Notes to Accounts of Xchanging Solutions Ltd.
Mar 31, 2018
1. General Information
Xchanging Solutions Limited (âthe Companyâ), incorporated on February 1, 2002, is an information technology (IT) services provider with operations in India and an international presence established through subsidiaries in USA, Singapore and the uK.
Pursuant to agreements, arrangements, amalgamations, etc. (with requisite approvals from various High Courts in India, wherever applicable), the Company has, during earlier years, acquired the IT services businesses (including assets and liabilities) of / from the following entities:
- SSI Limited (Information Technology division with operations in India, USA and several other countries).
- Scandent Group Limited, Mauritius (with operations in USA, Singapore, Germany, etc.).
- Matrix One India Limited (with operations in India).
Pursuant to share purchase agreements between Xchanging (Mauritius) Limited (XML), a wholly owned subsidiary of Xchanging Ltd (Formerly known as âXchanging Plcâ) incorporated in UK, and the erstwhile principal shareholders of the Company, and consequent open offer to public, XML acquired 75.00% of the outstanding share capital of the Company. Though the open offer process was completed on April 9, 2009, XML obtained the power of operational control of the Company effective January 1, 2009. On June 18, 2015 , XML has sold 22.93% of its holding in the Company to its fellow subsidiary Xchanging Technology Services India Private Limited, India (âXTSIPL) and as a result XML holding in the Company has reduced to 52.07%.
* DXC Technology India Private Limited (Promoters group) acquired 3.77% of shares on January 6, 2017 through mandatory open offer.
** Edelweiss Securities Limited holds shares as Registered Owner from December 29, 2016 onwards as collateral on behalf of Scandent Holding Mauritius Limited.
2. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Companyâs accounting policies, which are described in note 2, the management of the Company is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
2.1 Critical judgements in applying accounting policies
The following are the critical judgements, apart from those involving estimations, that the management have made in the process of applying the Companyâs accounting policies and that have the most significant effect on the amounts recognised in the financial statements.
i) Revenue recognition- The Company uses the percentage of completion method using the input (cost expended or efforts spend) method to measure progress towards completion in respect of fixed price contracts. Percentage of completion method accounting relies on estimates of total expected contract revenue and costs. This method is followed when reasonably dependable estimates of the revenues and costs applicable to various elements of the contract can be made. Key factors that are reviewed in estimating the future costs to complete include estimates of future labour costs and productivity efficiencies. As the financial reporting of these contracts depends on estimates that are assessed continually during the term of these contracts, recognized revenue and profit are subject to revisions as the contract progresses to completion. When estimates indicate that a loss will be incurred, the loss is provided for in the period in which the loss becomes probable.
ii) Impairment of investment in subsidiaries- Determining whether investment in subsidiaries is impaired requires an estimation of the value in use of the subsidiaries. The value in use calculation requires the management to estimate the future cash flows expected to arise from the subsidiaries operations and a suitable discount rate in order to calculate present value. Where the actual future cash flows are less than expected, a material impairment loss may arise. No impairment for investment in subsidiaries has been identified during the year.
iii) Income taxes- The Companyâs two major tax jurisdictions in India and the Company also files tax returns. Significant judgments are involved in determining the provision for income taxes, including the amount expected to be paid or recovered in connection with uncertain tax positions. Also refer to note 30.
iv) Other estimates- The preparation of financial statements involves estimates and assumptions that affect the reported amount of assets, liabilities, disclosure of contingent liabilities at the date of financial statements and the reported amount of revenues and expenses for the reporting period. Specifically, the Company estimates the probability of collection of accounts receivable by analysing historical payment patterns, customer concentrations, customer credit-worthiness and current economic trends. If the financial condition of a customer deteriorates, additional allowances may be required.
v) Fair value measurements and valuation processes- Investment in mutual funds, derivative financial instruments are measured at fair value and the gratuity liability is measured based on actuarial valuation for financial reporting purposes. In estimating the fair value and actuarial valuation, the Company uses market-observable data to the extent it is available. Where such inputs are not available, the Company engages third party qualified valuers to perform the valuation.
Note: As at March 31, 2018, the loans and advances balance of Rs. 17,283 (2017: Rs. 17,283, 2016: Rs. 17,283) due from subsidiaries is interest free and repayable on demand. However, management does not have an intention to demand these loans in the next 12 months and hence these have been classified under noncurrent financial assets. These financial assets are carried at amortised cost.
b) Terms/ rights attached to equity shares
The Company has only one class of shares referred to as equity shares having a par value of Rs.10 each. Each shareholder is eligible for one vote per share held. In the event of liquidation, the equity shareholders are eligible to receive the remaining assets of the Company after distribution of all preferential amounts, in proportion to their shareholding.
Nature of security and terms of repayment for secured borrowings are as follows:
a) Nature of security: Vehicles purchased on loan for employees
b) Terms of Repayment: Monthly payment of equated monthly instalments for a period of 3-6 years (2017: 36 years, 2016: 2-6 years)
c) Interest rate: 9.7% to 10.5% per annum (2017: 9.5% to 10.5% per annum, 2016: 9.5% to 13.5% per annum)
Notes:
(i) There are no dues to micro and small enterprises as defined under the Micro, Small and Medium Enterprises Development Act, 2006 as of March 31, 2018, March 21, 2017 and January 1, 2016, outstanding for more than 45 days on the basis of such parties having been identified by management and relied upon by the auditors.
(ii) The credit period ranges from 0 to 90 days. No interest is charged on trade payables up to the due date. The Company has financial risk management policies in place to ensure that all payables are paid within the pre-agreed credit terms.
The income tax rate used for the above reconciliations is current tax 34.608% (2017: 33.063%) and Deferred tax 29.120% (2017: 33.063%), these are the corporate tax rate payable by corporate entities in India on taxable profits under the Indian tax law.
3 SEGMENT INFORMATION
(Refer note 2.21)
The entire operation of the Company relate only to one segment âSoftware Servicesâ and hence there are no primary segment to be reported.
4 Employee Benefits Expense
(Refer note 2.7)
(a) Defined Contribution Plans
Provident Fund and Other Funds:_ During the year, the Company has recognised Rs. 152 (2017: Rs. 331) in the Statement of Profit and Loss relating to provident fund and other funds, which is included in the âContribution to provident and other fundsâ.
(b) Defined Benefit Plan
Gratuity (unfunded):_The Company provides for gratuity, a defined benefit plan (the âgratuity planâ) covering eligible employees in accordance with the Payment of Gratuity Act, 1972. The gratuity plan provides a lump sum payment to vested employees at retirement or termination of employment based on the respective employeeâs last drawn salary and years of employment with the Company.
The Company is exposed to various risks in providing the above gratuity benefit such as: interest rate risk, longetivity risk and salary risk.
Interest risk: A decrease in the bond interest rate will increase the plan liability.
Longevity risk: The present value of the defined benefit plan liability is calculated by reference to the best estimate of the mortality of plan participants both during and after their employment. An increase in the life expectancy of the plan participants will increase the planâs liability.
Salary risk: The present value of the defined benefit plan liability is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the planâs liability.
The following tables summarise the components of expense recognised in the Statement of Profit and Loss and amounts recognised in the Balance Sheet for the gratuity plan:
Notes:
(i) The estimates of future salary increases, considered in the actuarial valuation, takes into on account, inflation, seniority, promotions and other relevant factors, such as supply and demand in the employment market.
(ii) The discount rate is based on the prevailing market yields of Indian government securities as at the Balance Sheet date for the estimated term of the obligation.
(vi) Sensitivity analysis
Significant actuarial assumptions for the determination of the defined obligation are discount rate and expected salary increase. The sensitivity analyses below have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant.
The following table summarizes the impact on defined benefit obligation arising due to increase / decrease in key actuarial assumptions by 50 basis points:
The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.
Furthermore, in presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected unit credit method at the end of-the reporting period, which is the same as that applied in calculating the defined benefit obligation liability recognised in the balance sheet.
5 Financial instruments
5.1 Capital management
The Company manages its capital to ensure that it will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity balance.The capital structure of the Company consists net debt (borrowings as detailed in notes 17 and 21) and total equity of the Company.The Company is not subject to any externally imposed capital requirements.
5.1.1 Debt equity ratio
The debt equity ratio at end of the reporting period was as follows.
(i) Debt is defined as long-term and short term borrowings (excluding derivative, financial guarantee contracts and contingent consideration), as described in notes 17 and 21.
(ii) Total equity comprises issued share capital, reserves, retained earnings and other comprehensive income as set out in the statement of changes in equity.
5.2 Financial risk management
The Company is exposed to foreign currency risk, liquidity risk, credit risk and interest risk which may impact the fair value of its financial instruments. The Company has a risk management policy to manage & mitigate these risks. The Companyâs risk management policy aims to reduce volatility in financial statements while maintaining balance between providing predictability in the Companyâs business plan along with reasonable participation in market movement.
5.3 Market Risk
The Companyâs activities expose it primarily to the financial risks of changes in foreign currency exchange rates (see note 34.5). The Company enters into derivative financial instruments to manage its exposure to foreign currency risk through forward foreign exchange contracts to hedge the exchange rate risk arising on the export of services to other countries.
5.4 Foreign currency risk management
The Company undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise.
The carrying amounts of the Companyâs foreign currency denominated monetary assets and monetary liabilities at the end of the reporting period are as follows.
5.5.1 Foreign currency sensitivity analysis
The Company is mainly exposed to the USD and GBP
The following table details the Companyâs sensitivity to a 10% increase and decrease in the Rs. against the relevant foreign currencies. 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents managementâs assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. The sensitivity analysis includes external loans as well as loans to foreign operations within the Company where the denomination of the loan is in a currency other than the functional currency of the lender or the borrower. A positive number below indicates an increase in profit or equity where the Rs. strengthens 10% against the relevant currency. For a 10% weakening of the Rs. against the relevant currency, there would be a comparable impact on the profit or equity, and the balances below would be negative.
* Others include currencies such as SGD,EUR,MYR and AUD.
In managementâs opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk because the exposure at the end of the reporting period does not reflect the exposure during the year. This is mainly attributable to the exposure outstanding on USD receivable and payable in the Company at end of the reporting period.
5.5.2 Forward foreign exchange contracts
It is the policy of the Company to enter into forward foreign exchange contracts to cover specific foreign currency receivables. The Company also enters into forward foreign exchange contracts to manage the risk associated with forecasted transactions.
As at March 31, 2018 and March 31, 2017 there are no outstanding forward foreign exchange contracts. The following table details the forward foreign currency (FC) contracts outstanding at the end of the reporting period January 1, 2016:
5.6 Interest rate risk management
The Company is exposed to interest rate risk because the Company lend/ borrow funds at fixed interest rates. There is no exposure to market rate fluctuations.The Companies exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note.
5.7 Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company uses other publicly available financial information and its own trading records to rate its major customers. The Companyâs exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Trade receivables consist of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the financial condition of accounts receivables.The Company does not have significant credit risk exposure to any single counterparty.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies
Provision for expected credit losses
The Company provides for expected credit loss based on the following:
5.8 Liquidity risk management
The Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.
5.8.1 Liquidity and interest risk tables
The following tables detail the Companyâs remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to pay. The tables include both interest and principal cash flows.
Fair value hierarchy
- Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
- Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
- Level 3 inputs are unobservable inputs for the asset or liability.
The assets and liabilities measured at fair value on a recurring basis as at March 31, 2018 and the basis for that measurement is as below:
There are no financial liabilities measured at fair value
There have been no transfers between Level 1 and Level 2 during the year
The following table discloses the assets and liabilities measured at fair value on a recurring basis as at March 31, 2017 and the basis for that measurement:
There are no financial liabilities measured at fair value
There have been no transfers between Level 1 and Level 2 during the year
There have been no transfers between Level 1 and Level 2 during the year Valuation Methodologies
Investments in mutual funds: The Companyâs investments consist primarily of investment in debt linked mutual funds. Fair values of investment securities classified as fair value through profit and loss are determined using the closing NAV and are classified as Level 1.
