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Spanco Ltd.

BSE: 508976 Sector: IT
NSE: SPANCO ISIN Code: INE360B01026
BSE 00:00 | 02 Mar Spanco Ltd
NSE 05:30 | 01 Jan Spanco Ltd
OPEN 4.02
PREVIOUS CLOSE 3.82
VOLUME 16500
52-Week high 4.02
52-Week low 0.00
P/E
Mkt Cap.(Rs cr) 13
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 4.02
CLOSE 3.82
VOLUME 16500
52-Week high 4.02
52-Week low 0.00
P/E
Mkt Cap.(Rs cr) 13
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

Spanco Ltd. (SPANCO) - Director Report

Company director report

SPANCO LIMITED ANNUAL REPORT 2011-2012 DIRECTOR'S REPORT To, The Shareholders, Your Directors have pleasure in presenting this 29th Annual Report of your Company together with the Audited Accounts for the 6 months period ended on March 31, 2012 (Financial period from October 1, 2011 till March 31, 2012). FINANCIAL RESULTS: Your Company's financial performance during the period under review has been encouraging and is summarized below: (Rs.in Crores) Particulars Period ended March 31, 2012 September 30, 2011 (6 months) (18 months) Income from operations and other income 976.47 2,423.67 Profit before Finance Cost, Depreciation & Amortization Exp. and Taxation 126.51 331.53 Less: Depreciation & Amortization Expenses 18.75 46.17 Less: Finance Cost 53.30 118.09 Profit before taxation 54.46 167.27 Less: Tax Expense 19.91 62.13 Profit after tax 34.55 105.14 Add: Balance of Statement of Profit and Loss brought forward 135.37 50.21 Amount available for appropriations 169.92 155.35 Proposed Dividend - 3.14 Tax on Proposed Dividend - 0.50 Transfer to Debenture Redemption Reserve 5.17 16.34 Balance carried to Balance Sheet 164.75 135.37 REVIEW OF OPERATIONS During the 6 months period under review, the Company's income from operations including other income stood at Rs. 976.47 Crores as compared to Rs. 2,423.67 Crores in the previous period (18 months) registering a growth of about 20.86% on annualised basis. Profit before Finance Cost, Depreciation & Taxation for 6 months period stood at Rs. 126.51 Crores as against Rs. 331.53 Crores in the previous period (18 months), thereby registering a growth of about 14.49% on annualised basis. Profit after tax declined marginally by 1.43% on annualised basis and stood at Rs. 34.55 Crores for 6 months period as compared to Rs. 105.14 Crores in the previous period (18 months). DIVIDEND Keeping in mind the capital requirement for future growth of the Company and to conserve resources for operations of the Company, your Directors do not recommend any dividend for the period ended on March 31, 2012. PUBLIC DEPOSITS During the period under review, the Company has not accepted/renewed any deposits from the Public within the meaning of Section 58A and 58AA of the Companies Act, 1956 and rules made there under. MANAGEMENT DISCUSSION AND ANALYSIS REPORT A report on Management Discussion and Analysis, as stipulated under Clause 49 of the Listing Agreement is covered under separate section and forming part of the Annual Report. DIRECTORS During the period under review Mr. Prakash Desai resigned from Directorship of the Company on November 12, 2011. The Board places on record its appreciation for his valuable contribution during his tenure as a Director of the Company. Mr. Vijay Kumar Chopra was appointed as an Additional Director of the Company by the Board w.e.f. July 1, 2012 and in terms of the provisions of the Section 260 of the Companies Act, 1956, he holds office upto the ensuing Annual General Meeting of the Company. The Company has received notice under Section 257 of the Companies Act, 1956, proposing his candidature for appointment as Director of the Company, along with the requisite deposit. The Board recommends his appointment as a Director of the Company. In accordance with the provisions of Section 256 of the Companies Act, 1956 and the Articles of Association of the Company, Mr. Adarsh Bagaria, Whole time Director and Mr. Vijay Kumar Gupta, Director of the Company, retire by rotation at the ensuing Annual General Meeting and being eligible offer themselves for re-appointment. Your Board recommends their re-appointment. Brief resume of the Directors proposed to be appointed/re-appointed as stipulated under clause 49 of the Listing Agreement entered into with BSE Limited and National Stock Exchange of India Limited are given in the Notice convening the 29th Annual General Meeting of the Company. DIRECTORS' RESPONSIBILITY STATEMENT Pursuant to the requirement under section 217(2AA) of the Companies Act, 1956 with respect to the Directors Responsibility Statement, your directors state that: * in the preparation of the Annual Accounts for the 6 months period ended March 31, 2012 the applicable accounting standards have been followed and there are no material departures from the same; * the selected accounting policies were applied consistently and the Directors 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, 2012 and of the profit of the Company for the period ended on that date; * proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, to safeguard the assets of the Company and to prevent and detect fraud and other irregularities; * the annual accounts have been prepared on a going concern basis. AUDITORS M/s. Khandelwal Jain & Co., Chartered Accountants, Mumbai, the Statutory Auditors of your Company holds office upto the conclusion of ensuing Annual General Meeting and are eligible for re-appointment. The Company has received a letter from them to the effect that their appointment, if