BEIJING, Dec. 6, 2010 /PRNewswire-Asia-FirstCall/ --
Xinhua Sports & Entertainment
Limited (the "Company" or "XSEL") (Nasdaq: XSEL), a leading sports
and entertainment group in China,
today announced its unaudited financial results for the first half
year ended June 30, 2010.
First Half Year 2010 Highlights
- Net revenue was $27.1 million
(excluding discontinued operations)
- Adjusted EBITDA was $0.9
million
- Net loss attributable to XSEL
was $0.3 million
First Half Year 2010 Financial Results
|
|
|
Chart 1: Summary of financial
results
|
|
|
In US millions
|
6 months ended
Jun 30, 2010
|
6 months ended
Jun 30, 2009
|
Growth %
|
|
|
Net revenue(1)
|
27.1
|
27.2
|
0%
|
|
|
Adjusted EBITDA (2)
|
0.9
|
7.0
|
-87%
|
|
|
Net loss attributable to XSEL
|
(0.3)
|
(5.3)
|
95%
|
|
|
Exceptional items(3)
|
(9.0)
|
(1.1)
|
N/A
|
|
|
Net
loss
attributable to XSEL before exceptional items
|
(9.3)
|
(6.4)
|
-45%
|
|
|
|
|
(1) The amount represents net
revenue of the continuing operations, excluding net revenue of
discontinued operations. Due to the sale of Beijing JinGuan XinCheng
Advertising Co., Ltd. ("XinCheng"), Beijing EWEO Advertising Co., Ltd.
("EWEO"), Shanghai Paxi Advertising Co., Ltd. ("JCBN China")
and Profitown Development Ltd. ("Profitown") in 2010, the closure
of EconWorld Media Ltd. ("EconWorld"), Beijing Century Media
Culture Co., Ltd. ("Century Media"), Upper Step Holdings
Ltd.
("Upper Step") and
Beijing Perspective Orient Movie and Television Intermediary Co.,
Ltd. ("Perspective") in 2010 as well as the termination of
advertising
agency agreement with Shaanxi Television Station ("SXTV")
in
2010, the historical operating results were reported as "discontinued operations" for all
periods presented.
(2) Please refer to Chart
4
for the
reconciliation of adjusted EBITDA.
(3) Please refer to Chart
5
for the
breakdown.
|
|
|
|
|
|
|
Net Revenue
Net revenue for the first half year of 2010 was $27.1 million, down period-on-period from
$27.2 million in the first half year
of 2009.
Net Revenue by business group
|
|
|
Chart 2: Net revenue by business
group
|
|
|
In US$ millions
|
Broadcast
|
Advertising
|
Total
|
|
|
Net revenue
|
10.0
|
17.1
|
27.1
|
|
|
|
|
|
|
|
|
Gross Profit
Gross profit for the first half year of 2010 was $3.9 million, down 44% period-on-period from
$6.9 million in the first half year
of 2009. The period-on-period decrease was mainly due to a decline
in net revenue from Advertising Group driven by the Company's
repositioning in sports and entertainment.
Due to the sale of XinCheng, EWEO, JCBN China and Profitown in
2010, the closure of EconWorld, Century Media, Upper Step and
Perspective in 2010 as well as the termination of advertising
agency agreement with SXTV in 2010, the historical operating
results were reported as "discontinued operations" for all periods
presented.
Operating Expenses
Operating expenses were composed of selling and distribution
expenses, general and administrative expenses, impairment loss on
goodwill and loss on disposal of Convey. Excluding impairment loss
on goodwill of $3.4 million and loss
on disposal of Convey of $28.5
million, operating expenses for the first half year of 2010
were $13.5 million, compared to
$13.5 million in the first half year
of 2009.
Selling and distribution expenses for the first half year of
2010 were $3.2 million, up 10%
period-on-period from $2.9 million in
the first half year of 2009. The period-on-period decrease is
mainly due to a decrease in amortization of intangible assets
driven by the substantial impairment made in the second half year
of 2009.
General and administrative expenses for the first half year of
2010 were $10.3 million, down 3%
period-on-period from $10.6 million
in the first half year of 2009. General and administration expenses
for the first half year of 2009 and 2010 included $1.5 million and $2.3
million, respectively, of share-based compensation
expenses.
