Pacific Online Ltd. Announces Annual Results for the Year Ended 31 December 2010

SHENZHEN, China, March 28, 2011 /PRNewswire/ -- Pacific Online Ltd. (HKSe: 543) (“Pacific Online,” the “Company” or the “Group”), a leading internet content provider in China, today announced its financial results for the twelve months ended December 31, 2010 and the fiscal year of 2010.

Fiscal Year Ended December 31, 2010 Financial Highlights

• Total revenues increased 31.4% year-over-year to RMB508.6 million
• Gross profit increased 30.4% year-over-year to RMB369.8 million
• Operating profit increased 32.4% year-over-year to RMB235.5 million
• Net profit increased 48.7% year-over-year to RMB200.7 million
• Basic and diluted earnings per share were RMB20.61 cents and RMB20.21 cents, respectively, as compared with RMB13.92 cents and RMB13.09 cents, respectively in 2009
• Net cash flow from operations increased 38.2% to RMB197.2 million

Mr. Waiyan Lam, Chairman and CEO of Pacific Online Limited, commented, “We are proud to report strong results for the 2010 fiscal year.  Our strong market position allowed us to profit from the improvements in both the global economy and the advertising industry in China, and we made great strides in our business over the course of the year.  We improved our user content through the contributions of our growing editorial team, enhanced the functionality of our forums, expanded our online communities, and added even more services for companies seeking to increase their online advertising.

Newly added features this year include forums and social networking elements that keep users on our sites for longer and build their interest in our content.  Chinese consumers especially enjoy the feel of a true community on our online portals, the interactivity of which helps to keep user retention rates high.  Keeping pace with the growing use of mobile technology, we have also optimized our portals for use on mobile devices, including the newest generations of smartphones and tablet devices.

All of our portals showed strong growth during 2010.  In particular, our PCauto portal overtook PConline as our largest portal.  Revenue for this segment increased 57.0% from RMB 149.9 million in 2009 to RMB 235.3 million in 2010.  This milestone demonstrates our successful planning and execution and justifies our early expectation that China’s automobile industry would become a major force in China’s economy.  Other portals such as PCgames, PClady, and PCbaby are also benefitting from increased use by the country’s growing middle-class to research new consumer goods and services, and we expect good contributions from these portals in 2011.  We can also attribute our strong results to our unparalleled reputation, which we built as first-movers in this space years ago.  Our great content draws users, and user stickiness continues to be one of our hallmark advantages.

PConline, the Group’s IT portal, continued to grow moderately.  The IT industry was the earliest industry to move from traditional advertising to digital advertising, and it continues to migrate online.  As the industry leader in this field, the Group’s growth is reflective of the growth in advertising spending from IT companies.  Continuous innovation and new product introductions in consumer electronics will continue to stoke market demand and we believe we will continue to prosper in this segment.

Overall, our company is benefitting from several important trends in internet usage and online advertising, namely, the continued roll-out and take-up of broadband in China, the ever growing internet user base, the adaptation of mobile technology- including smartphones and tablets, and the strength of online advertising.  As the number of internet users in China continue to grow, we believe we are especially well-positioned to thrive in this environment.

We also plan to continue investing for our future growth. In 2010, we purchased a property in Guangzhou to prepare for further expansion, enhance the working environment for our employees, and attract top talents in the markets. We also continued to recruit new employees with great potential, which we leverage by providing education and proprietary training programs to develop them and all of our employees.  As always, we expect to invest aggressively in technology and R&D to further boost our content to make it as attractive and as helpful — and entertaining — as possible for our users.

Given the positive outlook for the online advertising market in China in 2011 and the expected longer-term market growth, we are confident that we have the platform, corporate strategy and value proposition that will ensure our continued success over the long-term.  In 2011, we expect to further expand into potential new areas and increase our share in the markets we already serve with great features that will better serve our customers’ needs and desires. We remain confident that our strategies, innovations, technology, and operations will continue to drive growth and profitability that will create value for shareholders over time.”

Full Year 2010 Financial Results

Revenue

Revenue increased 31.4% from RMB387.0 million for the year ended 31 December 2009 to RMB508.6 million for the year ended 31 December 2010.

Revenue for PConline, the Group’s IT and consumer electronics portal, increased 10.5% from RMB205.4 million in 2009 to RMB226.9 million in 2010. The increase in revenues from PConline was mainly due to a general increase in the advertising budgets, and thus increase in the Group’s revenue, in China.

Revenue for PCauto, the Group’s automobile portal, increased 57.0% from RMB149.9 million in 2009 to RMB235.3 million in 2010. The increase in revenues from PCauto was mainly due to a growth of the automobile industry in China and their corresponding need to advertise, and new features on the Company’s auto portal that helped to attract a larger number of users.

