DQE.L Regulatory News (DQE)

DQ Entertainment plc ("DQE" or the "Company")

Final results for the year ended 31 March 2015

DQ Entertainment plc (AIM: DQE), a leading animation, gaming, entertainment production and distribution company, today announces its audited results for the year ended 31 March 2015.

 Financial Highlights:

The reduction in turnover is primarily due to a slowdown in production and delay in the commencement of new projects. However, due to cost efficiencies, operating profit before tax, finance costs and foreign exchange is up by 33% compared to last year.

The Company has recovered INR 945 mn in receivables from September 2014 till May 2015, which is nearly 36% of the old outstanding debtors as on 31st August 2014. Five companies have cleared all the payments, while the balance debtors are paying up the amounts as committed. The Company is now very hopeful of recovering most of the aged debtors of over 240 days in the current financial year.

Operating Highlights:

· DQE has completed the production and delivery of "Lassie and Friends", co-produced with Dream Works Classics USA and Super Prod France, and is airing successfully on international networks such as TF1 France, Telequebec Canada, ZDF Germany, Sun TV India, Media Corp Singapore, Noga Israel and several other networks globally.

· DQE's VFX foray has been successful and the division has contracted and delivered high quality VFX for several domestic feature films.

· DQE's feature film division has closed a US$ 30m print and advertisement deal on a proposed theatrical release scheduled for autumn 2017.Jungle Book has attracted important distributor's and sales agents in USA and Europe. Distribution contracts are under negotiation.

· The Licensing and Distribution division has negotiated 37 audio visual distribution deals and 14 licensing and merchandising deals worth US$6.29m in the year to 31 March 2015, and a further US$4m worth is in the pipeline.

· Power Kids and Tiny Toons, DQE's digital channels, have recorded an average of 150,000 daily online views, resulting in increased revenues through both these channels.

· DQE has developed capabilities to exploit the latest advancements in technology and geared to meet increased demand for high quality stereoscopic, 2K and 4K content and is currently producing a unique hybrid CGI show combining live action with CGI animation called 7 Dwarfs and Me

Tapaas Chakravarti, Chairman & CEO of DQE, commented:

"The media and entertainment industry is undergoing a deep transformation. New platforms and ways to access and consume entertainment are redefining the rules of the game. On the other hand, newer delivery platforms impose new challenges relating to rights management, delivery formats and consumption behaviour. We are focused on adapting our business model with strategies to remain competitive on a global scale.

Flexibility, adaptability and scalability have become more critical than ever. Our focus on developing

IP ownership for global audiences with international marquee partners has forged the way for additional revenue streams to accelerate growth and profitability."

Chairman and CEO Statement

I am pleased to present our annual report and accounts and the achievements of your Company for the financial year 2014-15, as well as my views on the animation/VFX industry.

Animation Industry Scenario

The animation industry is growing globally and production activity for the animation sector from 2013-15 has been increasing in various markets at a CAGR of almost 18-20% (Source: FICCI - KPMG Indian Media and Entertainment Industry Report 2015).

The good news is that animated feature films are a robust and thriving part of the entertainment industry and are expected to continue to provide great family entertainment for many years to come. Similarly the demand for animated content on most children's and family channels has been consistently growing combined with support in the form of tax incentives, rebates, production financing as well as co-production treaties between various countries, further fuelling the growth.

In November 2014, the Academy of Motion Picture Arts and Sciences announced that 20 animated films were submitted for the Oscars, which is a reflection of the demand for animated content internationally.

The year has been characterized by consolidation and realignment with mergers of several leading companies in this sector such as Epitome Picture and Nerd Corp with DHX Media, Micros Images by Technicolor USA. Synergy from combined resources and production of high quality and innovative content is expected to result from such mergers.

The industry has been witnessing a transformation empowered by technological advancements, new delivery platforms and increasing diversity in content, like never before. The media and entertainment industry is undergoing a deep transformation. New platforms and ways to access and consume entertainment are redefining the rules of the game. On the other hand, newer delivery platforms impose new challenges relating to rights management, delivery formats and consumption behaviour. We are focused on adapting our business model with strategies to remain competitive at a global scale.

