Prime Focus Ltd Management Discussions.

Section 1

Company Profile

Prime Focus Limited (PFL, hereafter referred to as the Company) is a world renowned independent and integrated media services provider. The Company provides end-to-end creative services (visual effects, stereo 3D conversion and animation), technology products & services (CLEAR, Media ERP Suite and Cloud-enabled media services) and production & post production services (DI, colour grading, equipment rental, digital intermediate, picture post) to the media and entertainment industry. With a team of over 10,000+ professionals, PFLs operations are spread across 18 cities in 5 continents covering seven time zones.

With more than two decades of rich experience, the Company has established its strong foothold and leadership in the Media and Entertainment (M&E) industry globally. The Companys technologies include View-D™ (stereoscopic 2D to 3D conversion), CLEAR™ (Hybrid Cloud technology-enabled Media ERP Suite) and Primetime Emmy award winning DAX Digital Dailies. Prime Focus global delivery model offers a significant competitive edge over its competitors through which it is able to deliver the most premium services globally at an unmatched scale and timelines and at the same time ensuring pricing efficiencies for its customers.. Over the years, the group has developed significant in house technological capabilities and tools which helps them to manage the workflows seamlessly across its global locations. PFL has partnered with professional content creators at every stage of the process, ensuring creative enablement along with maintaining highest quality, workflow efficiencies and cost optimization. The Companys strong global network enables it to extract location specific benefits and offer most efficient pricing and fastest time to market.

Its major clients include all leading Hollywood studios, OTT players, broadcasters, advertisers, production houses and media companies across the globe. The Company derives more than 86% of its revenue from Hollywood, with leading Hollywood studios like Disney, Warner Bros, Marvel, Paramount, 20th Century Fox, Universal, Neflix, Apple+, Disney+ and Sony contributing to the biggest share of the revenues.

PFLs subsidiaries Prime Focus Technologies (Global Cloud Technology Business) and DNEG (International Creative Services) provide end-to- end services viz. creative services, technology product and services and high end production services. After the acquisition of Double Negative in July 2014, it has become one of the largest independent VFX service providers in the world. The Company continues to be recognized globally as one of the leading Tier-1 player in the highly fragmented VFX industry. DNEG was also privileged with its 4th coveted Oscar in last 5 years for their work on First-Man, and continues to win various awards globally for its premium work across several leading OTT shows and film projects.

Section 2

Financial Year 2019-20 Key Highlights

Financial Year 2019-20 - Robust Performance led by creative services

The Company during the year under review continues to deliver strong financial and operational performance. Significant investments in people and infrastructure were made well ahead of time to cater to the burgeoning visible contracted and confirmed orders. The relentless efforts by the Company are validated both by enhanced profitability and recognition by the industry through awards and accolades. The year saw robust growth of 15% in revenues and continues to see improvement in operational efficiencies leading to steady Adjusted EBITDA Margin1 of 21%.

The Company continued to attract marquee clientele and worked on the biggest blockbusters & Hollywood film franchises for the year as well top OTT series during the year. PFL opened a new Digital Intermediate (DI) facility at Andheri, Mumbai. The Companys combined order book continues to be robust led by strong macro tailwinds in creative services - both in international and domestic markets.

Creative Services

• Delivered Hollywood blockbusters like Avengers: End Game (Global G.B.O. collections US$ 2.7 billion), Hobbs and Shaw, Rim of the World (Netflix), Togo (Disney+), Godzilla: Kings of the Monsters (global G.B.O. collections US$ 387 million), and Men in Black: International (global G.B.O. collections US$ 254 million) etc.

• Worked on TV projects like The New Pope , Doctor Who, Black Mirror, The Dark Crystal: Age of Resistance, Black Mirror S 5, The Boys, West world- Season 3, and the latest big budget mini-series, Chernoby

• Continues to focus on upscaling and upskilling Indian artists to enhance margin profile

• Strong execution of VFX projects and continued broad basing in revenues with higher share coming from OTT / TV and Feature Animation

• Widening revenue base from new age OTT / content studios and new geographies

• Continue to have a robust Order book with high visibility.

After adoption of new lease standard IND AS 116 and excludes non-cash employee stock option expense

• Continued on its profitable growth path with Adjusted EBITDA 1 growing at a robust pace year on year with healthy Adjusted EBITDA margins at 20+%

• DNEG won Evening Standard Business Awards 2019.

Tech/Tech-Enabled Services business

• Introduced powerful functionalities in CLEAR™ Media ERP. CLEAR, known for its interoperability, has been further expanded to support 11 more partner products in thistle latest release.

• Rebranded DAX Production Cloud to CLEAR Production Cloud, with a host of new features that revolutionize the post production processes

• Introduced CLEAR Vision Cloud, a Media Recognition AI platform that offers technology and bespoke strategic consulting to make AI work for the Companys customers

• New hires across Leadership and re-engineered business plans to reboot the business

• Signed a strategic deal with UKs public service broadcaster, Channel 4 for managing media processing and centralized content operations using its flagship product, CLEAR™ Media ERP.

New Client Wins

• PFT signed a strategic deal with UKs public service broadcaster, Channel 4 for managing media processing and centralised content operations using its flagship product, CLEAR™ Media ERP

• Brand campaign for Rollick, Brookbond, Loreal, MPL amongst others.

New Contracts with Existing Clients:

- Renewed existing contracts with Cricket Australia, BCCI, Discovery.

Other Initiatives:

- Company continues to invest in AI/ML in order to reduce TCOP for its customers

- Continued to invest in business development and sales efforts globally

- Prime Focus Technologies awarded Trusted Partner Network certification

India FMS business

• Worked on top blockbusters like Kabir Singh (Rs 275+ crore), Mission Mangal (Rs 290+ crore), Good Newwz (Rs 318+ crore), Dabang3 (Rs 230+ crore), Street Dancer (Rs 100cr+ crore), Jawani Janeman, etc.

• Worked on Web series for Amazon-Leila, Forgotten Army, etc. and other TV Commercials for Spotify, Myntra, Swiggy, etc.

• Continue to have a robust order book

• Higher OTT spends to augment business demand

• Forayed and working on expanding into new business streams - Music IP creation

• The Film Equipment Division (EQR) won the best National Equipment Rental Company at the 4th Annual Digital Studio Awards 2019

• Mr. Gowrishankar was awarded in the Hall of Fame at the 4th Annual Digital Studio Awards 2019

• Mr. Kamalkar Rao won the Editors Choice Award at the 4th Annual Digital Studio Awards 2019

• Mr. Ashirwad Hadkar won the Best Colourist at the 49th Kerala State Film Awards 2019

Section 3

Economy Overview Global Economy

The global economy growth was weak but stabilising until the corona virus (Covid-19) pandemic hit the world. The corona virusoutbreak in early 2020 has unleashed a health and economic crisis, unprecedented in scope and magnitude, with lockdowns and border closures paralyzing economic activity globally. It has further disrupted the global supply chain due to containment attempts across the industries. The global economy is expected to shrink by 4.9% during 2020 in a stunning coronavirus- driven collapse of activity that will mark the steepest downturn since global financial crisis in 2009. Meanwhile, to fight the pandemic and minimize the impact of a catastrophic economic downturn, Governments globally are rolling out fiscal stimulus measures. Liquidity injections by central banks including the US Federal Reserve, the European Central Bank, the Bank of England and the Bank of Japan have fuelled consumers sentiments.

