1. INSTITUTE OF DIRECTORS
DRIVING FINANCIAL PERFORMANCE
A DISSERTATION
SUBMITTED TO INSTITUTE OF DIRECTORS IN FULFILLMENT OF THE
REQUIREMENT
FOR THE CERTIFICATION OF
MASTERCLASS FOR DIRECTORS PROGRAMME
BY
MAYUR PAREKH
MUMBAI, INDIA
OCTOBER 2016

2. 2
Preface
Apart from various key responsibilities of an Independent Director Driving Financial
Performance and contributing towards increasing the efficiencies and improving the profitability
is also very important and he plays a significant role in achieving it.
During my tenure as an Independent Director for 5 years with ABC Ltd, a Cinema Exhibition
Company I tried and succeeded in implementing various systems, processes, ERP for increasing
profitability at unit levels and its combine impact on total profitability at consolidated level.
In the dissertation that I am presenting, I list various means and approach that have resulted in
higher Ebitda margins at each unit level and increased the profitability of the Company. These
will also be useful and helpful for all the companies in different businesses too.
The areas covered to drive financial performance encompasses -
i. Feasibility studies before deciding to start a new multiplex in any city
ii. Capex costs
iii. Operational Parameters
iv. Alternate Revenue streams
v. Controls and checks on Operational costs
vi. Marketing strategies
vii. Unique and quality customer services
It took a quarter to understand the business dynamics and two quarters to suggest / implement
systems & processes. It resulted in higher Ebitda margins of 10-15% at different unit levels
depending on the size and location of the multiplex.
I am thankful to the top management & entire team of ABC Ltd. for their conscientious efforts in
helping me collectively to achieve higher efficiencies resulting into higher profitability.
It was a great learning process and I completely agree that good systems, processes, corporate
governance help the company to grow faster, achieve desired results as budgeted. It may also
result into over performing than what was projected. It certainly enhances the brand value of the
company and enables to give better financial performances in terms of increased EPS, PE, BV of
shares year on year. All the financial performance indicators improve drastically and which
results into building shareholders wealth and takes good care of all the stake holders interests.

3. 3
List of Abbreviations
Ebitda Earnings before Interest, Tax and Depreciation
EPS Earnings per share
PE Price earnings ratio
BV Book value
ATP Average ticket price
SPH F&B spend per head
ROI Returns on Investments
IRR Internal rate of return
DSCR Debt service coverage ratio
BRM Business Review Meet

4. 4
Table of Contents
Page No.
1. Project Objective & Goal 5
2. About 6 - 16
3. Benefits of Implementation of the Project 17
4. Implementation Plan 18
i. Time frame 19
ii. Manpower 19
iii. Budget 19
5. Contributing factors, Deliverables and Value of deliverables 20
6. Conclusion 21

5. 5
Project Objective and Goal
All business does their commercial activity to maximize profits and increase shareholder’s
wealth. ABC Ltd. is no exception.
To achieve the above objective there is a need to establish systems and processes which will
result into higher Ebitda margins, better return on capital, good pay-back period, consumer
friendly quality services to patrons, wider reach, better compliances, generate employment,
employee’s satisfaction, social responsibility.
With reference to ABC Ltd. which is into Cinema Exhibition business, the system and processes
have to focus on –
1. Driving footfalls at its locations and increase in occupancy
2. Increase ATP and SPH
3. Lower capex costs and have better ROI
4. Control on Operational costs
5. Budgets & variance analysis
Above are the specific operational parameters pertaining to cinema Exhibition Company.
However companies in different businesses can look at various parameters which are significant
and relevant to their businesses. They should implement systems and processes into following
key areas of business and set standard good business practices in –
1. Sales of goods and services - which includes development of profitable product mix,
establishing good sales and distributor network, product and services are easily accessible
to consumers, developing quality product and services etc
2. Controlling costs – which includes purchase cost, all other direct costs, costs pertaining to
Administrative and Marketing expenses, personnel costs etc.
3. Budget and Variance analysis.

