DIRECTORS' REPORT & MANAGEMENT DISCUSSION AND ANALYSIS Dear Members, Your Directors are pleased to present the Thirty Ninth Annual Report on the business and operations of your company together with the Audited Financial Statements for the year ended 31st March 2015. The Management Discussion and Analysis is given as part of this Report Financial Performance You may be aware that the New Companies Act 2013 has introduced significant changes in the provisions related to governance, e-management, compliance and enforcement, disclosure norms, auditors and mergers and acquisitions. Your company's report has been prepared in line with the changes made in the act. Total turnover is Rs.5.44 Crore as compared to Rs.5 Core of previous year, up by 8.8% & operating profit of Rs.3.13 Crore as compared to Rs.2.09 Crore of previous year, up by 49.76%. After the depreciation & write-off the loss is Rs.149.65 Crore which has reduced the reserves to Rs.120.87 Crore as compared to Rs.270.52 Crore of previous year. Profit after depreciation stood Rs.0.03 Crore is due to the adoption of depreciation rates as prescribed in the Schedule II of new Companies Act 2013, otherwise the said profit would have been Rs.1.61 Crores as compared to Rs.0.72 Crore, up by 43%. The tax expenses of Rs.2.46 Crore are the Income Tax pertaining to M/s.Pentasoft Technologies Ltd. (merged Company in 2008) for the previous years. However there were no cash outflows since refund of some years have been adjusted towards various years' demands. The new provisions pertaining to governance, compliance etc has also necessitated in writing-off Rs.52.52 Crore of advances out of total advances of Rs.79.65 and details about the other write-offs are given below which were in existence more than ten years: Software Products: The products on mainframe & miniframe of Banking, Insurance, ERP etc. are no longer marketable and maintainable. Hence a portion of Rs.32.07 Crore has been written-off out of Rs.71.80 Crore. Digital Contents/CWIP: Animation contents for Film, TV & Internet comprising of characters, properties & backgrounds are no longer relevant due to the present technology changes on picture quality and resolution such as 4K, Digital 3D etc. and a portion of Rs.62.61 Crore has been written-off out of Rs.79.24 Crore. As per the new standards, the groupings have been done accordingly. Since the Company is not having subsidiaries, hence there is no consolidated statements. Business Overview Your Company is a 39 years old and one of the pioneer in Digital Media & Software in Asia's Entertainment and IT Industry having listing status for last two decades and continuing in focus on products ,projects ,consultancy & training in both Digital Media & Software. The employees of the Company are Full-time, Part-time and Outsourced with categories with a combination of Engineering, Visual Communication, Finance & Accounts skills working on man-hours basis. Digital Media: Production on Digital 3D Animation film "Mustafa Vs Magician", 2D TV series viz.," Thirukkual Stories" & "Proverb Stories" are in progress. Film distribution services being continued. Software: The technical expertise of the Company has been used for the retail venture " Mayamall "-Online Store for its back-office support and transactions and a mobile app for this online store is being developed. Apps development for Healthcare & E-publishing is in progress. Training: Skill based training programmes viz., 2D/3D Animation, Special Effects, Video Editing, Gaming Development, Web Designing, Graphics Designing, Apps Development for Mobile & Tablets, Robotics, 3D Printing etc. The trained students are being used for the Company's live product & projects New activities: During the year under review had launched technical books viz., "Visual Effects Theory and Practice", "Cloud Computing" & "3D Printing" to bridge the gap between education and industry. These books are made available in both Paperback & E-book in online stores and Other Books viz., PhotoShop, Flash, Android,Blender 3D are being complied and will be released in this year. These Books are being offered to major universities and college libraries at free of cost and at discounted price to students. The Company has extended its skill based training programmes into online by an exclusive portal (www.pentamedia.in/elearning ) in both Digital Media & Software. This eLearning revolves around its dependence on study material, supplied as e-file to learners to various locations where the primary interaction between the learner and the experiences of their learning occur via networked computer technology. Increasingly, learning management systems are serving as the basis for building online programs where the education experience is entirely meditated through a digital interface. Dividend & Reserves Taking into account overall financial performances of the Company Your Directors do not recommend any dividend for the financial year 2014-15. Consequently no amount is transferred to General Reserve Account. To give effect on new depreciation and written off as per New Companies Act 2013, a sum of Rs149.65 Crore have been reduced from the general reserves. Share Capital The paid-up equity share capital of the Company as on 31st March 2015 stood at Rs.41.50 Crore. During the year under review, the Company has not raised its issued capital with different voting rights nor has granted any stock options or sweat equity and none of the directors hold instruments is to be converted as equity shares as on 31st March 2015. Mrs. Sumathi Sridharan (DIN: 00162055) Director, holds 10000 equity shares in the company. Deposits During the year under