Reliance MediaWorks

The Directors have pleasure in presenting the Twenty First Annual
 Report and the Audited Accounts of the Company for the nine month
 period ended 31st March 2008.
 
 Financial Results:
                                                      (Rs. in millions)
 Particulars                         Financial Year     Financial Year
                                              ended              ended
                                    31st March 2008     30th June 2007
                                          (9 months)        (15 months)
 
 Gross income
 
 Film Processing and Traded Goods           634.17             954.16
 
 Theatre Operations                        1051.46             873.61
 
 Film Distribution                          782.30           1,362.55
 
 Film production and Related Services       235.61              10.53
 
 Other Income                               538.53             761.54
 
 Total                                     3242.07           3,962.39
 
 Expenditure                               1671.10           1,946.79
 
 Profit Before Depreciation, 
 Interest & Tax                            1570.97           2,015.60
 
 Interest                                   132.90              44.17
 
 Depreciation                              1034.16             929.87
 
 Profit Before Tax                          403.91           1,041.56
 
 Tax                                        (43.41)            187.24
 
 (Excess) / Short provision for 
 tax in respect of earlier years            (11.73)              0.97
 
 Profit After Tax                           459.05             853.35
 
 Loss after tax for the period 
 April 1, 2005 to March 31, 2006
 incorporated pursuant
 to scheme of amalgamation and arrangement     -               (19.52)
 
 Balance brought forward 
 from previous year                         879.48             247.46
 
 Total                                     1338.53           1,081.29
 
 Appropriations
 
 General Reserve                           1150.00              85.40
 
 Proposed Dividend                          115.32              99.50
 
 Dividend Tax                                19.60              16.91
 
 Balance carried forward                     53.61             879.48
 
 Total                                     1338.53           1,081.29
 
 Results of Operations
 
 The financial results covered and forming part of this report include 9
 month period from July 1, 2007 to March 31, 2008.
 
 As such the accounts for the period ended 2008 shall not be strictly
 comparable with that of the previous year/s.
 
 The total income from operations of the Company for the period ended
 March 31, 2008 (9 months) was higher at Rs. 2,704 millions recording an
 increase
 
 of 41% over the previous period on an annualized basis. The income from
 film processing for the period was at Rs. 634 millions, an increase of
 11% on an annualized basis over the previous period.
 
 Income from exhibition rose by 101% to Rs. 1,052 millions on an
 annualized basis. During the period, the contribution of the exhibition
 division towards the overall revenues has significantly increased from
 22% to 32% of the total revenues.
 
 The contribution of film production and distribution to the total
 income was Rs. 1,018 millions, an increase of 24% annualized basis over
 the previous period. The overall net profit of the Company was Rs. 459
 millions during the 9 month period ended March 31, 2008.
 
 Dividend
 
 Your Directors have recommended a dividend of 50% (Rs. 2.50 per Equity
 Share) for the period ended March 31, 2008 and hereby seeks your
 approval for the same. The total outgo on account of dividend to be
 paid to shareholders will be Rs.135 Millions (inclusive of Corporate
 Tax on Dividend) as against Rs. 116 Millions in the previous year.
 
 Business Review
 
 The last year has seen us expanding our position in existing businesses
 and building leadership positions. Key milestones have been:
 
 - Continued to be the largest cinema chain in India with 166 screens
 across the nation
 
 - International presence with Cinemas in USA
 
 - State-of-the-art 4K DI Lab set up and operational from April 2008
 
 - Set up India’s first DCI grade Digital Cinema operation with a test
 bed of 22 screens
 
 - Awarded the 2 lacs sq ft Filmcity Studios on BOT basis for 20 years
 
 - Mumbai Lab processed the highest number of prints ever in one year
 
 - The consolidated cinema revenues grew by 86% on annualized basis
 
 - The film processing and allied services revenue recorded a 16%
 increase over the previous year on annualized basis
 
 - The content production and distribution business saw a total income
 growth of 50% on annualized basis
 
 Cinemas
 
 Adlabs continues to be the largest cinema chain with 166 screens across
 the country. These constitute a healthy mix of premium cinemas such as
 Adlabs in Noida in Indias largest mall, The Great India Place and
 cinemas in smaller towns such as Warangal, Sivakasi, Tenali etc. Adlabs
 is committed to providing audiences across India - particularly tier II
 cities - access to our world-class facilities at competitive rates.
 Adlabs strategy is to not only set up new standalone properties and
 cinemas in malls, but also to take over current properties, renovate
 and operate them, thereby taking advantage of their considerable
 existing infrastructure and local brand value.
 
