Board of Directors Dr. Friedrich Froeschl Chairman Mr. Francesco Serafini Vice Chairman Mr. Balu Ganesh Ayyar Chief Executive Officer Mr. Nawshir Mirza Mr. Davinder Singh Brar Mr. Prakash Jothee Mr. Balu Doraisamy Mr. Juergen Reiners Mr. Gerard Brossard COMPANY SECRETARY, GENERAL COUNSEL AND HEAD - GLOBAL ETHICS AND COMPLIANCE Mr. A. Sivaram Nair AUDITORS REGISTERED OFFICE REGISTRAR & SHARE TRANSFER AGENT S.R. Batliboi & Co. Bagmane Technology Park Integrated Enterprises (India) Limited UB City, ‘Canberra Block’ Byrasandra, C V Raman Nagar 30, Ramana Residency, 4th Cross, 12th and 13th Floor Bangalore - 560 001, India Sampige Road, Malleswaram 24, Vittal Mallya Road Ph: +91 80 4004 0404 Bangalore - 560 003, India Bangalore – 560 001, India www.mphasis.com Ph: +91 80 23460815 - 818 17 Management Discussion of Risks and Concerns Your Company has instituted a Continuous Global Risk Management framework to proactively identify, mitigate, monitor and report risks across various functions in the organization and to facilitate tracking and review continuously. Broadly risks are categorised into i) Strategy (as it has potential to impact entity’s mission which arise out of strategic decisions and has potential to impact long term operations on marketing /resource allocation / delivery models etc and are generally non-routine in nature); ii) Operational (as it has potential to impact objectives to achieve efficiency and effectiveness in operations); iii) Financial & Reporting (as it has potential to impact financial elements and objectives to facilitate timely and accurate information to stakeholders); and iv) Compliance (as it has potential to impact objectives to adhere to laws and regulations) The Risk Governance Committee comprising of the Chief Risk Officer, the Chief Financial Officer and the Company Secretary & General Counsel periodically evaluates various risks and mitigation efforts. Some of the risks/concerns and risk mitigation actions/plans are as follows: Strategy Risks - Global Economic conditions and Market opportunities The changing economic conditions and the competitive market environment are driving organizations to transform their operations and technological innovations. Companies have already begun to increase the use of outsourced technology service providers to attain faster delivery of technology solutions, to lower total cost of ownership of IT infrastructure or to lower labour costs or to improve quality and innovation and to have more flexibility in scheduling. It is expected that this momentum will continue to drive future growth for outsourced technology services. Besides this background, your Company faces competition from large technology service providers and competition from firms newly establishing /building their offshore presence and firms in countries with lower personnel costs than those prevailing in India, resulting in squeeze in rates and increased service level commitments. This has also created the need for differentiating us and to widen the service portfolio and sales network to integrate the service offerings according to the specific market needs. Your Company has identified the developments happening in the matured markets and the foreseeable reactions in the emerging markets and commenced augmentation / reallocation of existing sales resources to integrate service offerings with client needs. With nearness to market and swift flow of inputs, your Company would be well equipped to enhance customer satisfaction and win large deals. Continuous efforts are underway to identify deal opportunities and steps are also taken to implement process improvements across functions to cope with new solution needs. - Geography / Client / Industry concentration risk Group Revenues are largely dependent on clients located in the USA and Europe and the economic or other factors that affect the economic health of USA and Europe may affect group’s business. During the year, the Group derived 65% of its total revenues from USA and 19% from Europe and 16% from Asia pacific Regions. Further the Group derived 10% of its total revenue from a single client and about 71% of the total revenue through HP channels and such dependencies can impact group’s operations in case of any adversity. From industry concentration perspective about 42% of the revenue is from Financial Services segment based clients. It is perceived by the Group that there would be gradual expansion in client base, with cost competitiveness, new geography spreads / service offerings / client segments in Telecom, Healthcare and Government sectors and there may not be any major threats in near term due to these dependencies. - Adaptability to technological changes The Group’s ability to remain competitive depends on the ability to adapt to changing technology. As a provider of information technology services, the Group strives to adapt and respond to the technological advances offered by competitors and the 18 technological requirements of clients, in order to maintain and improve the Group’s competitive position. However, there can be no assurance that the Group will develop and release new products and services or product and service enhancements within the projected time frames and within targeted costs. Significant delays, difficulties or added costs in introducing new services or enhancements, either through internal development, acquisitions or co-operative relationships with other companies, could adversely affect the market acceptance of the Group’s services and operating results. The Group has successfully sailed through various phases during the past few years and with access to HP technology, it is perceived that there is better sustainability to the group’s operations. Operational Risks - Service Delivery risks With growing volume of operations, new client / geography / service offerings, there could be service delivery related risks, transition phase risks, Intellectual Property Rights related risks, risks in data protection / disclosure of confidential information and change in proportion of offshore – onsite mix with risk of consequential skill mismatches. These risks are accentuated in cases where clients face budgetary constraints or have internal management issues or when we have employee attritions. Certain customer contracts are conditioned upon our performance which, if unsatisfactory, could result in less revenue than previously anticipated. The Group with its years of experience, HP’s expertise and knowledge base is enhancing the management techniques and framework to fulfil contractual terms compliance and customer satisfactory levels beyond competition. We have proven ability to effectively integrate onsite and offshore execution capabilities to deliver seamless, scalable, cost effective services throughout the business transaction cycle. Various new initiatives have been taken to identify and mitigate the risks by enhancing the quality control measures. Rigorous monitoring of root causes and remedial measures are in place to minimize incident recurrence. Besides adequate insurance for Professional Indemnity, Errors and Omissions to cover such events are enabled. - Attracting and retaining human resources talent With economy blossoming with new opportunities, there is spurt in demand for skilled technology professionals resulting in attrition and wage pressures in India. Attrition loss and delays in filling the right talents impacts revenue besides cascading costs in recruitment, training, work absorption. The hiring of employees outside India and changes in offshore-onsite mix may also hamper the competitive advantage and erode our profit margins. Besides, the Group’s future success will depend in part on continued ability to hire, assimilate and retain qualified personnel. The loss of any key employee, the failure of any key employee to perform in his or her current position or the Group’s inability to attract and retain skilled employees, particularly technical and management, as needed, could impact the Group’s business. The Group strives to provide training and excellent staff welfare measures to promote employee satisfaction and thereby attract and retain efficient manpower. The Group has undertaken various initiatives to ensure that succession planning for key employees is put in place. - Telecommunication infrastructure risk The use of strategically located delivery locations provides the Group with cost advantages, ability to attract and retain highly skilled personnel and consequently the ability to provide the clients with services 24 hours a day and 7 days a week. This delivery model involves maintenance of active voice and data communication links between the Group’s service delivery locations and clients. Although the Group maintains redundancy facilities and satellite communication links, any loss in its ability to transmit voice and data through satellite and telephone communication links could adversely affect the Group’s ability to complete client projects on a timely basis thereby affecting its revenues and operational performance. The delivery centres of the Group have moved on to a state of the art, global secured network with built in redundancies and fall back options and is a source of significant competitive advantage. 19 Management Discussion of Risks and Concerns - Overseas Operations risk There is a risk of uncertainties due to changes in legislations in certain countries in which we operate, including the USA and UK, which may restrict companies in those countries from outsourcing work.