review, Your Company has not accepted any Deposits within the meaning of provisions of Chapter V of the Companies Act 2013 (Acceptance of Deposits by Companies) read with the Companies (Acceptance of Deposits) Rules, 2014. Risk Management Your Company has a robust Risk Management policy, The Company through a steering committee oversees the Risk Management process including risk identification, impact assessment, effective implementation of the mitigation plans and risk reporting. A detailed Risk Management policy of the Company to have good Corporate Governance is hosted in the Company's official website www. pentamedia.in Internal Control Systems and Their Adequacy Your Company is having a sound internal system, which enables that all assets are protected against loss from unauthorized use and all transactions are recorded and reported correctly. The classification and accounting of assets is carried out as per the standard procedures followed by the Company. This system is further supplemented by internal audit carried out by an independent Chartered Accountant and periodical review by management. The Audit Committee of the Board of Directors, Statutory Auditors and Heads are periodically appraised of the internal audit findings and corrective actions taken. Directors During the year under review, the Company has appointed Mr.R.Swaminathan as additional and Independent Director of the Company with effect from 29th May 2015 for a period of five consecutive years. At the 38th Annual General Meeting held on 28th August 2014, Mr. S.D.Viswanathan (DIN 00162156) and Mr. R. Kalyanaraman (DIN 00041770) were appointed as Independent Directors for a period of 5 years with effect from 28th August 2014 for a term upto the conculsion of 43rd Annual General Meeting to be held in the calendar year 2019. They are not liable to retire by rotation. Director Mrs.Sumathi Sridharan retires by rotation and, being eligible, offer herself for re-appointment. The Directors recommend Mrs.Sumathi Sridharan for re-appointment. Finance & Accounts Your Company prepares its financial statements in compliance with requirements of Section 134 of Companies Act 2013 and generally accepted accounting principles (GAAP) in India. Management Discussion & Analysis Digital Media The rapid advancement of technology has made computer animation available to the masses and the animation industry is one of the fastest growing industries. The demand for animated entertainment has expanded with the increase in broadcasting hours by cable and satellite TV along with the growing popularity of the Internet. In the past, animation series were aimed at children aged nine and below. In recent years however, TV stations have been producing animation series for teenage rs, adults and the whole family. An overall 13 per cent growth from Rs 39.7 billion in 2013 to Rs 44.9 billion in 2014 was majorly due to the unpredictable changes that came about last year. The animation industry witnessed that earned Rs 332 million in India. Slowly, Indian animation production houses are realising the importance of developing their own IPs either on their own or in partnership rather than just depend on outsourced projects from mainly Hollywood. The demand for animation content in India appears to be growing steadily over the last few years, following the success of international releases in India. The box office collection from India of these international films is minuscule when compared to overall collections. On the kids channels in India, domestic animation only constitutes 13 per cent of the content while majority is dominated by US made shows. "Television continues to be the principal segment for domestic consumption of animation content in India. As India has one of the largest populations of kids watching cartoons in the world (approximately 200 million) the need for kids' content is growing," states the report. The viewership however has been steady for several years with 2014 accounting for 7.3 per cent for kids content. The viewership trend for the year shows that the kids of today are increasingly inclined towards local content. Channels have adopted a two-fold strategy to building kids brands, first by developing a range of loveable characters and then to drive brand engagement beyond TV, through on-ground events, online and mobile platforms, consumer products etc. "The Indian animation industry is going through the transition phase where producers are contemplating about aiming at the international markets with big budgets and high quality products. The path to international success lies in producing good quality movies with smaller budgets of Rs 60 million to Rs 100 million for the domestic market and then tying up with an international distribution agency," he said as the recipe to success. The estimates on licensing & merchandising that organised retail in India is expected to grow from 9 per cent in 2015 to 20 per cent by 2020 with a good push being given to the merchandising industry too. The report states that brands should introduce products only when characters are sufficiently popular. "The focus should be on creating long term relationships with licensees where the characters are converted into brands as they mature and once mature, can be exploited through the consumer products business; the characters then are timeless and not just a flavour of a season," it states. Outsourcing and co-production, 2014 wasn't a spectacular year for the outsourcing industry due to increased competition from China and Far East countries. A new trend also emerged of modularization of animation where experts from multiple animation studios come together to