ADITYA BIRLA MINACS WORLDWIDE LIMITED
ANNUAL REPORT OF SUBSIDIARIES 2009-2010
Sl. No. Name Page No 1 A V Transworks Limited 1 2 Compass BPO Limited, UK 15 3 Aditya Birla Minacs Philippines Inc. 35 4 Aditya Birla Minacs Worldwide Inc., (Canada) 49 5 Compass BPO FZE (UAE) 72 6 Compass BPO Inc (USA) 85 7 Compass Business Process Outsourcing (P) Ltd (India) 90 8 Minacs Kft (Hungary) 105 9 Minacs Limited (UK) 114 10 Minacs Worldwide S A De C V (Mexico) 121 11 Minacs Worldwide GmbH (Germany) 125 12 The Minacs Group (USA) Inc. 132 13 Transworks Inc (USA) 141
A V Transworks Limited
AUDITORS’ REPORT
The Board of Directors of Aditya Birla Minacs Worldwide Limited (Formerly known as Transworks Information Services Limited)
1. We refer to your letter dated March 1, 2010 requesting us to audit the accounts of A V Transworks Limited (“the Company”), a wholly owned subsidiary of Transworks Information Services Limited (“the Parent”), incorporated in the Canada, based on records, received from the said Company in Mumbai and in accordance with the accounting policies described in Note 1 of Schedule 9 to the attached financial statements (“the accounting policies”). We have not performed a statutory audit, the objective of which would be the expression of an opinion on the financial statements in conformity with generally accepted accounting practices and accordingly, we do not express such an opinion.
2. We have audited, in accordance with the accounting policies, the attached Balance Sheet of the Company as at March 31, 2010 and also the Profit and Loss account and cash flow statement for the year ended on that date annexed thereto, which are in agreement with the books of account verified by us. These financial statements are the responsibility of the Company’s management and have been prepared in accordance with the accounting policies, for the purpose of consolidation with the financial statements of the Parent. Our responsibility is to express an opinion on these financial statements based on our audit.
3. We conducted our audit in accordance with generally accepted auditing standards in India. These Standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatements. An audit includes, examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements. We believe that our audit provides a reasonable basis for our opinion.
5. In our opinion, based on our audit, and to the best of our information and according to the explanations given to us, the accompanying financial statements give a true and fair view in conformity with the accounting policies:
a. in the case of the Balance Sheet, of the state of affairs of Company as at 31st March, 2010; b. in the case of the Profit and Loss Account, of the loss for the year ended on that date; and c. in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.
6. This report is furnished solely for the purpose of meeting the requirement if consolidation of the attached financial statements with the financial statement of the Parent and hence should not to be used for any other purpose.
For S. R. Batliboi & Co. Firm Registration No. 301003E Chartered Accountants
per Vijay Maniar Partner Membership No.: 36738 Mumbai, April 23, 2010
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A V Transworks Limited
BALANCE SHEET AS AT 31ST MARCH 2010
As At 31st Mar, As At 31st As At 31st As At 31st 2010 Mar, 2010 Mar, 2009 Mar, 2009 Schedule CAD Rs. Lacs CAD Rs. Lacs
I. SOURCES OF FUNDS 1 Shareholders' Funds
Share Capital 1 127,000,001 56,083.20 127,000,001 51,132.61
Preference Share Capital 1 30,000,000 13,248.00 - -
Foreign exchange on translation - (23.68) - 6.48
2 Unsecured Loan from Bank 30,901,850 13,646.26 30,901,850 12,441.67
3 Loan from Holding Company 21,424,531 9,461.07 20,526,184 8,264.23
Total 209,326,382 92,414.85 178,428,035 71,844.99
II. APPLICATION OF FUNDS
1 Investments 2 207,892,852 91,805.48 177,892,852 71,623.03
2 Current Assets, Loans and Advances :
Accured Interest 106,963 47.23 399,501 160.85
Cash and Bank Balances 3 67,073 29.62 3,506 1.41
174,036 76.85 403,007 162.26 Less: Current Liabilities and Provisions : 4
Current Liabilities 629,334 277.92 448,821 180.70
Provisions 2,607 1.15 2,607 1.05
631,941 279.07 451,428 181.75
Net Current Assets (457,905) (202.22) (48,421) (19.49)
3 Profit & Loss Account 1,891,435 811.59 583,604 241.45
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A V Transworks Limited
-
Total 209,326,382 92,414.85 178,428,035 71,844.99
1 - (0) (0.00) Notes to Accounts 8 The Schedules referred to above and the notes to accounts form an integral part of the Balance Sheet.
As per our report of the event For and on behalf of the Board of date Directors of A V Transworks Limited For S.R. BATLIBOI & CO. Firm Registration No. 301003E Chartered Accountants DEEPAK J. PATEL per Vijay Maniar Partner Membership No. 36738
Place: Mumbai RAMESH KAMATH
Date: April 23, 2010 Chief Financial Officer
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A V Transworks Limited
PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2010
For the Year Ended 31st Mar 2010 For the Year Ended 31st Mar 2009 Schedule CAD Rs. Lacs CAD Rs. Lacs INCOME :
Other Income 5 157,375 68.61 1,632,336 676.04
Total 157,375 68.61 1,632,336 676.04
EXPENDITURE :
Administrative Expenses 6 (39,723) (17.31) 615,746 255.02
Financial Charges 7 1,504,930 656.06 1,589,341 658.24
Total 1,465,208 638.75 2,205,087 913.26
Profit / (Loss) before tax for the year (1,307,833) (570.14) (572,751) (237.21)
-
Less: Provision for Tax - - - -
-
Profit / (Loss) for the year (1,307,833) (570.14) (572,751) (237.21)
Profit / (Loss) brought forward from previous year (583,602) (241.45) (10,853) (4.24)
Accumulated balance carried forward to the Balance Sheet (1,891,435) (811.59) (583,604) (241.45)
Notes to Accounts 8 The Schedules referred to above and the notes to accounts form an integral part of the Profit & Loss Accoun t.
As per our report of the event date For and on behalf of the Board of Directors of A V Transworks Limited For S.R. BATLIBOI & CO. Firm Registration No. 301003E Chartered Accountants DEEPAK J. PATEL per Vijay Maniar Partner Membership No. 36738 Place: Mumbai RAMESH KAMATH Date: April 23, 2010 Chief Financial Officer
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A V Transworks Limited
CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2010 For the Year ended For the Year ended March 31 2010 March 31 2009
CAD Rs. Lacs CAD Rs. Lacs A Cash flows from Operating Activities . Net Profit/(Loss) before taxation, and extraordinary items (1,307,833) (570.14) (572,751) (237.21) Adjustments for: Interest Income (157,375) (68.61) (1,631,908) (675.87) Interest Expense 1,497,734 652.92 1,585,191 656.52 Foreign Exchange (Gain)/Loss (Net) 0 6,125.02 5,752,600 4,911.96 Operating Profit before working capital changes 32,526 6,139.19 5,133,132 4,655.40 Movements in working capital : (Increase)/Decrease in payable to subsidiary 267,093 121.24 31,222 13.47 (Increase)/Decrease in Loans & Advances - - 819 0.32 Increase/(Decrease) Current Liabilities & Provisions (12,534) (4.04) 31,618 12.84 Cash generated from operations 287,085 6,256.39 5,196,790 4,682.03
Loan to subsdiaries - - 65,470,971 25,245.61
Cash flow before extraordinary items 287,085 6,256.39 70,667,761 29,927.64 Add/(Less): Extraordinary items - - - -
Net Cash flow from Operating Activities 287,085 6,256.39 70,667,761 29,927.64
B Cash Flows from Investing Activities . Investment in Subsidaries (30,000,000) (20,182.45) (50,638,021) (22,553.57) Interest income received 449,913 182.23 2,852,136 1,139.59
Net Cash from/(for) Investing Activities (29,550,087) (20,000.22) (47,785,886) (21,413.98)
C Cash flow from Financing Activities .
Loan from Holding Company 898,346 1,196.84 (20,038,641) (7,377.56)
Preference Capital from Holding Company 30,000,000 13,248.00 - -
Interest Payment (1,571,778) (672.80) (2,843,693) (1,136.20)
Net Cash used in Financing Activities 29,326,569 13,772.04 (22,882,334) (8,513.76)
Net Decrease in cash and Cash equivalants during the year 63,567 28.21 (458) (0.10) 5
A V Transworks Limited
Cash and cash equivalants at the beginning of the year 3,506 1.41 3,964 1.51
Cash and cash equivalants at the end of the year 67,073 29.62 3,506 1.41
Notes: Components of Cash and Cash Equivalents As At 31st As At 31st As At 31st As At 31st Mar, Mar, Mar, Mar, 2010 2010 2009 2009 i) Cash Balance on hand - - - - ii ) Balance with Scheduled and other Banks :
- in Current Account 67,073 29.62 3,506 1.41
Total 67,073 29.62 3,506 1.41
(0) 0.00 0 0 As per our report of the event date For and on behalf of the Board of Directors of A V Transworks Limited For S.R. BATLIBOI & CO. Firm Registration No. 301003E Chartered Accountants DEEPAK J. PATEL per Vijay Maniar Partner Membership No. 36738 Place: Mumbai RAMESH KAMATH Date: April 23, 2010 Chief Financial Officer
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A V Transworks Limited
SCHEDULES FOR THE YEAR ENDED 31ST MARCH 2010
As At 31st Mar, 2010 As At 31st Mar, 2009 CAD Rs. Lacs CAD Rs. Lacs SCHEDULE - 1 SHARE CAPITAL
Authorised Capital
127,000,001 Equity Shares of CAD$ 1 each 127,000,001 56,083.20 127,000,001 51,132.61
Issued, Subscribed & Paid up Capital 127,000,001 Equity Shares of CAD$ 1 each fully paid up 127,000,001 56,083.20 127,000,001 51,132.61
30,000,000 Preference shares (P.Y. Nil) of CAD$ 1 each 30,000,000 13,248.00 - - (All the above equity and Preference shares are held by Holding Company ) - Aditya Birla Minacs Worldwide Limited)
Total 157,000,001 69,331.20 127,000,001 51,132.61
SCHEDULE - 2 INVESTMENTS
Long Term Investments (At Cost)
In Subsidiary Companies Unquoted, fully paid-up
27,945,822 shares (P.Y. 27,945,822 shares) of CAD$ 1 each in Aditya Birla Minacs Worldwide Inc. 157,571,131 69,583.41 157,571,131 63,441.12
20,321,721 Preference shares (P.Y. 20,321,721 shares) of CAD$ 1 each in Aditya Birla Minacs Worldwide Inc. 20,321,721 8,974.07 20,321,721 8,181.91
30,000,000 Preference shares (P.Y. Nil) of CAD$ 1 each in Aditya Birla Minacs Worldwide Inc. 30,000,000 13,248.00 - -
Total 207,892,852 91,805.48 177,892,852 71,623.03
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A V Transworks Limited
For the Year Ended For the Year Ended SCHEDULE - 3 31st Mar 2010 31st Mar 2009 CASH AND BANK BALANCES CAD Rs. Lacs CAD Rs. Lacs Balance with other Banks :
- On Current Account 67,073 29.62 3,506 1.41
Total 67,073 29.62 3,506 1.41
SCHEDULE - 4
CURRENT LIABILITIES & PROVISIONS i) Sundry Creditors 3,864 1.71 3,864 1.56 ii) Acrrued Interest on Secured Loan from Bank 83,926 37.06 318,856 128.38 iii) Acrrued Interest on Loan from Holding Company 171,041 75.53 10,155 4.09 iv) Payable to Subsidiary Company 351,422 155.19 84,329 33.95 v) TDS Payable 19,081 8.43 31,617 12.73
629,334 277.92 448,821 180.71
PROVISIONS i) Provision for Taxation / Minimum Alternative Tax 2,607 1.15 2,607 1.05
Total 631,941 279.07 451,428 181.76
SCHEDULE - 5 OTHER INCOME Interest received i) Bank interest - - 416 0.17 ii) DBS Loan - - 971,607 402.40 iii) Intercompany Loan 157,375 68.61 660,301 273.47 iv) Others - - 12 0.01
Total 157,375 68.61 1,632,336 676.05
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A V Transworks Limited
For the Year Ended 31st For the Year Ended 31st SCHEDULE - 6 Mar 2010 Mar 2009 ADMINISTRATIVE EXPENSES CAD Rs. Lacs CAD Rs. Lacs
i) Foreign Exchange Loss /(Income) (43,050) (18.76) 585,551 242.51
ii) Legal & Professional Charges - - 6,257 2.59
iii) Telephone Expenses - - 2,929 1.21
iv) Rates & Taxes 3,327 1.45 7,389 3.06
v) Miscellaneous Expenses - - 13,620 5.65
Total (39,723) (17.31) 615,746 255.02
SCHEDULE - 7 FINANCIAL CHARGES
i) Bank charges 7,196 3.14 4,150 1.72
ii) Interest on DBS loan 1,040,947 453.79 971,607 402.40
iii) Interest on Intercompany Loan 456,787 199.13 613,584 254.12
Total 1,504,930 656.06 1,589,341 658.24
SCHEDULE – 8: Notes to Accounts
1. ACCOUNTING POLICIES
a. Basis of preparation
The accounts have been prepared under the historical cost convention on accrual basis in accordance with the generally accepted accounting principles applicable in India.
b. Interest
Interest on Loan given/ taken is booked on a time proportion basis taking into account the amounts of loan given and taken and the rate of interest
c. Transactions in Foreign Currency
i) Initial Recognition Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction.
ii) Conversion Foreign currency monetary items are reported using the closing rate. Non-monetary items, which are carried in terms of historical cost denominated in a foreign currency, are reported using the exchange rate at the date of the transaction. 9
A V Transworks Limited
iii) Exchange Differences Exchange differences arising on the settlement of monetary items or on reporting company's monetary items at rates different from those at which they were initially recorded during the year, or reported in previous financial statements, are recognized as income or as expenses in the year in which they occur.
d. Provision
A provision is recognized when an enterprise has a present obligation as a result of past event; it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are determined based on best estimate required to settle the obligation at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates.
e. Investments
i) Investments that are readily realizable and intended to be held for not more than a year are classified as current investments. All other investments are classified as long-term investments. ii) Long-term investments are valued at cost. Any decline in the value of investments other than temporary, is provided for and charged to the profit & loss account.
f. Conversion of Financial Statements
For the purpose of consolidation of the financials statements with that of the Parent, the amounts in Canadian Dollar (CAD) are converted into INR as follows: Equity capital and all other balance sheet items at closing rate of exchange, profit and loss items at average rate and resultant translation gain/loss is shown separately in Balance sheet
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A V Transworks Limited
2. Related Party Transactions
(a) Name and nature of relationship of the Related Party where control exists:
Ultimate Holding Company Aditya Birla Nuvo Limited
Holding Company Aditya Birla Minacs Worldwide Limited (ABMWL)
Fellow Subsidiaries TransWorks Inc., USA
Aditya Birla Minacs Philippines Inc. (formerly TransWorks BPO Philippines Inc.) (ABMPI) (Subsidiary of ABMWL) (w.e.f November 03, 2006) Subsidiaries Aditya Birla Minacs Worldwide Inc. Canada (ABMWI) (Subsidiary of AV TransWorks) (w.e.f August 18, 2006) Minacs Kft., Hungary (Subsidiary of Minacs GmbH) (w.e.f August 18, 2006) Minacs Limited , UK, (Subsidiary of MWI) (w.e.f August 18, 2006) Minacs Worldwide S.A. de C.V., Mexico (Subsidiary of MWI) (w.e.f August 18, 2006) The Minacs GmbH, Germany (Subsidiary of Minacs Ltd) (w.e.f August 18, 2006) The Minacs Group, USA (Subsidiary of MWI) (w.e.f August 18, 2006)
Compass BPO Limited, U.K. (w.e.f. March 9, 2010 )
Compass BPO, Inc, U.S.A (Subsidiary of Compass BPO Limited, U.K) (w.e.f. March 9, 2010 ) Compass Business Process outsourcing Ltd, India Subsidiary of Compass BPO Limited, U.K) (w.e.f. March 9, 2010 ) Compass BPO FZE, U.A.E (Subsidiary of Compass BPO Limited, U.K) (w.e.f. March 9, 2010 )
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A V Transworks Limited
(b) Summary of transactions with related parties:
(In CAD) Particulars As at March 31, As at March 31, 2010 2009 Holding Company Loan Repayment 7,500,000 20,038,641 Loan Taken 8,450,000 Nil Interest on loan from ABMWL 456,787 613,584 Subsidiary (ABMWI) Investment 30,000,000 50,638,021 Loan repayment from subsidiary 7,500,000 65,470,971 Loan given to subsidiary 7,500,000 Nil Interest on loan given 157,375 660,301 Related Party Balances Holding Equity Contribution from holding Co 127,000,001 127,000,001 Preference Contribution from holding Co 30,000,000 Nil Loan from Holding Co. 21,424,531 20,526,184 Interest Payable to Holding Co 171,041 10,155 Corporate guarantee given by Holding Co 30,901,850 30,901,850
Subsidiary (ABMWI) Investment in Subsidiary 207,892,852 177,892,852 Loan to subsidiary Nil Nil Interest received from Subsidiary 157,375 1,631,908
Balance as at the year end Payable to Holding Co 21,595,571 20,536,339 Receivable from Subsidiary Co (ABMWI) Nil 399,502 Payable to Subsidiary Co (ABMWI) 244,461 Nil
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A V Transworks Limited
(In Rs. Lacs) Particulars As at March 31, As at March 31, 2010 2009 Holding Company Loan Repayment 3,269.51 7,377.56 Loan Taken 3,683.65 Nil Interest on loan from ABMWL 199.13 254.12 Subsidiary (ABMWI) Investment 20,182.44 22,553.58 Loan repayment from subsidiary 3,269.51 25,245.61 Loan given to subsidiary 3,269.51 Nil Interest on loan given 68.61 273.47
Related Party Balances Holding Equity Contribution from holding Co 56,083.20 51,132.61 Preference Contribution from holding Co 13,248.00 Nil Loan from Holding Co 9,461.07 8,264.23 Interest Payable to holding Co 75.53 4.09 Corporate guarantee given by holding Co 13,646.26 12,441.67
Subsidiary (ABMWI) Investment in Subsidiary 91,805.48 71,623.04 Loan to subsidiary Nil Nil Interest received from Subsidiary 68.61 675.87
Balance as at the year end Payable to Holding Co 9,536.60 8,268.32 Receivable from Subsidiary Co. (ABMWI) Nil 160.85 Payable to Subsidiary Co (ABMWI) 107.96 Nil
3. Derivative Instruments
The Company uses derivative financial instruments such as forward exchange contracts, currency swaps and interest rate swaps to hedge its risks associated with foreign currency fluctuations and interest rate.
Derivative Outstanding as at March 31 2010 Amount in Foreign Particulars Currency Purpose Currency (in lacs) Cross Currency Swap 203.21 To hedge Loan Payable CAD (203.21)
All the above contracts are for hedging and not for speculation.
As at March 31, 2010 all the foreign currency exposure stands hedged by derivative instrument or otherwise.
The Company, time to time, holds financial derivatives instruments primarily for hedging purpose. In pursuance of the announcement dated 29th March 2008 of ICAI, The Company has decided to account for losses, if any, on derivatives transactions, on net basis, after considering effect of underlying exposure / commitments / obligations. As there was no such loss at the end of the year, the above changes does not have any effect on the profit for the year.
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A V Transworks Limited
4. Previous year figures have been regrouped wherever necessary to correspond with current period figures.
For S. R. BATLIBOI & CO. For and on behalf of the Board of Directors of Firm Registration No. 301003E A V Transworks Limited Chartered Accountants
DEEPAK J. PATEL Per VIJAY MANIAR Partner Membership No. 36738
Place: Mumbai RAMESH KAMATH Date: April 23, 2010 Chief Financial Officer
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Compass BPO Limited
REPORT OF THE DIRECTORS
FOR THE YEAR ENDED 31 MARCH 2010
The directors have pleasure in submitting their annual report with the audited accounts of the group for the year.
PRINCIPAL ACTIVITY
The principal activity of the group during the year under review was the provision of personnel and related consultancy services from Asia.
REVIEW OF BUSINESS
Despite the global economic slowdown, the group, through alignment, focus and relentless execution, has been able to generate revenue of £4.37m for the current year (2009 :£5.06m). Earnings before interest, tax, depreciation and gain/losses on foreign exchange was £93,837 (2009 : £ 426,028). Cash on the balance sheet at the year end was £197,484 (2009 : £461,155).
On 9 March 2010 the entire issued share capital of the group was acquired by Aditya Birla Minacs Worldwide Inc. (a Canadian company), a part of the US$29.2 billion Aditya Birla Group that today employs 130,000 people of 30 different nationalities.
Minacs has a history that goes back three decades. Today, they serve clients across 3 continents, 8 countries, in 41 languages - several of them Fortune 500 corporations. Minacs has 12,500 people across 29 centres to serve clients in the verticals of BFSI (banking, financial services and insurance), TIME (telecom, technology infrastructure, media, and entertainment), manufacturing and the public sector.
On 9 March 2010, the 10% convertible loan notes of £350,000 were converted into ordinary shares at 1 ordinary share per £53.75 of nominal loan value.
DIVIDEND
The directors do not recommend the payment of a dividend. (2009: £Nil).
DIRECTORS
The directors who served during the year were: -
R Tice (Chairman) (resigned 9 March 2010) M Atkins (resigned 9 March 2010) D McCullough (resigned 9 March 2010) N Godrej (resigned 9 March 2010) C T Newberry (resigned 9 March 2010) D Patel (appointed 9 March 2010) M Kedia (appointed 9 March 2010)
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the Directors’ Report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of
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Compass BPO Limited affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently; make judgments and accounting estimates that are reasonable and prudent; state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
So far as each of the directors is aware at the time the report is approved:
there is no relevant audit information of which the company's auditors are unaware; and the directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.
AUDITORS
The auditors, haysmacintyre, will be proposed for re-appointment in accordance with S485 of the Companies Act 2006.
The Directors report has been prepared in accordance with the special provisions of Part 15 sections 416 and 417 of the Companies Act 2006 relating to small entities.
By order of the Board
D Patel Director
Registered Office Fairfax House 15 Fulwood Place London WC1V 6AY
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Compass BPO Limited
INDEPENDENT REPORT OF THE AUDITORS TO THE SHAREHOLDERS OF COMPASS BPO LIMITED
We have audited the financial statements of Compass BPO Limited for the year ended 31 March 2010 which comprise the Profit and Loss Account, the Consolidated and Company Balance Sheets, the Consolidated Statement of Total Recognised Gains and Losses and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an Auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As explained more fully in the Directors’ Responsibilities Statement set out on page 3, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.
Opinion on financial statements
In our opinion the financial statements:
give a true and fair view of the state of the company’s affairs as at 31 March 2010 and of its loss for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or the financial statements are not in agreement with the accounting records and returns; or
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Compass BPO Limited
certain disclosures of directors’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. Anastasia Frangos (Senior statutory auditor) Fairfax House for and on behalf of haysmacintyre, Statutory Auditor 15 Fulwood Place London WC1V 6AY
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Compass BPO Limited
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 MARCH 2010
2010 2009 Notes £ £
TURNOVER 1 4,370,362 5,057,531
COST OF SALES (2,156,475) (2,370,049) ------GROSS PROFIT 2,213,887 2,687,482 Administrative expenses (2,327,243) (2,216,816) ------OPERATING (LOSS)/PROFIT 2 (113,356) 470,666
(Loss)/profit on sale of assets (4,457) 545 Interest receivable 4,290 2,069 Interest payable 3 (56,400) (54,251) ------(LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION (169,923) 419,029
TAXATION 5 (1,525) (53,767) ------(LOSS)/PROFIT FOR THE FINANCIAL YEAR AFTER TAXATION 12 £(171,448) £365,262 ======
All results relate to continuing activities.
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
2010 2009 £ £
(Loss)/profit for the financial year (171,448) 365,262 Exchange translation differences 11,505 66 ------Total recognised gains and losses relating to the year £(159,943) £365,328 ======
The attached notes form an integral part of these accounts.
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Compass BPO Limited
COMPANY PROFIT AND LOSS ACCOUNT FOR THE PERIOD ENDED 31 MARCH 2010 31-Mar-10 31-Mar-09 Company Company £ £
SALES 2,049,167 2,487,680 LESS: COST OF SALES (1,803,959) (2,161,362)
GROSS PROFIT 245,208 326,318
Profit on sale of assets (60) -
Interest Received 41 570 Interest Payable / Guarantee Commission (55,858) (52,605) Exchange Gain / (Loss) (35,818) 82,077
153,513 356,360 LESS: OVERHEADS
Telephone 31,323 34,472
Insurance 33,348 31,938
Printing, postage and stationary 2,580 816
Entertaining and staff welfare 133 733
Rent and electricity for premises 34,282 36,956
Rent for Data Centre 4,680 3,900
Accountancy Fees 15,050 7,900
Bank Charges 10,699 9,920
Legal and professional fees 121,086 58,612
Marketing Costs 35,844 18,652
Commission Charges 21,819 20,492
Sales support 24,000 31,133
Salaries 23,535 27,312
Social Security 2,227 2,822
Meetings and Conferences 1,657 1,880
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Compass BPO Limited
Office expenses 2,185 6,996
Depreciation 1,749 2,213
Travel Expenses 1,647 4,993
Computer maintenance and support 7,448 9,779
Bad debts - 5,018 (375,292) (316,537)
PROFIT / (LOSS) ON ORDINARY ACTIVITIES (221,779) 39,823
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Compass BPO Limited
CONSOLIDATED BALANCE SHEET AS AT 31 MARCH 2010 31-Mar-10 31-Mar-09 £ £ £ £ Notes
FIXED ASSETS
Tangible Assets 6 299,210 174,187
CURRENT ASSETS
Debtors 8 946,096 1,037,990
Cash at bank and in hand 197,484 461,155
1,143,580 1,499,145
CREDITORS: amount falling due within one year 9a (556,705) (570,771)
NET CURRENT ASSETS 586,875 928,374
TOTAL ASSETS LESS CURRENT
LIABILITIES 886,085 1,102,561
CREDITORS: amount falling due 9b - (407,313) after one year
NET ASSETS 886,085 695,248
CAPITAL AND RESERVES
Called up share capital 10 18,967 16,560
Share premium 11 1,145,207 765,174
Equity element of the convertible loan 13 - 31,661 Profit and Loss account 12 (278,089) (118,146)
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Compass BPO Limited
TOTAL SHAREHOLDERS' FUNDS 14 886,085 695,248
These accounts are prepared in accordance with the special provisions of Part 15 of the Companies Act 2006 relating to small entities.
