Oracle Financial Services Software S.A. To the Members, Directors Report Your Directors are pleased to present the Seventh Annual Report on the business and operations of your company, together with the accounts for the year ended 31 st March, 2010. FINANCIAL PERFORMANCE (Rs. in lacs) For the year ended March 31, 2010 2009 Total Income 11,729 14086 Profit/(Loss) during the period before Depreciation 1,262 1,589 and tax Depreciation (22) (16) Provision for Tax (652) (462) Net Profit/(Loss) during the period carried over to Balance Sheet 588 1,111 OPERATIONS The amount shown as Total Income consists of Product licenses and related activities, IT solutions and consulting services The company s revenue showed a negative growth of 17%. The company s Gross Block (Fixed Assets) grew by 5.86% from Rs 118 Lacs to Rs. 124 Lacs. DIVIDEND Your directors do not recommend a dividend for the year ended 31 st March, 2010. CAPITAL The Issued, Paid-up & Subscribed Capital of the Company is INR 7,236.42 lakhs. Your company is a wholly owned subsidiary of Oracle Financial Services Software B.V.
The Company has no subsidiary company. BUSINESS OVERVIEW: After a long drawn Global Slowdown which impacted almost every line of business world-wide, we seem to be seeing some signs of recovery, specially in India. While the US and European markets continue to be bearish with little or no growth, there are signs of recovery in some of the Asian markets centered around China and India. The global meltdown did slow down our company s growth, as most of the prospects / company s were not ready to invest in any new venture, upgrade its IT environment; This resulted in a negative growth in both the revenues and margins of the company. FIXED DEPOSITS During the financial year 2009-10, the Company has not accepted any fixed deposits within the meaning of Section 58 A of the Companies Act, 1956, and as such no amount of principal or interest was outstanding as on the date of the Balance Sheet. DIRECTORS RESPONSIBILITY STATEMENT: As required under Section 217 of the Companies Act, 1956 the Directors hereby confirm that: i) In the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures; ii) iii) The Directors have 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 as at the end of the financial year and of the profit of the Company for that period; The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities;
iv) The Directors have prepared the annual accounts on a going concern basis. ACKNOWLEDGEMENTS: Your Directors wish to thank its strategic alliance partners, service providers, hardware and other government and regulatory authorities for their support, guidance and co-operation. Your Directors also wish to place on record their sincere appreciation of the dedicated efforts put in by the employees of the Company during the year. For and on behalf of the Board NRK Raman Chairman May 7, 2010
BALANCE SHEET AS AT MARCH 31, 2010 SOURCES OF FUNDS Shareholders' funds Share capital 1 723,642 660,443 Reserves and surplus 2 226,958 165,398 Deferred tax liability 3 20,678 - Minority Interest - 19,198 971,278 845,039 APPLICATION OF FUNDS Fixed assets 4 Cost 710,967 665,080 Less: Accumulated depreciation and amortisation 4,329 2,120 Net book value 706,638 662,960 Deferred tax assets 3 6,795 10,870 Current assets, loans and advances 5 Sundry debtors 1,216,106 1,415,694 Cash and bank balances 218,449 192,355 Other current assets 17,359 81,852 Loans and advances 4,492 14,180 1,456,406 1,704,080 Less: Current liabilities and provisions 6 Current liabilities 1,180,401 1,479,662 Provisions 18,160 53,208 1,198,561 1,532,871 Net current assets 257,845 171,209 Notes to accounts 13 971,278 845,039 The schedules referred to above and notes to accounts form an integral part of the balance sheet.
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2010 Revenue 7 1,172,890 1,408,639 Cost of revenue 8 (928,583) (1,146,229) Gross profit 244,307 262,410 Operating expenses Selling and marketing expenses 9 (48,544) (51,691) General and administrative expenses 10 (39,144) (43,044) Depreciation and amortisation (2,209) (1,560) Income from operations 154,410 166,116 Non-operating income (expense) Interest income 11 870 5,495 Other income (expenses), net 12 (29,382) (1,431) Income before provision for taxes 125,898 170,180 Provision for taxes Current tax (40,729) (57,070) Deferred tax (24,548) 10,870 Net income for the year before share of minority 60,621 123,980 interest Share of Minority interest (1,867) (12,925) Net income for the year 58,754 111,055 Profit and loss account, beginning of the year 158,766 47,711 Surplus carried to Balance Sheet 217,520 158,766 Notes to accounts 13 The schedules referred to above and notes to accounts form an integral part of the profit and loss account.