Most of the major economies in the world are increasing government spending to shield households and enterprises from the downturn, as well as funding the massive increase in health expenses and providing fiscal stimulus. The result will be a big increase in government borrowing and a rise in the debt/GDP ratio. However a partial recovery is expected in 2021 with considerable uncertainty about the strength of the rebound. Major economic policy measures have already been taken globally, concentrating on meeting the requirements of public health care while restricting the emphasis of economic activity and the financial system. The predicted recovery assumes that such policy measures are successful in preventing widespread Company bankruptcies, widespread job losses and financial strains throughout the system. Additional fiscal and monetary policy support and enhanced structural reforms in all countries would help restore growth, improve the confidence of consumers and investors and reduce uncertainty.

Advanced economies are projected to shrink by 8.0% in 2020, emerging market and developing economies are expected to contract by 3.0%. China, where the corona viruss impacts were first recorded this year is the only country projected to remain in positive growth trajectory in 2020 A partial recovery is projected in 2021 with growth in Emerging Asia seen improving significantly by 7.4% in 2021. However, a varying degree of fiscal support, economic output, commodity exposure and debt structure result in large growth divergences across emerging economies.

World Economies: Performance at a Glance

World Economic output growth in %

2018 2019 2020P 2021P
World Output 3.6 2.9 -4.9 5.4
Advanced Economies 2.2 1.7 -8.0 4.8
United States 2.9 2.3 -8.0 4.5
Euro Area 1.9 1.3 -10.2 6.0
Japan 0.3 0.7 -5.8 2.4
United Kingdom 1.3 1.4 -10.2 6.3
Canada 2.0 1.7 -8.4 4.9
Other Advanced Economies 2.7 1.7 -4.8 4.2
Emerging Market and Developing Economies 4.5 3.7 -3.0 5.9
Emerging and Developed Asia 6.3 5.5 -0.8 7.4
China 6.7 6.1 1.0 8.2
India 6.1 4.2 -4.5 6.0
ASEAN-5 (Indonesia, Malaysia, Philippines, Thailand, Vietnam) 5.3 4.9 -2.0 6.2

Source: IMF World Economy Outlook Report - June 2020

Indian Economy

According to International Monetary Fund World Economic Outlook (October-2019), Indias nominal GDP is estimated at US$2,936 billion in 2019, making it the fifth largest economy in the world with contribution of 3.4% to the worlds GDP. India is estimated to be the third largest economy in 2019 on the basis of purchasing power parity (PPP). Indias per capita nominal GDP is estimated to have grown by 8.5% in 2019 to Rs 154,600as compared to a growth of 7.6% in China in the same year.

As per the second advance estimates released by the Central Statistics Organisation (CSO), the growth in real GDP during FY20 is estimated at 4.2% as compared to 6.1% in FY19. The Covid-19 pandemic, resultant lockdown and social distancing measures are likely to worsen the prospects across manufacturing, service and agricultural industries. This will be further aided by lower consumption levels and higher unemployment. However, India is expected to record a sharp turnaround and resume its growth trajectory on the back of digitization, globalization, favourable demographics, Government reforms and fiscal stimulus packages. The growth in Indias GDP will be further supported by reinforcement of labour reforms and regulations, savings from oil import bills due to fluctuations in oil prices and improvement in supply chain.

The Inflation measured by the Consumer Price Index (CPI), remained below target of 4% for 13 consecutive months until September 2020.

It exceeded the upper tolerance ceiling of 6% by December 2019 and peaked at 7.6% by January 2020 before being moderated to 5.9% by March 2020. The impact of COVID-19 on inflation is ambiguous with possible decline in food prices is likely to be offset by potential cost-push increases in prices of non-food items due to supply disruptions. With softening of food prices, sharp fall in crude prices and expected normal monsoon, RBI expects inflation for current fiscal to be in the range of 3.63.8%.

Source: Central Statistics Organisation, 2nd Advance Estimates dated 29th May, 2020 Since end of March, RBI and government policy have already provided around Rs 9.9 trillion into the system ensuring stability in the financial markets. RBI infused liquidity in the form of TLTROs, CRR cut, enhanced MSF and special refinance windows. In May 2020, the Government has uplifted sprits of the nation fighting with COVID-19 by announcing mega stimulus and reform package to make country self-reliant. The Government has announced Rs 20 trillion fiscal stimulus package which represents nearly 10% of Indian GDP. It includes both fiscal stimulus and measures already announced by RBI. Overall, the economic plan is unique and includes measures to undertake changes on the first of the 4Ls i.e. Liquidity, Land, Labour and Law. This will make India more competitive and a big player in global supply chains. It will also boost Indias attractiveness to investors and businesses considering a shift away from China in the wake of the corona viruspandemic.

Measures announced by the Government of India provided much-awaited liquidity facility for the vulnerable businesses like MSME segment and non-banking financial institutions. The slews of measures announced are:

• Rs 3 trillion Collateral-free Automatic Loans for Businesses, including MSMEs

• Rs 200bn Subordinate Debt for Stressed MSMEs

• Rs 500bn Equity infusion for MSMEs through Fund of Funds

• Rs 300bn Special Liquidity Scheme for NBFCs/HFCs/MFIs

• Rs 450bn Partial Credit Guarantee Scheme 2.0 for NBFC

• Rs 900bn Liquidity Injection for DISCOMs

In addition, the definition of MSME restructured, Investment limit raised and additional criteria of turnover introduced. The 100% credit guarantee cover on principal plus interest to banks and NBFCs on incremental loan to MSME segment will help channelize the credit flow.

Outlook

Global financial markets remain volatile, and emerging market economies are grappling with capital outflows and volatile exchange rates. If Covid-19 is prolonged and supply chain disruptions get accentuated, the global slowdown could have adverse impact on India as well. However, India is gearing for boosting its own production in order to be a self sufficient economy. A calibrated fiscal support along with structural reform can unleash Indias growth potential. The recovery will largely depend on how well public health and fiscal measures work together to stem the spread of the virus, minimizing reinfection risks, safeguarding employment and restoring consumer confidence, so that people start spending again.

(Source: RBI, CSO, EY, Press Information Bureau of India)

Industry Overview

Global Media & Entertainment Industry Landscape

The world of Global Media & Entertainment (M&E) industry has been transforming rapidly. The advances in technology are blurring global borders for entertainment. In the last century, the industry was dominated by the broadcast sector, where television programs and commercials were the major sources of revenue. The industry is now made up of five significant subsectors including film, TV, Video games, music, and publishing. The internet is fuelling the fundamental shift in content production and consumption. In particular, digitization of the industry has opened new growth opportunities.