 For megaplexes being planned that will have 3-4 times the capacity than
 an average multiplex, Adlabs is the preferred choice for all
 developments with Emaar MGF in Hyderbad, Lucknow, Delhi, Sun Gumberg at
 Mohali and Ludhiana and Phoenix at Kurla Market City mall, Mumbai.
 
 As part of the initiative to bring new and enhanced experiences to
 Indian consumers, Adlabs opened India’s first 6-D cinema in Agra, near
 the Taj Mahal.
 
 Further while looking at cinemas as a global business, Adlabs Cinemas
 recently acquired 220 screens across 28 locations in the US. The chain
 will play mainstream Hollywood films apart from popular international
 fare which includes Indian movies and will provide a superior
 experience of watching movies.  The programming mix will also include
 popular Asian content in Chinese, Japanese and Korean languages
 catering to the cultural mix in the vicinity.
 
 This will enable Adlabs to directly and efficiently reach not only a
 large community of over two million Indian consumers with a strong
 affinity to Indian films in Hindi, Tamil and Telugu but also other
 Asians in the USA.
 
 Content Services
 
 FILM CO-PRODUCTION & DISTRIBUTION
 
 Several film features have been under development and are slated for
 completion and release during the current financial year. Some
 interesting projects lined up are Ram Gopal Varma’s Sarkar Raj, Vipul
 Shah’s Singh is Kinng and Harry Baweja’s Love Story 2050.
 
 India’s much awaited animation film Sultan-The Warrior featuring
 Rajinikanth is under production with Ocher Studios.
 
 FY08 has seen Adlabs successfully distribute films in India and
 overseas – such as Dhol, Dhamaal, Jab We Met, Mitti Awaajaan Mardi, Dil
 Dosti Etc, Khoya Khoya Chand, Kireedam etc. We also established a
 pan-India domestic theatrical distribution network which encompasses
 85% of the Indian box office, with offices in Mumbai, Delhi (covering
 Delhi, UP and Punjab), Vijayawada and Hyderabad (covering the Nizam and
 Andhra territories), Jalandar, Chennai and Amrawati. Adlabs intends to
 be present in all 14 domestic film territories. We already have
 well-established offices in the major overseas territories of USA and
 UK and these will be expanded to include other locations in the future.
 
 Film Services
 
 Adlabs is the market leader, processing the largest number of Hindi
 films with a record-breaking number of prints. FY08 saw the highest
 number of prints ever processed by the lab. Process improvement and
 de-bottlenecking have resulted in a 17% increase in prints per quarter.
 Long-standing business relationships combined with a technologically
 advanced lab facility and a well-appointed preview theatre at Film
 City, Mumbai have made Adlabs the most sought-after film processing
 laboratory in India, the only one that has been conferred the
 prestigious Kodak Imagecare accreditation for three years. Adlabs also
 has an award-winning lab in another significant film market-Chennai, as
 well as Kolkata, both of which have growing market shares.
 
 In line with Adlabs’ plan to become a larger Services company, it
 commenced its Broadcast Equipment Rental business last year which
 provides quality equipment for live shows, reality shows and game
 shows, among other segments. The business is being scaled up to provide
 support to fiction shows as well which are a lucrative segment.
 
 Adlabs is also in the process of developing an international standard
 studio complex with world class shooting facilities within Film City in
 Mumbai.
 
 Other Initiatives
 
 FM RADIO
 
 The Company launched its Private FM Radio stations under the name of
 BIG 92.7 FM in various cities in India. The Company had bid
 successfully for 45 stations under the FM Radio Broadcasting Phase II,
 out of which 44 stations were made operational during the current
 financial year. In terms of number of licenses, BIG 92.7 FM is amongst
 the largest radio station networks in the country. As per RAM (Radio
 Audience Measurement), BIG 92.7 FM is already among the To p 2 stations
 in each of the 3 markets currently under measurement in just 18 months
 of launch.
 
 The FM radio stations are located in diverse regions in India and the
 Company has been successful in attracting local listeners in each of
 these markets. The Company’s superior understanding of audience
 preferences enables the Company to provide content that is customized
 to their taste, language and culture.
 
 TELEVISION
 
 Synergy Adlabs has established itself as a leader in the television
 content space having produced some of the biggest and best-known shows
 on Indian television this year such as Kya Aap Paanchvi Pass Se Tez
 Hain, Dus ka Dum and the second season of Jhalak Dikhlaa Jaa among
 others. Other channel-driver shows produced this year are Angrezi Mein
 Kehte Hain on NDTV Imagine, Bollywood ka Boss on Sahara One and a foray
 into drama with Jiya Jale on 9X which became one of the top rated shows
 for the channel.
 
