CTC MEDIA, INC. [1] 2 OIBDA is defined as operating income before depreciation and amortization. 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.
Three Months | Three Months | |||||
Ended March 31, | Change | Ended March 31, | Change | |||
(RUB in million, US$ in million except per share data) | 2014 | 2015 | 2014 | 2015 | ||
Rubles | US Dollars | |||||
Total operating revenues | 6,546.3 | 4,917.9 | (25)% | $186.2 | $79.1 | (58)% |
Including: | ||||||
Advertising revenues | 6,487.2 | 4,807.2 | (26)% | 184.6 | 77.4 | (58)% |
Total operating expenses | (4,833.4) | (4,615.6) | (5)% | (138.1) | (74.3) | (46)% |
OIBDA2 | 1,985.9 | 521.7 | (74)% | 56.0 | 8.4 | (85)% |
OIBDA margin2 | 30.3% | 10.6% | (19.7)pp | 30.1% | 10.6% | (19.5)pp |
Net income attributable to CTC Media, Inc. stockholders | 1,119.8 | 511.6 | (54)% | 31.2 | 8.4 | (73)% |
Fully diluted earnings per share | nm | nm | $0.20 | $0.05 | ||
Average Target Audience Shares (%) | |||||
Q1 2014 | Q4 2014 | Q1 2015 | |||
CTC Channel (all 10-45) | 10.8 | 9.7 | 8.3 | ||
Domashny Channel (females 25-59) | 3.1 | 3.1 | 3.4 | ||
Peretz Channel (all 25-49) | 2.4 | 2.0 | 1.9 | ||
Channel 31 (all 6-54) | 11.7 | 15.3 | 14.8 | ||
CTC Love (all 11-34) | nm* | 0.6 | 0.8 | ||
Our Russian channels' target audience shares continued to be affected by overall audience fragmentation and increased competition in the period. All larger national free‑to‑air TV channels in Russia were negatively impacted by increased competition from smaller niche and non‑free‑to‑air channel viewership in the "All 4+" category, which increased from 17.2% in 2013 to 18.4% in 2014 and 20.3% in the first quarter of 2015.
In the three months ending March 31, 2015, CTC channel maintained its place as the third most-watched broadcaster in Russia in its target demographic of 10 to 45 year old viewers. CTC channel's average target audience share among 10 to 45 year‑old viewers decreased year‑on‑year in the first quarter of 2015 from 10.8% to 8.3%. In the current market conditions, the channel's high-quality premieres were shifted to the second half of 2015 when spending levels are expected to be appropriate for effective monetization.
Domashny channel's target audience share among 25‑59 year‑old female viewers increased year‑on‑year in the first quarter of 2015 from 3.1% to 3.4%, reflecting the qualitative structural changes in the programming schedule following the channel's restyling, and the success of content in weekend, primetime and daytime slots, partially offset by the effect of audience fragmentation. Domashny channel continues to grow its core female audience segment and enhance the commercial attractiveness of its demographic profile.
Peretz channel's target audience share among 25 to 49 year‑old viewers decreased year‑on‑year in the first quarter of 2015 from 2.4% to 1.9%, primarily reflecting increased competition from the channels that broadcast political news on the situation in Ukraine starting from March 2014. Peretz channel is currently in the process of repositioning, including changing its content strategy and transforming the channel to be more attractive to its target audience and advertisers.
Channel 31's target audience share among 6 to 54 year‑old viewers increased year‑on‑year in the first quarter of 2015 from 11.7% to 14.8%, reflecting successful changes in the programming schedule aimed at increasing the volume of local‑language programming, as well as better performance of foreign content.
CTC Love, a new young entertainment channel in Russia with a core audience of ages 11-34, launched in April 2014 on cable and satellite networks and broadcasting free-to-air, since January 2015, has been part of the TNS ratings database since September 2014. The audience share of CTC Love among its all 11-34 target demographic was 0.8% in the first quarter of 2015; CTC Love technical penetration in 100+ cities is approximately 56%. The channel has managed to capture advertising sales in the first quarter of 2015 and the Company expects significant advertising sales growth in 2015.
Total operating revenues decreased by 25% in ruble terms in the first quarter of 2015. This was primarily driven by the 21% year-on-year decrease in the Russian television advertising market, lower year‑on‑year target audience share of CTC channel and, to lesser extent, a decline in the target audience share of Peretz channel. Positive drivers of revenue this quarter included our ability to command favorable advertising prices for our target audiences and the higher target audience share of Domashny channel. In addition, our new channel CTC Love contributed RUR 58 million to the group's revenue. Revenues as reported in U.S. dollars were materially negatively affected by the depreciation of the ruble.
