MNC Recorded 48% Rise in Net Income
2008 - Jakarta, 2 Apr 2008

PT Media Nusantara Citra Tbk (MNC, Stock Code: MNCN) recorded significant increase in top line and bottom line financial performance for the full year financial results in 2007. Revenue increased to Rp2,909 billion, an increase of 39% compared to Rp2,096 billion in 2006. While operating profit, EBITDA, and net income, each rose by 53%, 50%, and 48%, to Rp840 billion, Rp952 billion, and Rp427 billion, respectively.

According to Hary Tanoesoedibjo, Group CEO of MNC, "The underlying reasons for the excellent growths were due to larger revenue contributions from new and existing businesses with each one demonstrating very encouraging results, strong efforts in achieving synergistic integration of our media operations, and our continuous passion to introduce and execute change for the betterment of our operations. Another key reason is owing to the recovery of the advertising market which was hit hard in 2006 due to fuel price hike in late 2005".



Strong YoY growth in revenue

The largest component of total revenue was from advertising where it made 90% contribution to the 2007 revenue and contributed 95% to the 2006 revenue. The growth of advertising revenue is 32%, while the growth of non-advertising revenue is 157%. Advertising revenues are received from the sale of advertising slots on our TV stations, radio stations, and also on advertising placements in Seputar Indonesia newspaper. While the non-advertising revenue comprises of content sales, newspaper circulation, value added services (VAS), studio rental, computer graphics, talent management, and others.

"The increase in advertising revenue from 2006 to 2007 amounted to 32% was due to the growth in demand on advertising in the normal activity of the subsidiaries, especially RCTI, TPI, Global TV, and Seputar Indonesia, which is due to increase in the national advertising expenditure and successful selling efforts", said Hary Tanoesoedibjo.

Full year financial consolidation of TPI in 2007

In addition, the increase amounted to 13% was due to the consolidation of TPI's advertising revenue which in 2007, the Company reported 12 months of TPI's financial statements into the consolidated financial statements of the Company. While in 2006, the Company only reported 6 months consolidation of TPI's financial statements into the consolidated financial statements of the Company.



Operating Expenses increased significantly but much less than increase in revenue

The Company booked operating expenses of Rp2,068 billion for 2007, which was a rise of 34% from the operating expenses of Rp1,547 billion in 2006. Below is the further breakdown of direct costs and general and administration expenses:






Direct cost increased, driven by local program spending

Direct cost amounted to Rp1,352 billion (46.5% of total revenue) in 2007 and Rp1,077 billion (51.4% of total revenue) in 2006. Direct cost/program consisted of in-house production and acquisition costs of foreign programs, local programs, and others.

Direct cost in 2007 increased by 25.5% compared to the 2006 balance. The growth in programming costs was due to the rise in local program acquisitions amounted to Rp212 billion and in house production amounted to Rp79 billion. The Company also produced several of its own popular programs, such as: Indonesian Idol, Fear Factor Indonesia, and Deal or No Deal, with a licensing agreement that obligates the Company to pay certain fees to third parties for the right to produce and broadcast programs in Indonesia. In addition, the 12 months consolidation of direct cost of TPI in 2007 was also significantly responsible for the increase in direct costs.

Hary Tanoesoedibjo said, "We believe that the ratio of programming costs to revenue can be efficiently maintained with the continuous implementation of synergies and integration among the media's subsidiary companies. The Company also believes it can increase the production of in-house programs thereby controlling production costs and quality of those programs".

G&A expenses rise 57% on the back of increased promotion expenses and growing number of employees

General and administration (G&A) expenses was Rp605 billion (21% of revenue), which was a 57% rise from Rp386 billion (18% of the 2006 revenue) for 2006. The rise was primarily due to the increase in promotion and advertising (a rise of Rp46 billion) associated with our marketing of Seputar Indonesia, tabloids Genie, Mom&Kiddie, and Realita. Salaries and employee benefits also rose by Rp82 billion due to an increase in the number of employees from 3,908 in 2006 to 4,517 in 2007.
"The increase in total employees was consistent with the rapid expansion in media and content related businesses", said Hary Tanoesoedibjo.

In addition, the increase in G&A was also due to the consolidation of TPI’s G&A expenses to the Company's consolidated financial statements after the 75% shares acquisition in July 2006. In 2006, the Company only reported 6 months consolidation of TPI's G&A expenses into the consolidated financial statements of the Company. Whereas in 2007, the Company reported 12 months of TPI's G&A expenses into the consolidated financial statements of the Company.