The Global Media and Entertainment (M&E) Industry is one of the largest in terms of market size and revenue. As per the Global Entertainment & Media Outlook 2018-2022 by Price water house Coopers (PwC), the Global M&E industry revenue is expected to reach US$2.6 trillion by 2023, registering a CAGR of 4% over 2018-2023.

Global M&E Industry Revenue (USS trillion)

• Global E&M revenues

• Global E&M revenues (projected data)

Source: PwC Global Entertainment & Media Outlook 2018-2022

India is the fastest growing entertainment and media market globally and is expected to keep that momentum. However, over the next five years, Chinas absolute growth in the M&E industry is expected to exceed that of the United States for the first time ever. In that period, the US will add US$71bn (a 2.5% CAGR), while China will add US$84bn (a 7.7% CAGR).

China will add greatest M&E revenues over next five years

Source: PwC Global Entertainment & Media Outlook 2018-2022

Digitization of the M&E industry has, in many ways, threatened the traditional setup. With the growth of the internet, services such as video streaming and video gaming are gaining popularity while advertisers and other publishers are adopting digital platforms. Consequently, the share of digital revenue in industrys total revenue is increasing rapidly and is expected to contribute 60% of industrys revenue by 2023.

Share of Digital Revenue in M&E industry

Source: PwC Global Entertainment & Media Outlook 2018-2022

• The launch of 5G network will enhance the customer experience and accelerate growth for many sub sectors of E&M industry. Virtual reality (VR), over-the-top (OTT) video (including streaming services like Netflix and Amazon Video) and Internet advertising will see the most annual growth between 2018 and 2023. These trends are backed by the increasing shift towards mobile data consumption, which is estimated to exceed fixed broadband usage in the year 2020.

• By 2023, its expected that media industry marketers will allocate over half of their budgets to digital advertising.

With the advent of 5G mobile connectivity, operators will partner OTT service provider to bundle their services with subscriptions. Consequently, global OTT revenue is expected to increase at a CAGR of 13.5% over 2018-2023 to reach US$ 72.8 billion by 2023.

Globally, digital music-streaming revenue is rising rapidly, accounting for 50% of recorded music revenue in 2018. To capitalise on this growing market, key players will redefine themselves as "audio" providers — becoming one-stop shops for consumers browsing music, radio and podcast content.

Although the ever-changing trends in the industry have opened up several growth opportunities, the shift in consumer demand for personalization is putting constant pressure on entertainment companies to drive innovation and embrace new technologies. The increasing need for personalization will continue to be critical for every M&E player in the industry. The slowdown in the global economy owing to the Corona viruspandemic is expected to take a toll on the overall growth of the M&E industry. However, the digital and video-streaming platforms will continue to gain strength as individuals spent higher time at home due to the lockdown in different parts of the world.

(Source: PWC-Perspectives from the Global Entertainment & Media Outlook 2019-2023)

Indian Media and Entertainment (M&E) Sector

The Indian M&E industry is on the edge of a strong phase of growth, backed by rising consumer demand and improving advertising revenues. According to FICCI EY report - The era of consumer A.R.T. - Acquisition Retention and Transaction, the Indian M&E sector reached Rs 1.82 trillion (US$25.7 billion) in 2019, representing a , a growth of 9% over 2018.The growth was driven by surge in content consumption as digital infrastructure, quantum of content produced and per capita income increased in 2019. The industry is expected to grow at a CAGR of 10% over 2019-2022 to reach Rs 2.42 trillion (US$34 billion) by 2022 with the exponential progress expected towards digital accessibility and adoption.

The growth of M&E sector in India is primarily led by growing subscription- based business models and Indias attractiveness as a content and post production destination. While television and print still reigns their positions as the two largest segments, digital media overtook filmed entertainment in 2019 to become the third largest segment of the M&E sector in 2019. It is further expected to overtake print by 2021, to become the second largest segment.

Indian M&E Industry: size and projections (in billion)

2018 2019 2020E 2022E CAGR 2019-22
Television 740 787 790 882 4%
Print 305 296 301 309 1%
Digital Media 169 221 279 414 23%
Filmed entertainment 175 191 207 244 8%
Animation and VFX 79 95 112 156 18%
Live events 75 83 94 122 14%
Online gaming 46 65 91 187 43%
Out of Home media 37 39 41 46 5%
Radio 34 31 33 36 5%
Music 14 15 17 20 10%
Total 1674 1822 1965 2416 10%

Source: EY; Note: 2020 estimates have been created prior to the advent of the Corona virus

The M&E industry in India continues to undergo significant change. The rapid spread of mobile access is enabling on-demand, anytime-anywhere content consumption nationwide. The sector firmly pivoted towards a B2C operating model driven by the ability to create direct-to-customer relationships.

In 2019, the major growth was driven by direct-to-customer segments (YoY Growth)

Source: EY

Online gaming retained its position as the fastest growing segment on the back of transaction-based games mainly fantasy sports, increased in-app purchases and a 31% YoY growth in the number of online gamers to reach around 365 million in 2019.

Digital Media grew 31% in 2019 led by significant increase in digital subscription. Digital subscription revenues continued its robust growth trajectory and increased by more than two times from 2018 level as Indians paid for online quality contents. Digital advertising revenues grew to command 24% of total advertising spend. Further, Online video, audio, news and social media consumers also increased in 2019. Digital video has seen an explosion in terms of consumption with 378 million online video viewers out of a total of 661 million broadband subscribers in 2019. Online audio streamers grew 33% YoY to reach 200 million.

During the year 2019, the Government permitted 26% FDI for uploading/ streaming of news and current affairs through digital media. FDI policy was silent so far for digital media and due to its online nature several foreign strategic intermediaries have set up their operations in India categorising digital media as 100% FDI under the automatic route. However, the recent 26% cap in FDI limit by the Government reflects liberalizing FDI norms coupled with fulfilling ambitious initiatives such as Start-up India and Digital India.

Animation and VFX segment benefitted owing to increasing global acceptance of Indian content which is reflected in the success of Netflixs Sacred Games, where two of every three viewers were outside India. With global digital platforms buying more Indian content, there is an opportunity for Indian content creators to showcase their prowess and make India a content creation hub.

Indian Film Industry

The Indian film segment grew 10% in 2019 to reach Rs 191 billion, driven by a 41% and 13% growth in digital/OTT rights and domestic theatricals respectively over 2018. The home video segment continued to witness a decline. Domestic film revenues recorded at Rs 115 billion with gross box office collections (GBOC) for Hindi films reaching its highest ever at Rs 49.5 billion. GBOC of Hollywood films in India (inclusive of all their Indian language dubbed versions) grew 33% YoY to reach Rs 16 billion, which contributed 13% of total domestic theatrical revenues. Overseas theatrical revenues fell 10% despite more films being released abroad.

Film entertainment gross of taxes (in billion)

2018 2019 2020E 2022E
Domestice theatericals 102.1 115.2 126.7 146.4
Overseas theatericals 30 27 25 30
Broadcast rights 21.2 22.1 23.2 25.5
Digital / OTT rights 13.5 19 23.8 32.8
In-cinema advertising 7.5 7.7 8 8.9
Home video 0.2 0.1 0.1 0
Total 174.5 191 206.7 243.6

Source: EY

Hindi films contributed approximately 43% of the GBOC, despite comprising only 14% of films released. Films in other regional languages, which accounted for 80% of films released in 2019, contributed approximately 44% to the GBOC. Share of English and Hindi movies in domestic theatrical market increased from 11% and 42%in 2018 to 13% and 43% respectively in 2019.

