Satyam Computer Services Ltd Merged Management Discussions

SATYAM COMPUTER SERVICES LIMITED ANNUAL REPORT 2011-2012 MANAGEMENT DISCUSSION AND ANALYSIS Industry Structure, Development and Outlook : Company Overview: Satyam Computer Services Limited (hereinafter referred to as SCSL or Mahindra Satyam or the Company) is a leading global business and information technology services company that leverages deep industry and functional expertise, leading technology practices, and an advanced, global delivery model to help clients transform their highest-value business processes and improve their business performance. The Companys professionals excel in enterprise solutions, supply chain management, client relationship management, business intelligence, business process quality, engineering and product lifecycle management, and infrastructure services, among other key capabilities. Mahindra Satyam is part of the $14.4 billion Mahindra Group, a global federation of companies and one of the top 10 business houses based in India. The Groups interests span automotive products, aviation components, farm equipment, financial services, hospitality, information technology, logistics, real estate and retail. Mahindra Satyam development and delivery centres in the US, Canada, Brazil, the UK, Hungary, Egypt, UAE, India, China, Malaysia, Singapore and Australia serve numerous clients, including many Fortune 500 organizations. For more information, visit www.mahindrasatyam.com Industry Structure & Development: The Information Technology / Information Technology Enabled Services (IT / ITES) sector one of the important sectors in the Indian economy, has registered huge growth from a small size of US$ 150 million in 1990-1991. It is now expected to cross US$ 100 billion in FY 2011-12 as per NASSCOM. As a proportion of national GDP, the sector revenues contributed from 1.2 per cent in FY1998 to an estimated 7.5 per cent in FY2012. Though the IT- ITES sector is export driven, the domestic market is also significant with a robust revenue growth. The industrys share of total Indian exports (merchandise plus services) increased from less than 4% in FY1998 to about 25% in FY2012. This sector has also led to significant employment generation. The industry expects to add 230,000 jobs in FY2012, thus providing direct employment to about 2.8 million people, and indirectly employing 8.9 million people. FY2012 is a landmark year - while the Indian IT-BPO industry weathered uncertainties in the global business environment, this is also the year when the industry is set to reach a significant milestone. The aggregate revenue for FY2012 is expected to cross US$ 100 billion. Aggregate IT software and services revenue (excluding hardware) is estimated at US$ 88 billion. Within the global sourcing industry, India was able to increase its market share from 51 per cent in 2009, to 58 per cent in 2011, highlighting Indias continued competitiveness and the effectiveness of India-based providers delivering transformational benefits. Current Environment & Outlook Despite year 2011 ending in a difficult economic environment, some geographic regions and services are expected to circumvent the situation in 2012. The global GDP, after growing by 2.7 per cent in 2011, is expected to grow 2.5 per cent in year 2012 according to UN, with developing economies growing thrice as fast as the developed economies. Better economic conditions in the second half of the year signifying return of consumer confidence and renewal of business growth, is expected to drive IT spending going forward. The current trend toward offshore outsourcing is a lot more complex than simply seeking skills and resources at low cost locations. The driving forces in the IT outsourcing market are quality and speed to market, not just cost of services. A new wave of outsourcing is allowing companies to acquire reliable IT quickly, in order to deploy specialized services, and ramp down easily when these services are no longer needed. At the same time, off shoring is pushing the world beyond the information economy and toward a global knowledge-based economy. Technology enables knowledge to be shared quickly throughout the developed and developing world, allowing a variety of regional specializations to arise. These trends are conspiring to bring further changes to the global outsourcing market in the next decade. First of all, consumer demand and spending power in the emerging economies is growing more quickly than expected. As they grow in strength and stability, the risks of outsourcing can be spread further as companies have a wider variety of geographic locations from which it can select the outsourcing partner. No doubt we at Mahindra Satyam consciously keep on investing in setting up global delivery centres across the world to serve our customers better. In the future, many companies will not outsource to a particular country at all. Instead, they will turn to large multinational corporations with access to a variety of resources and expertise across the globe and the ability to spread risk. As these one-stop shops grow in size and skills, they will gain a significant competitive advantage over the strongest individual outsourcing markets. Global IT services overview In the face of the volatile economic environment