Focus Media Holding Limited (NASDAQ:FMCN)
Q2 2012 Earnings Call
August 22, 2012, 09:00 pm ET
Jing Lu - IR
Jason Jiang - Chairman & CEO
Kit Low - Executive Director & CFO
Richard Ji - Morgan Stanley
Wallace Cheung - Credit Suisse
Good afternoon. My name is Macy I will be your conference operator today. At this time, I would like to welcome everyone to the second quarter 2012 Focus Media Holding Ltd earnings conference call. All lines have been placed on-mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.
I will now turn the call over to Jing Lu. Ma’am you may begin your conference.
Thank you, operator. Welcome to Focus Media’s second quarter 2012 earnings conference call. Today, our management will discuss the company’s financial results for second quarter of 2012 and the business outlook for the third quarter of 2012.
With me here are Jason Jiang, Chairman and Chief Executive Officer and Mr. Kit Low, Chief Financial Officer and Executive Director. After management updates you on our second quarter 2012 operational and financial performance, we will open the call for questions. This is call is also broadcasted through Internet and available through our Investor Relations website, ir.focusmedia.cn.
Before we begin, I would like to remind you that during the course of this call, we will make forward-looking statements that are subject to risks and uncertainties. The statements include, but are not limited to statements regarding Focus Media’s business objectives and plans, the expectations of the development of our networks and our outlook for the third quarter of 2012 for example.
You can also identify forward-looking statements by terms such as will, expect, anticipate, future, intend, plans, believes, estimates and similar statements. The accuracy of these statements may be affected by a number of business risks and uncertainties that could cause our actual results to differ materially from those projected or anticipated.
These risks and uncertainties include, but are not limited to our limited operating history for our current operations and the short history of the new digital media sector, which may make it difficult for you to evaluate the viability and prospects of our business, the integration of acquired businesses, competition from present and future competitors in China’s growing advertising market and other risks outlined in our filings with the Securities and Exchange Commission, including our registration statement on Form F-1.
We do not undertake any obligation to update this forward-looking information except as required under applicable law.
Now I will turn the call over to our CFO Mr. Kit Low.
Thank you Jing and good morning everyone. Welcome to the Focus Media’s second quarter results conference call. In the second quarter of 2012 aggregate net revenue from the LCD display network, in-store network, poster frame network and movie theater network was $219.3 million, which exceeded by approximately 3% the mid-point of the company guidance range of $211 million to $213 million. This represented a year-on-year increase of 32% from $166.1 million for the second quarter of 2011 and a quarter-on-quarter increase of 19% from $184.3 million for the first quarter of 2012.
Net revenue from the traditional outdoor billboard network for the second quarter of 2012 was $13.7 million, meeting the guidance of $13 million to $15 million. This represented a year-on-year increase of 6% from $12.9 million for the second quarter of 2011.
Non-GAAP net income attributable to Focus Media was $81.9 million, exceeding the midpoint of the company guidance range of $78 million to $80 million by 4%, and representing a year-on-year increase of 30% from non-GAAP net income attributable to Focus Media of $62.9 million for the second quarter of 2011 and a quarter-on-quarter increase of 33% from non-GAAP net income attributable to Focus Media of $61.6 million for the first quarter of 2012.
Non-GAAP net income attributable to Focus Media per diluted ADS was $0.62, representing a year-on-year increase of 41% from $0.44 per diluted ADS for the second quarter of 2011 and a Q-on-Q increase of 35% from $0.46 per diluted ADS for the first quarter of 2012.
Net cash inflow from operating activities for the second quarter of 2012 after deducting the purchase of equipment and subsidiaries was $87.2 million, a year-on-year growth of 134% from $37.3 million for the second quarter of 2011 and a Q-on-Q growth of 126% from $38.5 million for the first quarter of 2012.
