Preliminary Results

DQ ENTERTAINMENT plc

('DQE', 'the Company' or the 'Group')

Preliminary Results for the Year Ended 31 March 2012

DQ Entertainment plc, a leading animation, gaming, live action entertainment production and distribution company, today announces its final results for the year ended 31 March 2012. 

Financial Highlights:

·; Revenue up 4.3% to US$ 47.2m (2011: US$ 45.3m)

·; Profit before tax up 36.0 % to US$ 9.8m (2011: US$ 7.2 m)

·; EBITDA up 30.7% at US$ 22.4 m (2011: US$ 17.2 m)*

·; Order book currently at US$ 168.2(2011: US $ 112m)**

·; Cash and cash equivalents of US$ 12.4 m (2011: US$ 16.0 m)

*EBITDA is calculated by adding depreciation and amortisation expenses to the operating results before financing costs.

**Includes contracted forward production revenues and signed licensing and distribution deals

Operating Highlights:

·; Key production milestones completed during the year include:

o The Jungle Book Season 1 / Iron Man Season 2 / Little Nick Season 2.

·; Key new projects signed during the year include:

o Robin Hood, Mischief in Sherwood / Escape Hockey / Mickey Mouse Club House Season 5

·; Key commissions and ongoing projects during the year include:

o The Jungle Book Season 2 / The New Adventures of Peter Pan / Lassie & Friends / Mickey Mouse Club House Season 4 / Charlie Chaplin Season 1 / Casper Season 2

·; Other key development projects include:

o The Jungle Book Feature Film / The New Adventures of Treasure Island / Little Prince Feature Film / 5 children and It

·; New Licensing, Distribution and Broadcasting deals signed during the year include:

o 28 new merchandising deals agreed; majority relating to our The Jungle Book franchise

o More than 25 new broadcasting agreements have been signed for a variety of properties including The Jungle Book, Peter Pan, Iron Man and Charlie Chaplin

·; Prestigious awards received during the year:

o International Studio of the year (16th ceremony of Cartoons on the Bay, Italy 2012)

o Best Animated TV series for Teens: 'Iron Man' (Rapallo, Italy)

o Nominated Best Animated TV series for Kids: 'Charlie Chaplin'(Festival of Cartoons on the Bay)

Tapaas Chakravarti, Chairman & CEO of DQE commented:

"I am delighted to be announcing a positive set of results which further endorse our belief that DQ Entertainment is one of the leading global animation studio's working today. The depth and breadth of our talent coupled with the strong stable in IP we have amassed over a relatively short period of time leaves us extremely well placed to capitalise on global demand for quality and technologically advanced animation services.

"Our project pipeline has never been stronger and we continue to seek new and dynamic IP opportunities to further expand production and licensing revenue opportunities. We have started the current financial year well and look forward to another period of strong revenue and profit growth."

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Chairman's Statement

I am delighted to present our annual results for the year ended 31 March 2012.

We believe that both our short and long term strategies are providing tangible evidence of our ability to grow despite continuing adverse economic market conditions in the USA and Europe, our main markets. The Group has achieved quantifiable growth in terms of content production and distribution and continues to capitalise on opportunities in the entertainment marketplace globally.

Our key strategic priorities include:

·; Expand our portfolio of global and Indian branded intellectual properties (IPs)

·; Capitalise on 3D stereoscopic theatrical animation production and distribution with global partners

·; Continued focus on co-production business model for TV series

·; Accelerate growth in licensing and distribution through acquisition of new iconic properties

·; As an independent producer, offer diversified range of services from script to screen

·; Exploitation of newer delivery formats through the development of apps and interactive games

Throughout the year, we have remained focused on building the Company's position as a leader in the creation of high quality animated content using latest technologies and creativity to ensure that audiences are captivated by our content. Our licensing and distribution efforts are proving increasingly successful on a global scale and have created long term and sustained value for DQE by forging new partnerships across various markets, platforms and product categories. Our broadcast agreements in over 150 countries as well as the global licensing and merchandising deals for The Jungle Book, New Adventures of Peter Pan and Lassie & Friends demonstrate how we have and intend to exploit and monetise our IPs and content library.

