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Eros International Reinforces Positive Business Fundamentals and Provides Detailed Response to Strongly Refute Anonymous Allegations

LONDON--(BUSINESS WIRE)--Eros International Plc (NYSE:EROS) (“Eros” or “the Company”), a leading global company in the Indian film entertainment industry, today provided a detailed response to the anonymous campaign that is spreading false and malicious information about the Company to negatively impact the Company’s stock price. Eros offered the following statement:

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“In the past two weeks, there has been a vicious campaign to damage the credibility of Eros International by spreading false rumors and misinformation regarding its business with an objective to create panic amongst the investor community. No new facts about the Company have come to light since the filing of the FY2015 financials or its Q1 FY2016 financials at which time the market sentiment was extremely positive.”

The Company added:

“We are confident in our business fundamentals and we will be announcing our Q2 FY2016 results in the first half of November. Our credibility and reputation are of paramount importance. Our Audit Committee has engaged the U.S. law firm Skadden, Arps, Slate, Meagher & Flom LLP to conduct an independent internal review and also to advise us on related matters.

Let us now address the principal allegations, the Company’s receivables and the ErosNow registered users, which we believe are the two most material points for our long-term shareholders.

a) Increase in receivables

The Company’s revenues from FY2014 to FY2015 increased by 20.7% (from $235 million in FY2014 to $284.2 million in FY2015). On its own, this increase in revenues accounts for approximately $50 million of the overall increase in receivables. Additionally, in FY2015 the Company disclosed that it had renegotiated and given extended payment terms to customers amounting to $31.2 million of receivables. The increase in revenues combined with receivables having extended payment terms, substantially explains the jump in overall receivables from FY2014 to FY2015. As at March 31, 2015, $6 million of the Company’s total receivables were over twelve months old and $160.5 million of receivables (including $31.2 million of renegotiated contracts) were not due. Detailed disclosure as of FY2015 on receivables is covered on page F-27 of the Company’s most recent Form 20F.

The Company’s accounting principles are in line with IFRS as issued by the IASB. The Company’s receivables balance is expected to be approximately 50-55% of revenues by end of FY2016, which is in line with other global content companies.

The Company’s library and new releases bundled together generates significant revenues and for many years the Company has been contracting with customers around the world for licensing of its’ content. The Company’s UAE subsidiary owns all the international rights to its library. As demand for Indian film content increases in geographies outside of India, the Company has increased its revenues in these new markets and done so in a profitable and consistent manner. A corner stone strategy that has propelled the Company’s dominance in international markets including Japan, Taiwan, South Korea, Russia, Africa, Poland and Indonesia has been to create preferred partnerships with select parties. Once a partner has demonstrated consistent, profitable results in a market, the Company will extend preferred payment terms as an incentive and retention plan.

Many sub-distributors exploiting Indian content in international territories have companies set up in UAE, British Virgin Islands or similar tax-friendly jurisdictions. The geographic reported revenue in accordance with IFRS as per company or customer domicile does not always represent the end market where the content is being consumed. Having given context to the definition of “UAE Receivables” as reported, note that India revenues from its international subsidiaries would be reported as Rest of the World revenues. If India has licensed any rights to its parent, the Company’s UAE subsidiary, which in turn has exploited it with any third party, the Company would report it as Rest of the World revenues and within that UAE if applicable.

The reported geographical segment revenue shows that India contributes just under 40% of the total revenues in FY2015. If we attribute a percentage of the reported revenues for the rest of the world to India as is the case, then contribution from India translates to at least 50% to 55% of Eros International’s total revenues. The increase is explained by the growth in revenues from new releases and library monetization by increasing sales to existing customers as well as increase in new customers in new and existing markets and debtor days increasing due to overdue and not due receivables, which the Company is on track to collect as per contractual terms during this financial year.

The Company’s target is to bring the overall receivables down from $209 million as of FY2015 to $150-$160 million by the end of FY2016 and bring the DSO days from 260 days to 175 days by the end of FY2016.

b) Amortization of content

Content is at the core of the Company’s business and its content amortization policy, the Company believes that it’s content amortization policy is just as conservative as its US peers, despite the fact that the Indian film entertainment has a much longer “tail” of revenues. The Indian media and entertainment sector is growing rapidly (14% CAGR expected through 2019) driven by new distribution platforms - traditional and digital, and new international markets every passing year, unlike the mature US market. Library revenues generally account for at least 20-25% of the Company’s revenues each year and television and other rights licensing contribute to this significantly. Accordingly, to consider these rights worthless, after just a year of release, reflects ignorance and gross misunderstanding not just about the Company but the industry as a whole. The Company follows International Financial Reporting Standards (IFRS) as issued by IASB whereas its U.S. peers may follow U.S.GAAP. The U.S. peers amortize content as per Income Forecast or Film Ultimate Method up to 10 years after the initial theatrical release, the same period over which the Company amortizes its new releases on a stepped method taking into account historic and future expected performance of its films. Some of the U.S. peers carry the value of their library films over 20 years whereas Eros conservatively amortizes library...


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