MNC Recorded 28% Rise in Net Income
2008 - Jakarta, 8 Mei 2008

PT Media Nusantara Citra Tbk (MNC) recorded a rise in consolidated net income of 28% to approximately Rp78 billion per Q1-2008, which was contributed by the increase in revenues of 19% to Rp644 billion. While EBITDA for Q1-2008 decreased by 17% to Rp164 billion due to increases in operational expenses.

Increased in revenues was consistent with a strong advertising market growth in Q1-2008

MNC posted a 19% rise in unaudited consolidated revenues to Rp644 billion for the first three months of 2008. The increase was attributed to a strong advertising market in Q1-2008.

Non-advertisement revenues has also made excellent progress and has increased its share of total revenues to 10% per Q1-2008 as compared to 6% per Q1-2007. The majority of the increase in non-advertisement revenues were contributed by Value Added Services (VAS) and print circulations. Increased in non-advertisement revenues were also contributed by increases in program sales, studio rentals, computer graphics, and talent management.

FIGURE 1: Revenues


Quarterly revenues contribution

The first quarter (Q1) usually generates the lowest revenues as compared to other quarters. Figure 2 depicts a graph for 2007 quarterly revenues and its corresponding weightings to full year revenues. The second quarter (Q2) would normally be higher than Q1 as it coincides with the end of the school term (about 4 weeks of school holiday). The third quarter (Q3) would be the highest quarter due to higher television advertisement placements during the month of Ramadhan and Idul Fitri celebration. The fourth quarter (Q4)would be the second lowest quarter of the year that is marked by advertisement placements for Christmas and new year’s eve celebration. In 2007, the weightings for Q1, Q2, Q3, and Q4 were 19%, 26%, 31%, and 24% respectively.

FIGURE 2: 2007 Quarterly revenues and contribution


If there is no major change in the trend, it would be assumed that similar quarterly revenues ranking performance would occur for the rest of 2008. However, this year there are few positive events that should contribute significantly to revenues such as increasing advertisement spending by several competitive industries and the Presidential election campaigns. In addition, revenues generated from MNC’s exclusive rights to broadcast the Euro Cup, Ramadhan, and Idul Fitri celebration are expected to make significant contribution to revenues and will be both recorded in Q3-2008. Other than that, the financial consolidation of Linktone Ltd (NASDAQ:LTON) will be performed per Q2-2008. MNC owns the majority or 57.1% of Linktone’s outstanding shares.

Revenue contribution by segments

Figure 3 provides a breakdown of revenues from our television stations, print media, and radio for Q1-2008 and Q1-2007.

FIGURE 3: Contribution to revenues Q1-2008


Television segment's contribution to total revenues had decreased from 95% per Q1-2007 to 83% per Q1-2008. While the contribution from print media had increased from 4% per Q1-2007 to 16% per Q1-2008 which was largely due to higher contribution from Seputar Indonesia. We expect higher contribution from Seputar Indonesia as the retail price of its newspaper has been increased as of 1 May 2008 from Rp2,000 to Rp3,000. Another reason for the retail price increase was to reduce subsidized printing costs, which have been rising due to the increase in the price of paper and production costs.

In addition, the increase in Q-1 2008's revenues was also contributed by the consolidation of PT Cross Media Internasional since September 2007.

Operating expenses

Operating expenses have increased by 39% from approximately Rp370 billion per Q1-2007 to approximately Rp511 billion per Q1-2008.

The increase in direct cost was due to the increase in operational costs in film production, such as: equipment and studio rentals, electricity, transportation, food, and others. In addition, the increase in direct costs was due to the consolidation of PT Cross Media Internasional's direct cost that has been done since September 2007.

The expenses were necessary to effectively compete with other television stations. Printing costs also increased by 62% mostly due to the rise in the daily newspaper circulations of Seputar Indonesia and the increase in paper price and production costs.

FIGURE 4:Operating expenses


Other direct costs consisted of Nickelodeon and MTV programs, satellite and transponder, radio, casssettes and recording, and others.

