Patni Computer Systems

The macroeconomic environment created by the current recession made
 2008 a challenging year for growth. Being an integral part of the
 global value chain, the recessionary wave sweeping the world has had a
 direct bearing on the IT-BPO industry in India. Cost-pressures across
 most of the geographies and industries resulted in intense ‘pricing &
 volume pressures’, and longer sales cycles. We responded to these
 challenging times by continuing to emphasize on operating efficiencies
 and making adaptive organizational and other changes.
 
 Some key changes made during the year:
 
 - We redefined our vision, mission and values to adapt to the changing
 industry environment. We strategically changed the definition of our
 market positioning & differentiation, organizational structure, and
 growth initiatives. We expect these changes to improver our competitive
 strength and company performance, and enable us to achieve our growth
 mission.
 
 As part of our transformation program, we continued to invest in three
 key initiatives:
 
 - Customer focus and collaboration - We worked on deepening our
 customer relationships, and developed ACT!Now - a cost transformation
 program to help our clients transform their business with optimal
 results.
 
 - Strengthening our capabilities for competitive differentiation - We
 focused on integration and consolidation of our collective capability
 across verticals, horizontals, and centers of excellence to exploit our
 synergistic potential as an organization. We focused on developing
 IP-led frameworks, solutions/services and reusable components. We added
 consulting services and IT transformation services as our offerings.
 
 Operational excellence – We focused on operational efficiencies and
 effectiveness, cost savings, and organizational optimization with
 absolute rigor.
 
 We completed the succession planning process with the appointment of
 Jeya Kumar as the new Chief Executive Officer. Jeya has more than 25
 years of global IT experience, most recently as CEO of Mphasis – a
 leading IT solutions, services and BPO provider with over 28,000
 employees.  Prior to Mphasis, Jeya was a Senior Vice-President with Sun
 Microsystems, heading its US$ 5.2 billion services business, and also a
 member of their Executive Management Group.
 
 Industry Environment
 
 NASSCOM’s Strategic Review 2008 reports that even during this difficult
 phase, the Indian IT-BPO software and services industry aggregated
 revenues of USD 60 billion in FY 2008-09 and generated employment for
 over 2.23 million people.  Export figures reveal that while the US and
 UK account for nearly 60% and 19%, respectively; Continental Europe
 chips in 13%; the Asia Pacific region 8%; with the rest of the world at
 2%. While the Banking, Financial Services & Insurance segment (BFSI
 remains the biggest sector, verticals like Hi- Tech, Telecom,
 Manufacturing and Retail are increasingly gaining share. Indian IT
 Service providers have evolved from application development and
 maintenance companies to full- service players providing testing,
 infrastructure services, consulting and system integration. BPO is the
 fastest growing segment of the industry, with a 17.5% growth.
 Additionally, the engineering, R&D and software products segments
 showed a 14.4 % growth in 2008-09.
 
 Even as the economic downturn has compelled organizations to relook at
 their spending budgets, the advantages of global sourcing are seen as
 an opportunity to tide over tough times and maintain competitiveness.
 Global industry analysts report that as discerning organizations
 understand the value of business-outcome focused outsourcing as against
 low-cost focused outsourcing, the current recession could create
 additional opportunities for the global sourcing industry.
 
 Strong fundamentals, a robust enabling environment, and enhanced value
 delivery capability are the hallmarks of the Indian IT-BPO industry.
 However, increased competition from among other countries in the global
 sourcing market, calls for concerted efforts to ensure that the country
 maintains its leadership position.
 
 Corporate Performance
 
 The Company’s 2008 revenues were up by 8.4% at US$ 718.9 million from
 US$ 662.9 million in 2007. Our net income, excluding hedging loss, grew
 by 32% at US$ 119.8m. Despite the cost pressure and lower volume
 growth, we were able to add US$ 149m in cash from operating activities
 in the year 2008, against US$ 111m in 2007.
 
 We received the ‘Smart Workplace Award 2008’ instituted by Economic
 Times, and the ‘2008 Marketing Excellence – Diamond Award’ by ITSMA. We
 also received the ‘Managing Health at Work’ and ‘Innovative Retention
 Strategy’ awards at the ‘World HRD Congress’ 2008-09.
 
 Building Solutions for Differentiation
 
 During the year, we consolidated and repurposed a number of Business
 Units (BUs), specifically the Manufacturing, Retail & Distribution
 (MRD) BU; and the Communications, Media & Utilities (CMU) BU. We also
 created a single ‘Customer Dynamics & Intelligence’ (CDI) BU by merging
 the Customer Relationship Management (CRM), Enterprise Integration (EI)
 and Business Intelligence (BI) service lines. This move was intended to
 leverage operational efficiencies, and more importantly to utilize the
 resultant scale and the synergy between the technology practices and
 common service lines for improved investment and growth opportunity.
 