and currency fluctuations, 2011 recorded steady growth for the technology and related services sector, with worldwide spending exceeding USD 1.7 trillion, a growth of 5.4% over 2010. Software products, IT and BPO services continued to lead; accounting for over USD 1 trillion- 63% of the totals spend. IT hardware spends, at USD 645 billion, accounted for the balance 37% of the worldwide technology spends in 2011. The future of the global technology industry will be shaped by economic forces, adoption of new technologies and currency fluctuations. Lingering debt crises, volatile financial markets and government austerity programs in the US and Europe could have a negative impact on technology spend spilling over to the other regions which could in turn affect business and consumer confidence. However investing in new technologies like smart computing products, cloud computing, mobility and analytics will enable vendors to gain efficiency and agility which when properly leveraged will provide tremendous opportunity for the delivery of real competitive value to clients. Mahindra Satyam believes that the future of spending in the IT services sector is driven by factors such as: * Innovation in IT and customer centricity being a driver for meeting business goals * New Business Models coming into vogue where IT plays a prominent role * Emergence of solutions around new technology platforms and that is where we have come up with a fresh approach N-MACS (Networks, Mobility, Analytics, Cloud Computing and Security Consulting) * Efficiency improvement initiatives and cost focus Indian IT Services Industry Overview According to the NASSCOM Strategic Review 2012, the Indian IT services is the fastest growing segment, increasing by 19% in FY2012, to account for exports of USD 40 billion. There is a considerable traction in traditional segments and an increased acceptance from mature segments such as BFSI, US and large corporations and emerging segments such as retail, healthcare and utilities, SMBs, Asia Pacific and RoW. The industry is re- tooling itself to adjust to rapid change in customer priorities from SLAs to increased time-to-market and emerging technologies such as cloud computing, mobility, social media and big data / analytics are unleashing new opportunities to the industry and solution provider like us. India continues its position as the worlds leader in the global sourcing industry. Its sharing in the global sourcing stands at 58% in 2011. While cost remains as one of the key sourcing drivers, Indias value proposition includes unparalleled human capital, unique customer centricity, supportive ecosystem and a secure environment. India with its unique strengths continues to lead in the global sourcing arena. Indias market share grew from 55% in 2010 to 58% in 2011, largely driven by increased focus on 1. Cost efficiencies 2. Customer centricity 3. Highly supportive ecosystem 4. Unparalleled human capital 5. Secure environment Summary The Indian IT Industry has strong fundamental, is a premier global sourcing destination and is resilient and has demonstrated ability to change. While the outsourcing models are changing, driven by new technologies, new business models, new buyer segments, India has been able to address them in addition to developing customized solutions for emerging market segments. Efficiencies gained during the economic crisis are not lost - the industry continues to re-engineer internally and diversify, with a thrust on non- linearity and transforming customer businesses. As per NASSCOM, better economic conditions expected in second half of the year could see return of consumer confidence and renewal of business growth which could accelerate the global IT spends. NASSCOM has guided 11% to 14% growth in Indian IT exports in FY 12-13 against 16% to 18% it guided for FY11-12 a year back. The year ahead will see uncertainty, but the IT industry will continue to grow and be a net hirer. Operating conditions may improve; differentiated growth for diverse segments of the Industry will propel India to build thrust on high value exports, enabling frameworks and implementation. Opportunities * Higher economic growth in Emerging markets Emerging markets are growing relatively faster than the developed nations. Sustaining such high growth would require increase in competitiveness of local players. IT would play an important role in increasing competitiveness. Markets such as India, Middle East Asia Pacific and Latin America are increasingly becoming important from the point of view of consumption of IT services. * Increased adoption of off-shoring The global economy which was on a recovery mode post the recession continued to face challenges stemming from the European debt crisis, high unemployment in the developed world, and other such events. Simultaneously, the continued thrust of global organizations towards costs and improving efficiencies, reflected in the uptick in discretionary spending, offers sufficient opportunity for growth. The Company views this as a good opportunity to improve and strengthen its customer base. * Environment sustainability issues Increased environmental consciousness coupled with the search for more cost effective IT solutions have brought in a greater emphasis on Green Technologies. * Emergence and