Language Composition of Domestic Theatricals

Source: EY

In 2019 seventeen films joined the coveted Rs 1 billion club, which is the highest ever as there were thirteen such films in 2018. Out of this, six films recorded GBOC of Rs 200 crore and above in 2019. War emerged as one of Indias all-time blockbusters earning a GBOC of Rs 3.4 billion at the box office followed by Kabir Singh, Uri-The Surgical Strike, Bharat, Mission Mangal, Good Newz, Housefull-4, Kesari, Total Dhamaal, Chhichhore, Super 30, Dabangg 3, Saaho, Dream Girl, Gully Boy, Bala and De De Pyaar De. In addition, four Hollywood films entered the Rs 100 crore club and one film grossed over Rs 400 crore in 2019.

Number of releases by box office revenue

The top 50 Hindi / Bollywood films contributed approximately 83% of the total Hindi gross box office collections in 2019. The top 10 Hindi films of 2019 earned a GBOC of Rs 25.6 billion contributing 52% of total Hindi GBOC. Biopics and patriotic films gained popularity in 2019. The year 2019 started with a movie patriotic films - Uri: The Surgical Strike, followed by Kesari, Bharat, Mission Mangal, Romeo Akbar Walter, etc. Biopics also made a mark in 2019, with releases like Manikarnika, The Accidental Prime Minister, Super 30 etc. Success of films like Uri, Dream Girl, Bala, Chhichore, etc. proved that the audience is no longer attracted only to star cast driven commercial film products.

GBOC of top 50 Domestic Bollywood films ( billion)

GBOC of Hollywood films (including dubbed versions) grew 33% over 2018 owing to 108 films released in 2019 as compared to 98 in 2018. This growth has been largely due to the efforts of foreign studios to localize and market films for Indian audiences by releasing the film in multiple Indian languages, engaging with popular Indian stars to dub and promote local versions, hiring Indian film writers to script Indian versions, etc. Avengers: Endgame grossed Rs 4 billion and also turned out to be Indias highest Hollywood grosser of all time. Besides other three Hollywood movies, which were in the top 10 highest grossing movies of all time were - The Lion King, Spider- Man: Far From Home and Captain Marvel.

GBOC of top 10 Hollywood films (including dubbed versions) ( billion)

In 2019, 1,460 regional language films were released contributing to 80% of films released in India and generated Rs 50.4 billion in domestic theatricals vis-a-vis Rs 47.9 billion in 2018. 63 Gujarati films were released in 2019 with GBOC of Rs 0.62 billion. Hellaro, released in November 2019, was the first Gujarati film to win a National award. Several Telugu films like Sahoo, Fun & Frustration (F2), Maharshi and Sye Raa Narasimha Reddy earned worldwide gross revenue of above Rs 1 billion. Kannada film industry won 13 awards in 2019 and enjoyed significant revenue growth of approximately 36% YoY with domestic GBOC reaching Rs 5.2 billion. Kannada movies like Kurukshetra and Pailwaan were released in Tamil, Telugu, Malyalam and Hindi, enabling both films to earn worldwide gross revenues of above Rs 1 billion.

The Government is setting up a single window clearance system for shooting permissions in order to promote India as local destination for foreign production houses. Further, co-production agreements have been signed with Italy, Germany, Brazil, UK, France, New Zealand, Poland, Spain and Canada.

Streaming services have helped Bollywood, where satellite rights are earning strong revenue. Digital rights segment represented 41% YoY increase in revenues to Rs 19 billion driven by a growth in both rates and volumes of films purchased. Digital-only film market has emerged led by increasing investment by online platforms. Amazon Prime acquired the digital rights for 12 of the 30 highest grossing Hindi films of 2019, followed by Netflix (9 films), Zee5 (8 films), Hotstar (3 films). Revenues from sale of broadcasting rights grew from Rs 21 billion in 2018 to Rs 22 billion in 2019.

Digitalisation has played the major role in the growth of Indian film industry. Several film makers released small and low budget films like Chopstick, House Arrest, Soni, etc. directly on OTT platform. The paid OTT subscriber base is around 10 million, while the theatre going audience is 100 million. Since, geography is not an issue for OTT, it will lead to increased rates for regional titles as any individual can access to their native-language diaspora in other states.

Animation, VFX and Post-Production

The total animation, Visual Effects (VFX) and post-production segment grew up by 20% YoY to reach Rs 94.9 billion in 2019, with 25% growth in VFX, 18% in animation and 13% in post-production. By 2022, it is estimated that Indias animation, VFX and post-production segment will grow at 18% CAGR to reach Rs 155.6 billion. Demand for premium content has been driving increased usage of VFX with technology becoming an integral part of film making. OTT platforms will continue to increase VFX content to attract and engage more with subscription audiences who demand high quality content. The Indian animation industry is driven by outsourced international TV and film projects and a pick-up in domestic animation IP production. Demand for animated content will also be driven across ancillary sectors like education, training, healthcare, durables, IoT, etc. The Companies like Netflix and Amazon are increasingly looking at emerging markets for the original content to accelerate their growth, which resulted in an increased demand for this segment in India.

Animation, VFX and post production revenue (gross of taxes in billion)

Source: EY

The revenues from animation segment grew up by 18% to reach Rs 22.3 billion in 2019 and is expected to reach Rs 33.8 billion by 2022. The composition of the Indian animation industry remained the same as last year - about 30-35% of total revenues came from the domestic market. The animation industry in India has progressed from being an outsourcing service provider for global players, to content developers and now the content producers (IP owner). Companies in India are increasingly garnering global recognition, in line with their efforts to penetrate international geographies with original IPs, or acquisition of local players in those regions. Indian animation companies expect that average realization per IP from domestic clients is expected to rise soon, driving further growth.

The revenues from VFX segment grew up by 25% to reach Rs 49.5 billion in 2019 and is expected to reach a size of Rs 89.3 billion by 2022. Growth in international animation films, especially 3D productions and the subsequent work for Indian production houses will help the growth in this segment. Unlike the rest of the segment, VHX had equal revenue split between domestic and international market. The growth in domestic market in 2019 was driven by original content created by broadcasters and OTT platforms. VFX international revenue remained stable, due to pricing pressures driven by large studios rationalizing their budgets.

Post the success of VFX-heavy films like Manikarnika: The Queen of Jhansi which featured 3,000 VFX shots, Bollywood has witnessed increased demand for big budget VFX productions. VFX will be critical for film segment growth in India and abroad as the need for creating spectacular experiences to grow theatrical footfalls has increased in India.

