Subex Ltd Management Discussions.

OVERVIEW

Subex Limited ("Subex" or "the Company") has its Equity Shares listed on the National Stock Exchange of India Limited (NSE) and The BSE Limited.

The management of Subex is committed to transparency and disclosure. In keeping with that commitment, we are pleased to disclose hereunder information about the Company, its business, operations, outlook, risks and financial condition.

The financial statements of the Company have been prepared in compliance with the requirements of the Companies Act, 2013 and the Indian Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015. The management of Subex accepts responsibility for the integrity and objectivity of these financial statements, as well as for various estimates and judgments used therein. The estimates and judgments relating to the financial statements have been made on a prudent and reasonable basis, in order that the financial statements reflect the form and substance of transactions in a true and fair manner, and reasonably present the state of affairs and profits/ losses for the year under review.

In addition to the historical information contained herein, the following discussion may include forward looking statements which involve risks and uncertainties, including but not limited to the risks inherent in the Companys growth strategy, dependency on certain clients, dependency on availability of qualified technical personnel and other factors discussed in this report.

COMPANY OVERVIEW

We provide software products, solutions and related services to enable Digital Trust for organizations. Subex is now charting the transformation of communications service providers into digital enterprises. We are developing next-generation solutions in new and emerging business areas such as advanced data analytics, business intelligence, business assurance and Internet of Things (loT). Our revenue contributing pie consists of licensing, professional services related to installations and configuration activity, annual support contracts and managed services.

Our pioneering platform, the Revenue Operations Centre (ROC) - a centralized approach that sustains profitable growth and financial health of organizations through coordinated operational control - brings together business intelligence, domain knowledge and workflow support. ROC acts as the underpinning solution on which organizations can build their processes to bring in privacy, security, risk mitigation, confidence in data, and predictability.

Subex leverages its award-winning analytics solutions in areas such as Revenue Assurance, Fraud Management, Network Asset Management, Partner Settlement, and Analytics and complements them through its newer solutions such as Security and Anomaly Detection. Subex also offers scalable Managed Services and Business Consulting services.

We are proud to be recognized as a leader in our market, and to be seen as the pioneers in the area of Digital Trust. We are especially proud to have received numerous awards jointly with our customers. Our recent awards include:

• Pipeline Innovation Awards 2018 under "Managed Services" category & "Innovations in Security & Assurance" and Big Data & Analytics

• Aegis Graham Bell Award 2017 for Innovation in ROC Insights under "Data Science" Category

• Global Telecoms Business Innovation Award 2017 with Saudi Telecom Company.

Subex has spent 25 years in enabling 3/4th of the largest 50 Communications Service Providers (CSPs), globally achieve competitive advantage. Being truly a global company, we have 300+ installations across 90+ countries.

We have a global presence, employing over 800+ people, with headquarters in Bengaluru, India and offices in Singapore, UK, US and UAE.

More information on (a) our revenue model, (b) our products, (c) our global customer base and (d) an overview on the CSP industry itself is discussed below.

OPPORTUNITIES

Businesses have changed drastically in the last few years, with disruptions in technology, business models and customer preferences. Rapid digitalization has empowered organizations to make the most out of available data, but at the same time put a huge responsibility on them in terms of trust. However, recent studies have shown that trust is at an all-time low in todays digital world. In one of the studies, close to 1/3rd of the respondents mentioned that they were less comfortable sharing their data, than they were 6 months ago. Organizations have now begun to take note of this dip in trust levels, and many are acting in the right direction. In another study, 61% of CEOs see building trust as one of the top 3 priorities for their organizations. In this backdrop, Subexs focus on Digital Trust provides a huge opportunity in terms of the problem to be addressed. Industries like Telecom, e-Commerce, and FinTech deal with humungous amounts of data, and for them to succeed, it is absolutely necessary to put trust at the center of their business. Be it forging new partnerships, adopting emerging technologies, driving new business models or improving their brand image businesses now are seeing Digital Trust as a catalyst for success, and that has opened up multi-vertical opportunities for Subex to address.

THREATS

Every great opportunity comes with a few inherent risks, when addressed effectively delivers excellent results. In the case of our core areas, threat arises from the fact that revenues from our traditional areas have gone flat. While it can be attributed to the lower impetus for telecom industry as a whole, it can be addressed with multi-layered innovation on products and business models. The challenges that telcos face will continue to change rapidly, and this calls for agility and quick response from solution providers like us. The infusion of AI-ML into our product lines, addressing of digital frauds, repurposing Revenue Assurance for Regulatory Assurance, etc. are all examples of how we are dealing with the threat of stagnating relevance. With respect to the new verticals were entering, while we are aggressive in our GTM strategy, we are also cognizant about the risk of encountering competition from unexpected quarte Rs. Especially in the digital era, competition can arise from extremely unconventional sources, and will need to be dealt with utmost care. To ensure a safe pursuit, our approach is to enter new verticals with those use cases which have very similar applications as in the telecom vertical - where we have had success for over two decades. For instance, telecom Fraud Management is a domain that Subex is a leader in, and Fraud as a problem exists in a similar way in the e-Commerce vertical as well allowing us to fully utilize our expertise to demonstrate success in e-Commerce. Another approach to mitigate the risk of competition in unfamiliar territories is strategic partnerships with other vendors where there are synergies.

OUR REVENUE MODEL

Our revenue generally comes from four streams: (1) licensing; (2) professional services related to installations and configuration activity; (3) annual support contracts; and (4) managed services.

We generally license our software products on per subscriber or per transaction basis. This means that when our customers experience growth, we can also expect to benefit from that growth. Typically, there are significant professional services revenues associated with each new software installation as well as with upgrades.

Our annual support contracts are generally priced as a function of the total license fees paid by the customer. Thus, our annual support contracts would also tend to experience growth when our customers experience growth. Importantly, annual support contract revenue tends to be recurring revenue.

Finally, we have been experiencing increasing success with managed service revenue. Like annual support contracts, managed services provides a relatively predictable recurring revenue stream. At the same time, our managed service offering provides us with an opportunity to maintain a continuous touch point with the customer so we can better understand their needs and we have opportunity to educate them on our offerings and skills.

OUR PRODUCTS

Subex offers the Revenue Operations Centre (ROC) Solution Suite for Business and CAPEX Optimisation, which has solutions for driving Digital Trust and Optimisation. To this end, Subexs core products around Revenue Assurance and Fraud Management have been enhanced with the power of Artificial Intelligence and Machine Learning. Subex also provides network analytics through its Network Asset Management, Data Integrity Management and Capacity Management solutions. In a digital world, where multiple partnerships will need to be managed, Subex provides CSPs with a Partner Management and Partner Settlement solution. As a means to help drive confidence in data, Subex recently launched its revamped Analytics solutions which provides CSPs with an end- to-end Analytics framework. Subex also provides organisations with confidence in the growing connected world, through its IoT Security solution, Subex secure, which is a multi-vertical solution focused towards the telecom, government, automotive, and defense segment, to name a few. Subex also recently launched CrunchMetrics, an AI-based anomaly detection solution, which helps organisations understand anomalous activities in their data to identify avenues of growth and detect risks before they occur.

All solutions come together to help CSPs prevent fraud losses, collect all revenues, reduce defaulted payments, reduce wasteful expenditure, manage inter-carrier and partner expenses and optimize CAPEX.

The ROC enables profitable service provider growth through coordinated operational control.

For service providers that aim to optimize their operational and process infrastructure, ROC delivers Business and CAPEX Optimization in the most pragmatic manner.