Revenue for other operations, including the portals PCgames, PClady, PCbaby, and others, increased by 46.2% from RMB31.7 million in 2009 to RMB46.4 million in 2010. Revenues from this segment increased significantly as consumer goods companies start to experiment with and direct a greater share of their advertising budgets to internet advertising.

As a percent of total revenue, PConline accounted for 53.1% in 2009 and 44.6% in 2010 and PCauto accounted for 38.7% in 2009 and 46.3% in 2010, and other operations accounted for 8.2% in 2009 and 9.1% in 2010. The shift for the largest share of revenue from PConline to PCauto in 2010, together with the increase in other operations, shows the benefit and gradual success of the Group’s diversification strategy, with improving balance among the industry sectors that the Company serves.

Cost of Revenue

Cost of revenue increased 34.3% from RMB103.4 million in 2009 to RMB138.8 million in 2010. The gross profit margin was 72.7% for 2010 and 73.3% in 2009. The increase in cost of revenue was mainly due to an increase in the number of employees to support the Group’s expansion plans.

Operating Expenses

Selling and Marketing Costs

Selling and marketing costs increased 18.5% from RMB52.5 million for 2009 to RMB62.2 million for 2010. The increase was primarily due to increase in staff costs to accommodate a larger client base.

Administrative Expenses

Administrative expenses increased by 32.9% from RMB39.1 million in 2009 to RMB52.0 million in 2010. The increase was mainly due to an increase in expenses associated with being a publicly listed company, including compliance costs, professional fees, and an increase in staff.

Product Development Expenses

Product development expenses increased 22.7% from RMB17.1 million in 2009 to RMB20.9 million in 2010. The increase was primarily due to higher staff costs as the Group increased its number of employees in research and development.

Operating Profit before Share-based Compensation Expenses (non-GAAP)

Operating profit before share-based compensation expenses (non-GAAP) was RMB244.1 million in 2010, representing 32.1% increase from RMB184.8 million in 2009.

Finance Income and Cost

Net finance income was RMB 5.8 million in 2009 and RMB 3.5 million in 2010. The net finance income was mainly due to interest income on short-term bank deposits.

Income Tax Expense

Income tax expense decreased 21.5% from RMB48.8 million in 2009 to RMB38.3 million in 2010. The decrease was due to reversal of the over-provided dividend withholding tax from different tax rates in 2009 and 2008.

Net Profit

Net profit increased 48.7% from RMB135.0 million in 2009 to RMB200.7 million in 2010.

Basic and diluted earnings per share were RMB20.61 cents and RMB20.21 cents, respectively, as compared with RMB13.92 cents and RMB13.09 cents, respectively in 2009.

Liquidity and Financial Resources

As of 31 December 2010, the Group had short-term bank deposits and cash totalling RMB444.5 million, compared with RMB444.0 million as of 31 December 2009.

In 2010, net cash flow from operating activities was RMB197.3 million, net cash used in investing activities was RMB257.4 million, net cash flow used in financing activities was RMB86.1 million, with a net decrease in cash and cash equivalents of RMB146.3 million for the year 2010.

In 2009, net cash flow from operating activities was RMB142.7 million, net cash used in investing activities was RMB2.0 million, net cash flow used in financing activities was RMB314.1 million, with a net decrease in cash and cash equivalents of RMB173.4 million for the year 2009.

The company had no external debt as of 31 December 2009 and 2010.

Conference Call

Management will host a conference call to discuss the results at 9:00 AM Hong Kong time on March 29, 2011 (9:00 PM Eastern Time on Monday, March 28, 2011).  Mr. Lam Wai Yan, Chairman and CEO, and Mr. Jeff Wang, Chief Financial Officer, will discuss the results and take questions following the prepared remarks.  

A live and archived webcast of the conference call will be available on the investor relations section of the Group’s website at: http://corp.pconline.com.cn.  

About Pacific Online Ltd. (corp.pconline.com.cn)

Pacific Online is one of the leading Internet content providers in the PRC in terms of total advertising revenue.  The Company operates six vertically-integrated portals, which, according to industry practice, are portals that focus on specific content.  Among the Company’s portals are PConline, the largest portal in the PRC specializing in IT product-related content, in terms of advertising revenue, and PCauto, the largest portal in the PRC specializing in automobile-related content, in terms of advertising revenue.  

Safe Harbor Statement

This press release contains forward-looking statements which are subject to risks and uncertainties. Actual results may differ from those discussed in the press release.  In addition, any projections about the Company's future performance represent management's estimates as of today, March 28, 2011. The Company assumes no obligation to update these projections in the future as business and market conditions change.

SOURCE Pacific Online Ltd.