R Systems International Ltd.
|BSE: 532735||Sector: IT|
|NSE: RSYSTEMS||ISIN Code: INE411H01032|
|BSE LIVE 15:40 | 17 Nov||41.65||
|NSE 15:56 | 17 Nov||42.25||
|Mkt Cap.(Rs cr)||516|
|Mkt Cap.(Rs cr)||516.46|
R Systems International Ltd. (RSYSTEMS) - Director Report
Company director report
Your directors take great pleasure in presenting the Twenty Second Annual Report on thebusiness and operations of R Systems International Limited ("R Systems" or the"Company") together with the audited statements of accounts for the year endedDecember 31 2015.
1. Financial Results
a. Standalone financial results of RSystems
(Rs. in Millions)
* refer Note No. 34 of the Standalone financial statements.
** refer Note No. 22 of the Standalone financial statements.
$ refer Note No. 4 of the Standalone financial statements.
& The Company has written back proposed dividend for the year ended December 312014 and tax thereon towards shares bought back under the buy back offer.
b. Consolidated financial results of R Systems and its subsidiaries
(Rs. in Millions)
* refer Note No. 33 of the Consolidated financial statements.
** refer Note No. 23 of the Consolidated financial statements.
$ refer Note No. 4 of the Consolidated financial statements.
& The Company has written back proposed dividend for the year ended December 312014 and tax thereon towards shares bought back under the buy back offer.
Note: Previous Year figures have been regrouped / reclassified wherever necessary.
2. Results of Operations Standalone Accounts
Total income during the year 2015 decreased to Rs. 2988.83 mn. as against Rs.3045.65 mn. during the year 2014 a decline of 1.87%.
Profit after tax including exceptional items was Rs. 906.44 mn. during the year2015 as compared to Rs. 750.29 mn. during 2014 an increase of 20.81%.
Basic earnings per share (of face value of Re. 1/- each) was Rs. 7.14 for theyear 2015 as compared to Rs. 5.90 for the year 2014 an increase of 21.02%.
Consolidated Total income during the year 2015 decreased to Rs.6148.45 mn. as against Rs. 6575.68 mn. during the year 2014 a decline of 6.50%.
Profit after tax including exceptional items was Rs. 978.30 mn. during the year2015 as compared to Rs. 781.34 mn. during 2014 an increase of 25.21%.
Basic earnings per share (of face value of Re. 1/- each) were Rs. 7.70 for theyear 2015 as compared to Rs. 6.14 for the year 2014 an increase of 25.41%.
3. Appropriations and Reserves Dividend
During the year 2015 the Board declared three interim dividends namely first interimdividend of Re. 0.40 per equity share of Re. 1/- each at its meeting held on April 232015 second interim (special) dividend of Rs. 3.30 per equity share of Re. 1/- each atits meeting held on August 05 2015 and third interim dividend of Re. 0.25 per equityshare of Re. 1/- each at its meeting held on October 29 2015. Total interim dividendsalready paid for the year 2015 aggregates to Rs. 3.95 per equity share of Re. 1/- eachi.e. 395% as compared to Total dividend including interim dividend paid for the year 2014at Rs. 5.85 per equity share of Re. 1/- each i.e. 585%. The Board of Directors (the"Board") has not recommend any final dividend for the financial year endedDecember 31 2015.
The register of members and share transfer books shall remain closed from June 09 2016to June 13 2016 both days inclusive.
Transfer to Reserves
It is proposed not to transfer any amount to general reserve in respect to dividenddeclared during the year ended December 312015 in pursuance of the provisions of Section123 of the Companies Act 2013 and Rules made thereunder.
R Systems is a leading provider of outsourced product development services businessprocess outsource services and also offers own product suite in BFSI Manufacturing &Logistic verticals. R Systems diversified offering includes:
R Systems defines its outsourced product development business as Integrated ProductLife Cycle Management (iPLM) services where R Systems helps ISV and other companies toaccelerate the speed to market for their products and services with a high degree of timeand cost predictability by using our proprietary pSuite framework and global deliverymodel.
Under iPLM Services R Systems delivers solutions and services in the area ofInformation Technology and Information Technology enabled services (ITES). The IT servicescover application development systems integration and support and maintenance ofapplications. Under the ITES we cover technical support and customer care for IT andHi-Tech electronic manufacturers high-end quality process management and revenue andclaims management using our global delivery model.
R Systems competitive advantage in iPLM Services is further enhanced by its industryspecific domain expertise global delivery capabilities multi-language supportcapabilities industry best quality and security certification and agile developmentmethodologies supported by R Systems' proprietary pSuite framework.
ECnet Supply Chain products provide solutions for holistic management of thecomplex interaction between an organisation and its trading partners. The integratedsolution aims to reduce all supply chain costs through improved collaboration andoptimisation. The solutions are robust and scalable and give measurable ROI to clientsthat meets the clients' strategic business goals.
Further ECnet also operates as a Gold Channel Partner for one of the largest businesssoftware companies in the world to resell implement and support enterprise solutions ofERP WMS Service Management BI and Performance Management. It mainly serves small tomedium-sized businesses in the manufacturing and distribution industries. These productspresent an opportunity to cross and up sell these solutions since these are adjunct toECnet's own product offerings.
R Systems' recent acquisition IBIZ is a Microsoft Gold Channel Partner and isspecialized in deploying Microsoft business management solution suites includingenterprise resource planning customer relationship management point of sales mobilitybusiness intelligence and portals.
R Systems focused on key verticals i.e. Telecom & Digital Media Banking andFinance Health Care Manufacturing & Logistics and Government Services. Telecom andDigital Media is the largest industry vertical which contributes 30 percent of the Total Consolidated revenue for the year ended December 312015.
