Aftek

Dear Shareholder,
 
 The great, Classical Greek Philosopher, Plato, once said, The part can
 never be well unless the whole is well. No one could have described
 the modem world more accu- rately! As the world comes closer, interacts
 and integrates, the complex interdependencies become inevitable. Gone
 are the days of isolated, controlled economies. The world economy is
 facing rough weather. What surfaced as a small disturbance has
 culminated into a big tornado threatening to suck the strength out of
 the world economy. As political and business leaders all over the world
 make concerted attempts to overcome this grave challenge, its
 important for your Company to stay focused on its core competencies and
 tread the known path cautiously until favorable economic weather sets
 in coming few quarters.
 
 This is global reality my friends. Let me, with this as the background,
 present to you the financial performance of your Company for the year
 2007-2008. Net Sales and Profits for the financial year 2007-2008 stand
 at Rs. 3925 million and Rs. 809 million respectively as against Rs.
 3325 million and Rs. 905 million for the financial year 2006-2007. The
 EPS (Earning Per Share, diluted) on a par value of Rs. 2 per share for
 the financial year 2007-2008 stands at Rs. 8.23 against Rs.  9.83 for
 the financial year 2006-2007. Although Net Sales have increased by
 18.05%, Net Profits and EPS have decreased by 10.61% and 16.28%
 respectively. Limited growth in sales is due to the reduced budgets or
 funding and delayed decisions on part of our clients.  Reduction in Net
 Profits is due to significant increase in operating and administrative
 expenses largely on account of foreign exchange difference, provisions
 for doubtful debts, advances and diminution in value of investments.
 
 While global economic outlook is very bleak, business growth is
 expected to reduce significantly and its highly desirable to preserve
 cash, considering strong fundamentals of your Company, I am very happy
 to inform you that the Board of Directors has still recommended a
 dividend of 25%.
 
 Now let me give you a comprehensive business update of your Company.
 
 Last year, we had sighted the Engineering Services Outsourcing (ESO)
 business opportunity in the Business Outlook section of Management
 Discussions. I am very glad to report to you that we got two new large
 customer engagements, one each from North America and Europe, in this
 space. While the first one is in the space of retail automation, second
 one is in the space of business intelli- gence. You will be glad to
 know that your Company ended up developing complete engineering
 solution right from concept as a single-stop shop for outsourced
 engineering service in both these engagements. Both the engagements
 have excellent prospects for growth. Your Company will continue to grow
 in this space based on these early, grand success stories. You can read
 more about our customer engage- ments in the Management Discussion and
 Analysis.
 
 Your Companys Software-Driven Products (SDP) group has expanded its
 business in South Africa and Middle-East regions. Besides
 transportation solutions, SDP group has also developed solutions for
 microfinance and mining. We expect strong domestic demand and bright
 offshore prospects for these solutions. SDP group is also being run as
 a strategic business unit.
 
 Last year, we merged Elven Micro Circuits Private Limited and C2Silicon
 Software Solutions Private Limited with your Company. This year, we
 completed the integration process.  In order to minimize costs and
 maximize profits, we have retained only core VLSI (Very Large Scale
 Integration) business in Bangalore and have transferred all other
 business to Pune. The VLSI operation in Bangalore is being run as a
 strategic business unit.
 
 Due to lack of clarity on extension of benefits under the STPI
 (Software Technology Parks of India) scheme and also upcoming SEZ
 (Special Economic Zones) scheme, we had delayed the construction of
 Software Development Center at Hinjawadi in Pune. However, now that the
 benefits under the STPI scheme have been extended, we have reactivated
 the construction and the Software Development Center should be ready
 within coming 6 to 8 months. Since the developed usable space will be
 close to 260,000 square feet, we will consider leasing out the extra
 space in future if required.
 
 Opdex Inc., your Companys 100%-owned, North- American subsidiary is
 operating in energy sector. As sales Of Powersafe, an Uninterruptible
 Power Supply (UPS) Management product, taper down, energy management
 market is opening up. However, this is a medium to long term and not an
 immediate opportunity. Opdex Inc. is exploring opportunities for
 products, solutions and services in this sector.
 
 We have reported earlier that the critical intellectual property rights
 had already been transferred from Arexera Information Technologies GmbH
 (Arexera GmbH), Germany to Arexera Information Technologies AG
 (Arexera AG), Switzerland which will now continue as your Companys
 100% subsidiary in Europe. Arexera GmbH was to continue as development
 centre, however due to unfavorable labour laws and legal frame works,
 it had to be closed down. After formation of Arexera Information
 Technologies AG, Switzerland, where reduced taxation benefits are
 available, all continuing business and fresh contracts have been signed
 with this entity. All developmen- tal work for intellectual property is
 executed out of India.
 
 Your Companys strategic partnership with the leading provider of
 automotive, telecommunications, aerospace, defence and logistics
 solutions from Europe is yet to convert into significant business. This
 is due to slow decision making and cautious approach to outsourcing as
 generally experienced in Europe.
 
 The leading provider of storage, backup, archival and compliance
 solutions from Europe, to which Arexera AG, has licensed its search
 technology, has delayed the launch of its solution due to performance
 and scalability issues. We expect only modest business from these
 engagements next year.
 
 Seekport Internet Technologies AG, which is listed on Frankfurt Stock
 Exchange and in which your Company has 24.75% stake, was not able to
 secure investments due to difficult business conditions in Europe. It
 has scaled down its operations significantly, but continues to look out
 for investments.
 
 Your Company has acquired a controlling stake of 51% in Digihome
 Solutions Private Limited (Digihome) in lieu of the Intellectual
 Properties. Digihome is doing extremely well in the residential market
 all over India. Its solution for intelligent homes featuring safety,
 security, automation and communications is being used as a Unique
 Selling Proposition (USP) in an otherwise competitive and difficult
 real-estate market. The solution has been installed in hundreds of
 apartments all over India. Digihome is now setting up distribution
 channels across India as well as Middle East and has already signed up
 with many corporate builders. We expect significant value to be created
 in this company.
 
 As leading world banking and financial institutions melt down, funding
 for and investments into technology ventures get dried up. As your
 Company operates in and primarily serves the technology sector, its
 also facing the brunt in terms of reduced budgets, delayed decisions
 and rate pressures. In order to successfully face the economic tornado,
 its important for your Company to stay focused on its core
 competencies. Your Company is best at delivering end-to-end engineering
 solutions. And this is exactly where the Engineering Services
 Outsourcing (ESO) business opportunity exists. Your Company will
 consolidate upon its historical and recent successes and pursue the
 path of steady progress, just like a determined camel crossing a
 fathomless desert in spite of a threatening sand storm.
 
 Let me take this opportunity to thank you for being with us always and
 request your continued confidence in and support for us. May this
 Diwali light up our path to a brighter tomorrow! My best wishes for the
 festival of lights to you
 
                                                          Yours Truly,
                                                         Ranjit Dhuru
                                                       Chairman & CEO