MANAGEMENT DISCUSSION AND ANALYSIS COMPANY OVERVIEW D. B. Corp Limited (DBCL) is India's largest print media company with a brsence across Print, Radio and Digital It publishes 7 newspapers - Dainik Bhaskar (40 editions), Divya Bhaskar (7 editions) and Divya Marathi (7 editions) with 208 sub-editions in 4 languages i.e., Hindi, Gujarati, Marathi and English. DBCL is brsent across 14 states in India with a brsence in Madhya Pradesh, Chhattisgarh, Rajasthan, Haryana, Punjab, Chandigarh, Uttarakhand, Himachal Pradesh, Delhi, Gujarat, Maharashtra, Jharkhand, Jammu and Bihar. Recently, WAN-IFRA (World Association of Newspapers and News Publishers) declared DBCL's flagship newspaper Dainik Bhaskar as the 4th largest circulated newspaper globally. It is noteworthy that Dainik Bhaskar is the only Indian newspaper to figure in top 5 global newspapers. DBCL also has other important newspaper brands. These are Saurashtra Samachar, DB Star, DB Post and DNA (in Gujarat and Rajasthan on a franchisee basis). DBCL is the only print media conglomerate that has publications in four languages, and enjoys a leadership position in ail its major markets. The Company's other business interests span across radio and digital. In the FM radio segment through its brand '94.3 MY FM' which has a brsence in 7 states and 17 cities in all the Tier-II and III cities where we already have print businesses as well. In addition, MY FM also has acquired 13 new radio station licenses making it to 30 cities across our markets. Besides DBCL aiso has a strong online brsence with 11 Internet portais and 2 Mobile App having 34 mn Unique Visitors (UVs) and 1.2 bn Page Views (PVs). ECONOMY OVERVIEW Global: 2015 witnessed the revival of positive growth in the mature markets of USA, Japan and other giobai economies. This was accompanied by a higher and better growth registered by some deveioping and emerging economies of the worid. The growth was weii assisted by the softness in the oii prices and their corresponding impact on giobai commodities. As per The World Economic outlook, IMF (January, 2016), growth in emerging markets and deveioping economies is projected to increase from 4% in 2015 to 4.3 and 4.7% in 2016 and 2017, respectively. India and the rest of emerging Asia are generally projected to continue growing at a robust pace, although some countries are facing strong headwinds due to China's economic rebalancing and global manufacturing weakness. Indian Economy As per the Global Economic Outlook - 1st Quarter 2016, among emerging markets, India is well insulated against most of the global risks, viz., EU crisis, Dollar apbrciation and Fed rate hike As per the Economic Survey 2015-16 (India), the Indian economy has continued to consolidate the gains achieved in restoring macroeconomic stability. A sense of this turnaround can be felt by a cross-country comparison of overall index of macroeconomic vulnerability, which adds a country's fiscal deficit, current account deficit, and inflation. This index showed that in 2012 India was the most vulnerable of the major emerging market countries. Subsequently, India has made the most dramatic strides in reducing its macro-vulnerability. Since 2013, its score has improved by 5.3 percentage points compared with 0.7 percentage point for China, 0.4 percentage point for all countries in India's investment grade (BBB), and a deterioration of 1.9 percentage points in the case of Brazil. In the Advance Estimates of GDP that the Central Statistics Office (CSO), India released in February, 2016, the growth rate of India's GDP at constant market prices is projected to increase to 7.6% in 2015-16 from 7.2% in 2014-15. It is expected tobe in the range of 7.0 to 7.75% in 2016-17. As a proportion the Survey concluded that consumer price inflation would of GDP, the Current Account Deficit is likely to be in the be between 4.5% and 5% in 2016-17, well within the RBI's low range of 1-1.5%. Based on continuing moderation in target. oil prices and an expected return to normal monsoons, In the speech of Union Budget 2016-17, The Honourable Finance Minister to accelerate domestic demand has set the next year's agenda to 'Transform India'. This agenda has been built on nine pillars, out of them; following are the two major pillars that are expected to significantly contribute to the next level of India's economic growth: 1. Governance and Ease of Doing Business: to enable the people to realise their full potential; 2. Tax Reforms: to reduce compliance burden with faith in the citizenry. Rising consumer confidence, increasing disposable income and better infrastructure are likely to drive demand in India. This demand will transcend categories and is expected to be broad-based. MEDIA AND ENTERTAINMENT INDUSTRY (Source: KPMG-FICCI Indian Media and Entertainment Industry Report 2016 Overview During the last five calendar years (2011-2015), the Indian Media and Entertainment (M&E) industry has grown in double-digits every year. Despite turbulence in the broader economy, the India M&E industry grew by 12.8% from Rs. 1,026 bn in 2014 to Rs. 1,157 bn in 2015. Overall advertising revenues grew by 14.7% from Rs. 414 bn in 2014 to Rs. 475 bn in 2015. Unlike 2014, 2015 was not the year of high spends during elections; the major growth drivers were e-commerce advertising, language consumption and pervasive growth in radio segment. In 2015 print continued to enjoy dominance in the overall advertisement revenue pie, commanding over 40% share. Print and broadcasting segment again maintained highest ad spends with language print registering higher share of almost 2/3rd (64%) of the entire print ad pie. Customer acquisition was a major thrust area for e-commerce companies leading to growing spends by large players such as