Charm Communications' CEO Discusses Q1 2013 Results - Earnings Call Transcript

May.22.13 | About: Charm Communications (CHRM)

Charm Communications, Inc. (NASDAQ:CHRM)

Q1 2013 Earnings Call

May 22, 2013 8:00 AM ET

Executives

Nicholas Manganaro – IR

He Dang – Chairman and CEO

Wei Zhou – CFO

Analysts

Amanda Chin – Credit Suisse

Jian Chan – Macquarie

Operator

Hello and thank you for standing by for Charm Communications’ Earnings Conference Call. At this time, all participants are in listen-only mode. After management’s prepared remarks, there will be a question-and-answer session. Today’s conference is being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn the call over to your host for today’s conference, Mr. Nicholas Manganaro from Ogilvy Financial. Thank you. Please go ahead.

Nicholas Manganaro

Hello, everyone and welcome to Charm Communications’ earnings conference call for the first quarter ended March 31, 2013. The company’s earnings results were released yesterday and are available on the company’s IR website at ir.charmgroup.cn as well as on newswire services.

Today, you will hear opening remarks from Charm’s Founder, Chairman and CEO, Mr. He Dang, followed by the company’s Chief Financial Officer, Mr. Wei Zhou, who will provide a financial overview and guidance for the second quarter of 2013. After their prepared remarks, they will be available to answer your questions.

Before we continue, please note that the discussion today will contain certain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from management’s current expectations. Charm does not assume any obligation to update any forward-looking statements except as required under applicable law.

Also, please note that some of the information to be discussed includes non-GAAP financial measures as defined in Regulation G. The most directly comparable U.S. GAAP financial measures and information reconciling these non-GAAP financial measures to Charm’s financial results prepared in accordance with U.S. GAAP are included in Charm’s earnings release, which has been posted on the company’s IR website at ir.charmgroup.cn.

Please note that this conference is being recorded. In addition, a webcast of this conference call will be available on Charm’s Investor Relations website.

I will now turn the call over to Charm Communications’ Founder, Chairman and CEO, Mr. Dang, for whom I will read a translation.

He Dang

[Interpreted] [Foreign Language – Chinese] Hello, everyone, and welcome to our first quarter 2013 earnings conference call.

I am pleased to note that despite China’s soft macroeconomic environment, our overall business grew in the first quarter and we continued to see double-digit in our gross billings.

Our agency business remained strong with sizable contributions from our digital business, which continues to grow at a rapid pace. At the same time, our media business, which was heavily impacted by regulatory changes in the television industry last year, continues to ramp up on sales of the new channels that we added in 2012 continued to improve.

One of the key challenges we face in the current environment is limited visibility from our advertisers regarding their expected ad spend. Especially as they see growth slowing in their own industries. As a full service integrated agency, we can help our clients only by being closer to them and understanding their businesses better.

Led by the President of our Agency Business, Cathy Chen, we have significantly enhanced our service capabilities in Eastern and Southern China with Shanghai and Guangzhou becoming full service hubs like our operations in Beijing. We saw positive progress on this in the first quarter, and added over 20 new accounts with an estimated billing of over RMB400 million for 2013.

Now I’d like to discuss our operating highlights for the first quarter. While our agency billings were up nearly 10%, revenues were down slightly year-over-year. This was due to a lower extraction rate as a result of increased spending on CCTV media platforms, which typically have lower extraction rates than those of other platforms, such as the internet and satellite TV channels, particularly during the Chinese New Year holiday period.

In addition, we also saw less revenue contribution from Vizeum, as one of its top Japanese clients reduced its ad spend in the first quarter. Nevertheless, we expect our revenue extraction rate to stay in line with its historical averages.

Our increased spending through CCTV further illustrates our dominant leadership position in China’s traditional TV market. Our expertise in total client ad spend are unmatched by our competitors. In the first quarter, we won the traditional TV business for a number of new clients including ChairSofa [ph], Doorbell [ph], Ginsber Draft Beer, Johnson Fitness, Lafaso, Nanfang Black Sesame Group, Shuanglun, Yake Food and Yinlu.

We have significant wins in food and beverage, and also saw increased contributions from companies in financial services, the internet space and the cosmetics industry, which has been a particular focus for our Southern China service center.

