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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A. INDUSTRY STRUCTURE & DEVELOPMENT
Animation can be used to inspire, educate, inform & entertain. Animation is the creation of moving pictures/ images with the help of technology and/ or animation software. Visual effects (VFX) refers to the creation of awesome effects & realistic environments in films by combining real-life images with animation using special software.
The animation industry has grown significantly over the years, not only supporting the growing Indian Media & Entertainment ("M & E") sector but also serving the world. India has emerged as one of the key animation development market.
Animation grew 10% in 2018-2019 to reach INR 18.8 billion. By 2021 the animation segment is expected to reach a size of INR 24.4 billion. The Indian share in the global animation industry is less than 1%; however, it is expected to increase in the coming years. Yet, international projects account for 70%-80% of the Indian animation industry revenues.
Animation and VFX is one of the growing segments of the Indian M&E sector due to the increased demand in domestic markets and the emergence of digital content serving platforms across the world. India has traditionally been a hub for outsourced animation and VFX services for the world, but the increase in domestic demand and improvement in skills has led to an increase in development of content for Indian Production houses.
Indian animation studios have worked on over 1,000 TV episodes and over 100 films in recent years, domestically as well as internationally. About 65-70% of revenues are generated from work done for clients in other countries, whereas 30-35% of revenues are generated from domestic clients.
With improvement in animation quality over the last few years and the cost advantage, international studios and animation houses such as Disney, Warner Brothers, DreamWorks, Sony, Viacom/Nick, BBC, Cartoon Network, Fox, Ubisoft and Zynga, among others, are increasingly utilizing services from India.
Further a few Indian Studios have provided VFX services for Hollywood blockbusters such as Sin City, Pacific Rim, Uprising and Avengers: Infinity War. The intricately created dragons in the series Game of Thrones were also designed by an India- based Studios.
Further, most national broadcasters like Viacom, Sony, Disney and Discovery have increased their focus on animated content in India, with other national and some local broadcasters also gearing up to launch original animated content.
GROWTH IN DIGITAL MEDIA AND ADVERTISING
Smartphone penetration has led to increase in online viewership, which in turn has led to growth of digital content consumption in India and globally. Thus creating opportunities for increased investments in original IP creations. This is giving a further boost to content providers to develop new content and broadcast the same on Over The Top (OTT) Platforms.
Netflix is expected to spend US$1.1 billion on animated content worldwide and Amazon is projected to spend US$300 million. This translates into roughly 10% of total content budget for these companies. This number is expected to go up to about 15% of their total content budget in 2021.
Another segment that has seen increasing use of animation is advertisements. Growth in digital advertising is further adding to the animation revenue pie as advertisers are creating more and more animated advertisments for digital media, with an increased focus on video. Companies are increasingly partnering with animation studios for creating their advertisements
LICENSING AND MERCHANDISING (L&M)
Today, it is not surprising to find kids glued to the either the Television or the mobile for several hours at a stretch. The influence of cartoons on kids today is tremendous. Hence, there is little wonder why the marketplace is brimming with merchandise related to cartoon characters, where bags, shoes apparels and other fashion accessories have taken a leap jump in character licensing,
The idea of character merchandising sprang from Walt Disney Studios, which created a separate department to license the rights to use its popular toon characters such as Mickey Mouse, Minnie and Donald on various consumer products.
The trend seen back then was that of popular cartoon characters being licensed by the creators to various licensees to use on their merchandise. It is a common sight to see kidswear with Thomas and Friends and Peppa Pig in the UK and US but in
India, the dominant characters for kidswear remain Mickey Mouse, Ben 10, Chhota Bheem and Doraemon
The Walt Disney Company is the largest character licensor in the world with US$ 45 billion in character merchandising retail sales. Indias L&M industry is still in a nascent stage but the segment is poised to grow signifi cantly in the coming years.
Animation characters with strong brand values can be used for successful partnership with other brands, products and movies. The trend of partnership and collaboration with other brands is on an upsurge. Many product brands from FMCG, auto, insurance and others are proactively using characters like Doremon, Motu Patlu, Little Singham, Mowgli, Sharekhan, Kaa etc. for marketing campaigns.
The popularity of certain characters extends beyond TV screens to products, such as back-to-school products, accessories, toys, collectibles, clothing, footwear, bags and much more. Currently, L&M contributes mere 20 to 22 percent of the overall business revenues; however, this segment is poised to grow further in the coming years.
B. OPPORTUNITIES & CHALLENGES I. OPPORTUNITIES
The animation industry in India, is touted as the next big thing for economic growth following the countrys already successful software and business process outsourcing. With Hollywood studios tapping into a large Indian pool of low-cost, Englishspeaking animators who are familiar with the western culture
The animation industry has come a long way and now enjoys shows across genres ranging from slapstick comedy to superhero series to chase comedies to action adventures and musical comedies. With the audience group ranging from toddlers to teenagers, different genres allow animation studios and broadcasters to differentiate their offerings and attract larger audience base.