DQE is now uniquely positioned as an integrated entertainment production and distribution company, focused on 360 degree monetisation across all platforms.

Important Milestones:

During the year, we have successfully concluded and delivered 11 TV series and television features, which are already being broadcast in prominent networks and territories worldwide. In addition, we have commenced productions of 7 new international television series which are being co-produced with our global partners and broadcasters.

Our local presence has been further consolidated with a third season of Omkar with Turner (Cartoon Networks )- Asia, a second season of Keymon TV series and Keymon TV Feature with Nickelodeon, India.

During the year, DQE has signed 5 new international production / co-production deals.

The Jungle Book has continued to gain traction with merchandisers across the globe and we have entered into 26 new Jungle Book merchandising agreements during the year.

In addition, we have also entered into more than 25 new broadcasting deals for several of our IPs including The Jungle Book, Peter Pan, Iron Man, Charlie Chaplin and Little Nick.

Financial Highlights:

The Group generated solid revenue growth of 4.3% to US$47.2m (2010: US$45.3m) but particularly pleasing was the significant profit performance, with profit before tax increasing by 36% to US$9.8m.

Distribution and licensing revenues increased 120% from US$4.9m to US$10.8m due to substantial Jungle Book related revenues of US$4.2m (2011: US$0.7m) as well as broadcast sales of our Indian IP "Feluda" and is in line with our core strategies described above. This growth is further evidence that the Board's strategy to co-produce IPs and develop its own content for commercialisation was correct. However production revenues declined by $3.9m during the period as a result of delays in commissioning of some of the new projects and deliberate stoppage of production activity in order to recover overdue payments from the customers.

The Group's order book remains healthy, at US$168.2m, a 50% increase compared with the US$112m at 31 March 2011.

Against this robust performance, the Board are comfortable that revenue growth from co-productions, service orders, own IP and licensing and distribution sales will be maintained in the next financial year.

The increase in profits was due to higher margins earned from increased distribution revenues and reduced cost of outsourcing as all projects were produced in-house, whereas in previous years, some of the production work had to be outsourced for want of capacity.

Operational Highlights:

The strong operating performance of the Group is demonstrated by the volume of work started, progressed and/or completed during the year, a summary of which is appended to this Chairman's Statement.

New Market Opportunities:

New digital opportunities have emerged making it possible to further monetise our commercial IP library for mobile applications, mobile games and mobile porting for all major platforms such as iPhone, iPad, ipod, itunes, blackberry, android, tablets, windows and internet platforms.

DQE will aim to develop a sustainable business model to monetise and distribute digital content through paid or sponsored hosting. Both mobile and internet usage has grown at a tremendous pace compared with traditional platforms and many more new media platforms for content delivery are emerging. Recognising the need for leveraging our existing and future IP's on these platforms, DQE has established an in-house team dedicated to producing content for mobiles, tablets and internet platforms. 

Cinema:

2011 witnessed several animated movies in the Top 20 movies at the Global Box office including Car2, Kung Fu Panda 2, Puss in Boots and Rio with Box office collections in excess of US$500M for each. 'The Adventures of Tintin' a 3D film based on a comic book was also lauded by audience in India and abroad.

With global animated movies experiencing increased demand and tremendous success at the box office, DQE has commenced developing its own animated films to be released from 2014 onwards. The release of our first feature film The Jungle Book for world wide release in the summer of 2014 is expected to generate significant revenues for the Group.

Industry Dynamics:

Continuing economic weakness in the US and the Eurozone during 2011 unsurprisingly had a negative impact on the global as well as Indian Media and Entertainment ('M&E') industry.

However, India is gradually moving away from the shadow of being only an outsourcing destination for animated content. It is increasingly recognised as a location capable of creating end to end high quality content for global audiences. DQE has been a leader in utilising local resources to create world class content and is spearheading the vision for Indian companies to achieve success on a global level through creation and monetization of IP.