Our digital business continued to grow at a rapid pace, led by Charm Click. This business volume increased over 40% year-over-year. Charm Click had 72 accounts in the first quarter of 2013, up from 63 last quarter and 47 in the first quarter of last year. With the current accounts, approximately 20% came from existing Charm Group clients, a result of good synergy between our TV and search businesses, and indicating additional opportunities for cross-selling of our services.

We also saw a good progress from our Baidu Europe business, as we co-hosted a three-day seminar with Baidu in Beijing in May with 26 business partners from 11 countries. Although the Europe business contribution is still relatively small, we expect it to grow this year and be a key growth driver for us in the future.

For Charm Interactive, we have streamlined management of our Northern China team under Johnny Zhu. We have also restructured the Charm Interactive teams in Shanghai and Guangzhou, as part of their regional service centers to encourage additional business development. And we are seeing progress with the Shanghai team. For example, with their winning higher groups, full digital service accounts.

The strategic focus for Charm Interactive is to make key hires that can bring new business to us and to improve our online video product offerings.

As I noted earlier, our media business continued to pick-up in sales, with revenues up 24% year-over-year. Because the Chinese New Year is typically a weak season for non-CCTV channels, sales of BTV-Sports and Southern Satellite channels came in within our initial expectations. However, we are confident regarding the prospects of these two channels for the remainder of the year, and we see their backlogs ramping up.

In addition to selling media inventory, we have also entered into non-exclusive agency models to help media owners sell their resources. With the sales-based commission that does not require security inventory, thereby reducing our risk and helping us to maintain healthy margins. At the same time, this agency model allows us to continue to develop relationships at the regional level, which is in line with our strategy of being closer to our clients.

At present, we hold inventories which reflected BTV-Sports, three CCTV programs and 12 [ph] Satellite TV. We also operate under non-exclusive agency agreements with Tianjin Satellite, Shanghai Dragon Satellite, Hubei Economic TV and Anhui TV, and Jiangxi Satellite channels.

Although, we do not expect rapid improvements in the overall advertising market for the rest of this year, we are more optimistic regarding our own growth prospects. We will continue to invest in our core agency business, particularly in our digital business, so that we can offer clients a full range of integrated advertising solutions. We expect the media business to continue to improve as we take on more balanced approach, and expand beyond the role of a media reseller.

Overall, we are confident in the long-term growth of China’s dynamic advertising market, and we will continue to seek out areas of fast growth, as well as invest in talent and infrastructure to capture such opportunities.

I will now turn the call over to our CFO, Wei Zhou, who will discuss our financial results.

Wei Zhou

Thank you, Chairman Dang, and hello to everyone on the call. Before I go through the financials, I’d like to take you through our three core business segments to give you some updates on our progress to-date.

Please note that in the first section, I’ll be referencing some of the first quarter results using non-GAAP numbers, in order to better convey our performance. We define our non-GAAP turnover as total customer spending placed through or with Charm in order to reflect the scale of our business.

In the first quarter of 2013, turnover increased to 10.7% year-over-year and 15.5% quarter-over-quarter to approximately $233 million. The year-over-year increase in turnover was mainly due to the increase in media investment business billings, which was primarily result of addition of BTV-Sports in the middle of 2012 The quarter-over-quarter increase in turnover was largely attributed to increased advertising agency spending, mainly on CCTV in the first quarter of 2013.

I will break down turnover by business. The non-GAAP turnover for the agency business has increased 9.2% year-over-year and 21.2% quarter-over-quarter to $205.5 million in the first quarter of 2013. The increase in agency business turnover, were mainly due to the increase in advertising spending from existing agency clients and new clients.

In the first quarter of 2013, we provided advertising agency services to 186 advertising client accounts, compared to 160 accounts in the first quarter 2012, and 174 accounts in the fourth quarter of 2012. The most significant client win in the first quarter included Ask.com, Budweiser, (inaudible) Chairsofa, Doorbell [ph], Ginsber Draft Beer, Johnson Fitness, Lafaso, Nanfang Black Sesame Group, Haier Group, Qunar, (inaudible) Yake Food and Yinlu as Mr. Dang had mentioned earlier.

The revenue extraction rate for the agency business which is defined as revenue divided by turnover was 4.9%, compared to 5.5% in the first quarter of 2012, and 7.4% in the fourth quarter of 2012. The decrease was mainly due to increased spending on CCTV media platforms, which typically exhibit lower extraction rate relatively associated with non-CCTV platforms such as satellite TV channels and the internet, during the first quarter of 2013, in particular during the Chinese New Year holiday.