acceptance of New Technologies There is an increasing acceptance of cloud-based solutions that offer both flexibility and scalability. There is likely to be increasing interest in technology areas such as Cloud and Software as a Service (SaaS) which will offer new opportunities for growth. The Company views these as a focus area and is taking active interest in developing and providing services in partnership with established product vendors. Threats, Risks and Concerns * Subsequent to the letter by the erstwhile chairman dated January 7, 2009 (the letter) admitting that the Companys Balance Sheet as at September 30, 2008 carried inflated balances in cash and bank balances, non-existent accrued interest, an understated liability and an overstated debtors position, there were investigations by various law enforcement agencies in India and abroad and resultant seizure of documents which is more fully described in Note 25 of the standalone financial statements. Considerable time has elapsed after the letter and the Company has not received any further information as a result of the various ongoing investigations against it that may require adjustments to the financial statements. Notwithstanding the above, the Company may be exposed to liabilities in case of any adverse outcome of these investigations / proceedings, the details of which are disclosed in the aforesaid Note 25 of the standalone financial statements. * There are claims and contingencies and other regulatory non-compliances / breaches faced by the Company that have been set out in more detail in Note 31 and Note 32 of the standalone financial statements for which the Company is taking appropriate action based on legal advice. * As a result of the fragmented nature of the industry, we operate in a highly competitive landscape where we compete for business with several Indian and global companies where differentiation is getting increasingly difficult. Several global companies have also been building their offshore presence thereby intensifying competition in the offshore centric space. We believe that our strength of experience and proven delivery capabilities will stand us in good stead in winning business. * We may find it increasingly tough to keep pace with rapid technological development in newer technologies like cloud computing. However, we have been active in creating newer offerings to replace some of the older offerings that may be cannibalized due to the latest technological developments. * The Companys operations are spread across many countries and the compliance mechanism needs constant updation for regulatory changes, to ensure that there is no risk of non-compliance. * Challenges with regard to attraction and retention of talent / skills which is important for the success of the Company. Employee compensation pressures in India and the hiring of employees outside India may reduce the Companys margins. * The Company may face challenges with respect to its customers, which could have a material impact, including due to customer retention given the competitive market conditions with attendant pressures on price and margins, consolidation of vendors by some of the larger customers, compliance with contract clauses related to bench marking, liquidated damages, non-disclosure of information, infringement of intellectual property rights and breach of confidentiality. * Delays in completion of fixed-price, fixed-time frame contracts within the budgeted time and cost. * The Companys revenues are significantly dependent on customers primarily located in the U.S. and Europe, as well as in certain sectors. An economic slowdown or other factors, including impact of adverse legislations in these countries or sectors would affect the Company. Legislation in certain countries in which we operate, including United States, may restrict companies in those countries from outsourcing work to us. * The exchange rate between the Indian rupee and the US dollar has continued to fluctuate. Thus operating results will be impacted by the fluctuations. Any strengthening of Indian rupee against the US dollar or other foreign currencies could impact profitability. * Force majeure events including terrorist attacks, war, regional conflicts, earthquake, floods, disruptions in telecommunication systems and virus attacks etc., could adversely affect the Companys business, results of operations and financial condition. The political uncertainty in Hyderabad where the Company is currently headquartetared might also adversely impact the operations of our Company. * Proposed merger: The related required approvals and the consequential cultural integration will involve extensive communication and connect events across both companies, in order for the synergies, efficiencies and benefits to be fully realised. * New Business Models: The changing business dynamics are leading to the emergence of new business models e.g. Outcome based models. We may need to adopt the new models alongside the traditional ones to remain competitive. * Strategic acquisitions: During the year Company acquired 100% business of Vcustomers International operations for US$ 27 million (approx. Rs. 135 crores). This is the first 100% acquisition by Mahindra Satyam since it became part of Mahindra Group and marks the entry of