The revenues from post production segment grew by 13% YoY to reach Rs 23.1 billion in 2019, and is expected to reach Rs 32.5 billion by 2022. In 2019, about 70% of post-production work done was for the domestic market and this is expected to grow at a rate of around 15% year on year. The share of regional content consumption increases to 55% on television and 50% on OTT platforms, leading to higher demand for postproduction services. The demand is expected to increase further led by niche films for multiplex audiences, dubbed vernacular content and growth in digital web series, originals, etc.

In terms of future outlook, demand for animation will be driven by kids generation and ancillary sectors. VFX will be critical for the growth of film segment both in India and abroad. The demand for content across smaller screens such as smart phones and other different formats will drive growth for post-production services. Immersive technologies will be used for education, health, retail gaming and a host of other applications enabled by 5G / wired broadband. Automation and analytics will reduce operating costs as various companies have launched AI - powered software for this industry.

(Source: EY FICCI Report; IBEF report on Media and Entertainment Industry March 2020)

Section 4

i Company/Business Overview

PFL was founded by Mr. Namit Naresh Malhotra in 1997. Over the years the Company has expanded from its modest beginnings in a Mumbai to its current position as one of the worlds largest independent and integrated media services provider. At present, the Company has presence in Mumbai, Kolkata, Noida, Hyderabad, Chandigarh, Bengaluru, Chennai and Goa in India. The Company has international presence in Abu Dhabi, Capetown, Johannesburg, London, Los Angeles, Montreal, New York, Toronto, Sydney, and Vancouver. PFL enjoys strong leadership in all the three business segments it operates in owing to strong business model, highly skilled professionals, firm balance sheet along with full back-up of reputed investors. The major investors include Standard Chartered Private Equity, Reliance Group, Horizon Coast and Ambit Pragma Private Equity.

The Company operates in three major segments which includes

1. Creative services like visual effects, stereo 3D conversion and animation

2. Tech/Tech-Enabled Services like Media ERP Suite and Cloud enabled media services

3. Indias Film & Media Services (FMS) - Production and Postproduction services like digital intermediate, picture post, equipment rental, shooting floors and sound stages

PFL derives more than 85% of revenues from the international market. In order to provide complete solutions to its clients across geographies, and further to win more international clients, the Company is leveraging its talent and technological strength as well as building strong sales team across geographies. The Global Digital Pipeline and pioneering World Sourcing delivery model, offers a competitive edge to PFL as it enables affiliating with content creators, enhancing efficiencies and optimising the cost.

Over the years, PFL has made deep inroads and embarked on several strategic mergers and acquisitions to augment its capabilities and enhance its global footprints, these include

1. Operational merger of PFLs Creative Services arm with DNEG, a global leader in visual effects, in 2014

2. Operational merger operations with the film and media services business of Reliance Media Works in 2015

3. Strategic tie-up with Canadas Gener8 Media Corp, a significant player in stereo 3D conversion technology in 2015

4. Acquisition of DAX, creators of Primetime Emmy award-winning Digital Dailies in 2014 and Academy Award-winning Lowry Digital in 2015 (part of Reliance Media Works)

5. Divestment of 30% stake in Digital Domain - Reliance, LLC

PFL caters to marquee players across the entire media industry value chain and across the product lifecycle of media content. Its major clients include top Hollywood and Indian studios and media companies across the globe.

• Studios - Warner Bros., Disney, Marvel, Universal Studios, Netflix, Paramount, Sony, Twentieth Century Fox, Legendary Pictures, Lionsgate and DreamWorks

• Broadcast networks - Bloomberg, Disney, Star, Hearst, Associated Press and Zee

• Others - ICC, BCCI, Cricket Australia, JWT, Lowe Lintas, Netflix, Amazon and Sky

Key Business Divisions Creative Services

Creative Service caters to the marquee Hollywood studios that produce high-end VFX, 3D and animation-based movies as well as new geographies such as India and China. In July 2014, PFW merged its operations with UK-based DNEG - a premiere VFX player having top- tier relationships with large studios. DNEG today is one of the largest independent Tier-1 visual effects players globally well diversified across content formats and geographies. This merger has provided a major uplift to DNEGs competitive standing in the US post-production market, and also helped it become one of the largest independent and integrated VFX players in the world. DNEG has also expanded its service offering to cater to VFX requirements for mainstream Indian and Chinese M&E industry. The Company has successfully delivered bundled services for some of the biggest Hollywood blockbusters titles this year.

DNEG has a long standing record of working with the largest Hollywood studios - (Marvel, Universal, Warner Bros, Paramount, Twentieth Century Fox, Sony, Disney and Lionsgate) and directors (Christopher Nolan, David Yates, Ron Howard, Zack Snyder and Steven Spielberg amongst others), having a roster of worked on few of the biggest global film & OTT franchises.

The Creative Services division in addition, provides animation services, partnering with content creators across the production life-cycle to facilitate development of beautifully animated CG content. The Company leverages its experience, scale of operations and pioneering delivery model (World Sourcing) to deliver high-end projects whereas ensuring high efficiencies, quality and cost optimization.

Creative Services: Selected 2019-20 Hollywood Projects

1. Avengers: End Game

2. Rim of the World

3. Godzilla: King of Monsters

4. Men in Black: International

5. Hobbs & Shaw

6. The New Mutants

7. Fast and Furious: 9

8. The Eight Hundred

9. Mini-series- Chernobyl

10. TV work includes Doctor Who, Black Mirror, Altered Carbon 2, etc Production & Post-Production Services

Production and post-production services is another crucial segment of the Company. PFL is Indias largest organized and integrated production and post production player offering a complete range of media services across the spectrum - production (studio rentals, equipment rental and line production), post-production (digital intermediate/colour grading and picture post) and digital cinema distribution. PFL owns Indias largest integrated studio with a large share of the capacity of the Mumbai studio market. In 2015, the Company acquired the film and media services business of Reliance Media Works Ltd. with an objective to enhance its market share and further strengthen its offerings.

PFL worked on many Bollywood blockbusters this year which include the following:

Production & Post-Production: Selected Projects 2019-20

1. Kabir Singh

2. Mission Mangal

3. Good news

4. Dabang3

5. The Sky is Pink

6. Street Dancer

7. Jawani Janeman

8. Web series for OTT - Leila, Forgotten Army, etc.

Tech/Tech-Enabled Services

PFLs ERP and tech business (through its subsidiary Prime Focus Technologies (PFT)) is a combination of media and IT skills, assisted by a deep knowledge of the global M&E industry. The Company is pioneer and leader in providing cloud solution for M&E industry. PFT owns and operates Worlds only hybrid cloud enabled Media ERP platform

CLEARTM. This along with its high quality Cloud Media Services offers broadcasters, studios, brands and service providers transformational solutions that help them lower total cost of operations (TCOP) by virtualizing business processes around content and managing the business of content better. It also helps manage content digitally from the time it is produced to the time it is exhibited on various mediums like TV sets and OTT platforms. PFT also provides services like content localization (subtitling, dubbing), content transformation (digitization, QC) and data analytics. Further, the relationship with major studios and production houses on the back of creative services also helps cross-sell of these services to them. PFT acquired US-based DAX in Apr14 to make inroads into the worlds largest content market. PFT has strong revenue model in this segment with 91% Annuity contribution & 29% from International markets As a cloud solutions provider with a global delivery model and one of the the worlds largest digital media services cloud infrastructure at its disposal, PFT delivers a wide range of technical, creative and new media services on cloud with defined Service Level Agreements (SLAs). These include Localization (Subtitling, Dubbing, Access Services and Text to Text Localization), Digital Packaging & Delivery, 4K Remastering & Up conversion, Quality Check (QC), Digitization services, Audio services, Live services, Metadata services and Creative services among others.