Digital Revenue Assurance

ROC Revenue Assurance solution offers a comprehensive view of an enterprise by providing better visibility into risks surrounding operations, revenue and margins. Built around big data and focused analytics capabilities, the solution addresses the new, complex and critical challenges faced by Revenue Assurance teams globally.

With a product history spanning over two decades, ROC Revenue Assurance is the culmination of the operational experience of being deployed in over 80+ sites globally.

Fraud Management

The fraud management solution by Subex, is built to increase fraud prevention in the telecom industry by eliminating known frauds, uncovering new fraud patterns, minimizing fraud run time, augmenting internal controls, and supporting continuous fraud management process improvements.

ROC Fraud Management solution provides comprehensive fraud coverage for more than 350 types of fraud. The solution is integrated with artificial intelligence and machine learning capabilities to safeguard networks from frauds such as subscription fraud, bypass/SIM box Fraud, PBX hacking and international revenue share fraud (IRSF). It also provides coverage for next-generation frauds such as Handset fraud, online sales, IPTV, advertisement fraud and other digital frauds.

With Subexs comprehensive fraud management system, operators can detect fraud types in all telecom environments: Wireline (PSTN, ISP, VoIP), and Wireless (2G, 2.5G, 3G & 4G); and across all services: postpaid, Payment, VAS, MMS and M-commerce.

Partner Settlement

Partner Settlement allows operators to quickly and accurately settle charges with their network and content partne Rs. It helps operators improve efficiency through light touch and automation, accurate billing and settlement and prudent accrual provisioning. It enables operators to manage costs and revenues on interconnect and partner agreements with domestic and international operators as well as content partners on a day-to-day, and hour-to-hour basis.

Partner Settlement is a comprehensive solution to help Telecom operators with interconnect, content and digital settlements giving them the edge needed to prosper in todays market.

Route Optimisation

Route Optimization is designed to provide operators with tools to manage network cost information supplied by other operato Rs. Additional analysis on the impact of current operator tariffs as well as forecasts on potential future operator tariffs is also featured. The system is capable of taking into account factors such as call quality, rate information, capacity, and network costs to arrive at the optimum choice of operato Rs. The solution ensures that the entire end-to-end processes from dial code/destination operator rate imports to switch updates are controllable and auditable.

Partner Management

Subex offers a comprehensive partner management solution that provides visibility into the operators end-to-end wholesale business with accurate insights into revenue. The solution offers a 360 view of a telco partner ecosystem by providing a nuanced profile of partner agreements based on data such as revenue sharing and margins. The solution helps in swift partner onboarding, partner self-care, end-to-end revenue visibility and communication between the operator and your partne Rs. It helps telecom operator manage diverse revenue streams while helping to launch high-value, high margin services in collaboration with partne Rs.

ROC Partner Management is a domain-agnostic platform that addresses the dynamics of telecom operator partner ecosystem across wholesale voice, short message service (SMS), data, content, Internet of Things (IoT), machine-to-machine (M2M), utility, roaming, digital services, and billing and settlement.

Subex Secure

Subex Secure is an IoT security solution designed to secure connected and constrained devices. It is an agentless product enabling networks to introduce multitudinous types of devices securely. Subex Secure offers a way for business to scale IoT deployments without compromising on security or taking on additional risk. It is capable of monitoring billions of devices and their data transmissions. Using a three-tier detection strategy, it identifies threats as they occur on the network. These three strategies are signature-based detection, heuristics and anomaly- based detection. Risks are identified and flagged across these three security layers thereby allowing seamless movement and integrity of data.

Subex Secures threat database is updated in real-time with signatures gathered from our 60 honeypots located in key cities around the world. Threat intelligence is also gathered from other credible sources.

Subex Secure is built for securing IoT.

It comes with:

• Multi-tier detection mechanism to filter, flag and eliminate various threats

• Real-time threat database updates with threat intelligence drawn globally

• A unique detection engine that renders early detection of threats

• Zero latency and compute power

• Virtually unlimited scalability for various IoT deployments and connectivity flavors

• SOC-based/SOC independent/hybrid ops

Network Asset Management

Network Asset Management is a Telecom Asset Lifecycle Management solution which provides framework and controls to help CSPs make the best use of their assets to optimise their capital and operations expenses in the digital era, which thereby helps manage network CAPEX efficiently. The solution ties the financial parameters of the assets to its current utilization and location, creating a 360 degree view of the asset, generates accurate reports for audits and calculates return on assets. Bridging the gap between network and finance functions, Subex Network Asset Management uses state-of-the-art network intelligence for:

- Knowing what you have (Knowing what assets you have and its utilization).

- Measuring what you have (Setting up controls to monitor assets location and utilization).

- Optimising what you have (Asset optimisation leading to CAPEX and OPEX efficiency).

In addition, it simplifies field audits, provides near real-time capacity views, recommendation to optimise network utilization and optimises P2R (Plan-to-retire) and cash-to-cash cycle for assets and improves overall operational efficiency.

Data Integrity Management

Subex is the pioneer in data integrity management, with over a decade of experience in data integrity transformations with the worlds leading service providers. Data Integrity Management is the industrys first solution for improving the quality of data that drives key service provider processes, resulting in lower costs and higher service profitability. Data Integrity Management combines three powerful data integrity functions: multi-layer network and service discovery; data reconciliation; and discrepancy analytics.

Data Integrity Management discovers network resources, identifies them and reconciles them with CSPs OSS/BSS databases such as between an inventory management system and an order management system and a billing system or an asset tracking system based on Service Provider business rules. Leveraging inherent cross-domain intelligence and extensive off-the-shelf network equipment support, Data Integrity Management discovers devices and logical services in diverse network environments and reconciles this data with the OSS/BSS on a continuous, controlled basis.

Capacity Management

Subexs Capacity Management solution helps operators undertake a predictive approach to understand their capacity issues, thereby helping them ensure the best customer experience while optimising costs. Capacity Management provides the critical link between network discovery and predictive analytics to identify capacity hot-spots and predict time-to-exhaustion. It provides a holistic view of capacity through which it helps CSPs see threshold violations on key links and resolve capacity issues based on near real-time data. It further engages analytics functions to provide actionable intelligence and predict scenarios and their impact on network capacity which would help CSPs to plan capacity investments accordingly. This ensures removal of capacity issues and ensures smooth operation of business-critical applications thereby resulting in positive customer experience.

Analytics Center of Trust (ACT)

Subex Analytics Center of Trust (ACT) is an end-to-end advanced analytics framework which helps CSPs truly leverage their data to drive business outcomes. Subex ACT enables CSPs to get the most from their Analytics program from the very start, i.e., strategizing the analytics roadmap, to setting up a trusted business intelligence layer, till the end, i.e., generating analytics-driven business outcomes. ACT comprises for three components:

Strategize: Leveraging over 25 years of expertise in telecom analytics, Subex helps creating the right analytics strategy by establishing CSPs current maturity, define the business vision, and identifying the required roadmap.

Trusted BI: Subexs ACT is powered by an intelligent Information Infrastructure, which acts as the brain of the system delivering real-time insights on the shifts in trends across the spectrum. Subexs BI is built around Hadoop and big data capabilities, powered by machine learning (ML) and artificial intelligence (AI).

