R Systems International Directors Report, R Systems Intl Reports by Directors

Directors Report	Year End : Dec '12 � Dec 11

Dear Shareholders, The directors take great pleasure in presenting the Nineteenth Annual Report on the business and operations of R Systems International Limited (R Systems or the Company) together with the audited statements of accounts for the year ended December 31, 2012. 1. FINANCIAL RESULTS a. Standalone fnancial results of R Systems (Rs. in lakhs) Particulars Financial Year ended 31.12.2012 31.12.2011 Total income 23,314.88 19,768.03 Proft before depreciation, 3,696.62 1,671.59 exceptional items and tax Less : Depreciation and 624.01 881.24 amortisation Proft before tax 3,072.61 790.35 Less : Current tax (net of MAT 954.02 477.24 credit) Less : Deferred tax 65.82 (333.40) Proft after tax 2,052.77 646.51 Surplus in the statement of proft and loss Balance as per last fnancial 8,050.09 7,982.43 statements Add: Proft for the current 2,052.77 646.51 year Less: Appropriations Proposed dividend 939.05 443.41 Tax on proposed dividend 152.34 70.79 Final dividend* 3.50 - Tax on fnal dividend* 0.57 - Interim dividend 1,991.95 - Tax on interim dividend 323.14 - Transfer to general reserve 595.29 64.65 Total appropriations 4,005.84 578.85 Net surplus in the 6,097.02 8,050.09 statement of proft and loss It relates to fnal dividend paid for the year 2011, on account of 97,220 additional equity shares issued under ESOP after the approval of previous year accounts but before the book closure dates. b. Consolidated fnancial results of R Systems and its subsidiaries (Rs. in lakhs) Particulars Financial Year ended 31.12.2012 31.12.2011 Total income 47,001.32 41,505.98 Proft before depreciation, 3,894.30 3,403.76 exceptional items and tax Less : Depreciation and 1,008.94 1,311.85 amortisation Proft before tax 2,885.36 2,091.91 Less : Current tax (net of MAT 949.86 857.44 credit) Less : Deferred tax 99.30 (416.78) Proft after tax 1,836.20 1,651.25 Surplus in the statement of proft and loss Balance as per last fnancial 7,991.05 6,918.65 statements Add: Proft for the current 1,836.20 1,651.25 year Less: Appropriations Proposed dividend 939.05 443.41 Tax on proposed dividend 152.34 70.79 Final dividend 3.50 - Tax on fnal dividend* 0.57 - Interim dividend 1,991.95 - Tax on interim dividend 323.14 - Transfer to general reserve 595.29 64.65 Total appropriations 4,005.84 578.85 Net surplus in the 5,821.41 7,991.05 statement of proft and loss Previous Year fgures have been regrouped / recasted, wherever necessary. 2. RESULTS OF OPERATIONS Standalone Accounts - Total income during the year 2012 increased to Rs. 23,314.88 lakhs as against Rs. 19,768.03 lakhs during the year 2011, a growth of 17.94%. - Proft after tax was Rs. 2,052.77 lakhs during the year 2012 as compared to Rs. 646.51 lakhs during 2011, a growth of 217.51%. - Basic earnings per share was Rs. 16.50 for the year 2012 as compared to Rs. 5.25 for the year 2011, a growth of 214.35%. Consolidated Accounts - Consolidated total income during the year 2012 increased to Rs. 47,001.32 lakhs as against Rs. 41,505.98 lakhs during the year 2011, a growth of 13.24%. - Proft after taxes was Rs. 1,836.20 lakhs during the year 2012 as compared to Rs. 1,651.25 lakhs during 2011, a growth of 11.20%. - Basic earnings per share were Rs. 14.76 for the year 2012 as compared to Rs. 13.41 for the year 2011, a growth of 10.12%. 3. APPROPRIATIONS AND RESERVES Dividend The Board of Directors on the occasion of Company having entered into 20th year of its business since incorporation, at its meeting held on May 18, 2012 declared the special dividend in the form of interim dividend at the rate of Rs. 16/- (Rupees Sixteen only) per equity share of Rs. 10/- each. Taking into consideration the operating profts for the year 2012 and a positive outlook for the future, the Board of Directors (the Board) is pleased to recommend a fnal dividend of Rs. 7.50 per equity share, being 75% on the par value of Rs. 10 per share (previous year Rs. 3.60 per share, being 36% on the par value of Rs. 10 per share), to be appropriated from the profts of the Company for the fnancial year 2012 subject to the approval of the shareholders at the ensuing Annual General Meeting. The dividend, if approved, will be paid to all the equity shareholders whose names appear in the Register of Members of the Company as of the opening business hours on May 03, 2013 after giving efect to all valid share transfers in physical form which would be received by the Company''s registrar and share transfer agent M/s Link Intime India Private Limited up to the end of business hours on, May 02, 2013 and to those whose names appear as benefcial owners in the records of National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) as of the said date. The register of members and share transfer books shall remain closed from May 03, 2013 to May 11, 2013, both days inclusive. Transfer to Reserves It is proposed to transfer a sum of Rs. 20,527,701/- (Rupees Two Crore Five Lakhs Twenty Seven Thousand Seven Hundred and One only) from the current year proft and Rs. 39,001,591/- (Rupees Three Crore Ninety Lakh One Thousand Five Hundred and Ninety One only) from the carried forward surplus in Statement of Proft and Loss to the General Reserve in compliance with the Companies (Transfer of Profts to Reserves) Rules, 1975. 