OREANDA-NEWS. On 14 August 2009 CTC Media, Inc. (“CTC Media” or “the Company”) (NASDAQ: CTCM), Russia’s leading independent media company, announced its unaudited consolidated financial results for the second quarter and six months ended June 30, 2009.

 

Three Months

 

 

 

Six Months

 

 

 

Ended June 30,

 

 

Ended June 30,

 

 

(USD 000’s except per share data)

2008

2009

 

Change

 

2008

2009

 

Change

 

 

 

 

 

 

 

 

 

 

Total operating revenues

USD 172,770

USD 113,894

 

-34.1%

 

USD 309,516

USD 218,672

 

-29.4%

Total operating expenses

(102,735)

(70,065)

 

-31.8%

 

(186,449)

(138,260)

 

-25.8%

 

 

 

 

 

 

 

 

 

 

OIBDA(*)

73,440

46,509

 

-36.7%

 

128,676

85,673

 

-33.4%

OIBDA margin

42.5%

40.8%

 

-1.7%

 

41.6%

39.2%

 

-2.4%

 

 

 

 

 

 

 

 

 

 

Net income attributable to CTC Media, Inc. stockholders

48,816

30,335

 

-37.9%

 

90,529

53,647

 

-40.7%

Diluted earnings per share

USD 0.31

USD 0.19

 

-38.7%

 

USD 0.57

USD 0.34

 

-40.4%

*OIBDA is defined as operating income before depreciation and amortization (excluding the amortization of programming rights and sublicensing rights). OIBDA margin is defined as OIBDA divided by total operating revenues. Both OIBDA and OIBDA margin are non-GAAP financial measures. Please see the accompanying financial tables at the end of this release for a reconciliation of OIBDA to operating income and OIBDA margin to operating margin.

SECOND QUARTER FINANCIAL HIGHLIGHTS

• Total revenues down 34% year-on-year in US dollar terms (down 10% year-on-year in ruble terms) to USD 113.9 million

• Russian advertising revenues down 12% year-on-year in ruble terms

• Total operating expenses down 32% year-on-year in US dollar terms (down 7% year-on-year in ruble terms) to USD 70.1 million

• OIBDA of USD 46.5 million with an OIBDA margin of 40.8%

• Net income of USD 30.3 million, fully diluted earnings per share of USD 0.19

• Net cash position of USD 35.0 million

SECOND QUARTER OPERATING HIGHLIGHTS

• Average combined 4+ audience share in Russia up year-on-year to 13.4% from 12.6%

• Target audience viewing shares up for all three Russian networks on a sequential and year-on-year basis

• CTC was the most watched channel in Russia in prime time by 25-54 year olds with kids for the first time

• CTC was the third most watched channel in Russia by 6-54 year olds for the first time since 2006

Anton Kudryashov, Chief Executive Officer of CTC Media, commented: “Despite the fact that the ongoing weak economic environment adversely impacted advertising spending in the second quarter, we have continued to significantly outperform the market. Our Russian advertising revenues, which account for over 90% of total revenues, were down 12% year-on-year in ruble terms in the second quarter, compared to an estimated 21% decline in the overall Russian television advertising market according to Video International. The year-on-year decline in the consolidated results again reflected the substantial year-on-year weakening of the ruble and other operating currencies against the US dollar reporting currency.”

“Our outperformance of the market was driven by healthy sell-out and power ratios, as well as rising target audience viewing shares for our three complementary Russian networks. At the same time we managed to substantially reduce our operating costs year-on-year and the measures that we have taken in 2008 and into 2009 have enabled us to maintain an OIBDA margin of over 40%. Furthermore, we remain in a net cash financial position.”

“Despite the limited levels of forward visibility, we do expect to continue to outperform the Russian television advertising market in the second half of 2009. We also continue to expect organic costs to be flat year-on-year in ruble terms for the full year, despite the fact that we are now investing in programming for the Fall schedules, in order to build on the momentum of our growing audience shares and to enhance our competitive position.”

