To the Members,
Your Directors present to you the Fourteenth Annual Report of Four Soft Limited(hereinafter referred to as 'Four Soft' or 'the Company') together with the auditedfinancial statements for the year ended on March 31, 2013.
1. Financial results
(Rs. in million except per share data)
| ||For the year ended 31 March |
|Particulars ||Consolidated ||Standalone |
| ||2013 ||2012 ||2013 ||2012 |
|Total income ||1339.42 ||1272.14 ||341.68 ||308.61 |
|Total expenditure ||1111.93 ||1115.38 ||342.12 ||373.90 |
|Operating profit/(loss) (EBITDA) ||227.49 ||156.76 ||(0.44) ||(65.29) |
|Interest ||20.58 ||23.82 ||0.49 ||0.30 |
|Depreciation ||18.44 ||18.63 ||11.50 ||11.76 |
|Profit/(Loss) before tax ||188.47 ||114.31 ||(12.43) ||(77.35) |
|Current tax ||30.17 ||52.71 ||- ||- |
|Deferred tax expense/(benefit) ||14.90 ||(12.02) ||- ||23.61 |
|Profit after tax before exceptional items ||143.40 ||73.62 ||(12.43) ||(100.96) |
|Exceptional items ||(28.15) ||- ||- ||68.00 |
|Profit after tax and exceptional items ||115.25 ||73.62 ||(12.43) ||(32.96) |
|Impairment of goodwill resulting on consolidation ||- ||(500.00) ||- ||- |
|Reported net profits/(loss) after tax ||115.25 ||(426.38) ||(12.43) ||(32.96) |
|Basic and diluted earnings per share (in Rs) ||2.97 and 2.96 ||(11.00) ||(0.32) ||(0.85) |
2. Changes to share capital
During the year under review, there has been no change in the Company's capitalstructure and the Authorized Share Capital of the Company stands at Rs. 350 million.
In view of requirement of funds for various business expansion activities in future,the directors do not recommend dividend for the financial year 2012-13.
There has been no transfer of funds to reserves during financial year 2012-13.
5. Business performance
Total income in financial year ended March 31, 2013, on a consolidated basis, isRs.1,339.42 million (2012: Rs. 1,272.14 million) and on a standalone basis is Rs.341.68million (2012: Rs.308.61 million).
Your Company made an operating profit of Rs.227.49 million (2012: Rs.156.76 million) ona consolidated basis. The operating loss on a standalone basis stands at Rs.0.44 million(2012: Loss of Rs.65.29 million). The profit for the year is Rs.115.25 million (2012:excluding impairment of goodwill, Rs.73.63 million) on a consolidated basis. The loss forthe financial year ended 31 March 2013 on standalone basis is Rs.12.43 million (2012:Rs.32.96 million).
Your Company has grown by 5.3 % during the year on a consolidated basis. During theyear under review your Company increased its client-base globally, built up a robustpipeline and progressed further on large implementations. Your Company's vision is tobecome the Industry leader in transportation and logistics vertical and make significantheadway in the supply chain/shippers market. By leveraging technology excellence, domainspread and expertise, your Company continues to mine existing customers who contribute tomore than 90% of revenues. On a consolidated basis the Company has added assets worth Rs.8.44 million (2012: Rs. 8.76 million) primarily consisting of computer hardware andfurniture & fittings.
Your Company continues to focus on research and development and has incurred Rs.54.10million (2012: Rs.76.58 million) during the year.
Your Company is operating in the markets such as Europe and the United States which arecurrently facing economic uncertainties and tough competition. However, your Company'sstrong value creating product lines and sales efforts have resulted in closure of 9contracts during the year in the European, American and Indian market. We see a definitetrend in which our target market is shifting towards. Customers are increasingly leaningtowards low capital expenditure model of Software as a Service (SaaS). Among the 9contracts signed during the year, we have signed 2 SaaS contracts in American market.
Our visibility products 4S Visilog and 4S Visilog Plus continue to find increasedreception among our potential customers. Our pipeline also includes significant number ofprospects at different stages of contract finalization.