With a string of successes in the animation space, the next big thing on radar is the Augmented reality/Virtual reality ("AR/VR") space. Maintaining the targets that we have set for ourselves and pushing the creative boundaries with every new production is critical for success. Blending the passion within the established scale both vertically and horizontally; across creative parameters and production volumes, while collapsing the hitherto known boundaries of geography will cumulatively drive the growth of this industry going forward.
The government is playing an active role to promote the animation industry
With the Animation, VFX, Gaming and Comics (AVGC) industry rising high globally, India is on its way of joining the list of countries that boast a robust animation landscape. Initiatives for the furtherance of the industry in India are being undertaken by the central and a number of state governments. Some of the major initiatives are:
Karnatakas AVGC Policy comprises developing a Centre of Excellence for stimulating AVGC education in the state and establishing Digital Art Centres to carry out digital art and animation curriculum in certain fine art schools across Karnataka.
Government of Telangana is also aggressively supporting AVGC sector and is planning to set-up an incubation centre called Innovation in Multimedia, Animation, Gaming and Entertainment (IMAGE) in Hyderabad, which would provide an ideal environment for businesses in the AVGC industry.
The Government of Gujarat is pursuing investments to launch an AVGC lab in the state that would provide a number of facets in the Gujarat AVGC sector a technological boost.
Opportunity to create original characters with global appeal
Indian animation segment relies heavily on storylines around mythological concepts and characters. The share of original characters created and owned by Indian studios is significantly lesser compared to western countries where original characters are created such as Spiderman and Batman, which have a global appeal and are monetized, consequently, at a global level.
Budgets for Hollywood movies using VFX are generally six to 10 times those of Indian films, resulting in difference in the quality of VFX. In the case of animated films, too, the budget of global studios would average 20-30 times the budget for a typical Indian product. Due to this, even a movie such as "The Jungle Book," which is India-based, is created by foreign animation houses as they have the budget required for carrying out the required level of animation.
Need for more government incentives
An animation content creator needs multiple government incentives to produce a series. In India, such incentives are often lacking. Working with foreign companies doesnt entail tax in India but local production is charged with GST of 15%. In addition, there is a withholding tax on payments. Countries such as Singapore provide incentives amounting to 25% and Malaysia has created a fund for animation producers. Such initiatives are also required in India to strengthen animation and VFX sector and make it more competitive globally
Skilling the workforce to international storytelling standards
The animation segment requires scriptwriters who can adapt storytelling from live action to animated content. India needs creators and writers who can create characters which have international appeal. For this to happen, Indias writers need to be exposed to or trained in animation specific storytelling methods. There is need for talent in this space, and is an area large Indian studios need to invest in.
Complicated and time-consuming process
Ideation and content creation is not a quick and easy process. It involves a complete visualization of the program and a process of storytelling that needs to be worked out before the production can be commenced. The genre needs more time and labor.
Lack of funding and subsidies
Despite a vast talented and potential pool, India does not produce a high percentage of animated films as it is unable to get the funding for creation of Intangible properties. Indian lending agencies still prefer traditional method of lending with adequate security cover. Further, there are no subsidies being offered currently to production houses in India, unlike western film makers which have huge subsidies available for production. The industry demands an initial high investment and this poses a major setback
Insufficient government support
The industry would benefit if measures such as reservation of a certain number of hours of domestically produced content on channels, must-carry clause for kids channels and tax benefits and treaties are provided by the government.
Intellectual Property protection
Outsourcers have always been concerned with the protection of their IP in India as we have failed to take stern action against IP infringement. The IP policy needs to be strengthened and companies operating in the outsourcing sphere need to take stringent steps to protect clients IP rights.
C. OUR BUSINESS DIVISIONS
In order to map our specialized offerings better with the market opportunities, we have streamlined our business divisions broadly into Animation Production and Licensing & Distribution.
DQ Entertainment (DQE) is an animation production house in India. DQEs animation division creates, designs, and produces animation content for feature films, television, video (in 2D and 3D), and digital and online media. DQE is focused on providing higher- margin services by gradually shifting from production services towards content providing and intellectual property (IP) development.
The animation division provides production services to major players in the media & entertainment (M&E) industry in Europe, US and Asia, some of which include: Walt Disney Group, Zag Toons, USA, Method Animation, France, Wild Canary, USA, Cyber group, France, Brown Bags Films, Ireland, Rai Television, Italy and others.
In the FY 2018-19, we concluded the production of several high quality shows and also commenced several new productions.
