Satyam Computer Services has published its first accounts since it was plunged into crisis in January 2009 by revelations of massive fraud involving its founder B. Ramalinga Raju.
The company, which was hit by a financial scandal in January last year, reported yesterday revenue of 54.8 billion rupees (£772 million) for the financial year ended 31 March, 2010, down by 38 percent from 88.1billion rupees (£1.2 billion) in the previous financial year.
For Satyam the announcement of the results marks an effort to draw a line under the fraud and to rebuild the company, which is now part of the Tech Mahindra stable.
Satyam’s determination to be transparent following the fraud has led to the revelation of some stark figures. The analysts at TechMarketView noted, “The financial report runs to 25 pages, including delicious descriptions of fictitious revenues of some $1.2bn recorded between 2002 and 2008 and $200m in fictitious interest income, and more. Then there’s $65m in salary costs that never appeared in the P&L.”
TechMarketView also reminded its subscribers, “The last time Satyam reported numbers under the Raju regime was for FQ2 ’09 (to 30th Sept.2008) where turnover was recorded at $652m and management had forecast just under $2.6b in revenues for FY09. They actually did $1.9bn – and lost nearly $1.8bn.”
According to Satyam, the bulk of its losses in 2009 related to the fraud and last year losses were pegged back to just £17 million.
Satyam has to reassure customers on a number of fronts, including its investments in new technologies, and how it plans to differentiate itself from larger Indian players like Tata Consultancy Services and Infosys Technologies, said Sudin Apte, principal analyst at Forrester Research.
"It appears that the company is losing clients despite the new management," said Apte.
The company will also have to stem attrition, as it appears that it has lost staff in the year to March 31, 2010, he added. Satyam's staff cost has fallen by a third, suggesting large staff attrition. However, the full extent of this may not be clear since part of the fraud at the company involved inflating staff figures and diverting the salaries of 'ghost staff'.
The company announced its results in accordance with Indian GAAP (Generally Accepted Accounting Principles) for the financial years ended 31 March, 2009 and 31 March, 2010.
The company has decided to delist from the New York Stock Exchange (NYSE) in October, as it will not be able to comply with the stock exchange's requirement to file its delayed financial by 15 October.
Satyam says it originally listed on the NYSE to raise capital in the US. It is no longer doing so, so the delisting will reduce costs and not affect its business.
Satyam was plunged into a crisis in January 2009 after its founder, B. Ramalinga Raju, said that the company's account had been cooked up for several years.
The Indian government appointed a new board, which ordered a restatement of the accounts. The company said yesterday that much information on its finances was still not available because of ongoing legal action, or may have been destroyed.
A forensic examination of information from 2002 to 2008 pointed out to two types of financial irregularities, unrecorded transactions, and fictitious entries entered in the accounting records.
The false entries for 62.3 billion rupees were largely fictitious recognition of revenue and interest, which resulted in the creation of false cash and bank balances and receivables, Satyam said.
The overall impact of these irregularities on the statement of assets and liabilities as of Sept. 30, 2008, was 67.6 billion rupees, according to Satyam.
Another Indian outsourcer, Tech Mahindra, acquired a dominant 43 percent stake in Satyam last year after the government decided to bring in a strategic investor. It assumed management control of Satyam in June, and adopted the "Mahindra Satyam" brand to market the company's services.
Satyam will be merged with Tech Mahindra after receiving necessary approvals, according to reports. A merger will not bring any value to customers, as there is little synergy between the two companies, Apte said. The challenges of merger and restructuring could further impact Satyam's business, he added.