MANAGEMENT DISCUSSION OVERVIEW
As has been shared in the Directors’ report, the Company revenues during the year2009-10 have grown by 6%. The operating expenses have remained almost constant over thelast year.
For the year ended on 31st March, 2010 the net profit before tax was Rs.2779.67 lacs as against a net profit before tax of Rs. 1960.08 lacs for the previous yearended 31st March, 2009. The profits for the current year ended 31stMarch, 2010 were mainly due to the favourable impact of Indian Rupee getting strongeragainst US Dollar throughout the year which resulted in Exchange Fluctuation gain ofRs.153.01 lacs against Exchange Fluctuation Loss of Rs.760.08 lacs in the previous year.
Financial Review for the year ended 31st March, 2010:
1. Other Income: Other Income for the current year includes an ExchangeFluctuation gain of Rs.153.01 lacs.
2. Material Consumed: Material consumption as a percentage of sales for theyear ended 31st March, 2010 was almost the same at 56% as compared to 55% forthe previous year ended on 31st March, 2009.
3. Interest: Interest cost remained at the same level of 0.3% of the totalrevenue during the current year as compared to the previous year.
4. Personnel Cost: Personnel cost as percentage to total revenue remainedsame at 15% during the current year as compared to the previous year.
5. Selling and other expenses: Due to effective cost control the company wasable to succeed in maintaining the selling and other expenses at 17.1% of the totalrevenue as compared to 16.2% during the previous year.
6. Depreciation: Depreciation as percentage to the total revenue was almostat the same level of 1.1% during the current year as compared to 1% of the previous year.
7. Profit After tax (including ‘Other Income’): Profit after taxstood at Rs. 1723.69 lacs for the year ended 31st March, 2010 as compared toRs. 1254.39 lacs from the previous year ended 31st March, 2009.
8. Reserves and Surplus: Reserves increased from Rs 5825.13 lacs as on 31stMarch, 2009 to Rs. 7548.82 lacs as on 31st March, 2010 on account of profitafter tax for the current year ended 31st March, 2010.
9. Earnings per Share: The Company was able to achieve an EPS of Rs. 4.33for the current financial year ended 31st March, 2010 as against Rs. 3.15 forthe previous year ended 31st March, 2009. This was mainly due to thestrengthening of Indian Rupee vis--vis US Dollar throughout the year, which in turn hadimpacted the profits for the current year favourably.
10. Shareholders’ funds/Net worth: During the current financial year ended 31stMarch, 2010 the Net-worth of the Company stood at Rs. 11525.55 lacs as compared to Rs.9801.87 lacs in the previous year ended 31st March, 2009.
11. Fixed Assets: The net increase in Gross block of fixed assets and capital workin progress is Rs. 787.63 lacs as on 31st March, 2010. The increase in fixedassets has occurred mainly on account of purchase of new computer hardware, software &office equipments. The company had also paid an amount of Rs. 363 lacs to WEBEL for namechange for the Leasehold land at Salt Lake, Kolkata. These additions have been funded frominternal accruals only.
12. Investments – The Company had an investment of Rs. 1000 lacs as at end ofthe current year as compared to nil investments as at end of the previous year. This wasachieved mainly due to increased collections and better funds management systems adoptedduring the year.
13. Inventories: Finished goods inventory stands at 1.9 months of total cost ofsales for the financial year ended 31st March, 2010 as against 2.8 months inthe previous year ended 31st March, 2009. The decrease has been achieved due toincreased focus on inventory monitoring systems.
14. Debtors: Despite an increase of 6% in sales revenues, Debtors, excluding leasereceivables, represent 39 days of total sales as at 31st March, 2010 as against40 days as at 31st March, 2009. The decrease has been achieved by focus oncomprehensive credit policy and an intensified collection drive.
15. Cash & Bank Balances: The Company continues to be cash positive. Theincreased collection activity at the end of the current year ended 31st March,2010 helped to maintain the cash surplus.
