Management Discussion and Analysis Report
The financial statements have been prepared in compliance with the requirements of theCompanies Act 1956, and Accounting Principles Generally Accepted in India (Indian GAAP).The Management of Four Soft accepts responsibility for the integrity and objectivity ofthese financial statements, as well as for various estimates and judgments used therein.The estimates and judgments relating to the financial statements have been made on aprudent and reasonable basis, in order that the financial statements reflect in a true andfair manner the form and substance of transactions, and reasonably present the Company'sstate of affairs and profits for the year.
The following discussion may include forward looking statements which may involve risksand uncertainties, including but not limited to the risks inherent to Company's growthstrategy, dependency on certain clients, dependency on availability of qualified technicalpersonnel and other factors discussed in this report.
1. Industry structure and developments
Four Soft is an enterprise applications and product Company that operates in thetransportation, logistics and SCM (supply-chain management) market space. Four Soft hasits suite of products for transportation, logistics, freight forwarding, customs, linershipping, NVOCC, 3PL and 4PL companies. The target customers in 'transportation andlogistics' vertical include service providers; and for 'supply chainexecution/distribution' vertical, the target market includes shippers/manufacturing and4PL companies. These are execution and mission critical applications for the customers.
Transport and logistics industry is growing at a 10%-14% globally and more importantlythe future of this industry is heavily dependent upon the efficient delivery andvisibility which requires more than current investment in IT by this industry.
The industry is characterized by application portfolio fragmentation, caused by manyfactors such as buying standalone applications over time, Company structures, in-housedeveloped applications, mergers and acquisitions and outsourcing as well.
This also applies to all the SCM intensive manufacturing industries such aspharmaceutical, automobile and retail industry. These industries will soon be called ITdriven supply-chain companies as information technology will increasingly play a pivotalrole in the operating model of SCM companies which translates to opportunities for ITproducts and services companies across the globe.
As per a latest leading industry report, 35% of businesses surveyed identified theinability to synchronize end-to-end business process resulting in increased demand for SCMapplication convergence.
Further the report also estimates that 60% of the current multinational manufacturerswill organize to manage logistics globally in order to gain economies of scale, visibilityand manage other risks. In order to improve efficiency and lower costs, the report furtherelaborates that companies will focus on the execution elements of supply chain:
a) Network and inventory optimization
b) Warehouse and inventory management systems
c) Transport management systems
Revenue for the worldwide SaaS market will grow by 18% in 2012 to US $14.5 billion,according to a leading industry report. The SaaS market will be worth US $14.5 billion in2012, and is expected to expand up to US $22.1 billion by 2015.
SaaS adoption in 2012 will be driven by the growth of the platform-as-a-servicedeveloper communities as well as a growing interest in cloud computing. Organizations mostcommonly use SaaS for horizontal applications (i.e. applications that address businessdivisions, rather than specific industries) with common processes, however, there isincreasing interest in vertical specific offerings too.
2.1 Business segments and offerings
Four Soft has established its web - centric, next generation product portfolios onlicensed, hosted and SaaS models. This has opened up a wide range of market space for theCompany across the supply chain and other growing markets such as the electronics,automotive and retail.
The suite of software products offered by Four Soft are 4S eTrans, 4S eLog, 4SVisilog, 4S VisilogPlus, 4S eCustoms, 4SeConnect and 4S InfoTipscollectively known as '4S eProducts' or 'eProducts'.
Our product portfolio enhances efficiency, provides visibility and integration acrossoperations and also to other third party software and systems. The Company's productdevelopment centre (India Technology Centre) and global delivery centre are located atHyderabad with sales and support offices in United Kingdom, The Netherlands, Denmark, theUnited States of America, Singapore, Australia and Japan. Four Soft continues to be aglobal leader in supply-chain execution software solutions for transportation, freightforwarding and logistics domain.
Freight forwarding solutions
Built on the cutting edge technology of J2EE, Spring & SOA architecture, ourproducts for freight forwarding are multimodal, web-centric applications fortransportation companies designed to give operational and financial control of global anddomestic freight movements, from order to cash.
4S eTrans is offered for large, medium and small customers and it providesreal time data visibility and improved operational profitability. The SME version providessolutions for Small and Medium Enterprises.
4S Visilog offers Track & Trace functionality to service providers who inturn could also be using other applications in this domain.
Four Soft suite of products built for logistics service providers extends well beyondthe capability of traditional warehouse and inventory management systems by integratingsupply, fulfillment and partner collaboration into one enterprise service platform. TheWarehouse Management Solutions (WMS) module contains all the functionality required bywarehousing and distribution organizations. Its distributed processing approach supports awide variety of facilities, including hub-and-spoke distribution centers. Thesecapabilities help a 3PL provider meet the demands of continuous replenishment strategieswhile lowering inventory and shipping costs, and increasing visibility into the supplychain.
The solutions in the offering include 4S eLog, a web centric WMS application thatfulfills warehousing and contract logistics for 3PL companies with capabilities to handleorder management, fulfillment and partner collaboration.
