R Systems International Ltd Directors Report.

Dear Shareholders,

Your directors take great pleasure in presenting the Twenty Fourth Annual Report on the business and operations of R Systems International Limited ("R Systems" or the "Company") together with the audited statements of accounts for the year ended December 31,2017.

1. Financial Results

a. Standalone financial results of R Systems

(Rs. in Millions)

 

Particulars

Financial Year ended

31.12.2017 31.12.2016
Total Income 2,771.26 2,755.44
Profit before depreciation, exceptional items and tax 430.58 636.71
Less : Depreciation and amortisation expense 73.74 69.30
Add : Exceptional items * - 46.35
Profit before tax 356.84 613.76
Less : Current tax 127.34 224.95
Less: MAT credit entitlement - (15.13)
Less : Deferred tax credit (9.33) (8.20)
Profit after tax 238.83 412.14
Surplus in the statement of profit and loss Balance as per last financial statements 1,197.94 785.80
Add: Profit for the current year 238.83 412.14
Net surplus in statement of profit and loss 1,436.77 1,197.94

* Refer Note No. 22 of standalone financial statements.

b. Consolidated financial results of R Systems and its Subsidiaries

(Rs. in Millions)

Particulars

Financial Year ended

31.12.2017 31.12.2016
Total Income 6,078.85 6,009.44
Profit before depreciation, exceptional items and tax 496.18 825.64
Less : Depreciation and amortisation expense 119.67 115.12
Add : Exceptional items* - 46.35
Profit before tax 376.51 756.87
Less : Current tax 143.82 244.03
Less: MAT credit entitlement - (15.13)
Less : Deferred tax credit (12.12) (8.91)
Profit after tax 244.81 536.88
Surplus in the statement of profit and loss Balance as per last financial statements 1,559.50 1,022.62
Add: Profit for the current year 244.81 536.88
Net surplus in statement of profit and loss 1,804.31 1,559.50

* Refer Note No. 23 of consolidated financial statements.

2. Results of Operations Standalone Accounts

• Total income during the year 2017 was Rs. 2,771.26 mn. as compared to Rs. 2,755.44 mn. during the year 2016.

• Profit after tax was Rs. 238.83 mn. during the year 2017 as compared to Rs. 412.14 mn. during the year 2016.

• Basic earnings per share (of face value of Re. 1/- each) was Rs. 1.93 for the year 2017 as compared to Rs. 3.26 for the year 2016.

Consolidated Accounts

• Consolidated total income during the year 2017 was Rs. 6,078.85 mn. as compared to Rs. 6,009.44 mn. during the year 2016.

• Profit after tax was Rs. 244.81 mn. during the year 2017 as compared to Rs. 536.88 mn. during the year 2016.

• Basic earnings per share (of face value of Re. 1/- each) was Rs. 1.98 for the year 2017 as compared to Rs. 4.24 for the year 2016.

The state of affairs of the Company is presented as part of Management Discussion and Analysis Report forming part of this report.

3. Appropriations and Reserves Dividend

The Board of Directors (the "Board") has not recommended any dividend for the financial year ended December 31, 2017.

Transfer to Reserves

In order to augment resources your directors do not propose to transfer any amount to reserves.

4. Business

R Systems is a leading provider of product engineering services, business process outsource services and solutions through its subsidiaries ECnet and IBIZ. R Systems diversified offering includes:

IPLM Services Group

R Systems defines its product engineering business as Integrated Product Life Cycle Management (iPLM) services where R Systems help ISV and enterprise customers to accelerate the speed to market for their products and services with a high degree of time and cost predictability by using our proprietary pSuite framework and global delivery model.

Under iPLM Services, R Systems delivers services and solutions in the area of Information Technology and Knowledge Services. The IT services cover product development, systems integration and support and maintenance. Under the Knowledge Services, we cover technical support, customer care, analytics service, back office services, business process transformation and revenue and claims management.

R Systems competitive advantage in iPLM Services is further enhanced by its industry specific domain expertise, global delivery capabilities, multi-language support capabilities, industry best quality and security certification and agile development methodologies supported by R Systems proprietary pSuite framework. Further, R Systems iPLM Services have been aligned with latest digital technologies i.e. analytics, artificial intelligence, cloud, mobility, IoT, robotics, etc. as enabler for digital transformation.

Solution offerings

ECnet Supply Chain provide solutions for holistic management of the complex interaction between an organisation and its trading partners. The integrated solution aims to reduce all supply chain costs through improved collaboration and optimisation. The solutions are robust and scalable and give measurable ROI to clients that meet the clients strategic business goals.

ECnet also operates as Infor Gold-certified channel partner for reselling and implementing several enterprise solutions, including enterprise resource planning, warehouse management, corporate performance management, business intelligence etc. It mainly serves small to medium-sized businesses in the manufacturing and distribution industries. These products present an opportunity to cross and up sell these solutions since these are adjunct to ECnets own product offerings. Further, ECnet has also partnered with JDA to offer category management solution suite to retail customers.

IBIZ, is a Microsoft Gold Channel Partner and is specialized in deploying Microsoft business management solution suites, including enterprise resource planning, customer relationship management, point of sales, mobility, business intelligence and portals. IBIZ addresses industry vertical like retail, manufacturing and supply chain.

R Systems focused on key verticals i.e. Telecom, Media & Entertainment, Banking & Finance, Healthcare & Life Sciences, Technology, Retail & E-commerce and Manufacturing & Logistics. Telecom and Digital Media is the largest industry vertical which contributes 26 percent of the total consolidated revenue for the year ended December 31, 2017.

Further with the deep expertise in the key vertical like Telecom, Media & Entertainment, Banking & Finance, Healthcare & Life Sciences, Technology, Retail & E-commerce and Manufacturing & Logistics. R Systems have horizontally embraced digital technologies like analytics, artificial intelligence, cloud, mobility, IoT, robotics etc. to further strengthen its product engineering capabilities.

R Systems rapidly growing customer list includes a variety of Fortune 1000, government and mid-sized organizations across a wide range of industry verticals and has served twenty one million dollar plus customer during the year 2017.

