Your Directors have pleasure in presenting their Tenth 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 2017.
1. FINANCIAL RESULTS
During the year under review performance of your company was as under :
| || |
|For the year ended ||For the year ended ||For the year ended ||For the year ended |
| || |
|Income from Production ||812 ||1645 ||723 ||1643 |
|Income from Distribution ||48 ||65 ||217 ||461 |
|Other Income ||88 ||196 ||85 ||533 |
|Total Income ||948 ||1906 ||1025 ||2637 |
|Total Expenditure ||3424 ||1583 ||5142 ||2256 |
|Profit before tax ||(2476) ||323 ||(4117) ||381 |
|Tax Expense || || || || |
|(Current Tax+ Deferred Tax ||(612) ||82 ||(612) ||82 |
|[Net of MAT credit entitlement]) || || || || |
|Profit after tax ||(1864) ||241 ||(3505) ||299 |
|EBIDTA ||(1967) ||834 ||(2660) ||1425 |
*Standalone: Profit before tax and Profit after tax includes the exceptional item byway of notional foreign exchange of approximately INR (105.75) Mn for the period ended31st March 2017 (2016: INR 169Mn). Also includes Provision for Bad & Doubtful debtsand write off of Bad debts worth of Rs 1996.21 Mn (2016: Rs 103.76 Mn).
*Consolidated: Profit before tax and Profit after tax includes the exceptional item byway of notional foreign exchange of approximately INR (363.07) Mn for the period ended31st March 2017 (2016: INR 312 Mn) Also includes Provision for Bad & Doubtful debtsand write off of Bad debts worth of Rs 2524.58 Mn ( 2016: Rs 373.01 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 2017
31 March 2016
|Adjusted Profit / ( Loss) before tax ||(1229) ||443 |
|Adjusted Profit / ( Loss) after Tax ||(617) ||361 |
|Cash & Cash Equivalent ||213 ||204 |
2. PERFORMANCE AND OPERATIONS
Your Company has been adversely impacted on account of the last worldwide recessioncycle which extended over 4 years from 2012 onwards. Due to slow down in the economy someof our large customers did not commence any new productions as a result we had to sourcework from smaller production studios in order to ensure capacity utilization of our largemanpower. Unfortunately due to the extended recessionary period these smaller productionhouses were unable to distribute their content and they were faced with financial crisisand hence were not able to pay our dues. This resulted in steep increase in our debtorsand we too suffered severe financial crisis. In fact a number of companies in our domainglobally had to close down their operations. Your Company could sustain itself because ofits foresightedness to get into own content development which helped us through these verystressful times.
Good times are back now with the Company slowly and steadily getting good service aswell as co-production projects from Disney and other large production houses across theglobe.
Your Company's own IP's namely; 5 & it being co-produced with Disney GermanyJungle Book Season 3 with Ellipsanime France and ZDF Germany Robin Hood Season 2 andPeter Pan Feature Film are in full scale production.
Provisioning and write-off of debts
One of the significant reasons for the losses during the year is that the company madea provision of Rs. 1978.96 Mn for doubtful debts and written off bad debts worth Rs.17.25Mn. This huge amount is basically due to orders taken from small to mid-size clients whocould not sustain themselves during the world-wide recession. Due to delay in paymentsfrom these parties the Company stopped business with these parties from the beginning ofthe FY 2016-17 and subsequently these parties had completely stopped paying theiroutstanding amount. The Company had sent many notices followed by legal notices to theseparties but there remains uncertainty over receipt of this amount.
As per Ind AS 18 and IFRS if any uncertainty arises on the collectability of an amountalready recorded as revenue it needs to be recognized as an expense. Moreover the networth of the Company continues to remain positive even after the provision of the Debtors.The Board of Directors deliberated at length on all the pro and cons of the provision forBad and Doubtful debts examined in detail all the steps taken by the Company to recoverthe monies and also had detailed discussions with the auditors. After considering all thefactors they approved the provisioning for doubtful debts.
As per RBI guidelines self-write off is permissible only up to 5% of total exportproceeds realized during the previous calendar year 10% with Authorized Dealer's approvaland beyond that with RBI's approval. Since the amount provided as provision and writtenoff exceeds 10% approval to RBI has to be made. Write-off could be made only after RBIapproves the same. The management has filed application with the Reserve Bank of India forpermission to write-off the bad debts.
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 the FY 2016-17
Third season of our flagship property The Jungle Book is in production as a result ofthe demand from the broadcasters after a successful run of season 1 & 2.
DQE's new IP 5 & IT (52x11') TV series supported by Disney Germany and DisneyFrance and co- produced by Method Animation France is in production.
DQE's own IP Peter Pan Digital movie of 90 mins is nearing completion and is expectedto be launched in first quarter of 2018.