provide service in specific parts of the value chain. This model which is popular in the mature markets is being adapted by local studios to save time and gets good quality. Studios in India can tie up with studios abroad to leverage on each other's expertise by sharing the IP rights and revenues. This gives Indian studios a foot in the global market and also allows the two companies to take advantage of the benefits available in the other market. Software IT & ITeS India is the world's largest sourcing destination for the information technology (IT) industry, accounting for approximately 52 per cent of the US$ 124-130 billion market. The industry employs about 10 million Indians and continues to contribute significantly to the social and economic transformation in the country. The IT industry has not only transformed India's image on the global platform, but has also fuelled economic growth by energising the higher education sector especially in engineering and computer science. India's cost competitiveness in providing IT services, which is approximately 3-4 times cheaper than the US, continues to be its unique selling proposition (USP) in the global sourcing market. The Indian IT and ITeS industry is divided into four major segments - IT services, business process management (BPM), software products and engineering services, and hardware. The IT-BPM sector in India grew at a compound annual growth rate (CAGR) of 25 per cent over 2000-2013, which is 3-4 times higher than the global IT-BPM spend, and is estimated to expand at a CAGR of 9.5 per cent to US$ 300 billion by 2020. Indian IT's core competencies and strengths have placed it on the international canvas, attracting investments from major countries. The computer software and hardware sector in India attracted cumulative foreign direct investment (FDI) inflows worth US$ 13,788.56 million between April 2000 and December 2014, according to data released by the Department of Industrial Policy and Promotion (DIPP). Indian Government Initiatives, the adoption of key technologies across sectors spurred by the 'Digital India Initiative' could help boost India's gross domestic product (GDP) by US$ 550 billion to US$ 1 trillion by 2025. India continues to be the topmost offshoring destination for IT companies followed by China and Malaysia in second and third position, respectively. Emerging technologies present an entire new gamut of opportunities for IT firms in India. Social, mobility, analytics and cloud (SMAC) collectively provide a US$ 1 trillion opportunity. Cloud represents the largest opportunity under SMAC, increasing at a CAGR of approximately 30 per cent to around US$ 650-700 billion by 2020. Social media is the second most lucrative segment for IT firms, offering a US$ 250 billion market opportunity by 2020.The US$ 12 billion plus rising Indian e-commerce business market is witnessing a rush of hiring and may need 100,000 people over the next six months, as per industry experts. The industry offers a slew of opportunities and scope for innovation thereby attracting the young mind to push their limits. Internet & E-Commerce India's internet economy is expected to touch Rs 10 trillion (US$ 161.26 billion) by 2018, accounting for 5 per cent of the country's gross domestic product (GDP), according to a report by the Boston Consulting Group (BCG) and Internet and Mobile Association of India (IAMAI). In December 2014, India's internet user base reached 300 million, the third largest in the world, while the number of social media users and smartphones grew to 100 million. The private equity (PE) deals increased the number of mergers and acquisitions (M&A) especially in the e-commerce space in 2014. The IT space, including e-commerce, witnessed 240 deals worth US$ 3.8 billion in 2014, India also saw a ten-fold increase in the venture funding that went into internet companies in 2014 as compared to 2013. Internet should be a basic human right, say 87 per cent of internet users in India, compared with 83 per cent globally, according to a report by Centre for International Governance Innovation (CIGI). Cloud Services Public cloud services revenue in India is expected to reach US$ 838 million in 2015, growing by 33 per cent year-on-year (y-o-y), as per a report by Gartner Inc. In yet another Gartner report, the public cloud market alone in the country was estimated to treble to US$ 1.9 billion by 2018 from US$ 638 million in 2014. The increased internet penetration and rise of e-commerce are the main reasons for continued growth of the data centre co-location and hosting market in India. E-Book publishing In India now E-books are getting attention by publishers as well as readers. There is a lot of speculation going on e-book market in India. By 2016, US publishers will have 50% of their revenue through its eBook sales currently it is at 20%) and eBook sales in India will be 10-20% of total sales. s predicted by all major publishing houses and the usage trends, e-books are only getting better. Greater integration and usability with widespread reading devices that can be used on the move, advanced interactivity, audio books, word meanings and pronunciations, references, quick translations, and easy search are just some of the features of enhanced e-books. The customers are demanding greater features and rich e-book content. The opportunity for publishers is expanding significantly. Extract of Annual Return The details forming part of the extract of the Annual Return in form MGT-9 is annexed herewith as "Annexure A" as per section 92 of the Companies Act 2013 Board Evaluation of Board's Performance Pursuant to the provisions of the Companies