Majesco Ltd Management Discussions.
I. INDUSTRY STRUCTURE AND DEVELOPMENTS
Global economy and Information Technology
The global economy is forecasted to grow at 3.3% in 2019 and 3.4% in 2020, from 3.6% in 2018. Rising policy uncertainties, possibility of the United Kingdoms (UK) exit from the European Union (EU), ongoing US-China trade conflicts, currency volatility and weakening financial market sentiments are some of the key factors that contribute toward the overall slowdown. In particular, United States of America economy registered a growth of 2.9% in 2018 and is projected to moderate to 2.6% in 2019 and 2.2% in 2020, as the fiscal stimulus winds down. Growth is estimated to remain weak in the UK, at under 1% in both 2019 and 2020, from 1.4% in 2018, mainly due to persisting ambiguity over the countrys separation from the EU. Indias GDP grew at 7.0% in FY2018 and is projected to grow at 7.2% in FY2019 and 7.3% in FY2020 benefited from easing financial market tensions, strong inflow of investments, increased business confidence, accommodative fiscal policy and a slew of structural reforms.
[Source: Organisation for Economic Co-operation and Development (OECD)] The National Association of Software and Services Companies (NASSCOM) Strategic Review 2019 report estimates that the global Information Technology and Business Process Management (IT-BPM) industry grew at 4.9% in revenue terms to US$ 1.4 trillion in 2018. This was mainly driven by increased software-led digital penetration as well as rise in demand for advanced digital technologies such as industrial automation, cloud computing, Artificial Learning (AI) and Machine Learning (ML), Internet of Things (IoT), Augmented Reality (AR) and Virtual Reality (VR), blockchain, business intelligence and data analytics. IT services, in particular, witnessed a growth of 3.2%, owing to accelerated demand for application development and management services. The Americas, along with Europe-Middle East-Africa (EMEA), continue to account for the lions share of the market at ~84%, followed by Asia-Pacific (APAC) region, which accounts for the remaining ~16%.
Indian economy and Information Technology
India is on the fast track to become a digital as well as cashless economy. In the last few years, the country has seen a massive rise in digital services, prompting a higher internet penetration. Corporates are moving towards Industry 4.0, adopting new technologies to stay competitive and relevant in this connected world. The Indian IT sector is scaling up its footprint across the value chain, offering more end-to-end solutions.
NASSCOM estimates that the domestic IT-BPM industry is growing at 6.1% in revenue terms, from US$ 167 billion in 2017-18 to US$ 177 billion in 2018-19. Increased adoption of emerging technology platforms, analytics, cloud and mobility has enabled IT services to grow at 5.2% in revenue terms, from US$ 86 billion in 2017-18 to US$ 91 billion in 2018-19. Software products grew at 6.8% to US$ 8.2 billion.
Revenue generated by Indias insurance industry is expected to grow to US$ 280 billion by FY 2020. The outlook for the industry is upbeat, given the pace of economic development, favorable demographics, higher disposable incomes and rising awareness of the need for insurance and retirement planning. In addition, sustained regulatory support further boosts the prospects for the overall sector.
II. STRENGTHS AND OPPORTUNITIES
The role that technology can play in transforming a business is radically changing and customer centricity is at the heart of it all. Globally, the insurance industry is witnessing a fundamental shift in how its products are designed and delivered, rapidly expanding and shifting distribution strategies all with a single-minded focus on achieving greater efficiency and excellence in customer service. This relentless journey requires insurers to transform their legacy applications, move towards a data-driven world, find new ways of accelerating integration and stay ahead of the curve.
Gartner forecasts the global IT spending in insurance to grow at 3.7% in 2019 to reach US $220.7 billion in constant USD. Major trends that pave the way forward are reinsurance rate escalation; wider adoption of IoT; digitalization of underwriting, distribution, data analytics and legacy; and transformation in ecosystems
Key takeaways from Novaricas survey
Novarica surveyed 92 insurer CIO members of the Novarica Insurance Technology Research Council during August and September of 2018. Here are its key findings.