Small additional capex increased Depreciation and Amortization, but most of the part was due to consolidation contribution from TPI

The Company recorded depreciation and amortization expenses of Rp111 billion which was a rise of 32% from the 2006 amount of Rp84 billion. The increase in depreciation and amortization expenses was due to the Company's additional investment on studio equipment, transmission equipment, office equipment, buildings, and vehicles.

"The Company has historically maintained low capex requirements as most of the media infrastructure for the existing operations are already in place", said Hary Tanoesoedibjo.

In addition, the increase was largely attributable to depreciation and amortization charges from TPI which were consolidated for 6 months in 2006 and 12 months in 2007.




As a result, operating profit grew by 53% with operating profit margin improved to 29% (from 26% in 2006)

Operating profit for the year ending 31 December 2007 grew by 53% to Rp840 billion compared to Rp549 billion in 2006.
The increase was due to synergies and integration that resulted in operating efficiencies and the achievement of better operating profit margins. The Company's operating profit margin improved to 29% for year ending 2007 compared to 26% for year ending 2006.




Other Charges increased mainly due to forex loss and increased financing cost

The Company recorded other charges in the amount of Rp269 billion in 2007 compared to Rp164 billion last year, mainly due to forex loss and increased financing costs.
The loss on foreign currencies amounted to Rp73 billion in 2007 versus a gain on foreign currencies of Rp52.2 billion in 2006. The loss on foreign currencies were due to the increase of the exchange rate of foreign currencies to rupiah in 2007 and during 2007 the payments in foreign currencies made by the Company tend to increase due to interest payment on Guaranteed Secured Bonds. In addition, as of 31 December 2007, the Company still has monetary liabilities that are larger than its monetary assets (net monetary liabilities amounted to approximately US$28.6 million).
For the year ending 31 December 2007, interest and other financial charges amounted to Rp267 billion, a growth of 26% from the 2006 amount of Rp212 billion. The increase was due to the interest payment of Guaranteed Secured Bonds for one year in 2007 while in 2006 the charge was for 3 months. As an additional note, we have redeemed US$25 million of this bond by 12 June 2007, leaving the outstanding amount at US$143 million, due on 12 September 2011.
On the other hand, the interest expense on RCTI’s bonds decreased due to the redemption of Rp165 billion on 23 October 2007, leaving the outstanding amount at Rp220 billion, due on 23 October 2008.



Net Profit grew by 48% on the monetization of strong synergy and multi-platform integration

The Company reported a rise in net profit of 48% from Rp290 billion in 2006 to Rp427 billion in 2007. The rise was consistent to the increase in revenue and the success in maintaining (slightly lowering) the percentage of direct cost relative to the revenue, as the results of synergy achieved between multi-platform media operations, which created operating efficiency.
Hary Tanoesoedibjo commented, "The operating leverage would had further reduced costs ratio and increased net profit even more, if not due to expansion costs in media operation, included print media networks operation, that is yet to show profitability. We believe profitability on our print business shall be achieved by end of 2008".



Outlook 2008

The management strongly believes that the advertising market, which had started showing signs of recovery in 2007 shall gain further strength and is set to show impressive growth in the following year. However, the management remains cautious ahead of possible increase in fuel price, which can hurt consumers spending, and in turn results in advertising budget cut by consumers-based companies.

"However, we would also like to note some points on the positive side. Firstly, we anticipate increased advertising spending by some clients such as: Telecommunication operators due to heightened competition in the industry, government political campaigns on the coming presidential elections, and banking and financial institutions who seek to achieve double-digit loan growth.

Secondly, those consumer-based companies who focus on necessities and food staples may not cut their budget, even in the event of decrease in consumer spending. Thirdly, Our Euro Cup 2008 and other new programing events should also contribute significantly to 2008 revenue and profitability. Finally, we expect consolidation of Linktone's financials, which should be of significant amount. All of the above should limit any negative impact on the possible fuel price hike in 2008", said Hary Tanoesoedibjo.

As the leading integrated media company, MNC continues to be innovative in its programming initiatives and move towards revenue diversification, from its currently dominant TV advertising revenues to other media platforms’ advertising revenues such as print and radio broadcast. The same also applies to efforts in diversifying the dominant advertising revenue itself towards non-advertising revenues such as content and VAS.

Hary Tanoesoedibjo added, "On final note, we would like to emphasize on 2008 strategies and focus, that are to concentrate a significant part of our efforts this year to revamp our recent venture into China that we strongly believe, is one of our key growth initiatives for long term achievements. We also plan to improve our content distribution business and to complete the launch of at least one "nationwide" local TV station networks and the viewer segmentation refining (narrowing) of Global TV, which will be rearranged together with the additional above mentioned "nationwide" TV stations. Finally, we aim to be the second largest newspaper in circulation by year end 2008 by strengthening our presence in national and regional editions".