DIRECTORS’ REPORT TO THE MEMBERS, The directors submit annual report of Tata Consultancy Services Limited (the “Company” or “TCS”) along with the audited financial statements for the financial year (FY) ended March 31, 2016. 2. Issue of equity shares In pursuance of the scheme of amalgamation (“the Scheme”) sanctioned by the Hon’ble High Court of Judicature at Bombay vide its Order dated August 14, 2015 and the Hon’ble High Court of Judicature at Hyderabad vide its Order dated July 20, 2015, 1,16,99,962 equity shares of the Company were issued to the shareholders (other than the Company) of the erstwhile CMC Limited (“CMC”) on October 5, 2015, in the ratio of seventy nine (79) equity shares of Rs. 1 each of the Company, for every one hundred (100) equity shares of Rs. 10 each of CMC. As a result of this, the issued, subscribed and paid up capital of the Company has increased from Rs. 195.87 crores in FY 2014-15 to Rs. 197.04 crores in FY 2015-16. 3. Dividend Based on the Company’s performance, the directors are pleased to recommend for approval of the members a final dividend of Rs. 27 per share for the FY 2015-16 taking the total dividend to Rs. 43.50 per share (previous year Rs. 39 per share and special dividend of Rs. 40 per share). The final dividend on equity shares, if approved by the members would involve a cash outflow of Rs. 6,403.22 crores including dividend tax. The total dividend on equity shares including dividend tax for the FY 2015-16 would aggregate Rs. 10,219.54 crores, resulting in a payout of 44.66% of the unconsolidated profits of the Company. 4. Transfer to reserves The Company proposes to transfer Rs. 2,288.27 crores to the general reserve out of the amount available for appropriation and an amount of Rs. 47,247.98 crores is proposed to be retained in the profit and loss account. 5. Company’s performance On consolidated basis, revenue from operations for FY 2015-16 at Rs. 1,08,646.21 crores was higher by 14.79% over last year (Rs. 94,648.41 crores in FY 2014-15). Earnings before interest, tax, depreciation and amortisation (“EBITDA”) was Rs. 30,589.79 crores registering a growth of 24.95% over EBITDA of Rs. 24,481.71 crores in FY 2014-15. Profit after tax (“PAT”) for the year was Rs. 24,291.82 crores recording a growth of 22.36% over the PAT of Rs. 19,852.18 crores of FY 2014-15. On unconsolidated basis, revenue from operations for FY 2015-16 at Rs. 85,863.85 crores, was higher by 16.70% over last year (Rs. 73,578.06 crores in FY 2014-15). EBITDA at Rs. 26,949.21 crores registered a growth of 28.16% over the EBITDA of Rs. 21,028.20 crores in FY 2014-15. PAT for the year was Rs. 22,882.70 crores registering a growth of 18.83% over the PAT of Rs. 19,256.96 crores in FY 2014-15. 6. Human resource development As every industry globally is being re-shaped by digital technologies, individuals are transforming themselves to stay relevant and succeed in a digital world. The focus of the Company has been to leverage digital re-imagination to drive growth and efficiency of business models, products and services, business processes as well as the workplace. This helps deliver a superior experience to every key stakeholder, viz. customers, employees, investors and the community. Successful delivery of digital initiatives is contingent on gaining new capabilities in multiple digital technologies that are evolving at a rapid pace. The Company invested in developing new digital learning delivery platforms and content creation. These quick adoptions of expanded learning architecture enabled the Company to successfully train more than 120,000 employees on digital technologies in FY 2015-16. This new disruptive vision in learning and development has driven career growth of a large cross-section of the distributed as well as diverse workforce and helped them realise their potential. The Company hired and integrated 90,182 employees across the globe in FY 2015-16. This is the highest gross addition done by the Company during any year. Employees of erstwhile CMC Limited were welcomed into the global TCS family and assisted to integrate. A smooth transition and integration into TCS has been possible due to the Company’s well-established people processes, emphasis on personal connect and concerted effort by cross functional integration teams. The Company has 353,843 employees representing 129 nationalities working across 55 countries. On gender diversity, the Company is one of the largest employers of women in India, constituting 33.8% of the global workforce with a growing number in senior positions. The Company’s social collaborative platform – ‘Knome’ continues to transform the way TCSers interact socially as well as professionally. As a progressive organisation, workforce policies and benefits have been periodically reviewed for continued relevance to employees’ needs and to keep abreast of market practices. One of the flagship programmes of TCS, ‘Purpose4Life’, saw an overwhelming participation from TCSers globally, contributing over 600,000 hours of volunteering effort to make a positive