Mahindra Satyams BPO operations into other verticals such as Retail and Consumer Technology in addition to significantly enhancing Technical Support credentials. Post acquisition, the Company faces the challenges associated with cultural, financial and technology integration. This could result in failure to reach the strategic objective for the acquisition and the resultant synergy expected. Internal Control Systems and their adequacy Over the past three financial years i.e. 2009-10, 2010-11 and 2011-12, the Company under the new Management took several steps including inter-alia appointing a new audit committee, revising the code of Ethical Conduct, nominating a Corporate Ombudsman and formulating an entity wide risk management policy duly approved by the Board. The internal audit function has also been strengthened by appointing a reputed and independent external agency as the Internal Auditor. Amongst the initiatives, the Management has carried out a complete analysis of unexplained / un-reconciled balances between various sub-systems / sub- ledgers and the general ledger and the same has been appropriately dealt with in the accounts (Refer Note 33.2 of the standalone financial statements). In addition, physical verification of fixed assets has been conducted in accordance with a defined program by the Management and the deficiencies that were noticed were appropriately dealt with in the books. Further, the new Management, for the purpose of ensuring appropriate controls over the financial reporting process and the preparation of the financial statements, has implemented specific procedures like manual reconciliations between the various sub-systems / sub-ledgers and the general ledger, requests for various balance confirmations as part of the year end closure process, confirmation of the department wise financial details by the business leaders, preparation and review of proper bank reconciliation statements, review of the revenue recognition policies and procedures, preparation and review of schedules for key account balances, implementing proper approval mechanisms, closer monitoring of the financial closure process etc. The software platforms including the ones used for financial reporting are non-integrated contributing to certain deficiencies in IT General and Application controls, and therefore, compensating manual reconciliations are carried out as mentioned above. In addition, the Management is evaluating migration to a new ERP in a phased manner. As at March 31, 2012, the new Managements efforts have resulted in improved controls over the process of revenue recognition, receivables management, approval mechanisms and the preparation and review of material account balances, which have reached a stage so as to provide reasonable level of assurance regarding these account balances in the preparation and presentation of the financial statements. Financial Performance Overview The financial statements have been prepared in compliance with the requirements of the Companies Act, 1956 and Generally Accepted Accounting Principles (GAAP) in India. The Consolidated financial statements have been prepared in compliance with the Accounting Standards AS 21 as prescribed by the Companies (Accounting Standards) Rules, 2006. The discussion on financial performance in the Management Discussion and Analysis relate to the Standalone Financials Statements of SCSL. Share Capital The paid up share capital stands atRs.2,354 Million as on March 31, 2012 compared toRs.2,353 Million as on March 31, 2011. The increase ofRs.1 Million during the year is due to conversion of options into shares by employees under various Associate Stock Option Schemes (ASOPs). Reserves and Surplus Securities premium account Securities premium account has increased fromRs.43,350 Million as on March 31, 2011 toRs.43,460 Million as on March 31, 2012. The addition to the securities premium account ofRs.110 Million during the year is primarily due to the conversion of options into shares by employees under various Associate Stock Option Schemes (ASOPs). Statement of Profit and Loss The deficit in Statement of Profit and Loss ofRs.24,622 Million at the beginning of the year was reduced toRs.12,594 Million as at March 31, 2012 due to the profit ofRs.12,028 Million for the year ending March 31, 2012. Hedging Reserve With effect from April 1, 2011, the Company has applied the hedge accounting principles set out in Accounting Standard 30 Financial Instruments: Recognition and Measurement (AS 30) in respect of such derivative contracts used to hedge its risks associated with foreign currency fluctuations relating to certain firm commitments and highly probable forecast transactions. Accordingly, in respect of all such contracts outstanding as on March 31, 2012, that were designated and effective as hedges of future cash flows, loss aggregatingRs.343 Million (Net) has been recognised directly in the Hedging reserve account (Refer Note 4 of the standalone financial statements). Associate stock option The decrease in the associate stock option account ofRs.265 Million is primarily due to exercise of options during the current year (Refer Note 34 of the standalone financial statements). Borrowings The borrowings comprising of secured loans (including finance lease obligations) as at