Overall IT spending is starting to shift from core to digital, data and security. While the movement is still small given the high expenses associated with core systems, overall budgets are starting to shift away from core applications and toward digital engagement, analytics and ever-growing security needs.
Cloud deployments are increasing 63% of insurers plan to expand their migration of applications to the cloud in 2019.
Life and Annuity ("L&A") insurers are focused on digital, optimized workflow and operating efficiency as they face changing customer expectations and continuing margin pressure in legacy blocks of business.
Property and Casualty ("P&C") insurers are focused on analytics and speed to market; the mounting competition in the space and the threat of adverse selection continue to drive a need for better and faster product deployment. More mid-sized P&C insurers are planning major up-gradation to their analytics capabilities in coming years, as compared to the years before.
Both L&A and P&C sectors increasingly perceive developing talent and improving IT operations as key IT challenges.
In sum, the survey summarizes that business leaders are demanding additional capabilities and faster speed to market. IT organizations are responding with enhancements in existing systems as well as legacy system replacements. While replacement activity is still significant, it is ebbing slightly, especially among P&C insurers, as the investments of the past decade are going into production. Across the board, there is a gradual shift away from investing in core systems toward digital and data/analytics systems. With security demands growing at the same time as business demand for digital and data capabilities, insurers are not likely to be able to fulfill these concurrent demands using a traditional IT spending framework. This brings a huge opportunity for Majescos core business, which serves the P&C and L&A segments.
III. COMPANY REVIEW
Almost 200 insurance companies, world over, operating in the segments of P&C, L&A and Group/Employee Benefits, are transforming their businesses with our solutions. Our market leading software, consulting and services uniquely underpin the entire insurance value chain and empower insurers with the agility, innovation and speed needed to maximize their transformation opportunities. Our solutions span policy management, new business/underwriting, rating, billing, claims management, distribution management, BI/analytics, predictive modeling, digital platform with mobile and portal, testing services, cloud services, bureau and content services and beyond.
The annual market opportunity for Majescos products and services is over US$ 25 billion. Demand is growing, since insurers of all sizes are upgrading their core business processes to become more efficient, control costs, introduce new products to the market and enhance the way they engage and interact with their customers. Majesco is well positioned to capitalize the business momentum, leveraging favorable market trends, on account of its scale, product reputation, success of implementations and breadth of solutions.
III. A. Core software
North American P&C insurers demand for core systems continues to expand given their efforts to modernize and include a broader array of platforms. Moreover, insurance CIOs are increasingly attracted to these core platforms, according to a Gartners October 2018 report.
In this context, our core software offering enables P&C, L&A and Group insurers to unify advanced business and technological capabilities for all lines of operations on a single platform. Gartner further recognized Majescos vision and execution prowess, positioning us as a leader in P&C core platforms in North America.
III. B. Majesco P&C Core Suite
In todays new market paradigm, insurers clearly recognize that to capitalize digital opportunities they need a modern, robust core platform that enables speed to value and is scalable, as well as easy to structure for seamless and frequent content and software upgrades.
Majesco P&C Core Suite provides core system capabilities, including policy, billing and claims.
It gives insurers the flexibility and speed to innovate, and deliver growth with profitability. It is built on a common configur able platform that empowers both IT and business users with a rich variety of built-in content and the ability to make changes independently.
Further, Majesco Configuration Toolset vests both business and IT users with the power to achieve new levels of visibility, agility and speed to managing insurance systems. Business rules, rates and forms are accessed through a modern architecture built on open standards, offering an intuitive, web-based user experience along with built-in industry best practices acquired from 20 years serving the industry.
III. C. Majesco L&A and Group Core Suite
An array of changes and disruption are unfolding in the L&A Individual, Group and Voluntary benefits insurance segment, offering unprecedented opportunities for innovation and growth in terms of new markets, new customers and the demand for new products and services.
Majesco L&A and Group Core Suite uniquely supports Individual, Group and Voluntary benefits on a single platform; cognizant that nurturing and retaining customers, regardless of where they originate, is critical to insurers growth strategies. It provides clients with essential insurance capabilities for policy, billing and claims. The powerful design allows for rapid adaptation for new, innovative products or benefit plans, giving insurers the flexibility and speed needed to capture opportunities and create profitable growth.