Flexibility, adaptability and scalability have become more critical than ever. Our focus on developing IP ownership for global audiences with international marquee partners has forged the way for additional revenue streams to accelerate growth and profitability.

Our Business Divisions

In order to map our specialized offerings better with the market opportunities, we have streamlined our business divisions into Animation, VFX, Digital, and Licensing and Distribution.

1. Animation

Our teams continue to deliver high quality CGI and traditional TV series. In FY 2014-15 we have completed the production of several high quality shows and also commenced several new productions. These include 'Sheriff Callies' Wild West', a work-for-hire series being produced for Disney Junior , and '7 Dwarfs and Me', a hybrid and unique TV show combining CGI characters and backgrounds with live action sequences with real actors which is being produced with Method Animation France.

Some of the other projects in production include Peter Pan season II, Miles from Tomorrow Land, Popples, 7Dwarfs and Me and Shabiyat, while production of new IPs such as 5 & IT, , Robin Hood - Mischief in Sherwood Season 2, Wind in the Willows and Pinocchio - The After Story, will commence soon.

DQE currently has a production order book worth approximately $76 million for the next 30 months.

DQE recently secured up to US$50m from the issue of senior secured convertible bonds, mainly to fund the development of owned-intellectual property and co-production projects currently in the pipeline for production over the next two years, which are set out above.

Completed Projects

Robin Hood, Mischief in Sherwood Season 1- 52 x 11' - CGI TV series with Method Animation and TF1 France, ZDF Germany, ATV Turkey, DeA Kids Italy

Lassie & Friends- 52 x 11' 2D HD TV series with Dreamworks Classic Media USA, Super

Prod & TF1 France, ZDF Germany

Delicious Valley - 30 minute DVD with Team Entertainment

Little Prince - Season 3- 26 x 22' CGI TV series with Method Animation

On going Projects

Peter Pan Season 2 - 26 x 22' CGI TV series with ZDF Germany, De Agostini Italy, Method Animation and France TV

Miles from tomorrow land - 22 X 22' CGI for Disney Junior, USA

Popples - 52 x 11' CGI with Method Animation, France & Saban Group, USA

Lady Bug -  4 x 11' CGI with Zag Toons, USA

Sheriff Callie Wild West - 52 x 11' CGI for Disney Junior, USA

7warfs & Me - 52 x 11' live action and CGI with ZDF, FTV, RAI and Method Animation, France

Shabiyate season 10 - 15 x 13' CGI TV series with Fanar Productions, UAE

Hive Season II - TV series with Lupus Films UK

Chimpoo & Simpoo - 26 x 22' 2D TV series with ZeeQ Network, India

Projects in pipeline

Jungle Book Season 3 - CGI TV Series with Story Board Animation and ZDF Germany

Eshafan - 15 x 13' 2D series with Fanar Productions, UAE

PegHeads - 52 x 11' CGI[-i?] with Story Animation LLC, Florida

Pio the Chick - 2D TV series with RAI, Italy and Gruppo Alcuni

5 & IT - 52 x 11' CGI TV Series with Disney / Method

Robin Hood season 2- 52 x 11' - CGI TV series with Method Animation

2. Visual Effects ("VFX")

The foray by your company into VFX for live action films has been successful with the team successfully producing VFX for several domestic live action films. The VFX pipeline has been strengthened with the addition of highly skilled talent, ready to take on international VFX film works in the near future. The Company has completed 5 projects in VFX and 3 more are currently in productions.

3. Licensing and Distribution

DQE has been distributing and licensing content owned and produced by the Company as well as co-produced content for which we hold rights in certain territories. The performance has been satisfactory with more than 37 audio visual distribution deals and 14 licensing and merchandising deals worth US$6.29 m signed in FY 14-15 and US$ 4.0m worth and more in the pipeline.

Going forward we strive to focus more on the revenues derived from licensing and merchandising for our owned and co-owned properties. With the recently concluded deal with Discovery family channel in the United States, we are confident of achieving success in this market which represents a large potential in terms of licensing revenues globally.