March 31, 2012 aggregatedRs.292 Million (i.e. Long term borrowings -Rs.233 Million and current maturities of long term debt -Rs.59 Million) as compared to Rs.315 Million (Long term borrowings- Rs.220 Million and current maturities of long term debt - Rs.95 Million) as at March 31, 2011. The decrease of Rs.23 Million over the previous year is primarily due to repayment during the year of the vehicle loans and finance lease obligations for certain assets taken earlier which was offset by the new lease obligations for vehicles acquired during the current year. Long term provisions: Provisions as at March 31, 2012 aggregate Rs.1,545 Million (Rs.1,382 Million as at March 31, 2011). The increase of Rs. 163 Million in provisions is primarily on account of provision for employee benefits Rs.186 Million which is offset by the decrease in Provision for estimated loss on derivative contracts (Refer to Note 55 of the standalone financial statements). Trade payables: Trade payables as at March 31, 2012 aggregated Rs.5,873 Million (Rs.5,693 Million as at March 31, 2011). The increase of Rs.140 Million is primarily on account of increase in salary payables and other operational expenditure. Other current liabilities Other current liabilities as at March 31, 2012 aggregate Rs.7,784 Million (Rs.8,934 Million as at March 31, 2011). The decrease of Rs.1,150 Million is primarily on account of payment of Rs.1,074 Million towards expenses and charges in relation to the Class Action Settlement (Refer Note 29 of the standalone financial statements) and on account of payment of Rs. 447 Million relating to Civil monetary penalty. The decrease is offset by the increase in unearned revenue, statutory remittances, payables on purchase of fixed assets and derivative liability. Short term provisions: Provisions as at March 31, 2012 is Rs. 9,413 Million (Rs. 9,187 Million as at March 31, 2011). The increase of Rs. 226 Million is primarily on account of increase in provision for tax Rs. 1,425 Million due to the provision for income tax for the current year (Refer Note 53.1 of the standalone financial statements) which is offset by decrease on account of provision for contingencies Rs. 913 Million (Refer Note 54.2 of the standalone financial statements), provision for warranties Rs. 13 Million, provision for estimated loss on derivative contracts Rs. 131 Million (Refer Note 55 of the standalone financial statements) and Provision for employee benefits Rs. 142 Million during the current year. Fixed Assets The Gross block of fixed assets is Rs. 21,460 Million as at March 31, 2012 as compared to Rs. 20,204 Million as at March 31, 2011. The additions to gross block aggregate Rs. 2,953 Million and deletions to gross block are Rs. 1,697 Million. The increase of Rs. 2,953 Million is primarily due to additions in plant and equipment (including computers) Rs. 1,296 Million, furniture and fixtures Rs. 342 Million, capitalization of buildings Rs. 1,040 Million, software Rs. 181 Million and Vehicles Rs. 82 Million. The deletions are largely on account of adjustments arising on account of physical verification of fixed assets during the year (for more details refer Note 36.4 of the standalone financial statements). In respect of certain freehold lands and buildings, the Company has received a provisional attachment order from the Income tax authorities which has since been stayed by orders passed by the Honble High Court of Andhra Pradesh (Refer Note 31.3.v of the standalone financial statements). The decrease in capital work-in-progress (net of provisions) to Rs. 2,000 Million (Rs. 2,408 Million as on March 31, 2011) is primarily due to capitalization of buildings during the year. Non-current and Current Investments Non-current investments comprise of investments in Subsidiaries, and in other Trade investments. Investment in Subsidiary companies and other trade investments is Rs. 9,990 Million as on March 31, 2012 (Rs. 9,480 Million as on March 31, 2011). The increase of Rs. 510 Million is primarily on account of additional investment made during the year in Bridge Strategy LLC, Satyam Computer Services Belgium, BVBA, Satyam Computer Services (Shanghai) Co. Limited and Satyam Servicos De Informatica LTDA. The provision for diminution in the value of investment in subsidiaries as on March 31, 2012 is Rs. 8,579 Million (as on March 31, 2011 is Rs. 8,507 Million). The provision for diminution in the investment value in subsidiary companies is made on the basis of valuation reports obtained by the Company. The Company during the year acquired stake in Dion Global Solutions Limited, an entity whose equity shares are listed on the stock exchanges in India, by investing Rs. 350 Million. Current investments comprise of current portion of long-term investments and investments in mutual funds. The Company has made investment in various mutual funds during the current year. These are investments in fixed-term maturity plans of debt funds. Investments in mutual funds aggregated to Rs. 622 Million as at March 31, 2012 (Rs. 4,348 Million as at March 31, 2011). Deferred Tax Assets (net) No deferred tax asset was recognised as at March 31, 2011 on account of accumulated business losses and other items in the absence of virtual certainty of realisation of such assets in accordance with the