Further with the deep expertise in the key vertical like Telecom & Digital MediaBFSI and Healthcare we have horizontally embraced analytics solutions across theseverticals to bring operational efficiency and also create a vital information poolreflecting on the economical statistical social media speech metrics of the customers.
R Systems rapidly growing customer list includes a variety of Fortune 1000 governmentand mid-sized organisations across a wide range of industry verticals and has servedtwenty one million dollor plus customer during the year 2015.
Customers and Delivery Centres
R Systems rapidly growing customer list includes a variety of Fortune 1000 governmentand mid-sized organizations across a wide range of industry verticals including Bankingand Finance Independent Software Vendors Telecom and Digital Media GovernmentHealthcare Manufacturing and Logistic Industries. R Systems maintains fourteendevelopment and service centres and using our global delivery model we serve customers inthe USA Europe and the Far East.
There were no changes in the nature of the Company's business and generally in theclasses of business in which the Company has an interest and in the business carried on bythe subsidiaries during the year under review. For details of Company's subsidiariesplease refer note number 14 relating to subsidiaries.
R Systems has continuously invested in processes people training informationsystems quality standards frameworks tools and methodologies to mitigate the risksassociated with execution of projects. Adoption of quality models and practices such asthe Capability Maturity Model Integrated (CMMi) and Six Sigma practices for processes haveensured that risks are identified and mitigated at various levels in the planning andexecution process. R Systems journey for various quality certifications / standards forthe development and service centres in India is provided below:
During the year 2015 all ISMS artifacts of the Company have been migrated from ISO27001:2005 to new ISO 27001:2013 standard and Noida Unit has been certified for this newInformation Security Standard. Further Noida unit has been reappraised for PCMM Level 5(Ver.2.0). In the year 2015 Noida BPO Center has been certified as PCI-DSS (ver. 3.1)compliant for the call Analytic Services provided to one of the major client.
As of the date of this report Noida IT centre is CMMi level 5 PCMM Level 5 ISO 9001: 2008 and ISO 27001 : 2013 certified; Noida BPO centre is PCI-DSS (ver.3.1) PCMM Level5 ISO 9001 : 2008 ISO 27001 : 2013 and PCI-DSS (ver.3.1) certified. The continuingcompliance with these standards demonstrates the rigor of R Systems processes anddifferentiates us to keep our competitive edge in service and product offerings.
To maintain and strengthen competitive strengths R Systems continues to makeinvestments in its unique and proprietary pSiifte with best practices tools andmethodologies for flawless execution and consistent delivery of high quality software. ThepSuite framework offers services along the entire software lifecycle that includestechnology consulting architecture design and development professional servicestesting maintenance customer care and technical support. R Systems expects that itstechnology focus investment in processes talent and methodologies will enable it todistinguish itself from competition as it seeks to provide services to technology /product companies.
During the year under review the following changes took place in the office ofdirectors of the Company.
Mr. Raj Kumar Gogia Mr. Gurbax Singh Bhasin Mr. Suresh Paruthi and Mr. Amardeep SinghRanghar Non-Executive Independent Directors of the Company were appointed as IndependentDirector of the Company not liable to retire by rotation as per the provisions ofSection 149 of the Companies Act 2013 at twenty first Annual General Meeting for periodcommencing from March 29 2015 till the ensuing Annual General Meeting.
Mrs. Ruchica Gupta who was appointed as an additional director at the meeting of theBoard of Directors held on July 07 2014 was regularized at twenty first Annual GeneralMeeting of the Company held on June 09 2015.
Lt. Gen. Baldev Singh (Retd.) was re-appointed as President & Senior ExecutiveDirector for a period of three years commencing from April 01 2015 to April 01 2018 attwenty first Annual General Meeting held on June 09 2015.
Mr. Raj Swaminathan Director & Chief Operating Officer of the Company ceased to bedirector of the Company consequent upon his resignation w.e.f. June 27 2015.
Details of the Director proposed to be appointed and re-appointed at the ensuing AnnualGeneral 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 accordancewith the provisions of Section 152 of the Companies Act 2013 read with the Articles ofAssociation of the Company and being eligible offer himself for reappointment as directorof the Company.
Further on the recommendation of the Nomination & Remuneration Committee of theCompany Mr. Raj Kumar Gogia Mr. Suresh Paruthi Mr. Gurbax Singh Bhasin and Mr. AmardeepSingh Ranghar Non- Executive Independent
Directors of the Company are proposed to be re-appointed as Independent Directorpursuant to the provision of Section 149 of the Companies Act 2013 and rules madethereunder at the ensuing Annual General Meeting for the second term of five yearscommencing from the conclusion of twenty second Annual General Meeting.
As required under Section 149 of the Companies Act 2013 and Securities and ExchangeBoard of India (Listing Obligations and Disclosure Requirements) Regulations 2015(Hereinafter referred as "Listing Regulations") all the Independent Directorsof the Company have given the declarations that they meet the criteria of independence aslaid down therein. The brief profile of the aforesaid Independent Directors forms part ofthe Corporate Governance Report.
None of the directors of the Company is disqualified as per the provisions of Section164(2) of the Companies Act 2013. The directors of R Systems have made necessarydisclosures as required under various provisions of the Companies Act 2013 and ListingRegulations.
7. Employees Stock Option Plans / Schemes
The industry in which R Systems operates is people intensive and R Systems believesthat 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 compensationpackages for their dedication hard work loyalty and contribution towards betterperformance of the Company. To enable more and more employees to be a part of thefinancial success of the Company retain them for future growth and attract new employeesto pursue growth R Systems has set up employees stock option plans / schemes from time totime for its employees and for the employees of its subsidiaries. As on the date of thisreport the stock option plans of R Systems are as follows:
(a) R Systems International Ltd. - Year 2004 Employee Stock Option Plan : For theemployees of R Systems and its subsidiaries other than ECnet Limited.