The general and administration costs also rose by 17% which was mainly due to additional headcounts employed in Q1-2008 compared to Q1-2007, rather than due to salary increases. Other than that, promotional print activities (majority by the daily newspaper Seputar Indonesia) also contributed to the increase in general and administrative expenses. All of the above are consistent with the recently pursued aggressive expansion strategy.

The ratio of general and administration expenses as a percentage of consolidated revenues per Q1-2008 were about 21%, a slight decrease from Q1-2007 ratio of about 22%.

Depreciation and amortization increased by 20% which was primarily due to the additions of fixed assets in the form of studio building and transmission stations.

Other income (charges) decreased by 74%

Other charges (net) decreased by 74% to approximately Rp20 billion per Q1-2008 as compared to Q1-2007 in the amount of approximately Rp77 billion. The significant reduction was primarily due to (i) the gain in foreign exchange rates in the amount of Rp19 billion per Q1-2008 as compared to losses of Rp18 billion per Q1-2007, (ii) rise in interest income primarily due to the remaining cash proceeds from the Initial Public Offering (IPO) of shares, and (iii) decrease in interest expenses due to debt repayments of Guaranteed Secured Notes in the amount of US$25 million from US$168 million on 12 June 2007 and RCTI bonds of Rp165 billion on 23 October 2007 (outstanding bond was Rp220 billion).

FIGURE 5: Other income (charges)


Consolidated net income improved by 28% but EBITDA decreased by 17% amid rising costs

For Q1-2008, MNC posted a 28% rise in consolidated net income of about Rp78 billion as compared to Q1-2007 amount of about Rp61 billion and consolidated net profit margin per Q1-2008 improved slightly to 13% from 12% per Q1-2007. Much of the increase was helped by the decrease in other charges as explained above.

FIGURE 6: Net income & EBITDA


EBITDA for Q1-2008 fell by 17% to Rp164 billion due to increases in operational expenses and business expansions by MNC’s subsidiaries, such as expansions to new provinces conducted by Seputar Indonesia to achieve a nationwide circulation.

Going forward, MNC has anticipated that rising costs and continuing expansions will put downward pressure on EBITDA margin. However, the increased in revenues which seems to continue is expected to mitigate such decline. The expansions are strongly believed to be necessary in order to maintain competitiveness and reduce dependency on the current dominant contribution from MNC's three TV stations.

Notably, the operation of Linktone Ltd in China should not require any cash injection from MNC. Linktone is self sufficient to fund its own operational activities through cash generated from operation. In addition, post acquisition of the 57.1% shares of Linktone by MNC through a combination of tender offer and issuance of new shares, Linktone should be sitting with approximately US$100 million in cash.

Total assets grew by 72%

Total assets per Q1-2008 grew by 72% which was as a result of 68% growth in current assets and 80% growth in noncurrent assets. The rise in current assets was mainly due to a 176% increase in cash and cash equivalents, a 149% increase in program advances, and Rp307 billion increase in short-term investments.

IPO net proceeds amounted to approximately Rp2.4 trillion and as at Q1-2008 MNC had expended approximately Rp951 billion for capital expenditures, repayments of RCTI bonds, and working capital.

Program advances were made to secure MNC's exclusive rights to broadcast Euro Cup in mid year 2008.

While the growth in noncurrent assets were mainly due to investments in relation to the acquisition of Linktone Ltd, a China based media company whose shares are listed on NASDAQ. MNC had completed the acquisition process on 3 April 2008 and currently has 57.1% shareholdings in Linktone Ltd.

FIGURE 7: Summary consolidated balance sheets


Total liabilities

Total liabilities per Q1-2008 decreased by 7% which was mainly attributed to a 30% decrease in noncurrent liabilities.

The above decrease in noncurrent liabilities was primarily due to a 31% decrease in bonds payable. In 2007, MNC redeemed Guaranteed Secured Notes in the amount of US$25 million at a price of 101% and paid RCTI bond in the amount of Rp165 billion at par. The outstanding Guaranteed Secured Notes is US$143 million due on 12 September 2011. While the outstanding RCTI bond is Rp220 billion due on 23 October 2008.