4. Digital

Among many other initiatives, our digital kids entertainment channels launched during the last quarter of 2014 have gathered momentum and are generating revenues. Power Kids and Tiny Toonz are expanding their subscriber bases on a continual basis. Power Kids showcases animated content for children aged five and above, whereas Tiny Toonz is aimed at younger children. Both channels have now started to gain traction and have witnessed over 150,000 average daily online views resulting in increased revenues through both these channels.

Review of Financial Performance

Although our revenues are down by nearly 23% as compared to the previous year, our earnings before tax, finance costs and foreign exchange increased by 33% as compared to the previous year. This is because of the various cost efficiency measures taken by the Company. The EBITDA margin also improved from 43% in the previous year to 58% in FY 15 under review.

Our Commitment

The key to our success has been our associates, comprising of a team of young, creative, dynamic and innovative professionals determined to excel. We as a team are always committed to our shareholders, bankers, customers and to everyone associated with our Company. We aim, with your continued support, to excel in the global competitive landscape and look forward to better times ahead.

Tapaas Chakravarti

Chairman & CEO

27 May 2015

Consolidated Income Statement

For the year ended 31 March 2015

Consolidated Statement of Comprehensive Income

For the year ended 31 March 2015

Consolidated Statement of Financial Position

As at 31 March 2015

Consolidated Statement of Financial Position

As at 31 March 2015 - continued

These financial statements were approved by the Board of Directors and authorised for use on

27 May 2015.

Signed on behalf of the Board of Directors by:

Director Director

Consolidated Statement of Changes in Equity - continued

Consolidated Statement of Cash Flows

For the year ended 31 March 2015

Consolidated Statement of Cash Flows

For the year ended 31 March 2015 - continued

Notes to Consolidated Financial Statements

NOTE A - BASIS OF PREPARATION

1. General Information

DQ Entertainment Plc. (the "Company" or DQ Plc.) is a Company domiciled and incorporated in the Isle of Man on 19 April 2007 and was admitted to the Alternative Investment Market of London Stock Exchange on 18 December 2007.

The consolidated financial statements for DQ Entertainment (the "Group") and financial statements for the Company have been prepared for the year ended 31 March 2015.

As on 31 March 2015 the following companies formed part of the Group:

The Company's registered address is 33-27, Athol Street, Douglas, IM1 1LB, Isle of Man.

The Group is primarily engaged in the business of providing Traditional and Digital Animation for Television, Home Video and Feature Films. The Group also is engaged in exploitation of its Distribution Rights to broadcasters, television channels, home video distributors and others.

The functional currency of each of the respective Group companies is:

1. Significant accounting policies

(a) Adoption of new and revised standards

EFFECTIVE DATES OF IFRS AND AMENDMENTS

(i) Standards and interpretations in issue not yet adopted

EFFECTIVE DATES OF IFRS AND AMENDMENTS

Based on the Company's current business model and accounting policies, management does not expect any material impact on the Company's financial statements when any of the above standards or interpretations becomes effective. There are no other IFRS or IFRIC interpretations that are effective subsequent to the company's financial year end that would have a material impact on the group.

The Company does not intend to apply any of these pronouncements early.

(b) Basis of preparation and statement of compliance with International Financial Reporting Standards

The consolidated financial statements have been prepared under applicable International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board (IASB). The historical financial information incorporates the financial statements of the Group made up to 31 March each year.

(c) Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman's Statement. In addition, note AA to the financial statements includes the Group's objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and hedging activities and its exposures to credit and liquidity risk. The Group has considerable financial resources together with long term contracts with a number of customers and suppliers across different geographic areas and industries. As a consequence, the management believes that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook.

After making enquiries, the management has a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and financial statements.

(d) The basis of presentation and accounting policies used in preparing the historical financial information

These accounting policies have been consistently applied to the results, gains and losses, assets, liabilities and cash flows of all entities included in the consolidated financial statements for all the periods presented unless otherwise stated. The consolidated financial statements are presented in INR, rounded to the nearest million unless otherwise indicated. They are prepared on the historical cost basis except for financial instruments, which are carried at their fair values.

