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Dear Fellow Shareholders,
Over the past two years, your company along with the global economy has experienced some challenging times. The decline in business from key customers in the BFSI (Banking, Financial Services and Insurance) sector and volume losses in the BPO segment accounted for most of the volume decline at R Systems. This is consistent within our peer groups who have experienced a similar decline in the BFSI sector. To meet those challenges, your company has implemented initiatives to better respond to the increasingly competitive marketplace. In 2010, we consolidated and restructured the business and we are focused in areas where we have built expertise and have a strong proven track record. The key areas of focus are, BFSI, Telecom and Digital Media, Government, Healthcare and Security Software. We expect growth in these vertical segments through Research and Development and innovative efforts. Pursuing this strategy of building deeper domain expertise in the Telecom sector, we acquired Computer is International in Europe.
As mentioned earlier, your company made a strategic acquisition in Europe of Computaris International Limited, post December 31, 2010. The acquisition ties right in with our strategy to focus on the Telecom industry which has now become our foremost industry vertical. Computaris, with its strong European presence will provide us further penetration for IT services with both offshore and near shore capabilities. R Systems presence in India, APAC and US should also provide our new acquisition a launch into these markets.
The acquisition of Computaris together with our existing portfolio of Telecom customers, who are both technology providers, as well as, Service providers, should position us well for strong growth. The Telecom industry is expected to deliver over 35% of our revenues in the coming year. With the rebound of the BFSI sector, we have already successfully won contracts with global companies. This, together with other global customers in the stable will enable the business to recover some lost ground. We continue to look at Government, Security Software and Healthcare segments.
How have we performed?
Your company posted consolidated revenues of Rs. 290.5 crores for the year 2010. The decline from Rs. 327.5 crores in 2009 is primarily due to the loss of three key customers in 2009 in the BPO segment along with a significant decline in spending by our key BFSI customers following the financial meltdown. The INR parity against the USD, Euro and SGD contributed to a 4.87% decline in Revenue over 2009 or nearly Rs. 16 crores.
We have steadily grown our cash balances which stood at Rs. 95 crores or almost Rs. 78 per share as of the end of 2010.
During the year, your company has added over 20 key customers, of these, atleast two of the relationships will have a run rate exceeding USD 1 million per annum, with one being in the Telecom industry and the other, a Key Europe based global Auto Finance company.
The 2010 EBITDA of Rs. 22 crores is lower than 2009 which was 40 crores. This is due to a decline in volumes, as well as,a stronger Rupee against the major trading currencies of USD and Euro.
Your company posted a Net profit after tax of Rs. 16.77 crores, an EPS of Rs. 13.62 for the year 2010. The Board is happy to recommend a dividend of Rs. 2.40 per share.
Performance of our Business lines:
ISV or Independent Software Vendors:
This is your company's largest group. The industry segments serviced by your company include, Banking and Finance, Telecom & Digital Media, Niche ERP products, IT products and Government. The engagements are usually multi–year and include both fixed teams and fixed bid projects. We continue to be the engine room for application development for our customers. This group provides 55% of your company's revenues. As stated earlier, we are aligning our business along business domains to assume full responsibility for the product life cycle, rather than commodity technology service providers. Accordingly, we have restructured our delivery team along those business domains.
The product group consists of a suite of Lending Solutions for retail loans for banks and financial institutions. Your company also sells its own Supply Chain Management Solutions to the Hi–tech manufacturing Industry. We also undertake implementation of third party software products including, ERP solutions, Niche ERP products, and Inventory and Warehouse Management solutions. This product group delivers 25% of your company's revenues.
Your company has four centers to deliver BPO or ITES services out of India, Netherlands, France and the US. The company supports a wide range of processes, primary amongst these being, Revenue Cycle Management for Healthcare, end–user customer support for IT and Hi–tech Electronic goods, Hi–end quality Management processes, Sales and Collections. This Group Contributes 20% of your company's revenues.
Looking at our Key Markets:
The company's key markets for the ISV sector are Europe and the US. The key markets for our BPO/ITES group too are the US and Europe. The US Market contributed 59% of our Revenues while Europe contributed 20%. For the product group, the key markets are APAC, Europe, India and EMEA in addition to Europe. The markets excluding US and Europe contributed 21% of our revenues.
A key stake holder in the company is our team of knowledgeable workers. They provide the value that all of our customers see in us. Due to the decline in revenue, we have also re–sized. Our team has been re–skilled by constant training and lateral hires. Our key customer list consisting of a number global companies, are also serviced by our competitors. The experience gained by our employees enables them to compete with the "best in class" with respect to their job skills. We continuously benchmark our employee compensation with the industry.
Third, we are hiring senior talent with Domain and Technology knowledge to provide customers with significant value added services.
Fourth, weare restructuring our approach to market along domain and geographical lines. This will provide us opportunities to be near the customer in order to increase customer engagement, while achieving cost savings in the SG&A.
We would like to see 2011 as the turnaround year for the company as a result of the changes we have implemented in response to the changing business environment.
I would like to thank all of our stakeholders alike; shareholders who have kept faith in our story, customers who place their trust in the services we provide, our employees who's intellect and hard work has helped us tide through a difficult economic environment, and, our business associates who have supported us in accomplishing where we are today.
To deal with the situation of a two year decline in Revenue, the company has taken the following steps:
First, as mentioned before, restructuring our business along domain Yours truly lines, innovating and creating deeper value products and services.
Second, we have acquired a strong business domain in the Telecom industry with theacquisition of Computaris. The increased domain focus along with Telecom is an exciting avenue of growth.
Satinder Singh Rekhi
(Chairman and Managing Director)