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AGC Networks Ltd.

BSE: 500463 Sector: Telecom
NSE: AGCNET ISIN Code: INE676A01019
BSE 00:00 | 20 Feb 394.70 18.75
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NSE 00:00 | 20 Feb 394.40 18.75
(4.99%)
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OPEN 394.70
PREVIOUS CLOSE 375.95
VOLUME 7961
52-Week high 394.70
52-Week low 75.05
P/E
Mkt Cap.(Rs cr) 1,174
Buy Price 394.70
Buy Qty 1870.00
Sell Price 394.65
Sell Qty 1.00
OPEN 394.70
CLOSE 375.95
VOLUME 7961
52-Week high 394.70
52-Week low 75.05
P/E
Mkt Cap.(Rs cr) 1,174
Buy Price 394.70
Buy Qty 1870.00
Sell Price 394.65
Sell Qty 1.00

AGC Networks Ltd. (AGCNET) - Director Report

Company director report

The Directors of your Company hereby present the Thirty Third (33rd) AnnualReport alongwith the audited financial statements (Consolidated and Standalone) of theCompany for the Financial Year ("FY") ended March 31 2019.

FINANCIAL RESULTS

The summary of the Company’s financial performance both on consolidated andstandalone basis for the FY 2018-19 as compared to the previous FY 2017-18 is givenbelow:

(` in Crore)

Particulars Standalone Consolidated
Year ended March 31 2019 Year ended March 31 2018 Year ended March 31 2019 Year ended March 31 2018
Revenue from Operations 306.85 303.39 1852.74 733.45
Other Income 6.25 5.30 6.39 4.88
Total Income 313.10 308.69 1859.13 738.33
Profit/(Loss) before finance cost depreciation exceptional items and tax 14.67 34.25 52.96 38.18
Less: Interest and finance charges (Net) 17.05 20.90 44.54 24.96
Less : Depreciation 2.01 2.13 14.65 8.17
Profit/(Loss) before tax & exceptional items (4.39) 11.22 (6.23) 5.05
Add/(Less): Exceptional item 5.67 20.52 (73.12) 14.02
Profit/(Loss) before tax 1.28 31.74 (79.35) 19.07
(Add)/Less : Tax - - (0.58) 4.14
Profit/(Loss) after tax 1.28 31.74 (78.77) 14.93
Add/(Less): Other Comprehensive Income 0.83 (0.90) 2.14 (0.26)
Total Comprehensive Income for the year 2.11 30.84 (76.63) 14.67
Earnings/(Loss) Per Share of Rs 10/- each before exceptional items:
Basic: (In Rs) (1.50) 3.94 (1.93) 0.32
Diluted: (In Rs) (1.50) 3.91 (1.93) 0.32
Earnings/(Loss) Per Share of Rs 10/- each after exceptional items:
Basic: (In Rs) 0.44 11.15 (26.97) 5.24
Diluted: (In Rs) 0.44 11.06 (26.97) 5.20

FINANCIAL PERFORMANCE

The Company for the year ended March 31 2019 recorded a gross turnover of Rs 306.85Crores as against Rs 303.39 Crores for the year ended March 31 2018 on standalone basisreflecting a minimal increase of 1.14% over previous year. The muted performance onstandalone basis was due to various reasons including spill over of high value orders inQ4 FY19 to Q1 FY20 and shifting of some of the significant orders from India to SingaporeSubsidiary of the Company. Slowdown in economy and adverse market conditions furtherimpacted the Standalone revenue during the FY19. On Consolidated basis the gross turnoverstood at Rs 1852.74 Crores as against

` 733.45 Crores in the previous year ended on March 31 2018. This increase in theconsolidated revenue was mainly due to acquisition of Black Box Corporation("BBC") in January 2019 and consolidation of March 2019 quarter revenues of BBC.Further the total consolidated revenue of Rs 1852.74 Crores comprises of Rs 1050.11Crores added by BBC and its subsidiaries and Rs 802.63 Crores generated by

AGC India (the Company) alongwith its other existing subsidiaries which implies asubstantial increase of 9.4% over previous year’s consolidated revenue of Rs 733.45Crores.

The net profit for the current year stood at Rs 1.28 Crores as against Rs 31.74 Croresin the previous year on standalone basis. The decrease in net profit was primarily due tolower gross margins by 2.5% as compared to previous year on account of reduction inmargins on products due to high competitive environment and increase in lease rent ofvarious office premises. Further income from exceptional items was lower in FY19 at Rs5.67 Crores as compared to Rs 20.52 Crores in FY18.

On Consolidated basis the Company has incurred a net loss of Rs 78.77 Crores for FY19against a net profit of Rs 14.93 Crores for the FY18. However the Company alongwith itsexisting subsidiaries (except BBC and its subsidiaries) recorded a net profit of Rs10.39 Crores during the FY19 and the total consolidated loss of Rs 78.77 Crore wasprimarily attributable to one time acquisition related cost of BBC as well as theseverance cost incurred in BBC towards rationalization of manpower to enhance operationalefficiencies.

The Company is taking various steps to increase the profitability in BBC and itssubsidiaries including that of manpower rationalization optimization of general andadministrative overheads and operational efficiencies. The Company is hopeful to turnaround the BBC and its subsidiaries as a profitable business in the FY20 and positiveimpact is expected to be visible as early as from Q1 FY20.

INFORMATION ON THE STATE OF AFFAIRS OF THE COMPANY

The information on the affairs of the Company has been covered under the ManagementDiscussion & Analysis forming part of this Annual Report.

MATERIAL CHANGES AND COMMITMENTS

There were no material changes and commitments affecting the financial position of theCompany which occurred between the end of the financial year to which these financialstatements relate and the date of this Report.