The financial statements were approved and authorised for issue by the Board on and were signed below on its behalf by:-
D Patel M Kedia Director Director
The attached notes form an integral part of these accounts.
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Compass BPO Limited
COMPANY BALANCE SHEET
AS AT 31 MARCH 2010
2010 2009 Notes £ £ £ £ FIXED ASSETS Tangible assets 6 1,507 1,573 Investments 7 268,548 268,548 ------270,055 270,121 CURRENT ASSETS Debtors 8 698,620 717,945 Cash at bank and in hand 144,669 313,396 ------843,289 1,031,341 CREDITORS: amounts falling due within one year 9a (185,960) (119,960) ------NET CURRENT ASSETS 657,329 911,381 ------TOTAL ASSETS LESS CURRENT LIABILITIES 927,384 1,181,502
CREDITORS: amounts falling due greater than one year 9b - (407,313) ------NET ASSETS £927,384 £774,189 ======CAPITAL AND RESERVES Called up share capital 10 18,967 16,560 Share premium 11 1,145,206 765,173 Other reserve 13 - 31,661 Profit and loss account 12 (236,789) (39,205) ------TOTAL SHAREHOLDERS’ FUNDS 14 £927,384 £774,189 ======
These accounts are prepared in accordance with the special provisions of Part 15 of the Companies Act 2006 relating to small entities.
The financial statements were approved and authorised for issue by the Board on and were signed below on its behalf by:-
D Patel M Kedia Director Director
The attached notes form an integral part of these accounts.
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Compass BPO Limited
STATEMENT OF ACCOUNTING POLICIES
FOR THE YEAR ENDED 31 MARCH 2010
The financial statements have been prepared in accordance with applicable accounting standards. The particular accounting policies adopted are described below:
(a) Basis of accounting
The accounts have been prepared under the historical cost convention and in accordance with the Financial Reporting Standard for Smaller Entities (effective April 2008).
(b) Basis of consolidation
The group financial statements consolidate the accounts of Compass BPO Limited and its subsidiary undertaking made up to 31 March each year; the group profit and loss account includes the results of the subsidiary undertaking for the period from the date of their incorporation or acquisition and up to the date of disposal.
No profit and loss account is presented for Compass BPO Limited as provided by S408 of the Companies Act 2006. The holding company’s loss for the year was £197,584 (2009: profit £21,981).
(c) Turnover
Turnover arises from the principal activity of the company.
(d) Foreign Currency
Company
Assets and liabilities on foreign currencies are translated at the rates of exchange ruling at the balance sheet date. Transactions on foreign currencies are recorded at the rate of exchange ruling at the date of the transaction. All differences are taken to the profit and loss account.
Group
The balance sheets of overseas subsidiary undertakings are translated at the rate of exchange ruling at the balance sheet date and the profit and loss accounts are translated at the average rates for the year. The exchange differences arising on the re-translation of opening net assets is taken directly to reserves.
(e) Deferred Taxation
Deferred taxation is provided on the full provision method to take account of timing differences between the treatment of certain items for accounts purposes and their treatment for tax purposes. Tax deferred or accelerated is accounted for in respect of all timing differences, where material.
(f) Hire Purchase Agreements
Assets acquired under hire purchase contracts are capitalised in the balance sheet and are depreciated over their expected useful lives. The interest element of the instalments is charged to the profit and loss account over the period of the contract.
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Compass BPO Limited
STATEMENT OF ACCOUNTING POLICIES (continued)
FOR THE YEAR ENDED 31 MARCH 2010
(g) Operating Lease Agreements
(h) Pension Costs
Contributions to defined contribution pension schemes are charged to the profit and loss account in the period in which they become payable. Compass Business Process Outsourcing Pvt Limited operates a defined benefit pension scheme, known as Compass Development (India) Pvt Ltd. Employees Group Gratuity Assurance Scheme, covering all eligible employees. The deficit on the pension scheme has been provided for in the financial statements.
(i) Tangible Fixed Assets and Depreciation
Depreciation is calculated to write off the cost of the assets, net of disposal proceeds, over their anticipated useful lives at the following rates:-
1 Computer Equipment - 33 /3% straight line 1 Equipment - 33 /3% straight line 1 Motor Vehicles - 33 /3% straight line
(j) Investments
Fixed asset investments are shown at the lower of cost or directors’ valuation.
(k) Taxation
Corporation tax is provided for at the current rates.
(l) Cash Flow Statement
The directors have taken advantage of the exemptions available in Financial Reporting Standard No.1 and have chosen not to prepare a cash flow statement on the grounds that the group is small.
(m) Compound Financial Instruments
Compound financial instruments comprise of both liability and equity components. At issue date, the fair value of the liability component is estimated by discounting its future cash flows at an interest rate that would have been payable on a similar debt instrument without any equity conversion option. The liability component is accounted for as a financial liability.
The difference between the net issue proceeds and the liability component, at the time of issue, is the residual of equity component, which is accounted for as an equity instrument.
The interest expense on the liability component is calculated by applying the effective interest rate for the liability component of the instrument. The difference between any repayments and the interest expense is deducted from the carrying amount of the liability.
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Compass BPO Limited
NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2010 1. TURNOVER
Turnover is attributable to the principal activity of the group, net of Value Added Tax.
A geographical analysis of turnover is as follows: 2010 2009 Group Group £ £
United Kingdom 2,098,751 2,487,680 Rest of the world 2,271,611 2,569,851 ------£4,370,362 £5,057,531 ======
2. OPERATING LOSS 2010 2009 Group Group £ £ Operating loss is stated after charging: Depreciation 136,447 113,137 Auditors remuneration - audit 8,500 7,900 - other services 12,476 - ======
3. INTEREST PAYABLE 2010 2009 Group Group £ £
10% convertible loan stock interest 47,725 45,257 Guarantee Commission 4,896 5,500 Bank loan interest 3,779 3,478 Hire purchase interest - 16 ------£56,400 £54,251 ======
Interest on the 10% convertible loan stock has been charged at a rate of 12.5%, the estimated rate of interest that would have applied on a pure loan in the absence of the convertibility feature.
4. EMPLOYEES 2010 2009 Group Group £ £ Staff costs (including directors) during the year amounted to: Wages and salaries 2,214,508 2,343,897 Social security costs 2,227 2,822 ------£2,216,735 £2,346,719 ======
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Compass BPO Limited
No. No.
The average weekly number of Employees during the year was: 363 402 ======
DIRECTORS’ REMUNERATION 2010 2009 Group Group £ £
Directors’ fees (paid through subsidiary undertakings) £411,009 £482,250 ======
Pension contributions are made to a defined contribution scheme. All assets therein are independent of the group.
5. TAX ON ORDINARY ACTIVITIES
(a) Analysis of tax charge for the year: 2010 2009 £ £
UK corporation tax at current rates (23,896) 13,596 Overseas taxation 28,986 33,776 Under/(over) provision of UK corporation tax in previous year (300) 4,246 ------Total current tax (note b) 4,790 51,618
Overseas deferred taxation (3,265) (6,393) Overseas fringe benefit tax - 8,542 ------Total tax charge for the year £1,525 £53,767 ======
(b) Factors affecting tax charge for year:
The corporation tax assessed for the year is different from the small companies’ rate of corporation tax in the UK of 28% (2009: 21%). The differences are explained below:
2010 2009 £ £
Profit on ordinary activities before tax £(169,923) £419,029 ======Profit on ordinary activities before tax multiplied by the small rate of corporation tax in the UK of 28% (2009: 21%) (47,578) 87,996
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Compass BPO Limited
5. TAX ON ORDINARY ACTIVITIES (continued) 2010 2009 £ £ Effects of:
Amounts not subject to UK corporation tax (14,520) (79,634) Expenses not deducible for tax purposes 21,531 5,049 Capital allowances for the year in excess of depreciation (327) 206 Effect of change in tax rates 8,232 (21) Losses carried forward 17,134 - Other timing differences (8,368) ------Current tax charge for the year £(23,896) £13,596 ======
The company is carrying forward tax losses of £61,193 to offset against future profits.
6. TANGIBLE FIXED ASSETS Group Company Fixtures Fittings Computer and Office Motor Group Equipment Equipment Vehicles Total Equipment Total £ £ £ £ £ £ COST 1 April 2009 687,555 223,395 70,707 981,657 58,099 58,099 Additions 13,317 243,094 - 256,411 2,051 2,051 Forex adjustment 51,393 29,992 1,580 82,965 - - Disposals (267,150) (175,544) (34,679) (477,373) (57,914) (57,914) ------At 31 March 2010 485,115 320,937 37,608 843,660 2,236 2,236 ------DEPRECIATION 1 April 2009 573,017 191,728 42,725 807,470 56,526 56,526 Charge for Year 65,838 54,626 15,983 136,447 1,749 1,749 Forex adjustment 48,886 7,013 2,339 58,238 - - Disposals (256,669) (169,427) (31,609) (457,705) (57,546) (57,546) ------At 31 March 2010 431,072 83,940 29,438 544,450 729 729 ------NET BOOK VALUE 31 March 2010 54,043 236,997 8,170 299,210 1,507 1,507 ======31 March 2009 114,538 31,667 27,982 174,187 1,573 1,573 ======
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Compass BPO Limited
7. INVESTMENT IN SUBSIDIARY UNDERTAKINGS Company COST £
As at 1 April 2009 and 31 March 2010 £268,548 ======
The company's investments are comprised of the following:
Company of Class of shares % Cost of Incorporation Held held Investment Compass Business Process Outsourcing Private Limited India Ordinary 100% 101,188
Compass Business Process Outsourcing Private Limited India 10% Preference 100% 153,640
Compass BPO Inc US Ordinary 100% 65
Compass BPO FZE UAE Ordinary 100% 13,665
The 10% Preference Shares are redeemable at par any time between 5 and 10 years from 27 March 2000, the date of allotment. However there is a put and call option anytime after 36 months from the date of allotment.
The principal activities of Compass Business Process Outsourcing Pvt. Ltd and Compass BPO Inc. are the provision of personnel and related consultancy services from Asia.
The company holds 100% of the issued share capital of Compass BPO FZE, consisting of 1 share acquired for AED100,000.
8. DEBTORS 2010 2009 Group Company Group Company £ £ £ £
Trade debtors 471,776 160,165 623,732 165,743 Other debtors 321,934 15,818 275,273 15,232 Due from subsidiary undertakings - 488,611 - 524,374 Prepayments and accrued income 128,490 10,130 138,985 12,596 Corporation tax recoverable 23,896 23,896 ------£946,096 £698,620 £1,037,990 £717,945 ======
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Compass BPO Limited
9a. CREDITORS: Amounts falling due within one year: 2010 2009 Group Company Group Company £ £ £ £
Trade creditors 214,450 97,831 180,458 12,957 Due to subsidiary undertakings - 19,665 - 14,437 Other taxation and social security 60,110 41,038 87,031 59,702 Other creditors 83,206 - 137,855 - Bank loan - - 1,016 - Corporation tax 54,230 - 67,608 13,596 Accruals 144,709 27,426 96,803 19,268 ------£556,705 £185,960 £570,771 £119,960 ======
9b. CREDITORS: Amounts falling due after one year: 2010 2009 Group Company Group Company £ £ £ £
10% Convertible Loan Stock - - 407,313 407,313 ------£407,313 £407,313 ======Repayable as follows: Between one and two years - - 407,313 407,313 Between two and five years ------£407,313 £407,313 ======
On 27 February 2007 the Group issued convertible loan notes, redeemable by 1 April 2010, carrying a coupon rate of 10% interest payable on redemption or conversion of the relevant note. At any time after 1 April 2009, the holders have the option to convert the face value of their holdings to shares at a price of £53.75 for one ordinary £0.25 share.
On 9 March 2010, the convertible loan notes were converted into 6,511 ordinary shares at a price of £53.75 for each £0.25 share.
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Compass BPO Limited
10. SHARE CAPITAL
Group and Company 2010 2009 £ £ Allotted, issued and fully paid: 75,866 (2009: 66,238) Ordinary shares of £0.25 each £18,967 £16,560 ======On 9 March 2010, the 10% convertible loan notes of £350,000 were converted into ordinary shares at 1 Ordinary share per £53.75 of nominal loan value. This resulted in the issue of 6,511 new ordinary shares.
Also on the same date share options were exercised resulting in the issue of 3,117 ordinary shares of £65.91 per £0.25 share.
During the year the company had the following share options in issue:
At 1 April Number of Exercise 2009 shares exercised/ Date of At 31 March price £ cancelled Grant 2010 £ Exercise dates
7,750 (7,750) 27/2/07 - 48.73 27/2/07 – 27/2/2011 3,531 (3,531) 15/1/07 - 45.44 15/1/07 – 15/1/2011
The share options were granted to 7 employees and one consultant of the group. There are no performance conditions attached to any of the options.
On 9 March 2010, share options were exercised resulting in the issue of 3,117 ordinary £0.25 shares at £65.91 per share.
11. SHARE PREMIUM 2010 2009 Group and Company Group Group £ £
Share premium brought forward at 1 April 2009 765,173 760,157 Premium on issue of shares 348,372 5,016 Transfer from other reserves on conversion of loan notes 31,661 ------Share premium at 31 March 2010 £1,145,206 £765,173 ======
12. PROFIT AND LOSS ACCOUNT 2010 2009 Group Company Group Company £ £ £ £
Balance brought forward at 1 April 2009 (118,146) (39,205) (483,474) (61,186) (Loss)/profit for the financial year (171,448) (197,584) 365,262 21,981 Exchange gain on currency translation 11,505 - 66 ------Carried forward at 31 March 2010 £(278,089) £(236,789) £(118,146) £(39,205) ======
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Compass BPO Limited
13. OTHER RESERVES Group and Company £ Equity component of 10% convertible loan notes
At 1 April 2009 31,661 Transferred to share premium on conversion of the loan notes (31,661) ------At 31 March 2010 £ - ======The loan notes are more fully described in note 9b.
14. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS
2010 2009 Group Company Group Company £ £ £ £
New share capital (including share premium) 350,779 350,779 5,044 5,044 (Loss)/Profit for the financial year (171,448) (197,584) 365,262 21,981 Exchange gain on currency translation 11,505 - 66 - Opening shareholders’ funds 695,248 774,189 324,876 747,164 ------Closing shareholders' funds £886,084 £927,384 £695,248 £774,189 ======
15. PENSION COMMITMENTS
Compass Business Process Outsourcing Pvt Ltd, operates a defined benefit pension scheme, for eligible staff. It is funded by the payment of contributions to a separately administered trust fund. The assets of the scheme are held separately from those of the group.
The Group adopts the valuation and disclosure requirements of FRS 17 “Retirement Benefits”, as amended by the FRSSE 2007. The Group includes the assets and liabilities of the pension fund in the Group’s balance sheet, with a subsequent effect on reserves.
The pension contributions are determined with the advice of a qualified actuary on the basis of annual valuations using the method. The most recent valuation was conducted as at 31March 2010. The principal assumptions used by the actuaries were that the return on assets would be 9% per annum and salaries would increase by 4% per annum. The market value of the assets at 31 March 2010 was £33,639.
The pension charge for the year was £17,017 (2009: £16,219). Contributions to the scheme are expected to remain at this level in the future.
The key assumptions were as follows:
Main assumptions % per annum 2010 2009
Rate of return on investments 9% 9% Increase in earnings 4% 4% Discount rate 8% 8%
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Compass BPO Limited
15. PENSION COMMITMENTS (continued) Value at Value at 31 March 2010 31 March 2009 £’000s £’000s
Market value of assets 34 25 Present value of scheme liabilities (53) (42) ------Net pension scheme liability (19) (17) ======
The movement in the deficit during the year arose as follows: 2010 £’000s
Deficit as at 1 April 2009 (17) Movement in present value of scheme liabilities (17) Interest earnt 2 Settlements (12) Employer contributions 17 Exchange gains 8 ------Deficit as at 31 March 2010 (19) =====
16. OPERATING LEASE COMMITMENTS
At 31 March 2010 the company had the following annual commitments under non-cancellable operating leases.
2010 2009 Group Group Land and Land and Buildings Buildings £ £ Operating leases which expire: - within one year 64,652 - - within one to two years - 267,771 - within two to five years 12,600 - ======
17.RELATED PARTY TRANSACTIONS
The company has taken advantage of the exemption available not to disclose transactions with its 100% owned subsidiary undertakings.
18. CONTINGENT LIABILITIES
The company is a joint guarantor in respect of loan and overdraft facilities granted to Compass Business Process Outsourcing Pvt. Limited, the company’s wholly owned subsidiary. The loan and overdraft facilities provided by The IDBI Bank (formerly known as The United Western Bank Limited) amounted to £36,836. At the year end, £9,388 was drawn.
34
Aditya Birla Minacs Philippines Inc.
BALANCE SHEET Mar-31 2010(PHP) 2010(INR) 2009(PHP) 2009(INR) ASSETS Current Assets Cash 4,294,486 4,299,248 13,055,293 13,703,601 Receivables (Note 4) 33,738,747 33,776,160 22,513,318 26,612,422 Prepaid expenses and other current assets 5,575,511 5,581,694 3,850,684 1,060,780 (Notes 5) Total Current Assets 43,608,744 43,657,101 39,419,295 41,376,802 Noncurrent Assets Property and equipment (Notes 6 and 7) 40,140,748 40,185,260 61,624,662 64,684,856 Other noncurrent assets (Note 14) 3,280,358 3,283,996 3,394,393 3,562,954 Total Noncurrent Assets 43,421,106 43,469,255 65,019,055 68,247,810 TOTAL ASSETS 87,029,850 87,126,357 104,438,350 109,624,612
LIABILITIES AND CAPITAL DEFICIENCY Current Liabilities Accounts payable and accrued expenses 36,529,566 36,570,073 39,319,089 41,271,620 (Note 7) Noncurrent Liabilities Loans from parent company (Note 11) 96,900,408 97,007,860 89,343,650 93,780,330 Accrued retirement benefits (Note 12) 200,500 200,722 261,000 273,961 Total Noncurrent Liabilities 97,100,908 97,208,583 89,604,650 94,054,291 Total Liabilities 133,630,474 133,778,656 128,923,739 135,325,911 Capital Deficiency Capital stock - 100 par value Authorized - 1,000,000 shares Issued and outstanding - 490,000 shares 49,000,000 49,054,336 49,000,000 51,433,271 Deposits for future stock subscription 47,923,213 47,976,355 47,923,213 50,303,013 (Note 15) Deficit -143,523,837 -143,682,990 -121,408,602 -127,437,583 Total Capital Deficiency -46,600,624 -46,652,299 -24,485,389 -25,701,299 TOTAL LIABILITIES AND CAPITAL 87,029,850 87,126,357 104,438,350 109,624,612 DEFICIENCY
See accompanying Notes to Financial Statements.
35
Aditya Birla Minacs Philippines Inc.
STATEMENTS OF INCOME Years Ended March 31 2010(PHP) 2010(INR) 2009(PHP) 2009(INR) SERVICE INCOME (Note 11) 145,577,147 147,781,703 140,439,885 141,796,611
COST OF SERVICES (Note 8) 153,491,031 151,201,305 163,768,713 165,350,809 GROSS LOSS 5,624,158 5,709,328 23,328,828 23,554,197 General and administrative expenses (Note 19,326,527 19,619,199 29,111,554 29,392,788 9) Foreign exchange loss (gain) - net -3,506,651 -3,559,754 6,824,094 6,890,018
Interest and bank charges (Note 11) 1,848,541 1,876,534 3,424,397 3,457,479
Interest and other income -1,180,717 -1,198,597 -74,133 -74,849
LOSS BEFORE INCOME TAX 22,111,858 22,446,710 62,614,740 63,219,633 PROVISION FOR INCOME TAX - 3,377 3,428 4,491 4,534 Current (Note 13) NET LOSS 22,115,235 22,450,138 62,619,231 63,224,167
See accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES IN CAPITAL DEFICIENCY FOR THE YEARS ENDED MARCH 31, 2010 AND 2009 Deposits for Future Stock Subscription Capital Stock (Note 15) Deficit Total
BALANCES AT MARCH 31, 2008 P=49,000,000 P=47,923,213 (P=58,789,371) P=38,133,842 Net loss for the year – – (62,619,231) (62,619,231)
BALANCES AT MARCH 31, 2009 49,000,000 47,923,213 (121,408,602) (24,485,389) Net loss for the year – – (22,115,235) (22,115,235)
BALANCES AT MARCH 31, 2010 P=49,000,000 P=47,923,213 (P=143,523,837) (P=46,600,624)
See accompanying Notes to Financial Statements.
36
Aditya Birla Minacs Philippines Inc.
STATEMENT OF CAHS FLOWS Years Ended March 31 2010(PHP) 2010(INR) 2009(PHP) 2009(INR) CASH FLOWS FROM OPERATING ACTIVITIES Loss before income tax -22,111,858 -22,446,710 -62,614,740 -63219633 Adjustments for: Depreciation (Note 6) 29,581,074 29,613,876 28,304,030 10826830 Unrealized foreign exchange loss (gain) - net -3,796,197 -3,800,407 11,527,566 28577462 Interest expense (Note 11) 1,764,308 1,766,264 3,337,380 3369621 Movement in accrued retirement benefits (Note 12) -60,500 -61,416 142,200 149261 Interest income -32,792 -33,289 -74,133 -74849 Operating income (loss) before working capital 5,344,035 5,038,319 -19,377,697 changes -20520568 Decrease (increase) in: Receivables -13,001,452 -13,015,869 -1,697,834 -1782146 Prepaid expenses and other current assets -1,724,827 -1,726,740 203,425 213527 Increase (decrease) in accounts payable and accrued expenses -6,233,507 -6,240,419 21,624,306 22698139 Net cash flows from (used in) operations -15,615,751 -15,944,709 752,200 758213 Income taxes paid -3,377 -3,428 -4,491 -4534 Net cash flows from (used in) operating activities -15,619,128 -15,948,137 747,709 753678 CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (Notes 6 and 7) -4,599,460 -4,604,560 -18,502,797 -19421620 Decrease (increase) in other noncurrent assets 114,035 114,161 -796,735 -836300 Interest received 32,792 33,289 74,133 74849 Net cash flows used in investing activities -4,452,633 -4,457,110 -19,225,399 -20183071 CASH FLOWS FROM FINANCING ACTIVITY Loans from parent company 12,429,562 12,443,345 27,284,331 -20183071 EFFECT OF EXCHANGE RATE CHANGES IN -1,118,608 -1,135,548 -853,197 CASH -861439 NET INCREASE (DECREASE) IN CASH -8,760,807 -9,097,450 7,953,444 8348401 CASH AT BEGINNING OF THE YEAR 13,055,293 13,703,601 5,101,849 5355200 CASH AT END OF THE YEAR 4,294,486 4,606,150 13,055,293 13703601
See accompanying Notes to Financial Statements.
37
Aditya Birla Minacs Philippines Inc.
NOTES TO FINANCIAL STATEMENTS
1. Corporate Information
Aditya Birla Minacs Philippines, Inc. (the Company) was registered with the Philippine Securities and Exchange Commission (SEC) on November 3, 2006 with the primary purpose of carrying on and undertaking the business of setting up and operating a center for sales and customer interaction services and business process outsourcing services; providing system integration and software development services which are ancillary thereto; and carrying on the business in computer hardware and software related matters and fields, including the design, development, manufacture, production, marketing, selling, leasing and integration of computer hardware and software systems, the provision of customized software development consultancy and services, and the import and export of computer hardware technology. The Company started its commercial operations on March 5, 2007.
The Company is a wholly owned subsidiary of Aditya Birla Minacs Worldwide Ltd. (ABMW). The ultimate parent company is Aditya Birla Nuvo Limited (ABNL). ABMW and ABNL are incorporated in India.
The Company’s principal place of business is at 1800 Eastwood Ave. Bldg., 10/F Eastwood City Cyberpark, 188 E. Rodriguez, Jr. Ave., Bagumbayan, Quezon City. The Company has 378 and 185 employees as of March 31, 2010 and 2009, respectively.
The financial statements were approved for issue by the Board of Directors (BOD) on April 21, 2010.
2. Registration with the Philippine Economic Zone Authority (PEZA)
The Company is registered with PEZA as an Ecozone Information Technology (IT) Enterprise, engaged in providing customer contact center services at Eastwood City Cyberpark.
The Company is entitled to all incentives granted to pioneer projects under Republic Act (RA) No. 7916, as amended, and the PEZA IT Guidelines, subject to certain terms and conditions, including, among others, the following:
a. The Company’s project shall be entitled to six (6) years income tax holiday (ITH) incentive, as amended in accordance with the 2006 Investment Priorities Plan. The project’s entitlement to the said incentive shall be subject to validation by PEZA based on the Company’s audited financial statements covering the first year of its operations showing the investment cost per seat for its project is equivalent to at least United States (US) $2,500, inclusive of the cost of equipment, office furniture and fixtures, building improvements and renovations, fixed assets, except land, building and working capital, and complies with the minimum US$2.5 million investment required for pioneer status.