4S Visilogplus is a world class business application designed as an efficientsolution for managing supply chain activities in the distribution network, whether Companyowned or outsourced to third parties. It enables step-by-step implementation and can beadapted and changed as per needs. Its open architecture makes it easy to integrate withother systems and capably extend ERP into supply chain execution. It is designed to handlebusiness processes order management, transportation management, warehouse management andevent management. It also enables various elements of the supply chain to be connected onreal time basis using web technology and collaborate for overall benefits to the supplychain.
4S eCustoms is a global customs framework, that supports multi-country customsdeclarations, deployable at country levels of customer choice. It targets the customsbrokers, shippers that have self-declaration license and freight forwarders and 3PLs thatalso manage customs brokerage. The new technology also supports the ability to deploy itacross multi terminals and branches spread across multi-locations, manage the filing fromany of the location in a decentralized mode, and yet have control and visibility incentralized mode.
All our eProducts are sold and deployed in the conventional user license based as wellas SaaS model in India, wherein the revenue model is on subscription basis for the usageof the system which is hosted by Four Soft. The SME customers see the SaaS model as aneasily adaptable one, as they save upfront investment in terms of hardware as well as arefree from implementation hurdles.
2.2 Business model
Four Soft sells its software products in various delivery models including hosted, SaaSand licensed basis. The licensed model is typically done on the 'named users' count, whichincreases as the customer's scale of operations increase. The revenue stream issustainable since there is annual maintenance support contract for the licensed salesmade. The service revenues would also come from the implementation services that areperformed, helping the customer 'go live' with Four Soft products, at times, also inintegrated mode with other existing software applications at customers' site. Further,changes in business environment and regulations need product modifications andenhancements which will result in revenue from customization service which contributes tooverall increase in revenues. In the year under review there has been a growing interestin SaaS model and this could be an interesting development for the Company. This meansexpanding in the SME market segment and evaluation of the SaaS model by few large clientswho may adopt licensed model. The revenue numbers on SaaS may not be substantial at thepresent time. However, the Company will be able to earn better margins in this model asscale increases.
A detailed table representing revenues from various services is given below for easyunderstanding.
|Consolidated numbers for the year ended March 31 ||2013 ||% of revenue ||2012 ||% of revenue |
| ||Rs. in million || ||Rs. in million || |
|Revenue from product related enhancements ||851.28 ||64.25 ||831.97 ||65.86 |
|Annual maintenance ||371.79 ||28.06 ||340.95 ||26.99 |
|Software licenses ||88.99 ||6.72 ||78.53 ||6.22 |
|Third party (Net) ||12.99 ||0.98 ||11.80 ||0.93 |
|Total ||1325.05 ||100.00 ||1,263.25 ||100.00 |
2.3 Geographical mix
The long term potential of our revenue stream is from various geographic regionsspecified below. It could be observed that Europe, Middle East and Africa (EMEA) continuesto be contributing to majority of the revenue share, given the number of logistics hubs itaccommodates. Our focus on regions such as the Americas and Asia Pacific (APAC) hasincreased and will result in more evenly spread geographic concentration in future.
|Consolidated numbers for the year ended March 31 ||2013 ||2012 |
| ||% ||% |
|EMEA ||68.37 ||70.10 |
|North America ||22.24 ||20.63 |
|APAC ||9.39 ||9.27 |
|Total ||100.00 ||100.00 |
2.4 Customer base
Over the years, your Company has not only delivered "best-in-class" solutionsbut also successfully built long-term partnerships with 15 of the world's top 20 transportand logistics players. Four Soft understands the importance of expanding its businessreach to sustain competition in the market space it operates which has enabled us to workwith some of the prominent players from the shippers' domain.
Today, with over 400 customers, 60,000 plus users across 120 countries, our customershave entrusted us with the management of their global complex supply-chain networksincluding DHL, CEVA, DB Schenker, Panasonic, Flyjac, (A Hitachi Transport System GroupCompany) and Geodis Wilson.
2.5 Average revenue per employee on consolidated basis
In the products and solutions business, our average revenue per employee, a keymeasurement for increased productivity and profitability is seeing a better trend in thisfinancial year. Your Company expects it continue increasing going forward. The below tabledepicts the growth:
|Average revenue per employee ||FY 2005 ||FY 2006 ||FY 2007 ||FY 2008 ||FY 2009 ||FY 2010 ||FY 2011 ||FY 2012 ||FY 2013 |
|(Rs. in Million) ||0.63 ||1.54 ||1.87 ||2.14 ||3.27 ||2.37 ||1.85 ||1.93 ||2.51 |
Your Company is dedicated to maintain the highest level of quality standards andprocesses in its development and delivery teams and overall process improvement to achievethe quality certification. Your Company has been appraised with CMMI Level 5(Version 1.2)certification.
This achievement recognizes your Company for best-in-class processes related to design,development and maintenance of software that enables it to be a reliable partner forcustomers to solve their business problems.
Capability Maturity Model Integration (CMMI) is a process improvement approach thathelps organizations improves their performance. CMMI can be used to guide processimprovement across a project, a division, or an entire organization. CMMI in softwareengineering provides a framework for the organization to operate at high maturity levelswith the essential elements of management by facts and data-driven decision making.