Derivative financial instruments: The Companyâs derivative financial instruments consist of foreign currency forward exchange contracts. The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date and are classified as Level 2.
Fair value of financial assets and financial liabilities that are not measured at fair value The management assessed that fair value of cash and cash equivalents, trade receivables, trade payables, other current financial assets and liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.
6 Leases
(Refer note 2.5)
Operating lease
As lessee:
In case of assets taken on lease:
The Company has operating lease arrangements for its office premises, guest houses and certain equipment. The lease arrangements for premises and guest houses have been entered up to a maximum of six years from the respective dates of inception. Some of these lease arrangements have price escalation clauses. Rent and hire charges for such operating leases recognised in the Statement of Profit and Loss for the period ended March 31, 2018 amounts to Rs. 159 (2017: Rs. 470).
There are no future minimum lease payments under non-cancellable operating lease arrangements.
7 CAPITAL AND OTHER COMMITMENTS
(a) Capital Commitments
Estimated value of contracts in capital account remaining to be executed (net of advances)
(b) Other Commitments
(i) The Company has export obligations under the Software Technology Parks of India (STPI) scheme. In accordance with such scheme, the Company procures capital goods without payment of duties, for which, agreements and bonds are executed by the Company in favour of the Government. In case the Company does not fulfil the export obligation, it is liable to pay, on demand an amount equal to such duties saved including interest and liquidated damages. As at March 31, 2018, the Company has availed duty benefits amounting to Rs. 84 (2017: Rs. 178, 2016: Rs. 178). The Company expects to meet its commitment to earn requisite revenue in foreign currency as stipulated by the STPI regulations.
(ii) As at March 31, 2018, Xchanging Solutions (USA) Inc, USA, Companyâs wholly owned subsidiary, has negative net assets amounting to Rs. 19,225 (2017: Rs. 21,221, 2016: Rs. 23,713). While the subsidiary is confident of generating funds from their operations, the Company intends to support the shortfall, if any.
(ii) (a) During the quarter ended March 31, 2016, one of the customers of the Company has disputed its outstanding balance of INR 960 as on March 31, 2016. Arbitration proceeding for this dispute is ongoing. However as a matter of abundant caution, provision has been made for the amounts due.
(b) The above customer has made a claim on the company for the damages incurred by them to the extent of INR 1821, which has not been accepted by the Company.
Notes:
(a) The above contingent liabilities are possible obligation or present obligation that may (but probably will not) require an outflow of resources.
(b) Represents various income tax demands under appeal. On April 26, 2018 the company has received revised Appeal Effect order for FY 2008-09 pursuant to favourable order of ITAT and Rectification Order for FY 2012-13 due to which the demand for these years has been reduced substantially. The contingent liability number reported above is after considering these orders.
(c) Represents service tax amount on select categories of transactions relating to financial years 2007-08 to 2011-12 set out in a show cause notice issued by the Commissioner of Service Tax, Bangalore, which is responded by the Company. Based on consultation with legal counsel, the Company has filed a formal reply to the show cause notice.
(d) It is not practicable for the Company to estimate the timings of cash outflows, if any, in respect of the above pending resolution of the respective proceedings.
(e) The Company does not expect any reimbursements in respect of the above contingent liabilities.
8 CORPORATE SOCIAL RESPONSIBILITY (CSR)
As per Sec 135 of the Companies Act, 2013 applicable in the current year, the Company has spent Rs 21 (2017: Rs 15) on various CSR initiatives, during the year, which are mentioned below:
9 The Company has strategic gross investment amounting to Rs. 11,224 (2017: Rs. 11,224, 2016: Rs. 11,224) in Xchanging Solutions (USA) Inc, USA, its wholly owned subsidiary. Based on assessment of diminution in the value of investments, the Company has made a provision of Rs. 6,045 (2017: Rs. 6,045, 2016: Rs. 6,045) in prior years considering it to be âa decline other than temporaryâ. The Company has tested the investments for impairment as at year end using cash flow projections based on financial forecast approved by the management covering a five-year period. The Company considers Xchanging Solutions (USA) Inc as a strategic long term investment and based on future growth projections, in the opinion of the management, the remaining value of the investments is not impaired. Further, the Company has granted loans and advances aggregating to Rs. 17,283 (2017: Rs. 17,283, 2016: Rs. 17,283) and the same was provided in prior years considering it to be doubtful of recovery. The company also has receivables (net of payables and provision) from the subsidiary amounting to Rs. 149 (2017: Rs. 780, 2016: Rs. 1,420), based on the evaluation of recoverability, the net receivables is considered good and recoverable.
10 The Company has strategic gross investments amounting to Rs. 2,222 (2017: Rs. 2,222, 2016: Rs. 2,222) in Xchanging Solutions (Europe) Limited, UK, its wholly owned subsidiary. Based on assessment of diminution in the value of investments, the Company has made a provision of Rs. 2,222 (2017: Rs. 2,222, 2016: Rs. 2,222) in prior years considering it to be âa decline other than temporaryâ. The Company has done the assessment of investment as at the year end and as a result of such assessment no change is identified in the assessment done in the previous year. Further, the Company also has payables to the subsidiary amounting to Rs. Nil (2017: Rs 11, 2016: Rs 45).
11 On August 1, 2002, the Company issued 1,500,000, 11% debentures of face value of Rs. 100 each. The debentures were repayable at par at the end of five years from the date of issuance. Based on the orders of the Debt Recovery Tribunal, the Company had issued duplicate debenture certificates for 625,000 debentures in favour of a Bank and these debentures were redeemed in June 2007. Post redemption of these debentures, a civil suit was filed against the Company by Third Party claiming rights over the said 625,000 debentures. On the basis of an interim application filed by the Third Party, the Honâble High Court passed an Interim Order restraining the Company from reflecting the redemption of debentures and directing the Company to continue to show it as due and payable. The Honâble Madras High Court vide order dated September 28, 2016 dismissed the suit filed by the said Third Party and also set aside the interim order. The Third Party filed a special leave petition before the Supreme Court challenging the said order of the Honâble Madras High Court. On March 26, 2018 the Honâble Supreme Court dismissed the special leave petition filed by the Third Party.
12 Open offer for acquisition of up to 2,36,49,767 fully paid up equity shares of face value of INR 10 each (âOffer Sharesâ) representing 21.23% of the fully diluted voting share capital of Xchanging Solutions Limited (âTarget Companyâ) from the public shareholders of the Target Company (âPublic Shareholdersâ) by Xchanging Technology Services India Private Limited (âAcquirerâ) together with Computer Sciences Corporation India Private Limited (âPAC 1â) and DXC Technology Company (âPAC 2â) (PAC 1 and PAC 2 are collectively referred to as âPACâ) as the persons acting in concert with the Acquirer pursuant to and in compliance with Regulations 3(1), 4, and 5(1) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and subsequent amendments thereto (âTakeover Regulationsâ) at an offer price of INR 55.22 per Offer Share (âOfferâ).
This Offer is being made in accordance with Regulations 3(1), 4, and 5(1) of the Takeover Regulations as a result of an indirect acquisition of 78.77% of the voting rights in and control by PAC 2 over the Target Company.
This Offer is a mandatory open offer being made by the Acquirer and PAC to the Public Shareholders pursuant to Regulations 3(1), 4, and 5(1) of the Takeover Regulations. The Offer is being made on account of the Merger Agreement dated May 24, 2016 (which was further amended on November 2, 2016 and December 6, 2016) entered into inter alia between Hewlett Packard Enterprise Company, Computer Sciences Corporation and PAC 2. The transactions contemplated under the Merger Agreement were completed on April 1, 2017.
The Acquirer and PAC had made the Public Announcement on November 17, 2017, Detailed Public Statement (âDPSâ) published on November 24, 2017 and the draft letter of offer with respect to the Offer (âDLoFâ) was filed with sEBi on November 30, 2017.
SEBI has issued observation letter bearing reference no. SEBI/HO/CFD/DCR1/OW/P/2018/13149/1 on May 2, 2018 (âSEBI Letterâ).
The revised schedule of activities relating to the Offer made in the DLoF, is issued in all the newspapers in which the DPS was published in terms of the SEBI Letter.
13 Transfer Pricing
The Company has carried out international and domestic transactions with associated enterprises. The Company appoints independent consultants to conduct a Transfer Pricing Study to determine whether the transactions with associated enterprises undertaken during the period are on an âarms length basisâ. For the current year, the transfer pricing study shall be completed within the permissible time under the legislation and adjustments, if any, arising from the transfer pricing study shall be accounted for as and when the study is completed.
However, the Management is confident that its international and domestic transactions with associated enterprises are at armâs length so that the aforesaid legislation/transactions will not have any material impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation for the current year.
14 The Board of Directors of the Company in their meeting held on August 11, 2016 have extended the previous financial period of the Company up to a period of 15 months i.e. January 1, 2016 to March 31, 2017. Subsequently, each financial year of the Company shall commence on April 1 and end on March 31 every year. Previous year figures are not comparable as they are for a period of 15 months.
15 Disclosure as per regulation 34(3) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
Loans and advances in the nature of loans given to fellow subsidiaries in which directors are interested:
Note: Figures in bracket relate to previous year
16 FIRST-TIME ADOPTION OF IND AS
The Company has adopted Indian Accounting Standards (Ind AS) as notified by the Ministry of Corporate Affairs with effect from April 1, 2017, with a transition date of January 1, 2016. These financial statements for the year ended March 31, 2018 are the first financial statements the Company has prepared under Ind AS. For all periods upto and including the period ended March 31, 2017 , the Company prepared its financial statements in accordance with the previously applicable Indian GAAP (previous GAAP).
The adoption of Ind AS has been carried out in accordance with Ind AS 101, First-time Adoption of Indian Accounting Standards. Ind AS 101 requires that all Ind AS standards and interpretations that are issued and effective for the first Ind AS financial statements be applied retrospectively and consistently for all financial years presented. Accordingly, the Company has prepared financial statements which comply with Ind AS for year ended March 31, 2018, together with the comparative information as at and for the period ended March 31, 2017. The Companyâs opening Ind AS Balance Sheet has been prepared as at January 1, 2016, being the date of transition to Ind AS.
In preparing its opening Ind AS balance sheet as at January 1, 2016, the Company has adjusted the amounts reported previously in financial statements prepared in accordance with the accounting standards notified under Companies (Accounting Standards) Rules, 2006 (as amended) and other relevant provisions of the Act. An explanation of how the transition from previous GAAP to Ind AS has affected the companyâs financial position, financial performance and cash flows is set out in the following tables and notes.
Overall principle
The Company has prepared the opening balance sheet as per lnd AS as of January 1, 2016 (the transition date) by recognising all assets and liabilities whose recognition is required by Ind AS, not recognising items of assets or liabilities which are not permitted by Ind AS, by reclassifying items from previous GAAP to Ind AS as required under Ind AS, and applying Ind AS in measurement of recognised assets and liabilities.
Transition to Ind AS
In preparing these Ind AS financial statements, the Company has availed certain exemptions and exceptions in accordance with Ind AS 101, as explained below. The resulting difference between the carrying values of the assets and liabilities in the financial statements as at the transition date under Ind AS and previous GAAP have been recognised directly in equity. This note explains the adjustments made by the Company in restating its previous GAAP financial statements, including the Balance Sheet as at January 1, 2016 and the financial statements as at and for the period ended March 31, 2017.
