Fame India Ltd Merged Directors Report

FAME INDIA LIMITED ANNUAL REPORT 2011-2012 DIRECTORS REPORT To, The Members, Fame India Limited Your Directors are pleased to present the Thirteenth Annual Report and the Audited Statement of Accounts of the Company for the year ended 31st March 2012. FINANCIAL RESULTS: (Rs.In Lacs) Particulars For the year ended 31st March 2012 31st March 2011 Revenue from Operations and Other Income 22,091.79 18,443.69 Profit Before Interest, Depreciation and Tax (PBIDT) 1,421.05 2,528.23 Less: Interest 853.47 683.04 Less: Depreciation 1,681.05 1,709.74 (Loss) before Tax (PBT) (1,113.47) 135.46 Provision for taxation - (63.35) (Loss) after Tax (PAT) (1,113.47) 198.81 Add: Profit brought forward from previous year 569.34 370.53 Balance carried forwarded to Balance Sheet (544.13) 569.34 BUSINESS OVERVIEW During the year under review, your Company has achieved an operational and other income of Rs. 22,091.79 lacs. The Company has posted a net loss of Rs. 1,113.47 lacs during the year as compared to a net profit of Rs. 198.81 lacs in the previous year. During the year profitability was adversely affected mainly on account of loss due to foreign exchange fluctuation of Rs. 448.16 incurred on redemption of FCCB and provision of Service Tax Liability for Rs. 1,116.90 Lacs discussed in detail hereinafter. SERVICE TAX PROVISION Finance Act 2010 defined renting of immovable property as a taxable service with retrospective effect from 1st June 2007. The company challenged the levy of service tax on renting of immovable property (Levy) before various High Courts, which had granted an interim stay in favour of the Company against the proposed Levy. Based on the legal advice obtained by the Company, no provision for this Levy was made by the Company in earlier years. This levy was upheld by various High Courts during the current year. The Company has filed a Special Leave Petition before the Honble Supreme Court which is pending and is making payment as per directions of the Honble Supreme Court. Accordingly, the Company has provided for this levy and an amount of Rs.309.07 lakhs being the charge for the current year is included in Service tax and the amount of Rs. 807.83 lakhs being the charge for the period upto 31st March 2011 is shown as an exceptional item in the Statement of Profit and Loss. Please refer note no. 31 of the Notes to Accounts in this regards. NEW PROPERTIES: During the year 2 Multiplex were opened in Chennai and Kolkata. With this, the total number of operational properties of the Company now stands at 27 with 102 screens and seating capacity of 28,518 seats. DIVIDEND In view of net losses for the year, the directors do not recommend any dividend for the year ended 31st March 2012. SUBSIDIARIES During the year, the Company has acquired further shareholding of Headstrong Films Private Limited and now it has become a subsidiary of the Company. Besides this, the Company has two more subsidiaries, namely Fame Motion Pictures Limited and Big Pictures Hospitality Services Private Limited. Fame Motion Pictures Limited is mainly engaged in distribution of films. Big Pictures Hospitality Services Private Limited is engaged in the business of operating food court and restaurants in India and Headstrong Films Private Limited is engaged in the business of film production and distribution in India. During the year, there are no business activities in these two companies. However, the Management is re-assessing the business feasibility and is exploring new initiatives/projects. The Ministry of Corporate Affairs, New Delhi has issued a General Circular No: 2/2011 dated 8th February 2011 (said Circular) granting general exemption from complying with the provisions of Section 212 and the General Exemption is subject to certain conditions which inter alia requires the Board of Directors of the Company to give consent, by passing a Board Resolution, for not attaching the Balance Sheet of the subsidiary/ies concerned. Accordingly, your Directors have passed necessary Board Resolution to avail the above general exemption. The Consolidated Financial Statements of holding company and all the subsidiaries, prepared in strict compliance with applicable accounting standards and Listing Agreement as prescribed by the Securities and Exchange Board of India (SEBI) and duly audited by Statutory Auditors of the Company have been presented in the Annual Report along with the prescribed Financial Information in respect of the subsidiary companies. The Company will make available the Annual Accounts of the subsidiary companies and the related detailed information to the Members of the Company as well as Members of subsidiary companies who may be interested in obtaining the same at any point of time. The Annual Accounts of the subsidiary companies will also be kept open for inspection at the Registered Office of the Company as well as that of the respective subsidiary companies. Hard copy of details of accounts of subsidiaries shall be made available to the Members on