The appraisal was conducted by Quality Assurance Institute India Ltd, SEI Partner.
Your Company's strategy has always been aimed at sustaining long term growth andcontinually improving margins. Vital elements of the Company's strategy to achieve theaforesaid objective is summarized in the chart below:
New customer acquisition: The profile of new clients targeted by your Company rangefrom small and medium enterprises to large business houses globally. The flexibility ofour business model ensures that we can cater to all types of customers. The capability ofattract such a large spread of customers diversifies our risk and widens customerconcentration across geographies.
Account management: Your Company houses strong domain expertise and experiencedcustomer service professionals who endeavor to attain high customer satisfaction. YourCompany's strategy is to leverage these attributes to mine our customers by offeringadditional value added services or products resulting in additional streams of revenue
Research and development: Sustained innovation and development efforts will continue tomake differences in customer delivery and service. Outcomes of investments made indevelopment over the years on new technologies will benefit in the coming years. YourCompany plans to continue R&D initiatives in reducing development cycles, creatingmobile versions of our products, enhancing SaaS capabilities to improve margins anddeliver exemplary customer experience.
Focus on manufacturer/shipper vertical: Your Company has primarily provided productsand solutions in the logistics and transportation vertical. In order to accelerate growthand strengthen future sustainability of business, the Company has commenced pursuing themanufacturer/shipper segment. This segment provides your Company immense opportunities topromote the Company's supply chain visibility and execution software products.
4. Opportunities and threats
4.1 Growth through organic mode
Organic and inorganic strategies implemented by Four Soft over the years have resultedin steady growth of the Company. Your Company has successfully integrated all its globaloperations and has emerged to become one of the most efficient organizations with provendelivery capability.
Your company has the following opportunities to accelerate organic growth:
a) Integrated solutions for transportation and logistics vertical
We believe we are the only Company capable of providing an integrated web-basedsolution to logistics and transportation segment. Our integrated products 4S eTrans, 4SVisilog, 4S eCustoms, 4SeConnect, 4S eAccounts and 4S InfoTips provide anend-to-end business process flow enhancing customer productivity and efficiency inoperations. The chart below indicates the integrated solutions mapping to logistics andtransportation segment.
b) Increased focus on SCM and shipper logistics
The Company has plans to focus on shipper logistics vertical and SCM market. Vastopportunities in the shippers and SCM market coupled with strength and acceptability ofsupply chain visibility and execution products 4S eLog, 4S Visilog and 4SVisilogPlus will help us in gaining a foothold in the segment. The Company's objectiveis to deliver an integrated solution complete with business intelligence. The chart belowdepicts our integrated offerings.
c) Software as a Service Model- LogiSaaS
Four Soft has already enabled all its suite of applications online in the SaaS modelthis year under the LogiSaaS brand. Your Company identified SaaS approach a hugeopportunity from SMEs (small and medium enterprises). In line with expectation, the SaaScontracts executed by the Company are on the rise. We expect to significant volumes ofSaaS contracts in future improving our margins.
d) Multiple geography customs platform
With rising customs compliances and unique nature of customs regulations of differentgeographies, a need for a common platform integrating customs applications of differentcountries has arisen for multinational companies. We believe your Company has therequisite domain and technical expertise and excellent relationship with regional customsapplication providers to create the necessary opportunity.
e) Diversifying into BPO services within the supply chain segment and remoteinfrastructure management services (RIMS)
By leveraging the existing domain knowledge and customer base we could provide servicessuch as freight settlement reports, customer service and transaction entry to globalfreight forwarding companies. Your Company also offers a set of services that helpbusinesses manage the hardware, networks and associated software using capabilities thatare located away from their physical locations.
Experience gathered over the years in running our IT operations, has given us theexpertise to manage the IT infrastructure of our customers remotely. Your Company nowoffers a one stop solution to cater to all IT infrastructure needs of customers. TheCompany has secured an order in the previous year from its existing customer for thisoffering.
The Company believes that being a product service provider, it has an advantage ofunderstanding the business better and has the potential to start BPO/RIMS services withinthe existing customers and explore new opportunities with new customers.
4.2 Market opportunity and outlook
Four Soft has made inroads based on the opportunities that exists in the logistics andtransportation domain. Your Company products portfolio has extended horizontally andvertically. Today, it offers integrated software solutions for Logistics &Transportation, Shipper Logistics and Services (BPO Services, RIMS etc.). Vertically, wehave explored business opportunities in the growing market segments such as direct sellingand retail. The Company also has offerings built on latest internet technologies, usingJ2EE, which in turn positions your Company as the best in the industry thereby providingan opportunity for product offerings across domains.
Slower global trade will force shippers look to improve efficiency and lower costs, thefocus will shift to execution and visibility elements of supply chain management. Theseshifts will provide huge opportunities in all the parts of supply chain - Purchase-ordermanagement system (OMS), vendor management systems (VMS), warehousing management system(WMS) and transport management system (TMS). Your Company is poised to take advantage ofthese chances in the shippers market to enhance the value of the Company.
