CTC MEDIA REPORTS SECOND QUARTER 2008 FINANCIAL RESULTS

29.07.2008
Moscow, Russia – July 29, 2008 – CTC Media, Inc. (NASDAQ: CTCM), Russia's leading independent media company, today reported financial results for the three- and six-month periods ended June 30, 2008.

- SECOND QUARTER -
- Consolidated Revenue Increases 54.1% to $172.8 Million -
- OIBDA* of $73.4 Million -
- Net Income of $48.8 Million, $0.31 Earnings Per Share -

US$ 000’s, except per share data

Three months ended
June 30,




Six months ended
June 30,



 

2007

2008


Change 


2007

2008


Change 

 
 
 
 
 
 
 
 
 
 

Total operating revenues

$112,147

$172,770

 

54.1%

 

$216,268

$309,516

 

43.1%

Total operating expenses**

(66,853)

(102,735) 

 

53.7%

 

(132,458)

(186,449) 

 

40.8%

 
 
 
 
 
 
 
 
 
 

OIBDA*

51,422

73,440

 

42,8%

 

95,710

128,676

 

34.4%

 
 
 
 
 
 
 
 
 
 

Net income

$30,692

$48,816

 

59.1%

 

$58,815

$90,529

 

53.9%

Earnings per share

$0.19

$0.31

 

63.2%

 

$0.37

$0.57

 

54.1%

*OIBDA is defined as operating income before depreciation and amortization (exclusive of amortization of programming rights and sublicensing rights). OIBDA is a non-GAAP financial measure. Please refer to    Attachment A for a reconciliation of OIBDA to net income.

**Starting from the second quarter of 2008, CTC Media changed its previous programming rights amortization policy for Russian-produced series with twenty or more episodes. The company’s previous policy was to amortize 60% after the first run, 30% after the second run and 10% after the third run when the license provides for three or more runs. After introduction of the new programming rights amortization policy, series with twenty or more episodes are amortized 75% after the first run and 25% after the second run, which is reflective of the company’s anticipated programming schedule. The effect of the change in amortization policy amounted to an additional $5.7 million of amortization of programming rights in the three months ended June 30, 2008.

Financial Highlights

• Consolidated revenues increased 54% to $172.8 million in the second quarter and 43% to $309.5 million in the first six months of 2008
• OIBDA increased 43% to $73.4 million in the second quarter and increased 34% to $128.7 million in the first six months of 2008
• Net income increased 59% to $48.8 million in the second quarter and increased 54% to $90.5 million in the first six months of 2008
• $0.31 and $0.57 fully diluted earnings per share for the three- and six-month periods ended June 30, 2008

Corporate Highlights
 
• Closed syndicated loan facility for $135 million and used proceeds to repay the remaining debt to MTG associated with the DTV acquisition
• Anton Kudryashov appointed Chief Executive Officer effective August 4, 2008
• Vladimir Kartashkov appointed General Director of DTV

Alexander Rodnyansky, Chief Executive Officer and President, stated, “It is with great pleasure that we announce the results of the second quarter - results which demonstrate that our company continues to build on its foundation of success. In the past six years, CTC Media has grown from a private company, operating a single free-to-air channel, to a diversified vertically integrated public media holding with five channels in three countries and in-house production capabilities. We are proud of these achievements, and we are even more proud that the growth of CTC Media has continued. In fact, in the second quarter, we grew faster than the overall Russian advertising market. These results speak to the ability of our management teams to outperform the market and deliver outstanding financial results.”

“Our results for the quarter include the financial and operating performance of all recently acquired businesses and reflect the successful execution of our growth strategy in Russia and the CIS. In the second quarter, our flagship CTC channel once again proved its ability to connect with Russian viewers in the highly competitive environment of the Russian television market. CTC increased its target demographic audience share which was effectively monetized in the quarter. As we approach the fall season, we expect to benefit from CTC's competitive programming schedule which is anchored by our established formats and brands. The season's premiers will include new and proven formats, with more than 25% of CTC's fall programming line up being produced in-house through our production companies. We have high expectations for the sequels of sitcoms and series, such as My Fair Nanny , The Cadets , Ranetki and Daddy's Girls , which have garnered high ratings with CTC's target demographic.”

