SIS Ltd Management Discussions

Global economic review

The current global economic scenario is characterised by resilience and modest growth. The International Monetary Fund (IMF) has estimated that the global economy will grow at 3.1% in 2024, with a slight improvement to 3.2% in 2025. The projection comes due to the positive consumer sentiment with which the US ended 2023, and the slight improvement in Chinas retail sales growth. However, monetary tightening in Russia is expected to cool household demand, potentially impacting growth. Inflation, which has been a significant concern, is showing signs of a steady decline and is expected to fall to 5.8% in 2024, and further to 4.4% in 2025, with the 2025 forecast revised downward.

Economic Growth Forecast (%)	2023	2024	2025
Global economies	3.1	3.1	3.2
Advanced economies	1.6	1.5	1.8
Emerging markets and developing economies	4.1	4.1	4.2

Source: World Economic Outlook - IMF

In this backdrop, the overall global economic outlook for 2024 is cautiously optimistic, with growth expected to be below the historical average of 3.8% (from 2000-19) but showing signs of resilience. Advanced economies are expected to see a slight decline in growth in 2024, before rising in 2025 on the back of a recovery in the Euro area from the low growth in 2023 and a moderation of growth in the United States. Emerging markets and developing economies are expected to experience stable growth through 2024 and 2025, marked, however, by some regional differences.

India economic outlook

Indian economy experiencing robust growth

The Indian economy is experiencing robust growth, with the GDP registering an impressive 8.4% growth in the third quarter of FY24. This marks a significant increase from the 4.3% growth in the same quarter of the previous fiscal year. The Ministry of Finance, Government of India, has reported a real GDP growth of 7.6% for the entire fiscal year. The construction sector has seen a double-digit growth, driven by strong demand for residential projects. The manufacturing and service sectors also showed positive growth in the third quarter of FY24. However, concerns regarding the moderate 3.6% growth in private consumption continue to persist. IMF forecasts the Indian economy to grow at 6.3% in 2024 and 2025, with investment expected to rise to 31.9% of GDP by 2025, and savings projected to increase to 30% in this period.

Overall, the Indian economy is on a path of strong growth, with a positive outlook for 2024, supported by macroeconomic and financial stability.

Australian economic outlook

In 2023, the Australian economy showed resilience despite global economic challenges. The countrys GDP continued to grow, supported by strong demand for its natural resources and a robust services sector. The unemployment rate remained low, and wage growth was steady, contributing to consumer spending. Inflationary pressures were, however, a concern, leading to a tighter monetary policy by the Reserve Bank of Australia.

For 2024, the outlook is cautiously optimistic. Australias economy is expected to experience moderate growth, with a focus on managing inflation and fostering conditions for sustainable development. The labour market is projected to ease by the end of the year, with expected rise in unemployment rate. The Australian governments fiscal policy, particularly the Federal Budget for 2024-25, aims to address the cost of living issues, and supports the transition to a low-emissions economy.

Overall, while facing headwinds from global economic conditions, Australias economy is poised to continue its growth trajectory, with a strong focus on stability and longterm prosperity.

Industry overview Security Services

The Indian security services market is expected to be valued at 1,574 Billion¹ in 2024, with India expected to be one of the fastest growing markets in this segment. The security services sector is rapidly evolving, driven by the integration of technology, coupled with the need for tailored, proactive security solutions. Technological advancements are central to this transformation, with providers leveraging data analytics, cloud capabilities, and Software as a Service (SaaS) to meet complex client demands. The shift towards digital security systems is particularly pronounced in mature markets, where sophisticated, integrated solutions are increasingly in demand. This tech-centric approach is not only confined to regions with high labour costs but is also gaining traction in economies with lower labour costs.

Urbanisation and industrialisation trends are contributing to the growth of the residential security market, with technological monitoring becoming more prevalent as more people move into cities. The protection of critical infrastructure, such as manufacturing facilities and transportation hubs, is becoming a priority due to the potential high costs and vulnerabilities associated with disruptions. Economic growth and increasing global disposable incomes are creating a larger market for security services, with more assets needing protection and more clients able to afford protection.