demand. TRANSFER OF AMOUNT TO INVESTOR EDUCATION AND PROTECTION FUND Pursuant to the provisions of Section 205C(2)(b) of the Companies Act, 1956, an amount of application money of Rs. 0.46 Lacs received during the Initial Public Offer made in 2005 and remained unclaimed for a period of 7 years have been transferred by the Company to the Investor Education and Protection Fund. DIRECTORS Mr. Pavan Kumar Jain and Mr. Kishore Biyani, Directors of the Company retire by rotation at the ensuing Annual General Meeting and being eligible, offer themselves for re-appointment. A brief resume of the Directors being proposed to be appointed/re-appointed as stipulated under Clause 49 of the Listing Agreement with the Stock Exchanges is stated separately in the notice convening the Annual General Meeting. ISSUE OF SHARES Employee Stock Option Scheme - 2009 During the current financial year, in accordance with the terms and conditions of the Employees Stock Option Scheme 2009, the options vested in the second year were exercised and 36,603 equity shares of the face value of Rs. 10 each were allotted to the eligible employees of the Company. The applicable disclosures as stipulated under SEBI (Employee Stock Option Scheme & Employee Stock Purchase Scheme) Guidelines, 1999, is provided as Annexure-I, forming part of this report. The Company has received certificate from Auditors of Company confirming that scheme has been implemented in accordance with SEBI Guidelines and resolution passed by Shareholders. Auditors certificate would be placed at Annual General Meeting for inspection by members. Rights Issue Through the Letter of Offer dated 30th January 2012, the Company made a Rights Issue of 20,290,508 equity shares with a face value of Rs. 10 each at a premium of Rs. 34 per equity share. The Rights Issue was opened for subscription on 7th February 2012 and was closed on 21st February 2012. Allotment of 20,290,508 equity shares were made on 2nd March 2012. Details of utilization of Rights Issue Proceeds (Rs. In Lacs) Particulars Proposed Utilised Balance Utilisation upto 31st Fund March 2012 Repayment of Loan 7,000.00 7,000.00 0.00 Issue Expenses 180.04 171.24 8.80 General Corporate Purpose 1,747.78 0.00 1,747.78 Total 8,927.82 7,171.24 1,756.58* * Temporarily invested in liquid mutal funds. APPOINTMENT OF MANAGER UNDER SECTION 269 OF THE COMPANIES ACT, 1956 During the year, Mr. Rajeev Patni was appointed as Manager of the Company pursuant to the provisions of Section 269 of the Companies Act, 1956, subject to the approval of the shareholders in the ensuing Annual General Meeting. REDEMPTION OF OUTSTANDING FCCB During the year, the outstanding Series A Bond and Series B Bond aggregating US $ 13,000,000 were redeemed at 82% of the redemption value. On redemption of such bonds, the Company made full and final settlement of its liabilities and obligations in respect of the outstanding bonds. DIRECTORS RESPONSIBILITY STATEMENT Your Directors make the following statement pursuant to Section 217(2AA) of the Companies Act, 1956: (i) That in the preparation of the Annual Accounts, the applicable Accounting Standards have been followed; (ii) That the Board of Directors have selected such accounting policies and applied them consistently, and made judgments and estimates that were reasonable and prudent so as to give the true and fair view of the state of affairs of the Company as at 31st March 2012, and the loss of the Company for the said financial year; (iii) That the Board of Directors have 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 Board of Directors have prepared the annual accounts on a going concern basis and on an accrual basis. AUDITORS M/s. Patankar & Associates (Firm Registration No. 107628W), Chartered Accountants, Auditors of the Company will retire from the office of the Auditors at the conclusion of the forthcoming Annual General Meeting and are eligible for re-appointment. They have furnished a certificate of their eligibility for appointment under Section 224(IB) of the Companies Act, 1956 and they are not disqualified under provisions of Section 226(3)(e) of the said Act. AUDITORS REPORT The Auditors Report to the Shareholders does not contain any qualifications. The notes forming part of the accounts are self-explanatory and do not call for any further clarifications under Section 217(3) of the Companies Act, 1956. LISTING FEES The Company confirms that the Annual Listing Fees due to BSE Limited and National Stock Exchange of India Ltd., Mumbai for the Financial Year 2012- 13 have been paid. CORPORATE GOVERNANCE In accordance with Clause 49 of the Listing Agreement with Stock Exchanges, your Company has ensured continued compliance of Corporate Governance requirements during the financial year ended 31st March 2012 and a Management Discussion and Analysis, Corporate Governance Report and a Certificate from the Statutory Auditors on compliance of conditions of Corporate Governance are forming part of the Annual Report. In compliance with the requirements of clause 49(V), a