17.1 Exemptions and exceptions availed
Set out below are the applicable Ind AS 101 optional exemptions and mandatory exceptions applied in the transition from previous GAAP to Ind AS.
17.1.1 Ind AS optional exemptions
17.1.1.1 Deemed cost for property, plant and equipment and intangible assets
Ind AS 101 permits a first-time adopter to elect to continue with the carrying value for all of its property, plant and equipment and intangible assets as recognised in the financial statements as at the date of transition to Ind AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition after making necessary adjustments for de-commissioning liabilities.Accordingly, the Company has elected to measure all of its property, plant and equipment (PPE) and intangible assets at their previous GAAP carrying value.
17.1.1.2 Leases
Appendix C to Ind AS 17 requires an entity to assess whether a contract or arrangement contains a lease. In accordance with Ind AS 17, this assessment should be carried out at the inception of the contract or arrangement. Ind AS 101 provides an option to make this assessment on the basis of facts and circumstances existing at the date of transition to Ind AS, except where the effect is expected to be not material.
The Company has elected to apply this exemption for such contracts/arrangements.
17.1.2 Ind AS mandatory exceptions
17.1.2.1 Estimates
An entityâs estimates in accordance with Ind AS at the date of transition to Ind AS shall be consistent with estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.Ind AS estimates as at January 1, 2016 are consistent with the estimates as at the same date made in conformity with previous GAAP The Company made estimates for following items in accordance with Ind AS at the date of transition as these were not required under previous GAAP:
- Impairment of financial assets based on expected credit loss model.
17.1.2.2 Derecognition of financial assets and financial liabilities
The Company has applied the derecognition requirements of financial assets and financial liabilities prospectively for transactions occurring on or after January 1, 2016 (the transition date).
17.1.2.3 Classification and measurement of financial assets
Ind AS 101 requires an entity to assess classification and measurement of financial assets on the basis of the facts and circumstances that exist at the date of transition to Ind AS. Consequently, the Company has applied the above assessment based on facts and circumstances that exist at the transition date.
17.2 Reconciliations between previous GAAP and Ind AS
Ind AS 101 requires an entity to reconcile equity, total comprehensive income and cash flows for prior periods. The following tables represent the reconciliations from previous GAAP to Ind AS.
17.2.1 Effect of Ind As adoption on the balance sheet as at March 31, 2017 and January 1, 2016
There are no reconciliation items between balance sheet prepared under Indian GAAP and those prepared under Ind AS.
17.2.2 Reconciliation of total equity as at March 31, 2017 and January 1, 2016
There are no reconciliation items between total equity prepared under Indian GAAP and those prepared under Ind AS.
17.2.3 Cash flow statement
There were no significant reconciliation items between cash flows prepared under Indian GAAP and those prepared under Ind AS.
Notes to the reconciliations
1 Remeasurements of post-employment benefit obligations
Under previous GAAP, actuarial gains and losses were recognised in the statement of profit and loss. Under Ind AS, the actuarial gains and losses form part of remeasurement of the net defined benefit liability/ asset which is recognised in other comprehensive income. Consequently, the tax effect of the same has also been recognised in other comprehensive income under Ind AS instead of the statement of profit and loss.
2 Other comprehensive income
Under Ind AS, all items of income and expense recognised in a period should be included in profit or loss for the period, unless a standard requires or permits otherwise. Items of income and expense that are not recognised in profit or loss but are shown in the statement of profit and loss as âother comprehensive incomeâ includes remeasurements of defined benefit plans. The concept of other comprehensive income did not exist under previous GAAP
18 Previous period/ year figures
Previous period/ year figures have been regrouped / reclassified wherever necessary to correspond with the current year classification / disclosure.
Dec 31, 2015
Notes:
(a) The above contingent liabilities are possible obligation or present obligation that may (but probably will not) require an outflow of resources.
(b) Represents various income tax demands under appeal.
(c) Represents service tax amount on select categories of transactions relating to financial years 2007-08 to 2011-12 set out in a show cause notice issued by the Commissioner of Service Tax, Bangalore, which is responded by the Company. Based on consultation with legal counsel, the Company has filed a formal reply to the show cause notice.
(d) It is not practicable for the Company to estimate the timings of cash outflows, if any, in respect of the above pending resolution of the respective proceedings.
(e) The Company does not expect any reimbursements in respect of the above contingent liabilities.
1. The Company has strategic gross investment amounting to Rs. 11,224 (2014: Rs. 11,224) in Exchanging Solutions (USA) Inc, USA, its wholly owned subsidiary. Based on assessment of diminution in the value of investments and evaluation of recoverability of other balances, the Company has made a provision of Rs. 6,045 (2014: Rs. 6,045) in prior years against the investments towards diminution in value considering it to be âa decline other than temporaryâ and Rs. 17,283 (2014: Rs. 17,283) in prior years against the loans and advances considering it to be doubtful of recovery. The Company has also tested the investments for impairment using cash flow forecasts based on approved budgets by board of ultimate holding Company and using a discounted cash flow method. As at the year end, the Company considers Exchanging Solutions (USA) Inc as a strategic long term investment and based on future growth projections, in the opinion of the management, the remaining value of the investments is not impaired. Further, the Company has granted loans and advances aggregating to Rs. 17,283 (2014: Rs. 17,283) and also has receivables (net of payables and provision) from the subsidiary amounting to Rs. 1,420 (2014: Rs. 1,214). Based on the aforesaid evaluation of recoverability, the net receivables is considered good and recoverable.
2 The Company has strategic gross investments amounting to Rs. 2,222 (2014: Rs. 2,222) in Exchanging Solutions (Europe) Limited, UK, its wholly owned subsidiary. Based on assessment of diminution in the value of investments and evaluation of recoverability of other balances, the Company has made a provision of Rs. 2,222 (2014: Rs. 2,222) in prior years against the investments towards diminution in value considering it to be âa decline other than temporaryâ. The Company tests its investment for impairment using cash flow forecasts based on approved budgets by using a discounted cash flow method. Result of such analysis in the current year does not require any change in the assessment from the previous year. Further, the Company also has payables to the subsidiary amounting to Rs. 45 (2014: receivables (net of payables and provision) Rs. 1,163).
3 On August 1, 2002, the Company issued 1,500,000, 11% debentures of face value of Rs. 100 each. The debentures were repayable at par at the end of five years from the date of issuance. Based on the orders of the Debt Recovery Tribunal, the Company had issued duplicate debenture certificates for 625,000 debentures (which form a part of the said 1,500,000 debentures) in favour of a Bank in June 2007. These debentures were redeemed in June 2007 and the same was disclosed in the annual report for the year ending March 2007. In August 2007, a civil suit was filed against the Company before the Honâble Madras High Court by another Company (âThird Partyâ), claiming rights over the said 625,000 debentures. Decision on this suit is still pending before Honâble Madras High Court. On the basis of an interim application filed by the Third Party, the Honâble High Court passed an Interim Order in September 2007 restraining the Company from reflecting the redemption of debentures and directing the Company to continue to show it as due and payable. The said Order was made absolute in December 2010. The Company, in consultation with a senior legal counsel, has filed an appeal on July 26, 2011 against the interim order of the Honâble High Court contending that it is not possible to show the debentures as due and payable as the debentures have already been redeemed and also reflected as redeemed in the Companyâs financial statements prior to passing of interim order. The Company is awaiting the decision of the Honâble High Court on the Companyâs appeal; pending which, no adjustment has been made in the financial statements.
4 SEGMENT REPORTING
The accounting policies adopted for segment reporting are in conformity with the accounting policies adopted for the Company. Revenue and expenses have been identified to segments on the basis of their relationship to the operating activities of the segment. Revenue and expenses, which relate to the Company as a whole and are not allocable to segments on a reasonable basis, is included as âUnallocatedâ. Segment assets includes all the assets except for deferred tax assets which are treated as unallowable.
The dominant source of risk and returns of the enterprise is considered to be the business in which it operates, viz. - Information Technology (IT) Services. The sub businesses are fully aligned to IT Services business of the Company and the same are being viewed by the management as a single business segment. Being a single business segment company, no primary segment information is being provided.
5 LEASES
Operating lease
As lessee:
In case of assets taken on lease:
The Company has operating lease arrangements for its office premises, guest houses and certain equipments. The lease arrangements for premises and guest houses have been entered up to a maximum of six years from the respective dates of inception. Some of these lease arrangements have price escalation clauses. Rent and hire charges for such operating leases recognized in the Statement of Profit and Loss for the year ended December 31, 2015 amounts to Rs.419 (2014: Rs. 393).
6 TRANSFER PRICING
The Company has carried out international and domestic transactions with associated enterprises. The Company appoints independent consultants to conduct a Transfer Pricing Study to determine whether the transactions with associated enterprises undertaken during the period are on an âarms length basisâ. For the current year, the transfer pricing study shall be completed within the permissible time under the legislation and adjustments, if any, arising from the transfer pricing study shall be accounted for as and when the study is completed. However, the Management is confident that its international and domestic transactions with associated enterprises are at armâs length so that the aforesaid legislation/transactions will not have any material impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation for the current year.
7 PREVIOUS YEAR FIGURES
Previous year figures have been reclassified to conform to this yearâs classification.
Dec 31, 2014
1. GENERAL INFORMATION
Xchanging Solutions Limited (''the Company''), incorporated on February
1,2002, is an information technology (IT) services provider with
operations in India and an international presence established through
subsidiaries in USA, Singapore and the UK.
Pursuant to agreements, arrangements, amalgamations, etc. (with
requisite approvals from various High Courts in India, wherever
applicable), the Company has, during earlier years, acquired the IT
services businesses (including assets and liabilities) of / from the
following entities:
* SSI Limited (Information Technology division with operations in
India, USA and several other countries).
* Scandent Group Limited, Mauritius (with operations in USA, Singapore,
Germany, etc.).
* Matrix One India Limited (with operations in India).
Pursuant to share purchase agreements between erstwhile principal
shareholders of the Company and Xchanging (Mauritius) Limited (XML), a
wholly owned subsidiary of Xchanging Plc, a listed company incorporated
in UK, and consequent open offer to public, XML now owns 75.00% (2013:
75.00%) of the outstanding share capital of the Company. Though the
open offer process was completed on April 9, 2009, XML obtained the
power of operational control of the Company effective January 1,2009.
Pursuant to approval of the shareholders in the annual general meeting
and subsequent approval of the Registrar of Companies on June 11,2012,
the name of the Company has been changed to Xchanging Solutions Limited
(formerly, Cambridge Solutions Limited).
a) Rights, preferences and restrictions attached to shares
Equity Shares: The Company has one class of equity shares having a par
value of Rs.10 per share. Each shareholder is eligible for one vote per
share held. In the event of liquidation, the equity shareholders are
eligible to receive the remaining assets of the Company after
distribution of all preferential amounts, in proportion to their
shareholding.
b) Pursuant to SSI Limited (Information Technology division) merger
scheme, the share capital of the erstwhile Scandent Holding Mauritius
Limited as at March 31, 2004 was reduced from Rs.3,284 (2013: Rs.3,284)
to Rs.1,316 (2013: Rs.1,316) and the capital reduction of Rs.1,968
(2013: Rs.1,968) was utilised to adjust the debit balance of equivalent
amount in the Statement of Profit and Loss of the Company as at March
31,2004.
c) Reduction of Share Capital
The Board of Directors in their meeting held on February 27, 2015 had
approved the proposed reduction of Share Capital so as to reduce the
fully paid-up face value of equity shares from Rs 10/- per share to Rs
5/- per share, subject to the approval of the Members and the Hon''ble
Karnataka High Court. Pursuant to the scheme of reduction of share
capital u/s 100 to 104 of the Companies Act, 1956 and after obtaining
required approvals, the proposed Capital Reduction would result in the
paid-up share capital of the Company being reduced from
Rs.1,114,037,160 (Rupees one hundred and eleven crores forty lakhs
thirty seven thousand one hundred and sixty only) comprising of
111,403,716 (eleven crores fourteen lakhs three thousand seven hundred
and sixteen) equity shares of Rs. 10/- (Rupees Ten) each fully paid up
to Rs.557,018,580 (Rupees Fifty Five Crore Seventy Lakhs Eighteen
Thousand Five Hundred and Eighty Only) comprising of 111,403,716
(eleven crores fourteen lakhs three thousand seven hundred and sixteen)
equity shares of Rs. 5/- (Rupees Five) each fully paid up.The proposed
capital reduction is to compensate the shareholders by return of cash
on their investment.