6. 6
About
ABC Ltd is a Multiplex company into setting up new multiplexes in different cities / towns in
India and running it profitably. It is building up new multiplexes with a philosophy of growth
story of India with great demographics to suit the industry viz.
i. Young population
India’s median age is 30 years and has youthful population which has a higher
propensity to spend on entertainment.
ii. Under screen nation
India has only 15 screens per million population, whereas countries like USA and UK
has 130 screens per million and 80 screens per million respectively. Currently out of
14000 screens in India there are only 2500 multiplex screens. Hence there is a lot of
scope and requirement for multiplexes in India
iii. Organised Growth of Retail sector
Due to widespread consumerism there is all round development of retail industry and
Mall development in Tier 1, Tier 2 and Tier 3 cities. With increase in Malls there is
also increase in Multiplexes due to inherent advantages. Multiplexes drive footfalls
and Malls require footfalls for other retailers in the Mall.
iv. Growth in Aspirational population whose propensity to spend is becoming higher on
medicines, clothing, food and entertainment.
v. Content availability
More than 150 Bollywood movies are produced in a year. Hollywood and Regional
content is also getting popular and consumption for good content has increased
tremendously.
vi. Entertainment Tax exemptions in few states of India
Likewise the companies in other businesses should do feasibility study pertaining and more
relevant to their sector but more or less will revolve around –
i. Demand & Supply study for their product and services
ii. Tax structure and benefits available
iii. Entry and Exit possibilities
iv. Competition for the product and Services
v. Futuristic possibilities and evolution of similar products and services.

7. 7
Currently ABC Ltd has just finished IPO and has Rs. 100 cr at its disposal to grow faster.
Its current Operational parameters are as under:
Current
Status
Plans post
IPO to
build new
properties
Projected
Total in
next 2
years
Growth
in 2 years
Location 10 15 25 150%
Screens 40 50 90 125%
Seats 12,000 15,000 27,000 125%
ATP (INR) 100 120 115 15%
SPH (INR) 35 50 40 14%
Footfalls 5.4 mn 8.0 mn 13.4 mn 148%
Topline (INR) 800 mn 1460 mn 2,259 mn 183%
Ebitda (INR) 120 mn 292 mn 412 mn 244%
Ebitda% 15% 20% 18%
PAT (INR) 64 mn 175 mn 239 mn 274%
PAT% 8% 12% 11%
It has to identify new mall developments in the country and expand in next 2 years and build
15 new locations with 50 screens and 15000+ seats.
The Company contemplates to grow in 2 years in Revenues by Rs. 146 cr i.e @ ~CAGR 70%
Before embarking upon the aggressive expansion plan the following strategy needs to be
adopted with proper system and processes in place in various key areas / functions of
business.

8. 8
Feasibility & New Project Evaluation
Before starting a new project following needs to be done –
i. Study and identify competition in the city
ii. Demographics of population in the city – Age wise, Sec A, B & C category of
population to ascertain the spending capacity
iii. Study and ascertain footfall, ATP, SPH and Occupancy the competition is currently
achieving
iv. Estimate the footfalls, ATP, SPH and Occupancy the company wants to achieve
v. Location strength of the mall – Catchment area, Residential / Office area, Educational
institution, Centrally located etc
vi. Tenant mix in the mall i.e number of brands, food outlets, hyper / super market in the
mall
vii. Lease Rental and lock in period for the property
viii. Scope of work to be carried out by the developer
ix. Capex costs for making the project up and running
x. Draw up projection of Profit & Loss account for 10 years based on expected footfalls,
ATP, SPH, Occupancy levels. Estimate the Ad revenues which can be on screen and
off screen. It may be due to national tie ups or local brands.
xi. Fixed costs - Estimate the Operational expenses which are more or less of fixed
nature viz. Rentals, Employees costs, Marketing, Repairs, Electricity, Administrative
expenses
xii. Variable costs - Based on Ticket revenues calculate Entertainment tax & Film hire
charges, Food & Beverage cost of purchases, local tax based on no. of shows etc.
xiii. Ascertain the break even capacity utilization to have a Contribution and ensure
requisite number of footfalls
xiv. The project Ebitda ideally should pay back the project costs in 4-5 years
xv. The project should give IRR of 15-20% ideally
xvi. Ascertain cash profits able to meet up with Interest costs if funds are borrowed from
banks for project. The DSCR should be >1.50

9. 9
Detailed feasibility study on the above lines but more relevant to its products and services should
be done by companies in other products and services.

