Management Discussion and Analysis Safe Harbor Statement Certain statements in this Annual Report concerning Accelya Kale's future growth prospects are forward-looking statements, which involve a number of risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. The risks and uncertainties relating to these statements include,but are not limited to, risks and uncertainties regarding fluctuations in earnings, Accelya Kale's 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 frame contracts, client concentration, restrictions on immigration, ability to manage international operations, reduced demand for technology in 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 Accelya Kale, withdrawal of governmental fiscal incentives, political instability, legal restrictions on raising capital or acquiring companies outside India, and unauthorized use of intellectual property and general economic conditions affecting industry. Accelya Kale may, from time to time, make additional written and oral forward-looking statements, including reports to shareholders. The Company does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of the Company. The following discussion and analysis should be read in conjunction with the Company's audited Financial Statement and the notes thereon. INDUSTRY OUTLOOK GLOBAL TRAVEL SECTOR 2014 marked the 100th anniversary of commercial flight. The industry served over 65 billion passengers in its first 100 years and is expected to serve same number of passengers in coming 20 years. According to the International Air Transport Association (IATA) the industry outlook is broadly positive. IATA has made following forecasts for airline industry in 2015: • Airlines are expected to transport around 3.5 billion passengers and 54 million metric tons of cargo. • The airline industry revenues are forecasted to be $727 billion with profit of $29.3 billion. That is a 4% net profit margin. That compares with revenues of $733 billion, profit of $16.4 billion and a 2.2% net profit margin in 2014. • Put another way, airlines are expected to make a profit on average of $8.3 for every passenger carried in 2015 as compared to $4.94 in 2014. • 2015 promises strengthening in airline profitability. Air travel growth continues its solid expansion at or above the 20-year average of 5%. Air cargo is also experiencing renewed growth after several years of stagnation. Overall the air transport demand picture looks relatively strong. ACCELYA GROUP'S STRATEGY Airlines face a complex operating environment and are looking at ways to simplify their business processes and make them efficient and agile. Accelya Group's vision is "to be the market leader of integrated suite of financial and business intelligence solutions to airlines", Accelya is strategically focused to help airlines integrate and simplify their financial processes; to better manage costs, risks, revenue leakages, cash flows, profitability and overall business performance. Accelya partners with airlines right from the time a ticket or an air waybill is issued, all the way through its entire financial lifecycle and until the data is converted to actionable decision support. For our customers, there is a wider choice of solutions and the confidence that they are engaging with a Group that can become their long term and strategic solutions provider. Pay-per-use business model further helps airlines avoid upfront capital investments and achieve business growth. It also provides the Group annuity revenue streams that ensure revenue visibility and foundation for growth. ACCELYA KALE UPDATES During the year, the Company added many leading global airlines to its customer list. Some of these included: • Vueling, the leading airline at Barcelona-El Prat Airport, selected REVERA® to support its evolving business. With this deal, REVERA® has demonstrated that apart from large full service carriers it is also well equipped to serve low cost carriers. Revera now serves two low cost airlines adopting hybrid model - Vueling and GoAir. • Hawaiian Airlines selected REVERA CRA Cargo Revenue Accounting solutions. With this Accelya Kale will address both Passenger and Cargo Revenue Accounting needs of Hawaiian Airlines. • Air Namibia selected Accelya Kale's cost management (FinesseCostTM) & flight profitability solutions (FinesseFPSTM). Accelya Kale continued its focus on innovation, increased productivity and quality by launching some key solutions during the year. • The Company launched Finesse FPSTM to provide airlines with accurate and timely information about flight profitability. • To help airlines achieve agent satisfaction with accurate and timely incentives payout, the Company launched IncentiveProTM. • With growing demand for analytics and business intelligence, Accelya Kale is investing in Revenue Analytics solutions and see this as a high potential opportunity. Accelya Group was conferred with some brstigious industry accolades during the year. The Group was acknowledged as 'Readers Choice Company 2015' by Air Transport News Awards for getting maximum votes across all categories by airline professionals and also featured amongst 'IAOP 2015 Global Outsourcing 100® List'. Accelya Kale MD & CEO Mr. Vipul Jain received the 'Asia Pacific EntrebrneurshipAward' for creating a leading software product company in Accelya Kale and for his passionate contribution to social sector. These accolades are testament to the value delivered by the Group to its customers and the airline industry. ACCELYA KALE'S MAJOR OFFERINGS Accelya Group's expertise spans across all critical airline