With the growing complexity of operations in this domain, it is extremely important toget the real-time visibility in the supply chain execution and ensure that informationmoves seamlessly across the supply chain, including internal systems and multiple externalsystems. Tracking and tracing the consignment is of great business interest to each of thebusiness partner in the supply chain right from consignor to consignee including theservice providers in the middle. Powerful transaction applications that would increaseoperational efficiency added with the capability to offer visibility and track and tracehas good market potential in this domain and our applications typically target to offerthis value proposition to the target market segments.
Four Soft operates its own IT infrastructure in a world class data center which has aheterogeneous mix of hardware and software platforms running mission critical applicationsfor our own operations. Running our own data center gives us greater ability to protectthe intellectual property we develop and also provide SaaS model of cloud computing andthe hosted model where products licensed to our customers are deployed in our premises.
5. Risks and concerns
A. Market and competitive environment
The Transportation and Logistics domain continues to increase consolidation acrossvarious geographies. Four Soft is focused on this domain and any variations in thisbusiness environment may considerably impact the fortunes of the customers and thuseffecting our revenues. Further, the Company is not focused on one product or servicesegment for the industry, but offers a wide range or suite of products that may reduceuncertainties on the market size and opportunities etc.
In order to restrict fierce competition, the IT industry serving this domain has beenwitnessing various mergers and acquisitions recently. However, your Company's focus is toacquire small players in the similar business either in US or Asia-Pacific to strengthenits local presence. The Company is also looking to penetrate into South American market.
Global logistics industry will undoubtedly grow rapidly in the coming years due toincreased global trade, favorable government policies across globe, advancement in modesof transportation, manufacturing moving to low cost economies, emergence of global brandsand retailing, importance of information and communication technologies, focus oninventory reductions and newer ways of logistics and supply chain services.
Four Soft has a substantial edge over competitors due to its highly advancedtechnologies, scalable architecture, delivery capabilities and its vast domain knowledge,apart from its proven capability with 15 of the top 25 largest freight forwarders ascustomers from across logistics and transportation domain.
B. Foreign exchange rate fluctuations
Four soft has been operating through its global subsidiaries spread across Europe,North America and Asia. Four Soft does not have high dependency on any specific currencyas the Company's revenues are spread across various currencies. The revenues and cashflows are generated and received in each of its entities and hence the exposure is only tothe extent natural hedge does not cover the risks. However, there will be risks in foreignexchange to the extent of its spending in Indian rupees which is not material at thispoint. We hope that the increase in Indian rupee revenues (domestic revenue) can mitigatethe exposure to the extent of Indian rupee.
C. Technology obsolescence mode
The software products industry is highly characterized by rapid technological changesthat could make our technology and service offerings obsolete, less competitive anddifficult to sell. We are adapting ourselves to continuously improve the features,functionality, scalability, robustness and ability to meet the ever changing demands andneeds of customers. Our failure to adapt to the challenges would affect our ability tocompete and retain customers and market share.
Four Soft has the necessary technical resources, tools and methodologies in place toaddress the threat of technical obsolescence. We undertake testing with the latestavailable technical tools, architecture in our product development environment.
D. Geographic concentration of revenues
Concentration of revenue from any country exposes your Company to the risks inherent toeconomic slowdown, local laws, work culture and ethics of that country. Four Soft'ssubstantial revenues are contributed by Europe; however these revenues are spread acrossthe United Kingdom, the Netherlands and Denmark. Your Company monitors geographicconcentration periodically to maintain a balance.
Since your Company caters primarily to one industry segment - logistics andtransportation segment - any major laws or changes in this industry would affect yourCompany's business. However, being in the enterprise software solutions arena, yourCompany always monitors the growth of the industry segment, which is witnessing growth inSouth-East and Far-East Asia. Further changes in laws or changes in industry may result inadditional customization revenue to the Company.
Your Company relies on repeat business based on strength of client relationships andmajor portion are from existing clients. As number of clients increases, it limits yourCompany's pricing flexibility, strengthens client's negotiation capability and any changein client's IT strategy will adversely affect your Company's revenues. As a proactivemeasure your Company analyses the risks due to change in client's business and focus onareas where it can proactively add value to improve competitiveness of clients.
Inorganic growth through acquisitions has been the significant element of our strategy.It is critical to manage integration seamlessly across the organization during theacquisition phase, as our ability to serve customers is at higher than expected levels andthus demands our associates' contribution to make the acquisitions successful. Most ofthese acquisitions are focused on acquiring customers in different geographies and few ofthem are low margin companies and to turn around them to profitable and higher margincompanies is always challenging. We need to continue leveraging the strengths of combinedentities. The Company believes that it has executed the acquisitions in a smooth mannerwith proper strategy and planning.
F. Variability of quarterly operating results
There is likely variance of quarterly operating results of the Company due to ITinvestment trends by customers, achievement of milestones in software projects, additionalstaffing, timing and integration of acquired businesses, foreign exchange fluctuationgain/(loss). The past operating results and quarterly comparisons may not indicate thecurrent or future performance. The Company constantly endeavors to safeguard against suchrisks mitigating through best practices, advanced processes, future proof investments andimparting latest tools and skills to employees, and reasonably well protected against anysuch risks in future.