Customers and Delivery Centres

R Systems rapidly growing customer list includes a variety of Fortune 1000, government and mid-sized organizations across a wide range of industry verticals including Telecom, Media & Entertainment, Banking & Finance, independent Software Vendors, Healthcare & Life Sciences, Technology, Retail & E-commerce and Manufacturing & Logistics. R Systems maintains fifteen development and service centres to serve customers in USA, Europe and the Far East. There were no changes in the nature of the Companys business and generally in the classes of business in which the Company has an interest and in the business carried on by the subsidiaries during the year under review. For details of Companys subsidiaries please refer note number 13 relating to subsidiaries. During the year under review, the Company has commenced its operation in its SEZ unit located at Greater Noida West (NCR).

5. Quality

R Systems has continuously invested in processes, people, training, information systems, quality standards, frameworks, tools and methodologies to mitigate the risks associated with execution of projects. Adoption of quality models and practices such as the Capability Maturity Model Integration (CMMI) and Six Sigma practices for processes have ensured that risks are identified and mitigated at various levels in the planning and execution process. R Systems journey on various quality standards/models is as follows:

During the year 2017, the IT Division of the Company has been appraised for CMMI Level 5 (Version 1.3) and also certified with new ISO 9001:2015 standard (formal certificate is yet to be received).

In addition, for BPO division, R System has got SOC2 Type 2 Reporting (SSAE-16) for one of the major healthcare clients. HIPAA also has been implemented and tested with zero non-compliance in one of the major clients in Healthcare Domain. The BPO division has migrated their QMS into ISO 9001:2015 version from the existing ISO 9001:2008 version. Apart from that, R Systems IT Infrastructure along with the projects/process/applications in scope has got PCI DSS Certification on latest version V3.2.

As of the date of this report, Noida IT center is CMMI level 5(Ver.1.3), PCMM Level 5, ISO 9001: 2015, ISO 27001: 2013 certified. Noida BPO center is PCMM Level 5, ISO 9001: 2008, ISO 27001: 2013 certified and also for specific client(s) it is SOC2 Type 2 (SSAE-16), HIPAA compliant and PCI-DSS (ver.3.1) certified for (IT Infrastructure along with the projects/process/applications in scope), SSAE-16.

To maintain and strengthen competitive strengths, R Systems continues to make investments in its unique and proprietary jsdfte with best practices, tools and methodologies for flawless execution and consistent delivery of high quality software.

The pSuite framework offers services along the entire software lifecycle that includes technology consulting, architecture, design and development, professional services, testing, maintenance, customer care and technical support. R Systems expects that its technology focus, investment in processes, talent and methodologies will enable it to distinguish itself from competition as it seeks to provide services to technology /product companies.

6. Directors & Key Managerial Personnels (KMP)

During the year under review, the following changes took place in the office of directors of the Company.

As per approval of shareholders accorded in the Annual General Meeting of the Company held on May 15, 2017, Mr. Kapil Dhameja and Mr. Aditya Wadhwa were appointed as independent Directors of the Company for a period of five years commencing from June 29, 2016.

Mr. Avirag Jain was appointed as an Additional Director and subject to Shareholders approval, he was also appointed as a Whole-time Director (Designated as Director & Chief Technology Officer) for a period of three years commencing from August 03, 2017.

Subsequent to the year ended December 31, 2017, Mr. Ashish Thakur has resigned from the post of Company Secretary & Compliance Officer w.e.f. February 10, 2018. The Board placed on record its appreciation for the contribution made by him during his tenure.The Board of Directors of the Company has appointed Mr. Bhasker Dubey as Company Secretary & Compliance Officer of the Company, w.e.f. February 10, 2018.

Details of the Directors proposed to be appointed / re-appointed at the ensuing Annual General Meeting are as follows:

At the ensuing Annual General Meeting, Lt. Gen. Baldev Singh (Retd.), President & Senior Executive Director of the Company is liable to retire by rotation in accordance with the provisions of Section 152 of the Companies Act, 2013 read with the Articles of Association of the Company and being eligible, offers himself for re-appointment as director of the Company.

On the recommendation of the Nomination & Remuneration Committee of the Company, Lt. Gen Baldev Singh (Retd.) has been reappointed as President and Senior Executive Director of the Company for a period of three years i.e. w.e.f. April 01, 2018 to March 31, 2021, subject to the approval of the Central Government, if required, and the shareholders at the ensuing Annual General Meeting of the Company.

Further, at the meeting of Board of Directors held on August 03, 2017 Mr. Avirag Jain has been appointed as Additional Director and also Whole-time Director (Designated as Director & Chief Technology Officer) of the Company for a period of three years w.e.f. August 03, 2017, subject to the approval of the Central Government, if applicable and the shareholders at the ensuing Annual General Meeting of the Company.

The brief profile of the aforesaid directors proposed to be appointed/re-appointed forms part of the Corporate Governance Report.

None of the directors of the Company is disqualified as per the provisions of Section 164(2) of the Companies Act, 2013. The directors of R Systems have made necessary disclosures, as required under various provisions of the Companies Act, 2013 and Securities and Exchange Board of india (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Hereinafter referred as "Listing Regulations").

As required under Section 149 of the Companies Act, 2013 and Listing Regulations all the Independent Directors of the Company, have submitted declarations that they meet the criteria of independence as laid down therein.

7. Employees Stock option Plans / Schemes

The industry in which R Systems operates is people intensive and R Systems believes that human resources play a pivotal role in the sustainability and growth of the Company. R Systems has always believed in rewarding its employees with competitive compensation packages for their dedication, hard work, loyalty and contribution towards better performance of the Company. To enable more and more employees to be a part of the financial success of the Company, retain them for future growth and attract new employees to pursue growth, R Systems has set up employees stock option plans / schemes from time to time for its employees and for the employees of its subsidiaries. As on the date of this report, the stock option plans of R Systems are as follows:

• R Systems international Ltd. Employees Stock Option Plan Year 2001 (Formerly known as Indus Software Employees Stock Option Plan - Year 2001): Initially formulated for the employees of indus Software Private Limited which got amalgamated with R Systems and the plan continued as per the scheme of amalgamation approved by the Honble High Courts of Delhi and Mumbai. As on the date of this report, no stock options are in force under this plan. •

• R Systems international Limited Employee Stock Option Scheme 2007: For the employees of R Systems and its subsidiaries.