As at
Dec 31, 2014 Dec 31, 2013
2. CONTINGENT LIABILITIES
(Refer Note 2.15)
(i) Bank guarantees 127 135
(ii) Claims against the Company
not acknowledged as debts:
Income tax matters [Note (b)] 2,128 2,060
Service tax matters [Note (c)] 2,359 2,359
4,614 4,554
(iii) In the ordinary course of business, the Company is subject to
legal proceedings, claims and litigation. Xchanging Solutions Limited
and its USA subsidiary, Xchanging Solution USA Inc.,("XSUI") is
currently a defendant in a claim for an unspecified amount alleging a
breach of warranties in the USA. The claim in question relates to a
contract that was awarded to XSUI in 2006 and was subsequently sold by
XSUI in 2007 to the claimant. The litigation is a fact intensive case
for which the fact discovery and proceedings are ongoing in USA. Based
on the facts produced and reviewed to date and legal advice thereon,
the Company believes it is not probable that the claim will be
successful or result in a material impact on the financial statements.
Therefore, no provision is required to be made at this stage.
Notes:
(a) The above contingent liabilities are possible obligation or present
obligation that may (but probably will not) require an outflow of
resources.
(b) Represents various income tax demands under appeal.
(c) Represents service tax amount on select categories of transactions
relating to financial years 2007-08 to 2011-12 set out in a show cause
notice issued by the Commissioner of Service Tax, Bangalore, which is
responded by the Company. Based on consultation with legal counsel, the
Company has filed a formal reply to the show cause notice.
(d) It is not practicable for the Company to estimate the timings of
cash outflows, if any, in respect of the above pending resolution of
the respective proceedings.
(e) The Company does not expect any reimbursements in respect of the
above contingent liabilities.
(f) Defined Contribution Plans
Provident Fund and Other Funds: During the year, the Company has
recognised Rs. 341 (2013: Rs. 284) in the Statement of Profit and Loss
relating to provident fund and other funds, which is included in the
''Contribution to provident and other funds''.
(j) Defined Benefit Plan
Gratuity (unfunded): The Company provides for gratuity, a defined
benefit plan (the "gratuity plan") covering eligible employees in
accordance with the Payment of Gratuity Act, 1972. The gratuity plan
provides a lump sum payment to vested employees at retirement or
termination of employment based on the respective employee''s last drawn
salary and years of employment with the Company.
The following tables summarise the components of expense recognised in
the Statement of Profit and Loss and amounts recognised in the Balance
Sheet for the gratuity plan:
b) During the year, the Company has recognised employee benefits
expense amounting to Rs. NIL (2013: Rs. 3) on account of cross charge
of ''Stock Options and Stock Incentive Plan'' related cost as per the
agreement entered into between certain employees of the Company and the
Ultimate Holding Company (Xchanging plc, UK). This stock option scheme
of Xchanging plc, UK is being managed and run by Xchanging plc, UK.
Accordingly, other detailed disclosures required by the Guidance Note
on ''Accounting for Employee Share-based Payments'' issued by Institute
of Chartered Accountants of India have not been made, as these do not
pertain to information relating to the Company and such information is
not available with the Company.
3. The Company has strategic gross investment amounting to Rs. 11,224
(2013: Rs. 11,224) in Xchanging Solutions (USA) Inc, USA, its wholly
owned subsidiary. Based on assessment of diminution in the value of
investments, the Company has made a provision of Rs. 6,045 (2013: Rs.
6,045) in prior years against the investments towards diminution in
value considering it to be "a decline other than temporary" and Rs.
17,283 (2013: Rs. 17,283) in prior years against the loans and advances
considering it to be doubtful of recovery. The Company has also tested
the investments for impairment using cash flow forecasts based on
approved budgets by Board of ultimate holding Company and using a
discounted cash flow method. As at the year end, the Company considers
Xchanging Solutions (USA) Inc as a strategic long term investment and
based on future growth projections, in the opinion of the management,
the remaining value of the investments is not impaired. Further, the
Company has granted loans and advances aggregating to Rs. 17,283 (2013:
Rs. 17,283) and also has receivables (net of payables and provision)
from the subsidiary amounting to Rs. 1,214 (2013: Rs. 1,696). Based on
the evaluation of recoverability, the net receivables is considered
good and recoverable.
4. The Company has strategic gross investments amounting to Rs. 2,222
(2013: Rs. 2,222) in Xchanging Solutions (Europe) Limited, UK, its
wholly owned subsidiary. Based on assessment of diminution in the value
of investments, the Company has made a provision of Rs. 1,534 (2013:
Rs. 1,534) in prior years against the investments towards diminution in
value considering it to be "a decline other than temporary". The
Company has also tested the investments for impairment using cash flow
forecasts based on approved budgets by Board of ultimate holding
Company and using a discounted cash flow method. As a result of this
assessment, during the year the company has created additional
provision of Rs 688. With the additional provision, the value of
investment Rs. 2,222 in Xchanging Solutions (Europe) Limited, UK is
fully impaired as at the year end. Further, the Company also has
receivables (net of payables and provision) from the subsidiary
amounting to Rs. 1,163 (2013: Rs. 869). Based on the evaluation of
recoverability, the net receivables is considered good and recoverable.
5. On August 1, 2002, the Company issued 1,500,000, 11% debentures of
face value of Rs. 100 each. The debentures were repayable at par at the
end of five years from the date of issuance. Based on the orders of the
Debt Recovery Tribunal, the Company had issued duplicate debenture
certificates for 625,000 debentures (which form a part of the said
1,500,000 debentures) in favour of a Bank in June 2007. These
debentures were redeemed in June 2007 and the same was disclosed in the
annual report for the year ending March 2007. In August 2007, a civil
suit was filed against the Company before the Hon''ble Madras High Court
by another Company ("Third Party"), claiming rights over the said
625,000 debentures. Decision on this suit is still pending before
Hon''ble Madras High Court. On the basis of an interim application filed
by the Third Party, the Hon''ble High Court passed an Interim Order in
September 2007 restraining the Company from reflecting the redemption
of debentures and directing the Company to continue to show it as due
and payable. The said Order was made absolute in December 2010. The
Company, in consultation with a senior legal counsel, has filed an
appeal on July 26, 2011 against the interim order of the Hon''ble High
Court contending that it is not possible to show the debentures as due
and payable as the debentures have already been redeemed and also
reflected as redeemed in the Company''s financial statements prior to
passing of interim order. The Company is awaiting the decision of the
Hon''ble High Court on the Company''s appeal; pending which, no
adjustment has been made in the financial statements.
6. Related Party Disclosures
A. Names of related parties and nature of relationship:
1) Parties where control exists:
Nature of relationship Names of related parties
(i) Holding companies:
Ultimate Holding Company Xchanging plc, UK
Intermediate holding companies Xchanging Holdings Limited, UK
Xchanging BV, The Netherlands
Immediate holding company Xchanging (Mauritius) Limited,
Mauritius (''XML'')
(ii) Subsidiary companies Xchanging Solutions (Europe)
Limited, UK (''XSEL'')
Xchanging Solutions (Singapore)
Pte Limited, Singapore (''XSSPL'')
Xchanging Solutions (Malaysia)
Sdn Bhd, Malaysia (''XSMSB'')
Xchanging Solutions (USA) Inc,
USA (''XSUI'')
Nexplicit Infotech India Private
Limited, India (''NIIPL'')
(iii) Key Managerial Personnel (KMP)
Executive Chairman and Chief Kenneth Lever(upto November7,2014)
Executive Officer
Non Executive Director & David Bauernfeind ( Executive
Chairman Director upto November 7, 2014
and Non Executive Director &
Chairman from November 8, 2014)
Executive Director & Chief Alok K Sinha (from November 7,
Executive Officer 2014)
2) Other Related Parties with whom transactions have taken place during
the year:
(i) Fellow subsidiaries Xchanging Integrated Services Victoria Pty
Limited, Australia (''XISVPL'')
Xchanging Integrated Services Australia Pty
Limited, Australia (''XISAPL'')
Xchanging Builders (India) Private Limited,
India (''XBPL'') Xchanging Systems and Service
Inc., USA (''XSSI'')
Xchanging Global Insurance Solutions Ltd.,
UK (''XGISL'')
Xchanging Technology Services India Private
Limited, India (''XTSIPL'')
Xchanging UK Limited, UK (''XUKL'')
Xchanging Asia Pacific Sdn Bhd, Malaysia
(''XAPSB'')
Xchanging Procurement Services Limited, UK
(''XPSL'')
Ferguson Snell & Associates Ltd. UK (''FSAL'')
Xchanging Inc. USA (''XI'')
Xchanging PTY Limited, Australia (''XPL'')
Ins-sure Services Ltd. UK (''ISL'')
SBB Services Inc. USA (''SBB'')
Xchanging Procurement Services Europe SAS,
France ( ''XPSLF'')
7. Leases
Operating lease
As lessee:
In case of assets taken on lease:
The Company has operating lease arrangements for its office premises,
guest houses and certain equipments. The lease arrangements for
premises and guest houses have been entered up to a maximum of six
years from the respective dates of inception. Some of these lease
arrangements have price escalation clauses. Rent and hire charges for
such operating leases recognised in the Statement of Profit and Loss
for the year ended December 31,2014 amounts to Rs. 393 (2013: Rs. 332).
8. Taxation
a) Deferred Tax Assets:
During the year, the Company has reassessed unrecognised deferred tax
assets and has recognised deferred tax for timing differences to the
extent there is a reasonable certainty that sufficient taxable income
will be available against which such deferred tax assets can be
realised as envisaged under AS22 "Accounting for Taxes on Income".
b) Transfer Pricing:
The Company has carried out international and domestic transactions
with associated enterprises. The Company appoints independent
consultants to conduct a Transfer Pricing Study to determine whether
the transactions with associated enterprises undertaken during the
period are on an "arms length basis". For the current year, the
transfer pricing study shall be completed within the permissible time
under the legislation and adjustments, if any, arising from the
transfer pricing study shall be accounted for as and when the study is
completed. However, the Management is confident that its international
and domestic transactions with associated enterprises are at arm''s
length so that the aforesaid legislation/transactions will not have any
material impact on the financial statements, particularly on the amount
of tax expense and that of provision for taxation for the current year.
9. Previous Year Figures
Previous year figures have been reclassified to conform to this year''s
classification.
Dec 31, 2013
1. CONTINGENT LIABILITIES
(i) Bank guarantees 135 4
(ii) Claims against the Company not
acknowledged as debts:
Income tax matters [Note (b)] 2,060 1,403
Service tax matters [Note (c)] 2,359 2,359
4,554 3,766
Notes:
(a) The above contingent liabilities are possible obligation or present
obligation that may (but probably will not) require an outflow of
resources.
(b) Represents various income tax demands under appeal.
(c) Represents service tax amount on select categories of transactions
relating to financial years 2007-08 to 2011-12 set out in a show cause
notice issued by the Commissioner of Service Tax, Bangalore, which is
disputed by the Company. Based on consultation with legal counsel, the
Company has filed a formal reply to the show cause notice.
