Teledata Technology Solutions Ltd Directors Report

TELEDATA TECHNOLOGY SOLUTIONS LIMITED ANNUAL REPORT 2010-2011 DIRECTORS REPORT To The Members Your directors have pleasure in presenting the fifth Annual Report of the company along with the audited statement of accounts for the year ended March 31, 2011. The Report also includes the Management Discussion and Analysis Report in accordance with the Guidelines on Corporate Governance. The financial year 2010-11 saw the company consolidate the gains it had made in the previous years in the areas of expanded offshore services and global delivery capabilities from India, while performing creditably in the overseas market, particularly in the US and Dubai operations, in spite of increased global competition in all its markets. (Rs. In lakhs) Particulars Year ended Year ended 31st March 2011 31st March 2010 Income from operations 21,054.52 23,113.89 Other income 212.75 347.90 Total Revenue 21,267.27 23,461.79 Total expenditure before Interest & Depreciation (20,912.64) (21,322.37) Operating profit/Loss PBIDT 354.63 2,139.42 Interest (288.37) (357.51) Depreciation/Amortization (87.69) (134.42) Profit before Tax (21.43) 1,647.49 Provision for tax (302.19) (21.71) Profit after Tax (PAT) (323.62) 1,625.78 Less: Income tax for earlier years Add: Expenditure transfer to CWIP Surplus brought forward 4928.90 3,013.09 Profit/(Loss) available for appropriation before effect of changes in subsidiaries 4,605.28 4,638.87 Add : Prior Period Item (0.23) 65.33 Profit/(loss) available for appropriation 4,605.05 4,704.20 Minority Interest (18.16) 14.70 Cost of Control Dividend on Equity shares of subsidiary 0.00 0.00 Amount Transferred from General Reserve 310.00 210.00 Balance carried to Balance sheet 4,896.89 4,928.90 LISTING OF SHARES Your Companys shares have been listed in Bombay Stock Exchange Ltd and National Stock Exchange of India Ltd with effect from 15th July, 2009. As the changes that the company had instituted in its organization and working were directed at providing a solid foundation forfuture growth, it would take some time for the efforts of the company to manifest in the share market. As a result of this, the shares of the company have been subdued during the course of the year. Lines of Business TTS provides world class services in the areas of IT Consulting, Enterprise Resource Planning (ERP), Customer Relationship Management (CRM), Data Warehousing and related technologies. GDR Proceeds: TTS successfully completed its Global Depository Receipts issue over a year ago. Thus far, the primary utilization of funds has been to: a) Provide working capital support for our businesses, and b) Provide funding to make the final payments for the acquisition of Abaris Inc We are pleased to inform the shareholders that the acquisition payments for Abaris Inc. were completed by November 2010. All obligations towards the acquisition of Abaris have been fulfilled. The remainder of the GDR funds is still safely in the banks. Corporate Governance The requirements for disclosure of corporate governance practices as prescribed under clause 49 of the listing agreement is annexed herewith. Dividend Your directors have not recommended any dividend forthe financial year ended 31st March, 2011 Directors During the year, there was no change in the constitution of the Board. Mr. G. Jagadish retires by rotation and being eligible offers himself for re- appointment. Fixed Deposits Your Company has not accepted fixed deposits and as such, no amount of principal or interest was outstanding as at the Balance Sheet date. Particulars of Employees None of the employees of the company are falling under the information to be furnished as per section 217 (2A) of the Companies Act 1956. Auditors M/S S. Ramachandran & Co., (Regn.No.06775S) Chartered Accountants retire at the ensuing Annual General Meeting. They are eligible for re-appointment and have confirmed their eligibility and willingness to accept Office as Statutory Auditors if reappointed. Directors Responsibility Statement In accordance with the provisions of Section 217(2AA) of the Companies Act, 1956, your directors confirm: that in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures, that the 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 and of the profit of the Company for that period, that the directors had taken proper and sufficient care for the maintenance of adequate accounting records, in accordance with the provisions of this Act, for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities, and that the directors had prepared the annual accounts on a going concern basis. Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo The particulars prescribed under Section 217(1) (e) of the Companies Act, 1956 read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 are set out separately, which forms a part of this report. Subsidiaries The financial statements of the subsidiaries of your Company are drawn up in accordance with the applicable Accounting standards and forms part of the Consolidated Financial statements in the Annual Report. Your Company believes that the consolidated accounts present a full and fair view of state of affairs and financial conditions. The financial statements relating to the subsidiary companies are not appended to this report. As per Section 212 of the Companies Act, 1956, we are required to attach the Directors Report, Balance Sheet, and Profit and Loss Account