Details relating to options approved, granted, vested, exercised, lapsed, in force etc. under the prevailing employees stock option plans / schemes during the year ended December 31,2017 are as follows:

Particulars R Systems International Ltd. Employees Stock option Plan - Year 2001 R Systems International Limited employee Stock option Scheme 2007
(a)# (b)##
a. Total number of shares covered under the plan/scheme 738,980 6,500,000
b. Pricing Formula As approved under the "Scheme of Amalgamation" of indus Software Private Limited with the Company by the Honble High Courts of Delhi and Mumbai. Rs. 12.07 per option for 6,350,000 options i.e. latest available closing price, prior to the date of the meeting of the Board of Directors / Compensation Committee, in which options were granted, on the stock exchange. Rs. 12.07 per option for 150,000 options as approved by the Compensation Committee.
c. Options Outstanding at the beginning of the year Nil 195,280
d. Options granted during the year Nil Nil
e. Options vested during the year Nil Nil
f. Options exercised during the year Nil 82,500
g. The total number of shares arising as a result of exercise of options during the year Nil 82,500
h. Options lapsed during the year Nil 280
i. Variation of terms of options during the year Nil Nil
j. Money realised by exercise of options during the year (Rs.) Nil 995,775
k. Total number of options in force at the end of the year Nil 112,500
l. Employee wise details of options granted to (during the year)
(i) Senior managerial personnel Nil Nil
(ii) Any other employee who receives a grant in any one year of options amounting to 5% or more of options granted during that year Nil Nil
(iii) Identified employees who were granted options, during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant Nil Nil
m. Diluted Earnings Per Share (EPS) pursuant to issue of shares on exercise of options N.A. 1.93*

# Please note that the details given above for plan (a) are after making the required adjustments in relation to consolidation of each of the 5 equity shares of Rs. 2 each into 1 equity share of Rs. 10 each as approved by the shareholders in the year 2006 and after sub-division of each of the equity shares of Rs. 10 each into 10 equity shares of Re. 1/- each as per record date of February 28, 2014.

## The details given above for plan (b) are after making the required adjustment in relation to sub-division of each of the equity shares of Rs. 10 each into 10 equity shares of Re. 1/- each as per the record date of February 28, 2014.

* EPS is Rupees per equity share of Re. 1/- each i.e. after giving into effect sub-division of equity shares of Rs. 10 each into equity shares of Re. 1/- each as per record date of February 28, 2014.

Disclosures as required under SEBI Employee Benefits Regulations read with Securities and Exchange Board of india circular no. CiR/CFD/ POLiCY CELL/2/2015 dated June 16, 2015 are available on the Companys website at http://www.rsvstems.com/investors/Annual reports.aspx .

All options granted under R Systems International Limited Employees Stock Option Plan - Year 2001 have already been vested and exercised or lapsed and no options were in force as on December 31, 2017.

For options granted during the earlier years under plan (b) R Systems used the fair value of the stock options for calculating the employees compensation cost.

For the purpose of valuation of the options granted during earlier years, the management obtained fair value of the options at the date of grant under respective schemes from a firm of Chartered Accountants, to determine accounting impact, if any, of options granted over the periods. In the considered opinion of the valuer, the fair value of option determined using Black Scholes Valuation Model under each of above schemes is "Nil" and thus no accounting thereof is required.The assumptions used for the purpose of determination of fair value are stated below:

Assumptions Unit Scheme (a)* Comments by the valuer
Strike price Rs. 154
Current share price Rs. 140 Taken on the basis of NAV and PECV method of valuation.
Expected option life No. of Years 2.5 Being half of the maximum option life.
Volatility % 0.5 In case of unlisted shares, the volatility may be taken as zero. Verma committee also recommends this.
Risk free return % 11.3 Zero coupon rate estimated from trading government securities for a maturity corresponding to expected life of option - taken from sites of NSE and / or BSE.
Expected dividend Yield % 15 Company has no set policy so dividend taken as zero. In case of R Systems Employee Stock Option Plan- Year 2001, as the dividend had been paid by the erstwhile company, it has been assumed at 15%.

* R Systems Employees Stock Option Plan - Year 2001 under which originally the price was based on Rs. 10 per share for 21,967 shares. As a result of amalgamation of Indus Software Private Limited into R Systems, R Systems had issued 206,822 equity shares of Rs. 2 each pursuant to the swap ratio approved by Honble High Courts of Delhi and Mumbai.

Please note that the details given above for plan (a) are before making the required adjustments in relation to consolidation of each of the 5 equity shares of Rs. 2 each into 1 equity share of Rs. 10 each as approved by the shareholders in the year 2006 and before sub-division of each of the equity shares of Rs. 10 each into 10 equity shares of Re. 1/- each as per record date of February 28, 2014.

For the purpose of valuation of the options granted during the year ended December 31, 2007 under R Systems International Limited Employee Stock Option Scheme 2007, the compensation cost relating to Employee Stock Options, calculated as per the intrinsic value method is nil.

The management obtained fair value of the options at the date of grant from a firm of Chartered Accountants. In the considered opinion of the valuer, the fair value of these options determined using Black Scholes Valuation Model is "Rs. 50.73" per option.

The assumptions used by the valuer for the purpose of determination of fair value are stated below:

Assumptions Unit Scheme Comments by the valuer
Strike price Rs. 120.70
Current share price Rs. 118.50 Price on the date of grant by Board of Directors i.e. closing price on July 11, 2007.
Expected option life No. of Years 4 Being the vesting period.
Volatility % 44 On the basis of industry average.
Risk free return % 7 Zero coupon rate estimated from trading government securities for a maturity corresponding to expected life of option -taken from sites of NSE.
Expected dividend Yield % 0.86 Company has declared Dividends of 12% in the past. Assuming that it will continue declaring similar dividends in future.