In the process of applying the Group's accounting policies, management is required to make judgements, estimates and assumptions that may affect the consolidated financial statements. Management believes that the judgements made in the preparation of the historical financial information are reasonable. However, actual outcomes may differ from those anticipated.

The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Judgements made by management in the application of IFRSs that have significant effect on the historical financial information and estimates with a significant risk of material adjustment in the next year are discussed in note AG.

(e) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 March each year. The group controls the entity where the groups is exposed to, or has right to variable returns from its investment with the entity and has the ability to effect those returns through its power to direct the activities of the entity. In respect of the associate, the consolidated financial statements incorporate the last audited financial statements not exceeding three months from year ending 31 March 2015.

Intra group balances, transactions and any resulting unrealised gains arising from intragroup transactions are eliminated on consolidation. Unrealised losses resulting from intragroup transactions are also eliminated unless cost cannot be recovered. Amounts reported in the financial statements of the subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.

Non-controlling interests in subsidiaries are identified separately from the Group's equity therein. The interests of non-controlling shareholders may be initially measured either at fair value or at the non-controlling interests' proportionate share of the fair value of the acquiree's identifiable net assets. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests' share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Changes in the Group's interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Group.

(f) Goodwill

(i) Recognition and initial measurement

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceed the cost of the business combination, the excess is recognised immediately in profit or loss. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

(ii) Subsequent measurement

Goodwill is not subject to amortisation but is tested for impairment annually and is measured at cost less accumulated impairment losses, if any.

(g) Investment in associate

An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group's share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Group's interest in that associate (which includes any long-term interests that, in substance, form part of the Group's net investment in the associate) are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. Any excess of the cost of acquisition over the Group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of that investment. Any excess of the Group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss.

Where a group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group's interest in the relevant associate.

(h) Foreign currency

(i) Translation to presentation currency

The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency).

The functional currency of each of the respective Group companies is:

At the reporting date the assets and liabilities of the Group are translated into the presentation currency, which is in Indian Rupees (INR) at the rate of exchange ruling at the balance sheet date and the income statement is translated at the average exchange rate for the year.

Although the functional currency of the ultimate holding Company DQ Plc. is GBP, the presentation currency of the Group is not GBP as majority of the operations of the group are transacted in currencies other than GBP.

The USD: INR exchange rates used to translate the INR financial information into the presentation currency of INR were as follows:

The GBP: INR exchange rates used to translate the GBP financial information into the presentation currency of INR were as follows:

The EURO: INR exchange rates used to translate the EURO financial information into the presentation currency of INR were as follows:

(ii) Foreign currency transactions

Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into functional currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to functional currency at foreign exchange rates ruling at the dates the fair value was determined.

(iii) Financial statements of foreign operations

The assets and liabilities of the Group's subsidiaries and other entities controlled by the Group based outside the Isle of Man ("foreign operations") are translated into INR at the exchange rates prevailing at the balance sheet date. The income and expenses of foreign operations are translated into INR at average exchange rates prevailing during the year. Exchange differences arising on translation of foreign operations are recognised directly in equity as foreign currency translation reserve.

(i) Derivative financial instruments

The Group uses derivative financial instruments to manage its exposure to foreign exchange risks arising from operational activities. The Group does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments.

Derivative financial instruments are recognised at fair value. The subsequent gain or loss on re measurement to fair value is recognised immediately in profit or loss.

The fair value of forward exchange contracts is their quoted market price at the balance sheet date, being the present value of the quoted forward price.

(j) Property, plant and equipment

(i) Owned assets

Items of property, plant and equipment are stated at cost less accumulated depreciation. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located.

Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised within "other Income" for gains and "other operating expenses" for losses in the statement of income.

(ii) Subsequent costs

The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred if it is probable that the future economic benefits embodied within the item will flow to the Group and the cost of the item can be measured reliably. Replaced parts are de-recognised with any profit / (loss) on disposal recognised immediately in the income statement. All other costs are recognised in the income statement as an expense as incurred. 

(iii) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction and production of qualifying assets are capitalised as part of the costs of those assets. Qualifying assets are those that necessarily take a substantial period of time to prepare for their intended use. Capitalisation of borrowing costs continues up to the date when the assets are substantially ready for their use. All other borrowing costs are expensed in the period in which they are incurred.

