media industry and business impact …vgi.listedcompany.com/misc/mdna/20170802-vgi-mdna-1q...the...

The first quarter of 2017/18 (ended 30 June 2017) 1

VGi GLOBAL MEDIA PLC MANAGEMENT DISCUSSION & ANALYSIS 1Q 2017/18 2 AUG 2017

MEDIA INDUSTRY AND BUSINESS IMPACT ANALYSIS Advertising spending declined by 11.3% YoY to 26,185mn in 1Q 2017/18. The TV sector with the highest market share at 66.3% fell 13.7% YoY to THB 17,359mn and Traditional media (Newspaper, Magazines and Radio) with a 13.1% market share, declined by 25.5% YoY to THB 3,418mn. Nevertheless, Out-of-home media, which includes Transit, Outdoor and In-store media (collectively, “OOH”) bucked the trend, increased by 12.7% YoY to THB 3,169mn. OOH media continues to benefit from the structural shift in the media industry and people’s behavior to spend more time outside. Online media, which reports on a yearly basis by the Digital Advertising Association Thailand (DAAT) recorded THB 9,477mn of advertising expenditures in 2016 and it is expected to grow by 24% in 2017 mainly driven by the acceleration of internet access and the ubiquity of mobile phones.

VGI continues to outperform the overall market posting significant revenue growth of 36.5% to THB 852mn, driven by the robust performance our OOH and Digital Services businesses. Excluding the consolidation of our Outdoor and Digital Services business, our revenue improved organically by 19.8% against a backdrop of double digit decline in overall advertising spending.

Despite the slower-than-expected recovery of advertising expenditure during the first half of 2017, the VGI believes that an improvement in advertising spending is in the offing for the remaining months of 2017 as advertisers become more encouraged by the firmer upward trend in consumption and export growth, which has subsequently led GDP to expand by 3.3%1 in the first quarter of 2017. The Bank of Thailand has also indicated more optimism by revising upwards their GDP growth forecast for 2017 to 3.5% from 3.2% that was estimated at end of 2016.

IMPORTANT EVENTS IN 1Q 2017/18

June 2017

Master Ad Company Limited (“MACO”) successfully acquired 70% in Co-mass Company Limited (“COMASS”) through its wholly-owned subsidiary, Eye On Ads Company Limited. COMASS is one of the leading outdoor media company with more than 19 years’ experience in outdoor media advertising. Currently, COMASS has 113 static billboards and 7 digital billboards in strategic locations across 23 provinces in Thailand.

COMASS Static Billboards

COMASS Digital Billboards

Aero Media Group Company Limited (“Aero Media”) had secured the right to manage the media on 20 planes out of 32 planes2 of Nok Air. Currently, Aero Media has the largest ‘one-stop shop’ aviation media network across 13 airports with 4 key products including 342 LEDs screens, 57 jet bridges, 7,000 trolleys and 74 planes. In addition, Aero Media has right to manage all websites of Airports of Thailand Public Company Limited (AOT).

Media on planes

1 The Bank of Thailand 2 2016 Nok Air Annual report



Demo Power (Thailand) Company Limited successfully expanded to VGI’s commercial spaces by launching demonstration services across BTS stations.

Recognised additional synergy between VGI and Rabbit Group through the “Station Sponsorship” campaign with OPPO on 3 BTS stations (Mo Chit, Ploenchit and Saladang)

Synergy between VGI and Rabbit Group

As of 30 June 2017, under VGI’s offline payment channel, over 7.8mn Rabbit cards were issued with more than 126 brand partners and over 4,000 retail points acceptance. Under VGI’s online payment channel, Rabbit LinePay has over 2.2mn users with more than 330 brand partners.

July 2017

On 17 July 2017, Sungai Buloh – Kajang (“SBK Line”) has successfully opened the second phase of operations. Altogether, SBK Line has a total distance of 51 kilometres with 31 stations. Currently, Titanium Compass Sdn Bhd (“TCSB”) has begun managing advertising at 2 stations and on 7 trains.

