DIRECTORS’ REPORT TO THE MEMBERS, Your Directors are pleased to present their Report on the business and operations of your Company along with the Audited Financial Statements (Standalone and Consolidated) for the financial year ended March 31, 2015 Operating Performance On a Consolidated basis, Operating Income for FY’15 was r 28,075.8 million compared to r 25,048.5 million in FY’14, a growth of 12.1% mainly due to increased contribution from the Healthcare vertical. EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) for FY’15 was r 3,172.1 million compared to r 3,219.0 million in FY’14, a decline of 1.5% due to lower volumes in certain geographies in the fourth quarter coupled with ongoing ramp-up activities across various operations. Profit After Tax (PAT) for FY’15 was r 1,650.2 million compared to r 1,695.5 million in FY’14, a decline of 2.7% mainly due to higher depreciation charge as per the provisions of the new Companies Act, 2013. In view of amalgamation of Canadian subsidiaries as well as merger of subsidiaries of HGS Colibrium Inc., figures for the FY’15 are not comparable with that of FY’14. On a Standalone basis, Operating Income was r10,704.0 million in FY’15, compared to r 8,663.5 million in FY’14, an increase of 23.6%. EBITDA increased by 17.1% from r 1,788.5 million in FY’14 to r 2,094.7 million in FY’15. PAT decreased by 16.3% from r 1,345.6 million in FY’14 to r 1,125.8 million in FY’15 mainly on account of decrease in other income. Key highlights for the year were: • Growth in revenues: Consolidated revenue up 12.1%; Standalone revenue up 23.6%. • Opening of 3 new centers at - El Paso (the US), Windsor (Canada), and Alabang (Philippines). Total number of centers: 60; • Addition of 32 new customers during the year. As of March 31, 2015, your Company has 171 clients (excluding the payroll processing clients); • Acquisition and merger of Colibrium Partners LLC and Colibrium Direct LLC into HGS Colibrium Inc., USA, step down subsidiary of the Company; • Amalgamation of Canadian subsidiaries; • As of March 31, 2015, your Company had a Net Worth of r 10,742.3 million translating into a Book Value of r 518.46 per share; • Employee headcount at year-end: FY’15 - 28,435 (FY’14 - 26,036). Dividend Your Directors are pleased to recommend final dividend of r 5 per equity share (50% on face value of r 10 each) for the year ended March 31, 2015 subject to your approval. This is in addition to the three Interim Dividends of r 5 per share for the Financial Year 2014-15 declared by the Board of Directors on August 12, 2014, November 12, 2014 and February 5, 2015 respectively and were paid. The total dividend for the financial year ended March 31, 2015 would be r 20 per equity share (200% on face value of r 10 each). Business Review The global Business Process Management (BPM) sector is changing its focus on growth rather than the cost containment. Traditionally, the BPM industry is known to provide services that transform clients’ businesses and deliver higher levels of performance and results, as well as reduce costs. In addition to this, the industry has also been providing a range of services providing operational excellence and driving additional business value for customers. This change in the outlook represents a strong future growth potential for the BPM industry. The Indian BPM industry continues to remain the premier sourcing destination in the world and recorded a steady double digit growth supported by its flexibility to adjust to difficult economic conditions. India’s BPM revenue for FY’15 is estimated to be $26 billion, an increase of around 13% compared to the last year. (Source: NASSCOM) Further information pertaining to Business Review has been provided in the ‘Management Discussion and Analysis Report’ which form part of this Report. Key Subsidiaries HGS International, Mauritius, a wholly-owned subsidiary of your Company, is primarily engaged in investment activity. HGS International owns 100% of the share capital of Hinduja Global Solutions Inc., USA, C-Cubed N.V., Curacao, Hinduja Global Solutions Europe Ltd., UK, HGS St. Lucia Ltd., Saint Lucia and HGS MENA FZ- LLC, UAE and HGS Colibrium Inc., USA. All the subsidiaries are 100% owned by HGS International except for HGS Colibrium Inc, in which HGS International owns 89.9% and the balance is owned by the founders of Colibrium. During the year under review, Total Income of HGS International was US$ 4.7 million as compared to US$ 4.9 million in the previous year. Hinduja Global Solutions Inc., USA (HGS Inc.), a wholly-owned subsidary of HGS International, Mauritius, specialises in marketing and provision of both voice and non-voice related Customer Contact and Business Process Outsourcing services to its