Act, 2013 and Clause 49 of the Listing Agreement, a structured questionnaire was prepared after taking into consideration of the various aspects of the Board's functioning, composition of the Board and its Committees. Number of the meetings of the Board The Board had met (6) times during the financial year ended 31st March 2015, on 23rd May 2014, 27th June 2014, 7th August 2014, 30th September 2014, 30th October 2014 and 30th January 2015. The details of the meetings are given under the Report on Corporate Governance. Particulars of Loans,Gurantees or Investments By Company (u/s 186) The complete details of loans, guarantees and Investments as per the provisions of Section 186 of Companies Act 2013 are given in the notes on accounts of the financial statements. Vigil Mechanism/Whistle Blower Policy The Company has taken steps to establish the Vigil Mechanism/Whistle Blower Policy as is stipulated in the clause 49 of the Listing Agreement and Pursuant to Section 177(9) & 177(10) of the Companies Act 2013. This provides a mechanism to raise concerns about actual or suspected frauds, unethical behaviour, safeguards against victimization of employees, etc, and the same has been posted in the official website of the Company www.pentamedia.in Nomination and Remuneration Policy Pursuant to Section 178(3) of the Companies Act 2013, the Nomination and Remuneration policy of the Company comprising the appointment and remuneration of the Directors, Key Managerial Personnel and Senior Management of the Company including criteria for selection and appointment of Board Members. The constitution of committee is as follows: 1. Mr.R.Kalyanaraman - Chairman 2. Mrs.Sumathi Sridharan - Member 3. Mr.S.D.Viswanathan - Member The detail of the policy is given in the Report on Corporate Governance. Related Party Transactions All transactions entered by the Company with Related Parties were in the ordinary course of business and at arms' length basis and that provisions of Section 188 of the Companies Act 2013 are not attracted . Hence the disclosure in form AOC-2 is not required. Further, there are no material related party transactions during the year under review with the promoters,directors or key managerial personnel. All related party transactions were placed before the audit committee and board for approval and an omnibus approval was obtained on quarterly basis. The Company has formed a policy on related party transactions through standard operating procedures for the purpose of identification and monitoring of such transaction, which has hosted in the Company's official website www.pentamedia.in Significant and Material Orders passed by the Regulators or Courts There are no significant and material orders passed by the Regulators or Courts or Tribunals which would impact the going concern status of the Company. Directors Responsibility Statement Pursuant to the requirement under Section 134 (3)(c) of the Companies Act, 2013, in relation to the Annual Financial Statements for the Financial Year 2014-2015, your Directors confirm that: a) The Financial Statements of the Company comprising of the Balance Sheet as at 31 March, 2015 and the Statement of Profit & Loss for the year ended on that date, have been prepared on a going concern basis following as per the applicable accounting standards along with proper explanation relating to material departures; b) Accounting policies selected were applied consistently and the judgments and estimates related to the financial statements have been made on a prudent and reasonable basis, so as to give a true and fair view of the state of affairs of the Company as at 31 March, 2015, and, of the profit of the Company for the year ended on that date; and c) Proper and sufficient care has been taken for maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013, to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. d) that the annual accounts for the year ended 31st March , 2015 have been prepared on a 'going concern' basis; e) that the directors had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively. f) that the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. Declaration from Independent Directors The Company has received necessary declaration from each Independent Director of the Company under Section 149(7) of the Companies Act 2013 (Act) stating that the Independent Directors of the Company meet with the criteria of Independence laid down in Section 149(6) of the Act. Statutory Auditors Pursuant to Section 139 of the Act and Rules made thereunder, M/s. Babu Peram & Associates, Chartered Accountants were appointed as statutory auditors of the Company at the last annual general meeting held on 28th August, 2014 for a period of 5 years commencing from the closure of the 38th Annual general Meeting till the closure of the 43rd Annual General Meeting, subject to ratification by the members at every AGM. Accordingly, your directors recommend the ratification of the appointment of M/s. Babu Peram & Associates as statutory auditors of the Company from the conclusion of the 39th Annual General Meeting till the conclusion of the 40th Annual General Meeting. Internal Auditors The Company has appointed M/s.Anand & Madhan,Chartered Accountants (Firm Reg. No.009671S),Chennai as Internal Auditors of the Company for the financial year 2014-15. Secretarial Audit Pursuant to the provisions of Section 204 of the Companies Act, 2013 and rules made thereunder, the Company has appointed Mr.R.Sridharan of M/s.R.Sridharan & Associates, Company Secretaries in Practice (CP No.3239),Chennai to undertake the Secretarial Audit of the Company. The Secretarial Audit Report is annexed