SHARE CAPITAL

At the beginning of the FY19 the authorized share capital of the Company was Rs1450000000/- (Rupees One Hundred and Forty Five Crores Only) divided into 45000000equity shares of Rs 10/- (Rupees Ten only) each and 10000000 cumulative/non-cumulativepreference shares of Rs 100/- (Rupees One Hundred only) each. The paid-up capital of theCompany at the beginning of the FY 2018-19 consisted of paid-up equity capital of Rs284664640/- (Rupees Twenty Eight Crore Forty Six Lakhs Sixty Four Thousand Six Hundredand Forty only) divided into 28466464 equity shares of Rs 10/- (Rupees Ten only) eachand paid-up preference share capital of Rs 150000000/- (Rupees Fifteen Crore only)divided into 1500000 Non-Cumulative Non-Convertible Redeemable Preference Shares("NCRPS") of Rs 100/- (Rupees One Hundred Only) each.

During the year under review the Company had changed the terms of 1500000 1% NCRPSof Rs 100/- (Rupees One Hundred Only) each by converting them into 150000 0.01%Compulsorily Convertible Preference Shares ("CCPS") of Rs 1000/- each.Accordingly the Authorized Share Capital of the Company was reclassified to Rs1450000000/- (Rupees One Hundred and Forty Five Crores Only) divided into 45000000equity shares of Rs 10/- (Rupees Ten only) each and 5000000 cumulative/non-cumulativepreference shares of Rs 100/- (Rupees One Hundred only) each and 5000000 ConvertiblePreference Shares of Rs 100/- (Rupees One Hundred Only) each or any other denomination asmay be approved by the Board.

Subsequently on August 31 2018 the Company allotted 1271185 Equity Shares of Rs10/- (Rupees Ten only) each to the existing CCPS holders on conversion of the CCPS as perthe terms of issue. Accordingly the Paid-up Equity Share Capital of the Company increasedby Rs 12711850/- to Rs 297376490/- divided into 29737649 Equity Shares of Rs 10/-(Rupees Ten only) each during the year.

DIVIDEND

With a view to conserve resources for future growth your Directors have notrecommended any dividend for the financial year ended March 31 2019.

TRANSFER TO RESERVE

With a view to facilitate the growth of the Company’s business over the comingyears the Board of Directors have recommended that the entire profits generated in thecurrent financial year 2018-19 should be transferred to the reserves of the Company.

ORGANIZATIONAL INITIATIVES

HR priorities for an engaging employee experience

In FY19 AGC introduced a number of initiatives to improve existing HR systems andprocesses and to develop new tools to enhance overall employee experience. .

i) Talent Acquisition & Employer Branding:

Technology is undergoing rapid and disruptive changes so is the skills associated withit. Talent Acquisition team at AGC focuses on acquiring new skills & technologies suchas Digital Applications Chat-bots Voice Biometrics Speech Analytics Cyber-securityRobotic Process Automation Genesys Trend Micro etc. to build and strengthen an enviableinternal talent pool. Dedicated job portals and social media are extensively used to reachout to the potential candidates endowed with niche expertise and onboard themexpeditiously. AGC follows an integrated and multi-dimensional approach for ensuringinclusivity and diversity at workplace.

In line with AGC’s focus on internal mobility Global Talent Exchange (GTEx) andInternal Job Postings (IJP) offer employees scope to explore opportunities from within andboost professional development and career growth.

ii) Talent Development:

At AGC the importance of employees being equipped with right set of skills andtechnology updates is acknowledged. Learning and development interventions at AGC arecustomized across career levels skills and domains. Novel learning and developmentmethodologies are introduced to maximize individual capability and performance. In-houselearning expertise is being cultivated in the form of dedicated internal trainers lab setups and a Learning Management System (LMS). To enable and continue partnershipswith core and strategic OEMs (Original Equipment Manufacturers) special importance isassigned towards Key OEM certifications.

iii) Talent Engagement:

It is important to get to the pulse of the employees to understand what motivates andengages them and how they perceive their work environment. At AGC employeecommunication plays a major role in cascading business information amongst internalstakeholders. There are multitudinous internal communication channels at AGC which helpAGC leadership team to stay connected with employees at all times and keep themmeaningfully engaged.

Diverse calendarized employee engagement programs are also undertaken throughoutthe year to celebrate festivities. AGC as a responsible corporate entity relentlesslystrive towards adding value to the society through diverse community initiatives withinits sphere of operations. AGC’s community initiatives are driven by a definedphilosophy to reach out to the society at large and help people attain and sustain avalued quality life.

iv) Reward & Recognition:

AGC has a robust Global Reward & Recognition framework designed to recognizeexceptional talents and outstanding business performances. AGC’s Reward &Recognition Program comprises of numerous rewards categories based on diverse criterionsspread across functions & geos. The CEO Performance Plus Awards are conferred ondistinguished employees to acknowledge their exemplary performances exceeding businessexpectations and setting new performance benchmarks.

MANAGEMENT’S DISCUSSION AND ANALYSIS

Management’s Discussion and Analysis for the year under review in terms of theprovisions of Regulation 34 of the SEBI (Listing Obligation and Disclosure Requirements)Regulations 2015 ("LODR Regulation") is set out as a separate section formingan integral part of this Annual Report.

INTERNAL FINANCIAL CONTROLS

The Company has in place adequate internal financial controls for ensuring orderly andefficient conduct of its business including adherence to company’s policies thesafeguarding of its assets the prevention and detection of frauds and errors theaccuracy and completeness of the accounting records and the timely preparation of reliablefinancial information with reference to financial statements.

During the year under review these internal controls have been subject to audit. Fordetails with regard to reportable material weaknesses in the said controls if any pleaserefer the Statutory Auditors’ Report forming part of this Annual Report.

PUBLIC DEPOSITS

The Company has not accepted any fixed deposits including from the public and as suchno amount of principal or interest was outstanding as on the date of the Balance Sheet.

SUBSIDIARIES/ HOLDING COMPANY

During the year under review the following changes took place in Subsidiaries andHolding Company of the Company:

Holding Company(s)

During the year Essar Telecom Limited ("ETL") existing immediate holdingcompany has transferred a part of its stake to Onir Metallics Limited ("OML")another Promotor Group entity under an inter-se transfer arrangement. Consequently ETLhas ceased to be the immediate holding company with Essar Global Funds Limited remainingas the Holding Company of the Company. However ETL continues to be the major shareholderwith 46.69% stake in the Company as on March 31 2019.

