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Pertech Computers Ltd.

BSE: 526606 Sector: Consumer
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Pertech Computers Ltd. (PCL) - Director Report

Company director report

1996 PERTECH COMPUTERS LIMITED DIRECTORS' REPORT Your Directors have pleasure in presenting the 12th Annual Report together with the Audited Statement of Accounts for the year ended 31st December, 1996. FINANCIAL RESULTS ( crores) Particulars 1996 1995 Sales And Other Income 624.58 447.00 Profit Before Depreciation 32.54 34.94 Depreciation 18.24 11.47 Profit Before Taxation 14.30 23.47 Provision For Taxation 1.39 1.07 Profit After Taxation 12.91 22.40 APPROPRIATION Balance Brought Forward 15.11 5.71 Add Profit After Taxation 12.91 22.40 Amount Available For Appropriation 28.02 28.11 Proposed Dividend on Equity Share Capital - 5.00 Dividend Percentage - 25% Transferred To General Reserve 8.00 8.00 Balance Carried Forward 20.00 15.11 DIVIDEND Keeping in view the long term interest of the Company and it's shareholders, your Directors wish to retain the profit earned during the year under review in the business of the Company and hence do not recommend any dividend on the Equity Share Capital of the Company. Your Directors had declared an interim dividend of 20% (subject to deduction of tax at source) on the Redeemable Non-convertible Preference Shares of Rs. 10/- each allotted during the year, on pro-rata basis from the date of allotment, for the year ended December, 1996. The same is recommended to be confirmed as the final dividend for the preference shareholders. REVIEW OF DOMESTIC OPERATIONS By the high growth standards of the IT Industry, the year under review has been disappointing. As compared to an industry growth rate of over 40% during the previous year, the IT Industry has grown by just over 20% during the year 1996. The turnover of the Company has increased by 40% to Rs. 624.58 crores. However due to generally depressed economic conditions, tight liquidity position, fierce competition and changes in some Accounting Policies, there has been a squeeze in the margins of the Company & the Profit after Tax has declined to Rs 12.91 crores. During the year under review your Company led the attack on the grey market by sharply reducing PC prices. This lead was subsequently followed by the entire industry. This strategy has significantly expanded the retail computer market and is likely to grow further in the coming years. The major penetration made by PCL in 1995'in the financial services sector has been further consolidate during the year under review. Whilst your Company has sustained its pre-eminent position in other major segments such as Government PSU's Railways, Oil, Steel, Defence etc., the year also marked your Company's entry into the exponentially growing Telecom market. However, the highlight of the year 1996 was the retailing revolution launched through MILLENIUM. The price/performance ratio of the Millenium PC was so significantly superior that business inflow exceeded the most optimistic estimates. As a result your Company faced certain difficulties in managing product deliveries booked during the final quarter of the year under review. SOFTWARE OPERATIONS & SUBSIDIARIES The year under review was the first full year of operations for the Company's software division more popularly known as MINDWARE. Already within such a short time frame, Mindware has become a major exporter of software to Japan, USA & Europe. Mindware is also appropriately equipped to suitably leverage the huge Year 2000 market with its own proprietary toolsets and methodology. The quality of it's Year 2000 solution is reflected by the recent contract from one of Europe's largest Insurance Companies as well as Mindware's operational partnership for Year 2000 projects with UNISYS (Europe) INTEGRATA (Germany) PERSETEL (South Africa) & NEC (Japan). During the year under review, Mindware has provided software services to over 40 clients in USA, UK, Japan, Germany, Singapore and South Africa. It is anticipated that a significant number of the existing clients will use Mindware to provide additional services over the years to come. As required under section 212 of the Companies Act, 1956, the statement of Annul Accounts of each of the subsidiaries of the Company are annexed to the Balance Sheet and Profit & Loss Account. Mindware PCL PTE Limited - Singapore After conducting an in-depth market scanning, the Company adopted the strategy of focussing in procurement of on-site consulting contracts to build it's creditability among its clients. Besides, the on-site consultancy is a high margin business and there is high demand for software engineers. Once the on-site consultancy business is established, the Company will focus on on-site turnkey projects and off-shore projects. The Company is in the process of identifying key technology areas and working out market plans for off-shore development. Mindware Pertech Inc. - U.S.A. The Wholly Owned Subsidiary in U.S.A. further consolidated it's position in the highly competitive market in U.S.A. Operating out of six strategic locations in U.S.A., the Company is on the threshold of explosive growth. During the year, many on-site consultancy and turnkey assignments were undertaken successfully by the Company. The Company has also build a comprehensive project marketing plan based on various focus segments such as year 2000, Oracle financial, networking internet and Multimedi and it is envisaged that in the coming years, it shall be able to get a major share in the software market of U.S.A. PCL Mindware (PTY) Ltd - South Africa. The entire business generated, during 1995-96 was from on-site consultancy. Given the nature of the South African Information Technology (IT) market, on-site consultancy is the quickest way to establish one's credentials as there is an acute shortage of skilled software manpower in South Africa. The subsidiary expects turnkey projects to contribute towards the