vgi global media plcvgi.listedcompany.com/misc/mdna/20181107-vgi-mdna-2q...2018/11/07 · the...

The second quarter of 2018/19 (ended 30 September 2018) 1

VGi GLOBAL MEDIA PLC MANAGEMENT DISCUSSION & ANALYSIS 2Q 2018/19

7 NOV 2018

BUSINESS HIGHLIGHTS IN 2Q 2018/19 Revenue was THB 1,208mn, an increase of 23.5% YoY.

Revenue from Out-of-Home business increased 2.0% YoY to THB 909mn.

Revenue from Digital services business increased 243.6% YoY to THB 299mn.

Net profit was THB 260mn, an increase of 28.8% YoY.

No. of Rabbit card reached 9.8mn card, an increase of 9.3% over the past 6 months.

No. of Rabbit LinePay user reached 4.5mn users, an increase of 55.2% over the past 6 months.

Outstanding loan through Rabbit AEON reached THB 1,529mn, an increase of 12.0% over the past 6 months.

Delivered more than 70,000 pieces of smart product samplings with Kerry Express.

KEY BUSINESS AND STRATEGIC UPDATES

ADVERTISING PAYMENT LOGISTICS

Transit & Office Outdoor Airport Activation Offline & Online

Payment Market Place Micro Loan Smart Delivery

1) ADVERTISING - BUILDING AN INTERNATIONAL NETWORK AND EMPOWERING DIGITAL STRATEGIES THROUGH STRATEGIC PARTNERSHIPS

The Company expects that the sale of VGI Global Media (Malaysia) Sdn. Bhd. (“VGM”) for THB 360mn to Master Ad Public Company Limited (“MACO”) will be completed in 3Q 2018/19. This restructuring enables VGI to focus on building the most robust offline-to-online or online-to-offline (“O2O”) ecosystem in Thailand and designates MACO as the international business expansion vehicle for VGI. Strengthening its international footprint is an integral part of MACO’s strategy and VGM will be the flagbearer in expanding its Out-of-Home (“OOH”) media business overseas. VGM has recently expanded its footprint into Indonesia, securing a 20-year concession to manage Transit media in North-South line – the first mass transit system in Jakarta.

In the end of July 2018, Master Ad Public Company Limited (“MACO”) successfully acquired 81.65% in Trans.Ad Solutions Company Limited (“Trans.Ad”) – multimedia display systems provider and 89% in Roctec Technology Limited (“Roctec”) – a provider of multimedia & communications systems, system integrations and total network infrastructure. MACO expects to obtain their expertise and integrate them into its digital media business in order to support the expansion of the digital network of the Company Group domestically and internationally. (Please find more details on Outdoor media business in 3Q 2018 MACO’s management discussion and analysis http://maco.listedcompany.com/misc/mdna/20181106-maco-mdna-3q2018-en.pdf).

Trans.Ad Group’s Shareholding Structure

81.65%

Trans.Ad Group

89% 100% MACO Eye on Ads Trans.Ad Roctec

http://maco.listedcompany.com/misc/mdna/20181106-maco-mdna-3q2018-en.pdf




7 NOV 2018

2) PAYMENT (DIGITAL SERVICES) – ROBUST USER GROWTH SUPPORTED BY STRONG BUSINESS DEVELOPMENT

Rabbit LinePay

We continued to experience strong user base growth on Rabbit LinePay. Currently; Rabbit LinePay serves more than 4.5mn users, an increase of 55.2% in less than 6 months. Ongoing improvements in user interface as well as major business development with BTS Group Holdings Public Company Limited (“BTS”), the leading rail mass transit operator, and Advance Info Services Public Company Limited (“AIS”), the number 1 telecommunications operator in Thailand, to accelerate the growth of RLP’s user base and monthly-active-users (“MAU”) during the first half of this year. AIS has continued to demonstrate its commitment to shift its 40mn customers to become paperless and cashless, and to use RLP as the key payment solution.

On 30 October 2018, RLP and BTS announced the soft launch of “Bind, Tap & Ride” service across 20 BTS stations allowing more than 800,000 BTS users to enjoy an even more convenient and seamless experience daily. The collaboration between the two major sector leaders aims to provide a smarter and easier journey on the BTS by enabling users to bind their existing rabbit card with Rabbit Line Pay e-wallet into a single source of fund. It represents a major milestone in the shared mission of both companies in driving the public towards a cashless society, creating a queue-free and self-serve experience for BTS users.