Operating Review

Revenues **

 

Three Months

 

 

 

Six Months

 

 

 

Ended June 30,

 

 

Ended June 30,

 

 

(USD 000’s)

2008

2009

 

Change

 

2008

2009

 

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating revenues:

 

 

 

 

 

 

 

 

 

 

 

 

CTC Network

 

USD 109,863

 

USD 71,655

 

 

-34.8%

 

 

207,694

 

142,210

 

 

-31.5%

 

 

Domashny Network

16,211

10,884

 

-32.9%

 

31,678

21,450

 

-32.3%

 

 

DTV Network

12,220

9,183

 

-24.9%

 

12,220

17,850

 

46.1%

 

 

CTC Television Station Group

26,394

15,873

 

-39.9%

 

45,993

26,127

 

-43.2%

 

 

Domashny Television Station Group

4,366

2,217

 

-49.2%

 

7,565

3,957

 

-47.7%

 

 

DTV Station Television Group

1,804

1,015

 

-43.7%

 

1,804

1,789

 

-0.8%

 

 

CIS Group

1,722

2,836

 

64.7%

 

2,372

4,880

 

105.7%

 

 

Production Group

190

231

 

21.6%

 

190

409

 

115.3%

 

 

Total operating revenues

USD 172,770

USD 113,894

 

-34.1%

 

USD 309,516

USD 218,672

 

-29.4%

 

** Segment revenues are shown from external customers only, net of intercompany revenues of USD 18.9 million in the second quarter of 2008, USD 15.9 million in the second quarter of 2009, USD 19.8 million in the first six months of 2008, and USD 23.2 million in the first six months of 2009, most of which related to revenues from the Production Group that have been eliminated in the consolidation of the Company’s revenues.

Total operating revenues for the three months ended June 30, 2009 were down 34% year-on-year in dollar terms. The second quarter results in both 2008 and 2009 included full quarterly contributions by DTV Group in Russia and Channel 31 Group in Kazakhstan, which were both acquired in the first half of 2008.

The reported decline in revenues reflected the underlying weakness in the advertising markets, as well as the year-on-year depreciation of the Company’s principal operating currency (the ruble) against the Company’s reporting currency (the US dollar). The depreciation had a negative impact of approximately 27% on the Company’s ruble denominated sales. Advertising sales in Russia, which accounted for 93% of total second quarter revenues in 2009 and 95% in 2008, were down 12% year-on-year in the second quarter in ruble terms.

The year-on-year development in advertising revenues for the Russian Television Station Groups reflected the sharper decline in the regional advertising markets in Russia when compared with the national advertising market, and was due to the weighting of spending by large advertisers to national campaigns.

CIS Group revenues were up 65% year-on-year in the second quarter of 2009 due to increased advertising prices and sell-out rates for Channel 31 in Kazakhstan, which were offset by the year-on-year depreciation of the Kazakh tenge against the US dollar. Channel 31 generated over 90% of CIS Group revenues in the quarter.

Share of Viewing in Target Demographics

 

 

Average Audience Shares (%)

 

Q2 2008

 

Q1 2009

 

Q2 2009

 

 

 

 

 

 

 

 

CTC Network (all 6-54)

11.6

 

11.4

 

12.5

 

Domashny Network (females 25-60)

2.7

 

2.6

 

2.9

 

DTV Network (all 25-54)

2.3

 

2.2

 

2.4

 

Channel 31 (all 6-54)

13.3

 

12.7

 

11.7

 

 

 

 

 

 

 

 

 

 

Each of the Russian networks delivered higher target audience viewing shares in the second quarter, both on a sequential and year-on-year basis.

The flagship CTC channel substantially increased its target audience share in the second quarter and, for the first time since 2006, was the third most watched channel by 6 to 54 year olds. CTC was also the most watched channel in prime time by 25 to 54 year olds with kids, and maintained its overall position as the fourth most watched free-to-air channel in Russia. The rising ratings were driven by the continued success of the ‘Daddy’s Girls’ and ‘Ranetki’ series in prime time and supported by a well-balanced broader programming schedule.