Clients now expect customised, holistic security services that cater to their unique needs. There is a willingness to

invest in comprehensive services that offer high quality and specialised expertise. The preference for a single point of contact to manage the entire security solution underscores the demand for effective control over security-related costs and sustainability issues. In essence, the security services industry is moving towards a more innovative, client-focussed model that emphasises customisation, technological integration, and strategic risk management to navigate the changing security landscape.

Facility Management

The Indian facility management market is expected to be valued at 2,328 Billion¹ in 2024. The current market is notably scattered, yet ripe for amalgamation, with an uptrend in outsourcing, growing emphasis on enhanced workplace experiences, operational effectiveness, and ecological sustainability acting as catalysts for persistent expansion.

There is a distinct shift towards Integrated Facility Services (IFS), as clients streamline their supply chains, seeking a strategic ally to oversee their facilities across various services and regions. There is a growing preference for players having deep-rooted expertise in facility management, and proficiency in delivering services both locally and nationally.

Post-pandemic office occupancy has rebounded but hasnt reached the pre-pandemic figures, prompting some clients to rethink their spatial needs. The growing preference for

hybrid work arrangements has led to a downsising of office spaces. Nonetheless, clients are redirecting investments towards their workforce and superior service offerings. This mirrors the drive to forge ‘workplaces of the future- exceptional, efficient spaces that foster innovation, teamwork, and a sense of community within a hybrid work framework. This trend is expected to persist in the future, which means that players who have the ability to adapt to these change can seize the unfolding opportunity.

1 - Source: Fredonia Research Report

Business Overview

SIS Group is a market leader in security, facility management and cash logistics services, and operates in India, Australia, New Zealand and Singapore.

Through its subsidiaries, associates and joint ventures, SIS Group provides security and related services such as manned guarding, training, physical security, paramedic and emergency response services, loss prevention, asset protection, and mobile patrols; facility management services such as cleaning, housekeeping and pest control management services; and cash logistics services such as cash-in-transit, doorstep banking, along with ATM cash replenishment activities, cash handling and processing, and secure transportation of precious items and bullion; and alarm monitoring and response services such as installation of electronic security devices and systems, their monitoring and response.

A summary of our financial performance during the year is indicated in the table below:

Particulars		Full Year Numbers	Change
	FY24	FY23	%age
Revenue	12,261.4	11,345.8	8.1%
EBITDA	584.5	491.6	18.9%
%	4.8%	4.3%
Depreciation	163.6	131.0	24.9%
Finance Costs	148.2	114.9	29.0%
Other Income & share of profit/(loss) in associates	67.6	43.0	57.3%
Earnings Before Taxes Less: Acquisition related costs/ (income)	340.3	288.7	17.9%
- Depreciation & Amortisation	2.8	3.8
- Goodwill Impairment	65.6	0.0
Earnings Before Taxes (Reported)	271.9	284.9	-4.6%
%	2.2%	2.5%
Tax Expenses	81.9	-61.6
Profit After Taxes (Reported)	190.0	346.5	-45.2%
%	1.5%	3.1%
Operating PAT	255.6	346.5	-26.2%
%	2.1%	3.1%

All businesses continued to report revenue growth during the year, signifying the continuation of business recovery in all segments where the Group operates.

Segmental review

The SIS Group has organised its operations into the following business segments:

Security Solutions - India: The segment maintained its growth momentum, with 11.5% revenue growth, reaching 5,158.5 Crore and crossed the 5,000.0 Crore revenue landmark. During the year, we focussed our efforts on margin improvement initiatives, resulting in profitable revenue growth and underscoring the true potential of the business. The revision of minimum wages in some of the states has

also contributed to business growth. We continue to focus on leveraging technology in our security solutions through our Man-Tech and Alarm monitoring & response offerings. Our Alarm monitoring & response business continued to grow, with around 9,000 new installations, during the year, that now service 23,000+ customer connections.