10. 10
Capex Costs
i. The mall developer hands over the bare shell area which is leased out to multiplex
company
ii. The multiplex company makes plans to build auditoriums and lobby area
iii. Estimate the project cost with break ups for –
1. Plant & machinery cost – Sound & Projection equipments, F&B Equipments,
Screens, Electrical costs, Air conditioning, Step lights etc
2. Civil & Interior cost – F&B counters, Marbles, Sanitation & Plumbing, Acoustics,
Sound proofing, False ceilings, Toilet block etc
3. Furniture & Fixtures cost – Carpets, Audi Chairs, Lobby furniture, office furniture
etc
4. Computers & Other equipments
iv. The specs for fit outs are selected as per budgeted capex cost. If the catchment of the
location is elite then specs for interior work has to be elite which can demand a higher
ticket price and vice versa
v. Company to ensure to finish the fit out work within the rent free period prescribed in
the Lease Agreement or it incurs losses for paying rent without being operational
vi. Proper review and execution format with proper systems and processes for project
execution will ensure timely completion
vii. Proper weekly reviews with project team will control costs and time frame within
which project needs to be completed
Likewise for companies in different business should apply above processes and methods prior to
incurring capex costs on its building new or expanding manufacturing capacities, product
development, sales and marketing infrastructure development. Cost-benefit analysis to be carried
out prior to any capex costs being incurred.

11. 11
Operational Parameters
Unlike any other business, Multiplex does not have any gestation period. Once the multiplex
becomes operational with requisite staff and proper marketing it starts generating revenue from
day one.
The Theatre Manager has to strictly maintain and observe the most important operational
parameters along with maintenance and upkeep of the property.
The main operational parameters are –
1. Average Ticket Price (ATP)
Ticket price is the key parameter which drives the footfall. ATP is dependent on quality of
content, the catchment area population’s affordability, ATP of competitors in the area and
positioning of the company’s multiplex in the area.
The Entertainment tax the State government and Film hire share to the movie distributor is
based on ATP. Both are certain percentage of ATP.
The share of the company in ATP is ~1/3 rd of the ATP.
Gross ticket revenues comprise ~75% of the total revenues of the company.
2. Spend per Head (SPH)
F&B revenue is most profitable revenue for the company. It contributes ~15% of the total
revenues of the company. The margins on F&B items are as high as 65-70% hence is
very important revenue stream.
Utmost importance is to be given to quality and variety of food products. Menus need to
be changed frequently and lot of combo offers to be offered. Also the sale of F^B
happens only during entry and intervals hence proper time allotment to be given for entry
and intervals. Programming schedule to provide for more time for intervals to enable
patrons to go to the food counter and buy. Also special staff to be kept to sell F&B
products in the audi for patrons who do not come out, thereby increasing sale of F&B
products

12. 12
3. Footfalls
The main driver of footfalls into the theatre is content. Content is King as they say in
Multiplex industry. If the movie is good the ticket price do not matter. And if movie is not
good even free entry will not drive the footfall.
In a year there are only 5-8 blockbusters and the rest of the movies are average. Also there
are 2 quarters in a year which are very good and people come out and watch movies. Those
are festive season and vacation periods of the year.
The marketing and programming departments have to indentify the movies to be released in a
year, should have track record of earlier movies of the same genre, star cast and directors and
come with budgeted footfalls against each such movies. ATP & SPH has to be worked out
for different locations as per past track record. Offers and promotional schemes are to be
planned to drive more footfalls.
4. Alternate Revenue streams
i. Ad Sales – Off screen & Onscreen
Apart from ticket collections and F&B revenues the other revenue which is also
most important is Ad Sales. It comprises ~6-8% of total revenues of Multiplex.
The company must identify for each of its location space availability for Off
screen advertisements. The space can be sold to potential advertisers to display
their hoardings, back lit posters. Also space can be given for kiosks. Inventory
systems to be made for utilization of such spaces and generate ad revenues.
Similarly for On screen advertisement proper planning and co-ordination to
happen for display of advertisements during before the start of the movie and
intervals in each screens and for all shows in a day. The Ad sales team must
ensure full utilization of allotted time and generate more revenues.
Ad revenues are very important revenue drivers since there is no direct costs
involved for generating such revenues and the entire amount adds up to the
bottom line.

13. 13
ii. Sale of Music CDs / Gaming / Movie merchandise
At each unit level proper inventory systems for inward / outward / stock needs to
be kept. However this stream only contributes 2-3% of the total revenues.
5. Controls and checks on Operational costs
Operational costs comprises of both direct and indirect costs.
i. Direct costs
a. Film Hire
b. F&B costs
c. Entertainment tax
Proper Operational software should be installed and used which can control ticketing,
cash collections, calculation of entertainment tax and calculation of film hire charges
payable to Distributor. Proper implementation and software master creation will help
software to give all the desired outputs which will drive cost efficiencies.
F&B costs include purchase of ready food items, popcorn, oil, sandwich materials, Cold-
drink concentrate etc. Standard good business practices can be implemented through
good operating software which can granular reports for analysis and course correction.
ii. Indirect costs
a. Lease Rent
It is one of the major costs which can directly affect the profitability. The
Business Development team has to properly negotiate the rentals based on
various factors and merit of the location.
b. Employees Remuneration & benefits
HR department must have proper recruitment processes and system set for
hiring people. Proper performance review mechanism and appraisal system
also needs to be drafted and implemented. The policies should be conducive
of retaining talent and there has to be minimum attrition rate since business is
service oriented and driven by human resource. All this factor will result in
cost efficiencies and reduction of wastages.