In case the Company does not attain the said investment cost per seat, the Company’s project shall be granted 5% gross income incentive and other incentives under RA 7916, as amended, instead of the ITH incentive. On the other hand, if the Company complies with the minimum
US$2,500 investment cost per seat but fails to comply with the minimum US$2.5 million investment required for pioneer status, the Company shall instead be entitled to only four (4) years ITH incentive.
Entitlement of the project to the 5th and 6th years of ITH from the date of start of commercial operations shall be subject to the issuance by the PEZA Director General of a written validation of the project cost. 38
Aditya Birla Minacs Philippines Inc.
b. The Company’s operations shall be limited to its PEZA-approved projects. Any expansion of this project or other additional activities to be undertaken by the Company shall require prior PEZA clearance.
The Company is in a tax loss position for the years ended March 31, 2010 and 2009 and as such, it did not benefit from the ITH.
3. Summary of Significant Accounting and Financial Reporting Policies
The principal accounting policies adopted in preparing the financial statements of the Company are as follows:
Basis of Preparation and Statement of Compliance The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the Philippines applicable for non-publicly accountable entities (NPAE). The Company qualifies as an NPAE under Philippine Accounting Standard 101, Financial Reporting Standards for Non-Publicly Accountable Entities, and as permitted under the standard, prepared its financial statements on the basis of Statements of Financial Accounting Standards/International Accounting Standards effective as of December 31, 2004.
The accompanying financial statements have been prepared under the historical cost convention and are presented in Philippine Peso (Peso). Amounts are rounded to the nearest Peso unless otherwise indicated.
Future Changes in Accounting Policy The Philippine Financial Reporting Standard for Small and Medium-sized entities (PFRS for SMEs) has been approved for adoption by the Philippine Financial Reporting Standards Council on October 13, 2009 and by the SEC, on December 3, 2009 and has not been early adopted by the Company. The PFRS for SMEs is effective for annual periods beginning on or after January 1, 2010, and is required to be used by entities that meet the definition of an SME, which include, among others, an entity with total assets of between P=3.0 million and P=350.0 million or total liabilities of between P=3.0 million and P=250.0 million.
The PFRS for SME is a self-contained standard that is tailored for the needs and capabilities of smaller businesses. Many of the principles in full PFRSs for recognizing and measuring assets, liabilities, income and expenses have been simplified, topics not relevant to SMEs have been omitted, and the number of required disclosures has been significantly reduced.
The Company, which currently follows the accounting principles generally accepted in the Philippines applicable to NPAE, will adopt the PFRS for SMEs in its fiscal year 2011 financial statements. The Company is currently assessing the impact on its financial statements when the PFRS for SME is adopted in fiscal year 2011.
Cash Cash includes cash on hand and in banks.
Receivables Trade receivables are recognized and carried at original invoice amount, less any allowance for uncollectible accounts. An estimate for doubtful accounts is made when there is objective evidence that the Company will not be able to collect the debts.
Other receivables are recognized at face amount, less any allowance for doubtful accounts.
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Aditya Birla Minacs Philippines Inc.
Prepayments Prepaid expenses are amounts paid in advance for goods and services that are yet to be delivered and from which future economic benefits are expected to flow to the Company with its normal operating cycle or within 12 months from the balance sheet date.
Property and Equipment Property and equipment are carried at cost, less accumulated depreciation and any impairment in value.
The initial cost of property and equipment consists of its purchase price, including import duties, taxes and any directly attributable cost of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property and equipment have been put into operation, such as repairs and maintenance, are normally charged to income in the period in which the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as additional cost of property and equipment.
Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:
Category Years Computer equipment 3 Furniture and fixtures 3-5 Office and communication equipment 5
Leasehold improvements are amortized over the life of the assets (average of two years) or the term of the lease, whichever is shorter. Recognition of depreciation commences when the asset is ready for its intended use.
The estimated useful lives of the assets and depreciation method used are reviewed periodically to ensure that these are consistent with the expected pattern of economic benefits from items of property and equipment.
When assets are sold or retired, their cost, accumulated depreciation and any impairment in value are eliminated from the accounts. Any gain or loss resulting from their disposal is recognized in the statement of income.
Impairment of Assets The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amounts, the assets or cash-generating units are written down to their recoverable amount. The recoverable amount of the asset is the greater of net selling price and value-in-use. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Any impairment loss is recognized in the statement of income.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in the statement of income, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. 40
Aditya Birla Minacs Philippines Inc.
Construction in progress represents assets under construction and is stated at cost, including cost of construction and other direct costs. Construction in progress is not depreciated until the relevant assets are completed and ready for their intended operational use.
Liabilities Liabilities are recognized when the Company has a present obligation from past events, the settlement of which is expected to result in an outflow of economic benefits from the Company and the amount can be reliably measured. Liabilities expected to be settled in the Company’s normal operating cycle or within 12 months from the balance sheet date are classified as current liabilities. Otherwise, these are classified as noncurrent liabilities.
Capital Stock Capital stock is carried at par value of the shares issued. When the shares are sold at a premium, the difference between the proceeds and the par value is credited to additional paid-in capital. When the shares are issued for a consideration other than cash, the proceeds are measured by the fair value of the consideration received. In case the shares are issued to extinguish or settle the liability of the Company, the shares shall be measured either at the fair value of the shares issued or fair value of the liability settled, whichever is more readily determinable.
Deposits for Future Stock Subscription Contributions from stockholders that are intended as payment for future capital stock subscriptions are recognized as deposits for future stock subscription. The deposits are reduced and the corresponding shares of stock are issued when the regulatory requirements have been complied with.
Retained Earnings (Deficit) Retained earnings (deficit) represent the cumulative balance of the net income or loss, net of any dividend declaration.
Revenue Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the amount of revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. The following specific recognition criteria must also be met before revenue is recognized:
Service income Service income is recognized as related services are performed based on agreements with the customers.
Interest income Interest income is recognized as the interest accrues.
Leases Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease expense is recognized in the statement of income on a straight-line basis over the lease term.
Retirement Benefits Cost The Company provides for estimated retirement benefits to be paid under Republic Act (RA) No. 7641 to all its permanent employees. The cost of providing benefits under the defined benefit retirement plan is determined using the projected unit credit actuarial valuation method. This method reflects services rendered by employees to the date of valuation and incorporates assumptions concerning employees’ projected salaries. Retirement benefits cost includes current service costs plus amortization of past service costs, experience adjustments and changes in actuarial assumptions over the expected remaining working lives of qualified employees, and effect of any curtailment or settlement. 41
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Actuarial gains and losses are recognized as income or expense if the cumulative unrecognized actuarial gains and losses at the end of the previous reporting period exceeded the greater of 10% of the present value of defined benefit obligation and 10% of the fair value of the plan assets at that date. The gains and losses are recognized over the expected average remaining working life of the employees participating in the plan.
The past service cost is recognized as an expense on a straight-line basis over the average period until the benefits become vested. If the benefits are already vested immediately following the introduction of, or changes to, a pension plan, past service cost is recognized immediately.
The defined benefit liability is the aggregate of the present value of the defined benefit obligation and actuarial gains and losses not recognized, reduced by past service cost not yet recognized and the fair value of plan assets out of which the obligations are to be settled directly.
Foreign Currency Transactions Transactions denominated in foreign currencies are recorded in peso using the exchange rate prevailing at the date of the transaction. Outstanding monetary assets and liabilities denominated in foreign currencies are translated to peso using the closing exchange rate at the balance sheet date. Foreign exchange gains or losses are credited to or charged against current operations.
Income Taxes Current income tax Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that have been enacted or substantively enacted at the balance sheet date.
Deferred income tax Deferred income tax is provided, using the balance sheet liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognized for all taxable temporary differences. Deferred income tax assets are recognized for all deductible temporary differences and unused net operating loss carryover (NOLCO), to the extent that it is probable that sufficient future taxable profits will be available against which the deductible temporary differences and carryforward benefits of unused NOLCO can be utilized.
The carrying amount of deferred income tax assets (DTA) is reviewed at each balance sheet date and reduced to the extent of the sufficient future taxable profits that will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized income deferred tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred income tax assets to be recognized.
Deferred income tax assets and deferred income tax liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date.
Deferred income tax assets and deferred income tax liabilities are offset if a legally enforceable right exists to offset current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
Borrowing Costs Borrowing costs are generally expensed as incurred.
Provisions and Contingencies 42
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Provisions are recognized when: (1) the Company has a present obligation (legal or constructive) as a result of a past event; (2) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and (3) a reliable estimate of the amount of the obligation can be made.
Contingent liabilities are not recognized in the financial statements. They are disclosed in the notes to financial statements unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the financial statements but is disclosed in the notes to the financial statements when an inflow of economic benefits is probable.
Events after the Balance Sheet Date Post year-end events that provide additional information about the Company’s position at the balance sheet date (adjusting events) are reflected in the financial statements. Post year-end events that are not adjusting events are disclosed in the notes to financial statements when material.
4. Receivables
2010(PHP) 2010(INR) 2009(PHP) 2009(INR) Trade 33,156,570 33,193,337 22,181,591 23,283,098 Advances to employees and others 582,177 582,823 331,727 3,329,324 33,738,747 33,776,160 22,513,318 3,329,324
5. Prepaid Expenses and Other Current Assets
2010(PHP) 2010(INR) 2009(PHP) 2009(INR)
Prepaid insurance 3,395,572 3,399,337 25,171 26,421
Deposits 821,351 822,262 827,797 868,904
Rental and other prepayments (Note 14) 1,358,588 1,360,095 2,997,716 3,146,578 5,575,511 5,581,694 3,850,684 4,041,904
6. Property and Equipment
2010
Computer Furniture Office and Leasehold Constructio Total 2010 and Commu n nication Equipment Fixtures Equipment Improvement In Progress (PHP) s Cost Balance at beginning of year P=38613107 P= 26606446 P=15468204 P=15803863 P=10836115 P=107327735 Additions 3821271 301100 - - 3974789 8097160 Reclassification 631621 - - 10204494 (10836115) - End of year 43065999 26907546 15468204 26008357 3974789 115424895
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Accumulated Depreciation Beginning of year 20593516 8794710 4113891 12200956 – 45703073 Depreciation 13107172 5145169 3114283 8214450 – 29581074 End of year 33700688 13939879 7228174 20415406 - 75284147 Net Book Values P= P=9365311 P=12967667 P= 8240030 P=5592951 P=3974789 40140748
2009 Computer Furniture Office and Leasehold Construct Total Equipment and Communica Improveme ion in Fixtures tion nts Progress Equipment Cost Beginning of year P=35433750 P=26371725 P=10095349 P=14726680 P=- P=86627504 Additions 3179357 234721 5372855 1077183 10836115 20700231 End of year 38613107 26606446 15468204 15803863 10836115 107327735 Accumulated Depreciation Beginning of year 7818339 3700235 1120327 4760142 – 17399043 Depreciation 12775177 5094475 2993564 7440814 – 28304030 End of year 20593516 8794710 4113891 12200956 - 45703073 Net Book Values P= P=18019591 P=17811736 P=11354313 P=3602907 10836115 P=61624662
7. Accounts Payable and Accrued Expenses
2010(PHP) 2010(INR) 2009(PHP) 2009(INR)
Accounts payable 4,811,527 4,816,862 14,034,217 14,731,137
Accrued expenses (Note 11) 28,897,211 28,929,255 24,112,021 25,309,390
Others 2,820,828 2,823,956 1,172,851 1,231,093
36,529,566 36,570,073 39,319,089 41,271,620
Accounts payable as of March 31, 2010 and 2009 includes unpaid invoices for the acquisition of certain items of property and equipment totaling P=3,497,700 and P=2,197,434, respectively.
8. Cost of Services
2010(PHP) 2010(INR) 2009(PHP) 2009(INR)
Personnel costs (Note 10) 66,946,854 67,960,668 83,636,031 84,444,001
Depreciation (Note 6) 29,581,074 30,029,037 28,304,030 28,577,462
Technology charges 23,349,297 23,702,889 26,113,266 26,365,534
Rent and utilities (Note 14) 15,322,959 15,555,003 12,621,461 12,743,391 44
Aditya Birla Minacs Philippines Inc.
Staff welfare 4,992,377 5,067,979 5,875,844 5,932,608 Recruitment 3,725,398 3,781,814 2,695,311 2,721,349
Repairs and maintenance 2,506,195 2,544,148 1,904,251 1,922,647
Training 2,342,528 2,378,002 460,638 465,088
Outside services and others 2,434,623 2,471,492 2,157,881 2,178,727
151,201,305 153,491,031 163,768,713 165,350,809
9. General and Administrative Expenses
2010(PHP) 2010(INR) 2009(PHP) 2009(INR) Personnel costs (Note 10) 8,416,819 8544279.617 15,842,972 15,996,024
Shared cost (Note 11) 4,017,722 4078564.621 1,502,784 1,488,405
Professional fees 1,386,705 1407704.653 1,284,400 1,272,111
Accommodations 1,079,333 1095677.946 718,074 711,203
Transportation and travel 1,051,985 1067915.8 2,296,093 2,274,124
Utilities 849,838 862707.5741 875,290 866,915
Rent (Note 14) 943,046 957327.0752 1,214,593 1,202,972
Insurance 382,936 388735.0149 806,261 798,547
Others 1,198,143 1216287.152 4,699,268 4,654,305 19,326,527 19,619,199 29,111,554 29,392,788
10. Personnel Costs
2010(PHP) 2010(INR) 2009(PHP) 2009(INR) Salaries, wages and bonuses 74,526,731 75,655,331 97,656,319 98,599,733 Retirement benefits cost -60,500 -61,416 142,200 143,574 (income) (Note 12) Other short-term employee 897,442 911,032 1,680,484 1,696,718 benefits 75,363,673 76,504,947 99,479,003 100,440,025
11. Related Party Transactions
a. The Company availed of various loans from ABMW to finance its working capital requirements. The loans bear interest at LIBOR + 1% and are payable in 60 months (including the interest and other related charges). As of March 31, 2010 and 2009, the outstanding principal amounted to P= 90.57 million (US$2.01 million) and P=84.33 million (US$1.76 million), respectively. Interest 45
Aditya Birla Minacs Philippines Inc.
expense charged to the Company amounted to P=1.76 million (US$39.13 thousand) and P=3.34 million (US$69.0 thousand) for the years ended March 31, 2010 and 2009, respectively. Accrued interest expense (included under “Due to affiliates” in the balance sheets) as of the said dates amounted to P=6.33 million and P=5.01 million, respectively.
b. The Company has various service agreements which are carried out together with its affiliates based in Bangalore, India and Toronto, Canada. These agreements are effective for three years, subject to renewal terms, and primarily cover after-sale support/call center services. Rates are determined based on the statement of work agreed with client and are normally expressed per minute or per hour. Revenue recognized for these agreements amounted to P=145.58 million and P=140.44 million for the years ended March 31, 2010 and 2009, respectively.
c. Shared costs charged by ABMW amounted to P=4.02 million and P=1.5 million in 2010 and 2009, respectively, and are included under general and administrative expenses. The amount outstanding as of March 31, 2010 and 2009 amounting to P=5.86 million and P=1.49 million, respectively, are included in “Accounts payable and accrued expenses.”
12. Retirement Benefits Cost
The Company provides retirement benefits to all its regular, full time employees in accordance with RA No. 7641.
Retirement benefits cost (income) charged to operations in 2010 and 2009 consisted of the following: 2010(Php) 2010(Inr) 2009(Php) 2009(Inr) Current service cost 1,800 1,827 164,100 172,248.98 Interest cost 15,400 15,417 11,400 11,966.11 Amortization of actuarial gain -43,200 -43,248 – - Curtailment gain -34,500 -34,538 -33,300 (34,953.63) -60,500 -60,542 142,200 149,261
The amounts recognized in the balance sheets comprise the following:
2010(Php) 2010(Inr) 2009(Php) 2009(Inr) Defined benefit obligation 394,500 400,474 41,100 41,497 Unrecognized actuarial gains (losses) -194,000 -196,938 219,900 222,024 Accrued retirement benefits 200,500 203,536 261,000 263,521
Changes in the present value of defined benefit obligation are as follows:
2010(Php) 2010(Inr) 2009(Php) 2009(Inr) Beginning balances 41,100 41,146 118,800 124,699 Current service cost 1,800 1,827 164,100 165,685 Interest cost 15,400 15,633 11,400 11,510 Actuarial loss: 0 - Experience adjustments 13,400 13,603 45,100 45,536 Change in assumptions 390,700 396,617 -298,000 -300,879 Curtailment gain -67,900 -68,928 -300 -303 Ending balances 394,500 399,897 41,100 46,249
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Aditya Birla Minacs Philippines Inc.
The latest actuarial valuation of the plan is as of March 31, 2010. The principal actuarial assumptions used to determine retirement benefit cost were as follows:
2010 2009 Discount rate 9.6% 37.5% Average annual salary increase 8.0% 8.0%
13. Income Taxes
a. The provision for current income tax represents final tax on interest income.
b. The Company did not recognize deferred income tax assets on the following temporary differences and NOLCO since these were incurred and will expire/reverse within the period when the Company is under ITH (see Note 2).
2010(Php) 2010(Inr) 2009(Php) 2009(Inr) NOLCO 135,665,715 142,838,947 111,292,223 114,795,815 Deferred lease 118,158 118,289 504,703 529,787 Accrued retirement benefits 849,539 850,481 261,000 273,961 Unrealized foreign exchange loss - net 8,687,707 8,697,341 8,687,707 9,119,126
The Company’s NOLCO as of March 31, 2010 will expire as follows:
Incurred in Year PHP INR Expiring in 2008 51,755,698 54,325,678 2011 2009 50,574,668 51,340,549 2012 2010 37,131,546 37,172,721 2013 139,461,912 142,838,947
NOLCO incurred in 2007 amounting to P=8,961,857 expired in 2010.
c. Deferred income tax liability of P=1,138,859 was recognized as of March 31, 2010 on the Company’s net unrealized foreign exchange gain of P=3,796,197 in 2010. Deferred income tax asset on NOLCO was recognized up to the amount of the deferred income tax liability.
d. The reconciliation between the provision for income tax at statutory rates and the provision for income tax as shown in the statement of income is as follows:
2010(Php) 2010(Inr) 2009(Php) 2009(Inr) Income tax at statutory rate -6,633,557 -6,734,013 -21,132,474 (21,336,625) Additions to (reduction in) income tax resulting from the tax effects of: Net increase in unrecognized deferred income tax assets 6,640,148 6,740,703 21,140,111 21,344,336 Interest income subject to final tax -6,460 -6,558 -7,185 (7,254) Nondeductible portion of interest expense 3,246 3,295 4039 4,078 3,377 3,428 4,491 4,534
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Aditya Birla Minacs Philippines Inc.
e. RA No. 9337 or the Expanded Value-Added Tax Act of 2005, which took effect on November 1, 2005, provides for, among others, the corporate income tax rate to be 35% for three years effective on November 1, 2005, and 30% starting on January 1, 2009 and thereafter; and the unallowable deduction for interest expense to be 42% of the interest income subject to final tax effective November 1, 2005, and 33% effective January 1, 2009.
14. Lease Commitments
The Company has various lease agreements for its office space and condominium units with terms ranging from three months to five years. These leases are renewable on terms mutually agreed by the parties. Certain lease agreements require the Company to pay security deposits. These are included under “Prepaid expenses and other current assets” and “Other noncurrent assets” in the balance sheets.
The Company has three-year lease agreements covering two of its office/facilities spaces that are subject to annual escalation of 8% and 10%, with one month and three months rent-free period, respectively.
Future minimum rentals payable under these noncancelable operating lease arrangements are as follows: 2010(Php) 2010(Inr) 2009(Php) 2009(Inr) Within one year 12,514,170 12,528,047 8,499,988 8,922,085 After one year but not more than five years 18,131,585 18,151,691 3,859,776 4,051,447 30,645,755 30,679,738 12,359,764 12,973,533
15. Equity
On January 19, 2009, the Company’s BOD authorized the issuance of 479,232 additional shares from the remaining unissued shares at P=100 per share in favor of ABMW, to be applied against the deposits for future stock subscription. As of March 31, 2010, the Company has yet to submit the application with the SEC.
16. Other Matter
The Company is a defendant in a number of labor cases filed with the National Labor Regulatory Commission pertaining to nonpayment of salaries and other benefits to its employees. Management believes that the outcome of these cases will not have a material effect on the Company’s financial statements.
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Aditya Birla Minacs Worldwide Inc.
AUDITORS’ REPORT
To the Board of Directors of Aditya Birla Minacs Worldwide Inc.
We have audited the consolidated balance sheet of Aditya Birla Minacs Worldwide Inc. as at March 31, 2010 and the consolidated statements of operations and deficit, comprehensive income (loss), changes in shareholders’ equity (deficiency) and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit
We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at March 31, 2010 and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles. Toronto, Canada, Chartered Accountants
April 23, 2010. Licensed Public Accountants
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Aditya Birla Minacs Worldwide Inc.
CONSOLIDATED BALANCE SHEET
50
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CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
51
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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)
52
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CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIENCY)
AUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIENCY
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CONSOLIDATED STATEMENT OF CASH FLOWS
See accompanying notes to the consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2010
1 NATURE OF BUSINESS
Aditya Birla Minacs Worldwide Inc. (the “Company” or “Minacs”) is incorporated under the Ontario Business Corporations Act. The Company is wholly-owned by AV Transworks Limited Canada, a wholly- owned subsidiary of Aditya Birla Minacs Worldwide Limited, India, which in turn is a subsidiary of Aditya Birla Nuvo Limited. The Company operates in one segment as a provider of business process outsourcing (“BPO”) solutions. These incorporate contact centre solutions, integrated marketing services and back office administration. Operating in multiple languages, the Company serves customers throughout North America, Europe, Latin America and the Pacific Rim from its operating locations in North America and Europe.
2 SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") and include the accounts of the Company and its subsidiaries. All significant inter- company balances and transactions among these entities have been eliminated on consolidation. Changes in Accounting Policies
Effective April 1, 2009, the Company adopted the following new Canadian Institute of Chartered Accountants ("CICA") accounting standards and Emerging Issues Committee ("EIC") abstract.
Section 3064, Goodwill and Intangible Assets, which replaced Section 3062, Goodwill and Other Intangible Assets. The standard establishes guidelines for the recognition, measurement, presentation and disclosure of goodwill and intangible assets subsequent to initial recognition. As a result of the adoption of this standard, the Company has reclassified computer software from property, plant and equipment to intangible assets and has separately disclosed deferred development costs on the consolidated balance sheet.
The following table summarizes the adjustment that was recorded in the consolidated financial statements.
Section 1000, Financial Statement Concepts. The objectives of this Section are to reinforce a principle-based approach to the recognition of costs as assets and to clarify the application of the concept of matching revenue and expenses in Section 1000. Collectively, this change brings the Canadian practice closer to International Financial Reporting Standards ("IFRS") and U.S. generally accepted accounting principles by eliminating the practice of recognizing as assets a variety of start-up, pre-production and similar costs that do not meet the definition and recognition criteria of an asset. Adoption of this guidance had no impact on the Company's consolidated financial statements.
EIC 173, Credit Risk and the Fair Value of Financial Assets and Financial Liabilities. This guidance clarifies that an entity's own credit risk and the credit risk of the counterparty should be taken into account in determining the fair value of financial assets and financial liabilities including derivative instruments. Adoption of this guidance had no impact on the Company's consolidated financial statements.
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The adoption of the above pronouncements had no impact on opening deficit.
Future Accounting Changes
In 2006, the CICA announced that accounting standards in Canada will converge with IFRS. The Company will have the option of reporting under IFRS beginning January 1, 2011, with comparative data for the prior year. IFRS uses a conceptual framework similar to Canadian GAAP, but there could be significant differences on recognition, measurement and disclosures that will need to be addressed.
In September 2009, the CICA approved the final accounting standards for private enterprises in Canada. The new standards (GAAP for private enterprises) are available for early adoption. Under the new standards, private enterprises will have a choice of reporting in accordance with Canadian GAAP by adopting either the same set of accounting standards as publicly accountable enterprises (i.e. IFRS) or the new GAAP for private enterprises. The existing accounting standards in the CICA Handbook will be available until 2011, at which time they will be withdrawn. As such, enterprises will be able to adopt GAAP for private enterprises in 2009, 2010 or 2011. The Company is considering the impact of these new standards and assessing whether it will adopt IFRS or GAAP for private enterprises.
Use of Estimates
The preparation of these consolidated financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates.
Revenue Recognition
The Company derives revenues by providing BPO solutions and consulting arrangements. Payment terms may vary by contract. The Company recognizes revenues at the time services are performed and when the price is fixed or determinable and collection is reasonably assured.
The majority of revenues are recognized based on the billable hours or minutes rendered as defined in the client contract. The rate per billable hour or minute charged is based on a predetermined contractual rate as agreed in the underlying contract. This contractual rate fluctuates based on the Company’s performance against certain predetermined criteria related to quality and performance. Some clients are entitled to service credits when the Company is not in compliance with certain obligations as defined in the client contract. Such service credits are recorded as a reduction of revenues as incurred based on a measurement of the Company’s obligation under the terms of the client contract.
For some contracts, the Company is paid by its customer based on achievement of client-determined criteria specified in the client contract such as full-time equivalents, units processed or completed contacts. The Company recognizes this performance-based revenue by measuring its actual results against the performance criteria specified in the contracts.
Amounts collected from customers prior to the performance of services are recorded as deferred revenue. These advances are amortized to revenues in accordance with the Company’s policy on revenue recognition.