made, would be within the limits prescribed under Section 224(1B) of the Companies Act, 1956. Your Directors recommend their re-appointment as Statutory Auditors of the Company to hold office from the conclusion of the ensuing Annual General Meeting upto the conclusion of the next Annual General Meeting of the Company and to audit financial accounts for the financial year ending on March 31, 2013. AUDITORS' OBSERVATIONS Observations of the Auditors, read together with the relevant Notes to the Accounts and Accounting Policies, are self-explanatory. COST AUDITORS Pursuant to the provisions of Section 233B of the Companies Act, 1956 and in terms of the Order no. 52/26/CAB-2010 dated May 2, 2011 issued by Central Government, the Company has appointed M/s Sanjay Gupta & Associates, Cost Accountants, New Delhi as the Cost Auditors of the Company for Audit of the cost accounting records maintained by the Company relating to Electricity Industry for the financial year 2011-12, subject to the approval of the Central Government. SUBSIDIARY COMPANIES/JOINT VENTURES AND CONSOLIDATED FINANCIAL STATEMENTS Spanco BPO Ventures Limited (SBVL), a wholly owned subsidiary and BPO arm of Spanco Limited catering to global clients spread across four continents with operations in India, US, Europe and Africa. Spanco's expertise in BPO is not just restricted to call centre operations but also in building and managing call centre, data centre infrastructures and manpower outsourcing globally. Spanco BPO Services Limited, Spanco Respondez BPO Private Limited, Spanco Holdings INC are subsidiaries of Spanco BPO Ventures Limited (SBVL). Spanco BPO Ventures Limited (SBVL) has incorporated a joint venture / subsidiary company namely Spanco BPO Africa Limited in Mauritius with joint venture partner, Ison Infotel Network Limited, Mauritius with objective to make further downstream investments in companies across the African Countries namely Nigeria, Tanzania, Kenya, Uganda, Burkina Faso, Chad, Niger and Rwanda. During the period under review, Spanco BPO Africa Limited has made investments in 8 companies namely Spanco Channel BPO Ltd. (Nigeria), Spanco RAPS Kenya Ltd. (Kenya), Spanco RAPS Uganda Ltd. (Uganda), Spanco RAPS Tanzania Ltd. (Tanzania), Spanco RAPS Niger Ltd. (Niger), Spanco RAPS Burkina Faso SARL (Burkina Faso), Spanco RAPS Tchad SARL (Chad), Spanco RAPS Rwanda Ltd. (Rwanda) duly incorporated in Africa. The main object of the companies incorporated in Africa is to carry the business of providing call centre services, business processing operations, communications, telecommunications, IT services etc. A statement containing brief financial details of the Company's subsidiaries for the period ended March 31, 2012 is included in the Annual Report. The Ministry of Corporate Affairs vide its General Circular No: 2/2011 dated February 8, 2011 have granted general exemption from attaching the Balance Sheets of subsidiary companies with the holding company's Balance Sheet, if the holding company presents in its Annual Report the Consolidated Financial Statements duly audited by its Statutory Auditors. The Company is publishing consolidated financial statements in the Annual Report, hence the Balance Sheets of subsidiary companies are not attached with the Company's Balance Sheet. Further, the annual accounts of the subsidiary companies and the related detailed information will be made available upon request to any member of the Company interested in obtaining the same during the Annual General Meeting and are also available for inspection during business hours at the Registered Office of the Company and that of the respective subsidiary companies. The Consolidated Financial Statements presented by the Company include Financial Results of its subsidiary companies and Joint Ventures and are prepared in strict compliance with applicable Accounting Standards. CREDIT RATING Your Company's ratings has been reviewed to CARE C [Single C] by Credit Analysis and Research Limited (CARE) for Long-term bank facilities and Non- convertible debentures (NCD) and CARE C/CARE A4 (Single C/A four) by CARE for Long/Short-term Bank facilities. SHARE CAPITAL On May 10, 2012 the Company had issued and allotted 15,00,000 fully paid Equity Shares of Rs. 10/- per share at a price of Rs. 155/- per share (including premium of Rs. 145/- per share) to Mrs. Kavita Puri, Promoter of the Company upon conversion of even number of warrants issued on preferential basis. Consequent to this, the paid up share capital of the Company has increased from Rs. 31,35,00,000 (divided into 3,13,50,000 Equity Shares of Rs. 10/- per share) to Rs. 32,85,00,000 (divided into 3,28,50,000 Equity Shares of Rs. 10/- per share). DEBENTURES The Company had issued 20 secured redeemable non - convertible debentures of Rs. 1,000,000 each amounting to Rs. 2 Crores on a private placement basis during the year 2008-09 carrying an interest at 11% payable half yearly and the same are due for redemption in two equal installments on July 3, 2012 and 2013. The Company had issued 200 secured redeemable non - convertible debentures of Rs. 1,000,000 each amounting to Rs. 20 Crores on a private placement basis during the year 2008-09 carrying an interest at 11.25% payable monthly and the same are due for redemption in two equal installments on July 3, 2012 and 2013. The Company had issued 700 secured redeemable non - convertible debentures of Rs. 1,000,000 each amounting to Rs. 70 Crores on a private placement basis during the year 2008-09 carrying an interest