Amazon, Flipkart, Snapdeal, Paytm, Olx and Quikr across Television, Print and Radio. In language markets, telecom, e-commerce and mobile handset companies were the largest spenders. Rising incomes and evolving lifestyles leading to higher demand for aspirational products and services, are driving advertising traction. Print Media India's print industry experienced a dynamic growth situation in 2015. As per the KPMG-FICCI Indian M&E Industry Report 2016, Indian print industry grew at a robust rate of 7.6% from Rs. 263 bn in 2014 to Rs. 283 bn in 2015. It is expected to grow at a CAGR of 7.8% for the period CY2015-2020. While print advertisement revenues grew at 7.3% and reached Rs. 189 bn, revenues from circulation grew at 8.2% and touched Rs. 94 bn. If we consider newspapers alone, then total revenues grew at 8% and reached Rs. 269 bn. Further, newspapers are expected to grow at a CAGR of 8.2% for the period CY2015-2020. Newspaper circulation is expected to grow further because of following reasons: O A major thrust towards education has led to increase in literacy rate over the past several years. This has boosted newspaper readership in the country. The readership of print media is likely to grow further as the Indian Government targets to achieve the ambitious Universal Literacy Goal by 2060. O Internet penetration in India is much lower than that in western countries where shift from print media to online is being observed**. O Newspapers in India are extremely affordable when compared to western countries as they do not cost more than Rs. 150 per month. In addition, they have a wide reach and are credible. O News channels positively influence newspaper circulation, as people who watch news on TV often turn to the newspapers to validate facts and for analysis. It is being observed that dominance of English language newspapers on advertisement budgets is reducing and advertisers are now considering Hindi and vernacular print media segment -targeting affluent and aspiring customers in Tier-II and III cities. Newspaper circulation will continue on a growth trajectory with growth coming from Tier-II and III cities, which are also the growing markets for the sectors that are major advertisers. Source: 'India on the Go: Mobile Inernet Vision 2017', KPMG-IAMAI report, July 2015; KPMG in India's analysis, 2016. In 2015, growth in print advertising was primarily driven by FMCG, Automobile, Mobile handset and e-commerce players. While Automobiles maintains the category leadership in print advertising, FMCG, Mobile handset and e-commerce has been the fastest growing categories. Big spenders on print advertising In 2016, the following factors will contribute to growth in print advertising: O Focus on language markets by e-commerce companies, in contrast to their historical focus on English print media. O Increased affordability due to lower finance costs will drive growth in the automobiles and consumer durables segment. O Telecom players contributed 4% to the total ad spends in the print sector. With 4G services being launched by major telecom players in 2016, the advertising industry as a whole is expected to grow 10 to 15% in 2016. O Growing ad spends by Central Government on campaigns such as 'Make in India', 'Jan Dhan Yojana', 'Swachh Bharat Abhiyan' and 'Digital India'. O Increase in demand for luxury brands in Tier II and III cities. It is around 35% brsently. O Expected Good equitable and well distributed Monsoon. O Implementation and execution of 7th Pay Commission recommendations. O Implementation and execution of "One Rank One Pension". O Introduction and implementation of GST. Digital Media: 1. Digital Advertisement: Like the brvious year, advertising on digital media grew at the fastest rate among all other platforms. It grew at 38.2%, from Rs. 43.5 bn in 2014 to Rs. 60.1 bn in 2015 driven by increased allocation of budgets to customer engagement, usage of digital channels by traditional companies in businesses operations, and enhanced spends from e-commerce companies. Significant rise in online video content also played a huge role in driving digital revenues. Digital advertising is expected to continue to be the fastest growing advertising segment in future. In the U.K., digital advertising has already outperformed TV advertising, while in the U.S. it is expected to cross this benchmark in the coming year. In 2015, India's share of digital advertising to its total advertising market was 12.6% and is expected to reach 26% by 2020. The growing trend of using second screen, increasing mobile Internet and device penetration and technological innovation will drive digital advertising growth in future. 2. Mobile Advertisement: Mobile advertisement spend in 2015 was estimated to be Rs. 9 bn, projected to grow at a CAGR of 62.5% to reach Rs. 102.1 bn in 2020 driven by better monetisation by publishers, growing penetration of smartphones and increased consumption of content on mobile devices With new product launches, the FMCG and auto sectors are expected to be the biggest spenders on overall advertisements in 2016. E-commerce will continue to be a major contributor to digital ad revenues. While wireline broadband poses constraints, mobile has become an easier, quicker enabler for video consumption. Mobile data traffic grew 50% in 2015, driven by an 85% surge in data traffic from 3G. This growth is largely on account of rising consumption of audio and video contents that together contribute 40% to mobile data traffic. Compared to Metros and A category telecom circles, 3G data traffic has grown faster in B and C category telecom circles in India. With adoption of 4G in 2016, consumption of long format videos (>10 mins) is expected to rise. The above trends notwithstanding, Internet penetration