III. D Digital services .
The digital age is reinventing and reshaping businesses. Insurance, too, is entering an era of disruption, along with most of the services industry. Fundamental elements of the insurance trade are changing and require major adjustments to survive and thrive. Rapid pace of Insurance Technology (InsurTech) growth and investment, adoption of new technologies, innovation, growth of new greenfields, startups and fast-changing customer needs and expectations and the shift towards an on-demand and platform economy are creating a continuous era of change and disruption.
Digital Insurance 2.0 underpins this new era and this shift to Application Programming Interface (API) and platform economy. The Digital Insurance 2.0 wave is marked by the use of key technologies such as cloud computing, open APIs, microservices, ecosystems, data and analytics, which together help insurers create new business models on the one hand and products and services on the other.
Majesco participates in this shift towards Digital Insurance 2.0, guiding insurers to connect everything, reimagine their business capacity to grow and innovate and, most importantly, craft transformative customer experiences. Our digital services enable the use of modern digital insurance tools, such as cloud-based technologies, platform-ready architectures and agile digital ecosystems. From insurers strategy to implementation and post-execution, we dominate the value chain and do away with silos to define a clear, cohesive and actionable roadmap. Such a roadmap interfaces with endless customer touch points and articulates and prioritizes the projects that will achieve the most operational gains to the client.
III. E. Majesco Digital1st Insurance Platform
Majesco Digital1st Insurance platform is a ground-breaking digital and microservices-based cloud-only platform solution, designed to enable the next era of new business models, new products and customer engagement. It can subscribe to third-party services and real-time data sources that traditional core systems may not effectively support and is configurable for different customer segments and user requirements.
IV. BUSINESS REVIEW
During the year, we continued to support new and existing customer growth plans, launching new products, enhancing our product offerings, focusing on operating efficiencies, deepening our relationship with partners, expanding sales and marketing efforts and successfully integrating an acquisition in the EMEA region.
We generated an operating revenue of Rs. 98,810 lakhs in financial year 2018-19, reflecting growth of 22.6% compared to financial year 2017-18 and a growth of 13.4% in constant currency terms. We company expanded our profitability from Rs. 280 lakhs in financial year 2017-18 to Rs. 7,174 lakhs in financial year 2018-19.
In May 2018, we launched the revolutionary Majesco Digital1st Insurance, a next-generation platform solution as the foundation of our new business unit. It is a microservices-based digital insurance platform that enables insurers to design customer journeys tailored to their needs and on their terms cutting through traditional insurance silos and creating end-to-end, highly personalized and engaging customer experiences. In the same month, we updated the Majesco L&A and Group Core Suite. The new suite, version 10.0, includes Majesco L&A and Group Policy, Majesco L&A and Group Billing and Majesco L&A and Group Claims.
In November 2018, Majesco, USA, subsidiary of the Company, acquired Exaxe Holdings Limited (Exaxe), an EMEA based cloud software leader in the life, pensions and wealth management segment. Headquartered in Dublin, Ireland Exaxe serves a growing list of top European insurers. This acquisition has strengthened and expanded our software offerings in EMEA for the individual life, pensions and wealth management market while complementing our software and Group focused customer base in the UK.
In February 2019, Majesco, USA successfully completed its rights offering in the US raising approximately US$ 43.5 million to support future inorganic growth. On February 26, 2019, Majesco, USA switched the listing of its common stock from the New York Stock Exchange (NYSE) - American to NASDAQ. This was an important step in our journey to grow and create sustained value for our shareholders.
Majesco Partner EcoSystem, built around Majesco CloudInsurer, is designed to provide insurers with extended strategic and operational benefits, with complementary partner-led solutions and unique capabilities across the value chain. We have tie-ups with multiple ecosystem partners, to fulfill the objective of serving clients with pre-integrated offerings on the digital platform.
We expect the revenue from our cloud offerings to grow at a faster pace, compared to other areas of our business.