In the second quarter of 2012, we continue to see our year-on-year revenue growth mainly driven by strength of our poster frame network due to its exposure to promotional spending budget which tends to be less effective by macro economic uncertainty. We saw some improvement in year-on-year growth in LCD network in the second quarter 2012 as compared to the first quarter 2012, but still have not seen a return to normalization due to continued impact from cutbacks of branding budgets as a result of macroeconomic uncertainties.
Before I turn to third quarter 2012 guidance, I would like to update you on the payment of our announced recurring dividend payout. Based on the company 2011 non-GAAP net income of $284.1 million, a cash dividend of $0.0274 for ordinary shares or $0.137 per ADS was paid on April 16, 2012 to shareholders on record as of the close of business on March 30, 2012 and a cash dividend of $0.0272 per ordinary shares or $0.136 per ADS was paid on July 16, 2012 to shareholders of record as of the close of business on July 10, 2012. Meanwhile, the Board has approved a cash dividend of $0.0272 per ordinary share or $0.136 per ADS to be payable on October 16th to shareholders of record as of close of business on September 28, 2012.
Now turning to our business outlook for the third quarter of 2012. Net revenue for the core business inclusive of the LCD display network, the in-store network, the poster frame network and the movie theater network is expected to be in the range of $241 million to $243 million, the midpoint of which should represent year-on-year growth of 23% and quarter-on-quarter growth of 10%.
Net revenue for the non core business which refers to the traditional outdoor billboard network, are expected to be in the range of $13 million to $14 million. The company non-GAAP net income is expected to be in the range of $92 million to $94 million.
The company estimates the weighted average fully diluted ADS count for the quarter to be 133.8 million, assuming no further share repurchases during the quarter.
Thank you very much and I would like to open the call for questions. Jing please?
Operator, please go ahead with Q&A. Thank you.
(Operator Instructions) And we do have a question from the line Richard Ji [Morgan Stanley].
Richard Ji - Morgan Stanley
I have two questions; and first of all let me start with the advertising outlook and given the overall advertising demand have slowdown in China. Can you comment on the second half outlook for your company and in particular can you shed some light on the top advertising category and as well as your growth trajectory? Thank you.
Let me translate it for a moment and then I will come back in one minute. So I’ll let Jason take the first question, I’ll take the second one.
In terms of the outlook for the most part, as probably most of us know basically, advertising environment is very much tied to macro environment. The macro economic uncertainty continues. In the first quarter of the year, there was a CNY which is a Chinese New Year which basically as usual seasonally brings the quarter to be weak.
We have seen some recovery as you can see in our numbers in the second quarter. In the second half, there continues to be macro uncertainty in the market. So as a result, it's still unclear how the end market will pan out in the second half of the year.
We basically, as we move along, we try to update you as we provide guidance. In terms of the general trend, we continue to see people willing just to spend on promotion. In our case it has been reflected on the poster frame business and versus branding which tends to be continued to be under pressure because of the limited budget that people have.
So we believe that those trends is going probably continue through the second half unless there is some clarity in the macro environment, in terms of macro economic environment as its improves through the process. We haven't seen things getting worst in terms of what the overall environment is but nor have we seen much very improvements compared to the second quarter as we go through at the moment.
As for the top categories outlook talk with you right now. The FMCG picks up 35% in the second quarter which representing roughly about 20 plus percent growth on year-on-year basis. Transportation it's basically about 26% of our business in our second quarter, about roughly growth of about mid to high 40%.
Financial services tends to be weaker, it was down roughly about 3% of our business and down roughly about 25%. Internet roughly about 8% as compared to about 13% in the last quarter of our business down single digit and then [Telcos] rapidly strong is about 8% of business up close to doubling as compared to about 4% or 5% a year ago. So that sort of a rough categorizations on our business links.
Okay. And we do have a question from the line of [Jiong Shao].
Couple of questions from my side. First, just on your privatization could you sort of elaborate a bit on the rationale and timing of the proposal that's my first question.
