To the Members,
We are delighted to present the report on our business and operations
for the year ended March 31, 2011.
FINANCIAL RESULTS
Rs. in lakhs except per share data
Year ended March 31, Standalone Consolidated
2011 2010 2011 2010
Operating revenue 91,584.34 78,352.16 1,91,567.76 97,994.17
Other Income 240.11 439.40 491.88 459.92
Operating Profit (PBDIT) 22,665.50 15,825.66 29,783.86 17,955.12
Interest 2,371.70 1,167.97 4,053.49 1,449.08
Depreciation 3,023.20 2,842.36 5,150.86 3,370.39
Prior period adjustments - - 13.76 32.13
Profit before tax (PBT) 17,270.60 11,815.33 20,565.74 13,103.52
Taxes 5.158.68 2,600.70 6,075.47 2,857.85
Profit after tax (PAT) 12,111.93 9,214.63 14,490.27 10,245.68
Less: Minority interest - - 153.54
Less: Share of profit of associate - - 24.35 -
Net Profit for the year 12,111.93 9,214.63 14,514.62 10,092.14
Dividend recommended 1,315.71 986.79 1,315.71 986.79
Dividend tax 218.53 167.70 218.53 167.70
Transferred to general
reserve 1,500.00 1,000.00 1,500.00 1,000.00
Balance carried forward to
balance sheet 39,077.37 29,999.68 42,411.89 30,931.50
Paid up capital 1,644.64 1,644.64 1,644.64 1,644.64
Reserves & Surplus 65,639.67 55,061.98 69,268.91 55,886.27
Net Worth 67,284.31 56,706.63 70,913.55 57,876.07
Earnings per Share 73.64 56.03 88.25 62.30
RESULTS OF OPERATION
During FY 2010-11, the company posted an excellent financial
performance, both at the standalone and consolidated level. The
prospects for the company have improved immeasurably in spite of
challenging global economic climate. The full effect of the two
acquisitions, namely Brainhunter Inc, Canada and Matrix Primus Partners
Inc, USA during the tail end of the previous financial year was fully
brought out in the consolidated numbers, as total income almost doubled
from Rs 979.94 crores in the previous year to Rs 1915.6)8 crores in the
year ended March 2011. Net Profit at the consolidated level has
galloped at the rate of 44% from Rs 100.92
crores in the previous year to Rs 145.15 crores. Total Revenue for
Zylog Systems Limited was Rs 915.84 crores as against Rs 783.52 crores
in the previous year, representing a growth of 17%.
At standalone level, our profit after tax amounted to Rs 121.12 crores
(13.22% of revenue) as against Rs 92.15 crores (11.76% of revenue),
thus representing an increase of 31.44% over the previous year. On
consolidated basis, our profit after tax amounted to Rs 145.15 crores
(7.58% of revenue) as against Rs 100.92 crores (10.29% of revenue).The
net worth of the company has increased to Rs 672.84 crores from Rs
567.07 crores whereas the group net worth has increased to Rs 709.14
crores from Rs 578.76 crores.The EPS has improved to Rs 73.64 (Rs 56.03
PY) for standalone and Rs 88.25 (Rs 62.30 PY) for the group.
The Company continues to be a 100% Export Oriented Unit (EOU)
registered with the Software Technology Parks of India (STPI).The
Company also proposes to take up an office space at Siruseri, SIPCOT,
Chennai (a SEZ Unit) for its operation.The Company was enjoying tax
holiday for its export earnings under Section 10B of the Income tax
1961 till the financial year 2010-11 by virtue of being 100% EOU
registered with STPI. However the unit proposed to be set up in SEZ may
get its tax benefits as applicable. Funds raised during the IPO of the
company has been fully utilized towards the objects of the issue as per
the prospectus dated July 31st ,2007.