Schedules annexed to and forming part of the accounts as at March 31, 2010 (All amounts in thousands of Indian Rupees, except share data) Schedule 1: Share capital Issued, subscribed and fully paid-up: 60,000 (March 31, 2009-54,000) equity shares of EUR 1 each 3,406 3,007 Investment from BV 720,236 657,436 Schedule 2: Reserves and surplus Securities premium Balance, beginning of the year 6,632 - Received during the year 2,806 6,632 Balance, end of the year 9,438 6,632 Profit and loss account 217,520 158,766 Schedule 3: Deferred tax asset (liability) 226,958 165,398 Deferred tax asset Difference between book and tax depreciation 6,795 10,870 Provision for doubtful debts 6,795 10,870 Deferred tax liability Difference between book and tax depreciation (20,678) (20,678) - (13,882) 10,870
Schedules annexed to and forming part of the accounts as at March 31, 2010 Schedule 4: Fixed assets Particulars Apr 01, 2009 Gross block Depreciation, amortisation and Impairment Net book value For the Sale/ March 31, 2010 Apr 01, 2009 year deletions March 31, 2010 March 31, 2010 Additions Sale/ deletions Mar 31, 2009 Tangible assets: Computer equipments Owned 3,643 587-4,230 1,176 1,442-2,618 1,612 2,467 Office equipments 1,660 24-1,684 443 284-727 958 1,217 Furniture and fixtures - - - - - - Owned 3,142 0-3,142 502 483-985 2,157 2,640 Goodwill 656,635 45,276-701,911 - - - - 701,911 656,635 Total 665,080 45,887-710,967 2,120 2,209-4,329 706,638 662,960
Schedules annexed to and forming part of the accounts as at March 31, 2010 Schedule 5: Current assets, loans and advances a. Sundry debtors (unsecured) Debts outstanding for a period exceeding six months: Considered good - - Considered doubtful - 122-122 Other debts - considered good 1,216,919 1,415,693 1,216,919 1,415,815 Less: Provision for doubtful debts (813) (122) 1,216,106 1,415,694 b. Cash and bank balances Cash in hand 5 8 Balances with non-scheduled banks: Current accounts in foreign currency 12,925 7,614 Deposit account in foreign currency 205,518 184,733 218,449 192,355 c. Other current assets Unbilled Debtors 17,359 81,852 17,359 81,852 d. Loans and advances (unsecured, considered good) Premises and other deposits 2,334 2,621 Prepaid expenses 1,459 10,288 Other advances 699 1,270 4,492 14,180
Schedules annexed to and forming part of the accounts as at March 31, 2010 Schedule 6: Current liabilities and provisions a. Current liabilities Accrued expenses 13,286 19,264 Deferred revenues 27,198 57,221 Accounts payable 16,114 15,422 Advances from customers - 61 Amount due to Subsidiaries 1,049,936 1,356,026 Other current liabilities 73,867 31,668 1,180,401 1,479,662 b. Provisions Provision for taxation, net of advance tax 18,160 53,208 18,160 53,208
Schedules annexed to and forming part of the accounts as at March 31, 2010 Schedule 7: Revenue Product licenses and related activities 1,172,890 1,379,473 IT solutions and consulting services - 29,166 1,172,890 1,408,639 Schedule 8: Cost of revenue Cost of Sales 895,427 1,081,419 Employee costs 20,975 27,315 Travel related expenses (net of recoveries) 549 680 Professional fees 2,454 36,815 Application software 9,178-928,583 1,146,229 Schedule 9: Selling and marketing expenses Employee costs 36,629 42,090 Professional fees 619 276 Travelling expenses 5,787 5,240 Advertising expenses 421 608 Rent 1,118 839 Communication expenses 1,278 1,234 Provision for doubtful debts 616 - Other expenses 2,076 1,405 48,544 51,691 Schedule 10: General and administrative expenses Employee costs 11,721 14,956 Professional fees 2,301 2,941 Rent 11,571 12,798 Communication expenses 3,784 4,643 Power 677 868 Travelling expenses 130 690 Application Software 13 34 Other expenses 8,948 6,114 39,144 43,044 Schedule 11: Interest income Interest on: Bank deposits 870 5495.14 870 5,495 Schedule 12: Other income (expenses) Foreign exchange gain (loss), net (29,361) (1,437) Miscellaneous income (21) 6 (29,382) (1,431)
Oracle Financial Services Software SA Schedules annexed to and forming part of the accounts for the year ended March 31, 2010 (Amount in thousands of Indian Rupees) Schedule 13: Notes to accounts 1. Summary of significant accounting policies (a) Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the results of operations during the reporting year end. Although these estimates are based upon management s best knowledge of current events and actions, actual results could differ from these estimates. (b) Fixed assets, depreciation and amortization Fixed assets including assets under finance lease arrangements are stated at cost less accumulated depreciation. The Company capitalizes all direct costs relating to the acquisition