OREANDA-NEWS. November 09, 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 third quarter and nine months ended September 30, 2009, reported the press-centre of CTC Media.

THIRD QUARTER FINANCIAL HIGHLIGHTS
Total revenues down 4% year-on-year in ruble terms
Russian advertising revenues down 4% year-on-year in ruble terms
Total operating expenses flat year-on-year in ruble terms 
OIBDA of US 38.2 million with an OIBDA margin of 35.7%
Net income of US 25.9 million and fully diluted earnings per share of US 0.16
Net cash position of US 55.9 million  
 
THIRD QUARTER OPERATING HIGHLIGHTS
Average combined 4+ audience share in Russia up year-on-year to 13.6% from 13.2%

Target audience shares up year-on-year for all three Russian networks

CTC 6-54 audience share of 13.2% in September was at highest level since 2006

Anton Kudryashov, Chief Executive Officer of CTC Media, commented: “We continued to outperform the Russian television advertising market in the third quarter, with our Russian advertising sales declining by 4% year-on-year in ruble terms. Video International has estimated that the Russian television advertising market was down 21% year-on-year in the quarter, due to the impact of the ongoing economic crisis on advertising spending levels.

“Our increased investment in programming ahead of the highly competitive fall season proved successful and resulted in higher ratings in the third quarter for all three Russian networks. The CTC Network’s target audience share rose to 13.2% in September, which is the highest monthly average since 2006. We were also able to effectively monetize this additional inventory with a sell-out ratio of 97% in the quarter and increased advertising market shares. Furthermore, we reduced our non-programming costs further year-on-year and were therefore able to maintain a flat cost base and deliver a healthy margin for the quarter.

“We have continued to build on these target audience share gains in the fourth quarter, albeit not at the exceptional levels achieved in the third quarter. We therefore currently expect that our Russian advertising revenues will be down by between 4% and 6% year-on-year in ruble terms for the full year 2009, compared to the estimated television advertising market decline of over 20%. Furthermore, we still expect our organic costs to be flat year-on-year for the full year. We have significantly enhanced our competitive market position in the year to date, but  visibility continues to be limited moving forward and we expect overall market conditions to remain challenging in 2010.”

Operating Review
Total operating revenues for the three months ended September 30, 2009 were down by 25% year-on-year in US dollar terms. The third quarter results in both 2008 and 2009 included full quarterly contributions from 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 22% on the Company’s ruble-denominated sales. Advertising sales in Russia, which accounted for 95% of total third quarter revenues in both 2009 and 2008, were down 4% year-on-year in the third quarter in ruble terms.

The year-on-year development in advertising revenues for the Russian Television Station Groups once again reflected a sharp decline in the regional Russian advertising markets and was due to the weighting of spending by large advertisers towards national campaigns, resulting in significant decreases in regional advertising rates compared with national rates.

CIS Group revenues were down by 33% year-on-year in the third quarter of 2009 primarily due to the year-on-year depreciation of the Kazakh tenge against the US dollar, lower sell-out ratios and decreased audience shares, which were partially offset by increased advertising rates. Channel 31 generated over 90% of CIS Group revenues in the quarter.

Share of Viewing in Target Demographics
Each of the Russian networks delivered higher target audience shares in the third quarter and improvements year-on-year, which reflected a successful beginning to the new Fall season.

The increased ratings for the flagship CTC Network reflected the successful launch of the new Fall season programming. The target audience share in September averaged 13.2%, which was the highest monthly average since 2006. Major audience share drivers included the new seasons of the ‘Daddy’s Girls’ sitcom and ‘Ranetki’ series, as well as the premier season of the‘Margosha’ series, which is based on the Argentine ‘LaLola’ format. All of these prime-time shows were produced in-house and gained audience shares above the average audience share for the channel. The broader programming schedule that included a number of locally produced premier shows and infotainment programs also supported the positive viewing share development.

Domashny’s audience share also increased year-on-year from 2.8% to 3.2% due to the continued strong performance of re-runs of CTC hit series ‘Born Not Pretty’, which was supported by a successful line-up of movies and documentaries and enhanced weekend programming. The recently launched new season of ‘Desperate Housewives’ is also gradually increasing its share of viewing.

DTV has been focused on the 25-54 year-old target group since January 2009 and increased its viewing share in the third 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 series. DTV continues to work on refining its channel positioning and introduced a number of locally produced short cycles of programs in various genres oriented towards the target demographic.