Domashny’s audience share also increased year-on-year and quarter-on-quarter due to the strong performance of the CTC hit series ‘Born Not Pretty’, as well as the late prime time weekday slot featuring foreign series such as ‘Desperate Housewives’.

DTV has been focused since January 2009 on the 25-54 year old target group. The share of viewing in the revised demographic increased in the second quarter following the continued success of locally produced ‘Marital Fiction’, as well as the late prime time slots for Russian and foreign criminal investigation and action formats such as ‘The Investigators’, ‘The Trace’, and ’Law and Order’.

Expenses

 

Three Months

 

 

 

Six Months

 

 

 

 

Ended June 30,

 

 

Ended June 30,

 

 

(USD 000’s)

2008

2009

 

Change

 

2008

2009

 

Change

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

Direct operating expenses

USD 10,206

USD 7,635

 

-25.2%

 

USD 16,996

USD 14,982

 

-11.8%

 

Selling, general & administrative expenses

22,897

16,928

 

-26.1 %

 

41,971

35,250

 

-16.0%

 

Amortization of programming rights

61,799

41,415

 

-33.0%

 

116,222

78,298

 

-32.6%

 

Amortization of sublicensing rights and own production cost

4,428

1,407

 

-68.2%

 

5,651

4,469

 

-20.9%

 

Depreciation & amortization

3,405

2,680

 

-21.3%

 

5,609

5,261

 

-6.2%

 

Total operating expenses

USD 102,735

USD 70,065

 

-31.8%

 

USD 186,449

USD 138,260

 

-25.8%

 

Total operating expenses for the three months ended June 30, 2009 were down 32% year-on-year in dollar terms. The reported decrease in expenses reflected the year-on-year reduction in programming amortization expenses, as well as the depreciation of the Company’s ruble and other operating currencies against the US dollar reporting currency. Total operating expenditure was down 7% year on year in ruble terms in the second quarter and included full quarterly contributions from DTV Group and Channel 31 Group in both 2008 and 2009.

Direct operating expenses were down 25% year-on-year in the second quarter in dollar terms, while selling, general and administrative costs were down 26%.

Programming expenses decreased by 33% year-on-year and represented 36% of revenues, which was unchanged from the second quarter of 2008 as a percentage of revenues. The year-on-year decrease reflected a reduction in programming impairment charges from USD 4.0 million to USD 1.0 million, and a USD 1.5 million reduction in amortization charges due to the changes in the Company’s amortization policy for certain types of Russian-produced programming from the beginning of 2009. When excluding the effect of the amortization policy changes, programming expenses were down 31% year-on-year in the second quarter in US dollar terms.

The 68% year-on-year decline in sublicensing and own production costs primarily reflected the lower cost of in-house produced series and sitcoms that were sold to third party broadcasters in Ukraine.

Consolidated OIBDA was therefore lower year-on-year at USD 46.5 million (Q2 2008: USD 73.4 million) but the OIBDA margin declined by less than two percentage points to 40.8% (Q2 2008: 42.5%).

Group depreciation and amortization charges decreased by 21% year-on-year to USD 2.7 million (Q2 2008: USD 3.4 million) in the second quarter, and consolidated operating income totaled USD 43.8 million (Q2 2008: USD 70.0 million).

The Company’s pre-tax income amounted to USD 41.8 million (Q2 2008: USD 70.8 million) in the quarter. The effective tax rate decreased year-on-year in the second quarter to 26% (Q2 2008: 30%) mainly due to the decrease in statutory income tax rates in Russia (from 24% to 20%) and Kazakhstan (from 30% to 20%) from the beginning of 2009.