and installation of fixed assets. Advances paid towards the acquisition of fixed assets outstanding at each balance sheet date and the cost of fixed assets not ready to use before such date are disclosed under Capital work-in-progress and advances. Customer contracts and product Intellectual property rights (IPRs) are capitalized based on a fair value. The Company records the difference between considerations paid to acquire these contracts and the fair value of assets and liabilities acquired as goodwill. The Company purchases certain specific use application software, which is in ready to use condition, for internal use. It is estimated that such software has a relatively short useful life, usually less than one year. The Company, therefore, charges to income the cost of acquiring such software. The Company computes, depreciation and amortization using straight-line method, at the rates specified in Schedule XIV to the Act or based on the estimated useful life of assets, whichever is higher. The estimated useful life considered for depreciation of fixed assets is as follows: Asset description Asset life (in years) (c) Revenue recognition Tangible assets Improvement of leasehold premises Lesser of 7 years or lease term Buildings 20 Computer equipments 3 Electrical and office equipments 2-7 Furniture and fixtures 2-7 Vehicles under finance lease Revenue is recognized as follows: Product licenses and related revenue: Lesser of 3 to5 years or lease term - License fees are recognised, on delivery and subsequent milestone schedule as per the terms of the contract with the end user. - Implementation services are recognised as services are provided, when arrangements are on a time and material basis. Revenue for fixed price contracts is recognised using the proportionate
Oracle Financial Services Software SA Schedules annexed to and forming part of the accounts for the year ended March 31, 2010 (Amount in thousands of Indian Rupees) completion method till contracts reach 90% completion. Balance revenue is recognized at the time of receipt of customer acceptance. Proportionate completion is measured based upon the efforts incurred to date in relation to the total estimated efforts to complete the contract. The Company monitors estimates of total contract revenue and cost on a routine basis throughout the delivery period. The cumulative impact of any change in estimates of the contract revenue or costs is reflected in the period in which the changes become known. In the event that a loss is anticipated on a particular contract, provision is made for the estimated loss. - Customization services are recognized based on the acceptance received from the customer for the milestone achieved. - Product maintenance revenue is recognised, over the period of the maintenance contract. IT solutions and consulting services: Revenue from IT solutions and consulting services are recognised as services are provided, when arrangements are on a time and material basis. Revenue from fixed price contracts is recognized using the proportionate completion method till contracts reach 90% completion. Balance revenue is recognized at the time of receipt of customer acceptance. Proportionate completion is measured based upon the efforts incurred to date in relation to the total estimated efforts to complete the contract. The Company monitors estimates of total contract revenue and cost on a routine basis throughout the delivery period. The cumulative impact of any change in estimates of the contract revenue or costs is reflected in the period in which the changes become known. In the event that a loss is anticipated on a particular contract, provision is made for the estimated loss. Knowledge processing services ( KPO ): Revenue from KPO services are recognized as services are provided, as per the arrangement with customers. Cost and revenue in excess of billing is classified as unbilled revenue while billing in excess of revenue is classified as deferred revenue. Reimbursable expenses for projects are invoiced separately to customers and although reflected as sundry debtors to the extent outstanding as at year end, are not included as revenue or expense. Interest income Interest income is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable (d) Research and development expenses for software products Research and development costs are expensed as incurred. Software product development costs are expensed as incurred until technological feasibility is established. Software product development costs incurred subsequent to the achievement of technological feasibility are not material and are expensed as incurred.