Adjusted EBITDA
Adjusted EBITDA for the first half year of 2010 was $0.9 million, down 87% period-on-period from
$7.0 million in the first half year
of 2009. The period-on-period decrease was primarily due to the
divestment of non-core businesses.
We provide the adjusted EBITDA metric because it allows
management, investors and others to evaluate and compare our core
operating results without the impact of impairment and write off
charges, and certain non-cash items that we believe are not
indicative of future performance. See
Chart 4 for the reconciliation of adjusted EBITDA.
|
|
|
Chart 3: Adjusted EBITDA by business
group
|
|
|
In US$ millions
|
Advertising
|
Broadcast
|
Print
|
Total
|
|
|
Adjusted EBITDA by business group
|
1.2
|
0.8
|
3.0
|
5.0
|
|
|
Less: net head office expenses
|
|
|
|
(4.1)
|
|
|
Adjusted EBITDA
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
Net Loss attributable
to XSEL
Net loss attributable to XSEL for the first half year of 2010
including exceptional items was $0.3
million. Excluding the exceptional items of $(9.0) million, net loss was $9.3 million.
Other Corporate Developments
On July 12, 2010, the Company
entered into an agreement (the "Amendment") with Patriarch Partners
LLC ("Patriarch"), a global investment firm based in New York and currently one of our major
shareholders, to restructure the terms of the secured convertible
loan facility (the "convertible loan"). Under the terms of the
Amendment, the Company repaid $16,343,960, and Patriarch agreed to lend the
Company an additional $7.6 million
non-convertible term loan, bringing the aggregate amount
outstanding under the Patriarch facility to $49,056,040, and to waive all existing defaults
and revise the terms of the financial covenants. As a part of the
transaction, in consideration for the waiver and extension of
additional loans in the Amendment, Patriarch has been granted
additional security in the Company's assets as collateral for the
loans and the Company issued to affiliates of Patriarch Series C
Preferred Shares convertible into 25% of the fully diluted common
equity of the Company and paid certain fees and expenses.
The Company might not have enough cash to repay all currently
outstanding obligations in the next 12 months. However, the
management of the Company is taking a number of actions to address
this situation in order to restore the Company to a sound financial
position with an appropriate business strategy. These actions
include:
- The Company is adopting various cost-saving strategies.
- The Company continues its repositioning of its business to
sports and entertainment, and is moving ahead with its sports media
strategy.
The condensed consolidated financial information has been
prepared assuming the Company will continue as a going concern.
On August 16, 2010, the Company
entered into an agreement with Pariya Holdings Limited ("Pariya")
and agreed 1) all outstanding earnout obligations from XSEL to
Pariya and payment obligations from Pariya to XSEL will be offset
upon the fulfillment of certain conditions; 2) maintain XSEL's
shareholding in Xinhua Finance Media (Convey) Limited at a minimum
of 19.9%.
Contact
Mr. Graham Earnshaw, XSEL, +86 10
8567 6061, graham.earnshaw@xsel.com
About XSEL
XSEL is a leading sports and entertainment media
company in China. Catering to
a vast audience of young and upwardly mobile customers, XSEL is
well-positioned in China with its
unique content and access. Through its key international
partnerships, XSEL is able to offer its target audience the content
they demand – premium sports and quality entertainment. Through its
Chinese partnerships, XSEL is able to deliver this content across a
broad range of platforms, including television, the internet and
mobile phones in China.
Headquartered in Beijing, the
Company has offices and affiliates in major
cities throughout China including Shanghai, Guangzhou, Shenzhen and Hong Kong. The Company's
American Depository Shares are listed on the NASDAQ Global Market
(NASDAQ: XSEL). For more information, please
visit http://www.xsel.com.
Safe Harbor
This announcement contains forward-looking statements. These
statements are made under the "safe harbor" provisions of the U.S.
Private Securities Litigation Reform Act of 1995. These
forward-looking statements can be identified by terminology such as
"will," "expects," "anticipates," "future," "intends," "plans,"
"believes," "estimates" and other similar statements. Among other
things, the quotations from management in this announcement, as
well as XSEL's strategic and operational plans, contain
forward-looking statements. XSEL may also make written or oral
forward-looking statements in its periodic reports to the U.S.