(b) R Systems International Ltd. - Year 2004 Employee Stock Option Plan - Ecnet : Forthe employees of ECnet Limited a subsidiary of R Systems. The term of the said plan hasbeen expired on August 31 2014.
(c) R Systems International Ltd. Employees Stock Option Plan- Year 2001 (Formerly knownas Indus Software Employees Stock Option Plan - Year 2001) : Initially formulated for theemployees of Indus Software Private Limited which got amalgamated with R Systems and theplan continues as per the scheme of amalgamation approved by the Hon'ble High Courts ofDelhi and Mumbai. As on the date of this report no stock options are in force under thisplan.
(d) R Systems International Limited Employee Stock Option Scheme 2007 : For theemployees of R Systems and its subsidiaries.
As required under the Companies Act 2013 and Securities and Exchange Board of India(Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines 1999 asamended details relating to options approved granted vested exercised lapsed inforce etc. under the prevailing employees stock option plans / schemes during the yearended December 31 2015 are as follows:
# Please note that the details given above for plan (a) (b) and (c) are after makingthe required adjustments in relation to consolidation of each of the 5 equity shares ofRs. 2 each into 1 equity share of Rs. 10 each as approved by the shareholders in the year2006 and after Sub-division of each of the equity shares of Rs. 10 each into 10 equityshares of Re. 1/- each as per record date of February 28 2014.
* EPS is Rupees per equity shares of Re. 1/- each i.e. after giving into effectSub-division of equity shares of Rs. 10 each into equity shares of Re. 1/- each as perrecord date of February 28 2014.
**During the year ended December 31 2015 R Systems International Ltd. Year - 2004Employee Stock Option Plan has been completely expired on December 27 2015 due to expiryof the term of the plan. Further R Systems International Ltd. - Year 2004 Employee StockOption Plan - ECnet was expired on August 31 2014 due to expiry of the term of the plan.
During the year ended December 312015 R Systems had not granted any options under anyof the aforementioned plans. Subsequent to year ended December 312015 on therecommendation of Compensation Committee 150000 stock options were granted under existingR Systems International Limited Employee Stock Option Scheme 2007 at the price of Rs.12.07 per option (i.e. the price at which the options were granted earlier on July 112007).
All options granted under R Systems International Ltd. Employees Stock Option Plan -Year 2001 has already been vested and exercised or lapsed and no options were in force ason December 31 2015.
For options granted during the earlier years under plan (a) (b) and (c) R Systemsused 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 themanagement obtained fair value of the options at the date of grant under respectiveschemes from a firm of Chartered Accountants to determine accounting impact if any ofoptions granted over the periods. In the considered opinion of the valuer the fair valueof 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:
* R Systems International Ltd. - Year 2004 Employee Stock Option Plan under which theprice was based on Rs. 2 per share.
** R Systems International Ltd. Employees Stock Option Plan - Year 2001 under whichoriginally the price was based on Rs. 10 per share for 21967 shares. As a result ofamalgamation of Indus Software Private Limited into R Systems R Systems had issued206822 equity shares of Rs. 2 each pursuant to the swap ratio approved by Hon'ble HighCourts of Delhi and Mumbai.
*** R Systems International Ltd. - Year 2004 Employee Stock Option Plan - ECnet underwhich the price was based on Rs. 2 per share.
Please note that the details given above for plan (a) (b) and (c) are after making therequired adjustments in relation to consolidation of each of the 5 equity shares of Rs. 2each into 1 equity share of Rs. 10 each as approved by the shareholders in the year 2006and before Sub-division of each of the equity shares of Rs. 10 each into 10 equity sharesof Re. 1/- each as per record date of February 28 2014.
Further for the purpose of valuation of the options granted during the year 2005 underR Systems International Ltd. - Year 2004 Employee Stock Option Plan the managementobtained fair value of the options at the date of grant from a firm of CharteredAccountants to determine accounting impact if any of options granted. In the consideredopinion of the valuer the fair value of these options determined using 'Black ScholesValuation Model' is "Nil" and thus no accounting thereof is required.
The assumptions used by the valuer for the purpose of determination of fair value arestated below:
The above information is based on Rs. 2 per share prior to consolidation of 5 equityshares of Rs. 2 each into one equity share of Rs. 10 and subsequent allotment of bonusshares in the ratio of 1 : 1.
For the purpose of valuation of the options granted during the year ended December 312007 under R Systems International Limited Employee Stock Option Scheme 2007 thecompensation cost relating to Employee Stock Options calculated as per the intrinsicvalue method is nil.
The management obtained fair value of the options at the date of grant from a firm ofChartered Accountants. In the considered opinion of the valuer the fair value of theseoptions determined using 'Black Scholes Valuation Model' is "Rs. 50.73" peroption.
The assumptions used by the valuer for the purpose of determination of fair value arestated below:
The stock based compensation cost calculated as per the intrinsic value method for thefinancial year 2014 and 2015 was nil. If the stock based compensation cost was calculatedas per fair value method prescribed by SEBI the Total cost to be recognised in thefinancial statements for the year 2015 would be nil (Previous year nil). The effect ofadopting the fair value method on the net income and earnings per share is presentedbelow:
Pro Forma adjusted Net Income and Earnings Per Share
(Amount in Rs.)
*all granted options have been vested during earlier years.
Weighted average exercise price of options granted during the year
Weighted average fair value of the options granted during the year
Scheme (a): R Systems International Ltd. - Year 2004 Employee Stock Option Plan.
Scheme (b): R Systems International Ltd. Employees Stock Option Plan-Year 2001.
Scheme (c): R Systems International Ltd. - Year 2004 Employee Stock Option Plan -ECnet.
Scheme (d): R Systems International Limited Employee Stock Option Scheme 2007.
As no options are granted during the year under Scheme (a) Scheme (b) Scheme (c) andScheme (d) hence the required information is not applicable.
