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Tidel Park, Second Floor
No. 4, Rajiv Gandhi Salai, Taramani
Chennai 600 113, India
(91) 44-2254-0770
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover Form
20-F or Form 40-F. Form 20F þ Form 40 F o
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Regulation S-T Rule 101(b) (1). Yes o No þ
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by
Regulation S-T Rule 101(b) (7). Yes o No þ
Indicate by check mark whether the registrant by furnishing the information contained in this Form
is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the
Securities Exchange Act of 1934. Yes o No þ
If “Yes” is marked, indicate below the file number assigned to registrant in connection with Rule
12g3-2(b). Not applicable.
Currency of Presentation and Certain Defined Terms
Unless the context otherwise requires, references herein to “we,”“us,” the “Company” or “Sify” are
to Sify Technologies Limited, a limited liability Company organized under the laws of the Republic
of India. References to “U.S.” or the “United States” are to the United States of America, its
territories and its possessions. References to “India” are to the Republic of India. In January
2003, we changed the name of our Company from Satyam Infoway Limited to Sify Limited. In October
2007, we again changed our name from Sify Limited to Sify Technologies Limited. “Sify”,
“SifyMax.in,”, “Sify e-ports” and “Sify online” are trademarks used by us for which we have already
obtained the registration certificates in India. All other trademarks or trade names used in this
quarterly report are the property of their respective owners.
In this report, references to “$,”“US$,”“Dollars” or “U.S. dollars” are to the legal currency of
the United States, and references to “Rs,”“rupees” or “Indian Rupees” are to the legal currency of
India. References to a particular “fiscal” year are to our fiscal year ended March 31 of that year.
For your convenience, this report contains translations of some Indian rupee amounts into U.S.
dollars which should not be construed as a representation that those Indian rupee or U.S. dollar
amounts could have been, or could be, converted into U.S. dollars or Indian rupees, as the case may
be, at any particular rate, the rate stated below, or at all. Except as otherwise stated in this
report, all translations from Indian rupees to U.S. dollars contained in this report have been
based on the noon buying rate in the City of New York on September 30, 2008 for cable transfers in
Indian rupees as certified for customs purposes by the Federal Reserve Bank of New York. The noon
buying rate on September 30, 2008 was Rs .46.45 per $1.00.
Our financial statements are prepared in Indian rupees and presented in accordance with
International Financial Reporting standards, or IFRS. In this report, any discrepancies in any
table between totals and the sums of the amounts listed are due to rounding.
Information contained in our websites, including our principal corporate website, www.sifycorp.com,
is not part of this report.
Forward-looking Statements May Prove Inaccurate
IN ADDITION TO HISTORICAL INFORMATION, THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE SUBJECT TO
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED
IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED IN THE SECTION ENTITLED “RISK FACTORS” AND ELSEWHERE IN THIS REPORT.
YOU ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH REFLECT
MANAGEMENT’S ANALYSIS ONLY AS OF THE DATE OF THIS REPORT. IN ADDITION, YOU SHOULD CAREFULLY REVIEW
THE OTHER INFORMATION IN THIS REPORT AND IN OUR PERIODIC REPORTS AND OTHER DOCUMENTS FILED WITH THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) FROM TIME TO TIME. OUR FILINGS WITH
THE SEC ARE AVAILABLE ON ITS WEBSITE, WWW.SEC.GOV.
SIFY TECHNOLOGIES LIMITED
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(In thousands, except share, per share data and as stated otherwise)
1. Reporting entity
Sify Technologies Limited, (‘Sify’ / ‘the Company’) formerly known as Sify Limited, is a
leading internet services provider headquartered in Chennai, India. These Unaudited
Consolidated Interim Financial Statements as at and for the quarter ended September 30, 2008
comprise the Company and its subsidiaries (Sify Communications Limited, Sify Networks Private
Limited and Sify International Inc) (together referred to as the ‘Group’ and individually as
‘Group entities’) and the Group’s interest in associate companies. The Group is primarily
involved in providing services, such as Corporate Network and Data Services, Internet Access
Services, Online Portal and Content offerings and in selling hardware and software related to
such services. Sify is listed in the NASDAQ Global market in United States.
2. Basis of preparation
a. Statement of compliance
The Unaudited Condensed Consolidated Interim Financial Statements of the Group have been
prepared in accordance with International Financial Reporting Standards (IFRS) IAS 34 Interim
Financial Reporting. They do not include all of the information required for full annual
financial statements, and should be read in conjunction with the consolidated financial
statements of the Group as at and for the year ended March 31, 2008.
These Unaudited Condensed Consolidated Interim Financial Statements have been approved for
issue by the Board of Directors on March 30, 2009.
b. Functional and presentation currency
Items included in the financial statements in each of the Group’s entities are measured using
the currency of the primary economic environment in which the entity operates (“the functional
currency”). Indian rupee is the functional currency of Sify, its domestic subsidiaries and
Affiliates. US dollar is the functional currency of Sify’s foreign subsidiary located in the
US.
The Unaudited Condensed Consolidated Interim Financial Statements are presented in Indian
Rupees which is the Group’s presentation currency. All financial information presented in
Indian Rupees has been rounded up to the nearest thousand except where otherwise indicated.
Convenience translation: Solely for the convenience of the reader, the financial statements as
of and for the quarter ended September 30, 2008 have been translated into United States dollars
(neither the presentation currency nor the functional currency) at the noon buying rate in the
New York City on September 30, 2008, for cable transfers in Indian rupees as certified for
customs purposes by the Federal Reserve Bank of New York of U.S. $1 = Rs.46.45. No
representation is made that the Indian rupee amounts have been, could have been or could be
converted into United States dollar at such a rate or at any other rate on September 30, 2008
or at any other date.
c. Use of estimates and judgements
The preparation of Unaudited Condensed Consolidated Interim Financial Statements in conformity
with IFRS requires management to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets, liabilities, income and
expenses. Actual results may differ from these estimates. Estimates and underlying assumptions
are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period of change and future periods, if the change affects both.
In preparing the Unaudited Condensed Consolidated Interim Financial Statements, the significant
judgements made by management in applying the Groups accounting policies and key sources of
estimating uncertainties were the same as that were applied to the consolidated financial
statements as at and for the year ended March 31, 2008.
a. The accounting policies applied by the group in these Unaudited Condensed Consolidated
Interim Financial Statements are the same as those applied by the Group in its Consolidated
Financial Statements as at and for the year ended March 31 2008, except as described below.
IFRIC 14, ‘IAS 19 — The limit on a defined benefit asset, minimum funding requirements and
their interaction provides’ guidance on assessing the limit in IAS 19 on the amount of the
surplus that can be recognised as an asset. It also explains how the pension asset or
liability may be affected by a statutory or contractual minimum funding requirement. IFRIC 14
has become applicable to the Company effective April 1, 2008. There amendment does not have a
significant impact on the Group.
Amounts paid towards the acquisition of property, plant and equipment outstanding at each balance
sheet date and the cost of property, plant and equipment that are not ready to be put into use
are disclosed under construction-in-progress.