of our subsidiaries. The Ministry of Corporate Affairs, Government of India vide its circular no. 2/2011 dated February 8, 2011 has provided an exemption to companies from complying with section 212, provided such companies publish the audited consolidated financial statements in the Annual Report. Accordingly, the Annual Report 2010-11 does not contain the financial statements of our subsidiaries. The audited annual accounts and related information of our subsidiaries, where applicable, will be made available upon request. These documents will also be available for inspection during the business hours at our registered office in Chennai, India. Acknowledgements Your directors extend their gratitude to customers, alliance partners and employees for their continued valuable support. The unrelenting contribution made by our employees to ensure customer care deserves a special acknowledgement. Your directors place on record their appreciation for the excellent, continued co-operation from bankers, vendors and various government and non-government agencies including SEBI, Stock Exchanges, Registrar of Companies, STPI, RBI and others and look forward to their continued support in the future. For and on behalf of the Board of Directors Gp. Capt. K. Balasubramanian, IAF (Retd.) N. Sakthivel Chairman Director Place : Chennai Date : 05-09-2011. ANNEXURE TO DIRECTORS REPORT A) Conservation of Energy: The operations of your Company are not energy intensive. The Company has, however, taken adequate measures to conserve energy consumption by using efficient computer terminals and building management systems. The impact of these efforts has enhanced energy efficiency. As energy cost forms a very small part of total expenses, the financial impact of these measures is not material and not measured. B) Technology Absorption, Adaptation and Innovation: The Companys business demands constant absorption of and adaptation to changing technologies to stay competitive in a rapidly changing world. i) Efforts made towards technology absorption, adaptation and innovation The Company continues to use the latest technologies for improving productivity and continues to keep its thrust in modern technology applications The connectivity between offices is being enhanced to increase efficiency of the systems. ii) Benefits derived as a result of the above efforts The technology infrastructure has remained state-of-the-art and the Company is able to provide highly productive work environment to its employees. This has resulted in world-class product development and product improvement. C) Foreign Exchange Earnings and Outgo: Your Company is making continuous efforts to explore new foreign markets and increase its share in the market for export of software and software consulting services. The details of foreign exchange earned and the outgo is as under: (Rs. in Lakhs) Particulars 31st Marcn 2011 31st March 2010 Foreign exchange earnings 95.64 126.97 Foreign exchange outgo 38.56 - Earnings in Foreign currency on receipt basis 134.05 23.10 Expenditure in Foreign currency 158.85 11.60 For and on behalf of the Board of Directors Gp. Capt. K. Balasubramanian, IAF(Retd) N. Sakthivel Chairman Director Place : Chennai Date : 05-09-2011. Addendum to Directors Report Directors comments on Auditors Qualifications on Standalone Financials: a) Note No. 2(b) of schedule P regarding compliance of filing necessary forms with Registrar of Companies for increase in authorized capital during the year 2009-10 DC: In respect of Auditors Observation regarding failure in filing of necessary forms with ROC for increase in Authorised Share Capital it may be noted that the company despite its best efforts, due to working capital crunch was not able to comply in filing the returns. The same is under process & the Company will file the return soon as per the statutory requirement. b) Note No. 18 in Schedule P regarding pending allotment of Shares of Rs. 6334.98 Lakhs shown under SAMPA in subsidiaries for over three years DC: The Company is taking necessary steps for the allotment of shares in subsidiary companies which is pending as SAMPA-Bitech. Directors comments on the qualifications made by Auditors in their report on Consolidated Financial Statements of the Company: a) Note No. 16(iii) of Schedule Q regarding the Net worth of the Investment made in Soltius Holding Ltd., by Bitech International LLC, Dubai as the financials of the company are not made available and the company also stopped operations. DC : The Company is taking necessary steps to estimate the worth of the investments in Soltius Holdings Ltd., made by Bitech International LLC, Dubai. Further steps will be taken once this is known. For and on behalf of the Board of Directors Gp. Capt. K. Balasubramanian, IAF (Retd.) N. Sakthivel Chairman Director Place : Chennai Date : 05-09-2011. MANAGEMENT DISCUSSION AND ANALYSIS General The global economic downturn of the past year had a lingering effect on the GDP growth and employment in developed markets. As a result of an altered demand landscape, the IT and ITES sector had begun to transform itself by actively diversifying beyond core offerings and markets through new business and pricing models, specialize to provide end-to-end service offerings with deeper penetration across verticals, transform process delivery through re-engineering and enabling technology, innovate through research and development and drive inclusive