LINE Corp (“LINE”), as a shareholder of RLP, has taken a notable step with the aim of continuously improving its payments business by completely revamping the “more-tap” page on the LINE app. The page is now changed to the “wallet” page with RLP as the focal point for LINE users. The wallet currently allows RLP users to make payments for BTS and cinema tickets as well as bill payments.

New User Interface

Old Version

More steps to reach

Less features

New Version

One click to ‘Wallet’ feature in LINE app.

Add BTS function to provide a smarter and easier journey on BTS.

Rabbit Card

Number of offline payment through Rabbit Card circulation reached 9.8mn cards. Nearly achieving its full-year target of 10.5mn cards.

Launched new collection of limited edition of Rabbit Cards with popular LINE characters.

Limited Edition of Rabbit Card and Rabbit LinePay

Rabbit AEON

Rabbit AEON, our joint venture in the micro-loan business, achieved a total outstanding loan balance of THB 1,529mn.



7 NOV 2018

3) LOGISTICS – SYNERGY BETWEEN OUR ADVERTISING AND LOGISTICS BUSINESS DELIVERS NEW MARKETING SOLUTIONS

We are executing our strategy to integrate advertising elements into our overall offerings to consumers through our logistics platform. During the quarter, VGI partnered with Kerry Express to soft launch smart sampling through Kerry Express’ network. Our smart sampling goes beyond just product giveaways by allowing brands to do multiple marketing activities both offline and online simultaneously, with appropriate demographic targetting. The service is able to 1) Locating the right target audience and drive product awareness with 100% view-ability, 2) Encouraging products to sampled at home, where consumers are generally more receptive, 3) Obtaining product user feedback for actionable marketing insights and 4) Retargeting high prospect customers online

Within 1 month of product launch, we have successfully delivered 70,000 samples from top FMCG brands with a significantly higher conversion rate of 3-5%, compared to the industry norm of 0.5%.

Delivering More Than 70,000 Pieces of Smart Sampling

EQUITY AND OTHERS

On 11 September 2018, VGI issued and allocated warrants no. 2 (“VGI-W2”) to the shareholders whose name appeared on the shareholder list record date as of 15 August 2018. Key terms and conditions of VGI-W2 are as follows:-

Key terms and conditions

No. of warrants issued 1,711,334,815 units

Exercise ratio 1 VGI-W2 to 1 ordinary share of VGI

Exercise price THB 10.00

Terms 4 years Exercise period Quarterly

Issuance date 11 September 2018

Expiration date 10 September 2022

First trading date 25 September 2018



7 NOV 2018

2Q 2018/19 SNAPSHOT & ANALYSIS CONSOLIDATED P&L SNAPSHOT

THB (mn) 2Q 2017/18 1Q 2018/19 2Q 2018/19 QoQ (%) YoY (%) Operating revenue 978 1,077 1,208 12.2% 23.5% Cost of sales 387 392 537 37.1% 38.7% Gross profit 591 685 670 -2.1% 13.5% EBITDA 444 507 501 -1.2% 12.9% EBIT 333 384 380 -1.1% 14.1% Interest expenses 25 15 18 18.6% -27.8% Tax 83 82 76 -7.3% -8.6%

Net profit1 202 261 260 -0.4% 28.8%

Gross profit margin 60.4% 63.6% 55.5% EBITDA margin 45.4% 47.1% 41.5% Net profit margin 20.6% 24.3% 21.5%

1As shown in financial statement, excluding minority interest.

PERFORMANCE ANALYSIS (2Q 2018/19 vs 2Q 2017/18)

VGI continued to seamlessly follow through on its successful growth strategy. Revenue for the quarter ended 30 September 2018 was THB 1,208mn, an increase of 23.5% YoY or THB 230mn compared to THB 978mn in the same quarter of 2017/18. The increase was mainly driven by encouraging growth in the Out-of-Home media sector as well as the consolidation of Trans.Ad Solutions Company Limited and Roctec Technology Limited, collectively called “Trans.Ad Group” by Master Ad Public Company Limited (“MACO”). Through this strategic acquisition, MACO has become their major shareholder resulting in a consolidation of financial statements starting from August 2018. The Company will record such revenue from Trans.Ad Group under our Digital Services segment.

