kale annual report 05 06
TRANSCRIPT
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1KALE CONSULTANTS LIMITED
Board of Directors
Narendra Kale Chairman
Vipul Jain Managing Director
K.K. Nohria Director
Prabhakar Deodhar Director
Pravin Gandhi Director
Auditor
M/s. D.G. Kurundwadkar Chartered Accountant
Company Secretary
Ninad Umranikar
BankersState Bank of India
Cit ibank N.A.
ABN AMRO Bank N.V.
The Hongkong and Shanghai Banking Corporation Ltd.
ICICI Bank Ltd.
Barclays Bank Plc.
Letter to Shareholders.......................................... 2
Financial Highlights .............................................. 4
Directors Report .................................................... 6
Management Discussion and Analysis.............. 21
Kales Social Initiative.......................................... 31
Auditors Report ................................................... 33
Financial Statements........................................... 36
Consolidated Financial Statements................... 53
Financial Statements of Subsidiaries................ 66
Kale Softech, Inc.
Kale Consultants Australia Pty. Ltd.
Antah Kale Sdn. Bhd.
Kale Technologies Ltd.
Synetairos Technologies Ltd.
Shareholder Information .................................. 121
AGM Notice......................................................... 125
Contents
Registered OfficeKale Enclave, 685/2B & 2C,1st Floor, Sharada Arcade,Satara Road,Pune 411 037Tel. No. +91 20 6608 3777
Fax No. +91 20 2423 1639Website : www.kaleconsultants.com
Registrar andShare Transfer AgentKarvy Computershare Pvt. Ltd.,Karvy House 46, Avenue 4,Street No. 1, Banjara Hills,Hyderabad-500 034Tel. : +91-40-2342 0818Fax : +91-40-2342 0814
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KALE CONSULTANTS LIMITED2
Letter to Shareholders
Vipul JainManaging Director
All through our existence since the last 20 years, Kale has believed in
winning for our customers, our employees, our shareholders and the
society at large. We have geared up, not only to meet present
challenges, but also future challenges as the future is but a couple ofdays away from yesterday.
Our journey has been hard and we have made some short term
sacrifices in order to get long term gains to build a business capable
of sustained growth and profitability. This has meant that our share
holders have had to be patient.
The most direct demonstration of keeping the faith in an organization is the people. As
long as you align your business with the interest of your customers and you have a team
of passionate and committed people, you have to keep faith in them, empower them and
what you will see is growth and tangible business and financial results.
2005-06 was a year which demonstrated the value of keeping the faith for Kale and all its
stakeholders. The benefit of focused strategy coupled with continuously improving
execution has begun to reflect in our business results. Kale, today is financially a healthier
organization and at the tipping point in our corporate development.
We have always pursued our belief in our mission and strategy. A cornerstone of our mission
is globally to be one of the top three providers of choice in the markets that we serve
through innovation, modern technology and global outsourcing. To complete this mission,
we have pursued the strategy of becoming a complete solutions provider to the travel &
transportation industry.
At Kale, we are proud to have built a culture on anticipating and understanding ourcustomers needs and then working in close partnership with the customers to make their
business stronger more productive, more profitable, more capable of capturing market
opportuni ties and thus more valuable. The fact that approximately 85% of our revenue
in 2005-06 came from existing customers clearly demonstrates their recognition of the
value we bring to their business.
Greatness is not in where we stand, but in what direction we are moving.
We must sail sometimes with the wind and sometimes against it
but sail we must and not drift, nor lie at anchor.
- Oliver Wendell Holmes
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3KALE CONSULTANTS LIMITED
Letter to Shareholders
Customers need a partner who not only speaks the language of their business, but also
provides leadership on their key competitive issues. Kale has a vertical focus and therefore,
we have built deep domain expertise and insight into the industry challenges and
opportunities. Kale has also perfected the Global Delivery Model that leverages the high
quality resource base in India and yet ensures quality delivery to customers across the
world.
Looking ahead to 2006 and beyond, we continue to see healthy, growing demand of our
solutions and services. The industry is returning to a more normal growth pattern after
the shocks that began in 2001. The theme for the airline industry as very well art iculated
by IATA is to Simplify the Business and thereby reduce costs and gain operational flexibilit y.
Kales solutions help customers achieve precisely these goals the revenue accounting
portfolio helps airlines to reduce back office processing costs and prevent revenue losses.
The cargo solut ion suite delivers end-to-end process management capability to enable
the business to increase cargo yields, enhance customer service and reduce transaction
processing costs and delays. Kales Managed Process Services enables customers to
outsource their business process and focus on their strategic business drivers. The growth
of int ernet travel sales has been phenomenal presenting huge opportunit y as never before.
Kale is well-positioned t o benefit from this industry dynamic, having invested in expanding
our portfolio of services, adding highly capable and mot ivated team members, deepening
our industry expertise and broadening our geographic footprint.
The road ahead is exciting and challenging. But challenge is what we relish as it helps
us rekindle our passion to build a company that will win for its stakeholders. We will
strive to live up to the faith that you have vested in us.
I thank you all for the confidence and t rust you have in Kale. I along with Team Kale will
endeavor to work towards achieving the leadership position that we desire, and you as
stakeholders deserve.
Vipul Jain
Managing Director
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KALE CONSULTANTS LIMITED4
Financial Highlights
Total Revenue
Operating Expenses
Operating Expenses increased by 20%
PBIDT increased by 50%
PBIDT
Depreciation and Amortisation Cost
Depreciation and Amortisation Cost increased by 34%
386.14
462.99
300
350
400
450
500
2004-05 2005-06
Rs.
InMillion
119.85
179.88
50
100
150
200
2004-05 2005-06
Rs.
InMillion
74.76
100.32
50
75
100
125
2004 -05 2005 -06
Rs.
InMillion
505.99
642.87
400
500
600
700
2004-05 2005-06
Rs.
InMillion
Revenue increased by 27%
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5KALE CONSULTANTS LIMITED
Financial Highlights
Rs. in Mill ion
Sr. No. Particulars 2001-02 2002-03 2003-04 2004-05 2005-06
1 Total Revenue 504.59 507.01 481.37 505.99 642.87
2 Operating Revenue 495.31 499.48 463.63 492.92 625.84
3 PBIDT 94.59 108.27 109.41 119.86 179.88
4 Operating PBT 20.27 31.92 31.67 36.72 69.62
5 PAT 20.26 31.42 31.66 7.52 64.84
6 Net Fixed Assets 380.98 394.10 350.20 359.75 419.97
7 Borrowings 86.56 97.82 150.56 166.49 120.85
8 Equity Capital 114.99 115.00 116.00 116.83 128.46
9 Net Worth 518.50 541.17 555.46 540.41 629.29
10 Capital Employed 605.06 638.99 706.02 706.90 750.14
11 EPS - Diluted (Rs) 1.76 2.73 2.75 0.10 5.17
Performance Indicators
Operating PBT
Operating Profit Before Tax increased by 90%
36.72
69.62
20
30
40
50
60
70
2004-05 2005-06
Rs.
InMillion
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KALE CONSULTANTS LIMITED6
Directors Report
To,The Members,
Your Directors present the Twentieth Report on the Business and Operations of your Company for the year ended 31st March, 2006.
Financial Results Rs. in Million
Particulars 2005 2006 2004 2005
Total Revenue
- Domestic ............................................................................................... 118.05 68.80
- Export ..................................................................................................... 507.79 424.12
- Other Income ...................................................................................... 17.03 13.07
Total ......................................................................................... 642.87 505.99
Total Expenditure ................................................................... 462.99 386.14
PBIDT ....................................................................................... 179.88 119.85
Interest ........................................................................................................... 9.94 8.37
Depreciat ion and Goodwill .................................................................... 44.11 29.62
Amort isat ion o f Product Cost ............................................................... 56.21 45.14
Profit Before Tax and Provision for Diminution in the Value
of Investments ........................................................................ 69.62 36.72
Provision for Diminution in Value of Investments......................... 29.19
Profit Before Tax ..................................................................... 69.62 7.53
Provision for Tax ......................................................................................... 1.78 0.01
Provision for Fringe Benefit Tax ............................................................ 3.00
Profit After Tax ........................................................................ 64.84 7.52
Add/ (Less) : Prior Period I tems.............................................................. 1.27 (6.26)
Profit brought forward from earlier year .......................................... 83.39 82.13
Profit available for appropriation ........................................ 149.50 83.39
Appropriations:
- Transferred to/(from) General Reserves .................................... 1.62
- Proposed Dividend ............................................................................ 16.06
- Dividend Tax ........................................................................................ 2.25
- Balance Transferred to Balance Sheet ........................................ 129.57 83.39
Dividend
Your Directors are pleased to recommend a dividend of Rs. 1.25 per equity share for the financial year ended 31st March, 2006. The
dividend, if approved, will be paid to those members whose names appear in the Register of Members as on the date of the
ensuing Annual General Meeting.
Overview
Your Directors are pleased to report your Companys remarkable improvement in terms of revenues and net margins during the
year under review.