growth in India by developing targeted solutions for the domestic Indian market. Worldwide technology products and services related spend is estimated to reach USD 1.6 trillion in 2010, a growth of 4 per cent over 2010, with emerging verticals and emerging geographies, in addition to US, driving growth. Worldwide hardware spends increased by 6.4 per cent on the back of a global refresh cycle. IT services spend increasing by 1.4 per cent in 2010, within which IToutsourcing grew by 2.4 percent. Your company experienced a decline of nine percent in the revenues during the year, even though there was considerable success in cementing ongoing business relationships. Delay in the finalization of new contracts with prospective customers put some of the companys efforts on the back foot. While the global market did rebound to an extent during the year, your company had undertaken a process of realigning itself as a global solutions provider, a process which would only play out over time and would bear results in the longer term. The efforts during the year however had succeeded in reducing the fall in revenues year overyear. Key Aspects of Performance Your company has made substantial investments in the Energy and Utilities space for the provision of data and transaction management and business (customer) intelligence solutions for the emerging Smart Grid and Smart Metering Market in the US, in line with strategy adopted in the last financial year, It has a beta version of its proprietary product running with a regional utility company. The success of this effort would enable the company to also pursue and develop a non-linear growth strategy, as against a purely employee driven revenue generation model. The company has completed the acquisition process for Abaris Inc., the Oracle spearhead in the organization and has taken steps to sync the available Oracle expertise with the provision of consultants from other global locations for a seamless oracle implementation and growth experience for its customers. The success of your companys Customer Relationship Management (CRM) initiative is best exemplified by the ongoing Amdocs-CRM effort which portents well for further expansion in the telecommunication space, particularly in the Indian environment. Personnel Your company has consistently believed in nurturing and caring for its workforce through good times and bad and believes that its employees are the key to its success. The focus on hiring only the very best has greatly enabled the setup of a better and newer delivery management system in line with the companys philosophy of customer-centric operations. Pursuing the growth strategy conceptualized in the past and implemented in the current year, the company has embarked on the addition of top level resources in order to oversee the transformation of your company from a purely technology solutions provider to a total business solutions partner. Future Outlook According to NASSCOM Strategic Review Report, 2011, the underlying theme of 2010 has been the steady recovery from recession. Worldwide GDP, which had declined by 0.6 per cent in 2009, grew 5 per cent in 2010 and is expected to stabilize at about 4.4 percent in 2011. Developing nations continue to grow faster than the developed countries by at least three times. IT spend is directly linked to growth in GDP and in line with this trend, IT spend in 2011 is expected to grow nearly 4 per cent. Worldwide IT spending will also benefit from the accelerated recovery in emerging markets, which will generate more than half of all new IT spending worldwide in 2011. In 2011, growth will reflect new demand for IT goods and services, not pent-up demand from prior years. 2011 will also see a major surge in the use of private and public cloud and mobile computing on a variety of devices and through a range of new apps. IT services is expected to grow by about 3.5 percent in 2011 and 4.5 percent in 2012. While focus on cost control and efficiency/productivity remain, customers are also evaluating how investments in IT impact can further business goals -ROI led transformation - leading to an increase in project-based spending. Services such as virtualisation, consolidation, and managed services that focus on ROI in the short term will drive opportunities in the market. Emerging Asian enterprises across multiple industries will continue to accelerate services spending in their efforts to challenge existing global MNCs. Organizations will look for alternative IT models-Cloud, on-demand services and SaaS-in order to reduce hardware infrastructure costs and provide scalability on demand. Worldwide packaged software revenue is estimated to reach USD 297 billion in 2011, a Y-o-Y growth of over 5 percent, led by emerging regions, such as APAC and LATAM. These regions are expected to invest heavily in enterprise software initiatives as they continue to round out the IT infrastructure necessary to do business. TTS, with its diverse skill sets, is uniquely positioned to take advantage of the growing market and with an increasing focus on organic growth, has embarked on a consolidation and growth phase. Review of Financial Performance: The financial performance of the company on a consolidated basis including the turnover of subsidiaries, have been taken for the purpose of analysis. I. Analysis of Profit and Loss Account: Turnover & Other Income The company has reported a turnover of Rs.21,054.52 lakhs for the year ended 31st March, 2011 compared to Rs.23,113.89 lakhs for the previous year ended 31st March, 2010, thereby showing a fall of 8.91% compared to the previous year. The fall in the total revenue was mainly on account of economic slowdown and decrease in Enterprise Resource Planning (ERP) & Customer Relations Management (CRM) segments especially in the developed countries. Expenditure 1. Purchase of Software/Outsourcing The Purchase of Software/Outsourcing expenses for the period stood at Rs. 13,325.79 lakhs compared to Rs. 13,563.12 lakhs in the previous year. This includes the expenses incurred by overseas subsidiaries for outsourcing services. The decrease is mainly due to cost cutting measures adopted by management. 