Oracle Financial Services Software SA Schedules annexed to and forming part of the accounts for the year ended March 31, 2010 (Amount in thousands of Indian Rupees) (e) Employee benefits The Company s employee benefits primarily cover superannuation. Superannuation fund are defined contribution schemes and the Company has no further obligation beyond the contributions made to the fund. Contributions are charged to profit and loss account in the year in which they accrue. Indemnity is payable to those employees who are sacked or who retire on the attaining the age of 65. (f) Leases Where the Company is the lessee Lease of assets under which substantially all the risks and benefits incidental to ownership are transferred to the Company are classified as finance leases. These assets are capitalized at the lower of the fair value and present value of the minimum lease payments at the inception of the lease term and disclosed as leased assets. Lease payments are apportioned between the finance charges and reduction of the lease liability based on the implicit rate of return. Finance charges are charged directly against income. Lease management fees, legal charges and other initial direct costs are capitalized. Leases of assets under which all the risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. Lease payments under operating leases are recognised as an expense on a straight-line basis over the lease term. (g) Income-tax Tax expense comprises of current and deferred tax. Current income tax for the Company is measured at the amount expected to be paid to the tax authorities in accordance with the Greek Tax Authorities. Deferred income taxes are recognized for the future tax consequences attributable to timing differences between the financial statement determination of income and their recognition for tax purposes. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in profit and loss account using the tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets and deferred tax liabilities across various countries of operation are not set off against each other as the company does not have a legal right to do so. Deferred tax assets are recognized and carried forward only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. In situations where there are carry forward losses, deferred tax asset is recognized only if there is virtual certainty supported by convincing evidence that future taxable income will be available against which deferred tax asset can be realized. Unrecognized deferred tax assets of earlier years are re-assessed and recognized to the extent that it has become reasonably certain or virtually certain that future taxable income will be available against which deferred tax assets can be realized. Tax expense relating to overseas operations is determined in accordance with tax laws applicable in countries where such operations are domiciled. Advance taxes and provisions for current income taxes are presented in the balance sheet after off-setting advance taxes paid and income tax provisions arising in the same tax jurisdiction and enterprise. (h) Provision and contingencies A provision is recognized when an enterprise has a present obligation as a result of past event and it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are determined based
Oracle Financial Services Software SA Schedules annexed to and forming part of the accounts for the year ended March 31, 2010 (Amount in thousands of Indian Rupees) on management estimate required to settle the obligation at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current management estimates. (i) Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short terms investments with an original maturity of three months or less. 2. Commitments and contingent liabilities (a) Capital commitments Contracts remaining to be executed on capital account and not provided for (net of advances) aggregates to Nil as at March 31, 2010 (March 31, 2009 Nil). (b) Contingent Liabilities Financial bank guarantees given to banks aggregates to Rs Nil as at March 31, 2010 (March 31, 2009 Rs Nil). 3. Leases (a) Where Company is lessee Operating lease The Company has taken certain office premises and residential premises for employees under operating lease, which expire at various dates through year 2022. Some of these lease agreements have a price escalation clause. Gross rental expenses for the year ended March 31, 2010 aggregated to Rs. 12,689 (March 31, 2009 Rs. 13,637). The minimum rental payments to be made in future in respect of these leases are as follows: Not later than one year 8,274 9,306 Later than one year but not later than five years 14,079 22,284 Later than five years - - 22,353 31,590
6. SEGMENT INFORMATION Notes forming part of the accounts for the year ended March 31, 2010 Business segments are defined as components of an enterprise about which separate financial information is available. This information is reviewed and evaluated regularly by the management, in deciding how to allocate resources and in assessing the performance. The Group is organized geographically and by business segment. For management purposes the Group is primarily organised on a worldwide basis into three business segments: a) Product licenses and related activities ('Products') and b) IT solutions and consulting services ('Services') c) Knowledge Processing Services ('KPO-Services') The business segments are the basis on which the Group reports its primary operational information to management. Product licenses and related activities segment deals with banking software products like the FLEXCUBE suite of products, Reveleus, Microbanker and Daybreak which cater to needs of corporate, retail and investment banking as well as treasury operations and data warehousing requirements. The related activities include enhancements, implementation and maintenance activities.product segment further comprises of casualty insurance carriers