8. Liquidity and Borrowings - Consolidated Financial Statement
The available Cash and bank balance as at December 312015 was Rs. 921.95 mn. againstRs. 1098.24 mn. as of December 31 2014. The decrease was mainly on account of purchaseof fixed assets acquisition of IBIZCS Group Pte Limited (IBIZ) and dividend payouts asoffset by cash generation from operations net of taxes and proceeds from the sale of IndusBusiness Division.
The Consolidated cash and cash equivalent as at December 31 2015 were Rs.786.17 mn. as against Rs. 1059.10 mn. as on December 31 2014.
Net cash generated from operating activities were Rs. 448.53 mn. for the year endedDecember 31 2015 compared to Rs. 724.57 mn. for the year ended December 31 2014.
Cash generated from investing activities were Rs. 397.95 mn. for the year endedDecember 31 2015 comprised of proceeds from sale of subsidiaries Rs. 274.01 mn. proceedsfrom long term fixed deposits with banks Rs. 239.44 mn. (net) proceeds from redemption ofmutual funds Rs. 19.77 mn. interest Income Rs. 42.57 mn. rental income from investmentproperty Rs. 3.08 mn. sale of fixed assets Rs. 2.79 mn. as offset by purchase of fixedassets of Rs. 162.58 mn. and initial payout amounting to Rs. 21.13 mn. (net) onacquisition of IBIZ operations.
Cash used in financing activities were Rs 1131.46 mn. for the year ended December 312015 comprised of payment of dividend (including CDT) of Rs. 1072.22 mn. Rs. 59.57 mn.paid for buy back of Equity shares Rs. 1.11 mn. paid for interest as offset by cashreceived from issuance of equity shares of Rs. 1.09 mn. and net increase in long termborrowings by Rs. 0.36 mn. R Systems' policy is to maintain sufficient liquidity to fundthe anticipated capital expenditures operational expenses and investments for strategicinitiatives.
R Systems has a credit facility from the Axis Bank Limited amounting to Rs. 200 mn.(including non-fund based credit limit of Rs. 180 mn. for currency derivatives). As atDecember 31 2015 the Total credit balance was Rs. Nil under fund based line of credit.Loan payable as at December 31 2015 comprises of loan for motor vehicles purchasedamounting to Rs. 11.58 mn. and against general corporate purpose of Rs. 0.99 mn. R Systemsprimary bankers in India are Axis Bank Limited ICICI Bank Limited Kotak Mahindra BankLimited State Bank of India HDFC Bank Limited and Oriental Bank of Commerce. In U.S.A.U.K. Singapore and New Zealand the primary bankers are California Bank & TrustNatwest Bank Citibank N.A. and Bank of Baroda (NZ) respectively.
9. Changes in the Capital Structure
During the financial year ended the following changes took place in the capitalstructure of the Company.
At the beginning of the financial year ended December 31 2015 the issued and paid upcapital of the Company was Rupees 127458580/- divided into 127458580 equity shares ofRe. 1/- each.
Subsequently the Company completed the buyback of its 678155 equity shares of Re. 1/-each on April 23 2015. Consequent to this buy back the issued and paid up capital of theCompany was reduced to Rs. 126780425/- divided into 126780425 equity shares of Re. 1/-each.
Futher the Company allotted 90000 equity shares of Re. 1/- each on June 09 2015pursuant to exercise of Stock Options under R Systems International Limited Employee StockOptions Scheme 2007 at an exercise price of Rs. 12.07 per share therefore the issued andpaid up share capital reached to Rs. 126870425/- divided into 126870425 equity sharesof Re. 1/- each.
During the financial year ended December 31 2015 the Company has not issued anyshares with differential voting rights or any sweat equity shares. Therefore disclosurepursuant to Section 43(a) (ii) & Section 54(1)(d) of the Companies Act 2013 are notapplicable. Further no disclosure is required under Section 67 (3) (c) of the CompaniesAct 2013 in respect of voting rights not exercised directly by employees of the Companyas the provisions of the said section are not applicable.
10. Buy Back
The Board of Directors of the Company at its meeting held on December 20 2014 approvedthe buy back of the Company's fully paid-up equity shares of face value of Re. 1/- eachfrom its existing shareholders other than those who are promoters members of thepromoter group and persons acting in concert from the open market through stockexchange(s) for a Total consideration not exceeding Rs. 60 mn. and at a price notexceeding Rs. 100/- per share payable in cash.
During the year ended December 31 2015 this offer for buy back remained opened fromJanuary 06 2015 to April 23 2015. During this period the Company bought back 678155equity shares for Rs. 59.57 mn. All the shares bought back from January 06 2015 to April23 2015 had been extinguished within the statutory time limits and the said buy back wascompleted on April 23 2015.
11. Corporate Restructuring
During the year ended December 31 2015 pursuant to shareholder approval accorded byspecial resolution through postal ballot on September 23 2014 the Company concluded thedivestment of Indus Product Business in line with its strategy to focus on core servicesbusiness by executing a 'Business Transfer Agreement' (BTA) with R Systems Product &Technologies Private Limited ("RSPTPL'') a wholly owned subsidiary of the Company onJune 27 2015 for the transfer of Indus Business Unit operated out of Pune and Chennai toRSPTPL on a going concern basis by way of slump sale for consideration of Rs. 783.9 mn.on the terms and conditions agreed in BTA.
The Company completed the acquisition of 100% shares of IBIZCS Group Pte Limited(IBIZ) a Singapore based Company engaged in Microsoft Dynamics ERP Practice w.e.f. April30 2015 through its wholly owned subsidiary namely R Systems (Singapore) Pte Limited.IBIZCS Group Pte. Limited is having operations mainly in South East Asia as a reseller ofMicrosoft Dynamics Navision ERP along with BI and mobility solutions competencies.
