China Mass Media Reports Second Quarter 2009 Unaudited Financial Results
BEIJING, Aug. 31 /PRNewswire-FirstCall/ -- China Mass Media Corp. ("China Mass Media" or the "Company") (NYSE: CMM), a leading television advertising company in China, today reported its unaudited financial results for the second quarter ended June 30, 2009.
Second Quarter of 2009 Highlights(1)
- Total net revenues were RMB 77.4 (US$ 11.3 million), an increase of 13.7% from the second quarter of 2008 and a sequential decrease of 48.3% from the first quarter of 2009.
- Operating loss was RMB 3.1 million (US$ 0.5 million), compared to operating income of RMB 7.8 million in the second quarter of 2008 and operating income of RMB 65.0 million in the first quarter of 2009.
- Net income was RMB 0.4 million (US$ 0.1 million), a decrease of 96.5% from the second quarter of 2008 and a sequential decrease of 99.4% from the first quarter of 2009.
- Net cash used in operating activities was RMB 13.5 million (US$ 2.0 million), compared to net cash provided by operating activities of RMB 22.3 million in the second quarter of 2008 and net cash provided by operating activities of RMB 232.5 million in the first quarter of 2009.
Mr. Shengcheng Wang, Chairman and Chief Executive Officer of China Mass Media, commented, "While the broader economy in China, especially the stock and property markets, appeared to rebound fairly well in the second quarter, we remain in the shadow of the global economic recession and our customers did not increase their advertising budgets during the period. Generally speaking, advertising budgets in the current year were set at the end of last year when the global economic crisis started to have its impact on the Chinese economy. Given the fact that the second quarter is usually the low season for the advertising industry and there were no special events, advertisers chose not to increase their spending and our sales were affected as a result. However, we decided to take advantage of this quiet period to initiate a number of changes to reposition ourselves for future growth. During the quarter, we recruited a number of senior sales staff to further strengthen our sale force, restructured our sales team with an aim to better serve our customers, and implemented a new incentive plan to better align our sales people with our company's growth objectives. We believe such changes will have a positive effect on our sales in the coming months.
Looking forward, one of the biggest national events of the year will occur in the third quarter of 2009 with the celebration of the 60th anniversary of the founding of the People's Republic of China. CCTV has prepared a series of themed programs for the celebrations, and we have seen substantial interest in the related advertising time slots. As a result, we believe our sales are likely to begin to rebound in the second half of the year due to this event. Additionally, CCTV has recently started to refocus the news content of its network. We believe CCTV-4, the Chinese international channel of CCTV, will benefit from such changes and allow us to improve the sales results of our CCTV-4 time slots."
Mr. Eric Cheung, Chief Financial Officer of China Mass Media, added, "With our strengthened sales force and expanded marketing efforts, we believe the sales and the utilization of the majority of our media resources along with production and sponsorship services are likely to start to rebound in the third quarter. We are currently reviewing certain market opportunities to further expand our media resources and therefore have decided to defer the declaration of a dividend to a later stage."
Second Quarter of 2009 Financial Results
Revenues
Revenues from advertising agency services were RMB 61.8 million (US$ 9.1 million) in the second quarter of 2009, a decrease of 6.7% from RMB 66.3 million in the second quarter of 2008, and a decrease of 55.4% from RMB 138.6 million in the first quarter of 2009. In addition to a typical seasonal sequential decline in revenues from the first to the second quarter, the Company faced significant headwind due to the global economic recession as the Company's customers, many of which are privately owned companies in mainland China, attempted to conserve cash and became less willing to place advertisements when facing such uncertainty.
At the beginning of the year, CCTV raised the CCTV-4 airtime charge rate, citing higher viewer numbers. However, the Company's advertising customers were not receptive to the rate increase and the Company's revenues declined as a result. The decline in revenues derived from CCTV-4 programs compared to the same period in 2008 was offset by a significant rebound in sales of daytime advertising packages from the abnormal slump in 2008 that was related to the cancellation of commercial advertisements during the Sichuan earthquake and the slowdown in advertisements before the Beijing Olympics as companies prepared for big advertising campaigns during the Games.
Revenues from special events services were RMB14.6 million (US$ 2.1 million) in the second quarter of 2009. There were no revenues from special events services in the first quarter of 2009 or the second quarter of 2008. Special events services revenues were fees receivable from CCTV for advertising and marketing services provided in connection with the 2008 Beijing Olympic Games. The Company was notified in writing by CCTV in mid-June of 2009 that the computation of its special events services fees in relation to the 2008 Beijing Olympic Games was finalized. Prior to the receipt of this notice, the Company did not possess any reliable information to estimate the amount of special event services fees and, therefore, did not record any revenues for the special events services until the second quarter of 2009.
Revenues from production and sponsorship services were RMB 2.9 million (US$ 0.4 million) in the second quarter of 2009, a decrease of 32.8% from RMB 4.3 million in the second quarter of 2008 and a decrease of 85.1% from RMB 19.3 million in the first quarter of 2009. The sequential decrease of RMB16.4 million was mainly because the Company recognized production revenues from a number of advertising and promotional films for the Beijing Olympic Games in the first quarter of 2009. The decrease of RMB 1.4 million compared to the second quarter last year was mainly due to a pause in public service announcement sponsorships from several customers because of ongoing contract renewal negotiations.