(iv) Depreciation

Depreciation is charged to the income statement on a straight-line basis over the estimateduseful lives of each part of an item of property, plant and equipment. Land is not depreciated. The estimated useful lives are as follows:

 Computer hardware and software 3 - 6 years

 Equipment including office equipment 6 - 10 years

 Fixtures and furniture 10 years

 Vehicles 4 years

Lease acquisition cost and leasehold improvements are depreciated over the primary period of the lease or estimated useful lives of the assets whichever is less. Assets under construction are not depreciated, as they are not ready for use.

The depreciation methods, useful lives and residual value, are reassessed annually.

(k) Intangible assets

(i) Distribution rights

Distribution rights that are acquired by the company are stated at cost less accumulated amortisation and impairment losses.

(ii) Intangible assets under construction

Under certain distribution contracts, the Group was required to make advance payments in order to acquire distribution rights. These payments have been capitalised as intangible assets on the basis that (i) they will be realised through future sales to be made by the Group; (ii) they are separately identifiable and (iii) they are controlled through their legal rights.

The expectation is that these advance payments will be fully recouped by the Group, however, the extent to which full value will be obtained is dependent on the ability of the Group to generate sufficient sales on a go-forward basis under the various distribution contracts. On this basis, no systematic amortisation is charged. However, at each reporting date the asset is assessed for impairment, based on projected sales.

(iii) Projects under development

Direct or indirect expenditure incurred on the development of film production projects in order to create intellectual property or content, which are exploited on any form of media, are capitalised within Intangible Assets under construction, in accordance with IAS 38 (Intangible Assets), only from the point that the company can demonstrate:

(i) The technical feasibility of the project;

(ii) Its intention to complete the intangible asset and sell it;

(iii) Its ability to use or sell the intangible asset;

(iv) How the intangible asset will generate probable future economic benefits;

(v) The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

(vi) Its ability to measure reliably the expenditure attributable to the intangible asset during its development

(iv) Subsequent expenditure

Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates.

(v) Amortisation

Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets apart from Intangible assets under construction. Intangible assets are amortised from the date they are available for use. The estimated useful lives are the term of the licensing agreement or 10 years whichever is less.

Useful lives for individual assets are determined based on the nature of the asset, its expected use, the length of the legal agreement or patent and the period over which the asset is expected to generate economic benefits for the Group ("economic life").

(vi) Assignment of Rights - Policy

Under certain financing arrangements, the Group has assigned its rights in its non-registered capitalised IP as security for the period of the related financing. Based on the application of the substance over form principle, these IP's remain on the Statement of Financial Position, classified as Intangible Assets, as the overall substance of the transaction has no discernible effect on the economics of the transaction as the Group continues to have full access and use of the IP for the purposes of their business.

(l) Financial assets

All financial assets are recognised and derecognised on trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.

Financial assets are classified into the following specified categories: 'held for trading', 'held-to-maturity' investments, 'available-for-sale' (AFS) financial assets and 'loans and receivables'. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Investment in Mutual funds is classified as held for trading as it has been acquired principally for the purpose of selling it in the near term.

(m) Trade and other receivables

Trade receivables are initially measured at fair value and subsequently measured at amortised cost using the effective interest rate method. They are reduced by appropriate allowances for estimated irrecoverable amounts. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original term of the receivable. The amount of the provision is the difference between the carrying amount and the recoverable amount and this difference is recognised in the income statement.

Upon the initial recognition of revenue, when it is expected that the credit period to be taken by the customer will exceed normal terms, then the Group discounts the receivable to its present value using prevailing interest rates at the date of recognition. The implied interest income element is then recognised over the expected extended credit period.

(n) Cash and cash equivalents

Cash and cash equivalents comprise cash balances, cash in transit and call deposits and are carried in the consolidated statement of financial position at cost. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

(o) Impairment

The carrying amounts of the Group's assets are reviewed at the end of every year to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Impairment losses recognised in respect of cash-generating units are allocated to reduce the carrying amount of assets in the unit on a pro rata basis.