is still low in India. As per Internet and Mobile Association of India (IAMAI) and IMRB International Report (18th November, 2015; <http://yourstory.com/2015/11/india-Internet-user-base-2015/>) the number of Internet users in India is 400 mn+. In 2015, only 22% of adults in India had access to the Internet, according to the Pew Research Center. That ranks India far behind other large, developing countries like China and Brazil, where adult Internet access rates range from 65% and 60% respectively. As per a study conducted by Centre for Communication and Development Studies (CCDS), Pune, the following reasons are responsible for low Internet penetration: 1. Infrastructure: India lacks the routers, fiber optic links and servers needed to expand access. Few public Wi-Fi spots exist, and broadband connections with faster speeds require infrastructure that is rarely found in urban low-income areas, much less rural ones. Mobile Internet connections aren't much better as across India, the connections are patchy. 2. Gender: There exists huge gender gap among India's Internet users. While 27% of India's men use the Internet, only 17% of India's women do. 3. Affordability: Being able to afford an Internet-connected device can be tough in a country where 75% of the population earns less than Rs. 5,000 per month. Some users overcome this barrier by purchasing secondhand smartphones, which are generally cheaper. However, less expensive devices come with less memory and combrhensive data plans are still difficult for many people to afford which poses challenge in streaming video and audio. 4. Awareness: The study suggests that many Indians lack a basic understanding of the Internet. According to a 2015 survey conducted by the Internet and Mobile Association of India, about a fifth of respondents who lived in urban areas and three quarters of rural residents said they didn't know about the Internet and therefore did not use it. However, the scenario is changing rapidly and India is expected to emerge as the country with the second highest number of Internet users. This means that the opportunity for digital advertising is significant, and is growing rapidly. Radio The radio industry grew by 15.1% in 2015, achieving a revenue of Rs. 19.8 bn, growing at a CAGR of 14.5% 2011-2015. Two factors are primary drivers of this growth. First, volume enhancement in Tier-II and III cities, and second, increase in Ad rates. In 2015, automobile, retail, consumer durables, and services continued to drive growth while e-commerce companies emerged as big spenders seeking uniqueness, contextualisation in market communication and content differentiation. The completion of Stage I of Phase III auctions, migration of existing operators from Phase II to Phase III and announcement of easing the FDI limit for FM Radio was a shot in the arm for the industry. Companies spent approximately Rs. 10.56 bn to acquire 91 new stations and are expected to spend Rs. 39.33 bn as they migrate the existing 243 stations to Phase III. On the completion of Phase III, FM Radio is slated to reach smaller towns and cities. 839 additional radio channels in 227 new cities are expected to come up, most of them in Tier-II and III cities. It is expected that radio industry will outpace the growth of the overall advertising industry in the coming years. At an expected CAGR of 17.1% during 2015-20, revenues are expected to double by 2020 driven by increase in listener base and inventory, favorable macro-economic conditions, emergence of new companies and categories. Leading to increase in wallet share. Radio's share of the overall advertising pie is estimated to continue around 4%. Opportunities and Threats India's M&E industry is in a transformation phase characterized by new delivery platforms and changing consumer behavior, with a demand for new choices and experiences. Rising aspiration levels among the middle class in Tier-II and III cities - backed up by Government's focus on improving infrastructure and inclusive growth - makes non-metro markets quite attractive. Internet under-penetrated across large parts of India offers many opportunities for traditional media platforms. With the advent of 4G, the speed of Internet is expected to improve and that may attract more spends in mobile-based, digital advertising from FMCG, auto, e-commerce and other sectors targeting focused segments. It will also provide an opportunity to create differentiated Ad content which may be delivered on mobile devices to enhance consumer experience and response. Consumption of content on radio is independent of literacy level of audiences which makes markets with lower literacy levels very attractive. With increasing penetration of high speed Internet and mobile devices, consumption of radio is bound to grow further with increase in ad spends -especially in later half of 2016 as Stage I of the Phase III auction is already over. The Indian print industry continues to be dependent on imported newsprint. Even though newsprint prices have experienced a decline, unfavorable fluctuations in the value of the Indian rupee may yet push the price of newsprint northward. Since, newsprint cost constitute over half of total costs, any fluctuation in the prices or exchange rates may impact bottom line. Digital media grew the fastest in 2015 at 38.2% and is expected to grow at 34.9% in 2016 to reach a size of Rs. 81.1 bn. It accounted for 15% of the total advertising spend in 2016, and is poised to become the third largest contributor after TV and print. This could largely happen at the expense of the print, which is likely to lose share in the total ad pie over the next five years To counter these challenges, DBCL is focused on building both print and digital platforms equally strongly