This year the Company has consolidated its position as a very strong and major player in the Travel and Transportation vert ical.
The year has also seen an encouraging response from global customers to your Companys initiative in the Travel and Transportation
industry.
The business out look for the Travel and Transportation industry has improved this year and your Company was well prepared to
focus on the global opportunities. Your Company is the only India-based software player with a complete integrated suite of
solutions and services for Revenue Accounting and Cargo Management, two most important functions in the airline industry.
As a focused global player in the Travel & Transport ation industry, your Company has proved to be a strategic long-term partner
for i ts customers.
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7KALE CONSULTANTS LIMITED
Directors Report
OperationsDuring the year under review, your Company recorded revenues of Rs. 642.87 mill ion against Rs. 505.99 mill ion in the previous
year, an increase of 27.05% over the previous year. Revenues from sale of software products and services grew 26.96% to Rs
625.84 million in 2005-06 from Rs. 492.92 million in 2004-05. Expor t revenues rose to Rs 507.79 million from Rs. 424.12 million in
the previous year, a growth of 19.73%.
Operating expenditure stood at Rs 462.99 million as against Rs. 386.14 million during the previous year, an increase of 19.90%.
The operating margins increased by 50.08% to Rs. 179.88 mill ion from Rs. 119.86 mill ion. Profit after t ax for the current year has
increased to Rs. 64.84 from Rs. 7.52 million in the previous year, an upsurge of 762.23%.
Customer Acquisitions
Cebu Pacific, the on time, great value airline from Philippines has signed a five-year contract with the Company for REVERA,
the comprehensive Passenger Revenue Accounting Solutions.
During the year, the Company also bagged an order from Bangkok Airways and has signed a five-year contract for REVERA.
With REVERA, Bangkok Airways will be able t o reduce t he per unit transaction cost while ensuring increased throughput and
timely, actionable MIS to senior and t op management . REVERAhas been successful ly implemented at Bangkok Airways and
the airline has commenced operations.
The Company has signed an agreement with a leading airline in Europe for the implementation of Revenue Accounting Solut ions.Managed Process Services (Kale MPS)
Kale MPSTMwhich includes End-to-End Revenue Accounting, Revenue Recovery and Protection Service (RRPS) and Cargo Sales
Audit, has shown increased growth potent ial during the year adding 4 new customers. The total number of customers has increased
to 14.
The revenues generated by Kale MPSTMgrew by 21.87% from Rs. 224.92 million during the previous year to Rs. 274.11million.
CSP - The year in perspective
Last year, your Company globally launched CSP- Modern Integrated Enterprise-Wide Cargo Solution. CSPhas established
itself as a leading software solution for cargo carriers within the f irst year of its release. The first year of CSPTM saw remarkable
growth in terms of revenue generation, customer acquisition and retention.
The solution which was globally launched in June, 2004, today has two of the worlds top 20 airlines as its customers and enjoys
the credit of being a modern end-to-end cargo solution in the market.
Asiana Airlines, one of the top 20 cargo airlines and a CSPuser since December 2003, has reinstated its faith in the solution by
renewing its contract with the Company.
During the year under review, the Company also signed a five year contract with Indian Airlines, one of the largest regional
airlines in Asia for CSP- Modern Integrated Enterprise-Wide Cargo Solution. The Company would provide complete CSPsuite
on a hosted basis to Indian Airlines. The solution will be used by the airlines entire domestic and international network and
includes the provision and maintenance of equipment at Indian Airlines stations.
Amalgamation
The Company has received permission from the Honorable High Court of Judicature at Bombay on 15th July, 2005 to amalgam-
ate Kale eTravel Technologies Limited (Kale eTravel), a wholly owned subsidiary of the Company, with the Company with effect
from 1st April, 2005. Kale eTravel was engaged in the business of development of software for Travel industry. The amalgamation
has enabled your Company to provide total travel related solutions, reduce cost of operation, stimulate development of inte-
grated software and acquire competitive edge.
Subsidiaries
As a result of the amalgamation of Kale eTravel Technologies Limited (Kale eTravel), formerly known as Cognosys Software
Limited, with the Company, Kale Technologies Limited which was earlier the wholly owned subsidiary of Kale eTravel, has be-
come direct wholly owned subsidiary of the Company with effect from 1st April, 2005.
DirectorsMr. Narendra Kale - Chairman retires by rotation at the ensuing Annual General Meeting and being eligible offers himself for
reappointment.
Mr. Narendra Kale, 54, is M. Tech. in Computer Science from I.I.T., Kanpur and Advanced Management program from Harvard
University, USA. He is one of the best known IT experts in the country. Over the years Mr. Kale grew to become a recognised
expert in the sphere of IT and more part icularly in bank automation, where he was a respected member of various committees at
the industry level. Mr. Kale was a consultant to the Comput erisation Committ ee of the Indian Banks Association. He was also a
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KALE CONSULTANTS LIMITED8
member of the Rangarajan Commit tee for computerisation of Banks. He has part icipated in several other Commit tees / WorkingGroups at the Reserve Bank of India and the Indian Banks Association.
Mr. Narendra Kale is a director in the following companies:
Public Limited Companies Other Bodies Corporate
Kale Consultants Limited Kale Softech, Inc.
Kale Consultants Australia Pty. Ltd.
Antah Kale Sdn. Bhd.
Mr. Kale holds 1,015,000 equity shares of the Company.
Auditors
M/s. D. G. Kurundwadkar, Chartered Accountant, Auditor of the Company, retires at the ensuing Annual General Meeting and
being eligible, offers himself for reappointment.
Directors Responsibility Statement
Your Directors confirm that
in the preparation of the annual accounts, the applicable Accounting Standards had been followed along with proper
explanation relating to material departures.
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 affairs of the Company at the end of the financial
year and of the profit or loss of the Company for that period.
the directors had taken proper and sufficient 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.
the directors had prepared the annual accounts on a going concern basis.
Human Resource
During the year under review, the Remuneration and Compensation Committee of the Board granted 185,000 options under
Kale Consultants Limited Employee Stock Opt ion Scheme - 2003. Following are the details required to be given under the SEBI
(Employee Stock Option Scheme and Stock Purchase Scheme) Guidelines, 1999:
Directors Report
a) Options granted A total number of 185,000 options were granted during the year.
b) Pricing formula Exercise price for the stock options is decided by the Remunerationand Compensation Committee (the Committee). So far, the
Committee has granted opt ions at the closing market price on the
National Stock Exchange on the date of grant of options. The price
is payable at the time of exercise of options.
c) Options vested A total number of 983,211 options have vested. Out of these vested
options, 70,022 options have lapsed till 31st March, 2006.
d) Options exercised A total number of 546,090 options have been exercised till 31st
March, 2006.
e) The total number of shares arising as a result The options exercised till 31st March, 2006 have given rise to
of exercise of options 546,090 equity shares.
f ) Options lapsed Till date 399,496 options have lapsed. As per the ESOP Scheme,
these options shall be pooled back and may be granted at the
discretion of the Remuneration and Compensation Committee to
any Eligible Employee as defined in the ESOP Scheme.
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9KALE CONSULTANTS LIMITED
g) Variat ion of terms of options At the nineteenth Annual General Meet ing a special resolut ion waspassed amending :
a) the definit ion of Exercise Price. According to the revised definit ion,
Exercise Price means the Market Price on the date of grant or such
other price as the Remuneration and Compensation Committee of
the Board of Directors may, in it s absolute discretion decide and that
the exercise price may differ in respect of options that may be granted
in each tranche.
b) the clause pertaining to Vesting Period. According to the revised
Clause 10.3 (a) of the Kale Consultants Limited Employees Stock
Option Scheme 2003:The Remuneration and Compensation
Committee of the Board of Directors shall have sole discretion to
decide the vesting period. The vesting period may vary from
employee to employee in respect of options that may be granted in
one tranche.
A special resolution was also passed enabling the Remuneration andCompensation Committee of the Board of Directors to grant options
exceeding 1% of the paid up equity share capital of the Company
during any one year to Mr. Ashish Malhotra, CEO and Director of Kale
Softech, Inc., USA, the wholly owned subsidiary of the Company, under
Kale Consultants Limited Employees Stock Option Scheme, 2003.
h) Money realised by exercise of options During the year, Rs. 16,545,011.29 have been realised till 31stMarch,
2006 by exercise of options.
i) Total number of opt ions in force As on date, a total number of 868,353 options are in force.
j) Employee-wise details of Options granted to
i) Senior managerial personnel Anand Khare, Ashish Malhotra, Ashish Nanda, Ashley Goldsworthy,
Chandrashekhar Karmarkar, Kashmira Irani, K. K. Nohria, Mahesh
Shah, Michael Lappen, Neela Bhattacherjee, Prakash Alkutkar, P. S.Deodhar, Rajnish Kapur, Satish Ambe and Sumeet Nadkar.
ii) Any other employee who receives a grant Mr. Ashish Malhotra.
in any one year of option amounting to 5%
or more of options granted during that year
iii) Identified employees who were granted Mr. Ashish Malhotra has been granted options exceeding 1% of
exceeding 1% of the issued capital the issued capital of the Company at the date of grant.
