Everonn Education Ltd Management Discussions

I . INDUSTRY STRUCTURE AND DEVELOPMENTS

A. Industry Overview

Over the years, India has become one of the most exciting education market in the world. As of now the education market is worth US$ 100 billion. Currently, higher education contributes 59.7 percent of the market size, school education 38.1 percent, pre-school segment I.6 percent, andtechnology and multi-media the remaining 0.6 percent. It is expected that employment opportunities will continue to grow n this sector for the next two decades. i

Investments and Government Initiatives

Some of the other major investments and initiatives taken by the Government of India are:

• The Government of India aims to increase digital literacy to at least 50 per cent of Indians from currently 15 per cent over a period of next three years.

• Under the Pradhan Mantri Kaushal Vikas Yojana (hereinafter referred to as "PMKVY"), 6 million people will betrained for handling specific jobs and four million certified as possessing vocational skills required for employment in industries, under the recognition of prior learning program hence 62 new Jawahar Navodaya Vidyalayas (JNV) to provide quality education have been set up.

• Prime Minister has launched the Skill India initiative - Kaushal Bharat, Kushal Bharat targeting training of 400 million citizens by

2022 that would enable them to find jobs.

• The cabinet hasapproved anoutlay of Rs.12,000 crores for providing job skills andto certify 10 million young people over the next 4 years. The Central Government will be responsible for meeting three fourths (7.50 million) of the target number under the PMKVY with 75% of the approved outlay.

• The Government of India has launched the National WebPortal for promotion of National Apprenticeship Scheme for Graduates, Diploma holders and 10+2 pass-outs vocational certificate holders. Under this scheme 5 million people are to be trained by 2019- 20 at a cost of Rs. 10 crore.

B. Company Overview

The Company is one of the few listed companies in the education sector. Varkey Group, acquired shares of the Company in 2012. After the said acquistion, the new management/ board of directors nominated by the Varkey Group (hereinafter referred to as the "New Management"/ "Board") found that due to mismanagement and misappropriation, the Company was in severe financial predicament. As a result, several payments to banks, NBFCs, statutory and vendor payments were unpaid. At this juncture, the lenders offered to extend their fullest support to revive the Company by promising to provide additional credit facilities of Rs. 325 Crores under the Debt Restructing Agreement (hereinafter referred to as the "DRA") and Facility Agreements (hereinafter referred to as the "FAs") with its subsidiaries. However, after few months, the lenders desisted from releasing the loan amounts as agreed in the DRA, made the Companys bank accounts inaccessible, and demanded immediate repayment of the entire outstanding loan amounts.

II. OPPORTUNITIES, RISKS, THREATS AND CONCERNS :

Due to the abovementioned reasons and winding up petition filed by certainvendors, the Companys financial position declined even more. Therefore, the Company is of the view that the use of going concern assumption is considered to be inappropriate. Hence, for the financials year 2016-2017, the management has decided only to focus on successful execution and completion of the existing ICT (Instructional Computing Technology) contracts and drive the collection of legacy receivables and advances. The Company is exploring the monetization of non-core assets across the portfolios, in order to unlock the value in the business and settle the dues of the lenders and vendors from the receivables and thereby trying to reduce the exposure to the maximum extent possible.

III. OUTLOOK AND STRATEGY

In view of the discussion in section I and II above this section remains irrelevant.

IV. INTERNAL CONTROL SYSTEMS, RISK MANAGEMENT AND COMPLIANCE

The Board is overall responsible for identifying, evaluating and managing all significant risks faced by the Company.

The Companys books of accounts are maintained in Microsoft Navision (ERP) to ensure correctness/ effectiveness of all transactions, thereby improving the reliability and integrity.

The Board appointed an external consultant to review the Internal Financial Control (hereinafter referred to as the "IFC") process and its adequacy. The said consultant reviewed the process and financial controls in place during the FY 2015-16 and submitted its report to the Board. The Board has taken cognizance of the said report and directed the CFO and the compliance officer of the Company to suitably address the findings of the IFC report and place the follow up report before the Board in the ensuing board meeting. However, during the FY 2015-16, the Company has put in place adequate compensating controls directly monitored by its directors to ensure adequate financial and operational controls.

The Company had appointed an in-house internal Auditor to identify, evaluate and assess the risk and its potential impact on a regular basis and report the same to the management. During the FY2015-16 the said internal auditor has carried out the audit on a regular basis and reported to the management in case of any non-compliance, financial irregularities, process gaps as well as business and operational risk exposures.

The Company Secretary of the Company is appointed as compliance officer who reviews the compliance on a periodic basis and places a report in the Board meetings.

V. DISSCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

During the year under review, the Company earned total revenue of Rs.1,898.09 Lakhs (PY Rs. 2,861.13 Lakhs). The Loss before tax s i Rs. 75,712.79 Lakhs (PY Rs. 8,439.00 Lakhs). The Loss after tax (which includes effect of reversal of deferred tax assets created in previous years amounting to Rs. 17,056.36 Lakhs) was Rs. 94,706.14 Lakhs (PY Rs. 8,439.00 Lakhs).

The reduction in revenues is primarily due to completion of three major ICT projects in the States of Uttar Pradesh, Andhra Pradesh and Haryana, during the first two quarters.

Though the loss before exceptional items are better by Rs. 1,608.46 lakhs because of lower depreciation charges, reduction in manpower cost and other cost reduction through operational efficiency, the loss after tax has increased by Rs. 86,267.14 lakhs due to presentation of the accounts in realization basis resulting in impairment in value of assets and diminution in the value of investments in subsidiaries by Rs. 88,509.99 lakhs.

As discussed in previous sections the Company has also down sized the operations due to the cash flow challenges resulted from non-disbursement of agreed sanctions by the lenders.

VI. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES/ INDUSTRIAL RELATIONS FRONT, INCLUDING NUMBER OF PEOPLE EMPLOYED

The Human Recourse and talent management has witnessed all time low during the last year when your company was forced to down size its operations on completion of existing ICT project and was unable to sign new business contracts which resulted in no salary increment and retrenchment of employees in larger scale. The organization has currently employment strength of 811 employees as of 31st Mar2016.

VII. SEGMENT-WISE PERFORMANCE

A. Schools

Everonn School Limited (ESL) is a subsidiary of the Company and caters to the K-12 school education segment.

ESL runs its K-12 brand of CBSE schools by the name of Everonn Public School (now rebranded as GEMS Public School). As per the business plan envisaged during the Debt Restructuring, the company was supposed to open and operate 24 schools where as due to non disbursement of the agreed facility by the lenders as per DRA and FAs, the Company was only able to open and operate 8 schools by the end of FY 2015-16 in the following locations:

• Indore, Madhya Pradesh

• Gwalior, Madhya Pradesh

• Bhopal, Madhya Pradesh

• Bathinda, Punjab

• Patiala, Punjab

• Haldwani, Uttrakhand

• Guntur, Andhra Pradesh

• Anantnag, Jammu & Kashmir

Since the revenue and cash flow from the school was the main premise on which the business plan of the group was envisaged, delay n i opening of the schools and due to scarcity in working capital and its effect on enrolment has impacted the profitability, cash flow and business plan substantially. Further, since the lenders had completely stopped the disbursement of loans and marked lien on the bank accounts, the education, future career prospects of 1,300 students and the livelihood of 181 employees were at stake. Therefore, at the request of the trustees of the societies and for the larger interest of the students and employees the present promoter of the Company through its Indian entity GEMS Education started providing management and financial assistance in managing the said 8 schools.

B. Skill Development:

Skill training is done through Everonn Skill Development Limited (ESDL), an indirect subsidiary. Skill training includes vocational education and training to students. It focuses on imparting employability skill training under various initiative of State and Central Government,

During the FY 2015-16, the company has achieved revenue of Rs. 1,076.04 lakhs (PY 2014-15 : Rs 326.80 lakhs)and EBIDTA Loss of Rs. 76.23 lakhs (PY 2014-15 : Rs 1,093.72 Lakhs). Whereas due to financial challenges faced by the company resulting in inappropriateness of Going Concern" in preparation of account, provision to the tune of Rs. 1,336.47 lakhs made in the books on account of impairment in value of assets and diminution in value of investments in group entities, resulting Net Loss after Tax of Rs. 2,324.99 lakhs. (PY 2014-15 : Rs 1,935.38 lakhs).

In light of the present circumstances and continuity challenges faced by the company and its group as a whole the management has expressed its intention to withdraw from the contracts that it has with various State Governments and Central Government Authorities for executing the Skill projects, by closing on the students numbers for which training has been completed until the date of this communication.

C. ICT:

The Company was one of the pioneers in offering complete ICT-enabled education in government schools through turn-key projects on a BOOT/BOT/BOO model, this division acts as an education service provider for computer education, computer literacy, computer-aided learning and teachers training projects.

However, due to the capital intensive nature of the business and substantial delay in collection of payments due, the segment has been restructured and a conscious decision has been taken to only bid and implement business that is asset light and service oriented. But due to the current financial situation, the Company did not pursue new ICT contracts whereas three contracts in the States of Uttar Pradesh, Andhra Pradesh and Haryana have been successfully completed during the FY 2015-16.

The Financial and Operational performance discussed in earlier sections with respect tothe Company onastand-alone basis is applicable for the ICT segment, as this is the only segment in the Company.