at 11.25% payable half yearly and the same are due for redemption in two equal installments on July 10, 2012 and 2013. TRANSFER TO INVESTOR EDUCATION AND PROTECTION FUND As per the provisions of Section 205A read with Section 205C of the Companies Act, 1956, the Company is required to transfer the unpaid dividend remaining unclaimed and unpaid for a period of 7 years from the due date to the Investor Education and Protection Fund (IEPF) set up by the Central Government. The details of amount lying in Unpaid Dividend Accounts due for transfer to the Investor Education and Protection Fund are given in the below table. The shareholders whose dividend remained unclaimed for these financial years are requested to claim it immediately from the Company. Further, the Shareholders are requested to note that no claim shall lie against the said fund or the Company in respect of any amount which remained unclaimed for a period of seven years from the date that these became first due for payment and no payment shall be made in respect of any such claim. The details of Unpaid/Unclaimed Dividend are as follows: Year Dividend Date of Declaration Due Date for Rate per transfer to IEPF share 2004-05 Rs. 0.50 September 15, 2005 October 15, 2012 2005-06 Rs. 1.80 September 29, 2006 October 29, 2013 2006-07 Rs. 1.80 September 29, 2007 October 29, 2014 2007-08 Rs. 2.00 September 19, 2008 October 19, 2015 2008-09 Rs. 0.50 September 29, 2009 October 29, 2016 2009-10 Rs. 1.00 September 24, 2010 October 24, 2017 2010-11 Rs. 1.00 March 20, 2012 April 19, 2019 CORPORATE GOVERNANCE REPORT Pursuant to Clause 49 of the Listing Agreement, a detailed report on Corporate Governance duly certified by M/s. Manish Ghia & Associates, Practicing Company Secretaries, Mumbai is separately attached to this Annual Report. PERSONNEL The employer employee relations remained cordial throughout the period. The Board places on record its sincere appreciation for the valuable contribution made by the employees across all levels of the organization. In accordance with the provisions of Section 217(2A) read with Companies (Particulars of Employees) Rules, 1975, the name and other particulars of employees are to be set out in the Director's Report as an addendum thereto. However, as per the provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, the Report and accounts as set out therein are being sent to all members of the Company excluding the aforesaid information about the employees. Any member, who is interested in obtaining such particulars about employees, may write to the Assistant Company Secretary at the Registered Office. PARTICULARS OF CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO (A) CONSERVATION OF ENERGY The Company's operations are not energy-intensive. However, significant measures are taken to reduce energy consumption by using energy-efficient computers and purchasing energy-efficient equipment. During the period, the Company has taken some measures for optimal utilization of electricity by stringent control by re-scheduling of working hours of air-conditioning and lighting during the off working hours. The Company constantly evaluates new technologies and invests to make its infrastructure more energy-efficient. Air-conditioners with energy-efficient screw compressors for central air- conditioning and with split air-conditioning for localized areas are used. As energy costs comprise a very small part of the total expenses, the financial impact of these measures is not material. (B) TECHNOLOGY ABSORPTION, RESEARCH AND DEVELOPMENT With an object to obtain and deliver the best, your Company successfully deployed a growing and diverse team of R&D specialists who have expertise in hardware, networking systems software, database and application software. This helped the Company to access to the latest technologies and deploy/absorb these latest technologies wherever feasible, relevant and appropriate. The Company has not maintained separate record of the expenditure incurred on R&D. (C) FOREIGN EXCHANGE EARNINGS & OUTGO (Rs. in Crores) Particulars March 31, 2012 September 30, 2011 (6 months) (18 months) Foreign exchange earned 1.62 3.63 CIF value of imports - 3.53 Expenditure in foreign currency 0.47 2.42 ACKNOWLEDGEMENTS Your Directors wish to express their sincere gratitude to the Union Government and the Government of various States, as also to all the Government agencies, banks, financial institutions, customers, vendors and other related organizations, who, through their continued support and co- operation, have contributed towards the Company's growth and progress during the period under review. Your Directors also wish to place on record their deep sense of appreciation for investors, shareholders and employees of the Company for their continued support towards conduct and operations of the Company. For and on behalf of the Board of Directors Kapil Puri Chairman and Managing Director Place: Mumbai Date : August 14, 2012 MANAGEMENT DISCUSSION AND ANALYSIS A. TECHNOLOGY INFRASTRUCTURE IA. INDUSTRY STRUCTURE AND DEVELOPMENTS The Indian Information and Communication Technology (ICT) Industry has played a critical role in shaping the contours of the modern Indian economy and transforming its growth trajectory. The IT industry, alone, has played a pioneering and pivotal role in placing India on the world map as a major knowledge-based economy. The effective use of ICT services in Government administration (both state and central) has significantly enhanced existing efficiencies, driven