REVENUE BREAKDOWN (THB MN)

% Contribution to total revenue

2Q 2017/18 2Q 2018/19 YoY (%) 2Q 2017/18 2Q 2018/19 OOH media 891 909 2.0% 91.1% 75.3% Transit 576 535 -7.2% 58.9% 44.3% Outdoor 232 266 14.4% 23.7% 22.0% Office and Other 83 109 31.7% 8.5% 9.0% Digital Services 87 299 243.6% 8.9% 24.7%

Total revenue 978 1,208 23.5% 100.0% 100.0%

In 2Q 2018/19, OOH media segment revenue increased by 2.0% YoY, representing a contribution of 75.3% to total revenue or THB 909mn. The growth in OOH media revenue resulted from revenue growth of our Outdoor and Office & Other media businesses.

Within the OOH media, Transit media revenue decreased by 7.2% YoY to THB 535mn. The decrease was primarily due to the expiry of O2O solutions campaign contracts on BTS stations, which decreased their contribution to the Transit media sector this quarter by THB 30mn to THB 57mn, from THB 87mn in the same quarter last year. The decrease is expected to be short-term as the contracts of O2O campaigns were mostly terminated in June 2018, a normal budget-end period for agencies and clients. Hence, the Company is expected to see normalised booking levels in the remaining quarters of 2018/19.

Meanwhile, Office Building and Other media segment revenue grew solidly, increasing by 31.7% YoY to THB 109mn. The revenue growth in the second quarter was mainly from a higher utilisation rate as well as price increases. During the first 6 months of 2018/19, we added 3 new contracts to the office building portfolio, sustaining our market share as the number 1 Office media player with a total of 177 buildings under management and 1,374 digital screens.

The Outdoor media segment recorded revenue of THB 266mn, which increased by 14.4% YoY, mainly due to the ongoing revenue recognition of 35 digital billboards (Please find more details on the Outdoor media segment in 3Q 2018 MACO’s management discussion and analysis http://maco.listedcompany.com/misc/mdna/20181106-maco-mdna-3q2018-en.pdf.)

Digital Services segment contributed 24.7 % of total revenue or THB 299mn, which grew by 243.6% YoY, mainly due to the consolidation of Trans.Ad Group – a system integration and total solutions services provider by MACO as well as the increase in project management fees and card sales of Rabbit Group.




7 NOV 2018

Revenue growth was also accompanied by an increase in cost of sales which came to THB 537mn, an increase of THB 150mn or 38.7% YoY. The increase was primarily due to our consolidation of Trans.Ad Group, resulting in the increase of Cost-to-sales ratio to 44.5% from 39.6%. Overall Gross profit was up 13.5% YoY from THB 591mn to THB 670mn, while Gross profit margin decreased to 55.5% (prior year: 60.4%).

In light of the ongoing expansion, selling, general and administrative expenses (“SG&A”) also increased by 31.2% YoY or THB 85mn from THB 268mn to THB 351mn. The ratio of SG&A to revenue came to 29.1% (prior year: 27.4%).

In this quarter, the Group’s share of profit from investments in joint ventures and associates increased to THB 15mn from share of loss at THB 7mn in 2Q 2017/18 due to recognition of a share of profit from Kerry Express since August 2018.

Lastly, VGI Group generated total net profit of THB 260mn (prior year: THB 202mn), an increase by 28.8% YoY.

As many of our newly developed and acquired business have different cost structures such as Trans.Ad Group where its business is operating in a manner similar to a contractor and relies on a relatively greater proportion of high cost assets such as computers, software and installation, our margin will continue to be influenced by several factors such as 1) an increasingly diversified revenue and earnings base, 2) the inclusion of newly acquired companies such as Kerry Express and Trans.Ad Group, 3) international expansion through MACO in Southeast Asia region. Despite the effect of the above-mentioned long-term investments, our net profit margin is targeted to remain within the 20-25% range going forward.