(d) It is not practicable for the Company to estimate the timings of
cash outflows, if any, in respect of the above pending resolution of
the respective proceedings.
(e) The Company does not expect any reimbursements in respect of the
above contingent liabilities.
2. The Company has strategic gross investment amounting to Rs. 11,224
(2012: Rs. 11,224) in Xchanging Solutions (USA) Inc, USA, its wholly
owned subsidiary. Further, the Company has granted loans and advances
aggregating to Rs. 17,283 (2012: Rs. 17,283) and also has receivables
(net of payables and provision) from the subsidiary amounting to Rs.
1,696 (2012: Rs. 2,058). Based on assessment of diminution in the value
of investments and evaluation of recoverability of other balances, the
Company has made a provision of Rs. 6,045 in prior years against the
investments towards diminution in value considering it to be "a decline
other than temporary" and Rs. 17,283 in prior years against the loans
and advances considering it to be doubtful of recovery. The Company has
also tested the investments for impairment using cash flow forecasts
based on approved budgets and using a discounted cash flow method. As at
the year end, the Company considers Xchanging Solutions (USA) Inc as a
strategic long term investment and based on future growth projections,
in the opinion of the management, the remaining value of the
investments is not impaired. Further, based on the aforesaid
evaluation of recoverability, the entire receivables is considered good
and recoverable.
3. The Company has strategic gross investments amounting to Rs. 2,222
(2012: Rs. 2,222) in Xchanging Solutions (Europe) Limited, UK, its
wholly owned subsidiary. Based on assessment of diminution in the value
of investments, the Company has made a provision of Rs. 1,534 in prior
years considering it to be "a decline other than temporary". The
Company has also tested the investments for impairment using cash flow
forecasts based on approved budgets and using a discounted cash flow
method. As at the year end, the Company considers Xchanging Solutions
(Europe) Limited as a strategic long term investment and based on
future growth projections, in the opinion of the management, the
remaining value of the investments is not impaired.
4. On 1 August 2002, the Company issued 1,500,000, 11% debentures of
face value of Rs. 100 each. The debentures were repayable at par at the
end of five years from the date of issuance. Based on the orders of the
Debt Recovery Tribunal, the Company had issued duplicate debenture
certifcates for 625,000 debentures (which form a part of the said
1,500,000 debentures) in favor of a Bank in June 2007. These
debentures were redeemed in June 2007 and the same was disclosed in the
annual report for the year ending March 2007. In August 2007, a civil
suit was filed against the Company before the Hon''ble Madras High Court
by another company ("Third Party"), claiming rights over the said
625,000 debentures. Decision on this suit is still pending before
Hon''ble Madras High Court. On the basis of an interim application fled
by the Third Party, the Hon''ble High Court passed an Interim Order in
September 2007 restraining the Company from reflecting the redemption of
debentures and directing the Company to continue to show it as due and
payable. The said Order was made absolute in December 2010. The
Company, in consultation with a senior legal counsel, has fled an
appeal against the interim order of the Hon''ble High Court contending
that it is not possible to show the debentures as due and payable as
the debentures have already been redeemed and also refected as redeemed
in the Company''s accounts prior to passing of interim order. The
Company is awaiting the decision of the Hon''ble High Court in the
Company''s appeal; pending which, no adjustment has been made in the
accounts.
5. Related Party Disclosures
A. Names of related parties and nature of relationship:**
Nature of relationship Names of related parties
Parties where control exists:
(i) Holding companies:
Ultimate Holding Company Xchanging plc, UK
Intermediate holding companies Xchanging Holdings Limited, UK
Xchanging BV, The Netherlands Immediate holding company
Xchanging (Mauritius) Limited, Mauritius (''XML'')
(ii) Subsidiary companies Xchanging Solutions (Europe) Limited UK
(''XSEL'')
Xchanging Solutions (Singapore) Pte Limited, Singapore (''XSSPL'')
Xchanging Solutions (Malaysia) Sdn Bhd, Malaysia (''XSMSB'')
Xchanging Solutions (USA) Inc, USA (''XSUI'')
Cambridge Solutions Pty Limited, Australia (''CSPL'') (upto March 20,
2012)
Nexplicit Infotech India Private Limited, India (''NIIPL'')
Parties under common control with whom transactions have taken place:
Fellow Subsidiaries Xchanging Integrated Services Victoria Pty Limited,
Australia (''XISVPL'')
Xchanging Integrated Services Australia Pty Limited, Australia
(''XISAPL'')
Xchanging Builders (India) Private Limited, India (''XBPL'')
Xchanging Systems and Service Inc., USA (''XSSI'')
Xchanging Global Insurance Solutions Ltd., UK (''XGISL'')
Xchanging Technology Services India Private Limited, India (''XTSIPL'')
Xchanging UK Limited, UK (''XUKL'')
Xchanging Asia Pacifc Sdn Bhd, Malaysia (''XAPSB'')
Xchanging HR Services Ltd, UK (''XHRSL'') (*)
Xchanging Procurement Services Limited, UK (''XPSL'')
Ferguson Snell & Associates Ltd, UK (''FSAL'')
Xchanging Inc. USA (''XI'')
Xchanging PTY Limited, Australia (''XPL'')
Key Managerial Personnel (KMP)
Executive Chairman and Chief
Executive Officer Kenneth Lever (*)
Executive Director David Bauernfeind (*)
(*) No transactions during the year.
** The above information and those in "(B) Summary of transactions with
related parties" have been determined to the extent such parties have
been identified by the management of the Company.
6. Leases
Operating lease
As lessee:
In case of assets taken on lease:
The Company has operating lease arrangements for its office premises,
guest houses and certain equipments. The lease arrangements for
premises and guest houses have been entered up to a maximum of six
years from the respective dates of inception. Some of these lease
arrangements have price escalation clauses. Rent and hire charges for
such operating leases recognised in the Statement of Profit and Loss for
the year ended December 31, 2013 amounts to Rs. 332 (2012: Rs. 432).
Notes:
(i) Provision for onerous lease contracts relates to losses recognised
on contracts to the extent that unavoidable cost of meeting the
obligations under the contract exceeds the economic benefits expected to
be received under it. Pending settlement with the lessor, it is not
possible to estimate the timings of the outflow.
(ii) Provision for litigation relates to a litigation matter. Due to
the very nature of such costs, it is not possible to estimate the
timing/uncertainties relating to their outflows.
(iii) Prior year numbers are disclosed within brackets.
7. Dues to micro, small and medium enterprises (MSMED)
Based on the information available to date, the Company has identified
no vendors that qualify under the requirements of the Micro, Small and
Medium Enterprises Development Act, 2006 (''MSMED'').
8. Taxation
a) Current Tax:
Current tax charge reflects provision for income tax based on the
taxable income of the Company after considering taxable income as per
the local tax laws applicable in India. While ascertaining the taxable
income for the current year, the brought forward losses if any, have
also been considered.
The current tax charge for the Company includes minimum alternative tax
(MAT) determined under Section 115JB of the Income Tax Act, 1961, of
India.
Provision for income tax has been computed by applying the Income Tax
Act, 1961 to the profit for the financial year ended December 31, 2013,
although the actual tax liability of the Company has to be computed
each year by reference to the taxable profit for each fiscal year ended
March 31.
b) Deferred Tax Assets (Net):
During the year, the Company has reassessed unrecognised deferred tax
assets and has recognised deferred tax for timing differences to the
extent there is a reasonable certainty that sufficient taxable income
will be available against which such deferred tax assets can be
realised as envisaged under AS22 "Accounting for Taxes on Income".
c) Transfer Pricing:
The Company has significant intra group transactions pertaining to
revenue and expense cross charges. The management is in the process of
updating the transfer pricing study for such transactions entered into
during the year ended December 31, 2013, and does not anticipate any
adjustments with regard to the transactions involved.
Note:
(i) Prior year numbers are disclosed within brackets.
9. Previous Year Figures
Previous year figures have been reclassified to conform to this year''s
classification.
Dec 31, 2012
1. GENERAL INFORMATION
Xchanging Solutions Limited (''the Company'') (formerly known as
Cambridge Solutions Limited), incorporated on February 1, 2002, is an
information technology (IT) services provider with operations in India
and an international presence established through subsidiaries in
several countries including the USA, Singapore and the UK. During the
previous year the Company has sold its BPO business.
Pursuant to agreements, arrangements, amalgamations, etc. (with
requisite approvals from various High Courts in India,
whereverapplicable), the Company has, during earlieryears, acquired the
IT services businesses (including assets and liabilities) of/ from the
following entities:
- SSI Limited (Information Technology division with operations in
India, USA and several other countries).
- Scandent Group Limited, Mauritius (with operations in USA,
Singapore, Germany, etc.).
- Matrix One India Limited (with operations in India).
Pursuant to share purchase agreements between Xchanging (Mauritius)
Limited (XML), a wholly owned subsidiary of Xchanging Plc, a listed
company incorporated in UK, and the erstwhile principal shareholders
ofthe Company, and consequent open offer to public, XML now owns 75.00%
(2011: 75.62%) ofthe outstanding share capital ofthe Company. Though
the open offer process was completed on April 9, 2009, XML obtained the
power of operational control ofthe Company effective January 1, 2009.
On May 31, 2011, Cambridge Integrated Services Group Inc, USA
(''CISGI''), a wholly owned subsidiary of the Company, entered into
agreements with Sedgwick Claims Management Services, Inc, USA for the
sale of virtually its entire operations of workers'' compensation and
third party administration. Further, on August 31, 2011, the Company
has sold its investment in CISGI to Waltham Holdings Limited, Jersey,
Channel Islands, a fellow subsidiary.
On June 13, 2011, the Company entered into a Share Purchase Agreement
with Xchanging Procurement Pty Limited, Australia, a fellow subsidiary,
for sale of shares held by the Company in Cambridge Integrated Services
Victoria Pty Ltd, Australia, a wholly owned subsidiary of the Company.
On June 16, 2011, the Company entered into a Business Transfer
Agreement with Xchanging Technology Services India Private Limited, a
fellow subsidiary, for sale of its India BPO business including its
investments in Xchanging Builders (India) Private Limited, a wholly
owned subsidiary of the Company.
Pursuant to the sale of the BPO businesses as explained above, the
Company is nowfocused only on the business of IT services.
Pursuant to approval ofthe shareholders in the annual general meeting
and subsequent approval ofthe Registrar ofCompanies on June 11, 2012,
the name ofthe Company has been changed toXchanging Solutions Limited.
a) Rights, preferences and restrictions attached to shares
Equity Shares: The Company has one class of equity shares having a par
value of Rs.10 per share. Each shareholder is eligible for one vote per
share held. In the event of liquidation, the equity shareholders are
eligible to receive the remaining assets of the Company after
distribution of all preferential amounts, in proportion to their
shareholding.
b) Pursuant to SSI Limited (Information Technology division) merger
scheme, the share capital of the Company as at March 31, 2004 was
reduced from Rs.3,284 (2011: Rs.3,284) to Rs.1,316 (2011: Rs.1,316) and
the capital reduction of Rs.1,969 (2011: Rs.1,969) was utilised to
adjust the debit balance of equivalent amount in the Statement of
Profit and Loss ofthe Company as at March 31, 2004.
Nature of security and terms of repayment for secured borrowings are as
follows:
a) Nature ofsecurity: Vehicles purchased on loan for employees
b) Terms of Repayment: Monthly payment of equated monthly instalments
for a period of 3-5 years
c) Interest rate: 9.5% to 13.5%
Note: As at December 31, 2012, the entire loans and advances balance
(including short term loan as per Note 18) of Rs. 17,971 (2011: Rs.
17,723) due from subsidiaries is interest free and repayable on demand.
