Nucleus Software

With immense pleasure and sense of deep satisfaction, I share with you
 the performance of your Company for the financial year 2007-08.
 
 Consolidated revenue for the year 2007-08 at Rs. 288.72 crore recorded
 an increase of 30.53% over revenue of Rs. 221.19 crore in the previous
 year. Total operating expense for the year was Rs. 215.31 crore against
 Rs. 157.91 crore in the previous year, representing an increase of
 36.34%.  Consequently the operating profit for the year was Rs. 73.41
 crore, 25.43% of revenue, against Rs. 63.28 crore, 28.61% of revenue in
 the previous year.  Cost of delivery has gone up from 56.56% to 60.45%,
 primarily due to increased manpower in Product Development.
 
 Consolidated net profit for the year was Rs.61.74 crore, against Rs.
 55.15 crore in the previous year, representing an increase of 11.95%.
 EPS for the year was Rs. 19.08 against Rs. 17.09 (on post Bonus
 capital) for the previous year. The Board of Directors have recommended
 a final dividend of 30%, Rs. 3.00 per share, which is subject to
 approval of the shareholders in the ensuing Annual General Meeting.
 
 Our focus during FY 08 was on gearing up for the future by investing in
 Products, Marketing, Infrastructure and Systems & Processes. As a part
 of our expansion strategy, we have signed an MOU with a leading
 developer for 17.41 acres of land in a notified SEZ in Jaipur,
 Rajasthan for setting up our new software development center. Easy
 accessibility from Delhi, abundance of specific talent related to the
 Industry, well developed infrastructure and excellent support from the
 Government, are a few reasons for choosing Jaipur as our next
 destination. A wholly owned subsidiary, Nucleus Software Limited, has
 been incorporated in India, in April 2008 to implement this SEZ
 project.
 
 Revenues from the product business consisting of license,
 customization, implementation and annual technical support recorded an
 all time high of 68.37% of total revenue. Almost the entire growth in
 top line was from the Product Business and we expect it to continue the
 same way.
 
 Operating cash flow for the year after working capital changes is Rs.
 24.40 crore against Rs. 38.73 crore in the previous year. Receivables
 have increased from Rs. 55.26 crore to Rs. 67.81 crore. Other Current
 Assets have also increased from Rs. 18.16 crore to Rs. 33.17 crore. The
 Company continues to enjoy a high level of liquidity. Cash and Bank
 balances and Current Investments were at Rs.94.13 crore as on March
 3 1, 2008 against Rs. 81.90 crore as on March 31,2007. We reiterate our
 policy of investing conservatively in Liquid Plans and Fixed Maturity
 plans of Mutual funds.
 
 I take immense pride in sharing with you that your Company has been
 listed among the Best 200 under a billion companies in Asia by Forbes
 Asia magazine.  Our product, FinnOne™ was ranked amongst the top two
 best selling retail lending software globally by IBS publishing of UK.
 These recognitions have strengthened our vision of setting new
 standards and reaching new horizons.
 
 The strengthening of the Indian currency against the US$ has signaled a
 new paradigm, possibly the end of a comfortable exchange rate regime.
 With 90% of our revenue from overseas, there is a definite exchange
 effect on reported volumes. While we do not wish to attribute
 profitability fluctuations to exchange variations, it is definitely
 necessary to see volume growth, which looks at comparable throughput.
 There are short-term adverse effects on revenue and profitability, but
 the welcome part is the integration with global markets and the need
 for constant evolution of the Software Products business model.  As a
 policy, we take positions in foreign currency markets to hedge our
 receivables through a mixture of Forward Contracts and Options,
 from time to time. We have proactively hedged our currency risk by
 increasing the coverage while avoiding any high-risk instruments.
 
 We won 24 new product orders for 64 product modules of FinnOne™, our
 retail loan Suite and Cash@Will , the cash management product.  Last
 year has been exciting and fulfilling in terms of our endeavor to make
 our customers realize early return on investments. 70 product modules
 went live in the year, with FinnOne™ suite contributing 62 and
 Cash@Will contributing 8.  The implementations were done across 27
 customers globally, and strengthening our footprint in the Middle East
 by 7 and in the Indian subcontinent by 11. The Cash@Will suite is
 picking up steam with the second country of a global rollout and the
 largest deployment going live in the year.
 