Further Onir Information Technology Limited ("OITL") another Promotor groupentity was allotted 932203 Equity Shares of Rs 10/- (Rupees Ten Only) each onconversion of CCPS during the year. Thus as on March 31 2019 ETL OML and OITL(collectively Promoters of the Company) jointly held 19116346 equity shares of theCompany constituting 64.28% Promoter shareholding in the Company.

Essar Global Fund Limited remains the ultimate Holding Company of the Company.

Incorporations:

a. AGC Networks Australia Pty. Ltd. wholly-owned subsidiary ("WOS") of theCompany incorporated AGC Networks New Zealand Limited.

b. AGC Networks Pte. Ltd. wholly-owned subsidiary of the Company incorporated BBX MainInc. and BBX Inc. as its wholly-owned subsidiary and step-down subsidiary respectively.

Acquisitions:

Black Box Corporation Pittsburgh Philadelphia USA ("BBC"): AGCNetworks Pte. Ltd. ("AGC Singapore") WOS of the Company completed acquisitionof Black Box Corporation ("BBC") headquartered in Pittsburgh Pennsylvania USAon January 7 2019 on completion of tender offer process. Under the terms of the mergeragreement each share of BBC common stock that was tendered in the offer and not validlywithdrawn has been accepted for payment and have received consideration of US$ 1.10 incash and each share of BBC common stock that was not tendered in the offer (other thanthose as to which holders properly exercise dissenters’ rights and those owned at thecommencement of the tender offer by AGC or its direct and indirect subsidiaries) has beencancelled and converted into the right to receive the merger consideration of US$ 1.10 incash. All such consideration is net to the holder of BBC common stock without Interestthereon. Payment for such shares have been made in accordance with the terms of the mergeragreement and the tender offer and as a result Black Box Corporation has become a 100%subsidiary of AGC Singapore through its US subsidiaries effective January 7 2019.

COPC Holdings Inc. Florida USA ("COPC"): AGC Networks Pte. Ltd("AGC Singapore") WOS of the Company and AGC Networks Inc. ("AGCUS") wholly-owned subsidiary of AGC Singapore had jointly entered into a StockPurchase Agreement with COPC Holdings Inc. USA ("COPC") and Global QualityAssurance Limited ("Seller") for acquisition of 100% stake in COPC for apurchase consideration of US$ 5.5 million. The acquisition was effective from January 12019.

As on March 31 2019 the following are the subsidiaries/step-down subsidiaries of theCompany including the entities which have been inducted into the AGC Group consequent tothe aforesaid acquisitions of Black Box Corporation and COPC Holdings Inc.:

Sr. No. Name of the Entity Registration Geos Nature of Relationship
1. AGC Networks Pte. Ltd Singapore Subsidiary Company
2. AGC Networks Australia Pty. Ltd Australia Subsidiary Company
3. AGC Networks Inc. US Step-Down Subsidiary Company
4. AGC Networks Philippines Inc. Philippines Step-Down Subsidiary Company
5. AGC Networks & Cyber Solutions Limited Kenya Step-Down Subsidiary Company
6. AGC Networks LLC Dubai Dubai Step-Down Subsidiary Company
7. AGC Networks LLC Abu Dhabi Abu Dhabi Step-Down Subsidiary Company
8. AGC Networks New Zealand Limited New Zealand Step-Down Subsidiary Company
9. AGCN Solutions Pte. Ltd Singapore Step-Down Subsidiary Company
10. BBX Main Inc. US Step-Down Subsidiary Company
11. BBX Inc. US Step-Down Subsidiary Company
12. Black Box Corporation US Step-Down Subsidiary Company
13. ACS Communications Inc. US Step-Down Subsidiary Company
14. ACS Dataline LP US Step-Down Subsidiary Company
15. ACS Investors LLC US Step-Down Subsidiary Company
16. BB Technologies Inc. US Step-Down Subsidiary Company
17. BBOX Holdings Mexico LLC US Step-Down Subsidiary Company
18. BBOX Holdings Puebla LLC US Step-Down Subsidiary Company
19. Black Box Corporation of Pennsylvania US Step-Down Subsidiary Company
20. Black Box Network Services Inc. – Government Solutions US Step-Down Subsidiary Company
21. Black Box Services Company US Step-Down Subsidiary Company
22. CBS Technologies Corp. US Step-Down Subsidiary Company
23. Delaney Telecom Inc. US Step-Down Subsidiary Company
24. Norstan Communications Inc. US Step-Down Subsidiary Company
25. Nu-Vision Technologies LLC US Step-Down Subsidiary Company
26. Black Box Network Services Australia Pty Ltd Australia Step-Down Subsidiary Company
27. Black Box GmbH Austria Step-Down Subsidiary Company
28. Black Box Network Services NV Belgium Step-Down Subsidiary Company
29. Black Box do Brasil Industria e Comercio Ltda. Brazil Step-Down Subsidiary Company
30. Black Box Canada Corporation Canada Step-Down Subsidiary Company
31. Norstan Canada Ltd./Norstan Canada Lte Canada Step-Down Subsidiary Company
32. Black Box Holdings Ltd. Cayman Islands Step-Down Subsidiary Company
33. Black Box Chile S.A. Chile Step-Down Subsidiary Company
34. Black Box E-Commerce (Shanghai) Co. Ltd. China Step-Down Subsidiary Company
35. Black Box A/S Denmark Step-Down Subsidiary Company
36. Black Box Network Services (UK) Limited England Step-Down Subsidiary Company
37. Black Box Finland OY Finland Step-Down Subsidiary Company
38. Black Box France France Step-Down Subsidiary Company
39. Black Box Deutschland GmbH Germany Step-Down Subsidiary Company
40. Black Box Network Services India Private Limited India Step-Down Subsidiary Company
41. Black Box Network Services (Dublin) Limited Ireland Step-Down Subsidiary Company
42. Black Box Software Development Services Limited Ireland Step-Down Subsidiary Company
43. Black Box Network Services S.r.l. Italy Step-Down Subsidiary Company
44. Black Box Network Services Co. Ltd. Japan Step-Down Subsidiary Company
45. Black Box Network Services Korea Limited Korea Step-Down Subsidiary Company
46. Black Box Network Services SDN. BHD. Malaysia Step-Down Subsidiary Company
47. Black Box de Mexico S. de R.L. de C.V. Mexico Step-Down Subsidiary Company
48. Black Box International B.V. Netherlands Step-Down Subsidiary Company
49. Black Box International Holdings B.V. Netherlands Step-Down Subsidiary Company
50. Black Box Network Services New Zealand Limited New Zealand Step-Down Subsidiary Company
51. Black Box Norge AS Norway Step-Down Subsidiary Company
52. Black Box P.R. Corp. Puerto Rico Step-Down Subsidiary Company
53. Black Box Network Services Singapore Pte Ltd Singapore Step-Down Subsidiary Company
54. Black Box Comunicaciones S.A. Spain Step-Down Subsidiary Company
55. Black Box Network Services AB Sweden Step-Down Subsidiary Company
56. Black Box Network Services AG Switzerland Step-Down Subsidiary Company
57. Black Box Network Services Corporation Taiwan Step-Down Subsidiary Company
58. Servicios Black Box S.A. de C.V. Mexico Step-Down Subsidiary Company
59. COPC Holdings Inc. US Step-Down Subsidiary Company
60. COPC Inc. US Step-Down Subsidiary Company
61. COPC International Inc. US Step-Down Subsidiary Company
62. COPC Asia Pacific Inc. US Step-Down Subsidiary Company
63. COPC International Holdings LLC. US Step-Down Subsidiary Company
64. COPC India Private Limited India Step-Down Subsidiary Company
65. COPC Consultants (Beijing) Co. Limited China Step-Down Subsidiary Company