Target Audience Shares for the Three Months and Six Months Ended June 30, 2007, and June 30, 2008

 


Average Audience Shares, %

 


Q2 2007

 


Q2 2008

 


6M 2007

 


6M 2008

CTC Network

 


 


 


 


 


 


 


•  target demographic (all aged 6-54)

11.2

 


11.6

 


11.3

 


11.5

Domashny Network

 


 


 


 


 


 


 


•  target demographic (females aged 25-60)

2.4

 


2.7

 


2.3

 


2.8

DTV Network

 


 


 


 


 


 


 


•  target demographic (all aged 18+)

1.9

 


1.7

 


1.9

 


1.8

Channel 31

 


 


 


 


 


 


 


•  target demographic (all aged 6-54)***

N/A

 


13.3

 


N/A

 


10.3

***Audience share data for 2007 N/A due to absence of personal people meter measurements in Kazakhstan prior to July 2007

Recent Acquisitions

CTC Media acquired its interest in the Channel 31 Group on February 29, 2008 and acquired the DTV Group on April 16, 2008. As a result, total operating results for the three and six months ended June 30, 2008 include the operations of the Channel 31 Group for four months and the operations of the DTV Group for three months. Total operating results for the three and six months ended June 30, 2008 also include the operations of two Russian production companies, Costafilm and Soho Media, acquired in April 2008.

Results for the Three Months Ended June 30, 2008

US$ million

Organic Results****

 

 


Non-Organic Results*****

 


Total CTC Media Group

Revenues

156.8

 


16.0

 


172.8

OIBDA

70.2

 


3.2

 


73.4

OIBDA margin

44.8%

 


20.4%

 


42.5%

Net Income

48.3

 


0.5

 


48.8

****Organic results include combined results of operations of CTC Network, Domashny Network, CTC Television Station Group, Domashny Television Station Group and Corporate Office
***** Non-organic results include results of operations of recent acquisitions: Production Group (Soho Media and Costafilm production companies), DTV Group and CIS Group (Channel 31 Group)

CTC Media's total operating revenues for the three months ended June 30, 2008 increased 54.1% to $172.8 million from $112.1 million for the three months ended June 30, 2007. The increase in revenues reflects the continued growth of the Russian television advertising market and higher advertising rates, as well as the impact of acquisitions, primarily of the DTV Group in the second quarter of 2008 and several regional stations acquired in the third and fourth quarters of 2007. Increases in the price of television advertising were driven in part by a decrease in the amount of advertising permitted to be broadcast under Russian law effective January 1, 2008. The company estimates that the appreciation of the Russian ruble against the US dollar resulted in an approximate 9.5% increase in total operating revenues when comparing the three-month periods.

CTC Media's organic operating revenues, which include combined operating revenues of CTC Network, Domashny Network, CTC Television Station Group and Domashny Television Station Group, increased 39.8% to $156.8 million in the first quarter 2008 from $112.1 million in the first quarter of 2007.

CTC Media’s non-organic revenues, which include combined operating revenues from the DTV Group, the CIS Group, and its Soho Media and Costafilm production companies, was $16.0 million in the second quarter of 2008. Out of these revenues, the DTV Group contributed $14.1 million and the Channel 31 Group contributed $1.7 million. Revenues generated by the production companies were eliminated in consolidation.

Consolidated total operating expenses in the second quarter of 2008 increased 53.7% and amounted to $102.7 million compared to $66.9 million in the second quarter of 2007. The main drivers were:

Direct operating expenses in the quarter increased from $4.6 million to $8.6 million primarily due to the acquisition of the DTV Group ($2.1 million) and increased transmission and maintenance costs at our Domashny and CTC owned-and-operated stations.

Selling, general and administrative expenses in the quarter increased from $17.0 million to $24.5 million primarily due to annual increases in salaries and benefits and increases in headcount, as well as the acquisitions of the DTV Group ($1.9 million), its interest in the Channel 31 Group ($1.4 million) and two production companies, Costafilm and Soho Media ($1.6 million).

Amortization of programming rights expense in the quarter increased 64.4% from $37.6 million to $61.8 million. The increase was primarily driven by:
•  higher programming costs at CTC and Domashny (particularly for foreign movies and Russian-produced series and shows);
•  the acquisition of the DTV Group ($4.1 million) and an interest in the Channel 31 Group ($1.3 million);
•  increased impairment charges ($4.0 million in the second quarter of 2008 up from $1.1 million in the same period last year), primarily due to the relative underperformance of a Russian-produced series, Heartbreakers, launched in the second quarter of 2008;
•  the change in programming rights amortization rates for Russian-produced series with twenty or more episodes.