which include insurance product and process configuration, policy administration, customer management, billing and claims management. Anti-money laundering and compliance solutions are the new additions to product segment on acquisition of Mantas. IT solutions and consulting services comprise of bespoke software development, provision of computer software solutions and related consulting services arising from such activities. This segment is further sub-divided in the following sub-segments i.e. Business intelligence, Customer relationship management, Brokerage, e-commerce, Internet services and IT and Business consulting. KPO - Services comprises of knowledge process outsourcing services to the mortgage banking industry. The activities of the joint venture are disclosed as a separate segment. Year ended March 31, 2010 Particulars Products Services KPO - Services Corporate Total Revenue External revenue 1,172,890 - - - 1,172,890 Inter-segment revenue - - - - - Total revenue 1,172,890 - - - 1,172,890 Cost of revenue (928,583) - - - (928,583) Gross profit 244,307 - - - 244,307 Selling and marketing expenses (14,917) - (33,627) - (48,544) General and administrative expenses (16,506) - - (22,638) (39,144) Depreciation and amortisation - - - (2) (2) Income (loss) from operations 212,883 - (33,627) (22,640) 156,616 Interest income 870 Foreign Exchange Gain/ (Loss), net (29,361) Other income (expenses), net (21) Income before provision for taxes 128,104 Provision for taxes 65,277 Net income for the year before share of minority interest 62,827 Share of Minority interest 1,867 Net income 60,961
Notes forming part of the accounts for the year ended March 31, 2010 Year ended March 31, 2009 Particulars Products Services KPO - Services Corporate Total Revenue External revenue 1,381,702 26,937 - - 1,408,639 Inter-segment revenue - - - - - Total revenue 1,381,702 26,937 - - 1,408,639 Cost of revenue (1,130,651) (15,578) - - (1,146,229) Gross profit 251,051 11,359 - - 262,410 Selling and marketing expenses (6,369) - (45,323) - (51,692) General and administrative expenses (15,924) (6) - (27,113) (43,043) Depreciation and amortisation - - - (1,560) (1,560) Inter segment expense - - - - - Income (loss) from operations 228,758 11,353 (45,323) (28,672) 166,116 Interest income 5,495 Foreign Exchange Gain/ (Loss), net (1,437) Other income (expenses), net 6 Income before provision for taxes 170,180 Provision for taxes (46,200) Net income for the year before share of minority interest 123,980 Share of Minority interest (12,925) Net income 111,055 Segment revenue and expense: Revenue is generated through licensing of software products as well as by providing software solutions to the customers including consulting services and knowledge process outsourcing services. The expenses which are not directly attributable to a business segment are shown as corporate expenses.
Notes forming part of the condensed accounts for the year ended March 31, 2010 7. Transactions and balances outstanding with these parties are described below: Transaction Amount receivable (payable) Year ended Year ended Year ended Year ended Professional fees Fellow Subsidiaries Oracle East Central Europe Services B.V. - 559 - - Other Expenses Fellow Subsidiaries Oracle Hellas SA 987 1,846 - -
Notes forming part of the accounts for the year ended March 31, 2010 8 Aggregate expenses Following are the aggregate amounts incurred on certain specific expenses that are required to be disclosed under Schedule VI to the Act: Cost of Sales (2) (4,726) Inter-Company Eliminations 893,101 1,081,410 Salaries and bonus 67,399 85,361 Staff welfare expenses 1,397 1,320 Contribution to Provident and other funds 528 (2,321) Travel related expenses (net of recoveries) 6,466 6,610 Professional fees 5,375 40,086 Application software 9,191 34 Communication expenses 5,062 5,877 Rent 12,689 13,637 Advertising expenses 435 1,922 Power 811 977 Insurance 93 8 Repairs and maintenance: Leasehold premises 1,369 1,495 Computer equipments 141 212 Others 1,276 894 Rates and taxes 608 483 Provision for doubtful debts, net 616 - Other expenses 7,388 2,950 1,013,942 1,236,229 9. Prior year amounts have been reclassified, where necessary to conform with current year's presentation.
STATEMENT OF CASH FLOW FOR THE YEAR ENDED MARCH 31, 2010 Cash flows from operating activities Income before provision for taxes 125,898 170,180 Adjustments to reconcile income before provision for taxes to cash used in operating activities : Depreciation and amortization 2,209 1,560 Interest income (870) (5,495) Effect of exchange difference on cash and bank balances (2,687) (12,357) Provision for doubtful debts, net 616-125,165 153,887 Changes in assets and liabilities, net of effect of acquisition Increase in sundry debtors and unbilled revenue 263,465 (1,147,245) Increase in loans and advances 9,688 (7,435) Increase in current liabilities and provisions (299,262) 972,735 Cash from operating activities 99,056 (28,058) Payment of domestic and foreign taxes (75,910) (13,238) Net cash provided by / (used in) operating activities 23,146 (41,295) Cash flows from investing activities Additions to fixed assets including capital work in progress (611) (4,169) Interest received 870 5,495 Net cash provided by investing activities 259 1,326 Cash flows from financing activities Net cash provided by (used in) financing activities - - Effect of exchange difference on translation 2,687 12,357 Net increase / (decrease) in cash and cash equivalents 26,093 (27,612) Cash and cash equivalents at beginning of the year 192,355 219,968 Cash and cash equivalents at end of the year (Note 1) 218,448 192,355 Note 1 : Component of cash and cash equivalent Cash in hand 5 8 Balances with non-scheduled banks: Current accounts in foreign currency 12,925 7,614 Deposit account in foreign currency 205,518 184,733 Cash and bank balances 218,448 192,355 Cash and cash equivalents at end of the year 218,448 192,355