However, Management does not have an intention to recover these loans
in the next 12 months and hence these have been classified under Long
Term Loans and Advances.
Notes:
(i) Trade Receivable include unbilled revenue amounting Rs.401
(2011:Rs.487) under Others which are considered good.
(ii) Trade Receivable include unbilled revenue amounting to Rs.81
(2011:Rs.81) under Outstanding for a period exceeding six months which
are considered doubtful and has been fully provided.
Notes:
(a) The above contingent liabilities are possible obligation or present
obligation that may (but probably will not) require an outflow of
resources.
(b) Relates to transfer pricing adjustment for arm''s length price by
the assessing officer and other adjustments which are disputed by the
Company, and the matter is lying under appeal with the Commissioner of
Income-tax (Appeals), Bangalore. An amount of Rs.42 (2011:Rs.28) has
been paid under protest against the demand.
(c) Relates to transfer pricing adjustment for arm''s length price by
the assessing officer and other adjustments which are disputed by the
Company. The matter is lying under appeal with the Commissioner of
Income-tax (Appeals), Bangalore. An amount of Rs.921 (2011:Rs.821) has
been paid under protest against the demand.
(d) Relates to certain tax adjustments arrived at by the assessing
officer, which is disputed by the Company. An amount of Rs.113 (2011:
Rs.75) has been paid under protest against the demand. The Company has
filed an appeal with the Income Tax Appellate Tribunal, Bangalore in
this regard.
(e) The assessing officer has made certain transfer pricing and other
adjustments and accordingly raised a demand of Rs.72. Subsequently the
assessing officer corrected the arithmetic errors in the order and
reduced the demand to Nil. However, the Company disputes the income
adjustments and has filed an appeal with the Income Tax Appellate
Tribunal, Bangalore in this regard.
(f) Relates to withholding tax adjustments amounting to Rs.359 (2011:
359) arrived at by the assessing officer which is disputed by the
Company, and the matter is lying under appeal with the Commissioner of
Income-tax (Appeals), Bangalore. The Commissioner of Income- tax
(Appeals) allowed the appeal during the year and referred the case back
to the assessing officer. The final order from the assessing officer is
awaited.
(g) The assessing officer has made certain transfer pricing adjustments
of Rs.471. The adjustments have been set off against the brought
forward losses resulting in demand of Nil (2011:Nil). However, the
adjustments are disputed by the Company and an appeal has been filed
with the Income Tax Appellate Tribunal, Bangalore in this regard.
(h) The Transfer Pricing Officer (TPO) has made, subsequent to the year
end, certain transfer pricing adjustments of Rs.1,045. The final order
is awaited from the assessing officer. The Company will file an appeal
once the final assessement order is received.
(i) Relates to withholding tax adjustments amounting to Rs.85 (2011:
85) arrived at by the assessing officer which is disputed by the
Company, and the matter is lying under appeal with the Commissioner of
Income-tax (Appeals), Bangalore. The Commissioner of Income- tax
(Appeals) allowed the appeal during the year and referred the case back
to the assessing officer. The final order from the assessing officer is
awaited.
(j) Relates to withholding tax adjustments arrived at by the assessing
officer. The Company is in the process of rectifying the returns in
order to nullify the demand.
(k) Represents service tax amount on select categories of transactions
relating to financial years 2007-08 to 2011- 12 set out in a show cause
notice issued by the Commission of Service Tax, Bangalore, which is
disputed by the Company, and a formal reply to the show cause notice,
based on consultation with legal counsel, is in the process of being
filed.
(a) Defined Contribution Plans
Provident Fund: During the year, the Company has recognised Rs.253
(2011: Rs.441) in the Statement of Profit and Loss relating to defined
contribution plans, which are included in the Contribution to Provident
and otherfunds
(b) Defined Benefit Plan
Gratuity: The Company provides for gratuity, a defined benefit plan
(the gratuity plan) to its employees in India. The gratuity plan
provides a lump sum payment to vested employees at retirement or
termination of employment based on the respective employee''s last drawn
salary and years of employment with the Company.
The following tables summarise the components of net benefit expense
recognised in the Statement of Profit and Loss and amounts recognised
in the balance sheet for the gratuity plan.
Notes:
(i) The estimates of future increase in salary, considered in the
actuarial valuation, have been taken on account of inflation,
seniority, promotion and other relevant factors such as supply and
demand in the employment market.
(ii) The discount rate is based on the prevailing market yields of
Indian government securities as at the Balance Sheet date for the
estimated term of the obligation.
(iii) The long term estimate ofthe expected rate of return on plan
assets has been arrived at based on prevailing yields on those assets.
Assumed rate of return on assets is expected to vary from year to year
reflecting the returns on matching government bonds.
(c) In accordance with Accounting Standard 15 "Employee Benefits",
the Company has been providing for compensated absences/ leave
encashment based on valuation performed by an independent actuary. The
Company has amended its leave policy that impacts the carry forward
leave balance of employees, and carried out an actuarial valuation
based on the amended leave policy, which has resulted in the reduction
of provision by Rs. 206. This reduction has been treated as reversal of
the provision on account of amendment to the leave policy and has been
included under "Other income".
2 The Company has strategic gross investment amounting to Rs.11,225
(2011:Rs.11,225) in Xchanging Solutions (USA) Inc.,USA (formerly
Cambridge Solutions & Services Inc.,USA) its wholly owned subsidiary.
Further, the Company has granted loans and advances aggregating to
Rs.17,283 (2011:Rs.17,283) and also has receivables (net of payables
and provision) from the subsidiary amounting to Rs.2,198
(2011:Rs.2,729). Based on assessment of diminution in the value of
investments and evaluation of recoverability of other balances, the
Company, has made a provision of Rs.1,588 in the prior year against the
investments towards diminution in value considering it to be "a
decline other than temporary" and Rs.17,283 in the prior year against
the loans and advances considering it to be doubtful of recovery. The
Company has also tested the investment for impairment using cash flow
forecasts based on approved budgets and using a discounted cash flow
method. As at the year end, the Company considers Xchanging Solutions
(USA) Inc. a strategic long term investment and based on future growth
projections, in the opinion of the management, the remaining value of
the investments is not impaired. Further, based on the aforesaid
evaluation of recoverability, the entire receivables is considered good
and recoverable.
3 The Company has strategic gross investments amounting to Rs.2,222
(2011:Rs.2,222) in Xchanging Solution Europe Limited (formerly
Cambridge Solutions Europe Limited, UK), its wholly owned subsidiary.
Based on assessment of diminution in the value of investments, the
Company, has made a provision of Rs.1,534 in the prior year considering
it to be "a decline other than temporary". The Company tested the
investment for impairment using cash flow forecasts based on approved
budgets and using a discounted cash flow method. As at the year end,
the Company considers CSEL a strategic long term investment and based
on future growth projections, in the opinion of the management, the
remaining value ofthe investments is not impaired.
4 On August 1, 2002, the Company issued 1,500,000, 11% debentures of
face value of Rs.100 each. The debentures were repayable at par at the
end of five years from the date of issuance. Based on the orders ofthe
Debt Recovery Tribunal, the Company had issued duplicate debenture
certificates for 625,000 debentures (which form a part of the said
1,500,000 debentures) in favour of a Bank in June 2007. These
debentures were redeemed in June 2007 and the same was disclosed in the
annual report for the year ending March 2007. In August 2007, a civil
suit was filed against the Company before the Hon''ble Madras High Court
by another company ("Third Party"), claiming rights over the said
625,000 debentures. Decision on this suit is still pending before
Hon''ble Madras High Court. On the basis of an interim application filed
by the Third Party, the Hon''ble High Court passed an Interim Order in
September 2007 restraining the Company from reflecting the redemption
of debentures and directing the Company to continue to show it as due
and payable. The said Order was made absolute in December 2010. The
Company, in consultation with a senior legal counsel, has filed an
appeal against the interim order of the Hon''ble High Court contending
that it is not possible to show the debentures as due and payable as
the debentures have already been redeemed and also reflected as
redeemed in the Company''s accounts prior to passing of interim order.
The Company is awaiting the decision ofthe Hon''ble High Court in the
Company''s appeal, pending which; no adjustment has been made in the
accounts.
5 The Company incurred losses in the prior year primarily on account
of strategic initiatives including the sale of all its BPO businesses.
The strategy led to significant, non-recurring and exceptional nature
of items being recorded in the Statement of Profit and Loss in the
previous year. Though the losses have been set off against free
reserves, there is still a partial erosion of the net worth of the
Company. However, considering the positive cash flow from operating
activities along with negligible external debt and significant amount
of cash on hand, and taking into consideration the approved budgets for
the next twelve months, the Management and Board of Directors are of
the opinion that it is appropriate to present these financial
statements on a going concern basis.
6 Segment Reporting
The primary segment reporting of the Company is on the basis of
business segments. Till the previous year the Company was organised
into two business segments, viz., Information Technology and related
services (''IT'') and Business Process Outsourcing (''BPO'').
During the previous year, the Company has sold its BPO business. During
the current year, the Company has only one business segment viz., IT.
The segments have been identified and reported considering industry
segments of customers, risks and returns, organisation structure and
inter- nal financial reporting systems. Management views the entire IT
business as one business segment.
The secondary segment reporting is performed on the basis of the
geographical location of customers. The management views the USA,
Europe (comprising France and UK) and rest ofthe world (comprising
India, Australia and Singapore) as distinct geographical segments.
In 2011, Corporate activities such as treasury and taxation have been
considered as unallocated items.
7 Leases
Operating lease
As lessee:
In case of assets taken on lease:
The Company has operating lease arrangements for its office premises,
guest houses and certain equipment. The lease arrangements for
premises and guest houses have been entered up to a maximum of six
years from the respective dates of inception. Some of these lease
arrangements have price escalation clauses. Rent and hire charges for
such operating leases recognised in the Statement of Profit and Loss
for the year ended December 31, 2012 amounts to Rs. 432 (2011: Rs.
1,032).
Notes:
(i) Provision for onerous lease contracts relates to losses recognised
on contracts to the extent that unavoidable cost of meeting the
obligations under the contract exceeds the economic benefits expected
to be received under it. The cash outflows are expected to occur over a
period of eight years.
(ii) Provision for litigations relates to a litigation matter. Due to
the very nature of such costs, it is not possible to estimate the
timing/ uncertainties relating to their outflows.
(iii) Prior year numbers are disclosed within brackets.
8 Dues to micro medium and small enterprises (MSMED)
The Company has initiated the process of identifying micro, small and
medium enterprises as defined under the Micro, Small and Medium
Enterprises DevelopmentAct, 2006 (''MSMED''), by requesting vendor
confirmations, and as at the year end, the Company is still in the
process of compiling the complete and relevant information. However,
based on the information available to date, the Company has identified
no vendors that qualify under the requirements of MSMED and
accordingly, the below disclosures have been given considering vendor
identification carried out as at the year end:
Notes:
(1) The Company has not accrued for interest on the unpaid principal
amount as no claim has been raised by the concerned vendors.
(2) The above information has been determined to the extent such
parties have been identified by the Company, which has been relied upon
by the auditors.
9 Taxation Current Tax:
Current tax charge reflects provision for income tax based on the
taxable income of the Company after considering taxable income as per
the local tax laws applicable in India. While ascertaining the taxable
income for the current year, the broughtforward losses ifany, have also
been considered.
In India, the Company operates out of various facilities. Many of these
facilities were eligible to claim tax holiday under Section 10A ofthe
Income-tax Act, 1961,of India up to the tax fiscal year ended March
31,2011.
The current tax charge for the Company includes minimum alternative tax
(MAT) determined under Section 115JB ofthe Income Tax Act, 1961, of
India.