(p) Calculation of recoverable amount

The recoverable amount of the Group's receivables carried at amortised cost is calculated as the present value of estimated future cash flows, discounted at the original effective interest rate (i.e. the effective interest rate computed at initial recognition of these financial assets). Receivables with a short duration are not discounted. The recoverable amount of other assets is the greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

(q) Share capital

(i) Ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

(ii) Dividends

Dividends are recognised as a liability in the year in which they are declared.

(r) Interest-bearing loans and borrowings

Interest-bearing loans and borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest rate basis.

(s) Employee benefits

(i) Defined contribution plans

Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred.

(ii) Defined benefit plans

The Group's net obligation in respect of gratuity, which include amounts payable to employees on termination, resignation or retirement on completion of a minimum service period with the Group, and compensated absences, which include amounts payable to employees on utilisation of accumulated leave balances during the service period or encashment at the time of termination, resignation or retirement, is calculated estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any plan assets is deducted. The discount rate is the yield at the balance sheet date on government bonds that have maturity dates approximating to the terms of the Group's obligations. The calculation is performed by a qualified actuary using the projected unit credit method. Expected cost of compensated absences by way of sick leave is recognised in the income statement.

When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised as an expense in the income statement on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in the income statement.

All actuarial gains and losses as at 1 April 2004, the date of transition to IFRSs, were recognised. In respect of actuarial gains and losses that arise subsequent to 1 April 2004 in calculating the Group's obligation in respect of a plan, to the extent that any cumulative unrecognised actuarial gain or loss exceeds 10 per cent of the greater of the present value of the defined benefit obligation and the fair value of plan assets, that portion is recognised in the income statement over the expected average remaining working lives of the employees participating in the plan. Otherwise, the actuarial gain or loss is not recognised.

(t) Provisions

A provision is recognised in the consolidated statement of financial position when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Provisions for retakes are recognised wherever they are considered to be material. Retakes include creative changes to the final product delivered to the customer, performed on the specific request of the customer at the Group's own cost. Requests for retakes from customers are expected to be received by the Group within a period of 3 months from the final delivery and hence the provision is not discounted.

A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract.

(u) Trade and other payables

Trade and other payables are initially measured at fair value and subsequently measured at amortised cost using the effective interest rate method.

(v) Revenue recognition

(i) Production service fee and licensing revenue

Revenue represents amounts receivable for production and imparting production training skill services rendered and is recognised in the income statement in proportion to the stage of completion of the transaction at the period end. The stage of completion can be measured reliably and is assessed by reference to work completed as at the period end. The Group uses the services performed to date as a percentage of total services to be performed as the method for determining the stage of completion. Where services are in progress and where the amounts invoiced exceed the revenue recognised, the excess is shown as deferred income. Where the revenue recognised exceeds the invoiced amount, the amounts are classified as unbilled revenue.

The stage of completion for each project is estimated by the management at the onset of the project by breaking each project into specific activities and estimating the efforts required for the completion of each activity. Revenue is then allocated to each activity based on the proportion of efforts required to complete the activity in relation to the overall estimated efforts. The management's estimates of the efforts required in relation to the stage of completion, determined at the onset of the project, are revisited at the balance sheet date and any material deviations from the initial estimate are recognised in the income statement.

The Group's services are performed by a determinable number of acts over the duration of the project and hence revenue is not recognised on a straight-line basis.

Contract costs that are not probable of being recovered are recognised as an expense immediately.

Revenue from the licensing of distribution rights (including withholding tax) is recognised on a straight line basis over the term of the licensing agreement where there is an on-going performance obligation and in the case of the license fee from co-production rights on the date declared by the licensee. Revenue from licensing of distribution rights is recognised at the time of sale under a non-cancellable contract which permits the licensee to exploit those rights freely and the Group has no remaining obligations to perform.

No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due.