(excluding outstanding warrants and conver-
sions) of the Company at the time of grant
k) Diluted Earnings Per Share (EPS) pursuant to Rs. 5.17
issue of shares on exercise of option calculated
in accordance with International Accounting
Standard (IAS) 33
Directors Report
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KALE CONSULTANTS LIMITED10
Weighted average exercise price of Options granted during the year whose
a) Exercise price equals market price 91.36b) Exercise price is greater than market price Nilc) Exercise price is less than market price Nil
Weighted average fair value of Options granted during the year whose
a) Exercise price equals market price 95.64b) Exercise price is greater than market price Nilc) Exercise price is less than market price Nil
The stock-based compensation cost calculated as per the intrinsic value method for the financial year 2005-06 is Rs. Nil. If the stock-based compensation cost was calculated as per the fair value method prescribed by SEBI, the total cost to be recognised in thefinancial statements for the year 2005-06 would be Rs. 791,885. The effect of adopting the fair value method on the net income andearnings per share is presented below:
Pro Forma Adjusted Net Income and Earnings Per ShareParticulars Amount in Rs.
Net Income
As Reported 64,842,955Add: Intrinsic Value Compensation Cost Less: Fair Value Compensation Cost 791,885
Adjusted Pro Forma Net Income 64,051,070
Earning Per Share: BasicAs Reported 5.33Adjusted Pro Forma 5.26
Earning Per Share: DilutedAs Reported 5.17Adjusted Pro Forma 5.11
Method and Assumptions used to estimate the fair value of options granted during the year
Fair value has been calculated using the Binomial Method.Assumptions used in the calculation are given below:
Variables Date of Grant
16th May, 2005 24th January, 2006
1 Risk Free Interest Rate 6% 6%
2 Expected Life 3 years 3 years
3 Expected Volatility 50% 50%
4 Dividend Yield Ignored Ignored
5 Price of the underlying share in market at 85.00 101.80
the t ime of grant of options (Rs.)
Directors Report
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11KALE CONSULTANTS LIMITED
Corporate GovernanceA report on Corporate Governance is set out separately, which forms part of this report.
Fixed Deposits
During the year your Company has not accepted fixed deposits from the public.
Particulars of Employees
As required under the provisions of section 217(2A) of the Companies Act, 1956 read with Companies (Particulars of Employees)Rules, 1975 as amended, the names and other particulars of employees are set out in the annexure, which forms part of thisreport.
Conservation Of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo
The part iculars prescribed under clause (e) of subsection (1) of section 217 of the Companies Act, 1956 read with the Companies(Disclosures of Part iculars in the Report of Board of Directors) Rules, 1988 are set out in the annexure which forms part of t hisreport.
Acknowledgement
Your directors extend their gratitude to all investors, clients, vendors, banks, financial institutions, regulatory and governmentalauthorities and stock exchanges for their continued support during the year.
The directors place on record their appreciation of contribution made by the employees at all levels for their dedicated andcommitted efforts during the year.
For and on behalf of the Board of Directors
Narendra Kale Vipul JainPlace : Mumbai Chairman Managing DirectorDate : 25th April, 2006
Directors Report
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KALE CONSULTANTS LIMITED12
Annexur
etoDirectorsReport
STATEMENTASPERSECTION217(2A)OFTHECOMPA
NIESACT,1956READWITHCOMPANIES(PARTICULARSOFEMPLOYEES)RULES
,1975
Sr.
Name
Designation
Qualification
Age
Dateof
Experience
Gross
Last
No.
(Years)commencem
ent
(Years)
Remuneration
Employment
ofemploym
ent
(Rs.)
1
ChrisDubois
VicePresident-European
M.A(Hons),DiplomainManagement
60
16.01.2001
38
7,134,927
SpeedwingIn
ternational
AirlinesDivision
Studies
Ltd.
2
DavidOx
man(*)
SeniorConsultant
B.Tech
55
15.10.2001
32
3,427,808
Sytengra
3
GrahamW
ilson(*)
SeniorManager-Sales
B.A(Hon
s)
55
05.01.2004
22
3,555,885
AmadeusServicesLtd.
4
GuyHesc
ott
VicePresident
1ALevel,3OLevel
46
02.04.2001
27
5,193,595
SpeedwingIn
ternational
Ltd.
5
JillyFerre
ro(*)
AccountManager
CertificateinBusinessDevelopment
47
01.02.2001
28
521,373
Hamptons
6
Murugad
as
LeadAnalyst
B.E(E&E
)
29
17.11.2003
7
1,341,213
DSQSoftware
Ltd.
Panduran
gan(*)
7
PeterOS
ullivan
VicePresident
B.Sc
50
26.09.2000
26
7,018,234
SpeedwingIn
ternational
Ltd.
8
RajaramS
ubramaniam(
*)
LeadAnalyst
B.E(Com
puters)
27
01.11.2003
6
2,590,018
AllserveSyste
msPlc.
9
RanganB
haumik
Consultant
B.Tech
33
16.11.2000
9
4,077,637
Mindtech
10
StewartA
ylott(*)
ProjectManager
7OLeve
l
46
09.10.2000
27
3,005,212
SpeedwingIn
ternational
Ltd.
11
VipulJain
ManagingDirector
B.Tech,P
GDBM(IIMA)
49
01.11.1986
26
4,940,740
TataAdministrative
Services
12
RajnishK
apur
ExecutiveVicePresident
B.E(Com
puterScience)
42
01.05.2004
16
3,895,063
Xansa(IISInfo
tech)
13
Abhijeet
Barad(*)
LeadAnalyst
B.E(Com
puterScience)
27
24.07.2000
6
3,098,013
14
KalpeshShah(*)
LeadAnalyst
B.E(Com
puterScience)
27
24.07.2000
6
910,653
DigitekTechn
ologies
15
Kaustubh
Dighe(*)
LeadAnalyst
B.Com,P
GDinComputerApplications
28
01.03.2001
8
1,243,299
BlueChipCom
puter
ConsultantsP
vt.Ltd.
16
SandraArmstrong(*)
AdministrationManager
GCSEO
Level
41
03.05.2005
10
1,642,492
DalkiaEnergy
&
TechnicalServices
(*)Employedpartoftheyear
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13KALE CONSULTANTS LIMITED
Conservation of EnergyThe range of activities of your Company require minimal energy consumption and every endeavour has been made to ensureoptimal ut ilization of energy and avoid wastage through automation and deployment of energy-efficient equipments.
Your Company takes adequate measures to reduce energy consumption by using efficient computer terminals and by usinglatest technology. The impact of these efforts has enhanced energy efficiency. As energy cost forms a very small part of totalexpenses, the financial impact of t hese measures is not material and measured.
Technology AbsorptionYour Company, in its endeavour to obtain and deliver the best, adopts the best technology in the field, upgrades itself continu-ously.
Research and Development (R&D)Your Company has a well-equipped Research and Development team carrying on research and development activit ies.The total expenditure incurred on Research and Development during t he year 2005-06 was Rs. 72.04 mill ion.
Foreign exchange earning and outgo
The details of foreign exchange earnings and outgo are given in Note No. 3 of Schedule 16 Signi ficant Accounting Policies andNotes to Accounts, forming part of the financial statements.
For and on behalf of the Board of Directors
Narendra Kale Vipul JainPlace : Mumbai Chairman Managing DirectorDate : 25th April , 2006
Annexure to Directors Report
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KALE CONSULTANTS LIMITED14
Corporate Governance
Your Company believes that good corporate governance enhances accountabilit y and increases shareholder value. Good corporategovernance has been an integral part of the Companys philosophy. The Company believes that good corporate governanceshould be an internally driven need and is not to be looked upon as an issue of compliance dictated by statutory requirements.The Company is focussed on good governance, which is a key driver of sustainable growt h and enhanced shareholder value.
The Certificate of Corporate Governance from the Statutory Auditors of the Company confirming compliance of the conditionsof Corporate Governance is annexed hereto.
Board Composition
The Company has optimum combination of executive and non executive directors with more than fifty per cent of the Boardcomprising of non executive directors.
Board Meetings
Five Board Meetings were held during the financial year 2005-06.