accounting policy of the Company. In view of the current year profits and as permitted by the Accounting Standard (AS) 22 on Accounting for Taxes on Income, the Management has recognised deferred tax assets aggregating Rs. 1,621 Million as at March 31, 2012, including the past unrecognised deferred tax assets as of that date, on certain items identified by considering the concept of prudence. Long term loans and advances Long term loans and advances (gross) as at March 31, 2012 aggregate Rs. 4,738 Million (Rs. 5,351 Million as at March 31, 2011) and the cumulative provision towards doubtful advances aggregate Rs. 501 Million (Rs. 3,312 Million as at March 31, 2011). The decrease of Rs. 613 Million is primarily on account of Rs. 564 Million share application money for investment in Satyam BPO being classified as short-term in the current year. The decrease of Rs. 2,811 Million in the provisions is primarily due to write-back of provisions during the year to the Statement of Profit and Loss. Other non-current assets Other non-current assets are Rs. 27 Million as on March 31, 2012 as compared to Rs. 82 Million as on March 31, 2011. The decrease of Rs. 55 Million is primarily on account of decrease in Margin money deposits with banks having maturity of more than 12 months from the Balance sheet date. Trade Receivables (including long-term trade receivables) The Trade Receivables (including long-term trade receivables) (gross) as at March 31, 2012 is Rs. 17,320 Million (Rs. 14,516 Million as at March 31, 2011). Long-term trade receivables (gross) as at March 31, 2012 are Rs. 3,340 Million (Rs. 3,690 Million as at March 31, 2011). Trade receivables (excluding long-term portion) (gross) consist of dues outstanding for a period exceeding six months from the date they were due for payment aggregating Rs. 927 Million (Rs. 625 Million as at March 31, 2011). The cumulative provision against the gross trade receivables (including long- term trade receivables) as at March 31, 2012 is Rs. 4,044 Million (Rs. 4,021 Million as at March 31, 2011). Long-term trade receivables have been fully provided for. Trade receivables are 22.26% of revenues for the year ended March 31, 2012 compared to 21.97% for the previous year representing a Day Sales Outstanding (DSO) of 81 Days and 80 Days for the respective years. (Refer Note 13 and 15 of the standalone financial statements). Cash and cash equivalents Cash and cash equivalents are Rs. 26,898 Million as on March 31, 2012 as compared to Rs. 26,416 Million as on March 31, 2011 out of which Rs. 20,473 Million as at March 31, 2012 (Rs. 16,720 Million) meet the definition of cash and cash equivalents as per AS 3 Cash Flow Statement. Please refer the Cash Flow Statement for detailed analysis of cash flows. Balances in earmarked accounts as on March 31, 2012 is Rs.6,425 Million (Rs.9,696 Million as at March 31, 2011) and the net decrease of Rs.3,271 Million is primarily on account of reduction in balances in escrow / special purpose and segregated accounts due to remittances under such arrangements offset by increase in margin money / security towards bank guarantees, largely on account of Income-tax dispute (also refer Note 31.3.v of the standalone financial statements). Short term loans and advances Short term loans and advances (gross) as at March 31, 2012 Rs.7,567 Million (Rs.2,267 Million as at March 31, 2011) and the cumulative provision towards doubtful advances is Rs.631 Million (Rs.712 Million as at March 31, 2011). The increase of Rs.5,300 Million is primarily on account of Rs.4,515 Million amount deposited and held in initial escrow account towards class action settlement consideration (Refer Note 29 of the standalone financial statements) and on account of classification of share application money of Rs.564 Million for investment in Satyam BPO as short-term during the current year. Decrease in provisions is due to write-back of provisions during the year to the Statement of Profit and Loss. Other Current Assets Other Current Assets are Rs.5,258 Million as on March 31, 2012 as compared to Rs.4,287 Million as on March 31, 2011. The increase of Rs.971 Million is primarily on account of increase in unbilled revenue Rs.811 Million due to increase in revenue, increase in interest accrued on bank deposits Rs.330 Million due to increase in bank deposit balances, derivative asset balances of Rs.69 Million, offset by reduction in contractually reimbursable expenses from customers. Other current assets include contractually reimbursable expenses (gross) Rs.626 Million (Rs.875 Million as at March 31, 2011) against which the provision as at March 31, 2012 is Rs.233 Million (Rs.243 Million as at March 31, 2011). Total income Total income increased to Rs.63,543 Million in the current year from Rs.50,598 Million in the previous year thereby leading to a increase of Rs.12,945 Million. IT services revenues Revenues from IT services of Rs.59,551 Million (Rs.47,414 Million for FY 2010-11) comprises of revenue from Overseas / Exports market Rs.55,832 Million (Rs.45,294 Million for FY 2010-11) and from domestic market of Rs.3,719 Million (Rs.2,120 Million for FY 2010-11). The software revenue mix based on various parameters is as follows: Revenues from IT services based on offshore and onsite / offsite (Rs. in Million) Location