(ii) Royalties

Fees and royalties paid for the use of the group's assets (such as trademarks, patents, software, music copyright, record masters and motion picture films) are recognised in accordance with the substance of the agreement. This may be on a straight line basis over the life of the agreement, for example, when a licensee has the right to use certain technology for a specified period of time. An assignment of rights for a fixed fee or non-refundable guarantee under a non-cancellable contract which permits the licensee to exploit those rights freely and the licensor has no remaining obligations to perform is, in substance, a sale.

(iii)Distribution revenue

Revenue from distribution rights (including withholding tax) is recognised in accordance with the substance of the agreement. Revenue is recognised at the time of sale under a non-cancellable contract which permits the licensee to exploit those rights freely and the company has no remaining obligations to perform.

(w) Expenses

(i) Operating lease payments

Payments made under non-cancellable operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Payments made under cancellable operating leases are recognised as expense in the period in which they are incurred.

Leasehold interest in Land is classified as an operating lease and the amount paid for acquisition of such rights is classified as prepayments and amortised over the period of the

lease term

(ii) Finance lease payments 

Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

(iii) Net financing costs

Net financing costs comprise interest payable on borrowings calculated using the effective interest rate method, dividends on redeemable preference shares, interest receivable on funds invested and foreign exchange gains and losses that are recognised in the income statement.

Interest income is recognised in the income statement as it accrues, using the effective interest rate method. The interest expense component of finance lease payments is recognised in the income statement using the effective interest rate method.

Foreign currency gains and losses are reported on a net basis.

(x) Income tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated statement of comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax is recognised on temporary timing differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

(y) Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise convertible notes, convertible preference shares and share options granted to employees.

(z) Segment reporting

The Group has adopted IFRS 8 Operating Segments with effect from 1 January 2009. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segments and to assess their performance.

(aa) Voluntary changes in accounting policies and corrections of prior period errors

The Group presents all retrospective application of voluntary changes in the accounting policies and retrospective restatement to correct prior period errors as far as practical to conform with IAS 8 with relevant disclosures.

(ab) Financial instruments

Financial instruments comprise investments in equity, investments in equity trade receivables, unbilled revenues, loans to subsidiaries, cash and cash equivalents, bank borrowings , Convertible Bond and trade payables. Financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs.

Note B - SEGMENT REPORTING

Segment information is presented in respect of the Group's business and geographical segments. The primary format, business segments, is based on the Group's management and internal reporting structure.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly interest-bearing loans, borrowings and expenses, and corporate assets and expenses.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period.

Business segments

The Group comprises the following main business segments:

Animation:

The production services rendered to production houses and training rendered for acquiring skills for production services in relation to the production of animation television series and movies.

Distribution: 

The revenue generated from the exploitation of the distribution rights of animated television series and movies acquired by the Group.

Note B - SEGMENT REPORTING - continued

Segment revenue and segment result

Segment assets and liabilities

Other segment information

Geographical segments

The animation and distribution segments are managed on a worldwide basis, but operate in three principal geographical areas: America, Europe and Others.

The Group's revenue from external customers and information about its segment assets by geographical location are detailed below

NOTE C - REVENUE

NOTE D - OTHER OPERATING INCOME

NOTE E - NET FINANCING (COSTS)/INCOME

The interest expense is net of INR 2.47 Mn (PY 2013-14 INR 10 Mn) which has been capitalized as part of the acquisition cost of Intangible assets under construction.

NOTE F - INCOME TAX EXPENSE

Reconciliation of effective tax rate

CURRENT TAX EXPENSE

DQ Plc is liable to Manx corporate tax at the 0% rate.

DQM is liable to Mauritian corporate tax at the general rate of 15%, although in respect of its overseas income, after an available credit of 80% of the tax payable, the effective rate is reduced to 3%.

DQ India enjoys exemption of its taxable profits from export profits from production as per the provisions of section 10AA of the Indian Income Tax Act, 1961. However, as per the provisions of section 115JB of the Indian Income Tax Act, 1961, relating to Minimum Alternate Tax (MAT), companies whose tax liability was less than 20% of the book profits was deemed to have a tax liability equivalent to 20% of the book profits derived as per the Income Statement. The amount paid under section 115JB is allowed to be adjusted against tax liabilities in the succeeding seven financial years.