financial processes - BSP Processing, Revenue Accounting, Audit and Revenue Recovery, Card Management, Miscellaneous Billing, Cost Management and Business Intelligence. REVERA®- Revenue Accounting Solution Accelya Kale has more than 20 years of experience in revenue accounting and helps airlines process over 300 million revenue accounting transactions annually. In this category we are considered to be one of the leaders in the industry. REVERA suite of solutions enables airlines to streamline and simplify revenue accounting across passenger, proration, interline, cargo and airmail. REVERA suite includes REVERA PRA, APEX® Proration, REVERA Interline, REVERA CRA and REVERA Airmail. Accelya Kale is a pioneer of platform based BPO or Outsourced Services model for airlines. This business model offers outsourced services on the REVERA platform and combines domain expertise with service orientation (as per SLAs). The Company takes complete accountability of accuracy, timeliness and completeness of data. For customers who do not wish to outsource, but use the platform in-house, the Company offers Managed Hosting model. FinesseCostTM - Cost Management Solution FinesseCostTM helps airlines efficiently manage their Direct Operating Costs (DOC). It streamlines the payables process by automatically processing E-invoices from various DOC vendors such as airports, ATC and fuel companies. FinesseMBS™ - Miscellaneous Billing Solution FinesseMBS™ is a SIS-compliant miscellaneous (non -transport) billing solution that streamlines miscellaneous receivables and payables. Using a single, integrated invoicing and settlement process, FinesseMBS™ standardises billing and accounting practices across business units. FinesseFPS™ - Flight Profitability Solution FinesseFPSTM is a multi-dimensional analytical tool which accurately assigns, measures, and manages each flight costs and revenues to reports flight profitability. It helps airlines in detailed analysis of the impact of each type of cost on the flight profitability. Audit and Revenue Recovery Service Accelya Kale is the leader in revenue recovery and protection services to airlines. Its audit services span across the entire ticket lifecycle from original booking through to the completion of the journey. This is supported by combrhensive recovery services — from raising of Agent Debit Memos (ADMs) to fund collection. Through proprietary platform, skilled staff and best practices, the Company ensures maximised recovery and minimised errors. IncentiveProTM Agency Incentives Solution IncentivePro™ helps airlines achieve agent satisfaction with accurate and timely incentives payout. Industry Solutions (IATA Business Partner) Accelya Kale partners with IATA on industry-wide initiatives and provides strategic solutions that aim to transform and simplify a variety of airline processes. The Company's robust industry solutions include Neutral Fare Proration (NFP) and Simplified Interline Settlement (SIS). Accelya Kale is primary technology partner for IATA's Simplified Interline Settlement (SIS) platform. Accelya Kale's NFP (Neutral Fare Proration) engine APEX® (jointly offered with ATPCO) is the backbone of the First and Final™ Billing service offered by IATA. As a part of the NFP process, APEX® accurately prorates more than 3 million transactions per month to over 35 airlines. ACCELYA KALE'S STRENGTHS AND OPPORTUNITIES Business focus and expertise Accelya Kale is the leading financial solutions provider to airlines and travel industry. The Company commands a significant advantage in terms of business domain knowledge and emerging industry changes. The years of experience have provided the Company with a strong base of Intellectual Property and Intellectual Capital. This advantage helps Accelya Kale to provide solutions which simplify airline financial processes and address their challenges. Neutral service provider Accelya Kale is a neutral service provider and is not governed by any competing airline. The platform and processes are independent of any airline strategic roadmap. Confidentiality and security of customer data is of utmost importance to the Company. Single vendor accountability Accelya Kale has pioneered the concept of platform-based outsourcing in the airline industry. The Company takes complete accountability of the outcome as per SLAs. It also takes the responsibility of maintaining and upgrading the platform, processes and people skills in line with industry best practices and client requirements. Relationship with customers Accelya Kale values long-term relationship with its customers. The ability to forge effective and lasting partnerships with large, global airlines is the Company's strength. Many of Accelya Kale's airline customers over the years have extended their association with the Company. Pay as you use model Accelya Kale offers its solutions on pay-per-use model. It helps airlines have a low capex and variable cost. At the same time, to the Company it ensures annuity revenue streams resulting in revenue visibility and foundation for growth. A win-win for customers and the Company. Shareholders' funds Shareholders' funds increased from Rs. 803.18 million to Rs. 945.59 million during the year 2014-15. Equity During the year, Share Capital and Securities Premium stand at Rs. 149.27 million and Rs. 316.98 million respectively. Presently, Accelya Kale has 14,926,261 shares (Previous Year 14,926,261) of Rs. 10 each fully paid up. Profit and Loss Account Accelya Kale's retained earnings as at June 30, 2015 amount to Rs. 230.65 million. The Board has recommended a