Production successfully completed and delivered
Puppy Dog Pals-Season I, TV Series 19x23 with Wild Canary USA
Mickey Mouse Roadster Racer-Season II, TV Series 26x22 with Disney Junior, USA
Miles From Tomorrow Land-Season III, TV Series 30x22 with Wild Canary USA
Zak Storm-TV Series 39x23 with Zag Toons S.A.R.L., USA and Method Animation, France
Super 4-TV Series 52x12 with Method Animation, France
Projects in Production
Doc McStuffins-Season V, TV Series Ilx22with Brown Bag Films, UK.
Puppy Dog Pals-Season II, TV Series 19x23 with Wild Canary USA
Power Players-Season I, TV Series 78x11 with Method Animation and Zagtoons.
Miraculous Lady Bug-Season II & III, TV Series 56x26 with Method Animation and Zagtoons. S.A.R.L, USA
Seven Dwarfs & Me-Season II, TV Series 26x26 with Method Animation and supported by ZDF Germany, RAI Television Germany and France TV, France.
In addition to the above projects we have more than 4-6 Projects in pipeline which are in the advances stage of negotiation and likely to commence production in the next 6 to 12 months.
OWN INTELLECTUAL PROJECTS (IPS):
It is important to understand the role of Intellectual property (IP) and the power it provides in creative industries. Generation of creative intellectual properly results in the possibility to distribute and monetize the content over the long period of time and over multiple platforms of delivery. Your Company is firmly on the path to identify new IP opportunities and generate high caliber creative content for worldwide distribution. The role of the intellectual property in creative industries is often not understood and therefore undervalued.
The Company has several IPs out of which the Company has 5 Direct IPs namely Jungle Book, Peter Pan, Robin Hood, Psammy Show, Lassie.
II. Licensing and Distribution
a. Broadcasting/ Merchandising/Licensing- DQE:
DQE has established partnerships for product licensing, merchandising, broadcasting & distribution world-wide of its own productions. Major agencies include Amazon, Netflix, Discovery Family Channel USA, TFI France, ZDF Germany, Planeta Jr. Spain, Planeta Jr Italy KIKA and WDR Germany, RAI Television Italy DEA Kids Italy and may more Worldwide.
Please refer operational highlights section of the Boards report for details on major licensing and distribution deals entered by the Company during the year.
YouTube channels, Power Kids and Tiny Toonz, have been performing well with steady revenues. Power Kids showcases animated content for children 5 years and above while Tiny Toonz TV is for kids less than 5 years of age. With more than 2.5 Million subscribers the channel is growing rapidly and have collectively received over 189 million views in the year with the combined total number of watch time in minutes on both these channels being well over one billion.
DQE also plans to launch its own kids specific Subscription Video on Demand (SVOD) and Transaction Video on Demand (TVOD) Platform going forward.
D. OUTLOOK FOR THE FUTURE
DQEs Business model of co-production and IP development has enabled us to leverage on the licensing and distribution income generated from our co-production investments and intellectual property development. This fast growing area of the business is a key focus of management.
Timely movement up the value chain of IP development, as part of our growth strategy has unlocked the value of our investments from which we will continue to monetize over a sustained period of time. This has placed DQE in a unique position to be an integrated entertainment production and distribution company, focused on 360 degree monetization across all platforms.
DQE has an impressive list of clients comprising of the "Whos Who" of animation-Disney, Nickelodeon, ZDF-Germany, Wild Canary, Method Animation, De Agostini Italy, Raicom Italy, etc. The Company has a diverse client/partner base consisting of major producers, licensees and distributors from across the globe-reducing dependence on any single client/partner. DQ has been among the few producers to bet on partnering and outsourcing of some of its pre and post production in foreign studios, especially in Europe.
The internet has had a profound impact on consumers consumption of digital entertainment. The passive traditional media platforms are being challenged by new media platforms like IPTV, internet TV & videos which facilitate interactivity with consumers in meaningful ways.
New digital frontiers have encouraged us to monetize through the digital world and utilize our IP library for mobile applications, mobile games and mobile porting for all major platforms such as iPhone, iPad, ipod, itunes, blackberry, android, tablets, windows and mobile internet platforms.
DQEs Power Kids YouTube channel has been growing at a rapid space garnering a subscribers base of over 2.5 million being added to the channel with a daily viewer ship being around 7 million views over the last few months.
The revenues from our Power kids channel is now witnessing a healthy growth and the revenues have grown substantially month on month since last quarter. With a rapidly expanding new media universe, we recognize the need for deeper engagement with consumers in this space by further leveraging our existing and future IPs.
The demand for animated entertainment has expanded with the increase in broadcasting hours by cable and satellite TV along with the growing popularity of the Internet. DQE have adopted a low risk business co-production model with its revenues confirmed through pre-sales to broadcasters all over the globe and co-production partners. We are only developing and producing animated content of globally acclaimed and branded properties which has a ready market for exploitation.
Having established our credentials with large production houses as well as broadcasters all over the world as a quality producer and being rated as one of the top 15 studio globally in terms of production capacity, we are well placed to cash in on the opportunities of the growing media and entertainment space.
