CTC Media, Inc. Published Financial Results for The First Quarter Ended March 31, 2009
07 May 2009
Moscow, Russia – May 7, 2009 – CTC Media, Inc. (“CTC Media” or “the Company”) (NASDAQ: CTCM), the leading independent media company in Russia, today announced its unaudited consolidated financial results for the first quarter ended March 31, 2009.
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Three Months |
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Ended March 31, |
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(US$ 000's except per share data) |
2008 |
2009 |
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Change |
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Total operating revenues |
$136,746 |
$104,778 |
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-23.4% |
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Total operating expenses |
(83,714) |
(68,195) |
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-18.5% |
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OIBDA* |
55,236 |
39,16 4 |
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-29.1% |
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OIBDA margin |
40.4% |
37.4% |
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-3.0% |
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Net income attributable to CTC Media, Inc. stockholders |
41,713 |
23,312 |
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-44.1% |
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Diluted earnings per share |
$0.26 |
$0.15 |
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-42. 3 % |
*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. 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 income margin.
FINANCIAL & OPERATING HIGHLIGHTS
• Total operating revenues down 23% year-on-year to $104.8 million
• 29% negative foreign exchange rate impact on ruble denominated advertising revenues
• Consolidated organic operating expenses down 29% year-on-year to $58.4 million
• OIBDA of $39.2 million (Q1 2008: $55.2 million), with an OIBDA margin of 37.4% (Q1 2008: 40.4%)
• Net income of $23.3 million (Q1 2008: $41.7 million)
• Fully diluted earnings per share of $0.15 (Q1 2008: $0.26)
Anton Kudryashov, Chief Executive Officer of CTC Media, commented: “Our first quarter revenues included the consolidation of the broadcasting businesses acquired in 2008 and the year-on-year development reflected the deterioration of the advertising markets, as well as the substantial weakening of our operating currencies against the US dollar reporting currency. However, each of our networks increased its advertising market shares year-on-year in the first quarter. Our organic advertising revenues were down 10% year-on-year in ruble terms, which compares with an estimated 20% decline in the Russian television advertising market over the same period.”
“In addition, sublicensing and own production revenues now account for over 5% of total revenues following the growth in sales of in-house produced series and sitcoms to other broadcasters.”
“We have also managed to keep our underlying organic operating cost base flat year-on-year in ruble terms and to substantially reduce our programming expenses. The integration of our in-house content production businesses has enabled us to adopt a more flexible and cost-efficient approach to forward planning and scheduling.”
“We remain cautious in our outlook, given the adverse market conditions, but we are well-positioned to continue to outperform the Russian television advertising market in 2009. We are also continuing to work to optimize the cost bases of the organic and acquired businesses. We are generating cash with a healthy net debt free financial position and low capital investment levels.”
Operating Review
Revenues **
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Three Months |
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Ended March 31, |
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(US$ 000's ) |
2008 |
2009 |
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Change |
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Operating revenues: |
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CTC Network |
$97,831 |
$70,555 |
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-27.9% |
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Domashny Network |
15,467 |
10,567 |
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-31.7% |
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DTV Network |
— |
8,667 |
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CTC Television Station Group |
19,599 |
10,254 |
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-47.7% |
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Domashny Television Station Group |
3,199 |
1,739 |
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-45.6% |
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DTV Station Television Group |
— |
774 |
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CIS Group |
650 |
2,044 |
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214.5% |
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Production Group |
— |
178 |
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Total operating revenues |
$136,746 |
$104,778 |
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-23.4% |
** Segment revenues are shown from external customers only, net of intercompany revenues of $0.8 million in the first quarter of 2008 and $7.3 million in the first quarter of 2009, most of which reated to Production Group revenues ($5.9 million) eliminated in consolidation.
Total operating revenues were down 23% year-on-year in dollar terms and included a full quarterly contribution from Channel 31 in Kazakhstan , as well as contributions from DTV Group in Russia and the Company's operations in Moldova . The acquired operations added $0.7 million of revenue in the first quarter of 2008 and $11.7 million of revenue in the first quarter of 2009. The reported decline in revenues reflected the substantial year-on-year depreciation of the Company's ruble operating currency against the US dollar reporting currency, which had a negative impact of approximately 29% on the Company's ruble denominated advertising sales.
Organic revenue, when excluding the contribution of the acquired businesses in 2008 and 2009, was down 32% year-on-year in dollar terms. This reflected the year-on-year deterioration in the Russian television advertising market, and the regional television advertising markets in particular. However, each of the Company's networks increased its advertising market shares year-on-year.
Share of Viewing in Target Demographics
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Average Audience Shares (%) |
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Q1 2008 |
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Q4 2008 |
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Q1 2009 |
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CTC Network (all 6-54) |
11.4 |
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12.3 |
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11.4 |
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Domashny Network (females 25-60) |
2.9 |
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2.8 |
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2.6 |
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DTV Network (current target demographic: all 25-54) |
2.3 |
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2.3 |
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2.2 |
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DTV Network (target demographic prior to 2009: all 18+) |
1.9 |
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1.9 |
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1.9 |
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Channel 31 (all 6-54) |
7.5 |
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16.6 |
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12.7 |
The CTC flagship channel maintained its target audience share year-on-year and its position as the fourth most watched free-to-air channel in Russia . The Daddy's Girls and Ranetki formats continued to drive CTC's prime time audience share, while comedy sketch shows 6 Frames and the newly launched Go for it! proved successful with their target audience and a wider family audience on weekends. Following the launch of Kremlin Guards and a new season of Ranetki , the average target audience share in March 2009 increased to 12.5%.