certificate from Manager and as Head of Finance is forming part of Corporate Governance Report. All the Board Members and senior Management Personnel of the Company had affirmed compliance with the Code of Conduct for the Board and a declaration to this effect duly signed by the Manager of the Company is forming part of Corporate Governance Report. INTERNAL CONTROL SYSTEM AND ITS ADEQUACY Your Company has adequate Internal Control System to ensure safeguarding of assets against unauthorized use and to ensure that all transactions are duly authorized, recorded and reported correctly. The Company has an Internal Audit System carried out periodically. FIXED DEPOSITS During the year, your Company has not invited nor accepted/renewed deposits from the public within the meaning of Section 58A, 58AA and other relevant provisions of the Companies Act, 1956, if any. PARTICULARS OF EMPLOYEES There are no employees who have been paid salary in excess of the limit stipulated under provisions of Section 217(2A) of the Companies Act, 1956. Hence, no separate disclosure is made by the Company in this regard. CONSERVATION OF ENERGY Your Company has taken the following energy conservation measures: * Power factor is being maintained with the use of capacitor banks and Auto power factor correction meter. These banks are used to neutralize the inductive current by providing capacitive current. As a result, a power factor improves and the Company gets rebate as may be applicable on energy bills from Electricity Distribution Companies. The overall current consumption from the equipment also reduces which leads to increase life cycle of the equipments like Motors and heaters. * Successfully installed Variable Frequency Drive (VFD) for Audi AHU motors in Multiplex Cinema theatres situated at Malad, Kandivali -Raghuleela, Vashi, Kalyan, Bangalore - Prestige, Kolkata - South City, Kolkata - Hiland Park & Panchkula, which helps us to control the speed of Aircon motor as per the temperature and the occupancy. It helps to optimize energy consumption for Air conditioning system. * All operational units have implemented Planned Preventive Maintenance (PPM) program where the schedule for all the engineering and projection equipments are chalked out in advance with the PPM chart. A benefit of the PPM program is to improve the efficiency of the machines and minimizing breakdowns. As a part of PPM program the air conditioning system was overhauled and chemical dosing was used to recover the loss of ageing and reduced capacity. As a result, the electrical current required for getting the desired result has reduced. * All the new fittings are with CFL or energy a saver, which uses less electrical power as compared to incandescent lamps. Replaced 50 watt Halogen lamps with 3 watt/9watt LED lamps in Malad property. * Emphasizing on CFL and LED lamps in existing units and upcoming project. * Installed digital projectors at Malad, Andheri, Vashi, Pune - FNS, Kolkata - South City, Bangalore - Lido & Shankarnag. This consumes 20% less amount of energy compared with conventional projection system. Upcoming properties are equipped with 80% digital projection system. * LED based outdoor signage has been installed at Multiplex Cinema Theatre situated at Panchkula. TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION Our business is such that there is not much scope for new technology absorption, adaptation and innovation. Your Company continues to use latest technologies for improving the productivity and quality of its services and products, wherever possible. FOREIGN EXCHANGE EARNINGS AND OUTGO: (Rs. In Lacs) 2011-2012 2010-2011 Foreign Exchange Earned - - Foreign Exchange Used (*Includes Rs. 7,058.48 Lacs towards repayment of FCCB with *7,113.50 56.26 Interest/YTM) EMPLOYEE RELATIONS: Employee Relations continued to be cordial throughout the year. The Directors appreciate the efforts put in by the employees at all the levels. ACKNOWLEDGEMENT: The Board of Directors of your Company place on record their gratitude and would like to thank Shareholders, Bankers, Financial Institutions, Customers, Dealers and Suppliers for their valuable support and co- operation. For and on behalf of the Board Pavan Kumar Jain Deepak Asher Director Director Place: Mumbai Date : 24th May 2012 ANNEXURE TO THE DIRECTORS REPORT Disclosure pursuant the provisions of Securities and Exchange Board of India (Employees Stock Option Scheme and Employees Stock Purchase Scheme) Guidelines, 1999 as at 31st March 2012 Particulars 2011-12 A Options granted NIL B The price formula/Exercise Price Rs. 14.47 C Options vested 37,989 D Options exercised 36,603 E The total number of shares arising as a result of exercise of option 36,603 F Options lapsed 132,261 G Variation of terms of options NOT APPLICABLE H Money realized by exercise of option Rs. 5.30 Lacs I Total number of options in force 104,916 J Employee-wise details of options granted to i. Senior managerial personal Nil ii. Any other employee who receives a grant in any one year of option