We have been capitalizing on the growth of the animation industry across the globe including India and expanding our footprint in entertainment segment and enlarge our client base in diverse geographical regions with continued focus on the production, coproduction and distribution of our own television content and feature films.
DQEs will continue monetization of its large portfolio of iconic brands viz., The Jungle Book, Robin Hood, Peter Pan, 5 & It, Wind in the Willows and so on through licensing and distribution opportunities .
We continue to create properties that have a global appeal and can be exploited from multiple media platforms such as movie screens, television, mobile, intranet, IP, web, publishing and merchandising.
The Company is again resurrecting itself from a very difficult phase of depression and is on the path of recovery and growth. Several new shows have been finalized and going into production. Our focus on improving operational efficiencies and the consolidation of artistic and technical skill sets continues, with productivity improvements being achieved across all processes of production. The production as well as distribution team has been working hard together to build on each others strengths in producing and distributing high quality content. We look forward to communicating with shareholders on the future success of the organization.
E. RISKS AND CONCERNS
Some of DQEs key risks and their corresponding mitigation strategy have been highlighted below
(i) Global economy risk
Since, DQEs more than 90% of the revenues are generated from global sales, it is exposed to various risks and uncertainties and also has access to opportunities through its global presence. The Groups performance, future prospects and cash flow generation could be materially impacted by any of these risks or opportunities.
DQE is at risk to newer and cheaper outsourcing destinations emerging, whereby the production houses may look for options to outsource their work at the least cost. Thus the the economic environment, pricing pressures, and decreased employee utilization rates could negatively impact our revenues and operating results.
Our revenues are highly dependent on clients primarily located in the North America and Europe. Any economic slowdown or other factors that affect the economic health of these countries may affect our business.
Foreign exchange rates fluctuations and variation in interest rates may affect the results of our operations.
DQE has been operating in volatile business environment for more than a decade and its business model has evolved to deal with changes in the business outlook of its clients. Global clients prefer outsourcing and India is a preferred destination for outsourcing because of its compelling value proposition across people and technology.
(ii) Regulatory risk
Any changes in political ideologies, government statutory legislation and policy can adversely impact the performance of the Company
DQE has operations in other countries as well. Any changes in local regulations of those countries can impact the profitability and growth of the Company.
DQE has been able to mitigate this risk quite well. DQE has a robust legal and secretarial team which has been complying with the required local regulations across multiple jurisdictions and till date the Company has not faced any compliance issues. Further, the animation sector is not excessively regularized and hence there is no threat in terms in such risk.
(iii) Competition risk
Animation companies including DQE have been operating under competitive environment for several years. The said risks has been largely mitigated on account of the business model adopted by DQE whereby the reliance on pure outsourcing work has considerably been reduced and the focus has been shifted to the development its own content and through co-production deals.
The Company has deep domain knowledge, skilled workforce, delivery capabilities and efficient sales force, and relationship managers to help retain its competitive position amongst peers.
DQE has received production work for animation and other content by some of the major media conglomerates such as Disney and other large European Studios. DQE aims to encompass more functions in the animation industry value chain through backward and forward integration to include pre- and post-production services, in addition to its traditional production services business. By integrating vertically, DQE can leverage its talent and expertise more effectively, lowering overall production costs and increasing profit margins.
(iv) Technological risk
Failure to access the newest technology or insufficient level of technology and poor/ inadequate internet infrastructure are the insecurity faced by Animation companies which leads to failure to complete the deliveries of projects within budget and on time.
DQE has developed & implemented ERP solutions for production management-production scheduling, technical break down & costing, production process management, production tracking management scheme & wage management, purchase & inventory pipeline management. This software ensures optimum utilization of all resources as a common pool, for different divisions at multiple locations in India. The ERP solution is DQEs proprietary software and is derived from programmes like PERT and CPM. It helps to handle complex Production Pipeline Management with ease.
DQEs content creation is managed via a proprietary production and tracking system that significantly improves resource optimization.
(v) Largely dependent on skilled force
Animation Industry is a highly manpower intensive industry requiring specialized skill sets. There are not many training schools in India offering such skill sets. DQE has set up its own School of Visual Arts (SVA) to mitigate this risk of the availability of skilled manpower. However it also faces the risk of poaching of its artists by other animation companies as DQ offers the best training at its SVA as well as on the job training.
F. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
The adequacy of the internal control systems in the Company, its compliance with operating systems, accounting procedures and policies at all locations of the Company is monitored by the Internal Audit team both internal and external. Based on the report, the Internal Audit function, process owners undertake corrective action in their respective areas and thereby strengthen the controls. Significant audit observations and corrective actions thereon are presented to the Audit Committee of the Board.
The Audit Committee also met the Companys Statutory Auditors to ascertain their views on financial statements, including the financial reporting system, compliance to accounting policies and procedures, the adequacy and effectiveness of the internal controls and systems followed by the Company. The Management acted upon the observations and suggestions of the Audit Committee.