Three Months Ended March 31, | Three Months Ended March 31, | |||||||
Change | Change | |||||||
(RUB in million, US$ in million) | 2014 | 2015 | 2014 | 2015 | ||||
Rubles | Dollars | |||||||
Operating revenues by segment: | ||||||||
CTC Channel | 4,670.8 | 3,169.5 | (32)% | 132.9 | 51.1 | (62)% | ||
Domashny Channel | 986.3 | 872.7 | (12)% | 28.1 | 14.0 | (50)% | ||
Peretz Channel | 664.7 | 452.0 | (32)% | 19.0 | 7.3 | (62)% | ||
Channel 31* | 658.9 | 672.6 | 2% | 3.8 | 3.6 | (5)% | ||
All Other | 90.1 | 198.9 | 120% | 2.5 | 3.1 | 23% | ||
Total operating revenues | 6,546.3 | 4,917.9 | (25)% | 186.3 | 79.1 | (58)% | ||
CTC channel's revenues decreased by 32% in ruble terms when comparing the periods under review, largely reflecting the estimated decrease in the overall Russian television advertising market in the first quarter of 2015 and a decrease in the channel's target audience share, partially offset by our ability to command favorable advertising prices for our target audience.
Domashny channel's revenues decreased by 12% when comparing the periods under review, largely reflecting the joint effect of the estimated decrease in the overall Russian television advertising market in ruble terms, offset by an increase in target audience share.
Peretz channel's revenues decreased by 32% in ruble terms when comparing the periods under review, largely reflecting the estimated decrease in the overall Russian television advertising market in the first quarter of 2015 and a decrease in channel's target audience share, partially offset by our ability to command favorable advertising prices for our target audience.
Channel 31's revenues increased by 2% in Kazakh tenge terms when comparing the three‑month periods under review, reflecting the joint effect of an increase in target audience share and a 4% decrease in the estimated overall television advertising market in Kazakhstan in Kazakh tenge terms, as well as increased competition from smaller niche and non‑free‑to‑air channels as a result of strengthening of the Kazakh law on local‑language programming.
All other revenues in the first quarter of 2015 represent revenues of RUR 76.5 million from CTC-International, revenue of RUR 57.9 million from CTC Love, revenues of RUR 56.2 million from our digital media businesses and revenues of RUR 8.3 million from licensing.
Three Months | Three Months | |||||
Ended March 31, | Change | Ended March 31, | Change | |||
(RUB in million, US$ in million except per share data) | 2014 | 2015 | 2014 | 2015 | ||
Rubles | US Dollars | |||||
Operating expenses: | ||||||
Direct operating expenses | (408.3) | (466.9) | 14% | (11.7) | (7.5) | (35)% |
Selling, general & administrative expenses | (1,459.7) | (1,245.4) | (15)% | (41.6) | (20.1) | (52)% |
Programming expenses | (2,745.0) | (2,646.3) | (4)% | (78.6) | (42.6) | (46)% |
Stock-based compensation expense | 52.7 | (37.7) | 171% | 1.5 | (0.6) | 140% |
Depreciation & amortization | (273.0) | (219.4) | (20)% | (7.7) | (3.5) | (55)% |
Total operating expenses | (4,833.4) | (4,615.6) | (5)% | (138.1) | (74.3) | (46)% |
Our total operating expenses decreased by 5% in ruble terms when comparing the periods under review, mainly reflecting the joint effect of a decrease in programming expenses and selling, general and administrative expenses and increased stock-based compensation expense (discussed below).
Direct operating expenses increased by 14% in ruble terms in the first quarter of 2015, largely reflecting increased digital transmission costs for CTC and Domashny channels pursuant to the rollout plan for the second multiplex, transmission costs for our new channel CTC Love launched in the second quarter of 2014, and annual increases in analog transmission costs.
Selling, general and administrative expenses were down 15% in ruble terms in the first quarter of 2015, primarily due to decreases in compensation payable to Vi, reflecting decreased national advertising revenues at our Russian channels and reduced advertising and promotions expenses to address revenue decline, partially offset by increased legal and consulting expenses in connection with our response to the amendment to the Russian Mass Media Law.