 Insurance BU continued to retain the distinction of being the ‘highest
 revenue and highest margin’ business unit in 2008.  We succeeded in
 retaining our preferred vendor status with most of our clients, while
 we also acquired several new customers with our exclusive value
 proposition. Our program of developing solution assets has resulted in
 a number of processes, methodologies and frameworks which will enable
 us to provide differentiated solutions for Long-Term Care, New Business
 Fulfillment and Policy Administration consolidation.
 
 Financial Services (FS) BU continued to implement its strategy of
 rapidly expanding its customer base while growing industry practices
 like asset management and benefits administration.  We acquired 13 new
 customers, representing leaders in the banking and investment
 management segments.
 
 Manufacturing, Retail & Distribution (MRD) BU grew its combined
 revenues by over 13% in 2008. The client base is now well diversified
 with five relationships exceeding US$ 10 mil in annual billings. Our
 relationship with our strategic partner SAP strengthened significantly
 with the execution of several joint marketing campaigns during the
 year. We further improved our leadership position in Managed Services
 engagements. We have now developed a new framework that allows our
 customers to create a multi-year managed services program for new
 software development.
 
 Communications, Media & Utilities (CMU) BU grew with a de-risked
 portfolio of revenue tilting away from our traditional North American
 base and displayed a stellar growth of 27% in the EMEA region. During
 2008, we consolidated our consulting, systems integration and offshore
 platform into a cohesive unit which is now able to seamlessly deliver
 services for clients across the complete spectrum of the value chain.
 Consulting revenues tripled in 2008. CMU’s most notable success,
 however, was the acquisition of another large European Broadband
 service provider, which enabled us to secure our first true end-to-end
 outsourcing and managed service contract which also incorporated
 complex TUPE operations.
 
 Product Engineering Services (PES) BU did well in sustaining its
 business engine with revenues, more than 90% of which came from repeat
 business from diverse industries. The BU now nurtures approximately 90
 customer relationships, with the world’s leading R&D and technology
 enterprises, and OEMs. We continue to maintain our industry leadership
 position in the Medical, Storage, and Automation domains.
 
 Life Sciences BU started working with several new clients and expanded
 its relationship with many others. The BU continued to build its deep
 domain knowledge and bring new offerings to market. Our two new
 industry solutions: Patni ADEPTTM – an adverse event case processing
 toolbox, and iCAPA – a NetWeaver-based corrective and preventive action
 software product show great promise of success. We also built and
 brought to market a new offering in the LIMS Master Data Management
 space.
 
 Enterprise Application Solutions (EAS) BU achieved significant wins in
 high value-add areas like supply network collaboration (SNC), variant
 configuration (VC), multi-resource scheduling (MRS), complex
 maintenance repairs & overhaul (CMRO). We further consolidated our
 position in Application Management Services (AMS) with large deals. As
 the only Indian global services AMS partner of SAP, currently, we are
 uniquely placed to jointly partner with SAP to take this offering to
 their large customer base.
 
 Customer Dynamics & Intelligence (CDI) BU launched multiple solutions
 catering to telecom, financial services and life sciences industries.
 Our horizontal CRM & SOA solutions were launched at Oracle Open World.
 Business Intelligence solutions for predictive analytics and data
 mining were launched and delivered in collaboration with SAS.
 
 CIS & BPO BU posted a revenue growth of nearly 40% in 2008, added
 several marquee names to its growing clientele and expanded business in
 the EMEA region. This consistent growth and performance is a validation
 of our strategy to stay focused in select areas including complex and
 high value services and taking integrated IT+ CIS-BPO propositions to
 the market.
 
 The BU scaled up its Insurance, KPO, telecom, F&A, asset management and
 integrated help desk practices and also launched new service offerings
 in the areas of retail banking and asset administration (financial
 control & reporting) and content management services. We are among the
 market leaders in select service lines like health insurance, actuarial
 services, asset management, help desk, analytics and benefits
 administration.
 
 Infrastructure Management Services (IMS) BU, received noteworthy
 recognitions and accolades during the year. We were ranked among the
 ‘Top 10 Best Performers in IT Infrastructure Services’ in the Global
 Services 100 listing. We were also positioned in the challenger’s
 quadrant of Gartner’s ‘Magic quadrant for Help Desk Outsourcing
 Services, North America’ for 2009. The IMS team was applauded by a
 large media co in the US for its phenomenal contribution in ensuring
 seamless coverage of key events in the year 2008, such as the Beijing
 2008 Olympics, the US Presidential elections and the Super Bowl.
 