amounting to 5% or more of option Nil granted during that year iii. Identified employees who were Nil granted option, during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the company at the time of grant K Diluted Earnings Per Share (EPS) (as on 31st March, 2012) Rs. (3.00) pursuant to issue of shares on exercise of option calculated in accordance with (AS) 20 Earnings per Share L If employee compensation cost calculated using intrinsic value Difference in ECC: Nil of the stock options, difference between ECC so computed and ECC shall have been recognized if it had used the fair value of the options. Impact of the difference on the Profit: Nil Impact of this difference on profits and on EPS of the company Impact on EPS: Nil M For options whose exercise price either equals or exceeds or is less than the market price of the stock, disclose weighted-average exercise prices and weighted-average fair values of options separately Weighted Weighted average Average Exercise Fair Value Price Exercise price Rs. 14.47 Rs. 9.32 equals market price Exercise price Nil Nil exceeds market price Exercise price Nil Nil is less than the market price N Method and significant assumptions used during the year to estimate fair values of options, including following weighted-average info- i. risk-free interest rate Not Applicable ii. expected life Not Applicable iii. expected volatility Not Applicable iv. expected dividends, and Not Applicable v. the price of the underlying share in market at the time of Not Applicable option grant MANAGEMENT DISCUSSION AND ANALYSIS INDUSTRY STRUCTURE AND DEVELOPMENTS The film exhibition business and the domestic box office is expanding at a fast pace and is exhibiting positive growth. The industry is projected to grow at a Compound Average Growth Rate (CAGR) of 10.1%* to touch Rs. 150 billion in 2016. The industry expects domestic theatrical revenues to continue dominating the overall pie. It is also worthy to mention here multiplexes account for 50% of the Indian theatrical revenues, despite having less than 15% market share in terms of screen count. With multiplex chains charting out an aggressive expansion roadmap, increasing digitalization of screens enabling wider film print releases, experimentation with different content, increasing popularity of regional film segment and arrest of piracy, are some of the major drivers of growth, riding on which, the industry is expected to be follow a strong growth path. OPPORTUNITIES: Multiplexes have been successful in bringing the audience back to cinema theatres, and are the preferred out-of-home choice of entertainment for the Indian consumer. The option of choosing from 9-10 titles a day was unheard of decade back. Temperature controlled auditoriums, luxurious recliner seats, state-of-art sound and projection systems - in addition to a variety of lip-smacking snacks, made going to the movies very chic, hip and fashionable. People additionally felt much safer in multiplexes considering the safety precautions undertaken. 2011 witnessed significant capacity expansion by multiplex chains, including Fame India Ltd. Urbanization and growing middle class, under- screened market and better viewing experiences have fuelled this growth. The industry is expected to double the multiplex screens over the next five years taking the total tally to over 2,200 screens in 2016. An increased number of shows on account of reduction in film duration combined with growth in properties and quality of film-going experience continues to drive overall footfalls at multiplexes as evidenced by improved occupancy rates in 2011. In addition, the contribution of regional cinema to multiplex chains has continued to increase. With 3D films getting much more prevalent in Hindi film industry, besides Hollywood, multiplexes have been able to increase their ticket prices for the high-end 3D technology - thereby providing an improved viewing experience. Cinema Exhibition Business is undergoing a tremendous technological change as Theatre Owners are now converting their current projectors with high-end Digital Projectors or Digital Cinema. Digital Cinema refers to use of Digital Technology to capture, distribute and project motion pictures. Use of this technology will allow distribution of movie via hard drives, optical disks or satellite and projected using a digital projector. FAME too has initiated the process of converting its current projectors with high-end Digital Projectors or Digital Cinema. This will help in savings of print costs, wide release of Film, durability of Media, curb on piracy, etc. The industry has witnessed a marked improvement in transparency of ticket sales over the years. Systems and processes introduced by multiplex chains in addition to digitization of theatres is the key contributor. This has not only helped film makers and distributors; it has also given a boost to cinema advertising. Advertisers now have better access to occupancy rates and film revenues. The market has grown at a healthy 18%* in 2011to reach Rs. 