impact in their communities. The Company’s Health and Safety Policy commits to providing a healthy and safe work environment to employees. The ‘Fit4life’ initiative, with an active participation of employees across the world, creates a culture of healthy lifestyles by building a fraternity of health and fitness-conscious employees. Safety of employees remains an important focus for the organisation. ‘Safety First’ initiative was launched last year and safety champions in various locations have run several programmes in order to advocate the importance of safety consciousness and awareness. Employee inputs from ‘PULSE’, the Company’s annual global employee satisfaction and engagement survey, were analysed to gain necessary insight into the needs of the diverse workforce. This has helped the Company design required interventions to enhance the level of employee engagement. The Company continues its focus on employee retention. The Company’s performance-driven culture with a strong focus on employees’ career aspirations, rewards & recognition and total-welfare helped maintain a low attrition rate of 15.5% in FY 2015-16. Various engagement initiatives under ‘Maitree’, employee welfare initiatives, healthcare & wellbeing benefits, stress management programmes, all add up to providing the employees with a complete career solution which creates a highly engaged place to work. The Company has been certified as the Global Top Employer by Top Employers Institute. It got rated as the No. 1 Top Employer in UK & Europe and recognised as a Top Employer in 24 countries during FY 2015-16. This award is in recognition of the Company’s talent strategy, workforce planning, on-boarding, learning & development, performance management, leadership development, career & succession management, compensation & benefits as well as Company culture. 7. Quality initiatives The Company has sustained its commitment to the highest levels of quality, best-in-class service management, robust information security practices and mature business continuity processes that have collectively helped achieve significant milestones during the year. The Company continues to maintain enterprise-wide highest maturity Level 5 for CMMI-DEV® (Development) version 1.3 and CMMI-SVC® (Services) version 1.3. The Company continues to adhere to ISO certification enterprise-wide for ISO 20000:2011 (Service Management), ISO 27001:2013 (Security Management) and ISO 22301:2012 (Business Continuity Management) standards. The Company has also been recommended for certification against the latest ISO 9001:2015 (Quality Management) standard and is one of the early adopters of this new ISO standard which was released in September 2015. The Company is enterprise-wide certified for ISO 14001:2004 (Environmental Management) and BS OHSAS 18001:2007 (Occupational Health and Safety Management) which demonstrates TCS’ strong commitment to the environment and the occupational health and safety of its employees and business partners. The Company also continues to maintain industry specific quality certifications viz., AS 9100 (Aerospace Industry), ISO 13485 (Medical Devices) and TL 9000 (Telecom Industry). The foundation of these certifications is TCS’ integrated Quality Management System (iQMSTM), a process-driven and customer-centric system providing a ‘One Global Service Standard’. iQMSTM is the backbone that supports TCS’ global network delivery model (GNDMTM). iQMSTM continues to be enhanced for emerging service lines and delivery methodologies. The Company further invests in frameworks to enable best practice sharing and continuous risk management. The Company has a strong mechanism for listening to the Voice of Customer through satisfaction surveys at Project level and Executive level. The feedback is analysed across multiple dimensions to drive improvement in Customer experience. The Company has significant focus on continuous improvements in Customer engagements as well as internal operations leveraging best-in-class methodologies. These initiatives have helped our teams proactively drive improvements and provide business value to our Customers. The Company continues to invest in Knowledge Management and collaboration practices and platforms to enable learning and sharing. At the annual ‘Knowledge Management’ India summit, hosted by the Confederation of Indian Industries (CII) in February 2016, the Company was recognized as an Indian ‘Most Admired Knowledge Enterprise’ (MAKE) Winner. The Company received the prestigious MAKE award for the 11th time in India as well as Asia. In the Global Independent Operating Unit (IOU) MAKE award category, the Company received the award for the 6th time in a row and was ranked first for the year 2015. 