statements of the
Company and Notes on Accounts.
RESULTS OF OPERATIONS - PERFORMANCE SUMMARY
A B C D E
INCOME
Income - Operations 1,247.1 96 1,415.4 98 (12)
Income - Others 50.5 4 35.7 2 41
A) Income - Total 1,297.6 100 1,451.1 100 (11)
COSTS
Connectivity costs 81.4 6 97.8 7 (17)
Staff cost 901.8 69 950.5 66 (5)
Other Costs 347.2 27 334.2 23 4
B) Total costs 1,330.4 103 1,382.5 96 (4)
C) Profit/(Loss) before
Interest, depreciation
& taxes (32.8) (3) 68.6 4 -
Depreciation &
amortization 107.9 8 103.3 7 4
Interest 6.3 4.7 34
D) Profit/(loss)
before Taxes (147.0) (11) (39.4) (3) (273)
Taxes - - - - -
E) Profit/(Loss)
after Taxes (147.0) (11) (39.4) (3) (273)
A = Rs. in Million 2011-12
B = % of Total revenues 2011-12
C = Rs. in Million 2010-11
D = % of Total revenues 2010-11
E = % increase/(decrease) over previous year
(Note: Figures in brackets in tables above indicate negative numbers or
losses or decrease)
Earnings per share data (Basic/Diluted)
Year ended 31st March 2012 Rs.(9.64)
Year ended 31st March 2011 Rs.(2.59)
PROFIT AND LOSS ACCOUNT
1. Income from Operations
The table below provides the details of income and its composition:
(Rs in Million)
Year Ended Year Ended Increase/
Income 31st March 31st March (Decrease)
2012 2011 in %
Exports 408.1 684.8 (40)
Domestic 839.0 730.6 15
Total 1,247.1 1,415.4 (12)
There is a steep decrease in export revenue, primarily due to reduced USD
billing from our existing Clients and loss of one Client last year. The
dollar rupee exchange rate has been volatile over the current year and the
previous year. However the average conversion rates have been favorable in
the current year to the tune of 5%. The large jump in domestic revenue both
in absolute terms and as a percentage of total revenue is due to increased
volumes from both existing and new Domestic Clients.
2. Other Income
Other Income for the current year stood at Rs.50.5 million as compared to
Rs.35.7 million in the previous year - an increase of Rs.15 million or 41%.
The increase is mainly due to:
i) Favorable foreign exchange rates during the year, the gain on exchange
rates amounted to Rs.11.9 million.
ii) Reduction in interest income more than offset by miscellaneous income
amounting to Rs.3.3 million.
3. Expenditure
The reduction in employee costs and connectivity costs partly offset by
increase in selling and administration expenses has resulted in lower
expenditure during the year.
(Rs. in Million)
Year ended Year ended Favourable/
31st March 31st March (unfavourable)
2012 2011 in % over
Amount Amount previous year
Connectivity cost
(Note 1) 81.4 97.8 17
Employee costs and
benefits (Note 2) 901.8 950.5 5
General and
administration
expenses (Note 3) 325.9 313.6 (4)
Selling expenses
(Note 4) 21.3 20.6 (3)
Finance charges 6.3 4.7 (34)
Depreciation (Note 5) 107.9 103.3 (4)
Note 1: The connectivity cost has come down as the PSTN cost is reduced due
to lower overseas calls in line with decreased US billing to our Clients.
We have also changed from IPLC to MPLS resulting in savings in connectivity
cost.
Note 2: The decrease in employee cost is mainly on account of lower head
count to cater to international and domestic business. The company had 5513
employees as at the end of the year (PY 7998). Due to lower numbers, the
associated costs of recruitment and training costs have also reduced as
compared to previous year.
The above has resulted in a decrease of 4% or Rs.33.6 million in salaries
and related contributions and a decrease of 55% or Rs.15 million in
recruitment and training cost in the current year.
Note 3: The total increase in general and admin expenses in the current
year was Rs.12 million or 4% compared to the previous year. The increase in
general and admin expenses is due to rent and electricity and
infrastructure and assets maintenance expenses amounted to roughly Rs.8
million due to increase in rates.
