VGi GLOBAL MEDIA PCL. - listed companyvgi.listedcompany.com/misc/MDNA/20151030-vgi-mdna-2q2015201… · MD&A 2Q 15/16 (Ended 30 September 2015) 1/7 VGi GLOBAL MEDIA PCL. MANAGEMENT

MD&A 2Q 15/16 (Ended 30 September 2015) 1/7

VGi GLOBAL MEDIA PCL.

MANAGEMENT DISCUSSION & ANALYSIS 2Q 15/16 30 OCT 2015

MEDIA INDUSTRY AND BUSINESS IMPACT ANALYSIS

THAI ADVERTISING SPENDING VS VGI REVENUE (THB mn)

Sources: The Nielsen Company (Thailand) Limited and VGI Global Media PCL.

*Excludes Modern Trade Media Revenue

THAI ADVERTISING SPENDING 2Q 14/15 VS 2Q 15/16 (THB mn)

MEDIA INDUSTRY MARKET SHARE 2Q 14/15 VS 2Q 15/16

2Q 14/15 2Q 15/16

TV 53.0% 46.6%

Digital TV 9.5% 17.1%

Newspapers 11.0% 9.8%

Cable/ Satellite TV 5.0% 5.2%

Radio 4.7% 4.7%

Cinema 3.8% 4.5%

Magazines 4.2% 3.5%

Transit 3.1% 4.1%

Outdoor 3.2% 3.4%

In-Store 1.7% 0.3%

Internet 0.8% 0.9%

Source: The Nielsen Company (Thailand) Limited

According to the Bank of Thailand’s report as of August 2015, overall Thai economic activities remained weak as a result of the economic slowdown in China and ASEAN countries. On the export front, export values from January – August contracted 4.8% from the same period last year. Households remained cautious in spending, which was in line with falling household income and the decline in consumer confidence for 8 consecutive months, leading to a slump in private investments. Under such economic conditions, the Bank of Thailand has revised down the 2015 GDP growth forecast for the third time from 3.0% to 2.7%

1.

For overall Thai media industry, the advertising spending decreased by 2.4% compared to the previous quarter and 0.3% compared to the same period last year, which was in line with the economic slowdown. Nevertheless, despite the subdued economic activities and advertising spending, VGI Global Media PCL (the Company) reported an increase in operating revenue of 7.6% compared to the previous quarter and 9.5% compared to the same period last year owing to the continual expansion of our core business units, which are BTS-related Media and Office Building Media.

1 Bank of Thailand

28,754.9 29,264.4 28,950.5

26,407.0

28,894.1

30,869.2 32,200.0

29,250.2

31,520.7 30,764.8

460.1 485.7 486.3 421.8

475.8 490.4 540.6 486.8 499.2 537.0

100.0

300.0

500.0

700.0

900.0

1,100.0

1,300.0

1,500.0

15,000

17,000

19,000

21,000

23,000

25,000

27,000

29,000

31,000

33,000

35,000

1Q 13/14 2Q 13/14 3Q 13/14 4Q 13/14 1Q 14/15 2Q 14/15 3Q 14/15 4Q 14/15 1Q 15/16 2Q 15/16

Industry AdSpend (THB mn) VGI Revenue* (THB mn)

30,764.8

14,326.4

5,267.0

3,025.1

1,588.4

1,438.1

1,372.0

1,071.3

1,253.4

1,051.7

92.6

278.8

30,869.2

16,360.1

2,944.7

3,387.2

1,533.0

1,452.5

1,182.6

1,286.1

953.3

981.2

532.3

256.3

Industry

TV

Digital TV

Newspapers

Cable/Satellite TV

Radio

Cinema

Magazines

Transit

Outdoor

In-Store

Internet

2Q 15/16

2Q 14/15

-0.3% YoY

+7.6% QoQ

+9.5% YoY

-2.4% QoQ

-0.3%

-12%

79% -11%

4%

16%

-1%

-17%

9%

31%

7% -83%

-0.3%

-12.4%

78.9%

3.6%

-10.7%

16.0%

-1.0%

-16.7%

31.5%

7.2%

-82.6%

8.8%

Out-of-Home




2Q 15/16 KEY DEVELOPMENTS

BTS-RELATED MEDIA

In order to improve the standards of the media in the BTS Skytrains and increase the capacity, the Company successfully upgraded LCD screens in the trains from 17 inches to 21 inches. (a total of 360 screens) in 2Q 2015/16.

