MD & A
THE OVERVIEW OF PERFORMANCE IN THE PAST

The overall business performance of the Group had grown in revenue steadily in the past. The growth was arisen from the expansion of home entertainment business which is the main business of the Group. The expansion in fact was the result of the strategies to increase points of sales (POS) and branches in order to widely-spread access to target customers, and the strategies to increase revenue of the Group. The Group has the policy to increase branches by choosing small points of sale which keep operational cost and business risk at low level. In addition to the increase of the POS, the Group needed to order more products from suppliers. This benefits the Group in terms of discounts and trade conditions from Economy of Scale. The overall profitability trends to rise. Since 2010 the Group began to expand business boundary to media advertising and entertainment business including media channel management, advertising air time selling and investing in Small Room Co., Ltd, operating music business that relates to the Group's main business. The business expansion was for diversification, and increase in income and business opportunities in the future. However it is still at the beginning phrase, Revenue and profit from operations of advertising media and entertainment has not significantly presented in the financial statements of the Group.

In 2010 2011 and 2012 the Group's revenues totaled Baht 952.13 million and 1,112.36 million and 1,435.63 million and net profit totaled Baht 20.29 million, 24.13 million and 53.04 million respectively, resulted as 2.16%, 2.19%, and 3.69% of total incomes of each year.

According to the financial statement of the group, the main assets are current assets which comprises of account receivables and inventory. At the end of 2010, 2011 and 2012, the total assets of the Group was 400.21 million, 498.39 million and 965.83 million baht respectively, and current assets represents about 70-80% of the total assets over the periods. The source of funding of the Group was considered to be consistent with the investment. The Group's funding was from current liabilities which are mainly from account payables representing about 57-70% of total assets.

THE PAST PERFORMANCE

REVENUE

The Group's revenue comprised of 3 categories: 1) sales revenue and service charge 2) revenue from media and entertainment business which were advertisement fee and revenue from movie production and 3) other revenues. Sales Revenue was the main revenue of the group which is 90% of the total revenue in the past.

In 2010, 2011 and 2012 the revenue of the Group totalled Baht 952.13 million and 1,112.36 million and 1435.63 million respectively. The increase of the growth of revenue totalled 26.80%, 16.82% and 29.06% for the previous years respectively. The Growth was mainly due to revenue expansion in sales.

COMPARATIVE REVENUE CHART IN 2010, 2011 AND 2012 ARE AS FOLLOWS.

Revenues Separated financial statements Consolidated financial statements
2010 2011 2012
Million (Baht) Percentage Million (Baht) Percentage Million (Baht) Percentage ร้อยละ จำนวนเงิน (ล้านบาท) ร้อยละ
1. Home Entertainment Business            
Revenues from music selling            
- Movies, Music, Movie Rights
771.36
81.01
931.97
83.79
1,245.00
86.72
- Magazines/ Pocket Books/ Newspapers
113.68
11.94
128.50
11.55
162.58
11.32
Total
885.04
92.95
1,060.47
95.34
1,407.59
98.05
2. Entertainment and Media Business            
- Revenues from Advertisement
21.23
2.23
41.08
3.69
-
-
- Revenues from Movie Production
35.00
3.68
-
-
-
-
Revenues from Administration
56.23
5.91
41.08
3.69
-
-
3. Other Revenues1/
10.86
1.14
10.81
0.97
28.04
1.95
Total
952.13
100.00
1,112.36
100.00
1,435.63
100.00

REMARK: 1/ OTHER REVENUES WERE REVENUES FROM SALES PROMOTION, INTEREST RECEIVABLES, ETC.

Sales Revenues

The Sales Revenues were from home entertainment media which are movies, music and various publications to customers. In 2010, 2011 and 2012 the Group's revenue from sales totalled Baht 885.04 million, 1,060.47 million and 1,407.58 million, respectively. Revenue from sales in the Group during 2010-2012 has increased steadily at 20% from the year before.

Revenue from sales of the Group can be classified into two categories:

1) revenues from movies and music selling
2) revenues from publications selling. The ratio of the revenues from these two categories during 2010-2012 totalled approximately 85 88% and 12 15% of sales revenues respectively. The Group mainly focused on movies and music selling, while publications' selling was conducted due to diversification and increase of efficiency in space management.

Revenues from movies and music selling were the main parts of sales revenues representing about 85-88% of sales revenues and about 85-88% of total revenue. The Revenues from selling of movies and music increased steadily and they were main products that affected the expansion and growth of the Group's total revenue. The reasons of the expansion of the Group's revenue from sales in all categories were from two key factors:
1) increase in points of sales
2) increase in sales revenue in each point of sales.