As you probably know we made it clear on our press release last time the Going Private Proposal is actually being brought up by a formation of social investors as management as far as fiduciary are concerned we have basically formed a committee of independent directors across special committee to manage the process to consider whether the proposal is fair. So we will leave it to the special committee to update if there is anything else, from management team perspective this as usual as far as duties are concerned, I will continue to be operate for the company, so there hasn’t been much of a change in terms of their regard.
Okay, thanks Kit for that color. Related question is just so that your shareholders and analyst know the process. I understand I saw you have another press release this morning that your independent committee has already hired a bank and a law firm to do due diligence, could sort of explain to the people on the call sort of what the whole process may look like and what are the some of the key deadlines or days we should look out for?
Again unfortunately the process is being managed by the special committee. We don’t have much of a control over that. I am sure the special committee would do their best to try to come up with a view as far as where that proposal what the proposal is going to be, whether proposal is acceptable or not as soon as they can, but there is a date line being set and milestone being set at the moment, they are going as fast as they can.
As you pointed out they have separately made a press release, special committee usually make as we go onto special committee as they have update they will make that releases themselves to update the shareholders not from the (inaudible) perspective. So special committee as you pointed out this morning the company has special committee has basically hired JPMorgan as the financial advisors, in terms of legal advisors they have hired [Kruger & Alice] so that’s where they are as of this moment. I think if they have further update I am sure they will update the shareholders as needed. So if not I think the knowledge that we have is about similar.
Let me ask my last question on the business side. You provide pretty solid Q3 guidance, in Q2 some of the year-over-year growth for example in-store was went down, I was just wondering just for your full settlement of business could you please provide a bit more color in terms of year-over-year sequential just general trends for your major settlement of the business thank you?
Sure as far as I will try my best to do that, it usually just give people some color in the quarter of the third quarter usually the biggest month is the September month which we don’t have complete visibility yet but as of this moment the best I could share with you is that we continue to see similar year-on-year trend in the third quarter as compared to second quarter i.e. that we see stronger growth in the poster frame network as compared to the LCD network.
We continue to see the movie theatre network to be relatively strong given the seasonality of that business to be somewhere as usually a big quarter because of the blockbusters of the movies and then in-store continued to be tagging along as usual. So you want to rank them by growth I would say post the movie theatre first because of the lower based number on the year-on-year basis and then followed by poster frame followed by LCD followed by in-store. So that’s how we would rank them but as far as specific numbers very difficult to share them at the moment given the lack of visibility going into the rest of the quarter.
Volumes will be down again year-over-year in Q3 you think?
We hope not, but I can't assure you full 100%. We believe that there will some growth but I don’t what the growth can be like at the moment, again as some it of course (inaudible) has a much smaller base and have the most concentrated base of customers. One or two major customer change in their budget could have some impact on a percentage wise on the business despite the absolute dollar amount may not be as significant as compared to the rest of the business.
Okay and we do have another question from the line of (inaudible) Li.
My first question is can management update on the utilization rate across the network please and secondly any updates on the interactive stream. That will be helpful. Thank you.
Sure, I will take the first question and let Jason take the second one. In terms of utilization rate, there hasn’t been any major shift as you can tell from the, there is some shift between the quarter-on-quarter and year-on-year basis there hasn’t been much of a change. The LCD business are probably in the range of about 14% to 15%. The poster frames basically has seen improvement because of revenue increase probably right around the mid-40s to mid-50%. In store is around, I would say about 5% to 10% depends on the line of business, I would say average probably be around 10%. I will have Jason answer the second question.
On the interactive screens we see some improvement as far as some growth in the revenue contribution by the interactive screens, still pretty minimal in terms of the contribution overall. But we continue to see improvement in going to the third quarter and compared to the second quarter as you can see from second quarter versus first quarter.
In terms of the Q Card registered users, about 3.2 million, as of right now continue to see increases despite sort of the trend of increases has not been as quick as fast as is what is in the first half of the year. But still striving to hit our target for the year which is probably around 4 million to 5 million, probably close to 5 million.