Media in train and station of SBK Line by TCSB



1Q 2017/18 SNAPSHOT & ANALYSIS

CONSOLIDATED P&L SNAPSHOT THB (mn) 1Q 2016/17 1Q 2017/18 YoY (%)

(Restated)

Operating revenue 624 852 36.5%

Cost of sales 256 356 39.1%

Gross profit 368 496 34.8%

EBITDA 443 352 -20.7%

Interest expenses 5 23 401.9%

NPAT from operation (excl. NCI) 187 192 2.8%

NPAT from financial statements (excl. NCI) 3131 175 -44.2%

Gross profit margin 59.1% 58.2%

EBITDA margin 70.6% 41.3%

NPAT from operation margin (excl. NCI ) 29.9% 22.5%

NPAT from financial statements margin (excl. NCI) 50.3% 20.5%

Note: The Company restated 1Q 2016/17 financial performance after the consolidation of Rabbit Group under the common control basis. 1Included extraordinary item from gain of fair value measurement in MACO at the acquisition date of THB 207mn

PERFORMANCE ANALYSIS (1Q 2017/18 vs 1Q 2016/17)

In 1Q 2017/18, the VGI Group reported a consolidated operating revenue of THB 852mn, an increase of 36.5% YoY. The strong performance was mainly driven by newly acquired businesses Master Ad Public Company Limited (“MACO”) and Rabbit Group (operating Digital Services business), which together recorded double-digit revenue growth at 96.3%. Excluding the consolidation of the aforementioned, our original business (Transit, Office and Others), together with the kicked-in synergies - which resulted in innovative products between VGI and Rabbit Group – organically grew 19.8%.

REVENUE CONTRIBUTION

Total operating revenue of THB 852mn

REVENUE (THB MN)

1Q 2016/17 1Q 2017/18 YoY (%)

(Restated)

OOH media 543 755 38.9%

Transit & New Synergies 422 519 22.9%

Outdoor1 55 170 208.4%

Office and Other 66 66 0.0%

Digital Services 81 97 19.3%

Total revenue 624 852 36.5%

1Start consolidation in June 2016

60.9% 19.9% 7.8% 11.4%

Out-of-Home media Digital

Services

Transit & New Synergies Outdoor Office & Other



OOH media business contributed 88.6% of total revenue or THB 755mn. Revenue from OOH media rose considerably by THB 212mn, or 38.9% YoY, mainly attributed to the higher consolidated revenue from the Outdoor segment. The growth in revenue resulted generally from higher prices and synergy from Rabbit Group.

Within the OOH media, Transit media revenue increased by 22.9% YoY to THB 519mn, largely as a result of price increases, especially in our static media network. Moreover, this business segment has benefited from the recognition of synergies from Rabbit Group through a “Station Sponsorship” campaign on selected BTS stations.

Meanwhile, our Office Building and Other media segment revenue remains flat at THB 66mn. Although, during this quarter, we successfully added 4 new contracts to the office building portfolio, in line with the year-end target to acquire 10 additional building contracts. The performance of this business is expected to improve in the remaining quarters in line with the continuous increase in the number of office buildings.

Our Outdoor media revenue was THB 170mn, an increase of THB 115mn, or 208.4% YoY mainly due to the full quarter consolidation this quarter of MACO ( vs one-month consolidation in 1Q 2016/17). In the same period, MACO also benefitted from the consolidation of Multi Sign Company Limited (“Multi-Sign”), which was acquired in October 2016 (Please find more details of Outdoor media segment in 2Q 2017 MACO’s management discussion and analysis http://maco.listedcompany.com/misc/mdna/20170801-maco-mdna-2q2017-en.pdf)

Digital Services business contributed 11.4% of total revenue or THB 97mn. Revenue increased by THB 16mn or 19.3% YoY. The sizeable growth was mainly due to an increase in the revenue generated from 1) project management fee, card issuing fee and sales of Rabbit cards and 2) an increase in insurance commission revenue as well as banner advertising from Rabbit Internet.

Cost of Sales increased 39.1% YoY from THB 256mn to THB 356mn, primarily due to the consolidation effect from the abovementioned newly acquired businesses as well as an increase of Transit media concession fee. This resulted in a slightly decrease in gross profit margin to 58.2% in 1Q 2017/18 from 59.1% in the same period last year.