final dividend of Rs. 25 per share for the financial year 2014-2015 at the Board Meeting held on 5th August, 2015. Accordingly, a provision for dividend (including dividend tax) to the tune of Rs. 431.95 million has been made. As at 30th June, 2015, Accelya Kale's book value per share increased to Rs. 63.35 per share as compared to Rs. 53.81 per share as at 30th June, 2014. General Reserves Account During the year, General Reserve stands at Rs. 239.15 million.There is no change to this balance in the current year. Capital Redemption Reserve During the year, Capital redemption Reserve stands at Rs. 9.54 million.There is no change to this balance in the current year. Investments Accelya Kale's Investments at cost, as at 30th June, 2015 increase to Rs. 474.15 million compared Rs. 382.11 million as at 30th June, 2014. Kale Revenue Assurance Services Limited (KRAS) was liquidated during the year ended 30 June 2015. Consequent to this, the shares held by KRAS in its wholly owned subsidiary Zero Octa UK Limited (ZOUK) have been transferred to the Company at book value. By virtue of the above, ZOUK had become the direct wholly owned subsidiary of the Company. Fixed Assets Product Development During the year product development cost amounting to Rs.28.81million has been capitalised as intangible assets. Other Fixed Assets Accelya Kale added Rs. 77.21 million to the gross block comprising of Rs. 57.99 million in Plant and Machinery, Rs.14.29 million in Software and the balance Rs. 4.93 million in other assets. Sale/Disposal of Assets During the year Accelya Kale sold/disposed of assets with a Gross Book value of Rs. 40.58 million and a accumulated debrciated of Rs. 40.01 million. The sold assets included old plant & machinery and furniture. Accelya Kale's Gross Block as at June 30, 2015 stood at Rs. 1,166.14 million as compared to Rs.1,100.71 million as at June 30,2014. The corresponding Net Block as at June 30, 2015 is Rs. 290.54 million as compared to Rs. 319.02 million as at June 30, 2014. Trades Receivables Accelya Kale's Net Receivables as at June 30, 2015 amounted to Rs. 309.65 million as compared to Rs. 279.83 million as at June 30, 2014. These debtors are considered good and realisable. The need for provisions is assessed based on various factors including collectability of specific dues, risk perceptions of the industry in which the customer operates and general economic factors which could affect the customer's ability to settle and finally depending on the management's perception of the risk. The total provision for doubtful debts as at 30th June 2015 stands at Rs.11.69 million compared to Rs. 8.93 million as at 30th June, 2014. Trade receivables as a percentage of total revenue is 10.78% as at 30th June 2015 as against 9.25% as at 30th June, 2014. Non-current Liabilities As at 30th June, 2015 Accelya Kale's non-current liabilities amount to Rs. 63.87 million as compared to Rs. 58.95 millionas at 30th June, 2014. Current Liabilities As at 30th June, 2015 Accelya Kale's current liabilities amount to Rs. 864.36 million as compared to Rs. 964.68 million as at 30th June, 2014. Result of Operations Sale of services For the year ended 30th June, 2015, Accelya Kale recorded operating revenue of Rs. 2,720.48 million. Operating Profit Accelya Kale reported profit before exceptional items and tax of Rs. 1,022.52 million for the year ended 30th June, 2015. Profit after Tax (PAT) Accelya Kale recorded a PAT of Rs. 757.15 million for the year ended 30th June, 2015. Dividend Accelya Kale recommended a final dividend of Rs. 25.00 per share amounting to Rs. 431.94 million (including Dividend Tax Rs. 58.79 million). IPR Assets and Amortisation As a value innovator, Accelya 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 industry and highly apbrciated by the customers. RISKS, CONCERNS AND RISK MITIGATION Increasing competition The airline and travel solutions business is seeing a lot of interest in recent times. Many new providers and existing technology vendors are foraying into the business. Accelya Kale is closely monitoring the industry challenges and investing in innovation and productivity improvements to add value to customers through its solutions. In-depth knowledge of the industry and its requirements make Accelya Kale the partner of choice for airlines. Uncertain economic environment The airline industry is amongst the first to be impacted by any major economic or political situations. Accelya Kale is in a good position to mitigate this risk. The company ahas a large customer base sbrad globally with strong brsence in growing regions such as the Middle East and Latin America. The company has long term contracts with its customers. This generates annuity revenues and provides good visibility on business. Regulatory Risk Proposed legislation in certain countries in which Accelya Kale operates, may restrict airlines in those countries from outsourcing work to the Company, or may limit its ability to send employees to certain client sites. Airline industry being a global industry, with Accelya Kale's customers sbrad across the world; mitigates this risk to some extent. Currency Volatility Being a global organization dealing with global customers, volatility in currency exchange movements may affect the results of Accelya Kale's operations. The Company has got currency hedging policies and practices in place which are regularly reviewed to mitigate this risk. Resource Availability Accelya Kale being in an industry driven by domain knowledge and intellectual property, the Company's success depends in large part on its