 NEW BUSINESSES
 
 Adlabs has opened a new state-of-the-art digital laboratory to
 complement its processing business within the same premises at Film
 City, Mumbai. The Digital Laboratory, which would be catering largely
 to the film industry, offers the best in class end-to-end digital post
 production services. Since the short period of its opening for
 business, the DI Lab has been able to garner some significant projects.
 
 Adlabs is proposing to enter digital content distribution for films and
 is in the process of rolling out 2K DCI-grade Mastering and
 Installation, as well as infrastructure connectivity through fiber
 optics and satellite. Adlabs has built an international team of expert
 professionals to spearhead the expansion and look to exploit the huge
 potential of digitalization in a market hampered by disorganization and
 piracy.
 
 Credit Rating
 
 The Companys proposed short term borrowing programme was assigned a
 rating of A1+ by ICRA Limited. This is the highest credit rating
 assigned by ICRA to short term debt instruments.
 
 Acquisition
 
 During the year on December 20, 2007, Adlabs Films Limited has
 increased its stake to 100% in its Joint Venture Company Runwal
 Multiplex Private Limited, which owns and operates the multiplex
 R-Adlabs in Mulund, Mumbai.
 
 Amalgamation & Merger
 
 Katch 22 Entertainment Pvt. Limited
 
 Katch 22 Entertainment Pvt. Limited, a wholly owned subsidiary of
 Adlabs Films Limited amalgamated with the Company effective April 1,
 2006 pursuant to the order passed by the Honourable High Court of
 Judicature at Bombay on September 14, 2007 which was filed with the
 Registrar of Companies, Maharashtra on October 9, 2007.
 
 Rave Entertainment Pvt. Limited
 
 On December 12, 2007, the Honorable High Court of Judicature at
 Allahabad sanctioned the Scheme of arrangement for the demerger of the
 Rave Entertainment Private Limited (REPL) i.e. the demerged company and
 Rave Real Estate Private Limited (RREPL) the resulting company. This
 was filed with the Registrar of Companies, Uttar Pradesh on December
 29, 2007 which is the effective date of the Scheme.
 
 Adlabs Films Limited had acquired the right to conduct the cinema
 exhibition business of six properties of Rave Entertainment Private
 Limited which was subject to the aforesaid demerger. Pursuant to the
 said order taking effect, REPL became a wholly owned subsidiary of
 Adlabs Films Limited and the results of the operations of REPL per se
 with effect from April 1, 2007 are included in the consolidated results
 of Adlabs Films Limited.
 
 Modified Composite Scheme of Amalgamation and Arrangement between
 Adlabs Films Limited and Entertainment One (India) Limited and Mukta
 Adlabs Digital Exhibition Pvt. Ltd and Reliance Unicom Limited.
 
 The Original Scheme of Amalgamation between Adlabs Films Limited and
 Entertainment One (India) Limited (EOIL) and Mukta Adlabs Digital
 Exhibition Pvt. Ltd (MADEL) and Reliance Unicom Limited (RUL) had
 received the approvals of all the concerned parties viz; Shareholders,
 Creditors, Stock Exchanges and the Regulatory Authorities such as the
 Regional Director and the Official Liquidator. The said Scheme was also
 sanctioned by the Hon’ble High Court of Judicature at Bombay on
 September 15, 2006.
 
 However as the demerger of Radio Business of the Company necessitated
 vesting of licenses for operation of Radio Business in favor of
 Reliance Unicom Limited which required the approval of Ministry of
 Information and Broadcasting, the Company had made an application for
 approval to the Ministry of Information and Broadcasting. The Company
 did not receive the said approval.
 
 In view of the above it was not possible for the Company to give effect
 to the demerger of the Radio business as provided in the Original
 Scheme. It was therefore proposed to give effect only to the
 amalgamation of EOIL with the Applicant Company and Demerger of Digital
 Cinema Business of MADEL into the Applicant Company and not give effect
 to the demerger of radio business of the Applicant Company into RUL
 from the Scheme.
 
 Accordingly, pursuant to the provisions of Section 392(1)(b) of the
 Companies Act, 1956, the Company had sought the sanction of the Hon’ble
 Bombay High Court to modify the Scheme which was approved by the Board
 of Directors of the Company on February 13, 2008.
 
 Pursuant to the above, Adlabs Films Limited, on March 7, 2008, received
 the sanction of the Hon’ble Bombay High Court to modify the “Scheme”
 thus enabling the Company not to give effect to the demerger of its
 radio business into Reliance Unicom Limited. As a result the radio
 business continues to be part of your Company’s business and the
 financial statements of RUL are consolidated with the financial
 statements of your Company.
 