7 NOV 2018

FINANCIAL POSITION

ASSETS

ASSETS BREAKDOWN 31 MARCH 2018 (Restated)

30 SEPTEMBER 2018

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

Cash & cash equivalents and short-term investments 1,905 19.8% 5,225 26.0% Trade & other receivables 1,143 11.9% 1,572 7.8% Equipment – net 1,615 16.8% 1,695 8.4% Investment in JVs, associates and other long-term investments 1,421 14.8% 7,685 38.1% Goodwill and excess of acquisition costs and net assets 1,748 18.2% 2,043 10.2%

Other assets 1,799 18.7% 1,905 9.5%

Total assets 9,632 100.0% 20,123 100.0%

Total assets as of 30 September 2018 stood at THB 20,123mn, an increase of THB 10,491mn or 108.9% from THB 9,632mn as of 31 March 2018.

Total current assets were THB 7,582mn, increasing by 104.6% or THB 3,877mn, primarily from 1) an increase in cash & cash equivalents and short-term investments of THB 3,320mn, due mainly from the cash received from VGI-W1 and Right Offering issued by MACO, 2) an increase in trade & other receivables of THB 429mn (see further details in trade and other receivable section).

Total non-current assets stood at THB 12,541mn, increasing by 111.6% or THB 6,614mn, due to 1) an increase in investment in JVs, associates companies and other long-term investments of THB 6,264mn, which was mainly from the investment in Kerry Express in July 2018, 2) an increase in excess of acquisition costs and net assets of THB 294mn from the acquisition in Trans.Ad Group by MACO and 3) an increase in equipment – net of THB 79mn, mainly from plant and equipment of MACO.

Trade and other receivables were THB 1,572mn, an increase of THB 429mn. The increase in account receivables comprising of 1) trade receivables of THB 306mn, 2) other receivables of THB 58mn and 3) accrued income of THB 56mn. The increase was in-line with higher sales in 2Q 2018/19. 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 September 2018, the allowance for doubtful accounts was THB 30mn. Average collection period as at end of this quarter was 101 days compared to 88 days as of 31 March 2018. The increase in the average collection period was because of Trans.Ad group’s consolidation, where some of its customers are government agencies that have credit terms of not less than 90 days.

AGEING OF TRADE RECEIVABLES (THB mn) 31 MARCH 2018

(Restated) 30 SEPTEMBER 2018

Not yet due 647 693 Up to 6 months 164 392 Over 6 months 22 54

Total 833 1,139 % of total trade and other receivables 77.3% 72.5%

Allowance for doubtful debt 36 30 % of total trade and other receivables 3.4% 1.9%



7 NOV 2018

LIABILITIES AND SHAREHOLDERS’ EQUITY

LIABILITIES AND EQUITY BREAKDOWN 31 MARCH 2018 (Restated)

30 SEPTEMBER 2018

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

Short term loans 230 2.4% 117 0.6% Trade & other payables 285 3.0% 345 1.7% Accrued expenses 571 5.9% 641 3.2% Current portion of long-term loans from financial institutions 44 0.5% 47 0.2% Other current liabilities 918 9.5% 1,239 6.2% Long term loan 1,489 15.5% 1,465 7.3% Other non-current liabilities 169 1.8% 182 0.9%

Total liabilities 3,706 38.5% 4,035 20.1%

Shareholders’ equity 5,926 61.5% 16,088 79.9%

Total liabilities and equity 9,632 100.0% 20,123 100.0%

Total liabilities were THB 4,035mn, an increase of THB 329mn or 8.9% from THB 3,706mn as of 31 March 2018 mainly from the consolidation of Trans.Ad Group, including 1) an increase in unearned revenues of THB 293mn, 2) accrued expenses of THB 69mn, 3) trade and other payables of THB 60mn. However, the increase was partially offset by mainly a decrease in 4) short term, long term loans and current portion of long term loans of THB 134mn.

Total equity was THB 16,088mn, increasing by THB 10,162mn or 171.5%, mainly due to an increase in premium on share capital of THB 9,349mn and non-controlling interests of the subsidiaries of THB 783mn. The increase in premium on share capital comprised of 2 components including 1) the exercise of VGI-W1 of THB 8,492mn and 2) the private placement issued for Kerry Express of THB 857mn.