The above information is based on Rs. 10 per share before sub-division of each of the equity shares of Rs. 10 each into 10 equity shares of Re. 1/- each as per the record date of February 28, 2014.

For the purpose of valuation of the options granted during the year ended December 31, 2016 under R Systems international Limited Employee Stock Option Scheme 2007, the year to date compensation cost relating to Employee Stock Options, calculated as per the intrinsic value method is Rs. 2,614,858 (Previous year Rs. 2,589,490).

The management obtained fair value of the options at the date of grant i.e. April 30, 2016 from a firm of Chartered Accountants. in the considered opinion of the valuer, the weighted average fair value of these options determined using Black Scholes Valuation Model is "Rs. 49.89" per option.

The assumptions used by the valuer for the purpose of determination of fair value are stated below:

Assumptions Unit Scheme Comments by the valuer
Strike price Rs. 12.07
Current share price Rs. 61.45 Price on the date of grant by Board of Directors i.e. closing price on April 30, 2016.
Expected option life No. of Years 4 years Being the vesting period.
Volatility % 55.32-55.83 On the basis of industry average.
Risk free return % 7.84 The yield on a Treasury bond by Government of india (Source: RBI) on the valuation date with the tenor matching the remaining term of the stock options.
Expected dividend Yield % 1.32 Assuming that Company will continue declaring at similar rate, consistent with the past years.

The above information is based on per equity share having face value of Re. 1/- each.

The stock based compensation cost calculated as per the intrinsic value method for the financial year 2017 was Rs. 2,614,858 (Previous year Rs. 2,589,490). if the stock based compensation cost was calculated as per fair value method prescribed by SEBi, the total cost to be recognised in the financial statements for the year 2017 would be Rs. 2,642,059 (Previous year 2,617,180). The effect of adopting the fair value method on the net income and earnings per share is presented below:

Pro Forma adjusted Net Income and Earnings per Share

(Amount in Rs.)

Particulars Year ended December 31, 2017 Year ended December 31,2016
Profit after tax 238,829,974 412,138,007
Add: Intrinsic Value Compensation Cost 2,614,858 2,589,490
Less: Fair Value Compensation Cost 2,642,059 2,617,180
Adjusted Pro-forma Profit after tax 238,802,773 412,110,317
Weighted average number of equity shares for calculating Basic EPS 123,924,898 126,616,327
Weighted average number of equity shares for calculating Diluted EPS 123,949,330 126,653,124
Earnings Per Share
Basic [Nominal value of shares Re. 1 (Previous year: Re. 1)]
- As reported 1.93 3.26
- Pro-forma 1.93 3.25
Diluted [Nominal value of shares Re. 1 (Previous year: Re. 1)]
- As reported 1.93 3.25
- Pro-forma 1.93 3.25

Weighted average exercise price of options granted during the year

S. No. Particulars Scheme (a) Scheme (b)
1. Exercise price equals market price N.A. N.A.
2. Exercise price is greater than market price N.A. N.A.
3. Exercise price is less than market price N.A. N.A.

Weighted average fair value of the options granted during the year

S. No. Particulars Scheme (a) Scheme (b)
1. Exercise price equals market price N.A. N.A.
2. Exercise price is greater than market price N.A. N.A.
3. Exercise price is less than market price N.A. N.A.

Scheme (a): R Systems International Limited Employees Stock Option Plan -Year 2001.

Scheme (b): R Systems International Limited Employee Stock Option Scheme 2007.

As no options are granted during the year under Scheme (a), Scheme (b), hence the required information is not applicable.

8. Liquidity and Borrowings - Consolidated Financial Statement

The available Cash and bank balance including mutual fund as at December 31, 2017 was Rs. 1,607.21 mn. against Rs. 1,199.70 mn. as of December 31, 2016. The increase was mainly on account cash generated from operations, proceeds from redemption of debenture as offset by purchase of fixed assets and earnout payment for iBiZ acquisition.

The consolidated cash and cash equivalent as at December 31,2017 were Rs. 925.42 mn. as against Rs. 1,136.05 mn. as on December 31,2016.

Net cash generated from operating activities were Rs. 374.34 mn. for the year ended December 31,2017 compared to Rs. 436.24 mn. for the year ended December 31, 2016.

Cash used in investing activities were Rs. 576.87 mn. for the year ended December 31,2017 comprising of investment in long term deposit with bank Rs. 567.16 mn. (net), purchase of fixed assets of Rs. 89.97 mn., investment in mutual fund Rs. 48 mn. and earn out payment for iBiZ Rs. 18.40 mn. as offset by proceeds from redemption of debenture Rs. 87.57 mn., interest income Rs. 49.73 mn., rental income from investment property Rs. 6.40 mn., sale of fixed assets Rs. 2.96 mn.

Cash used in financing activities were Rs. 5.79 mn. for the year ended December 31, 2017 mainly consist of Rs. 3.97 mn (net) for repayment of long term borrowings.

R Systems policy is to maintain sufficient liquidity to fund the anticipated capital expenditures, operational expenses and investments for strategic initiatives. R Systems has a credit facility from the Axis Bank Limited amounting to Rs. 380 mn. (including non-fund based credit limit of Rs. 180 mn. for currency derivatives). As at December 31, 2017, the total credit balance was nil under fund based line of credit. Loan payable as at December 31,2017 comprises of loan for motor vehicles purchased amounting to Rs. 9.57 mn. and finance lease obligation of Rs. 10.78 mn. for SEZ premises. R Systems primary bankers in india are Axis Bank Limited, iCiCi Bank Limited, Kotak Mahindra Bank Limited, State Bank of india, HDFC Bank Limited and Oriental Bank of Commerce. in U.S.A., U.K. and Singapore, the primary bankers are California Bank & Trust, Natwest Bank and Citibank N.A. respectively.

9. Changes in the Capital Structure

During the year under review, the following changes took place in the capital structure of the Company.

At the beginning of the financial year ended December 31,2017, the issued and paid up share capital of the Company was Rs. 123,870,425/- divided into 123,870,425 equity shares of face value of Re. 1/- each. During the year under review the Company issued 82,500 equity shares of Re. 1/- each pursuant to exercise of stock options granted under the R Systems international Limited Employees Stock Option Scheme - 2007. Consequent to the said allotment the issued and paid up share capital of the Company was enhanced to Rs. 123,952,925/- divided into 123,952,925 equity shares of face value of Re. 1/- each. Further, during the year under review there was no change in the authorised share capital of the Company.