We are encouraged by this shift as cloud-based sales are margin-accretive and recurring, besides meeting a critical industry requirement. We will continue to make investments in research and development of platforms and solutions to boost future growth prospects, with a keen eye on client program success.
Break Up of Revenue by Regions Revenue North America (NA)
|Offerings||Year ended March 31, 2019||Year ended March 31, 2018|
|Rs. in lakhs||% of Revenue||Rs. in lakhs||% of Revenue|
|Offerings||Year ended March 31, 2019||Year ended March 31, 2018|
|Rs. in lakhs||% of Revenue||Rs. in lakhs||% of Revenue|
Revenue Others (APAC/India)
|Offerings||Year ended March 31, 2019||Year ended March 31, 2018|
|Rs. in lakhs||% of Revenue||Rs. in lakhs||% of Revenue|
V. PERFORMANCE REVIEW
Key Financials Operating Revenue
On a consolidated basis, we registered a total operating revenue of Rs. 98,810 lakhs as on March 31, 2019 vis--vis Rs. 80,604 lakhs as on March 31, 2018. Analysis of Operating Revenue, Region-wise, Offerings-wise and Line of Business-wise is mentioned below:
Break up of Operating Revenue by Regions
|Region||Year ended March 31, 2019||Year ended March 31, 2018||Growth|
|Rs. in lakhs||% of Revenue||Rs. in lakhs||% of Revenue||%|
|Others (India/ Asia Pacific)||7,268||7.4||5,627||7.0||29.2|
Break up of Operating Revenue by Offerings
|Year ended March 31, 2019||Year ended March 31, 2018||Growth|
|Offerings||Rs. in lakhs||% of Revenue||Rs. in lakhs||% of Revenue||%|
Break up of Operating Revenue by Line of Business
|Lines of Business||Year ended March 31, 2019||Year ended March 31, 2018||Growth|
|Rs. in lakhs||% of Revenue||Rs. in lakhs||% of Revenue||%|
|Property & Casualty||69,275||70.1||61,689||76.5||12.3|
|Life & Annuities||28,894||29.2||17,754||22.0||62.7|
Profit for the year ended March 31, 2019 and March 31, 2018 is Rs. 7,174 lakhs and Rs. 280 lakhs respectively. Other comprehensive income for the year ended March 31, 2019 and March 31, 2018 is Rs. 13 lakhs and Rs. 574 lakhs respectively. Total comprehensive income for the year ended March 31, 2019 and March 31, 2018 is Rs. 7,187 lakhs and Rs. 854 lakhs respectively. Increase in profit is substantially due to improved revenue profile with higher cloud-based revenues, improved operating efficiencies and cost management in general and administrative expenses.
Profit for the year ended March 31, 2019 and March 31, 2018 attributable to our equity shareholders, after considering share of non-controlling interests is Rs. 5,404 lakhs and Rs. 629 lakhs respectively. Other comprehensive income for the year ended on March 31, 2019 and March 31, 2018 attributable to our equity shareholders, after considering share of non-controlling interests is Rs. 9 lakhs and Rs. 403 lakhs respectively. Other comprehensive income includes changes in fair value of cash flow hedge, exchange difference on translation of foreign operations and re-measurement gain/loss on gratuity plan. Total comprehensive income for the year ended March 31, 2019 and March 31, 2018 attributable to our equity shareholders, after considering share of non-controlling interests is Rs. 5,413 lakhs and Rs. 1,033 lakhs respectively.
Balance sheet items Non-current Assets A) Fixed Assets
Tangible assets as March 31, 2019 were Rs. 3,051 lakhs vis--vis Rs. 2,955 lakhs as on March 31, 2018. This included a gross addition of Rs. 1,268 lakhs for the purchase of computers, furniture and fixtures, vehicles, etc., depreciation of Rs. 1,224 lakhs for the 12-month period ended March 31, 2019, deduction of Rs. 143 lakhs and foreign exchange translation adjustment of Rs. 195 lakhs.
Goodwill as on March 31, 2019 were Rs. 24,706 lakhs vis--vis Rs. 22,124 lakhs as on March 31, 2018. This included additions on account of new acquisitions of Rs. 1,236 lakhs and foreign exchange translation adjustment. No goodwill had been amortized during the year.