 The High Court Order for approval to the Modified Scheme was filed with
 the Registrar of Companies on March 31, 2008, which is the date of
 giving effect to the Modified Composite Scheme.
 
 Subsidiaries
 
 As required under Section 212 of the Companies Act, 1956, the audited
 statement of accounts, along with the report of the Board of Directors
 and the respective Auditors’ Report thereon of all the subsidiaries for
 the financial year ended March 31, 2008 are annexed together with the
 statement relating to the Company’s interest in the subsidiary
 companies. Further pursuant to Accounting Standard AS-21 issued by
 Institute of Chartered Accountants of India, Consolidated Financial
 Statements presented by the Company include financial information of
 its subsidiaries.
 
 Name Change of Subsidiaries
 
 The names of two of your Company’s subsidiaries viz. Mukta Adlabs
 Digital Exhibitions Private Limited and Runwal Multiplex Private
 Limited have change to Adlab Multiplexes and Theatres Private Limited
 on May 1, 2008 and Adlabs Multiplex Private Limited on May 9, 2008
 respectively.
 
 Business Outlook
 
 The Reliance ADA Group has identified Media and Entertainment as one of
 the thrust areas of the group and is making significant investments and
 commitments covering filmed entertainment, television broadcasting and
 platforms such as Direct to Home.
 
 As an integral element of the group, Adlabs enjoys the support from the
 Group in respect to all its forays.
 
 The Entertainment and Media (E&M) industry is in a phase of steady
 growth, supported by the stable economic growth in the country. Once
 again, the E&M industry has outperformed the Indian economy as well as
 most other industries.
 
 The industry recorded a growth of 17% over the previous year, higher
 than the forecasted growth of 15% projected in the previous year. The
 Indian E&M industry estimated at Rs. 513 billion in 2007, is projected
 to grow at 18% CAGR for the next 5 years to reach Rs. 1.157 trillion in
 2012 (Indian Entertainment & Media Industry Report 2008 by Federation
 of Indian Chambers of Commerce and Industry and
 PricewaterhouseCoopers).
 
 Adlabs is an established leader in the business and is well positioned
 to benefit from the expansion of the industry.
 
 Awards/Achievements
 
 - Adlabs Cinemas was named “Most Admired Retailer in Entertainment”
 Award at the Images Retail Awards 2007.
 
 - The Mumbai Processing Lab received the Filmfare Award for Best
 Cinematography in 2007 for Chak De India (Hindi).
 
 - The Processing Lab in Chennai was awarded the South Indian
 Cinematographers Association (SICA) Award for “Best Colour Laboratory”
 in Chennai for 2007.
 
 Conversion of Foreign Currency Convertible Bonds to Equity
 Shares(FCCBs)
 
 During the year Company converted 63,350 FCCBs into 63,25,420 Equity
 shares of Face value Rs.5/- each at premium of Rs.538.42 per share
 pursuant to Notices received from Bondholders up to March 31, 2008.
 Each Bond of Face value € 1000 was converted at a fixed exchange rate
 of € 1 equivalent to Rs. 54.26.
 
 Directors
 
 Shri Manmohan Shetty, Chairman and Managing Director and Ms. Pooja
 Shetty, Wholetime Director resigned from their respective offices
 effective November 30, 2007.The Board places on record its sincere
 appreciation towards the contribution made by Shri Manmohan Shetty and
 Ms. Pooja Shetty during their tenure in the Company.
 
 In accordance with the provisions of the Companies Act, 1956 and the
 Articles of Association, Shri Gautam Doshi and Shri Sujal Shah being
 longest in office retire by rotation and being eligible, offer
 themselves for reappointment.
 
 A brief profile, expertise and details of other directorships of these
 Directors have been furnished in the section on Corporate Governance
 elsewhere in the Annual Report.
 
 Directors’ Responsibility Statement
 
 In terms of provisions of Section 217(2AA) of the Companies Act, 1956,
 with respect to the Director’s Responsibility Statement, it is hereby
 confirmed:
 
 - that in the preparation of the annual accounts, the applicable
 accounting standards have been followed and that no material departures
 have been made for the same;
 
 - that they have selected such accounting policies and applied them
 consistently and made judgments and estimates that are reasonable and
 prudent so as to give a true and fair view of the state of affairs of
 the Company as at 31st March, 2008 and of the profit of the Company for
 the year under review;
 
 - that they have taken proper and sufficient care for the maintenance
 of adequate accounting records in accordance with the provisions of the
 Companies Act, 1956, for safeguarding the assets of the Company and for
 preventing and detecting fraud and other irregularities;
 
 - that they have prepared the annual accounts on a “going concern”
 basis.
 