Starting from the second quarter of 2008, CTC Media has changed its previous programming rights amortization policy for Russian-produced series with twenty or more episodes. The company's previous policy was to amortize 60% after the first run, 30% after the second run and 10% after the third run when the license provides for three or more runs. After introduction of the new programming rights amortization policy, series with twenty or more episodes are amortized 75% after the first run and 25% after the second run, which is reflective of the company's anticipated programming schedule. The effect of the change in amortization policy amounted to an additional $5.7 million of amortization of programming rights expense in the three months ended June 30, 2008, or 15.1% of the related expense increase in the quarter.

Amortization of sublicensing rights expense increased from $1.5 million to $4.4 million when comparing the three months ended June 30, 2007 and 2008, principally due to an increase in sales of Russian series in Ukraine.

Depreciation and amortization expense decreased from $6.1 million to $3.4 million when comparing the three months ended June 30, 2007 and 2008, principally due to a change in the way in which the company accounts for its broadcasting licenses. As of January 1, 2008, CTC Media no longer amortizes broadcasting licenses over a 5-year useful life but treats them as intangible assets with an indefinite life and tests them annually for impairment.

Consolidated OIBDA increased 42.8% to $73.4 million for the second quarter of 2008 compared to $51.4 million in the second quarter of 2007. The consolidated OIBDA margin for the quarter was 42.5% compared to 45.9% in the corresponding quarter of 2007. Organic OIBDA for the three months ended June 30, 2008 was $70.2 million (up 36.5% from the same period last year), corresponding to a 44.8% organic OIBDA margin.

Consolidated net income increased 59.1% to $48.8 million for the three months ended June 30, 2008 from $30.7 million for the three months ended June 30, 2007. Organic net income for the quarter was $48.3 million, up 57.4% from the same period last year.

Fully diluted income per share was $0.31 for the three months ended June 30, 2008, compared to $0.19 for the three months ended June 30, 2007.

Results for the Six Months Ended June 30, 2008

US$ million

Organic Results

 

 


Non-Organic Results

 


Total CTC Media Group

Revenues

292.9

 


16.6

 


309.5

OIBDA

125.6

 


3.1

 


128.7

OIBDA margin

42.9%

 


18.7%

 


41.6%

Net Income

90.3

 


0.2

 


90.5

CTC Media's total operating revenues for the six months ended June 30, 2008 increased 43.1% to $309.5 million from $216.3 million for the six months ended June 30, 2007. The increase in revenues reflects the continued growth of the Russian television advertising market resulting in higher advertising rates, and the impact of acquisitions, primarily of the DTV Group acquired in the second quarter of 2008, and several regional stations acquired in the third and fourth quarters of 2007. The company estimates that the appreciation of the Russian ruble against the US dollar resulted in an approximate 9.1% increase in total operating revenues when comparing the six-month periods.

CTC Media's organic operating revenues, which include the combined operating revenues of CTC Network, Domashny Network, CTC Television Station Group and Domashny Television Station Group, increased 35.4% to $292.9 million in the first six months of 2008 from $216.3 million in the first six months of 2007.

CTC Media's non-organic revenues, which include the combined operating revenues from the DTV Group, the CIS Group, and its Soho Media and Costafilm production companies, were $16.6 million in the first six months of 2008. Out of these revenues, the DTV Group contributed $14.1 million, and the Channel 31 Group contributed $2.4 million. Revenues generated by the production companies were eliminated in consolidation.

Consolidated total operating expenses for the six months ended June 30, 2008 increased 40.7% to $186.4 million from $132.5 million for the six months ended June 30, 2007. In absolute terms, total operating expenses went up primarily due to increased direct operating expenses mainly associated with transmission and maintenance; increased selling, general and administrative expenses primarily associated with the DTV Group and the CIS Group; and increased programming rights amortization expense, which was driven by higher programming costs, introduction of a new, more accelerated programming rights amortization policy for certain types of Russian-produced series starting in the second quarter of 2008, and increased impairment charges.

Impairment charges increased from $1.8 million to $9.1 million when comparing the six months ended June 30, 2007 and 2008. The increase in impairment charges was mainly due to the relative underperformance of two Russian series launched in the first quarter of 2008 and one Russian series launched in the second quarter of 2008.

Increase in total operating expenses was partially offset by a decrease in depreciation and amortization expense from $11.9 million in the first six months of 2007 to $5.6 million in the first six months of 2008, principally caused by a change in the way in which the company accounts for its broadcasting licenses starting January 1, 2008.