Other intangible assets as on March 31, 2019 were Rs. 6,071 lakhs vis--vis Rs. 488 lakhs as on March 31, 2018. This included a gross additions including assets acquired of Rs. 6,790 lakhs for purchase of computers software, technology, trade name and customer relationship, amortization of Rs. 737 lakhs for year ended March 31, 2019 and foreign exchange translation adjustment of Rs. (470) lakhs.
B) Financial Assets
Non-current financial assets were Rs. 1,015 lakhs as on March 31, 2019 vis--vis Rs. 486 lakhs as on March 31, 2018. The increase is mainly on account of mark-to-market gains receivable on outstanding derivative contracts and unbilled revenue.
A) Current investments and Cash and Bank Balances
Total current investments and cashand bank balances as on March 31, 2019 was Rs. 40,313 lakhs vis--vis Rs. 39,857 lakhs in the previous year. Net cash generated in operations was Rs. 4,979 lakhs and payment for purchase of fixed assets was Rs. 3,427 lakhs and payment of acquisition of new subsidiary was Rs. 5,367 lakhs during the 12-month period ended March 31, 2019. Proceeds from the issue of equity shares was Rs. 8,536 lakhs and repayment of borrowings was Rs. 6,806 lakhs for year ended March 31, 2019.
B) Trade receivables
Trade receivables as on March 31, 2019 stood at Rs. 11,960 lakhs vis--vis Rs. 12,832 lakhs as on March 31, 2018.
C) Current financial loans, financial assets and other current assets
Other financial assets were at Rs. 14,749 lakhs as on March 31, 2019 vis--vis Rs. 6,591 lakhs as on March 31, 2018. The increase is mainly on account of unbilled revenue and other receivables. Other current assets were at Rs. 3,036 lakhs as on March 31, 2019 vis--vis Rs. 2,735 lakhs as on March 31, 2018.
Total shareholders funds as on March 31, 2019 stood at Rs. 67,701 lakhs vis--vis Rs. 54,329 lakhs as on March 31, 2018.
A) Non-current financial liabilities
Total non-current financial liabilities stood at Rs. 2,092 lakhs as on March 31, 2019 vis--vis Rs. 3,425 lakhs as on March 31, 2018. The decrease was mainly on account of reduction in non-current borrowings by Rs. 3,338 lakhs and the increase on account of deferred consideration payable on business acquisition Rs. 2,001 lakhs.
B) Provisions and Non-current other liabilities
Total non-current other liabilities stood at Rs. 5,104 lakhs as on March 31, 2019 vis--vis Rs. 5,023 lakhs as on March 31, 2018.
A) Financial liabilities
Current financial liabilities as on March 31, 2019 decreased to Rs. 14,909 lakhs vis--vis Rs. 15,150 lakhs as on March 31, 2018. The decrease is mainly on account of repayment of borrowing Rs. 3,142 lakhs and increase of payable Rs. 3,555 lakhs.
B) Other current liabilities and provisions
Other current liabilities and provisions as March 31, 2019 decreased to Rs. 7,597 lakhs vis--vis Rs. 7,718 lakhs as on March 31, 2018.
Days Sales Outstanding (DSO)
DSO as on March 31, 2019 is 86 days vis--vis 81 days as on March 31, 2018. Increase in DSO is mainly attributed to unbilled revenue related to the IBM project with MetLife.
Order Backlog during the year
The 12-month executable order backlog as on March 31, 2019 was Rs. 67,011 lakhs vis--vis Rs. 60,649 lakhs for the year ended March 31, 2018. Total value of orders booked during FY 2018-19 was Rs. 151,764 lakhs vis--visRs. 143,609 lakhs during FY 2017-18.