Year ended March Year ended March 31, 2012 31, 2011 Offshore 28,216 47.38% 21,761 45.90% Onsite / 31,335 52.62% 25,653 54.10% offsite Total 59,551 100.00% 47,414 100.00% Revenues based on geography: (Rs.in Million) Location Year ended March Year ended March 31, 2012 31, 2011 North 30,077 50.51% 25,228 53.21% America Europe 14,603 24.52% 12,577 26.53% Asia Pacific 8,983 15.09% 6,122 12.91% India 4,277 7.18% 2,120 4.82% Rest of the 1,611 2.70% 1,367 2.53% world Total 59,551 100.00% 47,414 100.00% Sale of Hardware Equipment and Other Items: During the year, the Company has identified and accounted for the sale of certain hardware equipment and other items of Rs.92 Million (Rs.347 Million for FY 2010-11). Other income (net) Other Income has increased to Rs.3,900 Million in FY 2011-12 from Rs.2,837 Million in FY 2010-11. The increase is primarily on account of increase in interest on bank deposits Rs.467 Million, liabilities / provisions no longer required written back Rs.236 Million, dividend from current investments Rs.78 Million, foreign exchange gain Rs.151 Million and increase in other non-operating income is Rs.120 Million. Exceptional items (net) The Statement of Profit and Loss includes the following exceptional items (Refer Note 57 of the standalone financial statements): (Rs.in Million) Particulars * Year ended Year ended March 31, March 31, 2012 2011 Provision for contingencies 2,200 - relating to various disputed matters Expenses related to forensic - 201 investigation and litigation support Class action settlement - 5,690 consideration (Reversals) / provisions (2,718) 520 for impairment losses in subsidiaries (net) Total (518) 6,411 * Exceptional items also include disputed matters settled, net of release from provision for contingencies: (i) for the year ended March 31, 2012 includes Rs.Nil (net) (Rs.3,113 Million less reversal of an equivalent amount from provision for contingencies). (ii) for the year ended March 31, 2011 includes Rs.Nil (net) (Rs.509 Million less reversal of an equivalent amount from provision for contingencies). Employee benefits expense Personnel costs are Rs. 36,354 Million in FY 2011-12 (Rs. 32,760 Million in FY 2010-11). The increase of Rs. 3,594 Million is primarily on account of the following: * Increase of Rs. 1,496 Million on account of variation in foreign exchange rates in respect of employee cost for onsite associates. * Increase of Rs. 769 Million on account of employee movement to onsite. * Increase of Rs. 1,145 Million on account of salary revisions to employees during the year. * Increase of Rs. 590 Million on account of certain costs relating to overseas employees (Refer Note 56 of the standalone financial statements). Operating, administration and other expenses Operating, administration and other expenses increased to Rs. 13,431 Million in FY 2011-12 from Rs. 10,182 Million in FY 2010-11 thereby leading to an increase of Rs. 3,249 Million. This increase was primarily on account of increase in sub-contracting costs Rs. 1,363 Million on account of end customer deployment and an increase in software charges by Rs. 793 Million on account of execution of composite projects, an increase in visa charges by Rs. 400 Million, an increase in provision for doubtful debts by Rs. 369 Million and an increase in legal and professional charges Rs. 171 Million due to project related professional services incurred the current year. This increase is partially offset by a decrease in marketing expenses on account of reduction in Value in Kind expenses related to transactions with the international sports federation during current year amounting to Rs. 207 Million. Provision for diminution in the value of long-term investments During the current year, with the assistance of independent professional agencies, the Company has assessed the operations of the subsidiaries, including the future projections, to identify indications of diminution, other than temporary, in the value of the investments recorded in the books of account and, accordingly, has made a provision of Rs. 103 Million (Rs. 393 Million for FY10-11) and has written-back a net amount of Rs. 31 Million (Rs. Nil for FY10-11) (Refer Note 37.5 of the standalone financial statements). Depreciation Depreciation expense for the year is Rs. 1,494 Million as compared to Rs. 1,499 Million for the year ended March 31, 2011. Provision for tax The provision for tax of Rs. 2,160 Million in the current year (Rs. 537 Million in FY10-11) relates to the liability in respect of the foreign and domestic operations of the Company. Based on professional advice, the Company has determined that the provision made for current tax is adequate and no additional provision for the current year needs to be made (Refer Note 53.1 of Notes forming part of the financial statements). Dividend During the current year, the Company did not declare any dividend. Development in Human Resources For material developments in Human resources, please refer to Directors Report. Disclaimer Certain statements in the Management Discussion and Analysis describing the Companys objectives, projections, estimates, expectations or predictions may be forward-looking statements within the meaning of applicable securities laws and regulations. Actual results could differ from those expressed or implied.