down communication costs and increased transparency in the functioning of various departments. IT has been recognized as the single most important enabler to effectively modernize India's power sector and also transform its distribution network using modern technology and also reduce the power transmission and distribution losses. To make power distribution more efficient, the government has attempted privatization with the franchise model. As India progresses, a key concern for the Government is enforcing systems that streamline inefficiencies in the system which deprives the Government from valuable revenues at ground level. One of the mega IT infrastructure initiative addressing this key area of concern and also aiding security management is the state border check posts. While the sector's growth trajectory is founded on strong fundamentals and sustained domestic demand, a significant portion of the sector's earning flow from the international and overseas market. Hence the IT sector and particularly the ITeS & BPO sector which are focused purely on international markets are not immune to the global economic challenging environments that prevailed in the past 24 months. CRISIL Research expects the domestic IT services market to grow at a five- year Compounded Annual Growth Rate (CAGR) of 18% to Rs. 65,000 Crores in 2013-14. The Government is expected to be the largest end-user with a 30% share; demand for IT services is expected to grow at a CAGR of 23%. IIA. OPPORTUNITIES AND THREATS Government Business Unit: Mega eGovernance projects involve designing solutions for building gigantic e-infrastructure, necessitating large-scale system integration. The Indian Government plans to spend close to USD 10 billion for rolling out the NeGP, the opportunity for the ICT sector to radically transform modern governance and take the IT revolution to its next phase. The scale of the opportunities can be seen from the fact that the Centre and State will spend anywhere between Rs. 20,000 to Rs. 30,000 Crores over the next five years to roll out government related services. PSU: The upgradation of legacy systems and overall IT-led modernisation presents large scale opportunities to the Indian IT sector. IT spending by India's Public Sector reached an estimated USD 3.1 billion in 2008, and is further expected to grow phenomenally. The estimated CAGR between 2007 - 2011 was nearly 19%. Transport/ Integrated Check Posts: For the Indian economy to achieve accelerated economic growth, infrastructure will play a key role. The Government has increased the infrastructure allocation from USD 500 billion in the 11th Five Year plan to USD 1 trillion in the 12th plan (2012-17). Modernisation of ports, airports, roads and border check posts are key opportunity areas for the ICT sector as they will drive efficiency, enable better revenue collections and also provide greater control to monitor enforcements and adherence of laws. Banking: The banking sector is at the forefront of adopting technology as financial inclusion gains momentum wherein efforts are made to ensure access of appropriate financial products and services needed by weaker sections and low-income groups at an affordable cost in a fair and transparent manner. As a step in this direction, Indian banks have geared up for the second wave of technological enhancement, their spending is likely to shoot, a little over 50%, to Rs. 10,000 Crores annually. Healthcare: Healthcare in India is in the midst of a major transition and technology is making a tremendous impact on the way healthcare is delivered. One emerging trend in this area is telemedicine. ICT holds the potential to deliver modern healthcare guidance and facilitate faster access to urban doctors through focused technology related initiatives such as telemedicine. Aviation: Airport security checks are essential for the safety of both the passengers and the country. Airport Authority of India (AAI) has taken up modernisation and upgradation of airports across the country and the market size for airport security in India is estimated to be USD 6 billion over the next 5 years. Transport department modernisation is an important initiative which will help the department add scale and efficiency and hence drive higher level of transparency in the ecosystem. 2. Power Business Unit Technology Infrastructure and Services: India is presently positioned as the 11th largest manufacturer of energy. It is also the worlds' 6th largest energy user. In spite of its extensive yearly energy output, Indian power sector is a regular importer of energy because of huge disparity between production and demand. While some progress has been made at reducing the Transmission and Distribution (T&D) losses, these losses are still substantially higher than the global benchmarks. To tackle these challenges, the Government has proposed Restructured Accelerated Power Development Reforms Programme (R-APDRP) as a Central Sector Scheme. R-APDRP is an initiative driven by the centre in collaboration with the state with a clear focus to bring in actual, demonstrable performance in terms of sustained energy loss reduction. The size for R-APDRP program is to the tune of Rs. 50,000 Crores. Distribution Franchise (DF): The DF model is a PPP initiative that has emerged as a solution to the problems affecting the power distribution segment - high technical and commercial losses, poor infrastructure, weak financial position and lack of customer orientation. The key driver of franchising for utilities as well as