Security Solutions - International: The segment reported revenue of 5,069.0 Crore, a 4.0% y-o-y increase, showcasing a strong growth momentum and crossed the 5,000.0 Crore revenue landmark on the back of new wins. However, the problem of labour shortages across the international geographies continued, and is expected to persist in the short term. Our Singapore business turned positive and reached break-even at operating profit level, driven by focussed execution of our turnaround strategy and new wins. During the year, the Group took an impairment charge of 65.6 Crore in respect of its Singapore business.

Facility Management Solutions: The Facility Mangement Solutions segment recorded strong revenue growth, crossing the 2,000 Crore revenue landmark to touch 2,092.1 Crore in FY24 against 1,899.8 Crore in FY23, a 10.1% y-o-y increase. EBITDA margins were impacted during the year as a result of the contract rationalisation exercises implemented during the year. Interest in more automated, advanced and creative solutions for facility management is growing among consumers, leading to an increased emphasis on the role of technology in service provision, and an increasing demand for integrated facility management solutions.

Cash Logistics Solutions: Our Cash Logistics Solutions business, which has now evolved into a Bank Outsourcing Solutions provider, reported revenue of 633.8 Crore, a 16.7% y-o-y increase. Currently, over 70% of our contracts are directly with the Banks with no dependence on any intermediaries. The revenue from new and innovative solutions contributed ~ 6% of the segments FY24 revenue. The joint venture business sustained its track record of double-digit EBITDA margins, reinforcing the companys typical profitability nature.

For a detailed discussion of the segments and industries we operate in, please refer to the other sections in this report, from page no. 40 to 69.

Our Return on Capital Employed was 12.9% as on March 31,2024 , and displays our commitment to fiscal prudence. (If the formula issued by the ICAI is used, the ROCE would be 15.1%)

Risk management

Legal & Compliance, Information Technology & Security and Financial. The key/top risks were then identified and presented to the Risk Management Committee along with the risk mitigation plan. Each risk is properly documented along with its mitigation plan and an owner assigned.

Operating Risks

The possibilities and uncertainties that a firm faces in the process of completing its regular business activities, procedures, and systems are referred to as operational risk. The sources of income in the security or facilities management industries are continuous, giving the income and cash flows a high degree of stability. With a vast operating network encompassing 293 branches across the country, we must assure that each of these locations adheres to the same high-quality standards.

In the last four decades, weve established a robust risk and the mitigation plans that are required that include hiring, training, evaluation, and quality control methods to guarantee that the risk of lapse is reduced. We also invest in technology to make the process of managing operations at all of these locations easier. Higher standardisation is required in order to simplify monitoring and management.

Financial Risks

The Groups objective is to provide a degree of predictability and consistency in the Groups financial perfomance while maintaining a balance between offering consistency in the business plan and reasonable market participation because market risk, credit risk, and liquidity risk are all present in the Groups operations.

Please see note 40 in the standalone financial statements and note 41 in the consolidated financial statements for more information on the Groups financial risk management.

Information Technology & Security Risks

As a result of a mix of both organic and inorganic growth over the years, different business within the SIS Group operate on multiple ERP platforms, applications and business systems which are customised to suit their business requirements and are developed internally over the years. Challenges exist in the ability to adequately manage, maintain and constantly improve this platform to avoid operational bottlenecks and a resultant financial impact on the Group. Therefore, the Group has initiated the rollout of common systems to be used across the Group which will ensure a more quality and robust management and support and also allow high visibility of key performance metrics across the Group to aid faster and more accurate decision-making. With the use of technology being embedded in all facets of our operations, we are conscious of the risks arising out of disruption to our systems and have, therefore, also ensured that we prepare and keep a disaster recovery plan in readiness to allow operations to continue uninterrupted. We also started our cyber security risk management policy to protect and ensure the confidentiality, integrity and availability of Business Applications, Data & IT infrastructure of SIS Group entities

SIS has established a formal risk management process to identify potential risks that may affect the business, the capabilities to predict and respond to risks as and when they arise and manage the risk to be within its risk appetite. As a part of its risk management process, we have compiled a comprehensive risk library covering all likely risks under the categories of Operations, Strategic, Human Resources,

from various cyber threats and attacks. The Group has initiated an audit on its cybersecurity infrastructure with an objective to ensure that it is protected against cyber threats and attacks.