Securities and Exchange Commission, in its annual report to
shareholders, in press releases and other written materials and in
oral statements made by its officers, directors or employees to
third parties. Statements that are not historical facts, including
statements about XSEL's beliefs and expectations, are
forward-looking statements. Forward-looking statements involve
inherent risks and uncertainties. A number of factors could cause
actual results to differ materially from those contained in any
forward-looking statement, including but not limited to the
following: our growth strategies; our future business development,
results of operations and financial condition; our ability to
attract and retain customers; competition in the Chinese
advertising and media markets; changes in our revenues and certain
cost or expense items as a percentage of our revenues; the outcome
of ongoing, or any future, litigation or arbitration, including
those relating to copyright and other intellectual property rights;
the expected growth of the Chinese advertising and media market and
Chinese governmental policies relating to advertising and media.
Further information regarding these and other risks is included in
our annual report on Form 20-F and other documents filed with the
Securities and Exchange Commission. XSEL does not undertake any
obligation to update any forward-looking statement, except as
required under applicable law.
Adjusted EBITDA Reconciliation
XSEL considers adjusted EBITDA to represent net income (loss)
attributable to XSEL before exceptional items, other income
(expense), taxes, depreciation, amortization of intangible assets
from acquisitions, net income (loss) attributable to
non-controlling interests and share-based compensation expenses.
XSEL believes that adjusted EBITDA provide investors with another
method for assessing XSEL's underlying operational and financial
performance. Our presentation of adjusted EBITDA is not intended to
be considered in isolation or as a substitute for the financial
results under U.S. GAAP. For more information on adjusted EBITDA,
please refer to Chart 4 of this release.
XSEL believes that adjusted EBITDA is useful to management and
investors in assessing the performance of the Company and assist
management in its financial and operational decision making. A
limitation of using adjusted EBITDA is that they do not include all
items that impact our net income for the period. Management
compensates for these limitations by providing specific information
regarding the reconciliation of adjusted EBITDA. You should
compensate for these limitations by relying principally on our U.S.
GAAP results and using our adjusted EBITDA measurement as
supplementary information.
The following table presents, for each of the periods indicated,
our adjusted EBITDA reconciled to net loss attributable to
XSEL:
|
|
|
Chart 4: Reconciliation of adjusted
EBITDA
|
|
|
In US millions
|
6 months ended
|
6 months ended
|
|
|
Jun 30, 2010
|
Jun 30, 2009
|
|
|
Net loss
attributable to XSEL
|
(0.3)
|
(5.3)
|
|
|
Discontinued operations, net
of taxes
|
(39.2)
|
(1.9)
|
|
|
Exceptional
items(1)
|
32.9
|
-
|
|
|
Amortization of
intangible assets from acquisitions
|
-
|
1.1
|
|
|
Share-based
compensation expenses
|
2.3
|
1.5
|
|
|
Depreciation
|
0.5
|
0.6
|
|
|
Other (income) expenses
|
(2.0)
|
1.0
|
|
|
Provision for income
taxes
|
0.3
|
0.6
|
|
|
Net loss attributable to
non-controlling interests
|
(0.1)
|
(0.2)
|
|
|
Adjusted EBITDA
– continuing operations
|
(5.6)
|
(2.6)
|
|
|
|
|
|
|
Discontinued operations
|
6.5
|
9.6
|
|
|
|
|
|
|
Adjusted
EBITDA
|
0.9
|
7.0
|
|
|
|
|
(1) Exceptional
items are
those
that we believe
are not indicative of future performance. Please refer to Chart
5
for the
breakdown.