In March 2006, MF Global Overseas Limited (MFG), a Group incorporated in United Kingdom acquired
70.15% of equity share capital of MF Global Sify Securities Private Limited, formerly Man
Financial-Sify Securities India Private Limited (‘MF Global) from Refco Group Inc., USA (‘Refco’).
As at March 31, 2008, 29.85% of MF Global equity shares is held by the Company. The remaining
70.15% is owned by MFG, an unrelated third party. MFG is a subsidiary of MF Global Limited,
Bermuda.
A summary of key unaudited financial information of MF Global and its subsidiaries which is not
adjusted for the percentage ownership held by the Group is presented below:
Cash and cash equivalents as at September 30, 2008 amounted to Rs. 1,324,101 (Rs. 2,003,024 as at
September 30, 2007; Rs. 1,507,327 as at March 31, 2008). This includes cash-restricted of Rs.
785,200 (Rs. 14,333 as at September 30, 2007; Rs. 878,582 as at March 31, 2008), representing
deposits held under lien against the working capital facilities availed and the bank guarantees
given by the Group towards future performance obligations.
In respect of prepayments towards land, title is not expected to pass to the Group by the
end of the lease term, indicating that the Group does not receive substantially all of the
risks and rewards incidental to ownership and accordingly, the upfront amount paid to obtain
the right to use the land is accounted for as operating lease prepayments and are amortised
over the lease term in accordance with the pattern of benefits provided.
•
In respect of buildings, prepayments made towards buildings accounted for as operating
leases are amortised over the lease term in accordance with the pattern of benefits provided.
In case prepayments are made towards buildings accounted for as finance leases, such
prepayments are capitalized as ‘Leasehold Buildings’ on the commencement of the lease term
under the head ‘Property, plant and equipment’ and depreciated in accordance with the
depreciation policy for similar owned assets.
Trade receivable as at September 30, 2008, September 30, 2007 and, March 31, 2008 are stated net of
allowance for doubtful receivables. The Group maintains an allowance for doubtful receivables
based on its age and collectability. Trade receivables are not collateralised except to the extent
of refundable deposits received from cybercafé franchisees and from cable television operators.
Trade receivables consist of:
IFRIC 14, IAS 19 — The limit on a defined benefit asset, minimum funding requirements and their
interaction provides guidance on assessing the limit in IAS 19 on the amount of the surplus that
can be recognised as an asset. It also explains how the pension asset or liability may be affected
by a statutory or contractual minimum funding requirement. IFRIC 14 has become applicable to the
Company effective April 1, 2008. There amendment does not have a significant impact on the Group.
The Group has an outstanding balance towards term loan of Rs. 383,333 (Rs Nil as at 31 March
2008), from bankers to funding its purchase of fixed assets. This term loan is secured by
fixed deposits and moveable fixed assets of the Group. The loan bears interest at 12.50% p.a
and is repayable in 24 monthly installments.
The Group has short term borrowings of Rs. 85,000 (Rs.85,000 as at 31 March 2008), from its
bankers for working capital requirements. The borrowings are secured by fixed deposits held by
the Group. The borrowings bear interest ranging from 9% - 11% p.a.
3.
Other working capital facilities are secured by a charge on the current assets and book debts
of the Company. These are short term borrowings and bear interest ranging from 3.8%-4% p.a.
Such facility generally is for a period that ranges from 90 to 120 days.
The Group’s cost of goods sold and services rendered numbers are before any depreciation or
amortisation that is direct and attributable to revenue sources. The Group’s asset base deployed in
the business is not easily split into a component that is directly attributable to a business and a
component that is common / indirect to all the businesses. Since a gross profit number without
depreciation and amortisation does not necessarily meet the objective of such a disclosure, the
Group has not disclosed gross profit numbers but disclosed all expenses, direct and indirect, in a
homogenous group leading directly from revenue to operating margin.
Share based payments are designed as equity-settled plans. Under the equity settled plans, the
Group had issued stock options under Associate Stock Option Plan (ASOP) 1999, ASOP 2000, ASOP 2002,
ASOP 2005 and ASOP 2007.
The terms and conditions of ASOP are disclosed in the Consolidated Financial Statements as at and
for the year ended March 31, 2008. During the quarter ended September 30, 2008the Company has
issued 10,000 options under ASOP 2007.
The fair value of share options granted during the quarter ended September 30, 2008 was estimated
using the following assumptions:
1.
Dividend Yield — 0%
2.
Assumed Volatility — 55.62% - 56.91%
3.
Risk free rate — 3.45%
4.
Expected term — 3.0 - 4.5 yrs
The basis of measuring fair value is consistent with that disclosed in the Consolidated Financial
Statements as at and for the year ended March 31, 2008.Compensation cost recognized for the quarter
ended September 30, 2008 is Rs.13,871, Rs.15,358 during the quarter ended September 30,2007.
Contracts pending to be executed on capital account as at September 30, 2008 and not provided for
Rs.135,728 (net of advances Rs. 382,989),[as at September 30, 2007 Rs.44,212 (net of advances Rs.
119,786); March 31, 2008 Rs.111,384 (net of advances Rs. Rs,507,157). In addition, the Company has
a commitment to make payments aggregating to Rs.464,500 (USD 10 million) to Emirates Integrated
Telecommunications Company PJSC under the agreement for supply of capacity from the Europe India
Gateway, of which the Company has already made payments amounting to Rs. 50,833 (USD 1.1 million)
as at September 30, 2008.
21. Contingencies
a)
During the year ended March 31, 2006, the Group had received a notice from the Income-Tax
Department of India for the financial years 2002 and 2003 for a sum of Rs.103,000 on a plea that no
withholding tax was deducted in respect of international bandwidth and leased line payments made
by the Group to international bandwidth / lease line service providers. Subsequently, the demand
was revised to Rs. 77,724 by the income tax authorities and the Group was directed to pay the
amount of demand in instalments. Accordingly, the Group paid a sum of Rs. 77,724.
The Group considered that the likelihood of the loss contingency was remote and no provision for
the loss contingency was necessary. Subsequently, Group has received an order in it’s favour from
the Income Tax Authorities and refund for the same has been received during the current reporting
period.
b)
The Group has outstanding financial and performance guarantees for various statutory purposes
and letters of credit totalling Rs.1,044,487 , Rs. 645,327 and Rs, 773,961 as at September 30,2008, September 30, 2007 and March 31, 2008 respectively. These guarantees are generally provided
to governmental agencies.
c)
Additionally, the Group is involved in other disputes, lawsuits, claims, governmental and/or
regulatory inspections, inquiries, investigations and proceedings. The Group does not foresee any material adverse effect on its financial
position, results of operations or cash flows in any given accounting period.
The Group and certain of its officers and directors are named as defendants in a securities class
action lawsuit filed in the United States District Court for the Southern District of New York.
This action, which is captioned In re Satyam Infoway Ltd. Initial Public Offering Securities
Litigation, also names several of the underwriters involved in Sify’s initial public offering of
American Depositary Shares as defendants. This class action is brought on behalf of a purported
class of purchasers of Sify’s ADSs from the time of Sify’s Initial Public Offering (“IPO”) in
October 1999 through December 2000. The central allegation in this action is that the underwriters
in Sify’s IPO solicited and received undisclosed commissions from, and entered into undisclosed
arrangements with, certain investors who purchased Sify’s ADSs in the IPO and the aftermarket. The
complaint also alleges that Sify violated the United States Federal Securities laws by failing to
disclose in the IPO prospectus that the underwriters had engaged in these allegedly undisclosed
arrangements. More than 300 issuers have been named in similar lawsuits.