clientele. Its key subsidaries are HGS (USA), LLC, HGS Canada Inc., Canada and HGS EBOS, LLC. For FY’15, HGS Inc. reported consolidated revenues of US$ 348.9 million as compared to US$ 323.8 million in FY’14. HGS (USA), LLC, a wholly-owned subsidiary of HGS Inc., USA, operates in five cities in USA and Canada. It partners with Fortune 1000 companies and Government agencies to provide comprehensive Customer Relationship Management programs. For FY’15, HGS (USA), LLC recorded total revenue of US$ 254.2 million. HGS (USA) , LLC and its US subsidiaries have over 2,400 employees who are engaged in customer services, fulfillment services, sales, marketing and account management HGS Canada Inc., a wholly-owned step-down subsidiary of HGS Inc., USA is a Canadian Contact Center service provider servicing marquee customers across verticals such as media, telecom, technology and BFS. HGS Canada offers technical support, inbound and utbound sales, customer care and customer retention in English and French languages, and has a team size of around 2,800 associates at 12 centers in Canada. On March 31, 2015, HGS Canada Inc. and 101867 P.E.I. Inc. (both wholly-owned subsidiaries of HGS Canada Holdings LLC) were amalgamated into HGS Canada Inc. For FY’15, HGS Canada recorded total revenue of CAD 96.9 million as compared CAD 98.2 million in FY’14. Hinduja Global Solutions Europe Ltd. is the UK-based subsidiary focusing on consulting services for Business Process Management (BPM), call center services and markets offshoring services to UK-based clients. It owns 100% stake in Hinduja Global Solutions UK Ltd. and HGS France SARL, France. It also has a subsidiary in Italy called HGS Italy, SRL. For FY’15, Hinduja Global Solutions Europe Limited recorded consolidated revenue of GBP 30.3 million as compared to GBP 25.5 million in FY’14. Hinduja Global Solutions UK Ltd. is a leading contact center company with over 1,000 employees in London, Preston and Selkirk (Scotland). It offers a range of services for inbound and outbound interactions to over 20 marquee customers across verticals such as Government, FMCG, Financial Services, Automobiles and Retail. It has branches in Rotterdam (Netherlands) and Hamburg (Germany). For FY’15, Hinduja Global Solutions UK Ltd. reported revenue of GBP 29.6 million as compared to GBP 24.7 million in FY’14. HGS St. Lucia Ltd., Saint Lucia is the holding company of Team HGS Ltd., Jamaica. Team HGS Ltd., Jamaica is operating a call center since FY’13 at Kingston, Jamaica and receiving good response from North American as well as local clients. Revenue for FY’15 was Jamaican Dollars 368 million as compared to Jamaican Dollars 200 million in FY’14. HGS International Services Pvt. Ltd. (HGSISPL) HGSISPL recorded revenue of r 1,729.2 million in FY’15 as compared to r 1,413.8 million in FY’14, a growth of 22.3%. The SEZ division of HGSISPL is presently operating in three units namely, a) Global Village SEZ, Bangalore, b) DLF Towers SEZ, Hyderabad and c) Pritech Park SEZ, Bangalore and a fourth unit at DLF Cybercity, SEZ Hyderabad is expected to be commissioned shortly. Human Resource Outsourcing (HRO) business of HGSISPL services marquee customers in Banking, Financial Services, Insurance and other industry verticals in India and abroad. HGS MENA FZ-LLC a wholly-owned subsidiary of HGS International, Mauritius, has established a marketing office in Dubai Internet City with the objective to build sales pipeline. Demand trend from MENA region is encouraging and this subsidiary has started adding new clients. In FY’15, it recorded revenue of AED 2.1 million. HGS Colibrium Inc, USA is a subsidiary of HGS International, Mauritius. On March 27, 2015, HGS Colibrium acquired 89.98% share in Colibrium Partners LLC and Colibrium Direct LLC at a consideration of USD 14.2 million approximately plus debt funding of USD 1.7 million approximately. On March 31, 2015, Colibrium Partners LLC and Colibrium Direct LLC (subsidiaries of HGS Colibrium Inc., USA) were merged into HGS Colibrium Inc., USA. This acquisition brings complementary platform and servicing capability in the sales and enrollment area for US and global health insurers. Colibrium is an innovation leader in delivering sales, service and wellness automation to health plans. This acquisition in the US market enhances the Company’s already strong healthcare Payer servicing capabilities and will further contribute to the growth of the vertical in the coming years. Particulars of loans, guarantees or investments Loans, guarantees and investments as per Section 186 of the Companies Act, 2013 form part of the Notes to the financial statements provided in this Annual Report. Communications and Public Relations In the last one year, your Company (HGS) has