G. Intellectual property infringement
As product development depends on the intellectual property created by its employees,we need to ensure that the same do not infringe any other proprietary technology rights.We have intellectual property policies in place to take care of trade secrets, copyrightand trademarks laws and confidentiality agreements for our employees, third partiesoffering only limited protection. The steps taken by us as well as laws of most advancedcountries do not offer effective protection of intellectual proprietary rights. Thirdparties could claim infringement of proprietary rights against the Company or also assertthe same against our customers, which would require protracted defense and costlylitigations on behalf of our customers.
Litigation may be necessary in the future to protect our technology proprietary rightsand trade secrets, resulting in substantial costs and harming our business, despite allour efforts to prevent third parties infringing our proprietary rights.
The Company strategy has always been to strengthen our leadership position in thisdomain irrespective of market dynamics and this will enable us to have a global leaderpositioning and thus increasing our scope of offerings to existing and potential clients.The existing engagement with our clients is mostly offering one or more of our suite ofsolutions. The Company is offering the next level of value added services to itscustomers. We continue to have recurring business from existing customers along withmaintaining a long term relationship. We have continued to expand our global operationsthrough client services across the globe through own offices as well as partners.Currently our presence is in over 8 countries with direct offices.
We continue to invest in employees, technology tools for R&D, recruitment andhoning employee skills, increase domain expertise and promote brand visibility throughtradeshows, sponsorships and investor relations. We also continue to develop allianceswith leading technology providers to take advantage of emerging technology for mutualbenefit and cost competitiveness.
The current industry we operate is highly competitive in nature, most of the softwarebeing developed by in-house IT departments and international companies setting up theiroffshore development centers in India. Recently industry ERP majors have also startedfocusing on this domain; however we continue to lead the pack with technology advantageand proven delivery capabilities and shorter implementation life cycle.
6. Internal control systems and their adequacy
Management maintains internal control systems designed to provide reasonable assurancethat assets are safeguarded, transactions are executed in accordance with management'sauthorization and properly recorded, and accounting records are adequate for preparationof financial statements and other financial information. The internal audit function alsocarries out Operations Review Audits to improve the processes and strengthen control ofthe existing processes. The audit committee periodically reviews the functions of internalaudit.
The Company's internal audit team under the supervision of audit committee anddedicated professionals assess the adequacy of internal controls and means to enhance thesame from time to time. These controls basically cover financial reporting, contingencyplans for remedial measures, and validated tools to test controls and functionsdocumented.
7. Culture, values and leadership
Your Company is emerging as a global player in supply chain for transportation,logistics, and distribution execution software. Your Company has a written code of conductand ethics to make employees aware of ethical requirements and whistle blower policy forreporting violations, if any.
Your Company has internal structured succession planning to take care of loss of anymember of senior management or other key management personnel. Since inception yourCompany is committed to developing next generation leaders and conduct personalitydevelopment and development work of skills acquired by them over the years.
With around 500 strong workforce spread across various nationalities and geographies,your Company encourages an 'Equal Employment Opportunity Policy' which discouragesdiscrimination for employment on account of sex, race, color, religion, physical challengeand so on.
DISCUSSION ON CONSOLIDATED FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONALPERFORMANCE
A. Financial Condition
I. Share Capital:
The Company has two classes of shares - Equity and Preference Shares. The authorizedshare capital is Rs.350 million divided into 5,60,77,600 equity shares of Rs. 5/- each and6,96,120, 14% redeemable preference shares of Rs. 100/- each. During the year underreview, there was no change in the Company's authorized share capital and continues tostand at Rs.350 million The Issued, subscribed and fully paid up share capital of theCompany is Rs.194.80 million (2012: Rs.194.66 million).
II. Reserves and Surplus:
The closing balance of securities premium account was Rs.650.05 million (2012: 648.99million). Rs.1.07 million (2012: Rs.0.88 million) was transferred on account of exerciseof stock options respectively.
The capital reserve remained unchanged at Rs.14.28 million. The closing balance ofgeneral reserve was Rs.3.76 million (2012: Rs.2.60 million).
The balance of profit and loss account as on the balance sheet date is Rs. 404.58million (2012: Rs. 289.33 million). Net profit after tax for the year was Rs.115.26million (2012: Rs. 426.38 million loss after tax) which is transferred to balance sheet.The closing balance of foreign currency translation reserve is Rs.85.99 million (2012: Rs.76.31 million).
III. Long term borrowings:
Long term borrowings (Term loan from bank) as at the balance sheet date aggregated toRs. 146.05 million (2012: Rs. 237.63 million). Reduction represents repayment of term loanduring the year.
IV. Long term provisions
Long term provision pertains to provision for employee benefits in relation to gratuitymeasured as per Accounting Standard-15 "Employee benefits".
V. Current Liabilities:
1. Short term borrowings
Short term borrowing (overdraft facility) as at the balance sheet date aggregated toRs. 111.64 million (2012: Rs. 58.00 million).
