DQ Entertainment (International) Limited, India Management Perspective on Q 1 results and year ahead: Earnings Release For the quarter ended June 30, 2010 As reported in the management guidance issued by the Company on 26 th July 2010, DQE s revenue for 2010 11 is expected to grow within a range of 17% to 20% over INR 1754.74 mn earned in the year 2009 10 and profit after tax is expected to grow by 35% to 40% over the previous year PAT of INR 266.72 mn. On account of the seasonality of our business activities, which is in tune with the global industry trends we had articulated that: The performance of the Company has to be viewed on an annual basis and not quarter on quarter or in any way prorated The quarterly performance is not indicative of the annual performance and the Company is confident of achieving its targets for the financial year end as has been the trend in the previous years During the year 2010 11 we will continue to focus on development & co development of branded and popular Intellectual Properties (IP) and 360 degree monetisation of the IP across various platforms of content distribution With strong order book on place, new orders coming in on a regular basis, your company is riding on the global and Indian animation and media industry growth. This trend leaves us confident on the basis of execution at production level and increasing growth of licensing revenues will help us to achieve and maintain growth for 2010 11. Key highlights for the quarter ended June 30, 2010: The revenue of INR 239.12 mn for the first quarter is in line with the company s plan for the financial year 2010 11 and in trend as per the previous years. The loss for the quarter was Rs 109.76 mn. The key attributes for the same were: The quarter witnessed fluctuations of the Rupee with the other currencies resulting in an exchange loss of INR 46.34 mn on account of adverse movement of foreign currency rates against the Rupee. Most of our costs are linked to manpower cost and hence any increase or decrease in the top line has disproportionate impact on our quarter on quarter profitability.
Quarter on Quarter Revenue Dispersion 2006 10: To showcase the trend of our consistent performance and the seasonality of our business activities, we give below the pie charts for each of the last five years that analyses the revenues earned quarter on quarter during each year:
NOTE: (a) FY06 & FY07 figures pertain to erstwhile DQ Entertainment Ltd which was taken over by DQ Entertainment International vide a scheme of Amalgamation approved by the Honourable High Court of Andhra Pradesh, w.e.f May 2007 where all the assets & liabilities, business, employees, customers, management were taken over by DQ Entertainment International, and the erstwhile share & debentures ceased to exist. (b) FY08 financials comprise of figures pertaining to one month of erstwhile DQ Entertainment Ltd and 11 months of DQ Entertainment International. (c) While revenues per quarter are seasonal the costs are more or less fixed and hence disparity in the margins Consistent Annual Growth: The graph below gives the year on year growth in revenues and profitability of the Company as well as the projected performance for Fiscal 2011. Amount in INR Million 2200 2100 2000 1900 1800 1700 1600 1500 1400 1300 1200 1100 1000 900 800 700 600 500 400 300 200 100 0 FY06 FY07 FY08 FY09 FY10 FY11E The Revenue dispersion and expected performance for 2011 based on the order book of approximately INR 620 crores to be executed over the next 30 months.
Key Growth Drivers: The consistent revenue growth of the Company at a CAGR of 39.18% over the last five years and profitability growth at a CAGR of 90.97% has been on account of the following established competitive strengths: Unique business platform: Proprietary ERP solutions developed in house for production tracking and resources management enables DQE to execute and manage multiple projects simultaneously as well to integrate the creative functions directly with other operational functions within the organization. Upside from Co productions: DQE s co ownership of Intellectual Properties (IPs) and co production model for iconic brands not only gives it leverage to assured service revenue for production, but also a share in the rights for exploitation of the IPs globally. DQE holds over 450 hours of programming which will steadily increase with DQE s stake holding going up on global IP s in production. DQE s philosophy of raising majority of production budgets with global pre sales remains on place for all the projects. Vertically integrated business model: A fully integrated business model offering solutions from script to screen comprising pre production, production, post production, distribution, licensing and merchandising. High standards leading to repeat business: Highest international quality standards and timely deliveries by its professional, creative and highly motivated workforce has resulted in repeat business from our global client partners. Testimonies to this are the repeat orders DQE has executed for Walt Disney Television Animation, Nickelodeon & others. Strong management bandwidth: DQE has over the years built a very dynamic and efficient management team of professionals who have varied industry experience and very strong relationships with the group and its partners, clients and employees with lowest attrition rates. Impressive list of clients: DQE has established a diverse client partner base consisting of over 100 major producers, licensees and distributors from Europe, the USA, the UK and Asian countries: Walt Disney Animation Group worldwide, multiplex of Disney channels, Nickelodeon Animation Studio Inc. USA, Electronic Arts USA, Marvel Comics, American Greetings, NBC Universal and BBC Group UK, Public broadcaster France Television(F2, F3, F4,F5), TF1 TV and TF1 Enterprises France, M6 TV and distribution, France, Canal+ France, ZDF TV & ZDF Enterprises as well as WDR TV Group Germany, ABC Australia, Al Jazeera Middle East, TVO/Tele Quebec Canada, Turner Asia including Cartoon Network and POGO to name a few. The wide spread client partner base has helped in spreading the business risk.
Positive Macro Environment: The global M&E market, as a whole, will grow by 5.0 per cent compounded annually for the forecast period to 2014 reaching US$1.7 trillion, up from US$1.3 trillion in 2009. Rapidly advancing technology and software applications have facilitated animation to become more life like and realistic. The quality of animation movies has greatly improved with the incorporation of 3D. Over 17 large 3D stereoscopic feature films are in production in Hollywood alone triggering tremendous growth of animated content consumption. Animated feature films, since the first success of Toy Story 1 in 1997, have not looked back and have increased today into a phenomena of entertainment covering not only children but the whole family. The box office collections of recently released 3D stereoscopic feature films like Avatar (USD 2.73 Billion in first 8 weeks), How to Train your Dragon (USD 479 million), Alice in Wonderland ( USD 1.02 Billion in first 8 weeks), Toy Story 3 ( USD 576 Million in first 3 weeks) and Shrek 3 ( USD 791 Million) are a clear indication of market potential for productions of this nature. The stereoscopic pipeline required to produce these movies is available with very few companies. Ability to adapt to changing technology instantly: We at DQE have watched the changing technical and creative landscape and have brought about changes even before markets have reacted to it. Evidence of this is the 3D Stereoscopic technology pipeline which we adopted ahead of time. Perfect examples being Peterpan, Little Prince, Jungle Book TV Movie, Charlie Chaplin in 3D stereoscopic technology which we are producing for television and 'The Prodigies' theatrical feature film being produced in 3D Stereoscopic for Onyx/Warner Bros, 'The Jungle Book' feature film and 2 more, that we have been working on for the last 3 years. While the world is bracing itself to accept 3D Stereoscopic technologies much faster than expected vis a vis TV at home, we are one of the first to provide 3D content of world class standards to take advantage of the acute shortage that is expected. Several other DQ IP's as well as DQ co productions are going to be produced using this technology to meet the 3D market demand. Disclaimer: This Document is a marketing communication and not a prospectus or an invitation to subscribe to the shares of the Company. This has not been prepared in accordance with the legal requirements. This document contains forward looking statements which are not based on historical facts but based on the Company s expectation of future events and performance. Also the Company s goals objectives, vision or outlook may appear to be forward looking and involve risks and uncertainties. The Company does not anticipate to update these forward looking statements made as at this date except as required by law. The company shall not be held liable for any the contents of the document and it reserves the right to review and modify the contents of the document without any prior notice. This is for private circulation only and dissemination, distribution or copying of this document is strictly prohibited unless approved by the Company.