initiated efforts on multiple levels to significantly revamp how your Company is represented externally. Your Company is communicating in a new and improved way, whether it is through the website or the external brandings of the Company and this is reflected in all locations across HGS including its subsidiaries. In a significant step, your Company launched a completely new version of its public web presence, which is mobile enabled and designed to better serve browsers across various devices, and most importantly, tell the HGS story in a more compelling way with videos, packaged solutions and case studies. HGS’ digital presence has also been enhanced to align website and social media (e.g. LinkedIn, Twitter, and Blog). Your Company has been significantly leveraging social media platforms to tell the HGS story and reach out to a larger audience across the globe. This year, HGS made significant progress with the analyst and advisor community and has been recognized by them as a leading player in the Business Process Management industry. HGS also participated in external events, keynote thought leadership presentations and industry panel discussions that have raised the Company profile globally. Several channels of communication have been utilized to create a 360° engagement with our stakeholders and the media, including the Company intranet, the website, media outreach programs, social media platforms, participation in industry events, newsletters - internal as well as external, commemoration of important milestones, leadership blogs and winning business awards. HGS effectively leveraged Public Relations (PR) to educate and inform various stakeholders-including the media, the analysts, advisors, our clients, future prospects, employees and our investors - about the latest Company updates that include the financial results, new wins, awards and accolades, recognition by the analyst community and community activities. As a result, your Company achieved unprecedented media coverage this year, both domestically and internationally across leading publications. In our endeavor to propagate an inclusive and transparent culture, HGS continued to ensure regular and consistent internal communication to employees. Your Company leveraged different formats and channels such as e-mailers, newsletters, blogs and articles to share views and news. The Company’s internal portal Ozone serves as a time-out zone for employees, offering various fun elements including exciting contests like Predictor contests held during the Football and Cricket World Cups and engagement activities during the holiday season. This year, your Company also conducted an infotainment campaign called ‘Know Your HGS’, which leveraged different activities like quiz, photo and poster contests and crow dsourcing of trivia across locations and businesses to help employees learn more about the organization. HGS also communicates about its capabilities and achievements through colourful internal branding across the centers. HGS will continue to focus on gaining even wider public interest in, and visibility of, its achievements. In FY 2015- 2016, your Company will continue the momentum with more analyst engagements, launch of new solutions and aggressive digital presence expansion. Many of this year’s accomplishments and highlights arose from the work that was initiated in the previous years. Communication is a continuum and HGS is confident about leveraging the gains in the past to gain even more in the future. Corporate Social Responsibility (CSR) As per the provisions of Section 135 of the Companies Act, 2013, the Board has constituted a Corporate Social Responsibility (CSR) Committee to carry out functions as stipulated in the said Section. The CSR Committee presently comprises of Mr. Rajendra P. Chitale, Chairman, Mr. Rangan Mohan, Mr. Ramkrishan P. Hinduja and Ms. Vinoo S. Hinduja. On the recommendation of the CSR Committee, the Board has formulated a CSR Policy. Company’s CSR intiatives focus on education, healthcare and sustainable development of the disadvantaged. The Report on CSR activities in the format as required under Companies (Corporate Social Responsibility) Rules, 2014, is set out in Annexure ‘G’ forming part of this Report. The CSR Policy is available on the website of the Company. Directors’ Responsibility Statement Pursuant to Section 134(5) of the Companies Act, 2013, the Directors, based upon the information and documents made available to them and to the best of their knowledge, confirm that: • In the preparation of the Annual Accounts for the Financial Year ended March 31, 2015, the applicable accounting standards have been followed and there have been no material departures in the adoption and application