Channel 31 maintained its position as the second-most watched broadcaster in Kazakhstan in the third quarter, with a well-balanced mix of CTC-branded, international and locally produced Kazakh content.

Expenses
Total operating expenses for the three months ended September 30, 2009 were down 22% year-on-year in US dollar terms and included full quarterly contributions from DTV Group and Channel 31 Group in both 2008 and 2009. The reported decrease in expenses reflected the year-on-year depreciation of the Company’s ruble and other operating currencies against the US dollar reporting currency while, in ruble terms, total operating expenditure was flat year-on-year.
Direct operating expenses were down 24% year-on-year in the third quarter in US dollar terms, while selling, general and administrative expenses were down 38%. Stock-based compensation expenses, most of which were allocated to selling, general and administrative expenses, were down year-on-year to US 3.4 million in the third quarter of 2009 from \\$5.2 million in the same period of 2008.

Programming expenses decreased by 11% year-on-year and represented 39.8% of revenues, up  from 33.5% in the third quarter of 2008. The year-on-year increase in programming costs as a percentage of revenue reflected a decreased top-line and a relatively more expensive programming mix in the third quarter of 2009 compared to the third quarter of 2008, which were partially offset by the effect of changes in certain content amortization rates from the beginning of 2009. Increased investment in programming was connected with the launch of the Fall season schedule, including new episodes of successful in-house produced series and sitcoms on the CTC Network, new local entertainment and infotainment shows and programs, and top quality international movies.

The amortization rates for certain types of Russian-produced programming were changed with effect from the beginning of 2009, in order better to reflect expected revenue generation patterns. These changes in the amortization policy resulted in a decrease in amortization expenses of \\$0.4 million during the third quarter of 2009 compared with the third quarter of 2008. Excluding the impact of these amortization policy changes, programming expenses were down 10% year-on-year in the third quarter in US dollar terms.

The 59% 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. The decrease in costs was mainly due to the depreciation of the Russian ruble against the US dollar.

Consolidated OIBDA was therefore lower year-on-year at US 38.2 million (Q3 2008: US 55.0 million) and the OIBDA margin declined to 35.7% (Q3 2008: 38.4%).

Group depreciation and amortization charges decreased by 27.6% year-on-year to US 2.9 million (Q3 2008: US 3.9 million) in the third quarter, and consolidated operating income totaled US 35.3 million (Q3 2008: US 51.1 million).

The net interest expenses were down year-on-year by 85.7% to US 0.6 million in the quarter (Q3 2008: US 4.0 million) primarily due to partial repayments of principal amount of the Company’s syndicated loan in December 2008 and June 2009.

The Company’s pre-tax income amounted to US 35.2 million (Q3 2008: US 34.2 million) in the quarter. The effective tax rate decreased year-on-year in the third quarter to 26% (Q3 2008: 36%) 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 US 25.9 million (Q3 2008: US 21.0 million) in the third quarter and fully diluted earnings per share amounted to US 0.16 (Q3 2008: US 0.13). 

Cash Flow
The Company’s net cash flow from operations totaled US 75.7 million in the first nine months of 2009 (first nine months of 2008: US 94.1 million) and reflected the net effect of lower advertising sales and lower spending for programming and sublicensing rights in the first half of 2009.

Cash used in investing activities totaled US 23.9 million during the first nine months of 2009 (first nine months of 2008: US 411.5 million) and included US 11.0 million in payments related to the acquisitions of Costafilm and Soho Media, as well as purchases of equipment and software for the Company’s new digital broadcasting center in Moscow. The investments in the first nine months of 2008 included the acquisition of  DTV Group in Russia, 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 US 36.5 million for the first nine months of the year (first nine months of 2008: US 55.5 million). This included a US 33.8 million part repayment of a syndicated loan, which the Company drew down in July 2008 in order to finance the acquisition of DTV Group.

The Company’s cash and cash equivalents amounted to US 112.6 million at September 30, 2009, compared to US 98.1 million at the end of 2008 and US 54.3 million at September 30, 2008.

Borrowings
The Company’s total borrowings and accrued interest amounted to US 56.7 million (September 30, 2008: US 124.6 million) at the end of the reporting period, compared to US 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 US 55.9 million (September 30, 2008: net debt of US 70.3 million) at the end of the reporting period, compared to a net cash position of US 7.5 million at the end of 2008.