DQE has policies, procedures, control frameworks and management systems in place that map into the definition of Internal Financial Controls as detailed in the Companies Act, 2013. These have been established at the entity and process levels and are designed to ensure compliance to internal control requirements, regulatory compliance and appropriate recording of financial and operational information.
Internal Financial Controls that encompass the policies, processes and monitoring systems for assessing and mitigating operational, financial and compliance risks and controls over related party transactions, substantially exist. The Board reviews and certifies the effectiveness of the internal control mechanism over financial reporting, adherence to the code of conduct and Companys policies for which they are responsible and also the compliance to established procedures relating to financial or commercial transactions.
The CEO & CFO certification provided in the CEO & CFO certification section of the Annual Report discusses the adequacy of internal control system and their adequacy.
DQE has been awarded with ISO Certification by Det Norske Veritas (DNV) under the Dutch Counsil for Accreditation (RVA). Since 2008, all our operating procedures are as per the ISO 9001:2008 and our systems were upgraded to ISO 9001: 2015 standards in 2017.
ISO Global Standards ensure that the products and services are process driven, reliable and of good quality. For business, they are the strategic tools that reduce costs by minimizing human errors and increasing productivity/efficiency. This is also helping our business development team to pitch in new projects.
Once in every quarter, internal audits are carried out by Core Process Improvement Group and an extensive & detailed external audit is being conducted by DNV once in every year.
The key objectives of ISO audit covers determination of the conformity of management systems with the standard. These audits also evaluate the effectiveness of the management system to ensure the organization is capable to meet applicable statutory, regulatory and contractual requirements, and achieve specified objectives.
G. CONSOLIDATED FINANCIALS-SEGMENTAL ANALYSIS
EQUITY AND LIABILITIES
I. Shareholder funds
a. Share Capital: The authorized share capital is Rs.800.00 million divided into 80,000,000 equity shares of Rs. 10/- each. The issued, subscribed and paid up equity share capital is Rs.792.83 million divided into 79,283,000 equity shares of face value Rs.10/- each as at March 31,2019. During the year there is no movement in share capital.
b. Other Equity: The other equity has increased from Rs. 276.52 million to Rs. 298.73 million, an increase of Rs.22.21 million. The increase is majorly on account Fair Value of Ireland Bond by Rs. 801.43 Million, Other Comprehensive income by Rs.5.69 Million. The increase is offset by decrease of Rs. 634.23 million due to re-measurement on post employment benefit obligation & Foreign Currency Translation reserve (FCTR) has decreased by Rs. 150.68 million.
II. Non-current Liabilities
a. Long term borrowings: The borrowings are classified based on its maturity period. Loans thata re due for repayment within one year from 31 March 2019 are classified under current liabilities as current maturity of long term borrowings and the balance are placed under long term borrowings. However owing to the pending application for restructuring of the borrowings, all the term loans have been classified as Non-Current. The total amount of long term borrowings include bonds and loans from banks to the tune of Rs. 3720.91 million as on 31st March, 2018 as against Rs. 5,172.22 million for the corresponding period in previous year.
i) Bank Borrowings :-
Decrease in bank borrowing by Rs. 1,032.05 Mn is mainly on account of reclassification of loan as long term from current liability due to pending application for restructuring of the borrowings.
Decrease during the year of Rs. 419.25 mn is mainly due to Fair value of Bond.
b. Other Long term liabilities: The non-current Employee benefit obligations have increased from Rs. 91.64 million to Rs. 93.62 million largely on account of restatement of Employee benefit obligations as per the actuarial valuation.
c. Other non-current liabilities consist of Rent Equalization Reserve created as per the requirements of Ind AS.
III. Current Liabilities
a. Short term borrowings: The short term borrowings are towards working capital needs as on 31st March 2019 and the outstanding amount stands at Rs. 876.81 million. There is a decrease from Rs. 958.01 million as on 31st March 2018 to Rs. 876.81 million as on 31st March, 2019 due to re-classification of into Long term loans.
b. Trade Payables: It mainly includes the Sundry creditors for services and expenses.
c. Other current liabilities: It majorly consists of Current maturity of long term debt of Rs. 1,047.65 million, Unearned revenue of Rs. 307.19 million, interest accrued of Rs. 260.29 million, statutory dues payable of Rs. 140.86 million, salary payable-Rs. 63.37 million.