ROC Insights: ROC Insights, advanced analytics service, powers the ACT infrastructure, delivering next-generation Analytics-as-a-Service to Telcos across the globe. The solution leverages Subexs expertise in BSS/OSS and Telecom Analytics to deliver actionable business intelligence to relevant business users at the right time. By combining the best in both machine and human intelligence, the solution transcends traditional approaches, accelerating the digital journey of organizations. ROC insights provides actionable insights around key focus areas: Product, Customer, Risk and Revenue.

CrunchMetrics

Rapid digitalization across industries today has led to a massive explosion of data volumes where years worth of data in the last decade is now being generated in the matter of a few hou Rs. While organizations are doing reasonably well to capture and store this data, the mechanisms to truly make use of such huge volumes of data are unable to match the current volumes and velocity of data being generated. Due to this challenge, organisations fall short of responding to significant changes which can improve business critical functions. To help organisations deal with this challenge, Subex has launched a new brand, CrunchMetrics, an advanced anomaly detection system designed to help organizations discover business opportunities and mitigate risks in real-time. It leverages the combined power of statistics, Artificial Intelligence (AI) and Machine Learning (ML) to sift through data and identify anomalies that are a representation of business impact. CrunchMetrics brings to the table real-time anomaly detection helping organizations find the needle in the haystack, thereby facilitating low latency decision making. Through the launch of CrunchMetrics, Subex aims to address a huge market that is expected to reach USD 4.5 Billion by 2022 and will to cater to a variety of verticals.

CrunchMetrics is vertical agnostic and has a wide range of use cases for Telecom, Retail and FinTech verticals at launch.

Consulting & Assessment Services

Subex with its more than 25 years of experience in telecom domain, end-to-end experience in defining strategy to execution and use of relevant tools that are compliant with global forums such as TM Forum and CFCA; is the right partner of choice in consulting and assessment services for global telcos.

Subex offers consulting and assessment services in the following domains:

• Maturity assessment: Benchmarking of their revenue assurance and fraud management processes with respect to global standards and provide metrics across people skills, processes, technology usage and measurement strategies.

• Business operations assessments: Gap analysis of existing processes and provide the roadmap to close these gaps using "analyse, evaluate, assess and recommend" framework.

• Risk management: Identify the risks in the revenue chain and plug leakages in a timely manner, through regular end to end assessment of the existing business and revenue streams. Subexs custom framework is based on a thorough understanding of risks, creating a Risk Control Matrix utilizing TM Forum standards, and developing comprehensive standard operating procedures.

• Business process re-engineering: Review of the existing business processes and then design and implement the new business process after considering the best industry practices.

• System integration and IT support operations: While migrating from legacy OSS/BSS infrastructure, Subex provides extensive checklists and exhaustive test cases making sure that migration cost is reduced. Subex can also help in carrying out customized health-check of RA and FM IT operations of telcos.

• Product and service margin assurance: Assessment of the target market and holistic margin and profitability check for the entire service and product catalogue.

• Portfolio optimization: Optimizing offering portfolio by holistic assessment of products and offerings considering subscriber base, price points, usage patterns, revenue share and benefit comparison with other offerings.

Managed Services

Our Managed Services offerings are designed to drive outcome and protect revenues by enhancing customer experience. Pillared on four main aspects i.e. Cost, Quality, Time-to-market and Capability, the engagement is aimed to provide rapid ROI, increase efficiency and in-turn deliver maximum value. Driven by robust technology- led capabilities, Subex Managed Services offers a variety of engagement models providing complete flexibility to operators based on their business needs.

Subex Managed Services program is designed to add both strategic and tactical value to service providers operations and enable better customer experience while also enhancing their operational efficiency, service agility and profitability. With Subex at the helm of its operations, service providers can redirect critical resources at core business functions generating more revenue and saving costs.

Subex understands that no two service provider requirements are alike and hence offers the flexibility to pick and choose services based on:

• Scope of Operations: Ranging from standard operations to large scale transformational programs

• BSS/OSS Domains: Drawing from Subexs established expertise on various BSS/OSS domains

On-Site Support: High caliber, experienced resources to ensure functional continuity and high resource efficiency.

End-to-End Managed Services

This model is perfect for most operators in todays market as it results in the highest performance with the lowest Opex and Capex.

SUBEX MANAGED SERVICES

SMART services leveraging proven technology

On-demand, Software-as-a-Service (SaaS) - ROC cloud

Small and medium telcos have business support system (B/OSS) needs that are very different from those of larger telcos. In the same vein, most B/OSS products are developed to address the needs of large telcos. They are loaded with a host of standard features, not all of which are relevant to smaller organizations, and necessitate a substantial investment in licenses and resources. Quite naturally, it is difficult to justify this investment in most small and medium organizations. Subex is recognized as the leader in the business optimization space and has pioneered the concept of the ROC - the Revenue Operations Center - to enable profitable growth through coordinated operational control. The same ROC is delivered as a service to suit the needs of small and medium telcos in the form of ROC cloud.

OUR GLOBAL CUSTOMER BASE

Subex today serves over 300 installations spread across 90+ countries. This includes 3/4th of the largest 50 CSPs globally. A partial list of customers is given below:

APAC-Astro, Airtel, CAT, Celcom, DTAC, Digi Malaysia, DST Brunei, Indosat Ooredoo, Maxis, Mobifone, Ncell, Optus, Unifi Mobile, PLDT, Reliance Jio, Robi Axiata, Starhub, Singtel, Smart Axiata, Tata Teleservices, Telenor Myanmar, Telstra, Telkom Indonesia, True Move, Vinaphone, VodafoneIdea.

Americas-AT&T, Bell Canada, BTC Bahamas, Buckeye, C&W Panama, Charter Communications, Cincinnati Bell Wireless, Claro Brazil, Claro Colombia, Claro Dominican Republic, Cogeco, Comcast Cable, Cox Communications, Entel Bolivia, Movistar Colombia, Movistar Mexico, MTS, Rogers, Shaw Communications, Nextel Brazil, ICE, Telcel, Telus, Telefonica, Tigo, T Mobile, Verizon.

EMEA- Airtel, Almadar, Atalntique Telecom, , Azercell, AlbTelecom Batelco, , BTC Botswana, BT, Cell C, Colt, Coolwave, Cyta, Du, Econet, Ethio Telecom, Etisalat UAE, Etisalat Nigeria, Geocell, Glo, Go, Interoute, IPKO, INWI, Jawwal, KCell, Century Link, Liberty Global, Lifecell, Mascom, Melita, Mobily, Moldcell, , Omantel, , Ooredoo Algerie, Ooredoo Kuwait, Ooredoo Tunisia, Ooredoo Qatar, Orange Mali, Orascom Algeria, Paltel, , Sabafon, Sonatel, STC, Swisscom Talk Talk, Telcom Egypt, Telecom Romania, Telefonica, Telekom, Slovenjie, Telenor, Telia Company, Teo, Tunise Telecom, Turk Telecom, Ucell, Viva, Vodafone Ireland, Vodafone Turkey, Vodafone Romania, Vodafone Ziggo, Zain.

THE CSP INDUSTRY - the mobile market and its outlook

A major share of the CSP industry is focused on the mobile market and we will focus on the mobile market as well as the other interconnected areas that make up the ecosystem.

Mobile penetration continues to grow but at a slower pace

As per GSMA, by the end of 2018, 5.1 billion people around the world subscribed to mobile services, accounting for 67% of the global population. While a total of 1 billion new subscribers have been added in the four years since 2013 (representing an average annual growth rate of 5%), but the speed of growth is definitely slowing. The market expects an average annual growth rate of 1.9% between 2018 and 2025 which will bring the total number of mobile subscribers to 5.8 billion (71% of the population).