PARTICULARS OF LOANS GIVEN INVESTMENTS MADE GUARANTEES GIVEN AND SECURITIES PROVIDED

The particulars of loan(s) given investment(s) made guarantee(s) given and/orsecurities provided by the Company along with the purpose for which such amount of loanguarantee or security is proposed to be utilized by the recipient has been provided inthe notes to financial statements.

STATUTORY AUDITORS AND THEIR REPORT

M/s. Walker Chandiok & Co. LLP Chartered Accountants (ICAI Registration No.001076N/N00013) hold the office of the Statutory Auditors of the Company till theconclusion of the ensuing 33rd Annual General Meeting ("AGM") of theCompany. Thus the term of M/s. Walker Chandiok & Co. LLP Chartered Accountants asthe Statutory Auditor of the Company shall expire upon conclusion of the ensuing AGM.

In accordance with the applicable provisions of Section 139 of the Companies Act 2013("the Act") M/s. Walker Chandiok & Co. LLP Chartered Accountants havecompleted a consecutive period of 5 years since their first appointment as StatutoryAuditor of the Company. However in terms of Section 139(2) of the said Act they areeligible to be re-appointed for a further period upto 5 years. Accordingly it is proposedto re-appoint M/s. Walker Chandiok & Co. LLP Chartered Accountants as the StatutoryAuditor of the Company for a period of 5 years commencing from conclusion of the ensuing33rd AGM till the conclusion of 38th AGM of the Company subject tothe approval of the members at the ensuing AGM.

M/s. Walker Chandiok & Co. LLP Chartered Accountants have consented to the saidappointment and confirmed that their appointment if made would be within the limitsspecified under Section 141(3)(g) of the Act. They have further confirmed that they arenot disqualified to be appointed as statutory auditors in terms of the provisions ofSection 139(1) Section 141(2) and Section 141(3) of the Act read with the applicableprovisions of Companies (Audit and Auditors) Rules 2014.

Statutory Auditors’ Report

The Statutory Auditors’ Report on the financial statements of the Company(standalone & consolidated) for the financial year ended March 31 2019 has beenannexed to the financial statements contained in this Annual Report. The StatutoryAuditors have expressed their qualifications/reservations on the standalone &consolidated financial statements of the Company in the said report which particularlyrelates to previous years and has no relevance w.r.t dealings of the Company in the FY19.Further the said reservation/qualifications pertaining to the previous years alongwiththe management’s response on the same is given below:

A. Standalone Audit Report

(i) "As stated in point no. 3 of the Auditors’ Report on Standalone FinancialStatements of the Company during the year ended 31 March 2015 the Company had recognisedsale of a property classified as fixed assets under previous GAAP having carrying valueof Rs 0.74 Crores and recorded profit on such sale amounting to Rs 40.85 Crores (net ofincidental selling expenses amounting to Rs 3.04 Crores). In our opinion the significantrisks and rewards of ownership of the said property were not transferred when such salewas recognised and therefore recognition of such sale and the accounting treatmentfollowed by the Company were not in accordance with the principles of Indian AccountingStandard (Ind AS) 16 Property Plant and Equipment.

Our report on the financial results for the quarter and year ended 31 March 2018 wasalso qualified in respect of the above matter.

During the current year the said property was re-assigned to the Company by the buyerand thereafter significant risks and rewards in respect of the said property have beentransferred to another buyer through a separate sale transaction for a consideration of Rs23.51 Crores. However instead of recognition of sale of this property in accordance withthe principles of Ind AS 16 Property Plant and Equipment the Company has recorded onlythe differential amount between the said consideration and balance receivable amounting toRs 22.40 Crores from the earlier incorrectly recognised sale as profit on sale ofproperty plant and equipment.