16. Loans & Advances: The loans and advances as on 31st March, 2010were at Rs.6617.14 lacs as compared to Rs. 4972.32 lacs in the previous year ended 31stMarch, 2009. The increase is mainly on account of increase in the Special Additional Dutyclaim amounting to Rs. 343.83 lacs available to the company as per the notification issuedas per the Customs Act, 1962 as at the end of the current year and also due to Foreigncurrency receivable of Rs. 2827.86 lacs on account of forward cover taken by the companyfor its future foreign currency liabilities as per the provisions of the AS-11.
17. Current Liabilities and provisions: The current liabilities and provisions ofRs.9824.52 lacs as on 31st March, 2010 is higher as compared to Rs. 8277.38lacs in the previous year ended 31st March, 2009. The increase is mainly due toforeign currency payable of Rs. 2851 lacs on account of forward cover taken by the companyfor its future foreign currency liabilities as per the provisions of the AS-11. Employeerelated liabilities stood at Rs 345.59 Lacs as at 31st March, 2010 as comparedto Rs. 329.91 lacs as at the end of previous year ended 31st March, 2009. Theincrease is mainly due to increase in liability against retiral benefits of the employeesduring the current year ended 31st March, 2010 as compared to the previous yearended 31st March, 2009.
18. Contingent Liabilities: Company has contingent liabilities mainly on account ofsales tax cases pending at various judicial/quasi-judicial forums. The Company consideredthese demands to be arbitrary and devoid of judicial basis and contested the same atvarious judicial and quasi-judicial levels. The successful contention by the companybefore the authorities has resulted in demand worth Rs. 1242.93 lacs being dropped and allthese cases being decided in favour of the company. In respect of other sales tax demandstoo, the Company is confident that its contentions before the authorities will succeedsince the nature of demands raised are similar in most of the cases.
RISK MANAGEMENT
The Company is exposed to normal business risks- Some of these risks are external andresult from the business environment we operate in and some are internal to the Company.
Industry Risk
The Company operates in an industry where technological advancements are fast changingand evolving. This makes our business model susceptible to constant change anddevelopment. The reason for this is that Ricoh Group, of which your Company is asubsidiary, is one of the leading innovators in the industry worldwide and it is committedto support its Indian operations. Ricoh’s commitment to support the Indian Operationsis evident from its willingness to share all new products and upgrades with India,simultaneous to their launch worldwide. Due to its association with the pioneers in theIndustry your company is constantly introducing newer business models, technologies &products to meet the changing customer and market demands.
In today’s business environment no industry is free from competition. The OfficeAutomation industry is no exception and hence all organizations that are present in thisindustry try to improve their market share by protecting their existing business whilepenetrating into another’s domain. Apart from this, customers in high growthverticals like BFSI, Infrastructure, retail etc. were the first to be impacted in theeconomic meltdown leading to scaling down of their capital spending.
To be able to meet this growing challenge, the Company is required not just tointroduce new hardware from time to time, but also provide comprehensive document andprinting solutions including software to its customers. The Company also has access tobest practices & sharing from other Sales Companies within the Ricoh Asia pacificregion, which is helping the Company to implement timely actions and tested countermeasures against foreseeable changes. With this support, we are confident to meet Customerexpectations and increase customer satisfaction.
Operational Risk
Operational risk is the risk to earnings or capital arising from problems with productor service delivery. It is a function of internal controls, information systems, employeeintegrity and operating processes. Policies and procedures are framed in a manner keepingthis in mind. The Company has been adopting the Balanced Scorecard approach forgoal-setting and periodic performance reviews, which focuses on customer service, internalbusiness processes, financial performance, and learning/ innovation. This ensures that allthe salient areas of its business operations are scrutinized, and facilitates a holisticoverview of operations.