The Group's points of sales or distribution channels can be divided into 4 categories which are retailing, consignment wholesaling and copyright movie-movie in cinema. In 2012 the sales revenues of the Group from these categories were 71, 27, 1, 1% respectively.

DETAILS OF RETAILING AND CONSIGNMENT SALES ARE AS FOLLOWS:

  2010 2011 2012
Number of Retail shop
188
223
371
Retail shop increasing rate
9.30%
18.62%
66.37%
Revenue from retail shops (millions baht)
585.02
726.30
1,101.60
Average revenue/retail shop/quarter (millions baht)
3.11
3.26
3.30
Revenue growth rate
10.28%
4.82%
1.23%
Number of consignment shops
553
715
1,148
Consignment shop increasing rate
17.65%
29.29%
60.56%
Revenue from consignment (million baht)
207.29
290.77
380.01
Average Revenue/consignment shop/quarter (millions baht)
0.37
0.41
0.46
Revenue growth rate
15.62%
10.81%
12.20%

The increase of points of sales of the Group was the main reason that the growth of overall sales increased. The increase of points of sales allowed the Group to have more capability to reach out to more customers which also allowed more products to be sold.

During 2010-2012 the Group had increased points of sales consistently for both retail shops (on rental agreement) and consignment shops.

The retail shops increased from 223 shops to 371 shops (increased 148 shops) at the end of 2011. The increase rate of consignment shops was higher. There were 433 shops more at the end of 2012 which increased from 715 shops at the beginning to 1,148 shops.

In 2012 the number of the Group's retail shops was 371 and the number of the Group's consignment shops was 1,148. The increase of retail shops was the result of the policies of the Group which potential retail spaces would be considered and rented directly from owners. Also during the year the Group took over 130 points of sales under a big modern trade company from their previous renters. The mentioned points of sales were in sales area in Supermarket zone. While the increase of consignment shops was the result of the increase of branches of trading partners (Lotus Express, Big C Mini and Big C Extra).

The increase of sales at each point of sales was one of the factors of the Group's growth of revenues.

During 2010-2012 the average of revenue has increased consistently for both retail shops and consignment shops. The average revenue per retail shop increased from Baht 3.26 million in 2011 to Baht 3.30 million in 2012, an increase of 4.82% and 1.23% in 2011 and 2012 respectively. The average revenue per consignment increased at a higher rate, from Baht 0.41 million in 2011 to 0.46 million in 2012, an increase of 10.81% and 12.20% in 2011 and 2012 respectively.

The factors of the increase in average revenue for each shop were as follows:

Consumer's behavior had changed as a movie ticket price increased constantly from 100 to about 150 - 200 Baht, there were some consumers preferred to buy movies on high quality disc for home entertainment.

Launch of movies disc was shorter, it takes only 1-2 months after the movies was out from theaters which took about 2-3 months in the past. Therefore some consumers decided to wait to buy movie disc instead of watching movies from theaters. As well as more consumers who bought quick launched pirate movies that recorded by zoom camera in theaters trends to wait to buy copyrights movies on disc.

The Group's more efficient management, especially inventory management and fast speed of distribution, was a key factor in having more revenue and business competitive.

Sales of disc of popular talk shows, such as Thai Standup Comedy by Note Udom or movies that just finished from cinemas, normally occur around the first and second day of the release at points of sales. Consequently, fast distribution time and stock management increased opportunities to make more sales and revenue. For stock management the Group had analyzed consumer's behavior in different areas to estimate appropriate stock amount regarding number and type of items to be distributed in fast distribution time.

The Group used more sales promotion and encouraging customers to buy at points of sales such as managing space at the front of the shop, creating ergonomic layouts for customers to access to products, using discount promotion e.g. buy 4 movies to get 1 free movie.

In 2012, the Group had average revenue from each point of sales from retail stores and consignment store at Baht 3.30 million and 0.46 million respectively, which the revenue's growth rate had increased of number of stores, especially at quarter 3 that the Group opened more 130 points of sales. The newly opening points of sales needed time for products and sales force preparation. This resulted the sales from these shops could not be high at the beginning.

Revenues from advertising media and entertainment business

Revenues from advertising media and entertainment business in consolidated financial statement of the Group displayed only the performance of DNA Revolution Co., Ltd., while the revenues of the Group and Small Room Co., Ltd. which business is about music and music related business shall be shown separately in joint venture allocation.