SUBSIDIARIES
As per Section 212 of the Companies Act, 1956, we are required to
attach the Directors'' report, Balance Sheet, and Profit and Loss
account of our subsidiaries. The Ministry of Corporate Affairs,
Government of India vide its circular no.2/2011 dated February 8, 2011
has provided an exemption to Companies from complying with Section 212,
provided such companies publish the audited consolidated financial
statements in the Annual Report. Accordingly, the Annual Report 2010-11
does not contain the financial statements of our subsidiaries. The
audited annual accounts and related information of our subsidiaries,
where applicable, will be made available upon request. These documents
will also be available for inspection during business hours at our
registered office in Chennai, India.
The Company has eight subsidiaries. A brief description of the
performance of subsidiaries is given below:
- VishwaVikas Services Limited
Vishwa Vikas Services Limited has generated revenue of Rs 322.67 lakhs
(PY Rs 254.74 lakhs) with a net profit of Rs 25.04 lakhs (PY Rs 20.03
lakhs).
- Zylog Systems (Europe) Limited
Zylog Systems (Europe) Limited has recorded revenue of Rs 5,134.36
lakhs (PY Rs 4,115.45 lakhs) with a net profit of Rs 477.73 lakhs (PY
Rs 169.36 lakhs). During the year an investment of Rs 29, 09,672 was
made as Share capital of the Subsidiary.
- Zylog Systems (India) Limited
Zylog Systems (India) Limited has achieved revenue of Rs 4,560.86 lakhs
(PY 1,163.35 lakhs) with a net profit of Rs 322.19 lakhs (PY Rs 39.92
lakhs). During the year the paid up share capital of Zylog Systems
(India) Limited was increased by Rs 3,140 lakhs and the authorized
share capital was increased to Rs 500 Llkhs.
- Zylog Systems Asia Pacific Pte Limited
Zylog Systems Asia Pacific Pte Limited has generated revenue of Rs
1,218.04 lakhs (PY Rs 884.84 lakhs) with a net profit of Rs 94.25 lakhs
(PY Rs 79.98 lakhs).
- Zylog BV Limited
Zylog BV Limited has generated revenue of Rs 6,665.22 lakhs (PY Rs
2,578.50 lakhs) with a net profit of Rs 133.28 lakhs (PY Rs 418.74
lakhs).
- Matrix Primus Partners Inc, USA
Matrix Primus Partners Inc, USA has recorded revenue of Rs 9,123.39
lakhs (PY Rs 810.06 lakhs) with a net profit of Rs 133.28 lakhs (PY Rs
93.18 lakhs).
- Algorithm Solutions Private Limited
Algorithm Solutions Private Limited has recorded revenue of Rs 558.84
lakhs (PY Rs 0.06 lakhs) with a net profit of Rs 18.97 lakhs (PY net
loss Rs 0.04 lakhs).
- Zylog Systems (Canada) Limited
Zylog Systems (Canada) Limited has generated revenue of Rs 76,481.44
lakhs (PY Rs 10,325.81 lakhs) with a net profit of Rs 236.73 lakhs (PY
Rs 184.44 lakhs).
The statement of subsidiaries under Section 212 (l)(e) has been
attached as Annexure to the Directors'' Report.
SHARE CAPITAL
At the end of the financial year the Company''s Equity Share Capital
stands at Rs. 1,644.64 Lakhs consisting of 16446420 Equity Shares ofRs.
10/- each.
DIVIDEND
Your Directors recommend a dividend of 80% i.e. Rs 8 per Equity Share
for the year ended March 31,2011 on 1,64,46,420 fully paid up Equity
Shares of Rs 10 each (PY Rs 6 per share on 1,64,46,420). If the
recommended Dividend is approved by the Members at the forthcoming
Annual General Meeting, the Dividend including the Dividend Tax will
absorb Rs 15.34 crores (Rs 11.54 croresPY).
