MANAGEMENT DISCUSSION AND ANALYSIS OVERVIEW During the year the films sector saw some films creating box office records, while several were unable to attract audiences to the theatre and profitability was impacted, overall. 1. INDUSTRY, SEGMENT-WISE PERFORMANCE, OPPORTUNITIES AND OUTLOOK a. CONTENT With a benign global economic environment and a stable central government economic environment and business sentiment has been positive. The year under review saw some films creating box office records, while several were unable to attract audiences to the theatre and profitability was impacted, overall. In the year ended March 31, 2015, the film production of the film 'Mastizaade' featuring Sunny Leone, Tushar Kapoor, Vir Das and Riteish Deshmukh in special appearance was taken up and completed. This film has not been cleared by the Central Board of Film Certification and Film Certification Appellate Tribunal so far. The Company has resubmitted this film for CBFC certification and expects to resolve this issue soon. Consequently your Company was unable to book revenue and profit. Pritish Nandy Commnucations Limited ("PNC's") core activity is creating and marketing content across all platforms. With the growth of multiplexes providing a larger platform for the first exhibition of cinematic content and with digitization and hand held devices opening up a wide range of new delivery systems, the entertainment industry and PNC's opportunities to create and distribute new content products continues to grow. Emerging media are opening up new avenues of revenue. Broadband, IPTV and DTH subscriptions are growing exponentially. Depending on the opportunities available, PNC will seek to enhance and/ or diversify its focus on multiple content platforms. PNC continues to focus on film content and several projects are at advanced br production stage being planned to move into production shortly. PNC has the capability, skill sets and expertise to emerge as a leader in the entertainment industry. b. DIGITAL AND WELLNESS: The Company has two subsidiaries viz. PNC Digital Limited (formerly known as PNC Productions Limited) and PNC Wellness Limited. PNC Digital Limited (formerly known PNC Productions Limited): There has been a material change in the nature of the business of this subsidiary. This subsidiary is now focusing on setting up the business of content streaming as well as any other technology business using internet as its primary delivery platform, including any further innovations in the broad field of web technology. This subsidiary had entered an agreement on June 30, 2014 with Harshawardhan Sabale, then CEO, Television and Digital Division of the holding company for acquiring Ogle, a video streaming technology, towards which it had made a part payment of Rs. 27 lakh. Contingent upon the receipt of an investment term sheet from a third party investor for providing investment in this subsidiary company, this subsidiary was to issue and allot, towards balance consideration, 490,000 full paid equity shares to Mr Sabale. The commercial launch and exploitation of Ogle has not yet commenced. In April 2015, this subsidiary identified and entered into an arrangement with an investor who is ready to invest in the exploitation of Ogle worldwide. To enable this exploitation a joint venture company, Ogle Technologies Limited, was incorporated at British Virgin Islands. The equity structure of Ogle Technologies Limited is identical to the equity structure contemplated in the agreement dated June 30, 2014 relating to the acquisition of Ogle. PNC Digital Limited owns 51% and Mr Sabale owns 49% of the issued and paid up capital of Ogle Technologies Limited. The commercial exploitation of Ogle will be taken up and conducted by Ogle Technologies Limited. PNC Wellness Limited: There has been no material change in the nature of the business of this subsidiary.This subsidiary had to vacate its business brmises at Breach Candy, Mumbai and the unit had therefore discontinued operations from the end of day on June 30, 2014. However, this subsidiary will continue its business activities and realign its strategy. In view of the realignment, this subsidiary has disposed off its equipment resulting in the loss of R 136.35 lakh thereon. The entire capital of this subsidiary has eroded. The Holding Company has, from time to time, given this subsidiary advances totaling R218.43 lakh. To facilitate and support the revival of its business, this subsidiary had requested and our Company has waived the recovery of and written off the advances given. 2. RISKS, CONCERNS AND THREATS The content business is risk-prone. Shifting audience brferences has made the market fickle and unbrdictable with films having shorter windows for garnering revenues at the time of their first theatrical release and with distributors reluctant to take risks by paying minimum guarantees upfront. PNC is, therefore, focusing on strategies for recovering its investment in content prior to or at the time of a film release. PNC however plays a vital role in designing the marketing and distribution of its films. PNC continues its multi-product portfolio approach to minimize and manage the inherent risks of the business. PNC is also constantly researching audience tastes and creating innovative products that can meet the challenge of changing audience expectations through constantly changing technology. 