ability to attract and retain talent. Strong HR processes to identify competency and skill gaps on a continuous basis, a well-defined hiring program and competency development of the Company's employees continues to be a key area of strategic focus for Accelya Kale. Adequacy of Internal Control Systems The company's internal control systems are well designed to provide reasonable assurance that assets are safeguarded, transactions are properly recorded in accordance with management's authorization, and accounting records are adequate for brparation of financial statements and other financial information. Internal audits are performed regularly to ascertain their adequacy and effectiveness. The internal audit function also carries out Operations Review Audits. The audit committee periodically reviews the functions of internal audit. Human Capital The Company's HR processes such as hiring and on-boarding, fair transparent online performance evaluation, talent management processes, state-of-the-art development processes and market aligned policies enable us to attract and retain the best talent in the country and outside. We are a 1655 strong workforce company sbrad across various nationalities and geographies. Given below is a snapshot of our Human Capital. During the year under review, the following Human Resources initiatives received greater focus: Employee Development At Accelya we have established a centralized strategic function for driving ongoing development for employees across the Company. This is critical in creating and engaging high performing workforce that drives our competitive advantage. We offer combrhensive developmental offerings ranging from domain, technical, behavioural and leadership development. Development plans are created and executed for each employee based on their skills, roles and aspirations. This year we offered 226 trainings across domain, technology, soft skills and leadership development. 54% of employees attended at least one or more of these trainings through the year. With the wide variety and scope of development options being offered, employees have many avenues and options to ensure they are on a path of continuous learning and development, sharpening their knowledge and skills so that they can bring the best value to their jobs and to the company. Besides offering calenderised and special trainings, we have various talent development programs aimed at creating the next level leaders for our business. • Accelerate is a development program to create and develop an internal talent pipeline for future roles as well as rewarding high potentials employees with growth and learning opportunities. Out of the 43 high potential employees nominated to this program this year, 6 completed the rigorous development program and won scholarships and cash prizes. • Leadership Excellence And Development (LEAD) Program was introduced this year with a focus on the leaders in the Associate Vice Presidents and Vice President levels. A combrhensive 360 degree feedback process and coaching was conducted for 50 leaders as well as focused leadership development programs were offered to further strengthen their leadership and business acumen skills. • Leadership Development Series (LDS): A high end leadership development program was offered to the 27 executive leaders and function heads of the company with a focus on creating competitive leadership advantage. These programs focused on critical skills needed to meet our business objectives and take our business to the next level of success. Employee Engagement The Employee welfare and engagement activities saw a lot of strength through the year. Various interesting initiatives were organized with a special focus on employees and their families. Events like Family Day and Accleya Kale Children's Education and Sports Awards were greatly apbrciated. Quarterly Rewards and Recognition Program, Annual Excellence Awards etc, saw the best employee performances being recognised and apbrciated. This year over 946 employees (57.20%) received awards for their outstanding contributions. The annual employee engagement survey titled 'YOU' helped us understand the engagement levels of our employees. 80% employees participated in the survey this year which showed an engagement level of 3.00/4.00 across the organisation. The feedback from the survey was analysed in depth to understand engagement trends in the company and various areas of improvements were identified and actioned. Gender Inclusivity and Women Leadership Development: AKWN (Accelya Kale Women's Network) is a networking forum for professional women, enabled by Accelya Kale. This offers an opportunity to women employees to learn, share and empower themselves and their women colleagues. Under this forum, various programs such as Accelya Kale Women Self Enhancement Program and Women In Leadership Program were conducted to empower women to reach their fullest potential. In addition, revisions were made in women friendly policies in order to enable women employees to have flexibility at work and to ensure talented women employees can return to work after a maternity break. For example, Maternity Leave was expanded to allow women employees to avail an extra 180 days of leave (in addition to the existing 84 days of paid leave). Accolades During the financial year 2014-15, the Company continued its tradition of winning various awards and getting new recognitions. The Company was a proud recipient of Award for Excellence in HR through Technology in 23rd Global HR Excellence Awards 2015 by World HRD Congress. |