OFFICE BUILDING AND OTHER MEDIA

The Company added 15 new contracts into the office building portfolio, surpassing the year-end target to acquire 10 additional office building contracts. With a total of 118 buildings under management (1,052 screens), VGI is currently the largest media company in the country to provide advertising services in office buildings. The Company aims to secure 12 additional contracts within December 2015, bringing the total number of office building contracts to 130.

VGI successfully installed LCD and LED screens inside and outside Chamchuri Square, which covers more than 270,000 sq.m. and expects to begin generating revenue in 3Q 2015/16.




2Q 15/16 SNAPSHOT & ANALYSIS

CONSOLIDATED P&L SNAPSHOT

THB (mn) 2Q 15/16 1Q 15/16 %QoQ 2Q 14/15 % YoY

Operating revenue

537.0 549.1 -2.2% 795.2 -32.5%

Cost of sales 191.9 220.7 -13.0% 361.1 -46.8 %

Gross profit 345.1 328.4 5.1% 434.2 -20.5%

EBITDA 350.7 342.8 2.3% 369.9 -5.2%

Net Profit from operation

213.5 195.1 9.4% 264.4 -19.3%

Net Profit including extra items

259.2 239.7 8.1% 264.4 -2.0%

Gross profit margin

64.3% 59.8%

54.6%

EBITDA margin 65.3% 62.4% 46.5%

NPAT margin from operation

39.8% 35.5% 33.3%

NPAT margin including extra items

48.3% 43.6%

33.3%

CONSOLIDATED P&L SNAPSHOT (AS IF NO MODERN TRADE MEDIA)

THB (mn) 2Q 15/16 1Q 15/16 %QoQ 2Q 14/15 % YoY

Operating revenue

537.0 499.2 7.6% 490.4 9.5%

Cost of sales 191.9 161.8 18.6% 125.3 53.2%

Gross profit 345.1 337.4 2.3% 365.1 -5.5%

EBITDA 309.7* 307.0* 1.2% 334.2 -7.3%

Net Profit from operation

213.5 208.0 2.6% 243.1 -12.2%

Net Profit including extra items

259.2 252.6 2.6% 243.1 6.6%

Gross profit margin

64.3% 67.6% 74.5%

EBITDA margin 57.7% 61.3% 68.1%

NPAT margin from operation

39.8% 41.7% 49.6%

NPAT margin Including extra items

48.3% 50.6% 49.6%

*Excluding extra items 2Q 15/16 PERFORMANCE ANALYSIS (2Q 15/16 VS 2Q 14/15) (YoY)

In order to enable analysis of underlying performance on a comparable basis to previous quarters, the following section analyses the Company’s earnings excluding the Modern Trade Media business.

The Thai economy remains relatively stagnant, discouraging domestic consumption as well as private investments, which resulted in the inevitable contraction of the overall media industry. The Company has anticipated such effects and has prepared a contingency plan that focuses on our core business units, which are BTS-related Media and Office Building Media. These business units have proven to be less susceptible to macroeconomic volatility compared to other media sectors such as Modern Trade Media or Outdoor Media. As such, the Company’s operating revenue in 2Q 15/16 increased 9.5% YoY from THB 490.4mn to THB 537.0mn supported by 1) an increase of 7.2% in BTS-related Media revenue from the higher occupancy of media on station and digital media and 2) an increase of 27.5% in Office Building Media revenue driven by an increase in the number of office buildings from 75 buildings to 103 buildings. In 2Q 15/16, BTS-related Media contributed 89.5% to total revenue whilst Office Building and Other Media contributed the remaining 10.5%.

