 FY 2007-08 was a challenging but definitive year for Geometric. Challenging, because the external environment unexpectedly and fundamentally altered during the year. The appreciation of the Rupee in the first quarter, and the onset of recessionary conditions in the US in the latter part of the year, led to a pronounced impact on both our top line and bottom line. Definitive, because despite these external challenges, our transformation process started to deliver measurable advantage. In the long run, this process will provide us with the foundation to handle similar uncertainties in our external environment with much greater resilience, to drive sustainable, profitable growth.
The Company recorded consolidated sales of US Dollars 121.56 million, a growth of 43% over the previous year. In Indian Rupee terms, consolidated sales stood at Rupees 485.83 crore, a growth of 26.8% over the previous year. The difference in growth rates was primarily due to the appreciation of the Rupee vs. the US Dollar and the exposure of around 65% of our revenue to this exchange rate. Our consolidated profit after tax for the year was Rupees 32.13 crore, a decline of 14.2% over the previous year. The main contributory factors to this were the appreciation of the Rupee, and the full-year consolidation of Modern Engineering (subsequently renamed Geometric Engineering, Inc. during the year and now a part of Geometric Americas, Inc.) which made a loss during the year.
When we started FY 2008, we had defined some key focus areas for strengthening the fundamentals of the business, to equip ourselves not just for the short term, but for a long term with profitable growth. These are described below.
PROFITABILITY FOCUS
Through the year, the emphasis in our organic business was on driving profitable growth. This was brought about through the strengthening of delivery processes, adopting productivity tools, implementation of stringent profitability criteria for new business, and exiting or renegotiating low profitability contracts. In terms of the turnaround of Geometric Engineering, the biggest challenge was the slowdown in the US engineering market, especially in the automotive sector where over 75% of the US engineering revenues are concentrated. This resulted in a much lower volume of projects than anticipated, and a consequent reduction in offshorable work content that could be achieved without compromising on delivery to existing customers. However, the business was restructured to facilitate better cost management, which resulted in its first EBITDA positive quarter in Q4 of FY 2008. There remains significant work to be done in returning the US engineering business to consistent profitability and these efforts will continue through FY 2009.
DIRECT SELLING
We made a conscious decision to sell our PLM solutions and services directly to end customers, moving away from the earlier partner-led model, and exited several low profitability contracts with non-strategic partners. The main driver for this was to improve margins, and to have greater control of business pipeline. The share of revenue from direct customers in PLM went up from around 35% to 45% over the fiscal with 16 new customers added through this model. The share of revenue from non-strategic partners came down from 20% to 12% over this period. Our engineering business was always operating in a direct selling mode and those relationships also helped us accelerate this strategy. All of this had a positive impact on the contribution margin of the PLM business.
NEW SOLUTIONS AND OFFERINGS
The Company continued to innovate and create value drivers aligned with new opportunities in the market. The Manufacturing IT practice, launched last year, strengthened its presence in the market, winning recognition and striking new partnerships with technology leaders. We launched the Interoperability practice to provide a portfolio of products and solutions for customers to leverage diverse PLM technologies from multiple vendors across their global operations. With a view to providing better solution architecture and definition, we launched our Consulting practice, which is already engaged in many of our key accounts. We recognized the need to construct offerings for industry applications. Our PLM offerings have been specified for the fashion and the upstream oil and gas industries, opening up several non-traditional markets for us, while many more are under development. We launched two new products, DFMPro and 3DPaintBrush during the year, reiterating our commitment to the creation of IPR.
SALES AND MARKETING
If we have to become effective in direct selling, we needed to invest in our sales and marketing organization. Our global sales and account management team was enhanced from 15 in the beginning of the year to 24 by the end of FY 2008. Our sales organization is now unified and sells our entire portfolio of offerings to every account that Geometric is engaged with. This enhancement helped us close over US Dollars 37 million of new business, and add 47 customers to our roster in the year. We significantly accelerated our sales effort outside the US; and Europe has grown rapidly as a market for us. To support the sales initiative, we launched a new brand identity to support our go-to-market strategy and enable the global integration of the Company under one brand. Geometric was also selected for the prestigious Frost & Sullivan Emerging Company of the Year Award for 2008, a truly commendable recognition. As a result of these efforts, the Geometric brand is more visible than ever to our target customers, and our pipeline of opportunities is stronger than ever before.
STRATEGIC PARTNERSHIPS
Strategic partnerships have been at the core of the growth of the company in the past. We strengthened our relationships with all of our strategic software partners during the year, with a new framework to pursue opportunities in development and services, and new solution development. Our joint venture with Dassault Systèmes, 3D PLM Software Solutions Ltd., went from strength to strength during the year. The former CFO of Geometric, Shashank Patkar, took over as CEO of 3DPLM from Manu Parpia and the new management team of the venture is keen on expanding the opportunities available to it. 3DPLM has rapidly evolved into a key value driver for both Geometric and DS, and we look forward to many more years of success.
GLOBAL FOOTPRINT
Our strategic initiative in global consolidation and leveraging our global delivery footprint gained momentum. Geometric is now uniquely positioned as one of the few organizations in the world that has the ability to deliver engineering services and technology solutions through proximity centers in the US and West European markets, as well as low cost offshore centers in India, China and Eastern Europe. This fact will be the key determinant in creating new opportunities in the coming years, as companies look for increasing global leverage to manage their engineering requirements in the face of very tight economic conditions. Our presence in China has already helped us create opportunities in both the engineering and the PLM domain and we have started to ramp up our PLM competencies there, to address the significant local market opportunity.
Along with the initiatives related directly to the business, we continued to nurture the other building blocks that make a strong company. Our investment in competency building programs continued, through the PLM Institute and newer initiatives run by individual businesses. For instance, the Virtual Product Development Institute (VPDI) is a unique program for training in CAE which also creates the ability to ramp-up capacity rapidly. The Company has always had a strong sense of social responsibility. UDAAN, our CSR initiative continued its multi-dimensional activities this year, supporting a number of worthy causes related to education and social welfare, in Pune and Mumbai. We aim to spread this movement to every part of the world where the Company operates.
I would like to acknowledge the tremendous effort by each and every Geometrician towards achieving our goals, over the past year. This effort was based on a passionate sense of belief and commitment in the direction that we have charted for ourselves, embodied in our new Vision statement, “To be the world’s most innovative provider of product realization solutions”. It was indeed a difficult year in multiple ways but as we move into FY 2009, I firmly believe that we have now created the foundation for sustainable growth. The fundamental changes are in place and we will now focus our efforts on increasing the velocity on each of these dimensions.
The Board of the Company has been immensely supportive of the management team during the year and we acknowledge this. We have benefited tremendously from the guidance and recommendations based on their rich experience. Above all, we are grateful for the shareholders’ support and continued belief in us; and the long term future of the company, despite the short-term setbacks. This confidence is critical to us and gives us the strength and belief to pursue the direction that we have set out for a sustainable future. |