3. INTERNAL CONTROL SYSTEMS, THEIR ADEQUACY AND RISK MANAGEMENT The Company has adequate internal control systems in place. These systems constantly assess and vet creative ideas. There is collective responsibility at every stage of decision making and a Corporate Leadership Team including all the department heads examines and clears each project for implementation. Your Company has in place an adequate system of internal controls, with documented procedures covering all corporate functions. Systems of internal controls are designed to provide reasonable assurance regarding the effectiveness and efficiency of operations, the adequacy of safeguards for assets, the reliability of financial controls and compliance with applicable laws and regulations. Adequate internal control measures are in the form of various policies and procedures issued by management covering all critical and important activities viz., revenue management, production operations, purchase, finance, compliances, human resources, safety, etc. These policies and procedures are updated from time to time and compliance is monitored by internal audit. The effectiveness of internal controls is reviewed through the internal audit process, which is undertaken for every operational activity. The focus of these reviews is as follow: • Identify weakness and areas of improvement • Compliance with defined policies and processes • Safeguarding of tangible and intangible assets • Management of business and operational risks • Compliance with applicable statutes • Compliance with the PNC Code of Conduct The Business process and Risk Management Committee under the supervision of the Audit Committee of the Board oversees the adequacy of internal control environment through regular reviews of the Internal Audit Report and monitoring implementations of internal audit recommendations through the compliance reports submitted to them. Your Company is faced with different types of risks which need different approaches for mitigation. On a primary basis your Company has identified and categorized the following risks: Operational risks like injury to lead actor/s and/ or workmen, loss by fire, high personnel turnover ratio, piracy, delay in production cycle, censor certification, litigation, negative public perception, box office failure and realization of payments due, Environment risks like technological changes, new emerging trends and statutory & legal compliances. Financial risks like shortage of working capital, diminution of asset values, data loss, inventory loss, bad debts and theft/ loss of cash and valuables. Intangible Asset risks such as misuse of intellectual property rights and deterioration of brand image. Depending on the nature, impact and probability of the risk, your Company has devised various mitigating solutions like providing for contingencies, taking insurance cover wherever necessary, making quality films, devising appropriate marketing strategies, aligning pay scale with industry standards, training staff and offering growth opportunities, maintaining work life balance, providing for leisure, installing proper payment systems, maintaining good relations, carrying out raids, lodging complaints with antipiracy organizations, making audiences aware of the benefit of original print quality, reducing CD/DVD prices, ensuring proper project management, forming multiple teams with experienced team leaders, ensuring in film content complies with guidelines, ensuring proper contractual documentation of rights to copyright and other film rights, ensuring clarification/ true facts are disseminated swiftly, identifying new platforms, acquiring sponsors, tying up with distributors exhibitors, dealing with established and reputed dealers, ensuring staff familiarity with latest technology, identifying trends, carrying out research, ensuring proper filling of statutory documents/ returns etc, ensuring proper budgetary planning and cash flow, complying with proper debrciation accounting policy, complying with dividend payout policy, ensuring timely replacement of equipment/ technology at best prices, maintaining, proper inward and outward register for films, checking library periodically, initiating legal action whenever applicable, monitoring cash levels and installing cash safe, investing in liquid funds or fixed deposits, registering intellectual property with appropriate authorities and monitoring and managing brand imaging continuously. 4. FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE Company's financial performance is not comparable to last year. Company is focusing on returning to growth and profitability. 5. HUMAN RESOURCES AND INDUSTRIAL RELATIONS The Company is continuously building its talent base. Its Corporate Leadership Team has qualified and experienced members drawn from different specializations. The middle management cadre has been developed and strengthened. However, the Company, as a policy, sees its core content making business essentially as project management. It brfers to assemble talent teams for each content project and these teams are disbanded once the project is complete. The talent bank that PNC has access to remains independent and is yet available to PNC at short notice. The Company enjoys cordial relations with its employees and the talent that it hires on a project basis. 6. CAUTIONARY STATEMENT Statements in the Management Discussion and Analysis describing the Company's objectives and expectations may be "forward looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ from those exbrssed or implied. |