Revenue from media and entertainment business of the Group has recognized in 2010 as Baht 56.22 million and 41.08 million in 2011 and 31.30 million in 2012 which could be put into two categories, which were the revenues from advertising and from production of movies. Revenue from advertising during 2010-2012 was created from the management of the group on media channels of satellite TV which The Group had produced a TV show called Yim TV, Thai country music, with MV Television (Thailand) Co., Ltd. The allocation of income from the transaction was recognized by the Group. However, the transaction was canceled in September 2011 because the popularity was low. In 2012, the revenue from advertisement was received as the Group signed an agreement with A. C Record Co., Ltd. to be able to sell advertising air time at the beginning of hourly news program on the radio of Thailands Public Relations Department for a period of two years from 1 January 2012 to 31 December 2013.

The revenues from King Royal movie production of Baht 35 million occurred in 2553 was received by being hired to produce 7 movies for a government agency. This revenue was discontinuous but it was recognized as a business opportunity, also the Group can use it as a reference in the future.

Other Revenues

Other revenues consist of:

  1. The revenue of discount promotion obtained from suppliers or vendors such as display incentive and other sales promotions
  2. Rental income from retail space. The Groups other revenues were approximately Baht 10 million per year in the past 3 years. However, in 2012 as the Group focused more on running sales promotions with partners, the revenues in this segment had increased. The other revenues in 2012 totalled Baht 28.4 million.
EXPENSES

The cost of the Group in 2010, 2011 and 2012 can be divided into 3 groups based on sources of revenue which comprises of sales cost,

ADVERTISING COST AND COST OF FILM PRODUCTION. THE DETAILS ARE AS FOLLOWS.

  2010 2011 2012
1. Cost of sales (million baht)
665.39
775.76
1,002.45
% of sell revenue
75.18%
73.15%
71.22%
2. Cost of advertisement (million baht)
17.71
36.61
19.01
% of advertising revenue
83.44%
89.11%
69.64%
3. Cost of movie production (million baht)
29.11
-
-
% of revenue from movie production
83.16%
-
-

Cost of Sales

Cost of sales of the Group mainly comprised of the cost of the product, representing approximately 95-98% of total cost of sales of the Group in the past. However, the cost of products in movies/music categories, which copyrights belong to others, occurred because the Group had bought finished products from others. But the Cost of movies that the Group owned copyrights occurred because of the copy rights fee that the Group needed to pay according to the allocation ratio and the cost from disc production services fee. Besides, the cost of sales of the Group comprised of the cost of lost products which were recorded according to the actual lost.

In general, the sales revenue was comprised of the sales of product rights of others and the sales of product rights of the Group. The percentage of the cost of sales to sales revenue of products rights of others was 80%, while the percentage of the cost of sales to sales revenue of products that copyrights belong to the Group was approximately 55-65% depending on the amount of sales. The cost of products comprised of copyrights fee according to the allocation ratio of sales which were fixed cost and production services fee which varied according to the amount of orders, therefore when sales from these product categories increased, the cost of sales to sales revenue ratio trended to decrease.

In 2010, 2011 and 2012, the Groups cost of sales totaled Baht 665.39 million, 775.76 million and 1,002.45 million, equivalent to 75.18%, 73.15% and 71.22% of the sale revenue of each period, respectively. The ratio of cost of sales to revenue from the sales of the Group had continued to decline constantly, due to the two following factors:

  1. Increase in bargaining power over price and commercial conditions to supply products owned by others because of more purchase orders and the Group trends to increase market share in the business.
  2. Increase in proportion of sales of proprietary products, which the cost of sales to sales revenue was less than products under copyright of others, the cost of proprietary products trends to be lower due to economic of scale from increasing product sales.

The Group has policy to promote the sales of products that the Group owns copyrights by making sales area more attractive, giving commissions to motivate local sales staff and placing importance on copyright selection of quality movies to meet customer needs. As a result, total sales of the Group's revenue from license sales increased from about 3% in 2010 to 15% in 2011.

Cost of Advertisement

The cost of Advertisement in 2010 and 2011derived from administration expenses of advertising sales for satellite television. The cost structure consisted of Channel Rental rates, production fee, Microwave transmission (for broadcasting), channel tuning fee, and commissions on advertising fee which were Baht 17.71 million and 36.61 million, representing 83.44% and 89.11% of revenues from advertisement in the period. Most expenses except commissions were fixed cost, so the ratio of advertising costs to advertising revenue mainly depended on revenue from advertising. In 2011, ratio of advertising expense to revenue trended to decrease, reflected by lower popularity of broadcasting programs. As the result, the Group decided to quit advertising sales business in satellite television in September 2011.