It has been estimated that in 2018, mobile technologies and services generated 4.6% of GDP globally which is equivalent to $3.9 trillion of economic value added. Not only this, the ecosystem also supported almost 32 million jobs (directly and indirectly). The GSMA report mentions that by 2023, mobiles contribution will reach $4.8 trillion (4.8% of GDP) as countries around the globe increasingly benefit from the improvements in productivity and efficiency brought about by increased take-up of mobile services.

4G becomes the technology of choice while 5G is here to stay

4G surpassed 2G in 2018 to become the worlds leading mobile technology, with 3.4 billion connections representing 43% of the total (excluding licensed cellular IoT). With growth coming rapidly, especially across developing markets, 4 G will soon become the dominant mobile technology, exceeding half of global mobile connections in 2019 and reaching 60 percent in 2023.

Meanwhile, 5G is now a reality. Following market launches in the United States and South Korea towards the end of 2018, by the end of 2019, 16 more major countries will launch 5 G networks. While it will take some time for 5G to hit critical mass, some markets will see relatively rapid growth (for example, South Korea, US and Japan). The speed at which 5 G is adopted and the value it will generate will be affected by three factors: value generation opportunities, cost considerations, and deployment dependencies.

Mobile operators are investing around $ 480 billion worldwide between 2018 and 2020 in mobile capex to support this generative shift and further increase consumer engagement in the digital era. Half of this will be from countries expected to have launched 5G by 2020. However, since most 5 G deployments will occur after 2020 (64 markets over the 2021-2025 period, bringing the total to 116), we expect capex to grow above the approximately 160 billion dollars expected in 2020.

As the boundaries between mobile and the wider digital ecosystem continue to blur and data monetisation poses an ongoing challenge, many operators are moving beyond their traditional (mobile and fixed) telecommunications businesses to explore new revenue streams in a rapidly changing competitive environment. While this strategic play has different approaches, timelines and scales, the predominant drivers are the rise of IoT, the evolution of the content ecosystem, the transformative power of AI for network operations and services, and the onset of a new era of connected devices.

While telecoms will continue to be the dominant source of revenue for operators in the near to medium term, these new opportunities have the potential to provide new revenue streams and add business capabilities to allow operators to play a key role in the future digital ecosystem.

loT will be omnipresent

The number of loT connections (cellular and non- cellular) is expected to triple worldwide between 2018 and 2025 to reach 25 billion. Growth will be driven by a proliferation in the segments of smart building and smart home, together accounting for over half of the 16 billion new IoT connections over this period. Rising investor financing and a supportive ecosystem for innovation will help support this growth, along with regulatory pressure for energy efficiency. In addition, network connectivity developments, led by operators, will play a key role in adapting to a variety of IoT use cases. At the end of 2018, there were 83 commercial deployments of LTE-M and NB-IoT worldwide.

Global IoT revenue meanwhile is expected to increase at an average annual rate of 23% to 2025 to reach $1.1 trillion, a fourfold increase on 2018. However, connectivity is expected to become increasingly commoditised, declining from 9% of total IoT revenue in 2018 to 5% in 2025. Therefore, mobile operators deploy different strategies and business models to move beyond offering connectivity only: their role in the value chain could vary from providing essential tools and capabilities to IoT solutions for ecosystem partners to becoming an end-to-end IoT solution provider itself.

Artificial Intelligence to drive Global Economy

Artificial intelligence has the potential to incrementally add 16 percent or around $13 trillion by 2030 to current global economic output-an annual average contribution to productivity growth of about 1.2 percent between now and 2030, according to a September, 2018 report by the McKinsey Global Institute on the impact of AI on the world economy.

AI could potentially lead to a gross GDP growth of around 26 percent or $22 tril lion by 2030. The major contributors to this figure are the automation of labor, which could add up to 11 percent or around $9 trillion to global GDP by 2030, and innovations in products and services, which could increase GDP by about 7 percent or around $6 trillion by 2030.

However, it is believed that in addition to its economic benefits, AI will also lead to significant disruptions for workers, companies and economies. There will likely be considerable costs associated with managing labor-market transitions, especially for workers being left behind by AI technologies, which could reduce the gross impact of AI by around 10 percentage points, leading to the aforementioned net GDP increase of 16 percent or $13 trillion by 2030.

Subex as a leading telecom solutions provider is uniquely positioned to help telcos to embrace digitial transformation from a business optimization provider. As 4G-5G connections would give significant opportunities for telcos to offer digital services, there is a very good opportunity for Subex to offer its risk and security portfolio for these services. In addition to that, Subex can also offer its asset assurance solution helping operators in optimizing their costs of networks. Lastly, with its advanced analytics and insights solutions, Subex can help global telcos in enhacing customer experience for digital services rolled out on 4G-5G networks.

Key Projects Won/Executed in FY 19 Subex wins multi-million-dollar contract from Optus to deploy its ROC Network Asset Management solution:

The Company won a multi-million-dollar contract with Optus, Australia to implement its ROC Network Asset Management solution. Optus is one of the largest telecom operators in Australia and a fully owned subsidiary of Singtel. They offer mobile, enterprise and wholesale services and home entertainment, exclusive content including EPL.

Subex was selected after successfully demonstrating its strong domain expertise and unique value proposition while showcasing the superiority of its solution. As part of the deal, Subexs ROC Network Asset Management will enable Optus to control all of its existing and new network investments through a well- defined network efficiency framework. This implementation will further help Optus to protect their network investments, improve utilization visibility and provide better financial controls.

Opening a new loT security Lab in Bengaluru:

An IoT Security Lab was inaugurated in this fiscal which will be open to public- private partnerships with universities. The lab provides research opportunities on IoT Security threat intelligence using a one-of-its kind honeypot network. This along with the continuous monitoring of over 8.5 million customer devices has enabled the Company to obtain 30% more IoT and ICS threat signatures and thereby offer a comprehensive IoT threat intelligence and prevention solution to our customers.

Florence, Arizona partners with Subex to cyber-secure critical infrastructure:

Subex partnered with the Town of Florence, Arizona to provide security to its critical public infrastructure. As part of this partnership, Subex will provide end-to-end cybersecurity to detect, repel and remediate advanced threats to Florences most basic and vital technological systems. When Florence launches its smart cities project, Subex will continue to be the cybersecurity partner for all projects coming under the plan.

Through this partnership, the Town of Florence is leading the way by becoming one of the first cities to protect its public infrastructure through solutions, strategies, and measures provided by Subex. This partnership is a landmark one and will pave the way for other cities to adopt similar measures thereby ensuring the highest levels of protection for smart city projects across the United States.

Telefonica partnered with Subex On New Cybersecurity Venture:

Subex has joined hands with Telefonica to secure the world of IoT across devices, networks and other infrastructure components.

Through this partnership, both companies will collaborate on IoT security centered around Subexs IoT offerings. Telefonica will be using Subexs offerings to secure IoT deployments on its network while also offering them to other enterprises interested in deploying an IoT security solution. One of the objectives of this partnership is to remove the notion that security is a barrier for the adoption of IoT and showing that instead, security can be a key to unlocking demand and improve the adoption by providing holistic and robust IoT security solutions. Security around IoT is gradually turning into a competitive advantage and businesses can look at leveraging IoT security as a differentiator factor while adhering to regulatory compliance mandates.

