Fidelity Mutual Fund’s investment manager, FIL Fund Management, whose operations has been under strategic review of Fidelity Worldwide Investments for some time now, saw no year-on-year decline in its total income in financial year 2010-11 (FY11) which could have caused its operating loss to double in that year.

Financial Chronicle learns that FIL Fund Management, in its statutory filing of financials with the registrar of companies, reported a rise in total income from Rs 74.43 crore in FY10 to Rs 75.24 crore in FY12. Despite this, its operating loss, that is negative profit before depreciation and tax, rose from Rs 24.74 crore in FY10 to Rs 60.27 crore in FY12. After a depreciation expenditure item of Rs 2.13 crore in FY11 and Rs 2.82 crore in FY10, the company’s final net loss rose from 27.56 crore in FY10 to Rs 62.39 crore. The total loss carried to FIL Fund Management’s balance sheet till the end of FY11 was Rs 306.85 crore.

As individual operating expenditure items were, however, not covered in the statutory filings, the contributing expenditure item or items behind the rise in operating loss could not be ascertained. Financial Chronicle contacted FIL Fund Management seeking the reason behind the rise in loss, but the company did not respond to this specific query. Although, it confirmed that the total income was about Rs 71 crore in FY11.

The company’s cash generated from operations was also negative in the two years, negative Rs 37.75 crore in FY11 and negative Rs 17.01 crore in FY10. One significant expense head for FIL Fund Management was in the form of remuneration paid to expatriate employees in foreign currency. This shot up ten folds, from Rs 1.05 crore in FY10 to Rs 10.39 crore in FY11.

Through another disclosure in its balance sheet notes it was seen that FIL Fund Management’s lease payments for premises taken under operating lease rose sharply by Rs 3.60 crore from Rs 6.96 crore in FY10 to Rs 10.56 crore in FY11. A security deposit of Rs 3.92 crore was paid to fellow subsidiary, FIL Capital Advisors (India) in FY11, up from Rs 2.54 crore in FY10.

The company also incurred an expenditure of Rs 10.41 crore in FY11 in the form of outsourced service expenses paid to another of its fellow subsidiary, FIL India Business Services. In FY10, this particular related party expenditure was completely absent.

Another increase in expenditure for the company was seen in the remuneration paid to its managing director and country head, Ashu Suyash. Suyash received Rs 5.57 crore by way of remuneration in FY11, Rs 2.56 crore more than what she received in FY10.

At the end of FY11, FID Investments (Mauritius) held 100 per cent of FIL Fund Management’s paid-up equity capital of Rs 49.96 crore (face value Rs 10 per share), 100 per cent of its 12 per cent redeemable non-convertible preference shares capital of Rs 216.26 crore (FV Rs 100 per share), 100 per cent of its 10 per cent cumulative compulsory convertible preference shares capital of Rs 21 crore (FV Rs 100) and 10 per cent cumulative compulsory convertible preference shares capital of Rs 11.75 crore (FV Rs 100).

On September 23, 2011, FID Investments (Mauritius) was allotted a further Rs 24.03 crore worth of equity shares taking its total equity stake to Rs 73.99 crore in FIL Fund Management.

Due to the operating loss, FIL Fund Management was not able to pay dividend on its preference share capital. It reported a contingent liability in the form of arrears of preference shares dividend of Rs 135.89 crore at the end of FY11, up from Rs 106.83 crore at the end of FY10.

rajeshgajra@mydigitalfc.com