Had the Company followed the principles of Ind AS 16 and corrected the aforementionederrors relating to incorrect recognition of sale in earlier year of the said property inaccordance with Ind AS 8 Accounting Policies Changes in Accounting Estimates and Errorsand subsequently recorded the sale of such property in the year ended 31 March 2019 as perthe principles of Ind AS 16 exceptional item (income) representing gain on sale ofproperty plant and equipment for the quarter and year ended 31 March 2019 would havebeen higher by Nil and Rs 22.79 Crores respectively (quarter ended 31 December 2018: Nilquarter and year ended 31 March 2018: Nil) while depreciation expense for the quarter andyear ended 31 March 2019 would have been higher by Nil and Rs 0.02 Crores respectively(quarter ended 31 December 2018: Nil quarter ended 31 March 2018:

` 0.01 Crores year ended 31 March 2018: Rs 0.04 Crores). The balance considerationreceivable from the buyer in the first sale transaction amounting to Rs 22.40 Crores wouldhave been adjusted against opening balance of retained earnings as at 1 April 2017. Theresulting impact on retained earnings as at 31 March 2019 would be Nil (31 March 2018: Rs37.58 Crores).

Our report on the financial results for the quarter and nine-month period ended 31December 2018 was also qualified in respect of the above matter."

(ii) In our opinion according to the information and explanations given to us andbased on our audit the following material weakness has have been identified in theoperating effectiveness of the Company’s IFCoFR as at 31 March 2019:

The Company’s internal financial control over evaluation of accounting ofnon-routine transactions was not operating effectively.

This has led to misstatements of exceptional item (income) and depreciation expense forthe year ended 31 March 2019.

A ‘material weakness’ is a deficiency or a combination of deficiencies inIFCoFR such that there is a reasonable possibility that a material misstatement of theCompany’s annual or interim financial statements will not be prevented or detected ona timely basis.

We have considered the material weakness identified and reported above in determiningthe nature timing and extent of audit tests applied in our audit of the standalonefinancial statements of the Company as at and for the year ended 31 March 2019 and thematerial weakness has affected our opinion on the standalone financial statements of theCompany and we have issued a qualified opinion on the standalone financialstatements."

Management’s views on the above:

During the year ended 31 March 2015 the Company had entered into deed of assignment totransfer all the rights title and obligations of its land and building situated atGandhinagar to another company for a consideration of Rs 44.63 Crores. During April 2015the lender to whom these assets were provided as security provided its in-principalapproval for the said transfer subject to fulfilment of conditions stated therein. Thesaid transfer was pending approval from the relevant government authority and transfer oflegal title that were considered to be procedural in nature. Accordingly the Company hadrecognised profit on sale of property plant and equipment of

` 40.85 Crores (net of incidental expenses Rs 3.04 Crores) during the year ended 31March 2015.

During the current year the said property was re-assigned to the name of the Companyby the buyer since the buyer expressed its inability to get the aforementioned sale deedregistered with the relevant government authority. Subsequently the said property hasbeen transferred to another buyer through a separate sale transaction for a considerationof Rs 23.51 Crores and the Company has recorded the differential amount of Rs 1.11 Croresbetween the said consideration and balance receivable from the earlier recognised sale asprofit on sale of property plant and equipment. The amount of consideration alreadyreceived amounting Rs 22.23 Crores from the erstwhile buyer is not required to be refundedby the Company. The entire transaction stands completed.

Accordingly management believes that the Internal Financial Controls are operatingeffectively and the aforesaid qualification/reservation shall have no impact on financialsof the Company going forward.

B. Consolidated Audit report

(i) As stated in point no. 3 of the Auditors’ Report on Consolidated FinancialStatements of the Company during the year ended 31 March 2015 the Company had recognisedsale of a property classified as fixed assets under previous GAAP having carrying valueof Rs 0.74 Crores and recorded profit on such sale amounting to Rs 40.85 Crores (net ofincidental selling expenses amounting to Rs 3.04 Crores). In our opinion the significantrisks and rewards of ownership of the said property were not transferred when such salewas recognised and therefore recognition of such sale and the accounting treatmentfollowed by the Company were not in accordance with the principles of Indian AccountingStandard (Ind AS) 16 Property Plant and Equipment.

Our report on the financial results for the quarter and year ended 31 March 2018 wasalso qualified in respect of the above matter.

During the current year the said property was re-assigned to the Company by the buyerand thereafter significant risks and rewards in respect of the said property have beentransferred to another buyer through a separate sale transaction for a consideration of Rs23.51 Crores. However instead of recognition of sale of this property in accordance withthe principles of Ind AS 16 Property Plant and Equipment the Company has recorded onlythe differential amount between the said consideration and balance receivable amounting toRs 22.40 Crores from the earlier incorrectly recognised sale as profit on sale ofproperty plant and equipment.

Had the Company followed the principles of Ind AS 16 and corrected the aforementionederrors relating to incorrect recognition of sale in earlier year of the said property inaccordance with Ind AS 8 Accounting Policies Changes in Accounting Estimates and Errorsand subsequently recorded the sale of such property in the year ended 31 March 2019 as perthe principles of Ind AS 16 exceptional item (income) representing gain on sale ofproperty plant and equipment for the quarter and year ended 31 March 2019 would havebeen higher by Nil and Rs 22.79 Crores respectively (quarter ended 31 December 2018: Nilquarter and year ended 31 March 2018: Nil) while depreciation expense for the quarter andyear ended 31 March 2019 would have been higher by Nil and Rs 0.02 Crores respectively(quarter ended 31 December 2018: Nil quarter ended 31 March 2018:

` 0.01 Crores year ended 31 March 2018: Rs 0.04 Crores). The balance considerationreceivable from the buyer in the first sale transaction amounting to Rs 22.40 Crores wouldhave been adjusted against opening balance of retained earnings as at 1 April 2017. Theresulting impact on retained earnings as at 31 March 2019 would be Nil (31 March 2018: Rs37.58 Crores).

Our report on the financial results for the quarter and nine-month period ended 31December 2018 was also qualified in respect of the above matter."

(ii) "In our opinion according to the information and explanations given to usand based on our audit the following material weakness has been identified in theoperating effectiveness of the Holding Company’s IFCoFR as at 31 March 2019:

The Holding Company’s internal financial control over evaluation of accounting ofnon-routine transactions was not operating effectively. This has led to misstatements ofexceptional item (income) and depreciation expense for the year ended 31 March 2019.

A ‘material weakness’ is a deficiency or a combination of deficiencies inIFCoFR such that there is a reasonable possibility that a material misstatement of theCompany’s annual or interim financial statements will not be prevented or detected ona timely basis.