Note: Post the balance sheet date, the Company has made a significant payment towards statutory dues. It has made a payment of iNr 5.23 million towards Provident Fund, INR 9.90 million towards TDS and INR 0.03 million towards GST.
d. Employee Benefit Obligations and Other Provisions -
It consists of current portion of employee benefits which includes gratuity and leave encashment and provision for retakes.
e. Current Tax Liability: It relates to the Tax liability of previous years net off the TDS receivable
I. Non-current Assets
a. Fixed Assets:
i. Property Plant and Equipment: It consist of Plant & Machinery, Office equipments, Furniture, Fixtures & Interiors, Vehicles and Leasehold improvements. The net block of tangible assets as on 31 March 2019 is Rs. 47.80 million as against Rs. 106.81 million in previous year. During the year, the Company added assets worth of Rs.6.69million and sold/written off of assets worth Rs.11.51 million.
ii. Intangible Assets: Intangible Assets: Intangible assets Gross block consists of distribution rights to the extent of Rs.5,533.76 million and computer software to the extent of Rs.37.52 million. During the year, the company capitalized intangible assets to the extent of Rs. 1,690.48 million. The net block of intangible assets is Rs. 3,362.04 million as against Rs. 2,353.01 million in previous year.
iii. Capital Work in Progress: The capital work in progress is towards land development and there is no movement in it during the current year.
iv. Intangible asset under construction: It consists of intangible assets in development/production. These assets once fully developed/produced, they shall be capitalized and then amortized. As on 31st March, 2019, Intangible assets under construction were to the tune of Rs. 2,857.27 million as against Rs. 4,279.28 million in the previous year.
b. Other Financial Assets: It consists of Security and other Collateral deposits of Rs. 44.27 million this year as against Rs. 42.99 million in the previous year.
c. Deferred Tax Asset: There is a deferred tax asset of Rs. 900.88 million as on 31st March, 2019 as against Rs. 857.90 million as on 31st March 2018. The increase in the deferred tax asset of Rs. 42.98 million is mainly due to increase in depreciation by Rs.37.90 million. Provision for doubtful debts of Rs. 18.11 million. The increase is offset by decrease in employee benefit obligations by Rs.13.03 million.
d. Other Non-Current Assets: It consists of claims receivable pertaining to CENVAT and GST.
II. Current Assets
a. Trade Receivables: All receivables are good and wherever required management has provided for provision for doubtful debts (trade receivables are net of provision for bad and doubtful debts). The Debtors as of 31st March 2019 stand at INR 198.04 mn. as against INR 307.94 mn for the previous year.
Note: Your Company has submitted its application for write off of debts worth USD 37 Mn. to its authorized dealer for onward submission to Reserve Bank of India. The Company is awaiting the approval for the same. The debtors mentioned above are after the effect of provision of write off of debt.
b. Cash and bank balances: Consists of balances with banks in current account & monies held in deposit against guarantees to customs authorities, Remittance in transit, Cash on hand. The balance as at 31st March, 2019 is Rs.38.93 million.
c. Other current assets: It consists of unbilled revenue of Rs. 281.47 million, which contains revenue pertaining to projects for which work is in progress, but invoice was not raised as the prescribed milestones as per the agreement were not achieved. It also includes loans and advances to employees and others and the current portion of prepaid expenses of Rs. 39.54 million, Insurance claim receivable of Rs 6.03 million, TDS receivable & others of Rs.16.52 million.
RESULT OF OPERATIONS
1. Segmental Analysis
Revenue and expenses directly attributable to segments are reported under each reportable primary segment.
The following table presents each segments revenue as a percentage of total revenue and each segments result i.e. operating profit (excluding unallocated expenses) as a percentage of total segment result.
|Rs. in million|
|Fiscal 2019||Fiscal 2018||Fiscal 2019||Fiscal 2018||Fiscal 2019||Fiscal 2018||Fiscal 2019||Fiscal 2018|
Rs. in millions
% of revenue
Rs. in millions
% of segmental results
|Interest and finance expense||467.56||866.52||-||-||467.56||(866.52)||-||-|
|Profit before tax||(667.44)||(368.53)||-||-||(667.44)||(368.53)||-||-|
In the year 2018-19, the revenues have increased by 22% to Rs.977.50 million from Rs. 801.50 million in financial year 2017-18.
Animation revenue has decreased by 10% from Rs. 615.81 million in 2017-18 to Rs.553.19 million in 2018-19 and distribution revenue has increased by 128 % from Rs.185.69 million in 2017-18 to Rs.424.31 million in 2018-19.
Production expenses: Production expenses have decreased from Rs.33.00 million in financial year 2017-18 to Rs. 26.24 million in the financial year 2018-19. The decrease is mainly on account of reduction in projects outsourced to third parties during the year.
4. Personnel Costs: The breakup of personnel costs is as follows:
Rs. in million
|Personnel Costs||31 March 2019||
31 March 2018
|Salaries and wages||455.84||
|Contribution to provident fund||26.90||
|Staff welfare expenses||
5. Administrative and Other Expenses:
Primarily consist of Professional and consultancy charges, Repairs and Maintenance, Rates and taxes, Auditors remuneration, Selling and distribution expenses, Directors remuneration, Travelling and conveyance expenses etc. There is an increase of Rs. 353.35 mn in administration and other expenses during the year which is mainly on account of Foreign exchange loss by Rs.302.17 million, Bad debts written off by Rs.2.46 million.