Okay. And our next question comes from the line of [James Lee].
Congratulations on good quarter. Just couple of follow up questions here. First is on transportation sector and could you say that was growing pretty robust at mid 40% year over year. I was wondering what's the dynamic behind that and what's causing that and also secondly and can you guys maybe give a sense what the full year outlook, it's like you guys previously you said 20 to 25%. Are we still thinking more less than the same?
And lastly privatization can you help us understand from a minority shareholders point of view what’s our recourse for Investor Day do not necessarily agree with all for price and lastly will be nice for Jason to kind of comment where he stands given the fact that he is part of the investor group that’s bidding to privatize the company? Thank you.
Sure I will answer your second question and then I will talk to Jason for the answer to rest. I will take the second and third I would say. The second question basically mathematically, as you can tell in the first quarter we grew close to 30% second quarter. So and in third quarter we guided to 23%. I think we are still trying to drive to 20 to 25 in terms of the year-on-year growth. Again we are reminding everyone that the fourth quarter will have a difficult comp because of the earlier Chinese New Year this year which brings some of the budget into the December last year.
So overall I would believe that the year we are still striving for to 20, 25 but what is going to be low end of the ratio, high end of the ratio it’s hard to tell at the moment. So I will leave it as such because again even third quarter we don’t have a full visibility and it’s hard to comment a whole lot on the fourth quarter at the moment.
As we have more color we will shed the light with everyone. In terms of the recourse and the legal related question I rather not answer them from myself because I am not a legal expert in this case. One thing I could tell you is that basically shareholders has the right to vote in the process ultimately.
So whether (inaudible) showed up, if they like the price they could vote base up on the register holder base. So that’s about all I know about and all I could comment upon. So beyond that in terms of technicalities and legal is probably not in a position to comment whole lot. I will have Jason answer the first and the fourth question.
A quick follow up question here Kit regarding the movie business. I noticed that margin came down very meaningfully during the quarter. I was wondering what happened there with any specific build up plan to happen during the quarter that has caused margin to depress?
Sure, I'll come back to you with the question, let me translate for just a quick minute. On the auto related, the growth was driven, you know, mainly driven by the fact that a year ago there was a, as you some people may recall there was Japanese earthquake out there, so lack of parts being shipped to China and there was a lot of Japanese labels basically have slowdown drastically in their budget they have put it in terms of the branding budget for that process.
So given the fact that the recovery from Japan for the most part, what partially drives the growth on a year-on-year basis and also as late in demand, there has been a fair bit long period of time where a lot of vehicle labels having launched new vehicles in the past and it's basically being released, a lot of them being released in the late first quarter and early second quarter and as a result there is campaigns going lot for a lot of car labels.
I think other than that, it’s hard to tell going forward what that is going to be like given that depends and again it depends on vehicle sales ultimately, but in the near-term it really continue to be driven by the product launches which we think is a continuation from what was launched in early during the year.
In terms of Jason’s view on privatization, his view is basically, it’s very, very difficult to share his view at the moment, given that’s ongoing process. So at the moment, we will probably leave it to the special committee to update you as the process go through, but as far as he is concerned, there is not much he could update given that this ongoing process and he is not in a position to comment a whole lot.
In terms of your question on movie theater, as you probably know basically movie theater business has the slowest quarter for the year is the second quarter of the year. It’s basically (inaudible) but costs were direct to our core business, as your revenue come down, your margin will get hit quite significantly; that’s probably the primary reason.
The second reason is that we did have a fair number of new screens in terms of our network. If you go to look at the screen count, we have increased our screen count on the movie theater business to about 333 theaters up from 316 from the previous quarter as compared to a year ago 286 in terms of the numbers of screen event from 1,916 to 2,320 new screens compared to year ago. So if you compare to the last quarter’s 2,190, we added over 200 screens.
So in terms of that process basically you can imagine that the cost of sales also increases as a result because of inventory that we added. So for the most part, we don't see that to be an healthy trend, it’s just a process of as we expand, we have our footprint and at the same time because of seasonality, because of the fixed cost nature, it impacts the margin as a result.