to offer readers and advertisers a choice of platform, all relevant content and experiences, within the same umbrella media brand. DBCL - Segment Performance I) Print Segment New Launches: a) DBCL successfully completed its Bihar roll-out. The Company launched new editions in Bhagalpur, Gaya and Muzaffarpur, besides, 7 district editions, thus extending its reach and brsence to the entire geography of Bihar. The Bihar launch was driven by a well-executed strategy that included incisive research and a reader-centric survey to gauge audience brferences. This was supported by an aggressive marketing and sales campaign that established, once again, DBCL's ability to execute plans and consolidate its market-position. Despite the brsence of many formidable and long-standing news dailies, Bihar readers whole-heartedly embraced Dainik Bhaskar's offerings. The Company's content product garnered deeply apbrciated and positive first imbrssions and led to favorable reviews from new readers. All these factors contributed to a successful launch story, which DBCL has been achieving since inception. b) The Company launched a broadsheet English language newspaper "DB Post" from Bhopal. DB Post is a compact, smart product catering to the youth and English readership. It was launched as a crisp product to fill an important reader demand in the region, and has met with satisfactory interest. Editorial Framework: 1. DBCL is recognized for its strong content strategy, and its ability to provide differentiated, original content to readers on a consistent basis. It offers a complete product, relevant to users with interests in diverse genres. The Company's content strategy continued to focus on: O Knowledge enhancement for readers O Product differentiation towards growth 2. DBCL's editorial philosophy 'Kendra me Pathak' or 'Reader at the core' guides the editorial and content strategy. The Company's products are an essential part of the lives of its audiences. Consistent efforts have been made to engage readers with its content and brand. This enables the fostering of a symbiotic relationship and remain well informed of all key social, economic and political developments. Various reader engagement initiatives in 2015-16 ensured continuity in reader-engagement. Some of these included: 2. DBCL's editorial philosophy 'Kendra me Pathak' or 'Reader at the core' guides the editorial and content strategy. The Company's products are an essential part of the lives of its audiences. Consistent efforts have been made to engage readers with its content and brand. This enables the fostering of a symbiotic relationship and remain well informed of all key social, economic and political developments. Various reader engagement initiatives in 2015-16 ensured continuity in reader-engagement. Some of these included 1. Monday's have been redefined as, No Negative Mondays - a unique example of thought leadership in journalism. 2. Specific focus on "Zidd Karo Duniya Badlo" campaign on Fridays. 3. Content jacket on Sunday. 4. City Bhaskar - a product for youth and women readers. 5. New National Editorial structure: to focus on development of rural editions. 6. High quality reviews and opinion-led articles contributed by eminent authors and journalists including Mr. Shekhar Gupta, Ms. Barkha Dutt, Mr. Chetan Bhagat, Mr. Pritish Nandy, Mr. R Jagannathan, Mr. Rajdeep Sardesai, Mr. Ved Pratap Vedik and Mr. Shashi Tharoor. 7. Content associations with renowned publications such as Harvard Business Review, TIME Magazine, New York Times, etc. establish to provide global, world-class content. Circulation Framework In 2015-16, DBCL registered a 16% growth in circulation revenues. This was primarily driven by the increase in cover price by 13%, in the legacy markets, together with volume increases. DBCL has achieved a 15% CAGR growth in circulation revenue over the last 5 years (FY 2010-11 to FY 2015-16), driven by a volume growth of 5% and the balance 10% driven by increased yield in its core legacy markets. This showcases the Company's strong brand equity, where it has been able to grow circulation despite a rate hike in its legacy markets, reversing the established industry trends. Some key initiatives during 2015-16 include: O Reader Engagement Drives: O Record participation of more than 1 Mn Readers in the "Jeeto 10 Crore" drive. O INMA award for 'Magazine in Education' initiative. O More than 3 Lac students participated in the "Junior Editor" program. O High quality content and enriched product offering continues to forge a strong bond with reader, leading to higher stickiness, loyalty and growth despite increase in cover price. II) DIGITAL SEGMENT: DB Digital DBCL's digital footprint is sbrad across 11 web portals and 2 apps. These are growing steadily in visibility and enjoy high traction among the target audiences. DB Digital core drivers include: O Building around the brmise of content as the key differentiator: O Offering bouquet of hyper-local news content across religion, business, fashion, Bollywood, money and finance. • Leveraging DBCL's extensive editorial network. O A focus on technology for continuous optimization, better user engagement and maximizing ROI to advertisers. O Engaging audiences through WEB, WAP and APP offering real time information and news from across India and the world, with rich content on diverse subjects catering to a wide cross section of readers and their brferences. Gaining traction in traffic O www.dainikbhaskar.com the largest Hindi news website is now also the No. 2 news website (across languages) in India surpassing all other key online players. (Source: Mar'16 Comscore report.) O www.dainikbhaskar.com continues to remain the No. 1 Hindi news website and also the largest Hindi language website on