|
|
|
|
|
|
|
|
|
Chart 5: Breakdown of exceptional
items
|
|
In US millions
|
6 months ended
Jun 30, 2010
|
6 months ended
Jun 30, 2009
|
|
|
Loss on disposal of Convey
|
28.5
|
-
|
|
|
Impairment loss on
goodwill
|
3.4
|
-
|
|
|
One-time legal and
professional fees
|
1.0
|
-
|
|
|
Exceptional
items recorded in adjusted EBITDA – continuing
operations
|
32.9
|
-
|
|
|
Fair value
gain
on
convertible loan
|
(3.8)
|
(1.4)
|
|
|
Fair value
gain
on
warrant
|
(1.0)
|
-
|
|
|
Exceptional
items recorded in continuing operations
|
28.1
|
(1.4)
|
|
|
|
|
|
|
Discontinued operations
|
(37.1)
|
0.3
|
|
|
|
|
|
|
Total
exceptional items
|
(9.0)
|
(1.1)
|
|
|
|
|
|
|
|
Net income (loss) per ADS is shown in Chart 6:
|
|
|
Chart 6: Net income (loss) per
ADS(1)
|
|
In US dollars
|
6 months ended
|
6 months ended
|
|
|
Jun 30, 2010
|
Jun 30, 2009
|
|
|
Net income (loss) per ADS – basic and diluted from continuing
operations
|
(0.44)
|
(0.11)
|
|
|
Net income (loss) per ADS – basic and diluted from
discontinued operations
|
0.42
|
0.02
|
|
|
Net income (loss) per ADS – basic and
diluted
|
(0.02)
|
(0.09)
|
|
|
|
|
|
|
Weighted average number of ADS
– basic
|
94.0
million
|
75.8
million
|
|
|
Weighted average number of ADS
– diluted
|
94.0
million
|
75.8
million
|
|
|
|
|
(1) For computation of the
net income
(loss) per ADS, the amount attributable to holders of
common shares should be used. Accordingly, dividends on
Series B
redeemable
convertible preference shares of $1.4 million and $1.3 million were taken
into account for the first half year of 2010 and 2009, respectively.
|
|
|
|
|
|
|
Condensed Consolidated Balance
Sheet
|
|
|
(In U.S. dollars)
|
Jun 30, 2010
|
Dec
31, 2009
|
|
|
Unaudited
|
(Note 1)
|
|
|
Assets
|
|
|
|
|
Current assets:
Cash and cash equivalents
|
13,303,290
|
13,229,958
|
|
|
Short term deposit
|
-
|
29,075
|
|
|
Restricted cash (Note 2)
|
28,670,000
|
40,430,000
|
|
|
Accounts receivable, net of allowance for
doubtful debts (Note 3)
|
13,258,841
|
18,319,101
|
|
|
Prepaid program expenses
|
1,842,141
|
1,598,271
|
|
|
Consideration
receivable from disposal of subsidiaries (Note 4)
|
20,000,000
|
20,000,000
|
|
|
Other current assets
|
19,870,969
|
14,521,492
|
|
|
Assets held for
sale
|
-
|
42,737,129
|
|
|
Total current assets
|
96,945,241
|
150,865,026
|
|
|
Television program and film right, net
|
-
|
4,359,421
|
|
|
Property and equipment, net
|
2,538,220
|
1,997,068
|
|
|
Intangible assets, net
|
-
|
19,298,292
|
|
|
Goodwill
|
6,933,094
|
7,238,016
|
|
|
Investment
|
11,508,239
|
11,508,239
|
|
|
Deposits for investments (Note 5)
|
17,520,963
|
16,372,089
|
|
|
Consideration receivable from disposal of
subsidiaries (Note 4)
|
-
|
27,319,579
|
|
|
Other long-term assets
|
3,739,123
|
3,601,271
|
|
|
Total assets
|
139,184,880
|
242,559,001
|
|
|
|
|
|
|
Liabilities, mezzanine equity and
total equity
|
|
|
|
|
Current liabilities:
Bank borrowings
|
21,274,074
|
31,261,643
|
|
|
Convertible loan (Note 6)
|
52,163,872
|
59,379,289
|
|
|
Other current liabilities
|
82,215,361
|
89,031,149
|
|
|
Liabilities held for sale
|
-
|
22,083,374
|
|
|
Total current liabilities
|
155,653,307
|
201,755,455
|
|
|
Other long-term liabilities, non-current portion
|
3,834,592
|
66,973,524
|
|
|
Total liabilities
|
159,487,899
|
268,728,979
|
|
|
Mezzanine equity:
Series B redeemable convertible preferred shares
|
34,456,791
|
33,765,591
|
|
|
XSEL shareholders' equity:
Class A common shares
|
156,230
|
133,854
|
|
|
Additional paid-in capital
|
506,260,761
|
498,956,593
|
|
|
Accumulated deficits
|
(566,819,672)
|
(567,103,780)
|
|
|
Accumulated other comprehensive
income
|
4,267,377
|
6,635,783
|
|
|
Total
|
(56,135,304)
|
(61,377,550)
|
|
|
Non-controlling interests
|
1,375,494
|
1,441,981
|
|
|
Total equity
|
(54,759,810)
|
(59,935,569)
|
|
|
Total liabilities, mezzanine equity and total
equity
|
139,184,880
|
242,559,001
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of
Operations
|
|
|
(In U.S.