Subex wins 5-Year multi-million-dollar contract with BTC:

Subex won a 5-year multi-million-dollar deal with Botswana Telecommunications Corporation Limited (BTC), a leading telecommunications services provider in Botswana. As part of the deal, Subex will be implementing its integrated ROC Revenue.

Assurance and ROC Fraud Management Platform (iRAFM), along with its ROC Partner Settlement and ROC Route Optimization. This deal also marks the continuation of Subex and BTCs long-standing partnership which dates back to 2010.

Through the multi-solution deployment of iRAFM, Subex will enable BTC with an out-of-the-box solution to combat prevalent frauds such as Subscription Fraud, Internal Fraud, Premium Rate Service Fraud (PRS Fraud), and International Revenue Share Fraud (IRSF), amongst others. The solution will also prevent losses through revenue leakage by providing a solution with capabilities to investigate, diagnose and recover any lost revenues.

The ROC Partner Settlement deployment will offer BTC a 360-degree view of their interconnect agreements to help better manage revenue and margins across their partner ecosystem. Moreover, through ROC Route Optimisation, Subex will provide BTC with a solution that analyzes existing data in terms of operator tariffs and quality of service and generates forecasts to help make an informed choice of interconnect operator partne Rs. In addition to this, Subex will also provide BTC with Managed Services expertise to help them implement the best practices and get the most out of the deployment.

Subex awarded 6-year contract from VodafoneZiggo:

The company has been awarded a six-year deal with VodafoneZiggo, a Netherlands based operator offering fixed, mobile and integrated communication and entertainment services to consumers and businesses. Subex will deploy its ROC Partner Settlement and Route Optimization Solutions. The solution will be deployed on a SaaS-based model for VodafoneZiggos new Interconnect Billing Platform, replacing three different existing legacy billing systems with a single solution, to reduce complexities and optimize costs. This deployment will also help VodafoneZiggo further reduce its operational costs through the Subex Managed Service Center of Excellence, to which certain business operations will be outsourced.

Apart from reducing operational costs, the deployment will also allow VodafoneZiggo to generate more revenues through the new functionalities of the ROC platform, in addition to improving interconnect billing and reconciliations.

RISKS AND CONCERNS

As our investor, you already understand that risks are part of any business. It is not possible to detail every risk to the business.

But, we wanted to provide some information on certain risks including:

(a) reduction in consumer and business purchasing;

(b) consolidation in our customer base;

(c) dependence on communications service providers as our major customers;

(d) security;

(e) improper disclosure of personal data could result in liability and harm to our reputation;

(f) Technology changes and obsolescence may impact our business;

(g) recruiting and retention of personnel is challenging;

(h) adequately protecting our intellectual property may not be possible;

(i) allegations of infringement of third party intellectual property poses risks;

(j) variability of our quarterly operating results makes comparisons difficult;

(k) non-compliance with statutory obligations may result in fines and penalties;

(l) non-compliance with environmental regulations may lead to fines and penalties;

(m) foreign exchange fluctuations may lead to variability in our revenue;

(n) SEZ related taxation benefits may be uncertain;

(o) failure to fulfill contractual obligation may lead to claims; and

(p) debt obligations. Below, we will discuss each of these risk factors in some more detail.

There are, of course, additional risks faced by us.

Reduction in Consumer and Business Purchasing

We depend on our customers - primarily large communication service providers ("CSPs"). If our primary customers face reduced revenue, we will also face reduced revenue. CSPs primary customers are consumers and businesses. Of course, reductions in spending by consumers or businesses will reduce revenue of CSPs. And, this will result in decreased spending by the CSPs which means reduced revenue for us.

Consolidation in our customer base

CSPs have gone through considerable consolidation. The consolidation, or merger, of one CSP with another can have at several impacts on us. First, it will simply reduce the overall size of the market; each consolidation effectively reduces the number of potential customers for our products. Secondly, it can and does happen that one of our existing customers can undergo a consolidation. In that event, the other party to the consolidation may already have competing products and the combined company may choose to continue with the use of the competing product rather than use our product/ services. Of course, it can also happen that the two companies, when combined, choose to use our products which may have a positive impact on our revenue. Another possibility is that two existing customers merger. The consolidation of two customers will have an adverse effect on our revenue as the combined company attempts to reduce their consolidated spending. Finally, larger customers simply have more negotiating power leading to reduced prices for our products. The Company strives to have a deep penetration within the accounts that it serves so as to provide an edge over competitors and be a preferred choice during such consolidations.

Dependence on the Communications Service Providers as our major customers

We mentioned above our customers are primarily CSPs. We are fully dependent on CSPs as our major customer base. As a result, we are fully susceptible to any downturns or negative changes in the CSP industry.

Security

You must be well aware that security threats are prevalent everywhere today. This is, perhaps, especially true in the technology industry where we participate. The security vulnerabilities take many forms.

Hackers may attempt to compromise computer systems and networks. Fraudsters may attempt to steal the identity of our personnel to gain access to our computer systems, networks and even banking systems. Terror activity could have an adverse impact on our business. We may fail to adequately design our products leaving our customers exposed to hacking and other network vulnerabilities. Perhaps this concern - of failure to adequately design our products leading to exposure of our customers information is one of the largest concerns. If one of our customers faced a security breach allegedly as a result of use of our products, it would cause significant reputational risk to us and may lead to claims against us.

We devote significant resources to mitigate security threats including threats to our internal IT systems, with respect to our products and with respect to physical security of our buildings. But, there cannot be any guarantee that these efforts will avoid security breaches.

Improper disclosure of personal data could result in liability and harm our reputation

You are probably aware of the global trend toward more sensitivity regarding improper disclosure of personal data. This global trend has a number of impacts on us. There are additional laws and regulations in many jurisdictions. This not only leads to increased administrative costs of compliance and increased difficulties in doing business but violations of these laws and regulations involve higher and higher fines and penalties. At the same time, we are storing and processing increasingly large amounts of personal data which leads to increased potential exposure.

We take what we consider to be appropriate steps to provide for the security and protection of all data including personal data. But, despite these efforts, it is possible our practices may not prevent the improper disclosure of personal data. Improper disclosure of this information could harm our reputation, lead to legal exposure, lead to claims against us by customers including claims for indemnification or subject us to liability under laws that protect personal data, resulting in increased costs or loss of revenue.

It is important to note that our potential liability for customer financial damages associated with losses of personal data is generally not limited by limitation of liability provisions in customer contracts.

In addition to risks related to improper disclosure of personal data, new laws and regulations are being implemented. One significant new regulation is the European General Data Protection Regulation ("GDPR") which went into full effect in May 2018. Compliance efforts related to these laws and regulations is significant and could be a distraction from other activities. Further, even without any actual improper disclosure of personal data, non-compliance could result in large fines. Still further, customer focus on these laws and regulations could delay or jeopardize sales and installations of Subex products.

Technology changes and obsolescence may impact our business

We experience rapid technological changes which could make our technology and services obsolete, less marketable or less competitive. These changes result in our need to continually improve the features, functionality, reliability and capability of our products which poses development challenges and expenses. We may not be able to adapt to these changes successfully or in a cost- effective way which may adversely affect our ability to compete and retain customers or market share.

While the rapid technological changes require us to change our products, launching new products is also a key element of our growth. An inability to bring new products with high demand to the market in a timely manner will reduce our growth and profitability.

We make strong efforts to put in place processes and methodologies to address these issues and to turn it into a strategic advantage by being in the forefront of technological evolution. For example, regular skill upgradation programs and training sessions that include attending global conferences and employing specialized consultants etc. are undertaken.