The Company classifies reimbursements received from customers for out-of-pocket expenditures as revenues. The Company incurs out-of-pocket expenditures such as expenses related to travel, postage and telecommunications costs for which customers have agreed to reimburse Minacs. The corresponding cost 56
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associated with this revenue is recorded within direct expenses. Some customers agree to reimburse the Company for initial training and recruiting costs over a specified period of time. The revenue for these costs is recorded over the period of time stipulated within the contract with a corresponding cost recorded within direct expenses.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated amortization. Amortization is provided on a straight-line basis over the estimated useful lives of the assets. Computer equipment is amortized over a four-year life. Communications equipment is amortized over five to seven-year lives. Furniture and fixtures are amortized over seven to ten-year lives. Leasehold improvements are amortized over the term of the lease.
Leases
Leases are classified as either capital or operating leases. Leases that substantially transfer all of the benefits and risks of ownership of property to the Company are accounted for as capital leases. At the time a capital lease is entered into, an asset is recorded together with its related long-term obligation to reflect the acquisition and financing. Equipment recorded under capital leases is amortized on the same basis as property, plant and equipment. Rental payments under operating leases are expensed as incurred.
Business Combinations, Goodwill and Intangible Assets
The Company follows the guidance in the CICA Handbook Section 1581, Business Combinations, which requires all business combinations to be accounted for using the purchase method. In addition, any goodwill and intangible assets acquired in a business combination are accounted for under CICA Handbook Section 3064, Goodwill and Intangible Assets. This section requires that goodwill not be amortized, while identified intangible assets with finite useful lives be amortized over their useful lives.
Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired. Goodwill and indefinite life intangible assets are tested for impairment annually or more frequently if events or changes in circumstances indicate that those assets might be impaired. The impairment test is carried out in two steps. In the first step, the identification of a potential impairment is determined by comparing the fair value of the reporting unit to its carrying value. Fair value is based on estimates of discounted future cash flows. When the fair value of the reporting unit is less than its carrying value, the fair value is allocated to all its assets and liabilities based on their fair values. The amount that the fair value of the reporting unit exceeds the amounts assigned to its assets and liabilities is the fair value of the goodwill. In the second step, impairment is determined by comparing the fair value of goodwill to its carrying value. Any shortfall is charged to income.
Intangible assets with finite useful lives acquired through business combinations are recorded at their fair value at the date of acquisition. An impairment loss on an intangible asset with a finite useful life is recognized when its carrying value exceeds the total undiscounted cash flows expected from its use and disposition. The amount of loss is determined by deducting its fair value based on undiscounted cash flows expected from its use and disposition from its carrying value. The Company reviews definite life intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Amortization of intangible assets, other than computer software, is provided on a straight- line basis over ten years. Computer software is amortized over four to five-year lives.
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Asset Impairment
The Company follows the guidance in CICA Handbook Section 3063, Impairment of Long-Lived Assets, and CICA Handbook Section 3855, Financial Instruments - Recognition and Measurement. The Company evaluates the carrying value of long-lived assets for potential impairment annually or more frequently if events or circumstances warrant a review. The carrying value of such assets is considered impaired when the anticipated net recoverable amount of the asset is less than its carrying value or when the change in value is other than temporary. In that event, the carrying value of the asset is adjusted to fair value and an impairment loss is charged to income. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
Income Taxes
The Company follows the liability method of accounting for income taxes. Under this method, future tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities, and are measured using substantively enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce future tax assets to the estimated amount that is more likely than not to be realized.
Government Assistance
Government assistance towards current expenses is included in the determination of income for the year as a reduction of the expenses to which it relates. The Company has made a number of estimates and assumptions in determining the amount eligible for government assistance. It is possible that the allowed amount of assistance could be materially different from the recorded amount upon assessment by the respective government agency.
Equity and Comprehensive Income
Comprehensive income is the change in equity from transactions and other events from non-owner sources. Other comprehensive income refers to items recognized in comprehensive income that are excluded from net income calculated in accordance with Canadian GAAP.
Financial Instruments
All financial instruments, including derivatives, are measured on the consolidated balance sheet at fair value except for loans and receivables, held-to-maturity investments and other financial liabilities, which are measured at amortized cost. Subsequent measurement and changes in fair value will depend on their initial classification, as follows: held-for-trading financial assets are measured at fair value and changes in fair value are recognized in net income; available-for-sale financial instruments are measured at fair value with changes in fair value recorded in other comprehensive income until the investment is derecognized or impaired, at which time the amounts would be recorded in net income. The Company's financial assets and liabilities are generally classified and measured as follows:
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Asset/Liability Category Measurement
Cash Held-for-trading Fair value
Receivables Loans and receivables Amortized cost
Payables and accrued liabilities Other financial liabilities Amortized cost
Long-term debt Other financial liabilities Amortized cost
Obligations under capital leases Other financial liabilities Amortized cost
Deferred grant and government assistance Other financial liabilities Amortized cost
The Company had no financial instruments classified as available-for-sale during the year ended March 31, 2010.
Financing costs and credit facility arrangement fees associated with the issuance of long-term debt are netted against the carrying value of the related debt and are amortized using the effective interest rate method to interest expense over the period to maturity of the related debt.
Hedges
The Company applies hedge accounting to forward rate contracts, options and cross-currency swap agreements. These contracts have been designated as cash flow hedges, and are measured at fair value at the end of each period. The resulting gain/loss on recognition of the forward rate contracts, options and cross- currency swap agreements is recognized in other comprehensive income.
Foreign Exchange Translation
Foreign operations are considered to be self-sustaining and are translated into Canadian dollars using the current rate method. Assets and liabilities are translated using the exchange rate in effect at the consolidated balance sheet date and revenues and expenses are translated at the average rate for the month in which the transaction is recorded. Exchange gains or losses on translation of the Company’s investments in these subsidiaries are recorded in accumulated other comprehensive income.
Research and Development
Research costs are expensed as incurred. Development costs that meet specific criteria related to technical, market and financial feasibility are capitalized and amortized over the useful life of the technology when put into use.
3 ACQUISITION
On March 9, 2010, the Company acquired Compass BPO Limited ("Compass") for cash consideration of $7,853,000 (INR 34.68 Cr) including acquisition costs of $39,000 (INR 0.17 Cr). The purchase has been accounted for under the purchase method and, accordingly, the results of operations are included in the consolidated financial statements from the date of acquisition. The consideration and allocation of the purchase price are as follows:
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Aditya Birla Minacs Worldwide Inc.
The customer relationships will be amortized on a straight-line basis over ten years. Included in the net working capital is $257,000 (INR 1.13 Cr) of cash.
4 OTHER RECEIVABLES
Other receivables are comprised of:
As at March 31, 2009, a derivative liability of $11,300,000 (INR 49.90 Cr) was included in accounts payable and accrued liabilities.
5 PROPERTY, PLANT AND EQUIPMENT
Included in these figures are assets under capital leases as follows:
The assets under capital leases are held as collateral for the capital lease obligations. For the year ended March 31, 2010, included within amortization expense is $1,732,000 (INR 7.65 Cr) (2009: $3,112,000) (INR 13.74 Cr) relating to assets under capital leases.
Included in restructuring charges for 2010 is an impairment loss of $933,000 (INR 4.33 Cr) relating to the write-down in value of leasehold improvements and lease exit costs relating to the Saskatoon and Port Hawkesbury site closures (Note 14). Included in restructuring charges for 2009 is an impairment loss of $4,606,000 (INR 20.08 Cr) relating to the write-down in value of leasehold improvements and lease exit costs relating to the Saskatoon, Pickering and Chatham site closures (Note 14).
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6 DEFERRED DEVELOPMENT COSTS
Deferred development costs are comprised of:
7 INTANGIBLE ASSETS
Intangible assets consist of:
Included in these figures are intangible assets under capital leases as follows:
The intangible assets under capital leases are held as collateral for the capital lease obligations. For the year ended March 31, 2010, included within amortization expense is $165,000 (INR 0.72 Cr) (2009: $268,000) (INR 1.17 Cr) relating to intangible assets under capital leases.
8 GOODWILL
Goodwill consists of:
9 DEFERRED GRANT AND GOVERNMENT ASSISTANCE
(a) In fiscal 2009, the Company became eligible to receive funding from the Ontario Apprenticeship Program. For the year ended March 31, 2010, the Company recorded $10,775,000 (INR 47.58 Cr) (2009: $1,014,000) (INR 4.42 Cr) as a reduction of direct expenses and selling, general and administrative expenses for these grants. As at March 31, 2010, the Company has recorded $10,818,000 (INR 47.77 Cr) (2009: $1,014,000) (INR 4.48 Cr) as part of other receivables.
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(b) The Company also receives payroll rebates from Nova Scotia Business Inc. if certain incremental wage growth is achieved within the Province of Nova Scotia. As at March 31, 2010, the Company has recorded $230,000 (INR 1.02 Cr) (2009: $642,000) (INR 2.83 Cr) as a payroll rebate receivable which is included in other receivables. During the year ended March 31, 2010, the Company recorded $231,000 (INR 1.01 Cr) (2009: $257,000) (INR 1.12 Cr) as a reduction of direct expenses and selling, general and administrative expenses for this grant.
(c) In fiscal 2008, Minacs finalized an agreement with the Province of New Brunswick to receive a forgivable loan in the amount of $2,260,000 (INR 9.98 Cr). The loan provides for forgiveness subject to terms being met in respect of employment to be created at a contact centre in that province. To date, Minacs has received $900,000 (INR 3.97 Cr); no amounts were received in fiscal 2010. As at March 31, 2010, the Company has recorded $858,000 (INR 3.79 Cr) (2009: $771,000) (INR 3.4 Cr) as deferred grant and government assistance. If the terms of the loan are not met by August 31, 2014, then the amount remaining as deferred grant and government assistance will need to be repaid.
10 LONG-TERM DEBT
Senior Revolving Facility – Bank of America
This facility bears interest at 0.65% margin over bank prime, banker’s acceptance or LIBOR rates. The total commitment available under the senior revolving facility is $40,000,000 (INR 176.64 Cr), subject to certain borrowing base calculations and certain other restrictive covenants. The facility is a 365-day facility and, as collateral, the Company has given a first charge on accounts receivable. In addition this facility is guaranteed by Aditya Birla Nuvo Limited. As at March 31, 2010, the Company is in compliance with applicable bank covenants.
Non-Revolving Term Facility – BNP Paribas (Canada)
As at March 31, 2010, this facility was fully repaid. Subsequent to the year end, BNP Paribas (Canada) has released the corporate guarantee on the debt and is proceeding with releasing their charge on the Company’s property, plant and equipment in North America held as collateral against said facility.
Interest Rate
The weighted average interest rate on borrowings at March 31, 2010 was 1.05% (2009: 4.62%).
Interest and financing expenses are comprised of the following amounts:
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11 RELATED PARTY TRANSACTIONS
Transactions with the Aditya Birla Nuvo Limited group of companies are as follows:
These transactions are measured at the exchange amounts of consideration established and agreed to by the related parties.
In fiscal 2010, the Company entered into a forward contract agreement with AV Transworks Limited Canada to provide foreign exchange protection to AV Transworks Limited Canada on their foreign exchange liability in the amount of U.S. $24,500,000 (INR 108.19 Cr). For the year ended March 31, 2010, Minacs has recorded a $5,699,000 (INR 25.17 Cr) (2009 – nil) gain in other comprehensive income. The derivative asset of $7,474,000 (INR 33.01 Cr) recorded by the Company as at March 31, 2010 includes this gain.
12 SHARE CAPITAL
The Company is authorized to issue an unlimited number of common shares and an unlimited number of preferred shares issuable in series.
The Company received $20,000,000 (INR 88.32 Cr) on February 24, 2010 and a further $10,000,000 (INR 44.16 Cr) on March 26, 2010 in cash from its parent company AV Transworks Limited Canada as subscription for Redeemable Series B Preference Shares that were issued during the year.
The Series A Preference Shares are redeemable at face value at the option of the Company, at any time after December 31, 2012. The Series B Preference Shares are redeemable at face value at the option of the Company, at any time after December 31, 2014. However, there is no redemption obligation on the Company. The preference shareholders are entitled to a cumulative dividend of 4.50% for Series A and 5% for Series B on the outstanding preference shares. The payment of dividends is at the discretion of the 63
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Company and subject to availability of profits of the Company. The undeclared dividend as of March 31, 2010 is $1,029,312 (INR 4,55 Cr) (2009 - $2,505) (INR 0.01 Cr).
13 COMMITMENTS AND CONTINGENCIES
Capital Leases
Interest on obligations under capital leases accrues at various rates ranging from 6.5% to 9.2%. The following is a schedule of future minimum annual lease payments for these capital leases:
Commitments
The Company has operating leases for its premises, furniture and fixtures and certain computer and communications equipment, as well as minimum purchase commitments for telephone services. The minimum annual payments for the next five years and thereafter are as follows:
Contingent Liabilities
On May 17, 2006, the former major shareholder and founder of the Company, Elaine Minacs, died. The major shareholder of the Company then became the Estate of Elaine Minacs (the “Estate”) together with certain entities controlled by it (the “EM Shareholders”) until August 18, 2006, when AV Transworks Limited Canada acquired the shares of the Estate and the EM Shareholders.
The Company is the owner of a $350,000 (INR 1.55 Cr) whole life insurance policy and a $2,000,000 (INR 8.83 Cr) term life insurance policy insuring the life of Elaine Minacs. The term life policy is a key-man policy, originally required by the Company's previous lenders. The beneficiary of the policies when they were originally acquired was the Company. During 2005, the beneficiary of the whole life insurance policy was changed at the direction of Elaine Minacs. Also during 2005, the beneficiary of the term life insurance policy was changed to family members related to Elaine Minacs at the direction of Elaine Minacs. In fiscal 2007, management changed the beneficiary back to the Company. A legal proceeding has been commenced by the Estate against the Company claiming $5,000,000 (INR 22.08 Cr) in damages stating that the change in beneficiary was in breach of Elaine Minacs’ employment agreement. Proceeds of $350,000 (INR 1.55 Cr) were paid into escrow pursuant to an escrow agreement with the Estate. The proceeds of $2,000,000 (INR 8.83 Cr) were paid by the underwriter to the court to be held in trust. The
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Company has filed a defense and counterclaim to the initial Estate claim in August 2007 for the proceeds of the life insurance policies and damages of $500,000 (INR 1.55 Cr). A second claim for damages of $500,000 (INR 1.55 Cr) and for punitive damages of $100,000 (INR 0.44 Cr) was commenced by the Estate in December 2007 stating the Company was in breach of contract related to an employment agreement. Management has not accrued a contingent liability for the claims made by the Estate because they believe that the claims have no merit and the outcome of the proceeding is not determinable.
During the ordinary course of business activities, in addition to the above, the Company may be a party to claims and may be contingently liable for litigation. Management believes that adequate provisions have been made in the accounts where required. Although it is not possible to estimate the extent of potential costs and losses, if any, management believes that the ultimate resolution of such contingencies will not have a material adverse effect on the consolidated financial position of the Company.
Guarantees
At March 31, 2010, the Company had $75,000 (INR 0.33 Cr) (2009: $75,000) (INR 0.33 Cr) of outstanding letters of credit to secure customer performance guarantees.
14 RESTRUCTURING AND OTHER CHARGES
In fiscal 2010, the Company terminated a number of employees. Total severance payments and other charges of $1,343,000 (INR 5.85 Cr) (2009: $1,825,000) (INR 7.96 Cr) have been charged to restructuring costs.
In fiscal 2009, the Company closed its Saskatoon and Pickering sites and suspended operations at its Chatham site.
In fiscal 2010, the Company approved a plan to close its Port Hawkesbury site and restart the operations at the Chatham site.
The costs recorded in restructuring relating to lease exit costs and asset impairment in fiscal 2010 are $2,485,000 and include a recovery of $687,000 (INR 2.99 Cr) of the prior year provision (2009: $6,452,000) (INR 28.13 Cr).
The details of severance expenses, impaired assets, lease exist costs for the balance of the remaining lease periods and the credits against lease exit liabilities are given below:
A reconciliation of beginning and ending accounts payable and accrued liabilities with respect to the restructuring and other charges is as follows:
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Long-term accrued liabilities relating to operating leases relate to tenant inducements and free-rent liabilities.
15 INCOME TAX
Future tax assets consist of the following temporary differences:
Future tax liabilities consist of the following temporary differences:
Expiry of Losses
As at March 31, 2010, the Company has non-capital losses of approximately $77,316,000 (INR 341.43 Cr) available to reduce future years’ income for tax purposes. If not utilized, these losses will expire as follows:
16 SUPPLEMENTAL CASH FLOW INFORMATION
Adjustments to reconcile net income (loss) to cash flows provided by operating activities include:
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The net change in non-cash working capital balances related to operations include:
Cash interest and income taxes paid are as follows:
17 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Fair Value of Financial Instruments
The fair value of financial instruments, which include cash, accounts receivable and unbilled revenue, other receivables, income taxes recoverable, accounts payable and accrued liabilities, long-term debt, income and other taxes payable, and obligations under capital leases, approximates their carrying value due to their short-term nature and/or variable interest rates.
Other financial instruments are long-term in nature, which include long-term receivables, accrued liabilities relating to operating leases and deferred grant and government assistance, and due to their nature are measured at amortized cost, which approximates their fair value.
Risk Management
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The Company's activities expose it to a variety of financial risks, including market risk (comprised of foreign currency risk and interest rate risk), credit risk and liquidity risk. The Company's overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company's financial performance. The Company does not purchase any derivative financial instruments for speculative purposes.
Risk management is the responsibility of the corporate finance function. Material risks are monitored and are regularly discussed with the Audit Committee of the Board of Directors.
Foreign Currency Risk
The Company has significant operations in Canada and the United States. The Company’s activities result in exposure to fluctuations in foreign currency exchange rates due to sale and purchase transactions in a foreign currency. Increases or decreases in these rates could impact the Company’s net income.
As at March 31, 2010, the Company purchased financial instruments to hedge its foreign currency exposure as follows:
Included in revenues are losses from foreign exchange hedging contracts amounting to $1,302,000 (INR 5.68 Cr) for the year ended March 31, 2010 (2009: $7,375,000) (INR 32.15 Cr. Included in selling, general and administrative expenses are gains from foreign exchange hedging contracts amounting to $183,000 (INR 0.80 Cr) for the year ended March 31, 2010 (2009: loss of $718,000 (INR 3.13 Cr)). At March 31, 2010, all contracts were designated as hedges for accounting purposes.
During the year ended March 31, 2010, a substantial portion of the Company's income was earned outside of Canada in currencies other than the Canadian dollar. Increases in the value of the Canadian dollar can reduce net income and declines can result in increased net income. Based on the income, a +/- 1% change in the United States dollar would, everything else being equal, have had the following effect on the Company’s reported net income for the year ended March 31, 2010:
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The table below presents the percentages of the Company's accounts receivable, accounts payable and accrued liabilities that are denominated in US dollars:
During the years ended March 31, 2010 and 2009 the following percentage of revenues and expenses were earned or incurred in US dollars:
Interest Rate Risk
The objective of the Company's interest rate management activities is to minimize the volatility of the Company's income. The Company's interest rate risk primarily arises from its floating rate debt.
At March 31, 2010, the total long-term debt outstanding was $33,914,000 (INR 149.76 Cr) which is subject to movements in floating interest rates. A +/-1% change in interest rates would, everything else being equal, have an effect on the Company's net income for the year ended March 31, 2010 of approximately +/- $412,000 (INR 3.10 Cr).
Credit Risk
Credit risk arises from cash held with banks and financial institutions, as well as credit exposure to clients, including outstanding accounts receivable. The maximum exposure to credit risk is equal to the carrying value of the financial assets. The objective of managing counterparty credit risk is to prevent losses in financial assets. The Company assesses the credit quality of the counterparties, taking into account their financial position, past experience and other factors. The Company derived 50.2% or $148,000,000 (INR 645.18 Cr) of its revenues from multiple contracts with two groups of clients in the automotive and technology sectors for the year ended March 31, 2010 (2009: 51.9% or $180,590,000) (INR 787.26 Cr).
As at March 31, 2010, multiple contracts with two clients represented 35.9% (2009: 55.8%) of the accounts receivable balance.
The following table sets out details of the aging of accounts receivable that are outstanding and related allowance for doubtful accounts:
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Included in accounts receivable and unbilled revenue are unbilled revenues of $14,652,000 (INR 64.7 Cr) (2009: $3,340,000) (INR 14.75 Cr).
The carrying amount of accounts receivable is reduced through the use of an allowance account and the amount of the loss is recognized in the consolidated statement of operations and deficit within operating expenses. When a receivable balance is considered uncollectible, it is written off against the allowance for accounts receivable. Subsequent recoveries of amounts previously written off are credited against operating expenses in the consolidated statement of operations and deficit.
Liquidity Risk
Liquidity risk arises through the excess of financial obligations over available financial assets due at any point in time. The Company's objective in managing liquidity risk is to maintain sufficient readily available reserves in order to meet its liquidity requirements at any point in time. The Company achieves this by maintaining sufficient cash and through the availability of funding from committed credit facilities. As at March 31, 2010, the Company was holding cash of $4,230,000 (INR 18.68 Cr).
18 MANAGEMENT OF CAPITAL
The Company defines capital that it manages as the aggregate of its shareholders' equity, cash on the balance sheet and interest-bearing debt. The Company's objective when managing capital is to ensure that it can provide services to its customers and returns to its shareholders. As at March 31, 2010, managed capital comprised of shareholders' equity of $48,472,000 (INR 214.05 Cr) (2009: $3,805,000) (INR 16.8 Cr), cash of $4,230,000 (INR 18.68 Cr) (2009: $3,087,000) (INR 13.63 Cr) and interest-bearing debt of $35,557,000 (INR 157.02 Cr) (2009: $62,878,000) (INR 277.67 Cr).
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The Company manages its capital structure in a manner that ensures operating cash flow together with cash on its balance sheet is greater than interest expense and current principal debt repayments required to be paid.
19 EMPLOYEE BENEFIT PLANS
The Company has defined contribution pension plans. The Company’s expenditures with respect to these plans were $673,000 (INR 2.93 Cr) during the year ended March 31, 2010 (2009: $1,224,000) (INR 5.34 Cr).
20 COMPARATIVE FIGURES Certain of the comparative figures have been reclassified to conform to the current year’s presentation.
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INDEPENDENT AUDITORS’ REPORT
To The Manager of, Compass BPO FZE Ras Al Khaimah - U.A.E.
Report on the financial statements
We have audited the accompanying financial statements of Compass BPO FZE which comprise the statement of financial position as at 31 March 2010 and the statements of comprehensive income, changes in equity and cash flows for the year then ended, a summary of significant accounting policies and other explanatory related notes to financial statements set out on pages 3 to 14.
Management's responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards (IFRS). This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error, selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor's responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the accompanying financial statements give a true and fair view of the financial position of Compass BPO FZE as at 31 March 2010, and of its financial performance and it’s cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS).
Report on other legal and regulatory requirements
The accompanying financial statements comply with the U.A.E. Commercial Companies Law No. 8 of 1984 (as amended by Law No. 13 of 1988).
Name of the Auditor Ravi Kannampillil
Registration Number (80) Dated: 12 April 2010
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STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2010 31-03-10 31-03-09 Note Dirhams Dirhams ASSETS: NON-CURRENT ASSET Property, Plant and Equipment 6 7,317 99,295
Total non-current assets 7,317 99,295
CURRENT ASSET Trade and Other Receivables 7 167,602 697,899 Prepayments 8 22,332 63,260 Cash and Cash Equivalents 9 56,092 36,707
Total current assets 246,026 797,866
Total assets 253,343 897,161
EQUITY Share Capital 100,000 100,000 Head Office Current Account 670,135 171,689 Retained Earnings (loss) (763,419) 294,983
Total equity 6,716 566,672
LIABILITIES:
CURRENT LIABILITIES Trade and Other Payables, including Derivatives 10 126,631 206,612 Provisions 11 119,996 123,877
Total current liabilities 246,627 330,489
Total liabilities 246,627 330,489
Total equity and liabilities 253,343 897,161
For Compass BPO FZE
Manager
The notes on pages 7 to 14 are an integral part of these financial statements
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STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 2010
31-03-10 31-03-09 Note Dirhams Dirhams
Revenue 2,553,233 4,660,751
Manpower Cost (2,844,853) (3,425,892)
Gross Profit (291,620) 1,234,859
Other Income 12 Nil 413,356
Administrative Expenses 13 (696,713) (750,247)
Depreciation & Amortisation Expenses (70,069) (73,346)
Net (Loss) / Profit for the period (1,058,402) 824,622
For Compass BPO FZE
Manager
The notes on pages 7 to 14 are an integral part of these financial statements
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STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2010
(Amount in Dirhams)
PREVIOUS YEAR Head Office Share Current Retained Total Capital Account Earnings Equity
Balance as at 01 April 2008 100,000 Nil (529,639) (429,639)
Net movement during the year Nil 171,689 Nil 171,689
Total comprehensive income for the year Nil Nil 824,622 824,622
Balance as at 31 March 2009 100,000 171,689 294,983 566,672
CURRENT YEAR
Balance as at 01 April 2009 100,000 171,689 294,983 566,672
Net movement during the year Nil 498,446 Nil 498,446
Total comprehensive loss for the year Nil Nil (1,058,402) (1,058,402)
Balance as at 31 March 2010 100,000 670,135 (763,419) 6,716
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STATEMENT OF CASH FLOW FOR THE YEAR ENDED 31 MARCH 2010
31-03-10 31-03-09
Dirhams Dirhams
Cash flows from Operating Activities (Loss)/ Profit for the period (1,058,402) 824,622
Adjustment for : Depreciation of property, plant and equipment 70,069 73,346
Interest expense 5,483 5,734 Loss on sale of Property, Plant & Equipments 13,447 Nil
Operating Profit Before Working Capital Changes (969,403) 903,702
Decrease / (Increase) in trade and other receivables 530,297 (312,456)
Decrease / (Increase) in prepayments 40,928 (7,932) Increase / (Decrease) in trade and other payables (79,981) (838,171)
(Decrease) / Increase in provisions (3,881) 72,247
Net Cash from / (used in) Operating Activities (482,040) (182,610)
Cash flows from Investing Activities Purchase of property, plant & equipments (12,849) (9,535)
Proceeds from Sale of Property, Plant & Equipment 21,311 Nil
Net cash from / (used in) Investing Activities 8,462 (9,535)
Cash flows from Financing Activities
Interest paid (5,483) (5,734) Net movement during the year 498,446 171,689
Net Cash (used in) Financing Activities 492,963 165,955
Net Increase / (Decrease) in cash and cash equivalents 19,385 (26,190)
Cash and cash equivalents at the beginning of the period 36,707 62,897
Cash and cash equivalents at the end of the period 56,092 36,707
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NOTES TO FINANCIAL STATEMENTS AS AT 31 MARCH 2010
1. Reporting entity
'Compass BPO FZE', here-in-after called 'the Establishment' is incorporated in the RAK Free Trade Zone, Ras Al Khaimah, as a Free Zone Establishment in accordance with the laws and regulations of the Free Zone Authority.