Name of Director Designation Category Other Directorships / Board Committees(Number)
Directorships Committee CommitteeMembership Chairmanship
Mr. Narendra Kale Chairman Non-Executive 3 1 1(Promoter)
Mr. Vipul Jain Managing Executive 6 1 Director (Promoter)
Mr. K.K. Nohria Director Independent andNon-ExecutiveDirector 22 3 1
Mr. Prabhakar Deodhar Director Independent and
Non-ExecutiveDirector 10 2 2
Mr. Pravin Gandhi Director Independent andNon-ExecutiveDirector 14 2
Dates of Board Meetings
16th May, 2005
25th July, 2005
05th September, 2005
25th October, 2005
24th January, 2006
Annexure to Directors Report
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Attendance at Board Meetings, last Annual General Meeting and Extra Ordinary General Meeting
Name of Director No. of Board Attendance at AGMMeetings Attended held on 5th September, 2005
Mr. Narendra Kale 5 Yes
Mr. Vipul Jain 4 Yes
Mr. K. K. Nohria 3 Yes
Mr. Prabhakar Deodhar 4 Yes
Mr. Pravin Gandhi 4 No
Board Committees
Currently the Board has four Commit tees
a) Audit Committee
b) Investor Grievance Committeec) Remuneration and Compensation Committeed) Share Transfer Committee
None of the Directors of the Company is a member of more than 10 committees or acts as a Chairman of more than five committ eesacross all companies in which he is a Director.
Composition of Committees
a) Audit Committee
Four meetings of the Committee were held during the financial year 2005-06.
Name of Director Category No. of Meetings Attended
Mr. K. K. Nohria (*) Independent Director 2
Mr. Prabhakar Deodhar Independent Director 4
Mr. Pravin Gandhi Independent Director 3
(*) Chairman of the Committee
Terms of Reference
a. to oversee financial reporting and disclosure process.
b. to recommend the appointment and removal of statutory auditors, decide their remuneration and approval for paymentfor any other services.
c. to review financial results and statements before submission to the Board, focusing primarily on
any changes in accounting policies and practices.
major accounting entries based on exercise of judgment by management.
Qualifications in the draft audit report.
significant adjustments arising out of audit.
going concern assumption.
compliance with Accounting Standards.
compliance with stock exchange and legal requirements concerning financial statements.
any related party transactions i.e. transactions of the Company of a material nature, with promoters or themanagement, their subsidiaries or relatives etc. that may have potential confl ict with the interests of the Companyat large.
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d. to oversee adequacy of internal control systems.e. reviewing adequacy of internal audit function, including the structure of the internal audit, staffing and seniority of the
executive heading the internal audit function, reporting structure, coverage and frequency of internal audit.
f. discussion with internal auditors of any significant findings in their reports and follow up thereon.
g. reviewing findings of any internal investigations by the internal auditors into matters where there is suspected fraud orirregularity or a failure of internal control systems of a material nature and reporting the matter to the Board.
h. discussions with external auditors before the audit commences, as regards nature and scope of audit as well as have post-audit discussions to ascertain any areas of concern.
i. reviewing the Companys financial and risk management policies.
j. to look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders andcreditors.
b) Investor Grievance Committee
Four meetings of the Committee were held during the financial year 2005-06.
Name of Director Category No. of Meetings Attended
Mr. Prabhakar Deodhar (*) Independent Director 4
Mr. Narendra Kale Promoter 4
Mr. Vipul Jain Promoter 3
Mr. K. K. Nohria Independent Director 2
(*) Chairman of the Committee
Terms of Reference
To monitor investor complaints by obtaining monthly reports from the Registrar and Share Transfer Agent.
Name and Designation of Compliance Officer
Ninad G. Umranikar Company Secretary
c) Remuneration and Compensation CommitteeThree meetings of the Committee were held during the financial year 2005-06.
Name of Director Category No. of Meetings Attended
Mr. Narendra Kale (*) Promoter 3
Mr. Prabhakar Deodhar Independent Director 3
Mr. K.K. Nohria Independent Director 1
Mr. Pravin Gandhi Independent Director 3
(*) Chairman of the Committee
Terms of Reference
The Commit tee reviews the remuneration payable to directors and the senior off icers of the Company and decides matterspertaining to Employees Stock Options.
Remuneration Policy
Remuneration to Managing Director is paid in accordance with the provisions of the Companies Act, 1956. Commission ispaid to Managing Director and to independent non-executive directors at a specified percentage of the net profits of theCompany. Sitt ing Fees are paid to independent non-executive directors for attending every meeting of the Board of Direc-tors or committee thereof (other than Share Transfer Commit tee).
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Annexure to Directors Report
Remuneration to Managing Director
At the nineteenth Annual General Meeting of the Company held on 5th September, 2005, the shareholders had passed aspecial resolution, subject to the approval of the Central Government, for increase in remuneration of Mr. Vipul Jain. TheCentral Government, vide its letter no. 2/68/2005-CL.VII dated 30th November, 2005 approved increase in remuneration ofMr. Vipul Jain. Based on the approval received from the Central Government, following remuneration was paid to Mr. VipulJain for the financial year 2005-06:
Remuneration to Mr. Vipul Jain for the year ended 31st March, 2006:
a) Salary - Rs. 4,222,094b) Perquisites - Rs. 718,646
The remuneration payable to Mr. Vipul Jain may be revised from time to time, during the currency of appointment of Mr.Jain, subject to such consents, sanctions as may be necessary for such revision in remuneration.
Stock Options
Mr. Vipul Jain, being promot er of the Company, has not been granted any stock options.
Service Contract, Notice Period and Severance Fees
Mr. Vipul Jain has been reappointed as Managing Director for a period of five years with effect from 1st June, 2003. Mr. VipulJain may resign by giving three months notice in writing to the Company without any severance fees.
Remuneration to Non-Executive Directors
Commission - Rs. 300,000Sitting Fees - Rs. 165,000
Commission to non executive directors (other than Chairman) is payable @0.5% of the profits as computed as per therequirements of the Companies Act, 1956, subject to a ceil ing of Rs. 100,000 per director. A sum of Rs.5,000 is paid t o eachindependent director for attending a meeting of the Board of Directors or Committee thereof (apart from Share TransferCommittee Meeting).
Stock Options to Non Executive Directors
The following nonexecutive directors have been granted options:
Name of Director No. of Options Granted Date of Grant
Mr. K. K. Nohria 15,000 7th
February, 2003
5,000 27th
July, 2004
Mr. P. S. Deodhar 10,000 7th
February, 2003
5,000 27th
July, 2004
Mr. Pravin Gandhi 15,000 27th
July, 2004
Vesting :30% of the options granted vest on completion of one year from the date of grant. The balance 70% of the opt ionsgranted vest equally over a period of 8 quarters on a quarterly basis starting from the end of 15
thmonth from t he date of
grant of options.
Exercise Period :The options shall be exercised within a period of 2 years from the date of vesting.
Exercise Price : Exercise Price of the options granted is the closing market price on the National Stock Exchange of IndiaLimited on the date of grant.
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Annexure to Directors Report
No. of equity shares held by Non-Executive Directors
Name of Director No. of Shares Held
Mr. Narendra Kale 1,015,000
Mr. K.K. Nohria 40,000
Mr. P.S. Deodhar Nil
Mr. Pravin Gandhi 5,812
d) Share Transfer Committee
Name of Member Category
Mr. Vipul Jain (*) Promoter
Mr. K.K. Nohria Independent Director
Mr. Sumeet Nadkar Chief Financial Of ficer
Mr. Ninad Umranikar Company Secretary
Mr. Gurudas Shenoy Associate Vice President - Finance
(*) Chairman of the Committee
43 meetings of the Committee were held during the financial year 2005 - 06.
Terms of Reference
Committee approves the share transfers, transposition, etc. based on the reports obtained from the Registrar and ShareTransfer Agent.
Quorum
Quorum for Board as well as Commit tee Meetings is one third or two directors / members of commit tees, as the case maybe, whichever is higher.
Disclosures
There are no materially significant related part y transactions i.e. transaction, material in nature, with it s promoters, directors, theirrelatives or the management, subsidiaries of the Company etc. having potential conflict with the interests of the Company at
large.
No penalties or strictures have been imposed on the Company by Stock Exchanges or SEBI or any statutory authorit y, on anymatter related to capital markets, during the last three years.
Means of communication
Half yearly report sent to each household of Shareholder: No
Quarterly results:Which newspapers normally published in: Financial Express and Loksatta
Any website where displayed: www.kaleconsultants.com
Whether it also displays official news releases and presentations Yesmade to institutional investors or to analysts:
Whether MD&A is a part of annual report or not: Yes
Shareholder Information
The additional information to shareholders, which forms part of the Corporate Governance Report is annexed hereto.
General Body Meetings
Particulars of Annual General Meetings held during last three years:
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19KALE CONSULTANTS LIMITED
Annexure to Directors Report
Year 2003 Extra Ordinary General Meeting dated 6th
February, 2003 at Mahratta Chamber of Commerce,Industries and Agriculture, Pune 411 002 at 12.30 p.m.
Special Resolutions Passed
Creation, offer, issue and allotment of equity shares and / or equity linked instruments (including options), and / or anyother instruments or securities to employees and directors (other than promoter directors) of the Company.
Creation, offer, issue and allotment of equity shares and / or equity linked instruments (including options), and / or anyother instruments or securities to employees and directors (other than promoter directors) of subsidiary companies.
Year 2003 AGM dated 23rd July, 2003 at Mahratta Chamber of Commerce, Industries and Agriculture, Pune 411 002 at 12.30 p.m.