PFT works with major M&E companies like Turner, PBS, 21st Century Fox-owned Star TV, Disney, Hearst, CBS Television Studios, 20th Century Fox Television Studios, Lionsgate, Starz Media (a Lionsgate Company), Showtime, A+E Networks, Complex Networks, HBO, IFC Films, FX Networks, Miramax, CNBC Africa, TERN International, Sony Music, Google, YouTube, Novi Digital - Hotstar, Amazon, HOOQ, Viacoms Voot, Cricket Australia, BCCI, Indian Premier League and The Associated Press.

PFT can boast of some big-scale achievements

1. 1.5 million hours of content managed annually

2. 220 multi-cloud locations

3. 400 TV shows powered by CLEAR daily

4. VoD fulfilment of 10 million assets annually

5. 35,000 hours of Subtitling and Closed Captioning annually

6. 50% of US primetime scripted network television production use PFTs product

7. Powered events that delivered 25.3 million concurrent streams

8. 10,000 assets uploaded every day on CLEAR

9. More than 40,000 users on CLEAR

Highlights: 2019-20

• Introduced powerful functionalities in CLEAR™ Media ERP. CLEAR, known for its interoperability, has been further expanded to support 11 more partner products in thistle latest release.

• Rebranded DAX Production Cloud to CLEAR Production Cloud, with a host of new features that revolutionize the post production processes

• Introduced CLEAR Vision Cloud, a Media Recognition AI platform that offers Technology and bespoke strategic Consulting to make AI work for our customers

• Strengthened its global presence by launching a Media Center in the UK which will act as the hub for Channel 4

• Secured the Trusted Partner Network (TPN) certification

• Listed in the top 40 in Nimdzi Insights Top 100 Localization Services Providers (LSPs) 2020

• Hosted our very first CLEAR Connect (Annual User Group Event) in Los Angeles for CLEAR users and members of the M&E industry

• Researched, developed, and produced two episodic India From Above for National Geographic as part of their From Above series

• Partnered with Whip Media Group

• EBITDA impacted by one-time bad debt provision.

Awards & Accolades:

• CLEAR™ Vision Cloud recognized with 2019 NAB Show Product of the Year Award & TV Technologys Best of Show Award

• CLEAR™ Vision Clouds AI for Cricket solution won TVBEuropes Best of Show Award at IBC 2019

• Won the Creative Abby Bronze award at Goa Fest 2019 for its digital film for Brooke Bond Red Label

• Won the award for "Best Brand Film GOLD - Food & Beverages" at Indiantelevision.coms BrandVid Awards 2019

• Won two prestigious awards at the Dada Saheb Phalke Film Festival 2019 for National Geographic Indias Mega Icons, produced by PFT

• Bagged the Best Original TV Film at the Indian Television Academy (ITA) Awards 2019 for National Geographic Indias Mega Icons, produced by PFT

• Won accolades at the Asian Academy Creative Awards 2019 for National Geographic Indias Mega Icons, produced by PFT

COVID-19 Impact

The COVID-19 outbreak is expected to have after-effects on the M&E industry, turning out to be disastrous for films, entertainment events and theme parks. It will, however, boost digital media consumption globally.

The pandemic may lead to movie releases being deferred and could impact the work delivery schedule for PFL, especially if the shutdown of the movie industry lasts for a prolonged period. It is expected that Animation and VFX demand is likely to sustain despite the crisis. However, PFLs exposure to this risk is mitigated to some extent in the form of minimising receivable issues as its key customers include several large well capitalised studios. In order to remain competitive in the industry, PFL is experimenting all the potential means and revitalising itself including rationalisation of employee workforce and austerity measures.

Financial performance and highlights

PFL delivered stellar financial performance with significant improvement in profitability led by Creative Service. The Company reported Income from Operations of Rs 3,013 crores in Financial Year 2019-20, with 86% and 10% contribution from Creative and Tech/ Tech- Enabled Services, respectively. Adjusted EBITDA margin1 remained robust at 21% as revenue synergies realized in terms of cross-selling and execution from lower cost-centres, such as India and Vancouver, climbed.

Financial Highlights of Financial Year 2019-20 (Consolidated Audited Financials):

• Total Income of the company is at Rs 3,013 crores, compared to Rs 2,664 crores for the year ended March 31, 2019

• Adjusted EBITDA margin1 is maintained at 21%

• Cash Profit (PAT + Depreciation + non-cash employee stock option expense) is at Rs 357 crore; Cash Profit Margin at 12%.

• Creative Services revenue has grown 18% to Rs 2,620 crores in Financial Year 2019-20 from Rs 2,212 crores in the year ended March 2019. This business now contributes 86% to Group revenues and has an Adjusted EBITDA margin1 of 20+%

• Tech/Tech-Enabled Services revenue at Rs 304 crores in Financial Year 2019-20 as against Rs 302 crores in the year ended March 2019; Adjusted EBITDA Margin1 at 0.2%

• India FMS revenue at Rs 152 crores in Financial Year 2019-20 from Rs 184 crores in the year ended March 2019. Adjusted EBITDA Margin1 is at 44.9% in the price-competitive Indian Market, a testimony to PFLs quality work.

Net Debt (Debt - Cash) is at Rs 2,499 crores as of March 2020 (after adjusting for additional leases liabilities recognised due to change in accounting standards and Convertible Preference shares issued by subsidiaries)

The Company is undertaking constant efforts towards reducing high- cost India debt via refinancing with cheaper and longer-tenure debt.

Key Change in Financial Ratios

Ratios

Consolidated

March 31, 2020 March 31, 2019 Change Remarks
Debtors Turnover 5.75 6.51 -12% Collections over last 2 weeks of March month were less due to Covid-19, consequently there is reduction in Debtors Turnover during the year
Inventory Turnover NA NA NA We are not in trading or manufacturing business this measure is not needed or not applicable
Interest Coverage Ratio 0.45 0.75 -41% Operating profit of this year includes higher noncash employee stock option expense and bad debts provision/ write off
Current Ratio 0.65 0.71 -8% As per new lease accounting standard adopted in current year operating lease liabilities of future years are recognised in balance sheet at present value which has increased the liabilities in current year hence decrease in this ratio
Debt Equity Ratio 8.89 4.79 85% As per new lease accounting standard adopted in current year operating lease liabilities of future years are recognised in balance sheet at present value which has increased the lease liabilities in the current year significantly hence this ratio is not comparable with previous year
Operating Profit Margin (%) 3.57% 7.10% -50% Operating profit of this year includes higher noncash employee stock option expense and bad debts provision/ write off leading to significant dip in Operating Profit margin
Net Profit Margin (%) -5.33% -1.31% 306% Net profit of this year includes write off of IPO related expenses of subsidiary, higher non-cash employee stock option expense and bad debts provision/ write off leading to significant dip in Net Profit margin
Return on Net worth - RoNW (%) -39.21% -6.24% 529% Net profit of this year includes write off of IPO related expenses of subsidiary, higher non-cash employee stock option expense and bad debts provision/ write off leading to significant dip in RoNW margin