The shareholder of the establishment is M/s. Compass BPO Limited, United Kingdom, who is the registered holder of One Share of AED 100,000/-.
During the year the name of the holding company was changed from "Compass Connections Limited" to "Compass BPO Limited".
The establishment is engaged in the business of Management Consultancy.
2. Reporting Period
These financial statements cover the year from 01 April 2009 to 31 March 2010. The previous year figures are for the year 01 April 2008 to 31 March 2009.
3. Basis of Preparation
a) Statement of Compliance
The financial statements of the establishment have been prepared in accordance with International Financial Reporting Standards (IFRS), which includes International Accounting Standards (IAS) and its Interpretations.
b) Basis of Measurement
The financial statements have been prepared on the historical cost basis.
c) Functional and Presentation Currency These financial statements are expressed in U.A.E. Dirhams, rounded to the nearest Dirham.
4. Changes in Accounting Policies
The accounting policies adopted are consistent with those of the previous financial year, except that the establishment has adopted the following new and amended IFRS and IFRIC interpretations as on 01 January 2009:
IAS 1 Presentation of Financial Statements (Revised)
5. Significant Accounting Policies
a) Associated Companies
Associated Companies are defined as those companies in which the establishment holds a long term equity interest, has representation on the board of directors and is in a position to exercise significant influence in their management, but not control, over the financial & operating policies.
b) Financial Instruments 77
Compass BPO FZE
(i) Non-derivative financial assets The establishment initially recognizes loans and receivables and deposits on the date that they are originated. All other financial assets (including assets designated at fair value through profit or loss) are recognized initially on the trade date at which the company becomes a party to the contractual provisions of the instrument.
♦ Loans and Receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. They are recognized initially at fair value plus any directly attributable transaction costs. They are measured at amortised cost using the effective interest method, less any impairment losses. Trade receivables are recognised initially at the transaction price. They are subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the establishment will not be able to collect all amounts due according to the original terms of the receivables.
(ii) Non-derivative financial liabilities The establishment initially recognizes debt securities issued and subordinated liabilities on the date they are originated. All other financial liabilities are recognized on the trade date. It includes loans and borrowings, bank overdrafts and trade and other payables. These financial liabilities (except trade and other payables) are recognized at fair value plus any directly attributable transaction costs. Subsequently they are measured at amortized cost using effective interest method. Trade payables are recognised initially at the transaction price and subsequently measured at amortised cost using the effective interest method.
c) Property, Plant & Equipment
(i) Measurement Basis Property, plant & equipment are measured at cost less accumulated depreciation and any impairment in value.
(ii) Subsequent costs The cost for replacing part of an item of property, plant & equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the establishment and its cost can be measured reliably. The carrying amount of the part so replaced is derecognised. The cost of day-to-day servicing of property, plant & equipment are recognised in profit or loss as incurred.
(iii) Depreciation Depreciation is calculated to write-off the cost of property, plant & equipment on the straight line basis over their estimated useful lives as follows:
Number of years
Motor Vehicle 3 years Furniture & Fixtures 3 years Office Equipments 3 years
d) Provisions
Provisions are recognized when the establishment has a present legal or constructive obligation as a 78
Compass BPO FZE
result of past events, and when it is probable that an outflow of resources will be required to settle the obligation, and when a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.
e) Impairment of assets
(i) Financial assets The establishment assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial asset is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
(ii) Non financial assets Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.
f) Foreign Currency Transactions
Transactions in foreign currencies are translated to UAE Dirhams at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to UAE Dirhams at the foreign exchange rate ruling at that date. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to UAE Dirhams at the foreign exchange rates ruling at the dates the values were determined. All differences are taken to profit or loss.
g) Revenue Recognition
Revenue is recognized when it is probable that the economic benefits will flow to the establishment and when the revenue can be measured reliably, on the following basis :
(i) Service Income Service income is recognized in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.
(ii) Management Fee Management fee is recognised on an accrual basis when service is rendered. 79
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h) Cash and cash equivalents
Cash and cash equivalents for the purpose of cash flow statement consist of cash in hand and cash at bank.
6. Property, Plant & Equipments
CURRENT YEAR (Amount in Dirhams)
Furnitur Motor e Office & Equipme Vehicle Fixture nt Total
Cost or Deemed Cost : As at 01 April 2009 154,740 36,874 31,564 223,178 Additions during the year Nil Nil 12,849 12,849
Deletion during the (36,874 (224,887 year (154,740) ) (33,273) )
As at 31 March 2010 Nil Nil 11,140 11,140
Depreciation & Impairment Losses : As at 01 April 2009 90,265 21,510 12,108 123,883 Depreciation during the year 47,282 11,267 11,520 70,069
Deletion during the (32,777 (190,129 year (137,547) ) (19,805) )
As at 31 March 2010 Nil Nil 3,823 3,823
Carrying Amounts : As at 31 March 2010 Nil Nil 7,317 7,317
As at 31 March 2009 64,475 15,364 19,456 99,295
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PREVIOUS YEAR (Amount in Dirhams)
Motor Furniture Office Vehicle & Fixture Equipment Total
Cost or Deemed Cost : As at 01 April 2008 154,740 36,874 22,029 213,643 Additions during the year Nil Nil 9,535 9,535
As at 31 March 2009 154,740 36,874 31,564 223,178
Depreciation & Impairment Losses : As at 01 April 2008 38,685 9,219 2,633 50,537 Depreciation during the year 51,580 12,291 9,475 73,346
As at 31 March 2009 90,265 21,510 12,108 123,883
Carrying Amounts : As at 31 March 2009 64,475 15,364 19,456 99,295
As at 31 March 2008 116,055 27,655 19,396 163,106
31-03-10 31-03-09 Dirhams Dirhams 7. Trade and Other Receivables
Trade Debtors 149,602 682,899 Deposits 18,000 15,000
167,602 697,899
8. Prepayments
Rent 21,576 61,493 Trade Licence fees 756 1,134 Others Nil 633 81
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22,332 63,260
9. Cash and Cash Equivalents
Cash 15,523 24,109 HSBC Bank Middle East 40,569 12,598
56,092 36,707
10. Trade and Other Payables, including Derivatives
Loan from Directors 60,795 69,421 Advance from Customers 26,120 102,911 * Due to Associates 39,716 34,280
126,631 206,612
* Due to Associates
Compass BPO Pvt. Ltd. - India 39,716 34,280
39,716 34,280
The parent company - Compass BPO Ltd U.K's account is reclassified from Due to Associates to Head Office Current Account in the equity.
11. Provisions
Bonus payable Nil 104,440 Professional charges 10,000 10,000 Maintenance Charges 43,168 9,437 Additional License Fee 66,828 Nil
119,996 123,877
31-03-10 31-03-09 Dirhams Dirhams 12. Other Income
Foreign exchange gain (net) Nil 413,356 82
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13. Administrative Expenses
Travelling expense 201,470 247,364 Rent 172,418 276,335 Communication Expenses 111,735 42,183 Office costs 84,221 17,030 Marketing expenses 39,173 77,355 Foreign exchange difference 17,735 Nil Loss on sale of asset 13,447 Nil Audit Fee 17,500 Nil Repairs and Maintenance 11,088 49,565 Electricity and Water 10,065 14,633 Legal & professional charges 6,000 10,000 Licence fee 6,378 10,048 Interest and Bank charges 5,483 5,734
696,713 750,247
14. Financial Risk Management Objectives & Policies
a) Credit Risk
Financial assets, which potentially subject the establishment to credit risk, comprises mainly of bank balances and receivables. Bank balances are with regulated financial institutions. The receivables are fully recoverable as per management representation.
b) Interest Rate Risk
The establishment does not utilise any type of facilities from banks or financial institutions.
c) Exchange Rate Risk
There were no significant exchange rate risks as most of the financial assets and liabilities are denominated in UAE Dirhams & US Dollars except the due to associates' balances. The U.K. associate Company's account is denominated in U.K. Pounds and the Indian associate Company's account is denominated in Rupees.
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d) Liquidity Risk
The table below summarized the maturity profile of the establishments' financial liabilities based on contractual payment basis.
Financial liabilities as at 31-03-2010 < 3 mths 3 - 12 mths 1 - 5 yrs Total
Due to Associates Nil 39,716 Nil 39,716 Loan from Directors Nil 60,795 Nil 60,795 Advance from Customers 26,120 Nil Nil 26,120 Provisions 119,996 Nil Nil 119,996
Total 146,116 100,511 Nil 246,627
15. Fair Values of Financial Instruments
Financial instruments comprise financial assets and financial liabilities. Financial assets of the establishment include bank balances and cash and trade receivables. Financial liabilities of the establishment include loans from Directors, accounts payable and due to associates. The fair values of the financial assets and liabilities are not materially different from their carrying values unless stated otherwise.
16. Related Party Transactions
The establishment enters into trade transactions with another firm or persons that fall within the definition of related party as contained in International Financial Reporting Standards (IFRS).
Salary paid to Directors Dhs. 975,514/-
17. Reclassification of Figures of the Preceding Year’s Financial Statements
Certain figures of the financial statements for the year-ended 31 March 2009 have been reclassified to be consistent with the current year's classification.
For Compass BPO FZE Manager
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Profit & Loss Account for the period ended 31 March 2010
Particulars Amt($) Amt($) Particulars Amt($) Amt($)
2009-10 2008-09 2009-10 2008-09
Salary Revenue 468,850 527,428 1,135,919 1,416,001
Consultant Charges 320,832 474,056
Travel 107,389 104,610
Office Costs 89,062 92,008
Marketing 35,990 28,511
Audit Fees 9,270 -
Legal & Professional Fees 2,020 7,205
Insurance 9,432 10,060
Bad Debts - 34,664
Taxes & Fees 3,786 5,017
Depreciation 8,338 7,150
Bank Charges 710 1,609
Tax for the Year 24,200 43,536
Profit transferred to Balance Sheet 56,040 80,149
1,135,919 1,416,001 1,135,919 1,416,001
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Compass BPO Inc.
Balance Sheet as at 31 March 2010
Liabilities Amt($) Amt($) Assets Amt($) Amt($) 2009-10 2008-09 2009-10 2008-09
Computer Capital Stock 100 100 Equipment
Less: Depreciation 4,659 6,624 Amount owed to holding
company 249,696 419,185
Accounts Payable Office Equipments 36,085 40,530
Other Liabilities Less: Depreciation 10,629 54,998 1,287 1,174
Provision for taxation 24,200 48,408 Furnitures &
Fixtures
Retained Earning Less: Depreciation 165,302 109,261 4,252 6,066
Bank 10,648 147,629
Debtors 448,010 465,088
Prepaid 17,156 45,901
486,012 672,482 486,012 672,482
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Schedule for Profit & Loss Account
Account Code Account Name Amount $
1 Salaries : Gross Salary (DM) 328,166 Gross Salary (JP) 164,111
Bonus (JP) 5,000
Bonus provn - 28,427
468,850 2 Office Cost : 400-150 Staff Welfare Exps 5,445 410-080 Computer Exps-Others 4,064 410-090 Courier Charges 4,882 410-200 Membership & Subscription 5,583 410-220 R & M - Office Equipment 1,358 410-230 R & M - Computers 5,193 410-240 R & M - Others 204 410-260 Rent 4,500 410-250 Rates & Taxes 2,592 410-290 Software Exp. 6,942 410-310 Tel Line Ongoing Cost 1,536 410-370 Tel Cost - Mobile 12,830 410-400 Tel. Cost Internet 8,287 410-410 Others 19,256 410-440 Meetings & Conferences 2,160 600-150 Staff Welfare Exps 266 610-200 Membership & Subscription 853 610-290 Software Exp - Direct 480 610-310 Tel Line Cost - Direct 2,630 89,062 3 Audit Fees :
410-020 Audit Fees 9,270 Legal & 4 Professional Fees : 410- Legal & Professional Fees 2,020 160
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5 Travel Etc. : 400-090 Flights Charges 25,735 400-110 Conveyance Local 13,056 400-130 Hotel Accomodation 15,721 400-190 Trl & Liv Travel 49,131 600-090 Flights Charges - Direct 654 600-110 Conveyance Local - Direct 181 600-130 Hotel Accom - Direct 1,459 600-190 Trl & Liv Travel 1,452 107,389 6 Marketing : 400-140 Marketing Cost 27,764 410-040 Business Prom/Ent 7,834 410-420 Entertain - B'ness Dev 347 610-040 Business Prom/Ent 45 35,990 7 Revenue 300-010 Staff Charges 1,745,770
320-010 Consulting - IND 581,341 320-025 Consulting Fixed Price 123,066 320-040 Software Revenue 10,450 2,460,628
320-020 Consulting-US Consulting (DM) 52,035 Consulting (MEL) 79,624 Consulting (TERRI) 76,210 Consulting (VICKY) 119,910 Consulting (JOEL) 46,230 Consulting (CHERYL) 35,760 409,769
310-010 Other Income 213,180 310-020 P/L on FA - 3,288 310-030 Interest rec 1,340 211,233 3,081,629 Less: 400-020 CDIPL Charges-UK/US 1,871,861 Recharge 73,849 1,945,710 1,135,919
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Schedule for David's & 8 Joel's Gross Salary
Gross Salary (DM) Gross Salary (JP) Month
April 26,304 17,581 May 26,314 17,629 June 26,304 17,581 July 27,314 18,996 Aug 27,314 20,042 Sept 27,304 18,055 Oct 27,343 18,125 Nov 27,298 18,051 Dec 27,476 18,051 Jan 28,646 - Feb 28,259 - March 14,140 - 314,016 164,111
478,127
Schedule for Balance Sheet
Account Code Account Name Amount $ 1 Debtors : 120-010 Debtors 448,010 250-015 Prov for Bad Debts -
448,010 2 Prepaid : 150-070 Prepaid Expenses 17,156 17,156
3 Other Liabilities : 150-040 Advance Account 7,320 150-105 Melinda Phillips Loan A/c (400) 240-060 Out.Liabilities for Exps 3,709 10,629
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Compass Business Process Outsourcing Private Limited
DIRECTORS’ REPORT TO THE MEMBERS
Your Directors have pleasure in presenting the 12th Annual Report and the Audited Accounts for the year ended 31st March 2010.
FINANCIAL RESULTS: (Rupees In Lacs) 31.03.2010 31.03.2009 Sales and Other Income 2409.23 2558.57
Profit/(Loss) before Depreciation 231.09 191.48
Depreciation (88.64) (74.59)
Profit/(Loss) before Taxation 142.45 116.89
Provision for Taxation (8.85) (2.06)
Profit/(Loss) after Taxation 133.60 114.83
Loss Brought Forward (146.85) (261.68)
Accumulated Profit/(Loss) Carried to Balance Sheet (13.25) (146.85)
DIVIDEND
The Company has made profits during the year. However it has been decided to retain the profits and hence the directors do not recommend any dividend for the year.
DIRECTORS’RESPONSIBILITY STATEMENT
Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956 with respect to Directors’ Responsibility Statement, it is hereby confirmed:
(i) That in the preparation of the annual accounts for the financial year ended 31.03.2010 the applicable accounting standards have been followed along with proper explanation relating to material departures; (ii) The Directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of the affairs of the Company at the end of the financial year and of the profit or loss of the Company for that period; (iii) The Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities. (iv) That the Directors have prepared the accounts for the financial year ended 31.03.2010 on a ‘on going concern’ basis.
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PARTICULARS OF CONSERVATION OF ENERGY AND TECHNOLOGY ABSORPTION:
Since your Company is a 100% export oriented unit and only operates in data processing and development, the information as required under Section 217(1)(e) of the Companies Act, 1956 read with The Companies (Disclosure of Particular in the Report of the Board of Directors) Rules, 1988 are reported below to the extent applicable. The company has not deployed and imported Technology to carry out its process. The consumption of energy is minimal. The Company will take suitable steps, if required, in future for reduction of consumption of energy.
FOREIGN EXCHANGE
Your company remains to be net foreign exchange earner for India (Rupees in Lacs) 31.03.2010 31.03.2009
Export Earnings for Service 2406.34 2551.54 Less: Expenses - Capital 8.54 23.49 - Others 24.74 29.07 Net Foreign Exchange Earning 2373.06 2498.98
PARTICULARS OF EMPLOYEES
There were no employees covered by the provisions of Section 217 (2A) of the Companies Act, 1956 read with companies (Particulars of Employees) Rules, 1975, whose particulars are required to be given.
AUDITORS
The Auditors of the Company M/s. KDS & Co., Chartered Accountants, Mumbai retire at the conclusion of ensuing Annual General Meeting and S. V. Ghatalia & Associate be appointed as Auditor for FY 2010-11.
DEPOSITS
The Company has not accepted any deposit during the financial year.
ACKNOWLEDGEMENTS
Your Directors thank Compass BPO Ltd., UK for their continuous support and guidance given to the Company.
Your Directors are also thankful to the various Governments Agencies and Banks for their valuable support. The Directors also express their appreciation to all Employees, Staff and Shareholders of the Company.
For and on behalf of the Board of Compass Business Process Outsourcing Pvt. Ltd.
(Mr. Deepak Patel) DATE : 22/04/2010 Chairman PLACE: Mumbai
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Auditors' Report
To The Members o f Compass Business Process Outsourcing Private Limited
1. We have audited the attached Balance Sheet of Compass Business Process Outsourcing Private Limited (The Company), as at 31 s t March 2010 and also the Profit and Loss Account for the year ended on that date annexed thereto. These Financial Statements are the responsibility of the Company’s Management. Our responsibility is to express an opinion on these Financial Statements based on our audit.
2. We have conducted our audit in accordance with Auditing Standards Generally Accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement(s). An audit includes examining, on a test check basis, evidence supporting the amounts and disclosures in the Financial Statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
3. We report that:
i. We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for our audit;
ii. In our opinion, prop er books of account have been kept as required by law so far as it appears from our examination of the books;
iii. The Balance sheet and Profit & Loss Account dealt with by this report are in agreement with the books of accounts;
iv. In our opinion and to the best of our information, the Balance Sheet and the Profit and Loss Account comply with the Accounting Standards referred to in section 211(3C) of the Companies Act, 1956;
v. On the basis of written representation received from the directors of the company for the year ended March 31 s t , 2010 and taken on record by the Board of Directors, we report that no director is disqualified from being appointed as director of the company under clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956;
vi. In our opinion and to the best of our information and according to the explanations given to us, the said accounts give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the Accounting Principles generally accepted in India:
(a) In the case of Balance Sheet, of the state of affairs of the Company as at 31 s t Mar ch, 2010;and
(b) In the case of the Profit & Loss Account, of the Profit for the year ended on that date. 92
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4. As required by the Companies (Auditor's Report) Order, 2003, as amended by the Companies (Auditor’s Report) (Amendment) Order, 2004, issued by the Central Government of India in terms of sub -section (4A) of section 227 of the Companies Act, 1956 we report hereunder on the matters specified in paragraphs 4 and 5 of the said Order to the extent applicable to the company.
i a) The Company has maintained proper records to show full particulars, including quantitative details and situation of its fixed assets.
b) All the fixed assets of the Company have been physically verified during the year by the Management and no material discrepancies have been noticed on the physical verification as confirmed by the management.
c) Fixed Assets disposed off during the year were not substantial and therefore, do not effect the going concern assumption.
ii. The company is a service company primarily rendering back office data processing services. Accordingly it does not hold any physical inventories. Thus clause 4(ii) of the companies (Auditors Report) Order, 2003 (‘the Order’) is not applicable.
iii. The Company has not taken any loan except interest free unsecured loan taken from its share holder, which is outstanding at the Balance Sheet date. The company has not granted any loans, secured or unsecured to or from companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, 1956.
iv. In our opinion and according to information and explanation given to us, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business for purchase of fixed assets and rendering of services. The activities of the company do not involve purchase of inventory and the sale of goods. We have not observed any continuing failure to correct major weakness in the internal controls during the course of the audit.
v. In our opinion and according to information and explanation given to us, the transactions that need to be entered in the register in pursuance of Section 301 of th e Companies Act 1956 have been entered. In our opinion and according to the explanation given to us, the transactions made in pursuance of contract or arrangement entered in the register maintained under Section 301 of the Companies Act, 1956 and exceeding value of Rupees Five Lakhs in respect of any parties during the year have been made at prices which are reasonable, having regard to the prevailing market price at relevant time. The company is providing services to its holding company, as explained to us, the transaction are made at the contracted price. The prevailing market price is not freely ascertainable, considering the terms of contract and specialized nature of activities; however in our opinion 93
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contracted rates are reasonable having regard to the terms of contract and nature of the services provided. vi. The Company has not accepted any deposits from the public and consequently, the directives issued by the Reserve Bank of India, the provision of the Sections 58A and 58AA of the Companies Act, 1956 and the rules framed there under are not applicable.
vii. In our opinion, The Company has an Internal Audit system however the same needs to be strengthened and coverage needs to be extended to make it commensurate with the size & nature of its b usiness. viii. According to information and explanation given to us, the Central Government has not prescribed the maintenance of cost records under section 209(1) (d) of the Companies Act, 1956. ix. According to the information & explanations given to us , and on the basis of our examination of the books of accounts and other documents, The Company is generally regular in depositing with appropriate authorities undisputed statutory dues including Provident Fund dues, Income Tax, Sales Tax, Customs Duty, Investor Education and Protection Fund, Wealth Tax and any other material statutory dues applicable to it. According to the information & explanation given to us, no undisputed dues payable in respect of Provident Fund, Income tax, Sales tax, Wealth Tax, Service Tax, Customs Duty, Excise Duty and Cess were in arrears, as at 31 st March 2010 for a period of more than six months from the date they became payable. According to the information & explanations given to us, there are no dues in respect of Income Tax, Sales Tax, Wealth Tax, Service Tax, Customs Duty and Excise Duty & Cess that have not been deposited with the appropriated authorities on account of any dispute with the Company. x. In our opinion, in the current financial year, the accumulated losses are not more than fifty percent of its net worth. The company has neither incurred any cash losses in the current financial year nor in the immediately proceeding financial year. xi. In our opinion and explanation given to us the Company has not defaulted in repayment of dues to a bank. xii. The Company has not any granted loans & advances on the basis of security by way of pledge of shares, debentures & other securities. Accordingly, clause 4(xii) of the order is not applicable. xiii. The Company is not a Chit Fund, Nidhi Mutual Benefit Fund or a Society. Accordingly, clause 4(xiii) of the order is not applicable. xiv. According to the information & explanations given to us, the Company is not dealing or trading in shares, securities, debentures & other inves tments. Accordingly, clause 4(xiv) of the order is not applicable.
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xv. According to the information & explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions. Accordingly, clause 4(xv) of the order is not applicable. xvi. There is no term loan outstanding during the current financial year. xviii. According to the information & explanations given to us and the overall examination of the Balance Sheet of the Company, we report that no funds raised on the short-term basis have been used for long- term investments. No long-term funds have been used to finance short- term assets except the permanent working capital. xviii. The Company has not made any preferential allotment of the shares to p ar ties & companies covered in the register maintained under section 301 of the Companies Act 1956. Accordingly, clause 4 (xviii) of the order is not applicable. xix. The Company has not issued any debentures. Accordingly, clause 4(xix) of the order is not applicable. xx. The Company has not raised any money by public issue during the financial year. According, clause 4(xx) of the order is not applicable. xxi. According to the information & explanations to us, no fraud on or by the Company has been noticed or reported during the year. xxii. The other clauses of the Companies (Auditor’s Report) Order, 2003 are not applicable to the Company for the financial year under audit.
For and on behalf of KDS & Co. Chartered Accountants Ketan D. Saiya Partner Membership No. 49176 Firm Regn. No. – 117073 W Place: -Mumbai Dated: - 22nd April, 2010
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BALANCE SHEET AS AT MARCH 31, 2010
Schedule 31.03.2010 31.03.2009 (Rs.) (Rs.) SOURCES OF FUNDS
Shareholders' Funds
Share Capital 1 17,431,000 17,431,000
Loan Funds
Secured Loans 2 637,140 75,324 Unsecured Loans 3 1,852,283 1,852,283
Total 19,920,423 19,358,607
APPLICATION OF FUNDS
Fixed Assets 4
Gross Block 56,331,620 63,732,756 Less : Depreciation 36,675,776 53,065,478 Net Block 19,655,844 10,667,278
Deffered Tax Asset 1,478,000 1,251,983
Current Assets, Loans and Advances
Sundry Debtors 5 1,334,632 3,908,736 Cash and Bank Balance 6 3,508,934 3,208,695 Loans and Advances 7 25,869,293 25,770,555 30,712,859 32,887,987 Less : Current Liabilities and Provisions
Current Liabilities 8 28,941,241 36,921,669 Provisions 9 4,309,510 3,211,900 33,250,751 40,133,569
Net Current Assets (2,537,892) (7,245,582)
Profit and Loss Account 1,324,471 14,684,928
Total 19,920,423 19,358,607
0
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- Significant Accounting Policies 13 0.25 and Notes on Accounts
Schedules referred to herein form an integral part of the Balance Sheet
This is the Balance Sheet referred to in our report of even date
Mr Deepak Patel Director
Ketan D. Saiya Mr Manoj Kedia Director Partner Membership No: 49176 For and on behalf of KDS & Co Chartered Accountants Firm Registration : 117073W Place: Mumbai Place: Mumbai Date : 22nd April 2010 Date : 22nd April 2010
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PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED ON MARCH 31, 2010
2009-10 2008-2009
Schedule (Rs.) (Rs.)