In addition to our direct sales and inside sales efforts which have resulted inexecution of new contracts, we also have increased our order book by account mining ofexisting customers under implementation in line with the strategy in the previous year
Your Company continues to generate cash from operations and has been able to manage itsworking capital requirements. Your Company has cash equivalents of Rs.214.86 million as atMarch 31, 2013 (2012: Rs.184.25 million) on a consolidated basis, of which Rs.11.46million (2012: Rs.17.5 million) were invested in short term liquid instruments.
Four Soft Ltd has three direct subsidiaries; Four Soft B.V, The Netherlands, Four SoftSingapore Pte Ltd, Four Soft Malaysia Sdn Bhd, and the following six step-downsubsidiaries Four Soft Netherlands B.V, Four Soft Nordic A/s, Four Soft UK Ltd, Four SoftUSA Inc., Four Soft Japan KK and Four Soft Australia Pty Ltd. All subsidiaries are whollyowned by your Company.
During the year, your Company has neither made any acquisitions nor has setup anysubsidiaries. There has been no material change in the nature of the subsidiaries listedaforesaid. A statement with brief financial data of each subsidiary is part of this annualreport.
A consolidated financial statement of the Company and its wholly owned subsidiaries isattached as required by the Listing Agreement. The consolidated financial statements havebeen prepared in accordance with Accounting Standard 21 -"Consolidated FinancialStatements" as notified by the Companies (Accounting Standards) Rules, 2006, asamended.
The Ministry of Corporate Affairs has granted general exemption under section 212(8) ofthe Companies Act, 1956 exempting companies from attaching copies of the Balance Sheet,Statement of Profit and Loss, Reports of the Board of Directors and Auditors ofSubsidiaries as specified under Section 212 (1) of the Companies Act, 1956 subject topublication of certain summarized financial information of the subsidiaries in the AnnualReport. Accordingly these documents related to subsidiaries are not attached to theBalance Sheet and the summarized financial information related to subsidiaries is includedin the Annual Report. Full Annual Report including financial information of thesubsidiaries will be available upon request by any member interested in obtaining thesame. All the documents related to subsidiaries are kept in the head office of the Companyfor inspection by any interested shareholder.
8. Solutions offered
Presently, your Company offers solutions for freight forwarding industry, 3PLs andservice providers, customs brokerage, contract and warehousing logistics, and for liners,non-vessel operating common carriers (NVOCCs) and agencies. Products in freight forwardingindustry include 4S eTrans, 4S Visilog and 4S eTrans SME and that for contract and3PL warehousing providers include 4S eLog. In addition, 4S iShipping targets the linersmarket, 4S eCustoms targets the customs brokers & shippers and 4S Visilog Pluswhich represents the Four Soft shipper logistics industry targets the shippers andmanufacturers for their logistic needs. Your Company also offers IT- services includingconsulting, software development and system integration and implementation in the domainof logistics related IT.
9. Human resources
To remain competitive in the IT industry and achieve its business objectives, yourCompany understands the need of constantly attracting, grooming and retaining the besttalent in the industry for its strategic success.
The Company has focused on transformation through qualitative recruitments across alllevels and functions (Project Managers, Technical Designers, QA lead, to name a few). Wehave focused on premier institutes (IIT Hyderabad, BITS Hyderabad, and NIT to name a few)to hire bright candidates into the organization who have the potential to become thefuture leaders with their high drive to excel. A concentrated effort in recruitment wastaken to make the staff more culturally diverse and further improve workplace demographicsby recruiting people from different cities and IT hubs in India.
Talent development and continuous learning have been the focus area during the year.More hours (600+ hrs.) of training have been conducted spreading over technical,functional and behavioral growth of the resources. Constant improvements in behavioralskills and updations with advanced technologies have been the core areas for learningopportunities.
To have better control, improved process efficiency and quality, payroll administrationand statutory compliances and filings were bought in-house. This has also resulted in amuch lower operational cost than what was spent annually for outsourcing it. All theseactivities are managed and maintained by Company personnel.
Your Company follows performance with engagement methodology where each resource isentitled for having fun at work. Engagement activities with an objective of enhancedcommunication, cohesiveness and collaboration within the teams have been conducted atregular intervals. These activities have also acted as mode of de-stressing the resourceswho are sometimes hard pressed due to important project deliverables. Corporate wellnessprograms inclusive of health check-ups by related specialists paved their way into yourCompany's motto for better, fitter and engaged resources.
