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DQ Entertainment International Ltd.

BSE: 533176 Sector: Media
NSE: DQE ISIN Code: INE656K01010
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OPEN 16.50
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VOLUME 22759
52-Week high 29.85
52-Week low 11.50
P/E 9.26
Mkt Cap.(Rs cr) 128
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00
OPEN 16.50
CLOSE 16.70
VOLUME 22759
52-Week high 29.85
52-Week low 11.50
P/E 9.26
Mkt Cap.(Rs cr) 128
Buy Price 0.00
Buy Qty 0.00
Sell Price 0.00
Sell Qty 0.00

DQ Entertainment International Ltd. (DQE) - Director Report

Company director report

To

The Members

Your Directors have pleasure in presenting their Ninth Annual Report on the businessand operations of DQ Entertainment (International) Limited ("the Company" or DQEIndia) together with the Audited Statement of Accounts for the financial year ended March31 2016.

1. FINANCIAL RESULTS

During the year under review performance of your company was as under:

INR in Mn

Standalone Consolidated
Particulars For the year ended 31-Mar-16 For the year ended 31-Mar-15 For the year ended 31-Mar-16 For the year ended 31-Mar-15
Income from Production 1645 1726 1643 1423
Income from Distribution 65 90 461 525
Other Income 196 29 533 13
Total Income 1906 1845 2637 1961
Total Expenditure 1583 1489 2256 2092
Profit before tax 323 356 381 (131)
Tax Expense
(Current Tax+ Deferred Tax 82 66 82 66
[Net of MAT credit entitlement])
Profit after tax 241 290 299 (197)

Standalone: Profit before tax and Profit after tax includes the exceptional item by wayof notional foreign exchange of approximately INR 169 Mn for the period ended 31st March2016 (2015: INR (24) Mn) as well as Bad debts write off / provisioning for bad debts tothe tune of INR 103.76 Mn (2015: INR 0.78 Mn)

Consolidated: Profit before tax and Profit after tax includes the exceptional item byway of notional foreign exchange of approximately INR 312 Mn for the period ended 31stMarch 2016 (2015: INR (351) Mn) as well as Bad debts write off / provisioning for baddebts to the tune of INR 373.01 Mn (2015: INR 0.78 Mn)

After adjustment of the notional loss and gain as well as the bad debts write off /provision the profit before tax and profit after tax is as under for the consolidatedfinancials:

INR in Mn

31 March 2016 31 March 2015
Adjusted Profit before tax 443 221
Adjusted Profit after Tax 361 155
Cash & Cash Equivalent 204 747

2. PERFORMANCE AND OPERATIONS

The financial year 2015-16 saw the beginning of the turnaround in the operations aftervery difficult period from 2012 -13 onwards. Slowly and steadily your company is receivingnew orders and the development of its own IP’s is also progressing well.

Income from operations in 2015-16 on a consolidated basis was INR 2104 Mn as comparedto INR 1948 Mn over the same period last year an increase of 8% which is indeed veryencouraging.

The Company earned a profit before tax of INR 381 Mn as compared to a loss of INR (131)Mn over the same period last year while profit after tax was INR 299 Mn compared to aloss after tax of INR (197) Mn over the same period last year. However after consideringthe adjustments of exceptional items the profit after tax for the current year is INR 361mn as compared to INR 155 mn in the previous year. There is a decrease of Adjusted EBITDAwhich is INR 891 Mn compared to adjusted EBITDA of INR 1067 Mn over the same period lastyear as a result of the write-off / provision made for debtors to the tune of INR 373 mn.

All efforts are being made to collect the old outstanding. In some of the cases we havemade good progress while some parties are still struggling to get the financing in place.However we have confirmations from all parties that they are committed to pay their dues.

As of now we have a strong visibility of orders for production for next 18-24 months.

BUSINESS REVIEW:

Our focus on improving operational efficiencies and the consolidation of artistic andtechnical skill sets continues with productivity improvements being recognized across allprocesses of production.