The Indian M&E industry has grown from INR 652 billion in 2010 to INR 728 billion in 2011. The global animation industry is estimated at US$100 billion and a 9 % CAGR through to 2012 whilst the Indian animation industry is forecast to continue growing at a CAGR of 17 % until 2016. (Source: FICCI KPMG Report 2012 and Nasscom Animation and Gaming Report 2009).

Awards and Accolades:

I am delighted to announce that once again, DQE has received several prestigious international awards recognising our achievements in the industry during the year.

·; DQE received the prestigious "International studio of the year" award at the 16th ceremony of Cartoons on the Bay, Pulcinella Award, Italy 2012.

·; The CG animated TV series titled 'Iron Man' co-produced with Marvel Entertainment, USA won the Pulcinella Awards for 'Best TV series for Teens' at the festival of Cartoons on the Bay.

·; 'Charlie Chaplin', DQE's CGI animated TV series, co-produced with Method Animation, France was also nominated for the Pulcinella Awards for 'Best TV series for Kids' at the festival of Cartoons on the Bay.

Appreciation:

I would like to take this opportunity to acknowledge the tireless efforts, creativity and excellence of DQE associates and their constant efforts to stay ahead of the game in the global marketplace. I would also like to thank my colleagues on the Board, whose continuous guidance and advice is invaluable for the growth and performance of the Company. I sincerely thank our valued stakeholders; including our customers, business associates, bankers, government authorities and shareholders for their continuous support and trust.

Outlook:

The demand for our services remains strong and we continue to develop an extremely healthy pipeline for our services across production, licensing and distribution activities. Therefore we are confident that the Group remains on track to meet market expectations for the current financial year. We look forward to updating the market on our continued progress later in the year.

Tapaas Chakravarti

Chairman & CEO

Appendix to Chairman's Statement

Consolidated IncomeStatement

For the year ended 31 March 2012

Consolidated Statement of Comprehensive Income

Consolidated Statement of Financial Position

As at 31 March 2012

Consolidated Statement of Financial Position

As at 31 March 2012 - continued

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

28 May 2012.

Signed on behalf of the Board of Directors by:

Consolidated Statement of Changes in Equity - continued

Consolidated Statement of Changes in Equity - continued

Consolidated Statement of Cash Flows

For the year ended 31 March 2012

Consolidated Statement of Cash Flows

For the year ended 31 March 2012 - continued

Notes to Consolidated Financial Statements

NOTE A - BASIS OF PREPARATION

1. General Information

DQ Entertainment Plc, (the "Company", or "DQplc") 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 Company raised approximately USD 54 million (£26.83 million) at listing (before Admission costs).

The consolidated financial statements for DQ Entertainment (the "Group") and financial statements for the Company have been prepared for the year ended 31 March 2012.

As on 31 March 2012 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:

2. Significant accounting policies

(a) Adoption of new and revised standards

(i) Standards and interpretations in issue not yet adopted

The following new Standards and Interpretations, which are yet to become mandatory, have not been applied in the Company's Financial Statements.

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 other standards or interpretations becomes effective.

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

(ii) Standards and interpretations affecting the reporting results or financial position

IAS 27(2008) has been adopted in advance of its effective date (annual periods beginning on or after 1 July 2009). The revisions to IAS 27 principally affect the accounting for transactions or events that result in a change in the Group's interests in its subsidiaries. The adoption of the revised Standard has affected the accounting for the Group's dilution of part of its interest in its subsidiary.

IAS 27(2008) has been adopted for periods beginning on of after 1 April 2009. The revised Standard has affected the Group's accounting policies regarding changes in ownership interests in its subsidiaries that do not result in a change in control. In prior years, in the absence of specific requirements in IFRSs, increases in interests in existing subsidiaries were treated in the same manner as the acquisition of subsidiaries, with goodwill or a bargain purchase gain being recognised where appropriate; for decreases in interests in existing subsidiaries that did not involve a loss of control, the difference between the consideration received and the carrying amount of the share of net assets disposed of was recognised in profit or loss. Under IAS 27(2008), all such increases or decreases are dealt with in equity, with no impact on goodwill or profit or loss.