2. Trade payables
Trade payables amounted to Rs. 101.65 million (2012: Rs.115.94 million)
3. Other current liabilities
Other current liabilities consist of advance from customers of Rs. 99.62 million (2012:Rs. 169.07 million), statutory dues payable of Rs. 9.59 million (2012: Rs. 6.36 million)and other payables.
4. Short term provisions
Short term provisions pertain to provision for employee benefits in relation tocompensated absences and provision for taxes.
VI. Fixed assets:
Addition to the gross block of tangible fixed assets during the year is Rs. 7.99million including Rs. 5.11 million towards computer equipment, Rs. 0.20 million towardsoffice equipment and Rs. 2.68 million towards furniture and fittings. Addition to grossblock of intangible assets during the year amount to Rs. 0.45 million.
The carrying value of goodwill as at March 31, 2013 is Rs. 1,248.73 million (2012: Rs.1,234.85 million).
VII. Long term loans and advances
Long Term loans and advances as at balance sheet date aggregated to Rs. 52.57 million(2012: Rs. 43.05 million). It primarily consists of capital advances and security depositsto electricity, telephone department, other statutory bodies and advance tax.
VIII. Current assets:
1. Current investments:
Current investments during the year amount to Rs. 11.46 million (2012: Rs. 17.5million). These investments consist of investment in short term debt mutual funds.
2. Trade receivables:
Trade receivables considered good and realizable as on the balance sheet date are Rs.192.20 million (2012: Rs. 247.64 million). All the trade receivables are generallyconsidered good and realizable and necessary provisions for doubtful and bad debts havebeen made. The provision for doubtful debts as at balance sheet is Rs.17.48 million (2012:Rs. 18.64 million). Trade receivables are 15% (2012: 20%) of total revenues.
3. Cash and bank balance:
Cash and bank balances are Rs. 203.39 million (2012: Rs. 166.41 million). Of the aboveRs. 173.40 million (2012: Rs. 162.53 million) is held in foreign bank accounts as on thebalance sheet date.
4. Short term loans and advances:
Short term loans and advances as at the balance sheet date aggregated to Rs. 57.45million (2012: Rs. 63.23 million). It primarily consists of prepaid expenses, advanceincome tax, indirect tax receivables and also includes provision for doubtful advances ofRs. 3.09 million (2012: Rs. 2.90 million).
5. Other current assets:
Other current assets primarily consist of unbilled revenue of Rs. 34.45 million (2012:Rs. 30.47 million)
B. Results of operations
The financial results of the Company on the consolidated basis for year ended March 31,2013 and March 31, 2012 are depicted in the below table
|Particulars ||2013 ||2012 ||Variation |
| ||Rs. Million ||% of Revenue ||Rs. Million ||% of Revenue ||Rs. Million ||% |
|Revenue from product realted enhancements ||851.28 ||64 ||831.97 ||66 ||19.31 ||2 |
|Annual maintenance ||371.79 ||28 ||340.95 ||27 ||30.84 ||9 |
|Sale of licenses ||88.98 ||7 ||78.53 ||6 ||10.45 ||13 |
|Sale of third party licenses (Net) ||12.99 ||1 ||11.80 ||1 ||1.19 ||10 |
|Total Revenue from operations (A) ||1325.05 ||100.00 ||1,263.25 ||100.00 ||61.80 ||5 |
|Employee benefits expense ||827.10 ||62 ||817.86 ||65 ||9.24 ||1 |
|Other expenses ||284.83 ||21 ||297.52 ||24 ||(12.69) ||(4) |
|Total Expenses (B) ||1111.93 ||84 ||1115.38 ||88 ||(3.45) ||(0.3) |
|Other Income (C) ||14.37 ||1 ||8.89 ||1 ||5.48 ||62 |
|Operating Profit (EBITDA) (A-B+C) ||227.49 ||17 ||156.76 ||12 ||70.73 ||45 |
|Less: Finance costs ||20.58 ||2 ||23.82 ||2 ||(3.24) ||(14) |
|Less: Depreciation and amortization ||18.44 ||1 ||18.63 ||1 ||(0.19) ||(1) |
|Profit before exceptional items and tax ||188.47 ||14 ||114.31 ||9 ||74.16 ||65 |
|Less: Exceptional items ||28.15 ||2 ||- ||- ||28.15 ||100 |
|PBT and after exceptional items ||160.32 ||12 ||114.31 ||9 ||46.01 ||40 |
|Less: Tax expense ||45.07 ||3 ||40.69 ||3 ||4.38 ||11 |
|Profit/(loss) after tax and exceptional items ||115.25 ||9 ||73.62 ||6 ||41.63 ||57 |
|Impairment of goodwill ||- ||- ||(500.00) ||(40) ||500.00 ||100 |
|Net profit/(loss) ||115.25 ||9 ||(426.38) ||(34) ||541.63 ||(127) |
Increase in revenue is contributed by increase in all the streams of revenue that islicenses, services & AMC. Existing customers in US & Denmark and New customers inIndia & Japan have contributed to the Increase.