Operating Highlights for FY 2015-16:

Animation:

• Successfully completed and delivered our proprietary production ‘The NewAdventures of Peter Pan’ season II with production partners Method Animation andother coproduction partners ZDF Germany France Television Telequebec and DeA Kids.

• Completed and delivered Popples - TV series a co-production with Zag ToonsSaban Brands USA and Method Animation France which has debuted on Netflix world-wide.

• Another notable spin off ‘The Jungle Book the Christmas movie’ wasalso delivered during the year. It has suitable length for TV features DVD release andonline SVOD.

• Disney projects under production are: Miles from tomorrow land season IISheriff Callie’s Wild West season II The Hive - Season 2 Puppy Dog Tales and MickeyRoad Racers.

• Other service projects that were in production include Black Beauty Magic LampPersian Gift Rainbow City Magic Wand and Dream land.

• Projects which commenced production include Zak Storm- TV series Super 4 - TVseries

• Commenced production of Our own IP’s The Jungle Book season III 5&ITTV series Jungle Book Halloween Special Peter Pan Christmas Special and other spin offs.

• Seven Dwarfs and Me produced by Method Animation and supported by DQE ZDF RAIand France TV a hybrid show combining high quality CGI with live action footage is nearingcompletion.

• Several co-production and service agreement were finalized during the year toname a few Robinhood Season II Co pro with Method Animation Sammy 2 being produced by ZagToons USA and Method Animation France Pio the Chick TV series an adaptation fromPulcino Pio (the hugely successful online musical sensation with more than a billionviews) with the main producer Rai Commercial Italy in partnership with Italian producerGruppo Alcuni and Planeta Jr Italy.

VFX:

• DQE’s VFX division was involved in elements of this year’s highlyacclaimed films SS Rajamouli’s ‘Bahubali’ and Gunasekhar’s‘Rudrama Devi’. DQE VFX team is currently working on Telugu/Tamil bilingualstarring Nagarjuna & Karthi directed by Paidipally Vamshi. Complex sequences for DilRaju’s Krishnastami and Sai Dharam Tej’s new movie Thikka are under production.

Distribution:

• DQE’s licensing and distribution division has achieved a turnover of INR461 Mn during 2015-16. Several deals are under negotiation and the revenue is expected tosubstantially increase in the current financial year.

• The Company’s digital platforms continue to perform satisfactorily and aregaining traction with third party properties soon being hosted on ‘Power Kids’and ‘Tiny Toonz’ channels.

3. DIVIDEND

Considering the current expansion plans as well as the financial health of the Companythe Board has not recommended any dividend to the equity shareholders for the financialyear 2015 -16.

4. SHARE CAPITAL

The authorized share capital of the Company as on 31st March 2016 was Rs.800000000/- divided into 80000000 equity shares of Rs.10/- each and paid-up capitalwas Rs. 792830000/- divided into 79283000 equity shares of Rs.10/- each.

The Company has neither issued shares with differential rights as to dividend votingor otherwise nor issued shares (including sweat equity shares) to the employees orDirectors of the Company under any Scheme.

5. MANAGEMENT’S DISCUSSION AND ANALYSIS REPORT

Management’s Discussion and Analysis Report for the year under review asstipulated under SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015[SEBI (LODR) Regulations 2015] is presented in a separate section forming part of theAnnual Report.

6. CORPORATE GOVERNANCE

The report on Corporate Governance as stipulated under the SEBI (LODR) Regulations2015 forms an integral part of this Report. The requisite certificate from the PracticingCompany Secretary of the Company confirming compliance with the conditions of corporategovernance is attached to the report on Corporate Governance.

The declaration by CEO/CFO that the Board Members and Senior Management Personnel havecomplied with the Code of Conduct forms part of the Annual Report.

7. CONSOLIDATED FINANCIAL STATEMENTS

In accordance with the Companies Act 2013 ("the Act") and AccountingStandard (AS) – 21 on Consolidated Financial Statements read with AS – 23 onAccounting for Investments in Associates and AS – 27 on Financial Reporting ofInterests in Joint Ventures the audited consolidated financial statements are provided inthe Annual Report.