8. Subsidiary companies The Company has 61 subsidiaries as on March 31, 2016. There are no associate companies or joint venture companies within the meaning of section 2(6) of the Companies Act, 2013 (“Act”). There has been no material change in the nature of the business of the subsidiaries. Pursuant to provisions of section 129(3) of the Act, a statement containing salient features of the financial statements of the Company’s subsidiaries in Form AOC-1 is attached to the financial statements of the Company. Further, pursuant to the provisions of section 136 of the Act, the financial statements of the Company, consolidated financial statements along with relevant documents and separate audited accounts in respect of subsidiaries, are available on the website of the Company. During the year, the following subsidiaries were incorporated: a. Tata Consultancy Services Saudi Arabia was incorporated on July 30, 2015 in partnership with GE, with equity holding in the ratio of 76:24 between Tata Consultancy Services Netherlands BV and GE. It is the first all-women business process and IT services centre in Riyadh, Kingdom of Saudi Arabia, and has achieved the milestone of employing 1,000 highly skilled women, 85% of whom are local nationals, providing long term career opportunities to women in the region. This center provides services to several clients operating in multiple countries in the Middle East region. b. Tata Consultancy Services Chile S.A. and TCS Inversiones Chile Limitada subscribed to 100% share capital of Technology Outsourcing S.A.C, an information technology service provider in Peru on October 30, 2015. During the year, CMC was amalgamated with the Company pursuant to the Orders of the Hon’ble High Court of Judicature at Bombay and the Hon’ble High Court of Judicature at Hyderabad. Consequently, the entire business, assets, liabilities, duties and obligations of CMC were transferred to and vested in the Company with effect from the appointed date, i.e. April 1, 2015. 9. Directors’ responsibility statement Pursuant to section 134(5) of the Companies Act, 2013, the board of directors, to the best of their knowledge and ability, confirm that: i. in the preparation of the annual accounts, the applicable accounting standards have been followed and there are no material departures; ii. they have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for that period; iii. they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; iv. they have prepared the annual accounts on a going concern basis; v. they have laid down internal financial controls to be followed by the Company and such internal financial controls are adequate and operating effectively; vi. they have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. Based on the framework of internal financial controls and compliance systems established and maintained by the Company, work performed by the internal, statutory and secretarial auditors and external consultants, including audit of internal financial controls over financial reporting by the statutory auditors, and the reviews performed by management and the relevant board committees, including the audit committee, the board is of the opinion that the Company’s internal financial controls were adequate and effective during FY 2015-16. 10. Directors and key managerial personnel Pursuant to the provisions of section 149 of the Act, Mr. Aman Mehta, Mr. V. Thyagarajan, Prof. Clayton M. Christensen, Dr. Ron Sommer, Dr. Vijay Kelkar and Mr. O. P. Bhatt were appointed as independent directors at the annual general meeting of the Company held on June 27, 2014. They have submitted a declaration that each of them meets the criteria of independence as provided in section 149(6) of the Act and there has been no change in the circumstances which may affect their status as independent director during the year. Mr. Ishaat Hussain retires by rotation and being eligible has offered himself for re-appointment. If re-appointed, his term would be up to September 2, 2017, in accordance with the retirement age policy for directors of the Company. During the year, the non-executive directors of the Company had no pecuniary relationship or transactions with the Company, other than the sitting fees, commission and reimbursement of expenses incurred by them for the purpose of attending meetings of the Company. Pursuant to the provisions of section 203 of the Act, the key managerial personnel of the Company are - Mr. N. Chandrasekaran, Chief Executive Officer and Managing Director, Mr. Rajesh Gopinathan, Chief Financial Officer and Mr. Suprakash Mukhopadhyay, Company Secretary. There has been no change in the key managerial personnel during the year. 11. Number of meetings of the board Eight meetings of the board were held during the year. For details of the meetings of the board, please refer to the corporate governance report, which forms part of this report. 