Second Season of Robin Hood is being co-produced with Method Animation France asRobin Hood season 1 saw great success in the market in more than 130 countries.
Disney projects under production are: Miles from tomorrow land - season II & IIIPuppy Dog Tales and Mickey Mouse and the Roadster Racers(MRR). The Second season of MRRand Puppy Dog Tails has also been approved and will go into production shortly. Couple ofnew projects from Disney is in the development stage and are expected to go intoproduction soon.
The Company has recently executed the contracts for the co-production with MethodAnimation and Zagtoons for Miraculous Lady Bug III which has already commencedproduction and Power Players which will soon go into production. 7D & Me Season
1 produced by Method Animation and supported by DQE ZDF RAI and France TV ahybrid show combining high quality CGI with live action footage has just got completed andthe Second season of 7D & Me is going into production soon.
Other projects in production are : Super 4 - based on Playmobil Toy with MethodAnimation France Zak Storm- TV series produced by Zag Toons in co-production with MethodAnimation & DQE Pio the Chick TV series an adaptation from Pulcino Pio (the hugelysuccessful online musical sensation) with Rai Commercial Italy in partnership with DQEItalian producer Gruppo Alcuni and Planeta Jr Spain. Ghost Force and Pixie Girl are thetwo major projects which will go into production soon.
DQE's Distribution and Licensing division has been quite actively working towards thedistribution of our new and existing IP's.
5&IT : Disney Germany and Disney France are on board as broadcast partners for theTV series while a major discussion is on-going with Disney EMEA Disney ASIA and LAT AMfor around 118 countries. Also there are huge merchandising opportunities once the worldwide broadcasting deals are executed.
Jungle book season 3 is widely being distributed around the world and is alreadycommitted by broadcasters who acquired the season 1 and 2 from us for more than 150countries. ZDF Germany and Canal + France are the co-producing broadcasters.
Robin Hood season 1 saw great success in the market in more than 130 countries and hasgreat ratings everywhere. The second season which is currently in productionis beingdistributed at the moment and our team is very confident of closing many distributiondeals soon. TF-1 France and ZDF Germany are the co-producers while the large number ofbroadcasters globally are committed to come on Board like season-1.
On the licensing and merchandising front efforts are on to penetrate the European andAmerican markets including Latin America with wide range of product categories this yearfor Jungle book Peterpan and Robin Hood.
Considering the current financial status of the Company the Board has not recommendedany dividend to the equity shareholders for the financial year 2016 -17.
4. SHARE CAPITAL
The authorized share capital of the Company as on 31st March 2017 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 as stipulatedunder SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 [SEBI(LODR) Regulations 2015] is presented in a separate section forming part of the AnnualReport.
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 theyear ended March 31 2017 the applicable accounting standards read with requirements setout under Schedule III to the Act have been followed and there are no material departuresfrom 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 2017 andof the profit of the Company for the year ended on that date; c) the Directors havetaken proper and sufficient care for the maintenance of adequate accounting records inaccordance with the provisions of the Act for safeguarding the assets of the Company andfor preventing and detecting fraud and other irregularities; d) the Directors haveprepared 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's lengthbasis and were in compliance with the applicable provisions of the Act and the ListingRegulations.
All Related Party Transactions are placed before the Audit Committee for approval.Prior omnibus approval of the Audit Committee is obtained for the transactions which arerepetitive in nature. A statement of all Related Party Transactions is placed before theAudit Committee for its review on a quarterly basis specifying the nature value andterms and conditions of the transactions.
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 Iin Form AOC-2 and the same forms part of this report.
10. EXTRACT OF ANNUAL RETURN
As provided under Section 92(3) of the Act the extract of annual return is given in AnnexureII 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.
However the Company has taken sessions on Right Parenting Skills' andBalika Suraksha' in various schools in Hyderabad. DQ Smile foundation and Lions clubtogether organized a Blood Donation Drive in January 2017. Please refer HR section of theAnnual report for more details on CSR activities.
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 risks areidentified on a timely basis and addressed. The Company has developed and implemented aRisk Management policy which includes:
ensuring that all the current and future material risk exposures of the company areidentified assessed quantified appropriately mitigated and managed;
establishing a framework for the company's risk management process and to ensure thegroup wide implementation;
ensuring systematic and uniform assessment of risks related with the intellectualproperty and production services rendered;
enabling compliance with appropriate regulations wherever applicable through theadoption 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
The Board at its meeting held on June 5 2017 appointed Ms. Annie Jodhani as CompanySecretary and Compliance Officer of the Company w.e.f. June 5 2017.
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 reappointment.