And our next question comes from the line of Wallace Cheung [Credit Suisse].
Wallace Cheung - Credit Suisse
So firstly is, as far as I understand, the company has actually update and raised some of the rate cut in July; can you update us, so how many cities actually have you increased the prices and how is the response of clients so far and does it have a positive impact in the third quarter and four quarter (inaudible) growth?
And the second question is on the account receivable; it seems the revenue is doing quite well, but I mean it’s a very big of surprise for us it seems like the account receivable is actually still flattish relatively compared with other say more advertising companies. So are you still you trying to maintain a very good quality of customers and not trying to take too much by receivable and in fact if you want to do it actually your revenue can do better? Thank you.
Sure, I will take the second question and I’ll let Jason take the first one; let him take the first one first.
In terms of the rate cut in July basically we did an adjustment for the most part we basically went through as you probably know every year towards the end of the year, we went through a communication with most of our customers in terms of what the following year rate is going to be like. In that process we set most of the rates for the year; for those who doesn’t actually locked in for the most part we basically would go through as we go through the year in terms of the second half as in July to point it out, we do have some room for improvement in terms of increasing the rates. But given the macro environment we have been overly aggressive in trying to move that in the direction.
So in general, I think the comment is like that, it’s a slight positive, but don’t think it will be a significant impact in the second half of the year, especially also the fact that for the most part the impact on July usually comes through if anything probably towards the end of the year in terms of actual impact for the remaining customers that have negotiated sort of a general rate for what we do use on within a year.
Just one comment on what true to that is that we don’t necessarily sign contract for the locking rates for most of the customers, for the most part we basically negotiate and we sort of a general understanding what the rate should be for the following year, but we don’t really -- for most the customer we probably about 20% of customer we do sign in sort of general framework of contract for the most of the customer, we don’t.
In terms of your second question ARs. ARs in general, I don’t think there is anything unusual there for us; I think for the most part as you have been tracking the company for years we basically improved our collection as we go through the year, from the first quarter, second quarter, third quarter to the fourth and we try to maintain 90 to 100 days DSO in terms of what we try to cite for.
The second quarter is basically a continuation of improvement from the first quarter; as you can see, if you want to go back and track, the forth quarter of last year we had really great collection and then first quarter slows down just the general time in China, you tend to collect as it get through the year and you get a lot more collection towards the end of the year.
That is in general I would say we didn’t actually try to manage the AR in the sense whereby we try and take in less business or not having less receivables, but most part we continue to take in business. The only that we do sort of in general to be more cautious is that, for new customers especially in the Internet categories, we tend to be more cautious that way we try to ask for advance payments instead of just taking in the new business that way.
And secondly, we generally, we see that they are specially in the Internet category that there are risk of collection, we try to take more provisions on those and other than that we try to continue to do business as usual, try to continue to break in new categories as many as we can and try to strive for more customers as we go through the process.
Wallace Cheung - Credit Suisse
And one just, my final question is there is some news around months ago that, there is some kind of partnership with Alipay on the interactive screen. So can you elaborate a bit more about the potential impact and how to scale that? Thank you.
It's basically an attempt for us to try out something from interactive perspective in terms of interactive media. This basic corporation is Alipay one of the line of business for (inaudible) a coupon of Alipay. Essentially when they have promotions on your products as they put ads on our network, what they could do is we will put up a QR code, a Quick Reference Code on the screen. As a result you could use Alipay apps to basically take a picture of it and that could prompt you to process when you buy product. It's basically a trial from our perspective in terms of trying to attack into the mobile business.
It doesn't probably have much of an impact both on a negative and positive and in a cost of much of anything to do this other than for providing an app with the QR reference code. On the other hand, we don't think that's much of an impact in the near term in terms of what that business would bring. But in general, we believe that's part of our mobile sort of our Alipay venture whereby we continue to try to find ways of turning on media to be more interactive actually go to the process. If this would probably help if it anything help the act of this of the users base of the queue cards that we have.