12. Board evaluation The board of directors has carried out an annual evaluation of its own performance, board committees and individual directors pursuant to the provisions of the Act and the corporate governance requirements as prescribed by Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements), Regulations 2015 (“SEBI Listing Regulations”). The performance of the board was evaluated by the board after seeking inputs from all the directors on the basis of the criteria such as the board composition and structure, effectiveness of board processes, information and functioning, etc. The performance of the committees was evaluated by the board after seeking inputs from the committee members on the basis of the criteria such as the composition of committees, effectiveness of committee meetings, etc. The board and the nomination and remuneration committee reviewed the performance of the individual directors on the basis of the criteria such as the contribution of the individual director to the board and committee meetings like preparedness on the issues to be discussed, meaningful and constructive contribution and inputs in meetings, etc. In addition, the chairman was also evaluated on the key aspects of his role. In a separate meeting of independent directors, performance of non-independent directors, performance of the board as a whole and performance of the chairman was evaluated, taking into account the views of executive directors and non-executive directors. The same was discussed in the board meeting that followed the meeting of the independent directors, at which the performance of the board, its committees and individual directors was also discussed. Performance evaluation of independent directors was done by the entire board, excluding the independent director being evaluated. 13. Policy on directors’ appointment and remuneration and other details The Company’s policy on directors’ appointment and remuneration and other matters provided in section 178(3) of the Act has been disclosed in the corporate governance report, which forms part of this report. 14. Internal financial control systems and their adequacy The details in respect of internal financial control and their adequacy are included in the management discussion & analysis, which forms part of this report. 15. Audit committee The details pertaining to composition of audit committee are included in the Corporate Governance Report, which forms part of this report. 16. Auditors Pursuant to the provisions of section 139 of the Act and the rules framed thereafter, Deloitte Haskins & Sells LLP, Chartered Accountants, were appointed as statutory auditors of the Company from the conclusion of the nineteenth annual general meeting (AGM) of the Company held on June 27, 2014 till the conclusion of the twenty second AGM to be held in the year 2017, subject to ratification of their appointment at every AGM. 17. Auditors’ report and secretarial auditors’ report The auditors’ report and secretarial auditors’ report does not contain any qualifications, reservations or adverse remarks. Report of the secretarial auditor is given as an annexure which forms part of this report. 18. Risk management The board of directors of the Company has formed a risk management committee to frame, implement and monitor the risk management plan for the Company. The committee is responsible for reviewing the risk management plan and ensuring its effectiveness. The audit committee has additional oversight in the area of financial risks and controls. Major risks identified by the businesses and functions are systematically addressed through mitigating actions on a continuing basis. The development and implementation of risk management policy has been covered in the management discussion and analysis, which forms part of this report 19. Particulars of loans, guarantees and investments The particulars of loans, guarantees and investments have been disclosed in the financial statements. 20. Transactions with related parties None of the transactions with related parties falls under the scope of section 188(1) of the Act. Information on transactions with related parties pursuant to section 134(3)(h) of the Act read with rule 8(2) of the Companies (Accounts) Rules, 2014 are given in Annexure I in Form AOC-2 and the same forms part of this report. 21. Corporate social responsibility The brief outline of the corporate social responsibility (CSR) policy of the Company and the initiatives undertaken by the Company on CSR activities during the year are set out in Annexure II of this report in the format prescribed in the Companies (Corporate Social Responsibility Policy) Rules, 2014. For other details regarding the CSR Committee, please refer to the corporate governance report, which forms part of this report. The policy is available on the website of the Company (URL: www.tcs.com/investors). 22. Extract of annual return As provided under section 92(3) of the Act, the extract of annual return is given in Annexure III in the prescribed Form MGT-9, which forms part of this report. 