Special Resolutions Passed
Reappointment of Mr. Vipul Jain as the Managing Director for a period of five years with effect from 1st June, 2003 andapproval of remuneration payable to him.
Year 2003 Extra Ordinary General Meeting dated 12th December,2003 at Mahratta Chamber of Commerce,
Industries and Agriculture, Pune 411 002 at 12.30 p.m.
Special Resolutions Passed
Creation, offer, issue and allotment of equity shares and / or equity linked instruments (including options), and / or anyother instruments or securities to promoters of the Company on preferential basis.
An ordinary resolution under Section 293(1)(a) of t he Companies Act, 1956 for the sale of the Banking division was passedby postal ballot. The results of the postal ballot were declared at the Extra Ordinary General Meeting of the Company heldon 12th December, 2003.
Year 2004 Annual General Meet ing dated 28th September,2004 at Mahratta Chamber of Commerce, Industriesand Agriculture, Pune 411 002 at 3.00 p.m.
Special Resolutions Passed
No special resolution was passed at the AGM.
Year 2005 Extra Ordinary General Meeting dated 12th March,2005 at Mahratta Chamber of Commerce,Industries and Agriculture, Pune 411 002 at 3.00 p.m.
Special Resolutions Passed
Resolution for consideration and approval, with or without modifications, of the Amalgamation between Kale eTravelTechnologies Limited and Kale Consultants Limited.
Year 2005 Annual General Meet ing dated 5th September, 2005 at Mahratta Chamber of Commerce, Industriesand Agriculture, Pune 411 002 at 12.30 p.m.
Special Resolutions Passed
Amendment to the Kale Consultants Limited Employee Stock Opt ion Scheme
Grant of Options exceeding 1% of the paid up equity share capital of the Company t o Mr. Ashish Malhot ra, CEO & Directorof Kale Softech Inc.
Increase in remuneration of Mr. Vipul Jain, Managing Director
DECLARATION
Pursuant to Clause 49 (I) (D) (ii) of the Listing Agreement entered into with the stock exchanges, I hereby declare thatall Board members and senior management personnel have affirmed compliance with the code of conduct .
Vipul JainManaging Director
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Certificate of Corporate Governance
To,The Shareholders ofKale Consultants Limited
I have examined the compliance of conditions of corporate governance by Kale Consultants Limited, for the period ended 31stMarch, 2006 as stipulated in Clause 49 of the Listing Agreement of the said Company with the Stock Exchanges.
The compliance of conditions of corporate governance is the responsibility of the management. My examination was limited toprocedures and implementation thereof, adopted by the Company for ensuring the compliance of the conditions of corporategovernance. It is neither an audit nor an expression of opinion on the financial statements of the Company.
In my opinion and to the best of my information and according to the explanations given to me, I certify that the Company hascomplied in all respects with the conditions of corporate governance as stipulated in the above mentioned Listing Agreement.
I state that as certified by the Registrar and Share Transfer Agent of the Company and as taken on record by the InvestorsGrievance Commit tee, there were no investor grievances unattended/ pending against t he Company, as on 31st March, 2006, fora period exceeding one month.
I further state that such compliance is neither an assurance as to future viabilit y nor the efficiency or effectiveness with which the
management has conducted the affairs of the Company.
For M/s. D.G. KurundwadkarChartered Accountant
Place : Mumbai D. G. Kurundwadkar
Date : 25th
April, 2006 ProprietorMembership No. 35602
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Management Discussion & Analysis
Safe Harbour Statement
Certain statements in this Annual Report concerning Kales future growth prospects are forward-looking statements, which involve anumber of risks and uncertaint ies that could cause actual results to differ materially from those in such forward-looking statements.
The risks and uncertaint ies relating to these statements include, but are not limited to, risks and uncertaint ies regarding fluctuat ions inearnings, Kales ability to manage growth, intense competition in IT services including those factors which may affect cost advantage,wage increases in India, ability to attract and retain highly skilled professionals, time and cost overruns on fixed-price, fixed-time framecontracts, client concentrat ion, restrictions on immigration, abil ity to manage international operations, reduced demand for technologyin key focus areas, disruptions in telecommunication networks, ability to successfully complete and integrate potential acquisitions,liability for damages on service contracts, the success of the subsidiaries of Kale, withdrawal of governmental fiscal incentives, politicalinstabilit y, legal restrictions on raising capital or acquiring companies outside India, and unauthorized use of intellectual property andgeneral economic conditions affecting industry. Kale may, from t ime to time, make additional wri tten and oral forward-lookingstatements, including reports to shareholders. The Company does not undertake to update any forward-looking statement that maybe made from t ime to t ime by or on behalf of the Company.
The following discussion and analysis should be read in conjunction with the Companys audited Financial Statement and the notesthereon.
Business Strategy Review Promoted by two technocrat entrepreneurs, Narendra Kale and Vipul Jain in 1986, KaleConsultants Limited (Kale) which started with a capital of Rs. 1 million, a team of 8 andsingle room off ices in Mumbai and Pune, is now a listed enti ty having a marketcapitalization of over USD 25 million, with 800 people and global operations. Kale istoday recognised as a leading solutions & services provider that offers compelling valuepropositions t o i ts customers wit h i nnovative software and business processmanagement solutions. Kale stands out in the competitive market place because ofthe innovation and depth of solution offerings.
Kales solution suite includes solutions for Passenger and Cargo Revenue Accounting,Ticket Proration, Air Cargo Management, Cargo Ground Handling, and eTravelTechnologies. These solutions are offered across multiple platforms such as outsourcedsoftware development and pay-as-you-go business process management services whichhelp provide business fit to customer needs.
Kales business strategy of leadership through focus in the travel & transportationindustry has enabled the company to identify niche, scalable markets in which the
company has invested significantly to develop strong capabilities. In the second yearpost the restructuring, strategies employed by the management has enabled thecompany to gain leadership positions in the focus segments.
Global Operations The company has a customer base of more than 60 leading airlines and travel companiesworld-wide. The focus on long-term customer relationships and our commitment inproviding value added services to our customers has started reaping huge benefits forthe company.
Kale operates from it s global offices situated in the US and UK and Indian off ices locatedat Mumbai, Pune and Noida.
Kales solution offeringsPassenger solutions Kale developed REVERA- The New Generation Passenger Revenue Accounting Solution,
is a comprehensive, scaleable and modern Passenger Revenue Accounting system. It isdesigned to deliver high levels of straight through processing and productivity to t hecomplex function of revenue accounting, thus delivering real business value to thecustomer. REVERAis considered among the Best of Breed solutions in the industry
today.APEX, a subset of REVERAis a proration software (proration is the method by whichrevenues from a journey are shared amongst airlines). IATA, with a view to simplify andreduce costs of interline billing, selected Kales product APEX, as one of the twosuppliers to provide a neutral fare proration (NFP) service to airl ines. Most of the worldstop airl ines are expected to use NFP for the bulk of there interline billing transactions inthe next few years.
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Management Discussion & Analysis
Kales solutions portfolio also includes Decision Support Systems that enable the topmanagement of the airline to take informed and proactive decisions. This includesiDEALS, an airline deal management system for fast and effective distribut ion ofmarket fares, and PRISM, a sophisticated business intelligence solution.
Cargo solutions The inclusion of cargo software products l ike AMBER (a sophisticated CargoRevenue Accounting System), MERCURY (fully integrated software for cargoground handling), and CSP (a modular, enterprise-wide system for cargo airlines),means that Kale now has a complete suite of products for the air cargo industry.
Travel The solutions offered by Kale keep in mind business as well as operational needs of thetravel companies. Kales eFareEngine is a Fare Database Management and Distr ibutionsystem that uploads the complex net fare contracts along with their conditions andrestrictions into a fares database that can be accessed on the web. eFlight Info is a real-time flight alert system offering real-time flight information to the traveller via SMS &web alerts. eFlightInfo is a product designed for airlines, travel management companies(TMCs) and other service providers to give their customers value added service.
Managed Process Services Kales BPO init iative Kale MPSuses Kales proprietary product, processes and domainknowledge. Leveraging Kales revenue accounting expert ise, industry best pract ices andbest-of-breed products, Kale MPSoffers cost efficient revenue account ing recoveryand protection services to enable
Outsourcing an expensive and non-core function without compromising on securityconfidentiality and integrity of the information
Improving service levels & quality of processes
Transform cost models form fixed cost approach to pay for value received method
Kales Managed Process Services create di fferent iation and competitive advantage, whilesimultaneously reducing unit transaction costs. Kales outsourced business processesenable the customers to free internal resources to focus on core functions, and achievelower and more manageable costs. What we offer is not mere arbitrage from BusinessProcess Outsourcing (BPO), but process driven, qualit y assured, Service Level Agreements(SLAs) based managed services.
Kales initiative in the BPO space is a strategic extension of its domain expertise in the
travel and transportation industry. Within the outsourcing space, Kale occupies thehighest niche in the value chain as it has complete system ownership. It has created anoutsourcing model, which is stable and scalable.