We have closed down one of the center in Chennai and had to write off the
leasehold improvements relating to that to the tune of Rs.4 million.
Note 4: Increase in selling expenses is primarily due to higher exchange
rate payable for selling commission. Business promotion expenses remained
at the same level as of last year.
Note 5: The increase in Depreciation represents depreciation on account of
Software Upgrade undertaken in the 3rd Quarter of the last year and full
impact has come in this year. The Company has upgraded in line with latest
technology, all the dialers and loggers, which will help in smooth
functioning of the operations in the years to come. The increase in
Depreciation on account of this is Rs.12 million. There is a reduction in
depreciation to the tune of Rs.8 million due to closure of one Center and
lapse of useful life of some Assets.
4. Provision for Tax
Provision for tax includes current tax, deferred taxes, fringe benefit tax
apart from MAT credit entitlement. However during this financial year,
there was no current taxes provision or MAT entitlement credit as there
was no MAT payable on account of there being a loss as per MAT provisions.
FINANCIAL CONDITION - BALANCE SHEET
(Note: Figures given in brackets refer to previous year figures)
1. Share Capital
The Equity Capital of the Company as on 31st March 2012 stands at Rs.152.4
million and has remained constant over the previous Balance sheet date.
2. Employee Stock Option Plan (ESOP):
Employee Stock Option Scheme (ESOS), 2006
The shareholders at the Annual General Meeting held on 10th July 2006, have
approved an Employee Stock Option Scheme 2006 which provides for an issue
of 600,000 options to the employees. Consequently, the compensation
committee had granted the 350,000 options on 25th January 2007 at an
exercise price of Rs.289.75 per share. Out of the 350,000 options granted,
the entire 350,000 options have been cancelled/lapsed as on 31st March 2012
and no options are outstanding as at 31st March 2012.
Employee Stock Option Scheme (ESOS), 2010
The shareholders at the Annual General Meeting held on 4th August 2010,
have approved an Employee Stock Option Scheme 2010 which provides for an
issue of 600,000 options to the employees. Consequently, the compensation
committee had granted the 390,000 options on August 4, 2010 at an exercise
price of Rs. 45.05 per share. Out of the 390,000 options granted, 47,000
options have been cancelled/lapsed as on 31st March 2012 and balance of
343,000 are outstanding as at 31st March 2012.
3. Reserves and Surplus
The Company`s Reserves and Surplus as on 31st March 2012 stood at
Rs.1,028.7 million represented by capital reserve at Rs.25.1 million (same
as last year), share premium on the equity shares amounting to Rs.1,202
million (same as last year), General Reserve at Rs. 141 million (Previous
Year Rs.131 million) and debit balance in Profit & Loss account at Rs.339.6
million. (Previous Year Rs.193 million) The movement in General Reserve is
on account of options that got lapsed due to employee seperations.
4. Long Term Borrowings
Secured loan balance of Rs.2.3 million represents balance payable towards
finance lease obligation (HP loans). This decreased by Rs.1.4 million
during the year from Rs.3.7 million as at 31st March 2011 and this is
primarily due to closure of HP loans due to completion/ resignation of
employees.
5. Other long-term liabilities
Trade payables which are non current amounting to Rs.11.9 million is shown
under this head. (Previous year - NIL)
6. Provisions
Due to change in the Revised Format of Schedule VI of Companies Act,
provisions were categorized into long term and short term.
Provision for Gratuity for the current year is at Rs.19 million as against
Rs.20 million in the last year. Rs.17 million out of Rs.19 million is
considered as Long term and shown accordingly.
Other provision for leave benfits and employee bonus has come down
significantly from Rs.18 million to Rs.13 million as at March 2012.
7. Short term Borrowings:
This represents bank overdraft and there is a reduction of Rs.12 million
during the year.
8. Other Current Liabilities
Trade payables, being payable to suppliers of goods and services has
decreased to Rs.119 million as compared to Rs.133 million.
Other liabilities has also decreased from Rs.67 million to Rs.42 million.