R Systems Solutions Inc. (RSSI) has been merged with R Systems Inc. (RSI) both beingwholly owned subsidiaries of the Company based in USA as per the applicable laws of USAon December 10 2015. Pursuant to aforesaid merger the Company has received incremental150 common stock of RSI against outstanding common and preferred (series A) stocks held inRSSI.
12. Material changes affecting the financial position of the Company
There are no significant events changes occurred between the end of the financial yearand till the date of this report which would materially affect the financial position ofthe Company.
13. Particulars of Conservation of Energy Technology Absorption and Foreign ExchangeEarnings and Outgo
The Particulars as prescribed under Section 134 (1) (m) of the Companies Act 2013read with rule 8 of Companies (Accounts) Rules 2014 for the year ended December 312015are as follows:
A. Conservation of Energy
Since the Company does not own any manufacturing facility the other Particularsrelating to conservation of energy stipulated in the Companies (Accounts) Rules 2014 arenot applicable.
During the year ended December 31 2015 R Systems continued its' action plans tocurtail the energy bills by adopting various energy conservation options / technologies asidentified by Federation of Indian Chambers of Commerce & Industry ("FICCI")through a detailed Energy Audit carried out by FICCI for R Systems Noida operations in theyear 2007.
Significant measures were taken to reduce energy consumption by using energy efficientequipment and devices. R Systems constantly evaluates new technologies and makesappropriate investments to be energy efficient. Currently the Company uses LED/CFLfittings and electronic ballasts to reduce power consumption of fluorescent tubes. The airis conditioned with energy efficient compressors for central air conditioning and withsplit air conditioning for localized areas.
R Systems is always in search of innovative and efficient energy conservationtechnologies and applies them prudently. However R Systems being in the softwareindustry its operations are not energy intensive and energy costs constitute a very smallportion of the Total cost therefore the financial impact of these measures is notmaterial.
B. Technology absorption
1. Efforts made towards technology absorption
The Company has established practice streams in specific technologies to analyze theirimplications and the benefits they can provide to the Company's customers. These stepsenable 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 needsefficiency 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.
Driven by our core value of innovation we believe that innovation is not just apractice but an essential component embedded within R Systems organizational DNA.Innovation is one of our core areas which keeps us competitive and successful in today'shighly competitive business environment. Over the year ended December 31 2015 yourCompany has invested in research and development in the area of Analytics and Mobilitysolutions in addition to strengthening and up-grading proprietary products and frameworks.The key R&D initiates undertaken by the Company for the year 2015 are as follows:
(1) R Systems's Analytics practice plays a key role in leveraging advanced technologiesto develop sophisticated & disruptive analytics solutions that drive the businesstransformation for the existing and prospective customers. With the deep expertise in thevertical like Telecom & Digital Media BFSI and Healthcare we have horizontallyembraced Analytics solutions across these verticals to bring operational efficiency andalso create a vital information pool reflecting on the economical statistical socialmedia speech metrics of the customers. Our technology innovation agenda focuses onsolutions around advanced Analytics themes i.e. Customer Analytics Speech & TextAnalytics and Risk & Financial Portfolio Analytics Autonomics Social MediaAnalytics Healthcare Analytics and Operational Analytics. We have also initiated ourinvestment in next generation data analytics framework and multiple focused solutionsacross key verticals. This framework will provide end-to-end functions for conceptualizingand implementing any big data analytics initiative.
(2) Your Company has developed a customer interaction analytics platform by leveragingthe speech text mining capabilities that empowers organizations to measure and analyse100% of recorded customer interactions. This platform is built to deliver actionablebusiness insights by analysing unstructured & semi- structured data extracted fromvarious data sources such as: CRM IVR CDR ACD and customer interactions etc. withintegrated capabilities for speech text social media big data & predictiveanalytics.
(3) The Company has invested in building reusable components library and testingframeworks for mobile platforms (Android and iOS). These reusable components andframeworks provide an edge to your Company in term of cost efficiency and reduced time tomarket while servicing existing as well as prospective customers.
(4) Additionally your Company has continued its investment building frameworks andproof of concepts in key verticals like Telecom & Digital Media and Healthcaredomains.
C. Foreign Exchange Earnings and Outgo (Accrual Basis)
A significant percentage of R Systems revenues are generated from exports. Thedevelopment and service centre in Noida is registered with the Software Technology Park ofIndia as 100% Export Oriented Undertaking. All efforts of the Company are geared toincrease the business of software exports in different products and markets. We have madeinvestments in sales and marketing activities in various growing markets.
The Total foreign exchange used and earned by R Systems during the year as comparedwith the previous year is as follows:
(Rs. in Millions)
As on December 312015 R Systems has twenty four subsidiaries. The name and country ofincorporation of those subsidiaries are as follows:
# wholly owned subsidiaries of ECnet Limited Singapore being 99.75% subsidiary of RSystems (The shareholding by the Company and R Systems (Singapore) Pte. Ltd. is 69.37% and30.38% respectively).
@ wholly owned subsidiaries of Computaris International Limited being 100% subsidiaryof R Systems.
* Wholly owned subsidiary of R Systems (Singapore) Pte Ltd. being 100% subsidiary of RSystems.
AWholly owned subsidiaries of IBIZCS Group Pte Ltd. being 100% Subsidiary of RSystems (Singapore) Pte Ltd. being 100% subsidiary of R Systems.
$ Subsequent to the year ended December 31 2015 name of Systemes R. InternationalLtee Canada has been changed to RSYS TECHNOLOGIES LTD.
During the year ended December 31 2015 the Company has acquired though R Systems(Singapore) Pte Ltd. wholly owned subsidiary of the Company 100% share of IBIZCS GroupPte Ltd. Singapore (IBIZ) on April 30 2015.
