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Financial Corporation "Sistema"

April 14, 2011

Sistema Mass-Media announces its financial results for 2010

April 14, 2010. Moscow, Russia. JSC “Sistema Mass-media” (hereinafter referred to as “SMM”), one of the largest media holdings in Russia and its dependent affiliated companies, today announces their unaudited consolidated financial results for the period ending December 31, 2010. SMM owns and manages CJSC “STREAM Television Company” (hereinafter referred to as TC Stream), CJSC “Russian World Studios” (hereinafter referred to as RWS), JSC “Maxima advertising” (hereinafter referred to as Maxima) and LLC “Digital TV Broadcasting” (hereinafter referred to as DTV Broadcasting).

SMM main financial results

Company revenue has increased 8,3%  comparing to 2009 to US$ 94,5 million;

OIBDA has reached US$ 40,5 million;

OIBDA margin has increased  59,3 pp and equaled to 42,9%;

Operating cash flow increased 5 times and is equaled to US$ 44,6 million;

By the end of 2010, net loss has decreased 3,4 times comparing to 2009 and equaled to US$ 15,3 million;

The debt has decreased 36,6% and reached US$ 95,7 million. 

Main operating results

The amount of channels produced by TC Stream increased to 9;

The amount of TC Stream’s subscribers has increased 7,4% and reached 5,8 million;

The amount of hours of RWS own production has increased 41,4% to 420 hours;

The amount of hours sold by RWS has increased 3 times and reached 364 hours;

RWS library volume has increased 53,1% and equaled to 1,210 hours;

The loading of RWS studios has increased 30 pp and reached 66,0%, which corresponds to average peak loadings in the industry.

Andrey Smirnov, the President of SMM, commented the results of the group in 2010:

 «Disclosure of SMM financial results is another step towards a greater transparency in media industry in general. Financial transparency of the key market players is a necessary requirement for making the industry clearer for understanding and more attractive for investors. It’s great to see, that the industry strengthened and has gradually recovered from the consequences of the global financial crisis. Together with that SMM has managed to improve the key financial and operating indicators.

In 2010, the company demonstrated growth of all key indicators compared with the preceding year. The revenue increase was 8,3%, operating cash flow have increased by 5 times. Such positive results are a consequence of professional management work and a cost effective asset management.

Today the company occupies one of the leading positions in the media market and is planning its activities in three main strategic directions: television, content production and provision of advertising services. We shall keep on intensifying our efforts in order to strengthen our positions in each of the stated market segments and creating maximum value for the shareholders.

Financial results of the company’s activities

Metrics*

2009

2010

change

Revenue

87,2

94,5

8,3%

OIBDA

-14,3

40,5

-

OIBDA margin, %

-16,4%

42,9%

59,3 pp

Net loss

-51,7

-15,3

-

Debt

150,8

95,7

-36,5%

Operating cash flow

8,2

44,6

443,9%

*  US$, mln., except OIBDA margin. Unaudited results, US GAAP.

Revenue

By the end of the reporting period the company revenue has reached US$ 94,5 mln., up 8,3% from 2009. The revenue growth came from the increased film sales, including sales of serials in CIS countries, as well as an increase of content distribution and aggregation as a result of growth of TC Stream.

OIBDA and Net Income

OIBDA indicator, calculated as operating income before depreciation and amortization of intangible assets, has reached US$ 40,5 million in the reporting period. Such result is a direct consequence of revenue growth and optimization of Selling, general and administrative expenses (SG&A), which constitute 47,0% of operating expenses. OIBDA margin has increased 59,3 percentage points and equaled to 42,9%.

Net Income increase corresponds to OIBDA increase.

Cash flow and liquidity

As a result of RWS and TC Stream revenues, an increased transit turnover of Maxima (money intended for the contractors producing advertisement) and collection of receivables in 2009 (the revenue of the 4th quarter of 2009 equaled to a record sum of US$ 44,6 million and the money were transferred to the bank account in the 1st quarter of 2010), the operating cash flow in 2010 has increased 5 times, reaching US$ 41,6 million.

Investment expenses in 2010 equaled to US$ 52,0 million, which exceeds the similar indicator in the previous year 37,3%. The increased investments are a result of increased capital expenditures to finance the films and content production which corresponds to the development of the these sectors and to the general growth of production.

The necessity in external financing of operating and investment activities in 2010 has reduced by US$ 21,6 million and equaled to US$ 7,4 million, which was a consequence of increase of own cash flow.

As a result of reducing the need in external financing of operating, investment and financial activities, the repayment of the loans and interests previously taken has prevailed in 2010.