Section 5

Business Strategy

PFL is a Tier 1 player in the global Visual Effects market and is well recognised for industry leading services in the post production services and tech services business respectively. Over the years, the Company had largely grown profitably with an acquisition-led strategy that helped them gain rapid global scale and helped catapult them into a leading global independent services powerhouse. The Companys revenue has grown at 12% CAGR in last four years with Adjusted EBITDA margin1 of 21% in FY2019-20. Going ahead, PFL targets to continue this stride of profitable growth led by following key drivers:

In Creative Services, the Company aims to continue to expand their global footprint and continue to diversify the business across content formats and geographies. The Company will continue cross selling through bundled VFX, 3D and high-end CG Animation offerings in order to drive revenue growth and optimising the cost. PFLs steadily improving client profile, strong network and relationship will help sustain growth and provide cross-selling opportunities.

In Tech/Tech-Enabled Services, PFT has signed a strategic deal with UKs public service broadcaster, Channel 4 for managing media processing and centralised content operations. Further, the Company targets to strengthen its customer base by signing contracts to cross-sell tech enabled services and increase revenue from existing clients. The Company also focuses on improving its product suite to include new modules and analytics.

PFL and its subsidiaries will continue to consider options for fund raising through equity (including through private placement and public offering) and debt to unlock value across the Group. The Company ensures enhancing growth and the efficiency of the business to increase shareholders wealth.

Section 6

Outlook

The Indian and Global Media and Entertainment industry is on an impressive growth path. However, the current environment of Covid-19 is unprecedented and could result in a shift in media consumption channels. Some segments such as TV, gaming, digital and OTT seeing consumption growth during the lockdown. On other hand, outdoor consumption models like films, events, theme parks are witnessing a dramatic fall with social distancing norms in place. The coming years are likely to usher in greater innovation in content formats, means of dissemination, and business models. The sector witnessed an increase in content consumption as digital infrastructure and quantum of content produced increased in 2019 and this trend for growth in Indian content demand for is going to rise further. Technology has revolutionised the way of content and has allowed catering to a wider audience base. India is expected to see a significant growth in OTT, Online Gaming and Internet advertising led by the growing trends around personalisation and increased digitalisation. With the evolution of digital behaviour and advent of 5G technology, subscription models will have greater role in monetization of digital platforms.

The Government of India has supported M&E industrys growth by taking various initiatives such as digitising the cable distribution sector, increasing FDI limit from 74% to 100% in cable and DTH satellite platforms and granting industry status to the film industry for easy access to institutional finance. The Government of India has agreed to set up the National Centre of Excellence for Animation, Gaming, Visual Effects and Comics industry in Mumbai.

The industry is expected to perform better owing to greater focus on monetization of emerging digital business model, strong regional opportunities and favourable regulatory and operating scenarios across traditional business. Further, the structural growth drivers of the industry are in place viz. rising VFX spends, higher outsourcing to India and increasing penetration of content management solutions. PFL is uniquely positioned to deliver, being one of the worlds largest independent integrated media services Company and a Tier-1 VFX provider to Hollywood with multiple Oscar wins. The Companys growth in both revenues and profitability are likely to remain high on the back of strong order backlog, good momentum in ERP and tech business, access to cutting-edge technology and increasing effort to make the overall content supply chain more efficient across the geographies.

Section 7

Opportunities & Threats

India is the fastest growing M&E market globally and is expected to keep that momentum. The industry is evolving as consumers are expecting M&E provider to deliver choice, convenience and value, all wrapped inside personalized, customized experiences that are available on demand. The transformation phase of the industry has led to the emergence of many new trends and opportunities across content, distribution, consumption and monetization. New products and business models are being imagined to capitalize on the rise in media consumption. Global players are recognizing the need to build India-centric offerings-with localized products and localized pricing models.

The opportunities presented by the emergence of smart television sets and digital connectivity can improve the engagement between creators of content and consumers. An estimation of over 40 million connected TVs by 2025 will provide a huge opportunity for content creators to reach family consumers. Pure-play OTT players are aggressively investing in content in both English and regional languages giving huge competition to local TV broadcasters. OTT subscription market is expected to take approximate 10% of the total TV subscription market by 2025.

International companies with a large digital presence are looking at setting up their own infrastructure in India, which provides the ability to address the end-to-end value chain and thereby increase opportunities for growth for VFX. The future of film will be driven by immersive technology and VFX rich content experiences to drive theatrical footfalls.

Within digital advertising, online video and social media are gaining market share from paid search, display and classified ads. The combination of AI with 5G will fuel the rapid growth of segments such as video games and VR. The industry is on the verge of an exponential increase in engagement through the nascent online gaming industry. The coming years are likely to usher in greater innovation in content formats, means of dissemination, and business models.

Going forward, macro-economic turbulence and softening advertisement revenue are tangible risks. The Covid-19 has impacted various segments of M&E including postponement / cancellation of events, impact on theatrical revenues due to loss of weekends, stoppage / delay of content production and post-production, etc. However, the lockdown is likely increase internet literacy in India, which may accelerate digital adoption. The battle for developing and acquiring the best content is likely to get intensified. Globalization is critical to M&E companies looking to build scale, open new markets and remain competitive. During these times of transformative change, greater regulatory certainty and a conducive business environment are the need to ensure that the M&E sector can achieve its full potential.

Section 8

Risks and Concerns

The Company maintains a comprehensive network of internal controls, tailored to the scale and scope of its businesses. It ensures reliability, efficiency and effectiveness of Companys operations and provides adequate safeguarding of the Companys assets. It ensures business operations are recorded in a transparent and accountable manner in all respects. The Company has an external and independent internal audit firm to monitor its finances and other processes. Internal Auditors report their findings directly to the Audit Committee, which shall forward them to the departments / business verticals concerned for corrective action. Internal examination also guarantees that the laws in force are complied with reasonable adequacy. The management is prompt in early identification of important risk factors and its effective mitigation. PFLs risks are outlined below along with the possible steps can be taken to alleviate the same.

COVID-19 Risk - The world has been threatened by the novel Corona viruspandemic. It has changed the way of life both personally and professionally. It has the ability of impacting the Companys business, customersand employees alike.

Mitigation: Safety of all the stakeholders is of paramount importance. PFL has taken multiple steps in this direction. The Companys strong digital backbone has allowed the employees to manage most of the critical operations by staying safe from their homes. The Company has healthy pipeline of projects that are relatively less dependent on physical shoots. Although the future impact on the business operations is difficult to assess at this point, the Company with its brand leadership is confident of managing the crisis and come out in a strengthened position. Further, the increased demand of content and industrys preferences towards virtual production, digital enhanced sets, green screen shoots, etc., will provide new sets of opportunities.