IBIZ is a Microsoft Gold-certified partner specialized in Microsoft Business ManagementSolution suites including Enterprise Resource Planning (ERP) Customer RelationshipManagement (CRM) Point of Sales (POS) Mobility Business Intelligence (BI) and Portalshaving subsidiaries in Singapore Malaysia Indonesia India Hongkong and China.
The Company has transferred 93% of its equity share in R Systems Products &Technology Private Limited ("RSPTPL") on July 07 2015 by entering into 'SharePurchase Agreement' (SPA) with BD Capital Partners Ltd. ("BDC") a Mauritiusbased company on June 27 2015 for a consideration of Rs. 443.17 mn.
On December 10 2015 R Systems Solution Inc. (RSSI) has been merged with R SystemsInc. (RSI) both being wholly owned subsidiaries of the Company based in U.S.A.
As on date of this report all the aforementioned twenty four subsidiaries except IBIZConsultancy Services India Private Limited - India were incorporated and based outsideIndia. In addition to providing services to various international clients thesesubsidiaries also help to generate revenues for R Systems. The Board of Directors of theCompany regularly reviews the affairs of these subsidiaries.
Policy for determining material subsidiaries of the Company is available on the websiteof the Company at http://www.rsvstems.com/investors/corporategovernance.aspx.
Further the audited annual accounts and related detailed information of oursubsidiaries where applicable will be made available to shareholders seeking suchinformation at any point of time. The annual accounts of the subsidiary companies willalso 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-40Sector 59 Noida (U.P.)-201307 and Registered Offices of the subsidiary companiesconcerned during business hours. The same will also be hosted on R Systems' website i.e.
15. Particulars of employees
The details required under Section 197(12) of the Companies Act 2013 read with Rule5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014are annexed as Annexure A and forms part of this report.
Further as required under the provisions of Rule 5(2) of the Companies (Appointmentand Remuneration of Managerial Personnel) Rules 2014 the name and other Particulars ofemployees are set out in Annexure B and forms part of this report.
16. Directors' responsibility statement
Pursuant to the requirement of Section 134 (3) (c) read with Section 134(5) of theCompanies Act 2013 with respect to directors' responsibility statement your directorshereby confirm that:
i) In the preparation of the annual accounts for the financial year ended December 312015 the applicable accounting standards had been followed along with proper explanationrelating to material departures;
ii) the directors had selected such accounting policies and applied them consistentlyand made judgments and estimates that are reasonable and prudent so as to give a true andfair view of the state of affairs of the company at the end of the financial year and ofthe profit and loss of the Company for that period;
iii) the directors had taken proper and sufficient care for the maintenance of adequateaccounting records in accordance with the provisions of this Act for safeguarding theassets of the company and for preventing and detecting fraud and other irregularities;
iv) the directors had prepared the annual accounts for the financial year endedDecember 31 2015 on a going concern basis;
v) the directors had laid down internal financial controls to be followed by theCompany and that such internal financial controls are adequate and were operatingeffectively;
vi) the directors had devised proper systems to ensure compliance with the provisionsof all applicable laws and that such systems were adequate and operating effectively.
M/s S. R. Batliboi & Associates LLP (Firm Registration No. 101049W/E300004) thestatutory auditors of the Company will retire at the ensuing Annual General Meeting andare eligible for reappointment.
The Board based on the recommendation of the audit committee recommends there-appointment of M/s S. R. Batliboi & Associates LLP (Firm Registration No.101049W/E300004) as the statutory auditors of the Company. M/s S. R. Batliboi &Associates LLP have confirmed their eligibility and willingness to act as the statutoryauditors of the Company and have further confirmed that their appointment if made shallbe within the limits prescribed under Section 141 of the Companies Act 2013 and that theyare not disqualified for such appointment within the meaning of the said section.
Further the auditors' report being self - explanatory does not call for any furthercomments by the Board of Directors.
18. Audit committee
R Systems has a qualified and independent Audit Committee. During the year under reviewthere was no change in composition of the Audit Committee except that Mr. Amardeep SinghRanghar was appointed as a member of Audit Committee w.e.f. August 04 2015.
The constitution of the Committee is in compliance with the provisions of the CompaniesAct 2013 the Listing Regulations and erstwhile Listing Agreement. Detailed descriptionof 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 inthe Listing Regulations and erstwhile Listing Agreement read with Section 177 of theCompanies Act 2013 and rules made thereunder and includes such other functions as may beassigned to it by the Board from time to time. The Committee has adequate powers to playan effective role as required under the provisions of the statute and Listing Regulations.During the year under review the Board of Directors of the Company had accepted all therecommendations of the Audit Committee.
19. 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 environmentirrespective of gender caste creed or social class of the employees. We value everyindividual and are committed to protect the dignity and respect of every individual. TheCompany has always endeavored for providing a better and safe environment free of sexualharassment at all its work places.
Consequent to the enactment of Sexual Harassment of Women at Workplace (PreventionProhibition and Redressal) Act 2013 and Rules made thereunder the Management of RSystems International Limited has constituted an Internal Complaints Committee (ICC) todeal with any complaints or issues that may arise in the nature of sexual harassment ofwomen employees. The Company has also prepared and implemented Policy for PreventionProhibition and Redressal of Sexual Harassment of Women at Workplace. During the yearended December 31 2015 no cases of sexual harassment against women employees at any ofits work place were reported to the ICC.
20. Corporate Governance
As required under Listing Regulations the detailed report on corporate governance isgiven as Annexure C to this report and the certificate obtained from a practicingcompany secretary regarding compliance of the conditions of corporate governance asstipulated in the said clause is annexed as Annexure D to this report.
The Company has neither invited nor accepted any deposits from the public within thepurview of Section 2(31) 71 and 74 of Companies Act 2013 read with the Companies(Acceptance of Deposit) Rules 2014 no amount of principal or interest was outstanding onthe date of the balance sheet.