Internet. Similarly, www.divyabhaskar.com retained its position of the No. 1 Gujarati news website and the leading Gujarati language website. O Digital Media Unique Visitors (UV) grew to 34 mn for month of March, 2016 from 27 mn for March, 2015. Page Views (PV) grew to 1,197 mn for the month of March, 2016 from 554 mn March, 2015 rebrsenting a 100%+ growth. O www.dainikbhaskar.com introduced video bulletins enabling users to see and hear the news online, leading to a more immersive experience when compared to reading. It crossed 13 mn video views during March, 2016. This has helped increase not just user engagement, but has also helped us overcome the language barrier, and become relevant to readers of other languages who watch video content in Hindi. O The total Dainik Bhaskar and Divya Bhaskar App downloads crossed 6 mn from the 0.9 mn downloads last year, signifying remarkable growth and user engagement. DB Digital new launches/ initiatives in 2015-16 O www.moneybhaskar.com launched in Gujarati for more localized and focused business news catering to the large Gujarati diaspora and business community. O Introduced two new websites, gadgets.bhaskar.com and food.bhaskar.com O Introduction of video news bulletin enabling readers to see and hear the news. Launched the proprietary video player, Ultima, which is both fast, and provides a seamless video experience. O m.bhaskar.com, the mobile website has been revamped with faster loading times and better user experience design. O The new website www.Fashion101.in crossed 1 mn UV marks within the first few months of its launch. It also won the Best Mobile Website Award at the brstigious Maddies Awards in 2015. O DB Digital has been actively reporting on breaking news and not just reporting stories. Noteworthy stories have been apbrciated by Hon'ble Chief Minister of UP, Akhilesh Yadav. O www.dainikbhaskar.com felicitated India's top digital planners in a grand ceremony held in Gurgaon in brsence of who's who of the Digital agencies and the rest of the Industry. Roundtable discussions were organized in Delhi and Mumbai with top marketers from different industries to share their insights on Communicating in Local Languages on Digital; the Next Big opportunity for Marketers in India and how Localization of Content on Digital can be a game changer for brands. There was enthusiastic participation from leading brands in categories such as FMCG, apparel, mobile, banking and automobiles. Mobile platform: O The Dainik Bhaskar Mobile App was awarded GOLD in the brstigious Hermes Creative awards in the Mobile App category under Mobile & Web-based Technology section: DB Mobile App is the only news mobile application in the country to win this brstigious award. The app is recognized for its innovative features such as Buddy Live, customized news and compatibility on low bandwidth . A 4-tiered product development process was adopted to develop the application. It involved accurate market scanning to arrive at new modules/versions which was the key defining factor for this recognition. O DB Mobile app continues to gain traction. The Company focused on introducing new features on a revamped mobile site, implemented new algorithms for articles relevant to the user's personal brferences, launched insta-article on Facebook for users to access all Bhaskar stories shared on Facebook. Login via Facebook on Bhaskar web and WAP, was also introduced, which led to record breaking traffic on WAP site on Bihar Election Results Day, with almost 40,000 readers at a time. O Launched Money Bhaskar app, the first Multi-lingual Business app in India on the iOS and Android platforms. Within two months of its launch, the app ranks 9th on the Google Play Store in the business news category. O Dainik Bhaskar iOS app version 1.5.3 has been made LIVE on app store with several new features for better mobile experience. Dainik Bhaskar app downloads have reachedmore than 6 mn on Android, iOS and Windows platform. III) RADIO SEGMENT: 94.3 MY FM In the radio segment, DBCL operates 17 stations across 7 states under the brand 94.3 MY FM. It is the No.1 Radio station in markets of Madhya Pradesh and Chhattisgarh. The core philosophy driving 94.3 MY FM is: O To be the leading and most admired FM Radio network in non-metro cities. O Leverage the significant growth potential in India, and capitalize on marked shift in attitude towards consumption of radio content. O From an add-on medium to an increasingly integral part of media plans, radio is essential for advertisers seeking to target more focused and localized audience groups. O DBCL is the market leading radio business in several key geographies, where our print footprint is also significant. Innovative and unique programing of content with a consumer-centric approach has been evidenced with the below initiatives: First ever centralized content team for 3 driver shows, curating daily content for better quality control: O Breakfast show consists of Newsmaker, Editor's voice and Expert Analyst. O Mid-morning show for housewives, panel experts and content breadth. O Reverse Driver show for working male / female with humor hour and content breadth. O Radio documentary, Crossfire, Unplugged Music Hour, Day wise Spiritual music, Sparklers Galore and Humor Segment. Emotional Engagements O Reality show of Paison ka Ped, Dawat-e-Music, Rangrezz, Ek Pyala Kushi and Secret Wish (Raksha Bandhan). The Radio brand positioning for listeners and advertisers is created through the core theme of "Jiyo Dil Se" which is the brand's core value proposition too. The Radio segment strategy is yielding results with a 2x revenue growth and 3x EBITDA, over the last 5 financial years (i.e. FY 2011-12 to FY 2015-16). During the FY 2015-16, the Company acquired 13 new