6. Interest and Financial Charges:
Consist of bank charges and Interest on borrowings which include bonds, term loans and working capital. The decrease in interest and financial charges by Rs.398.96 mn is on account of Fair value of Bond in lieu of the interest, decrease in interest on delay in payment of statutory dues by Rs.68.52 Million. The decrease is offset by increase in cash credit limits and interest on MSME creditors.
7. Depreciation and Amortization:
Rs. in million
|Depreciation and Amortization||31-Mar-19||31-Mar-18|
The increase in depreciation on tangible assets & amortization is mainly due to asset additions during the current year. During the year ended 31 March 2018, Rs. 153.36 million is the impairment charge in intangible assets as against Rs.202.54 million in previous years. The remaining increase is on account of amortization of intangible assets.
8. Profit before interest, depreciation and tax ("PBIDT")
The PBIDT for the year under review stands at Rs. 848.20 million as compared to Rs.341.01 million in the previous year. PBIDT as a 87% of total revenue has increased from 43% in the previous year to 87 % for the current year ended 31 March, 2019. The increase in PBIDT is mainly due to decrease in production expenses and owing to an increase in the capitalized expenses.
9. Profit after tax:
During the year there is a loss after tax of Rs. (634.23) million as against a loss of Rs. (148.39) million in 2017-18. The loss during the year is on account of reasons quoted as above.
Disclosure of Accounting Treatment:
In the preparation of financial statements, no treatment different from that prescribed in the Indian Accounting Standards has been followed.
The Group has adopted the Indian Accounting Standards (Ind AS) from April 1 , 2017 and these financials have been prepared in accordance with the Indian Accounting Standards (Ind-AS) under section 133 of the Companies Act 2013 read with relevant rules issued thereunder. The date of transition to Ind AS is April 1, 2016. The impact of transition has been accounted for in opening reserves and the comparative period results have been restated accordingly.
H. HUMAN RESOURCES
Please refer to the HR Section of the Annual Report for a detailed discussion on human resources.
NOTE: Statements in this Management Discussion and Analysis of Financial Condition and Results of Operations of the Company describing the Companys objectives, expectations or predictions may be forward looking within the meaning of applicable securities laws and regulations. Forward looking statements are based on certain assumptions and expectations of future events.
HUMAN RESOURCES AT DQE
HR @ DQE
In the modern service and information economies, people are the most valuable assets. Hence, Human Resources have taken an increasingly front-line strategic function and it is now as important as other functions like Finance, Sales and Operations.
The role of HR has evolved drastically over time. The face of the function had a shift from "Personnel" to "Human Resource" to "Strategic Human Resource" and employees are acknowledged as assets of the organization.
The key element of our HR strategy is to balance this positive shift, aligning HR strategy with business strategy and thus creating more value addition towards talent retention, Organizational culture, Associate Engagement and Leadership & Development.
We strongly believe, our Associates are integral part of our business and understanding the Human Resource function is essential to manage them. Business plans, strategies and their implementation are dependent on how we discover and develop better people practices.
The focus of HR @ DQE is to bring in lot of this transformational change and to create business value through strategic workforce management.
Throughout the year, our team of professionals provided support, guidance and advice to the delivery teams on their talent needs. We help them on-board & position the right candidate.
Internal movements through IJP (Internal Job Posting) play a vital role for DQE in retaining expertise, experience and talent by enabling Associates to pursue individual career goals. It contributes to operational stability and business performance as well as helping to mitigate succession risk.
Our Talent Acquisition team continues to work on a balanced approach to attract talent from both in-house (IJP & School of Visual Arts) & external sources to fill the open positions. At times, we go for external hiring due to increased business demand & expansion.
INITIATIVES & ACCOMPLISHMENTS:
TAPAAS AWARD: To reward the creative excellence, to motivate and to encourage a productive/competitive work culture, DQE has started honoring the Associates with "TAPAAS AWARD".
Once in six months, the Project Manager along with the Creative Director of the concerned project identifies & nominates the best performing and most eligible Artists who would fit into the criterias such as productivity, quality of work, pipeline improvements, research & development etc. Other behavioral criterias for nomination would be commitment towards work, good team management skills & proactive team player.
All the recommendations are judiciously reviewed by a Review Committee comprising of Cross Functional Head of the Departments and HR and select the winners. In its maiden ceremony, we have recognized and awarded 13 Associates who received this honor directly from our CEO & CMD Mr Tapaas Chakravarti.
VICTORY WALL: DQE has initiated the unique concept known as "Victory Wall. Basis of this initiative is to appreciate the Artists who demonstrated exemplary/out of the way performance while executing a task.