22. Customer relations
R Systems recognises that the customers have a choice of service providers and thedirectors would like to place on record their gratitude on behalf of the Company for thebusiness provided by them. The Company's quality policy mandates that the voice of thecustomer is obtained on a regular basis. We constantly review the feedback and incorporateits impact into our delivery systems and communications.
23. Stakeholder's relations
R Systems is inspired by its customers and its employees transform that inspiration andcustomers' needs into value for all stakeholders. We thank all R Systems employeesworldwide for their hard work commitment dedication and discipline that enables theCompany to accomplish its customer commitments and commitments to all its stakeholders. RSystems conducts regular employee satisfaction surveys and open house meetings to getemployee feedback. R Systems is constantly validating key employee data with industry andpeer group business. These practices have helped the Company achieve many of its businessgoals and have been recognised in many industry surveys over the last few years. The opendoor policy of our senior management team ensures that the feedback loop is completedpromptly.
We thank our shareholders for their continuous support and confidence in R Systems. Weare aware of our responsibilities to our shareholders to provide full visibility ofoperations corporate governance and creating superior shareholder value and we promise tofulfill the same.
24. Management discussion and analysis report
In terms of the Listing Regulations management discussion and analysis report is givenas Annexure E to this report.
25. Secretarial Report
Mr. Jitender Singh Company Secretary in Whole Time Practice had been appointed by theBoard to carry out the Secretarial Audit under the provision of Section 204 of theCompanies Act 2013 for the financial year ended December 31 2015. The Secretarial Auditreport for financial year ended 2015 is enclosed as Annexure F. The report does notcontain any qualification.
26. Vigil Mechanism / Whistle Blower Policy
In order to provide a mechanism to employees of the company to disclose any unethicaland improper practices or any other alleged wrongful conduct in the company and toprohibit managerial personnel from taking any adverse action against those employees thecompany has laid down a Vigil Mechanism also known as Whistle Blower Policy to deal withinstance of fraud and mismanagement if any. The details of the Vigil Mechanism or WhistleBlower Policy is explained in the Corporate Governance Report and also posted on thewebsite of the Company.
27. Continuance of the Existing Financial Year
Pursuant to the provision of Section 2(41) of the Companies Act 2013 an order fromthe Company Law Board has been awarded to the Company to continue to follow calendar year(i.e. 1st January to 31st December) as its financial year.
28. Criteria for selection of candidates for Membership on the Board of Directors andthe Remuneration Policy
As per the provisions of Section 178 of the Companies Act 2013 and other relevantprovisions and on the recommendation of Nomination & Remuneration Committee the Boardhas framed a criteria for selection of Directors a policy for remuneration of directorskey managerial personnel and other employees. The Criteria for selection of candidates forMembership on the Board of Directors and the remuneration policy are stated in theCorporate Governance Report.
29. Meetings of the Board
The Board and its Committees of the Company meet at regular intervals to discussdecide and supervise the various business policies business strategy Company'sperformance and other statutory matters. During the year under review the Board has met09 times. The details of the meeting of the Board and its Committees are given inCorporate Governance Report. The intervening gap between two Board Meetings did not exceed120 days.
30. Board Evaluation
Pursuant to the provisions of the Companies Act 2013 and the Listing Regulations theBoard has carried out an annual performance evaluation of its own performance itscommittees and the individual directors . The manner in which the evaluation has beencarried out has been explained in the Corporate
31. Particulars of Loans Guarantees or investments under Section 186 of the CompaniesAct 2013
During the year ended December 31 2015 the Company has invested SGD 2251000 in RSystems (Singapore) Pte Ltd. by way of acquisition of 1052125 shares in R Systems(Singapore) Pte Ltd.
Further the Company has also made investment of Rs. 700000 in R Systems Products& Technologies Private Limited ("RSPTPL'') by way of acquisition of shares inright issue. Further the Company also acquired 60000003 equity shares at Rs. 6.227333per equity share and 35026 Non-Convertible Debentures ("NCD") at Rs. 10000/-per NCD as purchase consideration for transfer of its business unit to RSPTPL.
The Company has transferred 93% of its equity share in RSPTPL on July 07 2015 byentering into 'Share Purchase Agreement' (SPA) with BD Capital Partners Ltd.("BDC") a Mauritius based company on June 27 2015.
32. Related Party Disclosure
All the Related Party Transactions entered during the year were in the ordinary courseof business and on arm's length basis. There are no materially significant related partytransactions made by the company with promoters Directors Key Managerial personnel orother designated persons which may have a potential conflict of interest with the companyat large.
All the related party transactions are presented to the Audit Committee and the Board.Omnibus approval is obtained for the transactions which are foreseen and repetitive innature. A statement of all related party transactions is presented before the AuditCommittee on quarterly basis specifying the terms & conditions of the transactions.
The policy on Related Party Transactions as approved by the Board is uploaded on thecompany's website at the weblink as mentioned in the Corporate Governance Report.
Details of Particulars of contracts or arrangements with related parties referred to insub-section (1) of Section 188 of the Companies Act 2013 in form AOC-2 has been enclosedherewith as Annexure G.
33. Risk Management
The Company is not required to form a Risk Management Committee. The Company hasdeveloped and implemented a risk management policy for identifying the risk associatedwith business of the Company and measures to be taken by including identification ofelements of risk and measures to control them.
34. Corporate Social Responsibility
In compliance with the provisions of Section 135 of the Companies Act 2013 read withthe Companies (Corporate Social Responsibility Policy) Rules 2014 the Company hasconstituted a Corporate Social Responsibility Committee ('CSR Committee').
During the year under review there is no change in the constitution of the Committeeexcept that Mr. Raj Swaminathan Director & Chief Operating Officer of the Companyceased to be the member of the Committee consequent to his cessation as Director of theCompany w.e.f. June 27 2015.