Selling, General and Administrative expenses (“SG&A”) also increased 37.5% from THB 186mn to THB 255mn, mainly due to the newly acquired businesses (Outdoor and Digital Services). The increase in SG&A from the Outdoor segment was namely due to the full quarter consolidation of MACO as well as the consolidation of Multi Sign. In addition, MACO recorded one-off expenses related to the COMASS transaction and to the bidding of street furniture media concessions in Myanmar. The increase in SG&A from Digital Services is mainly due to Rabbit Group’s expanded headcount, which is rapidly developing and investing in its burgeoning data acquisition and analytics capabilities to uncover opportunities to enhance customers and shareholder return. Consequently, SG&A expenses as a percentage of revenue rose to 30.0% from 29.8%. The Company expects that the ratio should be maintained at no more than 30% going forward.

Interest expenses increased 401.9% from THB 5mn to THB 23mn in this quarter, mainly due to the loan for financing the Rabbit Group acquisition in March 2017.

Despite the aforementioned increase in costs from the consolidation effect, the increase in Transit media’s concession fee, higher revenue contribution from lower margins from a more diversified revenue mix, higher SG&A and interest expenses, the Company’s net profit from operation increased by 2.8% YoY to THB 192mn from THB 187mn in the same period last year, as a result of the considerable increase in sales and realisation of synergy between VGI and Rabbit. Our net profit margin from operation in 1Q 2017/18 was 22.5%.

http://maco.listedcompany.com/misc/mdna/20170801-maco-mdna-2q2017-en.pdf



FINANCIAL POSITION

ASSETS

ASSETS BREAKDOWN 31 MARCH 2017 30 JUNE 2017 (Restated)

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

Cash & cash equivalents and short-term investments 1,210 15.2% 894 10.9% Trade & other receivables 763 9.6% 815 9.9% Equipment – net 1,503 18.8% 1,671 20.3% Investment in JVs, associates and other long-term investments 1,373 17.2% 1,340 16.3% Goodwill and excess of acquisition costs and net assets 1,487 18.6% 1,765 21.5%

Other assets 1,649 20.6% 1,728 21.0%

Total assets 7,985 100.0% 8,213 100.0%

Total assets as of 30 June 2017 stood at THB 8,213mn, an increase of THB 228mn or 2.9% from THB 7,985mn as of 31 March 2017. Total current assets were THB 2,395mn, decreasing by 8.3% or THB 218mn, primarily due to 1) a decrease in cash & cash equivalents and short-term investments of THB 316mn mainly from cash used for MACO’s investment in COMASS, 2) a decrease in current portion of long-term loans to related parties of THB 81mn. However, the decrease was partially offset by 3) an increase in trade and other receivables of THB 52mn (see further details in trade and other receivable section) and 4) an increase in prepaid expenses of THB 19mn.

Total non-current assets stood at THB 5,819mn, an increase of 8.3% or THB 446mn due to an increase of 1) an estimated amount by which costs of the acquisition of investment in subsidiary exceed identifiable net assets of the acquiree of THB 278mn from an acquisition in COMASS by MACO and 2) equipment –net of THB 168mn.

Trade and other receivables were THB 815mn, an increase of THB 52mn. The increase was in-line with higher sales in 1Q 2017/18. The Company gives 60 – 90 days credit terms to customers. For accounts receivables of more than 120 days, the Company has a policy for allowance for doubtful accounts, which also considers the customers’ payment history and credit-worthiness. As of 30 June 2017, the allowance for doubtful accounts was THB 33mn.