14. 14
c. Common area maintenance
It is a negotiated rate per sq, ft payable to Mall developer or share payable as
per actual cost incurred. Business Development team has to properly negotiate
the CAM charges before finalizing the property.
d. Advertisement & Marketing costs
The cost include ad cost for news paper inserts for “Now Showing” movies at
the multiplex and cost for marketing events to drive footfalls, promote any
sale promotion schemes etc. The marketing department needs to follow
standard business practices and processes needs to be system driven.
e. Repairs & Maintenance
This is one of the major cost items and includes AMC of all the plant and
machinery, air-conditioning, café equipment, sound & projection equipments,
repairs to vehicles, civil work for repairs to property, repairs to furniture and
fixtures etc. Proper log registers to be maintained to keep track of repairs done
to each and every asset. Proper replacement policies have to be in place to
reduce recurring costs.
f. Administrative & Other costs
These expenses if not controlled properly will erode the profit and one would
not able to realize it. Hence day to day control of such expenses becomes
perennial importance. Proper authorization matrix has to be in place before
incurring such expenses.
The companies in other businesses too have to make in depth study of all its revenue streams
and set system and processes to increase those in the most efficient manner.
Similarly all the costs to be controlled and proper systems and budgets to be set up for
incurring, monitoring all expenses.

15. 15
Marketing Strategies
One of the key elements in driving financial performance includes marketing strategies.
Proper, conscious and long term efforts to be undertaken for Brand building exercise for the
multiplex chain. Uniformity and quality of product (for multiplex industry – the interior,
colour scheme, comfortable chairs, bright and ambient foyer area etc) needs to be
maintained. The patron must have a recall value for the brand and the chain has to become
the most preferred choice for movie watching.
Generally proximity to location is a key for a patron who wants to go for a movie. The
multiplex chain should have a high brand and recall value and should drive the patron to the
property even it is bit far away.
Marketing and promotional offers in ticket prices, F&B combo schemes, Ek pe Ek free
schemes, special days and special show discounts, group booking discounts, promotional
merchandise etc go a long way in building customer loyalties. All such programmes are to be
launched, properly advertised and genuine benefits to be given to patrons.
At local level the marketing programmes to be targeted to appeal to patrons as per their local
tastes and liking.
The marketing team has to be innovative and run customer loyalty programme in the most
efficient manner.
The benefits of marketing and promotions cannot be seen in short run and but helps in
building brand and customer perception for the company.
Proper strategic planning and meticulous working is required to get the benefits of marketing.
The companies in other businesses need to adopt marketing strategies suiting their product
and services and increase sales of its product and services.

16. 16
Unique and quality customer services
The service standards provided to patrons has to be of top quality. The location has to be
known for its quality services and patrons should always look forward to come to the
multiplex to watch a movie.
Proper training on etiquettes and behavior towards patrons needs to be provided on regular
basis. The box office staff, security staff and other who directly interact with patrons have to
be courteous and humble. They should greet the patrons while purchase of tickets and entry.
The staff working at the F&B counters needs to be polite and speedy in their work.
The complete area of multiplex be it foyer area, auditorium, lobby, toilets have to be clean
and spic and span. The air conditioning temperature should be uniform in all areas and
should be maintained at proper levels.
The multiplex and the entire cinema chain have to be very technologically driven. Proper
internet facility and booking engine needs to be provided for patrons to book tickets on the
web and through mobile. Ticketing kiosks with bar code readers to be provided for the
benefit of E ticket patrons at the entrance. Patrons should be enabled to order F&B during the
movie from his seat through proper attached devices on the seat. They should be able to pre
book their meal on mobile app along with their tickets. Patrons need to be updated regularly
with movie details and their release dates through sms.
All these factors go a long way in building quality standards and draw higher footfalls
resulting into higher sales and increased bottom line.
For all businesses a satisfied and happy customer is guarantee for repeat orders resulting in
sales growth year on year. A happy customer will surely provide leads resulting into more
sales. Hence all the companies must have a proper system and processes for after sale
service, feedback from customers and action taken reporting on complaints.