Dollars)
|
|
6 months
ended
Jun 30, 2010
|
6 months
ended
Jun 30, 2009
|
|
|
|
Unaudited
|
Unaudited
|
|
|
|
|
|
|
|
Net revenues:
Advertising
services
|
|
26,404,463
|
27,209,233
|
|
|
Content
production
|
|
617,689
|
-
|
|
|
Advertising
sales
|
|
86,689
|
-
|
|
|
Total net revenues
|
|
27,108,841
|
27,209,233
|
|
|
Cost of revenues:
Advertising
services
|
|
21,979,026
|
20,285,564
|
|
|
Content
production
|
|
420,735
|
-
|
|
|
Advertising
sales
|
|
828,161
|
-
|
|
|
Total cost of
revenues
|
|
23,227,922
|
20,285,564
|
|
|
Operating expenses:
Selling and
distribution
|
|
3,193,628
|
2,901,064
|
|
|
General and
administrative
|
|
10,276,844
|
10,627,564
|
|
|
Impairment loss on
goodwill
|
|
3,378,665
|
-
|
|
|
Loss
on
disposal of Convey
(Note 4)
|
|
28,492,982
|
-
|
|
|
Total operating
expenses
|
|
45,342,119
|
13,528,628
|
|
|
Other operating
income
|
|
234,913
|
910,740
|
|
|
Operating
loss
from continuing
operations
|
|
(41,226,287)
|
(5,694,219)
|
|
|
Other income (expenses)
(Note
7)
|
|
2,028,700
|
(1,025,604)
|
|
|
Loss from continuing operations before provision for
income taxes
|
|
(39,197,587)
|
(6,719,823)
|
|
|
Provision for income
taxes
|
|
339,997
|
604,554
|
|
|
Net loss from continuing operations
|
|
(39,537,584)
|
(7,324,377)
|
|
|
Discontinued operations
(Note
8):
Income from
discontinued operations (including net loss on
disposal of
subsidiaries of $752,204 for the six months ended
June 30, 2010
|
|
40,255,940
|
2,001,226
|
|
|
Provision for income
taxes
|
|
1,055,345
|
128,313
|
|
|
Discontinued operations, net of taxes
|
|
39,200,595
|
1,872,913
|
|
|
Net loss
|
|
(336,989)
|
(5,451,464)
|
|
|
Net loss
attributable to non-controlling interests
|
|
(77,357)
|
(166,894)
|
|
|
Net loss attributable to
XSEL
|
|
(259,632)
|
(5,284,570)
|
|
|
Dividend declared on
Series B
redeemable
convertible preferred shares
|
|
1,382,400
|
1,280,000
|
|
|
Net loss
attributable to
holders of
common shares
|
|
(1,642,032)
|
(6,564,570)
|
|
Net income
(loss) per share:
|
|
|
|
|
|
Basic
and diluted
from continuing
operations — Common shares
|
|
(0.22)
|
(0.05)
|
|
|
Basic
and diluted
from discontinued
operations — Common shares
|
|
0.21
|
0.01
|
|
|
Basic
and diluted
— Common
shares
|
|
(0.01)
|
(0.04)
|
|
|
|
|
|
|
|
Basic
and diluted
from continuing
operations — American Depositary Shares
|
|
(0.44)
|
(0.11)
|
|
|
Basic
and diluted
from discontinued
operations — American Depositary Shares
|
|
0.42
|
0.02
|
|
|
Basic
and diluted
— American
Depositary Shares
|
|
(0.02)
|
(0.09)
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Cash
Flow
|
|
(In U.S.