MAT Credit Entitlement:
Based on assessment of future taxable income and sunset of tax holiday
period, the management is ofthe opinion that there is convincing
evidence that the Company will pay normal income tax within the
specified period during which MAT credit is available for set off.
Loans and Advances includes MAT Credit Entitlement asset of Rs.1,260
(2011:Rs.1,260). MAT Credit Entitlement asset will be reviewed at each
balance sheet date forwrite-down, if any.
Deferred tax:
In terms of the provisions of the AS-22 "Accounting for Taxes on
Income", considering the accumulated business losses and unabsorbed
depreciation, no deferred tax asset has been recognised in these
financial statements by virtue of there being no virtual certainty
supported by convincing evidence of future taxable income. However,
this position will be reassessed at every year end.
Transfer Pricing:
The Company has significant intra group transactions pertaining to
revenue and expense cross charges. The management is in the process of
updating the transfer pricing study for such transactions entered into
during the year ended December 31, 2012, and does not anticipate any
adjustments with regard to the transactions involved.
10 Previous Year Figures
The financial statements for the year ended December 31, 2011 had been
prepared as per the then applicable, pre-revised Schedule VI to the
Companies Act, 1956. Consequent to the notification of Revised Schedule
VI under the Companies Act, 1956, the financial statements for the year
ended December 31, 2012 are prepared as per Revised Schedule VI.
Accordingly, the previous year figures have also been reclassified to
conform to this year''s classification. The adoption of Revised Schedule
VI for previous year figures does not impact recognition and
measurement principles followed for preparation offinancial statements.
Dec 31, 2010
1. BACKGROUND
Cambridge Solutions Limited (the Company), incorporated on February
1, 2002, is a business process outsourcing (BPO) and information
technology (IT) services provider with operations in India and an
international presence established through offices in several countries
including the USA and Australia.
Pursuant to agreements, arrangements, amalgamations, etc. (with
requisite approvals from various High Courts in India, wherever
applicable), the Company has, during earlier years, acquired BPO and IT
services businesses (including assets and liabilities) of / from
following entities:
SSI Limited (Information Technology division with operations in India,
USA and several other countries).
Scandent Group Limited, Mauritius (with operations in USA, Singapore,
Germany, etc.).
Cambridge Services Holdings LLC, USA (with operations in USA and
Australia).
Cambridge Integrated Services India Private Limited (with operations in
India)
Matrix One India Limited (with operations in India)
Pursuant to share purchase agreements between Xchanging (Mauritius)
Limited (XML), a wholly owned subsidiary of Xchanging Plc, a listed
company incorporated in UK, and the erstwhile principal shareholders of
the Company, and consequent open offer to public, XML now owns 75.62%
(2009:76.04%) of the outstanding share capital of the Company. Though
the open offer procedures were completed on April 9, 2009, XML obtained
the power of operational control of the Company effective January 1,
2009.
(Rs. Ã000)
2.1 Contingent Liabilities:
2010 2009
Bank Guarantees [Note (b)] 351,782 369,182
Income tax matters:
Assessment year 2004-05 [Note (c)] 5,820 5,820
Assessment year 2005-06 [Note (d)] 119,316 119,316
Assessment year 2006-07 [Notes (e)] 13,741 124,151
Assessment year 2007-08 [Notes (f)] 7,210 -
Notes:
(a) The above contingent liabilities are possible obligation or present
obligation that may (but probably will not) require an outflow of
resources.
(b) Bank guarantee facilities are mainly with Yes Bank for the purpose
of issuance of standby letter of credit (SBLC) in favour of a
correspondent bank in India / outside India for extending bank
guarantee facilities to the CompanyÃs subsidiaries in the USA and
Australia. In the event of default by the subsidiaries, the Company
will have to indemnify Yes Bank.
(c) Relates to transfer pricing adjustment for arms length price by
the assessing officer and other adjustments which is disputed by the
Company, and the matter is lying under appeal with the Commissioner of
Income-tax (Appeals), Bangalore. An amount of Rs.2,802 (2009: Rs.2,802)
has been paid under protest against the demand.
(d) Relates to transfer pricing adjustment for arms length price by
the assessing officer and other adjustments which is disputed by the
Company, and the matter is lying under appeal with the Commissioner of
Income-tax (Appeals), Bangalore. An amount of Rs.30,504 (2009:
Rs.15,000) has been paid under protest against the demand.
(e) Relates to certain tax adjustments arrived at by the assessing
officer, which is disputed by the Company. An amount of Rs. 3,800
(2009: Nil) has been paid under protest against the demand. The Company
has filed an appeal to the Income Tax Appellate Tribunal in this
regard.
(f) Relates to transfer pricing adjustment for arms length price by
the assessing officer which is disputed by the Company, and the matter
is to filed with the Income Tax Dispute Resolution Panel, Bangalore.
Contingent Liabilities does not include the following:
(i) The Company has export obligations in India under the Software
Technology Parks of India (STPI) scheme. In accordance with such
scheme, the Company procures capital goods without payment of duties,
for which, agreements and bonds are executed by the Company in favour
of the Government. In case the Company does not fulfil the export
obligation, it is liable to pay, on demand an amount equal to such
duties saved including interest and liquidated damages. As at December
31, 2010, the Company has availed duty benefits amounting to Rs.74,497
(2009: Rs 72,847). The Company expects to meet its commitment to earn
requisite revenue in foreign currency as stipulated by the STPI
regulations.
(ii) The Company has counter guaranteed the term loan facility of Rs.
3,006,244 (US$ 66 million) (2009: 2,578,950 (US$ 55 million) ) granted
by Xchanging UK Limited, a fellow subsidiary of the Company, to
Cambridge Integrated Services Group Inc, USA, a wholly owned subsidiary
of the Company.
(iii) As at December 31, 2010, Cambridge Integrated Services Group Inc.
USA and Scandent Group Inc. USA, both wholly owned subsidiary companies
have negative net assets amounting to Rs 3,998,501(2009 Rs. 4,279,019 )
and Rs.1,850,570 (2009: Rs. 1,778,176) respectively. While the
respective subsidiaries are confident of generating funds from their
operations, the Company intends to support the shortfall, if any.
2.3 Employee benefits
Defined contribution plan:
During the year, the Company has recognised Rs.46,269 (2009 :
Rs.35,514) in the Profit and Loss Account relating to defined
contribution plans, which are included in the Contribution to Provident
and other funds in Schedule 15.
Defined benefit plan:
The Company provides for gratuity, a defined benefit plan (the gratuity
plan) to its employees in India. The gratuity plan provides a lump sum
payment to vested employees at retirement or termination of employment
based on the respective employeeÃs last drawn salary and years of
employment with the Company.
The following tables summarise the components of net benefit expense
recognised in the profit and loss account and amounts recognised in the
balance sheet for the gratuity plan.
2.4 Segment reporting
The primary segment reporting of the Company is on the basis of
business segments. The Company is organised into two business segments,
viz., Information Technology and related services (IT) and Business
Process Outsourcing (BPO). Segments have been identified and
reported considering industry segments of customers, risks and returns,
organisation structure and internal financial reporting systems.
Secondary segment reporting is performed on the basis of the
geographical location of customers. The management views the USA,
Europe (comprising France and UK) and Rest of the World (comprising
India, Australia and Singapore) as distinct geographical segments.
Corporate activities such as treasury and taxation, which do not
qualify as operating segments under Accounting Standard 17, ÃSegment
ReportingÃ, have been considered as unallocated items.
2.5. Lease disclosures
(A) Operating leases
(i) In case of assets taken on lease:
The Company has operating leases for its office premises, guest houses
and certain equipment. The lease arrangements for premises and guest
houses have been entered up to a maximum of six years from the
respective dates of inception. Some of these lease arrangements have
price escalation clauses.
Rent and hire charges for such operating leases recognised in the
Profit and Loss Account for the year ended December 31, 2010 amounts to
Rs 130,552 (2009: Rs 117,616).
(B) Finance leases
In case of assets taken on lease:
The Company has entered into an arrangement for lease of a vehicle. The
lease arrangement is for a period of five years. Under the terms of the
lease, the Company is required to pay a monthly instalment over the
lease term.
2.6 Taxation
Current tax
Current tax charge reflects provision for income tax based on the
taxable income of the Company after considering taxable income as per
the local tax laws applicable in the respective countries. While
ascertaining the taxable income for the current year, the brought
forward losses of the respective entities, if any, have also been
considered.
In India, the Company operates out of six facilities (two each in
Chennai and Bangalore, one in Mumbai and one in Shimoga). The
Bangalore and Shimoga units are registered with the Software Technology
Parks of India (STPI) and are eligible to claim tax holiday under
Section 10A of the Income-tax Act, 1961, of India. In Chennai, the
Company has two units, one step up during 2002 which is not eligible to
claim tax holiday benefit and the second facility transferred to the
Company as a result of demerger of IT division of SSI Limited is
entitled for tax holiday under Section 10(A) of the Income Tax Act
1961.
The current tax charge for the Company includes minimum alternate tax
(MAT) determined under Section 115JB of the Income Tax Act, 1961.
MAT Credit Entitlement
Based on assessment of future taxable income and potential sunset of
tax holiday period, the management is of the opinion that there is
convincing evidence that the Company will pay normal income tax within
the specified period during which MAT credit is available for set off.
Accordingly, MAT Credit Entitlement asset (disclosed under Loans and
Advances) of Rs.82,489 (2009: Rs 52,446) has been recognised during the
year by way of a credit to profit and loss account. However, MAT Credit
Entitlement asset will be reviewed at each balance sheet date for
write-down, if any.
Deferred Tax
In terms of the provisions of the Accounting Standard - 22 "Accounting
for Taxes on Income" no deferred tax asset has been recognised
considering accumulated business losses and unabsorbed depreciation by
virtue of there being no virtual certainty supported by convincing
evidence of future taxable income. However, this position will be
reassessed at every period end.
Transfer pricing
The Company has significant intra group transactions pertaining to
revenue and expenses cross charge. The management is in the process of
updating the transfer pricing study for such transactions entered into
during the year ended December 31, 2010, and does not anticipate any
adjustments with regard to the transactions involved.
2.7 The Company has investments amounting to Rs.676,789
(2009:Rs.676,789) in Scandent Group, Inc., USA ("SG Inc"), its wholly
owned subsidiary. Further, the Company has granted loans and advances
aggregating to Rs1,732,980 (2009:Rs.1,884,901) and also has receivables
( net of payables) from the subsidiary amounting to Rs.256,870
(2009:Rs.218,669). Based on an evaluation in the earlier years, the
Company has made a provision of Rs.766,420 (2009:Rs.766,420) against
the loans, advances and receivables. The Company considers SG Inc a
strategic long term investment and based on a proposed strategic
restructuring plan and future growth projections, in the opinion of the
management, the aforesaid investments, loans, advances and receivables
are considered good and recoverable.
2.8 Owing to change in strategic priorities, the investment in
Cambridge Integrated Services Group, Inc, USA, a wholly owned
subsidiary of the Company, which is categorised as a long term
investment in accordance with AS 13 "Accounting for Investments" has
been fully impaired considering the diminution in value of investment
to be "a decline other than temporary". The Company tested the
investment for impairment using cash flow forecasts based on approved
budgets and using a discounted cash flow method.
2.9 Details of utilisation of proceeds raised through preferential
issues
During the financial year ended March 31, 2006, the Company had made
preferential allotment of 1,025,227 equity shares of Rs.10 each at a
premium of Rs.210 per share and preferential allotment of 5.22%
Convertible Bonds amounting to Rs.1,336,500 (2009: Rs.1,336,500) to
Indopark Holdings Limited, a wholly owned subsidiary of Merrill Lynch &
Co.
2.10 Figures in the accounts and notes are all in rupees thousands
except for certain figures in the notes on Schedules 1 and 4 and note
3.7 and 3.14 above.