AGEING OF TRADE RECEIVABLES (THB mn) 31 MARCH 2017 30 JUNE 2017 Not yet due 577 488 Up to 6 months 93 195 Over 6 months 39 44

Total 709 727 % of total receivables 93.0% 89.0%

Allowance for doubtful debt 34 33 % of total receivables 4.5% 4.0%

LIABILITIES AND SHAREHOLDERS’ EQUITY

LIABILITIES AND EQUITY BREAKDOWN 31 MARCH 2017 30 JUNE 2017 (Restated)

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

Short term loans 778 9.7% 733 8.9% Trade & other payables 536 6.7% 583 7.1% Accrued expenses 400 5.0% 401 4.9% Current portion of long-term loans from financial institutions 246 3.1% 244 3.0% Other current liabilities 848 10.6% 881 10.7% Long term loan 1,933 24.2% 1,923 23.4% Other non-current liabilities 139 1.7% 155 1.9%

Total liabilities 4,880 61.1% 4,918 59.9%

Shareholders’ equity 3,105 38.9% 3,295 40.1%

Total liabilities and equity 7,985 100.0% 8,213 100.0%

Total liabilities were THB 4,918mn, an increase of THB 39mn or 0.8% from THB 4,880mn as of 31 March 2017 mainly from increase in 1) trade and other payables of THB 46mn and 2) corporate income tax payable of THB 30mn. The increase was partially offset by a decrease in 3) short term loans from financial institution of THB 45mn.

Total equity was THB 3,295mn increasing by THB 190mn or 6.1%, which was attributed to an increase in retained earnings from the 3-month operating performance. Return on equity for 1Q 2017/18 was 35.4%.



LIQUIDITY AND CASH FLOW (THB mn)

*After tax (THB 38mn) and interest expense (THB 20mn) **Included translation adjustment of THB 0.3mn

For the three months ended 30 June 2017, cash and cash equivalents was THB 625mn, a decrease of 21.7% or THB 174mn. Cash from operating activities was THB 266mn, increasing by 30.0% or THB 61mn. After deducting cash paid for corporate income tax of 38mn (3M 2016/17: THB 15mn) and cash paid for interest expenses of THB 20mn (3M 2016/17: THB 4mn), net cash from operating activities was THB 208mn. Net cash used in investing activities was THB 299mn. The key components are cash paid for an investment in COMASS by MACO of THB 225mn and the system upgrade for LCD in trains, LCD screens in office buildings and billboards of THB 217mn. These were offset by proceeds from sales of current investments of THB 142mn. Net cash used in financing activities was THB 83mn mainly from a repayment in short-term and long-term loans from financial institutions of THB 45mn and 13mn, respectively and dividend paid by a subsidiary to non-controlling interests of the subsidiary of THB 25mn.

FINANCIAL RATIOS

Profitability Ratios 1Q

2016/17 (Restated)

1Q 2017/18 Liquidity Ratios

1Q 2016/17

(Restated)

1Q 2017/18

Gross profit 1 (%) 59.1% 58.2% Current ratio (times) 0.9 0.8

Operating EBITDA (%) 70.9% 41.4% Quick ratio6 (times) 0.8 0.7

Cash-to-net profit (%) 50.1% 82.8% Account receivable turnover (times) 4.9 4.2

Net profit (excl. NCI)2 (%) 36.8% 20.0% Average collection period (days) 74.6 87.9

Return on equity3 (%) 40.3% 35.4% Payable days (days) 100.8 149.1

Efficiency Ratios Leverage Ratios

Return on assets4 (%) 12.2% 8.5% Liability to Equity7 (times) 1.6 1.5

Return on fixed assets5 (%) 75.8% 60.1% Debt to equity8 (times) 1.0 0.9

Assets turnover (times) 0.5 0.4

1Calculated from revenue from services 2Net Profit attributable to equity holders of the Company/ Total revenue 3Net Profit (Annualised) / Average Total Shareholders’ equity (average of outstanding at end of the same period in the previous year and at end of this year) 4Net Profit (Annualised) / Average Total Assets (average of outstanding at end of the same period in the previous year and at end of this year) 5(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 year) 6(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 year) 7Total liability/ total shareholder’s equity 8Total interest bearing debt/ total shareholders’ equity

799 625

208* 299 83**

Beginning cash(Restated)

(31/3/2017)

CFO CFI CFF Ending cash(30/6/2017)



MANAGEMENT OUTLOOK

We reiterate the 2017/18 revenue forecast for the VGI group at THB 4,000mn driven by new synergies between VGI and Rabbit Group and a robust performance across our business segments.

…………………………………..

Chitkasem Moo-Ming

(Chief Financial Officer)

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