consumers would be the ability of the DF to source additional power and provide uninterrupted supply in the franchise area. The DF model has emerged as a means of tying up with private players to bring on consumer management expertise, invest in infrastructure (thereby curtailing losses) and share financial benefits of the improvements with the licensee. CRISIL Research expects power distribution in 20 circles to be bid out to the private sector over the next three years. This entails an investment opportunity of Rs. 140-170 billion. Of those, around six circles are expected in Maharashtra, six in Uttar Pradesh, three in Madhya Pradesh and three-four in other states. Shnglu committee constituted by the Central Government on power sector reforms have recommended 250 Distribution Franchisees across the country to reduce ATC losses. 3. Telecom Telecom industry in India has undergone a revolution during the past few years with tremendous growth in the telecom subscriber base. The country's telecom industry is one of the fastest growing and one of the largest telecommunication networks in the world. A study by PwC indicates that the urban tele-density at 154% is far ahead of the rural tele-density of 34% per cent. While this spells opportunity for the industry, significant investments will be required in order to further increase reach in the rural areas. Introduction of 3G will not only lead to introduction of new Value Added Service (VAS) applications but will also give a boost to initiate new revenue streams such as m-education, m-governance, telemedicine and most importantly will become the backbone for the broadband penetration. There will be significant increase in the number of persons accessing the internet from their mobile platforms. THREATS Recessionary trends: While the global economic slowdown has arisen in the developed economies, the contagion is being witnessed in all major economies of the world. Several countries including India are experiencing contraction in their GDP. An overall slowdown in the pace of investment activity, the extremely challenging scenario in the financial markets has a dominos effect and also impacts other sectors of the world economy. This along with challenges of high inflation, tight credit policy further posses challenges for India and the India Inc. Government Policy: The IT sector has witnessed tremendous boost from the Government's spending in building of modern IT infrastructure to implement its e-Governance initiatives. The scale of Government-led IT spending in the economy is today unmatched. It is the Government's thrust on areas like CSC, power, telemedicine, transport/integrated check post, Unique Identification Development Authority of India (UIDAI) - Aadhar, National Rural Employment Guarantee Act (NREGA) etc has opened large-scale and long term sustainability for the sector. Hence, any major reverse of policies in this direction or change in thrust can adversely impact the ICT sector. Competition: While India is a well-acknowledged software superpower, traditionally most Indian IT & ITeS companies have concentrated on the opportunities available overseas. Also, due to the increasing opportunities, several global players have set up base in the country to garner a share in the opportunity pie. IIIA. RISKS AND CONCERNS Funding: The Company predominantly works in public sector space. Size of opportunities in this space is significantly large and requires quick access to funds for faster execution. Also, since Spanco participates in several tenders; each tender requires either a Bank Guarantee or an EMD. Spanco has always believed in having a judicious mix of small and medium term projects where the billing is on a time and material basis and the turnaround time is fast along with longer-term PPP projects. This ensures that funding requirements for any of the PPP projects are such as those that can be managed well. In addition, the Company has funding lines from banks and financial institutions open and has sufficient funds for developing ongoing projects. As the Company is building long-term assets through PPP projects and can showcase future revenue visibility, it is confident of raising adequate funds for these projects. Further, the Company has raised Rs. 800 million from Bessemer Venture Partners by way of subscription of equity shares on preferential basis. Time and cost overruns: Time and cost overruns in project execution can impact the Company's revenue projections. Spanco's longstanding presence in executing enables it to foresee any upcoming hurdles resulting in solving them ahead of time. Besides, all projects have inbuilt cost and time related clause in contracts. Manpower capabilities: As Spanco expands its operations across the country, enhancing manpower capabilities will be imperative to success. As the Company scales the growth curve, which is a part of its strategic planning, special initiatives are undertaken to ensure that adequate manpower resources, both at the pre-project and post-project levels, are allocated for each project. Special dedicated teams for each domain already exist. IVA. OUTLOOK As our industry moves towards exploring new frontiers, rapid advancement in technology infrastructure, increasingly competitive Indian organizations, enhanced focus by the Government and emergence of business models that help provide IT to new customer segments would be the key drivers for increased technology adoption in India. Spanco has always delivered beyond expectations and projects have been