Your Company has successfully ranked 18th in top 20 IT companies across India withemployee headcount less than 2000 in the DQ-CMR Best Employer Survey 2012. It hassuccessfully marked its entry in Top 20 in most of the major categories viz. 'PreferredEmployer' (18th), 'Managing Slowdown' (17th), 'Company Image' (18th) and 'HR Ranking'(13th). It was also conferred with "Best HR Strategic Plan Award" at India HumanCapital Summit 2012. This award was given for having best HR strategies in line andsupporting the business to achieve its vision.
With various new initiatives planned in the year ahead, your Company aspires to retainor improve its image as an employer of choice and keep attracting and retaining the besttalent in the industry for sustained high performance and growth.
Your Company's quality system is built on three pillars: ISO 9000, CMMI and LeanManagement. We have built our process definitions, standards, tools and documents so thatthe system is in conformance with all the three frameworks. We not only undertakeextensive customer satisfaction surveys but also conduct internal audits to maintain andverify high levels of compliance. We are currently CMMI Level 5 Company. This continuousimprovement model of CMMI is one of the most prestigious certifications and is a testimonyof the organizational focus on process improvements. We initiated Lean Management in theyear 2009 and we are reaping benefits of the same in all identified value streams.Measures that validate the success of this program are reduced amounts of rework in theCompany, faster implementation cycle for standard implementations and increased automationlevels in various functions. Lean is implemented in projects and functions focusing onreducing non value activities and increasing value to customer. Process and templates arereviewed applying lean principles and non-value process steps are removed. This hassimplified process implementation for practitioners.
11. Corporate governance
As a good governance initiative, your Company continues to improvise on complying andproviding additional disclosures apart from complying with the recommended SEBI guidelineson Corporate Governance. A report on corporate governance along with the certificate froma Company Secretary-in-Practice confirming compliance of conditions of corporategovernance as stipulated under Clause 49 of the Listing Agreements with the stockexchanges form part of the Annual Report.
The Company has well framed policies such as the Whistleblower Policy, Fraud DetectionPolicy and the Code of Conduct for senior officers and executives in the Company. TheCompany has internal controls and documented procedures and continues to ensure compliancewith the said policies.
12. Corporate social responsibility
At Four Soft we strongly believe in improving the quality of life of the communities weserve. To achieve this objective, the Four Soft CSR team has been actively working onimproving the welfare of the socially and economically disadvantaged communities,especially those that exist in and around its areas of primary operation.
Your Company CSR policy encompasses initiatives to conserve, sustain and renew theenvironment, to encourage sustainable socio-economic development of the community and toimprove the quality of life of the people living in the areas in which it operates. Thegreatest strength of the Company's CSR activity is that it is looked upon as a businessprocess, like any other, not post-profit philanthropy. In line with the values of all itsstakeholders and most importantly, based on a genuine concern for people and thecommunity, we at Four Soft implemented various CSR activities during the year includingthe following:
Donations to Kinnera Welfare Society (Old Age Home) - to mark the occasion ofGandhi Jayanti (02 October 2012), we have distributed woolen clothes, blankets, groceryand other consumables to the residents of the old age home.
Tribes India (2nd November 2012) - With a noble cause and positive support totribal craftsmanship in India, a kiosk facility was extended by Tribes India in yourCompany.
Blood Donation camp (1st March 2013) - Over 25ltrs of blood for the NTR MemorialTrust blood bank was contributed by your Company staff. The blood bank provides blood freeof cost to the poor and collects nominal fee from others.
Consistent with Four Soft's approach to social responsibility towards nature, theCompany continues its march towards "Going Green." Our green policy isconsistent with your Company's commitment to good corporate citizenship and bestmanagement practices. We have continued the following initiatives as part of our campaign:
Go Green Campaign: Dry waste collection by "Aashayein" on 23rd July2012 as part of Environment - Employment -Education (EEE) campaign. This initiative leadsto pollution free environment; provide employment opportunities to under privileged peoplethrough Aashayein by way of recruiting them for collecting dry waste from variouscorporates. Aashayein manufactures and sometimes provides dry waste to relevant smallscale business units for recycling to make usable items like paper bags etc.