Recruiting and Retention of Personnel is challenging

The retention of personnel generally and, in particular, skilled software personnel is a major risk we face. To assist with our recruiting and retention efforts, we attempt to put in place an empowering atmosphere with opportunity for growth, extensive mentoring and career counseling, and the opportunity to work in cutting edge and challenging technologies. Nonetheless, a competitive environment for personnel with the skills we require poses risks and challenges.

Adequately Protecting Our Intellectual Property may not be possible

We operate in a global environment; protecting our proprietary technology in the many different jurisdictions we operate in is challenging. We depend on a combination of technical innovations, as well as copyrights and trade secrets for protection of our technology. We also maintain patent and trademark protection as we deem appropriate. But, some jurisdictions have limited laws protecting technologies. Other jurisdictions, even if they have laws, have limited or difficult enforcement systems. And, even in jurisdictions with adequate laws and enforcement systems, detection of infringement of our rights may be difficult and, even if detected, engaging in litigation to enforce our rights would be expensive.

Departure of our personnel, especially to a competitor, is a particular risk to our technology and intellectual property rights. We generally require all employees and advisors to sign agreements which require that our information is maintained as confidential during and after employment. These agreements also assign or otherwise vest rights in the intellectual property developed by these employees and advisors in the company. Even so, these agreements may not effectively prevent disclosure of our information or effectively assign rights to us. Further, detection of violation of these agreements may be difficult and it may be difficult to enforce these agreements even when violations are detected. You wil l understand that any exposure of our information by former employees or any failure to adequately have rights assigned to us, may have a material adverse effect on our business, financial condition and results of operations.

Allegations of Infringement of Third Party Intellectual Property poses

Risks

We may face claims by third parties that our products infringe on their intellectual property rights. Whether or not we prevail in any intellectual property dispute, defending the dispute may be expensive, it may distract our management and other key personnel and its outcome is uncertain. Further, if any of our products are found to infringe the intellectual property rights of others, or if we settle a claim in an adverse manner, it may restrict or prohibit further development, manufacture and sale of our products. And, a loss or adverse settlement may require us to pay substantial damages. We may also be forced to seek licences to continue to use the intellectual property. These licences may not be available on commercially acceptable terms or at all.

Furthermore, we are required to indemnify our customers against third-party claims of infringement of intellectual property arising out of customers use of our products and services. Typically, our liability for such indemnification is not limited by limitation of liability provisions in customer contracts.

Further, we are often in possession of proprietary information of our customers. This information may be wrongly used or disclosed or may be misappropriated by employees of the Company or othe Rs. This would result in a breach of our contractual obligations to our customers. Any such breach may subject us to a significant claim from the customer for damages and may also significantly damage our reputation.

The Company has a consistent program of requiring NDAs before disclosure of Company trade secrets/confidential information to third parties. Employees must sign confidentiality terms as part of employment.

Historically, the Company has not received any allegation of infringement of third party intellectual property. However, especially as the Company invests in and introduces new product lines allegations of infringement of third party intellectual property rights, against us or our customers with respect to our products, or any allegation of breach of our confidentiality obligations to our customers could have a material adverse effect on our business, financial condition and results of operations.

Variability of Our Quarterly Operating Results Makes Comparisons Difficult

Our quarterly operating results have varied in the past due to reasons like seasonal pattern of hardware and software capital spending by customers, information technology investment trends, achievement of milestones in the execution of projects, hiring of additional staff and timing and integration of acquired businesses. Hence, the past operating results and period to period comparisons may not indicate future performance. Our management is attempting to mitigate this risk through expansion of our client base geographically and increasing steady annuity revenue such as through managed services.

Non-compliance with statutory obligations may result in fines and penalties

We face certain statutory obligations. Some of these obligations arise from the fact that we have registered with Special Economic Zone for software development activities and have availed Customs Duties and Goods and Service Tax exemptions. The nonfulfillment of export obligations or other non-compliance with statutory obligations may result in penalties as stipulated by the Government and this may have an impact on future profitability. The Company has team of in-house attorneys and engages outside counsel/consultants on an as-needed basis. An ongoing monitoring mechanism has been established with respect to applicable laws.

Certifications and compliance

Subex is certified for both information security and quality management system. Periodic reviews and internal audits of projects and the organization are conducted to ensure internal controls are adequate to provide confidence to management and customers. A system is in place to identify and manage process changes methodically. There is people involvement across organization in the activities of process development, implementation and reviews, there by achieving continual improvement. A centralized process repository helps people easy to access the required processes to perform their activities

Non-compliance with Environmental Regulations may lead to fines and Penalties

Software development, being generally a pollution free industry, means we are not subject to significant environmental regulations. Nonetheless, non-compliance with applicable environment regulations may lead to significant fines and penalties. We do adhere to the guidelines for disposing of E-wastes as stipulated by the E-Waste (Management and Handling) Rules.

Foreign Exchange Fluctuations May Lead to Variability in Our Revenue

We have substantial exposure to foreign exchange related risks on account of revenue from export of software and outstanding liabilities. There is a natural hedge to the extent of expense incurred in same currency. Despite this, particularly given the volatility in the foreign exchange market, there could be significant variations.

SEZ related taxation benefits may be uncertain

We in India operate out of Special Economic Zone ("SEZ"). SEZ units currently avail various tax benefits. While tax benefits continue under the GST regime, there might be some uncertainty on the benefits due to frequent changes in the GST Laws in India. This could potentially lead to incidence of higher tax.

Failure to Fulfill Contractual Obligation May Lead to Claims

We enter into contracts with our customers in the ordinary course of business under which we are obligated to perform and act according to the contractual terms. Any failure to fulfill these contractual obligations may expose us to financial, reputational and other risks.

Our management believes it has taken sufficient measures to assure it meets its customer contractual obligations. Nonetheless, there cannot be any assurance that a customer will not allege a breach by us of our obligations.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

In accordance with the provision of Section 134(5) of the Companies Act, 2013, and as per the provisions of the SEBI (LODR), Regulations, 2015, the Company has an Internal Control System, commensurate with the size, scale and complexity of its operations.

Such internal financial controls were found to be adequate for a Company of this size. The controls are largely operating effectively since there has not been identification of any material weakness in the Company. The Directors have in the Directors Responsibility Statement under paragraph (e) confirmed the same to this effect. The Company has policies and procedures in place for ensuring proper and efficient conduct of its business, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records and timely preparations, reliable financial information. The Company has adopted accounting policies which are in line with Indian Accounting Standards ("IndAS").

Pursuant to the provisions of the Section 134(5)(f) of the Act, the Company during the year devised proper systems to ensure compliance with the provisions of all applicable laws. Any matter that required attention was immediately dealt with. The compliance system was largely found to be adequate and operating effectively. The Directors have in the Directors Responsibility Statement under paragraph (f) also confirmed the same to this effect.

The Internal Auditors monitor and evaluate the efficacy and adequacy of internal control system in the Company, its compliance with operating systems, accounting procedures and policies at all locations of the Company and its subsidiaries. Based on the report of Internal Auditors, process owners undertake corrective action in their respective areas and thereby strengthen the controls.

Significant audit observations and corrective actions thereon are presented to the Audit Committee of the Board.