to this report. Explanation and Comments The reports of Statutory auditors and that of the Secretarial Auditors are self explanatory and have no adverse comments Material Change There is no material change or commitments after the closure of the financial year. DISCLOSURE UNDER THE SEXUAL HARASSMENT OF WOMEN AT WORKPLACE (PREVENTION, PROHIBITION AND REDRESSAL) ACT, 2013 The Company has in place an Anti Sexual Harassment Policy in line with the requirements of The Sexual Harassment of Women at the workplace (Prevention, Prohibition & Redressal) Act, 2013. Internal Complaints Committee (ICC) has been set up to redress complaints received regarding sexual harassment. All employees (permanent, contractual, temporary, trainees) are covered under this policy. The following is a summary of sexual harassment complaints received and disposed off during the year 2014-15. No. of complaints received - Nil No. of complaints disposed off - Not Applicable COMPOSITION OF AUDIT COMMITTEE Pursuant to Section 177 of the Companies Act, 2013, the Audit Committee was reconstituted by the Board of Directors and consists of the following members: 1. Mr. R. Kalyanaraman - Chairman 2. Mr. S D Viswanathan - Member 3. Mrs. Sumathi Sridharan - Member The Board has accepted the recommendations of the Audit Committee and there were no incidences of deviation from such recommendations during the financial year under review. CORPORATE SOCIAL RESPONSIBILITY (CSR) POLICY The Company through its Corporate Social Responsibility Committee had formulated a CSR policy as required under Section 135 of the Companies Act, 2013. The following is the composition of the Corporate Social Responsibility Committee. a) Mr. R. Kalyanaraman - Chairman b) Mr.S.D.Viswanathan - Member c) Mrs. Sumathi Sridharan - Member SCOPE OF CSR POLICY This policy will apply to all projects/programmes undertaken as part the Company's Corporate Social Responsibility and will be developed, reviewed and updated periodically with reference to relevant changes in corporate governance, international standards and sustainable and innovative practices. The policy will maintain compliance and alignment with the activities listed in Schedule VII and Section 135 of the Companies Act 2013 and the rules framed there under. CSR POLICY IMPLEMENTATION The Company shall undertake CSR project/programmes identified by the CSR Committee and approved by the Board of Directors in line with the CSR Policy. The CSR Policy of the Company is uploaded in the website of the Company www.pentamedia.in The spending on CSR activities is not applicable to our Company. VIGIL MECHANISM The Company has devised a vigil mechanism in pursuance of provisions of Section 177(10) of the Companies Act, 2013 for Directors and employees to report genuine concerns or grievances to the Audit Committee in this regard and details whereof are available on the Company's website. CORPORATE GOVERNANCE REPORT A report on corporate governance, giving the status of implementation of mandatory and non-mandatory norms, as per clause 49 of the listing agreement is attached and forms part of the Directors' Report. The Company has taken adequate steps to adhere to all the stipulations laid down in Clause 49 of the Listing Agreement. A Certificate from the Practicing Company Secretary confirming the compliance with the conditions of Corporate Governance as stipulated under Clause 49 of the Listing Agreement is attached to this report Human Resources The Company takes pride in the commitment, competence and dedication shown by its employees (including outsourced) in all areas of business. The Company is committed to nurturing, enhancing and retaining top talent through superior learning & organization development as a part of Corporate HR function. It is a critical pillar to support the organization growth and its sustainability over the long run. Conservation of Energy, Technology Absorption and Foreign Exchange and Outgo Your Company is into the business of Digital Media & Software for projects, products,consultancy & training. Since this business does not involve any manufacturing activity, most of the Information required to be provided under Section 134(3)(m)) of the Companies Act, 2013 read with the Companies (Accounts) Rules, 2014, are Nil / Not applicable. However the information, as applicable, are given hereunder: a) Conservation of Energy During the year, due to power scarcity the consumption of power & fuel were Rs 7.69 lacs as against Rs 7.71 lacs of pervious year. The Company is taking all the measurements for optimal use of energy to avoid wastages and conserve energy as far as possible b) Technology Absorption Your Company using latest technology into its Media & Software with audio and video compression to make available the Edutainment, Entertainment & Infotainment in single platform to a common man. c) Foreign Exchange Earnings and Outgo During the year, foreign exchange earnings & outgo is NIL Particulars of Employees The information relating to employees to be disclosed under Rule 5 of the Companies (Appointment & Remuneration of Managerial Personnel) Rules 2014 is annexed to and forms part of this report. Appreciation Your Company to express its appreciation for the continued co-operation of the Statutory Authorities both state and central , Banks & Financial Institutions, Associates, vendors and major shareholder M/s.Kotak Mahindra Bank Ltd. Your Company is also wish to thank all employees including the outsourced for their contribution and support throughout the year. V. Chandrasekaran Managing Director(DIN: 00158019 R. Kalyanaraman Director (DIN: 00041770) Place : Chennai Date : 24.07.2015 |