Carpooling: As a more environmental friendly and sustainable way to travel,reducing carbon emissions and traffic congestion on the roads; carpooling by employees inyour Company has been actively promoted.
Your Company recognizes the importance of quality life, in the growth and developmentof individuals, country and the world. As such, it always works towards the betterment ofthe society by conducting various projects and events aligned with its goals.
As per Article 88 of the Articles of Association, Mr. Mohan Krishna Reddy, Director isretiring by rotation at this meeting and being eligible, offers himself forre-appointment.
Pursuant to the provisions of Clause 49 of the Listing Agreement, brief profile of theabove director is provided in the notice to the Annual General Meeting.
The Board of directors of your Company recommends his re-appointment.
M/s. Walker, Chandiok & Co, Chartered Accountants hold office until the conclusionof the forthcoming Annual General Meeting and have confirmed their eligibility andwillingness to accept the office of the Auditors, if reappointed.
The Board of Directors recommends the appointment of M/s. Walker, Chandiok & Co, asthe Statutory Auditors of the Company for the year 2013-14.
A Report of the Auditors on the financials of the Company is appended to this AnnualReport. There are no qualifications in the Report.
15. Disclosures as per Listing Agreement
The cash flow statement under indirect method is in accordance with the AccountingStandard on cash flow statement (AS-3) as notified by the Companies (Accounting Standards)Rules, 2006, as amended is appended to this Annual Report.
Director's responsibility statement as required under Section 217 (2AA) of theCompanies Act, 1956
Your directors confirm that -
In the preparation of the annual accounts, the applicable accounting standardshave been followed along with proper explanation relating to material departures.
the directors have selected such accounting policies and applied themconsistently and made judgments and estimates that are reasonable and prudent so as togive a true and fair view of the state of affairs of the Company at the end of thefinancial year and of the profit or loss of the Company for that period.
The directors have taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of the Companies Act, 1956for safeguarding the assets of the Company and for preventing and detecting fraud andother irregularities.
The directors have prepared the annual accounts on a going concern basis. Thefinancial statements have been audited by M/s. Walker, Chandiok & Co, CharteredAccountants - the statutory auditors.
16. Four Soft Limited Employee Welfare Trust
The Company has established Four Soft Limited Employees Welfare Trust ("theTrust") to administer the ESOP Scheme and as at March 31, 2013 had issued 1,170,200equity shares of Rs.5 each, including 217,200 equity shares issued pursuant to issue ofbonus shares in 2003.
Pursuant to the ESOP Scheme 2003 the trust has granted equity shares at an exerciseprice of Rs. 5 each to the eligible employees, which are subject to progressive vesting (1year after date of issue of options) over a period of three years from the date of grant.As of March 31, 2013 the total shares held by the Trust is 143,987 (2012: 243,987). Modeof settlement of these stock options is equity.
Details of the equity shares issued under ESOP and the disclosures in compliance withclause 12 of the SEBI (Employees Stock Options Scheme and Employees Stock Purchase Scheme)Guidelines, 1999 are set out in the annexure to this report.
17. Fixed deposits
Your Company has not accepted any fixed deposits and, as such, no amount of principalor interest was outstanding as of the balance sheet date.
Particulars of employees as required under the provisions of Section 217 (2A) of theCompanies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975, asamended:
There are no such employees who were in receipt of remuneration, which in aggregate,was not less than Rs .60 Lacs for the year 2012-13.
Conservation of energy, research and development, technology absorption, foreignearnings and outgo:
The particulars as prescribed under sub-section (1)(e) of Section 217 of the CompaniesAct 1956 read with the Companies (Disclosure of particulars in the report of the Board ofDirectors) Rules, 1988, are set out in the annexure included in this report.
Your directors take this opportunity to convey their appreciation for the support andco-operation received during the year under review, from all the government authorities,shareholders, other stakeholders, clients, vendors, partners, bankers and other businessassociates. Your directors' wish to place on record their deep sense of appreciation forthe dedicated and sincere services rendered by the employees at all levels.
| ||By order of the Board of Directors |
| ||Sd/- |
| ||M. Raghuram |
|Hyderabad, August 10, 2013 ||Company Secretary |
ANNEXURE I TO THE DIRECTORS REPORT
Particulars pursuant to Companies (Disclosure of Particulars in the report of the Boardof Directors) Rules, 1988
1. Conservation of energy
Your Company takes adequate measures to reduce energy consumption by using efficientcomputer terminals and by using latest technology. The impact of these efforts hasenhanced energy efficiency. As the facility is located in L&T Cyber Towers, Hyderabad,air-conditioners, hydro-pneumatic pumps used are highly energy efficient. Since the energycost forms a very small part of total expenses, the financial impact of these measures isnot material and not measured.