140 Crores. It must be mentioned here that there has been a lot of investment made in the infrastructure facilities with new film cities offering one-stop shop for making films. From shooting floors, post and pre production facilities to film processing lab, these facilities are expected to increase efficiency in production in less time. THREATS/RISKS/CONCERNS: The shelf-life of movies in theatres has seen a steady decline. The growing popularity of alternate distribution platforms like DTH, satellite television and the launch of 3G enabled mobile handsets are a potential threat to theatrical exhibition. It has been observed that films chasing particular release date and time of the year are resulting in some kind of a trend thereby eating up the market. Although this trend has declined considerably with many big-banner movies releasing during IPL and during the month of Ramzan, there is still an apprehension amongst film-makers to release their movies during these gaps - and focusing on Eid, Diwali, Christmas releases. Piracy continues to be a major concern for the film industry. Technological advancements such as digitalization of film content and delivery should help arrest piracy to a great extent. Controlled ticket rates in some of the states and high entertainment taxes make it difficult to keep pace with increasing rentals. Allowing markets to determine the ticket rates would provide more flexibility to the exhibitors. SEGMENT WISE ANALYSIS (CONSOLIDATED): The business of the Group is divided into two segments, theatrical exhibition and film distribution. Upto last year, theatrical exhibition and management of multiplexes were classified as separate business segments. During the current year, the management has reviewed the classification and in view of similar risks and rewards in the same, they are considered as single business segment. During 2011-12, segment revenue from theatrical exhibition amounted to Rs.227.15 crores and the loss from the segment amounted to Rs. 0.81 crore. The segment result was impacted due to the exceptional expenditure on account of prior years service tax on renting of immovable properties amounting to Rs. 8.24 crores, which was accounted during the year. Segment revenue from distribution amounted to Rs. 0.52 crore. However, a loss of Rs. 0.05 crore was incurred in this segment. MULTIPLEXES/FILM EXHIBITION: Total revenue from theatrical exhibition segment during the financial year ended 31st March 2012 amounted to Rs. 22,888.83 Lacs. The loss from this Segment was Rs. 81.19 Lacs for the financial year ended 31st March 2012. The increase in total revenue from this segment is attributed to commencement of operations of new property at Chennai and improved occupancy and ATP of the properties across the country. As on date, the Company has 27 multiplexes, 102 screens in 13 cities across India. With the additions of a number of 3D screens across the country, your company today has 3D screens in Mumbai, Baroda, Chennai, Nashik, Aurangabad, Pune, Bangalore, Kolkata, Dhanbad, Anand, and Surat which has also contributed to the increase in total revenue. OTHER SEGMENTS: Total revenue from Other Segments viz. film distribution, during the financial year ended 31st March 2012 was Rs. 52.11 lacs. However, the Company suffered a loss to the tune of Rs. 4.89 lacs in this segment for the financial year ended 31st March 2012. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY: The Company has an adequate system of internal controls commensurate with its size and nature of operations to provide reasonable assurance that all assets are safeguarded, transactions are authorized, recorded and reported properly and applicable statues, codes of conducts and corporate policies are duly complied with. The Audit Committee reviews the reports submitted by the Internal Auditors and monitors follow-up and corrective action by Management. DISCUSSION OF FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE: The Companys financial performance is discussed under the head Financial Results in Directors Report to the Members. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES: A. RECRUITMENT & SELECTION We develop and maintain our talent pool by recruiting from diverse service sectors like Hotels, Entertainment, Retail, Engineering, Aviation, Media and Management Colleges. Our professional and successful management team is drawn from the above backgrounds. The Current employee strength including on rolls and Contractual is around 1650. B. TRAINING & DEVELOPMENT Our employees continue to be our most valuable assets. We thrive upon our Systems and Service oriented work culture to achieve and maintain consistently high service standards. Our constructive and progressive management style enables us to attract and retain the best talent in the industry. Thus, we continuously maintain a strategic competitive advantage for sustaining long term business objectives. * Digital Dawn - The metamorphosis begins - FICCI-KPMG Indian Media and Entertainment Industry Report 2012.