We have considered the material weakness identified and reported above in determiningthe nature timing and extent of audit tests applied in our audit of the consolidatedfinancial statements of the Group as at and for the year ended 31 March 2019 and thematerial weakness has affected our opinion on the consolidated financial statements of theGroup and we have issued a qualified opinion on the consolidated financialstatements."

Management’s views on the above:

During the year ended 31 March 2015 the Company had entered into deed of assignment totransfer all the rights title and obligations of its land and building situated atGandhinagar to another company for a consideration of Rs 44.63 Crores. During April 2015the lender to whom these assets were provided as security provided its in-principalapproval for the said transfer subject to fulfilment of conditions stated therein. Thesaid transfer was pending approval from the relevant government authority and transfer oflegal title that were considered to be procedural in nature. Accordingly the Company hadrecognised profit on sale of property plant and equipment of

` 40.85 Crores (net of incidental expenses Rs 3.04 Crores) during the year ended 31March 2015.

During the current year the said property was re-assigned to the name of the Companyby the buyer since the buyer expressed its inability to get the aforementioned sale deedregistered with the relevant government authority. Subsequently the said property hasbeen transferred to another buyer through a separate sale transaction for a considerationof Rs 23.51 Crores and the Company has recorded the differential amount of Rs 1.11 Croresbetween the said consideration and balance receivable from the earlier recognised sale asprofit on sale of property plant and equipment. The amount of consideration alreadyreceived amounting Rs 22.23 Crores from the erstwhile buyer is not required to be refundedby the Company. The entire transaction stands completed.

Accordingly management believes that the Internal Financial Controls are operatingeffectively and the aforesaid qualification/reservation shall have no impact on financialsof the Company going forward.

SECRETARIAL AUDITORS AND THEIR REPORT

Pursuant to Section 204(1) of the Act and Rule 9 of the Companies (Appointment andRemuneration of Managerial Personnel) Rules 2014 the Secretarial Audit of the Companywas carried out by Dr. S. K. Jain Practicing Company Secretary (FCS No. 1473) for thefinancial year 2018-19. The Report given by the Secretarial Auditor is annexed as Annexure- I and forms an integral part of this Report. There is no qualification reservation oradverse remark or disclaimer in their Report.

REPORTING OF FRAUDS BY THE AUDITORS

During the year under review the Auditor has not reported to the Audit Committee orthe Board pursuant to the provisions of Section 143(12) of the Act any fraud committedagainst the Company by its employees or officers.

COST RECORDS AND COST AUDIT

The maintenance of cost records and requirement of cost audit as prescribed under theprovisions of Section 148(1) of the Act are not applicable for the business andactivities carried out by the Company.

CORPORATE GOVERNANCE

The Company is committed to maintain the highest standards of corporate governance andadhere to the corporate governance requirements set out by SEBI. The Company has alsoimplemented several benchmark corporate governance practices as prevalent globally. TheCorporate Governance Report as stipulated under the LODR Regulations forms an integralpart of this Annual Report. Further in accordance with the applicable provisions ofSchedule V of the said Regulations a compliance certificate issued by M/s. S. K. Jain& Co. Practicing Company Secretaries (ICSI Certificate of Practice No. 3076)confirming that the Company has complied with the conditions of corporate governance isannexed herewith and marked as Annexure II.

NUMBER OF BOARD MEETINGS

During the FY 2018-19 Eleven (11) Board meetings were held. Further detail on the sameis available in the Corporate Governance Report which forms part of the Annual Report.

EMPLOYEES’ STOCK OPTION SCHEME

The Nomination and Remuneration Committee of the Board of Directors of the Companygranted stock options as per the terms of ESOP Scheme 2015 (approved by the shareholdersat their meeting held on April 21 2015) to the employees and directors of the Company aswell as its subsidiaries. The following table shows detailed information with regards tothe same:

Total options granting eligibility of the Company (A) 1423323
Total options granted as on 31.3.2018 (B) 1325114
Total options lapsed as on 31.3.2018 (C) 853994
Options available for grant as on 31.3.2018 (D) = (A-B+C) 952203
Options granted during the FY 2018-19 (E) 170799
Options lapsed during the FY 2018-19 (F) 15657
Options available for grant as on 31.3.2019 (G) = (D-E+F) 797061

The details pursuant to the SEBI ESOP Regulations have been placed on the website ofthe Company and web link of the same is http:// www.agcnetworks.com/in/investors/#esop.

TRANSFER OF UNPAID AND UNCLAIMED DIVIDEND/SHARES TO IEPF

The dividends which remained unpaid/unclaimed for a period of more than sevenconsecutive years have been transferred on due dates by the Company to the InvestorEducation and Protection Fund ("IEPF") established by the Central Government.

Pursuant to the applicable provisions of Section 124 of the Act and the applicableprovisions of the Investor Education and Protection Fund Authority (Accounting AuditTransfer and Refund) Rules 2016 ("the Rules") the Company is required totransfer all amounts of dividend that has remained unpaid or unclaimed for a period ofseven years from its unpaid dividend account to the IEPF Fund. Further according to theapplicable provisions of the said section read with the rules made thereunder the Companyis also required to transfer the corresponding shares with respect to the dividend whichhas not been paid or claimed for seven consecutive years or more to the demat account ofthe IEPF Authority.

Accordingly the Company has transferred unpaid/unclaimed dividends alongwith thecorresponding shares to IEPF Fund within the time limits prescribed under the said sectionand rules. The details of the shares already transferred and the shares which are due fortransfer have been uploaded on the website of the Company and can be accessed athttp://www.agcnetworks.com/in/investors/#iepf.

In accordance with the applicable provisions of the LODR Regulations it is disclosedthat there were no shares lying in the demat suspense account/unclaimed suspense accountof the Company at the beginning of FY 18-19 during FY 18-19 as well as at the end of theFY 18-19.