Dollars)
|
|
6 months
ended
Jun 30, 2010
|
6 months
ended
Jun 30, 2009
|
|
|
|
Unaudited
|
Unaudited
|
|
|
|
|
|
|
|
Net cash (used in) provided by
operating activities
|
|
(1,345,636)
|
2,725,296
|
|
|
Net cash provided by (used in)
investing activities
|
|
10,103,496
|
(22,146,965)
|
|
|
Net cash used in
financing
activities
|
|
(9,357,831)
|
(435,719)
|
|
|
Effect of exchange rate
changes
|
|
285,184
|
(21,397)
|
|
|
Net decrease in cash and cash
equivalents
|
|
(314,787)
|
(19,878,785)
|
|
|
Cash and cash equivalents, as
at beginning of the period
|
|
13,229,958
|
54,088,842
|
|
|
Less: Cash and cash
equivalents at end of period included in assets held for
sale
|
|
388,119
|
(1,880,743)
|
|
|
Cash and cash equivalents, as
at end of the period
|
|
13,303,290
|
32,329,314
|
|
|
|
|
|
|
|
|
Notes to Financial Information
1) 2009 condensed consolidated balance sheet
Information was extracted from the audited financial statements
included in Form 20-F of the Company filed with the Securities and
Exchange Commission on July 15,
2010.
2) Restricted cash
Restricted cash was mainly US dollar cash deposits pledged for
the RMB loan facilities granted by banks for RMB working capital
purposes.
3) Accounts receivable, net of allowance for doubtful debts and
debtors turnover
Debtors turnover for the first half year of 2009 and 2010 were
116 days and 68 days respectively. Our business groups generally
grant 90 days to 180 days as the average credit period to
major customers, which is in line with the industry practices in
the PRC.
4) Consideration receivable from disposal of subsidiaries
On June 30, 2010, the Company had
a current consideration receivable from disposal of subsidiaries of
$20.0 million. This represented the
consideration receivable for the disposal of our 85% shareholding
of Convey in December 2008, net of
$25.6 million and $28.5 million write-off charges recorded in the
second half year of 2009 and first half year of 2010
respectively.
5) Deposits for investments
The Company has paid a deposit of $11.1
million and an advance of $6.4
million to provide services to cable channels in the PRC.
These amounts are refundable unless certain closing conditions are
met.
6) Convertible loan
The Company entered into a secured convertible loan facility for
up to $80.0 million from Patriarch.
As of June 30, 2010, the outstanding
principal amount of the convertible loan was $53.8 million. In 2009, the Company was required
to adopt an authoritative guidance which applies to any
freestanding financial instrument or embedded feature that has all
the characteristics of a derivative for purposes of determining
whether that instrument or embedded feature is indexed to an
entity's own stock. The authoritative guidance states that an
entity shall evaluate whether an equity-linked financial instrument
(or embedded feature) is indexed to its own stock using the
two-step approach of 1) evaluating the instrument's contingent
exercise provisions, if any; and 2) evaluating the instrument's
settlement provisions. After the adoption of the authoritative
guidance, the conversion feature of the convertible loan was
measured at fair value. The change in fair value was recorded in
the other income (expenses) in the consolidated statements of
operations. The Company recorded the convertible loan of
$52.2 million on June 30, 2010 and a non-cash fair value gain on
the convertible loan of $3.8 million
for the first half year of 2010.
7) Other income (expense)
Other income (expense) includes net interest income (expense)
and net other income (expense). The Company recorded a non-cash
fair value gain on convertible loan and warrant of $3.8 million and $1.0
million, respectively, in other income for the first half
year of 2010.
8) Discontinued operations
Due to the sale of XinCheng, EWEO, JCBN China and Profitown in
2010, the closure of EconWorld, Century Media, Upper Step and
Perspective in 2010 as well as the termination of advertising
agency agreement with SXTV in 2010, the historical operating
results were reported as "discontinued operations" for all periods
presented in the accompanying condensed consolidated statement of
operations.
SOURCE Xinhua Sports &
Entertainment Limited