deccan chronicle holdings ltd share price Directors report

DECCAN CHRONICLE HOLDINGS LIMITED ANNUAL REPORT 2010-2011 DIRECTORS REPORT Dear Shareholders, Your Directors take pleasure in presenting the 9th Annual Report and the Audited Accounts of your Company for the year ended 31st March, 2011 together with the Auditors Report thereon. Financial Results Your Companys summarized financial results for theyear under review is as under: (Rs. in Lakhs) Particulars 2010-11 2009-10 TotalRevenue 1,03,091.48 92,194.54 Profit before interest tax and depreciation 34,747.12 48,102.12 Less: Interest and financial charges 5,901.16 4,512.53 Profit before depreciation & tax 28,845.96 43,589.59 Less: Depreciation 5,157.35 4,224.85 Profit before tax 23,688.61 39,364.74 Tax charge (current and deferred) 7,430.31 13,272.93 Net profit for the year 16,258.30 26,091.81 Appropriations & Adjustments: Dividend (including dividend tax thereon) - 8,532.71 Effect of change in treatment of franchise rights/others 5,136.48 96.04 Transfer to debenture redemption reserve 5,000.00 1,302.12 Transfer to general reserve 6,000.00 3,000.00 Surplus for the year 121.82 13,160.94 Balance in Profit & Loss Account 52,616.65 39,455.71 Balance carried forward 52,738.47 52,616.65 The above results for the year under review are not strictly comparable with that of the previous year, as the figures for the year under review includes the results of the subsidiaries viz., Deccan Chargers Sporting Ventures Ltd., NetlinkTechnologies Ltd. and Odyssey India Ltd. which were amalgamated with the company. Amalgamation of subsidiaries During the year under review companys subsidiary Netlink Technologies Limited was amalgamated with the company pursuant to a Scheme of Amalgamation sanctioned by the Honble High Court of Andhra Pradesh vide its Order dated 9th March 2011; and the other two subsidiaries viz., Deccan ChargersSporting Ventures Limited and Odyssey India Limited were amalgamated with the company pursuant to a Scheme of Amalgamation sanctioned by the Honble High Court of Andhra Pradesh vide its Order dated 15th April 2011. The effective dates of the aforesaid Scheme of Amalgamation are 11th April 2011 and 4th May 2011 respectively. The Appointed Date of amalgamation under both the Schemes being 1st April 2010, the financials for the year under review have been prepared after giving effect to the Amalgamation. Dividend In view of the ongoing buyback programme and the need to conserve liquid resources of the company, your Directors do not propose payment of dividend for theyear under review. Management Discussion and Analysis A detailed Management Discussion and Analysis covering operations review and outlook is provided in the Annual Report. Buy backof Equity Shares In terms of the provisions of Companies Act, 1956 and the Securities and Exchange Board of India (Buy Backof Securities) Regulations,1998 and pursuant to the approval of shareholders obtained by Postal Ballot and the approval of SEBI, the Company announced its Offer to buy backa minimum of 1,00,00,000 equity shares, a maximum of 3,45,00,000 equity shares at a price per share not exceeding Rs.180/- at a total outlay not exceeding Rs.270 crores through stock market mechanism. The buy back offer commenced on 16 May 2011 and the scheduled closing is on 3,d January 2012 or such other earlier date as the Board may decide in this regard. Pursuant to the aforesaid Buy Back Offer the Company, as of date of this report, has bought back 2,61,73,133 Equity Shares and out of which 1,87,82,870 Equity Shares has been extinguished and the remaining 73,90,263 Equity Shares are being extinguished in duecourse. Ratings for Term Funding During the year CARE has reaffirmed PR1+ for short term funding & AA for long term funding signifying high-credit quality and low credit risk, which signifies high degree of safety with regard to timely payment of interest and principal on the instruments. Directors Mr. Krishan Premnarayen, Mr.T. Vinayak Ravi Reddy, and Mr. G. Kumar retire by rotation at the ensuing annual general meeting and being eligible have offered themselves for reappointment. Report on Corporate Governance As required under Clause 49 of the Listing Agreement with the Stock Exchanges a report on Corporate Governance is given in the Annual Report. Certificate of the Auditor regarding compliance with the conditions of corporate governance is alsogiven. Fixed Deposits During the year under review, your company has neither invited nor accepted any deposits from the public. Statutory Auditors M/s. C B Mouli & Associates, Chartered Accountants, Statutory Auditors of the Company, hold office, in accordance with the provisions of the Act up to the conclusion of the forthcoming Annual General Meeting. The Company has received letter from M/s.C B Mouli & Associates, Chartered Accountants to the effect that their appointment, if made, would be within the prescribed limits under Section 224 (IB) of the Companies Act, 1956, and that they are not disqualified for such appointment within the meaning of Section 226 of the Companies Act, 1956. Particulars of Employees Information as per Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of employees) Rules 1975 as amended from time to time forms part of this report. However, as per the provisions of Section 219(1) (b)(iv) of the