4. BUSINESS R Systems is a leading provider of outsourced product development services, business process outsource services and also ofers own product suite in BFSI, Manufacturing & Logistic verticals. R Systems diversifed ofering includes: IPLM Services Group Under IPLM Services, R Systems delivers solutions and services in the area of Information Technology and Information Technology enabled services. The IT services cover application development, systems integration and support and maintenance of applications. Under the ITES we cover managed services, BPO services covering both technical support for IT and Hi-Tech electronic gadgets, high-end Quality Process Management and Revenue and Claims Management using our global delivery model in 18 languages. Products Group R Systems products group consists of Indus solutions and ECnet Supply Chain products. Indus solutions oferings include an integrated enterprise multi-portfolio lending suite for banking and fnancial services, credit management and revenue collection for telecom companies, iPerSyst for insurance companies which helps in timely policy renewal and customer retention along with other IT services to banking and fnancial service clients. ECnet Supply Chain products provide solutions for holistic management of the complex interaction between an organisation and its trading partners. The integrated solution aims to reduce all supply chain costs through improved collaboration and optimisation. R Systems is focused on key business verticals - Telecommunication and Digital Media, BFSI, Hi-Tech Manufacturing and Logistics, Government and Health Care and invested in building capabilities and domain knowledge around these focused verticals. This has helped in providing innovative and cost efcient solutions or services under chosen verticals. Customers and Delivery Centres R Systems rapidly growing customer list includes a variety of Fortune 1000, government and mid-sized organizations across a wide range of industry verticals including Banking and Finance, High Technology, Independent Software Vendors, Telecom and Digital Media, Government, HealthCare, Manufacturing and Logistic Industries. R Systems maintains thirteen development and service centres and using our global delivery model, we serve customers in the US, Europe, South America, the Far East, the Middle East and Africa. There were no changes in the nature of the Company''s business and generally in the classes of business in which the Company has an interest and in the business carried on by the subsidiaries during the year under review. For details of Company''s subsidiaries please refer note number 14 relating to subsidiaries. 5. QUALITY R Systems has continuously invested in processes, people, training, information systems, quality standards, frameworks, tools and methodologies to mitigate the risks associated with execution of projects. Adoption of quality models and practices such as the Software Engineering Institute''s - Capability Maturity Model Integrated (SEI-CMMi) and Six Sigma practices for processes have ensured that risks are identifed and mitigated at various levels in the planning and execution process. R Systems journey for various quality certifcations / standards for the development and service centres in India is provided below: In the year 2012, Noida centre of the Company is appraised at PCMM Level 5 (Ver 2.0). As of the date of this report, Noida IT centre is SEI-CMMi level 5, PCMM Level 5, ISO 9001 : 2008 and ISO 27001 : 2005 certifed; Noida BPO centre is PCMM Level 5, ISO 9001 : 2008 and ISO 27001 : 2005 certifed. Pune and Chennai development centres are SEI-CMM Level 5, ISO 9001 : 2008 and ISO 27001 : 2005 certifed. The continuing compliance with these standards demonstrates the rigor of R Systems processes and diferentiates us to keep our competitive edge in service and product oferings. To maintain and strengthen competitive strengths, R Systems continues to make investments in its unique and proprietary with best practices, tools and methodologies for fawless execution and consistent delivery of high quality software. The pSuite framework ofers services along the entire software lifecycle that includes technology consulting, architecture, design and development, professional services, testing, maintenance, customer care and technical support. R Systems expects that its technology focus, investment in processes, talent and methodologies will enable it to distinguish itself from competition as it seeks to provide services to technology / product companies. 6. ACQUISITION During the year under review, ECnet Limited, Singapore, a 99.56% subsidiary of the Company has entered into defnitive agreement with Nikko Computer Systems (s) Pte Ltd. (NCS) for acquisition of its ERP business. This acquisition has been completed by ECnet Limited, Singapore on March 13, 2013. NCS provides ERP implementation and support services primarily to Japanese companies located in Singapore and Malaysia. This business acquisition will strengthen our ERP business and customer base in South East Asia under our subsidiary ECnet Limited, Singapore. The acquisition will provide a good Japanese client base and help to grow our business in the South East Asia region. 