Operating costs and expenses
Cost of revenues was RMB 64.4 million (US$ 9.4 million) in the second quarter of 2009, an increase of 23.1% from RMB 52.3 million in the second quarter of 2008 and a decrease of 12.3% from RMB 73.4 million in the first quarter of 2009. The second-quarter-over-second-quarter increase was primarily due to higher media resource underwriting costs for CCTV-4. The primary reason for the quarterly sequential decrease of RMB 9.0 million was because of the normal high production costs incurred for the Chinese New Year Gala program in the first quarter of 2009.
Sales and marketing expenses were RMB 5.2 million (US$ 0.8 million) in the second quarter of 2009, an increase of 267.5% from RMB 1.4 million in the second quarter of 2008 and an increase of 42.8% from RMB 3.7 million in the first quarter of 2009. The second-quarter-over-second-quarter and sequential increases were primarily due to an increase in salaries and other compensation as a result of the recruitment of additional sales employees.
General and administrative expenses were RMB 10.9 million (US$ 1.6 million) in the second quarter of 2009, an increase of 65.9% from RMB 6.6 million in the second quarter of 2008 and an increase of 41.9% from RMB 7.7 million in the first quarter of 2009. The second quarter 2009 increase over the second quarter 2008 was mainly due to the additional expenses incurred as a publicly listed company in the U.S., including employee share-based compensation expenses and consultancy fees incurred in relation to internal control improvement projects. The Company also incurred additional compensation expenses as it expanded the management team. The sequential increase was primarily due to a provision for doubtful accounts amounting to RMB 3.5 million.
Operating loss, as a result of the foregoing factors, was RMB 3.1 million (US$ 0.5 million) in the second quarter of 2009, compared to operating income of RMB 7.8 million in the second quarter of 2008 and operating income of RMB 65.0 million in the first quarter of 2009. The operating margin was (4.0%) for the second quarter of 2009, 43.4% for the first quarter of 2009, and 11.4% for the second quarter of 2008.
Net income was RMB 0.4 million (US$ 0.1 million) in the second quarter of 2009, a decrease of 96.5% from RMB 10.6 million in the second quarter of 2008 and a decrease of 99.4% from RMB 59.6 million (US$8.7 million) in the first quarter of 2009. Net margin was 0.5% in the second quarter 2009, 39.8% in the first quarter 2009, and 15.5% in the second quarter 2008.
Basic and diluted earnings per ADS for the second quarter of 2009 decreased to RMB 0.02 (US$ 0.002), from RMB 0.63 for the second quarter of 2008 and RMB 2.50 for the first quarter of 2009. Each ADS represents 30 ordinary shares of the Company.
Cash and cash equivalents
As of June 30, 2009, the Company had cash and cash equivalents of RMB 1,126.9 (US$ 165.0) million compared to RMB 1,083.3 million at March 31, 2009. The increase in cash and cash equivalents was mainly due to the redemption of certain matured investment products previously classified as short-term investments and was partially offset by cash used in operating activities.
Appointment to the Board of Directors
In August 2009, the Company appointed Mr. Yong Chen as an independent director of the Company. Mr. Chen is the editor in chief and director of Modern Advertising magazine. He is also the secretary general of the Interactive Internet Advertising Committee of China Advertising Association and a member of the International Advertising Association and the Academic Committee of China Advertising Association. Mr. Chen studied at Beijing Economic Management College and the postgraduate program in Liberal Arts Management at Beijing University. Mr. Chen has more than ten years of experience in the print media industry in China.
Successful Transfer from NYSE Arca to NYSE
On August 20, 2009, the Company received a letter from the New York Stock Exchange ("NYSE") authorizing the listing of the Company's American Depositary Shares ("ADSs") on the NYSE. The Company successfully transferred the listing of its ADSs from NYSE Arca to the NYSE on August 25,2009. The Company trading of the Company's ADSs remains under its current ticker symbol "CMM" on the NYSE.
Business Outlook
The Company currently expects to generate total net revenues of RMB 65 million (US$9.5 million) to RMB 75 million (US$ 11.0 million) for the third quarter of 2009. The range results in potential percentage change from the third quarter 2008 of a decrease of 11.1% to an increase of 2.5%. This forecast reflects the Company's current and preliminary view, which is subject to change.
China Mass Media will host a conference call and live webcast at 8:00 a.m. Eastern Time (EST) (8:00 p.m., Beijing time) on Monday, August 31, 2009.
A live webcast of the conference call will be available on the investor relations section of the Company's website at: http://www.chinammia.com.
A telephone replay of the call will be available for seven days after the conclusion of the conference call. The dial-in details for the replay are as follows:
Safe Harbor Statement:
This press release includes statements that may constitute forward-looking statements made pursuant to the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. The forward-looking statements involve a number of risks and uncertainties.
A number of factors could cause the Company's actual results, performance, achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the Securities and Exchange Commission filings of the Company. China Mass Media does not undertake any obligation to update any forward-looking statements, except as required by law.
As a leading television advertising company in China, the Company provides a full range of advertising services, including advertising agency services, creative production services, public service announcement sponsorship services, and other value added services. The Company currently offers more than 500 minutes of advertising time slots on CCTV Channels 1, 2, 4, E and F. CCTV is the largest television network in China. The Company has also been the exclusive advertising agent for the most watched television program in China, the Chinese New Year Gala, since the Company's incorporation. Since 2003, the Company has produced over 300 advertisements and has won a number of prestigious awards in China.
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