Key Financial Ratios (Consolidated)
Pursuant to Schedule V(B) to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, information pertaining to Key Financial Ratios is provided below:
|Particulars||Year ended March 31, 2019||Year ended March 31, 2018|
|Operating Profit Margin (%)||12.13||4.10|
|Net Profit Margin (%)||7.05||0.34|
|Days Sales Outstanding (No. of days)||86||81|
|Debt Equity Ratio||0.04||0.17|
|Return on Net Worth (%)||2.99||1.16|
1. Operating Profit Margin is higher due to higher cloud and recurring revenue coupled with operating efficiencies.
2. Net Profit Margin is higher due to improved revenue profile with higher cloud-based revenues, improved operating efficiencies and cost management in general & administrative expenses.
3. Return on Net Worth for the year ended March 31, 2019 is higher due to higher rate of growth in profit after tax.
We added 21 clients during the year, majority of whom are given below. The client profile includes some marquee names across verticals in North America, the UK, India and APAC.
In March 2019, Hansard Global plc, a FTSE listed business, selected Majesco Life IllustratePlus, Majesco Life AdminPlus and Majesco Life DistributionPlus to support its ambitious growth plans.
In February 2019, Guardian Insurance, Puerto Rico based Tier 1 selected Majesco P&C Policy on Majesco CloudInsurer as the foundation of their business transformation and growth strategy.
In February 2019, American Public Life Insurance Company (APL) selected Majesco L&A and Group Core Suite platform as the foundation of its digital business transformation strategy. In November 2018, PT PFI Mega Life Insurance (PFI Mega Life), the joint venture life insurance company of Prudential Financial Inc and CT Corpora, selected Majesco Policy for L&A and Group, along with a point of sale and activity management solution specifically used within the APAC region.
In December 2018, a Tier 1 US-based P&C wholesale broker selected Majesco Digital1st Insurance to accelerate their digital journey and modernize systems of engagement with their carrier partners, agents and customers.
In September 2018, Cannon Cochran Management Services Inc. (CCMSI), the largest privately held third-party administrator selected Majesco Policy and Billing for P&C on Majesco CloudInsurer and Majesco insurance data and analytics platform to transform their business by replacing their legacy systems to enable their growth strategy.
In June 2018, a new start-up selected Majesco P&C Core Suite on Majesco CloudInsurer platform to support their market launch and growth strategies in a Software as a Service (SaaS) model.
In May 2018, Gibraltar BSN Life Berhad (Gibraltar BSN) selected Majesco Distribution Management and Digital Solutions to transform its distribution management operation as part of its digital transformation program.
In April 2018, Tier 1 specialty insurer signed a three-year agreement for application management services with Majesco to support their workers compensation operational systems.
As on March 31, 2019, our workforce strength stood at 2,763, of which 511 were based on site at various locations, while 2,252 were in India. We continue to recruit fresh talent and intend to add more technical resources at various levels during the new fiscal.
VI. BUSINESS OUTLOOK
In the Digital Insurance 2.0 era, the demand for agility, speed and innovation are at the top of the list of business leaders. Delivering speed to value continues to remain key differentiator for us. Majescos business performance in the 2018-19 fiscal reflects the growing success of our cloud-based strategy and solutions that help insurers adapt to this era. The InsurTech disruption is expected to continue into 2020 as well. Our management continues to remain focused on our core cloud business across key verticals P&C and L&A.
To that end, our key growth drives are listed here:
a) Penetrating existing client accounts with opportunities through cross sell and up sell;
b) Acquisition of new clients across core areas namely enterprise billing, commercial line policy administration, group life system and growth & innovation platform;
c) Partnership with System Integrators (SIs) i.e. IBM, Capgemini, Deloitte.
d) Mergers and Acquisitions.
Majesco, with its size, scale, domain expertise and platforms, is well poised to capitalize on the opportunities to support its new and existing customers transition to Digital Insurance 2.0. Our exceptional leadership team and dedicated workforce comprise our most important asset, as we chart out future growth strategies. Going forward, we will continue to focus on enhancing our competences and invest in our innovation capabilities, to remain at the vanguard of change.