We expect the revenue extraction rate to increase as we expand our full service offerings across all media platforms under Charm Advertising and ramp-up digital offerings under Charm Interactive and Charm Click.

Turnover for our principle media business which operates under the Shangxing Media brand declined 23.7% year-over-year and decreased 14.3% quarter-over-quarter to $27.5 million. The year-over-year increase is mainly due to addition of BTV-Sports in the middle of 2012. The quarter-over-quarter decrease is mainly due to seasonal factors.

In the first quarter of 2013, we had 196 advertisers for our principal media business, compared with 150 advertisers in the first quarter of 2012, and 203 advertisers in the fourth quarter of 2012.

Now, going back to GAAP figures. Total U.S. GAAP revenues were $38.1 million in the first quarter of 2013, an increase of 13.6% compared to $33.5 million in the first quarter of 2012, and a decrease of 19.1% compared to $47.1 million in the fourth quarter of 2012.

Revenues for our advertising agency business were $10.1 million in the first quarter of 2013, a decrease of 1.7% compared to $10.3 million in the first quarter of 2012, and a decrease of 19.2% compared to $12.5 million in the fourth quarter of 2012. The changes in agency revenues are consistent with the change in turnover and the extraction rate. Our principal media business revenues were equivalent to the turnover mentioned earlier.

Branding and identity services revenues were $500,000 in the first quarter of 2013, a decrease of 49% compared to $1.1 million in the first quarter of 2012, and a decrease of 79% compared to $2.6 million in the fourth quarter of 2012.The decrease in branding and identity services were primarily due to an overall decrease in client demand for creative services.

Cost of revenues in the first quarter of 2013 was $28.5 million, an increase of 20.2%, compared to $23.7 million in the first quarter of 2012, and a decrease of 16.5% compared to $34.1 million in the fourth quarter of 2012. We mainly attribute the year-over-year increase in cost of revenues to the addition of BTV-Sports.

Gross profit in the first quarter of 2013 was $9.6 million, a decrease of 2.3% from $9.8 million in the first quarter of 2012 and a decrease of 26.1% from $13 million in the fourth quarter of 2012. Gross margin in the first quarter of 2013 was 25.2%, compared to 29.3% in the first quarter of 2012 and 27.6% in the fourth quarter of 2012. The decline in gross profit was due to a lower contribution from the principal media business.

Selling and marketing expenses were $8.7 million in the first quarter of 2013, an increase of 17.5% from $7.4 million in the first quarter of 2012, and a decrease of 22.8 % from $11.3 million in the fourth quarter of 2012. The year-over-year increase in selling and marketing expenses was primarily due to executive hires within our agency business. The quarter-over-quarter decrease was primarily due to streamlining and consolidating our cost base to improve productivity within our agency business.

Selling and marketing expenses represent 22.9% of our total revenues in the first quarter of 2013, compared to 22.1% in first quarter of 2012, and 23.9% in the fourth quarter of 2012.

General and administrative expenses in the first quarter of 2013 increased 31.8% year-over-year, and decreased of 52.4% quarter-over-quarter to $2.8 million. The year-over-year increase in general and administrative expenses was mainly attributed to the increase in office expenses. The quarter-over-quarter decrease in general and administrative expenses was mainly due to less bad provisioning expense incurred as a result of increasing our credit control and collection efforts in the first quarter of 2013.

G&A expenses represented 7.4% of our total revenues in the first quarter of 2013, compared to 6.3% in the first quarter of 2012, and 12.5% in the fourth quarter of 2012.

Operating loss was $2.2 million in the first quarter of 2013, compared to an operating profit of $200,000 in the first quarter of 2012, and an operating loss of $3.5 million in the fourth quarter of 2012. GAAP net loss was $1.5 million in the first quarter of 2013, compared to a net income of $800,000 in the first quarter of 2012 and a net loss of $4.2 million in the fourth quarter of 2012.

Fully diluted net loss per ADS in the first quarter of 2013 was $0.05, compared to a fully diluted net income per ADS of $0.01 in the first quarter of 2012, and a fully diluted net loss per ADS of $0.13 in the fourth quarter of 2012. Each, ADS represents two common shares.