Cost of sales increased from the same period last year to THB 191.9mn due to 1) an increase in sales expenses and promotion to maintain the sales under the stagnant economic situation, 2) higher depreciation of the new digital media (Platform Truss LED, Platform Screen Door and E-Poster), static media and the infrastructure on the 7 BTS extension stations, 3) an increase in maintenance cost of equipment and system for the new digital media, 4) rental cost of digital screens at Victory Monument and 5) expenses from rights to manage the media and merchandising spaces of the 7 new BTS extension stations. This consequently led to a reduction in net profit margin, which fell to 39.8% in 2Q 15/16. However, the increase in sales and promotion expenses in this quarter is not part of the Company’s recurring expenses and will only impact the performance in the short term. Moreover, cost-to-sales in items 2) – 5) will eventually decrease once the Thai economy improves.

Net gain from extraordinary items was THB 45.7mn, consisting of 1) gain on sale of investment in VGI Advertising China Company Limited (VGI China) of THB 59.8mn (no tax), 2) gain on sale of investment in Midas Global Media Limited (MIDAS) of THB 4.9mn (no tax), 3) gain on sale from selling equipment in Modern Trade of THB 74.2mn, 4) reversal of provision of initial damages incurred from terminating the agreement of THB 38.7mn and 5) loss from provision for the difference between revenue sharing and minimum guarantee of THB 136.6mn.




SEGMENTAL PERFORMANCE (2Q 15/16 VS 2Q 14/15) (YoY)

BTS-RELATED MEDIA

Revenue increased by 7.2% YoY, from THB 448.0mn in 2Q 14/15 to THB 480.4mn in 2Q 15/16 despite the economic

slowdown. The key growth drivers were the increase in occupancy of static and digital media in BTS as well as merchandising

space on station coupled with the revenue generated from 7 new BTS extension stations.

Gross profit margin decreased to 69.1% from 76.1% in the previous year as a result of 1) higher depreciation expense from

new digital media on station (Platform Truss LEDs, Platform Screen Door and E-Poster), 2) an increase in maintenance cost, 3)

an increase in rental fee from 7 new BTS extension stations and 4) an increase in marketing and sales expenses.

GROSS PROFIT CONTRIBUTION

GROSS PROFIT (THB MN)

GROSS PROFIT MARGIN

OFFICE BUILDING AND OTHER MEDIA

Revenue from Office Building Media was THB 47.2mn, increasing 27.5% from THB 37.0mn in the previous year. Key growth

drivers came from the increase in additional office buildings (from 75 buildings to 103 buildings) as well as package price

increase, which became effective since October 2014, to match the increasing number of viewers. Revenue from Other

Media increased by 71.1% to THB 9.4mn mainly from the commission fee for being a sole agent for MIDAS.

Gross profit margin of Office Building Media decreased from 61.9% in the previous year to 60.4% in this quarter mainly due

to higher depreciation cost of new digital screens in additional office buildings acquired recently. Gross profit margin of

Other Media dropped from 21.0% to -163.8% in this quarter mainly due to higher concession cost from new Mega LEDs in

the Victory Monument area which was added this year.

GROSS PROFIT CONTRIBUTION

GROSS PROFIT (THB MN)

GROSS PROFIT MARGIN

96.2% 345.1

THB MN 341.1

331.9

200.0 300.02Q 15/16 2Q 14/15

76.1%

69.1%

0 0.5 1

3.8%

345.1 THB MN 22.9

28.5

1.2

-15.4

Other Media Office Building

2Q 15/16

2Q 14/15 61.9%

60.4%

21.0%

2Q 15/16

2Q 14/15

-163.8%




FINANCIAL POSITION

ASSETS

ASSETS BREAKDOWN 31-Mar-15 30-Sep-15

(THB mn) % out of total (THB mn) % out of total

Cash & cash equivalents and short-term investments

493.6 15.0% 677.0 18.7%

Trade & other receivables 519.1 15.8% 482.9 13.4%

Equipment - net 1,262.4 38.4% 1,247.3 34.5%

Investment in JVs and associates 694.9 21.1% 751.8 20.8%

Other assets 316.4 9.6% 452.3 12.5%

Total assets 3,286.5 100.0% 3,611.2 100.0%

Total assets as of 30 September 2015 were THB 3,611.2mn, which increased by 9.9% from THB 3,286.5mn as of 31 March

2015. The increase was mainly attributable to cash and cash equivalents, which increased by THB 183.3mn (see assets

breakdown).

