Eros International Plc Annual Report and Accounts 2009 Corporate Office Eros International Plc Eros International Plc 15-19 Athol Street Isle of Man IM1 1LB Tel +44 (0) 8700 418 211 Fax +44 (0) 8700 418 212 UK Eros International Ltd Unit 23 Annual Report and Accounts 2009 Sovereign Park Coronation Road London NW10 7QP Tel +44 (0) 20 8963 8700 Fax +44 (0) 20 8963 0154 USA Eros Entertainment Inc 550 County Avenue Secaucus NJ - 07094 Tel +1 201 558 9001 Fax +1 201 558 9002 UAE Eros Worldwide FZ LLC 529 Building No 8 Dubai Media City P.O. Box 502121 Tel +971 (0) 4390 2825 Fax +971 (0) 4390 8867 Fiji Eros Pacific Limited 27 Lodhia Street P.O. Box 1802 Nadi-Fiji Tel +679 670 7722 Fax +679 670 7723 Australia Eros Australia Pty. Limited 4 Rosewood Way Werrington NSW 2747 Tel +61 2 9623 3480 Fax +61 2 9623 3481 India Eros International Media Pvt. Ltd. Satya Dev Building, 2nd Floor Off New Link Road Andheri (W) Mumbai - 400 053 Tel: + 91 22 4053 8500 Fax: + 91 22 4053 8540 www.erosplc.com Eros International Plc Annual Report and Accounts 2009 Contents 01 Highlights 22 Corporate Governance 30 Principal Accounting Policies Company Information 02 Eros at a Glance 24 Report of the Independent 37 Notes to the Financial 04 Chairman and Auditor to the Members of Statements Chief Executive’s Statement Eros International Plc 53 Company Balance Sheet 06 Market Overview 25 Consolidated Income Statement 54 Company Accounting Policies 08 Operating Review 26 Consolidated Balance Sheet 55 Company Notes to the 15 Financial Review 27 Consolidated Cash Flow Financial Statements 16 Eros Board and Management Statement ibc Company Information 17 Report of the Directors 28 Consolidated Statement of Company registration number 20 Remuneration Report Changes in Equity 116107C Registered office: 15-19 Athol Street Eros, a global player in the rapidly Douglas Isle of Man expanding Indian media and IM1 1LB Directors: Kishore Lulla entertainment arena Vijay Ahuja Sunil Lulla Jyoti Deshpande Dilip Thakkar (Non-Executive Director) Naresh Chandra (Non-Executive Director) Honorary Life President: Arjan Lulla Company Secretary: Richard Vanderplank Auditor: Grant Thornton P O Box 307, Exchange House, 54/58 Athol Street Douglas Isle of Man IM99 2BE 01 Eros International Plc Annual Report and Accounts 2009 Highlights Revenue US$m Financial Highlights 09 156.7 Ì Group turnover up 38.7% to US$156.7 million (2008: US$113.0 million). 08 113.0 Ì Gross Profit up 13.4% to US$71.5 million (2008: US$63.0 million). 07 66.4 Ì EBITDA up 41% to US$109.5 million (2008: US$77.9 million). Ì Profit before tax up 7% to US$48.4 million (2008: US$45.5 million). Gross Profit US$m Ì Basic EPS up 5% to 35.1 cents (2008: 33.5 cents). 09 71.5 08 63.0 Operating Highlights and Growth Drivers 07 56.5 Global Distribution Network EBITDA US$m Theatrical 09 109.5 Ì Revenues fell marginally from US$52.1 million to US$46.3 million 08 77.9 although on a constant currency basis the business showed 07 48.5 strong growth. Ì 70 films were released in 2009 out of which 24 were Profit Before Tax US$m released globally including Tamil and other regional films 09 48.4 (2008: 52 films released in total). 08 45.5 07 30.9 Television Ì Revenues from television syndication grew 94% to US$64.0 million Segmental Revenue US$m (2008: US$33.0 million). 09 46.3 64.0 46.3 Ì Revenue base further strengthened with new and ongoing television syndication deals with Star, Sony, INX, Viacom, Sahara, 08 52.1 33.0 27.9 B4U and Zee as well as other aggregators. 07 21.1 21.1 24.0 Ì Strong growth internationally for dubbed, subtitled and Theatrical Television Digital original versions including German, Russian, Arabic and 24 different languages. Digital New Media and Home Entertainment Ì Revenues from New Media grew by 69% to US$46.2million (2008: US$27.7 million). Ì This was driven by a combination of growth in subscription video on demand deals with Comcast, Cablevision and other cable platforms, IPTV, mobile deals, DTH and internet platforms. Ì Eros partner channel on YouTube crossed over 100 million video views (www.youtube.com/erosentertainment). Ì Digital Music revenues continued to grow strongly with 11 Hindi music titles in the year. Ì EyeQube visual effects studios made a significant contribution with three projects. Content Pipeline Ì Full visibility of film release slate for 2010 and 2011 and rapidly declining content capex underpin a positive outlook. Ì Over 50% of the revenues generated from catalogue and regional content. Ì Content capex for 2009 US$129.7 million (2008: US$170.2 million). 