Programming expenses were down 4% in ruble terms in the first quarter of 2015, reflecting a less expensive programming mix at our Russian channels to address current market conditions, partially offset by more expensive programming at Channel 31 in response to increased competition in Kazakhstan. We expect our programming expenses in ruble terms will be lower for the full year 2015 compared with the prior year.
Stock‑based compensation expenses increased by $2.1 million, primarily due to the recognition of stock-based compensation benefit in the first quarter of 2014, reflecting re-measurement of the equity‑based cash incentive awards granted to employees under our 2009 Stock Incentive Plan at their fair value as of the reporting date.
CTC Media's consolidated OIBDA was therefore down 74% year-on-year in ruble terms to RUR 521.7 million ($8.4 million) in the first quarter (Q1 2014: RUR 1,985.9 million, or $56.0 million). OIBDA margin was down year-on-year to 10.6% in the first quarter of 2015 (Q1 2014: 30.3%).
CTC Media's effective tax rate was (31%) and 15% for the three months ended March 31, 2014 and 2015, respectively. Our effective income tax rate in Q1 2015 was positively affected by a refund of income tax confirmed and reclaimed from Russian tax authorities based on our interpretation of certain positions taken in our historical income tax filings. Excluding this effect, our effective tax rate would have been 28% for the three months ended March 31, 2015.
Net income attributable to CTC Media, Inc. stockholders therefore was down 54% in ruble terms to RUB 511.6 million ($8.4 million) in the first quarter (Q1 2014: RUB 1,119.8 million or $31.2 million) and fully diluted earnings per share decreased to $0.05 (Q1 2014: $0.20).
Cash Flow
The Company's net cash (used in)/provided by operating activities decreased by $35.7 million, totaling ($3.3) million for the first quarter of 2015 (Net cash provided by operating activities Q1 2014: $32.4 million), primarily reflecting the lower cash receipts from advertising sales, and, to a lesser extent, the effect of the depreciation of the Russian ruble against the US dollar.
Net cash provided by investing activities totaled $68.6 million for the first quarter of 2015 (Q1 2014: $3.5 million) and mainly represented net receipts from cash deposits of $68.5 million.
Net cash used in financing activities amounted to $27.5 million for the first quarter of 2015 (Q1 2014: $27.4 million) and primarily reflected the payment of $20.4 million in cash dividends to the Company's stockholders and $6.9 million increase in other non‑current assets, which represent dividends payable to one of our stockholders that were blocked pursuant to US sanctions imposed on Bank Rossiya.
The Company's cash and cash equivalents and short-term investments and loan balance amounted to $108.0 million as of March 31, 2015, compared to $139.4 million at the end of the fourth quarter of 2014.
Dividends
The CTC Media Board of Directors considers dividends each quarter in light of market conditions, the Company's cash requirements and the Company's efforts to ensure compliance with the Mass Media Law. In light of current circumstances, the Board has decided not to declare a dividend to be paid in the second quarter of 2015. The Board believes that the interests of stockholders are best served by preserving the financial and strategic flexibility of the Company in the current market, operational and corporate circumstances. The Board will consider potential future dividends in light of market developments.
Update on the Mass Media Law
As previously announced, an amendment to the Russian Mass Media Law adopted in October 2014 will generally limit the aggregate foreign (non-Russian) beneficial ownership or control, direct or indirect, of Russian mass media, including television broadcasters, to no more than 20%. No amendments to or waivers from the Mass Media Law have been approved to date and therefore all mass media, including CTC Media's Russian broadcasting businesses, will be required to comply with these ownership and control limitations by January 1, 2016 (subject to a one-year grace period for offshore intermediate holding structures ultimately owned and controlled by Russian individuals or companies). The adoption of the Mass Media Law creates significant uncertainty for CTC Media and its stockholders.