frequencies successfully in the Phase III auctions. With this it consolidated its brsence in line with the strategy to be the market leader in 'Unmetro' geographies to achieve the following: O Out of 13, 9 frequencies were acquired in Maharashtra, where 94.3 MY FM is poised to become the biggest FM player with the cities of Ahmednagar, Akola, Aurangabad, Dhule, Jalgaon, Nanded, Nasik, Sangli and Sholapur. O 94.3 MY FM continues to be the biggest player in Rajasthan, and with the acquisition of Bikaner, is able to cover 100% of the state. O It has also emerged as the biggest player in Chandigarh, Punjab and Haryana region with inclusion of Hissar and Karnal. O Strengthened its brsence in Gujarat with acquisition of Rajkot. The Company is planning to rollout the newly acquired radio stations in FY 2016-17. RISK MANAGEMENT & CONTROLS Risk Management is an integral component of the DBCL business model. The Company firmly believes the need to manage risks together with operations is crucial to maximizing returns. DBCL has put in place a robust process to identify key risks across the Group and priorities relevant mitigating actions. The Risk Management framework is reviewed periodically by the Board and the Audit & Risk Management Committee. This review includes discussions on the management's submissions on risks, prioritizing key risks and approving relevant action plans that address these risks. Key risks identified by the management and their mitigation plans are outlined below: INTERNAL CONTROLS & VIGIL MECHANISM DBCL's belief is based on the principle of minimizing risk and ensuring sustainable growth with a proactive approach to internal controls and risk management. This ensures that our organization is well-governed, and that there are proper and sufficient checks and balances at every step and operating process. State Heads and Corporate Finance Heads are accountable for financial controls. This is measured against objective metrics on accounting hygiene and audit scores. They are fully responsible for accuracy of books of accounts, brparation of financial statements and reporting in line with Company's accounting policies. DBCL deploys a robust system of Internal Controls and Audit Mechanism to facilitate an accurate and fair brsentation of its financial results. This not just ensures adherence to regulatory standards and meets statutory compliance requirements but also that our reporting is complete, reliable and understandable. In addition, there is a specific impetus on safeguarding investor interests with deployment of the highest levels of governance and regular communication with them. Over the years, DBCL has undertaken specific efforts to build up its Processes and deploy Standard Operating Guidelines across all operational areas. This ensures zero ambiguity among the employees who are executing these operations. To support its Internal Audit structure, the Company has engaged experienced Chartered Accountants firms across all locations. A system of monthly Internal Audit reporting, reviewing and monitoring together with surprise audits are conducted to ensure effective adherence to established processes, internal controls and internal audit mechanism on real-time basis. During FY 2015-16 DBCL appointed PriceWaterhouse Coopers to assist in re-evaluating and testing its Internal Financial Control over Financial Reporting (IFCFR) as per the requirement of the Companies Act, 2013. The following exercise was performed for IFCFR: O Classification of Controls into Critical Controls, Key Controls and Non-key Controls. O Categorization of Controls into Financial Controls, Reporting Controls, Anti-fraud Controls, Entity Level Controls and Operating Controls. O Review of Entity Level Policies and Practices. O Review of existing Processes and Standard Operating Guidelines.Preparation of Risk & Control Matrices. O Test of Design and Operating Effectiveness of the Controls. O Preparation of IFC Charter. DBCL is among the first few companies in India to take active steps towards establishing a 'Whistle-blowing Mechanism'. This initiative was taken to encourage employees to report irregularities in operations, besides complying with the statutory requirement under Companies Act, 2013. DBCL had Ernst & Young to assist it in establishing an effective Whistle-blowing Mechanism. In order to maintain highest level of confidentiality, the Company has outsourced the complaint receipt and coordination with the whistle blower to an independent agency - InTouch India Limited. All DBCL employees can avail of this mechanism on a daily basis through a dedicated toll free Hotline, Website, Email or Post. The reporting channels can be accessed in Hindi, English, Marathi and Gujarati. The whistle blower will be provided with a reference number by InTouch, for providing additional information and knowing the status of complaint. An Internal Ethics Committee has been established to operate this policy under the supervision of the Audit Committee. An ombudsperson, along with the Ethics Committee decides the future course of action. Complaints are categorized and prioritized, based on their nature, and actions are commensurate. If the whistle blower is not satisfied with the actions taken, the mechanism also has an Escalation Protocol in place. Through the process, the mechanism considers and extends complete protection to the whistle blower. Integrity and ethics have been the bedrock of all the Company's corporate operations. There is no short cut to integrity. DBCL is committed to conducting its business in accordance with the highest standards of professionalism, honesty and ethical behavior. It has the best systems in place to nurture as honest and ethical a working culture as possible. FINANCIAL REVIEW & OPERATIONAL HIGHLIGHTS - CONSOLIDATED Income from operations On a consolidated financial basis, the Company achieved a growth of 2.20% in its total revenues including other income during FY 2015-16 at Rs. 20,800 mn compared to Rs. 20,353 mn for FY 2014-15. While total revenues from print grew by 0.80%, revenues from radio business grew by 12.12% and digital revenues grew by 50.68%. Circulation Revenue Circulation Revenue grew by 16% during FY 2015-16 at Rs. 4,356 mn compared to Rs. 3,755 mn for FY 2014-15, driven by an increase of 13% in the cover price, primarily in the legacy markets. It was also supported by higher volumes. Advertising Revenue Advertising revenues were sluggish during FY 2015-16 at Rs..14,812 mn compared to Rs..15,166 mn for FY 2014-15. This sluggishness was primarily due to a focus on implementing the yield strategy, where the upside in advertising rates was largely offset by a decline in volumes arising out of advertiser reluctance. Advertising revenue for the Print Segment declined by 4.5%. Although there was a yield growth 11%, the decline in volumes resulted in an overall decrease of revenues. DBCL has recorded a healthy 14% CAGR growth in advertisements revenue over a period of 10 years (i.e. FY 2005-06 to FY 2015-16). This is higher than the industry (FICCI-KPMG) estimated growth of 12% for the same period. Advertising revenue for the Radio Segment registered a growth of 12.12%, an industry-leading performance. DBCL has achieved 18% CAGR growth in Radio advertising revenue over 5-year period (i.e. FY 2010-11 to FY 2015-16) compared to industry (FICCI-KPMG) CAGR of 15% over the same timeframe. Advertising revenue for the Digital Segment registered a growth of 50.68%. The rapid growth and expansion of our brsence in the segment is evident from 73% CAGR growth over a period of 5 years (i.e. FY 2010-11 to FY 2015-16) as compared to industry (FICCI-KPMG) CAGR growth of 43% over the same period. Raw material consumed Cost of newsprint declined by 4.52% to Rs. 6,186 mn for FY 2015-16 compared to Rs..6,479 mn for FY 2014-15. This was a result of the softening of newsprint prices and also with negligible additional volumes needed for consumption, despite launch of new (Bhagalpur, Muzzafarpur and Gaya), launched last year and increased number of copies in the existing core legacy markets. DBCL also benefited on account of optimizing the size of various supplements which go along with the main newspaper, leading to lower average consumption. Employee cost At a consolidated level employee costs have risen by 13.29%, given the rapidly expanding brsence and business portfolio of the Company. This increase includes the employee cost of the new editions for 9 months, the introduction of the video division, as well as expanded operations under the digital segment. Two new portals -- food.bhaskar.com and gadgets. bhaskar.com were launched, together with creating a few of existing websites in multiple languages. The hiring of personnel has been an ongoing process during the last two quarters, with the acquisition of 13 new radio stations during the Phase III Radio license. Other expenses Other operating expenses grew by 11.54%, which covers the cost of operations of the new editions for 9 months. On a like-to-like basis, and excluding the impact of the new editions, expenses grew only marginally owing to a strict control mechanism and focus on cost optimization. The increase in CSR expenditure (from Rs. 37 mn in 2014-15 to Rs. 46 mn in 2015-16) is also a factor in other expenses going up. Foreign exchange losses (other than those covered under finance cost) increased by 72% from Rs. 15 mn in FY 2014-15 to Rs. 25 mn in FY 2015-16. EBITDA EBITDA de-grew by 4.30% on account of weakness in advertising revenues, and an increase in operating expenses. Better yield on cover price, strict control on costs and higher circulation revenues helped offset the impact of the de-growth in advertising revenues, and offset the EBITDA impact of the advertising revenues decline. Debrciation Debrciation and amortization expense remained almost the same as last year. Financial cost and foreign exchange fluctuation Finance cost, including the relevant foreign exchange fluctuation grew by 21.88% compared to brvious year. This was primarily on account of 43.6% increase in foreign exchange losses considered as borrowing cost which has increased from Rs. 25 mn in FY 2014-15 to Rs. 36 mn in FY 2015-16. Profit after tax (PAT): Operational PAT de-grew by 6.23% to Rs. 2,966 mn from Rs. 3,163 mn. However, DBCL ensured an optimum return on capital employed even during this moderate growth environment. FINANCIAL CONDITION ANALYSIS The quality and strength of the Balance Sheet of DBCL as on 31 March, 2016 is satisfactory. Most parameters are commendable. Key ratios are given below HUMAN RESOURCES DBCL employs 11,000+ people. Our employees are the Company's most important competitive strength and their satisfaction, dedication and hard work has ensured that it is ranked highest among media houses in India as an employer. With 11,000+ employees, DBCL has been identified as one of the largest employers in India in 2015. (Source: Business World, Real 500 Ranking). The ranking covers 1,089 non-financial companies and 122 financial companies, both listed and unlisted. In its efforts to create better work environment, provide performance oriented growth opportunities and motivating and retaining the right talent, various employee engagement initiatives were carried out by the Company during the year. Trendsetting Policies like Shubh Laxmi, Saubhagyawati Bhav, Sparsh, Special Leaves, Parents and In-laws Mediclaim Policy and Ek Din Bhaskar Mein were introduced for all employees. On the human resource initiatives front, the