During the financial year ended December 31, 2017, the Company has not issued any shares with differential voting rights or any sweat equity shares. Therefore, disclosure pursuant to Section 43(a) (ii) & Section 54(1)(d) of the Companies Act, 2013 are not applicable. Further, no disclosure is required under Section 67 (3) (c) of the Companies Act, 2013, in respect of voting rights not exercised directly by employees of the Company as the provisions of the said section are not applicable.

10. Scheme of Arrangements

A. The Board of Directors of your Company at its meeting held on May 04, 2017 has passed the Scheme of Arrangement under Section 230 & other applicable provisions of the Companies Act, 2013 between R Systems International Limited and its Shareholders and Creditors. The scheme, as approved by the Board of Directors of the Company, subject to necessary approvals of Shareholders, creditors, Stock Exchanges, National Company Law Tribunal or any other appropriate authority, provides for re-organization and reduction of equity share capital of R Systems International Limited to reflect the correct and true capital structure of R Systems by cancelling the shares held by the R Systems Employees Welfare Trust as there are no ascertain beneficiaries or employees of this trust. The Company has applied to relevant authorities for their necessary directions and sanctions.

B. Subject to necessary approvals of Shareholders, creditors, Stock Exchanges, National Company Law Tribunal or any other appropriate authority, the Board of Directors of your Company at its meeting held on September 22, 2017 has approved the Scheme of Amalgamation under Section 230-232 and other applicable provisions of the Companies Act, 2013 between GM Solutions Private Limited ("GM Solutions") and R Systems International Limited and their respective shareholders and creditors ("Scheme"). GM Solutions forms part of the promoter group of R Systems. It presently holds 29,746,353 (Two Crore Ninty Seven Lac Forty Six Thousand Three Hundred Forty Three only) of Re. 1/- each constituting about 24% of total paid- up equity share capital of R Systems. As per the proposed Amalgamation, GM Solutions will be Amalgamated into R Systems and equivalent no. of shares will be issued and allotted to the equity shareholders of GM Solutions in the same proportion of their respective equity shareholding in GM Solutions. The Company has applied to relevant authorities for their necessary directions and sanctions.

11. Material changes affecting the financial position of the Company

There are no significant events, changes occurred between the end of the financial year and till the date of this report which would materially affect the financial position of the Company.

12. Particulars of Conservation of Energy, Technology Absorption and Foreign exchange earnings and outgo

The particulars as prescribed under Section 134 (1) (m) of the Companies Act, 2013, read with rule 8 of Companies (Accounts) Rules, 2014 for the year ended December 31,2017 are as follows:

A. Conservation of energy

Though Your Company does not have energy intensive operation, every endeavour has been made to ensure the optimal usage of energy, avoid wastage and conserve energy. R Systems constantly evaluates new technologies and makes appropriate investments to be energy efficient.

During the year ended December 31, 2017, R Systems adopted various energy conservation options / technologies and took measures to reduce energy consumption by using energy efficient equipment and devices, replacing existing CFL fittings with LEDs fittings to reduce power consumption, Preventive Maintenance of all major and minor equipments. The air is conditioned with energy efficient compressors for central air conditioning and with split air conditioning for localized areas.

R Systems is always in search of innovative and efficient energy conservation technologies and applies them prudently. However, R Systems being in the software industry, its operations are not energy intensive and energy costs constitute a very small portion of the total cost, therefore, the financial impact of these measures is not material.

B. Technology absorption

1. Efforts made towards technology absorption

The Company has established practice streams in specific technologies to analyze their implications and the benefits they can provide to the Companys customers. These steps enable the Company to find and execute the most appropriate solutions for its clients.

2. Benefits derived as a result of the above efforts

The benefits derived from the above mentioned efforts are fulfilling customer needs, efficiency in operations, improvement in quality and growth in revenues.

3. Technology imported during the last 3 years

Not applicable, as no technology has been imported by the Company.

4. Expenditure incurred on Research and development

Digital has provided oceans of opportunity for Research and development. Today we are witnessing breakthrough technologies — big data and advanced analytics, artificial intelligence (AI), the Internet of Things, and robotics, mobility and cloud, that is unprecedented in human history. R Systems possess a product engineering DNA and optimized its capabilities around these technologies to accelerate the digital transformation for the customers. We have invested significantly in focused research and development to partner with customer in delivering robust product and solutions simplifying their operations.

The key R&D initiates undertaken by the Company for the year 2017 are as follows:

• R Systems has continued its investment in building and strengthening robust analytics solutions, accelerators and framework that address the key challenges around data analytics including predictive modeling, machine learning, natural language processing & image analytics. Medley, our unified

data framework enables rapid deployment of custom advance analytics solutions. Medley simplifies data acquisition, transformation & visualization for virtually any data source. Analytics Gym, our consulting framework helps organizations to discover & evaluate relevant data, technology and right approach for their analytics roadmap.

• Anagram, our proprietary customer interaction analytics platform uses speech analytics technology combined with predictive analytics to help businesses glean important business insights and tap into new business opportunities using the big data generated from the entire population of all customer interactions across multiple channels. It helps augment business efficiency by proffering real-time data insights.

• R Systems has partnered with a leading Robotic tools provider to build offerings around process automation and robotic analytics to reduce costs, improve delivery and consistent quality.

• Our new initiatives for ioT covers bringing intelligence to the new edge and futuristic senior devices which use machine learning and artificial intelligence.

• Additionally, your Company has continued its investment building frameworks and proof of concepts in key verticals like Telecom, Media & Entertainment, Banking & Finance, Healthcare & Life Sciences, Technology, Retail & E-commerce and Manufacturing & Logistics Domains.

C. Foreign Exchange Earnings and Outgo (Accrual Basis)

A significant percentage of R Systems revenues are generated from exports. The development and service centre in Noida is registered with the Software Technology Park of India as 100% Export Oriented Undertaking. All efforts of the Company are geared to increase the business of software exports in different products and markets. We have made investments in sales and marketing activities in various growing markets.