In July 2002, an omnibus motion to dismiss all complaints against issuers and individual defendants
affiliated with issuers was filed by the entire group of issuer defendants in these similar
actions. In October 2002, the cases against the Group’s executive officers who were named as
defendants in this action were dismissed without prejudice. In February 2003, the court in this
action issued its decision on defendants’ omnibus motion to dismiss. This decision denied the
motion to dismiss the Section 11 claim as to the Group and virtually all of the other issuer
defendants. The decision also denied the motion to dismiss the Section 10(b) claim as to numerous
issuer defendants, including the Group. On June 26, 2003, the plaintiffs in the consolidated IPO
class action lawsuits currently pending against Sify and over 300 other issuers who went public
between 1998 and 2000, announced a proposed settlement with Sify and the other issuer defendants.
The proposed settlement provided that the insurers of all settling issuers would guarantee that the
plaintiffs recover $1 billion from non-settling defendants, including the investment banks who
acted as underwriters in those offerings. In the event that the plaintiffs did not recover $1
billion, the insurers for the settling issuers would make up the difference. This proposed
settlement was terminated on June 25, 2007, following the ruling by the United States Court of
Appeals for the Second Circuit on December 5, 2006, reversing the District Court’s granting of
class certification.
On August 14, 2007, the plaintiffs filed Amended Master Allegations. On September 27, 2007, the
Plaintiffs filed a Motion for Class Certification. Defendants filed a Motion to Dismiss the focus
cases on November 9, 2007. On March 26, 2008, the Court ruled on the Motion to Dismiss, holding
that the plaintiffs had adequately pleaded their Section 10(b) claims against the Issuer Defendants
and the Underwriter Defendants in the focus cases. As to the Section 11 claim, the Court dismissed
the claims brought by those plaintiffs who sold their securities for a price in excess of the
initial offering price, on the grounds that they could not show cognizable damages, and by those
who purchased outside the previously certified class period, on the grounds that those claims were
time barred. This ruling, while not binding on the Group’s case, provides guidance to all of the
parties involved in this litigation. On October 2, 2008, plaintiffs requested that the class
certification motion in the focus cases be withdrawn without prejudice. On October 10, 2008, the
Court signed an order granting that request.
The parties intend to file a motion for preliminary approval of a proposed settlement between all
parties, including the Group and its former officers and directors. Any direct financial impact of
the proposed settlement is expected to be borne by the Company’s insurers. The Group believes that
it has sufficient insurance coverage to cover the maximum amount that it may be responsible for
under the proposed settlement. The Group believes, the maximum exposure under this settlement is
approximately U.S.$338,983.05, an amount which the Group believes is fully recoverable from the
Group’s insurer.
The Group is a party to other legal actions. Based on the available information, as of September30, 2008, the Group believes that it has adequate legal defenses for these actions and that the
ultimate outcome of these actions will not have a material adverse effect on it.
23. Related parties
The following is a summary of significant transactions with related parties:
Payments to Directors (Fees for consultancy services)
60
60
240
Sale of services (see note 1 below)
6,473
—
—
Purchase of goods
—
—
3,796
Balance due to / receivable from
related parties
Deposit for land and advance rent (see note 2 below)
282,825
—
—
Note:
1.
Represents invoices raised in relation to services rendered to MF Global Sify Securities Private
Limited, an equity accounted affiliate.
2.
Represents deposit made to VALS Developers Private Limited (a company in which Mr. Ananda Raju
Vegesna, Executive Director is interested) towards property lease.
The Groups financial risk management objectives and policies are consistent with that disclosed in
the consolidated financial statements for the year ended March 31, 2008.
Credit Risk: The credit risk is the risk that financial loss may arise from a possible failure of
a customer or counterparty to meet its obligations under a contract. With regard to Group’s
activities trade receivables, treasury operations and other activities that are in the nature of
leases give rise to credit risks.
Credit risk is managed through credit approvals, establishing credit limits and continuously
monitoring the credit worthiness of the customers to which the Company grants credit in the normal
course of the business.
Since services are provided to and products are sold to customers spread over a vast spectrum, the
Group is not exposed to concentration of credit to any one single customer.
In the area of treasury operations, the Group is presently exposed to counter-party risks relating
to short term and medium term deposits placed with Public-Sector Banks, as also to investments made
in Mutual Funds (MF). In managing this, the Group is driven by three fundamentals of prudent cash
management, safety, liquidity and yield. The Chief Financial Officer is responsible for
monitoring the counterparty credit risk, and has been vested with the authority to seek Board’s
approval to hedge such risks in case of need.
Liquidity Risks: Liquidity risk is the risk that one or more of Group entities may fail to meet its
financial obligations on time. The Group’s approach to managing liquidity is to ensure, as far as
possible, that it will always have sufficient liquidity to meet its liabilities, without incurring
unacceptable losses or risking damage to the Group’s reputation. Typically the Group ensures that
it has sufficient cash on demand to meet expected operational expenses, servicing of financial
obligations. In addition, the Group has concluded arrangements with well reputed Banks, and has
unused lines of credit that could be drawn upon should there be a
need. The Company is also in the process of negotiating additional facilities with Banks for funding its
requirements. Subsequent to the balance sheet date, the Company has revised some of its long term
commitments such as the ELCOT land arrangement etc and sought/obtained refund of deposits made.
Currency Risk: The Group’s exposure in USD denominated transactions gives rise to Exchange Rate
fluctuation risk. Group’s policy in this regard incorporates:
•
Forecasting inflows and outflows denominated in US$ for a twelve-month period
•
Estimating the net-exposure in foreign currency, in terms of timing and amount
•
Determining the extent to which exposure should be protected through one or more
risk-mitigating instruments to maintain the permissible limits of uncovered exposures.
•
Carrying out a variance analysis between estimate and actual on an ongoing basis, and
taking stop-loss action when the adverse movements breaches the 5% barrier of deviation,
subject to review by Audit Committee.
25. Subsequent Events
a. Acquisition of Minority Interest in Subsidiary
During January 2008, the Board of Directors of Sify approved the merger of its subsidiary, Sify
Communications Limited with the Company. The Boards of each of Sify and Sify Comm determined that
a merger would produce cost savings efficiencies and, as a combined entity, benefit all
shareholders. The Board then submitted the proposed merger to the shareholders and to the High
Court of Madras for approval. In August 2008, while approval for the merger was pending, the
Indian government proposed new regulations regarding the delivery of internet services and was
expected to announce changes to the policy governing the spectrum for the delivery of wireless
data. The Board reviewed these regulatory changes and determined that it would be in the best
interest of each company to remain as separate entities, as opposed to combining the entities as
contemplated by the proposed merger. The Company submitted a petition to the High Court of Madras
to withdraw the merger, and such petition was approved.