Financial results in different business segments

Company name

Revenue*

 

OIBDA*

 

Net Income*

 

 

 

change

2009

2010

change

2009

2010

change

2009

2010

SMM  (managing company)

6,1

0,8

(86,9%)

(4,5)

(10,3)

-

(0,7)

(14,4)

-

TC Stream

12,0

16,3

35,8%

1,7

6,0

252,9%

(0,4)

3,2

-

RWS

51,5

64,8

25,8%

32,2

46,1

43,2%

(4,5)

1,6

-

Maxima

16,6

11,8

(28,9%)

(0,9)

(2,9)

-

(0,8)

(2,7)

-

DTV broadcasting

0,5

0,2

8,1%

(32,0)

1,7

-

(23,8)

2,7

-

Thema Production

0,5

0,2

(59,7%)

(10,8)

(0,1)

-

(21,5)

(5,7)

-

TOTAL

87,2

94,5

8,3%

(14,3)

40,6

-

(54,5)

(15,3)

-

*  US$, mln., Data provided by unaudited reports of US GAAP.

 

TC Stream demonstrates the revenue increase of 35,8%, which is caused by an organic growth of the company - subscribers incremental growth has reached 0,4 million, and also by means of a quick transfer of aggregation service to Moscow which happened quicker than expected.

RWS also demonstrates an increased revenue – in 2010 the increase in revenue has exceeded the similar indicator in the previous year by US$ 13,3 million, which is 25,8%. OIBDA increase in 2010 has reached US$ 13,9 million or 43,2% in comparison with the similar indicator of the previous year. The industry’s successful recovery from the crisis and its consequences have led to production and selling of a greater amount of TV series’ hours than in the previous year.

Also, a successful reorganization of Advertisement agency Maxima has provided a possibility to increase the number of clients in 2010 and formed a basis for improving results in 2011. This is  supported by the tenders won in 2010.

Company DTV Broadcasting is now being in the process of restructuring. In 2011 it is planned to develop a service of television broadcasting in automobile segment in DVB-T format on the territories of Moscow and Moscow region. A new broadcasting license was obtained in the end of 2010 to develope automobile broadcasting.

Company Thema Production has been sold in the mid-2010, since an international film production is implemented through the capacities of RWS.

Operating results

Indicator

2009

2010

change

Amount of channels (TC Stream)

8

9

12,5%

Amount of subscribers (TC Stream), millions

5,4

5,8

7,4%

Revenues from external customers (TC Stream), %

76,1%

77,6%

1,5 pp

Own production (RWS), hours

297,0

420,0

41,4%

Sold content (RWS), hours

120,0

364,0

203,3%

Library(RWS), hours

790,0

1210,0

53,1%

RWS studios loading ratio (Moscow)

36,0%

66,0%

30 pp

RWS studios loading ratio (St. Petersburg)

48,0%

66,0%

18 pp

Agency billing (Maxima), million. $

204,4

52,9

(74,1%)

Television

In SMM the business development of TV broadcasting is carried out by TC Stream. Presently, TC Stream is one of the market leaders in production of niche off-the-air channels in Russia, an aggregator of television content and a supplier of modern television services. TC STREAM produces 9 television channels and aggregates more than 100 channels in COMSTAR-OTC network in Moscow and Moscow region. The main revenue from channel distribution of the company (up to 77,6%) is received from provision of services to the external clients outside Sistema. In 2010 the general subscribers database of Stream channels has grown 7,4% in comparison to similar period of the preceding year and equaled to 5,8 million of subscribers. The advertisement revenue equaled to 31,2 million rubles.

DTV Broadcasting is a mobile television operator (DVB-T format) in the segment of automotive signal reception in Moscow.

The preparation for launching automotive TV project continued in 2010. The projects for technical advancement of the service were developed, the necessary broadcasting licenses were prolonged and a thorough market research was carried out.

Film and TV production

In SMM the business development of film and TV production is done by RWS. Company is one of the leading producers of film and television content and also is very active in the development of distribution of its production, having one of the biggest content libraries in Russia. Managing the most advanced private studios in Russia and St. Petersburg with a total square of 22,000 m², the company is one of the leading suppliers of services in the  film production segment.

The amount of hours, produced by RWS in 2010, has reached 420, which is 41,4% more than in the preceding year. Also, in 2010 the major TV channels in Russia have broadcasted 364 hours of RWS production.

The company has also reached significant results in part of international cooperation with the major film making studios in the world after becoming the organizational partner of Paramount Pictures during the production of «Mission Impossible-4».

During 2010 RWS has actively expanded its production volumes and by the end of the year this resulted with a 53,1% increase of the RWS library in comparison with the reporting results of the previous year, and equaled to 1,210 hours. As of April 1, 2010 the RWS library was estimated by SRG-Appraisal at 1,8 billion rubles. As of December 31, 2010 the carrying value of intangible assets of RWS equaled to 2 billion rubles (according to RAP).