Mr. Sachin Guha resigned as Company Secretary & Compliance Officer with effect fromOctober 31 2016. The Board places on record its gratitude for the services rendered byMr. Sachin Guha during his 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
TheCompanyrecognizesandembracestheimportance of a diverse board in its success. Webelieve 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.
f. Policy on Directors' Appointment Remuneration and Other Details
The Company's policy on Directors' appointment remuneration and other matters asprovided in Section 178(3) of the Act is given as Annexure IV which forms part ofthis 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 have been familiarized well with the IndependentDirectors during and after appointment.
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.
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 2016-17 six meetings of the Board of Directors of theCompany were held during the year on April 26 2016 May 30 2016 August 12 2016November 14 2016 February 9 2017 and March 23 2017. For further details please referreport on Corporate Governance of this 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 fourth consecutive Annual GeneralMeeting of the Company subject to ratification of their appointment at every AnnualGeneral meeting as per the first proviso to Section 139 of the Companies Act 2013.Accordingly the appointment M/s. MZSK & Associates Chartered Accountants Hyderabadas statutory auditors of the Company is placed for ratification by the shareholders. Inthis regard the Company has received a certificate from the auditors to the effect thatif they are reappointed it would be in accordance with the provisions of Section 141 ofthe Companies Act 2013.
The Auditors' Report does not contain any qualification reservation or adverse remark.No frauds have been reported by the auditors in terms of Section 143(12) of the Act. TheStatutory Auditors have laid out emphasis of matter in regard to the provisioning ofdoubtful debt.
The Auditors have mentioned in its report regarding the irregular deposit of statutorydues with the appropriate authorities. The Board explained that due to paucity of fundsdues could not be paid regularly and now all efforts are made to deposit the duesregularly on time with the appropriate authorities.
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 2016 17 as required under Section 204 of the Companies Act 2013and Rules thereunder. The secretarial audit report forms part of the Annual Report as AnnexureV to the Board's report.
The following observations were given by the Secretarial auditor to which the Board hasshared the following explanations:
a) There are certain instances of delays in circulating the minutes of theBoard/Committees to the Directors/ Members as required under Secretarial Standards 1issued by Institute of Company Secretaries of India.
Explanation: The Company shall ensure that going forward the minutes shall becirculated within the timelines as required under Secretarial Standards 1.
b) There are instances of delays in submission of monthly/ quarterly and annualperformance reports with STPI and the Softex forms with the authorized dealer bank.
Explanation: The Company shall ensure that going forward the reports with STPI andSoftex forms shall be submitted with the due date.
The Board has formed the following Committees: (i) Audit Committee (ii) Nomination andRemuneration Committee (iii) Corporate Social Responsibility Committee (iv) StakeholdersRelationship 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.
19. PARTICULARS OF LOANS GUARANTEES OR INVESTMENTS
The particulars of loans guarantees and investments have been disclosed in thefinancial statements.
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 Subsection (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 following in-house plug-ins to maximizetechnology absorption at minimal cost.
The 3ottle: It is market competing software that is being developed for its CGIanimation requirements such as hyper realistic lighting.
Global Lighting Process (GLP): It automates the process of developing lighting asset toreduce rendering hours by 20%
GATEWAY software: It is one of its kinds for complete automation of processes liveupdates on productivity and status of project as well as server data management andfacilitates backup. This robust and secured tool has helped to increase efficiency to anew level.
This automation process and software and hardware development will result inconsiderable savings of operational costs to company due to reduced human effort and timewhile not compromising on quality.
(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 |
| || |
For the year
|Particulars || |
| || |
|Earnings in Foreign || || |
|Currency || || |
|Income from production ||806901075 ||1627126687 |
|Other income ||4365839 ||5056040 |
|Distribution Income ||45472250 ||62271448 |
|Expenditure in Foreign || || |
|Exchange || || |
|(Subject to deduction of tax || || |
|where applicable) || || |
|Overseas business travel ||3588971 ||3240388 |
|Production Expenses ||9525250 ||14818925 |
|Consultancy and other || || |
| ||338899 ||21293228 |
|expenses || || |
|Financial Charges ||- ||- |
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' particularswhich is available for inspection by the members at the Registered Office of the Companyduring business hours on working days of the Company upto the date of the ensuing AnnualGeneral Meeting. If any member is interested in obtaining a copy thereof such member maywrite 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.
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 formAOC-1 is annexed as Annexure VII to the Boards report.
26. GREEN INITIATIVE
Electronic copies of the Annual Report 2016 17 and Notice of the 10th 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 2017 and the Notice of the 10th AnnualGeneral Meeting are sent in the permitted mode. Members requiring physical copies can senda request to the Company.
August 11 2017
For and on behalf of the Board
DQ Entertainment (International) Limited
CMD & CEO