Thus, Kales solutions span from software solutions to outsourced software developmentto pay-as-you-go business process management services. This depth of capabilityenables Kale to deliver innovative business value propositions that meet the contextspecific needs of the customers.
Kale has been able to leverage a well-proven offshore delivery model, quality processesand strong technical skills to provide complete, compact and cost-effective solutions.With a solution suite based on domain knowledge, Intellectual Property Rights andhigh-end value creating services, Kale has acquired a competitive edge in the globalmarket.
Industry Developments(Industry Highlights) Kales Neutral Fare Proration (NFP) service during the last year has been quite steady
and has helped Kale strengthen it s position in t he industry. It has had a direct and positiveimpact on the business - the number of airlines signing for this service resulting inincrease in revenue for the company.
The increasing competitive pressures and declining yields has resulted in various industryinitiatives focused on improving the state of the air cargo industry. 2005 saw a number ofnew cost saving initiatives taking concrete shape (RFID), old ones being revived (Cargo2000) and reincarnation of old ones like e-freight (erstwhile CPTP). These industry projectswill lend the industry the much needed direction and steer it towards profitability.
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Management Discussion & Analysis
Over the years Kale has provided its full support t o all major industry init iatives and thisyear too it has announced it s full endorsement and support to IATAs e-Freight init iative.Kale is also proud to announce its selection as an Industry Associate of Cargo 2000, anIATA Interest Group. Kale has long been a supporter of the principals of Cargo 2000 particularly the desire to improve quality and processes, and the need to drive downthe cost of operations. Our new association with Cargo 2000 will enable us to buildupon this in a way consistent with industry best practices. As a result , our cargo productswill now be aligned with the strict requirements of Cargo 2000. This will enhance ourvalue proposition and will enable us to provide airlines with solutions that meet thehighest standards demanded by the industry.
Simplify the Business (StB) is worldwide strategic initiative driven by IATA. To supportthis init iative and to facilitate airlines in meeting StB goals, IATA has chosen a select feworganizations as StB preferred partners. Kale is the only Indian company to be selectedfor this coveted partnership. This will position Kale as a key facilit ator for the airlines, intheir efforts to implement the StB projects initiated by IATA.
Kale Softech Inc., a subsidiary of the company, is now a member of the IATA Clearing
House (ICH); a positive move for smoother and faster invoice sett lement for all customers.This will enable the company to improve its collection cycle
Companys PerformancePassenger Solutions REVERA, Kales Revenue Accounting solution, has once again proved itself to be one
of the worlds most powerful Passenger Revenue Accounting solut ions Brit ish MidlandAirways, UKs second largest carrier has signed a contract with Kale for theimplementation of Revenue Accounting Solutions. Kale has initiated preparatory workfor the execution of t he order and expects a positive impact of this order on the revenueand profi tability this fiscal. REVERAhas also been successfully implemented at BangkokAirways this year.
Additionally, this year, Air Mauritius signed a five-year contract with Kale and went livewith iDEALS, the Online Deal Management System developed by Kale.
Cebu Pacific, the on t ime, great value airline from Philippines also signed a five-yearcontract for REVERA. The airline has gone live in production from January 2006.
Neutral Fare Proration APEX is the industry standard proration solution for Neutral Fare Proration (NFP)
selected by AIA (ARC, IATA and ATPCO) as one of the two co-existing solution offeringsto the industry, other being CIPS from ATPCO. APEXhas been commissioned for usageby 2 of the top-10 airlines, Northwest Airlines (4th largest in the world) and ContinentalAirlines (6th largest in the world), since March 2005. Three other airlines have selectedKale for NFP and are in the process of implementation.
Cargo Solutions Indian Airlines, one of the largest regional airlines in Asia signed a five year contractwith the company for CSP- the Enterprise-Wide Cargo Solution. This contract is forthe complete suite of CSPsolut ions, provided on a hosted basis across 63 domesticand international stations of the airline. To offer a complete solution, Kale will also provideand maintain hardware at 10 Indian Airlines stations.
This is an impor tant milestone for Kale as it marks the launch of CSPRel 2.0 on ahosted basis.
Asiana Airlines, one of the top 20 cargo airlines globally, and a CSPuser since December2003, has reinstated its faith in the solution by renewing its contract with Kale.
Managed Process Services Revenues from the long term, multi -year contracts from Managed Process Services (Kale
MPS) grew by 22% to Rs. 274.11 million over the previous year. Icelandair signed athree-year contract for Revenue Recovery & Protection Services (RRPS) which will beprovided through Kale MPS.
The company has introduced a new service- Cargo Revenue Recovery and ProtectionService and successfully commissioned it for one of the largest Asian Carriers. This opensup another avenue for Kale to deliver bottom line value to the airline community.
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Management Discussion & Analysis
Kale MPScont inues to forge ahead wit h 4 new customers being added in this year.Alongside Revenue Accounting Service, Revenue Recovery Protection Services offeredby Kale MPShas also received a tremendous response from the market. For the newcustomers added, Kale MPS will carry out secondary interline audit, cargo audit,passenger sales audit and RBD audit services. These services wil l help airl ines to preventthe loss of revenue significantly improving their profit margins.
Travel Solutions The Travel Technologies Solut ions group continues to forge ahead. The group undertookseveral new projects thereby increasing Kales share of wallet of customers. New projectsincluded projects wit h TQ3, like Netprof ile in tegration with Sabre GetThere andNetprofile version 2.0 were also added. The pipeline for travel vertical also looks verystrong and healthy.
The head count and infrastructure is seeing a ramp up following extension of longterm, multi-year contracts from existing customers. Solutions developed for ZUJI, aprominent online travel player in South East Asia and Australia has gone live. Kale hasrenewed the contract with Lastminute.com, one of the leading online travel & leisurecompanies.
Order book position The greatest testimony to the sustained value of a companys service is if its customers signfor repeat orders. During the year several of the Companys customers including Qatar Airways,Gulf Air, British Midland, Continental Airlines, Delta Airlines, Last Minute.com, TQ3, PortugaliaAirlines, renewed / signed long-term multi-million dollar deals. Today the company has anorder book of over Rs. 3,600 million to be completed over the next 4-5 years.
Shareholders funds Shareholders funds increased from Rs. 540.41 million to Rs. 629.30 million during theyear 2005-2006
Equity During the year, Share Capit al and Share premium increased by Rs. 11.63 mill ion and Rs.32.18 million respectively on account of the preferential allotment to promoters andexercise of share opt ions by employees.
Present ly, Kale has 12,844,990 shares (P.Y 11,682,450) of Rs. 10 each fully paid up.
Increase in Equity Shares (Nos) Amount Rs. (Million)during the year
Promoters (Preferential allotment) 700,000 27.27
Employees (ESOP) 462,540 16.54
Total Increase 1,162,540 43.81
Profit and Loss Account Kales retained earnings as at 31st March, 2006 amount to Rs. 129.58 million. The Boardhas recommended a dividend of Rs. 1.25 per share for the financial year 2005-2006 atthe Board Meeting held on 25th April, 2006. Accordingly, a provision for dividend(including dividend tax) to the tune of Rs.18.31 million has been made and an amountof Rs. 1.62 million has been transferred to General Reserve.
As at 31st March, 2006, Kales book value per share increased to Rs 48.99 per share ascompared to Rs 46.26 per share as at 31st March, 2005.
Loan Funds During the year Kale raised a new term loan for Rs. 29.94 million and repaid Rs. 41.08million thereby reducing the total term loans outstanding on this account by Rs. 11.14million to Rs. 72.27 mill ion.
Working capital loans outstanding as at 31st March, 2006 decreased by 51.50% from Rs.78.57 million to Rs. 38.10 million.
This decrease in long term loans has improved the gearing rat io to 19.20% from 30.81%in the year 2004-2005.
Investments Kales Investments at cost amount to Rs. 95.81 mill ion as compared to Rs. 154.57 mill ionas at 31st March, 2005. This reduct ion is on account of amalgamation with Kale eTravelTechnologies Limited wherein Kales investment was Rs. 49.91 million.
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25KALE CONSULTANTS LIMITED
Management Discussion & Analysis
During t he year Kale sold its enti re holding of 275,000 shares in Onward TechnologiesLimited for Rs.16.86 mill ion. These shares had been acquired by Kale in part considerationof the sale of it s Banking Products Division to Onward Technologies Limited.
Fixed AssetsProduct Development During the year product development cost amounting to Rs. 72.04 million has been
capitalised as intangible assets.
Other Fixed Assets and Goodwill Kale added Rs. 44.07 million to the gross block comprising of Rs 23.39 mill ion in plantand machinery, Rs. 9.65 million in purchase of new vehicles and the balance Rs. 11.03million in other assets.
The amalgamation of Kale eTravel Technologies Limited with Kale Consultants Limitedhas resulted in Goodwil l amount ing t o Rs. 47.08 million and this has been capitalised inthe books. Assets costing Rs. 5.67 million comprising majorly of plant and machinery(Rs. 1.77 million) and intangibles (Rs. 2.34 million) were acquired on amalgamation andare included in the Fixed Assets.