2. Administrative Expenses The Administrative expenses for the period stood at Rs.7,539.59 lakhs compared to Rs.7,718.73 lakhs in the previous year, thereby registering a decline of about 2.32 %. This is because of decrease in personnel cost and rent expenses. a. Personnel Cost The personnel cost of the period stood at Rs.4,035.85 lakhs, compared to Rs.4,894.44 lakhs in the previous year, thereby recording a decline of about 18% which is mainly due to decrease in headcount. b. Travelling and Conveyance The traveling expenses during the period stood at Rs.257.91 lakhs, compared to Rs.245.00 lakhs in the previous period. c. Miscellaneous Expenses Miscellaneous expenses for the period stood at Rs.69.66 lakhs as against Rs.51.20 lakhs in the previous year. d. Foreign Exchange Fluctuation Loss The loss on account of exchange fluctuation during the period stood at Rs.221.29 lakhs. This is due to the rupee depreciation against dollar. e. Service Charges There was payment of Rs.608.75 lakhs for service charges for the period as against Rs.926.46 lakhs in the previous year. The increase is due to decrease in US outside service. f. Others The following major expenses have been incurred during the year against in the previous years. 1. Amounts written off During the year, the Company has written off Rs.465.50 lakhs towards bad & doubtful debts and advances, which includes advances unrecoverable to the tune of Rs.252.98 from Soltius. 2. Interest & other Finance charges The outgo on account of interest expenses for the period stood at Rs.288.37 lakhs as against Rs.357.51 lakhs in the previous year. 3. Selling & Distribution Expenses Selling and Distribution expenses for the period stood at Rs.47.26 lakhs as against Rs.40.52 lakhs during the previous year. The increase is mainly on account of increase in advertisement and business promotion expenses. 4. Depreciation The depreciation for the year stood Rs.87.69 lakhs as against Rs. 134.42 lakhs. 5. Profit before tax Profit before tax (PBT) for the period stood at Rs.(21.43) lakhs as against Rs. 1,647.49 lakhs during the previous period. 6. Provision for tax Provision for tax during the year is Rs.302.19 lakhs. 7. Profit after Tax The profit after tax for the year stood at Rs.(323.62) lakhs as against Rs.1,625.78 lakhs before providing for the minority interest. The decrease in profit is mainly due to reduction in sales. II. Analysis of Balance Sheet: 1.Share Capital The Paid-up Share Capital of the Company stood at Rs.9,991.70. There was no change over the previous year. 2. Reserves & Surplus The Reserves and Surplus of the Company stood at Rs. 17,098.62. 3. Secured Loans The overall Secured Loans for the period stood at Rs.2,931.74 lakhs as compared to Rs.3,444.92 lakhs in the previous years. 4. Unsecured Loans The outstanding unsecured loans at the end of the current year were at Rs.55.09 lakhs. 5. Minority Interest Minority Interest in subsidiaries represents the proportionate share of the minority shareholders in the net assets and net income of the subsidiaries and the same stands at Rs.(53.16) lakhs for the year as against Rs.(71.33) lakhs in the previous year. 6. Goodwill Goodwill is at Rs.5,132.90 lakhs during the current year as against Rs.5,032.30 lakhs in the previous year. The increase in carrying value of the goodwill is due to additional earn out payments & reimbursement of legal fees paid during 2010 to the sellers of M5 Global Inc., subsidiary of Teledata Technology Solutions Inc., 7. Fixed Assets The Net Blockduring the year stood at Rs.207.60 lakhs as compared to Rs. 197.46 lakhs in the previous year. The increase is mainly due to additions to fixed assets. 8. Investment The Investments atents the end of the year stood at Rs.3,673.61 lakhs as compared to Rs.3,673.53 lakhs in the previous year. 9. Sundry Debtors Sundry debtors stood at Rs.11,831.17 lakhs for the period ended 31st March 2011 as against Rs. 15,981.46 lakhs in the previous year. The debtors level has come down due to revised credit terms. The company has taken steps to collect the receivables and hopes to improve the debtors realization in the coming years. 10. Cash and Bank Balances The Cash and Bank Balances at the end of the year stood at Rs. 15,060.63 lakhs as against Rs. 17,337.58 lakhs in the previous year. 11. Loans and Advances Loans and Advances during the yearstood at Rs.3,477.43 lakhs as against Rs.3,396.24 lakhs in the previous year. 12. Current Liabilities and Provisions a. Sundry Creditors The outstanding sundry creditors as at 31/03/2011 stood at Rs.3,036.28 lakhs as against Rs.8,014.92 lakhs in the previous year. b. Provisions The provisions for the yearstood at Rs.282.32 lakhs compared to Rs.58.22 lakhs in the previous year.