8. DIRECTORS’ RESPONSIBILITY STATEMENT AS REQUIRED UNDER SECTION 134(3) (C) OF THECOMPANIES ACT 2013

Your Directors state that:

a) in the preparation of the annual accounts for the year ended March 31 2016 theapplicable accounting standards read with requirements set out under Schedule III to theAct have been followed and there are no material departures from the same;

b) the Directors have selected such accounting policies and applied themconsistently and made judgements and estimates that are reasonable and prudent so as togive a true and fair view of the state of affairs of the Company as at March 31 2016 andof the profit of the Company for the year ended on that date;

c) the Directors have taken proper and sufficient care for the maintenance ofadequate accounting records in accordance with the provisions of the Act for safeguardingthe assets of the Company and for preventing and detecting fraud and other irregularities;

d) the Directors have prepared the annual accounts on a ‘going concern’basis;

e) the Directors have laid down internal financial controls to be followed by theCompany and such internal financial controls are adequate and are operating effectively;and

f) the Directors have devised proper systems to ensure compliance with theprovisions of all applicable laws and that such systems are adequate and operatingeffectively.

9. TRANSACTIONS WITH RELATED PARTIES

All contracts / arrangements / transactions entered by the Company during the financialyear with related parties were in the ordinary course of business and on an arm’slength basis.

Pursuant to Reg. 23(8) of SEBI (LODR) Regulations 2015 the material related partytransactions entered into prior to the date of notification of SEBI (LODR) Regulations2015 and which are likely to continue beyond such date are placed for approval before themembers at the ensuing Annual General meeting.

Information on transactions with related parties pursuant to Section 134(3)(h) of theAct read with rule 8(2) of the Companies (Accounts) Rules 2014 are given in Annexure I inForm AOC-2 and the same forms part of this report.

The Policy on materiality of related party transactions and dealing with related partytransactions as approved by the Board may be accessed on the Company’s website at thelink: http:// www.dqentertainment.com/ Investors.aspx

10. EXTRACT OF ANNUAL RETURN

As provided under Section 92(3) of the Act the extract of annual return is given inAnnexure II in Form MGT-9 which forms part of this report.

11. CORPORATE SOCIAL RESPONSIBILITY (CSR)

As part of the CSR activities the Company intends to initiate projects aimed atpromoting quality education and employability for vulnerable sections of society eitherdirectly or through DQ Smile Foundation.

Due to financial liquidity issues faced by the Company the Board was unable to spendany amount on CSR activities during the year.

The CSR Policy may be accessed on the Company’s website and can be viewed onhttp:// www. dqentertainment.com/Investors.aspx.

The CSR annual report is attached separately and forms part of this report as AnnexureIII.

12. RISK MANAGEMENT

The Company is exposed to inherent uncertainties owing to the sectors in which itoperates. The Company’s Risk Management process focuses on ensuring that these risksare identified on a timely basis and addressed. The Company has developed and implementeda Risk Management policy which includes:

• ensuring that all the current and future material risk exposures of the companyare identified assessed quantified appropriately mitigated and managed;

• establishing a framework for the company’s risk management process and toensure the group wide implementation;

• ensuring systematic and uniform assessment of risks related with theintellectual property and production services rendered; enabling compliance withappropriate regulations wherever applicable through the adoption of best practices and

• assuring business growth with financial stability.

The Risk Management Policy was reviewed and approved by the Audit Committee. TheCompany manages monitors and reports on the principal risks and uncertainties that canimpact its ability to achieve its strategic objectives.

13. INTERNAL FINANCIAL CONTROLS

The Company has an internal control system commensurate with the size scale andcomplexity of its operations. The details on the internal control system are moreelaborately explained in the Management’s Discussion and Analysis Report.