The total foreign exchange used and earned by R Systems during the year as compared with the previous year is as follows:

(Rs. in Millions)

S. No. Particulars

Financial Year ended

31.12.2017 31.12.2016
(a) Earnings (Accrual Basis) 2,586.04 2,594.89
(b) Expenditure (Accrual Basis) 343.98 356.32
(c) CiF value of imports 26.68 66.53

13. Subsidiaries

As on December 31,2017, R Systems has twenty five subsidiaries. The name and country of incorporation of those subsidiaries are as follows:

Name of the Company Country of Incorporation
R Systems (Singapore) Pte Limited Singapore
R Systems, Inc. U.S.A.
R Systems Technologies Limited (Formerly known as Indus Software, Inc.) U.S.A.
RSYS Technologies Ltd (Formerly Systemes R. International Ltee) Canada
ECnet Limited Singapore
ECnet (M) Sdn. Bhd# Malaysia
ECnet, Inc. # U.S.A.
ECnet (Hong Kong) Ltd.# Hong Kong
ECnet Systems (Thailand) Co. Ltd.# Thailand
ECnet Kabushiki Kaisha# Japan
ECnet (Shanghai) Co. Ltd.# Peoples Republic of China
Computaris International Limited U.K.
ICS Computaris International Srl@ Moldova
Computaris Malaysia Sdn. Bhd. @ Malaysia
Computaris Polska sp z o.o.@ Poland
Computaris Romania Srl@ Romania
Computaris USA, Inc.@ U.S.A.
Computaris Philippines Pte. Ltd. Inc.@ Philippines
iBiZ Consulting Pte. Ltd. (Formerly known as iBiZCS Group Pte. Ltd.) * Singapore
iBiZ Consulting Services Pte Ltd" Singapore
iBiZ Consulting Services Sdn. Bhd." Malaysia
PT. iBiZCS indonesia " Indonesia
iBiZ Consultancy Services india Private Limited" India
iBiZ Consulting Services Limited" Hong Kong
iBiZ Consulting Services (Shanghai) Co., Ltd% Peoples Republic of China

# wholly owned subsidiaries of ECnet Limited, Singapore being 99.75% subsidiary of R Systems (The shareholding held by the Company and R Systems (Singapore) Pte Limited is 69.37% and 30.38% respectively).

@ Wholly owned subsidiaries of Computaris international Limited, U.K. being 100% subsidiary of R Systems.

* Wholly owned subsidiary of R Systems (Singapore) Pte. Limited being 100% subsidiary of R Systems.

A Wholly owned subsidiaries of iBIZ Consulting Pte. Ltd. (Formerly known as IBIZCS Group Pte. Ltd.) being 100% subsidiary of R Systems (Singapore) Pte Limited being 100% subsidiary of R Systems.

% Wholly owned subsidiary of IBIZ Consulting Services Limited - Hong Kong being 100% Subsidiary of IBIZ Consulting Pte. Ltd.

During the year ended December 31, 2017, the Company has invested SGD 350,000 (Singapore Dollar Three Lakhs Fifty Thousand only) in R Systems (Singapore) Pte Limited towards equity contribution.

As on date of this report, all the aforementioned twenty five subsidiaries except IBIZ Consultancy Services India Private Limited were incorporated and based outside India. In addition to providing services to various international clients these subsidiaries also help to generate revenues for R Systems.

During the year, no other corporate restructuring activity was done by the Company.

The Board of Directors of the Company regularly reviews the affairs of these subsidiaries. Policy for determining material subsidiaries of the Company is available on the website of the Company at http://www.rsvstems.com/investors/corporategovernance.aspx .

A statement containing the salient features of the financial statement of our subsidiaries in the prescribed Form AOC-1 is attached at the end of consolidated financial statements of the Company. The statement also provides the details of performance, financial position of each of the subsidiaries.

Further, the audited annual accounts and related detailed information of our subsidiaries, where applicable, will be made available to shareholders seeking such information at any point of time. The annual accounts of the subsidiary companies will also be available for inspection by any shareholder at Registered Office of R Systems i.e. B-104 A, Greater Kailash-I, New Delhi-110048 and Corporate Office of R Systems i.e. C-40, Sector 59, Noida (U.P.)-201307 and Registered Offices of the subsidiary companies concerned during business hours. The same will also be hosted on R Systems website i.e. www.rsvstems.com .

14. Particulars of employees

The details required under Section 197(12) of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, are annexed as Annexure A and forms part of this report. Further, as required under the provisions of Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the name and other particulars of employees are set out in Annexure B and forms part of this report.

15. Directors responsibility statement

Pursuant to the requirement of Section 134 (3) (c) read with Section 134(5) of the Companies Act, 2013 with respect to directors responsibility statement, your directors hereby confirm that:

1) In the preparation of the annual accounts for the financial year ended December 31, 2017, the applicable accounting standards had been followed along with proper explanation relating to material departures;

2) t he directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year ended December 31, 2017 and of the profit and loss of the Company for that period;

3) the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;

4) t he directors had prepared the annual accounts for the financial year ended December 31,2017 on a going concern basis;

5) the directors, had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively;

6) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

16. Auditors

M/s. Deloitte Haskins & Sells LLP, Chartered Accountants, [Firms Registration No. 117366W/ W-100018], were appointed as the Statutory Auditors of your Company in the Annual General Meeting held on May 15, 2017 for a term of five years until the conclusion of the Twenty Eighth AGM of the Company to be held in the year 2022. As per the provisions of Section 139 of the Act, the appointment of the Statutory Auditors is required to be ratified by Members at every Annual General Meeting. Accordingly, the appointment of M/s. Deloitte Haskins & Sells LLP, Chartered Accountants, as Statutory Auditors of the Company, shall be placed for ratification by the Members in the ensuing Annual General Meeting.

Further, the auditors report being self-explanatory, does not call for any further comments by the Board of Directors as there are no qualifications, reservation or adverse remark or disclaimer made in the audit report for the financial year ended December 31, 2017.