 (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.

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 AB 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.

(c) 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 United States Dollars, rounded to the nearest thousand 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 ongoing 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 AH.

(d) 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. Control is achieved where the power to govern the financial and operating policies of an entity so as to obtain benefits from its activity exists. In respect of the associate, the consolidated financial statements incorporate the last audited financial statements not exceeding three months from year ending 31 March 2012.

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.

(e) 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.

(f) 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.

(g) 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 US Dollars (USD) at the rate of exchange ruling at the balance sheet date and the income statement is translated at the weighted 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 USD were as follows:

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

The EURO:USD exchange rates used to translate the EURO financial information into the presentation currency of USD 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 USD at the exchange rates prevailing at the balance sheet date. The income and expenses of foreign operations are translated into USD 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.

(h) 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 remeasurement 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.

(i) 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:

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.

(j) 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").

(k) 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.

(l) 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.

(m) 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.

(n) 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.

(o) 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.

(ii) Reversals of impairment

An impairment loss in respect of a receivable carried at amortised cost is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised. In respect of other assets impairment losses are reversed when there is an indication that the impairment loss may no longer exist and if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(p) 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.

(q) 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.

(r) 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 incalculating 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.

(s) 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.

(t) 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.

(u) 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 ongoing 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) Government grants

Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and the grants will be received.

Grants that compensate the Group for the cost of an asset are recognised on receipt by way of deduction from the carrying cost of the asset. The grant is recognised as income over the life of the depreciable asset by way of a reduced depreciation charge.

Grants that compensate the Group for expenses incurred are recognised as reduction from relevant head of expense in the income statement on a systematic basis in the same periods in which the expenses are incurred.

(v) 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 amount paid for acquisition of such rights is classified as prepayments and amortised over the period of 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.

(w) 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 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.

(x) 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.

(y) 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. In contrast, the predecessor Standard (IAS 14 Segment Reporting) required an entity to identify two sets of segments (business and geographical), using a risks and returns approach, with the entity's 'system of internal financial reporting to key management personnel' serving only as the starting point for the identification of such segments. As a result, following the adoption of IFRS 8, the identification of the Group's reportable segments has not changed.

(z) 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 to IAS 8 with relevant disclosures.

(AA) Financial instruments

Financial instruments comprise investments in equity, investments in equity trade receivables, unbilled revenues, loans to subsidiaries, cash and cash equivalents, bank borrowings 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.

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

The interest expense is net of USD 107 thousand 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

DQplc 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 10A 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 10% of the book profits was deemed to have a tax liability equivalent to 10% of the book profits derived as per Income Statement. The amount paid under section 115JB is allowed to be adjusted against tax liabilities in the succeeding seven financial years. Till the financial year 2006-07, companies which enjoyed exemption under section 10A were outside the ambit of the provisions of section 115JB. However, by way of an amendment in the Finance Act 2007 such companies were brought within the provisions of MAT under section 115JB and were liable to pay tax of at least 10%.

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: 2011-12 of USD 1,808  thousand (FY: 2010-11: USD 1,324 thousand) represents the amount of MAT payable and can be carried forward and adjusted against income tax liability (other than MAT tax provision) in the next seven financial years. Out of this DQ India has recognised USD 1,407 thousand of MAT Credit Entitlement

Current tax expenses of the Group for FY: 2011-12 is USD 2,342 thousand (FY: 2010-11: USD 1,610 thousand) which comprises of Income Tax of USD 1,808 thousand (FY: 2010-11: USD 1,324 thousand), reversal of deferred tax (liability)/asset recognised in earlier years USD 1,941 thousand (FY: 2010-11: USD 959 thousand) and MAT Credit Entitlement USD (1,407) thousand (FY: 2010-11: USD (673) thousand)

NOTE G - PROPERTY, PLANT AND EQUIPMENT