Credit Risk
The Company does not see any major credit risk from the customers in the governmentsegment. To effectively mitigate the credit risk in commercial segment, we have requisitesystems processes and internal controls in place. Also, the Company has a well definedcredit policy, which aims to minimize credit risks. A vigorous implementation of thispolicy combined with the intensified drive to liquidate old debts has led to drasticreduction in Debtors over the years and this trend has continued over this financial year.
Foreign Exchange Risk
The foreign exchange risk on account of fluctuation of foreign currency exchange rates,in general affect operating results and cash flows. To an extent, we manage our exposureto these market risks by taking appropriate forward covers. The twin effects of theseefforts and the strengthening of the Rupee vis-a-vis US Dollar has led to a foreignexchange gain of 153.01 Million Rupees during the year.
Interest Rate Risk
The Company does not have any Bank Borrowings and fully meets its Working Capitalrequirements through internal accruals. Accordingly, we do not perceive any interest raterisk.
HUMAN RESOURCES DEVELOPMENT
The Training and Development of our employees is a continuous process and is providedthroughout the year based on business and operations needs of the Company. One of the keyfocus areas of the senior leadership team of the Company has been to drive"Performance Excellence" within the Company and the same has percolated to allthe branches in the financial year 2010. The Company is strongly focused on developingskills and capabilities of a larger section of our employee base so that ContinuousImprovement in our performance can be achieved. The Human Resource Department of theCompany keeps evaluating its HR policies and practices so as to enable and empower allemployees, and strives to make "Ricoh" an employer of choice.
INTERNAL CONTROL SYSTEM
The Management Information & Review System is an important tool of our controlmechanism. Clearly defined, roles, responsibilities and objectives are set out at thebeginning of the year for all senior and middle level managerial positions, which arealigned with the overall Corporate Objectives. All operating parameters are monitored andefforts made to control the same. Regular, periodical management reviews have beeninstitutionalised on monthly basis for all major functions. The team of Internal Auditorsand External Auditors conduct regular audits and checks to ensure that responsibilitiesare executed effectively.
An effective budgetary control process on all capital expenditure ensures that actualspending is in line with the capital budget.
FUTURE OUTLOOK AND FOCUS FOR 2010-11
It is now clear that the Indian Economy is on a revival mode and organisations havestarted selectively investing in growth. However, the scale and focus areas of investmentsare still evolving. We expect the focus to continue towards the reduction andrationalization of expenses. We see a good opportunity to innovate, arising from theseinvestments.
We expect Government to continue to be the major consumer and the variousinfrastructure building investing to provide the necessary impetus to growth.
Colour MFPs have now established their importance in office communications and weexpect the market to continue to grow.
The acceptance of Green Initiatives is gaining and many organisations are incorporating"Green features" in their procurement policies. This is to our advantage as our"Total Green Office Solutions" address these needs very effectively by helpingorganisations reduce their operating costs.
Ricoh Global Services Program has provided us a competitive edge in acquiring andretaining major organisations worldwide. Now we are enhancing the "product andservices basket" available to these organisations in India. During this year, we willalso start offering them "Managed Document Services" to align their globaloperations.
This year we will also launch our "Production Printing Series" in Mono &Colour. With this launch Ricoh in India will cover the entire gamut of Office DocumentNeeds – from Single Function A4 Laser Printers to A3 MFPs to enhance officeproductivity by addressing the needs of Corporate Communications, Transaction andTrans-promo Printing in Mono & Colour.
We will continue to take initiatives to understand the changing customer requirementsand innovate to take advantage of the various opportunities in the marketplace.
Cautionary Statement:
Statements in this "Management’s Discussion & Analysis" describingthe Company’s objectives, estimates, expectations or predictions may be "forwardlooking statements" within the meaning of applicable securities laws and regulations.Actual results could differ materially from those expressed or implied. Important factorsthat could make a difference to the Company’s operations include global and Indiandemand supply conditions, finished goods prices, cyclical demand and pricing in theCompany’s principal markets, change in Government regulations, tax regimes, economicconditions at the micro-macro environmental level within which the Company conductsbusiness and other factors such as litigation and labour negotiations.