Summary of China’s ad market in 2018
In 2018, growth of the advertising market started with high momentum but later slowed down. CTR’s data suggested that advertising expenses rose by 9.3% in the first half of 2018, but the annual growth closed at a mild 2.9%, diluted by tampered development in H2.
In terms of advertising expenses across various media, Elevator TVs and Elevator Posters maintained a steady growth in 2018 at 23.4% and 24.9% respectively, with both surpassing the levels in the same period of 2017. Movie Theater Ads recorded a decline in growth at 18.8%.
Summary of Focus’ operating results in 2018
As Focus’ core business enjoyed a sound development in 2018, operating revenue registered a steady growth. It was also a year in which Focus underwent large scale expansion – starting from the second quarter, it strengthened the expansion capacity of its resources, resulting in a hike in the number of cities and resource sites it covers. Domestically, Focus penetrated further in tier 1 and 2 cities, while extending reach to new markets in tier 3 and 4. Internationally, aside from Korea, countries including Indonesia and Singapore were newly covered. With such scale and penetration, Focus was able to leverage brand recognition abilities to provide advertisers with more efficient and accurate advertisement placement, thus enhancing their recognition of Focus’ value as a media company.
Summary of Focus’ financial results in 2018
In 2018, Focus achieved an operational income of RMB14.55 billion, an increase of 21.12% year on year. Operational profit was RMB6.97 billion, down 3.77% year on year, and total profit was RMB6.96 billion, a decrease of 3.77% year on year. The net profit attributable to shareholders of the listed company was RMB5.83 billion, a decrease of 2.95% year on year. Basic earnings per share was RMB0.40, a decline of 2.44% from 2017’s RMB0.41.
Since May 2018, number of sites covered by Focus substantially increased, causing a surge in rents of media resources, depreciation of equipment, labor costs and operational and maintenance costs in the second quarter as compared with the same period last year, which in turn resulted in slow growth of Focus’ results in the second half of 2018. This factor is expected to have an ongoing effect in the first half of 2019 on the relevant financial indicators such as operational profit, total profit and net profit attributable to shareholders of the listed company.
Meanwhile, due to the decrease of equity disposal in 2018, operational profit went down slightly on a year-on-year basis. In 2017, Focus completed the transfer of some equity stake in Shanghai Shuhe Information Technology (上海數禾信息科技有限公司) and an increase of capital via the introduction of investors. By the fourth quarter of 2017, Focus achieved investment returns of RMB680 million. In 2018, Focus’ revenue from equity disposal plunged sharply, leading to a corresponding decline in Focus’ operational profit.
Focus’ customer mix
The FMCG industry contributed the most to revenue growth in 2018, and the proportion of revenue from that industry continued to increase. In the second half of the year, the revenue contribution of traditional non-Internet industries rose further. Throughout the year, driven by Focus’ strategy to penetrate lower-tier markets, traditional industry advertisers continued to increase their ads placement with Focus, with the proportion of revenue from advertisers of FMCG, mainly from the alcohol, food and beverages sectors, further increased.
Focus’ digital transformation
In 2018, Focus attempted to transform into a digitized model. It upgraded the screens of Elevator TVs to the fifth-generation HD smart screens mainly with a size of 27 inch or 32 inch, upgraded elevator posters to Elevator Poster 3.0 with a larger area, and unveiled a new generation of smart screens. The new generation elevator screens enable real-time monitoring of the advertising performance. Based on big data, Poster Frame Ads can now be precisely distributed to the targeted buildings. At present, Focus’ advertising screens allow wifi-enabled content push, real-time monitoring, data feedback and results evaluation.
Focus’ cooperation with Alibaba
Both Focus and Alibaba are exposed to the most active consumers who have the strongest spending power in China, and that is why Focus cooperate to jointly explore the new digital marketing model under the new retail trend. When Alibaba’s capabilities in new retail infrastructure and big data come across Focus’ extensive network of offline reach, customers and merchants will be provided with brand new experience and unique value. Focus is creating and promoting the “U-Focus Plan” (U衆計劃) with Alibaba. The plan features two important dimensions and directions: i) to achieve full linkage between online and offline marketing, and ii) to promote visualization, quantification and optimization of marketing.
Focus’ repurchase of stocks
As of the end of February 2019, Focus has cumulatively repurchased 171,973,432 of its own shares, accounting for 1.17% of its total share capital, by means of purchasing from secondary market. The highest transaction price was RMB8.64 per share and the lowest was RMB5.04 per share. In total Focus paid RMB1,100,167,500 for the repurchase (excluding transaction fees).
The total number of employees participating in the ESOP (Employee Stock Ownership Plan) was no more than 100, of which two were from the director (excluding independent directors), supervisor and executive level, and no more than 98 were other core employees. The total amount of funds raised by the ESOP is capped at RMB300 million.