Consolidated net income attributable to CTC Media, Inc. stockholders therefore totaled USD 30.3 million (Q2 2008: USD 48.8 million) in the second quarter and fully diluted earnings per share amounted to USD 0.19 (Q2 2008: USD 0.31).

Cash Flow

The Company’s net cash flow from operations totaled USD 50.0 million in the first six months of 2009 (first six months of 2008: USD 66.9 million) and reflected the net effect of lower advertising sales and lower expenses in the first half of 2009.

Cash used in investing activities totaled USD 18.7 million during the first six months of 2009 (first six months of 2008: USD 320.3 million) and included USD 11.0 million in payments related to the acquisitions of Costafilm and Soho Media, as well as the purchasing of equipment and software for the Company’s new digital platform technology center in Moscow. The investments in the first half of 2008 included the acquisition of the DTV Group in Russia, the Channel 31 Group in Kazakhstan, the Costafilm and Soho Media production companies in Russia, and a number of local owned-and-operated stations in Russia.

Cash used for financing activities amounted to USD 35.7 million in the first half of the year (first six months of 2008: USD 1.8 million). This included a USD 33.8 million part repayment of the syndicated loan, which the Company drew down in July 2008 to finance the acquisition of DTV Group.

The Company’s cash and cash equivalents amounted to USD 91.7 million at June 30, 2009, compared to USD 98.1 million at the end of 2008 and USD 62.5 million at June 30, 2008.

Borrowings

The Company’s total borrowings and accrued interest amounted to USD 56.7 million (June 30, 2008: USD 155.5 million) at the end of the reporting period, compared to USD 90.6 million at the end of 2008. The Company therefore had a net cash position, which is defined as cash and cash equivalents less interest bearing liabilities, of USD 35.0 million (June 30, 2008: net debt of USD 93.0 million) at the end of the reporting period, compared to a net cash position of USD 7.5 million at the end of 2008.

Conference Call

The Company will host a conference call to discuss its second quarter financial results today, Thursday, August 6, 2009, at 9:00 a.m. ET (5:00 p.m. Moscow time, 2:00 p.m. London time). To access the conference call, please dial +1 718 247 0880 (US/International) or +44 20 7138 0845 (UK/International). The pass code for the call is 4810933. A live webcast of the conference call will also be available via the investor relations section of the Company's corporate web site - www.ctcmedia.ru/investors. The webcast will also be archived on the Company’s web site for two weeks.

Use of Non-GAAP Financial Measures

To supplement its consolidated financial statements, which are prepared and presented in accordance with US GAAP, the Company uses the following non-GAAP financial measures: OIBDA (on a consolidated and segment basis) and OIBDA margin. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. For more information on these non-GAAP financial measures, please see the accompanying financial tables included at the end of this release.

The Company uses these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. The Company believes that these non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding certain expenses that may not be indicative of its recurring core business operating results, meaning its operating performance excluding certain non-cash charges. These metrics are used by management to further its understanding of the Company’s operating performance in the ordinary, ongoing and customary course of operations. The Company also believes that these metrics provide investors and equity analysts with a useful basis for analyzing operating performance against historical data and the results of comparable companies.

OIBDA and OIBDA margin. OIBDA is defined as operating income before depreciation and amortization (exclusive of amortization of programming rights and sublicensing rights). OIBDA margin is defined as OIBDA divided by total operating revenues. The most directly comparable GAAP measures to the non-GAAP measures of OIBDA and OIBDA margin are operating income and operating income margin, respectively. Unlike operating income, OIBDA excludes depreciation and amortization, other than amortization of programming rights and sublicensing rights. The purchase of programming rights is the Company’s most significant expenditure that enables it to generate revenues and OIBDA includes the impact of the amortization of these rights. Expenditures for capital items such as property, plant and equipment have a materially less significant impact on the Company’s ability to generate revenues. For this reason, the Company excludes the related depreciation expense for these items from OIBDA. Moreover, a significant portion of its intangible assets were acquired in business acquisitions. The amortization of intangible assets is therefore also excluded from OIBDA.