The Board of Directors, through its Advisory Committee, and the management team are continuing to work with external legal, financial and tax advisors to evaluate and implement an appropriate response that achieves compliance with the new law while safeguarding the interest of all stockholders. Based on the input of external advisers, the Board and management have not to date identified an alternative that they believe would comply with the new law without a material change in the ownership of the group's Russian businesses or a sale or a buy back of a material portion of the common stock of the Company. Accordingly, as part of the Company's efforts in this regard, the Company's financial advisors have recently conducted an initial, formal process to identify and solicit offers from potential bidders; no offers have been received in that formal process. The Board of Directors and management are therefore continuing to review strategic options to achieve compliance with the new law, including exploring potential sale transactions with a limited number of third parties. If the Board identifies parties interested in acquiring the Company's assets or shares and decides to pursue such sale, there can be no assurance that it would be successful in negotiating a transaction on acceptable terms or at all. In particular, any transaction may not result in proceeds at a level that reflects the underlying value of the business, particularly in light of current market conditions and the limitation of the pool of potential purchasers to Russian persons that are not subject to applicable international sanctions. As a result, the value of the common stock of the Company could further decline, and you may lose all or a significant portion of your investment.
2015 Outlook
The Company currently has limited visibility regarding 2015 and therefore will not provide detailed full-year revenue and profit outlook at this time. The Company will review this position on a regular basis moving forward in the context of prevailing market conditions. Third party reports have estimated that total Russian TV advertising spending may decline by 22% in the second quarter of 2015 and by 20% to 25% for the full year 2015. CTC Media currently expects its total ruble revenues to be in line with the Russian TV advertising market as a whole in 2015, and to be adversely affected by the loss of anticipated sublicensing revenues in Ukraine as a result of the recently adopted Ukrainian law prohibiting the broadcast of certain Russian content produced after January 1, 2014. In light of market conditions, the Company has implemented significant cost savings and optimization measures, with the goal of reducing expenses in 2015, while ensuring a strong programming line-up for the second half of 2015. Nevertheless, in light of the overall market contraction, the Company anticipates that OIBDA in 2015 is likely to be materially lower than in 2014. In the absence of significant changes in the overall market, the Company anticipates that OIBDA margin for the full year will be broadly in line with results for the first quarter of 2015.
Conference Call
US/International: + 1 646 254 3367
UK/International: +44 (0) 20 3427 1915
Russia: +7 (8) 495 705 9450
Confirmation Code: 2590518
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.
About CTC Media, Inc.
CTC Media is a leading Russian independent media company, with operations throughout Russia and elsewhere in the CIS. It operates three free-to-air television networks in Russia - CTC, Domashny and Peretz - as well as CTC-Love in Russia and Channel 31 in Kazakhstan, with a combined potential audience of over 150 million people. The international pay-TV version of the CTC channel is available in North America, Europe, Central Asia, Armenia, Georgia, Azerbaijan, the Middle East and Kyrgyzstan. Peretz is also available in Belarus and Kyrgyzstan. CTC Media also has a number of digital entertainment media assets: videomore.ru, domashniy.ru, ctc.ru, peretz.ru. The Company's common stock is traded on the NASDAQ Global Select Market under the symbol "CTCM". For more information on CTC Media, please visit www.ctcmedia.ru.
***
For further information, please visit www.ctcmedia.ruor contact:
CTC Media, Inc.
Investor Relations
+7 495 981 0740
ir@ctcmedia.ru
Media Relations
+7 (495) 785 63 47 ext. 4352
+ 7 (985) 763 00 85
pr@ctcmedia.ru
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. 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 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 the Company's intangible assets were acquired in business acquisitions. The amortization of intangible assets is therefore also excluded from OIBDA.
Caution Concerning Forward Looking Statements
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 include, among others, statements regarding the impact of recent amendments to the Russian law "On Mass Media" and the Company's potential actions in response to this change in law, developments in the macroeconomic environment, including the impact of international economic sanctions; developments in the Company's market; and the Company's estimates for the development of the overall Russian TV advertising market and of its revenues, expenses and audience shares in 2015. These statements 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.
The potential risks and uncertainties that could cause actual future results to differ from those expressed or implied by forward-looking statements include, among others, the impact of recent amendments to the Russian law "On Mass Media" and the success of the Company's efforts to respond to this law; geopolitical events involving Russia and the other countries in which the Company operates, including any potential negative economic impact of such events; depreciation of the value of the Russian ruble compared to the US dollar; the effect of international economic sanctions; changes in the size of the Russian television advertising market compared with current estimates of anticipated market; the continued successful operation of the Company's own internal sales house structure; competitive pressures; the Company's ability to deliver audience share, particularly in primetime, to its advertisers; and free-to-air television remaining a significant advertising forum in Russia. These and other risks are described in the "Risk Factors" section of CTC Media's annual report on Form 10-K filed with the SEC on March 5, 2015, and its quarterly report on Form 10-Q to be filed with the SEC on or about the date hereof.
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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