23. Particulars of employees The information required under section 197 of the Act read with rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are given below: i. Average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration: The average annual increase was around 8%. However, during the course of the year, the total increase is approximately 12%, after accounting for promotions and increase in hiring salaries for trainees. Increase in the managerial remuneration for the year was 33.09%. k. The key parameters for any variable component of remuneration availed by the directors: The members have, at the AGM of the Company on June 27, 2014, approved payment of commission to the non-executive directors within the ceiling of 1% of the net profits of the Company as computed under the applicable provisions of the Act. The said commission is decided each year by the board of directors and distributed amongst the non-executive directors based on their attendance and contribution at the board and certain committee meetings, as well as the time spent on operational matters other than at meetings. l. The ratio of the remuneration of the highest paid director to that of the employees who are not directors but receive remuneration in excess of the highest paid director during the year: None. m. Affirmation that the remuneration is as per the remuneration policy of the Company: The Company affirms remuneration is as per the remuneration policy of the Company. n. The statement containing particulars of employees as required under section 197(12) of the Act read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, is provided in a separate annexure forming part of this report. Further, the report and the accounts are being sent to the members excluding the aforesaid annexure. In terms of section 136 of the Act, the said annexure is open for inspection at the Registered Office of the Company. Any shareholder interested in obtaining a copy of the same may write to the Company Secretary. 24. Disclosure requirements As per SEBI Listing Regulations, corporate governance report with auditors’ certificate thereon and management discussion and analysis are attached, which form part of this report. As per Regulation 34 of the SEBI Listing Regulations, a business responsibility report is attached and forms part of this annual report. 25. Deposits from public The Company has not accepted any deposits from public and as such, no amount on account of principal or interest on deposits from public was outstanding as on the date of the balance sheet. 26. Conservation of energy, technology absorption, foreign exchange earnings and outgo Conservation of energy: Energy conservation continues to be an area of focus for TCS. Initiatives to integrate energy efficiency into overall operations are undertaken through design considerations and operational practices. The key initiatives towards conservation of energy were: a. adding LEED certified green buildings to real estate portfolio with a strong focus on energy efficiency at design stage itself; b. improved monitoring of energy consumption through smart metering and integration with building management systems; c. setting internal targets for energy performance improvement and institution of rigorous operational controls toward achieving these targets; d. creating awareness amongst associates on energy conservation through campaigns and events; e. focussing on enhancing the component of renewable power in our power sourcing strategy (through on-site solar power generation and third party purchase as feasible); f. extending green data center initiative to 28 data centers which contributes to energy efficiency (power utilisation efficiency) of these data centers; and g. increased focus on procurement of energy efficient equipment in line with our green procurement policy. In FY 2015-16, TCS has continued to invest in expanding its energy management programme by extensive metering and leveraging its IT capabilities to develop a leading edge, scalable, cloud based ‘Internet of Things’ (IoT) platform on which 107 sites of its India operations (excluding CMC sites) are integrated for visibility of energy consumption and monitoring. Of these, 95 sites have been under active energy monitoring and management. This has resulted in an absolute energy savings of about 12.5 million kwh during the year for these 95 sites, and an adjusted savings of 29 million kwh after adjusting for growth in employees and any baseline revisions. TCS has extended its enterprise wide certification under IS0 14001:2004 (Environmental Management System) covering its 115 offices globally. TCS was included in the prestigious Dow Jones Sustainability Index 2015 (world as well as emerging markets) for the third year in a row and was also included in the ‘India Climate Disclosure Leadership Index’ (CDLI), 2015. Data on reduction in energy consumption and consequent reduction in carbon footprint have been provided in the business responsibility report. Technology absorption, adaption and innovation: The Company continues to use the latest technologies for improving the productivity and quality of its services and products. The Company’s operations do not require significant import of technology. Research and Development (R&D): Specific areas in which R&D was carried out by the Company Research and Innovation at TCS are focused on two primary themes - digital technologies that are helping ‘re-imagine’ the relationship between consumers and businesses across industries, and