7. DIRECTORS During the year under review, the following changes took place in the ofce of directors of the Company. Lt. Gen. Baldev Singh (Retd.) and Mr. Raj Swaminathan were reappointed as directors liable to retire by rotation and Lt. Gen. Baldev Singh (Retd.) was further re-appointed as President & Senior Executive Director of the Company for a period of three years w.e.f. April 01, 2012 at the previous Annual General Meeting held on May 04, 2012. The Board of Directors at its meeting held on July 28, 2012 has appointed Mr. Anuj Kanish as an alternate Director to Mr. Gurbax Singh Bhasin. Further, at the meeting of Board of Directors held on September 16, 2012 Mr. Raj Swaminathan has been re-appointed as Director & Chief Operating Ofcer of the Company for a period of three years i.e. w.e.f. September 29, 2012 to September 29, 2015 subject to the approval of the Central Government, if applicable and the shareholders at the ensuing Annual General Meeting of the Company. At the ensuing Annual General Meeting, Mr. Raj Kumar Gogia and Mr. Gurbax Singh Bhasin directors of the Company are liable to retire by rotation in accordance with the provisions of Section 255 and 256 of the Companies Act, 1956 read with the Articles of Association of the Company and being eligible, ofer themselves for reappointment as directors of the Company. None of the directors of the Company are disqualifed as per the provisions of Section 274(1)(g) of the Companies Act, 1956. The directors of R Systems have made necessary disclosures, as required under various provisions of the Act and Clause 49 of the Listing Agreement. 8. EMPLOYEES STOCK OPTION PLANS / SCHEMES The industry in which R Systems operates is people intensive and R Systems believes that 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 compensation packages for their dedication, hard work, loyalty and contribution towards better performance of the Company. To enable more and more employees to be a part of the fnancial success of the Company, retain them for future growth and attract new employees to pursue growth, R Systems has set up employees stock option plans / schemes from time to time for its employees and for the employees of its subsidiaries. As on the date of this report, the prevailing stock option plans of R Systems are as follows: (a) R Systems International Ltd. - Year 2004 Employee Stock Option Plan : For the employees of R Systems and its subsidiaries other than ECnet Limited. (b) R Systems International Ltd. - Year 2004 Employee Stock Option Plan � Ecnet : For the employees of ECnet Limited, a subsidiary of R Systems. (c) Indus Software Employees Stock Option Plan - Year 2001 : Initially formulated for the employees of Indus Software Private Limited which got amalgamated with R Systems and the plan continues as per the scheme of amalgamation approved by the Hon''ble High Courts of Delhi and Mumbai. As on the date of this report, no stock options are in force under this plan. (d) R Systems International Limited Employee Stock Option Scheme 2007 : For the employees of R Systems and its subsidiaries. As required under the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme), Guidelines, 1999 as amended, details relating to options approved, granted, vested, exercised, lapsed, in force etc. under the prevailing employees stock option plans / schemes during the year ended December 31, 2012 are as follows: S. Particulars R Systems R Systems No. International International Ltd.- Ltd. Year - 2004 Year 2004 Employee Employee Stock Stock Option Plan - Option Plan ECnet (a) (b) a. Total number of 199,500 200,000 shares covered under the plan b. Pricing Formula Prevailing Price Prevailing Price once once the Company''s the Company''s shares shares are listed and are listed and at the at the Fair Market Fair Market Value Value as per the as per the terms of terms of R Systems R Systems International International Ltd. - Ltd. - Year 2004 Year 2004 Employees Employees Stock Stock Option Plan on Option Plan - ECnet on the date such option the date such option is granted when the is granted when the Company''s shares are Company''s shares are not listed. not listed. c. Options granted Nil Nil during the year d. Options vested Nil Nil during the year S.No Indus Software R Systems International Limited Employees Stock Employee Stock Option Scheme Option Plan Year 2007 2001 (c) (d) a. 73,898 650,000 b. As approved under Exercise Price means the market the Scheme of price which is payable for exercising Amalgamation the options and Market Price means of Indus Software the latest available closing price, Private Limited with prior to the date of the meeting of the the Company by Board of Directors / Compensation the Hon''ble High Committee, in which options are Courts of Delhi and granted, on the stock exchange on Mumbai. which the shares of the Company are listed. If the shares are listed on more than one stock exchange, then the stock exchange where there is highest trading volume on the said date shall be considered. c. Nil Nil b. Nil Nil S. Particulars R Systems R Systems No. International International Ltd.