The detailed terms of reference of the Corporate Social Responsibility Committee hasbeen provided in the Corporate Governance Report. In pursuit of the responsibilitiesentrusted to the CSR Committee a policy on Corporate Social Responsibility has beenprepared and adopted by the Board which is available at the website of the Company atfollowing link:
Annual Report on CSR activities of the Company in format prescribed in Companies(Corporate Social Responsibility Policy) Rules 2014 in enclosed as Annexure H andforms part of this report.
35. Internal Control System and Internal Financial Controls
The Company has an Internal Control System commensurate with the size scale andcomplexity of its operations. The Internal Auditors and the management monitors andevaluates the efficacy and adequacy of the internal control system in the Company itscompliance with operating systems accounting procedures and policies at all locations ofthe Company. Audit observations of Internal Auditors and corrective actions thereon arepresented to the Audit Committee of the Board. To maintain its objectivity andindependence the Internal Auditor reports to the Audit Committee.
The Company has in place adequate internal financial controls commensurate with sizescale and complexity of its operations. The Company has policies and procedures in placefor ensuring proper and efficient conduct of its business the safeguarding of its assetsthe prevention and detection of frauds and errors the accuracy and completeness of theaccounting records and timely preparation of reliable financial information.
36. Extract of Annual Return
The details forming part of the extract of the Annual Return in form MGT - 9 isenclosed as Annexure I to this Report.
37. Significant and Material Orders Passed By The Regulators Or Courts
There are no significant or material orders passed by the Regulators / Courts whichwould impact the going concern status of the Company and it's operations in future.
Your directors once again take this opportunity to thank the employees investorsclients vendors banks business associates regulatory authorities including stockexchanges Software Technology Park of India the Central Government State Government ofDelhi Uttar Pradesh Maharashtra Tamil Nadu for the business support valuableassistance and co-operation continuously extended to R Systems. Your directors gratefullyacknowledge the trust and confidence and look forward for their continued support in thefuture.
Annexure 'A' to the Directors' Report
Disclosures pursuant to Section 197(12) of the Companies Act 2013 and Rule 5(1) ofCompanies (Appointment and Remuneration of Managerial Personnel) Rules 2014
A. The ratio of the remuneration of each director to the median remuneration of theemployees of the Company for the financial year:
* Mr. Raj Swaminathan ceased to be director w.e.f. June 27 2015.
Note: - All the Non- Executive Directors and Non- Executive Independent Directors arepaid sitting fees only for attending the meeting of Board of Directors or Committeesthereof.
B. The percentage increase in remuneration of each Director Chief Executive OfficerChief Financial Officer Company Secretary in the financial year:
* Mr. Raj Swaminathan ceased to be director w.e.f. June 27 2015.
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 financialyear was 4.30%.
D. Number of permanent employees on the rolls of company:
Number of permanent employees on the rolls of R Systems International Limited as atDecember 312015 was 1374.
E. Explanation on the relationship between average increase in remuneration and companyperformance:
The increase in remuneration of employees is in line with the individual performanceand industrial and geographical standards.
F. Comparison of the remuneration of the Key Managerial Personnel against theperformance of the company:
*Please refer Note No. 22 of the Standalone financial statements for exceptional items.
G. Variations in the market capitalisation of Company and price-earnings ratio as atthe closing date of the current financial year and previous financial year and percentageincrease over decrease in the market quotations of the shares of the Company in comparisonto the rate at which the Company came out with the last public offer :
c. Percentage increase in the market quotation of shares of the Company as compared tothe rate of last public offer:
The closing price of Company's equity shares on NSE and BSE as of December 312015 was76.60 and 76.05 respectively representing 206.40 percent increase (adjusted forsub-division) over IPO price (NSE).
H. Average percentile increase already made in the salaries of employees other than themanagerial personnel in the last financial year and its comparison with the percentileincrease in the managerial remuneration and justification thereof and point out if thereare any exceptional circumstances for increase in the managerial remuneration:
Average increase in remuneration for employees is 10% (approx.). The average increasein overall managerial remuneration is 7.8%.
I. Comparison of the each remuneration of the Key Managerial Personnel against theperformance of the company:
* Mr. Raj Swaminathan ceased to be director w.e.f. June 27 2015.
# Please refer Note No. 22 of the Standalone financial statements for exceptional items.
J. Key parameters for any variable component of remuneration availed by the directors:
Variable pay for Mr. Satinder Singh Rekhi Managing Director i.e. incentive payable isbased on the fixed percentage of profit after tax (PAT) and for Lt. Gen. Baldev Singh(Retd.) President & Senior Executive Director- Incentive payable is based on thefixed percentage of revenue of Noida Unit.
K. Ratio of the remuneration of the highest paid director to that of the employees whoare not directors but receive remuneration in excess of the highest paid director duringthe year:
The ratio of remuneration of Mr. Satinder Singh Rekhi the highest paid Director tothat of Mr. Mandeep Singh Sodhi Vice President - Sales the highest paid employee is0.97:1.
L. 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 theCompany.
Information as per Rule 5(2) of the Companies (Appointment and Remuneration ofManagerial Personnel) Rules 2014 and forming part of the Directors' Report for the yearended December 312015
A. Employed throughout the year and in receipt of remuneration not less than Rs.6000000 for the year
B. Employed for the part of the year and in receipt of remuneration not less than Rs.500000 per month
# Resigned during the year.
Not a member of the Board of Director of the Company.
* Prior to joining R Systems International Limited"the Company" theseemployees were working with R Systems Inc USA (wholly owned subsidiary of the Company).The date of joining in the subsidiary of these employees is given hereunder:
1 None of the employee owns more than 2% of the outstanding shares of the Company as onDecember 312015.
2 Nature of employment is contractual in all the above cases.
On behalf of the Board
For R Systems International Limited