Main components are
Rs. (million)
Service Tax Payable 6
TDS Payable (1)
Others 15
9. Fixed Assets
There has been addition of Rs.53 million (Previous year: Rs.51 million) in
tangible fixed assets primarily due to additions to Computers and servers
of Rs.8 million; call centre equipment Rs.31 million and office equipment
and lease hold improvements of Rs.1.1 million on account of work in
domestic centers.
The total assets disposed off during the year amounted to Rs.24 million
(Previous year: Rs.19 million) mainly due to closure of one delivery center
in Chennai. (There will be a corresponding reduction in accumulated
depreciation).
After providing for depreciation of Rs.77 million (Previous year: Rs.85
million) for the year, the net block of fixed assets stood at Rs.240
million as on 31st March 2012 compared to Rs.272 million as at 31st March
2011.
10. Intangible Assets
Intangible assets comprise block of software used for call centre operation
and goodwill. During the year there was an addition in Software of Rs.45
million being the software upgrade in dialers and loggers and new platform
for our Payroll vertical which in our opinion will bring increased revenues
in next year and subsequent years. The goodwill which arose on business
purchase of the call centre division of i2i Telesource Pvt Ltd in earlier
year is being amortized over a period of 5 years. The closing net block of
software and goodwill are respectively Rs.64 million and Rs.7 Million as at
the end of the year.
11. Non Current Investments
Total Investments represent the amount of equity capitalinvested in three
subsidiaries.
During the year we have remitted USD 500,000 (Rs.23 Million) towards
subscription of Share Capital in one of our subsidiary in US.
There was no movement in investment in other existing subsidiaries during
the year.
12. Loans and Advances
As per requirement of Revised Schedule VI Format, we have classified loans
and advances into Long term and Short term and regrouped previous year
figures wherever necessary.
Long Term Loans and Advances:
As at As at Increase/
Head 31st March 31st March (decrease)
2012 2011
Capital Advances 0.1 - 0.1
Security Deposits 66.3 74.9 (8.6)
Loan to related party 122.5 98.4 24.1
Prepaid expenses 0.9 1.5 (0.6)
Taxes receivable 159.3 138.7 20.6
Total 349.1 313.5 35.6
As at As at Increase/
Head 31st March 31st March (decrease)
2012 2011
Security Deposits 14.7 6.2 8.5
Advances Recoverable 10.0 11.8 (1.8)
Others 6.3 2.5 3.8
Total 31.0 20.5 10.5
Balance of loan to subsidiary represents balance in loan given to
subsidiary Allsectech Manila Inc. Movement represents fresh loan given
during the current year. Taxes receivable includes from advance tax and tax
deducted at source. The increase in this head is primarily due to increase
in tax deducted at source and balance due to increase in domestic business
which is subject to TDS.
13. Trade Receivables
As per requirement of Revised Schedule VI Format, we have classified Trade
Receivables into Long term and Short term and regrouped previous year
figures wherever necessary. Long term Receivables of Rs.61.3 million
represents long due from two of our client.
Current Trade receivable decreased to Rs.27.37 million as at 31st March
2012 as against Rs.28.87 million as at 31st March 2011. The sundry debtors
in terms of days of sales stood at 98 days as at 31st March 2012 as against
90 days as at 31st March 2011.
14. Other Assets
Non Current bank balances represent the Fixed Deposit given as a Margin
Money for opening SBLC with Banks and are maturing after 31st March 2013.
Interest accrued on those deposits is also classified with the deposit as
Long term.
Other current assets represents Fixed Deposits which are maturing before
31st March 2013 and interest accrued on those deposits.
15. Current Investments
Current investments represent balances invested in mutual funds as at 31st
March 2012. The Balance as at 31st March 2012 is Rs.51 Million as compared
to Rs. 187 Million as at 31st March 2011. The reduction is mainly due to
redemption of Mutual funds for utilization for our working capital needs.
16. Cash and Bank Balances
Cash and Bank balances decreased to Rs.46.8 million as at 31st March 2012
as against Rs.117.1 million as at 31st March 2011. This represents year-end
cash and bank balances available in current and deposit accounts. |