Sale / Disposal of Assets During the year Kale sold / disposed off assets wit h a gross book value of Rs. 9.51 millionand a depreciated net value of Rs. 1.99 million. Kale also sold its unutilised propertiesstanding at a net book value of Rs. 5.72 million located at Pune and Kolhapur.
Kales Gross Block as at 31st March, 2006 stood at Rs. 807.79 million as compared to Rs.655.88 million as at 31stMarch, 2005. The corresponding Net Block as at 31st March,2006 is Rs. 419.97 million as compared to Rs. 359.75 million as at 31st March, 2005.
Net Current AssetsSundry Debtors Kales Net Receivables as at 31st March, 2006 amounted t o Rs. 193.78 mill ion as compared
to Rs.255.24 million as at 31st March, 2005. These debtors are considered good andrealisable.
The need for provisions is assessed based on various factors including collectibil ity of specificdues, risk perceptions of the industry in which the customer operates and general economicfactors which could affect the customers ability to settle and finally depending on themanagements perception of the risk. The total provision for doubtful debts as at 31st March2006 stands at Rs. 17.52 million compared to Rs. 14.64 million as at 31 st March, 2005.
Debtors as a percentage of revenue is 30.96% as at 31st March 2006 as against 51.78%as at 31st March, 2005.
Current Liabilities As at 31st March, 2006 Kales current liabilities amount to Rs. 100.97 million as comparedto Rs. 148.81 million as at 31st March, 2005 This reduction of 32.15% is attributed to animproved working capital management and better liquidity which enabled payment tosubsidiaries and faster settlement of dues to the creditors. Creditors and Subsidiary duesoutstanding as at 31st March, 2006 are Rs. 13.66 million and Rs. 25.95 million respectivelyas compared to Rs. 25.30 million and Rs. 68.76 million as at 31st March, 2005.
Kale received Rs. 8.64 million from clients as advances against new contracts during the year.
Provisions for the year have increased by Rs. 23.07 million. These include Provision forDividend (inclusive of Dividend Tax) amounting to Rs.18.31 million and a Provison forTax amounting to Rs. 4.76 million.
Result of OperationsIncome For the year ended 31st March, 2006, Kale recorded operating income of Rs. 625.84 million
as compared to Rs. 492.92 million for the year ended 31st March, 2005.
Kales Domestic Sales increased by 71.56% and Export sales increased by 19.73%. Domesticsales led by growth in revenue from Air India, now contribute 18.86% of the total sales ascompared to 13.96 % in year 2004-2005. During the year Kale added 6 new customers and
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KALE CONSULTANTS LIMITED26
Management Discussion & Analysis
further acquired 8 customers on amalgamation with its subsidiary. This, coupled with newcontracts from existing customers contributed to an increased revenue during the year.
For the year ended 31st March, 2006, Kale booked Other Income amounting t o Rs. 17.03million. This consisted primarily of profit on sale of investments (shares of OnwardTechnologies Ltd) amounting to Rs. 7.79 million and rent received for letting outunutilised properties of Rs. 3.36 million. During the year Kale received interest of Rs.2.64 million comprising mainly of bank interest (Rs. 1.48 million).
Kales total income from operations has grown by 27.05% from Rs. 505.99 million in theyear 2004-2005 to Rs. 642.87 million in the year 2005-2006.
Operating Expenses Software development expenses at Kale grew by 28.41% as compared to the year 2004-2005, in line with the increase in revenue.
Increase in costs include: Salary cost: Rs. 66.78 mill ion; Consultancy charges: Rs. 3.98 million;Data Entry Charges: Rs.1.47 million; Communication: Rs.1.01 million; Software AnnualMaintenance Contracts: Rs. 1.22 million and Cost of Consumables and Spare Parts: Rs. 1.11million.
General Administration, selling and other expenses increased by 7.71% to Rs. 238.42 millionfor the year 2005-2006 as compared to Rs. 221.36 million in the year 2004-2005.
Major increases in expenses comprise of: Power and fuel charges Rs. 3.07 million andcommunication costs: Rs. 1.27 million. Rent increased by Rs. 4.71 million on account ofadditional facility (at Noida) acquired on amalgamation Subscription and membershipcharges increased by Rs. 5.95 mill ion for subscription for information on industry data. Kalebooked an exchange loss of Rs. 4.21 million this year which is primarily a translation differenceon restatement of Assets and Liabilities Rs. 4.31 million was written off as net bad debtsduring the year.
386.14
462.99
300
350
400
450
500
2004-05 2005-06
Rs.
InMillio
n
230.97
296.61
100
150
200
250
300
350
400
2004-05 2005-06
Rs.
InMillio
n
Software Development, Deliveryand Support Expences
Total Operating Expenses
2004-05
Domestic
14%
Export
86%
2005-06
Domestic
19%
Export
81%
Composition of Sales
492.92
625.84
400
500
600
700
2004-05 2005-06
Rs.
InMillion
505.99
642.87
400
500
600
700
2004-05 2005-06
Rs.
InMillion
Total IncomeOperating Income
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27KALE CONSULTANTS LIMITED
Management Discussion & Analysis
Depreciation, Amortisationand Interest charges During the year, an amount of Rs. 9.42 million has been amort ised on account of Goodwil l
that has arisen on account of amalgamation of Kale eTravel Technologies Limited withKale Consultants Limited. Depreciation cost during the year increased by Rs. 5.06 millionon account of additions made during the year.Amortisation costs increased by 24.53% which is on account of capitalisation of productdevelopment costs in the previous year being amortised in the current year.The increase in int erest rates and addit ional term loan raised during the year led to anincrease in interest cost by Rs. 1.57 mill ion. Interest coverage ratio has gone up from 14in the previous year to 18 in the current year on account of higher profits.
Operating Profit Kale reported a PBIDT of Rs. 179.88 million in the year 2005-2006 as against Rs. 119.86million in the year 2004-2005. Operating profitafter interest cost and depreciation andamortisation, grew by 89.58% to Rs. 69.62 millionin the year 2005-2006 from Rs. 36.72 million inyear 2004-2005. The improved margins are onaccount of increase in revenue, wherein, costscorresponding to the incremental revenues growat a lower rate, result ing in improved profit abilit y.
* Profit Before Tax and Provision for Diminut ionin Value of Investments.
Profit after Tax Kale recorded a PAT of Rs. 64.84 million for the year
as compared to Rs. 7.52 million for the previousyear. Net profit for the previous year has beencalculated after making a provision of Rs. 29.19million for diminution in value of investments insubsidiaries/joint ventures. Net profit as apercentage of total income is 10.09% as comparedto 1.49% in the year ended 31st March 2005.
Dividend Kale declared a dividend of Rs. 1.25 per share amounting to Rs. 18.31 mill ion (includingDividend Tax Rs. 2.25 million).
IPR Assets and Amortisation As a value innovator, Kale has always believed in developing its own Intellectual Property(IP) and over the years has invested significant amount of resources in this development.All these products have been viewed as the best of the breed products by the industryand highly appreciated by the customers.
Details of IPR assets and amort isation are as follows:Rs. in Mill ion
Particulars AmountOpening Net Block as on 01/04/2005 167.18
Additions during the year 74.43 (*)
Amortisation during the year 56.21
Sale during the year -
Closing Net Block as at 31/03/2006 185.40
(*) includes Rs. 2.39 mil lion acquired on amalgamation
74.76
100.32
50
75
100
125
2004 -05 2005 -06
Rs.
InMillion
8.37
9.94
7.0
8.0
9.0
10.0
11.0
2004-05 2005-06
Rs.
InMillion
Depreciation and Amortisation Interest Charges
36.72
69.62
0
10
20
30
40
50
2004-05 2005-06
Rs.
InMillion
Profit Before Tax*
7.52
64.84
0
10
20
30
40
50
2004-05 2005-06
Rs.
InMillion
Profit After Tax
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KALE CONSULTANTS LIMITED28
Operating Revenuefor the last five years
Travel and Transportation Revenue Revenue has grown at fairly flat rates over theyears. Subsequent to the restructuringexercise undertaken by Kale in year 2003-2004, the company has now attained stabil ityin the Travel and Transportation vertical. Overthe past five years this vertical has seen aCAGR of 19.47%. Revenue has more thandoubled in the last 5 years from Rs. 304.27 million in the year 2001-2002 and to Rs. 619.95million in the year 2005-06.
Annuity Type Revenue Furthermore, a shift in theKales business model fromInit ial Licensing Fee (ILF) toAnnuity t ype stream has
ensured committed andsecured revenue from longterm contracts with greaterstickiness. The Annuity typerevenues have grown fromRs.127.29 million in theyear 2001-2002 toRs.451.76 million in theyear 2005-2006 growing at a CAGRof 37.25%.