In October 2008, the Company again evaluated the feasibility of a merger between Sify and Sify Comm
and the Board of Directors of the Company at their meeting held on November 24, 2008 approved the
merger of Sify Comm with retrospective effect from April 1, 2008, subject to approval by the
Shareholders, the Honourable High Court and other statutory authorities. The Board considered the
deterioration of the Indian and global economy, and its effect on the Company’s performance during
the first half of fiscal 2009 as well as the impact of a prolonged economic downturn on the Company
during the third and fourth 2009 fiscal
quarters. Additionally, the government regulations were not effected by the Indian government as
proposed in August 2008. The Board evaluated these issues and determined that a combined entity
would provide cost savings and increased cash flow, and strengthen the Company’s ability to borrow
additional funds, if necessary. Accordingly, the Board of Sify determined that the merger should
again proceed and sought shareholder approval, and submitted the merger to the High Court of Madras
for approval.
b. Surrender of leasehold land
The Company had during the year ended March 31, 2008 taken on lease 16.97 acres of land from
Electronics Corporation of Tamil Nadu (ELCOT) for a period of 90 years. The Company had paid a sum
of Rs.555,616 as refundable security deposit towards such land. Subsequent to the balance sheet
date, the Company had discussions with ELCOT to consider the option of surrendering 11.42 acres of
land out of the total land allotted. Consequent to such requests made, ELCOT has, subsequent to the
balance sheet date, refunded to the Company a sum of Rs.374,576 representing proportionate sum of
refundable security deposit. In March 2009, the Company has made a request for refund of the
security deposit relating to the balance 5.55 acres of land.
Under the arrangements with ELCOT, the Company has made payments amounting to Rs 10,450
towards costs for setting up common infrastructure. Consequent to such request to surrender land
to the ELCOT, the Company has made applications in March 2009 for refund of the costs paid for
setting up common infrastructure.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of the financial condition and results of operations of our Company should
be read in conjunction with the Unaudited Condensed Consolidated Interim Financial Statements and
the related condensed notes included elsewhere in this report and the audited financial statements
and the related notes contained in our Annual Report on Form 20-F for the fiscal year ended March31, 2008. This discussion contains forward-looking statements that involve risks and uncertainties.
For additional information regarding these risks and uncertainties, please see the section in this
report captioned “Risk Factors”
Overview
Sify is among the largest Internet, networking and e-Commerce services “companies” in India,
offering end-to-end solutions with a comprehensive range of products delivered over a common
Internet backbone infrastructure. This Internet backbone reaches more than 500 cities and towns in
India. A significant part of the Company’s revenue is derived from Corporate Services, which
include corporate connectivity, network and communications solutions, security, network management
services and hosting. A host of blue chip customers use Sify’s corporate service offerings.
Consumer services include broadband home access, dial up connectivity and the iWay cyber café chain
across 164 cities and towns and online portals, such as www.sify.com,www.samachar.com and www.sifymax.in, that function as principal entry points and
gateway for accessing the Internet by providing useful web-related services and links and related
content sites specifically tailored to Indian interests worldwide. The Company’s network services,
Data Center operations and customer relationship management are accredited ISO 9001:2000.
Revenues
•
The primary operating segments of the Group are:
•
Corporate network/data services, which provides Internet, connectivity, security and
consulting, hosting and managed service solutions;
•
Consumer one which includes:
•
Retail Internet access services, from homes and through cybercafés and
•
Online portal and content offerings.
•
Other services, such as development of content for e-learning.
Corporate network/data services
Our corporate network/data services revenues primarily include revenue from sale of hardware and
software purchased from third party vendors, connectivity services revenue and, to a lesser extent,
revenues from installation of the link and other ancillary services, such as e-mail, document
management and domain registration. Generally, these elements are sold as a package consisting of
all or some of the elements. Our connectivity services include Internet Protocol Virtual Private
Network (IP-VPN) services, internet connectivity, last mile connectivity (predominantly through
wireless access), messaging services, data management services (managed services), security
services and web hosting for businesses. We provide these services for a fixed period of time at a
fixed rate regardless of usage, with the rate for the services determined based on the type of
service provided, scope of the engagement and the Service Level Agreement, or SLA. Our web hosting
service revenues are primarily generated from co-location services and connectivity services. Our
security services revenues include revenue from consulting services and information assurance
services.
Consumer One — Retail Internet access services and Online portals and content offerings
•
Internet access services revenues are generated from the internet connectivity we provide
to our retail customers through public access and home access services. Home access services
are provided through dial-up packs and broadband connectivity, which is provided through
arrangements with Cable Television Operators (CTOs). Our public access services are provided
through franchised and Company-owned cybercafés. Additionally, we generate revenue by
providing Internet Telephony services, allowing customers to make international telephone
calls over the Internet.
•
Online portal services and content offerings revenues include advertising revenues from the
various channels of our Internet portal, www.sify.com. We enter into contracts with customers
to serve advertisements in the portal, and we are paid on the basis
of impressions, click-throughs or leads. Revenues also accrue from commissions earned on
products and services rendered through www.sifymall.com, and also from value-added services that
are rendered using our mobile telephone short code, 54545.
Other services
Other services include revenue from e-learning. We develop and upload content for e-learning to
facilitate web-based learning in various organizations. We provide e-learning services on a
time-and-material or on a fixed-price basis.
In Note 19 to the Unaudited Condensed Consolidated Interim Financial Statements, we provide
supplemental segment data, which provides separate revenue and operating income (loss) information
for each of these business segments. This information is available in Item 1 — Financial Statements
of this report and is incorporated herein by reference.
Expenses
Corporate network/data services
Cost of goods sold and services rendered for the corporate network/data services division consists
of telecommunications costs necessary to provide services, customer support costs, and cost of
goods in respect of communication hardware and security services sold , the cost of providing
network operations , the cost of voice termination for VoIP services and other costs.
Telecommunications costs include the costs of international bandwidth procured from Tata
Teleservices and satellite gateway providers and are required for access to the Internet, providing
local telephone lines to our points of presence, the costs of using third-party networks pursuant
to service agreements, leased line costs and costs towards spectrum fees payable to the Wireless
Planning Commission or WPC for provision of spectrum in the 5.7 GHz range to enable connectivity to
be provided on the wireless mode for the last mile. Other costs include cost incurred towards
Annual Maintenance Contract (AMC), cost of installation in connectivity business, cost incurred in
providing Hosting services, and Document Management Services (DMS) cost for application services.
In addition, the Government of India imposed an annual license fee of 6% of the adjusted gross
revenue generated from the provision of IP-VPN services under the NLD/ILD license .
Consumer One — Retail Internet access services and online portals and content offerings
•
Internet access services: Cost of goods sold and services rendered for the internet access
services division consists of primarily recurring telecommunications costs necessary to
provide service to subscribers, direct costs paid to franchisees for running cybercafés and to
cable television operators for providing Internet services through cable to customers, the
cost of goods sold and services rendered include commission paid to franchisees and cable
television operators, voice termination charges for VoIP services. The Government of India
imposed an annual license fee of 6% of the adjusted gross revenue from the provision of VoIP
services. Another recurring cost included in cost of goods sold and services rendered is the
personnel and related operating expenses associated with customer support and network
operations.