Our first quarter non-GAAP net loss, which excludes share-based compensation expenses, amortization of intangible assets, and net change in fair value of consideration payables and call option was $800,000, compared to a net income of $1.9 million in the first quarter of 2012, and a net loss of $3.8 million in the fourth quarter of 2012.

Net cash flow from operations in the first quarter was negative $20 million. This was mainly due to significant cash used in the settlement of accounts payable to media owners and increase in accounts receivable in connection with several key accounts added in the first quarter, for which we offered extended payment terms.

As of March 31, we had cash and cash equivalent of $99.6 million compared to $116.6 million at the end of last year. In terms of headcount, we had 790 employees as of March 31, 2013, compared to 813 employees as of end of last year.

Turning to business outlook, we estimate our second quarter 2013 non-GAAP net income will be in the range of $3.5 million to $4 million. We base this estimates on a foreign exchange rate of RMB6.2 per U.S. dollar, and it reflects our current and preliminary view, which is subject to change.

I will now hand the call over to the operator, who will open the line for questions.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we would now begin the question and answer session. (Operator Instructions) Thank you. Our first question comes from the line of Amanda Chin from Credit Suisse. Please ask your question.

Amanda Chin – Credit Suisse

Hi, thank you for taking my question. My first question is regarding the MIM business. It seems that we got very good results in first quarter of 2013. Does that mean the policy rates are reducing in 2013? Thanks.

Wei Zhou

Thank you for the question, Amanda. In terms of our MIM business, I think in the first quarter if you look at sort of the overall gross margin for that business remained at around 1% to 2% level which is half of sort of historical level that we’ve offered our business at around 15% to 20% back in 2010 and 2011.

However, I think the outlook for that business has turned positive for the remainder of 2013, mainly due to I think, one, definitely the policy risk we see less of that. As you sort of look at television environment in China, there is only very few hit shows last year, especially in terms of the reality shows or seeing contest [ph], but we’re seeing more of those type of programming coming back onto the TV channels.

So I think the enforcement of some of the policy risk or policies that came out at the end of 2011, we see less of that in 2013. But I think more importantly for Charm, I think why we are more little positive on that business is because I think this is the second year of operation for both of our channels – new channels that were added last year. The BTV-Sports as well as well for Southern Satellite Channel down in Guangdong.

I think as the team continue to sort of ramp up and build more experience, and have build more contacts in sort of through the last 12 months for the Guangdong Channel and the last six months for the Beijing Channel, I think we’re going to be a little bit more positive in terms of the overall ramping up of that business for that rest of the year.

Amanda Chin – Credit Suisse

Okay, thank you. And my second question is regarding the internet business. Can you add more color on your internet business in 2013, actually the social advertising business, when will you cooperate with some SMS [ph] platforms or whether you’ve invested in some companies? Thank you.

Wei Zhou

Yes. I think for our internet business, I think right now we have two current platforms that we operate under. One is Charm Interactive, which is sort of our full service digital agency, and the other one is Charm Click, which is our performance-based agency whose current business primarily runs off of search.

I think for both of those business lines, I think the one that sort of deals more with the social media right now is actually Charm Interactive, in that they actually run several sort of the web accounts for our existing clients, more as a PR kind of management service.

But I think we are very positive on that platform overall, mainly due to sort of amount of time spend on that platform has increased compared to sort of other forms of digital media, number one. And number two, I think there is a lot more campaigns now especially credit campaigns that we see that revolves around social media. Where the social media act as the core on the digital campaign whereas sort of other media are the periphery, as you can interact and you can do a lot more on the social media platform.

But I think that type of expertise we are currently lacking. So whether that be sort of, as Mr. Dang mentioned to continue recruitment of talent or recruitment of a team, where we get out in the market and look for M&A opportunities. I think we’re relatively open to that, but I think that expertise is something that we know we need to built up in order to capture the growth in that space.

I think for the search business, for Charm Click, as Mr. Dang mentioned on the call, it’s around 40% growth compared to first quarter last year, over 70 plus accounts now. So I think that business is actually growing quite healthy. And current competitive landscape between the search engine themselves I think make an agency like ourselves actually to be very competitive in terms of type of service we can offer to both the media as well as to our clients. So I think we’re very positive on that business as well.

Amanda Chin – Credit Suisse

Okay, very helpful. Thank you. I’ll move back to the queue.