Subex is certified for ISO 9001:2008 (Quality Management System) and ISO 27001:2013 (Information Security Management System). Internal audits are conducted periodically for projects and support functions to adhere to these international standards. These audits are conducted across Bengaluru, UK and US locations to ensure processes are followed to provide a better customer experience. Summary of the audits are shared across organization to help understand strengths and weaknesses in the system. People involvement in organization process initiatives is one that approaches towards achieving better compliance, standardizing activities to consistently achieve better customer satisfaction.

This year, the emphasis was more towards reviews and updates on processes for projects and organization, alignment to the new organization structure. Identification and Involvement of process owners to review processes and make it relevant and align it to the organization. Some of the requirements which were specific to customer were customised, with audits conducted for some of the accounts.

DISCUSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE

Key Financials and Ratio Analysis: (Rs. in Lakhs)
Financial Highlights/Year Ending 31st March

2018-19

2017-18

Consolidated Standalone Consolidated Standalone
Revenue from operations 34,812 1,916 32,432 17,993
Total Income 34,913 2,091 32,572 18,694
Earnings Before Interest, Exceptional Items & Taxes (EBIT) 4,823 (861) 2,910 244
Profit/(Loss) before Exceptional items & tax 4,708 (2,455) 2,275 (200)
Exceptional Items - - 1,166 389
Profit/(Loss) before tax 4,708 (2,455) 3,441 189
Tax expenses 2,186 (2) 1,373 157
Profit/ (Loss) after tax 2,522 (2,453) 2,068 32
Other comprehensive income (428) (3) (240) (8)
Equity dividend % Nil Nil Nil Nil
Share Capital 56,200 56,200 56,200 56,200
Reserves & Surplus 23,210 14,949 21,745 18,034
Net worth 79,410 71,149 77,945 74,234
Gross Property, Plant & equipment and intangible assets 2,424 6,286 2,137 6,287
Net Property, Plant & equipment and intangible assets 547 5,005 719 5,624
Total Assets 89,649 74,479 89,768 75,148

 

Key Indicators

2018-19

2017-18

Consolidated Standalone Consolidated Standalone
Debtor Turnover Ratio 3.91 1.74 3.07 1.77
Interest Coverage Ratio 58.82 - 6.91 0.63
Current Ratio 2.24 0.29 1.73 1.80
Earnings per Share (Yearend) 0.45 (0.44) 0.37 0.01
Debt (including Working capital) Equity-% 0.13 0.05 0.15 0.01
EBITDA/Sales - % 15.24 (12.32) 10.57 5.26
Net Profit Margin - % 7.24 (128.03) 6.38 0.17
Return on year end Net Worth % 2.64 (3.45) 2.35 0.03
Return on year end capital employed % (EBIT/ Capital Employed) 5.86 (1.21) 3.65 0.33

COMMENTARY ON FINANCIAL STATEMENTS Share Capital

During 2017-18, the Company allotted 55,094,999 equity shares on a preferential basis at Rs.14 per share to QVT Singapore Fund Pte. Ltd, Tonbridge (Mauritius) Ltd and Leeds (Mauritius) Ltd (Non Promoters).

The Company has not allotted equity shares in 2018-19.

Reserves and Surplus

During the year 2017-18, the balance of Foreign Currency Translation Reserve of Rs.11,821 Lakhs has been included in the Reserves and Surplus to bring it in line with Schedule III of the Act.

During the year 2018-19, the balance of Foreign Currency Translation Reserve of Rs.12,211 Lakhs has been included in the Reserves and Surplus to bring it in line with Schedule III of the Act.

Securities Premium Account includes the premium collected on 55,094,999 equity shares that were allotted during the year 201718 at a premium of Rs.4/- per share. The shares were allotted to Non-Promoters, on preferential basis.

Employee Stock Options

In accordance with the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 [previously known as Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999], the Company amortizes the excess of market price of the underlying equity shares as on the date of the grant of the option over the exercise price of the option, to be adjusted over the period of vesting. The net amount carried in respect of stock options outstanding at March 31, 2019 amounts to Rs.18 Lakhs (Previous Year: Rs.2 Lakhs).

Short Term Borrowings

During the previous year 2017-18, pursuant to the restructuring of the Company, balance of loan outstanding from Axis bank was transferred to Subex Assurance LLP This loan has been secured by primary charge on customer receivables of Subex Assurance LLP ("SA LLP") and paripassu first charge on the current assets of SA LLP, and collateral paripassu first charge on the fixed assets of SA LLP.

As at March 31, 2018, the Company had an outstanding balance of Rs.3,215 Lakhs from Axis Bank on a consolidated basis and Rs. Nil on a standalone basis.

As at March 31, 2019, the outstanding balance of short-term borrowings is H Nil in the books of Consolidated & Standalone financial statement.

Fixed Assets

During the year, the Company added Rs.317 Lakhs on consolidated basis and Rs.12 Lakhs on standalone basis, to its gross block of fixed assets. The Company disposed-off certain assets no longer required. The Companys net block of fixed assets was Rs.547 Lakhs (Previous year Rs.719 Lakhs) on consolidated basis and Rs.5,005 lakhs (Previous year Rs.5,624 lakhs) on standalone basis.

Investments

During the year 2018-19 and previous year 2017-18, there is no diminution in the carrying value of investment in Subex Americas Inc. Consequently, the carrying value of those investments remains at Rs.936 Lakhs.

During the previous year 2017-18, the Company invested in Limited Liability Partnerships, namely, Subex Assurance LLP and Subex Digital LLP. The consideration was paid in cash amounting to Rs.9,990 each.

During the previous year 2017-18, the Company, in the form of partners capital contribution, invested an amount of Rs.61,564 Lakhs in Subex Assurance LLP and Rs.1,869 Lakhs in Subex Digital LLP. The consideration was discharged by means of transfer of assets and liabilities at fair value.

As at March 31, 2019, the carrying value of investment in Subex Assurance LLP and investment in Subex Digital LLP remains at Rs.61,564 and Rs.1,869 Lakhs respectively.

Trade Receivables

The major customers of the Company are the telecom and cellular operators overseas and in India. The receivables are spread over a large customer base. There is no significant concentration of credit risk on a single customer.

All the debtors are generally considered good and realizable and necessary provision has been made for debts considered to be bad and doubtful. The level of sundry debtors is normal and is in tune with business trends requirements.

The management believes that the overall composition and condition of trade receivables is satisfactory post assessment of doubtful receivables. The Provision for doubtful debts stands at Rs.1,789 Lakhs (Previous year Rs.1,346 Lakhs) on a consolidated basis and Rs.2,255 Lakhs (Previous Year Rs.2,228 Lakhs) on a standalone basis. The Company has written off bad debts from the earlier provision for doubtful debts against the aforesaid trade receivables after obtaining necessary approvals.

Cash and Cash Equivalents

The bank balances include both rupee accounts and foreign currency accounts. The Margin Money deposit of Rs.418 Lakhs (Previous Year: H Nil) on Standalone basis and Rs.672 Lakhs (Previous Year: Rs.370 Lakhs) on consolidated basis with the bankers is for establishing bank guarantee.

Long-terms Loans and Advances

Security Deposits represent rent deposit, electricity deposit, telephone deposits and advances of like nature.

Income

The segment wise break up of income on consolidated basis is given below:

(Rs. in Lakhs)

Particulars

2018-19

2017-18

Value % Value %
Software Products 3,352 9.6% 3,193 9.8%
Software Services 31,460 90.4% 29,239 90.2%
Total 34,812 100% 32,432 100%

Geographically, the Company earns income from export of software products and related services to USA, EMEA & Asia Pacific region.