Act, the Report and Accounts are being sent to all members excluding the statement containing the particulars of employees to be provided under section 217(2A) of the Act. Any member interested in obtaining such particulars may write to the Company Secretary at the Registered Office of the Company. DirectorsResponsibility Statement Pursuant to provisions of Section 217 (2AA) of the Companies Act, 1956 with respect toDirectors Responsibility Statement, it is hereby confirmed; (i) that in the preparation of the annual accounts for the financial year ended 31st March, 2011, the applicable Accounting Standards have been followed along with proper explanations relating to material departures; (ii) that the directors had 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 at the end of the financial year and of the profit or loss of the Company for the year under review; (iii) that the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities: (iv) that the directors had prepared the annual accounts for the financial year ended 31st March, 2011 on a going concern basis. Conservation of Energy, Technology Absorption: Particulars regarding conservation of energy, technology absorption are not applicable to printing and publishing of newspapers and periodicals. Foreign Exchange Earnings and Outgo In accordance with the provisions of 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, the information relating to foreign exchange earnings and outgo is provided as under and the details of which is mentioned in Note No. 3.3 of the Notes to the Accounts. (Rs. in Lakhs) Particulars 2010-11 2009-10 Foreign Exchange Earnings Nil Nil Foreign Exchange Outgo 22,304.82 18,232.85 Acknowledgements The Directors take this opportunity to thank Companys customers, suppliers, bankers, financial Institutions for their consistent support to the Company. Your Directors express their appreciation for the dedicated and sincere services rendered by the employees of the Company at all levels. Your Directors also wish to express their gratitude to the Shareholders for the confidence reposed by them in the Company and for the continued support and co-operation. For and on behalf of the Board T.Venkattram Reddy Chairman Place: Secunderabad Date : August 13, 2011 MANAGEMENT DISCUSSION AND ANALYSIS The financials of theyear under review are not strictly comparable to that of previous year as Netlink Technologies Ltd., Odyssey India Ltd., and Deccan Chargers Sporting Ventures Ltd., the subsidiaries of the company, were amalgamated with the company from the appointed date of 1.04.2010. The year 2010-11 was difficult and challenging for the company as the continued uncertain situation in the markets in which the company operates has led to a decreased spend on advertisements thereby affecting the advertisement revenue growth. Consequently, there was fall in the profitability with profit after tax at Rs.16,258.30 lakhs compared to 26,091.81 lakhs in the previous year. Operations Review Deccan Chronicle, the flagship newspaper of the company continues to be the leading newspaper of South India. During the year under review, your company launched editions of Deccan Chronicle from Coimbatore as a measure of consolidating its position in Tamil Nadu and from Kochi in Kerala to make its maiden foray in that state. While Coimbatore edition of the paper has received good response, that in Kochi is promising.The above launches are expected to increase the readership and reach. Your company plans to consolidate its leadership in South India by launching few more editions starting with Thiruvananthapuram shortly and also increase the circulation and readership in the existing centres. The circulation of Deccan Chronicle grew over 3%; as per Audit Bureau of Circulations (ABC) for the period Jul-Dec 2010 the average daily circulation is 14.23 lakhs copies as against Jul-Dec 2009 circulation of 13.79 lakhs copies. The breakup of averagedaily circulation (in lakhs) is asunder: Jul-Dec 2010 Jul-Dec 2009 Hyderabad 5.94 5.72 Rest of Andhra Pradesh 2.61 2.51 Chennai 3.15 3.11 Bengaluru 2.53 2.45 Total 14.23 13.79 The Hyderabad IPL Franchise Deccan Chargers owned by the company is expected to enhance the brand value of the company and visibility. This is further indicated by the addition of two new teams in the league, the highest at a price of nearly Rs.1700 crores. In IPL 3 the team qualified to the semi finals level though could not reach the same in IPL 4. The IPL 3 home matches were not played in Hyderabad due to local conditions, however the IPL 4 home matches conducted in April-May 2011 were played in Hyderabad. The financials for the year under review include the resultsoflPL3. The performance of Odyssey chain of leisure stores of your company offering consumer lifestyle products of books, music, stationery and gifts during the year under review was impacted owing to reduced margins, decrease in consumer spend on leisure and lifestyle products on account of inflation, increase in the real estate and staff costs. The company is taking effective steps to rationalize stores, reduce costs to have positive impact on overall performance. Industry Overview During the year under review, the Indian Economy continued to show resilience. However higher inflation of commodity and food prices continues to be a key concern, due