TRANSFER TO RESERVES
Your Directors propose to transfer a sum of Rs 15 crores to General
Reserves (Rs 10 crores PY) out of the amount available for
appropriation and a sum of Rs 390.77 crores (Rs 299.99 crores PY) is
carried forward in the profit and loss account for standalone and a sum
of Rs 424.12 crores (Rs 309.32 crores PY) at the group level.
STRATEGIC INVESTMENTS & ACQUISITIONS
One of the largest acquisitions of the Company during the previous year
was M/s. Brainhunter Inc, Canada.The benefits that were envisaged
include access to new clients, new geographical areas and new service
and product offerings. This company was endowed with a superb client
base to which Zylog could market and sell its own products and
solutions. The other main plus point of the acquisition was that Canada
represented a stable and prosperous economy into which any business
that had a significant presence in the US like Zylog would want to add
its own footprint in Canada as a natural extension of its operations.
Integration of Brainhunter indeed had its own challenges which have
been successfully overcome, as the synergy of leveraging
Zylog''s top management, business development, marketing and other
operational expertise has been fully put into practice. The
''Brainhunter'' business that was acquired was purely an asset purchase
and not an equity purchase. This purchase was through our wholly owned
subsidiary, Zylog Systems (Canada) Limited. The business is now
recognized under the name of Zylog Systems (Canada) Limited. Once the
Company completely leverages Brainhunter''s customer base to cross-sell
its own products and services, the benefits will accrue in subsequent
periods.This is entirely in line with Zylog''s strategic vision that
seeks out target companies for acquisition which have substantial
untapped potential in their business prospects or have some
operational, financial or geographical constraints. During the year,
Zylog Systems (Canada) Limited has acquired 100% of the share capital
of Mindwire Inc. for a net consideration amounting to Rs 5,83,68,125.
This was an operational decision implemented to facilitate the running
of Business with Government Departments which contribute 30% of total
revenues of the subsidiary. Mindwire was a locally registered Canadian
company which had an excellent track record in conducting business with
Government Departments in Canada. One other acquisition during the
previous year, M/s Matrix Primus Partners Inc., USA has also performed
well contributing revenue of Rs. 91.23 cr with a net profit of Rs.
10.95 cr.
Your company has been doing well in various acquisitions from previous
financial years and has successfully integrated the acquired products,
solutions and services into its suite of offerings. These acquisitions
have helped the Company to penetrate the market deeper and cross-sell
its newly-acquired offerings to complementary markets, thus enlarging
its reach. Your Company continues to look out for suitable acquisitions
that shall be a leading edge in business and has potential to yield
substantial business benefits. Acquiring a company in a niche space
will have its own attractions amongst existing offerings. Also,
building up economies of scale in our product and service capabilities
proves to be a very important strategy as we target larger size
contracts with premier companies and governments around the world.
CORPORATE GOVERNANCE
Your Directors benchmark its corporate governance policies with the
best in the world. Your directors have reiterated your company''s
philosophy on corporate governance. The increasing diversity of the
investing community and the integrated nature of global capital markets
render corporate governance a vital issue for investors. A separate
section on Corporate Governance forming part of the Directors Report
and the certificate from the Companys auditors confirming compliance of
Corporate Governance norms as stipulated in Clause 49 of the Listing
Agreement with National Stock Exchange of India (NSE) and Bombay Stock
Exchange of India (BSE) is included in the Annual Report.
MANAGEMENT DISCUSSION AND ANALYSIS
Pursuant to clause 49 of the Listing Agreement with the Stock
Exchanges, we annex herewith a Statement on Management Discussion and
Analysis which forms part of the Directors report.
A cautionary note: Certain statements in the Management Discussion and
Analysis section may be forward looking and are stated as required by
applicable laws and regulation. Many factors may affect the actual
results, which could be different from what we envisage in terms of
future performance and outlook.