INCOME
Income from Services 240,634,675 255,153,974
Other Income 10 288,847 703,269
Total Income 240,923,522 255,857,243
EXPENDITURE
Personnel Costs 11 140,669,881 154,343,417
Operating, Administration and other expenses 12 77,104,319 82,233,511 Interest 39,334 132,320
Depreciation 8,864,548 7,458,717
226,678,082 244,167,965
Profit /(Loss) before Taxation 14,245,440 11,689,278
Current 1,111,000 - Taxation
Deffered (226,017) (474,054) Fringe Benefit Tax - 679,800
Profit /(Loss) After Taxation 13,360,457 11,483,532
Profit / (Loss) Brought Forward (14,684,928) (26,168,460)
Balance carried forward to the Balance Sheet (1,324,471) (14,684,928)
Earnings Per Share ( Basic and Diluted) 17.83 15.12
Significant Accounting Policies 13
and Notes on Accounts
Schedules referred to herein form an integral part of the Profit and Loss Account
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This is the Profit and Loss Account referred to in our report of even date
Mr Deepak Patel Director
Ketan D. Saiya Mr Manoj Kedia Director Partner
Membership No: 49176
For and on behalf of
KDS & Co
Chartered Accountants Firm Registration : 117073W
Place: Place: Mumbai Mumbai Date : 22nd April 2010 Date : 22nd April 2010
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Compass Business Process Outsourcing Private Limited
SCHEDULES FORMING PART OF THE BALANCE SHEET AS AT MARCH 31, 2010 SCHEDULE 1
SHARE CAPITAL 31.03.2010 31.03.2009 Authorised (Rs.) (Rs.)
7,00,000 Equity Shares of Rs.10/- each 7,000,000 7,000,000
1,05,000 Preference Shares of Rs 100/- each 10,500,000 10,500,000
TOTAL 17,500,000 17,500,000
Issued,Subscribed and Paid-up 31.03.2010 31.03.2009 (Rs.) (Rs.) 6,93,100 Equity Shares of Rs. 10/- each fully paid 6,931,000 6,931,000
1,05,000 Preference Shares of Rs 100/- each fully paid 10,500,000 10,500,000
TOTAL 17,431,000 17,431,000
Notes:
1. Out of 6,93,100 paid-up equity shares 6, 93,080 equity shares are held by the holding company Compass BPO Limited, UK
2. Out of above 93,100 equity shares are allotted as fully paid-up pursuant to a contract for consideration other than cash.
3. Preference Shares carry dividend of 10% and are redeemable at par in one installment at any time before 10 years from 27th March 2000, the date of allotment.
4. The entire 1,05,000 fully paid-up preference shares are held by the holding company Compass BPO Limited, UK.
SCHEDULE 2
SECURED LOANS 31.03.2010 31.03.2009
(a) Loans from Bank (Rs.) (Rs.)
Cash Credit from IDBI Bank Limited (Note 1 & 2) 637,140 75,324
Total Secured Loans 637,140 75,324
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Notes:
1. The Cash Credit facility is secured by hypothecation of Fixed Assets, Book Debts, Claims and other receivables.
2. The Cash Credit is also guaranteed by Mr. Hitesh Dixit and the holding company Compass BPO Limited, UK.
SCHEDULE 3
UNSECURED LOANS 31.03.2010 31.03.2009 (Rs.) (Rs.) Interest free loan from Shareholder 1,852,283 1,852,283
SCHEDULE 4 FIXED ASSETS Gross Block Depreciation Net Block Additions As on / Adj. Disposals As on As on Disposals For the As on As on As on Particulars during during during 31-Mar- 31-Mar- 31-Mar- 1-Apr-09 the the 31-Mar-10 1-Apr-09 the Year 10 10 09 Year Year Year Rupees Rupees Rupees Rupees Rupees Rupees Rupees Rupees Rupees Rupees
Computers 47,403,947 553,898 15,477,416 32,480,429 39,505,268 15,046,734 4,666,133 29,124,667 3,355,762 7,898,679
Office Equipment 6,597,690 8,637,418 4,200,312 11,034,796 5,886,726 4,167,262 1,571,430 3,290,894 7,743,902 710,964
Vehicles 3,046,005 - 493,584 2,552,421 1,886,487 493,586 604,967 1,997,868 554,553 1,159,518
Furniture and Fixtures 6,685,114 6,847,922 5,893,052 7,639,984 5,786,997 5,546,669 1,803,353 2,043,681 5,596,303 898,117
Electrical Fittings - 2,623,990 - 2,623,990 - - 218,666 218,666 2,405,324 -
TOTAL 63,732,756 18,663,228 26,064,364 56,331,620 53,065,478 25,254,252 8,864,548 36,675,776 19,655,844 10,667,278
Previous Year 59,417,895 4,636,958 322,097 63,732,756 45,928,858 322,097 7,458,717 53,065,478 10,667,278 -
SCHEDULE 5 31.03.2010 31.03.2009 SUNDRY DEBTORS (Rs.) (Rs.)
Debts outstanding for less than six months TOTAL 1,334,632 3,908,736 (Unsecured Considered Good)
Note : The entire outstanding of Rs. 13,34,632 (Last year Rs.39,08,736/ -) was due from holding company Compass BPO Limited, UK
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SCHEDULE 6 CASH AND BANK BALANCES 31.03.2010 31.03.2009 (Rs.) (Rs.) Cash on hand (including Foreign currency on hand) 154,152 132,186
Balance with Scheduled Banks On Current Account 21,574 37,884 Fixed Deposits 2,849,000 2,609,000 Interest Accrued on Fixed Deposits 49,413 74,243
Balance with Non -Scheduled Bank HSBC Bank - on Current Account 332,557 240,112 - on Fixed Deposit 100,000 100,000 - Interest Accrued on Fixed Deposit 2,238 15,271
3,508,934 3,208,695
Note 1 : Maximum balance in Current Account was Rs. 1,19,23,269 (Prevoius year Rs. 1,37,21,961)
Note 2 : The fixed deposit of Rs. 5,35,000/- is under lien to Bank for issuing bank guarantee in favour of customs authorities.
SCHEDULE 7 LOANS AND ADVANCES 31.03.2010 31.03.2009 (Unsecured, considered good) (Rs.) (Rs.)
Advances recoverable in Cash or in kind or for Value to be Received 15,587,598 15,338,859 Deposits 9,794,648 9,944,650 Due from fellow subsidiary Compass BPO FZE, UAE. 487,047 487,047
TOTAL 25,869,293 25,770,555
SCHEDULE 8 CURRENT LIABILITIES 31.03.2010 31.03.2009 (Rs.) (Rs.) Creditors for Expenses 6,167,244 10,256,258 Creditors for Capital Goods* 9,418,710 9,408,537 Due To Holding Company, Compass BPO Ltd, UK 1,687,594 5,219,749 Other Liabilities 11,667,693 12,037,125
TOTAL 28,941,241 36,921,669 * Includes due to holding company of Rs 94,18,710/ - (Last Year Rs. 93,57,913/-)
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SCHEDULE 9 PROVISIONS 31.03.2010 31.03.2009 (Rs.) (Rs.) Provision for Taxation 2,590,800 1,479,800 Provision for Provident Fund Contribution 442,409 480,490 Provision for Gratuity 1,276,301 1,251,610
TOTAL 4,309,510 3,211,900
SCHEDULE 10 31.03.2010 31.03.2009 OTHER INCOME (Rs.) (Rs.)
Interest Received on Fixed Deposit with Bank 202,583 44,090 (Tax deducted 34640/- (Last Year 6074)
Interest accrued, but not due, on Fixed deposit with Bank 51,651 68,480
Profit on sale of assets (Net) 29,502 40,420
Interest on Income Tax refund - 439
Miscelleaneous Income 5,111 -
Foreign Exchange Gain (Loss) - Net - 549,840
TOTAL 288,847 703,269 SCHEDULE 11 31.03.2010 31.03.2009 PERSONNEL COSTS (Rs.) (Rs.)
Salaries, Wages and Bonus etc. 129,655,511 141,102,421 Contribution to Provident and Other Funds 5,576,148 5,960,440 Staff Welfare 2,489,446 3,613,409 Staff Training Expenses 972,625 1,734,774 Administration Charges for Provident Fund 699,850 680,763 Gratuity 1,276,301 1,251,610
TOTAL 140,669,881 154,343,417 SCHEDULE 12 31.03.2010 31.03.2009 OPERATING, ADMINISTRATION AND OTHER EXPENSES (Rs.) (Rs.) Rent 22,147,603 23,931,133 Rates & Taxes 46,012 58,524 Office Expenses 217,694 113,986 Electricity & Water Charges 10,971,011 11,317,575
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Travelling Expenses 3,369,738 5,248,163 Conveyance Expenses 4,474,930 5,204,182 Printing and Stationery 924,696 1,104,005 Telephone Charges 1,175,959 1,596,930 Communication Cost 7,002,939 7,278,518 Payment to Auditors Statutory Audit Fees 275,000 225,000 Management Audit Fees 150,000 - Tax Audit Fees 50,000 25,000 Taxation Matters 25,000 69,738 Other Services 219,323 73,033 Computer & Software Expenses 9,862,351 7,992,269 Legal and Professional Charges 3,640,396 7,650,527 Car Expenses 523,636 507,014 Business Promotion/Entertainment 112,107 258,779 Repairs & Maintenance 7,725,519 8,416,857 ROC and Stamp Duty Charges 2,500 9,920 Insurance Expenses 821,854 727,746 STPI Annual Charges 585,000 200,000 Bank Charges 235,974 224,613 Foreign Exchange Gain (Loss) - Net 2,545,077 -
TOTAL 77,104,319 82,233,511
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Unaudited Balance Sheet As at 31st March, 2010 March 31 2010 March 31 2009 HUF INR/Cr HUF INR/Cr
Sources of Funds I Shareholders' funds
Share capital 3,000,000 0.07 3,000,000 0.07
Retained earnings 69,544,015 1.63 54,892,850 1.27
Exchange fluctuation on FX translation - (0.05) - (0.05)
72,544,015 1.65 57,892,850 1.29
II Loan Funds - - - -
Total 72,544,015 1.65 57,892,850 1.29
Application of Funds I Fixed Assets Property, plant and equipment, net 166,354 0.00 - - Deferred development costs 134,936 0.00 - - 301,290 0.01 - - II Current assets
Cash and cash equivalents 84,120,524 1.92 18,446,838 0.41
Accounts receivable 97,421,621 2.22 101,797,475 2.27
Prepaid expenses 1,425,968 0.03 1,143,245 0.03
Other Receivables 13,759,783 0.31 16,683,599 0.37
196,727,895 4.48 138,071,157 3.07 Less Liabilities
Accounts payable and accrued liabilities 10,742,265 0.24 11,949,196 0.27
Due to Inter-Companies 113,742,906 2.59 68,229,111 1.52
Total 124,485,170 2.84 80,178,307 1.78
72,242,725 1.65 57,892,850 1.29
Total 72,544,015 1.65 57,892,850 1.29
Notes FE Conversion Rate for HUF to INR as at the end of the year 0.2279 0.2226
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Unaudited Profit and Loss Account for the year ended 31st March, 2010
April 1 2009 April 1 April 1 2008 April 1 2008 March 31 2009 March 31 to 2010 March 2009 March 31 31 2010 2009 HUF INR/Cr HUF INR/Cr
Revenues 401,959,291 9.91 402,552,405 10.27
Expenditure
Labour & Employee Related Remuneration 173,385,630 4.28 193,368,826 4.93
Payroll Related 61,359,280 1.51 71,893,567 1.83
Group Insurance 780,006 0.02 943,500 0.02
Telecommunications 500,990 0.01 668,133 0.02
Training and seminars 2,568,498 0.06 3,488,418 0.09
Other dierct costs 32,373,811 0.80 15,937,937 0.41
Total 270,968,215 6.68 286,300,381 7.30
Gross profit 130,991,076 3.23 116,252,024 2.97
Selling, general and administrative expenses
Professional Services 7,300,170 0.18 12,615,539 0.32
Recruiting 225,294 0.01 931,408 0.02
Office Cost 537,987 0.01 480,841 0.01
Other General and Admin 6,331,476 0.16 4,212,918 0.11
Total 14,394,927 0.35 18,240,706 0.47 Earnings before interest expense, income
taxes, depreciation and amortization 116,596,149 2.88 98,011,318 2.50
Depreciation and amortization - - 7,746 0.00
Interest and financing expenses 1,781,984 0.04 14,518,411 0.37
Management fee 90,072,000 2.22 63,550,000 1.62
Income (loss) before income taxes 24,742,165 0.61 19,935,161 0.51
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Provision for (recovery of) income taxes
Current 10,091,000 0.25 9,398,000 0.24
Future - - - -
10,091,000 0.25 9,398,000 0.23
Net income (loss) for the period 14,651,165 0.36 10,537,161 0.28
Earnings/('Deficit), beginning of period 54,892,850 1.27 44,355,689 0.99
Retained earnings, end of period 69,544,015 1.63 54,892,850 1.27
Notes Average FE Conversion Rate for HUF to INR for the Financial Year 0.2466 0.2552
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Notes to Financial Statements as of March 31, 2010
I. General information
1. Business name: The name of the Company In Hungarian: MINACS Telefoninformációs Szolgáltatások Kft In English: MINACS Call Center Services Limited
Tax registration number: 1311764974-2-41
The abbreviated name of the Company in Hungarian: MINACS Kft.
The abbreviated name of the Company in English: MINACS Ltd.
Seat: Hungary 1114 Budapest, Ulaszlo Street 27.
The registered headquarter of the company: Hungary 1138 Budapest, Váci út 169.
2. The FORM OF THE COMPANY: Limited Liability Company
The company was established in 2003 by the following owners:
MINACS Worldwide GmbH 96,66 % Julius Minacs 3,33 %
The Company’s share capital is THUF 3.000, which exclusively consists cash deposits. The amount of it hasn’t changed compared to the last year.
The managing director of the Company: Paul Lonford Niewoehner US-6115 Waterford, Grace K. DR. MI 48329-1328
The Company’s representation, registration:
The executives are entitled to register and represent the Company independently; the managers appointed by the General meeting are jointly entitled.
The Company’s present owners: Member Nominal Value THUF
MINACS Worldwide GmbH 2.900.000 HUF Julius Minacs 100.000 HUF
The MINACS Ltd. is going to consolidate by the Minacs Worldwide GmbH. The consolidated report can be seen at the seat of the Company.
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THE COMPANY’S ACTIVITIES INCLUDE:
82.20 Call center activities – main activity 62.02 Computer consultancy activities 63.11 Data processing hosting and related activities 58.12 Publishing of directories and mailing lists 62.09 Other information tec and service activities 73.20 Market research and public opinion polling 70.22 Business and management consulting 82.99 Other business support services
The Company is only pursuing authorised activities owning the administrative license.
Other:
The financial year of the Company differs from the calendar year. The statement date is March 31, 2010. The date of the preparation of the annual report is April 10, 2010.
Under the principle of completeness, the annual report includes those business activities which happened between the year end and the date of report preparation, and could affect the financial figures in the balance sheet and the profit & loss.
The form of the financial statement
The Company prepares a simplified annual report, accordingly it keeps double entry. The Company prepares an ‘A’ type annual financial statement, with the so called balance-like arrangement. The company prepares its profit and loss statement by the ‘A’ method, the cost summary method. It has formed its inner registrations, sub ledger and chart of accounts, and their joining points in accordance with it.
The data of the annual report are expressed in thousand HUF, if not indicated otherwise.
II. MAJOR ELEMENTS OF THE ACCOUNTING POLICY
The Company performs its activity in compliance with the regulations of the accounting law. The Company has established its policy for cash treatment, inventory taking, and asset and liability valuation in accordance with the accounting law.
The Company’s Accounting Policy has set out that under the principle of going concern the enforcement of (the principle of integrity, authenticity, transparency, comparison, continuity, consistence, prudence, gross accounting, individual valuation, accrual and deferral, priority of content over form, materiality and comparison of cost and profit) should be ensured.
It is considered to be a significant error if in the year of revealing the error during different checks considering a given business year (separately each year), the value of the revealed errors and margins of error (independent of indication), increasing – decreasing profit and equity, the joint amount is above the 1% of the gross sum.
It is considered an error influencing true and fair picture to a great extent if the contracted value of the errors and margins significantly alters the equity. It is considered to be such an error in all cases when following the settling out there is more than 20% change in the equity reported in the balance sheet of the previous financial year.
In the case of the year-end assets and liabilities incurred in foreign currency or exchange are going to be revaluated irrespective of the amount according to published exchange rates of the HNB.
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Evaluation of the assets in the financial statement
1/ Intangible assets
Intangible assets are disclosed at purchase or production value, reduced by accumulated depreciation, and at a value not exceeding their known market value. The calculation of depreciation is to be performed on a straight-line basis, by the application of the depreciation rates required for writing-off the intangible assets over a period equal to the expected useful life of the assets. The expected useful life of the intangible assets by categories:
Rights representing value 7 years Software 3 years
2/ Tangible assets
Tangible assets are disclosed in the balance sheet at purchase or production value, reduced by accumulated deprecation. The calculation of deprecation is performed on a straight line basis, by the application of the deprecation rates required for the writing off of the tangible assets over a period equal to the expected useful life of the assets:
Land and buildings 20 years Technical equipment, machinery 3-7 years Other equipment 5-7 years
3/ Financial investments
Investments representing ownership share in economic associations are disclosed at purchased price in the case of acquisition, while in the case of establishment at the value set out in the Articles of Association, until their market value does not permanently decrease below book value. In this case they are valued at the market value known as the date of preparation of the balance sheet.
4/ Recognition of transactions in foreign currency
Transactions in foreign currency are accounted at the exchange rate of MNB as the date of the transaction. The exchange gain or loss arising from the difference between the exchange rate as at the date of the financial fulfilment and the transaction are disclosed in the profit and loss statement.
5/ Sales revenue
Net sales revenues are accounted as at the date of fulfillment, and are exclusively of VAT.
6/ Corporate tax
The corporate tax liability of the Company is accounted in the profit and loss statement on the basis of the regulations in the reported year.
7/ Changes in the Company’s accounting policy
The Company’s accounting policy did not change during the year.
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III. FINANCIAL POSITION AND LIQUIDITY
There has been no such event since the date of the balance sheet, which would have a material impact on the Company’s financial statement as at 31 March, 2010. The liquidity of the Company was during the financial year insured.
IV. Notes to Balance Sheet as at March 31st, 2010
April 1 2009 April 1 April 1 2008 April 1 March 31 2009 March 31 2009 2008 to 2010 March 31 March 31 2010 2009 HUF INR/Cr HUF INR/Cr 1 Equity Share capital 3,000,000 0.07 3,000,000 0.07
2 Accumulated profit reserve Balance at beginning of the year 44,355,689 54,892,850 1.27 0.99 Profits during the year from P&L 10,537,161 14,651,165 0.36 0.28 Balance at the end of the year 69,544,015 1.63 54,892,850 1.27
3 Liquid assets 18,377,616 Commerzbank Hungary 83,147,371 1.89 0.41 Petty cash 69,222 973,153 0.02 0.00 Total: 84,120,524 1.92 18,446,838 0.41
4 Receivables Trade Receivables 101,752,475 97,421,621 2.22 2.27 Employee Advances Receivables - - 45,000 0.00 Total: 97,421,621 2.22 101,797,475 2.27
5 Other Receivable Value added tax 16,003,513 12,267,783 0.28 0.36 Income & Other Taxes Payable 680,086 1,492,000 0.03 0.02 Total: 13,759,783 0.31 16,683,599 0.37 6 Liabilities Current Liabilities
Trade Creditors 371,861 0.01 (696,215) (0.02)
Accruals - General 1,000,370 0.02 2,551,950 0.06
Accruals - Payroll 9,370,034 0.21 10,093,461 0.22 Total: 10,742,265 0.24 11,949,196 0.27
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7 Due to Inter Company
Due to GmbH Germany 32,345 0.00 26,646,254 0.59
Due to MXW Canada 112,123,337 2.56 15,732,057 0.35
Due to Minacs UK 1,587,223 0.04 25,850,800 0.58 Total: 113,742,906 2.59 68,229,111 1.52
V. Notes to Profit & Loss account year ending March 31st, 2010
April 1 2009 April 1 April 1 2008 April 1 March 31 2009 March 31 2009 2008 to 2010 March 31 March 31 2010 2009
HUF INR/Cr HUF INR/Cr
1 Labour & Employee Related Remuneration
Regular Wages Paid 169,865,267 4.19 188,885,390 4.82
Sick Pay 3,520,363 0.09 4,483,436 0.11 173,385,630 4.28 193,368,826 4.93
2 Payroll Related
Payroll Taxes Direct 13,149,007 0.32 15,677,128 0.40
Medicare (US) 48,210,273 1.19 56,216,439 1.43 61,359,280 1.51 71,893,567 1.83
3 Other Costs
Travel - Direct Cost 8,053,014 0.20 11,444,930 0.29
Project Disbursements 24,320,797 0.60 4,493,007 0.11 32,373,811 0.80 15,937,937 0.41
4 Professional Services
Accounting Fees 6,922,255 0.17 11,009,953 0.28
Corporate Legal Fees 377,915 0.01 1,605,586 0.04 7,300,170 0.18 12,615,539 0.32
5 Office Cost
Office Supplies & Minor Equipment 319,801 0.01 409,224 0.01
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Other Supplies 202,476 0.00 44,680 0.00
Postage 15,710 0.00 26,937 0.00 537,987 0.01 480,841 0.01
6 Other General and Admin Cost
Non-Cash Incentives - Indirect - - 8,130 0.00
Other SG&A 6,319,280 0.16 4,186,785 0.10
Penalty and Fine Charges 12,196 0.00 18,003 0.00 6,331,476 0.16 4,212,918 0.10
7 Interest and financing expenses
Bank Service Charges 785,504 0.02 1,737,862 0.04
Foreign Currency Unrealised Gain 2,867 0.00 12,771,715 0.33
Foreign Currency realised Gain 1,229,518 0.03 153,096 0.00
Other Interest Expenses (235,905) (0.01) (144,262) (0.00) 1,781,984 0.04 14,518,411 0.37
8 Provision for (recovery of) income taxes
Current Income Tax 2,056,000 0.05 1,057,000 0.03
State Tax 8,035,000 0.20 8,341,000 0.21 10,091,000 0.25 9,398,000 0.24
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BALANCE SHEET AS AT 31ST MARCH 2010
Notes As At 31st March 2010 As At 31st March 2009 £ INR/Cr £ INR/Cr I Sources of Funds
Shareholders' funds Called up share capital 4 1,000 0.01 1,000 0.01 Profit and loss account 267,698 2.04 183,796 1.45 Exchange fluctuation on Translation (0.23) (0.09) 268,698 1.82 # 184,796 1.37
Loan Funds - - - -
Total 268,698 1.82 184,796 1.37
I I Application of Funds
Fixed assets - - - -
Investments 5 15,277 0.10 15,277 0.11
Current assets Debtors 6 707,809 4.80 942,614 6.99 Cash at bank and in hand 146,936 1.00 141,644 1.05 854,745 5.80 1,084,258 8.04 Less Current liabilities 7 (601,324) (4.08) (914,739) (6.78) Net Current Assets 253,421 1.72 169,519 1.26
Total 268,698 1.82 184,796 1.37
Notes: See accompanying notes to the financial statements FE Conversion Rate for GBP to INR as at year end 67.87 74.16
Deepak Place: Toronto Patel Date: April 23, 2010 CEO
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Profit and Loss Account for the year ended 31st March, 2010
Year ended 31/03/2010 Year ended 31/03/2009 £ INR/Cr £ INR/Cr
Sales 2,392,193 18.23 2,355,259 18.64 Total 2,392,193 18.23 2,355,259 18.64
Direct costs Wages and salaries 1,574,508 12.00 1,584,086 12.54 Employer's NI contributions 152,017 1.16 162,570 1.29 Staff pension scheme costs 10,127 0.08 10,998 0.09 Placement & interview expenses 3,800 0.03 8,839 0.07 Staff training 1,168 0.01 5,622 0.04 Travel expenses 27,035 0.21 55,924 0.44 Health & safety costs 1,676 0.01 1,938 0.02 Total 1,770,332 13.49 1,829,976 14.48 Gross profit 621,862 4.74 525,283 4.16 Administration Wages and salaries 244,300 1.86 270,268 2.14 Rent payable 29,100 0.22 10,150 0.08 Printing, postage and stationery 4,539 0.03 2,586 0.02 Telephone 3,602 0.03 7,193 0.06 Motor vehicle leasing - - 1,774 0.01 Entertaining 2,443 0.02 1,144 0.01 Legal and professional 5,430 0.04 9,475 0.07 Accountancy 38,210 0.29 44,390 0.35 Audit 6,000 0.05 6,000 0.05 Bank charges 9 0.00 262 0.00 Exchange rate (gain)/loss 639 0.00 (59,276) (0.47) Payroll services 6,000 0.05 6,500 0.05 General expenses (240,918) (1.84) (238,219) (1.89) Recruitment costs - - 603 0.00 Subscriptions 4,681 0.04 1,044 0.01 Management Charges 401,500 3.06 375,000 2.97 505,534 3.85 438,894 3.47 Financial Other operating income (142) (0.00) (6,514) (0.05) (142) (0.00) (6,514) (0.05) Total expenses 505,392 3.85 432,380 3.42
Net profit/(loss) before taxation 116,470 0.89 92,903 0.74 Less :Corporation tax based on profits for the period (32,567) (0.25) (26,106) (0.21)
Net Profits/(Loss) for the year 83,902 0.64 66,798 0.53 Balance brought forward 183,796 1.40 116,998 0.93
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Balance carried forward 267,698 2.04 183,796 1.45
Notes Please see accompanying notes to the financials FE Conversion Rate for GBP to INR for the Financial Year 76.1983 79.1328
Place: Toronto Deepak Patel Date: April 23, 2010 CEO
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1. Accounting policies
1.1. Accounting convention The financial statements are prepared under the historical cost convention and in accordance with applicable accounting standards, and in accordance with the Financial Reporting Standard for Smaller Entities (effective April 2008). 1.2. Turnover Turnover represents the total invoice value of sales made during the year stated net of value added tax. 1.3. Leasing Rentals payable under operating leases are charged against income on a straight line basis over the lease term. 1.4. Investments Fixed asset investments are stated at cost less provision for permanent diminution in value. 1.5. Pensions The pension costs charged in the financial statements represent the contribution payable by the company during the period. The regular cost of providing retirement pensions and related benefits is charged to the profit and loss account over the employees' service lives on the basis of a constant percentage of earnings. 1.6. Foreign currencies Monetary assets and liabilities denominated in foreign currencies are translated into sterling at the rates of exchange prevailing at the accounting date. Transactions in foreign currencies are recorded at the date of the transactions. All differences are taken to the Profit and Loss account 1.7. Group accounts The company is entitled to the exemption under Section 398 of the Companies Act 2006 from the obligation to prepare group accounts. 2. Turnover The total turnover of the company for the year has been derived from its principal activity wholly undertaken in the UK and Ireland. 3. Pension costs The company operates a defined contribution pension scheme in respect of the employees. The Scheme and its assets are held by independent managers. The pension charge represents contributions due from the company and amounted to £10,127; INR 0.8 mn (Previous Year £10,998 ; INR 0.9 Mn )
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4 Share capital As At 31st March 2010 As At 31st March 2009 £ INR/Cr £ INR/Cr
Authorised
1000 Ordinary shares of £1 each 1,000 0.01 1,000 0.01
Allotted, called up and fully paid
1000 Ordinary shares of £1 each 1,000 0.01 1,000 0.01
Equity Shares
1000 Ordinary shares of £1 each 1,000 0.01 1,000 0.01
5 Investments in Subsidiary undertakings Cost of Shares
Opening balance 15,277 0.10 15,277 0.11
Additions/(deletions during the year) - - - -
Closing Balance 15,277 0.10 15,277 0.11
Net book Values
Opening balance 15,277 0.10 15,277 0.11
Additions/(deletions during the year) - - - -
Closing Balance 15,277 0.10 15,277 0.11
Holdings of 20% or more The company holds 20% or more of the share capital of the following companies: Minacs Worldwide Subsidiary undertaking GmbH Minacs Worldwide GmbH Country of Registration Germany Germany Nature of Business Provider of Outsourced solutions Provider of Outsouced solutions Euro Class of Shares held Euro Share Share Proportion of shares held 100% 100%
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6 Debtors Trade Debtors 700,210 4.75 697,316 5.17 Amounts owed by group undertakings 5,104 0.03 148,182 1.10 Other debtors 1,126 0.01 82,355 0.61 Prepayments and accrued income 1,369 0.01 14,761 0.11
707,809 4.80 942,614 6.99
7 Current lilabilites Amount falling due within one year Trade Creditors 5,923 0.04 12,188 0.09 Amounts owed by group undertakings 359,437 2.44 705,009 5.23 Corporation Tax 32,651 0.22 26,080 0.19 Other taxes and social security costs 153,452 1.04 151,022 1.12 Accruals and deferred income 49,861 0.34 20,440 0.15
601,324 4.08 914,739 6.78
Year ended 31st March Year ended 31st March 2010 2009 £ INR/Cr £ INR/Cr
8 Operating profit / (loss) Operating profit/(loss) is stated after charging: Auditors' remuneration 6,000 0.05 6,000 0.05
Pension Costs 10,127 0.08 10,998 0.09
9 Tax on profit/ (loss) on ordinary activities Analysis of charge in period Current Tax UK corporation tax 32,567 0.25 26,106 0.21
10 Related Party Transactions Sales to Minacs Kft, Hungary 61,887 0.47 50,662 0.40 Minacs GmbH, Germany 3,155 0.02 46,993 0.37 Reimbursement of Expenses/Fees Minacs GmbH, Germany 70,031 0.53 51,906 0.41 Miancs Worldwide Inc, Canada 160,582 1.22 245,888 1.95
Receivables from Minacs Kft, Hungary 5,104 0.03 76,659 0.57 Minacs GmbH, Germany (8,846) (0.06) 71,523 0.53 (3,742) (0.03) 148,182 1.10 Payable to
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Minacs Worldwide Inc, Canada 359,437 2.44 705,009 5.23
11 Ultimate Parent Undertaking The Company is wholly owned subsidiary of Minacs Worldwide Inc, a company incorporated in Canada. The ultimate parent Company is Aditya Birla Nuvo Limited, a Company incorporated in India.