thereof; • They have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the Profit of the Company for that period; • They have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; • They have prepared the Annual Accounts on a going concern basis; • They have laid down adequate internal financial controls to be followed by the Company and they are operating effectively; • They have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and are operating effectively. The Company has fair number of processes (including checks and balances), certifications, compliance systems, authority matrix, etc. which form framework of internal financial controls. The Internal Auditors carry out audits of various functions as an on-going process and Statutory Auditors and External Consultants perform work in the critical areas. Periodical reviews of the same have been taken up by the Management and the Board Committees for corrective action, if any. Based upon the aforesaid, the Board is of the opinion that during the Financial Year 2014-15, the Company’s internal financial controls were adequate and effective. Number of Meetings of the Board Seven meetings of the Board were held during the year. The time gap between any two meetings did not exceed 120 days. Further details in this regard are given in the Corporate Governance Report, which forms part of this Report. Declaration by Independent Directors As required under Section 149(7) of the Companies Act, 2013, the Company has received the declaration from each of the Independent Directors of the Company confirming that they meet the criteria of independence laid down in Section 149(6) of the Companies Act, 2013 and Clause 49 of the Listing Agreement. Board Evaluation As required under Section 178 of the Companies Act, 2013 and Clause 49 of the Listing Agreement, the performance evaluation of the individual Directors (Independent and Non-Independent Directors, the Chairman), the Board and its Committees, for the Financial Year 2014-15 was carried out The Nomination and Remuneration Committee and the Board carried out the performance evaluation of individual Directors including the Chairman on the basis of criteria such as preparedness for the matters to be discussed at the meetings of the Board and the Committees, constructive contribution to the discussions and deliberations and inputs at the meetings, non-partisan appraisal of issues and commitment to the role and fiduciary responsibilities, etc. The Board also carried out annual evaluation of its own performance and its Committees based upon the inputs received from the Directors on criteria such as Board/ Committees composition and structure, effectiveness of the Board/ Committees processes and the deliberations ensued thereat, etc. At the separate meeting of the Independent Directors held during the year, the performance evaluation of the Non-Independent Directors including the Chairman was carried out on the basis of criteria such as commitment and guidance, advice, inputs, expertise and knowledge. They also assessed the performance of the Board as a whole and the quality, quantity and timeliness of flow of information between the Company’s Management and the Board. Directors Mr. Anil Harish (DIN 00001685), Mr. Rajendra P. Chitale (DIN 00015986), and Mr. Rangan Mohan (DIN 01116821), were appointed as Independent Directors for a term of five years at the Annual General Meeting of the Company held on July 3, 2014. Mr. Anil Harish, an Independent Director of your Company resigned as a Member of the Board with effect from May 19, 2015. Mr. Anil Harish was a Director of the Company since March 2007. The Board wishes to place on record its deepest gratitude and appreciation for the outstanding contribution made by Mr. Anil Harish during his long association with the Company as a Director and Member of the Board Committees. Ms. Vinoo S. Hinduja, Director (DIN 00493148) of your Company, is liable to retire by rotation at the ensuing Annual General Meeting and being eligible, offers herself for re-appointment. Mr. B.L. Taparia (DIN 00016551) was appointed as an Independent Director with effect from August 12, 2015 at the meeting of the Board of Directors held on August 12, 2015 in the casual vacancy caused by the resignation of Mr. Anil Harish. Audit Committee The Board has constituted an Audit Committee pursuant to the provisions of Section 177 of the Companies Act, 2013. The Committee presently comprises of the following Members: Mr. Rajendra P. Chitale - Chairman, Mr. Ramkrishan P. Hinduja, Mr. Rangan Mohan and Mr. B.L. Taparia. Further details pertaining to the Audit Committee are included in the Corporate Governance Report, which form part of this Report. Key Managerial Personnel Pursuant to Section 203 of the Companies Act, 2013, the Company has recognized/ noted Mr. Partha DeSarkar, Manager (designated as Chief Executive Officer), Mr. Srinivas Palakodeti, Chief Financial Officer and Mr. Makarand D. Dewal, Company Secretary (appointed during the year) as the Key Managerial Personnel of the Company. During the year, Mr. Kanti Mohan Rustagi resigned as the Company Secretary of your Company. Chief Executive Officer (CEO) Certification The Chief Executive Officer’s declaration affirming compliance with the Code of Conduct by the Board and Senior Management is furnished as Annexure ‘A’ to this Report. Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo The prescribed particulars as required under Section 134(3)(m) of the Companies Act, 2013 relating to Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo are furnished as Annexure ‘B’ to this Report. Corporate Governance As required under Clause 49 of the Listing Agreement with the Stock Exchanges, a detailed report on Corporate Governance is furnished as Annexure ‘C’ to this Report. The Statutory Auditors of the Company have examined the compliance of conditions of Corporate Governance as stipulated in Clause 49 of the Listing Agreement with the Stock Exchanges by your Company and have certified compliance thereof. The certificate is attached as Annexure ‘D’ to this Report. Management Discussion and Analysis Report A separate report on Management Discussion and Analysis is annexed as Annexure ‘E’ to this Report. ESOP Disclosure The two ESOP Schemes viz. Hinduja Global Solutions Limited Employees Stock Option Plan 2008 and Hinduja Global Solutions Employees Stock Option Plan 2011 were in operation during the Financial Year 2014-15. These ESOP Schemes are in compliance with the provisions of SEBI (Share Based Employee Benefits) Regulations, 2014. Particulars of aforesaid ESOP Schemes are available on the Company’s website http://www.teamhgs. com/investors/other-reports. There were no material changes made to the aforesaid ESOP Schemes during the Financial Year 2014-15. Extract of Annual Return Pursuant to Section 134(3)(a) of the Companies Act, 2013, an extract of Annual Return as on the financial year ended March 31, 2015 in the prescribed format, is appended as Annexure ‘F’ to this Report. Related Party Transactions Transactions entered into with the related parties during the Financial Year 2014-15 are in the ordinary course of business and at arm’s length basis and therefore, outside the purview of Section 188(1) of the Companies Act, 2013. Information on related party transactions pursuant to Section 134(3)(h) of the Companies Act, 2013 read with Rule 8(2) of the Companies (Accounts) Rules, 2014 are given in Form AOC-2 as Annexure ‘H’ and the same form part of this Report. Material changes and commitments affecting the financial position of the Company between the end of the financial year and date of the report Acquisition of Domestic BPM business of Mphasis: Your Company on June 30, 2015 has entered into definitive agreements with Mphasis Limited and its wholly owned subsidiary MsourcE India Private Limited for acquisition of significant portion of their domestic BPM business for a consideration of r 17 crores (“the Transaction”). The closing of the transaction is subject to fulfillment of conditions stipulated in the agreements and regulatory approvals as may be required. Upon completion of the transaction, the acquisition will strengthen the Company’s presence in India by adding newer service capabilities and marquee clients in the Telecom, Banking and Financial Services verticals while bringing over 7,000 customer experience professionals. The acquisition will also add to the Company’s delivery capabilities in Raipur, Indore, NOIDA, Mangalore, Pune and Bangalore. Policy on Directors’ Appointment and Remuneration Policy on Directors’ Appointment and Remuneration and other matters provided in Section 178(3) of the Companies Act, 2013 have been disclosed in the Corporate Governance Report which form part of this Report. Whistle Blower Policy The Company has a Whistle Blower Policy and Vigil Mechanism to report and redress genuine concerns and grievances and the Policy is available on the Company’s website. This matter is covered in the Corporate Governance Report which form part of this Report. Under the Whistle Blower Policy and Vigil Mechanism, no complaints were received during the Financial Year 2014-15. Risk Management Policy Your Company has formulated Risk Management Policy which inter alia identifies risks taking into consideration the business and operations of the Company and adoption of mitigation measures. The Policy identifies elements of risks which in the opinion of the Board may threaten the existence of the Company. The