delivered as per schedule. The ability to identify opportunities ahead of time, invest in continuously strengthening its business foundations and to take the learning's of the past projects to newer projects has played an invaluable role in tracing its success story. By offering relevant futuristic solutions, today Spanco is confident of heralding a new era of change by empowering the common people of India through various landmark projects and now also exploring promising new countries and geographies. With its innovative approach and solid management practices driven by a stable leadership team, a balanced services portfolio across all our business lines viz. Government, power, telecom, transport that aligns to market needs, coupled with a wide geographic spread and increased efficiencies; Spanco has integrated long term sustainability into its businesses. Spanco's entry into the power sector and specially the distribution side provides the business, long term stability and opportunity that offer consistent revenues. Spanco has the ability to replicate the success of diverse projects in one state to multiple states and now aims to take this domain expertise into a new continent of promise like Africa that holds immense long term opportunity and growth potential in the future. Moving forward, Spanco is confident of growing and scaling its business further by exploring more visible opportunities on the horizon. More importantly, with deep market understanding, it has initiated several exciting and dynamic measures which will create important bridges that will translate into a new era of opportunities. Today, after over a decade of proven excellence and growth, Spanco, as an entity stands poised for a leap beyond all its previous benchmarks - a leap of growth and success that promises to provide its new position of eminence in the world of technology infrastructure and services. B. BUSINESS PROCESS OUTSOURCING IB. INDUSTRY STRUCTURE AND DEVELOPMENTS The Business Process Outsourcing (BPO) industry in India is considered one of the most significant growth catalysts for the economy. The Indian ITeS BPO industry has evolved considerably over the past two decades. Increasing competition from emerging nations in low-cost service offerings has made the Indian ITeS BPO industry shift their focus towards improving the value proposition especially in the established verticals such as BFSI. The sector has also expanded across several other emerging verticals such as retail, healthcare and knowledge services. New verticals such as climate change, mobile applications, healthcare, energy efficiency and sustainable energy are fast emerging as growth drivers. As an experienced global outsourcing solutions provider, Spanco has established a formidable presence in the BPO space spread over three continents catering to India, US/Europe and African markets. It has operational centres in: India (Mumbai, Gurgaon, Kolkata, Dehradun, Coimbatore, Mohali, Hyderabad and Mysore), UK, US, Poland, Africa (Nigeria, Kenya, Tanzania, Burkino Faso, Chad, Niger, Uganda and Rwanda) IIB. OPPORTUNITIES AND THREATS Domestic BPO Business: Having grown manifold in size and matured in terms of service delivery capability and footprint over the past decade, India is one of the fastest-growing BPO market in Asia-Pacific. The industry is expected to build on its existing phase of evolution which would be characterised by greater breadth and depth of services; process re- engineering across the value chain; increased delivery of analytics and knowledge services across platforms and strong domestic market focus. International BPO Business: The United States and Europe primarily dominate the global BPO market. The increasing size and scope of the BPO industry is largely attributed to the growing desire of global businesses to address primary issues such as shortage of skilled personnel and rising operational costs. Technological advancements, introduction of sophisticated platforms and software, and the emergence of newer media are also driving businesses to opt for services of specialist third-party service providers. Driven by the need to cut operating costs through outsourcing of non-core processes, the global market for BPO is forecast to reach USD 280.7 billion by the year 2017, as estimated in a report by Global Industry Analysts Inc in October, 2011. African Business: Africa is home to more than one billion people. By 2050, the population is predicted to rise to two billion, some 22% of global population. While individual African economies face serious challenges such as poverty, diseases and high infant mortality, they collectively are now the world's most rapidly growing economic region. Over the past decade, political and economic conditions have improved. Significant armed conflicts have ended, giving way to political stability necessary for economic growth. Africa has started to get more positive coverage in the mainstream media. Time magazine recently dubbed Kenya as 'Silicon Savanna' due to the country's ICT revolution. Around 128 million households, says a McKinsey report, will have disposable income by 2020, when Africa's collective GDP will be USD 2.6 trillion. THREATS Recessionary trends: India's economy has been fuelled by the growth in the technology sector in the past and a slowdown in economic growth also impacts the IT sector. A large part of the IT sector's growth is dependent on the 'outsourcing' or 'offshoring' of key business processes and software development activity (and related