2. Research and development (R&D) and technology absorption
In continuation with our strategy of Technology Management as the centre piece of ourbusiness model, we have taken various initiatives and steps. Technology has a bigger partin solving the business problems that leads to various improvements for the customers andsociety at large. Such overlapping confluence can happen in the field of analytics and BigData, for example. Your company has a strong R&D team that has implemented a varietyof technical solutions and the accumulated expertise gives it the foundation of launchingcentres of excellence in various niche areas.
We would continue to explore and invest in such areas. To give another example, we willalso be moving in the direction of further decoupling the presentation and service layersin our products. This leads to a greater mix of offerings in terms of simplified calls,pluggable user interfaces, REST calls and mix-n-match of functional modules.
Critical aspect of rolling out new technologies is training for everyone. R&D teamwill always work with Training department for the realization of proper training. For theinternal teams, delivering products on time and budget are most important concerns. Theuse of systems approach for change management with the usage of appropriate tools will bethe key facilitators for meeting these goals. For the customers, we will continue toprovide solutions that will enable in saving costs. We will continue to develop modulesand features that will help in increased automation leveraging techniques like systemintelligence, pre-filled templates, and bulk processing.
This combination of centres of excellence with simplified separation of products andincreased automation will result in market-driven innovations that will help your companysustain its leadership position.
Being a product company, Four Soft's R&D activities revolve around continuouslyanticipating customer requirements, understanding the business problems of customers,identifying how our products can solve those business problems and development of ourproducts to meet current and future needs of our customers.
Our domain experts continuously conduct research in the changes in the business of ourcustomers, to suggest changes and improvements in our products. These changes andimprovements may be in the nature of a) changes and/or additions in functionality of theproducts and b) changes and/or additions in the graphical user interface. In addition yourcompany unceasingly explores avenues to develop new products in the logistics and supplychain domain. The product development team constantly incorporates changes/additions inthe products and works hand in glove with our domain experts.
R&D initiatives of Four Soft create intellectual and intangible assets which aremonetized by way of a) additional customization revenue from product improvements andenhancements and b) sale of new products to existing and new customers. In the year underreview, your company successfully developed 4S eCustoms for the US region andimplementation is currently in progress at few of our US customers.
Your company will enhance the niche of R&D by obtaining international inputs withonsite engagements, publishing papers and articles in technical journals, makingpresentations in reputed institutions and seminars, and absorbing professionals withconsiderable development experience. These will enhance the brand of R&D within yourcompany, and by delivering superior business propositions, they will enhance the brandvalue of your company in the market.
Your Company spent Rs.54.10 million in current year (2012: Rs. 76.58 million) towardsresearch and development expenditure. We have not imported any technology in the currentor previous year.