LIQUIDITY AND CASH FLOW (THB mn)

*After tax and net tax refund (THB -153mn) and interest expense (THB -33mn) **Included translation adjustment of (THB 2.3mn)

For the six months ended 30 September 2018, cash and cash equivalents was THB 2,632mn, an increase of 247.5% or THB 1,874mn. Cash from operating activities was THB 746mn, increasing by 6.0% or THB 42mn. After deducting cash paid for corporate income tax net of tax refund of THB 153mn (6M 2017/18: THB 130mn) and cash paid for interest expenses of THB 33mn (6M 2017/18: THB 44mn), net cash from operating activities was THB 547mn. Net cash used in investing activities was THB 7,329mn. The key components was cash paid for 1) an investment in Kerry Express (Thailand) Limited of THB 5,016mn, Trans.Ad Solutions Company Limited of THB 188mn and Meru Utama Sdn Bhd of THB 44mn, 2) a purchase of current investments of THB 1,445mn, 3) cash paid for purchase of other long-term investments of THB 400mn and 4) cash paid for LED billboards and the system upgrade for LCD screens in trains and LCD screens in office buildings and other of THB 161mn. Net cash from financing activities was THB 8,657mn primarily from cash received from proceeds from exercise of warrants of THB 8,615mn, proceeds from MACO’s Right Offering of THB 958mn. However, this offset by a decrease from dividend paid of THB 520mn1, investment 30% in Multi Sign Company Limited by MACO of THB 163mn, increase stakes in MACO from 30.38% to 31.65% of THB 97mn and loans repayment of THB 134mn.

1 Included dividend paid by a MACO’s to non-controlling interests and shareholders of THB 48mn and THB 27mn, respectively.

757 2,632

547* (7,329)8,657**

Beginning cash(Restated)

(31/3/2018)

CFO CFI CFF Ending cash(30/9/2018)

CFI CFF



7 NOV 2018

FINANCIAL RATIOS

Profitability Ratios 2Q

2017/18 2Q

2018/19 Liquidity Ratios 31-Mar-18 30-Sep-18

Gross profit (%) 60.4% 55.5% Current ratio (times) 1.8 3.2

Operating EBITDA (%) 45.4% 41.5% Quick ratio (times) 1.2 2.0

Cash-to-net profit (%) 96.8% 53.9% Account receivable turnover (times) 4.1 3.6

Net profit (excl. NCI) (%) 20.3% 20.8% Average collection period (days) 88.4 100.7

Return on equity (%) 34.8% 12.4% Payable days (days) 97.6 62.2

Efficiency Ratios Leverage Ratios

Return on assets (%) 8.7% 7.0% Liability to equity (times) 0.6 0.3

Return on fixed assets (%) 63.1% 80.8% Debt to equity (times) 0.3 0.1

Assets turnover (times) 0.4 0.3

Remark:

During April – September 2018, the warrant holders exercised 1,121mn shares to purchase newly issued ordinary shares of THB 7.00 baht per share. In addition, the Company issued 122mn ordinary shares to the existing shareholders of Kerry Express (Thailand) Limited. Hence, the Company recorded “Premium on share capital” in statements of financial position as of 30 September 2018.

Financial ratios were calculated based on The Stock Exchange of Thailand’s formula.

MANAGEMENT OUTLOOK

During the past decade, the world has drastically changed with the advent of the internet revolutionising the way we interact and communicate. New communications technology and the proliferation of social media in particular, are bringing people around the globe closer together than ever before. This has made it imperative for the media industry to find a way to connect with people at the same pace.

Over the past years, we have anticipated such changes and begun to expand our services from being solely an OOH advertising platform provider to a unique market leader with exclusive access to behavioral data from our advertising, payment and logistics platforms. We turn data into meaningful consumer insights, enabling us to offer 360-degree advertising and marketing solutions. To provide an enhanced customer experience, we help brands to communicate to their customers at every stage of the purchasing process.

In our view, the outlook for the advertising sector seems promising. With the upcoming election early in 2019, we anticipate that advertisement spending will benefit from macroeconomic upswing and positive sentiment. The growth of e-commerce is expected to increase by 30%2 per year driven by the ever-changing lifestyle of consumers, who are increasingly tied to mobile and smart devices. With the aforementioned favorable outlook as well as the consolidation of Trans.Ad Group, the Company has revised up our 2018/19’s revenue target from THB 4,400 – 4,600mn to THB 5,000mn and expect the net profit margin of 20 – 25%.

…………………………………..

Chitkasem Moo-Ming

(Chief Financial Officer)

2 Source: Thai e-Commerce Association

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