Cash and cash equivalents and short-term investments increased to THB 677.0mn from THB 493.6mn. The increase in cash

was mainly attributable to the cash from operations (see liquidity and cash flow section).

Trade and other receivables decreased to THB 482.9mn, in line with the lower sales in 2Q 15/16. The Company gives 60 – 90

days credit terms to customers and has a policy to setup an allowance for doubtful accounts for receivables of more than

120 days. In addition, the Company also considers the customers’ historical payment and creditability to setup such

allowance. As of 30 September 2015, the allowance for doubtful accounts was maintained at THB 9.7mn, which was the

same amount as at the end of the previous quarter, accounting for 2.0% of total account receivables.

AGEING OF TRADE RECEIVABLES (THB MN)

31-Mar-15 30-Sep-15

Not yet due 477.9 415.2

Up to 6 months 29.5 59.3

Over 6 months 9.8 6.8

Total 517.2 481.3

% of total receivables 99.6% 99.7%

Allowance for doubtful debt 9.7 9.7

% of total receivables 1.9% 2.0%

Total equipment – net’s proportion to total assets slightly decreased to 34.5% from 38.4%. The value of total equipment-net

was THB 1,247.3mn, a reduction from THB 1,262.4mn at the end of the previous year due to depreciation associated with

the existing assets coupled with the minimal amount of investment in new assets during this quarter.




LIABILITIES AND SHAREHOLDERS’ EQUITY

LIABILITIES AND EQUITY BREAKDOWN 31-Mar-15 30-Sep-15

(THB mn) % out of total (THB mn) % out of total

Short term loans 530.0 16.1% 530.0 14.7%

Trade & other payables 150.5 4.6% 150.8 4.2%

Accrued expenses 317.7 9.7% 340.5 9.4%

Other current liabilities 435.1 13.2% 409.9 11.4%

Non-current liabilities 24.1 0.7% 24.2 0.7%

Total liabilities 1,457.5 44.3% 1,455.4 40.3%

Shareholders’ equity 1,829.1 55.7% 2,155.8 59.7%

Total liabilities and equity 3,286.5 100% 3,611.2 100%

Total liabilities were THB 1,455.4mn, a slight decrease of THB 2.1 mn or 0.1% from THB 1,457.5mn at the end of the previous

year mainly from refund of deposit to customers.

Total equity was THB 2,155.8mn, an increase of THB 326.8mn. This was attributable to an increase in retained earnings from

the 3 months operating performance. Return on equity1 for 2Q 15/16 was 38.9%, which decreased from 50.7% in the

previous year. This is attributable to the capital increase in the past 12 months from warrants conversion (VGI-W1) and stock

dividend payments at the ratio of 1:1.

LIQUIDITY AND CASH FLOW (THB MN)

* including Cash, Cash equivalents and short-term investment **net cash from selling Big C assets of THB 21mn

Cash and cash equivalents as of 30 Sep 2015 stood at THB 394.5mn and net short-term investments stood at THB 278.1mn,

totaling THB 672.6mn, representing an increase of THB 59.0mn from THB 613.6mn at end of the previous quarter. During 2Q

15/16, the Company had cash inflows from operating activities of THB 187.6mn. Total cash inflow from investing activities

was THB 43.1mn, of which THB 84.4mn was proceeds from sale of investments in VGI China (subsidiary) and MIDAS (joint

venture) and THB 59.0mn was CapEx, which was mainly used for investment in media equipment on the new BTS extension

stations and the Chamchuri Square project. Cash flow from financing activities of THB 171.6mn was used to pay the final

dividends from the expecting results of 2014/15. The final dividend was approved by the Company’s AGM 2015 held on 6

July 2015.

