Charm Communications diversifies as TV prices rise

28 April 2011 13 h 00 min 4 comments

BEIJING  – Charm Communications Inc. (NASDAQ: CHRM), a leading advertising agency in China, today announced its unaudited financial results for the first quarter ended March 31, 2011.

First Quarter 2011 Highlights
• Revenues in the first quarter of 2011 grew 48.4% year-over-year and 9.8% quarter-over-quarter to $62.3 million
• Revenuesfor Charm’s advertising agency business grew 34.1% year-over-year and decreased 8.2% quarter-over-quarter to $7.1 million in the first quarter of 2011
• Revenues for Charm’s media investment management business grew 51.0% year-over-year and 15.3% quarter-over-quarter to $54.0 million in the first quarter of 2011
• Revenues for Charm’s branding and identity services business grew 27.7% year-over-year and decreased 46.6% quarter-over-quarter to $1.1 million in the first quarter of 2011
• Gross profit for the first quarter of 2011 grew 19.3% year-over-year and decreased 32.9% quarter-over-quarter to $14.8 million
• Net income for the first quarter of 2011 grew 19.6% year-over-year and decreased 32.7% quarter-over-quarter to $8.2 million
• Non-GAAP net income, which excludes share-based compensation expenses and impairment on investments, grew 19.0% year-over-year and decreased 39.1% quarter-over-quarter to $8.9 million in the first quarter of 2011
• Basic net income per ADS for the first quarter of 2011 was $0.20, compared to $0.19 for the first quarter of 2010 and $0.31 for the fourth quarter of 2010
• Cash flow from operations was positive for the first quarter of 2011, with cash and cash equivalents of $130.5 million as of March 31, 2011

In the first quarter of 2011:

Charm added 5 new advertising client accounts to its agency business, bringing total agency accounts for 2011 to 140
• Charm’s principal media business had 325 advertisers, compared to 206 advertisers in the first quarter of 2010
• Charm had 560 employees as of March 31, 2011, compared to 525 as of December 31, 2010

“We made a solid start in 2011, as we continued to deliver stable growth in the first quarter,” said Mr. He Dang, founder, chairman and chief executive officer of Charm. “Our strong results demonstrate our ability to provide integrated and innovative solutions, which has allowed us to capture additional market share and to solidify our position as a leading advertising agency in China.”

From single media to integrated media solutions

“With rising media prices across the advertising industry, we continue to see clients moving away from a single media solution towards integrated media solutions. Although we have successfully diversified our media platform, with only 37% of total revenues attributed to CCTV-related media, we are keen to further strengthen our integrated media offerings through deepening cooperation with our strategic partner Aegis Media and with continued investments in our staff and infrastructure.” “I am also happy to report key client wins, during an otherwise seasonally weak first quarter, which significantly enhanced our market position and brand value. Significant wins for Charm Advertising included Baidu and Huayi Brothers, and Charm Interactive won the digital marketing services account for Hisense, a multibillion dollar manufacturing conglomerate. We are particularly focused on expanding our digital marketing capabilities, especially with the development of the online video segment as we are seeing an influx of advertisers coming onto the Internet through this medium. We feel well positioned to leverage our leadership position in television advertising and our large blue-chip client base to capture the growth in this new segment,” said Mr. Dang.

Mr. Wei Zhou, Charm’s chief financial officer, added, In the first quarter of 2011, we continued to outgrow the market, as measured by gross billings, and gained additional market share, as our total turnover reached $198 million, achieving 40% year-over-year growth. We also had solid growth in net income, exceeding guidance, and expect continued growth as Hubei Provincial Economic TV ramps up and its margins normalize through the course of the year. Going forward, we expect to continue making strategic investments that will result in positive returns for our shareholders, as well as expand our services and capabilities to remain at the forefront of the advertising industry in China.”

First Quarter 2011 Results

. Turnover (non-GAAP)
 
The Company uses turnover (non-GAAP), defined as total customer advertising spending placed through or with Charm, to reflect the scale of its business. The 39.9% year-over-year increase in total turnover was mainly due to the increase in the number of advertising clients and the increase in advertising spending from existing clients. The 0.3% quarter-over-quarter decrease in turnover was largely attributed to stronger demand from clients in the fourth quarter of 2010 due to seasonal factors.
The 36.1% year-over-year increase in advertising agency business, or agency business, turnover was mainly due to the increase in the number of new agency clients and the increase in advertising spending from existing agency clients. In the first quarter of 2011, Charm provided advertising agency services to 140 advertising client accounts, 5 of which were acquired in the first quarter of 2011.

The 51.0% year-over-year increase in media investment management business, or principal media business which operates under the Shangxing Media brand, turnover (equivalent to GAAP revenue) was mainly due to the addition of Hubei Provincial Economic TV. For the first quarter of 2011, Charm had 325 advertisers for its principal media business, compared with 206 advertisers for the first quarter of 2010.

Revenues

The increases in agency and principal media business revenues are consistent with the increases in turnover.

 

Recent Business Developments
. On March 21, 2011, Charm announced that it had been named CCTV’s top advertising agency for 2010, based on the total amount of advertising spending placed on behalf of clients on CCTV. Charm has been in the top 10 rankings for each of the past 14 years.
. In April 2011, Charm announced that its digital marketing agency, Charm Interactive, was awarded the digital marketing business for 2011 for Hisense Group (“Hisense”), a multi-billion dollar, leading home appliance, telecommunications and IT manufacturer in China. Concurrently, Charm Communications’ full media communications agency, Charm Advertising, was also awarded Hisense’s satellite and provincial television media account for 2011.
. In the first quarter of 2011, Charm added several new major accounts including Baidu, Inc, Hainan Honz Pharmaceutical Co., Ltd and Huayi Brothers Media Corporation.

Business Outlook
 

*The Company’s non-GAAP net income excludes share-based compensation expenses and impairments on investments.
The Company bases these estimates on a foreign exchange rate of RMB6.58 to US$1.00. This forecast reflects the Company’s current and preliminary view, which is subject to change.

About Charm Communications

Charm Communications Inc. (NASDAQ: CHRM) is a leading advertising agency in China. Charm operates its business under three brands: Charm Advertising, Charm Interactive, and Shangxing Media. Under the Charm Advertising and Charm Interactive brands, Charm offers integrated advertising agency services from planning and managing advertising campaigns to creating and placing advertisements. Under the Shangxing Media brand, Charm has established a portfolio of television advertising media resources through its exclusive arrangements with premium national television channels, which include not only advertising time but also opportunities for placing branded content. Charm’s clients include well-recognized brand names in China across many industries, as well as emerging domestic leading brands. In January 2010, Charm formed a joint venture with international 4A advertising group Aegis Media, its strategic investor, to operate its brand “Vizeum” in China. In October 2010, Charm also entered into agreement to establish a joint venture with Wasu Digital Group to operate all advertising-related businesses across Wasu’s IPTV, 3G mobile TV and broadband TV network platforms.

SOURCE: Charm Communications (27/04/2011)

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