Hello, operator just go ahead for the next question.
And the next question we have is from the line of [Anne Ling].
Hi, I am Jason (inaudible). Just couple of questions regarding the GP margin trend for the LCD display networks; we see a decline on both the present quarter. So what is the guidance now in terms of outlook and what was the reason why there is a course of margin decline and given the sense in the most of the cost are fixed cost that’s number one and number two is I noticed there is a small acquisition was payable of 1 million may I know what it is this?
And then the last question is regarding privatization proposal. As soon as we look at in terms of the consortium, Jason actually promise a lot of you know very stringent requirement offered by the part of equity firm. So is it a normal cost or they I mean what is the basis of this that exclusivity or you Jason have to borrow order that's sort of thing. Thanks.
Sure, I will answer the first two questions and I will let Jason end it. The [GP] margin for the LCD as you pointed out basically was mainly driven by the decline was mainly driven by the expansion into the interactive screen business, a combination between the rental and the footprint expansion of the business as well as the depreciation that was caused by the condition of (inaudible) that we added or higher dollar amount we spend on the CapEx and as a result depreciation.
So it’s hard for me to give you [GP] margin as in general especially given that the uncertainty in the macroeconomic environment for the most part if our revenue continue to grow at the trend that we grow, the margin will continue to improve because we haven’t I think the key cost increases was between the second quarter through the first fourth quarter last year, in terms of the interactive screens so it’s pretty much starting to stabilizing the first quarter so our cost stabilized in the first quarter that’s basically the margin decline as a result of that as I explained earlier.
In terms of the $1 million acquisition it wasn't acquisition done during the quarter as you probably know we do acquisitions on smaller regional distributors as well as smaller cities both in terms of poster frame network as well as LCD business, as we go on what usually when we acquire these companies we have them paid over installment in terms of sometimes over two terms, over three terms, over four terms so this $1 million was an acquisition was made prior to the second quarter of this year on part of the payments that we promised to pay, so there is anything. The third question I will translate Jason.
So it is somewhat difficult for Jason to comment on his view given that this is an ongoing process being taken up by special committee as well as the legal processes. So he is [not] probably in the position to comment on the details on any other going private transactions so that is sort probably not very helpful for you but it is sort of where our positions stands at the moment.
Just one follow up question you know excluding the interactive business, what is the LCD margin give me in the first quarter and second quarter?
It is very difficult to do that because as you know that the interactive screens are part of the overall screen. It is very hard for describe it out. I could tell you that there is a combination of both 70% contribution at least by the interactive screen expansion that resulted in incremental depreciation and at the same time that of some rental renegotiation depends on selected buildings that requires as you put in new screens that are bigger and they want a slightly higher rental cost, asset contract terminals aspiration for the renegotiations.
So it’s a hard to strip it out in terms of absolute dollar amount it wasn’t order significant in terms of that and I mean if you look at it from a year ago our rental cost is roughly about $37 million. Let me correct myself $35 million. As of the second quarter of this year, it goes up to $44 million of which the differentials of about $9 million is a combination of footprint expansion of the network as well as that of the interactive screen resulted in our renewal contracts higher rate rental increases but for the most part, there hasn’t been much of a change as I mentioned during the year, just most of the increases as was a ramp up between the second quarter and the third quarter of last year.
And our next question comes from the line of Eric (inaudible).
My question is if I look at the last several quarters results, in this result and most of the gross coming from post operating network, but the (inaudible) actually in this network is almost to very high level increasing slowly. So my question is regarding to the post operating network, what do you think the potential market there and what's the post following gross do you expect from the post operating network. Thank you.
Let me have Jason do that.