turnover in the coming financial year, especially in the area of Century Data Conversion. In anticipation of the business expected from this segment, a series of Year 2000 seminars were conducted in the major business centers of South Africa by an international team of PCL experts during the year. Mindware International Limited - United Kingdom As in the case of other WOS, the substantial part of the business generated was from the on-site consultancy. Being a new entrant in the market, it was difficult to obtain any major turnkey project. Once the Subsidiary is able to build confidence among its clients about the quality of skills offered by the Company, it is expected that some more turnkey projects would contribute towards the turnover next year. The Company aims primarily to procure software projects which can be developed by parent Company. Senior executives from the parent Company have been visiting UK to bolster the marketing efforts by providing the technical interface, as a follow up to the marketing interface of the Company. The Company is also focussing on niche development platform (IEF/Composer, Oracle Financials, SAP R3) for turnkey projects, as the severe shortage of skills in these environments in U.K., will predispose organisations to evaluate less traditional methods of executing projects viz. off- shore development. FUTURE OUTLOOK AND PROSPECTS Your Directors are cautiously optimistic about the near term business prospects. Business growth during 1996 was constained by both the fiscal as well as the political environment. Overall corporate performance in almost all sectors showed a downturn. However, your Directors are confident that the Government will adopt appropriate remedial measures to correct the fiscal constraints and thereby fuel industrial growth. India continues to be a focus market for the global technology majors. Your Company is actively engaged in exploring various alliance options with a number of major transnational technology leaders. Your Company is also in the process of implementing a number of internal measures which will significantly enhance its competitive capabilities. Your Directors, therefore, are confident that with the various strategic initiatives and organisational realignments undertaken by the Company, the future prospects of your Company continue to be good. PROMISE V/S PERFORMANCE Pursuant to Clause 43 of the Listing Agreement, the key Financial Projections as given in the prospectus, dated 20th July, 1994 issued by the Company and the actual audited figures for the year ended 31st December, 1996 are as under: (Rs. in Crores) SI Particulars Projections Audited figures No for Year ended for Year ended for Year ended 31-12-1996 31-12-1996 (as appraised by IFCI) 1. Total Income 292.00 624.58 2. Profit before interest, 44.88 40.21 tax and depreciation 3. Depreciation 9.27 18.24 4. Interest 11.13 7.67 5. Tax 0.00 1.39 6. Profit after tax 24.48 12.91 7. Equity Capital (paid-up) 20.00 20.00 8. Dividend (%) 25.00 - There have been several favourable changes in Government policies in the field of software export, and thus there is immense growth potential in this area. Therefore, after due consideration, the Board had decided to utilise, the funds collected for the Computer Manufacturing Project for the Software Project and the upgradation of the existing business. The Board has also decided to assign the implementation of Computer Manufacturing Project to Webel Carbon and Metal Film Resistors Ltd (WCMFR). This will reduce the gestation period considerably since WCMFR is already engaged in the manufacture of the electronic equipments. The utilisation of the infrastructure of WCMFR for Computer manufacturing Plant will make the project much more profitable and result in better synergy and competitiveness to it's operations. Your Company has already made investment in the capital of WCM' and proposes to make further investment in the Company. With the ongoing process of liberalisation and opening up of the economy, the business environment, more particularly the Information Technology Industry scenario, has undergone a massive transformation. The changed environment has necessitated review of your Company's strategies, so as to remain globally competitive. In order to maintain it's leading position and attain higher level of excellence over the years, the need is felt to focus and channelise the skills and expertise on distinct businesses of your Company. Since in comparison to the domestic distribution & marketing business, the Software Export and the Solution Provider Operations of your Company represent distinct areas in terms of level of technology advancement, economies of scale, clientele, quality, response time, and the degree of competitiveness, it is proposed to transfer/assign the Software Export Division and Solution Provider Division of your Company to two separate Subsidiaries viz. PCL Software Limited and PCL Systems Limited respectively. SHARE CAPITAL Your Company has privately placed 5,00,000, 20% Redeemable Non Convertible Preference Shares of Rs. 10/- each during the year. FIXED DEPOSITS As on December 31, 1996, your Company has accepted Fixed Deposit totalling Rs. 4,39,58,000 (Rupees Four crores Thirty nine lacs and Fifty eight thousand only), pursuant to Section 58A of the Companies Act, 1956. As on date of this report, there are no overdue, unpaid or unclaimed deposits. DIRECTORS Mr. A.S. Mittal, Wholetime Director of the Company retires by rotation at the forthcoming Annual General Meeting and being eligible offers himself for reappointment. Mr. Tapash K. Majumdar was appointed as additional Director of the Company during the year to hold office upto the date of the ensuing Annual General Meeting. The Company has received a notice under Section 257 of the Companies Act, 1956 alongwith the requisite deposit, proposing the candidature for appointment as Director of the Company, liable to retire by rotation. AUDITORS M/s. G.S. Johar & Co., Chartered Accountants, Auditors