2.11 Prior year comparatives
Previous years figures have been regrouped/ reclassified wherever
necessary to conform to the current years presentation
Dec 31, 2009
1. BACKGROUND
Cambridge Solutions Limited (Ãthe CompanyÃ), incorporated on February
1, 2002, is a business process outsourcing (BPO) and information
technology (IT) services provider with operations in India and an
international presence established through offices in several countries
including the USA and Australia.
Pursuant to agreements, arrangements, amalgamations, etc. (with
requisite approvals from various High Courts in India, wherever
applicable), the Company has, during earlier years, acquired BPO and IT
services businesses (including assets and liabilities) of / from
following entities:
- SSI Limited (Information Technology division with operations in
India, USA and several other countries).
- Scandent Group Limited, Mauritius (with operations in USA, Singapore,
Germany, etc.).
- Cambridge Services Holdings LLC, USA (with operations in USA and
Australia).
- Cambridge Integrated Services India Private Limited (with operations
in India)
- Matrix One India Limited (with operations in India)
Pursuant to share purchase agreements between Xchanging (Mauritius)
Limited (XML), a wholly owned subsidiary of Xchanging Plc, a listed
company incorporated in UK, and the erstwhile principal shareholders of
the Company, and consequent open offer to public, XML now owns 76.04%
of the outstanding share capital of the Company. Though the open offer
procedures were completed on April 9, 2009, XML obtained the power of
operational control of the Company effective January 1, 2009.
(Rs. Ã000)
2.1 Contingent Liabilities:
2009 2008
Bank Guarantees [Note (b)] 369,182 353,175
Income tax matters:
Assessment year 2004-05 [Note (c)] 5,820 5,820
Assessment year 2005-06 [Note (d)] 119,316 119,316
Assessment year 2006-07 [Note (e)] 124,151 -
Notes:
(a) The above contingent liabilities are possible obligation or present
obligation that may (but probably will not) require an outflow of
resources.
(b) Bank guarantee facility with Yes Bank for the purpose of issuance
of standby letter of credit (SBLC) in favour of a correspondent bank in
India / outside India for extending bank guarantee facilities to the
Companys subsidiaries in the USA and Australia. In the event of
default by the subsidiaries, the Company will have to indemnify Yes
Bank.
(c) Relates to transfer pricing adjustment for arms length price
proposed by the assessing officer of Rs.95,280 (2008: Rs.95,280), which
is disputed by the Company, and the matter is lying under appeal with
the Commissioner of Income- tax (Appeals), Bangalore. An amount of
Rs.2,802 (2008: Rs.2,802) has been paid under protest against the
demand.
(d) Relates to transfer pricing adjustment for arms length price
proposed by the assessing officer of Rs.223,468 (2008: Rs.223,468),
which is disputed by the Company, and the matter is lying under appeal
with the Commissioner of Income- tax (Appeals), Bangalore. An amount of
Rs.15,000 (2008: Rs.15,000) has been paid under protest against the
demand.
(e) Relates to transfer pricing adjustment for arms length price
proposed by the assessing officer of Rs.228,032 (2008: Nil), which is
disputed by the Company, and the matter is lying under appeal with the
Income Tax Dispute Resolution Panel, Bangalore.
Contingent Liabilities does not include the following:
(i) The Company has export obligations under the Software Technology
Parks of India (STPI) scheme. In accordance with such scheme, the
Company procures capital goods without payment of duties, for which,
agreements and bonds are executed by the Company in favour of the
Government. In case the Company does not fulfil the export obligation,
it is liable to pay, on demand an amount equal to such duties saved
including interest and liquidated damages. As at December 31, 2009, the
Company has availed duty benefits amounting to Rs.72,847 (2008:
Rs.61,882). The Company expects to meet its commitment to earn
requisite revenue in foreign currency as stipulated by the STPI
regulations.
(ii) The Company has counter guaranteed the term loan facility of
Rs.2,578,950 (2008: Nil) granted by Xchanging UK Limited, a fellow
subsidiary of the Company, to Cambridge Integrated Services Group, Inc
USA, a wholly owned subsidiary of the Company.
(iii) As at December 31, 2009, Cambridge Integrated Services Group Inc.
USA, Scandent Group Inc. USA and Scandent Group GmbH, Germany, all
wholly owned subsidiary companies have negative net assets amounting to
Rs 4,279,019 (2008 -- Rs 330,885), Rs 1,778,176 (2008 -- Rs 1,531,967)
and Rs 31,177 (2008 -- Rs 31,647), respectively. While the respective
subsidiaries are confident of generating funds from their operations,
the Company has committed to fund the shortfall, if any.
2.3 Employee benefits
Defined benefit plan:
The Company provides for gratuity, a defined benefit plan (the gratuity
plan) to its employees in India. The gratuity plan provides a lump sum
payment to vested employees at retirement or termination of employment
based on the respective employeeÃs last drawn salary and years of
employment with the Company.
The following tables summarise the components of net benefit expense
recognised in the profit and loss account and amounts recognised in the
balance sheet for the gratuity plan.
2.4 Segment reporting
The primary segment reporting of the Company is on the basis of
business segments. The Company is organised into two business segments,
viz., Information Technology and related services (IT) and Business
Process Outsourcing (BPO). Segments have been identified and
reported considering industry segments of customers, risks and returns,
organisation structure and internal financial reporting systems.
Secondary segment reporting is performed on the basis of the
geographical location of customers. The management views the USA,
Europe (comprising France and UK), Australia and Rest of the World as
distinct geographical segments.
Corporate activities such as treasury and taxation, which do not
qualify as operating segments under Accounting Standard 17, ÃSegment
ReportingÃ, have been considered as unallocated items.
2.5 Related party disclosures
A. Names of related parties and description of relationship
Ref. Description of relationship Names of related parties
(a) Parties where control exists:
Holding companies:
Ultimate holding company Xchanging Plc, UK
Intermediate holding companies Xchanging Holdings Limited, UK
Xchanging BV, The Netherlands
Immediate holding company Xchanging (Mauritius) Limited,
Mauritius
Subsidiary companies Cambridge Solutions Europe
Limited, UK
Cambridge Solutions Pte Limited, Singapore
Scandent Group Sdn Bhd, Malaysia
Scandent Group GmbH, Germany
Scandent Group Inc., USA
Indigo Markets Limited, Bermuda
Cambridge Integrated Services Group Inc., USA
Cambridge Galaher Settlements & Insurance Services, USA
Cambridge Integrated Services Victoria Pty Limited, Australia
Cambridge Integrated Services Australia Pty Limited, Australia
Cambridge Solutions Pty Limited, Australia
Cambridge Solutions France SARL, France
ProcessMind Holding Mauritius Limited, Mauritius
Nexplicit India Infotech Private Limited, India
(b) Parties under common control
with whom transactions
have taken place during the year:
Fellow subsidiaries Xchanging Systems and Service Inc., USA.
Xchanging Broking Services Limited, UK.
Xchanging Claim Services Limited, UK.
Xchanging Global Insurance Systems Ltd., UK.
Xchanging Technology Services India Private Limited, India
Xchanging UK Limited, UK.
(c) Key management personnel:
Executive Chairman and CEO David Andrews (*) (appointed on
January 12, 2009)
Executive Vice Chairman Richard Houghton (*)(appointed on
January 12, 2009)
Executive Director and Chief
Financial Officer Darren Fisher (appointed on
July 31, 2009)
Executive Director and Chief
Production Officer Thomas Runge (*)(appointed on October
22, 2009)
(*) No transactions during the year.
Notes:
(i) The above information and those in ÃB. Summary of transactions with
related partiesà have been determined to the extent such parties have
been identified on the basis of information provided by the Company,
which has been relied upon by the auditors.
2.6. Lease disclosures
i. Operating leases
In case of assets taken on lease:
The Company has operating leases for its office premises, guest houses
and certain equipment. The lease arrangements for premises and guest
houses have been entered up to a maximum of six years from the
respective dates of inception. Some of these lease arrangements have
price escalation clauses.
Rent and hire charges for such operating leases recognised in the
Profit and Loss Account for the year ended December 31, 2009 amounts to
Rs 109,613 (2008 -- Rs 98,772).
ii. Finance leases
In case of assets taken on lease:
The Company has entered into an arrangement for lease of a vehicle. The
lease arrangement is for a period of five years. Under the terms of
the lease, the Company is required to pay a monthly installment over
the lease term.
2.7 Taxation
Current tax
Current tax charge reflects provision for income tax based on the
taxable income of the Company after considering taxable income as per
the local tax laws applicable in the respective countries. While
ascertaining the taxable income for the current year, the brought
forward losses of the respective entities, if any, have also been
considered.
In India, the Company operates out of six facilities (two each in
Chennai and Bangalore, one in Mumbai and one in Shimoga). The
Bangalore and Shimoga units are registered with the Software Technology
Parks of India (STPI) and are eligible to claim tax holiday under
Section 10A of the Income-tax Act, 1961, of India. In Chennai, the
Company has two units, one step up during 2002 which is not eligible to
claim tax holiday benefit and the second facility transferred to the
Company as a result of demerger of IT division of SSI Limited.
The current tax charge for the Company includes minimum alternate tax
(MAT) determined under Section 115JB of the Income Tax Act, 1961.
MAT Credit Entitlement
Based on assessment of future taxable income and potential sunset of
tax holiday period, the management is of the opinion that there is
convincing evidence that the Company will pay normal income tax within
the specified period during which MAT credit is available for set off.
Accordingly, MAT Credit Entitlement asset (disclosed under Loans and
Advances) of Rs.52,446 (2008: Nil) has been recognised during the year
by way of a credit to profit and loss account. However, MAT Credit
Entitlement asset will be reviewed at each balance sheet date for
write-down, if any.
Transfer pricing
The Company has significant intra group transactions pertaining to
revenue and expenses cross charge. The management is in the process of
updating the transfer pricing study for such transactions entered into
during the year ended December 31, 2009, and does not anticipate any
adjustments with regard to the transactions involved.
2.8 Loan processing fees and deferred costs
Based on a review during the year of the upfront loan processing fees
and deferred costs stated under Miscellaneous Expenditure, the Company
has charged off the unamortised balances, under both the categories, to
the Profit and Loss Account thereby reducing net profit for the year by
Rs.23,180.
2.9 Scandent Inc USA receivable
As at December 31, 2009, the Company has net receivables (after
eliminating payables) from Scandent Group Inc, USA, a wholly owned
subsidiary of the Company, of Rs.1,945,437 (2008: Rs.972,449) [net of
payables: Rs.218,669 (2008: Rs.392,035)]. Based on an evaluation, the
Company has made a provision of Rs.766,420 (2008: Rs.766,420) against
the net receivables in an earlier year. The Company, based on strategic
funding plans, believes that the remaining dues are good and will be
recovered in the foreseeable future.
2.10 Details of utilisation of proceeds raised through preferential
issues
During the financial year ended March 31, 2006, the Company had made
preferential allotment of 1,025,227 equity shares of Rs.10 each at a
premium of Rs.210 per share and preferential allotment of 5.22%
Convertible Bonds amounting to Rs.1,336,500 (2008: Rs.1,336,500) to
Indopark Holdings Limited, a wholly owned subsidiary of Merrill Lynch &
Co.
2.11 Prior year comparatives
The profit and loss account for the current year is for twelve months
period whereas the profit and loss for the prior period was for nine
months, and accordingly, the figures between the two periods are not
strictly comparable. Previous periods figures have been regrouped/
reclassified wherever necessary to conform to the current years
presentation. Figures in the accounts and notes are all in rupees
thousands except for certain figures in the notes on Schedules 1 and 4
and note 3.7 and 3.14 above.
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