Kale Annual Report 05 06

8/8/2019 Kale Annual Report 05 06

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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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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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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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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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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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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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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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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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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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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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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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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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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



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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.


Mr. Prabhakar Deodhar (*) Independent Director 4

Mr. Narendra Kale Promoter 4

Mr. Vipul Jain Promoter 3

Mr. K. K. Nohria Independent Director 2


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.


Mr. Narendra Kale (*) Promoter 3

Mr. Prabhakar Deodhar Independent Director 3

Mr. K.K. Nohria Independent Director 1

Mr. Pravin Gandhi Independent Director 3


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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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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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


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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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.


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.


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.


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.


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.


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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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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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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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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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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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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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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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


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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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



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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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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

Documents

Kale Annual Report 05 06