- Ltd. Year - 2004 Year 2004 Employee Employee Stock Stock Option Plan - Option Plan ECnet (a) (b) e. Options exercised Nil Nil during the year f. The total number of Nil Nil shares arising as a result of exercise of options during the year g. Options lapsed 5,890 600 during the year h. Variation of terms of Nil Nil options during the year i. Money realised by Nil Nil exercise of options during the year (Rs.) j. Total number of 56,035 6,200 options in force at the end of the year k. Employee wise details of options granted to (during the year) (i) Senior managerial Nil Nil personnel (ii) Any other employee Nil Nil who receives a grant in any one year of options amounting to 5% or more of options granted during that year (iii)Identifed employees Nil Nil who were granted options, during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant l. Diluted Earnings Per N.A. N.A. Share (EPS) pursuant to issue of shares on exercise of options S.No Indus Software R Systems International Limited Employees Stock Employee Stock Option Scheme Option Plan Year 2007 2001 (c) (d) e. Nil 203,822 f. Nil 203,822 g. Nil 15,500 h. Nil Nil i. Nil 24,601,315.40 j. Nil 255,678 k. (i) Nil Nil (ii) Nil Nil (iii)Nil Nil l. N.A. 16.50 Please note that the details given above for plan (a), (b) and (c) are after making the required adjustments in relation to consolidation of each of the 5 equity shares of Rs. 2 each into 1 equity share of Rs. 10 each as approved by the shareholders in the year 2006. During the year ended December 31, 2012, R Systems had not granted any options under any of the aforementioned plans. All options granted under Indus Software Employees Stock Option Plan - Year 2001 have already been vested and exercised or lapsed and no options were in force as on December 31, 2012. For options granted during the earlier years under plan (a), (b) and (c), R Systems used 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, the management obtained fair value of the options at the date of grant under respective schemes from a frm of Chartered Accountants, to determine accounting impact, if any, of options granted over the periods. In the considered opinion of the valuer, the fair value of 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: Assumptions Unit Scheme Scheme Scheme Comments by the (a) * (b) (c)* valuer Strike price Rs. 42 154 26 Current share Rs. 16 140 16 Taken on the basis of price NAV and PECV method of valuation. Expected No. of 5 2.5 5 Being half of the option life Years maximum option life. Volatility % 1 0.5 1 In case of unlisted shares, the volatility may be taken as zero. Verma committee also recommends this. Risk free % 7 11.3 7 Zero coupon rate return estimated from trading government securities for a maturity corresponding to expected life of option - taken from sites of NSE and / or BSE. Expected % - 15 - Company has no set dividend policy so dividend taken Yield as zero. In case of Indus plan, as the dividend had been paid by the erstwhile company, it has been assumed at 15%. * R Systems International Ltd. - Year 2004 Employee Stock Option Plan under which the price was based on Rs. 2 per share. Indus Software Employees Stock Option Plan - Year 2001 under which originally the price was based on Rs. 10 per share for 21,967 shares. As a result of amalgamation of Indus Software Private Limited into R Systems, R Systems had issued 206,822 equity shares of Rs. 2 each pursuant to the swap ratio approved by Hon''ble High Courts of Delhi and Mumbai. * R Systems International Ltd. - Year 2004 Employee Stock Option Plan - ECnet under which the price was based on Rs. 2 per share. The above information is based on Rs. 2 per share prior to consolidation of 5 equity shares of Rs. 2 each into one equity share of Rs. 10 and subsequent allotment of bonus shares in the ratio of 1 : 1. Further, for the purpose of valuation of the options granted during the year 2005 under R Systems International Ltd. - Year 2004 Employee Stock Option Plan, the management obtained fair value of the options at the date of grant from a frm of Chartered Accountants, to determine accounting impact, if any, of options granted. In the considered opinion of the valuer, the fair value of these options determined using ''Black Scholes Valuation Model'' is Nil and thus no accounting thereof is required. The assumptions used by the valuer for the purpose of determination of fair value are stated below: Assumptions Unit Scheme Comments by the valuer Stfrike price Rs. 42 Current share Rs. 13.58 Taken on the basis of NAV and price PECV method of valuation. Expected option No. of 5 Being half of the maximum life Years option life. Volatility % 1 In case of unlisted shares, the volatility may be taken as zero. Verma committee also recommends this. Risk free return % 7.42 Zero coupon rate estimated from trading government securities for a maturity corresponding to expected life of option - taken from sites of NSE. Expected % - Company has no set policy so dividend Yield dividend taken as zero. The above information is based on Rs. 2 per share prior to consolidation of 5 equity shares of Rs. 2 each into one equity share of Rs. 10 and subsequent allotment of bonus shares in the ratio of 1 : 1. For the purpose of valuation of the options granted during the year ended December 31, 2007 under R Systems International Limited Employee Stock Option Scheme 2007, the compensation cost relating to Employee Stock Options, calculated as per the intrinsic value method is nil. The management obtained fair value of the options at the date of grant from a frm of Chartered Accountants. In the considered opinion of the valuer, the fair value of these options determined using ''Black Scholes Valuation Model'' is Rs. 50.73 per option. The assumptions used by the valuer for the purpose of determination of fair value are stated below: Assumptions Unit Scheme Comments by the valuer Strike price Rs. 120.701 Current share Rs. 118.50 Price on the date of grant by price Board of Directors i.e. closing price on July 11, 2007. Expected No. of 4 Being the vesting period. option life Years Volatility % 44 On the basis of industry average. Risk free % 7 Zero coupon rate estimated from return trading government securities for a maturity corresponding to expected life of option - taken from site of NSE. Expected % 0.86 Company has declared Dividends dividend Yield of 12% in the past. Assuming that it will continue declaring similar dividends in future. The stock based compensation cost calculated as per the intrinsic value method for the fnancial year 2011 and 2012 was nil. If the stock based compensation cost was calculated as per fair value method prescribed by SEBI, the total cost to be recognised in the fnancial statements for the year 2012 would be Rs. (-)786,296/- (Previous year Rs. (-)585,874/-). The efect of adopting the fair value method on the net income and earnings per share is presented below: Pro Forma adjusted Net Income and Earnings Per Share (Amont in Rs.) Particulars Year ended Year ended December 31, December 31, 2012 2011 Net Income as reported 205,277,009 64,651,348 Add : Intrinsic Value Compensation Cost - - Less : Fair Value (786,296) (585,874) Compensation Cost* Adjusted Pro-forma Net 206,063,305 65,237,222 Income Earnings Per Share Basic - As reported 16.50 5.25 - Proforma 16.57 5.30 Diluted - As reported 16.50 5.19 - Proforma 16.57 5.24 *Figures in brackets represent income due to options lapsed during the year. Weighted average exercise price of options granted during the year S. Particulars Scheme Scheme Scheme Scheme No. (a) (b) (c) (d) 1. Exercise price equals N.A. N.A. N.A. N.A. market price 2. Exercise price is N.A. N.A. N.A. N.A. greater than market price 3. Exercise price is less N.A. N.A. N.A. N.A. than market price Weighted average fair value of the options granted during the year S. Particulars Scheme Scheme Scheme Scheme No. (a) (b) (c) (d) 1. Exercise price equals N.A. N.A. N.A. N.A. market price 2. Exercise price is N.A. N.A. N.A. N.A. greater than market price 3. Exercise price is less N.A. N.A. N.A. N.A. than market price Scheme (a): R Systems International Ltd. - Year 2004 Employee Stock Option Plan. Scheme (b): Indus Software 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) and Scheme (d), hence the required information is not applicable. 9. LIQUIDITY AND BORROWINGS - CONSOLIDATED FINANCIAL STATEMENT Cash and bank balance, including bank deposits as of December 31, 2012 was Rs. 8,893.91 lakhs against Rs. 9,495.54 lakhs as of December 31, 2011. Decrease was mainly on account of payment of special dividend in the form of interim dividend along with the frst earn out payment to the ex-shareholder of subsidiary as ofset by cash generated from operations during the year. The cash and bank balance per share as of December 31, 2012 was Rs. 71.46 against Rs. 77.56 as of December 31, 2011. The consolidated cash and cash equivalent as at December 31, 2012 were Rs. 5,241.42 lakhs as against Rs. 5,719.82 lakhs as on December 31, 2011. Net cash generated from operating activities was Rs. 3,451.84 lakhs for the year ended December 31, 2012 compared to Rs. 3,391.84 lakhs for the year ended December 31, 2011. Cash fow generated from operating activities is the signifcant source of funding for investing and fnancing activities. During the year, R Systems paid Rs. 1,121.47 lakhs deferred compensation to the ex-shareholder of a subsidiary, Rs. 858.73 lakhs for the purchase of fxed assets. The interest received during the year 2012 was Rs. 445.91 lakhs against Rs. 552.05 lakhs during the year 2011. Cash used in fnancing activities during the year 2012 was Rs. 2,603.18 lakhs mainly due to payment of dividend of Rs. 2,432.90 lakhs (including special dividend in the form of interim dividend) and Rs. 395.64 lakhs for dividend distribution tax as ofset by proceeds from issuance of share capital pursuant to exercise of employee stock options amounting to Rs. 246.01 lakhs. R Systems'' policy is to maintain sufcient liquidity to fund the anticipated capital expenditures, operational expenses and investments for strategic initiatives. R Systems has a credit facility from the Axis Bank amounting to Rs. 1,850 lakhs (including non-fund based credit limit of Rs. 1,050 lakhs). As at December 31, 2012, the total credit balance was nil under the said line of credit. The total liability of R Systems for motor vehicles purchased against the loan was Rs. 56.32 lakhs as at December 31, 2012. R Systems primary bankers in India are Axis Bank, State Bank of India, ICICI Bank Limited and HDFC Bank Limited. In U.S.A., U.K., Singapore, Netherland and Japan, the primary bankers are California Bank & Trust, Natwest Bank, Citibank N.A., ABN Amro Bank N.V. and Sumitomo Mitsui Banking Corporation respectively. 