 In response to changing market conditions, IMS repackaged its services
 to RIMO++ and ADM++ with the intent of transitioning operation risks
 from the customer to Patni.  Database Administration, Web Operations
 and Datacenter Operations continue to be key productized offerings.
 
 Verification & Validation (V&V) BU, a third-party Testing services
 group, maintained its high-growth trajectory and grew by 33% in 2008.
 With its Managed Test Center offering, which consolidates various
 testing projects into one test center, it was able to offer an
 optimized solution for testing. A key event in the automated testing
 area was the release of ‘Framework for Accelerated Automation Solution
 for Testing (FAAST), which was developed, piloted and implemented
 across a few clients.
 
 The Business Process Management (BPM) CoE strengthened its service
 offerings by expanding its solutions across most leading BPM suite
 platforms.
 
 The IT Governance CoE grew its footprint by launching innovative
 solutions specifically ‘e-mail plug in on blackberry for HP-PPM &
 CA-Clarity’, ‘Data archival solution for HP-PPM’ and ‘Workflow maker
 for HP-PPM’.
 
 Regional Performance
 
 During the year, our strong focus on geographical diversification
 started yielding results. We expanded our geographical footprint to get
 a larger share of revenues from emerging markets in the EMEA (Europe,
 Middle East and Africa) and APAC (Asia Pacific) regions.
 
 US region continued to be the biggest market with a 77% contribution to
 the total revenues in 2008.
 
 EMEA region’s contribution increased to 17.4% in 2008.
 
 Asia Pacific region registered a 25% growth and contributed 5.6% to the
 total revenues for the year.
 
 Infrastructure
 
 In 2008, we inaugurated a Green IT-BPO Patni Knowledge Centre in Noida.
 Set up at an investment of over US$ 40 million (Rs. 175 crores), the
 centre is spread across 5 acres and has a seating capacity of over
 3,500 in a single shift.
 
 The launch of Patni’s first Green centre is a significant step in
 demonstrating the Company’s commitment to environment conservation and
 giving employees a healthier and better workplace. The facility is
 designed and constructed as per the guidelines of LEED (Leadership in
 Energy and Environmental Design) and has been awarded the LEED Platinum
 rating.
 
 People Initiatives
 
 As we continued to enhance our strengthened teams and globalize our
 workforce, several new initiatives were rolled out in the year 2008.
 Our global team strength stood at 14,894 at the close of 2008. We added
 14 senior management personnel at the Vice-President level and above,
 during the year. ‘Engagement initiatives’ introduced during the year
 resulted in a sharp dip in our net attrition rate.
 
 The Patni Academy for Competency Enhancement (PACE) and Learning &
 Development delivered technical, functional & behavioral training of
 close to 86,000 person days in 2008.  Totally, 150 employees have
 completed their Master’s degree through Patni–BITS collaborative
 program in Software Engineering.
 
 Global Resources in Technology (GRiT) was launched as a corporate
 initiative with the primary intent of building the technology
 competency of the Company, to make us industry leaders. Over 4000
 technical professionals were brought under GRiT. Campus Connect
 programs were launched through the ‘Pledge’ initiative to build focused
 relationships with select graduate colleges, and to improve the quality
 of college education for the IT industry.
 
 New Corporate Social Responsibility (CSR) initiatives have renewed the
 sense of responsibility with the launch of the payroll giving program,
 blood donation camps and other employee CSR group activities.
 
 Corporate Governance
 
 In the light of the concerns of investors with respect to Corporate
 Governance issues, I would like to assure all our shareholders that
 your Company operates with highest standards of conduct for its board,
 management and employees. Over the three decades in the industry, we
 have built a strong culture, which upholds compliance in letter and
 spirit. We have always prided ourselves for setting the highest
 standards of business ethics in our dealings with all our stakeholders.
 
 Looking Beyond
 
 When the going gets tough, the tough get going. I have great confidence
 in the spirit of Team Patni. Besides, Jeya Kumar is a seasoned
 professional with tremendous experience in the services industry, and a
 strong track record of excellent performance. I am very confident that
 the Company will continue to flourish under his leadership from here
 on. I also want to take the opportunity to thank Loek van den Boog who
 was appointed as Executive Director of the Company in helping me in
 this succession and also devoting his time to run the operations of the
 Company during the last 9-12 months.
 
 Despite the all-pervasive recessionary forces that are posing numerous
 challenges in achieving visibility in business growth and
 profitability, I am confident that the Company’s efforts led by a
 transformed, strengthened, and re-energized Team Patni, will yield
 positive results in the mid-to long-term. I am also confident that
 Patni will soon regain its position as a strong player in this exciting
 market.
 
                                                               Regards,
                                                     Narendra K. Patni
 
 5 May 2009
 Mumbai