In 2010 the pool of clients of the company has continued to expand. Among the list of new clients are television channels such as “REN”, “Domashiniy” and major Ukraine television channel “Inter”. RWS production sales are not limited to Russian Federation and CIS countries; it is also sold in Baltic States, Israel, Germany and India.

RWS also deals with managing film studio complexes. At present, the company owns film studios in Moscow and St. Petersburg with a total square of 11,000 m² each. In comparison to 2009, the studio loading in 2010 increased by 30 percentage points in Moscow and by 18 percentage points in St. Petersburg, which restored the studio to pre-crisis loading level.

SMM – is the only managing company in Russia with the experience in actual construction of a modern film studio complex. In 2010, SMM together with VGTRK (Russian national television and radio broadcasting company) became a co-founder of JSC “Lenfilm XXI” that is now creating the second stage of film studio complex in St. Petersburg with estimated investment volume of over 4 billion rubles during 2010-2014.

Advertisement

In SMM the business development of advertisement is carried out by Advertising agency Maxima. Maxima is one of the largest non-network full-service advertisement agencies, which is working in the field of media buying and selling of a number of  companies of Sistema and its other external clients.

During 2010 the company was restructured. However in 2010 the company has won several major tenders (MTS, MSK, RF Pension fund, European Union) and has continued its work in its standard mode in the 4th quarter. At present the agency actively participates in market tenders and acquires new clients.

Social activities

In its fight against distribution of illegal content in 2010, SMM became a founder and an active participant of the movement «Piratu.net!» and also has organized a series of round tables, causing a serious resonance in the widest layers of society – starting from the governmental structures and  movie industry professionals and ending up with the internet societies and their audience.

In addition to the support of legislative and community initiatives to combat Internet piracy, SMM takes a number of practical measures to protect intellectual property. For example, in December 2010 the Moscow Arbitration Court satisfied the claim of SMM in the case of infringement of intellectual property rights by an online store Video.ru

Also, in 2010 the company became one of the organizers of the project for implementation of Completion Bond services in Russia and the official partner of the National Film Commission.

During the reporting period RWS was actively participating in educational programs, organized by Russian University of acting and film production (Moscow) and Film and Television University (St. Petersburg). Master-classes were organized for the students of those universities providing them with an opportunity to film their graduation works in the RWS studios.

In 2010 SMM and RWS entered into a strategic partnership with the Federal Fund for social and economic support of the national cinema.

In 2010, RWS started filming the national-patriotic film "Vasilisa", that was later recognized by the Board of Trustees of the State Film Support Fund as a socially significant project. "Vasilisa" is a Russian-French project. Roles shall be given to Russian and French actors, the filming will take place in Russia and France, the appointed movie director is Dmitry Meshiev and French Ambassador to Russia Jean de Gliniasty shall be a consultant. The release of the movie is preliminary expected to coincide with the 200-year anniversary of the Russian-French war ending.

 Outlook for 2011

SMM is planning an intensive development in all of its directions in 2011 by means of organic businesses growth as well as by M&A processes.

In "Television" sector, SMM plans to increase a subscriber base of their own off-the-air TV channels in external networks in 2011, including the expansion in the MTS networks. Also, aiming to expand its automotive television trend, the expansion of a TV broadcasting area is planned together with increasing the amount of channels, improving the quality of the service by switching to broadcasting in MPEG-4 format. Following the newest trends of media business development, SMM plans to actively develop the content services in the IP environments with a multi-platform access.

In the “Film and TV production” sector the company will continue to actively raise the volumes of serial production and its distribution to various platforms. Increasing of the volume of repeat sales (the rights for such sales will be freed in the period of one year) is also assumed.

The key initiatives in "Advertising" sector are the expanding the Buying services, increasing of agency’s staff and an active participation in tenders, as well as running sales-house for sale of advertising opportunities.

 Major important events after the reporting period

In “Television” sector the key event was the change in company management and the appointment of Konstantin Zakharov as a CEO of TC STREAM.

Attraction of a new client – TRK channel in Ukraine– in 2011 (“Film and TV production” sector) became a noticeable event for the company, as well as the expansion of distribution geography and entering the market of Moldova. Also the series repeat sales in 2011 started to become more and more popular, since their rights began to be freed after one year since they were firstly sold in 2010.

In “Advertisement” sector, the contract for placement of TV advertising signed with MTS entered into force in March 2011. In addition, in 2011 the Advertising agency Maxima has attracted new clients: “MayiTee”, Lisma TV, MCTN (Moscow City Telephone Network) and other companies.

 

 

 

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