10. CHANGES IN THE CAPITAL STRUCTURE As of December 31, 2012, the authorised share capital of the Company was Rs. 200,000,000 divided into 20,000,000 equity shares of Rs. 10 each and the issued, subscribed and paid up share capital was Rs. 125,207,080/- divided into 12,520,708 equity shares of Rs. 10 each. During the year under review, the Company has allotted 203,822 equity shares of Rs. 10/- each pursuant to exercise of Stock Options under R Systems International Limited Employee Stock Options Scheme 2007, at an exercise price of Rs. 120.70 per share. Further subsequent to the year end, the Company has allotted 50,100 equity shares of Rs. 10/- each on February 22, 2013 at a price of Rs. 120.70 per equity share pursuant to exercise of options by employees of the Company in terms of R Systems International Limited Employee Stock Option Scheme 2007. With the said allotment, the paid-up capital of the Company stands increased to Rs. 125,708,080/- divided into 12,570,808 fully paid up equity shares of Rs. 10/- each. 11. CORPORATE RESTRUCTURING Pursuant to the scheme of corporate restructuring of its two subsidiaries based in Singapore for their revival and growth namely, ECnet Limited and R Systems (Singapore) Pte Limited as was approved by the Board of your company, loan given by the Company to ECnet Limited has been converted into equity investment during the previous year i.e. 2011. Further implementation of the said corporate restructuring is under process. Following the corporate restructuring strategy for growth, earlier the Board has also approved liquidation of R Systems NV, Belgium (wholly owned subsidiary) and closure of Branch Ofce of the Company in London, United Kingdom, subject to required statutory and corporate approvals in India and the respective countries and the same is under process. 12. MATERIAL CHANGES AFFECTING THE FINANCIAL POSITION OF THE COMPANY Further to the year-end 2012, the Company has allotted 50,100 equity shares of Rs. 10/- each at a price of Rs. 120.70 per share pursuant to the exercise of stock option by employees under R Systems International Limited Employee Stock option Scheme 2007. With this allotment, the paid-up equity capital of the Company has increased to Rs. 125,708,080/- divided into 12,570,808 fully paid up equity shares of Rs. 10/- each. Except as detailed above, there were no other signifcant events subsequent to the balance sheet date till the date of this report which would materially afect the fnancial position of the Company. 13. PARTICULARS OF CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO The particulars as prescribed under Section 217 (1) (e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 for the year ended December 31, 2012 are as follows: A. Conservation of Energy During the year ended December 31, 2012 R Systems continued its'' action plans to curtail the energy bills by adopting various energy conservation options / technologies as identifed by Federation of Indian Chambers of Commerce & Industry (FICCI) through a detailed Energy Audit carried out by FICCI for R Systems Noida operations in the year 2007. Signifcant measures were taken to reduce energy consumption by using energy efcient equipment and devices. R Systems constantly evaluates new technologies and makes appropriate investments to be energy efcient. Currently, the Company uses CFL fttings and electronic ballasts to reduce power consumption of fuorescent tubes. The air is conditioned with energy efcient compressors for central air conditioning and with split air conditioning for localized areas. R Systems is always in search of innovative and efcient energy conservation technologies and applies them prudently. However, R Systems being in the software industry, its operations are not energy intensive and energy costs constitute a very small portion of the total cost, therefore, the fnancial impact of these measures is not material. Form A of the said Rules is not applicable to the software industry. B. Technology Absorption The particulars with respect to technology absorption are given below: (a) Research and Development (R & D) 1. Specifc areas in which R & D carried out by the Company R Systems continues to invest in developing new versions of its proprietary products to operate in diferent environments and in developing new tools in CRM, RMA and other processes to serve the customers. In addition, R Systems carries out research, makes investment in developing new prototypes in varied areas like digital media, mobility, WiMax etc. to demonstrate to its clients. 2. Benefts derived as a result of the above R & D Research and development has helped R Systems in fulflling clients'' needs, winning new engagements from existing clients, winning new customers, growing revenues and enhancing the quality of services. We have been beneftted in product improvement, cost reduction, better product development, import substitution etc. which has resulted in high product quality and increased business potential. 3. Future plan of action The Company continues to focus its eforts on innovations in software development processes, methodologies and tools. 4. Expenditure on R & D The Company''s R & D activities are part of its normal software development process. There is no separate R & D department and hence there is no specifc capital or recurring R & D expenditure. It is not practical to identify R & D expenditure out of the total expenditure incurred by the Company. (b) Technology absorption, adaptation and innovation 1. Eforts made towards technology absorption, adaptation and innovation The Company has established practice streams in specifc technologies to analyze their implications and the benefts they can provide to the Company''s customers. These steps enable the Company to fnd and execute the most appropriate solutions for its clients. 2. Benefts derived as a result of the above eforts The benefts derived from the above mentioned eforts are fulflling customer needs, efciency in operations, improvement in quality and growth in revenues. 