1. Personnel Expenses:
During the year personnel expenses increased slightly by Rs. 9.24 million (1%increase). Increments, exchange rate fluctuations and incentive payments were expected tocause the personal cost to substantially. However reduction in the number of employeesfrom 578 in 2011-12 to 528 in 2012-13 has negated the effect of the increments and foreignexchange fluctuations. The payroll cost was 62% of revenues compared to 65% in theprevious year.
2. Other expenses:
Operating expenses decreased by 4% due to rationalization and consolidation of officepremises across all the regions. The Consolidation has resulted in substantial decrease inoffice rent and maintenance .
3. Operating Profits:
Operating profit increased by Rs. 70.73 million in the year under review primarily dueto increase in revenue and stable costs. Operating profit was 17% of the total revenues incurrent financial year compared to 12% in the previous year.
4. Depreciation and amortization:
Depreciation and amortization during the year is Rs.18.44 million (2012: Rs.18.63million).
5. Financial costs:
Interest expense was decreased by Rs. 3.24 million on account of repayment of TermLoan. Total interest expense was 2% of the revenues as is the case of previous year.
6. Tax expense:
Tax expense includes income tax and deferred tax. Increase in the tax expense is onaccount of the provision for current tax on profit before tax for the year.
7. Impairment of goodwill:
Company acquired certain subsidiaries to strengthen its presence in the European andNorth American markets. However, the economic down-turn and technological changes hasimpacted revenues and margins much earlier than management's estimate. Consequently, in2012, the Company has assessed the carrying value of goodwill in relation to suchsubsidiaries and has recorded an impairment of goodwill aggregating to Rs. 500.00 millionfor the year ended 31 March 2012. No impairment has been recognized in the current year.
During the year Company has a) generated Rs. 98.98 million from operating activities,b) repaid long-term borrowings of Rs. 93.66 million, c) invested in fixed assets of Rs.7.66 million, d) invested in current investment of Rs. 6.04 million. The resultantincrease in cash is Rs. 36.95 million from the previous year.
9. Earnings per share:
Basic and diluted earnings per share were Rs. 2.97 and Rs. 2.96 respectively. (2012:Rs. (11.00)). Given below is the list of Contracts signed by Four Soft Group during theyear 2012-13.
|Customer Name ||Product ||Country |
|MetaPack ||Services ||UK |
|Green Carrier ||4SAXSFreight ||Sweden |
|Panasonic India Pvt Ltd ||4SeLog ||India |
|TL Logicom/Suzuyo System Technology (SST) Bahri ||4SeTrans, 4SeLog, 4SVisilog and 4SeConnect BPI ||Japan |
| ||(Business Process Integration) ||Middle East |
|Walker Logistics ||4S Visilog (SaaS) ||US |
|American Lamprecht ||4S Visilog (SaaS) ||US |
|NDO America Inc ||IT Consulting Services ||US |
|Marcatus QED ||4S Visilog Plus, 4S Visilog and 4S Infotips ||Canada |
Note: It is suggested to read the consolidated figures as they represent the trueperformance of the Company in view of the global operations of the organization.
DISCUSSION ON STANDALONE FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE
A. Financial condition
I. Share capital:
The Company has only two classes of shares - Equity and Preference Shares. Theauthorized share capital is Rs. 350 million divided into 5,60,77,600 equity shares ofRs.5/- each and 6,96,120 14% redeemable preference shares of Rs.100/- each. During theyear under review, there was no change in the Company's authorized share capital andcontinues to stand at Rs. 350 million.
The Issued, subscribed and fully paid up share capital of the Company is Rs.194.80million (2012: Rs.194.66 million).
II. Reserves and surplus:
During the year, your Company recorded a net loss after tax of Rs. 12.42 million (2012:Rs. 32.96 million). The total reserves and surplus as on the balance sheet date is Rs.721.53 million (2012: Rs. 731.65 million). Stock compensation expense for the year was Rs.2.30 million. (Reversal of stock compensation expense for 2012: Rs. 1.45 million).
III. Long term provisions
Long term provision pertains to employee benefits in relation to gratuity recognized asper Accounting Standard-15 Employee benefits.
IV. Current liabilities
a. Trade payable amounted to Rs. 71.70 million (2012: Rs. 67.94 million)
b. Other current liabilities include income received in advance from customers of Rs.13.20 million (2012: Rs. 25.57 million), dues to subsidiaries and statutory payables.
c. Short term provision related to provision for compensated absence recognized as perAccounting Standard-15 Employee benefits.
V. Fixed Assets:
During the year under review, the total additions to the gross block of tangible assetsamounted to Rs. 2.36 million. The capital expenditure was funded out of internal accruals.
(Rs. in million)
|S. No. ||Particulars ||Additions |
|1 ||Computers ||2.17 |
|2 ||Office equipment ||0.19 |
| ||Total ||2.36 |
The total additions to the gross block of intangible assets amounted to Rs.0.24million. During the previous year the Company also capitalized internally developedsoftware to the extent of Rs. 35.09 million.
VI. Non-current investments:
During the year no non-current investments were made. Existing investments representsinvestments in wholly owned subsidiaries.