CONSERVATION OF ENERGY, RESEARCH AND DEVELOPMENT, TECHNOLOGY
ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO
The particulars as prescribed under Sub-section (l)(e) of Section 217
of the Companies Act, 1956, read with the Companies (Disclosure of
particulars in the report of the Board of Directors) Rules, 1988, are
provided in the Annexure 2 to the directors'' report section.
PARTICULARS OF EMPLOYEES
In terms of the provisions of Section 217(2A) of the Companies Act,
1956, read with the Companies
(Particulars of Employees) Rules, 1975, the names and other particulars
of employees are set out in the Annexure to the directors'' report.
However, having regard to the provisions of Sec 219 (l)(b)(iv) of the
Companies Act, 1956, the Annual Report excluding the aforesaid
information is being sent to all the members of the Company and others
entitled thereto. Any member interested in obtaining such particulars
may write to the Company Secretary at the registered office of the
Company.
ADVISORY COMMITTEE
The Advisory Committee of the Company is headed by Mr.S. Rajagopal, who
is also an Independent Director of the Company and comprises of eminent
persons viz., Mr. Ratnakar Hegde, former Executive Director of Union
Bank of India, Mr.T.Valliappan, Director, Oriental Bank of Commerce
Ltd. and Mr.Nanjappa, former Executive Director, Reserve Bank of India.
The Advisory Committee met 4 times during the current fiscal to review
the business.
QUALITY INITIATIVES
Quality and best practices define the foundation of a company. Your
company is an ISO 9001:2008 qualities certified Company and are being
assessed for CMMI Level 4.Your company continuously leverages cutting
edge tools, methodologies and benchmark standards to exceed the
expectations of our customers. We, as an IT Solution provider, will
continue to strive for excellence in all areas of business, guarantee
the quality of its software products at all stages of development and
build the highest quality standards .Your Company follows the most
widely used paradigms for QA management, PDCA (Plan-Do-Check-Act)
approach, also known as the Shewhart cycle. The main goal of QA is to
ensure that the product / service fulfills or exceeds customer
expectations. An independent audit team, who reports directly to the
Managing Director, ensures proper implementation of all the control
functions. The audit team conducts regular internal audits, intimates
the non- conformities found during such audits, ensures that necessary
corrective and preventive actions are taken and furnishes necessary
summary reports to the Senior Management.
We have developed and implemented control systems for software
development, for information security and for managerial functions.
Policies, processes and procedures have been developed for each control
system and these are placed in the company''s network to ensure their
availability to all the employees at all times.
AWARDS AND RECOGNITION
In 2010-11, awards and recognition marked our accomplishments in
various fields.
- Won NJTC''s Mid-Atlantic Innovation Award for its Knowledge Management
& Collaboration Solution.
- Recognized on the Everything Channel CRN Fast Growth 100 List. The
ranking is based on two years'' growth of net sales and the Company is
winning this award 4 years in row.
- Earned a Spot on 2010 InformationWeek 500 List ofTop Technology
Innovators Across America for the Business Technology Innovation
Leadership.
- Named as one of the 30 Cloud VARs That Get It by Everything
Channel''s CRN Magazine
- ZSL Inc. was honored with the prestigious Judges Award for its Wound
Care Mobile Assistant, an app that replaces the manual process of
taking measurements of wounds and lesions and updating the patient
record. NJTC also recognized the company''s SmartPrise BI Mobile app,
which brings enterprise business analytics to a mobile environment.
- The Company''s Enterprise Mobile Applications Suite won Mobile
Innovation Award from Research In Motion (RIM) and NJTC.
FIXED DEPOSITS
We have not accepted any fixed deposits and, as such, no amount of
principal or interest was outstanding as of the Balance Sheet date.
DIRECTORS
In accordance with Article 99 of the Articles of Association, Mr. M.
Gajhanathan, Director is liable to retire by rotation at the ensuing
Annual General Meeting and being eligible offers for reappointment as
Director.
The Board inducted Mr.V. K. Ramani into the Board of Directors. We seek
your support in confirming his appointment as director liable to retire
by rotation.