Risk resilience is at the core of our DNA. Majesco has in place a strong enterprise risk management function which oversees our risk management on an ongoing basis. The primary objective of the Enterprise Risk Management (ERM) function is to provide a framework that improves risk response decisions; reduces operational surprises and thereby, losses; and identifies and manages cross-enterprise risks. The ERM policy, approved by the Board, lays down the risk management process, expected outcomes, governance and reporting structure. The policy also stresses on the importance of having a strong risk culture for the ERM to succeed. We have in place a strong risk governance model to ensure risk management principles are followed throughout the organization and a risk culture is inculcated. This ERM process and policy is executed through the Risk Management Committee (RMC) represented by the business and functional heads within Majesco. The Board of Directors oversees the risk management process and together with the Audit Committee, reviews the progress of action plans for the identified key risks on a quarterly basis.
A discussion of key risks and concerns, and measures aimed at mitigating them, are discussed below.
Strategic: We could be susceptible to strategy, innovation and business or product portfolio related risks if there is any significant and unfavorable shift in industry trends, customer preferences, or returns on R&D investments.
Majesco does have the benefit of being very well entrenched with many of its customers, involved in their critical and strategic initiatives. Therefore, client concentration related risks are mitigated to an extent. Our investments in intellectual property creation are being done in a measured manner and are focused more on extending and strengthening existing offerings, rather than on new business or end-use/application areas.
Macro-economic: Risks emanating from changes in the global markets, such as the recent financial meltdown, regulatory or political changes, and alterations in the competitive landscape could affect our operations and outlook. Any adverse movements in economic cycles in our target markets and volatility in foreign currency exchange rates could have a negative impact on our performance.
This risk is mitigated to some extent due to our diversified presence in multiple geographies, from Europe to Malaysia and India. We also take necessary steps such as foreign exchange hedging to mitigate exchange rate risks.
Competition: We operate in a highly competitive industry and compete with bigger players, in both India and abroad. Shifts in clients and prospective clients dispositions could affect our business.
We leverage strong domain expertise, robust delivery capabilities and significant project experience to attempt to stay ahead of competition.
Dependence on key personnel: We have one of the best management teams in the industry and this has been a critical enabler of our operational successes. Any loss of personnel through attrition or other means may have an impact on our performance.
We endeavor to have an effective succession plan in place to mitigate these risks.
Clients and accounts: Our strategy is to engage with a few key customers and build long-term relationships with them. Any shift in customer preferences, priorities and internal strategies can have an adverse impact on our operations and outlook.
We have enduring bonds with many of our customers, mitigating these risks to an extent.
Cyber security: This has emerged as a high category risk across the IT industry as organizations are moving to newer areas of engagement, such as cloud-driven business model, mobile computing, etc.
We have implemented best security practices across multiple domains. We have also obtained the necessary insurance coverage.
Contractual, execution and delivery: Our operating performance is subject to risks associated with factors that may be beyond our control, such as the termination or modification of contracts and non-fulfillment of contractual obligations by clients due to their own financial difficulties or changed priorities or other reasons.
We have mechanisms in place to try and prevent such situations, along with the necessary insurance coverage.
Data protection and privacy: The leakage and misuse of confidential and proprietary information increases the risk of non-compliance of privacy and data protection laws.
We have laid down policies and process to ensure robust data protection measures in compliance with the global standards and requirements such as General Data Protection Regulation (GDPR).
M&A: Well-considered, properly evaluated and strategic acquisitions form part of our growth strategy. There is no guarantee, however that an acquisition will produce the business synergies, revenues and profits as anticipated at the time of entering into the transaction.
We undertake all due care and diligence in the process of making any acquisition to mitigate these risks.
In addition, there are multiple other risk factors that we need to consider and manage. The Board and the senior management continually assess our operations and the external environment to identify potential risks and take meaningful mitigation actions against each, ensuring that the growth targets and strategic objectives are achieved.
VIII. INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY
A strong internal control system is pervasive in our Company. This is commensurate to the nature, size and complexity of our business. We have documented a robust and comprehensive internal control system for all the major processes to ensure reliability of financial reporting. Our systems for internal control and risk management go beyond what is mandated, to span best practices and reporting matrices and to identify opportunities and risks regarding our business operations.
Our internal controls are supplemented by an internal audit program and periodic reviews by the management. We have appointed an independent audit firm as our Internal Auditor and the Audit Committee reviews its findings and recommendations on a quarterly basis.