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Charm Communications Inc. Announces Unaudited 2011 Second Quarter Results

BEIJING July 27, 2011 China June 30, 2011

Second Q uarter 2011 Highlights

  • Revenues $67.3 million

  • Revenues for Charm s advertising agency business $6.2 million

  • Revenues for Charm s media investment management business $60.0 million

  • Revenues for Charm s branding and identity services business $1.6 million

  • Gross profit $18.6 million

  • Net income $11.0 million

  • Non-GAAP net income $11.7 million

  • Basic net income per ADS $0.28 $0.23 $0.20

  • Cash flow from operations $132.4 million June 30, 2011

  • In the second quarter of 2011, Charm added 3 new advertising client accounts to its agency business, bringing total agency accounts for 2011 to 143

  • In the second quarter of 2011, Charm’s principal media business had 290 advertisers, compared to 264 advertisers in the second quarter of 2010

  • June 30, 2011 March 31, 2011

"In the second quarter of 2011, we continued to execute on our company strategies and gained additional market share," said Mr. He Dang, founder, chairman and chief executive officer of Charm. "We achieved solid growth, secured key client wins, and expanded our product offerings in the digital space."

China China

Mr. Dang concluded, "To meet our clients’ needs for integrated traditional and digital campaigns, we have also strengthened our service offerings through a combination of impressive organic growth at Charm Interactive, the strategic acquisition of ClickPro, and our continued partnership with Aegis Media in forming a joint-digital trading platform."

Wei Zhou

Second Q uarter 2011 Results

Turnover (non-GAAP)

US$ mm

2 Q11

2Q10

1Q11

Y-o-Y %

Q-o-Q%

Total turnover (non-GAAP)

$201.3

$150.9

$198.2

33.3%

1.5%

Advertising agency

$141.7

$112.0

$144.2

26.5%

-1.7%

Media investment management

$59.6

$39.0

$54.0

52.9%

10.2%

Branding and identity services

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 33.3% 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 1.5% quarter-over-quarter increase in turnover was largely attributed to a stronger demand from clients on media investment resources in the second quarter of 2011 due to seasonal factors.

Japan

The revenue extraction rate, which is defined as revenue divided by turnover, was 4.4% for the agency business, compared to 4.8% for the second quarter of 2010 and 4.9% for the first quarter of 2011. The slight decrease in the extraction rate is mainly due to the Company’s competitive pricing strategy when acquiring new clients to increase market share. Charm expects the revenue extraction rate to increase as the Company expands its full service offerings across all media platforms under Charm Advertising and ramps up digital media offerings under Charm Interactive. The revenue extraction rate would have been 5.5% for the second quarter of 2011, as compared to 5.5% for the second quarter of 2010 and 6.0% for the first quarter of 2011, had the Company included the commission from Charm Advertising clients for advertising placements on Shangxing Media’s resources. The inter-business unit commission charge assumes a fair market rate based on an arm’s length transaction.

The 52.9% year-over-year turnover increase (equivalent to GAAP revenue) in the media investment management business, or principal media business which operates under the Shangxing Media brand, was mainly due to the addition of Hubei Provincial Economic TV. Compared with the first quarter of 2011, the 10.2% increase was mainly due to the ramp up of Hubei Provincial Economic TV revenue and stronger demand from clients on Dongfang and Tianjin Satellite Channels due to seasonal factors. For the second quarter of 2011, Charm had 290 advertisers for its principal media business, compared with 264 advertisers for the second quarter of 2010.

Revenues

US$ mm

2 Q11

2Q10

1Q11

Y-o-Y %

Q-o-Q%

Total revenues

$67.3

$45.3

$62.3

48.5%

8.0%

Advertising agency

$6.2

$5.4

$7.1

14.4%

-13.3%

Media investment management

$59.6

$39.0

$54.0

52.9%

10.2%

Branding and identity services

$1.6

$0.9

$1.1

64.6%

39.0%

The increases or decrease in agency and principal media business revenues are consistent with the changes in turnover, while the quarter-over-quarter increases in branding and identity services were primarily due to more client demand for branding and creative services as well as internet public relations related services in the second quarter of 2011.

Gross Profit

US$ mm

2 Q11

2Q10

1Q11

Y-o-Y %

Q-o-Q%

Cost of revenues

$48.7

$30.1

$47.4

61.8%

2.7%

Gross profit

$18.6

$15.2

$14.8

22.3%

25.2%

Gross margin

27.6%

33.5%

23.8%

Charm mainly attributes the increase in cost of revenues to the addition of Hubei Provincial Economic TV and an increase in TV media costs for the two satellite channels and four CCTV programs. The year-over-year gross margin decrease is mainly due to the addition of Beijing Gehua Cable TV Network and Hubei Provincial Economic TV, which commenced operations in 2011 and is still in its ramp-up phase.

Operating Profit

US$ mm

2 Q11

2Q10

1Q11

Y-o-Y %

Q-o-Q%

Total operating expenses

$7.7

$6.4

$6.8

20.7%

14.2%

Selling and marketing

$5.8

$4.8

$5.0

19.9%

15.4%

General and administrative

$2.0

$1.6

$1.8

23.1%

10.9%

Operating profit

$10.9

$8.8

$8.1

23.5%

34.5%

The 19.9% year-over-year increase in selling and marketing expenses compared with the second quarter of 2010 was primarily due to increased headcount at Charm Interactive. Selling and marketing expenses represented 8.6% of the Company’s total revenues for the second quarter of 2011, compared to 10.6% for the second quarter of 2010 and 8.0% for the first quarter of 2011.

$2.0 million

Net Income

US$ mm

2 Q11

2Q10

1Q11

Y-o-Y %

Q-o-Q%

Non-GAAP Net incom e*

$11.7

$9.1

$8.9

28.0%

31.9%

Net income

$11.0

$8.4

$8.2

30.5%

33.9%

Basic net income per ADS (US$)

$0.28

$0.23

$0.20

Fully diluted net income per ADS (US$)

$0.26

$0.22

$0.19

*The Company’s non-GAAP net income excludes share-based compensation expenses and impairments on investments.

June 30, 2011

Cash Flows and Cash Position

June 30, 2011 $132.4 million $130.5 million

Employee Headcount

June 30, 2011 March 31, 2011

Recent Business Developments

May 16, 2011 China

June 13, 2011 China China

June 14, 2011

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