Actually your question basically the poster frame network was actually helped by the difficulty in the sales environment in China. As a result a lot more companies doing promotional sales to try to carry to the inventory. As a result basically poster frame is actually in a pretty good position whereby it actually is a cheaper media to use and is a media that could convey a lot more detail information about products as you do promotions. It is a trend that we have seen since the beginning of this year going into the second quarter and we believe that this trend will probably continue through the rest of the year.
But the promotional part of the spending again to put in perspective is that because it’s because of difficulty in the sales environment. If you do see a macroeconomic environment improvement you would believe that the kind of the level of growth that you will see on poster frame may not be as high as you would see in the first half of the year, but in general we continue to see that through the end of this year, but whether to quantify the percentage is fairly difficult given uncertainty in the macro environment.
But we would say that given, this is on my part given the fact that poster frame network has a lower base as compared to LCD business as a percentage of growth they may have an advantage in that perspective, but other than that it’s really a function of the market itself ultimately, but if you hold view that the macro environment and the sales environment in China continue to be difficult in the second half of the year it is logical to think that the poster frame would basically will grow continue to grow at fairly high rate as compared to the LCD business.
But this is at normal in our perspective and if the macro environment return to normalization we believe that the kind of level approach that you have seen post may not be at this level of growth. But on the other hand LCD business we expect it to see a better growth if the macro environment return to normalization. So you can treat it as sort of a hash or offset between the two business line.
Okay, just following up questions. If you can talk about the absolute numbers I noted that install network and the traditional (inaudible) even smaller but the gross rate very slow or not growing at all, so could you explain about that part of the installed network and the traditional that will be
Sure we will be happy to do that. Just take the installed network first. The installed network is basically a business whereby it is not part of promotion spending, it’s not part of you can quite (inaudible) from finance right. It is definitely not part of the branding budget. What it does is basically it picks a portion of the point of sales budget i.e. that the kind of budget that people put into the super market or hyper market stores and we have to take a portion of that, basically what they fight for is part of that budget of the point of sales.
So the pool that they have is much smaller into where they could get in and the customer bases are lot more concentrated and most of those will be possibly in consumer goods customers. So as in general the basic backdrop of the business are not as big of the potential mark as compared to the other three business line. So in general that’s why any one or two major customer shift in the budget in any one quarter increases or decreases what the percentage impact in that base.
Traditional billboard as you can see if you have been tracking the company that does not mean this is the outlook. We don’t call the core business as what we call non core business is basically agency business it is very much up to. It is very much impacted by the overall environment in China i.e. that we don’t own the media for the most part basically in agency. If the overall environment is strong we got more traffic and we got more traffic we make more money that way.
On the other hand part of things that we are working on that business line is that I has expanded into the high state real media which is fairly early stages. A lot of the cost of rentals starting to contribute into that business in the second quarter of the year. As a result despite there you see some revenue increases, the margin comes down drastically because of the increase in the cost of rental from the high street deal while we do not have revenue yet from that other business line. So in general, it is a business that we don’t have a strong commitment on in a sense that it is a business that is very much at the mercy of the market especially given the current advertising environment. When the overall outdoor are not as healthy, it get impacted as a result.
And we do have a question from the line of [Jin Yoon].
Hi, this is (inaudible) in for Jin Yoon. Sorry, I might have missed this part but I think your previous full-year guidance for growth is 20% to 25%. I am just wondering if that still stands.
Yeah, I think one of the other gentlemen actually asked this question earlier. Yeah, we continue to strive for that number. Mathematically, we have really given, you have the first half of the numbers already from year-on-year perspective. You have the third quarter also that we have provided guidance for.
So mathematically we should be able to hit that, but we can’t give you hard commitment that. We haven't given any fourth quarter guidance at the moment but one thing again to remember, fourth quarter is a difficult comp because of earlier Chinese New Year, this year some of the budget got shift in the fourth quarter of last year. So, but given the strength of the first three quarters, especially in the first half of the year, we believe that that numbers should be possible.
Ladies and gentlemen, thank you for your participation. You may now disconnect.
That concludes today’s conference call. Thank you everybody. See you next quarter.
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