Wei Zhou

Thank you.

Operator

(Operator Instructions) Your next question comes from the line of Jian Chan [ph] from Macquarie. Please ask your question.

Jian Chan – Macquarie

Hi, thank you for taking my question. Can you please give me some color on your top line growth for Q2 and practically growth for each of the segments please? Thanks.

Wei Zhou

Yes, thank you, Jian. We currently we provided only guidance in terms of our non-GAAP net income which is around $3.5 million to $4 million in the second quarter. In terms of revenue, I think generally for the full-year, I think we expect similar trends as we have seen in the first quarter. I think we’re going to positively see faster growth for media business vis-à-vis the agency business, but I think for the agency business, I think the turnover what we expect is sort of how we sort of measure ourselves is that we hope to continue to outgrow the market.

For the full-year, we expect sort of the overall ad market in China to grow around 8% to 10%. So I think for agency business, we expect ourselves to outgrow the market in order to gain more market share and then – but as a whole, I think relatively we expect our media business to see better growth versus our agency business this year.

Jian Chan – Macquarie

Sorry, just to clarify with the media business – the media business (inaudible) active than the agency business?

Wei Zhou

Relatively, yes. As you see in the first quarter, I think we saw around close to 20 – I think close to 20% growth for the media business, and then around 10% growth for the agency business in terms of the overall billings.

Jian Chan – Macquarie

Thank you. Okay. And my second question would be any start [ph] from the relatively growth rate for the – the relative growth for the ad rate (inaudible).

Wei Zhou

In terms of the ad rate, you mean sort of like the cost, right, in terms of (inaudible) for advertising agency?

Jian Chan – Macquarie

Yes.

Wei Zhou

I think we’re not seeing that much. We’re not seeing that much media inflation – inflationary pressure for ad rates this year across the board. I think for some prime media like a search, like Baidu or maybe even like for video, you’re probably going to see a little bit more increase, but I think for traditional media across the board, outside of maybe sort of some of the prime shows, some of the satellite channels and on CCTV, we’re actually not seeing that much inflationary pressure for ad rates for this year. So we actually expect it to be relatively flat compared to last year.

Jian Chan – Macquarie

Thanks. It’s very helpful. And just a final question, what are your top five advertising clients for the quarter in terms of segments [ph]?

Wei Zhou

We don’t disclose sort of the client’s name, but I think one of the – sort of the key industries for us, where I think because our top ten is actually relatively stable this year compared to last year. Only I think around two or three clients changed our top 10 last year versus this year, but in terms of industries, we’ve actually made very good progress within the FMCG space, in particular, with food and beverage companies. Those are local Chinese food and beverage companies, more smaller regional brand, that we’re seeing coming back into television advertising.

Jian Chan – Macquarie

Okay, thanks Wei Zhou. Very helpful. Thank you very much. I’ll get back in the queue.

Operator

Thank you. (Operator Instructions) Thank you. Next question comes from the line of Amanda Chin from Credit Suisse. Please ask your question.

Amanda Chin – Credit Suisse

Hi, thanks again. Can you talk more about the advertising environment in second half of 2013? How the overall industry growth rate will be? And which sectors [ph] will increase more significantly than other? Thank you.

Wei Zhou

Thank you. I think right now as Mr. Dang mentioned on the call, I think one of the sort of the challenges in the current condition, in the current market is actually visibility. Historically we’ve been able to get pretty good annual visibility from our clients by this time of the year.

But I think right now, a lot of the industries are still relatively – we don’t see that much of visibility, so basically clients are operating from more of a quarter-to-quarter perspective in terms of monitoring their ad spend rather than from annually, as they have done historically. But I think overall, I think we as a house, our research team estimates that overall our markets grow around 8% to 10% for the full-year this year.

But I think one of the things that we have to be mindful of in terms of look coming – if you look at just the second half of 2013 is that we’re going to come off of relatively higher base in the third quarter because of the Olympics last year. But then in the fourth quarter of 2012 is one of the worst sort of quarter, we’ve seen advertisings were coming off of a lower base.

So I think they’re probably balanced out. So I think we expect that sort of 8% to 10% to carry through for the rest of the year. But given the lack of – given sort of the visibility challenge, I think that might change depending on sort of the overall macroeconomic environment.

