Zee Entertainment Enterprises (ZEEL) held a conference call to discuss the third quarter ended December 31, 2008. Mr Subhash Chandra, Chairman addressed the call.
Highlights of the call
- The Company has reduced its guidance from earlier guidance of advertising and subscription revenue growth of 30% and bottomline growth of 30%.
- The advertising revenues for FY09 are likely to register a growth of 15% over FY08 and the subscription revenues for FY09 are likely to register a growth of 23% over FY08. The operating profit (EBITA) for FY09 is likely to register a 5% growth over the number recorded in FY08 and the operating margin (EBITA) for FY09 is likely to reduce to 25% from 28% in FY08.
- As per the guidance, advertising revenue for Q4FY09 would be Rs 241.04 crore down 2% on y-o-y basis and subscription revenue would be Rs 234.27 crore up 13% on y-o-y basis. As per the guidance the revenues would be about Rs 520.92 crore down 1% on y-o-y basis.
- The slowdown in economy has impacted revenues to the tune of 25%.
- For FY10, advertisement market is expected to grow at 10-11%.
- ‘Zee TV’ clocked 201 gross rating points (GRPs) against 219 gross rating points (GRPs) in sequential quarter. For the quarter, in market share, Zee Cinema 34% and Zee Café 22%. Zee had 15 (19 in sequential quarter) programmes in the Top 50 and 31 programmes in Top 100.
- The Company is sticking to its current plan and does not see any impact from the rise of the new GEC “Colors” replacing it to the second position.
- Earlier, advertising sale of some Zee News Limited (ZNL) channels was being done through ZEEL. From the Q4FY09, advertising sale of these channels shall no longer be done through ZEEL. Employees on ZEEL payroll, who were engaged in ZNL advertising sales, have also been transferred to ZNL pay roll. Hence commission income on advertising sale and corresponding expenses will no longer be booked under ZEEL. The impact on bottomline will be minimal.
Financial Overview
- For the quarter end December 2008, ZEEL reported 5% growth in consolidated operating revenues at Rs 545.58 crore on the back of slower advertising revenue growth of 2% in advertising revenues at Rs 268.40 crore flat impacted by the TV production crew strike and macro economic slowdown, subscription revenue grew 17% at Rs 227.40 crore slower due to major deactivation drive to enforce recovery of dues and 16% de-growth in other sales & services at Rs 49.70 crore.
- OPM was down 830bps at 22%. As a % of sales, programming & operating costs was stable at 49.2%. This includes startup cost of Zee Next and Zee Entertainment Studio, as well as higher cost of movie rights and advertising revenues on telecast of ICL Matches passed on to Essel Sports Limited. Excluding the impact of these items, the Programming and operating cost, on a like-to-like basis has in fact reduced by 11% over the corresponding period last year.
- Staff costs increased 100bps at 7%. Staff cost include write back of excess provision of incentive done of Rs 6 crore. Selling & other expenses increased 730bps at 21.8% higher on account of placement cost and off air marketing etc.
- Interest cost for the quarter increased 131% at Rs 38.55 crore on the back of provision of mark to market loss on derivatives positions of Rs 11.6 crore against Rs 9.7 crore in the corresponding quarter previous year and forex loss of Rs 14.7 crore incurred towards exchange on remittance of advertising and subscription revenues from India to its overseas subsidiary Taj TV Mauritius (Ten Sports).
- For Q3FY09, Zee Next had loss of Rs 8.1 crore for the quarter.
- On sequential basis, operating revenues were down 5% at Rs 545.58 crore with advertising revenues down 6%, subscription revenues were up 1.3% on account of higher domestic subscription up 1.4% and international subscription up 4.2%. Other sales & services dipped 20% at Rs 49.70 crore. OPM dipped 400bps at 22% and the consolidated net profit was down 17% at Rs 82.50 crore.
- Other sales and services grew 274% at Rs 62.10 crore include revenues from education segment of Rs 4.92 crore and revenues from Film Production & Distribution segment of Rs 3.60 crore.
- The sports business had revenues of Rs 116.4 crore growth of 34% over corresponding quarter last year and 10% lower than in the sequential quarter. EBITDA was profit of Rs 18.5 crore up 214% in the sequential quarter and against loss of Rs 8.5 crore in the corresponding quarter previous year. The profits were higher due to India/Pakistan Series not being held.
- Of the subscription revenues, domestic revenues grew 28% at Rs 111.1 crore and international revenues grew 7% at Rs 114.7 crore whereas DTH revenues were at Rs 28.3 crore up 62% included in domestic revenues. The subscription was lower also on account of 2 new MSOs: Digicable and Star Den coming in but could not collect much subscription due to carriage fee issues.
- The DTH revenue growth was lower than DTH Industry growth due to lag time for booking of users by DTH Company and content provider. Also some DTH players haven’t as yet disclosed their numbers. There is atleast 45 days delay but in some cases it goes above 2 months. The Company has received subscription for 4.5 million users at realization of Rs 22 per month.
- Debtor days for the period were 114 days and debt on books at the end of the quarter was Rs 625 crore up from Rs 458 crore at the end of sequential quarter. The debt was higher on account of funds for bidding for Sports Events. The debt would go down going forward. No funds were advanced to promoters to apply for Dish TV rights issue. Cash in books was Rs 67.85 crore.