•
Online portal and content offerings: Cost of goods sold and services rendered for the
online portals and content offerings division includes the cost of procuring and managing
content for the websites and cost of ringtones downloaded by using our mobile telephone short
code 54545, the cost of procuring merchandise for e-commerce sales and the cost of bandwidth
used for online portal services.
Other Services
Cost of revenues for the e-learning division includes the cost of direct manpower that is involved
in the design and uploading of content for facilitating web-based learning.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consists of salaries and commissions for sales and
marketing personnel, salaries and related costs for executives, financial and administrative
personnel, sales, marketing, advertising and other brand building costs, travel costs, and
occupancy and overhead costs.
Depreciation and amortization
We depreciate our tangible assets on a straight-line basis over the useful life of assets, ranging
from two to eight years and, in the case of buildings, 30 years. We do not amortize goodwill or
indefinitely lived intangible assets recognized . We assess for
impairment of long-lived assets under IAS 36. The carrying value of long-lived assets is compared
with the discounted estimated future cash flows at the identifiable cash generating unit level.
Operating Results
Revenues. We recognized Rs.1,572.00 million ($33.84 million) in revenues for the quarter ended
September 30, 2008, as compared to Rs.1,471.50 million for the quarter ended September 30, 2007,
representing an increase of Rs.100.50 million, or 6.82%. This is driven primarily by Rs 166.86
million or 18.06 % and Rs 39.45 million or 42.15 % increase in revenue from our Corporate
network/data services and Other services respectively. The revenue growth has been impacted by Rs
105.81 million or 23.29 % decrease from our Consumer One services comprising of internet access
services and online portals and content offerings.
•
Revenue from Corporate network/data services has increased by Rs 166.86 million, or 18.06
%, from Rs 923.52 million for three months ended September 30, 2007 to Rs 1090.38 million for three
months period ended September 30, 2008 primarily due to: (i) increase of Rs 69.14 million or 11.87
% in the revenue from Connectivity Services caused by new orders from the existing and new
customers, , (ii) increase of Rs 43.25 million or 65.12 % in Hosting Services caused by partial
operationalisation of Airoli datacenter, (iii) increase of Rs 31.08 million or 79.28 % in Voice BPO
Services caused by the launching of ILD service in July, 2008, (iv) increase of Rs.30.92 million or
56.91 % in Application Services due to additional growth from the existing and new clients, v)
increase of Rs.7.07 million or 22.39 % from Safescrypt due to growth in business and (vi) increase
of Rs.3.60 million or 371.13 % from Managed Services due to addition of new accounts. The increase
is partially offset by a decrease of Rs 3.04 million or 42.64 % in the revenue from Sify Secure
Services due to lack of implementation of major projects and . (ii) decrease of Rs 15.16 million or
-10.70 % in Hardware/Software sales on account of drop in business.
•
Revenue from Consumer One services has decreased by Rs 105.81 million or 23.29 % from Rs
454.38 million for three months ended September 30, 2007 to Rs 348.57 million for three months
ended September 30, 2008. This is driven by Rs 106.47 million or 26.31% decrease in revenue from
our Internet Access services and by Rs.0.66 million or 1.33 % increase in revenue from Portal
services . Such decrease is primarily on account of (i) decrease in cybercafé revenue to the extent
of Rs 59.72 million or 40.33 %, due to loss of subscribers and lower usage by the existing
customers, (ii) decrease in revenue from Voice over IP services to the extent of Rs 26.05 million
or 100 % due to due to drop in operational cybercafés and drop in prices caused by the competition,
(iii) decrease in revenue from broadband amounting to Rs 33.60 million or 15.32 % on account of
lesser utilization as well as loss of accounts , (iv) decrease of Rs 0.95 million or 19.79 % from
other services relating to Internet Access services and (v) decrease of revenue amounting to Rs
2.50 million or 42.22 % from online travel business on account of increased competition from the
existing operators. These decreases were partially offset by an increase of (a) Rs.4.25 million or
1148.65 % in the revenue from IRCTC due to growth of business, (b) Rs.7.89 million or 136.74 % in
the revenue from Game Dromes due to growth of business , (c) Rs.1.71 million or 570 % in the
revenue from new initiatives due to growth of business and (d) Rs.3.16 million or 7.22 % in the
revenue from by e-commerce activities due to increased business from the customers,
•
Revenue from Other services has increased by Rs 39.45 million or 42.15 %, from Rs 93.60
million for three months ended September 30, 2007 to Rs 133.05 million for three months ended
September 30, 2008. Such increase is due to increase in the customer base in the e-learning revenue
as well as Infrastructure Management System (IMS) stream.
Other income. Other income was Rs.15.08 million($0.32 million) for the quarter ended September 30,2008, compared to Rs.11.90 million for the quarter ended September 30,2007, representing an
increase of Rs.3.18 million, or 26.72 %. Other income primarily comprises of income derived from
duty credit entitlements under the “Served from India Scheme” (issued by the Government of India)
in respect of the foreign exchange earnings from export of services. Increase in duty credit
entitlement is primarily on account of improvement in the export revenues during the current
quarter as compared to the previous quarter ended September, 2007.
Cost of goods sold and services rendered. The cost of goods sold and services rendered was
Rs.923.63 million ($19.88 million) for the quarter ended September 30, 2008 compared to Rs.834.92
million for the quarter ended September 30, 2007, representing an increase of Rs.88.71 million, or
10.62 %. This increase was due to (i) a Rs.6.82 million increase in hardware and software costs
(ii) a Rs.64.57 million increase in bandwidth costs on account of more utilisation of capacity,
(iii) a Rs.61.36 million increase in directly attributable personnel costs to the technology and
e-learning departments caused by new addition in the man power resources, (iv) a Rs.2.99 million
increase in termination cost for VoIP services, (v) a Rs.11.57 million increase in other direct
costs and (vi) a Rs.11.65 million increase in the cost of site development and documents management
due to increase in business . These increases have been partly offset by a decrease of (a) Rs.52.69
million in revenue share paid to franchisees and cable television operators due to drop in
broadband revenue, (b) Rs 7.95 million in the cost of goods sold associated with Safescrypt i.e.,
sale of digital services (c) Rs.8.01 million in content cost due to sourcing of low cost service
providers and (d) Rs.1.60 million in Ecommerce COGS.
Selling, general and administrative expenses. Selling, general and administrative expenses were Rs.799.53 million ($17.21 million) for the
quarter ended September 30, 2008, compared to Rs.616.14 million for the quarter ended September 30,2007, representing an increase of Rs.183.39 million, or 29.76 %. This increase is mainly on account
of increase in maintenance, rental, general and administrative costs at infrastructure facilities.
Depreciation and Amortisation expenses. Depreciation and amortization expenses were Rs.121.57
million($2.61 million) for the quarter ended September 30,2008, compared to Rs.127.31 million for
the quarter ended September 30,2007, representing a decrease of Rs.5.73 million, or (4.5%). The
decrease is attributable to changes made to the economic lives of computers and networking
equipments included under property, plant and equipment.
Income tax expense. The income tax expense was Rs 22.09 million ($0.48 million) for the quarter
ended September 30,2008,compared to Rs.20.70 million for the quarter ended September 30,2007,representing an increase of Rs.1.39 million ,or 6.72% This marginal increase was due to the
increased taxable profits earned by the subsidiary.