FAMILIARIZATION PROGRAMME FOR INDEPENDENT DIRECTORS

All Directors of the Company including the Independent Directors are provided withnecessary documents/brochures reports and internal policies to facilitate theirfamiliarization with the procedures and practices followed by the Company. Furtherperiodic presentations are made at the meetings of the Board of Directors and its variousCommittees on business and performance updates of the Company global businessenvironment business strategy and risks involved. Quarterly updates on new amendmentscirculars and notifications issued by the regulatory authorities including ROC RBI andSEBI which mandates further compliances for the Company and landmark judicialpronouncements encompassing important laws are regularly informed to the Directors in theBoard/Committee meetings.

Further at the time of appointment of any Independent Director the Company issues aformal letter of appointment outlining his/her role function duties and responsibilitiesalongwith Code of Conduct to be adhered by the Directors.

VIGIL MECHANISM

The Vigil Mechanism of the Company in terms of the LODR Regulations has beenestablished through the Whistle Blower Policy/Policy on Vigil Mechanism of the Company.Protected disclosures can be made by a Whistle Blower through an e-mail or a letter to theChief Ethics Officer or to the Chairman of the Audit Committee. The Policy on VigilMechanism/Whistle Blower Policy may be accessed on the Company’s website at the linkhttps://www.agcnetworks.com/in/wp-content/uploads/2016/10/Whistle-Blower-Policy.pdf

PERFORMANCE EVALUATION

In terms of the requirement of the Companies Act 2013 and LODR Regulations annualperformance evaluation of the Board the Chairman of the Board Independent andNon-Independent Directors and various Committees of the Board was undertaken.

The evaluation was carried out through a Digital Platform on questionnaire based ratingassessment mechanism where the evaluators were requested to give rating for each criteriaset for evaluating the performance of the Director or the Committee of which theperformance was being evaluated. The board evaluation process was focused around how tomake the Board more effective as a collective body in the context of the business and theexternal environment in which the Company functions. From time to time during the yearthe Board was appraised of the business issues and the related opportunities and risks.The Board discussed various aspects of the functioning of the Board and its Committeessuch as structure composition meetings functions and interaction with management.

Additionally during the evaluation process the Board also focused on the contributionbeing made by the Board as a whole through Committees. The overall assessment of theBoard concluded that it was functioning as a cohesive body including the Committees of theBoard that were functioning effectively.

EXTRACT OF ANNUAL RETURN

In terms of Section 134(3)(a) of the Act the extract of Annual Return of the Companyin the prescribed Form No. MGT-9 for the Financial Year 2018 - 19 has been placed on thewebsite of the Company and can be accessed at:https://www.agcnetworks.com/in/wp-content/uploads/2016/10/Extracts-of-Annual-Return-FY-2018-19.pdf

DIRECTORS AND KEY MANAGERIAL PERSONNEL ("KMP")

Section 152 of the Act provides that unless the Articles of Association provide for theretirement of all directors at every AGM not less than two-third of the total number ofdirectors of a public company (excluding the independent directors) shall be persons whoseperiod of office is liable to determination by retirement of directors by rotation.Accordingly Mrs. Mahua Mukherjee Executive Director of the Company shall retire byrotation at the ensuing AGM and being eligible seeks re-appointment.

During the year following changes took place in the composition of the Board ofDirectors and Key Managerial Personnel ("KMP") of the Company:

Name Event Designation Date of Event
Mrs. Suparna Singh Resignation Non-Executive Director April 5 2018
Mrs. Mahua Mukherjee Appointment Executive Director April 5 2018
Mr. Kaustubh Sonalkar Appointment Non-Executive Director June 15 2018
Mr. Kaustubh Sonalkar Resignation Non-Executive Director January 17 2019
Mr. Naresh Kothari Appointment Non-Executive Director January 17 2019

As on March 31 2019 the Company had the following KMPs:

• Mr. Sanjeev Verma Whole-Time Director

• Mrs. Mahua Mukherjee Executive Director

• Mr. Deepak Kumar Bansal Chief Financial Officer

• Mr. Aditya Goswami Company Secretary & Compliance Officer

The Company has received declarations from all the Independent Directors on its Boardconfirming that he/she meets all the criteria of independence laid down under Section149(6) of the Act and Regulation 16(1)(b) of LODR Regulations and that he/she is not awareof any circumstance/situation which exists or may be reasonably anticipated that couldimpair/impact his/her ability to discharge the duties of an Independent Director withobjective independent judgment or without any external influence.

For detailed composition of Board of Directors and various Committees kindly refer theCorporate Governance Report forming part of the Annual Report.

The Company has devised a Policy for performance evaluation of Directors Board andSenior Management which include various criteria for performance evaluation of the same.The Company has also devised remuneration policy. These policies are annexed to thisreport as Annexure III and IV respectively.

COMMITTEES OF THE BOARD

The details relating to various Committees constituted by the Board of Directors of theCompany are mentioned in the ‘Corporate Governance Report’ which forms a partof the Annual Report.

CODE OF CONDUCT FOR DIRECTORS & SENIOR MANAGEMENT

Pursuant to the provisions of Regulation 17(5) of the LODR Regulations a Code ofConduct for the Directors & Senior Management of the Company has been formulated &approved by the Board of Directors. Further in accordance with the provisions ofRegulation 26(3) all Directors & members of Senior Management of the Company haveaffirmed compliance with the said Code of Conduct during the Financial Year 2018-19.

The said Code of Conduct is accessible on the Company’s website at the link:https://www.agcnetworks.com/in/wp-content/uploads/2016/10/Code-of-Conduct-Directors-Senior-Management.pdf

Further pursuant to the provisions of Regulation 34(3) of the LODR Regulations readwith Schedule V Part D Mr. Sanjeev Verma Whole-Time Director has issued a declarationstating that all the Directors and members of Senior Management of the Company havecomplied with the Code of Conduct of the Company during the FY19. The said declaration hasbeen disclosed in the Corporate Governance Report forming part of the Annual Report.

PERSONNEL

The Board places on record its appreciation for the hard work and dedicated efforts putin by all the employees. The relations between the management and employees continue toremain cordial on all fronts.