of the Company retire at the conclusion of this Annual General Meeting and offer themselves for reappointment. The Company has received a certificate from the Auditors to the effect that their reappointment, if made, would be in accordance with the provisions of Section 224(1-B) of the Companies Act, 1956. The relevant notes on the accounts of the Company referred to in the Auditors' Report are self explanatory and therefore do not call for any further comments. CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO. Information under Section 217(1)(e) of The Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 are given in Annexure A to this report. During the year under review, the Company earned Rs. 20.33 crores and used Rs. 2.16 crores in foreign exchange. PARTICULARS OF EMPLOYEES The particulars of employees pursuant to Section 217 (2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975, as amended upto date, and forming part of the Directors' Report for the year ended December 31, 1996, are appended as Annexure B to this report. APPRECIATION The directors wish to place on record their deep appreciation for the faith reposed by its shareholders and the devoted services rendered by the executives, staff and workers of the Company at all levels. The Directors also acknowledge with gratitude the co-operation and assistance given by various Government Authorities, Financial Institutions, Mutual Funds, Banks and business constituents. ANNEXURE TO THE DIRECTOR'S REPORT STATEMENT OF PARTICULARS UNDER THE COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT OF BOARD OF DIRECTORS) RULES, 1988. CONSERVATION OF ENERGY Your Company is not covered by the list of Industries which are required to furnish the information in Form A under Section 217 (1)(e) of the Companies Act, 1956 read with Rule 2 of the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules,1988. However, the Company is making efforts to optimise energy consumption wherever possible. TECHNOLOGY ABSORPTION The information required to be disclosed under Rule 2 of the aforesaid Rules is given hereunder in Form B FORM B Form for disclosure of particulars with respect to Absorption. Research and Development (R&D). 1. Specific areas in which R&D carried out by the Company: a) Developed complete ISO standards based Open Systems Interconnection (OSI) networking software over SCO Open Server. Runs over both X.25 Wide Networks and Ethernet Local Area Networks and provides applications like X.400 E-Mail & X.500 Directory Services. b) Frame Relay networking hardware and software product over Windows NT. Allows an Ethernet LAN to connect to a high speed Frame Relay protocol based WAN backbone. c) Developing 155 Mbaud speed based ATM product over Windows NT. The solution provides high performance LAN emulation features for running the existing LAN applications over ATM networks. d) Developed expertise in new technology areas like Internet and Java. Executed a Java based banking Internet application for NEC Japan which was displayed at the Object World 96 exhibition at Tokyo. e) Working on new technology areas like, CORBA, ENCINA and NEC_ORB. f) In the area of VLSI Design i) Developed a complete VHDL Test Bench of SDH/ SONET System which could be used for various device simulation/testing. ii) Designated the new generation 622/155 MB/s transport layer physical interface device for circuit switched/packet and call data. iii) Developed framing solution at T1 rate for Telecom/ Data communication application. 2. Benefits Derived as a result of the above R & D. a) Providing our international customers with international quality products at a cost which is less than that of equivalent international products. b) Higher volume of sales and better utilisation of Company's manpower and facilities by opening up possible market avenues in international markets. 3. Future Plan of action. Considerable efforts during the current year in R&D activities shall be in the following thrust areas: a) Development of new technologies like ATM (Asynchronous Transfer Mode), Frame Relay, etc. in the areas of Networking and Telecommunication. b) Development,of products for international customers with international quality. c) Making the centre as customer oriented to meet their demands. 4. Expenditure on R&D.(Rs. in lacs) (a) Capital 34.10 (b) Recurring 33.70 (c) Total 67.80 (d) Total R & D Expenditure as a 0.11% percentage of total turnover. Technology Absorption, Adaptation and Innovation. 1. Efforts, in brief, made towards technology absorption, adaptation and innovation. a) Continuous Technology interaction with technology partners like NEC of Japan, TranSwith of U.S.A. b) Continued participation in reputed technical standard setting institutions like IEEE, USENIX, ERNET, INTERNET. c) Training our engineers in the State of the Art technologies namely Case tools and ISO -9000 based software quality management, Japanese language. 2. Benefits derived as a result of the above efforts: Considerable cost reduction & exportability of products in the international market has been achieved by technology absorption and adaptation by phased indigenisation and value engineering programme; import of components has been gradually reduced even in the most sophisticated products. This has improved the marketability, maintainability as well as the viability of these products. 3. In case of imported technology (imported during the last five Years reckoned from the beginning of the financial year): Year of Import Technology Imported 1995 Wandel & Goltermann DA-30 Protocol Analyzer, CADStar for PCB Design, MicroSoft Developer Network Pack 1996 HP-UX Servers, Solaris Servers, ASIC Design Tools, VC++ Compiler on HP-UX, Windows NT Server Pack, Internet. 1997 Point to Point Link, Oracle Financials, Software Tool for Quality control. Matrix tools. These imported technologies have been fully absorbed. For and on Behalf of the Board of Directors DADAN BHAI WHOLETIME CHAIRMAN PLACE : NEW DELHI DATED : 27th MAY, 1997.