Net finance income. The net finance income was Rs (20.07 million) ($0.43 million) for the quarter
ended September 30, 2008, compared to Rs.34.39 million for the quarter ended September 30, 2007,
representing a decrease of Rs.54.46 million, or (158.36 %). The finance income was Rs.31.95 million
for the quarter ended September 30,2008,compared to Rs.41.71 million for the quarter ended
September 30,2007, representing a decrease of Rs.9.76 million due to decrease in interest income
from leases. The finance expense was Rs. 52.02 million for the quarter ended September 30,2008,compared to Rs.7.32 million for the quarter ended September 30, 2007, representing an increase
of Rs.44.70 million due to increase in bank charges on account increased bank borrowings
Share of profit of investment in associate. The share of profit of investment in associate was Rs.
24.29 million ($0.52 million) for the quarter ended September 30,2008,compared to Rs.40.47 million
for the quarter ended September 30,2007, representing a decrease of Rs.16.18 or 39.98 %. This was
due to sluggish market for MF Global Sify Securities India Private Limited.
Revenues. We recognized Rs.3,074.62 million ($66.19 million) in revenues for the six months ended
September 30, 2008, as compared to Rs.2,876.61 million for the six months ended September 30, 2007,
representing an increase of Rs.198.01 million, or 6.88 %.This is driven primarily by Rs 309.89
million or 17.49 % and Rs 76.92 million or 39.85 % increase in revenue from our Corporate
network/data services and Other services respectively. The revenue growth has been impacted by Rs
188.80 million or -20.70 % decrease from our Consumer One services
•
Revenue from Corporate network/data services has increased by Rs 309.89 million, or 17.49
%, from Rs 1,771.77 million for six months ended September 30, 2007 to Rs 2,081.66 million for six
months ended September 30, 2008 primarily due to (i) increase of Rs 140.44 million or 12.38 % in
the revenue from Connectivity Services on account of increase in the orders from the existing and
new customers, (ii) increase of Rs 5.06 million or 3.57 % in Hardware/Software sales on account of
increased sales to the existing clients, (iii) increase of Rs 85.02 million or 66 % in Hosting
Services on account of execution of new contracts including large projects such as AT&T phase II
order , (iv) increase of Rs 42.57 million or 67.46 % in Voice BPO Services on account of higher
utilization as well as addition of new clients , (v) increase of Rs.40.37 million or 35.41 % in
Application Services due to additional growth from Document Management system (DMS) services and
(vi) increase of Rs 1.16 million or 11.79 % from Sify Secure Services due to growth in business and
(vii) increase of Rs.1.89 million or 70.52 % from Managed Services due to growth in business. The
increase is partially offset by a decrease of Rs 6.62 million or 9.94 % in the revenue from
Safescrypt due to drop in business
•
Revenue from Consumer One services has decreased by Rs 188.80 million or 20.70 % from Rs
911.86 million for six months ended September 30, 2007 to Rs 723.06 million for six months ended
September, 2008. This is driven by Rs 194.26 million or 23.75% decrease in revenue from our
Internet Access services and by Rs.5.46 million or 5.80 % increase in revenue from Portal services.
Such decrease is primarily on account of (i) decrease in cybercafé revenue to the extent of Rs
110.62 million or 37.57 %, due to loss of subscribers and lower usage by the existing customers,
(ii) decrease in revenue from Voice over IP services to the extent of Rs 39.54 million or 69.74 %
due to drop in operational cybercafés and drop in prices caused by the competition , (iii) decrease
in revenue from broadband amounting to Rs 49.10 million or 11.17 % on account of lesser utilization
as well as loss of accounts , (iv) decrease of Rs 4.97 million or 87.17 % from Dial up, (v)
decrease of revenue amounting to Rs 2.14 million or 25.20 % from other Internet Access Services and
(vi) decrease of revenue to the extent of Rs.5.87 million or 44.33% from travel business on account
of increased competition from the existing operators. These decreases were partially offset by an
(a) increase of Rs.4.28 million or 548.72 % in the revenue from IRCTC due to increase in business,
(b) increase of 6.54 million or 56.53% from Game Dromes due to increase in business, (c) increase
of Rs.1.29 million from new initiatives due to growth in business and (d) increase of Rs.11.33
million or 14.02% by e-commerce activities due to increased business from the customers.
Revenue from Other services has increased by Rs 76.92 million or 39.85 %, from Rs.193.00
million for six months ended September 30, 2007 to Rs.269.92 million for six months ended September30, 2008. Such increase is due to increase in the customer base in the e-learning revenue as well
as Infrastructure Management System (IMS) stream.
Other income. Other income was Rs.33.58 million ($0.72 million) for six months ended September 30,2008, compared to Rs.23.45 million for six months ended September 30,2007, representing an increase
of Rs.10.13 million, or 43.19 %. Other income primarily comprises of income derived from duty
credit entitlements under the “Served from India Scheme” (issued by the Government of India) in
respect of the foreign exchange earnings from export of services. Increase in duty credit
entitlement is primarily on account of improvement in the export revenues .
Cost of goods sold and services rendered. The cost of goods sold and services rendered was
Rs.1809.43 million ($38.95 million) for six months ended September 30, 2008 compared to Rs.1590.69
million for six months ended September 30, 2007, representing an increase of Rs.218.74 million, or
13.75 %. This increase was due to (i) a Rs.35.45 million increase in hardware and software costs on
account of increase in business, (ii) a Rs.123.37 million increase in bandwidth costs on account of
more utilisation of capacity , (iii) a Rs.145.04 million increase in directly attributable
personnel costs to the technology and e-learning departments caused by new addition in the man
power resources , (iv) a Rs.8.57 million increase in termination cost for VoIP services,(v) a
Rs.18.95 million increase in cost of site development and document management system due to
increase in business and (vi) a Rs.1.09 million increase in other direct costs . These increases
have been partly offset by a decrease of (a) Rs.79.12 million in revenue share paid to franchisees
and cable television operators due to drop in broadband revenue, (b) Rs 18.12 million in the cost
of goods sold associated with Safescrypt due to drop in business (c) Rs.16.04 million in content
cost due to sourcing of low cost service providers and (d) Rs.0.45 million in Ecommerce COGS due to
drop in business.
Selling, general and administrative expenses. Selling, general and administrative expenses were Rs.1,441.66 million ($31.03 million) for six
months ended September 30, 2008, compared to Rs.1239.43 million for six months ended September 30,2007, representing an increase of Rs.202.23 million, or 16.31 %. This increase is mainly on account
of increase in infrastructure facilities.
Depreciation and Amortisation expenses. Depreciation and amortization expenses were Rs.233.37
million($5.02 million) for six months ended September 30,2008, compared to Rs.247.72 million for
six months ended September 30,2007, representing a decrease of Rs.14.35 million, or (5.79 %). The
decrease is attributable to changes made to the economic lives of Computers and some items of Plant
and Machinery
Income tax expense. The income tax expense was Rs.40.33 million ($0.87 million) for six months
ended September 30,2008,compared to Rs.35.76 million for six months ended September 30,2007,representing an increase of Rs.4.57 million ,or 12.78 % .This marginal increase was due to the
increased taxable profits earned by the subsidiary.