17. 17
Benefits of Implementation of the Project
As stated earlier in the chapter of “Project Objective and Goal” on page no. 5 and further
elaborate explanations in the chapter “About” on pages 6 to 15 the entire system, processes,
areas to be covered will result into -
1. Selection of the best location in the city / town where the company is going to spend huge
capex amount
2. Lower capex costs to have better ROI and payback
3. Higher ATP, SPH and footfalls resulting into better capacity utilistion and higher Ebitda
margins
4. Locational advantage and higher footfalls will provide better scope for alternate revenue
streams thereby increase in profitability
5. Better and optimum results from marketing and promotional activities

18. 18
Implementation Plan
The broad frame work of implementation plan involves the following –
1. Willingness and approval of the top management and HOD of each and every department
viz. Finance, HR, Ops, Programming, Business Development and Marketing
2. Identify and implementation of ERP. The success of entire project depends on this, since
it is a platform on which the entire organization will run based on its standard and good
business practices. All the key functions need to discussed in detail with all their
requirements and the implementation team will plan out the inputs and outputs into the
ERP to give desired reports in desired formats
3. ERP Masters for each and every department to be planned and designed to give desired
reports and MIS. All the cost centres and dimensions to be set to give reports location
wise and or department wise
4. Training of each and every staff for using the ERP at all levels in each department
5. Setting up of approval matrix and flow of documents in the ERP
6. Preparation of project wise Capex budget for new projects
7. Preparation of monthly Revenue & Expense budget location wise and for Corporate with
all the operational parameters
8. Uploading of budget into the ERP
9. Day to day data capturing into ERP by each location, department for their transactions
10. Monitoring and approving each and every entry into the ERP by the Finance team as per
hierarchy and nature of transaction.
11. Finance team will prepare the monthly MIS and Variance analysis from the ERP data.
12. Monthly & Quarterly review system and mechanism to be established where top
management along with each department HOD discusses variances and course correction
measures.

19. 19
Time frame
The time required to set up system and processes and its implementation would take 3
months.
Manpower
A core team needs to be formed for setting up and implementation of ERP. It would
contain the following from the company side apart from ERP implementation team from
vendor side –
a. CFO
b. 2 Senior members from the Finance team of which one will be Project head
c. 2 Junior members from the Finance team
They will coordinate and interact directly with HOD and 1 senior team member and one
junior team member of each department for setting up Masters for ERP for their
respective department and to chalk out requirement and desired output for their
department from ERP.
The core team will also be responsible for imparting training at all location level and each
department staff who will be using ERP.
The ERP implementation process will take 2-2.5 months time. Simultaneously the other
members of the Finance team and HOD of each department will work on the budgets and
will be ready with budget by the time ERP is completely ready to “GO LIVE”.
Budget
The cost for implementation and set up of ERP is the major costs which would be approx
Rs. 35 lacs with 50 licenses which can be used by 150 employees. The other recurring
cost per annum would be for AMC and maintenance of ERP which is Rs. 2 lacs. The
other requirement is quality time and involvement of each HOD and team members and
devote extra time and effort over and above their routine work.

20. 20
Contributing factors, Deliverables and Value of deliverables
The benefits that will accrue to the company will be of great value and would certainly
help company to ascertain wastages, control costs, take timely corrective measures. It
will reduce duplication of work and increase efficiencies the benefits of which are
invisible.
In the long run it will reduce staff requirement in spite of expansion up to certain level at
the corporate office.
ERP will enable timely MIS reports in each area for HOD evaluate and take appropriate
action.

21. 21
Conclusion
After doing a SWOT it was concluded to go ahead with the ERP systems and processes.
The benefits vis-à-vis the cost and effort were of great value to the company.
The results post implementation are very encouraging and the Ebitda margins have
improved as targeted, capex costs were under control and new projects were completed
on time as per schedule, new tie ups and signing up of new properties has been as per
standardized feasibility report formats.
The company conducts Business Review Meets (BRM) regularly with all the Theatre
Managers every quarterly reviewing each and every operational parameters, PNL for the
quarter, comparison with competitors in the area, new initiatives undertaken by the
Manager to increase footfalls and revenues, future strategies and cost control measures,
problems, type of assistance and help desired from corporate.
BRMs has helped in building confidence and bonding amongst the Theatre Managers and
head office team and sharing of data across location helps in implementing ideas and
generates innovative methods in resolving operational issues.
All the businesses into different products and services can improve and better their
financial performance by implementing systems, processes and ERP along with good
business practices. The systems and processes needs to be conducive to their line of
activity. It will certainly result into optimum capex costs, optimum utilization of
resources and result into higher Ebitda, higher PAT; better EPS, PE, BV and ROI.