services) by large global corporations and other organisations. This is also seen as a reason for job losses in developed countries and outsourcing itself is being questioned by global political power to appease their populations. If this scenario continues to deteriorate further, it possess a major threat to the industry as a whole. Competition from other low-cost countries: India has managed to emerge as the biggest destination for outsourcing, but countries like Philippines, Brazil, China and Mexico are also eyeing the pie by leveraging their comfort with the English language. While Philippines is a major threat, China too seems to be entering this space in a big way but it also has various disadvantages such as lack of skilled manpower and quality measures. III B. RISKS AND CONCERNS Attrition rate: BPO companies suffer from the chronic problem of a high attrition rate, as a large number of people who enter the industry are those who intend to work only for a few months, without long term commitment and career plans. To address the problem the Company has been incorporating world class HR practices enabling it to attract, train and retain the best talent in the industry. The Company continuously creates and maintains a pool of world - class resources by recruiting best talents from leading colleges and from within the industry, imparting efficient and effective training and facilities, blending them into productive resources by creating challenging opportunities on projects. Data security: With data processing units coming up in large numbers the need for proper data security and cyber laws continues to remain a key concern. The Company has invested in the correct technology to build a secure environment. At the same time, Spanco undertakes adequate security measures before recruiting employees; invests in training (and monitoring) to maintain data security and ensures compliance with security policies and procedures. Rising Costs: Pricing pressure, both in the international and domestic segments, is high, making margins thin, especially in the short and medium term. Spanco, with its tight operational and cost efficiency aided by sophisticated MIS systems, is equipped to tide this risk. The Company's solutions combine domain knowledge, process management and technology to deliver increased operational efficiency, better customer management and improved quality through the ability to add significant value to clients in terms of functional excellence, on time and rapid transition and transformational benefits over the lifecycle of the engagement. IVB. OUTLOOK In the past couple of years, the BPO industry has moved away from transaction processing towards a driver of business value. Clients want BPO to help operate their businesses better and to deliver measurable business outcomes. They also are looking for more industry-specific BPO offerings, and services are moving from the back office to the mid and front office. Understanding these trends, going forward the Company aims to further add new fast moving business verticals and expand its service offerings. The Company also aims to expand its geographic presence and its foray into the fast moving African continent has expanded its growth horizons. The Company's strategy in Africa is based on bringing cost effective, scalable solutions to build world class contact centres. Spanco is looking at leveraging local capabilities and expects to partner with companies who have deep rooted understanding of local geography and customer needs. Driven by the unexploited potential in the BPO industry in the continent, Spanco foresees a considerable sum of its profits generating from Africa. VA AND VB INTERNAL CONTROLS The Company is equipped with adequate internal control systems for its business processes which determine the efficiency of its operation strengths in financial reporting and ensure compliance with applicable laws and regulations. The internal control systems are supplemented by extensive audits conducted by internal auditors. These have been designed to provide reasonable assurance with regard to recording and providing reliable financial and operational information, complying with applicable statutes, safeguarding assets from unauthorized use or losses, executing transactions with proper authorization and ensuring compliance of corporate policies. Moreover, regular internal audits and checks ensure that responsibilities are executed effectively across the organisation. The Audit Committee meets regularly, reviews and verifies the controls in accordance with the Terms of Reference given by the Board of Directors. VIA AND VIB HUMAN RESOURCES The total number of employees in the Company, including subsidiaries as on March 31, 2012 stands at 15000 (includes employees on roll as well as on contract). The Company understands that employees are vital and valuable assets. It believes in creating a favorable work environment which can lead to innovative ideas. The Company has a scalable recruitment and human resource process which leads to attraction and retention of highly qualified and productive individuals in the organization. VIIA FINANCIALS IN BRIEF Share capital During the period under review, the Authorized Share Capital of the Company remains unchanged to Rs. 75 Crores divided into 75,000,000 (previous year 75,000,000) Equity Shares of Rs. 10/- each. Also, Paid up capital of the Company remains unchanged to Rs.31.35 Crores. Reserves and surplus The Company's reserves and surplus increased to Rs. 601.39 Crores