Net finance income. The net finance expense was Rs. 20.55 million ($0.44 million) for six months
ended September 30, 2008, compared to net finance income of Rs.67.93 million for six months ended
September 30, 2007, representing a decrease of Rs.88.48 million, or (130.24 %). The finance income
was Rs.65.25 million for six months ended September 30,2008,compared to Rs.84.25 million for six
months ended September 30,2007, representing a decrease of Rs.19.00 million due to decrease in
interest income from leases. The finance expense was Rs. 85.80 million for six months ended
September 30, 2008,compared to Rs.16.33 million for the quarter ended September 30, 2007,
representing an increase of Rs.69.48 million due to increase in bank charges on account increased
bank borrowings.
Share of profit of investment in associate. The share of profit of investment in associate was
Rs.37.10 million ($0.80 million) for six months ended September 30,2008,compared to Rs.65.17million
for six months ended September 30,2007, representing a decrease of Rs.28.07, or 43.07 %. The
decrease was due to sluggish stock market conditions for MF Global Sify Securities India Private
Limited.
Effect of exchange rate changes on cash and
cash equivalents
1,125
(2,065
)
24
Net increase / (decrease) in cash and cash
equivalents
(650,663
)
(1,068,133
)
(14,008
)
We intend to continue to focus on the reduction of our cash utilization and increasing our cash
surplus in fiscal 2009. Our primary sources of liquidity is from net cash earned from operating
activities. Based upon our present business and funding plans, we believe that our cash and cash
equivalents of Rs.238.03 million ($5.12) million) as of September 30, 2008, excluding restricted
cash included in non-current assets of Rs.1.00 million ($0.02 million). Our external sources of
credit include facilities sanctioned from Indian Banks in the form of short term loans, cash credit
and overdraft facilities. We believe that our cash and cash equivalents and working capital
facilities are sufficient to meet our currently known requirements at least over the next twelve
months. Our ongoing working capital requirements are significant affected by the profitability of
our operations and we continue to periodically evaluate existing and new sources of liquidity and
financing.
Cash balances held in Indian currency were Rs 1,506.32 million and Rs. 1,323.10 million as of March31, 2008 and September 30, 2008, respectively. These amounts include cash and cash equivalents and
restricted cash.
Cash used
in operating activities for six months ended September 30, 2008
was Rs.129.26 million
($2.78 million). This is due to increase in working capital requirement of Rs.85.03 million ($1.83
million). This is primarily contributed by increase in other assets by Rs.128.63 million and
increase in deferred revenues by Rs.118.68 million.
Cash used in investing activities for six months ended September 30, 2008 was Rs.805.26 million
($17.34 million) and principally consisted of establishment of a new data center and purchase of
routers, modems, ports, servers and other capital equipment in connection with the expansion of our
network, advances towards property leases of Rs.864.99 ($18.68 million) and expenditure on
intangible assets of Rs.71.33 million ($1.54 million).
Cash from financing activities for sixth months ended September 30, 2008 was Rs.282.74 million
($6.09 million) represented by borrowings from banks to the extent of Rs.369.88 million and
increase in finance charges by Rs.85.56 million.
Income Tax Matters
As of March 31, 2008, we had a business loss carry forward of approximately Rs.3,894.83 million
($83.85 million) for financial reporting purposes. Under Indian law, loss carry forwards from a
particular year may be used to offset taxable income over the next eight years.
The statutory corporate income tax rate and the surcharge thereon are subject to change in line
with the changes announced in the Union Budget each year. For fiscal year 2008, the corporate
income tax rate was 30%, subject to a surcharge of 10% and education cess of 3%, resulting in an
effective tax rate of 33.99%. For fiscal year 2009 also, the corporate income tax rate is 30%,
subject to a surcharge of 10% and education cess of 3%, resulting in an effective tax rate of
33.99%. We cannot assure you that the current income tax rate will remain unchanged in the future.
We also cannot assure you that the surcharge will be in effect for a limited period of time or that
additional surcharges will not be levied by the Government of India. Currently, dividend income is
exempt from tax for shareholders. Domestic companies are liable to pay dividend distribution tax
at the rate of 15% plus a surcharge and additional surcharge at the time of the distribution.
The Finance Act, 2005 had introduced income tax on fringe benefits which is in addition to the
income tax charged under the Income Tax Act, 1961. Fringe benefits tax (“FBT”) is payable by every
employer in respect of fringe benefits provided or deemed to have been provided by the employer to
his employees during the year. An employer is required to pay FBT even if no tax is payable on the
total income.
The Finance Act, 2007 had also introduced income tax on stock option grants to employees by way of
Fringe Benefit Tax. As per this, FBT is payable by every employer in respect of stock options
granted to its employees. FBT is calculated on the equity shares granted to the employees based on
the fair market value of the equity shares on the date on which the option vests with the employee
as reduced by the amount actually paid by or recovered from the employees in respect of such
shares. The Act also permits the employer to recover the FBT from the employees who are exercising
their options.
Off-Balance Sheet Arrangement
We have not entered into any off balance sheet arrangement other than contractual obligations such
as operating lease arrangements, disclosed below, as defined by SEC final rule 67 (FR-67)
“Disclosures in Management’s Discussion and Analysis”.
Contractual obligations
Set forth below are our contractual obligations as of September 30, 2008:
Payments due by period (Rs 000s)
Less
Contractual Obligations
Total
than 1 year
1-3 years
3-5 years
> 5 years
Long Term Debt Obligations
—
—
—
—
—
Short term borrowings
1,615,633
1,615,633
—
—
—
Finance Lease Obligations
4,695
2,923
1,772
—
—
Non-cancellable operating
1,834,996
110,636
253,993
217,152
1,253,215
lease obligations
Purchase Obligations
993,694
818,252
175,442
—
—
Note
a)
Other liabilities amounting to Rs124.30 million primarily comprise of deposits received from
franchisees. For such amounts, the extent of the amount and the timing of payment / cash
settlement are not readily estimable or determinable, at present. Accordingly, we did not
include these under contractual obligations.
b)
Standby letter of credit and guarantees disclosed in Note 21 (b) has not been included in the
above mentioned table of contractual obligations.
c)
In addition to the above noted contractual obligations, in accordance with IAS 19 Employee
Benefits, the total accrued liability for defined benefit plans recognised as of September 30,2008, was Rs. 64,568 and disclosed under ‘employee benefits’.
d)
Purchase obligations include a sum of Rs 234,898 payable within 1 year and a sum of Rs
175,442 payable within 1-3 years to Emirates Integrated Telecommunications PJSC towards purchase
of capacity from the Europe India Gateway.
Item 3. Quantitative And Qualitative Disclosures About Market Risk
General
Market risk is the risk of loss of future earnings, to fair values or to future cash flows
that may result from a change in the price of a financial instrument. The value of a financial
instrument may change as a result of changes in the interest rates, foreign currency exchange
rates, commodity prices, equity prices and other market changes that affect market risk sensitive
instruments. Market risk is attributable to all market risk sensitive financial instruments
including investments, foreign currency receivables, payables and debt. Our exposure to market risk
is a function of our investment and borrowing activities and our revenue generating activities in
foreign currency. The objective of market risk management is to avoid excessive exposure of our
earnings and equity to loss.