Legal & Compliance Risks

All our businesses are heavily governed by multiple regulations which are not always interpreted and implemented in a predictable and consistent manner. Sometime, general practices followed by the industry may be inconsistent with the regulations or an interpretation of the regulations. Inconsistency in, and differing, interpretations and implementations of the regulations may result in a significant financial impact on the Group. As a Group, we therefore, focus on the highest levels of compliance to avoid reputational damage and financial losses.

Workplace Risks

We have a comprehensive health and safety policy designed to safeguard our personnel and those functioning at our customers locations. Our HR practices are in line with our businesses health and safety laws. We believe that accidents and occupational health hazards can be greatly reduced via hazard analysis and control. As a result, we provide proper training to both management and personnel. To maintain a safe working environment at our customer sites, we have developed a set of comprehensive work safety procedures and our workforce is regularly trained and updated on these procedures.

Internal quality control and adequacy

The SIS Board has established robust policies and procedures for conducting business in an efficient and effective manner. These include stringent compliance with the Companys policies, asset protection, fraud prevention and detection, error reporting mechanisms, accounting record accuracy and completeness, and timely preparation of reliable financial statements.

While the continued growth in the scale of our business operations has the potential to impose a strain on our internal systems and processes, we are constantly engaged in a review and update of our systems and processes. This helps ensure that they remain current and relevant in an ever-changing business environment. The SIS Groups information systems are constantly examined and improved, in order to provide timely and relevant information to diverse stakeholders, enabling them to compete in a challenging market and environment. We feel that IT and information systems are vital in todays society, and we engage with numerous expert teams to evolve and improve these systems in order to keep pace with the fast- moving changes in the environment.

The Companys internal auditing system ensures that established processes and practices are followed and adhered to, and also that quality processes are followed properly. At all levels of the company, financial discipline is emphasised. The company believes that quality processes

and a focus on customer satisfaction are vital for it to retain and attract clients and business, and, hence, these are strictly implemented and followed.

As part of the Groups long-term plan to leverage technology for enhancing and effectively implementing a system of internal controls and efficiency and productivity, we had rolled-out of a new financial accounting and reporting system across the Group which will complete in FY23. At the same time, the Group had rolled-out an enhanced and re-developed version of its existing core business system in SIS Limited and is rolling-out the same in other group entities to help achieve its key objectives.

Material developments on human resources/ industrial relations front, including number of people required

SIS is a premier private-sector employer in India, consistently hiring a significant number of employees across various sectors. We have been recognised as one of Indias best employers among Nation Builders by GPTW, thanks to the thousands of employment opportunities we create annually. Our employment opportunities support lakhs of families with a consistent income and protection through statuary benefits, reinforced by our strict compliance policies. Additionally, we offer health and medical insurance and forward-thinking ESOPs, along with statutory pay and benefits, ensuring the holistic wellbeing and security of our employees.

The business relies heavily on people, and effective management of this resource is critical for success, profitability, and long-term viability. Our Recruit & Train framework is core to our people strategy, and with its integrated capacity to recruit, train and deploy a huge labour base, the SIS Group has Indias largest trained manpower supply chain. We have cutting-edge infrastructure and curriculum, with the potential to train thousands of security guards/janitors/FM technicians/cash van drivers, patient care support personnel, etc. each year.

We have 32 training centres across 14 states, possessing state-of-the-art infrastructure and providing up-to-date courses. These have a capacity to churn out more than 35,000 trained guards, janitors and cash van drivers every year. Our 200 Training Officers and 1,200 Training Champs spread across the country use the MTrainer platform to schedule, plan and deliver training up to the last mile. This platform has helped us to increase our training coverage up to 87%.

We rejoice in the fact that our people believe in our culture and vision. Our tenure demographics of employees with 25+ and 30+ service awards showcase the longterm confidence that our people vest in us. They are the backbone of SIS, and by providing them with a clear career path and the necessary skills, SIS is well-positioned to take advantage of the opportunities that lie ahead. As of March 31,2024, we have 2,84,776 employees.