Industry risk: The preferences of the audience are continuously changing and hard to predict with precision. The preferences of the people are often affected by new trends and the world in which they live. Any disruption in the macro-economic environment that impacts M&E sector growth prospects puts the Companys growth potential at risk. Moderating growth, along with high inflation, will adversely affect the advertising revenues of the Company. The M&E business is regulated by the laws and regulations laid down by the authorities and regulatory bodies of the various countries in which the Company operates. The policies and regulations issued by them, could have an impact on the environment of the industry as well as the Companys profits.

Mitigation Strategy: The Indian M&E industry is expected to continue its robust growth trajectory, with digital access and consumption boosting. Robust GDP growth also supports strong domestic demand, with increasing penetration in non-urban and regional user base particularly in rural regions. Due to its diverse portfolio and strong order book, the Company stands in a balance point to reduce any risks resulting from macro-economic sluggishness.

Competition risk: The advent of digital media, along with mobile and radio production, causes a shift away from television in part of the advertising revenue. The potential for growth in the M&E sector is exposed to growing competition from national and foreign players on the market. In addition, the proliferation of such media has created a need for significant investments in content and channels to capture / ring-fence audiences that can later be monetized.

Mitigation Strategy: As the Company is competent to deliver high- quality work at a rapid turnaround time, it is securely placed against any competition in the sector. In the dynamic M&E sector landscape, there has been a systemic change, with convergence across telecoms, media and technology companies The Companys emphasis on diversification and creativity combined with years of experience in providing high quality services to leading Hollywood and Bollywood production houses helps reduce competition risks. The Company embarks on ongoing research and growth, recruiting top-notch talent and collaborating closely with leading global media service providers. The Company has always been at the cutting edge of technology and the production of new proprietary inventions to launch path-breaking market initiatives.

Talent Risk: Due to the current dynamics of the sector, the organization is highly dependent on human resources. In such a scenario it is of prime importance to maintain manpower and recruit fresh talent. Inability to change organizational structure and culture may result in a loss of capacity to attract, cultivate and retain key artistic, commercial and managerial talents.

Mitigation Strategy: The Company aims to enhance its talent pool by implementing best practices for its staff and delivering rigorous training across leadership levels to ensure organizational success. The strong HR policies of the Organization have a stimulating and inclusive culture of work. The HR department ensures that workers personal ambitions are well integrated with organisations objectives. Additionally, a competitive pay scale ensures high retention rate and low turnover rates in the industry.

Profitability risk: With rising competition, the cost of creating content and obtaining content could increase to a level that is not commensurate with potential for monetization and expected cost recovery. With production houses working on shrinking budgets combined with skilled expertise coming at inflated prices, businesses in the M&E sector experience profitability risk as they operate on thin thresholds.

Mitigation Strategy: The aspiration and preferences of audience for animation, VFX, digitization, good content and post production in India is witnessing great enthusiasm as seen globally. Finding greater acceptance and higher box office receipts is the entertainment driver for films empowered with high quality visual effects and post-production. It has a proven track record of producing critically praised films, high public recognition and great filmmaker returns. This makes PFL a preferred Company for big production houses, enabling it to secure better margins in an otherwise competitive and low margin industry.

Project risk: The Company has to somehow boost the number of endeavours to ensure consistent and prolonged profit margins. With the kind of investments made in content, show / movie non-performance will have an adverse effect on the Companys bottom line. With costs for mobile data going down, consumption of digital content has risen exponentially. This may result in a slower growth in advertising sales for the profitable TV sector.

Mitigation Strategy: The vast geographical reach of the Organization across -four continents allows it to attract several diversified projects. The ever-increasing success of visual effects and animation on the domestic front provides the Company with huge opportunities. Bollywood is piled with huge budget manufacturing houses looking to leverage VFX s rising phenomenon, animation etc. The Company is well positioned to collaborate with the major directors as well as regional filmmakers (Tamil, Telugu and Kannada).

Information and Cyber Security Risk: Creative media and broadcasting companies are high targets of cyber breaches and fraud, with content being the king. Increased frequency and severity of these attacks allows the Organization to put information security in the forefront. Big Data technology and advanced analytics that support management decision making could restrict the ability to use ecosystem-existing data repositories and resources.

Mitigation Strategy: The Organization has a comprehensive risk- mitigation program in place and a response plan to react, learn and adapt in the event of an incident. It ensures that the network is routinely patched and backed up and an updated incident response plan is developed. To reduce the risks associated with employee breaches, the organization invests in informing them about common cyber security threats such as phishing campaigns and also has a fixed policy for using personal devices at work etc. The organization thrives in protecting its sensitive data and improving controls.

Section 9

Internal Control Systems and their Adequacy

The Company is devoted to strong corporate governance practices and has well-defined structures and frameworks that encompass all the roles and units of the business functions and units. The Board of Directors regulate the internal financial controls based on the Companys internal regulation of financial reporting requirements. The Company also engages internal audit firm to provide reasonable assurance regarding operational efficiency and effectiveness, safe guarding of assets, reliability of financial records and reports and compliance with applicable laws and regulations. The Company follows stringent procedures to ensure accuracy in financial information recording, asset safeguarding from unauthorised use, and compliance with statutes and laws. All employees adhere to high standards of ethical conduct inspired by formally stated and regularly communicated policies.

Section 10

Human Resources

The Company believes that the key to excellent business results is a committed talent pool. Human resources are the most critical element responsible for growth and the Company acknowledges their contribution and works towards their satisfaction as a top priority. The Organization performs frequent employee training to ensure skill enhancement and personal growth through the different levels of the Company. This is achieved by a series of in-house activities that are further assisted by external curriculum that focuses on improving actions and management skills.

The Company supports its pool of workers and strives hard to preserve its best talent by providing sufficient potential for growth. Open door policy makes the work environment straightforward and encourages workers to independently share their views. The Organization maintains an atmosphere of free, sustainable and progressive work. HR strategies ensure that personal and professional growth functions along with the workers. The Organization emphasizes on creating an encouraging work environment which results in high retention. The Organization actively conducts a variety of health and wellness programs. The Company maintains cordial relationship with its employees at all its manufacturing units. The total strength of the Companys workforce as on March 31, 2020 was 10,000+.

Section 11

Cautionary Statement

This report contains statements that may be "forward looking" including, but without limitation, statements relating to the implementation of strategic initiatives, and other statements relating to the Companys future business developments and economic performance. While these forward- looking statements indicate our assessment and future expectations concerning the development of our business, a number of risks, uncertainties and other unknown factors could cause actual developments and results to differ materially from our expectations. These factors include, but are not limited to, general market, macroeconomic, governmental and regulatory trends, movements in currency exchange and interest rates, competitive pressures, technological developments, changes in the financial conditions of third parties dealing with us, legislative developments, and other key factors that could affect our business and financial performance. The Company undertakes no obligation to publicly revise any forward- looking statements to reflect future / likely events or circumstances.