CINERAD COMMUNICATIONS LIMITED
ANNUAL REPORT 2001-2002
I want first of all to share with you the strength of my optimism for your
Company's future, in the immediate as well as the medium and long terms. It
may seem odd that I should want to express a sentiment of optimism after a
year in which your Company made a loss. But, there is good reason for this,
both in terms of industry prospects as weir as in your company's actual
performance in being able to garner potentially very profitable confirmed
orders in the first 6 months of the financial year 2002-0.3. The good news
is that, based on business gained during this period alone, your company is
expecting a reasonable operating profit for the year 2002-03. Subsequent
business orders during the latter half of the year will only add further to
profits, the confirmed orders for which work is already in progress are for
corporate films and documentaries for prestigious clients such as Tata
Sons, the Aditya Biria Group, HSBC Bank, Jardine Matheson & Co., P & O
Ports, and the Indian Hotels Company for whom we are producing a film to
mark 100 years of the Tai Mahal Hotel.
The continuing economic downturn in the financial year 2001-02 had
compelled companies to size down and cut expenditure. In such
circumstances, one of the first remedial measures that companies resort to
is the scaling down of advertising budgets. This fact has been of
considerable consequence to companies such as yours, which rely on
corporate films and television commercials for the bulk of their revenue.
While the company was able to increase sales volumes, it witnessed longer
sales realisation cycles. Its profit margins also came under enormous
pressure. Owing to a preponderance of supply over demand there has been
widespread price cutting among production houses, and there has been a
significant drop in profit margins which have more than halved as compared
to the previous year. This coupled with a significant increase in overhead
expenditure resulted in an operating loss of Rs. 41.75 lacs. This loss was
due, to a significant extent, to an increase in overhead costs resulting
from the induction of senior staff, including a Chief Executive Officer.
This was to be offset by a resultant increase in revenues. We have since
taken measures to reduce overheads for the time being by downsizing highly
paid staff, and resorting to the induction of expertly qualified and
experienced freelance individuals on a job to job basis. In the film and
television industries this is by no means unusual.
The upturn in the company's fortunes during the first half of financial
year 2002-03 has, however, once again opened up vistas lot growth. The
company can now look beyond the immediate term and plan bigger ventures
with longer gestation periods.
A report brought out by consultancy firm PricewaterhouseCoopers(PwC) on the
industry predicts that film entertainment will drive the growth of the
entertainment and media sector in India due to the increasing popularity of
Indian films abroad, the Indian film entertainment business is poised to
touch $ 1.5 billion by 2006, from S 617 million in 2001.
The institutionalisation of corporate governance and a combination of
creative professionals with professional management has attracted financing
from the organised sector, particularly for film production activities.
Financial institutions and banks are now lending funds for film production
at attractive rates. Large industrial houses are committing funds to film
production activities. A case in point is Tata Infomedia Limited, which has
also set aside a separate fund for the financing of medium budget feature
Keeping in mind this favourable environment, your company has decided to
develop film projects to be financed by outside sources, as above. In this,
we will be venturing into an area with great potential, and one in which I
myself have valuable experience, having directed an international feature
film produced by the world famous Merchant Ivory Productions.
Together with our growing leadership position in the production of
documentaries and corporate films, and with the current level of reduced
overheads being maintained, I strongly believe your company is poised to
deliver value added growth in the years to come.
Chairman and Managing Director
DATED: August 28, 2002