Every month from all the department across all the divisions in DQE, the supervisors from their respective teams will nominate the best performer for the month. The criterias would be like productivity, quality, creativity, pipeline set up, working hours and attendance of an Artist will be chosen to display his/her name up on the Victory Wall as a token of appreciation and recognition. Last year 64 Associates across functions were recognized.
Associates are the key partners of our Organizational success. And, our success is not only measured by margins & profits but also by the state of well-being of our Associates. We do a lot of welfare activities throughout the year to keep our workforce happy & healthy.
Dental camp conducted by Ameerpet Dental Hospitals at DLF, Hyderabad:
A team of qualified Dentists & Para Medical Staff extended their services. The team have conducted General Dental Check-ups for around 200 Associates and provided Medical Counseling.
Eye Screening Camp conducted by Dr. Agarwals Eye Hospitals at DLF, Hyderabad:
Doctors & Para Medical Staff with Eye Care equipment such as Computerized Eye Testing machine and Manual Eye testing machine from Dr. Agarwals Eye Hospitals were brought and extended their services to all our Associates. A day long camp has helped around 350 Associates with complete eye checkup and medial counseling. We have also distributed 1000 nos. Free Family Vision checkup cards which can be utilized along with their respective family members.
Ergonomics Consultation Camp by Sunshine Hospitals at DLF, Hyderabad:
Ergonomics specialist Doctors were invited to visit our organization at DLF Location for Free Consultation. Doctors showed the exercises for Low back pain, Shoulder Pain, Knee & Leg Pain and Neck Pain during one-on-one consultations. As a group session, Doctors showed all the exercises and taught the employees how to prevent or get a relief from the pains caused due to long sitting posture and stress relief exercises. Around 140 Associates achieved long-term health benefits.
FUN @ WORK (ASSOCIATE ENGAGEMENT ACTIVITIES):
Having fun is one way of effectively managing and improving Associates emotions. It also helps in improving teamwork, build trusting relationships and increase talent retention.
As humans, we need little fun to cope up with the daily stress that we face. At the end of the day it is all about ONETHING-the Organization culture that you want to create by having healthy engagement across all levels.
INTERNATIONAL SYSTEM ADMINISTRATORS APPRECIATION DAY
INDEPENDENCE DAY CELEBRATIONS
GANESH CHATURTHI CELEBRATIONS
DIWALI CELEBRATIONS & ETHNIC WEAR CONTEST
CYKUL FREEDOM RIDE AT GACHIBOWLI STADIUM, HYDERABAD
SCHOOL OF VISUAL ARTS (SVA) & WEBEL:
SVA-Hyderabad: Nurturing the future talent has always been DQEs area of interest. Students who complete 12 months intensive in-house training will be called for a technical test and personal interview round. Students who clear all rounds will be declared as passed. Around 20 students from I7th& 18th batch were placed into various departments during last year.
Webel DQE Animation Academy: In association with Govt. of West Bengal, DQE has expanded its training arm in Kolkata to create a highly skilled talent pool. The learning center is not just to fulfill DQEs business needs but also to provide skilled manpower to the increasing demand in the market.
We as a knowledge partner have prepared the course curriculum aligned & updated with the fast changing technologies, concepts, values and environment etc. The training institute is up and running with multiple batches.
CSR (DQ SMILE FOUNDATION):
DQ Smile Foundation is a non-profit initiative of DQ Entertainment (International) Limited, Hyderabad. DQ Smile Foundation has been instrumental in carrying out two pioneering programs in government schools across Hyderabad since past 10 years:
Right Parenting Skills Workshops: Will bring awareness to the parents to focus on importance of "Right Parent Behavior and Responsibility" towards their ward, which makes a huge impact on child development and life cycle. Each workshop will have 5 sessions conducted by a Qualified Psychologist over a span of 5 months. In the financial year 2018-2019, we were successful in conducting this workshop at various government schools in & around Hyderabad. Nearly, 200 parents were benefited through this workshop.
Balika Suraksha workshops: This is an exclusive program aimed at bringing awareness among the girl students in Government schools. Through this program, we have created awareness on sexual exploitation and abuse, educated the girls on the ways and means to avoid this kind of exploitation. More than 500 girl students in & around Hyderabad have benefited through these workshops.
DQ SMILE FOUNDATION I0TH ANNIVERSARY CELEBRATIONS-20TH DECEMBER 2018:
DQE Smile Foundation celebrated its 10th Anniversary, on this occasion Chief Guest Shri Jayesh Ranjan, (Principle Secretary, Information Technology, Electronics & Communications Department, Government of Telangana) presided over the function.
DQ Smile Foundation felicitated 4 Teachers for being the best teachers in their respective schools who actively participated and supported in Right Parenting Skills workshops. Also Felicitated 4 Parents-for improving their Parenting Skills and making the right impact in their childs life after attending all the sessions, which was evaluated by DQSF.
All the recipients were honoured with personal citation and a gift, which were handed over to them by Shri Jayesh Ranjan, Chief Guest.