the continuing industrialization of software and computing. The Internet of Things (IoT), a composite of several digital technologies, is enabling new services to consumers. A number of research and innovation projects contributed to IoT offerings. The TCS IoT platform that is based on research into cyber-physical systems in the innovation labs is now the backbone for offerings made by business units in areas such as retail, healthcare, energy, manufacturing, transportation and infrastructure. The factory employee health and safety wearable platform launched this year runs on the TCS IoT platform and features a real time two-way SOS alert and response mechanism while monitoring critical health and environmental parameters such as heart rate, body skin temperature, fall detection, immobility and carbon monoxide levels of workers. Related projects such as ‘ageing in place’ with Singapore Management University and the work with MIT Media Labs continue to make progress. Drone based applications, especially infrastructure management and damage assessment, were another area of importance in systems research. The Company’s research in the applications area focused on deep learning platforms bringing the power of analytics to several industries. Research in e-mail mining, voice analytics, natural language processing, robotics and services automation is ongoing. The Company continues to work on areas such as genomics and met genomics towards personalizing medicine. Under software research work progressed on formal methods in verification and validation, model driven organizations and service design. Solutions that have moved from research to business such as the neural automation platform Ignio and the social platform ‘Knome’, are creating impact. The accessibility platform is promoting universal design principles in applications, thereby enabling applications to become more inclusive and reach larger segments of society. The TCS Co-Innovation Network (TCS COINTM) programmer is expanding its footprint, both in academia as well as emerging technologies and incubators. TCS has established relationships with new partners in Australia (the University of Technology, Sydney, the University of Western Sydney and University of New South Wales). The Company is engaging with The Royal College of Art (London) and the National Institute of Design Ahmadabad for Design related initiatives. Apart from working through new and existing Academic Alliances, TCS Co-Innovation Network connected to several incubators and innovation hubs around the world. The full list is available at http://www.tcs.com/research/Pages/academic-alliances.aspx. The TCS Research Scholar Programme has funded 208 PhD scholars in five years (2010 -2015). The programme has been extended for another five years, by which the Company aims to support another 200 scholars through their doctoral work. The Company’s research and innovation departments continue to be in close touch with customers through a series of Innovation Days. The Company triggered high quality discussions on new technologies with three editions of TCS Innovation Forum in North America (New York City, Chicago and Silicon Valley) and one in London, and with Co-Innovation Events in Sydney, Australia and Helsinki, Finland. TCS researchers published around 500 papers in academic conferences and journals. TCS has filed for 2,842 patents and has been granted 341 patents. TCS was recognised as the ‘Top IP Driven Organisation of the Year’ in the category of ‘Large Enterprises’ at ‘CII Industrial Intellectual Property Award 2015’. For the 8th year in a row, TCS was on Forbes’ Magazine’s list of ‘The World’s Most Innovative Companies’. TCS innovators won many of the Tata Group awards such as for ‘Challenges Worth Solving’ and ‘Tata Innovista’. ‘e-Stetho’, a product designed by TCS innovation labs – Kolkata, has won the ‘2016 Wearable Technology Product of the Year’ award. Many researchers won individual awards in competitions. The Company will continue working on the major themes of digital re-imagination and industrialization and explore areas related to software, data and decision sciences, cyber-physical systems and the intersection of multiple sciences and industry domains with computing technologies. Expenditure on R&D TCS innovation labs are located in India and other parts of the world. These R&D centers, certified by Department of Scientific & Industrial Research (DSIR) function from Pune, Chennai, Bengaluru, Delhi- NCR, Hyderabad, Kolkata and Mumbai. 27. Acknowledgement The directors thank the Company’s employees, customers, vendors, investors and academic institutions for their continuous support. The directors also thank the governments of various countries, Government of India, governments of various states in India and concerned government departments / agencies for their co-operation. The directors appreciate and value the contributions made by every member of the TCS family. On behalf of the board of directors Cyrus Mistry Chairman Place : Mumbai , Date : April 18, 2016 |