02 Eros International Plc Annual Report and Accounts 2009 Eros at a Glance Eros International Plc is a global player in the rapidly expanding Indian media and entertainment arena which is set to grow at 12.5% CAGR* over the next five years and slated to cross US$22 billion* by 2013 at current exchange rates. *Source: KPMG Being vertically integrated means that Eros not deeply entrenched distribution network that only produces and commissions film projects spans across 50 countries and has offices in similar to how Hollywood studios operate but India, UK, USA, Dubai, Australia, Fiji, Isle of Man also distributes and exploits films across all and more recently Singapore. Eros has built a formats globally including cinemas, home successful business model by combining the entertainment, television syndication and release of a portfolio of over 70 new films every digital new media. year with the exploitation of a valuable film library of over 1,900 film titles, making it Established in 1977, Eros has over three decades undisputedly one of the largest content owners of market leadership in creating a global in the business. platform for Indian cinema. The Company has a Key strengths Strong global brand Valuable and Unique and well Vertically Management founded on a long extensive content developed global integrated studio experience and history of success library distribution model track record network Integrated studio model Sourcing Global Joint ventures/ content distribution Alliances Content Library Theatrical Comcast Distribution SVOD Acquisitions/ Television EyeQube Output deals Syndication VFX Co-productions/ Digital New Media/ Ayngaran Productions Home Entertainment Tamil Regional Content Music Record Label Hollywood and Publishing Alliances 04 Eros International Plc Annual Report and Accounts 2009 Chairman and Chief Executive’s statement Kishore Lulla “I am proud that Eros has been consistently able to deliver strong results three years in a row since it became the first Indian entertainment company to list on the AIM market in 2006. The Company has built on its strengths and leveraged its competitive advantage to scale up the business significantly. ” I am delighted that Eros International has delivered strong revenue and profit growth for the third successive year, building on our core competency of content and distribution. Against a backdrop of an uncertain macro economic environment and adverse currency movements caused by the significant depreciation of the Indian Rupee to the US Dollar, with over 60% of the Group’s turnover coming from India, the underlying business has revenues at US$46.3 million in spite of produced a very robust performance. deferment of four major releases and The Company will continue to build its the currency devaluation. Television content portfolio and distribution Syndication revenues exceeded network while focusing on cash expectations by delivering a 94% growth conversion, effective management of at US$64 million and Digital New Media costs and reducing net debt. and Home Entertainment revenues grew by a 60% at US$46.2 million. The Group turnover went up by 38.7% to US$156.0 million in spite of a With a large slate of global releases significant part of the Company’s top planned for 2009-10 like “Kambakkth line revenues being eroded by the Ishq”, “Love Aaj Kal”, “Aladin”, “De translation into US Dollars which Dhana Dhan” and “Veer”, whose reflects the strong growth in the production costs are already underlying business. The gross profit substantially funded, the Company went up 13.4% to US$71.5 million. The expects to generate healthy cash EBITDA rose by 41% to US$109.5 million flows and reduce net debt over the reflecting the growth in margins next 12 months. The committed slate driven by regional content for 2010-2011 is also substantially distribution and catalogue sales. The funded and the content capex has profit before tax went up 7% to declined from US$170.2 million in 2008 US$48.4 million. Almost 70% of the cost to US$129.7 million in 2009 and we of sales is the content amortisation expect it to further decline in 2010. which continues to be written down as per the policy but the foreign Following the successful conclusion of exchange movement resulted in a talks with the national multiplex chains, disproportionately less bottom line the Company’s Indian box office when translated to US Dollars. I am revenues are expected to benefit from proud to say that the catalogue and certainty over revenue sharing terms regional content generated over 50% for the next two years. The Company has of the Group’s revenues and this is a also set up its own distribution offices key differentiator from all our peers. in all key centres known as circuits in With these results in fairly tough India including Mumbai, Delhi, Punjab, times and a strong release slate and Eastern circuit and Tamil Nadu which rapidly declining capex requirement, account for over 80% of the theatrical the management is confident of business activity from India.