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Balance Sheet As at March 31 2010 As at March 31 2009 Pesos INR/ Cr Pesos INR/Cr
I Sources of Funds Shareholders' funds Share capital Shares issued 50,000 0.02 50,000 0.02 Cumulative translation adjustment - - Deficit (50,000) (0.02) (50,000) (0.02) - - - -
Debt - - - -
Total - - - -
II Application of Funds Fixed Assets - - - -
Current assets Cash and cash equivalents - - - - Accounts receivable - - - - Prepaid expenses ------Less Current liabilities - - - - Bank Indebtedness - - - - Other liabilities - - - - Net current Assets - - - -
Total - - - -
See accompanying notes to the financial statements.
Note Conversion rate for Pesos to INR 3.62 3.62
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Statements of Operations and Deficit Year ended Year ended March 31 2010 March 31 2009 Pesos INR/ Cr Pesos INR/Cr
Revenues - - - -
Direct expenses - - - -
Selling, general and administrative expenses - - - -
Earnings before interest expense, income taxes, depreciation and amortization - - - -
Depreciation and amortization - - - -
Interest and financing expenses - - - -
Provision for (recovery of) income taxes - - - -
Net income (loss) for the period - - - -
Deficit, beginning of period (50,000) (0.02) (50,000) (0.02)
Deficit, end of period (50,000) (0.02) (50,000) (0.02)
Note Conversion rate for Pesos to INR at 31 March, 2010 3.619 3.620
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Notes to Financial Statements MARCH 31, 2010
1 NATURE OF BUSINESS
Minacs Worldwide SA de CV (the “Company” or “Minacs Mexico”) is a provider of business process outsourcing (“BPO”) solutions. The Company is a subsidiary of Minacs Worldwide Inc. (“Minacs”). Minacs Mexico is an inactive subsidiary.
2 SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of these financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates.
Revenue Recognition
The Company derives revenues through the provision of direct resources to its customers and consulting arrangements. Payment terms may vary by contract. The Company recognizes revenues at the time services are performed and when the price is fixed or determinable and collection is reasonably assured.
The majority of revenues are recognized based on the billable hours or minutes rendered as defined in the client contract. The rate per billable hour or minute charged is based on a predetermined contractual rate as agreed in the underlying contract. This contractual rate fluctuates based on the Company’s performance against certain predetermined criteria related to quality and performance. Some clients are entitled to penalties when the Company is not in compliance with certain obligations as defined in the client contract. Such penalties are recorded as a reduction of revenues as incurred based on a measurement of the Company’s obligation under the terms of the client contract.
For some contracts the Company is paid by its customer based on achievement of certain level of revenues or other client-determined criteria specified in the client contract such as full time equivalents, units processed or completed contacts. The Company recognizes this performance-based revenue by measuring its actual results against the performance criteria specified in the contracts.
The Company classifies reimbursements received from customers for out-of-pocket expenditures as revenues. The Company incurs out-of-pocket expenditures such as expenses related to travel, postage and telecommunications costs for which customers have agreed to reimburse Minacs. The corresponding cost associated with this revenue is recorded within direct expenses. Some customers agree to reimburse the Company for initial training and recruiting costs over a specified period of time. The revenue for these costs are recorded over the period of time stipulated within the contract with a corresponding cost recorded within direct expenses.
Income Taxes
The Company follows the liability method of accounting for income taxes. Under this method, future tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities, and are measured using substantively enacted tax rates and laws that are expected to be
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in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce future income tax assets to the estimated amount that is more likely than not to be realized.
Foreign Exchange Translation
Assets and liabilities are translated using the exchange rate in effect at the balance sheet date and revenues and expenses are translated at the average rate of the month the transaction is recorded.
Cash and Cash Equivalents
Cash and cash equivalents consist of unrestricted cash and short-term deposits having an initial maturity of three months or less.
3 SHARE CAPITAL
2010 2009 Pesos INR/Cr Pesos INR/Cr Common shares 50,000 0.02 50,000 0.02 50,000 0.02 50,000 0.02
Authorized Share Capital
The Company is authorized to issue an unlimited number of common shares.
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Unaudited Balance Sheet As at 31st March, 2010 31.03.2010 31.03.2010 31.03.2009 31.03.2009 € INR/Cr € INR/Cr Sources of Funds I Shareholders’ funds 1. Share capital authorized and fully paid in 25,000 0.15 25,000 0.17 2. Profit carried forward 1,783,414 11.85 1,445,595 9.66 3. Profit current year 310,833 2.04 337,819 2.19 4. Exchange fluctuations on conversion - (0.96) - 0.07 Total equity 2,119,247 13.08 1,808,414 12.08
II Loan Funds - - - - 2,119,247 13.08 1,808,414 12.08 Application of Funds I Fixed assets 1. EDP software 998 0.01 569 0.00 2. Leasehold improvements 12,553 0.08 12,553 0.08 3. Furniture and equipment 27,422 0.17 20,297 0.14 4. Office equipment 37,980 0.23 36,181 0.24 5. Deferred Development Costs 2,442 0.02 - - Gross block 81,395 0.50 69,600 0.46 6. Accumulated depreciation (61,114) (0.38) (53,738) (0.36) Total Net Block 20,281 0.13 15,863 0.11
II Investments 1. Investments in Subsidiary Company - Hungary 11,050 0.07 11,050 0.07
III Current assets 1. Cash at bank and on hand 166,461 1.03 102,409 0.68 2. Accounts receivable 1,752,586 10.82 1,997,877 13.35 3. Intercompany receivables 499,957 3.09 143,340 0.96 4. Prepaid expenses 42,249 0.26 45,519 0.30 5. Other assets 2,500 0.02 400 0.00 Total current assets 2,463,753 15.21 2,289,546 15.29 Less Liabilities 1. Accounts payable 3,219 0.02 10,494 0.07 2. Intercompany payables - - 77,243 0.52 3. Accrued expenses 368,169 2.27 458,080 3.06 4. Other liabilities 4,449 0.03 (37,772) (0.25) Total liabilities 375,837 2.32 508,045 3.39 Net Current Assets 2,087,916 12.89 1,781,501 11.90
Total 2,119,247 13.08 1,808,414 12.08
The accompanying notes to the Financial Statements are an intergral part of this balance sheet Conversion Rate for Euro to INR as at year end rates 61.74 66.80
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Unaudited Profit and Loss Account for the period from April 01 2009 to March 31, 2010 April 1 April 1 April 1 April 1 2008 to
2009 2009 2008 March 31 2009 March 31 March 31 March 31 2010 2010 2009 € INR/Cr € INR/Cr Income 1. Revenues 7,363,240 48.31 8,441,642 54.72 2. Interest income 59 0.00 1,701 0.01 7,363,299 48.31 8,443,343 54.73 Expenditure 3. Staff cost 5,213,485 34.20 6,169,127 39.99 4. Selling, general and administrative expenses 444,458 2.92 513,931 3.33 5. Management fees 1,267,897 8.32 1,298,049 8.41 Total 6,925,840 45.44 7,981,107 51.74 6. Earnings before interest, income taxes and 437,459 2.87 462,236 3.00 depreciation 7. Depreciation on fixed assets 7,377 0.05 6,576 0.04 9. Interest expenses - - - - 10. Earnings before income taxes 430,082 2.82 455,660 2.95 11. Income taxes 119,249 0.78 117,841 0.76 12. Net income 310,833 2.04 337,819 2.19
The accompanying notes to the Financial Statements are an integral part of this statement of income
The average conversion rates for Euro to INR for the financial year 65.60 64.83
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Unaudited Cash Flow for the year ended March 31, 2010 April 1 April 1 April 1 April 1 2009 2009 2008 to 2008 to March 31 March 31 March March 2010 2010 31 2009 31 2009 € INR/Cr € INR/Cr
Net earnings (Incl FE Rate difference) 310,833 2.04 337,819 2.26
Depreciation of fixed assets 7,377 0.05 6,576 0.04
Changes in operating assets and liabilities - Accounts receivables and intercompany receivables (111,326) (0.69) (436,879) (2.92)
- Prepaid expenses and other assets 1,170 0.01 61,274 0.41
- Accounts payables and intercompany payables (84,519) (0.52) (781,662) (5.22)
- Accrued expenses and other liabilities (47,689) (0.29) 13,122 0.09
Cash flow used in operating activities 75,847 0.59 (799,750) (5.34)
Purchase of fixed assets / deferred expenses (11,795) (0.07) (6,339) (0.04)
Correction profit carried forward - - - -
Decrease/increase in cash during the year 64,052 0.52 (806,089) (5.38)
Cash at the beginning of the year 102,409 0.69 908,498 6.07
Cash at the end of the year 166,461 1.03 102,409 0.69
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Notes to Financial Statements as of March 31, 2010
I. General information
The company was set up on May 17, 2000 through notarized contract under the former firm Insartor Holding SECHZEHNTE GmbH and was registered on July 04, 2000 with the commercial register at the district court in Munich (HRB 131937).
The firm Insartor Holding SECHZEHNTE GmbH was changed in Minacs Worldwide GmbH with the shareholders resolution dated August 04, 2000. AT the same time it was concluded to transfer the company’s residence from Munich to Russelsheim. The change of the former firm Insartor Holding SECHZEHNTE GmbH in Minacs Worldwide GmbH as well as the residence transfer were registered on March 07, 2001 under HRB 3872 with the commercial register at the district court in Russelsheim.
Within the course of concentration of keeping the commercial-, cooperative association- and partnership register and the step by step establishment of an electronic register Minacs Worldwide GmbH is registered from January 01, 2002 with the commercial register at the district court in Darmstadt under HRB 83872.
The subscribed capital of the company amounts to EUR 25.000,00 and is paid in totally.
The solely shareholder is Minacs Ltd., London.
The purpose of the company is to act as a provider of outsourced solutions incorporating customer contact center management and other professional services. The company designs and delivers solutions that enable the customer relationship management of its clients.
During the period 01.04.2009 to 31.03.2010 most of the company’s revenue has been generated by one major customer.
II. Financial information
1. General accounting policy
The financial statements had been prepared in accordance with German Generally Accepted Accounting Principles which are laid down in the Commercial Code.
Fixed assets were carried at historical acquisition costs less accumulated depreciation according to the straight-line method
The accrued expenses consider all recognized risks and uncertain commitments, based on reasonable commercial judgment.
Liabilities were valued with their anticipated future settlement amounts
The provision for income taxes was calculated on the basis of the German taxable income.
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2. Other information a) Contingent liabilities
There were no contingent liabilities on the balance-sheet date. b) Subsequent events
There have been no events occurred since March 31, 2010 which require adjustments to the figures submitted in this report.
III. Notes to Balance Sheet as at March 31st, 2010
April 1 April 1 April 1 April 1 2009 2009 2008 to 2008 to March 31 March March March 2010 31 2010 31 2009 31 2009 € INR/Cr € INR/Cr Assets I Fixed Assets (WDV) 20,281 0.13 15,863 0.11
II Investment 11,050 0.07 11,050 0.07 III Current Assets 1.Cash at Bank and on hand a) Cash at Bank Commerz bank AG EUR-Account 00 47,783 0.29 95,298 0.64 Deutschebank 114,968 0.71 - - UniCredit Banca Italy 3,512 0.02 1,534 0.01 Rent Deposit - - 5,448 0.04 b) Cash on Hand Petty Cash in Germany 198 0.00 130 0.00 166,461 1.03 102,409 0.68
2. Accounts Receivables 1,752,586 10.82 1,997,877 13.35 3. Intercompany Receivables a) Minacs Worldwide Inc., Ontario, Canada 489,813 3.02 56,714 0.38 b) Minacs Ltd., London, England 10,023 0.06 (77,243) (0.52) b) Minacs Hungary 122 0.00 86,626 0.58 499,957 3.09 66,097 0.44
4. Prepaid Expenses 42,249 0.26 45,519 0.30
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5. Other Assets Accounts receivables against employees 2,500 0.02 400 0.00 2,500 0.02 400 0.00
April 1 April 1 April 1 April 1 2009 2009 2008 to 2008 to March 31 March March 31 March 2010 31 2010 2009 31 2009 € INR/Cr € INR/Cr IV Liabilities 6. Accounts Payable 3,219 0.02 10,494 0.07
7. Accrued Expenses Audit and Legal Expenses 36,650 0.23 66,000 0.44 Disability 4,500 0.03 5,200 0.03 Personnel Expenses 6,000 0.04 144,000 0.96 Workmen's compensation 25,000 0.15 25,000 0.17 Outstanding holiday pay 190,000 1.17 145,000 0.97 Other Personnel Liabilities 46,060 0.28 51,280 0.34 Other Accruals 59,959 0.37 21,600 0.14 Total 368,169 2.27 458,080 3.06
8. Other Liability Sales Tax Payable (2,652) (0.02) (4,545) (0.03) Income and Other Taxes Payable 7,101 0.04 (33,228) (0.22) 4,449 0.03 (37,772) (0.25)
Total 375,837 2.32 430,801 2.88
9. Staff Cost Wages and salaries (4,245,153) (27.85) (4,994,769) (32.38) Social security, pensions and other personnel expenses (941,884) (6.18) (1,089,929) (7.07) Subcontractors staff and minor services (26,448) (0.17) (84,429) (0.55) (5,213,485) (34.20) (6,169,127) (39.99)
Wages and Salaries (4,245,153) (27.85) (4,994,769) (32.38) Social Security, pensions and other personnel expenses (941,884) (6.18) (1,089,929) (7.07) Subcontractor staff and minor services (26,448) (0.17) (84,429) (0.55) Total (5,213,485) (34.20) (6,169,127) (39.99)
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10. Selling, General & Administration Expenses Rent (34,384) (0.23) (36,734) (0.24) Gas, Electricity & Water (2,939) (0.02) (2,553) (0.02) Cleaning (3,315) (0.02) (2,692) (0.02) Insurances (583) (0.00) (583) (0.00) Other Personnel Expenses (229,574) (1.51) (274,825) (1.78) Representation & Entertainment Expenses (5,505) (0.04) (1,675) (0.01) Travel Expenses (8,652) (0.06) (2,979) (0.02) Freight - out (905) (0.01) (873) (0.01) Other Repair & Maintenance Costs (1,013) (0.01) (273) (0.00) Mailing Expenses (710) (0.00) (539) (0.00) Telephone, Internet (10,384) (0.07) (10,798) (0.07) Office Supplies (3,313) (0.02) (5,193) (0.03) Magazines, Books, Contributions (3,132) (0.02) (2,111) (0.01) Training Expenses (18,861) (0.12) (6,443) (0.04) Legal, Consulting & Accounting Expenses (90,481) (0.59) (140,707) (0.91) Rent of Equipment (4,424) (0.03) (4,390) (0.03) Bank Charges (13,658) (0.09) (13,113) (0.09) Exchange Losses (2,076) (0.01) (2,816) (0.02) Other Supplies (10,549) (0.07) (4,633) (0.03) Total (444,458) (2.92) (513,931) (3.33)
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Consolidated Balance Sheet (Unaudited in US$)
As At March 31 2010 As At March 31 2009 US$ INR/Cr US$ INR/Cr
Sources of Funds I Shareholders' fund 1. Share capital $302,040 1.36 $302,040 1.58 2. Retained earnings $8,102,244 37.61 $6,711,455 31.19 3. Exchange Fluctuation on Transaltion - (1.13) - 3.83 $8,404,284 37.84 $7,013,495 36.59
II Debt 1. Long-term debt from holding company $20,768,591 93.52 $20,768,591 108.36
$29,172,875 131.36 $27,782,086 144.95 Application of funds
I Fixed Assets 1. Property, plant and equipment, net $5,410,781 24.36 $6,245,114 32.58 2. Deferred Development costs $1,480,070 6.66 - - 3. Intangibles $101,961 0.46 $166,357 0.87 4. Goodwill $1,900,000 8.56 $1,900,000 9.91 $8,892,812 40.04 $8,311,471 43.36
II Investments - - - -
III Current assets 1. Cash and cash equivalents $1,038,954 4.68 $1,203,632 6.28 2. Accounts receivable $12,759,501 57.46 $15,377,669 80.23 3. Due from parent company $14,550,822 65.52 $10,368,103 54.09 4. Prepaid expenses $867,898 3.91 $580,327 3.03 5. Future income taxes - Long term $361,234 1.63 $456,493 2.38 6. Future income taxes - Short term $256,472 1.15 $1,434 0.01 $29,834,881 134.35 $27,987,659 146.02 Less liabilities I Short term 1. Accounts payable and accrued liabilities $7,625,908 34.34 $6,277,087 32.75 2. Income and other taxes payable (29,082) (0.13) (246,779) (1.29) 3. Obligations under capital leases $321,213 1.45 $693,037 3.62
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$7,918,039 35.66 $6,723,345 35.08 II Long term 1. Accounts payable and accrued liabilities $527,081 2.37 $704,779 3.68 2. Obligations under capital leases - - $321,213 1.68 3. Future income taxes $1,109,698 5.00 $767,707 4.01 Total liabilities $9,554,818 43.03 $8,517,044 44.44 Net Assets $20,280,063 91.32 $19,470,615 101.59 Total $29,172,875 131.37 $27,782,086 144.95
Notes : See accompanying notes to the financial statements. FE Conversion Rate for US$ to INR as at end of year 45.03 52.17
Place: Toronto Deepak J. Patel Chief Executive Date: April 23, 2010 Officer
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Statement of Operations and Deficit Unaudited in US $
31/3/2010 31/3/2010 31/3/2009 31/3/2009 US$ INR/Cr US$ INR/Cr
Revenues $97,017,763 448.13 $118,834,456 552.20
Expenditures Direct expenses $72,406,782 334.45 $92,167,048 428.28 Selling, general and administrative expenses $12,268,172 56.67 $12,188,117 56.64 $84,674,953 391.12 $104,355,165 484.92 Earnings before interest, income taxes, depreciation, amortization and restructuring and other charges $12,342,810 57.01 $14,479,290 67.28
Management fee $6,857,000 31.67 $7,792,900 36.21 Restructuring and other charges $113,188 0.52 273,179 1.27 Interest and financing expenses $944,475 4.36 $987,779 4.59 Depreciation and amortization $2,177,429 10.06 $2,291,937 10.65 Provision for (recovery of) income taxes Current $677,717 3.13 $1,239,612 5.76 Future $182,212 0.84 387,021 1.80 Net income (loss) for the period $1,390,789 6.42 $1,506,863 7.00
Earnings/('Deficit), beginning of period $6,711,455 31.19 $5,204,593 24.18
Retained earnings, end of period $8,102,244 37.61 $6,711,455 31.19
Notes: See accompanying notes to the financial statements. Average FE Conversion Rate for US$ to INR for the Financial year 46.19 46.47
Place: Toronto Deepak J. Patel Chief Executive Date: April 23, 2010 Officer
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Notes To Financial Statements March 31, 2010
1 NATURE OF BUSINESS
Minacs Group (USA) Inc. (the “Company” or “Minacs USA”) is a provider of business process outsourcing (“BPO”) solutions. These incorporate contact centre solutions, integrated marketing services and back office administration. Minacs USA is a subsidiary of Minacs Worldwide Inc. (“Minacs”).
2 SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of these financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates.
Revenue Recognition
The Company derives revenues through the provision of direct resources to its customers and consulting arrangements. Payment terms may vary by contract. The Company recognizes revenues at the time services are performed and when the price is fixed or determinable and collection is reasonably assured.
The majority of revenues are recognized based on the billable hours or minutes rendered as defined in the client contract. The rate per billable hour or minute charged is based on a predetermined contractual rate as agreed in the underlying contract. This contractual rate fluctuates based on the Company’s performance against certain predetermined criteria related to quality and performance. Some clients are entitled to penalties when the Company is not in compliance with certain obligations as defined in the client contract. Such penalties are recorded as a reduction of revenues as incurred based on a measurement of the Company’s obligation under the terms of the client contract.
For some contracts the Company is paid by its customer based on achievement of certain level of revenues or other client-determined criteria specified in the client contract such as full time equivalents, units processed or completed contacts. The Company recognizes this performance-based revenue by measuring its actual results against the performance criteria specified in the contracts.
Amounts collected from customers prior to the performance of services are recorded as deferred revenue. These advances are amortized to revenues in accordance with the Company’s policy on revenue recognition.