VII. Long term loans and advances
Loans and advance as at balance sheet date aggregated to Rs. 38.37 million (2012: Rs.33.61 million). It primarily consists of capital advances and security deposits toelectricity, telephone and other statutory bodies and advance taxes.
VIII. Current Assets
1. Current investments
Current investments during the year amount to Rs.11.46 million (2012: Rs.17.5 million).These investments consist of short term debt mutual funds.
2. Trade receivables
Trade receivables, considered good and realizable as of March 31, 2013 amounts toRs.179.16 million (2012: Rs. 107.50 million). All the trade receivables are generallyconsidered good and realizable and necessary provisions for doubtful and bad debts havebeen made. The trade receivables are 55% (2012: 37%) of revenues from operations. Theprovision for doubtful debts as at the balance sheet date is Rs. 1.68 million (2012:Rs.1.17 million).
3. Cash and Bank Balances
The bank balance includes rupee accounts, foreign currency accounts and deposits. Cashand bank balances are Rs. 30.00 million (2012: Rs. 3.88 million). Cash and Bank balanceconstitutes 2.80% of the total assets (2012: 0.41%).
4. Short term loans and advances
a. Loans and advances to related parties have decreased to Rs.34.35 million from Rs.42.01 million in previous year. (Related parties consist of wholly owned subsidiaries).
b. Other loans and advances are primarily towards indirect tax receivables and othersreceivables.
5. Other Current Assets
Other current assets include:
Unbilled revenues of Rs. 13.12 million (2012: Rs. 3.26 million).
B. Results of operations
Income from sale of product and product related enhancements for the year ended March31, 2013 and March 31, 2012.
(Rs. in million)
|Particulars ||2013 ||% of revenue ||2012 ||% of revenue |
|Sale of licenses ||21.95 ||7 ||3.99 ||1 |
|Annual maintenance ||26.49 ||8 ||24.37 ||8 |
|Revenue from product related enhancements ||275.17 ||85 ||264.51 ||91 |
|Total ||323.61 ||100 ||292.86 ||100% |
In the current year the revenues have increased by 10.50%. The increase is primarily onaccount of sale of e-product services to U.S and India. The revenue from eproduct serviceis expected to increase in coming years.
The abstract of profit and loss statement is as follows:
(Rs. in million)
|Particulars ||2012-13 ||% of revenue ||2011-12 ||% of revenue |
|Total revenue ||341.68 ||100 ||308.61 ||100 |
|Less: Employee benefits expense ||250.56 ||73 ||273.73 ||89 |
|Less: Other expenses ||91.56 ||27 ||100.17 ||33 |
|Operating profit/(loss) (EBITDA) ||(0.44) ||(0.25) ||(65.29) ||(21) |
|Less: Depreciation and amortization ||11.50 ||3 ||11.76 ||4 |
|Less: Financial costs ||0.49 ||0 ||0.30 ||0 |
|Profit/(loss) before exceptional item and tax ||(12.43) ||(4) ||(77.35) ||25 |
|Add: Exceptional items ||- ||- ||*68.00 ||22 |
|Profit/(loss) before tax ||(12.43) ||(4) ||(9.35) ||(3) |
|Less: Tax expense ||- ||- ||23.61 ||8 |
|Profit/(loss) after tax ||(12.43) ||(4) ||(32.96) ||(11) |
* represents the revenue from sale of intellectual property rights for the customsproduct for Europe to Four Soft Nordic A/s.
1. Employee benefits expense:
During the year under review, the employee benefits expenses were at 73% of its totalrevenue as compared to 89% during the previous year. The decrease in employee benefitsexpense is on account of decrease in the number of employees from 578 in 2011-12 to 528 in2012-13. However, the decrease is partially offset by increase to the tune of 8% to 9%.
2. Other expenses:
Other expense primarily consists of rent expense, office maintenance and travellingexpense.
3. Operating loss
During the year the Company incurred an operating loss of Rs. 0.44 million (2012: Rs.65.29 million), representing 0.13% (2012: 21%) of total revenues. Strong pipeline of ournext generation products and improved sales in the current year resulted in substantialreduction of operating loss.
4. Depreciation and amortization
The Company provided a sum of Rs. 11.50 million (2012: Rs. 11.76 million) towardsdepreciation representing 3.4 % of total revenues (2012: 4%). The decrease in depreciationand amortization is on account of disposal of certain assets.
5. Financial expenses
Financial expenses primarily consist of bank charges.
6. Provision for tax
Due to loss of Rs. 12.42 million in the current year, the Company has not provided forcurrent and deferred tax expense as per accounting standards.
7. Net loss
The net loss of the Company amounted to Rs.12.43 Million for the current financial yearand net loss of Rs. 32.96 million in the previous year.
As of March 31, 2013 the Company had cash and cash equivalents to the extent of Rs.29.73 million (2012: Rs. 3.62 million) and Rs. 11.46 million (2012: Rs. 17.50 million) inshort term debt mutual funds.
9. Earnings per equity share (basic & diluted)
Earnings per share are computed on basis of number of common stock outstanding as onthe date of balance sheet. Basic and diluted earnings per share is Rs. (0.32) (2012:Rs.(0.85))