14. DIRECTORS & KEY MANAGERIAL PERSONNEL

a. Appointment

Mr. B.N.Sirish and Mr. Auknoor Goutam were appointed as Independent Directors for aperiod of five years with effect from 30th September 2015 by the members of the Companyin the 8th Annual General Meeting (AGM) held on September 30 2015 pursuant to theprovisions of Section 149 & 152 of Companies Act 2013.

The Board at its meeting held on August 12 2016 appointed Mr. Sachin Guha as CompanySecretary and Compliance Officer of the Company w.e.f. August 23 2016.

b. Retirement by rotation

In accordance with the provisions of the Act and the Articles of Association of theCompany Ms. Rashida Adenwala Director of the Company retires by rotation at the ensuingAnnual General Meeting and being eligible has offered herself for re–appointment.

c. Resignation

Ms. Sindhu M.S. resigned as Company Secretary & Compliance Officer with effect fromMarch 28 2016. The Board places on record its gratitude for the services rendered by Ms.Sindhu M.S. during her association with the Company.

d. Board evaluation

Pursuant to the provisions of the Act the SEBI (LODR) Regulations 2015 and the policyadopted by the Company for performance evaluation the Board has carried out the annualperformance evaluation of its own performance the Directors individually as well as theevaluation of the working of its Committees i.e. Audit Nomination & RemunerationStakeholders’ Relationship and Corporate Social Responsibility.

The performance of the Board and Committees was evaluated by the Board after seekinginputs from all the directors on the basis of the criteria such as the Board/ committeecomposition and structure effectiveness of Board/committee processes information andfunctioning etc.

The Board and the nomination and remuneration committee reviewed the performance of theindividual directors on the basis of the criteria such as the contribution of theindividual director to the Board and committee meetings like preparedness on the issues tobe discussed meaningful and constructive contribution and inputs in meetings etc.

In a separate meeting of Independent Directors performance of non-independentDirectors performance of the Board as a whole and performance of the Chairman wasevaluated taking into account the views of executive Directors and non-executiveDirectors.

e. Board Diversity

The Company recognizes and embraces the importance of a diverse board in its success.We believe that a truly diverse board will leverage differences in thought perspectiveknowledge skill regional and industry experience cultural and geographical backgroundage ethnicity race and gender which will help us retain our competitive advantage. TheBoard has adopted the Board Diversity Policy which sets out the approach to diversity ofthe Board of Directors. The Board Diversity Policy is available on our website http://www.dqentertainment.com/Investors.aspx

f. Policy on Directors’ Appointment Remuneration and Other Details

The Company’s policy on Directors’ appointment remuneration and othermatters as provided in Section 178(3) of the Act is given as Annexure IV which forms partof this report.

g. Familiarization programme of Independent Directors

The details of programme for familiarization of Independent Directors with the Companytheir roles rights responsibilities in the Company nature of the industry in which theCompany operates and related matters are put up on the website of the Company at the linkhttp:// www.dqentertainment.com/Investors. aspx

Further at the time of appointment of an independent Director the Company issues aformal letter of appointment outlining his/her role function duties and responsibilitiesas a Director. The format of the letter of appointment is available on our websitehttp:// www. dqentertainment.com/Investors.aspx.

h. Declaration by Independent Directors

The Company has received necessary declaration from each independent Director underSection 149(7) of the Companies Act 2013 that they meet the criteria of independencelaid down in Section 149(6) of the Companies Act 2013 and SEBI (LODR) Regulations 2015.

15. MEETINGS OF THE BOARD

During the Financial Year 2015-16 four meetings of the Board of Directors of theCompany were held during the year on May 27 2015 August 13 2015 November 9 2015 andFebruary 12 2016. For further details please refer report on Corporate Governance ofthis Annual Report.

16. AUDITORS AND AUDITORS’ REPORT

a. Statutory Auditors

Your Company has at its Annual General Meeting held on September 30 2014 appointedM/s. MZSK & Associates Chartered Accountants Hyderabad as statutory auditors of theCompany to hold office till the conclusion of the Annual General Meeting to be held in thecalendar year 2017. In terms of the first proviso to Section 139 of the Companies Act2013 the appointment of the auditors shall be placed for ratification at every AnnualGeneral Meeting. Accordingly the appointment M/s. MZSK & Associates CharteredAccountants Hyderabad as statutory auditors of the Company is placed for ratificationby the shareholders. In this regard the Company has received a certificate from theauditors to the effect that if they are reappointed it would be in accordance with theprovisions of Section 141 of the Companies Act 2013.