1 calculated from the last 12 months of net profit and average shareholders’ equity (average between the outstanding at end of the same period in the previous year and at end of this period)

613.6 672.6

187.6

84.4 59.0** 17.7

171.6

0

100

200

300

400

500

600

700

800

900

1000

Begining* 30/6/2558

CFO Investment in other businesses

CapEx Interest/ Dividend income & Others

CFF Ending* 30/9/2015

Cash from investing activities of THB 43.1mn




FINANCIAL RATIOS

Profitability Ratios

2Q 14/15

2Q 15/16

Liquidity Ratios

2Q 14/15

2Q 15/16

Gross profit 1

(%)

54.6%

64.3%

Current ratio

(times)

1.0

0.9

Operating EBITDA (%)

46.5%

65.3%

Quick ratio3

(times)

1.0

0.8

Cash-to-net profit (%)

94.2%

61.0%

Account receivable turnover

(times)

3.7

4.1

Net profit (%)

33.3%

48.3%

Average collection period

(days)

99.7

89.6

Return on equity (%)

50.7%

38.9%

Payable days

(days)

94.7

107.5

Efficiency Ratios

Leverage Ratios

Return on assets (%)

32.7%

23.4%

Liability to Equity (times)

0.7

0.7

Return of fixed assets2 (%)

121.3%

81.5%

Debt to equity (times)

0.1

0.2

Asset turnover (times)

1.0

0.7

1 Calculated from revenue from services 2 (Net Profit + Depreciation) / Net Average Non-current Asset (average of outstanding at end of the same period in the previous year and at end of this quarter)

3 (Current Assets – Other Current Assets) / Average Current Liabilities (average of outstanding at end of the same period in the previous year and at end of this quarter)

MANAGEMENT OUTLOOK

The stagnant Thai economy in the past 9 months (Jan – Sep 2015), along with contractions in exports, industrial productions and agricultural productions, indicate an ongoing negative trend in the economic cycle for the remainder of the year. As a result, the Thai government had approved in principle the implementation of urgent measures to aid farmers and the poor. A budget of THB 6,500mn

1 has been allocated for the programme, with fund disbursement expected to take place from the 4th

quarter (Oct – Dec 2015) onwards. Moreover, the Thai government also launched a real estate stimulus programme which involves tax reductions and measures for government banks to provide more housing loans for low-income people. The Company expects that these stimulus packages will be the catalyst for economic recovery in the next 6 months. The Company is still maintaining revenue growth target this year at of 10% this year, if excluding the impact from the discontinuation of Modern Trade Media (expected revenue from operation contraction of 26% from previous year when take into account all business units). For 2-5 years’ growth, the Company will have additional advertising space from BTS’s Green Line extensions, which are Green Line South Bearing – Samut Prakarn and Green Line North Mor Chit – Sapan – Mai – Khu Khot. In addition, there will be more mass transit lines which will commence operation, which will provide opportunities for the Company and will support sustainable long-term growth.

In the second half of 2015/16, the Company expects to gain higher revenue from additional capacity which are 1) advertising media and merchandising space on 7 BTS extension stations, which the Company signed the contract in May 2015, 2) additional Office Buildings which is expected to increase to 130 buildings from 103 buildings in the previous year, 3) advertising space inside and outside of Chamchuri Square – a mixed-use complex which covers more than 270,000 sq.m. utilising space in CBD and 4) Mega LEDs in high-traffic provincial areas, in which the Company is a selling agent.

The Company is proud to announce that on 19 October the Company was awarded 5 stars for CG score from Thai Institute of Directors’ 2014 assessment

2, after the score dropped to 4 stars in the previous year due to changes in assessment criteria.

We pride ourselves on our commitment to excellence in all aspects in corporate governance, including operation, and believe that this contributes to sustainable growth over the long-term future.

………………………………….

Suparanan Tanviruch

(Chief Financial Officer)

1 Economic and Monetary Conditions report: August 2015, from Bank of Thailand (published in Thai language only) 2 www.thai-iod.com/imgUpload/file/CGR2015/Brochure%20CGR%202015.pdf

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VGi GLOBAL MEDIA PCL. - listed companyvgi.listedcompany.com/misc/MDNA/20151030-vgi-mdna-2q2015201… · MD&A 2Q 15/16 (Ended 30 September 2015) 1/7 VGi GLOBAL MEDIA PCL. MANAGEMENT