17. Audit committee

R Systems has a qualified and independent Audit Committee. During the year under review there was no change in the composition of Audit Committee.

The constitution of the Committee is in compliance with the provisions of the Companies Act, 2013 and the Listing Regulations.

Detailed description of the Audit Committee has been given in Corporate Governance Report. The terms of reference and role

of the Committee are as per the guidelines set out in the Listing Regulations and Section 177 of the Companies Act, 2013 and Rules made thereunder and includes such other functions as may be assigned to it by the Board from time to time.

The Committee has adequate powers to play an effective role as required under the provisions of the Act and Listing Regulations. During the year under review, the Board of Directors of the Company had accepted all the recommendations of the Audit Committee.

18. Prevention and prohibition of sexual harassment of women at work place

At R Systems, it is our desire to promote a healthy and congenial working environment irrespective of gender, caste, creed or social class of the employees. We value every individual and are committed to protect the dignity and respect of every individual. The Company has always endeavored for providing a better and safe environment free of sexual harassment at all its work places. Consequent to the enactment of Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and Rules made thereunder, the Management of R Systems International Limited has constituted an Internal Complaints Committee (ICC) to deal with any complaints or issues that may arise, in the nature of sexual harassment of women employees. The Company has also prepared and implemented Policy for Prevention, Prohibition and Redressal of Sexual Harassment of Women at Workplace. During the year ended December 31, 2017, no cases of sexual harassment against women employees at any of its work place were reported to the ICC.

19. Corporate Governance

As required under Listing Regulations, the detailed report on corporate governance is given as Annexure C to this report and the certificate obtained from a Practicing Company Secretary regarding compliance of the conditions of corporate governance as stipulated in the said clause is annexed as Annexure D to this report.

20. Deposits

The Company has neither invited nor accepted any deposits from the public within the purview of the Companies Act, 2013 and the Rules made thereunder, no amount of principal or interest was outstanding on the date of the balance sheet.

21. Customer relations

R Systems recognises that the customers have a choice of service providers and the directors would like to place on record their gratitude on behalf of the Company for the business provided by them. The Companys quality policy mandates that the voice of the customer is obtained on a regular basis. We constantly review the feedback and incorporate its impact into our delivery systems and communications.

22. Stakeholders relations

R Systems is inspired by its customers and its employees transform that inspiration and customers needs into value for

all stakeholders. We thank all R Systems employees worldwide for their hard work, commitment, dedication and discipline that enables the Company to accomplish its customer commitments and commitments to all its stakeholders. R Systems conducts regular employee satisfaction surveys and open house meetings to get employee feedback. R Systems is constantly validating key employee data with industry and peer group business. These practices have helped the Company to achieve many of its business goals and have been recognised in many industry surveys over the last few years. The open door policy of our senior management team ensures that the feedback loop is completed promptly. We thank our shareholders for their continuous support and confidence in R Systems. We are aware of our responsibilities to our shareholders to provide full visibility of operations, corporate governance and creating superior shareholder value and we promise to fulfill the same.

23. Management Discussion and Analysis Report

In terms of the Listing Regulations Management Discussion and Analysis Report is given as Annexure E to this report.

24. Secretarial Audit Report

M/s Chandrasekaran Associates, Company Secretaries, has been appointed by the Board of Directors of the Company to carry out the Secretarial Audit under the provision of Section 204 of the Companies Act, 2013 for the financial year ended December 31, 2017. The Secretarial Audit report for financial year ended on December 31, 2017 is enclosed as Annexure F.

Further, the Secretarial auditors report being self-explanatory, does not call for any further comments by the Board of Directors as there are no qualifications, reservation or adverse remark or disclaimer made in the Secretarial Audit Report for the financial year ended December 31, 2017.

25. Vigil Mechanism / Whistle Blower Policy

in order to provide a mechanism to employees of the company to disclose any unethical and improper practices or any other alleged wrongful conduct in the Company and to prohibit managerial personnel from taking any adverse action against those employees, the Company has laid down a Vigil Mechanism also known as Whistle Blower Policy to deal with instance of fraud and mismanagement, if any. The details of the Vigil Mechanism or Whistle Blower Policy is explained in the Corporate Governance Report and also posted on the website of the Company.

26. Criteria for selection of candidates for Membership on the Board of Directors and the Remuneration Policy

As per the provisions of Section 178 of the Companies Act, 2013 and other relevant provisions and on the recommendation of Nomination & Remuneration Committee, the Board has framed a criteria for selection of Directors, KMP and Senior management personnel a policy for remuneration of directors, key managerial personnel and other employees. The said Criteria and the remuneration policy are stated in the Corporate Governance Report.

27. Meetings of the Board

The Board of the Company and its Committees meet at regular intervals to discuss, decide and supervise the various business policies, business strategy, Companys performance and other statutory matters. During the year under review, the Board has met eight times. The details of the meeting of the Board and its Committees are given in Corporate Governance Report. The intervening gap between two Board Meetings did not exceed 120 days.

28. Board Evaluation

Pursuant to the provisions of the Companies Act, 2013 and the Listing Regulations, the Board has carried out an annual performance evaluation of its own performance, its committees and the individual directors. The manner in which the evaluation has been carried out has been explained in the Corporate Governance Report.

29. Particulars of Loans, Guarantees or investments under Section 186 of the Companies Act, 2013

During the year ended December 31, 2017, the Company has invested SGD 350,000 (Singapore Dollar Three Lakhs Fifty Thousand only) in R Systems (Singapore) Pte Limited by way of acquisition of additional shares.

30. Related Party Disclosure

All the Related Party Transactions entered during the year were in the ordinary course of business and on arms length basis. There are no materially significant related party transactions made by the Company with Promoters, Directors, Key Managerial Personnel or other designated persons which may have a potential conflict of interest with the company at large. All the related party transactions are presented to the Audit Committee and the Board. Omnibus approval is obtained for the transactions which are unforeseen in nature. A statement of all related party transactions is presented before the Audit Committee on quarterly basis, specifying the terms & conditions of the transactions. The policy on Related Party Transactions as approved by the Board is uploaded on the companys website at the weblink as mentioned in the Corporate Governance Report. Details of particulars of contracts or arrangements with related parties referred to in subsection (1) of Section 188 of the Companies Act, 2013 in form AOC-2 has been enclosed herewith as Annexure G.