Future Outlook The industry is returning to a more normal growth pattern after the shocks that beganin 2001. As per figures released by IATA, international passenger traffic grew by 7.6%in 2005 while international freight traffic increased by 3.2%.Oil remains the single biggest challenge for airline profitability. Strong demand giveslit tle hope of reduced prices this year. As such, cost reduct ion remains criti cal. All industrypartners and stakeholders will have to sustain their focus on fuel efficiency and attackcosts.
There is a new optimism emerging in the industry. Improved economic prospects inEurope and Asia combined with an improving situation in the US will lead to reducedlosses in 2006 and strengthened profi tabil ity in 2007. The theme for the airline industryas very well art iculated by IATA is to Simpl ify t he Business and thereby reduce costsand gain operational f lexibility.Kales solut ions help customers achieve precisely these goals the revenue accountingport folio helps airlines to reduce back office processing costs and prevent revenue losses.They provide customers with better and actionable business intelligence and therebyrespond to the market dynamics with speed and precision. The cargo solution suitedelivers end-to-end process management capabilit y to enable the business to increasecargo yields, enhance customer service and reduce transaction processing costs anddelays.Research data indicates that there are about 19 business processes, which airlines couldoutsource to a third party vendor to offshore locations like India. Kales Managed ProcessServices enables customers to outsource their business process and focus on theirstrategic business drivers. Going forward, Kale will expand its offerings through KaleMPS.
The growth of internet travel sales has been phenomenal in 2005 an estimated US$113 billion worth of travel products were bought on-line. In the US an estimated 65%of airline domestic sales are done on-line. In Europe, the number is currently 30% butthere is no doubt that the numbers will grow. Asia and India are not far behind. TheTravel industry is undergoing fundamental changes. In the next five to ten years, therewill be a churn in the players and a radical transformation of the industry structure androles. There is a huge opportunit y as never before as the opening up of the civil aviation
Management Discussion & Analysis
127.29
214.42
262.73
394.52
451.76
100
150
200
250
300
350
400
450
500
Rs.
inMillion
20 01 -0 2 20 02 -0 3 20 03- 04 2 00 4- 05 2 00 5- 06
Annuity Type Revenue
CAGR37.25%
304.27
347.89376.16
480.54
619.95
250
300
350
400
450
500
550
600
650
Rs.
inMillion
2 0 01 -0 2 2 00 2 -03 2 00 3 -04 2 00 4 -05 2 0 05 -0 6
Travel and Transportation Revenue
CAGR19.47%
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29KALE CONSULTANTS LIMITED
sector and t he growth of the economy create ripple effects. Kale expects to leverage onthis opportunity.Thus each of Kales solutions deliver sustained value propositions to customers and aregaining increased acceptance in the Industry. The current years results indicate that thebenefits of Kales business model are beginning to kick-in and as Kales revenues scale,it s profitabilit y wi ll improve significantly. The management believes that a combinationof its business model, potential market size, industry trends and imperatives and thecompanys own performance augurs well for sustained growth and improved profitability.
Opportunities and Strengths Your company has identified several opportunit y areas with a view to enhancing marketpresence. Significant areas are: Expanding our market reach by focusing on complete solutions offering to include all
of travel & transportation industry which will include airlines, rails, roads, shipping etc. Enhancing the service portfolio through investment and marketing of newly
introduced services Continued sales focus on areas of distinct competitive strength Strengthen new customer base
Aggressive growth in key customer relationshipsThreats & Risks Kale operates in a global environment and is therefore susceptible to the risks that this
entails.Some of these risks include:Revenues are difficult to predict because they can fluctuate drastically given the productlicense model and nature of the markets in which Kale operates. This increases thepossibility that short-term results could fall below the anticipation of market analysts.Mitigants Over the last few years Kale has been consistently addressing this concern andincreasing focus on annuity type revenues from per transaction Right To Use fees and MPS.During the year ended 31st March, 2006 over 70% of the revenues of the company are suchannuity type predictable revenues.Severe competit ion in the market for IT Services could lead to bill ing pressures as wellas reduction in revenue.Mitigants Post restructuring, Kales main focus are the travel and transportat ion industries,where its domain skills, experience and solutions give it an edge over competit ion. Kale plansto leverage these strengths even more to strengthen its competitive positioning.
Wage costs in India have considerably been lower than wage costs in the United Statesand Europe for comparably skilled professionals, which has been one of the competitiveadvantages. However, wage increases in India may prevent us from sustaining thiscompetitive advantage and may negatively affect profit margins. Kale may need to increasethe levels of employee compensation more rapidly than in the past to remain competitive.Mitigants Since Kale has effectively exited from the generic software services market andtoday essentially focuses on travel and transportat ion industry its competitive advantageis not just based on lower wage costs in India. However to guard against this risk and alsouse capital effectively, the Company will continue to work towards increasing the efficiencyand productivity of employees.Being an IT company, Kales ability to execute project engagements and to obtain newclients depends largely on part of its ability to attract, train, motivate and retain highlyskilled professionals, especially project managers, software engineers and other seniortechnical personnel.Mitigants Kale offers an open and fair work culture that enables people from diversecultural, educational and professional backgrounds to work together as a powerful team.Kales HRinit iat ives create an excellent breed of professionals with the right values and skills.
Kale will continue to consciously work towards developing multi-skilled, self-managed andmotivated employees.Kale focuses on service industries such as travel and transportation. Any decrease indemand for technology in such industries may significantly decrease the demand forservices, which may impair growth and cause revenues to decline.
Mitigants The air transportation and travel industries are growing at a healthy rate. Despitethis growth the pressure in these industries to reduce costs has been unrelenting. The industry
Management Discussion & Analysis
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KALE CONSULTANTS LIMITED30
Management Discussion & Analysis
is thus faced with a pretty complex challenge growth on one hand and continue makingoperations more cost effective on the other. Kales unique mix of products and services is ideallypositioned to meet this need at least in the foreseeable future. Besides this the increased thruston recurring annuity type revenues with long term contracts will also reduce risks.
Adequacy ofInternal Control Systems The companys internal control systems are well designed to provide reasonable
assurance that assets are safeguarded, transactions are properly recorded in accordancewith managements authorization, and accounting records are adequate for preparationof financial statements and other financial information. Internal audits are performedregularly to ascertain t heir adequacy and effectiveness. The internal audit funct ion alsocarries out Operations Review Audits. The audit committee periodically reviews thefunctions of internal audit.
Human Capital Kale recognizes the value of the resources and talent in the company and investscontinuously in both, career & personnel development. Our maior focus during thefiscal has been to acquire, train and nuture talent. Today there are more than 800 Kaleites
spread across various nationalities and geographical locations. Every Kaleite enjoys awork place that poses new challenges, new avenues to learn and an unparalledenvironment . Human Resources has undertaken a few new init iatives this year in t hearea of Performance Management, Measurement, Rewards and Recognition, therebygiving a new impetus to our growing organization.
All new employees go through an induction process to imbibe the companys cultureand phi losophy, through structured induction programmes. Employees undergoproduct and process training before being assigned to specific job roles. The focus ison ensuing that each and every employee is certified to have product and processknowledge before they enter into the job responsibility.
The culture and the values of Kale instill the spirit of openness across all levels. As aresult, people at Kale work in an exciting and enjoyable team-based environment.
The company provides a high performance culture, which creates a sense of competitivespirit among employees. Thereby helping them to better and more every time. We have aperformance based reward system, which recognizes employees and rewards them bothmonetarily and non-monetarily. Kale encourages an Equal Employment Opportunity Policy
(EEO Policy) in which it discourages discrimination against any employee or applicant foremployment because of his/her sex in regard to hiring, termination, promotion,compensation, job training, or any other term, condition, or privilege of employment.
At Middle Management level Kale has around 21% women and at Senior Managementthis statistic is around 10%. Kale has a relatively young work force; the average age ofKale employees is just 28 years. Over 24% of Kale employees have postgraduatequalifications, 73% graduates and about 3% diploma holders and others.
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31KALE CONSULTANTS LIMITED
Kales Social Initiative
Catalysts for Social Action (CSA)Catalysts for Social Action, Kales Corporate Social Responsibility has been working on Child Welfare with specific focus on Child
Adoption, since its inception in September 2003. The choice to work on Child Adoption came from the belief that Adopt ion is the
most complete and qualitative form of rehabilitation of the destitute child. CSAs research in the field highlighted several
shortcomings in the existing system and, an abysmal statistic of less than 5000 adopt ions in a country with a population of a
billion people.
CSAs objectives are: To enhance the number of adoptions in the country.
To work towards better child care both, while the child is institut ionalized and post-adoption through guidance andfacilitation.
CSA works with all Central Adoption Resource Agency (CARA) - registered Adoption agencies across the country.
The init ial years were spent primarily on community building and on get ting all stake holders on a common platform. CSA
worked
with Adoption stakeholders through the website www.csa.org.in ( an information repository on Adoption),
with adopt ion agencies through donations- computers, software and other donations, training programmes for agency-staff, childrens events, etc.
with Adoptive Parents Associations and Volunt