3. Technology imported during the last 5 years Not applicable, as no technology has been imported by the Company. C. Foreign Exchange Earnings and Outgo (Accrual Basis) A signifcant percentage of R Systems revenues are generated from exports. The development and service centres in Noida, Pune and Chennai are registered with the Software Technology Park of India in their respective areas as 100% Export Oriented Undertakings. All eforts of the Company are geared to increase the business of software exports in diferent products and markets. We have made investments in sales and marketing activities in various growing markets. The total foreign exchange used and earned by R Systems during the year as compared with the previous year is as follows: (Rs. in lakhs) Particulars Financial Year ended 31.12.2012 31.12.2011 (a) Earnings (Accrual 20,822.06 17,626.93 Basis) (b) Expenditure (Accrual 3,776.85 3,637.97 Basis) (c) CIF value of imports 91.16 158.19 14. SUBSIDIARIES During the year under review, the Company has set up a wholly owned subsidiary in Canada i.e. Syst�mes R. International Lt�e, Canada. As on December 31, 2012, R Systems has twenty two subsidiaries. The names and country of incorporation of those subsidiaries are as follows: S. Name of the Subsidiaries Country of No. Incorporation 1. R Systems (Singapore) Pte Limited Singapore 2. R Systems, Inc. U.S.A. 3. Indus Software, Inc. U.S.A. 4. ECnet Limited Singapore 5. R Systems Solutions, Inc. U.S.A. 6. R Systems NV Belgium 7. R Systems Europe B.V. The Netherlands 8. R Systems S.A.S. France 9. Computaris International Limited U.K. 10. Syst�mes R. International Ltee Canada 11. ECnet (M) Sdn. Bhd. # Malaysia 12. ECnet, Inc. # U.S.A. 13. ECnet (Hong Kong) Limited # Hong Kong 14. ECnet Systems (Thailand) Company Limited# Thailand 15. ECnet Kabushiki Kaisha # Japan 16. ECnet (Shanghai) Co. Ltd. # People''s Republic of China 17. ICS Computaris International Srl @ Moldova 18. Computaris Malaysia Sdn.Bhd. @ Malaysia 19. Computaris Polska sp z o.o. @ Poland 20. Computaris Romania SRL @ Romania 21. Computaris USA, Inc. (formerly known as U.S.A. Computaris USA, LLC) @ 22. Computaris Limited @ U.K. # wholly owned subsidiaries of ECnet Limited, Singapore being 99.56% (previous year 99.55%) subsidiary of R Systems. @ wholly owned subsidiaries of Computaris International Limited being 100% subsidiary of R Systems. All the aforementioned twenty two subsidiaries are incorporated and based outside India. In addition to providing services to various international clients these subsidiaries also help to generate revenues for R Systems. The Board of Directors of the Company regularly reviews the afairs of these subsidiaries. As per Section 212 of the Companies Act, 1956, we are required to attach the Directors'' Report, Balance Sheet and Proft and Loss Account (referred to as Financial Statements) of our subsidiaries. The Ministry of Corporate Afairs, Government of India vide its General Circular No. 2/2011 dated 8th February, 2011 has provided an exemption to companies from complying with Section 212, provided such companies publish the audited consolidated fnancial statement in the Annual Report. Accordingly, the Annual Report 2012 does not contain the Financial Statements of our twenty two subsidiaries. As directed under the said Circular, information in aggregate in respect of each subsidiaries including subsidiaries of subsidiaries i.e. (a) capital (b) reserves (c) total assets (d) total liabilities (e) details of investments (except in case of investment in subsidiaries) (f) turnover (g) proft before taxation (h) provisions for taxation (i) proft after taxation and (j) proposed dividend for each subsidiary has been disclosed in brief abstract forming part of the consolidated balance sheet. Further, the audited annual accounts and related detailed information of our subsidiaries, where applicable, will be made available to shareholders seeking such information at any point of time. The annual accounts of the subsidiary companies will also be available for inspection by any shareholder at Registered Ofce of R Systems i.e. B-104 A, Greater Kailash-I, New Delhi � 110 048 and Corporate Ofce of R Systems i.e. C-40, Sector 59, Noida � 201 307 and Registered Ofces of the subsidiary companies concerned during business hours. The same will also be hosted on R Systems'' website, www.rsystems.com. 15. PARTICULARS OF EMPLOYEES As required under the provisions of Section 217 (2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, as amended by notifcation dated March 31, 2011, the names and other particulars of employees are set out in Annexure A to this report. 16. DIRECTORS'' RESPONSIBILITY STATEMENT Pursuant to the requirement under Section 217(2AA) of the Companies Act, 1956 with respect to directors'' responsibility statement, your directors hereby confrm that: (i) In the preparation of the annual accounts for the fnancial year ended December 31, 2012, the applicable accounting standards had been followed along with proper explanation relating to material departures, wherever applicable; (ii) The directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of afairs of the Company at the end of the fnancial year and of the proft or loss of the Company for the year under review; (iii) The directors had taken proper and sufcient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; (iv) The directors had prepared the annual accounts for the fnancial year ended December 31, 2012 on a going concern basis. 