Domashny's audience share declined slightly year-on-year due to the adjustment of the channel's programming grid, in order to target a higher proportion of younger and more affluent viewers.
DTV has been refocused since January 2009 to target 25-54 year old viewers, rather than the previously wider group of viewers over 18 years old. DTV's audience share in the revised target group increased in the first quarter of 2009 and the programming schedule again featured the successful Marital Fiction and Silent Witness series, as well as other criminal investigation and action formats.
The Company estimates that the previously announced change in the audience measurement system in Russia from the beginning of 2009, following the finding in an updated census that the relative percentage of children in the overall population has decreased, adversely impacted CTC's target audience share by approximately 0.7 percentage points but did not significantly impact Domashny's or DTV's target audience shares. As stated above, CTC successfully offset the impact and maintained its target audience share.
Expenses
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Three Months |
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Ended March 31, |
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(US$ 000's) |
2008 |
2009 |
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Change |
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Operating expenses: |
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Direct operating expenses |
$7,046 |
$7,347 |
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4.3% |
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Selling, general & administrative expenses |
18,818 |
18,322 |
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-2.6% |
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Amortization of programming rights |
54,423 |
36,883 |
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-32.2% |
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Amortization of sublicensing rights and own production cost |
1,223 |
3,062 |
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150.4% |
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Depreciation & amortization |
2,204 |
2,581 |
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17.1% |
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Total operating expenses |
$83,714 |
$68,195 |
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-18.5% |
Total operating expenses were reduced by 19% year-on-year in dollar terms. Organic expenses, when excluding the operations acquired since the beginning of 2008, were reduced by 29%. The acquired operations added $1.0 million of expenses in the first quarter of 2008 and $9.8 million of expenses in the first quarter of 2009.
The decrease in expenses reflected both the substantial year-on-year reduction in programming amortization expenses, as well as the depreciation of the Company's ruble operating currency against the US dollar reporting currency.
Organic direct operating expenses were down 35% year-on-year in dollar terms, while organic selling, general and administrative costs were down 15% due to the depreciation of the ruble against the US dollar, which was partially offset by a year-on-year increase in US dollar denominated stock-based compensation expenses from $3.1 million to $4.3 million. Organic programming expenses were down 37% year-on-year to represent 37% of revenues, compared to 40% in the first quarter of 2008. This decrease in programming expenses reflected the above mentioned currency effects, lower impairment charges, a change in the programming mix resulting in the broadcasting of lower cost series and shows, and the effect of a change in the Company's amortization policy for certain types of Russian produced programming with effect from the beginning of 2009. The increase in sublicensing and own production costs was consistent with the increase in sublicensing and own production revenue, due to the growth in sales of internally produced series and sitcoms to broadcasters in Ukraine .
Consolidated OIBDA was $39.2 million for the period (Q1 2008: $55.2 million) and the Group OIBDA margin was 37.4% (Q1 2008: 40.4%). Group depreciation and amortization charges increased by 17% year-on-year and primarily reflected the consolidation of the businesses acquired since the beginning of 2008. Consolidated operating income therefore totaled $36.6 million (Q1 2008: $53.0 million).
The Company reported net interest expenses of $1.1 million in the quarter (Q1 2008: net interest income of $3.8 million). The year-on-year development reflected the increase in the Company's borrowing levels during 2008. All of the Company's long-term borrowings are US dollar-denominated, as is the majority of the Company's cash deposits.
The Company's pre-tax income amounted to $31.3 million (Q1 2008: $57.9 million) in the quarter. The effective tax rate increased slightly year-on-year to 27% (Q1 2008: 26%) due to an increase in non-deductible expenses at the corporate level as a percentage of consolidated income before tax and the one-off deduction for certain advertising expenses in the first quarter of 2008, partially offset by changes in statutory tax rates. The Company's effective tax rate has been positively impacted by the decrease in the 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 $23.3 million (Q1 2008: $41.7 million) in the quarter and fully diluted earnings per share amounted to $0.15 (Q1 2008: $0.26).
Cash Flow
The Company’s net cash flow from operations totaled $27.8 million (Q1 2008: $28.8 million) and reflected the net effect of lower advertising sales and lower programming investments in the first quarter of 2009.
Cash used in investing activities totaled $13.0 million (Q1 2008: $58.8 million) and included $11.0 million paid in earnouts related to the acquisitions of the Costafilm and Soho Media production companies in April 2008. Cash used in investing activities in the first quarter of 2008 included $55.0 million related to the acquisition of a 60% economic interest in the Channel 31 Group.
The Company’s cash and cash equivalents therefore increased to $109.3 million at the end of the period, compared to $98.1 million at the end of 2008.
Borrowings
The Company's total borrowings and accrued interest amounted to $91.6 million (Q1 2008: $0.2 million) at the end of the reporting period, compared to $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 $17.7 million (Q1 2008: $287.5 million) at the end of the reporting period, compared to a net cash position of $7.5 million at the end of 2008.
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