Mr. A.V. Raj wade has resigned as a Member of the Board and the Board
of Directors considered and accepted his resignation with effect from
03rd August 2010 .We place on record our deep sense of appreciation for
the services rendered by Mr. A.V. Rajwade as a Board member.
Mr.V. Chandramouly has resigned as a Member of the Board and the Board
of Directors considered and accepted his resignation with effect from
31.03.2011.We place on record our deep sense of appreciation for the
services rendered by Mr.V. Chandramouly as a Board member.
DIRECTORS''RESPONSIBILITY STATEMENT AS REQUIRED UNDER SECTION 217 (2AA)
OF THE COMPANIES ACT, 1956
Pursuant to Section 217(2AA) of the Companies Act, 2000, the Directors
confirm that:
(i) they accept responsibility for the integrity and objectivity of
these accounting statements;
(ii) the financial statements are prepared in accordance with the
guidelines and standards of the ICAI and Companies Act 1956, to the
extent applicable. There are no material departures from the above-
mentioned standards;
(iii) such standard accounting policies have been applied consistently,
except as otherwise stated;
(iv) the judgments and estimates have been made on a reasonable and
prudent basis so that the financial statements provide a true and fair
view of the state of affairs of the Company at the end of the financial
year;
(v) the directors have taken proper and sufficient care for the
maintenance of adequate accounting records in accordance with the
provisions of this Act for safeguarding the assets of the Company and
for preventing and detecting fraud and other irregularities;
(vi) the Annual Accounts are prepared on a going concern basis and on
an accrual basis.
AUDITORS
M/s Brahmayya & Co., Chartered Accountants, Chennai retire as the
Auditors of the Company at the conclusion of the ensuing Annual General
Meeting and being eligible pursuant to Section 224 (IB) of the
Companies Act, 1956, have expressed willingness to accept office, if
re-appointed .The Audit Committee in their meeting held on May 27,2011
has recommended the re-appointment of M/s Brahmayya & Co., Chartered
Accountants, Chennai.
HUMAN RESOURCES
As this is a people business, employees are vital and most valuable
assets possessed by the company. Your company continues to attract
highly talented individuals possessing skill sets with an ''x'' factor.
Your company rightly appeals to young, qualified people who want to
make a difference in their contribution and be at the forefront of
change which is very much the hallmark that we pursue to the highest
degree, as we cross several pioneering frontiers in our pursuit of
perfection. Employee strength was 4302 at the end of the year compared
to 3394 last fiscal and continues to be on an upward trend, given the
challenges we have set ourselves. The effective and optimal utilisation
of precious onsite and offshore staff resources remains one of the key
near term objectives, going forward.
ENVIRONMENTAL AWARENESS
Go Green initiatives to conserve resources has been initiated in the
Company. Steps required for conserving power across all delivery
centres are being undertaken. The Company has also taken initiatives
within its office buildings to reduce electrical power, water and paper
consumption.These initiatives shall be taken forward at a sustained
pace.
ACKNOWLEDGEMENTS
Your directors profusely thank the clients, vendors, investors and
bankers for their continued support of Company''s growth.Your directors
place on record their immense appreciation of the contribution made by
every employee at all levels, who through their commitment, competency,
hard work, solidarity, cooperation and support have enabled the company
to achieve this growth.Your directors sincerely thank the Government of
India, particularly the Department of Electronics, the Customs and
Excise Departments, Software Technology Park - Chennai, the Ministry of
Commerce, Reserve Bank of India, Department of Telecommunications,
State Government and other Government agencies for their support during
the year, and look forward to their continued support in the future.
For and on behalf of the Board of Directors
of Zylog Systems Limited
Sudarshan Venkatraman
Chairman & CEO
Ramanujam Sesharathnam
Managing Director & COO
Place : Chennai
Date : 27th May 2011
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