Consolidated OIBDA increased 34.4% to $128.7 million for the first six months of 2008 compared to $95.7 million for first six months of 2007. The consolidated OIBDA margin for the six month period was 41.6% compared to 44.3% in the same period last year. Organic OIBDA for the six months ended June 30, 2008, was $125.6 million (up 31.2% from the same period last year), corresponding to a 42.9% organic OIBDA margin.

Consolidated net income increased 53.9% to $90.5 million for the six months ended June 30, 2008 from $58.8 for the six months ended June 30, 2007. Organic net income for the quarter was $90.3 million, up 53.5% from the same period last year.

Fully diluted income per share was $0.57 for the six months ended June 30, 2008, compared to $0.37 for the six months ended June 30, 2007.

Guidance

For the full year ending December 31, 2008, the company currently expects to generate consolidated total operating revenues in the range of $650 to $700 million, with a consolidated OIBDA margin in the range of 42-46%. This updated guidance range includes expected revenues and OIBDA contribution from its CIS operations in Kazakhstan and Uzbekistan, the DTV Group and its production companies, all of which were acquired or launched earlier this year.

Organic Guidance

For the full year ending December 31, 2008, the company reconfirms its guidance for organic total operating revenues in the range of $600 to $650 million, with an organic OIBDA margin in the range of 45-48%. This guidance range does not include expected revenues and OIBDA contribution from its CIS operations in Kazakhstan and Uzbekistan, the DTV Group and its production companies.

Conference Call

The company will also host a conference call to discuss its second quarter 2008 financial results today, Tuesday, July 29, 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 +1 973 582 2741 (international) or 8108 002 531 1012 (Russia) and reference pass code 55184319 . A live webcast of the conference call will also be available on the investor relations portion of the company's corporate web site, located at www.ctcmedia.ru/investors. A replay of the conference call will be available through Tuesday, August 5, 2008, at midnight ET. The replay can be accessed by dialing +1 706 645 9291 or +1 800 642 1687 . The passcode for the replay is 55184319 . The webcast will also be archived on the company's web site for two weeks.

About CTC Media, Inc.

CTC Media is a leading independent media company in Russia. It owns and operates the CTC television network, whose signal is carried by more than 350 affiliate stations, including 21 owned-and-operated stations; the Domashny television network, whose signal is carried by over 230 affiliate stations, including 13 owned-and-operated stations; and the DTV television network, whose signal is carried by a number of affiliate stations, including 3 owned-and-operated stations. CTC Media owns two TV content production companies: COSTAFILM and SOHO MEDIA, and operates Channel 31 in Kazakhstan and a TV company in Uzbekistan. The company’s common stock is traded on The NASDAQ Global Sel ect Market under the symbol: “CTCM”. For more information on CTC Media, please visit: www.ctcmedia.ru.

# # #

Contacts:

CTC Media, Inc.
Katya Ostrova (investors)
+ 7 495 783 3650
ir@ctcmedia.ru

Ivan Philippov (media)
+ 7 495 785 6333

Brainerd Communicators, Inc.
Jenna Focarino (media)
Michael Smargiassi (investors)
+1 212 986 6667

# # #

Certain statements in this press release that are not based on historical information are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, which include, among other things, guidance on the company's projected total operating revenues and OIBDA margin for the year ending December 31, 2008 on a consolidated and organic operations basis, expectations regarding the performance of our fall 2008 programming season at its networks and the company's ability to deliver operating results that outperform the growth in the market generally, reflect the company's current expectations concerning future results and events. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of CTC Media to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of CTC Media to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The potential risks and uncertainties that could cause actual future results to differ fr om those expressed by forward-looking statements include, among others, the company's ability to deliver audience share, particularly in primetime, to its advertisers; changes in the size of the Russian television advertising market; free-to-air television remaining a significant advertising forum in Russia; the company's reliance on a single television advertising sales house for substantially all of its revenues; and restrictions on foreign involvement in the Russian television business. These and other risks are described in the "Risk Factors" section of CTC Media's quarterly report on Form 10-Q filed with the SEC on April 30, 2008. Other unknown or unpredictable factors could have material adverse effects on CTC Media's future results, performance or achievements. In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed herein may not occur. You are cautioned not to place undue reliance on these forward-looking statements. CTC Media does not undertake any obligation to publicly update or revise any forward-looking statements because of new information, future events or otherwise.

# # #

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Second Quarter 2008 Results Press Release (pdf, 65KB)