The Auditors’ Report does not contain any qualification reservation or adverseremark. No frauds have been reported by the auditors in terms of Section 143(12) of theAct.

b. Secretarial Auditors

Mr. R. Ramakrishna Gupta of M/s. PI & Associates Practicing Company SecretariesNew Delhi was appointed by the Board to conduct the secretarial audit of the Company forthe financial year 2015 –16 as required under Section 204 of the Companies Act 2013and Rules thereunder. The secretarial audit report forms part of the Annual Report asAnnexure V to the Board’s report.

The Secretarial Audit Report does not contain any qualification reservation or adverseremark.

17. COMMITTEES

The Board has formed the following Committees:

(i) Audit Committee

(ii) Nomination and Remuneration Committee

(iii) Corporate Social Responsibility Committee

(iv) Stakeholders Relationship Committee

The details of the membership and attendance of the meetings of the above Committees ofthe Board are included in the Corporate Governance Report which forms part of thisreport.

18. vIGIL MECHANISM

As part of our corporate governance practices the Company has formulated a WhistleBlower Policy to provide Vigil Mechanism for employees including Directors of the Companyto report genuine concerns. The provisions of this policy are in line with the provisionsof the Section 177(9) of the Act and SEBI (LODR) Regulations 2015. The Policy on vigilmechanism and whistle blower policy may be accessed on the Company’s website at thelink- http:// www.dqentertainment.com/Investors.aspx

19. PARTICULARS OF LOANS GUARANTEES OR INvESTMENTS

The particulars of loans guarantees and investments have been disclosed in thefinancial statements.

20. DEPOSITS

The Company has not accepted any deposits from public and as such no amount on accountof principal or interest on deposits from public was outstanding as on the date of thebalance sheet.

21. PARTICULARS OF ENERGY CONSERVATION TECHNOLOGY

ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO REQUIRED UNDER THE COMPANIES(ACCOUNTS) RULES 2014

The particulars as prescribed under Sub–section (3) (m) of Section 134 of theCompanies Act 2013 read with the Companies (Accounts) Rules 2014 are given hereunder:

(i) Energy Conservation: The operations of the Company involve low energy consumption.The Company has undertaken various energy efficient practices to conserve energy andstrengthened the Company’s commitment towards becoming an environment friendlyorganisation.

(ii) Technology Absorption: We have developed in-house plug-ins to maximize technologyabsorption at minimal cost. The Company produces majority of the content in the 3Dstereoscopic technology which is the latest offering in the entertainment industry.

(iii) Research & Development: The Company constantly endeavors to be more efficientand effective in planning of production activities for achieving and maintaining thehighest standards of quality.

(iv) Foreign Exchange Earnings and Outgo:

Amount in INR

Particulars For the year ended 31March16 For the year ended 31March15
Earnings in Foreign
Currency
Income from production 1627126687 1710690035
Others income 5056040 16944309
Distribution Income 62271448 87500989
Expenditure in Foreign
Exchange
(Subject to deduction of tax
where applicable)
Overseas business travel 3240388 7163715
Production Expenses 14818925 525142
Consultancy and other
21293228 2003344
expenses
Financial Charges - 9959515

Note: The above figures have been extracted from standalone financial statements bothfor current and previous year.

22. PARTICULARS OF EMPLOYEES AND RELATED DISCLOSURES

The information required under Section 197(12) of the Companies Act 2013 read withrule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules2014 as amended is provided as Annexure vI to the Board’s report.