Risk Management Procedures
We manage market risk through a corporate treasury department, which evaluates and exercises
independent control over the entire process of market risk management. Our corporate treasury
department recommends risk management objectives and policies which are approved by senior
management and our Audit Committee. The activities of this department include management of cash
resources, implementing hedging strategies for foreign currency exposures, borrowing strategies,
and ensuring compliance with market risk limits and policies on a daily basis.
Refer to note 24 of the Unaudited Condensed Consolidated Interim financial statements for an
analysis and exposure arising out of credit risk, liquidity.
C:
Recent Accounting Pronouncements
Following is a short description of new accounting standards becoming effective for annual
financial statement periods beginning on or after 1 January 2009.
IFRS 8 ‘Operating Segments’ introduces the ‘management approach’ to segment reporting, whereby
segment reporting is based on internal management reporting and replaces IAS 14. IFRS 8 aligns
segment reporting with the requirements of the US standard SFAS 131, “Disclosures about segments of
an enterprise and related information.” Sify early adopted IFRS 8 in 2008 and has made disclosure
of segment information based on the internal reports regularly reviewed by the Group’s Chief
Operating Decision Maker in order to assess each segment’s performance and to allocate resources to
them.
Revised IAS 23 ‘Borrowing Costs’ removes the option to expense borrowing costs and requires that an
entity capitalizes borrowing costs directly attributable to the acquisition, construction or
production of a qualifying asset as part of the cost of that asset. The revised IAS 23 will become
mandatory for the Group’s 2009-10 financial statements and will constitute a change in accounting
policy for the Group. Sify will not early adopt IAS 23. The amendment is not expected to have a
significant impact on Sify.
IFRIC 13 ‘Customer Loyalty Programmes’ addresses the accounting by entities that operate, or
otherwise participate in, customer loyalty programs for their customers. It relates to customer
loyalty programs under which the customer can redeem credits for awards such as free or discounted
goods or services. IFRIC 13, which becomes mandatory for the Group’s 2009-10 financial statements,
is not expected to have a significant impact on the Consolidated Financial Statements.
IAS 1 ‘Presentation of Financial Statements’, applicable for annual periods beginning on or after
January 1, 2009. This Standard permits early adoption except to the extent of amendment made by
IAS 27 (as amended in 2008) in paragraph 106. This Standard would be adopted, by the Company as at
April 1, 2009.
IFRS 3 (Revised), ‘Business Combinations’, as amended, is applicable for annual periods beginning
on or after July 1, 2009. Early adoption is permitted. However, this Standard can be applied only
at the beginning of an annual reporting period that begins on or after June 30, 2007. The Company
would adopt this Standard with effect from April 1, 2009. IFRS 3 (Revised) primarily requires the
acquisition-related costs to be recognized as period expenses in accordance with the relevant IFRS.
Costs incurred to issue debt or equity securities are required to be recognized in accordance with
IAS 39. Consideration, after this amendment, would include fair values of all interests previously
held by the acquirer. Re-measurement of such interests to fair value would be required to be
carried out through the income statement. Contingent consideration is required to be recognized at
fair value even if not deemed probable of payment at the date of acquisition.
IFRS 3 (Revised) provides an explicit option on a transaction-by-transaction basis, to measure any
Non-controlling interest (“NCI”) in the entity acquired at fair value of their proportion of
identifiable assets and liabilities or at full fair value. The first method would result in a
marginal difference in the measurement of goodwill from the existing IFRS 3; however the second
approach would require recording goodwill on NCI as well as on the acquired controlling interest.
IAS 27, ‘Consolidated and Separate Financial Statements’, as amended, is applicable for annual
periods beginning on or after July 1, 2009. Earlier adoption is permitted provided IFRS 3 (Revised)
is also early adopted. This Standard would be adopted by the company as at April 1, 2009. It
requires a mandatory adoption of economic entity model which treats all providers of equity capital
as shareholders of the entity. Consequently, a partial disposal of interest in a subsidiary in
which the parent company retains control does not result in a gain or loss but in an increase or
decrease in equity. Additionally purchase of some or all of the NCI is treated as treasury
transaction and accounted for in equity and a partial disposal of interest in a subsidiary in which
the parent company loses control triggers recognition of gain or loss on the entire interest. A
gain or loss is recognized on the portion that has been disposed of and a further holding gain is
recognized on the interest retained, being the difference between the fair value and carrying value
of the interest retained. This Standard requires an entity to attribute their share of net income
and reserves to the NCI even if this results in the NCI having a deficit balance.
IFRS 2, ‘Share-based Payment — vesting conditions and cancellations’ specifies the definition of
vesting conditions. Vesting conditions are only those conditions that determine whether the entity
receives the services that entitle the counterparty to the share-based payment. Conditions other
than these are non-vesting conditions. The amendment is not expected to have a significant impact
on Sify.
Item 4. Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 6-K, our management, with the
participation of our chief executive officer and chief financial officer, has carried out an
evaluation of the effectiveness of our disclosure controls and procedures. The term “disclosure
controls and procedures” means controls and other procedures that are designed to ensure that
information required to be disclosed in the reports we file or submit under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified in the rules and
forms of the Securities and Exchange Commission. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information required to be
disclosed by us in our reports that we file or submit under the Securities Exchange Act of 1934, as
amended, is accumulated and communicated to management, including our chief executive officer and
chief financial officer, as appropriate to allow timely decisions regarding our required
disclosure. In designing and evaluating our disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well conceived and operated, can only
provide reasonable assurance that the objectives of the disclosure controls and procedures are met.
Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 6-K,
our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls
and procedures were effective at that reasonable assurance level .
There has been no change in our internal control over financial reporting that occurred during the
period covered by the quarterly report that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
The company is subject to legal proceedings and claims, which have arisen in the ordinary course of
its business. These legal actions, when ultimately concluded and determined, will not, in the
opinion of management, have a material effect on the results of operations or the financial
position of the Company.
See Note 22 of notes to our Unaudited Condensed Consolidated Interim Financial Statements in Part I
above and Note 38 of the financial statements included in our Annual Report on Form 20-F for the
year ended March 31, 2008.
Item 1A. Risk Factors
This Quarterly Report contains forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from those anticipated in these forward-looking statements
as a result of certain factors, including those set forth in our Annual Report on Form 20-F for the
fiscal year ended March 31, 2008. The information presented below updates and should be
read in conjunction with the Risk Factors and information disclosed in our Annual Report on Form
20-F for the fiscal year ended March 31, 2008, which Risk Factors and Information are incorporated
herein by reference.
For risks related to the Company and its subsidiaries, ADSs and our trading market, investments in
Indian Companies and the Internet Market in India, please refer to our Annual Report for the year
ended March 31, 2008 on Form 20-F.
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds
None.
Items 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits
Number
Description
12.1
Rule 13a-14(a) Certification of Principal Executive Officer
12.2
Rule 13a-14(a) Certification of Principal Financial Officer
13.1
Section 1350 Certification of Principal Executive Officer
13.2
Section 1350 Certification of Principal Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