The Company classifies reimbursements received from customers for out-of-pocket expenditures as revenues. The Company incurs out-of-pocket expenditures such as expenses related to travel, postage and telecommunications costs for which customers have agreed to reimburse Minacs USA. The corresponding cost associated with this revenue is recorded within direct expenses. Some customers agree to reimburse the Company for initial training and recruiting costs over a specified period of time. The revenue for these costs is recorded over the period of time stipulated within the contract with a corresponding cost recorded within direct expenses.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is provided from the first day of the month following the date the assets are placed into service, on a straight-line basis. 135
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Computer software is depreciated over four to five-year lives. Computer equipment is depreciated over a four-year life. Communications equipment is depreciated over five to seven-year lives. Furniture and fixtures are depreciated over seven to ten-year lives. Leasehold improvements are depreciated over the term of the lease.
Goodwill
Goodwill is not amortized and is tested for impairment on an annual basis. Such evaluation determines any impairment in value, taking into account the ability to recover the carrying amount of goodwill from discounted cash flows. The Company also considers projected future operating results, trends, and other circumstances in making such evaluations.
In addition to the annual impairment test, the Company will perform an impairment test if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount.
Intangibles
The Company allocates value to intangible assets acquired relating to customer and supplier contracts, proprietary processes, and certain business relationships. Amortization of intangibles is provided on a straight-line basis over 10 years.
Impairment of Long-lived Assets
The Company reviews its long-lived assets such as property, plant and equipment and intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. When indicators of impairment of the carrying value of the asset exist, and the carrying value is greater than the net recoverable value (as determined on an undiscounted basis), an impairment loss is recognized to the extent that the fair value (measured as the discounted cash flows over the remaining life of the asset when quoted market values are not readily available) is below the carrying value.
Income Taxes
The Company follows the liability method of accounting for income taxes. Under this method, future tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities, and are measured using substantively enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce future income tax assets to the estimated amount that is more likely than not to be realized.
Foreign Exchange Translation
Assets and liabilities are translated using the exchange rate in effect at the balance sheet date and revenues and expenses are translated at the average rate of the month the transaction is recorded.
Cash and Cash Equivalents
Cash and cash equivalents consist of unrestricted cash and short-term deposits having an initial maturity of three months or less.
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As At March 31 2010 As At March 31 2009 US$ INR (Cr) US$ INR (Cr)
3 Share Capital Common shares 100 0.00 $100 0.00 Contributed surplus 301,940 1.36 $301,940 1.58 302,040 1.36 $302,040 1.58
The Company is authorized to issue an unlimited number of common shares.
4 Long-Term Debt Loan from Parent Company 20,768,591 93.52 20,768,591 108.36
The loan from parent company bears interest at specified margins over bank prime and is payable to the Parent Company over a 25 year period.
5 PROPERTY, PLANT AND EQUIPMENT
As At 31st March, 2010 As At 31st March, 2009 Gross Cost Accumulated Gross Accumulated Gross Cost Accumulated Gross Accumulated Depreciation Cost Depreciation Depreciation Cost Depreciation In In In US$ In US$ INR/Cr In INR/Cr In US$ In US$ INR/Cr In INR/Cr
Computer software 6,367,256 (4,581,077.4) 28.67 (20.63) 5,664,187 (3,752,908) 29.55 (19.58) Computer equipment 7,601,383 (6,107,934.4) 34.23 (27.50) 7,179,106 (5,282,777) 37.46 (27.56) Communications equipment 934,194 (905,702.3) 4.21 (4.08) 934,194 (891,613) 4.87 (4.65) Furniture and fixtures 2,388,900 (1,458,331.9) 10.76 (6.57) 2,269,690 (1,291,276) 11.84 (6.74) Leasehold improvements 2,494,614 (1,322,518.9) 11.23 (5.96) 2,460,469 (1,043,958) 12.84 (5.45)
19,786,346 (14,375,564.9) 89.10 (64.73) 18,507,646 (12,262,531.8) 96.56 (63.98) Less: accumulated depreciation (14,375,565) (64.73) (12,262,532) (63.98) 5,410,781 24.36 6,245,114 32.58
Included in these figures are assets under capital leases as follows
INR In US$ INR (Cr) In US$ (Cr)
Cost 5,034,046 22.67 5,216,260 27.22 Less: accumulated depreciation (4,289,108) (19.31) (3,880,866) (20.25) Net book value $744,938 3.35 $1,335,394 6.97
Conversion rates for US$ to INR 45.03 52.17
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The assets under capital leases are held as security for the capital lease obligations. Included within depreciation and amortization is $513,877 relating to assets under capital leases.
As At March 31 2010 As At March 31 2009 US$ INR (Cr) US$ INR (Cr)
6 INTANGIBLES Cost 643,962 2.90 $643,962 3.36 Less: accumulated depreciation (542,001) (2.44) (477,605) (2.49) Net book value 101,961 0.46 $166,357 0.87
7 GOODWILL Balance, beginning of period 1,900,000 8.56 $1,900,000 9.91 Foreign currency translation adjustment - - - - Balance, end of period 1,900,000 8.56 $1,900,000 9.91
8 Future Income Taxes Accounts payable and accrued liabilities 512,340 2.31 $352,347 1.84 Other 105,366 0.47 $105,580 0.55 617,706 2.78 $457,927 2.39 Valuation allowance - - - - Less: current portion (256,472) (1.15) ($1,434) (0.01) 361,234 1.63 $456,493 2.38
Future tax liabilities consist of the following temporary differences
Property, plant and equipment (299,690) (1.35) $699,913 3.65 Other assets (810,008) (3.65) $67,795 0.35 (1,109,698) (5.00) $767,708 4.01
9 COMMITMENTS AND CONTINGENCIES
Capital Leases
Interest on obligations under capital leases accrues at various rates ranging from 8.3% to 9.1%.
The following is a schedule of future minimum lease payments for these capital leases:
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As At March 31 2010 As At March 31 2009 Capital Leases US$ INR (Cr) US$ INR (Cr) 2008 - - - - 2009 - - - - 2010 - - $753,410 3.93 2011 329,278 1.48 $329,278 1.72 Total minimum lease payments 329,278 1.48 $1,082,688 5.65 Less: amount representing interest (8,066) (0.04) ($68,439) (0.36) Present value of net minimum lease payments 321,212 1.45 $1,014,249 5.29 Less: current portion 321,212 1.45 $693,037 3.62 Total capital lease obligations - - $321,212 1.68 Commitments
The Company has operating leases for its premises, furniture and fixtures and certain computer and communications equipment as well as minimum purchase commitments for telephone services. The minimum annual payments for the next five years and thereafter are as follows:
As At March 31 2010 As At March 31 2009 US$ INR (Cr) US$ INR (Cr) 2010 - - $1,632,250 8.52 2011 1,457,358 6.56 $1,451,958 7.58 2012 1,402,668 6.32 $1,402,668 7.32 2013 1,402,668 6.32 $1,402,668 7.32 2014 1,402,668 6.32 $1,402,668 6.32 2015 467,556 2.11 - - Thereafter - - $467,554 2.11 Total commitments 6,132,918 27.62 $7,759,766 39.15
Contingent Liabilities
During the ordinary course of business activities, the Company may be a party to claims and may be contingently liable for litigation. Management believes that adequate provisions have been made in the accounts where required. Although it is not possible to estimate the extent of potential costs and losses, if any, management believes that the ultimate resolution of such contingencies will not have a material adverse effect on the financial position of the Company.
10 RELATED PARTY TRANSACTIONS
Transactions with Related Parties are as follows:
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As At March 31 2010 As At March 31 2009 US$ INR (Cr) US$ INR (Cr)
Management fees charged by Minacs Worldwide Inc 6,857,000 31.67 $7,792,900 36.21 Interest charged by Minacs Worldwide Inc 712,666 3.29 $952,921 4.43 Interest charged to IT Services (794,836) (3.67) - - Reimbursable expenses - Aditya Birla Minacs Worldwide Ltd 149,428 0.69 $215,615 1.00
These transactions are measured at the exchange amounts of consideration established and agreed to by the related parties.
11 EMPLOYEE BENEFIT PLANS
The Company has defined contribution pension plans. The Company’s pension plan expenditures were $4,160 (Previous Year $430,563) (INR .02 Cr) (Previous Year INR 1.94 Cr) during 2010.
12 INTEREST AND FINANCING EXPENSES Interest and financing expenses are comprised of the following amounts:
As At March 31 2010 As At March 31 2009 US$ INR (Cr) US$ INR (Cr)
Interest expense on long-term debt 712,666 3.29 $952,921 4.43 Interest expense on obligations under capital leases 60,373 0.28 $127,287 0.59 Other interest expense (income) 21,850 0.10 $15,882 0.07 Interest expense 794,888 3.67 $1,096,090 5.09 Amortization of deferred finance charges - - - - Bank charges 42,868 0.20 $53,578 0.25 Foreign exchange loss (gain) 106,718 0.49 (161,889) (0.75) Total 944,475 4.36 $987,779 4.59
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AUDITORS’ REPORT
The Board of Directors of Aditya Birla Minacs Worldwide Limited (Formerly known as Transworks Information Services Limited)
1. In terms of your letter dated March 1, 2010 requesting us to audit the accounts of Transworks Inc. (“the Company”), a wholly owned subsidiary of Aditya Birla Minacs Worldwide Limited (“the Parent”), incorporated in the United States of America, based on records including photocopies of some records, received from the said Company in Mumbai and in accordance with the accounting policies described in Note 1 of Schedule 14 to the attached financial statements (“the accounting policies”). We have not performed a statutory audit, the objective of which would be the expression of an opinion on the financial statements in conformity with generally accepted accounting practices and accordingly, we do not express such an opinion.
2. We have audited, in accordance with the accounting policies, the attached Balance Sheet of the Company as at March 31, 2010 and also the Profit and Loss account and cash flow statement for the year ended on that date annexed thereto, which are in agreement with the books of account verified by us. These financial statements are the responsibility of the Company’s management and have been prepared in accordance with the accounting policies, for the purpose of consolidation with the financial statements of the Parent. Our responsibility is to express an opinion on these financial statements based on our audit.
3. We conducted our audit in accordance with generally accepted auditing standards in India. These Standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatements. An audit includes, examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements. We believe that our audit provides a reasonable basis for our opinion.
4. In our opinion, based on our audit, and to the best of our information and according to the explanations given to us, the accompanying financial statements give a true and fair view in conformity with the accounting policies:
a. in the case of the Balance Sheet, of the state of affairs of Company as at 31st March, 2010; b. in the case of the Profit and Loss Account, of the profit for the year ended on that date; and c. in the case of the Cash Flow Statement, of the cash flows for the year ended on that date.
5. This report is furnished solely for the purpose of meeting the requirement if consolidation of the attached financial statements with the financial statement of the Parent and hence should not to be used for any other purpose.
For S. R. Batliboi & Co. Firm Registration No. 301003E Chartered Accountants per Vijay Maniar Partner Membership No.: 36738 Mumbai, April 23, 2010
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BALANCE SHEET AS AT 31ST MARCH 2010 As At As At As At As At 31st 31st 31st 31st Mar'10 Mar'10 Mar'09 Mar'09 Schedule (US$) (INR) (US$) (INR)
I. SOURCES OF FUNDS
1 Shareholders' Funds Share Capital 1 - - 200,000 9,680,000
2 Reserves and Surplus Profit and Loss Account 47,416 2,140,350 200,673 10,646,132
3 Deferred Tax Liability - - 65,000 3,297,450
TOTAL 47,416 2,140,350 465,673 23,623,582
II. APPLICATION OF FUNDS
1 Current Assets, Loans and Advances : Sundry Debtors 2 - - 98,560 4,999,950 Cash and Bank Balances 3 53,762 2,426,810 368,200 18,678,805 53,762 2,426,810 466,760 23,678,755 Less: Current Liabilities and Provisions : Current Liabilities 4 6,346 286,460 1,087 55,173
N et Current Assets 47,416 2,140,350 465,673 23,623,582
TOTAL 47,416 2,140,350 465,673 23,623,582
Notes to Accounts 10
The Schedules referred to above and the notes to accounts form an integral part of the Balance Sheet.
As per our Report of even date FOR S.R. BATLIBOI & CO. For Transworks Inc. Firm Registration No. 301003E Chartered Accountants Deepak J. Patel per Vijay Maniar Partner Membership No. 36738
Place: Mumbai Ramesh Kamath Date: April 23, 2010 Chief Financial Officer
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PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2010 For the year For the year For the year For the year ended Mar, 31 ended Mar, 31 ended Mar, 31 ended Mar, 31 2010 2010 2009 2009 Schedule (US$) (INR) (US$) (INR)
INCOME : Mark up Fees - - (57) (2,629) Reimbursement of Expenses Business Development & Marketing 5 - - (807) (37,563) Utilization of Fixed Assets - - 131,268 6,107,449 Financing Charges 6 - - 1,856 86,374 - - 132,260 6,153,631 Bank Interest - - 11 520 Exchange Rate Fluctuations on coversion - (1,235,015) - 6,552,522
TOTAL - (1,235,015) 132,271 12,706,673
EXPENDITURE : Travelling & other Expenses 7 - - 2,087 97,109 Rent 8 - - 7,589 353,073 Other Expenses 9 - - 86,046 4,003,454 Depreciation / Amortization - - 34,738 1,630,724
Total - - 130,460 6,084,360
Profit / (Loss) before tax for the year - (1,235,015) 1,811 6,622,313
Less : Provision for the Deferred Tax 3,257 154,517 24,894 1,158,235 Less : Withholding Tax Written Off - - 13,405 623,702 3,257 154,517 38,299 1,781,936
Profit / (Loss) after tax provision for the year (3,257) (1,389,532) (36,488) 4,840,376
Dividend paid during the year 150,000 7,116,250 - -
Profit / (Loss) for the year (153,257) (8,505,782) (36,488) 4,840,376 Profit / (Loss) brought forward from previous year 200,673 10,646,132 237,161 5,805,756
Accumulated balance carried 47,416 2,140,350 200,673 10,646,132 forward to the Balance Sheet
Notes to Accounts 10 .
.
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The Schedules referred to above and the notes to accounts form an integral part of the Profit & Loss account
As per our Report of even date FOR S.R. BATLIBOI & CO. For Transworks Inc. Firm Registration No. 301003E Chartered Accountants Deepak J. Patel per Vijay Maniar Partner Membership No. 36738
Place: Mumbai Ramesh Kamath Date: April 23, 2010 Chief Financial Officer
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CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2010
Year Year ended Year Year ended ended 31.3.2010 ended 31.3.2009 31.3.2010 31.3.2009 (US$) (INR) (US$) (INR) A. Cash flows from Operating Activities Net Profit before taxation, and extraordinary items - (1,235,015) 1,811 6,622,313 Adjustments for : Depreciation / Amortization - - 34,738 1,630,724 Loss/(Profit) on Sale of Fixed Assets - - 96,529 4,491,200 Financing charges - - (1,856) (86,374) Reimbursement of utilisation of fixed assets - - (131,268) (6,107,449) Interest Income - - (11) (520) Difference on account of exchange rate difference in Deffered Tax (68,257) (3,451,967) - 536,179 Operating Profit before working capital changes (68,257) (4,686,982) (57) 7,086,073
Movements in working capital : (Increase)/Decrease in Sundry Debtors 98,560 4,999,950 685,711 26,347,329 (Increase)/Decrease in Loans & Advances - - 52,323 2,091,324 Increase/(Decrease) Current Liabilities & Provisions 5,259 231,288 (104,180) (4,152,382) Cash generated from operations 35,562 544,256 633,797 31,372,345
Add/(Less): Direct Taxes (including TDS) paid)/Tax Refunds - - (13,405) (623,702) Net Cash flow from Operating Activities 35,562 544,256 620,392 30,748,643 B. Cash Flows from Investing Activities Proceeds from sale of Fixed Assets - - 110,000 5,165,513 Reimbursement of usage of fixed assets - - 131,268 6,107,449 Interest/investment income received - - 1,867 86,894 Net Cash from/(for) Investing Activities - - 243,135 11,359,855 C. Cash flow from Financing Activities Repayment of share capital (200,000) (9,680,000) (500,000) (23,616,485) Payment of Dividend (150,000) (7,116,250) - - Net Cash used in Financing Activities (350,000) (16,796,250) (500,000) (23,616,485)
Net Increase in cash and Cash equivalants during the year (314,438) (16,251,994) 363,527 18,492,013 Cash and cash equivalants at the beginning of the year 368,200 18,678,805 4,673 186,792 Cash and cash equivalants at the end of the year 53,762 2,426,810 368,200 18,678,805
Notes: Components of Cash and Cash Equivalents as at i) Balance with Banks : - in Current Account 53,762 2,426,810 368,200 18,678,805 Total 53,762 2,426,810 368,200 18,678,805
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As per our Report of even date
FOR S.R. BATLIBOI & CO. For Transworks Inc. Firm Registration No. 301003E Chartered Accountants Deepak J. Patel per Vijay Maniar Partner Membership No. 36738
Place: Mumbai Ramesh Kamath Date: April 23, 2010 Chief Financial Officer
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SCHEDULES FOR THE YEAR ENDED 31ST MARCH 2010 As At As At As At As At 31st 31st 31st 31st Mar'10 Mar'10 Mar'09 Mar'09
(US$) (INR) (US$) (INR) SCHEDULE - 1 SHARE CAPITAL
Authorised Capital 1,000,000 Equity Shares of US$ 1/- each 1,000,000 45,140,000 1,000,000 50,730,000
Issued, Subscribed & Paid up Capital NIL (P Y 200,000) Equity Shares of US$ 1/ - each fully paid up - - 200,000 9,680,000 (All the above equity shares are held by the holding company Aditya Birla Minacs Worldwide Limited) TOTAL - - 200,000 9,680,000
SCHEDULE - 2
SUNDRY DEBTORS
1 Other Debts Unsecured, Considered good - - 98,560 4,999,950
TOTAL - - 98,560 4,999,950
SCHEDULE - 3 CASH AND BANK BALANCES
1 Balance with bank - On Current Account 53,762 2,426,810 368,200 18,678,805
TOTAL 53,762 2,426,810 368,200 18,678,805
SCHEDULE - 4 CURRENT LIABILITIES
1 Sundry Creditors 2,258 101,947 - - 2 Outstanding Liabilities 1,088 49,093 1,087 55,173 3 Provision for Tax 3,000 135,420 - -
TOTAL 6,346 286,460 1,087 55,173
SCHEDULE - 5
REIMBURSEMENT OF BUSINESS DEVELOPMENT AND MARKETING EXPENSES
1 Reimbursement of Expenses - - 28,761 1,338,182
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Write-back of Sales 2 Commission - - (27,954) (1,300,619)
TOTAL - - 807 37,563
SCHEDULE - 6 FINANCING CHARGES
1 Interest recoverable on Fixed Assets & LDC - - 1,856 86,374
- - 1,856 86,374
SCHEDULE - 7 TRAVELLING & OTHER EXPENSES
1 Travelling Expenses - - 2,087 97,109
TOTAL - - 2,087 97,109
SCHEDULE – 8 RENT
1 Office Rent - - 4,058 188,804 2 Flat Rent - - 3,531 164,269
TOTAL - - 7,589 353,073
SCHEDULE - 9 OTHER EXPENSES
1 Bank Charges - - 116 5,400 2 Miscellaneous expenses - - 46 2,139 3 Sales Commission (Net of write-back) - - (27,954) (1,300,619) 4 Legal & Professional Fees - - 3,961 184,317 5 Insurance Charges - - 2,740 127,483 6 Maintenance Charges (Net of write-back) - - (18,078) (841,113) 7 Loss on Sale of Fixed Assets - - 96,529 4,491,200 8 US Payroll Taxes (Net of write-back) - - (650) (30,249) 9 Repairs & Maint. - Others - - 326 15,157 Write-back of deposits for Long Distance 10 Charges - - 29,010 1,349,739
TOTAL - - 86,046 4,003,454
SCHEDULE – 10: Notes to Accounts
1. Accounting Policies The Company is in the process of winding up its operations. Adjustments relating to the recoverability and the classification of recorded asset amount or to amounts that may be necessary on winding up of the Company have been made based on management’s assessment of the same. All assets and liabilities have
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been stated at net realizable value. Accordingly, the financial statements have not been prepared on the going concern assumption. a. Basis of preparation
The accounts have been prepared under the historical cost convention on accrual basis in accordance with the generally accepted accounting principles applicable in India. The accounting policies applied by the company are consistent with those used in the previous year. As stated above, the financial statements have not been prepared on the going concern assumption. b. Revenue recognition
Incomes from services rendered are accounted on accrual basis based on agreements / arrangements with the concerned parties. c. Fixed assets
Fixed assets are stated at cost less accumulated depreciation and impairment losses if any. Cost comprises the purchase price and wherever applicable freight, duties and taxes and expenses incidental to acquisition and installation. d. Leased assets
Finance lease, which effectively transfers to the Company substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at lower of fair value and present value of the minimum lease payments at the inception of the lease term and disclosed as leased assets. Lease payments are apportioned between the finance charges and reduction of the lease liability based on implicit rate of return. Finance charges are charged directly against income. Lease management fees, lease charges and other initial direct costs are capitalized.
Leases where lessor effectively retains substantially all the risks and benefits of ownership of the lease term are classified as operating leases. Operating lease payments are recognized as an expense in the profit & loss account in accordance with the lease agreement. e. Depreciation
Depreciation on assets is provided on straight-line basis, based on the useful lives as estimated by the management. The management estimates seven years as the useful lives of these fixed assets. f. Income Tax
The Company utilizes the asset and liability method of accounting for Income taxes. Under this method, deferred income taxes are recorded to reflect the tax consequences of future years differences between the tax basis of assets and liabilities and there financial reporting amounts at each year end are based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to effect taxable income. A valuation allowance is provided against the future benefit of deferred tax asset if it is determined that it is more likely than not that the future tax benefits associated with the deferred tax assets will not be realized. g. Conversion of Financial Statements
For the purpose of consolidation of the financial statements with that of the Parent, the amounts in USD) are converted into INR as follows: Equity capital and retained earnings at historical cost, all other balance sheet items at closing rate of exchange, profit and loss items at average rate and resultant translation gain/loss is adjusted in the profit and loss account
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2. Provision for Taxation:
Provision for tax comprises current and deferred taxes. This includes provision for current tax US$ 3,000 (Rs. 1,35,420).
a) There is no Deferred Tax Liability / Deferred Tax Assets as at Mar 31 2010. (US$) Particular As at Movement As at 31/3/2009 During the 31/3/2010 year Timing difference resulting in deferred Tax Liability Depreciation & deferment of income arising out of cash (205,803) 205,803 Nil basis of accounting for tax purposes Timing difference resulting in deferred Tax Asset Net temporary difference (205,803) 205,803 Nil Deferred Tax liability (65,000) 65,000 Nil
(INR) Particular As at Movement As at 31/3/2009 During the 31/3/2010 year Timing difference resulting in deferred Tax Liability Depreciation & deferment of income arising out of (10,550,687) cash basis of accounting for tax purposes 10,550,687 Nil Timing difference resulting in deferred Tax Asset Net temporary difference (10,550,687) 10,550,687 Nil Deferred Tax liability( net of deferred tax asset) (3,297,450) 3,297,450 Nil
3. Related Party Transactions
The Company had transactions with the following related parties:
Ultimate Holding Company Aditya Birla Nuvo Limited Holding Company Aditya Birla Minacs Worldwide Limited
Summary of transactions with above related parties is as follows: US$ Particulars Year ended March 31, Year ended 2010 March 31, 2009 Holding Company Reimbursement of cost, financing charges & markup fee NIL 132,260 Repayment of Share Capital 200,000 500,000 Payment of dividend 150,000 NIL Related Party Balances Receivable from Holding Company NIL 98,560 Payable to Holding Company 2,258 NIL
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INR Particulars Year ended Year ended Mar 31, March 31, 2009 2010 Holding Company Reimbursement of cost, financing charges & markup fee NIL 6,153,631 Repayment of Share Capital 9,680,000 23,616,485 Payment of dividend 7,116,250 NIL Related Party Balances Receivable from Holding Company NIL 4,999,950 Payable to Holding Company 101,947 NIL
4. Segment Information for the period ended 31st March , 2010
(1) Primary business segment
The Company is exclusively in the marketing of Business Process Outsourcing (BPO) services provided by its Holding Company Aditya Birla Minacs Worldwide Limited and hence its business activities primarily fall within a single business segment. Therefore, there are no additional disclosures to be provided in respect of primary segment under Accounting Standard 17 ‘Segment Reporting’, other than those already provided in the financial statements.
(2) Secondary business segment:
a. Geographical turnover is segregated based on the location of the customer who is invoiced.
b. Assets are segregated based on their location.
c. Information about secondary business segments
US$ Year ended 31st March 2010 India Outside India Total a Revenue by geographical market - - - b Carrying amount of segment assets - 53,762 53,762
US$ Year ended 31st March 2009 India Outside India Total a Revenue by geographical market 132,260 - 132,260 b Carrying amount of segment assets 98,560 368,200 466,760
INR Year ended 31st March 2010 India Outside India Total a Revenue by geographical market - - - b Carrying amount of segment assets - 2,426,810 2,426,810
INR
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Year ended 31st March 2009 India Outside India Total a Revenue by geographical market 6,153,631 - 6,153,631 b Carrying amount of segment assets 4,999,950 18,678,805 23,678,755
6. Previous year figures have been regrouped wherever necessary to correspond with current period figures.
For S. R. BATLIBOI & CO. For Transworks Inc. Firm Registration No. 301003E Chartered Accountants Deepak J. Patel
per Vijay Maniar Partner Membership No. 36738
Place: Mumbai Ramesh Kamath Date: April , 2010 Chief Financial Officer
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