 Consolidated Financial Statements
 
 The Audited Consolidated Financial Statements for the year under review
 ended March 31, 2008 is annexed to this Report. The reports and
 standalone audited accounts of all subsidiary companies along with
 statement pursuant to Section 212 of the Companies Act, 1956 containing
 full details of the performance also form part of this Annual Report.
 These statements have been prepared on the basis of audited financial
 statements received from the subsidiary companies as approved by their
 respective Boards.
 
 Auditors
 
 M/s. BSR & Co., Chartered Accountants, Auditors of the Company, hold
 office until the conclusion of the ensuing Annual General Meeting and
 are eligible for reappointment. The Company has received a letter from
 M/s. BSR & Co., Chartered Accountants, to the effect that their
 reappointment, if made, would be within the prescribed limits under
 Section 224(1B) of the Companies Act, 1956 and they are not
 disqualified for such reappointment within the meaning of the Section
 226 of the said Act.
 
 The Notes on Accounts referred to in the Auditors Report are
 self-explanatory and therefore do not call for any further comments.
 
 Management Discussion and Analysis
 
 Pursuant to Clause 49 of the Listing Agreement with the Stock
 Exchanges, Management Discussion and Analysis Report is annexed hereto
 and forms part of the Report.
 
 Transfer of Unclaimed Dividend to Investor Education Protection Fund
 (IEPF)
 
 Pursuant to the provisions of Section 205A of the Companies Act, 1956
 the dividend declared by the Company in respect of the financial year
 2001 which has remained unpaid and unclaimed for a period of seven
 years amounting to Rs.19,477/- shall be transferred to the Investor
 Education Protection Fund (IEPF) established by the Central Government
 pursuant to Section 205C of the said Act.
 
 Disclosure of Particulars
 
 As required under Section 217 (1) (e) of the Companies Act, 1956, read
 with the Companies (Disclosure of particulars in the Report of Board of
 Directors) Rules, 1988, the relevant information regarding conservation
 of energy, technology absorption, foreign exchange earnings and outgo
 is given in annexure to this report.
 
 Particulars of Employees
 
 In terms of the provisions of the Section 217(2A) of the Companies Act,
 1956 read with the Companies (Particulars of Employees) Rules 1975, as
 amended, name and other particulars of employees are required to form
 part of this Directors’ Report. However, as per the provisions of the
 Section 219(1)(b)(iv) of the Companies Act, 1956, the Annual Report and
 the accounts are being sent to all shareholders of the Company and
 others entitled thereto excluding the aforesaid information. Any
 Shareholder interested in obtaining such particulars may write to the
 Company at its Registered Office.
 
 Internal control system and their adequacy
 
 The Company has effective internal control procedures commensurate with
 its size and nature of business to ensure that all its assets are
 safeguarded against losses, unauthorized use and that its transactions
 are recorded appropriately and reported correctly.
 
 The Company’s Internal Auditors viz. Mahajan & Aibara Associates have
 been conducting regular internal audits and checks to ensure that
 responsibilities are executed effectively. The audit committee of the
 Board of Directors actively reviews the adequacy and effectiveness of
 internal control systems and suggestion for improvement in the system
 from time to time.
 
 Corporate Governance
 
 A Report on Corporate Governance as stipulated by Clause 49 of the
 Listing Agreement along with a certificate of compliance from
 Practising Company Secretary, is included as part of the Annual Report.
 
 The Company has complied with the mandatory provisions of Corporate
 Governance as prescribed in Clause 49 of the Listing Agreement with the
 Stock Exchanges. The Company has implemented a Code of Conduct for all
 its Board Members and senior management of the Company who have
 affirmed compliance thereto. The said Code of Conduct has also been
 posted on the Company’s website.
 
 Human resources
 
 The Company’s most valuable asset and strength, its human resource is
 built up over the period of time. The Company is continuously
 facilitating their assessment procedure to progress rapidly as an
 organization. The Company’s employee relations were harmonious during
 the period under review.
 
 Acknowledgement
 
 Your Directors would like to express their sincere appreciation and
 gratitude for the cooperation and assistance from its shareholders,
 bankers, regulatory bodies and other business constituents during the
 year under review.
 
 Your Directors also wish to place on record their deep sense of
 appreciation for the contribution and commitment displayed by its
 employees.
 
                                        On behalf of the Board
 
                                   Amit Khanna          Gautam Doshi
                                      Director              Director
 
 May 29, 2008
 Mumbai.