 The ACOM project, our largest single product order is progressing well.
 It is now in a full-fledged build mode and we look forward to the
 year-end delivery.  The BeNeLux site implementation for GMAC also went
 live this year.
 
 As committed in my letter last year, we have ramped up our sales force
 this year by doubling it. In some countries, we have hired local people
 to tap the local markets. We have also made substantial investments in
 sales and marketing in the growing markets of Middle East and Africa;
 opened our sales prospecting activities in CIS and Eastern Europe, and
 are now working very hard in Latin America and Mainland Europe,
 foreseeing a very strong demand for retail banking products. Last year
 was encouraging in terms of number of RFPs or request for proposals and
 we received 125 of them. During the year, the Company participated in
 many events, one of them in the CIS region, another in Boston, at SIBOS
 which is the Premier World Banking Conference. The responses gathered
 in these events have fuelled our growth strategy.
 
 As a result of our Product Development initiatives, FinnOne™ suite
 today covers multiple business areas like auto loans, mortgages,
 personal loans and SME loans, while Cash@Will applications provide
 end-to-end support in the areas of collections, payments and liquidity
 management for corporate customers of the financial institutions.
 
 To maintain our competitive edge in the market place, we are following
 a double benefit approach of technology upgradation and enriching our
 products to cater to the growing needs of financial institutions.
 
 A new release of all our key modules of FinnOne™, Customer Acquisition
 System, Loan Management System, and Collections is being scheduled.
 This new release will enrich our products in the areas of captive auto
 financing, dealer financing, insurance management, sales lead
 management, business partner incentive, and payment management. In
 addition, to meet the growing needs of Islamic banking, FinnOne™
 product is being further enhanced and customized to meet the specific
 business requirements of Islamic banking customers, mainly located in
 the Middle East.
 
 Our strategy for the future growth includes, to continue focus on
 banking products, introduce new features, move to new technology, open
 new markets, achieve even higher level of customer satisfaction and tap
 opportunities in developed countries arising from the current turmoil
 in consumer finance and also through replacement of legacy systems.
 
 To meet our strategic goals, we are continuing to recruit aggressively,
 creating additional infrastructure for future requirements. Besides
 leasing of land in SEZ, where the development centre will become
 operational in FY 2010, our new Marketing and support centre is ready
 for operations at Dubai.  We have also opened a branch of our Singapore
 subsidiary in Korea. This year also saw the commencement of operations
 of our new marketing and support centre in Mumbai.from new premises.
 
 We have added 404 associates in FY 2008, taking our total strength to
 1,936 in March 2008 against 1,532 in March 2007.We have taken several
 initiatives in the year to strengthen our HR function, which include
 institutionalizing instructional-based skill development training for
 our employees, tie-up with a renowned Management Institute for
 imparting MBA programs for our employees and Annual Incentive Plan for
 all our employees. They have delivered immense results in terms of
 meeting objectives and while attrition is still a major concern, it is
 already on a downward trend in the industry and we expect to address it
 suitably.
 
 With a strong value-driven culture, your Company has always laid stress
 on the importance of Corporate Governance and adopted best practices in
 Corporate Governance. For the second consecutive year, the Company has
 been selected amongst the top 25 companies adopting Good Corporate
 Governance Practices by the Institute of Company Secretaries of India.
 This stands as a testimony to our commitment for pursuing good
 Corporate Governance. NASSCOM, the premier organisation that represents
 and sets the tone for public policy for the Indian software industry,
 ranked your Company amongst the top 15 most exciting emerging IT/BPO
 companies to work for.  The Company was also adjudged as one of the
 fastest growing companies in Asia Pacific under Deloitte Technology
 Fast 500 - 2007. We were also conferred with Oracle Partner of the Year
 Award in Fusion Middleware category at an APAC level and also awarded
 for being the Fastest Growing ISV in 2007 by Oracle Corporation.
 
 These accolades have instilled more faith in our values and have
 motivated us to work with more enthusiasm and commitment to reach the
 highest standards.  We appreciate and honour the hard-work and support
 of all Nucleites, guidance of our Board Members and well-wishers,
 support of our customers, business associates and shareholders, for
 making this journey of Nucleus Software a very exciting and thrilling
 one.
 
 
                                Vishnu R Dusad
 
                                CEO & Managing Director
 
 Date: April 27,2008