The statement of particulars of appointment and remuneration of managerial personneland employees of the Company as required under Section 197(12) of the Act read with Rules5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 isannexed to this Report as Annexure V.

Having regard to the provisions of the second proviso to Section 136(1) of the Act andas advised the Annual Report excluding the aforesaid information is being sent to themembers of the Company. The said information is available for inspection at the registeredoffice of the Company during working hours and any member interested in obtaining suchinformation may write to the Company Secretary and the same will be furnished on request.

POLICY ON PREVENTION OF GENDER HARASSMENT AT WORKPLACE AND INTERNAL COMPLAINTSCOMMITTEE ("ICC")

The Company has in place a policy for prevention prohibition and redressal of genderharassment at workplace. Appropriate reporting mechanisms are in place for ensuringprotection against gender harassment and the right to work with dignity.

Further in accordance with the applicable provisions of the Sexual Harassment of Womenat Workplace (Prevention Prohibition and Redressal) Act 2013 the Company hadconstituted an Internal Complaints Committee ("ICC") to consider and resolve ofsexual harassment complaints raised by the employees of the Company. The constitution ofthe ICC is in accordance with the applicable provisions of the said Act.

During the year under review the Company has not received any complaints in thisregard.

CONSERVATION OF ENERGY TECHNOLOGY ABSORPTION FOREIGN EXCHANGE EARNINGS & OUTGO

(i) Part A pertaining to conservation of energy is not applicable to the Company.

(ii) Part B pertaining to particulars relating to technology absorption is as perAnnexure VI to this report.

(iii) Part C pertaining to foreign exchange earnings and outgoings is as mentionedbelow:

Expenditure in foreign currency (accrual basis) FY 2018-19 FY 2017-18
Rs in Crores Rs in Crores
Service charges 12.63 8.59
Travelling and conveyance 1.27 1.26
Expenses reimbursement paid 0.85 0.77
Other items 0.49 0.33
Total 15.24 10.95
FY 2018-19 FY 2017-18
Earnings in foreign currency (accrual basis) Rs in Crores Rs in Crores
Sale of goods and services
(Including sale from overseas branch and to Export Oriented Units) 15.13 20.08
Commission income 0.74 1.02
Expenses reimbursement received 14.72 12.19
Total 30.59 33.29

CORPORATE SOCIAL RESPONSIBILITY (CSR)

The Corporate Social Responsibility Committee (CSR Committee) has formulated andrecommended to the Board a Corporate Social Responsibility Policy (CSR Policy) indicatingthe activities to be undertaken by the Company which has been approved by the Board.

The CSR Policy may be accessed on the Company’s website at the link:https://www.agcnetworks.com/in/wp-content/uploads/2016/10/Corporate-Social-Responsibility-policy-Revised.pdf

The Report on CSR activities is annexed herewith marked as Annexure VII.

RISK MANAGEMENT POLICY

The Company has a comprehensive Risk Management Policy in place which clearly indicatesall the risks that the organization faces such as strategic financial credit marketliquidity security property IT legal regulatory reputational and other risks thathave been identified and assessed and there is an adequate risk management infrastructurein place capable of addressing those risks. In terms of Regulation 21(5) of the saidRegulations 2015 the provisions of constituting Risk Management Committee were notapplicable to the Company during the FY19.

CONTRACTS AND ARRANGEMENTS WITH RELATED PARTIES

All contracts / arrangements / transactions entered by the Company during the financialyear with related parties were in the ordinary course of business and on an arm’slength basis. During the year the Company had not entered into any contract / arrangement/ transaction with related parties which could be considered material in accordance withthe Company’s policy on materiality of related party transactions. Most of these arepurchase/sales transactions and maintenance services transactions which are of theduration of 3 months to 12 months. Your Directors draw attention of the members to Noteno. 36 (Consolidated) and Note No. 33 (Standalone) to the financial statement which setsout related party disclosures.

The Policy on materiality of related party transactions and dealing with related partytransactions as approved by the Board may be accessed on the Company’s website at thelink:https://www.agcnetworks.com/in/wp-content/uploads/2016/08/Related_Party_Transaction_policy.pdf

DIRECTORS’ RESPONSIBILITY STATEMENT

Your Directors state that:

a) in the preparation of the annual accounts for the year ended March 31 2019 theapplicable accounting standards read with requirements set out under Schedule III to theAct have been followed and there are no material departures from the same;

b) the Directors have selected such accounting policies and applied them consistentlyand made judgements and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the Company as on March 31 2019 and of theprofit/(loss) of the Company for the financial year ended on the said date;

c) the Directors have taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of the Act for safeguarding theassets of the Company and for preventing and detecting fraud and other irregularities;

d) the Directors have prepared the annual accounts on a ‘going concern’basis;

e) the Directors have laid down internal financial controls to be followed by theCompany and that such internal financial controls are adequate and are operatingeffectively; and

f) the Directors have devised proper systems to ensure compliance with the provisionsof all applicable laws and that such systems are adequate and operating effectively.

Based on the framework of internal financial controls and compliance systemsestablished and maintained by the Company work performed by the internal statutory andsecretarial auditors and external consultants including audit of internal financialcontrols over financial reporting by the statutory auditors and the reviews performed bymanagement and the relevant board committees including the audit committee the Board isof the opinion that the Company’s internal financial controls were adequate andeffective during FY19.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS

There are no significant and material orders passed by the Regulators / Courts whichwould impact the going concern status of the Company and its future operations.

Further no penalties have been levied by SEBI or any other Regulators during the yearunder review.

ACKNOWLEDGEMENTS

The Board is thankful to the Shareholders Bankers and Customers of the Company fortheir continued support. It also takes this opportunity to express gratitude to itsvarious suppliers and its partners for their continued co-operation support andassistance. Above all the Board expresses its appreciation to each and every employee forhis / her contribution dedication and sense of commitment to the Company’sobjectives.

For and on behalf of the Board of Directors
Sanjeev Shekhar Verma Mahua Mukherjee
Whole-Time Director Executive Director
DIN: 06871685 DIN: 08107320
Mumbai
July 5 2019