In terms of industries, I think one of the key industry that we’re seeing picking up very good speed was actually as I just mentioned earlier on the previous part of Q&A is actually food and beverages. I think that’s something probably related to domestic consumption more, healthy sort of lifestyle kind of food and beverages are coming into marketplace. And then secondly I think we actually see autos coming back a little bit mainly because couple of our clients actually have new models coming out this year.

So I think that’s going to be true I think for couple of major co-brands in the industry as well. So I think those two spaces are probably a little bit more bullish on. In terms of sector sort of falling off a little bit, I think alcoholic beverages, financial services as a whole I think all we’re seeing flat or no growth compared to last year.

Amanda Chin – Credit Suisse

Okay, thank you.

Operator

Thank you. (Operator Instructions) Your next question comes from the line of Jian Chan from Macquarie. Please ask your question. Jian Chan, you may ask your question. (Operator Instructions) Your next question comes from the line of Amanda Chin. Please ask your question.

Amanda Chin – Credit Suisse

Thank you. My next question is about the mobile internet, I know it’s maybe a little too early to talk about it now, but I am wondering if you have any plan or strategy about the mobile internet advertising business? Thank you.

Wei Zhou

Yes, the need for mobile internet right now I think it’s still relatively early phase of development. I think the overall size of that market in China is only a couple of hundred million US dollars I think, some of the highest estimate we’ve seen. And I think one of the main issues is that a lot of the existing sort of major internet players such as Baidu or Youku, I think they are having difficulty monetizing some of their mobile traffic.

So I think for us, we primarily work with some of the leading sort of media players. So if there are sort of monetization opportunities for them on that space, I think we’ll be very willing to work with them on that front. But for ourselves, we’re not a sort of – we don’t expect significant investment in that space in the near-term.

Amanda Chin – Credit Suisse

Okay, got it. Thank you.

Operator

Thank you. (Operator Instructions) Your next question comes from the line of Jian Chan from Macquarie. Please ask your question now.

Jian Chan – Macquarie

Hi, thanks for taking my question again. Now I understand you guys are (inaudible) sort of like an advertising agencies, and I am just like looking at the revenue like which can be MIM or the ad agencies revenues, seems to be pretty stable from last – the fourth quarter in terms of breakdown. Well, I am just curious to know like what is the optimal rate earnings [ph] from revenues are you guys trying to in the long-term. Thanks.

Wei Zhou

Thanks for the question, Jian. I think if you look at how we look at sort of the agency business versus the media investment management or the reseller business is actually we look at the turnover number, not the revenue number because the revenue number – it’s not an apples-to-apples comparison. For the agency, that’s a net revenue number, whereas for the media it’s a growth revenue number.

How we look at the scale of the business is actually the turnover number. If you look at the turnover number, the split last year was around 85/15, 85% of our total turnover came from the agency business and around 15% of the turnover came from the media business whereas in 2010, 2011 that number was around 70/30, 70% agency, 30% media.

And I think that number will probably stay within that range in terms of the agency turnover to be around 70% to 85% depending on I think the type of macro environment we’re in. I think what we run through the course of 2012 is that in a dull environment you want to carry as little inventory as possible, but if you look at in 2010, 2011, where sort of an uptick in the environment, you want to carry inventory because then we actually generate very healthy margins and with relatively little risk.

So I think as a whole, the balance is there. But I think well we keep on talking about in terms of becoming sort of a full service agency is more towards providing integrated branding on services as well as integrated television and agency – television and digital services for our clients.

I think the media – the positioning within Charm for the media business has always been a sort of leveraging on our client relationships and leveraging on our, sort of knowledge media to be able to take asset and then generate a higher – generate a 20% to 30% return on those investments. So it’s more of a – I would say more of a trading business, whereas the agency business more of a full service business.

But with the evolution and sort of the trading business is that a lot of the media owners that we work with still want to work with us. But from our perspective, we don’t want to take on the inventory, given the risk in this environment so that we were sort of developing a skill set where we helped the media to sell their ad slots, but not to sort of the inventory model.

I think that’s sort of the evolution of our, sort of Shangxing Media business right now. But from an accounting perspective those turnover and those revenues are both under the advertising agencies.

Jian Chan – Macquarie

Thank you. That’s very helpful. Thank you very much. I’ll get back in the queue.

Operator

Thank you. (Operator Instructions) Thank you. This concludes today’s conference call. You may now disconnect.

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