In 2012, the cost of advertising comprised of administration of selling advertisement air time at the beginning of hourly news program on the Radio of Thailand's Public Relations Department. The advertisement cost structure consists of airing time administration cost, channel rental rate, commissions on advertising fee and joint venture allocation of Baht 1.25 Million per month, most expense except advertising fee were fixed cost. In 2012, the advertising fee totalled Baht 19.01 million, representing 69.64% of advertising fee. The cost of advertisement to revenue ratio shall increase or decrease depending on ability to sell advertisement air time of the Group.

Cost of Movie Production

Cost of movie production derived from the Group had hired companies of many leading directors such as Yuthana Mookdasanit, Pongpat Watchirabanjong, Ping Lamprapleang, Pratya Pinkleaw and Nonthree Nimibutr to produce movies for the Group. In 2010, the cost of production of The Group totaled Baht 29.11 million representing 83.16% of movie production revenue. The expense to revenue ratio of movie production in the future may be different from 2010 as the Group also offered to provide movie production services to customers in the future.

SELLING AND ADMINISTRATIVE EXPENSES

The cost of sales of the Group during 2010, 2011 and 2012 was Baht 211.82 million, 260.90 million and 365.87 million, representing 22.50%, 23.61% and 25.43% of the total revenue in each year, respectively. The cost of sales comprises of selling expenses and administrative expenses, representing approximately 60% - 65% of the selling expenses and administrative expenses during the period.

THE SELLING AND ADMINISTRATIVE EXPENSES ARE SHOWN AS FOLLOWS:

  2010 2011 2012
Selling Expenses (millions baht)
134.15
156.30
251.77
% of revenue (excluding other income).
14.25%
14.19%
17.50%
Administrative Expenses (millions baht)
77.68
103.99
114.11
% of revenue (excluding other income)
8.25%
9.44%
7.93%
Selling and Administrative Expenses (millions baht)
211.82
260.09
365.87
% of revenue (excluding other income).
22.50%
23.63%
25.43%
% Selling Expenses /Selling and Administrative Expenses
63.33%
60.09%
68.81%

Selling Expenses

Cost of sales of the Group consisted of staff salaries, commissions, space rental fee and depreciation of sales equipment (shelves, audio equipment store), the ratio of these 4 categories were approximately at 36: 17: 41: 6. The cost varies to sales revenue at 21% of the selling cost.

In 2010, 2011 and 2012, the Group's cost of sales was Baht 134.15 million and Baht 156.30 million, 251.77 million, representing 14.25%, 14.19% and 17.50% of the total revenue of the Group during the periods respectively. The ratio of cost of sales to revenue was likely to fall slightly, because part of the cost of such expenses didn't vary by growth of income as stated before. However, during 2010-2011, the Group expanded point of sales continuously, having an effect on the staff expense which although varied directly with sales has increased as well.

Administration Expenses

Administrative expenses of the Group included staff salaries, employee benefits, expenses in administration, office expenses and other expenses. The key administration expense in the Group did not vary directly with revenue. Approximately 50% of the administration expense associated with employees.

In 2010, 2011 and 2012 the Group's administrative expenses totalled Baht 77.68 million and Baht 103.99 million, 114.11 million, representing 8.25%, 9.44%, and 7.93% of the total revenue of the Group, respectively. In 2011 and 2012, the administrative costs have increased at a rate of 33.88% and 9.73% the previous year. The increased ratio of administrative expenses to total revenue of the Group in 2554 was resulted by the Group's decisions to set budgets for Copyright depreciation, inventories' depreciation, loss in concert production, building renovation of Baht 7 million, cost of system improvement, and costs associated with the preparation for company registration in the Stock Exchange.

Profitability

The profitability of the Group as a whole has continued to rise. The net profit of the Group for 2010, 2011 and 2012 was Baht 20.29 million, 24.13 million and 53.04 million respectively, representing 2.16%, 2.19% and 3.69% of total income in each period, respectively.

The increase of profitability in 2011 compared to 2010 was mainly a result of effective management. Although the Group had managed products' cost better than 2011, according to the decrease in cost of sales and administrative expenses for 2012, the increase in the cost of administration, as mentioned above resulted the Group's net profit margin remained at similar levels. While profitability in 2012 were increased due to cost management had improved as seen from the gross margin of the Group, which was approximately 25% of total revenue during 2010 and 2011 which has increased to about 28% of total revenue in 2012.