17. AUDITORS M/s S. R. Batliboi & Co. LLP (formerly M/s S. R. Batliboi & Co.), Chartered Accountants, the statutory auditors of the Company will retire at the ensuing Annual General Meeting and are eligible for reappointment. The Company has received letter from Auditors to the efect that their appointment, if made, shall be in accordance with Section 224(1B) of the Companies Act, 1956 and that they are not dis-qualifed for such re-appointment within the meaning of Section 226 of the said Act. Further, the auditors'' report being self-explanatory, does not call for any further comments by the Board of Directors. 18. AUDIT COMMITTEE R Systems has a qualifed and independent Audit Committee. During the year under review there was no change in composition of the Audit Committee except that Mr. Anuj Kanish was appointed as a member of the Audit Committee as an Alternate Director to Mr. Gurbax Singh Bhasin on August 05, 2012. The constitution of the Committee is in compliance with the provisions of the Companies Act, 1956 and the Listing Agreement entered into with the stock exchanges. The terms of reference and role of the Committee are as per the guidelines set out in the Listing Agreement with the stock exchanges read with Section 292A of the Companies Act, 1956 and includes such other functions as may be assigned to it by the Board from time to time. The Committee has adequate powers to play an efective role as required under the provisions of the statute and Listing Agreement. 19. DETAILS OF UTILISATION OF IPO PROCEEDS Pursuant to the Initial Public Ofer, the Company collected Rs. 7,062.50 lakhs (net of selling shareholders'' proceeds). For details of utilisation of IPO proceeds, please refer note no. 35 under Notes to the standalone fnancial statements and note no. 34 under Notes to the consolidated fnancial statements for the year ended December 31, 2012. Please note that entire proceeds of the IPO has already been fully utilized by the Company before the year under review and as on December 31, 2012 the Company has no balance of unutilized IPO proceeds. 20. CORPORATE GOVERNANCE As required under Clause 49 of the Listing Agreement entered into with the stock exchanges, the detailed report on corporate governance is given as Annexure B to this report and the certifcate obtained from a practicing company secretary regarding compliance of the conditions of corporate governance as stipulated in the said clause is annexed as Annexure C to this report. Further, the disclosure as required pursuant to Section II Clause C of Part II of Schedule XIII to the Companies Act, 1956 and in terms of Clause 49 of the Listing Agreement entered into with the stock exchanges for all the directors is given in the detailed report on corporate governance which forms part of this report and annexed as Annexure B to this report. 21. DEPOSITS The Company has neither invited nor accepted any deposits from the public within the meaning of Section 58A of the Companies Act, 1956 and as such, no amount of principal or interest was outstanding on the date of the balance sheet. 22. CUSTOMER RELATIONS R Systems recognises that the customers have a choice of service providers and the directors would like to place on record their gratitude on behalf of the Company for the business provided by them. The Company''s quality policy mandates that the Voice of the Customer is obtained on a regular basis. We constantly review the feedback and incorporate its impact into our delivery systems and communications. 23. EMPLOYEE RELATIONS R Systems is inspired by its customers and its employees transform that inspiration and customers'' needs into value for all stakeholders. We thank all R Systems employees worldwide for their hard work, commitment, dedication and discipline that enables the Company to accomplish its customer commitments and commitments to all its stakeholders. R Systems conducts regular employee satisfaction surveys, and open house meetings to get employee feedback. R Systems is constantly validating key employee data with industry and peer group business. These practices have helped the Company achieve many of its business goals and have been recognised in many industry surveys over the last few years. The open door policy of our senior management team ensures that the feedback loop is completed promptly. We thank our shareholders for their continuous support and confdence in R Systems. We are aware of our responsibilities to our shareholders to provide full visibility of operations, corporate governance and creating superior shareholder value and we promise to fulfll the same. 24. MANAGEMENT DISCUSSION AND ANALYSIS REPORT In terms of Clause 49 of the Listing Agreement entered into with the stock exchanges, management discussion and analysis report is given as Annexure D to this report. 25. ACKNOWLEDGMENTS Your directors once again take this opportunity to thank the employees, investors, clients, vendors, banks, business associates, regulatory authorities including stock exchanges, Software Technology Park of India, the Central Government, State Government of Delhi, Uttar Pradesh, Maharashtra, Tamil Nadu for the business support, valuable assistance and co-operation continuously extended to R Systems. Your directors gratefully acknowledge the trust and confdence and look forward for their continued support in the future. On behalf of the Board For R Systems International Limited Sd/- Place : CA, U.S.A. Satinder Singh Rekhi Date : April 15, 2013 (Chairman and Managing Director)

Source : Dion Global Solutions Limited

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