details of the Policy are given in the Management Discussion and Analysis Report attached to this Report. Fixed Deposits from Public The Company has not accepted any fixed deposits from the public and, as such, no amount of principal or interest was outstanding as on the Balance Sheet date. Statutory Auditors At the 19th Annual General Meeting of the Company held on July 3, 2014, M/s. Price Waterhouse, Chartered Accountants, were appointed as Statutory Auditors of your Company till the conclusion of the next Annual General Meeting. The said Auditors have submitted requisite declarations as to their eligibility to act as Auditors of the Company, if appointed. Accordingly, it is proposed to re-appoint M/s. Price Waterhouse, Chartered Accountants as Statutory Auditors of the Company from the conclusion of the ensuing Annual General Meeting till the conclusion of the next Annual General Meeting. The Board recommends the re-appointment of the Auditors. The Auditors’ Reports (for Standalone and Consolidated financial statements) for the Financial Year ended March 31, 2015 do not have any qualifications, reservations or adverse remarks in their Reports. Secretarial Auditor Pursuant to the provisions of Section 204 of the Companies Act, 2013, the Board of Directors had appointed Ms. Rupal D. Jhaveri, Practicing Company Secretary, as the Secretarial Auditor to carry out the Secretarial Audit for the Financial Year 2014-15. The Secretarial Audit Report in the prescribed format, for the Financial Year 2014-15, forms part of this Report as Annexure ‘I’. The Report does not contain any qualifications, reservations or adverse remarks. Employees’ Particulars Pursuant to Section 197 (12) of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, it is necessary to disclose the ratio of remuneration of each director to the median employees’ remuneration. At present, the Directors are paid fees for attending the meetings of the Board of Directors and of the Committees of which they are members. This remuneration, by way of fees, is not related to the performance or profit of the Company (like payment of commission is related to the profits of the Company). In view of this, the ratio of remuneration of each director to the median employees’ remuneration is not computed In terms of the provisions of Section 197(12) of the Companies Act, 2013 read with Rules 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a statement showing the names and other particulars of the employees drawing remuneration in excess of the limits set out in the said Rules are provided in the Annexure forming part of the Annual Report. Disclosures pertaining to remuneration and other details as required under Section 197(12) of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are provided in the Annexure forming part of the Annual Report. Having regard to the first proviso to Section 136(1) of the Companies Act, 2013, the Annual Report excluding the aforesaid information is being sent to the Members of the Company. The said information is available for inspection at the Registered Office of the Company during working hours (i.e. 10:00 am to 6:00 pm) and any member interested in obtaining such information may write to the Company Secretary and the same will be furnished without any fee and free of cost. In accordance with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, details of foreign employees, excluding directors and their relatives, have not been included in the Annexure. Members interested in obtaining the said information may write to the Company Secretary at the Registered Office of the Company and the requested information shall be furnished to such Member. Significant and Material Orders There are no significant and material orders passed by the regulators or courts or tribunals that would impact the going concern status and your Company’s operations in the future. Internal Financial Controls Internal Financial Controls and their adequacy are included under the heading ‘Internal Controls’ in the Management Discussion and Analysis which form part of this Report. Acknowledgement The Directors thank the customers, vendors, business partners, investors and bankers for the faith reposed in the Company and their continued support. The Directors also thank the Government of India, State Governments, Governments of various countries and regulatory authorities and agencies, for their cooperation and support, and look forward to their continued encouragement. The Directors place on record their sincere appreciation of the contribution of your Company’s most important asset, viz. the One HGS family i.e, employees. For and on behalf of the Board of Directors Ramkrishan P. Hinduja Chairman Date : August 12, 2015 Place : Mumbai |