to which Reserve Bank had to raise interest rates multiple times during the year. The Indian Economy is expected to maintain its growth rate in the coming years not with standing external shocks, which is likely to translate to an increased advertisement spend, and the print media being a preferred medium is likely to derive a major benefit of the same. Financial Review Share Capital Share capital as at March 31,2011 is 4,869.44 lakhs comprising of 24,34,72,219 Equity shares of 21- each fully paid up. The Equity share capital has increased during the year from Rs. 4,844.46 lakhs to 4,869.44 lakhs on account of allotment of 12,49,435 Equity Shares of Rs.2/- each upon conversion of 3,000 Foreign currency convertible bonds. Reserves and Surplus Reserves and surplus as at March 31,2011 is Rs.1,23,145.03 lakhs as againstRs. 1,20,957.03 lakhs in the previous year a net increase of Rs. 2,188 lakhs. Retained Earnings accounted 57.57% of the Reserves and surplus. Debt Secured long term debt as at March 31,2011 is 31,311.61 lakhs as against Rs. 32,886.56 lakhs in the previous year a decrease of Rs.1,574.95 lakhs. Fixed Assets and Capital workin progress The net block of fixed assets and Capital work in progress is Rs.92,671.31 lakhs as against 80,773.05 lakhs in the previous year the increase in block of assets is on account of amalgamation, expansion/modernization of the printing facilities. Investments There are no investments as at March 31, 2011;all thesubsidiary companies have been amalgamated and the other investment was sold. Inventories Inventories as at March 31, 2011 is 13,340.94 lakhs as against Rs. 6,203.71 lakhs in the previous year, the increase in inventory is on account of inventory of amalgamated subsidiaries. Debtors Debtors as at March 31, 2011 is 25,836.15 lakhs as against Rs. 19,554.84 lakhs, increase in debtors is due to uncertain market condition. Cashand Bank balances Cash and bank balances as at March 31,2011 is 70,379.60 lakhs as againstRs. 59,164.38 lakhs. Loans and Advances The loans and advances decreased to Rs.15,161.89 lakhs from Rs.18,551.13 lakhs in the previous year, primarily on account of amalgamation of subsidiaries. Current liabilities and Provisions The Current liabilities and Provisions increased to Rs.49,736.98 from 37,305.91 lakhs in the previous year, primarily on account of amalgamation of subsidiaries. Printing and Other Operative Expenses The increase in printing and operative cost from 31,758.25 lakhs to Rs.42,608.55 lakhs is primarily an account of cost of merchandise and franchisee fee paid of amalgamated subsidiaries. Overheads Overheads comprise personnel cost, sales and administrative expenses, Interest and financial charges. The overheads for the year areRs. 31,636.97 lakhs compared to Rs.16,846.70 lakhs for the previous year. The current year financials includes the operating costs of theamalgamated subsidiaries. Depreciation The Company provides depreciation on straight-line basis at the rates prescribed in Schedule XIV of the Companies Act, 1956. The depreciation charge has increased from Rs.4,224.85 lakhs to Rs.5,157.35 lakhs due to amalgamation, expansion/modernization. Tax Charge The total tax charge (including deferred tax) has decreased from Rs.13,272.93 lakhs to Rs.7,430.31 lakhs on account of reduced profits. Internal Control Systems The Company has adequate internal control systems to monitor all aspects of operations and managerial functions.There are well defined procedures and policies laid out to perform the various functions. All functions are regularly reviewed and the results of the same are discussed by the senior management and Audit Committee. The recommendations are duly implemented. Risk Management All businesses are subject to internal and external risks. The internal risks are controllable risks and the senior management has identified such risks and formulated such actions to mitigate the effect of such risks. The external risks like change in government policies are not within the control of the management. Industry Risk The print media industry is enjoying growth on the basis of the growing economy, high-income levels and increasing literacy amongst the people. Any variations in these can have an impact on the industry. Raw Material Risk Newsprint constitutes the major raw material for the newspaper industry. Therefore continuous supply of newsprint at competitive price is essential for the business. Operational Risk The Company has appointed good quality reporters who provide on daily basis proper and authenticated information. The Company has also deployed good quality machines for printing the newspaper without any breakdowns. Outlook The fundamentals of higher economic growth remaining intact notwithstanding concern on inflationary pressures, the economy is expected to maintain its current growth rate which will further lead to increasing standards of living and literacy level which will fuel growth. As such print media sector is considered to have a robust future within I ndia for a number of years to come. Cautionary Statement Readers are cautioned that this section may contain forward looking statements by the management that involves certain risks and uncertainties.This section should be read in conjunction with the Companys financial statements and relevant notes attached thereto.