launch of the Online Performance Management System and Ad Sales Career Path benefited rationalization of appraisal process and alignment of Performance Linked Incentive (PLI) Policies with Individual KRAs, to further aid talent retention. Various training initiatives were undertaken in Ad Sales and the Company is planning to take them a step further by aligning training needs and performance metrics, across well-defined parameters. Application of Talent Management tools to Corporate Sales, automation of Employee Benefits and Processes together with improvisation of Talent Acquisition tools are some of the priorities for the ensuing year OUTLOOK DBCL is brsent across high growth segments that will see sustained audience interest and greater penetration, owing to increase in advertiser interest as well as subscriber base and revenues. Newer opportunities The Indian Languages print media industry is poised for rapid growth with country's economic engine revving up. The impact of technology innovations can, over the next few years, result in changes to consumption habits and patterns of audiences. The current, traditional business models may not be able to service consumer aspirations in this dynamic environment and need to evolve. While this can pose multiple challenges to existing M&E companies, DBCL believes that there are significant opportunities to tap into, especially for those who are willing to innovate and be flexible. It is critical that companies integrate these opportunities into their business models early to ensure that they are able to leverage the potential of a digital ecosystem. Indian language continues to drive print growth Print witnessed a marginal slowdown in 2015 coming off an election year with both Hindi and Vernacular markets growing at a surprisingly slow pace. Increased spends by e-commerce, telecom and mobile handset companies did help partially in arresting the slide. However, going forward, the growth is likely to pick-up, and sustain. Growing income levels are transforming demographics, and have enhanced the spending power in the Tier-II and III cities. With the growing literacy levels, increasing population and rising demand for region specific content, print media is acclimatizing and focusing on delivering content in the readers' native language. Another major factor that continues to drive growth the Hindi and Vernacular print publications is the high GDP growth of the Hindi speaking states against the national growth rates. Language print advertisement growth, expected at 10.6% CAGR continues to be driven by growing language markets with rural demand expected to be strong on the back of multiple Government initiatives supplemented and a greater headroom for enhanced circulation. Indian language content for rural India: Digital advertising continued its strong run with a 38.2% growth over 2014. A rising Internet user base was supplemented by increased spend allocation by marketers. An increasing share of mobile and video advertising is indicative of the direction in which content demand is headed. Proliferation of smartphones, significant advances in consumption devices and technology such as wearables, VR /AR and so on supplemented by growing digital content supply and distribution is changing consumer behavior in favor of digital content consumption. While currently monetization remains a challenge, once digital content is widely available, we expect content economics to achieve equilibrium and monetization models to evolve and become more favorable. Consumption on Video on Demand (VoD) platforms is increasingly becoming popular and subscription video on demand (SVOD) is gaining traction with multiple domestic and international players expanding in this space. With the increase in penetration of smartphones and better data speeds, this form of consumption is likely to drive the next phase of the digital wave. It is estimated that mobile video will grow at a CAGR of 62% between 2015 and 2020. Mobile video rebrsented more than half of the global data traffic from the beginning of 2012. This indicates that the growth has already kick started and is here to stay with 4G development and Government of India's Digital India push. Radio is becoming a 'Reach' platform: Radio continued its strong run with a 15.3% growth in 2015. Following the new stations licensed in Phase III and consolidation in the industry, Radio is transforming from a 'coverage' media to a 'reach' platform. Major radio stations have been operating at high ad inventory utilization levels. Coupled with rising advertiser interest, there is a definite increase in the ad rates on radio. The release of additional inventory from launch of new stations will stabilize rates but result in continued advertisement inventory pick-up. Radio at CAGR of 17% is expected to show the strongest growth among the traditional sectors due to conversion to a reach medium in the long-term supplemented by increased ad inventory. CAUTIONARY STATEMENT Certain statements in the Management Discussion and Analysis describing the Company's objectives, brdictions may be "forward-looking statements" within the meaning of applicable laws and regulations. Actual results may vary significantly from the forward-looking statements contained in this document due to various risks and uncertainties. These risks and uncertainties include the effect of economic and political conditions in India, volatility in interest rates, new regulations and Government policies that may impact the Company's business as well as its ability to implement the strategy. The Company does not undertake to update these statements For and on behalf of the Board of Directors of D. B. Corp Limited Sudhir Agarwal Managing Director Place: Mumbai Date: May 20, 2016 |