The information required pursuant to Section 197(12) of the Act read with Rule 5(2)& 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules2014 as amended in respect of the employees of the Company will be provided uponrequest. In terms of Section 136 of the Act the Report and Accounts are being sent to themembers and others entitled thereto excluding the information on employees’particulars which is available for inspection by the members at the Registered Office ofthe Company during business hours on working days of the Company upto the date of theensuing Annual General Meeting. If any member is interested in obtaining a copy thereofsuch member may write to the Company Secretary in this regard.

23. GOING CONCERN

No significant or material orders were passed by the Regulators or Courts or Tribunalswhich impact the going concern status and Company’s operations in future.

24. INFORMATION REQUIRED UNDER SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREvENTIONPROHIBITION & REDRESSAL) ACT 2014

Your Company has adopted a policy on prevention prohibition and redressal of sexualharassment at workplace in line with the provisions of the Sexual Harassment of Women atWorkplace (Prevention Prohibition and Redressal) Act 2013 and the rules thereunder forprevention and redressal of complaints of sexual harassment at workplace. During the yearunder review there were no cases filed pursuant to the Sexual Harassment of Women atWorkplace (Prevention Prohibition and Redressal) Act 2013.

25. DETAILS OF SUBSIDIARIES/JOINT vENTURES/ASSOCIATE COMPANIES

DQ Entertainment (Ireland) Limited is the wholly owned subsidiary of the Company inIreland. Further there has been no material change in the nature of the business of thesubsidiary. During the year DQ Entertainment USA LLC was incorporated as wholly ownedsubsidiary of DQ Entertainment (Ireland) Limited in USA.

The Company’s two Indian subsidiaries - DQ Powerkidz Private Limited and DQE ITESPark Private Limited have been on an application by the company struck off by theRegistrar of Companies on October 15 2015.

DQEntertainment(International)FilmsLimitedisaJoint Venture between DQ Entertainment(International) Limited and DQ Entertainment plc which was formed for the production anddistribution of the Jungle Book Feature Film. The sharing ratio of DQE Plc is 60% and DQEIndia is 40% in the JV. The objective to form the JV was to benefit from the synergies ofboth the companies and to ensure that the interests of all the stakeholders are aligned.

There are no associate companies of DQE India within the meaning of Section 2(6) of theCompanies Act 2013 ("Act"). Method Animation S.A.S. is an associate company ofDQ Entertainment plc the Ultimate Holding Company.

Further the report on the performance and financial position of the subsidiary andJoint venture and salient features of the financial statements in the prescribed form AOC– 1 is annexed as Annexure VII to the Boards report.

In accordance with Section 136 of the Companies Act 2013 the audited financialstatements including the consolidated financial statements and related information of theCompany and audited accounts of its subsidiary DQ Entertainment (Ireland) Limited areavailable on the Company website.

The policy for determining Material Subsidiaries is disclosed on the company’swebsite and is accessible on http:// www.dqentertainment.com/Investors.aspx.

26. GREEN INITIATIvE

Electronic copies of the Annual Report 2015 –16 and Notice of the 9th AnnualGeneral Meeting are sent to all members whose email addresses are registered with theCompany / Depository Participant(s). For members who have not registered their emailaddresses physical copies of the Annual Report 2016 and the Notice of the 9th AnnualGeneral Meeting are sent in the permitted mode. Members requiring physical copies can senda request to the Company.

We encourage the other shareholders and request them to support us on this nationwideGreen Initiative by registering/updating their email addresses with their DepositoryParticipant(s) as required for receiving the notices and other documents via email.

The Company provides e–voting facility to all its members to enable them to casttheir votes electronically on all resolutions set forth in the Notice. The instructionsfor e–voting are provided in the Notice.

27. ACKNOWLEDGEMENT

Your Directors would like to express their sincere appreciation for the assistance andco–operation received from the banks Government authorities customers vendors andmembers during the year under review. Your Directors also wish to place on record theirdeep sense of appreciation for the committed services by every member of the DQE family.

Hyderabad For and on behalf of the Board
August 12 2016 DQ Entertainment (International) Limited
Tapaas Chakravarti
CMD & CEO