as at March 31, 2012 as compared to Rs. 566.84 Crores as at September 30, 2011. As a result, the Company's net worth increased to Rs. 632.74 Crores as at March 31, 2012 from Rs. 598.19 Crores as at September 30, 2011. The increase is mainly on account of the net profits earned during the period. Secured loans The Company's secured loans were at Rs. 776.38 Crores as at March 31, 2012 as compared to Rs. 658.60 Crores as at September 30, 2011. The increase is mainly due to increase in working capital loans from Rs. 530.81 Crores to Rs. 653.13 Crores on account of growth in the business. Unsecured loans Unsecured loans have decreased to Rs. 68.96 Crores as at March 31, 2012 as compared to Rs. 116.32 Crores as at September 30, 2011. The decrease is on account of loan repayments. Long term provision The Company's long term provision decreased to Rs. 0.97 Crores as at March 31, 2012 from Rs. 1.26 Crores as at September 30, 2011. Current liabilities (Other than borrowings) Current liabilities of the Company decreased to Rs. 686.02 Crores as at March 31, 2012 from Rs. 700.56 Crores as at September 30, 2011. This was mainly due to decrease in trade payables. Fixed assets The gross block decreased to Rs. 201.13 Crores as at March 31, 2012 as compared to Rs. 227.89 Crores as at September 30, 201 1 due to slump sale of Power Distribution Franchisee division to its step down subsidiary Company. Capital work-in-progress The Capital WIP increased to Rs. 207.81 Crores as at March 31, 2012 as compared to Rs. 147.01 Crores as at September 30, 201 1. This increase is mainly due to ongoing capital expenditure on various long term asset based projects. Investments The Company's investments stood at Rs. 78.56 Crores as at March 31, 2012 compared to Rs. 80.84 Crores as at September 30, 2011. Loans and advances The Company's loans and advances decreased to Rs. 451.17 Crores as at March 31, 2012 from Rs. 461.49 Crores as at September 30, 2011. Other non current assets Other non-current assets have decreased to Rs. 9.32 Crores as at March 31, 2012 from Rs. 10.86 Crores as at September 30, 2011. Inventory The Company's inventory stood at Rs. 481.03 Crores as at March 31, 2012 as compared to Rs. 391.98 Crores as at September 30, 2011. Increase was mainly due to the stock in hand for various milestone based projects, where billing is pending based on the contract terms. Trade receivables The Trade receivables (including long term) of the Company increased to Rs. 789.96 Crores as at March 31, 2012 from Rs. 764.74 Crores as at September 30, 2011. However, the receivables days have come down from 174 days in 2010-11 to 161 days in the period under review, which is mainly due to collection efforts made by the Company. The current receivable days correspond to the nature of the business, the Company operates into. Other current assets Other current assets have decreased to Rs. 34.34 Crores as at March 31, 2012 from Rs. 53.10 Crores as at September 30, 2011 on account of reduction in unbilled revenue. Revenues The total revenue of the Company stood at Rs. 971.41 Crores for six months ended March 31, 2012 as compared to Rs. 2,411.26 Crores for eighteen months ended September 30, 2011 thereby registering a growth of 20.86% on annualized basis. This is mostly due to the increase in revenues from Government (including PSU), Power, e-Governance verticals. Personnel cost Personnel cost of the Company stood at Rs. 22.34 Crores for six months ended March 31, 2012 as compared to Rs. 57.75 Crores for eighteen months ended September 30, 201 1 thereby registering increase of 16.05% on annualized basis which is mainly due to manpower cost of DF business getting clubbed for substantial timeframe during current period as compared to previous period. Interest and finance charges The interest and finance charges of the Company stood at Rs. 53.30 Crores ended for six months ended March 31, 2012 as compared to Rs. 118.09 Crores for eighteen months ended September 30, 201 1 thereby registering increase of 35.41% on annualized basis. This is mainly due to increased borrowings and overall increase in interest rates. Depreciation The depreciation for the year under review was Rs. 18.75 Crores for six months ended March 31, 2012 as compared to Rs. 46.17 Crores for eighteen months ended September 30, 2011 thereby registering increase of 21.83% on annualized basis. This is due to increase in amortization cost for various BOOT projects getting capitalized towards later part of the previous period. Other expenses The other expenses of the Company stood at Rs. 82.81 Crores for six months ended March 31, 2012 as compared to Rs. 173.21 Crores for eighteen months ended September 30, 201 1 thereby registering an increase of 43.43% on annualized basis. It is mainly due to other expenses pertaining to DF business getting clubbed for substantial timeframe during current period as compared to previous period. Profit before tax Profit before tax of the Company stood at Rs. 54.46 Crores for six months ended March 31, 2012 as compared to Rs. 167.27 Crores for eighteen months ended September 30, 2011. It has declined by 2.33% on annualized basis. Post tax profit Profit after tax of the Company stood at Rs. 34.55 Crores for six months ended March 31, 2012 as compared to Rs. 105.14 Crores for eighteen months ended September 30, 201 1 registering decline of 1.42% on annualized basis. Cautionary 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 anticipate, estimate, expects, project, 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.