DQ Ireland is liable to Irish corporate tax at the general rate of 12.5%. However the company gets relief for the capital allowance in excess of depreciation, utilisation of tax losses and losses carried forward.

Consequently DQ India's current tax expense for the FY: 2014-15 of INR 88 million (FY: 2013-14: INR 156 million) represents the amount of MAT payable and can be carried forward and adjusted against the income tax liability (other than MAT tax provision) in the next ten financial years. Out of this DQ India has recognised INR 17 million of MAT Credit Entitlement on the basis of expected future recoveries.

Current tax expenses of the Group for FY: 2014-15 is INR 71 million (FY: 2013-14: INR 27 million) which comprises of Income Tax of INR 88 million (FY: 2013-14: INR 156 million), reversal of deferred tax (liability)/asset recognised in earlier years INR (90) million (FY: 2013-14: INR (58) million) and MAT Credit Entitlement INR 73 million (FY: 2013-14: INR (71) million).

NOTE G - PROPERTY, PLANT AND EQUIPMENT

Security

At 31 March 2015 assets with a carrying amount of INR 64 million (31 March 2014 INR 127 million) are secured to borrowings from banks.

NOTE H - NON - CONTROLLING INTEREST

NOTE I - GOODWILL

Goodwill arising on acquisition of subsidiaries

An amount of INR 432 million represents goodwill arising on consolidation of financial statements of the Company's subsidiaries. Goodwill represents the excess amount paid over the nominal value of the shares of DQ India, which DQ Mauritius acquired from certain shareholders.

The Group tests for impairment of goodwill annually or more frequently if there are any indications that the impairment may have arisen. The recoverable amount of a Cash Generating Unit ("CGU") is determined based on the higher of fair values less costs to sell and value-in-use calculations. The key assumptions for the value-in-use calculations are those regarding discount rates and long term growth rates. The discount rate is based on the risk free rate of interest on government of India bonds, while growth rates are based on management's experience and expectations and do not exceed the long term average growth rate for the region in which the CGU operates. These calculations use cash flow projections based on financial budgets approved by the management. Cash flows are extrapolated using the estimated growth rates. No impairment losses were recognised in 2014-15 (2013-14: Nil). The discount rate used for discounting the future cash flows is 14% (FY 2013-14: 18.04 %).

NOTE J - INTANGIBLE ASSETS

Intangible assets represent the unamortized value of costs incurred in acquiring advance paid for distribution rights and copy rights. The Group started acquiring these rights from the year 2003-04 and to date fifty series (FY: 2013-14: forty four series) of Animation rights have been acquired for different territories across the globe. In the current year the group earned revenue of INR 535 million (FY: 2013-14: INR 523 million) from exploitation of distribution rights. The Group has performed testing for impairment of intangibles which resulted in an impairment loss of INR 118 million (FY: 2013-14: INR 177 million) on account of the recoverable amount of certain intangibles being less that their carrying amount.

As a result of fundraising activities during the year, the Group has given the following security over the IP owned by DQ Ireland, detailed as follows:

· For all of its Registered IP, amounting to INR'16.7 Mn , a first fixed charge over all its present and future rights, titles and interests, including all Registered Intellectual Property acquired by it in the future; and

· For all of its non-Registered IP, amounting to INR' 9 Mn, as continuing security for the payment and discharge of the funding raised, it has assigned absolutely (subject to a proviso for reassignment on redemption) all its present and future rights, titles and interests in and to and the benefit of any Intellectual Property owned by it. Under this assignment agreement, the bondholders have granted DQ Ireland an exclusive, royalty-free licence to use all Intellectual Property assigned by it.

· In the opinion of the directors, the carrying value of the intangible assets are not less than their recoverable amounts.

· These assets are subject to the same security arrangements as detailed in Note J above. The total of INR'Mn 999 relates to non-registered IP rights.

NOTE K - INTANGIBLE ASSETS UNDER CONSTRUCTION

Intangible assets under construction include amounts paid to the producers for acquisition of the distribution rights and amounts incurred on internally generated intellectual property rights pending for capitalisation. These advances are transferred to distribution rights on completion of the entire production activities and when the asset is ready for exploitation.