Other Income

Other income consists of income derived by the Company from Interest on income tax refund, interest on deposits from banks, interest on Inter Company Loans.

Expenditure

The employee benefits expenses increased to Rs.19,105 Lakhs (Previous year: Rs.17,471 Lakhs) on consolidated basis and decreased to Rs.739 Lakhs (Previous year: Rs.6,248 Lakhs) on standalone basis.

The Company incurred administration and other expenses excluding employee benefit expenses, depreciation, finance cost, taxes and exceptional items at 30% of its total Income during the year as compared to 35% during the previous year on consolidated basis and 73% of its total income during the year as compared to 60% during the previous year on a standalone basis.

Operating Profits

During the year, on consolidated basis, the Company earned an Operating Profit before interest, depreciation, tax, amortization and exceptional items of Rs.5,306 Lakhs being 15% of total revenue (Excluding other income) as against Rs.3,427 Lakhs at 11% total revenue (Excluding other income) during the previous year. On a standalone basis, the Company earned Operating Loss before Interest, depreciation, tax and exceptional items of Rs.236 Lakhs, being 12% of total income (excluding other income and share of profit/loss from LLPs) as against an operating profit of Rs.947 Lakhs at 5% during the previous year.

Interest & Bank Charges

The Company incurred an expenditure of Rs.216 Lakhs (Previous year: Rs.775 Lakhs) on a consolidated basis and Rs.4 Lakhs (Previous year: Rs.547 Lakhs) on a standalone basis.

Depreciation

Depreciation and amortization for the year amounted to Rs.483 Lakhs (Previous year: Rs.517 Lakhs) on consolidated basis and Rs.625 Lakhs (Previous year: Rs.703 Lakhs) on standalone basis.

Provision for Tax

The Company has provided for its tax liability in India and overseas after considering the exemptions for income from software services and products under the various applicable tax enactments.

Net Profit

On consolidated basis, the net profit of the Company amounted to Rs.2,522 Lakhs, as against a net profit of Rs.2,068 Lakhs during the previous year. Total Comprehensive Income for the year is Rs.2,094 Lakhs as compared to the income of Rs.1,828 Lakhs during previous year. On standalone basis, the net loss of the Company amounted to Rs.2,453 lakhs as against a net profit of Rs.32 Lakhs during the previous year. Total Comprehensive loss for the year is Rs.2,456 Lakhs as compared to income of Rs.24 Lakhs during previous year.

Earnings per Share

Basic Earnings/(Loss) per share computed based on number of common stock outstanding, as on the Balance Sheet date is of Rs. 0.45 per share (Previous year: H0.37 per share) on a consolidated basis and a loss of Rs.0.44 per share [Previous year: Earning of H0.01 per share] on a standalone basis.

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

Subexians

Our focus for the year was to bring in revenue growth and create a vibrant Subex. Culturally as an organization we take pride in ensuring the experience of the Subexian throughout the employee lifecycle of recruitment, onboarding, performance, learning & growth and offboarding is given utmost importance. And with the host of initiatives we drive, we are on a journey of creating a vibrant Subex.

Our employees are spread across the globe and the larger centers are our offices located in Bengaluru, London, Denver, Dubai and Singapore. As of March 31, 2019, we had 800+ full time Subexians on our rolls globally.

Human Resources at Subex is centralized at our corporate headquarters in Bengaluru, with regional HR teams providing local support aligned to the global HR strategy. The function is a key enabler in the companys growth path by driving focused initiatives towards our talent focus and development.

We take employee engagement very seriously and to that effect have HR policies that are drivers to creating a vibrant Subex. Work from home, Sabbatical, Certification, Team Outing are examples of a few policies which are employee focused.

Happy Feet, a day care facility within the premises for employees is a child care facility we offer to young parents which is being managed by a professional team.

Key hires for the year

Over the period of the last twelve months we have increased talent bandwidth with the hire of key people including Venkatraman G S, Shankar Roddam, Nishith Dave and Santhosh Gopalan in the roles of CFO, COO, Head of Presales and Head of Consulting & Advisory team respectively. This has helped create the pertinent thought leadership paving way for our growth.

Recruitment

During the year, the recruitment team has executed a well thought out manpower strategy to fulfill the organizations talent requirements. In addition to the well established processes like "Coffee with the Hiring Manager", "Post- offer feedback", Subexian referral program, partner feedback, interviewer feedback, Buddy Programme etc., which are already entrenched in the Subex way of adding talent to our team, the focus this year was on optimizing the overall recruitment cost by adopting innovative recruitment approaches.

Keeping the dynamism in the market and the business needs, we have also started a program of proactively hiring fresh graduates and junior resources who will go through our comprehensive training programs to be business ready.

Subexian Onboarding

Statistically it is proven that onboarding ranks #2 (after recruiting) with the second highest business impact of all the HR practices. The ROI that an effective and efficient onboarding practice brings to the table cannot be ignored.

Subex has defined a robust and a comprehensive onboarding process with a clear goal of creating a great day one experience including pick up from home, seating desk allocation and laptop/desktop being made available immediately after the induction. The time spent on paper work has been reduced significantly by completing all such mundane activity online before the joining date. This has led to significantly improving the day one experience.

The process does not limit to only day one. Quantifiable processes to cover the new joinees 30-60-90 training plan, regular polls and interventions take place to assess employee engagement.

The new joinee training is then followed up with an on-the-job training to strengthen the knowledge and skills learnt during the training period.

Performance Management

This year the focus has hinged dramatically on high performance with the aim of driving meritocracy. The HR team in consultation with business drove multiple high- performance programs in the form of rewarding high performers with enhanced roles and incentive benefits.

The ask of the current work generation is to receive constant coaching and feedback. This is being catered to by the introduction of Continuous Performance Management (CPM) which enables both the Subexian and the manager to seek and give feedback instantly.

Learning & Growth

Learning & development analysis is a continuous process to align people skills with business goals. A competency matrix of employees has been implemented with the aim of improving the efficiency through personalized skill and knowledge development.

The highlight of this year has been the introduction of asynchronous learning. This approach combines self-study with asynchronous interactions to promote learning, and it can be used to facilitate learning in traditional on-campus learning, distance learning and continuing learning.

Rewards & Recognition

We understand the importance of what appreciating and rewarding good performance and talent is. And although a recognition program involves costs, the outcome is significant. Some of the advantages are -

• Increases the repetition of desired behaviors, thereby aligning people with the desired organizational goals

• Better employee job satisfaction

• Enhances team spirit

• Lowers employee turnover by acting as a retention tool.

• Lowers incidences of negative behavior, reduces absenteeism, increases productivity, and decreases stress on the job.

• Maintains a strong employer brand

• Acts as an allied HR process for meeting learning goals

We launched our revised rewards and recognition program called

World of Winners (WoW)with a sole aim of mimicking the above. Some of the key highlights of this program are an award wall (which displays photos of winners along with a short description of why they won the award), surprise rewards and hardship rewards.

We also institutionalized a one of its kind rewards and recognition event. Key behaviors and traits were identified and Subexians who displayed that were nominated for the awards. A neutral panel was set up to pick winners from the nominations.

Compensation

Compensation at Subex is multi-dimensional and consists of fixed salary, variable salary, benefits, health and disability insurance, etc.

We benchmark our compensation package against industry data and strive to achieve a balanced position. We also arrive at the salary bands of Subexians by conducting comprehensive job matching, data validation and quality audits.

We as an organization are committed to the growth and development of our employees and will continue to invest in mind, money and effort towards this.