31. Risk Management

The Company is not required to form a Risk Management Committee. The Company has developed and implemented a risk management policy for identifying the risk associated with business of the Company and measures to be taken by including identification of elements of risk and measures to control them.

32. Corporate Social Responsibility

in compliance with the provisions of Section 135 of the Companies Act, 2013 read with the Companies (Corporate Social Responsibility Policy) Rules, 2014, the Company has constituted a Corporate Social Responsibility Committee (CSR Committee).

During the year under review, there was no change in the composition of CSR Committee.

The detailed terms of reference of the CSR Committee has been provided in the Corporate Governance Report. in pursuit

of the responsibilities entrusted to the CSR Committee, a policy on Corporate Social Responsibility has been prepared and adopted by the Board which is available at the website of the Company at following link: http://www.rsystems.com/ investors/corporategovernance.aspx. Annual Report on CSR activities of the Company in format prescribed in Companies (Corporate Social Responsibility Policy) Rules, 2014 is enclosed as Annexure H and forms part of this report.

33. Internal Control System and Internal Financial Controls

The Company has an Internal Control System, commensurate with the size, scale and complexity of its operations. The internal Auditors and the management monitors and evaluates the efficacy and adequacy of the internal control system in the Company, its compliance with operating systems, accounting procedures and policies at all locations of the Company. Audit observations of internal Auditors and corrective actions thereon are presented to the Audit Committee of the Board. To maintain its objectivity and independence, the internal Auditor reports to the Audit Committee.

The Board of your Company has laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and operating effectively.

M/s. Deloitte Haskins & Sells LLP, Chartered Accountants the statutory auditors of the Company, has audited the financial statements included in this annual report and have issued unmodified opinion on the adequacy and operating effectiveness of the Companys internal financial controls over financial reporting.

34. extract of Annual Return

The details forming part of the extract of the Annual Return in form MGT - 9 is enclosed as Anneuxre I to this Report.

35. Significant and Material orders Passed by the Regulators or Courts

There are no significant or material orders passed by the Regulators / Courts which would impact the going concern status of the Company and its operations in future.

36. Acknowledgments

Your directors once again take this opportunity to thank the employees, investors, clients, vendors, banks, business associates, regulatory authorities including stock exchanges, Software Technology Park of india, the Central Government, State Government of Delhi, Uttar Pradesh, Tamil Nadu for the business support, valuable assistance and co-operation continuously extended to R Systems. Your directors gratefully acknowledge the trust and confidence and look forward for their continued support in the future.

On behalf of the Board

For R Systems International Limited

Sd/- Sd/-
Satinder Singh Rekhi Lt. Gen. Baldev Singh (Retd.)
(DIN: 00006955) (DIN: 00006966)
(Managing Director) (President & Senior Executive Director)
Place : CA, U.S.A. Place : NOIDA (U.P.)
Date : April 18, 2018 Date : April 18, 2018

AnnexureAto the Directors Report

Disclosures pursuant to Section 197(12) of the Companies Act, 2013 and Rule 5(1) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014

A. The ratio of the remuneration of each director to the median remuneration of the employees of the Company for the financial year:

Name of the Director Category Ratio of the remuneration to the median remuneration of the employees
Mr. Satinder Singh Rekhi Executive Director 42.30
Lt. Gen. Baldev Singh (Retd.) Executive Director 8.29
Mr. Avirag Jain* Executive Director 8.61
Mrs. Ruchica Gupta Non-Executive independent Director N.A.
Mr. Kapil Dhameja Non-Executive independent Director N.A.
Mr. Aditya Wadhwa Non-Executive independent Director N.A.

* Mr. Avirag Jain was appointed as Additional Director and subject to shareholders approval, Whole-time Director (Designated as Director & Chief Technology Officer) w.e.f. August 03, 2017.

Note: All the Non-Executive independent Directors are paid only sitting fees for attending the meetings of Board of Directors or Committees thereof.

B. The percentage increase in remuneration of each Director, Chief Financial officer, Chief Executive officer, Company Secretary or Manager, if any, in the financial year :

Sr. No. Name of the Director/CFo/ CS/Manager Category % increase in remuneration in the financial year
1. Mr. Satinder Singh Rekhi Executive Director (8.61)
2. Lt. Gen. Baldev Singh (Retd.) Executive Director (0.21)
3. Mr. Avirag Jain* Executive Director N.A.
4. Mrs. Ruchica Gupta Non-Executive independent Director N.A.
5. Mr. Kapil Dhameja Non-Executive independent Director N.A.
6. Mr. Aditya Wadhwa Non-Executive independent Director N.A.
7. Mr. Nand Sardana Chief Financial Officer 29.22
8. Mr. Ashish Thakur Company Secretary & Compliance Officer 30.86

* Mr. Avirag Jain was appointed as Additional Director and subject to shareholders approval, Whole-time Director (Designated as Director & Chief Technology Officer) w.e.f. August 03, 2017.

C. Percentage increase in the median remuneration of employees in the financial year:

The percentage increase in the median remuneration of the employees in the financial year was 6.67%.

D. Number of permanent employees on the rolls of company:

Number of permanent employees on the rolls of R Systems International Limited as at December 31, 2017 was 1,658.

E. Average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration:

Average increase in remuneration for employees is 8%-10% (approx.). The average increase in overall managerial remuneration is (0.76%).

F. Affirmation that the remuneration is as per the remuneration policy of the company:

The Company affirms that the remuneration is as per the remuneration policy of the Company.

On behalf of the Board

For R Systems International Limited

Sd/- Sd/-
Satinder Singh Rekhi Lt. Gen. Baldev Singh (Retd.)
(DIN: 00006955) (DIN: 00006966)
(Managing Director) (President & Senior Executive Director)
Place : CA, U.S.A. Place : NOIDA (U.P.)
Date : April 18, 2018 Date : April 18, 2018