3. Foreign exchange earnings and outgo
(Rs. in million)
|Particulars ||For the year ended March 31 |
| ||2013 ||2012 |
|Gross earning ||336.40 ||348.55 |
|Outflow (including imported software) ||19.12 ||20.14 |
|Net Foreign Exchange (NFE) earnings ||317.28 ||328.41 |
|NFE/Gross earnings % ||94% ||94% |
ANNEXURE II TO THE DIRECTORS' REPORT
Disclosure pursuant to provisions of SEBI (ESOP and ESPS) Guidelines 1999 is givenbelow
|Sl. No. ||Description ||ESOP Scheme |
|1 ||No. of shares available under ESOP Scheme 2003 || |
| ||a. Originally allotted ||953,000 |
| ||b. Consequent to Bonus issue and split of shares ||217,200 |
| ||c. Total ||1,170,200 |
|2 ||No. of options granted ||Refer Note1 |
|3 ||Pricing formula ||ESOP 2003 Scheme - Price of Rs. 5/- per share |
| || ||ESOP 2009 Scheme - Price of Rs. 10/- per share |
|4 ||Options vested as on March 31, 2013 ||NIL |
|5 ||Options exercised during the year ||1,00,000 |
|6 ||Options lapsed during the year ||8,12,045 |
|7 ||Total no. of options in force as on March 31, 2013 ||ESOP 2003 Scheme - 144108 |
| || ||ESOP 2009 Scheme - 122800 |
|8 ||Variations of terms of options ||Refer Note 2 |
|9 ||Money realized by exercise of options ||Rs. 5,00,000 |
|10 ||Grant details to members of senior management team ||No. of Members of senior management team to whom options were granted during the year: 04 |
|11 ||Employees holding 5% or more of total options granted during the year ||No. of employees holding 5% or more of total options granted during the year: 01 |
|12 ||Identified employees, who were granted options during the financial year exceeding 1% of issued capital ||NIL |
|13 ||Diluted EPS as per Accounting Standard 20 ||(0.32) |
|14 ||i. Method of calculation of employee compensation ||The Company has calculated the employee cost. compensation cost using the intrinsic value of the stock options. |
| ||ii. Difference between the employee compensation cost so computed at || |
| ||(i) above and the employee compensation cost that shall have been recognized if it had used the fair value of the options: ||Rs. 7,53,585 |
| ||(iii) The impact of this difference on profits and on EPS of the Company: || |
| ||Profit/(Loss) after Tax as reported: ||Rs. (12,416,589) |
| ||Less: Additional employees compensation cost based on Fair value ||Rs. 7,53,585 |
| ||Adjusted Profit/(Loss) after Tax ||Rs. (13,170,174) |
| ||Adjusted EPS || |
| ||Basic ||Rs. (0.32) |
| ||Diluted ||Rs. (0.32) |
|15. ||Weighted average exercise price and fair value of stock options granted: ||N.A. |
|16. ||Description of the method and significant assumptions used during the year to estimate the fair value of the options, including the following weighted average information ||The Black Scholes option pricing model was developed for estimating fair value of traded options that have no vesting restrictions and are fully transferable. Since options pricing models require use of substantive assumptions, changes therein can materially affect fair value of options. The option pricing model does not necessarily provide a reliable measure of fair value of options. |
17. The main assumptions used in the Black Scholes option pricing model during the yearended were as follows:
| ||2013 ||2012 |
|Risk free interest rate: ||8.00 % to 8.25% ||8.25% to 8.50% |
|Expected life of options from the date of grant: ||1 to 2 Years ||1 to 2 Years |
|Expected volatility: ||0.55 to 0.87 ||0.51 to 0.57 |
|Expected dividend yield: ||NIL ||NIL |
Note 1: No. of Options granted during 2012-13
1. under ESOP 2003 Scheme:
Number of options granted to employees during the year ended March 31, 2013 is 144,108.
2. under ESOP 2009 Scheme:
For the purpose of preparation of financial statements, the guidance note issued by theICAI on "Accounting for Employees Share Based Payments", we have disclosed stockoptions likely to arise till March 31, 2013 (end of the said scheme). Number of optionsgranted to employees during the year ended March 31, 2013 is 122,800.
Note 2: Variations of terms of Options
Variation in ESOP 2003 Scheme:
In the Annual General Meeting held on 29 September 2008, the shareholders approved thefollowing variations to ESOP Scheme:
a. There is no lock-in period after allotment of Employee Stock Option shares toemployees account.
b. One-third of total grants offered to be vested on to employee on each completed yearof service from the date of granting of option. In other words:
33.33% of the total shares granted can be exercised by each employee on or aftercompletion of 1st year from the date of grant.
33.33% of the total shares granted can be exercised by each employee on or aftercompletion of 2nd year from the date of grant.
33.33% of the total shares granted can be exercised by each employee on or aftercompletion of 3rd year from the date of grant.
Employee Share Purchase Scheme (ESPS) 2009
As per the Four Soft Employee Share Purchase Scheme 2009, 1,948,000 equity shares @Rs.20/- per share are planned to be issued to the employees based on the criteria setforth in the said Scheme.
For the year ended March 31, 2013, the Company has not allotted any shares to employeesbased on Four Soft Employee Share Purchase Scheme 2009.